By:  Brown                                            S.B. No. 1354

                                A BILL TO BE ENTITLED

                                       AN ACT

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

 1-2     management, and administration of certain public lands, and related

 1-3     fees and penalties.

 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-5           SECTION 1.  Subchapter D, Chapter 66, Education Code, is

 1-6     amended to read as follows:

 1-7             SUBCHAPTER D.  BOARD FOR LEASE OF UNIVERSITY LANDS

 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 10 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,

 2-1     and marketing activities on the leased premises, whether or not the

 2-2     operator holds an interest in the lease.

 2-3                 (6)  "Oil and gas" means crude oil, natural gas, and

 2-4     all substances, including other hydrocarbons, produced in

 2-5     association with crude oil and natural gas.

 2-6                 (7)  "University lands" means land dedicated to the

 2-7     permanent university fund.

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

 2-9     assigned a well number by the state agency having regulatory

2-10     jurisdiction over the production of oil and gas.  A single wellbore

2-11     may contain more than one well.

2-12           Sec. 66.62.  BOARD FOR LEASE OF UNIVERSITY LANDS.  (a)  The

2-13     board is composed of the commissioner, two members of the board of

2-14     regents selected by that board, and one member of the board of

2-15     regents of The Texas A&M University System selected by that board.

2-16     If a regent member is unable to attend a meeting of the board, the

2-17     presiding officer of the board of regents of the applicable system

2-18     may appoint another member of that board of regents as a substitute

2-19     member of the board to attend the meeting that the regular regent

2-20     member is unable to attend.  The substitute regent member shall

2-21     exercise all the powers, duties, and responsibilities of the absent

2-22     regent member during the conduct of the meeting for which he was

2-23     appointed.  A substitute regent member is subject to the provisions

2-24     of this subchapter.

2-25           (b)  Members of the board, other than the commissioner, serve

 3-1     two-year terms expiring February 1 of each odd-numbered year.

 3-2     Regent members continue to serve until a successor is appointed and

 3-3     qualified.

 3-4           (c)  The commissioner is chairman of the board.

 3-5           (d)  A person who is directly or indirectly employed by, or

 3-6     is an officer or employee of a person or entity actively engaged in

 3-7     the exploration for or production of oil and gas, other than as a

 3-8     landowner or royalty owner, may not be a regent member.

 3-9           (e)  An officer, employee, or paid consultant of a trade

3-10     association in the oil and gas industry may not be a regent member

3-11     or employee of the board, nor may a person who cohabits with or is

3-12     the spouse of an officer, managerial employee, or paid consultant

3-13     of a trade association in the oil and gas industry be a regent

3-14     member of the board or a non-classified employee of the board.

3-15           (f)  A person who is required to register as a lobbyist under

3-16     Chapter 305, Government Code, by virtue of his activities for

3-17     compensation in or on behalf of a profession related to the

3-18     operation of the board, may not serve as a regent member of the

3-19     board or act as the general counsel to the board.

3-20           (g)  The board of regents of the university system appointing

3-21     a regent member may remove the regent member from the board if that

3-22     member:

3-23                 (1)  does not have at the time of appointment the

3-24     qualifications required by this section for appointment to the

3-25     board;

 4-1                 (2)  does not maintain during the service on the board

 4-2     the qualifications required by this section for appointment to the

 4-3     board;

 4-4                 (3)  violates a prohibition established by Subsection

 4-5     (d), (e), or (f);

 4-6                 (4)  is unable to discharge his duties for a

 4-7     substantial portion of the term for which he was appointed because

 4-8     of illness or disability; or

 4-9                 (5)  is absent from more than one-half of the regularly

4-10     scheduled board meetings which the member is eligible to attend

4-11     during a calendar year, except when the absence is excused by

4-12     majority vote of the board.

4-13           (h)  The board is exempt from the provisions of Chapter 2001,

4-14     Government Code.

4-15           Sec. 66.63.  CERTAIN BOARD ACTIONS.  (a)  A majority of the

4-16     members of the board have the power to act for the board on a

4-17     matter before the board.  Two members of the board have the power

4-18     to award leases issued on a form of lease previously approved by a

4-19     majority of the board.

4-20           (b)  The validity of an action of the board is not affected

4-21     because it was taken when a ground for removal of a regent member

4-22     of the board existed.  A regent member continues to serve until

4-23     removed under Section 66.62(g).

4-24           Sec. 66.64.  POWERS AND DUTIES OF THE BOARD.  (a)  The board

4-25     shall in a manner consistent with this subchapter:

 5-1                 (1)  lease university lands for oil and gas exploration

 5-2     and development on terms, at times, and in the manner it may

 5-3     determine;

 5-4                 (2)  contract for the sale or other disposition of oil

 5-5     and gas royalties taken in kind;

 5-6                 (3)  adopt rules and policies for the administration

 5-7     and enforcement of this subchapter and leases issued under this

 5-8     subchapter;

 5-9                 (4)  set fees and penalties for the administration and

5-10     enforcement of this subchapter;

5-11                 (5)  set the terms of a contract for the development of

5-12     university lands for oil and gas;

5-13                 (6)  approve agreements that commit the royalty

5-14     interest in university lands on terms acceptable to the board; and

5-15                 (7)  exercise other powers and authority and perform

5-16     other duties as may be reasonably necessary to administer and

5-17     enforce the provisions of this subchapter.

5-18           (b)  The board shall hold meetings and keep records of its

5-19     proceedings in a manner consistent with the requirements of Chapter

5-20     551, Government Code.  The board shall develop and implement

5-21     policies which provide the public with a reasonable opportunity to

5-22     appear before the board, to speak on an issue under the board's

5-23     jurisdiction, or be heard with respect to a declaration of

5-24     forfeiture.

5-25           (c)  Except as otherwise provided in this subchapter, the

 6-1     records of the board are subject to the requirements of Chapter

 6-2     552, Government Code.

 6-3           (d)  The financial transactions of the board are subject to

 6-4     audit by the state auditor in accordance with Chapter 321,

 6-5     Government Code.

 6-6           (e)  The board may delegate to the staff provided to it by

 6-7     the board of regents any duty except as prohibited by law.

 6-8           (f)  The board shall appoint a secretary.

 6-9           Sec. 66.65.  BOARD STAFF; EXCHANGE OF INFORMATION WITH STATE

6-10     AGENCIES.  (a)  The board of regents shall employ and compensate

6-11     personnel to assist the board in the performance of its powers and

6-12     duties under this subchapter or may assign employees of The

6-13     University of Texas System to those duties.

6-14           (b)  The members of the board, personnel and counsel employed

6-15     or assigned to assist the board, the board of regents, staff of The

6-16     University of Texas System, the commissioner and staff of the

6-17     General Land Office, the board of regents and staff of The Texas

6-18     A&M University System, the office of the comptroller, the office of

6-19     the attorney general, and any other agency or official of the state

6-20     with a reasonable business interest in state or university lands,

6-21     minerals, or resources may consult with each other and exchange

6-22     information related to the administration of leases, collection and

6-23     disposition of royalties, whether in cash or in kind, and any other

6-24     matter related to the lease, sale, or production of, or the

6-25     exploration for, oil, gas, or any other mineral or resource,

 7-1     including geothermal, wind, and solar energy on state or university

 7-2     lands.  The information so exchanged and consultations and related

 7-3     communications shall be or shall remain confidential and shall be

 7-4     privileged from discovery in the same manner and to the same extent

 7-5     as if the persons consulted, which includes counsel, were members

 7-6     of the same agency.  Sections 52.134 and 52.140, Natural Resources

 7-7     Code, shall not prohibit the consultations or exchange of

 7-8     information provided for by this section; however, each agency

 7-9     receiving such confidential information is required to keep the

7-10     information confidential under Sections 52.134 and 52.140, Natural

7-11     Resources Code, as appropriate, and to take all reasonable actions

7-12     necessary to protect the confidential and privileged nature of the

7-13     information.

7-14           Sec. 66.66.  LEASE SALES.  (a)  Oil and gas leases shall be

7-15     offered at public auction or by sealed bid, or through a

7-16     combination of public auction and sealed bid, as the board elects.

7-17     Contracts for development may be awarded in the same manner.

7-18           (b)  The board shall publish notice that the board will

7-19     receive bids for oil and gas leases or contracts for development of

7-20     oil and gas in two or more daily newspapers in this state and in

7-21     other publications as the board may choose.

7-22           (c)  The notice shall be published at least 30 days before

7-23     the date the bids will be opened.

7-24           (d)  The notice shall state that land is to be offered for

7-25     lease or a contract for development and that a person may obtain a

 8-1     publication from The University of Texas System offices that

 8-2     describes the land offered and the minimum terms.

 8-3           (e)  The board of regents may solicit and include advertising

 8-4     in the publication describing a lease sale.  Fees paid for

 8-5     advertising shall be deposited into the special fee account

 8-6     established by Subsection (g) and are available for the same

 8-7     purposes as described in that subsection.

 8-8           (f)  The board may withdraw any lands advertised for lease

 8-9     before the hour set for receiving bids.

8-10           (g)  Each bid is subject to the payment of a special fee

8-11     equal to one and one-half percent of the total bonus whether

8-12     stipulated or bid, which special payment shall constitute a special

8-13     fund from which the board of regents shall defray the expenses of

8-14     the sale, including the payment of the general operating expenses

8-15     for geology, engineering, field inspection, and auditing oil and

8-16     gas production of university lands and including salaries and

8-17     traveling expenses of persons employed by the board of regents for

8-18     those purposes.

8-19           (h)  The board of regents may direct the comptroller of The

8-20     University of Texas System to transmit to the state comptroller for

8-21     deposit to the credit of the permanent university fund unexpended

8-22     balances remaining in the special fee account after reserving a

8-23     sufficient amount in it for the payment of current expenses as set

8-24     out in Subsection (g).

8-25           Sec. 66.67.  LEASE TERMS.  (a)  The oil and gas lease for

 9-1     each tract shall be offered for a bonus to be determined by high

 9-2     bid in addition to the stipulated royalty or for a stipulated bonus

 9-3     and a royalty to be determined by high bid.  Each tract shall be

 9-4     offered separately and the minimum bonus or royalty, depending on

 9-5     the basis for the bid, and the length of the primary term for each

 9-6     tract shall be set out in the official publication describing the

 9-7     tracts and terms.

 9-8           (b)  Except as otherwise provided by law, the minimum royalty

 9-9     rate shall be one-eighth of the oil or gas produced or the value

9-10     thereof.

9-11           (c)  The primary term of a lease shall not exceed 10 years.

9-12           (d)  Each lease shall be subject to the provisions of this

9-13     subchapter and rules promulgated by the board.

9-14           (e)  The successful bidder shall pay to the board of regents

9-15     on the day the bid is accepted the full amount of bonus, whether

9-16     stipulated or bid, and the special fee in the form of payment

9-17     specified by the board.

9-18           Sec. 66.68.  MARGINAL PROPERTY ROYALTY RATES.  (a)  In this

9-19     section:

9-20                 (1)  "Barrel of oil equivalent" means 6,000 cubic feet

9-21     of natural gas per 42-gallon barrel of crude oil or a volume of gas

9-22     with a minimum heating value of 6,000,000 British thermal units

9-23     (6,000 Mbtu), whichever is greater.

9-24                 (2)  "Lease" or "leases" means an oil and gas lease

9-25     issued or approved by the board that is valid and in force on or

 10-1    after the effective date of this section.

 10-2                (3)  "Qualifying property" means land subject to a

 10-3    lease issued under this subchapter.

 10-4                (4)  "Qualifying reservoir" means a reservoir having an

 10-5    average daily per well production equal to or less than 15 barrels

 10-6    of oil equivalent during a period established by the board by rule

 10-7    and underlying either:

 10-8                      (A)  a qualifying property; or

 10-9                      (B)  a pooled unit including a qualifying

10-10    property.

10-11                (5)  "Reservoir" has the same meaning as "common

10-12    reservoir" as defined by Section 86.002, Natural Resources Code.

10-13          (b)  The board may provide by rule that the royalty rate for

10-14    qualifying reservoirs may be reduced to not less than one-sixteenth

10-15    (6.25 percent).  In determining whether to grant a reduction in the

10-16    royalty rate, the board may consider whether the qualifying

10-17    property is being operated efficiently, including whether the

10-18    property is pooled or has reasonable potential for the application

10-19    of secondary or tertiary recovery techniques.

10-20          (c)  If a qualifying reservoir for which royalty rate

10-21    reduction is sought under this section is included in a unit

10-22    subject to the authority of the board, the board may modify the

10-23    terms and conditions of the unit as a condition of approving a

10-24    reduction in the royalty rate.

10-25          Sec. 66.69.  AWARD OF LEASE.  (a)  Except as otherwise

 11-1    provided in this subchapter, the board shall award a lease for each

 11-2    tract to the person offering the highest bid that includes the

 11-3    terms adopted by the board and consistent with this subchapter.

 11-4          (b)  The board may reject all bids for one or more tracts.

 11-5          (c)  The commissioner shall execute a lease awarded by the

 11-6    board in conformance with this subchapter.

 11-7          Sec. 66.70.  ADDITIONAL LEASE PROVISIONS.  An oil and gas

 11-8    lease issued under this subchapter shall include the provisions

 11-9    required by this subchapter and additional provisions not

11-10    inconsistent herewith that the board may adopt to preserve the

11-11    interests of the state.  On submission of an application by all

11-12    lessees under the lease in the form required by the board and

11-13    payment of any applicable fee set by the board, the board may amend

11-14    a lease that does not include provisions required by Sections

11-15    66.71, 66.72, and 66.73 to include those provisions in the form

11-16    adopted by the board at the time the lease is amended.

11-17          Sec. 66.71.  LEASE PROVISIONS.  (a)  An oil and gas lease

11-18    issued by the board shall provide for payment of a delay rental.

11-19    During the primary term of the lease, the lease shall terminate on

11-20    the anniversary date of the lease unless:

11-21                (1)  oil or gas is being produced in paying quantities

11-22    from the leased premises;

11-23                (2)  drilling operations are being conducted on the

11-24    leased premises; or

11-25                (3)  the lessee pays timely in the manner provided in

 12-1    the lease the amount of delay rental stated in the lease.

 12-2          (b)  An oil and gas lease issued by the board shall provide

 12-3    that if oil or gas is being produced in paying quantities from the

 12-4    leased premises at the end of the primary term, the lease shall not

 12-5    terminate but shall continue in force and effect as long as oil or

 12-6    gas is produced in paying quantities.  The board may adopt rules

 12-7    specifying when a lease will be considered to be producing in

 12-8    paying quantities.

 12-9          (c)  An oil and gas lease issued by the board shall provide

12-10    that royalty may be taken in kind at any time and from time to time

12-11    at the discretion of the board in the manner provided in this

12-12    subchapter.

12-13          Sec. 66.72.  CESSATION OF PRODUCTION; DRILLING AND REWORKING.

12-14    An oil and gas lease issued under this subchapter shall provide

12-15    that the term of the lease may be extended by drilling and

12-16    reworking operations in the event of the cessation of production,

12-17    on terms as the board may adopt.

12-18          Sec. 66.73.  SHUT-IN ROYALTY.  An oil and gas lease issued

12-19    under this subchapter shall provide for the extension of the lease

12-20    by the payment of shut-in royalties on terms as the board may

12-21    adopt.

12-22          Sec. 66.74.  LEASE EXTENSION OR SUSPENSION.  (a)  At the

12-23    expiration of the primary term of a lease, if production of oil or

12-24    gas has not been obtained on the leased premises, but drilling

12-25    operations are being conducted in good faith and in a good and

 13-1    workmanlike manner, the lessee may apply in writing to extend the

 13-2    lease for a period of 30 days.  The application shall be filed with

 13-3    the board of regents on or before the expiration of the primary

 13-4    term.

 13-5          (b)  The applicant shall submit with the application a fee in

 13-6    an amount set by the board of not less than $7.50 for each acre in

 13-7    the lease requested to be extended.

 13-8          (c)  If the commissioner determines that the conditions of

 13-9    this section have been met, the commissioner, or a designee

13-10    appointed by the commissioner, shall execute a written extension as

13-11    provided by this section.

13-12          (d)  As long as drilling operations are being conducted in

13-13    good faith and in a good and workmanlike manner, additional

13-14    extensions of 30 days each may be granted up to an aggregate of 360

13-15    days.  The lessee must submit a written application and payment on

13-16    or before the last day of the extended primary term.  The payment

13-17    for each additional 30-day extension shall be in an amount set by

13-18    the board of not less than $7.50 for each acre in the lease.

13-19          (e)  The board may elect to suspend a lease and all of the

13-20    conditions and covenants contained in the lease if there is a

13-21    legitimate dispute regarding the validity of the lease.  The board

13-22    may rescind the suspension at any time, in which event the lease

13-23    shall resume as of the date the suspension is rescinded and shall

13-24    continue for the remainder of the period specified in the lease as

13-25    the primary term, or, if the primary term ended prior to the

 14-1    suspension, the lessee shall have 60 days to commence production or

 14-2    drilling and reworking operations.

 14-3          Sec. 66.75.  PROTECTION FROM DRAINAGE; COMPENSATORY

 14-4    ROYALTIES.  (a)  The lessee shall protect the leased premises from

 14-5    drainage.  The lease may contain express terms regarding drainage

 14-6    as the board may adopt.

 14-7          (b)  Subject to the provisions of this section, the

 14-8    commissioner may execute agreements that provide for the payment of

 14-9    compensatory royalty in lieu of drilling offset wells that may be

14-10    required to protect the leased premises from drainage from a well

14-11    or wells located on non-university lands, or university lands

14-12    leased at a lesser royalty, situated within 1,000 feet of or

14-13    draining the leased premises.

14-14          (c)  Agreements providing for the payment of compensatory

14-15    royalty must be approved by the board.

14-16          (d)  Agreements providing for the payment of compensatory

14-17    royalty must be found by the commissioner and the board to be in

14-18    the best interest of the state.

14-19          (e)  Nothing in an agreement for the payment of compensatory

14-20    royalty shall relieve the lessee of the obligation of reasonable

14-21    development or of the obligation to drill offset wells, obtain

14-22    suitable regulatory relief, propose appropriate pooling or

14-23    unitization arrangements, or conduct other activities to protect

14-24    the leased premises from drainage as to other producing horizons.

14-25          (f)  An agreement for the payment of compensatory royalty

 15-1    shall provide that compensatory royalty be paid at the royalty rate

 15-2    provided in the lease and shall provide that compensatory royalty

 15-3    be paid on the market value of production from the well located on

 15-4    non-university lands or university lands leased at a lesser royalty

 15-5    situated within 1,000 feet of or draining the leased premises.

 15-6          Sec. 66.76.  ASSIGNMENT; RELINQUISHMENT.  (a)  Rights

 15-7    acquired in a lease or contract for development issued under this

 15-8    subchapter may be assigned; provided, however, for an assignment to

 15-9    be valid and effective, the assignment must be filed in the county

15-10    or counties in which the leased premises are situated and a legible

15-11    copy of the recorded assignment must be filed with the board of

15-12    regents within the time set by the board, accompanied by a filing

15-13    fee and any applicable penalty for late filing set by the board for

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

15-15    of regents.

15-16          (b)  Rights to a lease or to an assigned portion thereof may

15-17    be relinquished at any time by having an instrument of

15-18    relinquishment or release recorded in the county or counties in

15-19    which the area relinquished is situated and a legible copy of the

15-20    recorded instrument filed with the board of regents, accompanied by

15-21    a filing fee set by the board.

15-22          (c)  An assignment or relinquishment of a lease or a portion

15-23    thereof or an interest in a lease shall not relieve the lessee of

15-24    accrued obligations, including the payment of royalty, penalty, or

15-25    interest, and the lessee shall remain liable therefor.  All

 16-1    successors in interest, whether acquiring a lease or an interest in

 16-2    a lease by assignment or otherwise, shall take the lease or

 16-3    interest subject to all outstanding obligations and shall be liable

 16-4    for those obligations.

 16-5          (d)  In the enforcement of lease obligations, the board and

 16-6    the board of regents shall be entitled to rely on the state of

 16-7    title reflected by the records of the board of regents.

 16-8          Sec. 66.77.  ROYALTY PAYMENTS AND REPORTS.  (a)  Royalty as

 16-9    stipulated in the lease and all other amounts due under this

16-10    subchapter shall be paid to the board of regents at Austin, Travis

16-11    County, Texas.  The lessee of record in the records of the board of

16-12    regents shall be responsible for making or causing to be made all

16-13    payments required by this subchapter at the required times and in

16-14    the form and manner determined by the board of regents or otherwise

16-15    required by law.

16-16          (b)  The board shall set by rule the date for making royalty

16-17    payments and for filing any reports, documents, or other records

16-18    required to be filed by this section.  The date set by the board

16-19    must be on or after the fifth day of the second month succeeding

16-20    the month of production of oil and on or after the 15th day of the

16-21    second month succeeding the month of production of gas.

16-22          (c)  A royalty payment is timely made if the payment is

16-23    deposited in a postpaid, properly addressed wrapper, with a post

16-24    office or official depository under the care and custody of, and

16-25    postmarked by, the United States Postal Service before the

 17-1    applicable due date.

 17-2          (d)  The lessee shall provide to the board of regents with

 17-3    each royalty payment:

 17-4                (1)  an affidavit of the owner, manager, or other

 17-5    authorized agent completed in the form and manner required by the

 17-6    board of regents and showing the gross amount and disposition of

 17-7    all oil and gas produced and the market value of the oil and gas,

 17-8    the number assigned by the Railroad Commission of Texas, and other

 17-9    information as may be required by the board of regents;

17-10                (2)  a purchase statement or other document showing the

17-11    price at which the oil and gas was sold;

17-12                (3)  a check stub, schedule, summary, or other

17-13    remittance advice showing by the assigned lease number the amount

17-14    of royalty being paid on each lease; and

17-15                (4)  other reports or records that the board of regents

17-16    may require to identify the well and lease and verify the gross

17-17    production, disposition, and market value.

17-18          (e)  The board of regents may require the lessee and a person

17-19    with whom the lessee deals, including an affiliate, in connection

17-20    with the production, transportation, marketing, treatment,

17-21    processing, or sale of the oil and gas, to provide reports or other

17-22    information as the board of regents may consider necessary to

17-23    determine that royalty has been correctly paid.

17-24          (f)  The board of regents may implement such practices and

17-25    procedures with regard to accounting for royalty payments as it may

 18-1    determine to be in the best interest of the state.

 18-2          Sec. 66.78.  INTEREST AND PENALTIES.  (a)  If royalty is not

 18-3    paid when due, a penalty of one percent shall be added to the

 18-4    unpaid amount due.  If the royalty is not paid within seven days

 18-5    after the due date, a penalty of an additional four percent of the

 18-6    royalty due is imposed.  If the royalty is not paid within 30 days

 18-7    after the due date, a penalty of an additional five percent is

 18-8    imposed.  The minimum penalty under this subsection is $25 or the

 18-9    minimum penalty in excess thereof set by the board.  The board

18-10    shall not add a penalty under this subsection in cases of title

18-11    dispute as to the state's portion of the royalty or to that portion

18-12    of the royalty in dispute as to fair market value.

18-13          (b)  Interest shall accrue on delinquent royalties beginning

18-14    on the 61st day after the due date.  The annual interest rate on

18-15    delinquent royalties is 12 percent.  Interest accrued under this

18-16    subsection shall be in addition to any delinquency penalty due

18-17    under this section.

18-18          (c)  The board of regents shall add a penalty of 25 percent

18-19    to delinquent sums due under this subchapter if the board

18-20    determines that the delinquency is due to fraud or an intent to

18-21    evade the provisions of this subchapter on the part of the lessee

18-22    or the lessee's agents, employees, or assignees.

18-23          (d)  If a report, affidavit, supporting document, or other

18-24    instrument required to be filed under Section 66.77 or Section

18-25    66.80 is not filed when due, a penalty accrues in the amount set by

 19-1    the board but not less than $10 per document for each 30-day period

 19-2    of delinquency or fractional part thereof.

 19-3          (e)  Collection of penalty and interest charges under this

 19-4    section are in addition to any rights, including forfeiture, that

 19-5    the board or the board of regents may exercise for failure to pay a

 19-6    royalty or to submit a report or other instrument when due.

 19-7          (f)  The board may provide by rule procedures and standards

 19-8    for reduction of interest charged or penalties assessed under this

 19-9    subchapter or other interest or penalties assessed relating to

19-10    unpaid or delinquent royalties or other amounts due.

19-11          Sec. 66.79.  PAYMENT OF ROYALTY IN KIND.  (a)  An oil or gas

19-12    royalty due under a lease on university lands shall be paid in kind

19-13    at the discretion of the board.

19-14          (b)  The option to take royalty in kind or to take cash

19-15    royalties may be exercised by the board at any time or from time to

19-16    time on not less than 60 days' notice to the lessee.

19-17          (c)  The board shall enter into contracts or other

19-18    instruments or agreements to dispose of the portion of the royalty

19-19    taken in kind, which may include contracts for sale,

19-20    transportation, or storage of the oil or gas.  The commissioner

19-21    shall execute contracts approved by the board under this section

19-22    that are consistent with applicable law.

19-23          (d)  The board of regents may enter into insurance contracts

19-24    or other agreements to secure or guarantee payment of contracts or

19-25    other instruments or agreements to dispose of the portion of the

 20-1    royalty taken in kind, including contracts for sale,

 20-2    transportation, and storage.

 20-3          (e)  If the board has elected to take royalty in kind, then

 20-4    delivery of the correct amount of oil or gas by the lessee shall

 20-5    satisfy the lessee's obligation for payment of the royalty due

 20-6    under the lease.  This section shall not be construed to surrender

 20-7    or in any way affect the right of the board of regents under

 20-8    existing or future leases to receive royalty on the basis of market

 20-9    value of production not taken in kind.

20-10          Sec. 66.80.  RECORDS.  (a)  The lessee shall provide to the

20-11    board of regents a copy of every contract for the sale or

20-12    processing of oil or gas and any subsequent agreement and amendment

20-13    thereto, together with a summary in the form adopted by the board

20-14    of regents, within 30 days after the contract, agreement, or

20-15    amendment is made.

20-16          (b)  The books and accounts, receipts, and discharges of all

20-17    wells, tanks, pools, meters, and pipelines, and all contracts and

20-18    other records pertaining directly or indirectly to the production,

20-19    transportation, sale, treatment, processing, or marketing of oil

20-20    and gas produced from university lands, or relevant to establishing

20-21    the volume or value of the production, whether the records are held

20-22    by or are in the possession of the lessee or a third party dealing

20-23    with the lessee, shall at all times be subject to inspection and

20-24    copying by the commissioner, the board, the board of regents, the

20-25    attorney general, the comptroller, the governor, or the

 21-1    representative of any of them.  The board or the board of regents

 21-2    may, if necessary, compel the production of these records by

 21-3    subpoena enforceable throughout the state.

 21-4          Sec. 66.81.  AUDIT INFORMATION CONFIDENTIAL.  (a)  All

 21-5    documents and information secured, derived, or obtained during the

 21-6    course of an inspection or examination of books, accounts, reports,

 21-7    or other records of the lessee or a third party, as provided by

 21-8    this subchapter, and contracts, agreements, or amendments provided

 21-9    to the board of regents under Section 66.80(a) are confidential and

21-10    may not be used publicly, opened for public inspection, or

21-11    disclosed, except for information set forth in a lien filed under

21-12    this chapter and except as permitted under Subsections (c) and (d).

21-13    This section shall not apply to records or information provided by

21-14    the lessee under Section 66.77.

21-15          (b)  Documents and information made confidential in this

21-16    section shall not be subject to subpoena directed to the board, the

21-17    board of regents, the commissioner, the attorney general, or the

21-18    governor except in a judicial or administrative proceeding in which

21-19    the state and a person with an equitable or legal interest in the

21-20    lease or land to which the information relates are parties.

21-21          (c)  The board, the board of regents, or the attorney general

21-22    may use documents and information made confidential by the

21-23    provisions of this section and contracts made confidential by this

21-24    subchapter to enforce the provisions of this subchapter or may

21-25    authorize their use in judicial or administrative proceedings in

 22-1    which this state is a party or may authorize their examination by

 22-2    employees, agents, or contractors of the board of regents or the

 22-3    state auditor for audit purposes.

 22-4          (d)  This section does not prohibit:

 22-5                (1)  the delivery of documents and information made

 22-6    confidential by this section to the lessee or its successor,

 22-7    receiver, executor, guarantor, administrator, assignee, or

 22-8    representative;

 22-9                (2)  the publication of statistics classified to

22-10    prevent the identification of a particular audit or items in a

22-11    particular audit;

22-12                (3)  the release of documents or information otherwise

22-13    available to the public;

22-14                (4)  the release of documents or information concerning

22-15    the amount of royalty assessed as a result of an examination

22-16    conducted under this subchapter or the release of other information

22-17    which would have been properly included in reports required under

22-18    Section 66.77;

22-19                (5)  sharing of documents or information among state

22-20    agencies pursuant to Section 66.65.  Shared documents or

22-21    information will remain confidential under this section; or

22-22                (6)  the release of documents or information authorized

22-23    by the lessee.

22-24          Sec. 66.82.  FORFEITURE; OTHER REMEDIES.  (a)  If a lessee

22-25    fails or refuses to perform a material requirement of this

 23-1    subchapter or the lease, the board may, after notice to the lessee

 23-2    and an opportunity to be heard, declare a forfeiture of the lease

 23-3    or an interest in the lease.  Material requirements include but are

 23-4    not limited to:

 23-5                (1)  failure or refusal to pay a sum due, including

 23-6    penalty and interest, within 30 days after the sum becomes due;

 23-7                (2)  failure or refusal to tender oil or gas for

 23-8    delivery as in-kind royalty;

 23-9                (3)  making a false report concerning exploration,

23-10    production, or royalty;

23-11                (4)  failure or refusal to file an assignment as

23-12    required by this subchapter;

23-13                (5)  failure or refusal, after demand, to file or make

23-14    available for inspection and copying a record or document required

23-15    to be filed or made available for inspection or copying under this

23-16    subchapter or rules promulgated thereunder;

23-17                (6)  failure or refusal, after demand, to protect the

23-18    leased premises from drainage; or

23-19                (7)  the breach of an obligation under the lease or

23-20    this subchapter.

23-21          (b)  Forfeiture is not the exclusive remedy.  The attorney

23-22    general, at the request of the board of regents, may bring suit for

23-23    damages or specific performance, or both, or other remedy, at law

23-24    or in equity.

23-25          Sec. 66.83.  LIEN; ABANDONED PERSONAL PROPERTY.  (a)  The

 24-1    board of regents shall have a statutory first lien on oil and gas

 24-2    produced from the area covered by the lease to secure payment of

 24-3    all unpaid royalty and other sums of money that may become due

 24-4    under the lease or this subchapter.

 24-5          (b)  By acceptance of the lease, the lessee grants to the

 24-6    board of regents an express contractual lien on and security

 24-7    interest in all oil and gas in and extracted from the area covered

 24-8    by the lease, all proceeds which may accrue to the lessee from the

 24-9    sale of the oil and gas, whether the proceeds are held by the

24-10    lessee or another person, and all fixtures on and improvements to

24-11    the area covered by the lease used in connection with the

24-12    production or processing of the oil and gas to secure the payment

24-13    of royalties and other amounts due or to become due under the lease

24-14    or this subchapter and to secure payment of damages or loss that

24-15    the state may suffer by reason of the lessee's breach of a covenant

24-16    or condition of the lease, whether express or implied.

24-17          (c)  The statutory and contractual liens and security

24-18    interest described in this section may be foreclosed with or

24-19    without court proceedings in the manner provided under Chapter 9,

24-20    Business & Commerce Code.  The board of regents may require the

24-21    lessee to execute and record instruments reasonably necessary to

24-22    acknowledge, attach, or perfect the liens.

24-23          (d)  Personal property, including casing, equipment, and

24-24    fixtures remaining on lands covered by the lease more than one year

24-25    after the expiration or other termination of the lease shall be

 25-1    considered to be abandoned.  The board of regents may take title to

 25-2    abandoned personal property in any manner and keep or use the

 25-3    proceeds for any purpose allowed by law.  The lessee shall pay to

 25-4    the board of regents on demand the positive difference between the

 25-5    cost of disposing of abandoned personal property and the proceeds,

 25-6    if any, from the disposition.

 25-7          Sec. 66.84.  PAYMENTS; DISPOSITION.  Payments under this

 25-8    subchapter shall be made to the board of regents, which shall:

 25-9                (1)  transmit to the state comptroller for deposit to

25-10    the credit of the permanent university fund all bonus, rental, and

25-11    royalty payments;

25-12                (2)  transmit to the state comptroller for deposit to

25-13    the credit of the available university fund all filing, assignment,

25-14    and relinquishment fees and all other payments except those

25-15    described in Subdivision (3); and

25-16                (3)  retain the one and one-half percent special fee

25-17    provided for by this subchapter for disbursement by the comptroller

25-18    of The University of Texas System for the purposes authorized by

25-19    this subchapter.

25-20          [Sec. 66.61.  DEFINITION.  As used in this subchapter,

25-21    "board" means the Board for Lease of University Lands.]

25-22          [Sec. 66.62.  BOARD FOR LEASE.  (a)  The Board for Lease of

25-23    University Lands is composed of the commissioner of the general

25-24    land office, two members of the board of regents of The University

25-25    of Texas System selected by the board of regents of that system,

 26-1    and one member of the board of regents of The Texas A & M

 26-2    University System selected by the board of regents of that system.

 26-3    In the event that a regent member of the Board for Lease of

 26-4    University Lands is unable to attend any meeting of that board, the

 26-5    chairman of the board of regents of the applicable system shall

 26-6    appoint another member of the board of regents as a substitute

 26-7    member of the Board for Lease of University Lands to attend the

 26-8    meeting that the regular regent member is unable to attend.  The

 26-9    substitute regent member of the Board for Lease of University Lands

26-10    shall exercise all the powers, duties, and responsibilities of the

26-11    absent regent member during the conduct of the meeting for which he

26-12    was appointed.  Any substitute regent member of the Board for Lease

26-13    of University Lands is subject to the provisions of this

26-14    subchapter.]

26-15          [(b)  A regent member may not be directly or indirectly

26-16    employed by, or be an officer of or an attorney for, an oil or gas

26-17    company.]

26-18          [(c)  An officer, employee, or paid consultant of a trade

26-19    association in the oil and gas industry may not be a member or

26-20    employee of the board, nor may a person who cohabits with or is the

26-21    spouse of an officer, managerial employee, or paid consultant of a

26-22    trade association in the oil and gas industry be a member of the

26-23    board or an employee of the board grade 17 or over, including

26-24    exempt employees, according to the position classification schedule

26-25    under the General Appropriations Act.]

 27-1          [(d)  A person who is required to register as a lobbyist

 27-2    under Chapter 305, Government Code, by virtue of his activities for

 27-3    compensation in or on behalf of a profession related to the

 27-4    operation of the board, may not serve as a member of the board or

 27-5    act as the general counsel to the board.]

 27-6          [(e)  Members of the board, other than the Commissioner of

 27-7    the General Land Office, serve two-year terms expiring February 1

 27-8    of each odd-numbered year.]

 27-9          [(f)  The Commissioner of the General Land Office serves as

27-10    chairman of the board.]

27-11          [(g)  Unless the action relates to the final approval of the

27-12    award of a lease on a form approved by a majority of the board in

27-13    accordance with procedures for awarding leases that have been

27-14    previously approved by a majority of the board, a majority of the

27-15    board members has the power to act for the board.  If the action

27-16    relates to the final approval of the award of a lease on a form

27-17    approved by a majority of the board in accordance with procedures

27-18    for awarding leases that have been previously approved by a

27-19    majority of the board, two board members present at a meeting have

27-20    the power to act for the board.]

27-21          [(h)  The  board  shall  perform the duties prescribed by

27-22    this subchapter and shall keep a public record of all its

27-23    proceedings.]

27-24          [(i)  It is a ground for removal from the board if a member:]

27-25                [(1)  does not have at the time of appointment the

 28-1    qualifications required by Subsection (a) of this section for

 28-2    appointment to the board;]

 28-3                [(2)  does not maintain during the service on the board

 28-4    the qualifications required by Subsection (a) of this section for

 28-5    appointment to the board;]

 28-6                [(3)  violates a prohibition established by Subsection

 28-7    (c) or (d) of this section;]

 28-8                [(4)  is unable to discharge his duties for a

 28-9    substantial portion of the term for which he was appointed because

28-10    of illness or disability; or]

28-11                [(5)  is absent from more than one-half of the

28-12    regularly scheduled board meetings which the member is eligible to

28-13    attend during each calendar year, except when the absence is

28-14    excused by majority vote of the board.]

28-15          [(j)  The validity of an action of the board is not affected

28-16    by the fact that it was taken when a ground for removal of a member

28-17    of the board existed.]

28-18          [(k)  If the agency head has knowledge that a potential

28-19    ground for removal exists, he shall notify the chairman of the

28-20    board of such ground.  The chairman of the board shall then notify

28-21    the governor that a potential ground for removal exists.]

28-22          [Sec. 66.63.  OIL AND GAS SUBJECT TO SALE.  The oil and gas

28-23    in the university lands are subject to sale under the regulations,

28-24    at the times, and on the terms provided in this subchapter, and

28-25    under the rules and regulations adopted by the board as authorized

 29-1    by this subchapter, not inconsistent with the provisions of this

 29-2    subchapter.]

 29-3          [Sec. 66.64.  PLACING OIL AND GAS ON MARKET; PUBLIC AUCTION;

 29-4    ADVERTISEMENT.  (a)  Whenever there is a demand for the purchase of

 29-5    oil and gas in any university land that will reasonably insure that

 29-6    the oil and gas may be sold advantageously, the board shall place

 29-7    the oil and gas in the land on the market in separate tracts of

 29-8    such area and extent as the board may determine most suitable for

 29-9    profitable marketing; but in no event shall any tract  in  which

29-10    oil  and  gas is offered for as a unit exceed in area of 6,000

29-11    acres.]

29-12          [(b)  The sale of the oil and gas shall be made at public

29-13    auction or by sealed bid, or through a combination of public

29-14    auction and sealed bid, as the board elects.  The sales shall be

29-15    held in Austin, or any other location designated by the board, at

29-16    any hour between 10 a.m. and 5 p.m.]

29-17          [(c)  The board shall cause an advertisement to be made of

29-18    the sale in two or more newspapers of general circulation in this

29-19    state.  The advertisement shall state the method, time, and place

29-20    of sale; the primary term of the lease proposed to be executed

29-21    covering any sale; the bonus or royalty to be paid; that lists

29-22    describing the land to be sold may be obtained from the board; and

29-23    other matters that in the judgment of the board are deemed

29-24    advisable.  In addition to the foregoing mandatory provisions, the

29-25    board may cause the advertisement to be placed in oil and gas

 30-1    journals in and out of the state and to be mailed generally to

 30-2    persons it thinks might be interested.]

 30-3          [Sec. 66.65.  ROYALTY; BONUS; ANNUAL RENTAL; SPECIAL FEE.

 30-4    (a)  The oil and gas in each tract shall be offered for sale for a

 30-5    bonus to be determined by high bid in addition to the stipulated

 30-6    royalty or for a stipulated bonus and a royalty to be determined by

 30-7    high bid.  Each tract shall be offered separately.]

 30-8          [(b)  Each bid is subject to the royalty or bonus specified

 30-9    in the official advertisement preceding the sale, but in no event

30-10    shall the royalty be less than one-eighth of the gross production

30-11    of oil and gas in the land; and shall further be subject to the

30-12    payment of an annual rental after the first year of not less than

30-13    10 cents per acre, payable each year in advance, unless the

30-14    royalties received from the land during the preceding year equal or

30-15    exceed the amount of the annual rental payment.]

30-16          [(c)  Each bid is also subject to the payment of a special

30-17    fee equal to one percent of the total bonus whether stipulated or

30-18    bid, which special payment shall constitute a special fund from

30-19    which the Board of Regents of The University of Texas System shall

30-20    defray the expenses of the sale, including the payment for the

30-21    services of the auctioneer crying the sale and the payment of the

30-22    general operating expenses in geologizing, oil field supervision,

30-23    and auditing oil and gas production of university lands, including

30-24    salaries and traveling expenses of persons employed by the board of

30-25    regents for those purposes, and for the purpose of acquiring,

 31-1    constructing, and equipping a building in the city of Midland or

 31-2    adjacent area to house the administrative staff of the offices of

 31-3    University Lands, Geology and Land Agent, and such other related

 31-4    agencies necessary for the management and development of university

 31-5    lands in West Texas.]

 31-6          [(d)  The Board of Regents of The University of Texas System

 31-7    may also direct the comptroller of The University of Texas System

 31-8    to transmit to the state treasurer for deposit to the credit of the

 31-9    permanent university fund any unexpended balances remaining in the

31-10    special fund after reserving a sufficient amount in it for the

31-11    payment of current expenses as set out in Subsection (c) of this

31-12    section.]

31-13          [(e)  The highest successful bidder shall pay to the Board of

31-14    Regents of The University of Texas System on the day the bid is

31-15    accepted the full amount of bonus whether stipulated or bid and the

31-16    special fee.]

31-17          [Sec. 66.66.  WITHDRAWAL OF LANDS BEFORE BIDS RECEIVED.  The

31-18    board may withdraw any lands advertised for lease before the hour

31-19    set for receiving bids.]

31-20          [Sec. 66.67.  AWARD OF LEASE.  (a)  If any one of the bidders

31-21    at the sale at public auction has offered a reasonable and proper

31-22    price for any tract offered, not less than the price fixed by the

31-23    board, the land advertised may be leased for oil and gas purposes

31-24    under the terms of this subchapter and any regulations the board

31-25    may prescribe, not inconsistent with the provisions of this

 32-1    subchapter.  All bids may be rejected by the board.]

 32-2          [(b)  If the board determines that a satisfactory bid has

 32-3    been offered for the oil and gas, it shall make an award to the

 32-4    bidder offering the highest price, and a lease shall be executed by

 32-5    the commissioner of the general land office.  A duplicate copy of

 32-6    the lease shall be filed in the general land office.]

 32-7          [Sec. 66.68.  PROVISIONS OF LEASE.  (a)  Each lease executed

 32-8    under this subchapter shall contain, and each valid and subsisting

 32-9    oil and gas lease previously executed by the commissioner under the

32-10    source statute for this subchapter, on the application of the

32-11    lessee and payment of a sum of money equal to one year's annual

32-12    rental under the lease, shall be amended by written instrument to

32-13    contain, the provisions prescribed by this section.]

32-14          [(b)  Each lease shall provide that the primary term of the

32-15    lease, as determined by the board prior to the promulgation of the

32-16    advertisement, shall in no case exceed 10 years.]

32-17          [(c)  Each lease shall provide that if oil and/or gas is

32-18    being produced in paying quantities from the leased premises before

32-19    the termination of the primary term, such lease shall not terminate

32-20    but shall continue in force and effect as long as oil and/or gas is

32-21    being so produced.]

32-22          [(d)  Each lease shall provide that in the event production

32-23    of oil or gas on the leased premises, after once obtained, shall

32-24    cease for any cause within 60 days before the expiration of the

32-25    primary term of such lease or at any time or times thereafter, such

 33-1    lease shall not terminate, if the lessee commences additional

 33-2    drilling or reworking operations within 60 days thereafter, and

 33-3    such lease shall remain in full force and effect so long as such

 33-4    operations continue in good faith and in workmanlike manner,

 33-5    without interruptions, totaling more than 60 days during any one

 33-6    such operation; and if such drilling or reworking operations result

 33-7    in the production of oil and/or gas, such lease shall remain in

 33-8    full force and effect so long as oil or gas is produced therefrom

 33-9    in paying quantities or payment of shut-in gas well royalty or

33-10    compensatory royalties is made as hereinafter provided in this

33-11    subchapter.]

33-12          [(e)  Each lease shall provide that if at the expiration of

33-13    the primary term or at any time thereafter there is located on the

33-14    leased premises a well or wells capable of producing oil or gas in

33-15    paying quantities and such oil or gas is not produced for lack of

33-16    suitable production facilities or a suitable market and such lease

33-17    is not being otherwise maintained in force and effect, the lessee

33-18    may pay as royalty $1,200 per annum for each well on the lease

33-19    capable of producing oil or gas in paying quantities, such payment

33-20    to be made to the Board of Regents of The University of Texas

33-21    System at Austin, Texas.  Any shut-in oil or gas royalty must be

33-22    paid on or before:  (1) the expiration of the primary term of the

33-23    lease, (2) 60 days after lessee ceases to produce oil or gas from

33-24    the leased premises, or (3) 60 days after lessee completes a

33-25    drilling and reworking operation in accordance with the lease

 34-1    provisions, whichever date is later.  If such payment is made, the

 34-2    lease shall be considered to be a producing lease and such shut-in

 34-3    royalty payment shall extend the term of the lease for a period of

 34-4    one year from the end of the primary term or from the first day of

 34-5    the month next succeeding the month in which production ceased; and

 34-6    thereafter if no suitable production facilities or suitable market

 34-7    for such oil or gas exists, the lessee may extend the lease for

 34-8    four additional and successive periods of one year each by the

 34-9    payment of a like sum of money each year on or before the

34-10    expiration of the extended term.  Provided, however, that if, while

34-11    such lease is being maintained in force and effect by payment of

34-12    such shut-in royalty, oil or gas should be sold and delivered in

34-13    paying quantities from a well situated within 1,000 feet of the

34-14    leased premises and completed in the same producing reservoir or in

34-15    any case where drainage is occurring, the right to further extend

34-16    the lease by such shut-in royalty payments shall cease, but such

34-17    lease shall remain in force and effect for the remainder of the

34-18    current one year period for which the shut-in royalty has been

34-19    paid, and for four additional and successive periods of one year

34-20    each by the payment by the lessee of compensatory royalty, at the

34-21    royalty rate provided for in such university lease of the value at

34-22    the well of production from the well which is causing the drainage

34-23    or which is completed in the same producing reservoir and within

34-24    1,000 feet of the leased premises; such compensatory royalty to be

34-25    paid monthly to the Board of Regents of The University of Texas

 35-1    System at Austin, Texas, beginning on or before the last day of the

 35-2    month next succeeding the month in which such oil or gas is sold

 35-3    and delivered from the well situated within 1,000 feet of, or

 35-4    draining, the leased premises and completed in the same producing

 35-5    reservoir; provided further, that in the event such compensatory

 35-6    royalties paid in any 12-month period are in a sum less than the

 35-7    annual shut-in gas well royalties provided for in this section, the

 35-8    lessee shall pay an additional sum equal to the difference within

 35-9    30 days from the end of such 12-month period; provided further,

35-10    that nothing herein shall relieve the lessee of the obligation of

35-11    reasonable development, nor of the obligation to drill offset wells

35-12    required by Section 66.75 of this code.]

35-13          [(f)  Each lease shall provide that if, at the expiration of

35-14    the primary term, production of oil and/or gas has not been

35-15    obtained in paying quantities on the leased premises but drilling

35-16    operations are being conducted thereon in good faith and in good

35-17    and workmanlike manner, the lessee may, on or before the expiration

35-18    of the primary term, file with the Board of Regents of The

35-19    University of Texas System a written application for a 30-day

35-20    extension of such lease, such application to be accompanied by a

35-21    payment to the Board of Regents of The University of Texas System

35-22    of $7.50 per acre for each acre in the lease, and the Chairman of

35-23    the Board of Regents of The University of Texas System or a

35-24    designee appointed by the Chairman shall, in writing, extend such

35-25    lease for a 30-day period from and after the expiration of the

 36-1    primary term and so long thereafter as oil or gas is produced in

 36-2    paying quantities from the premises; provided further, that the

 36-3    lessee may, so long as such drilling operations are being conducted

 36-4    in good faith, make like application and payment during any 30-day

 36-5    extended period for an additional extension of 30 days not to

 36-6    exceed a combined total of 180 days; provided, however, lessee may,

 36-7    so long as such drilling operations are being conducted in good

 36-8    faith, make written application to the Board of Regents of The

 36-9    University of Texas System on or before the expiration of the

36-10    initial extended period of 180 days for an additional extension of

36-11    180 days, such application to be accompanied by a payment to the

36-12    Board of Regents of The University of Texas System of $50 per acre

36-13    for each acre in the lease, and the Chairman of the Board of

36-14    Regents of The University of Texas System or a designee appointed

36-15    by the Chairman shall, in writing, extend such lease for an

36-16    additional 180-day period from and after the expiration of the

36-17    initial extended period of 180 days, and so long thereafter as oil

36-18    or gas is produced in paying quantities from the premises;

36-19    provided, that no lease shall be extended under the provisions of

36-20    this section for more than a total of 360 days from and after the

36-21    expiration of the primary term unless production in paying

36-22    quantities has been obtained.]

36-23          [(g)  Each lease shall contain a provision enabling the

36-24    board, at its election, to require that payment of royalty as

36-25    stipulated in the lease be in kind.  Such option may be exercised

 37-1    from time to time at the discretion of the board upon not less than

 37-2    six months' notice to the lessee.  The board shall have all powers

 37-3    necessary to negotiate and execute sales contracts or any other

 37-4    instruments necessary for the disposition of any royalty taken in

 37-5    kind.  Such other reasonable provisions, not inconsistent with this

 37-6    subchapter, as will facilitate the efficient and equitable payment

 37-7    of royalty in kind may be included in this lease by the board.]

 37-8          [Sec. 66.69.  LEASE:  ADDITIONAL PROVISIONS.  Each oil and

 37-9    gas lease issued on university lands under this subchapter shall

37-10    include any additional provisions and regulations, not inconsistent

37-11    with the provisions of this subchapter, that the board may

37-12    prescribe to preserve the interest of the state and safeguard the

37-13    university funds.]

37-14          [Sec. 66.70.  COMPENSATORY ROYALTIES IN LIEU OF OFFSET WELLS.

37-15    (a)  Subject to the provisions of this section, the commissioner of

37-16    the general land office may execute agreements on behalf of the

37-17    permanent university fund that provide for the payment by

37-18    university land oil and gas lessees of compensatory royalty in lieu

37-19    of drilling offset wells that may be required to protect a

37-20    university oil and gas lease from drainage from a well or wells

37-21    located on non-university lands or university lands leased at a

37-22    lesser royalty situated within 1,000 feet of or draining the

37-23    university-leased premises.]

37-24          [(b)  Agreements providing for the payment of compensatory

37-25    royalty must be approved by the board for lease of university

 38-1    lands.]

 38-2          [(c)  Any such agreement must be found by the commissioner

 38-3    and the board for lease to be in the best interest of the state and

 38-4    necessary to prevent economic waste.]

 38-5          [(d)  Nothing in an agreement shall relieve the lessee of the

 38-6    obligation of reasonable development or of the obligation to drill

 38-7    offset wells as required by Section 66.75 of this code as to other

 38-8    producing horizons.]

 38-9          [(e)  Beginning on the date fixed in the agreement, the

38-10    lessee shall pay the compensatory royalty monthly to the Board of

38-11    Regents of The University of Texas System in Austin, Texas.]

38-12          [(f)  The agreement with respect to the interest of the state

38-13    shall remain in force and effect as long as oil and gas, or either

38-14    of them, is produced from a well located on university or

38-15    non-university acreage and draining the university-leased premises.]

38-16          [(g)  The agreement may contain other provisions the

38-17    commissioner and the board for lease deem necessary to protect the

38-18    interests of the permanent university fund.]

38-19          [(h)  The agreement shall provide that compensatory royalty

38-20    be paid at the royalty rate provided by the university lease and

38-21    shall provide that compensatory royalty be paid on the market value

38-22    at the well of production from the well located on non-university

38-23    lands or university lands leased at a lesser royalty situated

38-24    within 1,000 feet of or draining the university leased premises.]

38-25          [Sec. 66.71.  PRORATED OR REDUCED PRODUCTION CONTRACTS.

 39-1    Whenever in the discretion of the board it is to the best interest

 39-2    of the university and its permanent fund that production from any

 39-3    lease for a limited period of time should be prorated or reduced,

 39-4    the board may execute the necessary contract or contracts with the

 39-5    lessee or lessees and their assignees to effectuate the same and to

 39-6    carry out the intention of this subchapter.]

 39-7          [Sec. 66.72.  EXTENSION OF PRODUCING LEASE.  If oil or gas is

 39-8    discovered in paying quantities on any tract covered by a lease,

 39-9    then the lease as to that tract shall remain in force as long as

39-10    oil and gas is produced in paying quantities from the tract,

39-11    provided that the other provisions of this subchapter are complied

39-12    with by the lessee.]

39-13          [Sec. 66.73.  ASSIGNMENT; RELINQUISHMENT.  (a)  Any rights

39-14    acquired may be assigned; provided, however, in order for an

39-15    assignment to be valid and effective, the assignment must be filed

39-16    in the county or counties in which the area is situated, and a

39-17    legible copy of the recorded assignment must be filed with the

39-18    Board of Regents of The University of Texas System, accompanied by

39-19    a filing fee of $30 for each lease assigned.  If the copy of the

39-20    recorded assignment is filed with the Board of Regents of The

39-21    University of Texas System after the 90th day after the date on

39-22    which the assignment is recorded, the copy must be accompanied by

39-23    the filing fee set by the board and by a late fee equal to the

39-24    amount of the filing fee.]

39-25          [(b)  Any rights to any lease and to any assigned portion

 40-1    thereof may be relinquished to the state at any time by having an

 40-2    instrument of relinquishment recorded in the county or counties in

 40-3    which the area relinquished is situated and an original certified

 40-4    copy filed with the Board of Regents of The University of Texas

 40-5    System, accompanied by $1 for each area relinquished and a filing

 40-6    fee of $5 for each lease involved in the relinquishment.]

 40-7          [(c)  Such an assignment or relinquishment shall not relieve

 40-8    the lease owner of any past due obligation theretofore accrued

 40-9    thereon.]

40-10          [Sec. 66.74.  ROYALTY PAYMENTS; INSPECTION OF RECORDS.

40-11    (a)  Royalty as stipulated in the sale shall be paid to the Board

40-12    of Regents of The University of Texas System at Austin, Texas, for

40-13    the benefit of the university permanent fund as provided in this

40-14    section.]

40-15                [(1)  The board shall set by rule the date for making

40-16    royalty payments and for filing any reports, documents or other

40-17    records required to be filed by this section.  However, the board

40-18    may not set the due date for royalty on oil before the fifth day of

40-19    the second month succeeding the month of production, and may not

40-20    set the due date for royalty on gas before the 15th day of the

40-21    second month succeeding the month of production.]

40-22                [(2)  Royalty payments shall be accompanied by:]

40-23                      [(a)  an affidavit of the owner, manager, or

40-24    other authorized agent completed in the form and manner required by

40-25    the Board of Regents of The University of Texas System and showing

 41-1    the gross amount and disposition of all oil and gas produced and

 41-2    the market value of the oil and gas;]

 41-3                      [(b)  a copy of all documents, records, or

 41-4    reports confirming the gross production, disposition, and market

 41-5    value, including gas meter readings, pipeline receipts, gas line

 41-6    receipts, and other checks or memoranda of amount produced and put

 41-7    into pipelines, tanks, pools, and gas lines or gas storage;]

 41-8                      [(c)  a check stub, schedule, summary, or other

 41-9    remittance advice showing by the assigned general land office lease

41-10    number the amount of royalty being paid on each lease; and]

41-11                      [(d)  other reports or records that the Board of

41-12    Regents of The University of Texas System may require to verify the

41-13    gross production, disposition, and market value.]

41-14                [(3)  The lessee has the responsibility for paying

41-15    royalties or having royalties paid by the date provided for payment

41-16    in this section.]

41-17                [(4)  If any royalty is not paid when due, a penalty of

41-18    one percent shall be added to the unpaid amount due.  If the

41-19    royalty is not paid within seven days after the due date, a penalty

41-20    of an additional four percent of the royalty due is imposed.  If

41-21    the royalty is not paid within 30 days after the due date, a

41-22    penalty of an additional five percent is imposed.  The minimum

41-23    penalty under this subdivision is $25.  Penalty under this

41-24    subdivision may not be added in cases of title dispute as to the

41-25    state's portion of the royalty or to that portion of the royalty in

 42-1    dispute as to fair market value.  Except as provided in Subsection

 42-2    (g), Section 66.68 of this code, royalty payments shall be made in

 42-3    cash, by a bank draft drawn on a state or national bank in Texas,

 42-4    by a post-office or express money order, or in any other form that

 42-5    the law may provide for making payments to the State Treasury and

 42-6    are payable to the Board of Regents of The University of Texas

 42-7    System.]

 42-8                [(5)  Copies of contracts for the sale or processing of

 42-9    gas and subsequent agreements and amendments to those contracts

42-10    shall be filed with the Board of Regents of The University of Texas

42-11    System within 30 days after the contracts, agreements, or

42-12    amendments are made.  These contracts and agreements received by

42-13    the Board of Regents of The University of Texas System shall be

42-14    held in confidence by the Board of Regents of The University of

42-15    Texas System unless otherwise authorized by the lessee.]

42-16                [(6)  Interest shall accrue on delinquent royalties

42-17    beginning 60 days after the due date.  The annual interest rate on

42-18    delinquent royalties is 12 percent.  Interest accrued under this

42-19    subdivision shall be in addition to any delinquency penalty accrued

42-20    under Subdivision (4) of this subsection.]

42-21                [(7)  The Board of Regents of The University of Texas

42-22    shall add a penalty of 25 percent to any delinquent royalties if

42-23    the delinquency is due to fraud or an intent to evade the

42-24    provisions of this subchapter on the part of the lessee or his

42-25    agents, employees, or assignees.]

 43-1                [(8)  If any report, affidavit, supporting document, or

 43-2    any other instrument required to be filed under this subsection is

 43-3    not filed when due, a penalty accrues in the amount of $10 per

 43-4    document or a higher amount established by the Board of Regents of

 43-5    The University of Texas, for each 30-day period of delinquency or

 43-6    fractional part of that period.]

 43-7                [(9)  Collection of penalty and interest charges under

 43-8    this subsection are in addition to any rights, including

 43-9    forfeiture, that the board may exercise for failure to pay a

43-10    royalty or to submit a report or other instrument when due.]

43-11          [(b)  The books and accounts, receipt and discharges of all

43-12    wells, tanks, pools, meters, pipelines, and all contracts and other

43-13    records pertaining to the production, transportation, sale, and

43-14    marketing of the oil and gas shall at all times be subject to

43-15    inspection and examination by the commissioner of the general land

43-16    office, the attorney general, the governor, or any member of the

43-17    board of regents, or the representative of either.]

43-18          [(c)  For purposes of Section 66.74(a)(3) of this code, a

43-19    royalty payment is timely made if, before the applicable due date,

43-20    the payment is deposited in a postpaid, properly addressed wrapper,

43-21    with a post office or official depository under the care and

43-22    custody of the United States Postal Service.]

43-23          [Sec. 66.75.  PROTECTION FROM DRAINAGE.  In every case where

43-24    the area in which the oil and gas sold shall be contiguous or

43-25    adjacent to land not university land, the acceptance of the bid and

 44-1    the sale made thereby shall constitute an obligation on the lessee

 44-2    to adequately protect the land leased from drainage from adjacent

 44-3    lands.  In cases where the area in which the oil and gas is sold is

 44-4    contiguous to other university lands leased or sold, at a lesser

 44-5    royalty, the lessee shall likewise protect the state from drainage

 44-6    from the land so leased or sold for a lesser royalty.  On failure

 44-7    to protect the land from drainage, the sale and all rights

 44-8    thereunder may be forfeited by the board in the manner provided in

 44-9    this subchapter for forfeitures.]

44-10          [Sec. 66.76.  FORFEITURE; OTHER REMEDIES; LIEN.  (a)  If the

44-11    owner of the rights acquired under this subchapter fails or refuses

44-12    to make the payment of any sum due thereon, either as rental or

44-13    royalty on the production, within 30 days after same becomes due,

44-14    or if the owner or his authorized agent makes any false return or

44-15    false report concerning production, royalty, or drilling, or if the

44-16    owner fails or refuses to drill any offset well or wells in good

44-17    faith, as required by his lease, or if the owner or his agent

44-18    refuses the proper authority access to the records and other data

44-19    pertaining to the operations under this subchapter, or if the owner

44-20    or his authorized agent fails or refuses to give correct

44-21    information to the proper authorities, or fails or refuses to

44-22    furnish the log of any well within 30 days after production is

44-23    found in paying quantities, or if any of the material terms of the

44-24    lease are violated, the lease is subject to forfeiture by the board

44-25    by an order entered upon the minutes of the board reciting the

 45-1    facts constituting the default and declaring the forfeiture.]

 45-2          [(b)  The board may have suit instituted for forfeiture

 45-3    through the attorney general.]

 45-4          [(c)  On proper showing by the forfeiting owner, within 30

 45-5    days after the declaration of forfeiture, the lease may, at the

 45-6    discretion of the board and on such terms as it may prescribe, be

 45-7    reinstated.]

 45-8          [(d)  In case of violation by the owner of the lease

 45-9    contract, the remedy of the state by forfeiture is not the

45-10    exclusive remedy, but suit for damages or specific performance, or

45-11    both, may be instituted.]

45-12          [(e)  The state shall have a first lien upon all oil and gas

45-13    produced upon the leased area and upon all rigs, tanks, pipeline,

45-14    telephone lines, and machinery and appliances used in the

45-15    production and handling of oil and gas produced thereon, to secure

45-16    any amount due from the owner of the lease.]

45-17          [Sec. 66.77.  FILING OF RECORDS.  All surveys, files,

45-18    records, copies of lease contracts, and all other records

45-19    pertaining to the leases hereby authorized, shall be filed in the

45-20    general land office and constitute archives thereof and copies of

45-21    any such documents shall also be filed with the Board of Regents of

45-22    The University of Texas System.  All existing documents now on file

45-23    in the general land office shall be transferred by copies to the

45-24    Board of Regents of The University of Texas System.]

45-25          [Sec. 66.78.  PAYMENTS; DISPOSITION.  Payments under this

 46-1    subchapter shall be made to the Board of Regents of The University

 46-2    of Texas System at Austin, Texas, who shall:]

 46-3                [(1)  transmit to the state treasurer for deposit to

 46-4    the credit of the permanent university fund all bonus, rental, and

 46-5    royalty payments;]

 46-6                [(2)  transmit to the state treasurer for deposit to

 46-7    the credit of the available university fund all filing, assignment,

 46-8    and relinquishment fees, and all other payments except those

 46-9    described in Subdivision (3) of this section; and]

46-10                [(3)  retain the one percent fee payment prescribed by

46-11    Section 66.65(c) of this code, for disbursement by the comptroller

46-12    of The University of Texas System for the purposes authorized by

46-13    Section 66.65(c) of this code.]

46-14          [Sec. 66.79.  FORMS; CONTRACTS; REGULATIONS.  The board shall

46-15    adopt forms and contracts and shall promulgate rules and

46-16    regulations, not inconsistent with the terms of this subchapter,

46-17    that in its judgment will best effectuate the purpose of this

46-18    subchapter and will best protect the university, its lands, and the

46-19    income from the lands.]

46-20          [Sec. 66.80.  EXPENSES OF EXECUTING THIS SUBCHAPTER.  The

46-21    expenses of executing the provisions of this subchapter shall be

46-22    paid monthly by warrants drawn by the comptroller on the state

46-23    treasury.]

46-24          [Sec. 66.81.  FINANCIAL REPORT REQUIRED.  The board shall

46-25    file annually with the governor and the presiding officer of each

 47-1    house of the legislature a complete and detailed written report

 47-2    accounting for all funds received and disbursed by the board during

 47-3    the preceding year.  The form of the annual report shall be that

 47-4    provided in the General Appropriations Act.  The report shall be

 47-5    distributed with the report required by Section 66.05 of this code.]

 47-6          [Sec. 66.82.  AUDIT.  The financial transactions of the board

 47-7    are subject to audit by the state auditor in accordance with

 47-8    Chapter 321, Government Code.]

 47-9          [Sec. 66.83.  POLICIES ON PUBLIC HEARINGS.  The board shall

47-10    develop and implement policies which will provide the public with a

47-11    reasonable opportunity to appear before the board and to speak on

47-12    any issue under the jurisdiction of the board.]

47-13          [Sec. 66.84.  MARGINAL PROPERTY ROYALTY RATES.  (a)  In this

47-14    section:]

47-15                [(1)  "Barrel of oil equivalent" means 6,000 cubic feet

47-16    of natural gas per 42-gallon barrel of crude oil or a volume of gas

47-17    with a minimum heating value of 6,000,000 British thermal units

47-18    (6,000 Mbtu), whichever is greater.]

47-19                [(2)  "Lease" or "leases" means an oil and gas lease

47-20    issued or approved by the state that is valid and in force on or

47-21    after the effective date of this section.]

47-22                [(3)  "Qualifying property" means land subject to a

47-23    lease issued under this subchapter.]

47-24                [(4)  "Qualifying reservoir" means a reservoir having

47-25    an average daily per well production equal to or less than 15

 48-1    barrels of oil equivalent during a period established by the board

 48-2    by rule and underlying either:]

 48-3                      [(A)  a qualifying property; or]

 48-4                      [(B)  a pooled unit including a qualifying

 48-5    property.]

 48-6                [(5)  "Reservoir" has the same meaning as "common

 48-7    reservoir" as defined in Section 86.002, Natural Resources Code.]

 48-8          [(b)  The board may provide by rule that the royalty rate for

 48-9    qualifying reservoirs may be reduced to not less than one-sixteenth

48-10    (6.25 percent).  In determining whether to grant a reduction in the

48-11    royalty rate, the board may consider whether the qualifying

48-12    property is being operated efficiently, including whether the

48-13    property is pooled or has reasonable potential for the application

48-14    of secondary or tertiary recovery techniques.]

48-15          [(c)  If a qualifying reservoir for which royalty rate

48-16    reduction is sought under this section is included in a unit

48-17    subject to the authority of the board, the board may modify the

48-18    terms and conditions of the unit as a condition of approving a

48-19    reduction in the royalty rate.]

48-20          SECTION 2.  Subsection (d), Section 52.131, Natural Resources

48-21    Code, is amended to read as follows:

48-22          (d)  The lessee has the responsibility for paying royalties

48-23    or having royalties paid by the date provided for payment in this

48-24    section.  The commissioner may require the lessee and a person with

48-25    whom the lessee deals, including an affiliate, in connection with

 49-1    the production, transportation, marketing, treatment, processing,

 49-2    or sale of oil and gas, to provide reports or other information as

 49-3    the commissioner may consider necessary to determine that royalty

 49-4    has been correctly paid.  For purposes of this subsection,

 49-5    "affiliate" includes the parent company or a subsidiary company, a

 49-6    corporation having common ownership with another of 10 percent or

 49-7    greater, a partner or joint venturer with a company with respect to

 49-8    a business subject to this subchapter, or a relative within the

 49-9    second degree of consanguinity or affinity.  For purposes of this

49-10    subsection, affiliates of a common entity are also affiliates of

49-11    each other.

49-12          SECTION 3.  Subsection (a), Section 52.135, Natural Resources

49-13    Code, is amended to read as follows:

49-14          (a)  The books and accounts, receipts, and discharges of all

49-15    wells [lines], tanks, pools, [and] meters, and pipelines, and all

49-16    contracts and other records pertaining directly or indirectly

49-17    [relating] to the production, transportation, sale, treatment,

49-18    processing, or [and] marketing of [the] oil and gas from lands

49-19    subject to this chapter, or relevant to establishing the volume or

49-20    value of such production, whether such records are held by or are

49-21    in the possession of the lessee or a third party dealing with the

49-22    lessee, shall at all times be [are] subject [at any time] to

49-23    inspection and copying [examination] by the commissioner, [and] the

49-24    attorney general, the [and] governor, or the representative of any

49-25    of them.  The commissioner may, if necessary, compel the production

 50-1    of such records by subpoena enforceable throughout the state [their

 50-2    representatives].

 50-3          SECTION 4.  Section 52.136, Natural Resources Code, is

 50-4    amended to read as follows:

 50-5          Sec. 52.136.  LIEN.  (a)  The state has a statutory first

 50-6    lien on all oil and gas produced on any lease area to secure

 50-7    payment of unpaid royalty and other amounts due.

 50-8          (b)  By acceptance of a lease, the lessee grants to the state

 50-9    an express contractual lien on and security interest in all oil and

50-10    gas in and extracted from the area covered by the lease, all

50-11    proceeds which may accrue to the lessee from the sale of the oil

50-12    and gas, whether the proceeds are held by the lessee or another

50-13    person, and all fixtures on and improvements to the area covered by

50-14    the lease used in connection with the production or processing of

50-15    the oil and gas, to secure the payment of royalties and other

50-16    amounts due or to become due under the lease or this subchapter and

50-17    to secure payment of damages or loss that the state may suffer by

50-18    reason of the lessee's breach of a covenant or condition of the

50-19    lease, whether express or implied.

50-20          (c)  The statutory and contractual liens and security

50-21    interests described in this section may be foreclosed with or

50-22    without court proceedings in the manner provided under Chapter 9,

50-23    Business & Commerce Code.  The state may require the lessee to

50-24    execute and record instruments reasonably necessary to acknowledge,

50-25    attach, or perfect the liens.

 51-1          SECTION 5.  Changes made by this Act to Sections 52.131(d),

 51-2    52.135(a), and 52.136, Natural Resources Code, relate to the

 51-3    administration of leases and, to the extent these changes do not

 51-4    conflict with existing contractual rights, these changes in law

 51-5    will apply to existing and future leases.

 51-6          SECTION 6.  Sections 52.291, 52.292, 52.293, 52.294, 52.295,

 51-7    and 52.296, Natural Resources Code, are repealed.

 51-8          SECTION 7.  The terms of any oil and gas lease executed

 51-9    before the effective date of this Act that impose the requirements

51-10    of Sections 52.291 through 52.296, Natural Resources Code, are of

51-11    no force and effect.

51-12          SECTION 8.  The changes in law made by this Act to Sections

51-13    66.66, 66.67, 66.69, 66.71, 66.72, 66.73, and 66.76(c), Education

51-14    Code, apply only to leases awarded on or after January 1, 1998,

51-15    except as provided by Section 66.70, Education Code.  Leases

51-16    awarded prior to that date shall be governed by the law in effect

51-17    when the lease was issued and the former law is continued in effect

51-18    for that purpose.  Changes in law made by this Act to Sections

51-19    66.65, 66.70, 66.74, 66.75, 66.76(a), (b), and (d), 66.77, 66.78,

51-20    66.79, 66.80, 66.81, 66.82, and 66.83, Education Code, relate to

51-21    the administration of leases and, to the extent that these changes

51-22    do not conflict with existing contractual rights, these changes in

51-23    law will apply to existing and future leases.

51-24          SECTION 9.  This Act takes effect January 1, 1998.

51-25          SECTION 10.  The importance of this legislation and the

 52-1    crowded condition of the calendars in both houses create an

 52-2    emergency and an imperative public necessity that the

 52-3    constitutional rule requiring bills to be read on three several

 52-4    days in each house be suspended, and this rule is hereby suspended.

 52-5                         COMMITTEE AMENDMENT NO. 1

 52-6          Amend S.B. 1354 as follows:

 52-7          Strike Sec. 66.61.  DEFINITIONS  (1)  "Affiliate" that begins

 52-8    on page 1, line 9 and renumber subsequent definitions

 52-9    appropriately.

52-10          Strike Sec. 66.61  DEFINITIONS  (5)  "Lessee" that begins on

52-11    page 1, line 21 and renumber subsequent definitions appropriately.

52-12          On page 5, line 24, of Sec. 66.64(b), add the following

52-13    language after the word "forfeiture":

52-14          "The board shall give written notice to each lessee whose

52-15    leasehold interest may be forfeited.  Such notice shall be given at

52-16    least twenty-one days before the meeting at which the board will

52-17    consider forfeiture of the lease.  The notice shall state the time,

52-18    date, and place of the meeting of the board and include a statement

52-19    of the board's policy concerning the public's opportunity to be

52-20    heard with respect to a declaration of forfeiture.  Notice shall be

52-21    properly given when mailed to the last known address of the lessee

52-22    based on the records of the board of regents or, if the records do

52-23    not contain an address, to any address that may reasonably be

52-24    determined to be an address for the lessee."

52-25          Strike Section 66.71.  LEASE PROVISIONS  (b) that begins on

 53-1    page 12, line 2 and substitute as follows:

 53-2          "If oil or gas is discovered in paying quantities on any

 53-3    tract covered by a lease, then the lease as to that tract shall

 53-4    remain in force as long as oil and gas is produced in paying

 53-5    quantities from the tract, provided that the other provisions of

 53-6    this subchapter are complied with by the lessee."

 53-7          Strike Section 66.72  CESSATION OF PRODUCTION; DRILLING AND

 53-8    REWORKING that begins on page 12, line 13 and substitute as

 53-9    follows:

53-10          "Section 66.72  CESSATION OF PRODUCTION; DRILLING AND

53-11    REWORKING.  Each lease shall provide that in the event production

53-12    of oil or gas on the leased premises, after once obtained, shall

53-13    cease for any cause within 60 days before the expiration of the

53-14    primary term of such lease or at any time or times thereafter, such

53-15    lease shall not terminate, if the lessee commences additional

53-16    drilling or reworking operations within 60 days thereafter, and

53-17    such lease shall remain in full force and effect so long as such

53-18    operations continue in good faith and in workmanlike manner,

53-19    without interruptions, totalling more than 60 days during any one

53-20    such operation; and if such drilling or reworking operations result

53-21    in the production of oil and/or gas, such lease shall remain in

53-22    full force and effect so long as oil or gas is produced therefrom

53-23    in paying quantities or payment of shut-in gas well royalty or

53-24    compensatory royalties is made as hereinafter provided in this

53-25    subchapter."

 54-1          Strike the last sentence of Sec. 66.76, ASSIGNMENT,

 54-2    RELINQUISHMENT, subsection (c) which begins on page 15, line 25.

 54-3          On page 17, line 8, strike "other information as may be

 54-4    required by the board of regents" and substitute "University lease

 54-5    numbers".

 54-6          Strike Sec. 66.77(e) entirely and renumber the subsequent

 54-7    subsections appropriately.

 54-8          On page 20, line 3, insert the following after "then" and

 54-9    before "delivery":  "the board may elect".

54-10          On page 20, line 4, after "gas" and before "by" insert:

54-11    "shall be at the wellhead, at the oil and gas separator, into a

54-12    pipeline connected at the well, or at such other location as may be

54-13    specified in a royalty in kind provision in the lease or other

54-14    agreement.  Such delivery".

54-15          Strike Sec. 66.80(b) and substitute the following:

54-16          "(b)  The books and accounts, receipts and discharges of all

54-17    wells, tanks, pools, meters, pipelines, and all contracts and other

54-18    records pertaining to the production, transportation, sale, and

54-19    marketing of the oil and gas shall at all times be subject to the

54-20    inspection, examination, and copying by the commissioner of the

54-21    general land office, the attorney general, the governor, the board

54-22    of regents, or the board, or the representative of any of them."

54-23          Add Sec. 66.82(c) to read as follows:

54-24          "The board, in its sole discretion, may authorize

54-25    reinstatement of a forfeited lease on terms the board may determine

 55-1    at the time of the declaration of forfeiture."

 55-2          Strike Section 2. Subsection (d) that begins on page 48, line

 55-3    20 and renumber subsequent sections appropriately.

 55-4          Strike Section 3, Subsection (a) that begins on page 49, line

 55-5    12 and renumber subsequent sections appropriately.

 55-6                                                                 Moffat