B-75430, AUGUST 10, 1950, 30 COMP. GEN. 74

B-75430: Aug 10, 1950

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LEASES - OIL AND GAS - LIMITATION ON ROYALTY RATES CHARGEABLE TO LESSEES WHERE LAND IS ACQUIRED BY THE GOVERNMENT SUBJECT TO ROYALTY RESERVATIONS OF THE FORMER OWNER FOR GAS AND OIL PRODUCED THEREFROM. THE LIABILITY OF THE LESSEE OF SUCH LAND FOR ROYALTY PAYMENTS IS TO BE REGARDED AS LIMITED BY SECTION 17 OF THE MINERAL LEASING ACT OF FEBRUARY 25. EVEN THOUGH THE ROYALTY PAYMENTS DUE THE FORMER OWNER ON ACCOUNT OF SUCH RESERVATIONS ARE FOR DEDUCTION FROM THE ROYALTIES PAYABLE TO THE UNITED STATES. 1950: REFERENCE IS MADE TO YOUR LETTER OF JUNE 12. THE QUESTION IS RAISED AS TO THE AMOUNT OF ROYALTY WHICH SHOULD BE PROVIDED FOR IN THE LEASES TO BE ISSUED UPON PENDING APPLICATIONS FOR LEASES OF SUCH LAND.

B-75430, AUGUST 10, 1950, 30 COMP. GEN. 74

LEASES - OIL AND GAS - LIMITATION ON ROYALTY RATES CHARGEABLE TO LESSEES WHERE LAND IS ACQUIRED BY THE GOVERNMENT SUBJECT TO ROYALTY RESERVATIONS OF THE FORMER OWNER FOR GAS AND OIL PRODUCED THEREFROM, THE LIABILITY OF THE LESSEE OF SUCH LAND FOR ROYALTY PAYMENTS IS TO BE REGARDED AS LIMITED BY SECTION 17 OF THE MINERAL LEASING ACT OF FEBRUARY 25, 1920, AS AMENDED, TO 12-1/2 PERCENT OF ALL GAS AND OIL PRODUCED FROM THE LAND, EVEN THOUGH THE ROYALTY PAYMENTS DUE THE FORMER OWNER ON ACCOUNT OF SUCH RESERVATIONS ARE FOR DEDUCTION FROM THE ROYALTIES PAYABLE TO THE UNITED STATES.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE INTERIOR, AUGUST 10, 1950:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 12, 1950, IN WHICH YOU REQUEST AN OPINION OF THIS OFFICE ON THE MATTER OF THE ISSUANCE BY YOUR DEPARTMENT OF FOUR OIL AND GAS LEASES OF LANDS ACQUIRED BY THE UNITED STATES WITH A RESERVATION TO PETROLEUM COUNTY, MONTANA, OF 6.25 PERCENT ROYALTY ON ALL OIL AND GAS PRODUCED FROM THE LAND.

YOU CALL ATTENTION TO SECTION 3 OF THE ACT OF AUGUST 7, 1947, 61 STAT. 914, 30 U.S.C. 352, PROVIDING THAT OIL AND GAS DEPOSITS ON ACQUIRED LAND SHALL BE LEASED UNDER THE SAME CONDITIONS AS CONTAINED IN THE LEASING PROVISIONS OF THE MINERAL LEASING LAWS, AND SINCE SECTION 17 OF THE MINERAL LEASING ACT OF FEBRUARY 25, 1920, AS AMENDED, 30 U.S.C. 226, PROVIDES A FLAT ROYALTY OF 12-1/2 PERCENT ON ALL GAS AND OIL PRODUCED UNDER A NON-COMPETITIVE LEASE, THE QUESTION IS RAISED AS TO THE AMOUNT OF ROYALTY WHICH SHOULD BE PROVIDED FOR IN THE LEASES TO BE ISSUED UPON PENDING APPLICATIONS FOR LEASES OF SUCH LAND.

FURTHER, IT IS REPORTED THAT PURSUANT TO THE PRESIDENT'S REORGANIZATION PLAN NO. 3 OF 1946, 60 STAT. 1099, AND THE ACT OF AUGUST 7, 1947, SUPRA, A NUMBER OF OIL AND GAS LEASES FORMERLY UNDER THE JURISDICTION OF THE DEPARTMENT OF AGRICULTURE WERE TRANSFERRED TO THE DEPARTMENT OF THE INTERIOR. YOU REFER SPECIFICALLY TO TWO OIL AND GAS LEASES MADE BY THE DEPARTMENT OF AGRICULTURE ON ACQUIRED LANDS PRIOR TO THEIR INCLUSION UNDER THE MINERAL LEASING LAWS, WHICH WERE SUBJECT TO A ROYALTY INTEREST OF 6.25 PERCENT OF THE OIL AND GAS PRODUCED RESERVED BY THE COUNTIES IN WHICH THE LANDS WERE LOCATED. SUCH LEASES PROVIDED THAT THE AMOUNT OF THE ROYALTY PAYMENTS WHICH WERE SUBJECT TO A RESERVATION BY THE COUNTY SHALL BE DEDUCTED FROM THE ROYALTIES PAYABLE TO THE LESSOR. THUS, UPON THE PRODUCTION OF OIL AND GAS ON THE SUBJECT LANDS AND AFTER PAYMENT OF THE ROYALTIES DUE THE COUNTY, THE UNITED STATES WOULD RECEIVE ONLY 6.25 PERCENT ROYALTY SINCE, UNDER EXISTING LAWS, THE ROYALTY IS LIMITED TO 12- 1/2 PERCENT.

YOU NOW ASK WHETHER, UNDER THE AFOREMENTIONED STATUTORY PROVISION PROVIDING FOR A ROYALTY RATE OF 12-1/2 PERCENT, IT IS INCUMBENT UPON YOU TO REQUIRE THE PAYMENT BY YOUR LESSEE OF THAT PERCENTAGE TO THE UNITED STATES AND, IN ADDITION, TO REQUIRE THE LESSEE TO PAY 6.25 PERCENT TO PETROLEUM COUNTY, OR MAY THE ROYALTY PAYMENT TO THE UNITED STATES BE LIMITED TO 6.25 PERCENT SO THAT THE TOTAL ROYALTY OBLIGATION OF THE LESSEE, INCLUDING THE ROYALTY PAYMENT TO PETROLEUM COUNTY, WILL BE ONLY 12 -1/2 PERCENT.

WHILE THE ACT OF AUGUST 7, 1947, ABOVE, MAKING THE MINERAL LEASING LAWS APPLICABLE TO ACQUIRED LANDS DOES NOT CONTAIN PROVISIONS WHICH CAN BE CONSIDERED AS ANSWERING THE PROBLEM AT HAND, SECTION 5 OF SUCH ACT, 61 STAT. 914, AUTHORIZES THE SECRETARY OF THE INTERIOR, WHERE THE UNITED STATES DOES NOT OWN A FULL INTEREST IN THE MINERALS THAT MAY BE PRODUCED FROM THE LANDS SOUGHT TO BE LEASED, TO LEASE ANY INTEREST OF THE UNITED STATES THEN OWNED. THUS, IT WOULD APPEAR THAT THIS ACT PROVIDES A PROPER BASIS FOR THE LEASING OF THE LANDS IN QUESTION SUBJECT TO THE ROYALTY RESERVATION OF THE FORMER OWNER.

THE MINERAL LEASING ACT OF FEBRUARY 25, 1920, WAS AMENDED BY THE ACT OF AUGUST 8, 1946, 60 STAT. 950, 951, FOR THE PURPOSE OF PROMOTING THE DEVELOPMENT OF OIL AND GAS ON THE PUBLIC DOMAIN AND THAT ACT IN AMENDING SECTION 17 OF THE BASIC STATUTE PROVIDED A FIXED ROYALTY RATE OF 12-1/2 PERCENT FOR ALL LEASES OF LANDS NOT WITHIN A KNOWN GEOLOGICAL STRUCTURE OF A PRODUCING OIL AND GAS FIELD. SENATE REPORT NO. 1392, 79TH CONGRESS, IN DISCUSSING THE PURPOSE OF THE AMENDED SECTION 17, STATES, AS FOLLOWS, ON PAGE 2 WITH RESPECT TO LANDS NOT WITHIN A PRODUCING AREA:

* * * AND THAT LANDS NOT WITHIN SUCH KNOWN STRUCTURE (GENERALLY KNOWN AS WILDCAT ACREAGE) SHALL BE LEASED TO THE FIRST APPLICANT AT A ROYALTY RATE OF 12-1/2 PERCENT, THE RATE COMMONLY PREVAILING THROUGHOUT THE PETROLEUM INDUSTRY FOR LANDS OF THAT CHARACTER. * * *

HENCE, BY THE ENACTMENT OF THIS AMENDMENT, IT APPEARS TO HAVE BEEN THE INTENTION OF THE CONGRESS TO PROVIDE A FIXED ROYALTY RATE OF 12-1/2 PERCENT FOR THE PURPOSE OF MAKING SUCH RATE UNIFORM AND IN HARMONY WITH THOSE CHARGED IN LEASES GENERALLY THROUGHOUT THE PETROLEUM INDUSTRY, AND SUCH RATE OF 12-1/2 PERCENT WAS INTENDED AS THE TOTAL ROYALTY PAYABLE BY A LESSEE ON NON-COMPETITIVE LEASES. WHILE, WITH RESPECT TO THE PUBLIC DOMAIN, THE UNITED STATES WOULD RECEIVE THE FULL ROYALTY PAYMENT, THERE IS NOTHING TO INDICATE THAT THE ROYALTY RATE WAS FIXED AT 12-1/2 PERCENT FOR THE PURPOSE OF ASSURING THAT SUCH A RATE WOULD BE RECEIVED BY THE UNITED STATES ON ALL PUBLIC LANDS SO LEASED.

THUS, IT IS ONLY REASONABLE TO CONCLUDE THAT IN A CASE WHERE LAND IS ACQUIRED BY THE GOVERNMENT SUBJECT TO ROYALTY RESERVATIONS OF THE FORMER OWNER FOR GAS AND OIL PRODUCED ON THE LAND, THE LIABILITY FOR ROYALTY PAYMENTS OF A LESSEE OF SUCH LAND MUST BE REGARDED AS LIMITED TO 12-1/2 PERCENT, NOTWITHSTANDING THE FACT THAT THE PAYMENT OF ANY ROYALTIES DUE THE FORMER OWNER OF THE LAND ON ACCOUNT OF SUCH RESERVATIONS OPERATES TO REDUCE THE ROYALTIES PAYABLE TO THE UNITED STATES TO THAT EXTENT.