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Development Agreements

Debra J. Villareal, Development Issues in the Major Shale Plays (2010)

Companies in the oil and gas industry form relationships with other industry players that they hope will be beneficial to all of the parties. Industry players seek out others who possess something that they lack. Some companies have acquired sizable leasehold acreage but lack the funds to timely develop the acreage. Others have cash to invest but lack technical know-how. Some industry players have developed a geologic idea for a project but lack the resources necessary to acquire the acreage and develop the property.

The great unconventional gas plays that have dominated the industry news over the last few years -- the Barnett Shale, the Marcellus, the Haynesville Shale, and the most recent of the group, the Eagle Ford1 -- each require acreage, technical know-how and substantial cash for development. The shale plays have had a tremendous impact on the oil and gas industry. Some industry consultants are predicting a continued surge in gas production from U.S. shale plays in 2011. If the predictions are accurate, domestic shale gas production will have increased 171.5% from 2008 to 2011 and will comprise nearly one-fourth of all the U.S. gas output.2

Companies always need to allocate their capital among their various projects. To avoid spending all of their capital on one project, companies have historically formed joint ventures or entered into participation ag