How to Avoid Mineral Rights Lease Scams

It is not very often that we hear of a lease scam but they do happen and are, for the most part, avoidable.

Most mineral rights lease scams involve oil companies or landmen that I will refer to as “flippers” and are particularly evident during leasing booms. These folks follow significant leasing activity in hopes of leasing substantial blocks of acreage early in a play when terms are easy and leases are cheap and they sell their leasehold to companies as the play matures and at substantially higher per acre costs and with overriding royalties attached to the leases.

While there is nothing illegal or immoral about this activity, the scam often occurs when the flippers acquire their leasehold by paying the mineral owner with a sight draft as opposed to a money order or guaranteed funds. The flipper negotiates as long of a term as they possibly can, often as long as 90 to 180 days, knowing that they don’t have the funds to pay the draft off, and betting that they can flip the lease to an oil company prior to the expiration of the draft. If they can’t get the lease sold, they lose, but more importantly, the mineral owner loses since their minerals have been tied for a period of time and they have and will not be paid as promised.

Our advice is to never accept payment for leasing your minerals rights unless you trade the signed lease for guaranteed funds. Some day you will be glad you did.

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