Oil Field Services Gets Lump of Coal From Santa

Originally published by Charles Sartain.

Co-author Ethan Wood

Merry Christmas and Happy Holidays from all of us at Gray Reed! Assuming that most of you have been good this year (stay tuned for 2019’s Bad Guys in Energy to see who hasn’t), we hope Santa brought you everything on your Amazon Wish List. Our sympathies go out to those in the oilfield services industry in Texas—it looks like you got a lump of coal. In Mesa Southern CWS Acquisition v. Deep Energy Exploration Partners the Houston Court of Appeals upended the long-held view that mineral lien waivers violate public policy. Bah Humbug!

Mesa performed work on three wells for operator Deep Operating pursuant to a Master Service Agreement. Mesa was not fully paid, so it filed three mineral liens in Milam County encumbering Deep Operating’s property under Chapter 56 of the Property Code. After Deep Operating filed for bankruptcy, Mesa sued Deep Operating’s parent, Deep Energy. Deep Energy argued that Mesa contractually waived its right to assert liens against Deep Operating’s wells and waived its right to seek payment on the contract from any entity other than Deep Operating per the language of the MSA requiring that Mesa “look solely and exclusively to Deep Operating For Payment.”

The trial court dismissed Mesa’s claims. The court of appeal elected to avoid the issue of whether mineral lien waivers are against public policy, and instead focused on the “Payment of Claims” provision in the MSA.

The court’s conclusion

When a party to a contract agrees to seek payment or damages only from one source to the exclusion of all others, that party has effectively waived its rights to such payment or damages from other parties. Regardless of the label, the Payment of Claims provision effectively waived Mesa’s liens. Thus, this contract provision appears to have functioned as a de facto lien waiver.

This case (or one like it) seems destined for the Texas Supreme Court. In the meantime, oilfield service providers should not assume that advance contractual waivers of mineral liens are void as a matter of public policy and should watch out for sneaky “Payment of Claims” provisions.

To learn more about the events leading to this decision and the various statutory references and legal arguments of the parties, check out this Gray Reed Legal Alert.

Musical interlude

It’s not too late to annoy your relatives over the age of 40 with this version of God Rest Ye Merry Gentlemen.

 

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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