PART 1. GENERAL LAND OFFICE

CHAPTER 9. EXPLORATION AND LEASING OF STATE OIL AND GAS

SUBCHAPTER D. PAYING ROYALTY TO THE STATE

31 TAC §9.51

BACKGROUND AND ANALYSIS

On behalf of the School Land Board ("SLB"), the General Land Office ("GLO") adopts an amendment to 31 TAC §9.51 (relating to Royalty and Reporting Obligations to the State) amending §9.51(b)(3)(E)(iv), regarding requested reductions of penalty and/or interest assessments, with one change to the proposed text as published in the June 7, 2024, issue of the Texas Register (49 TexReg 4021). The amendment will be republished

The adopted amendment clarifies the delegation by the SLB to the Land Commissioner of certain de minimis reductions of interest charged or penalties assessed under Texas Natural Resources Code §52.131 or any other interest or penalties assessed by the Land Commissioner relating to unpaid or delinquent royalties, or unfiled or delinquent reports.

The change to the text as published (being deletion of the word "unreduced") further clarifies the intent of the delegation to the Land Commissioner for reductions of penalty and/or interest where the total amount to be reduced is below a de minimis threshold established by the SLB from time to time.

COMMENTS BY THE PUBLIC

The GLO did not receive any comments on the amendments.

STATUTORY AUTHORITY

This amendment to 31 TAC §9.51 is adopted pursuant to the authority set out in Texas Natural Resources Code (1) §52.131(j), which states that the SLB may provide procedures and standards for reduction of interest charged or penalties assessed under Texas Natural Resources Code §52.131 or any other interest or penalties assessed by the Land Commissioner relating to unpaid or delinquent royalties, and (2) §52.131(h), which states that the Land Commissioner may establish by rule a reasonable penalty for late filing of reports or any other instrument to be filed pursuant to Texas Natural Resources Code, Chapter 52.

STATUTES AFFECTED

Texas Natural Resources Code Chapter 52 is affected by this proposed rule.

§9.51.Royalty and Reporting Obligations to the State.

(a) In-kind royalties and reports. Producers meeting their royalty obligations by delivering the state's royalty in-kind shall contact the General Land Office (GLO) for specific instructions for making and reporting in-kind royalties. Purchasers of the state's oil or gas in-kind must make the payment for this oil or gas separately from any payment of monetary royalty.

(b) Monetary royalties and reports

(1) Basis for computing royalties.

(A) Gross proceeds. Lessees shall compute and pay oil and gas royalties due under each lease on the gross proceeds received by the seller, including amounts collected to reimburse the seller for severance taxes and production-related costs. Lessees shall not deduct production or severance taxes, or the cost of producing, processing, transporting, and otherwise making the oil, gas, and other products produced from the premises ready for sale or use.

(B) Volume subject to royalty.

(i) General. Royalties are due and payable by all lessees on 100% of each lease's gross production of oil and gas unless the lease contains language expressly exempting certain dispositions of oil and/or gas from state royalties.

(ii) Oil sales and stocks. As a matter of convenience, during periods of regular sales, the GLO will permit lessees to pay monthly oil royalties based on the number of barrels sold (or otherwise disposed of) in a given month rather than on the gross production as may be required by the lease. Unless the lessee is otherwise notified by the GLO, no royalties are payable on lease stocks until such stocks are disposed of either by sale or otherwise. The GLO reserves the right to require at any time, or from time to time, that lessees pay royalties on gross production rather than on barrels sold. The GLO requires that lessees pay royalties on existing stocks when there have been no sales from such stocks for several months.

(C) Plant products. Lessees shall calculate the volume and value of plant products subject to state royalty in accordance with the lease under which the gas is produced and processed and this volume and value shall never be less than the minimum percentage specified in the lease. In cases where the lease does not specify the manner in which lessees are to calculate plant product royalties, then the volume and value of plant products subject to state royalty shall be that volume and value for which settlement is being made to the producer, under a gas contract prudently negotiated between the producer and processor. When gas is processed for the recovery of liquid hydrocarbons or other products, lessees shall pay royalties on residue gas and plant products in an amount not less than the royalties which would have been due had the gas not been processed.

(D) Market value. Nothing in this subsection shall limit or waive the right of the state to receive its royalties based on market value of the oil and gas produced, if authorized by the lease, unit agreement, judgment, or other contract authorized by law.

(E) Determination of market value.

(i) For the purpose of computing and paying royalties to the state based on market value, the market value shall be presumed to be the gross proceeds received pursuant to a bona fide contract entered into at arm's length between nonaffiliated parties of adverse economic interests.

(ii) If a contract is not negotiated at arm's length, or was between affiliated parties, the presumption that market value is equal to gross proceeds shall not apply. In this situation, the lessee has the burden to establish that royalties paid to the state are based on market value.

(iii) The commissioner may overcome the presumption established under clause (i) of this subparagraph and assess additional royalties due by establishing a different price based on other sales in the general area which are comparable in time, quality, volume, and legal characteristics. If some of this information is not available to the commissioner, an assessment will be based on the best information available.

(iv) A lessee may challenge an assessment of additional royalties due by submitting information which establishes the prices used for comparison by the commissioner involve products of significantly different quality; were based on contracts to deliver significantly different volumes or for different terms; were not from a relevant market; were derived from an area in which deliverability is significantly different; or by presenting any other information which could establish a more accurate market price. However, under no circumstances will the state's royalty be computed on less than gross proceeds received, including reimbursements received for severance taxes and production-related costs.

(v) Parties are affiliated under this subsection if they are related by blood, marriage, or common business enterprise, are members of a corporate affiliated group, or where one party owns a 10% or greater interest in the other.

(vi) The term "general area," as used in this subsection, means the smallest geographical area which contains sufficient data to establish a market price. Examples include a unit, a field, a county, or the applicable RRC district.

(vii) For the purpose of computing and paying oil royalties to the state based upon a market value determined by the highest posted price, that phrase is defined as the greater of:

(I) the highest price available to the producer; or

(II) the gross price posted by the purchaser of the oil, less a reasonable transportation allowance after sale and delivery if the price bulletin reflects on its face that the purchaser will deduct a marketing or transportation allowance, and a transportation allowance is actually deducted by the purchaser from its gross price.

(viii) For the purposes of clause (vii)(I) of this subparagraph, a price will be presumed to be available to the producer if it is offered in the field where the lease is located at the time of sale. A producer may overcome the presumption by submitting evidence that the price is not actually available to the producer. The terms "available" and "actually available," as used in this subsection, mean that a price is being offered to nonaffiliated parties by posting, contract listing or amendment, or otherwise and that if a producer presented a barrel of oil to an entity offering said price, assuming all quality specifications for the price were met, that producer would, in fact, receive that offered price.

(ix) Clause (vii) of this subparagraph shall not be construed to allow the lessee, when calculating royalties to the state, to make any deductions for the cost of producing, processing, or transporting the oil prior to its sale and delivery.

(2) Royalty payments and reports.

(A) Mode of payment. Except as provided in subsection (a) of this section, relating to payments made in-kind, and subject to clauses (i) - (vi) of this subparagraph, relating to mandatory electronic funds transfer, lessees may pay royalties and other monies due by cash or check, money order, or sight draft made payable to the commissioner. Lessees may also pay by electronic funds transfer or in any manner that may be lawfully made to the state comptroller. Information regarding alternative payment methods may be obtained from the GLO Royalty Management Division. Payors are required to make payments by electronic funds transfer in compliance with 34 Texas Administrative Code Chapter 15 in the circumstances outlined:

(i) For leases executed or amended after May 11, 1989, but before September 1, 1991, payors that have made over $500,000 in a category of payments, defined in clause (iv) below, to the GLO during the preceding state fiscal year shall make payments of $10,000 or more in the current fiscal year for those leases and in that category by electronic funds transfer.

(ii) For leases executed or amended after August 30, 1991, but before June 9, 1995, payors that have made over $250,000 in a category of payments, defined in clause (iv) below, to the GLO during the preceding state fiscal year shall make payments of $10,000 or more in the current fiscal year for those leases and in that category by electronic funds transfer.

(iii) For leases executed or amended on or after June 9, 1995, payors that have made over $25,000 in a category of payments, defined in clause (iv) below, to the GLO during the preceding state fiscal year shall make all payments in the current fiscal year for those leases and in that category by electronic funds transfer.

(iv) For purposes of clauses (i) - (iii) of this subparagraph, each of the following is a separate category of payments:

(I) royalties (including shut-in and minimum royalties);

(II) penalties;

(III) other payments to the state agency, excluding interest and extraordinary payments such as payments made in settlement of litigation.

(v) The GLO anticipates that those payors that have exceeded the threshold sums set out in clauses (i) - (iii) of this subparagraph in the preceding state fiscal year will also exceed those sums in the current state fiscal year. The application of clauses (i) - (iii) to a specific payor may be waived at the commissioner's discretion to the extent allowed by law, upon a showing that a payor will not exceed the threshold sums set out in clauses (i) - (iii) in the current fiscal year, or for other good cause.

(vi) The GLO will notify each payor to whom this subparagraph applies in compliance with 34 Texas Administrative Code Chapter 15.

(B) Information required with royalty payments. Lessees shall submit all royalty payments in a manner which identifies the assigned GLO lease number, the annual submission certification number, if any, and the amount of oil and gas royalty being paid. Royalty payments not identified by the lease number and the annual submission certification number, if any, shall be considered delinquent and shall be subject to the delinquency provisions of paragraph (3) of this subsection.

(C) Required reports. Lessees shall provide, in the form and manner prescribed by the GLO, production/royalty reports (Form GLO-1 for oil and condensate and Form GLO-2 for gas), other required reporting documents for gas or oil and condensate, and other supporting documents required by GLO to verify gross production, disposition, and market value of the oil and condensate, gas, and other products produced therefrom. Reporters for leases which the GLO has approved for annual royalty payments may submit such reports on an annual basis as well after receipt of an annual royalty certification number. Parties approved for annual reporting or payment shall notify the GLO in writing within ten business days of a complete release, forfeiture, termination, assignment, or change of operator or payor of a lease approved for annual reporting and payment. Failure to comply with the statutes and the reporting requirements of this chapter may subject a lease to forfeiture, delinquency penalties, or both.

(D) Timely receipt of royalty payments and reports.

(i) For the purpose of this subsection, the GLO will consider a report timely received if the report:

(I) arrives postpaid and properly addressed; and

(II) is deposited with the United States Postal Service or any parcel delivery service at least one day before it is due and such deposit is evidenced by a postmark, a postal meter stamp, or a receipt.

(ii) For the purpose of this subsection, the GLO will consider a royalty payment timely made if:

(I) the payment is received by electronic funds transfer, it is received on or before the date it is due (please be advised that delivery of payment to the state comptroller's office does not satisfy this requirement. Due to the time required by the comptroller's office to process a payment and forward it to the GLO, payors are strongly encouraged to submit payments to the comptroller's office before 6:00 p.m. CST on the business day preceding the business day on which the payment is due).

(II) the payment is not made by electronic funds transfer, it arrives postpaid and properly addressed and it is deposited with the United States Postal Service or any parcel delivery service at least one day before it is due and such deposit is evidenced by a postmark, a postal meter stamp, or a receipt.

(iii) If a royalty payment or report is due on a Sunday or a legal state or federal holiday, then lessees shall ensure that such payment or report is either received by the GLO on the next calendar day which is not a Sunday or a holiday, or postmarked or stamped prior to the next calendar day which is not a Sunday or a holiday.

(E) Oil and condensate royalties--due date.

(i) Lessees shall ensure that all oil and condensate royalties, except royalties approved by GLO to be paid on an annual basis, are timely received by the GLO on or before the fifth day of the second month following the month of production.

(ii) Upon application to and written approval by the GLO, future royalties attributable to leases for which oil, condensate, and gas royalty due for the immediately preceding September 1 to August 31 period equaled $3,000 or less may be paid on an annual, rather than monthly, basis. A party who is both a payor and a reporter for a lease shall submit both payments and reports on a monthly or, if the GLO grants approval, an annual, basis.

(I) The applicant shall designate the payor who will submit the annual royalty payments and, if there are multiple payors for a lease, the share of royalty the designated payors will submit. Upon approval, GLO staff will assign an annual submission certification number to the designated payor and the GLO will authorize the designated payor to submit the designated share of royalty payments on an annual basis. The applicant shall notify the GLO in writing of any change in the payor designation within ten business days of its effective date.

(II) Payors, after approval, shall pay annual royalties for the following January 1 to December 31 annual production periods.

(III) Payors, after approval, shall continue to make payments on a monthly basis until the commencement of the next annual production period.

(IV) Each year, payors shall ensure that all annual oil and condensate royalties are timely received by the GLO on or before the fifth day of February following each annual production period. Each year, payors shall ensure that all annual gas royalties are timely received by the GLO on or before the 15th day of February following each annual production period.

(V) After the payor receives GLO approval for annual royalty payments, if the total annual oil, condensate, and gas royalty due under a lease exceeds $3,000 for any annual production period, payors shall resume making monthly royalty payments starting with the January production month immediately following that annual production period.

(VI) For any royalty approved to be paid on an annual basis, payors shall ensure that the total royalties that have accrued as of the date of a complete lease forfeiture, release, termination, assignment, or any change of designated payor, are timely received by the GLO on or before 75 calendar days after that date. If a change of payor occurs for a lease with multiple payors, only the changing payor shall pay the accrued royalties for which he is designated as being responsible on or before 75 calendar days after the change.

(VII) Any forfeiture, release, termination, assignment, or change of operator or payor, does not affect the approved annual royalty payment status, subject to subclause (VI) of this clause. However, as provided in §9.93(l) of this title (relating to Assignment), an assignee or successor in interest is liable for all unsatisfied royalty requirements of the assignor or predecessor in interest.

(VIII) The GLO may prescribe further specific forms and instructions applicable to this subparagraph.

(IX) The GLO has the sole discretion to approve annual royalty payments. Approval does not affect the state's right to take its royalty in-kind, nor does it constitute a finding that a lease has been maintained in force and effect or otherwise ratify or revive any lease. GLO approval does not abrogate the lessee's responsibility to submit timely royalty payments and reports to the GLO as provided in subparagraphs (L) and (M) of this paragraph.

(X) Determination of royalty due for purposes of clause (ii) of this subparagraph is not an official GLO determination of royalty due under a lease. The GLO may audit any lease to determine if royalty was properly paid and may pursue its rights and remedies through an administrative hearing or litigation.

(F) Gas royalties--due date.

(i) Lessee shall ensure that all gas royalties, except royalties approved by GLO to be paid on an annual basis, are timely received by the GLO on or before the 15th day of the second month following the month of production.

(ii) The provisions of subparagraph (E)(ii)(I) - (X) of this paragraph apply to the payment of gas royalties.

(G) Required reports--due date.

(i) Lessees shall ensure that all required production/royalty reports and other required documents (hereafter "reports" in subparagraph (G) of this paragraph), in whatever format submitted, for gas or oil and condensate are timely received by the GLO on or before the due date of the corresponding monthly royalty payment.

(ii) Upon application to and written approval by the GLO, future reports for leases for which oil, condensate, and gas royalty due for the immediately preceding September 1 to August 31 period equaled $3,000 or less may be submitted on an annual, rather than monthly, basis. A party who is both a payor and a reporter for a lease shall submit both payments and reports on a monthly or, if the GLO grants approval, an annual, basis.

(I) The applicant shall designate the reporter who will submit the annual reports and, if there are multiple reporters for a lease, the information the designated reporter will submit. Upon approval, GLO staff will assign an annual submission certification number to the designated reporter and the GLO will authorize the designated reporter to submit the designated reports on an annual basis. The applicant shall notify GLO in writing of any change in the reporter designation within ten business days of its effective date.

(II) Reporters, after approval, shall submit annual reports for the following January 1 to December 31 annual production periods.

(III) Reporters, after approval, shall continue to submit reports on a monthly basis until the commencement of the next annual production period. Unless the GLO expressly approves otherwise in writing, reporters shall submit unit production/royalty reports on a monthly basis regardless of the annual reporting status of individual leases within the unit.

(IV) Each year, reporters shall ensure that all annual reports concerning oil and condensate are timely received by the GLO on or before the fifth day of February following each annual production period. Each year, reporters shall ensure that all annual reports concerning gas are timely received by the GLO on or before the 15th day of February following each annual production period.

(V) After the reporter receives GLO approval for annual reporting, if the total annual oil, condensate, and gas royalty due under a lease exceeds $3,000 for any annual production period, reporters shall resume making monthly reports starting with the January production month immediately following that annual production period.

(VI) Reporters shall ensure that all reports approved by the GLO for submission on an annual basis are timely received by the GLO on or before 75 calendar days after a complete lease forfeiture, release, termination, assignment, or any change of designated reporter. If a change of reporter occurs for a lease with multiple reporters, only the changing reporter shall submit the reports for which he is designated as being responsible on or before 75 calendar days after the change.

(VII) Any forfeiture, release, termination, assignment, or change of operator or reporter does not affect the approved annual reporting status, subject to subclause (VI) of this clause. However, as provided in §9.93(l) of this title (relating to Assignment), an assignee or successor in interest is liable for all unsatisfied reporting requirements of the assignor or predecessor in interest.

(VIII) The GLO may prescribe further specific forms and instructions applicable to this subparagraph.

(IX) The GLO has the sole discretion to approve annual reporting. Approval does not affect the state's right to take its royalty in-kind, nor does it constitute a finding that a lease has been maintained in force and effect or otherwise ratify or revive any lease. GLO approval does not abrogate the lessee's responsibility to submit timely royalty payments and reports to the GLO as provided in subparagraphs (L) and (M) of this paragraph.

(X) Determination of royalty due for purposes of clause (ii) of this subparagraph is not an official GLO determination of royalty due under a lease. The GLO may audit any lease to determine if royalty was properly paid and may pursue its rights and remedies through an administrative hearing or litigation.

(iii) Lessees shall identify the relevant GLO lease numbers and annual submission certification numbers, if any, on all required reports. Reports that fail to identify these numbers shall be considered delinquent and shall be subject to the delinquency provisions of subsection (b)(3) of this section.

(H) Gas contracts. Lessees shall file with the GLO a copy of all contracts under which gas is sold or processed and all subsequent agreements or amendments to such contracts within 30 days of entering into or making such contracts, agreements, or amendments. Such contracts, agreements, and amendments, when received by the GLO will be held in confidence by the GLO unless otherwise authorized by lessee.

(I) Gas contract brief (Form GLO-5).

(i) Each gas contract, agreement, or contract amendment must be accompanied by a gas contract brief (Form GLO-5) completed in the form and manner prescribed by GLO. The GLO-5 must be submitted even if GLO is taking its royalty in-kind from the leases subject to the contract or agreement. The GLO-5 shall be submitted to the GLO within 30 days of executing a contract, agreement, or contract amendment. While the lessee is responsible for the preparation and filing of the GLO-5 and supplements, the lessee is not required to submit the GLO-5 or supplements for royalty volumes which the state is taking in kind. Rather, the lessee must submit the GLO-5 and supplements for other volumes produced from the lease or leases.

(ii) A gas contract brief supplement (GLO-5(s)) may be filed for sales of gas on the spot or other markets in which price changes occur monthly. A GLO-5(s) should be submitted to the GLO within 30 days of the completion of each six-month period of sales. A GLO-5 does not have to be submitted as long as other contract provisions remain unchanged.

(iii) For spot or similar sales situations in which supplements will be submitted, the GLO-5 is due within 30 days of the completion of the first six-month sales period.

(iv) Gas contract briefs and supplements should be directed to: General Land Office, Energy Resources Division, Stephen F. Austin Building, 1700 North Congress Avenue, Austin, Texas 78701-1465, Attention: Gas Contracts Administrator.

(J) Settlements and judgments. Lessee shall file with the GLO a copy of each settlement reached or judgment rendered in a dispute between the lessee and a purchaser regarding production from, and/or contracts relating to, state lands. Lessee shall file these documents with the GLO within 30 days of entering into any such settlement or within 30 days of the rendering of such judgment.

(K) Other records. At any time, or from time to time, the GLO may require any additional records relating to any aspect of lease operations and accounting.

(L) Responsibility of lessee to file royalty payments and required reports. Parties other than the lessee may remit royalties to the state on the lessee's behalf. This practice does not relieve the lessee of any statutory or contractual obligation to pay royalty or file reports and supporting documents. The lessee bears full responsibility for paying royalties and for filing reports and supporting documents as required in this chapter.

(M) Cooperation of operators, purchasers, payors, reporters, and lessees. The GLO recognizes that lessees may often delegate various lease obligations to third parties. However, such a delegation does not relieve a lessee of these obligations. Lessees must be aware that the acts and omissions of these third parties regarding these obligations may subject a lease to a delinquency penalty or forfeiture. Therefore, these parties must cooperate to responsibly discharge their obligations to each other and to the state.

(N) State's lien. The state has a statutory first lien on all oil and gas produced from the leased area to secure the payment of all unpaid royalty or other sums of money that may become due. Acceptance of an oil and gas lease from the state grants to the state a contractual first lien on and security interest in all oil and gas extracted from the lease area, all proceeds that may accrue to the lessee, and all fixtures on and improvements to the area covered by the lease that may be used in the production or processing of oil and gas.

(O) Certification of sufficient royalties. The GLO will not be responsible for certifying, prior to the rental anniversary date, that sufficient royalty has been received to obviate the necessity of paying rentals or minimum royalties as may be required by lease. Lessees should maintain adequate records relating to lease royalty and rental status to determine if additional liability exists. If there is uncertainty concerning whether or not rental or minimum royalties are due, a lessee may maintain a lease in effect by remitting the annual amount required under each lease. The GLO will refund or grant credit to lessees for payments received in this manner that are later found to have not been due.

(P) Partial payments. The GLO will apply a lessee's partial payment of amounts assessed (delinquent royalties, penalty, and interest) first to unpaid penalty and interest and then to delinquent royalties. Penalty and interest will continue to accrue until the delinquent royalties are fully paid.

(3) Penalties and interest.

(A) Penalties on delinquencies. Any royalty not paid when due, or any required report or document not submitted when due, is delinquent and penalties as provided in this subsection shall be added. Royalty payments or any required reports or documents that do not identify GLO lease numbers and annual submission certification numbers, if any, and any royalty payments not accompanied by any required reports or documents are also delinquent. The penalties on delinquent royalties specified in this subsection shall not be assessed in cases of title dispute as to the state's portion of the royalty or to that portion of the royalty in dispute as the market value of the production.

(i) For royalties and reports due on or after September 1, 1985, including those for oil and gas produced since July 1, 1985, the GLO shall add:

(I) a penalty of 5.0% of the delinquent amount or $25, whichever is greater, to any royalty which is delinquent 30 days or less;

(II) a penalty of 10% of the delinquent amount or $25, whichever is greater, to any royalty which is more than 30 days delinquent;

(III) at its discretion, a penalty of $10 per document for each 30-day period that each report, affidavit, or other document is delinquent. The GLO shall impose this penalty of $10 per document only after the commissioner or a designated representative has notified the lessee in writing that reports, affidavits, or documents are not being filed correctly and that the GLO will assess the penalty on subsequent reporting errors.

(ii) For royalties and reports due before September 1, 1985, including those for oil and gas produced prior to July 1, 1985, the GLO shall add:

(I) a penalty of 1.0% of the delinquent amount or $5.00, whichever is greater, for each 30-day period that any royalty is delinquent;

(II) a penalty of $5.00 per document for each 30-day period that each report, affidavit, or other document is delinquent.

(iii) For royalties and reports due before September 1, 1975, including those for oil and gas produced prior to August 1, 1975, the GLO shall impose no penalty for delinquent royalties or delinquent reports.

(B) Interest on delinquencies. Any royalty not paid when due is delinquent and shall accrue interest as provided in this subsection.

(i) For royalties due on or after September 1, 1985, including those for oil and gas produced since July 1, 1985:

(I) interest shall accrue on all delinquent royalties at the rate of 12% per year (simple interest) pursuant to the Texas Natural Resources Code, §52.131(g);

(II) interest shall begin to accrue 60 days after the due date.

(ii) For royalties due before September 1, 1985, including those for oil and gas produced prior to July 1, 1985:

(I) interest shall accrue on all delinquent royalties at the rate of 6.0% per year compounded daily pursuant to Texas Civil Statutes, Article 5069-1.03;

(II) interest shall begin to accrue 30 days after the date due.

(C) Penalties for fraud. The commissioner shall add a penalty of 25% of the delinquent amount if any part of the delinquency is due to fraud or an attempt to evade the provisions of statutes or rules governing payment of royalty. The GLO shall apply this penalty 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 fair market value. The GLO shall apply this penalty in addition to any other penalty assessed.

(D) Forfeiture. The state's power to forfeit a lease is not affected by the assessment or payment of any delinquency, penalty, or interest as provided in this subsection. Specifically, the lessee's failure to pay royalties and other sums of money within 30 days of the due date or the failure to file reports completed in the form and manner prescribed by this section shall subject a lease to forfeiture under §9.95 of this title (relating to Forfeiture).

(E) Reduction of penalty and/or interest. For royalties due on or after February 26, 2010, the interest rate assessed on delinquent royalties shall be determined as of the date of the first business day of the year the royalty becomes delinquent and will be reduced to prime plus one percent.

(i) As used herein "Prime" shall mean the prime interest rate, as published daily in the Wall Street Journal that is not a Saturday, Sunday, or legal holiday. For royalties due on a Saturday, "Prime" shall refer to the prime interest rate published on the next business day that is not a legal holiday.

(ii) The interest rate shall never exceed the percentage rate as stated in the Texas Natural Resource Code at §52.131(g).

(iii) Interest rates assessed hereunder shall be reset on the first business day of each calendar year; if the underlying royalties have not been paid they may be revised upward should the prime interest rate on the first business day be higher.

(iv) A lessee may request in writing a reduction of interest charged or penalties assessed under Texas Natural Resource Code §52.131 or any other interest or penalties assessed by the commissioner relating to unpaid or delinquent royalties, or late filed reports. The board may consider any factors when considering such a request, including the facts and circumstances supporting the lessee's request for a reduction, any history of delinquency by the lessee, any good faith attempts of the lessee to rectify the consequences of the delinquency, including by paying the amount of the unpaid or delinquent royalty, the recommendations of staff, and the costs and risks associated with litigation. For governmental efficiency, the board may delegate to the commissioner and/or to staff designated by the commissioner for this purpose the authority to reduce interest charged or penalties assessed relating to unpaid or delinquent royalties if the aggregate amount of such penalties and interest to be reduced is equal to or less than a de minimis amount established by the board from time to time at a regular or special public meeting.

(4) Corrections and adjustments to royalty payments and reports.

(A) Nonroutine corrections and/or adjustments, as used in this subsection, are defined as those corrections and adjustments by which someone seeks to change, on a lease basis, the originally reported royalty due for oil or the originally reported royalty due for gas by at least $25,000 or 25%.

(B) The GLO Royalty Management Division must receive at least 30 days advance written notice of the lessee's intention to take a nonroutine correction and/or adjustment which will result in a credit with written documentation explaining and supporting the requested credit. The credit may be taken 30 days after that GLO division receives such notice if by that date, the GLO has not, in writing, denied lessee permission to take the credit. If the GLO denies permission, the GLO will set forth its reasons for such denial. Any nonroutine credit improperly taken may not be used to offset royalty due on current reports. The improper application of credits will result in a current month delinquency and the assessment of associated penalties and interest.

(C) Effective with the production month of March 1989, all prior month adjustments must be submitted on GLO-1 and GLO-2 report documents separate from the reports containing the current month royalty activity. The GLO-1 or GLO-2 containing prior month adjustments must be labeled as "Amended Reports" (underlined).

(5) Temporary reduction of gas royalty rates.

(A) Prerequisites. Application for a temporary reduction of the royalty rates established may be considered by SLB if:

(i) the lease covers any of the state lands described in §9.21 of this title (relating to Leasing Guide)

(ii) state land was leased by SLB on the basis of a royalty bid and at a royalty rate exceeding 25%; and

(iii) the lease has not been pooled or unitized with other leases.

(B) Amount of reduction. If the value of gas from such lands is at or below $3.00 for each 1,000 cubic feet of gas, the board may reduce the royalty rate for gas produced from such lands for any term set by SLB, such term to be set after September 1, 1987, and before September 1, 1990, as follows:

(i) for gas valued as $1.50 or less per Mcf of gas, the board may reduce a royalty rate to 25%;

(ii) for gas valued from $1.51 to $2.00 per Mcf of gas, the board may reduce a royalty rate to 30%;

(iii) for gas valued from $2.01 to $2.50 per Mcf of gas, the board may reduce a royalty rate to 35%;

(iv) for gas valued from $2.51 to $3.00 per Mcf of gas, the board may reduce a royalty rate to 40%.

(C) Definition of value. For purposes of this paragraph, the value of the gas is defined as the highest market price paid or offered for gas of comparable quality in the general area where produced and when run, or the gross price paid is offered to the producer, whichever is greater.

(D) Request for reduction. A lessee seeking the approval of SLB for a temporary reduction in gas royalty rates must make written request for an application to the Minerals Leasing Division, General Land Office, 1700 North Congress Avenue, Room 640, Austin, Texas 78701-1495. The application should be completed and returned to the Minerals Leasing Division of the GLO.

(i) The applicant must submit an affidavit and documentation in support of its request for a temporary reduction of gas royalty rates. The affidavit will attest to the fact that the requirements set out in this paragraph have been satisfied. The accompanying documentation will contain pertinent lease data, production and reserve data, gas price data, development data, and any other information which may be required to support the application, including the reason for requesting a royalty reduction.

(ii) SLB will consider the request for temporary reduction in gas royalty rates based upon lessee's affidavit, documents in support thereof, and the recommendation of the Minerals Leasing Division.

(iii) SLB may reevaluate the temporary reduction in gas royalty rates at any time.

(E) Verification of gas valuation. The gas valuation information submitted by the lessee will be subject to verification by the Royalty Audit Division.

(F) Effective dates for reduced royalty rates. The reduced royalty rates shall be effective beginning the first day of the next month following approval by SLB. Royalty rates on gas produced after September 1, 1990, will not be subject to reduction under this section.

(G) No retroactive effect. The reduced royalty rates will not be applied retroactively for previous months' production.

(c) Marginal Properties Royalty Incentive Program.

(1) Definitions. The following words and terms, when used in this subsection, shall have the following meanings, unless the context clearly indicates otherwise.

(A) Active well--Any well on the qualifying property as defined in subparagraph (H) of this paragraph in actual use either as a producing well or an injection well as defined in subparagraph (D) of this paragraph during at least six months of the qualifying period as defined in subparagraph (G) of this paragraph.

(B) Average daily per well production--

(i) Un-pooled leases: For a given reservoir, the total oil, condensate, and/or natural gas production from the lease for the qualifying period, in BOE as defined in subparagraph (C) of this paragraph, divided by the product of 365 and the number of the reservoir's active wells on the lease. Average daily per well production is calculated in BOE/day and is rounded down to the next whole number.

(ii) Pooled leases: For a given reservoir, the total oil, condensate, and/or natural gas production from the unit for the qualifying period, in BOE, divided by the product of 365 and the number of the reservoir's active wells in the unit. Average daily per well production is calculated in BOE/day and is rounded down to the next whole number.

(C) Barrel of oil equivalent (BOE)--One 42-gallon barrel of crude oil, or the greater of 6,000 cubic feet (6 Mcf) of natural gas available for sale off the lease or unit or a volume of natural gas available for sale off the lease or unit with a minimum heating value of 6,000,000 British thermal units (6,000 MBtu).

(D) Injection well--Any well approved by the RRC for use in the injection of gas or fluids in a secondary or tertiary enhanced recovery or pressure maintenance operation, excluding disposal wells.

(E) Mcf--Thousand cubic feet.

(F) Price--The five-day average spot price of West Texas Intermediate crude oil at the Midland, Texas, oil terminal as reported in The Oil Daily.

(G) Qualifying period--The 12-month period immediately preceding the most recent month of production.

(H) Qualifying property--Land subject to a State of Texas oil and gas lease issued pursuant to Texas Natural Resources Code, Chapter 32, Chapter 51, Subchapter E, or Chapter 52. Land subject to a free royalty reserved by the state under Texas Natural Resources Code, §51.054 or its predecessor statutes cannot be qualifying property.

(I) Qualifying Gulf of Mexico property--Land described in Texas Natural Resources Code, §52.011(2), that is subject to a State of Texas oil and gas lease issued pursuant to Texas Natural Resources Code, Chapter 52, Subchapter B.

(J) Qualifying reservoir--A reservoir underlying a qualifying property or a reservoir within a pooled unit that includes qualifying property, having average daily per well production during the qualifying period equal to or less than 15 BOE/day. Unless specified or unless the context clearly requires a different interpretation, the term "qualifying reservoir" includes a "qualifying Gulf of Mexico reservoir."

(K) Qualifying Gulf of Mexico (GOM) reservoir--A reservoir underlying a qualifying GOM property or a reservoir within a pooled unit that includes qualifying GOM property, having average daily per well production during the qualifying period equal to or less than 50 BOE/day.

(L) Reservoir--A "common reservoir" as defined in Texas Natural Resources Code, Chapter 86, Subchapter A, §86.002.

(2) Qualification for Royalty Reduction.

(A) The SLB may consider a lease for a royalty reduction if:

(i) the average of the daily price of oil during the qualifying period was equal to or less than $25 per barrel; and

(ii) the applicant submits a sworn application to the SLB which includes:

(I) proof that the applicant is the lease operator as shown by the most current RRC records;

(II) proof that the land is qualifying property;

(III) proof that the reservoir is a qualifying reservoir, including proof of the reservoir's volume of oil, condensate, and/or natural gas produced from, or attributable to, the lease during the qualifying period;

(IV) a representation that the lease is in force and effect; and

(V) such additional information as may be required upon written request by GLO staff.

(B) GLO staff will review the application and submit it and a recommendation to the SLB. The staff shall include in the recommendation information regarding any other royalty interests in the tract, including royalty interests held by owners of the soil (or their successors in interest) of Relinquishment Act lands, as defined in §9.1 of this title (relating to Definitions). Thereafter, if the SLB finds that all requirements under subparagraph (A) of this paragraph are met, the SLB may approve the application or may condition approval on specified requirements. In determining whether to grant a reduction in the royalty rate, the SLB may consider whether the qualifying property or qualifying Gulf of Mexico property is being operated efficiently, including whether the property is pooled or has reasonable potential for the application of secondary or tertiary recovery techniques. If a qualifying reservoir for which a royalty rate reduction is sought under this section is included in a unit subject to SLB authority, the SLB may modify the terms and conditions for the unit as a condition of approving the requested reduction in the royalty rate. The SLB has the sole discretion to grant final approval. SLB approval of a reduced royalty applies only to the qualifying reservoir. The effective date of the royalty rate reduction is the first day of the month following SLB approval of the application. A reduced royalty under this incentive program is available only for a lease issued or approved by the state that is in effect on, or takes effect on or after, the effective date of this subsection.

(C) The approval of an application shall not constitute a finding that a lease has been maintained in force and effect or otherwise ratify or revive any lease.

(3) Royalty Rate. After the SLB approves an application:

(A) the SLB will determine the qualifying reservoir's applicable royalty rate according to the published reduced royalty schedules. The SLB may not set the royalty at a rate less than the lowest rate provided by statute for the category of property for which application is made.

Figure: 31 TAC §9.51(c)(3)(A) (No change.)

(B) Except as provided in subparagraph (C) of this paragraph, the royalty rate may not be reduced to less than 6.25% of 100% (one-sixteenth of eight-eighths).

(C) Royalty rate under specific types of leases:

(i) The royalty rate owed to the state under a lease issued under Texas Natural Resources Code, Chapter 52, Subchapter F (Relinquishment Act leases) or §51.195(c)(2) or (d) may not be reduced under this subsection to less than 3.125% of 100% (one thirty-second of eight-eighths). The state's royalty rate may not be reduced under this clause only if the aggregate royalty rate for the owner(s) of the soil is reduced in the same proportion. Only royalty payable by the lessee to the commissioner may be reduced by the SLB pursuant to this rule.

(ii) The royalty rate under a lease issued under Texas Natural Resources Code, Chapter 52, Subchapter C (riverbed leases), may not be reduced to a rate lower than the rate under a lease of land that:

(I) adjoins the land leased under Subchapter C; and

(II) is held or operated by, or is under the significant control of, the state's lessee.

(iii) The royalty rate under a lease issued under Texas Natural Resources Code, Chapter 32, Subchapter F (highway leases), may not be reduced to a rate that is lower than the rate under a lease of land that adjoins the land leased under Subchapter F.

(D) The qualifying reservoir's reduced royalty rate applies for two years from the effective date of the royalty rate reduction. The SLB may extend the reduced rate for additional periods not to exceed two years each. An operator may apply for a two-year extension by filing an affidavit that the conditions that existed at the time that the original royalty rate reduction was granted have not changed materially. The GLO or the SLB may require an operator to submit additional information in support of an application for extension. An operator may apply for further royalty reduction to a qualified reservoir during the anniversary month of the effective date of the current royalty rate reduction.

(E) Except as provided in subparagraph (F) of this paragraph, a reservoir that has not produced during the preceding 12 months and is located under, or is attributable to, a lease with a royalty reduction under this program, may be granted the lowest royalty rate currently allowed by the SLB for any other reservoir under, or attributable to, that lease. Such rate applies for two years from the month production from the newly productive reservoir commences. An operator must request and obtain written approval from the GLO for reduced royalty under this subparagraph.

(F) On leases with a royalty reduction under this program, a reservoir below the stratigraphic equivalent of any producing qualifying reservoir under, or attributable to, that lease may be granted the lowest royalty rate currently allowed by the SLB for any other reservoir under, or attributable to, that lease. To qualify for such reduced royalty, the deeper reservoir production cannot exceed 15 BOE per day per well (50 BOE for Gulf of Mexico properties), as shown by well tests and/or other appropriate data. If the deeper reservoir production exceeds 15 BOE per day per well (50 BOE for Gulf of Mexico properties), the royalty rate for such production is the rate specified in the lease. A royalty reduced under this subparagraph applies for one year from the month production from the deeper reservoir commences, after which the reduction terminates unless the operator by application seeks and obtains SLB approval for the reduction for that deeper reservoir.

(G) If the minimum annual royalty payment provided for in the lease exceeds the SLB-approved reduced royalty, the reduced royalty is the amount due from the lessee as the minimum annual royalty payment.

(H) If over a consecutive six-month period the average of the daily price of oil exceeds $25 per barrel, the SLB may terminate all previously granted royalty rate reductions upon 60 calendar days notice in writing to the operators of the leases for which royalty reduction has been granted.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on August 5, 2024.

TRD-202403581

Jennifer Jones

Chief Clerk, Deputy Land Commissioner

General Land Office

Effective date: August 25, 2024

Proposal publication date: June 7, 2024

For further information, please call: (512) 475-1859

CHAPTER 53. FINANCE

SUBCHAPTER A. FEES

DIVISION 1. LICENSE, PERMIT, AND BOAT AND MOTOR FEES

31 TAC §§53.2, 53.3, 53.6, 53.18

The Texas Parks and Wildlife Commission in a duly noticed meeting on March 28, 2024, adopted amendments to 31 TAC §§53.2, 53.3, 53.6, and 53.18, concerning License, Permit, and Boat and Motor Fees. Section 53.2 and §53.18 are adopted with changes to the proposed text as published in the February 23, 2024, issue of the Texas Register (49 TexReg 967) and will be republished. Section 53.3 and §53.6 are adopted without change and will not be republished.

The change to 53.2, concerning License Issuance Procedures, Fees, Possession, and Exemption Rules, and 53.18, concerning License Issuance Procedures, Fees, Possession, and Exemption Rules - Provisions for Digital Products, replace the 30-inch length limit for spotted seatrout with a 28-inch length limit, which reflects the direction of the commission in the adoption of 57.985, published elsewhere in this issue of the Texas Register.

The amendments provide for the creation and issuance of the Exempt Angler Spotted Seatrout Tag, the Bonus Spotted Seatrout Tag, and duplicates of those tags, and establish the fee associated with the various versions of the tag.

In another rulemaking published elsewhere in this issue of the Texas Register, the department adopts an annual retention limit of one spotted seatrout of 28 inches or greater ("oversized" spotted seatrout) per appropriately licensed saltwater angler. The rules allow retention of the oversized fish via utilization of an oversized spotted seatrout tag, which will be included at no cost with the purchase of an appropriate saltwater license or saltwater endorsement. Those rules also provide for the use of an Exempt Angler Spotted Seatrout Tag and Bonus Spotted Seatrout Tag, which must be purchased separately from a fishing license (i.e., those tags are not included in the fishing license or license packages). As explained in the preamble to that adopted rulemaking, the department is attempting to facilitate the recovery of spotted seatrout populations from extreme population impacts resulting from Winter Storm Uri in February 2021, while still providing some opportunity for the public to harvest "trophy" spotted seatrout.

The amendments adopted in this rulemaking make changes necessary to include the spotted seatrout tag in the various licenses and license packages, provide for a Bonus Spotted Seatrout Tag, provide for issuance of duplicate tags for lost or destroyed tags, provide a mechanism for persons who are exempt by statute or rule from license requirements to obtain tags, provide for the use of digital versions of the tags, and establish the tag fee ($3.00).

The department received 361 comments opposing adoption of the rules as proposed. Of those comments, 115 provided a reason or rationale for opposing adoption. Those comments, followed by the department's response to each, follow. The department notes that because some comments addressed more than one concern, the total number of comments being addressed by categorized reason for disagreement will not match the total number of commenters opposing adoption.

The department received 31 comments opposing adoption on the basis that the bonus tag fee should be higher. The commenters suggested various higher fee amounts. The department disagrees with the comments and responds that the fee amount for the seatrout tag mirrors the fee amount for the red drum tag and reflects the administrative cost to the department to implement the tagging system. No changes were made as a result of these comments.

The department received eight comments opposing adoption on the basis that there should be no charge for the tags. The department disagrees with the comments and responds that all fishing licenses with a saltwater endorsement will include a spotted seatrout tag at no additional cost. The fees established in this rulemaking apply only to persons who are exempt from license requirements (i.e., not required to obtain or possess a license while fishing) and persons who have already utilized a license tag for an oversized spotted seatrout and seek to retain an additional oversize spotted seatrout as provided in Chapter 57, Subchapter N, Division 2 (Bonus Spotted Seatrout Tag). No changes were made as a result of these comments.

The department received five comments opposing adoption on the basis that the spotted seatrout tag should be sold separately from fishing licenses (i.e., not included with licenses and license packages). The department disagrees with the comments and responds that the logistical complexity and customer inconvenience associated with a stand-alone sales model would be problematic, and in any case, a similar tag system for the red drum fishery has been in place for many years without issue. No change was made as a result of the comments.

The department received four comments that opposed adoption and stated the rules will result in negative economic impacts as a consequence of the spotted seatrout tag system. The department disagrees with the comments and responds that the maximum annual economic impact to any person affected by the rules would be the one-time $3 fee for an oversized spotted seatrout tag or bonus oversized spotted seatrout tag, which the department believes is not a significant burden or barrier. No changes were made as a result of the comments.

The department received 41 comments opposing adoption on the basis that the rules constitute government overreach and overregulation. The department disagrees with the comments and responds that the department has both the statutory duty and the statutory authority to manage and conserve wildlife resources of the state for the enjoyment of the public and that the rules as adopted are consistent with the regulatory authority and direction delegated to the commission by the legislature. No changes were made as a result of the comments.

The department received 26 comments that opposed adoption that in some form or fashion alleged that the rules were the result of improper political or monetary influence. The department disagrees and responds that rules are solely the result of scientific investigation and the department's statutory duty to protect and maintain sustainable fisheries. No changes were made as a result of the comments.

The department received 429 comments supporting adoption of the rule as proposed.

The amendments are adopted under the authority of Parks and Wildlife Code, Chapter 46 which authorizes the commission to prescribe fees for initial and duplicate tags for the take of finfish and to prescribe tagging requirements for the take of finfish; and authorizes the department to issue tags for finfish species allowed by law to be taken during each year or season from coastal waters of the state to holders of licenses authorizing the taking of finfish species

§53.2.License Issuance Procedures, Fees, Possession, and Exemption Rules.

(a) Hunting license possession.

(1) Except as provided in this section, no person may hunt in this state without having a valid physical hunting license in immediate possession.

(2) A person may hunt in this state without having a valid physical hunting license in immediate possession if that person has acquired a license electronically and has either:

(A) a receipt, notification, or application data from the department on a smart phone, computer, tablet, or similar device indicating acquisition of a digital license described in §53.3(a)(12) of this title (relating to Combination Hunting and Fishing License Packages) or §53.4(a)(1) of this title (relating to Lifetime Licenses); or

(B) a valid confirmation number in possession while awaiting fulfilment of the physical license. Confirmation numbers shall only be valid for 20 days from date of purchase.

(3) Except as provided in this section, a person may hunt deer in this state without having a valid physical hunting license in immediate possession only if that person:

(A) has acquired a license electronically and has a valid confirmation number in possession while awaiting fulfilment of the physical license; and

(B) is lawfully hunting:

(i) under the provisions of §65.29 of this title (relating to Managed Lands Deer (MLD) Programs);

(ii) by special permit under the provisions of Chapter 65, Subchapter H of this title (relating to Public Lands Proclamation);

(iii) on department-leased lands under the provisions of Parks and Wildlife Code, §11.0271; or

(iv) by special antlerless permit issued by the U.S. Forest Service (USFS) for use on USFS lands that are part of the department's public hunting program.

(4) For the purposes of this chapter, any person under the age of 17 is a resident.

(b) Fishing license possession.

(1) A person may fish in this state without having a valid physical fishing license in immediate possession if that person:

(A) is exempt by rule or statute from holding a fishing license; or

(B) has acquired a license electronically and has either:

(i) a receipt, notification, or application data from the department on a smart phone, computer, tablet, or similar device indicating acquisition of a digital license described in §53.3(a)(12) of this title or §53.4(a)(1) of this title; or

(ii) a valid confirmation number in possession while awaiting fulfilment of the physical license. Confirmation numbers shall only be valid for 20 days from date of purchase.

(2) No person may catch and retain a red drum over 28 inches in length in the coastal waters of this state without having a valid fishing license, saltwater sportfishing stamp (unless exempt), and valid red drum tag in immediate possession, unless the person has purchased a valid digital license described in §53.3(a)(12) of this title or a valid license with digital tags under §53.4(a)(1) of this title.

(3) No person may catch and retain a spotted seatrout 28 inches or greater in length in the coastal waters of this state without having a valid fishing license, saltwater sportfishing stamp (unless exempt), and valid Spotted Seatrout tag in immediate possession, unless the person has purchased a valid digital license described in §53.3(a)(12) of this title or a valid license with digital tags under §53.4(a)(1) of this title.

(c) Issuance of licenses and stamp endorsements electronically (on-line or by telephone).

(1) A person may acquire recreational hunting and/or fishing licenses electronically from the department by agreeing to pay a convenience fee of up to $5 per license in addition to the normal license fee.

(2) A person may acquire recreational hunting and/or fishing stamp endorsements electronically from the department by agreeing to pay a convenience fee of up to $5 per stamp order in addition to the normal stamp endorsement fee(s). This fee shall not be charged if a license is acquired during the same transaction.

(3) The fees established by this subsection apply to the electronic acquisition of a digital license identified in §53.3(a)(12) of this title or §53.4(a)(1) of this title.

(d) The following categories of persons are exempt from fishing license requirements and fees:

(1) residents under 17 years of age;

(2) non-residents under 17 years of age;

(3) non-residents 65 years of age or older who are residents of Louisiana and who possess a Louisiana recreational fishing license;

(4) non-residents 65 years of age or older who are residents of Oklahoma;

(5) persons who hold valid Louisiana non-resident fishing licenses while fishing on all waters inland from a line across Sabine Pass between Texas Point and Louisiana Point that form a common boundary between Texas and Louisiana if the State of Louisiana allows a reciprocal privilege to persons who hold valid Texas annual or temporary non-resident fishing licenses; and

(6) residents of Louisiana who meet the licensing requirements of their state while fishing on all waters inland from a line across Sabine Pass between Texas Point and Louisiana Point that form a common boundary between Texas and Louisiana if the State of Louisiana allows a reciprocal privilege to Texas residents who hold valid Texas fishing licenses.

(e) A Louisiana resident who holds a valid Louisiana license equivalent to the Texas freshwater fishing guide license may engage in business as a fishing guide on all Texas waters north of the Interstate Highway 10 bridge across the Sabine River that form a common boundary between Texas and Louisiana, provided the State of Louisiana allows a reciprocal privilege to persons who hold a valid Texas resident freshwater fishing guide license. Except as may be specifically provided elsewhere in this chapter or Parks and Wildlife Code, no person may take or attempt to take fish in Texas public waters without first having obtained a Texas license valid for that purpose.

(f) An administrative fee of $3 shall be charged for replacement of lost or destroyed licenses, stamp endorsements, or permits. This fee shall not be charged for items which have a fee for duplicates otherwise prescribed by rule or statute.

(g) A license or permit issued under the Parks and Wildlife Code or this title that has been denied or revoked by the department may not be re-issued or reinstated unless the person applying for re-issuance or reinstatement applies to the department for re-issuance or reinstatement and pays to the department an application review fee of $100, in addition to any other fees or penalties required by law.

(h) A person who has purchased a valid hunting, fishing, or combination hunting and fishing license but is not in physical possession of that license in any circumstance for which the license is required may use a wireless communications device (laptop, cellphone, smart phone, electronic tablet, phablet, or similar device) to satisfy applicable license possession requirements.

(1) Upon request for proof of licensure by a department employee in the performance of official duties, a person may display one of the following images via a wireless communications device:

(A) an image of information from the Internet website of the department or mobile application verifying issuance of the license valid for the activity or circumstance for which proof of licensure has been requested; or

(B) a display image of a digital photograph of the applicable license issued to the person.

(2) The requirements of paragraph (1)(B) of this subsection are satisfied by separate digital images of the entirety of the front and back of the license. The images must be of a resolution, contrast, and image size sufficient to allow definitive verification of the information on the license.

(3) This subsection applies only to proof of licensure and does not relieve any person from any legal requirement or obligation to be in physical possession of a stamp, stamp endorsement, tag, or permit.

§53.18.License Issuance Procedures, Fees, Possession, and Exemption Rules - Provisions for Digital Products.

(a) The provisions of this section are in addition to the provisions of §53.2 of this title (relating to License Issuance Procedures, Fees, Possession, and Exemption Rules) and to the extent that any provision of this section conflicts with the provisions of §53.2 of this title, this section controls.

(b) Hunting license possession. A person may hunt in this state without having a valid physical hunting license in immediate possession if that person has acquired a license electronically and has a receipt, notification, or application data from the department on a smart phone, computer, tablet, or similar device indicating acquisition of a digital license described in §53.3(a)(12) of this title (relating to Combination Hunting and Fishing License Packages), §53.4 of this title (relating to Lifetime Licenses), or §53.5(a)(3) of this title (relating to Recreational Hunting Licenses, Stamps, and Tags).

(c) Fishing license possession.

(1) A person may fish in this state without having a valid physical fishing license in immediate possession if that person has acquired a license electronically and has a receipt, notification, or application data from the department on a smart phone, computer, tablet, or similar device indicating acquisition of a digital license described in §53.3(a)(12) of this title or §53.4 of this title.

(2) A person may catch and retain a red drum over 28 inches in length in the coastal waters of this state without having a valid fishing license, saltwater sportfishing stamp, and valid red drum tag in immediate possession, if the person has:

(A) obtained a valid digital exempt angler red drum tag; or

(B) purchased a valid digital license described in §53.3(a)(12) of this title or a valid license with digital tags under 53.4 of this title.

(3) A person may catch and retain a spotted seatrout 28 inches or greater in length in the coastal waters of this state without having a valid fishing license, saltwater sportfishing stamp, and valid spotted seatrout tag in immediate possession, if the person has:

(A) obtained a valid digital exempt angler spotted seatrout tag; or

(B) purchased a valid digital license described in §53.3(a)(12) of this title or a valid license with digital tags under 53.4 of this title.

(d) Issuance of licenses, stamp endorsements, and tags electronically (on-line or by telephone).

(1) A person may acquire a tag electronically from the department by agreeing to pay a convenience fee of up to $5 in addition to the normal tag fee, if a fee is required. This fee shall not be charged if the tag is acquired in the same transaction with a license.

(2) The fees established by this subsection apply to the electronic acquisition of a digital license, stamp endorsement, or tag identified in §53.3(a)(12) of this title, 53.4 of this title, §53.5(a)(3) of this title, or §53.6 of this title (relating to Recreational Fishing Licenses, Stamps, and Tags).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on July 31, 2024.

TRD-202403534

James Murphy

General Counsel

Texas Parks and Wildlife Department

Effective date: September 1, 2024

Proposal publication date: February 23, 2024

For further information, please call: (512) 389-4775

SUBCHAPTER N. STATEWIDE RECREATIONAL AND COMMERCIAL FISHING PROCLAMATION

The Texas Parks and Wildlife Commission in a duly noticed meeting on March 24, 2024, adopted amendments to 31 TAC §57.972 and §57.984, and new §57.985, concerning the Statewide Recreational and Commercial Fishing Proclamation. Section 57.985 is adopted with changes to the proposed text as published in the February 23, 2024, issue of the Texas Register (49 TexReg 970) and will be republished. Section 57.972 and §57.984 are adopted without change and will not be republished.

The change to §57.985, concerning Spotted Seatrout - Special Provisions, replaces the proposed 30-inch minimum length limit for oversized spotted seatrout with a 28-inch minimum length limit.

The amendments and new section establish an annual bag limit of one spotted seatrout of 28 inches or greater and establish an oversized spotted seatrout tagging system similar to that currently in effect for red drum.

In February of 2021 Winter Storm Uri resulted in the largest freeze-related fish kill on the Texas Gulf coast since the 1980's, severely impacting spotted seatrout populations coastwide. In an effort to accelerate recovery of the spotted seatrout population, the department promulgated an emergency rule (subsequently replaced via the standard notice and comment rulemaking process) that implemented reduced bag and slot (a mechanism to protect certain age classes) limits. Those provisions included an automatic expiration date of August 31, 2023, at which time the harvest regulations reverted to provisions that were in effect before the freeze event. Department monitoring has continuously indicated lower post-freeze catch rates (compared to the previous ten-year average), and the commission accordingly acted to implement continued measures to enhance and accelerate population recovery, adopting rules that reduced the bag limit and narrowed the "slot" limit (the upper and lower length values for lawful retention of harvested fish) for spotted seatrout. In January 2024 the commission directed staff to develop a mechanism that would allow the retention of "oversized" fish (fish in excess of the maximum length established by rule) at a level not likely to compromise or defeat recovery measures. The rules as adopted accomplish that goal and implement a tagging system to administer that harvest.

The department received 363 comments opposing adoption of the rule as proposed. Of those comments, 311 expressed a reason or rationale for opposing adoption. Those comments, accompanied by the department's response to each, follow. The department notes that because some comments addressed more than one concern, the total number of comments being addressed by categorized reason for disagreement will not match the total number of commenters opposing adoption.

The department received 75 comments opposing adoption of the 30-inch minimum size limit. The commenters expressed various preferences for the length limits, both larger and smaller. The department recognizes the various length limit preferences expressed in the comments and responds that the proposed 30-inch minimum length limit was selected by analyzing the size structure and spawning potential of the population to determine a reasonable balance between recovery of the fishery and providing an opportunity for anglers to catch a larger size-class (trophy) fish; however, following public comment and discussion, the commission directed the adoption of a 28-inch minimum length limit, which offers a very similar benefit without significantly decreasing recovery time for the fishery.

The department received 60 comments opposing adoption and stating disagreement with the need for a tagging system for spotted seatrout. The department disagrees with the comments and replies that a tag system, with an option bonus or exempt angler tag fee, is the preferred method for equitably distributing limited opportunity for anglers to catch a trophy-sized fish while sustainably managing the fishery and providing for ease of compliance and enforcement. No changes were made as a result of these comments.

The department received 56 comments opposing adoption on the basis that there should be no harvest of oversized spotted seatrout. The department disagrees with the comments and responds that allowing harvest of spotted seatrout larger than 28 inches on an extremely conservative basis (i.e., no more than two per person per year) will not significantly impact the spawning population of spotted seatrout and is sustainable for the fishery. No changes were made as a result of the comments.

The department received 41 comments opposing adoption on the basis that the rule constitutes government overreach and overregulation. The department disagrees with the comments and responds that the department has both the statutory duty and the statutory authority to manage and conserve wildlife resources of the state for the enjoyment of the public and that the rules as adopted are consistent with the regulatory authority and direction delegated to the commission by the legislature. No changes were made as a result of the comments.

The department received 40 comments opposing adoption and stating disagreement with allowing the harvest of an oversized spotted seatrout under a bonus tag in addition to the harvest of an oversized spotted seatrout under the tag issued as part of a fishing license. The department disagrees with the comments and responds that an analysis of the size structure and spawning potential of the population determined that allowing the harvest of oversized spotted seatrout on a very conservative basis (including an oversized spotted seatrout in addition to that automatically allowed under a fishing license) will provide an opportunity for anglers to catch trophy-sized fish without impeding recovery of the fishery. No changes were made as a result of the comments.

The department received 26 comments opposing adoption that in some form or fashion alleged that the rules were the result of improper political or monetary influence. The department disagrees and responds that rules are solely the result of scientific investigation and the department's statutory duty to protect and maintain sustainable fisheries. No changes were made as a result of the comments.

The department received 25 comments opposing adoption because of dissatisfaction with daily bag and slot limits. The department disagrees with the comments and responds that the commission is satisfied that the daily bag and slot limits for spotted seatrout represent the fastest pathway to recovery of the fishery with the least inconvenience to anglers. No changes were made as a result of the comments.

The department received 22 comments opposing adoption because the rarity of spotted seatrout in excess of 28 inches in length means there will be few opportunities to utilize the oversize spotted seatrout tag. The department disagrees with the comments and responds that the department's goal is to protect the reproductive potential of spotted seatrout population while the fishery recovers from the effects of Winter Storm Uri and to do so in a fashion that balances the speed of that recovery with the interests of anglers. No changes were made as a result of these comments.

The department received 19 comments that opposed adoption and stated that additional limitations should be imposed on guides and commercial anglers. The department disagrees with comments and responds that the rules as adopted apply equally to all anglers whether they are on a guided fishing trip or not. The department also notes that guides are prohibited from personally retaining fish caught during a guided trip. A small subset of the comments stated that the department should limit commercial anglers. The department responds that if the commenters are referring to fishing guides, the previous department response is applicable; otherwise, the department responds that there is no commercial fishery for spotted seatrout. No changes were made as a result of the comments.

The department received 13 comments that opposed adoption, questioning the integrity of data collection and methodology because of conflict with personal observation. The department disagrees with the comments and responds that the fishery-independent and human dimension data used to guide the department's management decisions are collected according to acknowledged and scientifically valid protocols. These and other data, such as environmental factors and angler behavior, inform all management actions taken by the department. Numerous peer-reviewed studies, management decisions, and reports have been based on these same data. The anecdotal experiences of individual anglers are neither equivalent to nor a substitute for the spatial or temporal extent of department survey effort, nor are they controlled by a sampling design. No changes were made as a result of the comments.

Eight commenters opposed adoption and expressed concern for increased release-related mortality as a result of the rules, including but not limited to fish being "gut-hooked." The department disagrees with the comments and responds that studies indicate overall high survivability (or lower percentages of release mortality) for fish released properly, especially when using artificial baits or lures. No changes were made as a result of the comments.

The department received seven comments that opposed adoption and stating that the fishery should be closed until population recovery was achieved. The department disagrees with the comments and responds that although a complete closure is without question the fastest pathway to fishery recovery, the department believes it possible to continue to provide meaningful angling opportunity while implementing effective measures to recover spawning stock biomass. No changes were made as a result of the comments.

The department received five comments opposing adoption and stating that ecosystem health and pollution should be addressed instead of harvest restrictions. The department disagrees with the comments and responds that although there are a variety of long-term factors that affect coastal ecology, the department's regulatory authority is restricted to managing fisheries resources populations. No changes were made as a result of the comments.

The department received four comments opposing adoption and stating that the spotted seatrout fishery should be managed and regulated regionally. The department disagrees with the comments and responds that regional management, in addition to presenting regulatory complexity, would not be more effective in restoring overall spawning biomass as quickly as a coastwide harvest regulation. No changes were made as a result of these comments.

The department received four comments opposing adoption because the rule as proposed would have prohibited the retention of any oversized spotted seatrout until the tag system could be implemented at the beginning of the next license year. The department agrees with the comments and changes were made accordingly. The department responds that the commission determined that in order to reduce confusion, status quo should be maintained until the implementation of the tagging system and the annual limit for oversized fish occur on September 1, which is the beginning of the license year.

Three commenters opposed adoption and stated that instead of altering recreational harvest rules, the department should more vigorously pursue unlawful take of spotted seatrout. The department disagrees with the comments and responds that department vigilantly detects, cites, and prosecutes violators; however, law enforcement personnel cannot be everywhere at all times. The department believes that the overwhelming majority of anglers obey the law, which is supported by creel survey data indicating high compliance rates for spotted seatrout bag and size limits. Additionally, there is no evidence to suggest that unlawful take is a significant factor in current population status. Finally, the department encourages all persons with knowledge of conservation crimes to contact the department directly or via the Operation Game Thief Hotline, which pays cash rewards for information leading to the conviction of violators and keeps the identities of sources anonymous. No changes were made as a result of the comments.

The department received three comments opposing adoption on the basis that natural predation pressure should be addressed instead of harvest pressure. The department disagrees with the comments and responds that predation occurs in any natural system and there is no data to suggest that it is a major factor affecting spotted seatrout populations. Commenters specifically mentioned revising redfish regulations to alleviate pressure. Though beyond the scope of this rulemaking, the department responds that there is no evidence to suggest that redfish predation has measurable impact on the spotted seatrout fishery. No changes were made as a result of the comments.

The department received three comments opposing adoption on the basis that Sabine Lake was not effectively managed due to differential regulations in Texas and Louisiana. The department disagrees with the comment and responds that although the department works cooperatively with Louisiana to manage resources in shared waters, there is no evidence to suggest that harvest regulations on Sabine Lake, in the context of the goal of recovering the spotted seatrout population from the deleterious effects of Winter Storm Uri, are problematic. No changes were made as a result of the comments.

Three commenters opposed adoption and stated that commercial activity, including commercial fishing, dredging, silting, and barges, debilitates habitat quality and contributes to spotted seatrout declines. Though the comment addresses issues beyond the scope of this rulemaking, the department responds that it has limited authority to regulate matters other than the recreational and commercial harvest of marine species, which does not include the authority to regulate dredging or barge traffic. A subset of commenters specifically mentioned commercial shrimp harvest's impact on the spotted seatrout fishery. The department disagrees with the comments and responds that there is no biological evidence to suggest that spotted seatrout populations are substantively affected by commercial shrimping activity. No changes were made as a result of the comments.

The department received three comments opposing adoption and stating that the harvest of oversized trout should be regulated on a daily or monthly basis, not annually. The department disagrees with the comments and responds that the annual bag limit for oversized spotted seatrout is intended to provide a very conservative harvest opportunity for trophy-sized fish while the fishery is recovering from the effects of Winter Storm Uri; allowing daily harvest would retard and perhaps jeopardize efficient recovery of populations and a monthly limit would be difficult to implement and enforce. No changes were made as a result of the comments.

Two commenters opposed adoption on the basis that the spotted seatrout population is fine and does not need management. The department disagrees with the comments and responds spotted seatrout population data indicate that population levels are below recent historical averages, which justifies prompt and effective management actions to stabilize and reverse negative population trends as quickly as possible. No changes were made as a result of the comments.

One commenter opposed adoption and stated that anglers should be allowed to harvest two oversized spotted seatrout via a bonus tag system. The department disagrees with the comment and replies that the primary goals of the regulation are to protect the spotted seatrout population and maintain some opportunity for anglers to harvest a trophy-sized spotted seatrout; however, given the rarity of spotted seatrout of greater than 28 inches in length, it is very unlikely that any angler would be able to utilize a second bonus tag. No changes were made as a result of the comments.

The department received one comment opposing adoption and stating that anglers should have to choose either a bonus red drum tag or an oversized spotted seatrout tag when purchasing a fishing license. The department disagrees and replies that because red drum and spotted seatrout are different species, they are also different fisheries that are independent from one another and not managed as a single stock; therefore, there is no biological reason to deprive anglers of fishing opportunity. No changes were made as a result of the comments.

One commenter opposed adoption and alleged that public comments are not considered by the commission because the decisions have already been made before the commission meets. The department disagrees with the comment and responds that the commission is provided with a complete record of all public comment prior to each commission meeting and a summary of public comment is provided to and deliberated by the commission at the time of the commission meeting. The department notes that the commission in this rulemaking considered public comment and adopted the rule with changes to the proposed text, which refutes assertions to the contrary. No changes were made as a result of the comments.

The department received one comment opposing adoption and stating that the rules should allow anglers under the age of 18 to retain a spotted seatrout greater than 20 inches in length per day as part of the daily bag. The department disagrees with the comment and responds that harvest regulations equitably distribute identical harvest opportunity to all anglers regardless of age. No changes were made as a result of the comment.

The department received 421 comments supporting adoption of the rule as proposed.

DIVISION 1. GENERAL PROVISIONS

31 TAC §57.972

The amendment is adopted under the authority of Parks and Wildlife Code, Chapter 46 which authorizes the commission to prescribe fees for initial and duplicate tags for the take of finfish and to prescribe tagging requirements for the take of finfish; and authorizes the department to issue tags for finfish species allowed by law to be taken during each year or season from coastal waters of the state to holders of licenses authorizing the taking of finfish species; and Chapter 61, which requires the commission to regulate the periods of time when it is lawful to hunt, take, or possess game animals, game birds, or aquatic animal life in this state; and to specify the means, methods, and places in which it is lawful to hunt, take, or possess game animals, game birds, or aquatic animal life in this state; the species, quantity, age or size, and, to the extent possible, the sex of the game animals, game birds, or aquatic animal life authorized to be hunted, taken, or possessed; and the region, county, area, body of water, or portion of a county where game animals, game birds, or aquatic animal life may be hunted, taken, or possessed.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on July 31, 2024.

TRD-202403535

James Murphy

General Counsel

Texas Parks and Wildlife Department

Effective date: September 1, 2024

Proposal publication date: February 23, 2024

For further information, please call: (512) 389-4775

31 TAC §57.984, §57.985

The amendment and new section are adopted under the authority of Parks and Wildlife Code, Chapter 46 which authorizes the commission to prescribe fees for initial and duplicate tags for the take of finfish and to prescribe tagging requirements for the take of finfish; and authorizes the department to issue tags for finfish species allowed by law to be taken during each year or season from coastal waters of the state to holders of licenses authorizing the taking of finfish species; and Chapter 61, which requires the commission to regulate the periods of time when it is lawful to hunt, take, or possess game animals, game birds, or aquatic animal life in this state; and to specify the means, methods, and places in which it is lawful to hunt, take, or possess game animals, game birds, or aquatic animal life in this state; the species, quantity, age or size, and, to the extent possible, the sex of the game animals, game birds, or aquatic animal life authorized to be hunted, taken, or possessed; and the region, county, area, body of water, or portion of a county where game animals, game birds, or aquatic animal life may be hunted, taken, or possessed.

§57.985.Spotted Seatrout - Special Provisions.

(a) On the effective date of this section, the provisions of §57.981(c)(5)(O)(iv) of this title (relating to Bag, Possession, and Length Limits) cease effect and no person may retain a spotted seatrout of 28 inches in length or greater except as provided in this section. To the extent that any provision of this section conflicts with any provision of §57.981(c)(5)(O) of this title, this section controls.

(b) The provisions of subsections (c) - (f) of this section take effect September 1, 2024.

(c) During a license year, a person may retain one spotted seatrout of greater than 28 inches in length, provided:

(1) a properly executed Spotted Seatrout Tag, a properly executed Exempt Angler Spotted Seatrout Tag, or properly executed Duplicate Exempt Spotted Seatrout Tag has been affixed to the fish; and

(2) one spotted seatrout exceeding the length limit established by subsection (a) of this section in addition to a spotted seatrout retained under the provisions of paragraph (1) of this section, provided a properly executed Bonus Spotted Seatrout Tag or properly executed Duplicate Bonus Spotted Seatrout Tag has been affixed to the fish.

(3) A spotted seatrout retained under a Spotted Seatrout Tag, an Exempt Angler Spotted Seatrout Tag, a Duplicate Exempt Spotted Seatrout Tag, or a Bonus Spotted Seatrout Tag may be retained in addition to the daily bag and possession limit as provided in §57.981(c)(5)(O) of this title.

(d) A person who lawfully takes a spotted seatrout under a digital license issued under the provisions of §53.3(a)(12) this title (relating to Super Combination Hunting and Fishing License Packages) or under a lifetime license with the digital tagging option provided by §53.4(a)(1) of this title (relating to Lifetime Licenses) that exceeds the maximum length limit established in §57.981(c)(5)(O) of this title is exempt from any requirement of Parks and Wildlife Code or this subchapter regarding the use of license tags for that species; however, that person shall immediately upon take ensure that a harvest report is created and submitted via a mobile or web application provided by the department for that purpose. If the absence of data connectivity prevents the receipt of a confirmation number from the department following the report required by this subparagraph, the person who took the spotted seatrout is responsible for ensuring that the report required by this subsection is uploaded to the department immediately upon the availability of network connectivity.

(e) It is an offense for any person to possess a spotted seatrout exceeding the maximum length established by this section under a digital license or digital tagging option without being in immediate physical possession of an electronic device that is:

(1) loaded with the mobile or web application designated by the department for harvest reporting under this section; and

(2) capable of uploading the harvest report required by this section.

(f) A person who is fishing under a license identified in §53.4(a)(1) of this title and selected the fulfilment of physical tags must comply with the tagging requirements of this chapter that are applicable to the tagging of spotted seatrout under a license that is not a digital license.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on July 31, 2024.

TRD-202403536

James Murphy

General Counsel

Texas Parks and Wildlife Department

Effective date: September 1, 2024

Proposal publication date: February 23, 2024

For further information, please call: (512) 389-4775

CHAPTER 151. OPERATIONS OF THE SCHOOL LAND BOARD

31 TAC §151.6

The School Land Board (SLB) adopts an amendment to Texas Administrative Code §151.6, concerning new procedures for the release of funds from the Real Estate Special Fund Account, pursuant to Texas Natural Resources Code, Section 51.413(b), without changes to the proposed text as published in the May 24, 2024, issue of the Texas Register (49 TexReg 3790) and the text will not be republished.

INTRODUCTION AND BACKGROUND

The adopted amendments to §151.6 create new procedures for the release of funds from the Real Estate Special Fund Account to reflect legislative changes that have occurred since the current rule was adopted in 2016, as required by Section 51.413(b) of the Texas Natural Resources Code.

COMMENTS BY THE PUBLIC

The GLO did not receive any comments on the amendments.

STATUTORY AUTHORITY

The adopted amendment to §151.6 is proposed under Section 51.413(b) of the Texas Natural Resources Code, which requires the Board to adopt rules to establish the procedure that will be used by the Board to determine the date a transfer will be made and the amount of the funds that will be transferred to the available school fund or to the Texas Permanent School Fund Corporation for investment in the permanent school fund from the real estate special fund account.

STATUTES AFFECTED

Texas Natural Resources Code §51.413 and §32.061 are affected by this adopted rulemaking action.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on August 5, 2024.

TRD-202403584

Jennifer Jones

Chief Clerk, Deputy Land Commissioner

School Land Board

Effective date: August 25, 2024

Proposal publication date: May 24, 2024

For further information, please call: (512) 475-1959