Private Investment in Eagle Ford Shale: Use Caution

PHOTO BY LYNDSEY JOHNSON

Peter E. Hosey and Stephanie Chandler, attorneys with Jackson Walker, urge investors to conduct due diligence. PHOTO BY LYNDSEY JOHNSON

During July of this year alone, seven San Antonio oil-and-gas industry companies raised $4.2 million dollars through securities offerings, Form D filings with the U.S. Securities and Exchange Commission show.

?We?ve seen a ton of activity lately in the oil-and-gas industry,? said Stephanie Chandler, in an interview with the Business Journal earlier this year. Chandler is a securities attorney with Jackson Walker LLP in San Antonio. ?Things are extremely active right now.?

To be sure, the lure of hitting the investment mother lode in the Eagle Ford Shale is tempting.

Take, for example, the case of Always Consulting Inc., a Dallas venture that was selling units of interest in a 20-well drilling project in Oklahoma.

The company raised more than $2.2 million ? despite the fact that none of the securities were registered and all three partners had federal convictions for fraud-related offenses, the Texas State Securities Board reports. No wells were drilled and investors? money was not returned, according to the State Securities Board.

?I think even a Google search would have helped here,? says Robert Elder, director of communications for the State Securities Board.

On June 5th, a federal grand jury in the District Court for the Northern District of Texas indicted the three men on securities fraud and other charges related to the oil and gas scheme.

Seasoned investors usually know better. But the seduction of oil-and-gas investment plays is strong, especially when media outlets and universities are churning out economic development data headlines.

?Owning a stock or two is one thing. But for people to do private deals where they invest in individual wells ? that?s probably something well considered before you do it. It?s not as easy as it sounds,? says Fred Labatt, head of equity research at South Texas Money Management.

Donna J. Tuttle edits special sections and special reports; oversees social-media operations.

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