Category Archives: Oilfield Services

Oilfield Services company delisted

Photo by Joshua Doubek

Superior Energy Services, based in downtown Houston, has been delisted by the New York Stock Exchange. This is because the share price has been below $1 for more than 30 days. The company plans to appeal the decision.



Superior provides a number of different oilfield services such as downhole rental tools, pressure pumping services and coiled tubing. It has been struggling for a few years and last made an operating profit in 2014.

At the time of delisting it had a market capitalization of $13 million but had debt of over $1.3 billion. $800 million of this matures in December 2021.

At lot of debt stems from the acquisition of Complete Production Services for $2.9 billion in February 2012. The company paid cash of $550 million and issued stock for the rest. However, three months prior to the finalization of the deal, it issued $800 million of senior loan notes (the ones that are due next year).

The Complete acquisition also involved $1.9 billion of goodwill. This has been written off in subsequent years.

The NYSE has acted unusually quickly in delisting the company. The NYSE originally informed the company about the non-compliance on August 9. The company issued a press release on August 12 stating that it planned to notify the NYSE by August 23 of its receipt of the notice and of its intention to cure the non-compliance.

The company didn’t issue a press release or file anything with the SEC on or after the August 23 deadline. Maybe they forgot to respond! Normally the NYSE are usually patient if a company files a plan to get back into compliance. That’s how many companies can go months with the stock price below $1.

https://ir.superiorenergy.com/news-releases/news-release-details/superior-energy-services-receives-notice-nyse-regarding-0

Oilfield Products Distributor hires new CFO

Kelly Youngblood has been appointed as the next CFO of MRC Global, an oilfield products distributor, based in downtown Houston.

Mr Youngblood replaces Jim Braun, who announced last month that he intends to retire in March 2020. He has been the CFO since November 2011. Mr Youngblood will join MRC right away but won’t take over the CFO position until Mr Braun retires.



MRC Global is the largest distributor of pipe, valve and fitting products and services to the energy and industrial markets. It went public in 2012 and was previously called McJunkin Red Man Holding Corporation. The company has revenues of $4 billion and a market capitalization of $1 billion.

Mr Youngblood joins from BJ Services, another oilfield services company, where he had been CFO since December 2017. Prior to that, he was the CFO of Diamond Offshore Drilling and the VP of Investor Relations at Halliburton.

BJ Services filed for an Initial Public Offering in July 2017 but withdrew its registration statement in March 2019.

Mr Youngblood will receive a base salary of $500,000 (same as Mr Braun). He will also receive a signing bonus of $380,000 (to be paid in two installments in 2020) and an initial equity long-term incentive award with a target value of $1.5 million (to vest over three years).

SEC filing – Youngblood appointment

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!

Backlog

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.

https://www.prnewswire.com/news-releases/mcdermott-statement-300921007.html

 

 

TechnipFMC pays SEC $5 million to settle Iraq bribery violations

TechnipFMC, has agreed to pay the Securities and Exchange Commission (SEC) $5 million to settle bribery allegations in Iraq.

Between 2008 and 2013, FMC Technologies (based in Houston) made over $794,000 in payments to a third-party consultant, who used some of these funds to pay bribes to Iraqi government officials to procure metering technology contracts with Iraq state-owned oil companies.



Back in June, the Department of Justice announced that TechnipFMC had agreed to pay $296 million to settle bribery allegations in Brazil and Iraq. $214 million of that was to be paid to the Brazilian authorities, with $82 million going to the DOJ.  In June, Technip issued a press release announcing a $301 million settlement. I noted, at the time, the $5 million discrepancy. I presume the $301 million includes the $5 million just announced.

The FMC sales manager who played an active role in the bribery scheme was based outside the US. However personnel in the US sent numerous documents and approved payments to Unaoil, the consultancy firm based in Monaco. The company disguised the payments as site installation expenses.

TechnipFMC did not self-report to the SEC until after being contacted by the DOJ. It has agreed to pay $4.3 million (representing profits on the contracts won) plus interest of $0.7 million.

Technip and FMC merged in January 2017. Last month, the company announced plans to split into two having spent $231 million on integration costs since 2016.

https://www.sec.gov/enforce/34-87055-s

 

 

CFO of Offshore Drilling Contractor resigns

Adam Peakes has resigned as CFO of Noble Corporation (NE) with immediate effect. The company is an offshore drilling contractor. It has its registered head office in London but its operational office is in Sugar Land.

The company has begun a search for a successor. In the interim, the accounting and Treasury teams will report directly to CEO Julie Robertson.



Mr Peakes joined the company in January 2017 from investment bank, Tudor Pickering Holt, where he was Managing Director and Head of OFS Investment Banking.

The company will pay Mr Peakes (who had a base salary of $450,000) a severance payment of $1 million. Just this February 2019, the company announced it would pay Mr Peakes a retention bonus of $900,000 with one half vesting in December 2020, and the balance in December 2021. Not clear why he has gone from hero to zero in a few short months.

As with other Noble executives, the employment contract of Mr Peakes only outlines termination payments in the event of a change of control. There appear to be no clauses with regard to termination without a change of control.

When he joined the company, the stock price was $7.25. It now trades at $1.89 (market cap $488 million).

Interestingly, Mr Peakes’ former employer was in the news this week. The week before Mr Peakes joined Noble, TPH announced it would merge with New York-based Perella Weinberg Partners.

This week it was announced that, one of the partners, Dan Pickering, is spinning off the energy asset management part of the combined firm into his own company, Pickering Energy Partners. Bobby Tudor and Maynard Holt will remain with the investment bank.

SEC filing – Noble Corp CFO departure

 

Oilfield service company found guilty over death of welder

C&J Well Services, based in Houston, pleaded guilty in North Dakota to a willful violation of safety standards that led to a death of a welder.

The incident occurred in October 2014 in Williston, North Dakota. The victim, Dustin Payne, was working for Nabors Completion and Production Services (NCPS). That business was sold by Nabors to C&J in March 2015.

Mr Payne was a 28 year old Marine Corps veteran. He welded on an uncleaned tanker trailer that had previously carried ‘production water’ (i.e water produced as a by-product of oil and gas production which contains flammable chemicals). The tank exploded and Mr Payne was killed.

NCPS knew it was against the law to weld uncleaned tanks and had written policies prohibiting the practice. NCPS policies mandated special training for welders. However, the company did not provide welding-specific training to Payne or other welders at the Williston facility. NCPS did not effectively supervise the work of the Williston welders, nor did it require the welders to obtain hot work permits prior to welding.

C&J has to pay a $500,000 fine and $1.6 million in restitution to the victim’s estate. The company is also on probation for 3 years. During this time, the Occupational Safety and Health Administration (OSHA) can inspect its facilities without advance notice.

https://www.justice.gov/opa/pr/north-dakota-oilfield-company-sentenced-worker-death-case

Oilfield services company to split into two

TechnipFMC has announced that it will split into two separate publicly-traded companies (currently dubbed SpinCo and RemainCo). This comes less than 3 years after the merger of Technip and FMC in January 2017.



Production v E&C

They are not quite being split in the same way that they came together. The Engineering & Construction arm (primarily the old Technip business) is being spun off from the remaining business that will concentrate on production systems (primarily the old FMC business). However Loading Systems which supplies loading arms for LNG will be part of SpinCo. It was originally part of FMC.

SpinCo will have its head office in Paris and will be listed on the Euronet Paris Exchange. RemainCo will be based in Houston and have listings on the NYSE and the Euronet Paris Exchange.

SpinCo will have revenues of $6 billion and 15,000 employees. RemainCo will have revenues of $7 billion and 22,000 employees. The combined business currently has a market cap of $10 billion.

Failed Synergies

The current CEO, Doug Pferdehirt and current CFO, Maryann Mannen, will transfer to RemainCo. During a conference call today the CEO said;

“There are very few synergies between upstream and downstream. We are seeing the beginning of a shaping of our industry. We believe that what we are creating, others will follow. When you over-integrate, the customer can see you as greedy. We integrate where it clearly adds value to the customer.”

At the time the deal was announced in May 2016, then CEO of Technip, Thierry Pilenko, said;

“We have complementary skills, technologies and capabilities. Together, TechnipFMC can add more value across Subsea, Surface and Onshore/Offshore, enabling us to accelerate our growth.”

Integration costs $231m, Break-up costs ??

The company spent $231 million on integration costs between 2016 and 2018. Since the merger the stock has lost about a third of its value. That’s considerably better than the PHLX Oil Services index that has lost about 66% in that time, but much worse than the S&P 500 that has gained about a third.

I wonder how much it will cost to separate the businesses?

Press release – TechnipFMC split

CFO steps up at offshore oilfield services company

Charles Njuguna, CFO of Deep Down, has been appointed CEO, replacing co-founder Ronald Smith, who is stepping down. The press release made no mention of a replacement CFO.



Deep Down focuses on complex deepwater oil and gas production system technologies and support services. It has its head office in Crosby, TX. It trades over-the-counter and has a market capitalization of $8 million.

Deep Down is notable for two things. One, it hasn’t made an operating profit since 2007. Two, it has been run for the benefit of executive management, rather than external shareholders, though this appears to be changing.

Mr Njuguna joined Deep Down in 2012. In 2015, he was appointed Business Manager to oversee all commercial activities and was appointed CFO in 2017. No details of Mr Njuguna’s new compensation were disclosed. As CFO, he has a salary of $250,000.

Smith consulting contract

Mr Smith is resigning, effective September 1, 2019. However, he has entered a consultancy contract that will pay him $41,769.80 a month from September to December 2019. Then from January 2020 through December 2021, he will be paid $15,000 a month.

In addition to his annual salary of $494,000 Mr Smith was also paid $19,291 for vacation not taken in 2018. Deep Down is the only company I’ve seen do this (Mr Njuguna was also paid $14,423 for vacation not taken in 2018).  Mr Smith also received a cash bonus of $13,000 for time spent outside the country on a customer project.

Smith’s wife also has a consulting contract

Mr Smith’s spouse and co-founder of the company, Mary Budrunas, was part of executive management until she retired in December 2016. However she entered into a 3-year agreement that pays her $17,500 per month for up to 60 hours of consulting a month. She remained on the Board of Directors until April 2019.

Two new independent Directors, David Douglas and Neal Goldman were appointed in April 2019, replacing Ms Budrunas and another director who had been on the Board since 2013.

SEC filing – Deep Down

 

 

CFO fired and CEO suspended following accounting irregularities

SAExploration has fired CFO Brent Whiteley and suspended CEO Jeff Hastings following an investigation by the Securities and Exchange Commission (SEC) into accounting irregularities. As a result, the Board of SAE has concluded that the financial statements going back to 2015 contain errors and need be restated.



Alaskan Seismic Ventures

SAE is a seismic services company that has its head office in west Houston. The accounting issues pertain to Alaskan Seismic Ventures (‘ASV’). The Board has now decided that ASV is a variable interest entity and that the company had a controlling interest in ASV that required it to consolidate ASV into its financial statements.

There is no mention of Alaskan Seismic Ventures in the annual report for 2017 and 2018. However in the reports for 2015 and 2016, the company disclosed that ASV was a major customer.

Overdue Accounts Receivable

It appears that ASV were receiving state of Alaska exploration tax credits but was unable to pay SAE until it received reimbursement from the state. During 2016, it assigned the credits to the company so that SAE could seek to monetize the tax credits and apply cash received to the overdue accounts receivable.

Because of budget constraints in the state of Alaska, the tax credits will probably not be paid until 2021. The company still has $53 million outstanding from ASV at December 31, 2018. That’s considerably more than the net assets of $15.4 million!

New interim management team

Mr Whiteley joined SAE in March 2010 as CFO & General Counsel. Mr Hastings has been the Chairman since 2013 and CEO since 2016 and has extensive experience in Alaska.

Kevin Hubbard, a partner at Ham, Langston & Brezina (and a former partner at BDO) has been appointed interim CFO,

Michael Faust, current lead independent Director, has been appointed Chairman of the Board, following Mr Hastings’ resignation as Chairman.

[UPDATE 08-22-19 – Mr Faust will be getting a salary of $100,000 a month, and a sign-on bonus of $1 million].

SAE’s shares plunged 32% to $2.22 on the news. Its market capitalization is now $14 million.

SEC Filing – SAExploration

 

CFO out at company that went public 5 months ago

Target Hospitality has replaced its CFO, Andy Aberdale, 5 months after going public via a reverse takeover. He has been replaced by Eric Kalamaras who was the CFO at American Midstream in Houston, until it was taken private on July 23, 2019.



Target transaction

The company is based in The Woodlands and was acquired by a Platinum Eagle, a blank check company for $1.3 billion. Target provides rental modular accommodation to the US oilfields but with premium catering and other added-value services. It has 20 facilities, including 14 in the Permian Basin. It is also an approved government vendor, supplying accommodation that houses asylum-seeking families.

There were actually two businesses acquired in the deal, Target Lodging and Signor Holdings, which are being consolidated together under the Target name and management. The Target business was acquired for $820 million, Signor for $491 million.

The business currently has a market cap of $575 million and an enterprise value of $956 million.

Aberdale severance package

Mr Aberdale had been the CFO since October 2010. The press release issued by the company stated that Mr Aberdale has decided to spend more time with his family in Boston, Massachusetts.  The separation agreement doesn’t give any indication that the decision was made by Mr Aberdale.

Mr Aberdale will receive

  • Severance pay of $400,000 (1 year’s salary)
  • 2019 annual bonus ($300,000)
  • Vesting of 25% of the stock options granted on May 21, 2019 (option price is $10.83)
  • Vesting of 25% of the restricted stock units granted on May 21, 2019 (value $33,000)

It should be noted that Mr Aberdale also received an $11 million cash bonus that was paid by the seller of the Target Lodging business for his role in building up and selling the business, so he can certainly afford to spend time with the family. He also owned a 4.8% stake in Target Lodging.

Kalamaras compensation

Mr Kalamaras will receive a base salary of $415,000 and a one-time sign-on bonus of $93,187. He will also receive an equity award worth $500,000. The base salary is a big raise from what he was making at American Midstream.

SEC filing – Target Hospitality CFO