Earlier this week, the Securities and Exchange Commission (SEC) sued Chris Faulkner, his company, Breitling Energy Corporation and several other parties for defrauding investors. The complaint filed by the SEC can be reviewed here. The SEC Complaint alleges that the Defendants intentionally and repeatedly misled purchasers of working interests regarding Faulkner’s experience in the oil and gas industry, the nature of the investment, and the estimated cost to drill and complete the intended wells.
A working interest, unlike a royalty interest, is a type of mineral interest that bears a proportionate share of all exploration, drilling and completion expenses. Thus, an accurate estimate of the potential costs is critical information for an investor considering the purchase of a working interest. If costs are inflated over actual costs and the operator pockets the difference, obviously that’s a problem.
Whether Faulkner and the other Defendants are adjudged guilty of these allegation remains to be seen, of course. However, these kinds of claims emphasize the need to have an experienced oil and gas attorney examine and evaluate any potential oil and gas investment before you invest. An experienced oil and gas attorney will review your goals for the investment, discuss the suitability of the investment with you, review and analyze all offering circulars, contracts and other documents, and possibly most important, conduct due diligence background research on the company with whom you are investing.