TX NATURAL RESOURCES CODE

SUBTITLE B. SURVEYS AND SURVEYORS

CHAPTER 52. OIL AND GAS

SUBCHAPTER D. ROYALTIES



§ 52.131. PAYMENT OF ROYALTY GENERALLY.
     (a) Royalties due under a lease of state land or minerals that are required to be paid to the land office, including leases on land on which a free royalty is reserved pursuant to Section 51.201 or 51.054 of this title, shall be due and shall be paid as provided in this section.
     (b) The commissioner shall by rule set the date for making royalty payments and for filing any reports, documents, or other records required to be filed by the commissioner. However, the commissioner may not set the due date for royalty on oil before the 5th day of the second month succeeding the month of production and may not set the due date for royalty on gas before the 15th day of the second month succeeding the month of production.
     (c) Royalty payments shall be accompanied by:
          (1) an affidavit of the owner, manager, or other authorized agent, completed in the form and manner required by the land office and showing the gross amount and disposition of all oil and gas produced and the market value of the oil and gas;
          (2) a copy of all documents, records, or reports required by the land office, confirming the gross production, disposition, and market value, including gas meter readings, pipeline receipts, gas line receipts, and other checks or memoranda of amount produced and put into pipelines, tanks, pools, and gas lines or gas storage;
          (3) a check stub, schedule, summary, or other remittance advice showing by the assigned land office lease number the amount of royalty being paid on each lease; and
          (4) other reports or records that the land office may require to verify the gross production, disposition, and market value.
     (d) The lessee has the responsibility for paying royalties or having royalties paid by the date provided for payment in this section.
     (e) If any royalty is not paid when due but is paid before the 31st day after the date on which it is due, a penalty of five percent of the royalty due shall be added to the unpaid amount due. If the royalty is not paid before the 31st day after the date on which it is due, a penalty of an additional five percent of the royalty due shall be imposed. The minimum penalty under this section is $25. The penalty may not be imposed in cases of title dispute as to the state's portion of the royalty or to that portion of the royalty in dispute as to the market value of the production.
     (f) The commissioner shall add a penalty of 25 percent to any delinquent royalty if a part of the delinquency is due to fraud or an intent to evade the provisions of this chapter.
     (g) The annual interest rate on delinquent royalties is 12 percent. Interest accrues on delinquent royalties beginning 60 days after the date on which the royalty is due.
     (h) If any report, affidavit, supporting document, or any other instrument required to be filed under this chapter is not filed when due, the commissioner shall charge a reasonable penalty in an amount established by rule adopted by the commissioner.
     (i) Interest charged under Subsection (g) of this section or penalties under Subsection (e), (f), or (h) of this section are in addition to any other right, including forfeiture, that the commissioner may exercise for failure to submit a report or other instrument.
     (j) By rule, the board may provide procedures and standards for reduction of interest charged or penalties assessed under this section or any other interest or penalties assessed by the commissioner relating to unpaid or delinquent royalties.

Acts 1977, 65th Leg., p. 2455, ch. 871, art. I, § 1, eff. Sept. 1, 1977. Amended by Acts 1985, 69th Leg., ch. 624, § 42, 43, eff. Sept. 1, 1985; Acts 1987, 70th Leg., ch. 948, § 23, 24, eff. Sept. 1, 1987; Acts 1993, 73rd Leg., ch. 897, § 30, eff. Sept. 1, 1993.

§ 52.132. FORM OF PAYMENT.
     Except as provided in Section 52.133 of this code, royalty payments shall be made in cash, by bank draft drawn on a state or national bank in Texas, by a post-office or express money order, or in any other form that the law may provide for making payments to the State Treasury and are payable to the commissioner in Austin.

Acts 1977, 65th Leg., p. 2455, ch. 871, art. I, § 1, eff. Sept. 1, 1977.

§ 52.133. PAYMENT OF ROYALTY IN KIND.
     (a) Each oil or gas lease covering land leased by the board, by a board for lease, or by the surface owner of land under which the state owns the minerals, commonly referred to as Relinquishment Act land, which shall be subject to approval by the commissioner before it is effective, shall include a provision granting the board authorized to lease the land or the owner of the soil of Relinquishment Act land and the commissioner authority to take their royalty in kind, and the commissioner and the boards for lease may include any other reasonable provisions that are not inconsistent with this section.
     (b) The option to take the royalty in kind may be exercised at any time or from time to time on not less than 60 days' notice to the holder of the lease.
     (c) The commissioner, the owner of the soil under Subchapter F, or the commissioner acting on the behalf of and at the direction of an owner of the soil under Subchapter F, the board, or a board for lease, or at the direction of the Board for Lease of University Lands, may negotiate and execute contracts or any other instruments or agreements necessary to dispose of or enhance their portion of the royalty taken in kind, including contracts for sale, marketing, purchase, transportation, including purchase and exchange agreements necessary to transport gas, and storage and including insurance contracts or other agreements, to secure or guarantee payment.
     (d) The commissioner, the owner of the soil under Subchapter F, or the commissioner acting on behalf of and at the direction of an owner of the soil under Subchapter F, the board, or a board for lease may negotiate and execute contracts or any other instruments or agreements necessary to convert that portion of the royalty taken in kind into other forms of energy, including electricity.
     (e) This section shall not be construed to surrender or in any way affect the right of the state or the owner of the soil under existing or future leases to receive royalty from its lessee on the basis of the market value of the production from state public land or land under the provisions of Subchapter F of this chapter.
     (f) For the purposes of this section, royalty taken in kind includes oil or gas sold or marketed by the commissioner that has been produced on state mineral lands or from the first three miles of federal waters adjacent to the state boundaries, also known as the 8g zone.

Acts 1977, 65th Leg., p. 2455, ch. 871, art. I, § 1, eff. Sept. 1, 1977. Amended by Acts 1993, 73rd Leg., ch. 897, § 31, eff. Sept. 1, 1993; Acts 1995, 74th Leg., ch. 427, § 1, eff. Aug. 28, 1995;

Acts 1999, 76th Leg., ch. 405, § 49, eff. Sept. 1, 1999.

§ 52.134. FILING CONTRACTS AND AGREEMENTS.
     Copies of contracts for the sale or processing of gas and subsequent agreements and amendments to those contracts shall be filed in the land office within 30 days after the contracts, agreements, or amendments are made. These contracts and agreements received by the land office shall be held in confidence by the land office unless otherwise authorized by the lessee.

Acts 1977, 65th Leg., p. 2456, ch. 871, art. I, § 1, eff. Sept. 1, 1977.

§ 52.135. INSPECTIONS AND EXAMINATIONS.
     (a) The books and accounts, receipts, and discharges of all lines, tanks, pools, and meters and all contracts and other records relating to the production, transportation, sale, and marketing of the oil and gas are subject at any time to inspection and examination by the commissioner and the attorney general and governor or their representatives.
     (b) If, after inspection and examination of books, accounts, reports, or other records, the commissioner or his representative determines that additional royalties are due under a lease of state land or minerals, the commissioner shall send to the lessee by certified mail, return receipt requested, an audit billing notice notifying the lessee of such additional royalties, and interest and penalty, due and of the reasons for such determination.
     (c) The lessee shall have 30 days from the date of the receipt of such audit billing notice in which to pay such audit deficiency assessment or to request a hearing before the commissioner or his representative for redetermination of such assessment. A statement of grounds setting out in detail the lessee's reasons for disagreement with such assessment and the factual and legal grounds on which the claim is based must be submitted by a lessee with its request for a hearing. Such hearing shall be conducted in accordance with the rules and procedures established by the commissioner.
     (d) In order to stop the further accrual of penalty or interest, the lessee may pay the additional royalties assessed at any time after receipt of an audit billing notice.

Acts 1977, 65th Leg., p. 2456, ch. 871, art. I, § 1, eff. Sept. 1, 1977. Amended by Acts 1986, 69th Leg., 3rd C.S., ch. 5, § 1, eff. Sept. 30, 1986.

§ 52.136. LIEN.
     (a) The state has a statutory first lien on all oil and gas produced on any lease area to secure payment of unpaid royalty and other amounts due.
     (b) By acceptance of a lease, the lessee grants to the state an express contractual lien on and security interest in all oil and gas in and extracted from the area covered by the lease, all proceeds which may accrue to the lessee from the sale of the oil and gas, whether the proceeds are held by the lessee or another person, and all fixtures on and improvements to the area covered by the lease used in connection with the production or processing of the oil and gas, to secure the payment of royalties and other amounts due or to become due under the lease or this subchapter and to secure payment of damages or loss that the state may suffer by reason of the lessee's breach of a covenant or condition of the lease, whether express or implied.
     (c) The statutory and contractual liens and security interests described in this section may be foreclosed with or without court proceedings in the manner provided under Chapter 9, Business & Commerce Code. The state may require the lessee to execute and record instruments reasonably necessary to acknowledge, attach, or perfect the liens.

Acts 1977, 65th Leg., p. 2456, ch. 871, art. I, § 1, eff. Sept. 1, 1977. Amended by Acts 1997, 75th Leg., ch. 1324, § 2, eff. Jan. 1, 1998.

§ 52.137. SUIT AFTER PROTEST PAYMENT.
     (a) If a lessee, who has received an audit deficiency assessment and has waived the right to request a hearing before the commissioner or who is required by final order of the commissioner following a hearing to pay additional royalties, contends that such audit deficiency assessment is unlawful or that the commissioner may not legally demand or collect such royalties the lessee shall pay to the commissioner the amount claimed by the commissioner, and if the lessee intends to bring suit under this section, the lessee must submit with the payment a protest in writing stating fully and in detail each reason why it contends such royalty is not due. Such payment shall be made to the commissioner within 30 days of the date of receipt of the audit billing notice or of the date of receipt of the final order of the commissioner following a hearing, as the case may be. All such mailings shall be by certified mail, return receipt requested.
     (b) The commissioner, upon receipt of such payment made under protest as authorized by this section, shall send to the comptroller the payment and a written statement that the payment was made under protest. Immediately upon receipt, the comptroller shall:
          (1) place the payment in state depositories bearing interest in the same manner that other funds are required to be placed in state depositories at interest;
          (2) allocate the interest earned on these funds;
          (3) credit the amount allocated to an account established for this purpose until the status of the protest is finally determined; and
          (4) upon final determination that some or all of the protested funds belong to the state, deposit the principal and the allocated interest to the permanent school fund.
     (c) A suit may be brought under this section against the commissioner to recover the payment under protest. A suit under this section is barred unless brought in the district courts of Travis County within 90 days after the date of the protest payment or within 90 days after the date of the final order of the commissioner following hearing, whichever is later.
     (d) The issues to be determined in a suit under this section are limited to those arising from the reasons stated in the written protest as originally filed.
     (e) The trial of the issues in a suit under this section is de novo and the substantial evidence rule will not apply.

Added by Acts 1986, 69th Leg., 3rd C.S., ch. 5, § 2, eff. Sept. 30, 1986. Amended by Acts 1987, 70th Leg., ch. 948, § 25, eff. Sept. 1, 1987; Acts 1997, 75th Leg., ch. 1423, § 14.13, eff. Sept. 1, 1997; Acts 2003, 78th Leg., ch. 328, § 7, eff. Jan. 1, 2004.

§ 52.138. REFUND.
     If a suit authorized by Section 52.137 of this code results in a final determination that all or part of the payment under protest was not due or was unlawfully demanded by the commissioner and belongs to the lessee, the comptroller shall refund the proper amount, with the pro rata interest earned on that amount, by issuance of a refund warrant drawn against the account established for such purpose. The refund warrant shall be returned to the commissioner and the commissioner shall deliver it to the person entitled to receive it.

Added by Acts 1986, 69th Leg., 3rd C.S., ch. 5, § 2, eff. Sept. 30, 1986. Amended by Acts 1997, 75th Leg., ch. 1423, § 14.14, eff. Sept. 1, 1997.

§ 52.139. LIMITATIONS ON AUDIT ASSESSMENTS.
     (a) If an audit billing notice has been issued under Section 52.135 and any outstanding audit deficiency assessment has been paid either:
          (1) voluntarily;
          (2) after a hearing was requested and the commissioner has entered a final non-appealable order concerning the assessment; or
          (3) after a final non-appealable judgment has been rendered by a court after payment of an audit assessment under protest and filing of a suit for refund under Section 52.137 of this code, then the commissioner may not issue another deficiency assessment which covers the same issues, time periods, and leases as those covered by the previous assessment.
     (b) If the commissioner audits a lessee's books and records under Section 52.135 of this code the commissioner shall notify the lessee upon completion of his findings. If the commissioner notifies the lessee that no additional royalties are due, the commissioner may not again audit the books and records covering the same issues, time periods, and leases involved in the first audit.
     (c) This section shall not preclude the commissioner from conducting subsequent audits or examinations covering the same issues, time periods, and leases in cases where fraud exists or where the first audit deficiency assessment results only from an examination of documents, records, or reports submitted to the commissioner and not from a complete audit of the books, accounts, reports, or other records of a lessee.

Added by Acts 1987, 70th Leg., ch. 948, § 26, eff. Sept. 1, 1987.

§ 52.140. AUDIT INFORMATION CONFIDENTIAL.
     (a) All information secured, derived, or obtained during the course of an inspection or examination of books, accounts, reports, or other records, as provided in Section 52.135 of this code, is confidential and may not be used publicly, opened for public inspection, or disclosed, except for information set forth in a lien filed under this chapter and except as permitted under Subsection (d) of this section.
     (b) All information made confidential in this section shall not be subject to subpoena directed to the commissioner, the attorney general, or the governor except in a judicial or administrative proceeding in which this state is a party.
     (c) The commissioner or the attorney general may use information made confidential by the provisions of this section and contracts made confidential by Section 52.134 of this code to enforce any provisions of this chapter or may authorize their use in judicial or administrative proceedings in which this state is a party.
     (d) This section does not prohibit:
          (1) the delivery of information made confidential by this section to the lessee or its successor, receiver, executor, guarantor, administrator, assignee, or representative;
          (2) the publication of statistics classified to prevent the identification of a particular audit or items in a particular audit;
          (3) the release of information which is otherwise available to the public; or
          (4) the release of information concerning the amount of royalty assessed as a result of an examination conducted under Section 52.135 of this code or the release of other information which would have been properly included in reports required under Section 52.131 of this code.

Added by Acts 1987, 70th Leg., ch. 948, § 27, eff. Sept. 1, 1987.