(a) Transportation allowances permitted when value is based on gross proceeds. ONRR will allow a deduction for the reasonable, actual costs to transport oil from the lease to the point off the lease under §1206.110 or §1206.111, as applicable. This paragraph applies when:

(1) You value oil under §1206.102 based on gross proceeds from a sale at a point off the lease, unit, or communitized area where the oil is produced, and

(2) The movement to the sales point is not gathering.

(b) Transportation allowances and other adjustments that apply when value is based on NYMEX prices or ANS spot prices. If you value oil using NYMEX prices or ANS spot prices under §1206.103, ONRR will allow an adjustment for certain location and quality differentials and certain costs associated with transporting oil as provided under §1206.112.

(c) Limits on transportation allowances.

(1) Except as provided in paragraph (c)(2) of this section, your transportation allowance may not exceed 50 percent of the value of the oil as determined under §1206.102 or §1206.103 of this subpart. You may not use transportation costs incurred to move a particular volume of production to reduce royalties owed on production for which those costs were not incurred.

(2) You may ask ONRR to approve a transportation allowance in excess of the limitation in paragraph (c)(1) of this section. You must demonstrate that the transportation costs incurred were reasonable, actual, and necessary. Your application for exception (using form ONRR-4393, Request to Exceed Regulatory Allowance Limitation) must contain all relevant and supporting documentation necessary for ONRR to make a determination. You may never reduce the royalty value of any production to zero.

(d) Allocation of transportation costs. You must allocate transportation costs among all products produced and transported as provided in §§1206.110 and 1206.111. You must express transportation allowances for oil as dollars per barrel.

(e) Liability for additional payments. If ONRR determines that you took an excessive transportation allowance, then you must pay any additional royalties due, plus interest under §1218.54 of this chapter. You also could be entitled to a credit with interest under applicable rules if you understated your transportation allowance. If you take a deduction for transportation on form ONRR-2014 by improperly netting the allowance against the sales value of the oil instead of reporting the allowance as a separate entry, ONRR may assess you an amount under §1206.116.