What is an Undivided Interest?

In an undivided interest arrangement, each co-owner of a property has an interest in the entire property, rather than just a portion of it. For example, five people jointly own a property, so each one has an undivided interest in it, rather than each one owning a portion of the property. An undivided interest arises when the owners of a working interest share revenues and expenses in accordance with their proportional ownership interests.

Example of an Undivided Interest

As an example of an undivided interest, in a joint interest operation, there is an agreement between two or more working interest owners, where one owner is designated as the operator of the property, and each owner retains an undivided interest in the property. The operator is responsible for overall management of the lease. In these situations, the property is a single, undivided parcel.

Undivided Interest vs. Divided Interest

An alternative arrangement is a divided interest arrangement, where the owners of a working interest receive revenue and pay for expenses based on their ownership of specific acreage. Both the undivided interest and divided interest concepts apply to oil and gas interests.