Investors in Energy 11, L.P. (“Energy 11” or the “Partnership”) 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.
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. In December 2020, Energy 11 announced that it would continue to accrue distributions indefinitely, meaning that the distributions will not be paid to investors at least in the coming months of early 2021.
During January and February 2020, Energy 11 had reportedly borrowed $14 million on its revolving credit facility to fund capital expenditures for the Partnership’s in-process drilling program; these borrowings increased the outstanding balance on the revolving credit facility to $38 million. The commitment amount for the revolving credit facility was $40 million, meaning that Energy 11 had nearly exhausted its available revolving credit.
Having tapped its credit line, Energy 11 then reportedly turned to personnel of its sponsor affiliated with its general partner for a temporary loan. On July 21, 2020, the Partnership and its wholly-owned subsidiary, as borrowers, entered into a loan agreement with GKDML, LLC (“GKDML”), which provides for an unsecured, one-year term loan in the amount of $15 million. GKDML is owned and managed by senior executives of Energy 11 GP, LLC, the general partner of the Partnership.
In a December 14, 2020, letter to shareholders Energy 11 attributed its difficulties in part to the financing market for the oil and gas industry having “been limited due to the significant drop in prices” and states as follows:
“Today, with prices in the mid $40s and the current volume, we are producing positive cash flow every month. However, until we can get a refinancing, prices to increase significantly or a significant increase in volume, we believe it is in the best interest of the limited partners to continue to accrue the distribution until such time as the debt is paid down or a refinancing is obtained.”
The entire letter is accessible here. 20.12.14 energy 11 investor letter
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 and also pre-dated the Covid-19 crisis. The Partnership will likely publish a revised estimated NAV per share in early 2021.
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.” Structured as a limited partnership, Energy 11 carries significant risks that may not be adequately explained to retail investors in marketing pitches by financial advisors who may recommend these complex financial products. 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.
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. 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 and limited partnerships, 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, New Jersey, 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).
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