Case Information

*1 I’~E J~TTORNEY GENERAL

.: ,OF.mXAS’ .: January 28, 1948 Hon. Baaoom Glles ODlnlon No. v-486 ~. Comissiqu3r ', General Land Office Re : Whether the primary

Austin, Texas ,', term l P Mineral Lekise

Ro. 22624 1s suspended by.wratien of Art. 5341C) v .c .a.

Dear Mr. Glles:

By letter dated lPovemb& 3, 1947, supple- mentea by letter dated J&nuary lo; 1948, you requested theeopInIon of.,this ~office whether the ppimary term of Mineral Lease No./22624 expired on Septembe? 20, 1947, or whether, the same has been; or. should be, extended by~reasoh of the provlhions~ of Article 5341c, Vernon's Civil Statutes. The facts'are as follows:

On September 20, 1937, the Commissioner of the General Lend Office isiiued'to the Superior @I1 Cola)sng Mineral Lease No. 22624 oalerlng Tract No. 45, containing 320 acres, more or less, out l f Lsguna Maare, lVueces'and,ICleberg Counties, Texas. This lease was for a primary term of five years.

Approximately six months prior to the expl- ration of the primary term, on March 24, 1942, Superl- or, by letter to the Commissioner, pointed out that the War Department had by letter dated March 21, 1942, refused to grant a drilling permit on this lease and requested that the Commissioner recognize the primary term of such lease as extended under the provisions of Artlole 5366a, Vernon'8 Civil Statutes, reading as follows:

"Se&Ion 1. In eaah case in which an 011 aua gas mineral lease haa heretofore been granted or may hereafter be granted by the State of Texas on an area covered by the coastal waters of the State or within the Gulf of Mexioo and In whloh the War De- partment of the united States refuses to grant a permit to the lessee or owner of *2 Hon. Basaom Glles - Page 2

such lease to drill a well thereon for oil, gas or other minerals (the are& lncludea~in such lease being within the navigable wa- terse of the United Statea) and in the event the prim&g term of such lease should expire during !he period of tl&a in which the War Dopartmqnt of the United States may oon- tin+%0 refuse to Issue auoh,*relt, then and in auoh eveht the primarg to- of such lease is hereby extended for auccoaaive pe- rioda ,of one (l), Jear,from and aftor the end of~the orlginal primary term of such leaad while and so long aa the War Depart- ment may oontinue auch'refuaal to Issue to the leadee ,or to the'owner of auah lease a permit t6 drill for oil, gas or other mln- erala, on the area eovored thereby; provid- ,, ed, that in order to make such exte~alo~a~

effectual .the losses or tb6 owner of auah lease ahaIL, during eaeh,of the annual pe- rLods~durl.hg whlcnh the primary term of the loaae is so oxtonaea; applp to ana seek to obtain fiym the War Department a permit to drill a wall for oil, gas 07 other miner- ala on tho aroa ooverea by such leas8 and be unatio&aaful In fta attempts to obtain a pemlt, or, if a~cesaful~in obtain1ng.a permlt,~bomaonoe ope,ratioaa 'for arillfng a well upon ths'lease premlaea within sixty (60) dqa afterKobta.iai.rug such pemlt; and provfaea further ,that the less00 or the own- er of auoh lease continues to pay the annual renewal rentila at the rate provided for in amh leaae.for the.psriod of time lnvolvqd in auoh extonalona, ShouPd such lease be ao oxtendod and bhould the War Department, at any tire whlle,~sueh,l~aaa is still in force and offeot issue 8 perraft to the loaaee or to the owner of stih lease to drill a well thereon for ofl, ‘gas or other minerals, such lease-ahaii eohtinue in foroe'ana effect If the l~aaee eommencea' drflling' OpOratiOnS UP- on the leaaeq prenl?ta within afx,tJ (60) daya,after obtsinQkg such permit, and so long aSr the lessee or the owner of suah lease shall continue to eonduct arflling or mining operatfohs thereon, dr if oil, gas or other mineral be dlaeovered, thereon by the lessee or the owner of suck lease, so long aa 011, *3 Bon, Baseom Gilss - ?age 3 v -406

gas or other mineral is produced from such leased premises, 8h0da the production of oil, g.4s or other mlsrerel on sa.ia leased premlaea after once seaurea, oease from any cause, svusti lease aball not terminate ,lf tRe lessee or owner of such lease commences aaaitfona'l drilling, reworking or mining operations wi'thfn Shlrty (30) days there- after or ff 1% be within the orialnal prl- marg term of auoh leaze, eomnrences or re- sumes the payment or tender of rental on or before the rental paying date, if any, next ensuing; but If there be no rental pay- ing date next ensuing, the lease shall In 'no even% %ermXQ,a%e ,prior ,%o the expiration of the primary term.

‘See. 2, TRe Commissioner of the Gen- oral Lana Office is hereby authorized to Is- au0 'to %Re lessee or owner of said lease auoh iws.%rumeat in wrftlag i;n the nature of an extension of said Pease as may be neces- sarg'or proper to omarry into effect the foregofng provisfons of this Act."

Thereafter, ~urau~d% to the provisions of said Article 5366s, the Commissioner on March 27, 1942, executed an instrument cxtmd~kag the primary tern of said Lease No. 22624 inn %he language of the statute, as followz : I

" 0 Y ‘, do hereby grae% %o the Superior Oil Compmy the preset% owner of such lease as showa by the records of the General Land Office, an exten3fon ttmwof Fa accordance wfth,%he provislolza of E'hapter 287 of the Acts of %Re Forfg-mven%h Legislature ana do hereby extend sa.fd leaas for successive periods of one year from and after the end of the orfgfria$ primary term of such lease whllo,.and so bag as, the War Department may eqtime swti refmal %o fasw to the leaoes or %o the owner of said lease a per- mft tb drill for 011, gas or other mfner- ala, on the area covered thereby; provided, that'fn order to make su6h extbns10ns ef- fee%ual,tRs lssae~s or the OWBLQP of such loose, shall, aurirJg aa.ah of the a~ual pe- riods duping wM@R the primaq term of %he

. L I-Ion, Bascom Gfles - Page 4

lease IS so extended, apply to and seek to obtain from the War Department a permit to ,a well for oil, gas or other minerals drill on the area covered br ,auch lease and be unsuoceasful In ita attempts to obtain a permit; or, If successful In obtaining a permit, commenoe~operationa for drilling a well upon the leased premises within alx- tg (60) days after obtaining, such permit; and provided further that the lessee or the owner of such lease continues to pa;r the annual renewal rentals at the rate provided for in such lease for the period of time involved in such extensions."

As stated In your letter of November 3, 1947, Superior repeated Its request to the War Department In compliance with the statute and the extension inatru- ment dated March.27, 1942 each year during the yeara 1943, 1944, 1945, and 1946. Each of thoso yearly re- quests was refused by the War Department. During this period Superior pala its annual rental as requirea.

No request was made by Superior to the War nnlaalon to 61-111 Lease Ho. 22624 dur- Department for ing the year 19 7, and the primary term of said lease r

as extonaoa under the provisions of Artlole 5366a and the extension instrument dated March 27, 1942, came to an end, without drilling operations thereon, on Septem- ber 20, 1947, unless said primary term has been M- pended as contended by Superior under the provisions of Artielo 53410, Vernon's Civil Statutes, reading as follows:

"Sectfon 1, If the owner of any valid oil and gas lease granted by the State is denied access to or is denied a permit to drill upon or produce from the leased prem- ises by any duly constituted authority of the United States of America, after a bona fide attempt has been made by such owner %o obtain access or permit to drill upon or produce from the leased premises, such owner may file with the School Land Board an ap- plication deser+bfng and glvfng %he date of the action which deprfves hfm of the right of access or the right to drill upon or pro- duce from the premises, and if said Board is satisfied that the facts se% forth in the *5 Ron, Bascom Gilas - Page 5

application are true, tha Board may enter an order upon its mi~nutes suspending the run- ning of both the primary and the principal term of sursh lease, or suspending any con- dition, obligation or duty thereunder as of the aate’of the origin of the cause of sua- pension and during the existence of the cause of suspensfon, so lomg as the lessee con- tinuea to make on eaah ,anniversarg date of such lease t'he annual rea%al paymen%s atipu- latea in the lease du1a2.g the period of sua- pension. Such oil and ga3 lease shall re- main in s%a%us quo, and all obligations and conditions existing under such lease or suoh of .%hem as may be suspended by said Board, shall be Inoperative ana of no force and ef- fes%, except the obliga%ion to pay delay rent- als as provide& for herein, untfl ninety (90) days af%er the School Land Boara shall enter an order upon its minu%es reciting that the cause for suspension haa oeasea to exist, at whieh,time such of1 ana gas.lease shall, pro- vi$ea the rental payments have been made aur- lng %he period of suspension, again become operatfve and all of the suspended obligations ana eonaCll%ions, fnelucTing t.m payment of rent- ala under same, shall again attach a5a be in force, ama in th@ C&S5 of the suapens10n of the primary and/or principal berms of the lease 9 the lsatse shall %hereaf%er continue fa form for aperiod equivalen% to the un- * expired %erm oi" %he lease on the date of orl- gin of %b aawe for suspension, The Commis- sioner of %-he &52eral Lar0.d Office shall give notfe6 immedfa%aly to the lesse8. or the entry of the ordor %ha.t %he muS8 .for saspeusiom 'has oeasea %o exls%; provided9 however, that tb3 anmual,rsa%~.l pape5t3 kmva beam me%;,

"See. 2, Bothl~g eor&sfned herein shall be construed as abrfdgfng any rfgh%s or prlv- flegos comveyesd Llg Chap%er 287, Acts of the Forty-seventh Legislature, Regular Qesslon,"

I% wfll be noted tha% while Article 5366a pro- vides for the ex%ensfon of the primary term of a lease when the War Department refuses to gran% a permit to a State lessee %o drill a well %hereon, Article 53410, *6 Hon. Dascom Giles - Page 6

enacted two years later by'the 48th Legislature, pro- vides that the School Land Board may suseend the run- ning of both the p+mry and principal terms of such lease or ,"an~. condition, duty or obligation thereunder" as of the date of the origin of the cause of suspension.

Article 5366a is self-operative as to exten- sions.the statute providing that when the War Depart- ment refuses to permit drllllng, and in the event the primary term should expire while the War Department continues to refuse, "the primary term of the lease g hereby extended," for successive periods of one year. It is provided, however, that such lessees must con- tlnue to make request of the War Department from year to year.and must continue to be refused permission in order for the automatic extensions under the statute to be operative.

Article 5341~ is quite different. In order to be entitled to the benefits of Article 5341c, it is required:

1) That the lessee have a valid lease; 2) That the lessee be denied access to, or denied permit to drill upon or produce from the leased premises by a duly constituted authority of the United States of America after a bona fide attemut is made to obtain access or permit to drill;

3) That an application be filed with the School Land Board reciting such facts;

4) That the School Land Board satisfy it- self that the facts set forth In the applfcation are true;

5). That the School Land Board enter an or- der on its minutes suspending the running of the pri- mary or princ.ipal term of the lease or a condition, obligation, or duty thereunder.

It Is to be observed that the School Land Board is vested with discretion In the matter. The statute requires that the Board be satisfied that the matters recited in the application are true. It then provides that the Board w9 not shall, enter an order suspending the running of the primary term or princi- pa.1 term or other condltlon, obligation, or duty under *7 HOQ. Baacom Mles - Page 7

the lease. It is only after such an order has been entered that the lease and all obligatlons thereunder rem,in In status quo (except the payment o? rentals). This status quo; the status moated by the entry O? such an order, remains until 90 days after the School Land Board shall enter a further order upon its min- utesrealtlag~that the aause for suspension has ceased to exist. Thereupon'tbs lease aontlnues In effeat for a period equivalent to the unexpired term of the lease as of the date of the,origla of the cause for suapen- slon.

It is clear'that Superior has ,not brought it- self within the terms of Article 5341~. On August 15, 1947, a month and five days ,prlor to the expiration of the primary term, aa extended by the provisions of Ar- ticle 5366a, Superior requested a further "extension" ,of, said lease beyond September 20, 1947, "until the United States of America, by Congress, paeses a proper Aot, signed by the,President of the United States dls- .clalmlng, unto the respective states all submerged area under Inland waters and seas, or in the absenoe of ex- isting legislation, this applfcant asserts its equl- table.right that the term of said lease shall extend beyond September 20, 1947, and for a reasonable peri- od, and thereafter until the cloud on title fs removed, ,to be recognized either in Court of Equity or by leg- lslatfve act of the State of Texas affirming and con- firming existfng leases In such cases, and thereafter during a reasonable tfme withFn ,whioh %he Lessee may begin its operatfons.'P It was sot claimed by this let- ter %ha% Superior was eetl%led I-o rights under Article 5341~~ nor was t&e letter an application within the terms of tbai? article, Indeed, in this letter Superl- or stated, "we are unable to refer you to 5ny specific sta%utory provision under which fur%ber extension9 are permftted under~safd lease,"

We have also examined oopies of subsequent letters of Superior to your office dated August lgth, August 2lst, and August 27't.h. By nozie of these let- ters did Superior make application to the School Land Board for the entry of an order on its minutes sus- pending the'runaing of the primary term of Lease No. 226240 On the contrary-, by each of t&se letters Su- perior requested to be informed of 'the date the School Land Board bad entered an order on Its minutes reciting that the cause for suspe~slo~ of the lease had ceased to exist. In its letter of August 27th Superior ten- dered Its Check in the amou.nt of $80.00 "as rental to *8 Hon. Bascom Giles - Page a

August 19, 1948, when the equivalent of the suspended period of the primary term of said lease will expire after said ninety days from entry of order In the min- utes of the School Land Board that the source of the cause of suspension ceased to exist.”

Apparently, the contention asberted by Supe- rior is that Artlale 5341~ is self-operative and inures to the benefit ,of 8 lessee whose primary term has been extended pursuant to the provisions of Artlale 5366a even though no application for susuenslon of the prl- mary term of the lease has been filed with the School Land Board under ths provisions of said Article 534l,c, and even though the School Land Board has not entered an order, pursuant to proper application, Gpendlng such primary term.

We Cannot subscribe to this view. Superior applied for and obtained an e&ension of t&e primary term of Lease No. 22624 under Artiole 5366a. As long as Superior kept within its terms this statute provided for automatic yearly extensions of the primary term of the lease, conditioned that Superior apply.yearly to the War Department for permit to drill the lease, and make yearly payment of the rentals O Superior chose not to come within the terms of this statute during the year 1947. Superior did not apply during that year to the War Department for permission to drill the lease. Su- perlor’s rights under Article 5366~1 and the extension instrument dated March 27, 1942 therefore terminated and expired on Sep~tember 20, 1947.

Superior is entitled to none of the benefits of Article 5341~ for the plain reason that It has made no application under that Article to the School Land Board resulting in the entry of an order by the Board .suspendlng the primary term of its lease,

It is conceivable that Superior may now con- tend, although their plain Import does not so reflect, that its letters to the Commissioner dated August 19th, August 21st, and August 27th should be construed and considered as an application to the School Land Board for the entry of an order suspending the primary term of Lease Ho. 22624. In this event we hold that Artl- cles 5366a and 5341~ should be construed together, and that in order'-for a lessee whose lease has been extend- ed under the provisions of Article 5366a to be entitled G an order of suspension from the School Land Board *9 - .

Ron. Bascom Giles - Page 9

based upon reruaal of ,the War Department to permit drilling, the.lessee must have currently made a bona fide attempt to secure a permit to',drFll fr~om thmr Department, ,and .have been refused,. ~Artlcle 5341~ clearly requfresthat~ the lessee 'makes such a 'Ere- fide attemet. Weare not 'prepared to say tha quest last made'of the"War Department In 1946 Is such a’ "bona Fidel attempt" within the,meanlng of Article 534%~ ,as to ~entltle an applicantin Augtist’ 1947 $a secure. an o,rder from the Sohool~~I&nd Board suspending the primaryterm of:lts le'ase.

Uoreover,,,. we have been~ln,formally' advised '..~ by you that the War..Departmsnt lifted all drilling 're- strictions ~,onthe'.,area In, question on or.about March 10, 1947:LWe have ~a180 ascertai,ned ,from the records of the Railroad.~Commlsslon thatthe lessee In ques- tion hasnotflled'.its Notice of Intention to Drill wfth,tbat~%omm~ssion.as~required by Its rules, and regu- lations,, and that no drill~ng~'activltes have in fact been commenced,o,n the leaaed premises.

Under the clrcumstanoes we are of the arln- : the pro- ion that:~Dease Ro.' 22624 has terminated undo] visions Of paragraph 1 thereof as of September 20,- 1947 0 ,,

(I). i 'State' lessee not having applied for and' obtained suspensfon of the primary term of Its lease under Art., 5341c, V.C.S., Is not entitled to the bec.eflts of such statute,~ the statute requlriag an appllca- tlon for, and order ~of,,suspenslon by the ,gchool Iand Board.

(2) A State lessee whose 'lease has been extended from year to year until Sep- tember,20; 1947, by compliance with Art.

536Sr, voc.s., is not entitled to the bene- fits of Art..,, 534lc, V'.C.S., without show- ~, ing a,~curretit bona fide attempt to seoure *10 Hon. Bascom Giles - Page 10

a drilling permit from the War Depart- ment.

‘. Yours very truly ATTORNEY GENEZ?AL OF TEU3 JDs:jt

ATTORNEY GENERAL