We've been approached about some of our working interest in Ward County. Can someone please explain what a .3532732% interest or a .5652371 interest in certain leases containing 160 acres to all depths below 7500 feet is as it relates to net acreage? Someone has made an offer to us with a certain price per acre reduced by the percentage of working interest held; delivering a 75% NRI, retaining an overriding royalty interest being the positive difference between existing burdens and 25%.

I'm not as familiar with working interest and just want some clarification on some of this. Any help would be greatly appreciated.


I evaluated and negotiated sales of very old inherited working interests for a inheritor/client in Reagan and Midland counties late last year. It is complicated and iffy process and difficult to know what you are getting and, in my opinion, loaded with liabilities for the seller. The percentages you mentioned may be from division orders from old shallower vertical wells so likely don't have any standing going forward. I find it best to evaluate the WI value to the buyer and negotiate a clean transaction that suits you and puts the liability of ongoing ownership on the buyer.

Sometimes WI deals are used to clean up HBP status so stay out of that battle unless you were the one that took the lease in the first place and know exactly how it is burdened.

Gary, likely it is an unleased mineral interest that the current operator is treating like as a WI. I inherited a number of them and it took me several years to get the various operators to stop billing me for all kinds of nonproduction costs--some still don't have it right. That first percent interest could easily be 2-3 NMA that wasn't leased, but the operators don't ever seem to get it right.

Your advice is good. I have been able to extract myself from all but one working interest, where there actually is an operating agreement signed by uncle, and it is enormously unprofitable. The operator will be happy to take my interest in the minerals, after I have paid all the costs, but that is essentially a very small sales price to acquire some nice property in west Texas. WI aren't for the small owners as the operators will make more money at the end by laying off admin costs than they do on the O&G sold.

If you are successor lessee in a portion of a lease, then you will be a working interest in new wells. The buyer is likely trying to round up all the working interests to be able to drill horizontal Wolfcamp wells. The royalty burdens on the deep depths may be different from shallow depths. It depends on the lease royalty rate and what overriding royalties were reserved in assignments. If the royalty plus overrides total to 25% or more, then you will get no royalties afterwards. If less than 25%, then your royalty will be the difference. Why not ask the purchaser to give you copies of the assignments and tell you what the burdens total. You can then decide whether to accept a one-time purchase payment or a payment plus some future royalties or whether you want to participate as a working interest.

Thanks for the reply. It's very helpful. I'm assuming this is hot property considering they are offering 10,000.00 per acre?

Thanks for the information. They are offering 10,000.00 per acre so it must be hot property. I'm just a little confused as to some of the details. I've negotiated leases on other properties but this whole working interest thing is very confusing!