What is a net revenue interest?
Net revenue interest is a calculation of the total revenue interest that a person owns in a unit. What does this mean if you are a mineral owner? It means that the following formula will help you to determine your net revenue interest and in turn what you might anticipate receiving as your share of production from a well. To illustrate this we provide the following example:
Bob owns 40 acres in the SE/4. Company X has drilled a well in a 640 acre unit comprised of Bob’s 40 acres and the surrounding lands. Bob has signed a lease at a 3/16 lease royalty. Bob wants to know what his net revenue interest will be in the unit. To determine Bob’s net revenue interest he divides his 40 acre interest by the unit size of 640 acres and multiplies that number by his lease royalty of 3/16. So 40 x 640 x 3/16 = .01171875 net revenue interest. Bob would therefore be entitled to .01171875 of all production from the unit.
But what if instead of owning 40 acres in the SE/4 Bob owns a 1/4 mineral interest in those same 40 acres. In this instance Bob will only be entitled to 1/4 of the net revenue interest calculated above or a 1/4 x 40/640 x 3/16 = .00292969 net revenue interest. Once production begins Bob will receive payment from the oil company operating the well for his share of production in the unit. In order to determine how much Bob should be paid for a month the operator will multiply his net revenue interest by the price of oil multiplied by number of barrels produced. The operator will then subtract from his share of production payment any applicable severance taxes and post production costs.