                                   NO.   3034




                 PROVISION8O? CZRTAINlXA8ZS XZCUTZD BY
                 ,BOARDFOR LYASE OF TZXAOpRISO10LAND3RZ-
                 SZRVINGOIL PAlMZRTSHXLDNOTTO RESERVE
                 TAiABLS INTZRXSTIN RZALTI


         opinion oonstnlIngprovIsIonsof two lease6 executed
         by the Board for Liaee of Texas Rlaon L+V%S, and
         holding that the prorlalonaor the two leases by the
         Board ior Lease or Rlaon Lands, providingfor 011
         paymentsby my of additionaloonslderatlonfor fixecu-
         tion of leeees under partloularprovisionsof leasee
         do not reserve taxable interestIn realty.




                     OFncx      OF mz    ATTOBlPEI wcNERAL


                                                                January   t3, 1939

Honorable     3. P. Bryan
CountyAttorney
BrazoriaCounty
Angleton.Texas
Dear Hr.    Bryan:
                                            OpinionNo. O-75
                                            R0: Taxabilityof oil pamants

             Your    requestfor an opinion am to the personaagainat
iaollthe tame. should be obarged                  O?Ithe l/e of I/5 rorklne intsr-
est   on the Ramsey RIlron Farm lease of 4,500 aorea, balm                    the
i/8’0r     ?/8 out or whloh the state or Texas is to b.3paid rrom
tha   first oil     produoed,     #%52.56     per nom,        mob 011 paymentbeing
iesensa     In    thelihm       reeordod-in       Book ees.    Age   619 0r the   a.6
reoords     of Brar.orla
                       County:and aa to ths Parson                   againstwhoa the
taxes shouldbe~obareedon a l/4 oi -7/8working intereston the
            Farm lease of 857.a acrea, being
&UMQ- IPrIson                                                        the l/4 or 7/8
out   if whloh the Ctate or Texas la to be paid from the first oil
         produoed,$105.00 per aore, suoh 011~paymentbeing reaened        in
         tho lease reoordedin Book SW, Page 56, la answeredam follows:
:
    ..                 The pertinentportion8of the loama under oonsId?ra-
'i       tlon roila:
                                     B. L. Ryan Lease
                    "1 (a). Lorsee agrees that
              0r 0Il in payInK auantltleeiron
              aoro traat he will lubdlridemid traot into nine mrcelr.
              eight  ot whloh ahall bo ocmprimedof 100 aorea each,        .
              and one of whloh shall be oomprlaed of 67.fC3 aores more
              or leas,  . . . and am to each such paroel that produoen
              oil In paying quantitieshe will pay a marlmum of $105.00
              per aore out of l/4 of 7/E of the 011 produoedand eared
              fro5 anf auoh paroel,in addition to the.l/8     royalty. It
              16 understood, however,that lessee ah11 not be 'obllsated
              to drill a well on any or such paroela .., for the pur-           :
              pose of oreatinga fund with whloh to make auoh pay-              .,
              nont ...w (Undersooringoura.)            .
                   *..~'Thelamsor ahall hare a first lien upon all 011
              ln4/or  @is, produoed upon the leased area and upon all
              rlg#  tanks, pipe $Ine, telephoneline and mnohlneryand
              appl~enoerUBB~ in the pmauotion and handlingor oI1
              and gas produoedthereon,to secure any amount due from
              tha owner or mid lea8e....
                   Velthar the dam papent, bonus, delay rsntaln or
              royaltiespaid or.to be paid hereunder#hall rellrre lea800
              irau the above ltatad obligationto prot&ot the premlarm
              from draIna~o...a


                               Shell PetroleumCorporationLeaae

                       *la. Lasaeo agree8   that after the discoveryor
              011 In syInR auantltlearrat any part or said 4300
              aorea of land Laeaee wirl aubdlvideaaid traot IntO
              twenty-seven   paroelr,twenty-airoi whloh ah&l1 oontaln
              160 aorta aaoh and one of whloh shall be oomprlned oi the
              remainder,approximately14C aorta, and arrto each
              muoh garoel that produom   011 in parIng quantitier;
              kr~e lgreee to pay the State or TIMII, In addltlon
              to the royaltyprorldodfor herslnbelow,en overrIdIng
              royalty of one-eighthoi saven olghta of the produotlon
              or oil, Ii, aa and when produoedand saved from any mob
              paroel, until 8uoh time aa such pamnta for 011 pro-
              duood and raved from any suoh paroel rhall amount to
               SSS.66 per aore tar eaoh aore lnoludedin said paroel.
              tt to tin ldtintlon  tlut om?b preel &all be burdsned
              with auoh overridingroyalty payment only to the extent
              or $esS.56 for each aare lnoludedtherein..."
              (Underaoorlngours.)
                       This lease also contain6a first lien provIsionsimilar
         to that above quoted,ea well 88 a provisionsinilarto that aboro
         quoted regardingthe obligationsor the leasee to proteatthe
    prenlses   from drainage.
.
                This lepse oontalnsthla further provision:
               "Ii said lessor owns a leas iptereatIn the
          leased preniaesthan the entire and undividedfee
          simple estate, or no Interest~thereon,then the royalties,
          rentalsand other none e herein providedior shall
          be psld lessor
                     -71only n the proportionwhich lessor's
          Interest,Ii any, bears to the whole and undivided
          fee.* (Underaoorlngours.)

                We oonetruethe provisionsof these leases ae oontraat-
    ing for the paymentof an additionaloontlngentconsldaratlon
    for the lease, by way or bonus, and deslpating ths 011 as the
    fund out oi whloh the paymentIs to               be   made and   by   which Lt.is
    to be EIeaBUred,both as to the oooaaionfor, t&e amount.,
                                                           and the
    time for payzentor the additionalbonus, and reservingexpressly
    a lien upon such oIl,.aswell aa upon other ppoperty,to secure
    the payment thereof-- not        aI)    a reservationor the fund              itacll.
    In other words, the altuatlonIs similarto that resultingfrom
    the'reservatlonof an expressvendor'slien for the paylentof
    the defarrsdconsiderationfor the executionor the lease. The
    right retalnsdby the vsndor was merely a means of bringIn&about
    payment of the stlpulatsdprI?e of the Interest8old to the.
    leasee.    Ses   Buttrm    v. Gray     County,    Texae, 72 Fed. (2nd) 44,                .
    Certioraridenied, 209 U. S. 728; Standleyv. Graham Froduotion
    co., 83 Fed. (2nd) 409, Certioraridenied, 81 L. Ed. 437;
    ~ahko v. Frledzzan,
                      59 9. 1. (2ndj.203;Xanqy v.,Provldent
    Inr. Co., 158 S. W. 1127; Holiday T. Emin, 85 8.                      W.   (2nd)   355,

    aiflxmad,C0~11lesi0n                 111.(2nd) 117; Koenig
                       or Appeals,.112i3.-
    ,. Blo~BravoOil Co., 24 8:R. (2nd) 14, Oommiaaionof Appeala,
    ~'Seotlon
            A.
                In reachingthe above.oono+mion,we hove not over-
    looked auoh oases as Tennant v. Dunn, 110 9. II.(2nd) 53, and
    sherrieldv.      xog~,    77 S. 17:.
                                       (2nd) 1021.. These oases,we believe,
    are   distlngulahebleon the facts..An examinationof nIlperou(I
    authoritiesl?ads us to the conclusionthat In suoh zatters each
oaas turn8 upon the particularprorlaionsof the leana aoatraot
or alrslgament
             under oonslderatlon.
          It tollcm, thexfors, that the taxes chould be
aarareedagainst the owner8of the O/S working intorestIn these
                                    tax lhould be assessed
leases.and that no realty ad valoren!
againsttha 011 paymentholder,the Stati:

                                  Tour3   very   truly,
                                  ATPORNZYOZN’SRALOF TEXAS




DDY:PBP


          Thlr opinionhaa been zaad, ooniilderad,
                                                and approved

in oonfsrenoeand .I6now mdered filed on this the 24th day of
January,1939.



                                    Attorney   Oeaaral of Texas
