AI prompt:
Why did Forbes magazine tell readers to beware of high-yielding Phoenix Operating LLC
AI reply:
From the Forbes article “Buyer Beware: These Yield-Gushing Oil Bonds Could Derail Your Retirement” (Oct. 2024, updated March 2025):
High yields via private placement / bond offerings
Phoenix has been selling bonds yielding 9%–13% (sometimes more) to mostly retail / non-institutional investors with promises of high returns without many of the protections of public securities.
These are often unregistered securities or under exemptions like Reg D or Reg A, meaning less regulatory oversight.
Heavy use of financial leverage and structural risk
Phoenix has significant debt. Their debt to EBITDA ratio was reported at ~19× in 2023 — very high.
Many of their bond/loan obligations are unsecured or subordinated in the capital structure — meaning in case of trouble, bondholders may have limited recourse.
Reserves claims are partly “probable” not just “proven”
Phoenix claims $1.8 billion in estimated reserves, but a large part (≈70%) are only “probable” reserves, which are riskier. They’re less certain than “proven” reserves and might not ever produce economically.
Operating losses, high promotional / marketing spend
According to their financials, the company had net losses (not just slim margins), large marketing expenses, and spends heavily on things like webinars and investor promotion.
Phoenix advertises through high-yield pitches (e.g. radio, webinars), which Forbes suggests may appeal to yield-hungry investors but come with elevated risk.
Risk factors disclosed in their offering materials
The company acknowledges many of the risks in its own filings: debt burden, need for continuous capital for drilling, uncertainty in oil/gas production, etc. But Forbes and analysts point out that disclaimers don’t always fully offset the structural risks.
Potential investigations and regulatory risk
Forbes reported that SEC had been in communication with Phoenix or had been investigating potentially misleading statements in its offerings.
Why Forbes told readers to beware:
- Putting the pieces together, these are the main reasons why Forbes is cautioning investors:
- The return promises are high, which typically come with high risk — in many cases, risk that’s hard for a small investor to evaluate or absorb.
- The capital structure puts unregistered bondholders in subordinate positions. If cash flows drop (oil price drop, well underperformance, cost overruns), the unsecured bondholders may be among the first to suffer. The reserves are uncertain. Probable reserves are not guaranteed; geology, production issues, or economic changes can reduce what actually gets produced.
- Phoenix’s financial health (losses, heavy debt, need for capital) limits margin for error. They may need to keep raising capital, which dilutes investor returns or adds more risk.
- Regulatory risk: with higher yields and private placements, there’s less regulatory protection, a higher chance of misstatements or mis-estimations, and the possibility of investigations or legal issues.
- Liquidity risk: because many of these bonds are in private placements or unregistered offerings, there may be no active market for selling them. Investors may be “locked in.” Phoenix warns this explicitly in their risk disclosures.
What Phoenix Claims / What Mitigates Risk
- It’s fair to say there are reasons some investors might still find Phoenix offerings tempting, or believe they’re being upfront:
- They do disclose many risks in their own offering documents (e.g., risk of indebtedness, production declines, etc.). They highlight operational achievements in drilling speed and efficiency in the Williston Basin (Bakken), which, if sustained, could improve economics.
- They emphasize their reserve base, though as noted, a large share is “probable” rather than “proven.”
Overall Assessment: Where the Risk Is
- Putting all this together, the reason Forbes tells readers to beware is not because everything Phoenix is doing is necessarily a scam — but because the risk-reward profile has many red flags, especially for investors who might not thoroughly assess:
- what “yield” means in practice vs what you get after costs, delays, defaults, or lower production;
- how much debt burden and financial leverage expose them to downturns (oil price drops, regulatory changes, supply cost increases);
- how secure the reserves are;
- how much of the value depends on ongoing capital raising or unproven operational scaling;
- and how much transparency / regulatory oversight is lacking compared to public companies.
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Disclaimer
Brief
Reminder
Briefly:
- I am inappropriately exuberant about the Bakken and I am often well out front of my headlights. I am often appropriately accused of hyperbole when it comes to the Bakken.
- I am inappropriately exuberant about the US economy and the US market.
- I am also inappropriately exuberant about all things Apple.
- See disclaimer. This is not an investment site.
- Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. All my posts are done quickly: there will be content and typographical errors. If something appears wrong, it probably is. Feel free to fact check everything.
- If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.
- Reminder: I am inappropriately exuberant about the Bakken, US economy, and the US market.
- I am also inappropriately exuberant about all things Apple.
- And now, Nvidia, also. I am also inappropriately exuberant about all things Nvidia. Nvidia is a metonym for AI and/or the sixth industrial revolution.
- I've now added Broadcom to the disclaimer. I am also inappropriately exuberant about all things Broadcom.
- Longer version here.
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