Honorable          Earl       Rudder                           Opinion         No.    WW-185
Commissioner
General         Land      Office                             Re:          Authority           of School           Land       Board,
Austin,     Texas                                                         by approval               of a unitization              agree-
                                                                          ment,       and     the Commissioner,                        by
                                                                          execution           thereof,           to agree        to the
                                                                          extension           of Lease           No.      M-18948
                                                                          beyond        its twenty-five                  year     maxi-
Dear      Mr.     Rudder:                                                  mum        term.


                       This     is in re.ply         to your        letter        of May           9, 1957,       which         sets   out
certain     facts,        hereinafter           mentioned,              and     requests           an opinion            on the follow-
ing quoted         question:


                       ‘Can      the School          Land         Board,        by approval               of the
            ,unittzation            agreement,             and the Commissioner,                          by exe-
            cution        thereof,         agree       to the extension                of the        subject
            lease         beyond       the.twenty-five                  year    principal           term     7”


In this     same       letter       you have         set    out.facts           which        are     as    follows:


                       “On     January         16,     1935,      Lease         No.    M-18948,             cover-
            ing     Tract        3, Dickinson              Bay,     Galveston           County,           containing
                147 acres,          was     issued      by the Commissioner                          of the General
            Land        Office       to the Stanolind               Oil    and Gas           Company             (now      Pan
            American             Petroleum             Corporation).                  That     lease       was      for
                ‘. . . a period           of five      years       and     a.s long      thereafter              as any
            minerals            covered         thereby           are     produced           therefrom             in com-
            mercial           quantities         not to exceed                 twenty-five           years         . . .‘.


                       “In    1947,       the Legislature                enacted        Chapter            82,    Page
                139 (Art.       534412, V.C.S.),               which       provided,           among         other
            things,          that    such      lease       could        be amended            upon        application
            by the         owner       filed    with       the Commissioner                        of the General
            Land        Office       before        October          1, 1948,          to provide           that     it
            would         remain          in effect        as long        after       the expiration               of the
Honorable         Earl      Rudder,            Page       2 (WW-185)




            primary           term        as       the lease          produced.            The         lessee         of the
            lease         here      under          consideration              did not make                application
            for     amendment                of the lease              under        the provisions                  of that
            Act.

                    .- In 1951,          the       52nd Legislature                  enacted            Chapter            150,
            Page          254 (Art.         5382~.        V.C.S.),         under          which         statute           the
            State’s         interest           in any lease             may      be pooled              or    unitized.


                     “Pan        American              Petroleum              Corporation                has       now      re-
            quested          this     office        to enter          a unitization              agreement                whereby
            the above            land       will     be unitized           with       other       land        to form            a 630
            acre      unit.        As     part       of the     unit agreement,                    the lessee               proposes
            the inclusion               of a provision                 that the above              lease           will     remain
            in force         and effect             as   long      as    there        is production                 from          the
            unit     in paying           quantities            and      royalties          paid        to the State
            thereon.               . . .*


                    Article          5382~          states      in Section            1:


                     -.    . . The       Commissioner                    of the General                  Land           Office,
            on behalf            of the State            of Texas          or       any    fund belonging                   thereto,
            is authorized               to execute             agreements                 that    provide           for     the
            operation            of areas           as   a unit for            the exploration,                    develop-
            ment,         and      production            of oil       and gas,         or either              of them,            and
            to commit              to such          agreements             the       royalty           interests           in oil
            and gas,          or    either          of them,          reserved            to the State              or     any
            fund     thereof          . . . under            the terms              of any       oil    and gas            lease
            lawfully         made         by an official,               board,        agent,           agency,            or author-
            ity of the State;                provided           (a)     that the agreements                         that commit
            such      royalty           interests          in lands           set    apart       by the Constitution
            and     laws         of this       State     for    the Permanent                    Free         School            Fund
            and the         several          asylum          funds,       in river           beds,           inland        lakes,
            and channels,                and the area                 within        tidewater            limits,          including
            islands,         lakes,         bays,        inlets,        marshes,            reefs,           and    the beds            of
            the sea,         are      approved            by the School                Land        Board,           and are
            executed             by the        owners        of the soil             if they       cover           lands        leased
            for     oil    and gas          under        the Relinquishment                       Act.         Articles             5367
            to 5379,         inclusive,             Revised           Civil      Statutes,             1925,       as     amended;
                  ”
            . . .


                     Section         2 of this           Article        provides:
Honorable           Earl     Rudder,          Page      3 (WW-185)




                      “Any     agreement               authorized            to be executed                   under     the
              provisions         of this        Act     may      provide           . . . (3) that the agree-
              ment      and/or         lease,     with       respect         to the interest                  of the State,
              shall     remain         in force         as     long    as    oil    and       gas,       or   either         of
              them,        is produced           from        the unit in paying                    quantities          and
              royalties        paid         to the State        thereon;           . . ..”


                      It is obvious             from     a complete                reading          of this      statute          and its
title    that the legislative                 intent     is to allow           the Commissioner                         of the General
Land       Office     to enter         into     unitization           agreements               which          in his    judgment,
and     in the considered               opinion         of the officials                and     members             of the boards
and agencies           whose          lands      are    affected         by such          agreements,                  are     found       to
be in the best             interest         of the State.             The    legislative             intent        is not to provide
another       opportunity             for    holders         of State       leases         to extend            maximum                 term
leases      previously          executed          as was         done       by the passage                    of Article           5344~.
~V.C.S.,      by the Legislature                  in 1947.


                      Section         1 of Article           5382~.         V.C.S.,        contains             the authority             for
the Commissioner                 to commit              the State’s            lands      to unitization                agreements,
and it should          be carefully              noted       that in both           the title            of this      Act     and       in its
~Section      1 the State’s           commitable               interest         is the        royalty         interest.            This        is
set     out definitely         and clearly             by the use            of the words                 “royalty           interests          in
oil and      gas”      found     in both         the title       and     the authorizing                   section.


                      Under      Lease          No.     M-18948,            here        being        considered,              there       are
three      separate         mineral          estates.          The     first       is    the leasehold              estate         now
owned       by Pan         American           Petroleum           Corporation.                     It is well         settled       in Texas
that the estate             owned       by the lessee             is a determinable                       fee    interest.              Corzelius
v. Harrell.        143 Tex. 509. 186 S.W.2d  961 (1945);  Brown                                                v. Humble   Oil              81
Refining       Co., 126 Tex.  296, 83 S.W.2d  935 (1935).   The                                               State as lessor               owns
a royalty       interest        entitling         it to l/6           of the oil         and       gas     produced,              and    it owns
also the reversionary                    interest  which comes                          into effect           upon the expiration
of the determinable                   fee.   Murphy   v. Dilworth,                         137 Tex.           32, 151 S.W.2d    1004
(1941);      Sheffield        v. Hogg,          124 Tex.          290,      77 S.W.2d              1021,        80 S.W.2d           741 (1934).
There       is nothing         in the        statute     authorizing               the Commissioner                      to commit                  any
interests       owned         by the State             other     than       the     royalty          interest         created           by the
lease.       There         is no authority,             either         expressed              or    implied,          which        would
allow      the Commissioner                     to commit         any       part        of the       reversionary                 interest.


                      The     determinable               fee     owned         by Pan          American             under         this     lease
is limited          by its terms              to “as     long     thereafter              as       any    minerals            covered
hereby       are      produced         therefrom             in commer~cial                quantities,             not to exceed
Honorable           Earl     Rudder,             Page     4 (WW-185)




twenty-five          years,      . . .“.          Necessarily               the royalty            interest          continues           only
so long      as the lease             is    in force.            State      National          Bank       of Corpus           Christi           v.
Morgan,          135 Tex.        509,        143 S,W.2d              757     (1940).        Therefore,             as the Commis-
sioner      may      commit           only       the    royalty         interest        reserved            under         the terms            of
this    lease,      he cannot          continue           the lease           in force        beyond         the twenty-five
year      maximum            term      without           thereby           enlarging        the determinable                     fee    and
the royalty          interest.          There           is no authority              to so change              the terms               of the
mineral         lease.


                      Some       contention              has     been       made       that    subsection             3 of Section                 2
allows      the Commissioner                       to extend          the lease          term        by the inclusion                  of a
provision         that the agreement                     shall       remain         in force         as long         as    oil    and        gas
“is produced             from    the unit in paying                     quantities”.               We    are     of the opinion
that the     significance              of this          subsection           is to allow           production             from         the    unit
to qualify        as production                  from     the leased           premises            and thus           satisfy          the
production          requirements                  of the lease.


                      If, however,               by some          interpretation,               it was         thought        possible             to
extend      the term          of the basic              lease        beyond       its twenty-five               year       maximum,
we are      of the further                 opinion       that     such       an interpretation                 would        require           an
unconstitutional              application               of this      statute       as the extension                  would        be in
violation         of Sections          44,       51, 53 and           55 of Article            III of the Texas                  Constitu-
tion.     These          sections,          in effect,         prohibit        the gratuitous               disposition             of the
State’s      money,         property             or    contractual            rights.         Empire           Gas     and Fuel              Co.
v. State,        121 Tex.        138, 47 S.W.2d                   265      (1932);      Delta        County        v. Blackburn,
100 Tex.          51, 93 SW.           419        (1906).


                      When       Pan        American              (then      Stanolind         Oil      and Gas           Company)
bid     on and      purchased              the subject           lease       in 1935,         it was        with     the understand-
ing that the maximum                        term        of the lease           would        be twenty-five                years.             This
term      lease      is what         they        bargained           for    and     this    is what         they      received.               To
now      extend      this     term         would        be to grant           to the lessee              an additional             property
right     and     to diminish              the    reversionary               interest         owned         by the State.               For
this     valuable        grant       there        would        be no consideration                      moving        to the State.
Even      under      the provisions                   of Article           5344c,       V.C.S.,         passed        in 1947,          which
allowed      amendment                of then-existing                  maximum             term        leases,        the School
Board       was     required          to fix a fee             for    such      amendment                which        could       not be
less     than     two      dollars         per    acre.         Obviously            to now        all.ow      the Commissioner
to make          a gratuitous           amendment                 of the basic             lease     which         would         enlarge
the mineral           estate         originally           purchased            would        violate       the constitutional,
sections         mentioned           above.
Honorable         Earl        Rudder,     Page     5 (WW-185)




                                                   SUMMARY


                 It .is our     opinion     that .the School      Land     Board       and    the
                 Commissioner             cannot    agree    to the extension             of the
                 subject       lease    beyond     the twenty-five         year     principal
                 term      by the approval         and   execution       of the proposed
                 unitization       agreement.


                                                             .Very      truly      yours,


                                                                WILL     WILSON
                                                                Attorney        General      of Texas




                                                                BY       0
                                                                       J. Mark       McLau
JMM:tiw                                                                Assistant
                                                                 4
APPROVED:


OPINION          COMMITTEE:


George      P.     Blackburn.           Chairman
James      H. Rogers
J. Arthur        Sandlin
Lawrence          Jones
Wallace     Finfrock


REVIEWED             FOR        THE     ATTORNEY         GENERAL
BY:       James          N.    Ludlum
