Mammoth Energy Releases Additional Information Regarding Work Performed in Puerto Rico
June 08 2021 - 7:00AM
Mammoth Energy Services, Inc. (“Mammoth” or the “Company”)
(NASDAQ:TUSK) today announced that it has posted to its website
additional information addressing two documents recently released
by the Federal Emergency Management Agency (“FEMA”) that relate to
hurricane repair work performed by Cobra Acquisitions LLC (“Cobra”)
in Puerto Rico.
FEMA released a Determination Memorandum dated May 26, 2021,
related to the first of two contracts Cobra successfully performed
for the Puerto Rico Electric Power Authority (“PREPA”). Cobra and
PREPA executed the Emergency Master Service Agreement for PREPA’s
Electrical Grid Repairs – Hurricane Maria on October 19, 2017 (the
“Contract”). PREPA has 60 days from the receipt of FEMA’s
Determination Memorandum to file an appeal.
In addition to the Determination Memorandum, the Company also
recently obtained a draft Cost Analysis prepared by FEMA in
response to the recommendation of the Department of Homeland
Security’s Office of Inspector General (“OIG”) made in an OIG
report dated July 3, 2019 (OIG-19-052). The OIG recommended that
FEMA conduct a comprehensive analysis of Cobra’s Contract costs and
disallow reimbursement to PREPA of any Cobra Contract costs that
are not reasonable. In order to address the OIG recommendation,
FEMA and the United States Army Corps of Engineers (“USACE”)
analyzed the reasonableness of the actual Cobra costs for which
PREPA is seeking reimbursement from FEMA.
Arty Straehla, chief executive officer of Mammoth commented,
“Today, we release a fifth confirmation that the work performed by
our subsidiary Cobra in Puerto Rico was both within the scope of
the PREPA contract and was at a lower overall cost than other
contractors on the island. This information, which is contained in
reports produced by both FEMA and USACE, adds to previous
confirmations, including (i) the FEMA Determination Memorandum
dated December 23, 2017, (ii) the FEMA memorandum dated April 22,
2019, (iii) Emergency Contract – Cost Validation Report prepared by
the Homeland Security Operational and Analysis Center dated March
28, 2019 (the 'Rand Report') and (iv) Freedom of Information Act
data, all of which can be found on our website
www.mammothenergy.com. The documentation continues to show that our
team performed a difficult job in a difficult environment to save
lives and aid the people of Puerto Rico in their time of need. In
addition to this recently obtained information, we have also
recently become aware in court filings made by PREPA that FEMA has
obligated approximately $250 million for costs incurred under the
second contract.”
FEMA Cost Analysis
The scope of FEMA’s Cost Analysis included the following:
-
Evaluate Cobra’s overall level of effort and work productivity
based on the statement of work (“SOW”) developed by FEMA;
- Compare Cobra’s
actual costs to those of other electrical contractors that
performed similar work when the data existed. FEMA reviewed Cobra’s
cost of work performed per transmission line (“TL”) and
distribution line (“DL”), Cobra’s overall actual average daily
rate, and the daily per diem to cover lodging and living expenses;
and
- Reviewed USACE’s
report and consider its recommendations prior to making a
conclusion on cost reasonableness.
After completing its Cost Analysis, FEMA came to the conclusions
below in the draft report. A full copy of the draft findings can be
found on the Mammoth website:
https://ir.mammothenergy.com/events-presentations.
- Page 13 - Cobra’s
overall average rate is lower than all other contractors
reviewed.
- Page 14 - Given the
condition and circumstances on the island, the evaluation of all
data available to assess the level of effort for the work
performed, and the comparison to other contract costs, FEMA found
that Cobra’s costs per tower for both transmission and distribution
lines for the work captured on this project appear reasonable.
- Page 15 – (USACE
Analysis) Cobra’s duration of work for electrical work appears to
be reasonable.
- Page 19 - Cobra’s
overall average rate is lower than all other contractors reviewed.
If the average 9% tax markup is added, the rates fall in line with
the MOUs and are still lower than Whitefish rates.
- Page 20 - Based on
the results of the FEMA and USACE analyses, FEMA has no reason to
believe that the cost of the work performed by Cobra is not
reasonable.
FEMA’s Determination Memorandum and Cost Analysis raised two
contract compliance issues. Below we summarize the Contract
compliance issues identified by FEMA, along with a brief summary of
Cobra’s response. A full copy of the documentation can be found on
the Mammoth website:
https://ir.mammothenergy.com/events-presentations.
|
|
Contract Compliance Issue |
Cobra Response |
|
|
Excess Man Count- FEMA identified 43 days when Cobra exceeded the
highest allowable staffing level agreed to in Exhibit 1-B
Contractors’ Rate Schedule of 882 personnel without the written
consent of PREPA. FEMA identified $24,439,810.49 related to this
issue. |
At the request of Puerto Rico and the full knowledge and consent of
PREPA and FEMA, Cobra agreed to bring on a subcontractor that had
previously worked for USACE and already had both personnel and
equipment in Puerto Rico. The addition of these personnel was in
full compliance with the Contract. |
Mobilization Expenses- FEMA identified that Cobra began billing for
the daily minimum amount due of $1,563,000, based on 250 linemen,
starting on October 25, 2017; however, Cobra did not reach the
required minimum number of linemen on the island until November 12,
2017. As a result, FEMA determined that $21,451,272.51 was
ineligible. Further, FEMA determined that $133,800 in lodging
rentals were ineligible. FEMA cited Section 4.3 of the Contract
that “payment will be made for actual days worked”. |
The Contract provided that Cobra would be paid a daily minimum
amount of $1,563,000. Cobra began billing the daily minimum on
October 25, 2017, after Cobra supplied PREPA with a roster of 250
linemen that it was mobilizing to the island. Cobra incurred
$133,800 in lodging for the Management Team for Operations and
Safety personnel included in Exhibit B of the Contract. These
personnel were housed in San Juan to be closer to PREPA’s offices
and allow the Management Team to be more accessible to PREPA for
regular meetings. The charges were invoiced to PREPA at cost. These
costs were necessary to Cobra’s performance and are reimbursable
under the Contract.FEMA’s citation of Section 4.3 in regards to
mobilization expenses is a mischaracterization of the contractual
terms. Section 4.3 relates to the termination of work, not the
mobilization of lineman. |
About Mammoth Energy Services,
Inc.
Mammoth is an integrated, growth-oriented energy service company
serving companies engaged in the construction and repair of the
electric grid for private utilities, public investor-owned
utilities and co-operative utilities through its energy
infrastructure services and the exploration and development of
North American onshore unconventional oil and natural gas reserves.
Mammoth’s suite of services and products include: infrastructure
services, well completion services, natural sand and proppant
services, drilling services and other energy services.
Investor Contact: Mark Layton, Chief Financial
Officermlayton@mammothenergy.com(405) 608-6007
Media Contact:Peter
Mirijanianpeter@pmpadc.com(202) 464-8803
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