CHAPTER 1 AMENDMENTS TO GAS VALUATION REGULATIONS FOR INDIAN LEASES
| Jurisdiction | United States |
(2000)
AMENDMENTS TO GAS VALUATION REGULATIONS FOR INDIAN LEASES
Table of Contents
I. Index Zone Information
A. How do I know if my Indian lease is in an index zone?
B. How do I determine the index-based value?
C. What is a "safety net price" and do I have to calculate a safety net price if my Indian leases are in an index zone?
D. How do I report my additional royalty due for the safety net differential?
E. Where and when do I submit the Safety Net Report (Form MMS-4411)?
II. Non-Index Zone Information
A. How do I know if my Indian lease is in a non-index zone?
B. How do I determine the non-index based value?
III. Dual Accounting Information
A. How and where do I submit the Certification for Not Performing Accounting for Comparison (Dual Accounting) (Form MMS-4110)?
B. How do I make a dual accounting election?
C. How do I report my dual accounting election using new calculation method codes "04" and "05"?
D. When and how must I use Major Portion/Dual Accounting Adjustments?
IV. Transportation and Processing Allowances
A. When and where must I submit copies of my arm's-length transportation and processing contracts?
B. Must I still file transportation and processing allowance forms if I have a non-arm's-length contract or no contract?
C. How and when do I elect to use the alternative transportation allowance calculation?
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I. INDEX ZONE INFORMATION
A. How do I know if my Indian lease is in an index zone?
On November 30, 1999, the Minerals Management Service (MMS) published in the Federal Register at 64 FR 66771 a list of the index zones and their associated MMS-designated areas. An index zone is a field or an area with an active spot market that contains published indices applicable to that field/area and approved by MMS. If your Indian lease is located in one of these MMS-designated areas, then your lease is in an index zone.
The following table shows you which MMS-designated area is in which index zone:
| MMS-Designated Area | Index Zone |
| Alabama-Coushatta | East Texas |
| Wind River Reservation | Northern Rocky Mountains |
| Jicarilla Apache Reservation | San Juan Basin |
| Navajo Tribal Leases in the Navajo Reservation | |
| Southern Ute Reservation | |
| Ute Mountain Ute Reservation | |
| Includes the following counties in Oklahoma: | Oklahoma Zone No. 1 |
| Alfalfa, Beaver, Cimarron, Cleveland, Creek, Garfield, Grant, Harper, Kay, Lincoln, Noble, Nowata, Oklahoma, Pawnee, Payne, Pottawatomie, Rogers, Texas, Tulsa, Washington, Woods | |
| Includes the following counties in Oklahoma: | Oklahoma Zone No. 2 |
| Beckham, Blaine, Caddo, Canadian, Comanche, Cotton, Custer, Dewey, Ellis, Garvin, Grady, Greer, Harmon, Jackson, Jefferson, Kingfisher, Kiowa, Logan, Major, McClain, Roger Mills, Stephens, Tillman, Washita, Woodward | |
| Includes the following counties in Oklahoma: | Oklahoma Zone No. 3 |
| Adair, Atoka, Bryan, Carter, Cherokee, Choctaw, Coal, Craig, Delaware, Haskell, Hughes, Johnston, Latimer, Le Flore, Love, Marshall, Mayes, McCurtain, McIntosh, Murray, Muskogee, Okfuskee, Okmulgee, Ottawa, Pittsburg, Pontotoc, Pushmataha, Seminole, Sequoyah, Wagoner |
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B. How do I determine the index-based value?
The regulations addressing index-based value at 30 CFR § 206.172 (64 FR 43506) apply to situations where your lease has a major portion provision or the lease provides for the Secretary to determine value.
To determine the index-based value of gas produced from leases in an index zone, you must use the following procedure:
1. Calculate the average of the highest reported prices for all index-pricing points in the index zone for each MMS-approved publication. MMS-approved publications are Inside F.E.R.C.'s Gas Market Report and the Natural Gas Intelligence Weekly Gas Price Index (except any individual index prices excluded by MMS from an index zone in an MMS-approved publication).
2. Sum the averages calculated above and divide by 2 (the number of publications).
3. Reduce the number calculated in No. 2 above by 10 percent, but not less than 10 cents per MMBtu or more than 30 cents per MMBtu. The result is the index-based value per MMBtu for production from all leases in that index zone.
C. What is a safety net price and do I have to calculate a safety net price if my Indian leases are in an index zone?
Your safety net price for an index zone is the volume-weighted average contract price per delivered MMBtu under your or your affiliate's arm's-length contracts for the disposition of residue gas or unprocessed gas produced from your Indian lease in the index zone.
You must calculate a safety net price for each month and for each index zone where you have an Indian lease from which gas production is sold beyond the first index pricing point through which it flows.
You must include in your calculation only sales under those contracts that establish a delivery point beyond the first index pricing point through which the gas flows and that include any gas produced from or allocable to one or more of your Indian leases in that index zone, even if that contract also includes gas produced from Federal, State, or fee properties.
You must not reduce the contract price for any transportation costs incurred to deliver the gas to the purchaser.
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You must determine for each month, the number that is 80 percent of the safety net price you calculated for an index zone. You must also calculate the number that equals 125 percent of the monthly index-based value. You must perform this calculation separately for each index zone.
For any index zone, if the number you calculated as 80 percent of the safety net price exceeds the number you calculated at 125 percent of the index-based value (the safety net differential), then you owe additional royalty on the safety net differential.
For each index zone, the safety net differential (SND) is equal to:
SND=[(0.80×S)–(1.25×I)]
where I is the index-based value, and
S is the safety net price.
If the safety net differential is positive, the lessee owes additional royalties.
To calculate the additional royalties, make the following calculation for each of your Indian leases in an index zone that produced gas that was sold beyond the first index-pricing point through which the gas flowed:
Lease royalties owed=SND×V×R, where
R=the lease royalty rate, and
V = the volume allocable to the lease that produced gas sold beyond the first index pricing point.
Add the numbers calculated for each lease in the previous step. The total is the additional royalty owed. Further instructions for calculating the...
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