Section 85-06-01-08 - RoyaltiesIf a sale of gas, carbon black, sulfur, or any other products produced or manufactured from gas produced and marketed from the oil and gas leased premises, including liquid hydrocarbons recovered from such gas processed in a plant, does not constitute an arm's length transaction, the royalties due the lessor are as follows:
1. On any gas produced and marketed, except as provided herein with respect to gas processed in a plant for the extraction of gasoline, liquid hydrocarbons, or other products; the royalty, as determined by the board, is based on the gross production or the market value thereof, at the option of the lessor, such value to be based on the highest market price paid for gas of comparable quality and quantity under comparable conditions of sale for the area where produced and when run, or the gross proceeds of sale, whichever is greater; provided the maximum pressure base in measuring the gas under an oil and gas lease at any time may not exceed fourteen and seventy-three hundredths (14.73) pounds per square inch absolute, and the standard base temperature shall be sixty degrees Fahrenheit, correction to be made for pressure according to Boyle's Law, and for specific gravity according to a test made by the balance method or by the most approved method of testing being used by the industry at the time of testing.2. On any gas processed in a gasoline plant or other plant for the recovery of gasoline or other liquid hydrocarbons, the royalty, as determined by the board, is based on the residue gas and the liquid hydrocarbons extracted or the market value thereof, at the option of the lessor. All royalties due herein is based on eighty percent or that percent accruing to the lessee, whichever is greater, of the total plant production of residue gas attributable to gas produced from the oil and gas leased premises, and on forty percent or that percent accruing to the lessee, whichever is greater, of the total plant production of liquid hydrocarbons attributable to the gas produced from the oil and gas leased premises; provided that if a third party or parties are processing gas through the same plant pursuant to arm's length transaction and one such transaction accounts for an annual average of ten percent or more, or all such transactions collectively account for an annual average of thirty percent or more of the gas being processed in such plant, the royalty is based on the gross proceeds of sale that would accrue to the lessee if the gas were processed under the terms of the most remunerative third-party transaction for processing gas in such plant. Respective royalties on residue gas and on liquid hydrocarbons for which the requirements for using third-party transactions cannot be met must be determined by the greater of: a. The highest market price paid for any gas or liquid hydrocarbons of comparable quality and quantity under comparable conditions of sale in the general area F.O.B. at the plant after processing;b. The gross proceeds of sale for such residue gas or the weighted average gross proceeds of sale for the respective grades of liquid hydrocarbons, F.O.B. at the plant after processing; orc. The gross proceeds of sale paid to a third party processing gas through the plant. The lessee shall furnish copies of any and all third-party gas processing agreements pertaining to the plant upon lessor's request.3. On carbon black, sulfur, or any other products produced or manufactured from gas, excepting liquid hydrocarbons, whether said gas be "casinghead", "dry", or any other gas, by fractionating, burning, or any other processing, is based on the gross production of such productions, or the market value thereof, at the option of the lessor. Such market value is to be the greater of:a. The highest market price paid for each of the products of comparable quality and quantity under comparable conditions of sale in the general area during the same month in which such products are produced; orb. The average gross proceeds of sale for each of the products for the same month in which such productions are produced, provided that if a third-party transaction is used to determine royalty in accordance with subsection 2, the royalty due under this subsection shall be determined in accordance with such transaction.4. The lessee agrees all royalties accruing to the lessor under this rule are without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, vapor recovery, compressing, processing, transporting, conditioning, removing impurities, depreciation, risk capital, and otherwise making the oil, gas, and other products produced hereunder ready for sale or use.N.D. Admin Code 85-06-01-08
Adopted by Administrative Rules Supplement 375, January 2020, effective 1/1/2020.Amended by Administrative Rules Supplement 2024-392, April 2024, effective 4/1/2024.General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: N.D. Constitution article IX, § 5; NDCC 15-01-02, 15-02-05, 15-05-09, 15-05-10