The oil and gas REITs and limited partnerships that were supposed to provide “diversification” and limit risk are now eating up investor’s portfolios. Last year, oil was trading above $100 a barrel, and had been for four years. Now, it is trading at under $30 a barrel. Don’t look now, but energy prices are at twelve year lows and may very well go lower as Iranian oil hits the market.
Analysts have cut their forecasts and energy master limited partnerships and companies are cutting their dividends. Kinder Morgan (ticker: KMI), an oil pipeline company, has cut its dividend by more than 75%. Marathon Oil Corp (ticker: MRO) has followed. Magellan Midstream Partners, LP (MMP) , Buckeye Partners (BPL), Enbridge Energy Partners (EEP), QEP Resources (QEP), Pioneer Natural Resources (PXD), ClearBridge American Energy MLP Fund (CBA) and EOG Resources (EOG) have dropped precipitously, as have the share prices of energy mutual funds like Tortoise North American Energy Independence Funds (TNPTX, TNPIX, TNPCX) and TD Energy Funds. Investors whose brokers advised them to invest more than ten percent of their savings in the energy sector have a claim against their advisor or broker for violation of the FINRA “concentration” rule.
Oil prices are cyclical. In the late 1970’s, people stood in line to pay high prices for gas. In the l980’s, oil prices collapsed. It has happened again. This bust should not have been a surprise to investment advisors and brokers. It’s just a fact of life. Energy investments have booms and busts.
Unfortunately, stockbrokers have sold billions of dollars of oil and gas partnerships, REITs and stocks to investors by misrepresenting that they are safe and provide dependable income. But that isn’t true. Dividends and stock prices go up and down. Retired investors in energy limited partnerships are now feeling a lot of pain. They have two choices: hold these and accept the small dividends and risk losing more money–or sell. BUT, if they sell a limited partnership, like KMI, Buckeye, Magellan or Enbridge, they have to pay taxes on the distributions they received earlier. That hurts. It also surprises investors whose brokers did not inform them of this when they bought.
Investors who were misled by their brokers as to the safety and liquidity of energy investments, or whose brokers concentrated too much of their money in energy funds or stocks, can file a securities arbitration to recover their losses. Specific SEC guidelines list the information that brokers are supposed to give investors when selling them energy investments. Many brokers, however, have not followed the rule. Either they didn’t want to, or they didn’t understand the risks. Either way, brokers and investment advisors are liable if they fail to make their clients informed investors of oil and gas investments.
Groups of investors in Ridgewood Energy partnerships, Buckeye, Enbridge, TD Funds, ClearBridge American Energy funds and Tortoise funds are banding together to pursue claims. Aggrieved investors should contact a qualified securities attorney if they believe that their broker did not give them complete and accurate information as to the risks of investing in energy stocks, partnerships or REITs. Contact attorney Diane Nygaard at firstname.lastname@example.org with any questions about your energy investments.