By Craddick                                     H.B. No. 3108

      75R9176 T                           

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to the Board for Lease of University Lands, the leasing,

 1-3     management, and administration of certain public lands, and related

 1-4     fees and penalties.

 1-5           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-6           SECTION 1.  Subchapter D, Chapter 66, Education Code is

 1-7     amended to read as follows:

 1-8           Sec. 66.61.  DEFINITIONS.  In this subchapter:

 1-9                 (1)  "Affiliate" includes the parent company or a

1-10     subsidiary company, a corporation having common ownership with

1-11     another of ten percent or greater, a partner or joint venturer with

1-12     a company with respect to a business subject to this subchapter, or

1-13     a relative within the second degree of consanguinity or affinity.

1-14     Affiliates of a common entity are also affiliates of each other.

1-15                 (2)  "Board" means the Board for Lease of University

1-16     Lands.

1-17                 (3)  "Board of regents" means the board of regents of

1-18     The University of Texas System, except where otherwise specified.

1-19                 (4)  "Commissioner" means the commissioner of the

1-20     general land office.

1-21                 (5)  "Lessee" means a person who holds a leasehold

1-22     interest, legal or equitable, under a lease issued pursuant to this

1-23     subchapter, or the operator of oil and gas exploration, production,

1-24     and marketing activities on the leased premises, whether or not the

 2-1     operator holds an interest in the lease.

 2-2                 (6)  "Oil and gas" means crude oil, natural gas, and

 2-3     all substances, including other hydrocarbons, produced in

 2-4     association with crude oil and natural gas.

 2-5                 (7)  "University lands" means land dedicated to the

 2-6     permanent university fund.

 2-7                 (8)  "Well" means an oil or gas well that has been

 2-8     assigned a well number by the state agency having regulatory

 2-9     jurisdiction over the production of oil and gas.  A single wellbore

2-10     may contain more than one well.

2-11           Sec. 66.62.  BOARD FOR LEASE OF UNIVERSITY LANDS.  (a)  The

2-12     board is composed of the commissioner, two members of the board of

2-13     regents selected by that board, and one member of the board of

2-14     regents of The Texas A & M University System selected by that

2-15     board.  If a regent member is unable to attend a meeting of the

2-16     board, the presiding officer of the board of regents of the

2-17     applicable system may appoint another member of that board of

2-18     regents as a substitute member of the board to attend the meeting

2-19     that the regular regent member is unable to attend.  The substitute

2-20     regent member shall exercise all the powers, duties, and

2-21     responsibilities of the absent regent member during the conduct of

2-22     the meeting for which he was appointed.  A substitute regent member

2-23     is subject to the provisions of this subchapter.

2-24           (b)  Members of the board, other than the commissioner, serve

2-25     two-year terms expiring February 1 of each odd-numbered year.

2-26     Regent members continue to serve until a successor is appointed and

2-27     qualified.

 3-1           (c)  The commissioner is chairman of the board.

 3-2           (d)  A person who is directly or indirectly employed by, or

 3-3     is an officer or employee of a person or entity actively engaged in

 3-4     the exploration for or production of oil and gas, other than as a

 3-5     landowner or royalty owner, may not be a regent member.

 3-6           (e)  An officer, employee, or paid consultant of a trade

 3-7     association in the oil and gas industry may not be a regent member

 3-8     or employee of the board, nor may a person who cohabits with or is

 3-9     the spouse of an officer, managerial employee, or paid consultant

3-10     of a trade association in the oil and gas industry be a regent

3-11     member of the board or a non-classified employee of the board.

3-12           (f)  A person who is required to register as a lobbyist under

3-13     Chapter 305, Government Code, by virtue of his activities for

3-14     compensation in or on behalf of a profession related to the

3-15     operation of the board, may not serve as a regent member of the

3-16     board or act as the general counsel to the board.

3-17           (g)  The board of regents of the university system appointing

3-18     a regent member may remove the regent member from the board if that

3-19     member:

3-20                 (1)  does not have at the time of appointment the

3-21     qualifications required by Subsection (a)  of this section for

3-22     appointment to the board;

3-23                 (2)  does not maintain during the service on the board

3-24     the qualifications required by Subsection (a)  of this section for

3-25     appointment to the board;

3-26                 (3)  violates a prohibition established by Subsection

3-27     (d), (e) or (f) of this section;

 4-1                 (4)  is unable to discharge his duties for a

 4-2     substantial portion of the term for which he was appointed because

 4-3     of illness or disability; or

 4-4                 (5)  is absent from more than one-half of the regularly

 4-5     scheduled board meetings which the member is eligible to attend

 4-6     during a calendar year, except when the absence is excused by

 4-7     majority vote of the board.

 4-8           (h)  The board is exempt from the provisions of Chapter 2001,

 4-9     Government Code.

4-10           Sec. 66.63.  CERTAIN BOARD ACTIONS.  (a)  A majority of the

4-11     members of the board have the power to act for the board on a

4-12     matter before the board. Two members of the board have the power to

4-13     award leases issued on a form of lease previously approved by a

4-14     majority of the board.

4-15           (b)  The validity of an action of the board is not affected

4-16     because it was taken when a ground for removal of a regent member

4-17     of the board existed.   A regent member continues to serve until

4-18     removed pursuant to Section 66.62(g) of this subchapter.

4-19           Sec. 66.64.  POWERS AND DUTIES OF THE BOARD.  (a)  The board

4-20     shall in a manner consistent with this subchapter:

4-21                 (1)  lease university lands for oil and gas exploration

4-22     and development on terms, at times, and in the manner it may

4-23     determine;

4-24                 (2)  contract for the sale or other disposition of oil

4-25     and gas royalties taken in-kind;

4-26                 (3)  adopt rules and policies for the administration

4-27     and enforcement of this subchapter and leases issued pursuant

 5-1     thereto;

 5-2                 (4)  set fees and penalties for the administration and

 5-3     enforcement of this subchapter;

 5-4                 (5)  set the terms of a contract for the development of

 5-5     university lands for oil and gas;

 5-6                 (6)  approve agreements that commit the royalty

 5-7     interest in university lands on terms acceptable to the board; and

 5-8                 (7)  exercise other powers and authority and perform

 5-9     other duties as may be reasonably necessary to administer and

5-10     enforce the provisions of this subchapter.

5-11           (b)  The board shall hold meetings and keep records of its

5-12     proceedings in a manner consistent with the requirements of the

5-13     Texas Open Meetings Act, Chapter 551, Government Code.  The board

5-14     shall develop and implement policies which provide the public with

5-15     a reasonable opportunity to appear before the board, to speak on an

5-16     issue under the board's jurisdiction, or be heard with respect to a

5-17     declaration of forfeiture.

5-18           (c)  Except as otherwise provided in this subchapter, the

5-19     records of the board are subject to the requirements of the Texas

5-20     Public Information Act, Chapter 552, Government Code.

5-21           (d)  The financial transactions of the board are subject to

5-22     audit by the state auditor in accordance with Chapter 321,

5-23     Government Code.

5-24           (e)  The board may delegate to the staff provided to it by

5-25     the board of regents any duty except as prohibited by law.

5-26           (f)  The board shall appoint a secretary.

5-27           Sec. 66.65.  BOARD STAFF; EXCHANGE OF INFORMATION WITH STATE

 6-1     AGENCIES.  (a)  The board of regents shall employ and compensate

 6-2     personnel to assist the board in the performance of its powers and

 6-3     duties under this subchapter or may assign employees of The

 6-4     University of Texas System to those duties.

 6-5           (b)  The members of the board, personnel and counsel employed

 6-6     or assigned to assist the board, the board of regents, staff of The

 6-7     University of Texas System, the commissioner and staff of the

 6-8     general land office, the board of regents and staff of The Texas

 6-9     A&M University System, the office of the comptroller, the office of

6-10     the attorney general, and any other agency or official of the state

6-11     with a reasonable business interest in state or university lands,

6-12     minerals, or resources may consult with each other and exchange

6-13     information related to the administration of leases, collection and

6-14     disposition of royalties, whether in cash or in-kind, and any other

6-15     matter related to the lease, sale, production of, or exploration

6-16     for oil, gas, or any other mineral or resource, including

6-17     geothermal, wind, and solar energy on state or university lands.

6-18     The information so exchanged and consultations and related

6-19     communications shall be or shall remain confidential and shall be

6-20     privileged from discovery in the same manner and to the same extent

6-21     as if the persons consulted, which includes counsel, were members

6-22     of the same agency.  Sections 52.134 and 52.140, Natural Resources

6-23     Code, shall not prohibit the consultations or exchange of

6-24     information provided for by this section; however each agency

6-25     receiving such confidential information is required to keep the

6-26     information confidential under Sections 52.134 and 52.140, Natural

6-27     Resources Code, as appropriate, and to take all reasonable actions

 7-1     necessary to protect the confidential and privileged nature of the

 7-2     information.

 7-3           Sec. 66.66.  LEASE SALES.  (a)  Oil and gas leases shall be

 7-4     offered at public auction or by sealed bid, or through a

 7-5     combination of public auction and sealed bid, as the board elects.

 7-6     Contracts for development may be awarded in the same manner.

 7-7           (b)  The board shall publish notice that the board will

 7-8     receive bids for oil and gas leases or contracts for development of

 7-9     oil and gas in two or more daily newspapers in this state and in

7-10     other publications as the board may choose.

7-11           (c)  The notice shall be published at least 30 days before

7-12     the date the bids will be opened.

7-13           (d)  The notice shall state that land is to be offered for

7-14     lease or a contract for development and that a person may obtain a

7-15     publication from The University of Texas System offices that

7-16     describes the land offered and the minimum terms.

7-17           (e)  The board of regents may solicit and include advertising

7-18     in the publication describing a lease sale.  Fees paid for

7-19     advertising shall be deposited into the special fee account

7-20     established by Subsection (g) of this section, and are available

7-21     for the same purposes as described in that subsection.

7-22           (f)  The board may withdraw any lands advertised for lease

7-23     before the hour set for receiving bids.

7-24           (g)  Each bid is subject to the payment of a special fee

7-25     equal to one and one-half percent of the total bonus whether

7-26     stipulated or bid, which special payment shall constitute a special

7-27     fund from which the board of regents shall defray the expenses of

 8-1     the sale, including the payment of the general operating expenses

 8-2     for geology, engineering, field inspection, and auditing oil and

 8-3     gas production of university lands, including salaries and

 8-4     traveling expenses of persons employed by the board of regents for

 8-5     those purposes.

 8-6           (h)  The board of regents may direct the comptroller of The

 8-7     University of Texas System to transmit to the state comptroller for

 8-8     deposit to the credit of the permanent university fund unexpended

 8-9     balances remaining in the special fee account after reserving a

8-10     sufficient amount in it for the payment of current expenses as set

8-11     out in Subsection (g) of this section.

8-12           Sec. 66.67.  LEASE TERMS.  (a)  The oil and gas lease for

8-13     each tract shall be offered for a bonus to be determined by high

8-14     bid in addition to the stipulated royalty or for a stipulated bonus

8-15     and a royalty to be determined by high bid.  Each tract shall be

8-16     offered separately and the minimum bonus or royalty, depending on

8-17     the basis for the bid, and the length of the primary term for each

8-18     tract shall be set out in the official publication describing the

8-19     tracts and terms.

8-20           (b)  Except as otherwise provided by law, the minimum royalty

8-21     rate shall be one-eighth of the oil or gas produced or the value

8-22     thereof.

8-23           (c)  The primary term of a lease shall not exceed ten years.

8-24           (d)  Each lease shall be subject to the provisions of this

8-25     subchapter and rules promulgated by the board.

8-26           (e)  The successful bidder shall pay to the board of regents

8-27     on the day the bid is accepted the full amount of bonus, whether

 9-1     stipulated or bid, and the special fee in the form of payment

 9-2     specified by the board.

 9-3           Sec. 66.68.  MARGINAL PROPERTY ROYALTY RATES.  (a)  In this

 9-4     section:

 9-5                 (1)  "Barrel of oil equivalent" means 6,000 cubic feet

 9-6     of natural gas per 42-gallon barrel of crude oil or a volume of gas

 9-7     with a minimum heating value of 6,000,000 British thermal units

 9-8     (6,000 Mbtu), whichever is greater.

 9-9                 (2)  "Lease" or "leases" means an oil and gas lease

9-10     issued or approved by the board that is valid and in force on or

9-11     after the effective date of this section.

9-12                 (3)  "Qualifying property" means land subject to a

9-13     lease issued under this subchapter.

9-14                 (4)  "Qualifying reservoir" means a reservoir having an

9-15     average daily per well production equal to or less than 15 barrels

9-16     of oil equivalent during a period established by the board by rule

9-17     and underlying either:

9-18                       (A)  a qualifying property; or

9-19                       (B)  a pooled unit including a qualifying

9-20     property.

9-21                 (5)  "Reservoir" has the same meaning as "common

9-22     reservoir" as defined by Section 86.002, Natural Resources Code.

9-23           (b)  The board may provide by rule that the royalty rate for

9-24     qualifying reservoirs may be reduced to not less than one-sixteenth

9-25     (6.25 percent).  In determining whether to grant a reduction in the

9-26     royalty rate, the board may consider whether the qualifying

9-27     property is being operated efficiently, including whether the

 10-1    property is pooled or has reasonable potential for the application

 10-2    of secondary or tertiary recovery techniques.

 10-3          (c)  If a qualifying reservoir for which royalty rate

 10-4    reduction is sought under this section is included in a unit

 10-5    subject to the authority of the board, the board may modify the

 10-6    terms and conditions of the unit as a condition of approving a

 10-7    reduction in the royalty rate.

 10-8          Sec. 66.69.  AWARD OF LEASE.  (a)  Except as otherwise

 10-9    provided in this subchapter, the board shall award a lease for each

10-10    tract to the person offering the highest bid that includes the

10-11    terms adopted by the board and consistent with this subchapter.

10-12          (b)  The board may reject all bids for one or more tracts.

10-13          (c)  The commissioner shall execute a lease awarded by the

10-14    board in conformance with this subchapter.

10-15          Sec. 66.70.  ADDITIONAL LEASE PROVISIONS.  An oil and gas

10-16    lease issued under this subchapter shall include the provisions

10-17    required by this subchapter and additional provisions not

10-18    inconsistent herewith that the board may adopt to preserve the

10-19    interests of the state.  Upon submission of an application by all

10-20    lessees under the lease in the form required by the board and

10-21    payment of any applicable fee set by the board, the board may amend

10-22    a lease that does not include provisions required by Sections

10-23    66.71, 66.72, and 66.73 of this subchapter to include those

10-24    provisions in the form adopted by the board at the time the lease

10-25    is amended.

10-26          Sec. 66.71.  LEASE PROVISIONS.  An oil and gas lease issued

10-27    under this subchapter shall  provide that:

 11-1                (1)  If, on the anniversary date of the lease, oil or

 11-2    gas is not being produced in paying quantities from the leased

 11-3    premises, or drilling operations are not being conducted thereon,

 11-4    the lease shall terminate, unless lessee shall pay timely in the

 11-5    manner provided in the lease the amount of delay rental stated in

 11-6    the lease.

 11-7                (2)  If oil or gas is being produced in paying

 11-8    quantities from the leased premises at the end of the primary term,

 11-9    the lease shall not terminate but shall continue in force and

11-10    effect as long as oil or gas is being so produced.

11-11                (3)  Royalty may be taken in-kind at any time and from

11-12    time to time at the discretion of the board in the manner provided

11-13    in this subchapter.

11-14          Sec. 66.72.  CESSATION OF PRODUCTION; DRILLING AND REWORKING.

11-15    An oil and gas lease issued under this subchapter shall provide

11-16    that the term of the lease may be extended by drilling and

11-17    reworking operations in the event of the cessation of production,

11-18    upon terms as the board may adopt.

11-19          Sec. 66.73.  SHUT-IN ROYALTY.  An oil and gas lease issued

11-20    under this subchapter shall provide for the extension of the lease

11-21    by the payment of shut-in royalties upon terms as the board may

11-22    adopt.

11-23          Sec. 66.74.  LEASE EXTENSION OR SUSPENSION.  (a)  At the

11-24    expiration of the primary term of a lease, if production of oil or

11-25    gas has not been obtained on the leased premises, but drilling

11-26    operations are being conducted in good faith and a good and

11-27    workmanlike manner, the lessee may apply in writing to extend the

 12-1    lease for a period of 30 days.  The application shall be filed with

 12-2    the board of regents on or before the expiration of the primary

 12-3    term.

 12-4          (b)  The applicant shall submit  with the application a fee

 12-5    in an amount set by the board of not less than $7.50 for each acre

 12-6    in the lease requested to be extended.

 12-7          (c)  If he determines that the conditions of this section

 12-8    have been met, the commissioner, or a designee appointed by the

 12-9    commissioner, shall execute a written extension as provided by this

12-10    section.

12-11          (d)  As long as drilling operations are being conducted in

12-12    good faith and a good and workmanlike manner, additional extensions

12-13    of 30 days each may be granted up to an aggregate of 360 days.  The

12-14    lessee must submit a written application and payment on or before

12-15    the last day of the extended primary term.  The payment for each

12-16    additional 30-day extension shall be in an amount set by the board

12-17    of not less than $7.50 for each acre in the lease.

12-18          (e)  The board may elect to suspend a lease and all of the

12-19    conditions and covenants contained in the lease if there is a

12-20    legitimate dispute regarding the validity of the lease.  The board

12-21    may rescind the suspension at any time, in which event the lease

12-22    shall resume as of the date the suspension is rescinded and shall

12-23    continue for the remainder of the period specified in the lease as

12-24    the primary term, or, if the primary term ended prior the

12-25    suspension, the lessee shall have 60 days to commence production or

12-26    drilling and reworking operations.

12-27          Sec. 66.75.  PROTECTION FROM DRAINAGE; COMPENSATORY

 13-1    ROYALTIES.  (a)  The lessee shall protect the leased premises from

 13-2    drainage.  The lease may contain express terms regarding drainage

 13-3    as the board may adopt.

 13-4          (b)  Subject to the provisions of this section, the

 13-5    commissioner may execute agreements that provide for the payment of

 13-6    compensatory royalty in lieu of drilling offset wells that may be

 13-7    required to protect the leased premises from drainage from a well

 13-8    or wells located on non-university lands, or university lands

 13-9    leased at a lesser royalty, situated within 1,000 feet of or

13-10    draining the leased premises.

13-11          (c)  Agreements providing for the payment of compensatory

13-12    royalty must be approved by the board.

13-13          (d)  Agreements providing for the payment of compensatory

13-14    royalty must be found by the commissioner and the board to be in

13-15    the best interest of the state and necessary to prevent economic

13-16    waste.

13-17          (e)  Nothing in an agreement for the payment of compensatory

13-18    royalty shall relieve the lessee of the obligation of reasonable

13-19    development or of the obligation to drill offset wells, obtain

13-20    suitable regulatory relief, propose appropriate pooling or

13-21    unitization arrangements, or conduct other activities to protect

13-22    the leased premises from drainage as to other producing horizons.

13-23          (f)  An agreement for the payment of compensatory royalty

13-24    with respect to the interest of the state shall remain in force and

13-25    effect as long as oil and gas, or either of them, is produced from

13-26    a well located on university or non-university acreage and draining

13-27    the leased premises.

 14-1          (g)  An agreement for the payment of compensatory royalty

 14-2    shall provide that compensatory royalty be paid at the royalty rate

 14-3    provided in the lease and shall provide that compensatory royalty

 14-4    be paid on the market value of production from the well located on

 14-5    non-university lands or university lands leased at a lesser royalty

 14-6    situated within 1,000 feet of or draining the leased premises.

 14-7          Sec. 66.76.  ASSIGNMENT; RELINQUISHMENT.  (a)  Rights

 14-8    acquired in a lease or contract for development issued under this

 14-9    subchapter may be assigned; provided, however, for an assignment to

14-10    be valid and effective, the assignment must be filed in the county

14-11    or counties in which the leased premises are situated and a legible

14-12    copy of the recorded assignment must be filed with the board of

14-13    regents within the time set by the board, accompanied by a filing

14-14    fee and any applicable penalty for late filing set by the board for

14-15    each lease assigned and a summary in the form adopted by the board

14-16    of regents.

14-17          (b)  Rights to a lease or to an assigned portion thereof may

14-18    be relinquished at any time by having an instrument of

14-19    relinquishment or release recorded in the county or counties in

14-20    which the area relinquished is situated and a legible copy of the

14-21    recorded instrument filed with the board of regents, accompanied by

14-22    a filing fee set by the board.

14-23          (c)  An assignment or relinquishment of a lease or a portion

14-24    thereof or an interest in a lease shall not relieve the lessee of

14-25    accrued obligations, including the payment of royalty, penalty, or

14-26    interest, and the lessee shall remain liable therefor.  All

14-27    successors in interest, whether acquiring a lease or an interest in

 15-1    a lease by assignment or otherwise, shall take the lease or

 15-2    interest subject to all outstanding obligations and shall be liable

 15-3    for those obligations.  All holders of undivided working interests,

 15-4    or an interest imposing an obligation to pay expenses of the lease,

 15-5    in a lease shall be jointly and severally liable for all

 15-6    obligations accruing under the lease.

 15-7          (d)  In the enforcement of lease obligations, the board and

 15-8    the board of regents shall be entitled to rely upon the state of

 15-9    title reflected by the records of the board of regents.

15-10          Sec. 66.77.  ROYALTY PAYMENTS AND REPORTS.  (a)  Royalty as

15-11    stipulated in the lease and all other amounts due under this

15-12    subchapter shall be paid to the board of regents at Austin, Travis

15-13    County, Texas.  The lessee of record in the records of the board of

15-14    regents shall be responsible for making or causing to be made all

15-15    payments required by this subchapter at the required times and in

15-16    the form and manner determined by the board of regents or otherwise

15-17    required by law.

15-18          (b)  The board shall set by rule the date for making royalty

15-19    payments and for filing any reports, documents or other records

15-20    required to be filed by this section.  The date set by the board

15-21    must be on or after the fifth day of the second month succeeding

15-22    the month of production of oil, and on or after the l5th day of the

15-23    second month succeeding the month of production of gas.

15-24          (c)  A royalty payment is timely made if the payment is

15-25    deposited in a postpaid, properly addressed wrapper, with a post

15-26    office or official depository under the care and custody of, and

15-27    postmarked by, the United States Postal Service before the

 16-1    applicable due date.

 16-2          (d)  The lessee shall provide to the board of regents with

 16-3    each royalty payment:

 16-4                (1)  an affidavit of the owner, manager, or other

 16-5    authorized agent completed in the form and manner required by the

 16-6    board of regents and showing the gross amount and disposition of

 16-7    all oil and gas produced and the market value of the oil and gas,

 16-8    the number assigned by the Texas Railroad Commission, and other

 16-9    information as may be required by the board of regents;

16-10                (2)  a purchase statement or other document showing the

16-11    price at which the oil and gas was sold; 

16-12                (3)  a check stub, schedule, summary, or other

16-13    remittance advice showing by the assigned lease number the amount

16-14    of royalty being paid on each lease; and

16-15                (4)  other reports or records that the board of regents

16-16    may require to identify the well and lease and verify the gross

16-17    production, disposition, and market value.

16-18          (e)  The board of regents may require the lessee and a person

16-19    with whom the lessee deals, including an affiliate, in connection

16-20    with the production, transportation, marketing, treatment,

16-21    processing, or sale of the oil and gas, to provide reports or other

16-22    information as the board of regents may consider necessary to

16-23    determine that royalty has been correctly paid.

16-24          (f)  The board of regents may implement such practices and

16-25    procedures with regard to accounting for royalty payments as it may

16-26    determine to be in the best interest of the state.

16-27          Sec. 66.78.  INTEREST AND PENALTIES.  (a)  If  royalty is not

 17-1    paid when due, a penalty of one percent shall be added to the

 17-2    unpaid amount due.  If the royalty is not paid within seven days

 17-3    after the due date, a penalty of an additional four percent of the

 17-4    royalty due is imposed.  If the royalty is not paid within 30 days

 17-5    after the due date, a penalty of an additional five percent is

 17-6    imposed.  The minimum penalty under this subsection is $25, or the

 17-7    minimum penalty in excess thereof set by the board.  The board

 17-8    shall not add a penalty under this subsection in cases of title

 17-9    dispute as to the state's portion of the royalty or to that portion

17-10    of the royalty in dispute as to fair market value.

17-11          (b)  Interest shall accrue on delinquent royalties beginning

17-12    on the 61st day after the due date.  The annual interest rate on

17-13    delinquent royalties is 12 percent.  Interest accrued under this

17-14    subsection shall be in addition to any delinquency penalty due

17-15    under this section.

17-16          (c)  The board of regents shall add a penalty of 25 percent

17-17    to delinquent sums due under this subchapter if the board

17-18    determines that the delinquency is due to fraud or an intent to

17-19    evade the provisions of this subchapter on the part of the lessee

17-20    or his agents, employees, or assignees.

17-21          (d)  If a report, affidavit, supporting document, or  other

17-22    instrument required to be filed under Section 66.77 or Section

17-23    66.80 of this subchapter is not filed when due, a penalty accrues

17-24    in the amount set by the board but not less than $10 per document

17-25    for each 30-day period of delinquency or fractional part thereof.

17-26          (e)  Collection of penalty and interest charges under this

17-27    section are in addition to any rights, including forfeiture, that

 18-1    the board or the board of regents may exercise for failure to pay a

 18-2    royalty or to submit a report or other instrument when due.

 18-3          (f)  The board may provide by rule procedures and standards

 18-4    for reduction of interest charged or penalties assessed under this

 18-5    subchapter or other interest or penalties assessed relating to

 18-6    unpaid or delinquent royalties or other amounts due.

 18-7          Sec. 66.79.  PAYMENT OF ROYALTY IN KIND.  (a)  Oil or gas

 18-8    royalty due under a lease on university lands shall be paid in kind

 18-9    at the discretion of the board.

18-10          (b)  The option to take royalty in kind or to take cash

18-11    royalties may be exercised by the board at any time or from time to

18-12    time on not less than 60 days' notice to the lessee.

18-13          (c)  The board shall enter into contracts or other

18-14    instruments or agreements to dispose of the portion of the royalty

18-15    taken in kind, which may include contracts for sale,

18-16    transportation, or storage of the oil or gas.  The commissioner

18-17    shall execute contracts approved by the board under this section

18-18    that are consistent with applicable law.

18-19          (d)  The board of regents may enter into insurance contracts

18-20    or other agreements to secure or guarantee payment of contracts or

18-21    other instruments or agreements to dispose of the portion of the

18-22    royalty taken in kind, including contracts for sale,

18-23    transportation, and storage.

18-24          (e)  Delivery of the correct amount of oil or gas by the

18-25    lessee shall satisfy lessee's obligation for payment of the royalty

18-26    due under lease.  This section shall not be construed to surrender

18-27    or in any way affect the right of the board of regents under

 19-1    existing or future leases to receive royalty on the basis of market

 19-2    value of  production not taken in kind.

 19-3          Sec. 66.80.  RECORDS.  (a)  The lessee shall provide to the

 19-4    board of regents a copy of every contract for the sale or

 19-5    processing of gas and any subsequent agreement and amendment

 19-6    thereto, together with a summary in the form adopted by the board

 19-7    of regents, within 30 days after the contract, agreement, or

 19-8    amendment is made.

 19-9          (b)  The books and accounts, receipts and discharges of all

19-10    wells, tanks, pools, meters, pipelines, and all contracts and other

19-11    records pertaining directly or indirectly to the production,

19-12    transportation, sale, treatment, processing, or marketing of oil

19-13    and gas produced from University lands, or relevant to establishing

19-14    the volume or value of the production, whether the records are held

19-15    by or are in the possession of the lessee or a third party dealing

19-16    with the lessee, shall at all times be subject to inspection and

19-17    copying by the commissioner, the board, the board of regents, the

19-18    attorney general, the comptroller, the governor, or the

19-19    representative of any of them.  The board or the board of regents

19-20    may, if necessary, compel the production of these records by

19-21    subpoena enforceable throughout the state.

19-22          (c)  Upon request of the board or board of regents, the

19-23    lessee shall provide accurate reserve information.

19-24          Sec. 66.81.  AUDIT INFORMATION CONFIDENTIAL.  (a)  All

19-25    documents and information secured, derived, or obtained during the

19-26    course of an inspection or examination of books, accounts, reports,

19-27    or other records of the lessee or a third party, as provided by

 20-1    this subchapter, and contracts, agreements or amendments provided

 20-2    to the board of regents under Section 66.80(a) of this subchapter,

 20-3    are confidential and may not be used publicly, opened for public

 20-4    inspection, or disclosed, except for information set forth in a

 20-5    lien filed under this chapter and except as permitted under

 20-6    Subsections (c) and (d) of this section.  This section shall not

 20-7    apply to records or information provided by the lessee under

 20-8    Section 66.77 of this subchapter.

 20-9          (b)  All documents and information made confidential in this

20-10    section shall not be subject to subpoena directed to the board, the

20-11    board of regents, the commissioner, the attorney general, or the

20-12    governor except in a judicial or administrative proceeding in which

20-13    the state and a person with an equitable or legal interest in the

20-14    lease or land to which the information relates are parties.

20-15          (c)  The board, the board of regents, or the attorney

20-16    general, may use documents and information made confidential by the

20-17    provisions of this section and contracts made confidential by this

20-18    subchapter to enforce the provisions of this subchapter or may

20-19    authorize their use in judicial or administrative proceedings in

20-20    which this state is a party or may authorize their examination by

20-21    employees, agents, or contractors of the board of regents or the

20-22    state auditor for audit purposes.

20-23          (d)  This section does not prohibit:

20-24                (1)  the delivery of documents and information made

20-25    confidential by this section to the lessee or its successor,

20-26    receiver, executor, guarantor, administrator, assignee, or

20-27    representative;

 21-1                (2)  the publication of statistics classified to

 21-2    prevent the identification of a particular audit or items in a

 21-3    particular audit;

 21-4                (3)  the release of documents or information otherwise

 21-5    available to the public; 

 21-6                (4)  the release of documents or information concerning

 21-7    the amount of royalty assessed as a result of an examination

 21-8    conducted under this subchapter or the release of other information

 21-9    which would have been properly included in reports required under

21-10    Section 66.77 of this subchapter;

21-11                (5)  sharing of documents or information among state

21-12    agencies pursuant to Section 66.65 of this subchapter.  Shared

21-13    documents or information will remain confidential under this

21-14    section; or

21-15                (6)  the release of documents or information authorized

21-16    by the lessee.

21-17          Sec. 66.82.  FORFEITURE; OTHER REMEDIES.  (a)  If a lessee

21-18    fails or refuses to perform a material requirement of this

21-19    subchapter or the lease, the board may, after notice to the lessee

21-20    and an opportunity to be heard, declare a forfeiture of the lease

21-21    or an  interest in the lease.  Material requirements include, but

21-22    are not limited to:

21-23                (1)  failure or refusal to pay a sum due, including

21-24    penalty and interest, within 30 days after the sum becomes due;

21-25                (2)  failure or refusal to tender oil or gas for

21-26    delivery as in-kind royalty;

21-27                (3)  making a false report concerning exploration,

 22-1    production, or royalty;

 22-2                (4)  failure or refusal to file an assignment as

 22-3    required by this subchapter;

 22-4                (5)  failure or refusal, after demand, to file or make

 22-5    available for inspection and copying a record or document required

 22-6    to be filed or made available for inspection or copying under this

 22-7    subchapter or rules promulgated thereunder;

 22-8                (6)  failure or refusal, after demand, to protect the

 22-9    leased premises from drainage; or

22-10                (7)  the breach of an obligation under the lease or

22-11    this subchapter.

22-12          (b)  A declaration of forfeiture may be appealed to the

22-13    district court of Travis County.  The standard for review shall be

22-14    substantial evidence and not de novo.

22-15          (c)  The board, in its sole discretion, may authorize

22-16    reinstatement of a forfeited lease on terms the board may determine

22-17    at the time of the declaration of forfeiture.

22-18          (d)  Forfeiture is not the exclusive remedy.  The attorney

22-19    general, at the request of the board of regents, may bring suit for

22-20    damages or specific performance, or both, or  other remedy, at law

22-21    or in equity.

22-22          Sec. 66.83.  LIEN.  The board of regents shall have a first

22-23    lien on all oil and gas produced from the area covered by the lease

22-24    to secure payment of all unpaid royalty and other sums of money

22-25    that may become due under the lease or this subchapter.  By

22-26    acceptance of the lease, the lessee grants the board of regents an

22-27    express contractual lien on and security interest in all leased

 23-1    minerals in and extracted from the area covered by the lease, all

 23-2    proceeds which may accrue to the lessee from the sale of the

 23-3    minerals, whether the proceeds are held by the lessee or another

 23-4    party, and all fixtures on and improvements to the area covered by

 23-5    the lease used in connection with the production or processing of

 23-6    the leased minerals to secure the payment of royalties and other

 23-7    amounts due or to become due under the lease or this subchapter and

 23-8    to secure payment of  damages or loss that the state may suffer by

 23-9    reason of the lessee's breach of  a covenant or condition of the

23-10    lease, whether express or implied.  The lien and security interest

23-11    may be foreclosed with or without court proceedings in the manner

23-12    provided in the Title 1, Chapter 9 of the Texas Business and

23-13    Commerce Code.  The board of regents may require the lessee to

23-14    execute and record instruments reasonably necessary to acknowledge,

23-15    attach, or perfect the lien.

23-16          Sec. 66.84.  PAYMENTS; DISPOSITION.  Payments under this

23-17    subchapter shall be made to the board of regents which shall:

23-18                (1)  transmit to the state comptroller for deposit to

23-19    the credit of the permanent university fund all bonus, rental, and

23-20    royalty payments;

23-21                (2)  transmit to the state comptroller for deposit to

23-22    the credit of the available university fund all filing, assignment,

23-23    and relinquishment fees, and all other payments except those

23-24    described in subdivision (3) of this section; and

23-25                (3)  retain the one and one-half percent special fee

23-26    provided for by this subchapter for disbursement by the comptroller

23-27    of The University of Texas System for the purposes authorized by

 24-1    this subchapter.

 24-2          [Sec. 66.61.  DEFINITION.  As used in this subchapter,

 24-3    "board" means the Board for Lease of University Lands.]

 24-4          [Sec. 66.62.  BOARD FOR LEASE.  (a)  The Board for Lease of

 24-5    University Lands is composed of the commissioner of the general

 24-6    land office, two members of the board of regents of The University

 24-7    of Texas System selected by the board of regents of that system,

 24-8    and one member of the board of regents of The Texas A & M

 24-9    University System selected by the board of regents of that system.

24-10    In the event that a regent member of the Board for Lease of

24-11    University Lands is unable to attend  meeting of that board, the

24-12    chairman of the board of regents of the applicable system shall

24-13    appoint another member of the board of regents as a substitute

24-14    member of the Board for Lease of University Lands to attend the

24-15    meeting that the regular regent member is unable to attend.  The

24-16    substitute regent member of the Board for Lease of University Lands

24-17    shall exercise all the powers, duties, and responsibilities of the

24-18    absent regent member during the conduct of the meeting for which he

24-19    was appointed.   substitute regent member of the Board for Lease of

24-20    University Lands is subject to the provisions of this subchapter.]

24-21          [(b)  A regent member may not be directly or indirectly

24-22    employed by, or be an officer of or an attorney for, an oil or gas

24-23    comp.]

24-24          [(c)  An officer, employee, or paid consultant of a trade

24-25    association in the oil and gas industry may not be a member or

24-26    employee of the board, nor may a person who cohabits with or is the

24-27    spouse of an officer, managerial employee, or paid consultant of a

 25-1    trade association in the oil and gas industry be a member of the

 25-2    board or an employee of the board grade 17 or over, including

 25-3    exempt employees, according to the position classification schedule

 25-4    under the General Appropriations Act.]

 25-5          [(d)  A person who is required to register as a lobbyist

 25-6    under Chapter 305, Government Code, by virtue of his activities for

 25-7    compensation in or on behalf of a profession related to the

 25-8    operation of the board, may not serve as a member of the board or

 25-9    act as the general counsel to the board.]

25-10          [(e)  Members of the board, other than the Commissioner of

25-11    the General Land Office, serve two-year terms expiring February 1

25-12    of each odd-numbered year.]

25-13          [(f)  The Commissioner of the General Land Office serves as

25-14    chairman of the board.]

25-15          [(g)  Unless the action relates to the final approval of the

25-16    award of a lease on a form approved by a majority of the board in

25-17    accordance with procedures for awarding leases that have been

25-18    previously approved by a majority of the board, a majority of the

25-19    board members has the power to act for the board.  If the action

25-20    relates to the final approval of the award of a lease on a form

25-21    approved by a majority of the board in accordance with procedures

25-22    for awarding leases that have been previously approved by a

25-23    majority of the board, two board members present at a meeting have

25-24    the power to act for the board.]

25-25          [(h)  The board shall perform the duties prescribed by this

25-26    subchapter and shall keep a public record of all its proceedings.]

25-27          [(i)  It is a ground for removal from the board if a member:]

 26-1                [(1)  does not have at the time of appointment the

 26-2    qualifications required by Subsection (a)  of this section for

 26-3    appointment to the board;]

 26-4                [(2)  does not maintain during the service on the board

 26-5    the qualifications required by Subsection (a) of this section for

 26-6    appointment to the board;]

 26-7                [(3)  violates a prohibition established by Subsection

 26-8    (c) or (d) of this section;]

 26-9                [(4)  is unable to discharge his duties for a

26-10    substantial portion of the term for which he was appointed because

26-11    of illness or disability; or]

26-12                [(5)  is absent from more than one-half of the

26-13    regularly scheduled board meetings which the member is eligible to

26-14    attend during each calendar year, except when the absence is

26-15    excused by majority vote of the board.]

26-16          [(j)  The validity of an action of the board is not affected

26-17    by the fact that it was taken when a ground for removal of a member

26-18    of the board existed.]

26-19          [(k)  If the agency head has knowledge that a potential

26-20    ground for removal exists, he shall notify the chairman of the

26-21    board of such ground.  The chairman of the board shall then notify

26-22    the governor that a potential ground for removal exists.]

26-23          [Sec. 66.63.  OIL AND GAS SUBJECT TO SALE.  The oil and gas

26-24    in the university lands are subject to sale under the regulations,

26-25    at the times, and on the terms provided in this subchapter, and

26-26    under the rules and regulations adopted by the board as authorized

26-27    by this subchapter, not inconsistent with the provisions of this

 27-1    subchapter.]

 27-2          [Sec. 66.64.  PLACING OIL AND GAS ON MARKET; PUBLIC AUCTION;

 27-3    ADVERTISEMENT.  (a)  Whenever there is a demand for the purchase of

 27-4    oil and gas in university land that will reasonably insure that the

 27-5    oil and gas may be sold advantageously, the board shall place the

 27-6    oil and gas in the land on the market in separate tracts of such

 27-7    area and extent as the board may determine most suitable for

 27-8    profitable marketing; but in no event shall tract in which oil and

 27-9    gas is offered for as a unit exceed in area of 6,000 acres.]

27-10          [(b)  The sale of the oil and gas shall be made at public

27-11    auction or by sealed bid, or through a combination of public

27-12    auction and sealed bid, as the board elects.  The sales shall be

27-13    held in Austin, or  other location designated by the board, at

27-14    hour between 10 a.m. and 5 p.m.]

27-15          [(c)  The board shall cause an advertisement to be made of

27-16    the sale in two or more newspapers of general circulation in this

27-17    state.  The advertisement shall state the method, time, and place

27-18    of sale; the primary term of the lease proposed to be executed

27-19    covering  sale; the bonus or royalty to be paid; that lists

27-20    describing the land to be sold may be obtained from the board; and

27-21    other matters that in the judgment of the board are deemed

27-22    advisable.  In addition to the foregoing mandatory provisions, the

27-23    board may cause the advertisement to be placed in oil and gas

27-24    journals in and out of the state and to be mailed generally to

27-25    persons it thinks might be interested.]

27-26          [Sec. 66.65.  ROYALTY; BONUS; ANNUAL RENTAL; SPECIAL FEE.

27-27    (a)  The oil and gas in each tract shall be offered for sale for a

 28-1    bonus to be determined by high bid in addition to the stipulated

 28-2    royalty or for a stipulated bonus and a royalty to be determined by

 28-3    high bid.  Each tract shall be offered separately.]

 28-4          [(b)  Each bid is subject to the royalty or bonus specified

 28-5    in the official advertisement preceding the sale, but in no event

 28-6    shall the royalty be less than one-eighth of the gross production

 28-7    of oil and gas in the land; and shall further be subject to the

 28-8    payment of an annual rental after the first year of not less than

 28-9    10 cents per acre, payable each year in advance, unless the

28-10    royalties received from the land during the preceding year equal or

28-11    exceed the amount of the annual rental payment.]

28-12          [(c)  Each bid is also subject to the payment of a special

28-13    fee equal to one percent of the total bonus whether stipulated or

28-14    bid, which special payment shall constitute a special fund from

28-15    which the Board of Regents of The University of Texas System shall

28-16    defray the expenses of the sale, including the payment for the

28-17    services of the auctioneer crying the sale and the payment of the

28-18    general operating expenses in geologizing, oil field supervision,

28-19    and auditing oil and gas production of university lands, including

28-20    salaries and traveling expenses of persons employed by the board of

28-21    regents for those purposes, and for the purpose of acquiring,

28-22    constructing, and equipping a building in the city of Midland or

28-23    adjacent area to house the administrative staff of the offices of

28-24    University Lands, Geology and Land Agent, and such other related

28-25    agencies necessary for the management and development of university

28-26    lands in West Texas.]

28-27          [(d)  The Board of Regents of The University of Texas System

 29-1    may also direct the comptroller of The University of Texas System

 29-2    to transmit to the state treasurer for deposit to the credit of the

 29-3    permanent university fund unexpended balances remaining in the

 29-4    special fund after reserving a sufficient amount in it for the

 29-5    payment of current expenses as set out in Subsection (c) of this

 29-6    section.]

 29-7          [(e)  The highest successful bidder shall pay to the Board of

 29-8    Regents of The University of Texas System on the day the bid is

 29-9    accepted the full amount of bonus whether stipulated or bid and the

29-10    special fee.]

29-11          [Sec. 66.66.  WITHDRAWAL OF LANDS BEFORE BIDS RECEIVED.  The

29-12    board may withdraw  lands advertised for lease before the hour set

29-13    for receiving bids.]

29-14          [Sec. 66.67.  AWARD OF LEASE.  (a)  If  one of the bidders at

29-15    the sale at public auction has offered a reasonable and proper

29-16    price for  tract offered, not less than the price fixed by the

29-17    board, the land advertised may be leased for oil and gas purposes

29-18    under the terms of this subchapter and regulations the board may

29-19    prescribe, not inconsistent with the provisions of this subchapter.

29-20    All bids may be rejected by the board.]

29-21          [(b)  If the board determines that a satisfactory bid has

29-22    been offered for the oil and gas, it shall make an award to the

29-23    bidder offering the highest price, and a lease shall be executed by

29-24    the commissioner of the general land office.  A duplicate copy of

29-25    the lease shall be filed in the general land office.]

29-26          [Sec. 66.68.  PROVISIONS OF LEASE.  (a)  Each lease executed

29-27    under this subchapter shall contain, and each valid and subsisting

 30-1    oil and gas lease previously executed by the commissioner under the

 30-2    source statute for this subchapter, on the application of the

 30-3    lessee and payment of a sum of money equal to one year's annual

 30-4    rental under the lease, shall be amended by written instrument to

 30-5    contain, the provisions prescribed by this section.]

 30-6          [(b)  Each lease shall provide that the primary term of the

 30-7    lease, as determined by the board prior to the promulgation of the

 30-8    advertisement, shall in no case exceed 10 years.]

 30-9          [(c)  Each lease shall provide that if oil and/or gas is

30-10    being produced in paying quantities from the leased premises before

30-11    the termination of the primary term, such lease shall not terminate

30-12    but shall continue in force and effect as long as oil and/or gas is

30-13    being so produced.]

30-14          [(d)  Each lease shall provide that in the event production

30-15    of oil or gas on the leased premises, after once obtained, shall

30-16    cease for cause within 60 days before the expiration of the primary

30-17    term of such lease or at time or times thereafter, such lease shall

30-18    not terminate, if the lessee commences additional drilling or

30-19    reworking operations within 60 days thereafter, and such lease

30-20    shall remain in full force and effect so long as such operations

30-21    continue in good faith and in workmanlike manner, without

30-22    interruptions, totaling more than 60 days during  one such

30-23    operation; and if such drilling or reworking operations result in

30-24    the production of oil and/or gas, such lease shall remain in full

30-25    force and effect so long as oil or gas is produced therefrom in

30-26    paying quantities or payment of shut-in gas well royalty or

30-27    compensatory royalties is made as hereinafter provided in this

 31-1    subchapter.]

 31-2          [(e)  Each lease shall provide that if at the expiration of

 31-3    the primary term or at  time thereafter there is located on the

 31-4    leased premises a well or wells capable of producing oil or gas in

 31-5    paying quantities and such oil or gas is not produced for lack of

 31-6    suitable production facilities or a suitable market and such lease

 31-7    is not being otherwise maintained in force and effect, the lessee

 31-8    may pay as royalty $1,200 per annum for each well on the lease

 31-9    capable of producing oil or gas in paying quantities, such payment

31-10    to be made to the Board of Regents of The University of Texas

31-11    System at Austin, Texas.   Shut-in oil or gas royalty must be paid

31-12    on or before:  (1) the expiration of the primary term of the lease,

31-13    (2) 60 days after lessee ceases to produce oil or gas from the

31-14    leased premises, or (3) 60 days after lessee completes a drilling

31-15    and reworking operation in accordance with the lease provisions,

31-16    whichever date is later.  If such payment is made, the lease shall

31-17    be considered to be a producing lease and such shut-in royalty

31-18    payment shall extend the term of the lease for a period of one year

31-19    from the end of the primary term or from the first day of the month

31-20    next succeeding the month in which production ceased; and

31-21    thereafter if no suitable production facilities or suitable market

31-22    for such oil or gas exists, the lessee may extend the lease for

31-23    four additional and successive periods of one year each by the

31-24    payment of a like sum of money each year on or before the

31-25    expiration of the extended term.  Provided, however, that if, while

31-26    such lease is being maintained in force and effect by payment of

31-27    such shut-in royalty, oil or gas should be sold and delivered in

 32-1    paying quantities from a well situated within 1,000 feet of the

 32-2    leased premises and completed in the same producing reservoir or in

 32-3    case where drainage is occurring, the right to further extend the

 32-4    lease by such shut-in royalty payments shall cease, but such lease

 32-5    shall remain in force and effect for the remainder of the current

 32-6    one year period for which the shut-in royalty has been paid, and

 32-7    for four additional and successive periods of one year each by the

 32-8    payment by the lessee of compensatory royalty, at the royalty rate

 32-9    provided for in such university lease of the value at the well of

32-10    production from the well which is causing the drainage or which is

32-11    completed in the same producing reservoir and within 1,000 feet of

32-12    the leased premises; such compensatory royalty to be paid monthly

32-13    to the Board of Regents of The University of Texas System at

32-14    Austin, Texas, beginning on or before the last day of the month

32-15    next succeeding the month in which such oil or gas is sold and

32-16    delivered from the well situated within 1,000 feet of, or draining,

32-17    the leased premises and completed in the same producing reservoir;

32-18    provided further, that in the event such compensatory royalties

32-19    paid in 12-month period are in a sum less than the annual shut-in

32-20    gas well royalties provided for in this section, the lessee shall

32-21    pay an additional sum equal to the difference within 30 days from

32-22    the end of such 12-month period; provided further, that nothing

32-23    herein shall relieve the lessee of the obligation of reasonable

32-24    development, nor of the obligation to drill offset wells required

32-25    by Section 66.75 of this code.]

32-26          [(f)  Each lease shall provide that if, at the expiration of

32-27    the primary term, production of oil and/or gas has not been

 33-1    obtained in paying quantities on the leased premises but drilling

 33-2    operations are being conducted thereon in good faith and in good

 33-3    and workmanlike manner, the lessee may, on or before the expiration

 33-4    of the primary term, file with the Board of Regents of The

 33-5    University of Texas System a written application for a 30-day

 33-6    extension of such lease, such application to be accompanied by a

 33-7    payment to the Board of Regents of The University of Texas System

 33-8    of $7.50 per acre for each acre in the lease, and the Chairman of

 33-9    the Board of Regents of The University of Texas System or a

33-10    designee appointed by the Chairman shall, in writing, extend such

33-11    lease for a 30-day period from and after the expiration of the

33-12    primary term and so long thereafter as oil or gas is produced in

33-13    paying quantities from the premises; provided further, that the

33-14    lessee may, so long as such drilling operations are being conducted

33-15    in good faith, make like application and payment during  30-day

33-16    extended period for an additional extension of 30 days not to

33-17    exceed a combined total of 180 days; provided, however, lessee may,

33-18    so long as such drilling operations are being conducted in good

33-19    faith, make written application to the Board of Regents of The

33-20    University of Texas System on or before the expiration of the

33-21    initial extended period of 180 days for an additional extension of

33-22    180 days, such application to be accompanied by a payment to the

33-23    Board of Regents of The University of Texas System of $50 per acre

33-24    for each acre in the lease, and the Chairman of the Board of

33-25    Regents of The University of Texas System or a designee appointed

33-26    by the Chairman shall, in writing, extend such lease for an

33-27    additional 180-day period from and after the expiration of the

 34-1    initial extended period of 180 days, and so long thereafter as oil

 34-2    or gas is produced in paying quantities from the premises;

 34-3    provided, that no lease shall be extended under the provisions of

 34-4    this section for more than a total of 360 days from and after the

 34-5    expiration of the primary term unless production in paying

 34-6    quantities has been obtained.]

 34-7          [(g)  Each lease shall contain a provision enabling the

 34-8    board, at its election, to require that payment of royalty as

 34-9    stipulated in the lease be in kind.  Such option may be exercised

34-10    from time to time at the discretion of the board upon not less than

34-11    six months' notice to the lessee.  The board shall have all powers

34-12    necessary to negotiate and execute sales contracts or other

34-13    instruments necessary for the disposition of  royalty taken in

34-14    kind.  Such other reasonable provisions, not inconsistent with this

34-15    subchapter, as will facilitate the efficient and equitable payment

34-16    of royalty in kind may be included in this lease by the board.]

34-17          [Sec. 66.69.  LEASE:  ADDITIONAL PROVISIONS.  Each oil and

34-18    gas lease issued on university lands under this subchapter shall

34-19    include  additional provisions and regulations, not inconsistent

34-20    with the provisions of this subchapter, that the board may

34-21    prescribe to preserve the interest of the state and safeguard the

34-22    university funds.]

34-23          [Sec. 66.70.  COMPENSATORY ROYALTIES IN LIEU OF OFFSET WELLS.

34-24    (a)  Subject to the provisions of this section, the commissioner of

34-25    the general land office may execute agreements on behalf of the

34-26    permanent university fund that provide for the payment by

34-27    university land oil and gas lessees of compensatory royalty in lieu

 35-1    of drilling offset wells that may be required to protect a

 35-2    university oil and gas lease from drainage from a well or wells

 35-3    located on non-university lands or university lands leased at a

 35-4    lesser royalty situated within 1,000 feet of or draining the

 35-5    university-leased premises.]

 35-6          [(b)  Agreements providing for the payment of compensatory

 35-7    royalty must be approved by the board for lease of university

 35-8    lands.]

 35-9          [(c)  such agreement must be found by the commissioner and

35-10    the board for lease to be in the best interest of the state and

35-11    necessary to prevent economic waste.]

35-12          [(d)  Nothing in an agreement shall relieve the lessee of the

35-13    obligation of reasonable development or of the obligation to drill

35-14    offset wells as required by Section 66.75 of this code as to other

35-15    producing horizons.]

35-16          [(e)  Beginning on the date fixed in the agreement, the

35-17    lessee shall pay the compensatory royalty monthly to the Board of

35-18    Regents of The University of Texas System in Austin, Texas.]

35-19          [(f)  The agreement with respect to the interest of the state

35-20    shall remain in force and effect as long as oil and gas, or either

35-21    of them, is produced from a well located on university or

35-22    non-university acreage and draining the university-leased premises.]

35-23          [(g)  The agreement may contain other provisions the

35-24    commissioner and the board for lease deem necessary to protect the

35-25    interests of the permanent university fund.]

35-26          [(h)  The agreement shall provide that compensatory royalty

35-27    be paid at the royalty rate provided by the university lease and

 36-1    shall provide that compensatory royalty be paid on the market value

 36-2    at the well of production from the well located on non-university

 36-3    lands or university lands leased at a lesser royalty situated

 36-4    within 1,000 feet of or draining the university leased premises.]

 36-5          [Sec. 66.71.  PRORATED OR REDUCED PRODUCTION CONTRACTS.

 36-6    Whenever in the discretion of the board it is to the best interest

 36-7    of the university and its permanent fund that production from

 36-8    lease for a limited period of time should be prorated or reduced,

 36-9    the board may execute the necessary contract or contracts with the

36-10    lessee or lessees and their assignees to effectuate the same and to

36-11    carry out the intention of this subchapter.]

36-12          [Sec. 66.72.  EXTENSION OF PRODUCING LEASE.  If oil or gas is

36-13    discovered in paying quantities on  tract covered by a lease, then

36-14    the lease as to that tract shall remain in force as long as oil and

36-15    gas is produced in paying quantities from the tract, provided that

36-16    the other provisions of this subchapter are complied with by the

36-17    lessee.]

36-18          [Sec. 66.73.  ASSIGNMENT; RELINQUISHMENT.  (a)  rights

36-19    acquired may be assigned; provided, however, in order for an

36-20    assignment to be valid and effective, the assignment must be filed

36-21    in the county or counties in which the area is situated, and a

36-22    legible copy of the recorded assignment must be filed with the

36-23    Board of Regents of The University of Texas System, accompanied by

36-24    a filing fee of $30 for each lease assigned. If the copy of the

36-25    recorded assignment is filed with the Board of Regents of The

36-26    University of Texas System after the 90th day after the date on

36-27    which the assignment is recorded, the copy must be accompanied by

 37-1    the filing fee set by the board and by a late fee equal to the

 37-2    amount of the filing fee.]

 37-3          [(b)  rights to  lease and to  assigned portion thereof may

 37-4    be relinquished to the state at  time by having an instrument of

 37-5    relinquishment recorded in the county or counties in which the area

 37-6    relinquished is situated and an original certified copy filed with

 37-7    the Board of Regents of The University of Texas System, accompanied

 37-8    by $1 for each area relinquished and a filing fee of $5 for each

 37-9    lease involved in the relinquishment.]

37-10          [(c)  Such an assignment or relinquishment shall not relieve

37-11    the lease owner of past due obligation theretofore accrued thereon.]

37-12          [Sec. 66.74.  ROYALTY PAYMENTS; INSPECTION OF RECORDS.  (a)

37-13    Royalty as stipulated in the sale shall be paid to the Board of

37-14    Regents of The University of Texas System at Austin, Texas, for the

37-15    benefit of the university permanent fund as provided in this

37-16    section.]

37-17                [(1)  The board shall set by rule the date for making

37-18    royalty payments and for filing  reports, documents or other

37-19    records required to be filed by this section. However, the board

37-20    may not set the due date for royalty on oil before the fifth day of

37-21    the second month succeeding the month of production, and may not

37-22    set the due date for royalty on gas before the 15th day of the

37-23    second month succeeding the month of production.]

37-24                [(2)  Royalty payments shall be accompanied by:]

37-25                      [(A)  an affidavit of the owner, manager, or

37-26    other authorized agent completed in the form and manner required by

37-27    the Board of Regents of The University of Texas System and showing

 38-1    the gross amount and disposition of all oil and gas produced and

 38-2    the market value of the oil and gas;]

 38-3                      [(B)  a copy of all documents, records, or

 38-4    reports confirming the gross production, disposition, and market

 38-5    value, including gas meter readings, pipeline receipts, gas line

 38-6    receipts, and other checks or memoranda of amount produced and put

 38-7    into pipelines, tanks, pools, and gas lines or gas storage;]

 38-8                      [(C)  a check stub, schedule, summary, or other

 38-9    remittance advice showing by the assigned general land office lease

38-10    number the amount of royalty being paid on each lease; and]

38-11                      [(D)  other reports or records that the Board of

38-12    Regents of The University of Texas System may require to verify the

38-13    gross production, disposition, and market value.]

38-14                [(3)  The lessee has the responsibility for paying

38-15    royalties or having royalties paid by the date provided for payment

38-16    in this section.]

38-17                [(4)  If royalty is not paid when due, a penalty of one

38-18    percent shall be added to the unpaid amount due.  If the royalty is

38-19    not paid within seven days after the due date, a penalty of an

38-20    additional four percent of the royalty due is imposed.  If the

38-21    royalty is not paid within 30 days after the due date, a penalty of

38-22    an additional five percent is imposed.  The minimum penalty under

38-23    this subdivision is $25.  Penalty under this subdivision may not be

38-24    added in cases of title dispute as to the state's portion of the

38-25    royalty or to that portion of the royalty in dispute as to fair

38-26    market value.  Except as provided in Subsection (g), Section 66.68

38-27    of this code, royalty payments shall be made in cash, by a bank

 39-1    draft drawn on a state or national bank in Texas, by a post-office

 39-2    or express money order, or in  other form that the law may provide

 39-3    for making payments to the State Treasury and are payable to the

 39-4    Board of Regents of The University of Texas System.]

 39-5                [(5)  Copies of contracts for the sale or processing of

 39-6    gas and subsequent agreements and amendments to those contracts

 39-7    shall be filed with the Board of Regents of The University of Texas

 39-8    System within 30 days after the contracts, agreements, or

 39-9    amendments are made.  These contracts and agreements received by

39-10    the Board of Regents of The University of Texas System shall be

39-11    held in confidence by the Board of Regents of The University of

39-12    Texas System unless otherwise authorized by the lessee.]

39-13                [(6)  Interest shall accrue on delinquent royalties

39-14    beginning 60 days after the due date.  The annual interest rate on

39-15    delinquent royalties is 12 percent.  Interest accrued under this

39-16    subdivision shall be in addition to delinquency penalty accrued

39-17    under Subdivision (4) of this subsection.]

39-18                [(7)  The Board of Regents of The University of Texas

39-19    shall add a penalty of 25 percent to  delinquent royalties if the

39-20    delinquency is due to fraud or an intent to evade the provisions of

39-21    this subchapter on the part of the lessee or his agents, employees,

39-22    or assignees.]

39-23                [(8)  If report, affidavit, supporting document, or

39-24    other instrument required to be filed under this subsection is not

39-25    filed when due, a penalty accrues in the amount of $10 per document

39-26    or a higher amount established by the Board of Regents of The

39-27    University of Texas, for each 30-day period of delinquency or

 40-1    fractional part of that period.]

 40-2                [(9)  Collection of penalty and interest charges under

 40-3    this subsection are in addition to  rights, including forfeiture,

 40-4    that the board may exercise for failure to pay a royalty or to

 40-5    submit a report or other instrument when due.]

 40-6          [(b)  The books and accounts, receipt and discharges of all

 40-7    wells, tanks, pools, meters, pipelines, and all contracts and other

 40-8    records pertaining to the production, transportation, sale, and

 40-9    marketing of the oil and gas shall at all times be subject to

40-10    inspection and examination by the commissioner of the general land

40-11    office, the attorney general, the governor, or  member of the board

40-12    of regents, or the representative of either.]

40-13          [(c)  For purposes of Section 66.74(a)(3) of this code, a

40-14    royalty payment is timely made if, before the applicable due date,

40-15    the payment is deposited in a postpaid, properly addressed wrapper,

40-16    with a post office or official depository under the care and

40-17    custody of the United States Postal Service.]

40-18          [Sec. 66.75.  PROTECTION FROM DRAINAGE.  In every case where

40-19    the area in which the oil and gas sold shall be contiguous or

40-20    adjacent to land not university land, the acceptance of the bid and

40-21    the sale made thereby shall constitute an obligation on the lessee

40-22    to adequately protect the land leased from drainage from adjacent

40-23    lands.  In cases where the area in which the oil and gas is sold is

40-24    contiguous to other university lands leased or sold, at a lesser

40-25    royalty, the lessee shall likewise protect the state from drainage

40-26    from the land so leased or sold for a lesser royalty.  On failure

40-27    to protect the land from drainage, the sale and all rights

 41-1    thereunder may be forfeited by the board in the manner provided in

 41-2    this subchapter for forfeitures.]

 41-3          [Sec. 66.76.  FORFEITURE; OTHER REMEDIES; LIEN.  (a)  If the

 41-4    owner of the rights acquired under this subchapter fails or refuses

 41-5    to make the payment of  sum due thereon, either as rental or

 41-6    royalty on the production, within 30 days after same becomes due,

 41-7    or if the owner or his authorized agent makes  false return or

 41-8    false report concerning production, royalty, or drilling, or if the

 41-9    owner fails or refuses to drill  offset well or wells in good

41-10    faith, as required by his lease, or if the owner or his agent

41-11    refuses the proper authority access to the records and other data

41-12    pertaining to the operations under this subchapter, or if the owner

41-13    or his authorized agent fails or refuses to give correct

41-14    information to the proper authorities, or fails or refuses to

41-15    furnish the log of  well within 30 days after production is found

41-16    in paying quantities, or if  of the material terms of the lease are

41-17    violated, the lease is subject to forfeiture by the board by an

41-18    order entered upon the minutes of the board reciting the facts

41-19    constituting the default and declaring the forfeiture.]

41-20          [(b)  The board may have suit instituted for forfeiture

41-21    through the attorney general.]

41-22          [(c)  On proper showing by the forfeiting owner, within 30

41-23    days after the declaration of forfeiture, the lease may, at the

41-24    discretion of the board and on such terms as it may prescribe, be

41-25    reinstated.]

41-26          [(d)  In case of violation by the owner of the lease

41-27    contract, the remedy of the state by forfeiture is not the

 42-1    exclusive remedy, but suit for damages or specific performance, or

 42-2    both, may be instituted.]

 42-3          [(e)  The state shall have a first lien upon all oil and gas

 42-4    produced upon the leased area and upon all rigs, tanks, pipeline,

 42-5    telephone lines, and machinery and appliances used in the

 42-6    production and handling of oil and gas produced thereon, to secure

 42-7    amount due from the owner of the lease.]

 42-8          [Sec. 66.77.  FILING OF RECORDS.  All surveys, files,

 42-9    records, copies of lease contracts, and all other records

42-10    pertaining to the leases hereby authorized, shall be filed in the

42-11    general land office and constitute archives thereof and copies of

42-12    such documents shall also be filed with the Board of Regents of The

42-13    University of Texas System.            All existing documents now

42-14    on file in the general land office shall be transferred by copies

42-15    to the Board of Regents of The University of Texas System.]

42-16          [Sec. 66.78.  PAYMENTS; DISPOSITION.  Payments under this

42-17    subchapter shall be made to the Board of Regents of The University

42-18    of Texas System at Austin, Texas, who shall:]

42-19                [(1)  transmit to the state treasurer for deposit to

42-20    the credit of the permanent university fund all bonus, rental, and

42-21    royalty payments;]

42-22                [(2)  transmit to the state treasurer for deposit to

42-23    the credit of the available university fund all filing, assignment,

42-24    and relinquishment fees, and all other payments except those

42-25    described in Subdivision (3) of this section; and]

42-26                [(3)  retain the one percent fee payment prescribed by

42-27    Section 66.65(c) of this code, for disbursement by the comptroller

 43-1    of The University of Texas System for the purposes authorized by

 43-2    Section 66.65(c) of this code.]

 43-3          [Sec. 66.79.  FORMS; CONTRACTS; REGULATIONS.  The board shall

 43-4    adopt forms and contracts and shall promulgate rules and

 43-5    regulations, not inconsistent with the terms of this subchapter,

 43-6    that in its judgment will best effectuate the purpose of this

 43-7    subchapter and will best protect the university, its lands, and the

 43-8    income from the lands.]

 43-9          [Sec. 66.80.  EXPENSES OF EXECUTING THIS SUBCHAPTER.  The

43-10    expenses of executing the provisions of this subchapter shall be

43-11    paid monthly by warrants drawn by the comptroller on the state

43-12    treasury.]

43-13          [Sec. 66.81.  FINANCIAL REPORT REQUIRED.  The board shall

43-14    file annually with the governor and the presiding officer of each

43-15    house of the legislature a complete and detailed written report

43-16    accounting for all funds received and disbursed by the board during

43-17    the preceding year.  The form of the annual report shall be that

43-18    provided in the General Appropriations Act.  The report shall be

43-19    distributed with the report required by Section 66.05 of this code.]

43-20          [Sec. 66.82.  AUDIT.  The financial transactions of the board

43-21    are subject to audit by the state auditor in accordance with

43-22    Chapter 321, Government Code.]

43-23          [Sec. 66.83.  POLICIES ON PUBLIC HEARINGS.  The board shall

43-24    develop and implement policies which will provide the public with a

43-25    reasonable opportunity to appear before the board and to speak on

43-26    issue under the jurisdiction of the board.]

43-27          [Sec. 66.84.  MARGINAL PROPERTY ROYALTY RATES.  (a)  In this

 44-1    section:]

 44-2                [(1)  "Barrel of oil equivalent" means 6,000 cubic feet

 44-3    of natural gas per 42-gallon barrel of crude oil or a volume of gas

 44-4    with a minimum heating value of 6,000,000 British thermal units

 44-5    (6,000 Mbtu), whichever is greater.]

 44-6                [(2)  "Lease" or "leases" means an oil and gas lease

 44-7    issued or approved by the state that is valid and in force on or

 44-8    after the effective date of this section.]

 44-9                [(3)  "Qualifying property" means land subject to a

44-10    lease issued under this subchapter.]

44-11                [(4)  "Qualifying reservoir" means a reservoir having

44-12    an average daily per well production equal to or less than 15

44-13    barrels of oil equivalent during a period established by the board

44-14    by rule and underlying either:]

44-15                      [(A)  a qualifying property; or]

44-16                      [(B)  a pooled unit including a qualifying

44-17    property.]

44-18                [(5)  "Reservoir" has the same meaning as "common

44-19    reservoir" as defined in Section 86.002, Natural Resources Code.]

44-20          [(b)  The board may provide by rule that the royalty rate for

44-21    qualifying reservoirs may be reduced to not less than one-sixteenth

44-22    (6.25 percent).  In determining whether to grant a reduction in the

44-23    royalty rate, the board may consider whether the qualifying

44-24    property is being operated efficiently, including whether the

44-25    property is pooled or has reasonable potential for the application

44-26    of secondary or tertiary recovery techniques.]

44-27          [(c)  If a qualifying reservoir for which royalty rate

 45-1    reduction is sought under this section is included in a unit

 45-2    subject to the authority of the board, the board may modify the

 45-3    terms and conditions of the unit as a condition of approving a

 45-4    reduction in the royalty rate.]

 45-5          SECTION 2.  Sections 52.291, 52.292, 52.293, 52.294 and

 45-6    52.295, Natural Resources Code, are repealed.

 45-7          SECTION 3.  The changes in law made by this Act in Sections

 45-8    66.66, 66.67, 66.69, 66.71, 66.72, 66.73, and 66.76, Education

 45-9    Code, apply only to leases awarded on and after January 1, 1998,

45-10    except as provided by Section 66.70.   Leases awarded prior to that

45-11    date shall be governed by the law in effect when the lease was

45-12    issued and the former law is continued in effect for this purpose

45-13    only.

45-14          SECTION 4.  This Act takes effect January 1, 1998.

45-15          SECTION 5.  EMERGENCY.  The importance of this legislation

45-16    and the crowded condition of the calendars in both houses create an

45-17    emergency and an imperative public necessity that the

45-18    constitutional rule requiring bills to be read on three several

45-19    days in each house be suspended, and this rule is hereby suspended.