Enrolled Bill Summary

House Bill 2590	House Author:  Keffer
Effective:  Vetoed	Senate Sponsor:  Eltife

            House Bill 2590 amends the Property Code to establish that an oil or gas lease covering real property subject to a security interest that has been foreclosed remains in effect after the foreclosure sale if the oil or gas lease has not terminated or expired on its own terms and was executed and recorded in the real property records of the county before the date the security interest was recorded or was executed and recorded in such records after such date but before the foreclosure sale. The bill requires any royalty payment under an oil or gas lease due to the owner of the real property that was subject to the security interest that has been foreclosed to be paid to the purchaser of the foreclosed real property.  The bill sets out provisions relating to the following: the indemnification of a purchaser and any mortgagee of a foreclosed real property from actual damages resulting from a lessee's operations conducted pursuant to an oil or gas lease; the termination by certain foreclosure sales of a lessee's right to use the surface of real property pursuant to an oil or gas lease; and a controlling subordination agreement between a lessee of an oil or gas lease and a mortgagee of real property.

 

            Reason Given for Veto: "House Bill 2590 would amend the Texas Property Code to allow for the continuation of certain oil and gas leases in the event that the leased land undergoes a foreclosure. This bill makes changes that would benefit all parties to mineral leases in urban environments, like certain sections of the Barnett Shale. However, the bill's language is less well suited to leases in rural areas, where the bill's prohibition on entering onto the land may make the lease impossible to utilize.

 

"The bill also includes a provision that could subject a lessee to lawsuits for reasonable and minimal damage to the land caused by the lessee's lawful production of oil and gas, a reversal of the well-established rule. Furthermore, the bill could be interpreted to allow these suits even if the mineral lease was recorded before the foreclosed mortgage, and even for lawful drilling that occurred before the foreclosure. This could have a serious chilling effect on the production of oil and gas across our state.

 

"Because I agree with the intent of HB 2590, I encourage the author and the sponsor of the bill to narrow this legislation to only affect leases in urban areas, and to limit the potential liability for lawful oil and gas production."