Carry agreement is a term that refers to a contractual agreement between two parties, where one party agrees to carry out a specific task or provide a certain service, while the other party agrees to compensate them for that service. It is a common agreement in the business world, particularly in the oil and gas industry, where it is used to describe a business arrangement between the operator and non-operator of an oil or gas well.
In the oil and gas industry, a carry agreement is a way to fund drilling and exploration activities. The operator of the well, who may own the rights to the well, enters into an agreement with a non-operator who is responsible for the funding. The non-operator agrees to provide the funding for drilling, exploration, and production, while the operator is responsible for managing the project and carrying out the work. In return, the non-operator receives a share of the profits generated by the well.
The carry agreement is a win-win situation for both parties. The non-operator gets to invest in an oil or gas well without having to take on the full risk of the project. The operator, on the other hand, gets the necessary funding to carry out the drilling and exploration activities without having to spend their own funds. It also allows the operator to focus on their core competencies, such as production and management, while the non-operator takes care of the financial aspects of the project.
However, there are risks associated with carry agreements, particularly for the non-operator. If the drilling and exploration activities do not result in the discovery of any oil or gas, the non-operator may end up losing their investment. Additionally, if the project is not managed effectively by the operator, the non-operator may not receive the expected return on their investment.
It is important to note that carry agreements are not limited to the oil and gas industry. They can be used in any industry where one party requires funding to carry out a project or business venture. For example, in the real estate industry, a carry agreement may be used to fund the development of a property. The developer may enter into an agreement with a non-operator who provides the funding, while the developer manages the construction and development process.
In conclusion, carry agreements are a common business arrangement in many industries, particularly in the oil and gas and real estate sectors. They provide a way for one party to fund a project or business venture while the other party carries out the work. However, it is important to assess the risks before entering into a carry agreement, particularly for the non-operator who is providing the funding. A well-structured carry agreement can lead to a profitable partnership for both parties.