11 AAC 25.090 - Adjustments to royalty volumes for pipeline, plant, and tanker in-kind fuel requirements, gains, and losses

(a) A lessee calculating the monthly value of the state's royalty share of qualified gas under this chapter may adjust its royalty volumes only to the extent allowed by this section.

(b) If the costs of a pipeline, plant, or tanker are deductible under this chapter, and the pipeline, plant, or tanker has an in-kind fuel requirement rather than a monetary charge for fuel use directly attributable to transporting, processing, liquefying, or regasifying qualified gas, the lessee may reduce the quantity of qualified gas on which it pays royalty in value by the quantity of the in-kind fuel requirement assessed against that qualified gas, except as provided in this section, 11 AAC 25.080(g), or 11 AAC 25.200.

(c) If a lessee or its affiliate transports, processes, liquefies, or regasifies qualified gas under an arm's length contract and the charge under that contract for those purposes is deductible under this chapter, losses experienced under the contract of no more than two percent of the total volume of gas delivered under the contract that are assessed against the qualified gas under the terms of the contract may be used to reduce the quantity of qualified gas on which the lessee pays royalty to the state. However, a reduction in quantity is allowed under this subsection only if the lessee also reports increases in the quantity of qualified gas on which it pays royalties to the state if gains in volume of qualified gas are realized under the terms of the arm's length contract.

(d) If a lessee or its affiliate transports, processes, liquefies, or regasifies qualified gas under a contract or agreement other than an arm's length contract, a loss in volume is not allowed in calculating the monthly value of the state's share of royalty gas under this chapter.

(e) Each in-kind fuel requirement, loss, and gain allowed or required under this section must be reported separately by lease and destination and must be allocated between unprocessed gas, residue gas, gas plant products, and LNG. Allocation must be according to the method set out in the applicable transportation services agreement or processing agreement. If the transportation services agreement or processing agreement does not set out an allocation method, allocation must be based on

(1) MMBtus, for a processing agreement; and

(2) MMBtus and mileage of haul, for a transportation agreement.

(f) If the cost of transporting carbon dioxide is not allowed under 11 AAC 25.070(d), an in-kind fuel deduction is not allowed for transporting carbon dioxide. For purposes of this section, in-kind fuel requirements must be allocated between the excess carbon dioxide and all other gas based on their relative volumes.

(g) Notwithstanding the terms of an existing lease or unit agreement, a lessee may reduce royalty volumes for an in-kind fuel requirement for qualified gas treated in a gas treatment plant located on the North Slope even if the plant is not on the lease of production or within the unit of production.

Notes

11 AAC 25.090

Eff. 5/29/2010, Register 194

Authority:AS 38.05.020

AS 38.05.180

AS 43.90.310