Gerald C. Mann

IPrnRD Aun- H.TEXAS

*-RN- a--

HonorableRascom (&!.es, Commissioner General Land Office Austin, Texas OpFnionNo. O-1185

,. Re: Authority surfaae owner of land under Rellnqulshment Act to amend lease.

Dsai-Sir:

This departmentaaknowledgea reoelpt of your letter of July 25, 1939, lnwhloh you state that underscrap File No. 12,924, the State awarded anarea of land In Cameron county under theAot of April 3, 1919; that on July 7, 1938; Oatewood

### Newberry;the surfaoe owner~~~lndlvldually and
as agentof the State, executed sn 011 and gaslease nith~a drilling agreement ooverlng a portion of the above me&toned land. Other facts are stated by you ln your letter, as follows2 "Thislease and drilling contract provide for thedrllllng of three wella to a depth often thousand feet, unless oil or gas should bs discovered.lnpaying quantities at a ;;;;ir depth, or unless salt, granite'heav~lng

, uncontrollableflow of salt water, or other formationbe encounteredat a lesser depth which oould render further drilling lmpraotlcable.

"Underthe terms ofthe lease and within the time-providedtherein, the first ten-thousand-foot testhas been projeated thereon, and at a depth of approximately7,500 feet there was encounteredan uncontrollableflow of salt water whloh rendered it necessary to abandon thewell. A log of tids well, sworn to by the operators and showing same carried to a depth of 7,584 feet, wasfiled In this offioe July 15, 1939, and on the same date therewas reoeived from the Pure Oil Company, as assooiatecontraotora, letter stating that said well, being the GatewoodNewberry No. l,.was abandonedand plugged on June 28, 1939.,

Y!he informationas to the uncontrollable flow of saltwater reaahed at approximately7.500 feetwas given to this office in a letter from. Vinaon, Elkins,Weema & Franois dated July 22,.1939,Hon. Bascom Gilea,page 2, O-1185

said firmbeing attorneys for the owner and lessor, GatewoodNewberry.

"Under the lease contraat the operatorshave sixmonths from the date of abandonment of the firstwell inwhioh tobegin another ten-thousandfoot teat, but since an uncontrollable flow of salt water was enoountered in the first well at a lesser depth, it is representedthat the parties at interest feel that to project another ten-thousand-foottest, whiohwould oost approximately twide as much as the projection of a 7,500-foot test, would be impracticable andfooliab. This difference in cost is, of course, occasionedby the difference in requireddlametar of the two classes of wells. On this account they desire tohave the lease amended so as to provide for thedrilling of a series of 7,500-foot wells in lieu of thesecond of the ten-thousand-foot wells provided'for in the contract."

Based on the facts .aboveset out, you propound four questions. In view of the answer we have given to the first question,we do not deem it neoessary to write on the other three questions. The first question is as follows2

"Does.GatewoodNewberry, aa agent for the State-of Texas, under the provisions ofthe ~&inqulshmentAot,have the power to execute an amendi ment to suoh leasewhloh would be binding on the State of Texas, the owner of the mineralsPn

This question involves a oonstruotion of Articles 5367 and 5368, Revised Civil Statutes of Texas, 1925, which oonstitutea part of theRelinquishmentAct of 1919. The effeot of thisAct has been thoroughlydiscussed by the Supreme Court in the casesof Greene vs. Rob!son. 117 Tex. 516, 8 S.W. (2d) 655, and Rmplm & Fuel Company vs. State, 121 Tex. 138, 47 S.W. (2d) 265, uherein the court h-eTFthat the effeot of theAat is that the surfaoe owner Is authorized to lease land for the development of oil and gas, and the State is entitled to reoeive one-ha!f of thebonus, royalties, and rentals (with a minimum of l/lGth royalty and ten centsper acre rental) received by virtue of a lease executedby the surface owner.

There oan be no question as to the authority of the surfaceowner to determine in the first instancethe terms and conditionsunderwhioh he may execute an oil end gas lease of the land involved,.subjectto the limitations hereinbefore andhereinafter note'd.~Artiole5368~~specifltallyprovides that the owner is authorized to lease the land for oil end gas "upon suoh terms and conditionsasHbn. Baaoom (liles, page 3, O-1185

suoh ownermay deem best, hereof". subject only to the provisions

In other words, the State requires the surfaoe
owner to lease the land for oil and gas under terms which he deems best, subjeot only to the other provisions of the statutewith reference to paying the State Its proper share of the bonus, royalty,and rental, and other provisions of the statute such as those~pertainlngto thedrilling of off-setwells and forfeitureof rights under the lease. rn otherwords, the surface owner cannot enter into any lease
or contra& whioh in anymanner ahanges the provisions of the law with reference to the execution of leases. We also believe that in entering into a contractwhich he may "deem best", the surface owner is required to exeraise good faith with the State and alsonot be negligent in securing a fair bonus and rental.

The statutes do not require the surfaoe owrmr to enter into any speolflc oontract forthe drilling of wells to any particular depth, and apparently oontemplates that a lease executedby the surface owner will be the ordinary oil and gas lease, subject, of course, to the provisions, of the statutealready pointed out. Inview of this'sit- ,~ uation, it is our opinion that since thesurfaoe ownerhas authority to lease,the land upon such terms and conditions

as he deems best, and adme he is not required to enter into any specific oontractPertaining to the depth to wblch wellsmay bedrilled, but has done so, he also has aqthority, ifhe deems It best, to amend the lease so as to change the terms with referenoe.to tlrsdepth to whichwells may beg drilled. In otherwords~.we believe that it is the duty oft the surface owner, in aoting as agent of the State, to act in good faith, and not enter into any agreementwhich will prejudice the rights of the State in securing the poper development of theminerals owned by the State.

Under the 1931 Sales Act'(VernontsArticle 54210), land is~soldwith thereservation of l/l6 of all minerals, exoept sulphur, as a free royalty. The State is not entitled toreceive any part of the bonusor rental. Se~eWintermann vs.McDonald, 129 Tex. 275, 102 S.W. (2d)l67.-

While the State owns all theminerals in the lands sold under theAct of 1919, yet the only practical difference between the Acts of 1919 and 1931 is that under the 1919Act the State receives one-half of all the royalty, bonus,:and rentalswith a minimum of 1/16th royalty and tentosntsper acre rental,while under the 1931 Act the State~reoeivesa free royalty of 1/16th of the minerals, dxoept 1/8th of~the sulphur, and does not reoeive any pcft of the bonus and rentals. Under the 1931 Aot. the State owns an interest in theminerals, and in the case of~Wlntermannvs. McDonald, supra, the questionarose as to what procedure should beHon. Basoom Giles, page 4, O-1185

followed inmaking a mineral lease under the 1931 dot; that is,whether the aurfaoe owner alone muld make the lease, or whether it was necessaryfor the State to join in

same. The aourt construed the Aat so as to authorize the surface owner tomake the lease without the joinder of the State, and In the opinionstated:

"The owner of the land acts as the agent.of the State lnmaking themineral leases. This calls for the exercise of a duty by the land owner to the State. The land owner owes to the State good faith in the performance of the duty whloh he has assumed, and he should disollarge

that dutywith prudenoe and good faith, and with ordinary oare and dlligenoe.~w

We see noreason why the same rule shouldnot apply to the owner'of the surfaoe under a lease exeouted under the Relinquishment'Aot, and s~%ncethe State does not require that leases executed under said Aot shall provide for the depth to tiichwells shall be drilled,we believe that this is a question to be determinedby the owner of the land, and ifhe concludes that,it is to the best interest of hlmselP and the State to amend the lease, and he amends it in such form as to show good faith whRhiah e owes to the State, and it is done with prudence and with ordinary care and dillgenae, the amendment of the lease is authorized. .Ofcourse, if there is any oonsiderationpaid for the amendment to the lease, the State will be entitled to onehalf of such oonslderation.

Yours very truly

ATTORNEY GRRRRAL OF TIEXAS

s/ H. Grady Chandler

BY Ii.

Grady Chandler HGC:FG-cg Assistant
ApprovedAug. 22, 1939 First AssistantAttorney General s/W. F. Moore
Approved Opinion aommlttee by BWB, Chairman