
Key differences that matter
Direct participation often provides better tax breaks than royalties, because working-interest owners may be able to elect to expense intangible drilling costs and claim depletion. Royalties may get depletion, but typically don’t generate IDC-style deductions because royalty holders aren’t paying drilling costs.
Royalties only pay after production. Direct participation may require upfront spending before first sales, and cash flow can vary as wells decline.








