                  TEEATTORNEY                   GENERAL
                              QF   TEXAS
                              AUSTIN I~.TEKAS
PRICE  DANIEL
ATTORNEYGENERAL



                                   April   9,   1947

           Hon, L, R, Pearson9 Chairman
           011, Gas and Mining Committee
           House of Representatives
           du8tin, Tsxaa
                                Opinion lo, V-97-A
                                    Re:    Constitutionality of proposed
                                           Committee Amendment by King
                                           to H,B, 67, pomitting pooling
                                           in oil and gas fields; and the
                                           rifwt of suoh Act on tti &x&i-
                                           trust Lam,
           b4ar   Sir:


                         we have yeur letter of hpril 7*   1947,wueh
           reads :

                       “The Oil, Gas and Mining Committee of
                  the House of Representatives has instructed
                  me to withdraw our request of April 3rd fop
                  an o inion on a proposed substitute of H.B,
                  NO. 97 g since the authors of the propossd~
                  substitute have prepared a new substitute
                  bill, The new substitute now before our aa-
                  mlttee is by Rep, Leslie Klag and is attaokd
                  hereto,
                         *The CwfCtre  requests that JOU #iv* ua
                   an opinion as soon as possible on tire00P8tl-
                   tutionality of tae lttaorredsubstitute b
                   culd J&W oplafon aa ta whether or not thL%-
                                                                            (,
                   atituto would have     adverse effect *the
                                      “9 llty lS the &tC
                   *all&i* ar snforoeab
                   Laws of Texas-”
                      Because the attache4 iaetrument referred to In
            your letter is but a proposed Cmlttee   Amendment, and in
            order that there may be no rihake as to the exact word-
            ing to which this opinion appli*e, we set out in full Sec-
            tions 1 and 5, to rhich your request is direoted:
Hon. L, R, Pearson - Page 2   (V-97-A 1


         'SECTION 1, It is hereby declared the
    public policy of this State to prevent the
    waste of, and to promote the conservation of
    oil and gas, and to protect correlative
    rights therein. Therefore, when necessary to
    prevent waste of, and to promote the conser-
    vation of oil and gas, and to protect corre-
    lative rights therein, it shall be lawful for
    two or more persons owning, claiming, or con-
    trolling production, leases, royalties, or
    other interests in separate properties in the
    same oil field, gas field, or oil and gas
    field, vhen it appears from geologic or other
    data that such properties are underlaid by
    one or more common accumulations of oil or
    gas, or both, to enter into and perform agree-
    ments for Co-operative development and opera-
    tion of all or any part or parts of such field,
    F~,'(td;"
            purposes hereinafter specified in (a)
            inclusive, provided, such agreements.
    are approved by the Railroad Commission of
    Texas, upon application and after notice and
    hearing, upon a finding by the Commission that
    they are in the interest of Public welfare as
    being reasonably necessary to prevent waste,
    to promote the conservation of oil or gasp and
    to protect correlative rights, Provided fur-
    ther that the order of the Railroad Cormnission
    shall define the area of the common source of
    supply or portion thereof to be included with-
    in the unit area0 Each unit and unit area
    shall be limited to all or a portion of a sin-
    gle common source of supply, Only so much of
    a common source of supply as has reasonably
    been defined by d8VelOpment may be so included
    within the unit area* Any pooling agreement
    approved shall provide for addition to the
    unit of newly developed acreage underlaid by
    the same common source of supply, provided that
    the owner or owners of the newly developed acre-
    age and the owners of the established unit so
    agree, and the Railroad Commission approves as
    in the original instance,
         "Such agreements when so approved by the
    Railroad Commission may provide:
Bon, Lo 11.,Pearson   - Pa@* 3   (VWWpla)


           -(aI   For establishing pooled units
                  necessary to effect secondary re-
                  covery operations, inOhaing
                  those known as cycling, recycling,
                  repressuring, water f300aiqg and
                  pressure maintenunce, and for the
                  location ana spaoing of.input and
                  producing wells thereon,

           "lb)   For erteb,Uahlng Oad operation
                  co-operative  sfrtama for said sea-
                  ondary re,boveryoperationa,    or eon-
                  servation ana ut:Usation of gas,
                  which may include facilities for
                  extracting   and eeparatiag   the h -
                  drocarbona from the *3t an (Ha ur-
                  al gas or caeinghead gask and ro-
                                                  e
                  tuwlng the dry gas to a~forsaticpn
                  unaeripind any iana8 or. leases hm-
                  mtttea to the agpeti%nt, antIpw-
                  vldirref that q~ PoyaXtier mu r
                  ed to be paid QA gae so rat
          ‘(0)    For ths equitable dtoislenp on an
                  agpeed basis, of oil pad I)MBprO-
                  duced thez?efro&

          “(1)    Boy the extsn8fon et Ieaoer eovor-
                  ing any~part of lands connnftted
                  therstos  so Long as operations for
                  dPll$ln&91 Po-workIn&C;,  OP 80 loog
                  as production of oil or gas in paTa
                  itag quam$;Ltiee is had from any part
                  0r ths lcmds QP mares aoam$ttsa
                  thereto; provfae& that no such agree-
                  ment ehall relieve any operator froa
                  the obU$aCion to develop rea8,onably
                  the randa and leases as u Ihblo (rk
                  mfttsa thereto,
     %o auoh agreement shall prcmfds for tha oo-alp-
     erative marketing or refialnpg0r crud0petro-
     leumB nor shall it provide iOP @ha oo-eperatlre
     refinfng of gas or any by-pWdUttt Of gas exoept
     the extra&ion and separation ot Ztwd     l%ydrw
     oarbons therefrom, nor shall it piMp7ldefor the
     oo-operative marketfng of $8~ Qr bppwduots    of
     gab whenever it is possible W praoticableP
Hon, L, R, Pearson - Page 4   (V-97-A)'.


     withour incurring waste, to deliver such
     gas or by-product in kind to its owners
     severally,
         "All agreements executed hereunder
    shall be subject to any valid order, rule*
    or regulation of the Railroad Commission
    of Texas relating to spacing, proration,
    conservation, or other matters within the
    authority of the Railroad Commission,
    whether promulgated prior, or subsequent
    to, the execution of such agreement.
          "Such agreements shall bind only the
     persons who execute them, their heirs, suc-
     cessorss assigns, and legal represente-
     tiveso
         "No provisions of this Act shall be
    construed, however, as requirfng the ap-
    proval of the Railroad Commission of

          “(a)   voluntary agreements for the
                 joint development and operation
                 of jointly owned properties; or

          "lb)   voluntary agreements entered into
                 between the operators of tracts
                 or interests in tracts embraced
                 within a production, proration or
                 drilling unit established by the
                 Railroad Commission of Texas to
                 integrate the owners' interests
                 and to develop and operate their
                 lands as a unft; provided however
                 that nothing contained in this
                 Act shall be construed to abro-
                 gate or in any manner affect any
                 orders rule9 or regulation of the
                 Railroad Commission of Texas re-
                 lating to spacing, proration, aon-
                 severationp or any other matter
                 within the authority of the Rail-
                 road Commission, whether promul-
                 gated prior, or subsequent to, the
                 executing of such agreement."
Hon. L, R, Pearson   - Page 5    (v-9%-A)



           ?SECTION 5. Agreements, and operation
     thereunder, fn accordance with thfs sot, be-
     ing necessary to prevent wastes conserve tha
     natural resouroes of this State, and to pro-
     tect correlative     rights,   ahall not be eon-
     &rued   to be in vfolation of the provPsfons
     of Title 126, Revised Cfvfl Statutes, 1925,
     Penal Code of Texas9 1925, as amended, known
     as Antitrust Acts0 However, if any oourt
     should find a conflict       between thfe act and
     Tftle 126, Revised Civil Statute8 of Texans
     1925 s as amended S or Chapter 3 B Tftle 19,
     Penal Code of Texas, 1925, as amended, then
     this Aot Pa 4ntended as a maaonable ewsp-
     tfon thetato     neceaaary TW tha above stated
     public intwwste;      px0vfasd fax%her, that ir
     any court should find that a :com?Uet asieta
     b&wean thfs and the above mantW&           Ls*e,
     and that this Aot Is not a reaao@able excep-
     tion thereto,    dben it Is the fntemt of the
     Lag,glBlt3tWi3 that th48 AU?t, Or aBy !4OAfilt3af~
     portion hereof, shall be deelaxed fmva14d
     rather than declaring the above mentfoned
     Antitrust Laws, or any portion theereot, $a-
     valPdz"
             This proposed Committee Amendment, whioh will
be referred to as The KPng Amendment, makes substantial
changes in H-B0 67 as ft was submitted to this depart-
ment on b¶arch5, 1947, Reference is here made to Attor-
ney Ceneral?s Opinion Number V-99, of xareh 21, rkfah
   fnted out objections to Committee Amendment KO, 1
 hereinafter
p"              referred to as the originalBill) from tha
standpoint of the antitrust laws,
          A principal   objeotfon  to the orPgfna1 BP11 was
that no f%ndfng was required that auoh agreeaen~ were
          to prevent waste, ccnserva the natural resoaTo-
+$!sFF o proteot correlative rfqhts       Tha King Amendment
provides that for such agreements to be lawful, there
                      therefor; and a finding is re nlred
$s~,llbeeR~i%%%&%iission      that they are reasonably rza~dts~
w    In the interest of public welfare to prevent waste,
promote eonservatfoa and protect correlative rights0
           Another prinefpal objection to the original
Bfll wns that ft allowed co-operative exploration, which
appeared to have little or nothfng to do with prevention
of w,aste and conservation of property< The King Amend-
ment comp1etel.y elimiasltes co-operative exploration,
Hon, L, R, Pearson - Page   6 (V-97-A)


          The original Bill allowed go-operative devel-
opment and operation without adequate restrictions
thereon to insure that such development was in the in-
terest of conservation and waste prevention, rather
than for mere convenience and profit, The King Amend-
ment limits co-operative development and operations to
specified items set out in the bill, Further in that
regard, the former bill stated that such agreement and
operations might provide, "among other things, .,O"
The phrase, "among other things,' has been eliminated;
so that, under the King Amendment, the purposes are
more definitely stated, thus reducing the opportunity
for selfish interests to use the bill as a cover for
mere convenience or private, monopollstlc gain.
          The former amendment permitted co-operative
refining of gas and by-products of gas, thus opening
the door to monopoly and price fixing in that business.
The King Amendment limits the refining of gas and its
by-products to,the "extraction and separation of li-
quid hydrocarbons therefrom," It is our understanding
that this permits only the separation of the liquid
from the gas, and does not include "refining' as used
in its ordinary meaning.
          The former amendment permitted the co-opera-
tive marketing and storing of gas without limitation,
The King Amendment eliminates the storage of gas and
limits the co-operative marketing to situations where
it is not pos9ble or practicable, without incurring
waste, to deliver same to its owners severally,
          The original Bill was silent on the effect
it would have on valid orders, rules, and regulations
of the Railroad Commission of Texas, The King Amend-
ment specifically provides that all agreements and op-
erations thereunder are subject to all valid rules, or-
ders, and regulations of the Railroad Commission, when-
ever promulgated.
          The King Amendment adds other safeguards. It
requires the Commission to define the area to be pooled
and the area of common source covered thereby, It lim-
its each unit to one common source of supply, and limits
unitization to areas reasonably defined by development.
It requires further approval by the Conrmieslonof en-
largement of the unit.
Hon, L, R, Pearson - Page 7   (V-97-A)


          'PheKing amendment places in the bill a re-
quirement of minimum royalty to the State on its leases,
which requirement was omitted from the former Bill,
          The King amendment retains the provision that
production from any part of the unit will hold all the
leases within the unit. A provision has been added,
however9 that such production must be in paying quanti-
ties, A further provision has been added which states
that such agreements shall not relieve any operator
from the obligation to develop reasonably the lands and
leasea as a whole aotitted to the unit,
          Taken as a whole, the Kfng amendment substan-
tially meets the objections aet out in Opinion V-97 in
so far as the antitrust laws are aoncerned, If any
doubt fs left, Se&ion 5 of the King amendment settles
the question by providing that this Bill shall be held
invalid rather than the antitrust laws if any court
should find a conflict as+6umreaeonable exception there-
to In this Bill,
          Article XVI, Section 59a, of the Texas Consti-
tution directs the Legislature to enact laws neaeasary
for the conservation of natural resouraeso This bill,
being founded principally on the neoessity for the pre-
vention of waste, the conservation of natural resources9
and the protection of correlative rights, will, ffnall
probability, be upheld by the courts, It Is our belle2
that9 In its present form, it is cronstitutlonalo
          Of aourse, this opinion has nothing te do with
the merits of the Bill and is not to be interpreted ae
an expression in that regard, The matters now tlfhia
the King amendment are questions of policy wholly with&n
the province of the LegSelatur&
                               Yours VOPy tmlyp
                          ALTPORREXGEKERALOFTEXAS



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