As I stated in my Part One of my Farmout Agreement Series, farmout agreements can be somewhat less “straight-forward” than other common oil and gas agreements. Contracts, Leases, JOA’s, for example, are each highly standardized and have one or more publishers of highly-adopted forms. Farmout Agreements, on the other hand, range from mere one-page letter agreements to highly formalized and lengthy contracts, prepared and negotiated over several rounds of back and forth red-lining. An attorney cannot simply turn to his form books (or form folder for the tech savvy), and is unlikely to find any comprehensive checklists for drafting the agreement.
While there is no standardized form, a standard set of terminology has certainly developed that will guide most decisions, negotiations, and drafting exercises. Below, we’ll consider several of the most crucial provisions of a farmout agreement, including:
- The Duty Imposed;
- The Earning Barrier;
- The Interest to be Earned;
- Number of Wells to be Committed to the Agreement; and
- Timing of Issuance of Farmout Acreage.