“U”CC

Section 9.343 of the Texas UCC contains a nonuniform provision, “which grants a first
priority purchase money security interest in oil and gas produced in Texas as well as proceeds in the hands of any ‘first purchaser.’ A ‘first purchaser,’ is in pertinent part, ‘the first person that purchases oil or gas production from an operator or interest owner after the production is severed.’  The statute’s purpose is to ‘provide[] a security interest in favor of interest owners, as secured parties, to secure the obligations of the first purchaser of . . . production, as debtor, to pay the purchase price.’ It effectuates a ‘security interest’ that is ‘perfected automatically without the filing of a financing statement.'” (citations omitted). But Delaware lien-priority law does not recognize nonuniform UCC provisions, and in Deutsche Bank Trust Co. Americas v. U.S. Energy Devel. Corp., the Fifth Circuit affirmed the bankruptcy court’s conclusion that Delaware law applied to the case before it. The Court observed: “The bankruptcy court adroitly untangled a thorny conflicts of law issue, the result of which, unfortunately, undermines the efficacy of a non-standard UCC provision intended to protect Texas oil and gas producers. . As a result, producers must beware ‘the amazing disappearing security interest’ and continue to file financing statements. The Texas legislature should take note.” No. 19-50646 (Feb. 3, 2021) (citations and footnote omitted).