Gerald C. Mann              Aun-   H. TEXAS
IPrnRD
   *-RN-    a--




       Honorable Rascom (&!.es,       OpFnion No. O-1185
       Commissioner                          ,.
       General Land Office            Re: Authority surfaae owner
       Austin, Texas                      of land under Rellnqulsh-
                                          ment Act to amend lease.
       Dsai-Sir:
                 This department aaknowledgea reoelpt of your let-
       ter of July 25, 1939, ln whloh you state that underscrap
       File No. 12,924, the State awarded anarea of land In Cam-
       eron county under the Aot of April  3, 1919; that on July 7,
       1938; Oatewood Newberry; the surfaoe owner~~~lndlvlduallyand
       as agentof the State, executed sn 011 and gaslease nith~a
       drilling agreement ooverlng a portion of the above me&toned
       land. Other facts are stated by you ln your letter, as
       follows2
                 "This lease and drilling contract
            provide for thedrllllng of three wella to a
            depth often thousand feet, unless oil or gas
            should bs discovered .ln paying quantities at a
            ;;;;ir depth, or unless salt, granite'heav~lng
                 , uncontrollable flow of salt water, or other
            formation be encountered at a lesser depth which
            oould render further drilling lmpraotlcable.
                "Under the terms of the lease and within the
           time-provided therein, the first ten-thousand-foot
           test has been projeated thereon, and at a depth of
           approximately 7,500 feet there was encountered an
           uncontrollable flow of salt water whloh rendered
           it necessary to abandon thewell.   A log of tids
           well, sworn to by the operators and showing same
           carried to a depth of 7,584 feet, wasfiled In
           this offioe July 15, 1939, and on the same date
           there was reoeived from the Pure Oil Company, as
           assooiate contraotora, letter stating that said
           well, being the Gatewood Newberry No. l,.was
           abandoned and plugged on June 28, 1939.,
                 Y!he information as to the uncontrollable
            flow of salt water reaahed at approximately 7.500
            feet was given to this office in a letter from.
            Vinaon, Elkins, Weema & Franois dated July 22,.1939,
Hon. Bascom Gilea, page 2, O-1185


     said firm being attorneys for the owner and lessor,
     Gatewood Newberry.
          "Under the lease contraat the operators have
     six months from the date of abandonment of the
     first well in whioh to begin another ten-thousand-
     foot teat, but since an uncontrollable flow of salt
     water was enoountered in the first well at a lesser
     depth, it is represented that the parties at interest
     feel that to project another ten-thousand-foot test,
     whioh would oost approximately twide as much as the
     projection of a 7,500-foot test, would be impractic-
     able andfooliab. This difference in cost is, of
     course, occasioned by the difference in required dl-
     ametar of the two classes of wells. On this account
     they desire to have the lease amended so as to
     provide for the drilling of a series of 7,500-foot
     wells in lieu of the second of the ten-thousand-foot
     wells provided'for in the contract."
     Based on the facts .aboveset out, you propound four
questions. In view of the answer we have given to the
first question, we do not deem it neoessary to write on
the other three questions. The first question is as
follows2
          "Does.Gatewood Newberry, aa agent for the
     State-of Texas, under the provisions of the ~&in-
     qulshment Aot, have the power to execute an amendi
     ment to suoh lease whloh would be binding on the
     State of Texas, the owner of the mineralsPn
          This question involves a oonstruotion of Articles
5367 and 5368, Revised Civil Statutes of Texas, 1925, which
oonstitute a part of the Relinquishment Act of 1919. The
effeot of this Act has been thoroughly discussed by the
Supreme Court in the cases of Greene vs. Rob!son. 117 Tex.
516, 8 S.W. (2d) 655, and Rmplm      & Fuel Company vs.
State, 121 Tex. 138, 47 S.W. (2d) 265, uherein the court
h-eTFthat the effeot of the Aat is that the surfaoe owner
Is authorized to lease land for the development of oil
and gas, and the State is entitled to reoeive one-ha!f of
the bonus, royalties, and rentals (with a minimum of l/lGth
royalty and ten cents per acre rental) received by virtue
of a lease executed by the surface owner.
          There oan be no question as to the authority of
the surface owner to determine in the first instance the
terms and conditions under whioh he may execute an oil end
gas lease of the land involved, .subject to the limitations
hereinbefore and hereinafter note'd. ~Artiole 5368~~specifl-
tally provides that the owner is authorized to lease the
land for oil end gas "upon suoh terms and conditions as
Hbn. Baaoom (liles,page 3, O-1185


suoh owner may deem best, subject only to the provisions
hereof". In other words, the State requires the surfaoe
owner to lease the land for oil and gas under terms which
he deems best, subjeot only to the other provisions of the
statute with reference to paying the State Its proper share
of the bonus, royalty, and rental, and other provisions of
the statute such as those~pertainlng to the drilling of
off-set wells and forfeiture of rights under the lease. rn
other words, the surface owner cannot enter into any lease
or contra& whioh in any manner ahanges the provisions of
the law with reference to the execution of leases. We also
believe that in entering into a contract which he may "deem
best", the surface owner is required to exeraise good faith
with the State and also not be negligent in securing a fair
bonus and rental.
      The statutes do not require the surfaoe owrmr to
enter into any speolflc oontract forthe drilling of wells
to any particular depth, and apparently oontemplates that a
lease executed by the surface owner will be the ordinary
oil and gas lease, subject, of course, to the provisions,
of the statute already pointed out. In view of this'sit- ,~
uation, it is our opinion that since the s urfaoe owner has
authority to lease,the land upon such terms and conditions
as he deems best, and adme he is not required to enter in-
to any specific oontract Pertaining to the depth to wblch
wells may be drilled, but has done so, he also has aqthor-
ity, if he deems It best, to amend the lease so as to change
the terms with referenoe.to tlrsdepth to whichwells may beg
drilled. In other words~.we believe that it is the duty oft
the surface owner, in aoting as agent of the State, to act in
good faith, and not enter into any agreement which will
prejudice the rights of the State in securing the poper
development of the minerals owned by the State.
      Under the 1931 Sales Act'(Vernonts Article 54210),
land is~sold with the reservation of l/l6 of all minerals,
exoept sulphur, as a free royalty. The State is not entit-
led to receive any part of the bonusor rental. Se~eWin-
termann vs. McDonald, 129 Tex. 275, 102 S.W. (2d)l67.-
      While the State owns all the minerals in the lands
sold under the Act of 1919, yet the only practical difference
between the Acts of 1919 and 1931 is that under the 1919 Act
the State receives one-half of all the royalty, bonus,:and
rentals with a minimum of 1/16th royalty and tentosnts per
acre rental, while under the 1931 Act the State~reoeives a
free royalty of 1/16th of the minerals, dxoept 1/8th of~the
sulphur, and does not reoeive any pcft of the bonus and
rentals. Under the 1931 Aot. the State owns an interest in
the minerals, and in the case of~Wlntermann vs. McDonald,
supra, the question arose as to what procedure should be
Hon. Basoom Giles, page 4, O-1185


followed in making a mineral lease under the 1931 dot;
that is, whether the aurfaoe owner alone muld make the
lease, or whether it was necessary for the State to join in
same. The aourt construed the Aat so as to authorize the
surface owner to make the lease without the joinder of the
State, and In the opinionstated:
                 "The owner of the land acts as the
            agent.of the State ln making the mineral leases.
            This calls for the exercise of a duty by the
            land owner to the State. The land owner owes
            to the State good faith in the performance of
            the duty whloh he has assumed, and he should
            disollargethat duty with prudenoe and good
            faith, and with ordinary oare and dlligenoe.~w
            We see noreason why the same rule should not
apply to the owner'of the surfaoe under a lease exeouted
under the Relinquishment' Aot, and s~%ncethe State does not
require that leases executed under said Aot shall   provide
for the depth to tiich wells shall be drilled, we believe
that this is a question to be determined by the owner of
the land, and if he concludes that,it is to the best interest
of hlmselP and the State to amend the lease, and he amends
it in such form as to show good faith whRhiah he owes to the
State, and it is done with prudence and with ordinary care
and dillgenae, the amendment of the lease is authorized.
.Of course,  if there is any oonsideration paid for the
amendment to the lease, the State will be entitled to one-
half of such oonslderation.
                                   Yours very truly
                              ATTORNEY GRRRRAL OF TIEXAS
                              s/ H. Grady Chandler

                              BY
                                       Ii.Grady Chandler
HGC:FG-cg                                      Assistant
Approved Aug. 22, 1939
First Assistant Attorney General
s/W.  F. Moore
 Approved Opinion aommlttee
 by BWB, Chairman
