When a company buys an interest in a block and takes upon itself all or part of the financial undertakings for drilling the exploration well.

Farmin, farmout process at exploration stage: It is usually done this way:

Normally farm-out recognizes the advantageous position of the license holder and often the farminee carries the license holder to some degree.
Thus if company A has 100% of the rights in an exploration license, Company B that farms-in may pay 50% of the past and certainly of the future costs to get 40% and Company C might pay 50% of the past and certainly of the future cost to get 40%, so that the license holder remains with 20% and is carried by the two other companies.

This carry would go on until a commitment exploration well has been drilled.

After that if there is a discovery each side would pay its own pro-rata share.