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name: farmout-agreement language: en description: Drafts U.S. upstream oil and gas farmout agreements transferring working interests through earn-in obligations. Use when drafting farmout/farm-in agreements, defining earning well requirements, negotiating farmee/farmor terms, integrating JOA/AMI provisions, or handling reassignment and reversion mechanics. tags:

• agreement
• drafting
• regulatory
• transactional

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Farmout Agreement

Drafts a recordable farmout agreement defining earning obligations, earned interests, and post-earn operations for U.S. oil and gas properties.

Prerequisites

Collect before drafting:

• Parties: names, entity types, formation jurisdictions, addresses, signing authority
• Leases: schedule with recording data, current WI/NRI, all burdens
• Contract area: legal description, map, depth/formation limits
• Earning terms: well count, location, depth/formation, commencement deadline, completion standard, dry hole rules, substitute well rules
• Costs: pre-earn allocation (typically 100% Farmee), post-earn sharing
• JOA: form, version year, operator designation, negotiated deviations
• AMI (if applicable): boundaries, term, offer mechanics, exclusions
• Title: examination window, title standard, cure timeline, remedies
• Regulatory: state-specific filing and recording requirements

Workflow

1. Validate Inputs

Confirm before drafting:

• Contract area description and exhibit references
• WI/NRI math reconciled with all burdens
• Earning well location and depth criteria specified
• Deadlines and force majeure triggers defined
• Operator and JOA form/version identified

2. Build Exhibits

Exhibit	Content
A	Lease schedule with recording data and WI/NRI by lease
B	Legal description and contract area map
C	Earning well location (plat or coordinates)
D	JOA form and any addenda
E	AMI map and description (if used)
F	Form of Assignment and Bill of Sale
G	Memorandum of Farmout (if recording summary only)

3. Draft Agreement Sections

Draft in this order:

Section	Must Include
Parties and Recitals	Purpose, prior LOI/term sheet status, intent to earn
Definitions	Contract Area, Earning Well, Earning Date, Commencement, Completion, WI, NRI, AMI
Grant/Farmout	Interest to be earned, burdened WI/NRI, title standard
Lands/Depths	Horizontal and vertical limits, formation scope
Earning Obligations	Well count, location, depth, deadlines, reporting, force majeure
Cost Allocation	Pre-earn costs, post-earn sharing, payout triggers
JOA Integration	Form/version, operator, conflict clause
Title Examination	Access, defect notice, cure period, remedies
AMI	Area, term, offer mechanics, exclusions
Reassignment/Reversion	Failure to earn, surrender after earning, P&A duties
Regulatory/Recording	Filing responsibilities, recordable form, memo vs full
Reps/Warranties	Defensible title, authority, no undisclosed burdens
Indemnity/Insurance	Operational liability allocation, environmental split
Miscellaneous	Governing law, venue, notices, assignment limits, counterparts

4. Key Clause Templates

Earning Obligation. Farmee shall drill [one] Earning Well on [Legal Description/Exhibit C] to a minimum [TVD/MD] of [depth] or to the [formation], commencing no later than [date]. "Commence" means [spud/move rig/construct location]. Completion by [date]; "complete" means [reach TD/run casing/complete for production/first production in paying quantities]. Dry hole reaching required depth and testing target formation [does/does not] satisfy the obligation. Lost well due to [mechanical failure/conditions beyond control]: Farmee may drill substitute within [time] on [same unit/approved location].

Interest Earned. Upon satisfaction of the Earning Obligation, Farmor assigns Farmee []% WI and []% NRI in the Contract Area, subject to Exhibit A burdens. If Farmor cannot convey stated NRI: (a) proportionate reduction; (b) Farmor cure within [__] days; or (c) terminate as to affected lands.

Reassignment/Reversion. Failure to timely commence or complete: all rights revert to Farmor; Farmee plugs and abandons, restores surface per law and lease. Post-earning surrender with no producing wells: reassign to Farmor within [__] days using Exhibit F.

Title Examination and Cure. Farmee examines title within [] days of Effective Date. Standard: [defensible/marketable] title. Written defects within [] days after examination; Farmor has [__] days to cure. Uncured: proportionate reduction, Farmee cure at expense with offset, or terminate as to affected lands.

5. Final Checks

• WI/NRI reconciled with burdens; proportionate reduction mechanics included
• Commencement and Completion defined with objective milestones
• Dry hole treatment and substitute well rights stated
• JOA conflict clause and effective date confirmed
• Recordable acknowledgments and notary blocks included

Pitfalls

• Default to "defensible title" unless client explicitly requires marketable title.
• Reconcile WI/NRI against all burdens — silent NRI shortfalls create disputes.
• Farmout controls over JOA on conflicts; always specify JOA form/version year.
• Record full agreement or memorandum — decide early; include recordable acknowledgments either way.
• Allocate environmental liability by period of ownership/operation.
• Disclaim geology/production representations — include "as is, where is" language.
• State-specific requirements vary — verify regulatory filings and recording formalities; mark uncertain items as [VERIFY].