Working Interests

A working interest pays more per unit than a royalty, but it also bills you for every workover, and that operating cost exposure is the real story behind the number.

A working interest carries the right to explore for and produce oil and gas from a lease, along with the obligation to pay a proportionate share of drilling and operating costs. It's fundamentally different from a royalty interest: where a royalty owner receives revenue free of costs, a working interest owner receives a larger gross share of production but is billed monthly for their proportionate share of operating expenses through joint interest billing, commonly called a JIB statement.

Colorado working interest owners are often individuals who inherited a small non-operated interest from a family member who was involved in the original drilling deal, or investors who bought into a well decades ago and have been receiving net checks, revenue minus their share of costs, ever since. We evaluate these interests on net economics, not gross production, because the cost side of the ledger matters as much as the revenue side.

Why working interest valuation is different from royalty

Valuing a working interest requires looking at both sides of your JIB statement: gross revenue attributable to your interest and your proportionate share of lease operating expenses, workovers, and any capital costs the operator has billed. A working interest with high recent operating costs, say from a recent workover or recompletion, can show a much lower net cash flow than the gross production numbers alone would suggest, and that net figure is what actually drives value.

We ask for 12 to 24 months of JIB statements alongside revenue detail, not only check stubs, because the expense side is essential to underwriting a working interest correctly. A royalty interest doesn't require this; a working interest always does.

Non-operated versus operated positions

Most individual Colorado working interest owners hold non-operated positions, meaning another company operates the well and simply bills the interest owner their proportionate share of costs, without the owner having day-to-day decision-making authority. That's the far more common situation for family-inherited or small legacy interests, as opposed to an operating company holding a working interest with direct control over the well.

We buy non-operated working interests specifically, and confirm your interest's operating status as part of the review, since it affects both the paperwork required and how we approach valuation.

Exposure risk that comes with holding a working interest

Beyond routine operating costs, working interest owners can be billed for unexpected expenses like well workovers, regulatory compliance costs, or plugging and abandonment obligations when a well reaches the end of its life. That exposure is real and ongoing as long as you hold the interest, which is part of why some owners prefer to exit a working interest rather than continue managing an unpredictable cost stream tied to a well they don't operate.

Selling converts that ongoing cost exposure, along with the revenue upside, into a single known amount today, which some owners find simpler than continuing to reconcile JIB statements indefinitely.

Making sense of a JIB statement before you sell

A joint interest billing statement lists your proportionate share of every cost category the operator incurred that month or quarter: lease operating expenses, any workover or recompletion cost, regulatory fees, and sometimes capital projects tied to the well or unit. We walk through recent JIB statements line by line with owners who find them confusing, since understanding what's actually being deducted is part of understanding what your net interest is truly worth.

If your JIB statements show a spike in costs from a recent workover, that's worth factoring into value differently than a steady month of routine operating expenses, since a one-time capital cost shouldn't be projected forward the same way ongoing operating costs are.