Midland, Texas-based ProPetro identified a material weakness in internal controls over financial reporting, the oilfield services firm disclosed in an annual report.

The deficiency was solely related to manual journal entries, “in which manual journal entry approvers can modify the entries before posting,” ProPetro reported in a March 13 filing.

The material weakness did not impact system-generated journal entries flowing through the company’s accounting system or other feeder systems.

ProPetro’s management team said it believes financial statements included in the annual report fairly present the company’s financial position, cash flows and operational results.

ProPetro, which serves customers in the prolific Permian Basin oil field, said it has taken steps to remediate the deficiency, including limiting access between certain job functions. The company plans to take further action to improve internal controls in the future.  

After markets closed March 1, ProPetro told investors it was unable to file the annual report on time as the company evaluated the potential deficiency.

JPMorgan analysts said the delayed filing notice “could represent a hit to investor sentiment as [ProPetro] was subject to an SEC probe in 2019 owing to a material weakness related to related party transactions.”

ProPetro shares fell more than 5% to $7.09/share on March 4 following the initial disclosure.

But the company’s stock regained some of the lost ground: PUMP stock was trading at around $7.45/share near midday on March 14.

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2019 SEC probe

The details in ProPetro’s latest filing echo the company’s 2019 investigation into deficient internal controls over financial reporting.

The company told investors in August 2019 that its board opened an internal review—initially focused on disclosure agreements for electric frac fleet purchases.

ProPetro later received notice from the Securities and Exchange Commission that the SEC had opened an investigation into the company after ProPetro announced its internal review.

In February 2020, ProPetro said it found multiple material weaknesses related to its financial reporting and disclosures following the board committee’s audit.

The scope of the review expanded beyond disclosures for frac fleet purchases to include expense reimbursements by executives and other transactions.

In March 2020, ProPetro disclosed that company co-founder and CEO Dale Redman had violated its insider trading policies over shares pledged for personal loans, which caused ProPetro to submit false information to regulators. The company also named a new CEO following Redman’s resignation.

ProPetro eventually entered a settlement with the SEC to resolve the investigation. The company was not required to pay a financial penalty, without admitting or denying the regulator’s findings.

Redman agreed to pay a roughly $195,000 penalty in the settlement agreement.

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