CFO resigns from drilling equipment manufacturer

Luca Pacioli – the father of accounting

Raj Kumar, CFO of Dril-Quip, has resigned, effective November 1, 2021, to take another opportunity. [UPDATE 10-4-21 He’s joining Houston-based Kirby Corp as CFO]. The company has engaged an executive search firm to conduct a search for his replacement.



Dril-Quip is based in NW Houston and manufactures offshore drilling and production equipment. It has revenues of $340 million and a market capitalization of $892 million (partly driven by a net cash balance of $370 million).

Mr. Kumar joined Dril-Quip in June 2017 as its Treasurer and was promoted to CFO in May 2020, succeeding Jeff Bird who became COO (and is now the CEO). Prior to that he spent two years at Frank’s International, another Houston drilling company, where he worked for Mr. Bird, who was the CFO at Frank’s at the time.

Mr. Kumar started his career in investment banking in Malaysia before joining Dell and later transferring to Austin. He has also worked for LyondellBasel and FMC Technologies.

SEC filing – Dril-Quip Kumar resignation

Chemical manufacturer to be sold for $2.5 billion

Kraton Corporation Logo (PRNewsFoto/)

Kraton Corporation, a chemical manufacturer with its head office near George Bush Intercontinental Airport, is to acquired by DL Chemical for $2.5 billion.



About 50 years ago, Kraton invented styrenic block coploymers, a type of synthetic rubber that is strong, durable and flexible. The products are used in products as diverse as asphalt, roofing and diapers. The company was originally a unit of Shell, before being sold to a private-equity firm in 2001. It completed its IPO (initial public offering) in December 2009.

Its main manufacturing location is in Belpre, Ohio, though it also has major facilities in France, Germany and Sweden. The company also has joint ventures in Taiwan and Japan.

In 2016, the company acquired Arizona Chemical for $1.3 billion. In doing so, it pushed its leverage to almost 5x EBITDA. With hindsight, that turned out to be a poor move as the company was hit by the US-China trade war. In 2020 it ended up writing off $400 million of the $771 million goodwill from that acquisition. Margins in its legacy business also declined.

In early July, the company announced that it had hired JP Morgan to explore a potential sale. At the time, the share price was around $32 per share. DL Chemical, which is based in Korea, will pay $46.50 per share. Last year, DL Chemical acquired the Cariflex business from Kraton for $530 million.

The management team are in line for some large severance payments. Kevin Fogarty, CEO since 2008, will get a cash severance of three times base salary plus three times target bonus, or $6 million in total. All options and restricted awards will also vest. That could be worth around $20 million to Mr. Fogarty.

Atanas Atanasov, CFO since 2019, will get three times base and bonus, or $1.7 million. His restricted awards will also vest (I estimate this to be over $4 million).

The deal is expected to close in the first half of 2022.

SEC filing – Kraton sale

Diamond Offshore COO and CFO walk away with severance

Diamond Offshore COO Ron Woll and CFO Scott Kornblau have resigned, taking advantage of ‘walkaway severance rights’ put in place following the company’s exit from bankruptcy in April 2021.



The offshore driller has its head office in west Houston and owns four drillships and eight semisubmersibles. It exited Chapter 11 bankruptcy in April 2021, having converted $2 billion debt into equity. For 2020, it had revenues of $733 million and its shares currently trade over-the-counter.

In May, the company appointed Bernie Woolford as its new CEO and in August, the company put itself up-for-sale.

Dominic Savarino has been promoted to be CFO. He is currently Chief Accounting Officer and Tax Officer. Mr. Savarino joined the company in 2017, the same year that Mr. Kornblau became CFO (initially in an interim capacity). He will receive an increase in base salary from $400,000 to $440,000. Mr. Woll won’t be replaced and his duties will be assumed by other senior executives.

Severance

The severance plan that was put in place in April allowed senior executives to resign voluntarily by September 20, 2021 and claim severance benefits because the bankruptcy was deemed a change-in-control.

Mr. Woll will receive severance of one year’s salary ($515,630) and 2021 target bonus (70% of salary or $360,941). Mr. Kornblau will also get one year’s salary ($435,000) and 2021 target bonus (50% of salary or $217,500).

For each of 2018, 2019 and 2020 Mr. Woll received a $750,000 cash retention bonus. In addition he also received cash bonuses in 2020 of $1.4 million as the company was unable to grant long-term equity awards because of the bankruptcy.

Likewise, Mr. Kornblau received cash bonuses in 2020 of $0.6 million.

CEO departure

As part of the emergence from bankruptcy, Marc Edwards, the previous CEO, left with a lump-sum cash severance of $6 million. He had also received $1.5 million retention bonus in each of 2018 and 2019.  In 2020, he also received cash bonuses of $5.8 million.

For the two plus months ended 30 June, post-bankruptcy, the company had a net cash outflow from operations of $66 million. For a company not generating cash, it has spent a lot of money on cash bonuses and severances for senior executives.

SEC filing – Diamond Offshore CFO

Shell to sell Permian Basin assets to ConocoPhillips for $9.5 billion

Shell is to sell its assets in the Permian Basin to ConocoPhiliips for $9.5 billion cash. The assets are all in Texas and amount to 225,000 net acres and 600 miles of related pipelines and infrastructure. The purchase price of $47,500 per barrel of oil equivalent is in line with other recent transactions in the Permian Basin.



The effective date of the transaction is July 1, 2021, with an anticipated closing date in the fourth quarter.

Shell acquired the bulk of the assets in 2012 from Chesapeake Energy for $1.9 billion. It expects to book an after-tax gain of $2.4 to $2.6 billion once the deal closes. The company plans to pay a special dividend to shareholders of $7 billion.

The majority of Shell’s Midland-based Permian employees and many Houston-based employees will be offered employment by ConocoPhillips.

In June, a Dutch court ruled that Shell was partially responsible for climate change and ordered the company to reduce its carbon emissions (in absolute levels) by 45% by 2030, compared with 2019 levels.  Shell had already committed to a 45% (relative) reduction in net carbon intensity (i.e. the volume of carbon per unit of energy) by 2035.

Shell has been in the process of selling off assets in Egypt, Nigeria and Australia. It also sold its Alberta shale light oil production for $707 million in February. It plans to invest more in low-carbon fuels (biofuels and hydrogen) and carbon capture and storage.

ConocoPhillips has a target to reduce greenhouse gas emissions intensity by 35-45% by 2035 from a 2016 baseline. Shell probably felt some pressure to sell to someone with somewhat similar goals in terms of emissions reductions.

https://static.conocophillips.com/files/resources/transaction-announcement-and-market-update.pdf

 

ION Geophysical puts itself up-for-sale

Poseidon

ION Geophysical, based in west Houston, has put itself up-for-sale. The company has hired Tudor Pickering Holt to assist in the evaluation of a range of strategic alternatives including outright sale, sale of assets and debt financing.



The stock price jumped from $1.50 to $1.94 in after-hours trading. That gives it a market capitalization of $62 million.

Traditionally, the company has provided seismic services to the offshore oil and gas market. More recently, it has been trying to diversify into providing mission-critical subscription offerings and engineering services offshore (like a maritime equivalent of an air traffic control system).

The company has revenues of about $77 million, but it is still losing money even at the EBITDA level. It hasn’t made an annual operating profit since 2014.

Debt restructuring

In April, it completed a debt restructuring (code name Project Poseidon). It exchanged $121 million of debt due in December 2021 with $116 million of new notes due December 2025. $7 million of the old notes remain outstanding. The new notes also have a right to convert to equity at a $3 conversion price.

The company also completed a $42 million equity raise. $8 million of the cash was used to pay the costs associated with the debt issuance. $17 million was paid to the debt holders as part of the exchange.

Chinese influence wanes

The largest shareholder is Gates Capital Management, who own 16.4%. They also own $70 million of the new loan notes.

The third largest shareholder at 5.5% is BGP, a seismic contractor that is a subsidiary of China National Petroleum Corporation. However, that ownership percentage is about half of what it used to be.

For many years, the company operated a joint venture with BGP. However, in March 2020, the company announced it had agreed to sell its 49% stake in the joint venture for $12 million. It didn’t say to whom and the deal still hasn’t closed 18 months later.

https://ir.iongeo.com/news-releases/news-release-details/ion-initiates-review-strategic-alternatives

Houston-based distributor sold for $1 billion

Distribution International, a Houston-based company backed by Advent International, is being acquired for $1 billion in cash. The purchaser is TopBuild Corp, based in Florida.



DI was founded in 1986 from the merger of three Gulf Coast distributors. It is a leading distributor of insulation and related supplies for commercial and industrial buildings in North America. Its corporate office is based in downtown Houston.

TopBuild is a distributor of insulation and building products to the construction industry, mostly to the residential market.

DI has had three different PE-backed owners since being carved out from a British company, SIG plc, in 2006. Grey Mountain Partners owned it between 2006-2010, Audax Group between 2010-2014 and Advent since then. The company has made 11 acquisitions over the past six years.

DI had revenues of $747 million for the 12 months ending June 2021 and adjusted EBITDA of $75 million (10%). It has 84 locations in the USA and 17 in Canada.

TopBuild expects to achieve synergies of between $35-$40 million over the next two years, though they gave no specific details of how that would be achieved.

The CEO, COO and CFO of DI all worked for HD Supply at some point. HD Supply is an industrial distributor, based in Atlanta. It was spun off from Home Depot in 2007, went public in 2013 and was reacquired by Home Depot in 2020.

TopBuild Investor presentation

 

Luby’s CFO leaves as it winds down its operations

Steve Goodweather, the CFO of Luby’s Inc has resigned. He will be replaced by interim CFO Eric Montague who will continue to be employed by Winthrop Capital Advisors. They have been advising the company as it winds down its operations.



Luby’s, whose shares are still trading on the NYSE (market cap $126 million), has now sold all its Luby’s cafeterias and Fuddruckers restaurants. Those deals were announced in June. However it still owns 54 real estate locations that it is now in the process of selling. Luby’s also still has to sell its Culinary Contract Services business.

Mr. Goodweather joined Luby’s in 2006 as the Director of Financial Planning and Analysis and became CFO in April 2020. He will receive a severance of one year’s base salary ($215,000). 16,000 shares of restricted stock will also vest, worth about $64,000. Previous CFO Scott Gray, left in April 2020 with a $105,231 severance. Mr. Gray had been the CFO since 2007.

Luby’s will pay Winthrop Capital Advisors a monthly fee of $10,000 for the services of Mr. Montague.

SEC filing – Luby’s CFO resigns

Cadence Bank to pay $8.5 million to settle claims of redlining

The Justice Department has announced a settlement with Houston-based Cadence Bank to resolve allegations that the bank engaged in lending discrimination by ‘redlining’ predominantly Black and Hispanic neighborhoods in the Houston area.

The Justice Department alleged that the bank engaged in redlining between 2013 and 2017 by avoiding providing loans and other home mortgage services in majority-Black and Hispanic neighborhoods.

In 2018, the Houston Metropolitan Statistical area had over 7 million residents. The region was 37.6 percent Hispanic, 35.5 percent White and 17 percent non-Hispanic Black. 52 percent of the census tracts were majority-Black and Hispanic.

Branches in majority-white areas

From 2013 to 2017, 12 of the 13 branches that Cadence operated were located in majority-white neighborhoods. The remaining branch was in downtown Houston and mainly served commuters. In 2017, the downtown area became majority-white due to demographic change.

Cadence relied on its loan officers to generate loans. All, except the downtown branch, had at least one loan officer assigned to them. None of the loan officers spoke fluent Spanish, nor did the bank provide training to serve the credit needs of the majority-Black and Hispanic areas. The bank did not advertise at all in Spanish.

Of the nearly 1,600 mortgage applications that Cadence generated in that period, 14 percent came from majority-Black and Hispanic areas. In contrast, similar-sized peers in the Houston area generated 36 percent of their applications from the same areas.

As a depository bank, Cadence is subject to the requirements of the Community Reinvestment Act which requires most banks to meet the credit needs of the communities that they serve. In the case of Cadence that’s Harris, Fort Bend and Montgomery counties.

The regulator initiated an examination of the Bank’s practices in October 2017.

Penalties

Cadence will pay

  • $3 million fine
  • $4.17 million to create a loan subsidy fund for residents of predominantly Black and Hispanic neighborhoods in Houston
  • $750,000 for development of community partnerships to provide services to increase access to mortgage credit in these areas
  • $625,000 for advertising, consumer financial education and credit repair initiatives.

The bank is also required to dedicate at least four mortgage loan officers to majority-Black and Hispanic neighborhoods and open a new branch in one of these neighborhoods. It will also hire a Director of community lending to oversee these efforts and work with the bank’s leadership.

Merger transaction

In April, Cadence announced that it would merge with BanCorpSouth, based in Tupelo, Mississippi in a $6 billion all-stock transaction. The deal is expected to close later this year.

Cadence entered settlement negotiations with the Department of Justice, with the consent and support of BancorpSouth.

https://www.justice.gov/opa/pr/justice-department-and-office-comptroller-currency-announce-actions-resolve-lending

 

Water logistics company relocates to Houston

[UPDATE 09-03-21 After just over 4 months, CEO Pat Bond has left with an 8-month severance. Current chairman and former CEO Charles Thompson takes over as CEO again.]

Nuverra Environmental Solutions has relocated its corporate office from Scottsdale, Arizona to west Houston. The company provides water logistics and oilfield services, mainly in the Rocky Mountains and the Marcellus Basin in NE USA. It has a market capitalization of $34 million.



The company was founded in 2007 by Dick Heckmann, a serial entrepreneur who also co-owned the Phoenix Suns NBA team. Mr. Heckman died in October 2020, though he retired from Nuverra in 2014.

In April, Pat Bond was appointed the new CEO. He has held numerous roles at Halliburton, Weatherford and Schlumberger. Most recently he was co-CEO of Gravity Oilfield Services, another water logistics company.

Eric Bauer has been the interim CFO since April 2020. That followed the resignation of previous CFO, Stacy Hilgendorf, in November 2019, to take a position at Sprouts Farmers Market (based in Phoenix). According to his LinkedIn profile, Mr. Bauer, who has an investment banking background, is also based in Houston. Unusually, he was hired as an interim CFO on a three-year contract.

In November, the company completed a debt refinancing that lowered the interest rates and extended the maturity of debts. It also eliminated the debt owed to Gates Capital and Ascribe. Those two investment firms own 85% of the equity, following Nuverra’s bankruptcy reorganization in 2017.

Nuverra Q2 results

 

 

Stabilis Solutions appoints new CEO

Stabilis Solutions has appointed Westy Ballard as its new CEO, replacing Jim Reddinger. In addition, the company founder and executive chairman, Casey Crenshaw, will become non-executive chairman of the Board.



Stabilis is based in West Houston and is a small-scale producer and distributor of Liquified Natural Gas. It went public in July 2019 when it completed a reverse takeover of another Houston company, AETI, but was delisted four months later for not having enough publicly-held shares. It was finally relisted in April 2021.

Westy Ballard was previously the CFO at Superior Energy Services, a Houston-based oilfield services company. Superior was publicly-traded until it filed for bankruptcy in December 2020. It exited in February 2021 and Mr. Ballard left six weeks later. As an aside, Superior today announced that it has removed the interim tag off CFO James Spexarth.

Mr. Ballard will receive a base salary of $500,000.

Mr. Reddinger, joined the company in 2013 as CFO and was appointed CEO in November 2018. He will continue to receive his salary of $500,000 until the end of the year. His restricted stock units will also vest (market value $3.3 million).

SEC filing – Stabilis CEO