Oil and Gas Mechanics' Liens Revisited
| Publication year | 1986 |
| Pages | 1822 |
| Citation | Vol. 15 No. 10 Pg. 1822 |
1986, October, Pg. 1822. Oil and Gas Mechanics' Liens Revisited
Nearly thirty years ago, a two-part article(fn1) published in Dicta addressed the construction and application of the Colorado oil and gas mechanic's lien statute.(fn2) Only two cases concerned with the proper application of the lien statute have come before Colorado's appellate courts since the article was printed---Nation v. Chambers(fn3) and Gearhart-Owen Ind. v. Panhandle Production.(fn4) These cases precipitate a reexamination of the analysis made and the opinion rendered so many years ago concerning the statute's construction.
Colorado's present oil and gas mechanic's lien statute (CRS § 38-24-101) was originally enacted in 1929, apparently in reaction to two 1928 Colorado Supreme Court opinions that construed the 1903 oil and gas lien law. In Poudre River Corp. v. Carey,(fn5) the Colorado Supreme Court held that a party who furnishes labor is not entitled to a mechanic's lien against the contracting party-lessee's oil rig machinery and equipment. The court stated that the lien statute's provision for a lien on detached personal property such as machinery and equipment was only intended "to protect the party who had supplied such machinery and equipment for the job."(fn6) The pertinent portion of the 1903 statute provided:
That any person or persons, company or corporation, who perform labor or furnish material or supplies for constructing, altering or repairing, or for the digging, drilling or boring, operating, completing or repairing of any gas well, oil well or any other well, by virtue of a contract with the owner or his authorized agent, shall have a lien to secure the payment of the same upon such gas well, oil well or such other well, and upon the materials and machinery and equipment and supplies so furnished, and in case the contract is with the owner of the lot or land, then such lien shall also be upon the interest of the owner of the lot or land upon which the same may stand, and in case the contract is with the lease holder on the lot or land upon which the same may stand or in relation to which such material or supplies are furnished.(fn7)
The second case, Terminal Drilling Co. v. Jones,(fn8) again addressed whether a laborer was entitled to a mechanic's lien against personalty under the 1903 statute. In this case, the assignee of an oil and gas lessee contracted with Terminal Drilling Company to drill a well, apparently without also conveying an interest in real property. Terminal erected a standard derrick and then subcontracted to drill the well under Terminal Drilling's direction and supervision. Jones, a laborer hired by the subcontractor, filed a mechanic's lien against Terminal's derrick following the project's abandonment.
Acknowledging its prior decision in Poudre River that a lien on equipment is restricted to those who have furnished the equipment to the well, the Colorado Supreme Court nonetheless found the lien filed by Jones to be proper. The court stated that the derrick and drilling rig
with their stationary parts, are essential to the sinking of the well, and would also be useful in its operation. . . . [W]e agree with those decisions which hold such equipment to be a portion of the structure or improvement and of the oil well itself, for the purpose of the lien act.(fn9)
Reading the Terminal Drilling and Poudre River cases together, it would seem that the Supreme Court construed the 1903 mechanic's lien statute: (1) to include only that property that could be characterized as real property or property that has become a part of the oil well (affixed or installed personalty); and (2) to permit a lien on detached personal property, but only by the person supplying such property.
Thus, these two 1928 Colorado appellate decisions determined how the 1903 oil and gas mechanic's lien law should be construed, but only until the next legislative session. In 1929, the Colorado legislature adopted a new oil and gas mechanic's lien statute. This remains the law today.(fn10) CRS § 38-24-101 states:
Every person, firm, or corporation, whether as contractor, subcontractor, materialman, or laborer, who performs labor upon or furnishes machinery, material, fuel, explosives, power, or supplies for sinking, repairing, altering, or operating any gas well, oil well, or other well or for constructing, repairing, or operating any oil derrick, oil tank, oil pipeline or water pipeline, pump, or pumping station, transportation or communication line, or gasoline plant and refinery by virtue of a contract, express or implied, with the owner or lessee of any interest in real estate or with the trustee, agent, or receiver of any such owner, part owner, or lessee shall have a lien to secure the payment thereof upon the properties mentioned belonging to the party contracting with the lien claimants, and upon the machinery, materials, and supplies so furnished, and upon any well upon and in which such machinery, materials, and supplies have been placed and used, and upon all other wells, buildings, and appurtenances, and the interest, leasehold, or otherwise, of such owner, part owner, or lessee in the lot or land upon which said improvements are located, or to which they may be removed, to the extent of the right, title, and interest of the owner, part owner, or lessee, at the time the work was commenced or machinery, materials, and supplies were begun to be furnished by the lien claimant or by the contractor under the original contract; and such lien shall extend to any subsequently acquired interest of any such...
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