Legal Definitions - farmoutor

A farmoutor is a party in the oil and gas industry who holds a lease for exploration or production rights on a specific piece of land, and then transfers or "assigns" these rights (or a portion of them) to another company. This transfer typically occurs under an agreement where the receiving company commits to drilling an exploratory or development well on the leased property. The farmoutor essentially "farms out" the drilling obligation and associated risks to another entity, often to share risk, raise capital, or meet drilling commitments.

• Example 1: "Frontier Energy," a small independent oil and gas company, holds a lease on a promising but high-risk offshore block. While they believe in the block's potential, they lack the substantial capital and specialized deepwater drilling equipment required for exploration. Frontier Energy enters into an agreement with "Oceanic Drilling Corp.," a larger firm with extensive deepwater capabilities, assigning a 60% interest in their lease rights. In return, Oceanic Drilling Corp. agrees to drill an exploratory well at its own cost. In this scenario, Frontier Energy is the farmoutor because it assigned a portion of its lease rights and transferred the drilling obligation to Oceanic Drilling Corp.

• Example 2: "Prairie Basin Resources" has several oil and gas leases in a mature onshore field. While they have successfully drilled many wells in the area, their strategic focus has recently shifted to developing a new, high-growth shale play in a different state. To avoid letting their existing leases expire without further development, Prairie Basin Resources assigns one of its leases to "Midwest Explorers LLC." Midwest Explorers agrees to drill a new well on the property within the next year to test a deeper formation. Here, Prairie Basin Resources acts as the farmoutor by transferring the lease and the commitment to drill to another company, allowing them to concentrate on their new strategic priorities.

• Example 3: "Desert Sands Exploration" acquired a five-year lease on a remote desert tract, but due to unexpected geological complexities and rising operational costs, they haven't been able to drill a well as initially planned. With only a year left on the lease before it expires, Desert Sands Exploration approaches "Oasis Ventures," a smaller, more agile drilling company known for its efficiency in challenging terrains. They agree to assign the lease to Oasis Ventures, provided Oasis Ventures drills a well within the remaining lease term. Desert Sands Exploration is the farmoutor, as they are assigning the lease and the obligation to drill to Oasis Ventures, thereby ensuring the lease is developed before its expiration.