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 to meet their obligations, the coverage under the indemnity or insurance may be to cover the expenses, or a court may to enforce such provisions. that are not indemnified or released could 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 affect our reputation with our customers and the public and make it more 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 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 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 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 issued patents (whether present or future) or other intellectual property rights belonging to others, including, without , 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 local impacts of climate change. Such legal theories are still developing, making it to assess the likelihood or scope of potential liabilities. We maintain what we believe is customary and reasonable insurance to protect our business these potential , but such insurance may not be adequate to cover our liabilities, and we are not fully insured all risks, including related to climate claim . 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 , compelling us to have larger deductibles or self-insured retentions to effectively manage expenses. As a result, we could become subject to material liabilities or situations where we have high deductibles or self-insured retentions that us to liabilities that could have a material 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, , restrictions or that could potentially have a material 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 or sanctions and related costs could cause us to incur substantial costs or and could have a material 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 of current permits could cause a of revenue and potentially have a materially 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- laws and have implemented policies and procedures concerning compliance with such laws. Our existing safeguards and any future , however, may prove to be less than , and our employees, intermediaries, and partners may engage in conduct for which we might be held responsible. of the FCPA and other anti- laws (either due to our acts, the acts of our intermediaries or partners, or our inadvertence) may result in and civil sanctions and could subject us to other liabilities in the U.S. and elsewhere. Even of such could our business and result in a material 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 and some have been . 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 to complete natural gas and oil wells and could have a material 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 or otherwise . In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the 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 may cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such 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 of such NOLs. Similar rules and 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 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 on the part of third parties, technological , electrical or telecommunication , of computer servers or other to our property or assets, human , encountered as existing systems are maintained, repaired, replaced, or upgraded or outbreaks of hostilities or terrorist acts. A of our technology systems could lead to the and of trade secrets, confidential information, proprietary data, intellectual property, customer and supplier data, and employee personal information, and could business operations, which may result in us, including liability under laws that protect the privacy of personal information and could affect our relationships with business partners and our brands, reputation, and financial results. Our systems and insurance coverage for protecting cyber security risks, including , may not be sufficient and may not protect or cover all of the 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.
