In this dispute, investors lost a substantial portion of their investments when prices collapsed in 2014, months after a fiduciary advisor performed financial due diligence and solicited customers. Baker & O’Brien was retained to review the offering memorandum to determine whether the risks were sufficiently outlined to inform the investors about the perceived risk inherent in the investment. We reviewed the drilling venture, the investment prospectus, and other financial due diligence to present opinions that helped the dispute resolution.

Due diligence is a key to many investments in the energy industry. This is especially true for investors who may not have a good understanding of the technical issues and how they may affect the eventual outcome of the investment. Investors often rely on a third-party advisor for a recommendation regarding whether to invest or not. An investment advisor’s fiduciary duty to its clients is paramount. This duty of care necessitates thoroughly examining and evaluating all available information about a proposed investment before making a recommendation. An advisor’s role is crucial in ensuring the best interests of clients are served.

Oil and gas investments are complex, often involving inherent risks that may not be readily apparent to advisors or their clients. Many investments, especially drilling ventures, are highly sensitive to oil price fluctuations and operational risks, such as production levels. This complexity underscores the need for specialized knowledge in this sector.

Between 2008 and 2014, shale gas production in the US increased more than six-fold, from 2.1 trillion cubic feet (Tcf) in 2008 to 13.4 Tcf in 2014. This boom was supported by high oil prices – the benchmark Brent oil price averaged over $100 per barrel between 2011 and 2014. Drilling ventures were a popular investment for individual investors as companies raised capital from these private investors to fund drilling programs.

At the height of the boom in 2014, an investment advisor carried out financial due diligence on a drilling venture investment offering. This due diligence was carried out before the investment advisor solicited customers for the investment via an offering memorandum. The investors lost a substantial portion of the value of their investments due to the unforeseen oil price collapse in late 2014, and a dispute ensued. Baker & O’Brien was retained to review the offering memorandum to help the lawyers determine whether the risks that were outlined were sufficient to inform the potential investors about the perceived risk inherent in the investment.

As part of our assessment, we reviewed the drilling venture, the investment prospectus, and other financial due diligence information available at the time of the offering. We presented our preliminary opinions, and the parties later settled their dispute.