How to Buy Oil and Gas Royalties

by Junior Boomer on January 3, 2011

There are lots of investments in the world, many of them safe and relatively secure. Of course, these are also the investments that don’t produce the big wins (usually). These are typically the best investments for what you might call the “consumer level” investor. These are the people that have jobs outside of the finance industry, and rely on their advisors to guide them through the tricky waters of investing into safe waters that will produce a reasonable return on their investment. These are the investments that lead to a reasonably comfortable retirement, when coupled with aggressive savings and smart money management.

How to Buy Oil and Gas Royalties
Creative Commons License photo credit: Robert Galloway

Then there are the riskier investments.

Trading on the Foreign Exchange market is one example. But another example, and the one I want to talk about today is buying and selling oil and gasoline royalties.

An oil or gas royalty is similar to a royalty on a piece of music. Musicians are paid by the number of times their song is played on television, on the radio, and covered by other musicians. Essentially, the owner of the music licenses his music to another person, and in return he or she gets paid a percentage of that person’s profits. Radio stations, TV shows, etc. all pay musicians for the use of their music.

Oil and gas royalties work the same.

The owner of the land on which an oil reserve is located licenses the use of that land to a company who extracts the oil from the land. Often this company processes the oil, refines it into gasoline, or sells it to another company who uses it to make petroleum based products like plastics, etc. The owner of the land is paid a royalty fee by the company who extracts the oil. Typically a percentage of the profit they make on the resource.

Why Buy Oil and Gas Royalties?

Because they’re in demand. Simple as that. As the world’s supply of energy shifts day to day, and as the world experiments with alternative energy sources, there is money to be made in oil and gasoline. If you can get your hands on royalty rights, you could build yourself a nice little stream of recurring income for a few years.

Alternately, investing in oil royalties could be a quick turnaround profit for you. There are numerous companies out there who claim to pay top dollar for oil royalties. If you can get a good price when purchasing oil royalties, you may be able to turn around and sell it for a good chunk of quick profit.

How to Buy Oil and Gas Royalties

In investing, it’s important to watch out for shady deals. The oil, gasoline and energy markets are volatile, and there are plenty of people who would be happy to take your money and run.

If you want to buy oil and gas royalties, take plenty of time to evaluate the purchase. Work with a real estate agent that specializes in purchases like this. Maybe you’ll want to go visit the piece of land yourself to evaluate it’s worth. And you’ll definitely want to discuss the terms of the purchase with a qualified lawyer. The fine print can bite you if you’re not careful, so be sure to do your homework if you have the opportunity to buy.

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{ 3 comments… read them below or add one }

Ben W March 2, 2011 at 7:53 am

Especially right now when the price of oil is going up, investing in oil and gas royalties can be very profitable.

Philip Tomeny March 4, 2012 at 5:09 pm

I’m interested in purchasing Oil and Gas Royality Interest.

Margarita Alvarado December 26, 2012 at 3:58 pm

I’m interested in purchasing Oil and Gas Royality Interest.

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