In oil and gas leases, there are two commonly confused designations for measuring different things. Both net mineral acres, and net royalty acres are important parts of an oil and gas lease. If you are thinking about leasing your mineral rights, knowing the definition and difference between these two terms is important in fully understanding your contract.
What is a Net Mineral Acre?
A net mineral acre (abbreviated NMA) is a term used to describe a person’s percentage ownership of a larger parcel of land. It is best illustrated with an example.
Let’s say you own ¼ mineral share of a 100-acre property. This means that you own 25 net mineral acres. If you owned the entire property, your net mineral acres would be equal to the gross mineral acres, at 100. However, most mineral leases are divided among several mineral rights owners.
What is a Net Royalty Acre?
A net royalty acre (NRA) is a measurement of the cashflow that you receive from the sale of oil and gas on a per acre basis. In many oil and gas leases, a royalty percentage of about ⅛ (12.5%) was originally common for mineral rights owners, however, this has changed over time.
To calculate your NRA, first find your royalty rate and divide it by ⅛ (0.125). Let’s say that your royalty rate is 10% of the share of oil and gas sales. Here, 0.1 divided by 0.125 is equal to 0.8. From there, multiply that number by your NMA to get your total NRA. In the example above an NMA of 25 multiplied by 0.8 would equal an NRA of 20.
The Difference Between A Net Mineral and Net Royalty Acre
Net mineral and net royalty acres define different terms. Net mineral acres define an interest in land, but cannot be equated to dollars and cents. Net royalty acres are much more commonly used in mineral lease transactions because they can fully illustrate the royalty potential of a plot of land.
Image Credit: BLM Wyoming