ABC Transaction [Oil & Gas] Law and Legal Definition

A sale of a working interest from an owner (A) to an operator (B) in return for a cash payment and the right to another (usu. larger) payment when the well produces, followed by A's sale of the right to the production payment to a corporation (C), which pays A in cash borrowed from a lender on C's pledge of the production payment. Thus A receives cash taxed at capital-gains rates, and B pays part of the purchase price with nontaxable production income. The tax advantages of this transaction were eliminated by the Tax Reform Act of 1969.