This post was first written in 2015 when crude priced sank to around $40 per barrel. Crude prices are once again down around the $40 per barrel range with little relief in sight. Like in 2015, never a week goes bu=y with another announcement of a U.S. shale oil bond issue defaulting or an exploration company folding.
Having been raised in the oil patch, I know first hand how sensitive the industry is to prices. Unfortunately, stockbrokers and financial advisors failed to properly disclose these risks when selling tens of billions of dollars of shale oil and gas bonds.
In this post we look at what we wrote in 2015 and where we are five years later. Here is what we said five years ago: This week the Wall Street Journal reports that so far this year, 37 North American oil and gas companies have filed for bankruptcy productions. According to a list compiled by Haynes and Boone LLP, a bankruptcy firm, the following companies have filed in 2015:
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
Several of these companies such as Samson Resources and Sabine Oil & Gas have over $1 billion in outstanding debt!
Business is booming for oil and gas energy bankruptcy lawyers. On the same day of the Wall Street Journal’s story, Haynes and Boone announced they were recruiting more lawyers.
This crash of the shale oil sector and the entire energy industry is also a disaster for investors who purchased shale bonds or invested in oil master limited partnerships in the hopes of securing steady income.
Unfortunately, many stockbrokers put people in these investments with little regard to their financial needs. Brokers have a legal obligation to fully understand their customers and their needs. They can only make investment recommendations that are suitable to those needs.
“Know your customer” and “suitability” are legal obligations. If a broker fails in those duties both the broker and the brokerage firm are responsible for any losses.
Shale oil investments are by their nature quite volatile. Last year oil prices were between $90 and $100 per barrel. Last week they dipped below $40 per barrel! That is a huge swing in just one year.
Shale oil bonds shouldn’t be in portfolios of conservative investors, retirees and those that need access to their cash. If you purchased these investments and lost money, you may be able to recoup those losses.
Fast forward to 2020 and the situation is even more dire. Earlier this year the price per West Texas Intermediate crude fell to below $20 per barrel. Low demand because of the COVID-19 pandemic caused some futures prices ton drop to zero!
As of July 31st, Haynes & Boone calculated that producers with approximately $49 billion in debt when bankrupt in the first 6 months of 2020. Several well known giants filed for protection this year including Chesapeake Energy, Whiting Petroleum, Sable Permian Resources and Ultra Petroleum.
The Shale Bust and Stockbroker Suitability Claims
Investing in energy stocks and debt isn’t for the faint of heart. The industry is quite volatile. In the hopes of generating large returns for clients, some stockbrokers recommend risky energy plays. If you aren’t nearing retirement and are okay with a high degree of risk, maybe investing in energy stocks was an acceptable risk.
Stockbrokers and investment advisors have a duty to understand their customer’s needs and risk tolerance and then to only recommend investments that are suitable. What is suitable for a young investor with lots of liquid assets and a high tolerance to risk is much different from the retiree who is looking for stability.
When a broker fails to understand her customer’s needs or makes an unsuitable recommendation, both the broker and her employer (the brokerage firm) can become liable for any losses suffered by the customer.
Stockbroker fraud and negligence claims are generally handled through arbitration before the Financial Industry Regulatory Authority. Most cases can be handled in 14 months or less. Lawyers are paid on a contingency fee basis meaning no out of pocket cost to you.
If you lost $250,000 or more (or if you are part of a group of investors with similar losses), we can help. For more information, contact attorney Brian Mahany online, by email at or by telephone at (202) 800-9791. We handle cases nationwide. You can also visit our shale oil and energy investment information page.
MahanyLaw – America’s Fraud Recovery Lawyers.