Working interest

A working interest is an investment in an oil and gas operation, where the investor is responsible for all costs incurred to explore, develop, and conduct production operations. The share of revenue reserved for the holder of a working interest is the residual amount after the royalty interest and nonworking interests have been subtracted.

A working interest can be further classified into an undivided interest or a divided interest. In an undivided interest arrangement, two or more owners of a working interest share revenues and expenses in accordance with their proportional ownership interests. In a divided interest arrangement, the owners of a working interest receive revenue and pay for expenses based on their ownership of specific acreage.

A firm may no longer have an interest in maintaining a working interest in a property, perhaps because it does not have the financial or managerial expertise to explore and develop the property. If so, it can trade its working interest to another party in exchange for a nonworking interest, thereby shifting all responsibilities to the other party.

Related Courses

Oil and Gas Accounting