Investors 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.
Perhaps of greatest concern to investors in oil and gas limited partnerships like Energy 11 and ER 12 is their illiquid nature. Investors in the common units of either Energy 11 or ER12 cannot readily or easily sell their units, as there is no public market on which these units trade. Rather, investors must be able to hold their investment position indefinitely, until such time as a Liquidity Event may occur, which will likely only occur “within five to seven years from the termination” of the investment’s offering, at the earliest.
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 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).