The Royalty Buyout Rumble

[SWAPO2 Neighborhood Rights]

The Royalty Rumble

[Posted March 12, 2008]

The good news is we see active gas drilling in our SWAPO2 area along Highway 287. While there are no guarantees, this makes it likely that our area will be getting royalties from this drilling. And it's happened fast, drilling within less than a year from bonus payouts.

The bad news is that some entities are mailing out offers within our SWAPO2 area to buy up ALL your royalties for 50% or less of what they may be actually worth. Almost any long-term payout such as an annuity, a judgment, or winning the lottery can be sold for cash, including oil-and-gas royalties. But the people offering to buy wouldn't be making the offer if they weren't already sure they would make LOTS more money off your investment than they are paying you.

The same is true for gas royalties. If they are actively marketing in our area, sending out thousands of letters and making phone calls, that means they are relatively sure that many people will be getting a regular, substantial payout. This action means you are in control, not them.

While SWAPO2 cannot give legal advice or recommend your best course of action, we can say that most of the original board members are NOT going to sign away our long-term royalties for quick cash. We strongly advice you to seek accounting and/or legal advice before signing any such payout contract. We believe most competent professionals would warn you against just how much you are potentially giving away over time.

Also be advised that no matter how you try to shift the money around, you are legally obligated to pay some taxes on the royalty--there is no way to get around it. Fancy instruments that claim to save you a few percentage points now may in fact cost you a lot more cash down the line.

So don't sign anything without running the numbers with an accountant or an attorney--or checking them yourself with a computer spreadsheet. Those of us who founded SWAPO2 from day one have done this analysis, and decided that  "selling out" early is not for us, any more than it would have been right sell our bonus rights for $5,000 per acre, which was the original offer for our area in January 2008, where the drilling rig now sits, and where we received $17,000 per acre bonus by remaining patient.

With the state of the economy being what it is, many are being prayed upon in their time of need.  Keep a clear head and think things through BEFORE you act.