Warning Signs Were Flashing for Hanover Compressor

Hanover Compressor's(HC Quote) investors have learned to live with controversy, bidding up the stock since the company disclosed an earnings restatement and Securities and Exchange Commission probe last month.

Indeed, the shares have climbed 22% since Feb. 25, the day before the news was released, as investors evidently concluded the worst was over. But concerns remain about the company's Hampton Roads partnership, the former off balance sheet entity that led Hanover to downwardly restate revenue by $16 million in 2000 and $3.6 million in 2001.

Hanover, whose primary business is selling pumps to the natural gas industry, formed Hampton Roads Shipping in September 2000 in order to build and operate barge-mounted gas compression and gas processing facilities to be stationed off the coast of Nigeria. Hanover invested $1.25 million for a 25% stake in the joint venture and intended to lease the barges to Houston energy company Global Energy to fulfill a contract that Global had with Shell(RD Quote), according to filings. An independent investor owned the other 75% of the venture.

Norton Street

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