**NO. 3034** 

PROVISION8

O? CZRTAINlXA8ZS XZCUTZD BY ,BOARD FOR LYASE OF TZXAO pRISO10

LAND3RZSZRVING

OIL PAlMZRTS

HXLDNOT

TO RESERVE TAiABLS INTZRXST

IN RZALTI
opinionoonstnlIng provIsIons

of two lease6 executed by the Board for Liaee of Texas Rlaon L+V%S, and holding**that** the prorlalona or the two leasesby the Board ior Lease or Rlaon Lands, providing for 011 paymentsby my of additional oonslderatlon

for fixecution of leeeesunder partloular provisions

of leasee do not reserve taxable interestIn 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 requestfor an opinionam to the personaagainat 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 againstwhoa the taxes shouldbe~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 oilproduoed, $105.00per aore, suoh 011~ payment

being **reaened** in tho lease reoordedin Book SW, Page 56, la answeredam follows: :

. The pertinent portion8of 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 ubdlridemid 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 oreatinga fund with whloh to make auoh pay- : ., nont . ..w (Undersooring oura.) . *..~'Thelamsor ahall hare a first lien upon all 

### l n4/or @is, produoed upon the leased area and upon all 011 rlg# tanks, pipe $Ine, telephoneline and mnohlnery and appl~enoer

UBB~ in the pmauotion and handlingor oI1 and gas produoedthereon, to secure any amountdue 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&otthe premlarm from draIna~o...a

Shell Petroleum

Corporation

Leaae
Lasaeo agree8 that after the discovery or *la. 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 royaltyprorldodfor herslnbelow, en overrIdIng royalty of one-eighth oi saven olghta of the produotlon or oil, Ii, aa and when produoedand 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 lnoludedin said paroel. to tin **ldtintlon** tlut om?b preel &all **be** burdsned with auoh overriding royaltypayment only to the extent or $esS.56 for each aare lnoludedtherein..." (Underaoorlng

ours.) This lease also contain6a first lien provIsionsimilar to that above quoted,ea well 88 a provisionsinilarto that aboro quoted regarding

the obligations

or the leasee to proteatthe. prenlses from drainage. This lepse oontalns thla furtherprovision: "Ii said lessor owns a leas iptereatIn the leasedpreniaesthan the entireand undivided fee simple estate,or no Interest~thereon, then the royalties, rentalsand othernone e herein providedior shall **be** psld lessor only

-71 n the proportion which lessor's Interest,

Ii any, bears to the whole and undivided fee.* (Underaoorlng ours.)
We oonetrue

the provisions

of these leasesae oontraating for the paymentof an additional oontlngent

consldaratlon for the lease, by way or bonus, and deslpating ths 011 as the fund out oi whloh the paymentIs to be made and **by** which Lt. is to be EIeaBUred,

both as to the oooaaionfor, t&e amount., and the time for payzentor the additional bonus, and reservingexpressly
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 altuatlonIs similarto that resultingfrom the'reservatlon

of an expressvendor'slien for the paylentof the defarrsdconsideration for the executionor the lease. The right retalnsd

by the vsndorwas merely a means of bringIn& about paymentof the stlpulatsd prI?e of the Interest8old 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; HolidayT. Emin, 85 8. W. (2nd) 355, aiflxmad,

C0~11lesi0n

or Appeals,.112

i3.- 111.(2nd) 117; Koenig

,. Blo~BravoOil Co., 24 8:R. (2nd) 14, Oommiaaion of Appeala, ~'Seotlon

A. In reachingthe above.oono+mion,we hove not overlooked auoh oases as Tennantv. 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 eachoaas turn8 upon the particular prorlaions

of the leana aoatraot or alrslgament

under oonslderatlon. It tollcm, thexfors, that the taxes chould be aarareed

against the owner8of the O/S working intorestIn these leases.and that no realtyad valoren! tax l hould be assessed againsttha 011 paymentholder,the Stati:
Tour3 very truly, ATPORNZY

OZN’SRAL

OF TEXAS

DDY: PBP

Thlr opinionhaa been zaad, ooniilderad, **and** approved in oonfsrenoe

and .I6 now mdered filed on this the 24th day of January,1939.

Attorney Oeaaral of Texas