Even though it’s best known for fracking and only been in the business of restoring downed power lines for a few months,
Mammoth Energy Services Inc. got a no-bid, $187 million contract to restore electricity to hurricane-ravaged
That’s drawn the attention of skeptical U.S. lawmakers who helped lead the charge to get canceled a $300 million contract awarded to
Whitefish Energy Holdings LLC. Of particular concern are similarities in the contracts such as language that could prevent federal oversight of the work.
That clause raises “additional questions about the contracting review process for recovery efforts in Puerto Rico,” the bipartisan group of lawmakers from the House Energy and Commerce Committee wrote in a recent
letter to the Federal Emergency Management Agency.
Mammoth executives bristle at the comparison to Whitefish and say the company — which saw its stock surge 19 percent when it landed the job — is up to the task.
When it brings in oil drilling equipment in far-flung locales like Alberta, Canada, it also trucks in houses, food and, even, recreational outlets for the oil-field workers. That logistics work was the key to getting the contract with the Prepa.
“We’re a substantive organization with 1,400 employees,” Mark Layton, Mammoth’s chief financial officer, said in an interview. “What we went to Prepa with was a turnkey solution — personnel, equipment, security, as well as housing — to go in and supply power.”
Ricardo Ramos, the executive director of the
Puerto Rico Electric Power Authority that awarded the two contracts, is scheduled to appear Tuesday before a
Senate committee to discuss the recovery efforts. No one from Mammoth is scheduled to testify.
Under its contract with Prepa, Mammoth is now housing workers on full-service barges berthed offshore the island. The company also has two 180-foot “fast boats” set to transport up to 72 people and supplies from Miami three times a week, and one DC-9 aircraft. Each of the 250 skilled lineman brought in to work on rebuilding the power lines — and the equipment they need to do their work — are being billed at $4,000 a day.
But there are also reasons for skepticism. Mammoth just purchased two small companies in the electricity business this year and has no experience with a project this big. The contract with Prepa for $200 million is more than the company’s total revenue in the third quarter.
Puerto Rico Energy Commission, the regulatory agency that oversees Prepa, opened an
investigation into the utility’s response to the storm in October, including the contracts for Whitefish and Mammoth, according to a person familiar with the review. The commission is expected to take more action soon, said the person, who asked not to be identified because they weren’t cleared to discuss the matter publicly.
Mammoth had some things going in its favor, including access to capital and experience operating in difficult conditions, said Matthew Cordaro, a former utility executive and trustee of the Long Island Power Authority. But rebuilding an electric grid serving 3.4 million people is a massive undertaking, and there are other companies with much deeper experience with a task of that size, he said.
“It’s just, it’s taking a chance,” he said. “How good are these guys?”
Puerto Rico was hit with twin hurricanes in September. The first, Irma, left one million residents without power. Then, on Sept. 20, Maria made landfall, wiping out 80 percent of the island’s electrical grid, causing everyone on the island to lose power. Recovery in major metropolitan areas has progressed slowly; remote parts of the island are still without electricity. As of late last week the utility had restored power to 42 percent of the island and is aiming toward a goal of 50 percent by Nov. 15.
The slow pace of recovery has prompted criticisms of the federal response and the local utility’s decisions. Prepa issued the initial contract to Whitefish, which had just two employees and a headquarters in Whitefish, Montana, the hometown of Interior Secretary Ryan Zinke. Cobra Acquisitions LLC, a subsidiary of Oklahoma City, Oklahoma-based Mammoth, got its contract next for similar work rebuilding the transmission and distribution system.
Part of the problem for Prepa was finding contractors willing to work on the island after it had declared bankruptcy. While utilities on the mainland said they were ready to help, many were “afraid of the question of how are we going to get paid,” Andy Techmanski, the head of Whitefish, said in an interview last month.
contract with Cobra, signed on Oct. 19, includes an advance payment of $15 million along with daily rates for 250 linemen, 104 members of a security team, 50 members of a logistics team and 30 members of a management team for a total of $187.5 million.
The company sent in two barges, both with their own water and sewer services and electricity generators. It pledged to send in cranes, pressure diggers, 60 pickup trucks and five helicopters.
Mark McGranahan of the Electric Power Research Institute said that the Puerto Rico grid “was not ready for a storm like this by any means” and that Mammoth — an unusual choice as a contractor — has its work cut out for it. He called the $4,000 daily rate high, but not outrageous given the circumstances.
In addition to Prepa’s contracts with Whitefish and Cobra Services, the Army Corps of Engineers awarded a $240 million contract to Fluor Corp. and a $40 million contract to PowerSecure, a subsidiary of utility
Southern Co., to repair the grid. The Corps announced on Oct. 29 that it intends to increase Fluor’s contract to $840 million.
Meeting to Meeting
Mammoth Chief Executive Officer Arty Straehla described the process of winning the contract in a Nov. 2
quarterly earnings call.
“We went from meeting to meeting talking with FEMA officials, talking with the governor’s officials, talking with officials from Prepa,” Straehla said. “We had a fully self-contained plan that nobody else has had put together for them. That includes having berthing barges, that includes housing our folks.”
FEMA officials distanced themselves from that version of events, as
they had after the Whitefish controversy initially broke.
“FEMA is not involved in the Prepa contracting selection process,” said FEMA spokesman Ron Roth. “Questions regarding the awarding of Prepa contracts should be directed to Prepa.”
Prepa did not respond to a request for comment.
Mammoth went public in October 2016, telling its investors that its primary business was hydraulic fracturing — a technique that uses pumped water to free natural gas and oil trapped in rocks underground. In its offering document, the company also highlighted its “remote accommodation business,” which it said included 1,008 rooms in modular camps in Alberta.
The company, which also does drilling services and sand production, has grown rapidly, doubling its revenue from the second to third quarters of 2017.
This past summer the company took an interest in the electricity business by spending $8 million to acquire two companies, Five Star Electric and Higher Power Electrical. It said the new business line would insulate it from the volatile commodities sector. It foresaw a boom in infrastructure spending, including for electricity transmission and distribution.
Analysts, including James Wicklund of Credit Suisse Group AG, approved of the deal, which they say will be successful regardless of the Puerto Rico effort. The company has 58 fleets working in the U.S., each expected to generate $750,000 in annual revenue at a 15 percent margin, he said.
In his note to investors following the company’s third quarter earnings call, Wicklund cited the Whitefish controversy and said he did not think a similar fate awaited Mammoth.
But, “political risk is impossible for us to quantify,” he wrote.
— With assistance by Ari Natter
Source: oil drilling contract