By Ogden H.B. No. 2901 74R6316 SMH-D A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the payment of royalties on oil and gas produced from 1-3 state land. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Section 66.65, Education Code, is amended by 1-6 adding Subsection (f) to read as follows: 1-7 (f) The royalty on oil shall be based on the greater of the 1-8 market value of or $20 for a barrel of oil. The royalty on gas 1-9 shall be based on the greater of the market value of or $2 for a 1-10 thousand cubic feet of gas. This subsection does not apply to 1-11 compensatory royalties or royalties on production from offset 1-12 wells. 1-13 SECTION 2. Section 66.68(e), Education Code, is amended to 1-14 read as follows: 1-15 (e) Each lease shall provide that if at the expiration of 1-16 the primary term or at any time thereafter there is located on the 1-17 leased premises a well or wells capable of producing oil or gas in 1-18 paying quantities and such oil or gas is not produced for lack of 1-19 suitable production facilities or a suitable market and such lease 1-20 is not being otherwise maintained in force and effect, the lessee 1-21 may pay as royalty $1,200 per annum for each well on the lease 1-22 capable of producing oil or gas in paying quantities, such payment 1-23 to be made to the Board of Regents of The University of Texas 1-24 System at Austin, Texas. For purposes of this subsection, the 2-1 market for oil is unsuitable if the market value is less than $20 2-2 for each barrel of oil, and the market for gas is unsuitable if 2-3 the market value is less than $2 for each thousand cubic feet of 2-4 gas. Any shut-in oil or gas royalty must be paid on or before: 2-5 (1) the expiration of the primary term of the lease, (2) 60 days 2-6 after lessee ceases to produce oil or gas from the leased premises, 2-7 or (3) 60 days after lessee completes a drilling and reworking 2-8 operation in accordance with the lease provisions, whichever date 2-9 is later. If such payment is made, the lease shall be considered 2-10 to be a producing lease and such shut-in royalty payment shall 2-11 extend the term of the lease for a period of one year from the end 2-12 of the primary term or from the first day of the month next 2-13 succeeding the month in which production ceased; and thereafter if 2-14 no suitable production facilities or suitable market for such oil 2-15 or gas exists, the lessee may extend the lease for four additional 2-16 and successive periods of one year each by the payment of a like 2-17 sum of money each year on or before the expiration of the extended 2-18 term. Provided, however, that if, while such lease is being 2-19 maintained in force and effect by payment of such shut-in royalty, 2-20 oil or gas should be sold and delivered in paying quantities from a 2-21 well situated within 1,000 feet of the leased premises and 2-22 completed in the same producing reservoir or in any case where 2-23 drainage is occurring, the right to further extend the lease by 2-24 such shut-in royalty payments shall cease, but such lease shall 2-25 remain in force and effect for the remainder of the current one 2-26 year period for which the shut-in royalty has been paid, and for 2-27 four additional and successive periods of one year each by the 3-1 payment by the lessee of compensatory royalty, at the royalty rate 3-2 provided for in such university lease of the value at the well of 3-3 production from the well which is causing the drainage or which is 3-4 completed in the same producing reservoir and within 1,000 feet of 3-5 the leased premises; such compensatory royalty to be paid monthly 3-6 to the Board of Regents of The University of Texas System at 3-7 Austin, Texas, beginning on or before the last day of the month 3-8 next succeeding the month in which such oil or gas is sold and 3-9 delivered from the well situated within 1,000 feet of, or draining, 3-10 the leased premises and completed in the same producing reservoir; 3-11 provided further, that in the event such compensatory royalties 3-12 paid in any 12-month period are in a sum less than the annual 3-13 shut-in gas well royalties provided for in this section, the lessee 3-14 shall pay an additional sum equal to the difference within 30 days 3-15 from the end of such 12-month period; provided further, that 3-16 nothing herein shall relieve the lessee of the obligation of 3-17 reasonable development, nor of the obligation to drill offset wells 3-18 required by Section 66.75 of this code. 3-19 SECTION 3. Section 32.1072, Natural Resources Code, is 3-20 amended to read as follows: 3-21 Sec. 32.1072. Minimum Royalty, Bonus, and Rental. (a) The 3-22 board may not accept a bid on an oil and gas lease that offers: 3-23 (1) a royalty of less than one-eighth of the gross 3-24 production of oil and gas; or 3-25 (2) a cash bonus of less than $10 an acre. 3-26 (b) The royalty on oil shall be based on the greater of the 3-27 market value of or $20 for a barrel of oil. The royalty on gas 4-1 shall be based on the greater of the market value of or $2 for a 4-2 thousand cubic feet of gas. This subsection does not apply to 4-3 compensatory royalties or royalties on production from offset 4-4 wells. 4-5 SECTION 4. Section 52.022, Natural Resources Code, is 4-6 amended to read as follows: 4-7 Sec. 52.022. Royalty Rate. (a) The board shall set the 4-8 royalty rate on production of oil and gas from land leased under 4-9 this subchapter. The royalty rate set must be at least one-eighth 4-10 of the gross production or the market value of the oil and gas 4-11 produced. 4-12 (b) The royalty on oil shall be based on the greater of the 4-13 market value of or $20 for a barrel of oil. The royalty on gas 4-14 shall be based on the greater of the market value of or $2 for a 4-15 thousand cubic feet of gas. This subsection does not apply to 4-16 compensatory royalties or royalties on production from offset 4-17 wells. 4-18 SECTION 5. Section 52.024(b), Natural Resources Code, is 4-19 amended to read as follows: 4-20 (b) Each lease shall provide that: 4-21 (1) if, at any time after the expiration of the 4-22 primary term of a lease that, until being shut in, was being 4-23 maintained in force and effect, a well capable of producing oil or 4-24 gas in paying quantities is located on the leased premises but oil 4-25 or gas is not being produced for lack of suitable production 4-26 facilities or lack of a suitable market, then the lessee may pay as 4-27 a shut-in oil or gas royalty an amount equal to double the annual 5-1 rental provided in the lease but not less than $1,200 a year for 5-2 each well capable of producing oil or gas in paying quantities. 5-3 For purposes of this subsection, the market for oil is unsuitable 5-4 if the market value is less than $20 for each barrel of oil, and 5-5 the market for gas is unsuitable if the market value is less than 5-6 $2 for each thousand cubic feet of gas. To be effective, each 5-7 initial shut-in oil or gas royalty must be paid on or before: (A) 5-8 the expiration of the primary term, (B) 60 days after the lessee 5-9 ceases to produce oil or gas from the leased premises, or (C) 60 5-10 days after the lessee completes a drilling or reworking operation 5-11 in accordance with the lease provisions, whichever date is latest; 5-12 (2) if the shut-in oil or gas royalty is paid, the 5-13 lease shall be considered to be a producing lease and the payment 5-14 shall extend the term of the lease for a period of one year from 5-15 the end of the primary term or from the first day of the month 5-16 following the month in which production ceased, and, after that, if 5-17 no suitable production facilities or suitable market for the oil or 5-18 gas exists, the lessee may extend the lease for four more 5-19 successive periods of one year by paying the same amount each year 5-20 on or before the expiration of each shut-in year; 5-21 (3) if, during the period the lease is kept in effect 5-22 by payment of the shut-in oil or gas royalty, oil or gas is sold 5-23 and delivered in paying quantities from a well located within 1,000 5-24 feet of the leased premises and completed in the same producing 5-25 reservoir, or in any case in which drainage is occurring, the right 5-26 to continue to maintain the lease by paying the shut-in oil or gas 5-27 royalty shall cease, but the lease shall remain effective for the 6-1 remainder of the year for which the royalty has been paid. The 6-2 lessee may maintain the lease for four more successive years by the 6-3 lessee paying compensatory royalty at the royalty rate provided in 6-4 the lease of the market value of production from the well causing 6-5 the drainage or which is completed in the same producing reservoir 6-6 and within 1,000 feet of the leased premises; 6-7 (4) the compensatory royalty is to be paid monthly to 6-8 the commissioner beginning on or before the last day of the month 6-9 following the month in which the oil or gas is produced from the 6-10 well causing the drainage or that is completed in the same 6-11 producing reservoir and located within 1,000 feet of the leased 6-12 premises; 6-13 (5) if the compensatory royalty paid in any 12-month 6-14 period is in an amount less than the annual shut-in oil or gas 6-15 royalty, the lessee shall pay an amount equal to the difference 6-16 within 30 days from the end of the 12-month period; and 6-17 (6) none of these provisions will relieve the lessee 6-18 of the obligation of reasonable development nor the obligation to 6-19 drill offset wells as provided in Section 52.034 of this code; 6-20 however, at the determination of the commissioner and with the 6-21 commissioner's written approval, the payment of compensatory 6-22 royalties shall satisfy the obligation to drill offset wells. 6-23 SECTION 6. Sections 52.088 and 52.172, Natural Resources 6-24 Code, are amended to read as follows: 6-25 Sec. 52.088. Royalty Rate. (a) The board shall set the 6-26 royalty rate on production of oil and gas from riverbeds and 6-27 channels leased under this subchapter. The royalty rate set must 7-1 be at least one-eighth of the gross production or the market value 7-2 of the oil and gas produced. 7-3 (b) The royalty on oil shall be based on the greater of the 7-4 market value of or $20 for a barrel of oil. The royalty on gas 7-5 shall be based on the greater of the market value of or $2 for a 7-6 thousand cubic feet of gas. This subsection does not apply to 7-7 compensatory royalties or royalties on production from offset 7-8 wells. 7-9 Sec. 52.172. Sale and Lease by Agent. (a) The owner of 7-10 said land is hereby authorized to sell or lease to any person, 7-11 firm, or corporation the oil and gas that may be thereon or therein 7-12 upon such terms and conditions as such owner may deem best, subject 7-13 only to the provisions hereof, and he may have a second lien 7-14 thereon to secure the payment of any sum due him. All leases and 7-15 sales so made shall be assignable. No oil or gas rights shall be 7-16 sold or leased hereunder for a delay rental during the primary term 7-17 of less than 10 cents per acre per year plus royalty, and in case 7-18 of production, the lessee or purchaser shall pay the state the 7-19 undivided one-sixteenth of the value of the oil and gas reserved 7-20 herein, and like amounts to the owner of the soil. 7-21 (b) The payment to the state for the value of the oil 7-22 reserved by the state shall be based on the greater of the market 7-23 value of or $20 for a barrel of oil. The payment to the state for 7-24 the value of the gas reserved by the state shall be based on the 7-25 greater of the market value of or $2 for a thousand cubic feet of 7-26 gas. This subsection does not apply to compensatory royalties or 7-27 royalties on production from offset wells. 8-1 SECTION 7. The changes in law made by this Act apply only to 8-2 payment of royalties on oil and gas produced from state land under 8-3 an oil and gas lease entered into on or after the effective date of 8-4 this Act. Payment of royalties on oil and gas produced from state 8-5 land under an oil and gas lease entered into before the effective 8-6 date of this Act is governed by the law in effect on the date the 8-7 lease was entered into, and the former law is continued in effect 8-8 for that purpose. 8-9 SECTION 8. This Act takes effect September 1, 1995. 8-10 SECTION 9. The importance of this legislation and the 8-11 crowded condition of the calendars in both houses create an 8-12 emergency and an imperative public necessity that the 8-13 constitutional rule requiring bills to be read on three several 8-14 days in each house be suspended, and this rule is hereby suspended.