Farmout

AAA

DEFINITION of 'Farmout'

The assignment of part or all of an oil, natural gas or mineral interest to a third party. The interest may be in any agreed-upon form, such as exploration blocks or drilling acerage. The third party, called the "farmee," pays the farmor a sum of money up front for the interest and also commits to spending money to perform a specific activity related to the interest, such as operating oil exploration blocks, funding expenditures, testing or drilling. Income generated from the farmee's activities will partly go to the farmor and partly go to the farmee in percentages determined by the agreement.

INVESTOPEDIA EXPLAINS 'Farmout'

A company may decide to enter into a farmout agreement with a third party if it wants to maintain its interest but wants to reduce its risk or doesn't have the money to undertake the operations that are desirable for that interest. Farmout agreements give farmees a potential profit opportunity that they would not otherwise have access to. Government approval may be necessary before a farmout deal can be finalized.

RELATED TERMS
  1. Unconventional Oil

    A type of petroleum that is produced or obtained through techniques ...
  2. Commercial Well

    Any oil or gas drilling site that produces enough oil or gas ...
  3. Oil Field

    A tract of land used for extracting petroleum, or crude oil, ...
  4. Oil Refinery

    An industrial plant that refines crude oil into petroleum products ...
  5. Crude Oil

    A naturally occurring, unrefined petroleum product composed of ...
  6. Oil Reserves

    An estimate of the amount of crude oil located in a particular ...
Related Articles
  1. Rockefeller chose the refining business, where the profits were smaller but more stable.
    Economics

    J.D. Rockefeller: From Oil Baron To Billionaire

    More than 70 years after his death, this man remains one of the great figures of Wall Street.
  2. Active Trading

    Oil And Gas Industry Primer

    Before jumping into this hot sector, learn how these companies make their money.
  3. Active Trading

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  4. Active Trading

    What Determines Oil Prices?

    Changes in the price of oil aren't arbitrary. Read on to find out what moves them and why.
  5. Options & Futures

    A Guide To Investing In Oil Markets

    Find out how to take advantage of this market without having to open a futures account.
  6. Fundamental Analysis

    Accounting For Differences In Oil And Gas Accounting

    How a company accounts for its expenses affects how its net income and cash flow numbers are reported.
  7. Active Trading

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  8. Stock Analysis

    Breaking Down the Halliburton Baker Hughes Deal

    Halliburton is using a downturn to get bigger and stronger in the long term, and the company is getting Baker Hughes at a reasonable price as a result.
  9. Economics

    How Weak Oil Prices Affect Airline Profits

    Oil prices are a bit like the weather. This is an opportunity for airlines to invest the higher revenue back into the business.
  10. VelocityShares 3x Long Crude Oil ETN has the potential for huge returns, but there are several reasons why you might want to steer clear for now.
    Mutual Funds & ETFs

    A Leveraged Oil ETN For The Future (Just Not Now)

    VelocityShares 3x Long Crude Oil ETN has the potential for huge returns, but there are several reasons why you might want to steer clear for now.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center