Arims an. TSXAH
May 31, 1939
Mr. R. A. Shepherd C$inion No. O-851
Vinson, .Zlkins, Weems : Recycling agreements relat-
& Francis ing to properties in the Agua
Niels Esperson Bldg. Dulce Field, Nueces County,
Houston, Texas . Texas. .
Dew Sir:
We have your letter of May 15, 1939, with reference to
certain agreements relating to the recycling of gas in the Agaa
Dulce gas field in Nueces County, Texas.
We also acknowledge receipt of the following specimen
contracts :
1. Contract between Union Producing Company, United
Gas Pipe Kline Company, and Clyde H. Alexander John J. Sheerin
and Robert T. Wilson, which is hereinafter tailed the Alexander
contract.
9 Contract between Union Producing Company, United
Gas Pipe LGe Company, and the .&ua Duke CODP~~IY, which is here-
inafter called the ague Dulce contract.
39 Contract between xoyalty owners and Union Produc-
ing Company, hereinafter called royalty contract.
From your letter, and from the specimen contracts which
you have submitted to us, we understand that the plan contem-
plated by the contracts may be briefly outlined as follows:
Union Producing Company owns leases on the greater part
of the producing..acreage in the Agua Dulce gas field, which con-
tains several gas producing horigons. _ Union Producing Company
has a contract with United Gas Pipe Line Comp,?nywhereby United
Gas Pipe Line Company has the right to purchase from Union Pro-
ducing Company-gas which it needs for pipe line purposes. Since
the market for gas to be used for light and fuel is limited, it
is planned to utilize the excess gas for the extraction of na-
tural gasoline and the separation of condensate from the gas.
With, this purpose in mind, Union Producing Company and United
Gas Pipe Line Company have entered into contracts with The Agua
Dulce Company and Clyde H. Alexander, et al.; respectively,-
whereby The Agua Duke Company and Alexander, et al., agree to
‘_ . . p
.-
Mr. R. A. Shepherd, page 2 (O-851)
prdcess and recycle gas not required by United Gas Pipe Line
company. Contracts have also been”entered into, or-Yill-be en-
tered into, between UnionProducing Company.and the -_various- .
royalty owners authorizing..the processing and .recycling of the
gas. Rach of these .contracts contains many detailed provisions
relating to the rights and obligations of the contracting par-
ties.
Ttie first question presented is whether the Attorney
General of Texas is authorized or required to approve or disap-
prove these contracts. This question, we believe, is answered
by Section 21 of Article 6008, of the Revised Civil Statute~s
(Rouse Bill No. 266, Acts Fort -fourth Legislature, Regular Ses-
sion, 1935, Chapter 120, p. 31i ) which provides as follows:
“In order that land owners and operators that have ’
undeveloped land within a proven natural gas field may
secure a market. for their natural gas, and id order that
the market for natural gas may be more equitably distri-
buted among the various land owners and operators, and
in the Interest of the conservation and development of
natural gas, it is declared to be lawful for any two or
more lessors, lessees, operators, or othe~r persons, firms,
or corporations owning or controlling production, leases,
royalties or other interests in the separate properties
of the same producing gas field, with the approval of
the Attorney General of Texas, to enter into agreements
for the purpose, of bringing about cooperative develop-
ment and/or operation of all or a part, or parts of such
field, or for the purpose of fixing the time, location ’
and manner of drilling and operating wells for the pro-
duction, storage, marketing or the repressuring of gas,
or for the purpose of the equitable distribution of roy-
alty payments. Any such agreement shall bind only the
parties thereto,-and their successors and assigns of such
‘having knowledge or notice thereof, and shall be enforce-
able in an action for specific performance.”
It is our opinion that under the statute quoted above
the Attorney General of Texas is authorized and required to ap-
prove -or disapprove agreements between land owners and operators
relating to the cooperative development of natural gas fields.
It is also our opinion that the Attorney General is authorized
only to consider whsther the contracts comply with or violate
the conservation laws of this State, and that the Attorney Gen-
eral is not authoriz~ed or required to determine whether the con-
tract is fair or equitable between the contracting parties. Un-
der Article Iv, Section 22, of the Constitution of Texas; we
believe that the Attorney General is not authorized to represent
‘. .’ ‘. ‘.
.q ‘. *
.
Mr. R. :L Shepperd, page 3 (O-851)
;
private parties while acting in his official capacity.
We believe that the Agua Dulcet contract end the Alex-
ander contract are designed so-as to comply with the conserva-
tion Lids of the State of Texas, and the rules .and~regulations
of the Railroad Commissionof Texas promulgated in pursuance of
such statutes. .Paragraph XXVII of the Alexander contract pro-
vides as Pollows:
“This agreeme,nt shall be subject to all valid rules
and regulatior-s of the Railroad Commission of Texas or
other regulttory body having jurisdiction and Seller agrees
to operate its wells .end produce ~the gas therefrom in ac-
cordance with all such orders, rules and regulations, and
Buyers agree to operate their plant, lines and equipment
in accor,dance with.all.such,.orders, rules and regulations.e
_ _
Paragraph XXII of the &a Dulce contract 1.s identical
in its provisions with Paragraph-XXVII of t.he 4l.exande.r contract,
quoted above. ~.,We:construe these -paragraphs to-mean, that all pro-
visions of both cont,racts are ,subjeot toYthe- valid. orders of the
Railroad C+xmnissi~on,,and that, in, the event. .th$t any ‘provision
of either contr,act ‘should conflict .with any .orde.r of the Rail-
road Commission, the contractual provision shall be, inoperative.
As so construed, the contracts do not, in our opinion.,.~violate
any of the conservation .laws of the State of Texas.
.~ Without attempting’~to discuss. in detail ~the various
provision of the~..Alex,ander and .the &ua..Dulce., contr~a,cts,. .we
wish to mention ~certain provisions and‘point z.out.their relation
to the conservation laws.~~ The general ur ose of the contracts
1~ authorized by S~ection ,21 of. Article &f;0 ., .Revised Civil Stat-
utes, quoted above,. and aiso by. Subdivisions, .:(c>, ,and (d) of Sec-
tion 7 (1) of said Articlei which .provide~ that ‘sweet gas may be
used Ior the followings purposes: -
“(~1 .Bona fide introduction ofgas into oil, or gas
bearing ho,rizon, izi order ~to maintains or increase the rock
pressure or, ,otherwis~e inc,rease: the ultimate recovery of
oil or gas from such horizon.
‘!(‘d) :.~~.
The extr,act.ion of natural gasoline therefrom
when the -residue is ret~urned to :the ~horizon from which it
is produced.”
0u.r information: is. that all of, .t.hegcs produced. from this
field is sweet, gas, so tha:ltl she. ~question of: the ,possible coniming-
ling of sour gas and sweet ,gas is not involved.~ It is provided
by these contracts, however,-.that. the .gas need not be returned to
the same formation or lease from which it was produced. Paragraph
..” i ‘..
Mr. R. A. Sheppard, page 4 (O-851)
ixvof the Alexander ~agreement provides, in part, as follows:
IlIt, is understood and agreed that it will be neces-
sary for Seller to secure agreements from various of its
royalty oxfners providing . . . that the gas may be re-
turned into certain input wells drilled on the above re-
ferred to premises without actually being returned to the
exact lease or exact well on the lease from which the same
was produced and without being returned into the exact
formation from which the gas was produced, . . .I’
Paragraph Xv of the same contra,ct provides, in part,
3s follows:
YCt is recognized and agreed th-t Buyers will be un-
able,-due to varying operating .conditions, to return to
each formation during any spe~clfic day or other specific
period of time, ~the exact .ratab.le. proportion of the gas
which should be ret.urned thereto., but. Buyers. agree that
they will, to the best of their ability, by balancing ex-
oesses against deficiencies during pe.riods of reasonable
duration, maintain a .ratable proportion of, gas returned
to each format ion based on then amount of gas withdrawn
therefrom.‘l
Substantially the same provisions asthose quoted above
are found in, Paragraphs XX and :XV of. the Agua Dulce contract.~
These provisions correspond to the provision iii Paragraph I of
the royalty contracts,~ which reads as .follows:
“Lessee shall have the right to deliver under said
Agua Dolce Contract or under said Alexander Contract gas
produced from the above described premises for the extrac-
tion of natural gasoline and separation of condensate from
said gas, and in making such deliveries of gas and in ma?+
ing such deliveries of gas and in the processing thereof
to permit the gas produced at&delivered from the above de-
scribed land to be commingled with gas produced from other
lands and leases in the Agua Dulce Field; provided that the
gas remaining after the extraction of natural gasoline and
separation of condensate .from ~a11 gas delivered by Lessee
under said Contracts shall, except as otherwise provided
in said Contracts, be returned into the formation or form-
ations from which such gas was produced through certain
input wells located at points selected by Le,ssee on the
above described land per on othe,r lands or leases in the
Aqua Lulce Field subject to such .Agua Duke Contract or
subject to such Alexander Contract,
‘..
,
Mr. R. A. Shepherd, Rag 31, 1939, page 5 O-851
"It Is recognizedand agreed that In order
to secure efficientand profitable operation of
the plants in which Lessee's gas is processed, it
may not be feasible to produce gas from each and
every lease or tract of land in the Agua Dulce
Field subject to said Agua Lulce Contract.or sub-
ject to said Alexander Contract, or to return to
each said lease or tract of land subject to either
of said Contracts the quantity of gas equivalentto
the gas remaining from that delivered from the said
lease or tract of land after the extraction of
natural gasoline and the separationof condensate
therefrom. Therefore,Lessee shall have the.right
to produce the,gas marketed or used by Lessee.and
,thegas d,elFvered by.Lessee under 'a either of.safd
Contracts,from any,of the leases .ortracts of.'.land
subject to,either of said~contracts.ILess.ee 'Shall..
also~.have the right'to cause ,thegas remaining -af-
ter processingIn aald~~plants to be.returned~,to :
the formatlon orformations ~fromwhich produc.ed.'I-
t&?ougkinput wells .locatedat points.selectedbg,
Lessee .on~my lease ortract of land .lnthe Agua
lXllce.Field subject to'elther ,ofsaid Contracts.;"?
In this connectionwe have consulted-withMr. John E.
Taylor, ,the,ChiefSupervls.or'ofthe Oil and Gas Divlsion..of~the~
Railroad Commission,and Dr.FX;L. fatten,:Drrectorof Produc-
tion In Ijtad:l)lvision.They concur in our opinion t.hatit is .not
neceesafyto:r.eturr'fhe gas to-the exact ,Pormation.fromwhich It
was withdrawn,.nor~thatthe exact proportlonate:partof the gas
be returnsd~eachday to,the formations from which .thegas was
wlthdrawn,,butthat It Is suffici~ent,~under the present orders
of the Railroad~Commis~slon~,
that a ratable proportion of the gas
k;a;rurned to each formation within a reasonable'Time after wlth-
Our opinion is abasedon our understanding that it would
be a practical impossibilityto operate's recycling plant in a
field such as the Agua.Dulce,gasafieldwithout.commingllng~the
gas from several formations,and .thatl,twould be practically lm-
possible to keep the amount of gas relnjected Into .eachformation
each day~exactlg proportionalto the amount withdrawn. Of course,
these provlsions of the contracts.tomake'any orders necessary
to preventwaste, such asorders limiting the amount of gas wLth-
drawn from or reinjected into any formation in order to'prevent
the reservoir pressure.fromgetting too hish or too low..
We also~wish to direct your attention to'the possibility
of a conflict betweena portion of Paragraph I of the royalty
contract and Sectlon 20 of Artfcle 5008, Revised ClvLl,Statutes.
Paragraph I of the royalty contract provides, in part, wasfollows:
-.
Mr. R. A. Shepherd, May 31, 1939, page 6 o-851
”
......Lesseeshall have the right to
produce the gas marketed or'used by
Lessee under either of said Contracts,
from any of the leases or tracts of
land subject to either of said Con-
tracts."
Section.20 of Article 6008, Revised Civil Statutes,
reads as follows:
"In the event the Commission finds that the
owner.ofany gas well has falled or refused to
utllize.or sell the allowable productionfrom his
well when,such owner has been offered a connection
or market for such gas at a reasonableprice, such
well shall'be excluded from conslderatfonfinallo-
cating the daily allowable production form the
reservoir or zone in which same Is located until the
owner thereof sfgnlfl.es to the CommlssLon his
desire to utilize or sell such gas. In all othe?
cases all gas wells shall be taken into account in
allocatingthe allowable production among wells
producing the'same type of gas."
Since there'~Lsno gas,pro&ion order now Ln effect with
reference to the Agua DLtlceField, Section 20 does not 'nowapply
to said field; but in the event that a gas proration order is
adopted by.the Railroad Commlsslonwhich Is applicable tomthis
field, It woQld.be necessary for the Lessee to comply with the
provisions of Section 20, or any similar statute, in order to
obtain the allowable for each well.'~We assume that, undefthe
provisions of the Alexander and Agua Eulce contracts.quoted
above, it is the intention of the producers to abive bjTany
statutes or orders of the Railroad Commlsslon In this connection.
To summarize, it Is our opinion that the three contracts
submF$trid.tous, as construed above, do not vlolate the conserva-
tion laws of this State.
Youra very truly
~,
ATTORNEYGENJ3R4LOF TEXAS
mH:FG:wc By 's/Jim& Pi Hirt
&p&f&); . James p. Hart
Assistant.
s/Gerald,C.Mann
ATTORNEY GEmERAL OF TEXAS
Approved &%r&% c&&Et&e By s/R.W.F. Chairman
,,_,^ .