Oil and gas partnerships are often presented to consumers as safe, high-yield investments, but they contain risks and complexities that make them appropriate only for the most sophisticated investors.
Oil and gas markets are unstable and risky.
Brokers and brokerage firms must ensure that the investments they recommend to clients are suitable, and that their potential risks are clearly explained. Investments must also not be too concentrated in one field such as oil and gas.
If you lost money on an oil and gas limited partnership, the losses may be recoverable though a securities litigation claim.
Learn your legal options during a free case review with the Business Trial Group.
How Oil and Gas Limited Partnerships Work
Oil and gas limited partnerships are investment vehicles for energy projects. Investors in these partnerships provide the capital to acquire, develop, and operate oil and gas wells. In return, the investors are paid cash distributions on a monthly or quarterly basis.
The two major options for retail investors in this sector are private oil and gas limited partnerships and master limited partnerships (MLPs).
Although similar, these investment vehicles have important differences. MLPs, for example, are typically publically traded securities, while oil and gas limited partnerships are sold to a select number of investors. In addition, MLPs are intended to be long-term businesses, while limited oil and gas partnerships are usually only formed for a specific project, and are eventually liquidated.
Oil and Gas Limited Partnership Risks
MLPs and oil and gas limited partnerships present similar risks to investors. These risks include:
- Market instability: Oil and gas markets are unstable. A decline in oil and gas prices can cause significant—or even total—investor losses.
- Investors have no real power: Governance features of oil and gas partnerships can favor management over other investors. Management could possibly make decisions that place their interests first and are detrimental to the interests of limited partners. And if investors want to divest, they may have difficulty liquidating their investment.
- Complexity: Oil and gas partnership vehicles often have layered fees that can cut into investor returns. These vehicles also pose complicated, cumbersome tax issues. The complexity of oil and gas partnerships can make it difficult for the average investor to accurately gauge their true return.
Discuss Your Investment Losses With the Business Trial Group
The recent oil and gas boom has made limited partnerships in the energy sector attractive to investors. Unfortunately, many investors who were promised high yields instead suffered heavy losses.
Your investment losses may be recoverable.
Brokers and brokerage firms may push oil and gas limited partnerships as a stronger growth investment while failing to disclose their drawbacks. While sophisticated investors with diverse portfolios may benefit from investing in a limited oil and gas partnership, the risk and complexity of such investments make them unsuitable for most investors.
If your broker wrongly advised you to invest in an oil and gas limited partnership or a master limited partnership—and you lost money on the investment—our securities litigation and arbitration attorneys can help.
