        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
