Untitled Texas Attorney General Opinion

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Mr. T. E. Allday Audito+ of Oil l!heUniversity of Texas" Re: Interpretationand Austin, Texai Constltutloiiallty 0f'Sectlon 4, Chapter 6, A&s of 1921, and Section 14 of Chapter 1, Acts of 1925, as amended by Chabter 145, Acts of 1925, said Acts dealing with the payment of rentals ana royalties on 011 and&as_ leases upon land appropriatedto the Unlverslty of dear Mr. Allday: Texas. This opinion Is glven.ln reply to the written request contained In your letter of Aprll.29, 1939, and the additional request contained In your letter of June 15, 1939. In your letter of April 29, 1939, you prop'oundthe following -questions: 1. "Was It the Intention of the I&Is- lature,.whenIt passed Cahpter 6 of the',Acts of 1921, to repeal or nulllf~~.?ltheror both of the $2 an acre considerationsdue to be paid by the'permltteesunder subdivisions1 and 2 of Section 7 of Chapter 83 of the Acts of 1917, for, and on, the leases that were executed as a result of permits having.been Issued on the University lands?" 2. "Is It your opinion that el&erSec- tlon 14 of Chapter 71, or Section 14 as'ainended ln Chapter 143 (both Chapters being Acts of 1925), had the effect of repealing or nulli- fying the same considerationsshown ln ques- tion 1, due.to be paid by the permittees under the same s~bdlvlslon,section, and Chapter mentioned in the preGediIIg paragraph, for, and on, the leases that were executed resulting

- . Mr. T. E. Allday, page 2 (o-730)

from permits Issued on the Unlversltx lands?" In your letter of June 15, 193gc,you propound the followingadditional questlofi'!.~- 3. "In the event you hold :hat It was the Intention of the Legislature to repeal the $2 considerations,which considerations are mentioned ln Subdivisions1 and 2,0f Section 7 of Qlapter 83 of the Acts qf 1917, with (hapter 6 of the Acts of 1921, or o.lth Chapter 71 of the Acts of 1925, or wi.$hboth of these Acts, would such ACt or Acts, ln your opinion, be unconstitutional?" In your letter you divide the leases of University lands to which your inquiries are directed into two groups, .thefirst group comprising leases Issued under and by ~vlrtueof the provisions of Chapter 83 of the Acts of 19X-7 .and Chapter 6, Section 4, Acts~of 1921; the SeGOnd grouti. ~comprls%ngleases thatwere Issued under Chapter 83.of the Acts of 1917 and Chapter 71 of the Acts of 1925 (Section 14) .asamended by Chapter 143, Acts of 1925. You state that the Commlssloner,p~the General Land Oiflce has construed Section 4 of Chaptkr .6of the Acts of 1921 as rqeallng and abolishing.the"r@qulrements ,contalnedlnicha@er‘83, Section 7, of the Acts of 1917, for the payment df $2.00 per acre at the t$me the lease Is Issued and $2.00 per aore annually thereafterduring the life of the lease wlth'respectto leases falling In .the first group described In your letter.'.You further .state that the Commlssldnerhas construed.Sectlon14 of Chap- ter 71 of the Acts,of 1925, as amended by Chapter 143, of the Acts of 1921, so as to repeal and abolish .therequirements of Chapter 83.with respect to the $2.00 pe3'_acrecase pay- ment and the $2.00 per acre annual payment:on.l.easesfalling In the second group described ln your letter'.' A consdleratlonop the questlons~&u have asked necessarily requires a careful review of the relevant statutes. On March 16, 1917, Qlapter 83 of the Acts of 1917 was approved. Such Act was a comprehenslxeamendment to the .1913Act, and provided that all Unlirerslty,public school and other lands deslgnat~edIn the Act, should be open to the prospectingfor and developingof~mlnerals,, includingpetro- leum and natural gas "upon the terms and cgr)clltlons prdvlded In this Act."

&. T. E. Allday, page 3 (o-730)

Section 2 of Chapter 83 provided Gnat any person "desiring to obtain the right to pmaect for and develop the minerals. . .that may be in any of the.areas included herein may do so under the provisions of I&Is Act, to.gether with such rules and regulationsas may be &dopted by the Commissionerof the General Land Office relative thereto. . ." Section 3 provided for the filing ielththe Courity Clerk of applicationsto obtain the rlght,.toprospect for and develop petroleumand natural gas in surveyed areas covered by the Act. Section4 provided for the flllng with the'~'County Surveyor of applicationsto obtain the right to prospect for and develop petroleumand natural gas ln WJ$ of. the unsur- veyed areas Includedln the Act. Sectloti5 prescribed the duty of th%'~'Commlssloner of the Genekal Land Office upon receipt by him of an appll- ,catlonafter same had been filed with the$ounty Clerk or the Surveyor, and such section also provided that such a fll$s- tlon should be accompaniedby field notes.and plat, s flllng fee and 10 cents per acre for each acre applled'for, also a sworn statementby the applicant shpwlng certain facts. Section 5 then provides as follows: "And If upon examinationthe ap&catlon or the applicationand field notes are'found correct and the area applied for Is wltti.the provisionsof this Act the Commission shall Issue to the applicant or his assignee a'permlt conferringupon him an exclusive right to pro- spect for and develop petroleum and natural gas within the designatedarea for a term not to exceed two years." Section 6 prescribed the time ln.,Whlch the owner of a permit should begin In good faith the ac$ual work necessary .to the physical developmentof said area;ijSkev@edfor the filing of an affidavit stating that such work had been begun and the extent of.such work and the expendituresincurred therein and a statementof whether or ~not.petroleum or natura gas had been discovered In commercial quantl~les. The Sri@1 sentence of Section 6 reads as follows: "The owner of a permit shall not 'take,carry dwaiyor sell any petroleum or natural gas before obtaininga lease therefor; provided, puch quantity as may be necessary for the continued development

Iir.T. E. Allday, page 4 (o-730)

of the area before ;dblM.nlnga lease may,be used without accountingtherefor.” . Section 7 of Chapter 83 providesas followsz “If at any time within the 1lfe;of a permit one should develop petroleum'ornatural gas In commercial quantitiesthe owner or manager shall file ln the Qeneral Land Office a state- ment of such developmentwithin thirty days thereafter, and thereupon the owner of~@e per- mit shall,have the rlght to lease the.abea ln- eluded ln the permlt upon the’followlngconditions: '1. An applicationand a flrst,$a&nt of two dollars per acre for a lease of the-area ticluded ln the permit shall be made &o th Commissionerof th a 1LadO iTFce til:hln tKlrty days’after ~he’%%M?r~ of .gatrol&m o,rnaturaLgasZ.3.n d .~C c;ol;ilitirclal qr;iult-$@s, -. ‘2. Upon the payment of two dolJ.arsper acre for each acre ln the permit a lease shall be Issued -fora term of ten years or .less,as may be'desired by the applicant,andalth the option of a renewal or renewals for ti iiciiial - _-- or shorter period, and'annually af$#&:thaj.expi- ration of th,efirst Year after the date.or ~the. lease.the sum of two dollars per acre .shall -....- -- Id during the llfe of the lease,;.and In' Ion thereto the owner of the lease &iiTl pay a sum of money equal to a royalty~ofone-

meter optput of all gas disposed of MS the premises. .

‘3. The ro~lties shall be pa2't.o he State through the Gommlsslonerof the.Qeneral Land Office. at Austin, monthly durlng.t@e.,,llfe of the lease. All payments shall bepc~uapanled by the sworn statementof the owner or m@qer or other authorized agent showing thq(amount pqduced since the last report and th,emarket value of the output and a copy of all plpe.llne recelptxi>tankreceipts, guage of which petroleum may have been,run, checks and memoranda of.amount put out

Mr. T. E. Allday, page 5 (o-730)

g'lpelines or tanks or pools. The books and accounts, the receipts and dlscharges.ofall pipe lines, tanks and pools and gas &lnes and .gas pipes and all other matters pertainingto the production,transportationand mafketlng .ofth,eoutput shall be.open to the ex,am+atlon and lntipectlonat all times by the C+ssloner of the General Land Office or his rey(re+,enta- tlve or any other person authorized lw me Governor or Attorney General to repraaent the State. The value of any unpaid rp3lty and any sum due the State under this Act upon.any lease &all become as prior lien upon all production produced upon the leases areas and t&e lmpyove- ments situated thereon to secure the.papen$ of any royalty and any sum due the $t,ate,aris- -1ng under the operation of any portion qf this Act 4. The permit or lease shall o&au 'the terms upon.whlch It Is issued lnclu1In&the authority of the Commissionerto require the .drllllngof wells necessary to offset wells drilled upon adjacent private land, and 'such other matters as the Commissionermay dee@~ lmportantto the rights of the appllcent,or the State." Section 16 of Chapter 83, in pant,;provldesas 'follows: "The payment per acre required t6 be made before the Issuance of a permlt.shall be paid annually thereafterduring tb life of the permit or lease. A separate urlt$F applicationshall be made for the area de-, sired ln a permit. No permit, lease&r.,, patent shall embrace the area ln two ,ormore applications. No applications,permit, lease or patent shall embrace a divided area Whole tracts of surveyed land may be appllad.$oras a whole or In eighty acre tracts or multiples thereof without furnishing field noteg-therefor. A duplicate of every permit and lease++hallbe kept In the General Land Office. The area In each permit shall be developed Independentlyof. other areas." Chapter 83 of the Acts of 1917, with the amendments

&. T. E. Allday, page 6 (o-730)

hereinafter noted, continued In force as the basic law governing the Issuanceof permits and leases for 011 and gas In University lands until the effect1v.e date of Qlapter 71 of the Acts of 1925, approved March 10,..1925. Prior to the enactment of Chapter71 of the Acts of 1925, several amentients were made to Chapter 83, but, %n opr.opinion, only one of such amendementsIs material ljothis opinion. Such amendment Is Chapter 6, of the Acts of 1.921,approved ..February3, 1921. By the express terms of Section.l of.Chapter6 of the Acts of 1921, such amendment purported,tpapply~only to:. "Permits to prospect for oil ani &here- tofore Issued on University land, and P&r School land which Is unsold at the tlmre.thls Act goes Into effect, river beds, PI!,channels and fresh water lakes'and Islands theein, and which have not expired. . .'I And also tici. "All permits to prospect for oli%d gas heretofore Issued on .saldlands and ape&s and all permits heretofore Issued after the.Mneral Act of 1917,went into effect... .whlah have ejcplredat the time this Act goes Into efcect, but on which the drilling of a Well Qr wekls has been begun ln good faith, or with ref'er- ence to which permits and the right of.$he owner of the same to the possessionqf the area Included therein bona fide lltlgatlon has existed during the whole or a pant'of the term of the permit. . ." Section 1 of Chapter 6 provided that.ill of such .permltsas describedabove should be ex'tended"so that they shall remain In full force and effect for a period of five .years from.the date of the Issuance OF the.permit, condl- ~tloned-onlyupon the performanceof the terms of this Act." Section 4 of Chapter 6 provided,&hat: "If 011 or gas should.be.productW'in Ay- ing quantities-uponthe area Included 'inany of the permits included In this Act, -@e owner of'the permit shall report th developmentto the Comfnlsslonerof the Gene& Land Office within thirty days thereafter,and apply for a

Mr. T. E. Allday, page 7 (o-730)

lease, accompanyingthe application With a correct log of the well or wells, and thereupon a lease shall be Issued without the payment of any additional sum of money and for 8 period not to exceed ten years, subject to cgnewa;lor renewals." . Tne question IS thus presented &'to ihether Section 4 of Chapter 6, properly construed, repea&ed and abolished .the requirementsspecified In Section 7 oC.Chapter83, .Acts of '1917,that a permittee, before be- entitled to a .lease, should pay to the State $2.00 per tire for-each acre lncludea within his lease. and that In addition $2.00 per acre should be paid tkeresfter annually dur thenlife of the lease. Clearly, Section 4 of Chapt,er 3 was not intended to affect in any manner permits Qsued, subsequent .to the effective date of Chapter 6, because Its operation Is expressly limited In Section 1 thereto.to"dermlts here- tofore Issued". If Section 4 of Chapter 6 IS.construed so es to repeal and abolish the requlrements,of.the$2.00 per acre cash payment and the $2.00 per acre &nnual payment required by Chapter 83, or either of such,&ments, such .constructlonand effect must, necessarlly,,be,limltedso as to apply only to leases resulting from.permlts5ssued prior to the effective date lof=Chapter6. Permits issued .subseqent to said date would be wholly !.u@fectedby the .Act un1er any constructlonthereof. We pwtpone any fur- ther discussionas to the proper constructionto be given to Chapter 6 to a subsequentplace In this opinion. No other amendments with which ue are now,con- cerned were made to Chapter 83 of the Acts of 1917 until the enactment of Chaptex 71, Acts of 1925, apwoved,March 10, 1925. Chapter 71, Acts of 1925, was a coqrebenslve Act -dealingwith the sale of 011 aridgas leases on unsold Unlver- slty land and upon Unlversltiyland which MaQ been sold with .mlneralreservationprior to the effectlve,datepf Chapter 71. The operation of Chapter 71 was expresslylimited by the final clause of Section 1 of the Ac%.wkiichreadk as follows: "Provided,011 and gas permits ax&leases outstanding shall not be affected,by.thlsAct except as provided ln Section 14 theceof." Section 14 of Chapter 71 provld&: "All oil and gas permits heretokore ls- sued upon lands Included herein and noirin' force shall be extended for a term of five years from date thereof andkknever production

or. T. E. Allday, page 8 (O-730)

Is secured In paying quantitiesand t&e pay- ment of royalty begins, the owner shaJ& not pay any further annual money rental.;.Pfter production Is secured In paying quant#les the owner shall be entitled to a lease_which shall run so long as the area covered.byhis lease produces 211 or gas In paying puan- titles, subject to the provisions of.thls Act.” Chapter 143, Acts of 1925, approved March 30, 1925, by the same Legislature which enacted Chapter 71, amended Section 14’of Chapter 71, so that Section.14 shall there- .after read as follows: “All oil and gas permits heretogore &d hereafter Issued upon lands IncludedJzereln and which have not expired shall be -tended for a term of five years from date t@reof conditionedonly upon the payment of.the.annual rental, as provided by law, In advance and whenever production Is secured ln’.pay$ng quantitiesand the payment of royalty begins, the owner shall.not pay any further apnual rental money. After production Is secured in paying quantities, the owner shall be entitled to a lease which shall run so long a&the area covered by his lease produces oil or.gas In paying quantities subject to the prav.lsions of this Act.”

;*y* r On the same day, March 30, 192~~~Cha$5er140, Acts of ,LSLj, was approved by the Legislature. Chapter 140 reads as foil,.icC .~ “Sec. 1. That subdivision2 of:: Section 7 of Chapter 83 of the Acts of the Regu)ar Session of the Thirty-fifthLeglslature,ap- proved March 16, 1917, be amended so.88 to hereafter read as follows: “Upon the payment of $2.00 (two.dollars) . per acre for each acre In the permit&lease shall be Issued for a term of ten (10) years, or less, as may be desired by the applicant, and with the option of a renewal or renewals for an equal or shorter period, and $mmedlately after the expirationof the first year after the date of the lease the sum of;two -($2.00) dollars per acre shall be paid during the life

Mr. T. E. Allday, page 9 1'. ~730)

of the lease, and in addition there& the owner of the lease shall pay a sum of money equal to a royalty of one-eighth of the value of the gross production of petroleum.- The owner of a gas well shall pay a royalty of one-tenth of the value of the metre output of allygas disposed of off the premises;;provided, i however, that the provisions hereof as to the payment of two ($2.00) doll.arsper acre dur- ing the lease period and the life of.sald lease shall not apply to leases of bays, marshes, reefs, salt-waterlakes or other submerged lands containingas much as one hundreds.100 acres but not In excess of five hundred t5001 acres upon which as many as five wells,have been drilled, and upon which an expetidlture of as much as one hundred thousand ($100,000.00), dollars has been made. The drllllng,ofsaid wells and the expenditurebf>sald amount t<be estab- lished to the satisfactionof the Commiss~l'bner of the Land Office. "Sec. 2. The fact that leases ex1s.tupon. some of the bays, marshes, reefs, salt-water lakes and other submerged lands of the.eei herein Indicated upon which many wells have been drilled and large amounts of money expended, and the fact that another wrlodical payment of two ($2.00) dollars per acre will soon be due and the fact that the patient of said amount Is unfair and unjust to the owners of these leases, create an emergency,andan imperativepublic necessity, that the constl- tutlonal rule which requires bills ta be read on three consecutivedaya,be suspendedand same Is hereby suspended; and this Act ta,k& effect from and after lts~passageand It Is so enacted." Cha ter 140, Acts of 1925, (cop%.edabove) appears as Article 53t.4of the 1925 Revised CivilStatutes of Texas. By virtue of the enactment.ofSection 14 of Chapter ‘71, Acts of 1925, as amended by Chapter l&3, Acts of 1925, the question Is presented as to whether such Act, properly construed,.has the effect of repealing an~.abollshing, as to permits and leases previously Issued, the-require- ments of Section 7, Chapter 83, of a $2.00 per acre cash payment at the time the,lease Is Issued and a $2.00 per-

Mr. T. E. Allday, page 10 (o-730) -

acre annual payment thereafterduring the'ilfeof the lease. If it were necessary In this opinion to make a con- :.structlonof Chapter 6, Section 4, Acts qf 1921, and Section 14 of Chapter 71, Acts of 1925, we would,feelno hesitancy, In the l?.ghtof the legislativehistory preceding and follow- ing the Acts In question, ln holding that such Acts, pro- perly conshued, do not purport or Intend to release per- mlttees and lessees from making the $2.0qper acre cash pay- ment and also the $2.00 per acre annual p $ment during the ,llfeof the lease, asqequlred by Chapter, 3. _. However,'.l!nview of your alter&iv& question as to the constltutlonalltyof Section 4 of .Chaptir6, and Sec- tion 14 of Chapter 71, it Is riotnecessar;y' that we at this time make an independentconstructionof &uqh Act. For the purpose only of testing the constltutlonaJ.lty of such Act, we assiuaethat the constructionwhlah has.beep given to said Ac.tb* former Commlsslonersof the General d Offlos Is .theproper construatlon. You atate In your ITetter that former Conunlssloners of the Qsneral Land Office have oon- strued Section 4 of Chapter 6 of the Aots.of 1921, as re- pealing and abolishing the requirementsoi.Cha tar 83,er,~:$ .of1917, with respect to the requirementof a 'i 2.00 per acre cash payment at the time the lease is Issued apd a $2.00 ,peracre annual payment thereafter durlng._the l$fe of the lease as to leases falling within group ape above described. You further stat8 that former Land Commls oners have con- strued Section 14 of Chapter 71, Acts of % 25,,.asamended by Chapter 143, Acts of 1925, as repealing and abolishing the prov?:."*~z of Chapter 83, insofar as aap'ter 83 requires the payment-ofthe stated $2.00 per aare F\eryments with re- spect to leases falling in group two above described. So construed,are.,theActs referred to constL$ut$onal? Section 12 of Article 7, of the.Oo~stltutlonof Texas, provides as follows: "The land herein set apart to t Unlver- slty fund shall be sold under such r2ti ula$,lons, at such times and on such terms as may ?e pro- vided by law; and the Legislature shsJ1 provide for the prompt collection,at maturity, of all debts dtieon account of University lqds, here- tofore sold, or that may-hereafter t&sold, and shall in neither event hatiethe power to grant relief to the purchasers." Section 15 of Article 7 of the Constitutionof Texas provides as follows:

Hr. T. E. Allday, page 11 (o-730)

"In addition to the lands heretofore granted to the University of Texas,there Is hereby set apart, and appropriated,Sotithe endowment maintenance,and support of said University and Its branches, one mIllJon acres of the unappropriatedpublic domain o.fthe St&te, to be designated, and surveyed;asmay be provided by law; and said lands shall be sold under the same regulations,and.the,pro- ceeds invested In the same manner, as Is pro- vided for the sale and Investmentof .theper- menent University Fund; and the Legislature shall not have power to grant any relief to the purchasers of,said lands." Section 53 of Article 3, of the Constitution, .provldesas fgllows: "The Legislature shall,haveIJOpower to grant, or to authorize any county qr municipal authority to grant, any extra compensation, fee or allowance to a public offloer,.agent, servant or contractor,after servlceJlas been rendered, or a contract has been entered Into, and performed In whole or ln part. . :I' Section 55 of Article 3, of the Cgnstltutlon, provides as follows: "The Legislature shall have no wwei' to release or extlngultih,or to authorize the releasing or extinguishing,In whole or In part, the indebtedness,llablllty or ,obllgatlon of anys;lncorporatlonor Individual,to this, State, or to any county or other municipal corporationtherein." Section 51 of Article 3, of the Tonstltutlon, provides as follows: "The Legislature shall have no power to make any grant or authorize the maklng.of-any grant of public money to any lndlvldu~l,asso- ciation of Individuals,municipal or.other corporationswhatsoever. . ." Indulgingall presumptions,as we must, In favor of the constitutionalityof the Acts in question, can it reasonably be concluded that said Acts do riotviolate any

Mr. T. E. Allday, page 12 (o-730)

,of the constitutionalprovisions above quoted?"-Stated otherwise, the-questionto be determinedis whether or not Section 4 of Chapter 6, Acte of 1921, or Section 14 of Chapter 71, Acts of 1925, construed as they have been construed by' the former commissionersof the General Land Office, con- stitute a grant of relief to purchasersof.Un$versltylands, or a grant of public money or extra compensationto the .lesseesof such land, or the release dr extinguishment,in whole or In part, of an~indebtedness,llablllty or obllga- tlon owed by such lessees to the State of Xexas? Inorder to decide the foregolng.que&ons, It.18 necessary that.we first consider and detegpine',the.nature and effect of the rights, estates and obl%gatlonswhich were created by the application for and the Issuance of permits under Chapter 83, Acts of 1917. We belleue'.the decisions of the Supreme Court oflTi$ae In State v.&oblson; 30 S. W. (26) 292, and Thelsen v. Robaeon, 8 S. W."(2d) 646, have clarified and settled such questions. State v. Roblson, supra, involveda comtructlon of Chapter 71, Acts of 1925, with respect.to tpe power of the Legislatureto withdraw University lands from lease and under said Act after bids &ad been submltQd to the Land Commissionerby persons desiring to purchase leases, In accordance with said Act. The court held $hat ,Chapter71 was In effect an offer by the Legislatureto ae&l.oll and gas leases to the highest bidder In accordancewith the provl- slons of such Act, and that after the person desiring to purchase such lease had complied with the.provlsonsof the Act and had accepted such offer, by submittinga high bid, a contract with the State thereupon resulted, which con- tract was beyond the power of the Leglslat+reto impair by subsequentlegislation. The court In so~l-@ldlng ,usedthe following language: "In the case of Jumbo Cattle.-$0..v. Bacon, 79 Tex. 5, 14 S. W. 840, &rr3,.$hls court, speaking through Mr. Justice Gaines, says: 'When there Is an offer made hy an act of the Legislaturewhich is accepted by an individual,'thereIs a contractwhlch.ls not within the power of the state to Smpalr. ASte? an acceptanoe,a repeal of thedaw can- not affect the contract; but, until an accep- tance, a repeal of the act withdraws the offer, and no contract can be made." "This correct announcementof the law applies

Mr. T. E. Allday, page 13 (o-730)

with full force to the case under cos$ldera- tlon In regard to the land included a schedule B. An act of the Legislaturemade the offer, and Intervenershave accepted It as wovlded and conditioned In the Act. A contract between the state and the-hi est.,bldder was made. White v. bkrtinj66 Tex. 3&" 0, 17 S; W.~'727;Jumbo Cattle Co. v. Bacon, 79 Tex.\5, 1.4S..W. 840: Standifer v. Wilson, 3 Te?F232,,'54 .S, W.~ 898; !pyn ~i3Klncannon,5 2 Tex. Clv. -A$$.. 633, II?9 Nothing remained to be done to eSfe;?tthe making of the contract. The.act apeclSlcallyprovides the means of producing the evidence of the Contract, I.e. lt.makes It the mandatory duty of the commlss%onerto examine the bid or bids, ascertainwith whom the state has contracted under Its oSSer and the acceptance thereof, and accordingly to, execute the lease. The doing of the mlnls- terlal acts of opening the bids, ascertaining .who 1s the highest bidder, and lssulngthe lease according to the terms of the law, 1s' no part of the contract Itself. It ls only making effectual the contractalreadsmade. The acceptor of the state's offer canno more withdraw his money deposit and back out than can the,commissionerrefuse to carry out the.con- tract as the.law requires of him. The con- tracts-hereare not within the power&S the state to impair. The Repealing Act of 1929 (Acts 1929, c2) cannot affect these contracts, but does withdraw the offer of further sales. We believe the same statementC&I be made with respect to the effect of Chapter 83, Acts 6S 19.l.7;that is, Chapter 83 was an-offer-by the State tr,persons de- siring to prospect upon.and to secure lea*8 for 011 and gas on University lands, such offer beIng_.condltloned only upon compliancewith the terms a1-85 provisions of Chapter 83. Upon acceptance of such offer, by persons desiring to secure permits or leases upon Universityl'ands,~a contract resulted which was beyond the power of the State to impair. The question then arises: "Was it beyond the power of the Legislature,after such contract was .made,to release, extinguish or forego a compliance by the permittee or lessee with the obligations undertakenby the lessee under the provisions of Section 7 of Chapter 831" We believe a determinationof the nature of the contract so

Mr. T. E. Allday, page i4 (o-730)

entered Into between the State and Its permitteesand lessees under Chapter 83' furnishedthe answer.to this question. The decision In Thelsen v. Robison,'supra, clearly defines and establishesthe nature of such,contracts. . . In Thelsen v. Roblson, 8 S. W. (2) 646, the Supreme Court of Texas construed Chapter 83 of the.Acts of 1917 and also Chapter 71 6S the Acts of 1925, exclusive of Section 14 of the latter Act. In that case the two 0ct.swere attacked as being unconstitutionalon the grounds at they conferred P on a permittee or lessee no greater rlght.than a mere license, exercisableat the perm;ttee's or lessee's option; to pro- spect for oil and gas, whereas the Constltutlon.mandatorlly requires the Legislature to dispose of Universitylands by , and forbids the grant of'a merq,optlonallicense. our after making an.e~austlve reviewof the history '. ii&@-E preceding the.Acts In question held that such.actsautho- rized a sale of University lands. The Count said: II undtr,tht thoroughlysettled law of this state; the act8 of 1917 and of I.925operate not to grant mere licenses to explore for mlne- rals, but Instead they,authorlzeconveyancesby the state of minerals In place, and unce the Legls- lature In passing the acts obeyed the,commandof the constitutionto sell the Un1versLt.ylands. 'In order to arrive at a correct understand- ing of the rights of a permitteeor Lessee, under the first Instrument Issued under these acts, we must considerhis rights under the succeeding Instrument,since the right to the succeedingln- strument, vests In him under the veryfirst .lnstru- ment as completely as the privilege of explora- tion, though, of course, subject to t&e conditions lmposed by the statutes. The right to.explore, to produce, and to appropriaterelat.es:back to, and is derived from, the Initial perv&t or lease. "Thus viewing the rights of the permittee or lessee, we find that each act authorizes the sale, at stipulatedprices, of a permit In the one case and of a lease In the other,.-,wh$oh ln- vested the permittee or lessee and hiis: assigns, on performanceof stated obligations,with the exclusive right to explore certain lands for oil and gas, for a fixed term of years, and, upon the discoveryof 011 or gas In commercialor paying quantities,to produce and appropriate

Mr. T. E. AIlday, Page 15 (O-730)

. same, so long as ~profltableproductlqnmay con- tinue. While the act of 1917 does not in terms provide that the right of productionand of appropriationshall continue as long as 011 or gas Is produced In paying quantltles,.asdoes the 1925 act, yet the provision of ths,act of 1917 for successlve.lease.renewals, at the option of the lessee or his assign, necessanllyhas the same effect as an express provision &bat the lease shall remain In force as long as oil&r gas may be profitably produced." After referring to and quoting fsom the oplnlon In Stephens Co. v. Mid-Kansas Oil & Gas Co., 254 s. w. 290, the court stated: 'In legal effect, the grants authorized by the acts are not essentiallydifferent Srpipthe grant In the ordinary oil and gas lease, such as was before the court In the Stephens County Case. .The ordinary lease confers first an option to exp&ore for oil or gas, but, after discovery of 011 or aa ln paying quantities, It confers the right to produce and appro- priate the 011 or gas. It 1s lmmattnlalthat the right to appropriate the 011 or gas under the 1917 and.1925 acts follows and does not pnecede the final leavecause, as already pointed out, the permittee or.lessee may compel the execution of the final lease on performing the obligationswhich the act imposes on him. Under the ordinary lease, the right to continue to produce and appropriate 011 or gas is contingenton-performanceof similar obllga- tions. It Is unthinkable to treat tk&,ordlnary lease as conveying minerals in place and to refuse to give that effect to the grants aut&orl,zedby these acts." The Supreme Court of the United States In Group No. 1 Oil C:rf?oration v. Bass, 283 U. S. p9, 75 L. ed. -. 1032, has occasion to pass upon the naturspf the.interest created by the Issuance of permits and leases..ur-+derChapter 83 of the 1917 Acts. The lessee In such case was claiming immunity from taxation with respect to income derived from the.sale of 011 and gas, produced under l-sea issued under Chapter 83. The claim of tax immunity was based upon the contentionthat the asserted tax was one upon an instru- mentality of the State. The court~heldthat under the pro- visions of Chapter 83, "a completelyexecuted sale, without restrictions"occurred. The following language was used by

or. T. E. Allday, page 16 (o-730)

the court: "But no case has extended such &unity to property, real or personal,or lncpme de- rived from its sale, where It has passed to the buyer by a completely executedact of..sale,wlth- out restriction,and no Interest In It has been retained for the benefit of the Indians';Whatever may be the appropriate limits of the &mnunity, as applied in this class of cases, those limits are clearly exceeded by that asserted hene." In State v. Ratcher, 281 S. W. 1;92,and in Sawyer v. Roblson, 268 S. W. 151, It was held by,the Supreme Court of Teds that the transactionsauthorlzed.bychapter 83 of the Acts of 1917, constituteda sale o~Unlverslty~and. The above cited authorities,we believe, conclu- sively establish the followingproposition: 1. That Chapter 83 of the Acts:of 1917 con- stituted an offer by the state to persons desiring to purchase mineral rights ln the University lands, and that a contractbinding uRon both the State and the premlttee resulted.whensuch ersons complied with the provlsions.oSChapter 83 and secured a permit to prospect for oil and gas under the terms and conditionsset forth in the Act. 2. That the Issuanceof a permit under Chapter 83, Acts of 1917, constitutedsale by the State to such permitteeof University land within the meaning of Sections 12 and15, Artl- cle 7 of the Constitutionof Texas. 3. The considerationsand obll$atlonspro- vided for in said contractand sale,agreed~and undertakenby the permitteeto'be pati and per- formed, are prescribed definitelyin Sections 6 and 7 of Chapter 83, Acts of 1917. .Cne of.the obligations.asprescribedin Sectlon.6,is that the permittee shall perform certain avelopment work within a prescribedperiod. In.Section7, it Is prescribed and required that an application for lease shall be made within 30 days after dis- covery of oil, accompaniedby "a first payment of $2.00 per acre for a lease of the area included In the permit. t .", and that "annuallyafter the

Mr. T. E. Allday, page 17 (o-730)

expiration of the first year after the .dateof the lease, the sum of $2.00 per acre shaW be paid during the life of the lease, and that In addition thereto the owner of the lease ahal pay a sum of money equal to a royalty of 1/8th of the value of gross production of petroleum. The owner of a gas well shall pay a royalty of l/lOth of-the value of the meter output of all gas disposed of off the premises." If subsequent acts of the IeglsIatureare con- strued to release and extinguishthe'obllgatlonand llablllty of permittees, whose permits were Issued wlor to the amen- datory acts, to pay the $2.00 per acre cash price upon the issuance of a lease and the $2.00 per acrewual payment required during the life of the lease, or dither of them, do such acts violate any of the constltutlonalprovisions quoted above? We have concludedthat suoh acts, when so ..construed, do.clearly violate such constl&utlonal~provl- slons unless the State receives an adequate..oonslderatlon In return for the purported release of such obligation and llablllty. In our opinion, the plain effect of Section 4, or Chapter 6, Acts of 1921, and of Section 111,Cha,pter71, Acts of 1925, when so construed, la to attempt&o release and discharge permittees from the obligationto make the 42.00 per acre aash and annual payments which such permittees agreed and bound themselves to make at the,tlme of their applications for permit under Chapter 83, Acts of 1917. The permittee'sobligations as well as his r#Qts were fixed and secured upon the granting to him of a pe&$ as prescribed by Chapter 83. We hold that the Leglslatlrre,as held ln State.v. Robison, supra, was prohibitedfrom thereafter Impairing the permittee's rightiland Srom,lnzreasingthe permIttee% obligations to the State beyord,the provisions of Chapter 83, and this because of constitutionalpro- visions which prohibit the impairmentof previously existing contract rights. We as firmly believe,and we here hold, that the Legislature, by reason of the constltutlonalprovislor\g hereinabove quoted, Is likewise prohlblte&.fromreleasing or extinguishingany of the permittee'sobligationsor lla- bllltles as prescribed by Chapter 83, unless an adequate con- sideration is received by the State ln payment for such discharge. We further hold that the.Legislature Is without .powerto grant relief to such permitteesor lessees. We have searched ln vain Chapter 6 and Chapter 71 for any provision or conditionwhich can reasonably be deemed

Mr. T. E. AIlday, page 1.8 (o-730)

a considerationrequired to be paid by the,permitteein return for a release of the $2.00 payments...ln question. The plain result of such statutes, In our opinion, If construed as aforesaid, Is to grant to the permittee.the Identical property, Interests and rights which are provided for In Chapter 83 of the Acts of 1917, without requiring from him in return therefor any promise, payment ox other consldera- tlon moving to the State. In support of this conclusion, we refer to the following cases: Delta County v. Blackburn, 100 Tex. 51, 93 S. W. 419; Judklns v. Robison, 109 Tex. p. 6, 160 S. W. 955; Greene v. Roblson, 117 Tex. 515, 8 s. W. (26) 655; Empire Gas & Fe1 Co. v. State, J,21 Tex, 138, 47 s. W. (26) 265. In Delta County v. Blackburn,93.S. W. 419, the Supreme Court of Texas decided that an order entered by the CommissionersCourt of Delta County attemptingto reduce the rate of Interest upon notes given In payment for the balance of the purchase price owing upon a sale of county school land from 7 per cent, as provided In the notes, to 3 per cent, violated Section 55 of Artlole 3 .oS the Con- stitution,In that such order was an attempt,to release and extinguish the llablllty and obllgatlqp::ofthe purchaser of such land. In so holding the court said: "But while tht Commissioners Court may be conceded, for present,purposes,to possess such an authority as was there exercised,as Incidental to Its control as vendor over the title to the land, It does not follow that It has all of the power which an Individualwould have to chs.nge.at will the rights arising out of a contractalready made In selling. It cannot lawfully lnve&.the proceeds. of sales otherwise than as the law directs; nor can It release or extinguishllabllltlesor obligations which have accrue'dto the county or State further than may be essential to the proper exercise of the power of sale or dispositionglvenjto It."- With regard to the Commlssloners~&!ourtls attempt .to reduce the lnterest called for-in the pu;rchaser's notes, the Supreme Court said: "They simply attempted to releaw him from his alternative bbligatlon to pay the.whole debt at one or to continue to pay Interestat the rate of seven per cent, which, under the Const'l- tutlon, they had not the power to do. It Is Idle to say that they exerted the power given them

Mr. T. E. Allday, page 19 (o-730)

to sell or dispose of'the land. It haa been sold and _. neither . _party Intended . that . the- sale ._ -. should be disturbed. Such an extension or aat power 1s not at all essential to Its full and S+ee exercise, but would.make It lmplnge upon the other positive conetltutlonalprovisions which restact the autho- rity of the counties In dealing with such subjects and would open the door for many eva.qoiB thereof. . .I' "Differentlyvlcwed, as the comm$ssloners viewed It, their attempt, instead of wttlng at naught the contract of sale, reassertingthe title of the county and reselling the.land, was - to keep the sale In force, and, by releasing-the vendee from a part of his unquestionableobllga- tlon to the county, to Induce him to perform th'e remainder ln a somewhat different wagcI,yhichln- fringed the other provision of the Cws$ltutlon forbidding the release.or extlngulshu&?rjt .QS llabllltlesand obligationsto the acult)ty." In Judklns v. Roblson, 160 S. W.,955, the Supreme Court had under considerationthe constltuttidnallty of the repurchase Act of Zgl;, Article 5423, R. C..S. of 1911. The court laid down the following rules foz.determlnln& the constltutlonalltyoS.euch an Act: "The test to be applied to it, thtyefore, Is whether Its necessary operation Is to enable the previous owner to reacquire the Land at a less price than he was obligated to mx under his former purchase. Is its terms wex~ to.that effect or such were Its necessary opexatlon,we think it should be held Invalid, though It purported to deal with the previous owner as a alpnger ‘. to the title, as such an act would bu.$$rove an easy method.to alrcumventthe constitutional provision." In Greene v. Rnbison, 8.~. W. (&;‘.655, at page 658, the Supreme Court said: "We cannot agree with responden&.the land commissionerand his attorney that tti Legislature has authority to relinquish to the owner OS the soil, without payment of considerationtherefor, minerals reserved to the state prior to the sale of the land and withheld In his purchase thereof, or that the cases of Cox v. Roblson, 105 Tex. 426,

Mr. T. E. Allday, page 20 (9-730)

150 S. W. 1149, and Greene v. Robisop..:' 09 Tex. 367, $#, 210 S. W. 498, can be so construe.:

In Empire Gas & ~BuelCo. v. Stati,'@ S. W. (2d) 265, the Supreme Court was 'calledupon to,determlnewhether or not Chapter 23 of the Acts of 1931 was.constltutlonal. Said act attempted to relieve the purchaser of school land sold with mineral reservationfrom the pawent of any amount over and above a l/16 royalty and 10 centg_per acre rental, notwithstandingthe fact that the Supreme&qurt in the case ~of Qreene v. Roblson, 8 S. W. (26) 655, had that Chapter 81 of the Acts of 1919 limited such purchaser'sright to one-half of the royaltyand onerh+f of.t& Fental as com- .pensatlonfor damages to the s&face, the.remalnlngone-half of the royalty and rentals to be paid to the State. In striking down such act as In violation of Section 51, Article 3, Section 53, Article 3, and section 4 of Article :a~$~~~Constltution, the Supreme Court wed the following whloh languagewe .balleveto be decisive of the questionJat hand: '"Asconstruedby the Supreme Court,,thls. law +$horlzes the 011 and gas to be sol&,~.retalnlng to the state as a minimum l/l6 of all-gas and minerals as roylaty and 10 cents per acre per annum and one-half of all amounts received hy the.owner over and above the foregoingamounts.. The law fixed the rights of the state, as well as the rights of the purchaser. Since the lnceptla of this act, all purchasers of lands from the stat,e,..under the provisions thereof,agreed to pay the state, over and above l/16 royalty and 10 cents per acce, one-half of all other sums received for the gag'and.011. Besides, the provisions of the act made the pu.chaser of land the agent of the state to secure%w;;;;sybat and fixed his compensationdefinitely,. does the Legislatureundertake to do under.cerCaln provisions of Senate Bill 310? It expbessly undertakes to relieve the purchaser from the pawent of any sum over and above the l/16 royalty and the,.10cents per acre. This Is a plain violation of action 51, Arti- cle 3, of the.Constltutlonquoted abo.ve. The Pelin- qulshment Act constitutedthe buyer Ue agent of the State In making mineral leases and fixed his compensationand under the provisions of that act he was to receive for his services one-half of all sums over and above the royalty and 10 cents per acre rental. The provls?ons of Senate Bill.310 undertake ..

Mr. T. E. Allday, page 21 (o-730)

to take from the state all of the bonps and give It to the agent whose right&were fixed In the RelinquishmentAct enact&d ln 1919 * This Is in clear violation of45ectlon 53, article 3, of the Constitution above quoted, "Again, the Legislatureln Sena$i$lll 310 undertakes to grant relief to purchasers of oil and gas sold by the state under the pxo~lslons of the RelinquishmentAct, and this I@ plainly contrary to the provisionsof Section 4, Article 7 of the Constitutionof this state..; .a. . "As shown by this record, the s-ices of Tlppett as an agent for the state had-been rendered, his compensationfixed, anb.t~e..Empire ', Gas eC-1 Company and Tippett owe the #ate one-halt'of all sums received above Ue,roylaty arid10 cents per acre rental. These,slghtsand obligations of the parties were definitely fixed by law. For the Legislatureto undentake to change the oondltlons fired by law by releaalng or extln- Zulshlng the debt owing by Tlppett @ the Empire Gas.& Fuel Company to the stat&by re- lieving them or either of them of thar. obllga- tions, or any part thereof, to the sta& or grant- ing them or either of them any relief as purchasers of the mineral rights, In so'far as Se@e Bill 310 undertakes to do this, it Is clearly.Eepugnantto the provisions of the Constitution,qd Is therefore void." The above quoted language of the'isupremeCourt Is directly applicable to-the question we are,now .conslderlng. As the Acts of 1918 ftxed the obllgations,pfpurchasers from the State with respect to the payment&S royalty and rentals, so did Chapter 83 of the Acts ofLJ.917fix such obligations with Respect to permits and leases Issued to purchasers under chapter 83. What does t&&eglslature undertake to do by enactmentof Chapter 6.&.the Acts of 1921 and Chapter 71 of the Acts of 1925, I& such acts are construed as they have been mormer Land Commissioners? It undertakes to relieve purchasersunder Chapter 83 from the payment of the $2.00 per acre ca& payment at the time of the issuance of the lease and the‘-$2'.00cper acre annual payments during the life of the le'lse. The obllga- tions as well as the rights of the permittee and the State were definitelyfixed by Cha ter 83. The attempted release and extinguishmentof the f2.00 per acre obligations

Mr. T. E. Allday, page 2i (o-730)

owed to the State, and the attempted grantpf such lease .by the State to the permittee without the,aaymentof the amounts prescribedby Chapter‘83, In our *ion, constl- tutes a plain vlolatlon.ofSection 51, Artjcle 3, Section 53, Article 3, and S ctlon 12 and 15 of Ar$l&Le 7 of the State Constitution. Accord ly, It Is ouc'oplnlon,and you are advised that Section"$ of Chapter & Act:zcf1921, and Section 14, Chapter 71, of the Acts of.'1925,and ,Chapter143, Acts 1925, Insofar as said Acts m&y be con- strued to repeal and abolish the requirementsof the $2.00 per acre cash payment upon the Issuance ol,the lease and the $2.00 per acre annual payment thereaf-r during the life of the lease, are invalid and unconstltutlongl. ! If said Acts are construed otherkie than as re- leasing and abolishingthe requlrmentsfo&$he two $2.00 per acre payments,lt,&f course, follows.th$tthe requlre- ments made by Section7; Chapter 83, of t for such paymentshave remained and are w,~tzf 2% and effect, unaffectedand unrepealedby &y.'subsequent ~.leglslatlon.In such event, said smounts,.lf. they have not heretofore been paid, are now exlstln&and unpaid obligationsdue to the State by all lessees whose permits and leases were Issued under Chapter 83. .We believe this statement,when considered In the light of.&he remainder .of this opinion, constitutesa sufficient.&swer to all of the questions propounded ln your letter+. In conclusion,we will state that.we have given careful considerationto the case of Rhoads.Drlll1n.g Co. vs. Allred, 70 S. W. (26) 576, as well as&o the other decisions cited In that opinion. We bell.*e-'that the facts and holding In Rhoads Drilling Company v,-Allred,and the other cases therein cited, are clearly-,dlstingulshable from the facts and conclusionsexpressed'tithis opinion. In ?he?hoads case the decision as to the cona$l$utlonallty of the statute there attacked was expressl&based upon a Pinding that an adequate considerationpa&by the lessee there Involved supportedand rendered vallQ.the reduction In the royalty obligationgranted to t&e Leigee. The considerationfor the reduction of such romJ.ty obligation IS set forth on pages 584, 585, and 586 of.tfieopinion. This distinction1s clearly poded out in the opinion of the Rhoads Drilling Co. case on.pag'$583 where the Court says: "The act would be within the constitutional pro~lbltlon~lfIt undertook to authorize the'

Mr. T. E. Allday, page 23 (o-730)

gratuitous releasingIn whole or in par&~of an existing,r.,lndebtedness, liability, or obligation to the State. Delta County v. Blackburn, 100 Tex. 51, 93 S. W. 419, 420; Judklns v.,Robison, 109 Tex. 6, 160 S. W. 955; Greene v. ,Roblson, 117 Tex. 516, 8 S. W. (26) 655; Empire-Gas & Fuel Co, v. State, 121 Tex. 138, 47 S. W. (2d) 265."

In the Statutesnow under consideration,we find nothing which we can construe as a considerationrequired to be paid by the permitteesor lessees in return for the attempted release and extinguishmentof the.permittee'sand lessee's obligationto pay the $2.00 per s.crecase and annual payments required by Chapter 83. Nor are wellnformed of any considerationactually paid to the State,,forsuch at- tempted release. In brief, the State has not received any considerationfor the attempted release an& ext-$ngulshment, nor do the statutes condition such release and extingulsh- ment upon a receipt by the State of a conalderatlon. In opposing the conclusion of ttxls opinion, It will possibly be contendedby lessees who are affected by this opinion, that they for several years have held their leases In relianceupon the constructionwhich has heretofore been given by commissionersto the Acts in.,questlon..In reply to any such possible contentton, we tiu now state some of,the factualhistory in connection With oil and gas leases covering tens of thousands of acres-of University land which leases were issued by virtue of.Chapter83. We are informed that such lesseesIn many instances have for many years retained their leases by the drilling of a single well on an isolated section of a lease, and in many Instances the particular section upon which a well was drilled is situated In a county far removed from the location of other sections of land coverebgy such lease. Furthermore,these leases have been secured.andheld without the payment by the lessees of the algina $2.00 per acre cash at the time of the issuance&the lease as provided in Chapter 83 and without the payme@ of a single $2.00 per acre annual payment. The mere swtement of the actual conditionswhich exist with regard to University lands upon which permits and leases have been issued under Chapter 83 serves, we believe, as an effe a contentionthat the position we take inYe.t is answe~r opinionto is lacking in equity. This opinion has been extended to some length because of the importanceof the questions involved. We

Mr. T. E. Allday, page 24 (o-730)

t,;::ct that a full ar.;rcti has-been given to your questions. Yours very truly .., ATTORNEYGXNERALOF TMAS By /s/ RoBert E. Kepke Robert E. Kepke Assistant REK:BT:br APPROVED AUG 31, 1939

/a/ Gerald C. Harm ATTORIiEYGEI?ERAL OFTMAS