74(R) HB 2477 House Committee Report

BILL ANALYSIS

C.S.H.B. 2477
By: TURNER
April 20, 1995
Committee Report (Substituted)

BACKGROUND

Approximately seven million acres of land in Texas is known as
"mineral classified" or "Relinquishment Act" land. This land was
sold by the State from 1895 to 1931 and was reserved to the
Permanent School Fund. The Relinquishment Act of 1919 provides
that the owner of the surface estate of mineral classified land is
the agent of the State for leasing oil and gas. In return for
their services as the State's agents and as compensation for
damages to the surface of their lands, the surface owners receive
half of the benefits, usually bonus, rental, royalty, from the
leases they negotiate. Surface owners who lease minerals other
than oil and gas receive twenty percent of the lease benefits.
While dealing as agents of the State in leasing Permanent
School Fund minerals, a surface owner, their family, and/or
controlled and affiliated businesses may not acquire an interest in
a Relinquishment Act lease that he or she executes. An owner may
accept an assignment of a lease that he or she executed but is not
allowed to waive his or her agency rights and duties and receive a
lease directly.
Surface owners desiring to lease minerals other than oil and
gas may, under General Land Office rules, waive their agency rights
and duties and obtain a prospect permit that can then be converted
to a lease.
There are a number of surface owners of mineral classified
lands that are also active in the oil and gas or minerals
industries and who are capable of competently exploring and
developing State oil and gas or minerals on those lands that they
own. However, current restrictions do not allow such exploration
and development.

PURPOSE

C.S.H.B. 2477 proposes to add new sections to Chapters 52 and
53, Natural Resources Code, that would allow the School Land Board
to lease oil, gas, and minerals directly to an owner of the soil on
the condition that the owner of the soil waive his or her rights
and duties under the Relinquishment Act, including the right to
receive bonus, rental, royalty, or other benefits that normally
accrue to the lessor.
The bill states that the applicant will have material
participation in at least the initial exploration and development
of property, whether through the contribution of money, materials,
labor, or other enhancement of value, such as assembling an
exploration prospect that includes the property.
Additionally, The bill would amend the prohibition against
self-dealing to allow a surface owner to lease to a relative
outside the second degree of consanguinity (2nd degree includes:
aunts, uncles, nephews, cousins, etc.) and of the second degree of
consanguinity with approval of the School Land Board.

RULEMAKING AUTHORITY

This bill grants to the School Land Board rulemaking authority in
SECTION 1 (Section 52.190(e)) and SECTION 2 (Section 53.081(e)) of
the bill.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Subchapter F, Natural Resources Code, by adding
Section 52.190 entitled "Lease by Owner of the Soil" as follows:

Subsection (a) allows an owner of the soil to obtain an oil
and gas lease by complying with this section.

Subsection (b) provides that the owner of the soil may apply
in writing to the School Land Board for an oil and gas lease.

Subsection (c) specifies the contents of the application.

Subsection (d) requires the applicant to provide data
pertinent to mineral exploration of the land. Provides that
such data shall be confidential and not subject to the Open Records Act until one year following the termination of a
lease granted under this section or if a lease is not granted
then the data is returned to the applicant. One year after the expiration of a lease, the data shall remain confidential to
the extent permitted by the Open Records Act.

Subsection (e) allows the School Land Board to prescribe the
form of the application, specify supporting information to be
submitted with the application and grants rulemaking authority to
the Board to implement the provisions of this bill.

Subsection (f) requires the General Land Office to review the
information provided and other data reasonably available to
prepare a report to the School Land Board that contains:

1) summary of lease terms on other similar lands in the
area;
2) other relevant information concerning the lease.

Subsection (g) requires the School Land Board to consider the
application and allows the board to approve or deny the
application. The board may approve the application subject to
specified conditions. Allows conditions of approval to include
sharing equally with the Permanent School Fund any benefit
derived from the lease.

Subsection (h) requires the General Land Office to issue a
lease to an applicant if the application has been approved by the
School Land Board.

Subsection (i) conditions the issuance of an approved lease
upon the applicant's waiver of his or her duties and rights,
including the right to lessor's compensation, as an owner of the
soil. The waiver will be effective from the date the Land
Commissioner executes the lease.

Subsection (j) provides for the automatic reinstatement of the
rights and duties of the owner of the soil as agent for the
State upon the termination of an approved lease.

Subsection (k) provides that an applicant may obtain leases
from other owners of the soil of the tract proposed to be
leased. If necessary, such leases may be obtained from owners of the soil with whom an applicant ordinarily could not deal,
but the subsection requires that an applicant may not benefit
from such a lease as lessor or later acquire lessor's benefits
under the lease. Any benefit that would have been earned will go to
the Permanent School Fund.

Subsection (l) prohibits the Land Commissioner from approving
a lease obtained under the new section that is less favorable to
the Permanent School Fund than the lease approved by the School
Land Board. If the lease is more beneficial than approved by the Board, the lease applicant will be liable for the greater sums
due. The subsection directs the Board concerning how to determine
if the lease is comparable.

SECTION 2. Amends Section 52.189(a), Natural Resources Code, to
allow a soil owner to lease to a relative beyond the second degree
of "consanguinity or affinity" or in that degree with approval of
the School Land Board if the benefit of such a lease is shared
equally with the Permanent School Fund. Allows the Land
Commissioner to void a lease and pursue other remedies for
falsification of an application for a lease to a relative of the
second degree.

SECTION 3. Amends Subchapter C, Natural Resources Code by adding
Section 53.081 entitled "Lease by Owner of the Soil" as follows:

Subsection (a) allows an owner of the soil to obtain a mineral
lease by complying with this section.

Subsection (b) provides that the owner of the soil may apply
in writing to the School Land Board for a mineral lease.

Subsection (c) specifies the contents of the application.

Subsection (f) requires the General Land Office to review the
information provided and other data reasonably available to
prepare a report to the School Land Board that contains:

1) summary of lease terms on other similar lands in the
area;
2) other relevant information concerning the lease.

Subsection (h) requires the General Land Office to issue a
lease to an applicant if the application has been approved by the
School Land Board.

Subsection (j) provides for the automatic reinstatement of the
rights and duties of the owner of the soil as agent for the
State upon the termination of an approved lease.

SECTION 4. Amends Section 53.074(a), Natural Resources Code, to
allow a soil owner to lease to a relative beyond the second degree
of "consanguinity or affinity" or in that degree with approval of
the School Land Board if the benefit of such a lease is shared
equally with the Permanent School Fund. Allows the Land
Commissioner to void a lease and pursue other remedies for
falsification of an application for a lease to a relative of the
second degree.

SECTION 5. Provides that an owner of the soil may obtain a lease
under Sections 52.190 and 53.081 after the effective date, and
further provides that the bill shall not be construed to ratify or
approve any oil or gas lease made in violation of the
Relinquishment Act.

SECTION 6. Effective Date: September 1, 1995.

SECTION 7. Emergency Clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

The original bill did not amend the prohibition against self-dealing. The substitute amends Sections 52.189(a) and 53.074(a),
Natural Resources Code, to allow leasing to relatives beyond the
second degree of consanguinity or of the second degree with
approval of the School Land Board.

Additionally, the substitute clarifies that confidentiality of data
provided to the Land Office with a lease application will be
maintained to the extent allowed by the Open Record Act.

SUMMARY OF COMMITTEE ACTION

H.B. 2477 was considered by the Energy Resources Committee in a
public hearing on April 10, 1995. The committee considered a
complete substitute to the bill. The substitute was adopted without
objection. The following witnesses testified in favor of the bill:

J.R. Hurd, representing himself and his business, Hurd
Enterprises Ltd.;
Larry Aimes, representing Meridian Oil; and,
Gary D. Compton, representing Mr. Malone Mitchell.

Stroud Kelley of the Texas General Land Board testified neutrally
on the bill. The bill was reported favorably as substituted, with
the recommendation that it do pass and be printed, by a record vote
of 6 ayes, 0 nays, 0 PNV, and 3 absent.

In a formal meeting on April 12, 1995, the vote by which H.B. 2477,
as substituted, was reported to the House was reconsidered by a
record vote of 6 ayes, 0 nays, 0 PNV, and 3 absent. The substitute
was withdrawn and H.B. 2477 was left pending.

H.B. 2477 was considered as pending business by the Energy
Resources Committee in a public hearing on April 18, 1995. The
committee considered a complete substitute to the bill. The
substitute was adopted without objection. The bill was reported
favorably as substituted, with the recommendation that it do pass
and be printed, by a record vote of 5 ayes, 0 nays, 0 PNV, and 4
absent.