I own mineral rights with NPRI’s. There are 4 deeds that make up the 7.85% NPRI’s. Deed 1 is described as 1/64 interest. Deed 2 as 3.75/121.3 interest. Deed 3 as 1.875/121.2 interest. Deed 4 as 2 non-participating royalty acres. I would like to understand how each is determined to be fixed or floating. These deeds extend to 2 Sections with different operators. One operator considers them fixed and uses this formula - 1/6 x (1/4 -(.0785375))TPF The other operator considers them floating and uses this formula - 1/6 x (1/4 -(.07853751/4))*TPF How do I determine which one is correct.
This has been addressed in your earlier thread called Division Order Calculations. You need to obtain the first deeds which severed the NPRI in each deed chain and have the full language reviewed by an oil and gas title attorney. Ask the oil companies for the relevant deeds. The interpretation by the division order analyst or landman may or may not be in accordance with the most recent cases and court decisions.
I do have the deeds that severed the NPRI’s. I’m not in agreement with the math.
In Sec 214 that treats the NPRI’s as floating the math makes sense. My family and I own 40.73 nma and that converts to 81.46 nra to be divided between us and the NPRI owners. The NPRI owners own 66.5% leaving us owning 33.5%. My DO decimal interest is .000876. The conversion to nra gives me 4.548 nra (.000876/.125)*648.97. There are 6 of us so our total is 27.288 nra. That leaves 54.172 (81.46-27.288) for the NPRI owners. The nra for the NPRI owners 54.172/81.46 = 66.5% This matches what they add up to.
In Sec 213 that treats the NPRI’s as fixed the math doesn’t make sense. My family and I own 40.63 nma and that converts to 81.26 nra to be divided between us and the NPRI owners. The NPRI owners own 7.85% leaving us owning 92.15%. My DO decimal interest is .0020228. The conversion to nra gives me 9.289 nra (.0020228/.125)*573.98. There are 6 of us so our total is 55.73 nra. That leaves 25.53 (81.26-55.73) for the NPRI owners. The nra for the NPRI owners 25.53/81.26 = 31.41% This does not match what the NPRI’s add up to at 7.85% There is a 23.56% difference.
In my experience, determination of a royalty decimal (DOI) does not involve royalty acres. That is a concept for basis of selling producing minerals.
Except under unusual circumstances, the NPRI is not an ownership of minerals or a sharing of the minerals, but a burden against the minerals. First, calculate your DOI for the tract based on your NMA and royalty rate. Second the NPRI decimal is calculated based on the terms of the deed which created the NPRI. It is affected by the portion of the minerals owned by the creator and whether it is fixed or floating rate. Third, the portion of the NPRI decimal attributable to your NMA is subtracted from your DOI as it is a burden on your minerals. The result is your net DOI in the tract. This is usually converted into a DOI in the larger unit.
Determination of the NPRI can be tricky, particularly when the creator did not own 100% of the minerals at the time. Or if an intermediate owner sold a portion of his minerals subject to none of the NPRI (ie kept all the burden against his remaining minerals) or sold subject to all the NPRI (ie kept his remaining minerals free of NPRI burden).
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I understand that NPRI is a burden/reduction to the lease royalty. But the NPRI have an ownership of that royalty as do I. So I used the term ownership. The formula used by the operator to calculate my DO decimal interest shows the NPRI’s to be 7.85%. Because the operator determined them to be fixed and the formula used, that 7.85% burden becomes a 31.41% burden. The only way I know how to see what the true/honest burden is, is to convert everyone’s ownership to royalty acres using the DO decimal interest of each. To me, just looking at the formula showing a 7.85% burden is misleading to say the least, when it is actually much higher. It is baffling to me that the NPRI deeds cover 2 sections with different operators, one determined them to be fixed in 2020 and the other determined them to be floating in 2019.There has been no change to those deeds. Are the guidelines that fluid and unclear? I’m just trying to figure out who is correct.
In the last decade there have been several court decisions relating to the interpretation of NPRI language and the calculation of the reserved decimal interest. Any determination of the whether it is a fixed or floating NPRI is based on the most recent case decision.
Let’s assume you own 100% of minerals, subject to an NPRI which is a fixed fraction equating to 0.0785, then 0.0785 is deducted from your royalty decimal. If you lease at 1/8 = 0.125, then after subtracting 0.0785 NPRI, you will get 0.0465. If you lease at 1/4 = 0.25, then after subtracting 0.0785, you will get 0.1715. The fixed NPRI is the same regardless as to what you negotiate. If the NPRI is floating 785/10000 of your negotiated lease royalty, the the NPRI decimal will vary with your royalty rate. The NPRI will always be 7.85% of you royalty rate. For lease royalty of 1/8, then you will get 0.1151875cand the NPRI will be 0.0098125. For lease royalty of 1/4, you will get 0.230375 and NPRI will be 0.019625. All these figures will be proportionately reduced if you own 1/2 or 1/10 of minerals.
There is not a need to look at other mineral owners. Bottom line is that you need to hire an oil and gas title attorney to interpret the deed language in light of the court decisions. Then you can determine whether to dispute the oil company’s interpretation.
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Thank you for your explanations.
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