The Anatomy and Preparation of OCS Farmout Agreements

Oil and gas farmout agreements are important devices in spreading the risks of oil and gas exploration and development on the Outer Continental Shelf, as well as in onshore operations. In fact, because both the costs and risks (as well as the rewards) of offshore development are greater than those usually associated with onshore operations, oil and gas farmout agreements may play a more important role in operations on the Outer Continental Shelf than in onshore operations. The structure of an Outer Continental Shelf farmout agreement does not differ substantially from that of its onshore counterpart. The function of farmout agreements is essentially the same whatever the environment in which they are used. Thus, there are relatively few essential issues that determine the basic structure of the farmout agreement. The author has discussed these issues at length elsewhere. In this paper he will simply summarize the points made in that more extensive paper and point out some interesting characteristics of OCS farmout agreements