Mammoth Energy Services obtains internal report that states its selection to repair Puerto Rico's electrical grid was 'reasonable'

Investors cheered Tuesday after Mammoth Energy Services released a detailed, third-party evaluation of its work in Puerto Rico that validates the company’s position it properly obtained contracts to restore the island’s electrical grid in 2017 after devastation caused by Hurricane Maria.

The report, compiled by the Rand Corp. at the request of the U.S. Federal Emergency Management Agency (FEMA), determined Puerto Rico’s selection of the Oklahoma City-based company’s subsidiary, Cobra Acquisitions, was “reasonable considering FEMA policy on emergency situations and existing regulations regarding contracting.”

Among other things, it stated:

• The Puerto Rico Electric Power Authority (PREPA) adhered to its procurement statutes and policies in awarding the contract to Cobra Acquisitions.

• Cobra’s rates were reasonable, falling within estimated ranges considered as parts of various scenarios. “This conclusion is delivered from analytical investigation which combined knowledge of work conditions, assumptions into wage burdens, evaluation of the equipment quantities and workforce structures, different assumptions about fuel costs, and inclusion of the best benchmark data and current adjustment factors available at this time,” the report stated.

• Cobra was uniquely positioned to rapidly respond to the crisis, given that it was able to deploy heavy equipment to and start its work on the island within two weeks of when the original contract was signed. A week after that, Cobra had 463 lineman and 200 other support workers deployed there, exceeding agreed upon levels included in the first agreement.

“This timely delivery of quantities of work and support labor, in excess of the levels initially proposed quickly (three weeks after the master service agreement was signed), clearly reflects responsiveness to requirements for both immediate availability and contract flexibility,” it stated.

“Overall, we concluded that work crew headcounts and equipment quantities offered by Cobra were sufficiently large to complete required electricity work and thus, HSOAC (the Homeland Security Operational Analysis Center) deemed quantities presented in Cobra’s bid document to be reasonable.”

• Cobra had met PREPA’s requirements that responding companies have the equipment and resources needed to be able to make repairs to electricity transmission systems in mountainous terrain, to be self-sustaining and to be able to go to work with minimal up-front payments.

The company disclosed the report through a filing it made with the U.S. Securities and Exchange Commission.

On Thursday, Mammoth CEO Arty Straehla said the report’s findings clearly demonstrate that Mammoth’s Cobra “was the lowest-cost bidder with the best bid, given that we included helicopters and medical service personnel that no one else included.

“The quick deployment and extra resources we were able to bring were just critical to the island at that time.”

Various investigations, including at least one that was criminal in nature, have been looking at PREPA and Cobra's relationship.

A federal grand jury has issued indictments targeting Ahsha Tribble, a once high-ranking FEMA official, and former Cobra President Keith Ellison.

Ellison was indicted on charges of wire fraud, disaster fraud, conspiracy to commit bribery and making false statements to federal investigators, court documents have shown.

Tribble was indicted on charges of wire fraud, disaster fraud, conspiracy to commit bribery and violating the Travel Act.

The charges, which generally accuse the players of inappropriate activities that might have steered PREPA business to Cobra, remain pending in U.S. Federal Court in Puerto Rico and aren’t expected to go to trial until early next year.

Initially, Cobra signed a $200 million dollar contract with PREPA to perform restoration work to the island’s electrical grid. That contract later was expanded twice, increasing its value to $945 million.

Cobra later obtained another contract worth about $900 million through another bid-awarding process.

Using a Freedom of Information Act request, Mammoth also obtained a letter written at the end of 2017 by a FEMA administrator to Puerto Rico that validated the work Cobra had done for PREPA and recommended payment of the initial contract, citing many of the same reasons highlighted by the Rand Corp.'s report.

Meanwhile, Mammoth still is owed about $277 million for work it did on the island, and Straehla said Tuesday that company officials continue to aggressively pursue payments from PREPA to resolve that issue.

Because of the current energy markets environment, payment of those owed dollars could help reduce the need for Mammoth to continue taking aggressive steps to reduce its costs by eliminating personnel, he noted.

“We believe the government has additional documentation that shows we did the majority of the work in a very cost-effective manner,” Straehla said. “We think that is important, and will continue to pursue obtaining those through the Freedom of Information Act process.”

Investors pushed the value of Mammoth’s share, traded on Nasdaq under the ticker TUSK, higher on Tuesday.