CHAPTER 5Farm-in Agreements
A farm-in agreement is an arrangement under which a holder of an exploration ormining right agrees to assign a portion of its interest to another party (who "farms-in") inexchange for a certain amount of expenditure or the performance of specific activities.
Farm out (in) arrangement:
An arrangement, used primarily in the oil and gas industry,in which the owner or lessee of mineral rights (the first party) assigns a working interestto an operator (the second party), the consideration for which is specified explorationand/or development activities. The first party retains an overriding royalty or other typeof economic interest in the mineral production. The arrangement from the viewpoint ofthe second party is termed a "farm-in arrangement."
Shell and Cairn conclude a Farmout/Farmin Agreement in Rajasthan, India
Shell India Production and Development B.V. ("Shell") and Cairn Energy PLC announcetoday that they have concluded an agreement whereby Shell will immediately assign toCairn a 27.5% interest in Block RJ-ON-90/1 in Rajasthan. In addition Cairn has beengranted options to increase its stake in the Block to 40% on a promoted basis. TheRajasthan Production Sharing Contract area, awarded to Shell in 1995, is located 100kms north of the proven oil and gas province of the Cambay Basin, and covers an areaof 8,856 sq. kms. The assignment is subject to obtaining all necessary Governmentapprovals.Shell will assign a 27.5% interest to Cairn. In return Cairn will pay Shell 100% of the firstwell costs to a cap of $10 million and historic costs of approximately $1.75 million. Todate Shell has spent approximately $10 million on 2D and 3D seismic. Shell intendsspudding its first exploration well on RJ-ON-90/1 at the end of 1998. ONGC, the IndianGovernment owned oil company, has a 30% back-in right.Bill Gammell, Cairn's Chief Executive, said:"We are delighted to have acquired a material early entry position in an explorationBlock in one of our target growth areas in India. The fact that RJ-ON-90/1 is operated byShell, our joint venture partner in Bangladesh, is doubly pleasing."Tony Wildig, Shell's Vice President for New Business, Middle East and South Asia,said: