Frank Murphy

“ The granting of an arbitrary deduction, in the interests of convenience, of a percentage of the gross income derived from the severance of oil and gas, merely emphasizes the underlying theory of the allowance as a tax-free return of the capital consumed in the production of gross income through severance. ”

“ Oil and gas reserves like other minerals in place, are recognized as wasting assets. The production of oil and gas, like the mining of ore, is treated as an incomeproducing operation, not as a conversion of capital investment as upon a sale, and is said to resemble a manufacturing business carried on by the use of the soil. ”

“ The holder of a royalty interest-that is, a right to receive a specified percentage of all oil and gas produced during the term of the lease-is deemed to have 'an economic interest' in the oil in place which is depleted by severance. ”