From Wellhead to Your Wallet: The Oil Revenue Waterfall
Here's What You Need to Know
- Net Revenue Interest (NRI) is the single number that determines your distribution check size.
- Royalty burden comes off the top before any costs — your NRI is what remains after that deduction.
- The 15% depletion allowance creates a permanent tax shield on your NRI revenue every month.
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How the Revenue Waterfall Works
Understand exactly how gross well revenue flows down to your monthly distribution check — layer by layer, dollar by dollar. Adjust working interest, royalty burden, and operating costs to model your specific participation. Use the sliders to match your actual well economics from your offering document.
For background on how working interest and royalty interest differ, read our working interest vs. royalty interest comparison. To understand the full investment process, see our guide to investing in oil and gas, or view our current drilling projects.
The Core Formula
NRI = WI × (1 − Royalty%)
Net Revenue Interest drives your distributions
Your Participation
Your equity share of the well.
Landowner royalty paid off the top.
Well Production
Total well gross production.
Lease Operating Expenses.
Tax Assumptions
Your NRI
1.600%
WI × (1 − Royalty%) — your revenue share
Monthly Distribution
$2,184
2.00% WI · 20.0% royalty
After-Tax Monthly
$1,557
After income tax + depletion shield
Revenue Waterfall — Monthly
Gross Well Revenue
3,000 bbl × $68
WI Gross Revenue
2.00% Working Interest
NRI Revenue
After 20.0% royalty
Net Operating Income
After LOE deducted
After-Tax Distribution
Inc. depletion shield
| Revenue Layer | $ Amount | % of Gross | Who Gets It |
|---|---|---|---|
| Gross Well Revenue | $204,000 | +100.0% | Well (all parties) |
| Royalty Paid Out | ($816) | -0.4% | Landowner / Mineral Rights |
| WI Gross → NRI Revenue | $3,264 | +1.6% | Working Interest (you @ 1.600%) |
| Lease Operating Expense | ($1,080) | -0.5% | Operator (you bear WI share) |
| Net Operating Income | $2,184 | +1.1% | Pre-tax investor income |
| Depletion Allowance (15%) | $490 | +0.2% | IRS shelter — reduces taxable income |
| Income Tax Owed | ($627) | -0.3% | Federal income tax @ 37% |
| Your After-Tax Monthly Distribution | $1,557 | 0.8% | You (investor) |
Working Interest (WI)
Your equity stake in the well. You bear WI% of all drilling and operating costs — and receive WI% of all revenue before royalties.
Drives both costs AND gross revenue share
Royalty Burden
Paid to landowners off the top of gross revenue. Royalty owners bear zero costs — they simply receive their % of every barrel sold.
Comes out before LOE or any deductions
Net Revenue Interest
The number that actually matters. NRI is the share of gross revenue you keep after all royalties are paid. This drives your check.
NRI = WI × (1 − Total Royalty %)
Depletion Shield
The IRS allows you to deduct 15% of gross NRI revenue each year as depletion — permanently tax-free income.
15% of NRI revenue × tax rate = cash saved
Illustrative only.Assumes 100% oil production (no gas or NGL). Does not include severance tax, ad valorem tax, gathering fees, or transportation deductions. Production assumed stable at monthly input — does not model decline. Depletion subject to 100% net income limitation per property. Actual distributions depend on program structure and well performance.
Ready to See Your Actual NRI?
Request an offering document and plug in your real working interest percentage. Our team can walk you through every layer of the revenue waterfall.
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