Category Archives: Oilfield Services

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

Oilfield Services company replaces CFO

Nine Energy Services has appointed Guy Sirkes as its CFO, replacing Clinton Roeder, with immediate effect. Mr Sirkes joined the company in March 2019 as the VP, Strategic Development. Prior to that he was with JP Morgan’s Oil & Gas Investment Banking Group.



Mr Sirkes will have a base salary of $380,000 and be eligible for a target bonus of 80% of base salary. These are the same terms that Mr Roeder had.

Mr Roeder was appointed as CFO in December 2017, a month before Nine went public at $23 per share. He replaced Doug Aron, who became the CFO at Nine in April 2017 but left after five months for the same role at Archrock, another Houston public company. Mr Aron is still employed there.

Mr Roeder will receive a severance of $684,000. This comprises one year’s salary plus one year’s target bonus. The severance will be paid over 12 months.

Nine, which provides onshore completion and production services, has its head office in the River Oaks area of Houston. The company currently has a share price of 81 cents and a market capitalization of $23 million.

SEC filing – Nine Energy CFO appointment

Houston companies reduce salaries for senior executives

In recent days, a few public companies in the Houston have announced salary reductions for senior executives as they battle with the economic downturn. The changes are temporary though most haven’t set a timetable for when they will be restored. A summary of the changes announced for the CEO and CFO officers is set out in the table below.

A shout-out to Cactus, an oilfield services company, who were the first to announce changes.

[UPDATE 4/3/2020 – Since publishing this article, other companies have implemented reductions including Stage Stores (25%), NCS Multistage (20%), Target Hospitality (20%), Flotek (10%) and Team (10%)].

A couple of other comments

Occidental : All Executives had their salaries capped at $250,000. Furthermore, it appears that Oxy cut the salaries of all US employees making over $76,000 by 30%. It appears those making less got cut by 20%. Legacy Anadarko employees appear to have only got cut 4.9% to avoid breaching contracts in last year’s disastrous merger. That’s really going to help mesh the company cultures!

Group 1 Automotive : 3,000 US employees are furloughed for a 30-day period, with an option for a second 30-day period. 2,800 UK employees are furloughed for an initial period of 21 days. That’s about 40% of their workforce.

SEC filing – Group 1 Automotive

https://www.thelayoff.com/occidental-petroleum

 

CompanyPositionNameOld salary $000New salary $000% reduction
CactusCEOScott Bender30015050%
CactusCFOStephen Tadlock33526820%
Group 1 AutomotiveCEOEarl Hesterberg1,15057550%
Group 1 AutomotiveCFOJohn Rickel63050420%
Luby'sCFOScott Gray34217150%
Nabors IndustriesCEOTony Petrello1,7501,40020%
Nabors IndustriesCFOWilliam Restrepo65052020%
Occidental PetroleumCEOVicki Hollub1,25025080%
Occidental PetroleumCFOCedric Burgher72525066%
Superior Energy ServicesCEODavid Dunlap85068020%
Superior Energy ServicesCFOWesty Ballard44037415%
US Physical TherapyCEOChris Reading80048040%
US Physical TherapyCFOLarry McAfee51033235%

Drilling Contractor CFO leaves after 3 months

Stephen Butz has resigned as CFO of Noble Corp, a drilling contractor, 3 months after joining the company. He is replaced by Richard Barker.

The company is an offshore drilling contractor. It has its registered head office in London but its operational head office is in Sugar Land.

According to the press release, Mr Butz resigned following the ‘recently announced Chief Executive Officer transition plan’.



In that plan, announced last month,  current CEO and Chairman, Julie Robertson became Executive Chairman (salary $500,000). Robert Eifler was promoted from Senior VP, Commercial to CEO (new salary $675,000). Ms Robertson also received a lump sum payment of $3.75 million, which will be clawed back if she resigns prior to October 31, 2021.

When Mr Butz joined the company in December 2019, he received a sign-on bonus of $1.1 million. If Mr Butz resigns without ‘Good Reason’ prior to December 2020, he is to repay the bonus in full. I presume that is the case here, but I can’t definitely state that as his signed employment contract has not been filed by the company. [UPDATE : The company has now the 8-K. Mr Butz gets to keep $450,000 of the $1.1 million].

In December, the company had a share price of around $1, giving it a market capitalization of $233 million and debt of $4 billion. Current share price is 29 cents (market cap $71 million).

Mr Barker joins from Moelis & Company, an investment bank. He joined that company in August 2019 having previously been at JP Morgan, Tudor Pickering Holt and Goldman Sachs. [UPDATE He will receive a base salary of $475,000. He will also receive cash retention/bonuses of $725,000 on December 31, 2020 and $575,000 on December 31, 2021].

https://www.prnewswire.com/news-releases/noble-corporation-plc-announces-departure-of-chief-financial-officer-and-names-replacement-301024738.html

McDermott seeks large bonuses for senior management while in bankruptcy

Photo: Nandu Chitnis

McDermott has filed a motion with the Bankruptcy court seeking approval for an employee retention plan for both senior executives and key employees who are not executives. CEO David Dickson could receive $6.3 million in 2020 if the company hits its targets.



As a reminder, the company, which is based in west Houston, awarded Mr Dickson a $3.375 million cash retention bonus only last October. The company filed for Chapter 11 bankruptcy in January 2020, at which point the company paid out the last 30% of that award, even though it wasn’t technically earned.

Quarterly retention bonuses

The retention bonuses will be paid quarterly in cash. The senior executives and their target bonuses are as follows;

  • David Dickson (CEO) – $6.3 million
  • Chris Krummel (CFO) – $1.2 million
  • John Freeman (Chief Legal Officer) – $1.1 million
  • Samik Mukherjee (COO) – $1.3 million
  • Ian Prescott (Senior VP, Asia Pacific) – $423,000

The bonuses are dependent on the following performance metric;

  • Adjusted EBITDA  (27.5%)
  • Available cash balance (27.5%)
  • Technology Business sale proceeds (15%)
  • Safety (15%)
  • Achievement targets (15%)

The maximum payout is 200% of target, so Dickson could get $12.6 million.

The incentive scheme runs until the end of 2020, irrespective of whether McDermott exits Chapter 11 before then.

In October 2019, senior management got $7 million in bonuses

Freeman, Mukherjee and Prescott also got retention bonuses in October, similar to the targets above. Then-CFO Stuart Spence got $1.3 million, only to leave the company two weeks later. He got to keep his bonus, of course. If Mr Krummel got a bonus at that time, it wasn’t disclosed.

What’s particularly galling to me, is that, in October, when McDermott got their expensive financing and gave out the retention bonuses, the company was forecasting adjusted EBITDA for 2019 of $474 million. By the time they filed for bankruptcy three months later, that figure had been reduced to $183 million. They did meet their 2019 free cash flow forecast – an outflow of $1.2 billion – but only because they held back $300 million in payments to vendors.

There’s no real details on the key employees scheme, other than payments will be in fixed amounts, paid quarterly.

[UPDATE 02-16-20 Having reviewed the document filed with the bankruptcy court there are 13 employees in the senior executive plan. In the key employee plan there are 1,112 employees expected to receive a retention bonus worth a total of $79.4 million, an average of $71,403 each].

A reminder of how the company got into this mess

The bankruptcy stems from McDermott’s disastrous acquisition of fellow Houston company, CB&I in May 2018 for $4.1 billion ($2.4 billion cash, $1.7 billion stock). CB&I had a lot of legacy Engineering & Construction projects that have turned out to be much less profitable than McDermott expected at acquisition.

The costs to complete estimated at acquisition on just 3 projects (Cameron LNG, Freeport LNG and Calpine Power) increased by over $1 billion. As a result, the goodwill on CB&I ended up being $4.8 billion. McDermott wrote down $2.1 billion in goodwill 7 months after acquisition. That’s a quick destruction of shareholder value!

After the deal closed, Mr Dickson received a 25% increase in base salary to $1.125 million and a $1.125 cash bonus for completing the acquisition.

SEC filing – McDermott bankruptcy bonuses

20-30336 doc 367 – McDermott incentive scheme filed with Bankruptcy court

Seismic company states that former management misappropriated nearly $17 million

SAExploration Holdings has restated its annual report for 2018 and selected financial data going back to 2014. As a result, at December 31, 2018, stockholders’ equity swung from equity of $15.4 million, as originally reported, to a deficit of $17.4 million!



Furthermore, the company states that former CEO Jeff Hastings and former CFO Brent Whiteley misappropriated $16.6 million between 2012 and 2019. Not surprisingly, the company stated that the Securities and Exchange Commission and the Department of Justice are conducting parallel investigations.

SAEX is a global provider of seismic data and processing services. It has its head office in west Houston. It currently has a market capitalization of $13 million.

At some point in 2019, the SEC started an investigation in relation to revenue recognition, accounts receivable and tax credits. In August 2019, the Board established a special committee of independent directors to oversee an external investigation with respect to the matter.

Vendor and customer secretly controlled by CEO and CFO

The special committee identified that Global Equipment Solutions, one of the company’s vendors in 2015 and 2016, was actually formed by Brent Whiteley and controlled by Mr Whiteley and/or Mr Hastings. The company paid $12 million to this entity in these two years.  $5.9 million of this ended up being a capital contribution to a company called ASV. The company had originally recorded third party revenue from ASV in 2015 and 2016 of $84 million and $57 million respectively.

In the original 10-k filing, nearly all of that revenue from ASV in 2016 was still outstanding as a receivable in 2018. There was also a convoluted explanation about how the customer – ASV wasn’t named in the 2018 financial statements – was going to pay SAEX using monetization of exploration tax credits from the state of Alaska. That got the attention of the SEC. In the restated financials, this receivable was written off and ASV has been consolidated as a variable interest entity.

Consulting firm secretly controlled by CFO

Furthermore, 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.

The special committee also identified the misappropriation of $0.5 million in 2013 in relation to the reimbursement of the individual tax liability of Mr Hastings.

In total, the amount of funds that the company states was misappropriated was $16.6 million ($12+$4.1+$0.5 million).

The company fired Mr Whiteley in August 2019. It suspended Mr Hastings on the same day and terminated him in November 2019.

The aftermath

The company has spent $6.9 million in legal and professional fees in relation to the SEC investigation in the nine months ended September 30, 2019. For good measure, the Alaskan Department of Revenue is also conducting an investigation into the issuance of tax credits and may impose its own sanctions.

The company has been selling off assets to try and improve its financial situation. In November it sold its assets in Australia for $9 million. In January, 2020 it sold certain seismic data assets for $15 million plus a possible earnout of $5 million.

At September 2019, the company had debt of $119 million and negative equity of $31 million.

https://www.sec.gov/Archives/edgar/data/1514732/000156459020003869/0001564590-20-003869-index.htm