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Energy stocks have been pummeled since the great recession of 2008, continuing to decline steadily over the last year, as crude oil prices continue to steepen with renewed strength. For investors in energy, especially oil and natural gas, the losses remain tremendous.
Prior to 2008, integrated oil and gas companies had been pitched as a lucrative investment. Investment advisors and brokers pitched these “integrated” investments as worthwhile energy plays because they allowed for involvement in multiple facets of the oil and natural gas industries, including production, development, transportation, and distribution. Starting in 2010 and lasting through 2013, the excitement around natural gas exploration and development increased tremendously, as is evidenced by the spike in Marcellus and Utica shale exploration.
With this exploration under way, the United States was slated to become an energy exporter by 2018. Investment advisors and brokers recognized this advancement and began allocating substantial portions of their clients’ asset allocation strategies into oil and gas stocks, which were, at the time, poised for high returns. Many packaged Master Limited Partnerships as an amalgamation of natural gas stocks, marketing the partnerships as having very high dividends with huge upside potential. Everything was shaping up to yield a great return on investment. So, what went wrong?
A Myriad of factors can be accounted for in noting how natural gas and oil fell so far. The drop in global demand in the face of stagnant global growth, specifically in China, high exploration and development in the US, and stable production in Saudi Arabia are all notable contributors. The bottom line is that energy stocks tend to experience higher volatility than most. Since just last year, for example, household names like Devon Energy (DVN) and Chesapeake Energy (CHK) have sustained remarkably high losses. DVN, of Oklahoma City, sustained $3.5 billion in third quarter losses, dropping $8.64 per share. CHK shares have fared even worse, falling 82% in just the last 12 months, while the S&P 500 is down just 9%. The outlook on CHK’s sustainability, according to most analysts, is negative for the foreseeable future.
Although all asset classes experience volatility, equities tied to oil or gas fluctuate very dramatically, despite a company’s standard of “integration.” In spite of highly volatile energy stocks and the near demise of DVN and CHK, investment professionals continued to direct more of their clients to different gas and oil stocks, still swayed by a potentially generous rate of return. If your broker misadvised you to make investments in DVN or CHK, you may file a complaint with FINRA for unsuitability based off manipulative or deceptive trade prices. More broadly, if you have experienced any unnaturally high losses in natural gas and oil stocks, which were not suitable to your investment objectives, you may have a claim.
Filing a claim against your broker with FINRA requires legal counsel with knowledge and expertise in securities matters. The lawyers of Lubiner, Schmidt & Palumbo have over 30 years of experience in securities and broker-dealer representation. With a staff of former investment advisors as well as senior attorneys well-versed in defending brokers and broker-dealers in FINRA arbitrations, our robust perspective is imperative to our success in handling energy investment claims.