Farm-Out Agreements

Protecting the Rights of Clients With Oil and Gas Interests in Texas

Texas is home to a thriving oil and gas industry, and to many individuals, investors, business professionals, and landowners who stake some claim in the extraction and production of valuable substances. Because oil and gas law is a niche legal area filled with complexities, and because cases involving oil and gas rights can make for high stakes matters, ensuring clear and enforceable contracts, and addressing any issues, disputes, or litigation demands the assistance of proven attorneys.

At Hendershot Cowart P.C., our Houston-based business lawyers have extensive experience protecting a diverse clientele in oil and gas matters throughout the state of Texas, including those involving farm-out agreements. Whether you are a landowner, a contractor, operator, or another party privy to such an agreement, our award-winning legal team can leverage over 100 years of collective experience and extensive resources to protect your rights and interests when it matters most.

Wish to discuss a case involving a farm-out agreement? Call (713) 909-7323 or contact us online to request an initial consultation.

Farm-Out Agreements in Texas

Farm-out agreements are among the most commonly used agreements in matters involving the extraction and production of oil and gas. Generally, these agreements are structured between owners of an oil and gas lease who agree to and assign working interest to another party in exchange for stipulated services. These stipulations, or contingencies, are considered the hallmark of such agreements, and commonly include the drilling of wells for extraction or production of a certain volume of oil and gas.

Upon completition of agreed-upon services (contingencies), assignments earned by a “Farmee” (or the party to whom the working interest was signed) are typically subject to royalty interests in favor of the “Farmor” (the party which assigned the working interest to the Farmee).

One important issue involving farm-out agreements is the negotiability of the overriding royalty interest, also referred to as a “convertible override.” When drilling costs have been recouped through production (payout), Farmors have the right to convert the override interest into a portion of the working interest, provided that they wish to seek lager returns in exchange for joining in production costs and sharing risks.

How We Can Help

Parties considering farm-out agreements can benefit from the assistance of experienced attorneys who can help them evaluate risks and explore available options specifically as they relate to the unique facts of their situation, and to address issues such as:

• Drafting and negotiation of contractual terms and contingencies
• Reduction of risks (i.e. risks of litigation caused by unclear contracts)
• Establishing clear expectations and intentions
• Options for dispute resolution / litigation

At Hendershot Cowart P.C., we leverage decades of collective experience in oil and gas matters and business transactions to help clients properly draft farm-out agreements that reduce exposure to lost benefits, unnecessary costs, and time-consuming efforts associated with resolving problems that could have been avoided with proper documentation and clear contracts.

We also take the time to help clients understand the other party’s motivations and interests, which are critical to effective negotiation and proper structuring of a complete deal, and which may include:

• Farmor Interests – Drilling for lease purposes, satisfying primary terms and continuous drilling obligations, avoiding consequences, risk-sharing, monetization of abandoned prospects, obtaining geological information, etc.
• Farmee Interests – Obtainment of land without leasing operations, development through risk-sharing, gaining interest in prospect areas already leased, utilizing equipment and personnel not otherwise utilized, etc.

Speak With an Experienced Texas Business Lawyer Today

Our legal team at Hendershot Cowart P.C. is readily available to discuss your needs regarding farm-out agreements and a range of contractual relationships involving oil and gas transactions and projects – from negotiations of exploration and production agreements to equipment contracts and resolution of disputes through litigation, arbitration, or mediation.

Learn more about our services and your situation by calling (713) 909-7323 or contacting us online today.