30 C.F.R. § 1206.159 : Mineral Resources — OFFICE OF NATURAL RESOURCES REVENUE, DEPARTMENT OF THE INTERIOR — NATURAL RESOURCES REVENUE — PRODUCT VALUATION — FEDERAL GAS — What general processing allowances requirements apply to me?

(a)
(1) When you value any gas plant product under § 1206.142(c) of this subpart, you may deduct from the value the reasonable, actual costs of processing.
(2) You do not need ONRR's approval before reporting a processing allowance.
(b) You must allocate processing costs among the gas plant products. You must determine a separate processing allowance for each gas plant product and processing plant relationship. ONRR considers NGLs to be one product.
(c)
(1) You may not apply the processing allowance against the value of the residue gas.
(2) The processing allowance deduction on the basis of an individual product may not exceed 66 2/ 3 percent of the value of each gas plant product determined under § 1206.142(c). Before you calculate the 66 2/ 3-percent limit, you must first reduce the value for any transportation allowances related to post-processing transportation authorized under § 1206.152.
(3) If ONRR approved your request to take a processing allowance in excess of the limitation in paragraph (c)(2) of this section under former § 1206.158(c)(3), that approval is terminated as of January 1, 2017.
(4) If ONRR approved your request to take an extraordinary cost processing allowance under former § 1206.158(d), ONRR terminates that approval as of January 1, 2017.
(d)
(1) ONRR will not allow a processing cost deduction for the costs of placing lease products in marketable condition, including dehydration, separation, compression, or storage, even if those functions are performed off the lease or at a processing plant.
(2) Where gas is processed for the removal of acid gases, commonly referred to as "sweetening," ONRR will not allow processing cost deductions for such costs unless the acid gases removed are further processed into a gas plant product.
(A) In such event, you are eligible for a processing allowance determined under this subpart.
(B) ONRR will not grant any processing allowance for processing lease production that is not royalty bearing.
(e) ONRR may determine your processing allowance under § 1206.144 because:
(1) There is misconduct by or between the contracting parties;
(2) ONRR determines that the consideration that you or your affiliate paid under an arm's-length processing contract does not reflect the reasonable cost of the processing because you breached your duty to market the gas, residue gas, or gas plant products for the mutual benefit of yourself and the lessor by processing your gas, residue gas, or gas plant products at a cost that is unreasonably high. We may consider a processing allowance unreasonably high if it is 10 percent higher than the highest reasonable measures of processing costs, including, but not limited to, processing allowances reported to ONRR; or
(3) ONRR cannot determine if you properly calculated a processing allowance under § 1206.160 or § 1206.161 for any reason, including, but not limited to, your or your affiliate's failure to provide documents that ONRR requests under 30 CFR part 1212, subpart B.

30 C.F.R. §1206.159

53 FR 1272, Jan. 15, 1988, as amended at 53 FR 45762, Nov. 14, 1988; 61 FR 5466, Feb. 12, 1996; 64 FR 43288, Aug. 10, 1999; 73 FR 15891, Mar. 26, 2008; 81 FR 43380, Jan. 1, 2017; 82 FR 36963, 9/6/2017; 85 FR 62030, Oct. 1, 2020; 86 FR 4656, 2/16/2021; Eff. date of amendment published at 86 FR 4652 delayed to November 1, 2021.