California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 2 - Corporate Securities › Article 4 - Standards for the Exercise of the Commissioner's Authority › Subarticle 11 - Oil and Gas Interests › Transactions with Affiliates and Conflicts of Interest › Section 260.140.127.1 - Sales and Purchases

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Neither the sponsor nor any affiliated
						person shall sell or lease any property to or purchase or lease any property
						from the program, directly or indirectly, except pursuant to transactions that
						are fair and reasonable to the participants of the program and then subject to
						the following conditions:
(1) In the case of
						a sale or lease to a program:
(A) The
						prospectus discloses the fact that the sponsor will sell or lease property to
						the program and whether or not the property will be sold from the sponsor's
						existing inventory.
(B) The
						property is sold or leased to the program at the cost of the sponsor, unless
						the seller has reasonable grounds to believe that cost is materially more than
						the fair market value of such property, in which case such sale should be made
						for a price not in excess of its fair market value.
(C) If the sponsor sells or leases any oil,
						gas or other mineral interests or property to the program, he must, at the same
						time, sell to the program an equal interest in all his other property in the
						same prospect. If the sponsor or any affiliate subsequently proposes to acquire
						an interest in a prospect in which the program possesses an interest or in a
						prospect abandoned by the program within one year preceding such proposed
						acquisition, the sponsor shall offer such interest to the program; and, if cash
						or financing is not available to the program to enable it to consummate a
						purchase of an equivalent interest in such property, neither the sponsor nor
						any of its affiliates shall acquire such interest or property. The term
						"abandon" for the purpose of this subsection and of subsection (b) of Section
						260.140.127.2 of these rules,
						shall mean the termination, either voluntarily or by operation of the lease or
						otherwise, of all of the program's interest in the prospect. The provisions of
						this subdivision shall not apply after the lapse of 5 years from the date of
						formation of the program.
(D) A
						sale or lease of less than all of the ownership of the sponsor in any interest
						or property is prohibited unless the interest retained by the sponsor is a
						proportionate working interest, the respective obligations of the sponsor and
						the program are substantially the same after the sale of the interest by the
						sponsor and his interest in revenues does not exceed the amount proportionate
						to his retained working interest. The sponsor may not retain any overrides or
						other burdens and may not enter into any farm-out arrangements with respect to
						his retained interest, except to nonaffiliated third
						parties.