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the studies had risks and other attributes similar to the oil and
gas industry. In fact, one of the pre-IPO studies specifically
excluded natural resource companies from the companies being
examined.
In addition, Mr. Kimball did not explain how his analysis of
True Oil’s historical financial data, see supra pp. 156-158,
affected the marketability discounts. We believe his analysis,
by choosing comparison years that emphasized downward trends in
True Oil’s financial performance (e.g., extraordinary losses in
Honduras) painted a bleaker picture than is appropriate. On the
positive side, True Oil replaced and slightly increased its
proved reserves from 1973 to 1994 and did so without incurring
outside debt. Even allowing for this, we find that True Oil’s
substantial exploration expenditures, declining revenues, and
inability to make significant net distributions to partners would
adversely affect the marketability of an interest in the company.
We are dissatisfied completely with both Mr. Lax’s and
respondent’s treatment of marketability discounts. First,
neither provided empirical data for average discounts in the
market or an analysis of marketability factors particular to True
Oil. Second, the final Lax report applied higher marketability
discounts than the Kimball reports, even though the final Lax
report did not consider any value-depressing aspects of the True
Oil buy-sell agreement. Third, respondent’s marketability
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