Farm agreements generally provide that the farmer assigns the defined quantum of interest in leases after farm-to-farm development: (1) drilling an oil and/or gas well to the defined depth or formation or (2) drilling an oil and/or gas well and obtaining economically viable production levels.  Farmout agreements are the second most common negotiated agreements in the oil and gas industry, behind oil and gas leasing.  For the farmer, the reasons for entering into a farmout agreement are the acquisition of production, the sharing of risks and the obtaining of geological information. Farmes often enter into farm agreements to obtain a surface position, or because they have to employ underutilized personnel or share risks, or because they want to obtain geological information.  Finally, as a practical matter for those involved in agriculture and agriculture, it is desirable to consult the competent arm of the government at an early stage of the negotiation of such an agreement, since the entire operating transaction depends on the government`s agreement. The government will be interested in the identity of the rural party (in some cases its nationality), its financial capacity and its technical capacity. In the draft guidelines for the operation of peripheral areas, the entry requirements imposed by the Nigerian Ministry of Petroleum Resources provide for the operating company to demonstrate technical skills and financial capacity. The Farming-in party must be a citizen of Nigeria, but it may have a foreign technical partner who must have no more than forty percent. Participation in the venture vehicle, and prior approval of the Minister of Honour for Petroleum Resources, is required to pay a mandatory fee. The costs of mining rights acquired under a recognized farm in,farm-out scheme1 will remain immediately deductible.
Under these judgments, in order to meet the qualification of an eligible enterprise agreement, the ceding party must retain some interest in the rental-housing that depends on the agreement4. On the other hand, the acquisition of assets will yield a range of documents (which will increase with the number of licence interest transferred), including interest transfer, licensing, renewal of enterprise agreements, transportation agreements, pipeline contracts, withdrawal agreements, oil and gas sales contracts, innovations or changes to unit agreements (if the field has been merged, etc.). Documents must be carefully developed to clearly state which document predominates as soon as the farm deserves to be interested. Where possible, the parties should distinguish between farms and joint ventures. The basis of the agreement is the conditional grant of participation in the ownership of the project of the main operating company, subject to the operational meeting of certain expenditure commitments over an agreed period (in fact, an opportunity for the main operating company to transfer the obligation to keep the buildings in good condition to operation in part, while maintaining an interest in the project and exposure to possible exploration results). There is „agricultural exploration,” which would generally involve seismic work that can be done by a third party or the operator, or that could be done by any individual company or only one of them, as well as drilling an assessment well or well. Farmout agreements are effective risk management instruments for small oil companies.