Oilfield services company ProPetro Holding has announced a shuffling of its executive leadership team, along with an improved organizational structure to strengthen its internal controls, following the completion of a review conducted by its audit committee into a series of internal control failures.
The moves result from an initial disclosure ProPetro made Aug. 8, in which it announced it could not file its second quarter Form 10-Q with the Securities and Exchange Commission and that its audit committee had expanded an ongoing investigation. Initially, the investigation focused on disclosures concerning purchase agreements with AFGlobal for hydraulic fracturing fleets but was later expanded to include “expense reimbursements and certain transactions involving related parties or potential conflicts of interest,” according to ProPetro.
The audit committee also announced its preliminary findings at that time, which uncovered several issues, including inadequate documentation for the company’s expense reimbursement practices to senior management, including hundreds of thousands of dollars paid to the CEO and CFO, as well as material weaknesses in certain internal controls.
“The company is continuing to review one or more related party transactions,” ProPetro said in its latest statement. “The related party transactions currently under review involve real estate transactions and do not involve any of the company’s current or former customers or vendors.”
New governance structure
In its latest SEC filing on Oct. 9, ProPetro announced Ian Denholm resigned from his position as chief accounting officer, effective Oct. 3. However, he will provide transition services to the company through Dec. 8.
Elo Omavuezi, having previously served as the director of financial reporting and technical accounting at the company since April 2017, has been promoted to take Denholm’s place. Omavuezi brings to ProPetro considerable financial reporting and audit experience. From June 2014 to April 2017, he was as an audit manager with Deloitte and an audit senior from January 2007 to April 2014.
ProPetro also appointed Newton “Trey” Wilson as general counsel and corporate secretary. Prior to joining ProPetro, Wilson was chief executive officer of WLP/Westex Well Services & Wilson Systems, a position he held since April 2018. He previously held senior legal and executive positions with Forest Oil Corporation, Key Energy Services, and MBI Energy Services.
Among other new appointments announced by ProPetro’s board:
- Current board chairman Phillip Gobe has been appointed executive chairman, serving as the principal executive officer of the company for purposes of filing annual and quarterly reports with the SEC. He will also share responsibility for overseeing the remediation of control deficiencies identified in the internal review.
- Anthony Best now serves as lead independent director of the board. In this capacity, his authority, responsibilities, and duties include presiding over all board meetings where the chairman is not present—including any executive sessions of the independent directors; approving board meeting schedules and agendas; and acting as the liaison between the independent directors and the CFO and board chairman.
- Jeffrey Smith, formerly chief financial officer, has been named chief administrative officer, with primary responsibility for the company’s information technology, human resources, procurement, and risk management functions.
- Darin Holderness, former CFO of Concho Resources, has agreed to serve as interim CFO while the company conducts a search for a replacement.
Dale Redman will continue to serve as chief executive officer, but with primary responsibility for managing the company’s day-to-day operations and pursuing business development initiatives.
As for its reporting structure, the CEO, CFO, and general counsel will report to the executive chairman. The chief operating officer and chief administrative officer will report to the CEO. The chief accounting officer will report to the CFO. Going forward, Gobe and Holderness will certify the company’s annual and quarterly reports and, at the direction of the board, will also assist in the oversight of the company’s implementation of an overall remediation and improvement plan that is responsive to the findings of the internal review.
ProPetro said it is “committed to establishing and maintaining effective controls and implementing necessary and appropriate changes to remediate and enhance the company’s control environment.”
In addition to the changes to its senior management team, to address its internal and disclosure control deficiencies, the board and management have implemented certain—and are continuing to evaluate and expect to implement several additional—remedial measures. Since the original Form 8-K, the company has formed a disclosure committee, appointed Wilson as chief disclosure officer, and revised and expanded key company policies to enhance its internal and disclosure control environment.
“The company is also adopting enhanced documentation and revising key accounting policies and procedures with an emphasis on transactions involving related parties or potential conflicts of interest and travel and entertainment and expense reimbursement,” ProPetro said.
“The new executive leaders who are joining the company will continue to evaluate certain internal control deficiencies identified as a result of the internal review. The company expects management’s review of internal control deficiencies to result in one or more material weaknesses that may relate to past periods.”