Perspectives of a Mineral Owner Mark A. Havens. Mark A. Havens - Texas General Land Office

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1 Perspectives of a Mineral Owner Mark A. Havens

2 The General Land Office: A Brief History The GLO is the oldest state agency, and the only constitutionally created agency. Established in1836, the Congress of the Republic passed an act establishing a General Land Office. All vacant land was the property of the Republic, and all land titles, surveys and documents were now public property and were to be given to the Land Commissioner. In 1844, Texas began bargaining with the United States Congress regarding annexation a debt for land swap that never happened So, Texas joined the United States with all its own debt, and all its own land making Texas the only state to enter the Union with control over its own public land.

3 The Permanent School Fund In 1854, the legislature established the Permanent School Fund (PSF) with $2 million dollars. The Constitution of 1876 set aside half of Texas remaining public lands to establish a Permanent School Fund (PSF), to help finance public schools. Article VII, Section 2: Creation of the Permanent School Fund All funds, lands and other property heretofore set apart and appropriated for the support of public schools; all the alternate sections of land reserved by the State out of grants heretofore made or that may hereafter be made to railroads, or other corporations, or any nature whatsoever; one-half of the public domain of the State, and all sums of money that may come to the State from the sale of any portion of the same, shall constitute a perpetual public school fund

4 Permanent School Fund This set aside more than 42 million acres of public free school land Additional legislative acts have dedicated other lands to the PSF, i.e. submerged lands, riverbeds. The GLO is tasked with managing these lands and generating revenue for the PSF. The primary driver behind that has been production from oil and gas on state lands. Oil and gas production has led to more than $11 billion dollars deposited into the PSF since its inception.

5 Permanent School Fund The interest earned on the PSF investments is distributed by the State Board of Education to every school district in Texas on a per-pupil basis. Since 1960, the PSF has distributed more than $23 billion to the schools. Harvard University endowment at $36.4 billion was edged out by the PSF at $37.7 billion. Now, the PSF has now been named the nation s largest educational endowment.

6 GLO Leasing Oil and gas leases on PSF lands generate more revenue than any other source of income for the public education endowment. Last year alone, bonus, royalty, and delay rentals amounted to more than $600 million dollars to the PSF. Leases for oil and gas development occur both onshore and offshore. Typically, the Land Office receives about 20 to 25 percent royalty.

7 Where is this Land? With over 13 million acres to manage we are interested state wide. Own property in coastal areas, remote rural segments of Texas, and some urban tracts as well. One common factor is that it is all state owned property owned by the PSF.

8 GLO s Role in Managing the PSF As stated earlier, the PSF was established in the Constitution with a singular goal to provide revenue for education. In addition, the Legislature has placed the PSF under the sole and exclusive control of the School Land Board and the Commissioner: Texas Natural Resources Code (a) states the following: Any land, mineral or royalty interest, real estate investment, or other interest, including revenue received from those sources, that is set apart to the permanent school fund under the constitution and laws of this state together with the mineral estate in riverbeds, channels, and the tidelands, including islands, shall be subject to the sole and exclusive management and control of the school land board and the commissioner under the provisions of this chapter and other applicable law. The courts have recognized the GLO s position, and what the Land Office is called to do. In Rutherford Oil Corp. v. General Land Office of State of Texas the court stated that the GLO has a fiduciary duty to maximize revenues from State lands.

9 The General Land Office Not just a land owner. State Fee Lands State owns both surface and/or mineral estate Similar to what you find in Private land owners Minerals could be severed, i.e. private surface owner and PSF maintains ownership of the minerals

10 The General Land Office Not just a land owner. Relinquishment Act or Mineral Classified Lands Land sold pursuant to the Relinquishment Act between 1895 and High concentration in South and West Texas Unique to the GLO in that the PSF maintains ownership of the minerals, and the private surface owner acts as our agent in leasing the minerals Creates some dynamic relationships between surface/mineral owner

11 The Relinquishment Act There were two competing principles at stake in the early part of the 20 th century. The state wanted to protect its ever-growing interest in oil and gas production as well as continue to support the development of the same lands by settlers. In 1919, the Legislature responded to the situation with what is now known as the Relinquishment Act.

12 The Relinquishment Act It made the owner of the soil (the surface owner) the agent for leasing the land for oil and gas development. In lieu of surface damages, and as compensation for acting as agent, the surface owner would be awarded an undivided fifteen-sixteenths of the minerals. The State would retain only a 1/16 th free royalty.

13 Relinquishment Act Immediate Reaction Surface owners are thrilled any damage to the soil would be offset by the additional income from production. In addition as agent, they had more control in entering into the leases in the first place.

14 Challenges to the Relinquishment Act One of the biggest questions regarding the validity of the Act can be traced back to the Constitution of 1876 addressed earlier. The perpetual school fund was established to provide for education in this state. This was an important goal, and one that led to years of statutory framework being put in place to ensure that the fund was provided for in a proper manner. Many of the detractors felt that the Relinquishment Act was simply giving away, free of charge, the very land set aside by the Constitution.

15 Greene v. Robison Judicial Activism at its Finest? In 1928, the Texas Supreme Court handed down the Greene v. Robison decision that permanently altered the way Relinquishment Act lands are handled to this day. The Court held: There is no vesting of title or interest in the oil and gas in the owner of the soil. Completely opposite of what the actual language of the Act says. However, the granting of the fifteenth-sixteenths was the biggest challenge to the constitutionality of the Act. Divesting the PSF of land that was dedicated by the constitution.

16 The Surface and Mineral Estates The court held that the legislative intent of the Act was clear in that it meant for the state to actively cooperate with the owner of the soil, but would never act in contravention of the constitution by divesting itself of important mineral rights. Therefore, the language that provides for like amounts as received by the state shall be paid to the owner of the soil, led the court to create what amounts to a 50/50 split of payments such as bonus, royalty, and rental between the state and the surface owner.

17 When Two World s Collide: State v. Local With over 13 million acres state wide there is the opportunity for the state to be subjected to a variety of vastly different, conflicting restrictions You could have unfettered access to oil and gas in West Texas, and a complete prohibition in East Texas. More importantly, that could ultimately place undue restrictions on the development of a constitutionally dedicated fund.

18 Harmonizing State and Local Laws Article XI, Section 5 of the Texas Constitution deals directly with the authority of Cities: The adoption or amendment of charters is subject to such limitations as may be prescribed by the Legislature, and no charter or any ordinance passed under said charter shall contain any provision inconsistent with the Constitution of the State, or of the general laws enacted by the Legislature of this State

19 Case law Re: City Ordinances McCutcheon v. Wozencraft, 294 S.W. 1105,Tex.,1927 City charters and ordinances must conform to state Constitution and general laws. Royer v. Ritter, 531 S.W.2d 448, Tex.Civ.App.Beaumont,1975 No ordinance can be legally enacted by governing body of a city if it conflicts or is inconsistent with statute. Lopez v. State, 756 S.W.2d 49 Tex.App.Houston.1.Dist., 1988 Pursuant to State Constitution, no ordinance passed by municipality may contain any provision inconsistent with State Constitution or with general laws enacted by State legislature, and thus, municipal ordinance in conflict with state statute is unconstitutional and void.

20 The Attorney General Weighs In In Opinion No. JM-117, the question was presented to the OAG as to whether all buildings, structures, and land under the control of federal and state agencies are exempt from municipal zoning. The OAG, relying on the constitutional provisions and case law cited above, found that state property is exempt from municipal zoning. We believe that a majority of decisions in this and other jurisdictions hold that a state agency is exempt from all local zoning ordinances. In exercising the police powers delegated to it by zoning statutes, a city exercises the powers of the state government within the city. A legislative grant of police power to a city is not considered a surrender of the legislature's right to regulate the state's own property which may be located within a city

21 Local Government Code City Zoning Authority A city s zoning authority is governed by Chapter 211 of the Texas Local Government Code Grants the authority for cities to adopt zoning regulations for the purpose of promoting the public health, safety, morals, or general welfare and protecting and preserving places and areas of historical, cultural, or architectural significance.

22 An Exception Sec CONFLICT WITH OTHER LAWS; EXCEPTIONS (c) This subchapter does not apply to a building, other structure, or land under the control, administration, or jurisdiction of a state or federal agency. This exception just comports with the notion that city ordinances can t conflict with state laws.

23 Other Areas involving State Exemptions It is not unusual to find the State, and specifically, State owned lands, exempted from various legislation. In 1973, the AG was asked about the constitutionality of HB 311 a bill granting the Railroad Commission the authority to order Compulsory Unitization. One area of particular concern was the fact that the bill exempted public lands from the application of the Act.

24 Office of the Attorney General Letter Advisory No. 41 Can the Texas Legislature constitutionally exempt public lands from the application of the Act? The office of the Land Commissioner is a constitutional office, and he is given general jurisdiction over all State lands. In addition, the AG found that it is not unusual to exempt State lands from the scope of general laws.

25 Office of the Attorney General Letter Advisory No. 41 The State is not subject to ad valorem taxation Statutes of limitation do not run against the State State owned property is exempted from zoning ordinances

26 Office of the Attorney General Letter Opinion No The question posed was once more dealing with the extent of a municipality s zoning authority over state land. We are not aware of any statutory provision explicitly directing that state land is subject to municipal police power regulations, either in Local Government Code Chapter 211 or elsewhere.

27 Other Noted Exceptions Mineral Interest Pooling Act legislative act that allows the forced pooling in certain situations Sec The provisions of this chapter do not apply to land owned by the State of Texas nor to land in which the State of Texas has an interest directly or indirectly Worked with numerous legislators in the past on any language that would impact state owned lands

28 Summary The GLO has a fiduciary duty to maximize revenue for the Permanent School Fund This does not mean that we are simply not subject to any regulation or restrictions Our operators have to abide by: Spacing, density, and proration rules established by the Texas Railroad Commission. All applicable regulations set forth by the Texas Council on Environmental Quality We also have a history of working with municipalities to accommodate certain restrictions.