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.
Not trying to recommend anything…but I’d be interested in selling some of my minerals for $6000/nra. Where are your minerals and which company is it? (No need to answer if you aren’t comfortable giving that answer).
An offer to buy will be related to the perceived value of your acreage for a certain time period at a discounted cash value. Some offers are on Net Royalty Acres and some are on Mineral Acres, so read carefully There are various banners on the forum for buyers and there are several mineral auction sites which are easily found online. It is wise to know what you own, what the estimated royalties may be for the current wells (if any) and if you have pending wells coming. Buyers won’t usually tell you about those since they plan to make a profit off of their purchases. Also be aware that you may be subject to capital gain tax, so be prepared with your original cost basis.
And likewise, if you have a 25 percent royalty lease, your Net Royalty Acres will be DOUBLE the amount of your Net Mineral Acres (which is Yet another reason why the royalty lease amount that you sign and agree to is So Important).