Also known as: carried interest · carry
Written by attorneys · grounded in primary & secondary sources — see below
An arrangement in which one participant in an oil and gas venture or partnership receives a share of profits without bearing initial exploration or development costs. Those costs are advanced by other participants and recovered from production before the carried interest holder begins sharing net proceeds.
Carlos Castillo advanced all drilling costs on a new well under an agreement with Cedar Creek Farms. After production began and costs were recouped from the first year's revenue, Cedar Creek Farms received its carried interest share of net profits. The carried interest allocation stood because the parties had genuinely agreed on the cost-recovery structure.
Chloe Chen retained counsel to structure a carried interest in Compass Logistics' new drilling program. The client directed that the carried interest would vest only after full cost recovery. Counsel followed those objectives by drafting the assignment so that Chloe received her profits share without upfront capital while the operating partner bore the initial outlays.
Carmen Choi held a carried interest in a mineral lease that included an access servitude across Crystal Dynamics' surface estate. The instrument's language showed the parties intended the carried interest to begin after payout. The servitude was therefore read to permit continued access once the carrying party recovered its costs and the carried interest became active.
Select any source to read its text and confirm it supports the definition.
Christopher Collins formed a carried interest partnership to develop Cypress Technologies' oil prospects. The carried interest allowed Collins to participate in profits after the carrying partner recovered drilling expenses without Collins contributing capital at the outset.
Cecilia Cabrera joined an association with two investors to carry on oil production for profit. Under the agreement Cecilia received a carried interest that vested after the investors recovered their costs. The arrangement satisfied the statutory definition of partnership because the parties carried on the business as co-owners even though Cecilia contributed services rather than capital.
Christine Castro deliberately executed documents assigning a carried interest in an existing well to a service provider. The assignment reflected her voluntary decision to shift cost recovery obligations. Because the act was a conscious manifestation of will, the carried interest became effective once the carrying party recouped its advances from production.
A carried interest allows the holder to receive a share of production profits without paying initial costs, which are advanced by the carrying party and recovered first from revenues. A working interest requires the owner to pay its proportionate share of all costs from the outset.
Supporting sources
The profits interest portion of a carried interest generally receives long-term capital gain treatment under Subchapter K when the underlying assets produce capital gain, even though the interest compensates for services.
Supporting sources
Distributions to the carried interest holder begin only after the carrying party has recovered its advanced costs from production revenues, a point known as payout.
Supporting sources
…to do; for, according to the principle acted on in Smith v. Kenrick , the person working the mine had a right to win and carry away all the coal without leaving any wall or barrier. But that is not the real state of the case. The Defendants, in order to effect an object of their own, brought on to their land, or on…