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.