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beginning aggregate “at risk exposure” of the limited partners
for 1979 was $2,821,500. Their 1979 ending aggregate “at risk
exposure” was $33,500, after deduction of the 1979 tax loss shown
for each limited partner.4 The Memorandum estimated aggregate
tax savings to the limited partners of $1,394,000 for 1979 based
upon a marginal tax rate for individuals of 50 percent. The
Memorandum reported that the “tax loss” to be generated in 1979
was leveraged 5.09 times “with respect to the Initial Cash
Contribution”.
Each economic projection expressly relied upon the stated
assumption that 89 percent of a total of 55 wells drilled between
1980 and 1983 would produce oil in the quantities assumed in that
projection. The cover letter to a geological report, discussed
below, and included as an exhibit to the Memorandum, stated that
“Realistically a 90% success ratio should be anticipated.”
Projection A assumed total production of 757,500 barrels of oil
from 1980 to 1994 at declining rates of production of 5, 4, and 3
barrels per day per well in the first 3 years and 3 barrels per
day thereafter.5 Projection B assumed production rates of half
those of projection A.
4 Mr. Heitzman’s claimed deduction of $110,170 on the 1979
return was derived from his share of the total losses (7 of 175
units), $2,788,000 less the remaining “at risk exposure”,
$33,500.
5 Compare with the Coburn report, infra p. 12, which makes a
somewhat different assumption: an initial production rate of 5
barrels per day, declining to 3 barrels per day within 24 months.
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Last modified: May 25, 2011