DOCUMENTINGTHEEXPLORATIONVENTURE（一）.docVIP

By Mark K. Boling Executive Vice President and General Counsel Southwestern Energy Company Houston, Texas DOCUMENTING THE EXPLORATION VENTURE by Mark K. Boling Executive Vice President and General Counsel Southwestern Energy Company Houston, Texas ?Copyright 2005 by Mark K. Boling All Rights Reserved TABLE OF CONTENTS I. Introduction 1 II. The Exploration Venture 1 A. The Project Entity 1 B. The EP Agreement 2 III. Defining the EP Agreement 2 IV. Common Contractual Considerations 3 A. Contract Formation 3 B. Statute of Frauds 4 C. The Parties—Capacity to Execute/Ability to Perform 4 D. Recording Statute Considerations 5 E. Words to Use/Words to Avoid 5 F. The Operating Agreement 9 V. Documenting the EP Agreement 10 A. Exploration/Participation Agreements 10 B. Farmout Agreements 18 * This paper was originally published by the Rocky Mountain Mineral Law Foundation in the Rocky Mountain Mineral Law Foundation Journal, Vol. 42, No. 2 (2005). DOCUMENTING THE EXPLORATION VENTURE I. Introduction The business of exploring for oil and gas is unquestionably one of the most exciting businesses around. Many factors contribute to this excitement, but perhaps the greatest single factor is that the oil and gas explorationist’s main competition is mother nature. From the origination of the prospect idea, to the drilling of the initial well to test the idea, geologists, geophysicists and engineers pool their collective talents in an effort to “outsmart” mother nature and get her to share some of the energy resources that we need to sustain our world economy. Although technological advances have helped improve our industry’s drilling success rate, the exploration business remains an always challenging and sometimes cruel business that is not for the faint of heart. Most EP companies attempt to manage this “exploration risk” in two ways. First, the companies hire the most talented people they can find and equip them with the most advanced exploration tools they can afford.