Reef 2011 Private Drilling Fund: Bad News for Investors?
Have you suffered investment losses in Reef 2011 Private Drilling Fund, LP? If so, The White Law Group may be able to help you recover your losses by filing a FINRA Dispute Resolution claim against the brokerage firm that sold you the investment.
According to their website, “Reef Oil and Gas Companies has remained committed to discovering new sources of oil and natural gas to meet the world’s growing demand for energy. Today, Reef is a leader in oil and natural gas exploration, production and property acquisitions.” Reef’s corporate office is located just north of Dallas in Richardson, Texas. The company often raises money for investments through Reg D private placement offerings like the company did for Reef 2011 Private Drilling Fund LP.
A recent letter to the company shareholders delivered some potentially upsetting news to shareholders. The letter included the following:
- As you know, the drop in oil prices has detrimentally affected the performance of the Partnership.
- Initially, the Partnership owned interests in oil and gas wells operated by 47 different operators. Due to the vast increase in drilling of new oil and gas wells on leases in which the Partnership owns interests and the need of the Partnership to keep up with the capital demands from the various oil and gas operators, the Partnership entered into a Mortgage and Credit Agreement with Texas Capital Bank, N.A
- At the middle of 2014, the Partnership had borrowed more than $12 million dollars, which was approximately a twenty percent loan to Partnership asset value. With oil prices over $100.00/barrel and many analysts predicting that oil prices would top $120.00, although Reef was reportedly comfortable with the amount of debt the Partnership was carrying at the time, in the latter part of 2014, crude oil prices dropped dramatically.
- Prices continued to fall for an additional 14 months until hitting a low monthly average of just over $30.00/barrel. To compound this financial stress, the sales price for the North Dakota oil produced by the Partnership traded at an $8 to $9 discount to the WTI price. WTI prices have improved to the present quote of approximately $50.00/barrel (after the discount — they expect to sell October 2016 production for a little more than $40.00/barrel).
- Due to the long term decrease in oil prices, the bank is insisting that Reef either pay off the entire loan balance or sell all Partnership assets. According to the letter, shareholders have two options:
Option 1: Investor Partners contribute $20,000.00 per unit of partnership interest, which will allow the Partnership to pay off all outstanding bank debt (the Mortgage) and the Partnership will continue in existence pursuant to the Partnership Agreement.
Option 2: The Partnership sells all Partnership Assets. Proceeds from the sale will be used to pay off the Bank debt (the Mortgage) and the Partnership will be dissolved.
This is unfortunate news for investors.
The trouble with alternative investment products, like Reef 2011 Private Drilling Fund, LP, is that they involve a high degree of risk and are typically sold as unregistered securities which lack the same regulatory oversight as more traditional investment products like stocks and bonds. An additional risk inherent to Reef Oil and Gas offerings is also the general risk that comes with the energy market — a market that has seen enormous losses over the last few years.
Broker dealers that sell alternative investments are required to perform adequate due diligence on all investment recommendations to ensure that each investment is suitable for the investor in light of the investor’s age, risk tolerance, net worth, financial needs, and investment experience.
Another unfortunate by product of Reg D private placements is that the high sales commission brokers earn for selling such products may provide some brokers with enough incentive to push the product to unsuspecting investors who do not fully understand the risks of these types of products.
If a broker or brokerage firm makes an unsuitable investment recommendation or fails to adequately disclose the risks associated with an investment they may be liable for investment losses through FINRA arbitration. For more information see Investor Alert: Reef 2011 Private Drilling Fund LP
To determine whether you may be able to recover investment losses incurred as a result of your purchase of Reef 2011 Private Drilling Fund, LP or another Reef Oil and Gas private placement investment, please contact The White Law Group at 1–888–637–5510 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida. For more information on the firm, visit www.WhiteSecuritiesLaw.com.