Definition

• Oil and gas net revenue is revenue that a company receives from a drilling field after all expenses, such as royalty and overriding royalty, have been deducted. A royalty is a percentage of the revenue from the field that is paid to the landowner; the receiver of an overriding royalty also gets a portion of the income, but does not own the oil in the ground.
  
  

Calculation

• Net revenue is the percentage of production that the company receives from the field. For example, if an oil company has a 25 percent working interest in a field and the field produces $1 million in revenue, the net revenue is $250,000 less expenses.
  
  

Significance

• Oil and gas accounting is very different from other accounting procedures because the oil and gas business is so much different from others. Understanding net revenue makes better investments in the oil industry possible.