MISSISSIPPI LEGISLATURE
2002 Regular Session
To: Oil, Gas and Other Minerals
By: Representative Shows (By Request)
AN ACT TO AMEND SECTION 53-3-41, MISSISSIPPI CODE OF 1972, TO REQUIRE THE OPERATOR OF A NEW OIL OR GAS WELL TO PLACE THE ROYALTY PROCEEDS IN AN ESCROW ACCOUNT IMMEDIATELY AFTER THE WELL BEGINS PRODUCING; TO REQUIRE THAT THE PROCEEDS SHALL REMAIN IN THE ESCROW ACCOUNT UNTIL THE PROCEEDS ARE DISBURSED TO THE ROYALTY OWNER; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. Section 53-3-41, Mississippi Code of 1972, is amended as follows:
53-3-41. (1) For the purposes of this section, the following terms shall have the meanings ascribed herein:
(a) "Oil and gas production" means any oil, natural gas, condensate of either, natural gas liquids, other gaseous, liquid or dissolved hydrocarbons, sulfur or helium, or other substance produced as a by-product or adjunct to their production, or any combination of these, which is severed, extracted or produced from the ground, the seabed or other submerged lands within the jurisdiction of the State of Mississippi. Any such substance, including recoverable or recovered natural gas liquids, which is transported to or in a natural gas pipeline or natural gas gathering system, or otherwise transported or sold for use as natural gas, or is transported or sold for the extraction of helium or natural gas liquids is gas production. Any such substance which is transported or sold to persons and for purposes not included in the foregoing natural gas definition is oil production.
(b) "Interest owner" means a person owning an entire or fractional interest of any kind or nature in oil or gas production at the time of severance, or a person who has an express, implied or constructive right to receive a monetary payment determined by the value of oil or gas production or by the amount of production.
(c) "Royalty owner" means any person who possesses an interest in the production, but who is not an owner as defined in Section 53-1-3(g).
(d) "Disbursing agent" shall mean that person who, pursuant to an oil and gas lease, operating agreement, purchase contract, or otherwise, assumes the responsibility of paying royalty proceeds derived from a well's oil and gas production to the royalty owner or owners legally entitled thereto. A first purchaser shall not be deemed to be the disbursing agent unless the first purchaser expressly assumes such responsibility in the purchase contract.
(e) "First purchaser" means the first person who purchases oil or gas production from the interest owners after the production is severed and may include the operator if the operator acts as a purchaser of production attributable to other interest owners.
(f) An "operator" is a person engaged in the business of severing oil or gas production from the ground, whether for himself alone, for other persons alone or for himself and others.
(2) The operator of an oil or gas well that begins producing on or after July 1, 2002, shall place all royalty proceeds in an escrow account immediately upon any production from the well and the proceeds shall remain in the escrow account until the disbursing agent disburses the proceeds to the royalty owner. Whenever a disbursing agent has not disbursed the royalty proceeds derived from the well's production to the royalty owner within one hundred twenty (120) days following the date of first sale of oil or gas in the event the disbursing agent is a first purchaser of oil or gas, or within one hundred twenty (120) days following the date the disbursing agent receives the proceeds from such production if the disbursing agent is not the first purchaser, such royalty owner shall have a lien to secure the payment of the royalty proceeds. The lien shall attach to the proceeds from such production received by the disbursing agent attributable to the royalty owner's interest.
(3) The lien provided by this section shall be effective against a third party only from the time a financing statement evidencing such lien is filed in the same manner as financing statements evidencing security interests in minerals are filed in accordance with the provisions of Section 75-9-501.
(4) The lien provided by this section shall expire one (1) year after it becomes effective against a third party, unless judicial proceedings have been commenced to assert it or unless insolvency proceedings have been commenced by or against the disbursing agent, in which event the lien shall remain effective until termination of the insolvency proceedings or until expiration of the one-year period, whichever occurs later.
(5) Whenever there is a conflict between a lien under this section and a security interest under Title 75, Chapter 9, the lien or security interest first to be filed has priority. Liens provided for in this section shall have priorities among themselves according to priority in time of filing of such liens.
(6) The filing required by this section shall be a financing statement as provided for in Section 75-9-310 and shall be subject to the provisions of Part 5 of Article 9 of the Uniform Commercial Code, except that in order for the filing to be sufficient, it shall not be necessary for the debtor to sign the financing statement, and the filing shall be effective for a period of only one (1) year from the date of filing.
(7) This section does not impair an operator's right to set off or withhold funds from other interest owners as security for or in satisfaction of any debt or security interest. This section does not impair a disbursing agent's right to withhold funds in the event a question is raised concerning the title or ownership of, or right to sell, the oil or gas production. In case of a dispute between interest owners, a good-faith tender by the disbursing agent of funds to the person the interest owners shall agree on, or to a court of competent jurisdiction in the event of litigation or bankruptcy, shall operate as a tender of the funds to both.
(8) Nothing in this section shall be construed to enlarge or diminish the rights and obligations provided to or imposed on interest owners, royalty owners, disbursing agents, first purchasers, or operators by contract or otherwise by law. The sole purpose of this section is to provide royalty owners a lien under the conditions provided herein.
SECTION 2. This act shall take effect and be in force from and after July 1, 2002.