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goal of 50 percent self-sufficiency. The banker determined
that petitioner would have to invest $200 million to
achieve this goal. At that time, the total value of
petitioner’s assets was only slightly in excess of $300
million. Although its 50-percent self-sufficiency goal
seemed to be unfeasible, petitioner continued to engage in
crude oil production activities in an attempt to vertically
integrate its petroleum-related business.
Formation and Operation of Terra Resources
During 1969, petitioner’s management sought to
increase its crude oil production while limiting its
expenditure of financial resources. Management’s objective
was to increase the portion of CRA’s crude oil and natural
gas needs that it supplied through existing and new
properties and, thereby, to increase its level of self-
sufficiency while minimizing its commitment of capital.
At that time, petitioner’s capital resources were already
strained by the expansion of its nonpetroleum facilities.
To achieve its objective, petitioner spun off CRA’s crude
oil production assets into a new wholly owned subsidiary
called Terra Resources, Inc. (Terra).
Petitioner’s management chose to organize Terra as a
commercial corporation and not as a cooperative in order to
facilitate raising the capital necessary to fund additional
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