Source: https://www.thlawgroup.com/energy-title-law/effect-of-mineral-liens-on-leasehold-interests/
Timestamp: 2020-08-06 01:05:15
Document Index: 615044861

Matched Legal Cases: ['§ 38', '§ 38', '§ 29', '§ 38', '§ 29', '§ 38', '§ 29', '§ 29', '§ 29', '§ 38', '§ 29', '§ 38']

Effect of Mineral Liens on Leasehold Interests – Tjornehoj & Hack LLC
July 1, 2020 July 1, 2020 Tjornehoj and Hack LLC
In both Colorado and Wyoming, mineral lien statutes permit materialmen and other service providers to place liens on oil and gas interests. Although suppliers of materials and services are the most likely parties to file a mineral lien, case law has recognized that working interest owners may also avail themselves of this statutory tool. The states differ, however, on which interests are subject to the liens. In this post, we will briefly summarize the statutory schemes and will compare the case law detailing their impact on mineral leasehold estates.
In order for a party to avail themselves of the protection provided by a lien, the claimant must comply with the requirements of the state, which include both content and timing. Both the Wyoming and the Colorado statutory schemes impose significant requirements in order to perfect liens.1 We provide a brief overview of those requirements below in order to provide context for the discussion that follows.
In Colorado, a claimant must file a lien statement with the clerk in the county in which the materials were furnished or labor performed, within six months of rendering the materials or goods.2 The statement must include an accounting of the amount due to the claimant and the property to be charged by said lien, but there is no minimum sum requirement. The lien must then be pursued by the claimant in the district court of the county within six months of the lien statement’s filing.3
In Wyoming, the claimant may only file a lien if the sum exceeds $750. The claimant must provide notice of the lien to the debtor-party through certified mail and must file the same statement with the county clerk within 180 days of the last day materials were delivered or work performed. The lienholder has 180 days within filing to commence a civil action to collect on the amount in the lien.4
Both statutes provide that the lien perfected pursuant to the process described above attaches to the leasehold estate, but the statutes and case law differ as to which parties may file a lien, as well as the interests that are subject to a lien.
Colorado statute permits liens for parties to recover on either supplies or labor associated with the construction, operation or maintenance of any gas or oil well, and it limits these liens to materials and supplies furnished, the wells in which they were used, or wells of the debtor to which the materials may potentially be removed.5 Wyoming statute is more expansive, permitting any person who works on or furnishes material with a mineral owner under contract to file a lien, and does not require that the material be incorporated into land.6 Both states allow for recovery by subcontractors as though they had the same footing with the debtor as did their parent contractor.7
The states take significantly different approaches as to the extent of property subject to a lien, however, with Wyoming once again being the more expansive jurisdiction. Wyoming statute permits:
All of the production of oil, gas, ore and minerals in solid form attributable to the interest subject to the lien; and
The proceeds of production attaching to the working interest as the working interest existed on the date labor was first performed or materials were first furnished.8
The Cowboy State is very protective of lienholders and permits a comprehensive range of property upon which the amount owed may be levied.
In order for a lienholder to collect on proceeds, they must provide notice to the purchaser of the minerals, who shall then withhold payments to the producer until the extent of the lien amount is settled.9 If permitted in an agreement, a lienholder with an attachment against a debtor’s working interest may sell this working interest much like foreclosure against real estate, potentially leading to entirely new lessees or drastically changing the balance of ownership in an operating unit.10
Colorado statute authorizes attaching liens to any supplies or machinery provided, as well as upon the wells, buildings, appurtenances, and fee and leasehold interests benefited by the labor provided.11 Unlike Wyoming, however, the resulting production and proceeds from the extraction and sale of oil and gas are outside of the scope of the statute.12 Although the statutory language in the Centennial State is a bit broader in theory, the extent of a mineral lien is actually more limited and may prove more difficult in recovery as a result.
Both Colorado and Wyoming treat landowner royalties and overriding royalties as outside the scope of potential lien. The Wyoming Supreme Court found that the unambiguous statutory language omits these interests, and the Court refused to expand the statute to include them.13 Colorado regards an overriding royalty interest as an encumbrance on a working interest, therefore making the overriding interest free from any liens imposed on the working interest after the creation of the overriding royalty interest.14 The specific classification of the relevant interest, however, may impact the coverage of the lien. In AEC Indus., Survivor Oil assigned all of its interest in the shallow depth of the leasehold, as well as all of its interest in a specific wellbore, to another party. In its assignment, Survivor reserved unto itself an “overriding royalty interest equal to five percent” but only taking effect in the event that the assignee recovered 100% of its costs of the well.15 Later, liens were filed against the well for non-payment of consultation and labor associated with the well when working to reach another, deeper depth. The Court of Appeals held that although termed an overriding royalty interest by Survivor, the relevant party did not share in the production while being free of costs and was therefore more akin to a carried working interest, and it therefore was subject to the liens.16
Both states also protect third-party mineral owners by prohibiting the lien from attaching beyond the ownership of the contracted parties, an important protection for partial owners of mineral interests.17 Although Colorado has a more limited class of people that may file a lien, as well as property subject to lien, the state permits an existing lien to burden property subsequently acquired by the debtor18 that would be subject to the lien if owned at the time of attachment. Given that the Wyoming Statute makes no mention of such interests, it is unlikely that Wyoming Courts would permit a lien to extend to this type of property if sought.
These mutual protections recognized by both jurisdictions are necessary and equitable as public policy. In the midst of the current economic downturn, lienholders and operators alike need to be aware of their rights.
A full recitation and discussion of these requirements is beyond the scope of the post. For additional information, see the statutory provisions cited below. [↩]
C.R.S. § 38-24-104. [↩]
C.R.S. § 38-24-105. [↩]
Wyo. Stat. § 29-3-109. [↩]
C.R.S. § 38-24-101. [↩]
Wyo. Stat. § 29-3-103. [↩]
C.R.S. § 38-24-101 and Wyo. Stat. § 29-3-104. [↩]
Wyo. Stat. § 29-3-105(a)(i-x). [↩]
Wyo. Stat. § 29-3-105(b). [↩]
Andrau v. Michigan Wisconsin Pipe Line Co., 712 P.2d 372, 373 (Wyo. 1986). [↩]
Nation v. Chambers, 29 Colo. App. 413, 418 (1971) (“[I]t is a general rule of construction that such statutes cannot be extended to apply to property which does not fall within their provisions. If proceeds of the sales of oil produced from the well are not included in the statute, the lien may not be extended to cover proceeds realized from the extracted oil.”). [↩]
Cities Serv. Oil Co. v. Pubco Petroleum Corp., 497 P.2d 1368, 1371 (Wyo. 1972). [↩]
AEC Indus. v. Survivor Oil, 7 P.3d 1052, 1054 (Colo. App. 1999). Cities Service Oil Co. v. Pubco Petroleum Corp., 497 P.2d 1368 (Wyo. 1972). [↩]
AEC Indus. v. Survivor Oil, at 1053-1054. [↩]
Id. at 1055. [↩]
C.R.S. § 38-24-101 and Wyo. Stat. § 29-3-103(b). [↩]
C.R.S. § 38-24-101: “such lien shall extend to any subsequently acquired interest of any such owner, part owner, or lessee.” [↩]