0120 Attachment 3

Electronic Code of Federal Regulations (e-CFR)
e-CFR Data is current as of June 27, 2007
Title 30: Mineral Resources
PART 202—ROYALTIES
Browse Previous | Browse Next

Subpart H—Geothermal Resources
Source: 56 FR 57275, Nov. 8, 1991, unless otherwise noted.
§ 202.350 Scope and definitions.
(a) This subpart is applicable to all geothermal resources produced from Federal geothermal leases issued
pursuant to the Geothermal Steam Act of 1970, as amended (30 U.S.C. 1001 et seq.).
(b) The definitions in 30 CFR 206.351 are applicable to this subpart.

§ 202.351 Royalties on geothermal resources.
(a)(1) Royalties on geothermal resources, including byproducts, or on electricity produced using geothermal
resources, will be at the royalty rate(s) specified in the lease, unless the Secretary of the Interior temporarily
waives, suspends, or reduces that rate(s). Royalties are determined under 30 CFR part 206, subpart H.
(2) Fees in lieu of royalties on geothermal resources are prescribed in 30 CFR part 206, subpart H.
(3) Except for the amount credited against royalties for in-kind deliveries of electricity to a State or county
under §218.306, you must pay royalties and direct use fees in money.
(b)(1) Except as specified in paragraph (b)(2) of this section, royalties or fees are due on—
(i) All geothermal resources produced from a lease and that are sold or used by the lessee or are
reasonably susceptible to sale or use by the lessee, or
(ii) All proceeds derived from the sale of electricity produced using geothermal resources produced from a
lease.
(2) For purposes of this subparagraph, the terms “Class I lease,” “Class II lease,” and “Class III lease” have
the same meanings prescribed in 30 CFR 206.351.
(i) For Class I leases, MMS will allow free of royalty—
(A) Geothermal resources that are unavoidably lost or reinjected before use on or off the lease, as
determined by the Bureau of Land Management (BLM), or that are reasonably necessary to generate plant
parasitic electricity or electricity for Federal lease operations; and
(B) A reasonable amount of commercially demineralized water necessary for power plant operations or
otherwise used on or for the benefit of the lease.

(ii) For Class II and Class III leases where the lessee uses geothermal resources for commercial production
or generation of electricity, or where geothermal resources are sold at arm's length for the commercial
production or generation of electricity, MMS will allow free of royalty or direct use fees geothermal resources
that are:
(A) Unavoidably lost or reinjected before use on or off the lease, as determined by BLM;
(B) Reasonably necessary for the lessee to generate plant parasitic electricity or electricity for Federal lease
operations, as approved by BLM; or
(C) Otherwise used for Federal lease operations related to commercial production or generation of
electricity, as approved by BLM.
(iii) For Class II and Class III leases where the lessee uses the geothermal resources for a direct use or in a
direct use facility, as defined in 30 CFR 206.351, resources that are used to generate electricity for Federal
lease operations or that are otherwise used for Federal lease operations are subject to direct use fees,
except for geothermal resources that are unavoidably lost or reinjected before use on or off the lease, as
determined by BLM.
(3) Royalties on byproducts are due at the time the recovered byproduct is used, sold, or otherwise finally
disposed of. Byproducts produced and added to stockpiles or inventory do not require payment of royalty
until the byproducts are sold, utilized, or otherwise finally disposed of. The MMS may ask BLM to increase
the lease bond to protect the lessor's interest when BLM determines that stockpiles or inventories become
excessive.
(c) If BLM determines that geothermal resources (including byproducts) were avoidably lost or wasted from
the lease, or that geothermal resources (including byproducts) were drained from the lease for which
compensatory royalty (or compensatory fees in lieu of compensatory royalty) are due, the value of those
geothermal resources, or the royalty or fees owed, will be determined under 30 CFR part 206, subpart H.
(d) If a lessee receives insurance or other compensation for unavoidably lost geothermal resources
(including byproducts), royalties at the rates specified in the lease (or fees in lieu of royalties) are due on the
amount of, or as a result of, that compensation. This paragraph will not apply to compensation through selfinsurance.
[72 FR 24458, May 2, 2007]

§ 202.352 Minimum royalty.
In no event shall the lessee's annual royalty payments for any producing lease be less than the minimum
royalty established by the lease.

§ 202.353 Measurement standards for reporting and paying royalties and direct use fees.
(a) For geothermal resources used to generate electricity, you must report the quantity on which royalty is
due on Form MMS–2014 (Report of Sales and Royalty Remittance) as follows:
(1) For geothermal resources for which royalty is calculated under §206.352(a), you must report quantities
in:
(i) Thousands of pounds to the nearest whole thousand pounds if the contract for the geothermal resources
specifies delivery in terms of weight; or
(ii) Millions of Btu to the nearest whole million Btu if the sales contract for the geothermal resources specifies
delivery in terms of heat or thermal energy.

(2) For geothermal resources for which royalty is calculated under §206.352(b), you must report the
quantities in kilowatt-hours to the nearest whole kilowatt-hour.
(b) For geothermal resources used in direct use processes, you must report the quantity on which a royalty
or direct use fee is due on Form MMS–2014 in:
(1) Millions of Btu to the nearest whole million Btu if valuation is in terms of heat or thermal energy used or
displaced;
(2) Millions of gallons to the nearest million gallons of geothermal fluid produced if valuation or fee
calculation is in terms of volume;
(3) Millions of pounds to the nearest million pounds of geothermal fluid produced if valuation or fee
calculation is in terms of mass; or
(4) Any other measurement unit MMS approves for valuation and reporting purposes.
(c) For byproducts, you must report the quantity on which royalty is due on Form MMS–2014 consistent with
MMS-established reporting standards.
(d) For commercially demineralized water, you must report the quantity on which royalty is due on Form
MMS–2014 in hundreds of gallons to the nearest hundred gallons.
(e) You need not report the quality of geothermal resources, including byproducts, to MMS. However, you
must maintain quality measurements for audit purposes. Quality measurements include, but are not limited
to:
(1) Temperatures and chemical analyses for fluid geothermal resources; and
(2) Chemical analyses, weight percent, or other purity measurements for byproducts.
[72 FR 24458, May 2, 2007]

Electronic Code of Federal Regulations (e-CFR)
e-CFR Data is current as of June 27, 2007
Title 30: Mineral Resources
PART 206—PRODUCT VALUATION
Browse Previous | Browse Next

Subpart H—Geothermal Resources
Source: 72 FR 24459, May 2, 2007, unless otherwise noted.
§ 206.350 What is the purpose of this subpart?
(a) This subpart applies to all geothermal resources produced from Federal geothermal leases issued
pursuant to the Geothermal Steam Act of 1970 (GSA), as amended by the Energy Policy Act of 2005
(EPAct) (30 U.S.C. 1001 et seq. ). The purpose of this subpart is to prescribe how to calculate royalties and
direct use fees for geothermal production.
(b) The MMS may audit and adjust all royalty and fee payments.
(c) In some cases, the regulations in this subpart may be inconsistent with a statute, settlement agreement,
written agreement, or lease provision. If this happens, the statute, settlement agreement, written agreement,
or lease provision will govern to the extent of the inconsistency. For purposes of this paragraph, the
following definitions apply:
(1) “Settlement agreement” means a settlement agreement between the United States and a lessee
resulting from administrative or judicial litigation.
(2) “Written agreement” means a written agreement between the lessee and the MMS Director or Assistant
Secretary, Land and Minerals Management of the Department of the Interior that:
(i) Establishes a method to determine the royalty from any lease that MMS expects at least would
approximate the value or royalty established under this subpart; and
(ii) Includes a value or gross proceeds determination under §206.364 of this subpart.

§ 206.351 What definitions apply to this subpart?
For purposes of this subpart, the following terms have the meanings indicated.
Affiliate means a person who controls, is controlled by, or is under common control with another person. For
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 noncontrol that MMS 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, MMS will consider the following
factors in determining whether 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, whether a person is the greatest single
owner, or whether there is an opposing voting bloc of greater ownership;
(iii) Operation of a lease, plant, pipeline, or other facility;
(iv) The extent of participation by other owners in operations and day-to-day management of a lease, plant,
pipeline, or other facility; and
(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.
Allowance means a deduction in determining value for royalty purposes.
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 a review, conducted in accordance with generally accepted accounting and auditing standards,
of royalty or fee payment compliance activities of lessees or other interest holders who pay royalties, fees,
rents, or bonuses on Federal geothermal leases.
Byproducts means minerals (exclusive of oil, hydrocarbon gas, and helium), found in solution or in
association with geothermal steam, that no person would extract and produce by themselves because they
are worth less than 75 percent of the value of the geothermal steam or because extraction and production
would be too difficult.
Byproduct recovery facility means a facility where byproducts are placed in marketable condition.
Byproduct transportation allowance means an allowance for the reasonable, actual costs of moving
byproducts to a point of sale or delivery off the lease, unit area, or communitized area, or away from a
byproduct recovery facility. The byproduct transportation allowance does not include gathering costs. You
must report a byproduct transportation allowance as a separate discrete field on the Form MMS–2014.
Class I lease means:
(1) A lease that BLM issued before August 8, 2005, for which the lessee has not converted the royalty rate
terms under 43 CFR 3212.25; or
(2) A lease that BLM issued in response to an application that was pending on August 8, 2005, for which the
lessee has not made an election under 43 CFR 3200.8(b).
Class II lease means:
A lease that BLM issued after August 8, 2005, except for a lease issued in response to an application that
was pending on August 8, 2005, for which the lessee does not make an election under 43 CFR 3200.8(b).
Class III lease means:

A lease that BLM issued before August 8, 2005, for which the lessee has converted to the royalty rate or
direct use fee terms under 43 CFR 3212.25.
Commercial production or generation of electricity means generation of electricity that is sold or is subject to
sale, including the electricity or energy that is reasonably required to produce the resource used in
production of electricity for sale or to convert geothermal energy into electrical energy for sale.
Contract means any oral or written agreement, including amendments or revisions thereto, between two or
more persons and enforceable by law that with due consideration creates an obligation.
Deduction means a subtraction the lessee uses to determine the value of geothermal resources produced
from a Class I lease that the lessee uses to generate electricity.
Delivered electricity means the amount of electricity in kilowatt-hours delivered to the purchaser.
Direct use means the utilization of geothermal resources for commercial, residential, agricultural, public
facilities, or other energy needs, other than the commercial production or generation of electricity.
Direct use facility means a facility that uses the heat or other energy of the geothermal resource for direct
use purposes.
Electrical facility means a power plant or other facility that uses a geothermal resource to generate
electricity.
Field means the land surface vertically projected over a subsurface geothermal reservoir encompassing at
least the outermost boundaries of all geothermal accumulations known to be within that reservoir.
Geothermal fields are usually given names and their official boundaries are often designated by regulatory
agencies in the respective States in which the fields are located.
Gathering means the movement of lease production from the wellhead to the point of utilization.
Generating deduction means a deduction for the lessee's reasonable, actual costs of generating plant
tailgate electricity.
Geothermal resources means:
(1) All products of geothermal processes, including indigenous steam, hot water, and hot brines;
(2) Steam and other gases, hot water, and hot brines resulting from water, gas, or other fluids artificially
introduced into geothermal formations;
(3) Heat or other associated energy found in geothermal formations; and
(4) Any byproducts.
Gross proceeds (for royalty payment purposes) means the total monies and other consideration accruing to
a geothermal lessee for the sale of electricity or geothermal resource. Gross proceeds includes, but is not
limited to:
(1) Payments to the lessee for certain services such as effluent injection, field operation and maintenance,
drilling or workover of wells, or field gathering to the extent that the lessee is obligated to perform such
functions at no cost to the Federal Government;
(2) Reimbursements for production taxes and other taxes. Tax reimbursements are part of gross proceeds
accruing to a lessee even though the Federal royalty interest may be exempt from taxation; and

(3) Any monies and other consideration, including the forms of consideration identified in this paragraph, to
which a lessee is contractually or legally entitled but which it does not seek to collect through reasonable
efforts.
Lease means a geothermal lease issued under the authority of the GSA, unless the context indicates
otherwise.
Lessee (you) means any person to whom the United States issues a geothermal lease, and any person who
has been assigned an obligation to make royalty, fee, or other payments required by the lease. This includes
any person who has an interest in a geothermal lease as well as an operator or payor who has no interest in
the lease but who has assumed the royalty, fee, or other payment responsibility. This also includes any
affiliate of the lessee that uses the geothermal resource to generate electricity, in a direct use process, or to
recover byproducts, or any affiliate that sells or transports lease production.
Marketable condition means lease products that 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 disposition from the
field or area of such lease products.
Person means any individual, firm, corporation, association, partnership, consortium, or joint venture (when
established as a separate entity).
Plant parasitic electricity means electricity used to operate a power plant that is used for commercial
production or generation of electricity.
Plant tailgate electricity means the amount of electricity in kilowatt-hours generated by a power plant
exclusive of plant parasitic electricity, but inclusive of any electricity generated by the power plant and
returned to the lease for lease operations. Plant tailgate electricity should be measured at, or calculated for,
the high voltage side of the transformer in the plant switchyard.
Point of utilization means the power plant or direct use facility in which the geothermal resource is utilized.
Public purpose means a program carried out by a State, tribal, or local government for the purpose of
providing facilities or services for the benefit of the public in connection with, but not limited to, public health,
safety or welfare, other than the commercial generation of electricity. Use of lands or facilities for habitation,
cultivation, trade or manufacturing is permissible only when necessary for and integral to (i.e., an essential
part of) the public purpose.
Public safety or welfare means a program carried out or promoted by a public agency for public purposes
involving, directly or indirectly, protection, safety, and law enforcement activities, and the criminal justice
system of a given political area. Public safety or welfare may include, but is not limited to, programs carried
out by:
(1) Public police departments;
(2) Sheriffs' offices;
(3) The courts;
(4) Penal and correctional institutions (including juvenile facilities);
(5) State and local civil defense organizations; and
(6) Fire departments and rescue squads (including volunteer fire departments and rescue squads supported
in whole or in part with public funds).

Reasonable alternative fuel means a conventional fuel (such as coal, oil, gas, or wood) that would normally
be used as a source of heat in direct use operations.
Secretary means the Secretary of the Interior or any person duly authorized to exercise the powers vested in
that office.
Transmission deduction means a deduction for the lessee's reasonable actual costs incurred to wheel or
transmit the electricity from the lessee's power plant to the purchaser's delivery point.
Wheeling means the transmission of electricity from a power plant to the point of delivery.

§ 206.352 How do I calculate the royalty due on geothermal resources used for
commercial production or generation of electricity?
(a) If you sold geothermal resources produced from a Class I, II, or III lease at arm's length that the
purchaser uses to generate electricity, then the royalty on the geothermal resources is the gross proceeds
accruing to you from the sale of the geothermal resource to the arm's-length purchaser multiplied by either:
(1) The royalty rate in your lease; or
(2) The royalty rate that BLM prescribes or calculates under 43 CFR 3211.17. See §206.361 for additional
provisions applicable to determining gross proceeds under arm's-length sales.
(b) If you use the geothermal resource in your own power plant for the generation and sale of electricity, the
following provisions apply
(1) For Class I leases, you must determine the royalty on produced geothermal resources in accordance
with the first applicable of the following paragraphs:
(i) The gross proceeds accruing to you from the arm's-length sale of the electricity less applicable
deductions determined under §206.353 and §206.354 of this part, multiplied by the royalty rate in your lease.
See §206.361 for additional provisions applicable to determining gross proceeds under arm's-length sales.
Under no circumstances may the deductions reduce the royalty value of the geothermal resource to zero; or
(ii) A royalty determined by any other reasonable method approved by MMS under §206.364 of this subpart.
(2) For Class II and Class III leases, the royalty on geothermal resources produced is your gross proceeds
from the sale of electricity multiplied by the royalty rate BLM prescribed for your lease under 43 CFR
3211.17. See §206.361 for additional provisions applicable to determining gross proceeds under arm'slength sales. You may not reduce gross proceeds by any deductions.

§ 206.353 How do I determine transmission deductions?
(a) If you determine the value of your geothermal resources under §206.352(b)(1)(i) of this subpart, you may
subtract a transmission deduction from the gross proceeds you received for the sale of electricity to
determine the plant tailgate value of the electricity.
(1) The transmission deduction consists of either or both of two components:
(i) Transmission line costs as determined under paragraph (b) of this section; and
(ii) Wheeling costs if the electricity is transmitted across a third party's transmission line under an arm'slength wheeling agreement.

(2) You may deduct the actual costs you (including your affiliate(s)) incur for transmitting electricity under
your arm's-length wheeling contract.
(b) To determine your transmission line cost, you must follow the requirements of paragraphs (b)(1) and
(b)(2) of this section.
(1) Your transmission line costs are your actual costs associated with the construction and operation of a
transmission line for the purpose of transmitting electricity attributable and allocable to your power plant
utilizing Federal geothermal resources.
(i) You must determine the monthly transmission line cost component of the transmission deduction by
multiplying the annual transmission line cost rate (in dollars per kilowatt-hour) by the amount of electricity
delivered for the reporting month.
(ii) You must redetermine the transmission line cost rate annually either at the beginning of the same month
of the year in which the power plant was placed into service or at a time concurrent with the beginning of
your annual corporate accounting period. The period you select must coincide with the same period you
chose for the generating deduction under §206.354(b)(1). After you choose a deduction period, you may not
later elect to use a different deduction period without MMS approval.
(2) Your actual transmission line costs during the reporting period include:
(i) Operating and maintenance expenses under paragraphs (d) and (e) of this section;
(ii) Overhead under paragraph (f) of this section; and either
(iii) Depreciation under paragraphs (g) and (h) of this section and a return on undepreciated capital
investment under paragraphs (g) and (i) of this section or
(iv) A return on the capital investment in the transmission line under paragraphs (g) and (j) of this section.
(c)(1) Allowable capital costs under paragraph (b) of this section are generally those for depreciable fixed
assets (including costs of delivery and installation of capital equipment) that are an integral part of the
transmission line.
(2)(i) You may include a return on capital you invested in the purchase of real estate for transmission
facilities if:
(A) Such purchase is necessary; and
(B) The surface is not part of the Federal lease.
(ii) The rate of return will be the same rate determined under paragraph (k) of this section.
(d) Allowable operating expenses include:
(1) Operations supervision and engineering;
(2) Operations labor;
(3) Fuel;
(4) Utilities;
(5) Materials;

(6) Ad valorem property taxes;
(7) Rent;
(8) Supplies; and
(9) Any other directly allocable and attributable operating or maintenance expense that you can document.
(e) Allowable maintenance expenses include:
(1) Maintenance of the transmission line;
(2) Maintenance of equipment;
(3) Maintenance labor; and
(4) Other directly allocable and attributable maintenance expenses that you can document.
(f) Overhead directly attributable and allocable to the operation and maintenance of the transmission line is
an allowable expense. State and Federal income taxes and severance taxes and other fees, including
royalties, are not allowable expenses.
(g) To compute costs associated with capital investment, a lessee may use either depreciation with a return
on undepreciated capital investment, or a return on capital investment in the transmission line. After a lessee
has elected to use either method, the lessee may not later elect to change to the other alternative without
MMS approval.
(h)(1) To compute depreciation, you must use a straight-line depreciation method based on the life of the
geothermal project, usually the term of the electricity sales contract, or other depreciation period acceptable
to MMS. You may not depreciate equipment below a reasonable salvage value.
(2) A change in ownership of a transmission line does not alter the depreciation schedule established by the
original lessee-owner for purposes of computing transmission line costs.
(3) With or without a change in ownership, you may depreciate a transmission line only once.
(i) To calculate a return on undepreciated capital investment, multiply the remaining undepreciated capital
balance as of the beginning of the period for which you are calculating the transmission deduction by the
rate of return provided in paragraph (k) of this section.
(j) To compute a return on capital investment in the transmission line, multiply the allowable capital
investment in the transmission line by the rate of return determined pursuant to paragraph (k) of this section.
There is no allowance for depreciation.
(k) The rate of return must be 2.0 multiplied by the industrial rate associated with Standard & Poor's BBB
rating. The BBB rate must be the monthly average rate as published in Standard & Poor's Bond Guide for
the first month for which the allowance is applicable. Redetermine the rate at the beginning of each
subsequent calendar year.
(l) Calculate the deduction for transmission costs based on your cost of transmitting electricity through each
individual transmission line.
(m)(1) For new transmission facilities or arrangements, base your initial deduction on estimates of allowable
electricity transmission costs for the applicable period. Use the most recently available operations data for
the transmission line or, if such data are not available, use estimates based on data for similar transmission
lines.

(2) When actual cost information is available, you must amend your prior Form MMS–2014 reports to reflect
actual transmission costs deductions for each month for which you reported and paid based on estimated
transmission costs. You must pay any additional royalties due (together with interest computed under
§218.302). You are entitled to a credit for or refund of any overpaid royalties.
(n) In conducting reviews and audits, MMS may require you to submit arm's-length transmission contracts,
production agreements, operating agreements, and related documents and all other data used to calculate
the deduction. You must comply with any such requirements within the time MMS specifies. Recordkeeping
requirements are found at part 212 of this chapter.
(o) At the completion of transmission line dismantlement and salvage operations, you may report a credit for
or request a refund of royalties in an amount equal to the royalty rate times the amount by which actual
transmission line dismantlement costs exceed actual income attributable to salvage of the transmission line.

§ 206.354 How do I determine generating deductions?
(a) If you determine the value of your geothermal resources under §206.352(b)(1)(i) of this subpart, you may
deduct your reasonable actual costs incurred to generate electricity from the plant tailgate value of the
electricity (usually the transmission-reduced value of the delivered electricity). You may deduct the actual
costs you incur for generating electricity under your arm's-length power plant contract.
(b)(1) You must base your generating costs deduction on your actual annual costs associated with the
construction and operation of a geothermal power plant.
(i) You must determine your monthly generating deduction by multiplying the annual generating cost rate (in
dollars per kilowatt-hour) by the amount of plant tailgate electricity measured (or computed) for the reporting
month. The generating cost rate is determined from the annual amount of your plant tailgate electricity.
(ii) You must redetermine your generating cost rate annually either at the beginning of the same month of
the year in which the power plant was placed into service or at a time concurrent with the beginning of your
annual corporate accounting period. The period you select must coincide with the same period chosen for
the transmission deduction under §206.353(b)(1). After you choose a deduction period, you may not later
elect to use a different deduction period without MMS approval.
(2) Your generating costs are your actual power plant costs during the reporting period, including:
(i) Operating and maintenance expenses under paragraphs (d) and (e) of this section;
(ii) Overhead under paragraph (f) of this section; and either
(iii) Depreciation under paragraphs (g) and (h) of this section and a return on undepreciated capital
investment under paragraphs (g) and (i) of this section; or
(iv) A return on capital investment in the power plant under paragraphs (g) and (j) of this section.
(c)(1) Allowable capital costs under paragraph (b) of this section are generally those for depreciable fixed
assets (including costs of delivery and installation of capital equipment) that are an integral part of the power
plant or are required by the design specifications of the power conversion cycle.
(2)(i) You may include a return on capital you invested in the purchase of real estate for a power plant site if:
(A) The purchase is necessary; and,
(B) The surface is not part of the Federal lease.
(ii) The rate of return will be the same rate determined under paragraph (k) of this section.

(3) You may not deduct the costs of gathering systems and other production-related facilities.
(d) Allowable operating expenses include:
(1) Operations supervision and engineering;
(2) Operations labor;
(3) Auxiliary fuel and/or utilities used to operate the power plant during down time;
(4) Utilities;
(5) Materials;
(6) Ad valorem property taxes;
(7) Rent;
(8) Supplies; and
(9) Any other directly allocable and attributable operating expense.
(e) Allowable maintenance expenses include:
(1) Maintenance of the power plant;
(2) Maintenance of equipment;
(3) Maintenance labor; and
(4) Other directly allocable and attributable maintenance expenses that you can document.
(f) Overhead directly attributable and allocable to the operation and maintenance of the power plant is an
allowable expense. State and Federal income taxes and severance taxes and other fees, including royalties,
are not allowable expenses.
(g) To compute costs associated with capital investment, a lessee may use either depreciation with a return
on undepreciated capital investment, or a return on capital investment in the power plant. After a lessee has
elected to use either method, the lessee may not later elect to change to the other alternative without MMS
approval.
(h)(1) To compute depreciation, you must use a straight-line depreciation method based on the life of the
geothermal project, usually the term of the electricity sales contract, or other depreciation period acceptable
to MMS. You may not depreciate equipment below a reasonable salvage value.
(2) A change in ownership of the power plant does not alter the depreciation schedule established by the
original lessee-owner for purposes of computing generating costs.
(3) With or without a change in ownership, you may depreciate a power plant only once.
(i) To calculate a return on undepreciated capital investment, multiply the remaining undepreciated capital
balance as of the beginning of the period for which you are calculating the generating deduction allowance
by the rate of return provided in paragraph (k) of this section.

(j) To compute a return on capital investment in the power plant, multiply the allowable capital investment in
the power plant by the rate of return determined pursuant to paragraph (k) of this section. There is no
allowance for depreciation.
(k) The rate of return must be 2.0 multiplied by the industrial rate associated with Standard & Poor's BBB
rating. The BBB rate must be the monthly average rate as published in Standard & Poor's Bond Guide for
the first month for which the allowance is applicable. You must redetermine the rate at the beginning of each
subsequent calendar year.
(l) Calculate the deduction for generating costs based on your cost of generating electricity through each
individual power plant.
(m)(1) For new power plants or arrangements, base your initial deduction on estimates of allowable
electricity generation costs for the applicable period. Use the most recently available operations data for the
power plant or, if such data are not available, use estimates based on data for similar power plants.
(2) When actual cost information is available, you must amend your prior Form MMS–2014 reports to reflect
actual generating cost deductions for each month for which you reported and paid based on estimated
generating costs. You must pay any additional royalties due (together with interest computed under
§218.302). You are entitled to a credit for or refund of any overpaid royalties.
(n) In conducting reviews and audits, MMS may require you to submit arm's-length power plant contracts,
production agreements, operating agreements, related documents and all other data used to calculate the
deduction. You must comply with any such requirements within the time MMS specifies. Recordkeeping
requirements are found at part 212 of this chapter.
(o) At the completion of power plant dismantlement and salvage operations, you may report a credit for or
request a refund of royalty in an amount equal to the royalty rate times the amount by which actual power
plant dismantlement costs exceed actual income attributable to salvage of the power plant.

§ 206.355 How do I calculate royalty due on geothermal resources I sell at arm's length to
a purchaser for direct use?
If you sell geothermal resources produced from Class I, II, or III leases at arm's length to a purchaser for
direct use, then the royalty on the geothermal resource is the gross proceeds accruing to you from the sale
of the geothermal resource to the arm's-length purchaser multiplied by the royalty rate in your lease or that
BLM prescribes under 43 CFR 3211.18. See §206.361 for additional provisions applicable to determining
gross proceeds under arm's-length sales.

§ 206.356 How do I calculate royalty or fees due on geothermal resources I use for direct
use purposes?
If you use the geothermal resource for direct use:
(a) For Class I leases, you must determine the royalty due on geothermal resources in accordance with the
first applicable of the following three paragraphs.
(1) The weighted average of the gross proceeds established in arm's-length contracts for the purchase of
significant quantities of geothermal resources to operate the lessee's same direct-use facility multiplied by
the royalty rate in your lease. In evaluating the acceptability of arm's-length contracts, the following factors
will be considered: time of execution, duration, terms, volume, quality of resource, and such other factors as
may be appropriate to reflect the value of the resource.
(2) The equivalent value of the least expensive, reasonable alternative energy source (fuel) multiplied by the
royalty rate in your lease. The equivalent value of the least expensive, reasonable alternative energy source
will be based on the amount of thermal energy that would otherwise be used by the direct use facility in

place of the geothermal resource. That amount of thermal energy (in Btu) displaced by the geothermal
resource will be determined by the equation:

Where hinis the enthalpy in Btu/lb at the direct use facility inlet (based on measured inlet temperature), houtis
the enthalpy in Btu/lb at the facility outlet (based on measured outlet temperature), density is in lbs/cu ft
based on inlet temperature, the factor 0.113681 (cu ft/gal) converts gallons to cubic feet, and volume is the
quantity of geothermal fluid in gallons produced at the wellhead or measured at an approved point. The
efficiency factor of the alternative energy source will be 0.7 for coal and 0.8 for oil, natural gas, and other
fuels derived from oil and natural gas, or an efficiency factor proposed by the lessee and approved by MMS.
The methods of measuring resource parameters (temperature, volume, etc.) and the frequency of computing
and accumulating the amount of thermal energy displaced will be determined and approved by BLM under
43 CFR 3275.13–3275.17.
(3) A royalty determined by any other reasonable method approved by MMS or the Assistant Secretary,
Land and Minerals Management of the Department of the Interior, under §206.364 of this part.
(b) For geothermal resources produced from Class II and Class III leases, you must multiply the appropriate
fee from the schedule in subparagraph (b)(1) of this section by the number of gallons or pounds you produce
from the direct use lease each month.
(1) You must use the following fee schedule to calculate fees due under this section:
Direct Use Fee Schedule
[Hot water]

If your average monthly inlet temperature ( °F)
is
At least . . .

Your fees are . . .
($/million
gallons)

But less than . . .

($/million
pounds)

130

140

2.524

0.307

140

150

7.549

0.921

150

160

12.543

1.536

160

170

17.503

2.150

170

180

22.426

2.764

180

190

27.310

3.379

190

200

32.153

3.993

200

210

36.955

4.607

210

220

41.710

5.221

220

230

46.417

5.836

230

240

51.075

6.450

240

250

55.682

7.064

250

260

60.236

7.679

260

270

64.736

8.293

270

280

69.176

8.907

280

290

73.558

9.521

290

300

77.876

10.136

300

310

82.133

10.750

310

320

86.328

11.364

320

330

90.445

11.979

330

340

94.501

12.593

340

350

98.481

13.207

350

360

102.387

13.821

(i) For direct use geothermal resources with an average monthly inlet temperature of 130 °F or less, you
must pay only the lease rental.
(ii) The MMS, in consultation with BLM, will develop and publish a revised fee schedule in theFederal
Register,as needed.
(iii) The MMS, in consultation with BLM, will calculate revised fees schedules using the following formulas:

Where:
RV= Royalty due as a function of produced volume in the fee schedule, expressed as dollars per
million (106 ) gallons;
Rm= Royalty due as a function of produced mass in the fee schedule, expressed as dollars per
million (106 ) pounds;
ρ[rho] = Water density at inlet temperature expressed as lbs per gallon;
Tin= Measured inlet temperature in °F (as required by BLM under 43 CFR part 3275);
Tout= Established assumed outlet temperature of 130°F;
e = Boiler Efficiency Factor for coal of 70 percent;
Pprbc= The 3-year historical average of Powder River Basin spot coal prices, as published by the
Energy Information Administration, or other recognized authoritative reference source of coal
prices, in dollars (per MMBtu);

Frr= The assumed Lease Royalty Rate of 10 percent.
(2) The fee that you report is subject to monitoring, review, and audit.
(3) The schedule of fees established under this paragraph will apply to any Class III lease with respect to
any royalty payments previously made when the lease was a Class I lease that were due and owing, and
were paid, on or after July 16, 2003. To use this provision, you must provide MMS data showing the amount
of geothermal production in pounds or gallons of geothermal fluid to input into the fee schedule (see 43 CFR
part 3276).
(i) If the royalties you previously paid are less than the fees due under this section, you must pay the
difference plus interest on that difference computed under §218.302.
(ii) If the royalties you previously paid are more than the fees due under this section, then you are entitled to
a refund or credit from MMS of 50 percent of the overpaid royalties. You are also entitled to a refund or
credit of any interest that you paid on the overpaid royalties.
(c) For geothermal resources other than hot water, MMS will determine fees on a case-by-case basis.

§ 206.357 How do I calculate royalty due on byproducts?
(a) If you sell byproducts, you must determine the royalty due on the byproducts that are royalty-bearing
under:
(1) Applicable lease terms of Class I leases and of Class III leases that do not elect to be subject to all of the
BLM regulations promulgated for leases issued after August 8, 2005, under 43 CFR 3200.7(a)(2), or
(2) Applicable statutory provisions at 30 U.S.C. 1004(a)(2) for Class II leases and for Class III leases that do
elect to be subject to all of the BLM regulations promulgated for leases issued after August 8, 2005, under
43 CFR 3200.7(a)(2).
(b) You must determine the royalty due on the byproducts by multiplying the royalty rate in your lease or that
BLM prescribes under 43 CFR 3211.19 by a value of the byproducts determined in accordance with the first
applicable of the following subparagraphs:
(1) The gross proceeds accruing to you from the arm's-length sale of the byproducts, less any applicable
byproduct transportation allowances determined under §§206.358 and 206.359. See §206.361 for additional
provisions applicable to determining gross proceeds;
(2) Other relevant matters including, but not limited to, published or publicly available spot-market prices, or
information submitted by the lessee concerning circumstances unique to a particular lease operation or the
saleability of certain byproducts; or
(3) Any other reasonable valuation method approved by MMS.

§ 206.358 What are byproduct transportation allowances?
(a) When you determine the value of byproducts at a point off the geothermal lease, unit, or participating
area, you are allowed a deduction in determining value, for royalty purposes, for your reasonable, actual
costs incurred to:
(1) Transport the byproducts from a Federal lease, unit, or participating area to a sales point or point of
delivery that is off the lease, unit, or participating area; or
(2) Transport the byproducts from a Federal lease, unit, or participating area, or from a geothermal use
facility to a byproduct recovery facility when that byproduct recovery facility is off the lease, unit, or

participating area and, if applicable, from the recovery facility to a sales point or point of delivery off the
lease, unit, or participating area.
(b) Costs for transporting geothermal fluids from the lease to the geothermal use facility, whether on or off
the lease, are not includible in the byproduct transportation allowance.
(c)(1) When you transport byproducts from a lease, unit, participating area, or geothermal use facility to a
byproduct recovery facility, you are not required to allocate transportation costs between the quantity of
marketable byproducts and the rejected waste material. The byproduct transportation allowance is
authorized for the total production that is transported. You must express byproduct transportation
allowances as a cost per unit of marketable byproducts transported.
(2) For byproducts that are extracted on the lease, unit, participating area, or at the geothermal use facility,
the byproduct transportation allowance is authorized for the total byproduct that is transported to a point of
sale off the lease, unit, or participating area. You must express byproduct transportation allowances as a
cost per unit of byproduct transported.
(3) You may deduct transportation costs only when you sell, deliver, or otherwise utilize the transported
byproduct and report and pay royalties on the byproduct.
(d) Reporting requirements. (1) You must use a discrete field on Form MMS–2014 to notify MMS of a
transportation allowance.
(2) In conducting reviews and audits, MMS may require you to submit arm's-length transportation contracts,
production agreements, operating agreements, and related documents. You must comply with any such
requirements within the time MMS specifies. Recordkeeping requirements are found at part 212 of this
chapter.
(e) Byproduct transportation allowances are subject to monitoring, review, and audit. If, after a review or
audit, MMS determines that you have improperly determined a byproduct transportation allowance, you
must pay any additional royalties due (plus interest computed under §218.302). You are entitled to a credit
for or refund of any overpaid royalties.
(f) If you commingled byproducts produced from Federal and non-Federal leases for transportation, you may
not disproportionately allocate transportation costs to Federal lease production.

§ 206.359 How do I determine byproduct transportation allowances?
(a) For transportation costs you incur under an arm's-length contract, the transportation allowance will be the
reasonable, actual costs you incurred for transporting the byproducts under that contract.
(1) In conducting reviews and audits, MMS will examine whether the contract reflects more than the
consideration actually transferred either directly or indirectly from you to the transporter for the
transportation. If the contract reflects more than the total consideration you paid, MMS may require you to
determine the byproduct transportation allowance under paragraph (b) of this section.
(2) If MMS determines that the consideration you paid under an arm's-length byproduct transportation
contract does not reflect the reasonable value of the transportation because of misconduct by or between
the contracting parties, or because you otherwise have breached your duty to the lessor to market the
production for the mutual benefit of the lessee and the lessor, MMS will require you to determine the
byproduct transportation allowance under paragraph (b) of this section. When MMS determines that the
value of the transportation may be unreasonable, MMS will notify you and give you an opportunity to provide
written information justifying your transportation costs.
(3) Where your payments for transportation under an arm's-length contract are not established on a dollarsper-unit basis, you must convert whatever consideration you paid to a dollar value equivalent for the
purposes of this section.

(b) If you transport the byproduct yourself or under a non-arm's-length transportation arrangement, the
byproduct transportation allowance is your reasonable actual costs for transportation during the reporting
period, including:
(1) Operating and maintenance expenses under paragraphs (d) and (e) of this section;
(2) Overhead under paragraph (f) of this section; and either
(3) Depreciation under paragraphs (g) and (h) of this section and a return on undepreciated capital
investment under paragraphs (g) and (i) of this section; or
(4) A return on capital investment in the transportation system under paragraphs (g) and (j) of this section.
(c)(1) Allowable capital costs under paragraph (b) of this section are generally those for depreciable fixed
assets (including costs of delivery and installation of capital equipment) that are an integral part of the
transportation system.
(2)(i) You may include a return on capital you invested in the purchase of real estate to locate the byproduct
transportation facilities if:
(A) The purchase is necessary; and
(B) The surface is not part of a Federal lease.
(ii) The rate of return will be the same rate determined in paragraph (k) of this section.
(3) You may not deduct the costs of gathering systems and other production-related facilities.
(d) Allowable operating expenses include:
(1) Operations supervision and engineering;
(2) Operations labor;
(3) Fuel;
(4) Utilities;
(5) Materials;
(6) Ad valorem property taxes;
(7) Rent;
(8) Supplies; and
(9) Any other directly allocable and attributable operating expense that you can document.
(e) Allowable maintenance expenses include:
(1) Maintenance of the transportation system;
(2) Maintenance of equipment;

(3) Maintenance labor; and
(4) Other directly allocable and attributable maintenance expenses that you can document.
(f) Overhead directly attributable and allocable to the operation and maintenance of the transportation
system is an allowable expense. State and Federal income taxes and severance taxes and other fees,
including royalties, are not allowable expenses.
(g) To compute costs associated with capital investment, a lessee may use either paragraphs (h) and (i) or
paragraph (j) of this section. After a lessee has elected to use either method for a transportation system, the
lessee may not later elect to change to the other alternative without MMS approval.
(h)(1) To compute depreciation, you must use a straight-line depreciation method based on either the life of
the equipment or the life of the geothermal project which the transportation system services. After you
choose the basis for depreciation, you may not change that basis without MMS approval. You may not
depreciate equipment below a reasonable salvage value.
(2) A change in ownership of a transportation system does not alter the depreciation schedule established
by the original lessee-owner for purposes of computing transportation costs.
(3) With or without a change in ownership, you may depreciate a transportation system only once.
(i) To calculate a return on undepreciated capital investment, multiply the remaining undepreciated capital
balance as of the beginning of the period for which you are calculating the transportation allowance by the
rate of return provided in paragraph (k) of this section.
(j) To compute a return on capital investment in the transportation system, the allowed cost will be the
amount equal to the allowable capital investment in the transportation system multiplied by the rate of return
determined pursuant to paragraph (k) of this section. There is no allowance for depreciation.
(k) The rate of return must be the industrial rate associated with Standard & Poor's BBB rating. The BBB
rate must be the monthly average rate as published in Standard & Poor's Bond Guide for the first month for
which the allowance is applicable. You must redetermine the rate at the beginning of each subsequent
calendar year.
(l)(1) For new transportation facilities or arrangements, base your initial deduction on estimates of allowable
byproduct transportation costs for the applicable period. Use the most recently available operations data for
the transportation system or, if such data are not available, use estimates based on data for similar
transportation systems.
(2) When actual cost information is available, you must amend your prior Form MMS–2014 reports to reflect
actual byproduct transportation cost deductions for each month for which you reported and paid based on
estimated byproduct transportation costs. You must pay any additional royalties due (together with interest
computed under §218.302). You are entitled to a credit for or a refund of any overpaid royalties.

§ 206.360 What records must I keep to support my calculations of royalty or fees under
this subpart?
If you determine royalties or direct use fees for your geothermal resource under this subpart, you must retain
all data relevant to the determination of the royalty value or the fee you paid. Recordkeeping requirements
are found at part 212 of this chapter.
(a) You must be able to show:
(1) How you calculated the royalty value or fee you reported, including all allowable deductions; and

(2) How you complied with this subpart.
(b) Upon request, you must submit all data to MMS. You must comply with any such requirement within the
time MMS specifies.

§ 206.361 How will MMS determine whether my royalty or direct use fee payments are
correct?
(a)(1) The royalties or direct use fees that you report are subject to monitoring, review, and audit. The MMS
may review and audit your data, and MMS will direct you to use a different measure of royalty value, gross
proceeds, or fee, whichever is applicable, if it determines that the reported value, gross proceeds, or fee is
inconsistent with the requirements of this subpart.
(2) If MMS directs you to use a different royalty value, measure of gross proceeds, or fee, you must either
pay any royalties or fees due (together with interest computed under §218.302) or report a credit for or
request a refund of any overpaid royalties or fees.
(b) When the provisions in this subpart refer to gross proceeds either for the sale of electricity or the sale of
a geothermal resource, in conducting reviews and audits MMS will examine whether your sales contract
reflects the total consideration actually transferred, either directly or indirectly, from the buyer to you for the
geothermal resource or electricity. If MMS determines that a contract does not reflect the total consideration,
or the gross proceeds accruing to you under a contract do not reflect reasonable consideration because of
misconduct by or between the contracting parties, or because you otherwise have breached your duty to the
lessor to market the production for the mutual benefit of the lessee and the lessor, MMS may require you to
increase the gross proceeds to reflect any additional consideration. Alternatively, for Class I leases, MMS
may require you to use another valuation method in the regulations applicable to dispositions other than
under an arm's-length contract. The MMS will notify you to give you an opportunity to provide written
information justifying your gross proceeds.
(c) For arm's-length sales, you have the burden of demonstrating that your contract is arm's length.
(d) The MMS may require you to certify that the provisions in your sales contract include all of the
consideration the buyer paid you, either directly or indirectly, for the electricity or geothermal resource.
(e) Notwithstanding any other provision of this subpart, under no circumstances will the value of production
for royalty purposes under a Class I lease where the geothermal resources are sold before use be less than
the gross proceeds accruing to you.
(f) Gross proceeds for the sale of electricity or for the sale of the geothermal resource will be based on the
highest price a prudent lessee can receive through legally enforceable claims under its contract.
(1) Absent contract revision or amendment, if you fail to take proper or timely action to receive prices or
benefits to which you are entitled, you must pay royalty based upon that obtainable price or benefit.
(2) Contract revisions or amendments you make must be in writing and signed by all parties to the contract.
(3) If you make timely application for a price increase or benefit allowed under your contract, but the
purchaser refuses and you take reasonable measures, which are documented, to force purchaser
compliance, you will owe no additional royalties unless or until you receive additional monies or
consideration resulting from the price increase. This paragraph (f)(3) will not be construed to permit you to
avoid your royalty payment obligation in situations where a purchaser fails to pay, in whole or in part or
timely, for a quantity of geothermal resources or electricity.

§ 206.362 What are my responsibilities to place production into marketable condition and
to market production?

You must place geothermal resources and byproducts in marketable condition and market the geothermal
resources or byproducts for the mutual benefit of the lessee and the lessor at no cost to the Federal
Government. If you use gross proceeds under an arm's-length contract in determining royalty, you must
increase those gross proceeds to the extent that the purchaser, or any other person, provides certain
services that the seller normally would be responsible to perform to place the geothermal resources or
byproducts in marketable condition or to market the geothermal resources or byproducts.

§ 206.363 When is an MMS audit, review, reconciliation, monitoring, or other like process
considered final?
Notwithstanding any provision in these regulations to the contrary, no audit, review, reconciliation,
monitoring, or other like process that results in a redetermination by MMS of royalty or fees due under this
subpart is considered final or binding as against the Federal Government or its beneficiaries until MMS
formally closes the audit period in writing.

§ 206.364 How do I request a value or gross proceeds determination?
(a) You may request a value determination from MMS regarding any geothermal resources produced from a
Class I lease or for byproducts produced from a Class I, Class II, or Class III lease. You may also request a
gross proceeds determination for a Class II or Class III lease. Your request must:
(1) Be in writing;
(2) Identify specifically all leases involved, all owners of interests in those leases, and the operator(s) for
those leases;
(3) Completely explain all relevant facts. You must inform MMS of any changes to relevant facts that occur
before we respond to your request;
(4) Include copies of all relevant documents;
(5) Provide your analysis of the issue(s), including citations to all relevant precedents (including adverse
precedents); and
(6) Suggest your proposed gross proceeds calculation or valuation method.
(b) In response to your request:
(1) The Assistant Secretary, Land and Minerals Management, may issue a determination; or
(2) The MMS may issue a determination; or
(3) The MMS may inform you in writing that MMS will not provide a determination. Situations in which MMS
typically will not provide any determination include, but are not limited to:
(i) Requests for guidance on hypothetical situations; and
(ii) Matters that are the subject of pending litigation or administrative appeals.
(c)(1) A determination signed by the Assistant Secretary, Land and Minerals Management, is binding on
both you and MMS until the Assistant Secretary modifies or rescinds it.
(2) After the Assistant Secretary issues a determination, you must make any adjustments in royalty
payments that follow from the determination and, if you owe additional royalties, pay the royalties owed
together with late payment interest computed under §218.302.

(3) A determination signed by the Assistant Secretary is the final action of the Department and is subject to
judicial review under 5 U.S.C. 701–706.
(d) A determination issued by MMS is binding on MMS and delegated States, but not on you, with respect to
the specific situation addressed in the determination unless the MMS (for MMS-issued determinations) or
the Assistant Secretary modifies or rescinds it.
(1) A determination by MMS is not an appealable decision or order under 30 CFR part 290 subpart B.
(2) If you receive an order requiring you to pay royalty on the same basis as the determination, you may
appeal that order under 30 CFR part 290 subpart B.
(e) In making a determination, MMS or the Assistant Secretary may use any of the applicable criteria in this
subpart.
(f) A change in an applicable statute or regulation on which any determination is based takes precedence
over the determination after the effective date of the statute or regulation, regardless of whether the MMS or
the Assistant Secretary modifies or rescinds the determination.
(g) The MMS or the Assistant Secretary generally will not retroactively modify or rescind a determination
issued under paragraph (d) of this section, unless:
(1) There was a misstatement or omission of material facts; or
(2) The facts subsequently developed are materially different from the facts on which the guidance was
based.
(h) The MMS may make requests and replies under this section available to the public, subject to the
confidentiality requirements under §206.365.

§ 206.365 Does MMS protect information I provide?
Certain information you submit to MMS regarding royalties or fees on geothermal resources or byproducts,
including deductions and allowances, may be exempt from disclosure. To the extent applicable laws and
regulations permit, MMS will keep confidential any data you submit that is privileged, confidential, or
otherwise exempt from disclosure. All requests for information must be submitted under the Freedom of
Information Act regulations of the Department of the Interior at 43 CFR part 2.

§ 206.366 What is the nominal fee that a State, tribal, or local government lessee must
pay for the use of geothermal resources?
If a State, tribal, or local government lessee uses a geothermal resource without sale and for public
purposes—other than commercial production or generation of electricity—the State, tribal, or local
government lessee must pay a nominal fee. A nominal fee means a slight or de minimis fee. The MMS will
determine the fee on a case-by-case basis.

§ 212.52

30 CFR Ch. II (7–1–06 Edition)

during the period for which they have
paying or operating responsibility on
the lease for a period of 6 years.
(c) Inspection of records. The lessee,
operator, revenue payor, or other person required to keep records shall be
responsible for making the records
available for inspection. Records shall
be provided at a business location of
the lessee, operator, revenue payor, or
other person during normal business
hours upon the request of any officer,
employee or other party authorized by
the Secretary. Lessees, operators, revenue payors, and other persons will be
given a reasonable period of time to
produce historical records.
[49 FR 37345, Sept. 21, 1984; 49 FR 40576, Oct.
17, 1984, as amended at 67 FR 19111, Apr. 18,
2002]

§ 212.52

Definitions.

Terms used in this subpart shall have
the same meaning as in 30 U.S.C. 1702.
[49 FR 37345, Sept. 21, 1984]

Subpart C—Federal and Indian Oil
[Reserved]
Subpart D—Federal and Indian
Gas [Reserved]
Subpart E—Solid Minerals—
General
§ 212.200 Maintenance of and access to
records.
(a) All records pertaining to Federal
and Indian solid minerals leases shall
be maintained by a lessee, operator,
revenue payor, or other person for 6
years after the records are generated
unless the record holder is notified, in
writing, that records must be maintained for a longer period. When an
audit or investigation is underway,
records shall be maintained until the
record holder is released by written notice of the obligation to maintain
records.
(b) The MMS shall have access to all
records of the operator/lessee pertaining to compliance to Federal royalties, including, but not limited to:
(1) Qualities and quantities of all
products mined, processed, sold, delivered, or used by the operator/lessee.

(2) Prices received for mined or processed products, prices paid for like or
similar products, and internal transfer
prices.
(3) Costs of mining, processing, handling, and transportation.
[47 FR 33193, July 30, 1982. Redesignated at 48
FR 35641, Aug. 5, 1983, and amended at 51 FR
15767, Apr. 28, 1986; 54 FR 1532, Jan. 13, 1989]

Subpart F—Coal [Reserved]
Subpart G—Other Solid Minerals
[Reserved]
Subpart H—Geothermal
Resources
SOURCE: 56 FR 57286, Nov. 8, 1991, unless
otherwise noted.

§ 212.350

Definitions.

Terms used in this subpart shall have
the same meaning as in 30 CFR 206.351.
§ 212.351 Required recordkeeping and
reports.
(a) Records. Each lessee, operator,
revenue payor, or other person shall
make and retain accurate and complete records necessary to demonstrate
that payments of royalties, rentals,
and other amounts due under Federal
geothermal leases are in compliance
with laws, lease terms, regulations,
and orders. Records covered by this
section include those specified by lease
terms, notices, and orders, and those
identified in paragraph (c) of this section. Records also include computer
programs, automated files, and supporting systems documentation used to
produce automated reports or magnetic
tapes submitted to MMS.
(b) Period for keeping records. All
records pertaining to Federal geothermal leases shall be maintained by
a lessee, operator, revenue payor, or
other person for 6 years after the
records are generated unless the
recordholder is notified, in writing, before the expiration of that 6-year period that records must be maintained
for a longer period for purposes of audit
or investigation. When an audit or investigation is underway, records shall
be maintained until the recordholder is

186

VerDate Aug<31>2005

14:23 Aug 21, 2006

Jkt 208117

PO 00000

Frm 00196

Fmt 8010

Sfmt 8010

Y:\SGML\208117.XXX

208117

Section

Page 1 of 3

[Code of Federal Regulations]
[Title 30, Volume 2]
[Revised as of July 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 30CFR212.351]

[Page 186-187]

TITLE 30--MINERAL RESOURCES

CHAPTER II--MINERALS MANAGEMENT SERVICE, DEPARTMENT OF THE INTERIOR

PART 212_RECORDS AND FILES MAINTENANCE--Table of Contents

Subpart H_Geothermal Resources

Sec.

212.351

Required recordkeeping and reports.

(a) Records. Each lessee, operator, revenue payor, or other person
shall make and retain accurate and complete records necessary to
demonstrate that payments of royalties, rentals, and other amounts due
under Federal geothermal leases are in compliance with laws, lease
terms, regulations, and orders. Records covered by this section include
those specified by lease terms, notices, and orders, and those
identified in paragraph (c) of this section. Records also include
computer programs, automated files, and supporting systems documentation
used to produce automated reports or magnetic tapes submitted to MMS.
(b) Period for keeping records. All records pertaining to Federal
geothermal leases shall be maintained by a lessee, operator, revenue
payor, or other person for 6 years after the records are generated
unless the recordholder is notified, in writing, before the expiration
of that 6-year period that records must be maintained for a longer

file://N:\COS\REGS\InfoCollections\0120 -- Form 4430 Solids CAM\CURRENT FY 2006 RENEWAL W... 3/1/2007

Section

Page 2 of 3

period for purposes of audit or investigation. When an audit or
investigation is underway, records shall be maintained until the
recordholder is

[[Page 187]]

released by written notice of the obligation to maintain records.
(c) Access to records. The Associate Director for Minerals Revenue
Management shall have access to all records in the possession of the
lessee, operator, revenue payor, or other person pertaining to
compliance with royalty obligations under Federal geothermal leases
(regardless of whether such records were generated more than 6 years
before a request or order to produce them and they otherwise were not
disposed of), including, but not limited to:
(1) Qualities and quantities of all products extracted, processed,
sold, delivered, or used by the operator/lessee;
(2) Prices received for products, prices paid for like or similar
products, and internal transfer prices; and
(3) Costs of extraction, power generation, electrical transmission,
and byproduct transportation.
(d) Inspection of Records. The lessee, operator, revenue payor, or
other person required to keep records shall be responsible for making
the records available for inspection. Records shall be made available at
a business location of the lessee, operator, revenue payor, or other
person during normal business hours upon the request of any officer,
employee, or other party authorized by the Secretary. Lessees,
operators, revenue payors, and other persons will be given a reasonable
period of time to produce records.

[56 FR 57286, Nov. 8, 1991, as amended at 67 FR 19111, Apr. 18, 2002]

Subpart I--OCS Sulfur [Reserved]

file://N:\COS\REGS\InfoCollections\0120 -- Form 4430 Solids CAM\CURRENT FY 2006 RENEWAL W... 3/1/2007

PART 217—AUDITS AND INSPECTIONS

Section Contents

Subpart A—General Provisions [Reserved]

Subpart B—Oil and Gas, General
§ 217.50 Audits of records.
§ 217.51 Lease account reconciliation.
§ 217.52 Definitions.
Subpart C—Oil and Gas, Onshore [Reserved]

Subpart D—Oil, Gas and Sulfur, Offshore [Reserved]

Subpart E—Coal
§ 217.200 Audits.
Subpart F—Other Solid Minerals
§ 217.250 Audits.
Subpart G—Geothermal Resources
§ 217.300 Audit or review of records.
§ 217.301 Lease account reconciliations.
§ 217.302 Definitions.
Subpart H—Indian Lands [Reserved]

Authority: 35 Stat. 312; 35 Stat. 781, as amended; secs. 32, 6, 26, 41 Stat. 450, 753, 1248;
secs. 1, 2, 3, 44 Stat. 301, as amended; secs. 6, 3, 44 Stat. 659, 710; secs. 1, 2, 3, 44 Stat. 1057;
47 Stat. 1487; 49 Stat. 1482, 1250, 1967, 2026; 52 Stat. 347; sec. 10, 53 Stat. 1196, as
amended; 56 Stat. 273; sec. 10, 61 Stat. 915; sec. 3, 63 Stat. 683; 64 Stat. 311; 25 U.S.C. 396,
396a–f, 30 U.S.C. 189, 271, 281, 293, 359. Interpret or apply secs. 5, 5, 44 Stat. 302, 1058, as
amended; 58 Stat. 483–485; 5 U.S.C. 301, 16 U.S.C. 508b, 30 U.S.C. 189, 192c, 271, 281, 293,
359, 43 U.S.C. 387, unless otherwise noted.
Subpart A—General Provisions [Reserved]
Subpart B—Oil and Gas, General
Authority: The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.).
Source: 49 FR 37345, Sept. 21, 1984, unless otherwise noted.

§ 217.50 Audits of records.
The Secretary, or his/her authorized representative, shall initiate and conduct audits relating to the scope,
nature and extent of compliance by lessees, operators, revenue payors, and other persons with rental,
royalty, net profit share and other payment requirements on a Federal or Indian oil and gas lease. Audits
also will relate to compliance with applicable regulations and orders. All audits will be conducted in
accordance with the notice and other requirements of 30 U.S.C. 1717.

§ 217.51 Lease account reconciliation.
Specific lease account reconciliations shall be performed with priority being given to reconciling those lease
accounts specifically identified by a State or Indian tribe as having significant potential for underpayment.

§ 217.52 Definitions.
Terms used in this subpart shall have the same meaning as in 30 U.S.C. 1702.

Subpart C—Oil and Gas, Onshore [Reserved]
Subpart D—Oil, Gas and Sulfur, Offshore [Reserved]
Subpart E—Coal
§ 217.200 Audits.
An audit of the accounts and books of operators/lessees for the purpose of determining compliance with
Federal lease terms relating to Federal royalties may be required annually or at other times as directed by
the Associate Director for Minerals Revenue Management. The audit shall be performed by a qualified
independent certified public accountant or by an independent public accountant licensed by a State,
territory, or insular possession of the United States or the District of Columbia, and at the expense of the
operator/lessee. The operator/lessee shall furnish, free of charge, duplicate copies of audit reports that
express opinions on such compliance to the Associate Director for Minerals Revenue Management within 30
days after the completion of each audit. Where such audits are required, the Associate Director for Minerals
Revenue Management will specify the purpose and scope of the audit and the information which is to be
verified or obtained.
[47 FR 33195, July 30, 1982. Redesignated at 48 FR 35641, Aug. 5, 1983, as amended at 67 FR 19112,
Apr. 18, 2002]

Subpart F—Other Solid Minerals
§ 217.250 Audits.
An audit of the lessee's accounts and books may be made annually or at such other times as may be
directed by the mining supervisor, by certified public accountants, and at the expense of the lessee. The
lessee shall furnish free of cost duplicate copies of such annual or other audits to the mining supervisor,
within 30 days after the completion of each auditing.
[37 FR 11041, June 1, 1972. Redesignated at 48 FR 35641, Aug. 5, 1983]

Subpart G—Geothermal Resources
Source: 72 FR 24468, May 2, 2007, unless otherwise noted.

§ 217.300 Audit or review of records.
The Secretary, or his/her authorized representative, will initiate and conduct audits or reviews relating to the
scope, nature, and extent of compliance by lessees, operators, revenue payors, and other persons with
rental, royalty, fees, and other payment requirements on a Federal geothermal lease. Audits or reviews will
also relate to compliance with applicable regulations and orders. All audits or reviews will be conducted in
accordance with this part.

§ 217.301 Lease account reconciliations.
Specific lease account reconciliations will be performed with priority being given to reconciling those lease
accounts specifically identified by a State as having significant potential for underpayment.

§ 217.302 Definitions.
Terms used in this subpart will have the same meaning as in 30 U.S.C. 1702.

Subpart H—Indian Lands [Reserved]

§ 218.55

30 CFR Ch. II (7–1–04 Edition)

amounts from the date the amounts
are due.
(b) The interest charge on late payments shall be at the underpayment
rate established by the Internal Revenue Code, 26 U.S.C. 6621(a)(2) (Supp.
1987).
(c) Interest will be charged only on
the amount of the payment not received. Interest will be charged only
for the number of days the payment is
late.
(d) A portion of the interest collected
will be paid to a State where the State
shares in mineral revenues from Federal leases.
(e) An overpayment on a lease or
leases may be offset against an underpayment on a different lease or leases
to determine a net underpayment on
which interest is due pursuant to conditions specified in § 218.42.
[49 FR 37346, Sept. 21, 1984, as amended at 55
FR 37230, Sept. 10, 1990; 57 FR 62206, Dec. 30,
1992]

§ 218.55 Interest payments to Indians.
(a) All interest collected from unpaid
or underpayments on Indian tribal or
allotted leases will be paid to the tribe
or allottee.
(b) Any disbursement of Indian mineral revenues not made by the due date
as required in § 219.103 of this chapter
shall accrue interest.
(c) Interest shall be computed at the
underpayment rate established by the
Internal Revenue Code, 26 U.S.C.
6621(a)(2) (Supp. 1987).
(d) The interest shall be payable only
for the number of days the disbursement is late.
[49 FR 37346, Sept. 21, 1984, as amended at 55
FR 37230, Sept. 10, 1990]

§ 218.56 Definitions.
Terms used in this subpart shall have
the same meaning as in 30 U.S.C. 1702.
[49 FR 37346, Sept. 21, 1984. Redesignated at
51 FR 15767, Apr. 28, 1986]

§ 218.57 Providing information and
claiming rewards.
(a) General. (1) If a person has any information that could lead to the recovery of royalty or other payments owed
to the United States with respect to
any oil and gas lease on Federal lands

or the Outer Continental Shelf, such
information may be provided to the
Minerals Management Service (MMS)
in accordance with this paragraph. The
MMS is authorized, under the Federal
Oil and Gas Royalty Management Act
of 1982 (FOGRMA), 30 U.S.C. 1723, to
pay a reward for information with respect to Federal oil and gas leases.
Funds must be appropriated before
payment of any reward. Criteria and
procedures covering claims for and
payment of rewards are provided in
paragraphs (b), (c), and (d) of this section.
(2) If a person has any information he
or she believes would be valuable to
MMS, that person (‘‘informant’’) should
submit the information in writing, in
the form of a letter, mailed or delivered in person to the Director, Minerals Management Service, Department of the Interior, 18th and C Street,
NW., Washington, DC 20240, or to the
Director’s designated representative.
Although written communications are
preferred, oral information will be accepted.
(3) The informant should provide all
data he or she has with respect to royalty or other payments owed. The information provided should include:
identification of the alleged debtor; the
source of the informant’s knowledge of
royalties or other payments owed; the
date, if known, of the indebtedness; and
any other information that could be
used to establish indebtedness. All information received by MMS from persons providing information will be considered ‘‘highly confidential’’ and will
not be disclosed to any individual except on a ‘‘need to know’’ basis in the
performance of official duties.
(b) Claim for reward. (1) Any informant who provides information that
could lead to the recovery of royalty or
other payments may file a claim for reward unless the person is an officer or
employee of the United States, an officer or employee of a State or Indian
tribe acting pursuant to a cooperative
agreement or delegation under the
FOGRMA, or any person acting pursuant to a contract authorized by the
FOGRMA.
(2) A claim for reward is not acceptable if filed on behalf of a claimant by

196

VerDate May<21>2004

14:25 Jul 17, 2004

Jkt 203116

PO 00000

Frm 00196

Fmt 8010

Sfmt 8010

Y:\SGML\203116T.XXX

203116T

Minerals Management Service, Interior

§ 218.57

his or her agent under power of attorney. However, an agent may provide
MMS with information for an unidentified informant, to be evaluated and
used by MMS as it deems appropriate.
The informant’s identity ultimately
must be disclosed if the informant intends to file a claim for reward so that
MMS can report the reward as taxable
income to the Internal Revenue Service. An executor, administrator, or
other legal representative of a deceased
informant may file a claim on behalf of
such deceased informant if, prior to his
or her death, the informant was eligible to file a claim under this section.
The representative must attach to the
claim evidence of authority to file it.
(3) To file a claim for reward the informant must:
(i) Notify the Director, MMS, or the
person to whom the information was
reported, that he/she is claiming a reward.
(ii) Request an ‘‘Application for Reward for Original Information’’ (Form
MMS–4280). This form provides for information to enable MMS to determine
and pay rewards, to control reward applications, and to report a claimant’s
reward as taxable income to the Internal Revenue Service.
(iii) File a claim for reward by completing Form MMS–4280, sign it with
his or her true name, and mail or deliver it in person to the Director or to
the Director’s designated representative. If the informant provided the information in person, the claim should
include the name and title of the person to whom the information was reported and the date that it was reported.
(4) If the informant used an identity
other than his or true name when the
information was originally reported,
the person should attach proof to the
claim that he or she is the person who
gave the information. The MMS does
not disclose the identity of its informants to unauthorized persons.
(c) Basis for rejection of claims. No reward will be paid to a claimant:
(1) Where the information originally
furnished was deemed unworthy of initiating an investigation, but at some
later date the records of the lessee are
examined without reference to the information furnished. The claim will be

rejected on the basis that the information did not cause the investigation
nor did it, in itself, result in any recovery.
(2) For information that would have
been discovered during the normal
course of an audit or investigation.
(3) Unless the informant’s true identity is disclosed.
(4) Until after all of the royalties,
penalties, or other payments discovered to be owed as a result of information provided are collected and no
longer subject to dispute.
(5) Unless funds are appropriated for
the payment of rewards.
(d) Basis for allowance of claims. (1)
The value of the information furnished
in relation to the facts developed by
the investigation will be taken into account in determining whether a reward
shall be paid and, if so, the amount
thereof. Information must be voluntarily given and upon the informant’s
own initiative to warrant the allowance of a reward. Information secured
by representatives of MMS from witnesses and others in the course of their
investigative activities does not constitute a basis for reward.
(2) In determining whether a reward
will be allowed and, if so, the amount
thereof, consideration will be given to
any corresponding adjustment(s) which
will result in potential savings to the
lessee for other leases owned by the
lessee or an affiliate of the lessee. An
example of such an adjustment is a reduction in royalty payment on a different lease as the result of a revised
allocation under a unitization or
communitization agreement or from an
offshore pipeline system. Rewards otherwise allowable will be reduced or rejected by reason of such offsetting adjustments.
(3) If several claims filed by one informant are considered in one recommendation, the reward, if any, may
be allowed on one claim and the others
may be closed by reference.
(4) Where an informant has provided
information and filed a claim for reward with respect to royalty reports of
one lessee for several leases, no reward
will be granted with respect to an individual lease which has been examined
until examination of all leases involved

197

VerDate May<21>2004

14:25 Jul 17, 2004

Jkt 203116

PO 00000

Frm 00197

Fmt 8010

Sfmt 8010

Y:\SGML\203116T.XXX

203116T

§ 218.100

30 CFR Ch. II (7–1–04 Edition)

has been completed. Because the possibility exists that adjustments made to
the reports for the open leases may result in offsetting adjustments, no reward will be allowed until the overall
results of the information are evaluated.
(e) Amount and payment of reward. (1)
The Director, MMS will determine
whether a reward will be paid and, if
so, the amount thereof. In making this
decision, the information provided will
be evaluated in relation to the facts developed by the resulting investigation.
Claims for reward will be paid in proportion to the value of information furnished voluntarily and on the informant’s own initiative with respect to recovered royalties or other payments.
The amount of reward will be determined as follows:
(i) For specific and responsible information that caused the investigation
and resulted in recovery, the reward
will be 10 percent of the first $75,000 recovered, 5 percent of the next $25,000,
and 1 percent of any additional recovery. The total reward cannot exceed
$100,000.
(ii) For information that caused the
examination and was of value in determining royalty or other payments due,
although not specific, and for information that was a direct factor in recovering royalty or other payments, the
reward will be 5 percent of the first
$75,000 recovered, 21⁄2 percent of the
next $25,000, and 1⁄2 percent of any additional recovery. The total reward cannot exceed $100,000.
(iii) For information that caused the
investigation but was of no value in determining royalty or other payments
due, the reward will be 1 percent of the
first $75,000 recovered and 1⁄2 percent of
any additional recovery. The total reward cannot exceed $100,000.
(2) Rewards will be paid only if moneys are appropriated for that purpose.
Subject to appropriations, payments
will be made as soon as possible after
collection of the amounts owed by the
lessee, and after those amounts no
longer are subject to dispute by the
payor. The reward payment to an informant will be net of Federal and
State income tax in accordance with
withholding guidelines of the Internal

Revenue Service and the applicable
State(s).
(3) A decision by the Director, MMS,
either denying a reward or establishing
the amount of any reward is a final departmental action and may not be appealed to the Interior Board of Land
Appeals in accordance with the provisions of 30 CFR part 290.
(Approved by the Office of Management and
Budget under control number 1010–0076)
[52 FR 24451, July 1, 1987]

Subpart C—Oil and Gas, Onshore
§ 218.100 Royalty and rental payments.
(a) Payment of royalties and rentals. As
specified under the provisions of the
lease, the lessee shall submit all rental
payments when due and shall pay in
value or deliver in production all royalties in the amounts of value or production determined by MMS to be due.
(b) If the lessor elects to take royalty
in oil or gas, unless otherwise agreed
upon, such royalty shall be delivered
on the leasehold, by the lessee to the
order of and without cost to the lessor,
as instructed by the Associate Director.
(c) Method of payment. The payor
shall tender all payments in accordance with 30 CFR 218.51.
[47 FR 47773, Oct. 27, 1982. Redesignated at 48
FR 35641, Aug. 5, 1983, and amended at 52 FR
23815, June 25, 1987]

§ 218.101 Royalty and rental remittance (naval petroleum reserves).
Remittance covering payments of
royalty or rental on naval petroleum
reserves must be accomplished by necessary identification information and
sent direct to the Director, Naval Petroleum Reserves in California.
[47 FR 47773, Oct. 27, 1982. Redesignated at 48
FR 35641, Aug. 5, 1983]

§ 218.102 Late payment or underpayment charges.
(a) The failure to make timely or
proper payments of any monies due
pursuant to leases, permits, and contracts subject to these regulations will
result in the collection by the MMS of
the full amount past due plus a late
payment charge. Exceptions to this
late payment charge may be granted

198

VerDate May<21>2004

14:25 Jul 17, 2004

Jkt 203116

PO 00000

Frm 00198

Fmt 8010

Sfmt 8010

Y:\SGML\203116T.XXX

203116T

Electronic Code of Federal Regulations (e-CFR)
e-CFR Data is current as of June 27, 2007
Title 30: Mineral Resources
PART 218—COLLECTION OF ROYALTIES, RENTALS, BONUSES AND OTHER MONIES DUE THE
FEDERAL GOVERNMENT AND CREDITS AND INCENTIVES DUE LESSEES
Browse Previous | Browse Next

Subpart F—Geothermal Resources
§ 218.300 Payment of royalties, rentals, and deferred bonuses.
As specified under the provisions of the lease, the lessee shall submit all rental and deferred bonus
payments when due and shall pay in value all royalties in the amount determined by MMS to be due.
[52 FR 23815, June 25, 1987]

§ 218.301 Method of payment.
The payor shall tender all payments in accordance with 30 CFR 218.51.
[52 FR 23815, June 25, 1987]

§ 218.302 Late payment or underpayment charges.
(a) The failure to make timely or proper payment of any monies due pursuant to leases and contracts
subject to these regulations will result in the collection by the Minerals Management Service (MMS) of the
full amount past due plus a late payment charge. Exceptions to this late payment charge may be granted
when estimated payments on minerals production have already been made timely and otherwise in
accordance with the instructions provided by the MMS to the payor.
(b) Late payment charges will be assessed on any late payment or underpayment from the date that the
payment was due until the date that the payment was received at the MMS addresses specified in §218.51.
Payments received at the specified MMS addresses after 4 p.m. Mountain Time are considered received the
following business day.
(c) Late payment charges are calculated on the basis of a percentage assessment rate. In the absence of a
specific lease, permit, license or contract provision prescribing a different rate, this percentage assessment
rate is prescribed by the Department of the Treasury as the “Treasury Current Value of Funds Rate.”
(d) This rate is available in the Treasury Fiscal Requirements Manual Bulletins that are published prior to the
first day of each calendar quarter for application to overdue payments or underpayments in the new
calendar quarter. The rate is also published in the Notices section of theFederal Registerand indexed under
“Fiscal Service/Notices/Funds Rate; Treasury Current Value.”
(e) Late payment charges apply to all underpayments and payments received after the date due. These
charges include production, minimum, and compensatory royalties; assessments for liquidated damages;
administrative fees and payments by purchasers of royalty taken-in-kind; or any other payments, fees, or
assessments that a lessee/operator/payor/royalty taken-in-kind purchaser is required to pay by a specified
date. The failure to pay past due payments, including late payment charges, will result in the initiation of
other enforcement proceedings.

(f) An overpayment on a lease or leases may be offset against an underpayment on a different lease or
leases to determine a net underpayment on which interest is due pursuant to conditions specified in
§218.42.
[47 FR 22528, May 25, 1982. Redesignated at 48 FR 35641, Aug. 5, 1983, and further redesignated at 51
FR 15767, Apr. 28, 1986 and 52 FR 23815, June 25, 1987, as amended at 57 FR 41868, Sept. 14, 1992; 57
FR 62207, Dec. 30, 1992; 59 FR 14559, Mar. 29, 1994; 65 FR 55189, Sept. 13, 2000; 67 FR 19112, Apr.
18, 2002]

§ 218.303 May I credit rental towards royalty?
(a)(1) For Class II leases as defined in 30 CFR 206.351, and for Class III leases as defined in that section
that elect under 43 CFR 3200.7(a)(2) to be subject to all of the BLM regulations promulgated for leases
issued after August 8, 2005 you may credit the annual rental that you paid before the first day of the year for
which the annual rental is owed against the royalty due for the lease year for which the rental was paid. You
may not apply any annual rental paid in excess of the royalty due for a particular lease year as a credit
against any royalty due in any subsequent lease year.
(2) For purposes of this section, the term “royalty” includes any advanced royalty payable under 30 U.S.C.
1004(f) for a cessation of production.
(b) If portions of your lease are located both within and outside of a participating area, you may credit
against royalty under paragraph (a) only that percentage of the rental you paid that corresponds to the
percentage of the lease within the participating area on a per-acre basis.
[72 FR 24468, May 2, 2007]

§ 218.304 May I credit rental towards direct use fees?
You may not credit annual rental toward direct use fees you are required to pay that year under §206.356(b).
You must pay the direct use fees in addition to the annual rental due.
[72 FR 24468, May 2, 2007]

§ 218.305 How do I pay advanced royalties I owe under BLM regulations?
If you pay advanced royalties under 43 CFR 3212.15(a)(1) to retain your lease:
(a) You must pay an advanced royalty monthly equal to the average monthly royalty you paid under 30 CFR
part 206, subpart H (including the amount against which you applied the annual rental as a credit) for the
last 3 years the lease was producing. If your lease has been producing for less than 3 years, then use the
average monthly royalty payment for the entire period your lease has been producing continuously;
(b) The MMS must receive your advanced royalty payment before the end of each full calendar month in
which no production occurs;
(c) You may credit any advanced royalty you pay against production royalties you owe after your lease
resumes production. You may not reduce the amount of any production royalty paid for any year below zero.
[72 FR 24468, May 2, 2007]

§ 218.306 May I receive a credit against production royalties for in-kind deliveries of
electricity I provide under contract to a State or county government?
(a) You may receive a credit against royalties for in-kind deliveries of electricity you provide under contract to
a State or county government if:

(1) The State or county to which you provide electricity would receive a portion of the royalties you paid in
money for the lease under 30 U.S.C. 191 or 30 U.S.C. 1019, except as otherwise provided under the
Mineral Leasing Act for Acquired Lands, 30 U.S.C. 355, because your lease is located in that State or
county. If your lease is located in more than one State or county, the revenues are paid to the respective
States or counties based on their proportionate shares of the total acres in the lease;
(2) The MMS approves in advance your contract with the State or county to which you are providing in-kind
electricity; and
(3) Your contract provides that you will use the wholesale value of the electricity for the area where your
lease is located to establish the specific methodology to determine the amount of the credit; and
(b) The maximum credit you may take under this section is equal to the portion of the royalty revenue that
MMS would have paid to the State or county that is a party to the contract had you paid royalty in money on
all of the electricity you delivered to the State or county based on the wholesale value of the electricity. You
must pay in money any royalty amount that is not offset by the credit allowed under this section, calculated
based on the wholesale value of the electricity.
(c) The electricity the State or county government receives from you satisfies the Secretary's payment
obligation to the State or county under 30 U.S.C. 191 or 30 U.S.C. 1019.
[72 FR 24468, May 2, 2007]

§ 218.307 How do I pay royalties due for my existing leases that qualify for near-term
production incentives under BLM regulations?
If you qualify for a production incentive under BLM regulations at 43 CFR subpart 3212, your royalty due on
the production BLM determines to be qualified for a production incentive under 43 CFR 3212.23 and
3212.24 is 50 percent of the amount of the total royalty that would otherwise be due under 30 CFR part 206,
subpart H.
[72 FR 24468, May 2, 2007]