Steffy: CEO vows Black Elk vindication

Facing mounting legal actions, the founder of embattled Black Elk Energy said the results of a government investigation in the coming months will clear the company’s name and beat back criticism about its operations.

John Hoffman, the chief executive of the Houston-based company, said “everyone is going to be surprised” when the Bureau of Safety and Environmental Enforcement releases its findings, which he said should be in March or April.

“In the end, it’s going to vindicate us and shed light where it needs to be,” he told me.

An explosion and fire aboard a Black Elk platform in the Gulf of Mexico on Nov. 16 killed three workers and seriously injured three others. It’s the worst offshore accident since the Deepwater Horizon disaster in 2010.

Black Elk has a history of safety violations, and the bureau had previously found it demonstrated a “disregard for the safety of personnel” in previous violations. Lawyers in several cases filed by investors and injured workers paint a picture of a company whose deteriorating finances compromised the safety of its operations.

“Black Elk has operated on the margin,” said Francis Spagnoletti, a Houston attorney representing workers injured in last year’s explosion.

“They’ve promoted themselves to boost their stock, and they’ve taken a position on operations that is not sound,” Spagnoletti added.

Deaths and injuries

A lawsuit he filed in Galveston in late January claims Black Elk, as the operator of the well, is liable for the workers’ deaths and injuries, even though they were hired by a contractor to do maintenance on the platform.

“My clients were injured physically,” he said. “They saw their co-workers on fire and bleeding from the eyes. Black Elk is responsible for what happened out there.”

Hoffman disagrees and said the company intends to defend itself in court.

“We’re going to fight that and I believe we’ll prevail,” he said.

Black Elk’s revenue fell 20 percent in the third quarter last year, to $73.3 million from a year earlier, and it reported a $33 million loss.

In a regulatory filing at the time, the company outlined a cost-cutting plan to reduce operating expenses.

Hedge fund

To fund its operations, Black Elk has relied on high-priced debt from its controlling shareholder, the New York hedge fund Platinum Partners. Platinum contributed a total of about $30 million to the company beginning in 2009, and got stock in exchange that eventually gave it control of al-most 68 percent of the company’s shares, according to regulatory filings.

Platinum officials didn’t return my phone calls.

Stock diluted?

Hoffman denied that the company’s financial troubles were related to the accident.

“That’s certainly not the case,” he said. “The financial situation really has nothing to do with it.”

In a different lawsuit, a group of investors from Houston and Lafayette, La., claimed Hoffman and Platnium diluted their stakes in the company.

The investors provided the initial seed money for Hoffman to start Black Elk, yet their stakes have been diluted to about 4 percent, they allege.

“Our people were given no clue” about what was happening, the investors’ attorney, Muhammad Aziz, told me.

They filed a lawsuit against Black Elk and Hoffman last year, but withdrew it last month. Aziz told me he plans to refile it.

Those claims, too, lack merit, Hoffman said. The company noted in a release in January that the case had been dismissed at the plaintiffs’ request.

Former officer sues

Meanwhile, Black Elk’s former chief well officer, Carl Hammond, sued the company last month, claiming he was forced to resign after questioning Hoffman’s management practices related to the possible sale of the company.

The sale fell through.

Hoffman told me Hammond interfered with the sale by trying to discredit Hoffman in the eyes of the buyers. The lawsuits’ allegations, he said, are without merit.

Black Elk’s board has since abandoned plans to sell the company, Hoffman told me, after determining it would generate more shareholder value to expand the company’s drilling program and increase production.

It’s far more likely that the company isn’t able to attract a buyer after last year’s accident, the pending investigation, and news reports detailing its history of safety violations.

In late January, Black Elk entered into a new financing agreement issuing more preferred stock in exchange for a capital infusion of about $23 million, according to regulatory filings.

The interest rate on the new debt: 20 percent until next year, when it jumps to 36 percent.

The results of the investigation into last year’s accident, it seems, can’t come soon enough.

Read FuelFix’s ongoing coverage of the Black Elk platform explosion:

Black Elk turns over safety audit plan to regulators (Dec. 20)
Black Elk launches probe of fatal platform fire (Dec. 10)
Steffy: What does it take to get booted from the Gulf? (Nov. 29)
Body pulled from Gulf that of oil platform worker (Nov. 28)
House members want details on fatal offshore fire (Nov. 26)
Worker burned in Gulf oil platform fire dies (Nov. 23)
Houston’s Black Elk Energy had history of violations before fatal fire (Nov. 21)
Search for missing oil platform worker ends (Nov. 21)
Probe looks to “hot work” in fatal offshore fire (Nov. 20)
Federal investigators subpoena Black Elk records (Nov. 19)
Embassy identifies worker killed in oil platform fire (Nov. 19)
Investigator calls Gulf platform explosion “very serious” (Nov. 16)
Platform fire stokes fresh criticism of offshore oil development (Nov. 16)
2 missing, 11 injured in platform fire (Nov. 16)