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exploration and development activities. These two factors,
declining prices and rising costs, combined to produce a highly
competitive market for the acquisition of developed oil and gas
reserves.
During 1986, Strevig & Associates (Strevig) was the leading
publisher of oil and gas transactional data. Strevig tracks oil
and gas acquisitions, collecting all the available published
information on completed transactions. Upon confirmation of the
data from both the buyer and the seller, Strevig publishes a
quarterly report showing the median price per barrel of oil
equivalent (price/BOE) paid by buyers in those transactions
reported.
Gas reserves are converted to equivalent barrels of oil to
provide a common unit of comparison when there is a mixture of
oil and gas reserves. The standard conversion ratio is 6000
cubic feet (cf) of gas to 1 barrel of oil.17 The price/BOE is
determined by dividing the purchase price by the number of BOE
acquired.
17 We note that the same conversion ratio is used in the Code.
Sec. 613A(c)(4) equates 6,000 cubic feet (cf) of gas with 1
barrel of oil for purposes of computing the taxpayer's daily
depletable natural gas quantity, which in turn is used in the
computation of the taxpayer's allowance for depletion pursuant to
secs. 611 and 613.
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