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.