COBRA ACQUISITIONS LLC ANNOUNCES SETTLEMENT AGREEMENT WITH PREPA

Rhea-AI Summary

Cobra Acquisitions , a subsidiary of Mammoth Energy Services, Inc. (NASDAQ: TUSK), has reached a settlement agreement with the Puerto Rico Electric Power Authority (PREPA) and the Financial Oversight and Management Board for Puerto Rico. The settlement, which resolves outstanding matters related to Puerto Rico's power grid restoration after Hurricane Maria, is expected to yield approximately $188 million in total proceeds.

Key points:

• $170 million allowed administrative expense claim against PREPA
• $18.4 million in withheld FEMA funds to be released
• Payments to be made in three installments
• Settlement subject to Title III Court approval
• Mammoth to record a $170.7 million non-cash, pre-tax charge in Q2 2024

Mammoth plans to use $49.3 million to pay off its term credit facility, with the remaining $139.1 million for business investment and general corporate purposes.

Positive

• Settlement agreement reached for $188 million in total proceeds
• Allowed administrative expense claim of $170 million against PREPA
• $18.4 million in withheld FEMA funds to be released
• Plan to pay off $49.3 million term credit facility
• $139.1 million available for business investment and corporate purposes

Negative

• Non-cash, pre-tax charge of $170.7 million to be recorded in Q2 2024
• Settlement amount less than the $359.1 million in remaining receivables due from PREPA
• Final payment contingent on PREPA's plan of adjustment and potential appeals

Financial Analyst

The settlement agreement between Cobra Acquisitions LLC and the Puerto Rico Electric Power Authority (PREPA) is of great significance to investors. The expected receipt of $188 million will provide a substantial boost to Cobra's financial health. Specifically, the allocation of the funds—$49.3 million to pay off existing debt and the remaining $139.1 million to invest back into the business—indicates a strategic move to strengthen the company's balance sheet and liquidity. Short-term, this settlement will likely alleviate cash flow constraints faced by Cobra. Long-term, the freed-up cash can be utilized for reinvestment, potentially enhancing operational capabilities and profitability. The settlement will also result in a pre-tax charge of $170.7 million, impacting the financial statements for Q2 2024. However, this is a non-cash charge and will not affect the company's cash position.

Legal Expert

This settlement agreement is important from a legal perspective, as it resolves longstanding disputes between Cobra and PREPA that have been ongoing since Hurricane Maria. Settling these disputes allows Cobra to shift focus back to its core operations rather than being entangled in lengthy litigation. The settlement's approval by multiple boards, including that of the Title III Court, underscores the robust legal consensus, reducing the risk of future legal contingencies. Moreover, the structured payment timeline provides a clear framework for Cobra to expect cash inflows, mitigating the uncertainty surrounding the receivables from PREPA. Investors can take confidence in the reduced legal risks and potential costs associated with prolonged legal battles.

Market Research Analyst

From a market perspective, the settlement agreement could positively influence Mammoth Energy Services Inc.'s (NASDAQ: TUSK) stock performance. The resolution brings a closure to the financial ambiguities linked with receivables from PREPA, which had been a point of concern for investors. The infusion of $188 million not only bolsters Cobra’s liquidity but also positions the company to seize new growth opportunities and potentially expand market share. Additionally, paying off debt can improve the company's credit profile, lowering borrowing costs in the future. The news is likely to be well-received by the market, possibly leading to a positive revaluation of the stock.

Total Settlement Proceeds Expected to be Approximately $188 Million

OKLAHOMA CITY, July 22, 2024 /PRNewswire/ -- Cobra Acquisitions LLC ("Cobra"), a wholly owned subsidiary of Mammoth Energy Services, Inc., ("Mammoth" or the "Company") (NASDAQ: TUSK) today announced that it has entered into a release and settlement agreement with the Puerto Rico Electric Power Authority ("PREPA") and the Financial Oversight and Management Board for Puerto Rico, in its capacity as Title III representative for PREPA ("FOMB"), to settle all outstanding matters between Cobra and PREPA (the "Settlement Agreement").

Arty Straehla, Chief Executive Officer, commented, "We are pleased to have reached this resolution with PREPA and look forward to receiving the money for work we concluded over five years ago. We plan to use a portion of the $188.4 million in settlement proceeds to pay off our term credit facility, which had a balance of approximately $49.3 million as of June 30, 2024. The remaining amount of approximately $139.1 million will be cash on our balance sheet to be used to invest back into our business and for general corporate purposes."

Cobra and PREPA previously entered into two agreements to aid in the restoration and reconstruction of Puerto Rico's power grid in response to damage caused by Hurricane Maria in 2017. PREPA is currently subject to bankruptcy proceedings, which were filed in July 2017 and are currently pending in the United States District Court for the District of Puerto Rico (the "Title III Court"). As a result, PREPA's ability to meet its payment obligations under the above-referenced agreements is largely dependent upon funding from the Federal Emergency Management Agency ("FEMA") or other sources. Since September 30, 2019, Mammoth has been pursuing litigation in the Title III Court and other dispute resolution efforts seeking recovery of the amounts owed to Cobra by PREPA for restoration services in Puerto Rico, which proceedings are discussed in more detail in Mammoth's filings with the Securities and Exchange Commission (the "SEC"). As of June 30, 2024, Cobra had remaining receivables due from PREPA totaling approximately $359.1 million in relation to these agreements. PREPA is currently holding approximately $18.4 million in funds (the "Withheld FEMA Funds") received from FEMA for purported garnishments in this amount asserted by three Puerto Rican municipalities (the "Specified Municipalities") for certain municipal tax claims discussed in Mammoth's filings with the SEC and for which Cobra disputes any valid garnishment.

Under the terms of the Settlement Agreement, Cobra will have an allowed administrative expense claim against PREPA of $170.0 million (plus the $18.4 million in the Withheld FEMA Funds). Cobra's allowed claim will be paid through three installments: (i) $150.0 million on the later of (A) ten business days following approval of the Settlement Agreement by the Title III Court and (B) August 31, 2024; (ii) $20.0 million within seven days following the effective date of PREPA's plan of adjustment; and (iii) $18.4 million in the Withheld FEMA Funds within either (A) ten business days after the deadline for appealing the entry of the settlement order by the Title III Court under the applicable bankruptcy rules of procedure if no such appeal is filed, or (B) if the provisions of the settlement order allowing PREPA to release the Withheld FEMA Funds to Cobra without retaining any liability to the Specified Municipalities are appealed by the Specified Municipalities, within ten business days of the filing of the notice of such appeal.

The Settlement Agreement was approved by the Company's Board of Directors on July 22, 2024, and was also approved by the PREPA Board and by the FOMB. The Settlement Agreement remains subject to approval by the Title III Court, which is expected to hear the motion relating to the Settlement Agreement at either a non-omnibus hearing to be held in August of 2024 or at the next omnibus hearing to be held on September 18, 2024.

As a result of the Settlement Agreement, the Company will record a non-cash, pre-tax charge of approximately $170.7 million in the second quarter of 2024 to reduce its accounts receivable balance from PREPA to the amount expected to be received from the Settlement Agreement.

About Mammoth Energy Services, Inc.
Mammoth is an integrated, growth-oriented energy services company focused on the providing products and services to enable the exploration and development of North American onshore unconventional oil and natural gas reserves as well as the construction and repair of the electric grid for private utilities, public investor-owned utilities and co-operative utilities through its infrastructure services businesses. Mammoth's suite of services and products include: well completion services, infrastructure services, natural sand and proppant services, drilling services and other energy services. For more information, please visit www.mammothenergy.com. 

Contacts:
Mark Layton, CFO	Rick Black / Ken Dennard
Mammoth Energy Services, Inc	Dennard Lascar Investor Relations
investors@mammothenergy.com	TUSK@dennardlascar.com

Forward-Looking Statements and Cautionary Statements
This news release (and any oral statements made regarding the subjects of this release, including on the conference call announced herein) contains certain statements and information that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts that address activities, events or developments that Mammoth expects, believes or anticipates will or may occur in the future are forward-looking statements. The words "anticipate," "believe," "ensure," "expect," "if," "intend," "plan," "estimate," "project," "forecasts," "predict," "outlook," "aim," "will," "could," "should," "potential," "would," "may," "probable," "likely" and similar expressions, and the negative thereof, are intended to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this news release specifically include statements, estimates and projections regarding the Company's business outlook and plans, future financial position, liquidity and capital resources, operations, performance, acquisitions, returns, capital expenditure budgets, plans for stock repurchases under its stock repurchase program, costs and other guidance regarding future developments. Forward-looking statements are not assurances of future performance. These forward-looking statements are based on management's current expectations and beliefs, forecasts for the Company's existing operations, experience and perception of historical trends, current conditions, anticipated future developments and their effect on Mammoth, and other factors believed to be appropriate. Although management believes that the expectations and assumptions reflected in these forward-looking statements are reasonable as and when made, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all). Moreover, the Company's forward-looking statements are subject to significant risks and uncertainties, including those described in its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings it makes with the SEC, including those relating to the Company's acquisitions and contracts, many of which are beyond the Company's control, which may cause actual results to differ materially from historical experience and present expectations or projections which are implied or expressed by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: demand for our services; the volatility of oil and natural gas prices and actions by OPEC members and other exporting nations affecting commodities prices and production levels; the impact of the war in Ukraine and the Israel-Hamas war on the global energy and capital markets and global stability; performance of contracts and supply chain disruptions; inflationary pressures; high interest rates and their impact on the cost of capital; instability in the banking and financial services sectors; the outcome of ongoing government investigations and other legal proceedings, including those relating to the contracts awarded to the Company's subsidiary Cobra by PREPA; the failure to receive or delays in receiving the Title III Court approval relating to the Settlement Agreement to settle all outstanding matters between Cobra and PREPA and/or payments thereunder discussed in this news release; the Company's inability to replace the prior levels of work in its business segments, including its infrastructure and well completion services segments; risks relating to economic conditions, including concerns over a potential economic slowdown or recession; impacts of the recent federal infrastructure bill on the infrastructure industry and our infrastructure services business; the loss of or interruption in operations of one or more of Mammoth's significant suppliers or customers; the loss of management and/or crews; the outcome or settlement of our litigation matters and the effect on our financial condition and results of operations; the effects of government regulation, permitting and other legal requirements; operating risks; the adequacy of capital resources and liquidity; Mammoth's ability to comply with the applicable financial covenants and other terms and conditions under Mammoth's revolving credit facility and term loan; weather; natural disasters; litigation; volatility in commodity markets; competition in the oil and natural gas and infrastructure industries; and costs and availability of resources.

Investors are cautioned not to place undue reliance on any forward-looking statement which speaks only as of the date on which such statement is made. We undertake no obligation to correct, revise or update any forward-looking statement after the date such statement is made, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

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SOURCE Mammoth Energy Services, Inc.

FAQ

What is the total settlement amount Cobra Acquisitions (TUSK) expects to receive from PREPA?

Cobra Acquisitions expects to receive approximately $188 million in total settlement proceeds from PREPA.

How will Mammoth Energy Services (TUSK) use the settlement proceeds?

Mammoth plans to use $49.3 million to pay off its term credit facility and the remaining $139.1 million for business investment and general corporate purposes.

When is Cobra Acquisitions (TUSK) expected to receive the settlement payments from PREPA?

The payments will be made in three installments, with the first $150 million expected by August 31, 2024, or within ten business days of court approval, whichever is later.

What financial impact will the settlement have on Mammoth Energy Services (TUSK) in Q2 2024?

Mammoth will record a non-cash, pre-tax charge of approximately $170.7 million in the second quarter of 2024 to reduce its accounts receivable balance from PREPA.

What is the final step required for the settlement agreement between Cobra Acquisitions (TUSK) and PREPA to be implemented?

The settlement agreement remains subject to approval by the Title III Court, expected to be heard in August or September 2024.