OIL AND GAS Assess A Gander AT THIS YEAR'S HOT Ideas

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OIL AND GAS TAX A LOOK AT THIS YEAR'S HOT CONCEPTS August 20-21, 2009 Brian Dethrow Jackson Walker, L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 bdethrow@jw.com 214-953-5794

Change is coming . . . then again "proposition coasted for sinking you" Hodge podge of new assessment arranges said No rate consumption, just "cost" remains No current expensing of IDC, huge as IDCs record for up to 80% No "working premium exemption" from the detached movement misfortune rules

applies to financial specialists searching for momentum impose derivations (yet the reasonings . . . what's more, perhaps the financial specialists . . . are gone in any case) Carried premium standards for "investment administrations organization interest" - went for mutual funds and private value supports paying little respect to hidden character of net association salary (e.g., capital pick up), administration supplier will book customary pay subject to independent work assess applies to a man who gives a considerable amount of administrations (picking, overseeing, masterminding financing)

applies to land and products (oil and gas is exchanged) may hit oil and gas bargains Examples: consulting geologist gets a working enthusiasm for a prospect (if no quit from Subchapter K) consulting geologist is allowed an organization benefits enthusiasm for speculation association "promoter" acquires outside speculators on comparative premise Higher duty rates- - both capital and common rates; truly genuine for oil fix given loss of consumption/IDC

Crystal ball conclusions Accelerate wage - on the off chance that you can stand it (low present qualities, low present expense rate) Be insightful making the decision to "opt-in" to Subchapter K in your JOAs Explore abroad… ..however registration box is under assault, too Drill now to get your IDC (penetrate child, bore)

Key oil and gas issues we've seen of late

Net working misfortunes - Section 382 Corporate and individual Huge now, particularly with the potential loss of current oil and gas tax benefits It could be your lone "appreciating" resource, with duty rates rising Generate a few picks up before NOLs terminate or get suspended use assessable trades (don't choose 1031 for like-kind trades) generate depletable premise BUT run ace formas on AMT and Texas edge charge (no free lunch)

Corporate NOLs get hold lose on half change in responsibility for year period new financial specialists can basically kill NOLs Individual NOLs don't bite the dust

Closed arrangements - doubts! Things looked great; got it done; going to pay impose; now not all that hot (thought now not very significant) Key date for valuation: shutting - not today Times were incredible; now a crash in qualities Same issue with assessable value stipends to officials (stock or association intrigue)

Ideas to consider: Un-wind exchange Rescind - if SAME TAX YEAR; not generally By December '09, be taking a gander at "closed" arrangements to check whether un-wind is plausible

Squeeze into portion deal reporting (Section 453) But imagine a scenario in which a request note. No 453 Bad premise recuperation might be a toll charge

See if settling really happened European negotiations requiring "notorial seal" - none acquired Taxable move up with IPO arranged (you know whatever remains of the story)… ..

Maybe it was an association premium Income accomplice stake not assessable upon receipt Perfect "partnership agreement" not required but rather clean realities and industry reports

Tex-Penn Taxable stock arrangement Speculative Lock-up

Discount thought got Discount thought got Discount thought got Amend return Won't deal with promissory notes On value, enlist valuation firm Lock-up makes markdown Thin (or no) exchanging makes rebate

When all else fizzles Generate misfortunes to balance picks up Use NOLs

Bad Investor Partnership Deals - Hotel California IRRs from hellfire Looked great at the time Now profoundly submerged Never going to see sunshine? Never going to see sunshine? Go-ahead changes in organization portions/disseminations not a duty issue Tough arrangements! Non-contends???

Corporations - make the S decision to be a go through substance C corp twofold assessment is costly C corp twofold duty stayed away from on FUTURE development in esteem 10-year hold (7-year if made S race '02 or '03) Low esteem for twofold expense on current implicit pick up each shareholder gets the opportunity to handle his own particular exhaustion (like organizations), pick cost/rate Make lemonade: utilize today's low values to . . .

Incentivize the hell out of administration at low values - tremendous future upside; less money cost today low current duty cost, however low current conclusion to organization, too pay accomplice premiums - IRS assurance in safe harbor under segment 83(b) liquidate today, administration gets nothing must be held for a long time (make defensive 83(b) race - in the event of some unforeseen issue) re-dispense salary at liquidation to make proportionate (to degree conceivable)

capital premium current tax assessment to official yet ostensible sum? realities and conditions test minority and attractiveness rebates risky- - no sheltered harbor; return preparer issues?

Make family endowments through and through endowment of (current) low esteem property out and out endowment of profound strata in Haynesville (hold shallow creating piece for current wage and to reduce blessing esteem) keep the present esteem - blessing the upside acronym methods - GRAT, IDGT Appalachian oil family with younger era E&P organization

group property understanding for old marriage community property premise venture up on death of first companion 8-10 years of for all intents and purposes tax-exempt pay Get strong valuations – of industry premium and substance premium blessing early, blessing frequently

Housekeeping Issues Opt into expense association in your Joint Operating Agreements give cash accomplice full tax benefits for cash contributed (IDCs- - on cash contributed) avoid Rev. Rul. 7.176 for numerous working interests in return for boring administrations (random property tax collection) specially designate duty things separately settle on exhaustion choices (rate versus cost) bring in specialists utilizing benefits interests – see above BUT organization assessment forms yearly, keep up capital records, and so forth and conceivably conveyed intrigue tenets may apply

Be aware of Texas edge impose - 1% of gross receipts less COGs depletion may NOT be admissible as a COGs derivation passive elements are non-assessable elements LPs, GPs, trusts… ..however NOT LLCs

at slightest 90% of government gross wage must be detached sourced; this is "passive": net capital pick up from offer of genuine property (working interests) royalties, rewards and defer rental salary income from non-working mineral interests (notwithstanding working interests, if not the administrator, including members) if GP claims more than half of an association (counting post-flip) and GP/subsidiary is administrator, organization NOT inactive

Brian Dethrow centers his practice on expense and business making arrangements for complex corporate, family, and between generational exchanges. Mr. Dethrow has expansive involvement with inventive duty and corporate arranging, incorporating into the oil and gas field. He has worked widely with extensive entrepreneurs on business progression, resource assurance, and blessing and home expense diminishment systems . Mr. Dethrow is confessed to hone in Texas. Training Mr. Dethrow got his B.A. degree, with high respects , from the University of Texas, where he was an individual from Phi Beta Kappa . He got his J.D. degree from Harvard Law School . Brian Dethrow Partner – Tax, International

Brian Dethrow Jackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 214-953-5794 bdethrow@jw.com