EnergyFunders was the world’s first oil and gas crowdfunding platform, founded in 2013 with a promising vision: democratize energy investing the way platforms like Kickstarter had democratized product funding. Today, the company trades as a penny stock at C$0.01, and a former board member is serving a 50-year prison sentence for fraud.
This case study examines what worked, what failed, and what investors can learn.
The Promise
EnergyFunders offered an appealing value proposition:
- Lower minimums: $5,000 vs. the traditional $50K-$100K+
- No upfront fees: Unlike traditional sponsors, they made money through carried interest (10-20% of profits)
- Direct access: Investors could participate in individual wells without going through wealth advisors
- Tax benefits: Same IDC deductions and depletion allowances as traditional programs
By 2018, they had raised $5.5M+ for oil and gas projects and built a following of nearly 23,000 Twitter followers. They were featured in Forbes, Barron’s, and CNBC.
What Went Wrong
1. Founding Team Lacked Technical Expertise
The founders were real estate attorneys, not petroleum engineers. This mattered.
“Without energy experience, however, they often invested in wells that turned out to be dry holes.” — Laura Pommer, later CEO
Early dry holes damaged both investor returns and platform credibility. By the time they brought in petroleum engineering expertise, the reputation damage was done.
Lesson: When evaluating any oil and gas investment, look at who’s making the geological decisions. Real estate backgrounds, finance backgrounds, even successful track records in other industries don’t translate to picking good wells.
2. Management Instability
The company cycled through five CEOs:
- Philip Racusin (founder)
- Casey Minshew
- Laura Pommer
- Jason Eubanks
- Virginia Urban Light
Each transition brought uncertainty, strategy shifts, and disrupted investor relationships. The company was acquired by Paleo Resources in 2020, adding another layer of organizational complexity.
3. The Christopher Pettit Scandal
In May 2022, board member Christopher John Pettit resigned—one day after news broke about his legal troubles. He had been running a Ponzi-type scheme through his law firm for over 20 years, defrauding clients of $20-60 million.
In February 2024, he was sentenced to 50 years in prison.
While Pettit’s fraud wasn’t directly related to EnergyFunders’ operations, having a board member sentenced to decades in prison for fraud devastated whatever trust remained.
Lesson: Due diligence on sponsors should include background checks on key executives and board members. Public records, litigation searches, and professional licensing verification are basic hygiene.
4. Investor Communication Breakdown
Post-acquisition, investor communication deteriorated:
- Distributions stopped with little explanation
- Updates became “sporadic with little specifics”
- Significant delays in K-1 delivery
- Management refused to hold virtual meetings with investors
- No specific information on how capital was deployed
When investors can’t get straight answers about where their money went, trust evaporates.
Lesson: Before investing, talk to existing investors. Ask specifically about communication quality, distribution timing, and K-1 delivery. A sponsor who won’t facilitate these conversations is a red flag.
5. Structural Challenges They Never Solved
Capital calls: Working interest investments typically require 20-30% additional capital over the well’s lifetime. Retail investors—used to stocks and bonds—often weren’t prepared for ongoing cash requirements.
Liquidity: There was no secondary market until a 2021 partnership with tZERO, by which point the platform was already struggling. Investors were locked into 5-15 year positions with no exit.
Complexity: K-1 tax reporting, partnership structures, and working interest liability were too complicated for many retail investors to navigate.
What Actually Worked
Despite the failures, EnergyFunders proved some concepts:
- The model can work: They successfully funded 20+ projects and raised over $15M total
- Alignment of interest matters: Their fee structure (carried interest only, no upfront load) was genuinely better for investors than traditional sponsors
- Technology can improve transparency: Their platform provided detailed geological data that traditional programs often obscure
- Lower minimums expand the market: There was real demand from accredited investors who couldn’t meet $100K minimums
The Warning Signs Were There
Looking back, red flags were visible early:
| Warning Sign | What It Indicated |
|---|---|
| Founding team with no oil & gas background | Deal selection would suffer |
| Rapid leadership changes | Strategic instability, possible internal conflicts |
| Communication becoming sparse | Operational problems they didn’t want to discuss |
| Board member with outside legal issues | Governance failures |
| Penny stock status post-acquisition | Market had lost confidence |
What Would Have Made It Work?
Based on this case study, a viable oil and gas investment platform would need:
- Petroleum engineers as founders or co-founders, not advisors
- Fund structures instead of individual wells, to simplify the investor experience and diversify risk
- Liquidity solutions from day one, not as an afterthought
- Rigorous board governance, including thorough background checks
- Communication infrastructure that treats investor updates as a core function, not an afterthought
For Investors: The Due Diligence Checklist
Before investing in any oil and gas program, verify:
- Team expertise: Who has actual operational oil & gas experience?
- Track record: How have previous wells performed vs. projections?
- Background checks: Any litigation, bankruptcies, or regulatory issues?
- Communication cadence: How often do they update investors? Can you talk to existing investors?
- K-1 timing: When do they deliver tax documents? Delays indicate operational problems.
- Capital call history: How much additional capital have past investors been asked to contribute?
- Exit options: Is there any liquidity path, or are you locked in for the well’s entire life?
The Bottom Line
EnergyFunders failed not because crowdfunding oil and gas is impossible, but because they made avoidable mistakes: wrong team composition, poor governance, communication failures, and structural problems they never solved.
The concept—lower minimums, aligned incentives, transparent data—remains sound. The execution was fatally flawed.
For investors considering any oil and gas opportunity, EnergyFunders is a reminder: the quality of the sponsor matters more than the quality of the deal. A good well with a bad sponsor can still lose you money. A mediocre well with a great sponsor will at least communicate honestly about what happened.
This case study is based on public records, news reports, and company disclosures. It is intended for educational purposes only.