S/V Drilling Partners, Snyder Armclar Gas Company, Tax Matters Partners - Page 7




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          produced from property qualifying both as a tight formation and             
          Devonian shale, at a rate of $3, indexed as provided in the first           
          sentence of section 29(b)(2).                                               
               Since the latter amount is larger than the former,                     
          respondent’s position, in effect, is that S/V is entitled to a              
          credit based on only 16,927 BOE’s.                                          
               We agree and disagree in part with both parties.                       
          A.   Credit for the 15,483 BOE’s of Natural Gas S/V Produced From           
               a Tight Formation That Was Not Devonian Shale                          
               S/V produced 15,483 BOE’s of natural gas from a tight                  
          formation which was not Devonian shale.  Section 29(b)(2) (second           
          sentence) provides that the $3 credit is not indexed for natural            
          gas produced from a tight formation.  Thus, S/V is entitled to a            
          credit of $3 per BOE on the 15,483 BOE’s of natural gas it                  
          produced from a tight formation that was not Devonian shale.                
          B.   Credit for the 16,927 BOE’s of Natural Gas S/V Produced From           
               Both a Tight Formation and Devonian Shale                              
               1.   Section 29                                                        
               S/V produced 16,927 BOE’s of fuel from a tight formation               
          that was also Devonian shale.  Section 29(a) limits the credit              
          for producing fuel from a nonconventional source to a fixed                 
          dollar amount per BOE.  Section 29(d)(5) defines a BOE of fuel as           
          fuel with Btu content of 5.8 million.                                       
               The Senate committee report accompanying enactment of                  
          section 29 also clearly limits the credit to $3 per barrel of oil           






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