30 CFR parts 1202, 1203, 1206, 1210, 1212, 1217, 1218 citations

ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of March 15, 2013
Title 30: Mineral Resources
PART 1202—ROYALTIES
Contents
Subpart A—General Provisions [Reserved]
Subpart B—Oil, Gas, and OCS Sulfur, General
§ 1202.51 Scope and definitions.
§ 1202.52 Royalties.
§ 1202.53 Minimum royalty.
Subpart C—Federal and Indian Oil
§ 1202.100 Royalty on oil.
§ 1202.101 Standards for reporting and paying royalties.
Subpart D—Federal Gas
§ 1202.150 Royalty on gas.
§ 1202.151 Royalty on processed gas.
§ 1202.152 Standards for reporting and paying royalties on gas.
Subpart E—Solid Minerals, General [Reserved]
Subpart F—Coal
§ 1202.250 Overriding royalty interest.
Subpart G—Other Solid Minerals [Reserved]
Subpart H—Geothermal Resources
§ 202.350 Scope and definitions.
§ 1202.351 Royalties on geothermal resources.
§ 1202.352 Minimum royalty.
§ 1202.353 Measurement standards for reporting and paying royalties and direct use fees.
Subpart I—OCS Sulfur [Reserved]
Subpart J—Gas Production From Indian Leases
§ 1202.550 How do I determine the royalty due on gas production?
§ 1202.551 How do I determine the volume of production for which I must pay royalty if my lease is
not in an approved Federal unit or communitization agreement (AFA)?
§ 1202.552 How do I determine how much royalty I must pay if my lease is in an approved Federal
unit or communitization agreement (AFA)?
§ 1202.553 How do I value my production if I take more than my entitled share?
§ 1202.554 How do I value my production that I do not take if I take less than my entitled share?
§ 1202.555 What portion of the gas that I produce is subject to royalty?
§ 1202.556 How do I determine the value of avoidably lost, wasted, or drained gas?

§ 1202.557 Must I pay royalty on insurance compensation for unavoidably lost gas?
§ 1202.558 What standards do I use to report and pay royalties on gas?
AUTHORITY: 5 U.S.C. 301 et seq. ; 25 U.S.C. 396 et seq., 396a et seq., 2101 et seq. ; 30 U.S.C. 181 et seq.,
351 et seq., 1001 et seq. ; 1701 et seq. ; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq. ; 1331 et seq., 1801 et seq.
SOURCE: 48 CFR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61066, Oct. 4, 2010.

Subpart A—General Provisions [Reserved]
Subpart B—Oil, Gas, and OCS Sulfur, General
SOURCE: 53 FR 1217, Jan. 15, 1988, unless otherwise noted.

§ 1202.51 Scope and definitions.
(a) This subpart is applicable to Federal and Indian (Tribal and allotted) oil and gas leases (except
leases on the Osage Indian Reservation, Osage County, Oklahoma) and OCS sulfur leases.
(b) The definitions in subparts B, C, D, and E, of part 1206 of this title are applicable to subparts
B, C, D, and J of this part.
[53 FR 1217, Jan. 15, 1988, as amended at 64 FR 43513, Aug. 10, 1999]

§ 1202.52 Royalties.
(a) Royalties on oil, gas, and OCS sulfur shall be at the royalty rate specified in the lease, unless
the Secretary, pursuant to the provisions of the applicable mineral leasing laws, reduces, or in the
case of OCS leases, reduces or eliminates, the royalty rate or net profit share set forth in the lease.
(b) For purposes of this subpart, the use of the term royalty(ies) includes the term net profit share
(s) .
§ 1202.53 Minimum royalty.
For leases that provide for minimum royalty payments, the lessee shall pay the minimum royalty
as specified in the lease.

Subpart C—Federal and Indian Oil
§ 1202.100 Royalty on oil.
(a) Royalties due on oil production from leases subject to the requirements of this part, including
condensate separated from gas without processing, shall be at the royalty rate established by the
terms of the lease. Royalty shall be paid in value unless the Office of Natural Resources Revenue
(ONRR) requires payment in-kind. When paid in value, the royalty due shall be the value, for royalty
purposes, determined pursuant to part 1206 of this title multiplied by the royalty rate in the lease.
(b)(1) All oil (except oil unavoidably lost or used on, or for the benefit of, the lease, including that
oil used off-lease for the benefit of the lease when such off-lease use is permitted by the Bureau of
Ocean Energy Management, Regulation, and Enforcement (BOEMRE) or BLM, as appropriate)
produced from a Federal or Indian lease to which this part applies is subject to royalty.
(2) When oil is used on, or for the benefit of, the lease at a production facility handling production
from more than one lease with the approval of the BOEMRE or BLM, as appropriate, or at a
production facility handling unitized or communitized production, only that proportionate share of each
lease's production (actual or allocated) necessary to operate the production facility may be used
royalty-free.
(3) Where the terms of any lease are inconsistent with this section, the lease terms shall govern to
the extent of that inconsistency.

(c) If BLM determines that oil was avoidably lost or wasted from an onshore lease, or that oil was
drained from an onshore lease for which compensatory royalty is due, or if BOEMRE determines that
oil was avoidably lost or wasted from an offshore lease, then the value of that oil shall be determined
in accordance with 30 CFR part 1206.
(d) If a lessee receives insurance compensation for unavoidably lost oil, royalties are due on the
amount of that compensation. This paragraph shall not apply to compensation through self-insurance.
(e)(1) In those instances where the lessee of any lease committed to a federally approved
unitization or communitization agreement does not actually take the proportionate share of the
agreement production attributable to its lease under the terms of the agreement, the full share of
production attributable to the lease under the terms of the agreement nonetheless is subject to the
royalty payment and reporting requirements of this title. Except as provided in paragraph (e)(2) of this
section, the value, for royalty purposes, of production attributable to unitized or communitized leases
will be determined in accordance with 30 CFR part 1206. In applying the requirements of 30 CFR part
1206, the circumstances involved in the actual disposition of the portion of the production to which the
lessee was entitled but did not take shall be considered as controlling in arriving at the value, for
royalty purposes, of that portion as though the person actually selling or disposing of the production
were the lessee of the Federal or Indian lease.
(2) If a Federal or Indian lessee takes less than its proportionate share of agreement production,
upon request of the lessee ONRR may authorize a royalty valuation method different from that
required by paragraph (e)(1) of this section, but consistent with the purposes of these regulations, for
any volumes not taken by the lessee but for which royalties are due.
(3) For purposes of this subchapter, all persons actually taking volumes in excess of their
proportionate share of production in any month under a unitization or communitization agreement shall
be deemed to have taken ratably from all persons actually taking less than their proportionate share of
the agreement production for that month.
(4) If a lessee takes less than its proportionate share of agreement production for any month but
royalties are paid on the full volume of its proportionate share in accordance with the provisions of this
section, no additional royalty will be owed for that lease for prior periods when the lessee subsequently
takes more than its proportionate share to balance its account or when the lessee is paid a sum of
money by the other agreement participants to balance its account.
(f) For production from Federal and Indian leases which are committed to federally-approved
unitization or communitization agreements, upon request of a lessee ONRR may establish the value of
production pursuant to a method other than the method required by the regulations in this title if: (1)
The proposed method for establishing value is consistent with the requirements of the applicable
statutes, lease terms, and agreement terms; (2) persons with an interest in the agreement, including,
to the extent practical, royalty interests, are given notice and an opportunity to comment on the
proposed valuation method before it is authorized; and (3) to the extent practical, persons with an
interest in a Federal or Indian lease committed to the agreement, including royalty interests, must
agree to use the proposed method for valuing production from the agreement for royalty purposes.
[53 FR 1217, Jan. 15, 1988]

§ 1202.101 Standards for reporting and paying royalties.
Oil volumes are to be reported in barrels of clean oil of 42 standard U.S. gallons (231 cubic inches
each) at 60 °F. When reporting oil volumes for royalty purposes, corrections must have been made for
Basic Sediment and Water (BS&W) and other impurities. Reported American Petroleum Institute (API)
oil gravities are to be those determined in accordance with standard industry procedures after
correction to 60 °F.
[53 FR 1217, Jan. 15, 1988]

Subpart D—Federal Gas
SOURCE: 53 FR 1271, Jan. 15, 1988, unless otherwise noted.

§ 1202.150 Royalty on gas.
(a) Royalties due on gas production from leases subject to the requirements of this subpart,
except helium produced from Federal leases, shall be at the rate established by the terms of the lease.
Royalty shall be paid in value unless ONRR requires payment in kind. When paid in value, the royalty
due shall be the value, for royalty purposes, determined pursuant to 30 CFR part 1206 of this title
multiplied by the royalty rate in the lease.
(b)(1) All gas (except gas unavoidably lost or used on, or for the benefit of, the lease, including
that gas used off-lease for the benefit of the lease when such off-lease use is permitted by the
BOEMRE or BLM, as appropriate) produced from a Federal lease to which this subpart applies is
subject to royalty.
(2) When gas is used on, or for the benefit of, the lease at a production facility handling production
from more than one lease with the approval of BOEMRE or BLM, as appropriate, or at a production
facility handling unitized or communitized production, only that proportionate share of each lease's
production (actual or allocated) necessary to operate the production facility may be used royalty free.
(3) Where the terms of any lease are inconsistent with this subpart, the lease terms shall govern
to the extent of that inconsistency.
(c) If BLM determines that gas was avoidably lost or wasted from an onshore lease, or that gas
was drained from an onshore lease for which compensatory royalty is due, or if BOEMRE determines
that gas was avoidably lost or wasted from an OCS lease, then the value of that gas shall be
determined in accordance with 30 CFR part 1206.
(d) If a lessee receives insurance compensation for unavoidably lost gas, royalties are due on the
amount of that compensation. This paragraph shall not apply to compensation through self-insurance.
(e)(1) In those instances where the lessee of any lease committed to a Federally approved
unitization or communitization agreement does not actually take the proportionate share of the
production attributable to its Federal lease under the terms of the agreement, the full share of
production attributable to the lease under the terms of the agreement nonetheless is subject to the
royalty payment and reporting requirements of this title. Except as provided in paragraph (e)(2) of this
section, the value for royalty purposes of production attributable to unitized or communitized leases
will be determined in accordance with 30 CFR part 1206. In applying the requirements of 30 CFR part
1206, the circumstances involved in the actual disposition of the portion of the production to which the
lessee was entitled but did not take shall be considered as controlling in arriving at the value for royalty
purposes of that portion, as if the person actually selling or disposing of the production were the lessee
of the Federal lease.
(2) If a Federal lessee takes less than its proportionate share of agreement production, upon
request of the lessee ONRR may authorize a royalty valuation method different from that required by
paragraph (e)(1) of this section, but consistent with the purpose of these regulations, for any volumes
not taken by the lessee but for which royalties are due.
(3) For purposes of this subchapter, all persons actually taking volumes in excess of their
proportionate share of production in any month under a unitization or communitization agreement shall
be deemed to have taken ratably from all persons actually taking less than their proportionate share of
the agreement production for that month.
(4) If a lessee takes less than its proportionate share of agreement production for any month but
royalties are paid on the full volume of its proportionate share in accordance with the provisions of this
section, no additional royalty will be owed for that lease for prior periods at the time the lessee
subsequently takes more than its proportionate share to balance its account or when the lessee is paid
a sum of money by the other agreement participants to balance its account.
(f) For production from Federal leases which are committed to federally-approved unitization or
communitization agreements, upon request of a lessee ONRR may establish the value of production
pursuant to a method other than the method required by the regulations in this title if: (1) The proposed
method for establishing value is consistent with the requirements of the applicable statutes, lease
terms and agreement terms; (2) to the extent practical, persons with an interest in the agreement,

including royalty interests, are given notice and an opportunity to comment on the proposed valuation
method before it is authorized; and (3) to the extent practical, persons with an interest in a Federal
lease committed to the agreement, including royalty interests, must agree to use the proposed method
for valuing production from the agreement for royalty purposes.
[53 FR 1271, Jan. 15, 1988, as amended at 64 FR 43513, Aug. 10, 1999]

§ 1202.151 Royalty on processed gas.
(a)(1) A royalty, as provided in the lease, shall be paid on the value of:
(i) Any condensate recovered downstream of the point of royalty settlement without resorting to
processing; and
(ii) Residue gas and all gas plant products resulting from processing the gas produced from a
lease subject to this subpart.
(2) ONRR shall authorize a processing allowance for the reasonable, actual costs of processing
the gas produced from Federal leases. Processing allowances shall be determined in accordance with
30 CFR part 1206 subpart D for gas production from Federal leases and 30 CFR part 1206 subpart E
for gas production from Indian leases.
(b) A reasonable amount of residue gas shall be allowed royalty free for operation of the
processing plant, but no allowance shall be made for boosting residue gas or other expenses
incidental to marketing, except as provided in 30 CFR part 1206. In those situations where a
processing plant processes gas from more than one lease, only that proportionate share of each
lease's residue gas necessary for the operation of the processing plant shall be allowed royalty free.
(c) No royalty is due on residue gas, or any gas plant product resulting from processing gas,
which is reinjected into a reservoir within the same lease, unit area, or communitized area, when the
reinjection is included in a plan of development or operations and the plan has received BLM or
BOEMRE approval for onshore or offshore operations, respectively, until such time as they are finally
produced from the reservoir for sale or other disposition off-lease.
[53 FR 1217, Jan. 15, 1988, as amended at 61 FR 5490, Feb. 12, 1996; 64 FR 43513, Aug. 10, 1999]

§ 1202.152 Standards for reporting and paying royalties on gas.
(a)(1) If you are responsible for reporting production or royalties, you must:
(i) Report gas volumes and British thermal unit (Btu) heating values, if applicable, under the same
degree of water saturation;
(ii) Report gas volumes in units of 1,000 cubic feet (mcf); and
(iii) Report gas volumes and Btu heating value at a standard pressure base of 14.73 pounds per
square inch absolute (psia) and a standard temperature base of 60 °F.
(2) The frequency and method of Btu measurement as set forth in the lessee's contract shall be
used to determine Btu heating values for reporting purposes. However, the lessee shall measure the
Btu value at least semiannually by recognized standard industry testing methods even if the lessee's
contract provides for less frequent measurement.
(b)(1) Residue gas and gas plant product volumes shall be reported as specified in this
paragraph.
(2) Carbon dioxide (CO2 ), nitrogen (N2 ), helium (He), residue gas, and any other gas marketed
as a separate product shall be reported by using the same standards specified in paragraph (a) of this
section.
(3) Natural gas liquids (NGL) volumes shall be reported in standard U.S. gallons (231 cubic
inches) at 60 °F.
(4) Sulfur (S) volumes shall be reported in long tons (2,240 pounds).

[53 FR 1271, Jan. 15, 1988, as amended at 63 FR 26367, May 12, 1998]

Subpart E—Solid Minerals, General [Reserved]
Subpart F—Coal
§ 1202.250 Overriding royalty interest.
The regulations governing overriding royalty interests, production payments, or similar interests
created under Federal coal leases are in 43 CFR group 3400.
[54 FR 1522, Jan. 13, 1989]

Subpart G—Other Solid Minerals [Reserved]
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 § 1206.351 are applicable to this subpart.
§ 1202.351 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 1206, subpart H.
(2) Fees in lieu of royalties on geothermal resources are prescribed in 30 CFR part 1206, subpart
H.
(3) Except for the amount credited against royalties for in-kind deliveries of electricity to a State or
county under § 1218.306, 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 § 1206.351.
(i) For Class I leases, ONRR 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, ONRR 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 § 1206.351, 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 ONRR
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 1206, 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 self-insurance.
[72 FR 24458, May 2, 2007]

§ 1202.352 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.
§ 1202.353 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 § 1206.352(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 § 1206.352(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 ONRR 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 ONRR-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 ONRR.
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]

Subpart I—OCS Sulfur [Reserved]
Subpart J—Gas Production From Indian Leases
SOURCE: 64 FR 43514, Aug. 10, 1999, unless otherwise noted.

§ 1202.550 How do I determine the royalty due on gas production?
If you produce gas from an Indian lease subject to this subpart, you must determine and pay
royalties on gas production as specified in this section.
(a) Royalty rate. You must calculate your royalty using the royalty rate in the lease.
(b) Payment in value or in kind. You must pay royalty in value unless:
(1) The Tribal lessor requires payment in kind; or
(2) You have a lease on allotted lands and ONRR requires payment in kind.
(c) Royalty calculation. You must use the following calculations to determine royalty due on the
production from or attributable to your lease.
(1) When paid in value, the royalty due is the unit value of production for royalty purposes,
determined under 30 CFR part 1206, multiplied by the volume of production multiplied by the royalty
rate in the lease.
(2) When paid in kind, the royalty due is the volume of production multiplied by the royalty rate.
(d) Reduced royalty rate. The Indian lessor and the Secretary may approve a request for a royalty
rate reduction. In your request you must demonstrate economic hardship.
(e) Reporting and paying. You must report and pay royalties as provided in part 1218 of this title.
§ 1202.551 How do I determine the volume of production for which I must pay royalty if my
lease is not in an approved Federal unit or communitization agreement (AFA)?
(a) You are liable for royalty on your entitled share of gas production from your Indian lease,
except as provided in §§ 1202.555, 1202.556, and 1202.557.
(b) You and all other persons paying royalties on the lease must report and pay royalties based
on your takes. If another person takes some of your entitled share but does not pay the royalties
owed, you are liable for those royalties.

(c) You and all other persons paying royalties on the lease may ask ONRR for permission to
report and pay royalties based on your entitlements. In that event, ONRR will provide valuation
instructions consistent with this part and part 1206 of this title.
§ 1202.552 How do I determine how much royalty I must pay if my lease is in an approved
Federal unit or communitization agreement (AFA)?
You must pay royalties each month on production allocated to your lease under the terms of an
AFA. To determine the volume and the value of your production, you must follow these three steps:
(a) You must determine the volume of your entitled share of production allocated to your lease
under the terms of an AFA. This may include production from more than one AFA.
(b) You must value the production you take using 30 CFR part 1206. If you take more than your
entitled share of production, see § 1202.553 for information on how to value this production. If you
take less than your entitled share of production, see § 1202.554 for information on how to value
production you are entitled to but do not take.
§ 1202.553 How do I value my production if I take more than my entitled share?
If you take more than your entitled share of production from a lease in an AFA for any month, you
must determine the weighted-average value of all of the production that you take using the procedures
in 30 CFR part 1206, and use that value for your entitled share of production.
§ 1202.554 How do I value my production that I do not take if I take less than my entitled
share?
If you take none or only part of your entitled production from a lease in an AFA for any month, use
this section to value the production that you are entitled to but do not take.
(a) If you take a significant volume of production from your lease during the month, you must
determine the weighted average value of the production that you take using 30 CFR part 1206, and
use that value for the production that you do not take.
(b) If you do not take a significant volume of production from your lease during the month, you
must use paragraph (c) or (d) of this section, whichever applies.
(c) In a month where you do not take production or take an insignificant volume, and if you would
have used § 1206.172(b) to value the production if you had taken it, you must determine the value of
production not taken for that month under § 1206.172(b) as if you had taken it.
(d) If you take none of your entitled share of production from a lease in an AFA, and if that
production cannot be valued under § 1206.172(b), then you must determine the value of the
production that you do not take using the first of the following methods that applies:
(1) The weighted average of the value of your production (under 30 CFR part 1206) in that month
from other leases in the same AFA.
(2) The weighted average of the value of your production (under 30 CFR part 1206) in that month
from other leases in the same field or area.
(3) The weighted average of the value of your production (under 30 CFR part 1206) during the
previous month for production from leases in the same AFA.
(4) The weighted average of the value of your production (under 30 CFR part 1206) during the
previous month for production from other leases in the same field or area.
(5) The latest major portion value that you received from ONRR calculated under § 1206.174 for
the same ONRR-designated area.
(e) You may take less than your entitled share of AFA production for any month, but pay royalties
on the full volume of your entitled share under this section. If you do, you will owe no additional royalty

for that lease for that month when you later take more than your entitled share to balance your
account. The provisions of this paragraph (e) also apply when the other AFA participants pay you
money to balance your account.
§ 1202.555 What portion of the gas that I produce is subject to royalty?
(a) All gas produced from or allocated to your Indian lease is subject to royalty except the
following:
(1) Gas that is unavoidably lost.
(2) Gas that is used on, or for the benefit of, the lease.
(3) Gas that is used off-lease for the benefit of the lease when the Bureau of Land Management
(BLM) approves such off-lease use.
(4) Gas used as plant fuel as provided in § 1206.179(e).
(b) You may use royalty-free only that proportionate share of each lease's production (actual or
allocated) necessary to operate the production facility when you use gas for one of the following
purposes:
(1) On, or for the benefit of, the lease at a production facility handling production from more than
one lease with BLM's approval.
(2) At a production facility handling unitized or communitized production.
(c) If the terms of your lease are inconsistent with this subpart, your lease terms will govern to the
extent of that inconsistency.
§ 1202.556 How do I determine the value of avoidably lost, wasted, or drained gas?
If BLM determines that a volume of gas was avoidably lost or wasted, or a volume of gas was
drained from your Indian lease for which compensatory royalty is due, then you must determine the
value of that volume of gas under 30 CFR part 1206.
§ 1202.557 Must I pay royalty on insurance compensation for unavoidably lost gas?
If you receive insurance compensation for unavoidably lost gas, you must pay royalties on the
amount of that compensation. This paragraph does not apply to compensation through self-insurance.
§ 1202.558 What standards do I use to report and pay royalties on gas?
(a) You must report gas volumes as follows:
(1) Report gas volumes and Btu heating values, if applicable, under the same degree of water
saturation. Report gas volumes and Btu heating value at a standard pressure base of 14.73 psia and a
standard temperature of 60 degrees Fahrenheit. Report gas volumes in units of 1,000 cubic feet (Mcf).
(2) You must use the frequency and method of Btu measurement stated in your contract to
determine Btu heating values for reporting purposes. However, you must measure the Btu value at
least semi-annually by recognized standard industry testing methods even if your contract provides for
less frequent measurement.
(b) You must report residue gas and gas plant product volumes as follows:
(1) Report carbon dioxide (CO2 ), nitrogen (N2 ), helium (He), residue gas, and any gas marketed
as a separate product by using the same standards specified in paragraph (a) of this section.
(2) Report natural gas liquid (NGL) volumes in standard U.S. gallons (231 cubic inches) at 60
degrees F.
(3) Report sulfur (S) volumes in long tons (2,240 pounds).

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of March 15, 2013
Title 30: Mineral Resources
PART 1203—RELIEF OR REDUCTION IN ROYALTY RATES
Contents
§ 1203.250 Advance royalty.
§ 1203.251 Reduction in royalty rate or rental.
AUTHORITY: 25 U.S.C. 396 et seq.; 25 U.S.C. 396a et seq.; 25 U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq.; 30
U.S.C. 351 et seq.; 30 U.S.C. 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq.; and 43 U.S.C. 1331 et seq.
SOURCE: 48 FR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61067, Oct. 4, 2010.

§ 1203.250 Advance royalty.
Provisions for the payment of advance royalty in lieu of continued operation are contained at 43
CFR 3483.4.
[54 FR 1522, Jan. 13, 1989]

§ 1203.251 Reduction in royalty rate or rental.
An application for reduction in coal royalty rate or rental shall be filed and processed in
accordance with 43 CFR group 3400.
[54 FR 1522, Jan. 13, 1989]

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of March 15, 2013
Title 30: Mineral Resources
PART 1206—PRODUCT VALUATION
Contents
Subpart A—General Provisions
§ 1206.10 Information collection.
Subpart B—Indian Oil
§ 1206.50 What is the purpose of this subpart?
§ 1206.51 What definitions apply to this subpart?
§ 1206.52 How do I calculate royalty value for oil that I or my affiliate sell(s) or exchange(s) under an
arm's-length contract?
§ 1206.53 How do I determine value for oil that I or my affiliate do(es) not sell under an arm's-length
contract?
§ 1206.54 How do I fulfill the lease provision regarding valuing production on the basis of the major
portion of like-quality oil?
§ 1206.55 What are my responsibilities to place production into marketable condition and to market
the production?
§ 1206.56 Transportation allowances—general.
§ 1206.57 Determination of transportation allowances.
§ 1206.58 What must I do if ONRR finds that I have not properly determined value?
§ 1206.59 May I ask ONRR for valuation guidance?
§ 1206.60 What are the quantity and quality bases for royalty settlement?
§ 1206.61 What records must I keep and produce?
§ 1206.62 Does ONRR protect information I provide?
Subpart C—Federal Oil
§ 1206.100 What is the purpose of this subpart?
§ 1206.101 What definitions apply to this subpart?
§ 1206.102 How do I calculate royalty value for oil that I or my affiliate sell(s) under an arm's-length
contract?
§ 1206.103 How do I value oil that is not sold under an arm's-length contract?
§ 1206.104 What publications are acceptable to ONRR?
§ 1206.105 What records must I keep to support my calculations of value under this subpart?
§ 1206.106 What are my responsibilities to place production into marketable condition and to market
production?
§ 1206.107 How do I request a value determination?
§ 1206.108 Does ONRR protect information I provide?
§ 1206.109 When may I take a transportation allowance in determining value?
§ 1206.110 How do I determine a transportation allowance under an arm's-length transportation
contract?
§ 1206.111 How do I determine a transportation allowance if I do not have an arm's-length
transportation contract or arm's-length tariff?
§ 1206.112 What adjustments and transportation allowances apply when I value oil production from
my lease using NYMEX prices or ANS spot prices?
§ 1206.113 How will ONRR identify market centers?
§ 1206.114 What are my reporting requirements under an arm's-length transportation contract?

§ 1206.115 What are my reporting requirements under a non-arm's-length transportation
arrangement?
§ 1206.116 What interest applies if I improperly report a transportation allowance?
§ 1206.117 What reporting adjustments must I make for transportation allowances?
§ 1206.119 How are royalty quantity and quality determined?
§ 1206.120 How are operating allowances determined?
Subpart D—Federal Gas
§ 1206.150
§ 1206.151
§ 1206.152
§ 1206.153
§ 1206.154
§ 1206.155
§ 1206.156
§ 1206.157
§ 1206.158
§ 1206.159
§ 1206.160

Purpose and scope.
Definitions.
Valuation standards—unprocessed gas.
Valuation standards—processed gas.
Determination of quantities and qualities for computing royalties.
Accounting for comparison.
Transportation allowances—general.
Determination of transportation allowances.
Processing allowances—general.
Determination of processing allowances.
Operating allowances.

Subpart E—Indian Gas
§ 1206.170
§ 1206.171
§ 1206.172
§ 1206.173
§ 1206.174
§ 1206.175
§ 1206.176

What does this subpart contain?
What definitions apply to this subpart?
How do I value gas produced from leases in an index zone?
How do I calculate the alternative methodology for dual accounting?
How do I value gas production when an index-based method cannot be used?
How do I determine quantities and qualities of production for computing royalties?
How do I perform accounting for comparison?

TRANSPORTATION ALLOWANCES
§ 1206.177 What general requirements regarding transportation allowances apply to me?
§ 1206.178 How do I determine a transportation allowance?
PROCESSING ALLOWANCES
§ 1206.179 What general requirements regarding processing allowances apply to me?
§ 1206.180 How do I determine an actual processing allowance?
§ 1206.181 How do I establish processing costs for dual accounting purposes when I do not process
the gas?
Subpart F—Federal Coal
§ 1206.250
§ 1206.251
§ 1206.252
§ 1206.253
§ 1206.254
§ 1206.255
§ 1206.256
§ 1206.257
§ 1206.258
§ 1206.259
§ 1206.260
§ 1206.261
§ 1206.262
§ 1206.263
§ 1206.264
§ 1206.265

Purpose and scope.
Definitions.
Information collection.
Coal subject to royalties—general provisions.
Quality and quantity measurement standards for reporting and paying royalties.
Point of royalty determination.
Valuation standards for cents-per-ton leases.
Valuation standards for ad valorem leases.
Washing allowances—general.
Determination of washing allowances.
Allocation of washed coal.
Transportation allowances—general.
Determination of transportation allowances.
[Reserved]
In-situ and surface gasification and liquefaction operations.
Value enhancement of marketable coal.

Subpart G—Other Solid Minerals

§ 1206.301 Value basis for royalty computation.
Subpart H—Geothermal Resources
§ 1206.350 What is the purpose of this subpart?
§ 1206.351 What definitions apply to this subpart?
§ 1206.352 How do I calculate the royalty due on geothermal resources used for commercial
production or generation of electricity?
§ 1206.353 How do I determine transmission deductions?
§ 1206.354 How do I determine generating deductions?
§ 1206.355 How do I calculate royalty due on geothermal resources I sell at arm's length to a
purchaser for direct use?
§ 1206.356 How do I calculate royalty or fees due on geothermal resources I use for direct use
purposes?
§ 1206.357 How do I calculate royalty due on byproducts?
§ 1206.358 What are byproduct transportation allowances?
§ 1206.359 How do I determine byproduct transportation allowances?
§ 1206.360 What records must I keep to support my calculations of royalty or fees under this
subpart?
§ 1206.361 How will ONRR determine whether my royalty or direct use fee payments are correct?
§ 1206.362 What are my responsibilities to place production into marketable condition and to market
production?
§ 1206.363 When is an ONRR audit, review, reconciliation, monitoring, or other like process
considered final?
§ 1206.364 How do I request a value or gross proceeds determination?
§ 1206.365 Does ONRR protect information I provide?
§ 1206.366 What is the nominal fee that a State, tribal, or local government lessee must pay for the
use of geothermal resources?
Subpart I—OCS Sulfur [Reserved]
Subpart J—Indian Coal
§ 1206.450
§ 1206.451
§ 1206.452
§ 1206.453
§ 1206.454
§ 1206.455
§ 1206.456
§ 1206.457
§ 1206.458
§ 1206.459
§ 1206.460
§ 1206.461
§ 1206.462
§ 1206.463
§ 1206.464

Purpose and scope.
Definitions.
Coal subject to royalties—general provisions.
Quality and quantity measurement standards for reporting and paying royalties.
Point of royalty determination.
Valuation standards for cents-per-ton leases.
Valuation standards for ad valorem leases.
Washing allowances—general.
Determination of washing allowances.
Allocation of washed coal.
Transportation allowances—general.
Determination of transportation allowances.
[Reserved]
In-situ and surface gasification and liquefaction operations.
Value enhancement of marketable coal.

AUTHORITY: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et seq., 2101 et seq.; 30 U.S.C. 181 et seq.,
351 et seq., 1001 et seq., 1701 et seq.; 31 U.S.C. 9701.; 43 U.S.C. 1301 et seq., 1331 et seq., and 1801 et seq.
EDITORIAL NOTE: Nomenclature changes to part 206 appear at 67 FR 19111, Apr. 18, 2002.
SOURCE: 48 FR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61069, Oct. 4, 2010.

Subpart A—General Provisions
§ 1206.10 Information collection.
The information collection requirements contained in this part have been approved by the Office
of Management and Budget (OMB) under 44 U.S.C. 3501 et seq. The forms, filing date, and approved
OMB clearance numbers are identified in § 1210.10.

(d) Adjusting incorrect processing allowances. If for any month the gas processing allowance you
are entitled to is less than the amount you took on Form MMS-2014, you are required to pay additional
royalties, plus interest computed under § 1218.54 of this chapter from the first day of the first month
you deducted a processing allowance until the date you pay the royalties due. If the processing
allowance you are entitled is greater than the amount you took on Form MMS-2014, you are entitled to
a credit. However, no interest will be paid on the overpayment.
(e) Other processing cost determinations. You must follow the provisions of this section to
determine processing costs when establishing value using either a net-back valuation procedure or
any other procedure that requires deduction of actual processing costs.
[64 FR 43515, Aug. 10, 1999, as amended at 73 FR 15891, Mar. 26, 2008]

§ 1206.181 How do I establish processing costs for dual accounting purposes when I do not
process the gas?
Where accounting for comparison (dual accounting) is required for gas production from a lease
but neither you nor someone acting on your behalf processes the gas, and you have elected to
perform actual dual accounting under § 1206.176, you must use the first applicable of the following
methods to establish processing costs for dual accounting purposes:
(a) The average of the costs established in your current arm's-length processing agreements for
gas from the lease, provided that some gas has previously been processed under these agreements.
(b) The average of the costs established in your current arm's-length processing agreements for
gas from the lease, provided that the agreements are in effect for plants to which the lease is
physically connected and under which gas from other leases in the field or area is being or has been
processed.
(c) A proposed comparable processing fee submitted to either the tribe and ONRR (for tribal
leases) or ONRR (for allotted leases) with your supporting documentation submitted to ONRR. If
ONRR does not take action on your proposal within 120 days, the proposal will be deemed to be
denied and subject to appeal to the ONRR Director under 30 CFR part 1290.
(d) Processing costs based on the regulations in §§ 1206.179 and 1206.180.

Subpart F—Federal Coal
SOURCE: 54 FR 1523, Jan. 13, 1989, unless otherwise noted.

§ 1206.250 Purpose and scope.
(a) This subpart is applicable to all coal produced from Federal coal leases. The purpose of this
subpart is to establish the value of coal produced for royalty purposes, of all coal from Federal leases
consistent with the mineral leasing laws, other applicable laws and lease terms.
(b) If the specific provisions of any statute or settlement agreement between the United States
and a lessee resulting from administrative or judicial litigation, or any coal lease subject to the
requirements of this subpart, are inconsistent with any regulation in this subpart then the statute, lease
provision, or settlement shall govern to the extent of that inconsistency.
(c) All royalty payments made to the Office of Natural Resources Revenue (ONRR) are subject to
later audit and adjustment.
[54 FR 1523, Jan. 13, 1989, as amended at 61 FR 5479, Feb. 12, 1996; 67 FR 19111, Apr. 18, 2002]

§ 1206.251 Definitions.
Ad valorem lease means a lease where the royalty due to the lessor is based upon a percentage
of the amount or value of the coal.
Allowance means a deduction used in determining value for royalty purposes. Coal washing
allowance means an allowance for the reasonable, actual costs incurred by the lessee for coal

washing. Transportation allowance means an allowance for the reasonable, actual costs incurred by
the lessee for moving coal to a point of sale or point of delivery remote from both the lease and mine
or wash plant.
Area means a geographic region in which coal has similar quality and economic characteristics.
Area boundaries are not officially designated and the areas are not necessarily named.
Arm's-length contract means a contract or agreement that has been arrived at in the marketplace
between independent, nonaffiliated persons with opposing economic interests regarding that contract.
For purposes of this subpart, two persons are affiliated if one person controls, is controlled by, or is
under common control with another person. For purposes of this subpart, based on the instruments of
ownership of the voting securities of an entity, or based on other forms of ownership:
(a) Ownership in excess of 50 percent constitutes control;
(b) Ownership of 10 through 50 percent creates a presumption of control; and
(c) Ownership of less than 10 percent creates a presumption of noncontrol which ONRR may
rebut if it demonstrates actual or legal control, including the existence of interlocking directorates.
Notwithstanding any other provisions of this subpart, contracts between relatives, either by blood or by
marriage, are not arm's-length contracts. The ONRR may require the lessee to certify ownership
control. To be considered arm's-length for any production month, a contract must meet the
requirements of this definition for that production 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 payment compliance activities of lessees or other interest holders who pay
royalties, rents, or bonuses on Federal leases.
BLM means the Bureau of Land Management of the Department of the Interior.
Coal means coal of all ranks from lignite through anthracite.
Coal washing means any treatment to remove impurities from coal. Coal washing may include,
but is not limited to, operations such as flotation, air, water, or heavy media separation; drying; and
related handling (or combination thereof).
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.
Gross proceeds (for royalty payment purposes) means the total monies and other consideration
accruing to a coal lessee for the production and disposition of the coal produced. Gross proceeds
includes, but is not limited to, payments to the lessee for certain services such as crushing, sizing,
screening, storing, mixing, loading, treatment with substances including chemicals or oils, and other
preparation of the coal to the extent that the lessee is obligated to perform them at no cost to the
Federal Government. Gross proceeds, as applied to coal, also includes but is not limited to
reimbursements for royalties, taxes or fees, and other reimbursements. Tax reimbursements are part
of the gross proceeds accruing to a lessee even though the Federal royalty interest may be exempt
from taxation. 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 are also part of gross proceeds.
Lease means any contract, profit-share arrangement, joint venture, or other agreement issued or
approved by the United States for a Federal coal resource under a mineral leasing law that authorizes
exploration for, development or extraction of, or removal of coal—or the land covered by that
authorization, whichever is required by the context.
Lessee means any person to whom the United States issues a lease, and any person who has
been assigned an obligation to make royalty or other payments required by the lease. This includes
any person who has an interest in a lease as well as an operator or payor who has no interest in the
lease but who has assumed the royalty payment responsibility.

Like-quality coal means coal that has similar chemical and physical characteristics.
Marketable condition means coal that is sufficiently free from impurities and otherwise in a
condition that it will be accepted by a purchaser under a sales contract typical for that area.
Mine means an underground or surface excavation or series of excavations and the surface or
underground support facilities that contribute directly or indirectly to mining, production, preparation,
and handling of lease products.
Net-back method means a method for calculating market value of coal at the lease or mine. Under
this method, costs of transportation, washing, handling, etc., are deducted from the ultimate proceeds
received for the coal at the first point at which reasonable values for the coal may be determined by a
sale pursuant to an arm's-length contract or by comparison to other sales of coal, to ascertain value at
the mine.
Net output means the quantity of washed coal that a washing plant produces.
Netting is the deduction of an allowance from the sales value by reporting a one line net sales
value, instead of correctly reporting the deduction as a separate line item on the Form MMS-4430.
Person means by individual, firm, corporation, association, partnership, consortium, or joint
venture.
Sales type code means the contract type or general disposition (e.g., arm's-length or non-arm'slength) of production from the lease. The sales type code applies to the sales contract, or other
disposition, and not to the arm's-length or non-arm's-length nature of a transportation or washing
allowance.
Spot market price means the price received under any sales transaction when planned or actual
deliveries span a short period of time, usually not exceeding one year.
[54 FR 1523, Jan. 13, 1989, as amended at 55 FR 35433, Aug. 30, 1990; 61 FR 5479, Feb. 12, 1996; 64 FR
43288, Aug. 10, 1999; 66 FR 45769, Aug. 30, 2001; 73 FR 15891, Mar. 26, 2008]

§ 1206.252 Information collection.
The information collection requirements contained in this subpart have been approved by the
Office of Management and Budget (OMB) under 44 U.S.C. 3501 et seq. The forms, filing date, and
approved OMB control numbers are identified in part 1210—Forms and Reports.
[73 FR 15891, Mar. 26, 2008]

§ 1206.253 Coal subject to royalties—general provisions.
(a) All coal (except coal unavoidably lost as determined by BLM under 43 CFR part 3400) from a
Federal lease subject to this part is subject to royalty. This includes coal used, sold, or otherwise
disposed of by the lessee on or off the lease.
(b) If a lessee receives compensation for unavoidably lost coal through insurance coverage or
other arrangements, royalties at the rate specified in the lease are to be paid on the amount of
compensation received for the coal. No royalty is due on insurance compensation received by the
lessee for other losses.
(c) If waste piles or slurry ponds are reworked to recover coal, the lessee shall pay royalty at the
rate specified in the lease at the time the recovered coal is used, sold, or otherwise finally disposed of.
The royalty rate shall be that rate applicable to the production method used to initially mine coal in the
waste pile or slurry pond; i.e. , underground mining method or surface mining method. Coal in waste
pits or slurry ponds initially mined from Federal leases shall be allocated to such leases regardless of
whether it is stored on Federal lands. The lessee shall maintain accurate records to determine to
which individual Federal lease coal in the waste pit or slurry pond should be allocated. However,
nothing in this section requires payment of a royalty on coal for which a royalty has already been paid.
[54 FR 1523, Jan. 13, 1989, as amended at 61 FR 5479, Feb. 12, 1996]

§ 1206.254 Quality and quantity measurement standards for reporting and paying royalties.
For all leases subject to this subpart, the quantity of coal on which royalty is due shall be
measured in short tons (of 2,000 pounds each) by methods prescribed by the BLM. Coal quantity
information will be reported on appropriate forms required under 30 CFR part 210—Forms and
Reports.
[54 FR 1523, Jan. 13, 1989, as amended at 57 FR 52720, Nov. 5, 1992; 66 FR 45769, Aug. 30, 2001; 73 FR
15891, Mar. 26, 2008]

§ 1206.255 Point of royalty determination.
(a) For all leases subject to this subpart, royalty shall be computed on the basis of the quantity
and quality of Federal coal in marketable condition measured at the point of royalty measurement as
determined jointly by BLM and ONRR .
(b) Coal produced and added to stockpiles or inventory does not require payment of royalty until
such coal is later used, sold, or otherwise finally disposed of. ONRR may ask BLM to increase the
lease bond to protect the lessor's interest when BLM determines that stockpiles or inventory become
excessive so as to increase the risk of degradation of the resource.
(c) The lessee shall pay royalty at a rate specified in the lease at the time the coal is used, sold, or
otherwise finally disposed of, unless otherwise provided for at § 1206.256(d) of this subpart.
[54 FR 1523, Jan. 13, 1989, as amended at 61 FR 5480, Feb. 12, 1996]

§ 1206.256 Valuation standards for cents-per-ton leases.
(a) This section is applicable to coal leases on Federal lands which provide for the determination
of royalty on a cents-per-ton (or other quantity) basis.
(b) The royalty for coal from leases subject to this section shall be based on the dollar rate per ton
prescribed in the lease. That dollar rate shall be applicable to the actual quantity of coal used, sold, or
otherwise finally disposed of, including coal which is avoidably lost as determine by BLM pursuant to
43 CFR part 3400.
(c) For leases subject to this section, there shall be no allowances for transportation, removal of
impurities, coal washing, or any other processing or preparation of the coal.
(d) When a coal lease is readjusted pursuant to 43 CFR part 3400 and the royalty valuation
method changes from a cents-per-ton basis to an ad valorem basis, coal which is produced prior to the
effective date of readjustment and sold or used within 30 days of the effective date of readjustment
shall be valued pursuant to this section. All coal that is not used, sold, or otherwise finally disposed of
within 30 days after the effective date of readjustment shall be valued pursuant to the provisions of
§ 1206.257 of this subpart, and royalties shall be paid at the royalty rate specified in the readjusted
lease.
[54 FR 1523, Jan. 13, 1989, as amended at 61 FR 5480, Feb. 12, 1996]

§ 1206.257 Valuation standards for ad valorem leases.
(a) This section is applicable to coal leases on Federal lands which provide for the determination
of royalty as a percentage of the amount of value of coal (ad valorem). The value for royalty purposes
of coal from such leases shall be the value of coal determined under this section, less applicable coal
washing allowances and transportation allowances determined under §§ 1206.258 through 1206.262
of this subpart, or any allowance authorized by § 1206.265 of this subpart. The royalty due shall be
equal to the value for royalty purposes multiplied by the royalty rate in the lease.
(b)(1) The value of coal that is sold pursuant to an arm's-length contract shall be the gross
proceeds accruing to the lessee, except as provided in paragraphs (b)(2), (b)(3), and (b)(5) of this
section. The lessee shall have the burden of demonstrating that its contract is arm's-length. The value
which the lessee reports, for royalty purposes, is subject to monitoring, review, and audit.

(2) In conducting reviews and audits, ONRR will examine whether the contract reflects the total
consideration actually transferred either directly or indirectly from the buyer to the seller for the coal
produced. If the contract does not reflect the total consideration, then the ONRR may require that the
coal sold pursuant to that contract be valued in accordance with paragraph (c) of this section. Value
may not be based on less than the gross proceeds accruing to the lessee for the coal production,
including the additional consideration.
(3) If ONRR determines that the gross proceeds accruing to the lessee pursuant to an arm'slength contract do not reflect the reasonable value of the production because of misconduct by or
between the contracting parties, or because the lessee otherwise has breached its duty to the lessor
to market the production for the mutual benefit of the lessee and the lessor, then ONRR shall require
that the coal production be valued pursuant to paragraph (c)(2) (ii), (iii), (iv), or (v) of this section, and
in accordance with the notification requirements of paragraph (d)(3) of this section. When ONRR
determines that the value may be unreasonable, ONRR will notify the lessee and give the lessee an
opportunity to provide written information justifying the lessee's reported coal value.
(4) ONRR may require a lessee to certify that its arm's-length contract provisions include all of the
consideration to be paid by the buyer, either directly or indirectly, for the coal production.
(5) The value of production for royalty purposes shall not include payments received by the lessee
pursuant to a contract which the lessee demonstrates, to ONRR's satisfaction, were not part of the
total consideration paid for the purchase of coal production.
(c)(1) The value of coal from leases subject to this section and which is not sold pursuant to an
arm's-length contract shall be determined in accordance with this section.
(2) If the value of the coal cannot be determined pursuant to paragraph (b) of this section, then
the value shall be determined through application of other valuation criteria. The criteria shall be
considered in the following order, and the value shall be based upon the first applicable criterion:
(i) The gross proceeds accruing to the lessee pursuant to a sale under its non-arm's-length
contract (or other disposition of produced coal by other than an arm's-length contract), provided that
those gross proceeds are within the range of the gross proceeds derived from, or paid under,
comparable arm's-length contracts between buyers and sellers neither of whom is affiliated with the
lessee for sales, purchases, or other dispositions of like-quality coal produced in the area. In
evaluating the comparability of arm's-length contracts for the purposes of these regulations, the
following factors shall be considered: Price, time of execution, duration, market or markets served,
terms, quality of coal, quantity, and such other factors as may be appropriate to reflect the value of the
coal;
(ii) Prices reported for that coal to a public utility commission;
(iii) Prices reported for that coal to the Energy Information Administration of the Department of
Energy;
(iv) 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 types of coal;
(v) If a reasonable value cannot be determined using paragraphs (c)(2) (i), (ii), (iii), or (iv) of this
section, then a net-back method or any other reasonable method shall be used to determine value.
(3) When the value of coal is determined pursuant to paragraph (c)(2) of this section, that value
determination shall be consistent with the provisions contained in paragraph (b)(5) of this section.
(d)(1) Where the value is determined pursuant to paragraph (c) of this section, that value does not
require ONRR's prior approval. However, the lessee shall retain all data relevant to the determination
of royalty value. Such data shall be subject to review and audit, and ONRR will direct a lessee to use a
different value if it determines that the reported value is inconsistent with the requirements of these
regulations.

(2) Any Federal lessee will make available upon request to the authorized ONRR or State
representatives, to the Inspector General of the Department of the Interior or other persons authorized
to receive such information, arm's-length sales value and sales quantity data for like-quality coal sold,
purchased, or otherwise obtained by the lessee from the area.
(3) A lessee shall notify ONRR if it has determined value pursuant to paragraphs (c)(2) (ii), (iii),
(iv), or (v) of this section. The notification shall be by letter to the Director for Office of Natural
Resources Revenue of his/her designee. The letter shall identify the valuation method to be used and
contain a brief description of the procedure to be followed. The notification required by this section is a
one-time notification due no later than the month the lessee first reports royalties on the Form MMS4430 using a valuation method authorized by paragraphs (c)(2) (ii), (iii), (iv), or (v) of this section, and
each time there is a change in a method under paragraphs (c)(2) (iv) or (v) of this section.
(e) If ONRR determines that a lessee has not properly determined value, the lessee shall be liable
for the difference, if any, between royalty payments made based upon the value it has used and the
royalty payments that are due based upon the value established by ONRR. The lessee shall also be
liable for interest computed pursuant to § 1218.202 of this chapter. If the lessee is entitled to a credit,
ONRR will provide instructions for the taking of that credit.
(f) The lessee may request a value determination from ONRR. In that event, the lessee shall
propose to ONRR a value determination method, and may use that method in determining value for
royalty purposes until ONRR issues its decision. The lessee shall submit all available data relevant to
its proposal. The ONRR shall expeditiously determine the value based upon the lessee's proposal and
any additional information ONRR deems necessary. That determination shall remain effective for the
period stated therein. After ONRR issues its determination, the lessee shall make the adjustments in
accordance with paragraph (e) of this section.
(g) Notwithstanding any other provisions of this section, under no circumstances shall the value
for royalty purposes be less than the gross proceeds accruing to the lessee for the disposition of
produced coal less applicable provisions of paragraph (b)(5) of this section and less applicable
allowances determined pursuant to §§ 1206.258 through 1206.262 and § 1206.265 of this subpart.
(h) The lessee is required to place coal in marketable condition at no cost to the Federal
Government. Where the value established under this section is determined by a lessee's gross
proceeds, that value shall be increased to the extent that the gross proceeds has been reduced
because the purchaser, or any other person, is providing certain services, the cost of which ordinarily
is the responsibility of the lessee to place the coal in marketable condition.
(i) Value shall be based on the highest price a prudent lessee can receive through legally
enforceable claims under its contract. Absent contract revision or amendment, if the lessee fails to
take proper or timely action to receive prices or benefits to which it is entitled, it must pay royalty at a
value based upon that obtainable price or benefit. Contract revisions or amendments shall be in writing
and signed by all parties to an arm's-length contract, and may be retroactively applied to value for
royalty purposes for a period not to exceed two years, unless ONRR approves a longer period. If the
lessee makes timely application for a price increase allowed under its contract but the purchaser
refuses, and the lessee takes reasonable measures, which are documented, to force purchaser
compliance, the lessee will owe no additional royalties unless or until monies or consideration resulting
from the price increase are received. This paragraph shall not be construed to permit a lessee to avoid
its royalty payment obligation in situations where a purchaser fails to pay, in whole or in part or timely,
for a quantity of coal.
(j) Notwithstanding any provision in these regulations to the contrary, no review, reconciliation,
monitoring, or other like process that results in a redetermination by ONRR of value under this section
shall be considered final or binding as against the Federal Government or its beneficiaries until the
audit period is formally closed.
(k) Certain information submitted to ONRR to support valuation proposals, including
transportation, coal washing, or other allowances under § 1206.265 of this subpart, is exempted from
disclosure by the Freedom of Information Act, 5 U.S.C. 522. Any data specified by the Act to be
privileged, confidential, or otherwise exempt shall be maintained in a confidential manner in
accordance with applicable law and regulations. All requests for information about determinations

made under this part are to be submitted in accordance with the Freedom of Information Act regulation
of the Department of the Interior, 43 CFR part 2.
[54 FR 1523, Jan. 13, 1989, as amended at 55 FR 35433, Aug. 30, 1990; 57 FR 52720, Nov. 5, 1992; 61 FR
5480, Feb. 12, 1996; 66 FR 45769, Aug. 30, 2001]

§ 1206.258 Washing allowances—general.
(a) For ad valorem leases subject to § 1206.257 of this subpart, ONRR shall, as authorized by this
section, allow a deduction in determining value for royalty purposes for the reasonable, actual costs
incurred to wash coal, unless the value determined pursuant to § 1206.257 of this subpart was based
upon like-quality unwashed coal. Under no circumstances will the authorized washing allowance and
the transportation allowance reduce the value for royalty purposes to zero.
(b) If ONRR determines that a lessee has improperly determined a washing allowance authorized
by this section, then the lessee shall be liable for any additional royalties, plus interest determined in
accordance with § 1218.202 of this chapter, or shall be entitled to a credit without interest.
(c) Lessees shall not disproportionately allocate washing costs to Federal leases.
(d) No cost normally associated with mining operations and which are necessary for placing coal
in marketable condition shall be allowed as a cost of washing.
(e) Coal washing costs shall only be recognized as allowances when the washed coal is sold and
royalties are reported and paid.
[54 FR 1523, Jan. 13, 1989, as amended at 61 FR 5480, Feb. 12, 1996; 64 FR 43288, Aug. 10, 1999]

§ 1206.259 Determination of washing allowances.
(a) Arm's-length contracts. (1) For washing costs incurred by a lessee under an arm's-length
contract, the washing allowance shall be the reasonable actual costs incurred by the lessee for
washing the coal under that contract, subject to monitoring, review, audit, and possible future
adjustment. The lessee shall have the burden of demonstrating that its contract is arm's-length. ONRR'
prior approval is not required before a lessee may deduct costs incurred under an arm's-length
contract. The lessee must claim a washing allowance by reporting it as a separate line entry on the
Form MMS-4430.
(2) In conducting reviews and audits, ONRR will examine whether the contract reflects more than
the consideration actually transferred either directly or indirectly from the lessee to the washer for the
washing. If the contract reflects more than the total consideration paid, then the ONRR may require
that the washing allowance be determined in accordance with paragraph (b) of this section.
(3) If ONRR determines that the consideration paid pursuant to an arm's-length washing contract
does not reflect the reasonable value of the washing because of misconduct by or between the
contracting parties, or because the lessee otherwise has breached its duty to the lessor to market the
production for the mutual benefit of the lessee and the lessor, then ONRR shall require that the
washing allowance be determined in accordance with paragraph (b) of this section. When ONRR
determines that the value of the washing may be unreasonable, ONRR will notify the lessee and give
the lessee an opportunity to provide written information justifying the lessee's washing costs.
(4) Where the lessee's payments for washing under an arm's-length contract are not based on a
dollar-per-unit basis, the lessee shall convert whatever consideration is paid to a dollar value
equivalent. Washing allowances shall be expressed as a cost per ton of coal washed.
(b) Non-arm's-length or no contract. (1) If a lessee has a non-arm's-length contract or has no
contract, including those situations where the lessee performs washing for itself, the washing
allowance will be based upon the lessee's reasonable actual costs. All washing allowances deducted
under a non-arm's-length or no contract situation are subject to monitoring, review, audit, and possible
future adjustment. The lessee must claim a washing allowance by reporting it as a separate line entry
on the Form MMS-4430. When necessary or appropriate, ONRR may direct a lessee to modify its
estimated or actual washing allowance.

(2) The washing allowance for non-arm's-length or no contract situations shall be based upon the
lessee's actual costs for washing during the reported period, including operating and maintenance
expenses, overhead, and either depreciation and a return on undepreciated capital investment in
accordance with paragraph (b)(2)(iv) (A) of this section, or a cost equal to the depreciable investment
in the wash plant multiplied by the rate of return in accordance with paragraph (b)(2)(iv)(B) of this
section. Allowable capital costs are generally those for depreciable fixed assets (including costs of
delivery and installation of capital equipment) which are an integral part of the wash plant.
(i) Allowable operating expenses include: Operations supervision and engineering; operations
labor; fuel; utilities; materials; ad valorem property taxes, rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can document.
(ii) Allowable maintenance expenses include: Maintenance of the wash plant; maintenance of
equipment; maintenance labor; and other directly allocable and attributable maintenance expenses
which the lessee can document.
(iii) Overhead attributable and allocable to the operation and maintenance of the wash plant is an
allowable expense. State and Federal income taxes and severance taxes, including royalities, are not
allowable expenses.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or (B) of this section. After a lessee has
elected to use either method for a wash plant, the lessee may not later elect to change to the other
alternative without approval of the ONRR.
(A) To compute depreciation, the lessee may elect to use either a straight-line depreciation
method based on the life of equipment or on the life of the reserves which the wash plant services,
whichever is appropriate, or a unit of production method. After an election is made, the lessee may not
change methods without ONRR approval. A change in ownership of a wash plant shall not alter the
depreciation schedule established by the original operator/lessee for purposes of the allowance
calculation. With or without a change in ownership, a wash plant shall be depreciated only once.
Equipment shall not be depreciated below a reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable capital investment in the wash
plant multiplied by the rate of return determined pursuant to paragraph (b)(2)(v) of this section. No
allowance shall be provided for depreciation. This alternative shall apply only to plants first placed in
service or acquired after March 1, 1989.
(v) The rate of return must be the industrial rate associated with Standard and Poor's BBB rating.
The rate of return must be the monthly average rate as published in Standard and Poor's Bond Guide
for the first month for which the allowance is applicable. The rate must be redetermined at the
beginning of each subsequent calendar year.
(3) The washing allowance for coal shall be determined based on the lessee's reasonable and
actual cost of washing the coal. The lessee may not take an allowance for the costs of washing lease
production that is not royalty bearing.
(c) Reporting requirements —(1) Arm's-length contracts. (i) The lessee must notify ONRR of an
allowance based on incurred costs by using a separate line entry on the Form MMS-4430.
(ii) ONRR may require that a lessee submit arm's-length washing contracts and related
documents. Documents shall be submitted within a reasonable time, as determined by ONRR.
(2) Non-arm's-length or no contract. (i) The lessee must notify ONRR of an allowance based on
the incurred costs by using a separate line entry on the Form MMS-4430.
(ii) For new washing facilities or arrangements, the lessee's initial washing deduction shall include
estimates of the allowable coal washing costs for the applicable period. Cost estimates shall be based
upon the most recently available operations data for the washing system or, if such data are not
available, the lessee shall use estimates based upon industry data for similar washing systems.
(iii) Upon request by ONRR, the lessee shall submit all data used to prepare the allowance
deduction. The data shall be provided within a reasonable period of time, as determined by ONRR.

(d) Interest and assessments. (1) If a lessee nets a washing allowance on the Form MMS-4430,
then the lessee shall be assessed an amount up to 10 percent of the allowance netted not to exceed
$250 per lease sales type code per sales period.
(2) If a lessee erroneously reports a washing allowance which results in an underpayment of
royalties, interest shall be paid on the amount of that underpayment.
(3) Interest required to be paid by this section shall be determined in accordance with § 1218.202
of this chapter.
(e) Adjustments. (1) If the actual coal washing allowance is less than the amount the lessee has
taken on Form ONRR-4430 for each month during the allowance reporting period, the lessee shall pay
additional royalties due plus interest computed under § 1218.202 of this chapter from the date when
the lessee took the deduction to the date the lessee repays the difference to ONRR. If the actual
washing allowance is greater than the amount the lessee has taken on Form ONRR-4430 for each
month during the allowance reporting period, the lessee shall be entitled to a credit without interest.
(2) The lessee must submit a corrected Form ONRR-4430 to reflect actual costs, together with
any payment, in accordance with instructions provided by ONRR.
(f) Other washing cost determinations. The provisions of this section shall apply to determine
washing costs when establishing value using a net-back valuation procedure or any other procedure
that requires deduction of washing costs.
[54 FR 1523, Jan. 13, 1989, as amended at 57 FR 52720, Nov. 5, 1992; 61 FR 5480, Feb. 12, 1996; 64 FR
43288, Aug. 10, 1999; 66 FR 45769, Aug. 30, 2001; 73 FR 15891, Mar. 26, 2008; 76 FR 38561, July 1, 2011]

§ 1206.260 Allocation of washed coal.
(a) When coal is subjected to washing, the washed coal must be allocated to the leases from
which it was extracted.
(b) When the net output of coal from a washing plant is derived from coal obtained from only one
lease, the quantity of washed coal allocable to the lease will be based on the net output of the washing
plant.
(c) When the net output of coal from a washing plant is derived from coal obtained from more than
one lease, unless determined otherwise by BLM, the quantity of net output of washed coal allocable to
each lease will be based on the ratio of measured quantities of coal delivered to the washing plant and
washed from each lease compared to the total measured quantities of coal delivered to the washing
plant and washed.
§ 1206.261 Transportation allowances—general.
(a) For ad valorem leases subject to § 1206.257 of this subpart, where the value for royalty
purposes has been determined at a point remote from the lease or mine, ONRR shall, as authorized
by this section, allow a deduction in determining value for royalty purposes for the reasonable, actual
costs incurred to:
(1) Transport the coal from a Federal lease to a sales point which is remote from both the lease
and mine; or
(2) Transport the coal from a Federal lease to a wash plant when that plant is remote from both
the lease and mine and, if applicable, from the wash plant to a remote sales point. In-mine
transportation costs shall not be included in the transportation allowance.
(b) Under no circumstances will the authorized washing allowance and the transportation
allowance reduce the value for royalty purposes to zero.
(c)(1) When coal transported from a mine to a wash plant is eligible for a transportation allowance
in accordance with this section, the lessee is not required to allocate transportation costs between the
quantity of clean coal output and the rejected waste material. The transportation allowance shall be

authorized for the total production which is transported. Transportation allowances shall be expressed
as a cost per ton of cleaned coal transported.
(2) For coal that is not washed at a wash plant, the transportation allowance shall be authorized
for the total production which is transported. Transportation allowances shall be expressed as a cost
per ton of coal transported.
(3) Transportation costs shall only be recognized as allowances when the transported coal is sold
and royalties are reported and paid.
(d) If, after a review and/or audit, ONRR determines that a lessee has improperly determined a
transportation allowance authorized by this section, then the lessee shall pay any additional royalties,
plus interest, determined in accordance with § 1218.202 of this chapter, or shall be entitled to a credit,
without interest.
(e) Lessees shall not disproportionately allocate transportation costs to Federal leases.
[54 FR 1523, Jan. 13, 1989, as amended at 61 FR 5481, Feb. 12, 1996; 64 FR 43288, Aug. 10, 1999]

§ 1206.262 Determination of transportation allowances.
(a) Arm's-length contracts. (1) For transportation costs incurred by a lessee pursuant to an arm'slength contract, the transportation allowance shall be the reasonable, actual costs incurred by the
lessee for transporting the coal under that contract, subject to monitoring, review, audit, and possible
future adjustment. The lessee shall have the burden of demonstrating that its contract is arm's-length.
The lessee must claim a transportation allowance by reporting it as a separate line entry on the Form
MMS-4430.
(2) In conducting reviews and audits, ONRR will examine whether the contract reflects more than
the consideration actually transferred either directly or indirectly from the lessee to the transporter for
the transportation. If the contract reflects more than the total consideration paid, then the ONRR may
require that the transportation allowance be determined in accordance with paragraph (b) of this
section.
(3) If ONRR determines that the consideration paid pursuant to an arm's-length transportation
contract does not reflect the reasonable value of the transportation because of misconduct by or
between the contracting parties, or because the lessee otherwise has breached its duty to the lessor
to market the production for the mutual benefit of the lessee and the lessor, then ONRR shall require
that the transportation allowance be determined in accordance with paragraph (b) of this section.
When ONRR determines that the value of the transportation may be unreasonable, ONRR will notify
the lessee and give the lessee an opportunity to provide written information justifying the lessee's
transportation costs.
(4) Where the lessee's payments for transportation under an arm's-length contract are not based
on a dollar-per-unit basis, the lessee shall convert whatever consideration is paid to a dollar value
equivalent for the purposes of this section.
(b) Non-arm's-length or no contract —(1) If a lessee has a non-arm's-length contract or has no
contract, including those situations where the lessee performs transportation services for itself, the
transportation allowance will be based upon the lessee's reasonable actual costs. All transportation
allowances deducted under a non-arm's-length or no contract situation are subject to monitoring,
review, audit, and possible future adjustment. The lessee must claim a transportation allowance by
reporting it as a separate line entry on the Form MMS-4430. When necessary or appropriate, ONRR
may direct a lessee to modify its estimated or actual transportation allowance deduction.
(2) The transportation allowance for non-arm's-length or no-contract situations shall be based
upon the lessee's actual costs for transportation during the reporting period, including operating and
maintenance expenses, overhead, and either depreciation and a return on undepreciated capital
investment in accordance with paragraph (b)(2)(iv)(A) of this section, or a cost equal to the
depreciable investment in the transportation system multiplied by the rate of return in accordance with
paragraph (b)(2)(iv)(B) of this section. Allowable capital costs are generally those for depreciable fixed
assets (including costs of delivery and installation of capital equipment) which are an integral part of
the transportation system.

(i) Allowable operating expenses include: Operations supervision and engineering; operations
labor; fuel; utilities; materials; ad valorem property taxes; rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can document.
(ii) Allowable maintenance expenses include: Maintenance of the transportation system;
maintenance of equipment; maintenance labor; and other directly allocable and attributable
maintenance expenses which the lessee can document.
(iii) Overhead 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.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or paragraph (b)(2)(iv)(B) 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 approval of ONRR.
(A) To compute depreciation, the lessee may elect to use either a straight-line depreciation
method based on the life of equipment or on the life of the reserves which the transportation system
services, whichever is appropriate, or a unit of production method. After an election is made, the
lessee may not change methods without ONRR approval. A change in ownership of a transportation
system shall not alter the depreciation schedule established by the original transporter/lessee for
purposes of the allowance calculation. With or without a change in ownership, a transportation system
shall be depreciated only once. Equipment shall not be depreciated below a reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable capital investment in the
transportation system multiplied by the rate of return determined pursuant to paragraph (b)(2)(B)(v) of
this section. No allowance shall be provided for depreciation. This alternative shall apply only to
transportation facilities first placed in service or acquired after March 1, 1989.
(v) The rate of return must be the industrial rate associated with Standard and Poor's BBB rating.
The rate of return must be the monthly average rate as published in Standard and Poor's Bond Guide
for the first month for which the allowance is applicable. The rate must be redetermined at the
beginning of each subsequent calendar year.
(3) A lessee may apply to ONRR for exception from the requirement that it compute actual costs
in accordance with paragraphs (b)(1) and (b)(2) of this section. ONRR will grant the exception only if
the lessee has a rate for the transportation approved by a Federal agency or by a State regulatory
agency (for Federal leases). ONRR shall deny the exception request if it determines that the rate is
excessive as compared to arm's-length transportation charges by systems, owned by the lessee or
others, providing similar transportation services in that area. If there are no arm's-length transportation
charges, ONRR shall deny the exception request if:
(i) No Federal or State regulatory agency costs analysis exists and the Federal or State regulatory
agency, as applicable, has declined to investigate under ONRR timely objections upon filing; and
(ii) The rate significantly exceeds the lessee's actual costs for transportation as determined under
this section.
(c) Reporting requirements —(1) Arm's-length contracts. (i) The lessee must notify ONRR of an
allowance based on incurred costs by using a separate line entry on the Form MMS-4430.
(ii) ONRR may require that a lessee submit arm's-length transportation contracts, production
agreements, operating agreements, and related documents. Documents shall be submitted within a
reasonable time, as determined by ONRR.
(2) Non-arm's-length or no contract —(i) The lessee must notify ONRR of an allowance based on
the incurred costs by using a separate line entry on Form MMS-4430.
(ii) For new transportation facilities or arrangements, the lessee's initial deduction shall include
estimates of the allowable coal transportation costs for the applicable period. Cost estimates shall be
based upon the most recently available operations data for the transportation system or, if such data

are not available, the lessee shall use estimates based upon industry data for similar transportation
systems.
(iii) Upon request by ONRR, the lessee shall submit all data used to prepare the allowance
deduction. The data shall be provided within a reasonable period of time, as determined by ONRR.
(iv) If the lessee is authorized to use its Federal- or State-agency-approved rate as its
transportation cost in accordance with paragraph (b)(3) of this section, it shall follow the reporting
requirements of paragraph (c)(1) of this section.
(d) Interest and assessments. (1) If a lessee nets a transportation allowance on Form MMS-4430,
the lessee shall be assessed an amount of up to 10 percent of the allowance netted not to exceed
$250 per lease sales type code per sales period.
(2) If a lessee erroneously reports a transportation allowance which results in an underpayment of
royalties, interest shall be paid on the amount of that underpayment.
(3) Interest required to be paid by this section shall be determined in accordance with § 1218.202
of this chapter.
(e) Adjustments. (1) If the actual coal transportation allowance is less than the amount the lessee
has taken on Form MMS-4430 for each month during the allowance reporting period, the lessee shall
pay additional royalties due plus interest computed under § 1218.202 of this chapter from the date
when the lessee took the deduction to the date the lessee repays the difference to ONRR. If the actual
transportation allowance is greater than amount the lessee has taken on Form MMS-4430 for each
month during the allowance reporting period, the lessee shall be entitled to a credit without interest.
(2) The lessee must submit a corrected Form MMS-4430 to reflect actual costs, together with any
payments, in accordance with instructions provided by ONRR.
(f) Other transportation cost determinations. The provisions of this section shall apply to determine
transportation costs when establishing value using a net-back valuation procedure or any other
procedure that requires deduction of transportation costs.
[54 FR 1523, Jan. 13, 1989, as amended at 57 FR 41864, Sept. 14, 1992; 57 FR 52720, Nov. 5, 1992; 61 FR
5481, Feb. 12, 1996; 64 FR 43288, Aug. 10, 1999; 66 FR 45769, Aug. 30, 2001; 73 FR 15891, Mar. 26, 2008]

§ 1206.263 [Reserved]
§ 1206.264 In-situ and surface gasification and liquefaction operations.
If an ad valorem Federal coal lease is developed by in-situ or surface gasification or liquefaction
technology, the lessee shall propose the value of coal for royalty purposes to ONRR. The ONRR will
review the lessee's proposal and issue a value determination. The lessee may use its proposed value
until ONRR issues a value determination.
[54 FR 1523, Jan. 13, 1989, as amended at 65 FR 43289, Aug. 10, 1999]

§ 1206.265 Value enhancement of marketable coal.
If, prior to use, sale, or other disposition, the lessee enhances the value of coal after the coal has
been placed in marketable condition in accordance with § 1206.257(h) of this subpart, the lessee shall
notify ONRR that such processing is occurring or will occur. The value of that production shall be
determined as follows:
(a) A value established for the feedstock coal in marketable condition by application of the
provisions of § 1206.257(c)(2)(i-iv) of this subpart; or,
(b) In the event that a value cannot be established in accordance with subsection (a), then the
value of production will be determined in accordance with § 1206.257(c)(2)(v) of this subpart and the
value shall be the lessee's gross proceeds accruing from the disposition of the enhanced product,
reduced by ONRR-approved processing costs and procedures including a rate of return on investment
equal to two times the Standard and Poor's BBB bond rate applicable under § 1206.259(b)(2)(v) of this
subpart.

Subpart G—Other Solid Minerals
§ 1206.301 Value basis for royalty computation.
(a) The gross value for royalty purposes shall be the sale or contract unit price times the number
of units sold, Provided, however, That where the authorized officer determines:
(1) That a contract of sale or other business arrangement between the lessee and a purchaser of
some or all of the commodities produced from the lease is not a bona fide transaction between
independent parties because it is based in whole or in part upon considerations other than the value of
the commodities, or
(2) That no bona fide sales price is received for some or all of such commodities because the
lessee is consuming them, the authorized officer shall determine their gross value, taking into account:
(i) All prices received by the lessee in all bona fide transactions, (ii) Prices paid for commodities of like
quality produced from the same general area, and (iii) Such other relevant factors as the authorized
officer may deem appropriate; and Provided further, That in a situation where an estimated value is
used, the authorized officer shall require the payment of such additional royalties, or allow such credits
or refunds as may be necessary to adjust royalty payment to reflect the actual gross value.
(b) The lessee is required to certify that the values reported for royalty purposes are bona fide
sales not involving considerations other than the sale of the mineral, and he may be required by the
authorized officer to supply supporting information.
[43 FR 10341, Mar. 13, 1978. Redesignated at 48 FR 36588, Aug. 12, 1983, and amended at 48 FR 44795,
Sept. 30, 1983. Further redesignated at 51 FR 15212, Apr. 22, 1986. Redesignated at 53 FR 39461, Oct. 7,
1988]

Subpart H—Geothermal Resources
SOURCE: 72 FR 24459, May 2, 2007, unless otherwise noted.

§ 1206.350 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 ONRR 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 ONRR Director
or Assistant Secretary, Policy, Management and Budget of the Department of the Interior that:
(i) Establishes a method to determine the royalty from any lease that ONRR expects at least
would approximate the value or royalty established under this subpart; and
(ii) Includes a value or gross proceeds determination under § 1206.364 of this subpart.
§ 1206.351 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 ONRR may rebut.
(2) If there is ownership or common ownership of 10 through 50 percent of the voting securities,
or instruments of ownership, or other forms of ownership of another person, ONRR will consider 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.
§ 1206.352 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 § 1206.361 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 § 1206.353 and § 1206.354 of this part, multiplied by the royalty rate in
your lease. See § 1206.361 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 ONRR under § 1206.364
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 § 1206.361 for additional provisions applicable to determining gross proceeds
under arm's-length sales. You may not reduce gross proceeds by any deductions.
§ 1206.353 How do I determine transmission deductions?
(a) If you determine the value of your geothermal resources under § 1206.352(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's-length 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 § 1206.354(b)(1). After you choose a
deduction period, you may not later elect to use a different deduction period without ONRR 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 ONRR 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 ONRR. 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 § 1218.302 of this chapter). You are entitled to a credit for or refund of any overpaid
royalties.
(n) In conducting reviews and audits, ONRR 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 ONRR
specifies. Recordkeeping requirements are found at part 1212 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.
§ 1206.354 How do I determine generating deductions?
(a) If you determine the value of your geothermal resources under § 1206.352(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 § 1206.353(b)(1). After you choose a
deduction period, you may not later elect to use a different deduction period without ONRR 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 ONRR 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 ONRR. 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 § 1218.302 of this chapter). You are entitled to a credit for or refund of any overpaid
royalties.
(n) In conducting reviews and audits, ONRR 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 ONRR
specifies. Recordkeeping requirements are found at part 1212 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.
§ 1206.355 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 § 1206.361 for additional
provisions applicable to determining gross proceeds under arm's-length sales.
§ 1206.356 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 hin is the enthalpy in Btu/lb at the direct use facility inlet (based on measured inlet temperature),
hout is 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 0.133681 (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 ONRR. 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 ONRR or the Assistant
Secretary, Policy, Management and Budget of the Department of the Interior, under § 1206.364 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 . . .
But less than . . .

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

130
140
150
160
170
180
190
200
210
220
230
240
250
260
270
280
290
300
310
320
330
340
350

140
150
160
170
180
190
200
210
220
230
240
250
260
270
280
290
300
310
320
330
340
350
360

2.524
7.549
12.543
17.503
22.426
27.310
32.153
36.955
41.710
46.417
51.075
55.682
60.236
64.736
69.176
73.558
77.876
82.133
86.328
90.445
94.501
98.481
102.387

0.307
0.921
1.536
2.150
2.764
3.379
3.993
4.607
5.221
5.836
6.450
7.064
7.679
8.293
8.907
9.521
10.136
10.750
11.364
11.979
12.593
13.207
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 ONRR, in consultation with BLM, will develop and publish a revised fee schedule in the
FEDERAL REGISTER, as needed.
(iii) ONRR, 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 ONRR
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 § 1218.302 of this chapter.
(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 ONRR 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, ONRR will determine fees on a case-by-case
basis.
[48 FR 35641, Aug. 5, 1983, 76 FR 76615, Dec. 8, 2011]
EDITORIAL NOTE: At 76 FR 76615, Dec. 8, 2011, § 1206.356 was amended in the thermal energy displaced
equation in paragraph (a)(2) by removing “0.113681” and adding in its place “0.133681”. The rule document
does not include a revised illustration to be used for publication.

§ 1206.357 How do I calculate royalty due on byproducts?
(a) If you sell byproducts, you must determine the royalty due on the byproducts that are royaltybearing 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 §§ 1206.358 and 1206.359. See
§ 1206.361 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 ONRR.
§ 1206.358 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 ONRR
of a transportation allowance.
(2) In conducting reviews and audits, ONRR 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 ONRR specifies. Recordkeeping
requirements are found at part 1212 of this chapter.
(e) Byproduct transportation allowances are subject to monitoring, review, and audit. If, after a
review or audit, ONRR determines that you have improperly determined a byproduct transportation
allowance, you must pay any additional royalties due (plus interest computed under § 1218.302 of this
chapter). 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.
§ 1206.359 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, ONRR 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, ONRR may require
you to determine the byproduct transportation allowance under paragraph (b) of this section.
(2) If ONRR 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, ONRR will
require you to determine the byproduct transportation allowance under paragraph (b) of this section.
When ONRR determines that the value of the transportation may be unreasonable, ONRR 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 dollars-per-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 ONRR
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 ONRR 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 § 1218.302 of this chapter). You are entitled to a credit for or a
refund of any overpaid royalties.
§ 1206.360 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 1212 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 ONRR. You must comply with any such requirement
within the time ONRR specifies.
§ 1206.361 How will ONRR 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 ONRR may review and audit your data, and ONRR 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 ONRR 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 § 1218.302 of this
chapter) 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 ONRR 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 ONRR 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, ONRR may require you to increase the gross proceeds to reflect any
additional consideration. Alternatively, for Class I leases, ONRR may require you to use another
valuation method in the regulations applicable to dispositions other than under an arm's-length
contract. ONRR 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) ONRR 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.
§ 1206.362 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.
§ 1206.363 When is an ONRR 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 ONRR of royalty or fees due
under this subpart is considered final or binding as against the Federal Government or its beneficiaries
until ONRR formally closes the audit period in writing.

§ 1206.364 How do I request a value or gross proceeds determination?
(a) You may request a value determination from ONRR 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 ONRR 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, Policy, Management and Budget, may issue a determination; or
(2) ONRR may issue a determination; or
(3) ONRR may inform you in writing that ONRR will not provide a determination. Situations in
which ONRR 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, Policy, Management and Budget, is
binding on both you and ONRR 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 § 1218.302 of this chapter.
(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 ONRR is binding on ONRR and delegated States, but not on you,
with respect to the specific situation addressed in the determination unless ONRR (for ONRR-issued
determinations) or the Assistant Secretary modifies or rescinds it.
(1) A determination by ONRR is not an appealable decision or order under 30 CFR part 1290
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 1290 subpart B.
(e) In making a determination, ONRR 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 ONRR or the Assistant Secretary modifies or rescinds the determination.

(g) ONRR 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) ONRR may make requests and replies under this section available to the public, subject to the
confidentiality requirements under § 1206.365.
§ 1206.365 Does ONRR protect information I provide?
Certain information you submit to ONRR 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, ONRR 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.
§ 1206.366 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.
ONRR will determine the fee on a case-by-case basis.

Subpart I—OCS Sulfur [Reserved]
Subpart J—Indian Coal
SOURCE: 61 FR 5481, Feb. 12, 1996, unless otherwise noted.

§ 1206.450 Purpose and scope.
(a) This subpart prescribes the procedures to establish the value, for royalty purposes, of all coal
from Indian Tribal and allotted leases (except leases on the Osage Indian Reservation, Osage County,
Oklahoma).
(b) If the specific provisions of any statute, treaty, or settlement agreement between the Indian
lessor and a lessee resulting from administrative or judicial litigation, or any coal lease subject to the
requirements of this subpart, are inconsistent with any regulation in this subpart, then the statute,
treaty, lease provision, or settlement shall govern to the extent of that inconsistency.
(c) All royalty payments are subject to later audit and adjustment.
(d) The regulations in this subpart are intended to ensure that the trust responsibilities of the
United States with respect to the administration of Indian coal leases are discharged in accordance
with the requirements of the governing mineral leasing laws, treaties, and lease terms.
§ 1206.451 Definitions.
Ad valorem lease means a lease where the royalty due to the lessor is based upon a percentage
of the amount or value of the coal.
Allowance means an approved, or an ONRR-initially accepted deduction in determining value for
royalty purposes. Coal washing allowance means an allowance for the reasonable, actual costs
incurred by the lessee for coal washing, or an approved or ONRR-initially accepted deduction for the
costs of washing coal, determined pursuant to this subpart. Transportation allowance means an
allowance for the reasonable, actual costs incurred by the lessee for moving coal to a point of sale or

point of delivery remote from both the lease and mine or wash plant, or an approved ONRR-initially
accepted deduction for costs of such transportation, determined pursuant to this subpart.
Area means a geographic region in which coal has similar quality and economic characteristics.
Area boundaries are not officially designated and the areas are not necessarily named.
Arm's-length contract means a contract or agreement that has been arrived at in the marketplace
between independent, nonaffiliated persons with opposing economic interests regarding that contract.
For purposes of this subpart, two persons are affiliated if one person controls, is controlled by, or is
under common control with another person. For purposes of this subpart, based on the instruments of
ownership of the voting securities of an entity, or based on other forms of ownership: ownership in
excess of 50 percent constitutes control; ownership of 10 through 50 percent creates a presumption of
control; and ownership of less than 10 percent creates a presumption of noncontrol which ONRR may
rebut if it demonstrates actual or legal control, including the existence of interlocking directorates.
Notwithstanding any other provisions of this subpart, contracts between relatives, either by blood or by
marriage, are not arm's-length contracts. ONRR may require the lessee to certify ownership control.
To be considered arm's-length for any production month, a contract must meet the requirements of
this definition for that production 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 payment compliance activities of lessees or other interest holders who pay
royalties, rents, or bonuses on Indian leases.
BIA means the Bureau of Indian Affairs of the Department of the Interior.
BLM means the Bureau of Land Management of the Department of the Interior.
Coal means coal of all ranks from lignite through anthracite.
Coal washing means any treatment to remove impurities from coal. Coal washing may include,
but is not limited to, operations such as flotation, air, water, or heavy media separation; drying; and
related handling (or combination thereof).
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.
Gross proceeds (for royalty payment purposes) means the total monies and other consideration
accruing to a coal lessee for the production and disposition of the coal produced. Gross proceeds
includes, but is not limited to, payments to the lessee for certain services such as crushing, sizing,
screening, storing, mixing, loading, treatment with substances including chemicals or oils, and other
preparation of the coal to the extent that the lessee is obligated to perform them at no cost to the
Indian lessor. Gross proceeds, as applied to coal, also includes but is not limited to reimbursements
for royalties, taxes or fees, and other reimbursements. Tax reimbursements are part of the gross
proceeds accruing to a lessee even though the Indian royalty interest may be exempt from taxation.
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 are also part of gross proceeds.
Indian allottee means any Indian for whom land or an interest in land is held in trust by the United
States or who holds title subject to Federal restriction against alienation.
Indian Tribe means any Indian Tribe, band, nation, pueblo, community, rancheria, colony, or other
group of Indians for which any land or interest in land is held in trust by the United States or which is
subject to Federal restriction against alienation.
Lease means any contract, profit-share arrangement, joint venture, or other agreement issued or
approved by the United States for an Indian coal resource under a mineral leasing law that authorizes
exploration for, development or extraction of, or removal of coal—or the land covered by that
authorization, whichever is required by the context.
Lessee means any person to whom the Indian Tribe or an Indian allottee issues a lease, and any
person who has been assigned an obligation to make royalty or other payments required by the lease.

This includes any person who has an interest in a lease as well as an operator or payor who has no
interest in the lease but who has assumed the royalty payment responsibility.
Like-quality coal means coal that has similar chemical and physical characteristics.
Marketable condition means coal that is sufficiently free from impurities and otherwise in a
condition that it will be accepted by a purchaser under a sales contract typical for that area.
Mine means an underground or surface excavation or series of excavations and the surface or
underground support facilities that contribute directly or indirectly to mining, production, preparation,
and handling of lease products.
Net-back method means a method for calculating market value of coal at the lease or mine. Under
this method, costs of transportation, washing, handling, etc., are deducted from the ultimate proceeds
received for the coal at the first point at which reasonable values for the coal may be determined by a
sale pursuant to an arm's-length contract or by comparison to other sales of coal, to ascertain value at
the mine.
Net output means the quantity of washed coal that a washing plant produces.
ONRR means the Office of Natural Resources Revenue of the Department of the Interior.
Person means by individual, firm, corporation, association, partnership, consortium, or joint
venture.
Sales type code means the contract type or general disposition (e.g., arm's-length or non-arm'slength) of production from the lease. The sales type code applies to the sales contract, or other
disposition, and not to the arm's-length or non-arm's-length nature of a transportation or washing
allowance.
Spot market price means the price received under any sales transaction when planned or actual
deliveries span a short period of time, usually not exceeding one year.
[61 FR 5481, Feb. 12, 1996, as amended at 64 FR 43289, Aug. 10, 1999; 73 FR 15891, Mar. 26, 2008]

§ 1206.452 Coal subject to royalties—general provisions.
(a) All coal (except coal unavoidably lost as determined by BLM pursuant to 43 CFR group 3400)
from an Indian lease subject to this part is subject to royalty. This includes coal used, sold, or
otherwise disposed of by the lessee on or off the lease.
(b) If a lessee receives compensation for unavoidably lost coal through insurance coverage or
other arrangements, royalties at the rate specified in the lease are to be paid on the amount of
compensation received for the coal. No royalty is due on insurance compensation received by the
lessee for other losses.
(c) If waste piles or slurry ponds are reworked to recover coal, the lessee shall pay royalty at the
rate specified in the lease at the time the recovered coal is used, sold, or otherwise finally disposed of.
The royalty rate shall be that rate applicable to the production method used to initially mine coal in the
waste pile or slurry pond; i.e. , underground mining method or surface mining method. Coal in waste
pits or slurry ponds initially mined from Indian leases shall be allocated to such leases regardless of
whether it is stored on Indian lands. The lessee shall maintain accurate records to determine to which
individual Indian lease coal in the waste pit or slurry pond should be allocated. However, nothing in
this section requires payment of a royalty on coal for which a royalty has already been paid.
§ 1206.453 Quality and quantity measurement standards for reporting and paying royalties.
For all leases subject to this subpart, the quantity of coal on which royalty is due shall be
measured in short tons (of 2,000 pounds each) by methods prescribed by the BLM. Coal quantity
information will be reported on appropriate forms required under 30 CFR part 1210—Forms and
Reports.
[61 FR 5481, Feb. 12, 1996, as amended at 66 FR 45769, Aug. 30, 2001; 73 FR 15892, Mar. 26, 2008]

§ 1206.454 Point of royalty determination.
(a) For all leases subject to this subpart, royalty shall be computed on the basis of the quantity
and quality of Indian coal in marketable condition measured at the point of royalty measurement as
determined jointly by BLM and ONRR.
(b) Coal produced and added to stockpiles or inventory does not require payment of royalty until
such coal is later used, sold, or otherwise finally disposed of. ONRR may ask BLM or BIA to increase
the lease bond to protect the lessor's interest when BLM determines that stockpiles or inventory
become excessive so as to increase the risk of degradation of the resource.
(c) The lessee shall pay royalty at a rate specified in the lease at the time the coal is used, sold, or
otherwise finally disposed of, unless otherwise provided for at § 1206.455(d) of this subpart.
§ 1206.455 Valuation standards for cents-per-ton leases.
(a) This section is applicable to coal leases on Indian Tribal and allotted Indian lands (except
leases on the Osage Indian Reservation, Osage County, Oklahoma) which provide for the
determination of royalty on a cents-per-ton (or other quantity) basis.
(b) The royalty for coal from leases subject to this section shall be based on the dollar rate per ton
prescribed in the lease. That dollar rate shall be applicable to the actual quantity of coal used, sold, or
otherwise finally disposed of, including coal which is avoidably lost as determined by BLM pursuant to
43 CFR part 3400.
(c) For leases subject to this section, there shall be no allowances for transportation, removal of
impurities, coal washing, or any other processing or preparation of the coal.
(d) When a coal lease is readjusted pursuant to 43 CFR part 3400 and the royalty valuation
method changes from a cents-per-ton basis to an ad valorem basis, coal which is produced prior to the
effective date of readjustment and sold or used within 30 days of the effective date of readjustment
shall be valued pursuant to this section. All coal that is not used, sold, or otherwise finally disposed of
within 30 days after the effective date of readjustment shall be valued pursuant to the provisions of
§ 1206.456 of this subpart, and royalties shall be paid at the royalty rate specified in the readjusted
lease.
§ 1206.456 Valuation standards for ad valorem leases.
(a) This section is applicable to coal leases on Indian Tribal and allotted Indian lands (except
leases on the Osage Indian Reservation, Osage County, Oklahoma) which provide for the
determination of royalty as a percentage of the amount of value of coal (ad valorem). The value for
royalty purposes of coal from such leases shall be the value of coal determined pursuant to this
section, less applicable coal washing allowances and transportation allowances determined pursuant
to §§ 1206.457 through 1206.461 of this subpart, or any allowance authorized by § 1206.464 of this
subpart. The royalty due shall be equal to the value for royalty purposes multiplied by the royalty rate
in the lease.
(b)(1) The value of coal that is sold pursuant to an arm's-length contract shall be the gross
proceeds accruing to the lessee, except as provided in paragraphs (b)(2), (b)(3), and (b)(5) of this
section. The lessee shall have the burden of demonstrating that its contract is arm's-length. The value
which the lessee reports, for royalty purposes, is subject to monitoring, review, and audit.
(2) In conducting reviews and audits, ONRR will examine whether the contract reflects the total
consideration actually transferred either directly or indirectly from the buyer to the seller for the coal
produced. If the contract does not reflect the total consideration, then ONRR may require that the coal
sold pursuant to that contract be valued in accordance with paragraph (c) of this section. Value may
not be based on less than the gross proceeds accruing to the lessee for the coal production, including
the additional consideration.
(3) If ONRR determines that the gross proceeds accruing to the lessee pursuant to an arm'slength contract do not reflect the reasonable value of the production because of misconduct by or
between the contracting parties, or because the lessee otherwise has breached its duty to the lessor

to market the production for the mutual benefit of the lessee and the lessor, then ONRR shall require
that the coal production be valued pursuant to paragraphs (c)(2)(ii), (c)(2)(iii), (c)(2)(iv), or (c)(2)(v) of
this section, and in accordance with the notification requirements of paragraph (d)(3) of this section.
When ONRR determines that the value may be unreasonable, ONRR will notify the lessee and give
the lessee an opportunity to provide written information justifying the lessee's reported coal value.
(4) ONRR may require a lessee to certify that its arm's-length contract provisions include all of the
consideration to be paid by the buyer, either directly or indirectly, for the coal production.
(5) The value of production for royalty purposes shall not include payments received by the lessee
pursuant to a contract which the lessee demonstrates, to ONRR' satisfaction, were not part of the total
consideration paid for the purchase of coal production.
(c)(1) The value of coal from leases subject to this section and which is not sold pursuant to an
arm's-length contract shall be determined in accordance with this section.
(2) If the value of the coal cannot be determined pursuant to paragraph (b) of this section, then
the value shall be determined through application of other valuation criteria. The criteria shall be
considered in the following order, and the value shall be based upon the first applicable criterion:
(i) The gross proceeds accruing to the lessee pursuant to a sale under its non-arm's-length
contract (or other disposition of produced coal by other than an arm's-length contract), provided that
those gross proceeds are within the range of the gross proceeds derived from, or paid under,
comparable arm's-length contracts between buyers and sellers neither of whom is affiliated with the
lessee for sales, purchases, or other dispositions of like-quality coal produced in the area. In
evaluating the comparability of arm's-length contracts for the purposes of these regulations, the
following factors shall be considered: price, time of execution, duration, market or markets served,
terms, quality of coal, quantity, and such other factors as may be appropriate to reflect the value of the
coal;
(ii) Prices reported for that coal to a public utility commission;
(iii) Prices reported for that coal to the Energy Information Administration of the Department of
Energy;
(iv) 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 salability of certain types of coal;
(v) If a reasonable value cannot be determined using paragraphs (c)(2)(i), (c)(2)(ii), (c)(2)(iii), or
(c)(2)(iv) of this section, then a net-back method or any other reasonable method shall be used to
determine value.
(3) When the value of coal is determined pursuant to paragraph (c)(2) of this section, that value
determination shall be consistent with the provisions contained in paragraph (b)(5) of this section.
(d)(1) Where the value is determined pursuant to paragraph (c) of this section, that value does not
require ONRR' prior approval. However, the lessee shall retain all data relevant to the determination of
royalty value. Such data shall be subject to review and audit, and ONRR will direct a lessee to use a
different value if it determines that the reported value is inconsistent with the requirements of these
regulations.
(2) An Indian lessee will make available upon request to the authorized ONRR or Indian
representatives, or to the Inspector General of the Department of the Interior or other persons
authorized to receive such information, arm's-length sales and sales quantity data for like-quality coal
sold, purchased, or otherwise obtained by the lessee from the area.
(3) A lessee shall notify ONRR if it has determined value pursuant to paragraphs (c)(2)(ii), (c)(2)
(iii), (c)(2)(iv), or (c)(2)(v) of this section. The notification shall be by letter to the Director for Office of
Natural Resources Revenue or his/her designee. The letter shall identify the valuation method to be
used and contain a brief description of the procedure to be followed. The notification required by this
section is a one-time notification due no later than the month the lessee first reports royalties on the
Form MMS-4430 using a valuation method authorized by paragraphs (c)(2)(ii), (c)(2)(iii), (c)(2)(iv), or

(c)(2)(v) of this section, and each time there is a change in a method under paragraphs (c)(2)(iv) or (c)
(2)(v) of this section.
(e) If ONRR determines that a lessee has not properly determined value, the lessee shall be liable
for the difference, if any, between royalty payments made based upon the value it has used and the
royalty payments that are due based upon the value established by ONRR. The lessee shall also be
liable for interest computed pursuant to 30 CFR 218.202. If the lessee is entitled to a credit, ONRR will
provide instructions for the taking of that credit.
(f) The lessee may request a value determination from ONRR. In that event, the lessee shall
propose to ONRR a value determination method, and may use that method in determining value for
royalty purposes until ONRR issues its decision. The lessee shall submit all available data relevant to
its proposal. ONRR shall expeditiously determine the value based upon the lessee's proposal and any
additional information ONRR deems necessary. That determination shall remain effective for the
period stated therein. After ONRR issues its determination, the lessee shall make the adjustments in
accordance with paragraph (e) of this section.
(g) Notwithstanding any other provisions of this section, under no circumstances shall the value
for royalty purposes be less than the gross proceeds accruing to the lessee for the disposition of
produced coal less applicable provisions of paragraph (b)(5) of this section and less applicable
allowances determined pursuant to §§ 1206.457 through 1206.461 and § 1206.464 of this subpart.
(h) The lessee is required to place coal in marketable condition at no cost to the Indian lessor.
Where the value established pursuant to this section is determined by a lessee's gross proceeds, that
value shall be increased to the extent that the gross proceeds has been reduced because the
purchaser, or any other person, is providing certain services, the cost of which ordinarily is the
responsibility of the lessee to place the coal in marketable condition.
(i) Value shall be based on the highest price a prudent lessee can receive through legally
enforceable claims under its contract. Absent contract revision or amendment, if the lessee fails to
take proper or timely action to receive prices or benefits to which it is entitled, it must pay royalty at a
value based upon that obtainable price or benefit. Contract revisions or amendments shall be in writing
and signed by all parties to an arm's-length contract, and may be retroactively applied to value for
royalty purposes for a period not to exceed two years, unless ONRR approves a longer period. If the
lessee makes timely application for a price increase allowed under its contract but the purchaser
refuses, and the lessee takes reasonable measures, which are documented, to force purchaser
compliance, the lessee will owe no additional royalties unless or until monies or consideration resulting
from the price increase are received. This paragraph shall not be construed to permit a lessee to avoid
its royalty payment obligation in situations where a purchaser fails to pay, in whole or in part or timely,
for a quantity of coal.
(j) Notwithstanding any provision in these regulations to the contrary, no review, reconciliation,
monitoring, or other like process that results in a redetermination by ONRR of value under this section
shall be considered final or binding as against the Indian Tribes or allottees until the audit period is
formally closed.
(k) Certain information submitted to ONRR to support valuation proposals, including
transportation, coal washing, or other allowances pursuant to §§ 1206.457 through 1206.461 and
§ 1206.464 of this subpart, is exempted from disclosure by the Freedom of Information Act, 5 U.S.C.
522. Any data specified by the Act to be privileged, confidential, or otherwise exempt shall be
maintained in a confidential manner in accordance with applicable law and regulations. All requests for
information about determinations made under this part are to be submitted in accordance with the
Freedom of Information Act regulation of the Department of the Interior, 43 CFR part 2. Nothing in this
section is intended to limit or diminish in any manner whatsoever the right of an Indian lessor to obtain
any and all information as such lessor may be lawfully entitled from ONRR or such lessor's lessee
directly under the terms of the lease or applicable law.
[61 FR 5481, Feb. 12, 1996, as amended at 66 FR 45769, Aug. 30, 2001]

§ 1206.457 Washing allowances—general.
(a) For ad valorem leases subject to § 1206.456 of this subpart, ONRR shall, as authorized by this
section, allow a deduction in determining value for royalty purposes for the reasonable, actual costs

incurred to wash coal, unless the value determined pursuant to § 1206.456 of this subpart was based
upon like-quality unwashed coal. Under no circumstances will the authorized washing allowance and
the transportation allowance reduce the value for royalty purposes to zero.
(b) If ONRR determines that a lessee has improperly determined a washing allowance authorized
by this section, then the lessee shall be liable for any additional royalties, plus interest determined in
accordance with § 1218.202 of this chapter, or shall be entitled to a credit, without interest.
(c) Lessees shall not disproportionately allocate washing costs to Indian leases.
(d) No cost normally associated with mining operations and which are necessary for placing coal
in marketable condition shall be allowed as a cost of washing.
(e) Coal washing costs shall only be recognized as allowances when the washed coal is sold and
royalties are reported and paid.
[61 FR 5481, Feb. 12, 1996, as amended at 64 FR 43289, Aug. 10, 1999]

§ 1206.458 Determination of washing allowances.
(a) Arm's-length contracts. (1) For washing costs incurred by a lessee pursuant to an arm's-length
contract, the washing allowance shall be the reasonable actual costs incurred by the lessee for
washing the coal under that contract, subject to monitoring, review, audit, and possible future
adjustment. ONRR' prior approval is not required before a lessee may deduct costs incurred under an
arm's-length contract. However, before any deduction may be taken, the lessee must submit a
completed page one of Form MMS-4292, Coal Washing Allowance Report, in accordance with
paragraph (c)(1) of this section. A washing allowance may be claimed retroactively for a period of not
more than 3 months prior to the first day of the month that Form MMS-4292 is filed with ONRR, unless
ONRR approves a longer period upon a showing of good cause by the lessee.
(2) In conducting reviews and audits, ONRR will examine whether the contract reflects more than
the consideration actually transferred either directly or indirectly from the lessee to the washer for the
washing. If the contract reflects more than the total consideration paid, then ONRR may require that
the washing allowance be determined in accordance with paragraph (b) of this section.
(3) If ONRR determines that the consideration paid pursuant to an arm's-length washing contract
does not reflect the reasonable value of the washing because of misconduct by or between the
contracting parties, or because the lessee otherwise has breached its duty to the lessor to market the
production for the mutual benefit of the lessee and the lessor, then ONRR shall require that the
washing allowance be determined in accordance with paragraph (b) of this section. When ONRR
determines that the value of the washing may be unreasonable, ONRR will notify the lessee and give
the lessee an opportunity to provide written information justifying the lessee's washing costs.
(4) Where the lessee's payments for washing under an arm's-length contract are not based on a
dollar-per-unit basis, the lessee shall convert whatever consideration is paid to a dollar value
equivalent. Washing allowances shall be expressed as a cost per ton of coal washed.
(b) Non-arm's-length or no contract. (1) If a lessee has a non-arm's-length contract or has no
contract, including those situations where the lessee performs washing for itself, the washing
allowance will be based upon the lessee's reasonable actual costs. All washing allowances deducted
under a non-arm's-length or no contract situation are subject to monitoring, review, audit, and possible
future adjustment. Prior ONRR approval of washing allowances is not required for non-arm's-length or
no contract situations. However, before any estimated or actual deduction may be taken, the lessee
must submit a completed Form MMS-4292 in accordance with paragraph (c)(2) of this section. A
washing allowance may be claimed retroactively for a period of not more than 3 months prior to the
first day of the month that Form MMS-4292 is filed with ONRR, unless ONRR approves a longer
period upon a showing of good cause by the lessee. ONRR will monitor the allowance deduction to
ensure that deductions are reasonable and allowable. When necessary or appropriate, ONRR may
direct a lessee to modify its actual washing allowance.
(2) The washing allowance for non-arm's-length or no contract situations shall be based upon the
lessee's actual costs for washing during the reported period, including operating and maintenance
expenses, overhead, and either depreciation and a return on undepreciated capital investment in

accordance with paragraph (b)(2)(iv)(A) of this section, or a cost equal to the depreciable investment
in the wash plant multiplied by the rate of return in accordance with paragraph (b)(2)(iv)(B) of this
section. Allowable capital costs are generally those for depreciable fixed assets (including costs of
delivery and installation of capital equipment) which are an integral part of the wash plant.
(i) Allowable operating expenses include: Operations supervision and engineering; operations
labor; fuel; utilities; materials; ad valorem property taxes; rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can document.
(ii) Allowable maintenance expenses include: Maintenance of the wash plant; maintenance of
equipment; maintenance labor; and other directly allocable and attributable maintenance expenses
which the lessee can document.
(iii) Overhead attributable and allocable to the operation and maintenance of the wash plant is an
allowable expense. State and Federal income taxes and severance taxes, including royalties, are not
allowable expenses.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or (b)(2)(iv)(B) of this section. After a lessee
has elected to use either method for a wash plant, the lessee may not later elect to change to the
other alternative without approval of ONRR.
(A) To compute depreciation, the lessee may elect to use either a straight-line depreciation
method based on the life of equipment or on the life of the reserves which the wash plant services,
whichever is appropriate, or a unit of production method. After an election is made, the lessee may not
change methods without ONRR approval. A change in ownership of a wash plant shall not alter the
depreciation schedule established by the original operator/lessee for purposes of the allowance
calculation. With or without a change in ownership, a wash plant shall be depreciated only once.
Equipment shall not be depreciated below a reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable capital investment in the wash
plant multiplied by the rate of return determined pursuant to paragraph (b)(2)(v) of this section. No
allowance shall be provided for depreciation. This alternative shall apply only to plants first placed in
service or acquired after March 1, 1989.
(v) The rate of return shall be the industrial rate associated with Standard and Poor's BBB rating.
The rate of return shall be the monthly average rate as published in Standard and Poor's Bond Guide
for the first month of the reporting period for which the allowance is applicable and shall be effective
during the reporting period. The rate shall be redetermined at the beginning of each subsequent
washing allowance reporting period (which is determined pursuant to paragraph (c)(2) of this section).
(3) The washing allowance for coal shall be determined based on the lessee's reasonable and
actual cost of washing the coal. The lessee may not take an allowance for the costs of washing lease
production that is not royalty bearing.
(c) Reporting requirements —(1) Arm's-length contracts. (i) With the exception of those washing
allowances specified in paragraphs (c)(1)(v) and (c)(1)(vi) of this section, the lessee shall submit page
one of the initial Form MMS-4292 prior to, or at the same time, as the washing allowance determined
pursuant to an arm's-length contract is reported on Form MMS-4430, Solid Minerals Production and
Royalty Report. A Form MMS-4292 received by the end of the month that the Form MMS-4430 is due
shall be considered to be received timely.
(ii) The initial Form MMS-4292 shall be effective for a reporting period beginning the month that
the lessee is first authorized to deduct a washing allowance and shall continue until the end of the
calendar year, or until the applicable contract or rate terminates or is modified or amended, whichever
is earlier.
(iii) After the initial reporting period and for succeeding reporting periods, lessees must submit
page one of Form MMS-4292 within 3 months after the end of the calendar year, or after the
applicable contract or rate terminates or is modified or amended, whichever is earlier, unless ONRR
approves a longer period (during which period the lessee shall continue to use the allowance from the
previous reporting period).

(iv) ONRR may require that a lessee submit arm's-length washing contracts and related
documents. Documents shall be submitted within a reasonable time, as determined by ONRR.
(v) Washing allowances which are based on arm's-length contracts and which are in effect at the
time these regulations become effective will be allowed to continue until such allowances terminate.
For the purposes of this section, only those allowances that have been approved by ONRR in writing
shall qualify as being in effect at the time these regulations become effective.
(vi) ONRR may establish, in appropriate circumstances, reporting requirements that are different
from the requirements of this section.
(2) Non-arm's-length or no contract. (i) With the exception of those washing allowances specified
in paragraphs (c)(2)(v) and (c)(2)(vii) of this section, the lessee shall submit an initial Form MMS-4292
prior to, or at the same time as, the washing allowance determined pursuant to a non-arm's-length
contract or no contract situation is reported on Form MMS-4430, Solid Minerals Production and
Royalty Report. A Form MMS-4292 received by the end of the month that the Form MMS-4430 is due
shall be considered to be timely received. The initial reporting may be based on estimated costs.
(ii) The initial Form MMS-4292 shall be effective for a reporting period beginning the month that
the lessee first is authorized to deduct a washing allowance and shall continue until the end of the
calendar year, or until the washing under the non-arm's-length contract or the no contract situation
terminates, whichever is earlier.
(iii) For calendar-year reporting periods succeeding the initial reporting period, the lessee shall
submit a completed Form MMS-4292 containing the actual costs for the previous reporting period. If
coal washing is continuing, the lessee shall include on Form MMS-4292 its estimated costs for the
next calendar year. The estimated coal washing allowance shall be based on the actual costs for the
previous period plus or minus any adjustments which are based on the lessee's knowledge of
decreases or increases which will affect the allowance. Form MMS-4292 must be received by ONRR
within 3 months after the end of the previous reporting period, unless ONRR approves a longer period
(during which period the lessee shall continue to use the allowance from the previous reporting
period).
(iv) For new wash plants, the lessee's initial Form MMS-4292 shall include estimates of the
allowable coal washing costs for the applicable period. Cost estimates shall be based upon the most
recently available operations data for the plant, or if such data are not available, the lessee shall use
estimates based upon industry data for similar coal wash plants.
(v) Washing allowances based on non-arm's-length or no contract situations which are in effect at
the time these regulations become effective will be allowed to continue until such allowances
terminate. For the purposes of this section, only those allowances that have been approved by ONRR
in writing shall qualify as being in effect at the time these regulations become effective.
(vi) Upon request by ONRR, the lessee shall submit all data used by the lessee to prepare its
Forms MMS-4292. The data shall be provided within a reasonable period of time, as determined by
ONRR.
(vii) ONRR may establish, in appropriate circumstances, reporting requirements which are
different from the requirements of this section.
(3) ONRR may establish coal washing allowance reporting dates for individual leases different
from those specified in this subpart in order to provide more effective administration. Lessees will be
notified of any change in their reporting period.
(4) Washing allowances must be reported as a separate line on the Form MMS-4430, unless
ONRR approves a different reporting procedure.
(d) Interest assessments for incorrect or late reports and failure to report. (1) If a lessee deducts a
washing allowance on its Form MMS-4430 without complying with the requirements of this section, the
lessee shall be liable for interest on the amount of such deduction until the requirements of this section
are complied with. The lessee also shall repay the amount of any allowance which is disallowed by
this section.

(2) If a lessee erroneously reports a washing allowance which results in an underpayment of
royalties, interest shall be paid on the amount of that underpayment.
(3) Interest required to be paid by this section shall be determined in accordance with § 1218.202
of this chapter.
(e) Adjustments. (1) If the actual coal washing allowance is less than the amount the lessee has
taken on Form MMS-4430 for each month during the allowance form reporting period, the lessee shall
be required to pay additional royalties due plus interest computed pursuant to § 1218.202, retroactive
to the first month the lessee is authorized to deduct a washing allowance. If the actual washing
allowance is greater than the amount the lessee has estimated and taken during the reporting period,
the lessee shall be entitled to a credit, without interest.
(2) The lessee must submit a corrected Form MMS-4430 to reflect actual costs, together with any
payment, in accordance with instructions provided by ONRR.
(f) Other washing cost determinations. The provisions of this section shall apply to determine
washing costs when establishing value using a net-back valuation procedure or any other procedure
that requires deduction of washing costs.
[61 FR 5481, Feb. 12, 1996, as amended at 66 FR 45769, Aug. 30, 2001]

§ 1206.459 Allocation of washed coal.
(a) When coal is subjected to washing, the washed coal must be allocated to the leases from
which it was extracted.
(b) When the net output of coal from a washing plant is derived from coal obtained from only one
lease, the quantity of washed coal allocable to the lease will be based on the net output of the washing
plant.
(c) When the net output of coal from a washing plant is derived from coal obtained from more than
one lease, unless determined otherwise by BLM, the quantity of net output of washed coal allocable to
each lease will be based on the ratio of measured quantities of coal delivered to the washing plant and
washed from each lease compared to the total measured quantities of coal delivered to the washing
plant and washed.
§ 1206.460 Transportation allowances—general.
(a) For ad valorem leases subject to § 1206.456 of this subpart, where the value for royalty
purposes has been determined at a point remote from the lease or mine, ONRR shall, as authorized
by this section, allow a deduction in determining value for royalty purposes for the reasonable, actual
costs incurred to:
(1) Transport the coal from an Indian lease to a sales point which is remote from both the lease
and mine; or
(2) Transport the coal from an Indian lease to a wash plant when that plant is remote from both
the lease and mine and, if applicable, from the wash plant to a remote sales point. In-mine
transportation costs shall not be included in the transportation allowance.
(b) Under no circumstances will the authorized washing allowance and the transportation
allowance reduce the value for royalty purposes to zero.
(c)(1) When coal transported from a mine to a wash plant is eligible for a transportation allowance
in accordance with this section, the lessee is not required to allocate transportation costs between the
quantity of clean coal output and the rejected waste material. The transportation allowance shall be
authorized for the total production which is transported. Transportation allowances shall be expressed
as a cost per ton of cleaned coal transported.

(2) For coal that is not washed at a wash plant, the transportation allowance shall be authorized
for the total production which is transported. Transportation allowances shall be expressed as a cost
per ton of coal transported.
(3) Transportation costs shall only be recognized as allowances when the transported coal is sold
and royalties are reported and paid.
(d) If, after a review and/or audit, ONRR determines that a lessee has improperly determined a
transportation allowance authorized by this section, then the lessee shall pay any additional royalties,
plus interest, determined in accordance with §7thnsp;1218.202 of this chapter, or shall be entitled to a
credit, without interest.
(e) Lessees shall not disproportionately allocate transportation costs to Indian leases.
[61 FR 5481, Feb. 12, 1996, as amended at 64 FR 43289, Aug. 10, 1999]

§ 1206.461 Determination of transportation allowances.
(a) Arm's-length contracts. (1) For transportation costs incurred by a lessee pursuant to an arm'slength contract, the transportation allowance shall be the reasonable, actual costs incurred by the
lessee for transporting the coal under that contract, subject to monitoring, review, audit, and possible
future adjustment. ONRR' prior approval is not required before a lessee may deduct costs incurred
under an arm's-length contract. However, before any deduction may be taken, the lessee must submit
a completed page one of Form MMS-4293, Coal Transportation Allowance Report, in accordance with
paragraph (c)(1) of this section. A transportation allowance may be claimed retroactively for a period of
not more than 3 months prior to the first day of the month that Form MMS-4293 is filed with ONRR,
unless ONRR approves a longer period upon a showing of good cause by the lessee.
(2) In conducting reviews and audits, ONRR will examine whether the contract reflects more than
the consideration actually transferred either directly or indirectly from the lessee to the transporter for
the transportation. If the contract reflects more than the total consideration paid, then ONRR may
require that the transportation allowance be determined in accordance with paragraph (b) of this
section.
(3) If ONRR determines that the consideration paid pursuant to an arm's-length transportation
contract does not reflect the reasonable value of the transportation because of misconduct by or
between the contracting parties, or because the lessee otherwise has breached its duty to the lessor
to market the production for the mutual benefit of the lessee and the lessor, then ONRR shall require
that the transportation allowance be determined in accordance with paragraph (b) of this section.
When ONRR determines that the value of the transportation may be unreasonable, ONRR will notify
the lessee and give the lessee an opportunity to provide written information justifying the lessee's
transportation costs.
(4) Where the lessee's payments for transportation under an arm's-length contract are not based
on a dollar-per-unit basis, the lessee shall convert whatever consideration is paid to a dollar value
equivalent for the purposes of this section.
(b) Non-arm's-length or no contract. (1) If a lessee has a non-arm's-length contract or has no
contract, including those situations where the lessee performs transportation services for itself, the
transportation allowance will be based upon the lessee's reasonable actual costs. All transportation
allowances deducted under a non-arm's-length or no contract situation are subject to monitoring,
review, audit, and possible future adjustment. Prior ONRR approval of transportation allowances is not
required for non-arm's-length or no contract situations. However, before any estimated or actual
deduction may be taken, the lessee must submit a completed Form MMS-4293 in accordance with
paragraph (c)(2) of this section. A transportation allowance may be claimed retroactively for a period of
not more than 3 months prior to the first day of the month that Form MMS-4293 is filed with ONRR,
unless ONRR approves a longer period upon a showing of good cause by the lessee. ONRR will
monitor the allowance deductions to ensure that deductions are reasonable and allowable. When
necessary or appropriate, ONRR may direct a lessee to modify its estimated or actual transportation
allowance deduction.

(2) The transportation allowance for non-arm's-length or no contract situations shall be based
upon the lessee's actual costs for transportation during the reporting period, including operating and
maintenance expenses, overhead, and either depreciation and a return on undepreciated capital
investment in accordance with paragraph (b)(2)(iv)(A) of this section, or a cost equal to the
depreciable investment in the transportation system multiplied by the rate of return in accordance with
paragraph (b)(2)(iv)(B) of this section. Allowable capital costs are generally those for depreciable fixed
assets (including costs of delivery and installation of capital equipment) which are an integral part of
the transportation system.
(i) Allowable operating expenses include: Operations supervision and engineering; operations
labor; fuel; utilities; materials; ad valorem property taxes; rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can document.
(ii) Allowable maintenance expenses include: Maintenance of the transportation system;
maintenance of equipment; maintenance labor; and other directly allocable and attributable
maintenance expenses which the lessee can document.
(iii) Overhead 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.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or paragraph (b)(2)(iv)(B) 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 approval of ONRR.
(A) To compute depreciation, the lessee may elect to use either a straight-line depreciation
method based on the life of equipment or on the life of the reserves which the transportation system
services, whichever is appropriate, or a unit of production method. After an election is made, the
lessee may not change methods without ONRR approval. A change in ownership of a transportation
system shall not alter the depreciation schedule established by the original transporter/lessee for
purposes of the allowance calculation. With or without a change in ownership, a transportation system
shall be depreciated only once. Equipment shall not be depreciated below a reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable capital investment in the
transportation system multiplied by the rate of return determined pursuant to paragraph (b)(2)(B)(v) of
this section. No allowance shall be provided for depreciation. This alternative shall apply only to
transportation facilities first placed in service or acquired after March 1, 1989.
(v) The rate of return shall be the industrial rate associated with Standard and Poor's BBB rating.
The rate of return shall be the monthly average as published in Standard and Poor's Bond Guide for
the first month of the reporting period of which the allowance is applicable and shall be effective during
the reporting period. The rate shall be redetermined at the beginning of each subsequent
transportation allowance reporting period (which is determined pursuant to paragraph (c)(2) of this
section).
(3) A lessee may apply to ONRR for exception from the requirement that it compute actual costs
in accordance with paragraphs (b)(1) and (b)(2) of this section. ONRR will grant the exception only if
the lessee has a rate for the transportation approved by a Federal agency for Indian leases. ONRR
shall deny the exception request if it determines that the rate is excessive as compared to arm's-length
transportation charges by systems, owned by the lessee or others, providing similar transportation
services in that area. If there are no arm's-length transportation charges, ONRR shall deny the
exception request if:
(i) No Federal regulatory agency cost analysis exists and the Federal regulatory agency has
declined to investigate pursuant to ONRR timely objections upon filing; and
(ii) The rate significantly exceeds the lessee's actual costs for transportation as determined under
this section.
(c) Reporting requirements —(1) Arm's-length contracts. (i) With the exception of those
transportation allowances specified in paragraphs (c)(1)(v) and (c)(1)(vi) of this section, the lessee
shall submit page one of the initial Form MMS-4293 prior to, or at the same time as, the transportation

allowance determined pursuant to an arm's-length contract is reported on Form MMS-4430, Solid
Minerals Production and Royalty Report.
(ii) The initial Form MMS-4293 shall be effective for a reporting period beginning the month that
the lessee is first authorized to deduct a transportation allowance and shall continue until the end of
the calendar year, or until the applicable contract or rate terminates or is modified or amended,
whichever is earlier.
(iii) After the initial reporting period and for succeeding reporting periods, lessees must submit
page one of Form MMS-4293 within 3 months after the end of the calendar year, or after the
applicable contract or rate terminates or is modified or amended, whichever is earlier, unless ONRR
approves a longer period (during which period the lessee shall continue to use the allowance from the
previous reporting period). Lessees may request special reporting procedures in unique allowance
reporting situations, such as those related to spot sales.
(iv) ONRR may require that a lessee submit arm's-length transportation contracts, production
agreements, operating agreements, and related documents. Documents shall be submitted within a
reasonable time, as determined by ONRR.
(v) Transportation allowances that are based on arm's-length contracts and which are in effect at
the time these regulations become effective will be allowed to continue until such allowances
terminate. For the purposes of this section, only those allowances that have been approved by ONRR
in writing shall qualify as being in effect at the time these regulations become effective.
(vi) ONRR may establish, in appropriate circumstances, reporting requirements that are different
from the requirements of this section.
(2) Non-arm's-length or no contract. (i) With the exception of those transportation allowances
specified in paragraphs (c)(2)(v) and (c)(2)(vii) of this section, the lessee shall submit an initial Form
MMS-4293 prior to, or at the same time as, the transportation allowance determined pursuant to a non
-arm's-length contract or no contract situation is reported on Form MMS-4430, Solid Minerals
Production and Royalty Report. The initial report may be based on estimated costs.
(ii) The initial Form MMS-4293 shall be effective for a reporting period beginning the month that
the lessee first is authorized to deduct a transportation allowance and shall continue until the end of
the calendar year, or until the transportation under the non-arm's-length contract or the no contract
situation terminates, whichever is earlier.
(iii) For calendar-year reporting periods succeeding the initial reporting period, the lessee shall
submit a completed Form MMS-4293 containing the actual costs for the previous reporting period. If
the transportation is continuing, the lessee shall include on Form MMS-4293 its estimated costs for the
next calendar year. The estimated transportation allowance shall be based on the actual costs for the
previous reporting period plus or minus any adjustments that are based on the lessee's knowledge of
decreases or increases that will affect the allowance. Form MMS-4293 must be received by ONRR
within 3 months after the end of the previous reporting period, unless ONRR approves a longer period
(during which period the lessee shall continue to use the allowance from the previous reporting
period).
(iv) For new transportation facilities or arrangements, the lessee's initial Form MMS-4293 shall
include estimates of the allowable transportation costs for the applicable period. Cost estimates shall
be based upon the most recently available operations data for the transportation system, or, if such
data are not available, the lessee shall use estimates based upon industry data for similar
transportation systems.
(v) Non-arm's-length contract or no contract-based transportation allowances that are in effect at
the time these regulations become effective will be allowed to continue until such allowances
terminate. For purposes of this section, only those allowances that have been approved by ONRR in
writing shall qualify as being in effect at the time these regulations become effective.
(vi) Upon request by ONRR, the lessee shall submit all data used to prepare its Form MMS-4293.
The data shall be provided within a reasonable period of time, as determined by ONRR.

(vii) ONRR may establish, in appropriate circumstances, reporting requirements that are different
from the requirements of this section.
(viii) If the lessee is authorized to use its Federal-agency-approved rate as its transportation cost
in accordance with paragraph (b)(3) of this section, it shall follow the reporting requirements of
paragraph (c)(1) of this section.
(3) ONRR may establish reporting dates for individual lessees different than those specified in this
paragraph in order to provide more effective administration. Lessees will be notified as to any change
in their reporting period.
(4) Transportation allowances must be reported as a separate line item on Form MMS-4430,
unless ONRR approves a different reporting procedure.
(d) Interest assessments for incorrect or late reports and failure to report. (1) If a lessee deducts a
transportation allowance on its Form MMS-4430 without complying with the requirements of this
section, the lessee shall be liable for interest on the amount of such deduction until the requirements
of this section are complied with. The lessee also shall repay the amount of any allowance which is
disallowed by this section.
(2) If a lessee erroneously reports a transportation allowance which results in an underpayment of
royalties, interest shall be paid on the amount of that underpayment.
(3) Interest required to be paid by this section shall be determined in accordance with § 1218.202
of this chapter.
(e) Adjustments. (1) If the actual transportation allowance is less than the amount the lessee has
taken on Form MMS-4430 for each month during the allowance form reporting period, the lessee shall
be required to pay additional royalties due plus interest, computed pursuant to § 1218.202 of this
chapter, retroactive to the first month the lessee is authorized to deduct a transportation allowance. If
the actual transportation allowance is greater than the amount the lessee has estimated and taken
during the reporting period, the lessee shall be entitled to a credit, without interest.
(2) The lessee must submit a corrected Form MMS-4430 to reflect actual costs, together with any
payment, in accordance with instructions provided by ONRR.
(f) Other transportation cost determinations. The provisions of this section shall apply to determine
transportation costs when establishing value using a net-back valuation procedure or any other
procedure that requires deduction of transportation costs.
[61 FR 5481, Feb. 12, 1996, as amended at 64 FR 43289, Aug. 10, 1999; 66 FR 45769, Aug. 30, 2001]

§ 1206.462 [Reserved]
§ 1206.463 In-situ and surface gasification and liquefaction operations.
If an ad valorem Federal coal lease is developed by in-situ or surface gasification or liquefaction
technology, the lessee shall propose the value of coal for royalty purposes to ONRR. ONRR will
review the lessee's proposal and issue a value determination. The lessee may use its proposed value
until ONRR issues a value determination.
[61 FR 5481, Feb. 12, 1996, as amended at 64 FR 43289, Aug. 10, 1999]

§ 1206.464 Value enhancement of marketable coal.
If, prior to use, sale, or other disposition, the lessee enhances the value of coal after the coal has
been placed in marketable condition in accordance with § 1206.456(h) of this subpart, the lessee shall
notify ONRR that such processing is occurring or will occur. The value of that production shall be
determined as follows:
(a) A value established for the feedstock coal in marketable condition by application of the
provisions of § 1206.456(c)(2) (i) through (iv) of this subpart; or,

(b) In the event that a value cannot be established in accordance with paragraph (a) of this
section, then the value of production will be determined in accordance with § 1206.456(c)(2)(v) of this
subpart and the value shall be the lessee's gross proceeds accruing from the disposition of the
enhanced product, reduced by ONRR-approved processing costs and procedures including a rate of
return on investment equal to two times the Standard and Poor's BBB bond rate applicable under
§ 1206.458(b)(2)(v) of this subpart.
[61 FR 5481, Feb. 12, 1996, as amended 64 FR 43289, Aug. 10, 1999]

For questions or comments regarding e-CFR editorial content, features, or design, email [email protected].
For questions concerning e-CFR programming and delivery issues, email [email protected].

ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of March 15, 2013
Title 30: Mineral Resources
PART 1210—FORMS AND REPORTS
Contents
Subpart A—General Provisions
§ 1210.01
§ 1210.02
§ 1210.10
§ 1210.20
§ 1210.21
§ 1210.30
§ 1210.40

What is the purpose of this subpart?
To whom do these regulations apply?
What are the OMB-approved information collections?
What if I disagree with the burden hour estimates?
How do I report my taxpayer identification number?
What are my responsibilities as a reporter/payor?
Will ONRR keep the information I provide confidential?

Subpart B—Royalty Reports—Oil, Gas, and Geothermal Resources
§ 1210.50
§ 1210.51
§ 1210.52
§ 1210.53
§ 1210.54
§ 1210.55
§ 1210.56
§ 1210.60

What is the purpose of this subpart?
Who must submit royalty reports?
What royalty reports must I submit?
When are my royalty reports and payments due?
Must I submit this royalty report electronically?
May I submit this royalty report manually?
Where can I find more information on how to complete the royalty report?
What definitions apply to this subpart?

Subpart C—Production Reports—Oil and Gas
§ 1210.100
§ 1210.101
§ 1210.102
§ 1210.103
§ 1210.104
§ 1210.105
§ 1210.106

What is the purpose of this subpart?
Who must submit production reports?
What production reports must I submit?
When are my production reports due?
Must I submit these production reports electronically?
May I submit these production reports manually?
Where can I find more information on how to complete these production reports?

Subpart D—Special-Purpose Forms and Reports—Oil, Gas, and Geothermal Resources
§ 1210.150
§ 1210.151
§ 1210.152
§ 1210.153
§ 1210.154
§ 1210.155
§ 1210.156
§ 1210.157
§ 1210.158

What is the purpose of this subpart?
What reports must I submit to claim an excess allowance?
What reports must I submit to claim allowances on an Indian lease?
What reports must I submit for Indian gas valuation purposes?
What documents or other information must I submit for Federal oil valuation purposes?
What reports must I submit for Federal onshore stripper oil properties?
What reports must I submit for net profit share leases?
What reports must I submit to suspend an ONRR order under appeal?
What reports must I submit to designate someone to make my royalty payments?

Subpart E—Production and Royalty Reports—Solid Minerals

§ 1210.200
§ 1210.201
§ 1210.202
§ 1210.203
§ 1210.204
§ 1210.205
§ 1210.206
§ 1210.207

What is the purpose of this subpart?
How do I submit Form MMS-4430, Solid Minerals Production and Royalty Report?
How do I submit sales summaries?
How do I submit sales contracts?
How do I submit facility data?
What reports must I submit to claim allowances on Indian coal leases?
Will I need to submit additional documents or evidence to ONRR?
How will information submissions be kept confidential?

Subpart F—Coal [Reserved]
Subpart G—Other Solid Minerals [Reserved]
Subpart H—Geothermal Resources
§ 1210.350
§ 1210.351
§ 1210.352
§ 1210.353
§ 1210.354

Definitions.
Required recordkeeping.
Special forms and reports.
Monthly report of sales and royalty.
Reporting instructions.

Subpart I—OCS Sulfur [Reserved]
AUTHORITY: 5 U.S.C. 301 et seq. ; 25 U.S.C. 396, 2107; 30 U.S.C. 189, 190, 359, 1023, 1751(a); 31 U.S.C.
3716, 9701; 43 U.S.C. 1334, 1801 et seq. ; and 44 U.S.C. 3506(a).
SOURCE: 48 FR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61081, Oct. 4, 2010.

Subpart A—General Provisions
SOURCE: 73 FR 15892, Mar. 26, 2008, unless otherwise noted.

§ 1210.01 What is the purpose of this subpart?
This subpart identifies information collections required by the Office of Natural Resources
Revenue (ONRR), in the normal course of operations. This information is submitted by various parties
associated with Federal and Indian leases such as lessees, designees, and operators. The information
collected meets the ONRR congressionally mandated accounting and auditing responsibilities relating
to Federal and Indian minerals revenue management. Information collected regarding production,
royalties, and other payments due the Government from activities on leased Federal or Indian land is
authorized by the Federal Oil and Gas Royalty Management Act of 1982, as amended (30 U.S.C.
1701 et seq. ), as well as 43 U.S.C. 1334 and 30 U.S.C. 189, 359, 396, and 396d for oil and gas
production; and by 30 U.S.C. 189, 359, 396, and 396d for solid minerals production.
§ 1210.02 To whom do these regulations apply?
The regulations apply to any person, referred to in this subpart as “you,” “your,” or
“reporter/payor,” who is a lessee under any Federal or Indian lease for any mineral or who is assigned
or assumes an obligation to report data or make payment to ONRR. The term reporter/payor may
include lessees, designees, operators, purchasers, reporters, other payors, and working interest
owners, but is not restricted to these parties. This section does not affect the liability to pay and report
royalties as established by other regulations, laws, and the lease terms.
§ 1210.10 What are the OMB-approved information collections?
The information collection requirements identified in this subpart have been approved by the
Office of Management and Budget (OMB) under 44 U.S.C. 3501 et seq. Detailed information about
each information collection request (ICR), including CFR citations, is included on the ONRR Web site
at http://www.onrr.gov/Laws_R_D/FRNotices/FRInfColl.htm- . The ICRs and associated ONRR form
numbers, if applicable, are listed below:
OMB control number and short title

Form or information collected

(2) Special courier or overnight mail addressed to Office of Natural Resources Revenue, Building
85, Room A-614, Denver Federal Center, West 6th Ave. and Kipling Blvd., Denver, Colorado 80225.
[48 FR 35641, Aug. 5, 1983, 76 FR 76615, Dec. 8, 2011; 77 FR 25879, 25880, May 2, 2012]

Subpart E—Production and Royalty Reports—Solid Minerals
SOURCE: 66 FR 45771, Aug. 30, 2001, unless otherwise noted.

§ 1210.200 What is the purpose of this subpart?
This subpart explains your reporting requirements if you produce coal or other solid minerals from
Federal or Indian leases. Included are your requirements for reporting production, sales, and royalties.
§ 1210.201 How do I submit Form MMS-4430, Solid Minerals Production and Royalty Report?
(a) What to submit. (1) You must submit a completed Form MMS-4430 for—
(i) Production of all coal and other solid minerals from any Federal or Indian lease;
(ii) Sale of any such mineral;
(iii) Any such mineral held in stockpile or inventory; and
(iv) Payment of rents (other than those for which you receive from ONRR a Courtesy Notice as
defined in § 1218.51(a) of this chapter), minimum royalty, deferred bonus, advance royalty, minimum
royalty payable in advance, settlements, recoupments, and other financial obligations.
(2) You must submit a completed Form MMS-4430 for any product you sell from a remote storage
site. If you sell from five or fewer remote storage sites, you must report sales from each site on
separate Forms MMS-4430. If you sell from more than five remote storage sites, you must total the
data from all sites and report the summarized data on one Form MMS-4430.
(3) Instructions for completing and submitting Form MMS-4430 are available on our Internet
reporting web site or you may contact us toll free at 1-888-201-6416.
(b) When to submit. (1) Unless your lease terms specify a different frequency for royalty
payments, you must submit your Form MMS-4430 on or before the end of the month following the
month in which you produce any solid mineral, sell any solid mineral, or hold any solid mineral
production in stockpile or inventory. However, if the last day of the month falls on a weekend or
holiday, your Form MMS-4430 is due on the next business day.
(2) If your lease terms specify a different frequency for royalty payment, then you must submit
your Form MMS-4430 on or before the date on which you must pay royalty under the terms of the
lease.
(3) You must submit your Form MMS-4430 for payment of rents (other than those for which you
receive from ONRR a Courtesy Notice as defined in § 1218.51(a) of this chapter), minimum royalty,
deferred bonus, advance royalty, minimum royalty payable in advance, settlements, recoupments, and
other financial obligations on or before the date on which you must pay those obligations under the
terms of the lease.
(4) If the information on a previously reported Form MMS-4430 is no longer correct, you must
submit a revised Form MMS-4430 by the last day of the month in which you learn that the previously
reported information is no longer correct, except when the last day of the month falls on a weekend or
holiday. If the last day of the month falls on a weekend or holiday, your revised Form MMS-4430 is
due on the first business day of the following month.
(c) How to submit. (1) You must submit Form MMS-4430 electronically using our Internet reporting
web site unless you meet the conditions in paragraph (c)(2). We will provide written instructions and a
valid login and password before you begin reporting.

(2) You are not required to report electronically if you are a small business as defined by the U.S.
Small Business Administration (13 CFR 121.201) and you have no computer, no plans to purchase a
computer, and no contract with an electronic reporting service.
(3) If you do not report electronically, you must submit the completed Form MMS-4430 to us at
one of the following addresses, unless ONRR publishes notice in the FEDERAL REGISTER giving a
different address:
(i) For U.S. Postal Service regular mail or Express Mail: Office of Natural Resources Revenue
(ONRR), P.O. Box 25627, Denver, CO 80225-0627; or
(ii) For courier service or overnight mail (excluding Express Mail): Office of Natural Resources
Revenue, Building 85, Denver Federal Center, Room A-614, Denver, Colorado 80225.
[66 FR 45771, Aug. 30, 2001; 66 FR 50827, Oct. 5, 2001; 77 FR 25879, May 2, 2012]

§ 1210.202 How do I submit sales summaries?
(a) What to submit. (1) You must submit sales summaries for all coal and other solid minerals
produced from Federal and Indian leases and for any remote storage site from which you sell Federal
or Indian solid minerals. You do not have to submit a sales summary for those months in which you do
not sell any Federal or Indian production.
(2) If you sell from five or fewer remote storage sites, you must submit a sales summary for each
site. If you sell from more than five remote storage sites, you may total the data from all sites and
submit the summarized data as one sales summary. The details you report on the sales summary are
for the same sales reported on Form MMS-4430.
(3) Use the following table to determine the time frames for submitting sales summaries and the
data elements you must include. Your submitted sales summaries must include the following data but
may be internally generated documents from your own records. You do not need to re-format them
before submitting them to us:

Data element
(i) Purchaser
Name or Unique
Identification
(ii) Sales Units
(iii) Gross
Proceeds
(iv) Processing
or washing
costs
(v)
Transportation
costs
(vi) Name of
product type
sold
(vii) Btu/lb
(viii) Ash %

Coal
Monthly

Western
Sodium/potassium phosphate Metals
Monthly
Monthly
Monthly

Monthly
Monthly

Monthly
Monthly

Monthly

Monthly

Monthly

All other
All other
leases with
leases with
no ad
ad valorem
valorem
royalty
royalty
terms
terms
Monthly
As
Requested

Monthly
Not
Required
Not
Required

Monthly
Monthly

Monthly
Monthly

Monthly
Not Required

Monthly

Monthly

Not Required

Monthly

Not
Required

Monthly

Monthly

Not Required

Not
Required

Monthly

Not
Required

Monthly

Monthly

As
Requested

Monthly

Not Required
Not Required

Not
Required
Not
Required

Not
Required
Not
Required

Not Required

Monthly

Not
Required
Not
Required

Not Required

(ix) Sulfur %

Monthly

Not Required

(x) lbs SO2

Monthly

Not Required

(xi) Moisture % Monthly

Not Required

(xii) By-product Not
Units
Required
(xiii) P2O5 %
Not
Required
(xiv) Size
Not
Required
(xv) Net Smelter Not
Return data
Required
(xvi) Other Data As
Requested
e.g., Royalty
Calculation
Worksheet

As Requested
Not Required
Not Required
Not Required
Monthly

Not
Required
Not
Required
Monthly

Not
Required
Not
Required
Not
Required
As
Requested
Not
Required
Not
Required
Monthly

Not
Required
Not
Required
Not
Required
Monthly
As
Requested
Monthly
Not
Required
Not
As
Required
Requested
Not
Not
Required
Required
As
As
As
Requested Requested Requested

Not Required
Not Required
Not Required
Not Required
Not Required
Not Required
Not Required
As
Requested.

(b) When to submit. (1) For leases with ad valorem royalty terms (that is, leases for which royalty
is a percentage of the value of production), you must submit your sales summaries monthly at the
same time you submit Form MMS-4430. You do not have to submit a sales summary for any month in
which you did not sell Federal or Indian production.
(2) For leases with no ad valorem royalty terms (that is, leases in which the royalty due is not a
function of the value of production, such as cents-per-ton or dollars-per-unit), you must submit monthly
sales summaries only if we specifically request you to do so.
(c) How to submit. (1) You should provide the sales summary data via electronic mail where
possible. We will provide instructions and the proper email address for these submissions.
(2) If you submit sales summaries by paper copy, mail them to one of the following addresses,
unless ONRR publishes notice in the FEDERAL REGISTER giving a different address:
(i) For U.S. Postal Service regular mail or Express Mail: Office of Natural Resources Revenue,
Solid Minerals and Geothermal (A&C), MS 62530B., Denver, Colorado 80225-0165.
(ii) For courier service or overnight mail (excluding Express Mail): Office of Natural Resources
Revenue, Solid Minerals and Geothermal (A&C), MS 62530B, Room A-614, Bldg 85, DFC, Denver,
Colorado 80225.
[48 FR 35641, Aug. 5, 1983, 76 FR 76615, Dec. 8, 2011]

§ 1210.203 How do I submit sales contracts?
(a) What to submit. You must submit sales contracts, agreements, and contract amendments for
the sale of all coal and other solid minerals produced from Federal and Indian leases with ad valorem
royalty terms.
(b) When to submit. (1) For coal and metal production, you must submit the required documents
semi-annually, no later than March 30 and September 30 of each year.
(2) For sodium, potassium, and phosphate production, and production from any other lease with
ad valorem royalty terms, you must submit the required documents only if you are specifically
requested to do so.
(c) How to submit. You must submit complete copies of the sales contracts and amendments to
us at the applicable address given in § 1210.202(c)(2), unless ONRR publishes notice in the
FEDERAL REGISTER giving a different address.

§ 1210.204 How do I submit facility data?
(a) What to submit. (1) You must submit facility data if you operate a wash plant, refining, ore
concentration, or other processing facility for any coal, sodium, potassium, metals, or other solid
minerals produced from Federal or Indian leases with ad valorem royalty terms, regardless of whether
the facility is located on or off the lease.
(2) You do not have to submit facility data for those months in which you do not process solid
minerals produced from Federal or Indian leases and do not have any such minerals in stockpile
inventory.
(3) You must include in your facility data all production processed in the facility from all properties,
not just production from Federal and Indian leases.
(4) Facility data submissions must include the following minimum information:
(i) Identification of your facility;
(ii) Mines served;
(iii) Input quantity;
(iv) Input quality or ore grade (except for coal);
(v) Output quantity; and
(vi) Output quality or product grades.
(5) Your submitted facility data may be internally generated documents from your own records.
You do not need to re-format them before submitting them to us.
(b) When to submit. You must submit your facility data monthly at the same time you submit your
Form MMS-4430.
(c) How to submit. (1) You should provide the facility data via electronic mail where possible. We
will provide instructions and the proper email address for these submissions before you begin
reporting.
(2) If you submit facility data by paper copy, send it to the applicable address given in § 1210.202
(c)(2).
§ 1210.205 What reports must I submit to claim allowances on Indian coal leases?
General. You must submit the following ONRR forms to claim a transportation or washing
allowance, as applicable, on Indian coal leases:
(1) Form MMS-4292, Coal Washing Allowance Report, to claim an allowance for the reasonable,
actual costs incurred to wash coal under § 1206.458 of this chapter.
(2) Form MMS-4293, Coal Transportation Allowance Report, to claim an allowance for the
reasonable, actual costs of transporting coal to a sales point or a washing facility remote from the mine
or lease under § 1206.461 of this chapter.
(b) Reporting options. You must submit the forms manually. You may find the forms at
http://www.onrr.gov/FM/Forms/AFSSol_Min.htm.
(c) Reporting address. You must submit completed Forms MMS-4292 and MMS-4293 by:
(1) U.S. Postal Service regular or express mail addressed to Office of Natural Resources
Revenue, P.O. Box 25165, Denver, CO 80225-0165; or
(2) Special courier or overnight mail addressed to Office of Natural Resources Revenue, Building
85, Room A-614, Denver Federal Center, West 6th Ave. and Kipling Blvd., Denver, Colorado 80225.

[73 FR 15897, Mar. 26, 2008, as amended at 76 FR 76615, Dec. 8, 2011; 77 FR 25879, 25880, May 2, 2012]

§ 1210.206 Will I need to submit additional documents or evidence to ONRR?
(a) Federal and Indian lease terms allow us to request detailed statements, documents, or other
evidence necessary to verify compliance with lease terms and conditions and applicable rules.
(b) We will request this additional information as we need it, not as a regular submission.
[66 FR 45771, Aug. 30, 2001. Redesignated at 73 FR 15897, Mar. 26, 2008]

§ 1210.207 How will information submissions be kept confidential?
Information submitted under this part that constitutes trade secrets or commercial and financial
information that is identified as privileged or confidential, or that is exempt from disclosure under the
Freedom of Information Act, 5 U.S.C. 552, shall not be available for public inspection or made public
or disclosed without the consent of the lessee, except as otherwise provided by law or regulation.
[66 FR 45771, Aug. 30, 2001. Redesignated at 73 FR 15897, Mar. 26, 2008]

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

§ 1210.350 Definitions.
Terms used in this subpart shall have the same meaning as in § 1206.351 of this chapter.
§ 1210.351 Required recordkeeping.
Information required by ONRR shall be filed using the forms prescribed in this subpart, which are
available from ONRR. Records may be maintained on microfilm, microfiche, or other recorded media
that are easily reproducible and readable. See subpart H of 30 CFR part 1212.
§ 1210.352 Special forms and reports.
The ONRR may require submission of additional information on special forms or reports. When
special forms or reports other than those referred to in this subpart are necessary, ONRR will give
instructions for the filing of such forms or reports. Requests for the submission of such forms will be
made in conformity with the requirements of the Paperwork Reduction Act of 1980 and other
applicable laws.
[56 FR 57286, Nov. 8, 1991. Redesignated at 72 FR 24467, May 2, 2007]

§ 1210.353 Monthly report of sales and royalty.
A completed Report of Sales and Royalty Remittance (Form MMS-2014) must be submitted each
month once sales or utilization of production occur, even though sales may be intermittent, unless
otherwise authorized by ONRR. This report is due on or before the last day of the month following the
month in which production was sold or utilized, together with the royalties due the United States.
[56 FR 57286, Nov. 8, 1991. Redesignated at 72 FR 24467, May 2, 2007]

§ 1210.354 Reporting instructions.
Refer to ONRR's Minerals Revenue Reporter Handbook—Oil, Gas, and Geothermal Resources
for specific guidance on how to prepare and submit required information collection reports and forms
to ONRR. You may find the handbook at http://www.onrr.gov/FM/Handbooks/default.htm or from
contacts listed on that Web page.

[77 FR 25880, May 2, 2012]

Subpart I—OCS Sulfur [Reserved]
For questions or comments regarding e-CFR editorial content, features, or design, email [email protected].
For questions concerning e-CFR programming and delivery issues, email [email protected].

ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of March 15, 2013
Title 30: Mineral Resources
PART 1212—RECORDS AND FILES MAINTENANCE
Contents
Subpart A—General Provisions [Reserved]
Subpart B—Oil, Gas, and OCS Sulphur—General
§ 1212.50 Required recordkeeping and reports.
§ 1212.51 Records and files maintenance.
§ 1212.52 Definitions.
Subpart C—Federal and Indian Oil [Reserved]
Subpart D—Federal and Indian Gas [Reserved]
Subpart E—Solid Minerals—General
§ 1212.200 Maintenance of and access to records.
Subpart F—Coal [Reserved]
Subpart G—Other Solid Minerals [Reserved]
Subpart H—Geothermal Resources
§ 1212.350 Definitions.
§ 1212.351 Required recordkeeping and reports.
Subpart I—OCS Sulfur [Reserved]
AUTHORITY: 5 U.S.C. 301 et seq. ; 25 U.S.C. 396 et seq., 396a et seq., 2101 et seq. ; 30 U.S.C. 181 et seq.,
351 et seq., 1001 et seq., 1701 et seq. ; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq., 1331 et seq., and 1801 et seq.
SOURCE: 48 FR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61084, Oct. 4, 2010.

Subpart A—General Provisions [Reserved]
Subpart B—Oil, Gas, and OCS Sulphur—General
§ 1212.50 Required recordkeeping and reports.
All records pertaining to offshore and onshore Federal and Indian oil and gas 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, that records must be maintained for a longer
period. When an audit or investigation is underway, records shall be maintained until the recordholder
is released by written notice of the obligation to maintain records.
[49 FR 37345, Sept. 21, 1984]

§ 1212.51 Records and files maintenance.
(a) Records. Each lessee, operator, revenue payor, or other person shall make and retain
accurate and complete records necessary to demonstrate that payments of rentals, royalties, net profit
shares, and other payments related to offshore and onshore Federal and Indian oil and gas leases are
in compliance with lease terms, regulations, and orders. Records covered by this section include those
specified by lease terms, notices and orders, and by the various parts of this chapter. Records also
include computer programs, automated files, and supporting systems documentation used to produce
automated reports or magnetic tape submitted to the Office of Natural Resources Revenue (ONRR).
(b) Period for keeping records. Lessees, operators, revenue payors, or other persons required to
keep records under this section shall maintain and preserve them for 6 years from the day on which
the relevant transaction recorded occurred unless the Secretary notifies the record holder of an audit
or investigation involving the records and that they must be maintained for a longer period. When an
audit or investigation is underway, records shall be maintained until the recordholder is released in
writing from the obligation to maintain the records. Lessees, operators, revenue payors, or other
persons shall maintain the records generated 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]

§ 1212.52 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
§ 1212.200 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 ONRR 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.

§ 1212.350 Definitions.
Terms used in this subpart shall have the same meaning as in § 1206.351.
§ 1212.351 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 ONRR.
(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 released by written
notice of the obligation to maintain records.
(c) Access to records. The Director for Office of Natural Resources Revenue 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]
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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of March 15, 2013
Title 30: Mineral Resources
PART 1217—AUDITS AND INSPECTIONS
Contents
Subpart A—General Provisions [Reserved]
Subpart B—Oil and Gas, General
§ 1217.50 Audits of records.
§ 1217.51 Lease account reconciliation.
§ 1217.52 Definitions.
Subpart C—Oil and Gas, Onshore [Reserved]
Subpart D—Oil, Gas and Sulfur, Offshore [Reserved]
Subpart E—Coal
§ 1217.200 Audits.
Subpart F—Other Solid Minerals
§ 1217.250 Audits.
Subpart G—Geothermal Resources
§ 1217.300 Audit or review of records.
§ 1217.301 Lease account reconciliations.
§ 1217.302 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.
SOURCE: 48 FR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61084, Oct. 4, 2010.

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.

§ 1217.50 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.
§ 1217.51 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.
§ 1217.52 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
§ 1217.200 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 Director for Office of Natural Resources Revenue. 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 Director for Office of
Natural Resources Revenue within 30 days after the completion of each audit. Where such audits are
required, the Director for Office of Natural Resources Revenue 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
§ 1217.250 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.

§ 1217.300 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.

§ 1217.301 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.
§ 1217.302 Definitions.
Terms used in this subpart will have the same meaning as in 30 U.S.C. 1702.

Subpart H—Indian Lands [Reserved]
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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of March 15, 2013
Title 30: Mineral Resources
PART 1218—COLLECTION OF ROYALTIES, RENTALS, BONUSES, AND OTHER MONIES DUE
THE FEDERAL GOVERNMENT
Contents
Subpart A—General Provisions
§ 1218.10 Information collection.
§ 1218.40 Assessments for incorrect or late reports and failure to report.
§ 1218.41 Assessments for failure to submit payment of same amount as Form MMS-2014 or bill
document or to provide adequate information.
§ 1218.42 Cross-lease netting in calculation of late-payment interest.
Subpart B—Oil and Gas, General
§ 1218.50
§ 1218.51
§ 1218.52
§ 1218.53
§ 1218.54
§ 1218.55
§ 1218.56

Timing of payment.
How to make payments.
How does a lessee designate a Designee?
Recoupment of overpayments on Indian mineral leases.
Late payments.
Interest payments to Indians.
Definitions.

Subpart C—Oil and Gas, Onshore
§ 1218.100
§ 1218.101
§ 1218.102
§ 1218.103
§ 1218.104
§ 1218.105

Royalty and rental payments.
Royalty and rental remittance (naval petroleum reserves).
Late payment or underpayment charges.
Payments to States.
Exemption of States from certain interest and penalties.
Definitions.

Subpart D—Oil, Gas and Sulfur, Offshore
§ 1218.150 Royalties, net profit shares, and rental payments.
§ 1218.151 Rental fees.
§ 1218.152 Fishermen's Contingency Fund.
§ 218.153 [Reserved]
§ 1218.154 Effect of suspensions on royalty and rental.
§ 1218.155 Method of payment.
§ 1218.156 Definitions.
Subpart E—Solid Minerals—General
§ 1218.200
§ 1218.201
§ 1218.202
§ 1218.203

Payment of royalties, rentals, and deferred bonuses.
Method of payment.
Late payment or underpayment charges.
Recoupment of overpayments on Indian mineral leases.

Subpart F—Geothermal Resources

§ 1218.300 Payment of royalties, rentals, and deferred bonuses.
§ 1218.301 Method of payment.
§ 1218.302 Late payment or underpayment charges.
§ 1218.303 May I credit rental towards royalty?
§ 1218.304 May I credit rental towards direct use fees?
§ 1218.305 How do I pay advanced royalties I owe under BLM regulations?
§ 1218.306 May I receive a credit against production royalties for in-kind deliveries of electricity I
provide under contract to a State or county government?
§ 1218.307 How do I pay royalties due for my existing leases that qualify for near-term production
incentives under BLM regulations?
Subpart G—Indian Lands [Reserved]
Subpart H—Service of Official Correspondence
§ 2218.500
§ 1218.520
§ 1218.540
§ 1218.560
§ 1218.580

What is the purpose of this subpart?
What definitions apply to this subpart?
How does ONRR serve official correspondence?
How do I submit Form MMS-4444?
When do I submit Form MMS-4444?

Subpart I [Reserved]
Subpart J—Debt Collection and Administrative Offset
§ 1218.700 What definitions apply to the regulations in this subpart?
§ 1218.701 What is ONRR's authority to issue these regulations?
§ 1218.702 What happens to delinquent debts you owe ONRR?
§ 1218.703 What notice will ONRR give you of our intent to refer a matter to Treasury to collect a
debt?
§ 1218.704 What is ONRR's policy on interest and administrative costs?
§ 1218.705 What is ONRR's policy on recommending revocation of your ability to engage in Federal
or Indian leasing, licensing, or granting of easements, permits, or rights-of-way?
§ 1218.706 What debts may ONRR refer to Treasury to collect by administrative offset or tax refund
offset?
AUTHORITY: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et seq., 2101 et seq.; 30 U.S.C. 181 et seq.,
351 et seq., 1001 et seq., 1701 et seq.; 31 U.S.C. 3335, 3711, 3716-18, 3720A, 9701; 43 U.S.C. 1301 et seq.,
1331 et seq., and 1801 et seq.
SOURCE: 48 FR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61084, Oct. 4, 2010.

Subpart A—General Provisions
§ 1218.10 Information collection.
The information collection requirements contained in this part have been approved by OMB under
44 U.S.C. 3501 et seq. The forms, filing date, and approved OMB clearance numbers are identified in
§ 1210.10 of this chapter.
[57 FR 41867, Sept. 14, 1992]

§ 1218.40 Assessments for incorrect or late reports and failure to report.
(a) An assessment of an amount not to exceed $10 per day may be charged for each report not
received by Office of Natural Resources Revenue (ONRR) by the designated due date for geothermal,
solid minerals, and Indian oil and gas leases.
(b) An assessment of an amount not to exceed $10 per day may be charged for each incorrectly
completed report for geothermal, solid minerals, and Indian oil and gas leases.
(c) For purpose of assessments discussed in this section, a report is defined as follows:

(1) Pipeline rights-of-way application filing fees and rentals, pipeline accessory site rentals and
application fees, and other related costs.
(2) Filing and approval fees for transfers of interest in leases.
[49 FR 8605, Mar. 8, 1984, as amended at 52 FR 23815, June 25, 1987; 53 FR 43201, Oct. 26, 1988; 57 FR
41868, Sept. 14, 1992; 62 FR 19499, Apr. 22, 1997; 67 FR 19112, Apr. 18, 2002; 73 FR 15898, Mar. 26, 2008]

§ 1218.156 Definitions.
Terms used in this subpart have the same meaning as in 30 U.S.C. 1702.
[52 FR 23815, June 25, 1987]

Subpart E—Solid Minerals—General
§ 1218.200 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 ONRR to
be due.
[52 FR 23815, June 25, 1987]

§ 1218.201 Method of payment.
You must tender all payments in accordance with § 1218.51, except as follows:
(a) For purposes of this section, report means the Solid Minerals Production and Royalty Report,
Form MMS-4430, rather than the Form MMS-2014.
(b) For Form MMS-4430 payments, include both your customer identification and your customer
document identification numbers on your payment document, rather than the information required
under § 1218.51(f)(1).
(c) For a rental payment that is not reported on Form MMS-4430, include the ONRR Courtesy
Notice when provided or write your customer identification number and Government-assigned lease
number on the payment document, rather than the information required under § 1218.51(f)(4)(iii).
[66 FR 45773, Aug. 30, 2001]

§ 1218.202 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 rules will result in the collection by ONRR 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
instructions provided by ONRR to the operator/lessee. However, late payment charges assessed with
respect to any Indian lease, permit, or contract shall be collected and paid to the Indian or tribe to
which the amount overdue is owed.
(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 ONRR addresses
specified in § 1218.51. Payments received at the specified ONRR 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 the FEDERAL REGISTER
and 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, or advance royalties; assessments for liquidated
damages; or any other payments, fees, or assessments that an operator/lessee 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 § 1218.42.
[47 FR 33195, July 30, 1982; 47 FR 53366, Nov. 26, 1982. Redesignated at 48 FR 35641, Aug. 5, 1983, and
further redesignated at 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]

§ 1218.203 Recoupment of overpayments on Indian mineral leases.
(a) Whenever an overpayment is made under an Indian solid mineral lease, a payor may recoup
the overpayment through a recoupment on Form MMS-4430 against the current month's royalties or
other revenues owed on the same lease. However, for any month a payor may not recoup more than
50 percent of the royalties or other revenues owed in that month under an individual allotted lease or
more than 100 percent of the royalties or other revenues owed in that month under a tribal lease.
(b) With written permission authorized by tribal statute or resolution, a payor may recoup an
overpayment against royalties or other revenues owed in that month under other leases for which that
tribe is the lessor. A copy of the tribe's written permission must be furnished to ONRR for reporting
recoupments. Call 1-888-201-6416 for instructions. Recouping overpayments on one allotted lease
from royalties paid to another allotted lease is specifically prohibited.
(c) Overpayments subject to recoupment under this section include all payments made in excess
of the required payment for royalty, rental, bonus, or other amounts owed as specified by statute,
regulation, order, or terms of an Indian mineral lease.
(d) The ONRR Director or his/her designee may order any payor to not recoup any amount for
such reasonable period of time as may be necessary for ONRR to review the nature and amount of
any claimed overpayment.
[60 FR 3087, Jan. 13, 1995, as amended at 66 FR 45773, Aug. 30, 2001; 66 FR 50827, Oct. 5, 2001]

Subpart F—Geothermal Resources
§ 1218.300 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 ONRR to
be due.
[52 FR 23815, June 25, 1987]

§ 1218.301 Method of payment.
The payor shall tender all payments in accordance with § 1218.51.
[52 FR 23815, June 25, 1987]

§ 1218.302 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 ONRR 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 ONRR 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 ONRR addresses
specified in § 1218.51. Payments received at the specified ONRR 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 the FEDERAL REGISTER
and 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 § 1218.42.
[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]

§ 1218.303 May I credit rental towards royalty?
(a)(1) For Class II leases as defined in § 1206.351 of this chapter, 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]

§ 1218.304 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
§ 1206.356 of this chapter. You must pay the direct use fees in addition to the annual rental due.
[72 FR 24468, May 2, 2007]

§ 1218.305 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 1206, 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 ONRR 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]

§ 1218.306 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 ONRR 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 ONRR 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]

§ 1218.307 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 1206, subpart H.
[72 FR 24468, May 2, 2007]

Subpart G—Indian Lands [Reserved]
Subpart H—Service of Official Correspondence
SOURCE: 71 FR 51751, Aug. 31, 2006, unless otherwise noted.

§ 2218.500 What is the purpose of this subpart?
This subpart contains instructions for designating a specific addressee of record for service of
official correspondence using Form MMS-4444, Addressee of Record Designation for Service of
Official Correspondence.