Friday, August 21, 1998

Royalty payments in product instead of cash "not feasible"

By JIM O'CONNELL

Scripps Howard News Service

WASHINGTON - Industry-backed legislation to require the federal government to accept oil and gas royalty payments in product instead of cash "would not be feasible," a federal study has concluded.

The General Accounting Office, the research arm of Congress, concluded that the difficulties of transporting and marketing oil and gas from thousands of wells across the nation made the in-kind proposal unfeasible.

Rep. Mac Thornberry, R-Clarendon, has submitted legislation requiring the federal government to accept the in-kind royalty payments. Thornberry said his legislation would "put in place a fairer, simpler royalty system that minimizes confusion and maximizes the return for the federal government."

Thornberry considers the GAO study is "flawed" and "irrelevant," and continues to believe his legislation is the best way to fix the royalty payment system, said Thornberry's spokesman, Lou Zickar.

The federal government, through the Minerals Management Service, collected $4.1 billion in oil and gas royalties last year. About 83 percent of those royalties came from leases in the Gulf of Mexico, according to the GAO.

Companies generally pay royalties of between 12 percent and 17 percent of the value of production.

The Minerals Management Service has estimated that the Thornberry's legislation would cost the federal government between $140 million and $367 million annually.

Most land owners accept royalty payments in cash, but some lessors, including Texas and the University of Texas, accept in-kind payments.

But those agencies have easy access to an established gas and oil pipeline system and in-kind payments are accepted only from large producers to insure volumes offset administrative costs, the GAO said.

In contrast, "the federal government does not currently have relatively easy access to pipelines, has thousands of leases that produce relatively low volumes," the GAO said.