Oil & Gas Private Placement Investments A Bad Bet Per Reuters

Oil & Gas Private Placement Investments A Bad Bet Per Reuters 150 150 Rex Securities Law

November 11, 2014-  A recent article by Emily Flitter of Reuters warns retirees to take a very hard look at oil and gas offerings before risking any of the family nest egg.

Atlas Resources, LLC is one of the investments analyzed by Reuters. The economics of the deal suggest that the heavy upfront burden of fees and payments to related entities may make it difficult for investors to achieve any meaningful returns. Here is how Reuter’s dissects the deal:

  • Atlas Resources, LLC hopes to raise $300 million before the end of 2014 and will put in $145 million of its own capital to fund Atlas Resources Series 34-2014 LP
  • Up to $45 million will be paid to an affiliate, Anthem Securities to cover commissions to selling agents
  • Up to $39 million will be used to buy leases from another Atlas affiliate
  • Atlas-affiliated suppliers may also get part of $53 million set aside for drilling equipment
  • $8 million of Atlas’ purported investment is not an investment  but rather a 15% markup on estimated equipment costs.

Reuters estimates that Atlas’s $145 million investment exposure is reduced by at least 40% after considering payments to affiliates and markups. Atlas is entitled to 33% of any revenue produced. Historically over half of the 43 private placements issued by Atlas over the past 3 years have either just barely broken even or lost money for investors. In 29 of the deals, Atlas did better than the investors.

Reuters also looked at Reef Oil & Gas Partners of Richardson, Texas, and found that of 34 deals since 1996, only 12 have paid more cash to investors than they contributed. In 31 smaller deals issued between 1996 and 2010 of the $146 million raised from investors only $55 million was returned.

Atlas warns in its offering memorandum “These securities are speculative and involve a high degree of risk. You should purchase these securities only if you can afford a complete loss of your investment.” However many investors are told to disregard those warnings by the selling brokers, who minimizes the risk to gain the sale.

Tax benefits are often touted as a reason to invest in these deals even though the bulk of retirees generally pay tax at a very low rate.

Discovery Resources & Development LLC of Frisco, Texas and Black Diamond Energy Inc of Buffalo, Wyoming also sold oil and gas private placements over the recent years.

If you invested in oil and gas private placements and believe that the nature of the risk was minimized or misrepresented, you may be able to recover damages. Contact us to learn more.

Rex Securities Law provides nationwide representation to investors seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

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