42 U.S.C. § 15902 — Program on oil and gas royalties in-kind

(a) Applicability of section: This section covers all royalty the Secretary^* accepts "in-kind" — meaning in actual oil or gas rather than cash — on or after August 8, 2005, under (1) section 192 of title 30, (2) section 1353 of title 43, or (3) any other federal law governing oil and gas leases on federal land.

(b) Terms and conditions: If the Secretary demands it, all royalty owed to the United States must be paid in-kind. When that happens: (1) Delivering the correct amount and quality of oil or gas satisfies the lessee's royalty debt for that amount, though any transport or processing reimbursements or deductions can still be reviewed and audited. (2) The oil or gas must be "in marketable condition" — clean enough and otherwise fit for a typical buyer to accept — and the lessee must get it into that condition at no cost to the government. (3) The Secretary may sell or otherwise dispose of the royalty oil or gas (except for certain oil or gas transferred under section 1353(a)(3) of title 43) for no less than market price, and may transport or process it. (4) The Secretary may keep and use part of the sale revenue — instead of sending it to the Treasury's miscellaneous receipts — to pay for transporting, processing, or disposing of the royalty oil or gas. (5) Normally the Secretary cannot use that revenue for government personnel, travel, or other administrative costs, but as an exception, the Secretary may use part of it for salaries and administrative costs directly tied to running the in-kind royalty program.

(c) Reimbursement of cost: If a lessee processes the royalty gas or delivers the royalty oil or gas somewhere away from the lease, the Secretary must either (1) reimburse the lessee's reasonable transportation (not counting gathering) or processing costs, or (2) let the lessee deduct those costs when paying cash royalties on other federal leases.

(d) Benefit to the United States required: The Secretary can only take royalties in-kind if doing so benefits the United States at least as much as taking cash royalties would have.

(e) Deduction of expenses: (1) Before paying out royalty sale revenue under section 191 of title 30 or section 1337(g) of title 43, the Secretary must first deduct the amounts paid or deducted under (b)(4) and (c), and send those deductions to the Treasury's miscellaneous receipts. (2) If a lessee deducts transport or processing costs under (c), the Secretary cannot reduce payments to anyone else who is owed revenue from a different federal lease because of that deduction.

(f) Consultation with States: The Secretary must (1) consult a state^* before running an in-kind royalty program there; (2) may hand over management of part of the program to a state, unless federal law forbids it; and (3) must consult yearly with any state receiving in-kind royalty, to try to make sure the program brings that state at least as much revenue as taking cash royalties would have.

(g) Small refineries: (1) If there is not enough crude oil for sale on the open market to refineries that lack their own crude supply, the Secretary may give those refineries preference in buying royalty oil, sold privately at no less than market price. (2) The Secretary may, at their discretion, split that oil among such refineries in the producing area.

(h) Disposition to Federal agencies: (1) Royalty oil or gas taken in-kind from onshore leases may be sold to any federal agency at no less than market price. (2) Royalty oil or gas taken in-kind from offshore leases on the outer Continental Shelf may only be disposed of under section 1353 of title 43.

(i) Federal low-income energy assistance programs: (1) When disposing of royalty oil or gas, the Secretary may give preference to any person or agency, including a state agency, to support federal low-income energy assistance programs. (2) Within three years of August 8, 2005, the Secretary had to report to Congress (A) assessing how well that preference worked, and (B) recommending whether to keep the authority to grant it.

(j) McAlester Army Ammunition Plant: If the Secretary of Defense asks, the Secretary must (1) take in-kind royalty gas from leases on the McAlester Army Ammunition Plant in McAlester, Oklahoma, and (2) sell that gas to the Department of Defense, but only for use at that plant, only for energy resilience purposes, and only in the amount actually needed.