Category Archives: Oilfield Services

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.

 

Well known Oilfield Services company files for bankruptcy

BJ Services, which has its head office in Tomball, TX has filed for Chapter 11 bankruptcy. There is no pre-packaged plan in place. If agreement can’t be reached with the lenders in the next few days, the company may have to liquidate. The company has laid off 800 employees since March and a further 1,250 jobs are at risk.

BJ Services currently operates 42 pressure pumping fleets (2.1 million hydraulic horsepower) and 180 cementing pumps.



History of the company

The company has one of the most well-known brand names in oilfield services. Byron Jackson, an inventory of pumps for farmers and miners in California, founded the original company in 1872. Hughes Tool acquired the company in 1974. Hughes merged with Baker International to form Baker Hughes in 1987. In 1990 Baker Hughes spun off BJ Services into a public company only to acquire it again in 2010 in a $5.5 billion transaction.

The current incarnation was created in November 2016 when Baker Hughes contributed its pressure pumping assets into a new joint venture with Allied Completion Holdings, another pressure pumping company that is backed by CSL, a private equity firm based in Houston.  Baker Hughes ended up owning 47% of the joint venture and its share was valued at $566 million. That investment has been written down to zero due to losses incurred by BJ since 2016.

BJ Services filed for an Initial Public Offering in June 2017 though at the time the company was losing money, even at the EBITDA level. It never completed its offering and eventually withdrew its registration statement in March 2019.

Current debt load

BJ Services currently has $357 million of debt. This comprises $102 million of an asset-based loan, $190 million in equipment term loans and $65 million for real estate term loans. These loans are held by different lender groups.

The drastic downturn in drilling and completions caused by the collapse in oil prices in March 2020 caused the company to engage Kirkland & Ellis and PJT Partners as restructuring partners.

CSL offered to invest an additional $75 million in new-money in exchange for the vast majority of the equity in the reorganized company. However, the deal was contingent on generating $120 million from the sale or liquidation of certain non-core assets. That money would go to the equipment lenders.

The company also expected to sell the cementing business for $30 million or more, on a going-concern basis.  On the pressure pumping side, CSL has bid for 3 of the 42 frac fleets on a going-concern basis. CSL has also offered to buy the research and development for the next generation of pressure pumping units.

Proposed deals fall through

The proposed deals fell through because the company, CSL and the various lenders couldn’t agree on terms of the proposed write-downs to be shared by the parties and how the businesses being sold would be funded on a going-concern basis. Given the potential conflicts that CSL has and that the equipment lenders have collateral in the pressure pumping and cementation fleets but not in the R&D, I am not surprised.

The company is trying to get all parties to agree a reorganization plan in the next 7 days. If not, the company may not have funds to operate on a going-concern basis and may be forced to liquidate its assets in an orderly wind-down.

Declaration by BJ Services CEO in support of Chapter 11 filing

 

Houston Frac sand company files for bankruptcy

Hi-Crush, a frac sand supplier, has filed for Chapter 11 bankruptcy. The company, which is based in the Galleria, has been hard hit by the downtown in completion activity following the COVID-19 pandemic.



It’s a pre-packaged bankruptcy as the company has agreement of 94% of the senior unsecured noteholders. The main terms are;

  • $450 million senior loan noteholders get 100% of the new common stock to be issued by the company.
  • Existing shareholders will be wiped out
  • There will be a $43.3 million rights offering whereby existing noteholders and other eligible holders of unsecured claims will be granted rights to purchase new secured convertible notes.
  • Debtor-in-financing facilities including a $25 million asset-based revolving loan facility and a $40 million delayed-draw term loan. The latter will convert into new senior secured convertible notes upon exit from Chapter 11.

Retention Bonuses

Of course, it’s not a Energy bankruptcy without retention bonuses for senior management.  These were paid on Friday 10 July. CEO Robert Rasmus got a $1.35 million retention payment (more than 2x base salary), COO Michael Oehlert was paid $693,750 while General Counsel Mark Skolos got $552,750.  CFO Phil McCormick got a $360,000 bonus. This replaces the $250,000 retention bonus that was promised when Mr McCormick promoted to the CFO position in December 2019.

The bonuses will be considered earned and therefore not repayable once the company exits Chapter 11.  That is expected within 60 to 90 days. The executives are not eligible for any annual bonus in 2020.

$2.5 billion market cap in 2014

Hi-Crush went public in 2012 and, initially, was primarily a supplier of ‘Northern White’ sand from Wisconsin, a premium sand used in fracking. The company had a peak market capitalization of over $2.5 billion in the middle of 2014. In recent years, E&P operators began seeking cheaper alternatives and the company made acquisitions of mines in the Permian Basin.

The company was originally a limited partnership before converting to a C-Corp in 2019. However a partnership structure is not ideal when the underlying business is so volatile.

Excessive distributions

The company paid out $82 million in distributions in 2017 and $167 million in 2018. These figures approximate to net income for those years. However the company also had heavy capital expenditures in each of those years of about $100 million in excess of the depreciation charge. The large cash outflow was funded by an additional $250 million in debt, at 9.5% interest, in 2018.

Even though that debt was not due to be repaid until 2026, the debt burden was too much for the company to bear.

SEC filing – Hi-Crush bankruptcy

Kirby to restate results after goodwill impairment error

William Alden

Kirby Corporation is restating its first quarter results following an error it made in its goodwill impairment charge. Instead of a pre-tax charge of $260 million, it should have booked a charge of $388 million. After taxes, the net income loss increased by $99 million.



Kirby is the largest domestic tank barge operator, transporting bulk liquid products. It also provides after-market services and parts for engines, transmissions and gears. Just over half of these parts are sold to oilfield service and E&P companies. The company has its head office just west of downtown Houston.

New goodwill impairment test

The goodwill impairment occurred in its distribution and services segment and was a result of the dramatic decline in its share price during the first quarter. The company was tripped up by revisions the Financial Accounting Standards Board (FASB) made in the process of testing for goodwill impairment. These revisions came into effect at the beginning of 2020 for Kirby.

In certain circumstances when performing a goodwill impairment test a company can get into a circular logic loop. If the fair value of a reporting unit is below the carrying value, triggering an impairment, a deferred tax asset (arising from the book/tax differences in the treatment of goodwill) can increase in value, causing an additional impairment. This causes the deferred tax asset to increase, triggering more impairment. To address this, in the new guidance, FASB mandated the use of a simultaneous equation to solve the problem.

Kirby did not perform the simultaneous equation in its initial accounting for the impairment loss.

Effect of writedown

Prior to the writedown, the company had goodwill of $954 million and intangible assets of $211 million out of total net assets of $3.4 billion. In addition to the writedown on goodwill, it also impaired the value of intangible assets by $165 million.

Kirby stressed that the impairment was a non-cash item and had no impact on EBITDA. While that is technically true, I often find such explanations disingenuous when companies use them.

Stewart & Stevenson

Kirby didn’t specify which acquisition was the primary cause of the impairment. The likely culprit is the acquisition of Stewart & Stevenson in September 2017. Kirby paid $758 million for the business that included $331 million of goodwill and $155 million of intangible assets. It paid for the business with $378 million in cash and the rest in stock.  It sounds like Kirby has written off all the goodwill and intangible assets from that business. Operating margins in the Distribution and Service segment have fallen from 10% in 2017 to 5% in 2019 and 1.5% in the first quarter of 2020.

In other words, Kirby massively overpaid for Stewart & Stevenson. Ultimately, it’s the shareholders who pay for that profligacy.

SEC filing – Kirby to restate goodwill impairment

 

Another Oilfield Services CFO steps down

Lyle Wiliams has been appointed CFO of Forum Energy Technologies, replacing Pablo Mercado, who has resigned.

[UPDATE 7-13-20 Mercado has been appointed the new CFO at Dallas-based Enlink Midstream].

Forum is based in NW Houston. It manufactures equipment servicing drilling and downhole, completions and production. The company currently has a market cap of $59 million and a share price of 51 cents.



At the end of March the company had $389 million of unsecured notes due in October 2021 and a $55 million credit facility due in July 2021. The company has since bought back $70 million of these notes for 38.5 cents on the dollar.

Mr Williams joined the company in 2007 from Cameron International (now part of Schlumberger) and has held various operational and financial roles. Most recently he was the Senior VP of Operations. No new compensation has been finalized.

Mr Mercado had been the CFO since February 2018. He joined the company in 2011 and was previously at Credit Suisse.

The company press release and the SEC filing didn’t spell out the financial terms of his departure. However, assuming that Mr Mercado will receive a severance, he is in line to receive a cash payment of $1.4 million dollars (2 times base salary of $410,000 plus 2 times target bonus of $307,500). [Update – it is clear now that Mr Mercado resigned to take the position at Enlink, so there will be no severance]

Mr Mercado’s predecessor, Jim Harris, recently stepped down as the CFO of Pacific Drilling.

SEC Filing – Forum Energy CFO change

 

 

CFO of Drilling Contractor resigns after less than a year

Jim Harris, CFO of Pacific Drilling, has resigned, effective September 14, 2020. No reason was given for his departure and no new CFO has yet been appointed.

Pacific Drilling operates seven deepwater drill ships, though only four are under contract. Technically, it has its corporate offices in Luxembourg, however its operational headquarters are in west Houston.



The company filed for bankruptcy in November 2017. It emerged from Chapter 11 a year later and its shares were relisted on the NYSE in December 2018.

The company currently has $1.1 billion of gross debt, however no principal payments are due until 20123. It has $280 million of cash on hand, though it burned through $50 million in the first quarter of 2020. It currently has a market capitalization of $47 million.

Mr Harris was only appointed CFO in July 2019. He replaced John Boots who had been promoted to CFO in August 2017. Prior to joining Pacific, Mr Harris was the CFO of Forum Energy Technologies between 2005 and 2018.

SEC filing – Pacific Drilling Harris resignation

 

 

Houston helicopter companies complete merger

ERA and Bristow, have completed their all-stock merger. The deal was first announced in January 2020.

Both companies have their head office in west Houston and both were publicly traded until Bristow filed for bankruptcy in May 2019. The combined company will keep the Bristow name but will now trade under a new ticker symbol ‘VTOL’.



The combined group

For the year ended March 2020, Bristow had revenues of $1.2 billion and ERA $232 million. Bristow shareholders own 77% of the combined company, ERA shareholders 23 %. Technically, Bristow acquired ERA for a preliminary purchase price of $108 million. The net assets acquired were $175 million, resulted in a gain on bargain purchase of $67 million.

Since 2015, from time to time, the companies held informal discussions about a business combination. However, the bondholders who took control of Bristow in the bankruptcy reorganization really pushed the Bristow management for a merger.

The merger is expected to result in annualized cost savings of at least $35 million through the elimination of duplicate corporate expenses and greater operational efficiencies.

Management team

ERA CEO Chris Bradshaw becomes CEO of the combined group. David Stepanek, who was Senior VP of Business Development at ERA, becomes COO.  Jennifer Whalen, the CFO of ERA becomes the interim CFO. A permanent CFO will be named at a future date.

Don Miller, CEO of legacy Bristow and Brian Allman, CFO of legacy Bristow, were not named in new management team. I presume they have left the company, though that has not been explicitly stated in any SEC filings by the company.

Severance

Mr Miller will receive a cash payment of almost $3 million comprising 2x base salary ($1.4 million), target annual bonus ($0.8 million) and an incentive bonus of $750,000. Mr Allman will receive a cash payment of $1.1 million.

As a reminder, Mr Miller, who was only promoted from CFO to CEO in March 2019, got a $945,000 cash retention bonus in May 2019 and was eligible for cash bonuses (annual target $942,000). For Mr Allman, who was the Chief Accounting Officer before being promoted to CFO, the retention bonus was $400,000.

SEC filing – Bristow ERA merger completed

Weatherford CFO resigns after 6 months

Christian Garcia, the CFO of Weatherford International, has resigned. He will leave the company in early August after they have filed the second quarter report. The company will announce a successor at a later date.

Just a few days ago, Mr Garcia was named, along with COO Karl Blanchard as co-interim CEOs following the sudden departure of CEO Mark McCollum. Mr Garcia steps down from the office of the CEO role with immediate effect.



Mr Garcia only became the CFO in January. There’s no reason given for his departure, but it appears to be a personal decision he made. However he was close to Mr McCollum. Mr Garcia replaced Mr McCollum as Halliburton’s CFO during Halliburton’s proposed merger with Baker Hughes (2015-2016).

When Mr Garcia joined Weatherford, he received a sign-on bonus of $500,000. Under the terms of his employment contract, he will have to repay this.

Mr Garcia replaced Christoph Bausch as CFO. When Mr Bausch left in December 2019, he received termination pay of $3.6 million. Adding in Mr Bausch’s retention bonus and quarterly cash bonuses, he received $7.7 million in total cash payments in 2019.

Interim CEO

Karl Blanchard, interim CEO, will get an increased salary while performing those duties. As COO, he was making $700,000 a year. This was temporarily reduced by 20% due to the downturn caused by COVID-19. As interim CEO, his salary has been increased back up to $700,000. In addition he is eligible for monthly cash bonus payments of $370,296.

Non-Execs resign

It’s been a rough few days for Weatherford. In addition to the turmoil in the executive suites, three non-exec directors, who were nominated for re-election to the board, had to resign after failing to obtain the necessary votes at the Annual General Meeting of shareholders. This followed a campaign by an activist investor.

In addition to announcing the departure of Mr Garcia, Weatherford announced the appointment of a new non-exec director, Benjamin Duster. He serves on a number of boards as a non-exec director and is a corporate governance expert specializing in companies going through reorganizations.

SEC filing – Weatherford CFO resigns