If you think the size of the national debt is big, wait until you hear how much revenues the world’s oil producers will lose over the next few years. According to the Wall Street Journal, oil producers will lose about $4.4 trillion over the next 3 years. That is over $1 trillion per year! With it will come the collapse of many already shaky shale bonds and other risky oil and gas investments.
The SEC and the North American Securities Administrators Association has long warned investors to be wary of oil and gas deals. Most legitimate brokerage firms have been particularly cautious in the oil and gas securities they recommend but that hasn’t stopped many rogue brokers and unregistered promoters from hawking deals. In fact, Bloomberg reports that between 2012 and 2014 $90 billion of junk grade shale bonds have been sold.
With oil prices still at record lows, many of these investments are going bust.
If a licensed stockbroker properly warned you of the risks and you elected to buy these bonds anyway, there probably is little recourse. We have heard of brokers touting shale bonds to elderly investors or retirees who were looking for income and safety, however. There is nothing safe about a junk grade bond!
In the last two days the price of Brent crude fell another 2.5% to just 445.46 per barrel. Many believe that most shale bond issuers can’t sustain prices below $60 per barrel.
Many shale bond issuers built up massive debts in the last several years. With oil prices so low there simply isn’t enough revenue to meet the debt payments.
It isn’t just the shale oil producers that are hurting. The entire oil and gas sector is hurting including exploration, production, pipeline and services companies.
What does this mean for investors?
Shale Bond Frauds
Shale bonds are debt securities backed by the revenues from the sale of shale oil and gas. While some exploration and production companies have been in business for years and can ride out several years of depressed oil prices, many newer offerors can’t. The companies we worry about include:
- Exco Resources
- Swift Energy
- Rex Energy
- SandRidge Energy
- Goodrich Petroleum
- Approach Resources
- Magnum Hunter
- Sabine Oil & gas
- Halcon Resources
In December, the Economist magazine said, “shale-shocked executives will spend Christmas overhauling their strategies to cope with life at $70 per barrel, even as investors dump their firms’ shares and bonds.” Guess what? Prices have dropped dramatically since then and the recent correction in the stock market and problems in the Chinese economy suggest it could be years before energy prices recover.
If you purchased oil and gas partnerships or shale bonds on your own without the help of a broker, you may have to ride out the storm. Brokers who recommended these investments, however, may be liable for billions of dollars of losses.
Stockbrokers and other financial professionals have a duty to understand their customers needs and risk tolerance. These rules are called “know your customer” or “KYC.”
Once a broker fully understands his client, he or she must only make recommendations that are suitable for the customer. Suitability rules factor in risk tolerance, age, investor sophistication and need to access one’s capital in the short term. For example, while junk quality shale bonds may be acceptable for institutional investors they are rarely acceptable for retirees and those who need access to their money.
We believe some stockbrokers hawked these investments without adequate due diligence or full disclosures about their risk. To help sell these questionable investments they simply relied on the advertised rate of return and the media hoopla surrounding America’s resurgent oil industry.
While there are doubtless some good quality oil and gas investments, stockbrokers also have a duty to conduct due diligence on the investments they recommend. We were astounded to see billions of dollars continuing to flow into the shale bond market right up until early summer. This despite many, many warnings from experts.
If you lost money in an oil and gas deal or shale bond, call us. Even if your stockbroker has left the industry, his or her employer (brokerage firm) may still be liable. Most cases can be handled on a contingent fee basis meaning no legal fees unless we recover your money.
Need more information? Contact attorney Brian Mahany at or by telephone at (414) 704 -6731 (direct). All inquiries are protected by the attorney – client privilege and are kept strictly confidential. Talk to us today and we will help see if you have a case.
MahanyLaw – America’s Fraud Recovery Lawyers