Royalty owner protection on producer bankruptcy

royalty owners should proactively file financing statements where oil and gas product and proceeds are expected to be produced and or held?

Not Legal Advice.

Since we are in Texas, my comments are for Texas real property and the statutes quoted Texas Statutes.

The security interest created by § 9.343 is perfected automatically without the filing of a financing statement and is treated, for priority purposes, as a purchase money security interest.

That’s nice, but if the Operator has been holding royalty payments and goes under to the degree where they have no assets, you have little protection to get the dollars held. You are a preferred class, though.

In future leases, you might consider adding standard language (for sophisticated lease forms in Texas) penalties up to loss of lease for failure to properly and timely pay royalties due.


Buddy Cotten

1 Like