Working interest is a form of investment in oil or gas drilling. When working interest model is used, investor pays not only for initial investment, but also covers part of costs during the project. However, he also participates in profits. The higher profitability is the main benefit of that model.
Other model is royalty interest, where investor only pays at the beginning of investment for his shares. But in that case the profits paid are lower than in case of working interest model. The well operator, chosen by investors, manages the working interest model. After covering all the costs of the investment, he divides profits among investors according to shares they own.
The risk of working interest is higher than in case of royalty interest, as all the technical problems, failures and other costs have to be paid by investors.
- Zhu, L., Zhang, Z., & Fan, Y. (2015). Overseas oil investment projects under uncertainty: How to make informed decisions?. Journal of Policy Modeling, 37(5), 742-762.
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