Important Announcement

See here for an important message regarding the community which has become a read-only site as of October 31.

Post Reply
Switch to Forum Live View New Way to Bet on Oil & Gas Wipes Out Billions in Investor Savings
3 years ago  ::  Oct 26, 2015 - 2:42PM #1
Posts: 17,597
New Way To Bet On Oil & Gas Wipes Out Billions In Investor Savings

When Karen Robinson’s husband died, she worried she wouldn’t have enough money to raise her two young girls and save for retirement.

Then she met a financial planner, Tom Parks, who told her about investment partnerships that would allow her to ride the boom in U.S. oil and gas production while receiving a steady stream of payments to help pay her bills.

“He showed me this picture of the United States, and said they were getting oil out of shale, and energy was the way to go,” says Robinson, a high school teacher from Cranfills Gap, Texas. She liked that Parks seemed so confident. “I trusted him.”

Two years later, her partnerships have plunged in value and Robinson has lost more than half of the $202,000 she invested, according to a complaint filed with regulators against Parks and his firm, Ameriprise Financial Services. Parks did not return phone calls and emails; Ameriprise declined to comment.

For years, brokers have been luring savers like Robinson into drilling partnerships with the promise of fat payouts. With yields on safer investments like government bonds so puny, it wasn’t a hard sell. But now this once hot business, a big source of fees for brokers and banks, is coming to a messy end.

Contintued at the link.
Beliefnet Community Wide Moderator ~ Peace Love Stardove

People change for two main reasons: either their minds have been opened or their hearts have been broken.

Quick Reply
3 years ago  ::  Oct 26, 2015 - 4:29PM #2
Posts: 20,907

This isn't a "bet." If it were a derivative investment, then it might be. But a partnership isn't really a bet, just as a stock or a bond isn't.

This woman was crazy and ill-informed to get into such a deal. She should have stuck with a good index fund instead.

1. Extremists think that thinking means agreeing with them.
2. There are three sides to every story: your side, my side, and the truth.
3. God is the original nothingness of the universe.
Quick Reply
3 years ago  ::  Oct 26, 2015 - 5:52PM #3
Posts: 11,477

Way back in the day, in the early and mid 80's, my husband was a petroleum geologist, and I was an accountant in oil and gas firms.  The article doesn't make it clear, but it sounds like these drilling partnerships were working-interest investments in oil and gas wells.

The standard share of the land-owner of the property on which a well is drilled was 1/8th of all the revenue the well earned.  REVENUE, remember that.  The other 7/8ths of the revenue earned went to working interest owners, those who invested in drilling the well in the first place.  Each investor got a percentage  of that 7/8 revenue, and a slightly higher percentage of the costs incurred in drilling and maintaining that well.  If the well is dry (and, typically, in West Texas at that time, roughly 9 out of 10 "exploration" wells were dry (wells that are the first in a "field" deemed to hold oil and/or gas, but not yet proved. The success rate is higher, of course, in a "production" well, where the field has proved successful.  The rate of return, however, for a production well is lower.)).  This meant that the land owner got nothing, and the working interest owners got stuck with the full cost of drilling, with absolutely no revenue to cover that cost.

I once told my dad about working-interest ownership, in case he was interested.  He was a salesman, and I am not.  He asked what the potential gains were, and I told him that he might earn a very great deal of money, depending on the well (and that my petroleum-geologist husband would certainly help him evaluate any well he might be interested in).  He asked me what he stood to lose, and I said "everything."  He laughed and said that I was no saleswoman, and I told him he already knew that, and that I couldn't think of any way to hide the important fact of a potential total loss.

It sounds like these drilling partnerships are partnerships in working interests, which are very risky, especially if you don't know anything about the wells or who plans to drill them. There is nothing new about working-interest investments, it's only new to those who know nothing about drilling oil and gas wells.

"No matter how big and bad you are, when a two-year-old hands you a toy phone, you answer it."  ~ (common sense)

"Never place a period where God has placed a comma."  ~ Gracie Allen

"I care not for a man's religion whose dog and cat are not the better for it." ~ Abraham Lincoln

"I wonder sometimes if we ever give God a headache." ~ Dontay Hall, age 8
Quick Reply
3 years ago  ::  Oct 27, 2015 - 4:30PM #4
Posts: 7,522

There is also nothing new about boom-and-bust in the oil industry. 

The long term trend is upward, and will continue to be.  What is risky is looking for short term profits in a highly cyclical industry. Catch the cycle right, you make a mint. Catch it wrong (as these people did) and you lose big.

In any investing, there are a few rules which you ignore at your peril.

There are no low risk/high return investments.

Yesterday's performance is no guarantee of tomorrow's results.

Before you invest in anything (maybe other than an index fund or a T bill)- research/research/research. No matter who is trying to give you advice or sell you something.  There's a recent book out, "Phishing For Phools: The Economics Of Manipulation And Deception", written by a couple of Nobel laureates in Economics.  The basic premise is that most people trying to sell you things are functional crooks.  Buyer beware. 

Quick Reply
3 years ago  ::  Oct 31, 2015 - 3:37AM #5
Posts: 17,597

Back in the 80s my family (my grandmother, my mom and her brothers and sister) had an oil wells on the great-grand-parent's land they inherited.  The wells were capped while they were still pumping oil.  At the same time we could only by gas every other day depending on the license plates. Never made any sense to me. 

Then this past year my parents started receiving checks for the natural gas being drilled near their homestead.  At the time the family land was being drilled (about 5 miles away from homestead) a lot of natural gas was also being hit, but not saved. They only wanted the oil back then.

RIP Mom.  Dad can use the money.

Beliefnet Community Wide Moderator ~ Peace Love Stardove

People change for two main reasons: either their minds have been opened or their hearts have been broken.

Quick Reply
3 years ago  ::  Oct 31, 2015 - 12:38PM #6
Posts: 8,220

You lose some and you win some. That's life I guess..........

Quick Reply
    Viewing this thread :: 0 registered and 1 guest
    No registered users viewing

    Beliefnet On Facebook