A farm out contract acts as a kind of property purchase contract whereby a seller (the “farmer”) agrees to transfer part (but not all) of his share of an upstream asset to the buyer (the “Farmee”), in exchange for the buyer agreeing to take (or finance) work obligations such as the acquisition of seismic data or drilling equipment. With respect to the oil and gas industry, the upstream “asset” that is transferred is generally an interest in a licence, a production-sharing contract or another concession granted by a government to a company to explore and produce oil and gas. (ii) Will transportation only apply to drilling and completion costs, or will it also cover the construction of collection lines? The new AIPN model agreement contains a reference to the cap on mandatory wage costs borne by farmee, which is a point of commercial bargaining. If there is no cap, the parties can clearly define what is within the commitment and what is not and how decisions that could follow costs are made. Parties can, for example. B, negotiate whether the unanticipated costs of post-spill clean-up fall within the scope of uncapped transportation. The parties can also examine how third parties, such as drilling companies. B, are hired and paid. i) Is the port for a certain number of wells or for a certain amount in dollars? iv) If the transportation contains the completion fee, how will the parties define “completeness”? Take, for example, the term carry.
If an operational interest holder, an oil and gas lease holder, participates in the development of the person concerned, the other partners may grant them a stretcher. This means that other partners bear them and bear all or part of their share of the costs associated with the individual. 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. However, a farm must also be aware that claims for reimbursement and termination depend on the circumstances and conditions of the farm-out agreement. A farmer can, for example. B, argue that if the farm`s expenses had not been authorized by the farmer in the absence of an operating agreement with the farm, the farm should not be entitled to reimbursement for a failed operation. Model form agreements such as the new AIPN model resulting from the international farm-out agreement can provide a very useful tool and a useful starting point to help the parties conduct effective and effective negotiations.