Texas Operator Foreclosed upon by their Bank by Court Order

General Mineral Rights Discussion
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I will be attending the NARO Convention in San Antonio next week, but also wanted to raise this question on the forum, as I am mainly looking for general education on this topic.

Our family leases in Kleberg County, Texas are part of a lawsuit filed by the lending bank of our operator. (I have been following the filings through UniCourt online). The court has appointed a receiver to try to recover the $6 million debt owed to the bank. This operator has a history of not paying vendors, employees, and Lessors, including us for the past 3 1/2 years. We understand that we are way down at the bottom of the list as creditors and to my knowledge, the operator has not declared bankruptcy, to date. (I’ve watched the NARO bankruptcy webinars, thank you)

Can someone please explain our position in what I believe is a foreclosure situation? Presumably the receiver will try and sell the leases to recover the banks’ debt. But it is my understanding the receiver may potentially try to rework or improve the wells’ production to recoup some of the debt. My question is, do we as Lessors have any say in the “use of our minerals to pay back the bank loan”?

I have reviewed the 25-year-old lease and find nothing of note. We had an attorney review the lease and situation and I may need to review the situation with him. Thank you in advance for your comments and see you in San Antonio, Meg Collins, CMM

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I would think that if a bank gets control they might be prevented by State and Federal Law from doing that! That might also put the bank in a position to have lawsuits filed against them. Wrongful foreclosure is a big risk!

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https://www.oilandgaslawyerblog.com/royalty-owners-rights-in-bankruptcy/

This article may be helpful.

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Great Information! It would be a good idea to have the right lease form to start with. Leasing to a company or broker that is not a major company is sort of risky.

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I think the link I sent earlier is outdated with the passing of HB 3794 in 2021 by the Texas Legislature.

“ This bill, signed by the Governor, fixes a problem with the provisions of the Texas Business and Commerce Code that grant a security interest in oil and gas production and proceeds to secure them payor’s obligation to pay royalty owners.”

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Thank you I will look at this link and consider your updated info on HB 3794 passed in 2021.

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