Small Houston-based E&P company agrees to reverse takeover

Camber Energy (market cap $9 million), has agreed to a reverse takeover of privately-held Viking Energy. Both are E&P companies with their head offices in Houston. Camber is based downtown while Viking is in west Houston.



Currently the agreement is a non-binding letter of intent. The parties aim to sign a definitive agreement by February 17, 2020. Camber will issue shares with the Viking Energy shareholders owning 85% of the combined group post-closing.

Viking owns oil and gas leases in Texas, Louisiana, Mississippi and Kansas. It owns a working interest in 58 conventional producing wells in Texas and Louisiana. The company also has an interest in 30 salt water disposal wells. In October 2019, Viking agreed to buy another 123 wells in Texas and Louisiana for $40 million in cash. That deal has not yet closed and the merger with Camber is contingent on that acquisition closing.

Back in July 2019, Camber entered into a merger agreement with Lineal Star Holdings, a private company involved in pipeline construction and integrity services. Camber ended up unwinding the transaction at the end of 2019 because the post-merger combined company was unable to meet the listing standards of the NYSE American.

Camber Energy used to be called Lucas Energy and went public in 2006. It’s had a troubled past. The strangest event was in October 2011 when the then-CEO made an acquisition for $22 million without telling the Board or making it public. The issue only came to light a year later when the seller sued for payment that was due in November 2012.

Viking Energy was the subject of my most bizarre post of 2019. In September 2019, the SEC announced fraud charges against a former CEO for creating a fake CFO.

SEC filing – Camber Viking merger

 

 

Houston helicopter companies to merge in all-stock transaction

ERA Group and Bristow Helicopter have announced that they will merge in an all-stock transaction. Both companies have their head office in west Houston.



ERA is publicly-traded and has a market capitalization of $183 million. Bristow was publicly-traded until it entered Chapter 11 bankruptcy in 2019. The terms of the merger are that existing Bristow shareholders will get 77% of the combined company, while ERA shareholders will get 23%. The combined company will be renamed Bristow.

ERA CEO Chris Bradshaw will become the CEO. However, the rest of the management team will be named later. The current CFO of ERA is Jennifer Whalen, who has been in that role since June 2017. For Bristow, it is Brian Allman who was promoted to the role in March 2019. Mr Allman replaced Don Miller who was promoted to the CEO role of Bristow. No word yet on what role Mr Miller will have post-merger.

The companies expect to achieve $35 million in cost savings through the elimination of duplicate corporate expenses and the optimization of aircraft maintenance and fleet utilization.

Bristow filed for bankruptcy in May 2019 and exited in October. Existing shareholders were wiped out and the bondholders took over the company.  Debts of $1.7 billion were reduced by $900 million. The filing was somewhat controversial as some shareholders argued that Bristow should not have been put into bankruptcy as the equity still had value.

The transaction is expected to close in the second half of 2020. If shareholders of one of the companies votes down the deal, there will be a $9 million break-up payable to the other party.

SEC filing – ERA – Bristow merger

Shale well completions fall sharply in December

The number of wells drilled but not completed (DUCs) fell to 7,573 in December 2019, the lowest level since October 2018. This is according to the latest Drilling Productivity Report from the Energy Information Administration (EIA). The report covers key onshore unconventional (shale) plays.

The number of DUCs has fallen by 900 since May 2019.

More significantly completions fell sharply to 1,086 in December 2019, down 320 from the peak in the summer. Some of the downturn is due to E&P operators being under pressure to be cash-flow positive in 2019, so I would expect some modest rebound in Q1 2020. However, the likes of Halliburton and Schlumberger have announced significant reductions in pressure pumping capacity. That suggests a significant rise in completions is unlikely any time soon.

Note that, in August 2019, Spears & Associates published a podcast (EP125) ‘Mythical Beasts’ that cast doubt on the number of wells drilled but not completed. They point out flaws in the EIA methodology and have estimated that the number of DUCs is overstated by about 3,000. They conclude that there isn’t really a backlog of wells being held back by the E&P companies.

The EIA is projecting production of 9,178,000 barrels per day (bpd) for January. That’s up 33,000 on December’s number. For February, the projected rise is even lower (22,000 bpd). This suggests oil production from the unconventional shale plays is about to stall out.

https://www.eia.gov/petroleum/drilling/

McDermott files for bankruptcy – Management cashes in

Photo: Nandu Chitnis

McDermott International has filed for a pre-packaged Chapter 11 bankruptcy after months of deteriorating business prospects.



The key highlights of the restructuring are;

  • elimination of $4.6 billion of debt. The secured lenders will get 94% of the new equity, unsecured bondholders the remaining 6%.
  • Unsecured trade creditors will be paid in full
  • Existing shareholders are wiped out
  • Lummus to be sold for $2.725 billion

However, worry not, the senior management have looked after themselves. Back in October McDermott announced they had obtained $1.7 billion in additional new financing (at 12% interest rates).

At the same time, the senior management were awarded large retention bonuses. David Dickson, CEO, got $3.375 million. Samik Mukherjee, COO (the one who acknowledged taking TechnipFMC trade secrets) got $1.4 million. The funding and the bonuses were to be paid in tranches. So far, two-thirds of the bonus have already been paid out. The Board of Directors have decided to pay the remaining one third to Dickson and Mukherjee as a gesture of ‘good faith’ even though Tranche C of that financing agreement never got paid.

CFO Stuart Spence resigned in November. He got to keep all his retention bonus of $1.3 million.

Business prospects have deteriorated considerably in the second half of 2019 due to the uncertainties surrounding the company. Bookings were only $3 billion in the second half, versus $14 billion in the first half. Customers have canceled contracts or placed McDermott on the disqualified to bid list. Vendors have placed liens and withdrawn from job sites.

 

https://www.prnewswire.com/news-releases/mcdermott-international-inc-announces-comprehensive-prepackaged-restructuring-transaction-to-de-lever-balance-sheet-and-immediately-position-company-for-long-term-growth-300990241.html

Sysco CEO leaves with $6 million cash severance

Sysco Corporation has replaced CEO of two years, Tom Bene with Kevin Hourican, who joins from CVS.

Sysco, a food distributor, is one of the largest companies headquartered in Houston. It has a market capitalization of $42 billion, revenues of $60 billion and 69,000 employees.



Tom Bene had been the CEO since January 2018 and Chair of the Board since November 2018. His promotion to the top job was announced in July 2017. Mr Bene had joined Sysco in 2013 as Chief Merchandising Officer before becoming COO in January 2016. Prior to that he spent 24 years at Pepsi-Cola.

Although the stock is near its all-time high, clearly matters are not going well inside the company. In announcing the switch, the board stated that the change will allow the company to ‘accelerate performance, fully capitalize on its scale advantages and drive meaningful operating improvements’.

Severance payment

Mr Bene had a base salary of $1.2 million and his target annual bonus was 150%. He will receive a severance of $6 million, in cash. This represents two times base and target bonus.  For the year ended 30 June 2019, Mr Bene received a cash bonus of just over $1.5 million, representing 85% of target.

Mr Bene will also get two years’ worth of health insurance premiums. Other than that, he didn’t get any additional payments. All his unvested stock has been forfeited. Like all officers of Sysco, Mr Bene didn’t have a severance or employment agreement that provided for guaranteed severance or other compensation upon termination.

New CEO compensation

Mr Hourican was the Executive VP of CVS Health and president of CVS Pharmacy. He will receive an annual base salary of $1.3 million. He will also receive a one-time sign-on bonus of $1.45 million to compensate him for the bonus foregone at CVS. Mr Hourican will also receive an annual equity award with a fair value equal to $8.5 million. 40% will vest over 3 years, the rest is performance-based.

New Chairman

Edward Shirley, currently Lead Independent Director of the Board, has been appointed Chair of the Board.

SEC filing – Sysco CEO change

 

CFO of Houston-area bank dies unexpectedly

Jeff Powell, the CFO of Spirit of Texas Bancshares, has died unexpectedly. He was 62 years old.

Mr Powell had been the CFO since July 2017 and helped guide the company through its Initial Public Offering in May 2018. The company has its head office in Conroe, TX. It operates 23 full-service branches in the Houston, Dallas/Fort Worth and College Station metropolitan areas and has a market capitalization of $414 million.

Allison Johnson, currently the Chief Accounting Officer, has been appointed the interim CFO. She joined the bank from Florida Community Bank in 2016. She started her career at PricewaterhouseCoopers.

SEC filing – Spirit of Texas – CFO passes away

Health services company begins search for new CFO

Larry McAfee, CFO of US Physical Therapy, has announced he will retire in October 2020. He turns 65 later this month. Mr McAfee has been CFO since joining the company in 2003. He also joined the board the following year.



The company is based in the Medical Center and has a market capitalization of $1.5 billion. The company operates 574 physical therapy clinics in 41 states. It also manages 26 physical therapy facilities for third parties (primarily hospitals) as well as having an industrial injury prevention business.

The company has started a formal search for a new CFO and expect to have a new person in place by the summer. Mr McAfee has a base salary of $500,000.

SEC filing – US Physical Therapy CFO retirement

Indian ringleader pleads guilty in Houston to call center scam

Hitesh Patel, aka Hitesh Hinglaj of Ahmedabad, India pleaded guilty in a Houston federal court to conspiracy to commit wire fraud, identification fraud and money laundering (among other charges).



The Scheme

Patel ran call centers in India that impersonated officials from the IRS and US Citizen and Immigration Services. US victims were threatened with arrest, imprisonment, fines or deportation if they did not pay alleged monies to the government.

If the victim agreed to pay, the call centers would turn to a US-based network of ‘runners’ who would purchase blank prepaid debit cards, forward them to the call center for registering and then purchase money orders using balances loaded by the call centers from the fraud proceeds.

21 sentenced in July 2018

The scheme also targeted citizens in Canada and Australia and ran from 2013 to 2016. Back in July 2018 I wrote about 21 US-based defendants who were sentenced in Houston. Patel was arrested in Singapore in September 2018 and extradited to the US in April 2019.

A co-defendant described Patel as “the top person in India and the boss for whom most of the other defendants worked.” Another co-defendant claimed Patel was arrested in India in 2016, but paid a bribe and was released.

$65 million losses

At the time of the original indictment, the US government stated there were over 15,000 known victims with $300 million attributable to scam calls. These numbers are for estimated 140 scammers operating this type of scheme. In his plea deal, Patel admitted he was accountable for approximately $25-65 million of the losses.

Sentencing is set for April 3. Patel faces up to 20 years in prison for the wire fraud conspiracy and five years for the other charges. Both counts also carry the possibility of a fine of up $250,000 or twice the gross gain or loss from the offense.

Hitesh Patel – superseding_indictment

https://www.justice.gov/usao-sdtx/pr/indian-national-convicted-role-call-center-scam-victimized-thousands-us

Houston man indicted in $1.3 million Regions Bank fraud

Julius Joachim Ohumole, aged 34, has been indicted in a $1.3 million fraud involving Regions Bank. He is charged with one count of conspiracy, four counts of bank fraud and two counts of aggravated identity theft.



In early December 2018, Mr Ohumole, using false information, opened a bank account in the name of Mars Construction at a Regions Bank branch in Houston.  An unknown co-conspirator accompanied Mr Ohumole to the bank and presented a false driver’s license as a means of identification to be added as a co-signor to the newly-opened bank account. The co-conspirator also provided an actual social security number of a real account customer at Regions.

4 withdrawals, $1.3 million

Somehow Mr Ohumole was able to gain access to the account of the real customer at Regions. On January 4, $274,000 was transferred from the real Regions account to the Mars Construction account. Four days later, another $200,000 was transferred.

In late January 2019, Mr Ohumole repeated the con with another newly-created account in the name of JMW Holt Constructions and a different real Regions customer. This time $815,000 was transferred in two separate transactions, six days apart.

The monies were then wired to an account in New York and then to an account overseas.

Each count of conspiracy and bank fraud carries a possible sentence of up to 30 years in federal prison. The aggravated identify theft charge carries up to two years, upon conviction. Each conviction also carries a possible $1 million maximum fine.

Regions Alabama employee guilty

In writing this story I came across another case involving Regions. Back in March 2019, a Regions Bank employee in Alabama pleaded guilty to accessing records of four wealthy customers without authorization. He passed on the information to outside co-conspirators who impersonated bank customers to make large withdrawals. The total losses were $300,000. These cases took place between February 2017 and March 2018 and are apparently unrelated to Ohumole.

https://www.justice.gov/usao-sdtx/pr/local-man-indicted-1-million-identity-theft-scheme

CFO at seismic company steps down

Steve Bate, the CFO at ION Geophysical, will be stepping down from the CFO role, effective February 1. Mike Morrison, currently VP of Finance and Treasurer, will become the interim CFO. Mr Morrison has been with ION for 17 years.



ION Geophysical provides seismic services to the oil and gas industry and has its head office in west Houston. It has a market capitalization of $126 million.

Mr Bate joined ION in 2005 and became CFO in 2014. After stepping down as CFO, he will remain with the company as Strategic Advisor to the CEO until the end of June.

Mr Bate will receive a severance payment of $750,000, which is two times base salary. Of this, $187,500 will be paid in January 2021, the rest will be paid over 18 months, starting in January 2021. He will also receive a one-time payment of $281,250, representing his 2019 target bonus. This will be paid by February 2020.

In addition, 89,430 shares of restricted stock will become fully vested. This is worth about $0.5 million.

In June, former CEO Brian Hanson left the company with a large severance package. He was replaced by Chris Usher, VP of Operations Optimization.

https://www.prnewswire.com/news-releases/ion-announces-cfo-transition-300979596.html