Honorable Jerry Sadler Opinion No. C-

### 304

Commissioner General LandOffice Re: Authority of the School Austin, Texas LandBoard to reduce the gas royalty of a river Dear Mr. Sadler: bed tract. Youhave requested an opinion of this office to determine whether the School LandBoard has the authority to reduce the amount of gas royalty to be lil aid under the terms of an oil andgas lease executed in 193 by the Board for #lineral Development, predecessor of the present School LandBoard. 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 

### 50sroyalty 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) GasField Vas discovered and there.were three offset wells drilled to the 120 acre State River Be'dTract. 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 waythe tract can be protected 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 agas unit., Article 5421c, Subsection 

### 6b,Vernon's Civil Statutes, which waspassed 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 downfrom time to tfme the State's portion of said oil and/or money payment as the condltion~ereinbefore, set, forth mayjustify andwhich maybe equitable -1454-Hon. Jerry Sadler, page 2 (C-304)

to the State andto said cont,ractors or their assigns, but in no event shall the State Is portion be less than.one-fourth nor more than nowprovided In said contracts, and in no event shall the Board of Mineral Development have any authority %?o modify 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 royalty 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 Statmutes, yhich,authorlaed the Commiqioner of the General Land -Office after the approval of the School LandBoard ,tp enter Into unitization and,pooling agreements Wherein the School lands and’,State, lands can be placed into oil or ,gaeu&ts. Section 2 of that statute provided that:

“Any agreement authorized to be executed under the provisions ‘of this Act mayprovide * boapi

,•,&g~ “~&;yegtnf.g z:,p

, 9 ,g ority of the State vested with authority to lease or approve the leasing of said lands may deemnecessary for the protection of th

‘interests ,of the State.” t%‘h asis addzd. ) Section 5 of that statute stated very olearly the reasons that ,the Act waapassed. It reads in part as follows:

“The fact that the value of manystateownedtracts is being diminished andthere is doubt as to the extentof the power of the **Commissioner** of the General LandOffice to enter into agreementa of the kind described herein, create an emergency.
. . .” Section 3 of the Act provided that all prior laws in conflict therewith were rephaled. TheLegislature in enacting Senate Bill 307 certainly gave the School LandBoard the authority to enter into pooling andunitization agreements whenit would be 

### forthe beat interest of the State to do 80. ‘PheBoard further. hasthe

**- 1455-** Hon. Jerry Sadler, page 

### 3 (C-304)

authority to approve agreements with certain'provieions they deemnecessary for the protection of the interests of the State. TheLegislature in enacting the present Article 

### 5382~ has repealed that portion of Article 5421c, Section 

### 8, Subsection 

### 6b,which prohibited the Board for Mineral Development from changing or modifying the terms of sn ori oil and gas lease as to gas. In passing Article % inal 

### 5320, the Legislature gave the School LandBoard the authority to enter into unitization andpooling 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, 

### 138Tex. 

### 341,159S.W.2d '$72k1942). Therefore, it is the opinion of this office that the School LandBoard does have authority by virtue of the provisions 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 provisions necessary to protect the Interests of the State.
SUMMARY The School LandBoard 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 APPROVED: Opinion Committee W.V. Oeppert, Chairman Assistant Attorney General

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### Hon.Jerry Sadler, Page 4 

### (C-304)

BenHarrison Larry Merriman Grady Chandler Larry Craddock APPROVED

FORTHEATTORNEY

GENERAL By: Stanton Stone

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