Special Types of Liens: Oil and Gas Liens

Are There Special Types of Liens? The Short Answer: YES!

The question: “Are there special types of mechanic’s liens?” The Answer: YES! Some include Oil, Gas, Mineral, Wells, and Quarries.

You may provide services or material to the improvement of a real property where your lien rights won’t fall into the generic category of “mechanic’s lien”. With the furthered development of oil and gas projects (i.e. Keystone Pipeline, fracking anyone?), and the increase of bankruptcy among oil & gas companies, folks that furnish to these projects need to familiarize themselves with the lien rights available to them. In addition to mechanic’s lien statutes, some states have separate statutes for oil, gas, minerals, wells, or quarries.  For the sake of ease, throughout this post I will refer to lien rights for these projects simply as “mineral liens”.

How do I know if I can file a mineral lien?

This will vary by state, but here are a few excerpts of how different statutes define who is permitted to secure their rights under a mineral lien.

Texas statute is fairly generic/liberal with their definition of who has the right to file a lien:

(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.

In Alaska, the list of those entitled is quite lengthy and specific:

Article 03. MINES AND WELLS Sec. 34.35.125 – Liens on mines and oil wells. A person who, at the instance of the owner, performs work in, on, or about a mine, or mining claim, oil, gas, or other well, in opening up, developing, sinking, drilling, drifting, stoping, mucking, stripping, shoveling, mining, hoisting, firing, cooking, teaming, or performs any other class or kind of work necessary or convenient to the development, operation, working, or mining of the claim or well; or who performs work tending to or assisting in the development, extraction, separation, or reduction to a commercial value of the minerals; or who performs work on a water right, ditch, flume, pipe line, tramway, tram, road, or trail, used in connection with the opening up, or to facilitate the opening up, operation, or development of the claim or well, or the extraction of the minerals, has a lien on the mine or mining claim, oil, gas, or other claim or well as security for the payment of the work.

 California & Wyoming both specify those supplying rental equipment:

California

1203.51 (g) “Furnish” means sell or rent.

1203.52.  Any person who shall, under contract with the owner of any leasehold for oil or gas purposes perform any labor or furnish any material or services used or employed, or furnished to be used or employed in the drilling or operating of any oil or gas well upon such leasehold, or in the constructing, putting together, or repairing of any material so used or employed, or furnished to be so used or employed, shall be entitled to a lien under this chapter

Wyoming

§ 29-3-104.  Extent of liens; persons furnishing material or work under contract.

Any person, who furnishes or rents any materials or provides any work under contract with any contractor or subcontractor shall have a lien on all the property on which the lien of the contractor may attach to the same extent as the contractor’s lien to secure payment.

What Services Are Considered Lienable?

As you can see in the above examples, each state has a different opinion on what is considered lienable. Take Alaska for instance, their statute provides a very specific list of services that entitle someone to a lien – “sinking, drilling, drifting, stoping, mucking, stripping, shoveling, mining, hoisting, firing, cooking, teaming” – despite the specificity in nature, this list is LONG, and affords lien rights to quite a few.

There is always the question of whether you have rights under the mechanic’s lien statute, or if your rights will fall under statute specific to “mineral liens”.  A general rule of thumb is that if the materials or services you are providing are for the improvement to the real property, you may have mechanic’s lien rights.  If the materials or services are used for the extraction of the minerals (oil, gas, minerals, etc.), the “mineral lien” may apply.  In some cases, an attorney may recommend filing both types of liens to ensure your rights are protected.

What Is Actually Liened?

This question could easily be a 50-page dissertation, but in general the liens will attach to the property, the leasehold and/or the proceeds from the production.

  • Example of lien attaching to leasehold only: In Utah, the lien attachment is dictated by who contracted for the improvement and if that owner only owns a “…portion of the acreage within the product unit, the lien granted by this chapter is limited to that portion of acreage”.
  • Example of the lien attaching to the property, leasehold AND proceeds: Wyoming statute provides for attachment to the property, the leasehold as well as any proceeds of production. § WY 29-3-105

This Project Is Massive; How Do I Identify the Owner?

This is an obstacle that many face, and as we’ve discussed before in Wind & Solar Farms, title work can be costly. It is recommended you obtain title work for the property, but I also like this advice from Oil and Gas Law Digest, to identify the API number:

“The first step may be better called a “pre-step,” because it is best handled before a dispute arises. Typically, the best way to identify a well for a Mineral Lien is to reference the API number.  An API number is a “unique, permanent, numeric identifier” assigned to each well drilled for oil and gas in the United States.

The best and easiest time to gather this information is up-front, in a job information sheet or other job-intake form.  Additionally, any employees actually sent out to the field should be able to note the API number, and this “blank” for this number should be added to a relevant form used in the field.  For suppliers, it is important to gather this information before shipping any materials.” 

Which States?

There are several states that offer mineral liens as a separate remedy from the standard mechanic’s lien: Alaska, Arizona, Arkansas, California, Colorado, Florida, Kansas, Kentucky, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah & Wyoming.

(Note: this is not an exhaustive list; please review statute, for the state in which your project is located, for more information)

Mineral Liens Are No Joke

If you are furnishing to a property that entitles you to a mineral lien, seek legal guidance ASAP!

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