Chapter 12 - § 12.1 WHAT IS COVERED BY THE WELLS AND EQUIPMENT LIEN

• Jurisdiction: Colorado

§ 12.1 WHAT IS COVERED BY THE WELLS AND EQUIPMENT LIEN

The theory supporting the concept of mechanics' liens in general is that one who has enhanced the value of real property by providing labor or materials for improvements thereto should be compensated, and thus shall have a lien against the property. This same rationale applies to liens on wells and equipment. The intent of the statute providing for liens on wells and equipment (the wells and equipment lien statute)¹ is to

give practical security for the payment of the claims of materialmen and laborers accruing in the drilling of wells for oil. This security is most important when the well is abandoned or proves unproductive. In such event, the lien upon the bare leasehold is of little value; a lien upon the fee is rarely obtainable . . . ; and the lien upon the equipment as such is restricted to those who furnish it.²

The potential for abandonment or failure of a well highlights why additional security beyond what is typically secured by a regular mechanics' lien is needed in cases of wells. In the case of a failed oil or gas well, there will be little to no value in the leasehold interest of the real property. Such a leasehold interest will likely be limited to exploring, drilling, and extracting operations. And if the well is unproductive, then the leasehold interest established solely for the purpose of extracting oil or gas from the property will be worthless. Also, there can be impediments to establishing lien rights on the fee interest of leased property when the work performed is done at the instance of the lessee and not the lessor. Under the wells and equipment lien statute, the fee owner is only liable if such owner is a party to the contract with the lien claimant.³ Even under the general mechanics' lien statute, the fee owner has the ability to avoid mechanics' liens by properly and timely posting a notice of non-responsibility.⁴ Thus, a different approach to liens is warranted.

§ 12.1.1—Scope of the Wells and Equipment Lien Statute

What the Statute Covers

The Colorado legislature enacted the current version of the wells and equipment lien statute in 1929. Although it has been reenacted five times since, the legislature has done so without any further revisions.⁵ The scope of what today's wells and equipment lien statute covers is encompassed in the following single, lengthy run-on sentence:

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

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