The RIK Strategy
RIK is one of two
strategies used by MRM to manage the Nation’s substantial oil and gas
mineral royalty assets. Federal oil
and gas leasing laws and lease terms provide the Government with the option
of receiving production royalty payments either in value (RIV) or in kind.
In certain circumstances, it is to the advantage of the Government to
receive its royalty payments in kind; that is, in the form of oil or gas
production. MRM’s RIK Program
provides the capability both to identify opportunities for using the RIK
strategy and to manage the sale and disposition of oil and gas royalties
received in kind. Every aspect of
MRM’s RIK Program is governed by strong internal controls and a formal
risk management
policy modeled after commercial oil and
gas industry best practices. MRM’s
commodity sales activity uses commercially-based sales contracts, delivery
options, pricing methods, and sales terms to attract a diverse pool of
successful oil and gas purchasers.
The MRM offers RIK production for sale in the open marketplace, allowing any company that has met prequalification requirements to participate. MRM also issues sales awards on a competitive basis, yielding the highest benefits obtainable. MRM’s portfolio of counterparties includes major producers, independent producers, refiners, utilities, industrial end-users, distributors, mid-stream marketers, and financial institutions. MRM also has a Small Refiner Program to aid eligible small refiners in accessing crude oil supplies. Today, the RIK Program has earned a reputation for being a reliable business partner and a dependable supply source for natural gas and crude oil. Utilizing the RIK Strategy The RIK option is used in those cases where thorough economic analysis indicates that cost or revenue advantages can be realized over the RIV option. Currently, the core production areas for RIK are offshore in the Gulf of Mexico and Pacific, and onshore in Wyoming. MRM continuously evaluates other Federal lease production areas to complement the RIK Program. It has partnerships with the States of Wyoming, Louisiana, Texas and Alabama for the common goal of benefiting from the RIK concept. Benefits of the RIK Strategy
MRM
continually evaluates the RIK Program using a sophisticated
performance
measurement
process. MMS has confirmed that
the RIK strategy yields benefits in two principal ways.
First, the strategy provides the opportunity to increase revenue
receipts to the Nation. This is
accomplished through receipt of market price premiums, lowered costs for
commodity transportation and processing, and earlier receipt of
revenues. Second, the strategy
reduces administrative costs to the Government and the industry.
This is achieved through reduced reporting requirements,
increased certainty to producers and the government that royalty
obligations are fulfilled, decreased conflict, and a shortened business
cycle. Through the use of the RIK
strategy, the MRM increased FY 2005 revenue receipts by more than $30
million and reduced administrative costs by nearly 50 percent.
The RIK strategy has also proved advantageous to the Government
in recent years by providing a source of crude oil for the filling of
the Nation’s Strategic Petroleum Reserve. The MRM also publishes an
annual report
to Congress, detailing the yearly performance of the RIK program.
The RIK Strategy for the Future The MRM will continue to use the RIK strategy in tandem with its RIV strategy to maximize revenue receipts to the Nation and minimize administrative costs. In 2004, the MMS published a Five Year RIK Business Plan to guide the future direction of the RIK strategy. Under the Plan, the RIK Program is moving forward to expand its natural gas and crude oil RIK portfolios, optimize market strategies, and respond to the needs of America’s energy future.
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