Agricultural agreements are one of the most widespread agreements in the oil and gas industry. [1] Thank Professor Lowe in particular for his excellent article on this subject, Analyzing Oil and Gas Farmout Agreements, Sw. L.J. 759 (1987). However, there is no widely accepted model. As such, they are very different. Kanes Forms has provided several Farmout contract forms, but these have not been accepted as industry standard, and therefore each treaty farmout agreement must be fully analyzed and every term must be understood. This multi-part article will bring together commonalities and provide a framework for analyzing the various options for certain provisions. A farmout contract is an agreement with an operating interest rate holder (“Farmor”), in which the farmer agrees to assign work shares to farmee in exchange for certain contractual benefits. Typically, these services include drilling a well to a certain depth, at a certain location, within a certain period of time, and generally require that the well be commercially produced. After the delivery of this contractual benefit, farmee would have “deserved” a contract. This transfer comes after the completion of the benefits and is subject to the reserve of a prevailing royalty interest in favour of the farmer.

In our experience, the parties to the farm out agreements focus their due diligence activities and negotiations (in addition to the thinking structure) on key issues such as: Farmout agreements are effective risk management tools for small oil companies. Without them, some oil fields would simply remain untapped because of the high risks to which each operator is exposed. Farm out agreements are used in the oil and gas industry around the world. They take their name from historical practices in the agricultural sector, where agricultural work would give a person a legal or beneficial interest to that country. Farm-out agreements are often subject to English law, New York law or the jurisdictional laws in which the assets are located. Some agricultural arrangements include one or both of these agreements, possibly with other forms of counterparty. Problems may arise in one of the potential transaction structures described above. If farmee starts paying before obtaining all the necessary consents from third parties and before the transaction is concluded, farmee may be entitled to a refund (depending on the circumstances) if the transaction is ultimately not concluded. This scenario occurred when EnQuest obtained reimbursement of the money it paid into a trust account as part of the cancelled agreement with PA Resources to acquire a stake in the Didon oil field in Tunisia. In this case, a farm may consider the farmer`s financial ability to repay funds and the need for assistance or credit guarantee that are the source of this potential repayment.