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Item 1. Business

2023-02-24 compared with 2022-03-04 · 176 added, 192 removed, 486 unchanged (43% of the section changed)

We are an integrated, growth-oriented energy services company focused on the construction and repair of the electric grid for private utilities, public investor-owned utilities and co-operative utilities through its infrastructure services businesses.

We also provide products and services to enable the exploration and development of North American onshore unconventional oil and natural gas reserves.

We are an integrated, growth-oriented energy services company focused on providing products and services to enable the exploration and development of North American onshore unconventional oil and natural gas reserve as well as the construction and repair of the electric grid for private utilities, public investor-owned utilities and co-operative utilities through our infrastructure services businesses.

Our primary business objective is to grow our operations and create value for stockholders through organic growth opportunities and accretive acquisitions.

Our suite of services includes infrastructure services, well completion services, natural sand proppant services, drilling services and other services.

Our infrastructure services division provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry.

Our suite of services includes well completion services, infrastructure services, natural sand proppant services, drilling services and other services.

Our well completion services division provides hydraulic fracturing, sand hauling and water transfer services.

Our infrastructure services division provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry.

Our natural sand proppant services division mines, processes and sells natural sand proppant used for hydraulic fracturing.

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In addition to these service divisions, we also provide aviation services, equipment rentals, remote accommodations and equipment manufacturing.

We believe that the services we offer play a critical role in maintaining and improving electrical infrastructure as well as in increasing the ultimate recovery and present value of production streams from unconventional resources.

We believe that the services we offer play a critical role in increasing the ultimate recovery and present value of production streams from unconventional resources as well as in maintaining and improving electrical infrastructure.

Our complementary suite of services provides us with the opportunity to cross-sell our services and expand our customer base and geographic positioning.

Our transformation towards an industrial based company is ongoing.

The growth of our industrial businesses is ongoing.

We offer infrastructure engineering services focused on the transmission and distribution industry and also have equipment manufacturing operations and offer fiber optic services.

Our equipment manufacturing operations provide us with the ability to repair much of our existing equipment in-house, as well as the option to manufacture certain new equipment we may need in the future.

The equipment manufacturing operations have initially served the internal needs for our water transfer, equipment rental and infrastructure businesses, but we expect to expand into third party sales in the future.

Our fiber optic services include the installation of both aerial and buried fiber.

We are continuing to explore other opportunities to expand our business lines as we shift to a broader industrial focus.

Our facilities and service centers are strategically located in Ohio, Texas, Oklahoma, Wisconsin, West Virginia, Kentucky, California, Colorado and Alberta, Canada primarily to serve the following areas:

We are continuing to explore other opportunities to expand our industrial business lines.

Our facilities and service centers are strategically located in Ohio, Texas, Oklahoma, Wisconsin, Kentucky, California, Colorado, Oregon, Indiana and Alberta, Canada primarily to serve the following areas:

• The Utica Shale in Eastern Ohio;

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• The oil sands in Alberta, Canada.

Our operational division heads have an extensive track record in the infrastructure and oilfield service businesses with an average of over 24 years of infrastructure services experience and over 29 years of oilfield services experience.

Our operational division heads have an extensive track record in the oilfield service and infrastructure businesses with an average of over 30 years of oilfield services experience and over 25 years of infrastructure services experience.

They bring valuable expertise and long-term customer relationships to our business.

We provide our infrastructure services to private utilities, public investor owned utilities, or IOUs, and cooperatives, or Co-Ops, and our well completion, natural sand proppant, drilling and other services to a diversified range of both public and private independent oil and natural gas producers.

We provide our well completion, natural sand proppant, drilling and other services to a diversified range of both public and private independent oil and natural gas producers and our infrastructure services to private utilities, public investor owned utilities, or IOUs, and cooperatives, or Co-Ops.

For the years ended December 31, 2022 and 2021, our top five customers represented 36% and 35%, respectively, of our revenue.

Recent Developments

Impact of the Ongoing COVID-19 Pandemic and Volatility in Commodity Prices

In March and April 2020, concurrent with the spread of COVID-19 and quarantine orders in the U.S.

and worldwide, oil prices dropped sharply to below zero for the first time in history due to factors including significantly reduced demand and a shortage of storage facilities.

Beginning in March 2020, in response to the COVID-19 pandemic and the depressed commodity prices, many exploration and production companies, including our customers, substantially reduced their capital expenditure budgets.

As a result, demand for our oilfield services declined at the end of the first quarter of 2020 and continued to decline further throughout the remainder of 2020.

Exploration and production companies set their 2021 budgets based on the prevailing prices for oil and gas at the time.

Although demand for oil and natural gas and commodity prices increased during the fourth quarter of 2021, these budgets for the publicly traded exploration and production companies remained relatively unchanged throughout 2021 with any excess cash flows used for debt repayment or shareholder returns rather than to increase production, as has been the case in the past.

Although activity levels for exploration and production companies increased during the fourth quarter of 2021 and early 2022 due to the improvement in the U.S.

and global economic activity, easing of the COVID-19 pandemic related restrictions, availability of vaccines and treatments and rising energy use and commodity prices, the emergence of the Delta COVID-19 variant in the latter part of 2021 and the subsequent surge of the highly transmissible Omicron variant continued to drive economic and pricing volatility and a cautious production outlook for 2022.

On July 18, 2021, the OPEC+ reached an agreement to phase out 5.8 million Bbl per day of oil production cuts by September 2022 as prices of crude oil reached their highest levels in more than two years.

Coordinated increases in oil supply by OPEC+ began in August 2021, increasing overall oil production by 400,000 Bbl per day on a monthly basis from that point forward.

Further, on January 4, 2022, OPEC+ agreed to continue to raise its output target by 400,000 Bbl per day in February 2022, which is expected to further boost oil supply in response to rising demand.

In its report issued on February 10, 2022, OPEC noted its expectation that world oil demand will rise by 4.15 million Bbl per day in 2022, as the global economy continues to post a strong recovery from the COVID-19 pandemic.

Although this demand outlook is expected to underpin oil prices, which have already seen a seven-year high in early 2022, we cannot predict the impact of these events on commodity prices and expect a competitive market for oilfield services for the foreseeable future.

Our Response to COVID-19 and Related Market Conditions

We have taken, and continue to take, responsible steps to protect the health and safety of our employees during the COVID-19 pandemic.

We are continue to monitor the adverse industry and market conditions resulting from the COVID-19 pandemic and have taken mitigating steps in an effort to preserve liquidity, reduce costs and lower capital expenditures.

For additional information, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations".

Our revenues, operating (loss) income and identifiable assets are primarily attributable to four reportable segments:

infrastructure services, well completion services, natural sand proppant services and drilling services.

Infrastructure Services

Our infrastructure services business provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry.

We offer a broad range of services on electric transmission and distribution, or T&D, networks and substation facilities, which include engineering, design, construction, upgrade, maintenance and repair of high voltage transmission lines, substations and lower voltage overhead and underground distribution systems.

Our commercial services include the installation, maintenance and repair of commercial wiring.

We also provide storm repair and restoration services in response to storms and other disasters.

We provide infrastructure services primarily in the northeast, southwest, midwest and western portions of the United States.

We currently have agreements in place with private utilities, public IOUs and Co-Ops.

Since we commenced operations in this line of business, a substantial portion of our infrastructure revenue has been generated from storm restoration work, primarily from the Puerto Rico Electric Power Authority, or PREPA, due to damage caused by Hurricane Maria.

On October 19, 2017, Cobra Acquisitions LLC, or Cobra, and PREPA entered into an emergency master services agreement for repairs to PREPA’s electrical grid.

The one-year contract, as amended, provided for payments of up to $945 million.

On May 26, 2018, Cobra and PREPA entered into a second one-year, $900 million master services agreement to provide additional repair services and begin the initial phase of reconstruction of the electrical power system in Puerto Rico.

Our work under each of the contracts with PREPA ended on March 31, 2019.

As of December 31, 2021, PREPA owed us approximately $227.0 million for services we performed, excluding $110.8 million of interest charged on these delinquent balances as of December 31, 2021.

Summary of Significant Accounting Policies—Accounts Receivable and Note 19.

Commitments and Contingencies to our consolidated financial statements and Item 1A.

“Risk Factors—Risks Related to Our Business and the Industries We Serve” included elsewhere in this annual report for more information regarding these delinquent balances as well as other legal actions and governmental investigations related to our work for PREPA.

Our crew count declined from approximately 100 crews as of December 31, 2020 to approximately 82 crews as of December 31, 2021.

Although the COVID-19 pandemic and resulting economic conditions have not had a material impact on demand or pricing for our infrastructure services, revenues for our infrastructure services have declined in 2021 as a result of certain management changes throughout the year, which resulted in crew departures, and a decline in storm restoration activities.

During the third quarter of 2021, we made leadership changes in our infrastructure group.

We are focused on cutting costs and enhancing accountability across the division, and we saw improvement in both areas throughout the fourth quarter of 2021.

Funding for projects in the infrastructure space remains strong with added opportunities expected in the second half of 2022 and into 2023 as a result of the Infrastructure Investment and Jobs Act, which was signed into law on November 15, 2021.

We continue to pursue opportunities within this sector as we strategically structure our service offerings for growth, intending to increase our infrastructure services activity and expand both our geographic footprint and depth of projects.

In late 2021, we were awarded a fiber installation contract which is expected to generate an aggregate of approximately $4.5 million in revenue over the next year.

Additionally, we were awarded a multi-year electric vehicle charging station engineering contract, which could generate up to $5.0 million in revenue and will run into 2024.

Both of these projects are currently in process.

We work for multiple utilities primarily across the northeastern, southwestern, midwestern and western portions of the United States.

We believe that we are well-positioned to compete for new projects due to the experience of our infrastructure management team, combined with our vertically integrated service offerings.

We are seeking to leverage this experience and our service offerings to grow our customer base and increase our revenues in the continental United States over the coming years.

We are also continuing to monitor the industry and market conditions resulting from the COVID-19 pandemic and have taken mitigating steps in an effort to preserve liquidity, reduce costs and lower capital expenditures.

These actions have included reducing headcount, adjusting pay and limiting spending.

We will continue to take further actions that we deem to be in the best interest of the Company and our stockholders if the adverse conditions recur.

Given the dynamic nature of these events, we are unable to predict the ultimate impact of the COVID-19 pandemic, the volatility in commodity markets, inflationary pressures, rising interest rates, any changes in the near-term or long-term outlook for our industries or overall macroeconomic conditions on our business, financial condition, results of operations, cash flows and stock price or the pace or extent of any subsequent recovery.

Although demand across our three largest segments has improved during 2022 and remained strong in the fourth quarter of 2022, we continue to address the external challenges in today’s economic environment as we remain disciplined with our spending and are focused on continuing to improve our operational efficiencies and cost structure and on enhancing value for our stockholders.

Our revenues, operating income (loss) and identifiable assets are primarily attributable to four reportable segments:

well completion services, infrastructure services, natural sand proppant services and drilling services.

Well Completion Services

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We have significant expertise in multistage fracturing of horizontal oil and natural gas producing wells in shale and other unconventional geological formations.

Currently, we provide pressure pumping services in the Utica Shale of Eastern Ohio and the mid-continent region in Oklahoma.

Currently, we provide pressure pumping services in the Utica Shale of Eastern Ohio, the Marcellus shale in the Appalachian Basin, and the mid-continent region in Oklahoma.

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

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Our customers are responsible for the disposal of the fracturing fluid that flows back out of the well as waste water.

customers remove the water from the well using a controlled flow-back process, and we are generally not involved in that process or in the disposal of the fluid.

The customers remove the water from the well using a controlled flow-back process, and we are generally not involved in that process or in the disposal of the fluid.

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

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As of December 31, 2022, our pressure pumping business included six high-pressure fleets consisting of an aggregate 128 high-pressure fracturing units with pump nameplate capacity of 310,000 horsepower.

Currently, two of the fleets are staffed and providing services in the northeast and midcontinent regions.

Over the past two years, we have converted 20 of our units to include dynamic gas blending, or DGB, capabilities to meet recent shifts in customer demand and are currently in the process of converting an additional 10 units.

Currently, five of our six pressure pumping

fleets are staffed and providing services in the northeast and mid-continent regions.

Over the past two years, we have converted 30 of our units to include dynamic gas blending, or DGB, capabilities to meet recent shifts in customer demand.

Further, subject to market conditions, supply chain constraints and liquidity requirements, we have plans to upgrade our sixth spread to Tier 4, dual fuel and put it into operation in the second half of 2023, as well as upgrade two existing spreads to Tier 2, dual fuel.

This would give us a total of four dual fuel fleets by year-end 2023.

See also “Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview of Our Industries—Oil and Natural Gas Industry” for additional information.

Sand Hauling .

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Generally, our MSAs, including those relating to our hydraulic fracturing services, specify payment terms, audit rights and insurance requirements and allocate certain operational risks through indemnity and similar provision.