Oil and Gas Well Lien

The Oklahoma Oil and Gas Well Lien is available to operators, contractors and subcontractors who performed work, furnished machinery or supplies on a well or pipeline.
 
Why is it so powerful?

  • Suspension of Production Payments. Frequently, the oil and gas purchasers will suspend payments to the Operator until the lien is released. In the majority of cases, this suspension of funds provides the proper motivation for payment of the debt.
  • Constraints on Borrowing. Lenders require that the well remain free of all liens. If a loan is in place, and a lien is subsequently filed on the debtor’s collateral, then we have a default, subjecting the borrower to summary foreclosure. If the Operator seeks a new loan, the lender will require that all liens are cleared.
  • Breach of Trust. All monies received under a mortgage are to be held in trust. If an Operator uses funds for other purposes (robbing Peter to pay Paul), then the managing officers of the company are personally open to both criminal and civil actions.

    Here is another advantage of the Oklahoma Oil and Gas Well Lien. The general rule says that each party must pay his or her own attorney’s fees. However, if you have a strong case and the lien is applied properly filed and served, then the debtor will pay your attorney’s fees, interest on the debt, and costs.

In order to avail yourself of these benefits, you must avoid the numerous traps.

Top 10 Questions and Answers

  1. When must I file the lien?
    Liens are available to contractors and subcontractors. For contractors, the lien must be filed within four (4) months after the date that material or supplies were last furnished or labor last performed. For subcontractors, the lien must be filed within one hundred and eighty (180) days after the date that material or supplies were last furnished or labor last performed.

    Many companies invoice 15-30 days after the labor or material was furnished. Beware! Remember to use the last date that the work was performed or material supplied rather than the invoice date.

  2. What invoices may I include on the lien statement?
    An Oklahoma Oil and Gas Well Lien is available to those who furnish material, machinery, and oil well supplies used in the digging, drilling, torpedoing, completing, operating or repairing of any oil or gas well. The services of a geologist or a petroleum engineer are lienable.

    You should itemize the labor or material on a well-by-well basis and file on each well separately. The lien statement must be filed with the county clerk of the county in which the oil or gas well is located.

  3. What information must be included on the lien statement?
    A lien statement should include: (1) a statement setting forth the amount claimed and identifying the material or labor supplied; (2) the name of the owner or owners of the property interest against which the lien is claimed; (3) the name of the contractor; (4) the name of the lien claimant; (5) the description of the property subject to the lien; and (6) a verification of the lien by affidavit. You should attach an invoice or other itemized statement setting forth the amount claimed and the materials supplied.

  4. How do I enforce the lien?
    In the event that the debtor does not discharge the lien by payment, then you will need to foreclose on it within one year of the filing of the lien statement.

  5. Is my lien superior to other liens and mortgages?
    Often, questions of priority exist between a mortgage lien and an oil and gas well lien. An Oklahoma Oil and Gas Well Lien refers back and applies from the date the first labor or material is furnished to the lease. So, if the construction or drilling was started prior to the recording of a mortgage, then the lien of the contractor or subcontractor is superior to that of the mortgagee.

    If others hold valid Oil and Gas Well Lien, then they stand in equal status toward each other. In other words, the lien claimant who supplies material at the end of a drilling well project will be equal in priority to the lien claimant, such as an engineer or surveyor, who provided services prior to the drilling of the well.

  6. What if the debtor posts a bond?
    A debtor or interested party can discharge a mechanic’s lien by depositing with the county clerk either an amount of money equal to 125% of the lien amount, or a surety bond in an amount equal to 125% of the lien amount.

    I see this tactic when the debtor disputes the charges or for some other reason feels that the charges are unjustified. In this case, you will need to foreclose on the lien as described above.

  7. How do I get an extension of time?
    In short, you cannot get an extension of time. Performance of repairs or remedying of defects, subsequent to the completion of the contract work, does not extend the time for filing a lien. There are still other remedies available to you. You may have a breach of contract action or unjust enrichment claim.

  8. What if I already filed but made a mistake on the statement?
    Generally, a lien statement may be amended except for the amount claimed. However, if the time for filing the lien had expired, you are unable to add omitted parties.

  9. Can I file a lien and still preserve a relationship with the client?
    We can implement half measures that preserve your lien rights, yet still provide some breathing room for your customer. I have seen debtors ask the lien claimant to give up their lien rights in exchange for a promissory note or other inferior security. I strongly recommend that you seek advice from a lawyer before waiving your lien rights.

  10. How do I recover attorney’s fees, interest and filing costs?
    The majority of liens are resolved without the need for trial. Your attorney will ask for his/her fees, interest and costs in the negotiations, and if you have a strong case, chances are you will get them.

    If the case goes to trial, then the “prevailing party” is awarded attorney’s fees. Since this is a two-edged sword, you will need to be confident in your case before filing suit.

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On August 27, 2013, Gary Quinnett presented a legal seminar on commercial real estate issues. The attendees rated him "Excellent"