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A mineral lien, also called an oil and gas lien, is a lien that attaches to the mineral rights, material, machinery, equipment, and/or leasehold interest in a property. A mineral lien is basically the equivalent of a mechanics lien for contractors on an oil and gas project. It is most often used in the oil industry, though the laws generally also apply to work on quarries and mines.
Contractors can file a mineral lien if they are not paid for their work on these types of projects. Just as every state has mechanics lien laws, many of the states with a lot of oil and mining activity have special laws that deal filing a lien on these projects. In this article, we’ll cover some of the requirements in Texas and Alaska. It’s important to check the local requirements in the state where your project is located.
Who can file a mineral lien?
A mineral lien is only available to contractors or suppliers working on an improvement for a mineral project, like an oil and gas field or, less commonly, a gold mine. Not surprisingly, these types of liens are typically only available in states that have a lot of oil-related business.
The mineral lien section of Texas Property Code includes the terms “mineral contractor” and “mineral subcontractor” to define those who are able to use these special liens.
Texas statute defines a mineral contractor as “a person who performs labor or furnishes or hauls material, machinery, or supplies used in mineral activities under an express or implied contract with a mineral property owner…” A mineral subcontractor is a company or person who furnishes or hauls materials and/or performs labor under a contract with a mineral contractor, including day laborers.
Similarly, according to Alaska’s mineral lien statutes, a mineral lien is available to anyone who performs a wide variety of work on an oil well, mine, or quarry. Covered activities include “opening up, developing, sinking, drilling, drifting, stoping, mucking, stripping, shoveling, mining, hoisting, firing, cooking, teaming,” and pretty much any other work involved in the development of the mine or well.
What does a mineral lien attach to?
Because each state has their own laws, mineral lien rules are different. In Texas, the lien attaches to the property and equipment used in the extraction. In Alaska, by comparison, a mineral lien may attach to the oil wells, the equipment, or even the minerals themselves.
In Texas, the law doesn’t just apply to active and prosperous oil and gas operations. If a contractor provides services on a site that eventually becomes a dry hole, and if the work was done on a large property which also has a highly productive well, the lien may attach to all the wells located on the property, including the highly productive well. It may also attach to other properties owned by that same owner and used for mineral activities.
What kind of work does it cover?
Texas statute says that mineral liens are for “mineral activities.” Mineral activities are defined as “digging, drilling, torpedoing, operating, completing, maintaining, or repairing an oil, gas, or water well, an oil or gas pipeline, or a mine or quarry.” Generally, if the labor or materials facilitate the potential production of oil and gas (or extraction of other minerals), then you must use a mineral lien.
There are some gray areas in the law, specifically where the work indirectly facilitates the potential production of hydrocarbons. Courts have looked at definitions of labor and work that facilitates oil or gas production when testing the validity of a mineral lien. For example, services such as plumbing work done for an offshore rig can be considered a mineral activity.
How to claim a mineral lien
Many states require contractors to take specific steps, like sending a notice, before they’re allowed to file a mechanics lien on a regular construction project. Mineral liens, however, are different.
Filing a mineral lien in Texas
General contractors, or other contractors working directly for the property owner, aren’t typically required to send any notices prior to filing a mineral lien. However, according to Texas law, “Not later than the 10th day before the day the affidavit is filed, a mineral subcontractor claiming the lien must serve on the property owner written notice that the lien is claimed.”
In other words, Texas subcontractors must notify the property owner at least ten days before filing a mineral lien.
The notice must include the amount of the lien, the name and address of the company or individual who contracted for your services or materials, a description of the property or pipeline, and a description of the work that hasn’t been paid for.
Texas mineral contractors have six months to file a claim from the date the debt is incurred. The contractor must file an Affidavit of Mineral Lien with the county clerk in the county where the project is located.
The affidavit needs to include:
- The name of the mineral property owner involved (if known)
- The name and mailing address of the claimant
- Description of the property on which the lien will be filed
- The dates work was performed or materials delivered
- An itemized list of amounts claimed
- A subcontractor must also include the name of the contractor and a statement that the subcontractor served written notice to the property owner in a timely fashion.
Since many oil wells are located in out-of-the-way locations, or even offshore in the ocean, the best way to identify them is to use the API number. The API number is a unique, permanent, numeric identifier given to each well in the United States. Make sure that you get this number in your pre-project information gathering.
Once the affidavit of lien has been filed and recorded, the contractor or subcontractor has two years after the lien deadline (six months after debt is incurred) or one year after work completion, whichever is later, to file a lawsuit to foreclose on the lien. If a judgment is rendered to foreclose on the lien, the owner will be forced to sell the property to pay the debt.
Filing a mineral lien in Alaska
In Alaska, a mineral lien claimant has 90 days to record the claim after the performance of the services or the cessation of the work.
An Alaska mineral lien claim must include:
- A statement of the demand
- The amount of the demand, after deducting all credits and offsets
- The name of the person by whom the claimant was employed
- A statement of the terms and conditions of the contract of employment
- The date of starting and stopping the work
- A description of the property on which the lien is claimed, sufficient for identification
- The name of the owner or reputed owner.
The lien claim must be notarized and filed with the recorder’s office in the district where the well or mine is located.
Protecting payment begins at the start of a project
A mineral contractor has strong protection on an oil and gas project, but it’s important to collect all the information they need at the beginning of the project. If information is missing from the original contract, contact the property owner to get the specifics. Having this information early will help you be ready if the owner fails to pay promptly.