Oil and Gas Partnerships - Beware the To Good To Be True Investment

Boca Raton, Florida Oil and Gas Fraud Attorney, Russell L. Forkey, Esq.

Investment cycles reappear every few years.  Recently, with the rising price of oil and gas, the fraudsters have returned in full force, offering interests in oil and gas limited partnerships to the unsuspecting investor. 

The purpose of this post is to provide the reader with some basic information that should be considered when approached to invest in such a venture.  Please keep in mind that this information is being provided for educational purposes only and is not complete in all material respects.  Thus, it should not be relied upon as legal or investment advice.  Any questions that the reader has should be directed to qualified professionals. 

As a supplement to the below comments, we strongly urge you to contact a qualified legal representative to review the documents that you have received before making any investment commitments.  It always amazes us how blindly individuals invest in these types of products, without even minimal investigation.

If you think you've found the right oil or gas investment to "strike it rich," consider this: it may be a scam. While some oil and gas investment opportunities are legitimate, many oil and gas ventures are frauds. Many of these schemes start in so-called :boiler rooms,'" where skilled telemarketers use high pressure sales tactics to convince you to hand over your hard-earned money.

Once they have your money, scam artists pay themselves first, often using funds to pay personal expenses. In the end, only some of your money may be invested in an actual oil or natural gas well, or none at all.

Red Flag Warnings:

If you are considering an oil and gas invest-ment, look for these "red flag" warnings of fraud:

  • Sales Pitches Focused on Highly Publicized News. Scam artists read the headlines, too. Often, they'll use a highly publicized news item, like volatile gas prices, to lure potential investors and make their "opportunity" sound more legitimate.
  • "Can't Miss" Wells. Every investment carries some degree of risk so you should be skeptical of any oil and gas investment opportunity pitched as completely safe. Fraudsters often spend a lot of time trying to convince you that extremely high returns are "guaranteed" or "can't miss." Don't believe it.
  • Unsolicited Materials. Be especially careful if you receive unsolicited materials about an investment. Simply ignoring investment-related "junk" faxes, emails, voice mail messages, and regular mail may be your best strategy. And don't let a package full of colorful marketing materials impress you, even if it's sent by certified or overnight mail. If you're not going to research an opportunity fully, do yourself a favor and put any unsolicited materials in the recycle bin immediately. If someone calls to follow up regarding the materials, tell him or her "thanks, but no thanks" and hang up. [Hanging up is critical because scam artists often use scripted sale pitches to keep you on the phone.]
  • Limited Opportunities. Scam artists often try to give you the impression that the " opportunity" they are promoting is scarce, hoping you will hand over your money hastily before doing any due diligence. Resist the pressure to invest quickly, and take the time you need to investigate before sending money.
  • High Rates of Return. Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you'll get substantially more could be highly risky. And that means you might lose money.
  • Tips or Secrets. A promoter may discourage you from talking about the opportunity with someone you trust, like a loved one, attorney or financial professional. If that happens, stop listening, and leave or hang up.

Steps You Can Take to Protect Yourself

Here are some steps you can take to avoid being scammed:

  • Ask questions and check out the answers. Fraudsters rely on the sad truth that many people simply don't bother to investigate before they invest. It's not enough to ask a promoter for more information or for references - fraudsters have no incentive to set you straight. Savvy investors take the time to do their own independent research.
  • Contact state oil and gas regulatory agencies. You may be able to verify information provided in offering materials by contacting the oil and gas regulatory agency in which the wells are allegedly being drilled. For example, these agencies generally have information about a company's drilling history that could confirm claims of prior success.

Investor Tidbit:

You might be surprised to learn that the Railroad Commission of Texas oversees the Texas oil and gas industry. Unfortunately, state oil and gas regulatory agencies don't have uniform names. If you're having trouble finding the agency that regulates oil and gas in a particular state, enter the State's name - followed by "oil and gas" - into your favorite Internet search engine.  

  • Research the company before you invest. You can contact the secretary of state where the company is incorporated to find out whether the company is a corporation in good standing. You also will want to understand the company's business and its products or services before investing. Before buying any stock, check out the company's financial statements on the SEC's website, or contact your state securities regulator. All but the smallest public companies have to file financial statements with us. If the company doesn't file with us, you'll have to do a great deal of work on your own to make sure the company is legitimate and the investment appropriate for you. That's because the lack of reliable, readily available information about company finances can open the door to fraud. Remember that unsolicited materials should never be used as the sole basis for an investment decision.