Indian Example: Processed Gas Reporting (Non-Dedicated Contract) in an Index Zone Using Actual Dual Accounting

Detailed Example

The following is based on a sample statement. Statements may vary. Be sure to read carefully and contact royaltyvaluation@onrr.gov if you need further assistance!

The assumptions below are for purposes of this example only. The assumptions provide the basis to show you how to perform the necessary calculations. Your situation may vary from these assumptions. Please contact royaltyvaluation@onrr.gov with specific questions.

Assumptions for this example:

The gas is produced from an Indian lease in the Central Rocky Mountains Index Zone.
The gas is valued as processed gas.
The gas is transported, processed, and sold under arm’s-length contracts.
The processor retains 15% of the residue gas and NGLs.
No condensate is recovered along the pipeline or in the gas plant. You should check your statement or transportation invoice for condensate. If you have questions on how to value or report condensate, please contact royaltyvaluation@onrr.gov.
The royalty rate is 18%.
The prices per gallon of NGL components shown on the example gas plant statement (“price at the plant”) are the component prices downstream of the gas plant less the processor’s transportation and fractionation (T&F) fees. The processor deducted a post-plant NGL transportation fee of $0.05/gallon and an NGL fractionation fee of $0.07/gallon from the downstream price. Here, we provided the T&F fee; you may need to check your contract or other sources for the amount. The transportation portion of the T&F fee for this example is NOT a “transportation factor” under the regulations at 30 CFR §1206.178(a)(5).
Note: This situation falls under "Scenario 2" in the Processed Gas Reporting: Minimum Value Provision for NGLs example. Please see that example for additional information on calculating the regulatory minimum NGL value.
The lease instrument for this example does not allow deductions for transportation or processing costs. Therefore, no allowances will be calculated or taken.
The NGL minimum value provision for production in Utah under §1206.174(g)(2)(i)(B) uses the following Conway, Kansas published prices (table of prices located after this list).
The production month is January 2019 (as shown on the example statement).
The index zone price is the January 2019 price for Central Rocky Mountains found on ONRR.gov.

Component	Purity Ethane (C2)	Propane (C3)	Isobutane (iC4)	Normal Butane (nC4)	Natural Gasoline (C5+)
$/gallon	0.24890	0.85283	1.43603	1.34133	2.17513

Determining Dual Accounting

Many Indian leases require accounting for comparison, or “dual accounting.” The following is one example of dual accounting language:

“… and that royalty will be computed on the value of gas or casinghead gas, or on the products thereof (such as residue gas, natural gasoline, propane, butane, etc.), whichever is the greater.”

Dual accounting may not be the only requirement of your lease. Your reporting may also be subject to other requirements. Please read the complete text of your lease to be sure you meet all the provisions in it.

There are two choices for dual accounting—actual and alternative. You make this election using the Form ONRR-4410 Part B.

Assume, for this example, that the lessee chose actual dual accounting. If you need guidance on alternative dual accounting, proceed to the Processed Gas Reporting (Non-Dedicated Contract) in an Index Zone Using Alternative Dual Accounting example.

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PC 03 - Residue Gas

Royalty is due on residue gas resulting from processing, including disallowed plant fuel.

Step 1:

In order to determine the plant fuel volume in Mcf, you need to calculate a residue Btu factor:

The Btu factor is the heating value per volume of the residue gas, calculated by dividing the net residue gas MMBtu (1,922.39 MMBtu) (H) by the volume of the net residue gas Mcf (1,697.81 Mcf) (G)
The Btu factor is 1.13228 MMBtu/Mcf

Mathematical representation of Step 1. To determine the PC 03 Btu Factor, divide the net residue gas MMBtu by the net residue gas Mcf. For example, divide 1,922.39 MMBtu by 1,697.81 Mcf for a PC 03 Btu factor of 1.13228 MMBtu/Mcf

Step 2:

Calculate the plant fuel volume (Mcf):

Identify the total plant fuel reported on the plant statement
- In this example, the plant fuel is called "Contractual Allocated Fuel" and is 326.40 MMBtu (F)
Determine the total plant fuel volume (Mcf)
- Divide the contractual allocated fuel (326.40 MMBtu (F) by the Btu factor (1.13228 MMBtu/Mcf)
The total plant fuel volume is 288.27 Mcf

Mathematical representation of Step 2. To determine the PC 03 Plant Fuel Volume (Step 2), divide the contractual allocated fuel MMBtu by Btu factor. For example, divide 326.40 MMBtu by 1.13228 MMBtu/Mcf for a PC 03 Plant Fuel Volume value of 288.27.

Step 3:

Calculate the total residue gas sales volume:

Add the volume of the residue gas sales (1,697.81 Mcf) (G) to the plant fuel volume from Step 2 (288.27 Mcf)
The total residue gas sales volume is 1,986.08 Mcf

Mathematical representation of Step 3. To determine the PC 03 Residue Gas Sales Volume (Step 3), add residue Mcf to disallowed plant fuel Mcf. For example, add 1,697.81 Mcf to 288.27 Mcf, for a PC 03 Mcf of 1,986.08 Mcf.

Step 4:

Calculate the total residue gas sales MMBtu:

Add the energy content of the residue gas sales (1,922.39 MMBtu) (H) to the energy content of the plant fuel, here the “Contractual Allocated Fuel” (326.40 MMBtu) (F)
The total residue gas sales energy content is 2,248.79 MMBtu

Mathematical equation for Step 4. PC03 residue gas sales MMBtu (Step 4) is calculated by adding residue MMBtu to plant fuel MMBtu. For example 1,922.39 MMBtu plus 326.40 MMBtu is 2,248.79 MMBtu.

Step 5:

Locate the index-zone price on the Indian Gas Index Prices web page. In this example, assume the lease is in the Central Rocky Mountains index zone.

The production month is January 2019
The index-zone price is $3.98/MMBtu

Mathematical representation of Step 5. To determine the Index-Zone Price (Step 5), identify the price. In this case, the price is $3.98 per MMBtu.

Step 6:

Calculate the residue gas sales value using the index-zone value:

Multiply the residue gas sales MMBtu determined under Step 4 (2,248.79 MMBtu) by the index-zone price ($3.98/MMBtu)
The residue gas index-zone value is $8,950.18

Mathematical representation of Step 6. To determine the PC 03 Residue Gas Index Value (Step 6), multiply residue sales MMBtu by index price. For example, multiply 2,248.79 by $3.98/MMBtu, for $8,950.18.

Step 7:

Determine the Royalty Value (RVPA/RVLA):

Multiply the sales value from Step 6 ($8,950.18) by the royalty rate (18%).
The RVPA is $1,611.03.
When you value a gas product using the index-zone price, you may not take a transportation allowance, because the calculated price is adjusted for this cost (§1206.172(d)(8)).
With no allowance, the RVLA equals the RVPA.
The RVLA for PC 03 is $1,611.03

Mathematical representation of Step 7. To determine the PC 03 Index RVPA/RVLA (Step 7), multiply the index value by the royalty rate. For example, $8,950.18 by 0.18 is $1,611.03.

Here is what the processed value of PC 03 looks like so far:

PC	Sales Volume	Gas MMBtu	Sales Value	RVPA	Trans Allow	Proc Allow	RVLA
03	1,986.08	2,248.79	$8,950.18	$1,611.03			$1,611.03

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PC 07 – Natural Gas Liquids (NGLs)

Royalty is due on any NGLs resulting from processing. In order to comply with the minimum NGL value provision (explained in greater detail in the Minimum NGL Value Example), you should:

calculate the regulatory minimum price (the published NGL price less the regulatory adjustment)
determine the price at the plant
compare the prices for each NGL component

If the regulatory minimum price is higher, you use that in calculating the sales value for that component. If the price at the plant is higher, you use the downstream sales price (post-fractionation) to calculate the sales value for that component. Because the price at the plant is net of T&F fees, you must add those fees back in to calculate the downstream sales price. As those fees cannot be netted against the sales value, they should instead be taken as allowances where appropriate. For a more in-depth explanation of why the NGL minimum value is calculated this way, please see our full Processed Gas Reporting: Minimum Value Provision for NGLs example (refer to Scenario 2 for details pertaining to this example).