Plains Petroleum Company and Subsidiaries - Page 4




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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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