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Mammoth's Dealmaking Guarantees Frack Crews 'Always Have Sand'

Oklahoma City-based Mammoth Energy Services Inc., which has seen a mad dash for sand since the start of the year, has snapped up three U.S. oilfield service suppliers, including a major sand operator, to ensure it can feed its fracture crews in Appalachia and Oklahoma's stacked reservoirs.

Mammoth is acquiring Sturgeon Acquisitions LLC, which owns Taylor Frac LLC, Taylor Real Estate Investments LLC and South River Road LLC, as well as Stingray Energy Services LLC and Stingray Cementing LLC. The all-stock deal, valued at $133.8 million, should be completed in May.

The Stingray businesses operate primarily in the Northeast and would add water transfer, refueling, equipment rentals and cementing to Mammoth's portfolio. Taylor, now a major sand supplier for Mammoth in Appalachia, is the linchpin of the deal, CEO Arty Straehla said during a conference call.

"We want to make sure our fracking crews always have sand. The market has tightened to a position where we had to do that so we could pull in and supply ourselves."

Because of the "increasing demand for sand" by North America's unconventional producers, "we believe this will differentiate our service offering, giving our customers confidence that their wells will be completed without the need to source sand from third-parties," he said.

Mammoth's deal is coming in ared-hot market for proppant. As the oil and natural gas recovery has taken hold in North America, sand operators are reporting better-than-expected demand, which in turn is driving up sand pricing and tightening the transportation market.

Taylor Frac, based in Taylor, WI, owns a 700,000 ton/year sand mine and processing plant with 37.1 million tons of recoverable reserves, 73% of which is fine sand grades. It now sells to "several pressure pumping groups" and independent exploration and production companies in the Lower 48 states, as well as Canada.

Plans are in place by Mammoth to expand the facility to 1.75 million tons/year by the end of 2017 at a cost of $23 million.

Taylor's sand costs are "among the lowest in the industry at approximately $10-12/ton," Straehla said. Its access to rail via the Canadian National Railway would give Mammoth "direct access to our transloads in Ohio. We believe that over the coming months we will continue to see increasing demand for pressure pumping, sand and logistics services and that the Taylor acquisition will support our ability to meet this increased demand."

With Taylor, Mammoth would control about 2.45 million tons of sand total, enough for all six of its pressure pumping fleets -- three in Appalachia and three in Oklahoma. Increasing capacity will take about eight months, Straehla said.

"We are scrambling for sand. And we are trying to make sure that we have it." The CEO said, "when you're a small operator, you get squeezed out by the larger guys. The difference is, we will own the assets, and we control ourselves. We will control our own fate with our sand."

Competitors may have contracts for sand in place, "and they may be able to get sand or not, but we control our own destiny."

CFO Mark Layton, who joined Straehla on the call, said Mammoth now is "45 to 60 days sold out on the finer grades" of sand that customers want as they increase proppant loading in their wells.

"The demand for the finer grades has increased dramatically in the last couple of months, and we've moved to supplying our own frack fleets," Layton said. "That really precipitated the urgency to acquire Taylor."

Mammoth, which launched publicly on Nasdaq last fall, also has a growing business in Oklahoma's myriad STACK and SCOOP reservoirs, aka the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties, and the South Central Oklahoma Oil Province. The rail line now serving Taylor runs to Appalachia, but "we've also got the option to move this sand to the SCOOP/STACK as well," Layton said. "We'll be opportunistic."

The definitive agreement to acquire Sturgeon is with Gulfport Energy Corp., one of Mammoth's biggest customers, along with Rhino Exploration LLC and an entity affiliated with financial backer Wexford Capital LP. The agreements for Stingray Energy Services and Stingray Cementing are with the Wexford affiliate and Gulfport.

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