NO. 3034 

PROVISION8 O? CZRTAINlXA8ZS XZCUTZD BY 

,BOARD FOR LYASE OF TZXAO pRISO10 LAND3 RZSZRVING OIL PAlMZRTS HXLDNOT TO RESERVE 

TAiABLS INTZRXST IN RZALTI 

opinion oonstnlIng provIsIons of two lease6 executed 

by the Board for Liaee of Texas Rlaon L+V%S, and 

holding that the prorlalona or the two leases by the 

Board ior Lease or Rlaon Lands, providing for 011 

payments by my of additional oonslderatlon for fixecution of leeees under partloular provisions of leasee 

do not reserve taxable interest In realty. 

OFncx OF mz ATTOBlPEI wcNERAL 

January t3, 1939 

Honorable 3. P. Bryan 

County Attorney 

Brazoria County 

Angleton. Texas 

Dear Hr. Bryan: 

Opinion No. O-75 

R0: Taxability of oil pamants 

Your request for an opinion am to the persona againat 

iaoll the tame. should be obarged O?I the l/e of I/5 rorklne intsrest on the Ramsey RIlron Farm lease of 4,500 aorea, balm the 

i/8’0r ?/8 out or whloh the state or Texas is to b.3 paid rrom 

tha first oil produoed, #%52.56 per nom, mob 011 payment being 

iesensa In thelihm reeordod-in Book ees. Age 619 0r the a.6 

reoords of Brar.orla County: and aa to ths Parson against whoa the 

taxes should be~obareed on a l/4 oi -7/8 working interest on the 

&UMQ- IPrIson Farm lease of 857.a acrea, being the l/4 or 7/8 

out if whloh the Ctate or Texas la to be paid from the first oil 
produoed, $105.00 per aore, suoh 011~ payment being reaened in 

tho lease reoorded in Book SW, Page 56, la answered am follows: 

: 

. The pertinent portion8 of the loama under oonsId?ra- 

'i tlon roila: 

B. L. Ryan Lease 

"1 (a). Lorsee agrees that 

0r 0Il in payInK auantltlee iron 

aoro traat he will l ubdlride mid traot into nine mrcelr. 

eight ot whloh ahall bo ocmprimed of 100 aorea each, . 

and one of whloh shall be oomprlaed of 67.fC3 aores more 

or leas, . . . and am to each such paroel that produoen 

oil In paying quantities he will pay a marlmum of $105.00 

per aore out of l/4 of 7/E of the 011 produoed and eared 

fro5 anf auoh paroel, in addition to the.l/8 royalty. It 

16 understood, however, that lessee ah11 not be 'obllsated 

to drill a well on any or such paroela .., for the purpose of oreating a fund with whloh to make auoh pay- 

: ., 

nont . ..w (Undersooring oura.) . 

*..~'The lamsor ahall hare a first lien upon all 

l n4/or @is, produoed upon the leased area and upon all 

011 

rlg# tanks, pipe $Ine, telephone line and mnohlnery and 

appl~enoer UBB~ in the pmauotion and handling or oI1 

and gas produoed thereon, to secure any amount due from 

tha owner or mid lea8e.... 

Velthar the dam papent, bonus, delay rsntaln or 

royalties paid or.to be paid hereunder #hall rellrre lea800 

irau the above l tatad obligation to prot&ot the premlarm 

from draIna~o...a 

Shell Petroleum Corporation Leaae 

*la. Lasaeo agree8 that after the discovery or 

011 In syInR auantltlea rrat any part or said 4300 

aorea of land Laeaee wirl aubdlvide aaid traot IntO 

twenty-seven paroelr, twenty-air oi whloh ah&l1 oontaln 

160 aorta aaoh and one of whloh shall be oomprlned oi the 

remainder, approximately 14C aorta, and arr to each 

muoh garoel that produom 011 in parIng quantitier; 

kr~e l greee to pay the State or TIMII, In addltlon 

to the royalty prorldod for herslnbelow, en overrIdIng 

royalty of one-eighth oi saven olghta of the produotlon 

or oil, Ii, aa and when produoed and saved from any mob 

paroel, until 8uoh time aa such pamnta for 011 produood and raved from any suoh paroel rhall amount to 

tt 

SSS.66 per aore tar eaoh aore lnoluded in said paroel. 

to tin ldtintlon tlut om?b preel &all be burdsned 

with auoh overriding royalty payment only to the extent 

or $esS.56 for each aare lnoluded therein..." 

(Underaoorlng ours.) 

This lease also contain6 a first lien provIsion similar 

to that above quoted, ea well 88 a provision sinilar to that aboro 

quoted regarding the obligations or the leasee to proteat the 
. 

prenlses from drainage. 

This lepse oontalns thla further provision: 

"Ii said lessor owns a leas iptereat In the 

leased preniaes than the entire and undivided fee 

simple estate, or no Interest~thereon, then the royalties, 

rentals and other none e herein provided ior shall 

be psld lessor -71 only n the proportion which lessor's 

Interest, Ii any, bears to the whole and undivided 

fee.* (Underaoorlng ours.) 

We oonetrue the provisions of these leases ae oontraating for the payment of an additional oontlngent consldaratlon 

for the lease, by way or bonus, and deslpating ths 011 as the 

fund out oi whloh the payment Is to be made and by which Lt. is 

to be EIeaBUred, both as to the oooaaion for, t&e amount., and the 

time for payzent or the additional bonus, and reserving expressly 

a lien upon such oIl,.as well aa upon other ppoperty, to secure 

the payment thereof -- not aI) a reservation or the fund itacll. 

In other words, the altuatlon Is similar to that resulting from 

the'reservatlon of an express vendor's lien for the paylent of 

the defarrsd consideration for the execution or the lease. The 

right retalnsd by the vsndor was merely a means of bringIn& about 

payment of the stlpulatsd prI?e of the Interest 8old to the. 

leasee. Ses Buttrm v. Gray County, Texae, 72 Fed. (2nd) 44, . 

Certiorari denied, 209 U. S. 728; Standley v. Graham Froduotion 

co., 83 Fed. (2nd) 409, Certiorari denied, 81 L. Ed. 437; 

~ahko v. Frledzzan, 59 9. 1. (2ndj.203; Xanqy v.,Provldent 

Inr. Co., 158 S. W. 1127; Holiday T. Emin, 85 8. W. (2nd) 355, 

aiflxmad, C0~11lesi0n or Appeals,.112 i3.- 111. (2nd) 117; Koenig 

,. Blo~Bravo Oil Co., 24 8:R. (2nd) 14, Oommiaaion of Appeala, 

~'Seotlon A. 

In reaching the above.oono+mion, we hove not overlooked auoh oases as Tennant v. Dunn, 110 9. II. (2nd) 53, and 

sherrield v. xog~, 77 S. 17:. (2nd) 1021.. These oases, we believe, 

are distlngulaheble on the facts.. An examination of nIlperou(I 

authorities l?ads us to the conclusion that In suoh zatters each 
oaas turn8 upon the particular prorlaions of the leana aoatraot 

or alrslgament under oonslderatlon. 

It tollcm, thexfors, that the taxes chould be 

aarareed against the owner8 of the O/S working intorest In these 

leases. and that no realty ad valoren! tax l hould be assessed 

against tha 011 payment holder, the Stati: 

Tour3 very truly, 

ATPORNZY OZN’SRAL OF TEXAS 

DDY: PBP 

Thlr opinion haa been zaad, ooniilderad, and approved 

in oonfsrenoe and .I6 now mdered filed on this the 24th day of 

January, 1939. 

Attorney Oeaaral of Texas