Honorable Earl Rudder 

Commissioner 

General Land Office 

Austin, Texas 

Dear Mr. Rudder: 

Opinion No. WW-185 

Re: Authority of School Land Board, 

by approval of a unitization agreement, and the Commissioner, by 

execution thereof, to agree to the 

extension of Lease No. M-18948 

beyond its twenty-five year maximum term. 

This is in re.ply to your letter of May 9, 1957, which sets out 

certain facts, hereinafter mentioned, and requests an opinion on the following quoted question: 

‘Can the School Land Board, by approval of the 

,unittzation agreement, and the Commissioner, by execution thereof, agree to the extension of the subject 

lease beyond the.twenty-five year principal term 7” 

In this same letter you have set out.facts which are as follows: 

“On January 16, 1935, Lease No. M-18948, covering Tract 3, Dickinson Bay, Galveston County, containing 

147 acres, was issued by the Commissioner of the General 

Land Office to the Stanolind Oil and Gas Company (now Pan 

American Petroleum Corporation). That lease was for 

‘. . . a period of five years and a.s long thereafter as any 

minerals covered thereby are produced therefrom in commercial quantities not to exceed twenty-five years . . .‘. 

“In 1947, the Legislature enacted Chapter 82, Page 

139 (Art. 534412, V.C.S.), which provided, among other 

things, that such lease could be amended upon application 

by the owner filed with the Commissioner of the General 

Land Office before October 1, 1948, to provide that it 

would remain in effect as long after the expiration of the 
Honorable Earl Rudder, Page 2 (WW-185) 

primary term as the lease produced. The lessee of the 

lease here under consideration did not make application 

for amendment of the lease under the provisions of that 

Act. 

.- In 1951, the 52nd Legislature enacted Chapter 150, 

Page 254 (Art. 5382~. V.C.S.), under which statute the 

State’s interest in any lease may be pooled or unitized. 

“Pan American Petroleum Corporation has now requested this office to enter a unitization agreement whereby 

the above land will be unitized with other land to form a 630 

acre unit. As part of the unit agreement, the lessee proposes 

the inclusion of a provision that the above lease will remain 

in force and effect as long as there is production from the 

unit in paying quantities and royalties paid to the State 

thereon. . . .* 

Article 5382~ states in Section 1: 

-. . . The Commissioner of the General Land Office, 

on behalf of the State of Texas or any fund belonging thereto, 

is authorized to execute agreements that provide for the 

operation of areas as a unit for the exploration, development, and production of oil and gas, or either of them, and 

to commit to such agreements the royalty interests in oil 

and gas, or either of them, reserved to the State or any 

fund thereof . . . under the terms of any oil and gas lease 

lawfully made by an official, board, agent, agency, or authority of the State; provided (a) that the agreements that commit 

such royalty interests in lands set apart by the Constitution 

and laws of this State for the Permanent Free School Fund 

and the several asylum funds, in river beds, inland lakes, 

and channels, and the area within tidewater limits, including 

islands, lakes, bays, inlets, marshes, reefs, and the beds of 

the sea, are approved by the School Land Board, and are 

executed by the owners of the soil if they cover lands leased 

for oil and gas under the Relinquishment Act. Articles 5367 

to 5379, inclusive, Revised Civil Statutes, 1925, as amended; 

” 

. . . 

Section 2 of this Article provides: 
Honorable Earl Rudder, Page 3 (WW-185) 

“Any agreement authorized to be executed under the 

provisions of this Act may provide . . . (3) that the agreement and/or lease, with respect to the interest of the State, 

shall remain in force as long as oil and gas, or either of 

them, is produced from the unit in paying quantities and 

royalties paid to the State thereon; . . ..” 

It is obvious from a complete reading of this statute and its 

title that the legislative intent is to allow the Commissioner of the General 

Land Office to enter into unitization agreements which in his judgment, 

and in the considered opinion of the officials and members of the boards 

and agencies whose lands are affected by such agreements, are found to 

be in the best interest of the State. The legislative intent is not to provide 

another opportunity for holders of State leases to extend maximum term 

leases previously executed as was done by the passage of Article 5344~. 

~V.C.S., by the Legislature in 1947. 

Section 1 of Article 5382~. V.C.S., contains the authority for 

the Commissioner to commit the State’s lands to unitization agreements, 

and it should be carefully noted that in both the title of this Act and in its 

~Section 1 the State’s commitable interest is the royalty interest. This is 

set out definitely and clearly by the use of the words “royalty interests in 

oil and gas” found in both the title and the authorizing section. 

Under Lease No. M-18948, here being considered, there are 

three separate mineral estates. The first is the leasehold estate now 

owned by Pan American Petroleum Corporation. It is well settled in Texas 

that the estate owned by the lessee is a determinable fee interest. Corzelius 

v. Harrell. 143 Tex. 509. 186 S.W.2d 961 (1945); Brown v. Humble Oil 81 

Refining Co., 126 Tex. 296, 83 S.W.2d 935 (1935). The State as lessor owns 

a royalty interest entitling it to l/6 of the oil and gas produced, and it owns 

also the reversionary interest which comes into effect upon the expiration 

of the determinable fee. Murphy v. Dilworth, 137 Tex. 32, 151 S.W.2d 1004 

(1941); Sheffield v. Hogg, 124 Tex. 290, 77 S.W.2d 1021, 80 S.W.2d 741 (1934). 

There is nothing in the statute authorizing the Commissioner to commit any 

interests owned by the State other than the royalty interest created by the 

lease. There is no authority, either expressed or implied, which would 

allow the Commissioner to commit any part of the reversionary interest. 

The determinable fee owned by Pan American under this lease 

is limited by its terms to “as long thereafter as any minerals covered 

hereby are produced therefrom in commer~cial quantities, not to exceed 
Honorable Earl Rudder, Page 4 (WW-185) 

twenty-five years, . . .“. Necessarily the royalty interest continues only 

so long as the lease is in force. State National Bank of Corpus Christi v. 

Morgan, 135 Tex. 509, 143 S,W.2d 757 (1940). Therefore, as the Commissioner may commit only the royalty interest reserved under the terms of 

this lease, he cannot continue the lease in force beyond the twenty-five 

year maximum term without thereby enlarging the determinable fee and 

the royalty interest. There is no authority to so change the terms of the 

mineral lease. 

Some contention has been made that subsection 3 of Section 2 

allows the Commissioner to extend the lease term by the inclusion of a 

provision that the agreement shall remain in force as long as oil and gas 

“is produced from the unit in paying quantities”. We are of the opinion 

that the significance of this subsection is to allow production from the unit 

to qualify as production from the leased premises and thus satisfy the 

production requirements of the lease. 

If, however, by some interpretation, it was thought possible to 

extend the term of the basic lease beyond its twenty-five year maximum, 

we are of the further opinion that such an interpretation would require an 

unconstitutional application of this statute as the extension would be in 

violation of Sections 44, 51, 53 and 55 of Article III of the Texas Constitution. These sections, in effect, prohibit the gratuitous disposition of the 

State’s money, property or contractual rights. Empire Gas and Fuel Co. 

v. State, 121 Tex. 138, 47 S.W.2d 265 (1932); Delta County v. Blackburn, 

100 Tex. 51, 93 SW. 419 (1906). 

When Pan American (then Stanolind Oil and Gas Company) 

bid on and purchased the subject lease in 1935, it was with the understanding that the maximum term of the lease would be twenty-five years. This 

term lease is what they bargained for and this is what they received. To 

now extend this term would be to grant to the lessee an additional property 

right and to diminish the reversionary interest owned by the State. For 

this valuable grant there would be no consideration moving to the State. 

Even under the provisions of Article 5344c, V.C.S., passed in 1947, which 

allowed amendment of then-existing maximum term leases, the School 

Board was required to fix a fee for such amendment which could not be 

less than two dollars per acre. Obviously to now all.ow the Commissioner 

to make a gratuitous amendment of the basic lease which would enlarge 

the mineral estate originally purchased would violate the constitutional, 

sections mentioned above. 
Honorable Earl Rudder, Page 5 (WW-185) 

SUMMARY 

It .is our opinion that .the School Land Board and the 

Commissioner cannot agree to the extension of the 

subject lease beyond the twenty-five year principal 

term by the approval and execution of the proposed 

unitization agreement. 

.Very truly yours, 

WILL WILSON 

Attorney General of Texas 

JMM:tiw 

APPROVED: 

OPINION COMMITTEE: 

George P. Blackburn. Chairman 

James H. Rogers 

J. Arthur Sandlin 

Lawrence Jones 

Wallace Finfrock 

BY 0 

4 

J. Mark McLau 

Assistant 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: James N. Ludlum