Our offices continue to report on investment losses suffered by investors in various oil and gas investments that brokerage firms have increasingly recommended to retail investors in recent years. These investments include private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks. See Overconcentrated in Oil and Gas Investments?, MLP Fund MainStay Cushing Royalty Energy Hurt by Failing Oil & Gas Prices; Oil and Gas Investments – Issuers Profit While Investors Take All the Risk, BlackGold Opportunity Fund Investors Suffer Losses
Oil and gas related investments have been recommended by brokers under the assumption that oil & gas would continue to be sold at around $100 and increase steadily over time. However, last summer the price of oil & gas plummeted due to a strengthening dollar and increased global supply of oil and remains below $60 to this day. Some experts are saying that if production volume continues to be as high as it currently is and demand growth weak that the return to $100 a barrel is years away.
Before recommending investments in oil and gas companies, brokers and advisors must ensure that the investment is appropriate for the investor and conduct due diligence on the company in order to understand the risks and prospects of the company.
In the case of oil and gas investments, many of these companies, such as Quicksilver, took on enormous amounts of debt in order to engage in exploration activities that could only make sense if the price of oil remained high. In Quicksilver’s case, as soon as oil fell in price, analysts began questioning the company’s ability to continue as a going concern. As reported by Bloomberg News: “[Quicksilver], which operates in the U.S. and Canada, must refinance or retire at least $250 million of its 7.125 percent senior subordinated bonds by Jan. 15, 2016, to avoid triggering early maturities on more than $1 billion of higher-ranked debt, according to credit agreements. With analysts projecting losses this year and next, Quicksilver will burn through its cash in less than 12 months, according to data compiled by Bloomberg.”
Within six months of the Bloomberg report the price of certain Quicksilver bonds fell to prices that all but wiping out the value of the bonds. Recently, Quicksilver reported that it has not been able to produce viable options for asset sales or other alternatives to fully address the company’s liquidity and capital requirements in order to stay in business.
On January 8, 2015, Quicksilver issued a press release stating that the New York Stock Exchange (NYSE) had determined to commence proceedings to delist the company’s common stock in view of its low trading price and suspended trading. As of April 23, 2015, the stock price of Quicksilver was approximately $0.03 per share. Quicksilver’s stock prices has been on a steady decline since 2010.
Brokers who sell oil and gas products are obligated to understand the risks of these investments and convey them to clients. Investors who have suffered losses may be able recover their losses through securities arbitration. Our consultations are free of charge and the firm is only compensated if you recover.