Farm Out AgreementPublished by: Europe Basketball Academy
Farmout agreements are very popular with small oil and gas producers who own or have rights to oil fields that are expensive or difficult to develop. One company that frequently uses this type of agreement is Kosmos Energy (NYSE: KOS). Kosmos is entitled to land off the coast of Ghana, but the cost and risk of developing these resources is high because they are underwater. A farm-in has four basic properties. First, a company (the seller) has a licensing interest. Second, another company (the buyer) undertakes to bear the seller`s costs for a given activity, usually a well, perhaps a seismic program. Third, in return, the seller entrusts the buyer with part of the seller`s interest. Fourth, the seller retains part of his interest. Finally, agriculture can be a good way to develop knowledge, especially when the company is a small business without an operator and has staff to train. With regard to the North Sea, a number of farms have taken place, which include "fallow land" similar to Nigeria`s marginal oil fields and which are of interest to the Ministry of Trade and Industry in promoting certain exploration activities. Fourth, proximity to local production infrastructure, platforms and pipelines is also a strong motive for finding a farm-in in a given environment, especially when the agricultural party has an interest in infrastructure, platforms or pipelines. The peasant party can use its vote to ensure that the future development of the concession benefits from the neighbouring facilities and thus provides additional income to it and its partners who own the neighbouring facilities.
In a situation where the landing party has an interest in obtaining an adjacent concession, there is an additional advantage of having, as co-owner of the data relating to the adjacent concession, information that may be very valuable to its neighbouring interest and, even if it is confidential in the agreement of common operating limitations, it will be very difficult, in practice, to: demonstrate that the data are used for purposes not authorised by the joint exploitation agreement. In the oil and gas industry, a farmout contract is an agreement entered into by the owner of one or more mineral leases, known as "Farmor", and by another who wishes to obtain a percentage of the ownership of this lease or leases in exchange for a provision of services called "farmeee". The typical service described in the Farmout agreements is the drilling of one or more oil and/or gas drills. A farmout agreement is different from a traditional transaction between two oil and gas leasing companies, since the main consideration is the provision of services and not the mere exchange of money.  Farm-out agreements do not usually consist of a contractual vacuum. When there is more than one owner of an asset, they usually settle their relationship with that asset under a joint venture agreement. Farm-out agreements should take into account these joint management agreements (as well as current legislation and all other relevant contracts) and interact with them in an appropriate manner in order to avoid inconsistencies and minimise the risk of litigation. The new IPSI farm-out agreement concerns the following two types of counterparty structures, which reflect the common transaction structures described above: I assume that it is not obvious to non-oil and gas practitioners what the terms "farm-out" and "farm-in" mean. It would seem that these notions of art come from a nineteenth-century American practice, where sharecroppers had the opportunity to earn a living by working land for peasants in exchange for a share of the yields of the harvest. There is the "farm", which typically involves carrying out seismic work that can be carried out by a third party or by the operator or by each company separately or only one of them, as well as the drilling of one or more assessment boreholes.
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