An investor wires $250,000 into what the pitch deck called a “producing asset fund.” A year later, the checks are smaller than expected, because half the fund’s capital actually went into undrilled acreage, a fact buried three pages into a PPM that read like every other PPM the investor had seen that year. Nothing in it was false. It just was not written for this deal. A private placement memorandum, or PPM, also commonly referred to as an offering memorandum, is the disclosure document that is supposed to prevent exactly that gap between expectation and reality. A generic, one-size-fits-all PPM does not do that job. To give investors a fair and accurate picture of what they are buying, a PPM must be built around the fund it actually describes, its assets, its structure, and its risks, not a template pulled from the last deal.
Know What You Own: Asset Types and Reserve Categories
Start with what the fund actually holds. In an oil and gas fund, the line between proved developed producing (“PDP”) reserves and non-PDP reserves is not a technicality; it is close to the whole risk profile. PDP reserves are already in production, so their recovery can be estimated with confidence; the risk is lower, and they rarely require major new capital. Non-PDP reserves, whether undeveloped, behind pipe, or otherwise not yet flowing, are a different bet entirely. The same goes for narrower fund structures: a wellbore-only fund lives or dies on one specific wellbore rather than a broader lease, and a mineral fund, which owns the mineral or royalty interest rather than a working interest, skips operating costs but also gives up any say over when development happens. A PPM that treats these as interchangeable, or mentions the difference only in passing, hands investors a coin flip dressed up as due diligence.
Undeveloped assets carry development risk, and vague disclosure does not make that risk go away; it just moves the argument to after the money is gone. Every reserve estimate rests on assumptions, pricing, decline curves, cost inputs, and those assumptions belong in the PPM in terms an investor can actually evaluate, not buried behind an engineering report no one reads. Commodity exposure compounds all of it. Oil and gas investments move with volatile commodity prices, and a fund tied to that volatility carries real loss potential that deserves more than a boilerplate market disclaimer.
Operator or Non-Operator: Structure Changes the Risk
Draw a clear line between operating and non-operating working interests. An operating interest carries direct management responsibility, higher operational risk, and a bigger share of the upside. A non-operating interest carries none of that responsibility, and correspondingly less risk and less reward. That distinction shapes how the PPM should describe control, but do not overstate it: even where the fund holds an operating interest, individual investors are not the ones making drilling decisions, the sponsor or its designated operator is. The real difference between the two structures is the fund’s risk exposure and profit share, not who shows up at the wellsite, and the PPM should say so in those terms.
Know Your Investor
Finally, write for the investor actually being solicited. The same technical disclosure can be adequate for an institutional buyer and inadequate for an individual one, and the PPM should be calibrated accordingly. None of this works in isolation: the right asset description, the right risk framing, and the right explanation of structure all depend on the deal in front of you, not the PPM that happened to be sitting in the file from the last raise.
At RR&A, we build PPMs around the deal a sponsor is actually offering. If your current PPM was drafted for a different fund, a different asset mix, or a different investor base than the one you are raising from now, send it our way, we will tell you exactly where it falls short.
Disclaimer: The information and material on this website is general information about our practice and firm. This information does not offer specific legal advice and the use of this information does not create an attorney-client relationship with RR&A or any of its attorneys. The information on this website should not be used for legal advice, and persons should not act upon the information on this website without engaging professional legal counsel.
Tyler is a Law Clerk in R. Reese & Associates Houston office. To learn more about Tyler, visit his attorney page.