In looking at offers to lease mineral rights I have noticed this difference in wording. Is there a difference in “royalty interest” and “net revenue interest”? I have tried to look this up but I am not finding much information regarding net revenue interest.
The terms are related, but don’t mean the same thing.
The royalty is what is reserved in the oil and gas lease by the mineral owner (the “lessor”). For example, if the lease states that the lessor is to receive a 3/16 royalty, then he/she gets 3/16 of the proceeds of the producing oil and gas lease based on how much acreage that owner owns in the unit. Now, if you were to put 3/16 in a calculator, it comes out to a decimal number of .1875. To get the net revenue interest in the lease (not the unit), one would subtract .1875 from 1. 1.0000 - .1875 = .8125. The lessor/ mineral owner could deliver a .8125 or 81.25% lease. Sometimes, the offer says the company will pay, for example, $500 per acre if you deliver a 87.5% net revenue interest. That is a 1/8 royalty because if you put 1/8 in a calculator, it comes out to .125. 1.000 - .125 = .875. then they may only pay $250 an acre for a 81.25% net revenue lease, and perhaps (again, an example) $50 per acre for a 80% or a .8000 net revenue interest lease. the company (or a mineral buyer will pay less for a lower royalty, because they will receive less revenue over the life of the well. I bet when you inherited minerals, nobody told you there would be math.
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Thank you for your explanation!
I thought I was on the right “calculation” track but wasn’t sure! I appreciate your taking the time to explain.
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