Oakes & Fosher is currently investigating the possible unsuitability of investments in Mewbourne Energy Partners. Mewbourne Energy Partners is a United States Company that produces oil and gas for consumers. The company’s main holdings are from interests held in developmental gas and oil prospects located in various locations throughout the southern United States. These locations include; the Anadarko Basin of Western Oklahoma, the Texas Panhandle, and the Permian Basin of New Mexico and West Texas. Like most energy companies, investments in Mewbourne Energy Partners are sold as private placements. This means that they are privately traded securities not sold on any public stock exchanges. The lack of over-sight that arises from private placements almost always works to benefit other parties ahead of the investor.
It is not uncommon for broker dealers selling these private placements to use high pressure sales tactics. This is done for multiple reasons. First of all, brokers make between 7 and 10 percent commission when selling these products to investors. Second, brokers increase their sales by convincing individuals to invest before they have an opportunity to research the product.
These hard pressure sales tactics tend to work largely in the favor of brokers selling private placement products in companies like Mewbourne Energy Partners. Oil and gas private placements are constantly described by brokers as investments that guarantee large returns and create very little risk to the investor. They are also presented as highly exclusive to investors due to their private nature. When brokers preach about the exclusivity of a product, many investors see it as their opportunity to get in on the ground floor of something big. A lot of these brokers also promote new advances in technology and oil drilling equipment as a way of convincing potential investors of the investment’s “guaranteed” success.
Securities brokers have a legal obligation to only recommend investments to customers for which they are suited. This suitability is determined by factors such as the customer’s financial situation, risk tolerance, and investment objectives. Private placements, of any nature, are only designed to be sold to sophisticated and experienced investors that clearly understand the the risks associated with them.
Investors are rarely made aware of the actual substantial risk associated with these gas and oil private placements. These associated risks derive from the fact that such a large portion of the investment goes to other various expenses including; management fees, drilling costs, and paying the exorbitantly high commission for the broker dealers. Due to the high fees and expenses, only around 65% of an individual’s principle investment is actually working toward producing capital. Investments where that low of the principle is actually working toward generating growth very rarely makes the investor money.
Another risk factor is the fact that drilling and producing these oil wells require significant capital. Yet, even if the company raises the capital to produce the wells, their “guarantee” is still worthless. This is due to the fact that there is no actual scientific way to guarantee that a developed well will produce enough oil to make an actual profit when factoring in the required start up capital.
Moreover, the investors usually have little understanding of how these gas and oil private placements actually operate. It is not uncommon, for a company like Mewbourne Energy Partners to operate with substantial conflicts of interest. Atlas Resources, a company just like Mewbourne Energy Partners, solicited $300 million from investors for a new project, all the while promising to invest $145 million of its own capital. However, it was reported that a large portion of the funds Atlas Resources invested was being used to to cover the commissions of broker dealers selling the products at an affiliated company, to purchase the drilling leases from another affiliated company, and to purchase the drilling equipment from another affiliated company. Atlas Resources allegedly funneled this money back into their own company in order to greatly reduce their portion of risk. This qualifies as securities fraud as the fact that a company would contribute a sizable portion to an investment may qualify as a deciding factor for many individuals on deciding whether or not to invest. Due to the lack of oversight of these private placements, there is nothing preventing Mewbourne Energy Partners, and other similar companies, from behaving in the exact same manner.
Oakes & Fosher is very interested in hearing from individuals currently invested in Mewbourne Energy Partners, or other gas and oil private placements. If you, or someone you know, is concerned about your investment, please contact Oakes & Fosher for a free and private consultation.