1. (a) Neither the sponsor nor any affiliated person shall sell or lease any property to or purchase or lease any property from the program, directly or indirectly, except pursuant to transactions that are fair and reasonable to the participants of the program and then subject to the following conditions:

   1. (1) In the case of a sale or lease to a program:

      1. (A) The prospectus discloses the fact that the sponsor will sell or lease property to the program and whether or not the property will be sold from the sponsor's existing inventory.
      2. (B) The property is sold or leased to the program at the cost of the sponsor, unless the seller has reasonable grounds to believe that cost is materially more than the fair market value of such property, in which case such sale should be made for a price not in excess of its fair market value.
      3. (C) If the sponsor sells or leases any oil, gas or other mineral interests or property to the program, he must, at the same time, sell to the program an equal interest in all his other property in the same prospect. If the sponsor or any affiliate subsequently proposes to acquire an interest in a prospect in which the program possesses an interest or in a prospect abandoned by the program within one year preceding such proposed acquisition, the sponsor shall offer such interest to the program; and, if cash or financing is not available to the program to enable it to consummate a purchase of an equivalent interest in such property, neither the sponsor nor any of its affiliates shall acquire such interest or property. The term “abandon” for the purpose of this subsection and of subsection (b) of Section 260.140.127.2 of these rules, shall mean the termination, either voluntarily or by operation of the lease or otherwise, of all of the program's interest in the prospect. The provisions of this subdivision shall not apply after the lapse of 5 years from the date of formation of the program.
      4. (D) A sale or lease of less than all of the ownership of the sponsor in any interest or property is prohibited unless the interest retained by the sponsor is a proportionate working interest, the respective obligations of the sponsor and the program are substantially the same after the sale of the interest by the sponsor and his interest in revenues does not exceed the amount proportionate to his retained working interest. The sponsor may not retain any overrides or other burdens and may not enter into any farm-out arrangements with respect to his retained interest, except to nonaffiliated third parties.
   2. (2) In the case of a purchase or lease of nonproducing property from a program, the purchase is made at a price which is the higher of the fair market value or the cost of such property.
   3. (3) In the case of producing property, the sponsor shall not be given an exclusive right to purchase such property. A sale of producing property or interest therein, except for the sale of production, must consist of a sale of all of the program's interest in the property and must be made at a price determined by an appraisal prepared by an independent petroleum engineer. A sale of production must be on terms comparable to and competitive with prices obtainable on the open market.
2. (b) The oil program shall not purchase properties from nor sell properties to any program in which its sponsor or any affiliated person has an interest. This Subsection shall not apply to transactions among oil programs for whom the same person acts as sponsor by which property is transferred from one to another in exchange for the transferee's obligation to conduct drilling activities on such property or to joint ventures among such programs, provided that the respective obligations and revenue sharing of all parties to the transactions are substantially the same and provided further that the compensation arrangement or any other interest or right of the sponsor and any affiliated person of such sponsor is the same in each program, or, if different, the aggregate compensation of the sponsor does not exceed the lower of the compensation he would have received in any one of the programs.
3. (c) Any other provision of these rules notwithstanding, a sponsor may purchase property in its own name and hold title in trust for the benefit of the program, where necessary to facilitate the acquisition of such property or the business purposes of the programs.

Note: Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

History

1. Editorial correction adding Note filed 11-8-82 (Register 82, No. 46).