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Plan Ahead to Avoid Ethical Entanglements

This article was developed from content written by Rob Shultz, CPL, and was featured in the 2018 March/April issue of the Landman Magazine.

There is wisdom in the practice of making the hard decisions before you actually face them. That is especially true when you are committed to the highest standards of ethical practice.

Landmen are the face of the oil and gas industry. Our interactions with mineral owners have a lasting impact on the public’s opinion of the companies we represent as well as the industry at large. As members of AAPL, we have a responsibility to conduct ourselves in a professional and ethical manner. Always.

While some industry practices scream “unethical” and are easy to avoid, other ethical dilemmas are more subtle. But there’s no need for a spur-of-the-moment struggle with an ethical quandary when you’ve already thought through potential pitfalls and know the right answer. In this new Landman feature, we will examine potential ethical snares and equip you with the tools to recognize and effectively respond to ethical predicaments — before you actually face them.

Cold-Drafting
In highly competitive leasing hotbeds, it can be difficult for companies late to the play to catch up. Some try to cut corners. Instead of verifying mineral interests in the courthouse, extending offers based on fair market value and paying for leases with checks or wire transfers, a company may stoop to cold-drafting prospective lessors. Cold-drafting is all about quickly extending offers; landmen don’t confirm ownership or worry about prevailing rates or fair market value. If a potential lessor seems interested, the landman simply makes an offer based on what he thinks will get the lease signed.

Meanwhile, the company condoning the cold-drafting has no intention — and possibly no money — to pay for all the leases offered on its behalf. By only issuing long-term drafts — say, 180 days or more — to pay for the leases, the company buys time to verify ownership and figure out exactly which leases it wants to cherry-pick.

Once the company determines the leases it doesn’t want, it defunds or closes the lease purchase accounts or just refuses payment on the drafts. When it’s all said and done, the landman is left to clean up a trail of exploited and spurned lessors and nurse a black eye for the entire oil and gas industry.