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…
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.