Untitled Texas Attorney General Opinion

THEA 0 S AUSTIN. TEXAS January 21, ~1950 Honorable Bascom Qlles, Commissioner Qeneral Land Office Austin, Texas Opinion lo. V-985 Re: Whether well producing gas from which condensate is ex- tracted may be included In *oil" formula and whether "gaaU clause Is applicable to gae produced. Dear Commlseloner: Your request for an opinion relates to whether under 011 and gas lease contract MF 18736, a well (Well Ho. 7) producing gas only and classified a8 a gas well by the Railroad.Commiasionof Texas from which condeneate.18extracted may be included in the "011" formula by the operator of the lease, Carter-Gregg Oil Company. You also ask our opinion as to the correct compensationto be collected on production from thle well. Briefly, under the facta which are set out in detail in your request and not repeated here, you ask: 1. The compensationto be collected by the State for gas produced from the well, and 2. Whether Well No. 7 should be in- cluded in the "oil" formula. The questions presented turn upon determln- ation of whether production from Well Ho. 7 is *gas" within the "gas" compensationclause of the contract and as such subject to payment of royalty to the State as "gas." We will consider the questions in the order stated. Hon. Bascom Olles, page 2 (v-985) Anx doubt that "gaB" under the lease meana "naturalgas is resolved ,byexamlnatlonof the lease as a whe1.eart&by reference to %he Act under author- ity of~which *he lease waB executed. That Act,~Senate Bill 25, Acts 42nd Leg., 2nd C.S., 1931, Ch. 40, p. 64, readsfn part: "... beck.oirlvers and channels be- longing to the state shall be subject to developmqntby the state and to lease or contract for the recovery of petroleum 011 .and/ornatural gaB....* (Emphasisadded) Paragraph 24 of the contract provides that: "Should there be any conflict In any provisions of this contract with that of Chapter 40~referred~toabove, t&n and In that event, the provl~lon of such law shall be written l&o this contrkct, and shall control...." , .. "Baturalgas" Is defined as a gaseous product arising from petroleum wells and Is divided Into two ClasBeB, "dry natural gas" and "wet natural gas.' "DrJ natural gas" Is "natural gas" that does not contain an appreciableamount of readily condensablegasoline and Is usuallr not lntlmatelva8Boclatedwith petroleum. 58 C.J.S. 22, 23, Hlnes ind Minerals, Sec.-2. Section 1, Article 604ge, V.C.S., reads in part: I( 0.. The words 'naturalgas' and 'gas' mean the same thing whether used in this Act or elsewhere In the conservationStatutes of this State relating to oil and gas...." t@der the deci_plonsIn Thelsen v. Roblson, _ a----. 117 Tex. 489, 8 S.W.2d 646 (192U), er v. Clark, 117 Tex, 489, a S.W.2d 666 inhe Er lres (u&r a-G&e lease) all of the tinera In placti. However, In view of the provlslonr of the contract here in question It Is clear that the rule In these cases does not apply. Paragraph 26 of the contract reads In part: Hon. Bascom Glles, page 3 (v-985) "It Is the Intention of the Board and of the Company to jointly develop said premises by primarily placing the respon- sibility thereof on said company and mak- ing such company Its agent for that purpose. This contract Is not lntended'asa lease nor the sale of any of the 011 and/or gas In place, but on the contrary, this Board and the State reserve the title to all of the 031 and gas In place and until actually produced at the surface of the earth and saved....' While casingheadgas or the gasoline content thereof la held to be within the "oil" royalty clause, there Is a well defined distinction In law between caslngheadgas and gas produced from a gas well. At- torney General's Opinion No. 0-1760; Humble 011 & Re- fining Co. v. Poe, 29 S.W.2d 1019 (Comm. App., 1930), and authoritiesthere cited. Although we have found no Texas case dlrect- ly "In point" on the uestlon, In Lone Star Gas CompanJ! v. Stlne, 41 S.W.2d 48 (Comm. App. 1931) It was said that a gas deed covering "all natural gait*Included all the substances that come from the well as gas regard- less of whether such gas be 'wetn or 'dr Cf. Lone Star Gas Company v. APP. 1929'9error ref. 45 S.W.2d 664 (Tex. C (Tex. Clv. App. 1932, v. Pardue, that gasoline Is one of the constituentelements of "natural gas" as that term Is ordinarilyused and under- stood. Gasoline Is one of the c6nstltuentelements of natural gas and the sale of "gas" Includes all and not part of Its content. We think payment should be made on all of the "gas" and not on part of Its content. Wall v. United Gas Public Service Co., 152 So. 561 (La. Sup. 19341, and cases there cited. A recent expression by the Federal Courts In relation to the question Is found In a decision by the Circuit Court of Appeals, Fifth Circuit. In that case, the lease provided for payment to lessor of l/&h of the proceeds derived from the sale of gas at the mouth of the well. The gas was not sold but processed and the products sold. The lessee was held liable for l/&h Hon. mscoe Qlles, page 4 (v-985) of the fair value of the gasoline and l/&h of the pro- ceeds of the-Bale of the,reti&e~gae 1eBs a proportlon- ate Credit for,coBt of tranBpOrti%tlon,separa$iOmand sale. ?h%lll~~petrO~ep~ (C.C.A. 5th 1946 td Phillips Pekoletk gz? ;. 5th, 19461. We think the contract here In question evl- dences a purpose to treat production from Well Wo. 7 as "gas" as dlstlngulshedfrom "011," "casingheadgaB" or "other gaseous substances." This Is so because "dry gas" as used In paragraph 6 of the contract ob- vlously refers to "gas" and Is a part of'gas. The'facts subaltted Indicate that the operator 1s actually treat- ing production from the well as "gas" as that term Is used In the contract. The obligation Is to account to the State for the "gaB* In the form produced from t&e tell when saved and sold. The contract provides thit ... The only obligationof said company when I$ either purchases or sells all of the gas produced from said well ..~ Is that it remlt fifty per cent (50$) of the proceeds from the sale thereof...." See Attorney Qen- eral's Letter Opinion dated January 6, 1948. It Is our view that the contract contemplates gayment of 50$ of the proceeda frzm the sale of the gas" to the State under the "gas clause for gas pro- duced from wells producing gas only whether such gas be "wet" or "dry," and regardless of whether the gas Is sold at the well or split Into Its constituentpiWtB and sold, and we so hold. Lone Star Gas Co. v. Stine, supra; Phillips PetroleumCo. v. Johnson, supra. In answer to your second question, having de- termlned that production from Well Ho. 7 Is "gas" and within the "gas" clause of the contract,we agree with your view that production from the wellsshould not be Included In "average dally production"under the "oil" formula. The contract provides separate and'dlstlnct provisions for payment for the "oil" and the "gas" be- longing to the State. We find no Intention expressed In the compensationclauses or elsewhere In the con- tract to treat wells producing gas only as 011 wells. It may not be done under the leaae contract, and we 130 hold. . x011, Baacorn fflles,page 5 (v-985) SUMNARY Production from a well producing gas only Is within the "gas" clause of the oil and gas lease contract submltted (HF 18736) and the State Is entitled to 5Q$ of the proceeds from the sale thereof In the form sold. Yours very truly, PRICE DAKCEL Attorney General a- Everett RutchlnBon EH:db Assistant APPROVED: Cbsrles D. Mathews ExecUtiVe AsBlsta& Prfce Daniel Attorney General