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Oklahoma’s Oil and Gas Owners’ Lien Act of 2010

published in McAfee & Taft AgLINC | December 1, 2010

By Jeff Todd

In the wake of litigation involving SemGroup, L.P., Oklahoma recently repealed its Oil and Gas Owners’ Lien Act (the “Prior Act”) and replaced it with the Oil and Gas Owners’ Lien Act of 2010 (the “2010 Act”). The 2010 Act strengthens the rights and protections afforded to owners of an interest in oil and gas rights by addressing some of the inadequacies of the Prior Act, while preserving the rights of any interest owner accrued under the Prior Act.

Pursuant to the 2010 Act, each interest owner is granted an oil and gas lien to secure the obligations of a first purchaser to pay the sales price, to the extent of the interest owner’s interest in oil and gas rights. The oil and gas lien granted by the 2010 Act exists as part of and is incidental to ownership of any interest in oil and gas rights, regardless of the type or nature of the interest. The 2010 Act defines “oil and gas rights” as “to any lands within the State of Oklahoma, any right, title or interest, whether legal or equitable, in and to: (1) oil, (2) gas, (3) proceeds, (4) an oil and gas lease, (5) a pooling order, and (6) an agreement to sell.”

In contrast to the lien granted under the Prior Act, the oil and gas lien granted by the 2010 Act is perfected automatically without the need to file a lien notice, financing statement or other document. The 2010 Act states that the oil and gas lien attaches immediately to all oil and gas on the effective date of the 2010 Act, which is April 19, 2010, and continues uninterrupted and without lapse (i) in all oil and gas upon and after severance and (ii) in and to all proceeds. Subject to a few limitations, the oil and gas lien exists until the sales price is received by the interest owner or representative first entitled to it. However, the oil and gas lien granted by the 2010 Act expires one year after the last day of the month following the date proceeds from the sale of oil or gas subject to the lien are required to be paid (but only as to the oil and gas sold during that month), unless an action to enforce the oil and gas lien has been commenced.

With respect to priority, the 2010 Act provides that, except for a permitted lien, the oil and gas lien granted by the 2010 Act takes priority over any other lien or security interest. A “permitted lien” under the 2010 Act is essentially (i) a mortgage lien or security interest granted by the first purchaser to a person that is not an affiliate of the first purchaser, which secures payment under a written instrument of indebtedness that states a principal amount and fixed maturity date and is signed by the first purchaser and the payee prior to the effective date of the 2010 Act, or (ii) a validly perfected and enforceable lien created by statute, rule or regulation of a governmental agency for certain storage or transportation charges owed by a first purchaser in relation to oil or gas originally purchased under an agreement to sell. While the 2010 Act also provides that a purchaser that is a buyer in the ordinary course of the first purchaser’s business as defined in Article 9 of the UCC, and a purchaser that has paid all consideration due the first purchaser, take free of any oil and gas lien on the oil or gas purchased, the oil and gas lien will continue uninterrupted in the proceeds paid or due to the first purchaser.

Oklahoma interest owners are undoubtedly in a better position to ensure payment under the 2010 Act than under the Prior Act. Interest owners that are not being paid by a first purchaser should contact an attorney to discuss enforcement of the oil and gas lien granted by the 2010 Act.

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