In the United States, it is common for one or more concurrent owners, or co-tenants, to own the fee oil and gas estate in fractional interests. Each of these co-tenants may execute oil and gas leases to different lessees, who then own undivided fractional shares of the leasehold estate with other Lessees and unleased mineral owners. Any of these co-tenants may drill and produce oil and gas on lands owned jointly with their co-tenants. However, the operator runs a risk of loss if the well is a dry hole and must account for its co-tenants for their share of the production after the operator has recovered the amount spent to drill and produce the well. Because the operator assumes the risk of a dry hole, drilling as a co-tenant does not spread the risk and cost of oil and gas operations. Additionally, it is unclear which expenses can be recovered from production before the operator must account for its co-tenant. The purpose of the operating agreement is to solve the co-tenant problem.
Ed Wilhelm, Wilhelm Law