United States: Oil Is Not Well, But Carriers May Still Get Paid

For motor carriers providing hauling and transportation services to and from oil and gas sites, a solution to problematic collection efforts may be found in "mineral lien statutes." These statutes enable unpaid mineral contractors and subcontractors to obtain a lien where they contributed services to mineral production. Importantly, this means that carriers can have a claim for unpaid freight charges against not only the shipper, consignor or consignee, but also third parties with an interest in the mineral property.

This article will focus on the Texas Mineral Lien Statute, found in Chapter 56 of the Texas Property Code, but similar statutes may be found in other states with long histories of mineral production, such as Oklahoma and Louisiana. Moreover, some states' mechanic's and material-man's lien statutes, including West Virginia's, may encompass liens for activities associated with mineral production.

Who Is Protected?

Chapter 56 of the Texas Property Code provides that a lien on mineral property can be filed by a mineral contractor or subcontractor that provides labor, material and/or services for "mineral activities." The definition of "mineral activities" is defined broadly by the statute, so that it can include, for example, a motor carrier that hauls frac sand to, or waste water from, a well site.

As more fully explained below, it is important to determine whether the carrier is a contractor or subcontractor. The classification depends on who the carrier contracted with – if the carrier contracted (expressly or impliedly) with a mineral property owner, or with a trustee, agent or receiver of a mineral property owner, then the carrier will be classified as a mineral contractor. In contrast, if the carrier contracted with a mineral contractor or subcontractor, then the carrier will be classified as a mineral subcontractor. The carrier's characterization is fixed as of the date the contract is made, the goods are provided and/or the services are performed, and cannot be defined by later events.

Timing Is Everything

The most important aspect of mineral liens is timing – Chapter 56 requires that an affidavit claiming the lien be filed within "six months after the day the indebtedness accrues." Indebtedness for services begins to accrue on the date that the services were last furnished. If the carrier provides services over a period of time on the same land, oil or gas leasehold interest, oil or gas pipeline, or oil and gas pipeline right-of-way, all services are considered to be furnished under a single contract unless more than six months elapse between the dates the services are furnished.

Additionally, mineral subcontractors must serve the mineral property owner(s) with written notice that the lien is claimed 10 days before the affidavit is filed. Such notice must include the amount of the lien, the name of the person indebted to the subcontractor and a description of the property.

Contents of the Affidavit

The affidavit must contain all of the information required under Chapter 56, including the name of the mineral property owner, if known, the name and mailing address of the claimant, the dates of performance or furnishing, a description of the land, leasehold interest, pipeline, or pipeline right-of-way involved, and an itemized list of amounts claimed.

In addition to the above listed information, a mineral subcontractor's affidavit must include the name of the person for whom labor was performed or material was furnished or hauled, and a statement that the mineral subcontractor timely served written notice that the lien is claimed on the property owner or the owner's agent, representative or receiver.

Property Covered

The property that the lien attaches to is potentially very extensive – a lien attaches to not only material, machinery and supplies furnished or hauled, but also to the land, leasehold, oil or gas well, water well, oil or gas pipeline and its right-of-way and oil or gas lease for which the material, machinery or supplies were furnished or hauled. Thus, even if a carrier hauls materials to a well that is later deemed to be a dry well, the carrier could still have a valid and enforceable lien on a highly productive well that is on the same oil or gas lease.

In contrast, the lien will not attach to the fee title of the property. Moreover, there is a split of authority in Texas as to whether the lien will attach to the proceeds of production. If the lien is located in a jurisdiction that could arguably allow for attachment to proceeds of production, it may be advisable to include any known royalty owners, as they may also have an interest significant enough to pay off the debt.

Enforcement

Ideally, the presence of a correctly filed lien creates pressure on responsible and interested parties to make payment. If payment remains outstanding, the lien can still be enforced, but only after involvement of a court. The lien is enforced in the same manner as a mechanic's lien under Chapter 53 of the Texas Property Code – through a suit to foreclose on the lien. Again, timing matters: the suit to foreclose must be brought within two years after the filing of the lien, or within one year after completion, termination or abandonment of the work under the original contract, whichever is later.

Conclusion

As the oil and gas industry continues to struggle with the aftermath of overproduction, securing a mineral lien may be the best option for an otherwise unsecured carrier to ensure payment of its freight charges. At the very least, it provides the carrier potential access to third parties that would not be responsible for payment to the carrier under normal freight charge collection effort scenarios.

Originally published by The Transportation Lawyer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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