Oil and Gas operators face significant legal and financial risks from statutory mineral liens, particularly in distressed or bankruptcy situations. The laws governing these liens differ notably between Texas and Louisiana, affecting how trade creditors—those supplying goods, labor, or services to drilling operations—can enforce claims for unpaid work.
In Texas, Chapter 56 of the Texas Property Code provides a statutory lien to original contractors who deal directly with mineral rights owners. These liens secure payments for labor and services related to Oil and Gas drilling and attach to the mineral owner’s property and drilling improvements—but notably not to the hydrocarbons produced or their proceeds. Subcontractors working under the original contractor have limited rights based on the amount owed to the original contractor at the time of lien notification. If mineral owners pay a contractor after receiving notice of an unpaid subcontractor, they risk double liability. This “trapping” mechanism essentially safeguards subcontractor claims by freezing owed amounts.
For non-operating working interest owners—those not directly conducting operations but sharing in the investment—the situation can become complex. If they’ve already paid the operator for services but the vendor remains unpaid, liens may still apply. This liability can sometimes be mitigated by withholding payments, negotiating settlements, or initiating interpleader actions. In bankruptcy proceedings, joint operating agreements (JOAs) may help non-operators assert defenses or recoup payments if the operator defaults, provided the court deems lien-related claims as curable defaults under Section 365 of the Bankruptcy Code.
Louisiana’s Broader Privilege Protections Under LOWLA
In contrast, Louisiana’s Oil Well Lien Act (LOWLA) provides broader protections to service providers and subcontractors. Unlike Texas law, LOWLA’s privileges—akin to common law liens—extend to all working interests in a lease, produced hydrocarbons, and production proceeds. The law does not differentiate between contractors and subcontractors; any party performing labor or supplying materials has a right to a privilege regardless of direct contractual ties with the leaseholder.
This means that even if an operator hires a contractor who subsequently mismanages a budget and cannot pay subcontractors, the privileges can attach not only to the operator’s interests but also to all co-working interest owners’ stakes in the lease. For this reason, Louisiana operators must exercise stricter oversight over vendor engagements and contract terms to limit financial exposure from overextended or mismanaged projects.
In bankruptcy scenarios, LOWLA’s expansive lien attachment can complicate matters further. Privileges may survive the operator’s bankruptcy discharge and continue to affect non-debtor co-owners. However, a privilege can be extinguished if the debt it secures is legally resolved, as was demonstrated in In re Fieldwood Energy LLC. In that case, a creditor’s lien was nullified because the Chapter 11 plan indicated the claim was “satisfied,” and the creditor failed to object before confirmation, allowing the court to apply res judicata and extinguish the lien.
Key Takeaways for Oil and Gas Stakeholders
Operators and working interest owners must understand and address the differences between Texas and Louisiana lien laws to protect themselves from unexpected liability. This includes proactively drafting clear contract terms, managing subcontractor relationships, and closely monitoring bankruptcy filings and court-approved plans.
Given the financial exposure that can arise under these statutes, industry stakeholders are advised to consult legal counsel when structuring agreements or responding to insolvency issues—especially in multi-state Oil and Gas operations. Failure to navigate these complexities can lead to costly legal disputes and lien claims that affect operations long after the work is complete.
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