Legal Definitions - farmee

A farmee is a party that enters into a farmout agreement, typically within the oil and gas industry. In such an agreement, the farmee receives an assignment of an interest in a mineral lease (or a portion of it) from another party, known as the "farmor." In exchange for this interest, the farmee commits to performing specific obligations, most commonly drilling an exploratory or development well, at its own expense and risk. If the farmee successfully completes these obligations, it earns the agreed-upon interest in the lease.

• Example 1: "Prairie Exploration Co." is a smaller, independent oil and gas company. "Midwest Holdings Inc." owns a large tract of land with potential oil reserves but lacks the immediate capital to drill. Midwest Holdings Inc. enters into a farmout agreement with Prairie Exploration Co., granting Prairie an interest in a specific 320-acre section of its lease. In return, Prairie Exploration Co. agrees to drill an exploratory well to a specified depth within 12 months, bearing all drilling costs and risks.

  Explanation: In this scenario, Prairie Exploration Co. is the farmee. It receives an interest in Midwest Holdings Inc.'s mineral lease and, in exchange, undertakes the obligation to drill an exploratory well at its own expense and risk. If successful, Prairie Exploration Co. will earn its assigned interest in that section of the lease.

• Example 2: "Hydrocarbon Innovations LLC" specializes in advanced fracking techniques that can extract oil from previously uneconomical formations. "Legacy Energy Corp." holds leases on an old, depleted oil field that still contains significant reserves, but traditional methods are no longer profitable. Legacy Energy Corp. and Hydrocarbon Innovations LLC sign a farmout agreement where Hydrocarbon Innovations LLC commits to re-entering and stimulating five existing wells using its proprietary technology in a specific block of the field. Upon successful completion of these operations, Hydrocarbon Innovations LLC will earn a 60% working interest in the production from those wells, with Legacy Energy Corp. retaining the remaining 40%.

  Explanation: Here, Hydrocarbon Innovations LLC acts as the farmee. It is granted an interest in Legacy Energy Corp.'s existing leases and agrees to perform specific well stimulation operations using its specialized technology. Its performance of these obligations, at its own cost and risk, is the consideration for earning its interest in the production.

• Example 3: A major international energy company, "Global PetroCorp," holds several undeveloped deepwater blocks in the Gulf of Mexico. Due to a strategic shift, Global PetroCorp decides to divest from certain high-risk exploration projects. It enters into a farmout agreement with "Oceanic Frontier Ventures," a smaller independent company focused on deepwater exploration. Oceanic Frontier Ventures agrees to conduct a comprehensive 3D seismic survey and drill one deepwater exploration well on a particular block within four years. If Oceanic Frontier Ventures meets these commitments, it will earn a 45% working interest in that offshore block.

  Explanation:Oceanic Frontier Ventures is the farmee. It receives the opportunity to earn a significant interest in an offshore mineral lease from Global PetroCorp. Its role involves undertaking substantial exploration activities, including a costly seismic survey and drilling a high-risk deepwater well, at its own expense and risk, to fulfill the terms of the farmout agreement.