What are royalty-in-kind transfers?
A royalty-in-kind (RIK) transfer refers to crude oil that is produced from federal leases in the Gulf of Mexico and paid to the U.S. Government in lieu of cash royalty payments. The program provided that “in kind” payment of a percentage of the lease’s production be paid to the Department of the Interior; ownership was then transferred at the market center to the Department of Energy for SPR fill. The SPR frequently solicited to exchange the royalty oil in place (at the market center) for crude oil that would meet the quality specifications of the SPR. The exchange contracts included adjustments to the volume to be delivered to the SPR due to quality differences in the crude oil and to cover the transportation costs. The RIK program is authorized by the Outer Continental Shelf Lands Act and the Energy Policy and Conservation Act. However, on September 16, 2009, the Department of the Interior announced the termination of its royalty-in-kind program (existing contracts would be honored).
