.-   .




         Hon. C. H. Cavness             O$nion No. O-5736
         State Auditor                    : River Bed Oil and Gas
         Austin, Texas                       Leases
         Dear Sir:
                   Reference is made to your letter of December 3, 1943,
         in which you request the opinion of this department on a num-
         ber of questions involving the interpretation of various Acts
         of the Legislature as they apply to oil and gas leases on river
         beds and channels of navigable streams.
                   As this opinion is confined in its entirety to mineral
         laws applying to river beds and channels of navigable streams,
         we briefly review the legislative Acts relating to them.
                   Prior to 1917 river beds and channels of navigable
         streams were not open to exploration for oil and gas under the
         permit and lease system. The Mineral Act of 1917 (Ch. 83, Acts
         of 35th Leg. Reg. Sess. 1917) for the first time opened them
         up to exploration and development. This Act remained the basic
         law, except as affected by Chapter 6, Acts of 37th Leg: 1921,
         and Chapter 140, Acts of 39th Leg. 1925, amending subdivision
         2 of Section 7, Chapter 83, Acts of 1917, until river beds and
         channels were withdrawn from sale or lease under the provisions
         of Chapter 22, Acts of klst Leg., 3rd Called Session, 1929.
                   Chapter 140, Acts of 1925, amending Chapter 83, Acts
         of 1917, as mentioned above, made no change in the effect of
         Chapter 83 in so far as river beds and channels were concerned.
                   The Sales Act of 1931 (Chapter 271, H.B. 358, Acts
         of 42nd Leg. Reg. Sess. 1931) replaced existing laws governing
         the sale or lease of public land. This Act, however, did not
         include and made no provision for the leasing or development
         for oil and gas of river beds and channels. Thereafter, the
         same Legislature in the 2nd Called Session enacted Chapter 40,
         creating the Board of Mineral Development, and establishing
         a new system for the exploration and development of river beds
         and channels. When Chapter 271 was amended by the adoption
         of House Bill 9, by the 46th Legislature, 1939, the ,provisions
         of Chapter 40 were specifically adopted and made a part of that
         amendatory Act. Chapter 271,Acts of 1931, and the amendments
Hon. C. H. Cavness, Page 2 (O-5736)
to it by subsequent Legislatures are now codified in Vernon's
Annotated Civil Statutes as Article 5421~.
          In connection with this review of the above Mineral
Laws, and before taking up your questions it might be well to
set out the well established rule of law to be applied in con-
struing laws relating to river beds and channels.   The Supreme
Court in the case of State v. Bradford, 50 S.W. (2) 1065 held
as follows:
         "In view of the importance of this matter to the
    state and the whole people, the courts of this state have
    consistently held that all grants with respect to lands
    under navigable waters, such as river beds and ChaMelS,
    are strictly construed against the grantee; that, if
    there is any ambiguity in the Act, it will be construed
    in favor of the State; and unless the Act contains plain
    and unmistakable language conveying the land under river
    beds and channels, it will not be construed to include
    them. In other words, before a statute will be construed
    to include land under navigable waters, such as river beds
    and channels, it will have to be expressed in plain and
    positive language, and not in general language. Landry v.
    Robison, 110 Tex. 295, 219 S.W. 819; Roberts v. Terrell,
    110 S.W. 1033; Dolan v. Walker, 49 S.W. (2) 695."
          We will consider vour'auestions in the order Dresented.
Your first question is as f&lows:
          "1. Does Chapter 40, Acts of the Second Called Ses-
     sion of the 42nd Legislature, which Act was approved Octo-
     ber 6th, 1931, affect opinion no. 3044 as written?"
          In your inquiry you explain that our conference
opinion No. 3044, which is our Opinion No. O-523, makes no
reference to Chapter 40, which was passed as an amendment to
Chapter 271, Acts of 1931, in answering the questions presented
there.
          In this connection we note that the question presented
for our consideration in that opinion was whether or not Section
10 of Chapter 271, General Laws of 1931, repealed the $2.00
per acre lease rental provision contained in Chapter 140, Gen-
eral Laws of 39th Legislature, 1925, as it applied to pre-exist-
ing river bed oil and gas leases. The question was answered
in the negative, and we think properly so.
          In response to your question, Chapter 271, AFta of
1931, specifically excluded river beds and ChaMelS from the
provisions of the Act (Sec. 1, c. 271). The same legislature
.   .




        Mon. C. H. cavness, Page 3 (0-5736)


        enacted Chapter 40 in the 2nd Called Session providing for
        development by the State of river beds and channel% or leasing
        and contracting for the recovery of oil and gas, and creating
        the Board of Mineral Development. Chapter 40, while passed as
        an amendment to Chapter 271, was In effect an independent Act.
        It was evidently passed as an amendment in order to make It
        a part of the basic sales law--Chapter 271 was intended to be
        such a law.
                  Chapter 40 was not involved in the question presented
        for consideration, and does not affect our Opinion No. 00523
        as written.
                  Your second question is as follows:
                  "2. Does Section 4 of Chapter 6, Acts of 1921,
             purport to eliminate the $2.00 rental payment as pro-
             vided in subsection 2 of Section 7, Chapter 83, in
             the language of said Section 4, which provides in part.
                  I. . .and thereupon a lease shall be issued
             without the payment of any additional sum of
             money, etc.'
                 'If so, does this apply to permits heretofore
            ,issued? Section 1, Chapter 6, provides:
                  'That all permits to prospect for oil and gas
             heretofore issued on . . ., river beds or channels.
             . . .f11
                  Chapter 6 provides in part:
                  "Sec. 1. That all permits to prospect for oil and
             gas, heretofore issued on University land . . ., river
             beds and channels . .    and which have not expired,
             be and they are hereby':xtended so that they shall
             remain in full force and effect for a period of five
             years from the date of issuance of the permit, condi-
             tioned only upon compliance with the terms of this
             Act. . . . '
                  "Sec. 2. The owner of a permit included in this
             Act shall pay to the State annually in advance during
             the life of the permit ten cents for each acre included
             therein, and if there should be any payments past due
             under the terms of the original permit such shall be
             paid within sixty days after this Act becanes effective,
             and if not so paid the term of such permit shall not
             be extended herein. . . .'
Hon. C. H. Cavness, Page 4 (o-5736)


          “Sec. 4.  If oil or gas should be produced in
     paying quantities upon the area included in any of
     the permits included in this Act, the owner of the
     perm1.tshall report the development to the Commis-
     sioner of the General Land Office within thirty
     days thereafter, and apply for a lease. . ., and
     thereupon a lease shall be issued without the pay-
     ment of any additional sum of money and for a per-
     iod of not to exceed ten years, subject to renewal
     or renewals."
          Leases on river beds and channels clearly come within
the provisions of this Act. However, Section 1 of the Act lim-
its its operation to permits "heretofore issued." In our Opin-
ion Number O-730, when we considered the effect of Section 4
of Chapter 6 on permits and leases granted under the provisions
of Chapter 83, Acts of 1917, as applied to University land,
we held as set out on page 7 of that opinion, and we re-adopt
suchholding here, as follows:
          "Clearly, Section 4 of Chapter 6 was'not intended
     to affect in any manner permits issued subsequent to
     the effective date of Chapter 6, because its operation
     is expressly limited in Section 1 thereto to 'permits
     heretofore issued.' If Section 4 of Chapter 6 is
     construed so as to repeal and abolish the requirements
     of the $2.00 per acre cash payment and the $2.00 per
     acre annual payment required by Chapter 83, of either
     of such payments, such construction and effect must
     necessarily be limited so as to apply only to leases
     resulting from permits issued prior to the effective
     date of Chapter 6.  Permits issued subsequent to that
     date would be wholly unaffected by the Act under any
     construction thereof."
          In discussing your question as to whether or not
Section 4 of Chapter 6, Acts of 1921, eliminates the two
dollar rental payment as provided for in subdivision 2 of
Section 7, Chapter 83, Acts of 1917, we first distinguish
between the terms "permittee" and "lessee" in respect to the
rights and obligations of each under the provisions of Chap-
ter 83, Acts of 1917. Chapter 83, Section 7, is as follows:
          "Sec. 7.  If,at any time within the life of a permit
     one should develop petroleum or natural gas in commercial
     quantities the owner or manager shall file in the ‘J.en-
     era1 Land Office a statement of such development within
     thirty days thereafter, and thereupon the owner of the
     permit shall have the right to lease the area included
     in the permit upon the following conditions:
Hon. C. H. Cavness, Page 5 (O-5736)


          "1. An application and a first payment of two
     dollars per acre for a lease of the area Included in
     the permit shall be made to the Commissioner of the
    ,Qeneral LBnd Office within thirty days after the dls-
    .covery of petroleum or natural gas in commercial
    ‘quantities.;
          “2. Upon the payment of two dollars per acre for
     each acre in the permit a lease shall be issued for a
     term of ten years or less, as may be desired by the
     applicant, and with the option of a.renewal or renewals
     for an equal or shorter period, and annually after the
     expiration of the first year after the date of the lease
     the sum of two dollars per acre shall be paid during the
     life of the lease. . . :'
          The Galveston Court of Civil Appeals in the case of
State v. Tidewater Oil Co., et al, 1% S.W.(2) 192, Writ of
Error Refused, distinguished the terms "permittee" and "lessee"
in respect to the rights, duties and obligations of each under
the provisions of Chapter 83, Acts of 1917, in this manner:
          "In the first place they do not, as this court
     reads the Mineral Act (Chap. 83) in its entirety
     demonstrate that such statute imposed upon permittees
     thereunder any obligation during their status as such
     either to develop the land for oil and gas or to make
     the two dollar payment here involved, since the Act
     merely conferred upon permittees the 'exclusive right
     to prospect for and develop petroleum and natural gas
     during the 'life' or 'term' of the 'permit',and required
     the $2.00 per acre payment to be made by lessees only.'
          "That is, it plainly provides that permittees were
     given the right or privilege but not the bounden duty to
     develop the minerals during the life or term of the per-
     mit, as well as the further contingent privilege of
     thereafter applying for and obtaining a lease upon the
     land - on specified conditions - when they first developed
     the minerals in paying quantities thereon; hence no obli-
     gation nor legal duty he could not escape - so long as he
     was in that relationship only - was imposed upon a per-
     mittee."
          Under the facts of the above case, Chapter 6, Acts
of 1921, and its effect on permits and leases issued under
Chapter 83, Acts of 1917, was not involved. However, the Acts
in question there were similar in effect, and the rule of law
announced must be applied to the question here.
Hon. C. K. Cavness, Page 6 (O-5736)


           Accordingly, we hold that the benefits of Chapter 6,,
Acts of 1921,,were available only to those who obtained permits,
and whose status did not change between the time of the effective
date,of Chapter 83, Acts of 1917, and the effective date of
Chapter 6, Acts of 1921. Any permittee who had not developed
the area in his permit, and had not applied for and obtained
a lease under the provisions of Chapter 83, was entitled to such
benefits as accrued to him under the provisions of Chapter 6.
Contrariwise, any permittee who had developed the area in his I
permit, and had applied for and obtained a lease prior to the
effective date of Chapter 6, was bound by the provisions of
Chapter 83, and not eligible to any of the beneifts of Chapter
6.  The provisions of Chapter 83 providing for $2.00 per acre
first payment and $2.00 per acre annually became fixed obliga-
tions, and remained so throughout the life of the lease and any
renewal or renewals thereto.
          Our opinion No. O-730 is revised and modified in so
far as it is In conflict with the subsequent decision of the
court in the case of State v. Tidewater Oil Co., supra, and
the holding in this opinion.
          Your third, fourth, fifth and sixth questions will be
considered together; they are as follows:
          “3 . Does Section 10, Chapter 271 (Art. 5421c),
     Acts of 1931, by its terms as originally passed May
     29th, 1931, apply to or purport to apply to river
     bed leases?
          “4.  If Section 10 is construed as applying to
     river bed leases, then is such statute, so construed,
     constitutional?
          “5.  Section 10, Chapter 271, provides in part
     as follows:
          'The provisions of this Article In respect to
     payments of rentals after production and the cessation
     of production shall apply to leases heretofore issued
     by the State on any area except'lands belonging to
     the State University and eleemosynary institutions.'
          Is this by the language 'shall apply to leases
     heretofore issued' retroactive and constitutional?
          “6 . Chapter 40 sets up a new mode of issuing,
     leases on River beds. Does Chapter 40, Acts of Second
     Called Session of the 42nd Legislature, which by
     addition of a section to Chapter 271, amend the original
Hon. C. H. Cavness, Page 7 (o-5736)


     Act when no mention is made as to amending the cap-
     tion to Chapter 27l?"
          In view of the answer given In reply to your first
question, we do not think It necessary to discuss these matters
further. However, in support of the answer given, we refer to
             f'the Supreme Court In the case of Dolan v
i$eSo8?@f   895, when the court In discussing the questlo%%!
          "The precise question before us for decision is:
     Did the Legislature In H. B. 358 authorize the sale
     or lease.of river beds and channels of navigable
     streams by the Land Commissioner as sought to have
     done by relator In this case? By the enactment of
     Senate Bill No. 20, the Legislature withdrew all river
     beds and channels from sale or lease until otherwise
     provided for by law. Unless the provisions of House
     Bill 358 authorize the sale or lease of river beds and
     channels relator's claim must fall. The provisions
     of this Act should be construed in the light of the
     well established rule that legislative grants of
     property, rights or privileges must be construed
     strictly in favor of the State on grounds of Public
     Policy, and whatever is not unequivocally granted in
     clear and explicit terms Is withheld. Any ambiguity
     or obscurity in the terms of the statute must operate
     ln favor o,f'
                 the State." (cases cited)
          "When this test Is applied by the foregoing rules
     and construed in the light of the public policy of
     this State to hold certain property such as river beds
     and channels of navigable streams in trust for all the
     people, we are constrained to hold that the Legislature,
     by the enactment of House Bill 358, did not place on
     the market for sale or lease river beds and channels of
     navigable streams. . . .'
          Your seventh and eighth questions are as follows:
          “7 . Does Chapter 120, Acts of the 43rd Legis-
    lature, authorizing the revision of contracts hereto-
    fore made apply to such contracts heretofore made by
    the Board of Mineral Development only?
          "8. Subsection 6a provided in part:
          'It is hereby declared as to any and each
     lease and/or contract hereafter made by the
     Board of Mineral Development, etc.'
Hon. C. H. Cavness, Page 8 (0-5736)


         Subsection 6b provides In part:
         I. . . further that said Board mav modifv
    said contract as aforesaid by adjust&g up o'P
    down from time to time the State's portion
    of said oil and/or money payment, etc.'
         "Does the Mineral Development Board have the
    authority to revise a lease heretofore executed
    without first having received a request for a
    revision from the Lessee?"
          Chapter 120, Acts of the 43rd LegisWture in Regular
Session, 1933, amended Chapter 40, Acts of the 42nd Legisla-
ture, 2nd Called Session, 1931, by adding to that Act sub-
sections 6a and 6b, and are codified in Vernon's Annotated
Civil Statutes as a part of Article 5421~.
          Subsections 6a and 6b are as follows:
         "It Is hereby declared, as to any and each
    lease and/or contract hereafter made by the Board
    of Mineral Development, to be the policy of this
    State, with reference to the development of all
    portions of beds of rivers and channels descrj~bed
    in such lease and/or contract, that the activities
    of the State and of all lessees or contract,ing
    parties, their heirs, successor or assigns, under
    such lease and/or contract, shal,lconform to the valid
    laws of this State, and to the valid orders, rules
    and regulation; of any agency of th3s State, appli-
    cable to the deve:?opment,by others than this State,
    of petroleum and/or natural gas bearing land within
    the State; and each lease and/or contrac,thereafter
    made by the Board of Mineral Development shall,be
    subject hereto.
          "Subsection 6b. As to any and each lease and/or
    contract heretofore made by the Board of Mineral Develop-
    ment, such Board shall be, and it is hereby authorized
    and empowered to revise the asme, with the consent of
    the lessees and/or contracting parties thereunder, their
    heirs, successors or assigns, in such wise as to subject
    such lease and/or contract thenceforth to the FubliC
    policy declared in Subsectlon 6s. Such revlslon shall
    be accomplished by supplemental or modlficatory instru-
    ment on such terms as the Board of Mineral Development
    may deem fair and advantageous to this State, but only
    after  a proposal for such revision shall be formally
    made, in a public document, to the said Board of
    Mineral Development. . . -'
Hon. C. H. Cavness, Page 9 (0-5736)



          The provlslons of these subsections seem clearly to
mean, and we hold, that the Board of Mineral Development was
authorized and empowered to revise,nany" and "each" lease and/or
contract that had been made prior to the effective date of the
Act, but only after a proposal for such revision was formally
made In a public document to the Board by the lessee or con-
tracting party, their heirs, successors and assigns.
          The word "hereafter" as used In Subsection 6a we
construe to mean that the provisions of that subsection must
be Included In contracts or leases entered Into by the Board
after the effective date of Chapter 120.
          Your ninth question Is as follows:
          "9. H.B. 9, Chapter 3, Regular Session of the 46th
     Legislature, 1939. An Act amending Section 6 and Sec-
     tion 8 of H.B. 358, being Chapter 271, Acts of the Regular
     Session of the 42nd Legislature and providing for control
     and disposition of lands set apart for permanent free
     school fund and asylum funds and mineral estate within
     tidewater limits; dedication of mineral estate to per-
     manent school fund; School Land Board, creation and
     duties; Board of Mineral Development abolished. (Being
     Article 5421c-3, Vernon's Annotated Statutes).
          I,. . .

          "Does the above statute have the effect of setting
     the minimum annual lease rental of $2.00 per acre on all
     areas except lands lying and being situated west of the
     Pecos Riv6r which may be at a price not less than $1.00
     per acre?"
          House Bill 9 provides In part as follows:
          Set 5.
          1. All lands set apart for the permanent free
     school fund and the several asylum funds by the Constl-
     tution and the laws of this State and the mineral estate
     In river beds and channels . . . are subject to control
     and disposition In accordance with the provisions of
     this section and other pertinent provisions of this Act
     and other laws not In conflict herewith; . . .
          2. The mineral estate in river beds and channels
     and in all areas within tidewater limits including . . .
     are hereby set apart and dedicated to the permanent
     school fund.
Hon. C. H. Cavness, Page 10 (o-5736)


         4. The duties of the School Land Board shall be to
    set all dates for the leasing and the sale of surveyed
    lands, and to determine the price at which any land,
    whether surveyed or unsurveyed, shall be sold and leased
    subject to the terms and conditions provided by law,
    except that no land shall be appraised at a less price
    than $2.00 per acre; provided, however, that lands lying
    and being situated west of Pecos River may be appraised
    at a price not less than $1.00 per acre."
          It is our opinion that subsection 4 of Section 5 is
applicable to leases on river beds and channe:ls,and the
figures mentioned are to be considered a6 a minimum consldera-
tion.
                                  Yours very tm.l,y
APPROVED JAN 15, 1944
                                  ATTORNEY GENERAL OF TEXAS
/s/ Grover Sellers
ATTORNEY GENERAL OF TEXAS
APPROVED:   OPINION COMMITTEE     BY
BY:          BWB Chairman              ,/d Jack W. Rowland
                                           Jack W. Rowlanr!
                                           Ass~i,stant

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