CFO of Offshore Drilling Contractor resigns

Adam Peakes has resigned as CFO of Noble Corporation (NE) with immediate effect. The company is an offshore drilling contractor. It has its registered head office in London but its operational office is in Sugar Land.

The company has begun a search for a successor. In the interim, the accounting and Treasury teams will report directly to CEO Julie Robertson.



Mr Peakes joined the company in January 2017 from investment bank, Tudor Pickering Holt, where he was Managing Director and Head of OFS Investment Banking.

The company will pay Mr Peakes (who had a base salary of $450,000) a severance payment of $1 million. Just this February 2019, the company announced it would pay Mr Peakes a retention bonus of $900,000 with one half vesting in December 2020, and the balance in December 2021. Not clear why he has gone from hero to zero in a few short months.

As with other Noble executives, the employment contract of Mr Peakes only outlines termination payments in the event of a change of control. There appear to be no clauses with regard to termination without a change of control.

When he joined the company, the stock price was $7.25. It now trades at $1.89 (market cap $488 million).

Interestingly, Mr Peakes’ former employer was in the news this week. The week before Mr Peakes joined Noble, TPH announced it would merge with New York-based Perella Weinberg Partners.

This week it was announced that, one of the partners, Dan Pickering, is spinning off the energy asset management part of the combined firm into his own company, Pickering Energy Partners. Bobby Tudor and Maynard Holt will remain with the investment bank.

SEC filing – Noble Corp CFO departure

 

Alta Mesa files for bankruptcy – CFO gets $600k bonus

Alta Mesa, the struggling E&P company, has finally filed for bankruptcy. Four days prior to the filing, the company advanced a bonus of $600,000 to both CFO John Regan and General Counsel Kimberly Warnica.

In the past year, the company has issued a string of bad news along with hefty compensation packages for senior executives.



Background to the acquisition

By way of recap, Silver Run Acquisition, a blank check company went public in March 2017 at $10 per share. It was run by James Hackett, ex-CEO of Anadarko and backed by Riverstone with a $1 billion equity check. In January 2018, it completed the acquisition of Alta Mesa for $1.9 billion and Kingfisher Midstream for $1.4 billion. Both those businesses were privately held.

Silver Run renamed itself Alta Mesa Resources and traded under the ticker AMR. Somewhat confusingly, the legal entity of the Alta Mesa operating business is called Alta Mesa Holdings and also files annual and quarterly reports with the SEC. The management team of the acquired Alta Mesa were tapped to run the public company. Mr Hackett remained as Chairman.

Timetable of events

  • In March 2018, the company announced EBITDA and production estimates would be significantly lower than the estimates provided in the acquisition proxy statements.
  • 2nd quarter earnings announced in August 2018 were also disappointing.
  • CFO Michael McCabe announces his retirement in November 2018. His last day was in March 2019. Base salary $450,000 – Cash severance payment $1.4 million.
  • CEO Harlan Chappelle, COO Michael Ellis and Chief Technology Officer Gene Cole ‘were given the opportunity to resign’ on December 20, 2018. Under the terms of their employment contracts they were entitled to severance. Combined salaries $1.8 million – cash severance payments $8.7 million.
  • In December 2018 Mr Hackett hires 3 consulting executives from Meridian Energy for a monthly fee of $245,771. The consulting firm could also earn a quarterly bonus of $872,950 and a semi-annual bonus of $2.1 million, assuming certain performance metrics are met.
  • John Regan is hired as the new CFO in January 2019. Base salary $450,000.
  • In February 2019, the company lays off 25% of its head office staff in west Houston.
  • Also in February, the company discloses it will delay reporting its annual report due to problems with its internal controls over financial reporting.  It also announces an expected impairment charge of $3.1 billion.
  • Craig Collins – COO of Midstream is fired in March 2019. He was hired one year before. Salary $450,000 – cash severance payment $1.4 million.
  • The company draws down the remaining $86 million of its $370 million revolving credit line in April. That was just after it paid out all the severances noted above.
  • Subsidiary Alta Mesa Holdings files its annual report in May 2019. In it, the company discloses that the SEC is conducting a formal investigation ‘into, among other things, the facts involved in the material weakness in our internal controls over financial reporting and the impairment charge’.
  • In August, the parent company finally files it annual report. The list of internal control weaknesses is too long to mention here…

Bankruptcy

The company does not have a pre-packaged bankruptcy agreement in place. The bankruptcy was triggered by the lenders exercising their right to conduct an optional re-determination ahead of the next scheduled one in October 2019. That set the new base at $200 million, well below the amount currently borrowed.

New CEO and more bonus payments

The day before bankruptcy, Mr Hackett, who had been serving as interim CEO, amended the agreements with the three consultants and appointed one of them, Mark Castiglione, as CEO. The agreement eliminated the quarterly and milestone bonuses. In return, the three executives were advanced a combined bonus of $1.8 million.

Mr Hackett will remain as Chairman of the company.  Its shares were trading at 8 cents when it announced bankruptcy.

Mr Hackett has also taught a course on ‘Moral Leadership in Economics’ at both the University of Texas and Rice University.

SEC filing – Alta Mesa bankruptcy

 

 

ExxonMobil being sued for Frac bashing vertical wells

XTO Energy, based in Spring and a subsidiary of ExxonMobil, is being sued in Harris County because its fracking operations have allegedly damaged nearby vertical wells in a different formation.

Plaintiffs Modelo Energy (owner) and Capital Star Oil (operator) have approximately 90 vertical wells in the Fashing Edwards field in South Texas. The wells have been producing for many decades and the surface pressures are around 100 psi. XTO also operates some wells in the same field.



However XTO also operates horizontal wells in the Eagle Ford formation which lies roughly 250 feet above the Edwards formation. These wells are fracked and pressures in the formation can exceed 10,000 psi.

In 2016, Modelo complained to XTO that its wells were being ‘frac bashed’ by the underground explosions XTO was setting off in its horizontal wells. On August 16, 2018, an XTO frac explosion travelled into the Edwards formation. This caused the surface pressure at one of Modelo’s vertical wells to spike to 5,054 psi. This resulted in a surface blowout of natural gas, condensate, water and solids.

Modelo alleges that 12 of its wells are damaged. In addition, the water that escaped into the Edwards formation has reduced the ultimate recovery of gas from the formation. Modelo also alleges that XTO refuses to clean up the waste and pollution. XTO continues to frac in the formation.

Modelo & Capital Star are seeking damages in excess of $3 million.

Rusty Hardin, a famous Houston lawyer who has taken on many high profile and celebrity cases, is representing the plaintiffs.

Frac hits are becoming more common as the number and length of horizontal wells increases. A report from 2017 in The Oklahoman stated that 450 older vertical wells had been damaged by fracking.

XTO Defendant – Modelo

 

 

 

Takeover of Houston company falls through after 18 months

The takeover of Houston-based Stewart Information Services by Fidelity National has fallen through after the Federal Trade Commission sought to block the proposed merger.

The FTC said that the acquisition would substantially reduce competition in state markets for title insurance underwriting for large commercial transactions, and in several local markets for title information services. It would reduce ‘The Big 4’ to 3 competitors.



Fidelity had agreed to buy Stewart in March 2018 for cash and stock worth $50.20. That valued the company at $1.2 billion at the time. Stewart’s shares are currently trading at $34.50 (market cap $800 million).

Fidelity has agreed to pay a $50 million termination fee to Stewart.

Stewart also announced that current director Frederick Eppinger will become CEO. However, current CEO Matthew Morris, who has been CEO since 2011, will remain with the company. He will assume the role of President.

CFO David Hisey was appointed to his position in September 2017. Interestingly Mr Hisey has some unique clauses in his employment contract. If Mr Hisey’s employment is terminated without cause within one year of naming a new CEO,  he will get additional compensation above and beyond what he would normally get. According to the latest annual proxy, his severance package would be valued at $2.5 million versus $1.8 million normally.

If Mr Hisey were to voluntarily terminate his employment for ‘Good Reason’ within 180 days of the company naming a new CEO, he would get a severance package worth $1.3 million.

How long before he resigns?

https://www.businesswire.com/news/home/20190910005351/en/

CFO resigns from struggling healthcare company

Brandon Moreno, the CFO of Nobilis Health Corp, has resigned from his position. He was only promoted to the role in January 2019. He lasted a lot longer than previous CEO, Jim Springfield, who joined in December 2018 and left in May 2019!



Marissa Arreola also resigned as the Chief Legal Officer. No replacements were named for either Mr Moreno or Ms Arreola.

Amazingly the company is still not in Chapter 11 and its stock was still trading until 3 September (at 12 cents per share).

The last quarter or annual report filed by the company was for the quarter ended 30 June 2018. In November 2018 the company said it was working with its auditors, Crowe Horwath, to make a significant adjustment to the carrying value of accounts receivable, primarily out-of-network claims over one year old.

According to the last 10-Q filed, the company had $144 million in accounts receivable, of which $39 million was over a year old. The company had ZERO allowance for doubtful debts. That’s despite the amount over one year old virtually doubling since the previous year end.

In November 2018, the NYSE had sent a notice to the company that it was not in compliance with the listing standards. The company sent a plan to regain compliance back in May. That resulted in the NYSE offering an extension of the grace period to August 31. The stock was delisted on September 3 following that expiry.

The company owes its lenders $132 million. A few months ago the lenders hired an Investment Banker to effect a transaction. They also hired a Chief Restructuring Officer from Morris Anderson to assist them in their efforts to recover as much value as possible.

SEC filing – Moreno resignation

Houston attorney convicted of offshore tax evasion scheme

Jack Stephen Pursley, a.k.a Steve Pursley has been convicted in an offshore tax evasion scheme. After a four day trial, he was convicted of one count of conspiracy to defraud the US and three counts of tax evasion.

Mr Pursley was friends with Shaun Mooney from college at Texas Christian University. Mr Mooney ran a company that, until 2009, provided personnel services to clients who owned offshore oil rigs, primarily in the Middle East.  However, Mr Mooney had a problem. He had $18 million held in an offshore bank account in the Isle of Man. He wanted to remit it back to the US without paying tax on it.



Mooney and Pursley created a company in which Mooney owned 76% and Pursley 24%. Mr Pursley used that company to transfer the money back to the US. He disguised the transfers as stock purchases in US corporations that they owned. Mr Pursley evaded taxes by claiming the withdrawal of funds were non-taxable loans and returns of capital.

At trial, the government proved that Mr Pursley received more than $4.8 million and didn’t pay taxes on this income between 2007 and 2010. Instead he used the money to buy two houses in Houston and a vacation home in Vail, Colorado.

Court documents suggested that Mooney provoked the federal investigation when he disclosed the tax scheme to the authorities in 2013 under the Offshore Voluntary Disclosure Program.

Sentencing will occur in December. He faces a maximum of five years in prison for the conspiracy count and five years for each count of tax evasion. He also faces a period of supervised release, monetary penalties and restitution.

https://www.justice.gov/opa/pr/houston-attorney-convicted-offshore-tax-evasion-scheme

Houston woman pleads guilty to defrauding Dr Pepper Snapple

Anna Maria Sites, aged 42, from Friendswood, has pleaded guilty to committing fraud against beverage company Dr Pepper Snapple Group (DPSG).



Ms Sites was originally indicted in October 2018. She handled human resources and accounting for a company called FulFill Plus. It is based in northwest Houston and managed various rebate advertising campaigns for DPSG across the US.

The rebates included returned bottle caps or for switching to DPSG brand drinks in restaurant/convenience store soda dispensers. DPSG, based in Plano, Texas, paid FulFill to administer those campaigns.

Ms Sites was indicted along with Joseph Isaac, the operator of FulFill. He is still awaiting trial in the case [UPDATE 09-11-19 Mr Isaac has now pleaded guilty as well]. As an aside, for a while, Ms Sites and Mr Isaac also owned a couple of restaurants together. They were based in the Montrose area of Houston (Bibi’s Kitbar and Eleven XI).

The fraud was not sophisticated at all. In 2014 and 2015 Ms Sites told DPSG to issue rebate checks to FulFill to reimburse the company for rebate claims that she had processed. In fact she hadn’t made the payments to the claimants. Of course, the restaurants kept pushing for their $75 rebate check. Eventually, after multiple complaints, Ms Sites would issue the rebate check.

The original indictment alleged that the fraud started as far back as 2010 and that some of the misappropriated funds were used for the personal use of the defendants. Funds was also allegedly used to cover general expenses of FulFill. The indictment didn’t quantify the extend of the alleged fraud.

The plea deal only refers to a specific rebate campaign in 2014 and 2015 and makes no mention of any personal gain by Ms Sites.  She will be sentenced in December 2019 and faces up to five years in prison and a possible $250,000 maximum fine.

https://www.justice.gov/usao-sdtx/pr/houston-woman-admits-defrauding-dr-pepper-snapple

Oilfield Services CFO promoted to CEO role

Tidewater CFO Quintin Kneen has been promoted to the CEO role, replacing John Rynd, who is stepping down with immediate effect. The company is conducting a search for a new CFO.



Tidewater owns and operates the largest fleet of offshore Support vessels in the industry. The company moved its head office from New Orleans to west Houston last year. In November 2018, it merged with GulfMark Offshore for $386 million in an all-stock deal.

Prior to the merger, Mr Kneen was the CEO of GulfMark. After the deal, he became the CFO of the combined company. Mr Kneen’s new salary will be $500,000. That’s up from the $350,000 he was making as CFO but virtually identical to the salary he was making as CEO of GulfMark.

Mr Rynd only joined Tidewater as CEO in March 2018. He was previously the CEO of Hercules Offshore. He will receive a severance package of one year’s base salary ($600,000) and one year’s target bonus ($600,000). When he joined the company, he received an equity award valued at $2.75 million that would vest over 3 years.  As a result of his separation agreement these now all vest (albeit at a lower value).

Since the deal with GulfMark closed, the stock price of Tidewater has fallen by about 40%. In May, the company came under fire from its largest shareholder, Raging Capital, an activist shareholder for being bureaucratic and having bloated overheads.

SEC filing – Tidewater

Raging Capital letter to Tidewater

Houston job growth slows as manufacturing jobs lost

Houston jobs grew 3.1 percent annualized over the three months ending in July. Construction increased by 6,500 jobs, transportation, wholesaling and utilities by 6,700 jobs, and Leisure and hospitality by 4,900. However the area lost 1,000 manufacturing jobs and education and health jobs fell by 800.



This is according to the latest research from the Federal Reserve of Dallas which publishes data on the Houston-Sugarland-The Woodlands metropolitan area on a monthly basis.

In the year to July 2019, Houston added 76,400 new jobs, slightly higher than the comparable prior year (68,400 jobs). This included 5,600 manufacturing jobs year-on-year. However manufacturing jobs have dropped by 1,579 since March.

First quarter job growth was revised downwards by 15,000 (wonder if the 2nd quarter will also be revised down later?). Through July, that means that Houston employment has grown at an annual pace of 1.9 percent for 2019. That’s slightly below the historical annual growth rate of 2.1 per cent.

The unemployment rate in Houston rose from 3.6 percent in June to 3.8 percent in July. It’s now back above the US national average of 3.7 percent. The rate in Texas is 3.4 percent.

The Bank use 11 indicators to produce a composite Houston leading index. Compared with the quarter ended April 2019, the index has turned negative. All the index components have declined. However the biggest decline was in new orders for manufacturing which went from an annual 9.9 percent growth rate in the three months to April to a 1.3 percent contraction over the three months ending July.

As a result, the Bank expects more moderate growth for the local economy through the end of the year.

https://www.dallasfed.org/research/indicators/hou/2019/hou1909.aspx

 

 

Houston company settles with SEC over allegations of reporting violations

Omega Protein Corporation has settled with the Securities and Exchange Commission (SEC) over allegations that it misrepresented that it was in compliance with covenants on its loan agreements.



The company has agreed to pay a penalty of $400,000. Omega settled without admitting or denying the findings in the SEC order

Business financed by federal loans

Omega, which had its head office in west Houston, was publicly traded until it was taken over by Cooke Inc, a private Canadian company, for $500 million in December 2017.

The company’s biggest business is the production of fish oil for use as a protein ingredient in animal feed. It has facilities in Virginia, Mississippi and Louisiana. Historically, a significant source of Omega’s external financing was the federal government, which provided loans as part of a broader program to support the national fishing and acquaculture industry.

Pollution offenses

Omega had been a repeat offender of the Clean Water Act. It had pleaded guilty to criminal charges in 2013 over pollution in Reedville, Virginia. The company paid a fine of $5.5 million. It also made a $2 million payment to the National Fish and Wildlife Foundation.

In January 2017, it again pleaded guilty to criminal counts of pollution through illegal discharges at its Abbeville, Louisiana facility. This time the fine was $1 million.

The pollution in Louisiana actually occurred in December 2014. A whistleblower called the company ethics hotline in March 2015. This was before the company filed its annual report. However senior management only became aware of it a month later. This was because the hotline system Omega had put in place failed to notify the appropriate executives.

Breach of Covenant

As part of its 2014 annual report, the senior management of the company certified that it was in compliance with all environmental obligations. That was a covenant put in place on the federal loans after the first guilty plea.

The subsequent quarterly reports for 2015 also falsely claimed that the company was in compliance. In fact the company would have had to pay accelerated interest on its $21 million federal debt, if a default had been declared.

To make matters worse, a default on the federal loans was grounds for a cross default on the company’s commercial credit facility. Instead, during 2015, the company increased its commercial credit facility and used that to pay off the federal loans.

Executive bonuses

To put the $400,000 penalty in context, the 5 senior executives of Omega received cash bonuses of $1.9 million for the 2015 fiscal year.

https://www.sec.gov/enforce/33-10679-s