Untitled Texas Attorney General Opinion

The Attorney General of Texas
December 31, 1982
MARK WHITE
Attorney General
Mr. W. J. Estelle, Jr. Opinion No. m-571
Supreme Court Building Director
P. 0. Box 12548
Austin, TX. 78711. 2548
Texas Department of Corrections Re: Mineral interest owned by
5121475-2501 P. 0. Box 99 private individuals in land
Telex 9101674-1367 Huntsville, Texas 77340 formerly owned by Department
Telecopier 51214750266 of Corrections
1607 Main St., Suite 1400
Dear Mr. Estelle:
Dallas, TX. 75201.4709
2141742.8944 In a request for an opinion of this office, you set forth the
following facts.
4824 Alberta Ave., Suite 160
El Paso, TX. 799052793
In 1930, the Department of Corrections (the Prison Board) was
915/533.3464 authorized to sell the Shaw Farm in Bowie County, Texas, under the
provisions of article 6203c, section 7, V.T.C.S.
1220 Dallas Ave., Suite 202
Article 6203c, section 7, also provides that:
HOUS~O”, TX. 77002-6986
713/650.0666
All oil, gas and mineral rights in and to said
land shall be reserved to the State of Texas, with
806 Broadway, Suite 312 the provision that as and when such oil, gas or
Lubbock, TX. 79401-3479
other minerals are sold, either by lease or
6061747.5236
otherwise, an equal one-eighth portion of the net
proceeds of such sale or sales, shall be paid to
4309 N. Tenth, Suite B the State's vendee of the surface, or the heirs or
McAllen, TX. 78501.1665 assigns of said vendee.
5121682.4547
On January 31, 1935, the Shaw Farm was sold and conveyed to Mr.
200 Main Plaza, Suite 400 C. 0. Moser as provided for by the statute.
San Antonio, TX. 78205.2797
512/225-4191 The General Land Office plans to conduct an oil and gas lease
sale on a part of the old Shaw Farm in Bowie County at some time in
An Equal Opportunity/
the future.
Affirmative Action Employer
Because of this proposed oil and gas lease sale, you desire to
know what mineral interest the state's vendee, Mr. C. 0. Moser, his
heirs or assigns, have in the tract of land to be leased as a
consequence of the original sale of the Shaw Farm to Mr. Moser by the
Prison Board on January 31, 1935, under authority of article 6203~.
section 7.
We do not see any ambiguity in the provisions of the statute
under which the surface of the Shaw Farm was sold to Mr. Moser. By
p. 2104
Mr. W. J. Estelle, Jr. - Page 2 (MW-571)
the terms of the statute quoted above, all of the oil, gas and mineral
rights to the Shaw Farm were reserved to the state at the time of such
sale in 1935.
By the proviso or provision in the statute which immediately
follows the mineral reservation, the vendee of the surface estate, his
heirs or assigns, shall receive an equal one-eighth of the net
proceeds of the sale of the oil and gas. This proviso does not create
an interest in the mineral estate of the Shaw Farm. The mineral
estate is in the state of Texas. The proviso creates only an interest
in the net proceeds of the sale of minerals by the state, which
interest is in the nature of an incorporeal hereditament.
We can readily visualize two types of sales of the oil and gas
under the Shaw Farm being made by the state: either a sale of the fee
simple absolute in the oil and gas for a fixed price, or a sale by an
oil and gas lease (fee simple determinable) containing a provision for
the payment of bonus, rent, and royalty.
Webster's New International Dictionary, 2d Edition, defines the
word "net" as follows:
Free from all charges or deductions: as (a)
remaining after the deductions of all charges,
outlay, or loss.
Webster's defines the word "proceeds" as follows:
The total amount or the profit arising from an
investment, transaction, levee, or business.
It was held in the case of Sheppard V. Stanolind Oil and Gas
Company, 125 S.W.2d 643, (Tex. Civ. App. - Austin 1939, err. ref'd),
that everything paid or contracted, whether in money or in oil or its
proceeds, as distinguished from delay rentals, constitutes a part of
the purchase price of an oil and gas lease.
Thus, "net proceeds of the sale" by the state of Texas of the oil
and gas underlying the Shaw Farm by the means of a conveyance in fee
simple absolute at a fixed price would be the amount of money that the
state would receive from the sale after deducting therefrom the
state's negligible expenses Incurred in conducting the sale.
The "net proceeds of the sale" by the state of Texas of the oil
and gas underlying the Shaw Farm through the means of an oil and gas
lease would be the amount of money in bonus and amount of royalty
(whether received in kind or In monetary value) that the state would
receive from the sale after deducting therefrom the state's negligible
expenses in conducting the sale.
As examples, if the state should sell its oil and gas interest in
the Shaw Farm in fee simple absolute for a fixed amount, for example
p. 2105
Mr. W. J. Estelle, Jr. - Page 3 (MW-571)
$80,000, minus expenses, then the surface owner, his heirs or assigns,
would he entitled to one-eighth of this amount or approximately
$10,000. The state would be entitled to receive approximately
$70,000.
If the state should sell its oil and gas interest by an oil and
gas lease (which is a fee simple determinable) that provided for an
$8,000 cash bonus, except for expenses, and a one-eighth royalty, then
the surface owner, his heirs or assigns would receive one-eighth of
this cash bonus and one-eighth of this royalty, i.e., approximately
$1,000 bonus and 1/64th royalty, the one-eighth portion of the net
proceeds of the sale being uniformly applied to all of the sale price
consisting of both the bonus and the royalty. The state would, of
course, receive approximately $7,000 bonus and 7/64th of the royalty.
SUMMARY
The state's vendee of the Shaw Farm, Mr. C. 0.
Moser, his heirs or assigns, which farm was sold
by the state under authority of article 6203c,
section 7, V.T.C.S., has no mineral interest in
the Shaw Farm. Mr. Moser, his heirs or assigns,
have only a one-eighth interest in the net
proceeds to be received by the state from the sale
of the proposed oil and gas lease which interest
is in the nature of an incorporeal hereditament.
MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
Prepared by J. Milton Richardson
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Susan L. Garrison, Chairman
Jon Bible
Rick Gilpin
Jim Moellinger
J. Milton Richardson
Bruce Youngblood
p. 2106