Shell to sell Permian Basin assets to ConocoPhillips for $9.5 billion

Shell is to sell its assets in the Permian Basin to ConocoPhiliips for $9.5 billion cash. The assets are all in Texas and amount to 225,000 net acres and 600 miles of related pipelines and infrastructure. The purchase price of $47,500 per barrel of oil equivalent is in line with other recent transactions in the Permian Basin.



The effective date of the transaction is July 1, 2021, with an anticipated closing date in the fourth quarter.

Shell acquired the bulk of the assets in 2012 from Chesapeake Energy for $1.9 billion. It expects to book an after-tax gain of $2.4 to $2.6 billion once the deal closes. The company plans to pay a special dividend to shareholders of $7 billion.

The majority of Shell’s Midland-based Permian employees and many Houston-based employees will be offered employment by ConocoPhillips.

In June, a Dutch court ruled that Shell was partially responsible for climate change and ordered the company to reduce its carbon emissions (in absolute levels) by 45% by 2030, compared with 2019 levels.  Shell had already committed to a 45% (relative) reduction in net carbon intensity (i.e. the volume of carbon per unit of energy) by 2035.

Shell has been in the process of selling off assets in Egypt, Nigeria and Australia. It also sold its Alberta shale light oil production for $707 million in February. It plans to invest more in low-carbon fuels (biofuels and hydrogen) and carbon capture and storage.

ConocoPhillips has a target to reduce greenhouse gas emissions intensity by 35-45% by 2035 from a 2016 baseline. Shell probably felt some pressure to sell to someone with somewhat similar goals in terms of emissions reductions.

https://static.conocophillips.com/files/resources/transaction-announcement-and-market-update.pdf

 

ION Geophysical puts itself up-for-sale

Poseidon

ION Geophysical, based in west Houston, has put itself up-for-sale. The company has hired Tudor Pickering Holt to assist in the evaluation of a range of strategic alternatives including outright sale, sale of assets and debt financing.



The stock price jumped from $1.50 to $1.94 in after-hours trading. That gives it a market capitalization of $62 million.

Traditionally, the company has provided seismic services to the offshore oil and gas market. More recently, it has been trying to diversify into providing mission-critical subscription offerings and engineering services offshore (like a maritime equivalent of an air traffic control system).

The company has revenues of about $77 million, but it is still losing money even at the EBITDA level. It hasn’t made an annual operating profit since 2014.

Debt restructuring

In April, it completed a debt restructuring (code name Project Poseidon). It exchanged $121 million of debt due in December 2021 with $116 million of new notes due December 2025. $7 million of the old notes remain outstanding. The new notes also have a right to convert to equity at a $3 conversion price.

The company also completed a $42 million equity raise. $8 million of the cash was used to pay the costs associated with the debt issuance. $17 million was paid to the debt holders as part of the exchange.

Chinese influence wanes

The largest shareholder is Gates Capital Management, who own 16.4%. They also own $70 million of the new loan notes.

The third largest shareholder at 5.5% is BGP, a seismic contractor that is a subsidiary of China National Petroleum Corporation. However, that ownership percentage is about half of what it used to be.

For many years, the company operated a joint venture with BGP. However, in March 2020, the company announced it had agreed to sell its 49% stake in the joint venture for $12 million. It didn’t say to whom and the deal still hasn’t closed 18 months later.

https://ir.iongeo.com/news-releases/news-release-details/ion-initiates-review-strategic-alternatives

Houston-based distributor sold for $1 billion

Distribution International, a Houston-based company backed by Advent International, is being acquired for $1 billion in cash. The purchaser is TopBuild Corp, based in Florida.



DI was founded in 1986 from the merger of three Gulf Coast distributors. It is a leading distributor of insulation and related supplies for commercial and industrial buildings in North America. Its corporate office is based in downtown Houston.

TopBuild is a distributor of insulation and building products to the construction industry, mostly to the residential market.

DI has had three different PE-backed owners since being carved out from a British company, SIG plc, in 2006. Grey Mountain Partners owned it between 2006-2010, Audax Group between 2010-2014 and Advent since then. The company has made 11 acquisitions over the past six years.

DI had revenues of $747 million for the 12 months ending June 2021 and adjusted EBITDA of $75 million (10%). It has 84 locations in the USA and 17 in Canada.

TopBuild expects to achieve synergies of between $35-$40 million over the next two years, though they gave no specific details of how that would be achieved.

The CEO, COO and CFO of DI all worked for HD Supply at some point. HD Supply is an industrial distributor, based in Atlanta. It was spun off from Home Depot in 2007, went public in 2013 and was reacquired by Home Depot in 2020.

TopBuild Investor presentation

 

Luby’s CFO leaves as it winds down its operations

Steve Goodweather, the CFO of Luby’s Inc has resigned. He will be replaced by interim CFO Eric Montague who will continue to be employed by Winthrop Capital Advisors. They have been advising the company as it winds down its operations.



Luby’s, whose shares are still trading on the NYSE (market cap $126 million), has now sold all its Luby’s cafeterias and Fuddruckers restaurants. Those deals were announced in June. However it still owns 54 real estate locations that it is now in the process of selling. Luby’s also still has to sell its Culinary Contract Services business.

Mr. Goodweather joined Luby’s in 2006 as the Director of Financial Planning and Analysis and became CFO in April 2020. He will receive a severance of one year’s base salary ($215,000). 16,000 shares of restricted stock will also vest, worth about $64,000. Previous CFO Scott Gray, left in April 2020 with a $105,231 severance. Mr. Gray had been the CFO since 2007.

Luby’s will pay Winthrop Capital Advisors a monthly fee of $10,000 for the services of Mr. Montague.

SEC filing – Luby’s CFO resigns

Cadence Bank to pay $8.5 million to settle claims of redlining

The Justice Department has announced a settlement with Houston-based Cadence Bank to resolve allegations that the bank engaged in lending discrimination by ‘redlining’ predominantly Black and Hispanic neighborhoods in the Houston area.

The Justice Department alleged that the bank engaged in redlining between 2013 and 2017 by avoiding providing loans and other home mortgage services in majority-Black and Hispanic neighborhoods.

In 2018, the Houston Metropolitan Statistical area had over 7 million residents. The region was 37.6 percent Hispanic, 35.5 percent White and 17 percent non-Hispanic Black. 52 percent of the census tracts were majority-Black and Hispanic.

Branches in majority-white areas

From 2013 to 2017, 12 of the 13 branches that Cadence operated were located in majority-white neighborhoods. The remaining branch was in downtown Houston and mainly served commuters. In 2017, the downtown area became majority-white due to demographic change.

Cadence relied on its loan officers to generate loans. All, except the downtown branch, had at least one loan officer assigned to them. None of the loan officers spoke fluent Spanish, nor did the bank provide training to serve the credit needs of the majority-Black and Hispanic areas. The bank did not advertise at all in Spanish.

Of the nearly 1,600 mortgage applications that Cadence generated in that period, 14 percent came from majority-Black and Hispanic areas. In contrast, similar-sized peers in the Houston area generated 36 percent of their applications from the same areas.

As a depository bank, Cadence is subject to the requirements of the Community Reinvestment Act which requires most banks to meet the credit needs of the communities that they serve. In the case of Cadence that’s Harris, Fort Bend and Montgomery counties.

The regulator initiated an examination of the Bank’s practices in October 2017.

Penalties

Cadence will pay

  • $3 million fine
  • $4.17 million to create a loan subsidy fund for residents of predominantly Black and Hispanic neighborhoods in Houston
  • $750,000 for development of community partnerships to provide services to increase access to mortgage credit in these areas
  • $625,000 for advertising, consumer financial education and credit repair initiatives.

The bank is also required to dedicate at least four mortgage loan officers to majority-Black and Hispanic neighborhoods and open a new branch in one of these neighborhoods. It will also hire a Director of community lending to oversee these efforts and work with the bank’s leadership.

Merger transaction

In April, Cadence announced that it would merge with BanCorpSouth, based in Tupelo, Mississippi in a $6 billion all-stock transaction. The deal is expected to close later this year.

Cadence entered settlement negotiations with the Department of Justice, with the consent and support of BancorpSouth.

https://www.justice.gov/opa/pr/justice-department-and-office-comptroller-currency-announce-actions-resolve-lending

 

Water logistics company relocates to Houston

[UPDATE 09-03-21 After just over 4 months, CEO Pat Bond has left with an 8-month severance. Current chairman and former CEO Charles Thompson takes over as CEO again.]

Nuverra Environmental Solutions has relocated its corporate office from Scottsdale, Arizona to west Houston. The company provides water logistics and oilfield services, mainly in the Rocky Mountains and the Marcellus Basin in NE USA. It has a market capitalization of $34 million.



The company was founded in 2007 by Dick Heckmann, a serial entrepreneur who also co-owned the Phoenix Suns NBA team. Mr. Heckman died in October 2020, though he retired from Nuverra in 2014.

In April, Pat Bond was appointed the new CEO. He has held numerous roles at Halliburton, Weatherford and Schlumberger. Most recently he was co-CEO of Gravity Oilfield Services, another water logistics company.

Eric Bauer has been the interim CFO since April 2020. That followed the resignation of previous CFO, Stacy Hilgendorf, in November 2019, to take a position at Sprouts Farmers Market (based in Phoenix). According to his LinkedIn profile, Mr. Bauer, who has an investment banking background, is also based in Houston. Unusually, he was hired as an interim CFO on a three-year contract.

In November, the company completed a debt refinancing that lowered the interest rates and extended the maturity of debts. It also eliminated the debt owed to Gates Capital and Ascribe. Those two investment firms own 85% of the equity, following Nuverra’s bankruptcy reorganization in 2017.

Nuverra Q2 results

 

 

Stabilis Solutions appoints new CEO

Stabilis Solutions has appointed Westy Ballard as its new CEO, replacing Jim Reddinger. In addition, the company founder and executive chairman, Casey Crenshaw, will become non-executive chairman of the Board.



Stabilis is based in West Houston and is a small-scale producer and distributor of Liquified Natural Gas. It went public in July 2019 when it completed a reverse takeover of another Houston company, AETI, but was delisted four months later for not having enough publicly-held shares. It was finally relisted in April 2021.

Westy Ballard was previously the CFO at Superior Energy Services, a Houston-based oilfield services company. Superior was publicly-traded until it filed for bankruptcy in December 2020. It exited in February 2021 and Mr. Ballard left six weeks later. As an aside, Superior today announced that it has removed the interim tag off CFO James Spexarth.

Mr. Ballard will receive a base salary of $500,000.

Mr. Reddinger, joined the company in 2013 as CFO and was appointed CEO in November 2018. He will continue to receive his salary of $500,000 until the end of the year. His restricted stock units will also vest (market value $3.3 million).

SEC filing – Stabilis CEO

Drilling contractor replaces CEO and CFO

Credit: Marine Traffic

Valaris, the offshore drilling contractor that exited bankruptcy proceedings in April 2021, has changed out its CEO and CFO. Thomas Burke, CEO since April 2019, has stepped down, to be replaced by interim CEO Anton Dibowitz. Jon Baksht, CFO since June 2019, is replaced by interim CFO Darin Gibbins.



Valaris has its corporate offices in London, though most of its management are (or were) based in Houston. The company was formerly known as Ensco. It acquired Pride International in 2011 and Rowan in 2019, at which point it changed its name to Valaris.

Valaris entered Chapter 11 bankruptcy in August 2020 and exited with $7.1 billion of debt converted to equity. It currently has a market capitalization of $1.9 billion.

CEO severance

Mr. Burke had a base salary of $855,000. He will receive a severance of 2 times base salary ($1.7 million), plus 2 times average bonus or target bonus (110% of base or $1.88 million), plus a pro-rated target bonus for 2021 ($0.6 million). That’s $4.2 million in total.

Mr. Burke was the CEO of Rowan, prior to its merger with Ensco. After he was appointed CEO in April 2019, he received a cash bonus in 2019 of $3.9 million, including $3.0 million as a result of meeting cost reduction targets following the merger. From April 2020 until June 2021, quarterly cash bonuses were paid out in lieu of stock options. As a result Mr. Burke earned another $4.7 million for 2020. The 2021 bonuses paid out have not yet been disclosed.

The company also incurred $0.4 million in overseas allowances in 2019 for Mr. Burke in respect of his move from Houston to London. That includes housing, child tuition and tax equalization.

Mr. Burke will continue to serve on the Board of Managers of Saudi Aramco Rowan Offshore Drilling, the company’s 50/50 joint venture with Saudi Aramco. He will receive an annual retainer of $150,00 for this role.

CFO Severance

Interim CEO Anton Dibowitz currently serves on the newly-constituted Board of Directors and was formerly the CEO of Seadrill.

Mr. Baksht had a base salary of $550,000. He will receive a severance of 2 times base salary ($1.1 million), plus 2 times target annual bonus (85% of base or $935,000), plus a pro-rated target bonus for 2021 ($312,000). That’s $2.35 million.

Mr. Baksht received cash bonuses of $3 million in 2020. The company also incurred $0.4 million in overseas allowances for Mr. Baksht in 2019 as well.

Interim CFO Darin Gibbins joined Rowan in 2006 and is currently the VP of Investor Relations and Treasurer. He will receive a annual salary of $375,000.

SEC filing – Valaris CEO and CFO change

Houston E&P SPAC goes public in $150 million IPO

CENAQ Energy Corp, a SPAC (otherwise known as a blank check company) based in the Galleria area, has completed its $150 million Initial Public Offering. It intends to buy E&P assets in North America.



Chairman John Connally is a veteran of many E&P companies such as Nuevo Energy (acquired by Plains Exploration for $945 million in 2004). Interestingly, he is also the Chairman of  Texas South Energy. This is an E&P company that trades over-the-counter and is based in the same office suite as CENAQ. In July, the Securities and Exchange Commission (SEC) revoked the registration of Texas South as the company hadn’t filed any quarterly or annual reports since March 31, 2019.

As an aside, one of the reasons for the delay was because LBB Associates was the auditor to Texas South. They had to resign in early 2020 as the majority partner, Carlos Lopez, was barred by the SEC for professional misconduct in a case unrelated to Texas South.

The CEO of CENAQ is Russell Porter. He spent 18 years at Gastar Energy. He resigned as CEO in February 2018 and received a severance payment of $3.5 million. In November 2018, Gastar filed for bankruptcy with $342 million of assets and $454 million of debt. It exited Chapter 11 three months later, having converted $350 million of debt into equity. The company was later sold to Chisholm Oil and Gas, based in Tulsa.

Mike Mayell is the CFO of CENAQ. He also serves as the CEO of Texas South. Mr. Mayell co-founded Meridian Resource and was its COO until 2008. Meridian was sold to Alta Mesa in 2009 for $27 million.

Houston area SPACS

CENAQ becomes the 13th blank check company based in the Houston area. You can see the complete list of Houston-area public companies here.

I’ve taken a couple of the blank check companies off the list recently as they have taken businesses public.

NewHold Investment has now taken Evolv Technologies public in a $1.3 billion transaction. Evolv is a security screening company based in Boston.

Landcadia Holdings III has now taken The Hillman Group public in a $2.6 billion transaction. Hillman, based in Cincinnati, distributes fasteners and work gear to Lowe’s, Home Depot and Walmart.

SEC filing – CENAQ IPO

Houston company to revise results after overstating Accounts Payable

DXP Enterprises, an industrial distributor based in Houston, has announced that it is unable to file its latest quarterly report because it has discovered that it has $8 million to $12 million of ‘unvouchered purchased orders included in its trade accounts payable’ that are not valid obligations that will be invoiced or paid.



The company states that some of these balances are more than three years old. In its unaudited results for the six months to June 2021, the company states that any change will likely be immaterial in 2021. For the comparable period in 2020, the amount is less than $1 million. That implies that most of these balances are at least 18 months old.  The company plans to restate the trade accounts payable balance to the correct amount and flush the gain (less tax impact) through retained earnings.

DXP distributes maintenance, repair and operating products to energy and industrial customers, primarily in North America. It has a market capitalization of $567 million. One of its three business segments is Supply Chain Services…

For context, for the past five years, the company has had revenues of between $1 billion and $1.2 billion. It reported net income of $16 million in 2017, $36 million in 2018 and 2019 before making a loss of $29 million in 2020. The trade accounts payable has been around $75 million to $82 million. Therefore, a $10 million dollar error out of $80 million is a big miss.

Moss Adams, the company’s auditor, has not yet completed its review of the proposed adjustment.  Additionally, the company is in ‘the process of assessing the impact of this issue on our assessment that our internal control over financial reporting is effective’.

CFO Kent Yee was appointed in June 2017 and Chief Accounting Officer Gene Padgett joined in May 2018.

SEC filings – DXP – restatement