Oil and Gas Working Interest
If you’re considering investing in oil or natural gas, it’s important to understand what it means to have a working interest in an oil and gas lease. You might be investing with oil and gas working interest owners and have a working interest in oil and gas drilling. Or, you may have a royalty interest in a particular oil well or oil field. These two terms mean very different things.
Oil Field Mineral Rights
The two types are working interest and royalty interest. These terms are all about the mineral rights — the rights to anything underneath the land, such as ores, rocks and, of course, fossil fuels like crude oil and natural gas. In many countries, the government has default control of mineral rights, even on land an individual owns. This is not the case in the United States, however. If you own the property, you own the mineral rights, as well, unless some other arrangement exists.
Working Interest vs. Royalty Interest
If you are the owner of land that has reserves of oil and gas underneath it in the United States, you are in an enviable position. Assuming you do not want to sell the land outright, you have a couple of choices. The choice you make will affect the type of interest you have:
- Working Interest: You can decide to drill on the land for oil and gas yourself. If you do this, you may determine you need to bring on partners to help. In a situation like this, we say you and your partners have a working interest in oil and gas drilling on your land.
- Royalty Interest: Or, you can decide to lease the mineral rights to someone else, like an existing oil or gas extraction company. If you do this, that company has the rights to drill on your land and extract the oil and gas, and you receive a royalty on all the gas and oil they extract and sell. This is called a royalty interest.
Is it better to have an oil and gas working interest or a royalty interest? That all depends on the amount of work you wish to put in and the amount of money you would like to make.
Having a royalty interest is essentially passive income. You sit back, let the oil and gas company do all the work, and collect your share of the profits. Having a working interest, on the other hand, can mean much higher profits, as you are keeping the lion’s share of the revenue from the fuel you extract. Working interest requires more work and is a higher risk, as you are investing time and money in extracting the fuel yourself.
Contact Viper Capital Partners for Help With Gas and Oil Investing
Viper Capital Partners has working interest in many oil and gas extraction operations. If you think you might be interested in getting involved and are an accredited investor, contact us today to discuss investment options.