Oil & Gas Property Owners Take Note: Court Ruling Could Help Your Case
by J.W. Beverly, Attorney / Shareholder
The owners of a mineral lease in Pecos County, Texas recently won a nearly $50,000 judgment for attorney’s fees against a mineral subcontractor for invalidating a mineral property lien claim. The basis for invalidating a mineral property lien claim in a bankruptcy adversary proceeding, and the legal strategy applied, will help mineral property owners all over the state.
Pearl Resources Operating Co., LLC engaged PDS Drilling LLC to drill an oil well in Pecos County under a Turnkey Drilling Contract which provided for full payment only upon completion of a successful well. Pearl made an upfront payment, but during drilling a wild well incident occurred. After several attempts the well was brought under control. The Texas Railroad Commission requires surface casing around these wells. PDS contracted with Maverick Oil Tools LLC to provide cement retainers used in casing the well. PDS and Maverick executed an agreement. Maverick communicated with PDS, provided materials and services to PDS, invoiced PDS and looked to and accepted partial payment from PDS. Ultimately, the well had to be plugged and abandoned, thus making it impossible for PDS to deliver a successful well to Pearl. Consequently, Pearl did not owe any amount to PDS under the Turnkey Contract. After the well was plugged and abandoned, Maverick gave the required notice to Pearl that it intended to file a mineral property lien against Pearl.
At trial, FBFK Shareholder/Attorney J. Beverly argued:
• PDS never delivered a successful well because the well had been plugged and abandoned.
• Pearl did not owe any amount to PDS at the time Maverick gave the notice of lien claim.
• That because Pearl did not owe the original contractor, PDS, any amount at the time Maverick gave notice of its lien claim, that Maverick’s lien was invalid, and its bankruptcy proof of claim should be denied.
Section 56.043 of the Texas Property Code provides that a mineral property owner (Pearl) is not liable to a mineral subcontractor for more than the amount the property owner owes the original contractor (PDS) when the subcontractor (Maverick) gives the owner notice of its lien claim.
FBFK argued Maverick was a mineral subcontractor and that and because Pearl did not owe the original contractor PDS anything at the time Maverick gave its notice of lien claim, under the Property Code Pearl was not liable to Maverick. The Bankruptcy Court agreed, and invalidated Maverick’s proof of claim based on its mineral property lien.
Maverick also asserted a breach of contract claim based a Master Service Agreement that Pearl and Maverick executed. The Court denied Maverick’s claim holding that:
• An MSA standing alone is not a contract since it does not provide for the performance of any specific work.
• The MSA did not cover the goods and services provided by Maverick because there was no evidence that Pearl consented to the work performed.
This case illustrates some of the problems that a mineral subcontractor has in working for a mineral contractor. A mineral subcontractor’s ability to secure a valid lien will depend on the state of the account between the mineral property owner and the mineral contractor at the time the subcontractor provides the required notice of lien. The legal strategy applied in the case of Pearl v. Maverick should act as a strong resource for all mineral property owners statewide and as a caution to mineral subcontractors.
The case is Pearl Resources, LLC v. Allied OFS, LLC, Maverick Oil Tools, LLC, Case NO. 20-31585, Adversary No. 20-3077; in the United States Bankruptcy Court for the Southern District of