October 17, 2021

Volume XI, Number 290

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October 15, 2021

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Texas House Bill 2207 Takes Effect January 1, 2016 re: Oil and Gas Leases

Effective January 1, 2016, the general rule of “first in time, first in right” no longer applies in the case of real estate mortgages and their priority over subsequently filed oil and gas leases. House Bill 2207 creates a legislatively imposed subordination of a prior mortgage to a subsequent oil and gas lease. This legislation will result in savings in time, energy and costs to producers that were previously required to obtain subordination agreements from lienholders.

In the case where a lease is taken on land that is already subject to a mortgage and the mortgage is foreclosed, the statute provides that the oil and gas lease does not terminate, even if the lease has not been subordinated to the mortgage. Under the bill, when the leased property is later sold in a foreclosure sale, any rights granted to the lessee to use the surface terminate, and any royalty payments which become due after the sale pass to the purchaser of the foreclosed property.

The loss of surface rights will not likely be an issue on leases of smaller tracts, but might become problematic on large tracts or tracts on which oil and gas wells have been or are currently being drilled.

© Steptoe & Johnson PLLC. All Rights Reserved.National Law Review, Volume V, Number 356
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About this Author

Don Hueske, Environmental Attorney, Steptoe Johnson Law Firm
Member

Don Hueske focuses his practice in the area of mineral title law and has extensive experience in title examination and due diligence for acquisitions and financing issues, as well as the management and oversight of those providing similar services.  He routinely prepares original, supplemental and division order title opinions, and has assisted in the negotiation and drafting of leasehold assignments, farmout and joint operating agreements and various curative instruments, as well as master service agreements.  A survivor of over thirty years in the energy industry (and...

(281) 203-5755
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