Oil field services company Flotek Industries has appointed a committee to oversee a review of its proprietary software application after confirming problems with the system, the company said Tuesday.
The announcement sent Flotek’s stock price reeling and spurred a flurry of announcements from law firms launching investigations into the company’s claims on behalf of investors.
The Houston company, which provides chemicals and drilling and production equipment, launched an internal review following scrutiny by an Australian fund manager who claimed to find errors in the company’s FracMax app, a sales tool used by Flotek to demonstrate how its proprietary blend completion fluids helps boost production in customers’ wells.
Specifically, Bronte Capital alleged that FracMax provided inaccurate production numbers from a handful of wells highlighted by the company in a February investor presentation, making it difficult to precisely gauge how the technology affects output.
In a lengthy analysis posted on the fund manager’s blog, the company compared Flotek’s figures against publicly available production data and found discrepancies between the data sets, raising questions about whether Flotek intentionally altered its numbers to make its products appear more effective.
Bronte Capital said it attempted to access FracMax to check production numbers on other wells, but was unable to launch the app, complicating efforts to verify the accuracy of Flotek’s broader data set.
Flotek responded to the criticism Tuesday, saying that an “unintentional data and processing error” led the company to overstate the performance a well completed using the technology, nanofluids derived from citrus fruit designed to help pry loose more oil and gas trapped underground.
It blamed the mistake in part on its use of third-party data.
The company could not immediately be reached for comment late Tuesday afternoon.
But the misstep doesn’t change the company’s conclusion that the well treated with the Flotek’s patented complex nano-fluid technology, or CnF, performed better than wells that did not.
“The use of CnF improved productivity when compared to the neighboring wells that did not use CnF in the completion process,” CEO John Chisholm said in a prepared statement.
He added that Sabine Oil & Gas, the operator of the three wells under scrutiny, continues to use the technology, further bolstering Flotek’s claims that its completions fluids provide benefits for oil and gas companies hoping to wrangle as much oil and gas as possible. Chisholm said an initial review of the FracMax database found that a vast majority of wells appear to have the correct production figures.
Responding to Bronte Capital’s complaints that it couldn’t access the data, Flotek said the app, rolled last year, has never been publicly available and can only be accessed by Flotek employees with a key code and other security clearances.
The company appointed a three-member committee to oversee the analysis and evaluation of FracMax, including bringing on an independent team to audit the software processes and database to ensure its accuracy, Flotek said in a statement Tuesday.
“I have said that transparency and clear communications with our stakeholders is an important tenant of my leadership at Flotek,” Chisholm said in a statement. “While we may not always be perfect, we will always strive to get things right and do so in the right way.”
The company expects findings to be released to shareholders and the public early next year.
Flotek made $449 million in revenue last year and employed about 560 employees as of Dec. 31. Shares of Flotek’s stock tumbled $5.56 or 38 percent, to close at $9.04 Tuesday on the New York Stock Exchange.