Royalty Management

Oil and Natural Gas Royalties
When developing oil and natural gas resources on government lands, companies pay the U.S. Department of the Interior royalties based on the value of the oil and gas actually produced. In 2007, the MMS collected $9 billion in oil and gas royalties. The bulk of this ($6.5 billion) came from offshore production, with oil production generating 60 percent of the royalty revenue. For federal onshore lands, gas production generated nearly 70 percent of the almost $2.6 billion in royalties. The MMS also collected over $800 million in bonus bids and rental payments to bring the total federal revenue collected by MMS from oil and gas leasing to approximately $9.9 billion.

Royalty in Kind Provides Mutual Benefits for Producers and the Government
The Minerals Management Service (MMS) can choose to receive the government's royalty share of oil and gas production on government lands either in cash or "in kind" (barrels of oil and cubic feet of gas). Until recently, royalty in kind accounted for only a small portion of the total royalties collected, but after exploring the option through several pilot projects, the MMS now takes a significant portion of its royalties in kind (RIK). For instance, in 2006, MMS took 72 percent of its oil royalties from the Gulf of Mexico as royalties in kind. RIK gives the government flexibility and the chance to enhance its revenues. RIK reduces the administrative burden for government and industry because it relies less on auditing and application of complex valuation methodologies. As the MMS and industry gain experience in RIK programs, more cost savings and benefits will continue to be realized.