The assets to be valued on the alternate valuation date include all property interests that existed on the date of a decedent's death and are a part of the gross estate as determined under sections 2033 through 2044. Sec. 20.2032-1(d), Estate Tax Regs. Those assets are referred to as "included property." Sec. 20.2032-1(d), Estate Tax Regs., also provides that:

such property interests remain "included property" for the purpose of valuing the gross estate under the alternate valuation method even though they change in form during the alternate valuation period by being actually received, or disposed of, in whole or in part, by the estate. * * *

The parties agree that the proceeds derived from oil and gas reserves produced and sold between the date of decedent's death and the alternate valuation date are "included property." They also agree that the value1990 U.S. Tax Ct. LEXIS 108">*118 of the oil and gas produced during the interim period for Federal estate tax purposes is the in-place value of those reserves on the date of severance. The parties have applied different 95 T.C. 566">*572 methods, however, to determine the in-place value of those reserves.

The parties rely primarily upon the valuations prepared by their respective experts. Expert opinion is admissible if it will assist the trier of fact to understand evidence that will determine a fact in issue. See Fed. R. Evid. 702. Both experts were qualified to express opinions on the in-place value of the oil and gas reserves.

Petitioner presented the report and testimony of F. Doyle Fair (Fair), a consulting petroleum engineer. The amount reported on petitioner's Federal estate tax return, $ 686,488.93, was the amount Fair originally determined to be the in-place value of the reserves. Fair arrived at this value by use of a "shortcut estimate." This estimate was used because of time restraints imposed by the estate tax return filing date. Fair simply reduced the net proceeds from the interim sale of the reserves by a 30-percent risk reduction factor.

In his report, however, Fair used1990 U.S. Tax Ct. LEXIS 108">*119 a more complicated method to measure the in-place value of the interim production as of the date of severance. Fair's opinion was that this appraisal process provided the most accurate measure of the interests being valued. This methodology resulted in an in-place value of $ 683,306 in the interim production. Fair testified that this value was slightly inflated because he improperly included the value of equipment in making his appraisals.

Fair appraised each of the oil and gas properties at 16 different time frames. These time frames represented the 15 changes in the price of oil between the date of decedent's death and the alternate valuation date. The oil prices used were representative of the prices paid for crude oil in Kansas. The prices used to appraise the gas interests were the actual prices from sales of gas, on the date of decedent's death and the alternate valuation date, adjusted for each time frame based on the increase or decrease in the price of gas during that period.

Fair employed the discounted future net cash-flow method to appraise the most valuable leasehold interests as of each 95 T.C. 566">*573 time frame. He also used the cumulative net cash-flow method to 1990 U.S. Tax Ct. LEXIS 108">*120 appraise some of the leasehold interests. The risk reduction that was applied to the present worth of the discounted future net cash-flow in each of the appraisals was the risk inherent in projecting the cash-flow over the entire estimated useful life of the lease.

The appraised fair market value of each leasehold interest during each time frame was then divided by the estimated reserves remaining on that date. This amount, the estimated value per barrel, was multiplied by the number of barrels actually produced during that time frame to arrive at Fair's opinion of the in-place value of the oil and gas reserves produced and sold between decedent's date of death and the alternate valuation date.

Respondent presented the report and testimony of Von B. Pilcher (Pilcher), a petroleum engineer and an employee of respondent. He reviewed and confirmed the computations made by another petroleum engineer, Charles Young (Young), who was also an employee of respondent. The computations were made in accordance with the procedure set forth in Rev. Rul. 71-317, 1971-2 C.B. 328. Young applied a discount rate of 11 percent to1990 U.S. Tax Ct. LEXIS 108">*121 the net proceeds derived from the sale of oil and gas reserves during the 6-month period between the date of decedent's death and the alternate valuation date. The rate was used to discount the total proceeds back to the date of decedent's death. This amount was not further adjusted by any risk reduction factor.

The narrow issue for decision in this case is the correct method for determining the in-place value of oil and gas reserves produced and sold between decedent's date of death and the alternate valuation date. This issue has been addressed but not resolved by the Court of Appeals for the Fifth Circuit in Estate of Johnston v. United States, 779 F.2d 1123">779 F.2d 1123 (5th Cir. 1986). In Estate of Johnston, the court held that "the appropriate value to be assigned to oil and 95 T.C. 566">*574 gas produced during the interim period, for inclusion in the gross estate, is the in-place value of that oil and gas on the date of its severance." 779 F.2d 1123">779 F.2d at 1129.

The Court of Appeals for the Fifth Circuit also stated that respondent's method of determining the in-place value of the reserves, set forth in Rev. Rul. 71-317, 1971-2 C.B. 328,1990 U.S. Tax Ct. LEXIS 108">*122 was "inadequate, considering the complexities of evaluating oil and gas interests, and the language of 26 U.S.C. sec. 2032(a)(1)." 779 F.2d 1123">779 F.2d at 1128. The court remanded for evidence -- to be provided by experts -- on the in-place value of the oil and gas reserves disposed of prior to the alternate valuation date.

Petitioner requests that we follow the decision of the Court of Appeals for the Fifth Circuit in Estate of Johnston and conclude that petitioner's expert correctly determined the in-place value of the interim production. We decide this case by weighing the respective opinions of the experts, rather than by a direct consideration of Rev. Rul. 71-317. Revenue rulings are not substantive authority but are merely a statement of the Commissioner's position with respect to a specific factual situation. Stark v. Commissioner, 86 T.C. 243">86 T.C. 243, 86 T.C. 243">250-251 (1986).

Petitioner argues that Fair utilized the same standard appraisal methodology in connection with his determination of the in-place value of the oil and gas reserves sold during the 6 months1990 U.S. Tax Ct. LEXIS 108">*123 following decedent's date of death that he used for the date of death and the alternate valuation date appraisals. Therefore, petitioner contends, the consistent application of the standard appraisal methodology by its expert, appropriately adjusted to reflect actual fluctuations in pricing during the alternate valuation period, is the proper method of valuation for purposes of section 2032(a)(1).

Respondent claims that the methodology employed by Fair, although cloaked in traditional techniques used in the appraisal of oil and gas properties, is not consistent with standard appraisal methodology and fails to account for the difference between the asset being valued in a typical oil and gas appraisal and the asset being valued under section 2032(a)(1).

95 T.C. 566">*575 The standard appraisal methodology represents an estimate of the price at which the oil and gas property would exchange hands between a willing buyer and a willing seller. The appraiser has, in effect, determined the in-place value of the oil and gas reserves as of the applicable date of valuation. This determination represents the cumulative value of the total reserves to be produced and sold, and the buyer's right to 1990 U.S. Tax Ct. LEXIS 108">*124 receive the income therefrom, over the entire economic life of the property.

Where the appraiser is only attempting to determine the in-place value of the oil and gas reserves sold on a daily basis during the 6-month period between the date of a decedent's death and the alternate valuation date, the risks to be considered in the valuation are not the same as when the reserves to be produced and sold over the life of the property are valued. We believe that Fair erred by failing to account for these differences.

Using the discounted future net cash-flow method, the present value of the projected income from the sale of oil and gas reserves over the life of the property is further reduced by a risk factor. As the testimony indicates, this factor is basically a certainty factor. That is, the risk factor is designed to offset the estimates of future prices and reserves remaining, as well as other technical, economic, and political factors that can alter the projections of income to be derived over the life of the property. The risks, and therefore the risk reduction factor, increase over the life of the property.

As stated above, when Fair appraised each of the leasehold interests 1990 U.S. Tax Ct. LEXIS 108">*125 at each time frame, he applied the standard methodologies. Accordingly, the risk reduction factor that Fair applied to his projected net cash-flow represented the risks associated with the particular interest appraised, over the economic life of the property. This value was used to arrive at a net unit price for each quantity of oil or gas produced during that time period. There is no evidence before us to suggest that it is standard in the oil and gas industry to use the appraisal methodologies, as Fair did, to arrive at an average net price per unit. This method of valuation assumes that each quantity of oil or gas that is produced during that time period has a value 95 T.C. 566">*576 equal to a quantity of oil or gas that will be produced at the end of the economic life of the property. This assumption is contrary to the weight of the evidence presented in this case.

Respondent's expert, Pilcher, testified that, in the typical appraisal of an oil and gas interest, the projected value of the reserves to be produced will decrease over the life of the property. The reason that Fair's methodology does not reflect this fact, and the problem with Fair's methodology, is that the same risk1990 U.S. Tax Ct. LEXIS 108">*126 reduction factor is applied to each quantity whether it is produced on day 1 or the last day of production. The risks, however, are not the same on day 1 as on the last day. As explained in Pilcher's written report:

The economic risks are negligible in that any change in the price of oil or gas would not affect the taxpayer in that same 24 hour period. The same is true for political risks. Only in the most remote and extraordinary circumstances could a political change occur which would affect the income of oil or gas property within a 24 hour period.

As far as technical risks are concerned, once in a while a well of its own accord, will unexpectedly fall dramatically in production from one day to the next. But even in the outside chance that this does happen, it only affects one day's production projection. Subsequent projections would of course be based on the new and lower production rate.

All of these areas of risks are trivial, and diminutive as far as predicting income on a day to day basis.

The risk reduction factor that Fair applied to the most valuable leasehold interests during the first time frame was between 20 percent and 35 percent. During the last time frame, 1990 U.S. Tax Ct. LEXIS 108">*127 Fair applied a risk reduction factor between 20 percent and 40 percent to the same properties. Effectively, the same risk reduction factor that was applied to each unit that was actually produced during each time frame was also applied to each unit to be produced at the end of the economic life of the property.

Petitioner did not offer any evidence to contradict Pilcher's assertion that the value of a quantity of oil or gas produced in the future would be less than a quantity that is currently produced. Fair did state that the risks associated with the recovery of reserves from an oil and gas property increase with time.

Petitioner contends in its brief that on a given date each quantity of reserves in-place is equal to each other quantity 95 T.C. 566">*577 of reserves in-place on that date. Petitioner asserts that each quantity of oil or gas is not specifically identifiable as it exists in-place and that each quantity is important in the process of pushing the next quantity of oil or gas to the surface. Therefore, petitioner argues that the unit which is actually severed on a given date must be equal in value to the units that remain in-place on that date.

We cannot accept this reasoning. 1990 U.S. Tax Ct. LEXIS 108">*128 By applying a risk reduction factor that increases with time, petitioner has acknowledged that the projected value of the reserves to be severed at the end of the economic life of the property would decrease over time. In valuing reserves as of the date of severance, however, petitioner has applied the same risk reduction factor to each quantity of reserves, regardless of when the quantity is severed. Petitioner disregards the purpose and function of the risk reduction factor, which is to offset the uncertainties inherent in projecting future income and expenses over the life of the property. The risks and uncertainties in valuing a particular quantity of in-place reserves to be produced on a daily basis are negligible, and the risk reduction factor should be adjusted to reflect this fact. If the reduction is not adjusted, the reserves to be severed as of the date of valuation are undervalued. In this case, the price changes actually occurring presumably reflect factors that would have been covered by a risk reduction adjustment.

Petitioner also states that it is well established that Congress, in providing two dates of valuation, did not intend that a different method of valuation1990 U.S. Tax Ct. LEXIS 108">*129 should be employed merely because the alternate valuation date is chosen rather than the date of decedent's death, citing Maass v. Higgins, 312 U.S. 443">312 U.S. 443, 312 U.S. 443">448 (1941). From this, petitioner argues that respondent's method of valuing the interim production is a departure from the industry standard typically employed for a date of death appraisal and is therefore improper.

In the standard appraisal, the price of reserves as well as operating expenses and certain taxes are estimated in calculating the projected future net cash-flow from the property. In his appraisal of the interim production, Pilcher used the net proceeds derived from the interim production 95 T.C. 566">*578 to estimate the in-place value. The net proceeds figure used was derived from net sales of oil and gas during the alternate valuation period, less the operating expenses and equipment purchased during this period. Therefore, respondent considered the same elements in determining the net cash-flow that are considered in the typical appraisal at the date of a decedent's death and alternate valuation date. Neither party presented evidence of ad valorem or severance taxes during this period.

1990 U.S. Tax Ct. LEXIS 108">*130 Petitioner would require respondent to ignore the actual sales price of oil and gas on the date of sale. Petitioner, however, in accordance with standard appraisal techniques, has used these same figures in its calculations of the projected net cash-flow over the life of the property. Both parties were attempting to value a quantity of reserves in-place. Because of the nature of the assets being valued, these methods are imprecise and involve estimates, and estimates and approximations are generally less reliable than evidence of actual sales of the property to be valued. See Tripp v. Commissioner, 337 F.2d 432">337 F.2d 432, 337 F.2d 432">434-435 (7th Cir. 1964), affg. a Memorandum Opinion of this Court. Even if the valuation were to be at the date of death, foreseeable subsequent sales would be considered. Therefore, we cannot say that respondent erred by using the actual sales price as of the date of sale in his valuation. If respondent had used only the sales price to determine the in-place value, we would be inclined to conclude, as petitioner contends, that respondent was valuing the reserves in a different form than the reserves existed in as of the date of decedent's1990 U.S. Tax Ct. LEXIS 108">*131 death and the alternate valuation date. Respondent, however, used the net proceeds and considered the same factors that are considered in the appraisal at the date of a decedent's death and the alternate valuation date. The difference is that respondent limited the projection of net cash-flow to the alternate valuation period, rather than estimate the total cash-flow over the economic life of the property.

Finally, we do not believe that respondent erred in not reducing his calculations by a risk reduction factor. Respondent effectively valued the reserves on a daily basis by using the net proceeds. The evidence indicates that the risks are trivial during this period of time. Therefore, it was 95 T.C. 566">*579 not necessary to apply a risk reduction factor during this limited time frame.

We must weigh the expert opinion evidence in light of the demonstrated qualifications of the experts and all other credible evidence. Estate of Christ v. Commissioner, 480 F.2d 171">480 F.2d 171, 480 F.2d 171">174 (9th Cir. 1973), affg. 54 T.C. 493">54 T.C. 493 (1970). We are not bound by the opinion of any expert witness; we may accept or reject expert testimony that is contrary 1990 U.S. Tax Ct. LEXIS 108">*132 to our judgment. Estate of Hall v. Commissioner, 92 T.C. 312">92 T.C. 312, 92 T.C. 312">338 (1989).

We have found no precedent or logical support for petitioner's expert's reduction for risk applied to the facts of this case. The risk reduction factor, even though appropriate when determining the fair market value of the total in-place reserves, is not necessary when determining the in-place value of a known quantity of reserves as of a particular date of severance. Respondent has considered the price as of each date of severance as well as the operating expenses associated with those reserves. In our best judgment and in light of the expert testimony and other evidence before us, we accept respondent's determination that the in-place value of the reserves produced and sold between decedent's date of death and the alternate valuation date was $ 930,839.76. We have considered and reject petitioner's other arguments. Due to concessions by the parties,

Decision will be entered under Rule 155.