In part one of this two-part blog series, we went over some basics on how to spot and avoid potential oil investment scams. Sadly, like many other industries where high-value investments are often made, there are unscrupulous individuals or even companies who will attempt to bilk or outright scam investors in several ways in the oil industry.

At Legacy Exploration LLC, we’re here to provide numerous reputable oil investment and related services, from assistance for accredited investors to oil and gas terminology and much more – including ensuring that you never run into scams or related malpractice at any point in your investing experience. Today’s part two of our series will dig into the warning signs that often indicate an oil investment scam, plus a basic checklist we’ll help you work through to ensure there are no such risks afoot.

Warning Signs and Red Flags

Whether via unsolicited calls, spam emails, internet message boards, or any other kind of sales pitch from a prospective investment opportunity, keep an eye out for certain kinds of claims being made. These claims include:

• “This is a zero-risk investment.”
• “There’s been a major recent discovery in a drilling field that you must take advantage of immediately!”
• “This investment opportunity came directly from a geologist.”
• “This well is a guaranteed money-maker.”
• “This deal is only open to unique investors like you.”
• “There are only a few shares left, so you have to get in right away or be left out!”

These and related sales pitches are so common among scammers that individual state securities regulators regularly advise potential investors to look out for them. If you hear any of these phrases, at an absolute minimum you should be following up on them with detailed questions, and you should be on alert for other signs of a scam.

Checklist to Avoid Scams

Here are some other basic items we recommend to clients for avoiding oil investment scams:

• Registration: Ask your state securities commission if an offering is presented to you has been filed with them, and ask for more information.
• Salesperson questions: Ask detailed and specific questions to any salesperson pitching you an oil investment – if there’s any significant area they can’t or are reluctant to answer, this is a major red flag. You can also contact your state securities agency to find out if this person has been sanctioned for any previous securities law violations.
• Company: Down similar lines, ask for the names of the principals in any company offering the security, plus their background and history in drilling operations.
• Escrow and costs: Ensure any funds are kept in a separate escrow account until used, and will not be mingled with other funds. Ask about areas like interest and fractional interest, and what the money will be used for. Also, inquire about completion costs and whether investors will be asked for more money in the future.
• Lease: Finally, secure both a legal description of the drilling property and a disclosure of the people selling the lease, the cost of the lease, and any relationship between the lessor and operator.

For more on how to avoid oil investment scam risks, or to learn about any of our upstream oil and gas company investment opportunities, speak to the staff at Legacy Exploration LLC today.