221.25 Gaging and storing oil. All production run from leased lands shall be gaged or measured according to methods approved by the supervisor or his representative. The lessee shall provide tanks suitable for containing and measuring accurately all crude oil produced from the wells and shall furnish to the supervisor or his representative at least two acceptable copies of all tank tables. Meters for measuring oil must be first approved by the supervisor, and tests of their accuracy shall be made when directed by that official. The lessee shall not, except during an emergency and except by special permission of the supervisor or his representative, confirmed in writing, permit oil to be stored or retained in earthen reservoirs or in any other receptacle in which there may be undue waste of oil.** [Sec. 2 (p)]

221.26 Well abandonment. The lessee shall promptly plug and abandon or condition as a water well any well on the leased land that is not used or useful for the purposes of the lease, but no productive well shall be abandoned until its lack of capacity for further profitable production of oil or gas has been demonstrated to the satisfaction of the supervisor. Before abandoning a well the lessee shall submit to the supervisor or his representative a statement of reasons for abandonment and his detailed plans for carrying on the necessary work, together with duplicate copies of the log, if it has not already been submitted. A well may be abandoned only after receipt of written approval by the supervisor or his representative, in which the manner and method of abandonment shall be approved or prescribed.** [Sec. 2 (q)]

221.27 Waste prevention and penalties. The lessee shall prevent the waste or wasteful utilization of gas and shall pay the lessor the full value of all gas wasted by blowing, release, escape, or otherwise, at a price not less than 5 cents for each 1,000 cubic feet, unless such waste of gas under the particular circumstances involved shall be determined by the Secretary of the Interior to be sanctioned by laws of the United States and of the State in which it occurs. The production of oil and gas shall be restricted to such amount as can be put to beneficial use with adequate realization of values, and in order to avoid excessive production of either oil or gas, when required by the Secretary of the department having jurisdiction over the leasehold, shall be limited by the market demand for gas or by the market demand for oil.*t [Sec. 2 (r)]

221.28 Accidents and fires. The lessee shall take all reasonable precautions to prevent accidents and fires, shall notify the supervisor or his representative within 24 hours of all accidents or fires on the leased land, and shall submit a full report thereon within 15 days.** [Sec. 2 (s)]

221.29 Sales contracts; division orders. The lessee shall file with the supervisor or his representative triplicate (quadruplicate for production of naval petroleum reserves) signed copies of all contracts for the disposition of all products of the leased land except that portion used for purposes of production on the leased land or unavoidably lost, and he shall not sell or otherwise dispose of said

**For statutory and source citations, see note to § 221.1.

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products except in accordance with a sales contract, division order, or other arrangement first approved.*t [Sec. 2 (t)]

221.30 Relief from operating and royalty requirements. The lessee desiring relief from any operating or royalty requirement under a lease shall file, in triplicate (quintuplicate for applications on naval petroleum reserve leases), with the supervisor or his representative an application therefor, including therein a full statement of the circumstances that render relief necessary or proper.*+ [Sec. 2 (u)]

221.31 Royalty and rental payments in value. The lessee shall tender all payment of rental and royalty (unless the lessor elects to take royalty in kind) by check or draft on a solvent bank, open for the transaction of business on the day the check or draft is issued, or by money order drawn to the order of the appropriate receiving officer. Payments shall be transmitted through the oil and gas supervisor, shall be accompanied by a statement by the lessee, in duplicate, showing the specific items of rental or royalty that the remittance is intended to cover, and shall be made at such time or times as the lease provides.*+ [Sec. 2 (v)]

221.32 Royalty payments in kind. If the lessor elects to take royalty on production in kind, such royalty in kind shall be delivered on the leasehold by the lessee to the order of and without cost to the lessor. Upon the lessor's request, storage, free of charge for 30 days after the end of the calendar month in which the royalty accrues, shall be furnished for royalty oil taken in kind. Storage shall be provided on the leased lands or at a place mutually agreed upon by the supervisor or his representative and the lessee.* [Sec. 2 (v)]

221.33 Timber and surface on Indian lands. Lessees of Indian land shall not use any timber from the land except under written agreement with the owner, such agreement to be subject to the prior approval of the superintendent of the Indian agency having jurisdiction. On demand of the supervisor, pipe lines on Indian land shall be buried below plow depth.*t [Sec. 2 (w)]

CROSS REFERENCES: For regulations of the Office of Indian Affairs relating to oil and gas pipe lines, see 25 CFR 256.26-256.38. For regulation requiring that pipe lines shall be buried a sufficient depth beneath the surface as not to interfere with cultivation, see 25 CFR 256.31.

MEASUREMENT OF PRODUCTION AND COMPUTATION OF ROYALTIES

221.34 Measurement of oil. The volume of production shall be computed in terms of barrels of clean oil of 42 standard United States gallons of 231 cubic inches each, on the basis of meter measurements (meter must be approved by supervisor) or tank measurements of oil-level difference, made and recorded to the nearest quarter inch of 100 percent capacity tables, and of the following corrections: (a) Correction for impurities. The percentage of impurities (water, sand, and other foreign substances not constituting a natural component part of the oil) shall be determined to the satisfaction of the supervisor, and the observed volume of oil shall be corrected to exclude the entire volume of such impurities.

(b) Temperature correction. The observed volume of oil shall be corrected to the actual volume at 60° F. in accordance with table 2

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**For statutory and source citations, see note to § 221.1.

of Circular 1541 of the National Bureau of Standards (May 29, 1924) or any revisions thereof and any supplements thereto, provided that the supervisor in his discretion may authorize computation of correction for temperature in terms of 1 percent for a specified number of degrees if closely approximating the computation in accordance with Circular 1541 of the Bureau of Standards or its supplements.

(c) Gravity determination. The gravity of the oil shall be determined in accordance with table 3 of Circular 1541 of the National Bureau of Standards (May 29, 1924) or any revisions thereof and any supplements thereto.

(d) Lease production; pipe-line runs. For the convenience of the lessor and lessee, monthly statements of production and royalty shall be based in general on production recorded in pipe-line runs or other shipments. When shipments are infrequent or do not approximate actual production, the supervisor may require statements of production and royalty to be made on such other basis as he may prescribe, gains or losses in volume of storage being taken into account when appropriate. Evidence of all shipments of oil shall be furnished by pipe-line or other run tickets signed by representatives of the lessee and of the purchaser who have witnessed the measurements reported and the determinations of gravity, temperature, and the percentage of impurities contained in the oil. Run tickets shall be filed with the supervisor or his representative within 5 days after the oil has been run.* [Sec. 3 (a)]

221.35 Measurement of gas. Gas of all kinds (except gas used for purposes of production on the leasehold or unavoidably lost) is subject to royalty, and all gas shall be measured by meter (preferably of the orifice-meter type) unless otherwise agreed to by the supervisor.

(a) Term "gas" defined. The term "gas", as used in the regulations in this part, shall be interpreted to mean any gas released by or produced from a well.

(b) Meters; standards of computation. All meters must be approved by the supervisor or his representative and installed at the expense of the lessee at such places as may be agreed to by the supervisor or his representative. For computing the volume of all gas produced, sold, or subject to royalty, the standard of pressure shall be 10 ounces above an atmospheric pressure of 14.4 pounds to the square inch, regardless of the atmospheric pressure at the point of measurement, and the standard of temperature shall be 60° F. All measurements of gas shall be adjusted by computation to these standards, regardless of the pressure and temperature at which the gas was actually measured, unless otherwise authorized in writing by the supervisor. In fields at high altitudes the absolute pressure of the flowing gas may be taken as the gage pressure plus the actual average atmospheric pressure existing at the points of measurement, in order to reduce equitably the quantity of gas to the Government standard

1Circular 154 has been superseded by Circular of the National Bureau of Standards C410, National Standard Petroleum Oil Tables, March 4, 1936. The latter may be obtained from the Superintendent of Documents, Government Printing Office, Washington, D. C.

**For statutory and source citations, see note to § 221.1.

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[345]

of 10 ounces above an atmospheric pressure of 14.4 pounds to the square inch.** [Sec. 3 (b)]

221.36 Determination of gasoline content of natural gas. Tests to determine the gasoline content of gas delivered to plants manufacturing gasoline are required to check plant efficiency and to obtain an equitable basis for allocating the gasoline output of any plant to the several sources from which the gas treated is derived. The gasoline content of the gas delivered to each gasoline plant treating gas from leased lands shall be determined periodically by field tests as required by the supervisor, to be made at the place and by methods approved by him and under his supervision.*+ [Sec. 3 (c)]

221.37 Quantity basis for computing natural gasoline royalty. The primary quantity basis for computing monthly royalties on casing-head or natural gasoline is the monthly net output of the plant at which the gasoline is manufactured, "net output" being defined as the quantity of natural gasoline that the plant produces for sale.

(a) Gas obtained from one leasehold. If the net output of a plant is derived from the gas obtained from only one leasehold, the quantity of gasoline on which computations of royalty for the lease are based is the net output of the plant.

(b) Gas of uniform gasoline content obtained from several leaseholds. If the net output of a plant is derived from gas obtained from several leaseholds producing gas of uniform gasoline content, the proportion of net output allocable to each lease as a basis for computing royalty will be determined by dividing the amount of gas delivered to the plant from each leasehold by the total amount of gas delivered to the plant from all leaseholds.

(c) Gas of diverse gasoline content obtained from several leaseholds. If the net output of a plant is derived from gas obtained from several leaseholds producing gas of diverse gasoline content, the proportion of net output allocable to each leasehold as a basis for computing royalty will be determined by multiplying the amount of gas delivered to the plant from the leasehold by the gasoline content of the gas and dividing the arithmetical product thus obtained by the sum of the arithmetical products similarly obtained for all separate leaseholds.

(d) Where method prescribed in paragraph (c) is impracticable. The supervisor is authorized, whenever in his judgment the method prescribed in paragraph (c) is impracticable, to estimate the production of natural gasoline from any leasehold from (1) the quantity of gas produced from the leasehold and transmitted to the gasoline-extraction plant, (2) the gasoline content of such gas as determined by test, and (3) a factor based on plant efficiency and so determined as to insure full protection of the royalty interest of the lessor. [Sec. 3 (d)]

221.38 Price basis for computing royalties. The value of production, for the purpose of computing royalty, in the discretion of the Secretary of the department having jurisdiction over the leasehold, may be calculated on the basis of the highest price per barrel, thousand cubic feet, or gallon, paid or offered (whether such price is established on the bases prescribed in the regulations in this part

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**For statutory and source citations, see note to § 221.1.

or otherwise) at the time of production in a fair and open market for the major portion of like-quality oil, gas, natural or casing-head gasoline, propane, butane, and all other hydrocarbon substances produced and sold from the field where the leased lands are situated; but under no conditions shall the value of any of said substances for the purpose of computing royalty be deemed to be less than the gross proceeds accruing to the lessee from the sale thereof or less than such reasonable minimum price as shall be determined by said Secretary.* [Sec. 3 (e)]

221.39 Royalty rates on oil; flat-rate leases. The royalty on crude oil shall be the percentage (established by the terms of the lease) of the value or amount of the crude oil produced from the leased lands.** [Sec. 3 (f) (1)]

221.40 Royalty rates on oil; sliding- and step-scale rates (public lands only). The sliding- and step-scale royalties for some Government leases are based on the average daily production per well. Such leases provide that only wells which yield a commercial volume of production during at least part of the month shall be considered in ascertaining the average production per well per day and that the Secretary of the Interior shall determine what are commercially productive wells. Ordinarily the average daily production per well for a lease is computed on the basis of a 28-, 29-, 30-, or 31-day month (as the case may be) and the number of wells on the leasehold counted as producing. (Tables for computing royalty on the sliding-scale basis may be obtained upon application to the supervisor or his representative.) The supervisor will determine which commercially productive wells shall be considered each month as producing wells for the purpose of computing royalty in accordance with the following rules in this section:

(a) Previously producing leasehold. For a previously producing leasehold, count as producing for every day of the month each previously producing well that produced 15 days or more during the month, and disregard wells that produced less than 15 days during the month. Wells approved by the supervisor as input wells shall be counted as producing wells for the entire month if used 15 days or more during the month and shall be disregarded if used less than 15 days during the month.

(b) Initial production on leasehold during calendar month. When the initial production of a leasehold is made during the calendar month, compute royalty on the basis of producing well-days.

(c) New wells on previously producing leasehold. When a new well or wells are brought in on a previously producing leasehold and produce for 10 days or more during the calendar month in which they are brought in, count such new well or wells as producing every day of the month, in arriving at the number of producing well-days. Do not count new well or wells that produce for less than 10 days during the calendar month.

(d) "Head wells." Consider "head wells" that make their best production by intermittent pumping or flowing as producing every day of the month, provided they are regularly operated in this

manner.

**For statutory and source citations, see note to § 221.1.

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