                                     B:Y        GENERAL

                                           AS




Honorable Bascom Giles
Commissioner
General Land Office
Austin, Texas

Dear Sir:                               Opinion No. O-5700
                                        Re: Power of Commissioner      of General
                                             Land Office to accept for filing or
                                             to approve mineral lease with pool-
                                             ing clause.

            Reference  ts made to your letter of recent date to which you attached
a copy   of an oil and gas lease relating thereto.  Your letter is as follows:

           “There has been tendered to this department for filing the en-
   closed mineral lease.    This lease was executed by the land owner on
   a small tract of scrap land sold under Chapter 271, Acts of the 42nd
   Legislature,   Regular Session,  1931. This law and the application   to
   purchase provide for a reservation    to the State of a free royalty of
   l/8 of the sulphur and l/l6 of the other minerals.

         “The lease in paragraph five (5) thereof provides for pooling
   or combining this tract with other tracts whether owned by the les-
   see or not for the purpose of creating drilling units, and as to the
   payment of royalty the lease provides as follows:

          “‘In the event production  of oil, gas, or other minerals   is ob-
   tained upon any unit or units created hereunder Lessor       shall receive
   and will accept on account of any such production,     regardless   of whe-
   ther or not such pro,duction is on any part of the land herein above
   described,   a royalty equal to such portion of a l/8 royalty as the
   number of acres out of this lease and included in any such operating
   unit bears to the total number of acres included in the respective       op-
   erating unit. ’

          “If the above provision in the   lease is binding on the State, the
   State would share in the production     from the unit on the basis of l/8
   of the sulphur and l/16 of all other    minerals figured in the proportion
   that the acreage in this tract bears    to the total acreage in the unit.
Honorable               Bascom               Giles,   Page          2 - O-5700




           With the above facts in mind, I would like to have%           %enef&I:~f~~!:‘~~
                                                        ” ;; ,..IY’
                                                                  .x,,i ,;<:I :.: ,‘,’
                                                                                     ~,,,.I.I ,’; /
     your opinion on the following question:

            “(1) Does the Commissioner        of the General Land Office have
     the legal authority to file in this office or to:gijli~o’i~‘a~‘~in2~al.‘l.~g~~
     such as the above providing for a combination        of a tra&“m’whYch-‘the
     State has a mineral interest fixed by law with othe&racts,,          ‘in’whtch~’
     the State has no interest, in order to form a drilling unit,?’             ,’
                                                                                                    Case (1o2 s w ZQ7),
                                                                                          Sales Act of 1931) as fixing the
                                                                                           and l/16 of all &her minerals,
                                                                                          of the Bonus and rental for a
     lease         executed                 l$‘thelan$’        owner,                     We have also followed this con-


       ‘It    i;.,~~hl:ib~ttck~‘~$rt.bi                   ise’c’t’,dn.i~,~f’~iiusi’Bil~                       qbrd~idCs          bls   ,fol-


    lows :
.~i ~;                                                                                                                    .,/.
       ,,;t; ~i::jiii, ‘,::,,; ‘,iI/,i            ~:,~, “:        : :’               :       ;‘):: :
    ,““i’,‘i ;“ProvibedT ‘however, that’nothing ‘in this Act shali be construed
““a’s,i%m’dvingfrom        oi’~ntcrfering,wtth    tlie”rtghts and ‘powers of the
” sur’fac’e ‘own& ofian,di:sold ‘or to ‘be hereafter’ s’old ~by the State, with
  “a ‘min&ap ~re’servation,, to act. as’ agent of’the State in making’ and exe-
    cuting mineral leases covering and ‘a’ffecting ,such lands, but the auth-
    ority of such surface owner shaDremain              the same as provided by law,
    a~nd’<s in’rib;wise’ab~~idged,     modiffedor    removed‘by   this’Act.’
          ,.         .,

                   “Section                4-a   offHouse:BIll                    9 re’ads as follows:




    !~~~edP:~hal.l.~~~::bi~aing yonYho                                           ‘state unl&s&,,!it re&ites’the              actllal
     a’nd true’ c’o%siderati$r                        p’af,d”K pr’omi,sed                         the~refbr.’

             :~~.:uIt’j 2.g &i;;&                     & ,th&3above                        ednclusi&,      f Shall appreciate
     your opinion                         on the following             questions                in addition       to Question          No.
.      .




      Honorable    Bascom   Giles,   Page   3 - O-5700



                  “(3) Do leases issued by the land owner on Public School
           Lands, sold under the Sales Act of 1931, as amended by House
           Bill 9, Acts of 1939, come within the provisions of the Relinquish-
           ment Act?

                  “The Relinquishment   Act,  as I understand it, is embraced
           in Articles 5367 to 5379, inclusive,  Revised Civil Statutes  of 1925.”

                  The validity of an agreement by owners of private lands to pool
      their respective    interests,  thus forming a drilling unit for the exploration
      and development      of oil and gas, and to share the royalties   from production
      on an acreage or other equitable basis, has been upheld by our appellate
      courts.    However, the right of any statutory agent of this State, authorized
      to execute   oil and gas leases on public land, either owned by the State in
      fee or on land sold with minerals       reserved to the State, to include this
      land in such a pooling agreement       has never been presented     to the courts
      for determination.

                   In reviewing the statutes of this State, we are unable to find any
       Act of the Legislature     whiqh specifically       deals with this subject.   We do
       find, however, that the Congress         of the United States amended the Leasing
       Act in 1931, to permit the unit development            of a field or pool by lessees or
        permittee%,,,; of the U,nited States.     (30 USCA Section 225) A number of the
       several States have either by amendatory Acts o,r special Acts authorized
    .:,the:,incl&ion    of State owned land with that of private owners, in co~m%V?~.~%
    &on~&         ~o~~~~~~~Ui~g,,lus?it.stocrl,~~~~.axplo.ration of oil and gas, where the
       royalties    are tobe distributed      on an acreage or other equitable basis.

                 In the absence of specific  statutory authority in Texas in this
      respect,   we think it necessary  to review some of the more important Acts
      of the Legislature    which deal w?th the mineral laws as they relate to pub-
      lic lands.   The courts of this State have held that the mineral laws of Texas
      dealing with public land are to a large extent patchwork, each law being
      cumulative    of the other, and no new law repealing a prior law, unless clearly
      repugnant as to the prior law. (Magnolia Petrole,um Company vs. Walker,
      83 S. W. (2d) 929)     For the purpose of this review, we adopt that given by
      the Supreme Court in the case of Wintermann ‘9. McDonald,         102 S.W. (2d)
       167, which is as follows:

                  “The burden is placed on the Legislature   to sell the public
           free school lands ‘on such terms as may be prescribed       by law.’
           Article 7, section 4, of the Constitution. In response   to this com-
           mand, many laws, including this act, have been passed.       The extent
Honorable    Bascom   Giles,   page.4   -.~EO~57~0.
                                                 ,.,,   ,,.,;:




   of the vast’ public domain. of ‘T&&placed         a stupendous task
   upon the Legislature      to sa’feguardithe’ rights of all :c,oncerned
   by the’enactment     of ‘Rio&r laws; To accomRlish        this purpose
   the Legislature    has from time to time enacted many land laws.
   We shall review only a pa,rt of, them.            ,,
       ._    ,i

          “Chapter’3,   title 86,‘artic’le 5306 et seq:, R.S. 1925,
   is generally  known as the General Sales Law. This law furnishes
   certain fundamental rules for the sale of public lands. As early
   as’ 1883 the Legislature    made provision     to classify public lands
   and sell the agricultural    land to settlers;   and the minerals there-
   under were ‘reserved      by the State for the use of the fund to which
   the land now belongs.’     See Act of April 12, 1883, 9 Gammel’s
   &aws; 394; 31 Tex. Jur. p. 659.
      “,
           “In 1919 the Relinquishment       Act was passed.    Article 5367
   reads:     ‘The State hereby constitutes      the owner of the soil its
   agent for the purposes herein named, and in consideration            there-
   for, relinqu,ishes     and vests in the owner o,f the soil an undivided
   fifteen-sixteenths      of all oil and gas which has been undeveloped
   and the value of the same that may be upon and within the sur-
   veyed and &surveyed          public free school land and asylum lands
   and portions of such surveys sold with a mineral classification
   or mineral reservation,        subject to the terms of this law. The
   remaining undivided portion of said oil and gas and its value is
   hereby reserved       for the use of and benefit of the public school
   %‘knrl-,~and the several asylum funds.      (Acts 2nd C.S. 1919, p. 249;
   Acts 1st C.S. 1921, p. 112.)’

            “Article 5368 describes   the terms upon which the owner         may
   lease    said land as the agent of the State.

            ‘By the provisions  of the Relinquishment    Act the State can-
    stitutes the owner of the soil its agent to sell or lease the oil and
    gas that may be thereon or therein, upon such terms and conditions
    as such owner may deem best, subject to the condition, among other
    things, that one-sixteenth   of the gas and oil, in case of production,
    as a royalty shall be paid the State by the lessee.     By its provisions
    the State is to receive as a minimum for the sale of the gas and oil
    one-sixteenth   of all gas and oil as royalty, and 10 cents per acre
    per annum as rental, and certain sums are to be received by the
    owner of the land for his services     in making the lease as the agent
    of the State, during the term of the lease.     This act was construed
   to mean that the oil and gas in place shall not vest in the owner of
   the soil as his property,   but that he shall receive certain interests
Honorable            Bascom               Giles,          page :5 - O-5700




   ~n~~~mi~e~t~s’~h,e~,~~3al~~‘~~i~~!y~h:~e~s~h~~i;~~~~~jce~~.~~d~by~~~~e:,owner            :,::
                                                     ,.r..I   i?+I’ .,,.
 ,/ of the surface
,:I’                                 estate as the agent of the State, in compliance
     with the terms                  of this act. The Relinquishment    Act has been con-
     strued by this                 court in the following cases:   Greene v. Robison,
     117 Tex. 516,                 8 S. W. (2d) 655; Empire Gas & Fuel Co. v. State,
     121 Tex. 138,                 47 S. W. (2d) 265, 274; Lamar v. Garner, 121 Tex.
     502, 50 S. W.                 (2d) 769, 773.

            $$@@9:8%the    Legislature    passed the Repurchase      Act (Chap-
   ter 94, and amended by the Acts of the 39th Leg. in 1926, 1st C. S..,
   p. 43, c. 23, article 5326a, of Vernon’s Annotated Civil Statutes).
   Section 3 of the act (Vernon’s       Ann. Civ. St., art. 5326a, 4 3) con-
   tains, the following ‘lapguage:      ‘One-sixteenth    of the oil and gas,
   and all of other minerals       in the lands included herein, whether
   known or unknown, are expressly           reserved   to the public free
   school fund in the event the forfeited        sale was with mineral reserva-
   tion ,. ’ The act was construed by this court in the case of Magnolia
   Petroleum      Co. v. Walker, 125 Tex. 430, 83 S.W. (2d) 929, and it
   was held that the land had previously          borne a mineral classifica-
   tion, and that when the land was repurchased            under that act it was
   repurchased      under the same classification,       and that all minerals
   were reserved      to the State. It was also held in that case that the
   Act of 1925 should be @oustrued in connection with other laws re-
   lating to this subject,    including article 5310 and the Relinquishment
   Act.

           “In 1931 the 42nd Legislature     enacted Senate Bill 310, chap-
   ter 23, article 5368a of Vernon’s     Annotated Texas Civil Statutes,
   which provided that title to fifteen-sixteenths     of all minerals    in
   all lands described    in said act is vested in the owner of the soil,
   and one-sixteenth    of the minerals   as a free royalty was reserved
   to the State, in case of production,    and the owner was authorized
   to develop said minerals,     and might make such leases or sales
   of same as he might deem proper, subject only to the reservation
   of the State’s one-sixteenth    free royalty interest.    The act further
   authorized   the owner of the land, on his behalf and as agent for the
   State, as to the royalty reserved     by the State, to develop said miner-
   als, or to sell or lease said land for oil and gas and other mineral
   development    and production,    and shall deliver to the State a one-
   sixteenth part of said oil or gas or other minerals        free of cost.
   Because this act violated several provisions       of the Constitution,
   it was declared   void in toto in the case of Empire Gas & Fuel CO.
   v. State, 121 Tex. 138, 47 S. W. (2d) 265.
Honorable   ‘Bascom     Giles,   page 6’-   O-5700




             “House Bill 358, the act under consideration     (now article
     542lc, Vernon’s Annotated Texas ‘Civil Statutes), was enacted by
     the 42nd Legislature   in 1931, c. 271,‘shortly after the enactment
     of SenateBill   310. Both laws were passed by the same Legisla-
     ture, and Senate Bill 310 was on the books, and had not been de-
     clared ,invalid, when Hous,e Bill 358 was passed.     It clearly ap-
     pears that House Bill 358 was enacted under the belief that Sen-
     ate Bill 310 was a valid law, the owners of school land previously
     purchased would have the right to execute leases, for themselves
     and as the agents of the State, on the land for development      of any
     mineral, which would include oil, gas, and sulphur.

             Before the passage ,of the Relinquishment     Act in 1919, the owner
of public free, school and asylum land, sold with minerals       reserved   to the
State, could not validly execute     an oil and gas lease on this land. Wtth the
passage of this Act, all public free school and asylum land sold, or there-
after sold, became     subject to its terms except that land on which there was
a then outstanding oil and gas lease; this became subject to its terms at the
expiration   of the lease, or in the case of production,   at the cessation   of pro-
duction.   While all lands once subject to the provisions     of the Relinquishment
Act remain so, this Act was replaced by the Sales Act of 1931, House Bill 358
as passed by the 42nd Legislature       in 1931. This original Act and the amend-
ment to it are now known as Article        542lc, Vernon’s Annotated Civil Statutes.
Thus, we find that all public lands in Texas in which the State has a mineral
reservation,    sold or to be sold, are subject to the terms of one or the other
of these Acts.

            Under the provisions   of Article 5368, of the Relinquishment       Act,
and the Act of 1931, Article 5421~ and the amendments         thereto, the owner of
the land is authorized as agent of the State to lease the land for oil and gas on
such terms as he deems best, however, the authority of the owner as agent
of the State and the terms of the lease are subject to the provisions       of law
under which the land was sold and to the cumulative       effect of all mineral laws
of Texas not repugnant to the particular     Act. Regardless      of which Act may
govern in a particular   case, we find that in each there is a definite reserva-
tion to the State of a minimum of one-sixteenth     (l/16) free royalty.

            Article    5368 provides    in part:

            u. . . .   No oil or gas rights shall be sold or leased hereunder
     for less than     ten cents per acre per year plus royalty, and the lessee,,,,
     or purchaser       shall in every case pay the State ten cents per acre per
     year of sales     and rentals; and in case of production   shall pay the State
Honorable   Bascom               Gile~,   page 3 - O-5700



     the undivided one-sixteenth of the value of the oil and gas reserved
     herein, and like amounts to the owner of the soil.”

            Article              5421~ provides   in part’:

             “Sec. 1. All lands heretofore  set apart in the public free
     school funds under the Constitution and laws of Texas, and all of
     the unappropriated    and unsold public domain remaining in this
     State of whatever character,    except river beds, and channels, and
     islands, lakes and bays, and other areas within tide water limits,
     are subject to control and sa,le under the provisions    of this Act.

            ,I. . . .

            “Sec. 4. All land shall be sold without condition of settle-
     ment and with a reservation    of one-sixteenth (l/16)  of all minerals,
     as a free royalty to the State, . . .

            44
                 .   .   *   .




             “Sec. 8. All islands, salt water lakes, bays, inlets, marshes,
     and reefs owned by the State within tidewater limits, and that portion
     of the Gulf of Mexico within the jurisdiction     of Texas, and all unsold
     public free school iand, both surveyed and unsurveyed,        shall be sub-
     ject to lease by the Commissioner      to any person, firm, or corpora-
     tion for the production of minerals,    except gold, silver., platinum,
     cinnabar, and other metals, that may be therein or thereunder,         in ac-
     cordance with the provisions     of Chapter 271, Acts of the Forty-second
     Legislature,    as amended, and Subdivision    2, Chapter 4, Title 66, Re-
     vised Civil Statutes of Texas of 1925, relating to leasing public areas,
     in so far as same is not in conflict herewith.      Provided,  however,
     that nothing in this Act shall bk construed as removing from or in-
     terfering with the rights and powers of the surface owner of land
     sold or to be hereafter    sold by the State, with a mineral reservation,
     to act as agent of the State in making and executing mineral leases
     covering    and affecting such lands, but the authority of such surface
     owner shall remai’n the same as provided by law, and is no wise
     abridged,    modified or removed by this Act. As amended Acts 1939,
     46th Leg., p. 465, 5 2.”
Honorable   Bascom           Giles,   page   @ -0-5’700   ’




            The term “free royalty’: was de,fined by Mr.      Justice Greenwood
of the Supreme Court in the case of Sheffield vs. Hogg,       124 Texas 290, 77
S. W. (2d) 1021, as:

             “The.,ter,m ‘free ,royalty’ introdu,ced into this Act must
     mean that the interest reser~ved to fhe State and the mineral,6
     produced on sc,hoo,l lands sold under the terms of the Act,
     must no,t bear any expense of the produQ,tion,, sale, or delivery
     thereof.“,

             Following    the rule announced in the case of Magnolia Petroleum
Company vs. Walker, supra, we find that public land leased for,oil and gas
is subject either to the terms of Article 5369 of the Relinquishment     Act or
to the terms   gf Arttcle    5359, Vernon’s Annotated @vi1 Statute.s. Since they
are similar in language,and effect, we cite Article     5359, which is as follows:

             “If oil or gas should be produced in commercial      quanti-
     ties in a well on an area privately owned when such well is
     within one thousand feet of an area leased hereunder,       the
     owner of the lease on such State area shall, within sixty days
     after the initial p.roductipn on such.priv$tely   owned area, be-
     g,in in good faith and prosecute   diligently the drilling of an
     offset well or wells on the area so leased from the State. . . .”

            In addition to that part of paragraph five of the attached lease,
which you quote in your letter, there is the following provisionf$that   is im-
portant here:

            ,I
                 . The commencement
                     .   .                of a well or the completion    of
     a well to produi;tion, and ~the production    of oil or gas therefrom,
     on any portion of ,an operating,unit    in which a,11 or any portions
     of the land described   herein is embraced      shall have the same ef-
     fect, under the terms of t,h,is,lease ,as if a well were commenced
     or completed   on the land embraced      by this~lease. , . .”

            Summarizing    the cumulative effect of these laws, we deem it
sufficient to say that the term:s pf.a lease containing a pooling clause, such
as is in the attached lease, are not in accord with the mineral laws of this
State as they relate to public lands.   Under the terms of this lease, the State
would not receive the minimum one-sixteenth       “free royalty” as is reserved
by law, nor would the lessee be required to offset and develop p’+&c lands
as required by law. It is the opinion of this department that the land owner,
as agent of the State, does not have the authority to execute such an oil and
Honorable   Bascom   Giles,   page $: -0-5700




gas lease, nor does the Commissioner      of the Genera’1 Land Office      have the
legal right to accept for filing or to approve such a lease.

            This offic,e has previously  held in Opinion No. O-853, written to
the Railroad Commission      of Texas on May 30, 1939, that the Railroad Com-
mission does not have authority to ma’ke.a regulatory     order repuiring the
owner or owners of small tr.acts of land to pool or combine them with other
tracts as a prerequisite   to granting a drilling permit for oil or gas.

            With reference,~to,the second part of yo.ur letter, this is to advise.
that the constiuction  your office has given the Sales Act of 1931 is in accord
with,that given by the Attorney General in Opinion No. O-458, written to you
on July 18, 1939, copy of which is attached.

             We +I   consider your sec,ond and third questions together since
 House Bill 9, Acts of 1939, amending House’Bill     358, Acts of 1931, did not
 change the effect of the original acts as it relates to your ~questions.  The
‘ortginal act and the amendment to it, ar’e now ,codifted as Article  5421~ in
 Vern,on’s Annotated Civil Statutes.

              Then Supreme Cou.rt in the case of Wintermann vs. McDonald,
supra,   interpreted   Article 5421~ Ln this respect, as follows:

             “House Bill 358 and the Relinqu,ishment    Act should be con-
     strued together.    It 1S plain that the 1931 Act is not intended to
     repeal the Relinquishment      Act; nor does the Relinquishment   Act
     occupy the field cover,ed by this law. Th,is law covers a wider
     field than the Relinquishment      Act. The land sold under the pro-
     ,visions of this Act will be governed by the terms thereof, and not
     by the terms of the Relinquishment      Act.  (E,mphasis ours)

           It follows that your second and third questions are answered in the
negative, which. is in accordance  with the holding in our Opinion No. O-458,, ad-
dressed to you under date of July 18, 1939.

                                                 Yours   very truly




FIRST ASSISTANT                                                Assistant
ATTORNEY   GENERAL
                                Chairman
JWR :mb
