Farmout refers to transferring all or part of the operating rights from a working interest owner to an assignee, who assumes all or some of the burden for development in return for an interest in the well.
How it’s important to us
Farmouts are a frequent occurrence when a company does not want to assume all the risk of drilling a well. They will then farmout some portion of the operating costs in return for royalty payments to one or more partners. This results in a division of interest (DOI) that must be tracked for each party with an interest in the well and also helps mitigate the potential cost burden that comes with drilling a dry hole.