---
kind: "section"
citation: "30 C.F.R. § 1206.101"
title: "30"
number: "1206.101"
heading: "How do I calculate royalty value for oil I or my affiliate sell(s) under an arm's-length contract?"
url: "https://uscodex.org/cfr/30/1206.101"
---

# §1206.101. How do I calculate royalty value for oil I or my affiliate sell(s) under an arm's-length contract?

- (a) The value of oil under this section for royalty purposes is the gross proceeds accruing to you or your affiliate under the arm's-length contract less applicable allowances determined under [§ 1206.111](/cfr/30/1206.111.md) or [§ 1206.112](/cfr/30/1206.112.md). This value does not apply if you exercise an option to use a different value provided in paragraph [(c)(1)](#c-1) or [(c)(2)(i)](#c-2-i) of this section or if ONRR decides to value your oil under [§ 1206.105](/cfr/30/1206.105.md). You must use this [paragraph (a)](#a) to value oil when:
  - (1) You sell under an arm's-length sales contract; OR
  - (2) You sell or transfer to your affiliate or another person under a non-arm's-length contract and that affiliate or person, or another affiliate of either of them, then sells the oil under an arm's-length contract, unless you exercise the option provided in [paragraph (c)(2)(i)](#c-2-i) of this section.
- (b) If you have multiple arm's-length contracts to sell oil produced from a lease that is valued under [paragraph (a)](#a) of this section, the value of the oil is the volume-weighted average of the values established under this section for each contract for the sale of oil produced from that lease.
- (c)
  - (1) If you enter into an arm's-length exchange agreement, or multiple sequential arm's-length exchange agreements, and following the exchange(s) that you or your affiliate sell(s) the oil received in the exchange(s) under an arm's-length contract, then you may use either [paragraph (a)](#a) of this section or [§ 1206.102](/cfr/30/1206.102.md) to value your production for royalty purposes. If you fail to make the election required under this paragraph, you may not make a retroactive election, and ONRR may decide your value under [§ 1206.105](/cfr/30/1206.105.md).
    - (i) If you use [paragraph (a)](#a) of this section, your gross proceeds are the gross proceeds under your or your affiliate's arm's-length sales contract after the exchange(s) occur(s). You must adjust your gross proceeds for any location or quality differential, or other adjustments, that you received or paid under the arm's-length exchange agreement(s). If ONRR determines that any arm's-length exchange agreement does not reflect reasonable location or quality differentials, ONRR may decide your value under [§ 1206.105](/cfr/30/1206.105.md). You may not otherwise use the price or differential specified in an arm's-length exchange agreement to value your production.
    - (ii) When you elect under [paragraph (c)(1)](#c-1) of this section to use [paragraph (a)](#a) of this section or [§ 1206.102](/cfr/30/1206.102.md), you must make the same election for all of your production from the same unit, communitization agreement, or lease (if the lease is not part of a unit or communitization agreement) sold under arm's-length contracts following arm's-length exchange agreements. You may not change your election more often than once every two years.
  - (2)
    - (i) If you sell or transfer your oil production to your affiliate, and that affiliate or another affiliate then sells the oil under an arm's-length contract, you may use either [paragraph (a)](#a) of this section or [§ 1206.102](/cfr/30/1206.102.md) to value your production for royalty purposes.
    - (ii) When you elect under [paragraph (c)(2)(i)](#c-2-i) of this section to use [paragraph (a)](#a) of this section or [§ 1206.102](/cfr/30/1206.102.md), you must make the same election for all of your production from the same unit, communitization agreement, or lease (if the lease is not part of a unit or communitization agreement) that your affiliates resell at arm's-length. You may not change your election more often than once every two years.

## Notes

### Source

Source: 85 FR 62023, Oct. 1, 2020, unless otherwise noted.

### Authority

Authority: 5 U.S.C. 301 et seq., 25 U.S.C. 396, 396a et seq., 398, 398a et seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et seq., 1701 et seq.; 43 U.S.C. 1301 et seq., 1331 et seq., and 1801 et seq.

### Source

Source: 48 FR 35641, Aug. 5, 1983, unless otherwise noted. Redesignated at 75 FR 61069, Oct. 4, 2010.