H. R. 6—106
(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 proc-
essing 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 deter-
mines 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) REPORTS.— 
(1) IN GENERAL.—Not later than September 30, 2006, the 
Secretary shall submit to Congress a report that addresses— 
(A) actions taken to develop business processes and 
automated systems to fully support the royalty-in-kind 
capability to be used in tandem with the royalty-in-value 
approach in managing Federal oil and gas revenue; and 
(B) future royalty-in-kind businesses operation plans 
and objectives. 
(2) REPORTS ON OIL OR GAS ROYALTIES TAKEN IN-KIND.—
For each of fiscal years 2006 through 2015 in which the United 
States takes oil or gas royalties in-kind from production in 
any State or from the outer Continental Shelf, excluding royal-
ties taken in-kind and sold to refineries under subsection (h), 
the Secretary shall submit to Congress a report that describes— 
(A) the 1 or more methodologies used by the Secretary 
to determine compliance with subsection (d), including the 
performance standard for comparing amounts received by 
the United States derived from royalties in-kind to amounts 
likely to have been received had royalties been taken in-
value; 
(B) an explanation of the evaluation that led the Sec-
retary to take royalties in-kind from a lease or group of 
leases, including the expected revenue effect of taking 
royalties in-kind; 
(C) actual amounts received by the United States 
derived from taking royalties in-kind and costs and savings 
incurred by the United States associated with taking royal-
ties in-kind, including administrative savings and any new 
or increased administrative costs; and 
(D) an evaluation of other relevant public benefits or 
detriments associated with taking royalties in-kind. 
(f) DEDUCTION OF EXPENSES.— 
(1) IN GENERAL.—Before making payments under section 
35 of the Mineral Leasing Act (30 U.S.C. 191) or section 8(g) 
of the Outer Continental Shelf Lands Act (43 U.S.C. 1337(g)) 
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 pay-
ments to recipients of revenues derived from any other Federal 
oil and gas lease as a consequence of that deduction.
H. R. 6—107
(g) CONSULTATION WITH STATES.—The Secretary— 
(1) shall consult with a State before conducting a royalty 
in-kind program under this subtitle within the State; 
(2) may delegate management of any portion of the Federal 
royalty in-kind program to the State except as otherwise prohib-
ited by Federal law; and 
(3) shall consult annually with any State from which Fed-
eral oil or gas royalty is being taken in-kind to ensure, to 
the maximum extent practicable, that the royalty in-kind pro-
gram provides revenues to the State greater than or equal 
to the revenues likely to have been received had royalties 
been taken in-value. 
(h) SMALL REFINERIES.— 
(1) PREFERENCE.—If the Secretary finds that sufficient sup-
plies 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 min-
eral 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 refin-
eries described in paragraph (1) in the area in which the 
oil is produced. 
(i) 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 27 of the Outer 
Continental Shelf Lands Act (43 U.S.C. 1353). 
(j) 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 the date of enact-
ment of this Act, the Secretary shall submit a report to Con-
gress— 
(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. 
SEC. 343. MARGINAL PROPERTY PRODUCTION INCENTIVES. 
(a) DEFINITION OF MARGINAL PROPERTY.—Until such time as 
the Secretary issues regulations under subsection (e) that prescribe 
a different definition, in this section, the term ‘‘marginal property’’ 
means an onshore unit, communitization agreement, or lease not 
within a unit or communitization agreement, that produces on 
average the combined equivalent of less than 15 barrels of oil 
per well per day or 90,000,000 British thermal units of gas per