In a partially redacted report filed into the public record April 4, the court-appointed independent examiner in the case of Mike Moreno’s bankrupt Green Field Energy Services issues a scathing assessment of the Lafayette businessman’s management of the failed company, finding that Moreno at times was “effectively on both sides” of business transactions involving the company. The report, which was more than a month old, was made public and filed into federal bankruptcy court in Delaware at the request of Green Field’s official committee of unsecured creditors.
Prepared by Steven A. Felsenthal, a former chief judge of the U.S. Bankruptcy Court in Dallas who was appointed examiner by U.S. Trustee Roberta A. DeAngelis, the report is 135 pages. The examiner also looked at Shell’s role in the demise of the company and found little fault with how Shell conducted its business. Shell was Green Field’s largest customer and its lender.
Moreno, who is in his mid-40s, serves as chairman and CEO of the private company, having led the group that purchased Lafayette businessman John Egle’s Hub City Industries in mid-2011, changing its name to Green Field. Soon after the company boasted that it was years ahead of its competition in the use of natural gas to run its hydraulic fracturing equipment (claiming it could even pipe the hydrocarbon directly from the wellhead). Its turbine-powered hydraulic fracturing pumping units were powered by remanufactured turbine engines previously used in U.S. military applications. Its major competitors were the big boys of the oilfield services industry, Halliburton, Schlumberger and Baker Hughes.
On Oct. 23, after defaulting on an $80 million loan from Shell and a $250 million loan from Wilmington Trust, Green Field filed for Chapter 11 bankruptcy protection along with affiliated companies Hub City Tools and Proppant One. The companies’ failure was a major blow to the high-flying businessman — a Cuban immigrant who grew up in Morgan City and earned an MBA from UL Lafayette.
An unexpected market shift was blamed for the bankruptcy filing. Green Field President Rick Fontova told the Houston Chronicle that the company started offering its fracturing services at a time when competitors were expanding and other companies were entering the market, creating an immediate glut in equipment. “Back in 2011 in this market, the demand far exceeded the supply and margins were much higher, which was how we entered the market,” Fontova told the newspaper. “But very quickly the conditions changed to where there was an oversupply.”
At the time it filed bankruptcy, Lafayette-based Green Field had 335 employees in 14 facilities in Louisiana and Texas. Its business is now all but shut down.
The unsecured creditors largely blame Moreno, saying he set up Green Field as a “reckless gamble.” For the most part, the examiner agrees with them.
The examiner says Moreno was not only a director but also the controlling shareholder of Green Field through MMR (Moody, Moreno & Rucks) and another of his company’s MOR MGH. The two Moreno affiliated entities hold 100 percent of the company’s preferred stock and the majority of its common stock. “Mr. Moreno was effectively on both sides” of a number of transactions involving Green Field, Felsenthal writes, and said he finds “genuine issues of material fact on the question of the application” of Moreno’s business judgment.
The committee claimed the company entered into transactions with a “veritable spider web” of Moreno affiliates. In one instance the committee pointed to the payment of millions of dollars to a company half-owned by Moreno to build a sand-processing plant. The plant was never built and thus never delivered any sand to Green Field. The creditors also questioned Moreno’s decision to lease not one but two jets for the company. The creditors’ committee maintains that Moreno engaged in conduct that breached his duty of loyalty to Green Field by causing numerous transactions to occur between Green Field and other Moreno affiliates that “appear to have resulted in personal gains for Mr. Moreno” or his affiliates at the expense of Green Field. The committee also alleges that Moreno violated his duty when he failed to demand and obtain payments from MMR and MOR MGH as part of share purchase agreements.
Felsenthal did side with Moreno on some matters, for instance saying that Moreno’s lease of the two aircraft — which the creditors say were used for his personal travel — did not rise to the level of breach of duty of loyalty.
In his summary of claims against Moreno and the Moreno Affiliated Entities, the examiner characterized the following claims as “valuable”: breach of contract against MOR, MGH and MMR; breach of duty and loyalty claim against Moreno; breach of fiduciary duty claim against Moreno for usurpation of corporate opportunity; unjust enrichment claim against Turbine Generation Services (a company formed in early 2013 by a Moreno entity); Louisiana Unfair Trade Practices and Consumer Protection Law claim against Moreno; tortious interference contracts claim against Moreno; claim of actual fraudulent transfer by Green Field in favor of Turbine Generation Services; constructive fraudulent transfer claim; and avoidance claim (against Moreno affiliated entities and Moreno himself).
In the first restructuring plan, Moreno was protected against future lawsuits, one of the reasons the unsecured creditors opposed the plan and asked the court for an independent examiner with investigative powers. In a revised liquidation proposal, which they agreed to support in mid-March (at least two objections, including one by Ford Motor Credit, have been filed), Moreno can be sued by the trustee. The judge must still approve the plan. In the meantime, the company is being liquidated.
Boston-based Gordon Brothers Group, a global advisory, restructuring and investment firm specializing in the industrial, consumer products and retail sectors, is selling its entire portfolio of equipment and inventory assets. The assets include late model well services and hydraulic fracturing equipment valued at more than $250 million (Green Field is expected to get $67.5 million from the sale).
Gordon Brothers says the equipment its Commercial & Industrial Division acquired consists of more than 3,500 pieces of new and late model, well-maintained, low-hour and low-mile units, including trucking and transportation equipment, a broad assortment of sand handling, well stimulation and cementing equipment, as well as hydration units, high-pressure manifolds, electronic data control vans and lab test equipment. In addition, the acquired assets include about 40 new and late model FMC, OFM and SPM tri-plex pump power ends and fluid ends and a variety of late model trailer pump and support units for well services applications.
After secured creditors are paid, any proceeds left over from the sale of assets will be placed in a trust that will be shared by bondholders and unsecured creditors (who will be lucky to get 20 cents on the dollar). Shell has waived all of its claims (it was owed more than $100 million) in exchange for $5 million and protection against future lawsuits.
Any proceeds that may be realized from lawsuits against Moreno will also be placed in the trust.