Photo: Nandu Chitnis
McDermott International has filed for a pre-packaged Chapter 11 bankruptcy after months of deteriorating business prospects.
The key highlights of the restructuring are;
- elimination of $4.6 billion of debt. The secured lenders will get 94% of the new equity, unsecured bondholders the remaining 6%.
- Unsecured trade creditors will be paid in full
- Existing shareholders are wiped out
- Lummus to be sold for $2.725 billion
However, worry not, the senior management have looked after themselves. Back in October McDermott announced they had obtained $1.7 billion in additional new financing (at 12% interest rates).
At the same time, the senior management were awarded large retention bonuses. David Dickson, CEO, got $3.375 million. Samik Mukherjee, COO (the one who acknowledged taking TechnipFMC trade secrets) got $1.4 million. The funding and the bonuses were to be paid in tranches. So far, two-thirds of the bonus have already been paid out. The Board of Directors have decided to pay the remaining one third to Dickson and Mukherjee as a gesture of ‘good faith’ even though Tranche C of that financing agreement never got paid.
CFO Stuart Spence resigned in November. He got to keep all his retention bonus of $1.3 million.
Business prospects have deteriorated considerably in the second half of 2019 due to the uncertainties surrounding the company. Bookings were only $3 billion in the second half, versus $14 billion in the first half. Customers have canceled contracts or placed McDermott on the disqualified to bid list. Vendors have placed liens and withdrawn from job sites.
Steve Bate, the CFO at ION Geophysical, will be stepping down from the CFO role, effective February 1. Mike Morrison, currently VP of Finance and Treasurer, will become the interim CFO. Mr Morrison has been with ION for 17 years.
ION Geophysical provides seismic services to the oil and gas industry and has its head office in west Houston. It has a market capitalization of $126 million.
Mr Bate joined ION in 2005 and became CFO in 2014. After stepping down as CFO, he will remain with the company as Strategic Advisor to the CEO until the end of June.
Mr Bate will receive a severance payment of $750,000, which is two times base salary. Of this, $187,500 will be paid in January 2021, the rest will be paid over 18 months, starting in January 2021. He will also receive a one-time payment of $281,250, representing his 2019 target bonus. This will be paid by February 2020.
In addition, 89,430 shares of restricted stock will become fully vested. This is worth about $0.5 million.
In June, former CEO Brian Hanson left the company with a large severance package. He was replaced by Chris Usher, VP of Operations Optimization.
Key Energy Services has announced the departure of CEO Robert Saltiel and the appointment of CFO Marshall Dodson as the interim CEO.
Back in November, Key missed an interest payment on its $250 million term loan as it considered strategic alternatives. Its shares were delisted on November 27 at 27 cents per share, giving it a market capitalization of $2.64 million.
Mr Saltiel only joined Key in August 2018. He had a base salary of $800,000 and will receive a cash severance of $2.5 million. This is due to be paid on January 10, 2020. The $2.5 million is actually less than he was entitled to under his employment agreement ($3.4 million). That stipulated he would receive 2x base salary plus target bonus (1x salary). In February 2019, the board also granted him a $1 million long-term cash incentive award that would have started vesting in February 2020. Upon termination, the award vests immediately.
It appears that the company is trying to renegotiate a debt restructuring outside of Chapter 11. However, if the company does file for bankruptcy before January 10, the payment likely won’t be made. Even if Key files after January 10, the payment could be clawed back from Mr Saltiel if it is deemed a preferential payment under the bankruptcy code.
Mr Dodson will receive an increase in his base salary from $425,000 to $575,000 while being the interim CEO. If Mr Dodson is not appointed CEO, he will be entitled to receive an acceleration of his retention bonus that was granted in July 2018. Currently, the remaining 75% or $478,125 will vest in July 2020.
SEC filing – Key Energy CEO departure
Flotek Industries, based in NW Houston, has appointed John Gibson as its new CEO. He replaces John Chisholm who steps down after seven years as the CEO. Mr Chisholm is also stepping down from the Board.
Mr Gibson joins from investment bank Tudor Pickering Holt where he was Chairman of Energy Technology. Between July 2010 and May 2015, Mr Gibson was the CEO of Tervita Corporation, a Canadian environmental and oilfield services company.
Flotek supplies chemicals for use in drilling and completion of oil wells. It currently has a market capitalization of $115 million. That’s about the same as the amount of net cash on the balance sheet ($107 million at 30 September). The cash position arose from the sale of its consumer and industrial chemistry technologies for $175 million in January 2019. The company hasn’t made an operating profit since 2015.
Mr Gibson will receive a base salary of $500,000. He will also be granted 570,000 restricted stock units that will vest over the next five years. Mr Gibson is also granted an option to purchase up to 1 million shares at $1.93 per share. This option also vests over the next five years. An option to buy a further 2 million shares at $1.93 per share will vest in stages, according to the stock price. If the stock remains above $7.20 for 20 consecutive trading days, 100% will vest.
Neither the press release nor the SEC filing mentions what severance payments are owed to Mr Chisholm, if any. According to the annual proxy statement filed earlier in 2019, Mr Chisholm is entitled to a payment of $3.6 million (two times base salary and target bonus) if he is terminated without cause. The company filed an amended employment agreement with Mr Chisholm in October 2019. This agreement states that any severance will be paid over 24 months.
SEC filing – Flotek CEO appointment
Carbo Ceramics has been delisted from the New York Stock Exchange (NYSE) because its share price is too low. It was trading at 30 cents (market cap $9 million) at the time of the delisting. Going forward, it will be traded over the counter.
The company has its head office in west Houston and makes proppants, primarily for fracking. It started out making ceramic proppants and went public in 1996. At its peak in 2011, the company had a market capitalization of almost $4 billion. Ceramic proppants are considerably more expensive than natural sand. Although the company tried to protect itself by supplying natural sand as well, it has been hit hard by the downtown.
In November, the company disclosed that its largest customer planned to discontinue purchases of frac sand under its existing contract. (Its two biggest customers in 2018 were Halliburton and Keane Group). The company has significant fixed costs associated worth this contract such as rail car leases and a distribution facility. The company estimated that it will incur $8 million to $10 million in cash costs to exit these leases and other supply contracts, associated with the contract. As a result, the company issued a going concern warning.
The company has not made positive annual EBITDA since 2014. At the end of September, the company had cash balances of $40 million. Against that, it has a fully-utilized $65 million credit facility with the Wilks Brothers (who sold their pressure pumping business in 2011 for $3.5 billion) that matures in December 2022. It also has leases with a present value of $58 million.
You can see the complete, updated list of Houston-area public companies here
SEC filing – Carbo Ceramics delisting
Apergy Corporation, based in The Woodlands, has announced that it will merge with the upstream division (aka Nalco Champion) of Ecolab. The combined company will remain in The Woodlands.
Apergy was spun off from Dover Corporation in May 2018 and is primarily involved in Artificial Lift. Ecolab, based in Minnesota, had originally announced in February 2019 that it intended to spin off Champion through an initial public offering. Champion primarily manufactures oilfield chemicals.
The company will be the second largest production-focused oilfield services company, behind Baker Hughes. Proforma revenues are $3.5 billion, 80% of which is derived from production.
The combined company will have an enterprise value of $7.4 billion, including just over $1 billion of debt. Apergy shareholders and existing Ecolab shareholders will own 38% and 62% of the combined company, respectively. Apergy is paying $3.9 billion in newly-issued shares and $492 million in cash to Ecolab.
The combined companies are assuming $75 million of cost savings. Including these savings, the transaction represents 9.5 times 2020 estimated EBITDA.
Apergy CEO Soma Somasundaram and Apergy CFO Jay Nutt will be CEO and CFO of the combined company. Deric Bryant, the EVP of Ecolab’s Upstream business will become COO.
The transaction is expected to close in the second quarter of 2020.
The announcement comes one day after Superior Energy agreed to spin off its US completions business and merge it with Forbes Energy.
Apergy – Investor Presentation
Photo by Joshua Doubek
Superior Energy Services has announced that it will merge its US completions business with Forbes Energy Services in an all-stock transaction. The combined entity will then be spun off into a publicly-traded company. It will have its headquarters in Houston.
Superior operates in four segments: Drilling Products and Services, Onshore Completions and Workover services, Production Services and Technical Solutions. It has its head office in downtown Houston. Like many oilfield service companies, it has been suffering from a high debt load. Net debt was about $1 billion at September.
Forbes is also a US completions business with its head office in Alice, Texas. The business filed for Chapter 11 in January 2017 and the bondholders exchanged their debt for common stock.
The Newco – no name has yet been announced – will have proforma revenues of $831 million, of which $210 million will come from Forbes. It will have adjusted EBITDA of $77 million. However Newco expects to achieve $23 million in synergies, of which $15 million will come from Corporate expenses.
Superior will own 52% of Newco and will also transfer $250 million of debt to it. The CEO of Superior, David Dunlap will become the CEO of Newco. A CFO will be named later.
The remaining businesses of Superior will have revenues of $806 million. CFO Westy Ballard will become CEO while Chief Accounting Officer James Spexarth will become CFO.
The transaction is expected to close in the first quarter of 2020.
In further good news for Superior, its shares will begin trading again on the New York Stock Exchange on December 26. Back in September, I wrote about the shares being delisted for low stock price. The company has now completed a one-for-fifteen reverse stock split.
SEC filing – Superior spin-off
Noble Corporation has appointed Stephen Butz as its new CFO. He replaces Adam Peakes who left in September.
The company is an offshore drilling contractor. It has its registered head office in London but its operational head office is in Sugar Land.
Mr Butz has relevant experience, having been the CFO of fellow drilling contractor, Rowan Companies from December 2014 until its merger with Ensco in April 2019. Between 2005 and 2014 Mr Butz worked at Hercules Offshore in various financial roles including CFO. Prior to that, he even served as a consultant to Noble.
Mr Butz will receive a base salary of $550,000 and a cash sign-on bonus of $1.1 million. After the appointment was announced, the share price of the company rose 15 cents to $1.08. The company has a market cap of $233 million and debt of $4 billion.
Mr Peakes was paid $450,000 and received a severance of $1 million.
SEC filing – Noble Corp CFO appointment
Nextier Oilfield Solutions, formed from the merger of C&J Services and Keane Group in October 2019, has announced that CFO Jans Kees van Gaalen has left the company. He will be replaced by Kenny Pucheu, who was the VP of Finance of Keane prior to the merger.
Mr van Gaalen was the CFO of C&J, though he only joined the company in September 2018. Greg Powell, the former CFO of Keane, became Chief Integration Officer, while the CEO of the combined group is Robert Drummond, ex CEO of Keane.
According to documents filed as part of the merger, Mr van Gaalen will receive a cash severance payment of $2.7 million. His base salary was $500,000.
Mr Pucheu joined Keane in 2016. Prior to that he spent 15 years with Schlumberger. He will receive a base salary of $375,000.
The current market capitalization of the combined group is $1.3 billion. That’s below the value at the time the deal was announced in June 2019 ($1.5 billion) but above the value when the deal closed ($1 billion).
SEC Filing – Nextier CFO transition
Weatherford International has completed its financial restructuring and emerged from Chapter 11 bankruptcy protection.
The company entered into Chapter 11 at the beginning of July. The reorganization reduced overall debt by $6.2 billion (from $8.3 billion at filing). In return, the bondholders will own 94% of the restructured company. 5% has been set aside for a management incentive plan. Existing shareholders will own the other 1%.
Initially the company’s shares will trade over-the-counter. However it plans to list on the NYSE by the end of March, after it has reported its fourth quarter results and completes its fresh start accounting.
The company is the fourth largest oilfield service company but hasn’t made a profit since 2011
In November, Weatherford appointed Christian Garcia as its new CFO. He doesn’t start his new job until January 6, 2020.
In late November, William Macaulay, Chairman of the Board, died aged 74. He had been on the board since 1998 and had been Chair since March 2017 when Mark McCollum was appointed CEO. Thomas Bates has been appointed as the new Chairman.