Lien Rights in the Oil Patch | Business Law
Business Law | Lien Rights are Powerful Energy in the Oil Patch
When I think about energy in Kern County, I immediately reflect on the vast oil operations which have developed since oil was discovered in 1894. Kern is California’s top oil producing county with 81% of the state’s approximately fifty-two thousand oil wells.
Most people in the construction services and supply industry are familiar with mechanic’s liens under the California Civil Code Sections 8000 to 9566 which can attach a lien to an owner’s real property for the services and materials utilized to build something on the owners land. However, for oil and gas work, there is a different, more favorable, California statutory protection called the “Oil and Gas Lien Act” under the California Code of Civil Procedure Sections 1203.50 to 1203.66 (“Oil Act”).
Under the Oil Act, the providers of services and materials to drill, develop and maintain the oil wells are protected by granting them a lien in the oil produced to assure payment for the services and materials. The importance of the lien attaching to the oil and gas production is driven home by the realization that frequently a split estate exists where the owner of the mineral estate is different than the fee title owner of the property which includes the surface use to the extent it is not reasonably necessary for the oil production.
A lien under the Oil Act is created by recording a Claim of Lien within 6 months of the claimant’s labor was performed or the claimant’s materials and services were furnished for any oil or gas well. Notice of the Claim of Lien is required to be sent by certified mail to the purchaser of the oil or gas produced from the interest describe in the Claim of Lien. Many times this is a refinery but this can also be a different purchaser. The purchaser is required to withhold an amount of money equal to the amount set forth in the Claimant’s Claim of Lien until the Claimant notifies the purchaser in writing that the claim has been paid after which the funds, free of lien, will be released to the seller. The owner of the mineral estate subjected to the lien can provide alternative security by filing a bond to release the lien on the oil and gas interest.
To enforce the lien claim against the mineral estate or the bond, a lawsuit must be filed within 180 days (6 months) of the recording of the Claim of Lien. The action should be filed in in the county where the well is located and the Claim of Lien is recorded. The lawsuit must be concluded within 2 years or it can be dismissed by the court.
The claim of a lien is a very powerful tool to resolve disputes in the oil patch. During the past 28 years of law practice, almost every Claim of Lien has been immediately dealt with and resolved by the parties. Rarely does an oil and gas lien dispute progress to judgment at the courthouse. In this writer opinion, the Oil Act is probably an example of where the California legislature got it right and enacted a statutory scheme that promotes the parties resolving disputes prior to litigation.
Michael A. Kaia is a partner at Young Wooldridge with 28 years of real property as well as oil and gas law experience.
Kern Business Journal – (Energy and Technology Issue)
For additional information on the “Oil and Gas Lien Act”, or if you think you have a viable lien claim, contact the business law attorneys at The Law Offices of Young Wooldridge, LLP, in Bakersfield.
Call today for a confidential consultation 661.327.9661
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