# 30 CFR § 1206.54 - How do I fulfill the lease provision regarding valuing production on the basis of the major portion of like-quality oil?

§ 1206.54 How do I fulfill the lease provision regarding valuing production on the basis of the major portion of like-quality oil?

(a) This section applies to any Indian leases that contain a major portion provision for determining value for royalty purposes. This section also applies to any Indian leases that provide that the Secretary may establish value for royalty purposes. The value of production for royalty purposes for your lease is the higher of either the value determined under this section or the gross proceeds you calculated under § 1206.52 or § 1206.53.

(b) You must submit a monthly Form ONRR-2014 using the higher of the IBMP value determined under this section or your gross proceeds under § 1206.52 or § 1206.53. Your Form ONRR-2014 must meet the requirements of 30 CFR 1210.61.

(c) ONRR will determine the monthly IBMP value for each designated area and crude oil type and post those values on our Web site at www.onrr.gov. The monthly IBMP value by designated area and crude oil type is calculated as follows:

(1) For Indian leases located in Oklahoma:

$\left[\left(\begin{array}{c}\text{NYMEX CMA}\\ \text{Price}\end{array}\right)+/-\left(\mathrm{Roll}\right)\right]×\left(1-\mathrm{LCTD}\right)$

(2) For all other Indian leases:

$\left(\begin{array}{c}\text{NYMEX CMA}\\ \text{Price}\end{array}\right)×\left(1-\mathrm{LCTD}\right)$

(d) ONRR will calculate the initial LCTD for each designated area (the same designated areas posted on its Web site at www.onrr.gov) and crude oil type using the following formula:

$\left[\frac{\left(\text{Average of Monthly NYMEX CMA for Previous 12 Months}-\text{Average of Monthly Major Portion Prices for Previous 12 Months}\right)}{\text{Average of Monthly NYMEX CMA for Previous 12 Months}}\right]$

(1) For the first full production month after July 1, 2015, ONRR will calculate the monthly Major Portion Prices using data reported on the Form ONRR-2014 for the previous 12 production months prior to July 1, 2015 (Previous Twelve Months). To the extent that ONRR does not have data on the Form ONRR-2014 regarding the crude oil type for the entire previous twelve months, ONRR will assume the crude oil type is the same for those months for which ONRR does not have data as the months for which the crude oil type was reported on the Form ONRR-2014 for the same leases and/or agreements.

(i) ONRR will array the calculated prices net of transportation by month from highest to lowest price for each designated area and crude oil type. For each month, ONRR will calculate the Major Portion Price as that price at which 25 percent plus 1 barrel (by volume) of the oil (starting from the highest) is sold.

(ii) To calculate the average of the monthly Major Portion Prices for the previous 12 months, ONRR will add the monthly Major Portion Prices calculated in paragraph (d)(1)(i) of this section and divide by 12.

(2) For every month following the first full production month after July 1, 2015, ONRR will monitor the LCTD using data reported on the Form ONRR-2014 for the month ending two months before the current production month.

(i) ONRR will use the oil sales volume that lessees report on Form ONRR-2014 to monitor and, if necessary, to modify the LCTD used in the IBMP value.

(ii) ONRR will monitor oil sales volumes not reported under the sales type code OINX, as provided in 30 CFR 1210.61(a) and (b), on the Form ONRR-2014 on a monthly basis by designated area and crude oil type.

(iii) If the monthly oil sales volumes not reported under the sales type code OINX varies more than ± 3 percent from 25 percent of the total reported oil sales volume for the month, then ONRR will revise the LCTD prospectively starting with the following month.

(A) If monthly oil sales volumes not reported under the sales type code OINX on Form ONRR-2014 by the designated area and crude oil type fall below 22 percent, ONRR will increase the LCTD by 10 percent every month until the monthly oil sales volumes reported under the sales type code for gross proceeds on Form ONRR-2014 fall within the ± 3 percent range. In Example 1, assume that the IBMP value is \$81.06 and the LCTD for the designated area is 14.28 percent. In the table below, the Percent of Volume not reported as OINX is less than 22 percent, which triggers a modification to the LCTD. ONRR will adjust the LCTD upward by 10 percent (14.28 percent × 1.10). Therefore, for the next month, the LCTD will be 15.71 percent. In the following month, the IBMP value will equal the next month's NYMEX CMA multiplied by (1 − 0.1571). ONRR will continue to make adjustments in subsequent months until monthly sales volumes not reported as OINX fall within 22-28 percent of the total monthly sales volume.

Example 1 - Differential Adjustment When ARMS Sales Volume for the Current Month Falls Below 22% of Total Monthly Sales Volume

Lease Sales volume Unit price Sales type code Cumulative volume Percent of
volume
1 220 81.95 ARMS 220 9.02
2 275 81.71 ARMS 495 20.29
3 400 81.06 OINX 895 36.68
4 425 81.06 OINX 1,320 54.10
5 370 81.06 OINX 1,690 69.26
6 400 81.06 OINX 2,090 85.66
7 350 81.06 OINX 2,440 100.00
2,440

(B) If monthly oil sales volumes not reported under the sales type code OINX on Form ONRR-2014 by designated area and crude oil type exceed 28 percent, then ONRR will decrease the LCTD by 10 percent every month until the monthly oil sales volumes reported under the sales type code for gross proceeds on Form ONRR-2014 fall within the ± 3 percent range. In Example 2, assume that the IBMP value is \$81.06 and the LCTD is 14.28 percent. As noted in the table below, however, the Percent of Volume not reported as OINX is 32.69 percent, exceeding the 28 percent threshold, which triggers a modification to the LCTD. ONRR will adjust the LCTD downward by 10 percent (14.28 percent × 0.90). Therefore, for the next month, the LCTD will be 12.85 percent. In the following month, the IBMP will equal the next month's NYMEX CMA multiplied by (1−0.1285). ONRR will continue to make adjustments in subsequent months until monthly sales volumes reported as ARMS fall within 22-28 percent of the total monthly sales volume.

Example 2 - Differential Adjustment When ARMS Sales Volume Not Reported as OINX for the Current Month Exceeds 28% of Total Monthly Sales Volume

Lease Sales volume Unit price Sales type code Cumulative volume Percent of
volume
1 230 81.95 ARMS 230 11.06
2 275 81.71 ARMS 505 24.28
3 175 81.45 ARMS 680 32.69
4 250 81.06 OINX 930 44.71
5 425 81.06 OINX 1,355 65.14
6 325 81.06 OINX 1,680 80.77
7 400 81.06 OINX 2,080 100.00
2,080

(e) In designated areas where there is insufficient data reported to ONRR on Form ONRR-2014 to determine a differential for a specific crude oil type, ONRR will use its discretion to determine an appropriate IBMP value.