HBA-ATS, NIK H.B. 3582 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 3582 By: Keffer Civil Practices 7/9/1999 Enrolled BACKGROUND AND PURPOSE Pooling a nonparticipating royalty interest is prohibited without the written consent of the nonparticipating royalty interest owner. This prevents a unit from being pooled if the identity or location of a nonparticipating royalty interest owner is unknown. H.B. 3582 authorizes a district court to appoint a receiver for a royalty interest that is owned by an absent or unknown royalty owner if a particular action is brought against the royalty owner and if certain requirements are met. In addition, this bill sets out pleading and notice requirements and addresses the receiver's duties regarding ratification, pooling, and unitization agreements. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority previously delegated to the Supreme Court of Texas is modified in SECTION 1 (Section 64.093, Civil Practice and Remedies Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter F, Chapter 64, Civil Practice and Remedies Code, by adding Section 64.093, as follows: Sec. 64.093. RECEIVER FOR ROYALTY INTERESTS OWNED BY NONRESIDENT OR ABSENTEE. (a) Authorizes a district court to appoint a receiver for the royalty interest owned by a nonresident or absent defendant in an action that is brought by a person claiming or owning an undivided mineral interest in land in this state or an undivided leasehold interest under a mineral lease of land in the state and that has one or more defendants who have, claim, or own an undivided royalty interest in that property. (b) Provides that the defendant for whom the receiver is sought must be a person whose residence or identity is unknown or a nonresident, and who has not paid taxes on the interest or rendered it for taxes during the five-year period immediately preceding the filing of the action. (c) Provides that the plaintiff must allege by verified petition and prove that the plaintiff has made a diligent but unsuccessful effort to locate the defendant and will suffer substantial damage or injury unless the receiver is appointed. (d) Provides that in an action under Subsection (a): (1) the plaintiff must name the last known owner or last record owner of the interest as the defendant in the petition; (2) the plaintiff must serve notice on the defendant by publication pursuant to the Texas Rules of Civil Procedure (TRCP); (3) the court is authorized to appoint specified persons as the receiver; (4) the applicant is not required to post bond; and (5) the receiver is not required to post bond. (e) Provides that a receivership created under this subchapter (Receiver for Certain Mineral Interests) continues as long as the defendant or the defendant's heirs, assigns, or personal representatives fail to appear in court to claim the interest. (f) Requires the receiver, as ordered by the court, to immediately ratify a mineral lease or pooling agreement or enter into a unitization agreement subject to certain conditions. (g) Authorizes a lease ratified by a receiver under this section to allow the lessee to pool and unitize land subject to the lease with adjacent land into a unit meeting certain specifications. Authorizes a receiver to ratify a pooling agreement to allow a pooled unit which meets certain specifications. (h) Provides that the money consideration, if any, for the execution of a ratification, pooling agreement, or unitization agreement by the receiver must be paid to the clerk of the court in which the case is pending before the instrument is executed. States the general observation that an initial monetary consideration is not typically paid for the execution of ratifications, pooling agreements, and unitization agreements. Requires the court to apply the money to the costs accruing in the case and to retain any balance for the owner of the royalty interest. Requires payments made at a later time under the lease, pooled unit, or unitization agreement to be paid into the registry of the court and impounded for the owner of the royalty interest. (i) Provides that this section is cumulative of other laws relating to removal of a cloud from title or appointment of a receiver. (j) Defines "mineral lease," "leasehold interest," "pooling agreement," and "royalty interest." (k) Provides that if there is a conflict between Subsection (d)(2) and TRCP, Subsection (d)(2) controls to the extent of the conflict. Prohibits the supreme court from amending or adopting rules in conflict with Subsection (d)(2), notwithstanding Section 22.004, Government Code. SECTION 2. Amends Section 52.026, Natural Resources Code, by amending Subsection (a) and adding Subsection (e), as follows: (a) Requires the liability of the transferor of a lease to properly discharge its obligations under the lease to pass to the transferee upon prior written consent of the Commissioner of the General Land Office (commissioner). Prohibits the commissioner from withholding the consent unreasonably. Authorizes the commissioner to require the transferee to demonstrate that it has the financial responsibility to properly discharge its obligations under the lease and to require the transferee to post a bond or provide other security to secure those obligations if the transferee is unable to demonstrate such financial responsibility to the satisfaction of the commissioner. (e) Sets forth that this section (Lease Transfer) does not relieve a person from the duty to comply with a rule adopted or order issued by the Railroad Commission of Texas under another provision of this code. SECTION 3. Amends Section 53.001, Natural Resources Code, by adding Subdivision (4), to define "surface mining." SECTION 4. Amends Sections 53.065(b) and (c), Natural Resources Code, as follows: (b) Makes conforming changes. (c) Sets forth the statutory formula for the percentages of a bonus and rentals and royalties required to be paid by a lessee under a lease executed under this subchapter (Lease of Minerals by Surface Owner) on or after September 1, 1999, for the exploration and production by surface mining of coal, lignite, potash, sulphur, thorium, or uranium. Requires the lessee to pay to the state 60 percent of all bonuses agreed to be paid for the lease and 60 percent of all rentals and royalties that are payable under the lease and to the owner of the surface 40 percent of all bonuses agreed to be paid for the lease and 40 percent of all rentals and royalties payable under the lease. (d) Created from existing text. SECTION 5. Amends Subchapter J, Chapter 91, Natural Resources Code, by adding Section 91.408, as follows: Sec. 91.408. INFORMATION FOR PAYEES OF PROCEEDS OF PRODUCTION FROM CERTAIN GAS WELLS. Requires a payor of proceeds from the sale of gas produced from a tight formation as defined by Section 29(c)(2)(B), Internal Revenue Code of 1986, annually to furnish the payee a statement providing the information necessary to compute the federal income tax credit for the gas for which payment was made in the preceding year. Requires a payor to furnish this statement not later than March 15 each year. SECTION 6. (a) Effective date for Section 5 of this Act: September 1, 1999. (b) Provides that the changes in law made by this Act to Sections 53.001 and 53.065, Natural Resources Code, do not affect a lease for the exploration and production by surface mining of coal, lignite, potash, sulphur, thorium, or uranium that is not within all or part of a survey previously sold with all minerals reserved to the state. SECTION 7. Emergency clause. Effective date: upon passage.