In the case of transactions in which the farmer agrees to transfer ownership of the asset in question to the farm, the parties can also verify whether all necessary consents have been obtained by third parties, but before all work obligations are fulfilled (or paid), whether the return and/or recovery for default is sufficient. Both drugs can lead to complications. Responsibility and quantification of damages related to non-compliance or financing of labour obligations under farm out agreements can give rise to complex disputes such as those that occurred between Dana Petroleum and Woodside with respect to exploration drilling off Kenya, but which were ultimately settled outside the court. In the event of asset transfer, government and third-party consents may be necessary, transfer conditions may be agreed and pre-emption or similar rights of other partner companies may be taken into account, which could affect the operation of the proposed remedy. In June 2019, AIPN released the Model International Farmout Agreement 2019 .FOA 2019. The FOA 2019 model is a major overhaul of the 2004 AIPN-Modell International Farmout Agreement. I was honoured to have, along with Frank Cascio (Barnes – Cascio, retired), a front-row seat as co-chair of the Model FOA 2019 Review Board. Leading the work of a contract model developed by the Committee is not for the faint-minded; From start to finish, the review lasted about nine years. I believe that the perseverance of the committee has significantly improved the starting place of the negotiators working on a farmout agreement. The advantage of a work obligation instead of or in addition to a cash payment is that it can create a significant tax benefit to the parties by linking the payment to the project-deductible operating costs, as opposed to a direct cash payment for the acquisition of Farmout`s interests. However, the parties must carefully analyze the tax legislation of the applicable legal systems – that is, the jurisdiction of the transactions and the respective jurisdictions of the parties to ensure that the deductions are applicable and that no additional tax is levied on the payment. Some countries have revised their tax laws to prevent the “zero” tax structure of a farm. Before finalizing the review process, AIPN reviewed its membership in terms of how they used the 2004 FOA model and what they wanted to see in the revised model.
On the basis of the reaction of the members, the Review Committee decided to design the Model FOA in 2019 mainly from the point of view of English law, because membership indicated that English law was the predominant right (but not only) chosen for their international farmout agreements. Current legislation is essential because it influences the legal interpretation of several important levers of the Farmout Agreement, including guarantees and compensation. At the same time, some options and alternatives have been incorporated into the FOA 2019 model to allow the form model to be adapted to other jurisdictions. For example, there is an option that would provide guarantees on a compensation basis, an approach that is more often found in U.S. practice. If such an authorization is not obtained before the transfer of farmout interests, the transfer is usually cancelled and, in many cases, the issuing instrument is also terminated. The requirement to obtain government authorization for a transfer should be carefully considered by the parties.