You are here:

Oil/Gas/Net Working Interest

Advertisement


Question
Could you pls explain the above concept with examples for better understanding.

Answer
Working interest owners pay expenses from the well such as equipment costs, upkeep of the well (maintenance) and other miscellaneous charges like overriding royalty interest.

A royalty owner does not pay these expenses - they only pay taxes and sometimes marketing charges (3d party charges to the selling or preparing the gas to sell)

Receiving a "Net" interest is having the expenses deducted from the revenue rather than receiving a gross revenue check and then turning around and sending the operator of the well a check for your portion of the expenses during that revenue cycle.

So, a typical month may look like this:

Your portion of the ownership in the well

$100,000   Gross revenue that is due to be paid to you
<$6,500>   Lease Operating Expenses
<$25,000>  Equipment repair
<$12,500>  Royalty to landowners
__________
$56,000    Due to be paid to you for your working interest.  

Therefore, rather than sending you a check for $100,000 and you sending back a check for $44,000 they are going to "net" or deduct the expenses and send you a check for the net amount of your revenue.

Keep in mind that this is the common usage of the term Net Working Interest and the company you are working with may use some other derivation of this concept.  They should take a moment and explain the issues to you.

Sincerely,

Oil/Gas

All Answers


Answers by Expert:


Ask Experts

Volunteer


Cliff Williams

Expertise

I will try to answer any question you have. Even if I reject a question, I still will give a shot at what I would do in your position. The only questions I will not take a shot at would be a highly technical engineering or geological question. I am beginning to see quite a few questions from land men and other oil companies and that doesn't matter to me either. I will attempt to help.

Experience

I am an oil and gas attorney that has been in the business for more than 20 years. I have held a series 22 and 63 securities license, been in oil and gas operations, land man, division order analyst all prior to obtaining my law degree. Today, I typically write title opinions verifying ownership of oil and gas minerals, assist landowners in negotiations on oil, gas and mineral leases, easements and conveyances. I also assist oil and gas companies with the sale of working interest ownership as well as common business law issues.

Organizations
State Bar of Texas, Member of the Tarrant County Bar and the Dallas County Bar Associations.

Publications
Multiple oil and gas topical columns on ezine.com.

Education/Credentials
I have a B.S. degree which I rely upon more than my Business Mgmt degree or Law degree...

Awards and Honors
Husband and father of 26 years

©2016 About.com. All rights reserved.