Category Archives: Downstream

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.


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

McDermott moves closer to large debt restructuring

Photo: Nandu Chitnis

The news surrounding McDermott International keeps getting worse as its liquidity crisis deepens. Just in the past week, it has emerged that

  • the company has hired Kirkland & Ellis (legal) and AlixPartners LLP (Financial advisers) to advise it on its debt restructuring.
  • A group of bondholders has hired Paul Weiss Rifkind Wharton & Garrison (legal) and Houlihan Lokey (Financial advisers) to advise them.
  • Another group of lenders has hired Davis Polk & Wardwell as counsel (Jones Day was initially hired but had to step down due to a conflict) and Centerview Partners.
  • The company has hired Evercore to help it sell Lummus, a technology business for $2.5 billion.
  • The company is seeking a bridge loan to help it cover a $1.7 billion working capital deficit until it can sell an asset such as Lummus.
  • Moody’s downgraded McDermott one notch to B3 (speculative, high credit risk).

When the news broke that McDermott had hired Kirkland & Ellis, the go-to legal firm in Houston for restructuring, the company issued a weak statement that stated ‘it routinely hires external advisors to evaluate opportunities for the company.’

Debt trading at big discount

The company’s $2.2 billion term loan is quoted at 77 cents on the dollar. In contrast, the $1.3 billion 10.625% unsecured notes have been trading at 36 cents. A key date coming up is November 1 when there is $69 million of note interest due to be paid.

The share price is currently $2.15 (market cap $427 million), down from $21 in May 2018.

Disastrous acquisition

The problems stem from McDermott’s disastrous acquisition of fellow Houston company, CB&I in May 2018 for $4.1 billion ($2.4 billion cash, $1.7 billion stock). CB&I had a lot of legacy Engineering & Construction projects that have turned out to be much less profitable than McDermott expected at acquisition.

The costs to complete estimated at acquisition on just 3 projects (Cameron LNG, Freeport LNG and Calpine Power) increased by over $1 billion. As a result, the goodwill on CB&I ended up being $4.8 billion. McDermott wrote down $2.1 billion in goodwill 7 months after acquisition. That’s a quick destruction of shareholder value!

Since acquisition, the costs to complete on these three projects increased by an additional $199 million in 2018. For the first 6 months of 2019, costs on all major projects have increased by $116 million. No wonder the company is having cash flow problems.

Of course, all those high-priced lawyers and financial advisors have to be paid too!


One thing in its favor is that the company has record backlog of $20.5 billion. Having worked at a large E&C company in a former life, I know from personal experience that investors & lenders view backlog has having value (‘somebody must be able to make money on $20 billion of revenue!). However, if you can’t execute, there is no value.



LyondellBasell CFO to retire

Thomas Aebischer, CFO of LyondellBasell, has decided to retire on December 31, 2019. The company, based in downtown Houston, intends to appoint a new CFO before the end of the year.

Mr Aebischer, a Swiss national, joined as CFO in January 2016. In 2018, his base salary of $763,000 was the 8th largest of public company CFOs in the Houston area. (You can see the list at His total compensation was $4.6 million. This included a $1.4 million cash bonus.

In January 2016, the market cap of LyondellBasell was $40 billion, it’s now $29 billion.

The company has entered into an Employment Transition Agreement with Mr Aebischer. This will result in a $250,000 payment on his retirement and an additional $250,000 to be paid in 12 equal monthly installments following his retirement. The company also stated that the Transition Agreement ‘confirms Mr Aebischer’s general rights on retirement’.

According to the annual proxy, upon retirement, all stock awards vest pro-rata, based on the same calculations as in the case of a termination without Cause. For Mr Aebischer, they were valued at $3.8 million at December 31, 2018. Right now, that value will be lower as the stock price is down about 10% since the start of the year.

The Transition agreement will be filed with the quarterly report for quarter ended June 30, 2019.

SEC filing

Cheniere sues former CEO and founder

Sabine Pass – Roy Luck

Cheniere has sued its former CEO and co-founder, Charif Souki, for conspiring to work with a friend, Martin Houston, to set up a competitor, Tellurian, while still employed at Cheniere. The suit was filed in Harris County. It alleges breach of fiduciary duty, fraudulent transfer, and tortious interference with Cheniere’s collateral rights.

Cheniere and Tellurian are both based in downtown Houston.

History of Cheniere

Cheniere originally started in 1996 as a natural gas driller. In 2004, it switched strategies and began to build a Liquified Natural Gas (LNG) terminal to import natural gas. The facility opened in 2008 just prior to a fracking boom that caused a glut of natural gas in the US. In 2010, the company decided to convert the terminal to export natural gas instead. The company then spent $18 billion on the facility in Sabine Pass, Louisiana. The first train become operational in May 2016.

After 21 years, the company made a profit for the first time in 2017. It now has a market capitalization of nearly $17 billion.

Souki $142 million compensation 

Souki served as the CEO of Cheniere from 2002 to 2015. He became infamous in 2013 for earning $142 million in total compensation (due to $133 million in stock awards). In August 2015, activist investor Carl Icahn took an 8% stake and won two board seats as he felt the stock was undervalued because Souki wanted to expand Cheniere into other areas of the energy business rather than concentrate on completing the LNG trains at Sabine Pass.

The board voted to replace Souki as CEO on December 12, 2015. Souki eventually resigned as a director in February 2016.

Friendship with Martin Houston

Charif Souki first started working with Martin Houston when the latter was the COO of BG Group plc. Back in 2011, BG became the first customer of the export terminal when it signed a 20-year LNG sale and purchase agreement with Cheniere.

In January 2014 Houston left BG and formed Parallax Enterprises. He approached Souki in mid-2014 about jointly pursuing mid-scale liquefaction projects. In December 2014, Souki gave another Houston-controlled company a consulting contract worth $100,000 a month.

At Souki’s direction, Cheniere commenced negotiations with Parallax regarding a potential arrangement for joint development of two liquefaction plants in Louisiana. Cheniere loaned Parallax $46 million through short-term secured loan notes. The money was lent before Cheniere and Parallax had agreed and signed a letter of intent.

The loan note became due on December 11, 2015, the day before Mr Souki was fired. It’s not clear from the lawsuit if this was a major factor in his firing. Parallax has still not repaid any monies to Cheniere.

Allegations in the lawsuit

Two weeks after Mr Souki was fired and while he was still employed as a director, Houston formed a new entity that, Cheniere alleges Mr Souki agreed to invest in. Two weeks after he left as a director, Souki and Houston announced the formation of Tellurian in February 2016. The company is building one of the two liquefaction plants mentioned above.

Tellurian was initially in the same office space as Parallax. The lawsuit also alleges that Tellurian took over Parallax’s server, thereby gaining access to all the work performed on the liquefaction projects, developed using the $46 million that Cheniere had lent.

Another allegation in the lawsuit is Tellurian raised more than $250 million in private placements using work performed at Parallax and funded by Cheniere.

Tellurian went public in March 2017 through a reverse takeover. It has a market capitalization of $2.4 billion.

Cheniere Souki lawsuit



Houston energy company appoints new CFO

Adams Resources & Energy (AE) has appointed Tracy Ohmart as its Chief Financial Officer and Treasurer. Adams is publicly-traded with a market capitalization of $184 million and has its head office in the Galleria area of Houston. The company is primarily engaged in crude oil marketing and transportation.

Mr Ohmart was most recently with Horn Solutions and prior to that was CFO of United Bulk Terminals, a privately-held subsidiary of a German company. He was the Assistant Controller at Southwestern Energy from 2010 to 2012.

Mr Ohmart replaces Josh Anders who resigned in March 2018 after 15 months in the role to become the CFO at Samson Resources, a Tulsa-based onshore E&P company that emerged from Chapter 11 in March 2017. Interestingly Mr Anders also worked at Southwestern Energy (from 2012 to 2016) before joining Adams.

No details of compensation have yet been disclosed, but Mr Anders had a base salary of $300,000 in 2017.

Interim CFO Sharon Davis will revert back to her previous role of COO and Chief Accounting Officer.



Houston CFO moves – week ending 30 March

Josh Anders, CFO of Adams Resources & Energy (market cap $183 million) resigned, effective mid-April 2018 to take a position at an unnamed upstream E&P company. He had been at the company only 15 months. His predecessor retired after 31 years at the company! The company appointed Sharon Davis as the interim CFO. She is currently the Chief Accounting Officer.

Nic Graham, CFO of Houston Wire & Cable (market cap $254 million) announced his intention to retire in 2018. The company is conducting a search for his replacement. Mr Graham is 65 and has been the CFO since 1997.

LyondellBasell (market cap $42 billion) has appointed Jacinth Smiley as Chief Accounting Officer. Most recently she was the CFO for the North American Region and Integration leader at GE Oil & Gas. She replaces Mike Sumruld who left at the beginning of October to become the CFO at Parker Drilling.

Padam Pandit has rejoined Mahindra North America as its CFO. Having spent 7 years at Mahindra USA (primarily a tractor distributor), most recently he was the Controller for the US Rigs aftermarket business unit of National Oilwell Varco. Mahindra is part of an publicly traded Indian group of companies.


Houston CFO moves – week ending March 23

Susan Ball has resigned as CFO & Treasurer of CVR Energy Inc, a publicly-traded refining company with its head office in Sugar Land.  More details can be found in my blog post here

Mark Cashiola, the CFO of C&J Energy Services, resigned with immediate effect and left with a cash payment of $2.2 million. He had been the CFO for 2 years. Mike Galvan, the current Chief Accounting Officer, was appointed interim CFO. More details here.

In a job swap at Flotek Industries, a specialty chemical business (market cap $350 million), CFO Richard Walton was appointed Chief Accounting Officer and Matthew Marietta, the Senior VP of Corporate Development and Investor Relations was appointed Executive Vice President of Finance and Corporate Development. Mr Marietta will serve as the Company’s principal financial officer. He joined the company in March 2017.

This is the second time this has happened with Mr Walton.  Back in May 2015, Rob Schmitz was promoted to the CFO position and Mr Walton became CFO Emeritus. When Mr Schmitz retired in February 2017, Mr Walton took over the CFO role again.

Meggen Rhodes resigned as the CFO of SMG Indium Resources after 6 months. No replacement was named. The company, based in the Galleria, is traded over the counter and has a market capitalization of about $7 million. The company was a cash shell until it acquired MG Cleaners, an oilfield services business in September 2017.

Connie Cook announced she will retire as the VP of Accounting of Trecora Resources, effective May 2018. She held the CFO role from January 2011 to October 2016 prior to the appointment of Sami Ahmad as CFO. Christopher Groves has been appointed as Corporate Controller in her place. He was previously the Controller at Capital Technologies.  Trecora (market cap $315 million) manufactures petrochemicals and has its head office in Sugar Land.