Houston companies reduce salaries for senior executives

In recent days, a few public companies in the Houston have announced salary reductions for senior executives as they battle with the economic downturn. The changes are temporary though most haven’t set a timetable for when they will be restored. A summary of the changes announced for the CEO and CFO officers is set out in the table below.

A shout-out to Cactus, an oilfield services company, who were the first to announce changes.

A couple of other comments

Occidental : All Executives had their salaries capped at $250,000. Furthermore, it appears that Oxy cut the salaries of all US employees making over $76,000 by 30%. It appears those making less got cut by 20%. Legacy Anadarko employees appear to have only got cut 4.9% to avoid breaching contracts in last year’s disastrous merger. That’s really going to help mesh the company cultures!

Group 1 Automotive : 3,000 US employees are furloughed for a 30-day period, with an option for a second 30-day period. 2,800 UK employees are furloughed for an initial period of 21 days. That’s about 40% of their workforce.

SEC filing – Group 1 Automotive

https://www.thelayoff.com/occidental-petroleum

 

CompanyPositionNameOld salary $000New salary $000% reduction
CactusCEOScott Bender30015050%
CactusCFOStephen Tadlock33526820%
Group 1 AutomotiveCEOEarl Hesterberg1,15057550%
Group 1 AutomotiveCFOJohn Rickel63050420%
Luby'sCFOScott Gray34217150%
Nabors IndustriesCEOTony Petrello1,7501,40020%
Nabors IndustriesCFOWilliam Restrepo65052020%
Occidental PetroleumCEOVicki Hollub1,25025080%
Occidental PetroleumCFOCedric Burgher72525066%
Superior Energy ServicesCEODavid Dunlap85068020%
Superior Energy ServicesCFOWesty Ballard44037415%
US Physical TherapyCEOChris Reading80048040%
US Physical TherapyCFOLarry McAfee51033235%

CEO out at Houston retail energy company

Spark Energy stock price

Nathan Kroeker is out as the CEO of Spark Energy. He is replaced, on an interim basis, by founder and chairman, Keith Maxwell, who still owns approximately 66.5% of the stock.

The company was founded in 1999 and is headquartered in west Houston. It supplies energy to residential and commercial customers operating in 19 states.



It’s not clear what prompted the change. EBITDA rose in 2019 to $71 million and the company has net debt of only $66 million. Its share price is currently $6.20, down from $10 earlier in the year.

Mr Kroeker had been the CEO since April 2014. Prior to that. he was the CFO of Spark between 2010-2012. He had a base salary of $450,000. The SEC filing doesn’t mention any details of his severance package. However, the annual proxy for 2018, filed in April last year, stated that Mr Kroeker was entitled to severance of one year’s salary, payable in twelve monthly installments.

He will also get his 2019 earned bonus (the 2018 figure was $250,000) and a pro-rated 2020 target bonus. Mr Kroeker’s unvested stock awards will also vest. As the annual proxy statement for 2019 has not been filed, I can’t quantify their specific worth, but it is likely to be over $2 million.

Mr Maxwell will receive a salary of $1 for his interim CEO role, though he is paid $250,000 in fees for his non-Executive chairman position.

Spark appointed Jim Jones as its new CFO in June 2019. He replaced Rob Lane, who stepped down to become the CFO at Sunnova Energy, which went public in July.

SEC filing – Spark Energy CEO

Drilling Contractor CFO leaves after 3 months

Stephen Butz has resigned as CFO of Noble Corp, a drilling contractor, 3 months after joining the company. He is replaced by Richard Barker.

The company is an offshore drilling contractor. It has its registered head office in London but its operational head office is in Sugar Land.

According to the press release, Mr Butz resigned following the ‘recently announced Chief Executive Officer transition plan’.



In that plan, announced last month,  current CEO and Chairman, Julie Robertson became Executive Chairman (salary $500,000). Robert Eifler was promoted from Senior VP, Commercial to CEO (new salary $675,000). Ms Robertson also received a lump sum payment of $3.75 million, which will be clawed back if she resigns prior to October 31, 2021.

When Mr Butz joined the company in December 2019, he received a sign-on bonus of $1.1 million. If Mr Butz resigns without ‘Good Reason’ prior to December 2020, he is to repay the bonus in full. I presume that is the case here, but I can’t definitely state that as his signed employment contract has not been filed by the company. [UPDATE : The company has now the 8-K. Mr Butz gets to keep $450,000 of the $1.1 million].

In December, the company had a share price of around $1, giving it a market capitalization of $233 million and debt of $4 billion. Current share price is 29 cents (market cap $71 million).

Mr Barker joins from Moelis & Company, an investment bank. He joined that company in August 2019 having previously been at JP Morgan, Tudor Pickering Holt and Goldman Sachs. [UPDATE He will receive a base salary of $475,000. He will also receive cash retention/bonuses of $725,000 on December 31, 2020 and $575,000 on December 31, 2021].

https://www.prnewswire.com/news-releases/noble-corporation-plc-announces-departure-of-chief-financial-officer-and-names-replacement-301024738.html

Houston pipeline company to pay $60 million after California spill

Refugio State Park – USFWS Pacific Southwest Region

Plains All American has agreed to pay over $60 million in penalties and clean-up costs after a May 2015 pipeline spill west of Santa Barbara, California. The spill, which was caused by corrosion, resulted in the release of 2,934 barrels of crude oil onto Refugio State Beach and the Pacific Ocean.

Plains (market cap $4.9 billion) has its head office in downtown Houston. It has 18,000 miles of crude oil and NGL pipelines as well as 9,100 rail cars and 1,600 trucks and trailers.

The 24-inch pipeline runs from Exxon Mobil’s storage tanks in Las Flores westward to Plains’ Gaviota pumping station. Plains failed to detect the extent of the corrosion. The company was also faulted for waiting 80 minutes after the initial rupture before notifying the California authorities. In addition, Plains did not identify or account for a nearby storm drain in its emergency response plan. The crude oil that escaped flowed through the storm drain directly onto the beach.

Plains will pay

  • $24 million in penalties
  • $22.3 million in natural resource damages
  • $10 million for reimbursed natural resource damage assessment costs
  • $4.3 million for reimbursed Coast Guard clean-up costs

https://www.justice.gov/opa/pr/us-pipeline-company-modify-its-national-operations-implement-safeguards-resulting-oil-spill

Woodlands Physician group pays $1.2 million to resolve false billing claims

Millennium Physicians Association has paid the US $1,248,964 to resolve claims that they falsely billed the Medicare program for sleep studies.

Millennium is based in The Woodlands and owns and operates two sleep centers in the Houston area doing business as Millennium Respiratory & Sleep Disorder Specialists.

The investigation began following the Jan. 4, 2018, filing of a whistleblower lawsuit. Millennium employed the whistleblower who alleged the company conducted sleep studies without the presence of properly credentialed technicians.

Medicare rules and guidelines require that properly-trained and certified sleep technicians administer sleep studies. However, the investigation revealed that from Jan. 8, 2015, through March 13, 2019, Millennium improperly billed and received payment for sleep tests when they did not have the required personnel present.

Medicare rules and guidelines also require facilities to be accredited or certified by the America Academy of Sleep Medicine, Joint Commission or Accreditation Commission for Health Care Inc. Millennium self-reported that from 2011 through 2019, two of its sleep test facilities did not have such accreditation or certification.

The whistleblower will receive $187,000 as a result of the settlement.

The settlement resolved the claims without a determination of liability.

https://www.justice.gov/usao-sdtx/pr/physicians-group-pays-over-1m-resolve-false-billing-claims

Famous Houston pastor pleads guilty to $3.5 million fraud

Kirbyjon Caldwell, a famous Houston pastor, has pleaded guilty to defrauding investors of approximately $3.5 million.



Mr Caldwell built up Windsor Village United Methodist Church in SW Houston into a 14,000 member mega church and was a spiritual advisor to President George W Bush. He offered the benediction at both his inaugurations and officiated at the wedding of President Bush’s daughter, Jenna.

Former Investment Banker

Caldwell is a former director at Continental Airlines (until 2011) and NRG Energy (he left the board one month after he was indicted in 2018).  He is also a minority owner in the Houston Texans. Prior to becoming a pastor he was an investment banker on Wall Street and worked for a bond firm in Houston.

The fraud scheme

Caldwell was charged along with Gregory Smith, a Shreveport-based investment advisor. Smith pleaded guilty in July 2019.

Between April 2013 and August 2014, Caldwell and Smith raised $3,488,500 from 29 investors through a fraudulent offer and sale of various pre-1949 Chinese bonds. Caldwell and Smith falsely represented to these investors that the bonds were safe, risk-free, worth tens, if not hundreds of millions of dollars and could be sold to third parties. In reality, the bonds have no investment value.

The Chinese government doesn’t recognize the validity of bonds issued prior to the communist takeover of 1949. It has never paid out on any of these bonds, except once in 1987. As part of the negotiations over Hong Kong, the Brits received 36 cents on the dollar. The US courts have generally said that the People’s Republic of China can assert sovereign immunity in not paying these debts.

Caldwell kept approximately $0.9 million and used it to pay down personal loans, mortgages and credit cards. Smith received $1.1 million of the total monies raised.

Sentencing

Caldwell could get seven years in prison. He also faces a fine up to $250,000 and up to three years of supervised release. Sentencing is set for July 22, 2020.

https://www.justice.gov/usao-wdla/pr/houston-texas-pastor-pleads-guilty-his-role-multimillion-dollar-investment-scheme

Houston Pharmacist guilty of $21 million fraud

George Tompkins, 75, of Houston, has been found guilty of charges related to health care fraud, wire fraud and money laundering. After a six-day trial, the jury took less than two hours to convict him of all charges (14 counts in all).



Tompkins owned Piney Point Pharmacy on Fondren Road in west Houston. According to evidence presented a trial, Tompkins billed the Federal Employees’ Compensation (FECA) program approximately $21.8 million for medically unnecessary compound gels and creams that were predicated on illegal kickback payments, which were disguised as legitimate marketing expenses.

The scheme began around September 2009 and continued through approximately September 2016. Of the $21.8 million billed, the Department of Labor paid out $11.7 million.  Tompkins referred to himself as the “Compound King”.

His wife, Marlene, was the Secretary and Treasurer of the business. She pleaded guilty in January 2020 and is awaiting sentencing. Anoop Chaturvedi, a legal permanent resident from India, was also charged. He is a fugitive and there is a warrant for his arrest.

Sentencing for Tompkins is set for May 27. He faces up to 20 years for the money laundering charges and 10 years for the other counts.

https://www.justice.gov/opa/pr/compound-king-convicted-21-million-health-care-fraud-scheme

 

Struggling LNG company appoints new CFO

Tellurian has appointed Kian Granmayeh as its new CFO. He replaces Antoine Lafargue, who will join the marketing group as the Senior VP of LNG Marketing. Mr Lafargue has been CFO of Tellurian or its predecessor company since June 2015.



Mr Granmayeh began at Tellurian as a consultant to the CFO in January 2019 and was appointed as Director of Special Projects in July 2019 and Director of Investor Relations as month later. Prior to joining Tellurian, he worked at Apache.

Mr Granmayeh will receive a base salary of $380,000.

It’s been a rough few weeks for the company, which is based in downtown Houston. In late February it announced that its anticipated completion of a partnership deal with India’s Petronet was delayed by two months. That deal is tied to the proposed Driftwood LNG project in Louisiana. As a result, its share price dropped by 10% on the day the delay was announced.

The share price dropped triggered the family trust of co-founder Charif Souki being forced to sell 18 million shares to satisfy loan requirements by a lender. Some 25 million shares had been pledged as collateral to secure a loan for certain real estate investments.

The shares, which had been trading around $7 in mid-February, are now trading at around a dollar.

SEC filing – Tellurian CFO

 

Houston luxury realtor files for bankruptcy protection

John Daugherty Realtors has filed for bankruptcy protection. This follows a dispute with its landlord over the rent for its corporate offices at 520 Post Oak Boulevard.



Historically the company has handled many of the priciest single-family home sales in Houston. However it suffered a blow in early December when two of its top agents, Laura Sweeney and Lisa Kornhauser, left for Compass, a rival real estate brokerage. Sweeney was ranked number 1 on the Houston Business Journal’s 2019 list of Top Residential Real Estate Agents by Sales volume. Kornhauser was ranked number 4. The pair generated almost 20% of the sales volume at John Daugherty Realtors.

A week after their departure, the company announced it would be acquired by New York firm, Douglas Elliman, which has its Houston offices on Kirby Drive in the River Oaks area. The potential merger appears to have triggered the dispute.

The landlord at 520 Post Oak Boulevard, Griffin Partners, alleges that John Daugherty Realtors has breached its contract as it wants to get out of its lease (which runs to 2027) so that it can move into the offices on Kirby Drive.

The deal for Douglas Elliman to acquire John Daugherty Realtors has now collapsed. However Mr Daugherty himself and the remaining team are still expected to join the New York firm.

John Daugherty Realtors has denied the allegations made by Griffin Partners.

The company filed for Chapter 11 bankruptcy on February 27. Since then it has filed motions to pay its real estate agents outstanding commissions and to terminate its leases at both Post Oak Boulevard and its office in The Woodlands.

Griffin – Complaint v Daugherty

Chapter 11 filing

Largest Houston company to restate financials

Crown Castle, now the largest Houston-area public company by market capitalization ($68 billion) following the recent energy meltdown, has announced that it will restate its financial statements for 2016 through 2018. It may have to file an extension for its 2019 results.



The company is based in the Galleria area and owns, operates and leases more than 40,000 cell towers and more than 75,000 route miles of fiber supporting small cells. It has revenues of $5.8 billion and 5,000 employees.

The restatement is the result of an error in its revenue recognition of tower installation services. In short, the company had been recognizing the entirety of the transaction price when it had completed installation services. However some of the transaction price was consideration for  permanent improvements in the installation. The improvements were recorded as fixed assets, therefore the consideration received for that element should have been recognized over the lease term.

The effect is to reduce adjusted EBITDA for 2019 by $100 million. Profits for previous years have also been reduced. The cumulative effect is increase liabilities and reduce equity by $457 million. It sounds like a big number but it is less than 4% of equity.

The Securities and Exchange Commission (SEC) issued a subpoena in September 2019 requesting certain documents from 2015 through to the present. However, the company states it had previously provided information to the SEC related to the matter. The company also said that the SEC investigation is still ongoing. That sounds like there could be more bad news coming.

The auditors for Crown Castle are PricewaterhouseCoopers. This episode doesn’t reflect well on them.

Unsurprisingly, the company that the restatement indicates the existence of one or more material weaknesses in its internal control over financial reporting.

SEC Filing – Crown Castle restatement