What is LOWLA?; How does LOWLA work?; and Recent Decisions, March 2019.

1. WHAT ONE COURT GIVETH, ANOTHER COURT
TAKETH AWAY: RECENT DECISIONS
RELATING TO THE BREADTH OF
PROTECTIONS AFFORDED TO CLAIMANTS
UNDER THE LOUISIANA OIL WELL LIEN ACT
Presented by:
Benjamin Kadden
Lugenbuhl, Wheaton, Peck, Rankin & Hubbard
66th Annual Mineral Law Institute
Baton Rouge, Louisiana, March 14-15, 2019
Materials prepared by:
Benjamin W. Kadden and Meredith S. Grabill
Lugenbuhl, Wheaton, Peck, Rankin & Hubbard
New Orleans, Louisiana

2. Overview
Part One: What is LOWLA?
Part Two: How Does LOWLA Work?
Part Three: Recent Decision Expanding Protection
Afforded to LOWLA Claimants
Part Four: Recent Decision Expanding Protection
Afforded to LOWLA Claimants

3. THING #2
What is LOWLA?

4. • Louisiana Oil Well Lien Act, La. R.S. § 9:4861 et seq.
• Grants a lien and privilege to certain parties to secure the cost
of providing goods and services to a well site
• Analogous to the Texas mineral lien law, Tex. Prop. Code Ann.
§ 56.001 et seq.
What is LOWLA?

5. THING #2
How does LOWLA work?

6. How does LOWLA work?
Who gets a LOWLA lien?
La. R.S. § 9:4862(A)

7. How does LOWLA work?
Timeline for Perfecting and Enforcing LOWLA Lien
• Statement of Privilege: 180 days from last date services/goods
provided to file Statement of Privilege in Parish where well site is located
• Operator Notice: 180 days from last date of services/goods provided to
give notice of privilege to the operator of the subject well site
• Filing suit: 1 year from filing Statement of Privilege to file suit to
recognize and enforce LOWLA lien
• Notice of Lis Pendens: 30 days after filing suit to file Notice of Lis
Pendens
• May give notice to any purchasers of the hydrocarbons from the subject
well site, demanding that the purchaser withhold payment of proceeds to
the operator of the subject well site. All other deadlines are mandatory.

8. How does LOWLA work?
What amounts does a LOWLA lien secure?
• The price of a contract for operations at a well site (see
discussion re: McMoRan Oil & Gas, LLC v. Coastal Drilling
Company, LLC);
• Interest due on underlying obligation;
• Cost of preparing and filing necessary documents; and
 NOTE: Necessary documents include the statement of
privilege, operator letter, notice of lis pendens, etc.
• Reasonable attorneys’ fees not to exceed 10% of principal
 NOTE: In a bankruptcy case, claimant may be limited in
its ability to recover attorneys’ fees incurred post-petition.
La. R.S. § 9:4862(B)

9. La. R.S. § 9:4863(A)
How does LOWLA work?
What is subject to the LOWLA Lien?
• Operating interests in the well site; and
• Interest of lessee(s) in the following:
 Well, building, tank, leasehold pipeline, other construction or facility on the
well site;
 Movables delivered to a well site that are used in operations;
 Leased properties/servitudes;
 Drilling or other rig located on well site, if owned by operator or contractor;
 Interest of the operator and participating lessees in hydrocarbons produced
from the well site and the interest of non-participating lessee in
hydrocarbons produced from that part of his operating interest subject to
the privilege; and
 Proceeds received by or owed to operating interest holders from purchaser.

10. La. R.S. § 9:4863
How does LOWLA work?
What is NOT subject to the LOWLA Lien?
• Movables temporarily on well site for repair, testing, etc.
• “The privilege that results from operations on a voluntary or compulsory unit
affects only that part of a non-participating lessee's interest in the operating
interest located within the boundaries of the unit and only insofar as the unit
covers and affects the unitized zone or formation. The privilege affects only the
interest of the non-participating lessee in the other property described in
Subsection (A)(1) and (2) of this Section that is used in the operations of the unit
well.” La. R.S. § 9:4863(B).
• Hydrocarbons produced from operating interest owned by lessor, sublessor,
ORRI owner, or other non-lessee, as well as any proceeds derived therefrom
• Rigs, machinery, appliances, equipment, etc. used for P&A work on wells or
closing associated pits
• Casing, tubing, pipe and other tubular goods recovered from the drill hole as a
result of P&A work

11. La. R.S. § 9:4864(A)
How does LOWLA work?
When is it established?

12. La. R.S. § 9:4864(B)
How does LOWLA work?
When is it extinguished?
• Upon extinction of the obligation it secures;
• By written consent of the claimant; or
• As otherwise provided in the LOWLA, including, but not limited to,
failure to comply with strict recordation and notice requirements or
otherwise act within certain prescriptive and/or limitations periods.

13. La. R.S. § 9:4865
How does LOWLA work?
When does it cease to have effect against third parties?
• Failure to Perfect by Recordation: LOWLA privilege ceases to have effect as to 3rd
persons 180 days after the last date of service unless:
 All Property Subject to Privilege Except a Rig: Claimant files a Statement of
Privilege in the mortgage records of the Parish where the well site is located.
 If the Property is a Rig: Claimant files a UCC financing statement.
• Failure to Timely Enforce: LOWLA privilege also ceases to have effect as to 3rd
persons if claimant doesn’t file suit to enforce privilege within 1 year of filing privilege.
• Failure to Timely File Notice of Lis Pendens: LOWLA privilege also ceases to have
effect as to 3rd persons if claimant fails to file a Notice of Lis Pendens in the mortgage
records of the Parish in which the Statement of Privilege was filed within 30 days of
claimant instituting litigation to enforce the privilege.

14. La. R.S. § 9:4866
How does LOWLA work?
Special Rule for Extinguishment of LOWLA
Privilege on Certain Moveable Property
A LOWLA lien over movable property (other than hydrocarbons,
related proceeds and rigs) is extinguished when the moveable
is transferred by onerous transaction to a good faith third party
and removed from the well site.

15. La. R.S. § 9:4868(A), (B)(1), (E)
How does LOWLA work?
Form and Substance of Statement of Privilege
• Form
 In writing; and
 Signed by or on behalf of the claimant.
• Substance
 Claimant’s name and address;
 Amount and nature of underlying obligation;
 Name and address of obligated person;
 Name and address of designated operator;
 Description of subject operating interest or well site.
o A well site description is adequate if it includes:
 The name and serial or other identification number;
 The name of the field where it is located.
 Exception: A statement of privilege is not invalid, in spite of missing certain of the
information set forth above, so long as it “fairly apprises the recipient or person against
whom the privilege is asserted of the privilege claimed and of the operating interest,
hydrocarbons, or other property upon which the privilege is claimed.” La. R.S. § 9:4868(E).

16. La. R.S. § 9:4868(A), (B)(1), (E)
How does LOWLA work?
Example of Statement of Privilege
The following is the actual
Statement of Privilege filed by
Coastal Drilling Company, LLC
in St. Martin Parish, which was
the subject of the matter
discussed in greater detail
hereinbelow:

17. La. R.S. § 9:4869(A)
How does LOWLA work?
Extinguishment of LOWLA Lien on Hydrocarbons and Proceeds
• If hydrocarbons are sold or transferred in a bona fide onerous
transaction to a third party before such party is notified of the
asserted privilege;
• Hydrocarbons are commingled with, processed with, or transformed
into other hydrocarbons or substances that are not subject to the
asserted privilege; or
• Proceeds are commingled with other funds that are not subject to
the asserted privilege.

18. La. R.S. § 9:4868(B)(2), (C)-(D)
How does LOWLA work?
Delivery of Notice to Operator
• Notice is properly delivered if it is delivered to the operator
designated on the Statement of Privilege.
• “Delivery” takes place:
 Upon mailing, but only if mailed by certified or registered mail,
return receipt requested;
 Upon receipt by addressee or at office of addressee if not
mailed by certified or registered mail.
• Return receipt indicating delivery or proof of mailing by USPS will be
prima facie proof of mailing the requisite notice.

19. La. R.S. § 9:4869(A)(1)(b), (B)
How does LOWLA work?
Effect of LOWLA on Third Party Purchasers of Hydrocarbons
• Once a claimant delivers notice to a purchaser of a LOWLA lien, the
claimant may enforce the lien against either the hydrocarbons in the
purchaser’s possession or any amounts owed for their price.
• A purchaser that has received notice of a lien may retain any proceeds
without liability to the claimant or the operator until:
 Claimant directs purchaser in writing of extinguishment of lien;
 Operator instructs purchaser to pay amounts to claimant;
 Claimant AND Operator instruct purchaser to deliver the amounts to
some agreed-upon third party; or
 Purchaser receives instructions by a court of competent jurisdiction.

20. How does LOWLA work?
La. R.S. § 9:4870
Ranking of LOWLA Liens
• All LOWLA liens are of equal rank
 Exception: a contractor’s LOWLA lien is subordinate to any
party with whom the contractor is contractually bound (i.e.,
subcontractor)
• Established (perfected) LOWLA privileges outrank all other
privileges, security interests or mortgages, except:
 Tax liens;
 Pre-existing mortgages or vendors’ privileges;
 Pre-existing perfected security interests; and
 Lien by LA Dep’t of Natural Resources.

21. How does LOWLA work?
La. R.S. § 9:4871
Enforcement by Writ of Sequestration
A claimant may enforce a LOWLA privilege by seeking the
issuance of a writ of sequestration during the pendency of
any enforcement action, without the necessity of furnishing
security.

22. La. R.S. § 9:4872
How does LOWLA work?
Cancellation of Statement of Privilege or Notice of Lis Pendens
Any interested person may seek the cancellation of a statement of
privilege or a notice of lis pendens by filing a bond with the recorder
of mortgages in an amount representing at least 125% of the face
amount of the lien.

23. How does LOWLA work?
Importance of Proper Invoicing Procedures
• Invoices should include a specific designation of the well site
(well, lease, field, parish) to which the vendor provided services
and/or materials.
• By including this information directly on the invoice, a vendor
can more easily establish the precise well site over which its
LOWLA lien applies both for purposes of preparing and filing its
Statement of Privilege and also for enforcing the privilege in
subsequent litigation.

24. Effect of Operator’s Bankruptcy on LOWLA Lien
If claimant filed its Statement of Privilege prior to bankruptcy:
• A claimant may file a Notice of Perfection in the bankruptcy case
pursuant to section 546(b) of the Bankruptcy Code;
• A claimant may act as a secured creditor of the bankrupt to the extent
of the value of encumbered property, less any pre-existing security
interests;
• A claimant may act as an unsecured creditor for the remaining portion
of its claim;
• A claimant may not institute any litigation to enforce the LOWLA
privilege without first seeking to modify the automatic stay with the
bankruptcy court.
Intersection of LOWLA and Bankruptcy

25. Intersection of LOWLA and Bankruptcy
If claimant has not filed its Statement of Privilege prior to bankruptcy:
• May still file Statement of Privilege within the pertinent time period
and may send notice of the lien to the Operator (see 11 U.S.C. §
362(b)(3));
• May file a Notice of Perfection in the bankruptcy case pursuant to 11
U.S.C. § 546(b);
• May act as a secured creditor of the bankrupt to the extent of the
value of encumbered property, less any pre-existing security
interests.
• May act as an unsecured creditor for the remaining portion of claim;
• May not institute any litigation to enforce the LOWLA lien without first
seeking to modify the automatic stay with the bankruptcy court.
Effect of Operator’s Bankruptcy on LOWLA Lien (continued)

26. Intersection of LOWLA and Bankruptcy
• Post-Petition Attorneys’ Fees + Interest (are you over-secured?)
• Cash Collateral; Entitlement to Adequate Protection/
Replacement Lien and Preservation of Lien Priority and Validity
• Plan Confirmation
• Suit Against Non-Bankrupt Working Interest Owners
• Lien Priority + the Importance of “Relation Back”
Other Oil Well Lien and Bankruptcy Issues for Discussion

27. Recent Decision
Expanding the Protection
Afforded to LOWLA
Claimants

28. LOWLA Privilege Secures the Entire
Price of a Contract for Operations
McMoRan Oil and Gas, LLC v. Patin: The 16th Judicial District Court
takes an Expansive View of “Operations” under LOWLA
 Drilling Contract with McMoRan Oil and Gas, LLC required services using
Coastal Drilling Co., LLC - Rig 22 for completion of two wells.
 Per instructions from McMoRan, Coastal moved Rig 22 off the well site until
the second well was ready to be drilled, but McMoRan cancelled contract.
 Coastal files a Statement of Privilege, claiming an amount to include “Early
Termination” fee.
 McMoRan Files Petition for Writ of Mandamus to force removal of privilege.
 Court interprets “operations” under Act broadly to include (i) placing rig on
stand-by and (ii) the Early Termination Fee as it was part of drilling contract.

29. Recent Decision Limiting
the Protections Afforded
to LOWLA Claimants

30. Subsequent ORRI Purchaser Granted
Third Party Purchaser Protections
OHA Investment Corp. v. Schlumberger Tech. Corp. (In re ATP Oil & Gas
Corp.): The Fifth Circuit Applies Third-Party Safe-Harbor Protections to
Purchasers of Overriding Royalty Interests Sold After Inception of a LOWLA
Privilege
1. The events leading up to litigation.
2. Decisions from Bankruptcy and District Court.
a. The Bankruptcy Court’s first report and recommendations.
b. The Bankruptcy Court’s second report and recommendations.
c. The District Court’s findings
3. The Trade Creditors’ appeal and the Fifth Circuit’s Opinion.
4. Potential for “Involuntary Trade Creditor Financing”: The Fifth
Circuit’s Holding Has Frightening Real-World Implications For Trade
Creditors.

31. Ben Kadden’s practice focuses upon Bankruptcy, Restructuring, & Creditors’ Rights, Corporate & Commercial Law, Mergers
& Acquisitions, Commercial Litigation, and Asset-Based Finance. Some of the Chapter 11 proceedings where he acted as
Debtor’s counsel include Gulf Fleet Holdings, Inc., East Cameron Partners, L.P., and Bender Shipbuilding & Repair Co. He
has also served as counsel for various Official Committee of Unsecured Creditors, including acting as lead counsel in the
Chapter 11 case of Whistler Energy II, LLC, Midway Oilfield Constructors, Inc., Harvest Oil & Gas, LLC, A&B Valve and Piping
Systems, L.L.C., Graham Gulf, Inc., and Virgin Oil Company, Inc., and as special counsel to the Official Committee of
Unsecured Creditors in the Trico Marine bankruptcy. Ben is currently representing the Official Committee of Unsecured
Creditors in another Chapter 11 case pending before Judge Isgur, In re Midway Oilfield Constructors, Inc. Ben has also
represented numerous liquidating trusts arising out of confirmed plans of reorganization, including trusts formed in
connection with confirmed plans in the bankruptcy cases of Whistler Energy II, LLC, Graham Gulf, Inc., Harvest Oil & Gas,
LLC, Torch Offshore, Inc., Gulf Fleet Holdings, Inc., and Virgin Oil Company, Inc.
Ben has also actively participated in a number of merger & acquisition transactions pertaining to numerous businesses
based in the Gulf Coast, with a focus upon representation of non-public buyers and sellers in equity and asset
sales. Because of his experience in complex Chapter 11 bankruptcy cases, Ben has direct experience and knowledge
regarding the purchase or sale of assets by distressed companies, including navigating the process while a buyer or seller is
in bankruptcy.
Ben is a leader in New Orleans in the fields of corporate bankruptcy and commercial law, which is demonstrated by his Best
Lawyers (2019) recognition, his Chambers USA ranking as an Up and Coming practitioner (2017-2019), a Super Lawyers'
Rising Star (2014-2018), a Top Lawyer in New Orleans (2014-2018), and a recipient of an AV Preeminent rating by Martindale-
Hubbell. He is admitted to practice and regularly practices in the following jurisdictions: Louisiana, Texas, U.S. Fifth Circuit,
and all U.S. District Courts in Louisiana and Texas.
Benjamin W. Kadden
kadden@lawla.com
Lugenbuhl. Wheaton, Peck, Rankin & Hubbard
601 Poydras Street, Suite 2775
New Orleans, LA 70130
Phone: (504) 568-1990