Model agreements such as the new model AIPN of the international farm-out agreement can provide a very useful instrument and a useful starting point to help the parties negotiate effectively and efficiently. In our experience, farm-out contracts and other types of sales contracts can become tailor-made and tailor-made agreements tailored to the particular circumstances of each transaction. Farmout agreements generally provide that the farmor assigns to the farm the defined level of interest for leases when the farm is completed: (1) drilling for oil and/or gas drilling at the defined depth or formation, or (2) drilling for oil and/or gas drilling and achieving commercially viable levels of production.  The Farmout agreements are the second most negotiated agreements in the oil and gas industry after the lease of oil and gas.  For the farm, one of the reasons for entering into a farmout agreement is the acquisition of production, the sharing of risks and the obtaining of geological information. Farms often enter into farmout agreements to obtain a surface position, because they have to use unused personnel or share risks, or because they want geological information.  With regard to the structure and negotiation of farm-out agreements, a key issue is the date of transfer of legal title to the asset from the producer to the producer and the nature of the consideration that the producer brings in exchange for that interest in the asset. A farmout contract is an agreement with a farm owner (“Farmor”) under which the farmor undertakes to entrust work interests to the farm in exchange for certain contractual services. Typically, these services include drilling a well to a certain depth, at a given location, within a certain period of time, and it is usually stipulated that the well must receive commercial production.
Once this contractual service was carried out, the farm would have “deserved” a contract … . .