Legal Definitions - carried interest

Definition: Carried interest refers to a fractional interest in an oil-and-gas lease that is free of some or all costs of exploring, drilling, and completing the well. The owner of a carried interest may earn royalties on production but does not have a working interest, at least until all costs are recouped by the working-interest owner or owners, and often until some multiple of those costs is paid.

Example: Let's say that a company wants to drill for oil on a piece of land. The company may offer a carried interest to someone who owns the land, which means that the landowner will receive a percentage of the profits from the oil that is produced, but will not have to pay any of the costs associated with drilling and exploring for oil. This can be a good deal for the landowner, as they can earn money without having to invest any of their own resources.

Explanation: The example illustrates how carried interest works in the oil-and-gas industry. The owner of the carried interest is essentially a passive investor who receives a share of the profits without having to take on any of the risks or costs associated with drilling for oil. This can be a good way for landowners to earn money from their property without having to invest in expensive equipment or expertise.