Working Interest Financing: Funding Your Share of Drilling and Completion Costs

By MercFinancial · Published 2026-09-03 · Updated 2026-09-07

Working interest financing funds your share of drilling, completion and operating costs under a joint operating agreement. Here is how AFEs and cash calls work, why lenders treat a working interest differently from reserves, and which structures fit.

Working interest financing pays your cost-bearing share of drilling, completing and operating a well when the operator issues an authority for expenditure and the cash call that follows it. Lenders fund it in three broad ways: a reserve-based loan against production you already own, a development facility tied to a specific drilling program, or structured capital such as a DrillCo, a carried interest or a joint venture partner that takes part of the upside instead of a fixed repayment. Which fits depends on whether you have producing reserves to borrow against or only the obligation to pay.

This article explains what a working interest actually obligates you to pay and when, how the AFE and election clock work, why financing a working interest is a different problem from financing reserves, what lenders worry about on these deals, the options from bank debt to structured capital, and how to prepare a request that a lender can act on before the election window closes.

"The AFE landed on a Tuesday with a thirty-day election window, and my share of the completion was more cash than the company had on hand. I learned the difference between financing a well and financing a working interest in about a week."

What a Working Interest Obligates You to Pay

A working interest is a share of the leasehold that carries the obligation to pay a matching share of the costs: drilling, completion, equipment, operations and eventually plugging. Your revenue share, the net revenue interest, is smaller than your working interest because the lease royalty and any overriding royalties come off the top before the working interest owners are paid. Owning a working interest is owning a slice of a business, with the bills that go with it.

The joint operating agreement governs the relationship. One party operates; the others are non-operators who pay their share and receive their share. The operator proposes work by sending an authority for expenditure, an estimate of the cost of a well or a project, and each working interest owner elects whether to participate. Costs are billed through monthly joint interest billings, and for large items the operator can issue a cash call in advance rather than billing after the fact. Under most agreements the operator holds a lien on each non-operator's interest to secure payment, so an unpaid billing is not merely a dispute; it is a claim against your collateral.

AFEs, Cash Calls and the Election Clock

The AFE starts a clock. The standard form agreements used across Texas give a working interest owner a fixed window, commonly thirty days, to elect to participate, and a far shorter one when a rig is already on location. Silence is treated as an election not to participate. An AFE is an estimate, not a cap: actual costs are billed as incurred, and overruns arrive as supplemental AFEs or simply as larger billings.

The financing problem is timing. Costs are due in the months around drilling and completion, while revenue does not begin until the well is flowing, first purchaser statements are issued and division orders are in place, which can take months after first production. A working interest owner therefore needs capital that funds before the election deadline and carries the interest until revenue arrives, without knowing exactly what the well will produce.

Financing a Working Interest Is Not Financing Reserves

Reserve-based lending, the core bank product in oil and gas, advances a percentage of the engineered value of proved developed producing reserves and adjusts the borrowing base as reserves and prices change; the mechanics are covered in reserve-based lending explained. A working interest in a well that has not yet been drilled has no producing value, and undeveloped reserves receive little credit in a borrowing base. So an owner with existing production can often fund an AFE by drawing on a facility secured by the wells it already has, while an owner whose only asset is the new interest cannot borrow against it in the conventional sense.

Once the well is producing, the picture changes. The new production can be added to the borrowing base at the next redetermination, and a lender that would not fund the drilling may refinance it after the fact. Many operators plan for that sequence deliberately: fund the drilling with structured capital or equity, then term it out with reserve-based debt once the well has a few months of history.

What Lenders Worry About on Working Interest Deals

The general underwriting is described in what oil and gas lenders look for. On a working interest request, five concerns dominate.

• The operator. A non-operator's outcome depends on someone else's drilling, completion and cost discipline. Lenders examine the operator's track record on offset wells, its financial condition and regulatory standing, and whether its actual costs have tracked its AFEs.
• Decline. Horizontal wells produce most heavily in their first year or two and decline steeply after that. A loan sized on early production and amortized slowly can be underwater by the time it matures.
• Water. Produced water volumes rise as wells age, and disposal costs can turn a marginal well into a liability. Lenders want to see water handling in the operating cost forecast, not discovered later.
• Control. A non-operator cannot decide when to drill, shut in or sell. Preferential purchase rights, maintenance-of-uniform-interest clauses and the operator's lien all constrain what a lender can do with the collateral.
• Price and overruns. The lender's price deck sits below the strip, and the cost estimate is stress-tested for overruns. If the deal only works at current prices and the AFE number, it does not work for a lender.

The Options, From Bank Debt to Structured Capital

A DrillCo deserves a word because it is often misunderstood. A capital provider funds an agreed share of the well costs in exchange for a working interest in those specific wellbores, not in the lease. After the provider earns a target return, part of its interest reverts to the operator. It is expensive upside given away, but it funds drilling that no lender would, and it does not touch your existing production. Small operators weighing these routes will find more in drilling and completion financing for small operators, and operators who are the ones carrying partners can read about JIB receivables factoring.

Preparing a Request a Lender Can Act On Before the Deadline

Because the election clock does not wait for underwriting, the request has to arrive complete. Lenders and capital providers in this space expect the joint operating agreement and the AFE itself; the operator's history on offset wells, with production data and how actual costs compared with estimates; a schedule of your existing producing interests with lease operating statements and, if you have one, a current reserve report; your hedging position; a sources-and-uses budget showing how much of the AFE you will fund yourself; and entity documents with the owners' personal financial statements and tax returns.

Owners who assemble that package once and keep it current can respond to an AFE in days rather than weeks. If you have an AFE in hand and are not sure which of these routes fits your situation, a free 30-minute call with a funding specialist is a fast way to find out; you can book one here.

Where MercFinancial Fits

MercFinancial is a commercial funding brokerage in Houston, Texas. We are a broker, not a lender, and we do not promise approval or terms. On a working interest request we establish first whether the file is a reserve story, a development story or a structured-capital story, then match it across the lenders in our network of more than 160 wholesale sources, which includes reserve-based lenders, private energy credit and capital providers that fund drilling programs. A specialist can usually tell you within one conversation which programs typically fit your interest and what the election timeline allows.

Our oil and gas funding page outlines the reserve-based, development and equipment programs we place. We do not give legal advice; questions about your operating agreement's election and non-consent terms belong with an oil and gas attorney.

Frequently Asked Questions

What is working interest financing?

It is capital raised to pay a working interest owner's share of drilling, completion and operating costs under a joint operating agreement. It can be debt secured by production the owner already has, a development loan tied to a drilling program, or structured capital such as a DrillCo or carried interest in which a provider funds the costs in exchange for part of the upside.

Can you get a loan to pay a cash call on a well?

Sometimes. An owner with existing producing reserves can often draw on a reserve-based facility or a development loan to fund a cash call. An owner whose only asset is the undrilled interest usually cannot borrow against it, because undeveloped reserves receive little credit, and instead looks to a carried interest, a partner or selling down part of the interest.

How is a non-operated working interest financed?

Lenders finance non-operated interests when the operator is strong, the offset results are documented and the owner has production or other collateral to lend against. Because the non-operator does not control the wells, lenders discount the interest for operator risk and rely on the operating agreement's terms. Owners without production typically fund non-operated interests with equity or a carry.

What happens if you go non-consent on an AFE?

You keep your interest in the lease but receive none of the well's revenue until the consenting parties have recovered the costs they carried for you plus the penalty set in the operating agreement, usually a multiple of those costs. On a productive well that recoupment can take years, which is why the cost of financing your share is often lower than the cost of non-consent.

What is a DrillCo?

A DrillCo is an arrangement in which a capital provider funds an agreed share of the cost of specific wells in exchange for a working interest in those wellbores only. Once the provider achieves a target return, part of its interest reverts to the operator. It funds drilling without bank debt or company-level dilution, at the price of giving up part of the early production from those wells.

This article is for educational purposes only and is not financial advice. Loan programs, rates, and approvals vary by lender and borrower profile.