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

 

Former CEO of Blue Bell charged over listeria outbreak

Blue Bell Creameries has agreed to pay a fine of $19.35 million in relation to the listeria outbreak of 2015. According to the Department of Justice, this is the second largest amount paid in resolution of a food safety matter. Chipotle Mexican Grill holds the record ($25 million).



In a related case, former CEO Paul Kruse has been charged with seven felony counts related to his alleged efforts to conceal from customers what he knew about the listeria contamination.

A few days ago, I reported that the directors of Blue Bell had agreed to a $60 million settlement with its stockholders over allegations that it misled them over the listeria outbreak in 2015. I also noted that no federal charges had been filed.

Kruse family members held CEO position from 1919 to 2017

Blue Bell is based in Brenham, TX and was formed in 1907. In 1919 E.F Kruse took over as General Manager. Various members of the Kruse family held the CEO position continuously until Paul Kruse retired in February 2017.

2015 outbreak

In February 2015, the South Carolina Department of Health and Environmental Control found listeria in ‘Blue Bell Great Divide Bar’ and ‘Chocolate Chip Country Cookie’ after a routine sample of products in a local distribution center that were manufactured in Brenham. The following month Kansas authorities identified 5 hospital patients with listeria who had eaten “Scoops” ice cream made in Brenham. They also found listeria in products made in Oklahoma.

2011 cover-up

According to the indictment, in early 2011, the employees in the Blue Bell quality control department found samples with high levels of coliform bacteria. Although coliforms do not normally cause serious illness, their presence suggests other pathogens such as listeria may be present. In April 2011 Mr Kruse ordered the quality control employee to stop sending samples to an outside laboratory that was testing for listeria. Two samples, that were sent to the lab before Mr Kruse gave the order, came back positive for listeria. It is alleged that Mr Kruse told the employee to destroy records of the presumptive positive tests.

2015 cover-up

After the February 2015 positive tests, it is alleged that Mr Kruse instructed Blue Bell driver salesmen to remove from stores the Great Divide Bar and the Chocolate Chip Country Cookie products. Furthermore it is alleged that Mr Kruse rejected sending out a draft press release acknowledging the presence of listeria. Instead he changed the wording to an ‘issue discovered with one of our manufacturing machines’.

On each count, Mr Kruse faces a maximum sentence of 20 years and a fine of $250,000.

https://www.justice.gov/opa/pr/blue-bell-creameries-agrees-plead-guilty-and-pay-1935-million-ice-cream-listeria

Kruse indictment

CFO of Houston-based restaurant group departs

Scott Gray, the CFO of Luby’s, has left his role with immediate effect. No successor has yet been named.

Luby’s operates 119 restaurants in the US, including 41 Fuddruckers locations. They are also the franchisor for 97 Fuddruckers franchise locations. Not surprisingly, they have been hard hit by the coronavirus pandemic.



Mr Gray joined the company in 2001 and became the CFO in 2007. He had a base salary of $342,000 before it was reduced, temporarily, last month to $171,000. He will receive a severance of $105,231 to be paid over 6 months.

Mr Gray will also receive the immediate vesting of 31,028 restricted stock units and the vesting of 83,666 stock options at a strike price of $2.82 per share. Those options are out of the money as the current share price is $0.81.

In fact, last week, the company received a delisting notice from the NYSE as its share price had been below $1 for at least 30 consecutive trading days. To regain compliance, the company has to bring its average share price back above $1.00 within six months.

The company was also in the news last week as it was a recipient of a $10 million Paycheck Protection Program (PPP) loan under the CARES Act. Luby’s is one of seven Houston-area public companies that received a PPP loan. The others are Applied Optoelectronics, EnGlobal, Flotek, Gulf Island Fabrication, RiceBran and Sharps Compliance.

SEC filing – Lubys CFO departure

 

 

Blue Bell Directors agree to $60 million settlement over listeria mismanagement claims

The directors of Blue Bell Creameries have agreed to a $60 million settlement resolving claims that their alleged mismanagement led to a deadly 2015 listeria outbreak. The deal has to be approved by the judge in the Delaware Court.



The Settlement

The Directors were part of the General Partnership (GP) that managed the ice cream manufacturer. They were sued by Mary Wenske, who owns a stake in Blue Bell’s controlling partnership. She alleged that the mismanagement caused a breach of the limited partnership agreement.

Blue Bell owes the GP $45 million in management fees and interest. As part of the settlement, this will be canceled. In addition the GP will pay Blue Bell $15 million in 8 installments by December 2021 (Technically, Blue Bell will pay the GP $15 million as a capital contribution which will then be returned back to the company as settlement proceeds).

Out of the $15 million, the lawyers in the transaction will be paid $9 million.

The Listeria outbreak

Blue Bell was formed in 1907 and is based in Brenham, TX.  The company has three production plants in Brenham, Broken Arrow (Oklahoma) and Sylacauga (Alabama).  Prior to to the listeria outbreak it had revenues of $850 million.

In February 2015, the South Carolina Department of Health and Environmental Control found listeria in a routine sample of products in a local distribution center that were manufactured in Brenham. The following month Kansas authorities identified 5 hospital patients with listeria who had eaten “Scoops” ice cream made in Brenham. They also found listeria in products made in Oklahoma.

In April 2015, Blue Bell voluntarily recalled all its products on the market. Ultimately, 3 people died from listeria. The plants were closed for a few months. Ultimately, Blue Bell paid a fine of $175,000 to the state of Texas.

In late 2015 it was reported that the Department of Justice was reportedly investigating the company but no charges have ever been filed.

The Aftermath

In July 2016, Texas billionaire, Sid Bass, agreed to lend the company $125 million. He also purchased a $100 million warrant to acquire 42% of Blue Bell.

More pertinently for the plaintiffs, after the shutdown, distributions to the limited partners were cut from $4,000 per unit, paid quarterly, to $0 per unit.

According to the lawsuit, Blue Bell had discovered listeria bacteria in its Oklahoma plant on 5 separate occasions in 2013 and 10 more occasions in 2014. They never conducted a root cause analysis, nor increased the frequency of testing. A lawsuit filed by a different stockholder alleged that the Board were never informed of the listeria cases and did not have a process to review food safety compliance in its board meetings.

Under the terms of the limited partnership agreement, the GP was vested with exclusive authority to manage Blue Bell’s business and affairs, in accordance with ‘sound business practices in the industry’. The controlling partnership alleged that the GP, by ignoring the listeria found in 2013 and 2014, breached the agreement.

Blue Bell Directors Reach $15 Million Listeria-Outbreak Deal – Bloomberg

 

 

 

 

 

 

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

Houston E&P company files for bankruptcy

Yuma Energy has filed for bankruptcy. It becomes the first publicly-traded Houston-based E&P company to file since the recent oil price crash.

The company has its head office in the Galleria area. Historically operations were focused on SE Texas and Louisiana, though it does have some acreage in the Permian basin.  For the nine months ended September 30, it had revenues of only $7 million and a net loss of $6 million (ignoring impairments).

The company intends to liquidate its assets within 90 days.

The company has been struggling for some time. Eighteen months ago, it hired an investment banking firm to advise the company of strategic alternatives. In March 2019, it hired Anthony Schnur as its Chief Restructuring Officer and interim CEO.

In September 2019, the company thought they had found a solution when Red Mountain Capital Partners bought the outstanding debt of $35 million with the intent of converting most of the debt to common stock. Unfortunately, the stock conversion piece of the deal unraveled in March as the deterioration in market conditions caused Yuma to breach its covenants.

Anthony Schnur resigned from his positions with the company. He recently joined Ankura Consulting Group, who were promptly hired by the company as its financial advisor!

https://www.prnewswire.com/news-releases/yuma-energy-inc-files-for-chapter-11-protection-301041610.html

Rice University to pay $3.7 million to resolve fraud allegations

Rice University has agreed to pay the Federal Government more than $3.7 million to resolve claims that it improperly charged the National Science Foundation (NSF) research and development awards.

As of March 2020, Rice had 215 active NSF research grants. The funds support basic research. Back in 2016, authorities began an investigation of Rice’s suspected misuse of NSF grant funds.

Specifically, Rice allegedly budgeted for graduate student stipends in its research grant proposals. However, it then used a portion of the money to pay the students to perform teaching duties unrelated to the NSF awards. From November 2006 to September 2018, Rice knowingly engaged in a pattern and practice of improperly charging graduate students’ stipends, tuition remission and related facilities and administrative charges to NSF awards.

To settle the allegations, Rice has agreed to pay $$3,754,186. That’s double the loss to the United States.

https://www.justice.gov/usao-sdtx/pr/rice-university-pays-resolve-claims-it-defrauded-federal-grant-program

Biopharma CEO leaves after 3 months

A big shake-up at Aravive results in CEO Rekha Hemrajani leaving the company, along with Chairman and former CEO Jay Shepard. Two other directors are also leaving the Board.



Investor and Pharma veteran Fredric Eshelman has bought $5 million of shares (just over 5%) in the company and installed himself as Non-Exec Chairman.

Aravive is a clinical stage biotechnology company, focusing on developing therapies for solid tumors and hematologic malignancies. It has its head office in downtown Houston. It went public in October 2018 via a reverse takeover.

Ms Hemrajani only joined the company in January 2020. She worked out of the company’s Palo Alto office. She came from Arcus Biosciences where she had been COO and CFO. Ms Hemrajani will receive a severance payment ($237,500) equivalent to six months salary as well as the accelerated vesting of 35,750 shares (worth about $250,000).

Dr Gail McIntrye has been promoted from Chief Scientific Officer to CEO. She has worked with the new chairman at two previous companies.

SEC filing – Aravive CEO