A private equity fund managed by firm EnerVest Ltd. focused on oil and gas investments has reportedly lost essentially all of its value. EnerVest Energy Institutional Fund XII (which closed in 2010) and EnerVest Energy Institutional Fund XIII (which closed in 2013)- both of which raised over $1 billion equity capital- appear to be affected by the loss.
With crude oil prices declining from more than $100 in 2014 to as low as $26, and currently hovering around $50 a barrel, the value of EnerVest’s assets, which served as collateral on its substantial debts, dropped substantially. This loss of collateral reportedly caused Enervest’s lenders to make repayment demands that could not be met, precipating its demise.
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 is 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, of 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 liable for losses on the investment.