Farmout Agreement of July 10, 1991 (including all amendments to this agreement) between Exxon Corporation and Hunt Petroleum Corporation, which cover Green Canyon Blocks 209, 254, 297, 298 and 342. Farmout agreements are effective risk management instruments for small oil companies. Without them, some oil fields would simply remain untapped because of the high risks to which each operator is exposed. A Farmout contract differs from its sales and sales contract (PSA) in that PSA issues an exchange of funds or debts for the immediate transfer of assets, while the Farmout contract concerns an exchange of asset transfer services. In addition, the transfer often takes place at a later stage, namely. B.dem the time when the “merit barrier” was reached.  In my experience, even when I was in the heavy construction industry, knowing what the other party really was after making the negotiations much easier. This is not always possible, but if we can closely assess our motivations and confidently assess the motivations of the other side, we rarely fight tooth and nail above any disposition and we can focus on what matters to each game. At the end of the day, we have better arrangements. In the oil and gas industry, a farmout contract is an agreement entered into as a “farmee” by the owner of one or more mining leases, known as a “farmer,” and by another company seeking a percentage of ownership of that lease or lease in exchange for services. The typical service described in the Farmout agreements is the drilling of one or more oil and/or gas wells. A farmout agreement is different from a conventional transaction between two oil companies and Gaspées, because the main consideration is the provision of services and not the simple exchange of money.  Once a farm has filled its merit barrier, it receives the interest indicated in this part of the Farmout Agreement.
Options can be categorized as shared interests, undivided interests or a combination. Shared interest means that the farmer transmits all his interest to certain land on the farm. Two common ways to manage the “shared interests” farm farm are to give the farm the area devoted to the wells drilled by the farm. Another option is to structure the agreement to give the farm the area devoted to the drilling well and other drilling sites in the area, sometimes referred to as a check-board allocation.  See z.B. Strata Production Co. v. Mercury Exploration Co., 916 P.2d 822, 826 (N.M./ 1996); Stekoll Benzin. Co. v. Hamilton, 255 S.W.2d 187, 190 (Tex.
1953). As in all negotiations, understanding the interests and motivations of the other side is the key to effective negotiation and proper structuring of a comprehensive agreement. If you know, you can also understand the other party`s best alternative to the negotiated agreement. You will be able to better assess how far the other party will be willing to give and negotiate the terms of the farmout agreement. Below are the most common interests motivating farmors and farmees.