Great fortunes have been made by people who struck it lucky in oil and gas. So why not you?
"Just send $300," a salesman might urge you over the telephone. You could become the John Paul Gettyu or H. L. Hunt of the neighborhood.
Would you believe a pitch like the one above? Probably not, the way I've put it. But companies running oil-lease schemes put it much more elegantly, and thousands of you are sending money, which you'll probably lose.
What's particularly galling about oil-lease schemes is that they derive a spurious authority from the federal government, which is a kind of silent partner in the enterprise. Under a 1920 law, the government is required to hold regular lotteries to allocate leases on certain federal lands. If you win, you acquire the right to drill on a particular parcel, which you hope will be geologically interesting enough to attract a drilling company. You'll make money if the driller buys your lease, and you'll earn royalties if he finds oil or gas. Your basic cost is $75 to enter the lottery and an annual rent of $75 to enter the lottery and an annual rent of $1 an acre if you win a lease.
Last January, there were 197,000 entries for 1,425 parcels of land. The winners are selected by computer.
The only problem is that none of the land in the lottery is known to contain any geological evidence suggesting the presence of oil or gas. If it did, the land would be removed from the lottery and auctioned competitively to the highest bidder. All of the properties in the lottery have been there before. They were turned back to the government by former winners, who were unable to find any oil and gas.
But you'd never know it from the claims of the salesmen for private oil-lease service companies, who offer to enter you into the federal lottery. These companies charge $300 and up to put your name in the lottery (compared with $75 if you did it yourself). They attract you by making a variety of false claims. For example, they may tell you that there is definitely oil and gas on the land. Not true. They may guarantee that you'll win. You may be told that the company has the inside track on lotteries; that its "geologists" have identified "sleepers" -- valuable tracts that few people are likely to put their names on, or that the company has already had hundreds of winners. Not true.
Many companies also guarantee to buy your lease from you for at least $20,000 if you win. The Federal Trade Commission, which began investigating these companies only last summer, says it has no evidence as to whether these buy-out guarantees are met or not.Tim Monroe of the federal Bureau of Land Management says there is no way that every tract could be worth at least $20,000. "All of these properties have been turned back to the government seven or eight times," he says, "because no one found them to be any good."
So why does the government keep on selling and reselling barren properties? The chief reason seems to be that the small oil producers support the lottery. They put in their names for the few tracts they think might be good. And they hope to buy leases at low prices from the few lucky citizen-winners, who might get a good tract but who have no way of estimating its real value.
The only way to stop these oil-lease scams is to throttle them at the source. Sen. Dale Bumpers (D) of Arkansas has twice introduced legislation to end the oil-lease lottery and put all federal leases up for competitive bidding. The present system, he says, "invites fraud and speculation." But there seems to be little support in Congress for his bill.
The Better Business Bureau is warning people to steer clear of the oil-lease filing services. The Federal Trade Commission recently negotiated an agreement with one company -- the First Petroleum Corp. -- to refund some money to investors it misled. Several similar cases are being pursued. Last year, 11 states issued cease-and-desist orders against one or another oil-lease filing service.
But more than 250 companies are believed to be peddling these leases to the public, and attracting people's money by making false claims. Congress should put them out of business, by passing the Bumpers bill and ending the federal oil-lease lottery once and for all.