The critical impact of the COVID-19 pandemic continues weighing heavily on leaders of the U.S. oil and gas industry—whether it’s a large company like Halliburton, Devon Energy or Continental Resources or the small mom and pop operations.
As an example, Oklahoma City-based Mammoth Energy Services in its recent third quarter earnings report stressed how that starting in March of this year, many of the firm’s customers immediately began to “substantially reduce their capital expenditure budgets.”
Consequently, the demand for Mammoth’s oilfield services, already under pressure from earlier reductions “declined further at the end of the of the first quarter of 2020 and continued to decline further throughout the second and third quarters.”
Mammoth wasn’t alone. It happened to virtually every company in the industry. Most of the firms predicts things won’t improve in a hurry and Mammoth’s forecast is no different.
” As a result, depressed levels of oilfield service activity are expected to continue for the foreseeable future. The ongoing COVID-19 pandemic, the broad reduction in economic activity, the current conditions in the energy industry and the adverse macroeconomic conditions have also had, and are likely to continue to have, an adverse effect on both pricing and utilization for our oilfield services,” stated the company’s most recent report.
Mammoth joined the growing numbers of firms that not only took steps to reduce costs and lower capital expenditures, but reduced headcount, in other words, it laid off workers.
“We will continue to take further actions that we deem to be in the best interest of the Company and our stockholders if the current conditions continue, do not improve or worsen,” promised leadership in Mammoth.
But management also admitted it was unable to predict the ultimate impact of the pandemic on the company.
Mammoth’s third quarter revenues plunged $329 million or 59%, falling to $228 million from $557 million a year earlier.
Revenue for the first nine months of 2020 was only $41 million compared to $122 million reported at the end of September 2019.
Here’s how the pandemic has left Mammoth Energy Services. It had about $12 million cash on hand at the end of October and outstanding borrowings of $88 million under its revolving credit facility. Mammoth is left with $28 million of available borrowing under the facility.
Mammoth warned its investors if the pandemic continues pounding the oil and gas industry, resulting in prolonged volatility in the capital, financial and credit markets, it could result in limited access to capital to continue company operations.
As leaders said in their third quarter reporting, if Mammoth is unable to comply with the covenants under its revolving credit facility and an event of default happens, “our lenders would not be required to lend any additional amounts to us, could elect to increase our interest rate by 200 basis points, could elect to declare all outstanding borrowings, together with accrued and unpaid interest and fees, to be due and payable, may have the ability to require us to apply all of our available cash to repay our outstanding borrowings and may foreclose on substantially all of our assets.”
Source: Mammoth Energy Services
