Securities Lawyers Blog
The law offices of Gana Weinstein LLP are currently investigating brokerage firms that placed investors in oil and gas related investments and who have suffered losses as a result. Two companies that appear vulnerable include Linn Energy (Stock Symbol: LINE) and Energy XXI Ltd. (Stock Symbol: EXXI). While these companies have not yet declared bankruptcy their stock prices have fallen by well over 90% in the last year.
Many oil companies rely on borrowing lines of credit from banks in order to make investments in their business operations. Some of these lines of credit will come up for renewal on October 1. At which time, according to TheStreet.com banks will look back at the last twelve months to the average price of oil which stood at about $45. This will cause the banks then to reduce the amount of money available to borrow in half compared to a year ago. Due to the reduced credit and access to capital it will become very difficult for companies like Linn Energy and Energy XXI to continue investing and drilling.
For instance Linn Energy and Energy XXI have already exhausted more than 75% of the credit available to them and may be forced in bankruptcy.
Our offices continue to report on investment losses suffered by investors in energy and oil and gas related investments that brokerage firms have increasingly recommended to retail investors in recent years. Investors have been exposed to energy investments through a variety of investment vehicles including private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks.
Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up. However, due to a combination of forces including slack demand in China and the strengthening dollar, last summer the price of oil & gas plummeted and remains around $40 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. Many of these companies relied upon high energy prices in order to sustain their operations. As reported by the Wall Street Journal the drop in oil and energy prices and the industry downturn has made it difficult for many companies to refinance their debts.
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.