What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-03-05 compared with 2020-06-22 · 260 added, 279 removed, 247 unchanged (69% of the section changed)

5 unchanged sentences

Due to these, and other factors, past performance should not be considered an indication of future performance.

Risks Inherent in Our Business and Industry

Our business and financial performance depends on the oil and natural gas industry and particularly on the level of capital spending and exploration and production activity within the United States and in the Permian Basin, and a decline in prices for oil and natural gas has had and may continue to have an adverse effect on our revenue, cash flows, profitability and growth.

1 unchanged sentence

As a result, our operations are dependent on the levels of capital spending and activity in oil and gas exploration, development and production.

Demand for our services is largely dependent on oil and natural gas prices, and our customers’ completion budgets and rig count.

Prolonged low oil and gas prices would generally depress the level of oil and natural gas exploration, development, production, and well completion activity and would result in a corresponding decline in the demand for the hydraulic fracturing services that we provide.

1 unchanged sentence

Prices are affected by many factors beyond our control.

West Texas Intermediate (“WTI”) oil prices declined significantly in 2015 and 2016 to approximately $30 per barrel, but subsequently recovered in 2017 and 2018.

WTI oi l prices declined significantly in 2015 and 2016 to approximately $30 per barrel, but subsequently recovered in 2017.

However, in 2020, oil and natural gas prices were highly volatile.

The average WTI oil prices per barrel was approximately $57, $65 and $51 for the years ended December 31, 2019, 2018 and 2017, respectively.

Demand for our services is largely dependent on oil and natural gas prices, and our customers’ completion budgets and rig count.

The average WTI oil prices per barrel were approximately $39, $57 and $65 for the years ended December 31, 2020, 2019 and 2018, respectively.

In March 2020, WTI oil prices declined significantly, to a low of approximately $20 per barrel towards the end of March 2020.

On June 17, 2020 the WTI oil price was approximately $38 per barrel.

The decline in and unpredictable nature of oil and natural gas prices have caused a reduction in our customers’ spending and associated drilling and completion activities, which has had and may continue to have an adverse effect on our revenue and cash flows.

On March 3, 2021, the WTI oil price was approximately $62 per barre l.

In 2020, the highly volatile and unpredictable nature of oil and natural gas prices caused a reduction in our customers’ spending and associated drilling and completion activities, which has had and may continue to have an adverse effect on our revenue and cash flows, if WTI oil prices do not recover and remain highly volatile.

We are also experiencing pricing pressure on our services from substantially all of our customers which has decreased margins for us.

3 unchanged sentences

• the severity and duration of world health events, including the recent COVID-19 pandemic, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas, which is negatively impacting our business;

the current significant surplus in the supply of oil and actions by the members of OPEC+ with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations;

• the current supply and demand imbalance for crude oil, and actions by the members of OPEC+ with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations;

• uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for our services;

3 unchanged sentences

• the cost of exploring for, developing, producing and delivering oil and natural gas;

the supply of and demand for drilling and hydraulic fracturing equipment;

• the supply of and demand for drilling and hydraulic fracturing equipment, including the supply and demand for lower emissions hydraulic fracturing equipment;

• the expected decline rates of current production;

11 unchanged sentences

• domestic and foreign tax policy;

domestic and foreign governmental approvals and regulatory requirements and conditions;

• domestic and foreign governmental approvals and regulatory requirements and conditions, including tighter emissions standards in the energy industry;

• the continued threat of terrorism and the impact of military and other action, including military action in the Middle East;

9 unchanged sentences

Subsequently, Saudi Arabia announced plans to increase production and reduce the prices at which they sell oil.

These events, combined with the continued outbreak of COVID-19 that has reduced economic activity and disrupted the supply chain of certain of our customers, have contributed to a sharp drop in prices for oil in the first quarter of 2020, continuing into the second quarter.

These events, combined with the COVID-19 pandemic that has negatively impacted the economic activity and disrupted the supply chain of certain of our customers, have contributed to the depressed demand for crude oil and crude oil prices.

Regulatory action to curtail production has been contemplated;

1 unchanged sentence

The Railroad Commission ultimately declined to institute mandatory production cuts, but the agency may choose to revisit the issue if market weakness persists, which could further reduce demand for our services.

While an agreement to cut production was reached in April 2020, oil prices have remained low, and global oil demand is expected to remain challenged at least until the COVID-19 outbreak can be contained.

The impacts of these price declines have had, and may continue to have, a material adverse effect on our business, results of operation and financial condition.

While an agreement to significantly cut production was reached by OPEC+ in April 2020, and in January 2021 the production levels continued to be adjusted by OPEC+ with the aim to rebalance demand and supply, oil prices have remained volatile, and global oil demand is expected to remain challenged at least until the COVID-19 virus and infection rate can be contained.

impacts of the uncertainties in the energy industry and global economy have had, and may continue to have, a material adverse effect on our business, results of operation and financial condition.

The cyclical nature of the oil and natural gas industry may cause our operating results to fluctuate.

1 unchanged sentence

We have experienced, and may in the future experience, significant fluctuations in operating results as a result of the reactions of our customers to changes in oil and natural gas prices.

For example, the decline in and unpredictable nature of oil and gas prices in 2019 and early 2020, combined with adverse changes in the capital and credit markets and the COVID-19 outbreak in early 2020, caused many exploration and production companies to reduce their capital budgets and drilling activity.

For example, the decline in and unpredictable nature of oil and gas prices in 2019 and 2020, combined with adverse changes in the capital and credit markets and the COVID-19 pandemic in 2020, caused many exploration and production companies to reduce their capital budgets and drilling activity.

This has resulted in a significant decline in demand for oilfield services and adversely impacted the prices oilfield services companies can charge for their services.

5 unchanged sentences

The global or national outbreak of an illness or any other communicable disease, or any other public health crisis, such as COVID-19, may cause disruptions to our business and operational plans, which may include (i) shortages of employees, (ii) unavailability of contractors and subcontractors, (iii) interruption of supplies from third parties upon which we rely, (iv) recommendations of, or restrictions imposed by, government and health authorities, including quarantines, to address the COVID-19 outbreak and (v) restrictions that we and our contractors, subcontractors and our customers impose, including facility shutdowns, to ensure the safety of employees.

For example, in response to COVID-19, we have reduced headcount, officer salaries and director compensation, closed yard locations, reduced third party expenses and streamlined operations, reduced capital expenditures and recorded impairment expenses.

For example, in response to COVID-19, we have reduced headcount, closed yard locations, reduced third-party expenses, streamlined operations, reduced capital expenditures and recorded impairment expenses.

The COVID-19 pandemic has spread across the globe and impacted financial markets and worldwide economic activity and adversely affected our operations.

In addition, the effects of COVID-19 and concerns regarding its global spread have negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility, impacted the operations and activity levels of our customers and materially and adversely affected the demand for oilfield services.

In addition, the effects of COVID-19 across the globe have negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility, impacted the operations and activity levels of our customers and materially and adversely affected the demand for oilfield services.

These factors may also negatively impact our current suppliers and their ability or willingness to provide the necessary equipment, parts or raw materials, and they may otherwise fail to deliver the products timely and in the quantities required.

Any resulting delays in the provision of our services could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Any resulting delays or restrictions from COVID-19 on the provision of our services could have a material adverse effect on our business, financial condition, results of operations and cash flows.

As the potential impact from COVID-19 is difficult to predict, the extent to which it may negatively affect our operating results or the duration of any potential business disruption is uncertain.

Any potential impact will depend on future developments and new information that may emerge regarding the severity and duration of COVID-19 and the actions taken by authorities to contain it or treat its impact, all of which are beyond our control.

Any potential impact will depend on future developments and new information that may emerge regarding the COVID-19 infection rate or the efficacy and distribution of COVID-19 vaccines, and the actions taken by authorities to contain it or treat its impact, all of which are beyond our control.

These potential impacts, while uncertain, could adversely affect our business, results of operations and financial condition.

Our business may be adversely affected by a deterioration in general economic conditions or a weakening of the broader energy industry.

A prolonged economic slowdown or recession in the United States, adverse events relating to the energy industry or regional, national and global economic conditions and factors, particularly a further slowdown in the exploration and production industry, could negatively impact our operations and therefore adversely affect our results.

The risks associated with our business are more acute during periods of economic slowdown or recession because such periods may be accompanied by decreased exploration and development spending by our customers, decreased demand for oil and natural gas and decreased prices for oil and natural gas.

The COVID-19 pandemic and the recent turmoil between the members of OPEC+ have caused oil prices to fall substantially and have impacted the global economy;

such factors have heightened the risk of a prolonged economic slowdown or recession in the United States.

The majority of our operations are located in the Permian Basin, making us vulnerable to risks associated with operating in one major geographic area.

Our operations are geographically concentrated in the Permian Basin.

For the years ended December 31, 2019 , 2018 and 2017 , approximately 99.4% , 99.0% and 97.0% , respectively, of our revenues were attributable to our operations

in the Permian Basin.

For the years ended December 31, 2020, 2019 and 2018, approximately 99.5%, 99.4% and 99.0%, respectively, of our revenues were attributable to our operations in the Permian Basin.

As a result of this concentration, we may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in the Permian Basin caused by significant governmental regulation, processing or transportation capacity constraints, market limitations, curtailment of production or interruption of the processing or transportation of oil and natural gas produced from the wells in these areas.

1 unchanged sentence

Due to the concentrated nature of our operations, we could experience any of the same conditions at the same time, resulting in a relatively greater impact on our revenue than they might have on other companies that have more geographically diverse operations.

We are exposed to the credit risk of our customers, and any material nonpayment or nonperformance by our customers could adversely affect our business, results of operations and financial condition.

We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers.

Our credit procedures and policies may not be adequate to fully eliminate customer credit risk.

If we fail to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration in their creditworthiness, any resulting increase in nonpayment or nonperformance by them and our inability to re‑market or otherwise use the production could have a material adverse effect on our business, results of operations and financial condition.

In weak economic environments, we may experience increased delays and failures to pay due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets or other sources of capital.

The decline in and unpredictable nature of oil and gas prices in 2019 and 2020 has negatively impacted the financial condition and liquidity of our customers, and future declines, sustained lower prices, or continued volatility could impact their ability to meet their financial obligations to us.

If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, results of operations, and financial condition.

We face significant competition that may cause us to lose market share, and competition in our industry has intensified during the industry downturn.

The oilfield services industry is highly competitive and has relatively few barriers to entry.

The principal competitive factors impacting sales of our services are price, reputation and technical expertise, equipment and service quality and health and safety standards.

The market is also fragmented and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that possess substantially greater financial and other resources than we do.

Our larger competitors’ greater resources could allow those competitors to compete more effectively than we can.

For instance, our larger competitors may offer services at below‑market prices or bundle ancillary services at no additional cost to our customers.

We compete with large national and multi‑national companies that have longer operating histories, greater financial, technical and other resources and greater name recognition than we do.

Several of our competitors provide a broader array of services and have a stronger presence in more geographic markets.

In addition, we compete with several smaller companies capable of competing effectively on a regional or local basis.

Some jobs are awarded on a bid basis, which further increases competition based on price.

Pricing is often the primary factor in determining which qualified contractor is awarded a job.

The competitive environment may be further intensified by mergers and acquisitions among oil and natural gas companies or other events that have the effect of reducing the number of available customers.

As a result of competition, we may lose market share or be unable to maintain or increase prices for our present services or to acquire additional business opportunities, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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

The amount of equipment available may exceed demand, which could result in active price competition.

In addition, some exploration and production companies have commenced completing their wells using their own hydraulic fracturing equipment and personnel.

Any increase in the development and utilization of in‑house fracturing capabilities by our customers could decrease the demand for our services and have a material adverse impact on our business.

Pressure on pricing for our services resulting from the industry downturn has impacted, and may continue to impact, our ability to maintain utilization and pricing for our services or implement price increases.

During periods of declining pricing for our services, we may not be able to reduce our costs accordingly, which could further adversely affect our results of operations.

Also, we may not be able to successfully increase prices without adversely affecting our utilization levels.

The inability to maintain our utilization and pricing levels, or to increase our prices as costs increase, could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, competition among oilfield service and equipment providers is affected by each provider’s reputation for safety and quality.

We cannot assure that we will be able to maintain our competitive position.

Our business may be adversely affected by a deterioration in general economic conditions or a weakening of the broader energy industry.

In 2020, the COVID-19 pandemic and the recent turmoil between the members of OPEC+ caused oil prices to fall substantially and have impacted the global economy;

such factors have heightened the risk of a prolonged economic slowdown or recession in the United States.

New technology may cause us to become less competitive.

1 unchanged sentence

As competitors and others use or develop new or comparable technologies in the future, we may lose market share or be placed at a competitive disadvantage.

The transition to lower emissions equipment is capital intensive and could require us to convert our conventional Tier II equipment to lower emissions equipment.

If we are unable to quickly transition to lower emissions equipment, the demand for our services could be adversely impacted.

For example, many E&P companies, including our customers, are transitioning to a lower emissions operating environment and may require us to invest in pressure pumping equipment with lower emissions profile.

Further, we may face competitive pressure to develop, implement or acquire and deploy certain technology improvements at a substantial cost, such as our new DuraStim® fleets or the cost of implementing or purchasing a technology like the new DuraStim® fleets may be substantially higher than anticipated, and we may not be able to successfully implement the DuraStim® fleets or other technologies we may purchase.

2 unchanged sentences

Limits on our ability to develop, effectively use and implement new and emerging technologies could have a material adverse effect on our business, financial condition, prospects or results of operations.

Our business depends upon our ability to obtain specialized equipment, parts and key raw materials, including frac sand and chemicals, from third‑party suppliers, and we may be vulnerable to delayed deliveries and future price increases.

We purchase specialized equipment, parts and raw materials (including, for example, frac sand, chemicals and fluid ends) from third party suppliers and affiliates.

At times during the business cycle, there is a high demand for hydraulic fracturing and other oilfield services and extended lead times to obtain equipment and raw materials needed to provide these services.

Should our current suppliers be unable or unwilling to provide the necessary equipment, parts or raw materials or otherwise fail to deliver the products timely and in the quantities required, any resulting delays in the provision of our services could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, future price increases for this type of equipment, parts and raw materials could negatively impact our ability to purchase new equipment, to update or expand our existing fleets, to timely repair equipment in our existing fleets or meet the current demands of our customers.

In addition, the COVID-19 pandemic may have a negative impact on our suppliers’ ability or willingness to provide necessary equipment, parts or raw materials, and they may otherwise fail to deliver the products timely and in the quantities required.

We may be required to pay fees to certain of our sand suppliers based on minimum volumes under long-term contracts regardless of actual volumes received.

We enter into purchase agreements with our sand suppliers (the “Sand suppliers”) to secure supply of sand as part of its normal course of business.

The agreements with the Sand suppliers require that we purchase a minimum volume of sand, constituting substantially all of its sand requirements, from the Sand suppliers, otherwise certain penalties may be charged.

Under certain of the purchase agreements, a shortfall fee applies if we purchase less than the minimum volume of sand.

The shortfall fee represents liquidated damages and is either a fixed percentage of the purchase price for the minimum volumes or a fixed price per ton of unpurchased volumes.

Under one of the purchase agreements, we are obligated to purchase a specified percentage of our overall sand requirements, or we must pay the supplier the difference between the purchase price of the minimum volumes under the purchase agreement and the purchase price of the volumes actually purchased.

Our minimum volume commitments under the purchase agreements are either based on a percentage of our total usage or fixed minimum quantity.

O ur agreements with the Sand suppliers expire at different times prior to April 30, 2022.

If the activity level of our customers declines and the demand for our services is materially and adversely affected, we may be required to pay for more sand from our Sand suppliers than we need in the performance of our services, regardless of whether we take physical delivery of such sand.

In such an event, we may be required to pay shortfall fees or other penalties under the purchase agreements, which could have a material adverse effect on our business, financial condition, or results of operations.

The decrease in our customers’ activity resulting from the COVID-19 pandemic and recent turmoil between the members of OPEC+, among other factors, has heightened the risk that we may be required to pay shortfall fees or other penalties to the Sand suppliers in the future.

Reliance upon a few large customers may adversely affect our revenue and operating results.

The majority of our revenue is generated from our hydraulic fracturing services.

Due to the large percentage of our revenue historically derived from our hydraulic fracturing services with recurring customers and the limited availability of our fracturing units, we have had some degree of customer concentration.

Our top ten customers represented approximately 95.5% , 85.5% and 87.0% of our consolidated revenue for the years ended December 31, 2019 , 2018 and 2017 , respectively.

It is likely that we will depend on a relatively small number of customers for a significant portion of our revenue in the future.

If a major customer fails to pay us, revenue would be impacted and our operating results and financial condition could be harmed.

Additionally, if we were to lose any material customer, we may not be able to redeploy our equipment at similar utilization or pricing levels and such loss could have an adverse effect on our business until the equipment is redeployed at similar utilization or pricing levels.

Certain of our completion services, particularly our hydraulic fracturing services, are substantially dependent on the availability of water.

Restrictions on our or our customers’ ability to obtain water may have an adverse effect on our financial condition, results of operations and cash flows.

Water is an essential component of unconventional shale oil and natural gas production during both the drilling and hydraulic fracturing processes.

Over the past several years, certain of the areas in which we and our customers operate have experienced extreme drought conditions and competition for water in such areas is growing.

In addition, some state and local governmental authorities have begun to monitor or restrict the use of water subject to their jurisdiction for hydraulic fracturing to ensure adequate local water supply.

For instance, some states require E&P companies to report certain information regarding the water they use for hydraulic fracturing and to monitor the quality of groundwater surrounding some wells stimulated by hydraulic fracturing.

Generally, our water requirements are met by our customers from sources on or near their sites, but there is no assurance that our customers will be able to obtain a sufficient supply of water from sources in these areas.

Our or our customers’ inability to obtain water from local sources or to effectively utilize flowback water could have an adverse effect on our financial condition, results of operations and cash flows.

We rely on a few key employees whose absence or loss could adversely affect our business.

Many key responsibilities within our business have been assigned to a small number of employees.

The loss of their services could adversely affect our business.

In particular, the loss of the services of one or more members of our executive team, such as our Chief Executive Officer, Chief Operating Officer, Senior Vice President of Operations, Chief Financial Officer, Chief Strategy and Administrative Officer, Chief Accounting Officer and General Counsel could disrupt our operations.

We do not maintain “key person” life insurance policies on any of our employees.

As a result, we are not insured against any losses resulting from the death of our key employees.

If we are unable to employ a sufficient number of skilled and qualified workers, our capacity and profitability could be diminished and our growth potential could be impaired.

The delivery of our services requires skilled and qualified workers with specialized skills and experience who can perform physically demanding work.

As a result of the volatility of the oilfield services industry and the demanding nature of the work, workers may choose to pursue employment in fields that offer a more desirable work environment at wage rates that are competitive.

Our ability to be productive and profitable will depend upon our ability to employ and retain skilled workers.

In addition, our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force.

As a result of the downturn in the oil and gas industry resulting from the COVID-19 pandemic and recent turmoil between the members of OPEC+, among other factors, we have made reductions in the size of workforce due to reduced demand for our services.

If demand for our services increases, we may experience difficulty in hiring or re-hiring skilled and unskilled workers in the future to meet that demand.

At times, the demand for skilled workers in our geographic areas of operations is high, and the supply is limited.

As a result, competition for experienced oilfield service personnel is intense, and we face significant challenges in competing for crews and management with large and well‑established competitors.

A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both.

Furthermore, a significant decrease in the wages paid by us or our competitors as a result of reduced industry demand could result in a reduction of the available skilled labor force, and there is no assurance that the availability of skilled labor will improve following a subsequent increase in demand for our services or an increase in wages.

If either of these events were to occur, our capacity and profitability could be diminished and our growth potential could be impaired.

Our operations require substantial capital and we may be unable to obtain needed capital or financing on satisfactory terms, or at all, which could limit our ability to grow.

3 unchanged sentences

We have historically financed capital expenditures primarily with funding from cash on hand, cash flow from operations, equipment and vendor financing and borrowings under our credit facility.

We may be unable to generate sufficient cash from operations and other capital resources to maintain planned or future levels of capital expenditures which, among other things, may prevent us from acquiring new equipment or properly maintaining our existing equipment.

With the current depressed oil and gas market conditions, our remaining availability under our ABL Credit Facility will be adversely impacted by the expected decline in our customers’ activity and we may be unable to borrow under our ABL Credit Facility if our eligible accounts receivable continues to decline.

Further, any disruptions or continuing volatility in the global financial markets may lead to an increase in interest rates or a contraction in credit availability impacting our ability to finance our operations.

For example, our borrowing base declined from $181.2 million as of December 31, 2019 to approximately $16.8 million as of June 19, 2020 due to decreased activity levels and the resulting decrease to our eligible accounts receivable.

Based on current and expected market conditions and customer activity levels, we expect our borrowing base to materially decline further in the near term.

With the current depressed oil and gas market conditions, our availability under our ABL Credit Facility has been adversely impacted by the expected decline in our customers’ activity and we may be unable to borrow under our ABL Credit Facility if our eligible accounts receivable continues to decline.

Further, any disruptions or continuing volatility in the global financial markets may lead to an increase in interest rates or a contraction in credit availabil ity impacting our ability to finance our operations.

For example, our borrowing base changed from $55.6 million as of December 31, 2020 to approximately $48.9 million as of March 3, 2021 due to a decrease in our eligible accounts receivable.

If our customer activity levels do not improve or decline in the future, our borrowing base could decline.

This could put us at a competitive disadvantage or interfere with our growth plans.

Further, our actual capital expenditures could exceed our capital expenditure budget.

In the event our capital expenditure requirements at any time are greater than the amount we have available, we could be required to seek additional sources of capital, which may include debt financing, joint venture partnerships, sales of assets, offerings of debt or equity securities or other means.

In the event our capital expenditure requirements at any time are greater than the amount of liquidity we have available, we could be required to seek additional sources of capital, which may include debt financing, joint venture partnerships, sales of assets, offerings of debt or equity securities or other means.

We may not be able to obtain any such alternative source of capital.

4 unchanged sentences

Concerns over general economic, business or industry conditions may have a material adverse effect on our results of operations, liquidity and financial condition.

Concerns over global economic conditions, geopolitical issues, public health crises (including the COVID-19 pandemic), interest rates, inflation, the availability and cost of credit and the United States and foreign financial markets have contributed to increased economic uncertainty and diminished expectations for the global economy.

Concerns over global economic conditions, geopolitical issues, public health crises (including the COVID-19 pandemic), interest rates, inflation, the availability and cost of credit in the United States and foreign financial markets have contributed to increased economic uncertainty and diminished expectations for the global economy.

These factors, combined with volatility in commodity prices, business and consumer confidence and unemployment rates, have precipitated an economic slowdown.

Concerns about global economic growth have had a significant adverse impact on global financial markets and commodity prices, including the significant decline in WTI oil prices beginning February 2020.

Concerns about global economic growth have had a significant adverse impact on global financial markets and commodity prices.

The decline in and unpredictable nature of oil and natural gas prices have caused a reduction in our customers’ spending and associated drilling and completion activities, which had and may continue to have an adverse effect on our revenue and cash flows.

9 unchanged sentences

• our business may not generate sufficient cash flow from operations to enable us to meet our obligations under our indebtedness.

Restrictions in our ABL Credit Facility (as defined herein) and any future financing agreements may limit our ability to finance future operations or capital needs or capitalize on potential acquisitions and other business opportunities.

Restrictions in our Asset Backed Loan (ABL) Credit Facility (as defined herein) and any future financing agreements may limit our ability to finance future operations or capital needs or capitalize on potential acquisitions and other business opportunities.

The operating and financial restrictions and covenants in our credit facility and any future financing agreements could restrict our ability to finance future operations or capital needs or to expand or pursue our business activities.

For example, our ABL Credit Facility restricts or limits our ability to:

• grant liens;

• incur additional indebtedness;

9 unchanged sentences

Further, our borrowing base, as redetermined monthly, is tied to 85.0% of eligible accounts receivable.

Changes to our operational activity levels have an impact on our total eligible accounts receivable, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Facility.

Based on current and expected market conditions and customer activity levels, we expect our borrowing base to materially decline further in the near term.

If our borrowing base is reduced below the amount of our outstanding borrowings, we will be required to repay the excess borrowings immediately on demand by the lenders.

Changes to our operational activity levels or customer concentration levels have an impact on our total eligible accounts receivable, which could result in significant changes to our borrowing base and therefore our availability under our ABL Credit Facility.

For example, our borrowing base changed from $55.6 million as of December 31, 2020 to approximately $48.9 million as of March 3, 2021 due to a decrease in our eligible accounts receivable.

If our customer activity declines in the future, our borrowing base could decline.

If our borrowing base is reduced below the amount of our outstanding borrowings, we will be required to re pay the excess borrowings immediately on demand by the lenders.

We might not have, or be able to obtain, sufficient funds to make these accelerated payments.

1 unchanged sentence

Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility and Other Financing Arrangements.”

We may become more leveraged and our indebtedness could adversely affect our operations and financial condition.

We may incur debt and our indebtedness could adversely affect our operations and financial condition.

Our business is capital intensive and we may seek to raise debt capital to fund our business and growth strategy.

14 unchanged sentences

Significant impairment charges or losses from asset sales as a result of a decline in market conditions or otherwise could have a material adverse effect on our results of operations in future periods.

For example, in 2019, we recorded an impairment charge related to our drilling and flowback assets of $3.4 million .

If the depressed oil and natural gas prices continue to trade at depressed price levels as experienced in the beginning of March 2020, and our equipment remains idle or under-utilized, the estimated fair value of such equipment may decline, which will result in additional impairment expense in the future.

During the first quarter of 2020, management determined the reductions in commodity prices driven by the potential impact of the novel COVID-19 virus and global supply and demand dynamics coupled with the sustained decrease in the Company’s share price were triggering events for goodwill and asset impairment.

As a result of the triggering events, we performed an interim goodwill impairment test on the hydraulic fracturing reporting unit and a recoverability tests on each of the assets groups.

As a result, we expect to recognize impairments and charges in the first quarter of 2020 as follows:

goodwill impairment of approximately $9.4 million;

drilling asset group impairment of approximately $1.1 million as a result of our recoverability tests;

write-off of $6.1 million of deposits related to options to purchase additional DuraStim® equipment for which options expire at various times through the end of April 2021 as it is not probable we would exercise our options due to the events described above.

If the depressed oil prices and the current economic conditions continue for a longer period of time, actual results may differ from estimates and future assumptions may change resulting in additional impairment charges in the future.

For example, in 2020, we recorded an impairment charge related to goodwill, our hydraulic fracturing and drilling assets, and deposits related to options to purchase additional DuraStim® equipment of $38.0 million.

If oil and natural gas prices trade at depressed price levels as experienced in the first half of 2020, and our equipment remains idle or under-utilized, the estimated fair value of such equipment may decline, which will result in additional impairment expense in the future.

Our operations are subject to unforeseen interruptions and hazards inherent in the oil and natural gas industry, for which we may not be adequately insured and which could cause us to lose customers and substantial revenue.

Our operations are exposed to the risks inherent to our industry, such as equipment defects, vehicle accidents, worksite injuries to our or third-party personnel, fires, explosions, blowouts, surface cratering, uncontrollable flows of gas or well fluids, pipe or pipeline failures, abnormally pressured formations and various environmental hazards, such as oil spills and releases of, and exposure to, hazardous substances.

For example, our operations are subject to risks associated with hydraulic fracturing, including any mishandling, surface spillage or potential underground migration of fracturing fluids, including chemical additives.

In addition, our operations are exposed to potential natural disasters, including blizzards, tornadoes, storms, floods, other adverse weather conditions and earthquakes.

The occurrence of any of these events could result in substantial losses to us due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean‑up responsibilities, regulatory investigations and penalties or other damage resulting in curtailment or suspension of our operations or the loss of

The cost of managing such risks may be significant.

19 unchanged sentences

Terrorist activities, the threat of potential terrorist activities, political or civil unrest and any resulting economic downturn could adversely affect our results of operations, impair our ability to raise capital or otherwise adversely impact our ability to realize certain business strategies.

Increasing trucking regulations may increase our costs and negatively impact our results of operations.

In connection with our business operations, including the transportation and relocation of our hydraulic fracturing equipment and shipment of frac sand, we operate trucks and other heavy equipment.

As such, we operate as a motor carrier in providing certain of our services and therefore are subject to regulation by the DOT and by various state agencies.

These regulatory authorities exercise broad powers, governing activities such as the authorization to engage in motor carrier operations, driver licensing, insurance requirements, financial reporting and review of certain mergers, consolidations and acquisitions, and transportation of hazardous materials.

Our trucking operations are subject to possible regulatory and legislative changes that may increase our costs.

Some of these possible changes include increasingly stringent environmental regulations, changes in the hours of service regulations which govern the amount of time a driver may drive or work in any specific period, onboard black box recorder device requirements or limits on vehicle weight and size.

Interstate motor carrier operations are subject to safety requirements prescribed by the DOT.

To a large degree, intrastate motor carrier operations are subject to state safety regulations that mirror federal regulations.

Matters such as the weight and dimensions of equipment are also subject to federal and state regulations.

From time to time, various legislative proposals are introduced, including proposals to increase federal, state, or local taxes, including taxes on motor fuels, which may increase our costs or adversely impact the recruitment of drivers.

We cannot predict whether, or in what form, any increase in such taxes applicable to us will be enacted.

Certain motor vehicle operators require registration with the DOT.

This registration requires an acceptable operating record.

The DOT periodically conducts compliance reviews and may revoke registration privileges based on certain safety performance criteria that could result in a suspension of operations.

We may be subject to claims for personal injury and property damage, which could materially adversely affect our financial condition and results of operations.

We operate with most of our customers under master service agreements (“MSAs”).

We endeavor to allocate potential liabilities and risks between the parties in the MSAs.

Generally, under our MSAs, including those relating to our hydraulic fracturing services, we assume responsibility for, including control and removal of, pollution or contamination which originates above surface and originates from our equipment or services.

Our customer assumes responsibility for, including control and removal of, all other pollution or contamination which may occur during operations, including that which may result from seepage or any other uncontrolled flow of drilling fluids.

We may have liability in such cases if we are negligent or commit willful acts.

Generally, our customers also agree to indemnify us against claims arising from their employees’ personal injury or death to the extent that, in the case of our hydraulic fracturing operations, their employees are injured or their properties are damaged by such operations, unless resulting from our gross negligence or willful misconduct.

Similarly, we generally agree to indemnify our customers for liabilities arising from personal injury to or death of any of our employees, unless resulting from gross negligence or willful misconduct of the customer.

our customers generally agree to indemnify us for loss or destruction of customer‑owned property or equipment and in turn, we agree to indemnify our customers for loss or destruction of property or equipment we own.

Losses due to catastrophic events, such as blowouts, are generally the responsibility of the customer.

However, despite this general allocation of risk, we might not succeed in enforcing such contractual allocation, might incur an unforeseen liability falling outside the scope of such allocation or may be required to enter into an MSA with terms that vary from the above allocations of risk.

Litigation arising from a catastrophic occurrence at a location where our equipment and services are being used may result in our being named as a defendant in lawsuits asserting large claims.

As a result, we may incur substantial losses which could materially and adversely affect our financial condition and results of operation.

We are subject to cyber security risks.

A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss.

The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain processing activities.

For example, we depend on digital technologies to perform many of our services and process and record operational and accounting data.

At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased.

government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats.

Our technologies, systems and networks, and those of our vendors, suppliers and other business partners, may become the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary information, personal information and other data, or other disruption of our business operations.

In addition, certain cyber incidents, such as unauthorized surveillance, may remain undetected for an extended period.

Our systems and insurance coverage for protecting against cyber security risks, including cyberattacks, may not be sufficient and may not protect against or cover all of the losses we may experience as a result of the realization of such risks.

As cyber incidents continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate the effects of cyber incidents.

We may grow through acquisitions and our failure to properly plan and manage those acquisitions may adversely affect our performance.

We have completed and may in the future pursue, asset acquisitions or acquisitions of businesses.

Any acquisition of assets or businesses involves potential risks, including the failure to realize expected profitability, growth or accretion;

environmental or regulatory compliance matters or liability;

title or permit issues;

the incurrence of significant charges, such as impairment of goodwill, or property and equipment or restructuring charges;

and the incurrence of unanticipated liabilities and costs for which indemnification is unavailable or inadequate.

The process of upgrading acquired assets to our specifications and integrating acquired assets or businesses may also involve unforeseen costs and delays or other operational, technical and financial difficulties and may require a significant amount of time and resources and may divert management’s attention from existing operations or other priorities.

We must plan and manage any acquisitions effectively to achieve revenue growth and maintain profitability in our evolving market.

Any failure to manage acquisitions effectively or integrate acquired assets or businesses into our existing operations successfully, or to realize the expected benefits from an acquisition or minimize any unforeseen operational difficulties, could have a material adverse effect on our business, financial condition, prospects or results of operations.

The SEC’s pending investigation, the Logan Lawsuit and the Shareholder Derivative Lawsuit could have a material adverse effect on our business, financial condition, results of operation, and cash flows.

In September 2019, a complaint, captioned Richard Logan, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v.

ProPetro Holding Corp., et al., (the “Logan Lawsuit”), was filed against the Company and certain of its then current and former officers and directors in the U.S.

District Court for the Western District of Texas.

In July 2020, the Logan Lawsuit Lead Plaintiffs Nykredit Portefølje Administration A/S, Oklahoma Firefighters Pension and Retirement System, Oklahoma Law Enforcement Retirement System, Oklahoma Police Pension and Retirement System, Oklahoma City Employee Retirement System and additional named plaintiff Police and Fire Retirement System of the City of Detroit, individually and on behalf of a putative class of shareholders who purchased the Company’s common stock between March 17, 2017 and March 13, 2020, filed a third amended class action complaint against the Company and certain of its then current and former officers and directors in the U.S.

District Court for the Western District of Texas, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule l0b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), based on allegedly inaccurate or misleading statements, or omissions of material facts, about the Company’s business, operations and prospects.

In August 2020, the Company filed a motion to dismiss the Logan Lawsuit and in September

2020, the plaintiffs filed their opposition.

In October 2020, the Company filed its reply brief in support of the motion to dismiss.

In May 2020, the U.S.

District Court for the Western District of Texas consolidated two shareholder derivative lawsuits previously filed against the Company and certain of its then current and former officers and directors into a single lawsuit captioned In re ProPetro Holding Corp.

Derivative Litigation (the “Shareholder Derivative Lawsuit”).

In August 2020, the plaintiffs in the Shareholder Derivative Lawsuit filed a consolidated complaint alleging (i) breaches of fiduciary duties, (ii) unjust enrichment and (iii) contribution.

The plaintiffs did not quantify any alleged damages in the complaint but, in addition to attorneys’ fees and costs, they seek various forms of relief, including (i) damages sustained by the Company as a result of the alleged misconduct, (ii) punitive damages and (iii) equitable relief in the form of improvements to the Company’s governance and controls.

In October 2020, the Company and other defendants filed motions to dismiss the Shareholder Derivative Lawsuit and in December 2020, the plaintiffs filed their opposition.

In January 2021, the Company and other defendants filed reply briefs in support of the motion to dismiss.

In October 2019, the Company received a letter from the SEC indicating that the SEC had opened an investigation into the Company, which followed the SEC’s issuance of a formal order of investigation, and requesting that the Company provide certain information and documents, including documents related to the Company’s expanded audit committee review and related events.

The Company has cooperated and expects to continue to cooperate with the SEC’s investigation.

We are presently unable to predict the duration, scope or result of the Logan Lawsuit, the Shareholder Derivative Lawsuit, the SEC investigation, or any other related lawsuit or investigation.

The ongoing SEC investigation, the Logan Lawsuit, the Shareholder Derivative Lawsuit, and any related future litigation give rise to risks and uncertainties that could adversely affect our business, results of operations and financial condition.

Such risks and uncertainties include, but are not limited to, uncertainty as to the scope, timing and ultimate findings of the matters under review by the SEC;

adverse effects of the investigation, including the potential impact to the Company or members of its management team in the event of an adverse outcome and on the market price of the Company’s common stock;

the costs and expenses of the SEC investigation, the Logan Lawsuit and the Shareholder Derivative Lawsuit, including legal fees and possible monetary penalties in the event of an adverse outcome;

the risk of additional potential litigation or regulatory action arising from these matters, including the Logan Lawsuit and the Shareholder Derivative Lawsuit, the timing of the review by, and the conclusions of, the Company’s independent registered public accounting firm regarding these matters;

the potential identification of additional deficiencies in internal controls over financial reporting or disclosure controls and procedures and the impact of the same;

and potential reputational damage that the Company may suffer as a result of these matters.

The SEC has a broad range of civil sanctions available should it commence an enforcement action, including injunctive relief, disgorgement, fines, penalties, or an order to take remedial action.

The imposition of any of these sanctions, fines, or remedial measures could have a material adverse effect on our business, results of operation and financial condition.

The outcome of the Logan Lawsuit, the Shareholder Derivative Lawsuit, and any other litigation is necessarily uncertain.

We could be forced to expend significant resources in the defense of these lawsuits or future ones, and we may not prevail.

We maintain director and officer insurance;

however, our insurance coverage is subject to certain exclusions (including, for example, any required SEC disgorgement or penalties) and we are responsible for meeting certain deductibles under the policies.

Moreover, we cannot assure you that our insurance coverage will adequately protect us from claims made in the Logan Lawsuit, the Shareholder Derivative Lawsuit, the SEC investigation or any future claims.

Further, as a result of the pending litigation and investigation the costs of insurance may increase and the availability of coverage may decrease.

As a result, we may not be able to maintain our current levels of insurance at a reasonable cost, or at all.

Risks Related to Customers, Suppliers and Competition

We face significant competition that may cause us to lose market share, and competition in our industry has intensified during the industry downturn.

The oilfield services industry is highly competitive and has relatively few barriers to entry.

The principal competitive factors impacting sales of our services are price, reputation and technical expertise, equipment and service

quality and health and safety standards.

Our larger competitors’ greater resources could allow those competitors to compete more effectively than we can.

For instance, our larger competitors may offer services at below‑market prices or bundle ancillary services at no additional cost to our customers.

We compete with large national and multi‑national companies that have longer operating histories, greater financial, technical and other resources and greater name recognition than we do.

Several of our competitors provide a broader array of services and have a stronger presence in more geographic markets.

In addition, we compete with several smaller companies capable of competing effectively on a regional or local basis.

Some jobs are awarded on a bid basis, which further increases competition based on price.

Pricing is often the primary factor in determining which qualified contractor is awarded a job.

The competitive environment may be further intensified by tighter emissions standards in the energy industry and mergers and acquisitions among oil and natural gas companies or other events that have the effect of reducing the number of available customers.