The Office of Natural Resources Revenue (ONRR) established new federal oil and gas reporting rules under the 2016 Valuation Rule. The 2016 Valuation Rule applies to the production and sales of federal oil and gas occurring on and after January 1, 2017.
Lessees are responsible for submitting amended reports and additional payments, if applicable, under the 2016 Valuation Rule. The deadline to comply was extended several times, but has now lapsed.
Creel & Associates Inc. can help! We have helped a number of offshore and onshore producers navigate these rules. Please contact us if you think you may be out of compliance.
An ONRR Dear Reporter Letter explaining the high-level changes to the regulations for oil and gas lessees is available at https://www.onrr.gov/about/PDFDocs/20160913.pdf.
Some of the areas covered are listed below (this is not a complete list):
- Exceptions to Allowance Limitations – you may no longer exceed the 50-percent transportation and 66 2/3 – percent processing allowance limits for Federal oil and gas for production after January 1, 2017.
- The definition of Deep Water Gathering and when it can be taken as a transportation deduction.
- Rate of return for calculating non-arm’s length Federal oil transportation allowances – as of January 1, 2017, the rate of return is 1.0 times the Standard Poor’s BBB bond rate.
- For Federal Oil and Gas Valuation, you may no longer include the value of pipeline losses in your non-arm’s length transportation allowance.
- New procedures for non-arm’s length gas valuation are included.
- Changes to processed and unprocessed gas valuation including percentage-of-proceeds (POP) contracts.
- Removal of the provision that allows gas lessees to calculate their transportation allowance using a FERC or state tariff in lieu of using actual non-arm’s length transportation costs.
- Changes in the utilization of certain ONRR-2014 product codes for gas sales value based on processed products and for percentage-of-proceeds contracts.
- Transportation costs must be reported separately on the Form ONRR-2014 – they cannot be netted.
Disclaimer: The purpose of this article is to make you aware of certain ONRR changes at a high level. Laws are subject to change and ONRR interpretation. This listing above is a high level summary and cannot be relied upon for reporting guidance. Please see official ONRR correspondence for official guidance.