                                        The Attorney          General of Texas
                                                       December 31, 1982
MARK WHITE
Attorney General


                                       Mr. W. J. Estelle, Jr.                 Opinion No. m-571
Supreme      Court Building            Director
P. 0. Box 12548
Austin,   TX. 78711. 2548
                                       Texas Department of Corrections        Re: Mineral interest owned by
5121475-2501                           P. 0. Box 99                           private individuals in land
Telex   9101674-1367                   Huntsville, Texas   77340              formerly owned by Department
Telecopier     51214750266                                                    of Corrections

1607 Main St., Suite 1400
                                       Dear Mr. Estelle:
Dallas, TX. 75201.4709
2141742.8944                                In a request for an opinion of this office, you set forth the
                                       following facts.
4824 Alberta       Ave., Suite   160
El Paso, TX.       799052793
                                            In 1930, the Department of Corrections (the Prison Board) was
915/533.3464                           authorized to sell the Shaw Farm in Bowie County, Texas, under the
                                       provisions of article 6203c, section 7, V.T.C.S.
1220 Dallas Ave., Suite 202
                                           Article 6203c, section 7, also provides that:
HOUS~O”, TX. 77002-6986
713/650.0666
                                                   All oil, gas and mineral rights in and to said
                                                land shall be reserved to the State of Texas, with
806 Broadway,        Suite 312                  the provision that  as and when such oil, gas or
Lubbock,     TX.    79401-3479
                                                other minerals are sold, either by lease or
6061747.5236
                                                otherwise, an equal one-eighth portion of the net
                                                proceeds of such sale or sales, shall be paid to
4309 N. Tenth, Suite B                          the State's vendee of the surface, or the heirs or
McAllen,     TX. 78501.1665                     assigns of said vendee.
5121682.4547

                                            On January 31, 1935, the Shaw Farm was sold and conveyed to Mr.
200 Main Plaza, Suite 400              C. 0. Moser as provided for by the statute.
San Antonio,  TX. 78205.2797
512/225-4191                                The General Land Office plans to conduct an oil and gas lease
                                       sale on a part of the old Shaw Farm in Bowie County at some time in
An Equal      Opportunity/
                                       the future.
Affirmative     Action     Employer
                                            Because of this proposed oil and gas lease sale, you desire to
                                       know what mineral interest the state's vendee, Mr. C. 0. Moser, his
                                       heirs or assigns, have in the tract of land to be leased as a
                                       consequence of the original sale of the Shaw Farm to Mr. Moser by the
                                       Prison Board on January 31, 1935, under authority of article 6203~.
                                       section 7.

                                            We do not see any ambiguity in the provisions of the statute
                                       under which the surface of the Shaw Farm was sold to Mr. Moser. By



                                                             p. 2104
Mr. W. J. Estelle, Jr. - Page 2    (MW-571)




the terms of the statute quoted above, all of the oil, gas and mineral
rights to the Shaw Farm were reserved to the state at the time of such
sale in 1935.

     By the proviso or provision in the statute which immediately
follows the mineral reservation, the vendee of the surface estate, his
heirs or assigns, shall receive an equal one-eighth of the net
proceeds of the sale of the oil and gas. This proviso does not create
an interest in the mineral estate of the Shaw Farm. The mineral
estate is in the state of Texas. The proviso creates only an interest
in the net proceeds of the sale of minerals by the state, which
interest is in the nature of an incorporeal hereditament.

     We can readily visualize two types of sales of the oil and gas
under the Shaw Farm being made by the state: either a sale of the fee
simple absolute in the oil and gas for a fixed price, or a sale by an
oil and gas lease (fee simple determinable) containing a provision for
the payment of bonus, rent, and royalty.

     Webster's New International Dictionary, 2d Edition, defines the
word "net" as follows:

             Free from all charges or deductions: as (a)
          remaining after the deductions of all charges,
          outlay, or loss.

Webster's defines the word "proceeds" as follows:

             The total amount or the profit arising from an
          investment, transaction, levee, or business.

     It was held in the case of Sheppard V. Stanolind Oil and Gas
Company, 125 S.W.2d 643, (Tex. Civ. App. - Austin 1939, err. ref'd),
that everything paid or contracted, whether in money or in oil or its
proceeds, as distinguished from delay rentals, constitutes a part of
the purchase price of an oil and gas lease.

     Thus, "net proceeds of the sale" by the state of Texas of the   oil
and gas underlying the Shaw Farm by the means of a conveyance in     fee
simple absolute at a fixed price would be the amount of money that   the
state would receive from the sale after deducting therefrom          the
state's negligible expenses Incurred in conducting the sale.

     The "net proceeds of the sale" by the state of Texas of the oil
and gas underlying the Shaw Farm through the means of an oil and gas
lease would be the amount of money in bonus and amount of royalty
(whether received in kind or In monetary value) that the state would
receive from the sale after deducting therefrom the state's negligible
expenses in conducting the sale.

     As examples, if the state should sell its oil and gas interest in
the Shaw Farm in fee simple absolute for a fixed amount, for example


                                  p. 2105
Mr. W. J. Estelle, Jr. - Page 3    (MW-571)




$80,000,   minus expenses, then the surface owner, his heirs or assigns,
would he     entitled to one-eighth of this amount or approximately
$10,000.     The state would be entitled to receive approximately
$70,000.

     If the state should sell its oil and gas interest by an oil and
gas lease (which is a fee simple determinable) that provided for an
$8,000 cash bonus, except for expenses, and a one-eighth royalty, then
the surface owner, his heirs or assigns would receive one-eighth of
this cash bonus and one-eighth of this royalty, i.e., approximately
$1,000 bonus and 1/64th royalty, the one-eighth portion of the net
proceeds of the sale being uniformly applied to all of the sale price
consisting of both the bonus and the royalty. The state would, of
course, receive approximately $7,000 bonus and 7/64th of the royalty.

                               SUMMARY

               The state's vendee of the Shaw Farm, Mr. C. 0.
            Moser, his heirs or assigns, which farm was sold
            by the state under authority of article 6203c,
            section 7, V.T.C.S., has no mineral interest in
            the Shaw Farm. Mr. Moser, his heirs or assigns,
            have only a one-eighth interest in the net
            proceeds to be received by the state from the sale
            of the proposed oil and gas lease which interest
            is in the nature of an incorporeal hereditament.




                                         MARK      WHITE
                                         Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY III
Executive Assistant Attorney General

Prepared by J. Milton Richardson
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Susan L. Garrison, Chairman
Jon Bible
Rick Gilpin
Jim Moellinger
J. Milton Richardson
Bruce Youngblood



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