Investors, can you make money by investing with oil & gas sales & marketing companies with sales plans involving fancy brochures, pictures, and other advertising materials used to induce or attract you in order to sell you on their oil & gas promoted deals? The answer can be yes if they are honest brokers. This can be a real challenge to find-out though.
Did you know you can make direct investments in oil & gas industry or ‘head’s-up’ deals. Direct investments can be made in private oil & gas programs, and in certain stocks, that are offered on most stock market exchanges for many reporting, or public companies making this possible. Would you believe your investment returns would be higher if you make direct investments with a company offering its direct investments, or by offering their own stock? Given the choice of making direct investments with companies, or with a commissioned brokerage house employing commissioned sale executives, the answer should be very easy. You can avoid sales commissions, and ‘heavily loaded fees’, or highly promoted deals, which can take 25% or more of your money right upfront by the ‘promotional houses’. This is done before you ever begin investing the money with an oil & gas Operator charged with the responsibility of drilling, developing, and maintaining oil & gas leasehold interests, and fields.
The main reason the tax advantages still exist for drilling programs is because of the risk. We already have plenty of risk normally associated with finding, and recovering commercial quantities of oil & gas in the US. Why add additional risk by investing in dubious, or heavily promoted deals which make lots of money up front for those working with the brokerage houses or worse, boiler rooms? These companies are not in the oil business…they are in the raising money business using the ‘thought of making money in oil & gas’, rather than the actual business or industry; which they seldom ever know anything about. Their scam is to make money up-front, rather than invest in legitimate oil & gas programs. In other words, ‘promotional boiler rooms’ make money regardless of whether they, or the so-called companies they hire ever find oil or gas, or pay you enough production revenue to recover your capital at some point.
Here are some important clues to look for when evaluating promoted deals.
1) Fancy websites, with sound, motion, and color. This stuff is expensive to create, and maintain on a website.
2) If you get called by multiple people who hand you off to others, and you can’t keep track of the people who call you, this is a bad sign, and indicates a chief or common tactic of ‘boiler rooms’ and their characteristic way of operating. Many of these so-called brokers who are never licensed only work for a few months at a time before changing boiler or calling rooms to stay ahead of the regulators. Keep the customer ‘pumped-up’ and confused seems to be a common style & method when these so-called brokers are pitching, or who are working in ‘calling rooms’. When you can’t remember the person’s name or who called you, and you don’t know the specific elements, or points relative to what’s being offered in an investment, this is a key clue to look for when talking to someone who purports to be an experienced player in the ‘oil business’ or ‘oil industry’.
3) The use of ‘highly emotional, or excitable’ sale pitches is the quintessential approach used by just about all promoters to appeal to your greed, and emotions. Being long on emotion, and short on facts, and logic seems to be their creed. Don’t fall for it!
4) Look for the deliberate approach, and a calm steady presentation of facts, and look for the details to be fully explained by the person offering an investment.
5) Stay away from the ‘you need to move, and act quickly’ or ‘you’ll lose out’ type of selling approach.
6) Ask about the up-front fees, and the percentages of funds invested, and how the investment funds are invested, and exactly where and how the money is applied. Don’t let them continue until you are satisfied, and its in writing, and you have a copy of the memorandum, and you can find references to all compensation and charges by the company in the written material provided by the company.
7) Finally, ask for their responses to your questions in writing and in email. If they can’t write, or clearly state their deal points, there is likely both an educational and training gap in their learning. You don’t need to be doing business with people having these major gaps in learning, and clear lack of demonstrated capability & experience. Almost all brokerage house account executives have college degrees, and advanced degrees, as well as highly specific training by their member firms. ‘Boiler room callers’ don’t want to be licensed, and couldn’t pass the Series 7 NASD test if their lives depended on it. Nor would they want to disclose their typically checkered pasts involving legal actions, and/or their personal behavior to you or the authorities which is required to get licensed. Stay away from these people…
More to follow…