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is appropriate to use the net asset value method (or what Mr.
Kimball called the asset accumulation method), in conjunction
with the guideline company method, to determine the value of True
Oil. Accordingly, we treat the stipulated value of True Oil’s
major assets65 as the company’s net asset value.
Petitioners argue that the Kimball reports properly
accounted for the value of True Oil’s reserves by using the
reserves multiple in the guideline company analysis. We disagree
for two reasons. First, Mr. Kimball’s reserves multiple was
based on the stipulated physical volume of proved reserves
measured in barrels of oil-equivalent, known as the boe method;
however, the geological experts’ reports of both parties favored
the discounted cash-flow method to value True Oil’s proved
reserves and used the less reliable boe method only as a
reasonableness test. Second, Mr. Kimball weighted the reserves
multiple at only 30 percent, which we would consider low given
the nature of True Oil’s business.
Petitioners also contend that we should disregard altogether
the net asset value method in determining True Oil’s entity value
because the subject interests carried no liquidation rights so
that holders of such interests could not access the underlying
asset values. We disagree. Although the net asset value method
yields the value of a controlling interest, a minority discount
65True Oil had no long-term debt on or around the valuation
dates, and current assets generally offset current liabilities.
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