How We Underwrite by Net Royalty Acre

Every proposal from our desk starts with a tract-by-tract count of net royalty acres, because a price means little until both sides agree on what is being priced.

When an owner in a producing state asks what we would pay for a mineral position, the first thing we do is count it. We do not start from a rate. We start from the record, and the count we use is net royalty acres: one NRA is a 1/8 royalty on one net mineral acre.

We use NRA because it lets us compare tracts that were leased at different royalties on one scale, and because the owner can check it. The sections below describe how the figure is derived, how it appears in our file, and what moves the price we attach to it.

Counting the Position Tract by Tract

For each tract we start with the vesting deed and the chain behind it to establish net mineral acres. We then read the lease for its royalty fraction and multiply: net mineral acres times the royalty fraction times eight. Forty net mineral acres under a 3/16 lease is 60 NRA. Under a 1/4 lease it is 80.

We do not blend tracts. A parcel with an older 1/8 lease on one forty and a renegotiated 1/4 lease on another is counted as two lines, because the two lines are priced differently. Lumping them would flatter the first or shortchange the second.

Unleased acreage is counted separately and labeled as such. With no lease there is no fixed royalty, so the line carries an assumed fraction drawn from recent leasing in that county, and the owner sees the assumption written next to the count. Interests that are not full minerals, such as a non-participating royalty, are read from the instrument that created them before any conversion is attempted.

Checking the Count Against the Operator

If the owner receives royalty checks, we run the count a second way. The decimal interest on the division order, multiplied by the gross unit acres the operator used and by eight, should return the same NRA. We ask for the division order and a few recent statements for that reason.

When the two routes disagree, we say so and list the likely causes. Typical ones are heirship shares not yet reflected in the operator's records, an unleased cotenant, a depth severance, or a unit whose surveyed acreage differs from its nominal size. We would rather settle the count before drafting numbers than have it come up at closing.

What Moves the Per-NRA Figure

Once the count is agreed, the price we attach to each NRA depends on evidence specific to that tract. Producing wells are read for age and decline, since a young horizontal well in the Permian or Eagle Ford and a mature vertical well in the Barnett pay very differently for the same NRA. Product mix and the owner's deductions matter, as does the lease language on post-production costs.

For undeveloped acreage we weigh permits, rigs, recent offset wells, and the operator's pattern of drilling in that area. A tract next to a recently completed lateral and one in an area with no activity are not priced alike, even in the same county. Depth rights, lease term, and a held-by-production status are read for their effect on timing.

Commodity prices and the capital markets for minerals move the figure over time. For that reason a number we give is dated, tied to the schedule, and conditioned on the title review. It varies with activity and is not a standing rate.

Why We Keep the Counting Visible

A per-acre quote can be accurate and still hide the royalty. A per-NRA proposal with the count shown lets the owner test it against the deed and the lease without our help. If the owner's count is higher than ours, we want to know where it comes from. If ours is higher, we explain why.

We are the buyer on the proposal and stay the counterparty through diligence, funding, and recording, so the schedule the owner sees is the schedule we close on. Before signing a deed, owners are well served by having a CPA or attorney review the tax and transfer terms.