OT30022 - Capital Gains

Farm Outs. Developments.

When field development is in prospect, or under way, following a programme agreed or directed by the DTI, a farmer-out looking to reduce his commitments to the project will sometimes seek funding for the interest he will retain. The farmer-in may therefore agree to "carry" the farmer-out by meeting the subsequent development costs relating to the farmer- out’s retained interest. Those costs, probably with an interest element, will normally be recovered from the proceeds of the proportion of the production accruing to the farmer-out’s retained interest.

Alternatively, a non-recourse loan may be provided, either interest-free or at a commercial rate of interest, which is again repayable out of the farmer-out’s share of production. In such cases, a guarantor or a royalty, in cash or oil, is often required by the farmer-in.