Carrying party definition
/What is a Carrying Party?
A carrying party is the party that agrees to pay for the share of a carried party in a project. In this situation, the interest of the carried party is shifted to the carrying party until the carrying party has earned back the payment that it made on behalf of the carried party, plus a penalty payment that is specified in the underlying joint operating agreement. Once the carrying party has received these amounts, the carried party can resume its interest in the property. This situation commonly arises in the management of jointly-owned oil and gas leases.
Example of a Carrying Party
An example of a carrying party can be seen in a joint oil and gas exploration project where two companies, Alpha Energy and Beta Resources, each own a 50% working interest in a new lease. Beta Resources lacks the capital to fund its share of the initial drilling and development costs. Alpha Energy agrees to act as the carrying party by paying 100% of the upfront costs, including Beta’s 50% share.
According to the joint operating agreement, Alpha will recover all of Beta’s costs plus a 20% penalty from Beta’s future production revenue before Beta can begin receiving its share of profits. During this period, Alpha temporarily holds 100% of the project’s revenue until its full investment and penalty are recouped. Once those amounts are recovered, Beta resumes its 50% interest in the lease.
Related AccountingTools Course
FAQs
How is the arrangement documented?
The arrangement is documented within the joint operating agreement, typically in a specific carry or non-consent provision. The agreement defines funded costs, recovery priority, penalty percentage, production revenue allocation, accounting procedures, and the conditions under which the carried party’s working interest is fully reinstated after payout.
