Working Interest
The operating interest in an oil and gas lease that bears the costs of exploration, development, and production.
Detailed Definition
A working interest (also called the operating interest) is the interest in an oil and gas lease that bears the costs of exploration, drilling, development, and production. The working interest owner funds operations and receives revenue after royalties are paid.
Key characteristics: - Bears 100% of the costs of development and operations - Receives revenue after royalty payments - Typically includes the right to operate the lease - Can be divided among multiple parties
Cost responsibilities: Working interest owners pay for: - Lease acquisition costs (bonus, rentals) - Geological and geophysical studies - Drilling and completion costs - Production equipment and facilities - Operating expenses - Plugging and abandonment costs
Net revenue interest: The working interest owner's share of revenue after royalties: - Net Revenue Interest (NRI) = Working Interest x (1 - Total Royalty Burden) - Example: 100% WI x (1 - 0.25 royalty) = 0.75 NRI (75%)
Sharing working interest: Working interests can be divided through: - Farmout agreements - Joint operating agreements - Participation agreements - Assignment of partial interests
Working interest vs. royalty interest: - Working interest bears costs; royalty interest does not - Working interest has operating rights; royalty interest is passive - Working interest receives net revenue; royalty interest receives gross revenue share
Related Terms
Mineral Lease
A contract granting the right to explore for and produce minerals from a specific tract of land in exchange for rental payments and royalties.
Royalty Interest
The landowner's share of production revenue from an oil, gas, or mineral lease, typically expressed as a fraction.
Overriding Royalty Interest
A royalty interest carved out of the working interest in an oil and gas lease, not tied to land ownership.