Capital transactions in reserves and corresponding tax considerations

The recent restructuring of the domestic oil industry requires new ways to analyze and guide financial decisions for capital transactions. The authors describe the general arbitrage theory, which specifies six decision guidelines for realignment strategies that involved four major inputs: finding costs per barrel of oil reserves, present value of cash flow per barrel of reserves found, present value of cash flow per barrel of total company reserves, and stock market price per barrel of total company reserves. The guidelines consider the corresponding tax implications for these inputs in order to avoid any additional tax burdens and cash outflows and to take advantage of favorable tax provisions.