Multiple terms used for interest and pay-out figures

General Mineral Rights Discussion
1

I’ve never understood why there are so many different terms for the figures used in defining a mineral interest and calculating the royalty pay-out.

I’d appreciate feedback on which terms are considered industry-standard or most prevalent (in Texas).

My example is most simple, the owner’s land and the well’s land are the same.

So below are some figures and terms I’ve heard or read for them. They are listed by what I believe is their prevalence.

In “1/4 royalty interest…[description of tract],” 1/4 is called:

  • interest (how many ways can this word be used!?)
  • [what ?]

In “.25 royalty interest…[description of tract],” .25 is called:

  • interest
  • [what else?]

In “25% royalty interest…[description of tract],” 25% is called:

  • interest
  • percentage of royalty ownership (?)
  • [what else?]

In “…a 3/16 royalty was negotiated in the lease,” 3/16 is called

  • royalty
  • royalty rate
  • [what else]

In “25 x 3/16 = 0.046875,” 0.046875 is called

  • revenue rate
  • decimal interest
  • royalty decimal (my operator uses this term)
  • pay decimal (my operator uses this term)
  • net revenue interest / NRI (?)
  • Division Order’s interest
  • royalty decimal Interest
  • fraction of royalty
  • ownership decimal [This is the term used in my county appraisal records. I think this is confusing, to say the least. Wouldn’t “.25” in the first example be better referred to as the “ownership decimal”?

Interested to hear what others say.

2

The royalty rate is specified in your lease. If you own 100% of the minerals in the well, then your royalty rate and royalty decimal/revenue rate/royalty DOI would be the same. If you own 1/2 of the minerals in the well, then your royalty rate would still be 25%, but the royalty decimal etc. would be 12.5%. It is based on net mineral acres / well acres X royalty rate in lease. The appraisal district taxes the value of the well and allocates the tax among the operator (all WI) and the royalty owners and overriding royalty owners. If your royalty decimal is 0.046875 in the well, then you will be taxed on your 0.046875 X well value as your share of ownership decimal in the well. You would not want to pay 25% tax rate on the well value if you only receive 4.6875% of the revenues.

3

Thank you for your response. I edited my post to clarify what I was asking for.

I’ll add your “vote” based on your usage.

I’ve never understood why there are so many different terms for the figures used in defining a mineral interest and calculating the royalty pay-out.

I’d appreciate feedback on which terms are considered industry-standard or most prevalent (in TX).

My example is most simple, the owner’s land and the well’s land are the same.

So below are some figures and terms I’ve heard or read for them. They are listed by what I believe is their prevalence.

In “1/4 royalty interest…[description of tract],” 1/4 is called:

  • interest (how many ways can this word be used!?)
  • [what ?]

In “.25 royalty interest…[description of tract],” .25 is called:

  • interest
  • [what else?]

In “25% royalty interest…[description of tract],” 25% is called:

  • interest
  • percentage of royalty ownership (?)
  • [what else?]

In “…a 3/16 royalty was negotiated in the lease,” 3/16 is called

  • royalty
  • royalty rate – TennisDaze
  • Note by TennisDaze: If you own 100% of the minerals in the well, then your royalty rate and royalty decimal/revenue rate/royalty DOI would be the same.
  • [what else]

In “25 x 3/16 = 0.046875,” 0.046875 is called

  • revenue rate – TennisDaze
  • decimal interest
  • royalty decimal (my operator uses this term) – TennisDaze
  • pay decimal (my operator uses this term)
  • net revenue interest / NRI (?)
  • Division Order’s interest
  • royalty decimal Interest
  • fraction of royalty
  • royalty DOI – TennisDaze
  • ownership decimal [This is the term used in my county appraisal records. I think this is confusing, to say the least. Wouldn’t “.25” in the first example be better referred to as the “ownership decimal”?

YOU MENTION “ownership decimal.” WHICH NUMBER ABOVE CORRESPONDS?

4

In addition to TennisDaze response, you can also have nonparticipating royalty interests, even if you do not own the executive rights to the minerals. So to add the confusion, you have a 1/32 royalty interest in xxx net mineral acres.

5

Thanks.

I kept my hypothetical example very simple because

  1. In my actual/real case, in 1951 my grandparents sold their homestead but kept 50% of the royalty interest. That got handed down, from grandfather via will and from grandmother (they divorced) via royalty deed to their children and eventually to me and my cousins. So, I have title to 0.0xxxx royalty interest (I believe it would be NPRI) in Y land.

  2. The lease (which I assume the landowner signed) is encompassed by this land. No pooling, etc., with a 3/16 royalty.

  3. Even in my simple example, the terms for the numbers in this equation… .0xxx x 3/16 = .00yyy

(Then .00yy would be multiplied by barrels of oil x price per barrel.)

…are called different things by different people.

I am interested in knowing what the industry-standard (or else most prevalent terms) to describe those numbers are.

Also, if .0xx is sometimes described as the “decimal interest,” then what word is used if the amount of interest is described as a fraction (e.g. 1/4)? fractional interest? interest fraction?

Or, if it is described as a percentage (e.g. 25%) what is the number 25 called? interest percentage?

  1. I am getting bids for my interest. We are having a mismatch between what they say they want to buy versus what I own, particularly because they often describe it in an appendix showing a chart with a column titled “Decimal.” Does that refer to 0.0xxx or .0.0yyy (e.g. already multiplied by 3/16 royalty rate)?

I wanted to know what they wanted to buy, as it would be expressed in a deed. (I can’t imagine they just want a portion of this well’s production or even of production from future wells on this lease, given that this Permian tract is likely to be purchased with other leases in mass for horizontal drilling and therefore the value is in future potential of the land.)

So, after researching terms, I asked the bidders,

“Can you please describe exactly what you are proposing to buy, stating the interest type, ownership decimal, and land description?”

By “ownership decimal,” I meant my interest on my deed. But I later saw that on my county tax appraisal, they use the term “ownership decimal” to refer to .0yyyy (already multiplied by 3/16 royalty), which my DO analyst told me was called “Royalty Decimal” or “Pay Decimal,” and I have also seen referred to as “Revenue Rate,” “Decimal Interest,” and possibly “Net Revenue Interest / NRI,” (but I don’t know whether that last term would be used in a simple case like mine).

  1. I discovered that what my father transferred to me was mistaken. Guess why? In part because of these terms not being clear! So I actually should own more than I have title to.

My .0xxx number is actually the .0yyyy amount.

And I have to explain this to bidders and an O&G attorney.

Do I say my deed is mistaken "in that the [“Royalty Decimal”, “Pay Decimal,” “Revenue Rate,” or “Decimal Interest,” or maybe “NRI”] was used in place of the [“interest decimal” or “decimal interest”]?

If you’ve read this far, thank you.

6

There are different terms used, but by the pros, they all have a distinct meaning. If you have the documents from the sale of the homestead by your grandparents, or you can go to the county records where your property is, and get the beginning point. Assume they had 100% of the minerals, and sold the property but retained 50% of the minerals, you would likely have executive rights. If they sold all minerals and retained a 50% royalty interest that would be in the same deed. With the royalty interest, you would not have a lease, the owner of the minerals would. But you are correct, if you have a net revenue interest, or whatever they call it, it is net of the royalty rate, which you say are 3/16. If you multiply the percentage shown by the inverse or 16/3, that would not necessarily yield the percent of minerals you own, as that number is also a factor of how many acres are in the pool. If you are in Texas, you can go to the Railroad Commission site and work your way through the details but you can find the well number, and what they show as the pool acreages. (generally).

Any offers to purchase should be based on what your total net minerals are, usually not the percentage you receive.

good luck on the adventure.

7

Thanks for your reply. I do have all the documents (luckily they are all available online).

As I stated above (but probably got lost in my long post):

  • My grandparents retained “1/2 interest in…royalties”.

  • 100% of the production unit is on “my” land. There is no pooling.

(Thanks for your tip, I double checked the pooling issue on RRC website)

Anyway, I keep looking online for a consensus on the “correct” terms for these numbers, but no luck!

Thanks!

8

Regina, then do the math to see how many net mineral acres you have. That is what they are trying to buy. They sometimes couch it in buying the interest in the well, but that means (usually) they are effectively getting your minerals. The specifics you want are elusive. The amount of net mineral acres times the royalty rate (3/16) times the pool factor (1) equals your net revenue interest. No other magic terms.