# How to Calculate Net Revenue Interest for Oil & Gas

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If you've earned money from a well this year, you may have questions about how to calculate your net revenue interest (NRI) on your 2021 tax return. So what is net revenue interest? It's the share of oil or gas production that's calculated once burdens have been deducted from your working interest. Here's a snapshot of what the revenue life cycle looks like:

• A well has both a working interest owner and overriding royalty owner attached to it.
• The well owner will get a flat percentage of proceeds from the well.
• The other owner(s) will get what's known as working interest.

## Basics of Determining NRI

When determining NRI, you're subtracting royalties from the top to divide what remains among all working interest owners. Once that flat royalty fee is paid, the overriding royalty owner won't get additional cuts of revenue. The working interest that you receive for the well is based on what remains after royalties.

## Example of How to Calculate NRI

Let's say that royalty rights account for 20 percent of revenue right from the start. You'll need to subtract 20 percent from 100 percent to be left with 80 percent. In this case, that 80 percent is the NRI for the entire production site. If the site is divided between multiple parties, it's necessary to drill down further to find the NRI for each individual party; however, that 80 percent stands if you are the sole producer.

In most cases, there will be at least one other person with working interest. Let's assume there's another holder who holds 10 percent of the working interest of your well. That means that you're now holding 90 percent of the 80 percent from the full working interest side that remains after royalties. In this case, you'll figure that 90 percent x 80 percent = 72 percent, and this means that your NRI is 72 percent for the well.

This can get exponentially more complex if you are the owner of working interest that is part of a much larger operation. However, the general rule is to always figure out your percent of the percent that is left over after royalties, regardless of how many owners are dividing the post-royalty NRI. Some agreements may specify that different holders get different percentages.