Legal Definitions - acreage-contribution agreement

An acreage-contribution agreement is a specialized contract commonly used in the oil and gas industry. It is a type of "support agreement" where one party agrees to transfer rights to land (often referred to as "acreage" or "leasehold interests") in a specific area to another party. This transfer occurs in exchange for valuable drilling or geological information obtained from a "test well" that the second party drills within that area. The agreement typically specifies that the test well must be drilled to a certain depth for the contributing party to fulfill their promise.

Essentially, it's a way for companies to share the risks and rewards of exploring for oil and gas. One company gains access to valuable data without having to drill the initial, often expensive, test well, while the drilling company receives additional land rights as compensation for their exploration efforts and the information they gather.

Here are a few examples to illustrate how an acreage-contribution agreement might work:

• Scenario 1: Supporting a Smaller Explorer

  Imagine a smaller exploration company, Frontier Drilling Inc., has identified a promising geological formation but needs to reduce the financial risk of drilling an expensive test well. A larger, established energy company, MegaCorp Energy, owns significant leasehold interests in the surrounding area and is interested in the region's potential but prefers to see initial results before committing its own drilling resources. Under an acreage-contribution agreement, MegaCorp Energy might promise to assign Frontier Drilling Inc. a 15% interest in an adjacent 640-acre lease block. This transfer would be contingent upon Frontier Drilling Inc. successfully drilling its test well to a depth of 10,000 feet and providing MegaCorp Energy with all geological data, including seismic interpretations and well logs, gathered during the drilling process.

  This illustrates the term because MegaCorp Energy (one party) contributes acreage (lease interest) to Frontier Drilling Inc. (the drilling party) in exchange for drilling and geological information, conditional on the test well reaching a specified depth.

• Scenario 2: Regional Exploration Collaboration

  Two independent oil and gas companies, Desert Sands Exploration and Oasis Petroleum, are both actively exploring a new, unproven basin. Desert Sands Exploration has identified a specific high-risk, high-reward location for a deep test well. Oasis Petroleum holds several leases nearby and is keen to understand the subsurface geology of the area but doesn't want to fund the initial, speculative drilling itself. They enter into an acreage-contribution agreement where Oasis Petroleum agrees to assign a portion of its leases in a defined "area of mutual interest" to Desert Sands Exploration. This assignment is conditional on Desert Sands Exploration drilling its test well to the target formation depth of 14,000 feet and sharing all collected data, such as core samples, fluid analysis, and electrical logs, with Oasis Petroleum.

  This example demonstrates the agreement as Oasis Petroleum contributes acreage to Desert Sands Exploration, who in turn provides crucial drilling and geological information, all dependent on the test well reaching the agreed-upon depth.