Hiro Capitals International

Oil & Gas Agreements Contracts

Oil and gas agreements and contracts form the backbone of the energy industry. They provide a legal framework for the exploration, extraction, and transportation of oil and gas resources. Oil and gas agreements are complex documents but are vital for governing the rights, obligations, and responsibilities of all parties involved.

They play a key role throughout the process of oil and gas production, including the marketing of the resources. A deep understanding of the legal, commercial, and technical aspects of these contracts and agreements is essential for anyone involved in the industry. In this blog post, we’ll explore the various types of oil and gas agreements and contracts and explain why they are important.

Date: February 24, 2025
Client: Envato Group, US
Category: Get a Contract
Address: 2946 Angus Road, NY

Oil & Gas Contracts

Contracts are important because they set out the terms of a transaction, exchange, or deal between two or more parties. A contract or agreement outlines the responsibilities and rights of each part together with costs, benefits, and how the contract might be terminated. In essence, a contract or agreement is a promise that you’re going to take certain actions. These actions might include the completion of work by a specified date or payment for services rendered.

Joint Operating Agreements (JOAs)

Production Sharing Agreements (PSAs)

Risk Agreements

Royalty Agreements

Oil and Gas Agreements Contracts

Oil and gas agreements and contracts, governed by oil and gas law, are legal documents drawn up between two individuals or entities. They provide legal protection for all parties involved in a potential business deal. In addition, they determine the duties and rights of both sides and also regulate risks and expenses. Contracts vary widely in terms of the details, but there are two common points they must address: how costs are treated and how profits, also known as rents, are divided between the relevant parties.

1. Joint Operating Agreements (JOAs)

A joint operating agreement, or JOA, is entered into when two or more owners with working oil and gas interests decide to share the drilling, development, or operations risk concerning the production of gas and oil. In the agreement, a provision is made for one of the parties to act as the operator. The party will act on behalf of the other parties concerning the joint area covered by the Joint Operating Agreement.

In addition, the JOA specifies the operation that it relates to and how costs and revenues will be shared, determined, and accounted for. It also details individual party rights to the production and the acquisition, maintenance, transfer, and disposal of leases.

2. Production Sharing Agreements (PSAs)

With this type of agreement, ownership over oil and gas interests, natural resources, and reserves are not conferred to a lessee. Instead, ownership remains with the landowner. The landowner might be an individual company or a state/government enterprise. A lessee, or contractor, is awarded the right to explore a specified area. They also provide the technical expertise and capital and assume the project risk.

This is in exchange for exclusive exploration and production rights. Following successful oil and gas production and deductions for the cost of recovery and taxes, the remaining portion called the profit Oil, is distributed between all the parties following the agreement.

3. Farm-In/Farm-Out Agreements (Well trades)

This agreement is written up when an oil and gas working interest owner (farmor) assigns an interest in a lease (farm-out area) to another party (farmee). It is given in consideration of the farmer drilling a well (farm-out well) on the farm-out area.

In the agreement, the farmor makes a farm-out and the farmer makes a farm-in.The agreement may also require the farmee to do more than simply drill a well. It might include seismic and geological studies or paying a monetary consideration for previous costs the farmor incurred.

4. Royalty Agreements

A royalty agreement relates to the ownership of a portion of a resource or the revenue it produces. A company or individual person can have a royalty interest. They don’t have to pay any operational costs but own a portion of the resource or its revenue.