What is a Carried Party?

A carried party is an entity that does not consent to pay its share of the expenses associated with a project. When another party agrees to pay for the expenses of the carried party, it is designated the carrying party. When there is a carrying party, the interest of the carried party is shifted over to the carrying party until such time as the carrying party has earned back the payment that it made on behalf of the carried party, plus a penalty payment that is stated in a joint operating agreement. Once the carrying party has received these amounts, the carried party can resume its interest in the business arrangement.

The carried party concept is most commonly found in oil and gas arrangements where there are multiple investors in a property.

Example of a Carried Party

Two companies, Alpha Oil Corp and Beta Exploration LLC, enter into a joint venture to explore a newly identified oil field. Alpha Oil Corp owns a 60% working interest in the project and agrees to act as the operator. Beta Exploration LLC owns a 40% working interest but lacks the financial resources to contribute to the initial exploration and drilling costs. To proceed, Alpha Oil Corp agrees to "carry" Beta Exploration LLC's share of costs for the exploration and appraisal phase under the following terms:

Carried costs. Alpha Oil Corp will pay 100% of the exploration and appraisal costs, covering its own 60% share and Beta's 40% share.
Recoupment. If the exploration is successful, Beta will repay its share of the costs (plus an agreed premium, such as interest or a percentage uplift) from its share of the future production revenues.
Risk sharing. If the exploration fails, Beta does not repay its carried costs. The financial risk of the carried costs lies entirely with Alpha.