These two numbers get mixed up constantly, and the confusion is expensive — they're the difference between what you owe on a well and what you make on it. The good news is that once you see the 8/8ths picture, the math is simple and never changes.
Start with the 8/8ths
In oil and gas, the entire production from a well is called 8/8ths — it's just a fancy way of saying 100%, the whole pie. The industry uses eighths because the classic landowner's royalty was 1/8, so thinking in eighths made the rest of the math line up cleanly. (Modern royalties are often higher — 3/16, 1/5, 1/4 — but the "8/8ths" language stuck.)
Every well's revenue is carved out of that 8/8ths in a fixed order: royalties first, working interest second.
Working interest: your share of the costs
Your working interest is the percentage of the well you own on the cost side. Own 50% of the working interest and you owe 50% of every bill — the AFE to drill it and the monthly costs to run it. Working interest is, first and foremost, a measure of obligation.
Net revenue interest: your share of the money
Your net revenue interest is the percentage of the revenue you actually receive — and it's always smaller than your working interest, because the royalty owners get paid before you do. The royalties they're owed are the royalty burden on the well, and your revenue is what's left of your share after that burden comes out.
The formula
The relationship is one line:
Net revenue interest = Working interest × (1 − royalty burden)
Walk it through with a 50% working interest and a 1/8 (12.5%) royalty:
- Royalty burden = 1/8 = 0.125
- Revenue left for the working interest = 1 − 0.125 = 0.875 (that's 7/8ths)
- Your NRI = 0.50 × 0.875 = 0.4375, or 43.75%
So you pay 50% of the costs and receive 43.75% of the revenue. That gap — half the bills, just under 44% of the income — is the royalty burden doing its job.
Why the gap matters
When someone evaluates a well, the NRI is the number that drives the economics, because it's what actually lands in the bank. Two wells can have the same working interest but very different NRIs if their royalty burdens differ. A well burdened by a 1/8 royalty leaves 7/8ths for the working interest; a well burdened by a 1/4 royalty leaves only 3/4. Same costs, less revenue.
Royalty burdens can also stack. On top of the landowner's royalty, a well may carry an overriding royalty interest (ORRI) — a royalty carved out of the working interest itself, often to a broker or a prior owner. Every burden you add lowers the working interest's NRI by that much more.
A quick gut check
If anyone ever quotes you a net revenue interest that's higher than the working interest, something is wrong — that can't happen as long as any royalty exists. NRI is always less than or equal to WI. And the decimal that finally shows up on a royalty owner's check, the decimal interest, is built the same way: ownership share multiplied through the royalty math.
Frequently asked questions
What does 8/8ths mean?
It means 100% of a well's production — the whole pie. Royalties come out of the 8/8ths first, and the working interest owners split what's left.
How do you calculate NRI from a working interest?
Multiply the working interest by one minus the royalty burden. A 50% WI with a 1/8 royalty gives 0.50 × 0.875 = 0.4375, or 43.75%.
Why is NRI lower than working interest?
Because royalties are paid before working interest owners receive anything, while the working interest still owes its full share of costs. Any royalty makes NRI lower than WI.
Keep going: start with what a working interest is, see how royalties are calculated, or try the Division Order Decimal Calculator.
Educational information only. This article is not legal, tax, or financial advice. For guidance on your specific situation, consult a licensed professional.