                            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
                                 ,,_,^ .
