A farmout agreement is used when the "farmor" agrees to assign acreage to the "farmee" in return for the "farmee" performing specified drilling and testing obligations, with the "farmor" also reserving an interest in the acreage assigned and in the production from the wells drilled by the second company.
Farm Out Agreement Template For Professional Services
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US-OG-224
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How to fill out Farmout Agreement - Short Form?
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FAQ
Farmout agreements are common in the oil and gas industry. A farmout agreement is a contract in which an interest owner ( farmor ) agrees to assign interest to another party ( farmee ) in exchange for certain services. Once these services have been rendered, the farmee has earned what is known as an assignment.
Noun. farmor (plural farmors) (mining) An owner of oil or gas leases that exchanges part of them to a farmee for services.
It is willing to drill the well(s) for you and pay the drilling costs (what is known as a drilling carry), in exchange for you assigning them a percentage of your working interest. Another way to think of it is obtaining drilling services where the consideration is an assignment of working interest rather than cash.
A farmout is when a resource-producing property is outsourced for development to a third party or farmee. The farmee pays the owner (farmor) royalties on income generated from the outsourced activities. Farmouts are most common in natural resources exploration and extraction, such as with oil, gas, or minerals mining.
On the other hand, a farmee under a drill-to-earn contract earns an interest in the property once he drills to a specified formation and conducts the specified testing. Again, the farmor's motivations in seeking a farmee will dictate which earning barrier is most appropriate.