Flintrock Oil & Gas Company (Flintrock) owns a 100% working interest in an oil and gas
lease located in Moore County, Texas. The royalty on the lease is 2/8. Flintrock does not have
the funds to develop the lease and decides to assign the working interest to Thomas Oil Company
(Thomas), reserving an interest that will pay 1/8 of 6/8 of gross revenues, but where Flintrock
will pay none of the operating expenses. Assume in 2020 Thomas produces and sells 15,200
BBLs of oil for total gross revenue of $836,000 and incurs $420,000 in lease operating expenses.
REQUIRED (where applicable, you must show your work)
A. What type of interest has Thomas acquired?
B. What type of interest has Flintrock retained?
C. What is the gross revenue to each owner?
D. What portion of the lease operating expenses will each owner pay?