Legal Definitions - farminor

A farminor (also spelled farmoutor) is a party in the oil and gas industry who owns an existing oil and gas lease and agrees to transfer a portion of their interest in that lease to another party. This other party is known as the farmee or farmoutee. The transfer typically occurs in exchange for the farmee undertaking specific drilling operations, exploration, or other development activities on the leased property. Essentially, the farminor is the grantor of the farmout agreement, leveraging the farmee's resources to develop the lease while retaining some interest.

• Example 1: Large Company Seeking Development

  Imagine "MegaCorp Energy," a large oil and gas company, holds numerous promising leases in a new shale play. While they have extensive holdings, their internal drilling teams are fully committed to other projects for the next two years. To ensure these new leases are developed efficiently and to maintain their leasehold rights, MegaCorp Energy enters into a farmout agreement with "Pioneer Drilling Co.," a smaller, specialized firm. MegaCorp Energy grants Pioneer Drilling Co. a portion of its interest in specific lease blocks in exchange for Pioneer Drilling Co. drilling several exploratory wells.

  In this scenario, MegaCorp Energy is the farminor. They own the original leases and are transferring a partial interest to Pioneer Drilling Co. (the farmee) to facilitate the drilling and development of the property.

• Example 2: Individual Mineral Owner Lacking Resources

  Sarah inherited a valuable mineral lease covering land in a region known for its natural gas reserves. Although she owns the rights, Sarah lacks the significant capital, technical expertise, and equipment required to drill for gas herself. To monetize her asset, she approaches "GasFind Explorations," a company specializing in developing such leases. They agree that GasFind Explorations will drill a well, and if successful, Sarah will transfer a percentage of her leasehold interest to GasFind Explorations, while retaining a royalty interest.

  Here, Sarah is the farminor. She owns the mineral lease and is transferring a portion of her interest to GasFind Explorations (the farmee) in exchange for their drilling and development efforts, which she could not undertake herself.

• Example 3: Company Needing to "Hold" an Expiring Lease

  "Frontier Oil & Gas" holds a five-year oil and gas lease that is set to expire in eight months. To "hold" the lease beyond its primary term (meaning to keep it active), they must commence drilling operations before the expiration date. Due to unexpected operational delays and equipment shortages, Frontier Oil & Gas realizes they cannot start drilling themselves in time. To prevent the lease from lapsing, they decide to farm out a portion of the lease to "Rapid Drillers Inc.," a company known for its quick mobilization and efficient drilling operations, specifically to ensure a well is spudded before the lease expires.

  Frontier Oil & Gas acts as the farminor. They own the expiring lease and are granting an interest to Rapid Drillers Inc. (the farmee) to ensure the necessary drilling activity occurs, thereby preserving their overall interest in the lease that would otherwise be lost.