Category Archives: Uncategorized

Chinese national indicted for theft of coiled tubing trade secrets

Lei Gai, aka Jason Gao, has been indicted for stealing coiled tubing technology from a Houston-area manufacturing company. Also indicted were two corporations, Jason Energy Technologies in Yantai, China and Jason Oil & Gas Equipment LLC (JOG), based in Houston.

Also charged in relation to the case is Robert Erford, Jr of Dayton, Texas. He previously pleaded guilty to conspiracy to commit theft of trade secrets.



Erford was a production mill operator in the Dayton plant owned by a parent company, based in Houston. The plant and the company are not named in the indictment, but I believe them to be Global Tubing LLC, which is owned by Houston-based Forum Energy Technologies.

In April 2019, Erford first contacted JOG in Houston inquiring about managerial positions. It wasn’t until September that Gao responded and they agreed to meet up in Houston the following month.

During their second meeting, Gao suggested that Erford travel to China for a two-week consultancy assignment to assist the Chinese company with its manufacturing problems. Erford was asked to bring a small piece of sample material of advanced coil tubing.

One week assignment

Erford also took 120 photos of the Dayton facility, processes and data. This included unique chemical compositions for the raw material used in the plant. Erford eventually traveled to Beijng and visited the Chinese facility for 5 days over Thanksgiving 2019. In total, Erford was paid $8,500.

The sentencing for Erford is set for March 20121. At that time, he faces a prison term of up to five years and a fine of up to $250,000.

Gao previously resided in Houston but is now believed to be in China. A warrant remains outstanding for his arrest.

Not the first time

This is not the first time a Chinese company has stolen trade secrets from a Houston-area company by targeting production employees. Back in 2017, four employees from a Trelleborg plant in North Houston were indicted, along with a Chinese national.

https://www.justice.gov/usao-sdtx/pr/chinese-energy-company-us-oil-gas-affiliate-and-chinese-national-indicted-theft-trade

 

 

 

 

Weatherford appoints new CFO

Weatherford has appointed Keith Jennings as its new CFO, replacing Christian Garcia, who resigned in June after six months.

Mr Jennings joins from Calumet Specialty Products Partners, where he was CFO. He only joined that company in October 2019. Prior to that, he was at Eastman Kodak. He also spent seven years as VP and Treasurer at Cameron International, leaving a few months after its takeover by Schlumberger.



Calumet is based in Indianapolis, so Weatherford is giving Mr Jennings a relocation allowance of $150,000. His base salary will be $500,000 and he will receive another $500,000 as a sign-on bonus. The sign-on bonus will be repayable if Mr Jennings leaves within a year.

Weatherford filed for bankruptcy in July 2019 and emerged on December 13, 2019. Debt was reduced from $8.0 billion to $2.2 billion with the bondholders owning 94% of the equity of the newly reorganized company.  Shortly after emerging from bankruptcy, the company took out a $450 million asset-based credit line.

As part of its efforts to shore up its finances, last week Weatherford secured an agreement with the noteholders that they would buy $500 million of new notes due 2024 at 8.75% interest. In return, the company would use those proceeds to pay off the credit agreement that was only entered into in December 2019.

This helps alleviate a problem facing Weatherford since the pandemic. Its international operations have proved more resilient than the domestic markets, but its borrowing base is weighted towards North America. The company faced a declining collateral base but Wells Fargo and Deutsche Bank, the agents for the credit facility, refused to discuss any material covenant modifications.

SEC filing – Weatherford CFO appointment

Flotek Industries CFO departs

Flotek Industries has announced that CFO Elizabeth Wilkinson has left the company. The company is looking for a replacement.

Flotek develops and supplies chemistry and services to the oil and gas industry. It has its head office in NW Houston. Following the sale of its non-oilfield chemicals business to Archer Daniel for $175 million in cash in January 2019, it has revenues of around $100 million.



In December 2019, the company appointed a new CEO, John Gibson who moved over from Tudor, Pickering Holt, an investment bank.

Ms Wilkinson was appointed CFO in December 2018. The short press release states that her termination was without cause. She will be paid severance according to her terms of employment with the company.

According to the annual proxy, Ms Wilkinson will receive 1.5 time base salary ($350,000) plus target annual bonus (75% of base). In total, she will receive $919,000 in severance, to be paid in nine monthly instalments.

Flotek has been in the news for three reasons recently

  • In April, the company received a $4.8 million Paycheck Protection Program loan, even though, at the end of March, it had $80 million cash on hand and no outstanding debt.
  • In May, the company acquired JP3 Measurement, a data analytics company, for $25 million in cash and 11.5 million shares.
  • The company announced it had identified two deficiencies in its internal controls over financial reporting. One relates to elimination of intercompany profits in inventory, the other relates to the intangible assets for the now-sold chemicals business. The company will be filing an amended annual report for 2019.

SEC filing – Flotek CFO departure

Houston man guilty of Hurricane Harvey fraud

Robert Kaitho, 56, has pleaded guilty to money laundering in connection with his scheme to defraud the Small Business Administration (SBA).

Kaitho applied for government assistance in reference to a property in NE Houston. Kaitho stated that the house sustained damage in Hurricane Harvey, when, in fact, it hadn’t. He falsely represented to the SBA that he would use the disbursed funds to rehabilitate the affected property.



SBA disbursed a federally-funded disaster loan to Kaitho for $71,100. He used the money to pay $25,000 to a mortgage company. Kaitho, who grew up in Kenya, also made a $30,633 wire payment to an individual located in Kenya.

Sentencing is set for June 1. At that time, Kaitho faces up to 10 years in federal prison and a $250,000 maximum possible fine.

https://www.justice.gov/usao-sdtx/pr/houstonian-convicted-scheme-linked-hurricane-harvey

CEO of marine vessel fabricator steps down

Gulf Island Fabrication

Kirk Meche, CEO of Gulf Island Fabrication, has stepped down. The company is a fabricator of marine vessels with facilities in Houma and Lake Charles, Louisiana. It has its head office in west Houston and a market capitalization of $85 million.



Mr Meche, who joined the company in 1999, has been CEO since 2013. He will stay on until December 31, 2019 at the latest while the company begins a search for his successor.

The company has struggled in recent years as the market for offshore vessels has shrunk. The company is trying to diversify into onshore fabrication and other areas where project management skills are needed (such as offshore wind). Unusually, the company has $50 million of cash on hand and no debt.

Mr Meche will receive a severance payment of $958,000 which is equivalent to two times base salary. Half will be paid immediately, the rest over 12 months. He will also get a pro-rata bonus for 2019. This has amounted to around $100,000 the last two years.

The restricted stock units that Mr Meche holds will be forfeited. However outstanding performance awards will remain valid and will pay out, provided certain targets are met.

The CFO of the company is Wes Stockton. He joined in September 2018.

SEC filing – Gulf Island CEO

Oilfield Services CFO promoted to CEO role

Tidewater CFO Quintin Kneen has been promoted to the CEO role, replacing John Rynd, who is stepping down with immediate effect. The company is conducting a search for a new CFO.



Tidewater owns and operates the largest fleet of offshore Support vessels in the industry. The company moved its head office from New Orleans to west Houston last year. In November 2018, it merged with GulfMark Offshore for $386 million in an all-stock deal.

Prior to the merger, Mr Kneen was the CEO of GulfMark. After the deal, he became the CFO of the combined company. Mr Kneen’s new salary will be $500,000. That’s up from the $350,000 he was making as CFO but virtually identical to the salary he was making as CEO of GulfMark.

Mr Rynd only joined Tidewater as CEO in March 2018. He was previously the CEO of Hercules Offshore. He will receive a severance package of one year’s base salary ($600,000) and one year’s target bonus ($600,000). When he joined the company, he received an equity award valued at $2.75 million that would vest over 3 years.  As a result of his separation agreement these now all vest (albeit at a lower value).

Since the deal with GulfMark closed, the stock price of Tidewater has fallen by about 40%. In May, the company came under fire from its largest shareholder, Raging Capital, an activist shareholder for being bureaucratic and having bloated overheads.

SEC filing – Tidewater

Raging Capital letter to Tidewater

Woodlands public company agrees to $565m stock takeover

Granite Construction, a California-based public company has agreed to buy Layne Christensen, based in The Woodlands, in an all-stock transaction worth $565 million, including the assumption of net debt.

Layne is a water management, infrastructure services and drilling company with approximately 2,200 employees. Granite is paying $17 per share for Layne, a 33% premium based on the average share price over the past 90 days. 

No details were given on who would run the combined company or where the head office would be located.  The deal is expected to close in the 2nd Quarter.

 

Silver Run II completes acquisition of Alta Mesa for $3.3 billion

On February 9, Silver Run Acquisition II, a blank check company based in downtown Houston that went public in March 2017, completed its acquisition of Alta Mesa Resources & Kingfisher Midstream for a combined $3.3 billion. Alta Mesa is an onshore E&P, primarily operating in the Anadarko Basin, that had been planning to go public via an IPO. Kingfisher operates midstream assets in the same Basin that primarily serve Alta Mesa. The deal was originally announced in August 2017. Alta Mesa was valued at $1.9 billion, Kingfisher at $1.4 billion.

As a result, Silver Run II has been renamed Alta Mesa Resources Inc and the management of Alta Mesa has effectively taken over, with the corporate office moving to west Houston.

  • CEO of Silver Run II James Hackett (former CEO of Anadarko Petroleum Corporation) has been appointed Chairman of the Board. He has also taken on the role of COO of the Midstream division.
  • Harlan Chappelle has been appointed CEO. He has been CEO of Alta Mesa since 2004.
  • CFO Thomas Walker has resigned to be replaced by Michael McCabe (CFO of Alta Mesa since 2006).

SEC filing – Silver Run II completes acquisition of Alta Mesa

 

Houston businessman arrested for $32 million fraud

Ray Davis, a 62-year-old Houston man, has been arrested following the return of a federal indictment charging him for his role in a securities and wire fraud scheme, totaling over $30 million.

A grand jury returned a 21-count indictment on 7 December. According to the indictment, the scheme involving defrauding investors in Behavioral Recognition Systems Inc (BRS) by making false and misleading statements to investors to fraudulently induce them to purchase shares in BRS ($32 million). He also allegedly embezzled more than $11 million from BRS.

BRS was based in the Galleria and made artificial intelligence technology that analyzes video information. Mr Davis founded the company in 2005, raised the money from investors in 2008-2009 and sold the business to a company called Giant Gray in 2015.

According to this February 2017 article in the Houston Chronicle Giant Gray sued Mr Davis and his son, Charles Davis for embezzling money by creating false invoices and charging personal expenses to the company.

There was no mention of the son, Charles Davis, in the federal indictment.

If convicted, Mr Davis faces up to 20 years in prison for the securities fraud charges as well as each of the 20 counts of wire fraud. The charges also carry a possible $250,000 maximum fine.

https://www.justice.gov/usao-sdtx/pr/local-man-arrested-30-million-securities-and-wire-fraud-scheme

Exterran hires new Chief Accounting Officer

Exterran Corporation (market cap $1.1 billion), a provider of compression services based in NW Houston, has appointed Michael Sanders as its Chief Accounting Officer, effective 30 October 2017.

Mr Sanders joins from Atwood Oceanics where he had been Corporate Controller since January 2016.  Atwood was recently taken over by fellow driller, Ensco. Prior to that Mr Sanders spent 14 months at LNG Limited (Corporate Controller), 15 months at KBR (Business Unit Controller, Gas Monetization Group) and 7 years at McDermott (Director of Financial Reporting and Consolidations). He started his career at Ernst & Young.

The base salary for Mr Sanders was not disclosed.

The previous CAO was Ray Carney who left Exterran in May to join KBR in the same position.

SEC filing