How to Calculate Oil Well Returns (WI, NRI, LOE Explained)

Oil investments might seem mysterious, but the math behind them is simple once you know the terms. Every investor’s income is based on their ownership share and the well’s production.

Key Terms to Know

• Working Interest (WI): The percentage of the well you own, including responsibility for costs and profits.
• Royalty Interest: The share paid to landowners for using their minerals.
• Net Revenue Interest (NRI): The percentage you actually receive after royalties and taxes.

Example Calculation

Let’s say a well produces 100 barrels per day at $80 each.

• Total revenue: 100 x $80 = $8,000
• Subtract 20% royalty = $6,400
• Your working interest: 50% = $3,200
• Subtract $500 in operating costs and 5% in taxes = about $2,500 per day net

That’s your share before any reinvestments or additional project costs.

Why Understanding the Math Matters

Knowing how revenue is calculated helps you evaluate deals confidently. When a company shows projections, you’ll know exactly where those numbers come from — and what affects them over time.