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expand similar gas gathering and processing plants in
Texas. The balance of the proceeds was used to reduce
petitioner's outside debt and free up funds for operating
purposes. Petitioner’s annual report for 1984 describes
the sale as follows:
Farmland sold its gas products plant at
Lamont, Okla. Funds generated from the sale are
being used to expand gas plants at Mertzon and
Eldorado, Tex.
The Lamont plant had been processing about
15 million cubic feet of natural gas per day.
Eldorado-Mertzon, with a much larger pipeline
gathering system, processed 75 million cubic
feet per day in 1984. The expansion, completed
in October 1984, will boost capacity to 100
million cubic feet per day in 1985.
The annual report states that the sale took place to
finance the expansion of the Texas plants after “feasi-
bility studies pointed to advantages in expanding the
Mertzon, Texas, natural gas liquids plants.”
On its Federal income tax return for the year ending
August 31, 1984, petitioner reported a gain of $16,221,675
from the sale of the Lamont gas plant. This gain
comprised the following components:
Amount realized in excess of cost basis $12,852,544
Sec. 1245 recapture 3,287,803
Straight-line depreciation
on sec. 1250 property 81,328
Total reported gain 16,221,675
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