Nabors Oil & Gas Co. v. Commissioner

OPINION.

Milliiien:

The issue here presented is solely a question of fact, and relates to the actual cash value for invested capital purposes of certain mineral rights when paid in to petitioner for capital stock in 1911. The mineral rights were set up on the books of petitioner when acquired at a valuation amounting to $183,500, which was the par value of all of the capital stock of petitioner issued in 1911. The respondent in revising the balance sheets of the petitioner prior to December 31, 1919, has shown a value for the mineral rights of $36,705, which he calls “cost” and he sets up, as a separate item, the remainder of the book value as “ appreciation.” It developed at the hearing of this cause that neither of these valuations is correct, for the respondent erred in the number of acres acquired and the petitioner erred through including in the value of the rights an amount paid for personal services in capital stock. No evidence was adduced of the value of the services and that question is not before us.

Eespondent has allowed a value for the mineral rights of $5 per acre, applied to the entire acreage, but he now pleads that such an allowance is excessive, relying upon the failure of the petitioner to define the areas and the reserves comprehended within the total acreage which contained deposits of gas or lignite. Eespondent has offered no evidence thereof.

We find in the situation in 1911, as presented by the record, reason to believe that there attached to all of this acreage a considerable value. Lignite outcropped in the water courses in thick strata, and it had been known for some time that there were surface traces of oil. Shortly before acquisition of the mineral rights by petitioner, the first gas well came in, and the value of the rights increased sharply.

We are not concerned with an exact definition of the extent and location of the mineral deposits, for we are satisfied after a careful consideration of the record that the actual cash value of the mineral rights claimed by the petitioner is supported by the evidence adduced. For invested capital purposes we find that the rights had an actual cash value in 1911 of at least $25 per acre and this value per acre should be applied to 7,215 acres which were acquired in 1911.

Judgment will be entered upon 15 days’ notice, under Bule 50.

Considered by Marquette, Phillips, and VaN FossaN.