S/V Drilling Partners, Snyder Armclar Gas Company, Tax Matters Partners - Page 16

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          29, the 179,000 mcf of gas sold by S/V is equal to 49,337 BOE of            
          qualified fuels:  32,410 BOE of gas produced from a tight                   
          formation and 16,927 BOE of gas produced from Devonian shale.               
          The sale of this gas meets the requirements of two different                
          categories of qualified fuels (i.e., gas produced from a tight              
          formation and gas produced from Devonian shale), and section 29             
          does not provide that the BOE's of dual qualified gas are counted           
          only once.  While subsections (b) and (e) list limitations                  
          relating to the credit, none of these limitations are applicable.           
          2.   The Inflation Adjustment                                               
               All of the gas sold by S/V was derived from rock formations            
          that qualified as both Devonian shale and a tight formation.  The           
          majority holds that a portion of S/V’s credit is calculated                 
          (i.e., adjusted for inflation) pursuant to the rules applicable             
          to gas produced from Devonian shale.  This holding, however, is             
          contrary to section 29(b)(2), which explicitly provides that “In            
          the case of gas from a tight formation, the $3 amount in                    
          subsection (a) shall not be adjusted.”  (Emphasis added.)  If the           
          credit is to be based on 32,410 BOE of gas, I agree with Judge              
          Vasquez that S/V is entitled to a credit of only $97,230 (i.e.,             
          $3 x 32,410 BOE) rather than the $143,964 allowed by the                    
               The majority sidesteps this issue by “[considering]                    
          respondent to have conceded” that the credit should be indexed.             
          This is an inaccurate characterization of respondent’s position.            

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