What are Farm-Ins and Farm-Out Agreements?
A farmin agreement is a contract in which an investor (a farmee) buys a stake in a project from an existing participant (a farmor). It's often employed during a project's investigation or development stages.
A farm-in has four general characteristics.
First company (the seller) has a license interest;
Second company (the buyer) agrees to pay the seller’s costs for a particular activity, usually a well;
In return the Seller transfers to the Buyer part of the seller’s interest.
The seller keeps part of its interest.
What is a Farm-Out, exactly?
The transfer of a portion or all of an oil, natural gas, or mineral interest to a third party for development is known as a farmout.
The other party will then be contractually required to meet certain requirements, such as setting up a drill in a specified area, drilling to a specific depth, and so on. The agreement will also specify when these activities must be finished by. The owner of the lease interest might assign all or part of their interest to the other party.
The farmee (another company that wants a piece of that lease or leases in exchange for providing service) likewise agrees to spend money to offer a service, related to the interest, such as funding expenditures, drilling, etc.
The income earned by the farmee's activities will be split between the farmor and the farmee, with percentages established under the agreement.
To put it simply: The buyer has money but not enough land or prospects, whereas the seller has land but not enough money.
Having a properly written contract is critical for both farm-ins and farm-outs. If you are considering either of these options, contact T & G Counsel offices.