The opinion
Honorable Earl Rudder Opinion No. WW-185
Commissioner
General Land Office Re: Authority of School Land Board,
Austin, Texas by approval of a unitization agree-
ment, and the Commissioner, by
execution thereof, to agree to the
extension of Lease No. M-18948
beyond its twenty-five year maxi-
Dear Mr. Rudder: mum term.
This is in re.ply to your letter of May 9, 1957, which sets out
certain facts, hereinafter mentioned, and requests an opinion on the follow-
ing quoted question:
‘Can the School Land Board, by approval of the
,unittzation agreement, and the Commissioner, by exe-
cution thereof, agree to the extension of the subject
lease beyond the.twenty-five year principal term 7”
In this same letter you have set out.facts which are as follows:
“On January 16, 1935, Lease No. M-18948, cover-
ing Tract 3, Dickinson Bay, Galveston County, containing
147 acres, was issued by the Commissioner of the General
Land Office to the Stanolind Oil and Gas Company (now Pan
American Petroleum Corporation). That lease was for
‘. . . a period of five years and a.s long thereafter as any
minerals covered thereby are produced therefrom in com-
mercial quantities not to exceed twenty-five years . . .‘.
“In 1947, the Legislature enacted Chapter 82, Page
139 (Art. 534412, V.C.S.), which provided, among other
things, that such lease could be amended upon application
by the owner filed with the Commissioner of the General
Land Office before October 1, 1948, to provide that it
would remain in effect as long after the expiration of the
Honorable Earl Rudder, Page 2 (WW-185)
primary term as the lease produced. The lessee of the
lease here under consideration did not make application
for amendment of the lease under the provisions of that
Act.
.- In 1951, the 52nd Legislature enacted Chapter 150,
Page 254 (Art. 5382~. V.C.S.), under which statute the
State’s interest in any lease may be pooled or unitized.
“Pan American Petroleum Corporation has now re-
quested this office to enter a unitization agreement whereby
the above land will be unitized with other land to form a 630
acre unit. As part of the unit agreement, the lessee proposes
the inclusion of a provision that the above lease will remain
in force and effect as long as there is production from the
unit in paying quantities and royalties paid to the State
thereon. . . .*
Article 5382~ states in Section 1:
-. . . The Commissioner of the General Land Office,
on behalf of the State of Texas or any fund belonging thereto,
is authorized to execute agreements that provide for the
operation of areas as a unit for the exploration, develop-
ment, and production of oil and gas, or either of them, and
to commit to such agreements the royalty interests in oil
and gas, or either of them, reserved to the State or any
fund thereof . . . under the terms of any oil and gas lease
lawfully made by an official, board, agent, agency, or author-
ity of the State; provided (a) that the agreements that commit
such royalty interests in lands set apart by the Constitution
and laws of this State for the Permanent Free School Fund
and the several asylum funds, in river beds, inland lakes,
and channels, and the area within tidewater limits, including
islands, lakes, bays, inlets, marshes, reefs, and the beds of
the sea, are approved by the School Land Board, and are
executed by the owners of the soil if they cover lands leased
for oil and gas under the Relinquishment Act. Articles 5367
to 5379, inclusive, Revised Civil Statutes, 1925, as amended;
”
. . .
Section 2 of this Article provides:
Honorable Earl Rudder, Page 3 (WW-185)
“Any agreement authorized to be executed under the
provisions of this Act may provide . . . (3) that the agree-
ment and/or lease, with respect to the interest of the State,
shall remain in force as long as oil and gas, or either of
them, is produced from the unit in paying quantities and
royalties paid to the State thereon; . . ..”
It is obvious from a complete reading of this statute and its
title that the legislative intent is to allow the Commissioner of the General
Land Office to enter into unitization agreements which in his judgment,
and in the considered opinion of the officials and members of the boards
and agencies whose lands are affected by such agreements, are found to
be in the best interest of the State. The legislative intent is not to provide
another opportunity for holders of State leases to extend maximum term
leases previously executed as was done by the passage of Article 5344~.
~V.C.S., by the Legislature in 1947.
Section 1 of Article 5382~. V.C.S., contains the authority for
the Commissioner to commit the State’s lands to unitization agreements,
and it should be carefully noted that in both the title of this Act and in its
~Section 1 the State’s commitable interest is the royalty interest. This is
set out definitely and clearly by the use of the words “royalty interests in
oil and gas” found in both the title and the authorizing section.
Under Lease No. M-18948, here being considered, there are
three separate mineral estates. The first is the leasehold estate now
owned by Pan American Petroleum Corporation. It is well settled in Texas
that the estate owned by the lessee is a determinable fee interest. Corzelius
v. Harrell. 143 Tex. 509. 186 S.W.2d 961 (1945); Brown v. Humble Oil 81
Refining Co., 126 Tex. 296, 83 S.W.2d 935 (1935). The State as lessor owns
a royalty interest entitling it to l/6 of the oil and gas produced, and it owns
also the reversionary interest which comes into effect upon the expiration
of the determinable fee. Murphy v. Dilworth, 137 Tex. 32, 151 S.W.2d 1004
(1941); Sheffield v. Hogg, 124 Tex. 290, 77 S.W.2d 1021, 80 S.W.2d 741 (1934).
There is nothing in the statute authorizing the Commissioner to commit any
interests owned by the State other than the royalty interest created by the
lease. There is no authority, either expressed or implied, which would
allow the Commissioner to commit any part of the reversionary interest.
The determinable fee owned by Pan American under this lease
is limited by its terms to “as long thereafter as any minerals covered
hereby are produced therefrom in commer~cial quantities, not to exceed
Honorable Earl Rudder, Page 4 (WW-185)
twenty-five years, . . .“. Necessarily the royalty interest continues only
so long as the lease is in force. State National Bank of Corpus Christi v.
Morgan, 135 Tex. 509, 143 S,W.2d 757 (1940). Therefore, as the Commis-
sioner may commit only the royalty interest reserved under the terms of
this lease, he cannot continue the lease in force beyond the twenty-five
year maximum term without thereby enlarging the determinable fee and
the royalty interest. There is no authority to so change the terms of the
mineral lease.
Some contention has been made that subsection 3 of Section 2
allows the Commissioner to extend the lease term by the inclusion of a
provision that the agreement shall remain in force as long as oil and gas
“is produced from the unit in paying quantities”. We are of the opinion
that the significance of this subsection is to allow production from the unit
to qualify as production from the leased premises and thus satisfy the
production requirements of the lease.
If, however, by some interpretation, it was thought possible to
extend the term of the basic lease beyond its twenty-five year maximum,
we are of the further opinion that such an interpretation would require an
unconstitutional application of this statute as the extension would be in
violation of Sections 44, 51, 53 and 55 of Article III of the Texas Constitu-
tion. These sections, in effect, prohibit the gratuitous disposition of the
State’s money, property or contractual rights. Empire Gas and Fuel Co.
v. State, 121 Tex. 138, 47 S.W.2d 265 (1932); Delta County v. Blackburn,
100 Tex. 51, 93 SW. 419 (1906).
When Pan American (then Stanolind Oil and Gas Company)
bid on and purchased the subject lease in 1935, it was with the understand-
ing that the maximum term of the lease would be twenty-five years. This
term lease is what they bargained for and this is what they received. To
now extend this term would be to grant to the lessee an additional property
right and to diminish the reversionary interest owned by the State. For
this valuable grant there would be no consideration moving to the State.
Even under the provisions of Article 5344c, V.C.S., passed in 1947, which
allowed amendment of then-existing maximum term leases, the School
Board was required to fix a fee for such amendment which could not be
less than two dollars per acre. Obviously to now all.ow the Commissioner
to make a gratuitous amendment of the basic lease which would enlarge
the mineral estate originally purchased would violate the constitutional,
sections mentioned above.
Honorable Earl Rudder, Page 5 (WW-185)
SUMMARY
It .is our opinion that .the School Land Board and the
Commissioner cannot agree to the extension of the
subject lease beyond the twenty-five year principal
term by the approval and execution of the proposed
unitization agreement.
.Very truly yours,
WILL WILSON
Attorney General of Texas
BY 0
J. Mark McLau
JMM:tiw Assistant
4
APPROVED:
OPINION COMMITTEE:
George P. Blackburn. Chairman
James H. Rogers
J. Arthur Sandlin
Lawrence Jones
Wallace Finfrock
REVIEWED FOR THE ATTORNEY GENERAL
BY: James N. Ludlum