Clajon Gas Co., L.P., Aquila Gas Pipeline Corp., Tax Matters Partner - Page 4

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          eventually deliver the gas to a gas processing plant or to a                
          transmission line.                                                          
               Gas containing substantial amounts of natural gas liquids              
          (NGLs), such as ethane, propane, butane, and natural gasoline               
          (termed “wet gas”), must be fractionated to remove NGLs before              
          the gas can be transmitted to consumers.  Fractionation occurs at           
          gas processing plants, where the resulting components are residue           
          gas (primarily methane) and extracted NGLs.  The NGLs are                   
          delivered by truck, rail, or pipeline to another specialized                
          processing plant for further fractionation and marketing.  The              
          residue gas is delivered to a transmission line.                            
               The person extracting the gas from the earth may own the               
          gathering system, or it may be owned by an independent pipeline             
          company (i.e., a company not in the business of extracting gas              
          from the earth).                                                            
          Clajon’s Gathering Systems                                                  
               During the audit years, Clajon’s activities included                   
          purchasing, transporting, processing, and selling natural gas and           
          NGLs.  Clajon owned six natural gas gathering systems, all                  
          located in Texas (the Texas gathering systems), and two natural             
          gas processing plants, one in College Station, Texas (which was             
          closed in early 1990), and one in La Grange, Texas.  The Texas              
          gathering systems were known as the Southeast Texas Pipeline                
          System, which gathered wet gas for delivery to the processing               

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