Okla. Admin. Code § 385:15-1-24 - Oil and gas royalty price computation
(a)
Marketable condition and sale. Lessee shall place oil, gas,
recoverable natural gas liquids, and non-hydrocarbon gas in a marketable
condition. Lessee shall pay all direct and indirect costs incurred to place the
oil, gas, recoverable natural gas liquids, and non-hydrocarbon gas in a
marketable condition. Lessee shall market and sell such oil, gas, recoverable
natural gas liquids, and non-hydrocarbon gas products at no cost to the Land
Office.
(1) Oil recovered by mechanical
separators shall be deemed to be in a marketable condition only after the oil
products are separated, treated, dehydrated and placed into a storage tank or
other facility for delivery to a purchaser or refinery and without cost to the
Land Office.
(2) Gas delivered to
a gas plant for processing shall be deemed to be in a marketable condition only
after the gas products meet the location, quality, and pressure specifications
for transmission by an interstate pipeline for sale to an independent,
non-affiliated, third-party purchaser.
(3) Gas sold at the wellhead or gas that is
not delivered to a gas plant for processing shall be deemed to be in a
marketable condition only after the gas products meet the location, quality,
and pressure specifications for transmission into an interstate pipeline for
sale to an independent, non-affiliated, third-party purchaser.
(4) Natural gas liquids shall be deemed to be
in a marketable condition only after the natural gas liquid products have been
either:
(A) recovered at a processing plant
and separated and fractionated into discrete products (e.g., ethane, propane,
butane, and natural gasoline) and placed into a storage tank or other facility
for delivery to a purchaser, or
(B)
recovered at a processing plant and sold at the tailgate of the plant to an
independent, non-affiliated, third-party purchaser without further separation
and fractionation into discrete products, provided the royalties due and
payable thereon to the Land Office shall be based upon the gross proceeds
received for such product, including any credit or payments received by lessee
based on any further downstream processing.
(5) In the event the gas stream contains
commercial quantities of non-hydrocarbon gas, such non-hydrocarbon gas shall be
deemed to be in a marketable condition only after the non-hydrocarbon gas
products have been recovered, separated, treated, purified and otherwise placed
in a form and condition suitable for commercial sale, exchange, and
use.
(b)
Royalty. Lessee shall pay the Land Office a royalty consisting of
a fractional share (defined by the lease) of proceeds for any and all
substances, including, but not limited to oil, gas, recoverable natural gas
liquids, and non-hydrocarbon gas products; as follows:
(1)
Deductions.
(A) Royalties shall be computed free and
clear of all deductions for production costs, post-wellhead costs, marketing
costs, and other direct or indirect costs, including without limitation, all
costs, charges, expenditures, or fees incurred for gathering, compressing,
pressurizing, treating, dehydrating, separating, processing, fractionating,
storing, transporting, marketing, and other costs incurred to convert oil, gas,
recoverable natural gas liquids, and non-hydrocarbon gas into a marketable
condition.
(B) Any and all
reductions to the sales price received by lessee for any post-production
services provided by the purchaser or any other party prior to the oil, gas,
recoverable natural gas liquids, and non-hydrocarbon gas products being placed
into a marketable condition shall be added back to the sales price to determine
the gross proceeds for royalty payment purposes.
(2)
Royalty computation for oil.
(A) Non-affiliate sales: Royalties for oil
shall be computed on the greater of:
(i) the
price received by the lessee for oil sold or disposed of through an arm's
length transaction from an independent, non-affiliated, third-party purchaser
for the product in marketable condition, including all bonuses, premiums,
allowances or other consideration of any nature received by lessee;
(ii) the highest posted field price; or
(iii) the average published spot
price.
(B) Affiliate
Sales: Royalties for oil shall be computed on the index price for West Texas
Intermediate at Cushing, Oklahoma prevailing on the dates the oil is sold or
disposed of through any transaction other than by an arm's length transaction,
including any oil sold or transferred by lessee to itself or an affiliate of
lessee.
(C) Lack of Records:
Royalties for oil shall be computed on the index price for West Texas
Intermediate at Cushing, Oklahoma prevailing on the dates the oil is sold or
disposed of through any transaction in which the lessee cannot produce records
of an arm's length transaction, including, but not limited to monthly
production reports and third-party purchase statements.
(3)
Royalty computation for gas.
(A) Non-affiliate sales: Royalties for gas
shall be computed on the greater of:
(i) the
total value received by the lessee through an arm's length transaction from an
independent, non-affiliated, third-party purchaser for the product in
marketable condition, including all bonuses, premiums, allowances, alternate
performance payments, or other consideration of any nature received by lessee
for gas;
(ii) the highest price any
lessee enforces under a similar sales contract in the wellbore; or
(iii) the gross proceeds that would be
received if the gas had sold at the average published spot price without
deduction for taxes, compression, treatment, dehydration, metering, gathering,
or other charges necessary or desirable for the delivery of gas into interstate
pipelines.
(B) Affiliate
sales: Royalties for gas shall be computed on the highest price paid in the
State of Oklahoma by any purchaser for like kind and quality gas for any gas
that is sold or disposed of other than by an arm's length transaction,
including, any gas sold or transferred by lessee to itself or an affiliate of
lessee.
(C) Lack of Records:
Royalties for gas shall be computed on the highest price paid in the State of
Oklahoma by any purchaser for like kind and quality gas for any gas that is
sold or disposed of and the lessee cannot produce records of the arm's length
transaction, including, any gas sold or transferred by lessee to itself or an
affiliate of lessee.
(4)
Royalty computation for natural gas liquids and non-hydrocarbon
gas.
(A) Non-affiliate sales:
Royalties for natural gas liquids or non-hydrocarbon gas shall be computed on
the price received by the lessee through an arm's length transaction from an
independent, non-affiliated, third-party purchaser for the product in
marketable condition, including all bonuses, premiums, allowances or other
consideration of any nature received by lessee for natural gas liquids or
non-hydrocarbon gas.
(B) Affiliate
sales: Royalties for natural gas liquids or non-hydrocarbon gas shall be
computed on the highest market price, including any premium associated
therewith, then prevailing on the dates the natural gas liquids or
non-hydrocarbon gas are sold or disposed of, in the same processing plant for
production of similar chemistry and quality (or if there is no such price then
prevailing in the same processing plant, then in the nearest processing plant
in which there is such a prevailing price) for any natural gas liquids or
non-hydrocarbon gas sold or disposed of other than by an arm's length
transaction, including any natural gas liquids or non-hydrocarbon gas sold or
transferred by lessee to itself or an affiliate of lessee.
(C) Lack of records: Royalties for natural
gas liquids or non-hydrocarbon gas shall be computed on the highest market
price, including any premium associated therewith, then prevailing on the dates
the natural gas liquids or non-hydrocarbon gas are sold or disposed of, in the
same processing plant for production of similar chemistry and quality (or if
there is no such price then prevailing in the same processing plant, then in
the nearest processing plant in which there is such a prevailing price) for any
natural gas liquids or non-hydrocarbon gas sold or disposed of and the lessee
cannot produce records of the arm's length transaction, including, but not
limited to monthly production reports and third-party purchase
statements.
(c)
Percentage of proceeds sales. When any processing plant, gas
purchaser, or other party retains a percentage of the sales proceeds, or a
volumetric share of oil, gas, recoverable natural gas liquids, and
non-hydrocarbon gas as compensation for services and returns a percentage of
the sales proceeds to the lessee, the lessee shall pay royalties on the sales
proceeds returned to lessee and shall also pay royalties on the full value of
the sales proceeds or volumetric share retained by the processing plant, gas
purchaser, or other party. The royalty due to Land Office shall be based upon
one hundred percent (100%) of gas at the total value received for delivery into
interstate pipelines.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.