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Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
Background
The parties submitted this case fully stipulated under Rule
122. S/V’s principal place of business was Kittanning,
Pennsylvania, when the petition was filed.
A. S/V’s Natural Gas Production From a Tight Formation and
Devonian Shale
In 1992, S/V, a partnership composed of Snyder and Victory
Energy Corp. (Victory), drilled eight natural gas wells in
Armstrong and Indiana Counties, Pennsylvania. In December of
that year, Victory filed with the Pennsylvania Department of
Environmental Resources (DER) two classification requests for
each well, seeking determinations that these wells produced
natural gas from Devonian shale and from a tight formation. The
requests were made under section 503 of the Natural Gas Policy
Act of 1978 (NGPA), Pub. L. 95-621, 92 Stat. 3350, 15 U.S.C. sec.
3413 (1988) (repealed January 1, 1993, by the Natural Gas
Wellhead Decontrol Act of 1989, Pub. L. 101-60, sec. 3(b)(5), 103
Stat. 157, 159). DER approved Victory’s requests and determined
that the wells were producing natural gas from rock formations
that qualified as both Devonian shale and a tight formation. The
Federal Energy Regulatory Commission (FERC) approved DER’s
determinations.
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