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Prudhoe Bay that may be legally recognized for Federal income tax
purposes.
DRR Obligations Relating Specifically to
Well Plugging and to Well-Site Cleanup
Contrary to our holding regarding fieldwide Prudhoe Bay DRR,
we believe Exxon’s Prudhoe Bay DRR obligations relating
specifically to oil wells and to oil well sites are clearly set
forth and established in the provisions of the DL-1 Leases and
satisfy the first prong of the all-events test of the accrual
method of accounting. Paragraph 20 expressly states that upon
closing down wells, Exxon is to plug the wells and abide by
Alaska regulations relating to such plugging. For the years in
issue, Alaska regulations similarly required oil companies to
plug and to clean up well drilling sites.
Respondent argues that the filing of a “notice of
abandonment” of the wells constitutes a condition precedent to
the recognition of any firm oil company DRR obligations. Also,
respondent argues that DRR technology and Alaska regulations
regarding well plugging and well-site cleanup may be changed by
the time the wells in the Prudhoe Bay field are to be plugged by
the oil companies, making all DRR work that the oil companies
might have to perform in Prudhoe Bay indefinite and speculative.
We disagree. We regard the notice of abandonment provision of
the DL-1 Leases as ministerial and perfunctory, certainly not a
condition precedent to DRR obligations relating to the wells
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