S/V Drilling Partners, Snyder Armclar Gas Company, Tax Matters Partners - Page 12

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               3.   Respondent’s Argument                                             
               Respondent contends that S/V is entitled to a credit under             
          section 29 equal to the larger of (a) $3 times 32,410 or (b) $3             
          (indexed) times 16,927.  Respondent points out that section                 
          101(b)(5) of the NGPA of 1978 provided that if any natural gas              
          qualified under more than one provision of the NGPA, the                    
          provision which allowed the highest price applied.  S/V would be            
          entitled to a larger credit if the credit were based on 16,927              
          times $3 (indexed) than if it were based on 32,410 times $3                 
          (unindexed).  Thus, respondent contends that allowing a credit              
          based only on S/V’s gas production from Devonian shale is                   
          consistent with the NGPA.  Respondent offers no explanation for             
          the fact that under that theory S/V would, in effect, be entitled           
          to a credit for only 16,927 BOE’s of gas.                                   
               We disagree with respondent and conclude that S/V is                   
          entitled to a credit for all of the qualified fuel that                     
          petitioner produced and sold; i.e., 32,410 BOE’s of gas.                    
               4.   Whether the $3 Credit for the 16,927 BOE’s of Natural             
                    Gas S/V Produced From a Tight Formation and Devonian              
                    Shale Is Indexed Under Section 29(b)(2)                           
               Section 29(b)(2) indexes the $3 credit for gas produced from           
          Devonian shale, but it does not index the credit for gas produced           
          from a tight formation.  Since S/V produced 16,927 BOE’s of gas             
          from both a tight formation and Devonian shale, question may                

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