An article in the industry publication Oil + Gas Monitor calls the current economics of the oil industry a “debt crisis.” That means that oil and gas companies have borrowed too much money and can’t make the interest payments. According to the publication, there may be as much as $200 billion of debt in the U.S. oil and gas industry.
With oil prices hovering in the middle forties (price per barrel), this story isn’t likely to have a happy ending.
Drilling for oil is a very expensive proposition. Exploration and production costs associated with shale wells, fracking and deep offshore wells is even more expensive. To cover these costs, drillers borrowed tens of billions of dollars. Unfortunately, the price per barrel to pay these loans is often $60 or $70 per barrel.
If they can’t pay their bondholders through sales of cheap gas and oil, companies will have to sell equipment. That may be a short term strategy but ultimately dooms the company to fail before long. In other words, selling off equipment may buy time but little else.
Making things worse are the export controls in the United States. There are probably many international buyers that would love our cheap oil, unfortunately Congress has placed limits on exporting.
Oil and gas exploration has always been a volatile industry. Institutional investors can weather the storm but many investors today are individuals. We have seen many elderly and retired investors lose their savings because they hold shale bonds and other worthless energy debt.
How did they get in this mess? Stockbrokers.
Folks nearing retirement typically are looking for income to help them get through their golden years. Discouraged by terrible CD and bank savings rates, some stockbrokers misled clients into investing in oil and gas bonds. On paper, they pay terrific yields and appear to be backed by significant assets. Unfortunately, if the company issuing the debt is depending on $70 per barrel oil, the bonds will soon go into default.
Stockbrokers aren’t responsible for every loss a customer suffers. Energy stocks and bonds both increase and decrease in value, it’s the volatile nature of the industry. Stockbrokers, however, become liable when they misrepresent or fail to explain the volatility of these investments.
Brokerage firms can also be liable when they don’t properly understand their clients’ investment objectives or make unsuitable investment recommendations.
With oil prices hovering in the middle 40’s and an estimated $200 billion in outstanding debt, things are only going to get worse.
If you purchased junk quality shale bonds or made other oil and gas investments that are worthless or have caused you to lose money, there is hope. As noted above, financial advisors and the companies that employ them can often be held responsible for customer losses.
Most claims are handled by binding arbitration and are resolved quickly.
Need more information? Give us a call. All inquiries are confidential, no obligation and are without cost. Our services are typically handled on a contingent fee basis meaning you don’t pay us unless we win. (Our minimum loss is $250,000 but call us if less; sometimes we can find multiple claims against a single broker or brokerage firm.)
MahanyLaw – America’s Stockbroker Fraud Lawyers