Court Opinion

ID: 4600064
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:24:41.214673+00
Date Added: 2024-06-11T07:52:13.877255
License: Public Domain

Belridge Oil Company, Petitioner, v. Commissioner of Internal Revenue, RespondentBelridge Oil Co. v. CommissionerDocket No. 54288United States Tax Court27 T.C. 1044; 1957 U.S. Tax Ct. LEXIS 230; 7 Oil & Gas Rep. 673; March 29, 1957, Filed *230 Decision will be entered under Rule 50.  Prior to February 1, 1950, petitioner and 5 other oil companies owned separate producing rights to an oil pool in Kern County, California, known as the 64 Zone. Prior to that date, the companies had engaged in unrestricted competitive production of oil from the Zone. Petitioner owned two separate properties which overlay the Zone. On one, the Main Property, it had taken percentage depletion because it had already recovered its cost basis.  It had taken cost depletion on the other, the Result Property, since that was higher than percentage depletion. Unrestricted competitive production had lowered the gas pressure in the Zone, and on February 1, 1950, the petitioner and the 5 other oil companies effected a unitization of their property interests in the Zone by an agreement under which each company was to receive a percentage share of total production from the Zone, which production was to be carried on by one company in behalf of all the participants to the agreement.  Under the agreement, each participant retained the full right to sell, assign, or otherwise dispose of any of its property interests covered by the agreement, subject only*231  to the production limitations imposed thereby.  In computing its allowable depletion for 1950, petitioner allocated its share of unitized production to its Main and Result Properties, claiming percentage depletion on the former and cost depletion on the latter, as it had done in previous years.  Respondent determined that the effect of the unitization agreement was a tax-free exchange under section 112 (b) (1) by petitioner of its operating rights in its two separate properties covered by the agreement for a new depletable interest consisting of its share in unitized oil production, which determination had the effect of eliminating any cost depletion for the Result Property after unitization and thus reduced the total amount of depletion claimed by petitioner on its share of unitized production.  Held, petitioner did not exchange its interests in its two separate properties for a new depletable interest by participating in the unitization agreement, and it is entitled to claim percentage depletion on that part of unitized oil production attributable to its Main Property, and cost depletion on that part attributable to its Result Property.  Held, further, the amount of unitized*232  oil allocable to the two properties determined.  John B. Milliken, Esq., and Harrison Harkins, Esq., for the petitioner.Richard W. Janes, Esq., for the respondent.  Rice, Judge.  RICE*1044  This proceeding involves a deficiency in income tax in the amount of $ 33,879.44 and a deficiency in excess profits tax in the amount of $ 9,866.88 for the year 1950.  Petitioner claims an overpayment of taxes for such year.The issues to be decided are: (1) Whether, by joining in a unitization agreement for the cooperative operation of all wells in a certain oil *1045  pool, petitioner exchanged its separate depletable interest in two oil properties covered by the agreement for a new depletable interest measured by its share of the total oil produced under unitized operation; and (2) if not, the amount of the cost depletion allowance which it is entitled to deduct for one of its separate properties covered by the unitization agreement. *234  Some of the facts were stipulated.FINDINGS OF FACT.The stipulated facts are so found and are incorporated herein by this reference.Petitioner, a California corporation, filed its return for 1950 with the former collector of internal revenue at Los Angeles, California.For many years petitioner has been engaged in the business of producing oil and gas from lands located in Kern County, California.  In 1911, it acquired ownership in fee of some 30,845.96 acres, hereinafter referred to as the Main Property.  Two separate production fields, known as the North and South Belridge fields, were developed on that property.  On September 1, 1944, petitioner purchased both the working interest and the landowners' and royalty owners' rights in a producing property known as the Result Property, consisting of 80 acres adjacent to the North Belridge field.Oil and gas production from the North Belridge field is obtained from five different zones located at various depths. These are the Shallow Zone, which produces from relatively shallow depths; the Temblor Zone, whose approximate depth is 6,000 feet; the R. Zone, with an approximate depth of 7,000 feet; the 64 Zone, whose approximate depth *235  is 8,000 feet; and the Y Zone, with an approximate depth of 9,000 feet.  The 64 Zone and the Temblor Zone also underlie portions of petitioner's Result Property.The depletable interests here in issue are located in the 64 Zone. This Zone is the largest developed oil and gas reservoir underlying petitioner's Main and Result Properties.  It also underlies portions of adjacent and nearby land owned or operated by 5 other oil companies.  The gas cap of the 64 Zone is located principally under petitioner's land, and oil can be moved up or down structure from petitioner's land by lessening or increasing the gas cap pressure.Prior to October 1941, production by petitioner and the 5 other oil companies operating in the 64 Zone was entirely on a competitive basis.  By 1938, total oil production from the Zone reached approximately 12,000 barrels a day.  Subsequent to 1938, the reservoir pressure and oil production from the Zone steadily declined.  From sometime in October 1941 to April 1, 1947, a voluntary gas pressure maintenance program was put into effect by the companies producing from the *1046  Zone, and a portion of the gas produced from the Zone was returned to the reservoir. *236  From April 1, 1947, until February 1, 1950, the 6 companies producing from the 64 Zone abandoned the program of voluntary pressure maintenance and resumed unrestricted competitive production.During the period of unrestricted competitive production, April 1, 1947, to January 31, 1950, a total of 3,255,417 barrels of oil were produced from the 64 Zone area.  During the same period, petitioner produced 2,011,897 barrels from the 64 Zone from wells located on its Main Property, and 90,261 barrels from wells located on its Result Property.On July 1, 1949, but effective as of February 1, 1950, petitioner and the 5 other oil companies producing from the 64 Zone entered into a unitization agreement which provided for the production of oil and gas from the Zone on a cooperative basis.  The unitization agreement provided generally that the development and operation of all of the participants' 64 Zone properties should be conducted by a designated operator with each participant receiving an agreed-upon percentage of all the oil, gas, and associated hydrocarbons produced.Pertinent provisions of the agreement are set forth below:This Agreement, * * * between the undersigned parties, each of*237  whom is hereinafter called "Participant",Witnesseth:* * * *ARTICLE IDefinitionsSection 1. The following definitions shall apply to the following terms as employed in this agreement:* * * *(c) UNITIZED SUBSTANCES shall mean all oil, gas and associated hydrocarbons produced and saved from the 64 Zone pursuant to this agreement.* * * *(e) PARTICIPANT shall mean an owner at the date of this agreement, and each successor, assignee or transferee of such owner, of the right to develop and operate lands within the Area and to produce Unitized Substances, whether as lessee or otherwise, and shall include the owner of such lands not under lease as well as the lessee of such lands under lease.* * * *(g) TRACT VALUE shall mean that percentage which is the share of the Unitized Substances allocated under this agreement to each respective tract of land within the Area.* * * *ARTICLE IIUnitization-ConservationSection 1. The rights of Participants to develop and operate in and to produce from the 64 Zone oil, gas and associated hydrocarbons, and the oil, gas and *1047  associated hydrocarbons in the 64 Zone and produced therefrom, are hereby unitized, to the end that the 64 Zone*238  shall be developed and operated as a unit by a single operator for the benefit of Participants.  The Tract Values set forth in the table attached hereto marked Exhibit "B" are hereby allocated to the respective tracts of land shown therein.  The Participating Equities set forth in the table attached hereto marked Exhibit "C" are hereby allocated to the respective Participants.  The aggregate Tract Values of the lands of each Participant shall be equal, at all times, to the Participating Equity of such Participant. * * ** * * *Section 3. * * * this agreement shall not apply to interests, rights or obligations in any formation, zone or stratum other than the 64 Zone. Each Participant reserves whatever rights it may have to develop and produce oil, gas, and associated hydrocarbons from any and all formations, zones or strata other than the 64 Zone, * * ** * * *ARTICLE VTransfers of Operating Rights and Other PropertySection 1. The initial Participants collectively are the owners on the date of this agreement of the right to develop and operate all lands within the Area and to produce Unitized Substances, and are the initial signatory parties to this agreement (exclusive of any*239  exhibit hereto).  At the effective time of this agreement Operator shall take exclusive possession of the operating rights of each Participant in and to the 64 Zone and enter into the performance of its duties hereunder; * * ** * * *Section 7 * * * Each Participant represents and warrants that as of the effective time of this agreement such Participant owns the unencumbered right to develop and operate the lands within the Area as to which it is a Participant and to produce Unitized Substances therefrom, * * ** * * *ARTICLE VIIOwnership of Unitized Substances, Unit Wells and Unit Facilities; Participation; Payment of Costs and ExpensesSection 1. Each Participant shall own the percentage of Unitized Substances equal to the Participating Equity of such Participant.Section 2. The Participants shall own, as tenants in common, all Unit Wells and Unit Facilities, and each Participant shall own an undivided interest in the Unit Wells and Unit Facilities equal to the Participating Equity of such Participant.Section 3. In the event of changes in Participating Equities pursuant to Article XI, the ownership of each Participant in Unitized Substances, Unit Wells and Unit Facilities shall*240  change correspondingly.Section 4. * * * If any numbered tract of land set forth in Exhibit "B" is now or hereafter becomes divided in ownership of Unitized Substances or Royalty Interest, or both, then, in the absence of an agreement between the interested parties determining the Tract Values of each segregated portion of such tract of land, the Tract Value shall be distributed to the segregated portions of such tract of land on a surface acreage basis, or if less than an entire *1048  numbered tract of land set forth in Exhibit "B" is excluded from this agreement as provided in Section 3 of Article XI, the Tract Value to be assigned to the portion of such tract of land remaining subject to this agreement shall be determined on a surface acreage basis.* * * *ARTICLE VIIIDisposition of Unitized SubstancesSection 1. Each Participant shall accept its share of the Unitized Substances (other than gas or other Unitized Substances used for injection or in operations hereunder) currently in kind * * ** * * *ARTICLE XPayment of Rentals, Royalties and TaxesSection 1. Each Participant shall pay all rentals, royalties, overriding royalties and other payments which pertain to or affect*241  lands of such Participant subject to this agreement, including the 64 Zone, and which may be or become payable pursuant to any lease, operating agreement or other instrument to which such Participant is a party by privity of contract or privity of estate, and each Participant shall promptly furnish to Operator, upon demand, a statement that payment thereof has been made. * * ** * * *ARTICLE XIAssignments and Transfers; Rearrangement or Revision of Tract Values and Participating EquitiesSection 1. Each Participant shall retain the right at any time or from time to time to sell, assign, transfer, quitclaim, surrender or otherwise dispose of, subject to this agreement, its interests, or any thereof, in whole or in part, in or to the lands or any thereof of such Participant in the Area and in or to the Unit Wells and Unit Facilities, provided that no interest in lands with respect to the 64 Zone shall be transferred or surrendered separate from a corresponding interest in Unit Wells and Unit Facilities, or vice versa.  If an interest in lands with respect to the 64 Zone shall be transferred or surrendered, the transferee or person receiving such surrender shall be and become one of*242  the Participants under this agreement, * * *Section 2. * * * If any numbered tract of land set forth in Exhibit "B" is divided, then, in the absence of an agreement between the interested parties determining the Tract Values of each segregated portion of such tract of land, the Tract Value shall be distributed to the segregated portions of such tract of land on a surface acreage basis.* * * *ARTICLE XIIEffective Time and DurationSection 1. This agreement shall become effective at 7 o'clock A. M. on the first day of the first calendar month which commences not less than ten (10) days after all the following events shall have occurred: *1049  (a) Execution of this agreement by all Participants listed in Exhibit "C".(b) Execution of Lessors' and Royalty Owners' Consent, substantially in the form annexed hereto marked Exhibit "E", by at least ninety per cent (90%) in interest of the owners of Royalty Interests under each tract of land with respect to which a Participant has executed this agreement, unless all Participants shall otherwise agree in writing.(c) Approval of this agreement by the Oil and Gas Supervisor of the State of California, pursuant to the provisions of*243  Section 3301 of the Public Resources Code of the State of California, on the form of "Approval and Determination" annexed hereto marked Exhibit "F".Section 2. This agreement * * * shall continue in full force and effect as long as Unitized Substances, or any of them, can be produced from the 64 Zone in quantities determined by Participants to be sufficient to pay to produce; provided, however, that this agreement may be terminated prior to such expiration date by the unanimous consent of all Participants.* * * *ARTICLE XIIIMiscellaneous* * * *Section 3.  It is the intention of each Participant to establish Operator as its agent under this agreement, for the sole purpose of developing, operating and protecting its interest in the 64 Zone to the extent herein set forth.The participants in the unitization agreement and their respective participating equities were as follows:Participating equityand tract valueParticipantassigned (per cent)Belridge Oil Company71.87Tide Water Associated Oil Company16.58Richfield Oil Corporation4.44The Texas Company4.44Standard Oil Company of California1.48Union Oil Company of California1.19The tracts*244  of Belridge, Tide Water, Richfield, Standard, and one of the three tracts of Union were held in fee by such companies.  The tracts of the Texas Company and two of the three tracts of the Union Oil Company were leaseholds.  The participating equities allotted to the parties approximated the percentages of the total production from the 64 Zone which each of the respective parties had obtained during the period of unrestricted competitive production which immediately preceded the effective date of the agreement.The agreement further provided that each participant was obligated to pay a part, equal to its participating equity, of all costs and expenses of the unit operation.Petitioner was designated as the original operator and has continued to act as such.  The agreement provided that all matters relating to the removal of the operator and the selection of a successor operator should be determined by the agreement of not less than three participants *1050  representing, in the aggregate, not less than 80 per cent of the participating equities.On January 17, 1950, the participants agreed, as provided in article XII, section 1 (b), that the unitization agreement would become effective*245  at 7 a. m., February 1, 1950, despite the fact those holding lessors' and royalty owners' interests in 90 per cent of the land covered by the agreement had not executed consents to the agreement.A number of the lessors and royalty owners who possessed interests in the 64 Zone covered by the leases held by the Texas Company and the Union Oil Company executed consents to the agreement, and those companies endorsed their acceptance of such consents.Petitioner, Tide Water, Richfield, and Standard, all of whom were participants under the agreement, and who together owned in fee, 92 per cent of the land covered by the agreement, did not execute lessors' and royalty owners' consents.The portions of petitioner's two properties affected by the unitization agreement were the 64 Zone underlying its Result Property and the 64 Zone underlying some, but not all, of its Main Property.  It did not affect any of the other zones underlying petitioner's land.  Petitioner and the other five participants continued to operate and produce from one or more of the other zones underlying the same surface area of their respective properties as were covered by the agreement.  Petitioner took no production*246  from the Temblor Zone of its Result Property during the years 1949 to 1953, inclusive, but in 1954, it resumed production from the Temblor Zone.Under unitized operation in 1950 (February 1 through December 31), a total of 428,139 barrels of oil were produced from the 64 Zone -- 21,672 barrels from wells located on petitioner's Result Property, 215,390 barrels from wells located on its Main Property, and 191,077 barrels from wells located on the properties of other participants.  Petitioner's 71.87 per cent share of total production was 307,704 barrels.Prior to 1950, petitioner had completely recovered its tax basis for its Main Property through cost depletion allowances, and therefore computed its allowable depletion deduction on the statutory percentage of income.  For its Result Property, depletion based on adjusted cost has consistently been greater than depletion based on the statutory percentage of income.On its return for 1950, petitioner claimed cost depletion on its Result Property and percentage depletion on its Main Property, as it had done in previous years.  It computed cost depletion on the Result Property for the month of January on the basis of the actual number *247  of barrels of oil taken from wells located on that property during such month.  To arrive at the number of barrels of oil which it claimed were attributable to its Result Property from its share of total unitized *1051  oil produced during the remainder of the year, it determined the ratio of production from the 64 Zone of that property in 1949 to its total 64 Zone production during that year and applied that ratio to the total 64 Zone production allotted to it under unitized operation for 1950.  The remainder of the oil received from unitized production was added to its individual production from its Main Property and percentage depletion was claimed on the total.  Petitioner thus claimed cost depletion on the Result Property in the amount of $ 72,010.63, and percentage depletion on its Main Property of $ 1,568,662.93.On its return for 1950, petitioner reported the adjusted cost of the Result Property, as of January 1, 1950, to be $ 689,863.29, and used a cost basis of $ 3.43035 a barrel in computing cost depletion. Petitioner claimed an increased cost in its petition, and the parties agree that the cost basis was $ 1,007,976.81 on January 1, 1950, and that such basis increased*248  by an additional $ 8,886.29 prior to the end of the year.  They also agree that the remaining oil reserves of the property were as follows:Barrels of oilRemaining reserve on --64 ZoneTemblorTotalZoneJan. 1, 1950177,30823,798201,106Jan. 31, 1950173,97823,798197,776Respondent determined that, by virtue of the unitization agreement, petitioner made nontaxable exchanges on February 1, 1950, of its two separate interests in the 64 Zone for a single depletable interest therein, consisting of its 71.87 per cent undivided interest in the properties covered by the agreement.  He determined that petitioner's basis for such undivided interest was the combined adjusted bases of its separate interests in the 64 Zone, and that the statutory percentage depletion allowable thereon would give it the maximum depletion allowance.  He disallowed $ 56,888.79 of the depletion deduction claimed by petitioner on its return, as follows: Petitioner's computation of percentage depletion on its Main Property was revised by excluding from the Main Property, for the period February 1, 1950, to December 31, 1950, the production from the 64 Zone unitized area of the*249  property; cost depletion on the Result Property for the month of January 1950 was computed and allowed on a cost basis of $ 1,007,976.81; since no production was obtained from the other producing zone of the Result Property during 1950, no additional cost depletion was allowed for that property for the period February 1 to December 31, 1950; percentage depletion in the amount of $ 278,668.82 was allowed for petitioner's 71.87 per cent undivided *1052  interest in the unitized properties.  No computation of cost depletion with respect to that 71.87 per cent undivided interest appears in the deficiency notice.The petitioner, aside from the claim of overpayment made in its petition, did not file a refund claim for the year in issue; and no part of the income and excess profits taxes of $ 1,019,485.40, paid by it for such year, has been refunded or otherwise credited to it.Petitioner paid a $ 203,897.08 installment of its 1950 taxes on December 7, 1951, which amount was paid within 2 years before the November 2, 1953, execution by the petitioner and the respondent of the extension agreement pursuant to section 276 (b) of the 1939 Code; and such agreement was executed within 3 years*250  from May 5, 1951, the date the petitioner filed its tax return for 1950.OPINION.The consolidation of oil-producing properties under centralized production management, commonly referred to as unitization, is a conservation program to effect the most economical and productive extraction of oil, gas, and associated hydrocarbon products from a given oil or gas field.  Unitization may be effected by voluntary agreement of the separate owners of oil and gas properties and interests, or, in some States, by compulsory action of duly authorized State authority.When voluntary unitization is effected, it may be done by means of a community lease in which several land owners, each owning separate tracts of land, join in a single oil or gas lease describing and granting, for development purposes, the entire area owned by them to a single developer.  It may also be effected by the lessees of oil development rights whose leases give them the express consent of the lessors to develop the leased property under unitized operation; or unitization may be effected by a separate unitization agreement among oil producers such as the one before us here.  The participants in the unitization agreement here*251  were fee holders or lessees, each of whom, however, had the exclusive right to develop the 64 Zone oil pool beneath its respective surface area of land.Prior to the effective date of the agreement, petitioner held two separately depletable oil-producing properties.  On one, the Main Property, it had completely recovered its tax base and was claiming percentage depletion. On the other, the Result Property, it was claiming cost depletion. After unitization, it claims that it is still entitled to claim percentage depletion on that part of its share of unitized oil attributable to its Main Property, and cost depletion on that part of its share of unitized oil attributable to the Result Property.*1053  By claiming both cost and percentage depletion on the respective shares of unitized oil which it attributes to the two properties, petitioner arrives at a greater depletion deduction than the respondent's determination would allow, since he permitted only the statutory percentage depletion on all of petitioner's share of unitized oil. No issue is raised as to petitioner's having a depletable economic interest in unitized oil production, but only as to the method it used in computing*252  depletion on such production.The respondent contends that the effect of the unitization agreement here was a tax-free exchange by petitioner of its oil-producing rights in the 64 Zone pool underlying its Result Property, and that part of its Main Property subject to the agreement, for a new and separate depletable economic interest consisting of and measured by its 71.87 per cent share of oil produced under unitized operation of the field.  Section 112 (b) (1) 1 provides, in substance, that no gain or loss shall be recognized if property held for productive use in a taxpayer's trade or business is exchanged solely for property of a like kind to be held for a like purpose.  To uphold the respondent's determination, we must find that the unitization agreement here, preferably both in form and in substance, effected an exchange; and, if not in form, certainly in substance.*253  Our examination of the unitization agreement discloses no words of conveyance.  The key provision of the agreement by which unitization was effected is found in article II, section 1, as follows:The rights of Participants to develop and operate in and to produce from the 64 Zone oil * * * are hereby unitized, to the end that the 64 Zone shall be developed and operated as a unit by a single operator for the benefit of Participants.Article V, section 1, provided that at the effective date of the agreement, the operator should take exclusive possession of the operating rights of each participant and was to enter into the performance of his duties.  Article VII, section 1, provided that each participant should own the percentage of unitized substances equal to its participating equity, and article VIII, section 1, provided that each participant should accept its share thereof currently in kind.  Article XI, section 1, retained for each participant the full right to sell, assign, transfer, quitclaim, surrender, or otherwise dispose of its interest in any land covered by the agreement, subject only to the production limitations imposed thereby.  Neither in those provisions of the *254  agreement, *1054  nor elsewhere, do we find any words of conveyance; and, more important, we find no intention on the part of the participants to convey or exchange their economic interests in the 64 Zone. We recognize that the agreement provided that all wells and production equipment used by the operator were to be held by the participants as tenants in common.  But that joint ownership was only of depreciable equipment and certainly not of the depletable economic interests and rights to drill and produce oil from the land.We think the net effect of what the participants to the agreement accomplished was the creation and organization of a consolidated production operation for the extraction of their respective shares of oil from the whole pool in which they held separate operating rights.  The purpose which prompted the execution of the agreement in question was the recognition on the part of the participants that unrestricted competitive production from the Zone was causing a lowering of the gas pressure and would eventually result in possible serious underground waste of oil, gas, and associated hydrocarbon products.  For a period of some 5 1/2 years prior to April 1, 1947, *255  the participants had maintained a voluntary gas pressure program whereby a portion of the gas produced from the Zone was returned to the reservoir.  We think the unitization agreement here was nothing more than another joint effort on the part of the owners of the producing rights to the Zone to best conserve their respective individual interests therein by joining in a plan for the most economical and productive operation of the whole field.  Hence, we think each participant had exactly the same interests and rights in its respective properties after unitization as before, except that by mutual consent they had agreed to limit their production and operate their wells in the most economically feasible way from the standpoint of conservation considerations.The statute specifically gives a taxpayer, who owns a depletable economic interest in oil, which all concede the petitioner here had, an election to deplete its interest on the basis of the statutory percentage amount provided in section 114 (b) (3), or by recovering its cost basis, whichever is greater.  It seems to us that the respondent's determination here would deprive petitioner of the just due given it by the express *256  terms of the statute.Having concluded that petitioner retained its original separate depletable economic interests in the 64 Zone, we turn now to the question of the exact amount of cost depletion which it is entitled to claim on the Result Property.  As noted in our Findings of Fact, it computed such cost depletion on its return by allocating a portion of its share of the unitized oil production to that property on the basis of the ratio of its production from such property in 1949 to its total 64 Zone production during that year and then added such allocated *1055  amount to the actual production for the month of January 1950.  On brief, petitioner argues that the allocation of a portion of its share of unitized oil production should be made on the basis of the ratio of actual Result Property production from the 64 Zone during the period of unrestricted competition preceding the effective date of the agreement to the total 64 Zone oil production during such period by all producers.The respondent insists that even if we uphold the petitioner's position with respect to its having a depletable interest in two separate oil-producing properties both before and after unitization, *257  as we have done, no allocation of unitized oil production can be made to the Result Property because of the mechanics involved in the computation of cost depletion. He argues that in computing cost depletion, actual production from the property each year must be subtracted from the estimated reserve at the beginning of the year.  2 He points out that under unitized operation from February 1 to December 31, 1950, some 21,672 barrels of oil were actually produced from wells located on the Result Property.  He argues further that under petitioner's theory of allocation, a lesser number of barrels (11,859) would be allocated to that property, and concludes that under such plan of allocation, the estimated total reserves at the beginning of the period would, in fact, be exhausted long before petitioner's theoretical cost depletion would indicate because the total production from wells on the Result Property, rather than an allocated portion, must be subtracted each year in arriving at the remaining oil reserve.*258  We do not agree with this argument.  It seems to us that the simple answer to the respondent's objection is that oil taken from the 64 Zone through wells located on the Result Property, in excess of the allocation which petitioner contends should be made, must be deemed to be oil from other areas in the pool made possible only by the unitization agreement.Insofar as petitioner's plan of allocation suggested on brief is concerned, we think it is in substantial accord with the agreement between the participants.  The parties stipulated that each participant's share in unitized production was based on the production record of the various properties subject to the agreement during the period of unrestricted competitive production prior to the effective date of the agreement.  And while the agreement does not allocate a share of total unitized production individually to petitioner's Main and Result Properties, we think that it was clearly the intent of the participants that petitioner's total share was allocated on the basis of its previous production from those two properties.  We therefore conclude that the ratio which 90,261 barrels bears to 3,255,417 barrels *1056  (total Result*259  Property 64 Zone production and total 64 Zone production from April 1, 1947, to February 1, 1950), or 2.77 per cent, multiplied by the total production from the Zone under unitized operation during 1950 of 428,139 barrels, or 11,859 barrels, are the proper number of barrels allocable to the Result Property for the period February 1 to December 31, 1950.Decision will be entered under Rule 50.  Footnotes1. SEC. 112. RECOGNITION OF GAIN OR LOSS.(b) Exchanges Solely in Kind. -- (1) Property held for productive use or investment.  -- No gain or loss shall be recognized if property held for productive use in trade or business or for investment (not including stock in trade or other property held primarily for sale, nor stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest) is exchanged solely for property of a like kind to be held either for productive use in trade or business or for investment.↩2. Regs. 111, sec. 29.23 (m)-2.↩