Honorable Jerry Sadler          Opinion No. C- 304
Commissioner
General Land Office             Re:     Authority of the School
Austin, Texas                           Land Board to reduce the
                                        gas royalty of a river
Dear Mr. Sadler:                        bed tract.
       You have requested an opinion of this office  to deter-
mine whether the School Land Board has the authority     to
reduce the amount of gas royalty to be aid under the terms
of an oil and gas lease executed in 193lil by the Board for
#lineral  Development, predecessor  of the present School
Land Board.
      The terms of the lease provided for a sliding  royalty
scale on oil of not less that 25-l/2% up to 66-2/3$ and a
straight  50s royalty on gas that was produced and saved.
The lease has been held by production   throughout the years
by oil production.
       However, in 1960 the Cayuga (Trinity)      Gas Field Vas
discovered    and there.were three offset wells drilled      to
the 120 acre State River Be'd Tract.        Because of the high
royal.ty provisions    for gas, it'has    been impracticable  for
an operator to either drill       this tract or to pool'it   with
adjoining   tracts to form a gaa unit.       The State tract
therefore   has been drained for the past several years by
the&e offset    wells.    The only way the tract can be pro-
tected from this drainage is to have the 50s gas royalty
reduced so that the lessee can either drill        this tract or
pool it with adjoining      acreages  to form a gas unit.,
     Article 5421c, Subsection    6b, Vernon's Civil     Statutes,
which was passed In 1933 by the #rd'Legislature,         provides
in part as follows:
         II     pro,vided, further that said Board
     may ~odi&? said contract as aforesaid    by
     adjusting up or down from time to tfme the
     State's portion of said oil and/or money
     payment as the condltion~ereinbefore,      set,
     forth may justify    and which may be equitable
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Hon. Jerry      Sadler,   page 2 (C-304)


      to the State and to said cont,ractors    or
      their assigns,   but in no event shall the
      State Is portion be less than. one-fourth
      nor more than now provided In said con-
      tracts,  and in no event shall the Board
      of Mineral Development have any authority
      %?omodify or change said original    leases
      as to gas. . . :’ (Fauphasls’add.ed. )
      Certainly this article,  if still controlling,   would
prohibit  the ~Schsol~Land Board from reducing the gas roy-
alty to a lower percentage than thatprovided      in the orlg-
lnal lease.
       However, ,in 1951 the 53rd Legislature    enacted.Senate
 Bill~307,  codiiied   as Article 538% ,, Vernon’s Civil Stat-
mutes, yhich,authorlaed     the Commiqioner   of the General Land
-Office after the approval of the School Land Board ,tp enter
 Into unitization    and, pooling agreements Wherein the School
 lands and’,State, lands can be placed into oil or ,gae u&ts.
      Section     2 of that statute    provided   that:
           “Any agreement authorized to be executed
      under the provisions    ‘of this Act may pro-
      vide *
      boapi •,&g~        “~&;yegtnf.g          z:,p ority
             ,         ,        9 ,g
      of the State vested with authority         to lease
      or approve the leasing of said lands may
      deem necessary for the protection        of th
      ‘interests ,of the State.”      t%‘h asis addzd. )
     Section 5 of that statute          stated very olearly the rea-
sons that ,the Act waa passed.          It reads in part as follows:
          “The fact that the value of many state-
      owned tracts is being diminished and there
      is doubt as to the extentof   the power of
      the Commissioner  of the General Land Office
      to enter into agreementa of the kind de-
      scribed herein, create an emergency. . . .”
       Section 3 of the Act provided         that all     prior   laws in
conflict    therewith were rephaled.
      The Legislature  in enacting Senate Bill 307 certainly
gave the School Land Board the authority    to enter into pool-
ing and unitization   agreements when it would be for the beat
interest  of the State to do 80.   ‘Phe Board further. hasthe

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Hon. Jerry   Sadler,   page 3 (C-304)


authority to approve agreements with certain'provieions
they deem necessary for the protection of the interests
of the State.
      The Legislature  in enacting the present Article    5382~
has repealed that portion of Article     5421c, Section 8, Sub-
section 6b, which prohibited    the Board for Mineral Develop-
ment from changing or modifying the terms of sn ori inal
oil and gas lease as to gas.     In passing Article   53%20, the
Legislature  gave the School Land Board the authority     to
enter into unitization   and pooling agreements affecting
State lands.    It is an elementary principle   of oil and gas
law that the execution of a gas unitization     agreement changes
the terms of the ori lnal lease.     Veal v. Thomanson, 138 Tex.
341, 159 S.W.2d '$72 k1942).
      Therefore,    it is the opinion of this office   that the
School Land Board does have authority by virtue of the pro-
visions of Article      5382~ to reduce the gas royalty from
that provided in the original       lease by entering into a
unitization     or pooling  agreement which provides for a lesser
royalty,    provided however, that the Board deems such provi-
sions necessary to protect       the Interests of the State.

                         SUMMARY
         The School Land Board has authority under
     Article  5382c, V.C.S., to modify the terms of
     an oil and gas lease as to gas if they deem
     such changes as for the best interest-of  the
     State.
                                Yours    very truly,
                                WAQGORRR CARR
                                Attorney General of




LS:afg                             Assistant    Attorney   General

APPROVED:
Opinion Committee
W. V. Oeppert, Chairman


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Hon. Jerry   Sadler,   Page 4 (C-304)


Ben Harrison
Larry Merriman
Grady Chandler
Larry Craddock
APPROVEDFOR THE ATTORNEY
                       GENERAL
By: Stanton Stone




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