Net Revenue Interest
The share of production, or its proceeds, that a working interest owner actually receives after royalty, overriding royalty, and other burdens on production are deducted.
Detailed Definition
A net revenue interest (NRI) is the share of production that a working interest owner actually receives once the burdens on production have been taken out. The SLB Energy Glossary defines it as "A share of production after all burdens, such as royalty and overriding royalty, have been deducted from the working interest. It is the percentage of production that each party actually receives."
Working interest versus net revenue interest
The working interest is the share of the right to operate and of the costs (see Working Interest). The net revenue interest is the share of revenue. A working interest owner pays its full share of costs but is paid only on its net revenue interest, because the royalty owner and any overriding royalty owner take their shares of production free of those costs.
How the arithmetic works
The calculation follows the documents, not a formula. In a simple hypothetical, if a lease reserves a royalty of one-eighth and the lessee has granted an overriding royalty of one-sixteenth, the burdens total three-sixteenths and a lessee holding the whole working interest has a net revenue interest of thirteen-sixteenths. A party holding half the working interest in that lease would have half of that, or thirteen thirty-seconds. Each royalty, override, and payment out of production has to be read from its own instrument, because a burden may cover only some tracts or depths.
Where the term appears in lease forms
Some lessors limit how far the net revenue interest may be reduced. The Utah School and Institutional Trust Lands Administration (SITLA) oil and gas lease form provides: "Lessee shall not create, grant, assign, or otherwise convey any overriding royalty interest or payment out of production that reduces the net revenue interest under this Lease to less than eighty percent (80%) without the prior written consent of Lessor." That is a term of that Utah lease form, not a general rule.
On federal leases, the burdens also matter when a lessee asks for royalty relief. Under 43 CFR 3103.41(b)(3), an application for a royalty reduction must show "whether overriding royalties, payments out of production, or similar interests are paid to others than the United States," and the applicant must file agreements of those holders "to a reduction of all other royalties or similar payments from the leasehold to an aggregate not in excess of one-half the royalties due the United States."
Why it matters in mineral title research
- A net revenue interest is only as accurate as the list of burdens behind it. A missed overriding royalty in an old assignment changes every decimal on the division order (see Division Order).
- Burdens may be limited by tract or depth, so the net revenue interest can differ from one well or unit to the next under the same lease.
- The figures on a pay deck should be traceable back to the lease, the assignments, and any pooling or unit allocation.
Related Terms
Mineral Lease
A contract by which the owner of minerals grants another the right to explore for and produce them for a stated term, in exchange for payments such as bonus, rental, and royalty.
Royalty Interest
A share of production, or of its value, paid to a lessor or other royalty owner without bearing the costs of drilling and producing.
Working Interest
The interest in an oil and gas lease that carries the right to explore, drill, and produce, together with the obligation to pay the costs of those operations.
Overriding Royalty Interest
A share of production carved out of the lessee's interest in a lease, in addition to the royalty reserved to the lessor, and free of the costs of production.
Division Order
An instrument signed by an owner that states the owner's interest in production from a property and directs the payor to distribute the proceeds accordingly.