Texas Legislature to Consider Oil and Gas Lien Law Amendment

Originally published by Charles Sartain.

Co-author Brittany Blakey

Texas lien law in some cases does not require the filing of a financing statement for priority perfection. However, as you might have learned in In re First River Energy, the Delaware Uniform Commercial Code did not recognize the priority of Texas producers’ unfiled, unperfected security interests in proceeds under Texas Business and Commerce Code Section 9.343. In contrast, Oklahoma Producers prevailed because the Oklahoma Lien Act in 2010 cured a defect still present in the Texas statute. Texas producers with a lien are subject to UCC choice-of-law, priority, and perfection of security interests rules.

Rep. Charlie Green introduced House Bill No. 3794 which, if passed, would replace Section 9.343 with the “Texas First Purchaser Lien Act.”

The Bill would remedy the defect by granting Texas working interest owners an oil and gas real property lien rather than a personal property security interest “to the extent of the interest owner’s interest in oil and gas rights” to “secure the obligations of a first purchaser to pay the sales price[.]” The lien would exist as part of and incident to the ownership of oil and gas rights.

A lien would be perfected automatically without the need to file a financing statement (as it is in current Section 9.343), and would “[take] priority over any other lien [except for a permitted lien], whether arising by contract, law, equity, or otherwise, or any security interest.” The Act would replace the 9.343 security interest against personal property (and governed by the Texas UCC) with a real property lien in certain oil and gas rights.

Until the Bill is passed Texas producers who do not file a financing statement (even though Section 9.343 does not require one for automatic perfection), could be in the same losing position as those unfortunates in First River.

Your musical interlude.

Coming soon: Other proposed Texas legislation.

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