Plains Petroleum Company and Subsidiaries - Page 39




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          future".  The notes to the financial statements explained that,             
          as a result of the acquisition of Tri-Power, petitioner gained              
          access to "substantial tax loss carryforwards which are available           
          to reduce future income taxes."  The 1986 annual report also                
          reiterated petitioner's continued commitment to its acquisition             
          program.                                                                    
          III.  Petitioner's Operations After the Acquisition                         
               A. Transfer of Petitioner's Oil and Gas Properties to                  
                    Tri-Power                                                         
               On December 1, 1986, Tri-Power's name was changed to Plains            
          Petroleum Operating Co. (to avoid confusion, however, we will               
          continue to refer to Plains Petroleum Operating Co. as Tri-                 
          Power).  Also on December 1, 1986, petitioner transferred all of            
          its oil and gas properties to Tri-Power (the December 1, 1986,              
          property transfer will sometimes be referred to as the dropdown             
          and the properties transferred will be referred to as the                   
          dropdown properties).27  Petitioner intended to maintain Tri-               
          Power as a wholly owned subsidiary, and the dropdown was an                 
          integral part of petitioner's plan to acquire Tri-Power.                    
               For each of the years 1987 through 1996, the Tri-Power                 
          properties produced oil and gas amounting to approximately 5                
          percent of the production from the dropdown properties during               


          27   Petitioner used only one operating subsidiary, Tri-Power,              
          until 1992, when it organized Plains Petroleum Gathering Co.                





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