In the case of transactions in which the farmer agrees to transfer ownership of the asset in question to the farm, the parties can also verify whether all necessary consents have been obtained by third parties, but before all work obligations are fulfilled (or paid), whether the return and/or recovery for default is sufficient. Both drugs can lead to complications. Responsibility and quantification of damages related to non-compliance or financing of labour obligations under farm out agreements can give rise to complex disputes such as those that occurred between Dana Petroleum and Woodside with respect to exploration drilling off Kenya, but which were ultimately settled outside the court. In the event of asset transfer, government and third-party consents may be necessary, transfer conditions may be agreed and pre-emption or similar rights of other partner companies may be taken into account, which could affect the operation of the proposed remedy. In our experience, parties to farm out agreements focus their due diligence activities and negotiations (in addition to the vision structure) on key issues such as: Farm-out agreements generally do not exist in a contractual vacuum. When there is more than one asset owner, they will generally settle their relationship with that asset under a joint enterprise agreement. Farm out agreements must take into account these common enterprise agreements (as well as existing legislation and other relevant contracts) and interact appropriately with these agreements in order to avoid inconsistencies and minimize the prospect of litigation. Problems may arise in one of the potential transaction structures described above. If farmee starts paying before obtaining all the necessary consents from third parties and before the transaction is concluded, farmee may be entitled to a refund (depending on the circumstances) if the transaction is ultimately not concluded. This scenario occurred when EnQuest obtained reimbursement of the money it paid into a trust account as part of the cancelled agreement with PA Resources to acquire a stake in the Didon oil field in Tunisia. In this case, a farm may consider the farmer`s financial ability to repay funds and the need for assistance or credit guarantee that are the source of this potential repayment. However, a farm must also be aware that claims for reimbursement and termination depend on the circumstances and conditions of the farm-out agreement. A farmer can, for example.
B, argue that if the farm`s expenses had not been authorized by the farmer in the absence of an operating agreement with the farm, the farm should not be entitled to reimbursement for a failed operation. The second important point of negotiating a farmout is the barrier to be reached to merit the interest of the objective for the property, known as the “income bar”. Most income barrier provisions can be classified either as a barrier to production or as a drill-to-earn barrier. Under a “Produce to earn” agreement, Farmee only gains a stake in the property if it concludes a well capable of producing in paid quantities.