Due to the increasing global demand for oil and gas, prices of these commodities have been rising. Because of this, investors are starting to take notice and are finding that in the current difficult economic times oil and gas investments are providing high rates of return. However as with any investment, it is necessary to completely research and understand what you are investing in before making any kind of oil and gas investment. Government investment regulators from across the country have given investors warnings that scams involving these investments are growing. To avoid these scams, you must use the state and federal securities regulatory agencies to help you research and know whether or not you are investing with a legitimate company.
In order to find a legitimate company for gas and oil investments one can look in a number of places. One of the first places to check is the Secretary of State’s office for the home state of the oil or gas company one is considering investing in. They can tell you whether or not a company is in good standing with its home state. Also it is a good idea to examine the Better Business Bureau record of the company in its home state. If the company doesn’t have a good Better Business Bureau record or is not in good standing with the Secretary of State’s office, then there are chances that the company could be a scam.
Another very important place to research a company is with the federal Securities and Exchange Commission. Almost all companies are required to file financial statements with the SEC. The only companies that do not have to file financial statements with the SEC are the very smallest of public companies, but even most of these that are legitimate do file financial statements with the SEC. Therefore, if a company doesn’t have a financial statement on file with the SEC, there may be a chance that it is a scam and needs to be further researched with state securities regulators. If you encounter a lack of reliable, easily available financial information on a company in your research efforts with the SEC or state securities regulatory agency, then this is a red flag that the company could be involved in fraudulent investments. A company should never be taken at its word for it quality of investments. Unsolicited information on a company is not a reliable source for researching an oil and gas investment.
Also before you invest in any oil and gas investment it is a good idea to know exactly what you are investing into. Gas and oil investments are available in many different types. They take the shape of everything from shares of stock ownership in an oil and gas company to being fractional ownership interests in leases and drilling partnerships. Some investments may also take the shape of general partnerships in oil and gas operations. Generally speaking, general partnerships in oil and gas operations are not securities and have the risk of the partner taking on personal liability for partnership debts. Drilling partnerships are risky investments that are very speculative and require an investor to hold onto them for a long time before profits may even be realized. Fractional ownership interests and stocks are usually regulated by the SEC and state securities regulators and are usually safer investments for an investor to consider.
In addition to this, it is a good idea to know just who you are investing with when making oil and gas investments. By using the resources available with the SEC and state securities agencies and making sure that securities salespersons are licensed to sell securities in your state, you can save yourself a lot of problems and know that you are dealing with someone reputable. If someone or a company has a record of disciplinary history with the SEC or a state securities agency, then it is a good sign that they are not reputable. By conducting thorough research on a company, knowing exactly what you are investing in, and researching the background of the company and its salespeople, you will be able to prepare yourself to properly invest in oil and gas investments.
Sources
“Oil and Gas Investment Fraud,” North American Securities Administrators Association
“Oil and Gas Scams,” Securities and Exchange Commission