Hon. Ernest 0. Thompson, Chairman

Railroad Commission of Texas Tribune Building Austin, Texas OpinionNO. S-123
Re: Authority of the Railroad Commission to require that a certainportion of the natural gas production of the Texas Hugoton Field be dedicated to the surfaceu*e of fuel for irrigationpumps, and related questions.

Dear GeneralThompson:

You have requested the opinion of this office as follows:
"The Commissionhas been petitioned to issue certain orders relating to the usage of natural gas for a localizedarea and purpose', namely, for irrigationpump fuel in the Texas Hugoton Field. The Commission'sauthority to issue the type orders requested is not specifically set out in the statutes; 60 a request is hereby made for an opinion concerningthe Commission'sauthority in suchmatters.
“1.)

“2.)

“3.) Can the Commission Issue an order requiring that a certainportion of the production from a field, or from a certainwell, be dedicated to a localuse, (i.e. fuel for irrigation pumps) and further, that such production not be chargedagainst the allowable?
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 localuse?
Can the Commission issue an order which provides that the act of deliveringnatural gas from a gas well for use 86 pump fuel for irrigation pumps on the 8ame land does not make the deliverer a gas utility company?Hon. Ernest 0. Thompson, page 2 (S-123)

"4.) Can the Commission issue an orderwhich provides that the act of delivery of gas from a pipeline for suchuse does not make the deliverera gas utility?"

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

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

"An order of the Railroad Commissionmust be bottomed upon a specific grant of power either contained in the Constitution or delegatedby the Legislature."
The constitutionalpower of the Railroad Commission to issue orders 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 Constitution of Texas, and the statutorypower 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., authorizewells to be shut down completely in order to prevent waste (RailroadCommissionv. Rowan Oil Co., supra),.and Art. 6008 authorizes the Commission to prorate production from gas wells to preventwaste or to protect correlative-rights.-CorzeliusV. Harrell, 143 Tex. 509, 186 S.W.2d 961 (1945). It is therefore apparent that for an order to be valid requiringa part of the production of gas from certainwells to be utilized for certain surfaceuses, such order must be reasonablyrelated to the prevention of waste or the adjustment of correlativerights. See Railroad CommissionY. Rowan Oil Co., supra.

As you know, waste in connectionwith the production of natural gas from gas wells has been defined by law. Art. 6008. The Commissionalso has authority to define factuallywhat constituteswaste in a particular field, so long as the definition is reasonable,non-discriminatoryand non-confiscatory. Railroad Commissionv.~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 certainwell shallbe dedicated to a surfaceuse for fuel for irrigationpumps is not 86~8 matter of law reasonablyrelated to the prevention of waste or to the adjustment of correlativerights within the conservation statutes. Arts. 6008, 6014, 6015, 6049c, 6049d,V.C.S. Cor- zelius Y, Harrell, supra;Railroad CommissionY. 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 shouldbe charged against the allowable and recorded,under Art. 6008. Although~ the Commission is vested with a broad discretion in gas prorationmatters (Art. 6038; 31-A Tex.Jur. 659, Sec. 389), we think that allowing such a credit on the allowables for such irrigationpump fuei purposeswould be discriminatory between operators, Sec. 383). and as such invalid. (Art. 6008; 31-A Tex.Jur. 645,

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

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

"The parties to a contractmay 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 obligationbetween the parties subjectto approprdate enforcementas such. If such contracts do not embody provisions calling for royalty payments in kind, there is no authority for the Commissionto alter, amend or abrogate these contractualprovisionsby administrativefiat, and for the Commission to attempt to do so would raise serious constitutionalquestions.

(3)(h) We group your third and fourth questionsbecause 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 irrigationfuel pump use would not become a gas utility as a result of such action.

Since the definition of a "gasutility" is technicallyprescribedby law inArt. 6050, the Commission is without authority to issue an order relieving an operator or a,pipeline from inclusionwithin the statute,as there is no discretion'reposedin the Commission in this regard. Whether or not an operator or a pipeline is within the statutory classificationof a "gasutility" as defined inArt. 6050, requires the examinationand resolution of the facts in each instance. Our determinationof whether or not the actions in questionwould legally classify the operators or the pipelines as "gas utilities",within the contemplationof Art. 6050, et seq.,has not been asked, and our answer would depend upon an examination of all of the circumstances involved in the complete operation. Of course, irrespectiveof such determination, the statutorydefinition of a "gasutility" prescribedby the Legislature could clearlybe 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 shallbe dedicated to the specific surfaceuse of fuel~for irrigation Pump*, and the Commission cannot order that such production shallnot be charged against the appropriate allowable. Whether a royalty owner may take his gas royalty in kind is a contractual obligationto be negotiatedbetween the contractingparties. Whether or not the act of delivering gas from a gas well or from a pipeline constitutes such deliverera "gasuti+ity" is to be determinedby the statutory definitionprescribed inArt. 6050.
APPROVED:
Willis E. Gresham Reviewer

w. v. Geppert Reviewer Yours very truly,
JOHN BEN SHEPPERD Attorney General of Texas

Robert S. Trotti First Assistant