Working Interests

A working interest is the one interest type where the value calculation can come out negative, because along with the income comes real exposure to costs.

Every other interest we cover, royalty, NPRI, ORRI, full minerals, entitles the owner to a share of revenue with zero exposure to the well's operating costs. A working interest flips that: you own a share of the well itself, which means you're entitled to a proportionate share of production revenue, but you're also obligated to pay your proportionate share of drilling, completion, and ongoing operating costs. That obligation is what makes working interest valuation genuinely different math.

Below: how to net out costs correctly, why a working interest can be worth less than it looks on a gross-revenue basis, and what documentation a buyer will want to see.

Gross revenue is not your value, net-of-costs is

Start with your working interest percentage applied to gross well revenue, then subtract your proportionate share of lease operating expenses, workover costs, and any capital expenditures the well requires going forward, before you get to a real cash flow figure. Owners new to working interests sometimes anchor on the gross number from a joint interest billing statement and are surprised how much smaller net income is once costs are properly deducted.

This isn't a one-time deduction either. Ongoing operating costs, and periodic capital costs like a workover or recompletion, recur throughout the well's life and have to be projected forward, in addition to being netted against the trailing 12 months, when estimating what a remaining working interest is actually worth. A single strong trailing-12-month period on a well that's due for an expensive workover next year can make the interest look more valuable than a forward-looking projection would show.

Why value can run negative, and what that means

A marginal, high-cost, or aging well can reach a point where projected operating costs exceed projected revenue for the remaining life of the well, at which point the working interest has negative value, it's a future liability, not an asset, for whoever holds it. This happens more often on older stripper wells with high lifting costs relative to their declining production than on newer high-volume wells.

If you're holding a working interest like this, selling it (sometimes for a nominal or even token amount, since the buyer is taking on future plugging and abandonment liability along with whatever marginal revenue remains) can be the financially sound move, even though it feels counterintuitive to "sell" something for very little or pay to be rid of it.

What documentation a buyer needs

Joint interest billing statements showing your revenue and cost history, the operating agreement governing the well (which spells out your obligations and any right of first refusal other working interest owners may have on a sale), and recent production data. Working interest sales typically move more slowly than royalty sales because of this added diligence layer, both sides need clarity on future plugging liability and any outstanding authorization-for-expenditure commitments.

Check your operating agreement for a preferential right or right of first refusal clause before shopping your interest externally; other working interest owners in the well often have a contractual right to match any outside offer before you can sell to a third party.

Getting your estimate

Send us your working interest percentage, recent joint interest billing statements, and the operating agreement if available. Because the net-of-costs calculation is more involved than a royalty valuation, working interest estimates typically take a closer look than our standard calculator provides on the first pass, but we'll walk you through the full picture, plugging liability and all, before making an offer.

If your position turns out to be near the break-even line, we'll tell you that directly rather than pushing a deal that doesn't make sense for either side. Some owners in that spot are better served finding out whether the operator will buy back the interest, since operators sometimes prefer to consolidate small working interests rather than manage many small billing relationships.