District Court Grants Summary Judgment to Lender in Oklahoma Producer's Lien Priority Dispute Over Unpaid Hydrocarbon Sales
White Operating Company sought $2.6 million from Bank of America for Oklahoma hydrocarbons sold to Murphy Energy Corporation in summer 2016, after Murphy failed to pay and subsequently entered bankruptcy. The Northern District of Texas granted summary judgment to the bank, resolving claims under Oklahoma's Oil and Gas Owners' Lien Act and common law theories arising from Murphy's credit relationship with the bank.
Background: Unpaid Producer Claims Against Midstream Purchaser's Lender
White Operating Company, an Oklahoma oil and gas operator, sold crude oil and gas to Murphy Energy Corporation during June, July, and August 2016. Murphy, a midstream provider of transportation, storage, and marketing services, never paid for these purchases, leaving White Operating with an unpaid balance of $2,586,956.86 plus interest.
The dispute arose against the backdrop of Murphy's credit relationship with Bank of America. In 2012, Bank of America had provided Murphy with a $60 million revolving loan and $6 million term loan under a Credit Agreement secured by liens on most of Murphy's assets. Under the Credit Agreement's cash management structure, proceeds from Murphy's resales of hydrocarbons purchased from producers like White Operating were deposited into a master deposit account with Bank of America. The bank swept funds from this account daily, creating additional borrowing capacity under the revolving loan, and would then readvance funds to Murphy for operational expenses.
The District Court Proceedings
White Operating filed this lawsuit seeking payment from Bank of America for the hydrocarbons sold approximately nine years earlier. The purchaser, Murphy Energy Corporation, was a non-party to the litigation. White Operating's First Amended Complaint asserted claims arising from the unpaid hydrocarbon sales and Murphy's credit arrangements with the bank.
Bank of America moved for summary judgment on White Operating's First Amended Complaint. The Northern District of Texas reviewed the motion, the parties' briefs, the summary judgment evidence, and the applicable law. Judge Karen Gren Scholer granted Bank of America's motion for summary judgment, resolving the dispute in the bank's favor.
Significance for Oil and Gas Producers
The case illustrates the complex interplay between producer liens, secured lending arrangements, and cash management systems in the oil and gas industry. When midstream purchasers maintain credit facilities with daily sweep and readvance mechanisms, unpaid producers face significant challenges in recovering payment from the purchaser's lenders. The Northern District of Texas's grant of summary judgment to Bank of America demonstrates the difficulty producers encounter when seeking recovery from secured lenders after a purchaser's default and bankruptcy.