Carried working interest (CWI)
Definition - What does Carried working interest (CWI) mean?
Carried working interest (CWI) can be defined as an arrangement between two or more co-owners of a working interest in which one co-owner agrees to advance all or some of the development costs on behalf of the others.
The cost is recovered from future production, if any, accruing to the other owners' share of the working interest. CWI is a fractional interest and the holder has no obligation for operating costs, which are to be paid by the owner or owners of the remaining fraction.
If a working interest owner has a percentage of ownership in an oil and gas lease and is involved with the development of the prospect, the other partners may grant them a "carry" i.e. the other partners will pay all or part of his or her share of the costs involved in the prospect. This carry reduces the money the developing partner needs initially to obtain an interest.
The CWI is one of the most common deal structures at 1/3 for 1/4 to casing point on the first well, and then heads-up on all subsequent wells, with the net revenue interest generally at 75%. The CWI relationship ceases when the development costs are paid after which both parties have joint ownership of the working interests and share in the costs and receipts. CWI is not a royalty interest but simply a working interest carried by the operator but is subject to deduction for royalties and due taxes.
Trenchlesspedia explains Carried working interest (CWI)
The carried working interest (CWI) is a partnership contract among multiple parties having a working interest in a well. The working interests can be shared through joint ventures where one party may provide financial support and may not get involved in daily operations. In return, they get a share in the profit from the extraction of oil and gas. The carry helps reduce the initial requirement of funds for the developing partner to obtain an interest. It is important that the partners be aware exactly of what costs the 'carry' will cover.
Carried Interest Arrangement
When one of the owners of a property is willing to invest their money to develop a property and looks to recover the investment from the development of that property, a carried interest arrangement is made. The investing party is willing to invest funds required for the development of the interests of all the co-owners and benefits only from the income generated from the developed property.
It is possible that the investor does not recover all his investment. He should therefore be considered as the sole owner during the recovery period as he is entitled to receive all income from the production. The owner who has agreed to pay the development cost is called the ‘carrier or carrying party’ and for whom the investment is advanced is called the ‘carried party’.
Below are some important questions a party can ask themselves while contemplating a deal (from Thompson Knight LLP):
- Is the carryover for a certain number of wells or for a set dollar amount?
- Will it cover drilling and completion costs or also cover the construction of gathering lines?
- Will it cover leasing and land costs?
- If completion costs are included, how is completion defined?
- Is the carry to be used in a certain time period?
- Can the carry be assigned to another party?