I am in the process of selling a portfolio of mineral interests - about 10 tracts in Leon and Freestone counties. (I have personal reasons for selling, so no need to discuss pros/cons of selling versus holding.) In the past I have received purchase offer prices per NMA from some offerors and per NRA from others.
My specific question is: what is the difference between a Net Mineral Acre versus a Net Royalty Acre? We have recently seen a lot of interest in leasing our tracts, but have not moved forward on any leases. So almost all of our interests remain unleased (only a couple of tracts are leased and they have one or two old producing oil wells).
How are those terms (NRA and NMA) calculated? Is it different for leased vs. unleased tracts? When legitimate offers come in, will they be one price per NRA for our leased tracts and a different price per NMA for our unleased tracts? Or am I totally off track?
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All good questions!
Net Royalty Acres (NRA) are based off the lease rate. In your case since most of the minerals are unleased, this would not apply. So you only need to focus on Net Mineral Acres (NMA). However to calculate the NRA, you take the NMA x (lease royalty rate, divided by standard 1/8 rate). For an easy example lets say you have 40 net mineral acres and someone offers you a lease at a rate of 1/6 and a different company offers you a 1/5 lease rate, what would be the difference?
Scenario one: 40x (0.1667/0.125) = 53.344 Net Royalty Acres
Scenario two: 40x (0.20/0.125) = 64 Net Royalty Acres
Hopefully this helps!
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The best practice is to have offers presented on your terms. Do you want a NMA proposal, tract/property proposal, or a total sale proposal? The more you control the terms of the sale, then the less surprises that will arise.
If you are confident in your ownership, then settle for a tract/property or a total sale proposal. This stops the bait and switch players from trying to change the NMA at a later point. Good luck.
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Thanks James, you always have great advice.
I have a very experienced landman representing me in the buyer search and negotiations, and I’m a business/real estate lawyer, so I hope I’m well equipped. However I’m not completely familiar with a lot of the mineral industry terms, so I’m making sure I know what means what.
At this point the offer we are entertaining is offering one price /NMA for unleased tracts, and a different price /NMA for leased tracts. So I may not need to worry about the difference between NMA and NRA. We expect more offers and my landman is thoroughly analyzing all of them with me.
Very good process in order to achieve your objective. Good luck to you.