Category Archives: Oilfield Services

Oilfield Services company appoints new CFO

Key Energy Services has appointed Nelson Haight as its new CFO. He replaces Marshall Dodson, who became the interim CEO after Robert Saltiel left in December 2019 with a $2.5 million severance, just ahead of an out-of-court restructuring plan. Mr Dodson was made permanent in March 2020.



Key operates the largest well service rig fleet in the US. It also provides fishing and rental tools, coiled tubing and fluid management services. It is based in downtown Houston.

In late January, the company converted $242 million of debt into 97% of newly-issued equity. Its shares were delisted from NYSE and now trade over the counter.

Mr Haight has been serving as a consultant providing financial and accounting services to companies in the energy industry, Between January 2014 and July 2017, he was the CFO at Tulsa-based Midstates Petroleum, a publicly-traded E&P company.  Midstates was in a pre-packaged bankruptcy reorganization between April and October 2016. The company later merged with Houston-based Amplify Energy in Aug 2019.

Mr Haight will receive a base salary of $375,000 (though it will be temporarily reduced by 10% due to current conditions).

SEC filing – Key Energy CFO

Weatherford CEO departs suddenly

Weatherford CEO Mark McCollum ‘left the company’ on Sunday June 7, just five days before the (virtual) annual shareholding meeting. Mr McCollum was up for re-election as a director. His candidacy has now been withdrawn.

The timing of the departure and the curt press release issued by the company suggests there is a back story that’s not public yet.

According to the company, Mr McCollum’s departure was not the result of any dispute or disagreement with the company on any matter relating to the Company’s accounting practices or financial statements.



Search for new CEO

Mr McCollum was appointed CEO in April 2017. He was previously the CFO at Halliburton.  Current CFO Christian Garcia, who joined the company in January (and who also happens to be a former CFO at Halliburton) and COO Karl Blanchard will lead the company on an interim basis, while the Board conducts a search for new CEO.

Severance package

The company did not disclose the amount of the severance package for Mr McCollum and it’s not easy to figure out. The company did say that he was terminated ‘without cause’ and that he would be entitled to benefits and compensation under pre-existing compensation plans.

When the company emerged from bankruptcy in December 2019, that was considered a change of control. Therefore Mr McCollum is entitled to 3x base salary plus average annual cash bonus of the last three years. Mr McCollum’s base salary is $1 million, so that’s a $3 million severance payment. That’s the easy part.

For cash bonuses, Mr McCollum received $279,167 in 2017 and $579,600 in 2018. For 2019, he received a $2 million cash retention bonus in April 2019 and $3.368 million paid in cash instead of restricted stock awards (because the stock price was so low). An amendment filed after the company emerged from bankruptcy stated that the 2019 cash bonuses are excluded in calculating the average annual bonus.

Averaging the $279k (grossed up for a full year) and the $580k, amounts to approximately $476,000. So it appears that severance relating to the bonus will be $1.4 million. Of course, Mr McCollum gets to keep his $2 million retention bonus.

But wait, there’s more! Mr McCollum will also be entitled to a pro-rated target annual bonus for 2020. According to the proxy, the Board hasn‘t yet determined what the target is yet due to the uncertainty in the oil and gas markets. 

So the severance for Mr McCollum appears to be at least $4.4 million.

Also leaving the company is Christina Ibrahim, Executive VP and General Counsel.  Ms Ibrahim will also get 3x base salary and annual bonus. That amounts to at least $2.9 million.

Chapter 22?

There are rumors that Weatherford could be forced into bankruptcy again. The company entered Chapter 11 in July 2019 and exited in December, having reduced debt by $6.7 million. Unfortunately they still have $2.7 billion in debt and the recent downturn may mean a breach of covenants soon. The company has apparently hired restructuring law firm Paul Weiss.

SEC filing – Weatherford CEO departure

Houston Oilfield services merger completed

Apergy Corporation, based in The Woodlands, has completed its merger with the upstream division (aka Nalco Champion) of Ecolab. The deal was announced in December 2019. The combined company has been renamed ‘ChampionX’ and will have the ticker symbol ‘CHX’.



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 and has its head office in Sugar Land.

The new management includes:

  • CEO Soma Somasundaram (former Apergy CEO)
  • CFO Jay Nutt (former Apergy CFO)
  • COO Deric Bryant (former EVP of Ecolab’s Upstream business)
  • Chief Accounting Officer Antoine Marcos (former Senior VP Finance Nalco Champion).

The merger was a “Reverse Morris Trust’ transaction whereby Nalco Champion was spun off to Ecolab’s shareholders and simultaneously merged with Apergy. The transaction is tax-free for both sets of shareholders. The Champion shareholders hold 62% of the combined company, Apergy 38%.

At the time the deal was announced, it was expected that Apergy would issue 127 million shares (at $30.67, the price in December) to Ecolab shareholders and assume debt of $492 million. That valued Champion at $4.4 billion. By the time the deal closed, Apergy’s share price had fallen to $10.34 which drops to the valuation to $1.8 billion.

The investment in Champion X is sitting on the books of Ecolab at $3.7 billion. From expecting a gain, they will now book a large loss. It would have been much worse if Apergy’s stock price had not rallied from a low of $3.02 in late March.

SEC filing – Apergy Champion merger

Oilfield Services merger falls apart

Photo by Joshua Doubek

Superior Energy Services has announced that the merger of its US completions business with Forbes Energy Services is off.



The deal was originally announced in December 2019. The plan was to combine the entities in an all-stock transaction and then spin it off into a publicly-traded company. At the time of the merger announcement the Newco was projected to have proforma revenues of $831 million and adjusted EBITDA of $77 million.

Refinancing as part of the merger

Superior said that the rapidly declining demand for oilfield services made it impractical to complete this transaction. In addition the transaction was also dependent on refinancing $500 million of Superior’s debt that is due in 2021. The downturn made that more difficult.

The original agreement stated that Superior would pay a $5 million break-up fee to Forbes in the event the merger didn’t happen. The agreement has been revised so that there will be no break-up paid by either side.

Delisting notice

Superior’s stock price is trading at 99 cents. On March 30, the company received a non-compliance notice from the NYSE because its market capitalization and stockholders’ equity were both below $50 million. Normally the company would have six months to regain compliance. However, due to the volatility in the financial markets caused by COVID-19, the NYSE is permitting 18 month cure period.

Ransomware attack

Adding to the problems that the company faced, on April 28, the company announced it would have to delay filing its quarterly report for Q1 (originally due by May 11). The company said this was due to disruptions caused by COVID-19 which resulted in stay home orders and office closures.

The company finally filed its 10-Q on May 21. In the filing it disclosed, that on March 31, 2020, it had been subject to a ransomware attack that temporarily disrupted access to some systems.

Superior 10-Q filing

 

Dril-Quip promotes from within for CFO position

Dril-Quip has promoted Raj Kumar, currently VP Finance and Chief Accounting Officer, to be the Chief Financial Officer. Jeffrey Bird, who was Senior VP of Production Operations and CFO, has been promoted to Chief Operating Officer.



Dril-Quip is based in NW Houston and manufactures and services offshore drilling and production equipment. It currently has a market capitalization of $889 million. The company has always been conservatively run and has $344 million of cash on the balance sheet and no debt.

Mr Bird joined Dril-Quip as its CFO in March 2017. He joined from another oilfield services company, Frank’s International. Mr Kumar also worked with Mr Bird at Frank’s between March 2015 and May 2017.

Mr Kumar’s base salary increased from $300,000 to $350,000. There was no change to Mr Bird’s salary ($680,000). Both men were given new restricted stock awards that vest over three years (50% is performance-based).

The previous COO of Dril-Quip was James Gariepy who left with a $1.1 million cash severance in March 2019.

You can see the complete list of Houston-area public companies here.

 

Dril-Quip – Kumar promotion to CFO

 

 

Former Oilfield Services CFO leaves with a $6 million cash payment

Greg Powell, Chief Integration Officer with Nextier Oilfield Services, will be leaving the company in May. Mr Powell was the CFO of Keane Group, prior to its all stock merger with C&J Services in October 2019.



Under the terms of the merger, Mr Powell was to leave at the earlier of (i) 18 months or (ii) the date at which the company achieves $100 million in annualized savings. He will receive a performance bonus of $2.6 million.

Mr Powell will also receive a cash severance payment of $3 million, to be paid over the next two years. In addition he will also get a pro-rated cash bonus for 2020 of approximately $300,000. Just over 200,000 restricted stock units will also vest. At the current share price of $2.40, these are worth $0.5 million.

Mr Powell spent 10 years in various divisions of General Electric. He then joined PE firm Cerebus Capital Management before coming the CFO at Keane Group, a portfolio company, in March 2011.

Annualized savings

At the time the deal was announced, the target cost savings were $100 million. This was soon increased to $125 million. On the Q4 2019 earnings call held on March 11, Mr Powell stated that $3 million of savings were achieved in Q4 2019, $20 million would be achieved in the first half of 2020 and $63 million in the second half of 2020.

Declining Market capitalization

Keane went public in early 2017 with a market capitalization of $2 billion. It announced its merger with C&J Services in June 2019 (combined market cap $1.5 billion). By the time the deal closed in October, the combined market cap had fallen to $1 billion. It’s now just over $500 million.

CFO of Nextier got $4.1m severance 

At the time of the merger, Jans Kees van Gaalen, the CFO of C&J, became the CFO of the combined group. He left in December 2019, just 15 months after joining C&J, with a cash severance of $4.1 million.

Kenny Puchei, the former VP of Finance for Keane, was appointed as the new CFO.

The remaining executive officers are reducing salaries by 20% for 2020 due to the uncertainties caused by COVID-19.

SEC filings – Powell departure

Houston oilfield services company to merge

Houston-based Quintana Energy Services (ticker QES) has agreed to merge with KLX Energy Services (KLXE) in an all-stock transaction.

QES operates in four segments: Directional Drilling, Pressure Pumping, Pressure Control and Wireline. KLXE primarily operates in completion, intervention and production services.



KLXE was formed from the combination and integration of seven private oilfield service acquired between 2013 and 2014. It was spun out of its parent company, KLX Inc, into a separate public company in September 2018.

KLXE shareholders will hold approximately 59% of the combined company, QES 41%. The combined company will retain the KLX name and ticker. However, the corporate offices will remain in Houston.

Christopher Baker, the current CEO of QES, will become the CEO of the combined group. Likewise, Keefer Lehner, the CFO of QES, takes the top financial position.

On a proforma basis, the company would have combined 2019 revenues of $1 billion and $146 million of adjusted EBITDA, after an estimated $40 million in annualized cost synergies. More than half of that will come from the rationalization of KLXE’s Florida headquarters.

The enterprise value of KLX is $146 million, while that of QES is $63 million. KLXE shares are trading just above $1, while QES received a listing warning from NYSE last week because its share price had been trading below $1 for 30 days.

The transaction is expected to close in the second half of 2020.

KLX Investor Presentation

 

Seismic company appoints new CFO

SAExploration Holdings has appointed John Simmons as its new CFO. He has joined the company immediately. However, he will only start serving as the CFO after the company files its Quarterly report for the first quarter.



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SAE is a seismic services company that has its head office in west Houston.

Mr Simmons will replace interim CFO, Kevin Hubbard, a partner at Ham, Langston & Brezina. Mr Hubbard was appointed after the former CFO, Brent Whiteley, was fired in August 2019.

In its restated 2018 annual report filed in early February, the company alleged that the former CFO and former CEO misappropriated $16.6 million between 2012 and 2019.

Investigations by the Securities and Exchange Commission and the Department of Justice are still ongoing.

Mr Simmons was previously the CFO at Dauphine Energy, a private oil and gas company, from March 2019 to March 2020. Prior to that, he spent 17 years at BHP Petroleum. Mr Simmons will receive a base salary of $308,600.

The company has a market capitalization of $8 million and net debt of $121 million. It recently announced it had hired Imperial Capital to advise the company as it evaluates strategic alternatives to address its capital structure.

SEC filing – SAEX new CFO

 

Houston drilling contractor files for bankruptcy

Diamond Offshore has filed for Chapter 11 bankruptcy. The company operates 15 offshore drilling rigs and employs around 2,500. It has its head office in west Houston.



The company has made operating losses in four of the last five years. The company listed assets of $5.8 billion and debts of $2.6 billion in its Chapter 11 filing. The debt includes approximately $2 billion of senior notes owed to bondholders. The company will use its $435 million cash on hand to fund its operations while in bankruptcy.

Loews Corporation, a publicly-traded company whose primary business is insurance, owns 53% of Diamond. They will take a significant write-down on their $1.5 billion investment.

The Board of Directors of Diamond has decided to accelerate vesting of cash awards for 2018 and 2019 performance. Normally the awards would vest over three years. In order to retain key employees during bankruptcy, the Board has paid CEO Marc Edwards $1.75 million. Other members of the management team got between $140,000 and $261,000.

Between now and end of the first quarter of 2021, nine key employees will receive quarterly cash bonuses, subject to meeting certain performance targets. The target bonus for the CEO is $5 million. The target for the CFO Scott Kornblau is $555,000. The three performance targets are average rig efficiency, lost time incidents and reduction in overhead expenses.

On April 15, the company notified the Texas Workforce Commission that it intended to lay off 102 from its corporate office.

SEC filing

SEC alleges that Houston man conned the conmen

The Securities and Exchange Commission has charged two Kansas-based individuals with defrauding investors of over $3.6 million in connection with an oil and gas equipment scheme.



In February 2019 Phillip Hudnall and Todd Esh co-founded BirdDog Oil Equipment to raise funds from investors for the purported purchase and sale of refurbished oil and gas equipment. They convinced 12 investors in 5 states to invest $3.6 million in promissory notes issued by BirdDog.

The promissory note provided for a 30% return to the investor over the nine-month term of the note. The note assured investors that Hudnall had experience of completing transactions of this type. He did not.

Use of funds raised

Instead of using the money to buy and refurbish oilfield equipment, the SEC alleges that Hudnall used $1.7 million of co-mingled funds to buy 79 acres of land in Colorado. He also used $900,000 to make Ponzi-type payments to investors in prior, unrelated investments that Hudnall had orchestrated. Hudnall also used $450,000 of investor funds to buy himself a $99,000 BMW X7 and $24,000 of tickets for local sporting events.

In June 2019 Hudnall allegedly duped a Pittsburgh bank into giving him a $555,000 loan by creating a fake purchase order from a large oilfield services company. He used most of the funds to pay off two investors who were demanding their money back.

Nguyen dupes the fraudsters

Hudnall and Esh only made one attempt to use the investor funds as promised. Between February and June 2019, they transferred $1.2 million to Duc ‘Doug’ Nguyen’, a 56 year-old man living in Houston. Nguyen told Hudnall and Esh that he had procured oilfield equipment from a major oil company and had an end-buyer lined up to buy the equipment once it was refurbished.

Nguyen instead gambled away $615,000 of the money in Las Vegas. He also gave over $85,000 to friends and family. $21,000 was used to buy a new car (presumably not a BMW).

Nguyen has not been charged in this case. Rather he is a ‘relief defendant’. That’s a term for someone who has received ill-gotten funds as a result of the illegal acts of the other named defendants. A relief defendant is typically named because the plaintiff(s) seeks injunctive relief to protect the sought funds or assets and apply them to any eventual recovery in the case.

https://www.sec.gov/litigation/litreleases/2020/lr24803.htm