By Mark S. McGrew
Rule Number One: Don't expect, what you don't inspect.
Rule Number Two: Caveat emptor, which means "Buyer beware".
Huge fortunes are made in the oil business. Small investments can pay off enormous rewards. Private investors, large and small, oil companies, banks, insurance companies, Universities, Hedge Funds and governments invest in oil.
In The United States of America, any person or corporation can drill for oil. In fact, 85% of all oil wells drilled in America are drilled by entities other than the major oil companies. 65% of all oil produced is produced by entities other than major oil companies.
Major oil companies, like Exxon, Arco, Shell, and Chevron are not primarily in the business of drilling for oil. Their business is predominately to buy oil wells that have been drilled by "the little guys". In 2009, Exxon, one of the largest oil companies in the World drilled 29 oil wells on the entire Earth and half of those were dry holes.
Without the little guys, America would have never become one of the foremost producers of oil on this Earth. In the late 1960s, America was the top producer of oil in the World. That ranking has consistently and reliably decreased over the past 50 years to the point that America imports more oil than it produces. Despite the established fact that only one of the 50 American States, the State of Alaska has enough oil that is accessible and available to reach market to fuel America for 200 years. Alaska has an equal amount of accessible gas as well. And oil is produced in most of those 50 States.
America imports oil from other countries in order to drain them dry, for the inevitable future when whoever controls oil will control the World. It is not a child's game.
However, many of the oil producing Nations are controlled by irresponsible children, selling their own Nation's natural wealth to build huge fantasy fortunes for themselves which will evaporate when their oil evaporates. Dubai is a classic case study. Saudi Arabia may soon fail, as their major oil source is being over produced and their greed may collapse the formation at any time. They have done little to prepare for an oil free future, except brag and strut around as if they actually do know something.
In America, there are many ways to invest in oil. Drill a well yourself on your own land. Get a lease on someone else's land, drill a well and if it is successful, split the income with the land owner with 75% for the driller and 25% for the land owner.
Companies sell stock to raise money to explore for oil or to further develop existing oil properties. Any person, American or from another Country can make a direct purchase into an oil project by buying a Working Interest, which makes the buyer a full partner with all rights, duties, responsibilities, liabilities and profits shared on an equal distribution. This is how most oil is found and produced in America.
Anyone can buy a Royalty Interest which means, as oil comes up and is sold, the buyer gets a percentage share of that income, with no responsibilities or liabilities and absolutely no right to even speak with management, let alone tell them what to do. The Royalty buyer is a very silent partner.
Working Interest or Royalty Interest can be purchased directly from the owner, through an Oil Broker or through an online auction service such as EnergyNet or OGClearinghouse
Remember Rule Number One and Rule Number Two. Pay attention, do your homework and you can do very well with auctions and direct purchases.
Remember that purchasing stock from a major broker has its risks also. The major Wall Street Stock Broker firms have floors full of lawyers working diligently to obfuscate the true facts in their oil offerings. They are also in place to destroy investors and others who dare to complain of being fleeced.
A licensed Securities Broker or Broker-Dealer, registered with the United States Securities Exchange Commission is not a testament of integrity. Rather it is a wolf in sheep's clothing, hiding in the open.
When a person chooses to invest in oil, there are many pitfalls. Imagine yourself in a room with one table. Across from you is a Broker. On the table is $100,000 in a bundle of cash. The light turns off and the room goes pitch black. After 5 minutes, the light goes back on again.
Who has that $100,000? You, or the Broker? An investor has to be smart, knowledgeable and fast. And he has to understand that the other side does not always play by any set of rules known to honest people.
That is why we have a saying in the oil business: "If you don't know the people, you had better know the deal. If you don't know the deal, you had better know the people. If you don't know the people or the deal, you had better get out quick."
Alan Todd May of Dallas Texas was an interesting fellow. He had been arrested approximately 14 times in the past 20 years, for various small time scams and cons, like credit card and hot check type things. He spent many of his adult years in jail. While in jail in Texas, he ran a fraud selling space to vendors for a convention that did not exist. He did this on telephones in the jail.
He was let out of jail two years early, on "supervised" parole, formed an oil company, Prosper Oil and Gas, Inc. and set about buying oil properties. Over a few years, he was sued in several States and for some unknown reason, his Parole supervisors never had a clue, even though they were attending lavish parties in mansions that Alan owned. They never had a clue as to where all that money was coming from and never thought for one second to go on the internet and type in "Alan Todd May" or "Prosper Oil and Gas". According to his Parole Officer, "It never occurred to me".
After he bought one particular oil property, his fifth or sixth, with a bounced check, he promptly sold 200 to 300 per cent of it to unsuspecting investors.
Not one of those investors thought to check public record, which is very easy to do with the Internet, to see how much he was selling. But, a Private Oil and Gas Broker did check, saw the excessive sales and made a complaint to his Parole Officer, the Parole Officer's supervisor and the District Parole Board manager, which they all ignored.
That Private Oil and Gas Broker made complaints to the US Securities Exchange Commission and also to the Texas Supreme Court against Alan Todd May's "lawyer" who actually was not a licensed attorney. As it turned out Jeffrey Doherty had already been charged twice for "Unauthorized Practice of Law" which means he was practicing law without a license.
Now, Alan Todd May is back in jail and may not get out for many years to come, thanks to the United States Secret Service. And hopefully, the third time is a charm for the crook "lawyer" and he can get some jail time with Mr. May.
In contrast, there are many success stories. The investor has to be careful and diligent. He never lets anyone make his decisions for him. He never trusts anyone's word of honor. An investor must inspect everything he is being told. If he hears one single, simple, little lie, he has to drop that deal like a hot potato and look for another one.
Con artists like for the investor to talk. The more the investor talks, the more the con artist can use against him. The con artist will probe, for your likes and dislikes, your goals, your dreams. Once you expose those goals, desires and dreams to a con artist, he will diligently go to work to "provide" those things to you, showing you how his deal will give you everything and more of what you desire.
If an investors uses as much of his experiences and abilities to manage his investments as he did in acquiring his wealth, he won't have it dis-acquired by an unscrupulous player.
The investor must play by the rules: Number One and Number Two. The rest comes easy.
90% of what I find, when I investigate, is on the Internet. Simply type in the person's name and his company name and click on "search". Go thorough each search page, one by one. You may have to spend an entire ½ hour looking at 20, 30 or 50 search pages. If there is something dirty, you will most likely find it. If you can not afford to waste a half hour to inspect what you are investing in, then you deserve to lose every penny you have ever earned.
And there are many deals that look great on the surface. Everything checks out. No lies, no formal complaints, no prison time, no frauds. It all seems just dandy. And it may be just dandy. But the investor still needs to be wary and do his homework, just like Sherlock Holmes would have done.
Oil and Gas Royalties are considered to be the safest bet in the oil business, but again, the investor must know one or two things: The people or the deal or both. Noble Royalties, Inc. in Addison, Texas, very near Dallas, Texas sells a Royalty investment program that does look very good.
In the past 12 years, they have formed over 80 Limited Partnerships for the purpose of buying Royalties in producing properties. Their marketing materials show that their Royalty picks have returned an average 10.3% annual return. And it appears that they have performed an average annual 10.3% return, IF an investor had invested $50,000 in each and every one of the 80 partnerships.
But individual investors in individual Limited Partnerships may not get such high "returns".
One funding, created in 1997 shows a Return On Investment of 142%. If a person invested $100,000 in 1997, he would have gotten his money back plus $42,000 over the past 13 years.
Another funding in 2001 shows that investors put in $238,000 and have gotten back $51,004. Another in 1999, had investors put in $355,700 and they have gotten back $153,335.
Recent fundings show $2,732,807 paid out to investors who put in $15,378,076 in 2007. And in 2008 $14,436,500 was put in by investors and so far, $1,603,235 has come back.
One fund in November of 2009 took in $4,335,633 and has paid out $71,000.
In these Limited Partnerships, the acting Manager is Noble Royalties, Inc. which is a normal procedure. The Manager in the most recent funding earns 5% of all revenues as well as having all expenses to manage the Partnership paid for by the other Partners.
The beauty of a Limited Partnership or a Working Interest is that a majority of the Partners can join together and vote the Managing Partner out and install a new Managing Partner, leaving the old one high and dry and put out to pasture.
Noble Royalties, Inc. sells it's Limited Partnerships through a network of some 2,000 licensed and registered Securities Brokers and Broker-Dealers. These Brokers will disclose to the investor that they get a 6% commission, projecting the image that $94 out of every $100 goes to buy Royalties. They may not tell the investor that Noble Royalties, Inc also makes money by "offering" the investment. In the most recent program, Noble Royalties, Inc.'s Offering Document, containing over 100 pages, shows that out of $45,000,000 to be paid by investors, approximately 23% comes off the top for various fees, before any Royalties are purchased.
To prove my point that Licensed Securities Brokers or Broker-Dealers registered with the United States Securities Exchange Commission can be "wolves in sheep's clothing" it can be found on the Internet, on Public record, that a Broker employed by one of Noble Royalties, Inc.'s Broker-Dealers has been found guilty of fraud and was still employed, with the Broker-Dealer selling Noble Royalties programs.
The US SEC's Litigation Release states: "Michael B. Upton, a former Colorado broker with MCL Financial Group, will pay over $400K to settle SEC charges he fraudulently deceived investors in 27 real estate securities offerings. From 2003 and to 2005, Upton made material misrepresentations, minimized the investments' risks, which were substantial, and failed to disclose to investors that he received undisclosed commission on their investments, totaling nearly $300K".
In fact, the founder of that Broker-Dealer, MCL Financial Group, Inc., Gary Flater has been banned by the US Securities Exchange Commission from having any supervisory role over his company for three years. MCL Financial Group, Inc. is located at 1851 East First Street, Santa Ana, California. If anyone reading this is a licensed Broker and would like a job, their website MCL1031.com says you can call Lawrence Singleton for a "career".
As to Noble Royalties, Inc. there is an interesting $450,000 "dispute" that you can find in the Dallas Morning News, which is the same newspaper who reported on Alan Todd May. And a story on Alliance Royalties, Inc. suing Noble Royalties, Inc. in an alleged fraud, that led Alliance to invest in various oil and gas properties and resulted in millions of dollars being skimmed off the top. That story can be found at www.Energy.Law.360.com
Fraud attorneys in Florida, Sonn & Erez are seeking investors of Noble Royalties, Inc. For what purpose, I do not know. Their phone number is 1-866-FRAUD-11. That's kind of scary. Their request for investors can be found at Investment Fraud Times. about 2/3 of the way down the page.
Are all parties guilty of what they are accused of? Who knows? I certainly don't.
These cases are simply an example to convince any investors to do their own research and to read EVERY single word in the marketing materials and especially in the documents that are provided to you by the "Licensed Registered Securities Brokers".
If a Licensed Registered Securities Broker is going to cheat you, he is required by Federal law to tell you so in writing. As long as he "discloses" his intent, the investor has few avenues to pursue to reclaim lost money. The perverted reality is that government agents have little or no concern for an investor getting fleeced. They figure you deserve it, just for the simple fact that you make enough money to invest and they don't.
Mark S. McGrew
At present, America is logged in major conflicts with both Russia and China. With Russia, the conflict is in Ukraine, and with China, it is in Taiwan