As a mineral rights owner, it is essential for you to know how to calculate your net mineral and/or net royalty acres. These figures are required in order to estimate the full value of your property, which will likely influence your decision to sell.
If you are looking to sell or want to know more about your mineral rights, finding out the value and number of net acres is a significant first step. No matter when you decide to sell, understanding your interests will inevitably be helpful to you later down the road, including confirming you are being paid royalties correctly on a well.
Learn more about the difference between net mineral acres and net royalty acres, as well as how to calculate mineral rights value per acre.
Are you interested in selling your minerals or mineral royalties? Contact us today for a free valuation.
What Are Net Mineral Acres?
A land tract’s gross acreage is different from your net mineral acres. Often, the gross acreage is divided amongst a few different people or entities. That is where net mineral acres come in to give you a better idea of your actual average.
Net mineral acres (NMA) are the total acreage owned out of the gross amount. Because the gross acreage often splits between multiple parties, the NMA represents the share of land you have rights and ownership over. The percentage you own out of the gross tract acreage is called your Mineral Interest.
How to Calculate Net Mineral Acres
To calculate the NMA, you need the gross number of acres and the percentage of your mineral interest. To complete the calculation, simply multiply the gross acreage by your mineral interest. For example, if you owned 25% interest on the minerals under a 400-acre tract of land, you would have 100 NMA.
The net mineral acres formula would be: 400 * 0.25 = 100 NMA
With this formula, you can calculate the number of net acres every party owns in the land tract if you know their mineral interest. Understanding your NMA figure is the first step to calculating your net royalty acres, which is vital for selling or evaluating your mineral rights.
What Are Net Royalty Acres?
Net royalty acres are the amount of money you can receive per acre. This term is most often used by mineral and royalty buyers when determining the property’s total potential value before making a transaction.
This step is where the NMA comes in. If you go to sell your property without knowing your NMA, you could over- or underestimate your potential earnings. You can calculate your NRA if you know your royalty percentage and NMA.
How to Calculate Net Royalty Acres
The industry currently has two ways of defining and calculating NRA, which we like to call the “old” way and the “modern” way.
The old way was first defined in the 1950s when a ⅛ royalty was the standard rate. To clear up confusion surrounding some royalty assignments that occurred in the 1940s, a Mississippi court came to the conclusion that 1 NMA = 1 NRA leased at ⅛. Because ⅛ is no longer the going lease rate, the industry has had to adapt this definition in order to “normalize” a higher royalty back to what it would translate into at ⅛.
NRA Normalized to ⅛ Example:
- You have 100 NMA leased at 18.75%, and an offer to purchase for $100,000
- (100 NMA * 8) * 18.75% royalty = 150 NRA to 1/8
- Price per NRA = $100,000/150 NRA to 1/8 = $666
Because ⅛ is no longer a “normal” lease rate, the formula used above can cause confusion and miscommunication, inflating numbers so that your net royalty acres actually appear higher than the number of net mineral acres you own.
The modern way of calculating NRA (sometimes called NRA to 100%) is actually the first step in getting to your wellbore interest, which is your share of actual production from a given well. Calculating NRA to 100% allows for a better understanding of the value of your minerals as they are extracted.
- If you had 100 NMA leased at 18.75%, and an offer to purchase for $100,000
- 100 NMA * 18.75% royalty = 18.75 NRA
- Price per NRA = $100,000/18.75 NRA = $5,333
- If you want to take it a step further and calculate your interest in a wellbore, just divide this NRA by the drill spacing unit (“DSU”). Example: 18.75 NRA/1280 DSU = .015 wellbore interest.
If your minerals are currently unleased, calculate your NRA using the royalty rate you could lease your minerals for on the open market, which often varies from basin to basin.
Why Do I Need to Know My NRA?
There are a few reasons to know your NRA before you meet with a mineral buyer. Knowing what your land is worth can help you get the best deal. When working with multiple buyers to determine a price, having a baseline of value can simplify the process.
If you can’t determine the value, and the transaction is based on the NRA, make sure the terms are explicitly stated in the agreement.
Have more questions about mineral royalties? Visit our FAQ page for answers!
Net Mineral Acres vs. Net Royalty Acres
Net mineral acres and net royalty acres have similar names, but they define two very different aspects of your property. NMA can explain the physical amount of land relative to the interest rate, but it cannot tell you how much your property is worth. NRA can calculate that land’s worth in dollar values.
The other main difference between NMA and NRA is how they are used to sell and purchase mineral rights. In this case, the NMA leads you to the NRA, which is the key price when determining a land tract’s total potential royalty value.
Selling your mineral rights is a big decision. If you are considering selling your minerals, knowing both your NMA and NRA can help you get the best deal available. Working with a company can simplify the process significantly and help you get the most from your property.
When you want to learn more about selling from a trusted company, Flat River Minerals can assist you. We can help you discover your property’s value while saving you time and effort. We streamline the process so you can understand your property value without waiting on an outside valuation team.
Sell Your Minerals With Flat River Minerals
When it’s time to sell your mineral rights or mineral royalties, you want to make sure you find someone who will give you a good price without sacrificing trust. Selling to a long-term buyer can help you feel confident in your decision and keep your minerals in Wyoming.
Flat River Minerals is a local Wyoming company providing a market for mineral asset owners to liquidize with no hassle. We keep your minerals local to support the state’s industry. Rather than taking your minerals and leaving, our local professionals help you get compensated while safely extracting minerals for local use.
We eliminate the middleman to give you the highest price possible. Our in-house technical team can quickly evaluate your property with no outsourcing required to provide a better estimate. We have the fastest turnaround rate on the market, with our closes completed between one and 10 days.
If you are ready to sell your minerals or mineral royalties, fill out our free valuation form to start, or contact us online for more information. Keep your minerals in the West with Flat River Minerals.