Working Interest
The interest in an oil and gas lease that carries the right to explore, drill, and produce, together with the obligation to pay the costs of those operations.
Detailed Definition
A working interest is the interest in an oil and gas lease that carries the right to go onto the land, drill, and produce, and the obligation to pay for doing it. The U.S. Bureau of Mines Dictionary of Mining, Mineral, and Related Terms (1968) defines it as "The operator's mineral ownership involving the costs of drilling, completion, equipment, and producing in contrast to the (free) royalty interest."
How federal rules define it
On a federal onshore lease, BLM treats the working interest as operating rights. 43 CFR 3100.5 defines "Operating right (working interest)" as "the interest created out of a lease authorizing the holder of that right to enter upon the leased lands to conduct drilling and related operations, including production of oil or gas from such lands in accordance with the terms of the lease." The same definition says operating rights carry "the responsibility to plug and abandon all wells that are no longer capable of producing, reclaim the lease site, and remedy environmental problems."
The federal unit rules use a broader definition. 43 CFR 3180.0-5 defines a working interest as "An interest held in unitized substances or in lands containing the same by virtue of a lease, operating agreement, fee title, or otherwise," whose owner "is vested with the right to explore for, develop, and produce such substances." Under that definition an unleased owner with the right to develop can hold a working interest too.
Record title and operating rights are separate
Federal rules split a lease into record title and operating rights. Under 43 CFR 3106.10(b), "An assignment of the record title conveys both record title and operating rights, unless operating rights have been severed from the record title through an approved transfer of operating rights." After a severance, the lessee of record may not be the party that holds the right to drill a given depth or tract. A transfer of operating rights is a sublease (43 CFR 3100.5).
Working interest and net revenue interest
A working interest measures the share of costs and of the right to operate. The share of production revenue that comes with it, after royalties and other burdens, is the net revenue interest (see Net Revenue Interest). The two numbers are different and are tracked separately.
Why it matters in mineral title research
- On a federal lease, the record title holders and the operating rights owners have to be traced as separate chains, often by depth and by tract, from the BLM case file.
- Obligations follow the interest. Under 43 CFR 3106.76(b) a transferee of operating rights assumes plugging and reclamation duties for "the area or horizons for the interest acquired."
- Overriding royalties and other burdens carved from the working interest have to be found before its net share can be stated (see Overriding Royalty Interest).
Related Terms
Mineral Lease
A contract by which the owner of minerals grants another the right to explore for and produce them for a stated term, in exchange for payments such as bonus, rental, and royalty.
Royalty Interest
A share of production, or of its value, paid to a lessor or other royalty owner without bearing the costs of drilling and producing.
Overriding Royalty Interest
A share of production carved out of the lessee's interest in a lease, in addition to the royalty reserved to the lessor, and free of the costs of production.
Farmout Agreement
An agreement by which a lease owner (the farmor) agrees to assign all or part of its interest to another party (the farmee), which earns the assignment by drilling or meeting other conditions.
Carried Interest
A working interest whose share of drilling or operating costs is paid by another party, which recovers that money out of production before the carried party shares in it.
Spacing Unit
The area of land assigned by a state conservation agency to a well in a pool, with its size, shape, and permitted well location set by order.
Net Revenue Interest
The share of production, or its proceeds, that a working interest owner actually receives after royalty, overriding royalty, and other burdens on production are deducted.