Can someone explain why we need to insist on acheck vs bank draft? Is it ok to accep their draft for not a lot of money? Can they change amt?
Susan, you don't accept drafts that landmen commonly use to pay for your oil and gas lease, because they are not obligated to lease from you, or pay you the stated amount of the draft. It is totally optional whether they honor the draft or not. They want your commitment to lease while you have no commitment from them to complete the agreement or pay. Do not let the executed lease out of your hands until you have cash you can spend, unless you think it would be allright to pay thousands of dollars to a lawyer out of your own pocket to force them to release the lease if they do not pay you. I wouldn't recommend you accept less than the full amount agreed in any transaction, whether it be the sale of a pig or an oil and gas lease. If you accept and cash the check/ deposit a draft for $10 from them that they do honor, you may not ever see the rest until you are $10,000 deep or more in lawyers fees. It's not against the law to owe someone money. You have every right to sue if they do not pay. You may even get paid and recover lawyers fees one day in the future, but you will be $ out of pocket until then, and they would still hold your lease. It could be ok to accept a draft, I'm sure many drafts are honored every day. The questions are do you want to risk it? Are you willing to dig deep into your own pocket if it turns out it isn't ok ?
Who is the lease company?
Arrowhead?
Susan:
Heed the advice given by Mr. Kennedy as this could become the worst nightmare of your life. As Mr. Kennedy stated, when you have to fork out thousands of dollars in attorney fees, this digs into your personal profits from the bonus transaction. Sometimes these companies want to utilize a bank draft payable in XXX days in order to give them time to verify records in regards to your interests. In my opinion, they can do their research prior to finalizing the lease and thus pay you with a check. In the past, I have accepted bank drafts and was lucky not to get "cold drafted". On one particular lease, I had to stay in constant contact with the company when the payment date was nearing. Since that experience, I made my own leasing rule that bank drafts would no longer be accepted. Good luck and hope you negotiate a great lease.
R W and Charles,
When you say you will only do a check and will not accept a draft, how are you going about that? Are you saying you have them send you a check in advance before you will send them an executed lease? Many times the leasing agent/oil company is no where near so it's not possible to meet in person so everything must be done by mail so I just wanted for you to elaborate on just how your going about this. Drafts, if used properly, work very well. The draft and executed lease are meant to be given to a bank and for that bank to then send it to the bank on the draft that the funds are to be drawn from, that bank is to hold the lease until the draft is paid by mailing a cashiers check back to your bank, or return the lease to your bank if the draft is not paid by the drop dead date. Some drafts are payable upon being presented with required documents. The banks are to act as intermediary to the transaction therefor relieving either party of risk . A lot of companies have gotten bold knowing people's greed and have started wanting the executed deed be sent to them directly rather than presented along with the draft. They have even gone as far as to have you send them the executed deed and draft and bypass then banks entirely.
If you use YOUR bank as an escrow agent, you should be safe. However, you must make sure that the leasing agent pays any fees associated with this process. Generally it is standard procedure for them to pay and it should be a deal that they already have with THEIR bank.
When I lease people, I never have them send the draft back to me. I always ask land owners to turn the bank draft and the Lease into THEIR bank. The bank releases the Lease to us and the money to the mineral owner at the same time. In my opinion, this is an excellent way to do business and well worth the fees associated.
My bank charges $15 to do a bank draft so I don't see how that is much of an issue and a must for the leasing agent to pay as they pay their bank charges and I pay mine, it is a business deal between the two of us and not one sided. Myranda, you are one of a kind that use a draft as it were meant to be used.
Joe, Ms.Shugart, no. My commitment to lease has value in it's own right. I have never had a draft honored. I still have some undrilled acres in different areas with good to great production. If a company wants to make a lease offer, they can, and they can do their legwork and pay by check, but they will get no commitment from me before I have an equal commitment from them. Frankly, I don't trust oil companies as far as I could throw a rig, and there is a good reason for that, because I know them. I am under 10 wells with more on the way. Only one oil company I have dealt with has done what they were supposed to do, when they were supposed to do it, even that one, I watch like a hawk. As for greed Joe, I'd have rather left it in the ground. I didn't go around asking oil companies to lease my acres, I had one company that pestered me for years to lease to them. Since the wells are drilled, whether I wanted them or not, I am going to make the most I can of it. If that fits your definition of greed, then I am greedy.
That sounds like an excellant arrangement. Wish more "landmen" did the same.
Myranda Shugart said:
If you use YOUR bank as an escrow agent, you should be safe. However, you must make sure that the leasing agent pays any fees associated with this process. Generally it is standard procedure for them to pay and it should be a deal that they already have with THEIR bank.
When I lease people, I never have them send the draft back to me. I always ask land owners to turn the bank draft and the Lease into THEIR bank. The bank releases the Lease to us and the money to the mineral owner at the same time. In my opinion, this is an excellent way to do business and well worth the fees associated.
well said RW. People getting a bank draft/sight draft has no guarantee of payment regardless of any escrow arrangements. The point is there is no assurance they will honor the lease and payment agreement. It is that simple. If you manage to write the perfect lease and Order For Payment then you still will have a legal battle (at your expense) if they do not pay. Same with an escrow arrangement that isn't fulfilled. It is a shame that it has come to this, but as RW notes landowners must be thorough and extremely cautious. Gascos have been leasing for years and are experts at what works to their advantage and how to "out fox" the landowner if they need to. So they want the lease then they can deliver a check (a real business check!), I would even then use an attorney all the way through the process even escrowing the lease until the business check cleared (again not sight or bank draft type of bogus checks).
Please understand that signing a lease with an OFP or bank/sight draft is a legal commitment from a landowner only (that means once signed a landowner cannot get out easily) on the other hand, as RW suggests, the gasco is making no commitment even though to us landowners it appears to be a legit contract. The other tactic is to get your lease and record the mineral lease and not making the payment and then again legal action is required to fight the gasco to get them to release it. In the meantime, the title is "clouded" and other gascos can't lease your minerals.
Don't take the chance.
R W,
I am sorry but you misunderstood what I had written was all about.
My unanswered question was only asking for you (and Charles) to describe how you go about getting your check and they getting their executed lease. A question which was meant to inform myself and others your method of how to avoid issues of accepting a draft.
As for greed, most jump at the chance to get money without any thoughts therefore getting themselves into situations where leases are recorded when drafts are not honored. Perhaps greed was not the best word to have used but the meaning of it had nothing to do with accepting bonus or royalty payments but only to how quick one is to accept unreasonable terms.
It makes no sense to me to watch them like a hawk as you say on something you care so little about as you stated you'd have rather left it in the ground and didn't want to lease. Perhaps something creating such a headache and which is meaningless should be donated to charity to relieve ones self of such issues and that will truly benefit others in ways that you obviously have no need for.
I waxed on this some time ago.
http://www.mineralrightsforum.com/profiles/blogs/oil-and-gas-bank-d...
Something that I alluded to in the blog post but did not delve into is - does the landowner have the right to lease to someone else during the wait period for the draft to be honored?
It all depends on the wording (Texas) of the draft.
If the wording says something like "Upon approval of title and lease form and contents, but in no event later than 20 banking days after presentation" then what has been created is a conditional draft.
The Texas case of Frank Spellman, whom I had lunch with many times, proved that the conditional draft COULD be refuted by the mineral owner prior to payment and lease to another for cash. So, like everything else, the devil is in the details.
The way that I prefer to handle things is to tell right up front, "The first one to put a check on my desk wins." Then I have the lease executed and a signed copy is scanned over to the oil company with all documentation that they need to cut a check. The scanned copy has red writing all over that says "COPY"
I don't seem to have many issues doing it that way.
As to people being too far away, well, there are ways around that.
Wilsontownship said:
well said RW (all posts). People getting a bank draft/sight draft has no value regardless of any escrow arrangements. The point is there is no assurance they will honor the lease and payment agreement. It is that simple. If you manage to right the perfect least and Order For Payment then you still will have a legal battle (at your expense) if they do not pay. Same with an escrow arrangement that isn't fulfilled. It is a shame that it has come to this, but as RW notes landowners must be thorough and extremely cautious. Gascos have been leasing for years and are experts at what works to their advantage and how to "out fox" the landowner if they need to. So they want the lease then they can deliver a check (a real business check!), I would even then use an attorney all the way through the process even escrowing the lease until the business check cleared (again not sight or bank draft type of bogus checks).
Please understand that signing a lease with an OFP or bank/sight draft is a legal commitment from a landowners only (that means once signed a landowner cannot get out easily) on the other hand, as RW suggests, the gasco is making no commitment even though to us landowners it appears to be a legit contract. The other tactic is to get your lease and record the mineral lease and not making the payment and then again legal action is required to fight the gasco to get them to release it. In the meantime, the title is "clouded" and other gascos can't lease your minerals.
Don't take the chance.
I have been leasing for my own properties in ND since late 1970's. Every lease has been paid by draft including two leases last year. Never a problem. All have been handled through my local banks collection department wherever I have lived and everyone has worked out perfectly.
Do not accept a draft. I was a banker and those darn drafts had a habit of coming back even after you got the cash. This is same for insurance claims check/drafts too. The bank will charge $30+ to collect the funds and will hold your funds for 30 to 60 days. Do not accept a draft as it is not check and the issuer is in control of the draft. They can pay the funds, hold the draft for a future date, or demand funds back after you got your money. Demand a cashier's check for your best option as those funds are held by a third party and you will get paid. A business check is your next option but it could bounce and the funds will be held up to 10 days, but chances of a check coming back are less and you will have a legal recourse too. On a Check, if the funds are available on the account the check is written on and there is no stop payment, a check has to be paid and it is next to impossible to have the check returned after it was legally cashed, but I have seen other banks try to slip one past the system, so it is not impossible. Those bonus drafts/checks are a headache for banks and for their customers. If I ever get lucky and get a bonus check for leasing my mineral rights, I will be going to the issuer's bank and asking for a cashier check in the same name and amount. This way, the check can never come back against you. Of course, they will pick a bank as far and as out of the way as possible.
Steve, I am new to this game but I suspect that it has been perverted over the years with gascos developing strategies and techniques to their advantage. Unfortunately, that may mean they decide they want to tie up a landowner and then manipulate their holdings based on many market conditions later (well results, market, jv deals, whatever).
Also, since you have been in the business for 40+ years I don't think it is very fair to compare you to the typical landowner that gets a knock on their door one day. I was part of the big play in MI that was booming and then went bust and now there are many lawsuits as a result. We all thought we had legit deals and even thought we were smart to not accept bank drafts - instead we accepted Order For Payments with varying due dates and terms depending upon the savvy of landowner and/or attorney. As a recent Reuters article noted; CHK rejected 97% of leases due to trumped up title defects. In reality they just wanted out of the play.
It today's climate I think it is very fair to make a blanket statement that it is risky to accept OFP or drafts as a means of payment. I understand the intent and value of a delayed payment to verify clear title etc, but since the tactic now is to sweep into an area and lock up the land and then later decide if really wanted (while the loandowner has been removed from leasing to others). Nope, not worth that risk regardless of how many people speak the praises of a bank/sight draft.
Wilson
Steve Carlson said:
I have been leasing for my own properties in ND since late 1970's. Every lease has been paid by draft including two leases last year. Never a problem. All have been handled through my local banks collection department wherever I have lived and everyone has worked out perfectly.
Joe, do you mean to say that I shouldn't be watching like a hawk now that I have been forced into doing business with these companies ? Just because I never sought it I should just ignore it now that it has happened? Also please tell me all you know about what I am doing with the proceeds, as I am fascinated by your prescience. Joe, if a lessee had my agreement to lease for a certain amount, to be paid at a certain time, I would do so. I have not always in all instances kept my word, I don't believe anyone has, but I tell you this, I have given much time, a goodly amount of blood and some large patches of skin, to do my best to keep MY word. I'm pretty sure the land company or oil company won't exhibit that kind of dedication. Joe, they can just send me a check and if I cash it that would be ratification. Do you think I could possibly prevail in court against an oil company if I was in the wrong ? Against all the legal talent their money could bring to bear ? If that is your thought, you flatter me far too much. If you cashed the check about the only protection that you would have would be the lease, I would record it myself for my own protection if the lessee didn't. Off topic Joe, did they ever pay you your royalty and interest they owe you on that ND well ?
Mineral Joe said:
R W,
I am sorry but you misunderstood what I had written was all about.
My unanswered question was only asking for you (and Charles) to describe how you go about getting your check and they getting their executed lease. A question which was meant to inform myself and others your method of how to avoid issues of accepting a draft.
As for greed, most jump at the chance to get money without any thoughts therefore getting themselves into situations where leases are recorded when drafts are not honored. Perhaps greed was not the best word to have used but the meaning of it had nothing to do with accepting bonus or royalty payments but only to how quick one is to accept unreasonable terms.
It makes no sense to me to watch them like a hawk as you say on something you care so little about as you stated you'd have rather left it in the ground and didn't want to lease. Perhaps something creating such a headache and which is meaningless should be donated to charity to relieve ones self of such issues and that will truly benefit others in ways that you obviously have no need for.
Dillon said:
West texas holding co. The Woodlands , texasWho is the lease company?
Arrowhead?
R W,
Funny you should ask, just yesterday I received an interest payment from Brigham. It took several request and I am uncertain I received the correct amount but I am in the end satisfied. My hats off to them, in the long run they are a cut above the rest.
Talk about check in hand, I drove to a fairly local lease brokers office to drop off an executed lease and pick up my check after they wanted to lease some of my minerals. I told them I'd prefer a check and so three times I asked if they had run title and three times they told me yes. Now weeks later and after they recorded the lease I get a certified letter in the mail telling me they want their money back. Come to find out they took a top lease as the previous lease doesn't expire for another year (leased by prior owner). So does one return their money or consider it a top lease?
reply to steve, money amtmis small for each family member so going thru our bank seems safe??? Wilsontownship said:
Steve, I am new to this game but I suspect that it has been perverted over the years with gascos developing strategies and techniques to their advantage. Unfortunately, that may mean they decide they want to tie up a landowner and then manipulate their holdings based on many market conditions later (well results, market, jv deals, whatever).
Also, since you have been in the business for 40+ years I don't you to the typical landowner that gets a knock on their door one day. I was part of the big play in MI that was booming and then went bust and now there are many lawsuits as a result. We all thought we had legit deals and even thought we were smart to not accept bank drafts - instead we accepted Order For Payments with varying due dates and terms depending upon the savvy of landowner and/or attorney. As a recent Reuters article noted; CHK rejected 97% of leases due to trumped up title defects. In reality they just wanted out of the play.
It today's climate I think it is very fair to make a blanket statement that it is risky to accept OFP or drafts as a means of payment. I understand the intent and value of a delayed payment to verify clear title etc, but since the tactic now is to sweep into an area and lock up the land and then later decide if really wanted (while the loandowner has been removed from leasing to others). Nope, not worth that risk regardless of how many people speak the praises of a bank/sight draft.
Wilson
Steve Carlson said:I have been leasing for my own properties in ND since late 1970's. Every lease has been paid by draft including two leases last year. Never a problem. All have been handled through my local banks collection department wherever I have lived and everyone has worked out perfectly.
To All:
I conduct my business per Mr. Cotten's post as the lease is executed with supporting paperwork and scanned only as a noted "copy" until the money is in the bank. Great way to handle this matter. Seems to work fine and keeps everyone honest.