Mammoth’s CEO defends subsidiary’s work in Puerto Rico

Aug. 3--The top executive at Mammoth Energy Services on Friday defended the quality of work his crews completed in Puerto Rico in 2017 and 2018 to help restore the island's hurricane-destroyed grid.

Arty Straehla, Mammoth's CEO, opened the company's second-quarter earnings call with analysts by assuring them his company has a strong working relationship with the Puerto Rico Electric Power Authority, the government entity that hired Mammoth subsidiary Cobra Acquisitions to help rebuild the grid.

Mammoth's stock, traded on Nasdaq under the ticker symbol TUSK, lost more than 25% of its value during trading on Friday. It closed down $1.53, at $4.50 a share.

Filings in a court case involving the seizure of assets owned by former Cobra Acquisitions CEO Donald Keith Ellison showed that Cobra, the island's power authority and the U.S. Federal Emergency Management Agency are targets of an ongoing criminal investigation examining how Cobra obtained contracts worth more than $1.8 billion to help restore the island's energy grid.

Straehla stated the situation has "overshadowed our operations and contributed to the volatility in our stock price, beyond the general weakness within the oilfield services group."

He also defended the quality of Cobra's work, noting the island power authority has paid Cobra funds that the authority hasn't yet recovered from the federal government.

So far, Cobra has been paid about $42 million this year, and Straehla said another $250 million remains outstanding. He said Cobra is working with the authority to submit needed documentation to obtain the outstanding funds.

"The electric grid in Puerto Rico is fully energized today due in part to the outstanding performance of our crews, which navigated very difficult working conditions in rain forests and mountains," Straehla said. "The quality of our work has not been questioned."

In his call with analysts, Straehla said Mammoth has spent the past several months rehabilitating equipment it used on the island so that it can be deployed in the continental United States to work on transmission and distribution projects needed by utilities and other entities.

As that work continues, he said Mammoth also is streamlining Cobra so that it can get to work on a current backlog of $595 million in projects it has been hired to do.

"That process should be completed within three to six months," he said.

He was upbeat with analysts about the subsidiary's future.

"Demand for transmission and distribution services remains high, with more demand than can be fulfilled by experienced crews, creating upward pressure on pricing," he said. "Overall spending is growing, and we expect it to translate to more work for all of the companies in the sector."

During the call, Straehla also discussed current weakness in the oil and gas industry here at home.

He noted a lower demand has idled some of its frack crews, and said the company has responded to the slower environment by adjusting its prices to remain competitive.

As part of that, he acknowledged the company has suspended some of its services, including cementing, acidizing and flowback operations.

But he said the company's rental business continues to grow, as does its water handling operations.

"This is not the first time this management team has seen a slowdown in the oil and gas industry," Straehla said. "We have risen to that challenge before, and we will again."

He also stated Mammoth is looking at further diversification into other markets, such as over-the-road transportation, manufacturing, telecommunications and a business segment that involves coming federal requirements for a reduced-sulfur maritime fuel.

"We intend to be selective in our investments and build cash for future opportunities," Straehla said.

On Thursday, Mammoth Energy Services reported it saw a net loss of $10.9 million, or 24 cents per share, in the second quarter of 2019, compared to a net income of $42.7 million, or 95 cents a share in 2018.

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