Trion Farmout Analogy: A farmout and the Trion auction are alike in just two respects
Industry observers and their lawyers who are familiar with farmout agreements in jurisdictions outside Mexico have been puzzled by the government’s use of “farmout” for a contract model that lacks the essential elements of this kind of agreement.
A farmout model presumes that an oil company (the “farmor”) holds a lease, a portion or percentage of which it wishes to convey to another party (the “farmee”) in exchange for certain benefits. The clock on a farmout agreement is quite different from that of other associations in the oil industry: the farmee has to perform certain agreed‐upon activities that, together, would constitute the Earning Event, at which future moment a working interest in the lease is conveyed.
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