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FOLEY, J., dissenting: I disagree with the majority’s
analysis and holding.
I. The Texas Gathering Systems (TGS) Were Production Assets
Revenue Procedure 87-56 states that asset class 13.2
includes “assets used by * * * natural gas producers for * * *
production of * * * natural gas, including gathering pipelines”.
As the trial judge I concluded, after analyzing all of the
relevant evidence and testimony, that Clajon’s pipelines were
gathering systems “used by” producers in the production of
natural gas. Gathering systems are essential to the production
process because they treat unprocessed natural gas by removing
water, hydrogen sulfide, and carbon dioxide.1 Without
dehydration and treatment, the gas cannot be used, and
transmission companies would not accept it for transportation to
ultimate consumers. Indeed, without a properly designed
gathering system the gas would never be produced at all but would
simply remain in the ground. Thus, the services provided by
Clajon were an integral part of the production process.
1 Pipes in a gathering system, generally, deteriorate
faster and have to be replaced more frequently than long-distance
transmission pipelines. Because gathering system pipes have
shorter physical lives than transmission pipelines, it is
reasonable to conclude that Clajon’s gathering systems are within
the asset class with the shorter recovery period.
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