As we have recently discussed, the oil and gas industry has been hit hard of late, with many examples of companies and suppliers filing for bankruptcy protection in the face of ongoing financial distress. With Covid-19 related lockdowns severely diminishing the demand for oil and gas—in addition to a price war instigated between Russia and Saudi Arabia—global demand and pricing for oil has been negatively impacted with no immediate end in sight. Investors who were steered into risky and highly leveraged oil and gas investments by their financial advisor may have arbitration or litigation claims to recover their losses, provided the investment (or investment program) was unsuitable, or if the investment was sold through a misleading sales presentation.

On August 16, 2020, shale driller Chaparral Energy, Inc. (NYSE: CHAP) became the latest casualty in a growing wave of 2020 energy company bankruptcies. Headquartered in Oklahoma City, OK, Chaparral operates in the Anadarko Basin. The shale driller filed for Chapter 11 bankruptcy in Delaware Bankruptcy Court, marking its second filing in four years, as the company also filed in 2016 following an oil price slump that lasted from 2014 to 2016.

Chaparral is by no means alone, particularly among other shale oil and gas drillers who operate in the risky and cost-intensive exploration and production subsector of the oil and gas industry. Most notably, the collapse in oil and weak gas prices has also crippled Chesapeake Energy Corporation (OTC: CHKAQ), with the shale driller filing for Chapter 11 protection in the Southern District of Texas on June 28, 2020. Chesapeake’s financial issues should hardly come as a surprise, as the shale pioneer warned last year that it was struggling to operate in a low-price commodities environment. Around March 2020, Chesapeake hired restructuring specialists in anticipation of seeking Chapter 11 relief.

Outside the shale oil and gas space, other energy companies have also been forced into Chapter 11 protection. For example, on July 15, 2020, California Resources Corporation (NYSE: CRC), the state’s largest oil and gas producer with productive assets of more than 2 million acres spanning four major basins, filed for bankruptcy protection in the Southern District of Texas on July 15, 2020. Created in 2014 as a spin-off from Occidental Petroleum, Santa Clarita-based California Resources carried significant debt from the outset. Through its bankruptcy, the company seeks to eliminate more than $5 billion in debt and equity interest in the company.

When a broker or financial advisor recommends an oil and gas investment to a customer, the financial advisor should first ensure that the investor is aware of the volatile nature associated with the underlying commodity. In addition, the financial advisor has a duty to determine if the investment is suitable in light of the customer’s profile and stated investment objectives. In instances where a financial advisor unsuitably recommends a risky oil and gas investment, or where an investor’s portfolio becomes overconcentrated in oil and gas, then the financial advisor and his or her firm may well be held liable for investment losses.

Investors who have suffered losses on oil and gas investments—including publicly traded stocks, speculative energy bonds, as well as private, unregistered investments in oil and gas—may be able to recover their losses through arbitration before FINRA, or in some instances, litigation. The attorneys at Giarrusso Law Group LLC have extensive experience with complex oil and gas investments, including energy stocks, bonds, as well as more esoteric financial products linked to oil and gas. Investors are invited to contact our office by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost and confidential consultation to learn more about their legal rights.