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Understanding Manahan-Type Carried Interest in Oil and Gas Law
Definition & Meaning
Manahan-type carried interest refers to a specific transaction in the oil and gas industry, where the owner of a lease (the assignor) transfers all their working interest to another party (the assignee). In this arrangement, the assignor retains a reversionary interest in a portion of the working interest. This means that after the assignee has covered certain costs related to drilling and development, the assignor can reclaim their interest during the payout period.
Table of content
Legal Use & context
This term is primarily used in oil and gas law, which governs the rights and responsibilities related to the exploration and production of these resources. Manahan-type carried interest transactions are common when parties want to share the financial burden of development while ensuring that the original owner retains some future rights to profits. Users may find legal templates related to this type of transaction on platforms like US Legal Forms, which can help them navigate these agreements effectively.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: An oil company (the assignor) holds a lease for a drilling site but lacks the funds to develop it. They assign their working interest to another company (the assignee), which agrees to cover the drilling costs. Once the assignee recoups their investment, the assignor can reclaim a portion of the working interest.
Example 2: A small landowner (the assignor) assigns their working interest in a gas lease to a larger energy firm (the assignee) for development. After the assignee recovers their specified costs, the landowner can exercise their reversionary interest (hypothetical example).
State-by-state differences
State
Regulation Variance
Texas
Strong regulations on lease assignments and reversionary interests.
California
Specific environmental regulations affecting assignments and development.
Oklahoma
Allows for flexible arrangements in working interest assignments.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Carried Interest
A share of profits from an investment that is given to a partner without requiring them to invest capital.
Carried interest does not involve a reversionary interest like the Manahan-type.
Working Interest
The right to explore and produce oil and gas from a property.
Working interest is the basis of the Manahan-type transaction but does not include the assignment aspect.
Common misunderstandings
What to do if this term applies to you
If you are considering a Manahan-type carried interest transaction, it is essential to understand the terms of the assignment and your rights as an assignor. You may want to consult a legal professional to ensure compliance with all applicable laws. Additionally, you can explore US Legal Forms for templates that can help you draft the necessary agreements.
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