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No Bank Sight Draft = No Cold Draft | Leasing Shell Games

by Kenneth E. DuBose on January 6, 2012

We don’t accept Bank Sight Drafts. I can’t say I never have, but I don’t make it a practice.  If your land is highly prospective, you can bet they’ll do their research first and will have money in hand.

When you sign a bank draft you are allowing a company that might or might not operate and might or might not have done its homework have rights to your minerals. The funny thing is this isn’t a new issue and likely isn’t the last time we’ll hear about it. Companies in every industry make promises they can’t keep and YOU and I have to be educated in knowing whether or not we’re dealing with a reputable party. We also have to protect ourselves best we can. By accepting bank sight drafts, mineral owners have unknowingly allowed the possibility of not being paid.

We’re seeing this issue across the news because of lawsuits brought against Chesapeake in Michigan where the company was leasing through a shell company and many leases were ultimately rejected.

Shell companies and land brokerages will not disappear when it comes to leasing land. Companies simply can’t divulge their ideas to the world before acquiring a material position or benefiting from the idea. We, as mineral owners, have to make sure we’re armed to the best of our ability. There are numerous resources where you can connect with professionals and other landowners to help educate yourself. MineralRightsForum.com is a great place to join or create a local county group and kick off discussion on what is happening in your area. If your situation warrants, an oil & gas attorney is a good backstop.

You can read more on the issues in Michigan at reuters.com

{ 3 comments }

wilsontownship January 6, 2012 at 4:13 pm

Using a shell to lease is one thing, using a shell to escape the obligation to honor a lease is another and not acceptable.

However, if possible to get paid for the lease at the time of delivery of the lease; of course that is optimum. Site drafts or simply a “review period” prior to payment is common and VERY risky. Honest companies will honor these payment methods – but where are the honest companies? – so as author states push to get payment at lease signing.

I also strongly suggest having an expert gas/oil attorney involved at the onset of lease negotiations.

Kaye January 8, 2012 at 6:03 am

So, if its risky to accept a draft how does one go about to protect themselves to make sure they get paid?

Kaye

RTDukes January 9, 2012 at 9:58 am

Kaye, That’s a good question. Visit our article on Oil & Gas Bank Sight Drafts for additional information.

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