- 35 -
timeframe. In Krause v. Commissioner, supra, we noted that the
peak domestic price in March 1981 was $34.70 per barrel.13 In
Ferrell v. Commissioner, 90 T.C. at 1195 n.27, we took judicial
notice that the price of oil in the United States as a whole
peaked at $31.77 per barrel in 1981 and declined thereafter to
$24.08 per barrel in 1985. Bowers testified at trial that by the
early 1990's, the market price of oil worldwide was less than $20
per barrel. Although, as our analysis in cases like Krause v.
Commissioner, supra, and Ferrell v. Commissioner, supra, shows,
we are aware that such price declines were not forecast in
December 1979, the Stonehurst Memorandum provided no support for
its wildly over-inflated oil price projections.
The structure of the minimum annual royalty that Stonehurst
was to pay Craig was very similar to that described in Osterhout
v. Commissioner, supra, where we found such structures “foreign
to the oil and gas industry” because of the “speculative nature
of an oil well” in comparison to coal mining leases where such
royalties are used “due to the definitive quantity of coal that
can be mined”.14 In this case, Bowers characterized Stonehurst
13 The spot price of Saudi light crude oil peaked at $46 per
barrel in August 1980. Krause v. Commissioner, 99 T.C. 132, 134
(1992), affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024
(10th Cir. 1994).
14 In Osterhout v. Commissioner, T.C. Memo. 1993-251, affd.
on this issue and revd. in part without published opinion sub
nom. Balboa Energy Fund 1981 v. Commissioner, 85 F.3d 634 (9th
Cir. 1996), we cited the expert testimony of Mr. John Teeple,
respondent’s expert witness, an attorney who had been involved in
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