If your financial advisor recommended an investment in All American Oil & Gas (“AAOG”) stock, limited partnership units, or high yield (“junk”) bonds, you may be able to recover losses sustained through FINRA arbitration, in the event your broker lacked a reasonable basis for the recommendation, or if your financial advisor failed to disclose the many risks associated with an investment in AAOG. Headquartered in San Antonio, TX, AAOG is a privately held oil and gas producer that is the parent company of subsidiaries Western Power & Steam, Inc. (“WPS”) and Kern River Holding Inc. (“KRH”), an upstream exploration and production outfit with approximately 124 producing wells in the Kern River Oil Field. Together, AAOG, WPS and KRH are referred to as the Company.
On November 12, 2018, the Company filed for Chapter 11 bankruptcy in U.S. District Court in the Western District of Texas, citing “an ongoing dispute with its lenders.” As of the date of filing its petition, the Company has a total of $141,942,197 in debt obligations. According to the bankruptcy petition, in a number of instances KRH is the borrower on the Company’s loan facilities, as it requires regular ongoing cash flows to maintain its exploration and production activities.
With U.S. crude oil now trading below $50 per barrel (in 2014 oil was trading around $100, and as recently as September 2018 was hovering around $80 per barrel), many oil and gas companies may now be encountering financial distress after leveraging their balance sheets in order to fund costly exploration, drilling and related operations. Predictably, this overleveraging has placed some oil and gas companies in a precarious financial position, particularly those operating in the capital-intensive and risky upstream sector of the oil and gas market.
When a broker and/or brokerage firm recommends an oil and gas investment to a client, the financial advisor should first ensure that the investor is aware from the outset of the volatile nature of an oil and gas investment; essentially, such an investment amounts to a commodity play attached to the price movement of oil. Further, the financial advisor has a duty to determine if the investment is suitable in light of the investor’s profile and stated investment objectives. In addition, in instances where an investor’s account becomes over-concentrated in oil and gas investments, or if a broker fails to disclose the risks associated with such an investment or investment strategy, the broker and his or her firm may well be held liable for losses on the investment.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes concerning oil and gas investments, including MLPs, drilling programs, and private placements. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at firstname.lastname@example.org for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).