Oil and gas investments are synonymous with wealth, and it isn’t hard to see why. The bubbling black stuff provides the energy that makes modern, world-wide commerce possible, and without it, entire economies would come grinding to a halt. In the last five years, the prices for crude oil have risen a dramatic 79 percent, according to records from the U.S. Energy Information Administration, so owning a claim in a producing well can seem almost inescapably alluring. Like any investment opportunity, however, there are risks in oil and gas. Although the final product will always be valuable, finding it isn’t always easy, and wherever there are fortunes to be made, there are con artists waiting to strike quickly and disappear with the money of ill-informed investors.
The Good Guys
Rather than buying stock in a company, investing in oil and gas is most commonly structured as a “joint venture.” That means that investors partner with a drilling company or site promoter to supply the necessary capital to lease property, establish a specific drill site, and get it producing. The initial investment can make for a substantial tax write-off, and once the well is up and running, investors receive quarterly pay outs until their well runs dry. Reputable drilling companies and promoters will have no trouble supplying detailed information about their businesses and the prospective site, including the duration of the lease and assurances that raised funds will be kept in separate escrow accounts until used. Trustworthy businesses will also have a positive track record with the state securities commission. It is wise to contact regulatory agencies before partnering with a company. Such agencies can verify or discredit a company’s claims about the success of previous ventures. For example, U.S. Emerald Energy are experts in the field of oil and gas investing. They’ve got an “A+” rating with the Better Business Bureau, which they earned by keeping investors informed with timely reports on a project’s progress and by giving investors a vote on any significant decisions.
Fraud’s Toll
While there are good guys and realistic investment opportunities in the oil industry, The Dallas Morning News reported in January that fraud has increased to the point that the Securities Exchange Commission now files about 20 lawsuits a year against companies who mislead investors, bilking them for thousands of dollars. In fact, the SEC alleged that Bret Boteler, a Texas-based oilman, raised $17.3 million from 260 investors across the country. Of the 45 wells he was contracted to drill, half were abandoned and only three made any money. While the investors’ money disappeared, Boteler pocketed $1.3 million in salary, bonuses, and expenses.
Warning Signs
To help protect investors, the SEC published a list of common red flags that should stop savvy investors from doing business with shady companies. The commission warns against giving money to salespeople who make unsolicited contact with potential investors or provide unsolicited informational materials. Swindlers also tend to engage in pushy sales tactics, such as promising steep returns and ensuring potential investors that there’s little risk. Claims that a geologist gave the salesperson a unique tip or that the salesperson has invested his or her own money in the project should cause concern. Other fraudulent tactics include warning investors that only a few interests remain and that they need to invest quickly, or claiming that a tremendous discovery has been made in an adjacent field. Above all, fraudsters depend on investors not to do their own research. The SEC encourages anyone considering an oil and gas investment to research diligently before parting with any money.
This article was contributed on behalf of US Emerald Energy, your number one choice when looking to invest in oil. Check out their website at www.usemeraldenergy.com today for more information!
