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 determine whether the School Land Board has the authority to 

reduce the amount of gas royalty to be 

lil 

aid under the terms 

of an oil and gas lease executed in 193 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 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 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 I s portion be less than. one-fourth 

nor more than now provided 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 orlglnal 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 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 provide * 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 

deem necessary 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 waa passed. It reads in part as follows: 

“The fact that the value of many stateowned 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 described 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 pooling and unitization agreements when it would be for the beat 

interest of the State to do 80. ‘Phe Board further. hasthe 

- 1455- 
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, 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 

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 k 1942). 

Therefore, it is the opinion of this office that the 

School Land Board 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 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 

APPROVED: 

Opinion Committee 

W. V. Oeppert, Chairman 

Assistant Attorney General 

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

Ben Harrison 

Larry Merriman 

Grady Chandler 

Larry Craddock 

APPROVED FOR THE ATTORNEY GENERAL 

By: Stanton Stone 

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