Editorial Note on Part 1206
Editorial Note: Nomenclature changes to part 1206 (formerly part 206) appear at 67 FR 19111, Apr. 18, 2002.

§ 1206.141 How do I calculate royalty value for unprocessed gas that I or my affiliate sell(s) under an arm's-length or non-arm's-length contract? ( a ) This section applies to unprocessed gas. Unprocessed gas is: ( 1 ) Gas that is not processed;
( 2 ) Any gas that you are not required to value under § 1206.142 or that ONRR does not value under § 1206.144; or
( 3 ) Any gas that you sell prior to processing based on a price per MMBtu or Mcf when the price is not based on the residue gas and gas plant products.
( b ) The value of gas under this section for royalty purposes is the gross proceeds accruing to you or your affiliate under the first arm's-length contract less a transportation allowance determined under § 1206.152. This value does not apply if you exercise the option in paragraph (c) of this section or if ONRR decides to value your gas under § 1206.144. You must use this paragraph (b) to value gas when: ( 1 ) You sell under an arm's-length contract;
( 2 ) You sell or transfer unprocessed gas to your affiliate or another person under a non-arm's-length contract and that affiliate or person, or an affiliate of either of them, then sells the gas under an arm's-length contract, unless you exercise the option provided in paragraph (c) of this section;
( 3 ) You, your affiliate, or another person sell(s) unprocessed gas produced from a lease under multiple arm's-length contracts, and that gas is valued under this paragraph. Unless you exercise the option provided in paragraph (c) of this section, the value of the gas is the volume-weighted average of the values, established under this paragraph, for each contract for the sale of gas produced from that lease; or
( 4 ) You or your affiliate sell(s) under a pipeline cash-out program. In that case, for over-delivered volumes within the tolerance under a pipeline cash-out program, the value is the price that the pipeline must pay you or your affiliate under the transportation contract. You must use the same value for volumes that exceed the over-delivery tolerances, even if those volumes are subject to a lower price under the transportation contract.
( c ) If you do not sell under an arm's-length contract, you may elect to value your gas under this paragraph (c). You may not change your election more often than once every two years. ( 1 ) ( i ) If you can only transport gas to one index pricing point published in an ONRR-approved publication, available at *www.onrr.gov*, your value, for royalty purposes, is the highest reported monthly bidweek price for that index pricing point for the production month.
( ii ) If you can transport gas to more than one index pricing point published in an ONRR-approved publication available at *www.onrr.gov*, your value, for royalty purposes, is the highest reported monthly bidweek price for the index pricing points to which your gas could be transported for the production month, whether or not there are constraints for that production month.
( iii ) If there are sequential index pricing points on a pipeline, you must use the first index pricing point at or after your gas enters the pipeline.
( iv ) You must reduce the number calculated under paragraphs (c)(1)(i) and (c)(1)(ii) of this section by 5 percent for sales from the OCS Gulf of Mexico and by 10 percent for sales from all other areas, but not by less than 10 cents per MMBtu or more than 30 cents per MMBtu.
( v ) After you select an ONRR-approved publication available at *www.onrr.gov*, you may not select a different publication more often than once every two years.
( vi ) ONRR may exclude an individual index pricing point found in an ONRR-approved publication if ONRR determines that the index pricing point does not accurately reflect the values of production. ONRR will publish a list of excluded index pricing points available at *www.onrr.gov*.
( 2 ) You may not take any other deductions from the value calculated under this paragraph (c).
( d ) If some of your gas is used, lost, unaccounted for, or retained as a fee under the terms of a sales or service agreement, that gas will be valued for royalty purposes using the same royalty valuation method for valuing the rest of the gas that you do sell.
( e ) If you have no written contract for the sale of gas or no sale of gas subject to this section and: ( 1 ) There is an index pricing point for the gas, then you must value your gas under paragraph (c) of this section; or
( 2 ) There is not an index pricing point for the gas, then ONRR will decide the value under § 1206.144. ( i ) You must propose to ONRR a method to determine the value using the procedures in § 1206.148(a).
( ii ) You may use that method to determine value, for royalty purposes, until ONRR issues our decision.
( iii ) After ONRR issues our determination, you must make the adjustments under § 1206.143(a)(2).