Untitled Texas Attorney General Opinion ( 1957 )

Honorable.J...E%H Btid~er Gemmissiomer;~'~General Land Offtee: :~ Austin,Texas .~Gppinioa..lvo;.J&r-``~ lIei%' -Whetheror io&'th``xiimt ~ef.tranap~i& gas:obt ~Itaiae&from~.s~s leases an@.be legall~.dedu+ed from t$e St&e's reyalty %tHxreatia.,the ape+xc instamcos~sc..are .eutJ&mdT hhreid . .. . . *: Dear Mr. EuddLici : ~e````are~hhree..l~8i``,invely~;~all~oi:ahich thene.autl+oplQ wererexecuted~uicle$ ef chapternl, Aqts. 42ad Leg;;-:1931 ('Art;542lc,SocvlO,.V,e.``)~.. The pertl- aemt royaJt$proyZa&oraof.the.statute'-is as rfo``~wsr~ __ ..:``!'!Eh&ar&sfaoluded:.i&em&ch+li.be .. leased.;iom.a .coasf~e~at~o:en;;,ill.~adqitiata $0~. the..das~.~e~t-.bld,tlie~for~::ot-.aot.Ieaa. tha~rorieieigh~a````~.:of.t~e~grosc pro-' dactiaa:ofotl, ec%he value of the &me,.-~ that may.-bk,pFqelaced and saved*aad tietless than.oae&gbth (l/8) of ,thegross pro&mtiea ‘-; y?c <~ .F Hensr&e.J. Earl Rudder;page 2 (WW-1%) of gas or the value.of%he same . . . that may be prodaeedamd sold off the area. . . ." The three leasesinvolved,reapectlvel~eonttinthe followingcovenaatsin regWd to the royaltyto be paid the Stater '- "1. Oae-eahth of the gross production of gas,.orthe.valueof the s"e,. . .* 3l& .Aea royalty&I residuegas,.one-. eQhth.of thenvalue of the'groea'produotien, sold or aeed off the prezalees.The vtilueof the'resLduegas te.be based upoh the highest.~ prlae-paid.8~ .offeredfor residuegas ia.the genetil.are+'6r.,that'partwhich accruq to the lees~p,.phl~ev.er~.is~thegreater." I : -*3.1. any gas Sacludiug ~,' '. 'A8~-roytiity'oii reabdae'.g~s;;-r~ld.or.arred by thg lessee for any,p~eeei'onCislxth.~..thevalue of suah gas--4M:be;seld or.wed, but in ne event shall the royalty-bebaq+d.upoaa price @f less.. thaa .the;hLghest'market~prioepaid erro$fered' *. for-gasia the geaeral area cm that pqt qhloh .acoruesto~.t+:prod``er, whicheveris‘the gzz,;-k ,i-ti,+~rovQJed,.hewever, lessee' t befoM any:gaacoata%aingltclaLd/-. hgd~oarbens,,.Zc$looverable$lpcomDierol;al~q~nti- tlea~la'sold~ez+qd,.it wLl1 be PUB threugh 2. 'anadequateMl aadgas 8eparator.W the end that all.-llqraid hydrooarboaereaoverablef%?on- the gas by:sa&.meansail1 be Ceoevered."'. : .Byth+.pro$i&ae tb+.pro$i&a~ of the th& lease;a& &I~ &mwi abdve,.th~first.all~a'``h~.:``te.to take poesesaloaof -. dtti'fraetioakl mrt'of the.&ae~zmoduoed~la kinQ 8~ to re- oclvel?em the ieissee``%hevii16the-of. 4%e seioadaad third p%ovS.sS.owdo .-aot prqvtdethat the:gtatemay%+ coiveifs rey&liqia Had, but providethat t&e less& : @MA1 &ax the Stat&.the,.oaeb:valne. It ,mtast be mmembexyd, h*YZvCr,,that.tihelaagaageof the statatecoatels o'iierthe tidnsef the.leasee,..aaiLtWt saoh leasea.eanne$.ther .diplialsh ner enlargethe'gtate'sroyalty'iatex-est ae,.eet eat ip tk& &att$$e-; :' : '-t'c"- I HonorableJ. Earl kidder, page 4 (WwI& leasesumber two aqd threeas set .outabove,which set&~out how the value 6f malet: gas ls'to be determiiied; follows oloselythe method used @y the coartsin d;etenulning such value3 and do net cther@;e add anythingof slgnlflcance ta the 16ase oontraot. There are w oaseswhich have ever held that a - Limee must~oonstruot facllitleefor transportingor ‘proceaa- lag gas withoutbeing petitted to chargesomethingbauk againstthe lessbr. he lessee owes a duty te the~lessorto use dlllgenoeIn marketingthe productof the.gaswell, but no courthaa ever held that.theSta$e or any other lessar ls entitledto a free ride to the marketingpoint. Mr. George SlefklaIn Rights of Lealror and LesseeWith ResPect'teSale of Gas and %e Gas Royalty~Prevlslcna,4th Annual IlistStute on Oil and Gas~aad%xat~on, SouthwesternLegal Foundation. In two simoe.rmlve caseswhere the prLnolpa1Issue was the method.tsbe used la determiningthe value-of r6Qalty gas where the= was.110market at the wells, the:FLfthcf+ anlt held that.thepeeperreyaltyIn suoh,oasesflasone- ~lghth~of.the proce&ed.of,the&itual.sale,less a p&pep 3311& iwflniigco. 0. Ram111Dnilitig at the well,..or$ttivalue after such gas had Wen proaesaed 'intoother.prodaots, the-aeu& held that the ro$altyewner; was bound to a&oep%ypafmetit.eutsf the'valfleof the g&&at the well au&was lnot&<led to have It xeflnedintO ~geme other tmamdlty. It is believedthis case indIaate 't@t the oourtsin th$s State tlould~fo&Xew the *well head.ii&l.tblng pointarule ln'the federaleases hetiin~al*ed na%33s~%he contra& oleaTljshoweda ocsmtrary Intent el..&heprt$esi "Xii-tl&efore appoazs.,thaithe'State~mayl&ally be clqsrged``&sp&i zata'shar6Of t*uapertatloi costs``f3om the well head wh$ehts the pi$olugpoint fsr.valaeef rOgalty'ga@, $o.that:polntwhere tptlq to the gaa passes to bhe pnrohaa&r.'Thi~.&eai&&~& wheti the.valueof the gloss produotlonof gas-lacomputedfrom a'prlckpa+d for sucti gas at a $cin$ nct:at the welJ,.thenIn arrlving'at $he:reyalty, td~be.p$d the State, a ??eaSonab;e,.?Wrge,m&y .. be zkiesrkdfor the‘use:ofnecessaryplpelltied and protieas-. Sag eqaipptent.. It.lrj 0W fapth+r..o~$ilon t&@t,t&..pre, ti&ii-i~ Lease-B0.~‘3.‘clted ‘almwi ‘that 'tiequ%kW"the lesae$. to lfemeve hydrooarbons; ii.~prefi6n~ In comnierclalq``tltlea, doed nst':change‘dr'affe,cti th& point at whiah the’btate’.d’ nryrilt$..lntereat 18 &xnp@ted,.and the lessee..&3&l$led : te &%lqotpim~the &yalty p+d'the State's'pz%"tiata``&&l;e~ oi.thq~,$@@.~se incarred:+.th`` removal .. ~il..suot!,,.hy~yocarbona.. Becauseof the wlde,poaalble varlatlona,'b~t~een"-'. dlfferent‘si$mations reqtirlngthe les,g+to build trans- poHlng and prodessleg&q~lpmetlt l``marl&t%ig'gBb, we are anaBlete.liiy down @yg‘eneral.-Puleti.for assessingsuch .. ehatig+.againat th+.State;irndaaeh.)aharges In eaoh lndl- ~dria~,C~e.m~at~-be..dete~ned:.f``.the,st~ndpolnt of aoo&pte&aecouhtliig prl~ciples,.,t,o~'be properlydetermined ~'45`` Sta$~'Audlkok tinder .&l.le&& executedby the Ge~tiralLaud Gffiae@der th6 authority'~ of.,Cwpter271, Aetts.42nd~izeg., 1931;. ihere'thevalue~oftialts'.gaaIs com- puted cu the'basi8efyg p-i.&aSeprice. - '. .,paldfor sriahgas.aiterlt.hasbeen trans- A. portedglwn~thewell.site,the State53 lesseemay leg(rlly~.deduot fron,theroyalty paymentsfor'costbf~transpktatlanand processingbetweenthe well head and the purchasing'pointwhen these costs.are - :"computed.aoetirdlng to standardand accept- able accountingprlriclples. Yours very truly, wII3, WILSON Attorney Generalof Texas RonorableJ. Earl Rudder,page 6 (WI?-196.) APPRCvmx OPINIOI?C~TEE H. Grady Chandler,Chairman'. '. Larry Jones Joe Rollins MiltonRichardson paEi&ogOR THE ATT&m : Geo. P, BlackbUrn ..: