Area Of Mutual Interest (AMI)

What Does Area Of Mutual Interest Mean?

Area of mutual interest (AMI) is a defined geographic location in which two or more oil or natural gas companies have a stake. An area of mutual interest (AMI) contract describes the geographic area contained in the AMI, the rights of each party (such as the percentage interest allocated to each company), the agreement's term, and how contract provisions are to be implemented.

Understanding Area Of Mutual Interest (AMI)

Area of mutual interest (AMI) contracts may also define how the parties in the agreement are allowed to explore for or extract oil and natural gas in the subject territory. If any party to an AMI contract wants to pursue a venture in the specified area, it must do so in conjunction with or with the permission of the other parties to the contract.

The primary purpose of an AMI is to ensure that the companies mutually benefitting from the exploration and development of the contract area are doing so jointly and proportionately. The AMI thus prevents one of the parties from utilizing the data obtained through the joint development for its own gain. Additionally, the AMI promotes cooperative behavior between companies by limiting competition among them to acquire additional leases surrounding the contract area.

Litigation Issues in AMI Agreements

AMI contracts are common tools for sharing risks of development, along with the associated ownership and profits, among companies who want to jointly explore for oil and gas in a specific area.

AMI contracts tend to be handcrafted by the parties involved in the deal, and as a result, often have unintended flaws and consequences. AMI agreements typically require any party that acquires interest in the defined area to notify the other parties about the acquisition. The notice allows the non-acquirers to elect to participate in the purchase.

Agreeing to participate requires the non-acquirers to pay their percentage of the costs in exchange for a percentage of ownership. This means that even subsequent purchases of land, or interest on land, may result in a company owing obligations to investors from AMI deals in the past.

Additionally, courts have ruled that land subject to an AMI agreement be sufficiently described within the contract to identify it in order to satisfy the Statute of Frauds. It's also important for companies to note that an area of mutual agreement can only be terminated in writing.