Honorable Jerry Sadler Opinion No. C- 304
Commissioner
General Land Office Re: Authority of the School
Austin, Texas Land Board to reduce the
gas royalty of a river
Dear Mr. Sadler: bed tract.
You have requested an opinion of this office to deter-
mine whether the School Land Board has the authority to
reduce the amount of gas royalty to be aid under the terms
of an oil and gas lease executed in 193lil by the Board for
#lineral Development, predecessor of the present School
Land Board.
The terms of the lease provided for a sliding royalty
scale on oil of not less that 25-l/2% up to 66-2/3$ and a
straight 50s royalty on gas that was produced and saved.
The lease has been held by production throughout the years
by oil production.
However, in 1960 the Cayuga (Trinity) Gas Field Vas
discovered and there.were three offset wells drilled to
the 120 acre State River Be'd Tract. Because of the high
royal.ty provisions for gas, it'has been impracticable for
an operator to either drill this tract or to pool'it with
adjoining tracts to form a gaa unit. The State tract
therefore has been drained for the past several years by
the&e offset wells. The only way the tract can be pro-
tected from this drainage is to have the 50s gas royalty
reduced so that the lessee can either drill this tract or
pool it with adjoining acreages to form a gas unit.,
Article 5421c, Subsection 6b, Vernon's Civil Statutes,
which was passed In 1933 by the #rd'Legislature, provides
in part as follows:
II pro,vided, further that said Board
may ~odi&? said contract as aforesaid by
adjusting up or down from time to tfme the
State's portion of said oil and/or money
payment as the condltion~ereinbefore, set,
forth may justify and which may be equitable
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Hon. Jerry Sadler, page 2 (C-304)
to the State and to said cont,ractors or
their assigns, but in no event shall the
State Is portion be less than. one-fourth
nor more than now provided In said con-
tracts, and in no event shall the Board
of Mineral Development have any authority
%?omodify or change said original leases
as to gas. . . :’ (Fauphasls’add.ed. )
Certainly this article, if still controlling, would
prohibit the ~Schsol~Land Board from reducing the gas roy-
alty to a lower percentage than thatprovided in the orlg-
lnal lease.
However, ,in 1951 the 53rd Legislature enacted.Senate
Bill~307, codiiied as Article 538% ,, Vernon’s Civil Stat-
mutes, yhich,authorlaed the Commiqioner of the General Land
-Office after the approval of the School Land Board ,tp enter
Into unitization and, pooling agreements Wherein the School
lands and’,State, lands can be placed into oil or ,gae u&ts.
Section 2 of that statute provided that:
“Any agreement authorized to be executed
under the provisions ‘of this Act may pro-
vide *
boapi •,&g~ “~&;yegtnf.g z:,p ority
, , 9 ,g
of the State vested with authority to lease
or approve the leasing of said lands may
deem necessary for the protection of th
‘interests ,of the State.” t%‘h asis addzd. )
Section 5 of that statute stated very olearly the rea-
sons that ,the Act waa passed. It reads in part as follows:
“The fact that the value of many state-
owned tracts is being diminished and there
is doubt as to the extentof the power of
the Commissioner of the General Land Office
to enter into agreementa of the kind de-
scribed herein, create an emergency. . . .”
Section 3 of the Act provided that all prior laws in
conflict therewith were rephaled.
The Legislature in enacting Senate Bill 307 certainly
gave the School Land Board the authority to enter into pool-
ing and unitization agreements when it would be for the beat
interest of the State to do 80. ‘Phe Board further. hasthe
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Hon. Jerry Sadler, page 3 (C-304)
authority to approve agreements with certain'provieions
they deem necessary for the protection of the interests
of the State.
The Legislature in enacting the present Article 5382~
has repealed that portion of Article 5421c, Section 8, Sub-
section 6b, which prohibited the Board for Mineral Develop-
ment from changing or modifying the terms of sn ori inal
oil and gas lease as to gas. In passing Article 53%20, the
Legislature gave the School Land Board the authority to
enter into unitization and pooling agreements affecting
State lands. It is an elementary principle of oil and gas
law that the execution of a gas unitization agreement changes
the terms of the ori lnal lease. Veal v. Thomanson, 138 Tex.
341, 159 S.W.2d '$72 k1942).
Therefore, it is the opinion of this office that the
School Land Board does have authority by virtue of the pro-
visions of Article 5382~ to reduce the gas royalty from
that provided in the original lease by entering into a
unitization or pooling agreement which provides for a lesser
royalty, provided however, that the Board deems such provi-
sions necessary to protect the Interests of the State.
SUMMARY
The School Land Board has authority under
Article 5382c, V.C.S., to modify the terms of
an oil and gas lease as to gas if they deem
such changes as for the best interest-of the
State.
Yours very truly,
WAQGORRR CARR
Attorney General of
LS:afg Assistant Attorney General
APPROVED:
Opinion Committee
W. V. Oeppert, Chairman
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Hon. Jerry Sadler, Page 4 (C-304)
Ben Harrison
Larry Merriman
Grady Chandler
Larry Craddock
APPROVEDFOR THE ATTORNEY
GENERAL
By: Stanton Stone
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Untitled Texas Attorney General Opinion
Combined Opinion