I know this has been discussed on this forum before, but I can’t seem to find the explanation.
We recently received an offer that was a bit more than a few of the highest offers we have been seeing. I decided to dive into a bit more. According to the landman the offer was for $6,000 “per net royalty acre.” There seemed to be a decent amount of math involved after an explanation. I figured it was worth someone more experienced posting the calculation for some of the less experienced folks getting offers sent to them.
The purpose of royalty acres vs mineral acres is the idea that 10 net acres leased at 1/4 is worth twice as much as 10 acres leased at 1/8.
To calculate s net royalty acre, you take the royalty rate and divide it by .125 then multiply by the number of net mineral acres. Example 10 acres leased at 1/8, gives you ten royalty acres.
But if your lease is 3/16, one takes the royalty (3/16) , then divide by 1/8 (which is .125), then multiply by net mineral acres. That gives you the net royalty acres. So, if you had ten mineral acres leased at 3/16, you own 15 royalty acres.