Category Archives: Oilfield Services

Kodiak to acquire CSI Compressco for $854 million

Kodiak Gas Services, based in Montgomery, TX, has agreed to buy CSI Compressco LP, based in The Woodlands. The deal is an all-stock transaction that values CSI at $854 million (including the assumption of $619 million of net debt).

That represents $1.65 per CSI stock unit. For most of 2023 the units have been priced around $1.20 to $1.40. At the beginning of December, the price spiked to $2 per unit.



The transaction creates the largest contract compression fleet in the US with 4.3 million revenue-generating horsepower. Compression is used in various parts of the Energy industry such as compressing natural gas to the required pressures used in processing facilities or pressurizing gas lift systems for field-wide reinjection to lift oil.

CSI was formed in 2000 and went public in 2008. Until January 2021, CSI was effectively controlled by Tetra Technologies, another Houston-area public company. Tetra sold its interest to Spartan Energy Partners, a PE-backed private company, for $30.7 million (plus the elimination of $622 million of net debt).

Kodiak went public in June 2023 in a $256 million IPO. The company currently has a market cap of $1.5 billion.

Kodiak is projecting $20 million of annualized cost savings from the acquisition, though no details were given about the savings

The transaction is expected to close in Q2 2024.

https://ir.kodiakgas.com/news-events/press-releases/detail/18/kodiak-gas-services-inc-to-acquire-csi-compressco-lp-in

 

Subsea Robotics company terminates contract of CFO

Nauticus Robotics has terminated the contracts of CFO Rangan Padmanabhan and Chief Legal and Administrative Officer Dilshad Kasmani. The company did not give a reason, but they did say it was not for cause, meaning the two men will be entitled to severance.

Nauticus, based in Webster, was taken public by a SPAC (Special Purpose Acquisition Corporation) in September 2022. The company is developing tetherless, autonomous electric-powered robots that can be controlled by staff onshore.

As with many SPACs, the share price has plunged since going public at $10 per share. It now trades at $1.10.

The company is in the process of acquiring 3D at Depth, a subsea laser LiDAR inspection and data services company for $34 million in stock.

Victoria Hay has been appointed interim CFO. She will receive cash compensation of $30,000 a month and was also granted 40,000 restricted stock units that will vest on the earlier of her termination or one year from the date of grant. Mrs. Hay has been provided consulting services since the start of the year. She spent 13 years in various roles at Weatherford International, mostly recently as Senior Director – Global Accounting and Reporting Services.

Mr. Padmanabhan was appointed CFO in May 2022. He spent many years at Solaris Asset Management and is a graduate of Rice University. Neither his salary nor his severance package has yet been disclosed publicly.

SEC filing – Nauticus CFO termination

US Silica Holdings CFO departs after 10 years

U.S. Silica Holdings CFO Don Merril has been terminated without cause, with immediate effect. Kevin Hough, VP and Corporate Controller, has been appointed interim CFO. Mr. Hough had previously told the company that he intends to retire in 2024, so the company is performing a search for a new CFO.



U.S. Silica has its head office in Katy, Texas. It primarily produces silica which is used as a proppant in fracking. It also produces diatomaceous earth which is used as a filtration product in various industries. The company has a market capitalization of $1 billion.

Mr. Merril joined the company in 2012 and became its CFO the following year. The company has said it is still negotiating the terms of the separation agreement with Mr. Merrill.

According to the annual proxy, Mr Merril would normally be entitled to one years salary ($440,000) and acceleration of unvested stock ($2.6 million at December 31, 2022). Unusually, there’s no mention of a payment of an annual bonus in the event of a termination. For 2022, Mr. Merril received a cash bonus of nearly $600,000.

[UPDATE 11-24-23 – In an 8-K filing, the company said Mr. Merril will receive a bonus for 2023 to be paid in early 2024. That’s in addition to the $440k and the vesting of the time-based restricted stock. The performance-based restricted stock will vest once the results of the company have been certified].

SEC filing – 8-K – US Silica CFO departure

 

Kodiak Gas completes IPO below expected price range

Kodiak Gas Services, based in Montgomery, TX, has completed its $256 million Initial Public Offering (IPO). Its stock is now listed on the NYSE under the symbol ‘KGS’. It offered 16 million shares at $16 per share, well below the proposed range of $19-$22.



The company operates gas compression services, mostly in the Permian and Eagle Ford basins in Texas. In 2022 it had revenues of $708 million, adjusted EBITDA of $399 million and net income of $106 million. The business is capital-intensive business and spent $48 million on maintenance capex and $211 million on growth capex last year.

Kodiak was founded in 2011 and backed by the Stephens Group, an Arkansas-based PE firm until 2019 when EQT Partners, a Swedish-based investment firm, acquired a majority stake in the business.

Management

David Marrs and Mickey McKee co-founded Kodiak in 2011. Mr. Marrs served as the CEO until shortly after the investment by EQT. Mr. McKee has been the CEO since then.

John Griggs has been the CFO at Kodiak since January 2023.  Previously, he held various CFO roles at PE-backed companies.  He also worked at CSL Capital Management, a Houston-based PE firm, for three years. Ewan Hamilton, who was the CFO for nearly seven years prior to the appointment of Mr. Griggs, remains at the company as Chief Accounting Officer.

High Debt

It was intended that the monies raised in the IPO would be used to repay $314 million of a term loan that carries interest of almost 12%. Given that the IPO price was well below the proposed price, the amount of debt repayment will be lower

Prior to the IPO, the company had borrowings of $2.75 billion. In addition to the repayment,  $700 million (the remaining balance of the term loan) was to be transferred to Kodiak’s parent, leaving $1.75 billion of debt on the books post-IPO. The $700 million was based on the proposed IPO range and may change given the lower IPO price.

In case you feel sorry for the parent having to take back $700 million of debt, don’t. In 2022, the  company paid a $838 million distribution to its parent that was mostly funded by increasing the balance on the term loan.

SEC filing – S-1 Kodiak

https://www.prnewswire.com/news-releases/kodiak-gas-services-inc-prices-initial-public-offering-301866415.html

Houston oilfield companies to merge in $5.4 billion transaction

 

Patterson-UTI Energy (‘PTEN’) and Nextier Oilfield Solutions have agreed to merge in an all-stock deal that values the combined business at $5.4 billion. Both companies have their headquarters in Houston.



PTEN shareholders will hold 55% of the combined business, which will retain the Patterson-UTI name. Senior executives at PTEN (Curtis Huff – Chair, Andy Hendricks – CEO and Andrew Smith – CFO) will hold the same roles in the combined business. Robert Drummond, CEO of Nextier, will become Vice Chair of the Board. Kenneth Puchei, the CFO of Nextier, will become the Chief Integration Officer.

PTEN is historically known for its land-based contract drilling. It is also the number 7 player in the North American pressure pumping market. Nextier is number 5 in that market, and the combined business will jump to number 2, behind only Halliburton in frac horspower. Nextier also has wireline and well construction services in its portfolio of operations.

There has been an increasing trend in recent years for customers who buy PTEN’s contract drilling services to also buy pressure pumping services from then. This acquisition will help reinforce that trend.

The companies expect to generate annualized savings of $200 million in cost savings and operational synergies within 18 months of the close, which is expected in Q4 of 2023.

Patterson was formed in 1978 and went public in a $5 million IPO in 1992. It merged with UTI Energy in 2001.

Nextier was formed from the merger of Keane Energy and C&J Energy Services in 2019. Keane started in Pennsylvania in 1973 and went public in 2017. C&J founded in 1997 in Robstown, TX and went public in 2011.

SEC filing – PTEN Nextier merger

Expro to pay $8m to settle Angola bribery allegations

Expro Group has settled with the SEC over allegations that Frank’s International paid bribes to Angolan officials between 2008 and 2014. Expro merged with Frank’s in 2021 in a deal that valued Frank’s at $742 million.

Expro has agreed to pay $4.2 million which represents the profits made by Frank’s on the Angolan contracts after Frank’s completed its IPO in 2013. In addition, Expro will pay $0.8 million in interest and $3 million in penalties.



Frank’s primarily supplied tubular services and technology used in deepwater drilling. Starting in 2007, it tried to increase its business with the ultimate end customer, Sonangol, the state-owned Angolan oil producer. Initially, Sonangol directed Frank’s customer to use a competitor to Frank’s that made a bigger investment in Angola.  But a senior Sonangol executive said they could change its mind if Frank’s established a consulting company and paid five percent of the value of the contract to the consulting company for the benefit of high-ranking Sonangol officials.

Instead of creating a consulting company, Frank’s hired an agent in Angola in November 2007 without a contract in place. The first payment was made in January 2008. Towards the end of 2008, the Frank’s CFO and Chief Accounting Officer started asking questions about the commission payments, which, at that point, amounted to $688,000. The regional senior management then approved a back-dated contract.

In 2011, a new agency agreement was created. This provided for a 10% sales commission, although only 2.2% was actually paid in commissions, with the rest being used for bribes.

Between 2008 and 2014, Frank’s paid the Angolan agent approximately $5.5 million from Frank’s Angolan Operations, a portion of which was paid to the senior Sonangol executive. Frank’s received at least $4,176,858 in post-IPO net profits from its contracts with oil companies where Sonangol was the ultimate customer and for which the Sonangol executive possessed decision-making authority.

Frank’s self-reported the issue to the SEC and Department of Justice in 2016 and Expro made a reserve of $8 million, that was recorded as an additional liability on the acquisition of Frank’s.

 

https://www.sec.gov/litigation/admin/2023/34-97381.pdf

 

Houston Drilling Tools company to be taken public by SPAC

Drilling Stabilizer

Drilling Tools International (‘DTI’), which has its head office in the Westchase area of Houston, is being taken public by ROC Energy Acquisition Corp, a Dallas-based SPAC. The transaction values the business at $319 million.



DTI manages and maintains over 65,000 rental tools and drilling equipment across 22 service and distribution centers in North America and Europe. Its main machine and repair center is in Broussard, Louisiana.

The business was founded in 1984 as Directional Rentals. In 2012, Hicks Equity Partners, also based in Dallas, acquired the business. Since then, the business has made 7 acquisitions and revenue has grown to an expected $164 million in 2023.

Adjusted EBITDA for 2023 is forecast to be $58 million (35%). That’s a misleading metric for any rental business that has high capex needs. Free cash flow, defined as EBITDA less capex is forecast to be $19 or 11%.

The transaction will leave DTI with no debt and $217 million of cash on the balance sheet to fund future acquisitions.

Wayne Prejean has been the CEO at DTI since 2013. He has a long career in directional drilling companies. In 1999, he founded Wildcat Services before selling it to National Oilwell Varco in 2004. Mr. Prejean stayed with NOV after the sale.

David Johnson joined as CFO, also in 2013. He has been the CFO at a number of drilling companies prior to that.

ROC went public in December 2021 in a $150 million IPO. Its original intention was to focus on non-operated oil and gas properties (i.e. where the E&P company owns the well but does not manage the operations of the well).

ROC may have had to pivot after Granite Ridge Resources, a business that owns non-operated assets, was taken public in October 2022 by a rival SPAC chaired by Paul Ryan, the former speaker of the House of Representatives. Since going public, Granite’s stock is down 30%

The transaction is expected to close in the second quarter of 2023.

DTI – Investor Presentation

 

 

Flotek CEO steps down

Flotek Chairman and CEO, John Gibson, is out after three years at the struggling specialty chemicals company. He is replaced, on an interim basis, by Harsha Agadi, a non-executive board director.



The company has its head office in NW Houston and has been losing money at an EBITDA level since 2016. Its share price is $1.52 and is has a market cap of $104 million. In February 2022, Flotek agreed to supply ProFrac Holdings high volume, low margin chemicals in return for convertible notes.  Revenues in Q3 2022 were $46 million, over three times larger than Q3 2021. Profac now owns 51% of Flotek.

Mr. Gibson joined the company in January 2020. Four months later, the company paid $36 million (including $25 million in cash) for an oilfield data analytics company.  The purchase price included $17.5 million of goodwill and $12.9 million of intangible assets. Four months after the acquisition, the company wrote down those assets by $24.2 million. The remaining goodwill was written off in 2021.

Mr. Gibson will receive a cash severance of $1.5 million. As part of the agreement, Mr. Gibson has agreed to forfeit all of his outstanding options and unvested restricted stock units.

Mr. Agardi has been on the Board since 2020. He has been the CEO at a publicly-traded insurance claims company, Friendly’s Ice Cream and Church’s Chicken. Whilst interim CEO, he will receive a salary of $50,000 a month.

Dispute with former CEO

The company is also in dispute with John Chisholm, the CEO prior to Mr. Gibson. In December 2021, the company conducted an internal investigation into his activities during the period 2014 to 2018. The company found evidence of related party transactions/self-dealing, inappropriate personal expenses, and general corporate waste.

Flotek’s board engaged a third party to review the findings of the investigation. After the third-party review, the company concluded that its current and historical financial statements can be relied upon, that proper action had been taken, and that no members of current management were implicated in any way.

Mr. Chisholm filed a countersuit against the company as he has not been paid his remaining severance of $0.4 million.

That severance hadn’t been paid because, in 2019, the IRS notified the company had it had not properly withheld certain employment taxes in 2014  (Mr. Chisholm provided his services through a management company). The amount involved is $1.8 million. Mr. Chisholm had indemnified the company, but it is Flotek who has to pay the IRS first and then recoup the money from Mr. Chisholm.

New CFO last month

Flotek appointed a new CFO, Bond Clement, just last month.

[Full Disclosure – I worked at Flotek between 2006-2009 and still own a small number of shares]

SEC filing – Flotek CEO out

Weatherford appoints new CFO after long search

Weatherford International has appointed Arun Mita as its new CFO. He replaces Keith Jennings, who left in July 2022.

Mr. Mita joins from Mitsubishi Power Americas where he has been CFO since 2014. Before that, he spent 14 years at Siemens in the US and Germany. He started his career at Price Waterhouse in India before moving to the US with KPMG. He will relocate from Orlando.

Mr. Mita will receive a base salary of $525,000 and a cash sign-on bonus of $410,000. He will also receive long-term incentives worth $1.7 million. 40% will vest over 3 years, the rest will vest after 3 years, subject to the achievement of performance metrics.

It should be noted that Mr. Jennings joined in September 2020 with a similar package (including sign-on bonus and relocation assistance) before leaving with a severance of over $1 million (1x base plus target annual bonus plus pro-rated target bonus). Mr. Jennings started six weeks before Girish Saligram joined as CEO.

The business has improved its performance in the past year as the oilfield sector has recovered. In the third quarter, revenues and adjusted EBITDA were up about 20% year-on-year. That allowed the business to flip from net losses before taxes to net profits.  In that time, net debt is virtually unchanged at around $1.2 billion, but the leverage ratio has dropped from 3.3 times a year ago to 1.8 times at September 2022.

Unlike certain competitors, Weatherford has not pulled out of Russia and generates 6%-7% of its revenues in Russia. In its Q1 filing for the first quarter of 2022, the company disclosed that its net assets in Russia were $106 million. That jumped to $168 million at the end of Q2. In Q3, the company did not disclose the amount of net assets in Russia.

SEC filing – 8-K Weatherford CFO Jan 2023

 

Flotek appoints new CFO

Flotek Industries, a specialty chemicals company, has appointed Bond Clement as its new CFO. He replaces Mike Borton, who left in May 2022.

Seham Carson, the Corporate Controller, had been interim CFO since Mr. Borton left. She is expected to remain with the company in a senior financial role.

Flotek has been losing money at an EBITDA level since 2016. Its share price is $1.13 and is has a market cap of $82 million. Earlier this year, Flotek agreed to supply ProFrac Holdings high volume, low margin chemicals in return for convertible notes.  Revenues in Q3 2022 were $46 million, over three times larger than Q3 2021. Profac now owns 51% of Flotek.

Mr. Clement joins from Donovan Marine, a privately-held distributor of recreational marine products where he had been CFO since September 2021. Prior to that, he spent 17 years at PetroQuest Energy, an E&P company. He was CFO for 12 years.

PetroQuest was publicly-traded until 2018. High debt forced the company into bankruptcy in November of that year. It emerged from bankruptcy three months later, having shed $292 million in debt.

Mr. Clement will receive a base salary of $400,000 and a sign-on bonus of $50,000. He will also get $50,000 to relocate from Lafayette, LA to Houston.

SEC 8-K filing – Flotek CFO appointment