farmout agreement
farmout agreement. Oil & gas. An agreement by which one who owns an oil-and-gas lease (the farmoutor or farmor) agrees to assign to another (the farmoutee or farmee) an interest in the lease in return for drilling and testing operations on the lease. • For the farmor, the agreement either (1) maintains the lease by securing production or complying with the implied covenant to develop or offset, or (2) obtains an interest in production without costs. For the farmee, the agreement obtains acreage that is not otherwise available or at lower cost than would otherwise be possible. A farmout agreement may also serve as a device to keep people and equipment gainfully employed. — Often shortened to farmout. — Also written farm out agreement; farm-out agreement. See ASSIGNMENT. [Cases: Mines and Minerals 74(8). C.J.S. Mines and Minerals §§ 318–319.]
