Legal Definitions - farminee

A farminee (also commonly referred to as a farmoutee) is a party that receives an assignment of an oil and gas lease, or a portion of one, from another party (the "farmor" or "farmoutor"). This transfer of interest occurs under a specific type of agreement known as a "farmout agreement." In exchange for receiving this interest, the farminee typically commits to performing certain obligations, such as drilling a well to a specified depth, conducting seismic surveys, or incurring a certain level of exploration or development expenditure.

Here are some examples to illustrate the concept of a farminee:

• Example 1: Developing an Untapped Area

  An established oil and gas producer, "Big Basin Energy," holds a large leasehold in a promising region but has many areas it hasn't yet explored. A smaller, specialized drilling company, "Deep Rock Explorers," approaches Big Basin Energy with a proposal to drill an exploratory well in a specific, undeveloped section of Big Basin's lease. Under a farmout agreement, Big Basin Energy assigns a 75% working interest in that specific section of the lease to Deep Rock Explorers. In return, Deep Rock Explorers agrees to drill the well to a depth of 15,000 feet at its own cost. In this scenario, Deep Rock Explorers is the farminee because it receives an interest in the lease in exchange for undertaking the drilling obligation.

• Example 2: Utilizing New Technology

  "Legacy Oil Corp." owns a mature oil field where conventional drilling methods are no longer highly productive. However, a new technology company, "FracTech Solutions," has developed an innovative horizontal drilling and hydraulic fracturing technique that could unlock significant reserves in a deeper formation within Legacy Oil's field. Legacy Oil Corp. enters into a farmout agreement with FracTech Solutions, granting FracTech a 60% working interest in the rights to the deeper formation across a defined area of the field. FracTech Solutions commits to drilling and completing two horizontal wells using its proprietary technology. Here, FracTech Solutions acts as the farminee, acquiring a specific interest in the mineral rights by agreeing to apply its specialized technology and bear the costs of drilling.

• Example 3: Expanding Exploration Efforts

  "Frontier Energy," a large multinational company, holds extensive offshore exploration leases but has decided to focus its capital on other projects. A smaller, agile exploration firm, "Oceanic Ventures," expresses interest in a particular block of Frontier Energy's offshore lease that Frontier has not yet explored. Frontier Energy and Oceanic Ventures sign a farmout agreement where Frontier assigns a 50% working interest in that specific offshore block to Oceanic Ventures. Oceanic Ventures agrees to conduct a comprehensive 3D seismic survey and, if the results are promising, drill an initial exploration well within two years. In this situation, Oceanic Ventures is the farminee, receiving a partial interest in the offshore lease in exchange for committing to significant exploration activities.