The oil and gas sector has been pummeled lately and things just aren’t improving. That might be good news for motorists and bargain hunters with cash to invest but it is terrible for investors holding shale bonds.
According to an article in the Oil + Gas Monitor, several more energy companies are in trouble and for holders of their debt (shale bonds), that means more heartaches.
Last week the O+G Monitor reported that Samson Resources Corp is preparing to file for bankruptcy, it being the newest oil patch firm to be in deep trouble.
The problems all stem from the price of oil and gas. Many exploration and production companies raised cash through so-called shale bonds when prices of oil were around $60 per barrel. In the last 12 months, however, oil prices have dropped 60% and even dipped below $40 per barrel. For many energy companies, this is the month they will either have to sell assets or seek bankruptcy reorganization.
Institutional investors have also been battered by the fluctuating energy prices but they are more sophisticated and better able to absorb the losses. (The Monitor claims KKR sunk $48 billion into Energy Future Holdings, an energy sector company that went bankrupt in recent months.)
The true victims of falling energy prices are individual investors and bond holders. Many of these folks invested upon the recommendation of stockbrokers and financial advisors. These folks promised above average returns on shale bonds but often failed to warn of the risks and volatility associated with these investments.
Often the holders of shale bonds are retirees or those close to retirement who were promised a good rate of return. These folks were relying on the income to carry them through retirement. No one told them that oil prices had to stay steady or in some cases rise in order for the bonds to have enough money to remain solvent.
Securities industry rules require stockbrokers to conduct proper due diligence on the investments they recommend and properly disclose all of the risk associated with an investment. We think there are many instances where brokers failed to do so with these investments.
There is a silver lining in this cloud… investors who lost money in oil and gas equities (stocks) and shale bonds may be able to get back their money from the stockbrokers who recommended these investments. Claims are typically handled by binding arbitration and can be handled on a contingent fee basis.
MahanyLaw – America’s Stockbroker Fraud and Fraud Recovery Lawyers