How to Calculate Net Revenue Interest (NRI) in 3 Simple Steps!

Calculating Net Revenue Interest (NRI) is a crucial step in understanding your financial stake in an oil and gas lease. NRI represents the percentage of revenue a mineral rights owner or working interest holder is entitled to from the production of a well. Knowing how to accurately calculate your NRI ensures you receive the correct share of the production proceeds.

When entering into an oil and gas lease, it’s essential to understand the various interests involved, such as working interest, royalty interest, and overriding royalty interest. Each of these plays a role in determining your NRI, which is calculated based on the ownership percentage and the royalty rate defined in the lease. Missing any key detail can lead to errors in the calculation and ultimately affect your earnings.

In this post, we will highlight the crucial role of Net Revenue Interest (NRI) in understanding your share of oil and gas production revenue. We’ll guide you on calculating NRI and estimating your royalty check amount using readily available information.

Some background

To calculate the Net Revenue Interest (NRI), you will need to know the following:

1. Net Mineral Acres (NMA);
2. Drilling Spacing Unit (DSU); and
3. Royalty Rate.

The above items are usually easily found. If you need clarification, we’ll help you locate them. This will give you the confidence to navigate the process.

For calculation purposes, we assume that the royalty is not burdened by a Non-Participating Royalty Interest (NPRI). Identifying if there is an NPRI usually requires performing a title search to understand if anything was carved out in the past. 

For this article, we assume that the royalty is not burdened by an NPRI. If your family has owned the minerals rights over time, this situation would likely not apply.

Calculating the Net Mineral Acres (NMA)

Let’s say you own mineral rights in Louisiana. The gross acres for this section is 320 acres, and you own 1/25 interest in the property. Your decimal interest in this property would be 0.04. Here is the calculation of Net Mineral Acres:

Net Mineral Acres = 320 Acres x 0.04 = 12.8 net acres

Finding the Size of your Drilling Spacing Unit

To locate your Drilling Spacing Unit (DSU) for a mineral lease, follow these steps:

1. Review Your Lease Documents: Your lease agreement may contain information on the specific drilling spacing unit (DSU) that covers your mineral interests. Review the terms for any references to spacing units or unitization.
2. Contact the Operator: Reach out to the company operating the well or the lease. They should be able to provide detailed information about the DSU, including its boundaries and the unit size.
3. State Oil and Gas Commission: Most states have regulatory agencies that oversee drilling and mineral rights, such as the State Oil and Gas Commission or the Department of Natural Resources. These agencies maintain records on drilling permits and DSUs. You can typically find spacing unit information through their databases and websites or by contacting them directly.
4. County or Parish Land Records: Your local county or parish clerk’s office may have records on drilling activity and spacing units. These public records can be accessed either online or in person.

Locating Your Royalty Rate

You can find this information on your Oil and Gas Lease. On the first page, look for a statement similar to the following:

“The lessee will deliver to the credit of the lessor as royalty, free of cost, into the tanks or in the pipeline on the leased premises to which lessee may connect its wells the equal twenty-five percent (25%) part of all oil that is produced and saved from the leased premises.”

In this case, the Royalty Rate is 25%. There will may be a similar statement referring to payment for gas sold. If you don’t have the lease, you can perform a search in your county clerk & recorder’s office or hire the services of a landman to do it for you.

Net Revenue Interest (NRI) Calculation

Now it’s time to dive into the final calculation:

Net Revenue Interest = Net Mineral Acres / Drilling Spacing Unit Acres * Royalty Rate

Continuing our example, here’s what we know:

Net Mineral Acres = 12.8 Acres

DSU Size = 640 Acres

Royalty Rate = 25%

So, our NRI = 12.8 / 640 * 0.25 = 0.005

This means we will receive 0.5% of any oil or gas sold on this well.

In this example, we have assumed that all of the respective acreage is located inside the DSU. If the acreage is only partially in the DSU (for instance, the DSU could possibly span part of a section that cuts through the acreage), you must multiply this NRI result by the percentage of your acreage inside that DSU. 

For example, if only half of your land is in a particular DSU, you would multiply the NRI above by 50% since half of your tract is part of that DSU and the rest is part of one or more other DSUs. Alternatively, if you know the number of Net Mineral Acres that are part of a particular DSU, use that number in the NRI calculation rather than the total number of Net Mineral Acres owned.

Final thoughts

Calculating the Net Revenue Interest (NRI) for a mineral rights lease is a critical step in determining your share of the income from oil and gas production. Accurate NRI calculations ensure you receive the proper percentage of revenue based on your ownership interest, lease terms, and royalty percentages. By understanding this calculation, mineral owners can effectively manage their financial expectations and verify the accuracy of payments from the operator.

Whether you are a seasoned mineral owner or new to the process, taking the time to accurately calculate and review your NRI is essential to maximizing the benefits of your lease. Working with industry professionals, such as landmen or attorneys, can help you navigate complex lease agreements and safeguard your financial interests. Properly understanding your NRI will provide you with clarity and confidence in managing your mineral rights.