What changed in this filing

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Item 1. Business

2024-03-08 compared with 2023-03-09 · 105 added, 88 removed, 332 unchanged (37% of the section changed)

Transition Period

On September 3, 2021, our Board of Directors ("Board" or "Board of Directors") approved a change in our fiscal year end from January 31 to December 31, effective beginning with the eleven-month period ended December 31, 2021.

In this Annual Report, references to “Transition Period” refer to the eleven-month period ended December 31, 2021.

Company Overview

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and its consolidated subsidiaries.

KLX Energy Services is a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas exploration and production companies operating in both conventional and unconventional plays in all of the active major basins throughout the United States.

KLX Energy Services is a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas E&P companies operating in both conventional and unconventional plays in all of the active major basins throughout the United States.

KLXE was initially formed from the combination and integration of seven private oilfield service companies acquired during 2013 and 2014.

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and became an independent, publicly traded company.

"Management Discussion and Analysis of Financial Condition and Results of Operations" for more details of our acquisitions since becoming a publicly traded company, including our 2020 acquisition of QES.

(“QES,” and such acquisition the “QES Merger”) and our 2023 acquisition of Greene's Energy Group, LLC (“Greene's,” and such acquisition the “Greene's Acquisition”).

We deliver mission critical oilfield services to primarily independent major oil and gas companies focused on drilling, completion, production and intervention activities for technically demanding wells from over 50 service facilities located in the United States.

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Industry Overview

The oil and gas industry has historically been both cyclical and seasonal.

Demand for our services and products is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers’ willingness to spend capital on the exploration for and development of oil and natural gas.

Activity levels are driven primarily by drilling rig counts, technological advances, well completions, workover activity, the geological characteristics of the producing wells and their effect on the services required to commence and maintain production levels and our customers’ capital and operating budgets.

All of these indicators are driven by commodity prices, which are affected by both domestic and global supply and demand factors.

Our customers’ spending plans are generally based on their outlook for near-term and long-term commodity prices, which are affected by both domestic and global supply and demand factors.

In particular, while U.S.

natural gas prices are correlated with global oil price movements, they are also affected by local weather, transportation and consumption patterns.

As a result, the demand for our services and products is highly sensitive to current and expected commodity prices.

The oil and gas industry experienced significant increases in activity in late 2021 and 2022 due to the recovery from the COVID-19 pandemic and increasing demand for oil and gas.

Average oil prices and natural gas prices and activity subsequently decreased in 2023 compared to 2022, before stabilizing in late 2023.

Oil and natural gas prices have been, and may remain, volatile, which impacts demand for our business.

Global supply and demand factors will likely continue to result in commodity price volatility, similar to that experienced in 2023.

In 2021, economic activity started recovering from COVID-19, albeit at an uneven pace.

This led to an increase in activity for the industry, as evidenced by a higher rig count and West Texas Intermediate ("WTI") prices through the end of our fiscal year.

The industry has seen a significant rebound since the emergence of the pandemic, including in early 2022, as a result of the ongoing conflict in Ukraine and increasing demand for oil and gas.

For more information, see “Risk Factors” in Item 1A of Part I and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Outlook” in Item 7 of Part II of this Annual Report.

For more information, see “Risk Factors” in Item 1A of Part I and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Outlook” in Item 7 of Part II of this Annual Report.

Products and Services

The principal high value-added services and related tools and equipment we offer to support our customers throughout the lifecycle of the well include drilling, completions, production and well intervention services and products in each of our geographic reporting segments.

We provide directional drilling and associated drilling support services, including accommodations packages, to exploration and production ("E&P") companies in many of the most active areas of onshore oil and natural gas developments in the United States, including all active U.S.

We provide directional drilling and associated drilling support services, including accommodations packages, to E&P companies in many of the most active areas of onshore oil and natural gas developments in the United States, including all active U.S.

oil and natural gas basins with level 1 facilities in Appalachian Mountain, Gulf Coast, Mid-Continent, West Texas and Rocky Mountain regions.

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Our completions activities are focused on services that help our customers complete and stimulate extended reach horizontal laterals and more technical wellbores.

We are highly experienced in safely servicing deep, high-pressure, high-temperature wells in all of the most active onshore basins in the

United States and provide premium perforating services for both wireline and tubing-conveyed applications.

We are highly experienced in safely servicing deep, high-pressure, high-temperature wells in all of the most active onshore basins in the United States and provide premium perforating services for both wireline and tubing-conveyed applications.

We believe we offer best-in-class service execution at the wellsite and innovative downhole technologies, positioning us to benefit from our ability to service technically complex wells where the potential for increased operating leverage is high due to the large number of stages per well.

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Our nitrogen pumping units provide a non-combustible environment downhole and are used in support of other pressure control or well-servicing applications.

We also offer highly-technical and specialized well control services, which are typically required in response to emergencies at the well site, requiring a variety of solutions including freezing, hot tapping and gate valve drilling services, as well as critical well control and containment operations.

Our team is comprised of oilfield services veterans with extensive domestic and international experience in well control operations.

As of December 31, 2023, we had a fleet of 39 coiled tubing units, 23 of which are large diameter coiled tubing units, across our geographical regions.

Over time, when the industry recovers, we anticipate that our investments in large diameter coil tubing spreads will allow us to increase our share of spend as the large diameter coil tubing pulls through asset light services such as flowback and testing services, thru-tubing and pressure control services, while leveraging our enhanced cost structure.

Over time, when the industry recovers, we anticipate that our investments in large diameter coil tubing spreads will allow us to increase our share of spend as the large diameter coil tubing pulls through asset light services such as thru-tubing and pressure control services, while leveraging our enhanced cost structure.

Last year we continued to optimize the quality and performance of our magnesium alloy based line of dissolvable hydraulic fracturing plugs.

Our proprietary dissolvable plugs deliver all the benefits of a traditional hydraulic fracturing plug but without the need for bottom hole intervention for removal.

KLXE dissolvable plugs have been deployed successfully across all major U.S.

Our latest generation dissolvable frac plug, the PhantM™, has been deployed successfully across major U.S.

oil and natural gas basins in now more than 1,000 wells by more than 70 customers.

Our plugs dissolve quickly and reliably, resulting in faster time to production, are effective in a wide range of operating temperatures and salinity, including temperatures ranging from 80 to 300 degrees Fahrenheit, and do not require mill out, thus saving time and cost.

Our PhantM™ plugs dissolve quickly and reliably, resulting in faster time to production, are effective in a wide range of operating temperatures and salinity, including temperatures ranging from 80 to 350 degrees Fahrenheit, and do not require mill out, thus saving time and cost.

The Company has 68 wireline units in the fleet and 31, or 46%, are configured to run pump down or plug-and-perf operations.

Our R&D organization also enables our operations to support our customers with cutting edge pump down operations that include greaseless wireline, addressable gun systems and addressable release tools, to provide our customers with high quality pump down services.

We also maintain a full line of radial cement bond tools, compensated neutron porosity tools and casing evaluation tools to provide well

evaluation services to our clients.

Four of the 31 plug-and-perf units are our new Whisper™ Series units.

These specialized units are electric/battery-powered and support

our and our customers' sustainability efforts by reducing carbon footprint and noise levels.

Additionally, the significant fuel savings due to the units being electrically powered make these units more cost effective to operate.

We also maintain a full line of radial cement bond tools, compensated neutron porosity tools and casing evaluation tools to provide well evaluation services to our clients.

We also utilize greaseless line and quiet truck wireline technology to meet the environmental concerns of our customers.

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These valves are assembled in predetermined configurations based on customer preference and installed on the wellhead to control flow and pressure during hydraulic fracturing operations.

We own a large, young line of valves serving the North American onshore oil and gas market.

We own a large line of valves serving the North American onshore oil and gas market.

We have enhanced our hydraulic fracturing valve fleet line through the internal development of next generation technology, including our proprietary, patent pending hydraulic fracturing relief valve (“FRV”).

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By doing this, we believe we minimize operational risk, as well as greatly reduce health, safety and environmental concerns that are associated with hydraulic fracturing operations.

Additional technologies that we currently deploy on behalf of our customers include our (i) patented flotation collar, which assists customers in getting completion casing to the bottom of extended reach wells when friction prevents getting casing to depth, (ii) proprietary internal pressure actuated ("IPA") toe sleeve, which allows customers a consistent and reliable hydraulic fracturing initiation sleeve at the toe of the completion, (iii) composite hydraulic fracturing plug, a flow control device that is set in the wellbore at given intervals to divert fluid into the formation, and (iv) dissolvable plugs.

Additional technologies that we currently deploy on behalf of our customers include our (i) patented flotation collar, which assists customers in getting completion casing to the bottom of extended reach wells when friction prevents getting casing to depth, (ii) proprietary internal pressure actuated toe sleeve, which allows customers a consistent and reliable hydraulic fracturing initiation sleeve at the toe of the completion, (iii) composite hydraulic fracturing plug, a flow control device that is set in the wellbore at given intervals to divert fluid into the formation, and (iv) dissolvable plugs.

We also provide services to enhance and maintain oil and gas production throughout the productive lives of our customers’ wells.

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As with our completion and intervention service offerings, we have developed a portfolio of proprietary tools that we believe differentiates our production solutions service offering.

The principal services and equipment we provide across the production lifecycle of the well include (i) production blow out preventers, (ii) mechanical wireline services, (iii) slick line services, (iv) hydro-testing, (v) premium tubulars and (vi) other specialized production tools.

The principal services and equipment we provide across the production lifecycle of the well include (i) production blow out preventers, (ii) mechanical wireline services, (iii) hydro-testing, (iv) premium tubulars and (v) other specialized production tools.

We believe our proprietary production tool portfolio creates a distinct competitive advantage for us in selling our production services.

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Given the unique geology and operating characteristics of each well, no two complications are the same, yet each complication our customers experience results in substantial disruption to their well operation and economics.

As a result, resolution is “mission critical” to our customers and superior outcomes can support premium pricing.

resolution is “mission critical” to our customers and superior outcomes can support premium pricing.

Those outcomes rely principally on the skill and experience of the technicians dedicated to resolving the issues and the availability of exactly the right tools for every eventuality.

We believe we have one of the leading teams of

intervention specialists in the industry, supported by a comprehensive portfolio of intervention tools and equipment.

We believe we have one of the leading teams of intervention specialists in the industry, supported by a comprehensive portfolio of intervention tools and equipment.

Each of our geographic regions is fully staffed with top technicians and fully equipped with a comprehensive range and quantity of equipment given the wellbore profiles for the region.

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(i) DXD Venturi Tool;

(ii) HAVOK PDC Bearing Section;

(ii) SpectrA PDC Bearing Section;

(iii) Hydraulic By-Pass Tool;

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The chambers then carry the debris out of the hole when the system is brought back to surface.

HAVOK PDC Bearing Section— The patented Havok bearing pack is an extremely reliable and robust thru-tubing motor that deploys the industry’s only all PDC (Polycrystalline Diamond Compact) bearing design - meaning no ball bearings.

SpectrA PDC Bearing Section— The patented SpectrA PDC bearing pack is an extremely reliable and robust thru-tubing motor that deploys the industry’s only all PDC (Polycrystalline Diamond Compact) bearing design - meaning no ball bearings.

The elegant design greatly reduces the operating cost of our thru-tubing motors and provides us with a significant differentiator in the thru-tubing space.

Since being deployed, Havok has proven to be one of the most robust bearing packs available on the market.

Since being deployed, SpectrA PDC has proven to be one of the most robust bearing packs available on the market, and its most recent enhancement is able to accommodate increased full flow through the bit.

Hydraulic By-Pass Tool— The patented hydraulic by-pass tool allows us to run our conventional motor assemblies and achieve substantially higher circulation rates without reducing the expected life of our conventional power section.

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Customers are identified as targets based on their drilling and completion activity, geographic location and economic viability.

Direction of the sales team is conducted through weekly meetings and daily communication.

Direction of the sales team is conducted through weekly meetings and daily

communication.

Our marketing activities are performed internally.

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Our strategy is to sell our services using data to demonstrate safety and service quality.

We accomplish this

through communication across sales regions and operations departments to share best practices and leverage existing customer relationships.

We accomplish this through communication across sales regions and operations departments to share best practices and leverage existing customer relationships.

The markets in which we operate are highly competitive.

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Our competition includes many large and small oilfield service companies, including the largest integrated oilfield services companies.

Our major competitors include Schlumberger, Baker Hughes, Halliburton, RPC, Nine Energy Services, Phoenix Technology Services, Scientific Drilling International, NexTier, Liberty Oilfield Services, Ranger Energy Services, ProPetro Holding Corp., STEP Energy Services, and other private competitors.

Our major competitors include Schlumberger, Halliburton, Baker Hughes, Patterson-UTI Energy, Liberty Oilfield Services, RPC, ProPetro Holding Corp., Phoenix Technology Services, STEP Energy Services, Ranger Energy Services, Nine Energy Services, Scientific Drilling International and other private competitors.

We differentiate our company from our competitors by delivering a broad range of drilling, completion, production and intervention services safely with high quality equipment and highly competent personnel, which we believe enables us to deliver superior execution while operating an efficient and safe working environment.

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In addition to the property and personal losses from these accidents, the frequency and severity of these incidents affect our operating costs and insurability, and our relationship with customers, employees and regulatory agencies.

In particular, in recent years many of our large customers have placed an increased emphasis on the safety records of their service providers.

In particular, in recent years many of our large customers have placed

an increased emphasis on the safety records of their service providers.

Any significant increase in the frequency or severity of these incidents, or the general level of compensatory payments, could adversely affect the cost of, or our ability to obtain, workers’ compensation and other forms of insurance, and could have other material adverse effects on our financial condition and results of operations.

We maintain a risk management program that covers operating hazards, including products and completed operations, property damage and personal injury claims as well as certain limited environmental claims.

Our risk management program includes primary, umbrella and excess umbrella liability policies in excess of $75.0

million per occurrence, including sudden and accidental pollution claims.

Our risk management program includes primary, umbrella and excess umbrella liability policies in excess of $75.0 million per occurrence, including sudden and accidental pollution claims.

We believe that our insurance is sufficient to cover property and casualty liability claims.

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Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property, or perform remedial operations to prevent future contamination.

The EPA has the power to make additional substances subject to CERCLA and is considering doing so at this time, which could result in additional remediation costs at certain properties in the future.

The EPA has the power to make additional substances subject to CERCLA and RCRA, including certain Per- and Polyfluorinated Substances (PFAS), and is considering doing so at this time, which could result in additional remediation costs at certain properties in the future and could impose additional costs on some of our customers.

In addition, it is not uncommon for neighboring landowners and other third-parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.

Endangered Species Act and Migratory Bird Treaty Act

The federal Endangered Species Act (“ESA”) and comparable state laws were established to protect endangered and threatened species.

The ESA and comparable state laws were established to protect endangered and threatened species.

Under the ESA, if a species is listed as threatened or endangered, restrictions may be imposed on activities adversely affecting that species’ habitat.

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For example, FWS recently published a rule listing two distinct population segments of the Lesser Prairie Chicken under the ESA, a species found in some states where we operate.

FWS has also considered taking additional measures related to species such as the Dunes Sagebrush Lizard and Greater Sage Grouse, which can be found in some areas where we operate.

The designation of previously unidentified endangered or threatened species, or other agency actions aimed at species conservation could indirectly cause us to incur additional costs, cause our or our oil and natural gas exploration and production customers' operations to become subject to operating restrictions or bans, result in

new difficulties obtaining permits or other authorizations, and limit future development activity in affected areas, which could reduce demand for our products and services to those customers.

Further, in July 2023, FWS issued a notice of proposed rulemaking to list the Dunes Sagebrush Lizard as an endangered species under

The listing of the Dunes Sagebrush Lizard or designation of its habitat could impact the availability of frac sand used by our customers.

Additionally, in April 2023, the FWS published a proposed rule to list the Greater Sage Grouse as threatened under the ESA.

Both the Dunes Sagebrush Lizard and the Greater Sage Grouse can be found in some areas where we and our customers operate.

Those final rules are expected to be published in mid-2024.

While we cannot predict the outcome of these or any other future proposed or finalized listings, designation of previously unidentified endangered or threatened species, or other agency actions aimed at species conservation could indirectly cause us to incur additional costs, cause our or our oil and natural gas E&P customers' operations to become subject to operating restrictions or bans, result in new difficulties obtaining permits or other authorizations, and limit future development activity in affected areas, which could reduce demand for our products and services to those customers.

Similar protections are offered to migratory birds under the Migratory Bird Treaty Act (“MBTA”).

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Some of our customers may be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife, which may limit our ability to operate in protected areas.

Permanent restrictions imposed to protect endangered and threatened species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures.

Permanent restrictions imposed to protect endangered and threatened species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures, which could in turn adversely impact demand for our products and services.

National Environmental Policy Act

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Most recently, in January 2023 the CEQ issued new guidance on consideration of greenhouse gas ("GHG") emissions and climate change in NEPA environmental reviews.

At this time, we cannot predict the outcome of such changes on our operations or the operations of our customers.

To the extent that new and more stringent NEPA requirements are finalized in the future, they could create permitting delays for our customers requiring federal approvals and thereby negatively impact the demand for our services.

The guidance followed the publication of a final rule in April 2022 revoking some modifications made to the regulations under the Trump Administration and reincorporating consideration of direct, indirect, and cumulative effects of major federal actions.

In July 2023, the CEQ announced another proposed rule that would revise the implementing regulations of the procedural provisions of NEPA and implements the amendments to NEPA included in the Fiscal Responsibility Act of 2023.

The public comment period for the proposed rule closed in September 2023, and the final rule is expected in the second quarter of 2024.

The CEQ’s guidance, effective upon publication, alongside the proposed and final rules, could result in additional challenges to NEPA reviews performed in connection with our customers’ operations, which in turn could result in further permitting and approval delays or determinations about the availability of federal land for oil and gas operations.

While we cannot predict the outcome of this rulemaking, restrictions or delays on our customers’ operations could in turn adversely impact demand for our products and services.

Worker Health and Safety

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Occupational Safety and Health Administration ("OSHA") hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require maintenance of information about hazardous materials used or produced in operations and provision of this information to employees, state and local government authorities and citizens.

The Federal Motor Carrier Safety Administration regulates and provides safety oversight of commercial motor vehicles, the EPA establishes requirements to protect human health and the environment, the federal Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF") establishes requirements for the safe use and storage of explosives, and the federal Nuclear Regulatory Commission establishes requirements for the protection against ionizing radiation.

safe use and storage of explosives, and the federal Nuclear Regulatory Commission establishes requirements for the protection against ionizing radiation.

Substantial fines and penalties can be imposed and orders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to comply with these laws and regulations.

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The Federal Water Pollution Control Act (the “Clean Water Act” or “CWA”) and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States.

The discharge of pollutants into regulated waters, including jurisdictional wetlands, is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency.

There continues to be uncertainty on the federal government's applicable jurisdictional reach under the CWA over waters of the United States, including wetlands, as the EPA and the U.S.

Army Corps of Engineers ("Corps") under the Obama, Trump and Biden Administrations have pursued multiple rulemakings since 2015 in an attempt to define the scope of such reach.

While the EPA and Corps under the Trump Administration issued a final rule in January 2021 narrowing federal jurisdictional reach over waters of the United States, the EPA and Corps under President Biden issued a new rule at the end of 2022 that again broadens federal jurisdiction over these waters.

The Supreme Court is also expected to rule on certain aspects of the definition in 2023, and the Biden Administration rule is likely to be subject to legal challenge.

Therefore, the final substance of this definition and its impacts on the scope of the Clean Water Act remain uncertain at this time.

To the extent the Biden Administration rule goes into effect and expands the scope of the Clean Water Act's jurisdiction in areas where we or our customers conduct operations, such developments could delay, restrict or halt the development of projects, result in longer permitting timelines, or increased compliance expenditures or mitigation costs for our customers’ operations, which may reduce our customers’ rate of production of oil and gas and reduce the demand for our products and services.

The discharge of pollutants into regulated waters, including jurisdictional wetlands, is prohibited, except in accordance with the terms of a permit issued by the EPA or U.S.

Army Corps of Engineers ("Corps") or an analogous state agency.

There continues to be uncertainty on the federal government's applicable jurisdictional reach under the CWA over “waters of the United States”, including wetlands, as the EPA and the Corps under the Obama, Trump and Biden Administrations have pursued multiple rulemakings since 2015 in an attempt to define the scope of such reach.

While the EPA and Corps under the Trump Administration issued a final rule in January 2021

narrowing federal jurisdictional reach over waters of the United States, the EPA and Corps under President Biden issued a new rule in January 2023, the EPA and the Corps released a final revised definition of “waters of the United States” that again broadened federal jurisdiction over these waters.

Judicial developments add further uncertainty as the Supreme Court invalidated certain parts of the January 2023 rule, resulting in a revised rule being issued in September 2023.

Due to the injunction of the rule in certain states, the implementation of the September 2023 rule currently varies by state.

To the extent the scope of the Clean Water Act's jurisdiction continues to change and expand in areas where we or our customers conduct operations, such developments could delay, restrict or halt the development of projects, result in longer permitting timelines, or increased compliance expenditures or mitigation costs for our customers’ operations, which may reduce our customers’ rate of production of oil and gas and reduce the demand for our products and services.

In other CWA matters, spill prevention, control and countermeasure requirements of federal laws require appropriate containment berms and similar structures to help prevent the contamination of navigable waters by a petroleum hydrocarbon tank spill, rupture or leak.

In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of

In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities.

Federal and state regulatory agencies can impose administrative, civil and criminal penalties as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.

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Since that time, the EPA has issued area designations with respect to ground-level ozone and, on December 31, 2020, published notice of a final action that, upon conducting a periodic review of the ozone standard in accord with CAA requirements, elected to retain the 2015 ozone NAAQS without revision on a going-forward basis.

However, this December 2020 final action is subject to legal challenge, which is currently on hold while the Biden Administration is reconsidering the December 2020 final action in favor of a potentially more stringent ground-level ozone NAAQS.

However, several groups challenged the December 2020 decision, and, in October 2021, the EPA announced it would reconsider the decision.

A draft assessment released in April 2022 indicated a preliminary conclusion that the December 2020 decision would stand, but uncertainty remains until a final decision is released.

On August 21, 2023, the EPA announced a new review of the ozone NAAQS to reflect updated ozone science in combination with the reconsideration of the December 2020 decision and expects to release its Integrated Review Plan in the fall of 2024.

State implementation of the revised NAAQS could result in stricter permitting requirements, which in turn could delay or impair our or our customers’ ability to obtain air emission permits, and result in increased expenditures for pollution control equipment, the costs of which could be significant.

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The threat of climate change continues to attract considerable attention in the United States and around the world.

Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate such future emissions.

Numerous proposals have been made and could continue to be made at the international, national,

regional and state levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate such future emissions.

Congress has not adopted comprehensive climate change legislation but did impose the first-ever fee on the emission of GHGs through a methane emissions charge.

The Inflation Reduction Act of 2022 (“IRA”) amends the CAA to impose a fee on the emission of methane from sources required to report their GHG emissions to the EPA, including those sources in the onshore petroleum and natural gas production and gathering and boosting source categories.

The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025, and be set at $1,500 for 2026 and each year after.

While we will not be required to pay this fee, some of our customers may.

The methane emissions charge, starting in calendar year 2024 at $900 per ton of methane, will increase to $1,200 in 2025 and be set at $1,500 for 2026 and each year after.

Calculation of the fee is based on certain thresholds established in the IRA.

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These incentives could accelerate the transition of the U.S.

away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, reduce demand for our customers’ products, and thereby reduce demand for our services.

economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, reduce demand for our customers’ products, and thereby reduce demand for our services.

In addition, President Biden has made combating climate change arising from GHG emissions a priority under this Administration and has issued, and may continue to issue, executive orders or other regulatory initiatives in pursuit of this regulatory agenda.

At the federal level, the EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources, and impose new standards reducing methane emissions from oil and gas operations through limitations on venting and flaring and the implementation of enhanced emission leak detection and repair requirements.

In recent years, there has been considerable uncertainty surrounding regulation of methane emissions.

In 2020, the Trump Administration revised performance standards for methane established in 2016 to lessen the impact of those standards and removed the transmission and storage segments from the source category for certain regulations.

However, the U.S.

Congress subsequently passed, and President Biden signed into law, a revocation of the 2020 rulemaking, effectively reinstating the 2016 standards.

In November 2021, the EPA issued a proposed rule and further supplemented the proposal in December 2022 to adopt new methane regulations for the oil and gas sector.

If finalized, the proposed rule would establish Quad Ob new source and Quad Oc first-time existing source standards of performance for methane and volatile organic compound emissions in the oil and gas source category.

This proposed rule would apply to upstream and midstream facilities at oil and natural gas well sites, natural gas gathering and boosting compressor stations, natural gas processing plants, and transmission and storage facilities.

Owners or operators of affected emission units or processes would have to comply with specific standards of performance that may include leak detection using optical gas imaging and subsequent repair requirements, reduction of regulated emissions through capture and control systems, zero-emission requirements for certain equipment or processes, operations and maintenance requirements, and requirements for "green well" completions.

Additionally, this proposed rule would impose expanded inspection, monitoring and emissions control requirements on oil and gas sites, as well as strengthen requirements related to emissions from equipment and routine flaring.

The proposal would also establish a “Super Emitter Response Program” that would require operator response to emissions events exceeding 200 pounds per hour, as detected by regulatory authorities or qualified third parties.

The proposal is expected to be finalized in 2023, but will likely be subject to legal challenges.

As a result, we cannot predict the scope of any final methane regulatory requirements, or the expected cost to comply with such requirements.

Any increase in regulatory requirements may increase operating or compliance costs for our customers and thereby reduce the demand for our services.

Some states where we operate, such as New Mexico and Colorado, have also imposed new or more stringent methane emission regulations, which could also increase operating or compliance costs for our customers in these states and impact demand for our services.

Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions.

EPA has also announced enforcement initiatives aimed at reducing GHG emissions from the oil and gas sector.

In December 2023, the EPA issued a final rule and establishing more stringent methane regulations for new, modified, and reconstructed facilities in the oil and gas sector, known as Quad Ob, as well as standards for existing sources for the first time ever, known as Quad Oc.

While these regulations do not apply directly to our operations, they will apply to many of our customers.

Under the final rules, states have two years to prepare and submit their plans to impose methane emission controls on existing sources and may take up to an additional three years to implement requirements.

The presumptive standards established under the final rule are generally the same for both new and existing sources and include enhanced leak detection survey requirements using optical gas imaging and other advanced monitoring to encourage the deployment of innovative technologies to detect and reduce methane emissions, reduction of emissions by 95% through capture and control systems, zero-emission requirements for certain devices, limitations on flaring, and the establishment of a “super emitter” response program that allows third parties to make reports to the EPA of large methane emission events, triggering certain investigation and repair requirements.

Fines and penalties for violations of these rules can be substantial.

Once the EPA has made necessary determinations, compliance with the EPA’s new final rules would exempt an otherwise covered facility from the requirement to pay the methane fee imposed under the IRA, discussed above.

Some states where we operate, such as New Mexico and Colorado, have also imposed new or more stringent methane emission regulations.

The requirements of the EPA’s final methane rules and state methane emissions regulations could increase operating or compliance costs for our customers in these states and impact demand for our services.

carbon taxes, reporting and tracking programs, and restriction of emissions.

At the international level, the United Nations-sponsored Paris Agreement is a non-binding agreement for nations to limit their GHG emissions through individually-determined reduction goals every five years after 2020.

President Biden announced in April 2021 a new, more rigorous nationally determined emissions reduction level of 50 percent to 52 percent from 2005 levels in economy-wide net GHG emissions by 2030.

President Biden recommitted the United States to the Paris Agreement in January 2021 and announced in April 2021 a new, more rigorous nationally determined emissions reduction level of 50 percent to 52 percent from 2005 levels in economy-wide net GHG emissions by 2030.

Moreover, the international community gathered again in Glasgow in November 2021 at the 26th Conference of the Parties ("COP26"), during which multiple announcements (not having the effect of law) were made, including a call for parties to eliminate certain fossil fuel subsidies and pursue further action on non-CO2 GHGs.

Relatedly, the United States and European Union jointly announced at COP26 the launch of a Global Methane Pledge, an initiative which over 100 counties joined, committing to a collective goal of reducing global methane emissions by at least 30 percent from 2020 levels by 2030, including "all feasible reductions" in the energy sector.

These goals were reaffirmed at the 27th Conference of the Parties (“COP27”) in November 2022.

The impacts of

these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States' commitments under the Paris Agreement, COP26, COP27 or other international conventions cannot be predicted at this time.

At the 28th Conference of the Parties (“COP28”) hosted by the United Arab Emirates in December 2023, the parties signed onto an agreement to transition “away from fossil fuels in energy systems in a just, orderly, and equitable manner” and increase renewable energy capacity so as to achieve net zero by 2050, although no timeline for doing so was set.

The impacts of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States' commitments under the Paris Agreement, COP26, COP28 or other international conventions cannot be predicted at this time.

Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in federal political risks in the United States.

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In November 2022 the federal Bureau of Land Management (“BLM”) proposed a rule that would limit flaring from well sites on federal and Tribal lands, as well as allow the delay or denial of permits if BLM finds that an operator’s methane waste minimization plan is insufficient.

The final rule is expected in 2024.

Other actions adversely affecting the oil and gas industry that may be pursued by the Biden Administration include limiting hydraulic fracturing by banning new oil and gas permitting on federal lands and waters, limiting hydraulic fracturing by banning new oil and gas permitting on federal lands and waters, potentially eliminating certain tax rules (referred to as subsidies) that benefit the oil and gas industry, and imposing restrictions on pipeline infrastructure.

Litigation risks are also increasing as a number of states, municipalities and other plaintiffs have sought to bring suit against the largest oil and natural gas exploration and production companies in state or federal court alleging, among other things, that such energy companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore, are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.

Additionally, climate change policies may impact the Company or our customers’ access to capital.

Additionally, in October 2023, the Governor of California signed the Climate Corporate Data Accountability Act (“CCDAA”) and Climate-Related Financial Risk Act (“CRFRA”) into law.

The CCDAA requires both public and private U.S.

companies that are “doing business in California” and that have a total annual revenue of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2 and 3 GHG emissions.

Both laws are vague and potentially broad with respect to their applicability, appearing to require only minimal contacts with California.

The CRFRA requires the disclosure of a climate-related financial risk report (in line with the Task Force on the Climate-related Financial Disclosures recommendations or equivalent disclosure requirements under the International Sustainability Standards Board’s climate-related disclosure standards) every other year for public and private companies that are “doing business in California” and have total annual revenue of $500 million.

Reporting under both laws would begin in 2026.

Currently, the ultimate impact of these laws on our business is uncertain—the Governor of California has directed further consideration of the implementation deadlines for each of the laws, and there is potential for legal challenges to be filed with respect to the scope of the law—but, absent clarification or revisions to the law, alongside the SEC proposed rule, finalization and implementation may result in additional costs to comply with these disclosure requirements for us or our customers, as well as increased costs of and restrictions on access to capital for us or our customers.

Separately, these and other enhanced climate related disclosure requirements could lead to reputational or other harm with customers, regulators, investors or other stakeholders and could also increase our litigation risks relating to alleged climate-related damages resulting from our operations, statements alleged to have been made by us or others in our industry regarding climate change risks, or in connection with any future disclosures we may make regarding reported emissions, particularly given the inherent uncertainties and estimations with respect to calculating and reporting GHG emissions.

Litigation risks are also increasing as a number of states, municipalities and other plaintiffs have sought to bring suit against the largest oil and natural gas E&P companies in state or federal court alleging, among other things, that such energy companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore, are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.

Additionally, climate change and ESG policies may impact the Company or our customers’ access to capital.

Certain shareholders and bondholders currently invested in fossil-fuel energy companies are concerned about the potential effects of climate change and may elect in the future to shift some or all of their investments into non-fossil fuel energy related sectors.

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In November 2021, the Federal Reserve issued a statement in support of the efforts of the NGFS to identify key issues and potential solutions for the climate-related challenges most relevant to central banks and supervisory authorities.

While we cannot predict what policies may result from these announcements, a material reduction in the capital available to us or our fossil fuel-related customers could make it more difficult to secure funding for exploration, development, production, transportation, and processing activities, which could reduce the demand for our products and services.

More recently, in October 2023, the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

released a finalized set of principles guiding financial institutions with $100 billion or more in assets on the management of physical and transition risks associated with climate change.

While we cannot predict what additional policies may result from these announcements, a material reduction in the capital available to us or our fossil fuel-related customers could make it more difficult to secure funding for exploration, development, production, transportation, and processing activities, which could reduce the demand for our products and services.

The SEC has also proposed a rule that would require registrants to make certain climate-related disclosures in registration statements and annual reports, including their governance of climate-related risks;

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climate risk management;

Scope 1 and 2

GHG emissions and Scope 3 GHG emissions under certain circumstances;

Scope 1 and 2 GHG emissions and Scope 3 GHG emissions under certain circumstances;

and if the registrant has set them, climate-related targets and goals.

The final rule is expected in 2024 and may be subject to legal challenge.

For example, in March 2021, the SEC established the Climate and ESG Task Force in the Division of Enforcement to identify and address potential ESG-related misconduct, including greenwashing.

Separately, the SEC has also announced that it is scrutinizing existing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege that an issuer's existing climate disclosures were misleading or deficient.

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These climatic developments have the potential to cause physical damage to our and our customers’ assets or disrupt operations and thus could have an adverse effect on each of our operations.

Additionally, changing meteorological conditions, particularly temperature, may result in changes to the amount, timing, or location of demand for energy or its production.

Additionally, changing

meteorological conditions, particularly temperature, may result in changes to the amount, timing, or location of demand for energy or its production.

While our consideration of changing climatic conditions and inclusion of safety factors in design is intended to reduce the uncertainties that climate change and other events may potentially introduce, our ability to mitigate the adverse impacts of these events depends in part on the effectiveness of our facilities and our disaster preparedness and response and business continuity planning, which may not have considered or be prepared for every eventuality.

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In response to these concerns, regulators in some states have adopted additional requirements related to seismicity and its potential association with hydraulic fracturing.

For example, Texas and Oklahoma have issued rules for wastewater disposal wells that impose certain permitting and operating restrictions and reporting requirements on disposal wells in proximity to faults.

For example, Texas

and Oklahoma have issued rules for wastewater disposal wells that impose certain permitting and operating restrictions and reporting requirements on disposal wells in proximity to faults.

Texas and Oklahoma have also issued orders or other directives, from time to time, requesting or even compelling operators of certain wells where seismic incidents have occurred to restrict or suspend disposal well operations.

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Finally, water is an essential component of shale oil and natural gas production during both the drilling and hydraulic fracturing processes.

Our customers' access to water to be used in these processes may be adversely affected due to reasons such as periods of extended drought, private, third-party competition for water in localized areas or the implementation of local or state governmental programs to monitor or restrict the beneficial use of water subject to their jurisdiction for hydraulic fracturing to assure adequate local water supplies.

Our customers' access to water to be used in these processes may be adversely affected due to reasons such as changes in weather patterns due to climate change, periods of extended drought, private, third-party competition for water in localized areas or the implementation of local or state governmental programs to monitor or restrict the beneficial use of water subject to their jurisdiction for hydraulic fracturing to assure adequate local water supplies.

As of December 31, 2023, we had approximately 1,919 employees.

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Available Information

Our filings with the SEC, including this Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Proxy Statement, Current Reports on Form 8-K and amendments to any of those reports are available free of charge on our website, http://www.klxenergy.com, as soon as reasonably practicable after they are filed with, or furnished to, the SEC.

Our filings with the SEC, including this Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Proxy Statement, Current Reports on Form 8-K and amendments to any of those reports are available free of charge on our website, https://www.klx.com, as soon as reasonably practicable after they are filed with, or furnished to, the SEC.

These reports may also be obtained on the SEC’s website, www.sec.gov, which contains reports, proxy statements, information statements, and other information regarding SEC registrants, including KLX Energy Services Holdings, Inc.

In addition to the reports filed or furnished with the SEC and provided on our website, we publicly disclose material information from time to time in our press releases, at annual meetings of Shareholders and in publicly accessible conferences and Investor presentations primarily through our Investor Relations pages (https://investor.klxenergy.com).

In addition to the reports filed or furnished with the SEC and provided on our website, we publicly disclose material information from time to time in our press releases, at annual meetings of stockholders and in publicly accessible conferences and Investor presentations primarily through our Investor Relations pages (https://investor.klx.com).

It should be noted that references to the Company's website in this Annual Report are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Annual Report.

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 1. Business