This ia a provision that states that any Party receiving a notice proposing to drill a well as provided in Operating Agreement elects not to participate in the proposed operation, then in order to be entitled to the benefits of this Article, the Party or Parties electing not to participate must give notice. Drilling by the parties who choose to participate must begin within 90 days of the notice.
Louisiana Farm out by Non-Consenting Party refers to an agreement in the oil and gas industry where a party, referred to as the non-consenting party, chooses not to participate in the drilling and development of a specific lease or well in Louisiana. In this arrangement, the non-consenting party grants the operating party, also known as the consenting party, the right to drill and develop the leased area without the non-consenting party's involvement. The Louisiana Farm out by Non-Consenting Party is a common scenario observed when multiple parties hold joint working interests in a lease, typically oil and gas companies. If the non-consenting party decides not to contribute financially to drilling operations, they have the option to relinquish their right to participate but retain the right to benefit from any potential production. This is achieved through a Farm out Agreement, which includes the terms and conditions under which the consenting party can proceed with drilling operations. There are two primary types of Louisiana Farm out by Non-Consenting Party, namely: 1. Farm out Agreement with Carried Interest: In this type of agreement, the non-consenting party is carried for a specific percentage of the cost of drilling and development activities. The consenting party bears the entire financial burden and, in return, will recover the costs incurred from the production revenue. Once the consenting party recovers its expenses, the non-consenting party will start receiving its share of the revenue. 2. Farm out Agreement with Overriding Royalty Interest: In this scenario, the non-consenting party retains an overriding royalty interest (ORRIS) instead of a carried interest. The ORRIS entitles the non-consenting party to a certain percentage of the revenue generated from the leased area. The consenting party remains responsible for financing the operations entirely, but the non-consenting party does not share the burden of costs. The ORRIS is based solely on the production revenue generated, and the non-consenting party's share is determined by the terms agreed upon in the Farm out Agreement. These two types of Louisiana Farm out by Non-Consenting Party agreements provide flexibility to oil and gas companies by allowing them to continue drilling and developing leased areas while offering an opportunity for non-consenting parties to retain financial benefits without active participation. It is crucial for all parties involved to negotiate and formalize the terms and conditions in a comprehensive Farm out Agreement to clarify their respective roles, responsibilities, financial arrangements, and revenue entitlements. This ensures transparency and protects the interests of both the consenting and non-consenting parties.
