NPRI Calculation

General Mineral Rights Discussion
1

My brother and I each own 25% mineral rights on a 10 acre parcel in LaSalle County. We were recently contacted by EOG to establish our NPRI. I'm unclear how this is calculated. It seems to me that it should be 1/4 for me and 1/4 for my brother calculated as 1/2 of 1/2 since we retained 1/2 of the mineral rights when we sold the parcel. However, their representative said it should be calculated as 1/2 of 1/2 of 1/4 or (1/16) to factor in the 25% royalty.

My second question is what is the definition of net acre. if we own 1/4 of the mineral rights of the 10 acres is the net acres we each own then 2.5 acres.

2

Mr. Sciacero,

Together, you and your brother own 1/2 of the royalty to 10 acres. So, before the land was leased, you (together) owned 1/2 of 10 acres, or 5 Net Royalty Acres, or 2.5 Net Royalty Acres each.

Then the land was leased to EOG at 1/4 royalty. So, you and your brother's interest was diluted by the royalty to 1/2 of 1/4 of 10 acres or 1/8 royalty or 1.25 Net Royalty Acres total or a 1/16 royalty to 10 acres each. So, I believe EOG would be correct in that you would each own 1/16th of the royalty to your 10 acres.

Hope this helps.

3

Thanks for the input. This helps clarify things

Texas Tea said:

Mr. Sciacero,

Together, you and your brother own 1/2 of the royalty to 10 acres. So, before the land was leased, you (together) owned 1/2 of 10 acres, or 5 Net Royalty Acres, or 2.5 Net Royalty Acres each.

Then the land was leased to EOG at 1/4 royalty. So, you and your brother's interest was diluted by the royalty to 1/2 of 1/4 of 10 acres or 1/8 royalty or 1.25 Net Royalty Acres total or a 1/16 royalty to 10 acres each. So, I believe EOG would be correct in that you would each own 1/16th of the royalty to your 10 acres.

Hope this helps.

4

Dear Mr. Sciacero,

You are mixing apples and oranges with your recitation of facts. If you collectively reserved 1/2 of the minerals, then you evidently signed a lease with EOG. Your net mineral acres would be 5 net mineral acres for the collective.

Then you talk about an NPRI, which has nothing to do with mineral acres. And you do not each own 2.5 royalty acres. A mineral acre is defined as a full mineral interest under one surface acre. A royalty acre is the full landowner royalty under one mineral acre. Typically, there are 8 royalty acres to the mineral acre.

IF you owned royalty only and the lease provided for 1/4 landowners royalty, AND the reservation of royalty was one-half of the royalty provided for in an oil and gas lease, then your brother and you would each own 1/4 of 1/4 or an 1/16 NPRI. You would have the same interest if you owned a total of 1/2 of the minerals and signed a lease for 1/4 royalty.

But you still have not arrived at your share of production. 10 acres will not support a well. To make things easy (ier) to understand, you first arrive at your tract participation factor. If a 320 acre unit was formed, your collective tract participation factor would be 5/320. Therefore 2.5/320 x 1/16 = 0.00048828125 of production (decimal interest each).

For real life numbers on the imaginary 320 acre unit, if the well produced 35,000 barrels of oil for the first month and you were paid WTI price, then the gross revenue for the unit should be about $88.00 x 35,000, or $3,080,000 (gross before taxes, operating expenses, etc). take your revenue percentage of 0.00048828125 multiplied by the gross revenue, then your gross revenue would approximate $1503.91 (each) for that particular month.

To further muddy the waters a bit, if you are a NPRI owner, a drillsite tract and unpooled, the jury is out in Texas as to horizontal drilling, but from an operational standpoint, the industry practice is to have the NPRI sign a division order and pay them accordingly, whether they ratify the unit or not.

There is a lot more to royalty calculations than meet the uninformed eye. For example, suppose the land came to you and a true NPRI of 1/2 of the usual 1/8 royalty was reserved by a prior owner. If you are a true royalty owner, then the reservation does not affect you in this scenario. HOWEVER, if you are a true mineral owner, then your percentage will be reduced by the previous reservation of the NPRI.

Best

Buddy Cotten
5


Sorry for all of the confusion. You clearly did not execute a lease. You specify that the contact was in fact regarding an NPRI. Texas Tea gave you a great answer. Take it and go with it, or come back and reconstruct your question.

Did you reserve an NPRI or an outright mineral reservation?

You very specfically did use the term NPRI, therefore it would be understandable as to why someone like Texas Tea would have answered your question like that.

You never mentioned that you signed a lease. That was inferred as well.

The way that you wrote it, I believe that the reservation was for an NPRI only. Is that what what you meant?

We understand that you are not a pro, just a novice needing help.
Jim Sciacero said:

Thanks for the input. This helps clarify things

Texas Tea said:

Mr. Sciacero,

Together, you and your brother own 1/2 of the royalty to 10 acres. So, before the land was leased, you (together) owned 1/2 of 10 acres, or 5 Net Royalty Acres, or 2.5 Net Royalty Acres each.

Then the land was leased to EOG at 1/4 royalty. So, you and your brother's interest was diluted by the royalty to 1/2 of 1/4 of 10 acres or 1/8 royalty or 1.25 Net Royalty Acres total or a 1/16 royalty to 10 acres each. So, I believe EOG would be correct in that you would each own 1/16th of the royalty to your 10 acres.

Hope this helps.

6

Mr. Sciacero,

You say that you and your brother collectively reserved 1/2 of the mineral rights pertaining to a piece of land. So has you or your brother ever signed an Oil and Gas Lease on this piece of land? If not, can you confirm whether or not you have a mineral interest, an NPRI, or both?

P. W.

7

Jim,

Sorry that you are being hammered with repeat questions. It could be that you weren't familiar with terms like NPRI or mineral reservations with right to execute the lease and receive bonus.

No pressure. I think you have gotten enough feed back now where you knew more than you did before.

You did say that the oil company contacted you with regard to an NPRI.

I'm guessing that is what you own, while not being sure. You did throw some other unrelated terms out there, but I guess we will never know, unless you come back on and reconstruct your question.



Jim Sciacero said:

Thanks for the input. This helps clarify things

Texas Tea said:

Mr. Sciacero,

Together, you and your brother own 1/2 of the royalty to 10 acres. So, before the land was leased, you (together) owned 1/2 of 10 acres, or 5 Net Royalty Acres, or 2.5 Net Royalty Acres each.

Then the land was leased to EOG at 1/4 royalty. So, you and your brother's interest was diluted by the royalty to 1/2 of 1/4 of 10 acres or 1/8 royalty or 1.25 Net Royalty Acres total or a 1/16 royalty to 10 acres each. So, I believe EOG would be correct in that you would each own 1/16th of the royalty to your 10 acres.

Hope this helps.