No. V-0097.

• Court: Texas

Texas Attorney General Opinions 1947. No. V-0097. 1Honorable L. R. Pearson, ChairmanOil, Gas & Mining CommitteeHouse of RepresentativesAustin, TexasOpinion No. V-97Re: Effect which House Bill 67, allowing agreements for cooperative exploration, development, and operation of oil and gas properties, and marketing of gas, would have on the Texas antitrust laws.Dear Sir:We have your letter of March 5, 1947, a portion of which reads:

"Would the passage of the proposed legislation as outlined in House Bill 67 endanger the validity of the antitrust laws of this State, and what, in your opinion, would be the effect of this legislation upon our antitrust statutes from the standpoint of both validity and enforceability?"

The portion of H. B. 67 touching on the antitrust laws declares it to be lawful for two or more "persons" which would include partnerships and corporations, owning, claiming, or controlling production, royalties, leases, or other interest, in the same oil or gas field, to enter into and perform agreements for the purpose of bringing about cooperative explorations, development, and operation of any part or all of such field. Among other things, such agreements may provide for joint exploration; location and spacing of wells; for cycling, re-cycling, repressuring, and pressure maintenance; for the storage of gas; for the marketing of gas, but not the marketing of oil; for the joint extraction of casinghead gas and the return of the gas to the earth. The bill allows agreements "for the equitable distribution on an agreed basis of oil and gas produced therefrom." It provides that no royalty shall be required to be paid on gas returned2to the earth. It provides for the indefinite extensions (holding) of leases covering any part of the lands committed thereto so long as oil or gas is produced in any part of the field covered by the agreement. In other words, if the agreement covered a whole field, every privately owned lease in the field could be held indefinitely by production from one well therein, wherever located. The agreements are to become operative when approved by the Railroad Commission, after notice and hearing, after a finding that they will prevent waste, or "tend" to promote conservation, and will protect correlative rights. Section 5 provides that neither the making nor performance of such agreements shall be unlawful or violate the antitrust laws of the State. The portions of the antitrust laws most closely affected are Art. 7426, R. C. S. 1925, and Art. 1632 P. C., both of which define a "trust" as a combination by two or more persons or corporations:

"1. To create, or which may tend to create, or carry out restrictions in trade or commerce * * * * *

"2. To fix, maintain, increase or reduce the price * * * * *

"3. To prevent or lesson competition * * * * *

"4. To fix or maintain any standard or figure whereby the price of any article * * * * * or the preparation of any product for market or transportation, shall be in any manner affected, controlled or established.

"5. To make * * * or carry out a contract * * * to preclude a free and unrestricted competition among themselves * * * or by which they shall agree to pool, combine or unite any interest they may have in connection with the sale or purchase of any article or commodity * * * *

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"6. To regulate, fix or limit the output of any article or commodity which may be manufactured, mined, produced or sold."

It is obvious from a reading of the above statutes that H.B. 67 is inconsistent with all of the above quoted sections of the antitrust laws in the following particulars: 1. The above quoted antitrust laws (Sec. 1, 3, 5) prohibit agreements which restrict trade, lessen or preclude free and unrestricted competition. H. B. 67 makes such agreements lawful when they are made by persons "owning, claiming, or controlling production, leases", etc. in the "same oil field, gas field, or oil and gas field." The proposed Bill not only lessens competition but legalizes combined production agreements which will preclude competition between parties to the agreements. 2. The antitrust laws (Sec. 5) prohibit pooling, combining, or uniting of interests in connection with sale or purchase of any commodity. H. B. 67 (Sec. ld) expressly allows agreements among oil companies and others in connection with the marketing of gas from a field. 3. The antitrust laws (Sec. 2 and 4) prohibit agreements which fix or maintain prices or standards whereby prices or cost of production of any product are affected, controlled or established. H. B. 67 permits such agreements as to cost of production of oil and gas and as to the price for which gas may be marketed. 4. The antitrust laws (Sec. 6) prohibit agreements which fix or limit the...