- 16 -
to be shared among all of the partnerships, each burdened by its
own debt obligations to Elektra and to TexOil.
Cayias errs in his projection that 50 percent of the oil in
place would be recovered. This projection or assumption, based
on Bursell's testimony, is not reasonable and is indefensible.
Cayias seeks to justify the large technology license fees
for which Cromwell became obligated by a projection based on the
application of traditional steam flood technology rather than on
any technology licensed by Cromwell from Elektra. Cayias'
analysis simply supports respondent's position that the license
of a portfolio of EOR technology was totally unnecessary and
unjustified.
The evidence establishes that the technology license fees
for which Cromwell became obligated were not customary in the
industry and were grossly overvalued. Petitioners have failed to
distinguish this case from Krause v. Commissioner, 99 T.C. 132
(1992), with regard to the license fees for the EOR technology.
Petitioners also argue that Cromwell had a greater potential
for profit than Technology-1980 because Cromwell agreed to pay
less for its TexOil tar sands acreage than did Technology-1980.
As respondent's expert, Henry J. Gruy, explained, however, the
consideration agreed to by Cromwell with regard to the tar sands
acreage still exceeded fair market value because, absent any
reserves, its value was zero.
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