Buddy, I’m trying to work my numbers into your equation. 5nma x 8 x (.25 royalty - .66501 NPRI) I would get a negative number with this equation. Can this be right?
Wade, I have minerals in 2 sections. One has 65.501% NPRI and the other 7.85% NPRI. I don’t understand the reasoning of why I would let my price if I sold be reduced by 50% on the one that has 7.85% NPRI or why anyone would push back when they would be getting a very good reduction at 50%. Is there something I’m not understanding?
I meant to say 50% of the NPRI burden. If there is an NPRI burden of 1/3rd of the royalty stream that is discovered, we would ask that only reduce the agreed price per acre by 1/6th., because there is still some value in potential future bonuses.
To calculate the number of net royalty acres I’m selling, I use this formula:
[acres in tract] X [% of minerals owned] X 8 X [royalty interest reserved in lease] X [fraction of royalty interest being sold].
640 acres X 25% X 8 X 1/4 X 1/2 = 160 net royalty acres.
The price per net royalty acre is $125,000 / 160 = $781.25 per net royalty acre.
So the buyer offers me $781.25 per net royalty acre. This works out to 1/4 of 1/2 of $1 million, or $125,000 for 1/2 of my royalty. It makes sense for a mineral buyer to value royalties in terms of $/net royalty acre because they are in effect buying a future cash flow from the royalty interest.
Net mineral acres are calculated as your fractional interest in the gross acres. If you own 1/4 of 48 acres, then 1/4 X 48 = 12.
How does that factor in with the 3 other people on the 48 acre tract? I kept dividing the 12 by us 4. Giving us 3 nma each. So that would mean we each have 12 nma?
Apparently the landman has determined that the four of you jointly own 100% of the 48 acres and that the ownership is the same for each person. For example, if your mother owned 100% and you are the four children / heirs. If you jointly owned 1/2 of 48 acres, then your combined total would be 1/2 x 48 = 24 and each would own 1/4 of the 24 acres.