Category Archives: Downstream

Former Deer Park chemist sentenced for $10 million fraud

James Camp, 66, of New Braunfels has been sentenced to four years in prison after admitting to stealing nearly $10 million from his former employer, Lubrizol. The fraud occurred over an 19-year period.

Lubrizol was a public company until its takeover by Berkshire Hathaway in 2011 for $9 billion.



Camp began working for Lubrizol in Deer Park in 1976. Part of his job involved managing the testing of samples of the wastewater treatment unit at the facility. Camp was also responsible for managing various laboratory tests requested by Lubrizol production or waste management personnel. In addition, he was responsible for selecting the labs and approving the payments to those labs.

Beginning in April 1998, Camp set up two sham companies as vendors in the Lubrizol ERP system. He then fabricated invoices and set up the electronic payment requests, which were sent to the corporate office in Ohio.

The scheme continued until Camp retired from the company in November 2017.  In total, the company paid almost $9.3 million to the sham companies. In addition, Camp used a company credit card to make $385,000 in purchases from one of the sham companies.

Camp was arrested in September 2019 and pleaded guilty in June. His sentence will be followed by three years of supervised release. Camp was also ordered to pay restitution in the amount of $11,256,712.54.

https://www.justice.gov/usao-sdtx/pr/chemist-sent-prison-embezzling-millions

LNG company replaces CFO

https://www.flickr.com/photos/royluck/3628833456

Cheniere LNG – Sabine Pass – Roy Luck

Cheniere Energy has appointed Zach Davis as its new CFO. He replaces Michael Wortley, who steps down from the role, effective immediately. Mr Wortley will remain employed through the end of the month.

Cheniere is based in downtown Houston and was the pioneer in developing Liquified Natural Gas (LNG) for export. It currently has a market capitalization of $13 billion.



Mr Davis joined the company in 2016 as the VP of Finance and Planning and was promoted to Senior VP, Finance in February 2020. Prior to joining Cheniere, he held energy investment banking and finance roles at Credit Suisse, Marathon Capital and HSH Nordbank.

Mr Davis will receive a salary of $500,000. He also received a restricted stock grant for the same amount that vests over three years.

Mr Wortley, 43, has been CFO since January 2014 when the market cap of the company was about $10 billion. He joined Cheniere in 2005. He will receive:

  • a cash severance bonus of $2,857,000 when he leaves.
  • a cash payment of $1,946,000, payable in February 2021.
  • one year’s salary ($715,000) to be paid over the next year.
  • $75,000 transitional allowance for health insurance or other associated expenses.
  • Vesting of restricted stock and performance stock awards that were scheduled to vest in 2021 and 2022. At the current stock price, I think these are worth around $5.5 million.

SEC filing – Cheniere CFO change

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

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

 

Chinese national imprisoned for stealing trade secrets from energy company

Hongjin Tan, a Chinese national, has been sent to prison for 24 months for stealing trade secrets from Phillips 66. The company has its head office in Houston, though Mr Tan worked in Bartlesville, Oklahoma.

Mr Tan was initially arrested in December 2018 and pleaded guilty in November 2019.

Mr Tan joined Phillips in April 2017 as a research engineer in the battery development group. Prior to that, he had spent over 10 years working and studying in California.

On December 12, 2018, Mr Tan announced he was resigning and returning to China to be with his aging parents. The company conducted a systems access review and determined that Mr Tan had downloaded files onto a personal USB flash drive. The company then called in the FBI. The FBI found an offer letter (in Chinese) dated 17 October, 2018 on Mr Tan’s laptop from a company based in Xiamen, China. As well as the usual job offer details, the letter stated that Mr Tan would be compensated 400,000 RMB (approx $58,000) for information already provided. Mr Tan had visited China that September.

Phillips has advised the FBI that the company has earned $1.4 billion to $1.8 billion from the sale of the product in question.

Mr Tan was also ordered to pay $150,000 in restitution to Phillips.

https://www.justice.gov/opa/pr/chinese-national-sentenced-stealing-trade-secrets-worth-1-billion

Criminal complaint against Tan

McDermott CFO resigns after worse than expected results

McDermott International has announced the resignation of CFO Stuart Spence, effectively immediately. Chris Krummel, currently the Chief Accounting Officer, has been promoted to the CFO position.



It’s been approximately two weeks since the company announced that it had obtained $1.7 billion in additional financing (at 12% interest rates) to tackle its liquidity crisis. In the same press release, the company also announced that the senior management were granted retention bonuses. Mr Spence was granted $1.3 million, with a third of that payable immediately.

McDermott announced third quarter results even worse than forecast last month in its refinancing presentation. Free cash flow for the quarter was a negative $146 million compared with negative $86 million in the presentation.

The SEC filing by the company makes no mention of the severance package, if any, that would be granted to Mr Spence. If he has truly resigned voluntarily he would be required to repay the retention bonus already paid out.

Interestingly, the company has signed contracts with the senior executives that only spell out severance payments in the event of a change in control. There is no formal provision for severance in the event of an involuntary termination without cause. When the predecessor to Mr Spence left in 2014 he received a lump sum payment of $640,000. His salary at the time was $515,000.

Mr Krummel joined the company in October 2016. He was previously the Chief Accounting Officer of Cameron International. No compensation was disclosed for Mr Krummel.

[Update 11-13-19 : McDermott has filed another 8-K. Mr Spence will receive a severance of $866,666.67. That’s the balance of the $1.3 million retention bonus not already paid out. His restricted stock units will also vest. They are valued at less than $100,000 with the stock price currently at 67 cents. His deferred consideration will also fully vest (worth approx $70,000).

Mr Krummel will be paid $600,000 a year.]

SEC filing – McDermott CFO resignation

McDermott executives enrich themselves as company gets expensive new financing

Photo: Nandu Chitnis

McDermott International has obtained $1.7 billion in additional financing as it grapples with a growing liquidity crisis. The financing is expensive, with loan interest rates of 10% above the Eurodollar rate (i.e almost 12%). As well as large fees, the lenders will also get a 15% equity stake.



$650 million was made available immediately. A second tranche of $350 million will be made available in December. A third tranche of $150 million will be made available as soon as January 2020. The final tranche of $550 million will be made available in Q1 2020. The availability of future tranches is subject to McDermott delivering on its forecasts and the approval of 95% of existing bondholders.

In addition, the lenders will also receive new equity up to 15% of the company’s issued share capital.  The $1.7 billion facility is gross of $200 million of fees, expenses and interest costs through the mid-2020 trough.

Sharp fall in EBITDA and free cash flow

  • The company announced that its adjusted EBITDA for 2019 will fall from $725 million (previous guidance issued in late July) to $474 million.
  • Free cash flow for 2019 will fall from negative $640 million (previous guidance) to negative $1.2 billion.
  • John Castellano, Managing Director at AlixPartners has been appointed Chief Transformation Officer, reporting to the CEO.

The EBITDA adjustment is a result of an additional $80 million of costs on the Cameron LNG project, $33 million on the Freeport LNG project, $67 million on other projects and an additional $70 million contingency.

The Cameron LNG project is now projected to incur an overall loss of $1.7 billion (on a contract value of $6.9 billion). The Freeport LNG project will lose $700 million on a contract of $7.5 billion. These projects were part of the disastrous CB&I acquisition in 2018. I wrote about this last month.

The free cash flow deterioration is due to $150 million outflows on projects, $107 million due to a possible delay in a project award and $301 million in unrealized net working capital improvements (!).

Sale of businesses

The company was planning to sell the industrial storage tank business. However the net cash proceeds would likely be significantly below initial expectations. As a result, the business has been pulled off the market.

The company is still planning to sell Lummus, its technology license business. This could be worth as much as $2.5 billion.

Retention Bonuses

For this spectacular deterioration of the business since July the Board of Directors has decided to award retention bonuses to certain senior executives. A third is payable immediately, a third when Tranche B is funded (Dec 2019) and rest when Tranche C is funded.

  • David Dickson, CEO – $3.375 million
  • Samik Mukherjee, COO – $1.4 million
  • Stuart Spence, CFO – $1.3 million
  • John Freeman, Chief Legal Officer – $510,000
  • Ian Prescott, Senior VP, Asia Pacific – $425,000

In addition to the large sums, note the disconnect in that the senior executives get all their retention bonuses paid out before the $550 million Tranche D payment is made available. That’s not right.

Mukherjee is the executive who stole trade secrets from TechnipFMC

SEC filing – McDermott

 

Petrochemical giant hires new CFO

LyondellBasell (market cap $29 billion) has hired Michael McMurray as its new CFO. He replaces Thomas Aebischer, who announced in May 2019 that he planned to retire at the end of the year.

Mr McMurray joins from Owens Corning (market cap $7 billion) where he had worked for the last eleven years, the past seven of which have been as CFO.



Owens Corning is based in Toledo, Ohio. However Mr McMurray is no stranger to Houston or petrochemicals. Prior to joining Owens Corning, he spent 21 years at Shell, holding such roles as VP of Shell Capital, global treasurer for Shell Chemicals and Americas Finance Manager for the Lubricants business. Mr McMurray is also a non-executive director of Flowserve, a Dallas-based pumps and valve manufacturer.

Mr McMurray will receive a base salary of $800,000 and a sign-on bonus of $750,000, payable on January 1, 2020. He also received an equity grant of $3.75 million that will vest over three years.

The base salary for Mr Murray will be the fourth highest among Houston-area public company CFOs. You can see the complete list here. Check out who is also fourth highest, the answer will surprise you.

Mr McMurray had a base salary of $645,000 at Owens Corning.

https://www.prnewswire.com/news-releases/lyondellbasell-names-michael-mcmurray-executive-vice-president-and-chief-financial-officer-300937556.html

 

Houston publicly-traded shell company makes large acquisition

Synthesis Energy Systems, essentially a publicly-traded shell company based in the Galleria area, has agreed to buy Australian Future Energy. The acquisition is an all-stock stock deal that values AFE at $36 million. SES currently owns 36% of AFE.



SES owns proprietary technology that produces synthesis gas from the burning of low-grade coal and using that gas as an input in the production of chemicals such as methanol or ammonia. In the current environment of relatively low oil prices and abundant natural gas, the technology is not able to compete economically.  In its last published quarterly results, the company had zero revenue and shareholders’ equity of $1.3 million.

AFE plans to acquire Australian energy resources such as coal and biomass so that it can produce synthesis gas.

To pay for the acquisition, the company is issuing 3.875 million shares at $6 each. It’s not clear how SES values AFE at $36 million. In its last quarterly results for the three months ending March 31, 2019, SES carried its 36% investment at zero. It also stated that AFE had a net loss of $245,000 for the nine months ending March 31, 2019 and that AFE had total equity of $542,000.

Prior to the announcement of the deal, the share of SES were trading at $1.80. Post market-close on Friday they were trading at $7.50. That would give the company a market capitalization of $10 million.

Earlier this year, SES had agreed to sell its gasification technology to AFE for $5.8 million in cash and 1 million shares in AFE. SES would have kept ownership rights for the technology in China. However the deal collapsed in September.

After the deal closes in 2020, Mr Kerry Packer, current CEO of AFE, will become CEO of SES, and Ron Higson, current COO of AFE, will become COO of SES. David Hiscocks, the Corporate Controller, will stay on but a new CFO will be appointed.

SEC filing – Synthesis Energy Systems

Houston company delisted after reverse takeover snafu

Stabilis Energy has been delisted by Nasdaq as the company didn’t meet the initial listing requirements after its reverse takeover of American Electric Technologies Inc (AETI).

The deal was originally announced in January 2019 and completed in July. AETI, based in Bellaire, was a provider of power systems to the Energy sector but had sold off its main businesses. It just had a business in Brazil and a China JV left. Stabilis, based in the Westchase area of Houston, is a small-scale producer and distributor of Liquefied Natural Gas.

Stabilis is owned by Casey Crenshaw, who had also been a director and shareholder of AETI since 2012. The shareholders of Stabilis ended up owning 90% of the combined company.

Immediately after the transaction was completed, the company received a delisting notice from Nasdaq because it neither had a minimum of 1 million publicly-held shares nor a minimum market value of $15 million for the publicly-held shares. That’s due to Crenshaw owning 77% of the combined company.

On September 10, the company filed a prospectus to sell 2.8 million shares for $17.1 million. Shareholders, other than Crenshaw, are selling. Once completed, this would make Stabilis compliant. Unfortunately, after a hearing, Nasdaq has now determined the company is not currently in compliance and has delisted the shares.

It’s not clear whether or how the delisting will impact the proposed sale of the shares.

The company believes it already meets the listing requirements on other exchanges and plans to regain a listing as soon as this month.

In August the company appointed Andy Puhala as CFO of the combined group. He had been the CFO of Stabilis since November 2018. Ironically he was also the CFO of AETI between January 2013 and September 2015.

SEC filing – Stabilis delisting