Investor Alert — Upstream Oil and Gas Bankruptcies Threaten Frac Sand Suppliers as Energy Sector Endures Covid-19 Impacts
Investors who were steered into various oil and shale gas fracking investments by their financial advisor or broker may have viable FINRA arbitration or litigation claims to recover investment losses.
As recently reported, in early April 2020, U.S. shale driller Whiting Petroleum Corp. (NYSE: WLL) filed for Chapter 11 bankruptcy protection. Headquartered in Denver, Whiting Petroleum is one of the largest independent exploration and production (E&P) companies in the U.S. In the three months leading up to its filing, Whiting Petroleum’s stock declined more than 90%.
Whiting Petroleum’s troubles are hardly surprising. Even before the Covid-19 pandemic created a tremendous demand shock for crude oil and other refined products, many E&P oil and gas frackers were facing severe economic headwinds. Fracking operations—designed to extract shale oil and gas through horizontal drilling techniques using water and other materials such as sand—entail significant costs. By some estimates, break-even shale oil extraction is achieved in the $50-60 per barrel range. Conversely, it is estimated that conventional oil reserves in the Middle East and North Africa can be profitably extracted for only around $20 per barrel.
Given crude oil’s recent volatility and pricing below $50 per barrel, many U.S. shale oil and gas E&P companies have come under severe financial distress as production has slowed or, in some cases, halted altogether. In fact, by June 2020, both Extraction Oil & Gas, Inc. (OTC: XOGAQ) and Chesapeake Energy Corporation (OTC: CHKAQ) filed for bankruptcy protection, becoming the latest publicly traded oil and gas fracking companies to succumb to current economic conditions.
Most recently, certain frac sand companies which supply specialized quartz sand to oil and gas shale oil frackers have capitulated and sought bankruptcy protection. Specifically, in late June 2020, Covia Holdings Corporation (OTC: CVIAQ), headquartered in Independence, Ohio with sand mining operations in Minnesota and Wisconsin, filed for Chapter 11 protection. Another frac sand miner with significant operations in Wisconsin, Hi-Crush Inc. (OTC: HCRSQ), filed on July 12, 2020.
When an advisor recommends an oil and gas investment to a customer, the investor must be made aware of the investment’s volatile nature. Further, the advisor has a duty to determine if the investment is suitable given the customer’s profile and stated investment objectives. In instances where an advisor unsuitably recommends a risky oil and gas investment, or where an investor’s portfolio becomes overconcentrated in oil and gas, then the advisor and the advisor’s firm could be held liable for investment losses.
The attorneys at Giarrusso Law Group LLC have extensive experience with complex oil and gas investments, including financial products linked to the U.S. shale oil patch. Investors are invited to contact our office by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation to learn more about their legal rights.