Category Archives: E&P

Shale well completions fall sharply in December

The number of wells drilled but not completed (DUCs) fell to 7,573 in December 2019, the lowest level since October 2018. This is according to the latest Drilling Productivity Report from the Energy Information Administration (EIA). The report covers key onshore unconventional (shale) plays.

The number of DUCs has fallen by 900 since May 2019.

More significantly completions fell sharply to 1,086 in December 2019, down 320 from the peak in the summer. Some of the downturn is due to E&P operators being under pressure to be cash-flow positive in 2019, so I would expect some modest rebound in Q1 2020. However, the likes of Halliburton and Schlumberger have announced significant reductions in pressure pumping capacity. That suggests a significant rise in completions is unlikely any time soon.

Note that, in August 2019, Spears & Associates published a podcast (EP125) ‘Mythical Beasts’ that cast doubt on the number of wells drilled but not completed. They point out flaws in the EIA methodology and have estimated that the number of DUCs is overstated by about 3,000. They conclude that there isn’t really a backlog of wells being held back by the E&P companies.

The EIA is projecting production of 9,178,000 barrels per day (bpd) for January. That’s up 33,000 on December’s number. For February, the projected rise is even lower (22,000 bpd). This suggests oil production from the unconventional shale plays is about to stall out.

Callon completes $750 million takeover of Carrizo

Callon Petroleum has completed its takeover of fellow Houston E&P operator, Carrizo Oil and Gas. The combined companies own 200,000 net acres in the Permian and Eagle Ford basins. As a result of the deal, Carrizo’s shares have been delisted.

The deal was originally announced in July 2019. At that time Callon had a market cap of $1.46 billion and Carrizo $1 billion. At deal close, the market caps were $1 billion and $750 million respectively.

As originally announced, the deal called for Carrizo shareholders to receive 2.05 shares of Callon stock for every share held. However Paulson & Co, a shareholder with a 10% stake, complained that Callon was paying a premium for Carrizo which was ‘unwarranted’. In October and November, ISS and Glass Lewis, two proxy advisory firms, recommended that Callon shareholders vote against the deal.

As a result, later in November, the terms were revised down to 1.75 shares of Callon stock. In addition, under the original terms, Callon management (the acquirer) were eligible for severance benefits as a result of the merger. The revised agreement removed these benefits.

Callon expects to save between $110 million and $170 million from combining the companies. Corporate overhead account for $35 million and $45 million, with the rest coming from operational synergies.

Carrizo had started talking to potential merger targets in the summer and fall of 2018. They did not hold their first meeting with Callon until January 2019.

All the executive officers of Carrizo stepped down as a result of the merger. The top five executives will receive severance payments of $26 million, of which $15 million is cash, the rest vested equity.

Greg Conaway, the Chief Accounting Officer of Carrizo (and not one of the top five executives) has been appointed to the same position at Callon.

SEC filing – Callon Carrizo merger

Small E&P company moves to Houston while another leaves

US Energy Corp (market cap $4 million) has moved its head office from Denver to the Galleria area. The company has revenues of $6 million, primarily from producing assets in North Dakota and Texas.

The company has had a rough couple of years. During 2018, the board of directors consisted of only four directors, including Chairman & CEO David Veltri. As a result the board often ended up deadlocked on important votes.

43% of the company is owned by APEG II, an Austin-based investment firm. They sent a letter to the board on February 2019, urging the company to create a seven-person independent board, establish a business plan and reduce general and administrative expenses. They also happened to be the company’s secured lender at the time.

Two weeks later, APEG withdrew access to the bank accounts and the board (excluding Mr Veltri) voted to fire the CEO for cause for using company funds in excess of authority granted by the board. The CEO and APEG then sued each other on various issues. The litigation takes up three pages of the recent quarterly report!

In May 2019, the Colorado Federal Court issued an order, appointing Randel Lewis as Custodian of the company and interim CEO.

CFO becomes CEO

On December 10, the company appointed CFO Ryan Smith to be its new CEO. Mr Smith will continue to be the CFO, a role he has held for the past three years.

The company currently has a share price of 31 cents. Back in June it was notified by Nasdaq that it was not in compliance with the $1 minimum share price. It was granted 180 days to comply. That expires on December 16, 2019.

Lilis Energy

While US Energy was moving its head office to Bering Drive, another small E&P company, Lilis Energy, was moving its head office from Bering Drive to Fort Worth. Lilis also has a troubled history.

The company only moved to Houston from San Antonio in June 2018. The company has a market cap of $12 million. It, too, has a delisting notice from NYSE for having a share price below $1.

Joe Daches was recently appointed CEO, having served in an interim capacity since June 2019. Like Ryan Smith at US Energy, he is also the CFO of the company as well.

You can see the complete list of Houston-area public companies on my blog here.

SEC filing – US Energy Corp – new CEO

CFO out at Houston E&P company

Gleeson Van Riet has resigned as CFO of SilverBow Resources, effectively immediately. He has been replaced by Chris Abundis, currently General Counsel of the company. Mr Abundis will perform the CFO duties in addition to his current role.

SilverBow is based in west Houston and has a market capitalization of $148 million. The company operates in the Eagle Ford basin in South Texas. It was formerly known as Swift Energy which filed for bankruptcy in December 2015. After the company emerged from bankruptcy in April 2016, it changed its name to SilverBow.

Mr Van Riet was appointed CFO in March 2017. Prior to that he was the CFO of Sanchez Energy. For his severance package he will receive a payment of one year’s salary ($390,000) and one year’s target bonus ($292,500).  He will also receive an acceleration of time-based restricted stock units. These were valued at $85,000 at December 2018.

Mr Abundis joined the company in 2007 and has been the General Counsel since April 2016.

It’s not clear what triggered the departure of Mr Van Riet. The share price has halved since the start of the year, but that’s in line with other E&P companies. The company is not especially leveraged and generated a small positive free cash flow in the third quarter.

However the company did disclose a material weakness in internal controls in the second quarter pertaining to deferred tax accounting. This remained a weakness in the third quarter.

SEC filing – SilverBow CFO


Houston E&P company appoints new CFO

Penn Virginia Corporation has appointed Rusty Kelley as its new Chief Financial Officer, effective November 13, 2019. He replaces Steve Hartman, who is leaving the company as previously previously reported in July.

Penn Virginia filed for bankruptcy in May 2016 and moved its headquarters from Pennsylvania to west Houston as part of that process. It emerged from bankruptcy in September 2016.  In October 2018 the company announced that it would be acquired for $1.7 billion (including debt) by Denbury Resources. However that deal collapsed in March due to shareholder opposition.

Mr Kelley was previously the CFO of Extraction Oil & Gas, a public company based in Denver, from July 2014 to September 2019. Prior to that he worked as an investment banker for Moelis & Company and Goldman Sachs. He will have a base salary of $400,000.

Penn Virginia currently has a market cap of $411 million and an enterprise value of $933 million. That’s way below the $1.7 billion that Denbury agreed to pay. Given his investment banker background, I presume Mr Kelley has been brought in to help sell the company.

SEC filing – Penn Virginia new CFO



E&P company delisted after takeover

Isramco, an E&P company with its head office in the Galleria, has been delisted after its takeover by Naphtha Israel Petroleum, an Israeli public company. It’s been a long time coming. Back in March 2018, it was announced that Naphtha was in preliminary stages of evaluating a transaction. The deal was announced in May 2019.

The company was formed in 1982, focusing on exploration and production in offshore Israel. In 1997 it expanded its activities to the United States, which are now mainly in the Permian Basin.

The chairman and co-Chief Executive of Isramco is Haim Tsuff. He also controls Naphtha. Prior to the takeover, Naphtha and other entities controlled by Tsuff owned 73% of Isramco. The value of the takeover was $330 million, though the amount of cash outlay to third parties is $89 million.

The reason for the takeover appears to be a dispute between the company and Isramco Negev 2 Limited Partnership, another entity controlled by Mr Tsuff. The disagreement relates to what costs Negev should be included in its calculation of royalty payments on the Israeli Tamar field to the company.

The company believes it would win in arbitration. The claim against Negev could exceed $45 million. However, a bigger risk is that Negev stops paying Isramco its monthly royalty. In 2018, its royalty revenue was $31 million, or 38% of its total revenues.

You can see the complete list of Houston-area public companies here.

SEC filing – Isramco


Mineral and royalty interests company files for IPO

Fortis Minerals LLC, based in downtown Houston, has filed for an Initial Public Offering (IPO). Although the filing with the SEC states the company plans to raise $100 million, that is likely a placeholder. Renaissance Capital estimates the company could raise $400 million.

Fortis plans to list on the NYSE under the symbol NRI.

The company owns oil and natural gas mineral and royalty interests in the Permian Basin and the Stack play located within the Anadarko Basin of Oklahoma. The company was formed in 2016 with the backing of PE firm, Encap Investments.

For the 12 months ending 30 June 2019, the company had revenues of $138 million and adjusted EBITDA of $113.8 million.

Acquisition Joint Venture

The company also has formed an acquisition Joint Venture with Encap that could cause some conflicts of interests. Encap will own 100% of the capital interests in the JV while Fortis will own a carried interest, entitling the company to a percentage of distributions by the JV.

The JV will only consider acquisition opportunities brought to it by the company. Fortis states that the JV will only buy properties that represent attractive long-term value  but which would not be expected to increase cash flows in the short term following acquisition. However, Fortis may acquire these properties at a later date.  Encap will control the board of the JV.

The company states that they and the JV may jointly pursue an acquisition where the company would predominantly acquire interests in properties expected to be developed in the short term and the JV would predominantly acquire interests in acreage anticipated to be developed on a longer time horizon.

Management team

The CEO of the company is Christopher Transier. He was formerly the CFO of Escondido Resources. The CFO is Brad Wright. He was previously the Managing Director – M&A and Strategic Planning at Plains All American Pipeline.  With the exception of Scott Dole, Chief Accounting Officer, who is 62 years old, the rest of the management team are 36 years old or younger.

Just because the company has filed its registration statement, there is no guarantee that it will complete its IPO. If it does, I will add it to the list of Houston-area public companies. You can find that list here.

SEC filing – Fortis S-1

SEC charges former CEO of Houston company with creating fictitious CFO

The Securities and Exchange Commission (SEC) has announced fraud charges against Tom Simeo. He is the former Chairman and CEO of Houston-based Viking Energy Group. The charges are for making materially misleading disclosures regarding Viking’s purported CFO.

Viking Energy is traded over-the-counter. At the time of the alleged fraud, it had a market cap of around $5 million.

Company had no CFO

The SEC alleges that Simeo, a resident of New York, created the false impression to the public that Viking had an experienced financial professional involved in its operations and financial reporting as its CFO, when in reality, the Company had no CFO.

According to the complaint, between November 2014 and May 2016, Viking’s public filings falsely disclosed that Guangfang “Cecile” Yang was Viking’s CFO.  Internal control certifications required by Sarbanes-Oxley falsely represented that Yang had performed an evaluation of Viking’s internal controls over financial reporting.

According to the SEC ‘there is no evidence that Yang performed any activities as Viking’s CFO from at least November 2014 through Yang’s resignation in July 2016. Indeed, other than a single email to Simeo from someone purporting to be “Cecile,” neither Viking nor Simeo has produced any documentary evidence that anyone from Viking, or its auditors, had ever communicated with Yang’.

Chinese Incubator 

Simeo served as Chairman of Viking from August 2008 until May 2017. Until 2014 Viking operated as an incubator for Chinese companies. Simeo’s former wife introduced him to Yang in Shanghai in 2013 and hired her as the company’s CFO shortly afterwards.

At the time she was appointed, Yang provided to Simeo a ‘standing resignation letter’ and a power of attorney in favor of Simeo, authorizing him to affix Yang’s signature to any and all documents that Yang was required to review and sign as CFO.

In 2014, Simeo converted the business to an Exploration and Production company. In 2016 he moved the head office from New York to Houston.

False Biography

Simeo provided Yang’s unverified resume to Viking’s outside counsel to use in the senior management biography disclosed in the annual report. The biography claimed that Yang had;

  • worked at KPMG from 1998 to 2006,
  • participated in audits of the Sinopec and China Mobil IPO’s,
  • a business degree from the Hult International Business School in London

According to the SEC, she didn’t work at KPMG for the years listed, she didn’t work on the IPO’s and she never graduated from the business school.

According to the annual reports, Ms Yang received no compensation over than a grant of 25,000 shares worth $3,914 in 2014.

$2 million raised from investors

During this period, the company raised approximately $2 million from investors. Viking and Simeo continued to disclose Yang as the company’s CFO until the securities had been sold.



Alta Mesa files for bankruptcy – CFO gets $600k bonus

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.

SEC filing – Alta Mesa bankruptcy



ExxonMobil being sued for Frac bashing vertical wells

XTO Energy, based in Spring and a subsidiary of ExxonMobil, is being sued in Harris County because its fracking operations have allegedly damaged nearby vertical wells in a different formation.

Plaintiffs Modelo Energy (owner) and Capital Star Oil (operator) have approximately 90 vertical wells in the Fashing Edwards field in South Texas. The wells have been producing for many decades and the surface pressures are around 100 psi. XTO also operates some wells in the same field.

However XTO also operates horizontal wells in the Eagle Ford formation which lies roughly 250 feet above the Edwards formation. These wells are fracked and pressures in the formation can exceed 10,000 psi.

In 2016, Modelo complained to XTO that its wells were being ‘frac bashed’ by the underground explosions XTO was setting off in its horizontal wells. On August 16, 2018, an XTO frac explosion travelled into the Edwards formation. This caused the surface pressure at one of Modelo’s vertical wells to spike to 5,054 psi. This resulted in a surface blowout of natural gas, condensate, water and solids.

Modelo alleges that 12 of its wells are damaged. In addition, the water that escaped into the Edwards formation has reduced the ultimate recovery of gas from the formation. Modelo also alleges that XTO refuses to clean up the waste and pollution. XTO continues to frac in the formation.

Modelo & Capital Star are seeking damages in excess of $3 million.

Rusty Hardin, a famous Houston lawyer who has taken on many high profile and celebrity cases, is representing the plaintiffs.

Frac hits are becoming more common as the number and length of horizontal wells increases. A report from 2017 in The Oklahoman stated that 450 older vertical wells had been damaged by fracking.

XTO Defendant – Modelo