Arizonans Warned Of Oil And Gas Investment Scams

Arizonans are being warned by the Arizona Corporation Commission Securities Division that oil and gas investment scams are alive and well in the state due to recent increases in oil prices .
The increased prices have created a heightened interest in investments in energy-related business ventures. These types of scams are investigated by Securities Division staff. Staff is cautioning consumers that when oil prices rise, as is currently happening, there is a noticeable increase in fraudulent activity within this investment sector.

Many oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate. However, as is the case with most investment opportunities, there are bad actors who attempt to take advantage of investors. The AZCC Securities Division regulates the sale of securities in the state and is available to assist investors in making sound investment decisions.

According to Securities Division staff, oil and gas investments take many forms, but the most common is a drilling limited partnership. In this form, an oil or gas company sells partnership units to investors and uses the money it raises to lease property and drill wells. In return for managing the project, the sponsor company usually takes an upfront fee that averages about 15-16 percent of your total investment. In return, the seller offers the investor the prospect of a substantial first year tax write-off and quarterly cash distributions from the sale of any oil and gas the partnership finds until the wells run dry.

If you have questions about an investment, contact the Arizona Corporation Commission’s Securities Division at 602-542-4242 or toll free 1-866-VERIFY-9 (within Arizona). The Division’s investor education website also has helpful information at

Fraudulent oil and gas deals are frequently structured with the limited partnership in one state, the operation and physical presence of the field in a second state, and the offerings made to prospective investors in states other than the initial two states. Thus, there is less chance of an investor dropping by a well site or a nonexistent company headquarters. Structuring the fraudulent investments this way makes it difficult for law enforcement and investors to know it is a scam.

To attract the interest of investors, promoters frequently use the internet and “boiler room” offices with banks of phones manned by high-pressure salespeople. Their techniques include repeated unsolicited phone calls to members of the public, hyping the profitability of the deal, and the use professionally designed brochures. Beware of unsolicited oil and gas promotions on the phone, internet, and e-mail. State securities regulators caution potential investors to be suspicious of the following claims in a typical high-pressure sales pitch, whether through unsolicited telephone calls or e-mail messages:

• You will have an interest in a well that cannot miss
• The risk is minimal
• The salesperson has personally invested in the well
• This is a special private deal open only to a lucky few

The Corporation Commission advises potential investors not to be afraid to ask the hard questions when solicited for oil and gas investment opportunities. Investors wanting to make oil and gas investments should consider oil exploration and producing companies that are well established and listed on stock exchanges. You can minimize the risk of being scammed if you resist pressures to make hurried, uninformed investment decisions.