(a) No allowance shall be made for cost of dehydration unless specifically authorized in an existing lease, in which event the allowance shall be the actual cost of dehydration not to exceed 5 cents per net barrel of oil so dehydrated, or the allowance as specified in the lease, whichever is the lesser. Allowance for dehydration will be granted only after lessee has filed with the Division of State Lands an application in duplicate requesting the right to make deduction for dehydration, setting forth the method proposed to be employed and listing the equipment and value thereof installed exclusively for the dehydration of the oil produced from state oil and gas leases. After approval of the application, each operator shall file with the Division of State Lands before the tenth of the month subsequent to that for which dehydration deduction is requested, a detailed statement of the actual cost of dehydration proposed to be deducted from the gross royalty payable for the preceding month.

(b) Tank bottoms and sump oil shipments are to be reported on the following value basis:

Shipments of 0.0 percent to 3.0 percent cut--quoted market price for applicable dry gravity.

Shipments of 3.1 percent to 15.0 percent cut--quoted market price for applicable dry gravity less 5 cents per gross barrel at 60 degrees F.

Shipments of 15.1 percent cut and up--quoted market price for applicable dry gravity less 15 cents per gross barrel at 60 degrees F.

(c) All transfers of dry gas “Returned to Lease” or elsewhere, made by an operator for the use or benefit of other leases or of third parties, will be considered as sales under the terms of the lease.

(d) Whenever under Section 2116 crude oil is used as a circulating medium, the operator shall be allowed a credit of 25 percent of the volume of any foreign circulating oil used. This credit shall be deducted from the total number of barrels produced from the well during the 30-day period immediately following the well's completion.

(e) Whenever the State shall require the operator to use foreign oil to wash perforations of a producing well (Section 2117), the operator shall be allowed credit of 50 percent of the volume of the oil used in such washing as a deduction from the total number of barrel's produced from the well during the period of 30 days immediately succeeding such operations.

(f) Subsection (d) and (e) shall not apply to cases where the volume of circulating oil lost exceeds 5,000 barrels for any one operation. Such cases will be the subject of specific determinations as to periods and the amount of credit to be allowed.

(g) The value of oil used as a circulating medium or for washing perforations shall be that fixed by the lease for the quality and gravity of the oil so produced. Foreign oil is any oil not produced from the specific lease of the affected lessee.