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

Three investors—Alice, Bob, and Carol—purchase a 100-acre oil and gas lease together. Each has an undivided interest in the lease as follows:

Alice owns 50% of the lease.
Bob owns 30%.
Carol owns 20%.

None of the investors owns a specific 50, 30, or 20 acres of the property. Instead, all three share the entire 100 acres proportionally. This means the following:

Revenue sharing. If the drilling operation produces oil, the revenue will be distributed based on their ownership percentages.
- Alice receives 50% of the profits.
- Bob receives 30%.
- Carol receives 20%.
Cost obligations. Each party is also responsible for the same proportion of the costs associated with exploration, drilling, and production.
- Alice pays 50% of the costs.
- Bob pays 30%.
- Carol pays 20%.
Operational decisions. If the group has decision-making rights, these rights are typically exercised collectively or as specified in their operating agreement. For example, if a new well needs to be drilled, the cost-sharing and revenue distribution would follow their ownership percentages.
Non-exclusive access. Each party has the right to access and use the full 100 acres for oil and gas purposes, as no single owner has an exclusive claim to any specific part of the property.

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.