Mammoth Energy Services reported second quarter net income of $42.7 million this week. The oil services company signed a $900 million contract in May to continue electric restoration work in hurricane-ravaged Puerto Rico.
Journal Record senior reporter Sarah Terry-Cobo spoke with KGOU’s Jacob McCleland about the Oklahoma City-based company.
Jacob McCleland: You're listening to the Business Intelligence Report a weekly conversation about business news in Oklahoma. I'm Jacob McCleland and I'm talking today with Journal Record senior reporter Sarah Terry-Cobo. Sarah thank you for joining us.
Sarah Terry-Cobo: Hey Jacob. Thanks for having me. It's my pleasure to be here.
McCleland: Let's talk today about Oklahoma City-based Mammoth Energy Services. The company reported net income of nearly $43 million in the last quarter. And I want to get into why Mammoth recorded a big profit in just a minute. But first tell us a little about Mammoth. What does this company do?
Terry-Cobo: First they do traditional oilfield services work. That's the services needed for hydraulic fracturing. So they actually mine sand and then they truck it to well sites. Then they have those trucks with the big pumps they used to pump sand, water, chemicals into the wellbore after it's been drilled. They also bought a crude oil trucking company in the last three months. And the thing they're getting attention for is the electrical utility infrastructure work, then getting power restored after a storm comes through. And as well as building big transmission lines that transport power.
McCleland: So mammoth had a really good second quarter as we mentioned. The company also has a very large contract to restore power to hurricane-ravaged Puerto Rico. Is that contract the big thing that's that's driving their profits right now?
Terry-Cobo: Pretty much, yeah. The Puerto Rico contracts are really what's driving up the margins or the profits in the last three months. They had a really nice increase from traditional oilfield services work there in the busiest part of the oilfield that's in the Permian Basin in the western part of Texas and eastern New Mexico. But that Puerto Rico contract, especially the most recent one that they signed in May, that was worth $900 million.
McCleland: Now Mammoth's contract to restore power in Puerto Rico has been somewhat contentious. The island's power authority canceled the contract last year with Whitefish Energy Holdings, a small Montana-based company that was doing some work on the island. That contract came under scrutiny for several reasons, including Whitefish's size and experience. And some in Congress had similar questions about Mammoth and its subsidiary Cobra. I mean, have those fears been allayed so far?
Terry-Cobo: As far as the analysts are concerned they aren't worried about the things that came up related to Whitefish and those concerns that the online publication The Intercept noted. So The Intercept published a story back last year. It was very critical of an oil and gas company rebuilding Puerto Rico's electric grid. The Intercept they said this is an opportunity for Puerto Rico to have a new modern grid built in renewable energy and that's a great idea. But consider that at the time much of the population had no power for months which means they didn't have drinking water either. So much of the island's residents rely on water that's powered by electrical pumps. So the initial part of Mammoth's contract in Puerto Rico wasn't to rebuild the grid it was literally to get the lights back on. They had planned rolling blackouts for months which is part of the restoration work. So I spoke to mamis investor relations manager earlier this year. He says their CEO Arty Straehla had not been called to testify before Congress. And you know as for the age and the size of Cobra, they formed Cobra within the last two years but they did that by buying up existing contractors who had decades of experience in power restoration and reconstruction work.
McCleland: So you mentioned earlier that Mammoth agreed to a $900 million contract in May to complete restoration of the island's electricity. What does this mean for the company's future?
Terry-Cobo: Right. So well they have many more months to rebuild or reconstruct the power grid. They have about 700 people or so working on the ground now. And one thing that the CEO said Tuesday morning is that there are so many other contractors from utilities in Puerto Rico from utilities in the U.S., they see Cobra workers on the ground they actually have gotten really good recommendations to do more work in the continental U.S. So they have about $2 billion worth of projects that they're bidding on which is about three years worth of work really.
McCleland: So for Mammoth the Puerto Rico project has been good. What we're Mammoth's risks in undertaking this project?
Terry-Cobo: Right. So the big question there is the island territory's electric Authority called PREPA. And now PREPA is actually in Chapter 11 bankruptcy proceedings and has been since last summer. So there is a trustee that's looking at all of the authority's debts and expenses including this contract. So there was an issue that mammoth had in its last quarter. They had a bad debt expense that created a tax issue. Analysts asked about that on Tuesday morning during their conference call. But the chief financial officer says there's no provisions like that in the reconstruction contract moving forward.
McCleland: Sarah Terry-Cobo is the Journal Record's senior reporter. Sarah thank you for your time.
Terry-Cobo: Absolutely. Thanks so much for having me Jacob.
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