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in petitioner began trading on the New York Stock Exchange on
September 16, 1985.
After the spinoff, petitioner's holdings consisted primarily
of properties that produced "old" natural gas (i.e., those with
wells that had been drilled prior to July 1, 1978).3 The
properties were located primarily in the Hugoton field in
southwest Kansas and in the Guymon-Hugoton area of Oklahoma
(collectively referred to as the Hugoton field or Hugoton).4 At
the time of the spinoff, petitioner was required by contract to
sell substantially all (approximately 90 percent) of its natural
gas production to KN Energy at an average sales price of 53 cents
per thousand cubic feet (Mcf).5 In addition, KN Energy had a
contractual first right of refusal to purchase any additional gas
supplies that petitioner might acquire or develop in the future.
Essentially, petitioner had one field (Hugoton), one product (old
natural gas), and one customer (KN Energy).
3 Petitioner, however, also held (1) a few properties that
produced some oil along with old natural gas, (2) some properties
that produced new natural gas, and (3) a small amount of
undeveloped acreage.
4 The Hugoton field in Kansas and the Guymon-Hugoton field in
Oklahoma are essentially one continuous field that straddles the
border between Kansas and Oklahoma.
5 KN Energy serves a predominantly rural market, providing gas
for space heating purposes. Accordingly, KN Energy's market is
highly sensitive to weather conditions.
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Last modified: May 25, 2011