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Comprehensive Exploration Agreements

Steven B. Richardson, Peter D. Robinson, Oil & Gas Agreements: The Exploration Phase

The exploration phase of the oil and gas industry, especially in remote, untested large plays, is one of the most exciting parts of the business. It often occurs in remote locations with harsh weather that may only be accessible for certain operations during certain months of the year, and involves the expenditure of tens of millions of dollars on risky geologic theories conjured from limited seismic data. The truly wildcat plays may be far from existing infrastructure to support drilling and other activities presenting challenging logistics, and far from any oil or gas pipelines and processing facilities to take production if the exploration efforts are successful. It is the phase that has made many fortunes, often after drilling many dry holes in a row, and has undone many others.

Unlike other common agreements in the oil and gas industry, there is no “standard form” of exploration and development agreement. Such agreements take many forms from three page simple farmout or participation agreements covering a few drilling locations, to multi-party, complex agreements covering hundreds of thousands of acres, in or outside of the United States, with multiple potential exploration targets at multiple depths and separated by many miles. As an alternative to the contractual form, such arrangements can be structured as a joint venture or partnership although this is less co