Divided interest definition
/What is a Divided Interest?
A divided interest occurs when the owners of a working interest receive revenue and pay for expenses based on their ownership of specific acreage. They have no ownership of or responsibility for the revenues and expenses associated with adjacent acreage. The term is most commonly associated with oil and gas properties.
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Example of a Divided Interest
As an example of a divided interest, Company A and Company B each own specific, separate sections of an oil and gas field. Suppose Company A owns 1,000 acres on the northern part of the field, while Company B owns 800 acres on the southern part. Both companies have working interests only in their specifically defined acreage.
When oil production begins, Company A is entitled to 100% of the revenues and responsible for 100% of the expenses related to exploration, drilling, and production on its 1,000 acres. Likewise, Company B receives the revenues and pays the expenses solely associated with its 800 acres. If Company A drills a successful well on its acreage, Company B has no claim to the revenue from that well and bears no share of the costs. Similarly, if Company B incurs losses from dry holes or operating expenses, Company A is not responsible for covering those costs.
This arrangement is typical in oil and gas operations, where ownership and financial responsibility are strictly divided based on acreage, preventing any cross-liability or revenue sharing between parties who do not share common ownership of the same land.