Use caution before investing in oil, gas
In recent years, Kansas landowners with mineral rights have enjoyed the financial benefit of oil and natural gas exploration in many counties. When the news of that success spreads within those counties and communities, many residents in the area may become interested as investors.
While the majority of oil and gas investment opportunities offered in Kansas are legitimate, there have been many fraudulent ventures in recent years perpetrated by scam artists with no connection to a legitimate oil and gas company and with no track record of successful operations. Even genuine oil and gas investments almost always bear a high degree of risk. Investors must realize the distinct possibility that they could lose their total investment even in legitimate ventures.
The Office of the Kansas Securities Commissioner wants Kansans to know what to look for when dealing with these types of investment opportunities, and steps you can take to protect yourself from bad investments.
Red flag warnings
-- Sales pitches focused on highly publicized news. Scam artists read the headlines. Often, they will use a highly publicized news item, like volatile gas prices, to lure potential investors and make their "opportunity" sound more legitimate.
-- "Can't miss" wells. Every investment carries some degree of risk so you should be skeptical of any oil and gas investment opportunity pitched as completely safe.
-- Cold calls from someone you don't know. Many fraudulent oil and gas offerings are conducted by unregistered persons from outside Kansas who use general solicitation and high pressure sales methods.
-- Unsolicited materials. Be especially careful if you receive unsolicited materials about an investment. Simply ignoring investment-related "junk" faxes, emails, voice mail messages, and regular mail may be your best strategy.
-- Limited opportunities. Scam artists often try to give you the impression that the "opportunity" they are promoting is scarce, hoping you will hand over your money hastily before doing any due diligence.
-- High rates of return. Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you'll get substantially more could be highly risky
-- Tips or secrets. A promoter may discourage you from talking about the opportunity with someone you trust, like a loved one, attorney or financial professional.
How to protect yourself
Always ask questions, check out the answers and investigate the company before you invest. Most oil and gas companies operating in Kansas are members of the Kansas Independent Oil and Gas Association. KIOGA has public and educational information available on their website at www.kioga.org.
The Kansas Corporation Commission has information on oil and gas operators in Kansas on their agency website at http://kcc.ks.gov/conservation/index.htm.
Check the background of the individual soliciting you for an investment. Are they from your area? If not, where are they located? Are they registered to sell securities? If they receive commissions and use general solicitation methods, then they should be registered with the Office of the Kansas Securities Commissioner.
You can check the credentials and disciplinary history of registered securities brokers and investment advisors with the Office of the Kansas Securities Commissioner. However, most offerings of Kansas oil and gas companies are done privately by officers or employees who are not required to be registered if they do not receive compensation for offering and selling securities and they comply with other conditions for exemptions under the Kansas Uniform Securities Act.
For more information on safe investment practices and what to look out for when thinking of investing in a company please contact the Office of the Kansas Securities Commissioner at 785-296-3307.