Working Interests

A working interest isn't a royalty with better math attached. It's a cost-bearing stake in the well itself, and that changes almost everything about how we underwrite and close it.

Working interest owners get billed, not only paid. Alongside a proportionate share of production revenue, a WI owner is on the hook for a proportionate share of drilling costs, completion costs, and ongoing lease operating expenses through joint interest billings from the operator, which means the cash flow on a working interest can run negative in months where major workover or recompletion costs hit the well. That distinction is the first thing our desk checks on any working interest file, because it changes both the valuation and the closing mechanics compared to a royalty sale.

We buy working interests regularly, but the file takes more from both sides than a royalty transaction, largely because of what happens to that ongoing liability exposure at close.

Liability novation before anything closes

The single item that separates a working interest closing from a royalty closing is liability novation: getting the operator to formally recognize the transfer and release you from future joint interest billing obligations tied to the well. Without that operator sign-off, a seller can remain contractually exposed to future JIBs even after the deed has recorded, particularly under older joint operating agreements that require operator consent to assign. We won't close a working interest sale until the operator has acknowledged the assignment in writing, because leaving that step undone protects neither of us.

This is also why working interest files typically take longer than royalty files start to finish; the operator's own turnaround time on processing an assignment and updating their JIB records is outside our control, and we build the closing timeline around it rather than promising a date we can't support.

What we pull from the joint operating agreement

The JOA governs consent-to-assign requirements, any preferential right to purchase held by other working interest owners in the unit, and how operating costs get allocated among non-operators. A preferential purchase right in particular can materially affect timing, since other WI owners may have a contractual window to match our offer before a sale to us can proceed, and we check for that clause before we get too far into negotiating terms so it doesn't surprise either of us near closing.

Pricing around cost history, not only revenue history

We look at trailing JIB statements alongside revenue statements, because a working interest that looks attractive on gross revenue can carry a very different net picture once operating costs, workover history, and any plugging liability at the end of the well's life are factored in. Wells nearing the end of their economic life carry real plugging and abandonment obligations that typically transfer with the working interest, and we account for that exposure explicitly in how we price rather than treating a WI purely as a revenue multiple.

Non-operated versus operated positions

Most of the working interests that come to us are non-operated, meaning someone else runs day-to-day operations and the seller simply receives a proportionate share of revenue and cost billings. Operated positions, where the seller or their entity is the actual operator of record, involve additional regulatory and bonding considerations at transfer, including state agency notification of a change in operator, and we scope that work separately since it's a meaningfully different file than a standard non-op assignment.

Bonding and plugging financial assurance on operated positions

An operator of record typically has to maintain a state-required bond or other financial assurance covering plugging liability across their well inventory, and transferring an operated working interest means either the buyer takes over that bonding obligation directly or arranges a substitute that satisfies the state agency before the transfer is approved. We confirm bonding status early on any operated-position file, since an unresolved bonding gap can hold up a state's approval of the operator change well after every other closing document is signed.

Non-operated positions do not carry this specific step, since the existing operator's bond stays in place regardless of who holds the working interest behind them, which is one more reason non-op files typically close faster than a transfer involving an actual change of operator.