Centerpoint appoints new CFO

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Centerpoint Energy (market cap $18 billion) has appointed Chris Foster as its new CFO, effective May 5. He replaces Jason Wells, who was promoted to COO in January.

Mr. Foster joins from PG&E, a publicly-traded electric utility company (market cap $32 billion) that serves central and northern California, where he had been CFO since March 2021. He joined PG&E back in 2011. Mr. Wells was the CFO at PG&E before Mr. Foster.

Mr. Foster will receive a base salary of $700,000 and an equity award worth $3.9 million which will vest on his first and second anniversaries of the grant date. He will also receive relocation assistance to move to Houston.

To replace Mr. Foster, PG&E appointed Carolyn Burke as CFO. She has Houston connections, having been the CFO at Chevron Phillips Chemical Company from February 2019 to September 2022. Chevron Phillips is a jointly owned by Chevron and Phillips 66 and has its head office in The Woodlands.  She has been working as consultant to PG&E since January.

For many years, Ms. Burke worked at Dynergy and also had a spell at NRG Energy. She will have a base salary of $725,000, a signing bonus of $400,000 and $400,000 in restricted stock units.

SEC filing – Centerpoint CFO

Sugar Land business owner pleads guilty to bribery and bid rigging

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Sudhakar Kalaga, a Sugar Land business owner, has pleaded guilty to a nine-year fraud in which he engaged in a bribery and bid rigging fraud to secure construction and maintenance work contracts.

Although the complaint filed in the Southern District of Texas doesn’t name the company, Toshiba International filed a lawsuit in 2019 against Mr. Kalaga and Pablo D’Agostino, a facilities manager employed by Toshiba in Houston. The company alleged that the two men conspired to trick it into awarding over $100 million in construction contracts to KIT Professionals, the company owned by Mr. Kalaga. Mr. D’Agostino died in 2019 before the case came to a conclusion.

From 2010 to 2019, Mr. Kalaga submitted fake bids to Toshiba to Mr D’Agostino, who coordinated the submission of the fake bids to make it appear Mr. Kalaga’s company was the low bidder. In exchange for rigging the bid process, Mr Kalaga paid Mr. D’Agostino millions of dollars in cash, luxury gifts and other items.

KIT Professionals has been awarded a lot of work by the City of Houston, although the guilty charge does not relate to any work done for the public sector.  According to the Houston Chronicle, KIT was awarded $55 million in contracts between 2008 and 2022 ($50 million from the city and $5 million from Harris County).

Mr. Kalaga and his wife also donated $93,550 to 25 city candidates from 2007 to 2019. Houston mayor, Sylvester Turner, received $25,000.

Mr. Kalaga now faces up to five years in prison and a possible maximum fine of $250,000. His sentencing is scheduled for June 20.

https://www.justice.gov/usao-sdtx/pr/sugar-land-business-owner-pleads-guilty-nine-year-fraud-scheme

Tellurian CFO steps down

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Kian Granmayeh, CFO of Tellurian, has resigned, effective March 10, 2023. Khaled Sharafeldin, the company’s Chief Accounting Officer, will serve as interim CFO.

[Update – One hour after the Tellurian announcement, another Houston company, Carriage Services, announced that it had hired Mr. Granmayeh as its CFO].

Mr. Granmayeh has been the CFO for 3 years. He 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 severance payments of $525,000, equivalent of one year’s salary. This will be paid over 12 months. He will forfeit all outstanding equity awards and long-term cash-based awards, except for 174,942 restricted stock units issued in January 2022. At that time they were valued at $3.38 each (or $591,304). The current share price is $1.49.

No details were given on what bonus, if any, Mr. Granmayeh received this year for 2022 performance. That will be disclosed in the annual proxy, to be filed next month.

Mr. Sharafeldin has served as the Chief Accounting Officer since January 2017. Prior to that, he worked at Cheniere as its Director of Internal Audit (correction – he was VP of Internal Audit)

Mr Souki’s margin calls

Since I wrote about the non-exec drama last month, the company has disclosed that CEO, Charif Souki, has had to sell more than 15.5 million shares (60% of his holding in Tellurian) to cover a 2017 real estate loan.  This isn’t the first time Mr. Souki has had to sell shares to cover a margin call. In fact, shortly before Mr. Granmayeh’s initial appointment in 2020, he had to sell 18 million shares. Presumably, the loan is related to a ranch in Aspen that Mr. Souki owns. It covers 800 acres and 8 houses. It was originally put up for sale for $220 million in May 2020.

Currently, Tellurian is trying to build an LNG export plant in Driftwood, Louisiana. In September 2022, Shell canceled an agreement to buy 3 million metric tons a year. At the same time, Tellurian canceled a similar-sized deal with Vitol.

Gunvor Contract

That leaves just one deal with Gunvor Singapore. That original deal included clauses that Tellurian had to have issued an unconditional notice to proceed to Bechtel, the EPC contractor for the facility by December 31, 2022 and that Tellurian had to have secured the necessary financing by the same date. That date has been extended twice, in one month increments to February 28, 2023. Gunvor and Tellurian can jointly agree on a new date. If there is no agreement, either party can terminate the deal. There has been no word on the current status.

SEC filing – Tellurian CFO

CFO at Amplify Energy resigns

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Luca Pacioli – the father of accounting

Jason McGlynn has resigned as CFO of Amplify Energy, effective March 17, 2023. He had been the CFO for just over two years, following the promotion of Martin Willsher from CFO to CEO. The company made no mention of its plans for a replacement.

[According to LinkedIn, Mr. McGlynn is now the CFO at Monarch Bioenergy. The company is a PE-backed joint venture between Smithfield Foods and Roeslein Alternative Energy that converts methane emissions from hog manure into natural gas].

Amplify Energy was formed in 2019 from the all-stock merger of Tulsa-based Midstates Petroleum and what was Memorial Production Partners. It has its head office in downtown Houston. Mr. McGlynn joined Midstates in 2013 as its VP of Strategic Planning, Investor Relations and Treasury.

Although the business mainly focuses on mature assets, mainly in Oklahoma and East Texas/North Louisiana, it has been in the news in the past couple of years for a pipeline it operated in offshore California that ruptured in October 2021.

The rupture occurred four miles offshore from Newport Beach and caused 588 barrels of oil to leak. A Coast Guard investigation concluded that two ships, the MSC Danit and COSCO Beijing, had sheltered in San Pedro Bay, ahead of a January 2021 storm. The winds and the waves from the storm caused the ships’ anchors to drag across the seafloor and damage the pipeline.

Last week, the companies that operated the ships, agreed to pay Amplify $96.5 million to settle all claims. During 2022, the company settled claims against it by;

  • the Federal Government ($7.1 million fine and reimbursement of $5.8 million of costs)
  • State of California ($4.9 million fine)
  • a Class action lawsuit ($50 million settlement)

In total, Amplify estimates that it has incurred total costs of $120 million to $140 million, though it has received $87 million (through September 2022) from its insurance carriers. In addition the company has also received $46 million insurance proceeds related to the approved loss of production income.

The company is now in the process of repairing the pipeline. Before it can resume operations, it has to comply with requirements of the corrective action order of The Pipeline and Hazardous Materials Safety Administration (PHMSA), which is part of the US Department of Transportation.

SEC filing – McGlynn resignation

 

Houston E&P operator to be acquired for $2.5 billion

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Ranger Oil, based in Houston, has agreed to be acquired by Calgary-based Baytex Energy for $2.5 billion or $44.36 per share. The price includes $650 million of debt.



Baytex has most of its E&P operations in Canada but it does have a 25% working interest in 78,000 acres in the Eagle Ford basin in South Texas. Ranger is a pure-play Eagle Ford operator with a gross acreage of 189,000 acres.

A third of the price price will be paid in cash, the rest in stock. Baytex shareholders will end up owning about 63% of the combined business and Ranger shareholders 37%.

The Baytex management team, led by CEO Eric Greager, who only joined the company in October, will run the combined business. However, Baytex intends to add one senior operational leader to the leadership team and retain the Ranger teams in Houston.

Ranger was formerly known as Penn Virginia Corporation. The company entered bankruptcy proceedings in 2016 and eliminated $1.1 billion in debt (converted to equity). During Chapter 11, it moved its head office from Philadelphia to Houston.

In October 2018, Denbury Resources announced it would buy Penn Virginia for $1.7 billion, including $400 million in cash. The deal collapsed in March 2019, as the then major shareholders of Penn Virginia thought the deal undervalued the company.

Juniper Capital invested $188 million in Penn Virginia in November 2020 and became the largest shareholder with a 60% stake (now down to 54%). The following year the company bought Lonestar Resources for $370 million and renamed the combined company as Ranger Oil.

In November 2022, Reuters reported the Ranger had put itself up for sale following large deals for other operators in the Eagle Ford.

The deal is expected to close in Q2 2023.

Baytex Investor Presentation – Ranger

Three Houston SPACs announce plans to dissolve

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Last week three Houston SPACS (Special Purpose Acquisition Companies) announced plans to dissolve and return the monies raised during their IPOs to the shareholders.

Good Works Acquisition Corp II (GWII) will redeem all its shares, effective as of the close of business on March 16, 2023.  The announcement came one day after the collapse of its $723 million deal to take Direct Biologics, an Austin biotech company, public.  No reason was given for the collapse.

GWII went public in July 2021 in a $230 million IPO and had 15 months to complete a transaction.

The first Good Works SPAC took Cipher Mining public in August 2021 in a $2 billion transaction. The stock of the bitcoin miner is down 85% since going public.

Peridot Acquisition Corp II will redeem all its shares, effective March 13, 2023. In March 2021, it raised $360 million, seeking acquisitions in the environmental or recycling space.

The first Peridot SPAC took Li-Cycle public in August 2021 in a $975 million transaction. The stock of the company, which is a Lithium-ion battery recycler, is down about 45% since the deal.

ESM Acquisition Corp also went public in March 2021 in a $300 million IPO. It was looking for acquisitions of companies that mine commodities that are critical in order to achieve de-carbonization. The company will redeem its shares on March 12.

SPACS generally have two years from going public to complete a deal, though that time period can be extended with a shareholder vote. The exact terms are governed by the Articles of Association of each company.

After these three companies dissolve, there will still be 11 Houston-areas SPACs. A few have announced deals that haven’t yet closed. Some of the others are obtaining shareholder votes for extensions. For example Mercury Ecommerce (now called SEP Acquisition Corp) now has 36 months from its $175 million IPO in July 2021 to complete a deal.

SEC filing – Good Works Acquisition Corp II

SEC filing – Peridot Acquisition Corp II

SEC filing – ESM Acquisition Corp

Two Houston companies taken public by SPACs

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Verde Clean Fuels, a Houston-based company that aims to supply gasoline derived from renewable feedstocks, has been taken public by CENAQ Energy Corp, a SPAC also based in Houston.



Verde owns proprietary technology that is designed to produce gasoline from waste feedstocks (e.g. food waste, paper, grass, leaves and other greenwaste) that are otherwise landfilled. It has a demonstration facility in New Jersey. The company is conducting front-end engineering design for its first commercial facility near Phoenix, Arizona. It expects to spend $130 million in capex and complete the plant in the second half of 2024. Further plants are planned in Bakersfield, CA and Odessa, TX

The transaction values Verde at an enterprise value of $250 million or 1.8 times projected 2025 EBITDA and leaves $220 million of cash on the balance sheet to fund the initial capex and operating losses.

CEO Ernie Miller has been with the Verde (or its predecessors) since 2017. He initially joined as CFO and Chief Commercial Officer. Prior to that, he spent 12 years as CFO at Rodeo Resources, an E&P and midstream company. Prior to that, he spent 5 years at Calpine, organizing financing for cogeneration power plants.

The company is conducting a search for a Chief Financial Officer.

The stock (ticker VGAS) is up slightly since it started trading on February 16.]

Verde Clean Fuels – Investor Presentation

Rocket to the Moon

Another Houston company, Intuitive Machines, was also brought to market last week by a SPAC. The company is developing space infrastructure components such as lunar vehicles. The original $815 million deal was announced back in September. After going public at $10 per share on February 14, the stock took off like a proverbial rocket, reaching $46 just two days later. It is currently trading just under $38. The company has not issued any press releases that can account for the run-up in the stock.

Bad news for Good Works

Not such good news last week for Good Works II, a Houston SPAC. Its $723 million deal to take Direct Biologics, an Austin biotech start-up, collapsed. The deal was originally announced in October. No reason was given for the failure.

 

Houston SPAC to take Australian solar power company public

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Nabors Energy Transition Corp (‘NETC’) , a Houston SPAC, is to take Vast, an Australian company, public. After the acquisition is completed in Q2 or Q3, VAST will be listed on the NYSE, but will continue to have its corporate offices in Sydney.

Concentrated Solar Power Plant

NETC completed its $276 million IPO in November 2021. The sponsor of the SPAC is a company co-owned by Nabors Industries, a global leader in land-based drilling rigs and Tony Petrello, the current Chairman and CEO of Nabors.



Vast has developed a next generation of concentrated solar thermal power system. The system uses mirrors to concentrates the sun’s rays. That heat is then transferred and stored in molten sodium, which is then used to drive a steam turbine and create electricity.

Vast believes its system has two main advantages over solar and wind power. Firstly the system can provide efficient long-duration storage (8-16 hours). Secondly, it can generate process heat equivalent to burning fossil fuels, meaning it can be used in industrial manufacturing.

Vast has built a 1.1 MW demonstration plant in Australia that was operational from 2018 to 2020. It is currently developing a 30 MW plant that is expected to become operational in 2025 and a 20 ton per day solar methanol facility. These projects have received funding of up to AUD 215 million ($152 million) from the Australian and German governments

The transaction values Vast at $250 million, though the business will also have $336 million in cash on the balance sheet at close. The SPAC will contribute $286 million, while Vast’s owners will rollover their equity ($209 million). Nabors will also invest $15 million as will AgCentral, the main shareholder of VAST.

VAST Investor Presentation

Houston Drilling Tools company to be taken public by SPAC

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Drilling Stabilizer

Drilling Tools International (‘DTI’), which has its head office in the Westchase area of Houston, is being taken public by ROC Energy Acquisition Corp, a Dallas-based SPAC. The transaction values the business at $319 million.



DTI manages and maintains over 65,000 rental tools and drilling equipment across 22 service and distribution centers in North America and Europe. Its main machine and repair center is in Broussard, Louisiana.

The business was founded in 1984 as Directional Rentals. In 2012, Hicks Equity Partners, also based in Dallas, acquired the business. Since then, the business has made 7 acquisitions and revenue has grown to an expected $164 million in 2023.

Adjusted EBITDA for 2023 is forecast to be $58 million (35%). That’s a misleading metric for any rental business that has high capex needs. Free cash flow, defined as EBITDA less capex is forecast to be $19 or 11%.

The transaction will leave DTI with no debt and $217 million of cash on the balance sheet to fund future acquisitions.

Wayne Prejean has been the CEO at DTI since 2013. He has a long career in directional drilling companies. In 1999, he founded Wildcat Services before selling it to National Oilwell Varco in 2004. Mr. Prejean stayed with NOV after the sale.

David Johnson joined as CFO, also in 2013. He has been the CFO at a number of drilling companies prior to that.

ROC went public in December 2021 in a $150 million IPO. Its original intention was to focus on non-operated oil and gas properties (i.e. where the E&P company owns the well but does not manage the operations of the well).

ROC may have had to pivot after Granite Ridge Resources, a business that owns non-operated assets, was taken public in October 2022 by a rival SPAC chaired by Paul Ryan, the former speaker of the House of Representatives. Since going public, Granite’s stock is down 30%

The transaction is expected to close in the second quarter of 2023.

DTI – Investor Presentation

 

 

Drama at Tellurian as two non-execs resign

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Driftwood LNG – Artist Illustration – Tellurian

Two non-executive directors have resigned on the same day at Tellurian, the company co-founded by Charif Souki in 2016 after he was ousted from Cheniere Energy in 2015.



Officially, Claire Harvey resigned for personal reasons and James Bennett resigned due to an increase in other time commitments. Tellurian rather spoiled the official explanation by stating that ‘based on their short tenure on the Board and the feedback they provided at Board meetings, it is the company’s opinion that neither was ever comfortable with the risk profile and strategic direction of the company.”

Ms. Harvey joined the Board in December 2021 and is the President of ARM Resources LLC, the upstream oil and gas division of ARM Energy Holdings. She was formerly the CEO at Gryphon Oil and Gas, another PE-backed E&P company.

Mr. Bennett joined the Board in September 2021 and is the former CEO of Sandridge Energy.

Composition of the Board

Ms. Harvey and Mr. Bennett, make up two of the seven independent directors on the Board. Although the other five are considered independent under NYSE governance listing standards, all have close ties to Mr. Souki. Three are former executives at Cheniere, one is a partner at a law firm that has represented the company in the past and one co-founded an investment firm that put seed money into Cheniere.

Status of Driftwood

Tellurian has been trying to develop an LNG terminal facility (“Driftwood”), near Lake Charles.  In September 2022, Shell canceled an agreement to buy 3 million metric tons a year. At the same time, Tellurian canceled a similar-sized deal with Vitol. That leaves just one deal with Gunvor Singapore.

Without contracts in place, Tellurian is having difficulty in obtaining the funding for Driftwood. Mr. Souki had stated in March 2022 that agreements would be signed and the final investment decision would be made in April 2022.  The construction cost of Driftwood is now expected to cost $13.6 billion, with $8 billion or so coming from debt and $5 billion – $6 billion coming from equity. Given that the current market capitalization is $1 billion, that will mean a large dilution for existing shareholders.

Mr. Souki’s compensation

Mr. Souki is well paid. He has a base salary of $1.2 million. In 2021, he also received nearly $19 million in non-equity incentive plan compensation. Of this, $3.6 million was an annual bonus. The rest were long-term incentives. Unusually, one-third of this vested immediately.

In setting the bonuses, the Compensation committee referred to increase in stock price from $1.28 to $3.08 during 2021 as well as the the signing of the contracts with Shell, Vitol and Gunvor.  The stock price of Tellurian is now $1.93 and the Shell and Vitol contracts are canceled, so it will be interesting to see the bonuses for 2022 when the proxy statement is published in April.

Neither Ms. Harvey nor Mr. Bennett were members of the Compensation committee.

Ousted at Cheniere

Cheniere first started exporting LNG in 2016. Mr. Souki was ousted in 2015 following a battle with activist investor, Carl Icahn. Mr. Souki received a severance package worth $54 million.  He also received compensation of $58 million in 2012 and $142 million in 2013. Cheniere now has a current market capitalization of $37 billion, so Mr. Souki has definitely created value. It’s just that he likes to be paid upfront.

SEC filing – Tellurian non-execs resigning