(a) Applicability of section
Notwithstanding any other provision of law, this section applies to all royalty in-kind accepted by the Secretary on or after August 8, 2005, under any Federal oil or gas lease or permit under—
(1) section
192 of title 30;
(2) section
1353 of title 43; or
(3) any other Federal law governing leasing of Federal land for oil and gas development.
(b) Terms and conditions
All royalty accruing to the United States shall, on the demand of the Secretary, be paid in-kind. If the Secretary makes such a demand, the following provisions apply to the payment:
(1) Satisfaction of royalty obligation
Delivery by, or on behalf of, the lessee of the royalty amount and quality due under the lease satisfies royalty obligation of the lessee for the amount delivered, except that transportation and processing reimbursements paid to, or deductions claimed by, the lessee shall be subject to review and audit.
(2) Marketable condition
(A) Definition of marketable condition
In this paragraph, the term "in marketable condition" means sufficiently free from impurities and otherwise in a condition that the royalty production will be accepted by a purchaser under a sales contract typical of the field or area in which the royalty production was produced.
(B) Requirement
Royalty production shall be placed in marketable condition by the lessee at no cost to the United States.
(3) Disposition by the Secretary
The Secretary may—
(A) sell or otherwise dispose of any royalty production taken in-kind (other than oil or gas transferred under section
1353(a)(3) of title 43 1 for not less than the market price; and
(B) transport or process (or both) any royalty production taken in-kind.
(4) Retention by the Secretary
The Secretary may, notwithstanding section
3302 of title 31, retain and use a portion of the revenues from the sale of oil and gas taken in-kind that otherwise would be deposited to miscellaneous receipts, without regard to fiscal year limitation, or may use oil or gas received as royalty taken in-kind (referred to in this paragraph as "royalty production") to pay the cost of—
(A) transporting the royalty production;
(B) processing the royalty production;
(C) disposing of the royalty production; or
(D) any combination of transporting, processing, and disposing of the royalty production.
(5) Limitation
(A) In general
Except as provided in subparagraph (B), the Secretary may not use revenues from the sale of oil and gas taken in-kind to pay for personnel, travel, or other administrative costs of the Federal Government.
(B) Exception
Notwithstanding subparagraph (A), the Secretary may use a portion of the revenues from royalty in-kind sales, without fiscal year limitation, to pay salaries and other administrative costs directly related to the royalty in-kind program.
(c) Reimbursement of cost
If the lessee, pursuant to an agreement with the United States or as provided in the lease, processes the royalty gas or delivers the royalty oil or gas at a point not on or adjacent to the lease area, the Secretary shall—
(1) reimburse the lessee for the reasonable costs of transportation (not including gathering) from the lease to the point of delivery or for processing costs; or
(2) allow the lessee to deduct the transportation or processing costs in reporting and paying royalties in-value for other Federal oil and gas leases.
(d) Benefit to the United States required
The Secretary may receive oil or gas royalties in-kind only if the Secretary determines that receiving royalties in-kind provides benefits to the United States that are greater than or equal to the benefits that are likely to have been received had royalties been taken in-value.
(e) Deduction of expenses
(1) In general
Before making payments under section
191 of title 30 or section
1337(g) of title 43 of revenues derived from the sale of royalty production taken in-kind from a lease, the Secretary shall deduct amounts paid or deducted under subsections (b)(4) and (c) and deposit the amount of the deductions in the miscellaneous receipts of the Treasury.
(2) Accounting for deductions
When the Secretary allows the lessee to deduct transportation or processing costs under subsection (c), the Secretary may not reduce any payments to recipients of revenues derived from any other Federal oil and gas lease as a consequence of that deduction.
(f) Consultation with States
The Secretary—
(1) shall consult with a State before conducting a royalty in-kind program under this part within the State;
(2) may delegate management of any portion of the Federal royalty in-kind program to the State except as otherwise prohibited by Federal law; and
(3) shall consult annually with any State from which Federal oil or gas royalty is being taken in-kind to ensure, to the maximum extent practicable, that the royalty in-kind program provides revenues to the State greater than or equal to the revenues likely to have been received had royalties been taken in-value.
(g) Small refineries
(1) Preference
If the Secretary finds that sufficient supplies of crude oil are not available in the open market to refineries that do not have their own source of supply for crude oil, the Secretary may grant preference to those refineries in the sale of any royalty oil accruing or reserved to the United States under Federal oil and gas leases issued under any mineral leasing law, for processing or use in those refineries at private sale at not less than the market price.
(2) Proration among refineries in production area
In disposing of oil under this subsection, the Secretary may, at the discretion of the Secretary, prorate the oil among refineries described in paragraph (1) in the area in which the oil is produced.
(h) Disposition to Federal agencies
(1) Onshore royalty
Any royalty oil or gas taken by the Secretary in-kind from onshore oil and gas leases may be sold at not less than the market price to any Federal agency.
(2) Offshore royalty
Any royalty oil or gas taken in-kind from a Federal oil or gas lease on the outer Continental Shelf may be disposed of only under section
1353 of title 43.
(i) Federal low-income energy assistance programs
(1) Preference
In disposing of royalty oil or gas taken in-kind under this section, the Secretary may grant a preference to any person, including any Federal or State agency, for the purpose of providing additional resources to any Federal low-income energy assistance program.
(2) Report
Not later than 3 years after August 8, 2005, the Secretary shall submit a report to Congress—
(A) assessing the effectiveness of granting preferences specified in paragraph (1); and
(B) providing a specific recommendation on the continuation of authority to grant preferences.
(j) McAlester Army Ammunition Plant
At the request of the Secretary of Defense, the Secretary shall—
(1) take in-kind royalty gas from any lease on the McAlester Army Ammunition Plant in McAlester, Oklahoma; and
(2) sell such royalty gas to the Department of Defense in accordance with subsection (h)(1), for use only at that plant, only for energy resilience purposes, and only to the extent necessary to meet the natural gas needs of that plant.