Plains Petroleum Company and Subsidiaries - Page 58




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          attorney, Mr. Swonke, to conduct title and lease reviews on the             
          Tri-Power properties.  On the basis of the foregoing, we conclude           
          that petitioner's investigation of Tri-Power's reserves equaled,            
          if not exceeded, petitioner's investigation of Tri-Power's NOL's.           
               Respondent, however, is critical of petitioner's reliance on           
          the 1986 LAM reserve reports.  Respondent contends that it was              
          absurd for petitioner to rely solely on the seller's reserve                
          report without an independent verification.  We disagree.  LAM              
          was an independent engineering firm, experienced with Tri-Power's           
          reserves.  Moreover, it was petitioner's standard practice to use           
          the seller's updated (i.e., rolled-forward) reserve report to               
          evaluate potential acquisitions, and that practice was standard             
          in the industry.  Next, respondent contends that the 1986 LAM               
          updated reserve report was unreliable because (1) it did not take           
          into account the 1986 updated production data, and (2) it                   
          included several wells with little to no production history.                
          Respondent suggests that petitioner willingly disregarded 1986              
          updated production data because it would have resulted in a lower           
          reserve valuation.  The 1986 updated production data, however,              
          was available to petitioner during its investigation of Tri-                
          Power's reserves.  Petitioner was also aware that the 1986 LAM              
          reserve reports included wells with little to no production                 
          history.  Accordingly, petitioner had all the information                   
          necessary to make its own determination concerning the value of             





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