7. The failure to prorate

BNY's error in allowing deductions for defunct wells is merely the most extreme violation of a general principle: that the Trust only enjoy the fruits of production that occurs after the Conveyance and, equally, that the Trust only pay for liabilities attributable to such production. The phrases "from and after the Effective Time" and "not attributable to a production month that occurs prior to the Effective Time" litter the Conveyance Agreement.

Indeed, without such a principle, much of the Conveyance Agreement would be a nullity: there would be no need to enumerate Subject Wells on Schedule D and no need to speak of pre- and post-Conveyance limitations at all. Any well or facility on the subject leases could be dumped on the Trust by the operator causing it to produce a single drop of oil and thereby satisfying the criteria of Developed Properties Gross Deductions.

But the Conveyance Agreement was not written to allow such absurdities. The "from and after" and "attributable to a production month" language makes it clear that a well that produced, say, 90,000 barrels before the Conveyance and 10,000 barrels after the Conveyance and was then plugged and abandoned at a cost of $100,000 would only give rise to $10,000 of ARO deductions against distributions to the Trust.

This principle has been ignored by BNY, which fact suggests that in addition to the ARO containing dozens of defunct injection wells that were never liabilities of the Trust, the ARO for producing and recently-abandoned wells is also improperly inflated by the inclusion of liabilities that are properly attributable to pre-Conveyance production months.