Legal Definitions - working capital

In the context of oil and gas law, a working interest refers to the ownership rights granted to a company or individual (known as the lessee) by a landowner or government (the lessor) through an oil and gas lease. This interest gives the lessee the exclusive right to explore for, develop, and produce oil and gas from the leased property.

Crucially, the holder of a working interest also bears the full financial responsibility for all costs associated with these operations. This includes expenses for geological surveys, drilling wells, completing them for production, maintaining equipment, and complying with environmental regulations. In return for taking on these significant risks and costs, the working interest holder receives a share of the oil and gas produced, after any royalties owed to the landowner or government.

• Example 1: Independent Exploration Company

  Imagine "Desert Drills LLC," a small independent oil and gas company, signs a lease agreement with a rancher to explore for crude oil on his vast desert property. Desert Drills LLC acquires the working interest in that land. This means they have the exclusive right to bring in drilling rigs, construct access roads, and extract any oil they discover. However, they are also solely responsible for all the associated costs, from initial seismic testing and drilling expenses to ongoing maintenance and eventual well abandonment. If they successfully find oil, they will receive the revenue from its sale, minus the rancher's agreed-upon royalty payment.

• Example 2: Joint Venture in a Large Offshore Field

  Two major energy corporations, "Oceanic Energy Group" and "Deep Horizon Ventures," decide to jointly develop a newly discovered deepwater oil field in the Gulf of Mexico. They agree that Oceanic Energy Group will take a 70% share, and Deep Horizon Ventures will take a 30% share. Both companies hold a working interest in the offshore field, proportional to their agreed shares. Oceanic Energy Group holds a 70% working interest, and Deep Horizon Ventures holds a 30% working interest. This means they collectively have the right to operate the field, but they are also obligated to pay 70% and 30%, respectively, of all development and operational costs, such as building platforms, drilling multiple wells, and maintaining subsea infrastructure. In return, they will receive their respective percentages of the oil produced, after any royalties due to the government.

• Example 3: Selling a Portion of an Interest

  "Mountain Peak Resources" initially holds a 100% working interest in a promising but high-risk natural gas play in a mountainous region. To mitigate financial exposure and bring in specialized expertise for complex drilling, Mountain Peak Resources decides to sell a 40% portion of its interest to "Alpine Drilling Solutions." After the sale, Mountain Peak Resources now holds a 60% working interest, and Alpine Drilling Solutions holds a 40% working interest. Both companies now share the rights to develop and produce gas from the play. Crucially, they also share the financial burden: Mountain Peak Resources is responsible for 60% of all costs, and Alpine Drilling Solutions is responsible for 40%. They will also receive their respective percentages of the gas production.