What changed in this filing

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Item 1. Business

2023-02-23 compared with 2022-02-25 · 126 added, 102 removed, 177 unchanged (56% of the section changed)

We are a Midland, Texas‑based oilfield services company providing hydraulic fracturing and other complementary services to leading upstream oil and gas companies engaged in the exploration and production ("E&P") of North American oil and natural gas resources.

We are a leading integrated oilfield services company, located in Midland, Texas, focused on providing innovative hydraulic fracturing, wireline, and other complementary oilfield completion services to leading upstream oil and gas companies engaged in the exploration and production ("E&P") of North American oil and natural gas resources.

Our operations are primarily focused in the Permian Basin, where we have cultivated longstanding customer relationships with some of the region’s most active and well‑capitalized E&P companies.

The Permian Basin is widely regarded as one of the most prolific oil‑producing areas in the United States, and we believe we are one of the leading providers of hydraulic fracturing services in the region by hydraulic horsepower ("HHP").

Our total available HHP at December 31, 2021 wa s 1,423,000 HHP, which was comprised of 90 ,000 HHP of our Tier IV Dynamic Gas Blending ("DGB") equipment, 1,225,000 HHP of conventional Tier II equipment and 108,000 HHP of our DuraStim® electric hydraulic fracturing equipment.

Our fleet could range from approximately 50,000 to 80,000 HHP depending on the job design and customer demand at the wellsites.

With the industry transition to lower emissions equipment and simultaneous hydraulic fracturing ("Simul-Frac"), in addition to several other changes to our customers' job designs, we believe that our available fleet capacity could decline if we decide to reconfigure our fleets to increase active HHP and backup HHP at the wellsites.

In September 2021, we placed an order with our equipment manufacturers for 125,000 HHP of Tier IV DGB equipment for additional conversions, which we expect to be delivered at different times through the first half of 2022.

In 2019, we entered into a purchase commitment for 108,000 HHP of DuraStim® electric powered hydraulic fracturing equipment.

In addition to DuraStim® fleets, we are also evaluating other electric and alternative pressure pumping solutions.

In December 2021, we disposed of our two gas turbines initially purchased to provide electrical power to our DuraStim® fleets as we determined they were an inefficient power solution in the field.

In the future, we may lease electrical power equipment from a third party or rely on our customers to provide power solutions for our electric equipment.

Our competitors include many large and small oilfield services companies, including Halliburton Company, Liberty Oilfield Services Inc., Nextier Oilfield Solutions Inc., Patterson-UTI Energy Inc., RPC, Inc., FTS International Inc.

and a number of private and locally-oriented businesses.

The Permian Basin is widely regarded as one of the most prolific oil‑producing areas in the United States, and we believe we are one of the leading providers of completion services in the region.

On November 1, 2022, we consummated the acquisition of all of the outstanding limited liability company interests of Silvertip Completion Services Operating, LLC (the "Silvertip Acquisition"), which provides wireline perforation and ancillary services solely in the Permian Basin in exchange for 10.1 million shares of our common stock valued at $106.7 million, $30.0 million of cash, the payoff of $7.2 million of assumed debt, and the payment of certain other closing and transaction costs.

The Silvertip Acquisition positions the Company as a leading completions-focused oilfield services provider headquartered in the Permian Basin.

Our competitors include many large and small oilfield services companies, including Halliburton Company, Liberty Energy Inc., ProFrac Holding Corp., Nextier Oilfield Solutions Inc., Patterson-UTI Energy Inc., RPC, Inc., and a number of private and locally-oriented businesses.

The markets in which we operate are highly competitive.

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However, we have recently observed the energy industry and our customers shift to lower emissions equipment, which we believe will be an increasingly important factor in an E&P company's selection of a service provider.

The transition to lower emissions equipment has been challenging for companies in the service industry because of the capital requirements, and the depressed pricing experienced by the service industry.

The transition to lower emissions equipment has been challenging for companies in the service industry because of the capital requirements, lack of large scale deployment of certain new technology such as electric powered equipment, and the pricing for our services and expected return on invested capital.

While we seek to price our services competitively, we believe many of our customers elect to work with us based on our operational efficiencies, productivity, equipment quality, reliability, ability to manage multifaceted logistics challenges, commitment to safety and the ability of our people to handle the most complex Permian Basin well completions.

Our substantial market presence in the Permian Basin positions us well to capitalize on drilling and completion activity in the region.

Primarily, our operational focus has been in the Permian Basin's Midland sub-basin, where our customers have operated.

However, we have recently increased our operations in the Delaware sub-basin and are well-positioned to support further increases to our activity in this area in response to demand from our customers.

Our operational focus has primarily been in the Permian Basin's Midland sub-basin, where our customers have operated.

However, we have increased our operations in the Delaware sub-basin and are well-positioned to support further increases to our activity in this area in response to demand from our customers.

Over time, we expect the Permian Basin's Midland and Delaware sub-basins to continue to command a disproportionate share of future North American E&P spending.

Through our pressure pumping segment (which also includes our cementing operations), we primarily provide hydraulic fracturing services to E&P companies in the Permian Basin.

Our hydraulic fracturing fleet has been designed to handle the operating conditions commonly utilized in the Permian Basin and the region's increasingly high-intensity well completions (including Simul-Frac, which involves fracturing multiple wellbores at the same time), which are characterized by longer horizontal wellbores, more stages per lateral and increasing amounts of proppant per well.

In addition to our core pressure pumping segment operations, which includes our cementing operations, we also offer coiled tubing services.

Through our coiled tubing services segment, we seek to create operational efficiencies for our customers, which could allow us to capture a greater portion of their capital spending across the lifecycle of a well.

We primarily provide hydraulic fracturing, wireline, and cementing completion services to E&P companies in the Permian Basin.

Our equipment has been designed to handle the operating conditions commonly encountered in the Permian Basin and the region's increasingly high-intensity well completions (including Simul-Frac, which involves fracturing multiple wellbores at the same time), which are characterized by longer horizontal wellbores, more stages per lateral and increasing amounts of proppant per well.

Effective September 1, 2022, we disposed of our coiled tubing assets to STEP Energy Services (USA) L td.

("STEP") and shut down our coiled tubing operations.

We received approximately $2.8 million in cash and 2.6 million common shares of STEP, which have an estimated fair value of $11.8 million, as consideration.

Upon the sale of our coiled tubing assets, we recorded a loss on sale of $13.8 million .

Commodity Price and Other Economic Conditions

The oil and gas industry has traditionally been volatile and is influenced by a combination of long-term, short-term and cyclical trends, including domestic and international supply and demand for oil and gas, current and expected future prices for oil and gas and the perceived stability and sustainability of those prices, and capital investments of E&P companies toward their development and production of oil and gas reserves.

The oil and gas industry is also impacted by general domestic and international economic conditions such as supply chain disruptions and inflation, political instability in oil producing countries, government regulations (both in the United States and internationally), levels of consumer demand, adverse weather conditions, and other factors that are beyond our control.

The global public health crisis associated with the COVID-19 pandemic could continue to have an adverse effect on global economic activity for the foreseeable future.

The oil and gas industry has traditionally been volatile and is characterized by a combination of long-term, short-term and cyclical trends, including domestic and international supply and demand for oil and gas, current and expected future prices for oil and gas and the perceived stability and sustainability of those prices, and capital investments of E&P companies toward their development and production of oil and gas reserves.

The oil and gas industry is also impacted by general domestic and international economic conditions such as supply chain disruptions and inflation, war and political instability in oil producing

countries, government regulations (both in the United States and internationally), levels of consumer demand, adverse weather conditions, and other factors that are beyond our control.

The global public health crisis associated with the COVID-19 pandemic has had an adverse effect on global economic activity and the oil and gas industry in 2020 and 2021.

Some of the challenges resulting from the COVID-19 pandemic that have impacted our business include restrictions on movement of personnel and associated gatherings, shortage of skilled labor, cost inflation and supply chain disruptions.

Additionally, with most of the large, capitalized E&P companies in the United States, including our customers, closely managing their operating budget and exercising capital discipline, we do not currently expect significant increases in crude oil production over the short-to-medium term.

Furthermore, OPEC+ has indicated that they will continue with their plans to manage production levels by gradually increasing crude oil output.

With the tightness in crude oil production and growing demand for crude oil, there has been a significant increase in rig count and WTI crude oil prices have increased to ov er $90 per barrel in February 2022 from its lowest point of $20 per barrel in March 2020.

The Permian Basin rig count has increased significantly from approximately 179 at the beginning of 2021 to approximately 294 at the end of 2021, according to Baker Hughes.

Although crude oil prices are currently at a 7-year high, the oilfield services industry, including the pressure pumping segment, has not fully recovered as evidenced by continued depressed pricing for most of our services, and shortages of skilled labor force in the Permian Basin, coupled with rising inflationary costs.

However, we still believe that the Permian Basin, our primary area of operation, will be the most attractive basin to E&P companies and should command higher prices and associated profitability, if the overall demand for crude oil and our services continues to increase.

In light of the COVID-19 pandemic, most companies, including our customers in the Permian Basin, reacted by closely managing their operating budget and exercising capital discipline in 2020 and 2021.

In February 2022, Russia launched a large-scale invasion of Ukraine that has led to significant armed hostilities.

As a result, the United States, the United Kingdom, the member states of the European Union and other public and private sectors have levied severe sanctions on Russian financial institutions, businesses and individuals.

This conflict, and the resulting sanctions, have contributed to significant increases and volatility in the prices for oil and natural gas.

The geopolitical and macroeconomic consequences of this invasion and associated sanctions remain uncertain, and such events, or any further hostilities in Ukraine or elsewhere, could severely impact the world economy and the oil and gas industry and may adversely affect our financial condition.

The Russia-Ukraine war, and the adverse impacts of the COVID-19 pandemic in recent years, including inflation, have resulted in volatility in supply and demand dynamics for crude oil and associated volatility in crude oil pricing.

In 2022, West Texas Intermediate ( "WTI") average crude oil price was approximately $94 per barrel, which is the highest average price in the last nine years.

We believe that the recent surge in global crude oil prices is partly due to the lack of reinvestment in the oil and gas industry in the last two years, and increased demand for oil and gas products, coupled with the adverse impact of the Russia-Ukraine war, which has led to various sanctions on Russian crude oil supply and businesses.

With the significant increase in global crude oil prices, including WTI crude oil prices, there has been an increase in the Permian Basin rig count from approximately 179 at the beginning of 2021 to approximately 353 at the end of December 2022, according to Baker Hughes.

Following the increase in rig count and WTI crude oil price, the oilfield service industry has experienced increased demand for its oil well completion services, and improved pricing.

As a result of the growing demand for oil well completion services and significant cost inflation across the industry, we negotiated pricing increases with certain of our customers for our oil well completion services, depending on job design.

Although we are currently operating in an improved pricing environment compared to 2020 and 2021, the rapid increase in cost inflation and supply chain tightness could adversely impact our future profitability.

inflation rate has been steadily increasing since 2021.

These inflationary pressures have resulted in and may result in additional increases to the costs of our oilfield goods, services and personnel, which in turn cause our capital expenditures and operating costs to rise.

Sustained levels of high inflation have likewise caused the U.S.

Federal Reserve and other central banks to increase interest rates, and to the extent elevated inflation remains, we may experience further cost increases for our operations, including labor costs and equipment.

We cannot predict any future trends in the rate of inflation and a significant increase in inflation, to the extent we are unable to timely pass-through the cost increases to our customers, would negatively impact our business, financial condition and results of operations.

See Part II, Item 1A.

" Risk Factors—Continuing or worsening inflationary issues and associated changes in monetary policy have resulted in and may result in additional increases to the cost of our goods, services and personnel, which in turn cause our capital expenditures and operating costs to rise.

Government regulations and investors are demanding the oil and gas industry transition to a lower emissions operating environment, including the upstream and oilfield services companies.

As a result, we are working with our customers and equipment manufacturers to transition to a lower emissions profile.

Currently, a number of lower emission solutions for pumping equipment, including Tier IV DGB, electric, direct drive gas turbine and other technologies have been developed, and we expect additional lower emission solutions will be developed in the future.

As a result, we are working with our customers and equipment manufacturers to transition our equipment to a lower emissions profile.

Currently, a number of lower emission solutions for pumping equipment, including Tier IV Dynamic Gas Blending (" DGB ") , electric, direct drive gas turbine and other technologies have been developed, and we expect additional lower emission solutions will be developed in the future.

We are continually evaluating these technologies and other investment and acquisition opportunities that would support our existing and new customer relationships.

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Over time, we may be required to convert substantially all of our conventional Tier II equipment to lower emissions equipment.

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

The Permian Basin rig count increase, WTI crude oil price increase and costs inflation could be indicative of an energy market recovery.

I f the rig count and market conditions continue to improve, including improved customers' pricing and labor availability, and we are able to meet our customers' lower emissions equipment demands, we believe our operational and financial results will also continue to improve.

However, if market conditions do not improve, and we are unable to increase our pricing or pass-through future cost increases to our customers, there could be a material adverse impact on our business, results of operations and cash flows.

Refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for more discussions on our current and future business environment and financial performance.

We have historically conducted our business through three operating segments:

hydraulic fracturing, cementing, and coiled tubing.

For reporting purposes, the hydraulic fracturing and cementing operating segments are aggregated into one reportable segment—"Pressure Pumping".

Our coiled tubing operating segment and corporate administrative expense are aggregated into our "All Other" segment.

For additional financial information on our reportable segments, please see reportable segment information in Part II - Item 8, "Financial Statements and Supplementary Data."

Pressure Pumping

We have transitioned our active hydraulic fracturing equipment portfolio from approximately 10% lower emissions equipment in 2021 to approximately 35% in 2022, and expect to increase to approximately 65% in 2023.

The Permian Basin rig count increase, demand for oil and gas products, WTI crude oil price increase and costs inflation could be indicative of an energy market recovery.

I f the rig count and market conditions continue to improve, including improved customers' pricing and labor availability, and we are able to continue to meet our customers' lower emissions equipment demands, we believe our operational and financial results will also continue to improve.

However, if market conditions do not improve or decline in the future, and we are unable to increase our pricing or pass-through future cost increases to our customers, there could be a material adverse impact on our business, results of operations and cash flows.

Our results of operations have historically reflected seasonal tendencies, typically in the fourth quarter, relating to the holiday season, inclement winter weather and exhaustion of our customers' annual budgets.

As a result, we typically experience declines in our operating and financial results in November and December, even in a stable commodity price and operations environment.

We have historically conducted our business through five operating segments:

hydraulic fracturing, cementing, coiled tubing, drilling and flowback.

For reporting purposes, the hydraulic fracturing and cementing operating segments were aggregated into one reportable segment—"Pressure Pumping" while coiled tubing, drilling and flowback operating segments, and corporate administrative expenses were aggregated into the "All Other" category.

In connection with the Silvertip Acquisition, we now have a wireline operating segment which has been aggregated with Pressure Pumping.

Additionally, the divestitures of our coiled tubing operations in September 2022 and our drilling and flowback operations in 2020 resulted in the "All Other" category having no operating segments and therefore in 2022, our corporate administrative expenses were aggregated into "Pressure Pumping", and prior periods have been restated accordingly.

During the fourth quarter of 2022, we renamed our "Pressure Pumping" reportable segment to "Completion Services" since the Company is now positioned to provide highly complementary completion services to its customers and has significant cross-selling opportunities across its combined customer base.

For additional financial information on our reportable segments presentation, please see reportable segment information in Part II - Item 8, "Financial Statements and Supplementary Data."

Completion Services

Hydraulic Fracturing

We primarily provide hydraulic fracturing services to E&P companies in the Permian Basin.

We provide hydraulic fracturing services to E&P companies in the Permian Basin.

These services are intended to optimize hydrocarbon flow paths during the completion phase of horizontal shale wellbores.

We have significant expertise in multi‑stage fracturing of horizontal oil‑producing wells in unconventional geological formations.

Our total available HHP at December 31, 2021 was 1,423,000 HHP, which was comprised o f 90,000 HHP of our Tier IV DGB equipment, 1,225,000 HHP of conventional Tier II equipment and 108,000 HHP of our DuraStim® hydraulic fracturing equipment.

Our DuraStim® hydraulic fracturing equipment has been tested on a limited scale basis with certain of our customers and we are evaluating the appropriate strategy to continue such field testing, including whether field testing will be conducted in 2022.

The hydraulic fracturing process consists of pumping a fracturing fluid into a well at sufficient pressure to fracture the formation.

Our total available hydraulic horsepower ("HHP") at December 31, 2022 wa s 1,315,000 HHP, which was comprised of 252,500 HHP of our Tier IV DGB equipment and 1,062,500 HHP of convention al Tier II equipment.

An individual fleet could range from approximately 50,000 to 80,000 HHP depending on the job design and customer demand at the wellsite.

During the year ended December 31, 2022, we recorded an impairment with respect to our DuraStim® hydraulic fracturing pumps (108,000 HHP) that did not meet the manufacturer’s specifications or our expectations and have remained idled.

In addition, in September 2021, August 2022 and December 2022, we committed to additional conversions of our Tier II equipment to Tier IV DGB, and purchase of new Tier IV DGB equipment.

As such, we entered into conversion and purchase agreements with our equipment manufacturers for a total of 362,500 HH P of Tier IV DGB equipment and as of December 31, 2022, we have received 192,500 HH P of the converted and new Tier IV DGB equipment and expect to receive the remaining 170,000 HHP by the second quarter of 2023.

In August 2022 and December 2022, we entered into leases for four electric fleets of 60,000 HHP per fleet.

We expect to take delivery of the electric fleets at different times during the second half of 2023.

We have entered into a contract with a customer for the use of one of our electric hydraulic fracturing fleets to provide committed services for a period of three years after we take delivery of the fleet.

The hydraulic fracturing process consists of pumping fracturing fluid into a well at sufficient pressure to fracture the formation.

Materials known as proppants, which in our business are comprised primarily of sand, are suspended in the fracturing fluid and are pumped into the fracture to prop it open.

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We own and operate a fleet of mobile hydraulic fracturing units and other auxiliary equipment to perform fracturing services.

We also refer to all of our fracturing units, other equipment and vehicles necessary to perform a fracturing job as a " fleet " and the personnel assigned to each fleet as a " crew.

" On average, one hydraulic fracturing fleet consists of approximately 50,000 to 80,000 HHP , depending on job design and customer demand.

Our hydraulic fracturing units consist primarily of a high pressure hydraulic pump, diesel or dual gas engine, transmission and various hoses, valves, tanks and other supporting equipment like blenders, irons, hoses and datavans.

Our DuraStim® hydraulic fracturing fleet is electrically driven and can be powered by turbines, generators or similar equipment that can generate electricity.

In December 2021, we sold our two turbines for cash consideration of $36.0 million, and the net book value of the turbines prior to the sale was approximately $39.5 million.

Our two turbines were initially purchase d to provide power to our DuraStim® equipment.

In the future, we may lease or purchase alternative power solutions for our electric equipment.

We also refer to all of our fracturing units, other equipment and vehicles necessary to perform a fracturing job as a "fleet" and the personnel assigned to each fleet as a "crew." Our hydraulic fracturing units consist primarily of a high pressure hydraulic pumps, diesel or dual gas engines, transmissions and various hoses, valves, tanks and other supporting equipment like blenders, irons, hoses and datavans.

We provide dedicated equipment, personnel and services that are tailored to meet each of our customer’s needs.

Each fleet has a designated team of personnel, which allows us to provide responsive and customized services, such as project design, proppant and other consumables procurement, real‑time data provision and post‑completion analysis for each of our jobs.

Many of our hydraulic fracturing fleets and associated personnel have worked continuously with the same customer for the past several years promoting deep relationships and a high degree of coordination and visibility into future customer activity levels.

hydraulic fracturing fleets and associated personnel have worked continuously with the same customer for the past several years promoting deep relationships and a high degree of coordination and visibility into future customer activity levels.

Furthermore, in light of our substantial market presence and historically high fleet utilization levels, we have established a variety of trusted relationships with key equipment, sand and other downhole consumable suppliers.

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We believe that our cementing segment provides an organic growth opportunity for us to expand our service offerings within our existing customer base.

We provide wireline and ancillary services such as pumpdown on new oil well completions in the Permian Basin.

Wireline utilizes equipment with a drum of wireline to deploy perforating guns in the well to perforate the casing, cement, and formation.

Once the well is perforated, it is ready to be fractured.

Pumpdown utilizes pressure pumping equipment to pump water into the well to deploy or push the perforating guns attached to wireline through the lateral section of a well.

We own and operate a fleet of mobile wireline units and other auxiliary equipment to perform well completion services.

We also refer to our wireline units, pressure control equipment, other equipment and vehicles necessary to perform a job as a " spread " and the personnel assigned to the spread as a " crew.

" On average, one wireline spread consists of a wireline tractor truck with a large cab functioning as mobile office where the engineer controls the wireline spooled drum along with associated pressure control iron and equipment, trailers and vehicles.

We currently have 23 wireline units.

Other Services

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Due to its small diameter, coiled tubing can be inserted into existing production tubing and used to perform a variety of services (including drillout of plugs) to enhance the flow of oil or natural gas.

The principal advantages of using coiled tubing include the ability to (i) continue production from the well without interruption, thus reducing the risk of formation damage, (ii) move continuous coiled tubing in and out of a well significantly faster than conventional pipe used with a workover rig, which must be jointed and unjointed, (iii) direct fluids into a wellbore with more precision, allowing for improved stimulation fluid placement, (iv) provide a source of energy to power a downhole motor or manipulate downhole tools, and (v) enhance access to remote fields due to the smaller size and mobility.

Effective September 1, 2022, we shut down our coiled tubing operations and disposed of all of the assets.

Our Customers

Our customers consist primarily of oil and natural gas producers in North America.

Our top five customers accounted for approximately 85.7%, 86.5% and 77.1% of our revenue, for the years ended December 31, 2021, 2020 and 2019, respectively.

Our top five customers accounted for a pproximately 84.0%, 85.7% and 86.5% of our revenue, for the years ended December 31, 2022, 2021 and 2020, respectively.

For the year ended December 31, 2022, Pioneer Natural Resources USA Inc.

("Pioneer") and Endeavor Energy Resources accounted for 54.2% and 14.6%, respectively, of total revenue.

("Pioneer"), Endeavor Energy Resources and XTO Energy accounted for 33.1%, 28.3% and 15.0%, respectively, of total revenue.

No other customer accounted for more than 10% of our total revenue for the year ended December 31, 2022.

On March 31, 2022, we entered into an amended and restated pressure pumping services agreement (the "A&R Pressure Pumping Services Agreement") with Pioneer , which was initially entered into in connection with our purchase of certain pressure pumping assets and real property from Pioneer and Pioneer Pumping Services (the "Pioneer Pressure Pumping Acquisition") .

The A&R Pressure Pumping Services Agreement, which was effective from January 1, 2022 to December 31, 2022, reduced the number of contracted fleets to six fleets from eight fleets, modified the pressure pumping scope of work and pricing mechanism for contracted fleets, and replaced the idle fees arrangement with equipment reservation fees (the "Reservation fees").

As part of the Reservation fees arrangement, the Company was entitled to receive compensation for all eligible contracted fleets that were made available to Pioneer at the beginning of every quarter in 2022 through the term of the A&R Pressure Pumping Services Agreement.

The A&R Pressure Pumping Services Agreement expired at the conclusion of its term and was replaced by the Fleet One Agreement and the Fleet Two Agreement described below.

On October 31, 2022, we entered into two pressure pumping services agreements with Pioneer, pursuant to which we will provide hydraulic fracturing services with two committed fleets, subject to certain termination and release rights.

The Fleet One Agreement was effective as of January 1, 2023 and will terminate on August 31, 2023.

The Fleet Two Agreement was effective as of January 1, 2023 and was originally planned to terminate on the one year anniversary of the date on which the fleet dedicated thereunder converted from a Tier II diesel Simul-Frac fleet to a Tier IV dual fuel zipper fleet, which was expected to occur in May 2023.

In February 2023, Pioneer provided the Company notice (i) stating that Pioneer intended to release Fleet Two effective upon the completion of operations on the pad where the performance of Services (as defined in the Fleet Two Agreement) is in progress on May 12, 2023 (the “Release Date”) and (ii) requesting that the Company agree to the termination of the Fleet Two Agreement as of the Release Date.

The Company agreed with such request, and, as a result, the Fleet Two Agreement will be terminated as of the Release Date.

The markets in which we operate are highly competitive.

To be successful, an oilfield services company must provide services that meet the specific needs of oil and natural gas E&P companies at competitive prices.

To be successful, an oilfield services company must provide services and equipment that meet the specific needs of oil and natural gas E&P companies at competitive prices.

Competitive factors impacting sales of our services are price, reputation, technical expertise, emissions profile, service and equipment design and quality, and health and safety standards.

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The transition to lower emissions equipment has been challenging for companies in the oilfield service industry because of the capital requirements and the continuing depressed pricing experienced by the service industry.

The transition to lower emissions equipment has been challenging for companies in the oilfield service industry because of the capital requirements.

While we seek to price our services competitively, we believe many of our customers elect to work with us based on our operational efficiencies, productivity, equipment portfolio and quality, reliability, ability to manage multifaceted logistics challenges, commitment to safety and the ability of our people to handle the most complex Permian Basin well completions.

We provide our services primarily in the Permian Basin, and we compete against different companies in each service and product line we offer.

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

Our major competitors for hydraulic fracturing services include Halliburton Company, Liberty Oilfield Services Inc., Nextier Oilfield Solutions Inc., Patterson‑UTI Energy Inc., RPC, Inc., FTS International, Inc.

and a number of private and locally-oriented businesses.

Our results of operations have historically reflected seasonal tendencies, generally in the fourth quarter, relating to the conclusion of our customers’ annual capital expenditure budgets, the holidays and inclement winter weather during which we may experience declines in our operating results.

Our major competitors include Halliburton Company, Liberty Energy Inc., ProFrac Holding Corp., Nextier Oilfield Solutions Inc., Patterson‑UTI Energy Inc., RPC, Inc., and a number of private and locally-oriented businesses.

Operating Risks and Insurance

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Further, we have pollution legal liability coverage for our business entities, which would cover, among other things, third party liability and costs of clean up relating to environmental contamination on our premises while our equipment is in transit and on our customers’ job site.

With respect to our hydraulic fracturing operations, coverage would be available under our pollution legal liability policy for any surface or subsurface environmental clean‑up and liability to third parties arising from any surface or subsurface contamination.

We also have certain specific coverages for some of our businesses, including our hydraulic fracturing services.

With respect to our operations, coverage would be available under our pollution legal liability policy for any surface or subsurface environmental clean‑up and liability to third parties arising from any surface or subsurface contamination.

We also have certain specific coverages for some of our businesses, including our hydraulic fracturing and wireline services.

We maintain directors and officers 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 or any future claims.

Moreover, we cannot assure you that our insurance coverage will adequately protect us from all future claims.

Although we maintain insurance coverage of types and amounts that we believe to be customary in the industry, we are not fully insured against all risks, either because insurance is not available or because of the high premium costs relative to perceived risk.

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Changes in environmental, health and safety laws and regulations occur frequently, and any changes that result in more stringent and costly requirements could materially adversely affect our operations and financial position.

For example, following the election of President Biden and Democratic control in both houses of Congress, it is possible that our operations may be subject to greater environmental, health and safety restrictions, particularly with regards to hydraulic fracturing, permitting and greenhouse gases ( " GHG " ) emissions.

For example, following the election of President Biden and passage of laws such as the IRA 2022, it is possible that our operations may be subject to greater environmental, health and safety restrictions, particularly with regards to hydraulic fracturing and wireline, permitting and greenhouse gases ( " GHG " ) emissions.

We have not experienced any material adverse effect from compliance with current requirements;

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Any such changes in these laws and regulations could have a material adverse effect on our capital expenditures and operating expenses.

Although we do not believe the current costs of managing our wastes, as presently classified, to be significant, any legislative or regulatory reclassification of oil and natural gas exploration and production wastes could increase our costs to manage and dispose of such wastes.

Although we do not believe the current costs of managing our wastes, as presently classified, to be significant, any

legislative or regulatory reclassification of oil and natural gas exploration and production wastes could increase our costs to manage and dispose of such wastes.

Remediation of Hazardous Substances.

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Climate Change.

In the United States, no comprehensive climate change legislation has been implemented at the federal level.

However, following the U.S.

Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the EPA has adopted regulations 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 in the United States, implement New Source Performance Standards directing the reduction of certain pollutants from certain new, modified, or reconstructed facilities in the oil and natural gas sector, and together with the Department of Transportation ("DOT"), implementing GHG emissions limits on

vehicles manufactured for operation in the United States.

In the United States, no comprehensive climate change legislation has been implemented at the federal level, though recently passed laws such as the IRA 2022 advance numerous climate-related objectives.

Additionally, following the U.S.

In September 2020, the Trump Administration revised prior regulations to rescind certain methane standards and remove the transmission and storage segments from the source category for certain regulations.

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Congress approved, and President Biden signed into law, a resolution under the Congressional Review Act to repeal the September 2020 revisions to the methane standards, effectively reinstating the prior standards.

Additionally in November 2021, the EPA issued a proposed rule that, if finalized, would establish OOOO(b) new source and OOOO(c) first-time existing source of standards of performance for methane and volatile organic compound emissions for oil and gas facilities.

Operators of affected facilities will have to comply with specific standards of performance to include leak detection using optical gas imaging and subsequent repair equipment, and reduction of emissions by 95% through capture and control systems.

The EPA plans to issue a supplemental proposal in 2022 containing additional requirements not included in the November 2021 proposed rule and anticipates the issuance of a final rule by the end of the year.

Additionally, the EPA has proposed more recent rules covering the standards of performance for methane and volatile organic compounds emissions for oil and gas facilities, including leak detection, monitoring and repair, and a "super-emitter" response program to timely mitigate emissions events as detected by governmental agencies or qualified third parties.

Certain of these requirements are currently subject to public comment, and the rule is expected to be finalized in 2023;

however, it is likely that these requirements will be subject to legal challenge.

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 such as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions.

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Following President Biden’s executive order in January 2021, the United States rejoined the Paris Agreement and, in April 2021, established a goal of reducing economy-wide net GHG emissions 50-52% below 2005 levels by 2030.

Additionally, at the 26th Conference of the Parties (“COP26”) in Glasgow in November 2021, the United States and the European Union jointly announced the launch of the Global Methane Pledge;

an initiative 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.

Some countries, including the United States, have additionally made commitments to reduce global methane

emissions through initiatives such as the Global Methane Pledge, and have been called upon to phase out inefficient fossil fuel subsidies.

However, the impacts of these actions are unclear at this time.

For more information, see our risk factors titled "Our and our customers’ operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide" and "The IRA 2022 could accelerate the transition to a low carbon economy and could impose new costs on our customers’ operations."

Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States, including climate-change-related pledges made by certain candidates for public office.

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Such physical risks may result in damage to our customers’ facilities or otherwise adversely impact our operations, such as if facilities are subject to water use curtailments in response to drought, or demand for our customers’ products, such as to the extent warmer winters reduce the demand for energy for heating purposes, which may ultimately reduce demand for the products and services we provide.

Such physical risks may also impact our suppliers, which may adversely affect out ability to provide our products and services.

Such physical risks may also impact our suppliers, which may adversely affect our ability to provide our products and services.

Extreme weather conditions can interfere with our operations and increase our costs, and damage resulting from extreme weather may not be fully insured.

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Similar protections are offered to migratory birds under the Migratory Bird Treaty Act and various state analogs.

Fish and Wildlife Service ( " FWS " ) may identify previously unidentified endangered or threatened species or may designate

critical habitat and suitable habitat areas that it believes are necessary for survival of a threatened or endangered species.

Fish and Wildlife Service ( " FWS " ) may identify previously unidentified endangered or threatened species or may designate critical habitat and suitable habitat areas that it believes are necessary for survival of a threatened or endangered species.

For example, the dunes sagebrush lizard, which is found only in the active and semi-stable shinnery oak dunes of southeastern New Mexico and adjacent portions of Texas (including areas where our customers operate), was a candidate species for listing under the ESA by the FWS for many years.

As a result of a recent settlement with certain environmental groups, the FWS, in July 2020, acted on a petition to list the dunes sagebrush lizard finding sufficient information to warrant a formal one-year review to consider listing the species.

While that deadline has been missed, the listing review is reportedly ongoing;

While that deadline has been missed, the listing review is reportedly ongoing and a decision is expected in June 2023;

additionally, FWS has also solicited comments on a proposed conservation agreement that would implement certain protective practices for the species and authorize incidental take of the species resulting from certain covered activities, including exploration and development of oil and gas fields.

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However, federal agencies have asserted regulatory authority over certain aspects of the process.

For example, the EPA has previously issued a series of rules under the CAA that establish new emission control requirements for certain oil and natural gas production and natural gas processing operations and associated equipment.

Separately, the Bureau of Land Management ( " BLM " ) previously finalized a rule governing hydraulic fracturing on federal lands, but that rule was subsequently rescinded.

Although several of these rulemakings have been rescinded, modified or subjected to legal challenges, new or more stringent regulations may be promulgated by the Biden administration.

For example, in January 2021, President Biden issued an executive order suspending new leasing activities, but not operations under existing leases, for oil and gas exploration and production on non-Indian federal lands pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices that take into consideration potential climate and other impacts associated with oil and gas activities on such lands and waters.

Although the federal court for the Western District of Louisiana issued a preliminary injunction against the leasing pause, in response to the executive order, the Department of the Interior ( " DOI " ) issued a report recommending various changes to the federal leasing program, though many such changes would require Congressional action.

Although several of these rulemakings have been rescinded, modified or subjected to legal challenges, new or more

stringent regulations may be promulgated by the Biden administration.

For example, the Bureau of Land Management (“BLM”) recently proposed a rule that would limit flaring from well sites on federal 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 Biden Administration has also called for revisions and restrictions to the leasing and permitting programs for oil and gas development on federal lands and, for a time, suspended federal oil and gas leasing activities.

The Department of the Interior ( " DOI " ) has also issued a report recommending various changes to the federal leasing program, though many such changes would require Congressional action.

As a result, we cannot predict the final scope of regulations or restrictions that may apply to oil and gas operations on federal lands.

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In addition, the Oklahoma Corporation Commission’s Oil and Gas Conservation Division has previously issued an order limiting future increases in the volume of oil and natural gas wastewater injected into the ground in an effort to reduce the number of earthquakes in the state.

The Texas Railroad Commission ( "TRRC") has adopted similar rules and, in September 2021, issued a notice to disposal well operators in the Gardendale Seismic Response Area near Midland, Texas to reduce daily injection volumes following multiple earthquakes above a 3.5 magnitude over an 18 month period.

The notice also required disposal well operators to provide injection data to TRRC staff to further analyze seismicity in the area.

Subsequently, the TRRC ordered the indefinite suspension of all deep oil and gas produced water injection wells in the area, effective December 31, 2021.

While we cannot predict the ultimate outcome of these actions, any action that temporarily or permanently restricts the availability of disposal capacity for produced water or other oilfield fluids may increase our customers’ costs or require them to suspend operations, which may adversely impact demand for our products and services.

The Texas Railroad Commission ( "TRRC") has adopted similar rules including the indefinite suspension of all deep oil and gas produced water injection wells in certain areas covered by the TRRC’s seismic response program.

Increased regulation of hydraulic fracturing and related activities could subject us and our customers to additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and record keeping obligations, and plugging and abandonment requirements.

New requirements could result in increased operational costs for us and our customers, and reduce the demand for our services.

For more information on each of these items, see our risk factor titled "Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays."

OSHA Matters.

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As of December 31, 2022, we employed approximatel y 2,000 people , none of which are unionized.

Of the total population over 80% of our headcount worked for or supports our pressure pumping segment.

All of our employees work for or support our Completion Services reportable segment.

Our employees are a key component of our ability to attract and retain customers as a result of their operational excellence in the field.

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• Professional Development.

In 2022, ProPetro launched a leadership training initiative for all positions that are responsible for supervision and oversight of other employees.

This effort includes development of 255 frontline and above leadership positions over a seven month period.

In 2021, ProPetro introduced a Tuition Reimbursement Program to encourage employees to pursue professional development interests that will help strengthen skills and competencies required for their current position or future roles in the business.

This program is designed to provide assistance and offset related training expense.

• Health, Wellness and Benefits.

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The Company provides employees with the ability to participate in health and welfare plans, including medical, dental, life, accidental death and dismemberment and short-term and long-term disability insurance plans.

Since the beginning of COVID-19, we have implemented processes and procedures to help address COVID-19 matters.

Below are some of the adjustments we made to address the COVID-19 pandemic;

◦ instituted periodic update, guidelines and questionnaires to all employees to address and identify COVID-19 related matters;

◦ initially instituted a temporary remote work environment in response to COVID-19 and have retained the flexibility for employees to work remotely when necessary or advisable;

◦ encouraged all employees to adhere to guidelines provided by the Centers for Disease Control and Prevention;

◦ provided coverage for COVID-19 testing and vaccination under the Company’s medical plan at no cost to our employees.

In 2021, we performed an extensive review of our health-related benefits program to ensure that our offerings are market competitive and effectively utilized by employees.

Based on that review, we made comprehensive adjustments to our health-related benefits programs, which improved the cost and quality of coverage.

We periodically review of our health-related benefits program to ensure that our offerings are market competitive and effectively utilized by employees.

Based on our recent review, we made comprehensive adjustments to our health-related benefits programs, which improved the cost and quality of coverage.

We significantly increased the number of employee meetings to provide education and encourage individuals to maximize the value of benefits offered, resulting in an overall increase in participation and positive feedback from employees.

We have also recently initiated a plan to review our 401(k) plan and implement improvements in 2022 with a focus on improving plan structure, reducing program administration, providing employee education and increasing plan participation.

In 2022, we implemented improvements to our 401(k) plan with a focus on improving plan structure, allowing for immediate vesting of employer’s contributions, reducing program administration, providing employee education and increasing plan participation.

We also implemented an hourly bonus structure in 2022 to provide greater reward and recognition and improve employee retention.

For hydraulic fracturing field employees and related field support positions, a performance element was included to drive key operating metrics.

Availability of Filings

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the " Exchange Act " ), are made available free of charge on our internet web site at www.propetroservices.com, as soon as reasonably practicable after we have electronically filed the material with, or furnished it to, the SEC.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the " Exchange Act " ), are made available free of charge on our internet website at www.propetroservices.com, as soon as reasonably practicable after we have electronically filed the material with, or furnished it to, the SEC.

The SEC maintains an internet site that contains our reports, proxy and information statements and our other SEC filings.

The address of that web site is www.sec.gov.

The address of that website is www.sec.gov.

Please note that information contained on our website, whether currently posted or posted in the future, is not a part of this Annual Report or the documents incorporated by reference in 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