CHAPTER 66. PERMANENT UNIVERSITY FUND

EDUCATION CODE

TITLE 3. HIGHER EDUCATION

SUBTITLE C. THE UNIVERSITY OF TEXAS SYSTEM

CHAPTER 66. PERMANENT UNIVERSITY FUND

SUBCHAPTER A. COMPOSITION, INVESTMENT, AND USE

Sec. 66.01. PERMANENT UNIVERSITY FUND. The composition,

investment, purposes, and use of the permanent university fund

are governed by Article VII, Sections 10, 11, 11a, 15, and 18, of

the Texas Constitution.

Acts 1971, 62nd Leg., p. 3149, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.02. AVAILABLE UNIVERSITY FUND. Distributions from the

permanent university fund shall constitute the available

university fund. All distributions from the permanent university

fund shall be deposited in the State Treasury to the credit of

the available university fund by the board of regents of The

University of Texas System or by the custodian or custodians of

the permanent university fund's securities. The University of

Texas System shall provide the information necessary for the

comptroller to accurately account for distributions from the

permanent university fund and to protect state revenues. The

system shall provide the information using the method, format,

and frequency required by the comptroller.

Acts 1971, 62nd Leg., p. 3149, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971. Amended by Acts 1997, 75th Leg., ch. 1311, Sec. 1,

eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 1467, Sec. 1.04,

eff. June 19, 1999.

Sec. 66.04. VALIDITY OF BONDS PURCHASED BY BOARD. Whenever the

board has purchased the bonds of any city, county, or

municipality, approved by the attorney general, the certificate

of the attorney general attesting their validity shall be

admitted and received as prima facie evidence of the validity of

the bonds; and in all cases in which the proceeds of the sale of

these bonds have been received by the proper officers of the

city, municipality, or county, or by the party acting for them in

negotiating the sale of the bonds, the city, municipality, or

county is thereafter estopped from denying the validity of the

bonds and they shall be held to be valid and binding obligations.

In the case of any bonds bought under this section, premium or

discount shall be distributed over the life of the bonds.

Acts 1971, 62nd Leg., p. 3149, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.05. REPORTS. (a) Before December 1 of each year the

board of regents of The University of Texas System shall prepare

a written report providing statements of assets and a schedule of

changes in book value of the investments from the permanent

university fund during the year ending August 31 preceding the

publication of the report.

(b) The report shall contain a summary of all gains, losses and

income from investments and an itemized list of all securities

held for the fund on August 31. The report shall also contain any

other information needed to clearly indicate the nature and

extent of investments made of the fund and all income realized

from the components of the fund.

(c) The report shall be distributed to the governor, state

comptroller of public accounts, state auditor, attorney general,

commissioner of higher education, and to the members of the

legislature by the 1st day of January each year. The board shall

furnish copies of the report to any interested person on request.

Added by Acts 1971, 62nd Leg., p. 3347, ch. 1024, art. 2, Sec.

20, eff. Sept. 1, 1971. Amended by Acts 1995, 74th Leg., ch. 823,

Sec. 8, eff. Aug. 28, 1995; Acts 1997, 75th Leg., ch. 1423, Sec.

5.17, eff. Sept. 1, 1997.

Sec. 66.06. WRITTEN OBJECTIVES; PERFORMANCE EVALUATION. (a)

The board of regents of The University of Texas System shall

develop written investment objectives concerning the investment

of the permanent university fund. The objectives may address

desired rates of return, risks involved, investment time frames,

and any other relevant considerations.

(b) The board of regents shall evaluate and analyze the

investment results of the permanent university fund. The service

shall compare investment results with the written investment

objectives developed by the board of regents, and shall also

compare the investment of the permanent university fund with the

investment of other funds operating with substantially the same

objectives and restrictions.

Added by Acts 1983, 68th Leg., p. 5097, ch. 925, Sec. 2, eff.

Aug. 29, 1983. Amended by Acts 1995, 74th Leg., ch. 823, Sec. 9,

eff. Aug. 28, 1995.

Sec. 66.07. CUSTODY AND INVESTMENT OF ASSETS PENDING

TRANSACTIONS. With the approval of the comptroller, the board of

regents of The University of Texas System may appoint one or more

commercial banks, depository trust companies, or other entities

to serve as a custodian or custodians of the permanent university

fund's securities with authority to hold the money realized from

those securities pending completion of an investment transaction

if the money held is reinvested within one business day of

receipt in investments determined by the board of regents. Money

not reinvested within one business day of receipt shall be

deposited in the state treasury not later than the fifth day

after the date of receipt.

Added by Acts 1997, 75th Leg., ch. 1311, Sec. 2, eff. Sept. 1,

1997.

Sec. 66.08. INVESTMENT MANAGEMENT. (a) The board may delegate

investment authority for the investment of the permanent

university fund to the same extent as an institution with respect

to an institutional fund under Chapter 163, Property Code.

(b) The board may enter into a contract with a nonprofit

corporation for the corporation to invest funds under the control

and management of the board, including the permanent university

fund, as designated by the board. The corporation may not engage

in any business other than investing funds designated by the

board under the contract.

(c) The board must approve the:

(1) articles of incorporation and bylaws of the corporation and

any amendment to the articles of incorporation or bylaws;

(2) investment policies of the corporation, including changes to

those policies;

(3) audit and ethics committee of the corporation; and

(4) code of ethics of the corporation.

(d) The board of directors of the corporation shall have nine

members. The board shall appoint and remove all members of the

board of directors of the corporation. At least three members of

the board and the chancellor of The University of Texas System

shall be appointed as directors.

(e) The board shall select one or more of the members of the

board of directors of the corporation from a list of candidates

with substantial background and expertise in investments that is

submitted to the board by the board of regents of The Texas

A&M University System.

(f) If an investment contract entered into under Subsection (b)

includes the permanent university fund within the scope of funds

under the control and management of the board to be invested by

the corporation, the board shall provide for an annual financial

audit of the permanent university fund. The audit shall be

performed by the auditors of The University of Texas System and

The Texas A&M University System and presented to the board.

(g) The corporation shall file quarterly reports with the board

concerning matters required by the board.

(h) The corporation:

(1) is subject to the Texas Non-Profit Corporation Act (Article

1396-1.01 et seq., Vernon's Texas Civil Statutes); and

(2) is subject to the provisions of Chapter 551, Government Code

(the open meetings law), that apply to the board of regents of

The University of Texas System, except that the board of

directors of the corporation:

(A) may discuss an investment or potential investment with one

or more employees of the corporation or with a third party to the

extent permitted to the board of trustees of the Texas growth

fund under Section 551.075, Government Code; and

(B) is not subject to Section 551.121 or Section 551.125,

Government Code, rather any director of the corporation may

attend any meeting of the board of directors by telephone

conference call provided that the telephone conference is audible

to the public at the meeting location specified in the notice of

the meeting during each part of the meeting that is required to

be open to the public.

(i) The corporation may not enter into an agreement or

transaction with a:

(1) director, officer, or employee of the corporation acting in

other than an official capacity on behalf of the corporation; or

(2) business entity in which a director, officer, or employee of

the corporation has an interest

(j) An agreement or transaction entered into in violation of

Subsection (i) is void.

(k) For purposes of this section, a person has an interest in a

business entity if:

(1) the person owns five percent or more of the voting stock or

shares of the business entity;

(2) the person owns five percent or more of the fair market

value of the business entity; or

(3) money received by the person from the business entity

exceeds five percent of the person's gross income for the

preceding calendar year.

(l) A former director of the corporation may not make any

communication to or appearance before a director, officer, or

employee of the corporation before the second anniversary of the

date an individual ceased to be a director of the corporation if

the communication or appearance is made:

(1) with the intent to influence; and

(2) on behalf of any person in connection with any matter on

which the person seeks action by the corporation.

(m) A former officer or employee of the corporation may not

represent any person or receive compensation for services

rendered on behalf of any person regarding a particular matter in

which the former officer or employee participated during the

period of service or employment with the corporation, either

through personal involvement or because the particular matter was

within the officer's or employee's responsibility.

(n) An individual who violates Subsection (l) or (m) commits an

offense. An offense under this subsection is a Class A

misdemeanor.

(o) In this section:

(1) "Board" means the board of regents of The University of

Texas System.

(2) "Institution" and "institutional fund" have the meanings

assigned by Chapter 163, Property Code.

(3) "Participated" means to have taken action as an officer or

employee through decision, approval, disapproval, recommendation,

giving advice, investigation, or similar action.

(4) "Particular matter" means a specific investigation,

application, request for a ruling or determination, rulemaking

proceeding, contract, claim, charge, accusation, arrest, or

judicial or other proceeding.

Added by Acts 1983, 68th Leg., p. 5100, ch. 926, Sec. 2, eff.

Aug. 29, 1983. Renumbered from Education Code Sec. 66.06 by Acts

1987, 70th Leg., ch. 167, Sec. 5.01(a)(20), eff. Sept. 1, 1987.

Amended by Acts 1995, 74th Leg., ch. 213, Sec. 3, eff. May 23,

1995; Acts 1997, 75th Leg., ch. 19, Sec. 1, eff. April 25, 1997;

Acts 2001, 77th Leg., ch. 118, Sec. 3.06, eff. Sept. 1, 2001.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 3, eff. September 1, 2007.

Acts 2007, 80th Leg., R.S., Ch.

834, Sec. 4, eff. September 1, 2007.

Sec. 66.09. COST VALUE OF INVESTMENTS AND OTHER ASSETS OF THE

PERMANENT UNIVERSITY FUND. If substantially all of the assets of

the permanent university fund are invested in an internal

investment fund established by the board of regents of The

University of Texas System, the cost value of the permanent

university fund's investment in the commingled fund for the

purpose of Sections 18(a) and (b), Article VII, Texas

Constitution, shall be calculated by multiplying the permanent

university fund's ownership percentage in the commingled fund by

the commingled fund's net asset value at cost as determined by

the board of regents. The permanent university fund's ownership

percentage of the commingled fund shall be determined by dividing

the permanent university fund's units of participation or shares

by the total units or shares of the commingled fund.

Added by Acts 1999, 76th Leg., ch. 1467, Sec. 1.06, eff. June 19,

1999.

SUBCHAPTER B. PERMANENT UNIVERSITY FUND BONDS AND NOTES

Sec. 66.21. REGISTRATION. All bonds and notes issued pursuant

to the provisions of Article VII, Section 18, of the Texas

Constitution, as originally adopted or as amended, shall be

registered by the comptroller of public accounts after they have

been approved by the attorney general.

Acts 1971, 62nd Leg., p. 3150, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.22. REFUNDING BONDS AND NOTES. Any bonds or notes

issued pursuant to the constitutional provisions described in

Section 66.21 of this code, or issued pursuant to this

subchapter, may be refunded by the governing board which issued

the bonds or notes, upon such terms and conditions, including

interest rates and maturities, as may be determined by that

board, provided that such terms and conditions shall not be

inconsistent with the applicable constitutional provisions. Any

such bonds or notes may be so refunded by the issuance of

refunding bonds or notes, either to be exchanged for the bonds or

notes being refunded and cancelled, or to be sold, with the

proceeds to be used for the redemption and cancellation of the

bonds or notes being refunded.

Acts 1971, 62nd Leg., p. 3150, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.23. REFUNDING BONDS AND NOTES: APPROVAL; REGISTRATION.

All refunding bonds or notes authorized to be issued under this

subchapter and the records relating to their issuance, including

any proceedings relating to the redemption of any outstanding

bonds or notes, shall be submitted to the attorney general for

examination, and if he finds that they have been issued in

accordance with law, he shall approve them, and then they shall

be registered by the comptroller of public accounts, and after

such approval and registration they shall be incontestable. When

any such refunding bonds or notes are issued to be exchanged for

any outstanding bonds or notes, the comptroller of public

accounts shall register and deliver such refunding bonds on

surrender for cancellation of the bonds or notes being refunded.

When any such refunding bonds or notes are sold, with the

proceeds to be used for redeeming any outstanding bonds or notes,

the comptroller of public accounts shall register such refunding

bonds or notes, even though the bonds or notes to be redeemed

shall not have been surrendered for redemption or cancellation.

Acts 1971, 62nd Leg., p. 3150, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.24. AUTHORIZED INVESTMENTS; SECURITY FOR DEPOSITS. All

bonds and notes, whether original or refunding, issued pursuant

to the constitutional provisions or issued pursuant to this

subchapter, shall be fully negotiable instruments, and all bonds

and notes are declared to be legal and authorized investments for

banks, savings banks, trust companies, building and loan

associations, savings and loan associations, insurance companies,

fiduciaries, trustees, guardians, and for the sinking funds of

cities, towns, villages, counties, school districts, and all

other political corporations or subdivisions of the State of

Texas; and the bonds and notes shall be eligible to secure the

deposit of any and all public funds of the State of Texas, and

any and all public funds of cities, towns, villages, counties,

school districts, and all other political corporations or

subdivisions of the State of Texas; and the bonds and notes shall

be lawful and sufficient security for those deposits to the

extent of their par value when accompanied by all unmatured

coupons appurtenant to them.

Acts 1971, 62nd Leg., p. 3150, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.25. TAX EXEMPT. The carrying out of the purposes of the

constitutional provisions and of this subchapter will be

performing an essential public function under the constitution,

and all bonds and notes, whether original or refunding,

heretofore or hereafter issued pursuant to the constitutional

provisions or this subchapter, and their transfer and the income

from them, including the profits made on their sale, shall at all

times be free from taxation of this state.

Acts 1971, 62nd Leg., p. 3151, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

SUBCHAPTER C. MANAGEMENT OF UNIVERSITY LANDS

Sec. 66.41. MANAGEMENT OF UNIVERSITY LANDS. The board of

regents of The University of Texas System has the sole and

exclusive management and control of the lands set aside and

appropriated to, or acquired by, the permanent university fund.

The board may sell, lease, and otherwise manage, control, and use

the lands in any manner and at prices and under terms and

conditions the board deems best for the interest of the permanent

university fund, not in conflict with the constitution. However,

the land shall not be sold at a price less per acre than that at

which the same class of other public land may be sold under the

statutes. No grazing lease shall be made for a period of more

than 10 years.

Acts 1971, 62nd Leg., p. 3151, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.42. DUTY OF LAND COMMISSIONER. The commissioner of the

general land office shall:

(1) furnish to the board of regents complete and accurate maps

and all other data necessary to show the location and condition

of every tract of the university lands;

(2) furnish to the board any additional information it may

require; and

(3) render to the board any possible assistance it may request

in the discharge of its duties under this chapter.

Acts 1971, 62nd Leg., p. 3151, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.43. UNIVERSITY LANDS: SURVEYS; PERSONNEL. (a) The

board of regents shall cause to be done such surveying or

resurveying of the blocks and subdivisions of the university

lands as may be necessary to enable the lines of the blocks and

sections and fractional sections to be determined and identified

and have such corners as may be necessary to that end permanently

marked. When it is impracticable to establish such lines and

corners as originally surveyed, or when such sections have not

been actually surveyed on the ground, the blocks shall be

surveyed or resurveyed and divided into surveys of sections and

fractional sections, and as many corners thereof as may be

necessary for the identification shall be permanently marked. The

surveyors to do such surveying shall be employed by the board.

The field notes of such surveys shall be returned to the general

land office, and when correct and in accordance with law shall be

approved by the commissioner of the general land office, filed in

the general land office, and become archives therein.

(b) The board of regents may employ and compensate personnel the

board deems necessary in connection with performance of any

duties under this section or under Subchapter D of this chapter.

Acts 1971, 62nd Leg., p. 3151, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.44. MANAGEMENT OF MINERALS OTHER THAN OIL AND GAS. The

board of regents has the sole and exclusive management and

control of all minerals, other than oil and gas, in lands set

aside and appropriated to, or acquired by the permanent

university fund. The board may sell, lease, and otherwise manage

and control the minerals, other than oil and gas, in those lands

as may seem best to it for the interests of the permanent

university fund. The board may also explore and have explored and

developed the minerals and may make any contract or contracts

with any person, association of persons, firm, or corporation for

the exploration, development, mining, production, disposition,

and sale of the minerals in those lands.

Acts 1971, 62nd Leg., p. 3152, ch. 1024, art. 1, Sec. 1, eff.

Sept. 1, 1971.

Sec. 66.45. SOIL AND WATER CONSERVATION PLANS. Under each lease

issued under this subchapter for agricultural or grazing

purposes, the lessee shall be required to implement a soil and

water conservation plan reviewed and approved by the board of

regents of The University of Texas System under procedures

adopted by the board. The board, in reviewing a plan, and the

lessee, in implementing a plan, may be assisted by the United

States Department of Agriculture Soil Conservation Service.

Added by Acts 1985, 69th Leg., ch. 613, Sec. 7, eff. Sept. 1,

1985.

Sec. 66.46. EASEMENTS ON UNIVERSITY LAND. (a) The board of

regents of The University of Texas System may execute grants of

easements or other interests in property for rights-of-way or

access across land that belongs to the state but is dedicated to

the support and maintenance of The University of Texas System for

telephone, telegraph, electric transmission, and powerlines, for

oil pipelines, gas pipelines, sulphur pipelines, and other

electric lines and pipelines of any nature, and for irrigation

canals, laterals, and water pipelines.

(b) The board of regents may execute grants of easements for the

erection and maintenance of electric substations, pumping

stations, loading racks, and tank farms on university land, and

for any other purpose the board determines to be in the best

interest of the permanent university fund land.

(c) In addition to the purposes for which grants of easements

may be executed under Subsections (a) and (b), the board of

regents may execute grants of easements on university land for

any other purpose and on any terms it considers to be in the best

interest of the permanent university fund land.

(d) An easement under this section may not be granted for a term

that is longer than 10 years, but the easement may be renewed by

the board of regents. The rent to be charged for an easement

under this section shall be an amount agreed to by the grantee

and the board.

(e) Income received from university land under this section

shall be credited to the available university fund.

(f) Payments under this subchapter that are past due shall bear

interest at a rate equal to the rate imposed by the comptroller

under Section 111.060, Tax Code, for delinquent payments due the

state, except that if the board of regents enters into an

agreement with the grantee of the easement specifying a lower

rate, the payments bear interest at that lower rate.

(g) Each easement granted under this section shall be recorded

in the county clerk's office of the county in which the land is

located, and the recording fee shall be paid by the person who

obtains the easement. The person who obtains the easement shall

furnish to the board of regents a certified copy of the easement.

(h) No person may construct or maintain any structure or

facility on land dedicated to the support and maintenance of The

University of Texas System, nor may any person who has not

acquired a proper easement, lease, permit, or other instrument

from the board of regents and who owns or possesses a facility or

structure that is now located on or across land dedicated to the

support and maintenance of The University of Texas System

continue in possession of the land unless the person obtains from

the board an easement, lease, permit, or other instrument for the

land on which the facility or structure is to be constructed or

is located.

(i) A person who constructs, maintains, owns, or possesses a

facility or structure on university land without a proper

easement or lease is liable for a penalty of not less than $50 or

more than $1,000 a day for each day that a violation occurs. The

penalty shall be recovered on behalf of the board of regents in a

civil action by the attorney general.

(j) A person who owns, maintains, or possesses an unauthorized

facility or structure is, for purposes of this section, the

person who last owned, maintained, or possessed the facility or

structure.

(k) A person who constructs, maintains, owns, or possesses a

facility or structure on university land without the proper

easement or lease is liable to the board of regents for the costs

of removing that facility or structure.

(l) This section does not affect the authority of the board of

regents under Section 66.41.

Acts 1977, 65th Leg., p. 2438, ch. 871, art. I, Sec. 1, eff.

Sept. 1, 1977. Amended by Acts 1985, 69th Leg., ch. 624, Sec. 36,

eff. Sept. 1, 1985.

Transferred from Natural Resources Code, Section 51.293 and

amended by Acts 2007, 80th Leg., R.S., Ch.

387, Sec. 6, eff. June 15, 2007.

SUBCHAPTER D. BOARD FOR LEASE OF UNIVERSITY LANDS

Sec. 66.61. DEFINITIONS. In this subchapter:

(1) "Board" means the Board for Lease of University Lands.

(2) "Board of regents" means the board of regents of The

University of Texas System, except where otherwise specified.

(3) "Commissioner" means the commissioner of the General Land

Office.

(4) "Oil and gas" means crude oil, natural gas, and all

substances, including other hydrocarbons, produced in association

with crude oil and natural gas.

(5) "University lands" means land dedicated to the permanent

university fund.

(6) "Well" means an oil or gas well that has been assigned a

well number by the state agency having regulatory jurisdiction

over the production of oil and gas. A single wellbore may contain

more than one well.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.62. BOARD FOR LEASE OF UNIVERSITY LANDS. (a) The board

is composed of the commissioner, two members of the board of

regents selected by that board, and one member of the board of

regents of The Texas A&M University System selected by that

board. If a regent member is unable to attend a meeting of the

board, the presiding officer of the board of regents of the

applicable system may appoint another member of that board of

regents as a substitute member of the board to attend the meeting

that the regular regent member is unable to attend. The

substitute regent member shall exercise all the powers, duties,

and responsibilities of the absent regent member during the

conduct of the meeting for which he was appointed. A substitute

regent member is subject to the provisions of this subchapter.

(b) Members of the board, other than the commissioner, serve

two-year terms expiring February 1 of each odd-numbered year.

Regent members continue to serve until a successor is appointed

and qualified.

(c) The commissioner is chairman of the board.

(d) A person who is directly or indirectly employed by, or is an

officer or employee of a person or entity actively engaged in the

exploration for or production of oil and gas, other than as a

landowner or royalty owner, may not be a regent member.

(e) An officer, employee, or paid consultant of a trade

association in the oil and gas industry may not be a regent

member or employee of the board, nor may a person who cohabits

with or is the spouse of an officer, managerial employee, or paid

consultant of a trade association in the oil and gas industry be

a regent member of the board or a non-classified employee of the

board.

(f) A person who is required to register as a lobbyist under

Chapter 305, Government Code, by virtue of his activities for

compensation in or on behalf of a profession related to the

operation of the board, may not serve as a regent member of the

board or act as the general counsel to the board.

(g) The board of regents of the university system appointing a

regent member may remove the regent member from the board if that

member:

(1) does not have at the time of appointment the qualifications

required by this section for appointment to the board;

(2) does not maintain during the service on the board the

qualifications required by this section for appointment to the

board;

(3) violates a prohibition established by Subsection (d), (e),

or (f);

(4) is unable to discharge his duties for a substantial portion

of the term for which he was appointed because of illness or

disability; or

(5) is absent from more than one-half of the regularly scheduled

board meetings which the member is eligible to attend during a

calendar year, except when the absence is excused by majority

vote of the board.

(h) The board is exempt from the provisions of Chapter 2001,

Government Code.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.63. CERTAIN BOARD ACTIONS. (a) A majority of the

members of the board have the power to act for the board on a

matter before the board. Two members of the board have the power

to award leases issued on a form of lease previously approved by

a majority of the board.

(b) The validity of an action of the board is not affected

because it was taken when a ground for removal of a regent member

of the board existed. A regent member continues to serve until

removed under Section 66.62(g).

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.64. POWERS AND DUTIES OF THE BOARD. (a) The board

shall in a manner consistent with this subchapter:

(1) lease university lands for oil and gas exploration and

development on terms, at times, and in the manner it may

determine;

(2) contract for the sale or other disposition of oil and gas

royalties taken in kind;

(3) adopt rules and policies for the administration and

enforcement of this subchapter and leases issued under this

subchapter;

(4) set fees and penalties for the administration and

enforcement of this subchapter;

(5) set the terms of a contract for the development of

university lands for oil and gas;

(6) approve agreements that commit the royalty interest in

university lands on terms acceptable to the board; and

(7) exercise other powers and authority and perform other duties

as may be reasonably necessary to administer and enforce the

provisions of this subchapter.

(b) The board shall hold meetings and keep records of its

proceedings in a manner consistent with the requirements of

Chapter 551, Government Code. The board shall develop and

implement policies which provide the public with a reasonable

opportunity to appear before the board, to speak on an issue

under the board's jurisdiction, or be heard with respect to a

declaration of forfeiture. The board shall give written notice to

each lessee whose leasehold interest may be forfeited. Such

notice shall be given at least 21 days before the meeting at

which the board will consider forfeiture of the lease. The notice

shall state the time, date, and place of the meeting of the board

and include a statement of the board's policy concerning the

public's opportunity to be heard with respect to a declaration of

forfeiture. Notice shall be properly given when mailed to the

last known address of the lessee based on the records of the

board of regents or, if the records do not contain an address, to

any address that may reasonably be determined to be an address

for the lessee.

(c) Except as otherwise provided in this subchapter, the records

of the board are subject to the requirements of Chapter 552,

Government Code.

(d) The financial transactions of the board are subject to audit

by the state auditor in accordance with Chapter 321, Government

Code.

(e) The board may delegate to the staff provided to it by the

board of regents any duty except as prohibited by law.

(f) The board shall appoint a secretary.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.65. BOARD STAFF; EXCHANGE OF INFORMATION WITH STATE

AGENCIES. (a) The board of regents shall employ and compensate

personnel to assist the board in the performance of its powers

and duties under this subchapter or may assign employees of The

University of Texas System to those duties.

(b) The members of the board, personnel and counsel employed or

assigned to assist the board, the board of regents, staff of The

University of Texas System, the commissioner and staff of the

General Land Office, the board of regents and staff of The Texas

A&M University System, the office of the comptroller, the

office of the attorney general, and any other agency or official

of the state with a reasonable business interest in state or

university lands, minerals, or resources may consult with each

other and exchange information related to the administration of

leases, collection and disposition of royalties, whether in cash

or in kind, and any other matter related to the lease, sale, or

production of, or the exploration for, oil, gas, or any other

mineral or resource, including geothermal, wind, and solar energy

on state or university lands. The information so exchanged and

consultations and related communications shall be or shall remain

confidential and shall be privileged from discovery in the same

manner and to the same extent as if the persons consulted, which

includes counsel, were members of the same agency. Sections

52.134 and 52.140, Natural Resources Code, shall not prohibit the

consultations or exchange of information provided for by this

section; however, each agency receiving such confidential

information is required to keep the information confidential

under Sections 52.134 and 52.140, Natural Resources Code, as

appropriate, and to take all reasonable actions necessary to

protect the confidential and privileged nature of the

information.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.66. LEASE SALES. (a) Oil and gas leases shall be

offered at public auction or by sealed bid, or through a

combination of public auction and sealed bid, as the board

elects. Contracts for development may be awarded in the same

manner.

(b) The board shall publish notice that the board will receive

bids for oil and gas leases or contracts for development of oil

and gas in two or more daily newspapers in this state and in

other publications as the board may choose.

(c) The notice shall be published at least 30 days before the

date the bids will be opened.

(d) The notice shall state that land is to be offered for lease

or a contract for development and that a person may obtain a

publication from The University of Texas System offices that

describes the land offered and the minimum terms.

(e) The board of regents may solicit and include advertising in

the publication describing a lease sale. Fees paid for

advertising shall be deposited into the special fee account

established by Subsection (g) and are available for the same

purposes as described in that subsection.

(f) The board may withdraw any lands advertised for lease before

the hour set for receiving bids.

(g) Each bid is subject to the payment of a special fee equal to

one and one-half percent of the total bonus whether stipulated or

bid, which special payment shall constitute a special fund from

which the board of regents shall defray the expenses of the sale,

including the payment of the general operating expenses for

geology, engineering, field inspection, and auditing oil and gas

production of university lands and including salaries and

traveling expenses of persons employed by the board of regents

for those purposes.

(h) The board of regents may direct the comptroller of The

University of Texas System to transmit to the state comptroller

for deposit to the credit of the permanent university fund

unexpended balances remaining in the special fee account after

reserving a sufficient amount in it for the payment of current

expenses as set out in Subsection (g).

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.67. LEASE TERMS. (a) The oil and gas lease for each

tract shall be offered for a bonus to be determined by high bid

in addition to the stipulated royalty or for a stipulated bonus

and a royalty to be determined by high bid. Each tract shall be

offered separately and the minimum bonus or royalty, depending on

the basis for the bid, and the length of the primary term for

each tract shall be set out in the official publication

describing the tracts and terms.

(b) Except as otherwise provided by law, the minimum royalty

rate shall be one-eighth of the oil or gas produced or the value

thereof.

(c) The primary term of a lease shall not exceed 10 years.

(d) Each lease shall be subject to the provisions of this

subchapter and rules promulgated by the board.

(e) The successful bidder shall pay to the board of regents on

the day the bid is accepted the full amount of bonus, whether

stipulated or bid, and the special fee in the form of payment

specified by the board.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.68. MARGINAL PROPERTY ROYALTY RATES. (a) In this

section:

(1) "Barrel of oil equivalent" means 6,000 cubic feet of natural

gas per 42-gallon barrel of crude oil or a volume of gas with a

minimum heating value of 6,000,000 British thermal units (6,000

Mbtu), whichever is greater.

(2) "Lease" or "leases" means an oil and gas lease issued or

approved by the board that is valid and in force on or after the

effective date of this section.

(3) "Qualifying property" means land subject to a lease issued

under this subchapter.

(4) "Qualifying reservoir" means a reservoir having an average

daily per well production equal to or less than 15 barrels of oil

equivalent during a period established by the board by rule and

underlying either:

(A) a qualifying property; or

(B) a pooled unit including a qualifying property.

(5) "Reservoir" has the same meaning as "common reservoir" as

defined by Section 86.002, Natural Resources Code.

(b) The board may provide by rule that the royalty rate for

qualifying reservoirs may be reduced to not less than

one-sixteenth (6.25 percent). In determining whether to grant a

reduction in the royalty rate, the board may consider whether the

qualifying property is being operated efficiently, including

whether the property is pooled or has reasonable potential for

the application of secondary or tertiary recovery techniques.

(c) If a qualifying reservoir for which royalty rate reduction

is sought under this section is included in a unit subject to the

authority of the board, the board may modify the terms and

conditions of the unit as a condition of approving a reduction in

the royalty rate.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.69. AWARD OF LEASE. (a) Except as otherwise provided

in this subchapter, the board shall award a lease for each tract

to the person offering the highest bid that includes the terms

adopted by the board and consistent with this subchapter.

(b) The board may reject all bids for one or more tracts.

(c) The commissioner shall execute a lease awarded by the board

in conformance with this subchapter.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.70. ADDITIONAL LEASE PROVISIONS. An oil and gas lease

issued under this subchapter shall include the provisions

required by this subchapter and additional provisions not

inconsistent herewith that the board may adopt to preserve the

interests of the state. On submission of an application by all

lessees under the lease in the form required by the board and

payment of any applicable fee set by the board, the board may

amend a lease that does not include provisions required by

Sections 66.71, 66.72, and 66.73 to include those provisions in

the form adopted by the board at the time the lease is amended.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.71. LEASE PROVISIONS. (a) An oil and gas lease issued

by the board shall provide for payment of a delay rental. During

the primary term of the lease, the lease shall terminate on the

anniversary date of the lease unless:

(1) oil or gas is being produced in paying quantities from the

leased premises;

(2) drilling operations are being conducted on the leased

premises; or

(3) the lessee pays timely in the manner provided in the lease

the amount of delay rental stated in the lease.

(b) If oil or gas is discovered in paying quantities on any

tract covered by a lease, the lease as to that tract shall remain

in force as long as oil and gas is produced in paying quantities

from the tract, provided that the other provisions of this

subchapter are complied with by the lessee.

(c) An oil and gas lease issued by the board shall provide that

royalty may be taken in kind at any time and from time to time at

the discretion of the board in the manner provided in this

subchapter.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.72. CESSATION OF PRODUCTION; DRILLING AND REWORKING.

Each lease shall provide that in the event production of oil or

gas on the leased premises, once obtained, shall cease for any

cause within 60 days before the expiration of the primary term of

the lease or at any time or times thereafter, the lease shall not

terminate if the lessee commences additional drilling or

reworking operations within 60 days thereafter, and the lease

shall remain in full force and effect so long as such operations

continue in good faith and in workmanlike manner, without

interruptions, totalling more than 60 days during any one such

operation; and if such drilling or reworking operations result in

the production of oil and/or gas, the lease shall remain in full

force and effect so long as oil or gas is produced therefrom in

paying quantities or payment of shut-in gas well royalty or

compensatory royalties is made as provided in this subchapter.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.73. SHUT-IN ROYALTY. An oil and gas lease issued under

this subchapter shall provide for the extension of the lease by

the payment of shut-in royalties on terms as the board may adopt.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.74. LEASE EXTENSION OR SUSPENSION. (a) At the

expiration of the primary term of a lease, if production of oil

or gas has not been obtained on the leased premises, but drilling

operations are being conducted in good faith and in a good and

workmanlike manner, the lessee may apply in writing to extend the

lease for a period of 30 days. The application shall be filed

with the board of regents on or before the expiration of the

primary term.

(b) The applicant shall submit with the application a fee in an

amount set by the board of not less than $7.50 for each acre in

the lease requested to be extended.

(c) If the commissioner determines that the conditions of this

section have been met, the commissioner, or a designee appointed

by the commissioner, shall execute a written extension as

provided by this section.

(d) As long as drilling operations are being conducted in good

faith and in a good and workmanlike manner, additional extensions

of 30 days each may be granted up to an aggregate of 360 days.

The lessee must submit a written application and payment on or

before the last day of the extended primary term. The payment for

each additional 30-day extension shall be in an amount set by the

board of not less than $7.50 for each acre in the lease.

(e) The board may elect to suspend a lease and all of the

conditions and covenants contained in the lease if there is a

legitimate dispute regarding the validity of the lease. The board

may rescind the suspension at any time, in which event the lease

shall resume as of the date the suspension is rescinded and shall

continue for the remainder of the period specified in the lease

as the primary term, or, if the primary term ended prior to the

suspension, the lessee shall have 60 days to commence production

or drilling and reworking operations.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.75. PROTECTION FROM DRAINAGE; COMPENSATORY ROYALTIES.

(a) The lessee shall protect the leased premises from drainage.

The lease may contain express terms regarding drainage as the

board may adopt.

(b) Subject to the provisions of this section, the commissioner

may execute agreements that provide for the payment of

compensatory royalty in lieu of drilling offset wells that may be

required to protect the leased premises from drainage from a well

or wells located on non-university lands, or university lands

leased at a lesser royalty, situated within 1,000 feet of or

draining the leased premises.

(c) Agreements providing for the payment of compensatory royalty

must be approved by the board.

(d) Agreements providing for the payment of compensatory royalty

must be found by the commissioner and the board to be in the best

interest of the state.

(e) Nothing in an agreement for the payment of compensatory

royalty shall relieve the lessee of the obligation of reasonable

development or of the obligation to drill offset wells, obtain

suitable regulatory relief, propose appropriate pooling or

unitization arrangements, or conduct other activities to protect

the leased premises from drainage as to other producing horizons.

(f) An agreement for the payment of compensatory royalty shall

provide that compensatory royalty be paid at the royalty rate

provided in the lease and shall provide that compensatory royalty

be paid on the market value of production from the well located

on non-university lands or university lands leased at a lesser

royalty situated within 1,000 feet of or draining the leased

premises.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.76. ASSIGNMENT; RELINQUISHMENT. (a) Rights acquired in

a lease or contract for development issued under this subchapter

may be assigned; provided, however, for an assignment to be valid

and effective, the assignment must be filed in the county or

counties in which the leased premises are situated and a legible

copy of the recorded assignment must be filed with the board of

regents within the time set by the board, accompanied by a filing

fee and any applicable penalty for late filing set by the board

for each lease assigned and a summary in the form adopted by the

board of regents.

(b) Rights to a lease or to an assigned portion thereof may be

relinquished at any time by having an instrument of

relinquishment or release recorded in the county or counties in

which the area relinquished is situated and a legible copy of the

recorded instrument filed with the board of regents, accompanied

by a filing fee set by the board.

(c) An assignment or relinquishment of a lease or a portion

thereof or an interest in a lease shall not relieve the lessee of

accrued obligations, including the payment of royalty, penalty,

or interest, and the lessee shall remain liable therefor.

(d) In the enforcement of lease obligations, the board and the

board of regents shall be entitled to rely on the state of title

reflected by the records of the board of regents.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.77. ROYALTY PAYMENTS AND REPORTS. (a) Royalty as

stipulated in the lease and all other amounts due under this

subchapter shall be paid to the board of regents at Austin,

Travis County, Texas. The lessee of record in the records of the

board of regents shall be responsible for making or causing to be

made all payments required by this subchapter at the required

times and in the form and manner determined by the board of

regents or otherwise required by law.

(b) The board shall set by rule the date for making royalty

payments and for filing any reports, documents, or other records

required to be filed by this section. The date set by the board

must be on or after the fifth day of the second month succeeding

the month of production of oil and on or after the 15th day of

the second month succeeding the month of production of gas.

(c) A royalty payment is timely made if the payment is deposited

in a postpaid, properly addressed wrapper, with a post office or

official depository under the care and custody of, and postmarked

by, the United States Postal Service before the applicable due

date.

(d) The lessee shall provide to the board of regents with each

royalty payment:

(1) an affidavit of the owner, manager, or other authorized

agent completed in the form and manner required by the board of

regents and showing the gross amount and disposition of all oil

and gas produced and the market value of the oil and gas, the

number assigned by the Railroad Commission of Texas, and

university lease numbers;

(2) a purchase statement or other document showing the price at

which the oil and gas was sold;

(3) a check stub, schedule, summary, or other remittance advice

showing by the assigned lease number the amount of royalty being

paid on each lease; and

(4) other reports or records that the board of regents may

require to identify the well and lease and verify the gross

production, disposition, and market value.

(e) The board of regents may implement such practices and

procedures with regard to accounting for royalty payments as it

may determine to be in the best interest of the state.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.78. INTEREST AND PENALTIES. (a) If royalty is not paid

when due, a penalty of one percent shall be added to the unpaid

amount due. If the royalty is not paid within seven days after

the due date, a penalty of an additional four percent of the

royalty due is imposed. If the royalty is not paid within 30 days

after the due date, a penalty of an additional five percent is

imposed. The minimum penalty under this subsection is $25 or the

minimum penalty in excess thereof set by the board. The board

shall not add a penalty under this subsection 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 fair market value.

(b) Interest shall accrue on delinquent royalties beginning on

the 61st day after the due date. The annual interest rate on

delinquent royalties is 12 percent. Interest accrued under this

subsection shall be in addition to any delinquency penalty due

under this section.

(c) The board of regents shall add a penalty of 25 percent to

delinquent sums due under this subchapter if the board determines

that the delinquency is due to fraud or an intent to evade the

provisions of this subchapter on the part of the lessee or the

lessee's agents, employees, or assignees.

(d) If a report, affidavit, supporting document, or other

instrument required to be filed under Section 66.77 or Section

66.80 is not filed when due, a penalty accrues in the amount set

by the board but not less than $10 per document for each 30-day

period of delinquency or fractional part thereof.

(e) Collection of penalty and interest charges under this

section are in addition to any rights, including forfeiture, that

the board or the board of regents may exercise for failure to pay

a royalty or to submit a report or other instrument when due.

(f) The board may provide by rule procedures and standards for

reduction of interest charged or penalties assessed under this

subchapter or other interest or penalties assessed relating to

unpaid or delinquent royalties or other amounts due.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.79. PAYMENT OF ROYALTY IN KIND. (a) An oil or gas

royalty due under a lease on university lands shall be paid in

kind at the discretion of the board.

(b) The option to take royalty in kind or to take cash royalties

may be exercised by the board at any time or from time to time on

not less than 60 days' notice to the lessee.

(c) The board shall enter into contracts or other instruments or

agreements to dispose of the portion of the royalty taken in

kind, which may include contracts for sale, transportation, or

storage of the oil or gas. The commissioner shall execute

contracts approved by the board under this section that are

consistent with applicable law.

(d) The board of regents may enter into insurance contracts or

other agreements to secure or guarantee payment of contracts or

other instruments or agreements to dispose of the portion of the

royalty taken in kind, including contracts for sale,

transportation, and storage.

(e) If the board has elected to take royalty in kind, the board

may elect that delivery of the correct amount of oil or gas shall

be at the wellhead, at the oil and gas separator, into a pipeline

connected at the well, or at such other location as may be

specified in a royalty in kind provision in the lease or other

agreement. Such delivery by the lessee shall satisfy the lessee's

obligation for payment of the royalty due under the lease. This

section shall not be construed to surrender or in any way affect

the right of the board of regents under existing or future leases

to receive royalty on the basis of market value of production not

taken in kind.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.80. RECORDS. (a) The lessee shall provide to the board

of regents a copy of every contract for the sale or processing of

oil or gas and any subsequent agreement and amendment thereto,

together with a summary in the form adopted by the board of

regents, within 30 days after the contract, agreement, or

amendment is made.

(b) The books and accounts, receipts, and discharges of all

wells, tanks, pools, meters, and pipelines, and all contracts and

other records pertaining to the production, transportation, sale,

and marketing of the oil and gas, shall at all times be subject

to inspection, examination, and copying by the commissioner of

the General Land Office, the attorney general, the governor, the

board of regents, or the board, or the representative of any of

them.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.81. AUDIT INFORMATION CONFIDENTIAL. (a) All documents

and information secured, derived, or obtained during the course

of an inspection or examination of books, accounts, reports, or

other records of the lessee or a third party, as provided by this

subchapter, and contracts, agreements, or amendments provided to

the board of regents under Section 66.80(a) are 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 Subsections (c) and

(d). This section shall not apply to records or information

provided by the lessee under Section 66.77.

(b) Documents and information made confidential in this section

shall not be subject to subpoena directed to the board, the board

of regents, the commissioner, the attorney general, or the

governor except in a judicial or administrative proceeding in

which the state and a person with an equitable or legal interest

in the lease or land to which the information relates are

parties.

(c) The board, the board of regents, or the attorney general may

use documents and information made confidential by the provisions

of this section and contracts made confidential by this

subchapter to enforce the provisions of this subchapter or may

authorize their use in judicial or administrative proceedings in

which this state is a party or may authorize their examination by

employees, agents, or contractors of the board of regents or the

state auditor for audit purposes.

(d) This section does not prohibit:

(1) the delivery of documents and 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 documents or information otherwise available

to the public;

(4) the release of documents or information concerning the

amount of royalty assessed as a result of an examination

conducted under this subchapter or the release of other

information which would have been properly included in reports

required under Section 66.77;

(5) sharing of documents or information among state agencies

pursuant to Section 66.65. Shared documents or information will

remain confidential under this section; or

(6) the release of documents or information authorized by the

lessee.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.82. FORFEITURE; OTHER REMEDIES. (a) If a lessee fails

or refuses to perform a material requirement of this subchapter

or the lease, the board may, after notice to the lessee and an

opportunity to be heard, declare a forfeiture of the lease or an

interest in the lease. Material requirements include but are not

limited to:

(1) failure or refusal to pay a sum due, including penalty and

interest, within 30 days after the sum becomes due;

(2) failure or refusal to tender oil or gas for delivery as

in-kind royalty;

(3) making a false report concerning exploration, production, or

royalty;

(4) failure or refusal to file an assignment as required by this

subchapter;

(5) failure or refusal, after demand, to file or make available

for inspection and copying a record or document required to be

filed or made available for inspection or copying under this

subchapter or rules promulgated thereunder;

(6) failure or refusal, after demand, to protect the leased

premises from drainage; or

(7) the breach of an obligation under the lease or this

subchapter.

(b) Forfeiture is not the exclusive remedy. The attorney

general, at the request of the board of regents, may bring suit

for damages or specific performance, or both, or other remedy, at

law or in equity.

(c) The board, in its sole discretion, may authorize

reinstatement of a forfeited lease on terms the board may

determine at the time of the declaration of forfeiture.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1,

1998.

Sec. 66.83. LIEN; ABANDONED PERSONAL PROPERTY. (a) The board

of regents shall have a statutory first lien on oil and gas

produced from the area covered by the lease to secure payment of

all unpaid royalty and other sums of money that may become due

under the lease or this subchapter.

(b) By acceptance of the lease, the lessee grants to the board

of regents 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 interest

described in this section may be foreclosed with or without court

proceedings in the manner provided under Chapter 9, Business

& Commerce Code. The board of regents may require the lessee

to execute and record instruments reasonably necessary to

acknowledge, attach, or perfect the liens.

(d) Personal property, including casing, equipment, and fixtures

remaining on lands covered by the lease more than o