The oil and gas industry once again is experiencing the consequences of the bust, which inevitably seems to follow each oil and gas boom. While the technology in the oil patch has changed dramatically and the plays are different, many of the questions for Texas attorneys representing creditors in a bankruptcy case remain the same. Do royalty owners have properly recorded assignments?Has the operator segregated all royalty payments? Have the secured lenders perfected liens on all collateral, including leases earned by a borrower after the mortgage? Have providers of goods and services to oil and gas properties perfected their mechanic’s and materialmen’s liens?

For attorneys representing mineral contractors, there is a new question: Does the contractor have an administrative claim in addition to any lien rights? A mineral contractor may have a right to a secured claim based on a mechanic’s and materialmen’s lien. Texas Property Code §56.002 creates a lien in favor of a mineral contractor or subcontractor “for labor or services related to the mineral activities.” Although the date on which the entity first furnishes materials or performs services marks the inception date of the lien for purposes of relative priority as to other encumbrances, such as a deed of trust, Texas Property Code §56.004 provides that all mineral lien claimants with properly perfected liens are equal in rank — without regard to the date of filing or the date on which the labor or materials were furnished.

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