Working Interest Financing: Lines of Credit and Term Loans for Operators and Investors

Finance your share of drilling and completion costs instead of giving away most of the well or writing the whole check. Lines from $50,000 to $600,000 and above, with a 0% introductory rate for qualified borrowers.

Who it is for

Two groups. Operators who raise drilling capital from investors and keep 30% to 50% of each well as a carried interest, and who would keep far more by financing the drilling and carrying fewer investors. And individual working-interest investors who want to take more units in a well they have already chosen without tying up every dollar in cash. In both cases the loan funds the AFE share; the well's net revenue repays it.

The program

Working-interest lines of credit and term loans from $50,000 to $600,000, with larger amounts available on the strength of the file. For qualified borrowers the introductory rate is 0% for 12 to 18 months, with a minimum payment of 1% of the outstanding balance per month during that period; after the introductory period the rate is Prime plus 1% to Prime plus 6%, set by the borrower's profile. There is no requirement to sweep production to the lender during the introductory period, which is what lets a borrower recover their own cash first and then retire the balance from the well.

The line is a credit facility secured by the borrower, not a purchase of the interest and not a participation in the well. MercFinancial does not sell, offer or recommend any well, interest or operator, and takes nothing from any; we finance the interest you have already chosen.

What strategic leverage does to the arithmetic

Leverage amplifies returns in both directions, so it belongs on a well with a credible type curve and a borrower who could carry the balance if the well disappoints. Used that way, strategic leverage enhances returns and further mitigates and minimizes risk: the investor keeps cash in reserve instead of concentrating it in one well, the operator keeps the working interest that would otherwise go to investors, and both repay the loan from production during the window in which it costs nothing to carry. Our two guides below walk through the operator's and the investor's numbers on an illustrative well, year by year, including what happens at lower oil prices.

What the application looks like

A short application, a soft credit pull, the AFE and the well or program information (operator, location, type curve or offset production), and the borrower's financial profile. Decisions are quick because the line is underwritten on the borrower and the well data rather than on a full reserve report. Draws fund the cash calls as they come.

MercFinancial is a commercial funding brokerage, not a lender. Approval, loan amount, rate, term and funding are decided by the funding source on the strength of the file; nothing on this page is an offer or a commitment to lend.

Tax treatment of intangible drilling costs, depletion and passive-loss rules depends on your facts; confirm with your tax adviser before relying on any benefit.

Frequently asked questions

Is a working-interest line of credit secured by the well?

It is a credit facility extended to the borrower on the borrower's profile and the well data; the lender's security is set out in the loan documents and varies by lender. It is not a purchase of the interest and not a participation in the well. MercFinancial arranges the loan and has no stake in the well.

What does 0% for 12 to 18 months actually mean?

For qualified borrowers no interest accrues during the introductory period; the minimum payment is 1% of the balance per month. After the period the balance carries an index-based rate between Prime plus 1% and Prime plus 6%, depending on the borrower's profile. Borrowers who repay from production inside the window pay little or no interest at all.

Can an operator use it to carry fewer investors?

Yes. That is the operator use case: finance part or all of the AFE through the line instead of selling working interest to investors at a carried promote, keep the interest, and repay the line from the well's net revenue. The operator guide below compares the two paths on an illustrative well.

What happens if the well underperforms?

The loan is still owed. Production repays it more slowly, interest accrues after the introductory period, and the borrower carries the balance. That is why the line suits development wells with credible type curves and borrowers who can service the debt without the well, and why we show the lower-price case in our guides.

Does financing a working interest change its tax treatment?

Financing does not by itself change whether intangible drilling costs are deductible or how depletion applies; those depend on the interest, who bears the costs and your own tax position. Confirm with your tax adviser.

Guides on this topic

Keep the Well: Financing the Drilling Instead of Giving Away Most of It — Most small and mid-sized operators raise drilling capital from investors and keep 30% to 50% of each well. Financing exists for operators, and it costs interest, not most of the production. One well, two ways, with the numbers.
Strategic Leverage for Working Interest Investors: Financing Your Units Instead of Writing the Whole Check — Working-interest lines of credit and term loans exist for individual oil and gas investors. One $100,000 decision, two outcomes, year by year: cash only, or four units with financing and the well left to retire the loan.
Working Interest Financing: Funding Your Share of Drilling and Completion Costs — 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.
Drilling and Completion Financing for Small Operators — How independent operators fund drilling and completion costs with debt, not equity: development facilities, well-secured advances, and AFE financing.
Joint Venture Partner or Debt: Which Capital Fits Your Oil and Gas Project? — Debt keeps your ownership but demands repayment from a declining asset; a partner takes part of the upside but shares the risk and funds what lenders will not. Here is how to weigh selling interest, farm-outs, carries and DrillCos against borrowing.