What is an Oil and Gas Working Interest?

Most people don’t understand quite what the working interest of an oil and lease is.

The easiest way to explain it is this:  In every business there are expenses and there is income.  The working interest is ownership of the expenses.

Thus, if you own 50% working interest; it means you must pay 50% of the bills that are due for that lease.  So if you own 10% working interest, you pay 10% of all bills.

The first question newbies ask is “Why in the world would you want ownership in expenses?”  Which is a reasonable question.  The answer is quite simple — it is because they are entitled to a percentage of the income, called net revenue interest.

The net revenue interest is the income, the working interest is the expenses.  To make this quickly apparent, I want to present a normal oil and gas lease.  One landowner, one oil company.  The landowner owns the mineral rights and signs a lease that gives him a 20% royalty. The oil company drills and finds oil and produces it.

The landowner owns 20% of the net revenue interest, so he receives 20% of the revenues.The oil company owns 100% of the working interest, thus pays for 100% of all expenses.  However, the oil company only has 80% of the net revenue interest.

If the oil company sells 50% of their working interest, then they still own 50% of the working interest, and 40% net revenue interest.

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