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.
Energy 11 has published an estimated per common unit net asset value (NAV) of its common units of $7.23 per unit as of December 31, 2020. On January 25, 2021, the Partnership filed a Form 8-K with the Securities and Exchange Commission announcing the drop in estimated NAV and explaining its assumptions and valuation methodology.
The Form 8-K is accessible here Form 8-K.
Previously, Energy 11 had estimated the NAV per unit as $13.82 as of December 31, 2019. Units were originally sold to investors at a price of $20.00 per unit, meaning that investors likely now face substantial principal losses.
Also previously, 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 then 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.
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.”
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 email@example.com 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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