Drilling contractor regains NYSE listing

Noble Corporation, the Sugar Land-based offshore drilling contractor has relisted its shares on the NYSE. The company filed for bankruptcy in July 2020 and exited in February 2021. In that process, $3.4 billion of debt was exchanged for 86% of the equity in the newly-reorganized company.



The shares were delisted from the NYSE in August 2020.

In April 2021, Noble completed its merger with Pacific Drilling in an all-stock transaction. Noble ended up owning 75% of the combined business. After the relisting, the market capitalization is $6.2 billion.

Last week, Weatherford, an oilfield services company based in the Galleria area, relisted its shares on the Nasdaq. The company exited Chapter 11 bankruptcy in December 2019.  Weatherford started trading with a market capitalization of $870 million.

 

 

 

E&P company to be based in Houston after $5.7 billion merger

Independence Energy and Contango Oil and Gas have agreed to merge in all-stock transaction with an enterprise value of $5.7 billion.



Independence is an E&P business built and managed by KKR, a global investment firm. It consists of upstream oil and gas assets in North America, including those in the Permian, Eagle Ford, Rockies, Denver Julesburg and Barnett basins, as well as mineral and royalty interests and midstream infrastructure.

Contango operates in the Permian, Mid-Continent and Rockies areas. In October 2020, it moved its head office from Houston to Fort Worth, following its merger with Mid-Conn. Contango has made four acquisitions in the past 18 months and has a similar philosophy to KKR’s Energy Real assets team.

The Independence shareholders will own 76% of the combined business, Contango shareholders will own 24%. The combined business will be based in Houston with a new name.

The KKR Energy Real assets team will run the business, led by David Rockecharlie (CEO) and Brandi Kendall (CFO). They will remain employees of KKR. John Goff, the chairman of Contango, will be the chairman of the combined group.

The business is being positioned to be a leading consolidator in the US E&P sector and it will be KKR’s primary platform for pursuing upstream oil and gas opportunities. Unusually, the combined business, even as a public company, will be paying KKR a management fee of $53.3 million per annum plus 1.5% per annum of the net proceeds from all future issuances of equity securities.

The transaction is expected to close late in the 3rd quarter or early in the 4th quarter.

SEC filing – KKR Energy and Contango merger

 

Huntsman looks internally for its new CFO

Huntsman Corporation, based in The Woodlands, has appointed Phil Lister as its new CFO. He replaces Sean Douglas, who resigned in April to take a senior leadership position with The Church of Jesus Christ of Latter-day Saints.



Mr. Lister is currently the VP of Corporate Development, a role he has been in since May 2019. He has spent his entire career with the company or its predecessors. He started out his career with ICI in the UK, shortly before it was acquired by Huntsman in 1999.

No compensation was disclosed for Mr. Lister, other than he will receive an initial equity award of $610,000 that will vest over three years. By comparison, Mr. Douglas had a base salary of $650,000.

SEC filing – Huntsman appoints new CFO

McDermott CEO steps down after overseeing disastrous acquisition

David Dickson, the CEO of McDermott International, has resigned with immediate effect. Non-executive director, Lee McIntire becomes the interim CEO. Mr. McIntire joined the Board in July 2020 and was the CEO of CH2M Hill, a global engineering services company from 2006 to 2014.



Mr. Dickson had been the CEO since December 2013. He presided over the disastrous acquisition of CB&I in May 2018 for $4.1 billion. Cost overruns on some major projects led to a $2.1 billion write down in goodwill 7 months after acquisition. McDermott filed for bankruptcy in January 2020 and exited 6 months later, having eliminated $4.6 billion of debt.

In April 2021, a judge in the Southern District allowed a class action lawsuit against McDermott and Mr. Dickson to continue. The plaintiffs allege that CB&I hid $1 billion of cost overruns at the time of acquisition though Mr. Dickson told investors that McDermott had performed significant due diligence and priced in potential risks. You can read the judge’s opinion here.

Bonuses for Mr. Dickson

The company is now private so it does not have to disclose the terms of Mr. Dickson’s departure. When the company exited Chapter 11, it was obliged to negotiate a new severance and change-of-control agreement with the executive management team. Mr Dickson’s old contract would have paid 250% of his base salary of $1.1 million and target bonus.

When the company filed for bankruptcy in January 2020, the company filed an employee retention plan that suggested a target bonus for Mr. Dickson of $6.3 million in 2020 (max bonus could have been $12.6 million). Again as the company is private, we don’t know how much Mr. Dickson was paid. 3 months prior to filing, Mr Dickson was awarded $3.375 million in cash bonuses.

Executive management turnover

Most of the executive management team that was at the company when it exited Chapter 11 have now left;

  • Chris Krummel, appointed CFO in Nov 2019 – replaced by Dennis Kelleher in March 2021.
  • John Freeman, Chief Legal Officer – replaced by Rachel Clingman (ex Noble) in April 2021.
  • Brian McLaughlin, Chief Commercial Officer.
  • Tosha Perkins, HR – duties absorbed by Gentry Brann (Senior VP, People, Culture & Communications).
  • Linh Austin, VP Middle East & North Africa – duties absorbed by Tareq Kawash.
  • Ian Prescott, VP Asia Pacific – replaced by Mahesh Swaminathan in April 2021.

https://www.prnewswire.com/news-releases/mcdermott-announces-leadership-change-301307052.html

IT consulting company admits to H-1B visa fraud

Cloudgen LLC has pleaded guilty to commit H-1B visa fraud.

The company is an IT consulting firm that has its US headquarters in west Houston. However, many of its employees are based in Hyderabad, India.



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Between March 2013 and December 2020, the company admitted to recruiting IT workers from India under H-1B visas. An H-1B visa is used to hire foreign workers to fill specialized jobs in the US where resident workers cannot be found. In that time, the company applied for 94 visas.

In Cloudgen’s case, the company submitted forged contracts stating 3rd parties had jobs available for individual Indian nationals. Having then obtained H-1B visas, the company would bring over the Indian nationals to the US, and start looking for other work for them.

Once Cloudgen found work for them, the company would switch the visas to the new employer. Cloudgen took a percentage of the worker’s salary as their fees. It earned approximately $493,516.28 in profits during the course of the conspiracy.

Sentencing is set for September 16. At that time, the company could have to pay up to $500,000 or the greater of twice the gross gain or twice the gross loss as well as a maximum five years of probation.

https://www.justice.gov/usao-sdtx/pr/houston-consulting-company-admits-h-1b-visa-fraud-conspiracy

 

Houston woman charged for her role in issuing 580,000 fake Texas paper tags

Leidy Areli Hernandez Lopez has been charged in relation to a scheme that issued over 580,000 fake vehicle paper tags.

Also charged are Octavian Ocasio of New York and Emmanuel Padilla Reyes aka Christian Hernandez Bonilla, city unknown. Both men are fugitives and warrants remain outstanding for their arrests.



A quick google search shows that, in February 2016, Ocasio was accused of offering fake New York inspection stickers. It’s not clear whether he was found guilty in that case.

A federal grand jury returned a 15-count indictment on May 20. The fraud mostly operated in 2020 though one count relates to July 2019. The fake tags were generally sold for between $150 and $175 each.

Most residents of Texas are aware that there has been a large problem with fake temporary dealer tags. There have been plenty of stories in recent years on local news and in newspapers. Police in Harris County have estimated that half of the paper tags on Texas roads are fake.

Fake tags are often used by drivers who don’t have insurance or are driving a car that wouldn’t pass inspection.

GDN license – no controls!

In the case of the defendants, it appears that Lopez was acting as a used car dealer. Dealers in Texas must obtain a GDN (general distinguishing number) license to buy or sell vehicles. Once a dealer obtains a GDN license, they can access the online eTag portal of the TX Department of Motor Vehicles to create temporary tags.

However, there are a couple of gaping holes in the system. Firstly, a GDN holder can set up other users on their account who can create and issue temporary tags. Secondly, there are no checks on the vehicle, buyer or vehicle identification number (VIN) entered into the portal.

The defendants advertised the sale of Texas paper tags on Facebook and Instagram to buyers from all over the US.

If convicted each defendant faces up to 20 years in prison and a potential $250,000 maximum fine.

TX Dept of Motor Vehicles

The body that oversees title registration is the Texas Department of Motor Vehicles. It was only created in 2009. In 2017 it issued 8.6 million vehicle titles.

According to a report by the Texas Legislature issued in 2019,  the department only began investigating title fraud in 2014 with the hire of ONE fraud inspector. For 2018-2019, the department was authorized to hire 13 additional investigators.

The department is also hampered by weak IT systems. For example, the same report stated that the department has no fraud reporting tools. Part of the problem is that most of the day-to-day title transactions are carried out by the 254 county tax assessor-collector offices. In turn these offices often sub-contract out such services to private companies.

https://www.justice.gov/usao-sdtx/pr/three-charged-nationwide-scheme-sell-hundreds-thousands-fraudulent-texas-paper-tags

 

 

Houston E&P company to merge with rival in $17 billion transaction

Cabot Oil and Gas, based in west Houston, has agreed to merge with Cimarex, based in Denver, in an all-stock transaction. The combined business will have an enterprise value of $17 billion. Cabot shareholders will own 49.5%, Cimarex 50.5% of the combined company.



Cabot has its operating assets in the Marcellus basin in NE USA, while Cimarex operates in Permian and Mid-Continent basins.

The combined company will be based in Houston with a new (as yet undetermined) name. Back office functions of Cimarex in Tulsa and Denver will be relocated to Houston.

Cimarex CEO Thomas Jorden will be the CEO of the combined company and will relocate to Houston. Dan Dingles, CEO of Cabot, will be the Executive Chairman until no later than December 2022. Cabot CFO Scott Schroeder will be the CFO of the combined group.

The Cabot management team have some rich change-of-control provisions. According to the most recent proxy statement CEO Dingles would be eligible for a payout of $40.6 million. Under the new employment agreement that Mr. Dingles has signed, he will be eligible for this payout when he steps down as Chairman.

Schroeder, the CFO who is staying on, has a change-of control package worth $19.3 million. Mark Burford, the CFO of Cimarex, has a change-of control package worth $7.9 million.

The companies are targeting $100 million of estimated annual G&A cost synergies. The markets have reacted badly to the proposed deal as there is no operational field overlap with Cabot primarily producing gas and Cimarex oil. The stock of both companies down more than 5% each.

The deal is expected to close in the fourth quarter.

SEC filing – Cabot – Cimarex merger

 

Graf blank check company completes IPO

Graf Acquisition Corp IV has completed its $150 million initial public offering. It is a Woodlands-based Special Purpose Acquisition Company (SPAC), otherwise known as a blank check company. It’s also the first Houston-area SPAC to go public since the SEC clamped down in April. All Houston-area SPACS are restating their results.



Interestingly, Graf IV has completed its IPO before Graf Acquisition Corp II ($225 million) and Graf Acquisition Corp III ($300 million). All three companies filed their registration statements in February.

The first Graf Acquisition SPAC went public in October 2018. It took Velodyne Lidar public in September 2020. The San Jose-based company, which makes radar-like sensors used in autonomous vehicles, has had a rocky beginning as a public company.

Velodyne Lidar’s rocky road

The first quarterly results since going public underperformed analysts’ expectations. It also reported material weaknesses in revenue recognition in its first annual report. Finally, the chairman and co-founder of Velodyne Lidar, David Hall, had a spectacular falling out with Jim Graf.  The company accused Hall and his wife (who worked at the company) of behaving inappropriately regarding the Board and company processes. In turn, Hall accused the Board of prioritizing its own self-interests over that of the shareholders.

Mr Hall is no longer on the Board, though he remains the largest shareholder. However, his wife, who was fired as an employee in February, remains on the Board as does his wife’s brother. That should make for some interesting dynamics at future board meetings!

When the deal closed, the share price popped to $24.75. It’s now trading around $10.

You can see the complete list of Houston-area public companies here.

https://www.businesswire.com/news/home/20210520006130/en/Graf-Acquisition-Corp.-IV-Announces-Pricing-of-150-Million-Initial-Public-Offering

 

All Houston SPACs to restate financials following SEC statement

All 11 Houston-area Special Purpose Acquisition Companies (SPAC) have now announced that they will restate their financial results following the SEC staff statement on April 12.  In addition, three other Houston public companies that went public via a SPAC have also announced that they will restate.

On April 12, the SEC issued a staff statement that stated that some of the SPACs had accounted for warrants incorrectly in their Initial Public Offering.  They should have been accounted for as a liability, instead of equity. More background can be found in my post of May 2.

A few of the SPACs have already restated their financials. A summary of what has been disclosed so far is set out in the table below.

In addition the following local companies that went public via a SPAC have announced they will restate;

  • US Well Services (Nov 2018)
  • Target Hospitality (Mar 2019)
  • Golden Nugget Online Gaming (Dec 2020)

 

CompanyIPO DateIPO $mWarrantTaking publicValue $m
Delwinds Insurance AcquisitionDec-20$200$11
ESM Acquisition CorpMar-21$300n/k
Flame Acquisition CorpFeb-21$250n/k
Genesis Park Acquisition CorpNov-20$150$37Redwire$615
Good Works Acquisition CorpOct-20$150$9Cipher Mining $2,000
Industrial Tech AcquisitionsSep-20$75n/kArbe$573
Landcadia Holdings IIIOct-20$500$28Hillman Group $2,640
Landcadia Holdings IVMar-21$500$33
Newhold Investment CorpJul-20$150$22Evolv Technology $1,250
Peridot Acquisition CorpOct-20$300$18Li-Cycle $1,100
Peridot Acquisition Corp IIMar-21$360n/k

Cameroon man sentenced to wire fraud conspiracy

Frankline Bate Okpu, a Cameroon man illegally residing in Houston, has been sentenced to 36 months in prison for his role in stealing $726,000 from a South Korean company.

Okpu managed a team of eight. Seven have previously pleaded guilty. One man, a Cameron native and formerly residing in Dallas, is a fugitive at large.



The South Korean company involved was Daesang Corporation, a leading producer of consumer foods and food additives. Also involved was JY Globalfoods Company (JY), a Korean trading company that acts as a bridge for international companies looking for Korean products or introduces foreign products to the Korean market.

Fake website

Okpu set up a fraudulent entity and fake website called Trinity Food Inc. This was a knock-off of a legitimate business called Trinity Foods Inc, based in San Diego.

Daesang wanted to import chicken and pork products into Korea to meet the demands from the Korean Moon festival holiday, held each year in the fall.  In June 2017, JY found the fake Trinity Food online and started communicating with ‘Juliet Vaquez”, “Ray Morgan” and “Albert”, purportedly employees of Trinity Food. In fact, these were false names created by the conspirators.

JY brokered the purchase of foodstuffs for Daesang and the conspirators sent two proforma invoices to Daesang for $128,250 and $598,400. In September 2017, Daesang paid the amounts into a Bank of America account in Houston in the name of Trinity Food, prior to the supposed shipment.

Money transferred to other accounts

That money was then withdrawn by the conspirators and was deposited into other bank accounts in Houston (at Regions Bank and First Convenience Bank). Some of the money was cashed through cashier’s checks in Los Angeles, Miami and Maryland.

Daesang never received the product they paid for and sought help from the US authorities.

After serving time, Okpu will be subject to 36 months supervised release and will have to pay restitution of $350,939.21. Sentencing has not yet occurred for the others that pled guilty.

https://www.justice.gov/usao-sdtx/pr/cameroon-man-sentenced-wire-fraud-conspiracy