A working interest (WI) is an investment in an oil and gas leasehold that gives the owner the right to explore, drill, and produce oil and gas. Unlike royalty owners who receive a free ride, working interest owners are responsible for paying their proportionate share of all leasing, drilling, completions (AFE), and ongoing monthly operating expenses (LOE). In return, they receive their share of the net revenue interest (NRI) generated from sales.
Royalty interest owners bear zero cost responsibility and zero operational liability, receiving payments directly from gross sales. Working interest owners pay their share of all costs and are exposed to operational and environmental liabilities, receiving revenue from net sales after royalties are deducted.
WI ownership carries geological risks (dry holes), cost overruns, and liability. However, it offers major U.S. tax write-offs: Intangible Drilling Costs (IDCs) can be written off 100% in the year they occur, tangible equipment depreciates over 7 years, and the depletion deduction excludes 15% of gross revenue from federal taxes.