Principal Issues:
(A) Whether F Co. is the agent of the "joint venturers" of the Project (the "Participants") and whether the revenue received and expenses and expenditures incurred by F Co. could be considered as amounts received or incurred by the Participants, as the case may be?
(B) Whether several "joint ventures" formed to operate an oil and gas project (the "Project") would be considered as one or more partnership(s)?
Position:
(A) Provided that no one or more of the joint ventures of the Project will constitute one or more partnership(s) in law, and that F Co. will be acting solely in the capacity of an agent for the Participants in the Project in law, it is our view that the revenue received, expenses and expenditures incurred by F Co. will be considered as received or incurred by the Participants, as the case may be, in proportion to their interests in the Project.
(B) We do not rule on this issue. (We also do not rule that subdivision j in Division B under Part I of the Act would not apply to these joint ventures of the Project as such a ruling has not been specifically requested by the representative of the taxpayers.)
Reasons:
(A) Unlike other energy projects, the Project contemplates future regional development, as such, the Project agreements provide for future subdivision of the Project interests into functional units and third-party processing for fees and/or charges (i.e. which include imputed rate-of-return/profits). Sharing profits is the prima facie evidence of a partnership, so such processing may taint the relationship of the Participants as a partnership. However, since there are no definite creation of functional units and third-party processing in larger quantity within next few years, it has been agreed by the representative of the taxpayers that a separate ruling request would be made in the future, if necessary, to deal with the issue of functional units and third-party-processing. On the other hand, we are also concerned that by virtue of those provisions of functional units and third-party processing in the Project agreements, the relationship among the Participants might have been considered a partnership in law. We will request a written legal opinion on this matter upon receiving further information and representations from the representative of the taxpayers. In light of the above-noted discussion, a caveat in respect of partnership is provided in the ruling.