With millions of acres of mineral property under development in Texas, mineral property owners who contract to develop oil and gas on their property have additional protection from lien claims asserted by subcontractors after a Feb. 17, 2022, decision by the El Paso Court of Appeals.
FBFK attorney J. Beverly, who led the winning case for Pearl Resources Operating Co, LLC and Pearl Resources, LLC, argued that a mineral property lien claim filed by a water hauler who provided water disposal services to Pearl’s drilling contractor following a wild well incident at well owned and operated by Pearl was invalid.
The rationale: The hauler was a subcontractor of the drilling contractor, and the amount of its lien was limited under Tex. Prop. Code §56.043 to the amount Pearl owed the mineral (drilling) contractor when the subcontractor gave notice of its lien claim to Pearl.
At the time the subcontractor provided notice of its lien claim, the drilling contractor had failed to comply with the terms of its drilling contract which required delivery of a successful well to be entitled to any additional payment. As such, Pearl argued that it did not owe its mineral contractor any amount at the time of notice and therefore, Pearl was not liable to the subcontractor and its claimed mineral property lien was invalid.
After both sides sought summary judgment, the District Court in Pecos County awarded summary judgment to the mineral subcontractor finding that its mineral lien claim was valid. In a reported opinion, the El Paso Court of Appeals reversed and rendered that the mineral subcontractor take nothing on its claims. The Court found that Pearl’s interpretation of the mineral property lien statute was correct, and that the mineral subcontractor did not have a valid lien. The Court also relied on language in the drilling contract which provided that the mineral contractor was not the agent of the property owner and was responsible for all expenses in the event of a wild well incident.
The takeaway for mineral property owners facing lien claims – or who potentially may face a lien claim – across the state is this: make sure your contract is clear on the responsibility for subcontractor expenses and the precise conditions establishing the contractor’s right to full payment. In addition, promptly paying the mineral contractor for all amounts due under its agreement will cut off the ability of subcontractors to establish valid lien claims. If the mineral contractor has been fully paid before the subcontractor notifies the owner of its potential lien claim, the subcontractor’s lien rights are eliminated.