What changed in this filing

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Item 1A. Risk Factors

2024-02-21 compared with 2023-02-22 · 93 added, 86 removed, 249 unchanged (42% of the section changed)

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Industry and General Economic Risks

Pandemics and other public health crises, including the ongoing COVID–19 pandemic, may continue to negatively affect demand for our services, and may continue to have a material adverse impact on our financial condition, results of operations and cash flows.

Pandemics, such as the COVID–19 pandemic, or other public health crises could significantly impact public health, economic growth, supply chains and markets.

While the magnitude and duration of potential social, economic and labor instability as a direct result of the COVID–19 pandemic cannot be estimated at this time, we continue to closely monitor the effects of the pandemic on commodity demands and on our customers, as well as on our operations and employees.

These effects may include adverse revenue and net income effects, disruptions to our operations and supply chain, customer shutdowns of oil and gas exploration and production, employee impacts from illness, school closures and other community response measures, and temporary inaccessibility or closures of our facilities or the facilities of our customers and suppliers.

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The extent to which our operating and financial results continue to be affected by the COVID–19 pandemic and may be affected by future pandemics or other public health crises will depend on various factors and consequences beyond our control, such as the duration and scope of such pandemic or public health crisis, additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat any such pandemic or public health crisis.

Pandemics and other public health crises may negatively affect demand for our services, and may have a material adverse impact on our financial condition, results of operations and cash flows.

Pandemics or other public health crises could significantly impact public health, economic growth, supply chains and markets.

The extent to which our operating and financial results may be affected by future pandemics or other public health crises will depend on various factors and consequences beyond our control, such as the duration and scope of such pandemic or public health crisis, additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat any such pandemic or public health crisis.

Any future pandemic or public health crisis may materially adversely affect our operating and financial results in a manner that is not currently known to us or that we do not currently consider to present significant risks to our operations.

An increase in inflation could have adverse effects on our results of operation.

Inflation continues to rise and has caused the Federal Reserve to raise interest rates with indications of future increases, which has created further uncertainty for the economy and for our customers.

If inflationary pressures continue into 2023, this will increase our labor costs and the costs of parts, lube oil and other materials used in our operations.

Continued inflation or an increase in inflation rates could negatively affect our profitability and cash flows, due to higher wages, higher operating costs, higher financing costs, and/or higher supplier prices.

While inflation rates have fallen over the second half of 2023, uncertainty remains on future inflation trends and whether the Federal Reserve will raise or lower interest rates, which has created further uncertainty for the economy and for our customers.

If inflationary pressures return in 2024, this will increase our labor costs and the costs of parts, lube oil and other materials used in our operations.

An increase in inflation rates could negatively affect our profitability and cash flows, due to higher wages, higher operating costs, higher financing costs, and/or higher supplier prices.

We may be unable to pass along such higher costs to our customers.

In addition, inflation may adversely affect customers’ financing costs, cash flows, and profitability, which could adversely impact their operations and our ability to collect receivables.

The conflict in Ukraine and related price volatility and geopolitical instability could negatively impact our business.

In late February 2022, Russia launched significant military action against Ukraine.

The conflict has caused, and could intensify, volatility in natural gas prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time.

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Ongoing International Conflicts and Tensions

The conflict in Ukraine, the Israel-Hamas war and related price volatility and geopolitical instability could negatively impact our business.

In late February 2022, Russia launched significant military action against Ukraine, and in October 2023, Israel launched a military response against Hamas in Gaza.

These ongoing conflicts have caused, and could intensify, volatility in oil and natural gas prices, and the extent and duration of these military actions, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time.

Any such volatility and disruptions may also magnify the impact of other risks described in this “Risk Factors” section.

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If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be negatively impacted.

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We face significant competitive pressures that may cause us to lose market share and harm our financial performance.

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Any of these competitive pressures could have a material adverse effect on our business, results of operations and financial condition.

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If we do not make acquisitions on economically acceptable terms, our future growth could be limited.

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In addition, competition from other buyers could reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay.

An affiliate of Hilcorp holds a significant portion of our common stock, and Hilcorp’s interest as an equity holder may conflict with the interests of our other shareholders or our noteholders.

Old Ocean Reserves, an affiliate of our customer Hilcorp, has the right to designate one director to serve on our Board of Directors as long as Old Ocean Reserves or it successors (together with its affiliates) owns at least 7.5% of our outstanding common stock.

As of December 31, 2022, Old Ocean Reserves owned 10.8% of our outstanding common stock.

Given its ownership level and board representation, Old Ocean Reserves may have some influence over our operations and strategic direction and may have interests that conflict with the interests of other equity and debt holders.

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While we paid quarterly dividends of $0.145 per share of common stock during the year ended December 31, 2022, there can be no assurance that we will pay dividends in the future.

We paid quarterly cash dividends of $0.145 per share of common stock during the year ended December 31, 2022.

While we paid quarterly dividends to holders of our common stock during the year ended December 31, 2023, there can be no assurance that we will pay dividends in the future.

We paid quarterly cash dividends, $0.61 annually, per share of common stock during the year ended December 31, 2023.

We cannot provide assurance that we will, at any time in the future, again generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend or that our Board of Directors would determine to use any of our net profits to pay a dividend.

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A decision not to pay dividends or a reduction in our dividend payments in the future could have a negative effect on our stock price.

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Financial Risks

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• limit our ability to incur indebtedness in the future.

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Covenants in our Debt Agreements may impair our ability to operate our business.

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Total Debt to EBITDA (1)

January 1, 2023 through September 30, 2023

Thereafter (1)

(1) Subject to a temporary increase to 5.50 to 1.0 for any quarter during which an acquisition satisfying certain thresholds is completed and for the two quarters immediately following such quarter.

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Any of these measures may reduce the amount of cash available for payment of dividends and the funding of our business requirements, which could have an adverse effect on our business, operations, cash flows or the price of our common stock.

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The breach of any of the covenants under the Debt Agreements could result in a default under the Debt Agreements, which could cause indebtedness under the Debt Agreements to become due and payable.

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If we are unable to access the capital and credit markets on favorable terms, or if we are not successful in raising capital within the time period required or at all, we may not be able to grow or maintain our business, which could have a material adverse effect on our business, results of operations and financial condition.

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Our inability to fund purchases of additional compression equipment could adversely impact our financial results.

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Any increase in our interest expense could negatively impact our results of operations and cash flows, including our ability to pay dividends in the future.

Our Credit Facility contains LIBOR benchmark replacement provisions.

However, at this time, there can be no assurance as to whether any alternative benchmark or resulting interest rates may be more or less favorable than LIBOR or any other unforeseen impacts of the discontinuation of LIBOR.

As a result, the proposals or consequences related to this transition could have a material adverse effect on our debt service obligations, financing costs, liquidity, financial condition, results of operations or cash flows and could impair our access to the financial markets.

Our Amended and Restated Credit Agreement changed the referenced rate from LIBOR to SOFR so that borrowings under the Credit Facility bear interest at, based on our election, either a base rate or SOFR, plus an applicable margin.

The Amended and Restated Credit Agreement contains SOFR benchmark replacement provisions.

At this time, there can be no assurance as to whether any alternative benchmark or resulting interest rates may be more or less favorable than SOFR.

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Uncertainty relating to the phasing out of LIBOR may adversely affect the market value of our current or future debt obligations, including our Credit Facility.

Borrowings under our Credit Facility bear interest at a rate per annum of either, at our election, the U.S.

dollar LIBOR rate for specified interest periods or a base rate, plus an applicable margin.

The publication of U.S.

dollar LIBOR rates for the most common tenors (overnight and one, three, six and twelve months) will cease publication on June 30, 2023.

Our Credit Facility requires that we execute an amendment that establishes an alternate reference rate should the U.S.

dollar LIBOR cease to be published (among other circumstances), to be agreed upon by us and the administrative agent under our Credit Facility and giving due consideration to the then-prevailing market convention for determining a rate of interest for syndicated loans in the U.S.

at such time, with notice rights subject to objection by required lenders under the Credit Facility.

Until an alternate reference rate is established, borrowings under our Credit Facility will be limited to base rate borrowings, which may bear a higher interest rate than LIBOR and, in turn, potentially increase our interest expense.

Uncertainty regarding the continued use and reliability of LIBOR as a benchmark rate and uncertainty regarding its replacement could disrupt the financial markets or adversely affect arrangements tied to LIBOR.

The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”), which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to U.S.

The Federal Reserve Board and the Federal Reserve Bank of New York organized the ARRC, which identified SOFR as its preferred alternative to U.S.

dollar LIBOR in financial contracts.

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However, market acceptance of the ARRC–recommended credit spread adjustments, as opposed to no or alternative credit spread adjustments, has been mixed.

Accordingly, we cannot predict whether changes related to the phase–out of LIBOR, including any credit spread adjustments, insufficient liquidity in the SOFR or alternative reference rate markets or other reforms, as they occur, will have an adverse effect on the market value of, the applicable interest rate on and the amount of interest paid on our current or future debt obligations, including the Credit Facility.

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Accordingly, we cannot predict whether changes related to the phase–out of LIBOR, including any credit spread adjustments, insufficient liquidity in SOFR or alternative reference rate markets or other reforms, as they occur, will have an adverse effect on the market value of, the applicable interest rate on and the amount of interest paid on our current or future debt obligations, including the Credit Facility.

Customer and Contract Risks

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The loss of all or even a portion of the services we provide to these customers, as a result of competition or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

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Many of our contract operations service agreements have short initial terms and are cancelable on short notice after the initial term, and we cannot be sure that such contracts will be extended or renewed after the end of the initial contractual term.

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This could have a material adverse effect upon our business, results of operations, financial condition and cash flows.

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Labor and Supply Chain Risks

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Further, supply chain bottlenecks could adversely affect our ability to obtain necessary materials, parts or lube oil used in our operations or increase the costs of such items.

A significant increase in the price of such equipment, materials and services as a result of inflation, ongoing effect of the COBID–19 pandemic or otherwise, could have a negative impact on our business, results of operations, financial condition and cash flows.

A significant increase in the price of such equipment, materials and services as a result of inflation, or other factors, could have a negative impact on our business, results of operations, financial condition and cash flows.

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Information Technology and Cybersecurity Risks

We may not realize the intended benefits of our process and technology transformation project, which could have an adverse effect on our business.

In the fourth quarter of 2018, we began a process and technology transformation project, which has, among other things, replaced our existing ERP, supply chain and inventory management systems and expanded 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.

Between 2019 and 2021, we invested in a process and technology transformation project that replaced our existing ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet.

During 2023, our focus shifted to fully harnessing these technologies across our business.

We expect the technological transformations to lower our internal costs and improve our profitability over time.

However, the implementation of the process and technology transformation project has required significant capital and other resources from which we may not realize the benefits we expect to realize.

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Threats of cyber-attacks or terrorism could affect our business.

We may be threatened by problems such as cyber-attacks, computer viruses or terrorism that may disrupt our operations and harm our operating results.

We rely on our information technology systems for critical operations.

We own and manage some of these technology systems, but also rely on the systems provided by a host of third-party service providers, vendors, and business partners.

We and certain of our third-party providers collect, maintain and process data about customers, employees, business partners and others, including personally identifiable information, as well as proprietary information belonging to our business, such as trade secrets.

We are subject to numerous and evolving cybersecurity risks and threats, including cyber-attacks, computer viruses or terrorism that threaten the confidentiality, integrity and availability of critical technology systems or information and may disrupt our operations and harm our operating results.

Our industry requires the continued operation of sophisticated information technology systems and network infrastructure.

Despite our implementation of security measures, our technology

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systems are vulnerable to disability or failures due to hacking, viruses, acts of war or terrorism and other causes.

Despite our implementation of security measures, our technology systems are vulnerable to disability or failures due to social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, hacking, viruses, and as a result of bugs, misconfigurations or exploited vulnerabilities in software or hardware, acts of war or terrorism and other causes.

In addition, because we use third-party suppliers and service providers, such as cloud services that support our internal and customer-facing operations, successful cyberattacks that disrupt or result in unauthorized access to third-party technology systems can materially impact our operations and financial results.

Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are increasingly sophisticated in using techniques and tools, including generative and other artificial intelligence, that circumvent security controls, evade detection and remove forensic evidence.

As a result, we may be unable to detect, investigate, remediate or recover from future attacks or incidents, or to avoid a material adverse impact to our systems or information.

If our information technology systems were to fail and we were unable to recover in a timely way, we may be unable to fulfill critical business functions, which could have a material adverse effect on our business, results of operations and financial condition.

There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information.

In addition, our assets may be targets of terrorist activities that could disrupt our ability to service our customers.

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The implementation of security guidelines and measures and maintenance of insurance, to the extent available, addressing such activities could increase costs.

We cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.

These types of events could materially adversely affect our business and results of operations.

In addition, these types of events could require significant management attention and resources and could adversely affect our reputation among customers and the public.

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Tax–related Risks

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federal, state and local governments.

We have investments in unconsolidated affiliates that operate in the U.S.

and international locations.

From time to time, various legislative or administrative initiatives may be proposed that could adversely affect our tax positions.

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In addition, U.S.

federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations.

federal, state and local, and international tax laws and regulations are extremely complex and subject to varying interpretations.

There can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

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Legal and Regulatory Risks

Temporary pause on pending approvals of LNG exports may negatively impact our business.

On January 26, 2024, the Biden administration announced that the U.S.

implemented a temporary pause on pending decisions on permits to export LNG to non-Free Trade Agreement countries until the DOE can update its underlying analyses for authorization.

This temporary pause on pending approvals of LNG exports may be unpredictable and may negatively impact our business.

From time to time, we are subject to various claims, tax audits, litigation and other proceedings that could ultimately be resolved against us and require material future cash payments or charges, which could impair our financial condition or results of operations.

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We are currently, and may in the future become, subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows, including our ability to pay dividends.

Similarly, any claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to

Similarly, any claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.

See Part I, Item 3 “Legal Proceedings” of this form 10-K and Note 16 (“Commitments and Contingencies”) to our Financial Statements for additional information regarding certain legal proceedings to which we are a party.

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compete effectively or obtain adequate insurance in the future.

See Part I, Item 3 “Legal Proceedings” and Note 15 to our Financial Statements for additional information regarding certain legal proceedings to which we are a party.

New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs.

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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.

While the EPA in 2020 adopted deregulatory amendments to the 2016 rule that 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, that 2020 rulemaking was voided by action of Congress and the President effective June 30, 2021.

As a result, the 2016 rules became effective again immediately.

Further, in November 2021, the EPA proposed the framework for more stringent methane rules for newer sources, along with emissions standards that will for the first time be applicable to existing sources, with both a supplemental rule proposal by the EPA and a separate BoLM rule proposal addressing methane emissions on public lands issued in November 2022.

Among the newly proposed methane requirements that may impact our operations are broader applicability to compression equipment relative to the existing rules, increased work practices and inspection requirements and mandates to certain new zero–emission equipment.

Meanwhile, several states — including, most notably, New Mexico and Colorado — have been developing their own more stringent methane emissions rules that will or are anticipated to impose additional requirements on the industry and that may impose stricter requirements than any EPA rules.

In December 2023, the EPA adopted even more stringent rules with respect to methane and VOC for new and existing sources, via NSPS OOOOb and NSPS OOOOc.

While the rules have been approved by the EPA Administrator and published on the EPA website, they have not yet been published in the Federal Register.

Once published, the rules become effective 60 days thereafter.

A separate BoLM rule to address methane emissions on public lands was proposed in November 2022.

Among the newly adopted and proposed methane requirements that may impact our operations are broader applicability to compression equipment relative to the existing rules, increased work practices and inspection requirements and mandates for certain new zero–emissions equipment.

Meanwhile, several states — including, most notably, New Mexico and Colorado — have been developing their own more stringent methane rules that will or are anticipated to impose additional requirements on the industry.

We, together with a consortium of other Gas Compressor Association member companies, were actively involved in the rulemaking effort in New Mexico, including working directly with the New Mexico Environmental Department and participating in the New Mexico Environmental Improvement Board’s hearing in late 2021.

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

In June 2021, the EPA announced it will reconsider the December 2020 decision, with a decision expected in 2023.

In a draft assessment in April 2022, the Clean Air Scientific Advisory Committee favored maintaining the 2015 NAAQS ozone standard.

Those decisions have been subject to judicial challenge and remain subject to reconsideration by the EPA.

In June 2021, the EPA commenced a process for reconsidering the December 2020 decision but more recent EPA announcements suggest that no changes are expected until 2025.

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 involving new NAAQS standards.

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New environmental regulations and proposals similar to these, when finalized, and any other new regulations requiring the installation of more sophisticated pollution control equipment or the adoption of other environmental protection measures, could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Notably, opposition to energy development and infrastructure projects has led to regulatory and judicial challenges to new facilities, including compression facilities, in states such as Massachusetts and Virginia.

While we have not directly faced any such challenges to the facilities at which we provide contract operations and know of no pending or threatened efforts targeting those facilities, expanded opposition to energy infrastructure, including facilities at which we provide contract operations, could potentially give rise to material impacts in the future.

While we have not directly faced any such challenges to the facilities at which we provide contract operations and know of no pending or threatened efforts targeting those facilities, expanded opposition to energy infrastructure, including facilities at which we provide contract operations or in the future might otherwise have an opportunity to provide contract operations, could potentially give rise to material impacts in the future.

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We are subject to a variety of governmental regulations;

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Environmental laws and regulations may, in certain circumstances, impose strict liability for environmental contamination, which may render us liable for remediation costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties.

In addition, where contamination may be present, it is not uncommon for neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs.

In addition, where contamination may be present, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury, property damage and recovery of response costs.

Remediation costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of new environmental laws and regulations could be substantial and could negatively impact our financial condition, profitability and results of operations.

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Occasionally, we have been assessed penalties for our non–compliance, and we could be subject to such penalties in the future.

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We routinely deal with oil, natural gas and other petroleum products.

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The modification or interpretation of existing environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil and natural gas exploration and production, gathering and pipeline companies, including our customers, which in turn could have a negative impact on us.

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Climate change legislation, regulatory initiatives and stakeholder pressures could result in increased compliance costs, financial risks and potential reduction in demand for our services.

Climate change legislation and regulatory initiatives may occur from a variety of sources, including international, national, regional and state levels of government and associated administrative bodies, seeking to restrict or regulate emissions of greenhouse gases, such as carbon dioxide and methane.

At the international level, the Paris Agreement, which went into effect in November 2016, seeks to combat climate change through the establishment of individually–determined GHG emissions reduction goals.

climate change strategy and implementation of that strategy through legislation and regulation may change from one administration to the next, as President Biden has recently recommitted the U.S.

to the Paris Agreement after his predecessor withdrew the U.S.

from the agreement.

Given this uncertainty, U.S.

companies may need to remain prepared to comply with requirements arising from participation in the Paris Agreement going forward.

It has become increasingly likely that the U.S.

will develop federal climate legislation in addition to existing energy legislation and other initiatives relevant to GHG emissions issues.

states, either individually or through multi–state regional initiatives, have begun to address GHG emissions, primarily through the planned development of emission inventories or regional GHG cap and trade programs.

Climate change legislation and regulatory initiatives may arise from a variety of sources, including international, national, regional and state levels of government and associated administrative bodies, s eeking to restrict or regulate emissions of GHG, such as carbon dioxide and methane.

Congress has previously considered legislation to restrict or regulate emissions of GHG.

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

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

Although most of the state–level initiatives have to date been focused on large sources of GHG emissions, such as electric power plants, it is possible that smaller sources such as our natural gas–powered compressors could become subject to GHG–related regulation.

Depending on the particular program, we could be required to control emissions or to purchase and su r render allowances for GHG emissions resulting f rom our operations.

The legislative landscape continues to change and to be met with legal challenges with respect to climate–related laws and regulations, making it difficult to predict with certainty the ultimate impact they will have on us in the aggregate.

Although it is not currently possible to predict how any proposed or future GHG legislation or regulation promulgated at the international, national, state or local levels will impact our business, any regulation of GHG emissions that may be imposed in areas in which we conduct business could result in increased compliance costs, 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.

Additionally, in March 2022, the SEC proposed new rules relating to the disclosure of a range of climate–related data risks and opportunities, including financial impacts, physical and transition risks, related governance and strategy and GHG emissions, for certain public companies.

We are currently assessing this rule but at this time we cannot predict the ultimate impact of the rule on our business or those of our customers.

The SEC originally planned to issue a final rule by October 2022, but most commentators now expect a final rule to be issued in early 2023.

To the extent this rule is finalized as proposed, we or our customers could incur increased costs related to the assessment and disclosure of climate-related risks and certain emissions metrics.

In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to their investments in certain carbon intensive sectors.

The $1 trillion legislative infrastructure package passed by Congress in November 2021 includes a number of climate-focused spending initiatives targeted at climate resilience, enhanced response and preparation for extreme weather events, and clean energy and transportation investments.

Significant additional legislative action by Congress also occurred in August 2022 with the Inflation Reduction Act, which provides $391 billion in funding for research and development and incentives for low-carbon energy production methods, carbon capture, and other programs directed at encouraging de-carbonization and addressing climate change.

Independent of Congress, the EPA has promulgated regulations controlling GHG emissions under its existing CAA authority.

The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions.

In 2023, we did not operate any facilities that were subject to these reporting obligations.

In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions.

The requirement for large sources of GHG emissions to obtain and comply with permits will affect some of our and our customers’ largest new or modified facilities going forward, but is not expected to cause us to incur material costs.

As noted above, the EPA has undertaken efforts to regulate emissions of methane, considered a GHG, in the oil and gas sector, with the development of additional, more stringent rules under way.

In an executive order issued on January 20, 2021, the POTUS 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.

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 GHG 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.” The current administration adopted an interim social cost of carbon of $51 per ton in February 2021, but in recent rulemakings the EPA has referenced a figure as high as $2,400 per ton effective in 2030.

This figure is intended to be used to guide federal decisions on the costs and benefits of various policies and approvals;

such efforts have been the subject of a series of judicial challenges, which have been largely unsuccessful to date.

At this time, we cannot determine whether the administration’s efforts on social cost or other interagency climate efforts will lead to any particular actions that give rise to a material adverse effect on our business, financial condition, results of operations and cash flows.

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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 GHG emission reduction goals every five years 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, plans were formally announced for the U.S.

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

In April 2021, the current administration announced reentry of the U.S.

into the Paris Agreement along with a new “nationally determined contribution” for U.S.

GHG emissions that would achieve emissions reductions of at least 50% relative to 2005 levels by 2030.

Those national commitments by themselves create no binding requirements on individual companies or facilities, but they do provide indications of the current administration’s policy direction and the types of legislative and regulatory requirements, such as the EPA’s proposed methane rules, that may be needed to achieve those commitments.

Relatedly, the U.S.

and European Union jointly announced the launch of the “Global Methane Pledge,” which aims to cut global methane pollution at least 30% by 2030 relative to 2020 levels, including “all feasible reductions” in the energy sector.

More recently the international community’s December 2023 meeting known as COP28 reaffirmed commitments to the Paris Agreement and concluded an agreement that the world must move away from fossil fuel energy in a just, orderly, and equitable manner and achieve net zero GHG emissions by 2050, while recognizing a transitional role for fossil fuels.

With the exception of the proposed methane rules discussed above, we cannot predict whether re-entry into the Paris Agreement or other international pledges will result in any particular new regulatory requirements or whether such requirements will cause us to incur material costs.

In sum, any legislation, regulatory programs or social pressures related to climate change could increase our costs and require substantial capital, compliance, operating and maintenance costs, reduce demand for our services and reduce our access to financial markets.

Current, as well as potential future, laws and regulations that limit GHG emissions or that otherwise promote the use of renewable energy over fossil fuel energy sources could increase the cost of our midstream services and, thereby, further reduce demand and adversely affect our sales volumes, revenues and margins.

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A climate–related decrease in demand for oil and natural gas could negatively affect our business.

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These factors include, among others, the potential adoption of new government regulations, including those related to fuel conservation measures and climate change regulations, technological advances in fuel economy and energy generation devices.

For example, legislative, regulatory or executive actions intended to reduce emissions of GHGs could increase the cost of consuming crude oil and natural gas, thereby potentially causing a reduction in the demand for such products.

For example, legislative, regulatory or executive actions intended to reduce emissions of GHG could increase the cost of consuming crude oil and natural gas, thereby potentially causing a reduction in the demand for such products.

A broader transition to alternative fuels or energy sources, whether resulting from potential new government regulation, carbon taxes or consumer preferences could result in decreased demand for crude oil, natural gas and NGLs.

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Also, recent activism directed at shifting funding away from companies with energy-related assets could result in a reduction of funding for the energy sector overall, which could have an adverse effect on our ability to obtain external financing as well as negatively affect the cost of, and terms for, financing to fund capital expenditures or other aspects of our business.

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Climate change may increase the frequency and severity of weather events that could result in severe personal injury, property and environmental damage, which could curtail our or our customers’ operations and otherwise materially adversely affect our cash flows.

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We may face pressures from stakeholders, many of whom are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability while at the same time remaining a successfully operating public company.

If we do not successfully manage expectations across these varied stakeholder interests, it

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could erode our stakeholder trust and thereby affect our brand and reputation.

If we do not successfully manage expectations across these varied stakeholder interests, it could erode our stakeholder trust and thereby affect our brand and reputation.

Such erosion of confidence could negatively impact our business through decreased demand and growth opportunities, delays in projects, increased legal action and regulatory oversight, adverse press coverage and other adverse public statements, difficulty hiring and retaining top talent, difficulty obtaining necessary approvals and permits from governments and regulatory agencies on a timely basis and on acceptable terms, and difficulty securing investors and access to capital.

The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors