This post is being written at 41,000 feet on my way home from Texas. The news around the oil patch is quite bleak. Motorists may be rejoicing the possibility of gasoline below $2.00 per gallon but that is bad news for American oil exploration and production companies and the people who bought shale bonds and other junk bonds issued by oil producers.
Last week we discussed the bond default by American Eagle Energy but that isn’t the only oil company in trouble. Several other oil companies have gone belly up or face insolvency problems this year.
Earlier this year Quicksilver Resources and its affiliates Barnett Shale Operating LLC, Cowtown Drilling, Inc., Cowtown Gas Processing L.P., Cowtown Pipeline Funding, Inc., Cowtown Pipeline L.P., Cowtown Pipeline Management, Inc., Makarios Resources International Holdings LLC, Makarios Resources International Inc., QPP Holdings LLC, QPP Parent LLC, Quicksilver Production Partners GP LLC, Quicksilver Production Partners LP, and Silver Stream Pipeline Company LLC each filed for bankruptcy protection in Delaware. That is bad news for holders of bonds in these companies (we call these bonds “shale bonds”).
Based out of Fort Worth, Quicksilver Resources claimed it had $1 billion in liabilities at the time of its bankruptcy filing.
Another oil company in trouble is Dune Energy. Based in Houston, Dune didn’t have as much debt but still succumbed to low oil prices. The company was optimistic in March that it could restructure its debt but the steady decline in oil prices lead to some fire sale prices for Dune’s oil field holdings last month.
We report these stories because in our opinion, the debt of many of these exploration and production companies was almost doomed to default. While shale bonds might be an acceptable risk for some institutional investors, we have found that many individual investors were sold these junk bonds by brokers who promised high returns.
One report says that just in the last few years over $11 billion of junk shale bonds have been sold in the United States.
Retirees, older investors and those needing to preserve their capital have no business in any sort of junk bonds yet greedy stockbrokers were only too happy to sell these investments. Simply telling investors of the high yields offered by these shale bonds without explaining the risk is illegal. Brokers are obligated to tell the whole story and not just tout the promised high yields.
While many of these shale bonds are now worthless, others are teetering on the brink of becoming worthless. Last week saw a tiny bump in oil prices but the price of oil and gas remains so low that many of these companies won’t be in business much longer.
If you knowingly chose to invest in a risky investment then recovery of your losses is unlikely. However, if your stockbroker or financial advisor wrongfully recommended risky shale bonds or failed to warn you of the risk than recovery may be possible.
By recovery, we mean filing an arbitration claim against the stockbroker who sold these investments. Even if the broker is out of business or broke, his or her employer may still be liable. Securities industry rules require financial professionals to only recommend “suitable” investments to their client. The law also requires the broker to adequately explain the risks of any investments being recommended.
Prospective clients often ask us, “How can I sue my stockbroker and can I win?” The answer is yes, you can win.
Most claims against stockbrokers are handled by arbitration. The panels are convened under the rules of the Financial Industry Regulatory Authority (FINRA). These rules allow the customer to request a panel made up of members of the public instead of industry insiders. Even if the case doesn’t settle and needs to go to a hearing, most cases are fully resolved in 14 months or less.
Most cases can also be handled on a contingency fee basis meaning you never must pay legal fees or costs unless you win and recover.
If you lost your money in a bad shale bond or oil and gas deal, give us a call. We want to help you recover your hard earned money. For more information, contact attorney Brian Mahany online, at or by telephone at 800.669.7782.
MahanyLaw – Stockbroker Fraud Lawyers