(a)   (1) ONRR will allow a deduction for the reasonable, actual costs to transport oil from the lease to the point off of the lease under §1206.110, 1206.111, or 1206.112, as applicable. You may not deduct transportation costs that you incur to move a particular volume of production to reduce royalties that you owe on production for which you did not incur those costs. This paragraph applies when:   (i) You value oil under §1206.101 based on a sale at a point off of the lease, unit, or communitized area from which the oil is produced; or   (ii) You do not value your oil under §1206.102(a)(3) or (b)(3).   (2) You may not include any gathering costs in your transportation allowance under §1206.110, 1206.111, or 1206.112, as applicable, except those reasonable, actual gathering costs you incur for oil produced from a lease or unit on the OCS, any part of which lies in waters deeper than 200 meters, that meet all of the following criteria:   (ii) The gathering costs are for movement of oil beyond a central accumulation point. For purposes of paragraph (a)(2) of this section, a central accumulation point may be a single well, a subsea manifold, the last well in a group of wells connected in a series, or a platform extending above the surface of the water;   (iii) The gathering costs are for movement of oil to a facility that is not located on a lease or unit adjacent to the lease or unit on which the production originates. For purposes of paragraph (a)(2) of this section, an adjacent lease or unit is any lease or unit with at least one point of contact with the producing lease or unit. Typically, for a single OCS lease, there are 8 adjacent leases; and   (iv) The gathering costs are only those allocable to the royalty-bearing oil. Gathering costs properly allocable to non-royalty bearing substances, or any royalty-bearing substance other than oil, may not be included in your transportation allowance under this section.   (3) You do not need ONRR's approval before reporting a transportation allowance for costs incurred under an arm's-length transportation contract.

(b) Subject to the requirements of paragraph (c) of this section, you may include, but are not limited to, the following costs to determine your transportation allowance under paragraph (a) of this section; you may not use any cost as a deduction that duplicates all or part of any other cost that you use under this section including, but not limited to:   (1) The amount that you pay under your arm's-length transportation contract or tariff.   (2) Fees paid (either in volume or in value) for actual or theoretical line losses.   (3) Fees paid for administration of a quality bank.   (4) Fees paid to a terminal operator for loading and unloading of crude oil into or from a vessel, vehicle, pipeline, or other conveyance.   (5) Fees paid for short-term storage (30 days or less) incidental to transportation as a transporter requires.   (6) Fees paid to pump oil to another carrier's system or vehicles as required under a tariff.   (7) Transfer fees paid to a hub operator associated with physical movement of crude oil through the hub when you do not sell the oil at the hub. These fees do not include title transfer fees.   (8) Payments for a volumetric deduction to cover shrinkage when high-gravity petroleum (generally in excess of 51 degrees API) is mixed with lower gravity crude oil for transportation.   (9) Costs of securing a letter of credit, or other surety, that the pipeline requires you, as a shipper, to maintain.   (10) Hurricane surcharges that you or your affiliate actually pay(s).   (11) The cost of carrying on your books as inventory a volume of oil that the pipeline operator requires you, as a shipper, to maintain and that you do maintain in the line as line fill. You must calculate this cost as follows:   (i) First, multiply the volume that the pipeline requires you to maintain — and that you do maintain — in the pipeline by the value of that volume for the current month calculated under §1206.101 or §1206.102, as applicable.   (ii) Second, multiply the value calculated under paragraph (b)(11)(i) of this section by the monthly rate of return, calculated by dividing the rate of return specified in §1206.112(i)(3) by 12.

(c) You may not include the following costs to determine your transportation allowance under paragraph (a) of this section:   (1) Fees paid for long-term storage (more than 30 days)   (2) Administrative, handling, and accounting fees associated with terminalling   (3) Title and terminal transfer fees   (4) Fees paid to track and match receipts and deliveries at a market center or to avoid paying title transfer fees   (5) Fees paid to brokers   (6) Fees paid to a scheduling service provider   (7) Internal costs, including salaries and related costs, rent/space costs, office equipment costs, legal fees, and other costs to schedule, nominate, and account for sale or movement of production   (8) Gauging fees

(d) If you have no written contract for the arm's-length transportation of oil, then ONRR will determine your transportation allowance under §1206.105. You may not use this paragraph (d) if you or your affiliate perform(s) your own transportation.   (1) You must propose to ONRR a method to determine the allowance using the procedures in §1206.108(a).   (2) You may use that method to determine your allowance until ONRR issues its determination.

(e) If your arm's-length transportation contract includes both gaseous and liquid products, and the transportation costs attributable to each product cannot be determined from the contract, then you must propose an allocation procedure to ONRR.   (1) You may use your proposed procedure to calculate a transportation allowance until ONRR accepts or rejects your cost allocation. If ONRR rejects your cost allocation, you must amend your Form ONRR-2014 for the months that you used the rejected method and pay any additional royalty and interest due.   (2) You must submit your initial proposal, including all available data, within 3 months after first claiming the allocated deductions on Form ONRR-2014.

(f) ONRR may direct you to modify your transportation allowance if:   (2) ONRR determines that the consideration that you or your affiliate paid under an arm's-length transportation contract does not reflect the reasonable cost of the transportation because you breached your duty to market the oil for the mutual benefit of yourself and the lessor by transporting your oil at a cost that is unreasonably high; or