Quarterly report pursuant to Section 13 or 15(d)

Related Party Transactions

v3.23.3
Related Party Transactions
 9 Months Ended
Sep. 30, 2023
Related Party Transactions [Abstract]  
Related party transactions

NOTE 17. RELATED PARTY TRANSACTIONS

In the normal course of business, we have entered into transactions with related parties where Mr. Dan Wilks and Mr. Farris Wilks and entities owned by or affiliated with them (collectively, the "Wilks Parties") hold a controlling financial interest. During the three and nine months ended September 30, 2023 and 2022, we had related party transactions with the following related party entities:

•
Automatize, LLC (“Automatize”) is a logistics broker that facilitates the last-mile delivery of proppants on behalf of its customers. Amounts paid to Automatize include costs passed through to third-party trucking companies and a commission retained by Automatize. These payments are recorded in cost of revenues, exclusive of depreciation and depletion in our unaudited condensed consolidated statements of operations.
•
Cisco Logistics, LLC (“Cisco Logistics”) is a logistics company that delivers sand and equipment on behalf of its customers. Amounts paid to Cisco Logistics are recorded in cost of revenues, exclusive of depreciation and depletion in our unaudited condensed consolidated statements of operations.
•
Equify Financial, LLC (“Equify Financial”) is a finance company that provides equipment and other financing to its customers. Amounts paid to Equify Financial are recorded in interest expense in our unaudited condensed consolidated statements of operations.
•
Wilks Brothers, LLC (“Wilks Brothers”) is a management company which provides administrative support to various businesses within its portfolio. Wilks Brothers and certain entities under its control will at times incur expenses on behalf of us, billing us for these expenses at cost as well as certain management fees. Amounts paid to Wilks Brothers are generally recorded in selling, general and administrative expenses in our unaudited condensed consolidated statements of operations.
•
Interstate Explorations, LLC (“Interstate”) is an exploration and development company for which we perform pressure pumping services, and from which we have a short-term lease for certain office space.
•
Flying A Pump Services, LLC (“Flying A”) is an oilfield services company which provides pressure pumping, acid and cementing services, to which we rent and sell equipment and frac fleet components.
•
MC Estates, LLC, The Shops at Willow Park, and FTSI Industrial, LLC (collectively, the “Related Lessors”) own various industrial parks and office space leased by us. Amounts paid to the Related Lessors are recorded in selling, general and administrative expenses in our unaudited condensed consolidated statements of operations.
•
Wilks Construction Company, LLC (“Wilks Construction”) is a construction company that has built and made renovations to several buildings for us, including construction of a new sand plant. Amounts paid to Wilks Construction are recorded as capital expenditures.
•
3 Twenty-Three, LLC (“3 Twenty-Three”) is a payroll administrator which performs payroll services on behalf of its customers, including us. Amounts paid to 3 Twenty-Three are recorded in cost of revenues, exclusive of depreciation and depletion and selling, general and administrative expenses in our unaudited condensed consolidated statements of operations.
•
Wilks Earthworks, LLC ("Wilks Earthworks") is an oilfield services company providing mining, wet and dry loading, hauling and other equipment to its customers, including us.
•
Carbo Ceramics Inc. (“Carbo”) is a provider of ceramic proppant which will at times purchase conventional proppant from us to act as a broker for its customers. Additionally, we will at times purchase manufactured proppant from Carbo for the stimulation services segment.
•
FHE USA LLC (“FHE”) is a provider of production and well completion equipment used at the wellsite. Amounts paid to FHE are recorded as capital expenditures.

The following table summarizes revenue from related parties:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Flying A

 

$

30.6

 

 

$

1.3

 

 

$

34.8

 

 

$

3.2

 

Carbo

 

 

—

 

 

 

—

 

 

 

0.7

 

 

 

0.8

 

Total

 

$

30.6

 

 

$

1.3

 

 

$

35.5

 

 

$

4.0

 

 

The following table summarizes expenditures with related parties:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Automatize

 

$

28.0

 

 

$

22.4

 

 

$

117.8

 

 

$

72.3

 

FHE

 

 

2.0

 

 

 

4.0

 

 

 

3.0

 

 

 

11.3

 

Wilks Brothers

 

 

2.1

 

 

 

5.5

 

 

 

14.3

 

 

 

14.3

 

Related Lessors

 

 

3.3

 

 

 

1.9

 

 

 

10.2

 

 

 

6.5

 

Wilks Construction

 

 

—

 

 

 

9.3

 

 

 

6.8

 

 

 

22.7

 

Wilks Earthworks

 

 

1.7

 

 

 

—

 

 

 

6.5

 

 

 

—

 

Equify Financial

 

 

2.2

 

 

 

—

 

 

 

6.6

 

 

 

1.0

 

3 Twenty-Three

 

 

—

 

 

 

—

 

 

 

1.3

 

 

 

0.2

 

Carbo

 

 

—

 

 

 

0.9

 

 

 

1.0

 

 

 

1.0

 

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.1

 

Total

 

$

39.3

 

 

$

44.0

 

 

$

167.5

 

 

$

129.4

 

The following table summarizes accounts receivable–related party:

 

 

September 30,
2023

 

 

December 31,
2022

 

Flying A

 

$

5.6

 

 

$

1.5

 

Carbo

 

 

0.5

 

 

 

0.1

 

Interstate

 

 

0.4

 

 

 

0.3

 

Other

 

 

—

 

 

 

0.2

 

Total accounts receivable — related party

 

$

6.5

 

 

$

2.1

 

The following table summarizes accounts payable–related party:

 

 

September 30,
2023

 

 

December 31,
2022

 

Automatize

 

$

10.9

 

 

$

8.8

 

Wilks Brothers

 

 

4.1

 

 

 

7.1

 

Wilks Construction

 

 

—

 

 

 

7.9

 

Wilks Earthworks

 

 

0.4

 

 

 

—

 

Related Lessors

 

 

0.9

 

 

 

—

 

Equify

 

 

0.7

 

 

 

—

 

Carbo

 

 

0.5

 

 

 

0.2

 

Total accounts payable — related party

 

$

17.5

 

 

$

24.0

 

On January 11, 2023, our board of directors approved the appointment of Mr. Coy Randle, our then Chief Operating Officer, to our board of directors. Additionally, Mr. Randle entered into a consulting agreement with us, effective as of January 13, 2023, pursuant to which Mr. Randle agreed to provide us with general operational advice for an annual fee of $0.2 million. Pursuant to the consulting agreement, we will also pay healthcare insurance premiums on behalf of Mr. Randle and will allow Mr. Randle to use a company vehicle for the duration of the consulting agreement. The consulting agreement has a term of one (1) year and will renew automatically for one (1) additional year unless either party notifies the other in writing at least sixty (60) days prior to the initial one (1) year termination date.

In June 2023, we arranged to sell certain surplus equipment and inventory components and to assign certain pre-orders for equipment to Flying A, at prices which we believe to be fair market value, for a total consideration of $36.3 million. We received the proceeds from this sale in June 2023. Subsequent to June 30, 2023, Flying A requested changes to the mix of the assets being sold to it by the Company without altering the total consideration, and the Company and Flying A agreed to add to the transaction agreement a most favored nation clause on pricing and a condition to closing that the Company’s Audit Committee approve the final mix of assets to be transferred to Flying A. We delivered $28.9 million of these components to Flying A in the three months ended September 30, 2023. We expect to deliver the remaining components to Flying A in the fourth quarter of 2023. We accounted for this transaction as a related party deposit presented as "Other current liabilities - related party" in our unaudited condensed consolidated balance sheet.

In September 2023, Robert Willette resigned as our Chief Legal Officer, Chief Compliance Officer, and Corporate Secretary. We entered into a severance agreement with Mr. Willette, pursuant to which, among other things, Mr. Willette received a severance payment of $673 thousand and which contains, among other standard provisions, a general release and waiver of claims against the Company by Mr. Willette. A copy of the Willette Severance Agreement is filed as Exhibit 10.1 hereto and is hereby incorporated by reference herein.

In September 2023, the Company entered into a purchase agreement with THRC Holdings, LP and FARJO Holdings, LP, pursuant to which the Company issued and sold 50,000 shares of Preferred Stock for gross proceeds of $50.0 million. THRC Holdings, LP and FARJO Holdings, LP are Wilks Parties. For more information, see Note 8 to these unaudited condensed consolidated financial statements.