Identify the types of interests that are created in the following situations. If the interest is an overriding royalty or a production payment interest, also state whether it is a retained or carved-out interest.

a. Aggie Company owns the working interest in a proved property located in northern Wyoming. The property’s net capitalized costs are $100,000. Aggie sold the lease for $500,000 cash and a payment of $200,000, plus interest of 8% to be paid out of the first 40% of the oil produced.

b. Longhorn Oil Company acquired an undeveloped lease for which it paid

$40,000. Financially unable to develop the lease, Longhorn agreed to allow Friendly Company to earn a 40% working interest by paying 100% of the cost of drilling and completing a well.

c. Gavin Oil Company owns a 100% WI in Lease A, which has a 1/5 royalty interest. On February 1, 2020, Gavin carved out a $600,000 payment, payable out of 55% of the net proceeds of the working interest’s share of production, plus interest of 10% on the unpaid balance.

d. Four companies own adjacent leases that share a common reservoir.

The companies decide to operate the properties as one in order to obtain improved operating efficiency. Following negotiations by engineers, geologists, and others, the companies agree upon participation factors and market values of contributed IDC and equipment.

e. Enid Oil Company acquired an unproved property at a cost of $50,000.

Enid Oil later sold the working interest and kept a nonworking interest. As a result, Enid Oil will receive 1/16th of the revenue of the working interest from which the interest was created.

f. Bradt Company assigned a 30% WI in an unproved property to Michael Company in return for Michael Company bearing all costs of drilling, developing, and operating the property. Michael Company is entitled to all of the revenue from production (net of royalty) until Michael Company has recovered all of its costs, at which time the property becomes a joint working interest.