Filing Liens Against Mineral Property
Throughout my years working in the oil and gas industry, I have learned that there are multiple facets to this business. So many in fact that I feel it is impossible for any one person to know everything about everything. It’s no longer surprising to find myself working in a new aspect of the land business. Working on exotic projects differing from typical land work (leasing, title, due diligence, etc.) can be a result of the particular state of the industry. As all landmen quickly learn, you go where the work is.
Within the last few months, we had a company reach out to us to assist them in the process of filing liens against an operator in the Permian Basin. There were numerous leasehold interests which needed to be subject to a lien to secure payment for services rendered, and Peak Land Services was asked to assist in filing lien affidavits. Our primary responsibility was to obtain sufficient descriptions of the wells which were to be subject to a lien. The project went smoothly, but interestingly enough, we subsequently fielded additional inquiries regarding filing liens on mineral properties and our ability to assist with such. It was at this point I started to see that the potential uptick in this sort of work was due, at least in part, to the place our industry finds itself. As operators begin to lean on vendors for cash flow, and attempt to cut costs, service companies can be left wondering when and if they will end up getting paid!
Peak Land Services has broadened its services to include due diligence in filing liens, and assisting in bankruptcy due diligence. In an effort to better understand this new offering, Peak reached out to Dorsett Johnson & Swift, LLP for assistance in putting together a brief “how to” blog post for those unfamiliar with this service/proceeding.
Wayne Taylor, of Dorsett Johnson & Swift, LLP, was kind enough to sit down with me at Summer Moon (good coffee) in Fort Worth. Dorsett Johnson & Swift, LLP is a law firm with several offices throughout Texas and Oklahoma with litigation and transactional practice groups specializing in various legal areas that are essential to modern businesses. Wayne has been heavily involved in filing mineral liens and was happy to go over Chapter 56 of the Texas Property Code with me as well as describe some situations he encountered in his own experience while filing mineral liens.
The following is meant to help serve as a general guide for those who find themselves at a point where they need to file a mineral lien in order to ensure payment is delivered for labor or services rendered. Much of the information in this blog can be found in Chapter 56 of the Texas Property Code, which sets out the necessary requirements for filing liens against mineral property.
Who has the right to file a lien:
A mineral contractor or subcontractor has the right to file a lien to secure payment for labor or services related to mineral activities. Texas Property Code provides the following definitions:
“Mineral contractor” means a person who performs labor or furnishes or hauls material, machinery, or supplies used in mineral activities under an express or implied contract with a mineral property owner or with a trustee, agent, or receiver of a mineral property owner.
“Mineral subcontractor” means a person who (A) furnishes or hauls material, machinery, or supplies used in mineral activities under contract with a mineral contractor or with a subcontractor; (B) performs labor used in mineral activities under contract with a mineral contractor; or (C) performs labor used in mineral activities as an artisan or day laborer employed by a subcontractor.
“Mineral activities” means digging, drilling, torpedoing, operating, completing, maintaining, or repairing an oil, gas, or water well, an oil or gas pipeline, or a mine or quarry.
“Mineral property owner” means an owner of land, an oil, gas, or other mineral leasehold, an oil or gas pipeline, or an oil or gas pipeline right-of-way. *In most cases this will be the operator under a joint operating agreement.
Property subject to the lien:
(1) the material, machinery, and supplies furnished or hauled by the lien claimant;
(2) the land, leasehold, oil or gas well, water well, oil or gas pipeline and its right-of-way, and lease for oil and gas purposes for which the labor was performed or material, machinery, or supplies were furnished or hauled, and the buildings and appurtenances on this property;
(3) other material, machinery, and supplies used for mineral activities and owned by the owner of the property listed in Subdivision (2); and
(4) other wells and pipelines used in operations related to oil, gas, and minerals and located on property listed in Subdivision (2).
**A lien created by performing labor or furnishing or hauling material, machinery, or supplies for a leaseholder does not attach to the fee title to the property. The traditional rule is that the lien does not attach to the proceeds of production. It is important to note that case law exists that contradicts the traditional rule, but discussion of the ruling in the Abella case is beyond the scope of this post.
What to file:
To secure the mineral lien, the lien claimant must file a lien affidavit which must include the following:
(1) the name of the mineral property owner involved, if known
(2) the name and mailing address of the claimant
(3) the dates of performance or furnishing
(4) a description of the land, leasehold interest, pipeline, or pipeline right-of-way involved
**It is a good idea to include the API number for oil and gas wells in the description.
(5) an itemized list of amounts claimed.
When the lien claimant is a mineral subcontractor, the affidavit must in addition include:
(1) the name of the person for whom labor was performed or material was furnished or hauled
(2) a statement that the subcontractor timely served written notice that the lien is claimed on the property owner or the owner’s agent, representative, or receiver.
Notice requirements:
A mineral subcontractor has to comply with an additional step to secure its lien. Not later than the 10th day before the day the lien affidavit is filed, the mineral subcontractor must serve written notice that the lien is claimed against all property owners.
The subcontractor’s notice must include:
(1) the amount of the lien
(2) the name of the person indebted to the subcontractor
(3) a description of the land, leasehold interest, pipeline, or pipeline right-of-way involved
**It is imperative that all steps be accounted for when giving notice. Otherwise, the existence of the lien could be in jeopardy. If there is any doubt, the safe thing to do would be to comply with the steps required of the subcontractor. Identifying all property owners may take longer than you’d think (consider those wells with numerous working interest owners). Because of this it is critical to begin the lien-filing process as early as possible.
Where to file:
The lien needs to be filed in the county clerk’s office of the county (or counties) where the property is located.
Accrual of indebtedness:
(a) The indebtedness for labor performed by the day or week accrues at the end of each week during which the labor is performed.
(b) The indebtedness for material or services accrues on the date the material or services were last furnished. All material or services that a person furnishes for the same land, leasehold interest, oil or gas pipeline, or oil or gas pipeline right-of-way are considered to be furnished under a single contract unless more than six months elapse between the dates the material or services are furnished.
When to File:
In order to perfect the lien, in addition to the subcontractor notice requirements mentioned above, the claimant must file an affidavit with the county clerk of the county in which the property is located no later than six (6) months after the day the indebtedness accrued. Case law has established that a delay of even a single day after the expiration of the deadline can result in the invalidity of the lien.
**It is crucial to file the lien within 6 months after the indebtedness accrues!! This goes for mineral contractors and subcontractors.
Enforcement of the lien:
A claimant must enforce the lien within the same time and in the same manner as a mechanic’s, contractor’s, or materialman’s lien under Chapter 53 of the Texas Property Code. To enforce the lien, the lienholder must file a suit to foreclose the lien (1) within two years after the last day a lien claimant may file its lien affidavit or (2) within one year after completion, termination, or abandonment of the work under the original contract which the lien is claimed, whichever is later.
Other key points when filing liens on mineral property:
-In determining where your lien lies in priority compared to liens brought by other parties against the same person or company, it doesn’t matter when you file the lien (so long as it is within the required timeframe). Priority will be given to the lien containing the earliest date for which services were not paid.
-Even if the person or company against whom the lien was brought subsequently files for bankruptcy, you may still be afforded some protection by providing you with secured creditor status in the bankruptcy proceeding.
I hope this article provides some general insight and a good foundation for those looking to file mineral liens. A special thank goes out to Wayne Taylor and Dorsett Johnson & Swift, LLP (http://dorsettjohnson.com/) for their assistance with providing general information surrounding mineral liens in Texas. Should you need further assistance in preparing mineral lien affidavits, feel free to contact Peak Land Services. We office out of Midland, TX, and Fort Worth, TX, and our contact information can be found at https://peaklandservices.com/.
By: Cole Frederick