What changed in this filing

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Item 1. Business

2021-02-23 compared with 2020-02-21 · 160 added, 144 removed, 171 unchanged (64% of the section changed)

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We are the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S.

and a leading supplier of aftermarket services to customers that own compression equipment in the U.S.

in terms of total compression fleet horsepower and a leading supplier of aftermarket services to customers that own compression equipment in the U.S.

Our business supports a must-run service that is essential to the production, processing, transportation and storage of natural gas.

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Our aftermarket services business provides a full range of services to support the compression needs of our customers that own compression equipment including operations, maintenance, overhaul and reconfiguration services and sales of parts and components.

Recent Business Developments

2028 Notes Offering

On December 20, 2019, we completed a private offering of $500.0 million aggregate principal amount of 6.25% senior notes due April 2028.

We received net proceeds of $491.8 million after issuance costs, which were used to repay borrowings outstanding under our Credit Facility.

See Note 13 (“Long-Term Debt”) to our Financial Statements for further details of this transaction.

Amendment to the Credit Facility

On November 8, 2019, we entered into Amendment No.

2, which extended the maturity date of, and changed the applicable margins for borrowings under, our Credit Facility.

See Part II Item 7 “Liquidity and Capital Resources — Financial Resources” and Note 13 (“Long-Term Debt”) to our Financial Statements for further details of this amendment.

Elite Acquisition

On August 1, 2019, we completed the Elite Acquisition whereby we acquired from Elite Compression substantially all of its assets, including a fleet of predominantly large compressors comprising approximately 430,000 horsepower, vehicles, real property and inventory, and certain liabilities for aggregate consideration consisting of $214.0 million in cash and 21.7 million shares of common stock with an acquisition date fair value of $225.9 million .

The cash portion of the acquisition was funded with borrowings on the Credit Facility.

On August 1, 2019, we completed an asset sale in which Harvest acquired from us approximately 80,000 active and idle compression horsepower, vehicles and parts inventory for cash consideration of $30.0 million .

We recorded a $6.6 million gain on the sale of these assets in the third quarter of 2019.

See Note 4 (“Business Transactions”) to our Financial Statements for further details of the Elite Acquisition and the Harvest Sale.

2027 Notes Offering and 2021 Notes Extinguishment

On March 21, 2019, we completed a private offering of $500.0 million aggregate principal amount of 6.875% senior notes due April 2027.

We received net proceeds of $491.2 million after issuance costs, which were used to repay borrowings outstanding under our Credit Facility.

On April 5, 2019, we repaid the 2021 Notes with borrowings from our Credit Facility.

See Note 13 (“Long-Term Debt”) to our Financial Statements for further details of these transactions.

Contract Operations Services Overview

Natural Gas Compression Industry Overview

Natural gas compression is a mechanical process whereby the pressure of a given volume of natural gas is increased to a desired higher pressure for transportation from one point to another.

It is essential to the production and transportation of natural gas.

Compression is typically required several times during the natural gas production and transportation cycle including (i) at the wellhead, (ii) throughout gathering and distribution systems, (iii) into and out of processing and storage facilities and (iv) along intrastate and interstate pipelines.

Our service offerings focus primarily on the following cycle stages.

Wellhead and Gathering Systems .

Natural gas compression is used to transport natural gas from the wellhead through the gathering system.

At some point during the life of natural gas wells, reservoir pressures typically fall below the line pressure of the natural gas gathering or pipeline system used to transport the natural gas to market.

At that point, natural gas no longer naturally flows into the pipeline.

Compression equipment is applied in both field and gathering systems to boost the pressure levels of the natural gas flowing from the well, allowing it to be transported to market.

Changes in pressure levels in natural gas fields require periodic changes to the size and/or type of on-site compression equipment.

Compression equipment is also used to increase the efficiency of a low-capacity natural gas field by providing a central compression point from which the natural gas can be produced and injected into a pipeline for transmission to facilities for further processing.

Processing Applications .

Compressors may be used in combination with natural gas production and processing equipment to process natural gas into other marketable energy sources.

In addition, compression services are used for compression applications in refineries and petrochemical plants.

Processing applications typically utilize multiple large horsepower compressors.

Gas Lift Applications .

Compression is used to reinject natural gas into producing oil wells to maintain reservoir pressure and help lift liquids to the surface, which is known as enhanced oil recovery or natural gas lift operations.

These applications utilize low- to mid-range horsepower compression equipment located at or near the wellhead or large horsepower compression equipment of over 1,000 horsepower for a centralized gas lift system servicing multiple wells.

Many natural gas and crude oil producers, transporters and processors outsource their compression services due to the benefits and flexibility of contract compression.

Changing well and pipeline pressures and conditions over the life of a well often require producers to reconfigure or replace their compression packages to optimize the well production or gathering system efficiency.

We believe outsourcing compression operations to compression service providers such as us offers customers:

● the ability to efficiently meet their changing compression needs over time while limiting the underutilization of their owned compression equipment;

● access to the compression service provider’s specialized personnel and technical skills, including engineers and field service and maintenance employees, which we believe generally leads to improved production rates and/or increased throughput;

● the ability to increase their profitability by transporting or producing a higher volume of natural gas and crude oil through decreased compression downtime and reduced operating, maintenance and equipment costs by allowing the compression service provider to efficiently manage their compression needs;

● the flexibility to deploy their capital on projects more directly related to their primary business by reducing their compression equipment and maintenance capital requirements.

We believe the U.S.

natural gas compression services industry continues to have growth potential over time due to, among other things, increased natural gas production in the U.S.

from unconventional sources, the aging of producing natural gas fields that will require more compression to continue producing the same volume of natural gas and expected increased demand for natural gas in the U.S.

for power generation, industrial uses and exports, including liquified natural gas exports and exports of natural gas via pipeline to Mexico.

Contract Operations Overview

Compression Services

We provide comprehensive contract operations services including the personnel, equipment, tools, materials and supplies to meet our customers’ natural gas compression needs.

Based on the operating specifications at the customer location and each customer’s unique needs, these services include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining the equipment.

We repackage or reconfigure our existing fleet to adapt to our customers’ compression needs and work closely with our customers’ field service personnel so that the compression services can be adjusted to efficiently match changing characteristics of the reservoir and the natural gas produced.

We primarily utilize reciprocating compressors driven by natural gas-powered engines.

Our equipment is maintained in accordance with our established maintenance schedules, standards and procedures.

We work closely with our customers’ field service personnel so that compression services can be adjusted to efficiently match changing characteristics of the reservoir and the natural gas produced and may repackage or reconfigure our existing fleet to adapt to our customers’ compression needs.

During the years ended December 31, 2020, 2019 and 2018, we generated 84%, 80% and 74%, respectively, of our total revenue from contract operations.

Compression Fleet

Our fleet of compressors that we own and use to provide contract operations services consists primarily of reciprocating compressors driven by natural gas-powered engines.

We continuously work to standardize our compression fleet around major components and key suppliers.

The standardization of our fleet enables us to minimize our fleet operating costs and maintenance capital requirements, reduces inventory costs, facilitates low-cost compressor resizing and allows us to develop improved technical proficiency in our maintenance and overhaul operations, which enables us to achieve higher uptime while maintaining lower operating costs.

Our compressors are predominantly large horsepower, which we define as greater than 1,000 horsepower per unit.

We are in the process of a multi-year project to install telematic devices on our compressors that will enable us to monitor our units remotely.

All of our compressors are designed to automatically shut down if operating conditions deviate from a pre-determined range.

We maintain field service locations from which we service and overhaul our compression fleet.

Our equipment undergoes routine and preventive maintenance in accordance with our established maintenance schedules, standards and procedures.

These maintenance practices are updated as technology changes and as our operations group develops new techniques and procedures to better service our equipment.

In addition, because our field technicians provide maintenance on our contract operations equipment, they are familiar with the condition of our equipment and can readily identify potential problems.

Our field technicians are familiar with the condition of our equipment, perform the maintenance on the equipment and can readily identify potential problems.

In our experience, these maintenance practices maximize equipment life and unit availability, minimize avoidable downtime and lower the overall maintenance expenditures over the equipment life.

On average, our compression packages undergo a major overhaul once every seven years depending on the type, size and utilization of the compressor.

We generate revenue for our services pursuant to fee-based agreements with our customers, which limit our direct exposure to commodity price fluctuations.

Our customers typically contract for our services on a site-by-site basis for a specific monthly service rate that is generally reduced if we fail to operate in accordance with the contract requirements.

Following the initial minimum term, which generally ranges from 12 to 60 months , contract operations services generally continue on a month-to-month basis until terminated by either party with 30 days’ advance notice.

Our customers generally are required to pay our monthly service fee even during periods of limited or disrupted natural gas flows, which enhances the stability and predictability of our cash flows.

Additionally, the natural gas we use as fuel for our compression packages is supplied by our customers, which further limits our exposure to commodity price fluctuations.

See “General Terms of our Contract Operations Customer Service Agreements” below for further details on our service agreements.

We maintain field service locations from which we can service and overhaul our compression fleet to provide contract operations services to our customers.

We also use many of these locations to provide aftermarket services to our customers, as described below.

As of December 31, 2019 , our contract operations segment provided contract operations services using a fleet of 6,430 natural gas compressors with an aggregate capacity of 4.4 million horsepower.

During the years ended December 31, 2019 , 2018 and 2017 , we generated 80% , 74% and 77%, respectively, of our total revenue and 93% , 91% and 93%, respectively, of our total gross margin from contract operations.

Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, in Part II Item 7 “Non-GAAP Financial Measures.”

Compression Fleet

On average, our compression packages undergo a major overhaul once every nine years depending on the type, size and utilization of the compressor.

The following table summarizes the size of our natural gas compression fleet as of December 31, 2020:

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Over 1,500 horsepower per unit

We continue efforts to standardize our compression fleet around major components and key suppliers.

The standardization of our fleet:

enables us to minimize our fleet operating costs and maintenance capital requirements;

reduces inventory costs;

facilitates low-cost compressor resizing;

allows us to develop improved technical proficiency in our maintenance and overhaul operations, which enables us to achieve higher uptime while maintaining lower operating costs.

General Terms of our Contract Operations Service Agreements

We typically enter into a master service agreement with each customer that sets forth the general terms and conditions of our services, and then enter into a separate supplemental service agreement for each distinct site at which we will provide contract operations services.

The following describes select material terms common to our standard contract operations service agreements.

Term and Termination.

Our customers typically contract for our contract operations services on a site-by-site basis that is generally reduced if we fail to operate in accordance with the contract requirements.

Following the initial minimum term, which generally ranges from 12 to 48 months, contract operations services generally continue on a month-to-month basis until terminated by either party with 30 days’ advance notice.

Fees and Expenses.

Our customers pay a fixed monthly fee for our contract operations services, which generally is based on expected natural gas volumes and pressures associated with a specific application.

Our customers generally are required to pay our monthly fee even during periods of limited or disrupted natural gas flows, which enhances the stability and predictability of our cash flows.

We are typically responsible for the costs and expenses associated with our compression equipment used to provide the contract operations services except for fuel gas, which is provided by our customers.

Service Standards and Specifications.

We provide contract operations services according to the particular specifications of each job, as set forth in the applicable contract.

These are typically turn-key service contracts under which we supply all services and support and use our compression equipment to provide the contract operations services necessary for a particular application.

In certain circumstances, if the availability of our services does not meet certain percentages specified in our contracts, our customers are generally entitled, upon request, to specified credits against our service fees.

Title and Risk of Loss.

We own and retain title to or have an exclusive possessory interest in all compression equipment used to provide contract operations services and we generally bear risk of loss for such equipment to the extent the loss is not caused by gas conditions, our customers’ acts or omissions or the failure or collapse of the customer’s over-water job site upon which we provide the contract operations services.

Typically, both we and our customers are required to carry general liability, workers’ compensation, employer’s liability, automobile and excess liability insurance.

Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we believe is appropriate.

Additionally, we are substantially self-insured for workers’ compensation and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks.

We are also self-insured for property damage to our offshore assets.

Aftermarket Services Overview

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In addition, our aftermarket services business provides opportunities to cross-sell our contract operations services.

During the years ended December 31, 2019 , 2018 and 2017 , we generated 20% , 26% and 23%, respectively, of our total revenue and 7% , 9% and 7%, respectively, of our total gross margin from aftermarket services.

During the years ended December 31, 2020, 2019 and 2018, we generated 16%, 20% and 26%, respectively, of our total revenue from aftermarket services.

Competitive Strengths

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These trends include (i) high levels of associated gas production from shale wells, which is generally produced at a lower initial pressure than dry gas wells, (ii) pad drilling, which brings multiple wells to a single well site with larger volumes of gas, (iii) increasing well lateral lengths, which increase natural gas flow through gas gathering systems and (iv) high probability drilling programs that allow for efficient infrastructure planning.

Superior customer service.

Excellent customer service.

We operate in a relationship-driven, service-intensive industry and therefore need to provide superior customer service.

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Our sales efforts concentrate on demonstrating our commitment to enhancing our customers’ cash flows through superior customer service and after-market support.

Superior safety performance.

We believe our collective safety performance is pivotal to the success of our business and is of primary importance to our customers.

We have a strong safety culture and a proven ability to safely manage our business in a variety of commodity and economic environments.

Our safety-centric culture has consistently produced industry-leading safety performance for many years, including a 2020 total recordable incident rate of 0.25.

Large and stable customer base .

We have strong relationships with a deep base of oil and gas producers and midstream companies.

We have strong relationships with a deep base of midstream companies and natural gas and crude oil producers.

Our contract operations revenue base is sourced from approximately 525 customers operating throughout all major U.S.

oil and natural gas producing regions.

natural gas and crude oil producing regions.

Fee-based cash flows .

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We believe this fee structure and the longevity of our operations reduces volatility and enhances the stability and predictability of our cash flows.

Large fleet in substantially all major U.S.

producing regions.

We operate in substantially all major oil and natural gas producing regions in the U.S.

Diversified geographic footprint.

We operate in substantially all major natural gas and crude oil producing regions in the U.S.

Our large fleet and numerous operating locations throughout the U.S., combined with our ability to efficiently move equipment among producing regions, mean that we are not dependent on production activity in any particular region.

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Long operating history.

We have a long, sustained history of operating in the compression industry that provides an advantage compared to our younger competitors.

We have extensive experience working with our customers to meet their evolving needs, a deep database of fleet financial and operating metrics and a proven ability to safely manage our business in a variety of commodity and economic environments.

We have a long, sustained history of operating in the compression industry and a robust database of fleet financial and operating metrics that provides an advantage compared to our younger competitors.

We have extensive experience working with our customers to meet their evolving needs.

Financial resilience and flexibility.

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natural gas compression industry.

These fundamentals include significant natural gas resources in the U.S., increased unconventional oil and natural gas production, decreasing natural reservoir pressures and expected increased natural gas demand in the U.S.

These fundamentals include significant natural gas resources in the U.S., increased unconventional natural gas and crude oil production, decreasing natural reservoir pressures and expected increased natural gas demand in the U.S.

from the growth of liquified natural gas exports, exports of natural gas via pipeline to Mexico, power generation and industrial uses.

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We are focused on increasing productivity and optimizing our processes.

In the fourth quarter of 2018 we began a process and technology transformation project that will, among other things, upgrade or replace our existing ERP, supply chain and inventory management systems and expand the remote monitoring capabilities of our compression fleet.

Late in 2018 we began a process and technology transformation project that will, among other things, upgrade or replace our existing ERP, supply chain and inventory management systems and expand the remote monitoring capabilities of our compression fleet.

By using technology to make our systems and processes more efficient, we intend to lower our internal costs and improve our profitability over time.

Additionally, strong continued demand for our services should allow us to maintain utilization and pricing.

Grow our business to generate attractive returns.

In addition, we continue to focus on increasing the percentage of large horsepower equipment within our fleet in order to capitalize on the trends that have been driving, and that we believe will continue to drive, demand for large horsepower units.

Optimize our business to generate attractive returns.

We plan to continue to invest in strategically growing our business both organically and through third-party acquisitions.

Our contract operations business is our primary business segment and represented 93% of our gross margin during 2019 .

We see opportunities to grow this business over the long term by putting idle units back to work and adding new horsepower in key growth areas.

In addition, because a large amount of compression equipment is owned by oil and gas producers, processors, gatherers, transporters and storage providers, we believe there will be additional opportunities for our aftermarket services business, which represented 7% of our gross margin during 2019 , to provide services and parts to support the operation of this equipment.

Natural Gas Compression Industry Overview

Natural gas compression is a mechanical process whereby the pressure of a given volume of natural gas is increased to a desired higher pressure for transportation from one point to another.

It is essential to the production and transportation of natural gas.

Our service offerings focus primarily on the following cycle stages:

Wellhead and Gathering Systems — Natural gas compression is used to transport natural gas from the wellhead through the gathering system.

At that point, natural gas no longer naturally flows into the pipeline.

Compression equipment is applied in both field and gathering systems to boost the pressure levels of the natural gas flowing from the well, allowing it to be transported to market.

Changes in pressure levels in natural gas fields require periodic changes to the size and/or type of on-site compression equipment.

Additionally, compression is used to reinject natural gas into producing oil wells to maintain reservoir pressure and help lift liquids to the surface, which is known as secondary oil recovery or natural gas lift operations.

These applications utilize low- to mid-range horsepower compression equipment located at or near the wellhead or large horsepower compression equipment of 1,000 horsepower and higher for a centralized gas lift system servicing multiple wells.

Processing Applications — Compressors may also be used in combination with natural gas production and processing equipment to process natural gas into other marketable energy sources.

In addition, compression services are used for compression applications in refineries and petrochemical plants.

Processing applications typically utilize multiple large horsepower compressors.

Pipeline Transportation Systems — Natural gas compression is used during the transportation of natural gas from the gathering systems to storage or the end user.

Natural gas transported through a pipeline loses pressure over the length of the pipeline.

Compression is staged along the pipeline to increase capacity and boost pressure to overcome the friction and hydrostatic losses inherent in normal operations.

These pipeline applications generally require large horsepower compression equipment of 1,000 horsepower and higher.

Many oil and natural gas producers, transporters and processors outsource their compression services due to the benefits and flexibility of contract compression.

We believe outsourcing compression operations to compression service providers such as us offers customers:

the ability to efficiently meet their changing compression needs over time while limiting the underutilization of their owned compression equipment;

access to the compression service provider’s specialized personnel and technical skills, including engineers and field service and maintenance employees, which we believe generally leads to improved production rates and/or increased throughput;

the ability to increase their profitability by transporting or producing a higher volume of oil and natural gas through decreased compression downtime and reduced operating, maintenance and equipment costs by allowing the compression service provider to efficiently manage their compression needs;

the flexibility to deploy their capital on projects more directly related to their primary business by reducing their compression equipment and maintenance capital requirements.

We believe the U.S.

natural gas compression services industry continues to have growth potential over time due to, among other things, increased natural gas production in the U.S.

from unconventional sources and aging producing natural gas fields that will require more compression to continue producing the same volume of natural gas and expected increased demand for natural gas in the U.S.

for power generation, industrial uses and exports including liquified natural gas exports and exports of natural gas via pipeline to Mexico.

We see opportunities to grow our contract operations business over the long term by putting idle units back to work and adding new horsepower in key growth areas.

In addition, because a large amount of compression equipment is owned by natural gas and crude oil producers, processors, gatherers, transporters and storage providers, we believe there will be additional opportunities for our aftermarket services business to provide services and parts to support the operation of this equipment.

Oil and Natural Gas Industry Cyclicality and Volatility

Demand for our products and services is correlated to natural gas production.

Demand for our products and services is correlated to natural gas and crude oil production.

Fluctuations in energy prices can affect the levels of expenditures by our customers, production volumes and ultimately, demand for our products and services;

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● compression services are a necessary part of midstream energy infrastructure that facilitate the transportation of natural gas through gathering systems;

our contract operations business is tied primarily to oil and natural gas production, transportation and consumption, which are generally less cyclical in nature than exploration and new well drilling and completion activities;

● our contract operations business is tied primarily to natural gas and crude oil production, transportation and consumption, which are generally less cyclical in nature than exploration and new well drilling and completion activities;

● the need for compression services and equipment has grown over time due to the increased production of natural gas, the natural pressure decline of natural gas-producing basins and the increased percentage of natural gas production from unconventional sources;

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Market, Suppliers and Customers

We conduct our contract operations activities in substantially all major oil and natural gas producing areas throughout the U.S.

We conduct our contract operations activities in substantially all major natural gas and crude oil producing areas throughout the U.S.

and have supply agreements with multiple suppliers to meet our compression equipment needs.

Our customer base consists primarily of companies engaged in all aspects of the oil and natural gas industry including large integrated and independent oil and natural gas producers, processors, gatherers and transporters.

Our customer base consists primarily of companies engaged in all aspects of the oil and gas industry including large integrated and independent natural gas and crude oil producers, processors, gatherers and transporters.

We have entered into preferred vendor arrangements with some of our customers that give us preferential consideration for their compression needs.

In exchange, we provide these customers with enhanced product availability, product support and favorable pricing.

During the years ended December 31, 2019, 2018 and 2017, Williams Partners accounted for 8% , 11% and 13% , respectively, of our contract operations and aftermarket services revenue.

No other customer accounted for 10% or more of our revenue during these years.

During the years ended December 31, 2020, 2019 and 2018, our five most significant customers collectively accounted for 28%, 25% and 26%, respectively, of our contract operations and aftermarket services revenue.

No single customer accounted for 10% or more of our revenue during the years ended December 31, 2020 and 2019.

During the year ended December 31, 2018, Williams Partners accounted for 11% of our contract operations and aftermarket services revenue.

Sales and Marketing

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This ongoing communication allows us to respond swiftly to customer requests.

General Terms of our Contract Operations Customer Service Agreements

The following describes select material terms common to our standard contract operations service agreements.

Term and Termination.

Our customers typically contract for our contract operations services on a site-by-site basis.

Following the initial minimum term for our contract operations services, which generally ranges from 12 to 60 months , contract operations services generally continue until terminated by either party with 30 days’ advance notice.

Fees and Expenses.

Our customers pay a fixed monthly fee for our contract operations services, which generally is based on expected natural gas volumes and pressures associated with a specific application.

Our customers generally are required to pay our monthly fee even during periods of limited or disrupted natural gas flows.

Service Standards and Specifications.

We provide contract operations services according to the particular specifications of each job, as set forth in the applicable contract.

Title and Risk of Loss.

Typically, both we and our customers are required to carry general liability, workers’ compensation, employer’s liability, automobile and excess liability insurance.

Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we believe is appropriate.

We are also self-insured for property damage to our offshore assets.

The natural gas compression services business is highly competitive.

Overall, we experience considerable competition from companies that may be able to more quickly adapt to technological changes within our industry and changes in economic conditions as a whole, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies.

Overall, we experience considerable competition from companies that may be able to more quickly adapt to changing technology within our industry and changes in economic conditions as a whole, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies.

We believe we are competitive with respect to price, equipment availability, customer service, flexibility in meeting customer needs, technical expertise and quality and reliability of our compression packages and related services.

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We believe our large fleet of compression equipment and broad geographic base of operations and related operational personnel give us more flexibility in meeting our customers’ needs than many of our competitors.

Environmental and Other Regulations

Governmental Regulation

Environmental Regulation

Our operations are subject to stringent and complex U.S.

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The amendments also establish methane standards for a subset of equipment that the current NSPS regulates, including reciprocating compressors and pneumatic controllers, and extend the current VOC standards to the remaining unregulated equipment.

In June 2017, the EPA proposed and took public comment on a two-year stay of the fugitive emissions requirements, well site pneumatic standards and closed vent certification.

The EPA sought additional comment in November 2017 in support of the proposed rule, but has not finalized the two-year stay.

In October 2018 and August 2019, the EPA proposed deregulatory amendments to the 2016 rule intended to streamline implementation, reduce duplicative EPA and state requirements and decrease the burden of compliance.

The EPA has not yet issued a final rule based on either proposal.

At this time, we do not believe that if finalized these rules will have a material adverse impact on our business, financial condition, results of operations or cash flows.

On August 13, 2020, the EPA adopted deregulatory amendments to the 2016 rule intended to streamline implementation, reduce duplicative EPA and state requirements and decrease the burden of compliance.

In particular, the amendments removed the transmission and storage segments from the oil and natural gas source category and rescinded the methane-specific requirements for production and processing facilities.

Several lawsuits were filed challenging these amendments, and the U.S.

Court of Appeals for the D.C.

Circuit ordered an administrative stay of these amendments shortly after they were finalized.

Although the administrative stay was lifted in October 2020, which brought the amendments into effect, the amendments may still be subject to reversal under the new presidential administration.

However, on January 20, 2021, the new administration issued an executive order calling on the EPA to, among other things, consider a proposed rule suspending, revising or rescinding those deregulatory amendments by September 2021.

We do not believe that the current rules will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet predict the impact, if any, of any such suspension, revision or rescinding of the current rules.

Venting and Flaring on Federal Lands.

On November 18, 2016, the BLM published final rules to reduce venting and flaring on federal and tribal lands.

On November 18, 2016, the BoLM published final rules to reduce venting and flaring on federal and tribal lands.

The rules set forth some novel requirements regarding leak detection inspections at compressor stations and imposed requirements to reduce emissions from pneumatic controllers and pumps, among other things.

In December 2017, the BLM finalized suspension of certain requirements of the November 2016 final rule until January 2019.

In September 2018, the BLM finalized a rule rescinding the novel requirements pertaining to waste-minimization plans, gas-capture percentages, well drilling, well completion and related operations, pneumatic controllers, pneumatic diaphragm pumps, storage vessels and leak detection and repair.

The BLM also revised other provisions related to venting and flaring.

California, New Mexico and various environmental groups filed a lawsuit challenging the September 2018 final rule, which is still pending.

While the BoLM adopted a rule in 2018 rescinding most of these requirements, that 2018 rule was challenged in court and vacated in July 2020.

Following that ruling, another court, which had been hearing challenges to the original 2016 rule, acted on some pending litigation in October 2020 and vacated much of the 2016 rule.

National Ambient Air Quality Standards.

On October 1, 2015, the EPA issued a new NAAQS ozone standard of 70 ppb, which is a reduction from the 75 ppb standard set in 2008.

On October 1, 2015, the EPA issued a new NAAQS ozone standard of 70 ppb, which is a tightening from the 75 ppb standard set in 2008.

This new standard became effective on December 28, 2015, and the EPA completed designating attainment/non-attainment regions under the revised ozone standard in 2018.

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By law, the EPA must review each NAAQS every five years.

In December 2018, the EPA announced that it was retaining without significant revision the 2015 NAAQS ozone standard.

The EPA has asked for information related to adverse effects that may result from various strategies for attainment and maintenance of NAAQS and is considering re-evaluating the extent to which the EPA can or should consider levels of background ozone when choosing a standard.

The EPA expects to conclude the review by October 2020 as required by law.

At this time, however, we cannot predict whether state implementation of the 2015 NAAQS ozone standard or the 2020 NAAQS ozone standard would have a material adverse impact on our business, financial condition, results of operations or cash flows.

In December 2018 and again in December 2020, the EPA announced that it was retaining without revision the 2015 NAAQS ozone standard.

However, on January 20, 2021, the new administration issued an executive order calling on the EPA to, among other things, propose a Federal Implementation Plan in response to the 2016 NAAQS for California, Connecticut, New York, Pennsylvania and Texas by January 2022.

We do not believe continued implementation of the NAAQS ozone standard will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet predict the impact, if any, of any new Federal Implementation Plan.

Texas Commission on Environmental Quality.

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Congress has previously considered legislation to restrict or regulate emissions of greenhouse gases, such as carbon dioxide and methane.

It presently appears unlikely that comprehensive federal climate legislation will become law in the near future, although energy legislation and other initiatives continue to be proposed that may be relevant to greenhouse gas emissions issues.

Energy legislation and other initiatives continue to be proposed that may be relevant to greenhouse gas emissions issues.

Almost half of the states, either individually or through multi-state regional initiatives, have begun to address greenhouse gas emissions, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs.

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At the international level, the U.S.

joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France, which resulted in an agreement intended to nationally determine their contributions and set greenhouse gas emission reduction goals beginning in 2020.

While the Agreement did not impose direct requirements on emitters, national plans to meet its pledge could have resulted in new regulatory requirements.

In November 2019, however, President Trump formally announced plans for the U.S.

to withdraw from the Paris Agreement with an effective exit date expected in November 2020.

The U.S.’s adherence to the exit process is uncertain and the terms on which the U.S.

may reenter the Paris Agreement or a separately negotiated agreement are unclear at this time.

Although it is not currently possible to predict how any proposed or future greenhouse gas legislation or regulation promulgated by Congress, the states or multi-state regions will impact our business, any regulation of greenhouse gas emissions that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions or reduced demand for our services, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In November 2019, however, plans were formally announced for the U.S.

to withdraw from the Paris Agreement with an effective exit date in November 2020.

On January 20, 2021, the new administration issued an executive order commencing the process to reenter the Paris Agreement, although the emissions pledges in connection with that effort have not yet been updated.

We cannot predict whether re-entry into the Paris Agreement or pledges made in connection therewith will result in new regulatory requirements or whether such requirements will cause us to incur material costs.

In a separate executive order issued on January 20, 2021, the new administration asked the heads of all executive departments and agencies to review and take action to address any Federal regulations, orders, guidance documents, policies and any similar agency actions promulgated during the prior administration that may be inconsistent with or present obstacles to the administration’s stated goals of protecting public health and the environment, and conserving national monuments and refuges.

A preliminary list must be provided to the OMB within 30 days of the order.

Regulations specifically mentioned for review and possible suspension, revision or rescission include the NSPS, and the EPA was ordered to, among other things, propose new regulations to establish comprehensive standards for performance and emission guidelines for methane and VOCs from existing oil and gas operations by September 2021 and propose a Federal Implementation Plan in response to the 2016 NAAQS for California, Connecticut, New York, Pennsylvania and Texas by January 2022.

The executive order also established an Interagency Working Group on the Social Cost of Greenhouse Gases, which is called on to, among other things, capture the full costs of greenhouse gas emissions, including the “social cost of carbon,” “social cost of nitrous oxide” and “social cost of methane,” which are “the monetized damages associated with incremental increases in greenhouse gas emissions,” including “changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services.” Various recommendations from the Working Group are due beginning June 1, 2021 and final recommendations no later than January 2022.

The executive order also revoked, among other things, the March 2019 permit for the Keystone XL pipeline, ten other environment-related executive orders and three Presidential Memoranda of the prior administration.

Although it is not currently possible to predict how these executive orders or any proposed or future greenhouse gas legislation or regulation promulgated by Congress, the states or multi-state regions will impact our business, any regulation of greenhouse gas emissions that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions or reduced demand for our services, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere can change the climate in a manner that results in significant weather-related effects, such as increased frequency and severity of storms, droughts, floods, and other such events.

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The OSHA’s hazard communication standard, the EPA’s community right-to-know regulations under Title III of CERCLA and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations.

As of December 31, 2019, we had approximately 1,700 employees.

We believe that our relations with our employees are good.

On January 21, 2021, the new administration issued an executive order on protecting worker health and safety, the stated goal of which is to protect the health and safety of workers from COVID-19.

In the executive order, Department of Labor leaders and, in some cases, the leaders of other Federal Departments are called on to, among other things, issue revised guidance to employers on workplace safety during the pandemic, consider whether emergency temporary standards (e.g., mask in the workplace) are necessary, review OSHA enforcement efforts related to COVID-19, focus those enforcement efforts on violations that put the largest number of workers at serious risk or are contrary to anti-retaliation principles and coordinate with State and local government entities responsible for public employee safety.

While we have robust measures in place that meet or exceed current and recently proposed applicable requirements, and while we believe that the executive order will not affect how we are currently managing our business during the COVID-19 pandemic, at this time we do not know exactly how, or even if, these initiatives will affect our operations.

Human Capital

As of December 31, 2020, we had approximately 1,250 employees and had a presence in 39 states.

None of our employees are subject to a collective bargaining agreement.

We consider our employees to be our greatest asset and believe that our success depends on our ability to attract, develop and retain our employees.

Diversity and inclusion are foundational to our leadership approach and our focus is on how our actions and the actions of our employees foster diversity and inclusion in our everyday activities at Archrock.

We support diversity in hiring and gender pay equity, as is reflected in the diversity of our Board of Directors, of which two of nine directors are female, and of our executive leadership team, one third of which is female.

In addition, Leonard Mallett joined our Board of Directors in January 2021, further enhancing the industry experience, leadership experience and diversity of our Board of Directors.

We believe we offer competitive and comprehensive compensation and benefits packages that include annual bonuses, stock awards, an employee stock purchase plan, a 401(k) plan with employer contribution, healthcare and insurance benefits, health savings and flexible spending accounts with employer contribution, paid time off, family leave, an employee assistance program and tuition assistance, among many others.

We believe in the ultimate goal of serving as the best corporate citizen possible and are dedicated to inspiring and empowering our employees to operate day in and day out according to our core values of safety, service, integrity, respect and pride.

To that end, the Nominating and Corporate Governance Committee of our Board of Directors provides oversight of our policies, practices and programs regarding the promotion of diversity and inclusion within our company and the health and safety of our employees and communities.

Safety, Health and Wellness

The success of our business is fundamentally connected to the well-being of our people and so we are committed to the safety, health and wellness of our employees.

Safety is a core value of our company, and safety performance is a key measure of success that has been included in our short-term incentive program for over 14 years.

We actively promote the highest standards of safety behavior and environmental awareness and strive to meet or exceed all applicable local and national regulations.

“Stop the Job” is an adopted edict that establishes the obligation of and provides the authority to all employees to stop any task or operation where they perceive that a risk to people, the environment or assets is not properly controlled.

We believe that all incidents are preventable and that through proper training, planning and hazard recognition, we can achieve a workplace with zero incidents.

To this end, we created the TARGET ZERO program that includes over 90 safety and environmental procedures, and their necessary tools, equipment and training, that are designed to foster a mindset that integrates safety into every work process.

Through this program, we successfully lowered our total recordable incident rate from 0.54 in 2019 to 0.25 in 2020, and it will be our continuous goal that we achieve a rate of zero in all future periods.

We also provide our employees and their families with access to a variety of flexible and convenient health and wellness programs that support the maintenance or improvement of our employees’ physical and mental health and encourage engagement in healthy behaviors, including our employee-led RockFIT program that develops and sponsors corporate health and fitness challenges throughout the year.

Response to COVID-19 Pandemic

We took swift action regarding employee well-being in response to the COVID-19 pandemic, establishing a multidisciplinary team, with representation from human resources, health safety and environment, facilities and information technology, to develop a pandemic response plan.

We implemented comprehensive protocols to protect the health and safety of our employees, customers and communities, including contactless parts pickup for field employees and customers and mandated social distancing and additional personal protection equipment requirements in the field.

We adopted remote work for office-based employees and all travel deemed non-essential was eliminated.

Employees began returning to the office, capped at 50% capacity, in the latter part of 2020.

We implemented daily temperature checks and provided increased signage, sanitizer, fresh air flow, personal protective equipment and frequent cleaning services at all office locations.

Talent Development

We invest significant resources to develop the talent needed to provide our industry-leading natural gas compression services.

We work closely with suppliers to develop training programs for our field service technicians.

Our field service technicians are supported by a dedicated training team and collectively completed over 18,000 hours of operational and technical training during 2020.

Every new hire field employee enters a program whereby they are assigned an experienced mentor, for an average of six months, under whose direct supervision they apply their classroom learning in the real world setting.

In addition, we offer a number of non-technical, targeted skills-based and career-enhancing training programs, including technical orientation for non-technical employees, supervisor coaching, performance management and conflict resolution.

Our talent development programs provide employees with the resources they need to help achieve their career goals, build management skills and lead their organizations.

Building Employee and Community Connections

We consider ourselves a member of every community in which we operate and believe that building connections between our employees, their families and our communities creates a more meaningful and enjoyable workplace.

Our employees give generously and are passionate towards many causes, for which they receive annual paid time off to volunteer.

Our employee-led Archrock Cares program brings together employees across functions and backgrounds to break down traditional corporate barriers and form strong bonds through the pursuit of shared interests and volunteering and giving opportunities across the country.

Available Information

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Item 1. Business