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Investors in Energy 11, L.P. (“Energy 11”) may be able to recover investment losses through FINRA arbitration. if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Oil Drilling Rigs
On March 19, 2020, Energy 11 announced that it would suspend distributions to limited partners until further notice, citing “recent volatility in the market and oil prices in particular” that “has caused uncertainty to our cash flow for the remainder of 2020.”  Energy 11’s letter announcing the suspension is accessible here. ex_178082

Energy 11 has published an estimated per common unit value of its common units of $13.82 as of December 31, 2019.  However, this value may be premised in part on oil prices of over $50 a barrel that prevailed in 2019.  Oil prices have since plummeted to less than $30 a barrel as of this writing in March 2020.

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Oil Drilling RigsInvestors in certain oil and gas limited partnerships offered and underwritten by David Lerner Associates, Inc. (“David Lerner”) — including Energy 11, L.P. (“Energy 11”) and Energy Resources 12, L.P. (“ER12”) — may be able to recover investment losses through FINRA arbitration, in the event that the investor’s broker lacked a reasonable basis for the recommendation, or if the nature of the investment including its many risk components was misrepresented by the financial advisor.  Energy 11 is a Delaware limited partnership formed in 2013 “to acquire producing and non-producing oil and natural gas properties onshore in the United States and to develop those properties.”  Specifically, as of March 31, 2017, Energy 11 had made key acquisitions in certain Sanish Field Assets (for approx. $340.5 million) located in North Dakota in proximity to the Bakken Shale.

ER12 was formed in 2016 as a Delaware limited partnership, with essentially the same objective as Energy 11, namely to “acquire producing and non-producing oil and gas properties with development potential by third-party operators on-shore in the United States.”  On February 1, 2018, ER12 closed on the purchase of certain Bakken Assets, including a minority working interest in approximately 204 existing producing wells and approximately 547 future development locations, primarily in McKenzie, Dunn, McLean and Mountrail counties in North Dakota.

Structured as limited partnerships, both Energy 11 and ER12 carry significant risks that may not be adequately explained to retail investors in marketing pitches by financial advisors who may recommend these complex financial products.  To begin, both Energy 11 and ER12 were only recently formed (2013 and 2016, respectively) and have very little operating history.  Moreover, each limited partnership is helmed by a CEO and CFO, Glade Knight and David McKenney, whose primary experience is in the real estate industry, not the oil and gas arena.  Oil and gas investments by their very nature are extremely volatile as they are subject to the boom and bust cycles which characterize the oil market.

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