Category Archives: Oilfield Services

SEC charges four execs from seismic company with $100 million fraud

The Securities and Exchange Commission (SEC) has charged four former executives from SAExploration with falsely inflating revenues by $100 million and stealing millions of dollars.

SAEX is a seismic company that had significant operations in Alaska. It is based in west Houston and recently filed for Chapter 11 bankruptcy



The four executives charged are

  • Jeff Hastings. Chairman from 2013 to 2016. CEO from 2016 to August 2019.
  • Brent Whiteley. CFO from 2011 to August 2019.
  • Brian Beatty. Founder and CEO from 2011 to 2016. COO from 2016 to December 2019.
  • Michael Scott. VP of Operations from 2011 to September 2020.

The spouses of Hastings and Whiteley have been charged as relief defendants. In other words, they have not been charged with any wrongdoing, but the SEC will seek to recover ill-gotten gains passed to them.

Hastings lives in Anchorage, Whiteley in Houston, Beatty and Scott reside in Canada.

Last month, Hastings was arrested in Alaska and will face securities fraud charges in a federal court in New York. The other three were unnamed co-conspirators but were not charged at the time.

Company secretly controlled by the Executives

The SEC complaint goes into more detail than the complaint filed in the New York federal court. To recap, the scheme began in February 2015 when the executives discussed ways for SAEX to take advantage of tax credits offered to seismic companies by the State of Alaska to help offset the costs of exploring for oil and gas in the state. The problem for them was that the Board of SAEX was against the idea of the company operating its own data library.

Hastings proposed setting up a special purpose vehicle. In April 2015 he enlisted a business acquaintance to be the straw man owner of Alaskan Seismic Ventures. ASV was set up to be a seismic data library company that would buy seismic data from SAEX and lease it to E&P operators.

However, they hid their involvement and control over ASV from the Board and investors.  Whiteley provided administrative and operational support to the owner of ASV. Hastings, Whiteley and Scott located customers to license data from ASV.

SAEX started recognizing revenue from ‘sales’ to ASV, and the sales it recognized began to far exceed the licensing sales made by ASV to E&P operators. By the end of 2015, SAEX had recognized revenue of $83 million but ASV had only made $32 million in licensing sales.

In early 2015, the executives had begun to seek bank financing for ASV. However, in June 2015, Bill Walker, the Governor of Alaska, threatened to enact a line-item veto that would significantly reduce the pool of money available to pay out Alaska Tax Credit claims. That meant that banks were less likely to lend money to ASV.

Round-tripping

According to the SEC, that’s when the executives came up with a plan to round-trip funds to ASV and back to SAEX. They created a sham company that purported to rent seismic survey equipment from SAEX. $12 million was transferred from SAEX in this way. Two more sham companies were set up, one ‘owned’ by a close friend of Hastings, the other by a neighbor of Whiteley’s. After a series of transactions funneled through these companies, $5.8 million was returned to SAEX as payment of outstanding receivables.

Of the remaining $6 million, $1.8 million was transferred to a TD Ameritrade brokerage account owned by Hastings and his wife. Whiteley transferred $2.6 million to himself. A later transaction resulted in Hastings and Whiteley getting a further $313,082 each. Beatty and Scott got $219,940 each.

CFO creates fake vendor

The SEC also alleges that CFO Whiteley misappropriated an additional $4 million between 2011 and 2019. He created fake invoices for legal and consulting services performed by fictitious entities that he created. Whiteley approved the payments of these invoices to a bank account in the name of his spouse. He also directed payments owed to legitimate vendors to himself.

The SEC is seeking civil penalties and disgorgement of allegedly ill-gotten gains. It is also seeking reimbursement of incentive-based compensation paid to the executives pursuant to section 304(a) of the Sarbanes-Oxley Act.

https://www.sec.gov/news/press-release/2020-251

Houston oilfield service company files for bankruptcy

Superior Energy Services has filed for Chapter 11 bankruptcy. It expects to convert $1.3 billion of debt into equity and may split into two companies.

Superior has its head office in downtown Houston. It was recently delisted from the NYSE because its market capitalization was below $15 million. The company has two main businesses:

  • Remainco : An international business involved in drill pipe rentals, bottom hole assemblies, completion tools and well control services. The business has projected revenues of $550 million.
  • NAM : An onshore US business involved in service rigs coiled tubing, wireless, pressure control and fluid management. This business has projected revenues of $260 million in 2021.



Prepackaged bankruptcy agreement

The company has the support of 69% of the company’s senior unsecured noteholders. The noteholders have the right to decide whether or not to split the company into two. If they do, they would get 98.5% of the equity of Remainco and 95% of the equity of NAM. Existing shareholders will get the rest, though a management incentive plan will be put in place. This will dilute the percentages a little bit.

Back in December 2019, Superior announced the merger of its US completions business with Forbes Energy Services, with the combined entity to be spun off. The deal was called off in May due to deteriorating market conditions.

As part of the bankruptcy proceedings, the Board of Directors has agreed pay $7.3 million in retention bonuses to the six executive officers of the company. CEO David Dunlap gets $3.2 million, while CFO Westy Ballard gets $1.1 million.

Retention Plan

In March, Mr Dunlap got an annual cash bonus of $0.9 million. He also got an additional payout of $1.275 million, in cash, for performance stock units (PSU) for the period 2017-2019. This payout was primarily due to Superior being in the top 17% of total stockholder returns of its peer group, over that three year period.  Mr Ballard got a $346,000 annual bonus and $300,000 for the PSUs.

Complete Production Services

The company’s debt problem stems all the way back to October 2011 when it agreed to buy Complete Production Services for $2.9 billion. It paid $553 million in cash and issued stock for the rest. As part of the deal financing, in December 2011, it issued $800 million of unsecured senior notes, due 2021, to repay $650 million of debt that Complete owed. The other $500 million of notes were also, effectively, issued in 2011, though they were refinanced in 2017.

The $2.9 billion price for Complete Production Services included $2.3 billion in goodwill and intangibles. In 2015, the company wrote goodwill down by $1.3 billion. By 2018, all the goodwill had been written off.

Mr Dunlap became CEO of Superior 18 months before the deal with Complete Production Services.

SEC filing – Superior bankruptcy

 

Helicopter company appoints new CFO

Jennifer Whalen has been appointed the CFO of Bristow Group, the helicopter company that has its head office in west Houston.



Bristow merged with ERA Group in June, in an all-stock transaction. Although Bristow shareholders ended up with 77% of the combined company, it was mostly ERA management that took the senior roles in the combined group.

Ms Whalen joined ERA in 2012 and was appointed interim CFO in June 2017. The interim tag was removed in February 2018. After the Bristow/ERA merger, she was again named interim CFO. The company stated that a permanent CFO would be named later.

Ms Whalen is rewarded for her patience with a pay raise of $70,000 to $380,000. She also received a one-time equity award of 11,667 shares of performance-vested restricted stock and 11,667 stock options.

At the time of the merger, the company said it expected to achieve annualized cost savings of at least $35 million. This would occur through the elimination of duplicate corporate expenses and greater operational efficiencies. Last month, the company increased that amount to $45 million. It said it had already realized $16 million of annualized savings.

SEC filing – Bristow Whalen CFO appointment

Former CEO of Houston public company arrested for securities fraud

Jeff Hastings, the former CEO of SAExploration, has been arrested in Anchorage, Alaska on charges of wire fraud and securities fraud. He will face charges in the Southern District of New York.



SAEX is a seismic company that had significant operations in Alaska. It is based in west Houston and recently filed for Chapter 11 bankruptcy Back in February, the company restated its financial results, going back to 2014. It alleged that Hastings and former CFO Brent Whiteley misappropriated nearly $17 million between 2012 and 2019.

Whiteley hasn’t been charged with any crimes. In the FBI complaint, he is named as ‘Co-conspirator 1″. The FBI states he has ‘agreed to assist law enforcement, in part, in hopes of entering into a cooperation agreement with the Government’.

Two other co-conspirators are mentioned in the complaint, by title, though not by name. Brian Beatty, the founder and COO until December 2019, is ‘CC-2’. Michael Scott, the VP of Operations is ‘CC-3’. He resigned from his position at SAEX on September 14.

The Scheme

The complaint alleges that the scheme began in February 2015 when the CEO and CFO discussed ways for SAEX to take advantage of tax credits offered to seismic companies by the State of Alaska to help offset the costs of exploring for oil and gas in the state. The problem for Hastings and Whiteley was that the Board of SAEX was against the idea of the company operating its own data library.

In May 2015 Hastings and Whiteley set up Alaskan Seismic Ventures (ASV) as a seismic data library company that would buy seismic data from SAEX and lease it to E&P operators. However, they hid their involvement and control over ASV from the Board and investors.  To get the state credits, the company was required to conduct transactions with SAEX on an arm’s length basis.

The CEO and CFO learned that lenders were willing to make loans to ASV, if ASV was able to demonstrate it had substantial capital. $12 million of fake invoices to another company secretly controlled by Hastings allowed SAEX to send $6 million to ASV.

Unfortunately, the lenders decided not to provide funding to ASV. Hastings and Whiteley decided to send $5.8 million back to SAEX as partial payment for the seismic data it acquired.

The remaining $6 million was allegedly misappropriated by Hastings and the co-conspirators for their own personal use.

Other issues raised by the company

When the company restated its results it also said that

  • From 2012 to 2019, payments of $4.1 million were made to a company called RVI Consulting. This was secretly controlled by Mr Whiteley. The payments were originally recorded as legal and professional expenses.
  • There was a misappropriation of $0.5 million in 2013 in relation to the reimbursement of the individual tax liability of Mr Hastings.

These two items are not part of the charges brought against Mr Hastings.

HastingsComplaint

Weatherford appoints new CEO

Weatherford has appointed Girish Saligram as its new CEO, effective October 12, 2020. He replaces Mark McCollum, who left abruptly in June.

Mr Saligram is currently the COO at Exterran Corporation, a Houston-based public company. Prior to joining Exterran in 2016, he spent 20 years at GE. His last role there was as General Manager, Downstream Products and Services.



Compensation package

Mr Saligram will receive;

  • a base salary of $825,000 (a $200,000 raise on his role at Exterran).
  • a long-term cash incentive award of $3.5 million that will vest over 3 years.
  • a sign-on cash bonus of $400,000
  • $400,000 in restricted stock units that will vest over 3 years
  • $400,000 in performance stock units that will vest, depending on the share price.

In the event of a termination without cause, Mr Saligram will receive severance of one times base salary and target bonus (125% of base salary). If the termination is the result of a change of control, he will receive two times base and target bonus.

Once Mr Saligram starts, Karl Blanchard, the current interim CEO, will return to his former role of COO. Keith Jennings, the new CFO, started at the beginning of September.

Post-bankruptcy woes

Weatherford filed for bankruptcy in July 2019 and emerged on December 13, 2019. Debt was reduced from $8.0 billion to $2.2 billion with the bondholders owning 94% of the equity of the newly reorganized company.

At the end of August, the company issued $500 million in new notes due 2024 at 8.75% interest. The company used those proceeds to pay off a US-based credit agreement that was only entered into in December 2019. Due to the pandemic, the company faced a declining collateral base but Wells Fargo and Deutsche Bank, the agents for the credit facility, refused to discuss any material covenant modifications.

SEC filing – Weatherford CEO appointment

Seismic company files for Chapter 11 bankruptcy

SAExploration Holdings has filed for Chapter 11 in a pre-packaged bankruptcy deal. The plan will reduce net debt by $74 million with the lenders getting new common stock in the company.

The company is based in west Houston and performs seismic operations around the world. It started out in Peru in 2006 as Exploración Sudamericana (South American Exploration). The company later expanded into Columbia (2008), Papua New Guinea (2010) and North America (2011). It went public in 2013 via a reverse takeover of a blank check company.



SAEX has reported recurring losses from operations and have not generated cash from operating activities for the six years ended December 31, 2019.

Fraud allegations

In February the company accused Jeff Hastings, the former CEO, and Brent Whiteley, the former CFO of misappropriating nearly $17 million. As a result, the company had to restate its financial results going back to 2014 and shareholder’s equity swung to a deficit that has grown to $33 million, at the time of filing. Investigations by the SEC, Department of Justice and the Alaska Department of Revenue continue.

The stock was delisted from NASDAQ in June 2020.

Debt reduction

The company has $60 million outstanding in convertible loan notes and $29 million on a term loan. It has received approval from 100% of the loan note holders and 82% of the term loan holders to eliminate these balances in exchange for a new first lien $15 million loan and 97.5% of equity in the newly-reorganized company.

The company also has a credit facility of $20.5 million, an equipment finance loan of $8.2 million and a PPP loan of $6.8 million. The credit facility will convert to a second lien facility for the same amount. The equipment finance and the PPP loans will remain outstanding.

SAEX – Declaration in support of Chapter 11 by CEO

 

Houston Blank check company files for $150m IPO – but with a twist

Good Works Acquisition Corp has filed for a $150 million Initial Public Offering (IPO). It is a Special Purpose Acquisition Company (SPAC) or blank check company. It has its head office in the Galleria area.



The company doesn’t have any commercial operations. It is focused on finding a business that has experienced financial distress or has recently emerged from a financial restructuring. It is particularly interested in finding a business that has been hard hit by COVID-19 but has good prospects for a rebound. The company is looking for a business with an enterprise value of between $400 million and $600 million.

Management

Fred Zeidmann is the Chairman and CEO. He has served as Chairman of Gordian Group LLC, a U.S. investment bank specializing in board level advice in complex financial matters since December 2014.

Douglas Wurth is Co-Chairman and worked for JP Morgan for over 20 years. During his time there he served as the CEO of the Alternative Investments business and the CEO of the International Private Bank.

The third co-founder is Cary Grossman.  He co-founded Shoreline Capital Advisors, an investment banking firm focused on financial advisory services and middle market corporate finance transactions.

Donation to Non-Profits

Zeidman, Wurth and David Pauker, an non-exec director, have agreed to make available 750,000 founder shares (5% of the initial allotment) to be contributed to non-profit organizations, including those involved in the arts, human rights and the advancement of life sciences. These shares will be donated within six months of the IPO closing.

A spate of SPACs

Nationwide there have been a spate of blank check companies seeking to go public. According to the Wall Street Journal, so far, in 2020 there have been 75 new SPACs, raising $30 billion. This is more than double the amount raised in 2019.

In Houston

SEC filing – S-1 Good Works Acquisition

Oilfield Services company appoints new CFO

Flotek Industries has appointed Mike Borton as its new CFO. He replaces Elizabeth Wilkinson, who left in June. The company, which has its head office in NW Houston, develops and supplies oilfield chemicals. The company recently acquired JP3, data analytics business for $34 million.

Mr Borton was recently the CFO at Dynasty Sports and Entertainment, a Boca Raton-based data analytics company from April 2019 to July 2020. Prior to that, he was the CFO at a couple of SaaS (Software-as-a-service) companies.



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Mr Borton will be relocating back to Houston. Earlier in his career, he spent five years as Group Controller at Landmark Graphics, during which the business was acquired by Halliburton. He will receive a one-time relocation allowance of $25,000.

The salary of Mr Borton will be $340,000, and he will eligible for a target annual bonus of 80% of base salary. If he is terminated without cause, he will receive a severance amount of 12 months’ worth of base salary.

The share price of the company (currently $1.38) has recently recovered such that the company has regained compliance with the listing standards of the New York Stock Exchange.

SEC Filing – Flotek Borton appointment

 

 

Offshore Drilling Contractor files for bankruptcy

Noble Corporation has filed for Chapter 11 bankruptcy in the Southern District of Texas. Technically, the company has its head office in London, but, operationally, the company is run from its Sugar Land offices.

Noble has a fleet of 12 drillships and semisubmersibles and 12 jackup rigs, largely focused on ultra deepwater. Of the 12 floaters, five are cold-stacked while four of the jackup rigs are warm-stacked. [Warm-stack means the rig is in port with a crew ready to go, cold-stack means the rig is being stored at minimum expense].



Agreement with Bondholders

Noble has agreement with two ad hoc groups of the largest bondholders. Combined, they represent about 50% of $3.4 billion of unsecured debt outstanding. They need to get approval from two-thirds of the bondholders for the plan to be effective.

Under the proposed plan, the unsecured debt will be cancelled and exchanged for, effectively, 86% of the equity in the reorganized company. The bondholder have also agreed to invest $200 million of new capital in the form of new second lien notes. 10% of the new equity will be reserved for a management incentive plan. Existing shareholders will get 4% of the new equity.

A new $675 million secured revolving credit facility will also be provided by the current syndicate of credit facility lenders. The borrowings on the current facility are $550 million.

Unsecured trade creditors will be paid in full.

CEO and CFO transition

In February, Noble promoted Robert Eifler from Senior VP, Commercial to CEO, replacing Julie Robertson, who became Executive Chairman. Unusually, Ms Robertson (who has been with the company since 1979) got a lump sum payment of $3.75 million as part of the transition, even though she wasn’t leaving the company.

That CEO transition promptly triggered a CFO transition. Stephen Butz, who had only joined the company in December 2019, resigned in March. He got to keep $450,000 of his $1.1 million sign-on bonus. Mr Butz had replaced Adam Peakes who had left in September 2019 with a $1 million severance.

The current CFO is Richard Barker, who joined from Moelis & Company, an investment bank. He was awarded cash retention bonuses of $725,000 and $575,000, to be paid in December 2020 and December 2021 respectively.

SEC filing – Noble Corp bankruptcy

 

KLX Energy Services and Quintana complete merger

Photo by Joshua Doubek

The merger between two publicly-traded oilfield service companies, Quintana Energy Services (QES) and KLX Energy Services (KLXE), has been completed. The all-stock deal was first announced in May 2020.

KLXE is based in Florida while QES’s head office is in downtown Houston. KLXE is a leading provider of completion, intervention and production services. QES’s primary services include directional drilling, snubbing, coiled tubing, wireline services and pressure pumping.



The merger allows the companies to rationalize their fleets of coiled tubing and wireline assets. Before the merger was announced, QES had decided to repurpose its recently-idled pressure pumping units to support its coiled tubing fleet. The merger helps that objective.

The combined company takes the KLX Energy name and keeps the KLXE ticker symbol. However, the head office will remain in Houston.

Consideration

The combined company had proforma revenues for the three months ended April 30, 2020 of $176 million and an operating loss before impairment of $36.5 million. KLXE shareholders got 59% of the combined company, QES 41%. The preliminary valuation of the QES equity at March 31 was $46.9 million, considerably below its net asset value of $112.9 million.

According to the merger proxy statement, QES has long held the view that consolidation in the oilfield services sector was necessary. They identified KLXE as a possible merger partner in the fall of 2019. At that time QES was in discussions to acquire another unnamed company. They first approached KLXE in March 2020.

Management of combined company

Interestingly, QES initially suggested that then-CEO of KLXE, Amin Khoury and Thomas McCaffrey, then CFO of KLXE take the same roles in the combined company for one year. After that, QES CEO Chris Baker and QES CFO Keefer Lehner would take the top jobs.  Unfortunately, Mr Khoury had to resign suddenly in April for personal family health reasons. Mr McCaffrey was appointed CEO of KLXE.

As a result, Mr Baker immediately became the CEO of the combined group and Mr Lehner the CFO. To alleviate possible concerns of the KLXE shareholders Mr McCaffrey has been appointed to the combined Board and will chair the integration committee.

The company expects to generate $40 million in synergies. This will primarily be achieved by  rationalizing the Florida corporate office and the combining the KLXE and QES Houston-area locations. There’s also some overlap of field offices.