(a)   (1) When you value any gas plant product under §1206.142(c), you may deduct from the value the reasonable, actual costs of processing.   (2) You do not need ONRR's approval before reporting a processing allowance.

(b) You must allocate processing costs among the gas plant products. You must determine a separate processing allowance for each gas plant product and processing plant relationship. ONRR considers NGLs to be one product.

(c)   (1) You may not apply the processing allowance against the value of the residue gas, except as provided in paragraph (c)(5) of this section.   (2) The processing allowance deduction on the basis of an individual product may not exceed 662⁄3 percent of the value of each gas plant product determined under §1206.142(c). Before you calculate the 662⁄3-percent limit, you must first reduce the value for any transportation allowances related to post-processing transportation authorized under §1206.152.   (3) If ONRR approved your request to take a processing allowance in excess of the limitation in paragraph (c)(2) of this section under former §1206.158(c)(3), that approval is terminated as of January 1, 2017.   (4) If ONRR approved your request to take an extraordinary cost processing allowance under former §1206.158(d), ONRR terminates that approval as of January 1, 2017.   (5) If you incur extraordinary costs for processing gas, you may apply to ONRR for an allowance for those costs which must be in addition to any other processing allowance to which the lessee is entitled pursuant to this section. You must demonstrate that the costs are, by reference to standard industry conditions and practice, extraordinary, unusual, or unconventional. You are not required to receive ONRR approval to continue an extraordinary processing allowance. However, you must report the deduction to ONRR in a form and manner prescribed by ONRR in order to retain the ability to deduct the allowance.

(d)   (1) ONRR will not allow a processing cost deduction for the costs of placing lease products in marketable condition, including dehydration, separation, compression, or storage, even if those functions are performed off the lease or at a processing plant.   (2) Where gas is processed for the removal of acid gases, commonly referred to as “sweetening,” ONRR will not allow processing cost deductions for such costs unless the acid gases removed are further processed into a gas plant product.   (i) In such event, you are eligible for a processing allowance determined under this subpart.   (ii) ONRR will not grant any processing allowance for processing lease production that is not royalty bearing.

(e) ONRR may direct you to modify your processing allowance if:   (1) There is misconduct by or between the contracting parties;   (2) ONRR determines that the consideration that you or your affiliate paid under an arm's-length processing contract does not reflect the reasonable cost of the processing because you breached your duty to market the gas, residue gas, or gas plant products for the mutual benefit of yourself and the lessor; or   (3) ONRR cannot determine if you properly calculated a processing allowance under §1206.160 or §1206.161 for any reason, including, but not limited to, your or your affiliate's failure to provide documents that ONRR requests under 30 CFR part 1212, subpart B.