<PAGE>
 
                                                                     EXHIBIT 99
 
                           SOUTHWEST ROYALTIES, INC.
 
                      SOUTHWEST ROYALTIES HOLDINGS, INC.
 
 
                             LETTER OF TRANSMITTAL
                         FOR TENDER OF ALL OUTSTANDING
                    10 1/2% SERIES A SENIOR NOTES DUE 2004
                                IN EXCHANGE FOR
 10 1/2% SERIES B SENIOR NOTES DUE 2004 REGISTERED UNDER THE SECURITIES ACT OF
                                     1933
 
       THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
       ON              , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
 
                        Deliver to the Exchange Agent:
 
                      STATE STREET BANK AND TRUST COMPANY
 
<TABLE>
<CAPTION>
        By Hand/Overnight Courier:                           By Mail:
<S>                                         <C>
        Corporate Trust Department                  Corporate Trust Department
                 4th Floor                                 P. O. Box 778
          Two International Plaza                Boston, Massachusetts 02102-0078
        Boston, Massachusetts 02110                 Attn: Ms. Sandra Szozsponik
        Attn: Ms. Sandra Szozsponik
</TABLE>
 
                  (registered or certified mail recommended)
 
                          By Facsimile Transmission:
                       (For Eligible Institutions Only)
                                (617) 664-5393
 
                             Confirm by Telephone:
                                (617) 664-5587
 
  DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS LISTED ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
 
                                 INSTRUCTIONS
 
   THESE INSTRUCTIONS FORM PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE
                                    OFFER.
 
  1. General Instructions. By signing this Letter of Transmittal (the "Letter
of Transmittal") the undersigned acknowledges receipt and review of the
Prospectus dated             , 1997 (the "Prospectus") of Southwest Royalties,
Inc. (the "Issuer") and Southwest Royalties Holdings, Inc. ("SRH"), and this
Letter of Transmittal. The Prospectus and the Letter of Transmittal, together,
describe the offer of the Issuer and SRH (the "Exchange Offer") to exchange
the Issuer's 10 1/2% Series B Senior Notes due 2004 (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for a like principal amount of the Issuer's issued and
outstanding 10 1/2% Series A Senior Notes due 2004 (the"Old Notes").
Capitalized terms used but not defined herein have the meaning given to them
in the Prospectus.
 
  The Issuer and SRH reserve the right, at any time or from time to time, to
extend the Exchange Offer at their discretion, in which event the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. The Issuer and SRH shall notify the holders of the Old Notes of any
extension by oral or written notice and will mail to the record holders of Old
Notes an announcement thereof, prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. The term
"business day" shall mean any day which is not a Saturday, Sunday or day on
which banks are authorized by law to close in the State of New York.
 
  A holder of Old Notes should use this Letter of Transmittal, if original Old
Notes are to be forwarded herewith pursuant to the procedures set forth in the
Prospectus under the caption "Exchange Offer-- Procedures for Tendering." This
Letter of Transmittal and an Agent's Message is to be used if delivery of Old
Notes is to be made by book-entry transfer to the account maintained by the
Exchange Agent at the Depository Trust Company ("DTC") pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange Offer--
Procedures for Tendering" and "Book-Entry Transfer." Holders of Old Notes
whose Old Notes are not immediately available, who are unable to deliver their
Old Notes and all other documents required by this Letter of Transmittal to
the Exchange Agent on or prior to the Expiration Date, or who are unable to
complete the procedure for book-entry transfer on a timely basis, must tender
their Old Notes according to the guaranteed delivery procedures set forth in
the Prospectus under the caption "Exchange Offer--Guaranteed Delivery
Procedures." See Instruction 2. Delivery of documents to DTC does not
constitute delivery to the Exchange Agent.
 
  The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Issuer or any other
person who has obtained a properly completed bond power from the registered
holder. Holders who wish to tender their Old Notes must complete this Letter
of Transmittal in its entirety.
 
  2. Delivery of This Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at DTC of Old Notes
tendered by book-entry transfer (a "Book-Entry Confirmation"), a properly
completed and duly executed copy of this Letter of Transmittal or Agent's
Message or facsimile hereof, and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of the tendered Old Notes, this Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the holder. Except as otherwise provided below, the delivery will not
be deemed made until actually received or confirmed by the Exchange Agent.
Instead of delivery by mail, it is recommended that the holder use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Old Notes should be sent to SRH or the Issuer.
<PAGE>
 
  3. Guaranteed Delivery Procedures. Holders whose Old Notes are not
immediately available, who cannot deliver their Old Notes, Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date, or who cannot complete the procedure for book-entry
transfer and deliver an Agent's Message on a timely basis, must tender their
Old Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Pursuant to such procedures: (1) tender must be made by or through
a firm which is a member of a registered national securities exchange or of
the National Association of Securities Dealers Inc., a commercial bank or a
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (an "Eligible Institution"); (ii) prior to the Expiration Date,
the Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder of the Old Notes, the registration number(s) of such Old Notes and the
total principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five business days after the
Expiration Date, this Letter of Transmittal (or facsimile hereof) together
with the Old Notes in proper form for transfer (or a Book-Entry Confirmation)
and any other documents required hereby, will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) the certificates for all
physically tendered shares of Old Notes, in proper form for transfer (or Book-
Entry Confirmation, as the case may be) and all other documents required
hereby are received by the Exchange Agent within five business days after the
Expiration Date.
 
  Any holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. See "Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus.
 
  4. Tender by Holder. Only a holder of Old Notes may tender such Old Notes in
the Exchange Offer. Any beneficial holder of Old Notes who is not the
registered holder and who wishes to tender should arrange with the registered
holder to execute and deliver this Letter of Transmittal on his behalf or
prior to the registered holder completing and executing this Letter of
Transmittal and delivering his Old Notes, the beneficial owner should make
appropriate arrangements to register ownership of the Old Notes in the
beneficial owner's name or obtain a properly completed bond power from the
registered holder.
 
  5. Partial Tenders. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Notes
is tendered, the tendering holder should fill in the principal amount tendered
in the third column of the chart entitled "Description of Old Notes Tendered"
below. The entire principal amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Old Notes is not tendered, then Old Notes for
the principal amount of Old Notes not tendered and Exchange Notes issued in
exchange for any Old Notes accepted will be sent to the holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, promptly after the Old Notes are accepted
for exchange.
 
  6. Signatures on This Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof)
is signed by the record holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever. If this Letter
of Transmittal (or facsimile hereof) is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the holder of the Old Notes.
 
  If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes listed and tendered hereby and the
Exchange Notes issued in exchange therefor are to be issued (or any untendered
principal amount of Old Notes are to be reissued) to the registered holder,
the said holder need not and should not endorse any tendered Old Notes, nor
provide a separate bond power. In any other case, such holder must either
properly endorse the Old Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on
the endorsement or bond power guaranteed by an Eligible Institution.
<PAGE>
 
  If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered holder or holders appears on the Old
Notes.
 
  If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company or the Issuer, submit evidence satisfactory to
the Issuer and SRH of their authority to act.
 
  Endorsements on Old Notes or signatures on bond powers required by this
Instruction 6 must be guaranteed by an Eligible Institution.
 
  No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Old Notes
tendered herein (or by a participant in DTC whose name appears on a security
position listing as the owner of the tendered Old Notes) and the Exchange
Notes are to be issued directly to such registered holder(s) (or, if signed by
a participant in DTC, deposited to such participant's account at DTC) and
neither the box entitled "Special Delivery Instructions" nor the box entitled
"Special Registration Instructions" has been completed, or (ii) such Old Notes
are tendered for the account of an Eligible Institution. In all other cases,
all signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution.
 
  7. Special Registration Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address (or account at
DTC) to which Exchange Notes or substitute Old Notes for principal amounts not
tendered or not accepted for exchange are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal. In
the case of issuance in a different name, the taxpayer identification or
social security number of the person named must also be indicated.
 
  8. Transfer Taxes. The Issuer and SRH will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Notes tendered hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
 
  EXCEPT AS PROVIDED IN THIS INSTRUCTION 9, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
 
  9. Tax Identification Number. Federal income tax law requires that a holder
of any Old Notes which are accepted for exchange provide the Issuer (as payor)
with its correct taxpayer identification number ("TIN"). If the Issuer is not
provided with the correct TIN, the holder may be subject to a $50 penalty
imposed by Internal Revenue Service. (If withholding results in an over-
payment of taxes, a refund may be obtained). Certain holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
 
  To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or that (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to
backup withholding. If the holder is an individual his or her TIN is his or
her social security number. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, see the enclosed "Guidelines
for Certification of Taxpayer Identification Number of Substitute Form W-9"
for information on which TIN to report.
<PAGE>
 
  The Issuer reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Issuer's obligations regarding backup
withholding.
 
  10. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be determined by the Issuer and SRH in their sole discretion. The
Issuer's and SRH's determination will be final and binding. The Issuer and SRH
reserve the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes their acceptance of which would, in the opinion of
the Issuer and SRH or their counsel, be unlawful. The Issuer and SRH also
reserve the absolute right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders as to particular Old Notes. The Issuer's
and SRH's interpretation of the terms and conditions of the Exchange Offer
(which includes this Letter of Transmittal and the instructions hereto) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Issuer and SRH shall determine. Neither the Issuer, SRH, the
Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with regard to tenders of Old Notes
nor shall any of them incur any liability for failure to give such
notification.
 
  11. Waiver of Conditions. The Issuer and SRH reserve the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
 
  12. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Notes will be accepted.
 
  13. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
 
  14. Requests for Assistance or Additional Copies. Requests for assistance or
for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
 
  15. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "Exchange
Offer--Withdrawal of Tenders."
 
  IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL
HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
<PAGE>
 
                      SIGNATURES MUST BE PROVIDED BELOW.
              PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
 
Ladies and Gentlemen:
 
  The undersigned hereby acknowledges receipt and review of the Prospectus
dated             , 1997 (the "Prospectus") of Southwest Royalties, Inc., a
Delaware corporation (the "Issuer") and Southwest Royalties Holdings, Inc.
("SRH"), and this Letter of Transmittal (the "Letter of Transmittal"), which
together describe the offer of the Issuer and SRH (the "Exchange Offer") to
exchange the Issuer's 10 1/2% Senior Notes due 2004 (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for a like principal amount of the Issuer's issued and
outstanding 10 1/2% Senior Notes due 2004 (the"Old Notes").
 
  The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
 
  Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Issuer and SRH for exchange the principal amount of Old
Notes indicated below. Subject to and effective upon the acceptance for
exchange of the principal amount of Old Notes tendered in accordance with this
Letter of Transmittal, the undersigned hereby exchanges, assigns and transfers
to the Issuer all right, title and interest in and to the Old Notes tendered
for exchange hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent, as the agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Issuer and SRH in connection with the Exchange Offer) with
respect to the tendered Old Notes with full power of substitution to (i)
deliver such Old Notes, or transfer ownership of such Old Notes on the account
books maintained by DTC, to the Issuer and deliver all accompanying evidences
of transfer and authenticity, and (ii) present such Old Notes for transfer on
the books of the Issuer and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed to be irrevocable and coupled with an interest.
 
  The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the Exchange Notes issuable upon the exchange
of such tendered Old Notes, and that the Issuer will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim, when the same are
accepted for exchange by the Issuer and the Company.
 
  The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-action Letter (available
June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-action Letter (available June 5, 1991), that the Exchange Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than a
broker-dealer who purchased Old Notes exchanged for such Exchange Notes
directly from the Company and the Issuer to resell pursuant to Rule 144A or
any other available exemption under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holders' business and such holders are not participating in, and have no
arrangement with any person to participate in, the distribution of such
Exchange Notes.
 
  The undersigned specifically represent(s) to the Company and the Issuer that
(i) any Exchange Notes acquired in exchange for Old Notes tendered hereby are
being acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not the undersigned, (ii) the undersigned is not
participating in, and has no arrangement with any person to participate in,
the distribution of Exchange Notes, and (iii) neither
<PAGE>
 
the undersigned nor any such other person is an "affiliate" (as defined in
Rule 405 under the Securities Act) of the Company or the Issuer or a broker-
dealer tendering Old Notes acquired directly from the Issuer or SRH.
 
  If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus in connection with any
resale of such Exchange Securities; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. The undersigned
acknowledges that if the undersigned is participating in the Exchange Offer
for the purpose of distributing the Exchange Notes (i) the undersigned cannot
rely on the position of the staff of the SEC in the Morgan Stanley Letter and
similar SEC no-action letters, and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes, in which case the registration statement must contain the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the SEC, and (ii) a broker-dealer that
delivers such a prospectus to purchasers in connection with such resales will
be subject to certain of the civil liability provisions under the Securities
Act and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations).
 
  The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent, the Issuer or SRH to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by DTC.
 
  For purposes of the Exchange Offer, the Issuer and SRH shall be deemed to
have accepted for exchange validly tendered Old Notes when, as and if the
Issuer or SRH gives oral or written notice thereof to the Exchange Agent. Any
tendered Old Notes that are not accepted for exchange pursuant to the Exchange
Offer for any reason will be returned, without expense, to the undersigned at
the address shown below or at a different address as may be indicated herein
under "Special Delivery Instructions" as promptly as practicable after the
Expiration Date.
 
  All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
 
  The undersigned acknowledges that the acceptance of properly tendered Old
Notes by the Issuer and SRH pursuant to the procedures described under the
caption "Exchange Offer--Procedures for Tendering" in the Prospectus and in
the instructions hereto will constitute a binding agreement between the
undersigned and the Issuer and SRH upon the terms and subject to the
conditions of the Exchange Offer.
 
  Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Old Notes accepted for exchange and any Old Notes
not tendered or not exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s). In
the event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Exchange Notes issued in
exchange for the Old Notes accepted for exchange in the name(s) of, and return
any Old Notes not tendered or not exchanged to, the person(s) so indicated.
The undersigned recognizes that SRH and the Issuer have no obligation pursuant
to the "Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any Old Notes from the name of the registered holder(s) thereof if
SRH and the Issuer do not accept for exchange any of the Old Notes so tendered
for exchange.
 
<PAGE>
 
  IMPORTANT: PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY
TENDERED HEREBY.
 
(Complete Accompanying Substitute Form W-9)
 
-------------------------------------
 
-------------------------------------
 (SIGNATURE(S) OF REGISTERED HOLDERS
            OR OLD NOTES)
 
Dated: ________________________, 199
 
  (The above lines must be signed by the registered holder(s) of Old Notes as
name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by a properly completed
bond power from the registered holder(s), a copy of which must be transmitted
with this Letter of Transmittal. If Old Notes to which this Letter of
Transmittal relate are held of record by two or more joint holders, then all
such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii)
unless waived by the Issuer and SRH, submit evidence satisfactory to the
issuer and SRH of such person's authority so to act. See Instruction 6
regarding the completion of this Letter of Transmittal, printed below.)
 
Name(s): ____________________________
       (PLEASE TYPE OR PRINT)
 
Capacity: ___________________________
 
Address: ____________________________
         (INCLUDE ZIP CODE)
 
Area Code and Telephone Number:
 
-------------------------------------
<PAGE>
 
** PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF
TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR
ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE
DIRECTED TO THE EXCHANGE AGENT. **
 
  List below the Old Notes to which this Letter of Transmittal relates. If the
space below is inadequate, list the registered numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of
Transmittal.
 
                       DESCRIPTION OF OLD NOTES TENDERED
-------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
<S>                               <C>       <C>                 <C>  
   NAME(S) AND ADDRESS(ES) OF
 REGISTERED HOLDER(S) EXACTLY AS            AGGREGATE PRINCIPAL PRINCIPAL
 NAME(S) APPEAR(S) ON OLD NOTES  REGISTERED AMOUNT REPRESENTED    AMOUNT
   (PLEASE FILL IN, IF BLANK)    NUMBER(S)*     BY NOTE(S)      TENDERED**
</TABLE>
-------------------------------------------------------------------------------
 
-------------------------------------------------------------------------------
 
-------------------------------------------------------------------------------
 
-------------------------------------------------------------------------------
 
-------------------------------------------------------------------------------
 * Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Old Notes will be
   deemed to have tendered the entire aggregate principal amount represented
   by such Old Notes. All tenders must be in integral multiples of $1,000.
 
[_]CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
 
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
   MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DTC AND
   COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
 
Name of Tendering Institution: ________________________________________________
 
Account Number: _______________________________________________________________
 
Transaction Code Number: ______________________________________________________
 
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
   OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
   THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
 
Name(s) of Registered holder(s) of Old Notes: _________________________________
 
Date of Execution of Notice of Guaranteed Delivery: ___________________________
 
Window Ticket Number (if available): __________________________________________
 
Name of Eligible Institution that Guaranteed Delivery: ________________________
 
Account Number (if delivered by book-entry transfer): _________________________
<PAGE>
 
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
   COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
   THERETO:
 
Name: _________________________________________________________________________
 
Address: ______________________________________________________________________
 
                                                                             
                                                                             
    SPECIAL ISSUANCE INSTRUCTIONS            SPECIAL DELIVERY INSTRUCTIONS   
                                                                             
                                                                             
                                                                             
                                                                             
                                                                             
      (See Instructions 5 and 6)             (See Instructions 5 and 6)      
                                                                             
                                                                             
 To be completed ONLY (i) if Old                                             
 Notes in a principal amount not          To be completed ONLY if Old Notes  
 tendered, or Exchange Notes issued       in a principal amount not tendered,
 in exchange for Old Notes accepted       or Exchange Notes issued in        
 for exchange, are to be issued in        exchange for Old Notes accepted for
 the name of someone other than the       exchange, are to be mailed or      
 undersigned, or (ii) if Old Notes        delivered to someone other than the
 tendered by book-entry transfer          undersigned, or to the undersigned 
 which are not exchanged are to be        at an address other than that shown
 returned by credit to an account         below the undersigned's signature. 
 maintained at the DTC other than                                            
 the account indicated above.                                                
                                                                             
                                                                             
                                                                             
                                          Mail or deliver Exchange Notes     
 Issue Exchange Notes and/or Old          and/or Old Notes to:               
 Notes to:                                                                   
                                          -----------------------------------
                                                                             
                                                                             
 Name                                                                        
   -------------------------------        Name                               
       (Please Type or Print)                                                
                                               ------------------------------
                                                   (Please Type or Print)    
 Address                                                                     
    ------------------------------                                           
                                                                             
                                          Address                            
    ------------------------------                                           
                                                -----------------------------
          (Include Zip Code)                                                 
                                                                             
                                                -----------------------------
 Taxpayer Identification or Social                                           
 Security Number                                      (Include Zip Code)     
                                                                             
                                                                             
                                                                             
                                          -----------------------------------
 ------------------------------------                                        
                                          (Tax Identification or Social      
 (Complete Substitute Form W-9)           Security Number)                   
 [_]Credit unexchanged Old Notes
    delivered by book-entry transfer
    to DTC:
 
 DTC Account Number: ________________
 
 
 
                              SIGNATURE GUARANTEE
                        (IF REQUIRED BY INSTRUCTION 5)
 
      Certain signatures must be Guaranteed by an Eligible
      Institution.
      Signature(s) Guaranteed by an Eligible Institution:
      Authorized Signature ___________________________________________
      Name ___________________________________________________________
                               (Please Print)
      Title __________________________________________________________
      Name of Firm ___________________________________________________
      Address ________________________________________________________
                                                              Zip Code
      ------------------------------
       Area Code and Telephone No.
                                           Dated: _______________________
<PAGE>
 
 PAYER'S NAME: SOUTHWEST ROYALTIES, AS EXCHANGE AGENT
-------------------------------------------------------------------------------
                                                   Social security number or
                     Part 1--PLEASE PROVIDE            /           /
                     YOUR TIN IN THE BOX AT       ---------------------------
                     RIGHT AND CERTIFY BY           Employer identification
                     SIGNING AND DATING BELOW               number
                   -----------------------------------------------------------
 SUBSTITUTE          Part 2--Certification--Under penalties of perjury, I
 FORM W-9            certify that: (1) The number shown on this form is my
 DEPARTMENT OF THE   correct Taxpayer Identification Number (or I am waiting
 TREASURY            for a number to be issued to me) and (2) I am not
  INTERNAL REVENUE   subject to backup withholding either because I have not
  SERVICE            been notified by the Internal Revenue Service ("IRS")
                     that I am subject to backup withholding as a result of
                     failure to report all interests or dividends, or the IRS
                     has notified me that I am no longer subject to backup
                     withholding.
 
 PAYER'S REQUEST                                                           
 FOR                                                                       
 TAXPAYER                                                                  
 IDENTIFICATION      -----------------------------------------  Part 3--      
 NUMBER (TIN)                                                             
                                                                Awaiting  
                     SIGNATURE  ______________ DATE _________   TIN [_]    


                     Please complete the Certificate of
                     Awaiting Taxpayer Identification Number
                     below.
 
 
  Certificate Instructions -- You must cross out item (2) in Part 2 above if
  you have been notified by the IRS that you are subject to backup
  withholding because of under reporting interest or dividends on your tax
  return. However, if after being notified by the IRS that you were subject
  to backup withholding you received another notification from the IRS
  stating that you are no longer subject to backup withholding, do not cross
  out item (2).
                                                                           
                                                                           
                                                                           
                                                                           
 
 
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
      WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
      PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
      IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
 
 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3
                          OF THE SUBSTITUTE FORM W-9.
 
            CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER.
 
 I certify under penalties of perjury that a taxpayer identification number
 has not been issued to me, and either (a) I have mailed or delivered an
 application to receive a taxpayer identification number to the appropriate
 Internal Revenue Service Center or Social Security Administration Office or
 (b) I intend to mail or deliver an application in the near future. I
 understand that if I do not provide a taxpayer identification number to the
 payor within 60 days, 31% of all reportable payments made to me thereafter
 will be withheld until I provide a number.
 
 -------------------------------------    ------------------------------------
 Signature                                Date