Working Interests

A working interest earns more per barrel and owes for a lot more than a royalty ever will.

A working interest is fundamentally different from every other interest we evaluate, because it carries operating cost exposure and legal liability alongside the right to production revenue. Where a royalty owner collects a share of revenue free of cost, a working interest owner bears their proportionate share of drilling, completion, and ongoing operating expenses, and in many structures, downstream liability for plugging and abandonment obligations once a well reaches the end of its economic life. This cost and liability exposure is the central fact governing how a firm prices and underwrites a working interest purchase.

We evaluate working interests with that liability standard front and center, distinct from the production-focused framework we'd apply to a royalty or NPRI.

Net revenue interest versus working interest fraction

A working interest's headline fraction, say a 1/8th non-operated working interest, is not the same as the share of revenue it actually receives. The net revenue interest, what remains after royalty burdens owed to mineral and royalty owners are deducted, is typically meaningfully smaller than the working interest fraction itself. We calculate the actual net revenue interest from the division order and lease terms before pricing anything, since quoting off the headline working interest fraction alone would materially misstate the position's economics.

Underwriting plugging and abandonment liability

Working interest owners typically carry proportionate responsibility for the cost of plugging a well once it stops producing economically, an obligation that can range from a modest expense on a shallow conventional well to a substantial one on a deep or complex wellbore, and one that state regulators increasingly enforce against working interest owners of record even years after the fact. We factor estimated future plugging liability into our valuation of any working interest, discounted for timing but treated as a real, offsetting cost against the interest's remaining production value, not an afterthought.

This is one of the most common places we see working interest owners overvalue their own position, focusing on current net revenue while underweighting the liability that eventually comes due.

Operated versus non-operated positions

A non-operated working interest owner has no day-to-day control over drilling, completion, or operating decisions, those rest with the operator under the joint operating agreement, but still bears the proportionate cost of whatever decisions the operator makes, including authorization-for-expenditure requests for recompletions or workovers the non-operator may not have wanted. We review the governing joint operating agreement where available to understand what cost exposure and voting rights, if any, attach to the specific interest before pricing it.

Operated interests, where the owner also serves as operator, carry additional liability layers around well control, environmental compliance, and regulatory standing that require a more detailed review specific to the operating entity's history and the well's condition.

Why working interests price differently than royalty interests

Because a working interest bears cost exposure a royalty interest never sees, a firm-grade valuation applies a materially different discount structure: modeling gross production, subtracting the working interest's share of operating expenses and any capital calls likely over the remaining life, and reserving for eventual plugging liability, arriving at a net present value that reflects the full risk profile rather than gross revenue alone. Owners comparing a working interest offer against a royalty interest's price per unit of production should expect the working interest number to be lower, reflecting that added cost and liability exposure, not a lower valuation of the underlying reserves.