Hon. Ernest 0. Thompson, Chairman
Railroad Commission of Texas
Tribune Building
Austin, Texas                Opinion NO. S-123

                             Re:   Authority of the Railroad Commission to
                                   require that a certain portion of the
                                   natural gas production of the Texas
                                   Hugoton Field be dedicated to the sur-
                                   face u*e of fuel for irrigation pumps,
                                   and related questions.

Dear General Thompson:

          You have requested the opinion of this office as follows:

          "The Commission has been petitioned to issue cer-
     tain orders relating to the usage of natural gas for a
     localized area and purpose',namely, for irrigation pump
     fuel in the Texas Hugoton Field. The Commission's au-
     thority to issue the type orders requested is not speci-
     fically set out in the statutes; 60 a request is hereby
     made for an opinion concerning the Commission's authority
     in such matters.

          “1.)   Can the Commission Issue an order requiring
                 that a certain portion of the production from
                 a field, or from a certain well, be dedicated
                 to a local use, (i.e. fuel for irrigation
                 pumps) and further, that such production not
                 be charged against the allowable?

          “2.)   Can the Commission issue an order providing
                 that a royalty owner, within the confines of
                 a field, has the right to use whatever portion
                 of his one-eighth of the gas produced for a
                 local use?

          “3.)   Can the Commission issue an order which provides
                 that the act of delivering natural gas from a
                 gas well for use 86 pump fuel for irrigation
                 pumps on the 8ame land does not make the deliver-
                 er a gas utility company?
Hon. Ernest 0. Thompson, page 2 (S-123)



          "4.)   Can the Commission issue an order which provides
                 that the act of delivery of gas from a pipeline
                 for such use does not make the deliverer a gas
                 utility?"

          In the interest of clarity, we set out our replies to the enum-
erated questions in their listed order.

          (1) The recent case of Railroad Commission Y. Rowan Oil Co.,
    Tex.       259 S.W.2d 173 (1953), (the Spraberry Case), reiterated
thefamil?$rinciple     that:

          "An order of the Railroad Commission must be bottomed
     upon a specific grant of power either contained in the Con-
     stitution or delegated by the Legislature."

          The constitutional power of the Railroad Commission to issue or-
ders for the prevention of waste of natural gas as a part of the natural
resources of this State is found in Section 59a of Article XVI of the Con-
stitution of Texas, and the statutory power of the Commission to regulate
the production of natural gas is found in Title 102, V.C.S. Articles 6014,
6015, 6o4gc, 6049d, V.C.S., authorize wells to be shut down completely in
order to prevent waste (Railroad Commission v. Rowan Oil Co., supra),.and
Art. 6008 authorizes the Commission to prorate production from gas wells to
prevent waste or to protect correlative-rights.- Corzelius V. Harrell, 143
Tex. 509, 186 S.W.2d 961 (1945). It is therefore apparent that for an or-
der to be valid requiring a part of the production of gas from certain wells
to be utilized for certain surface uses, such order must be reasonably re-
lated to the prevention of waste or the adjustment of correlative rights.
See Railroad Commission Y. Rowan Oil Co., supra.

          As you know, waste in connection with the production of natural
gas from gas wells has been defined by law. Art. 6008. The Commission also
has authority to define factually what constitutes waste in a particular
field, so long as the definition is reasonable, non-discriminatory and
non-confiscatory. Railroad Commission v.~Rowan Oil Co., supra.

          With these fundamentals in mind, we have concluded that an order
of the Commission requiring that a certain portion of the production from
a field or from a certain well shall be dedicated to a surface use for fuel
for irrigation pumps is not 86~8 matter of law reasonably related to the
prevention of waste or to the adjustment of correlative rights within the
conservation statutes. Arts. 6008, 6014, 6015, 6049c, 6049d, V.C.S. - Cor-
zelius Y, Harrell, supra; Railroad Commission Y. Rowan Oil Co., supra.
That being true, the Commission does not have authority to promulgate such
an order.
Hon. Ernest 0. Thompson, page 3 (S-123)



          We similarly conclude that all such production should be charged
against the allowable and recorded, under Art. 6008. Although~the Commis-
sion is vested with a broad discretion in gas proration matters (Art. 6038;
31-A Tex.Jur. 659, Sec. 389), we think that allowing such a credit on the
allowables for such irrigation pump fuei purposes would be discriminatory
between operators, and as such invalid. (Art. 6008; 31-A Tex.Jur. 645,
Sec. 383).

          (2) The obligation to pay royalties, either in money or in
kind, is a matter which is resolved in the contract between the lessor
and the lessee.

          Judge Smedley described the contractual relationship arising
under an oil and gas lease as follows, in Tennant Y. Dunn, 130 Tex. 285,
110 S.W.2d 53 (1937):

          "The parties to a contract may agree upon a standard
     of value, and they are bound by such agreement unless the
     standard fails,"

          To the extent, therefore, that the lease contracts call for
royalty payment of the gas in kind, this is a contractual obligation be-
tween the parties subject to approprdate enforcement as such. If such
contracts do not embody provisions calling for royalty payments in kind,
there is no authority for the Commission to alter, amend or abrogate
these contractual provisions by administrative fiat, and for the Commis-
sion to attempt to do so would raise serious constitutional questions.

          (3)(h) We group your third and fourth questions because they
pertain to the single issue of whether the Commission can issue an order
providing that either an operator or a pipeline company delivering gas
for irrigation fuel pump use would not become a gas utility as a result
of such action.

          Since the definition of a "gas utility" is technically pre-
scribed by law in Art. 6050, the Commission is without authority to
issue an order relieving an operator or a,pipeline from inclusion with-
in the statute, as there is no discretion'reposed in the Commission in
this regard. Whether or not an operator or a pipeline is within the
statutory classification of a "gas utility" as defined in Art. 6050,
requires the examination and resolution of the facts in each instance.
Our determination of whether or not the actions in question would legal-
ly classify the operators or the pipelines as "gas utilities", within
the contemplation of Art. 6050, et seq., has not been asked, and our
answer would depend upon an examination of all of the circumstances in-
volved in the complete operation. Of course, irrespective of such de-
termination, the statutory definition of a "gas utility" prescribed by
the Legislature could clearly be amended to provide a specific exception
for the operations described in your request.
Hon. Ernest 0. Thompson, page 4 (S-123)




          The Railroad Commission does not have authority to
     issue an order requiring that a certain portion of natural
     gas production from the Texas Hugoton Field shall be dedi-
     cated to the specific surface use of fuel~for irrigation
     Pump*, and the Commission cannot order that such production
     shall not be charged against the appropriate allowable.
     Whether a royalty owner may take his gas royalty in kind
     is a contractual obligation to be negotiated between the
     contracting parties. Whether or not the act of delivering
     gas from a gas well or from a pipeline constitutes such
     deliverer a "gas uti+ity" is to be determined by the stat-
     utory definition prescribed in Art. 6050.

APPROVED:                           Yours very truly,

Willis E. Gresham                   JOHN BEN SHEPPERD
Reviewer                            Attorney General of Texas

w. v. Geppert
Reviewer

Robert S. Trotti
First Assistant
