NEX Nextier Oilfield Solutions Inc. - 10-K

Item 1A. Risk Factors

RISK FACTORS

An investment in our securities involves a variety of risks. In addition to the other information included or incorporated by reference in this annual report, the following risk factors should be carefully considered, as they could have a significant adverse impact on our business, financial condition and results of operations. These risks could cause our future results to differ materially from historical results and from guidance we may provide regarding our expectations of future financial performance. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present material risks to our operations. In addition, the global economic and political climate amplifies many of these risks. All forward-looking statements made by us or on our behalf are qualified by the risks described below.

Summary of Risk Factors

Risks Related to Our Industry

• Dependence upon domestic capital spending and well completions by the onshore oil and natural gas industry (which is volatile);

• Instability of oil and natural gas prices;

• Adverse weather conditions impact demand services and influence costs;

• The energy services industry’s inherent operating hazards;

Risks Related to Our Business

• Detrimental performance by, or credit risk of, our customers;

• High capital costs of maintenance, upgrades, refurbishment and replacement of assets;

• Delays in deliveries, increases in costs or unavailability of key materials for our operations;

• Over commitments to certain supply agreements;

• New technologies developed by third parties impacting competitiveness; and

• Litigation and other proceedings, including claims for personal injury and property damage.

Risks Related to Government Regulation, Laws and Compliance

• Laws and regulations regarding health, safety and protection of the environment increasing costs of doing business, penalties, damages or costs of remediation or implicate corrective measures;

• Challenges obtaining or renewing permits or authorizations for our or our customers’ operations;

• Existing or future laws, regulations, court orders or other initiatives limiting GHG methane emissions;

• Violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-bribery laws;

• Changes in transportation regulations may increase our costs and negatively impact our results of operations; and

• Changes in tax rates, the adoption of new tax legislation and tax audits.

• Legislative and regulatory initiatives prohibiting or impairing hydraulic fracturing operations;

• Laws and regulations addressing greenhouse gases and climate change and investor and public perception of our compliance with such requirements;

Strategic Risks

• Successful identification and consummation of beneficial acquisitions, dispositions and investments;

• Time-consuming and costly integration of any acquisitions;

• Investor and public perception regarding our ESG practices could impact our reputation; and

• Ability to effectively and timely address our sustainability and reduce our carbon footprint.

Risks Related to Human Capital

• Loss or unavailability of any of our executive officers or other key employees; and

• Ability to employ a sufficient number of key employees, technical personnel and qualified workers.

Risks Related to Our Indebtedness

• Our substantial level of indebtedness;

• Ability to incur additional debt, despite our current indebtedness levels;

• Restrictive covenants in our agreements governing our indebtedness;

• Our variable rate debt that is subject to interest rate fluctuations; and

• Potential reduction or expiration of our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes.

Risks Related to Our Common Stock

• The price of our common stock may be volatile or may decline regardless of our operating performance;

• Stockholders may be diluted by the future issuance of additional common stock;

• Keane Investor and Cerberus own a significant amount of our common stock and continue to have influence over us;

• Our stock buyback program may not be fully consummated or deliver expected results;

• Stockholder actions and/or acquisition of the Company is impacted by restrictive provisions in our charter documents, certain agreements governing our indebtedness, our Stockholders’ Agreement (as defined herein) and Delaware law; and

• The Court of Chancery of the State of Delaware is the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders under our formation documents.

General Risks

• Cyber security risks;

• Failure of our information technology systems;

• Sustained inflation could result in increased operating costs;

• Economic impact of epidemic diseases, such as COVID-19; and

• Adverse effects of global economic and geopolitical conditions. of our common stock may be volatile or may decline regardless of our operating performance;

The following discussion of “risk factors” identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and related notes, as well as other information included and incorporated by reference in this Form 10-K, and the other reports and materials we file with the SEC. These factors could cause future results to differ from those in forward-looking statements and from historical trends.

Risks Related to Our Industry

Our business depends on domestic capital spending and well completions activity by the onshore oil and natural gas industry and reductions in capital spending could have a material adverse effect on our liquidity, results of operations and financial condition.

Our business is cyclical and is directly affected by capital spending by our customers to explore for, develop and produce oil and natural gas in the United States. These expenditures are volatile and generally dependent on our customers’ views of future demand for oil and gas and future oil and gas prices, as well as our customers’ ability to access capital. Reduced capital spending by our customers may result in a decline in the demand for our services or adversely affect the price of our services. Furthermore, a decrease in the development of oil and natural gas reserves in the U.S. may also have an adverse impact on our business, even in an environment of strong oil and natural gas prices.

Some of the items that may impact our customer’s capital spending include:

• Oil and natural gas prices;

• The inability of our customers to access capital on economically advantageous terms, which may be impacted by, among other things, a decrease of investors’ interest in hydrocarbon producers because of environmental and sustainability initiatives;

• Restrictions on our customers’ ability to bring their produced oil and natural gas to market due to infrastructure limitations;

• Changes in customers’ capital allocation, including an increased allocation to the production of renewable energy, leading to less focus on oil and natural gas production growth;

• The consolidation of our customers; and

• Adverse developments in the business or operations of our customers, including write-downs of oil and natural gas reserves and borrowing base reductions under customers’ credit facilities.

• Federal, state and local regulation and restriction of hydraulic fracturing and other oilfield service activities, such as water disposal and exploration and production activities; and

• Advances in exploration, development and production technologies or in technologies affecting energy consumption.

The volatility of oil and natural gas prices may adversely affect the demand for our services and negatively impact our results of operations.

The demand for our services is substantially influenced by current and anticipated crude oil and natural gas commodity prices. Historically, prices for crude oil and natural gas have been extremely volatile, and these prices are expected to experience continued volatility. Volatility or weakness in crude oil and natural gas commodity prices (or the perception that crude oil and natural gas commodity prices will decrease) affects the operational and capital spending patterns of our customers. This volatility may result in a decline in the demand for our services or adversely affect the price of our services.

Factors affecting the price of oil and natural gas include:

• The level of supply and demand for natural gas;

• The cost of exploring for, developing and producing oil and natural gas;

• The rates at which new oil and natural gas reserves are discovered;

• Worldwide political, military, and economic conditions;

• Actions of the Organization of the Petroleum Exporting Countries, its members and other state-controlled oil companies (“OPEC+”) relating to oil price and production controls;

• The level of oil and natural gas production in the U.S. and by other non-OPEC+ countries;

• Disruptions due to natural disasters, weather conditions, pandemics or epidemics and similar factors; and

• Increased demand for alternative energy and electric vehicles, including government initiatives to promote the use of sustainable, renewable energy sources and public sentiment around alternatives to oil and gas.

Adverse weather conditions could impact demand for our services or materially impact our costs.

Our operations and the operations of our customers may be adversely affected by seasonal weather conditions, severe weather events and natural disasters. Many experts believe global climate change could increase the frequency and severity of extreme weather conditions. Extreme weather conditions such as drought, extreme heat, extreme winter weather, and hurricanes may result in the evacuation of personnel, stoppage of services, reduction in productivity, and activity disruptions at our facilities, in our supply chain, or at well-sites. Repercussions of severe or unseasonable weather conditions may also include decreases in demand for oil and natural gas during unseasonably warm winters. Any such extreme weather events may result in increased operating costs or decreases in revenue, which could adversely affect our financial condition, results of operations and cash flows.

Our operations involve a variety of operating hazards that could cause losses.

Drilling for and producing hydrocarbons, and the associated products and services that we provide , include dangers such as well blowouts, cratering, loss of well control, uncontrollable flows of gas or well fluids, explosions, accidents, equipment failure, fires, personal injuries, property damage (including surface and subsurface damage), borehole collapse, pollution, damage to geological formations and the discharge of hazardous substances into the environment. Catastrophic or significantly adverse events can also occur at our facilities and during transport of our equipment, commodities, and personnel to well sites. Our safety procedures may not always prevent such damages. In response, we typically seek indemnities, releases and limitations on liability in our contracts with our customers, together with liability insurance coverage, to protect us from potential liability related to such occurrences. However, it is possible that customers or insurers could seek to avoid such provisions (or compliance with such provisions) or be financially unable to meet their obligations, the coverage under the indemnity or insurance may be insufficient to cover the expenses, or a court may decline to enforce such provisions. Damages that are not indemnified or released could greatly exceed available insurance coverage and result in significant costs to our business.

In addition, we may not be able to maintain adequate insurance in the future at rates we consider reasonable and commercially justifiable or on terms as favorable as our current arrangements. The occurrence of a significant uninsured claim, a claim in excess of the insurance coverage limits maintained by us or a claim at a time when we are not able to obtain liability insurance could have a material adverse effect on our ability to conduct normal business operations and on our financial condition, results of operations, and cash flows.

We typically enter into agreements with our customers governing the provision of our services, which usually include certain indemnification provisions for losses resulting from operations. Such agreements may require each party to indemnify the other against certain claims regardless of the negligence or other fault of the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its own negligence. Furthermore, certain states, including Louisiana, New Mexico, Texas and Wyoming, have enacted statutes generally referred to as “oilfield anti-indemnity acts” expressly prohibiting certain indemnity agreements contained in or related to oilfield services agreements. Such oilfield anti-indemnity acts, whether enacted/amended in the future or currently in existence, may restrict or void a party’s indemnification of us, which could have a material adverse effect on our business, financial condition, prospects and results of operations.

Our services could become a source of spills or releases of fluids, including chemicals used during activities, at the site where such services are performed, or could result in the discharge of such fluids into underground formations that were not targeted for fracturing or activities, such as potable aquifers. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages and could result in a variety of claims, losses and remedial obligations that could have an adverse effect on our business and results of operations. The existence, frequency and severity of such incidents could affect operating costs, insurability, reputation and relationships with customers, employees and regulators. Any litigation or claims, even if fully indemnified or insured, could negatively affect our reputation with our customers and the public and make it more difficult for us to compete effectively or obtain adequate insurance in the future.

Risks Related to Our Business

We are exposed to the credit risk of our customers, and any material nonpayment or nonperformance by our customers could adversely affect our financial results.

We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers, many of whose operations are concentrated solely in the domestic E&P industry which, as described above, is subject to volatility and, therefore, credit risk. Our credit procedures and policies may not be adequate to fully reduce customer credit risk. If we are unable to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration in their creditworthiness, any resulting increase in nonpayment or nonperformance by them and our inability to re-market or otherwise use our equipment could have a material adverse effect on our business, financial condition, and results of operations.

Our assets require significant amounts of capital for maintenance, upgrades and refurbishment and may require significant capital expenditures for new equipment.

Our hydraulic fracturing fleets and other service-related equipment require significant capital investment in maintenance, upgrades and refurbishment to maintain their competitiveness. Our fleets and other equipment typically do not generate revenue while they are undergoing maintenance, refurbishment or upgrades. Currently the industry and our Company are experiencing delays on key maintenance major components and parts, brought about by global supply chain issues. As a result, there is an increased amount of equipment in the maintenance cycle compared to previous levels. Any maintenance, upgrade or refurbishment project for our assets could increase our indebtedness or reduce cash available for other opportunities. Furthermore, such projects may require proportionally greater capital investments as a percentage of total asset value, which may make such projects difficult to finance on acceptable terms. To the extent we are unable to fund such projects, we may have less equipment available for service, or our equipment may not be attractive to potential or current customers. Additionally, environmental and safety requirements or advances in technology within our industry may require us to update or replace existing fleets or build or acquire new fleets. Such demands on our capital could have a material adverse effect on our business, liquidity position, financial condition, prospects and results of operations. The availability of parts and major components due to supply chain constraints and limited number of quality suppliers and service providers may impact our ability to timely maintain our equipment, which may adversely affect our financial condition and results of operations.

Delays in deliveries of key raw materials or increases in the cost of key raw materials could harm our business, results of operations and financial condition.

Raw materials essential to our business (such as proppant, chemicals, cement, steel, or coiled tubing) and finished products (such as fluid-handling equipment) are normally readily available. However, high levels of demand for raw materials, such as proppant and hydrochloric acid, as well as oil and natural gas based derivatives, have triggered constraints in the supply chain of those raw materials and could dramatically increase the prices of such raw materials. In the past, our industry faced sporadic shortages associated with hydraulic fracturing operations, such as proppant and other raw materials, requiring work stoppages, which adversely impacted the operating results of several competitors. Many of the raw materials essential to our business require the use of rail, storage, and trucking services to transport the materials to our jobsites. These services, particularly during times of high demand, may cause delays in the arrival of or otherwise constrain our supply of raw materials. These constraints could have a material adverse effect on our business and results of operations.

Our commitments under supply agreements could exceed our requirements, exposing us to risks including price, timing of delivery and quality of products and services upon which our business relies.

We have purchase commitments with certain vendors to supply a majority of the proppant that we may provide in our operations. Some of these agreements are take-or-pay agreements with minimum purchase obligations. If demand for our hydraulic fracturing services decreases, our need for the raw materials and products we supply as part of these services also decreases. If demand decreases enough, we could have contractual minimum commitments that exceed the required amount of goods we need to supply to our customers. In this instance, we could be required to purchase goods that we do not have a present need for, pay for goods that we do not take delivery of or pay prices in excess of market prices at the time of purchase. We may not be able to reduce, extend,

eliminate or otherwise address near-term obligations to our satisfaction, which could result in an adverse effect on our financial condition.

New technology may cause us to become less competitive and intellectual property related liability may have a material negative impact on our business and results of operations.

The oilfield services industry is subject to the introduction of new drilling and completion techniques and services using new technologies, some of which may be subject to patent or other intellectual property protections. As competitors and others use or develop new or comparable technologies in the future, we may lose market share or be placed at a competitive disadvantage. In addition, technological changes, process improvements and other factors that increase operational efficiencies could continue to result in oil and natural gas wells being completed more quickly, which could reduce the number of revenue earning days. Furthermore, we may face competitive pressure to develop, implement or acquire certain new technologies at a substantial cost. Some of our competitors have greater financial, technical and personnel resources that may allow them to enjoy technological advantages and develop and implement new products on a timely basis or at an acceptable cost. We cannot be certain that we will be able to develop and implement new technologies or products on a timely basis or at an acceptable cost. Limits on our ability to develop, acquire, effectively use and implement new and emerging technologies may have a material adverse effect on our business, financial condition, prospects or results of operations. Further, some of our competitors and suppliers have a substantial amount of intellectual property related to new technologies. We cannot guarantee that our processes and products do not and will not infringe issued patents (whether present or future) or other intellectual property rights belonging to others, including, without limitation, situations in which our products, processes or technologies may be covered by patent applications filed by other parties in the U.S. or abroad.

We may be subject to litigation and other proceedings, including claims for personal injury and property damage, which could materially adversely affect our financial condition, prospects and results of operations.

Our services are subject to inherent risks that can cause personal injury or loss of life, damage to or destruction of property, equipment or the environment or the suspension of our operations. Our operations are subject to, and exposed to, employee/employer liabilities and risks such as wrongful termination, discrimination, labor organizing, retaliation claims, pay practices, and general human resource related matters. Litigation arising from operations where our facilities are located, or our services are provided, may cause us to be named as a defendant in lawsuits asserting potentially large claims including claims for exemplary damages. Additionally, because our business is related to fossil fuel production, there is an increasing risk that we may be subject to generalized lawsuits which attempt to hold companies in the fossil fuel industry liable for alleged local impacts of climate change. Such legal theories are still developing, making it difficult to assess the likelihood or scope of potential liabilities. We maintain what we believe is customary and reasonable insurance to protect our business against these potential losses, but such insurance may not be adequate to cover our liabilities, and we are not fully insured against all risks, including losses related to alleged climate claim damages. Further, our insurance has deductibles or self-insured retentions and contains certain coverage exclusions. The current trend in the insurance industry is towards larger deductibles and self-insured retentions. In addition, insurance may not be available in the future at rates that we consider reasonable and commercially justifiable, compelling us to have larger deductibles or self-insured retentions to effectively manage expenses. As a result, we could become subject to material uninsured liabilities or situations where we have high deductibles or self-insured retentions that expose us to liabilities that could have a material adverse effect on our business, financial condition, prospects or results of operations.

Risks Related to Government Regulation, Laws and Compliance

Failure on our part to comply with, and the costs of compliance with, applicable health, safety, and environmental requirements could have a material adverse effect on our business, results of operations, and financial condition.

We are subject to a variety of laws and regulations relating to health and safety and the environment. Among those laws and regulations are those covering hazardous materials and requiring emission performance standards for facilities. For example, our well service operations routinely involve the handling of significant amounts of waste materials, some of which are classified as hazardous substances. We also store, transport, and use radioactive and explosive materials in certain of our operations. Applicable regulatory requirements include, but are not limited to, those concerning:

• The containment and disposal of hazardous substances, oilfield waste, and other waste materials;

• The production, storage, transportation and use of explosive materials;

• The importation and use of radioactive materials;

• The use of underground storage tanks;

• The use of underground injection wells; and

• The protection of worker safety both onshore and offshore.

These and other requirements generally are becoming increasingly strict. The failure to comply with the requirements, many of which may be applied retroactively, may result in penalties, revocation of permits to conduct business and corrective action orders, including orders to investigate and/or clean up contamination which could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

Our operations are subject to stringent federal, state, local and tribal laws and regulations relating to, among other things, protection of natural resources, clean air and drinking water, wetlands, endangered species, greenhouse gasses, areas that are not in attainment with air quality standards, the environment, health and safety, chemical use and storage, waste management, waste disposal and transportation of waste and other hazardous and nonhazardous materials. Our operations involve risks of environmental liability, including leakage from an operator’s casing during our operations or accidental spills onto or into surface or subsurface soils, surface water or groundwater. Some environmental laws and regulations may impose strict liability, joint and several liability or both. In some situations, we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, third parties without regard to whether we caused or contributed to the conditions. Additionally, environmental concerns, including potential emissions affecting clean air, including methane, drinking water contamination and seismic activity, have prompted investigations that could lead to the enactment of regulations, limitations, restrictions or moratoria that could potentially have a material adverse impact on our business.

Actions arising under these laws and regulations could result in the shutdown of our operations, fines and penalties (administrative, civil or criminal), revocations of or restrictions in permits to conduct business, expenditures for remediation or other corrective measures and/or claims for liability for property damage, exposure to hazardous materials, exposure to hazardous waste, nuisance or personal injuries. Sanctions for noncompliance with applicable environmental laws and regulations may also include the assessment of administrative, civil or criminal penalties, revocation of or restrictions in permits and temporary or permanent cessation of operations in a particular location and issuance of corrective action orders. Such claims or sanctions and related costs could cause us to incur substantial costs or losses and could have a material adverse effect on our business, financial condition, prospects and results of operations.

Additionally, an increase in regulatory requirements, limitations, restrictions or moratoria on oil and natural gas exploration and completion activities at a federal, state or local level could significantly delay or interrupt our operations, limit the amount of work we can perform, increase our costs of compliance, or increase the cost of our services; thereby possibly having a material adverse impact on our financial condition. We expect that the regulations around the oil and gas industry may increase and/or become stricter, which may further any potential material adverse impact on our financial condition. For example, the EPA’s recently proposed changes to the standards of performance and emissions guidelines for new, reconstructed, and modified sources in the oil and natural gas sector could require additional monitoring, upgraded control equipment, and/or modified operations at current oil and natural gas operations.

If we do not perform in accordance with government, industry, customer or our own health, safety and environmental standards (including standards put in place related to the COVID-19 pandemic), we could lose business from our customers, many of whom have an increased focus on environmental, health and safety issues.

We are subject to requirements imposed by the EPA, U.S. Department of Transportation, U.S. Nuclear Regulatory Commission, OSHA and state regulatory agencies that regulate operations to prevent air, soil and water pollution, and protect worker health and safety.

The EPA regulates air emissions from all engines, including off-road diesel engines that are used by us to power equipment in the field. Under these U.S. emission control regulations, we could be limited in the number of certain off-road diesel engines we can purchase. Further, the requirement to comply with emission control and fuel quality regulations could result in increased costs.

In addition, as part of our business, we handle, transport, and dispose of a variety of fluids and substances used by our customers in connection with their oil and natural gas exploration and production activities. We also generate and dispose of nonhazardous and hazardous wastes. The generation, handling, transportation, and disposal of these fluids, substances, and wastes are regulated by a number of laws, including CERCLA, RCRA, the Clean Water Act, the SDWA and analogous state laws. Under RCRA, the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes are regulated. RCRA currently exempts many oil and gas exploration and production wastes from classification as hazardous waste. However, these oil and gas exploration and production wastes may still be regulated under state solid waste laws and regulations, and it is possible that certain oil and natural gas exploration and production wastes now classified as non-hazardous could be classified as hazardous waste in the future.

Failure to properly handle, transport or dispose of these materials or otherwise conduct our operations in accordance with these and other environmental laws could expose us to liability for governmental penalties, third-party claims, cleanup costs associated with releases of such materials, damages to natural resources, and other damages, as well as potentially impair our ability to conduct our operations. Moreover, certain of these environmental laws impose joint and several, strict liability even though our conduct in performing such activities was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third-parties was the basis for such liability. In addition, environmental laws and regulations are subject to frequent change and if existing laws, regulatory requirements or enforcement policies were to change in the future, we may be required to make significant unanticipated capital and operating expenditures.

Laws and regulations protecting the environment generally have become more stringent over time, and we expect them to continue to do so. This could lead to material increases in our costs, and liability exposure, for future environmental compliance and remediation.

Delays in obtaining, or inability to obtain or renew, permits or authorizations by our customers for their operations or by us for our operations could impair our business.

In most states, our customers are required to obtain permits or authorizations from one or more governmental agencies or other third parties to perform drilling and completion activities, including hydraulic fracturing. Such permits or approvals are typically required by state agencies, but can also be required by federal and local governmental agencies or other third parties. The requirements for such permits or authorizations vary depending on the location where such drilling and completion activities will be conducted. As with most permitting and authorization processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit or approval to be issued and the conditions which may be imposed in connection with the granting of the permit. In some jurisdictions, such as within the jurisdiction of the Delaware River Basin Commission, certain regulatory authorities have delayed or suspended the issuance of permits or authorizations, while the potential environmental impacts associated with issuing such permits can be studied and appropriate mitigation measures evaluated. Some states have prohibited hydraulic fracturing statewide. In Texas, rural water districts have begun to impose restrictions on water use and may require permits for water used in drilling and completion activities. Permitting, authorization or renewal delays, the inability to obtain new permits or the revocation of current permits could cause a loss of revenue and potentially have a materially adverse effect on our business, financial condition, prospects or results of operations.

We are also required to obtain federal, state, local and/or third-party permits and authorizations in some jurisdictions in connection with our wireline services. These permits, when required, impose certain conditions on our operations. Any changes in these requirements could have a material adverse effect on our business, financial condition, prospects and results of operations.

Existing or future laws, regulations, court orders or other initiatives to limit greenhouse gas (“GHG”) emissions or relating to climate change may reduce demand for our products and services.

Continuing political and social attention to the issue of climate change has resulted in both existing and proposed national, regional and local legislation and regulatory measures to limit GHG emissions. The implementation of these agreements, including the Paris Agreement, and other existing or future regulatory mandates, may adversely affect the demand for our products and services, impose taxes on us or our customers, require us or our customers to reduce GHG emissions from our technologies or operations, or accelerate the obsolescence of our products or services. In the United States, the U.S. Environmental Protection Agency (“EPA”) has taken steps to regulate GHG emissions as air pollutants under the U.S. Clean Air Act of 1970, as amended. The EPA’s Greenhouse Gas Reporting Rule requires monitoring and reporting of GHG emissions from, among others, certain mobile and stationary GHG emission sources in the oil and natural gas industry, which in turn may include data from our equipment or operations. In addition, the U.S. government has proposed rules in the past setting GHG emission standards for, or otherwise aimed at reducing GHG emissions from, the oil and natural gas industry, including a November 2022 notice of proposed rulemaking. The imposition and enforcement of stringent GHG reduction requirements could severely and adversely impact the oil and gas industry and therefore significantly reduce the value of our business.

We could be adversely affected by violations laws and regulations governing international trade including the U.S. Foreign Corrupt Practices Act and similar foreign anti-bribery laws.

The United States Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries and partners from making, offering or authorizing improper payments to non-U.S. government officials for the purpose of obtaining or retaining business. Although we currently have limited international operations, we may do business in the future in countries or regions where strict compliance with anti-bribery laws may conflict with local customs and practices. Our employees, intermediaries, and partners may face, directly or indirectly, corrupt demands by government officials, political parties and officials, tribal or insurgent organizations, or private entities in the countries in which we operate or may operate in the future. As a result, we face the risk that an unauthorized payment or offer of payment could be made by one of our employees, intermediaries, or partners even if such parties are not always subject to our control or are not themselves subject to the FCPA or other anti-bribery laws to which we may be subject. We are committed to doing business in accordance with applicable anti-bribery laws and have implemented policies and procedures concerning compliance with such laws. Our existing safeguards and any future improvements, however, may prove to be less than effective, and our employees, intermediaries, and partners may engage in conduct for which we might be held responsible. Violations of the FCPA and other anti-bribery laws (either due to our acts, the acts of our intermediaries or partners, or our inadvertence) may result in criminal and civil sanctions and could subject us to other liabilities in the U.S. and elsewhere. Even allegations of such violations could disrupt our business and result in a material adverse effect on our business and operation.

Changes in transportation regulations may increase our costs and negatively impact our results of operations.

We are subject to various transportation regulations, including regulation of motor carriers by the U.S. Department of Transportation and by various federal, state and tribal agencies, whose regulations include certain permit requirements imposed by highway and safety authorities. These regulatory authorities exercise broad powers over our trucking operations, generally governing such matters as the authorization to engage in motor carrier operations, safety, equipment testing, driver requirements and specifications and insurance requirements. The trucking industry is subject to possible regulatory and legislative changes that may impact our operations, such as changes in fuel emissions limits, hours of service regulations that govern the amount of time a driver may drive or work in any specific period and limits on vehicle weight and size. As the federal government continues to develop and propose regulations relating to fuel quality, engine efficiency and greenhouse gas emissions, we may experience an increase in costs related to truck purchases and maintenance, impairment of equipment productivity, a decrease in the residual value of vehicles, unpredictable fluctuations in fuel prices and an increase in operating expenses. Increased truck traffic may contribute to deteriorating road conditions in some areas where our operations are performed. Our operations, including routing and weight restrictions, could be affected by road construction, road repairs, detours and state and local regulations and ordinances restricting access to certain roads. Proposals to increase federal, state or local taxes, including taxes on motor fuels, are also made from time to time, and any such increase would increase our operating costs. Also, state and local regulation of permitted routes and times on

specific roadways could adversely affect our operations. We cannot predict whether, or in what form, any legislative or regulatory changes or municipal ordinances applicable to our logistics operations will be enacted and to what extent any such legislation or regulations could increase our costs or otherwise adversely affect our business or operations.

The Company could be subject to changes in its tax rates, the adoption of new tax legislation, tax audits, or exposure to additional tax liabilities that could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

We are subject to taxes in the U.S. and jurisdictions where we operate and our subsidiaries are organized. Due to economic and political conditions, tax rates in the U.S. and other jurisdictions may be subject to significant change. In addition, our tax returns are subject to examination by the U.S. and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of the examinations. An increase in tax rates, particularly in the U.S., changes in our ability to realize our deferred tax assets, or adverse outcomes resulting from examinations of our tax returns could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

The adoption of any future federal, state, or local laws or implementing regulations imposing reporting obligations on, or limiting or banning, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells and could have a material adverse effect on our business, results of operations, and financial condition.

Various federal and state legislative and regulatory initiatives have been or could be undertaken that could result in additional requirements or restrictions being imposed on hydraulic fracturing operations or result in the failure to obtain or difficulty or delay in obtaining required permits, renewals or authorizations. For example, the United States may seek to adopt federal regulations or enact federal laws that would impose additional regulatory requirements on or even prohibit hydraulic fracturing in some areas. Legislation and/or regulations have been adopted in many U.S. states that require additional disclosure regarding chemicals used in the hydraulic fracturing process. Legislation, regulations, and/or policies have also been adopted at the state level that impose other types of requirements on hydraulic fracturing operations (such as limits on operations in the event of certain levels of seismic activity). Additional legislation and/or regulations have been adopted or are being considered at the state and local level that could impose further chemical disclosure or other regulatory requirements (such as prohibitions on hydraulic fracturing operations in certain areas) that could affect our operations. Four states (New York, Maryland, Vermont, and Washington) have banned the use of high volume hydraulic fracturing, Oregon has adopted a five-year moratorium, and Colorado has enacted legislation providing local governments with regulatory authority over hydraulic fracturing operations. Local jurisdictions in some states have adopted ordinances that restrict or in certain cases prohibit the use of hydraulic fracturing, although many of these ordinances have been challenged and some have been overturned. The adoption of any future federal, state or local laws or regulations imposing reporting obligations on, or limiting or banning, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells and could have a material adverse effect on our business, results of operations, and financial condition.

Strategic Risks

Our acquisitions, dispositions and investments may not result in anticipated benefits and may present risks not originally contemplated, which may have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

We continually seek opportunities to maximize efficiency and value through various transactions, including purchases or sales of assets, businesses, investments, or joint venture interests. These transactions are intended to (but may not) result in the realization of savings, the creation of efficiencies, the offering of new products or services, the generation of cash or income, or the reduction of risk. Acquisition transactions may use cash on hand or be financed by additional borrowings or by the issuance of our common stock. These transactions may also affect our business, consolidated results of operations, and consolidated financial condition.

These transactions also involve risks, and:

• Any acquisitions we attempt may not be completed on the terms announced, or at all;

• Any acquisitions may not result in an increase in income or provide an adequate return of capital or other anticipated benefits;

• Any acquisitions may not be successfully integrated into our operations and internal controls;

• The due diligence conducted prior to an acquisition may not uncover situations that could result in financial or legal exposure or that we may not appropriately quantify the exposure from known risks;

• Any disposition may not result in decreased earnings, revenue, or cash flow;

• Use of cash for acquisitions may not adversely affect our cash available for capital expenditures and other uses; or

• Any dispositions, investments, or acquisitions, including integration efforts, may not divert management resources.

Integrating acquisitions may be time-consuming and create costs that could reduce our net income and cash flows.

Part of our strategy includes pursuing acquisitions that we believe will be accretive to our business. If we consummate an acquisition, such as the Alamo Acquisition in 2021 and the C&J Merger in 2019, the process of integrating the acquired business may be complex and time consuming, may be disruptive to the business and may cause an interruption of, or a distraction of management’s attention from, the business as a result of a number of obstacles, including, but not limited to:

• A failure of our due diligence process to identify significant risks or issues;

• The loss of customers of the acquired company or our company;

• Customers or suppliers may seek to modify contractual obligations with us;

• Negative impact on the brands or banners of the acquired company or our company;

• A failure to maintain or improve the quality of our customer service;

• Difficulties assimilating the operations and personnel of the acquired company;

• Our inability to retain key personnel of the acquired company;

• The incurrence of unexpected expenses and working capital requirements;

• Our inability to achieve the financial and strategic goals, including synergies, for the combined businesses;

• Difficulty in maintaining internal controls, procedures and policies;

• Mistaken assumptions about the overall costs of equity or debt; and

• Unforeseen difficulties operating in new product areas or new geographic areas.

Any of the foregoing obstacles, or a combination of them, could decrease gross profit margins or increase selling, general and administrative expenses in absolute terms and/or as a percentage of net sales, which could in turn negatively impact our net income and cash flows.

Investor and public perception related to the company’s environment, social, and governance (“ESG”) performance as well as current and future ESG reporting requirements may negatively affect our business, results of operations, and liquidity.

There is increased focus by governments and our customers, investors and other stakeholders on climate change, sustainability and energy transition matters. Negative attitudes toward or perceptions of our industry or fossil fuel products and their relationship to the environment have led governments, non-governmental organizations, and companies to implement initiatives to conserve energy and promote the use of alternative energy sources, which may reduce the demand for and production of oil and gas in areas of the world where our customers operate, and thus reduce future demand for our products and services. In addition, initiatives by investors and financial institutions to limit funding to companies in fossil fuel-related industries may adversely affect our liquidity or access to capital.

Increased scrutiny regarding our ESG practices could impact our reputation.

In December 2022, we released our corporate responsibility report for fiscal 2021, which highlights key achievements, metrics and newly defined sustainability goals as part of our sustainability strategic initiative. Our sustainability report also includes our policies and practices on a variety of ESG matters, including the value creation opportunities provided by our products; diversity, equity, and inclusion; employee health and safety; community giving; and human capital management. The publication of our sustainability report may result in increased investor, employee, and other stakeholder attention to our ESG initiatives, and such stakeholders may not be satisfied with our ESG practices or initiatives. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings may lead to increased negative investor sentiment toward us and our industry, which could have a negative impact on the price of our securities and our access to and costs of capital.

Failure to effectively and timely address the need to operate more sustainably and with a lower carbon footprint and impact could adversely affect our business, results of operations and cash flows.

Our long-term success may depend on our ability to effectively lower the carbon impact of how we deliver our products and services to our customers. For example, part of our sustainability strategy has been to transition our fleet towards natural gas powered engines, and even electric operated fleets. If we fail or are perceived to not be effectively lowering our carbon impact, then we could potentially lose engagement with customers, investors and/or certain financial institutions.

Risks Related to Human Capital

The loss or unavailability of any of our executive officers or other key employees could have a material adverse effect on our business.

We depend greatly on the efforts of our executive officers and other key employees to manage our operations. Experienced and well qualified talent for these positions is in increasingly high demand and the ability to timely replace personnel in these positions can be challenging. The loss or unavailability of any of our executive officers or other key employees could have a material adverse effect on our business.

If labor costs increase or we fail to attract and retain qualified employees our business, results of operations and financial condition may be adversely affected.

The labor markets in the industries in which we operate are competitive. We must attract, train and retain a large number of qualified employees while controlling related labor costs. We face significant competition for these employees from the industries in which we operate as well as from other industries. Tighter labor markets may make it even more difficult for us to hire and retain qualified employees and control labor costs. Our ability to attract qualified employees and control labor costs is subject to numerous external factors, including prevailing wage rates, employee preferences, employment law and regulation, environmental, health and safety regulation, labor relations and immigration policy. A significant increase in competition or cost increase arising from any of the aforementioned factors in may have a material adverse impact on our business, results of operations and financial condition.

Risks Related to Our Indebtedness

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.

We have a significant amount of indebtedness. As of December 31, 2022, we had $361.4 million of debt outstanding, net of discounts and deferred financing costs (not including finance lease obligations). After giving effect to our borrowing base, we had approximately $415.3 million of availability under our 2019 ABL Facility (as defined herein).

Our indebtedness could have important consequences. For example, it could:

• Adversely affect the market price of our common stock;

• Increase our vulnerability to interest rate increases and general adverse economic and industry conditions;

• Require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes, including acquisitions;

• Limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• Limit our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service requirements and other general corporate requirements; and

• Place us at a competitive disadvantage compared to our competitors that have less debt.

In addition, we cannot assure you that we will be able to refinance any of our debt, or that we will be able to refinance our debt on commercially reasonable terms. If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as: sales of assets; sales of equity; or negotiations with our lenders to restructure the applicable debt. Our debt instruments may restrict, or market or business conditions may limit, our ability to use some of our options.

Despite our indebtedness levels, we may still be able to incur additional debt, which could further exacerbate the risks associated with our leverage.

We and our subsidiaries may incur additional indebtedness in the future. The terms of the credit agreements that govern the 2019 ABL Facility and the 2018 Term Loan Facility (as defined herein and, together with the 2019 ABL Facility, the “Senior Secured Debt Facilities”) permit us to incur additional indebtedness, subject to certain limitations. If new indebtedness is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face would intensify. See Part II, “ Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations-Principal Debt Agreements” for further details.

The agreements governing our indebtedness contain operating covenants and restrictions that limit our operations and could lead to adverse consequences if we fail to comply with them.

The agreements governing our indebtedness contain certain operating covenants and other restrictions relating to, among other things, limitations on indebtedness (including guarantees of additional indebtedness) and liens, mergers, consolidations and dissolution, sales of assets, investments and acquisitions, dividends and other restricted payments, repurchase of shares of capital stock and options to purchase shares of capital stock and certain transactions with affiliates. In addition, our Senior Secured Debt Facilities include certain financial covenants.

The restrictions in the agreements governing our indebtedness may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We may also incur future

debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility.

Failure to comply with these financial and operating covenants could result from, among other things, changes in our results of operations, the incurrence of additional indebtedness, declines in the pricing of our services and products, difficulties in implementing cost reduction initiatives, difficulties in implementing our overall business strategy or changes in general economic conditions, which may be beyond our control. The breach of any of these covenants or restrictions could result in a default under the agreements that govern these facilities that would permit the lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay such amounts, lenders having secured obligations could proceed against the collateral securing these obligations. The collateral includes the capital stock of our domestic subsidiaries and substantially all of our and our subsidiaries’ other tangible and intangible assets, subject in each case to certain exceptions. This could have serious consequences on our financial condition and results of operations and could cause us to become bankrupt or otherwise insolvent. In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders.

See Part II, “ Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations-Principal Debt Agreements” for further details.

Substantially all of our debt is variable rate and increases in interest rates could negatively affect our financing costs and our ability to access capital.

We have exposure to future interest rates based on the variable rate debt under the Senior Secured Debt Facilities, and to the extent we raise additional debt in the capital markets to meet maturing debt obligations, to fund our capital expenditures and working capital needs and to finance future acquisitions. Daily working capital requirements are typically financed with operational cash flow and through borrowings under our 2019 ABL Facility, if needed. The interest rate on these borrowing arrangements is generally determined from the inter-bank offering rate at the borrowing date plus a pre-set margin. Although we employ risk management techniques to hedge against interest rate volatility, significant and sustained increases in market interest rates could materially increase our financing costs and negatively impact our reported results.

Ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes is subject to limitation under Section 382 of the Internal Revenue Code, and NOLs and other tax attributes is subject to reduction, causing less NOL or tax deductions to be available to offset future taxable income for U.S. federal income tax purpose

Under U.S. federal income tax law, a corporation is generally permitted to deduct from taxable income net operating losses (“NOLs”) carried forward from prior years. As of December 31, 2022, we reported consolidated federal NOL carryforwards of approximately $1.1 billion of which $729.8 million are pre-change NOL’s subject to limitation. Our ability to utilize our NOL carryforwards to offset future taxable income and to reduce U.S. federal income tax liability is subject to certain requirements and restrictions. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. An ownership change generally occurs if one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of our stock have aggregate increases in their ownership of such stock of more than 50 percentage points over such stockholders’ lowest ownership percentage during the testing period (generally a rolling three year period). We believe we experienced an ownership change in October 2019 as a result of the C&J Merger. We also believe we experienced an ownership change in January 2017 as a result of the implementation of the IPO. Thus our pre-change NOLs are subject to limitation under Section 382 of the Code as a result. Such limitation may cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitation were not in effect and could cause a portion of our pre-change NOLs generated prior to 2018 to expire unused, in each case reducing or eliminating the benefit of such NOLs. Similar rules and limitations may apply for state income tax purposes.

Risks Related to Our Common Stock

The price of our common stock may be volatile or may decline regardless of our operating performance, and our stockholders may not be able to resell their shares at or above the public offering price.

The market price for our common stock is volatile. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, including:

• The failure of securities analysts to cover, or continue to cover, our common stock or changes in financial estimates by analysts;

• changes in, or investors’ perception of, the oil field services industry, including hydraulic fracturing;

• The activities of competitors;

• Future issuances and sales of our common stock, including in connection with acquisitions;

• Our quarterly or annual earnings or those of other companies in our industry;

• The public’s reaction to our press releases, our other public announcements and our filings with the SEC;

• Regulatory or legal developments in the U.S.;

• Litigation involving us, our industry, or both; and

• General economic conditions, including increased levels of inflation.

In addition, the stock market often experiences extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of a particular company. These broad market fluctuations and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.

Our stockholders may be diluted by the future issuance of additional common stock in connection with our equity incentive plans, acquisitions or otherwise.

As of December 31, 2022, we had 266.3 million shares of common stock authorized but unissued under our certificate of incorporation. We will be authorized to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for consideration and on terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. As of December 31, 2022, we have 5,341,651 shares of our common stock available for award that may be issued under our equity incentive plans. Any common stock that we issue, including under our equity incentive plans or other equity incentive plans that we may adopt in the future, may result in additional dilution to our stockholders.

In the future, we may also issue our securities, including shares of our common stock, in connection with investments or acquisitions. We regularly evaluate potential acquisition opportunities, including ones that would be significant to us, and at any one time we may be participating in processes regarding several potential acquisition opportunities, including ones that would be significant to us. We cannot predict the timing of any contemplated transactions. The number of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to our stockholders.

Keane Investor and Cerberus own a significant amount of our common stock and their interests could be in conflict with the interest of our other shareholders.

Keane Investor Holdings currently controls approximately 13.8% of our common stock, which includes affiliates of Cerberus. The interests of Cerberus may not coincide with the interests of other holders of our common stock. For example, certain instances may arise in which Cerberus may have an interest in pursuing or preventing acquisitions, d ivestitures or other transactions, including the issuance of additional equity or debt, that, in their judgment, could enhance their investment in us or another company in which they invest. The concentration of ownership held by Cerberus could also delay, defer or prevent a change of control of our company or impede a merger, takeover or other business combination that may otherwise be favorable for us. In addition, pursuant to the Second Amended and Restated Stockholder’s Agreement, dated October 31, 2019 (the “Stockholders’ Agreement”) Keane Investor (or Cerberus in certain instances) has certain board nomination rights based on its ownership of our

common stock. Currently, two of our ten directors are employees of, appointees of, or advisors to, members of Cerberus. Additionally, Cerberus is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Cerberus may also pursue, for its own members’ accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as Cerberus continues to directly or indirectly own a significant amount of our equity, Cerberus will continue to be able to substantially influence our ability to enter into corporate transactions.

In addition, if Cerberus through Keane Investor decides to sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease. The perception in the public market that Keane Investor might sell shares of common stock could also create a perceived overhang and depress our market price.

We cannot guarantee that our recently announced stock buyback program will be fully consummated or that such program will enhance the long-term value of our share price.

In October 2022, NexTier’ board of directors approved a shareholder return program, which includes authorization to repurchase up to $250 million of the Company’s common stock, which can be discontinued at any time. There is no obligation for the Company to continue to repurchase or to repurchase any specific dollar amount of stock. The stock buyback program could affect the price of our stock and increase volatility in the market. We cannot guarantee that this program will be fully consummated or that such program will enhance the long-term value of our share price. In addition, repurchase regulations and taxes may add additional payment burden to our stock buyback program.

Provisions in our certificate of incorporation, bylaws and our stockholders’ agreement could make acquiring us more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.

Provisions in our certificate of incorporation, our bylaws ’may discourage, delay or prevent a merger, acquisition or other change in control that some stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares of our common stock. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, possibly depressing the market price of our common stock.

In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace members of our management team. Examples of such provisions include advance notice requirements for stockholder proposals and super majority requirements by our stockholders to amend the bylaws or increase or decrease the number of directors.

Our certificate of incorporation authorizes our board of directors to issue up to 50,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined by our board of directors at the time of issuance or fixed by resolution without further action by the stockholders. These terms may include voting rights, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of preferred stock could diminish the rights of holders of our common stock, and therefore, could reduce the value of our common stock. In addition, specific rights granted to holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could delay, discourage, prevent or make it more difficult or costly to acquire or effect a change in control, thereby preserving the current stockholders’ control.

In connection with the Keane IPO, Keane entered into a Stockholders’ Agreement with Keane Investor. This stockholders’ agreement was amended and restated in conjunction with the C&J Merger (as amended and restated, the “Stockholders’ Agreement”) and provides that, except as otherwise required by applicable law, from the date on which (a) Keane Investor (or Cerberus Holder in certain instances), for so long as Cerberus Holder has beneficial ownership of at least 12.5% or greater of the aggregate number of Company shares then outstanding, shall have the right to designate to the board of directors two individuals; and (b) Keane Investor (or Cerberus Holder in

certain instances), for so long as Cerberus Holder has beneficial ownership of less than 12.5% but at least 7.5% of the aggregate number of Company shares then outstanding, shall have the right to designate to the board of directors one individual. The ability of Keane Investor (or Cerberus Holder in certain instances) to appoint one or more directors could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.

Our certificate of incorporation and bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees

Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders; (c) any action asserting a claim arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws; or (d) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, prospects or results of operations.

General Risks

Our business could be negatively affected by cybersecurity incidents.

The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain processing activities and interactions with customers and suppliers, and we rely heavily on information systems to conduct and protect our business. These information systems, including our digital logistics platform, are increasingly subject to cybersecurity incidents such as unauthorized access to data and systems, loss or destruction of data, computer viruses, or other malicious code, ransomware, hacking, social engineering, phishing, denial-of-service, and cyberattacks, and other similar events. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Cybersecurity threats have increased due to an increase in remote working arrangements. Cyber incidents arise from numerous sources, including fraud or malice on the part of third parties, accidental technological failure, electrical or telecommunication outages, failures of computer servers or other damage to our property or assets, human error, complications encountered as existing systems are maintained, repaired, replaced, or upgraded or outbreaks of hostilities or terrorist acts. A breach of our technology systems could lead to the loss and destruction of trade secrets, confidential information, proprietary data, intellectual property, customer and supplier data, and employee personal information, and could disrupt business operations, which may result in claims against us, including liability under laws that protect the privacy of personal information and could adversely affect our relationships with business partners and harm our brands, reputation, and financial results. Our systems and insurance coverage for protecting against cyber security risks, including cyberattacks, may not be sufficient and may not protect against or cover all of the losses we may experience as a result of the realization of such risks.

A failure of our information technology systems, including our enterprise resource planning system and our digital hub, could have a material adverse effect on our business, financial condition, results of operations and cash flows and could adversely affect the effectiveness of our internal control over financial reporting.

We rely on sophisticated information technology systems and infrastructure to support our business. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, usage errors by employees, computer viruses, or similar events. A failure or prolonged interruption in our information

technology systems, including our digital logistics platform, or difficulties encountered in upgrading our systems or implementing new systems that compromises our ability to meet our customers’ needs or impairs our ability to record, process and report accurate information, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A period of sustained inflation across all the major markets in which we operate could result in higher operating costs.

Inflationary pressures typically result in increases to our operating expenses. While we take actions wherever possible to reduce the impact of the effects of inflation, in cases of sustained inflation across several of our major markets, it becomes increasingly difficult to effectively control the increase to our costs. In addition, the effects of inflation could result in the reduction of our clients’ budgets and spending plans. If we are unable to increase our pricing or take other actions to mitigate the effect of the resulting higher costs, our profitability and financial position could be negatively impacted.

Our business is subject to risks arising from epidemic diseases, such as the recent global outbreak of the coronavirus.

The COVID-19 pandemic has impacted worldwide economic activity. A pandemic, including COVID-19 or another public health epidemic, poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including shutdowns that may be requested or mandated by governmental authorities.

The continued spread of COVID-19, or a similar pandemic, could adversely affect commodity demands, our customers, our suppliers, and on our operations and employees. These effects have included, and may continue to include, adverse revenue effects; supply chain disruptions; inflationary impacts on cost of goods and services sold, customer shutdowns of oil and gas exploration and production; employee impacts from illness, school closures and other community response measures; and temporary closures of our facilities or the facilities of our customers and suppliers.

Global economic and geopolitical conditions could adversely affect our operations.

In recent years, we have been faced with very challenging global economic conditions. For instance, Russia’s invasion of Ukraine and sanctions against Russia also are causing disruptions to global economic conditions. It is unknown how long such disruptions will continue and whether such disruptions will become more severe. A deterioration in the global economic environment may result in a decrease in demand for our products and increased competition.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included within Part II, “ Item 8 . Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. For additional information related to forward looking statements or information related to the basis of presentation and comparability of financial information, please see “Cautionary Statement Regarding Forward-Looking Statements and Information” and “Basis of Presentation in this Annual Report on Form 10-K”, both of which immediately follow the table of contents of this Form 10-K.

Business Overview

NexTier Oilfield Solutions Inc. is a predominantly U.S. land oilfield service company, with a diverse set of well completion and production services across a variety of active and demanding basins. We have a history of growth through acquisition, including (i) our 2019 transaction with C&J, a publicly traded Delaware corporation, (ii) our 2021 acquisition of Alamo, a pressure pumper focused in the Permian, and (iii) our 2022 acquisition of last mile proppant logistics and wellsite storage assets from CIG Sellers. This history impacts the comparability of our operational results from year to year. See Part I, “ Item 1. Business” of this Annual Report for an overview of our history, including additional information on certain of the acquisitions noted above, including the C&J Merger and the Alamo Acquisition, and business environment. Additional information on the Alamo Acquisition and the CIG Acquisition can also be found in Note (3) Acquisitions of Part II, “ Item 8 . Financial Statements and Supplemental Data.”

Industry Overview and Drivers in 2022

We provide our services in several of the most active basins in the United States, including the Permian, the Marcellus Shale/Utica, the Eagle Ford, Haynesville and the Bakken/Rockies. The high density of our operations in the basins in which we are most active provides us the opportunity to leverage our fixed costs and to quickly respond with what we believe are highly efficient, integrated solutions that are best suited to address customer requirements.

Activity within our business segments is significantly impacted by spending on upstream exploration, development and production programs by our customers. Thus, our financial performance is affected by rig and well counts in North America, as well as oil and natural gas prices, which are summarized in the tables below. Also influencing our activity is the status of the global economy, which impacts oil and natural gas demand. Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices, global oil supply, the world economy, the availability of credit, government regulation and global stability, which together drive worldwide drilling activity.

During 2022, global crude markets recovered further from the COVID-19 pandemic induced dual supply and demand shock that emerged in the first quarter of 2020. Additionally, the Russian invasion of Ukraine increased uncertainty of global supply given the supply of crude oil and natural gas that is exported from Russia, which along with the COVID-19 recoveries, drove crude prices to their peak in the first half of 2022, before retreating in the second half. For the year, crude prices were supportive of higher completions activity in 2022 relative to 2021. Crude oil prices have improved from their 2020 lows, which if maintained, we believe could drive a healthy level of investment and activity in U.S. shale.

There has been some attrition through consolidation and other events that have made some progress in realigning frac supply with demand. We believe frac supply utilization was very tight in 2022 and remains so at the beginning of 2023. Against this backdrop, pricing for our services has improved considering demand for our services has remained strong. Contributing to the tightness, horsepower intensity for each fleet continues to grow as our industry adopts more complex completion techniques; as horsepower demand returns, we believe existing supply will be fully utilized across fewer fleets.

The following table shows the average historical oil and natural gas prices for WTI and Henry Hub natural gas:

Year Ended December 31,

Oil price - WTI (1)

Natural gas price - Henry Hub (2)

(1)   Oil price measured in dollars per barrel

(2)  Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu

The historical average U.S. rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:

Year Ended December 31,

Product Type

Oil

Natural Gas

Other

Total

Year Ended December 31,

Drilling Type

Horizontal

Vertical

Directional

Total

As of January 2023, global liquids demand is expected to average 100.5 million barrels per day in 2023. The EIA anticipates continued growth in the long-term U.S. domestic demand for natural gas, supported by various factors, including (i) increased likelihood of favorable regulatory and legislative initiatives, (ii) increased acceptance of natural gas as a clean and abundant domestic fuel source and (iii) the emergence of low-cost natural gas shale developments. As of January 2023, natural gas demand in the United States is expected to average 86.74 billion cubic feet per day in 2023.

The regions in which we operate, including the Permian, Marcellus Shale / Utica Basins, Haynesville and Eagle Ford, among others, are expected to account for a majority of all new horizontal wells anticipated to be drilled through 2023. As of December 31, 2022, rigs in these basins accounted for approximately 70% of the total, and were up approximately 29% as compared to low total U.S. rig count noted on January 7, 2022.

The current U.S. administration has expressed support for alternative energy sources, reduction of greenhouse gas emissions, the use and dependence on fossil fuels, and efforts addressing climate change. There is also increased focus by our customers, investors and other stakeholders on climate change, sustainability, and energy transition matters. We have been transitioning to new technologies providing for dual fuel fleets capable of using natural gas, in furtherance of our low cost, low emissions commitment.

Operating Approach & Strategy

We believe that there is competitive value in providing integrated solutions that align the incentives of operators and service providers. We are pursuing opportunities to leverage our investment in our digital program and diesel substitution technologies (such as duel fuel capabilities and electric fleet), to provide a service strategy targeted at achieving emissions reductions, both for us and our customers. NexTier has been developing and building its digital program for some time, and we have now applied our digital platform to all of our operating fleets. We launched our Power Solutions business in 2021, which provides a natural gas treatment and delivery service that will power NexTier’s fleet with field gas or compressed natural gas. This addition seeks to address wellsites where there is not a reliable nearby gas supply, and thus, the full benefit and value of dual fuel or other

lower emissions technologies may not otherwise be fully realized. To address this situation, we developed an integrated natural gas treatment and delivery solution designed to provide gas sourcing, compression, transport, decompression, treatment, and distribution services for our fracing operations. This integrated strategy provides our customers with a streamlined approach to driving more sustainable, cost-effective operations at the wellsite. Additionally, as part of our wellsite integration strategy, in 2022, we acquired sand hauling, well storage, and last mile logistics assets from CIG Sellers and rebranded the entire last mile logistics operation as NexMile Logistics. The assets acquired were combined with the Company’s existing last mile logistics assets to create a leading player in the delivery and storage of proppant at the wellsite. We are committed to our Power Solutions, NexMile Logistics, and proppant management businesses and will look to further increase our investments in these services, in addition to the maintenance and investment in our core fracturing assets.

We believe our integrated approach and proven capabilities enable us to deliver cost-effective solutions for increasingly complex and technically demanding well completion requirements, which include longer lateral segments, higher pressure rates and proppant intensity and multiple fracturing stages in challenging high-pressure formations. In addition, our technical team and our innovation centers, provide us with the ability to supplement our service offerings with engineered solutions specifically tailored to address customers’ completion requirements and unique challenges.

Our revenues are generated by providing services and equipment to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. Our results of operations in our core service lines are driven primarily by five interrelated, fluctuating variables: (1) the drilling, completion and production activities of our customers, which is primarily driven by oil and natural gas prices and directly affects the demand for our services; (2) the price we are able to charge for our services and equipment, which is primarily driven by the level of demand for our services and the supply of equipment capacity in the market; (3) the cost of materials, supplies and labor involved in providing our services, and our ability to pass those costs on to our customers; (4) our activity, or deployed equipment “utilization” levels; and (5) the quality, safety and efficiency of our service execution.

Our operating strategy is focused on maintaining high utilization levels of deployed equipment to maximize revenue generation while controlling costs to gain a competitive advantage and drive returns. We believe that the quality and efficiency of our service execution and aligning with customers who recognize the value that we provide are central to our efforts to support equipment utilization and grow our business.

However, equipment utilization cannot be relied on as wholly indicative of our financial or operating performance due to variations in revenue and profitability from job to job, the type of service to be performed and the equipment, personnel and consumables required for the job, as well as competitive factors and market conditions in the region in which the services are performed. Given the volatile and cyclical nature of activity drivers in the U.S. onshore oilfield services industry, coupled with the varying prices we are able to charge for our services and the cost of providing those services, among other factors, operating margins can fluctuate widely depending on supply and demand at a given point in the cycle.

Historically, our utilization levels have been highly correlated to U.S. onshore spending by our customers. Generally, as capital spending by our customers increases, drilling, completion and production activity also increases, resulting in increased demand for our services, and therefore more days or hours worked (as the case may be). Conversely, when drilling, completion and production activity levels decline due to lower spending by our customers, we generally provide fewer services, which results in fewer days or hours worked (as the case may be). Additionally, during periods of decreased spending by our customers, we may be required to discount our rates or provide other pricing concessions to remain competitive and support deployed equipment utilization, which negatively impacts our revenue and operating margins. During periods of pricing weakness for our services, we may not be able to reduce our costs accordingly, and our ability to achieve any cost reductions from our suppliers typically lags behind the decline in pricing for our services, which could further adversely affect our results. Furthermore, when demand for our services increases following a period of low demand, our ability to capitalize on such increased demand may be delayed while we reengage and redeploy equipment and crews that have been idled

during a downturn. The mix of customers that we are working for, as well as limited periods of exposure to the spot market, also impacts our deployed equipment utilization.

Our Reportable Segments

Prior to the divestiture of our well support services business in March 2020, our business was organized into three reportable segments. Additional information on this transaction can be found in Note (21) Business Segment s. We are organized into two reportable segments, described below. This history impacts the comparability of our operational results from 2020 to 2021.

• Completion Services, which consists of the following businesses and services lines: (1) hydraulic fracturing services; (2) wireline and pumping services; and (3) completion support services, which includes our Power Solutions natural gas fueling business, our proppant last mile logistics and storage business, and our R&T department.

• Well Construction and Intervention Services, which consists of our cementing services.

Completion Services

The core services provided through our Completion Services segment are hydraulic fracturing, wireline and pumpdown services. Our completion support services are focused on supporting the efficiency, reliability and quality of our operations. Our innovation centers provide in-house manufacturing capabilities that help to reduce operating cost and enable us to offer more technologically advanced and efficiency focused completion services, which we believe is a competitive differentiator. For example, through our innovation centers we manufacture the data control instruments used in our fracturing operations and assemble the perforating guns and addressable switches used in our wireline operations; some of these products are also available for sale to third-parties. The majority of revenue for this segment is generated by our fracturing business.

Well Construction and Intervention Services

The core services provided through our Well Construction and Intervention Services segment were cementing and previously coiled tubing services. After the sale of our coiled tubing assets to Gladiator Energy LLC on August 1, 2022, all of the revenue for this segment is generated by our cementing business.

Historical Segment: Well Support Services

On March 9, 2020, we completed a divestiture of the entities and assets comprising our Well Support Services. This segment had focused on post-completion activities at the well site, including rig services, such as workover and plug and abandonment, fluids management services, and other specialty well site services.

How we calculate utilization for each segment

Our management team monitors asset utilization, among other factors, for purposes of assessing our overall activity levels and customer demand. For our Completion Services segment, asset utilization levels for our own fleets is defined as the ratio of the average number of deployed fleets to the number of total fleets for a given time period. We define active fleets as fleets available for deployment; we consider one of our fleets deployed if the fleet has been put in service at least one day during the period for which we calculate utilization; and we define fully-utilized fleets per month as fleets that were deployed and working with our customers for a significant portion of a given month. As a result, as additional fleets are incrementally deployed, our utilization rate increases. We define industry utilization of fracturing assets as the ratio of the total industry demand of hydraulic horsepower to the total available capacity of hydraulic horsepower, in each case as reported by an independent industry source. Our method for calculating the utilization rate for our own fracturing fleets or the industry may differ from the method used by other companies or industry sources which could, for example, be based off a ratio of the total number of days a fleet is put in service to the total number of days in the relevant period. We believe that our measures of utilization, based on the number of deployed fleets, provide an accurate representation of existing, available capacity for additional revenue generating activity.

In our Well Construction and Intervention Services segment, we measure our asset utilization levels for our cementing business primarily by the total number of days that our asset base works on a monthly basis, based on the available working days per month. Prior to the sale on August 1, 2022, of our coiled tubing business, we measured certain asset utilization levels by the hour to better understand measures between daylight and 24-hour operations. Both the financial and operating performance of our coiled tubing and cement units can vary in revenue and profitability from job to job depending on the type of service to be performed and the equipment, personnel and consumables required for the job, as well as competitive factors and market conditions in the region in which the services are performed.

In our Well Support Services segment, prior to the 2020 divestiture of the segment, we measured asset utilization levels primarily by the number of hours our assets work on a monthly basis, based on the available working days per month.

RESULTS OF OPERATIONS

Th e following table sets forth our financial results for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

A comparison of our financial results for the year ended December 31, 2021 and for the year ended December 31, 2020 can be found in the " Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on February 23, 2022.

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

Year Ended December 31,

(Thousands of Dollars)

As a % of Revenue

Variance

Description

Completion Services

Well Construction and Intervention Services

Revenue

Completion Services

Well Construction and Intervention Services

Costs of services

Depreciation and amortization

Selling, general and administrative expenses

Merger and integration

Gain on disposal of assets

Operating income (loss)

Other income, net

Interest expense, net

Total other expenses

Income tax expense

Net income (loss)

Revenue.     Total revenue is comprised of revenue from our Completion Services and Well Construction and Intervention Services segments. Revenue in 2022 increased by $1.8 billion, or 128%, to $3.2 billion from $1.4 billion in 2021. This change in revenue by reportable segment is discussed below.

Completion Services:      Completion Services segment revenue increased by $1.8 billion, or 133%, to $3.1 billion in 2022 from $1.3 billion in 2021. The segment revenue increase is primarily attributable to a strong increase in the number of deployed hydraulic fracturing fleets, additional well-site integration and commodities, including our Power Solutions natural gas fueling services, increases in wireline and pumpdown services, and a full year of legacy Alamo equipment compared to four months in 2021 . Improved market conditions and higher global commodity prices drove increased customer activity across all basins, and we realized strong pricing recovery in all services lines.

Well Construction and Intervention:     Well Construction and Intervention Services segment revenue increased by $55.0 million, or 56%, to $153.6 million in 2022 from $98.6 million in 2021. The increase in revenue is

primarily due to higher customer activity, improved pricing, and increased utilization in our cementing and coil tubing services resulting from improved market conditions and higher global oil and gas commodity prices, offset by the reduction due to the sale of the coil tubing business in the third quarter of 2022.

Cost of services.    Cost of services in 2022 increased by $1.2 billion, or 98%, to $2.5 billion from $1.3 billion in 2021. The increase is primarily due to significantly increased activity and utilization, as explained under the "Revenue" caption and its related segment sub-captions above. Pricing improvements coupled with operational efficiencies and process improvements to permanently drive costs out of the organization more than offset the impact of cost inflation, and led to overall costs increasing at a lower rate than revenue increased.

Equipment Utilization.     Depreciation and amortization expense increased by $45.1 million, or 24%, to $229.3 million in 2022 from $184.2 million in 2021. The increase in depreciation and amortization is primarily due to additional equipment from the Alamo Acquisition in the third quarter of 2021, current year capital additions, and the CIG assets acquired in the third quarter of 2022. Gain on disposal of assets in 2022 decreased $12.3 million, to a gain of $16.6 million in 2022 compared to a gain of $28.9 million in 2021. This change was primarily driven by the Company’s higher levels of divesting in 2021 of diesel-powered frac equipment and other non-core assets to fund conversions of equipment to be powered by natural gas as compared to divestitures in 2022, which primarily consisted of the sale of our coiled tubing business in the third quarter of 2022.

Selling, general and administrative expense.     Selling, general and administrative (“SG&A”) expense, which represents costs associated with managing and supporting our operations, increased by $36.6 million, or 33%, to $146.0 million in 2022 from $109.4 million in 2021, primarily due to the $24.9 million accrual reduction in 2021 related to the settlement of a regulatory audit matter, combined with increased stock compensation in first quarter of 2022 and increased activity as a result of the Alamo Acquisition in the third quarter of 2021.

Merger and integration expense.     Merger and integration expense increased by $54.7 million, or 628%, to $63.4 million in 2022 from $8.7 million in 2021. The increase in merger and integration expense is primarily related to the Alamo Acquisition earnout, which was triggered by Alamo achieving certain EBITDA targets pursuant to the Purchase Agreement.

Other income, net.     Other income, net, in 2022 increased by $3.1 million, or 26%, to $15.3 million in 2022 from $12.1 million in 2021. This change was primarily due to the gain on the sale of our equity security investment of $2.1 million recognized in other income (expense), net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Interest expense, net.     Interest expense, net of interest income, increased by $3.8 million, or 15%, to $28.4 million in 2022 from $24.6 million in 2021. This change was primarily attributable to an increase in the Company’s finance leases acquired as part of the Alamo Acquisition in the third quarter of 2021.

Effective tax rate.     Our effective tax rate on continuing operations in 2022 was 1.43% for $4.6 million of recorded income tax expense, as compared to (1.43)% for $1.7 million of income tax expense in 2021. For 2022, the difference between the effective tax rate and the U.S. federal statutory rate is due to state taxes, permanent differences and a change in valuation allowance. For 2021, the difference between the effective tax rate and the U.S. federal statutory rate is due to state taxes, foreign withholding taxes, permanent differences, and a change in valuation allowance. As of December 31, 2022, we continued to maintain a valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. We continue to evaluate all available evidence to determine the

likelihood of utilizing our net deferred tax assets. The remaining tax impact not offset by a valuation allowance is related to indefinite-lived assets.

Material Changes to our Consolidated Balance Sheet

The following table presents the major indicators of our financial condition and liquidity.

(Thousands of Dollars)

December 31, 2022

December 31, 2021

Cash and cash equivalents

Total current assets, excluding cash and cash equivalents

Total current liabilities, excluding current maturities of long-term debt and leases

Current maturities of long-term debt

Long-term debt, net of deferred financing costs and debt discount, less current maturities

Cash and cash equivalents was $218.5 million as of December 31, 2022, an increase of $107.8 million, or 97%, compared to $110.7 million as of December 31, 2021. The increase in cash and cash equivalents during the year ended December 31, 2022, was primarily driven by the improved profitability with strong cash collections, discipline on capital allocation due to market conditions, and higher global commodity prices that have increased customer activity across all basins and have enabled strong pricing recovery in all services lines. This was offset by cash flows used in investing activities including the purchases of property and equipment and the CIG Acquisition and cash flows used in financing activities including the payments on our debt obligations, finance lease, and our share repurchase program.

Total current assets, excluding cash and cash equivalents, was $507.5 million as of December 31, 2022, an increase of $110.5 million, or 28%, compared to $397.0 million as of December 31, 2021. Total current liabilities, excluding current maturities of long-term debt and leases, was $513.4 million as of December 31, 2022, an increase of $74.4 million, or 17%, compared to $439.0 million as of December 31, 2021. The increase in both total current assets, excluding cash and cash equivalents, and total current liabilities, excluding current maturities of long-term debt and leases, was due to increases in customer receivables, higher levels of inventories, increases in accounts payables and accrued expenses, and the increase in the Alamo earnout.

Long-term debt, net of deferred financing costs and debt discount, less current maturities was $347.4 million as of December 31, 2022, a decrease of $14.1 million, or 4%, as compared to $361.5 million as of December 31, 2021. The decrease in debt, net of deferred financing costs and debt discount was primarily driven by the principal payments made throughout the period.

Fiscal 2023 Strategy

We face many challenges and risks in the industry in which we operate. Although many factors contributing to these risks are beyond our ability to control, we continuously monitor these risks and have taken steps to mitigate them to the extent practicable. In addition, while we believe that we are well positioned to capitalize on available growth opportunities, we may not be able to achieve our business objectives and, consequently, our results of operations may be adversely affected. Please read the factors described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A. of this Annual Report for additional information about the known material risks that we face.

Fiscal 2023 Objectives

With commodity prices continuing to be volatile, we intend to closely monitor the market and will adjust our approach as the situation develops. At this time, our principal business objective continues to be growing our business and safely providing best-in-class services in all of our operating segments, while delivering stockholder value and maintaining a disciplined capital deployment strategy.

We are committed to continuing to manage our business in line with demand for our services and make adjustments as necessary to effectively respond to changes in market conditions, customer activity levels, pricing for our services and equipment, and utilization of our deployed equipment and personnel. We take a measured approach to asset deployment, balancing our view of current and expected customer activity levels with a focus on generating positive returns for our stockholders. Our priorities remain to drive revenue by maximizing deployed equipment utilization, to improve margins through cost controls, to protect and grow our market share by focusing on the quality, safety and efficiency of our service execution, lower emissions, and to ensure that we are strategically positioned to capitalize on constructive market dynamics. We foresee the macroeconomics setup in 2023 to be just as strong for our industry as it was in 2022 and that the demand for fracturing fleets will likely continue to exceed the supply available in the market. Even during this strong macroeconomic environment in our industry, our strategy remains to lead the industry in disciplined behavior and use our returns to reward our shareholders.

Completion Services

In our Completion Services segment, our strategy remains focused on continuing to meet our customers’ demands while increasing the integration with more of our wireline and pumpdown units, Power Solutions services, and last mile logistics with our deployed fracturing fleets. We are focused on increasing our dedicated fracturing fleet count with efficient customers that allow us to achieve high equipment utilization, which should result in improved financial performance. As part of this effort, we continuously evaluate new technologies with enhanced capabilities and greater operating efficiency to replace aging equipment within our fracturing fleet as it becomes obsolete or retired. We also expect the delivery of our first electric fleet in the first half of the year, which will increase our investments in diesel substitution technologies. Additionally, we plan to continue to fund high return growth project that will increase the penetration of our wellsite integration strategy, mostly through additional investments in Power Solutions services and last mile logistics.

Furthermore, as discussed in Item 1 . Business and Item 7. MD&A Overview, as part of our lower emissions initiatives, we are focused on optimizing gas substitution across our fleet, enabled by digital capabilities like NexHub and MDT controls, and the continued development of our Power Solutions business. We believe that natural gas-powered technologies and digital assisted logistics will be a key method of transitioning to lower emissions operations, which strategy we anticipate will be a key driver of returns.

Well Construction and Intervention Services

In our cementing business, we remain focused on providing high-quality, timely service and deploying more of our assets with efficient customers in our focused basins. We will stay focused on controlling costs and improving market share with an efficient customer base that plan to maintain stable drilling rig counts and levels of activity in 2023, while spending the necessary capital to maintain our equipment in optimal conditions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity represents a company’s ability to adjust its future cash flows to meet needs and opportunities, both expected and unexpected.

(Thousands of Dollars)

Year Ended December 31,

Cash

Debt, net of deferred financing costs and debt discount

(Thousands of Dollars)

Year Ended December 31,

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Significant sources and uses of cash during the year ended December 31, 2022

Sources of cash:

• Operating activities:

• Net cash provided by operating activities for the year ended December 31, 2022 was $454.4 million. This was primarily driven by improved profitability with strong cash collections, discipline on capital allocation, improved market conditions, and higher global commodity prices, which drove increased customer activity across all basins, as well as realized strong pricing recovery in all services lines. Pricing improvements, coupled with operational efficiencies, and process improvements to permanently drive costs out of the organization more than offset the impact of cost inflation and led to overall costs increasing at a lower rate than revenue.

Uses of cash:

• Investing activities:

• Net cash used in investing activities for the year ended December 31, 2022 was $186.2 million. The activity consists primarily of purchases of property and equipment of $215.4 million, advances of deposit on equipment of $4.9 million, asset acquisition of $26.7 million, and implementation of software of $4.8 million, offset by proceeds from disposal of assets of $50.2 million and proceeds from insurance recoveries of $15.4 million.

• Financing activities:

• Net cash used in financing activities during the year ended December 31, 2022 was $161.5 million. The activity consists primarily of payments made related to repayment of the 2018 Term Loan Facility and the Equipment Loan of $14.7 million, repayment of our finance leases of $13.9 million, repayment of our financing liabilities of $7.6 million, repayment of the contingent consideration liability related to the Alamo Acquisition earnout of $6.3 million, repurchase and retirement of shares related to stock-based compensation of $7.5 million, and repurchase and retirement of shares related to share repurchase program of $111.4 million.

Significant sources and uses of cash during the year ended December 31, 2021

Sources of cash:

• Financing activities:

• Net cash provided by financing activities for the year ended December 31, 2021 was $48.3 million, which was an increase of $58.1 million compared to the year ended December 31, 2020. This change was primarily due to the $43.2 million the Company received through our 2021 Equipment Loans and $17.8 million from financing liabilities.

Uses of cash:

• Operating activities:

• Net cash used in operating activities during the year ended December 31, 2021 was $50.8 million, which resulted in a change of $119.7 million compared to the year ended December 31, 2020. The change is primarily due to an increase in commodity prices, additional maintenance expenses related to startup costs required for fleet re-deployments, and inflation.

• Investing activities:

• Net cash used in investing activities for the year ended December 31, 2021 was $163.2 million, which resulted in increase of $125.4 million compared to the year ended December 31, 2020. The change is primarily due to an increase in purchase of property plant and equipment, deposits on equipment and implementation of software of $64.3 million, a $156.1 million change related to acquisition of business and payment of consideration liability, partially offset by an increase of $37.8 million in proceeds from disposal of assets, $34.4 million in cash received from the WSS notes and $22.9 million in proceeds from insurance recoveries.

Future sources and use of cash

Our primary sources of liquidity have historically included, and we have funded our capital expenditures with, cash flows from operations, issuance of our common stock for acquisitions, and borrowings under debt facilities. Our ability to generate future cash flows is subject to a number of variables, many of which are outside of our control, including the drilling, completion and production activity by our customers, which is highly dependent on oil and gas prices. See Part II, “Overview” for additional discussion of certain factors that impact our results and the market challenges within our industry.

Our primary uses of cash are for operating costs, capital expenditures, including acquisitions, our shareholder return program, and debt service.

In 2023, we expect capital expenditures to be approximately $350.0 million. We expect a higher spend in the first half of the year and declining in the second half due to the expected delivery of our first electric fleet, the front loaded investments in wellsite integration services including Power Solutions and last mile logistics, as well as further investments to increase our capitalized component spare parts.

Debt service for the year ended December 31, 2023 is projected to be $54.5 million, of which $13.2 million is related to finance leases. We anticipate our debt service will be funded by cash flows from operations.

As of December 31, 2022, we had $138.6 million remaining in the $250.0 million share repurchase program announced on October 25, 2022, which the Company expects to fully execute by December 31, 2023.

Other factors affecting liquidity

Financial position in current market. As of December 31, 2022, we had $218.5 million of cash and a total of $415.3 million available under our 2019 ABL Facility. We currently believe that our cash on hand, cash flow generated from operations and availability under our revolving credit facility will provide sufficient liquidity to cover our estimated short-term (i.e., the next 12 months) and long-term (i.e., beyond the next 12 months) funding needs, including for capital expenditures, debt service, working capital investments, and our shareholder return program.

Guarantee agreements. Under the 2019 ABL Facility $22.6 million of letters of credit were outstanding as of December 31, 2022.

Customer receivables . In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. The majority of our trade receivables have payment terms of 30 to 60 days or less. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations and consolidated financial condition. We currently believe that the current strong macroeconomic environment for our industry will continue through 2023 and that we will not experience increased delays or failures of customers’ payments.

Contractual Obligations

In the normal course of business, we enter into various contractual obligations that impact or could impact our liquidity. The table below contains our known contractual commitments as of December 31, 2022.

(Thousands of Dollars)

Contractual obligations

Total

Long-term debt, including current portion (1)

Estimated interest payments (2)

Finance lease obligations (3)

Operating lease obligations (4)

Purchase commitments (5)

Legal contingency

(1) Long-term debt represents our obligations under our 2018 Term Loan Facility and Equipment Loan, exclusive of interest payments. In addition, these amounts exclude $3.4 million of unamortized debt discount and debt issuance costs associated with our 2018 Term Loan Facility and Equipment Loan.

(2) Estimated interest payments are based on debt balances outstanding as of December 31, 2022 and include interest related to the 2018 Term Loan Facility and the 2021 Equipment Loans. Interest rates used for variable rate debt are based on the prevailing current LIBOR. Pursuant to the Reference Rate Reform (Topic 848), the Company is currently working to transition from LIBOR to an alternate reference rate in 2023.

(3) Finance lease obligations primarily consist of obligations on our finance leases of light weight vehicles and frac equipment.

(4) Operating lease obligations are related to our real estate, rail cars, and light duty vehicles.

(5) Purchase commitments primarily relate to our agreements with vendors for sand purchases and deposits on equipment. The purchase commitments to sand suppliers represent our annual obligations to purchase a minimum amount of sand from vendors. If the minimum purchase requirement is not met, the shortfall at the end of the year is settled in cash or, in most cases, carried forward to the next year.

Principal Debt Agreements

Our principal debt arrangements continue to be the 2021 Equipment Loan, 2019 ABL Facility and the 2018 Term Loan Facility described below.

2021 Equipment Loans

Origination .    On August 20, 2021, we entered into a Master Loan and Security Agreement (the “Master Agreement”) with Caterpillar Financial Services Corporation.

Structure .    Our Master Agreement provides for secured equipment financing term loans in an aggregate amount of up to $46.5 million (the “2021 Equipment Loans”). The 2021 Equipment Loans may be drawn in multiple tranches, with each loan evidenced by a separate promissory note.

Maturity .    All tranches under the Master Agreement mature on June 1, 2025.

Interest .        Term notes entered into under the Master Agreement will bear interest at a rate of 5.25%.

2019 ABL Facility

Origination .    On October 31, 2019, we, and certain of our other subsidiaries as additional borrowers and guarantors, entered into a Second Amended and Restated Asset-Based Revolving Credit Agreement (the “2019 ABL Facility”) to the original Asset-Based Revolving Credit Agreement, dated as of February 17, 2017, as amended December 22, 2017.

Structure .    Our 2019 ABL Facility provides for a $450.0 million revolving credit facility (with a $100.0 million subfacility for letters of credit), subject to a borrowing base in accordance with the terms agreed between us and the lenders. In addition, subject to approval by the applicable lenders and other customary conditions, the 2019 ABL Facility allows for an additional increase in commitments of up to $200.0 million. The 2019 ABL Facility is subject to customary fees, guarantees of subsidiaries, restrictions and covenants, including certain restricted payments.

Maturity .    The loans arising under the initial commitments under the 2019 ABL Facility mature on October 31, 2024. The loans arising under any tranche of extended loans or additional commitments mature as specified in the applicable extension amendment or increase joinder, respectively.

Interest .        Pursuant to the terms of the 2019 ABL Facility, amounts outstanding under the 2019 ABL Facility bear interest at a rate per annum equal to, at Keane Group Holdings, LLC’s option, (a) the base rate, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 0.75%, (y) if the average excess availability is greater than or equal to 33% but less than 66%, 0.50% or (z) if the average excess availability is greater than or equal to 66%, 0.25%, or (b) the adjusted LIBOR rate for such interest period, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 1.75%, (y) if the average excess availability is greater than or equal to 33% but less than 66%, 1.50% or (z) if the average excess availability is greater than or equal to 66%, 1.25%. Pursuant to the Reference Rate Reform (Topic 848), the Company is currently working to transition from LIBOR to an alternate reference rate in 2023.

Financial Covenants . The 2019 ABL Facility requires that, under certain circumstances, the consolidated fixed charge coverage ratio not be lower than 1.0:1.0 as of the last day of the most recently completed four consecutive fiscal quarters for which financial statements were required to have been delivered, including if excess availability (or liquidity if no loan or letter of credit, other than any letter of credit that has been cash collateralized, is outstanding) is less than the greater of (i) 10% of the loan cap and (ii) $30.0 million at any time. As of  December 31, 2022 , the Company was in compliance with all covenants and the circumstances that would require testing of the consolidated fixed charge coverage ratio had not occurred.

2018 Term Loan Facility

On May 25, 2018, Keane Group and the 2018 Term Loan Guarantors (as defined below) entered into the 2018 Term Loan Facility with each lender from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent. The proceeds of the 2018 Term Loan Facility were used to refinance Keane Group’s then-existing term loan facility and to repay related fees and expenses, with the excess proceeds to fund general corporate purposes.

Structure. The 2018 Term Loan Facility provides for a term loan facility in an initial aggregate principal amount of $350.0 million (the loans incurred under the 2018 Term Loan Facility, the “2018 Term Loans”). As of December 31, 2022, there was $334.3 million principal amount of 2018 Term Loans outstanding. In addition, subject to certain customary conditions, the 2018 Term Loa n Facility allows for additional incremental term loans to be incurred thereunder in an amount equal to the sum of (a) $200.0 million plus the aggregate principal amount of voluntary prepayments of 2018 Term Loans made on or prior to the date of determination (less amounts incurred in reliance on the capacity described in this subclause (a)), plus (b) an unlimited amount, subject to, (x) in the case of debt secured on a pari passu basis with the 2018 Term Loans, immediately after giving effect to the incurrence thereof, a first lien net leverage ratio being less than or equal to 2.00:1.00, (y) in the case of debt secured on a junior basis with the 2018 Term Loans, immediately after giving effect to the incurrence thereof, a secured net leverage ratio being less than or equal to 3.00:1.00 and (z) in the case of unsecured debt, immed iately after giving effect to the incurrence thereof, a total net leverage ratio being less than or equal to 3.50:1.00.

Maturity. May 25, 2025 or, if earlier, the stated maturity date of any other term loans or term commitments.

Amortization. The 2018 Term Loans amortize in quarterly installments equal to 1.00% per annum of the aggregate principal amount of all initial term loans outstanding.

Interest. The 2018 Term Loans bear interest at a rate per annum equal to, at Keane Group’s option, (a) the base rate plus 2.75%, or (b) the adjusted LIBOR for such interest period (subject to a 1.00% floor) plus 3.75%, subject to, on and after the fiscal quarter ending September 30, 2018, a pricing grid with three 0.25% per annum step-ups and one 0.25% per annum step-down determined based on total net leverage for the relevant period. Following a payment event of default, the 2018 Term Loans bear interest at the rate otherwise applicable to such 2018 Term Loans at such time plus an additional 2.00% per annum during the continuance of such event of default. As of December 31, 2021, there was a $334.3 million principal amount of term loans outstanding (the "2018 Term Loans") at an interest rate of LIBOR plus an applicable margin, which is currently at 3.50%. The 2018 Term Loan Facility is subject to customary fees, guarantees of subsidiaries, events of default, restrictions and covenants, including certain restricted payments. As of December 31, 2022, the Company was in compliance with all covenants. Pursuant to the Reference Rate Reform (Topic 848), the Company is currently working to transition from LIBOR to an alternate reference rate in 2023.

Prepayments . The 2018 Term Loan Facility is re quired to be prepaid with: (a) 100% of the net cash proceeds of certain asset sales, casualty events and other dispositions, subject to the terms of an intercreditor agreement between the agent for the 2018 Term Loan Facility and the agent for the 2019 ABL Facility and certain exceptions; (b) 100% of the net cash proceeds of debt incurrences or issuances (other than debt incurrences permitted under the 2018 Term Loan Facility, which exclusion is not applicable to permitted refinancing debt) and (c) 50% (subject to step-downs to 25% and 0%, upon and during achievement of certain total net leverage ratios) of excess cash flow in excess of a certain amount, minus certain voluntary prepayments made under the 2018 Term Loan Facility or other debt secured on a pari passu basis with the 2018 Term Loans and voluntary prepayments of loans under the 2019 ABL Facility to the extent the commitments under the 2019 ABL Facility are permanently reduced by such prepayments.

Guarantees. Subject to certain exceptions as set forth in the definitive documentation for the 2018 Term Loan Facility, the amounts outstanding under the 2018 Term Loan Facility were originally guaranteed by the Company, Keane Frac, LP, KS Drilling, LLC, KGH Intermediate Holdco I, LLC, KGH Intermediate Holdco II, LLC, and Keane Frac GP, LLC, and each subsidiary of the Company that have and will be required to execute and deliver a facility guaranty in the future pursuant to the terms of the 2018 Term Loan Facility (collectively, the “2018 Term Loan Guarantors”).

Security. Subject to certain exceptions as set forth in the definitive documentation for the 2018 Term Loan Facility, the obligations under the 2018 Term Loan Facility are secured by (a) a first-priority security interest in and lien on substantially all of the assets of Keane Group and the 2018 Term Loan Guarantors to the extent not constituting ABL Facility Priority Collateral (as defined below) and (b) a second-priority security interest in and lien on substantially all of the accounts receivable, inventory, and frac iron equipment, and certain other assets and property related to the foregoing including certain chattel paper, investment property, documents, letter of credit rights, payment intangibles, general intangibles, commercial tort claims, books and records and supporting obligations of the borrowers and guarantors under the 2019 ABL Facility (the “ABL Facility Priority Collateral”).

Fees. Certain customary fees are payable to the lenders and the agents under the 2018 Term Loan Facility.

Restricted Payment Covenant. The 2018 Term Loan Facility includes a covenant restricting the ability of the Company and its restricted subsidiaries to pay dividends and make certain other restricted payments, subject to certain exceptions. The 2018 Term Loan Facility provides that the Company and its restricted subsidiaries may, among things, make cash dividends and other restricted payments in an aggregate amount during the life of the facility not to exceed (a) $100.0 million, plus (b) the amount of net proceeds received by Keane Group from the funding of the 2018 Term Loans in excess of the of such net proceeds required to finance the refinancing of the pre-existing term loan facility and pay fees and expenses related thereto and to the entry into the 2018 Term Loan Facility, plus (c) an unlimited amount so long as, after giving effect to such restricted payment, the total net leverage ratio would not exceed 2.00:1.00. In addition, the Company and its restricted subsidiaries may make restricted payments utilizing the Cumulative Credit (as defined below), subject to certain conditions including, if any portion of the Cumulative Credit utilized is comprised of amounts under clause (b) of the definition thereof below, the pro forma total net leverage ratio being no greater than 2.50:1.00.

“Cumulative Credit”, generally, is defined as an amount equal to (a) $25.0 million, (b) 50% of consolidated net income of the Company and its restricted subsidiaries on a cumulative basis from April 1, 2018 (which cumulative amount shall not be less than zero), plus (c) other customary additions, and reduced by the amount of Cumulative Credit used prior to such time (whether for restricted payments, junior debt payments or investments).

Affirmative and Negative Covenants. The 2018 Term Loan Facility contains various affirmative and negative covenants (in each case, subject to customary exceptions as set forth in the definitive documentation for the 2018 Term Loan Facility). The 2018 Term Loan Facility does not contain any financial maintenance covenants. As of December 31, 2022, the Company was in compliance with all covenants.

Events of Default. The 2018 Term Loan Facility contains customary events of default (subject to exceptions, thresholds and grace periods as set forth in the definitive documentation for the 2018 Term Loan Facility).

Related Party Transactions

Our board of directors has adopted a written policy and procedures (the “Related Party Policy”) for the review, approval and ratification of the related party transactions by the independent members of the audit and risk committee of our board of directors. For purposes of the Related Party Policy, a “Related Party Transaction” is (x) any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including the incurrence or issuance of any indebtedness or the guarantee of indebtedness) in which (1) the aggregate amount involved will or may be reasonably expected to exceed $120,000 in any fiscal year, (2) the Company or any of its subsidiaries is a participant, and (3) any Related Party (as defined below) has or will have a direct or indirect material interest, or (y) any transaction that would be required to be disclosed by the Company pursuant to Item 404(a) of Regulation S-K, as amended. All Related Party Transactions will be reviewed in accordance with the standards set forth in the Related Party Policy after full disclosure of the Related Party’s interests in the transaction.

The Related Party Policy defines “Related Party” (x) as any person who is, or, at any time since the beginning of the Company’s last fiscal year for which the Company has filed an Annual Report on Form 10-K and

proxy statement (if applicable), was (1) an executive officer, director or nominee for election as a director of the Company or any of its subsidiaries, (2) a person with greater than five percent (5%) beneficial interest of any class of the Company’s voting securities, (3) an Immediate Family Member (as defined below) of any of the individuals or entities identified in (1) or (2) of this paragraph, and (4) any firm, corporation or other entity in which any of the foregoing individuals or entities is employed or is a general partner or principal or in a similar position or in which such person or entity has a five percent (5%) or greater beneficial interest of any class of the Company’s voting securities, or (y) any “related person” as defined in Item 404(a) of Regulation S-K, as amended. The Related Party defines “Immediate Family Members” to include a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone residing in such person’s home, other than a tenant or employee.

For further details about our transactions with Related Parties, see Note (19) Related Party Transactions of Part II, “ Item 8 . Financial Statements and Supplementary Data.”

Recently Issued Accounting Standards

For discussion on the impact of accounting standards issued but not yet adopted to our consolidated financial statements, see Note (22) New Accounting Pronouncements of Part II, “ Item 8 . Financial Statements and Supplementary Data.”

Critical Accounting Estimates

The preparation of our consolidated financial statements and related notes included within Part II, “ Item 8 . Financial Statements and Supplementary Data” requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

A critical accounting estimate is one that requires a high level of subjective judgment by management and has a material impact to our financial condition or results of operations. We believe the following are the critical accounting policies used in the preparation of our consolidated financial statements, as well as the significant estimates and judgments affecting the application of these policies. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included within Part II, “ Item 8 . Financial Statements and Supplementary Data.”

Business combinations

We allocate the purchase price of businesses we acquire to the identifiable assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill. We use all available information to estimate fair values, including quoted market prices, the carrying value of acquired assets and assumed liabilities and valuation techniques such as discounted cash flows, multi-period excess earning or income-based-relief-from-royalty methods. We engage third-party appraisal firms to assist in the fair value determination of inventories, identifiable long-lived assets, identifiable intangible assets, as well as any contingent consideration or earn-out provisions that provide for additional consideration to be paid to the seller if certain future conditions are met. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our financial condition or results of operations. See Note (3) Acquisitions of Part II, “ Item 8 . Financial Statements and Supplementary Data” for further discussion of our completed acquisition during 2021.

Asset acquisitions

Asset acquisitions are measured based on their cost to us, including transaction costs incurred by us. An asset acquisition’s cost or the consideration transferred by us is assumed to be equal to the fair value of the net assets

acquired. If the consideration transferred is cash, measurement is based on the amount of cash we paid to the seller, as well as transaction costs incurred by us. Consideration given in the form of nonmonetary assets, liabilities incurred or equity interests issued is measured based on either the cost to us or the fair value of the assets or net assets acquired, whichever is more clearly evident. The cost of an asset acquisition is allocated to the assets acquired based on their estimated relative fair values. We engage third-party appraisal firms to assist in the fair value determination of inventories, identifiable long-lived assets and identifiable intangible assets. Goodwill is not recognized in an asset acquisition. See Note (3) Acquisitions of Part II, “ Item 8 . Financial Statements and Supplementary Data” for further discussion of our recently completed asset acquisition during 2022.

Legal and environmental contingencies

From time to time, we are subject to legal and administrative proceedings, settlements, investigations, claims and actions, as is typical of the industry. These claims include, but are not limited to, contract claims, environmental claims, employment related claims, claims alleging injury or claims related to operational issues. Our assessment of the likely outcome of litigation matters is based on our judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial information and other evidence and facts specific to the matter. We accrue for contingencies when the occurrence of a material loss is probable and can be reasonably estimated, based on our best estimate of the expected liability. The estimate of probable costs related to a contingency is developed in consultation with internal and outside legal counsel representing us. The accuracy of these estimates is impacted by, among other things, the complexity of the issues and the amount of due diligence we have been able to perform. Differences between the actual settlement costs, final judgments or fines from our estimates could have a material adverse effect on our financial position or results of operations. See Note (18) Commitments and Contingencies of Part II, “ Item 8 . Financial Statements and Supplementary Data” for further discussion of our legal, environmental and other regulatory contingencies.

Valuation of long-lived assets, indefinite-lived assets and goodwill

We assess our long-lived assets, including definite-lived intangible assets and property and equipment, for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. We assess our goodwill and indefinite-lived assets for impairment annually, as of October 31, or whenever events or circumstances indicate that the carrying amount of goodwill or the indefinite-lived assets may not be recoverable. If the carrying value of an asset exceeds its fair value, we record an impairment charge that reduces our earnings.

We perform our qualitative assessments of the likelihood of impairment by considering qualitative factors relevant to each of our reporting units or asset groups, such as macroeconomic, industry, market or any other factors that have a significant bearing on fair value, and current operations, financial results, and historical projections. The expected future cash flows used for determination of recoverability and related fair value calculations are based on subjective, judgmental assessments of projected revenue growth, unit count, utilization, pricing, gross profit rates, SG&A rates, working capital fluctuations, capital expenditures, discount rates and terminal growth rates. Many of these judgments are driven by crude oil prices. If the crude oil market declines and remains at low levels for a sustained period of time, we would expect to perform our impairment assessments more frequently and could record impairment charges.

See Note (2)(f) Long-Lived Assets with Definite Lives and (2)(h) Goodwill and Indefinite-Lived Intangible Assets of Part II, “ Item 8 . Financial Statements and Supplementary Data” for further discussion on our impairment assessments of our long-lived assets, indefinite-lived assets and goodwill for the years ended December 31, 2022, 2021 and 2020.

Income Taxes

We account for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes,” which requires an asset and liability approach for financial accounting and reporting of income taxes. Under ASC 740, income taxes are accounted for based upon the future tax consequences attributable to

differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carry-forwards using enacted tax rates in effect in the year the differences are expected to reverse. We estimate our annual effective tax rate at each interim period based on the facts and circumstances available at that time, while the actual effective tax rate is calculated at year-end. Our effective tax rates will vary due to changes in estimates of our future taxable income or losses, fluctuations in the tax jurisdictions in which we operate and favorable or unfavorable adjustments to our estimated tax liabilities related to proposed or probable assessments. As a result, our effective tax rate may fluctuate significantly on a quarterly or annual basis.

In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In addition to our historical financial results, we consider forecasted market growth, earnings and taxable income, the mix of earnings in the jurisdictions in which we operate and the implementation of prudent and feasible tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage our underlying businesses. We establish a valuation allowance against the carrying value of deferred tax assets when we determine that it is more likely than not that the asset will not be realized through future taxable income. Such amounts are charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance.

We calculate our income tax liability based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Significant judgment is required in assessing, among other things, the timing and amounts of deductible and taxable items. Due to the complexity of some of these uncertainties, the ultimate resolution may result in payment that is materially different from our current estimate of our tax liabilities. These differences are reflected as increases or decreases to income tax expense in the period in which they are determined.

The amount of income tax we pay is subject to ongoing audits by federal and state tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current estimates. We recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.

The Inflation Reduction Act ("IRA") was signed into law on August 16, 2022. Among other provisions, the IRA includes a 15% corporate alternative minimum tax (“CAMT”) applied to corporations with adjusted financial statement income over $1B and a 1% excise tax on corporate stock repurchases made by publicly traded companies after December 31, 2022. The IRA includes various energy tax credit provisions as well. The Company will not be an applicable corporation for purposes of the CAMT in 2023, but will be subject to the 1% excise tax on any stock repurchases starting in 2023. The Company will continue to monitor the impact of the IRA on its financial statements.

See Note (17) Income Taxes of Part II, “ Item 8 . Financial Statements and Supplementary Data” for further discussion on income taxes for the years ended December 31, 2022, 2021 and 2020.

Leases

Per ASU 2016-02, "Leases (Topic 842)," lessees can classify leases as finance leases or operating leases, while lessors can classify leases as sales-type, direct financing or operating leases. All leases, with the exception of short-term leases, are capitalized on the balance sheet by recording a lease liability, which represents our obligation to make lease payments arising from the lease, along with a corresponding right-of-use asset, which represents our right to use the underlying asset being leased. For leases in which we are the lessee, we use a collateralized incremental borrowing rate to calculate the lease liability, as in most cases we do not know the lessor's implicit rate

in the lease. Establishing our lease obligations on our consolidated balance sheets require judgmental assessments of the term lengths of each and the interest rate yield curve that best represents the collateralized incremental borrowing rate to apply to each lease. We engage third-party specialists to assist us in determining the collateralized incremental borrowing rate yield curve. Errors in determining the lease term lengths and/or selecting the best representative collateralized incremental borrowing rate can have a material adverse effect on our consolidated financial statements. For further details about our leases, see Note  (16) Leases  of Part II, “ Item 8 . Financial Statements and Supplementary Data”.

New Accounting Pronouncements

For discussion on the potential impact of new accounting pronouncements issued but not yet adopted and those adopted during the current year, see Note (22) New Accounting Pronouncements of Part II, “ Item 8 . Financial Statements and Supplementary Data.”