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Item 1A. Risk Factors

2021-03-02 compared with 2020-02-25 · 186 added, 166 removed, 407 unchanged (46% of the section changed)

Risks related to our business

We derive a substantial portion of our revenues from companies in or affiliated with the oil and natural gas industry, a historically cyclical industry, with levels of activity that are significantly affected by the levels and volatility of oil and natural gas prices.

As a result, this cyclicality has caused, and will continue to cause fluctuations in our revenues and results of our operations.

The following summarizes the principal factors that make an investment in our company speculative or risky, all of which are more fully described in the Risk Factors section below.

This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business.

Risks Related to our Business and Operations:

• The success of our business largely depends on activity levels in the oil and natural gas industry, which can be affected by the amount and volatility of oil and natural gas prices.

• The markets in which we operate are highly competitive.

• We may hold excess or obsolete inventory.

• We may not realize revenue on our current backlog due to customer order reductions, cancellations or acceptance delays, which may negatively impact our financial results.

• The COVID-19 pandemic has and may continue to adversely affect our business and results of operations.

• The industry in which we operate is undergoing continuing consolidation that may impact our results of operations.

• A greater focus on budgetary discipline and technological advances have caused a decline in customer spending that may remain at a low level despite an increase in commodity prices.

• Our Chief Executive Officer and other executive officers are critical to our business and these individuals may not remain with us in the future.

• We may be unable to employ a sufficient number of skilled and qualified workers.

• We rely on relationships with key suppliers to operate and maintain our business.

• Our business depends upon our ability to obtain key raw materials and specialized equipment from suppliers.

• We may not be able to satisfy technical requirements, testing requirements, code requirements or other specifications under contracts and contract tenders.

• A failure or breach of our information technology infrastructure could adversely impact our business and results of operations and expose us to potential liabilities.

• Our success depends on our ability to implement new technologies and services more efficiently and quickly than our competitors.

• Our success will be affected by the use and protection of our proprietary technology.

• We may incur liabilities, fines, penalties or additional costs, or we may be unable to sell to certain customers if we do not maintain safe operations.

• Facility consolidations or expansions may subject us to risks of operating inefficiencies, construction delays and cost overruns.

• Our acquisitions and dispositions may not result in anticipated benefits and may present risks not originally contemplated.

• A natural disaster, catastrophe or other event could result in severe property damage, which could curtail our operations.

Legal and Regulatory Risks:

• Governmental laws and regulations may affect our and our customers’ costs, prohibit or curtail our customers’ operations in certain areas, limit the demand for our products and services or restrict our operations.

• Potential legislation or regulations restricting the use of hydraulic fracturing could reduce demand for our products.

• Our financial results could be adversely impacted by changes in regulation of oil and natural gas exploration and development activity in response to significant environmental incidents.

• Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs and liabilities.

• Our business operations worldwide are subject to anti-corruption and trade sanction laws and regulations in the U.S.

and other jurisdictions.

• We are subject to litigation risks that may not be covered by insurance.

• The number and cost of our current and future asbestos claims could be substantially higher than we have estimated and the timing of payment of claims could be sooner than we have estimated.

• Our products are used in operations that are subject to potential hazards inherent in the oil and natural gas industry and, as a result, we are exposed to potential liabilities that could affect our financial condition and reputation.

• Climate change legislation or regulations restricting emissions of greenhouse gases could increase our operating costs or reduce demand for our products.

Risks Related to our International Operations

• We may be adversely affected by developments and economic uncertainty relating to the U.K.’s departure from the European Union.

• Our exposure to currency exchange rate fluctuations may result in fluctuations in our cash flows.

Risks Related to our Common Stock, Indebtedness and Financial Condition:

• Our common stock price has been volatile, and we expect it to continue to remain volatile in the future.

• We have a significant amount of indebtedness.

Our leverage and debt service obligations restrict our operations and make us more vulnerable to adverse economic conditions.

• The indenture governing our 2025 Notes and our Credit Facility contain operating and financial restrictions that restrict our business and financing activities.

• Our ability to access the capital and credit markets to raise capital on favorable terms is limited by our debt level, industry conditions and credit rating.

• We have incurred impairment charges in the past and we may incur additional impairment charges in the future.

Simmons & Associates (“LESA”), through SCF, may significantly influence the outcome of stockholder voting and may exercise this voting power in a manner adverse to our other stockholders.

• Certain of our directors may have conflicts of interest because they are also directors or officers of SCF.

The resolution of these conflicts of interest may not be in the best interests of our Company or our other stockholders.

• We have renounced any interest in specified business opportunities, and SCF and its director nominees on our board of directors generally have no obligation to offer us those opportunities.

Risks related to our business and operations:

The success of our business largely depends on activity levels in the oil and natural gas industry, which can be affected by the amount and volatility of oil and natural gas prices.

We have experienced, and will continue to experience, fluctuations in revenues and operating results due to economic and business cycles.

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• discovery rates of new oil and natural gas reserves;

• the COVID-19 pandemic and related public health measures implemented by governments worldwide;

• ability of our customers to access new markets or areas of production or to continue to access current markets, including as a result of trade restrictions;

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• financial stability of our customers and other industry participants;

political instability in oil and natural gas producing countries, including recent tensions between the United States and Middle East countries;

• political instability in oil and natural gas producing countries;

• shareholder activism or activities by non-governmental organizations to restrict the exploration, development and production of oil and natural gas;

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• merger and divestiture activity among oil and natural gas producers, drilling contractors and oilfield service companies.

The oil and natural gas industry experienced a prolonged reduction in the overall level of exploration and development activities in connection with the decline in commodity prices that began in 2014.

As a result, there was a reduction in the demand for our products and services, downward pressure on the prices that we charge and ultimately an adverse impact on our business.

A significant decrease in crude oil prices in the fourth quarter of 2018 was followed by a slight increase in 2019.

The oil and natural gas industry has historically experienced periodic reductions in the overall level of exploration and development activities in connection with declines in commodity prices.

As a result, there are periodic reductions in the demand for our products and services, downward pressure on the prices that we charge and ultimately an adverse impact on our business.

The COVID-19 pandemic has negatively impacted demand for oil and natural gas, which has contributed to further price volatility.

It is uncertain whether commodity prices will maintain current levels, decline or increase in 2021.

Furthermore, there can be no assurance that the demand or pricing for oil and natural gas will follow historic patterns or recover meaningfully in the near term.

Declines in oil and natural gas prices, decreased levels of exploration,

development, and production activity, and the willingness of customers to invest in their equipment relative to historical norms may negatively affect:

Declines in oil and natural gas prices, decreased levels of exploration, development, and production activity, and the willingness of customers to invest in their equipment relative to historical norms may negatively affect:

• revenues, cash flows, and profitability;

• the ability to maintain or increase borrowing capacity;

the ability to refinance our Senior Unsecured Notes;

• the ability to obtain additional capital to finance our business and the cost of that capital;

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• the ability to attract and retain skilled personnel to maintain our business or that will be needed in the event of an upturn in the demand for our products.

The markets in which we operate are highly competitive, and some of our competitors hold substantial market share and have substantially greater resources than we do.

Furthermore, some of our product lines have a number of regional or local competitors.

The markets in which we operate are highly competitive, including some competitors that hold substantial market share and have substantially greater resources than we do, as well as a number of regional or local competitors for certain of our product lines.

We may not be able to compete successfully in this environment.

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We have several competitors that are large national and multinational companies that have longer operating histories, greater financial, technical and other resources and greater name recognition than we do.

In addition, we compete with many smaller companies on a regional or local basis.

In addition, we compete with many small companies on a regional or local basis.

Our competitors may be able to respond more quickly to new or emerging technologies and services and changes in customer requirements.

In addition, several of our competitors provide a much broader array of services, and have a stronger presence in more geographic markets.

In addition, several of our competitors provide a much broader array of services, and have a stronger presence in more geographic markets and, as such, may be better positioned to withstand an extended downturn.

Our larger competitors are able to use their size and purchasing power to seek economies of scale and pricing concessions.

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New competitors have also entered the markets in which we compete.

We consider product quality, price, breadth of product offering, availability of products and services, performance, distribution capabilities, responsiveness to customer needs and reputation for service to be the primary competitive factors.

We consider product quality, price, breadth of product offering, availability of products and services, performance, distribution capabilities, technical expertise, responsiveness to customer needs, reputation for service and intellectual property rights to be the primary competitive factors.

Competitors may be able to offer more attractive pricing, duplicate strategies, or develop enhancements to products that offer performance features that are superior to our products.

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Our forecasts of customer demand are based on multiple assumptions, which have introduced errors into the estimates.

These forecasts were particularly challenging recently due to the COVID-19 pandemic, including as a result of uncertain demand levels and inability by our customers to receive finished goods.

In addition, many of our suppliers, such as those for certain of our standardized valves, require a longer lead time to provide products than our customers demand for delivery of our finished products.

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We may not realize revenue on our current backlog due to customer order reductions, cancellations or acceptance delays, which may negatively impact our financial results.

Uncertainty regarding demand for our customers’ services has resulted in order reductions, cancellations and acceptance delays in the past, and we may experience more of these in the future.

Uncertainty regarding demand for our customers’ services has resulted in order reductions, cancellations and acceptance delays, and we may experience more of these in the future.

We may be unable to collect revenue for all of the orders reflected in our backlog, or we may be unable to collect cancellation penalties, to the extent we have the right to impose them, or the revenues may be pushed into future periods.

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Our results of operations and overall financial condition may be negatively impacted by a reduction in revenue as a result of these circumstances.

The coronavirus outbreak in China could adversely affect our results of operations.

During January 2020, a strain of coronavirus was reported to have surfaced in Wuhan, China.

In an effort to halt the outbreak, the Chinese government placed significant restrictions on travel within China and closed certain businesses in the region, and governments and other parties outside of China have halted or sharply curtailed the movement of people, goods and services to and from China.

Certain of our key suppliers, including for our valves and coiled tubing product offerings, are located in China.

In addition, we view China as a growth market for our intervention product offering.

The coronavirus outbreak is adversely impacting our operations.

If the impact of the coronavirus outbreak continues for an extended period, it could materially adversely impact our supply chain and the growth of our revenues from China.

In addition, concerns about the coronavirus and its potential impact on the Chinese and global economy are creating uncertainty about the overall demand for oil, which could have negative implications for the demand of our products.

At this point, we cannot accurately predict what effects these conditions will have on our business, which will depend on, among other factors, the ultimate geographic spread of the virus, the duration of the outbreak and travel restrictions and business closures imposed by the Chinese government or by others with respect to China.

Tariffs imposed by the United States government could continue to adversely affect our results of operations.

The President of the United States has issued proclamations imposing tariffs on imports of selected products, including those sourced from China.

In particular, the U.S.

government has imposed global tariffs on certain imported steel and aluminum products pursuant to Section 232 of the Trade Expansion Act of 1962, as well as tariffs on $370 billion worth of Chinese imports pursuant to Section 301 of the Trade Act of 1974.

In response, China and other countries have imposed retaliatory tariffs on a wide range of U.S.

products, including those containing steel and aluminum.

Our efforts to mitigate the impact of these tariffs on raw materials through the diversification of our supply chain may not be sufficiently successful.

Furthermore, a prolonged imposition of tariffs on our goods could have a significant adverse effect on our results of operations.

The COVID-19 pandemic has and may continue to adversely affect our business and results of operations.

The COVID-19 pandemic and related responses by governmental authorities and changes to consumer behavior have significantly impacted global economic activity.

In addition to impacts on oil and natural gas markets (as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Conditions”), the COVID-19 pandemic has resulted in further declines in the global rig count and North America completions activities that have and may continue to impact our business and operations.

These events have directly affected our business and have compounded the impact from many of the risks described in this Risk Factors section, including those relating to our customers’ capital spending and trends in oil and natural gas prices.

Demand for our products and services has declined and is expected to remain depressed as our customers have reduced their capital budgets in response to lower commodity prices.

In addition, we are facing, and expect to continue to face, logistical challenges including border closures, travel restrictions and an inability to commute to certain facilities and job sites, as we provide services and products to our customers.

We are also experiencing inefficiencies surrounding stay-at-home orders and remote work arrangements.

Given the nature and significance of the events described above, we are not able to enumerate all potential risks to our business;

however, we believe that in addition to the impacts described above, other current or potential impacts of these recent events include, but are not limited to:

• supply chain disruptions for essential raw materials, including product import and export restrictions;

• claims that non-performance is permitted due to force majeure or other reasons;

• customers may delay or default on payment obligations, and/or seek bankruptcy protection that could delay or prevent collections of certain accounts receivable;

• liquidity challenges

• a credit rating downgrade and higher borrowing costs in the future;

• cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of and increased sophistication in cyberattacks in the current environment of remote connectivity, which could disrupt our operations or result in the loss or exposure of confidential or sensitive customer, employee or company information and adversely affect our business, financial condition and results of operations;

• litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters and insurance arrangements;

• reduction of our global workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;

• costs associated with rationalization of our portfolio of real estate facilities, including possible exit of leases and facility closures to align with expected activity and workforce capacity;

• additional asset impairments, including an impairment of the carrying value of our intangible assets, property and equipment, along with other accounting charges related to reduced demand for our products and services;

• infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties in areas in which we operate;

• changes in the regulation of the production of hydrocarbons, such as the imposition of limitations on the production of oil and natural gas by states or other jurisdictions, that may result in additional limits on demand for our products and services;

• actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects;

• a structural shift in the global economy and its demand for oil and natural gas as a result of changes in the way people work, travel and interact, or in connection with a global recession or depression.

Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist, the full extent of the impact they will have on our business, financial condition, results of operations or cash flows or the pace or extent of any subsequent recovery.

The ultimate extent of the impact of the pandemic will depend largely on future developments, including the duration and spread of the outbreak, the success of vaccination programs and the related impact on overall economic activity, all of which are uncertain and cannot be predicted with certainty at this time.

We expect our activity levels will continue to be substantially below previous year levels, coupled with downward pressure on the price of our products and services, and corresponding reductions in revenue and operating margins.

The confluence of events described above have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and natural gas industry, could have, a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition.

For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Conditions.”

The industry in which we operate is undergoing continuing consolidation that may impact our results of operations.

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We are unable to predict what effect consolidations in the industry may have on prices, capital spending by customers, selling strategies, competitive position, customer retention or our ability to negotiate favorable agreements with customers.

A greater focus on budgetary discipline and technological advances have caused a decline in customer spending that may remain at a low level despite an increase in commodity prices.

A portion of our business is driven by our customers’ spending on capital equipment such as drilling rigs.

As a result of a greater focus by our customers on maintaining capital discipline, spending has declined and may remain at a low level despite any increase in commodity prices.

In recent years, there has been an oversupply of capital equipment in the oil and natural gas industry and a corresponding reduction in the demand for construction of these products.

More recently, our customers and their investors have adopted business strategies placing significant emphasis on capital discipline that may limit the level of their future spending.

As a result, we cannot provide any assurance that our capital equipment sales will increase if there is an increase in commodity prices.

Technological advances have rendered drilling more efficient, reducing the amount of capital equipment required to drill the same number of wells and the demand for our products.

New techniques and technological advances have reduced the number of days required to drill wells.

Our customers and their investors have adopted business strategies placing significant emphasis on capital discipline that has limited the level of their spending.

In addition, new techniques and technological advances have reduced the number of days required to drill wells.

The number of days required for a drilling rig to be on a site to drill a well has in many areas been reduced by at least half over the last several years.

This has exacerbated the oversupply of drilling rigs and is likely to lengthen the time until significant capital investment is required by our drilling company customers.

These advances are also expected to result in a lower overall level of capital investment when the current generation of drilling rigs is required to be replaced.

We may be impacted by disruptions in the political, regulatory, economic and social conditions of the foreign countries in which we are expected to conduct business.

Instability and unforeseen changes in the international markets in which we conduct business, including economically and politically volatile areas such as North Africa, the Middle East, Latin America and the Asia Pacific region, could cause or contribute to factors that have an adverse effect on the demand for the products and services we provide.

For example, we have previously transferred management and operations from certain Latin American countries, due to the presence of political turmoil, to other countries in the region that are more politically stable.

In addition, worldwide political, economic, and military events have contributed to oil and natural gas price volatility and are likely to continue to do so in the future.

Depending on the market prices of oil and natural gas, oil and natural gas exploration and development companies may cancel or curtail their drilling programs, thereby reducing demand for our products and services.

This has exacerbated the oversupply of drilling rigs.

Given these factors we cannot provide any assurance that our capital equipment sales will increase if there is an increase in commodity prices.

Our common stock price has been volatile, and we expect it to continue to remain volatile in the future.

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Likewise, the market price of our common stock has varied significantly in the past.

For example, in 2019 , the market price of our common stock reached a high of $7.00 per share on February 12, 2019 and a low of $0.88 per share on November 18, 2019.

We expect it to continue to remain volatile given the cyclical nature of our industry.

We may be adversely affected by developments relating to the U.K.’s departure from the European Union.

held a referendum on June 23, 2016 in which a majority voted for the U.K.’s withdrawal from the European

Union (“EU”), which is commonly referred to as Brexit.

As a result of this vote, a process of negotiation began to determine the terms of Brexit, which resulted in the EU-U.K.

Withdrawal Agreement.

withdrew from the EU on January 31, 2020, consistent with the terms of the EU-U.K.

Withdrawal Agreement.

The terms of that agreement provide for a “transition period”, from January 31, 2020 to December 31, 2020, during which the trading relationship between the EU and the U.K.

will remain the same while the U.K.

and the EU try to negotiate an agreement regarding their future trading relationship.

The effects of the Brexit vote and the perceptions as to the impact of the withdrawal of the U.K.

For example, in 2020, the market price of our common stock reached a high of $40.20 per share on January 7, 2020 and a low of $3.00 per share on March 23, 2020 and April 1, 2020.

Additionally, the Reverse Stock Split reduced the number of shares in our public float, which may limit trading and liquidity and increase volatility until more shares become available, if ever.

We expect our stock price to continue to remain volatile given the cyclical nature of our industry and our limited public float.

We may be adversely affected by developments and economic uncertainty relating to the U.K.’s departure from the European Union.

held a referendum on June 23, 2016 in which a majority voted for the U.K.’s withdrawal from the European Union (“EU”), commonly referred to as “Brexit,” and the U.K.

withdrew from the EU on January 31, 2020.

On December 31, 2020, the transition period during which the trading relationship between the EU and the U.K.

remained substantially the same as prior to the U.K.’s withdrawal from the EU ended.

To ensure as smooth a transition as practicably possible, in December 2020, the U.K.

and the EU reached an accord on a trade and cooperation agreement (“TCA”), which is provisionally applicable from January 1, 2021.

The TCA was ratified by the U.K.

Parliament on December 30, 2020 and awaits formal approval of the European Parliament and adoption by the European Council, both of which are expected to be completed by the end of February 2021.

Brexit and the terms of the TCA bring an end to the U.K.’s automatic access to the EU single market, with U.K.

goods no longer benefiting from the free movement of goods and the free market of people between the EU and the U.K.

also being curtailed.

The withdrawal of the U.K.

from the EU may adversely affect business activity and economic and market conditions in the U.K., the Eurozone, and globally and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the pound sterling and the euro.

In addition, Brexit could lead to additional political, legal and economic instability in the EU.

In addition, Brexit could lead to additional political, legal, regulatory and economic instability in the EU and the U.K.

Depending on the application of the terms of the TCA, our business could face new regulatory costs and challenges, and any adjustments we are required to undertake as a result of Brexit could lead to a significant time and cost commitment from our business.

Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K.

determines which EU laws to replace and which to maintain.

Any of these effects of Brexit, and others we cannot anticipate, could adversely affect the value of our assets in the U.K., as well as our business, financial condition, results of operations and cash flows.

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Our leverage and debt service obligations restrict our operations and make us more vulnerable to adverse economic conditions.

We currently have a substantial amount of indebtedness, including $400.0 million of 6.25% senior unsecured notes due October 2021.

We currently have a substantial amount of indebtedness, including $316.9 million of 9.00% convertible secured notes due August 2025 (“2025 Notes”).

Our level of indebtedness and restrictions in our debt agreements have significant consequences for our future prospects, including limiting our liquidity and flexibility in obtaining additional financing.

In addition, we may have difficulty making debt service payments on our indebtedness as such payments become due.

Furthermore, our $300.0 million Credit Facility, which had no outstanding balance as of December 31, 2019 , will mature prior to the maturity date of our Senior Notes.

Furthermore, our $250.0 million senior secured revolving credit facility (“Credit Facility”), which had an outstanding balance of $13.1 million as of December 31, 2020, will mature prior to the maturity date of our 2025 Notes.

Our level of indebtedness and the terms of our debt agreements affect our operations in several ways, including the following:

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• sell assets, including equity interests in our restricted subsidiaries;

redeem or prepay subordinated debt;

• redeem or prepay subordinated debt or debt that is unsecured or secured on a basis junior to our notes;

• restrict dividends or other payments of our restricted subsidiaries;

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A failure to comply with the covenants, ratios or tests would result in an event of default, which, if not cured or waived, would cause some or all of our indebtedness to become immediately due and payable and have a material adverse effect on our business, financial condition and results of operations.

A further downgrade in our credit ratings could negatively impact our cost of and ability to access the capital and credit markets.

credit rating agencies have recently downgraded our senior unsecured debt ratings and we continue to be at risk for further downgrades.

Our ability to access the capital and credit markets or to otherwise obtain sufficient financing is adversely affected by the current credit ratings of our senior unsecured debt by major U.S.

credit rating agencies.

These ratings, or further downgrades, may increase the cost of future debt, and potentially require us to post letters of credit for certain obligations.

Tariffs imposed by the United States government could continue to adversely affect our results of operations.

government has imposed global tariffs on certain imported steel and aluminum products pursuant to Section 232 of the Trade Expansion Act of 1962, as well as tariffs on Chinese imports pursuant to Section 301 of the Trade Act of 1974.

In response, China and other countries have imposed retaliatory tariffs on a wide range of U.S.

products, including those containing steel and aluminum.

Our efforts to mitigate the impact of these tariffs on raw materials through the diversification of our supply chain and exemption requests may not be sufficiently successful.

Furthermore, a prolonged imposition of tariffs on our goods could have a significant adverse effect on our results of operations.

Our exposure to currency exchange rate fluctuations may result in fluctuations in our cash flows and could have an adverse effect on our results of operations.

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There may be instances in which costs and revenue will not be matched with respect to currency denomination.

As a result, to

the extent that we continue our expansion on a global basis, management expects that increasing portions of revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.

As a result, to the extent that we continue our expansion on a global basis, management expects that increasing portions of revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.

We may experience economic loss and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations.

Further, the markets in which we operate could restrict the removal or conversion of the local currency, resulting in our inability to hedge against these risks.

Our ability to access the capital and credit markets to raise capital on favorable terms is limited by our debt level and industry conditions.

Our ability to access the capital and credit markets to raise capital on favorable terms is limited by our debt level, industry conditions and credit rating.

Our ability to access the capital and credit markets is limited by, among other things, oil and natural gas prices, our existing capital structure, our credit ratings, the state of the economy, the health of the drilling and overall oil and natural gas industry, trends among investors to avoid companies associated with the production of hydrocarbon products, and the liquidity of the capital markets.

Many of the factors that affect our ability to access capital markets are outside of our control.

Many of the factors that affect our ability to access capital markets are outside of our control and may be negatively impacted by market events.

Recent trends and conditions in the capital and credit markets with respect to the energy sector limit our ability to access these markets or may significantly increase our cost of capital.

Low levels of exploration and drilling activity have caused and may continue to cause lenders to increase the interest rates under our credit facilities, enact tighter lending standards, refuse to refinance existing debt on acceptable terms or at all and may reduce or cease to provide funding.

If we are unable to access the capital or credit markets on terms acceptable to us, it could have a material adverse effect on our business, financial condition, results of operations, cash flows and liquidity, particularly in respect of our ability to repay or refinance our debt, including our senior notes due October 2021 .

During the years ended December 31, 2019, 2018 and 2017 we incurred impairment charges, and we may incur additional impairment charges in the future.

For the years ended December 31, 2019, 2018 and 2017, we recognized goodwill impairments totaling $471.0 million , $298.8 million , and $68.0 million , respectively, which are included in “ Impairments of goodwill, intangible assets, property and equipment ” in the consolidated statements of comprehensive loss .

Low levels of exploration and drilling activity have caused and may

continue to cause lenders to increase the interest rates under our credit facilities, enact tighter lending standards, refuse to refinance existing debt on acceptable terms or at all and may reduce or cease to provide funding.

We have incurred impairment charges and we may incur additional impairment charges in the future.

For the year ended December 31, 2019, we recognized goodwill impairments totaling $471.0 million which is included in “Impairments of goodwill, intangible assets, property and equipment” in the consolidated statements of comprehensive loss.

Following these impairment charges, there is no remaining goodwill balance for any of our reporting units.

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The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted future cash flows based on expected utilization.

For the year ended December 31, 2019 , we recognized property and equipment impairment charges totaling $7.9 million .

For the years ended December 31, 2019 , 2018 and 2017 , we recognized intangible asset impairment charges totaling $53.5 million , $64.7 million and $1.1 million , respectively.

For the year ended December 31, 2020 and 2019 , we recognized property and equipment impairment charges totaling $15.1 million and $7.9 million, respectively.

For the years ended December 31, 2020 and 2019, we recognized intangible asset impairment charges totaling $5.3 million and $53.5 million, respectively.

These charges are included in “Impairments of goodwill, intangible assets, property and equipment” in the consolidated statements of comprehensive loss.

See Note 6 Property and Equipment and Note 7 Goodwill and Intangible Assets for further information related to these charges.

See Note 8 Impairments of Goodwill and Long Lived Assets for further information related to these charges.

If we determine that the carrying value of our long-lived assets is less than their fair value, we would be required to record additional charges in the future, which could adversely affect our financial condition and results of operations.

Our executive officers and certain key personnel are critical to our business and these officers and key personnel may not remain with us in the future.

Our future success depends in substantial part on our ability to hire and retain our executive officers and other key personnel.

In particular, we are highly dependent on our executive officers.

These individuals possess extensive expertise, talent and leadership, and they are critical to our success.

The diminution or loss of the services of these individuals, or other integral key personnel affiliated with entities that we acquire in the future, could have a material adverse effect on our business.

Furthermore, we may not be able to enforce all of the provisions in the agreements we have entered into with our executive officers and such agreements may not otherwise be effective in retaining such individuals.

Our Chief Executive Officer and other executive officers are critical to our business and these individuals may not remain with us in the future.

Our future success depends in substantial part on our ability to hire and retain executive officers with expertise and strategic vision.

In addition, we presently depend upon the significant years of experience, abilities and services of our President, Chief Executive Officer and Chairman of the Board, C.

Christopher Gaut.

The diminution or loss of Mr.

Gaut’s services or the services of our other executive officers could have a material adverse effect on our business.

Furthermore, the knowledge and skills possessed by our Chief Executive Officer and other executive officers are transferable to positions outside of the oil and gas industry.

As a result, the prolonged industry downturn makes us particularly susceptible to the loss of services of members of our executive team.

We may be unable to employ a sufficient number of skilled and qualified workers.

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During periods of low activity in our industry, we have reduced the size of our labor force to match declining revenue levels, and other employees have chosen to leave in order to find more stable employment.

This causes us to lose skilled personnel, the absence

of which could cause us to incur quality, efficiency and deliverability issues in our operations, or delay our response to an upturn in the market.

This causes us to lose skilled personnel, the absence of which could cause us to incur quality, efficiency and deliverability issues in our operations, or delay our response to an upturn in the market.

During periods of increasing activity in our industry, our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force.

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Certain of our product lines depend on a limited number of third party suppliers.

In some cases, the suppliers own the intellectual property rights to the products we sell, or possess the technology or specialized tooling required to manufacture them.

As a result of this concentration in part of our supply chain, our business and operations may be negatively affected if our key suppliers were to experience significant disruptions affecting the price, quality, availability or timely delivery of their products, or if they were to decide to terminate their relationships with us.

In some cases, the suppliers own the intellectual property rights to the products we sell, or possess the technology or specialized tooling required to

manufacture them.

As a result of this concentration in part of our supply chain, our business and operations may be negatively affected if our key suppliers were to experience significant disruptions affecting the price, quality, availability or timely delivery of their products, such as from the COVID-19 pandemic, or if they were to decide to terminate their relationships with us.

For example, we have a limited number of suppliers for our bearings product lines and certain of our valve product lines.

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Should our suppliers be unable to provide the necessary raw materials or finished products or otherwise fail to deliver such materials and products timely and in the quantities required, resulting delays in the provision of products or services to customers could have a material adverse effect on our business.

In particular, because many of our products are manufactured out of steel, we are particularly susceptible to fluctuations in steel prices.

In particular, because many of our products are manufactured out of steel, we are particularly susceptible to fluctuations in steel prices and tariffs.

Our results of operations may be adversely affected by our inability to manage the rising costs and availability of raw materials and components used in our products.

If suppliers cannot provide adequate quantities of materials to meet customers’ demands on a timely basis or if the quality of the materials provided does not meet established standards, we may lose customers or experience lower profitability.

Some of our customer contracts require us to compensate customers if we do not meet specified delivery obligations.

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We cannot assure that our products or facilities will be able to satisfy the specifications or requirements, or that we will be able to perform the full-scale testing necessary to prove that the product specifications are satisfied in future contract bids or under existing contracts, or that the costs of modifications to our products or facilities to satisfy the specifications and testing will not adversely affect our results of operations.

If our products or facilities are unable to satisfy such

requirements, or we are unable to perform or satisfy any required full-scale testing, we may suffer reputational harm and our customers may cancel their contracts and/or seek new suppliers, and our business, results of operations or financial position may be adversely affected.

If our products or facilities are unable to satisfy such requirements, or we are unable to perform or satisfy any required full-scale testing, we may suffer reputational harm and our customers may cancel their contracts and/or seek new suppliers, and our business, results of operations or financial position may be adversely affected.

A failure or breach of our information technology infrastructure, including as a result of cyber attacks or failures of data protection measures, could adversely impact our business and results of operations and expose us to potential liabilities.

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In certain instances, our IT systems have failed to perform as anticipated, resulting in disruptions in operations and other adverse consequences.

Should our IT systems materially fail in the future, it may result in numerous other adverse consequences, including reduced effectiveness and efficiency of our operations, inappropriate disclosure of confidential information, increased overhead costs, and loss of intellectual property, which could lead to liability to third parties or otherwise and have a material adverse effect on our business and results of operations.

confidential information, increased overhead costs, and loss of intellectual property, which could lead to liability to third parties or otherwise and have a material adverse effect on our business and results of operations.

Our insurance may not protect us against such occurrences or our insurers may refuse to make payment.

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and international patents and have several pending patent applications associated with our products and processes.

Patent rights give the owner of a patent the right to exclude third parties from making, using, selling, and offering for sale the inventions claimed in the patents in the applicable country.

Patent rights do not necessarily grant the owner of a patent the right to practice the invention claimed in a patent, but merely the right to exclude others from practicing the invention claimed in the patent.

It is possible that a third party will design around our patents.

Furthermore, patent rights have strict territorial limits.

Some work is conducted in international waters and, therefore, does not fall within the scope of any country’s patent jurisdiction.

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Also, we do not have patents in every jurisdiction in which we conduct business and our patent portfolio will not protect all aspects of our business and may relate to obsolete or unusual methods, which would not prevent third parties from entering the same market.

In addition, by customarily entering into confidentiality and/or license agreements with our employees, customers and potential customers and suppliers, we attempt to limit access to and distribution of our technology.

Our efforts to maintain information as trade secrets or proprietary technology are subject to determination by the U.S.

judicial system and applicable international judicial systems and may not be successful.

Furthermore, our rights in our confidential information, trade secrets, and confidential know-how will not prevent third parties from independently developing similar information.

Publicly available information, including information in expired issued patents, published patent applications, and scientific literature, can also be used by third parties to independently develop technology.

We cannot provide assurance that this independently developed technology will not be equivalent or superior to our proprietary technology.

From time to time, our competitors have infringed upon, misappropriated, circumvented, violated or challenged the validity or enforceability of our intellectual property.

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We may incur liabilities, fines, penalties or additional costs, or we may be unable to sell to certain customers if we do not maintain safe operations.

If we fail to comply with safety regulations or maintain an acceptable level of safety at our facilities, we will incur fines, penalties or other liabilities, or we may be held criminally liable.

If we fail to comply with safety regulations or maintain an acceptable level of safety at our facilities, we may incur fines, penalties or other liabilities, or we may be held criminally liable.

In addition, a portion of our work force is made up of newer employees who are less experienced and therefore more prone to injury.

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Failure to maintain safe operations or achieve certain safety performance metrics could disqualify us from doing business with certain customers, particularly major oil companies.

During periods of high market activity, if we cannot continue operating our manufacturing facilities at adequate levels, our results of operations could be adversely affected.

We operate a number of manufacturing facilities.

The equipment and management systems necessary for such operations may break down, perform poorly or fail, resulting in fluctuations in manufacturing efficiencies.

Such fluctuations may affect our ability to deliver quality products to our customers on a timely basis.

If we are unable to continue operating successfully overseas or to successfully expand into new international markets, our revenues may decrease.

For the year ended December 31, 2019 , we derived approximately 30% of our revenue from sales outside the U.S.

(based on product destination).

In addition, one of our key growth strategies is to market products in international markets.

We may not succeed in selling, marketing, branding, and distributing products to generate revenues in these new international markets.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

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• the level of enforcement of these laws and regulations;

• interpretation of existing laws and regulations.

In addition, we depend on the demand for our products and services from the oil and natural gas industry.

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Potential legislation or regulations restricting the use of hydraulic fracturing could reduce demand for our products.

Hydraulic fracturing is an important and common practice in the oil and natural gas industry which involves the injection of water, sand and chemicals under pressure into a formation to fracture the surrounding rock and stimulate production of hydrocarbons.

Certain environmental advocacy groups have suggested that additional federal, state and local laws and regulations may be needed to more closely regulate the hydraulic fracturing process, and have made claims that hydraulic fracturing techniques are harmful to surface water and drinking water resources.

Certain environmental advocacy groups and politicians have suggested that additional federal, state and local laws and regulations may be needed to more closely regulate the hydraulic fracturing process, and have made claims that hydraulic fracturing techniques are harmful to surface water and drinking water resources.

Various governmental entities (within and outside the U.S.) are in the process of studying, restricting, regulating or preparing to regulate hydraulic fracturing, directly or indirectly.

For example, the EPA released the final results of its comprehensive research study on the potential adverse impacts that hydraulic fracturing may have on drinking water resources in December 2016.

The EPA concluded that hydraulic fracturing activities can impact drinking water resources under some circumstances, including large volume spills and

inadequate mechanical integrity of wells.

The EPA has asserted federal authority over hydraulic fracturing using fluids that contain “diesel fuel” under the federal Safe Drinking Water Act (“SDWA”) Underground Injection Control Program and has issued permitting guidance for hydraulic fracturing operations involving the use of diesel fuel in fracturing fluids in those states where the EPA is the permitting authority.

Additionally, the Department of the Interior’s Bureau of Land Management (“BLM”) issued final rules to regulate hydraulic fracturing on federal lands in March 2015.

These rules were struck down by a federal court in Wyoming in June 2016, but reinstated on appeal by the Tenth Circuit in September 2017.

While this appeal was pending, BLM proposed a rule making in July 2017 to rescind these rules in their entirety.

BLM published a final rule rescinding the 2015 rules on December 29, 2017.

Several states filed judicial challenges to the BLM’s proposed rescission;

however, these challenges were stayed by a federal court in April 2018 pending the finalization or withdrawal of the BLM’s February 2018 proposal.

In September 2018, BLM published a final rule that largely adopted the February 2018 proposal and rescinded several requirements.

The September 2018 rule was challenged in the U.S.

District Court for the Northern District of California almost immediately after issuance.

The challenge is still pending.

Additionally, in March 2015, the Department of the Interior’s Bureau of Land Management (“BLM”) issued final rules, including new requirements relating to public disclosure, wellbore integrity and handling of flowback water, to regulate hydraulic fracturing on federal and Indian lands.

These rules were rescinded by rule in December 2017;

however, in January 2018, California and a coalition of environmental groups filed a lawsuit in the Northern District of California to challenge the BLM’s rescission of the rules.

The Northern District of California upheld the rescission in 2020, but this decision was then appealed to the Ninth Circuit Court of Appeals.

This litigation is ongoing and future implementation of the BLM rules is uncertain at this time

In past sessions, Congress has considered, but not passed, the adoption of legislation to provide for federal regulation of hydraulic fracturing under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process.

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Department of the Interior implemented additional safety and certification requirements applicable to drilling activities in the U.S.

Gulf of Mexico, imposed additional requirements with respect to exploration, development and production activities in U.S.

Gulf of Mexico, imposed additional requirements with respect to exploration,

development and production activities in U.S.

waters and imposed a moratorium that delayed the approval of drilling plans and well permits in both deepwater and shallow-water areas due to the Macondo well incident.

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jurisdictions, resulting in higher operating costs for our customers and reduced demand for our products and services.

Our tax position may be adversely affected by changes in tax laws relating to multinational corporations, or increased scrutiny by tax authorities.

We have operations in multiple countries that are subject to the jurisdiction of a significant number of taxing authorities.

The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each jurisdiction, as well as the significant use of estimates and assumptions.

Congress and government agencies in non-U.S.

jurisdictions where we, and our affiliates, do business have recently focused on issues related to the taxation of multinational corporations.

We cannot predict whether any legislation or any regulatory or other administrative guidance could materially adversely affect us.

Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs and liabilities.

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and require remedial measures to mitigate pollution from former and ongoing operations.

Failure to comply with these laws and regulations or to obtain or comply with permits may result in the assessment of administrative, civil and criminal penalties, imposition of remedial or corrective action requirements and the imposition of injunctions to prohibit certain activities or force future compliance.

Failure to comply with these laws and regulations or to obtain or comply with permits may result in the inability to conduct certain operational activities, assessment of administrative, civil and criminal penalties, imposition of remedial or corrective action requirements and the imposition of injunctions to prohibit certain activities or force future compliance.

Certain environmental laws may impose joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment.

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The implementation of new laws and regulations could result in materially increased costs, stricter standards and enforcement, larger fines and liability and increased capital expenditures and operating costs, particularly for our customers.

operations will subject us to special risks.

We are subject to various risks inherent in conducting business operations in locations outside of the U.S.

These risks include changes in regional, political or economic conditions, local laws and policies, including taxes, trade protection measures, and unexpected changes in regulatory requirements governing the operations of companies that operate outside of the U.S.

In addition, if a dispute arises from international operations, courts outside of the U.S.

may have exclusive jurisdiction over the dispute, or we may not be able to subject persons outside of the U.S.

to the jurisdiction of U.S.

Our business operations worldwide are subject to a number of U.S.

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jurisdictions also pose a risk to us.

We cannot provide products or services to certain countries, companies or individuals subject to trade sanctions of the U.S.

We cannot provide products or

services to certain countries, companies or individuals subject to trade sanctions of the U.S.

and other countries.

Furthermore, the laws and regulations concerning import activity, export record keeping and reporting, export controls and economic sanctions are complex and constantly changing.

Any failure to comply with applicable legal and regulatory trading obligations

could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss of import and export privileges.

Unionization efforts and labor regulations in certain areas in which we operate could materially increase our costs or limit our flexibility.

We are not a party to any collective bargaining agreements, other than in our Hamburg, Germany and Monterrey, Mexico facilities.

We operate in certain states within the U.S.

and in international areas that have a history of unionization and we may become the subject of a unionization campaign.

If some or all of our workforce were to become unionized and collective bargaining agreement terms, including any renegotiation of our Hamburg, Germany and Monterrey, Mexico collective bargaining agreements, were significantly different from our current compensation arrangements or work practices, our costs could be increased, our flexibility in terms of work schedules and reductions in force could be limited, and we could be subject to strikes or work slowdowns, among other things.

Any failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss of import and export privileges.

We are subject to litigation risks that may not be covered by insurance.

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In addition, we provide certain services that could cause, contribute to or be implicated in these events.

If our products or services fail to meet specifications or are involved in accidents or failures, we could face warranty, contract or other litigation claims, which

could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, and pollution or other environmental damages.

If our products or services fail to meet specifications or are involved in accidents or failures, we could face warranty, contract or other litigation claims, which could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, and pollution or other environmental damages.

In addition, failure of our products to operate properly or to meet specifications may increase costs by requiring additional engineering resources and services, replacement of parts and equipment or monetary reimbursement to a customer.

Our insurance policies may not be adequate to cover all liabilities.

Further, insurance may not be generally available in the future or, if available, insurance premiums may make such insurance commercially unjustifiable.

Further, insurance may not be

generally available in the future or, if available, insurance premiums may make such insurance commercially unjustifiable.

Moreover, even if we are successful in defending a claim, it could be time-consuming and costly to defend.

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Additionally, in May 2016, the EPA issued final new source performance standards governing methane emissions that impose more stringent controls on methane and volatile organic compounds emissions at new and modified oil and natural gas production, processing, storage and transmission facilities.

However, in August 2020 the EPA rescinded methane and volatile organic compound emissions standards for new and modified oil and gas transmission and storage infrastructure, as well as methane limits for new and modified oil and gas production and processing equipment.

The EPA also relaxed requirements for oil and gas operators to monitor emissions leaks.

The EPA has also adopted rules requiring the reporting of greenhouse gas emissions from specified large greenhouse gas emission sources in the U.S., including oil and natural gas systems.

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participated in the United Nations Conference on Climate Change, which led to the creation of the Paris Agreement, which requires member countries to review and “represent a progression” in their nationally determined contributions, which set GHG emission reduction goals every five years.

In November 2019, the State Department formally informed the United Nations of the U.S.’s withdrawal from the Paris Agreement.

Due to the Paris Agreement’s protocol, the withdrawal will be effective in November 2020 .

Although the U.S.

had withdrawn from the Paris Agreement in November 2020, the Biden Administration officially reentered the U.S.

into the agreement in February 2021.

The adoption of additional legislation or regulatory programs to reduce emissions of greenhouse gases could require us to incur increased operating costs to comply with new emissions-reduction or reporting requirements.

Any such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for, hydrocarbons that certain of our customers produce and reduce revenues by other of our customers who provide services to those exploration and production customers.

Consequently, legislation and regulatory programs to reduce emissions of greenhouse gases could have an adverse effect on our business, financial condition and results of operations.

Consequently, legislation and regulatory programs to reduce emissions of greenhouse gases could have a material adverse effect on our business, financial condition and results of operations.

In addition to the regulatory efforts described above, there have also been efforts in recent years aimed at the investment community, including investment advisers, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with companies engaged in the extraction of fossil fuel reserves.

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Finally, some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events.

Adverse weather conditions negatively impact demand for services and operations.

Adverse weather conditions, such as hurricanes, tornadoes, ice or snow may damage or destroy our facilities, interrupt or curtail our operations, or our customers’ operations, cause supply disruptions and result in a loss of revenue, which

may or may not be insured.

For example, certain of our facilities located in Oklahoma and Pennsylvania have experienced suspensions in operations due to tornado activity or extreme cold weather conditions.

Finally, increasing attention to the risks of climate change has resulted in an increased possibility of lawsuits or investigations brought by public and private entities against oil and natural gas companies in connection with their greenhouse gas emissions.

Should we be targeted by any such litigation or investigations, we may incur liability, which, to the extent that societal pressures or political or other factors are involved, could be imposed without regard to the causation of or contribution to the asserted damage, or to other mitigating factors.

A natural disaster, catastrophe or other event could result in severe property damage, which could curtail our operations.

For example, certain of our facilities located in Oklahoma and Pennsylvania have experienced suspensions in operations due to tornado activity or extreme cold weather conditions.

Some of our operations involve risks of, among other things, property damage, which could curtail our operations.

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As a result, our financial results were negatively impacted by foregone revenue and under-absorption of manufacturing costs, and, indirectly, due to supplier and logistical delays.

Provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

The existence of some provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company that a stockholder may consider favorable, which could adversely affect the price of our common stock.

Provisions in our organizational documents and under Delaware law and our rights plan could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

The existence of some provisions in our organizational documents and under Delaware law and our rights plan could delay or prevent a change in control of our company that a stockholder may consider favorable, which could adversely affect the price of our common stock.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire control of our company, even if the change of control would be beneficial to our stockholders.

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Furthermore, if SCF’s ownership is reduced to less than 15%, certain restrictions under Delaware law on business combinations with greater than 15% stockholders will begin to apply to us.

Simmons & Associates, Incorporated (“LESA”), through SCF Partners (“SCF”), may significantly influence the outcome of stockholder voting and may exercise this voting power in a manner adverse to our other stockholders.

As of February 24, 2020 , SCF held approximately 17.8 million shares of our common stock, equal to approximately 16% of the outstanding common stock at that date.

LESA is the ultimate general partner of SCF and will exert significant influence over us, including over the outcome of most matters requiring a stockholder vote, such as the election of directors, adoption of amendments to our charter and bylaws and approval of transactions involving a change of control.

Further, in April 2020, our board of directors adopted a shareholder rights plan, implementing what is commonly known as a “poison pill.” This poison pill significantly increases the costs that would be incurred by an unwanted third party acquirer if such party owns or commences a tender offer for 10% (or 20% in the case of a holder who or which is entitled to file and files a statement on Schedule 13G) or more of our outstanding common stock.

The existence of this poison pill could delay, deter or prevent a takeover of us.

The shareholder rights plan is scheduled to expire in April 2021.

LESA, through SCF Partners (“SCF”), may significantly influence the outcome of stockholder voting and may exercise this voting power in a manner adverse to our other stockholders.

As of February 26, 2021, SCF held approximately 846 thousand shares of our common stock, equal to approximately 15% of the outstanding common stock at that date.

LESA is the ultimate general partner of SCF and will exert significant influence over us, including over the outcome of most matters requiring a stockholder vote,

such as the election of directors, adoption of amendments to our charter and bylaws and approval of transactions involving a change of control.

LESA’s interests may differ from our other stockholders, and SCF may vote its common stock in a manner that may adversely affect those stockholders.

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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