A-21759, MARCH 15, 1928, 7 COMP. GEN. 573

A-21759: Mar 15, 1928

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

ROYALTIES ARE FOR DISPOSITION IN ACCORDANCE WITH THE PROVISIONS OF SAID RESOLUTION. ARE PROPERLY FOR CREDIT TO THE INDIAN TRUST FUND ESTABLISHED UNDER SUCH LAW. ARE TO BE SEGREGATED AND KEPT APART FROM THE ROYALTIES PROPER IN WHICH THE STATE OF OKLAHOMA SHARES IN THE PROPORTIONS SET FORTH IN THE RESOLUTION. 1928: I HAVE YOUR LETTER OF FEBRUARY 18. IT WAS PROVIDED: THAT THE SECRETARY OF THE INTERIOR IS AUTHORIZED AND DIRECTED TO SET ASIDE AND ADMINISTER AS A TRUST FUND FOR THE BENEFIT OF THE ENROLLED MEMBERS OF THE KIOWA. WHICH DECISION WAS RENDERED MAY 1. EXCEPT SUCH PART AS MAY HAVE BEEN AWARDED TO SUCCESSFUL CLAIMANTS UNDER SAID ACT APPROVED MARCH 4. IN CONSTRUING THIS PROVISION THE LAW IT WAS HELD IN DECISION OF THIS OFFICE.

A-21759, MARCH 15, 1928, 7 COMP. GEN. 573

ACCOUNTING - TRUST FUNDS - ROYALTIES AND RENTALS - RED RIVER LEASES UNDER THE PROVISIONS OF THE PUBLIC RESOLUTION OF JUNE 12, 1926, 44 STAT. 740, PROVIDING FOR THE DISPOSITION OF FUNDS DERIVED FROM THE SOUTH HALF OF RED RIVER, OKLA., ON ACCOUNT OF RENTALS, BONUSES, ROYALTIES, ETC., FROM LANDS AND DEPOSITS, ROYALTIES ARE FOR DISPOSITION IN ACCORDANCE WITH THE PROVISIONS OF SAID RESOLUTION. RENTALS, BONUSES, ETC., ARE PROPERLY FOR CREDIT TO THE INDIAN TRUST FUND ESTABLISHED UNDER SUCH LAW, AND ARE TO BE SEGREGATED AND KEPT APART FROM THE ROYALTIES PROPER IN WHICH THE STATE OF OKLAHOMA SHARES IN THE PROPORTIONS SET FORTH IN THE RESOLUTION.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE INTERIOR, MARCH 15, 1928:

I HAVE YOUR LETTER OF FEBRUARY 18, 1928, PRESENTING FOR DECISION CERTAIN QUESTIONS ARISING IN CONNECTION WITH THE DISPOSITION OF FUNDS DERIVED FROM THE LEASING OF LANDS AND DEPOSITS ON THE SOUTH BANK OF RED RIVER, IN OKLAHOMA.

BY PUBLIC RESOLUTION OF JUNE 12, 1926, 44 STAT. 740, IT WAS PROVIDED:

THAT THE SECRETARY OF THE INTERIOR IS AUTHORIZED AND DIRECTED TO SET ASIDE AND ADMINISTER AS A TRUST FUND FOR THE BENEFIT OF THE ENROLLED MEMBERS OF THE KIOWA, COMANCHE, AND APACHE TRIBES OF INDIANS AND THEIR UNALLOTTED CHILDREN IN OKLAHOMA THAT PART OF ANY MONEYS RECEIVED OR TO BE RECEIVED UNDER THE ACT APPROVED MARCH 4, 1923 (FORTY SECOND STATUTES AT LARGE, PAGE 1448), AND ANY ACT THEREBY ADOPTED OR MADE APPLICABLE, DERIVED FROM THE SOUTH HALF OF RED RIVER, IN OKLAHOMA, WHICH INURES TO THE FEDERAL GOVERNMENT BY VIRTUE OF THE DECISION OF THE SUPREME COURT OF THE UNITED STATES IN THE SUIT OF THE STATE OF OKLAHOMA VERSUS THE STATE OF TEXAS, WHICH DECISION WAS RENDERED MAY 1, 1922, BEING THE ENTIRE AMOUNT RECEIVED FROM THIS SOURCE, EXCEPT SUCH PART AS MAY HAVE BEEN AWARDED TO SUCCESSFUL CLAIMANTS UNDER SAID ACT APPROVED MARCH 4, 1923 (FORTY-SECOND STATUTES AT LARGE, PAGE 1448), AND EXCEPT 37 1/2 PERCENTUM OF THE ROYALTIES DERIVED FROM SUCH SOURCE, WHICH SHALL BE PAID TO THE STATE OF OKLAHOMA IN LIEU OF ALL STATE AND LOCAL TAXES UPON SAID TRIBAL FUNDS AND SHALL BE EXPANDED BY THE STATE IN THE SAME MANNER AS IF RECEIVED UNDER SECTION 35 OF THE ACT APPROVED FEBRUARY 25, 1920 (FORTY-FIRST STATUTES AT LARGE, PAGE 437).

IN CONSTRUING THIS PROVISION THE LAW IT WAS HELD IN DECISION OF THIS OFFICE, 6 COMP. GEN. 395, THAT THE TERM "ROYALTIES" AS USED THEREIN IN DESIGNATING THE STATE'S SHARE WAS INTENDED TO RELATE SOLELY TO THE MONEYS RECEIVED AS ROYALTIES AS DISTINGUISHED FROM RENTALS, BONUSES, OR OTHER FUNDS. YOU NOW STATE THAT IN SOME CASES RENTALS, IF NOT BONUSES, ARE INSEPARABLE FROM ROYALTIES AND, FOR THAT REASON, YOU SUBMIT FOR CONSIDERATION THE FOLLOWING:

SECTION 17 OF THE MINERAL LEASING ACT OF FEBRUARY 25, 1920, APPLICABLE TO THESE LEASES AND REQUIRING THE "PAYMENT IN ADVANCE OF A RENTAL OF NOT LESS THAN $1 PER ACRE PER ANNUM THEREAFTER DURING THE CONTINUANCE OF THE LEASE, THE RENTAL PAID FOR ANY ONE YEAR TO BE CREDITED AGAINST THE ROYALTIES AS THEY ACCRUE FOR THAT YEAR," IS SPECIFIC IN ITS TERMS THAT THE RENTAL ADVANCED SHALL BE APPLIED IN PAYMENT OF ("CREDITED AGAINST") ROYALTIES, THUS SURELY MAKING RENTALS INSEPARABLE FROM ROYALTIES IN ALL CASES IN WHICH THE ROYALTIES FOR THE YEAR EQUAL OR EXCEED $1.00 FOR EACH ACRE INCLUDED IN THE LEASE. AS A MATTER OF PRACTICE SOME LESSEES ADVANCE THE RENTAL AND THEREAFTER LET ROYALTIES ACCRUE UNTIL THEY EXCEED THE RENTAL BEFORE MAKING ANY OTHER PAYMENT AND THEN PAY ONLY WHAT THE ROYALTIES AT THE PARTICULAR TIME EXCEED THE AMOUNT ALREADY ADVANCED AS RENTAL IN PAYMENT OF SUCH ROYALTIES, AND AT THE BEGINNING OF THE NEXT LEASE YEAR THE SAME PROCESS IS REPEATED. OTHER LESSEES ADVANCE THE RENTAL CHARGE AS OF THE DATE OF THE LEASE, THEREAFTER PAY ALL ROYALTIES AS THEY ACCRUE, AND SO LEAVE THE ORIGINAL PAYMENT OF RENTAL REMAIN TO THEIR CREDIT YEAR AFTER YEAR, SO THAT AT THE BEGINNING OF ANY LEASE YEAR THE RENTAL IS ALREADY PAID. IN THE FIRST INSTANCE THE RECORD WOULD SHOW, IN A TEN-YEAR PERIOD, FOR EXAMPLE, RENTAL PAYMENTS AGGREGATING $10.00 PER ACRE (ALL OF WHICH IS OF COURSE APPLIED ON CURRENT ROYALTY PRODUCTION) AND IN THE SECOND INSTANCE, ONE SINGLE PAYMENT OF $1.00 PER ACRE, AND CURRENT CASH PAYMENTS MADE OF ALL ROYALTIES ACCRUING.

I RESPECTFULLY REQUEST YOUR CONSIDERATION OF THESE FACTS IN CONNECTION WITH THE QUESTION AS TO WHETHER CONGRESS INTENDED THE WORD "ROYALTIES" TO BE CONSTRUED IN ITS LIMITED SENSE OR ITS BROADER SENSE, AND, IF IN A LIMITED SENSE, WHAT DISPOSITION SHOULD BE MADE OF "RENTALS" IN THE FOLLOWING CASES:

(1) WHEN RENTAL IS PAID IN ADVANCE AND THERE IS NO PRODUCTION;

(2) WHEN RENTAL IS PAID IN ADVANCE AND THE ROYALTY IS LESS THAN THE RENTAL;

(3) WHEN RENTAL IS PAID IN ADVANCE AND THE ROYALTY EQUALS THE RENTAL;

(4) WHEN RENTAL IS PAID IN ADVANCE AND THE ROYALTY EXCEEDS THE RENTAL AND IS ALL PAID AS ROYALTY, SO THAT THE RENTAL ADVANCED IN THE BEGINNING STANDS AS A CONSTANT CREDIT AND NO OTHER RENTAL IS REQUIRED; AND

(5) WHEN RENTAL IS PAID IN ADVANCE FROM YEAR TO YEAR AND THE ROYALTIES EXCEED THE RENTAL BUT THE AMOUNT PAID AS ROYALTIES EACH YEAR IS ONLY THE AMOUNT BY WHICH THAT YEAR'S ROYALTIES EXCEED THE AMOUNT ADVANCED AS RENTAL.

THE ACT OF MARCH 4, 1923, 42 STAT. 1448, AUTHORIZED THE SECRETARY OF THE INTERIOR TO ADJUST AND DETERMINE EQUITABLE CLAIMS OF PERSONS AND CORPORATIONS CLAIMING INTERESTS IN LANDS SITUATED SOUTH OF THE MEDIAL LINE OF RED RIVER IN OKLAHOMA, AND PROVIDED THAT THE APPLICABLE PROVISIONS OF THE ACT OF FEBRUARY 25, 1920, 41 STAT. 437, SHOULD APPLY TO THE LEASES AND PERMITS GRANTED, INCLUDING THE PROVISIONS OF SECTIONS 35 AND 36 OF SAID ACT RELATING TO THE DISPOSITION OF ROYALTIES. THE LAST PORTION OF THIS PROVISION OF THE ACT OF MARCH 4, 1923, RELATING TO THE DISPOSITION OF ROYALTIES, HAS BEEN AMENDED OR SUPERSEDED BY (1) SECTION 2 OF THE ACT OF MARCH 4, 1925, 43 STAT. 1302, IN WHICH THE SECRETARY OF THE INTERIOR WAS DIRECTED TO RETAIN IN HIS CUSTODY UNTIL OTHERWISE DIRECTED BY LAW THE 12 1/2 PERCENT AND OTHER ROYALTIES RECEIVED UNDER THE ACT OF MARCH 4, 1923, AND (2) PUBLIC RESOLUTION OF JUNE 12, 1926, SUPRA, PROVIDING FOR A COMPLETE DISPOSITION OF ALL FUNDS DERIVED FROM THE SOUTH HALF OF RED RIVER IN OKLAHOMA, UNDER SAID ACT OF MARCH 4, 1923, AND OTHER ACTS THEREBY ADOPTED AND MADE APPLICABLE.

SECTION 17 OF THE ACT OF FEBRUARY 25, 1920, 41 STAT. 443, PROVIDES:

THAT ALL UNAPPROPRIATED DEPOSITS OF OIL OR GAS SITUATED WITHIN THE KNOWN GEOLOGIC STRUCTURE OF A PRODUCING OIL OR GAS FIELD AND THE UNENTERED LANDS CONTAINING THE SAME, * * * MAY BE LEASED BY THE SECRETARY OF THE INTERIOR TO THE HIGHEST RESPONSIBLE BIDDER, * * * SUCH LEASES TO BE CONDITIONED UPON THE PAYMENT BY THE LESSEE OF SUCH BONUS AS MAY BE ACCEPTED AND OF SUCH ROYALTY AS MAY BE FIXED IN THE LEASE, WHICH SHALL NOT BE LESS THAN 12 1/2 PERCENTUM IN AMOUNT OR VALUE OF THE PRODUCTION, AND THE PAYMENT IN ADVANCE OF A RENTAL OF NOT LESS THAN $1 PER ACRE PER ANNUM THEREAFTER DURING THE CONTINUANCE OF THE LEASE, THE RENTAL PAID FOR ANY ONE YEAR TO BE CREDITED AGAINST THE ROYALTIES AS THEY ACCRUE FOR THAT YEAR. * * *

THE RENTAL OF NOT LESS THAN $1 PER ACRE PROVIDED FOR IN THIS ACT IS IN EFFECT AN ADVANCE PAYMENT OF ROYALTIES, TO THE EXTENT THAT ROYALTIES ACCRUE TO THE UNITED STATES AS STIPULATED IN THE LEASE, TO BE LATER ADJUSTED UPON THE BASIS OF THE PRODUCTION EACH YEAR. THERE IS NOTHING IN THE ACT, HOWEVER, WHICH WOULD INDICATE THAT THE RENTALS AND THE ROYALTIES SHOULD BE CONSIDERED AS INSEPARABLE EXCEPT TO THE EXTENT THAT RENTAL PAYMENTS ARE SUBSEQUENTLY CREDITED TO ACCRUED ROYALTIES, AND THERE IS, THEREFORE, NO REASON WHY THE PROVISIONS SHOULD BE TAKEN AS AN INDICATION THAT THE WORD "ROYALTIES" AS USED IN THE PUBLIC RESOLUTION OF JUNE 12, 1926, SHOULD BE CONSTRUED AS INCLUDING RENTALS, BONUSES, ETC. THE MEANING GIVEN TO THE WORD "ROYALTIES" BY THIS OFFICE IN THE DECISION, 6 COMP. GEN. 395, IS THE ORDINARY AND LOGICAL MEANING OF SUCH WORD, APPEARING, AS IT DOES, IN A STATUTE SUCH AS THAT DISCUSSED IN THE DECISION. IT WILL BE NOTED THE WORD "ROYALTIES" DOES NOT APPEAR IN THE FIRST PART OF THE ACT IN WHICH THE FUNDS ARE REFERRED TO AS "ANY MONEYS RECEIVED OR TO BE RECEIVED.' NO REASON APPEARS WHY, IF IT HAD BEEN THE INTENTION OF THE CONGRESS TO SET ASIDE FOR THE STATE OF OKLAHOMA 37 1/2 PERCENT OF ALL FUNDS, THE WORD "ROYALTIES" SHOULD HAVE BEEN USED WHEN AN EXPRESSION BROAD ENOUGH TO INCLUDE ALL FUNDS COULD HAVE BEEN INSERTED. THE TERM HAVING BEEN USED, HOWEVER, IT MUST BE TAKEN AS A WORD OF LIMITATION SINCE OTHER FUNDS SUCH AS BONUSES, RENTALS, ETC., WERE INVOLVED IN THE MONEYS RECEIVED OR TO BE RECEIVED. THAT THE WORD WAS GIVEN A BROADER SCOPE IN DECISION OF THIS OFFICE, 5 COMP. GEN. 585, RELATING TO THE SAME FUNDS, IS NOT A CONTROLLING FACTOR IN THE PRESENT CONSIDERATION, THERE BEING INVOLVED IN THAT CASE THE PROVISIONS OF THE ACT OF MARCH 4, 1925, SUPRA, WHICH BY MORE GENERAL TERMS DIRECTED THE RETENTION OF FUNDS ACCRUING UNDER THE ACT OF 1923. IT WOULD SEEM TO BE CLEAR, IRRESPECTIVE OF THE CONSTRUCTION PLACED UPON THE TERM "AND OTHER ROYALTIES," AS USED IN THE ACT OF MARCH 4, 1925, THAT THE MORE SPECIFIC LANGUAGE USED IN THE PUBLIC RESOLUTION OF 1926, AND ESPECIALLY THE NECESSARY DISTINCTION TO BE DRAWN BETWEEN THE TERM "ANY MONEYS RECEIVED OR TO BE RECEIVED" AND THE WORD "ROYALTIES" APPEARING IN CONJUNCTION THEREWITH IN SUCH PUBLIC RESOLUTION, IMPELS THE CONCLUSION THAT ONLY ROYALTIES PROPER AND NOT RENTALS, BONUSES, ETC., WERE INTENDED TO BE SUBJECT TO THE 37 1/2 PERCENT PAYMENT TO THE STATE OF OKLAHOMA.

ANSWERING GENERALLY THE QUESTIONS SUBMITTED BY YOU, IT MAY BE STATED THAT THE RENTAL PAID IN ADVANCE EACH YEAR, OR ITS EQUIVALENT, MAY BE CONSIDERED AS AN ADVANCE PAYMENT OF ROYALTIES UNDER THE LEASE AND DISPOSED OF TEMPORARILY ACCORDINGLY, BUT WHEN FINAL ADJUSTMENT IS MADE AT THE END OF THE YEAR THE MONEYS SHOULD BE SEGREGATED INTO RENTALS OR ROYALTIES, DEPENDING UPON THE FACTS IN CONNECTION WITH THE PRODUCTION, AS APPEARING FOR THE YEAR INVOLVED, AND DISPOSED OF AS FOLLOWS:

1. WHEN RENTAL IS PAID IN ADVANCE AND THERE IS NO PRODUCTION, NO ROYALTY ACCRUES, AND THE ENTIRE AMOUNT SHOULD BE CREDITED AS RENTAL TO THE INDIAN TRUST FUND.

2. WHEN RENTAL IS PAID IN ADVANCE AND THE ROYALTY IS LESS THAN THE RENTAL, THAT PART OF THE RENTAL CONSTITUTING ROYALTIES SHOULD BE DISPOSED OF AS SUCH, PLACING 37 1/2 PERCENT THEREOF TO THE CREDIT OF THE STATE FUND AND THE BALANCE, INCLUDING THAT PART OF THE RENTAL AS SUCH, TO THE INDIAN TRUST FUND.

3. WHEN THE RENTAL IS PAID IN ADVANCE AND THE ROYALTY EQUALS THE RENTAL, THE ENTIRE RENTAL BECOMES ROYALTY AND SHOULD BE TREATED AND DISPOSED OF ACCORDINGLY.

4. WHERE THE RENTAL IS PAID IN ADVANCE AND THE ROYALTY EXCEEDS THE RENTAL AND IS ALL PAID AS ROYALTY SO THAT THE RENTAL ADVANCED IN THE BEGINNING STANDS AS A CONSTANT CREDIT AND NO OTHER RENTAL IS REQUIRED, SUCH CREDIT SHOULD BE CARRIED FORWARD FROM YEAR TO YEAR AS RENTAL FOR EACH SUCCEEDING YEAR, NO PART THEREOF BECOMING ROYALTY FOR DISPOSITION AS SUCH UNTIL ACTUALLY APPLIED TO ACCRUED ROYALTIES.

5.WHEN RENTAL IS PAID IN ADVANCE FROM YEAR TO YEAR AND ROYALTIES EXCEED THE RENTAL BUT THE AMOUNT PAID AS ROYALTIES EACH YEAR IS ONLY THE AMOUNT BY WHICH THAT YEAR'S ROYALTIES EXCEED THE AMOUNT ADVANCED AS RENTAL, THE RENTAL EACH YEAR BECOMES ROYALTY AND THE FUNDS ARE FOR DISPOSITION AS SUCH BY CREDITING THE TWO TRUST FUNDS INVOLVED IN THE PROPORTIONS PROVIDED FOR IN THE PUBLIC RESOLUTION OF JUNE 12, 1926, SUPRA. ..END :