Paying Lease Bonus with Time Drafts - Inspection Report on a House of Cards

12/01/2008

The recent roller coaster ride for bonus prices in oil and gas leasing transactions has directed a spotlight on the familiar time draft, or sight draft, often used to pay lease bonus. Early in 2008 and through the summer, the competition for leases in certain areas was so heated, and bonus prices were escalating so rapidly, that a mineral owner often received higher offers after signing a lease and before the draft was funded. More recently, the offers for lease bonus have fallen precipitously and some lessees who issued drafts would like to have them back. Both lessors and lessees have recently had the opportunity to examine the draft instrument and ask the question: “What is this thing, and can it be enforced?”

Originally appeared in the State Bar of Texas Oil, Gas and Energy Resources Law Section Report, Vol. 33, No. 2, December 2008. To read the full paper, click on the PDF linked below.

PDF - Paying_Lease_Bonus_with_Time_Drafts.pdf

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