Oilfield services company ProPetro Holding announced the Securities and Exchange Commission has opened an investigation into its financial disclosures and reporting.
ProPetro said it received a letter from the SEC regarding the investigation on Oct. 24, in which the SEC requested the company “provide certain documents, including documents related to the company’s internal investigation … and related events.” The company said it is cooperating with the SEC’s investigation.
The SEC investigation follows an initial disclosure ProPetro made Aug. 8, when it announced it could not file its second quarter Form 10-Q with the SEC 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.
In a Nov. 13 Form 8-K, ProPetro said the audit committee “identified one related-party transaction that was not previously disclosed.” During 2018, (i) an entity (Entity A) that is 50 percent owned by the company’s former chief accounting officer and 50 percent by the former CAO’s business partner, who is not affiliated with the company, loaned approximately $770,000, and (ii) another entity (Entity B) that is owned 100 percent by the former CAO loaned approximately $57,000 to another entity that is owned 100 percent by the former CAO’s business partner (Entity C).
“The loaned funds were used by entity C during 2018 to pay for a portion of the acquisition, development, and construction costs associated with an iron testing facility and a portion of the acquisition and development costs associated with a maintenance facility that were sold or leased to the company,” ProPetro disclosed in its Form 8-K. “The approximately $827,000 of funds loaned by Entity A and Entity B to Entity C were repaid in full by Entity C, without interest.”
Last month, ProPetro announced a shuffling of its executive leadership team, along with an improved organizational structure to strengthen its internal controls, following completion of the audit committee’s review into the internal control failures.