land_ownership · ownership
Back-in / Carried Interest
Current WI = 0 before payout; Current WI = Back-in WI once Cumulative Net Revenue >= Payout Amount
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Inputs
fraction
$
$
Description
Models a back-in (carried) working interest that converts from zero participation to a stated working interest fraction once a payout threshold — cumulative net revenue recouping the carrying party's cost basis, often including a negotiated multiple — is reached. Merges what would otherwise be two near-duplicate calcs (back-in interest and carried interest allocation) into one, since a back-in interest is the mechanism a carried interest converts through.
Variables
| Symbol | Unit | Description |
|---|---|---|
| WI_current | fraction | Current Working Interest |
| R_remain | $ | Remaining to Payout |
| WI_backin | fraction | The working interest fraction the carried party converts to once the payout threshold is reached — the negotiated back-in fraction. |
| P | $ | The cumulative net revenue threshold that triggers payout — the carrying party's cost basis, already including any negotiated payout multiple (e.g., a '200% payout' provision), entered directly as one dollar figure. |
| R_cum | $ | Cumulative net revenue attributable to the interest being tracked, from first production through today. |
Assumptions
- Payout is tracked as a single cumulative net revenue figure against a single payout amount that already incorporates any negotiated payout multiple — this calculator does not compute the payout amount itself from raw AFE costs and a multiple.
- The back-in working interest fraction is fixed and does not itself escalate or de-escalate over time once activated.
- Payout is a single binary threshold — the most common back-in structure — not a graduated or multi-tranche arrangement.
Limitations
- Does not derive the Payout Amount from raw drilling/completion costs and a negotiated multiple — that dollar figure must be computed separately (e.g., Cost Basis × Payout Multiple, such as 2.0 for a '200% of cost' provision) and entered directly.
- Does not model partial or graduated back-in structures (e.g., working interest ramping up in steps) or multiple sequential payout tranches — only the single binary before/after payout case.
- Cumulative Net Revenue must be tracked and updated externally as production continues; this calculator evaluates a single point-in-time snapshot, not a running ledger.
Use Cases
- → Payout status check: Determine whether a carried party's back-in interest has activated yet, given cumulative production revenue to date.
- → AFE / JOA administration: Model the before-vs-after-payout working interest split for joint interest billing and revenue distribution purposes.
Related Calculations
Region Notes
General (U.S. onshore)
Back-in/carried-interest structures and payout multiples (100% straight cost recovery vs. 150-300%+ promoted payout) are heavily negotiation-specific and vary widely by deal — always confirm the exact payout definition, multiple, and what costs count toward it from the actual participation, farmout, or joint operating agreement rather than assuming a standard figure.
References
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