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

§ 1206.20 What definitions apply to this part? The definitions in this section do not apply to subparts F and J of this part. *Affiliate* means a person who controls, is controlled by, or is under common control with another person. For the purposes of this subpart: ( 1 ) Ownership or common ownership of more than 50 percent of the voting securities, or instruments of ownership or other forms of ownership, of another person constitutes control. Ownership of less than 10 percent constitutes a presumption of non-control that ONRR may rebut.
( 2 ) If there is ownership or common ownership of 10 through 50 percent of the voting securities or instruments of ownership, or other forms of ownership, of another person, ONRR will consider each of the following factors to determine if there is control under the circumstances of a particular case: ( i ) The extent to which there are common officers or directors.
( ii ) With respect to the voting securities, or instruments of ownership or other forms of ownership: The percentage of ownership or common ownership, the relative percentage of ownership or common ownership compared to the percentage(s) of ownership by other persons, if a person is the greatest single owner, or if there is an opposing voting bloc of greater ownership.
( iii ) Operation of a lease, plant, pipeline, or other facility.
( iv ) The extent of others owners' participation in operations and day-to-day management of a lease, plant, or other facility.
( v ) Other evidence of power to exercise control over or common control with another person.
( 3 ) Regardless of any percentage of ownership or common ownership, relatives, either by blood or marriage, are affiliates.
*ANS* means Alaska North Slope.
*Area* means a geographic region at least as large as the limits of an oil and/or gas field, in which oil and/or gas lease products have similar quality and economic characteristics. Area boundaries are not officially designated and the areas are not necessarily named.
*Arm's-length-contract* means a contract or agreement between independent persons who are not affiliates and who have opposing economic interests regarding that contract. To be considered arm's-length for any production month, a contract must satisfy this definition for that month, as well as when the contract was executed.
*Audit* means an examination, conducted under the generally accepted Governmental Auditing Standards, of royalty reporting and payment compliance activities of lessees, designees or other persons who pay royalties, rents, or bonuses on Federal leases or Indian leases.
*BIA* means the Bureau of Indian Affairs of the Department of the Interior.
*BLM* means the Bureau of Land Management of the Department of the Interior.
*BOEM* means the Bureau of Ocean Energy Management of the Department of the Interior.
*BSEE* means the Bureau of Safety and Environmental Enforcement of the Department of the Interior.
*Compression* means the process of raising the pressure of gas.
*Condensate* means liquid hydrocarbons (normally exceeding 40 degrees of API gravity) recovered at the surface without processing. Condensate is the mixture of liquid hydrocarbons resulting from condensation of petroleum hydrocarbons existing initially in a gaseous phase in an underground reservoir.
*Constraint* means a reduction in, or elimination of, gas flow, deliveries, or sales required by the delivery system.
*Contract* means any oral or written agreement, including amendments or revisions, between two or more persons, that is enforceable by law and that, with due consideration, creates an obligation.
*Designee* means the person whom the lessee designates to report and pay the lessee's royalties for a lease.
*Exchange agreement* means an agreement where one person agrees to deliver oil to another person at a specified location in exchange for oil deliveries at another location. Exchange agreements may or may not specify prices for the oil involved. They frequently specify dollar amounts reflecting location, quality, or other differentials. Exchange agreements include buy/sell agreements, which specify prices to be paid at each exchange point and may appear to be two separate sales within the same agreement. Examples of other types of exchange agreements include, but are not limited to, exchanges of produced oil for specific types of crude oil (such as West Texas Intermediate); exchanges of produced oil for other crude oil at other locations (Location Trades); exchanges of produced oil for other grades of oil (Grade Trades); and multi-party exchanges.
*FERC* means Federal Energy Regulatory Commission.
*Field* mean*s* a geographic region situated over one or more subsurface oil and gas reservoirs and encompassing at least the outermost boundaries of all oil and gas accumulations known within those reservoirs, vertically projected to the land surface. State oil and gas regulatory agencies usually name onshore fields and designate their official boundaries. BOEM names and designates boundaries of OCS fields.
*Gas* means any fluid, either combustible or non-combustible, hydrocarbon or non-hydrocarbon, which is extracted from a reservoir and which has neither independent shape nor volume, but tends to expand indefinitely. It is a substance that exists in a gaseous or rarefied state under standard temperature and pressure conditions.
*Gas plant products* means separate marketable elements, compounds, or mixtures, whether in liquid, gaseous, or solid form, resulting from processing gas, excluding residue gas.
*Gathering* means the movement of lease production to a central accumulation or treatment point on the lease, unit, or communitized area, or to a central accumulation or treatment point off of the lease, unit, or communitized area that BLM or BSEE approves for onshore and offshore leases, respectively, including any movement of bulk production from the wellhead to a platform offshore.
*Geographic region* means, for Federal gas, an area at least as large as the defined limits of an oil and or gas field in which oil and/or gas lease products have similar quality and economic characteristics.
*Gross proceeds* means the total monies and other consideration accruing for the disposition of any of the following: ( 1 ) *Oil.* Gross proceeds also include, but are not limited to, the following examples: ( i ) Payments for services such as dehydration, marketing, measurement, or gathering which the lessee must perform at no cost to the Federal Government.
( ii ) The value of services, such as salt water disposal, that the producer normally performs but that the buyer performs on the producer's behalf.
( iii ) Reimbursements for harboring or terminalling fees, royalties, and any other reimbursements.
( iv ) Tax reimbursements, even though the Federal royalty interest may be exempt from taxation.
( v ) Payments made to reduce or buy down the purchase price of oil produced in later periods by allocating such payments over the production whose price that the payment reduces and including the allocated amounts as proceeds for the production as it occurs.
( vi ) Monies and all other consideration to which a seller is contractually or legally entitled but does not seek to collect through reasonable efforts.
( 2 ) *Gas, residue gas, and gas plant products.* Gross proceeds also include, but are not limited to, the following examples: ( i ) Payments for services such as dehydration, marketing, measurement, or gathering that the lessee must perform at no cost to the Federal Government.
( ii ) Reimbursements for royalties, fees, and any other reimbursements.
( iii ) Tax reimbursements, even though the Federal royalty interest may be exempt from taxation.
( iv ) Monies and all other consideration to which a seller is contractually or legally entitled, but does not seek to collect through reasonable efforts.
*Index* means: ( 1 ) For gas, the calculated composite price ($/MMBtu) of spot market sales that a publication that meets ONRR-established criteria for acceptability at the index pricing point publishes
( 2 ) For oil, the calculated composite price ($/barrel) of spot market sales that a publication that meets ONRR-established criteria for acceptability at the index pricing point publishes.
*Index pricing point* means any point on a pipeline for which there is an index, which ONRR-approved publications may refer to as a trading location.
*Index zone* means a field or an area with an active spot market and published indices applicable to that field or an area that is acceptable to ONRR under § 1206.141(d)(1).
*Indian Tribe* means any Indian Tribe, band, nation, pueblo, community, rancheria, colony, or other group of Indians for which any minerals or interest in minerals is held in trust by the United States or is subject to Federal restriction against alienation.
*Individual Indian mineral owner* means any Indian for whom minerals or an interest in minerals is held in trust by the United States or who holds title subject to Federal restriction against alienation.
*Keepwhole contract* means** a processing agreement under which the processor delivers to the lessee a quantity of gas after processing equivalent to the quantity of gas that the processor received from the lessee prior to processing, normally based on heat content, less gas used as plant fuel and gas unaccounted for and/or lost. This includes, but is not limited to, agreements under which the processor retains all NGLs that it recovered from the lessee's gas.
*Lease* means any contract, profit-sharing arrangement, joint venture, or other agreement issued or approved by the United States under any mineral leasing law, including the Indian Mineral Development Act, 25 U.S.C. 2101-2108, that authorizes exploration for, extraction of, or removal of lease products. Depending on the context, lease may also refer to the land area that the authorization covers.
*Lease products* mean any leased minerals, attributable to, originating from, or allocated to a lease or produced in association with a lease.
*Lessee* means any person to whom the United States, an Indian Tribe, and/or individual Indian mineral owner issues a lease, and any person who has been assigned all or a part of record title, operating rights, or an obligation to make royalty or other payments required by the lease. Lessee includes any person who has an interest in a lease.
*Like quality* means similar chemical and physical characteristics.
*Location differential* means an amount paid or received (whether in money or in barrels of oil) under an exchange agreement that results from differences in location between oil delivered in exchange and oil received in the exchange. A location differential may represent all or part of the difference between the price received for oil delivered and the price paid for oil received under a buy/sell exchange agreement.
*Market center* means a major point that ONRR recognizes for oil sales, refining, or transshipment. Market centers generally are locations where ONRR-approved publications publish oil spot prices.
*Marketable condition* means lease products which are sufficiently free from impurities and otherwise in a condition that they will be accepted by a purchaser under a sales contract typical for the field or area for Federal oil and gas.
*Mine* means an underground or surface excavation or series of excavations and the surface or underground support facilities that contribute directly or indirectly to mining, production, preparation, and handling of lease products.
*Misconduct* means any failure to perform a duty owed to the United States under a statute, regulation, or lease, or unlawful or improper behavior, regardless of the mental state of the lessee or any individual employed by or associated with the lessee.
*Net output* means the quantity of gas residue gas and each gas plant product that a processing plant produces.
*Netting* means reducing the reported sales value to account for an allowance instead of reporting the allowance as a separate entry on the Report of Sales and Royalty Remittance (Form ONRR-2014) or the Solid Minerals Production and Royalty Report (Form ONRR-4430).
*NGLs* means Natural Gas Liquids.
*NYMEX price* means the average of the New York Mercantile Exchange (NYMEX) settlement prices for light sweet crude oil delivered at Cushing, Oklahoma, calculated as follows: ( 1 ) First, sum the prices published for each day during the calendar month of production (excluding weekends and holidays) for oil to be delivered in the prompt month corresponding to each such day.
( 2 ) Second, divide the sum by the number of days on which those prices are published (excluding weekends and holidays).
*Oil* means a mixture of hydrocarbons that existed in the liquid phase in natural underground reservoirs, remains liquid at atmospheric pressure after passing through surface separating facilities, and is marketed or used as a liquid. Condensate recovered in lease separators or field facilities is oil.
*ONRR* means the Office of Natural Resources Revenue of the Department of the Interior.
*ONRR-approved commercial price bulletin* means a publication that ONRR approves for determining NGLs prices.
*ONRR-approved publication* means: ( 1 ) For oil, a publication that ONRR approves for determining ANS spot prices or WTI differentials.
( 2 ) For gas, a publication that ONRR approves for determining index pricing points.
*Outer Continental Shelf (OCS)* means all submerged lands lying seaward and outside of the area of lands beneath navigable waters, as defined in Section 2 of the Submerged Lands Act (43 U.S.C. 1301), and of which the subsoil and seabed appertain to the United States and are subject to its jurisdiction and control.
*Payor* means any person who reports and pays royalties under a lease, regardless of whether that person also is a lessee.
*Person* means any individual, firm, corporation, association, partnership, consortium, or joint venture (when established as a separate entity).
*Processing* means any process designed to remove elements or compounds (hydrocarbon and non-hydrocarbon) from gas, including absorption, adsorption, or refrigeration. Field processes which normally take place on or near the lease, such as natural pressure reduction, mechanical separation, heating, cooling, dehydration, and compression, are not considered processing. The changing of pressures and/or temperatures in a reservoir is not considered processing. The use of a Joule-Thomson (JT) unit to remove NGLs from gas is considered processing regardless of where the JT unit is located, provided that you market the NGLs as NGLs.
*Processing allowance* means a deduction in determining royalty value for the reasonable, actual costs the lessee incurs for processing gas.
*Prompt month* means the nearest month of delivery for which NYMEX futures prices are published during the trading month.
*Quality differential* means an amount paid or received under an exchange agreement (whether in money or in barrels of oil) that results from differences in API gravity, sulfur content, viscosity, metals content, and other quality factors between oil delivered and oil received in the exchange. A quality differential may represent all or part of the difference between the price received for oil delivered and the price paid for oil received under a buy/sell agreement.
*Residue gas* means that hydrocarbon gas consisting principally of methane resulting from processing gas.
*Rocky Mountain Region* means the States of Colorado, Montana, North Dakota, South Dakota, Utah, and Wyoming, except for those portions of the San Juan Basin and other oil-producing fields in the “Four Corners” area that lie within Colorado and Utah.
*Roll* means an adjustment to the NYMEX price that is calculated as follows: Roll = .6667 × (P0−P1) + .3333 × (P0−P2), where: P0 = the average of the daily NYMEX settlement prices for deliveries during the prompt month that is the same as the month of production, as published for each day during the trading month for which the month of production is the prompt month; P1 = the average of the daily NYMEX settlement prices for deliveries during the month following the month of production, published for each day during the trading month for which the month of production is the prompt month; and P2 = the average of the daily NYMEX settlement prices for deliveries during the second month following the month of production, as published for each day during the trading month for which the month of production is the prompt month. Calculate the average of the daily NYMEX settlement prices using only the days on which such prices are published (excluding weekends and holidays). ( 1 ) *Example 1. Prices in Out Months are Lower Going Forward:* The month of production for which you must determine royalty value is December. December was the prompt month (for year 2011) from October 21 through November 18. January was the first month following the month of production, and February was the second month following the month of production. P0, therefore, is the average of the daily NYMEX settlement prices for deliveries during December published for each business day between October 21 and November 18. P1 is the average of the daily NYMEX settlement prices for deliveries during January published for each business day between October 21 and November 18. P2 is the average of the daily NYMEX settlement prices for deliveries during February published for each business day between October 21 and November 18. In this example, assume that P0 = $95.08 per bbl, P1 = $95.03 per bbl, and P2 = $94.93 per bbl. In this example (a declining market), Roll = .6667 × ($95.08−$95.03) + .3333 × ($95.08−$94.93) = $0.03 + $0.05 = $0.08. You add this number to the NYMEX price.
( 2 ) *Example 2. Prices in Out Months are Higher Going Forward:* The month of production for which you must determine royalty value is November. November was the prompt month (for year 2012) from September 21 through October 22. December was the first month following the month of production, and January was the second month following the month of production. P0, therefore, is the average of the daily NYMEX settlement prices for deliveries during November published for each business day between September 21 and October 22. P1 is the average of the daily NYMEX settlement prices for deliveries during December published for each business day between September 21 and October 22. P2 is the average of the daily NYMEX settlement prices for deliveries during January published for each business day between September 21 and October 22. In this example, assume that P0 = $91.28 per bbl, P1 = $91.65 per bbl, and P2 = $92.10 per bbl. In this example (a rising market), Roll = .6667 × ($91.28−$91.65) + .3333 × ($91.28−$92.10) = (−$0.25) + (−$0.27) = (−$0.52). You add this negative number to the NYMEX price (effectively, a subtraction from the NYMEX price).
*Sale* means a contract between two persons where: ( 1 ) The seller unconditionally transfers title to the oil, gas, or gas plant product to the buyer and does not retain any related rights, such as the right to buy back similar quantities of oil, gas, or gas plant product from the buyer elsewhere;
( 2 ) The buyer pays money or other consideration for the oil, gas, or gas plant product; and
( 3 ) The parties' intent is for a sale of the oil, gas, or gas plant product to occur.
*Section 6 lease* means an OCS lease subject to section 6 of the Outer Continental Shelf Lands Act, as amended, 43 U.S.C. 1335.
*Spot price* means the price under a spot sales contract where: ( 1 ) A seller agrees to sell to a buyer a specified amount of oil at a specified price over a specified period of short duration.
( 2 ) No cancellation notice is required to terminate the sales agreement.
( 3 ) There is no obligation or implied intent to continue to sell in subsequent periods.
*Trading month* means the period extending from the second business day before the 25th day of the second calendar month preceding the delivery month (or, if the 25th day of that month is a non-business day, the second business day before the last business day preceding the 25th day of that month) through the third business day before the 25th day of the calendar month preceding the delivery month (or, if the 25th day of that month is a non-business day, the third business day before the last business day preceding the 25th day of that month), unless the NYMEX publishes a different definition or different dates on its official website, *www.cmegroup.com*, in which case, the NYMEX definition will apply.
*Transportation allowance* means a deduction in determining royalty value for the reasonable, actual costs that the lessee incurs for moving: ( 1 ) Oil to a point of sale or delivery off of the lease, unit area, or communitized area. The transportation allowance does not include gathering costs.
( 2 ) Unprocessed gas, residue gas, or gas plant products to a point of sale or delivery off of the lease, unit area, or communitized area, or away from a processing plant. The transportation allowance does not include gathering costs.
*WTI differential* means the average of the daily mean differentials for location and quality between a grade of crude oil at a market center and West Texas Intermediate (WTI) crude oil at Cushing published for each day for which price publications perform surveys for deliveries during the production month, calculated over the number of days on which those differentials are published (excluding weekends and holidays). Calculate the daily mean differentials by averaging the daily high and low differentials for the month in the selected publication. Use only the days and corresponding differentials for which such differentials are published.
[85 FR 62019, Oct. 1, 2020, as amended at 88 FR 47005, July 21, 2023]