Pearce Made Millions on Sale
Disclosure Forms Offer Few Details on Oil Business Deal
On Aug. 18, 2003, an executive from Key Energy Services testified during a House natural gas task force field hearing co-chaired by Reps. Steve Pearce (R-N.M.) and Heather Wilson (R-N.M.).
Six weeks later, Key Energy closed a deal to buy the assets of Pearce’s oil services company, apparently for $12 million, more than double the value of the company that Pearce had claimed on his financial disclosure forms.
Pearce’s sale of his business highlights just how difficult it can be to glean meaningful information from the financial disclosure forms filed by Members of Congress. Pearce’s forms provide no record of the sale and very little detail about his assets, though the House ethics committee has found him to be in compliance with the disclosure rules.
Roll Call found no evidence that Pearce has taken any legislative action to specifically benefit Key Energy Services.
Key Energy reported to the Securities and Exchange Commission in 2003 that the terms of the sale “were determined by direct negotiations with the owners of the business” — Pearce and his wife, Cynthia. Pearce’s office told Roll Call last week that the Congressman had negotiated the deal with Key between January and June of 2003, and by the time of the August hearing, the price had been set, with only “due diligence” remaining to close the sale.
In e-mail responses to Roll Call’s questions, Pearce spokesman Brian Phillips dismissed any concerns about the timing or the price of the sale. The energy task force “was not an official House committee, had no legislative powers and no jurisdiction,” Phillips said, and though Pearce co-chaired the hearing, he was not the chairman of the task force. In addition, Phillips said, “We have no record how and when the panelists were contacted.”
As far as the sale price of Pearce’s company, Phillips argues that it is standard accounting practice to value a company based on the depreciation of its assets, while the sale price is based on future potential earnings. In its announcement of the purchase, Key said it anticipated Pearce’s company would generate $8 million a year in revenues.
“Everything pertaining to the sale of substantially all of the assets of Lea Fishing Tools, Inc. to Key was done in full compliance with House rules and the ethics committee and was reported properly,” Phillips wrote. “Congressman Pearce has acted correctly and in full compliance with the rules of the House.”
Pearce and Wilson are facing off in a June primary for the Republican nomination to replace Sen. Pete Domenici (R-N.M.), who is retiring.
As a Congressional candidate in 2002, Pearce filed a financial disclosure form listing his largest asset as Lea Fishing Tools, an oil services company in Hobbs, N.M., valued at $1 million to $5 million. In 2003, now a Member of Congress, Pearce again reported ownership of the company, and reported the same value, though he was no longer receiving the $270,000 annual income from the business.
In the parlance of the oil industry, “fishing” refers to a specialized service of fishing out of oil wells tools or equipment that were accidentally dropped down the hole.
In early 2003, Pearce — already a member of the House Natural Resources Subcommittee on Energy and Mineral Resources — was tapped by then-Speaker Dennis Hastert (R-Ill.) to join a new Republican Task Force For Affordable Natural Gas, along with Wilson and 16 other Members. On Aug. 12, Wilson and Pearce announced the agenda for a field hearing of the task force in Hobbs.
Key Energy Services was not listed among the witnesses, but at the hearing six days later, the company’s vice president for strategic planning testified, telling Pearce and Wilson that volatility in natural gas prices creates nearly unmanageable boom and bust cycles for companies that support the oil and gas industry.
In October, Key announced that it had purchased the assets of a New Mexico fishing company for about $12 million. The company reported to the SEC that it had transferred $5.2 million of its stock to Lea Fishing as part of the sale, suggesting that the remainder of the purchase would have been cash. Lea Fishing was one of many smaller energy services companies that Key purchased in the first half of this decade.
Pearce never reported the proceeds from the sale, because under House rules, he didn’t have to. After the liberal group Citizens for Responsibility and Ethics in Washington attacked Pearce for not reporting the income from the sale, Pearce asked the House Committee on Standards of Official Conduct whether he was required to report the sale on his personal financial disclosure forms.
The committee responded in October, explaining that House rules do not require disclosure of “transactions that involve the assets of a business that is actively involved in a trade or business.” Following the sale of its assets, Lea Fishing Tools changed its name to Trinity Industries Inc., which remained in the hands of Pearce and his wife.
Pearce’s Congressional Web site says he and his wife “sold their business in order to focus on their family and pursuing their interest in public service to the people of New Mexico.” In 2004, Pearce’s office told Roll Call that Trinity “is a personally held company that deals with the personal funds of the Representative and his wife.”
But Phillips explained last week that Trinity is also an active business. “The cash and stock proceeds from this sale [of Lea Fishing Tools] were then used by Trinity to reinvest in other rental equipment and investments,” Phillips wrote. Because Trinity, like Lea Fishing, is organized as a “C Corporation” under Internal Revenue Service rules, the assets belong to the company and not to Pearce, and Pearce is not required to disclose its holdings, Phillips said.
Phillips said that Trinity is now in the party- supplies-rental business. On his financial disclosure forms, Pearce lists its value at $5 million to $25 million. Pearce also lists his ownership of three other rental firms — Gree Ltd., LFT Ltd., and Exedra Ltd. — which collectively increased in value from a range of $200,000-$450,000 in 2001 to $800,000-$1.6 million in 2006.
While Pearce’s forms provide no details about those businesses or their holdings, his Senate campaign paid Gree $15,000 in the first three months of 2008 for “contract airfare.” According to Federal Aviation Administration records, Gree owns two small airplanes. New Mexico business records list Pearce and his wife as the “organizers” of Gree, and the Congressman as the registered agent for the firm.
None of the companies Pearce lists on his disclosure forms has a telephone number listed in New Mexico directories. Several of the companies are registered at an address that used to belong to Lea Fishing Tools. The phone number affiliated with that listing now reaches an answering machine for Pearce’s Senate campaign. The physical location is now occupied by a Key Energy subsidiary, but Pearce’s campaign is not operating there.
Key Energy bought Lea Fishing at the tail end of a frenetic growth period that was fueled partly by mismanagement and poor accounting. In March 2004, Key announced that it had discovered widespread financial irregularities and could not produce an annual report for 2003. The company ultimately removed its senior managers and restated its earnings for 2000-2003, declaring about $200 million in write-downs for accounting errors.
Key Energy stock was removed from the New York Stock Exchange for about two years in the wake of the scandal, but it has since been reinstated and is now trading at about $15 per share. When Pearce sold his company, the stock was trading at about $9.50 per share, and the sale included 542,000 shares of Key stock.
Since the sale, Pearce and his wife have become quite wealthy. The assets listed on his personal financial disclosure form for calendar year 2002 totaled $1.6 million to $6.4 million, not including Individual Retirement Accounts and loans he made to his Congressional campaigns. By last May, Pearce was reporting assets ranging from $7.3 million to $32.6 million, not including IRAs. That total also does not include an additional $1.2 million the Pearces contributed in late 2003 to the Stevan and Cynthia Pearce Charitable Foundation, consisting of $800,000 from the couple, $340,000 from Trinity Industries and $60,000 in Key Energy Services stock donated by Trinity Industries.
Pearce has long been an advocate of expanded access to federal lands for oil and gas drilling. In September 2003, just before Hastert released the final report of the natural gas task force, Pearce sponsored an energy bill amendment to speed the processing of natural gas drilling permits, and warned an industry group of the dangers of gas price volatility.