Net revenue interest is defined as a share of oil or gas production that is calculated after deducting any burdens from the working interest. For example, an oil well typically has a mineral rights owner and an overriding royalty owner. These owners receive a flat percentage "off the top," so to speak, of the well proceeds. The remaining owners are known as working interest owners. Each owns a working interest percentage of the well proceeds. Each must calculate her net revenue interest in production.
1. Add together the percentage figures of the mineral rights and overriding royalty owners. The mineral rights owner and the overriding royalty owners each have a royalty interest in the oil well, for example. They are known as the royalty owners and are always paid first, before any working interest owners. As an example, say the mineral rights owner's percentage is 14 percent and the overriding royalty owner gets 5 percent. Add 14 to 5 to get 19.
2. Deduct the royalty owners' percentage figure from 100. Continuing with the above example, 100 minus 19 = 81.
3. Multiply each of the percentage interest figures for working interest owners by the result. For example, among three working interest owners are percentages of 30, 50 and 20. To arrive at the net revenue interest for the first working interest owner, multiply 30 times 81 percent -- or 30 x 0.81 -- which equals 24.3 percent net revenue interest. For the second owner multiply 50 times 81 percent -- or 50 x 0.81 -- which equals 40.5 percent. The final working interest owner's calculation is 20 times 81 percent -- or 20 X 0.81 -- which equals 16.2 percent.
4. Check your calculation by adding together the net revenue interest figures. Adding them should equal the 100 percent less the royalty owner percentage figure. In this example, 24.3 + 40.5 + 16.2 = 81.
- Overriding royalty interest owners do not bear the cost of drilling or operating a well.
- The working interest owner bears the expense of oil (or gas) exploration, development and well operation. In exchange, he receives a share of the proceeds of the well after royalties have been paid.
Items you will need
- Percentage interest figure for each owner
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