Farmout Agreement
Drafts a recordable farmout agreement defining earning obligations, earned interests, and post-earn operations for U.S. oil and gas properties.
Prerequisites
Collect before drafting:
- Parties: names, entity types, formation jurisdictions, addresses, signing authority
- Leases: schedule with recording data, current WI/NRI, all burdens
- Contract area: legal description, map, depth/formation limits
- Earning terms: well count, location, depth/formation, commencement deadline, completion standard, dry hole rules, substitute well rules
- Costs: pre-earn allocation (typically 100% Farmee), post-earn sharing
- JOA: form, version year, operator designation, negotiated deviations
- AMI (if applicable): boundaries, term, offer mechanics, exclusions
- Title: examination window, title standard, cure timeline, remedies
- Regulatory: state-specific filing and recording requirements
Workflow
1. Validate Inputs
Confirm before drafting:
2. Build Exhibits
| Exhibit |
Content |
| A |
Lease schedule with recording data and WI/NRI by lease |
| B |
Legal description and contract area map |
| C |
Earning well location (plat or coordinates) |
| D |
JOA form and any addenda |
| E |
AMI map and description (if used) |
| F |
Form of Assignment and Bill of Sale |
| G |
Memorandum of Farmout (if recording summary only) |
3. Draft Agreement Sections
Draft in this order:
| Section |
Must Include |
| Parties and Recitals |
Purpose, prior LOI/term sheet status, intent to earn |
| Definitions |
Contract Area, Earning Well, Earning Date, Commencement, Completion, WI, NRI, AMI |
| Grant/Farmout |
Interest to be earned, burdened WI/NRI, title standard |
| Lands/Depths |
Horizontal and vertical limits, formation scope |
| Earning Obligations |
Well count, location, depth, deadlines, reporting, force majeure |
| Cost Allocation |
Pre-earn costs, post-earn sharing, payout triggers |
| JOA Integration |
Form/version, operator, conflict clause |
| Title Examination |
Access, defect notice, cure period, remedies |
| AMI |
Area, term, offer mechanics, exclusions |
| Reassignment/Reversion |
Failure to earn, surrender after earning, P&A duties |
| Regulatory/Recording |
Filing responsibilities, recordable form, memo vs full |
| Reps/Warranties |
Defensible title, authority, no undisclosed burdens |
| Indemnity/Insurance |
Operational liability allocation, environmental split |
| Miscellaneous |
Governing law, venue, notices, assignment limits, counterparts |
4. Key Clause Templates
Earning Obligation. Farmee shall drill [one] Earning Well on [Legal Description/Exhibit C] to a minimum [TVD/MD] of [depth] or to the [formation], commencing no later than [date]. "Commence" means [spud/move rig/construct location]. Completion by [date]; "complete" means [reach TD/run casing/complete for production/first production in paying quantities]. Dry hole reaching required depth and testing target formation [does/does not] satisfy the obligation. Lost well due to [mechanical failure/conditions beyond control]: Farmee may drill substitute within [time] on [same unit/approved location].
Interest Earned. Upon satisfaction of the Earning Obligation, Farmor assigns Farmee []% WI and []% NRI in the Contract Area, subject to Exhibit A burdens. If Farmor cannot convey stated NRI: (a) proportionate reduction; (b) Farmor cure within [__] days; or (c) terminate as to affected lands.
Reassignment/Reversion. Failure to timely commence or complete: all rights revert to Farmor; Farmee plugs and abandons, restores surface per law and lease. Post-earning surrender with no producing wells: reassign to Farmor within [__] days using Exhibit F.
Title Examination and Cure. Farmee examines title within [] days of Effective Date. Standard: [defensible/marketable] title. Written defects within [] days after examination; Farmor has [__] days to cure. Uncured: proportionate reduction, Farmee cure at expense with offset, or terminate as to affected lands.
5. Final Checks
Pitfalls
- Default to "defensible title" unless client explicitly requires marketable title.
- Reconcile WI/NRI against all burdens — silent NRI shortfalls create disputes.
- Farmout controls over JOA on conflicts; always specify JOA form/version year.
- Record full agreement or memorandum — decide early; include recordable acknowledgments either way.
- Allocate environmental liability by period of ownership/operation.
- Disclaim geology/production representations — include "as is, where is" language.
- State-specific requirements vary — verify regulatory filings and recording formalities; mark uncertain items as [VERIFY].
1---2name: farmout-agreement3description: Drafts U.S. upstream oil and gas farmout agreements transferring working interests through earn-in obligations. Use when drafting farmout/farm-in agreements, defining earning well requirements, negotiating farmee/farmor terms, integrating JOA/AMI provisions, or handling reassignment and reversion mechanics.4---56# Farmout Agreement78Drafts a recordable farmout agreement defining earning obligations, earned interests, and post-earn operations for U.S. oil and gas properties.910## Prerequisites1112Collect before drafting:1314- **Parties**: names, entity types, formation jurisdictions, addresses, signing authority15- **Leases**: schedule with recording data, current WI/NRI, all burdens16- **Contract area**: legal description, map, depth/formation limits17- **Earning terms**: well count, location, depth/formation, commencement deadline, completion standard, dry hole rules, substitute well rules18- **Costs**: pre-earn allocation (typically 100% Farmee), post-earn sharing19- **JOA**: form, version year, operator designation, negotiated deviations20- **AMI** (if applicable): boundaries, term, offer mechanics, exclusions21- **Title**: examination window, title standard, cure timeline, remedies22- **Regulatory**: state-specific filing and recording requirements2324## Workflow2526### 1. Validate Inputs2728Confirm before drafting:2930- [ ] Contract area description and exhibit references31- [ ] WI/NRI math reconciled with all burdens32- [ ] Earning well location and depth criteria specified33- [ ] Deadlines and force majeure triggers defined34- [ ] Operator and JOA form/version identified3536### 2. Build Exhibits3738| Exhibit | Content |39|---------|---------|40| A | Lease schedule with recording data and WI/NRI by lease |41| B | Legal description and contract area map |42| C | Earning well location (plat or coordinates) |43| D | JOA form and any addenda |44| E | AMI map and description (if used) |45| F | Form of Assignment and Bill of Sale |46| G | Memorandum of Farmout (if recording summary only) |4748### 3. Draft Agreement Sections4950Draft in this order:5152| Section | Must Include |53|---------|-------------|54| Parties and Recitals | Purpose, prior LOI/term sheet status, intent to earn |55| Definitions | Contract Area, Earning Well, Earning Date, Commencement, Completion, WI, NRI, AMI |56| Grant/Farmout | Interest to be earned, burdened WI/NRI, title standard |57| Lands/Depths | Horizontal and vertical limits, formation scope |58| Earning Obligations | Well count, location, depth, deadlines, reporting, force majeure |59| Cost Allocation | Pre-earn costs, post-earn sharing, payout triggers |60| JOA Integration | Form/version, operator, conflict clause |61| Title Examination | Access, defect notice, cure period, remedies |62| AMI | Area, term, offer mechanics, exclusions |63| Reassignment/Reversion | Failure to earn, surrender after earning, P&A duties |64| Regulatory/Recording | Filing responsibilities, recordable form, memo vs full |65| Reps/Warranties | Defensible title, authority, no undisclosed burdens |66| Indemnity/Insurance | Operational liability allocation, environmental split |67| Miscellaneous | Governing law, venue, notices, assignment limits, counterparts |6869### 4. Key Clause Templates7071**Earning Obligation.** Farmee shall drill [one] Earning Well on [Legal Description/Exhibit C] to a minimum [TVD/MD] of [depth] or to the [formation], commencing no later than [date]. "Commence" means [spud/move rig/construct location]. Completion by [date]; "complete" means [reach TD/run casing/complete for production/first production in paying quantities]. Dry hole reaching required depth and testing target formation [does/does not] satisfy the obligation. Lost well due to [mechanical failure/conditions beyond control]: Farmee may drill substitute within [time] on [same unit/approved location].7273**Interest Earned.** Upon satisfaction of the Earning Obligation, Farmor assigns Farmee [__]% WI and [__]% NRI in the Contract Area, subject to Exhibit A burdens. If Farmor cannot convey stated NRI: (a) proportionate reduction; (b) Farmor cure within [__] days; or (c) terminate as to affected lands.7475**Reassignment/Reversion.** Failure to timely commence or complete: all rights revert to Farmor; Farmee plugs and abandons, restores surface per law and lease. Post-earning surrender with no producing wells: reassign to Farmor within [__] days using Exhibit F.7677**Title Examination and Cure.** Farmee examines title within [__] days of Effective Date. Standard: [defensible/marketable] title. Written defects within [__] days after examination; Farmor has [__] days to cure. Uncured: proportionate reduction, Farmee cure at expense with offset, or terminate as to affected lands.7879### 5. Final Checks8081- [ ] WI/NRI reconciled with burdens; proportionate reduction mechanics included82- [ ] Commencement and Completion defined with objective milestones83- [ ] Dry hole treatment and substitute well rights stated84- [ ] JOA conflict clause and effective date confirmed85- [ ] Recordable acknowledgments and notary blocks included8687## Pitfalls8889- **Default to "defensible title"** unless client explicitly requires marketable title.90- **Reconcile WI/NRI against all burdens** — silent NRI shortfalls create disputes.91- **Farmout controls over JOA** on conflicts; always specify JOA form/version year.92- **Record full agreement or memorandum** — decide early; include recordable acknowledgments either way.93- **Allocate environmental liability** by period of ownership/operation.94- **Disclaim geology/production representations** — include "as is, where is" language.95- **State-specific requirements vary** — verify regulatory filings and recording formalities; mark uncertain items as [VERIFY].
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