Untitled Texas Attorney General Opinion ( 1947 )

TEEATTORNEY GENERAL QF TEXAS AUSTIN I~.TEKAS PRICE DANIEL ATTORNEYGENERAL April 9, 1947 Hon, L, R, Pearson9 Chairman 011, Gas and Mining Committee House of Representatives du8tin, Tsxaa Opinion lo, V-97-A Re: Constitutionality of proposed Committee Amendment by King to H,B, 67, pomitting pooling in oil and gas fields; and the rifwt of suoh Act on tti &x&i- trust Lam, b4ar Sir: we have yeur letter of hpril 7* 1947,wueh reads : “The Oil, Gas and Mining Committee of the House of Representatives has instructed me to withdraw our request of April 3rd fop an o inion on a proposed substitute of H.B, NO. 97 g since the authors of the propossd~ substitute have prepared a new substitute bill, The new substitute now before our aa- mlttee is by Rep, Leslie Klag and is attaokd hereto, *The CwfCtre requests that JOU #iv* ua an opinion as soon as possible on tire00P8tl- tutionality of tae lttaorredsubstitute b culd J&W oplafon aa ta whether or not thL%- (, atituto would have adverse effect *the “9 llty lS the &tC *all&i* ar snforoeab Laws of Texas-” Because the attache4 iaetrument referred to In your letter is but a proposed Cmlttee Amendment, and in order that there may be no rihake as to the exact word- ing to which this opinion appli*e, we set out in full Sec- tions 1 and 5, to rhich your request is direoted: Hon. L, R, Pearson - Page 2 (V-97-A 1 'SECTION 1, It is hereby declared the public policy of this State to prevent the waste of, and to promote the conservation of oil and gas, and to protect correlative rights therein. Therefore, when necessary to prevent waste of, and to promote the conser- vation of oil and gas, and to protect corre- lative rights therein, it shall be lawful for two or more persons owning, claiming, or con- trolling production, leases, royalties, or other interests in separate properties in the same oil field, gas field, or oil and gas field, vhen it appears from geologic or other data that such properties are underlaid by one or more common accumulations of oil or gas, or both, to enter into and perform agree- ments for Co-operative development and opera- tion of all or any part or parts of such field, F~,'(td;" purposes hereinafter specified in (a) inclusive, provided, such agreements. are approved by the Railroad Commission of Texas, upon application and after notice and hearing, upon a finding by the Commission that they are in the interest of Public welfare as being reasonably necessary to prevent waste, to promote the conservation of oil or gasp and to protect correlative rights, Provided fur- ther that the order of the Railroad Cormnission shall define the area of the common source of supply or portion thereof to be included with- in the unit area0 Each unit and unit area shall be limited to all or a portion of a sin- gle common source of supply, Only so much of a common source of supply as has reasonably been defined by d8VelOpment may be so included within the unit area* Any pooling agreement approved shall provide for addition to the unit of newly developed acreage underlaid by the same common source of supply, provided that the owner or owners of the newly developed acre- age and the owners of the established unit so agree, and the Railroad Commission approves as in the original instance, "Such agreements when so approved by the Railroad Commission may provide: Bon, Lo 11.,Pearson - Pa@* 3 (VWWpla) -(aI For establishing pooled units necessary to effect secondary re- covery operations, inOhaing those known as cycling, recycling, repressuring, water f300aiqg and pressure maintenunce, and for the location ana spaoing of.input and producing wells thereon, "lb) For erteb,Uahlng Oad operation co-operative sfrtama for said sea- ondary re,boveryoperationa, or eon- servation ana ut:Usation of gas, which may include facilities for extracting and eeparatiag the h - drocarbona from the *3t an (Ha ur- al gas or caeinghead gask and ro- e tuwlng the dry gas to a~forsaticpn unaeripind any iana8 or. leases hm- mtttea to the agpeti%nt, antIpw- vldirref that q~ PoyaXtier mu r ed to be paid QA gae so rat ‘(0) For ths equitable dtoislenp on an agpeed basis, of oil pad I)MBprO- duced thez?efro& “(1) Boy the extsn8fon et Ieaoer eovor- ing any~part of lands connnftted therstos so Long as operations for dPll$ln&91 Po-workIn&C;, OP 80 loog as production of oil or gas in paTa itag quam$;Ltiee is had from any part 0r ths lcmds QP mares aoam$ttsa thereto; provfae& that no such agree- ment ehall relieve any operator froa the obU$aCion to develop rea8,onably the randa and leases as u Ihblo (rk mfttsa thereto, %o auoh agreement shall prcmfds for tha oo-alp- erative marketing or refialnpg0r crud0petro- leumB nor shall it provide iOP @ha oo-eperatlre refinfng of gas or any by-pWdUttt Of gas exoept the extra&ion and separation ot Ztwd l%ydrw oarbons therefrom, nor shall it piMp7ldefor the oo-operative marketfng of $8~ Qr bppwduots of gab whenever it is possible W praoticableP Hon, L, R, Pearson - Page 4 (V-97-A)'. withour incurring waste, to deliver such gas or by-product in kind to its owners severally, "All agreements executed hereunder shall be subject to any valid order, rule* or regulation of the Railroad Commission of Texas relating to spacing, proration, conservation, or other matters within the authority of the Railroad Commission, whether promulgated prior, or subsequent to, the execution of such agreement. "Such agreements shall bind only the persons who execute them, their heirs, suc- cessorss assigns, and legal represente- tiveso "No provisions of this Act shall be construed, however, as requirfng the ap- proval of the Railroad Commission of “(a) voluntary agreements for the joint development and operation of jointly owned properties; or "lb) voluntary agreements entered into between the operators of tracts or interests in tracts embraced within a production, proration or drilling unit established by the Railroad Commission of Texas to integrate the owners' interests and to develop and operate their lands as a unft; provided however that nothing contained in this Act shall be construed to abro- gate or in any manner affect any orders rule9 or regulation of the Railroad Commission of Texas re- lating to spacing, proration, aon- severationp or any other matter within the authority of the Rail- road Commission, whether promul- gated prior, or subsequent to, the executing of such agreement." Hon. L, R, Pearson - Page 5 (v-9%-A) ?SECTION 5. Agreements, and operation thereunder, fn accordance with thfs sot, be- ing necessary to prevent wastes conserve tha natural resouroes of this State, and to pro- tect correlative rights, ahall not be eon- &rued to be in vfolation of the provPsfons of Title 126, Revised Cfvfl Statutes, 1925, Penal Code of Texas9 1925, as amended, known as Antitrust Acts0 However, if any oourt should find a conflict between thfe act and Tftle 126, Revised Civil Statute8 of Texans 1925 s as amended S or Chapter 3 B Tftle 19, Penal Code of Texas, 1925, as amended, then this Aot Pa 4ntended as a maaonable ewsp- tfon thetato neceaaary TW tha above stated public intwwste; px0vfasd fax%her, that ir any court should find that a :com?Uet asieta b&wean thfs and the above mantW& Ls*e, and that this Aot Is not a reaao@able excep- tion thereto, dben it Is the fntemt of the Lag,glBlt3tWi3 that th48 AU?t, Or aBy !4OAfilt3af~ portion hereof, shall be deelaxed fmva14d rather than declaring the above mentfoned Antitrust Laws, or any portion theereot, $a- valPdz" This proposed Committee Amendment, whioh will be referred to as The KPng Amendment, makes substantial changes in H-B0 67 as ft was submitted to this depart- ment on b¶arch5, 1947, Reference is here made to Attor- ney Ceneral?s Opinion Number V-99, of xareh 21, rkfah fnted out objections to Committee Amendment KO, 1 hereinafter p" referred to as the originalBill) from tha standpoint of the antitrust laws, A principal objeotfon to the orPgfna1 BP11 was that no f%ndfng was required that auoh agreeaen~ were to prevent waste, ccnserva the natural resoaTo- +$!sFF o proteot correlative rfqhts Tha King Amendment provides that for such agreements to be lawful, there therefor; and a finding is re nlred $s~,llbeeR~i%%%&%iission that they are reasonably rza~dts~ w In the interest of public welfare to prevent waste, promote eonservatfoa and protect correlative rights0 Another prinefpal objection to the original Bfll wns that ft allowed co-operative exploration, which appeared to have little or nothfng to do with prevention of w,aste and conservation of property< The King Amend- ment comp1etel.y elimiasltes co-operative exploration, Hon, L, R, Pearson - Page 6 (V-97-A) The original Bill allowed go-operative devel- opment and operation without adequate restrictions thereon to insure that such development was in the in- terest of conservation and waste prevention, rather than for mere convenience and profit, The King Amend- ment limits co-operative development and operations to specified items set out in the bill, Further in that regard, the former bill stated that such agreement and operations might provide, "among other things, .,O" The phrase, "among other things,' has been eliminated; so that, under the King Amendment, the purposes are more definitely stated, thus reducing the opportunity for selfish interests to use the bill as a cover for mere convenience or private, monopollstlc gain. The former amendment permitted co-operative refining of gas and by-products of gas, thus opening the door to monopoly and price fixing in that business. The King Amendment limits the refining of gas and its by-products to,the "extraction and separation of li- quid hydrocarbons therefrom," It is our understanding that this permits only the separation of the liquid from the gas, and does not include "refining' as used in its ordinary meaning. The former amendment permitted the co-opera- tive marketing and storing of gas without limitation, The King Amendment eliminates the storage of gas and limits the co-operative marketing to situations where it is not pos9ble or practicable, without incurring waste, to deliver same to its owners severally, The original Bill was silent on the effect it would have on valid orders, rules, and regulations of the Railroad Commission of Texas, The King Amend- ment specifically provides that all agreements and op- erations thereunder are subject to all valid rules, or- ders, and regulations of the Railroad Commission, when- ever promulgated. The King Amendment adds other safeguards. It requires the Commission to define the area to be pooled and the area of common source covered thereby, It lim- its each unit to one common source of supply, and limits unitization to areas reasonably defined by development. It requires further approval by the Conrmieslonof en- largement of the unit. Hon, L, R, Pearson - Page 7 (V-97-A) 'PheKing amendment places in the bill a re- quirement of minimum royalty to the State on its leases, which requirement was omitted from the former Bill, The King amendment retains the provision that production from any part of the unit will hold all the leases within the unit. A provision has been added, however9 that such production must be in paying quanti- ties, A further provision has been added which states that such agreements shall not relieve any operator from the obligation to develop reasonably the lands and leasea as a whole aotitted to the unit, Taken as a whole, the Kfng amendment substan- tially meets the objections aet out in Opinion V-97 in so far as the antitrust laws are aoncerned, If any doubt fs left, Se&ion 5 of the King amendment settles the question by providing that this Bill shall be held invalid rather than the antitrust laws if any court should find a conflict as+6umreaeonable exception there- to In this Bill, Article XVI, Section 59a, of the Texas Consti- tution directs the Legislature to enact laws neaeasary for the conservation of natural resouraeso This bill, being founded principally on the neoessity for the pre- vention of waste, the conservation of natural resources9 and the protection of correlative rights, will, ffnall probability, be upheld by the courts, It Is our belle2 that9 In its present form, it is cronstitutlonalo Of aourse, this opinion has nothing te do with the merits of the Bill and is not to be interpreted ae an expression in that regard, The matters now tlfhia the King amendment are questions of policy wholly with&n the province of the LegSelatur& Yours VOPy tmlyp ALTPORREXGEKERALOFTEXAS ? ‘;6/8 R Greenhill JRQ:wb Aasfsklnt