The Christmas Eve edition of Financial Times is quite thin. The paper’s lead story (“US Banks Hit by Cheap Oil as OPEC Warns of Long-Term Low”), however, is filled with content, and none of it good for those holding shale bonds, junk bonds and bank stocks. According to the story, OPEC released a report saying that $100 a barrel oil prices would not return until 2040. At the earliest!
Last year $100 per barrel prices were the norm, although experts had long warned that prices would drop precipitously. Today, prices are under $40 per barrel and if the powerful OPEC cartel is right, we can expect decades more of low oil prices.
Low energy prices may be great for consumers and manufacturing businesses but they are horrible news for those who purchased so-called shale bonds hoping to get an above average rate of return. In fact, there have been so many billions of dollars of investment in the U.S. oil industry that banks with oil debt exposure are at risk too.
What Can Shale Bond Holders Do?
Institutional investors and banks should have known better. The energy sector has always been volatile and experts had long warned about these investments. We are most concerned, however, with individual investors who were duped into buying these bonds by stockbrokers seeking to earn a quick commission.
Many investors have long yearned for stable income. With interest rates so low, traditional investments such as savings accounts and certificates of deposit don’t pay much. Some brokers sought to capitalize on this need by suggesting their clients purchase high yield shale bonds and other risky debt.
There is not much that can be done if the broker told his or her clients that these investments were exceptionally risky and that they were not suitable for most retirees or those needing access to their cash. Often, however, the brokers were silent about the risk and volatility.
In a previous post we wrote about the many shale bond issuers that have already defaulted. Companies such as:
WBH Energy Partners
Allied Nevada Gold
American Eagle Energy
Duer Wagner Oil & Gas
Sun River Energy
Harvest Oil & Gas
Milagro Oil & Gas
Sabine Oil & Gas
American Standard Energy
Luca International Group
Black Elk Energy Offshore
Sable Operating Company
COGI Limited Partnership
American Natural Energy
Buckingham Oil Interests
Samson Resources Corporation
Miller Energy Resources
Raam Global Energy
The Financial Times claims that banks are five times more at risk of defaults in the oil and gas sector then they were one year ago. If banks are facing those risks, so are bond holders.
If you were deceived by a stockbroker or other financial professional, all is not lost. Stockbrokers, advisors and the companies that employ them have a legal duty to understand their customer’s financial needs and risk tolerance. Once they understand that information, they can only make investments recommendations that are suitable to their particular client. Should a retiree living on fixed income be invested in a high yield, junk grade shale bond? No!
Many investors are reluctant to sue. They don’t understand the process and worry about the costs. Those are valid concerns, however in the securities industry most stockbroker fraud claims are resolved by binding arbitration before the Financial Industry Regulatory Authority – FINRA. Lawyers typically charge a contingent fee meaning they are paid only if they win.
If you have lost $250,000 or more in a shale bond, junk bond or oil and gas investment, visit our energy sector loss / shale bond recovery page. Think you want to proceed or have more questions? Call us! There is never a fee for initial consultations. For more information, contact attorney Brian Mahany at or by telephone at (direct).
MahanyLaw – America’s Investment Fraud Lawyers