Bank drafts - 120 day

Can anyone describe to me the good and bad points of these drafts? I've heard some horror stories and would like to be forewarned, even though we have 4 120 day drafts now. Not looking for sympathy. Just information.

Thanks,

Wes

120 working days + weekends and holidays is at least 5 months. You are not bound in N.D. to accept their offer. If someone else will pay you and they record first, their lease is valid, as N.D. is a RACE to record state. I’d keep looking over offers. The lease value of your minerals could double in 6 months. I hope they don’t have the executed lease yet. If they do they have a free 5 month plus option on your minerals with the right of refusal and they don’t have to pay you anything. They also could record the lease and hold it without paying you until you pay a lawyer to chase them off your minerals.

Other than lease offers might go up considerably there are not any good points I could think of but if you made an agreement it is wrong to back out and not honor your agreement because you got a better offer. Bad points, a very long wait which gives them a lot of time to think about it and perhaps be dishonest and back out themselves. Take the leasing activity they had in Michigan, Chesapeake drove prices up then walked away not honoring their lease offers, then other companies decided they didn't want to stand behind their high offers that were driven up by Chesapeake so they didn't pay either. Also many send a signed lease directly to the company leaving themselves open to be cold drafted.

If you honor your agreement then there are no good points to a draft (other than the one I mention below) or a long pay order. Hopefully you used the draft as it were meant to be used and deposited with your bank the draft along with the signed lease agreement then your bank acts as an intermediary for you which is one good point.

Thank you Mineral Joe. I continue to learn and you've absolutely helped me. It is appreciated. We're not going to back out but hopefully we have learned a lesson from this. I'm only trying to help my brothers understand these things and one brother only gets mad. I just hope my worst fears aren't realized from the 120 day draft. And no, sadly we sent the lease and bank draft back to (((Blanca Energy, a company set up by Chesapeake to do their leasing))) which I don't understand at all. Why doesn't Chesapeake do their own leasing?

Thanks again,

Wes Luke

Mineral Joe said:

Other than lease offers might go up considerably there are not any good points I could think of but if you made an agreement it is wrong to back out and not honor your agreement because you got a better offer. Bad points, a very long wait which gives them a lot of time to think about it and perhaps be dishonest and back out themselves. Take the leasing activity they had in Michigan, Chesapeake drove prices up then walked away not honoring their lease offers, then other companies decided they didn't want to stand behind their high offers that were driven up by Chesapeake so they didn't pay either. Also many send a signed lease directly to the company leaving themselves open to be cold drafted.

If you honor your agreement then there are no good points to a draft (other than the one I mention below) or a long pay order. Hopefully you used the draft as it were meant to be used and deposited with your bank the draft along with the signed lease agreement then your bank acts as an intermediary for you which is one good point.

I can’t imagine accepting a draft of 120 working days. Our policy is to only accept Company checks in exchange for the signed mineral leases. This has worked for us with no problems. However, we know our mineral ownership of our properties have been researched with previous leases and there have been no title issues. I advise the land agents up front of our requirements in this regard and procedures of exchanging the checks with the signed leases. Over the past many years the Company’s we have leased too have not balked at this request. There may be a place for drafts where ownership issues are unclear. But I don’t see why it would be necessary for an Operator to require 120 days to tie up someone’s mineral lease.

Thanks Mike.

I agree with you 100%. We made a very big mistake that may wind up biting us. We can only hope not. Thank you for your input. I only hope we come through this without any big holes in our bodies. To me this is a lot of money that I can't afford to lose.

Wes Luke

I think this is called “cold drafting” and I thought the practice was illegal in North Dakota.

Wes Luke said:

Thanks Mike.

I agree with you 100%. We made a very big mistake that may wind up biting us. We can only hope not. Thank you for your input. I only hope we come through this without any big holes in our bodies. To me this is a lot of money that I can't afford to lose.

Wes Luke

Thanks for your input, Mr. Johnson.

I've told a couple of landmen about this deal and neither of them mentioned "cold drafting", but that doesn't mean I don't need to do some checking. Again, thank you.

Wes Luke

I just checked three glossaries for "cold drafts" and came up short. Would you have a definition

or a link to a glossary that would define the term? Thanks in advance,

Wes Luke

I have been approached by two landmen and have drafts by one out of Williston and also a draft by Inland Oil out of Bismarck. When I questioned them, they told me about the term and said it was illegal in this state and if no mineral ownership problems surfaced after researching, the drafts have to be honored. The drafts are for 30 days but could be modified to 15 if I want.

Wes Luke said:

Thanks for your input, Mr. Johnson.

I've told a couple of landmen about this deal and neither of them mentioned "cold drafting", but that doesn't mean I don't need to do some checking. Again, thank you.

Wes Luke

I just checked three glossaries for "cold drafts" and came up short. Would you have a definition

or a link to a glossary that would define the term? Thanks in advance,

Wes Luke

Did you ask them about the time frame of finishing the researching? Is there a limit on the length of time they must have the researching done? You have my full attention, sir.

Wes Luke

Did you talk to Cody at inland?

Dear Wes,

One wonderful place for research is right here on this board.

http://www.mineralrightsforum.com/profiles/blogs/oil-and-gas-bank-draft

Wes Luke said:

Thanks for your input, Mr. Johnson.

I've told a couple of landmen about this deal and neither of them mentioned "cold drafting", but that doesn't mean I don't need to do some checking. Again, thank you.

Wes Luke

I just checked three glossaries for "cold drafts" and came up short. Would you have a definition

or a link to a glossary that would define the term? Thanks in advance,

Wes Luke

Accepting a bank draft in payment for an executed oil & gas lease is tantamount to granting a company a free option lease your lands. Your minerals are tied up, the company has the choice of paying the draft or returning the draft with little likelihood of any recourse from the mineral owner. Try buying your groceries with a no fault draft.

I spoke with Lynn Moser at Inland.

I was told research had to be complete in the term of the draft.

I had the leases looked at by a good oil attorney in Dickinson and he could see no problems. I would think if "no fault drafts" were illegal in this state he would have said something. His only concern was the amount offered and I agree.



James H. McConnell, CPL said:

Accepting a bank draft in payment for an executed oil & gas lease is tantamount to granting a company a free option lease your lands. Your minerals are tied up, the company has the choice of paying the draft or returning the draft with little likelihood of any recourse from the mineral owner. Try buying your groceries with a no fault draft.

The drafts have gotten longer and longer pay outs in areas where there is tremendous amounts of leasing activity going on like Colorado where the clerks office were not really set up to handle so many landmen and documents needing filed. They started with 30 day drafts, by the time they got to me it was up to 90 days. They are also more concerned about getting you signed than they are about getting you paid. Maybe checks from CNOOC are running behind as the Chinese are too busy loaning our government money.

I never implied that no fault drafts were illegal. My point was that the company has 120 days or more to sell the lease they have in their possession that you executed before they ever have to pay for the lease; which is in essence a free option for 120 days as the company has given you nothing. Where have you ever gotten such a sweet deal as you gave the oil company?


harland johnson said:

I spoke with Lynn Moser at Inland.

I was told research had to be complete in the term of the draft.

I had the leases looked at by a good oil attorney in Dickinson and he could see no problems. I would think if "no fault drafts" were illegal in this state he would have said something. His only concern was the amount offered and I agree.



James H. McConnell, CPL said:

Accepting a bank draft in payment for an executed oil & gas lease is tantamount to granting a company a free option lease your lands. Your minerals are tied up, the company has the choice of paying the draft or returning the draft with little likelihood of any recourse from the mineral owner. Try buying your groceries with a no fault draft.

I have a 60 day from Bismarck and 30 day from Williston, I didn't ask for either but they want time to do the research and would go to 15 working days if I insist. Apparently 120 days is not written in stone.

Yes, they have given me nothing up front... which is what I have already, and I have signed nothing yet so nobody has gotten anything.

James H. McConnell, CPL said:

I never implied that no fault drafts were illegal. My point was that the company has 120 days or more to sell the lease they have in their possession that you executed before they ever have to pay for the lease; which is in essence a free option for 120 days as the company has given you nothing. Where have you ever gotten such a sweet deal as you gave the oil company?


harland johnson said:

I spoke with Lynn Moser at Inland.

I was told research had to be complete in the term of the draft.

I had the leases looked at by a good oil attorney in Dickinson and he could see no problems. I would think if "no fault drafts" were illegal in this state he would have said something. His only concern was the amount offered and I agree.



James H. McConnell, CPL said:

Accepting a bank draft in payment for an executed oil & gas lease is tantamount to granting a company a free option lease your lands. Your minerals are tied up, the company has the choice of paying the draft or returning the draft with little likelihood of any recourse from the mineral owner. Try buying your groceries with a no fault draft.

For a follow up option, consider this new post to provoke a newer discussion.


Mr. Cotten, you are absolutely right. I'm excited I found the Mineral Rights Forum. I have learned a great deal in the short time I've been here.

Wes

Harlan Johnson,

You said;

I was told research had to be complete in the term of the draft.

Do you mind telling me how many days your draft is for?

Wes Luke

As previously stated just 4 replies up, 30 and 60 days.

Wes Luke said:

Harlan Johnson,

You said;

I was told research had to be complete in the term of the draft.

Do you mind telling me how many days your draft is for?

Wes Luke