Sharon Lee Bartlett, F.K.A. Heitzman - Page 9

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          conflict relationship was also the subject of part of the legal             
          opinion rendered by the law firm of Meserve, Mumper & Hughes,               
          which was included as an exhibit in the Memorandum.  See infra              
          p. 14.                                                                      
               Under the turnkey contract, Stonehurst was obligated to pay            
          R.H. Energy $12,000 per dry well and $35,000 per well put into              
          production.  An initial payment of $12,000 per well was due to              
          R.H. Energy upon notice that drilling would commence within 5               
          days.  No such notice was given in 1979.  In March 1980, R.H.               
          Energy gave notice to Stonehurst that drilling of wells on the              
          property was about to commence.                                             
               d.   Economic Analysis and Predicted Tax Benefits of                   
                    Stonehurst                                                        
               The Memorandum presented two economic projections that                 
          purported to show significant tax losses in the early years of              
          Stonehurst’s operations and distributions of profits in the later           
          years.  Because no production or revenue was projected for the              
          initial year, 1979, the tax loss shown for that year was                    
          identical under both projections, amounting to $2,788,000.3  The            



               3 The components of this figure are:                                   
                                   Item                Amount                         
                       Accrued minimum annual royalty $2,278,000                      
                       Accrued intangible drilling costs500,000                         
                       Operating costs                10,000                          
                      Total                           2,788,000                       




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