Tom C. Clark

“ The depletion allowance in the Internal Revenue Code of 1939 is solely a matter of congressional grace; it is limited to 27 1/2% of gross income from the property after excluding from gross income 'any rents or royalties' paid by the taxpayr with respect to the property. [6]
The complexities of oil operations and risks incident to prospecting have led to intricate, multiparty transactions, so that it is often difficult to determine which parties are entitled to a part of the allowance. ”

“ But those problems are not before us in this case where the upland owners could hardly be said to be 'disassociated from the lease.' We decide only that where, in the circumstances of this case, a party essential to the drilling for and extraction of oil has made an indispensable contribution of the use of real property adjacent to the oil deposits in return for a share in the net profits from the production of oil, that party has an economic interest which entitles him to depletion on the income thus received. ”

“ No prior depletion case decided by this Court has presented a situation analogous to that here, where a fee owner of adjoining lands necessary to the extraction of oil is claiming a depletion allowance.
Southwest contends that there can be no economic interest separate from the right to enter and drill for oil on the land itself. Since the upland owners did not themselves have the right to drill for offshore oil, it is argued that respondent-who has the sole right to drill-has the sole economic interest. ”