Texas Attorney General Opinion: MW-571 Page: 2 of 3
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Mr. W. J. Estelle, Jr. - Page 2 (MW-571)
the terms of the statute quoted above, all of the oil, gas and mineral
rights to the Shaw Farm were reserved to the state at the time of such
sale in 1935.
By the proviso or provision in the statute which immediately
follows the mineral reservation, the vendee of the surface estate, his
heirs or assigns, shall receive an equal one-eighth of the net
proceeds of the sale of the oil and gas. This proviso does not create
an interest in the mineral estate of the Shaw Farm. The mineral
estate is in the state of Texas. The proviso creates only an interest
in the net proceeds of the sale of minerals by the state, which
interest is in the nature of an incorporeal hereditament.
We can readily visualize two types of sales of the oil and gas
under the Shaw Farm being made by the state: either a sale of the fee
simple absolute in the oil and gas for a fixed price, or a sale by an
oil and gas lease (fee simple determinable) containing a provision for
the payment of bonus, rent, and royalty.
Webster's New International Dictionary, 2d Edition, defines the
word "net" as follows:
Free from all charges or deductions: as (a)
remaining after the deductions of all charges,
outlay, or loss.
Webster's defines the word "proceeds" as follows:
The total amount or the profit arising from an
investment, transaction, levee, or business.
It was held in the case of Sheppard v. Stanolind Oil and Gas
Company, 125 S.W.2d 643, (Tex. Civ. App. - Austin 1939, err. ref'd),
that everything paid or contracted, whether in money or in oil or its
proceeds, as distinguished from delay rentals, constitutes a part of
the purchase price of an oil and gas lease.
Thus, "net proceeds of the sale" by the state of Texas of the oil
and gas underlying the Shaw Farm by the means of a conveyance in fee
simple absolute at a fixed price would be the amount of money that the
state would receive from the sale after deducting therefrom the
state's negligible expenses incurred in conducting the sale.
The "net proceeds of the sale" by the state of Texas of the oil
and gas underlying the Shaw Farm through the means of an oil and gas
lease would be the amount of money in bonus and amount of royalty
(whether received in kind or in monetary value) that the state would
receive from the sale after deducting therefrom the state's negligible
expenses in conducting the sale.
As examples, if the state should sell its oil and gas interest in
the Shaw Farm in fee simple absolute for a fixed amount, for example
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Texas. Attorney-General's Office. Texas Attorney General Opinion: MW-571, text, 1982; (https://texashistory.unt.edu/ark:/67531/metapth272417/m1/2/: accessed March 24, 2019), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.