Mammoth Energy Services, Inc. (NASDAQ:TUSK), an oil and gas field services company, announced Monday a settlement with the Puerto Rico Electric Power Authority (PREPA), ending a long-standing dispute over payments for services provided after Hurricane Maria in 2017. The agreement, which is pending court approval, will see Mammoth's subsidiary Cobra Acquisitions LLC receive a total of $188.4 million, significantly less than the $359.1 million in receivables due from PREPA.
The settlement includes an allowed administrative expense claim of $170.0 million plus $18.4 million in withheld FEMA funds. Payment will be made in three installments, with the first $150.0 million expected by August 31, 2024, or ten business days following court approval. The remaining installments will follow PREPA's plan of adjustment and resolution of the withheld FEMA funds.
Cobra has agreed to release PREPA from further claims upon receipt of the settlement payments. Additionally, if PREPA pays the withheld FEMA funds post-appeal, Cobra will indemnify PREPA against any subsequent payments required for municipal tax claims by certain Puerto Rican municipalities.
The settlement agreement follows litigation efforts by Mammoth in the Title III Court and other dispute resolution avenues since September 30, 2019. The agreement was approved by Mammoth's Board of Directors, the PREPA Board, and the Financial Oversight and Management Board for Puerto Rico on July 22, 2024. The Title III Court is expected to review the motion for approval in August 2024 or during a hearing on September 18, 2024.
As part of the financial restructuring, Mammoth plans to use a portion of the settlement proceeds to repay and terminate its term credit facility with Wexford Capital LP, which had an outstanding balance of approximately $49.3 million as of June 30, 2024.
The company will also record a non-cash, pre-tax charge of approximately $170.7 million in the second quarter of 2024 to adjust its accounts receivable balance from PREPA to the settlement amount. This charge reflects the financial impact of the agreement on Mammoth's balance sheet.
This settlement marks the conclusion of a significant financial uncertainty for Mammoth Energy Services, as disclosed in the company's SEC filings and based on a press release statement.
In other recent news, Mammoth Energy Services reported its first-quarter earnings for 2024, indicating challenges in well completion and infrastructure services due to lower energy prices, reduced operator activity, and decreased storm-related work.
However, the company maintains a positive outlook for the latter half of the year, anticipating an increase in natural gas demand and more project bidding opportunities. The company's financial status remains strong, with a notable $22 million in cash and an untouched $21 million revolving credit facility, thanks to effective cost management and strategic capital allocation.
Mammoth Energy expects improved results in the second half of 2024, driven by heightened natural gas demand and new project bids. The company is also focusing on disciplined operations and strategic capital allocation to enhance shareholder value. Infrastructure, particularly in transmission and substation projects, are potential growth area indicated by increased bidding activity.
However, it's worth noting that the company's well-completed services and infrastructure divisions have seen a decline in revenue. Administrative expenses also rose by 6% to $8.8 million, primarily due to increased provisions for credit losses and audit fees.
InvestingPro Insights
In light of the recent settlement with PREPA, Mammoth Energy Services, Inc. (NASDAQ:TUSK) appears to be navigating through a complex financial landscape. According to InvestingPro, analysts are forecasting sales growth for Mammoth in the current year, which could signal a potential rebound from past challenges. Additionally, the company's valuation suggests a robust free cash flow yield, indicating that, despite the significant non-cash charge it will record, Mammoth may be well-positioned to generate positive cash flows moving forward.
InvestingPro data reveals a market capitalization of $168.45 million, reflecting the size of the company in the current market. The negative P/E ratio of -7.17, adjusted to -4.7 for the last twelve months as of Q1 2024, underscores the company's recent lack of profitability. However, with a PEG ratio of 0.03, investors might be seeing growth potential that could justify the current earnings multiple. Furthermore, the fair value estimate from InvestingPro stands at $3.64, offering a nuanced perspective on the stock's valuation relative to its last close price of $3.50.
For investors seeking a deeper dive into Mammoth Energy Services, InvestingPro provides additional insights, including a comprehensive analysis of the company's financial health and future prospects. Those interested can use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking access to a total of six InvestingPro Tips for TUSK, which could further inform investment decisions.
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