B-123258, JUNE 17, 1955, 34 COMP. GEN. 681

B-123258: Jun 17, 1955

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1955: REFERENCE IS MADE TO LETTER DATED MARCH 9. FROM THE ADMINISTRATIVE ASSISTANT SECRETARY IN WHICH ADVICE IS REQUESTED CONCERNING THE AUTHORITY OF YOUR DEPARTMENT TO PAY TO THE STATE OF LOUISIANA ROYALTY PAYMENTS MADE TO YOUR DEPARTMENT BY THE HOLDER OF A LEASE ISSUED BY THE STATE FOR SUBMERGED LANDS IN THE GULF OF MEXICO. THE LEASE WAS FOR A PRIMARY TERM OF FIVE YEARS. A WELL WAS DRILLED AND COMPLETED AS A GAS WELL ON MARCH 1. WAS SHUT-IN BECAUSE THERE WAS NO MARKET FOR THE GAS. THE WELL WAS AGAIN PLACED IN PRODUCTION AND GAS WAS PRODUCED UNTIL DECEMBER 30. AT WHICH TIME THE WELL WAS AGAIN SHUT-IN. ON THE SAME DAY THE SUPREME COURT DECISION WAS HANDED DOWN ( DECEMBER 11. " 15 F.R. 8835 (WHICH WAS SUBSEQUENTLY AMENDED AND SUPPLEMENTED).

B-123258, JUNE 17, 1955, 34 COMP. GEN. 681

SUBMERGED LANDS - ROYALTIES - REFUNDS TO STATES ROYALTIES PAID TO THE UNITED STATES ON OIL AND GAS RIGHTS TO SUBMERGED LANDS BY THE HOLDER OF A STATE LEASE SHOULD BE PAID TO THE STATE ISSUING THE LEASE WHERE THE HOLDER OF THE LEASE HAS ALLOWED IT TO EXPIRE AND HAS NOT FILED AN INSTRUMENT OF CONSENT AS REQUIRED BY SECTION 3 (C) OF THE SUBMERGED LANDS ACT.

COMPTROLLER GENERAL CAMPBELL TO THE SECRETARY OF THE INTERIOR, JUNE 17, 1955:

REFERENCE IS MADE TO LETTER DATED MARCH 9, 1955, FROM THE ADMINISTRATIVE ASSISTANT SECRETARY IN WHICH ADVICE IS REQUESTED CONCERNING THE AUTHORITY OF YOUR DEPARTMENT TO PAY TO THE STATE OF LOUISIANA ROYALTY PAYMENTS MADE TO YOUR DEPARTMENT BY THE HOLDER OF A LEASE ISSUED BY THE STATE FOR SUBMERGED LANDS IN THE GULF OF MEXICO. THE QUESTION IN THE MATTER ARISES ON ACCOUNT OF THE FACTS AND CIRCUMSTANCES HEREINAFTER RELATED.

ON JUNE 10, 1947, THE STATE OF LOUISIANA ISSUED A LEASE TO THE MAGNOLIA PETROLEUM COMPANY COVERING SUBMERGED LANDS IN THE GULF OF MEXICO. THE LEASE WAS FOR A PRIMARY TERM OF FIVE YEARS, WITH THE RENTALS OR ROYALTIES CALLED FOR THEREUNDER TO BE PAID TO THE STATE. A WELL WAS DRILLED AND COMPLETED AS A GAS WELL ON MARCH 1, 1950, BUT WAS SHUT-IN BECAUSE THERE WAS NO MARKET FOR THE GAS. ON DECEMBER 12, 1950, THE WELL WAS AGAIN PLACED IN PRODUCTION AND GAS WAS PRODUCED UNTIL DECEMBER 30, 1950, AT WHICH TIME THE WELL WAS AGAIN SHUT-IN.

THE UNITED STATES SUPREME COURT ISSUED A DECREE ON DECEMBER 11, 1950, DECLARING THAT THE FEDERAL GOVERNMENT HAD PARAMOUNT RIGHTS IN, AND FULL DOMINION AND POWER OVER, SUBMERGED LANDS. UNDER EXECUTIVE ORDER NO. 9633 (10 F.R. 12305) ISSUED SEPTEMBER 28, 1945, THE NATURAL RESOURCES OF THE SUBMERGED COASTAL LANDS OF THE UNITED STATES HAD BEEN PLACED UNDER "THE JURISDICTION AND CONTROL OF THE SECRETARY OF THE INTERIOR FOR ADMINISTRATIVE PURPOSES, PENDING THE ENACTMENT OF LEGISLATION.' HENCE, ON THE SAME DAY THE SUPREME COURT DECISION WAS HANDED DOWN ( DECEMBER 11, 1950) THE THEN SECRETARY OF THE INTERIOR ISSUED A NOTICE ENTITLED " OIL AND GAS OPERATIONS IN THE SUBMERGED COASTAL LANDS OF THE GULF OF MEXICO," 15 F.R. 8835 (WHICH WAS SUBSEQUENTLY AMENDED AND SUPPLEMENTED), TITLE II OF WHICH, IN SUBSTANCE, AUTHORIZED PERSONS CONDUCTING OIL AND GAS OPERATIONS UNDER STATE LEASES TO CONTINUE SUCH OPERATIONS SUBJECT TO THE PAYMENT TO THE UNITED STATES OF THE EQUIVALENT OF ANY RENTALS, ROYALTIES, AND OTHER PAYMENTS CALLED FOR BY THEIR LEASES.

PURSUANT TO THE "1NOTICE" OF DECEMBER 11, 1950, THE MAGNOLIA PETROLEUM COMPANY PAID TO THE UNITED STATES THE SUM OF $888.83 AS ROYALTY ON THE PRODUCTION FROM THE WELL FOR THE PERIOD FROM DECEMBER 12, TO 30, 1950. ALL OTHER PAYMENTS REQUIRED BY THE LEASE WERE MADE TO THE STATE OF LOUISIANA. ACCORDING TO THE LETTER OF MARCH 9, 1955, THE LEASE WAS ALLOWED TO EXPIRE FOR NONPAYMENT OF RENTALS ON JUNE 10, 1952.

SUBSEQUENTLY, SUBMERGED LANDS SEAWARD TO A LINE THREE MILES DISTANT FROM THE COAST LINE OF EACH STATE WERE GRANTED TO THE RESPECTIVE STATES BY THE SUBMERGED LANDS ACT OF MAY 22, 1953, 67 STAT. 29, 43 U.S.C. 1952 EDITION, SUPP. I, 1301-1315. THE LANDS COVERED BY THE LEASE IN QUESTION ARE REPORTED TO BE CLEARLY WITHIN THREE MILES FROM THE COAST LINE OF LOUISIANA. SECTION 3 (B) (1) OF TITLE II OF THAT ACT, 67 STAT. 30 (43 U.S.C., 1952 EDITION, SUPP. I, 1311 (B) (1) ( RELEASES TO THE RESPECTIVE STATES THE RIGHT, TITLE, AND INTEREST OF THE UNITED STATES IN THE SAID SUBMERGED LANDS. SECTION 3 (B) (3), 67 STAT. 30, PROVIDES THAT THE UNITED STATES SHALL PAY TO THE RESPECTIVE STATES ALL MONEYS UNDER ITS CONTROL WHICH HAVE BEEN PAID TO IT UNDER LEASES ISSUED BY THESE STATES, EXCEPT SUMS WHICH ARE REQUIRED TO BE RETURNED TO THE LESSEES OR ARE DEDUCTIBLE PURSUANT TO AGREEMENT BETWEEN THE UNITED STATES AND ANY STATE. SECTION 3 (C) OF THE ACT, 67 STAT. 30, PROVIDES THAT THE GRANTS TO THE STATES ARE SUBJECT TO THE TERMS OF STATE LEASES IN FORCE ON JUNE 5, 1950, WITH THE PROVISO HOWEVER, THAT IF OIL OR GAS WAS NOT BEING PRODUCED FROM A LEASE ON DECEMBER 11, 1950, OR IF THE PRIMARY TERM OF A LEASE HAS EXPIRED SINCE THAT DATE, THE LEASE SHALL BE CONTINUED FOR A TERM FROM THE EFFECTIVE DATE OF THE ACT ( MAY 22, 1953) EQUAL TO THE TERM REMAINING UNEXPIRED ON DECEMBER 11, 1950. A FURTHER PROVISO REQUIRES THAT WITHIN 90 DAYS FROM MAY 22, 1953, THE LESSEE EXECUTE AN INSTRUMENT CONSENTING TO PAYMENT BY THE UNITED STATES TO THE STATE OF ALL SUMS PAID UNDER THE LEASE EXCEPT THOSE THAT HAVE BEEN PAID TO THE STATE BY THE LESSEE. THE LEASE INVOLVED IN THE INSTANT CASE WAS IN FORCE ON JUNE 5, 1950.

IN THE LETTER FROM THE ADMINISTRATIVE ASSISTANT SECRETARY IT IS STATED THAT ALTHOUGH MANY " INSTRUMENTS OF CONSENT" REQUIRED BY SECTION 3 (C) OF THE ACT WERE FILED DURING THE ALLOWABLE PERIOD, IN CERTAIN INSTANCES, SUCH AS HEREIN, WHERE THE LEASE WAS CANCELED OR RELINQUISHED PRIOR TO THE PASSAGE OF THE SUBMERGED LANDS ACT, THE LESSEE HAD NO INTEREST IN FILING SUCH AN " INSTRUMENT," AND DID NOT DO SO. IN VIEW OF THE FOREGOING THERE IS SUBMITTED FOR OUR DETERMINATION THE QUESTION OF "WHETHER THE ROYALTY PAYMENTS IN THE AMOUNT OF $888.83 NORMALLY REFUNDABLE TO THE STATE OF LOUISIANA IF AN INSTRUMENT OF CONSENT HAD BEEN FILED MAY NOW BE PAID TO THE STATE OF LOUISIANA UNDER THE PROVISIONS OF SECTION 3 (B) (1) OF THE ACT QUOTED ABOVE" ( SUBMERGED LANDS ACT).

UNDER SECTION 3 (B) (3) OF THE ACT IT WOULD APPEAR THAT THE UNITED STATES MUST PAY TO EITHER THE LESSEE OR THE STATE OR ITS GRANTEE, WHICHEVER IS THE PROPER PARTY, ANY MONEYS PAID TO IT UNDER LEASES COVERING THE SAID SUBMERGED LANDS. THE LESSEE WOULD APPEAR TO BE ENTITLED TO A REFUND ONLY IF HE HAD MADE PAYMENTS UNDER THE LEASE TO THE UNITED STATES AND DUPLICATE PAYMENTS TO THE STATE. IN THE INSTANT CASE THE LESSEE DID NOT MAKE A DUPLICATE ROYALTY PAYMENT TO THE STATE. HENCE, IT WOULD APPEAR THAT UNDER SECTION 3 (B) (3) THE ROYALTY PAYMENT IN QUESTION SHOULD BE PAID TO THE STATE OF LOUISIANA UNLESS THE SECOND PROVISO OF SECTION 3 (C) IS APPLICABLE TO THE INSTANT CASE.

AS INDICATED IN THE LETTER FROM THE ADMINISTRATIVE ASSISTANT SECRETARY THE REQUIREMENT IN THE SECOND PROVISO OF SECTION 3 (C) OF THE ACT THAT THE LESSEE FILE AN INSTRUMENT CONSENTING TO THE PAYMENT TO THE STATE BY THE UNITED STATES OF THE RENTS, ROYALTIES AND OTHER PAYMENTS PAID TO THE UNITED STATES UNDER THE LEASE, APPEARS TO BE A CONDITION PRECEDENT TO THE LESSEE HAVING THE LEASE CONTINUED IN EXISTENCE PURSUANT TO THE TERMS OF THE FIRST PROVISO OF THAT SECTION. THE LESSEE IN A LETTER DATED NOVEMBER 23, 1954, TO THE BUREAU OF LAND MANAGEMENT, DEPARTMENT OF THE INTERIOR, ADMITTED THAT "THE LEASE WAS ALLOWED TO EXPIRE FOR THE NONPAYMENT OF RENTALS ON JUNE 10, 1952.' FURTHERMORE, NO EFFORT WAS MADE TO HAVE THE LEASE CONTINUED IN EXISTENCE SUBSEQUENT TO MAY 22, 1953, UNDER SECTION 3 (C) OF THE ACT. MOREOVER, THE LEASE MAY NOT NOW BE CONTINUED IN EXISTENCE UNDER THE FIRST PROVISO OF SECTION 3 (C), SINCE THE LESSEE HAS PERMITTED THE 90-DAY PERIOD ALLOWED FOR FILING THE INSTRUMENT OF CONSENT REQUIRED BY THE SECOND PROVISO OF THAT SECTION TO EXPIRE WITHOUT FILING SUCH AN INSTRUMENT. HENCE, IT DOES NOT APPEAR THAT THE SECOND PROVISO IS FOR APPLICATION IN THE INSTANT CASE.

ACCORDINGLY, AND SINCE THERE IS NO STIPULATION OR AGREEMENT BETWEEN THE UNITED STATES AND THE STATE OF LOUISIANA PROVIDING THAT THE AMOUNT INVOLVED "IS DEDUCTIBLE," THE ROYALTY PAYMENT IN QUESTION MAY BE PAID TO THE STATE OF LOUISIANA UNDER SECTION 3 (B) (3) OF THE SUBMERGED LANDS ACT.