10-K
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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

 

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended December 31, 2023

Or

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from ________ to _______

Commission File No. 001-34037

SUPERIOR ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware

87-4613576

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1001 Louisiana Street, Suite 2900

Houston, TX

77002

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (713) 654-2200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

None

N/A

None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated Filer ¨

Non-accelerated filer x

Smaller reporting company ¨

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ¨ No x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There is no market for the registrant’s securities.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

 

The number of shares of the registrant's Class A Common Stock outstanding on March 7, 2024 was 20,174,135

 

 

DOCUMENTS INCORPORATED BY REFERENCE

Not applicable.

 

 

 

 


 

Table of Contents

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

Page

PART I

 

 

 

 

 

 

 

Item 1

Business

5

 

Item 1A

Risk Factors

10

 

Item 1B

Unresolved Staff Comments

22

 

Item 1C

Cybersecurity

22

 

Item 2

Properties

23

 

Item 3

Legal Proceedings

23

 

Item 4

Mine Safety Disclosures

23

 

 

 

 

PART II

 

 

 

 

 

 

 

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

24

 

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

33

 

Item 8

Financial Statements and Supplementary Data

34

 

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

71

 

Item 9A

Controls and Procedures

71

 

Item 9B

Other Information

72

 

Item 9C

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

72

 

 

 

PART III

 

 

 

 

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

72

 

Item 11

Executive Compensation

74

 

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

87

 

Item 13

Certain Relationships and Related Transactions, and Director Independence

88

 

Item 14

Principal Accounting Fees and Services

88

 

 

 

 

PART IV

 

 

 

 

 

 

 

Item 15

Exhibits, Financial Statement Schedules

89

 

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FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”) and other documents filed by us with the Securities and Exchange Commission (the “SEC”) contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks”, “will” and “estimates,” variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements other than statements of historical fact included in this Form 10-K or such other materials regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of their experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:

 

the difficulty to predict our long-term liquidity requirements and the adequacy of our capital resources;
restrictive covenants in the Credit Facility (as defined within) could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests;
the conditions in the oil and gas industry;
U.S. and global market and economic conditions, including impacts relating to inflation, interest rates and supply chain disruptions;
the effects of public health threats, pandemics and epidemics, and the adverse impact thereof on our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demand and industry demand generally, margins, utilization, cash position, taxes, the price of our securities, and our ability to access capital markets;
the ability of the members of Organization of Petroleum Exporting Countries (“OPEC+”) to agree on and to maintain crude oil price and production controls;
operating hazards or other risks, including the significant possibility of accidents resulting in personal injury or death, or property damage or other claims or events for which we may have limited or no insurance coverage or indemnification rights;
the possibility of not being fully indemnified against losses incurred due to catastrophic events;
cost and availability of insurance;
claims, litigation or other proceedings that require cash payments or could impair financial condition;
credit risk associated with our customer base;
the effect of regulatory programs and environmental matters on our operations or prospects;
the impact that unfavorable or unusual weather conditions could have on our operations;
the potential inability to retain key employees and skilled workers;
political, legal, economic and other uncertainties (such as the war in Ukraine and conflict in Israel and broader geopolitical tensions in the Middle East and eastern Europe) associated with our international operations could materially restrict our operations or expose us to additional risks;
potential changes in tax laws, adverse positions taken by tax authorities or tax audits impacting our operating results;
changes in competitive and technological factors affecting our operations;
risks associated with the uncertainty of macroeconomic conditions worldwide (such as capital and credit markets conditions, inflation and interest rates);
risks to our operations and related infrastructure, or that of our business associates, from potential cyber-attacks;
counterparty risks associated with reliance on key suppliers;
challenges with estimating our potential liabilities related to our oil and natural gas property;
risks associated with potential changes of Bureau of Ocean Energy Management (“BOEM”) security and bonding requirements for offshore platforms;
the likelihood that the interests of our significant stockholders may conflict with the interests of our other stockholders;
the risks associated with owning our Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), for which there is no public market;
the potential that our internal controls may not be adequate, weaknesses may be discovered or remediation of any identified weaknesses may not be successful and the impact these could have on our stock price; and
the likelihood that our stockholders agreement may prevent certain transactions that could otherwise be beneficial to our stockholders.

 

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These risks and other uncertainties related to our business are described in detail below in Part I, Item 1A of this Form 10-K. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after such statements are made, including for example the market prices of oil and gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business strategies and plans (including our capital spending and capital allocation plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results. For all these reasons, actual events and results may differ materially from those anticipated, estimated, projected or implied by us in our forward-looking statements. We undertake no obligation to update any of our forward-looking statements for any reason, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 

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PART I

 

Item 1. Business

 

General

 

We are a global oilfield products and services company with a portfolio of premier rental and well servicing brands providing customers with robust inventory, expedient delivery, engineered solutions and expert consultative service — all aligned with enterprise-wide Shared Core Values for safe, sustainable operations, corporate citizenship and a commitment to free cash flow generation and value creation.

 

From drilling equipment rentals to oilfield services, our portfolio of global companies provides highly specialized solutions for maintaining safety, efficiency, profitability, and ESG compliance.

 

Products and Services

 

Combining financial discipline with corporate services expertise, we maintain a strategy focused on businesses critical to our customers' success. We support our portfolio of brands with the necessary resources and leadership so they can add value to our customers’ operations with an emphasis on quality, safety, and sustainability.

 

Rentals

 

Our rentals services brands offer value-added products and services to meet a wide range of project needs. With a long history of delivering maximum value, these brands help customers and vendor partners achieve safety, efficiency and sustainability goals. Our rental segment operates with low labor intensity and a substantial catalog of product offerings.

The products and service offerings of Rentals are:

Engineering and design services;
Rental of premium downhole tubulars, drill pipe and handling accessories;
manufacturing and rental of bottom hole assembly accessories;
rentals of offshore accommodation units.

 

Well Services

 

Our Well Services brands provide specialized solutions for drilling, production, completion and decommissioning. They have a proven track record of meeting operators’ expectations and delivering the products and expertise success demands. Among our customers and vendor partners, these brands have a history of strong, collaborative relationships.

The products and service offerings of Well Services are:

 

Risk management, well control and training solutions;
Hydraulic workover and snubbing services;
Engineering and manufacturing of premium completion tools;
Cementing, wireline, and coil tubing services with operations in Latin America and Kuwait.

 

Emergence from Voluntary Reorganization under Chapter 11

On December 7, 2020, certain of our direct and indirect wholly-owned domestic subsidiaries filed petitions for reorganization under the provisions of Chapter 11 of the Bankruptcy Code and, in connection therewith, filed the proposed Joint Prepackaged Plan of Reorganization (as amended, modified or supplemented from time to time, the “Plan”). On February 2, 2021 (the “Emergence Date”), the conditions to the effectiveness of the Plan were satisfied and we emerged from Chapter 11.

As used herein, “we,” “us,” “our” and similar terms refer to (i) prior to the Emergence Date, SESI Holdings, Inc. and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. and its subsidiaries (“Successor”).

As used herein, the following terms refer to our operations:

 

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“Predecessor Period”

January 1, 2021 through February 2, 2021

“Successor Period”

February 3, 2021 through December 31, 2021

“Prior Year”

January 1, 2022 through December 31, 2022

“Current Year”

January 1, 2023 through December 31, 2023

 

Customers

 

Our customers are major and independent oil and gas companies that are active in the geographic areas in which we operate. There were no customers that exceeded 10% of our total revenues in 2023, 2022 or 2021. A reduction in sales to any of our existing large customers could have a material adverse effect on our business and operations.

 

Competition

 

We provide products and services worldwide in highly competitive markets, with competitors comprised of both small or regionally focused companies in our Rentals segment, and large or international companies in our Well services segment. Our revenues and earnings can be affected by several factors, including but not limited to changes in competition, fluctuations in drilling and completion activity, perceptions of future prices of oil and gas, government regulation, disruptions caused by factors such as weather, pandemics, and geopolitics, and general economic conditions. We believe that the principal competitive factors are price, performance, product and service quality, safety, response time and breadth of products and services.

 

Potential Liabilities and Insurance

 

Our operations involve a high degree of operational risk and expose us to significant liabilities. An accident involving our services or equipment, or the failure of a product sold by us, could result in personal injury, loss of life, and damage to property, equipment or the environment. Litigation arising from a catastrophic occurrence, such as fire, explosion, well blowout or vessel loss, may result in substantial claims for damages.

 

As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Nonetheless, our indemnification arrangements may not protect us in every case.

 

We maintain a liability insurance program that covers against certain operating hazards, including product liability, property damage and personal injury claims, as well as certain limited environmental pollution claims for damage to a third party or its property arising out of contact with pollution for which we are liable, but well control costs are not covered by this program. These policies include primary and excess umbrella liability policies with limits of $200 million per occurrence, including sudden and accidental pollution incidents. All of the insurance policies we purchase contain specific terms, conditions, limitations and exclusions and are subject to either deductibles or self-insured retention amounts for which we are responsible. There can be no assurance that the nature and amount of insurance we maintain will be sufficient to fully protect us against all liabilities related to our business.

 

Government Regulation

 

Our business is significantly affected by federal, state and local laws and other regulations. These laws and regulations relate to, among other things:

worker safety standards;
the protection of the environment;
the handling and transportation of hazardous materials; and
the mobilization of our equipment to, and operations conducted at, our work sites.

 

Numerous permits are required for the conduct of our business and operation of our various facilities and equipment, including our underground injection wells, trucks and other heavy equipment. These permits can be revoked, modified or renewed by issuing authorities based on factors both within and outside our control.

 

We cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings in the future. We also cannot predict whether additional laws and regulations will be adopted,

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including changes in regulatory oversight, increase of federal, state or local taxes, increase of inspection costs, or the effect such changes may have on us, our businesses or our financial condition.

 

Environmental Matters

 

Our operations, and those of our customers, are subject to extensive laws, regulations and treaties relating to air and water quality, generation, storage and handling of hazardous materials, and emission and discharge of materials into the environment. We believe we are in substantial compliance with all regulations affecting our business. Historically, our expenditures in furtherance of our compliance with these laws, regulations and treaties have not been material, and we do not expect the cost of compliance to be material in the future.

 

Numerous federal, state and local governmental agencies, such as the U.S. Environmental Protection Agency (the “EPA”), issue laws and regulations that often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. These laws and regulations may require the acquisition of a permit before commencing operations, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with our operations, limit or prohibit construction or drilling activities on certain lands lying within wilderness, wetlands, ecologically or seismically sensitive areas and other protected areas, require action to prevent or remediate pollution from current or former operations, such as plugging abandoned wells or closing pits, result in the suspension or revocation of necessary permits, licenses and authorizations, require that additional pollution controls be installed and impose substantial liabilities for pollution resulting from our operations or related to our owned or operated facilities. Liability under such laws and regulations is often strict (i.e., no showing of “fault” is required) and can be joint and several. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position, as well as the oil and natural gas industry and infrastructure industry in general. We have not experienced any material adverse effect from compliance with these environmental requirements. This trend, however, may not continue in the future.

 

Climate Change

 

In recent years, federal, state and local governments have taken steps to reduce emissions of carbon dioxide, methane and other greenhouse gases, collectively referred to as greenhouse gasses (“GHGs”). For example, the Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act of 2022 (“IRA”) include billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles, investments in advanced biofuels and supporting infrastructure and carbon capture and sequestration. Also, the EPA has proposed rules to reduce harmful air pollutant emissions, including GHGs, from light-, medium-, and heavy-duty vehicles beginning in model year 2027. These incentives and regulations could accelerate the transition of the economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for oil and gas and consequently adversely affect the business of our customers thereby reducing demand for our services. In addition, the IRA imposes the first ever federal fee on the emission of GHGs through a methane emissions charge. Specifically, the IRA amends the Clean Air Act to impose a fee on the emission of methane that exceeds an applicable waste emissions threshold from sources required to report their GHG emissions to the EPA, including sources in the offshore and onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025 and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA. On January 12, 2024, the EPA announced a proposed rule to implement the methane emissions charge. The methane emissions charge could increase the operating costs of our customers, which could, in turn, impact our business, financial condition and cash flows.

 

The EPA has also finalized a series of GHG monitoring, reporting and emissions control rules for the oil and natural gas industry, and almost half of the states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories and/or regional GHG cap-and-trade programs. Also, states have imposed increasingly stringent requirements related to the venting or flaring of gas during oil and gas operations. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives.

 

At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs. The Agreement went into effect on November 4, 2016. On April 21, 2021, the United States announced that it was setting an economy-wide target of reducing its greenhouse gas emissions by 50 to 52 percent below 2005 levels in 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United States and other world leaders made further commitments to reduce greenhouse gas

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emission, including reducing global methane emissions by at least 30% by 2030 from 2020 levels. More than 150 countries have now signed on to this pledge. Most recently, at the 28th Conference of the Parties in the United Arab Emirates, world leaders agreed to transition away from fossil fuels in a just, orderly and equitable manner and to triple renewables and double energy efficiency globally by 2030. Furthermore, many state and local leaders have stated their intent to intensify efforts to support the international commitments.

 

Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of which could have a material adverse effect on future demand for our services. At this time, it is not possible to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business.
 

 

In addition, there have also been efforts in recent years to influence the investment community and certain financial institutions, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves, and insurance companies to limit available coverage for entities engaged in the production or use of fossil fuels. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and our ability to access capital and obtain third party insurance. Furthermore, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against certain energy companies and could allege personal injury, property damages or other liabilities. While our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.

 

Moreover, climate change may cause more extreme weather conditions such as more intense hurricanes, thunderstorms, tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme weather conditions can interfere with our productivity and increase our costs and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting our operations.
 

 

Raw Materials

 

We purchase various raw materials and component parts in connection with delivering our products and services. These materials are generally, but not always, available from multiple sources and may be subject to price volatility. While we generally do not experience significant long-term shortages of these materials, we have from time to time experienced temporary shortages of particular raw materials. We are always seeking ways to ensure the availability of resources, as well as manage costs of raw materials.

 

Seasonality

 

Seasonal weather and severe weather conditions can temporarily impair our operations and reduce demand for our products and services. Examples of seasonal events that negatively affect our operations include high seas associated with cold fronts during the winter months and hurricanes during the summer months in the Gulf of Mexico, and severe cold during winter months in the U.S. land market area.

 

Human Capital

 

As of December 31, 2023, we had approximately 2,300 employees. Approximately 26% of our total employee base are subject to union contracts and are located in Argentina and Brazil. We believe that we have good relationships with our employees. We strive to employ a dynamic workforce to complement our core values. Our hiring policy forbids discrimination in employment on the basis of age, culture, gender, national origin, sexual orientation, physical appearance, race or religion. We are an inclusive company with people of various backgrounds, experience, culture, styles and talents. We are committed to the health, safety and wellness of our employees, and we pride ourselves on workplace safety. We track and maintain several key safety metrics, which senior management reviews periodically and we evaluate management on their ability to provide safe working conditions on job sites and to create a safety culture.

 

Facilities

 

We own or lease a large number of facilities in the U.S. and in various other countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East/North Africa regions.

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Other Information

 

We have our principal executive offices at 1001 Louisiana Street, Suite 2900, Houston, Texas 77002. Our telephone number is (713) 654-2200. We also have a website at http://www.superiorenergy.com.

 

Our Shared Core Values at Work (Code of Conduct) applies to all of our directors, officers and employees. This Code of Conduct is publicly available on the Corporate Governance page in the About Us section of our website at http://www.superiorenergy.com. Any waivers granted to directors or executive officers and any material amendment to our Code of Conduct will be posted promptly on our website and/or disclosed in a current report on Form 8-K.

 

Copies of the annual, quarterly and current reports we file with or furnish to the SEC, and any amendments to those reports, as well as our Code of Conduct, are available on our website free of charge soon after such reports are filed with or furnished to the SEC. The information posted on our website is not incorporated into this Form 10-K. Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov/.

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Item 1A. Risk Factors

 

The following information should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of this Form 10-K, the consolidated financial statements and related notes contained in Part II, Item 8 of this Form 10-K and the matters contained under the caption “Forward-Looking Statements” at the beginning of this Form 10-K.

The following discussion of “risk factors” identifies the most significant risks or uncertainties that could (i) materially and adversely affect our business, financial condition, results of operations, liquidity or prospects, as well as the market value of our securities, or (ii) cause our actual results to differ materially from our anticipated results or other expectations. These risks are not the only risks that we face. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally, as well as other risks that are not presently known to us or that we currently consider to be immaterial to our operations. These risks include:

 

Risks Related to Our Business

 

Our business depends on conditions in the oil and gas industry, especially oil and natural gas prices and capital expenditures by oil and gas companies.

 

Our business depends on the level of oil and natural gas exploration, development and production activity of, and the corresponding capital spending by, oil and gas companies worldwide. The level of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which historically have been volatile and difficult to predict and are likely to continue to be volatile. Oil and natural gas prices are subject to large fluctuations in response to relatively minor changes in supply and demand, economic growth trends, market uncertainty and a variety of other factors beyond our control. In addition, oil prices are particularly sensitive to actual and perceived threats to global political stability, such as Russia's invasion of Ukraine, the conflict in Israel and broader geopolitical tensions in the Middle East and eastern Europe, and to changes in production from OPEC+ member states. Lower oil and natural gas prices generally lead to decreased spending by our customers, while higher oil and natural gas prices generally lead to increased spending up to a point. Our customers may also consider the volatility of oil and natural gas prices and other risk factors, which may reduce capital expenditures or require higher returns for individual projects if there is higher perceived risk. Any of these factors could significantly affect the demand for oil and natural gas, which could affect the level of capital spending by our customers and in turn could have a material effect on our business, results of operations, financial condition and cash flow.

The availability of quality drilling prospects, exploration success, relative production costs, expectations about future oil and natural gas demand and prices, the stage of reservoir development, the availability of financing, and political and regulatory environments are also expected to affect levels of exploration, development, and production activity, which would impact the demand for our services. Any prolonged reduction of oil and natural gas prices, as well as anticipated declines, could also result in lower levels of exploration, development, and production activity. In addition, the transition of the global energy sector from a primarily fossil fuel-based system to a diverse system which includes renewable energy sources could affect our customers’ levels of expenditures.

 

The demand for our services may be affected by numerous factors, including the following:

 

the cost of exploring for, producing and delivering oil and natural gas;
demand for energy, which is affected by worldwide economic activity, population growth and market expectations regarding future trends;
the ability of OPEC+ and other key oil-producing countries to set and maintain production levels for oil;
the level of excess production capacity;
the discovery rate of new oil and natural gas reserves;
domestic and global political and economic uncertainty, socio-political unrest and instability, terrorism or hostilities;
weather conditions and changes in weather patterns, including summer and winter temperatures that impact demand;
the availability, proximity and capacity of transportation facilities;
oil refining capacity and shifts in end-customer preferences toward fuel efficiency;
the level and effect of trading in commodity futures markets, including trading by commodity price speculators and others;
demand for and availability of alternative, competing sources of energy;
the extent to which taxes, tax credits, environmental regulations, auctions of mineral rights, drilling permits, drilling concessions, drilling moratoriums or other governmental regulations, actions or policies affect the production, cost of production, price or availability of petroleum products and alternative energy sources;

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technological advances affecting energy exploration, production and consumption;
raw material inflation and availability;
reduction in, and availability of, funds by exploration and production companies for exploration and development due to increased dividend payments and share repurchase programs.

The oil and gas industry has historically experienced periodic downturns, which have been characterized by significantly reduced demand for oilfield services and downward pressure on the prices we charge. Moreover, weakness in the oil and gas industry may adversely impact the financial position of our customers, which in turn could cause them to fail to pay amounts owed to us in a timely manner or at all. We expect continued volatility in both crude oil and natural gas prices, as well as in the level of drilling and production related activities as a result of decisions of OPEC+ and other oil exporting nations regarding production, and the other factors listed above. Any of these events have affected, and could further affect, the demand for oil and natural gas and has and could further have a material adverse effect on our business, results of operations, financial condition and cash flow.

 

Our business may also be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine.

As a result of Russia’s invasion of Ukraine, the European Union (and certain of its member states), the United Kingdom and the United States, among others, have developed coordinated sanctions and export-control measure packages.

Based on actions taken and other public statements to date, these packages have included, for example:

 

comprehensive financial sanctions against certain state-owned enterprises and Russian banks (including SWIFT cut-off);
a prohibition on transactions related to the Russian Central Bank;
additional designations of Russian individuals with significant business interests and government connections;
designations of individuals and entities involved in Russian military activities;
restrictions on investment in the Russian energy sector;
enhanced export controls and trade sanctions targeting Russia's import of certain goods and technology; and
closure of airspace to Russian aircraft.

As the invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, export-controls or other economic or military measures against Russia. We have no operational exposure in Russia, and – in compliance with relevant sanctions regimes – we do not intend to commit further capital towards projects in Russia. The impact the invasion of Ukraine, including economic sanctions and export controls or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and they could adversely affect oil and gas companies, including many of which are our customers, as well as the global supply chain. In addition, the continuation of the invasion of Ukraine by Russia could lead to other disruptions, instability and volatility in global markets and industries, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.

 

Our failure to comply with the FCPA and other similar laws could have a negative impact on our ongoing operations.

The FCPA and other anti-corruption laws in the countries where we operate prohibit companies and their employees, or other individuals acting on their behalf, from providing anything of value to a public official for the purposes of influencing any act or decision of these individuals to help obtain or retain business or obtain any unfair advantage. We have implemented policies and procedures designed to encourage compliance with applicable anti-corruption laws. However, our ability to comply with such laws depends on the success of our ongoing compliance programs and we cannot assure that our programs will always protect us from criminal acts committed by our employees or agents. Allegations of violations of anti-corruption laws may result in internal, independent, or government investigations. Violations of anti-corruption laws may result in severe criminal or civil sanctions, as well as legal expenses and reputational harm, and we may be subject to other liabilities, which could have a material adverse effect on our business, operations, and financial condition.

Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.

 

While we have a significant cash balance currently, we face uncertainty regarding the adequacy of our liquidity and capital resources over the long-term and have extremely limited, if any, access to additional financing. We cannot assure you that cash on hand, letters of credit and borrowings under the Credit Facility, and cash flow from operations will be sufficient to continue to fund our operations over the long-term.

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Furthermore, turmoil in the credit and financial markets could adversely affect financial institutions, inhibit lending and limit our access to funding through borrowings under the Credit Facility or obtaining other financing in the public or private capital markets on terms we believe to be reasonable. Prevailing market conditions could be adversely affected by the ongoing disruptions in domestic or overseas sovereign or corporate debt markets, low commodity prices or other factors impacting our business, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad. Instability in the global financial markets has from time to time resulted in periodic volatility in the capital markets. In addition, there has been a relatively recent increased focus of debt and equity capital providers on environmental, social and governance (“ESG”) investing, and the energy industry has been generally facing growing negative sentiment in the market. This volatility, as well as this increased focus on ESG investing and negative sentiment, could limit our access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are acceptable to us, or at all. Any such failure to obtain additional financing could jeopardize our ability to repay, refinance or reduce our debt obligations, or to meet our other financial commitments.

 

Restrictive covenants in the Credit Facility could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.

 

The Credit Facility imposes operating and financial restrictions. Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Agreement terminated, these restrictions limit the ability to, among other things, subject to permitted exceptions:

 

incur additional indebtedness;
make investments or loans;
grant liens on any assets;
consummate mergers, consolidations or engage in other fundamental changes;
pay dividends or make other restricted payments;
dispose of assets (including through sale and leaseback transactions);
make certain prepayments to certain indebtedness or amend the documents governing such indebtedness;
make investments in unrestricted subsidiaries; and
enter into transactions with affiliates.

 

The restrictions contained in the Credit Facility could:

 

limit the ability to plan for, or react to, market conditions, to meet capital needs or otherwise to restrict our activities or business plan; and
adversely affect the ability to finance our operations or to engage in other business activities that would be in our interest.

 

The Credit Facility includes provisions that require mandatory prepayment of outstanding borrowings and/or a borrowing base redetermination when there are asset dispositions over a certain threshold, which could limit the ability to generate liquidity from asset sales. Also, the Credit Facility requires compliance with a specified financial ratio if triggered by an event of default or availability beneath specified thresholds. The ability to comply with this ratio may be affected by events beyond our control and, as a result, this ratio may not be met in circumstances when it is tested. This financial ratio restriction could limit the ability to obtain future financings, make needed capital expenditures, withstand a continued downturn in our business or a downturn in the economy in general or otherwise conduct necessary corporate activities. Declines in oil and natural gas prices could result in failure to meet one or more of the financial covenants under the Credit Facility, which could require refinancing or amendment of such obligations resulting in the payment of consent fees or higher interest rates or require a capital raise at an inopportune time or on terms not favorable.

 

A breach of any of these covenants or the inability to comply with the required financial ratios or financial condition tests could result in a default under the Credit Facility. A default under the Credit Facility, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder and/or a requirement to cash collateralize letters of credit issued thereunder and ultimately, exercise of remedies by the lenders thereunder against the Company and the other guarantors under the Credit Facility and/or the collateral securing the Credit Facility.

 

Our business may be materially and adversely impacted by U.S. and global market and economic conditions, including impacts relating to inflation and supply chain disruptions.

Our revenue is derived from the services and products that we offer to major, national and independent oil and natural gas exploration and production companies around the world for the various phases of their respective well’s economic life cycles. Given the concentration of our business activities in the oil and gas industry, we will be particularly exposed to certain economic downturns.

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United States and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, component shortages and related supply chain challenges, geopolitical developments such as the conflicts in Israel (and broader geopolitical tensions in the Middle East and eastern Europe) and between Ukraine and Russia, and inflation rates and the responses by central banking authorities to control such inflation, among others.

General business and economic conditions that could affect us and our customers include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which we and our customers operate. A weak economic environment could result in significant decreases in demand for our products and services, including the delay or cancellation of current or anticipated projects. In particular, inflation rates in the United States have affected businesses across many industries, including ours, by increasing the costs of labor, equipment, parts, consumables and shipping. An inflationary environment may also cause customers to defer or decrease their expenditures on the services and products that we provide. In addition, supply chain disruptions and delays, could adversely affect our ability to provide our services and deliver our products in a timely manner, which could impair our ability to meet customer demand and result in lost sales, increased supply chain costs or damage to our reputation. Any of foregoing these economic conditions could have a material adverse effect on our business, financial condition, and results of operations.

 

There are operating hazards inherent in the oil and gas industry that could expose us to substantial liabilities.

 

Our operations are subject to hazards inherent in the oil and gas industry that may lead to property damage, personal injury, death or the discharge of hazardous materials into the environment. Many of these events are outside of our control. While our personnel has decreased significantly in recent years as a result of divestitures, from time to time, personnel are injured or equipment or property is damaged or destroyed as a result of accidents, failed equipment, faulty products or services, failure of safety measures, uncontained formation pressures or other dangers inherent in oil and natural gas exploration, development and production. Any of these events can be the result of human error or purely accidental, and it may be difficult or impossible to definitively determine the ultimate cause of the event or whose personnel or equipment contributed thereto. All of these risks expose us to a wide range of significant health, safety and environmental risks and potentially substantial litigation claims for damages. With increasing frequency, our products and services are deployed in more challenging exploration, development and production locations. From time to time, customers and third parties may seek to hold us accountable for damages and costs incurred as a result of an accident, including pollution, even under circumstances where we believe we did not cause or contribute to the accident. Our insurance policies are subject to exclusions, limitations and other conditions, and may not protect us against liability for some types of events, including events involving a well blowout, or against losses from business interruption. Our insurance also may not cover losses associated with pandemics. Moreover, we may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate or on terms that we deem commercially reasonable, or at all. Additionally, insurance rates have in the past been subject to wide fluctuation and may be unavailable on terms that we or our customers believe are economically acceptable. Reductions in coverage, changes in the insurance markets and accidents affecting our industry may result in further increases in our cost and higher deductibles and retentions in future years and may also result in reduced activity levels in certain markets. As a result, we may not be able to continue to obtain insurance on commercially reasonable terms. Any damages or losses that are not covered by insurance, or are in excess of policy limits or subject to substantial deductibles or retentions, could adversely affect our financial condition, results of operations and cash flows.

 

We may not be fully indemnified against losses incurred due to catastrophic events.

 

As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Our indemnification arrangements may not protect us in every case. For example, from time to time we may enter into contracts with less favorable indemnities or perform work without a contract that protects us. In addition, our indemnification rights may not fully protect us if we cannot prove that we are entitled to be indemnified or if the customer is bankrupt or insolvent, does not maintain adequate insurance or otherwise does not possess sufficient resources to indemnify us. In addition, our indemnification rights may be held unenforceable in some jurisdictions.

 

Our customers’ changing views on risk allocation could cause us to accept greater risk to win new business or could result in us losing business if we are not prepared to take such risks. To the extent that we accept such additional risk, and insure against it, our insurance premiums could rise.

 

The credit risks of our customer base could result in losses.

 

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Many of our customers are oil and gas companies that from time to time face liquidity constraints as the commodity price environment changes. These customers impact our overall exposure to credit risk as they are also affected by prolonged changes in economic and industry conditions. If a significant number of our customers experience a prolonged business decline or disruptions, we may incur increased exposure to credit risk and bad debts.

 

We are subject to environmental and worker health and safety laws and regulations, which could reduce our business opportunities and revenue, and increase our costs and liabilities.

 

Our business is significantly affected by a wide range of environmental and worker health and safety laws and regulations in the areas in which we operate, including increasingly rigorous environmental laws and regulations governing air emissions, water discharges and waste management. Generally, these laws and regulations have become more stringent and have sought to impose greater liability on a larger number of potentially responsible parties. The Macondo well explosion in 2010 resulted in additional regulation of our offshore operations, and similar onshore or offshore accidents in the future could result in additional increases in regulation. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, imposition of remedial requirements, permit revocations, requirements for additional pollution controls, and injunctions limiting or prohibiting some or all of our operations.

 

Environmental laws and regulations may provide for “strict liability” for remediation costs, damages to natural resources or threats to public health and safety as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. Strict liability can render a party liable for damages without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. For example, our well service and fluids businesses routinely involve the handling of significant amounts of waste materials, some of which are classified as hazardous substances. We also store, transport and use radioactive and explosive materials in certain of our operations. In addition, many of our current and former facilities are, or have been, used for industrial purposes. Accordingly, we could become subject to material liabilities relating to the containment and disposal of hazardous substances, oilfield waste and other waste materials, the use of radioactive materials, the use of underground injection wells, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter enforcement of existing laws and regulations, new domestic or foreign laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could reduce our earnings and our cash available for operations.

 

In addition, we and our customers may need to apply for or amend facility permits or licenses from time to time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us and our customers to new or revised permitting conditions that may be onerous or costly to comply with.

 

Climate change legislation or regulations restricting emissions of greenhouse gases or incentivizing zero-carbon energy sources could result in increased operating costs and reduced demand for the oil and natural gas our customers produce.

Increasing concerns that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”) may endanger public health and produce climate changes with significant physical effects, such as increased frequency and severity of storms, floods, droughts and other climatic events, have drawn significant attention from government agencies, environmental advocacy groups and technological initiatives aimed at reducing the use of hydrocarbons. In response, additional costly requirements and restrictions have been imposed on the oil and gas industry to regulate and reduce the emission of GHGs and transition to a global low carbon economy.

For example, the Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act of 2022 (“IRA”) include billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles, investments in advanced biofuels and supporting infrastructure and carbon capture and sequestration. Also, the EPA has proposed rules to reduce harmful air pollutant emissions, including greenhouse gases, from light-, medium-, and heavy-duty vehicles beginning in model year 2027. These incentives and regulations could accelerate the transition of the economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for oil and gas and consequently adversely affect the business of our customers, thereby reducing demand for our services. In addition, the IRA imposes the first ever federal fee on the emission of GHGs through a methane emissions charge. Specifically, the IRA amends the Clean Air Act to impose a fee on the emission of methane that exceeds an applicable waste emissions threshold from sources required to report their GHG emissions to the EPA, including sources in the offshore and onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025 and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA. On January 12, 2024, the EPA announced a proposed rule

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to implement the methane emissions charge. The methane emissions charge could increase the operating costs of our customers, which could, in turn, impact our business, financial condition and cash flows.

The EPA has also finalized a series of GHG monitoring, reporting and emissions control rules for the oil and natural gas industry, and almost half of the states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories and/or regional GHG cap-and-trade programs. Also, states have imposed increasingly stringent requirements related to the venting or flaring of gas during oil and gas operations. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives.

At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs. The Agreement went into effect on November 4, 2016. On April 21, 2021, the United States announced that it was setting an economy-wide target of reducing its greenhouse gas emissions by 50 to 52 percent below 2005 levels in 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United States and other world leaders made further commitments to reduce greenhouse gas emission, including reducing global methane emissions by at least 30% by 2030 from 2020 levels. More than 150 countries have now signed on to this pledge. Most recently, at the 28th Conference of the Parties in the United Arab Emirates, world leaders agreed to transition away from fossil fuels in a just, orderly and equitable manner and to triple renewables and double energy efficiency globally by 2030. Furthermore, many state and local leaders have stated their intent to intensify efforts to support the international commitments.

Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of which could have a material adverse effect on future demand for our services.

In addition, our customers are also requiring additional equipment upgrades to address the growing concerns of GHG emission and climate change which result in higher operational costs for service providers such as us.

There have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and ability to access capital. Furthermore, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against certain energy companies and could allege personal injury, property damages or other liabilities. While our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.

At this stage, we cannot predict the impact of these or other initiatives on our or our customers’ operations, nor can we predict whether, or which of, other currently pending GHG emission proposals will be adopted, or what other actions may be taken by domestic or international regulatory bodies. The potential passage of climate change laws or regulations may curtail production and demand for fossil fuels such as oil and gas in areas of the world where our customers operate and thus adversely affect future demand for our products and services, which may in turn adversely affect future results of operations.

 

Continuing or worsening inflationary pressures and associated changes in monetary policy have resulted in and may result in additional increases to our operating costs, which in turn have caused and may continue to cause our capital expenditures and operating costs to rise.

Increases in the U.S. inflation rate in recent years has resulted in and may result in additional increases to our operating costs, which in turn have caused and may continue to cause our capital expenditures and operating costs to rise. Sustained levels of high inflation have likewise caused the Federal Reserve and other central banks to increase interest rates, which could have the effects of raising the cost of capital and depressing economic growth, either of which - or the combination thereof - could hurt the financial and operating results of our business.

 

Adverse and unusual weather conditions may affect our operations.

 

Our operations may be materially affected by severe weather conditions in areas where we operate. Severe weather, such as hurricanes, high winds and seas, blizzards and extreme temperatures may cause evacuation of personnel, curtailment of services and suspension of

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operations, inability to deliver materials to jobsites in accordance with contract schedules, loss of or damage to equipment and facilities and reduced productivity. In addition, variations from normal weather patterns can have a significant impact on demand for oil and natural gas, thereby reducing demand for our services and equipment.

 

Our inability to retain key employees and skilled workers could adversely affect our operations.

 

Our performance could be adversely affected, especially in light of our emergence from bankruptcy, if we are unable to retain certain key employees and skilled technical personnel. Our ability to continue to expand the scope of our services and products depends in part on our ability to increase the size of our skilled labor force. The loss of the services of key employees or the inability to employ or retain skilled technical personnel could adversely affect our operating results. In the past, the demand for skilled personnel has been high and the supply limited. We have experienced increases in labor costs in recent years and may continue to do so in the future. Furthermore, these internal and external factors may also be impacted by our February 2021 emergence from bankruptcy, the uncertainties currently facing us and the business environment and changes we may make to the organizational structure to adjust to changing circumstances.

 

If we do not successfully manage the transition associated with changes in our executive officers or directors, it could have an adverse impact on our business.

 

As disclosed in Item 9B “Other Information” Michael McGovern, our Executive Chair, has informed the Company of his intent to resign from his position as Executive Chair and to not stand for reelection as a member of our Board at the Company’s 2024 Annual Meeting of Stockholders (the “Meeting”). In addition, Krishna Shivram, one of our directors, also informed the Company of his decision not to stand for reelection at the Meeting. These announcements were not the result of any dispute or disagreement with the Company or our Board on any matter relating to our operations, policies or practices.

 

Leadership transitions can be difficult to manage. An inadequate transition of an executive officer or director may result in the loss of institutional knowledge and changes to business strategy or objectives. In addition, these changes have the potential to negatively impact our operations and relationships with employees, customers and investors due to increased or unanticipated expenses, operational inefficiencies, uncertainty regarding changes in strategy, decreased employee morale and productivity and increased turnover. In addition, if we are unable to attract and retain a qualified candidates to replace departing officers or directors in a timely manner, our ability to meet our financial and operational goals and strategic plans may be adversely impacted, as well as our financial performance. This may also make it more difficult for us to retain and hire key management and other team members.

 

We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our future performance.

 

Our ability to attract and retain qualified and experienced employees is essential to meet our current and future goals and objectives. There is no guarantee we will be able to attract and retain such employees or that competition among potential employers will not result in increased salaries or other benefits. If we are unable to retain existing employees or attract additional employees, we could experience a material adverse effect on our business and results of operations. We may not be able to locate or employ on acceptable terms qualified replacements for key executives if their services are no longer available. Furthermore, our business could be affected adversely if suitable replacement personnel are not recruited quickly or effectively. Our failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles could have a material adverse effect on our businesses and results of operations.

 

Our international operations and revenue are affected by political, economic and other uncertainties worldwide.

 

Our international operations are subject to varying degrees of regulation in each of the foreign jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions, and can change significantly over time. Future regulatory, judicial and legislative changes or interpretations may have a material adverse effect on our ability to deliver services within various foreign jurisdictions.

 

In addition to these international regulatory risks, our international operations are subject to a number of other risks inherent in any business operating in foreign countries, including, but not limited to, the following:

 

political, social and economic instability;
potential expropriation, seizure, deprivation, confiscation or nationalization of assets, or other governmental actions;
inflation;
deprivation of contract rights;

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increased operating costs;
inability to collect receivables and longer receipt of payment cycles;
social unrest and protests, strikes, acts of terrorism, war or other armed conflict;
import-export quotas or restrictions, including tariffs and the risk of fines or penalties assessed for violations;
confiscatory taxation or other adverse tax policies;
currency exchange controls;
currency exchange rate fluctuations, devaluations and conversion restrictions;
potential submission of disputes to the jurisdiction of a foreign court or arbitration panel;
pandemics or epidemics that disrupt our ability to transport personnel or equipment;
embargoes or other restrictive governmental actions that could limit our ability to operate in foreign countries;
trade and economic sanctions or other restrictions imposed by the European Union, the United States or other regions or countries;
additional U.S. and other regulation of non-domestic operations, including regulation under the Foreign Corrupt Practices Act (the “FCPA”) as well as other anti-corruption laws;
restrictions on the repatriation of funds;
limitations in the availability, amount or terms of insurance coverage;
the risk that our international customers may have reduced access to credit because of higher interest rates, reduced bank lending or a deterioration in our customers’ or their lenders’ financial condition;
the burden of complying with multiple and potentially conflicting laws and regulations;
the imposition of unanticipated or increased environmental and safety regulations or other forms of public or governmental regulation that increase our operating expenses;
complications associated with installing, operating and repairing equipment in remote locations;
theft of, or lack of sufficient legal protection for, proprietary technology and other intellectual property;
the geographic, time zone, language and cultural differences among personnel in different areas of the world; and
challenges in staffing and managing international operations.

These and the other risks outlined above could cause us to curtail or terminate operations, result in the loss of personnel or assets, disrupt financial and commercial markets and generate greater political and economic instability in some of the geographic areas in which we operate. International areas where we operate that have significant risk include the Middle East, Indonesia, Nigeria and Angola.

 

We are subject to foreign currency exchange risks and limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries or to repatriate assets from some countries.

A sizable portion of our consolidated revenue and consolidated operating expenses is in foreign currencies. As a result, we are subject to significant risks, including foreign currency exchange risks resulting from changes in foreign currency exchange rates and the implementation of exchange controls; and limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries.

As an example, we conduct business in countries that have restricted or limited trading markets for their local currencies and restrict or limit cash repatriation. We may accumulate cash in those geographies, but we may be limited in our ability to convert our profits into United States dollars or to repatriate the profits from those countries. During 2023, we experienced these conditions in Argentina and though we have been able to develop processes to repatriate cash when we believe it is appropriate to do so, we have incurred losses from devaluation of the local currency and from repatriating cash. We expect restrictions on currency repatriation to continue in Argentina during 2024.

 

Laws, regulations or practices in foreign countries could materially restrict our operations or expose us to additional risks.

 

In many countries around the world where we do business, all or a significant portion of the decision making regarding procuring our services and products is controlled by state-owned oil companies. State-owned oil companies or prevailing laws may (i) require us to meet local content or hiring requirements or other local standards, (ii) restrict with whom we can contract or (iii) otherwise limit the scope of operations that we can legally or practically conduct. Our inability or failure to meet these requirements, standards or restrictions may adversely impact our operations in those countries. In addition, our ability to work with state-owned oil companies is subject to our ability to negotiate and agree upon acceptable contract terms, and to enforce those terms. In addition, many state-owned oil companies may require integrated contracts or turnkey contracts that could require us to provide services outside our core businesses. Providing services on an integrated or turnkey basis generally requires us to assume additional risks.

 

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Moreover, in order to effectively compete in certain foreign jurisdictions, it is frequently necessary or required to establish joint ventures or strategic alliances with local contractors, partners or agents. In certain instances, these local contractors, partners or agents may have interests that are not always aligned with ours. Reliance on local contractors, partners or agents could expose us to the risk of being unable to control the scope or quality of our overseas services or products, or being held liable under the FCPA, or other anti-corruption laws for actions taken by our strategic or local contractors, partners or agents even though these contractors, partners or agents may not themselves be subject to the FCPA or other applicable anti-corruption laws. Any determination that we have violated the FCPA or other anti-corruption laws could have a material adverse effect on our business, results of operations, reputation or prospects.

 

If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and results of operations could be materially and adversely affected.

 

The market for oilfield services in which we operate is highly competitive 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 resources than we do. Contracts are traditionally awarded on the basis of competitive bids or direct negotiations with customers.

 

The market for our services and products is characterized by continual technological developments to provide better and more reliable performance and services. If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and consolidated results of operations could be materially and adversely affected. Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected. In addition, we may be disadvantaged competitively and financially by a significant movement of exploration and production operations to areas of the world in which we are not currently active.

 

We depend on particular suppliers and are vulnerable to product shortages and price increases.

 

Some of the materials that we use are obtained from a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, supply chain disruptions, inferior quality and a potential inability to obtain an adequate supply in a timely manner. We do not have long-term contracts with most of these sources, and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these materials could have a negative impact on our results of operations.

 

Estimates of our potential liabilities relating to our oil and natural gas property may be incorrect.

 

Actual abandonment expenses may vary substantially from those estimated by us and any significant variance in these assumptions could materially affect the estimated liability recorded in our consolidated financial statements. Therefore, the risk exists we may underestimate the cost of plugging wells and abandoning production facilities. If costs of abandonment are materially greater than our estimates, this could have an adverse effect on our financial condition, results of operations and cash flows.

 

Potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms could impact our operating cash flows and results of operations.

 

Federal oil and natural gas leases contain standard terms and require compliance with detailed Bureau of Safety and Environmental Enforcement (“BSEE”) and BOEM regulations and orders issued pursuant to various federal laws, including the Outer Continental Shelf Lands Act. In 2016, BOEM undertook a review of its historical policies and procedures for determining a lessee’s ability to decommission platforms on the Outer Continental Shelf (“OCS”) and whether lessees should furnish additional security. Following a 2016 Notice to Lessees that was subsequently withdrawn, BOEM published a proposed rule to modify the financial assurance requirements for offshore leaseholders on June 29, 2023. BOEM is also planning to update its Oil Spill Financial Responsibility regulations in 2024. If adopted, these new requirements could impact us and our customers by increasing operating costs and impacting our ability to obtain leases, thereby reducing demand for our products.

We cannot predict when these laws and regulations may be adopted or change in the future. If BOEM withdraws the October 2020 rule proposal and proceeds to implement a rule or other regulatory action requiring additional security similar to the Notice to Lessees issued in July 2016 and we are unable to obtain the additional required bonds or post other acceptable security to secure of decommissioning obligations, BOEM may suspend or cancel operations at the oil and gas property or otherwise impose monetary penalties. Any of these actions could have a material adverse effect on our financial condition, operating cash flows and liquidity. A BSEE final rule, published

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on August 23, 2023, that strengthens testing and performance requirements for blowout preventers and other well control equipment could have a similar impact.

Moreover, under existing BOEM and BSEE rules relating to assignment of offshore leases and other legal interests on the OCS, assignors of such interests may be held jointly and severally liable for decommissioning of OCS facilities existing at the time the assignment was approved by BOEM, in the event that the assignee or any subsequent assignee is unable or unwilling to conduct required decommissioning.

 

Risks Related to Our Class A Common Stock

 

There may be circumstances in which the interests of our significant stockholders could conflict with the interests of our other stockholders.

 

On the Emergence Date, in order to implement certain transactions contemplated by the Plan, the Stockholders Agreement was executed (or deemed executed) with each stockholder pursuant to the Plan (constituting all of the stockholders on the Emergence Date) and all other stockholders from time to time, to provide for certain governance matters. As of March 7, 2024, two groups of these stockholders currently hold approximately 63% of our Class A Common Stock. Furthermore, pursuant to the Stockholders Agreement, these two groups of stockholders have appointed three of our seven directors.

Circumstances may arise in which these groups of stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional shares or debt, that, in their judgment, could enhance their investment in us, and their interests may not in all cases be aligned with our interests.

 

There is no public market for shares of our Class A Common Stock, and we do not expect there to be a market for shares of our Class A Common Stock.

 

There is no existing trading market for shares of our Class A Common Stock, and no market for our shares may develop in the future. If developed, any such market may not be sustained. In the absence of a trading market, our stockholders may be unable to liquidate an investment in our Class A Common Stock. Upon our emergence from bankruptcy, the Predecessor’s common stock was cancelled and we issued new Class A Common Stock. The Class A Common Stock is not currently traded on a national securities exchange. No assurance can be given that an active market will develop for our Class A Common Stock or as to the liquidity of the trading market for our Class A Common Stock. Our Class A Common Stock may be traded only infrequently, if at all, and reliable market quotations may not be available. Holders of our Class A Common Stock may experience difficulty in reselling, or an inability to sell, their shares. In addition, if an active trading market does not develop or is not maintained, significant sales of our Class A Common Stock, or the expectation of these sales, could materially and adversely affect the price of our Class A Common Stock. For so long as our Class A Common Stock is not listed on a national securities exchange, our ability to access equity markets, obtain financing and provide equity incentives could be negatively impaired. Furthermore, certain transfers of our Class A Common Stock require an exemption from the registration requirements of the Securities Act and applicable state securities laws.

 

Provisions in the Stockholders Agreement could delay or prevent a change in control.

 

Certain provisions of our Stockholders Agreement may delay, discourage, prevent or render more difficult an attempt to obtain control of us, whether through a tender offer, business combination, proxy contest or otherwise. These provisions include, among other things, those that:

 

permit two groups of our stockholders to elect up to three members of our Board of Directors and limit the removal of such directors; and
restrict certain transfers (including acquisitions and dispositions) of our securities.

 

Our ability to pay dividends on our common stock is restricted.

We declared a special dividend of $12.45 per share on our Class A Common Stock that was paid on December 28, 2022 to holders of record as of the close of business on December 16, 2022, and we declared a special dividend of $12.38 per share on our Class A Common Stock that will be paid on March 12, 2024 to holders of record as of the close of business on February 27, 2024. Our Board of Directors continuously evaluates opportunities to pay dividends in accordance with our evolving strategic outlook. As a result, our decision to declare any further cash dividends on our Class A Common Stock in the foreseeable future is unknown. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our business

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prospects, results of operations, financial condition, cash requirements and availability, industry trends and other factors that our Board of Directors may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.

 

We do not have a class of our securities registered under Section 12 of the Exchange Act. Until we do, we will not be required to provide certain reports to our stockholders.

 

We do not have a class of our securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Until we do, we will not be required to provide certain reports to our stockholders. We are currently required to file periodic reports with the SEC by virtue of Section 15(d) of the Exchange Act. However, until we register a class of our securities under Section 12 of the Exchange Act, we are not subject to the SEC’s proxy rules, and large holders of our capital stock will not be subject to beneficial ownership reporting requirements under Sections 13 or 16 of the Exchange Act and their related rules. As a result, our stockholders and potential investors may not have available to them as much or as robust information as they may have if and when we become subject to those requirements.

 

General Risk Factors

 

From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations.

 

The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We may in the future become subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows. In addition, during periods of depressed market conditions we may be subject to an increased risk of our customers, vendors, former employees and others initiating legal proceedings against us.

 

Any litigation or claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.

 

Changes in tax laws or tax rates, adverse positions taken by taxing authorities and tax audits could impact our operating results.

 

We are subject to taxation in a significant number of domestic and foreign jurisdictions. Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities could impact our operating results. In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective income tax rate could be impacted. The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each taxing jurisdiction, as well as the significant use of estimates and assumptions regarding future operations and results and the timing of income and expenses. We may be audited and receive tax assessments from taxing authorities that may result in assessment of additional taxes that are ultimately resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes will be favorable. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operating may be adversely impacted.

 

The IRA 2022 imposes a 15% corporate alternative minimum tax (“CAMT”) on the “adjusted financial statement income” of certain large corporations (generally, corporations reporting at least $1 billion average adjusted pre-tax net income on their consolidated financial statements) as well as an excise tax of 1% on the fair market value of certain public company stock repurchases for tax years

beginning after December 31, 2022.

Currently, we do not believe the CAMT, or any of the other tax provisions, will have a material impact on us for 2023, however, we will continue to monitor the future impact to us related to this new law. The U.S. Treasury Department, the Internal Revenue Service and other standard-setting bodies are expected to issue guidance on how the CAMT, stock buyback excise tax and other provisions of the IRA 2022 will be applied or otherwise administered that may differ from our interpretations.

An ownership change could limit our use of net operating losses arising prior to an ownership change.

If we were to experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to offset taxable income arising after the ownership change with net operating losses (“NOLs”) arising prior to

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the ownership change would be limited, possibly substantially. An ownership change would establish an annual limitation on the amount of our pre‑change NOLs we could utilize to offset our taxable income in any future taxable year to an amount generally equal to the value of our stock immediately prior to the ownership change multiplied by the long term tax‑exempt rate. In general, an ownership change will occur if there is a cumulative increase in our ownership of more than 50 percentage points by one or more “5% shareholders” (as defined in the Code) at any time during a rolling three‑year period.

We experienced an “ownership change” on February 2, 2021 due to the Plan that subject certain of our tax attributes, including our NOLs and other carryforwards, to an annual limitation under Section 382 of the Code. However, we do not expect the Section 382 limitation to impact our ability to use U.S. tax attributes under Section 382 relief provisions. Calculations pursuant to Section 382 of the Code can be very complicated and no assurance can be given that upon further analysis, our ability to take advantage of our NOLs may be limited to a greater extent than we currently anticipate. As of December 31, 2023, we had NOLs of $90.0 million. Future changes in our stock ownership could result in an additional ownership change.

 

Our ability to remediate the identified material weakness in our internal control over financial reporting.

 

In connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2022, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls to review the reasonableness of assumptions determined by, and accuracy of calculations performed by, our external tax service providers. Although this material weakness was remediated as of December 31, 2023, if we identify another material weakness that we are not able to remediate and otherwise to maintain effective internal control over financial reporting, our financial statements may be materially misstated and investors may lose confidence in the accuracy and completeness of our financial reports. Furthermore, we cannot assure you that additional material weaknesses will not be identified in the future. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

We are affected by global economic factors and political events.

 

Our financial results depend on demand for our services and products in the U.S. and the international markets in which we operate. Declining economic conditions, negative perceptions about economic conditions, energy costs and supply chain disruptions, could result in a substantial decrease in demand for our services and products. World political events could also result in further U.S. military actions, terrorist attacks and related unrest. Military action by the U.S. or other nations could escalate and further acts of terrorism may occur in the U.S. or elsewhere. Such acts of terrorism could lead to, among other things, a loss of our investment in the country, impairment of the safety of our employees, extortion or kidnapping, and impairment of our ability to conduct our operations. Such developments have caused instability in the world’s financial and insurance markets in the past, and many experts believe that a confluence of worldwide factors could result in a prolonged period of economic uncertainty and slow growth in the future. In addition, any of these developments could lead to increased volatility in prices for oil and gas and could negatively affect the markets for our products and services. Insurance premiums could also increase and coverages may be unavailable.

 

Uncertain economic conditions and instability make it particularly difficult for us to forecast demand trends. The timing and extent of any changes to currently prevailing market conditions is uncertain and may affect demand for many of our services and products. Consequently, we may not be able to accurately predict future economic conditions or the effect of such conditions on demand for our services and products and our results of operations or financial condition.

 

Our operations may be subject to cyber-attacks that could have an adverse effect on our business operations.

Like most companies, we rely heavily on information technology networks and systems, including the Internet, to process, transmit and store electronic information, to manage or support a variety of our business operations, and to maintain various records, which may include information regarding our customers, employees or other third parties, and the integrity of these systems are essential for us to conduct our business and operations. We make significant efforts to maintain the security and integrity of these types of information and systems (and maintain contingency plans in the event of security breaches or system disruptions). However, we cannot provide assurance that our security efforts and measures will prevent security threats from materializing, unauthorized access to our systems, loss or destruction of data, account takeovers, or other forms of cyber-attacks or similar events, whether caused by mechanical failures, human error, fraud, malice, sabotage or otherwise. We have office employees who work remotely. Remote work relies heavily on the use of remote networking and online conferencing services that enable employees to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks, including unauthorized access to sensitive information as a result of increased remote access and other cybersecurity related incidents. Cyber-attacks include, but are not limited to, malicious software, attempts to gain unauthorized access to data, unauthorized release of confidential or otherwise protected

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information and corruption of data. It is possible that our business, financial and other systems could be compromised, which could go unnoticed for a prolonged period of time. While various procedures and controls are being utilized to mitigate exposure to such risk, there can be no assurance that the procedures and controls that we implement, or which we cause third party service providers to implement, will be sufficient to protect our systems, information or other property. Additionally, customers as well as other third parties whom we rely on face similar cybersecurity threats, which could directly or indirectly impact our business and operations. The frequency, scope and sophistication of cyber-attacks continue to grow, which increases the possibility that our security measures will be unable to prevent our systems’ improper functioning or the improper disclosure of proprietary information. Any failure of our information or communication systems, whether caused by attacks, mechanical failures, natural disasters or otherwise, could interrupt our operations, damage our reputation, or subject us to claims, any of which could materially adversely affect us.

Item 1B. Unresolved Staff Comments

None.

 

Item 1C. Cybersecurity

 

The Audit Committee of the Board has primary responsibility for overseeing our cyber security risk management process. Our cybersecurity risk management processes are integrated within our established Enterprise Risk Management System. On a regular basis, the Audit Committee and the Board receive updates on cybersecurity matters from the Chief Information Officer ("CIO"). These updates include, but are not limited to, cybersecurity program updates, results of third-party assessments, results of tabletop 'drill' exercises, end user awareness training, and recoverability and resilience. The Audit Committee also receives quarterly reports from our internal audit department.

 

Our cybersecurity practices are led by the CIO, who has overall responsibility for assessing and managing cybersecurity risks, and uses a risk-based methodology to support the security, confidentiality, integrity and availability of information and IT systems. Our CIO has over 30 years of experience in IT delivery, operations, and management, as well as over 15 years’ experience leading cyber security requirements for global and publicly traded companies.

 

The Company regularly engages third parties to perform assessments on our cybersecurity measures, including penetration testing, vulnerability scanning and proactive threat hunting, and operating effectiveness of controls. The results of such assessments, audits, and reviews are reported to the Board, and the Company adjusts its cybersecurity policies, standards, processes, and practices as necessary based on the information provided by these assessments, audits and reviews. The Company maintains a comprehensive, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers, and other external users of the Company’s systems. In addition, our internal audit department routinely performs internal audits on various aspects of cybersecurity and reports the results in its quarterly report to the Audit Committee.

 

The underlying controls of our cybersecurity capabilities are designed to prevent, detect, mitigate and remediate cybersecurity risks and are based on recognized best practices and standards for cybersecurity and information technology, including the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”) and the International Organizational Standardization (“ISO”) 27001 Information Security Management System Requirements.

 

Significant incidents are escalated and communicated by senior IT management to the CIO to determine severity, cause and remediation. We also maintain a disaster recovery plan in which critical business systems, networks and data may be successfully recreated to minimize the financial impact of a cyber incident on our business. To strengthen resiliency against malware attacks, such as ransomware, we create immutable copies of all critical system data that is isolated from the rest of the network in case data recovery is required.

 

Our third-party cyber partners are a key component of our cybersecurity capabilities, and we partner with leading cybersecurity companies, leveraging third party technology and expertise. Through these partnerships, we provide continuous monitoring of our global cybersecurity environment and coordinate the investigation and remediation of alerts. Additionally, annual incident response drills are in place to prepare support teams in the event of a significant incident.

 

We have continued to expand investments in IT security. For example we are in the process of implementing a Cyber & Data Protection Council that will use a risk-based methodology to support the security, confidentiality, integrity, and availability of our information and IT systems. The Cyber & Data Protection Council will be chaired by the CFO and members include IT, legal, and HR leadership. Significant incidents will be escalated and communicated by senior IT management to the CIO and the Cyber & Data Protection Council to determine severity, cause and remediation.

 

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We did not experience a material cybersecurity incident in 2023, and although we are subject to ongoing and evolving cybersecurity threats, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operation or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity incidents. See “Risk Factors – Our operations may be subject to cyber-attacks that could have an adverse effect on our business operations.”

 

Item 2. Properties

Information on properties is contained in Part I, Item 1 of this Form 10-K.

 

Item 3. Legal Proceedings

From time to time we are involved in various legal actions incidental to our business. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows. For a description of our material pending legal proceedings, please see Note 17 - “Contingencies”, of this Form 10-K. For the disclosure of environmental proceedings with a governmental entity as a party pursuant to Item 103(c)(3)(iii) of Regulation S-K, we have elected to disclose matters where we reasonably believe such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Our common equity consists of Class A Common Stock that is privately held and there is no established public trading market. As of December 31, 2023, there were 547 stockholders of record. All holders of Class A Common Stock have one vote per share in matters subject to a stockholder vote.

On December 18, 2023, following the approval of our Board of Directors and stockholders, each outstanding share of Class B common stock, par value $0.01 per share (“Class B Common Stock”), was reclassified into one share of Class A Common Stock. Prior to the reclassification, holders of Class B Common Stock were not entitled to vote on the election or removal of our directors.

In connection with the reclassification, on December 15, 2023, the Board and the Compensation Committee of the Board (the “Compensation Committee”) approved an amendment to our Management Incentive Plan (“MIP”) to provide for the issuance of shares of Class A Common Stock in connection with the grant of share-based and cash-based awards rather than shares of Class B Common Stock. Prior to the reclassification, grants under the MIP were previously in the form of shares of Class B Common Stock or awards pursuant to which shares of Class B Common Stock would be issued or were issuable.

Dividend Policy

On November 16, 2022, we announced that our Board declared a special dividend of $12.45 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend was paid on December 28, 2022 to holders of record as of December 16, 2022.

On February 13, 2024, we announced that our Board declared a special dividend of $12.38 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend will be paid on March 12, 2024 to holders of record as of February 27, 2024.

Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, industry trends and other factors that our Board may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.

 

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in “Item 8. Financial Statements and Supplementary Data”. Our discussion includes various forward-looking statements about our markets, the demand for our products and services and our future results, which are subject to certain risks and uncertainties. For information about these risks and uncertainties, refer to the section entitled “Forward-Looking Statements” and the section entitled “Item 1A. Risk Factors”.

 

Executive Summary

 

General

We are a global oilfield products and services company with a portfolio of premier rental and well services brands providing customers with robust inventory, responsive delivery, engineered solutions, and expert consultative service — all aligned with enterprise-wide Shared Core Values for safe, sustainable operations and corporate citizenship; and committed to free cash flow generation and value creation.

We drive true value to our business units by providing enterprise-wide support, financial discipline, capital strength, and strategic focus. Our experienced, knowledgeable leadership within those businesses has excellent latitude to execute their business strategy, determine pricing, allocate inventory, and develop new products and technology. All with a focus on safety, operational excellence, competitive positioning, and financial performance that entrenches our relationships with our customers and elevates our customers’ satisfaction.

Our product offerings are weighted toward businesses critical to our customer’s oil and gas operations, require deep technical expertise, notably in premium drill pipe and bottom hole assembly rentals, and have strong cash flow generating capacity as was delivered in our 2023 results.

Our ongoing strategy of focusing operations on businesses with solid market positions along with the strength of our brands, their leaders, and teams contributed in no small part to our positive performance, margin expansion, and strong competitive position in 2023 overcoming labor market and supply chain challenges and being an early mover on effective pricing strategies to address cost inflation and margin expansion.

As we strive to be good stewards of our resources, we paid an approximately $250 million dividend and a return of capital to shareholders in December 2022, and will pay an approximate $250 million dividend to our shareholders in March 2024.

Our portfolio of companies operate in two segments, Rentals and Well Services, to provide highly specialized solutions to the upstream oil and gas industry.

Rentals Segment

 

Our rental services include premium downhole tubulars and drill pipe, design, engineering and manufacturing of bottomhole assembly accessories, and offshore accommodation units. Collaborating closely with customers and strategic suppliers, we also provide engineered solutions to meet their challenges.

 

Workstrings International (“WSI”)

 

WSI is a global leader and one of the largest oilfield equipment rentals providers of high-quality, premium connection drill strings, tubing, completion tubulars, and handling accessories. With one of the industry’s most extensive inventories of highly specialized landing string designed for deep water applications and an industry-recognized drilling and completion engineering team, WSI maintains long-standing, strategic relationships with leading oil & gas, drilling and oilfield tubular supply companies globally.

WSIs’ long-tenured leadership assures a high level of knowledge and skill in providing quality service and engineering expertise to develop complementary innovation and new technologies for our long-term major customers. WSI engineers help operators determine what pipe specifications best meet well design requirements, especially in complex, challenging applications, whether during the drilling or completion phase of well construction activities.

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WSI is strategically positioned to respond globally with a focus on U.S. onshore and offshore Gulf of Mexico (“GOM”), and international offshore opportunities with a variety of sizes and premium thread configurations complimented by in-house inspection and on-site machining capabilities expediting turnaround and deliveries.

WSIs’ depth of inventory resulting from consistent investments through the cycles, seasoned field experience, in-house engineering expertise and long-standing relationships with strategic suppliers enables customer relationships that make it a leading provider in the GOM and international markets with a focus on continued innovation that is difficult to replicate. Capital expenditures over the next year to maintain our existing fleet is expected to be similar to our 2023 capital expenditures assuming that the second half 2023 activity levels and current drilling and completion practices continue throughout 2024.

 

Stabil Drill

 

Stabil Drill provides comprehensive Bottom Hole Assembly (BHA) support, ranging from custom component engineering and fabrication to rental drilling tools and repairs. With an inventory of more than 50,000 downhole tools, extensive experience, state-of-the-art facilities, and cutting-edge solutions, Stabil Drill helps operators optimize performance on the most challenging drilling operations.

 

With significant U.S. land capabilities deployable to offshore and international markets, Stabil Drill serves customers worldwide and is poised for growth opportunities with existing customers and through geographic expansion of product offerings.

In-house manufacturing, repair services, and efficient fleet management practices effectively mitigated supply chain challenges and maintained leading market share positions in U.S. land and select Latin American regions.

 

HB Rentals

 

HB Rentals’ offerings span a wide breadth of offshore rentals, from single living quarters to complete multi-module complexes and support infrastructure.

 

Their comprehensive support for offshore services includes initial consulting and design, project management, engineering, custom fabrication, logistics planning, installation, and commissioning. HB Rentals has opportunities for fleet expansion within the U.S. wind market and defense projects along with plug and abandonment (“P&A”) opportunities in GOM.

Well Services Segment

 

Our well services include long standing, industry leading brands with a long history of strong, collaborative relationships with customers and suppliers.

Services include risk management, well control and training, hydraulic workover and snubbing, engineering, and manufacturing of premium completion tools including the Multi-zone, single trip (MST) sand control system. The Well Services segment also provides cementing, wireline, and coil tubing services with operations in Latin America and Kuwait.

 

Wild Well Control (“WWC”)

 

WWC provides advanced engineering solutions, unconventional intervention, personnel, equipment, and well control training. WWC provides IADC well control training for operators and students worldwide. Additional WWC services include assisting operators in risk management, planning, preparedness, prevention, and response services.

As a leading global provider of onshore and offshore well control emergency response, pressure control, relief well planning, engineering, and well control training services, with the largest team of dedicated professionals and inventory of well control equipment staged for deployment around the world, WWC responds to the majority of the well control emergency responses worldwide.

WWC continues to develop opportunities by leveraging its global Subsea Capping response consortium WellCONTAINED. WWC also continues to pursue additional engineering capabilities and capacity and has brought its well control expertise to consult and advise on future carbon capture projects through its industry relationships with major oil companies.

 

Superior Completion Services (“SCS”)

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SCS is primarily focused on offshore sand control applications, including deep water Gulf of Mexico and Brazil, SCS’s multi-zone single-trip systems (MST) with zonal isolation offers flexibility in sand placement techniques. Demonstrated capabilities accommodate high pump rates and exceptional proppant volumes; the system also allows for varied zone spacing and enhanced reservoir production.

Design engineering and in-house manufacturing capacity compliment its focus on innovative technology, service quality and delivery flexibility which enable operators to have the certainty of supply with the flexibility to manage timing of drilling and completion phases of well construction, especially with long lead-time projects in deep water development.

International Snubbing Services (“ISS”)

Operating in two geographical markets, U.S. and Australia, ISS provides hydraulic workover and snubbing services with an emphasis on well plug & abandonment applications.

International Production Services (“IPS”)

With capabilities in three global regions, most notably Argentina and Kuwait, IPS provides well services such as cementing, wireline, pressure pumping, coil tubing and downhole tool services.

Strategic Outlook

The Company’s positive performance in 2023 validates the strategy developed in 2021 with a sequential focus on product lines, geographic footprint and support cost rationalization. Over the last three years, we have met and overcome challenges and delivered on safety, service quality and financial performance. We have consistently demonstrated discipline and stewardship as evidenced by our return of cash to shareholders, with an approximately $250 million dividend in December 2022 and an additional approximately $250 million dividend expected in March 2024, all while retaining a strong capital structure.

 

In 2024, the Company will continue to explore alternatives to enhance shareholder value, including potential merger or acquisition opportunities. As part of this process, we remain in, and continue to pursue, preliminary or exploratory dialogue with various potential counterparties. In parallel, the Company will continue to seek opportunities to optimize its capital structure, including actions to facilitate additional return of capital to shareholders.

Our Board has not set a timetable or made any decisions related to further actions or potential strategic alternatives, including a future dividend, at this time. The declaration of dividends is at the discretion of the Company’s board of directors and will depend on the Company’s financial results, cash requirements, future prospects, contractual restrictions and other factors deemed relevant by the Company’s board of directors. Additionally, any potential transaction would depend upon entry into definitive agreements with a potential counterparty on terms acceptable to us. There can be no assurance that we will enter any such transaction or consummate or pursue any transaction or other strategic alternative.

 

 

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Industry Trends

 

The oil and gas industry is both cyclical and seasonal. The level of spending in the energy industry is heavily influenced by the current and expected future prices of oil and natural gas, but is also impacted by ESG initiatives and ongoing supply chain shortages. Changes in spending result in an increased or decreased demand for our services and products. Rig count is an indicator of the level of spending by oil and gas companies.

 

Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig count, which are summarized in the table below.

 

 

 

For the Year Ended

 

 

 

 For the Year Ended

 

 

 

 

 

December 31,

 

 

2023 to 2022

December 31,

 

 

2022 to 2021

 

2023

 

 

2022

 

 

% Change

 

2021

 

 

% Change

Worldwide Rig Count (1)

 

 

 

 

 

 

 

 

 

 

 

 

U.S.:

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

669

 

 

 

708

 

 

(5.5%)

 

464

 

 

52.6%

Offshore

 

 

19

 

 

 

15

 

 

26.7%

 

14

 

 

7.1%

Total

 

 

688

 

 

 

723

 

 

(4.8%)

 

478

 

 

51.3%

International (2)

 

 

942

 

 

 

851

 

 

10.7%

 

755

 

 

12.7%

Worldwide Total

 

 

1,630

 

 

 

1,574

 

 

3.6%

 

1,233

 

 

27.7%

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Prices (average)

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil (West Texas Intermediate)

 

$

76.96

 

 

$

94.90

 

 

(18.9%)

$

68.14

 

 

39.3%

Natural Gas (Henry Hub)

 

$

2.64

 

 

$

6.42

 

 

(58.9%)

$

3.91

 

 

64.2%

 

(1)
Estimate of drilling activity as measured by average active drilling rigs based on Baker Hughes Co. rig count information.
(2)
Excludes Canadian rig counts.

 

 

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Comparison of the Results of Operations for the Years Ended December 31, 2023 and 2022

 

We reported net income from continuing operations for the year ended December 31, 2023 (the “Current Year”) of $174.6 million on revenues of $919.4 million. This compares to a net income from continuing operations for the year ended December 31, 2022 (the “Prior Year”) of $291.0 million on revenues of $884.0 million. The decrease in net income from continuing operations in the Current Year is partially attributable to recognition of a worthless stock deduction and valuation allowance releases in the Prior Year with estimated net tax benefits of $104.0 million and $18.5 million, respectively. An immaterial misstatement was identified and recorded in the Current Year related to the worthless stock deduction, resulting in additional income tax expense of $7.6 million.

 

 

 

Successor

 

 

 

 

 

 

For the Year Ended

 

 

 

 

 

 

 

 

December 31,

 

 

Change

 

 

2023

 

 

2022

 

 

$

 

 

%

 Revenues:

 

 

 

 

 

 

 

 

 

 

 

 Rentals

 

$

452,249

 

 

$

402,942

 

 

$

49,307

 

 

12.2%

 Well Services

 

 

467,171

 

 

 

481,018

 

 

 

(13,847

)

 

(2.9%)

 Total revenues

 

 

919,420

 

 

 

883,960

 

 

 

35,460

 

 

 

 Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 Rentals

 

 

149,835

 

 

 

137,626

 

 

 

12,209

 

 

8.9%

 Well Services

 

 

324,292

 

 

 

339,325

 

 

 

(15,033

)

 

(4.4%)

 Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion)

 

 

474,127

 

 

 

476,951

 

 

 

(2,824

)

 

 

 Depreciation, depletion, amortization and accretion

 

 

81,068

 

 

 

98,060

 

 

 

(16,992

)

 

(17.3%)

 General and administrative expenses

 

 

125,659

 

 

 

128,294

 

 

 

(2,635

)

 

(2.1%)

 Restructuring and transaction expenses

 

 

3,294

 

 

 

6,375

 

 

 

(3,081

)

 

(48.3%)

 Other gains, net

 

 

(6,549

)

 

 

(29,134

)

 

 

22,585

 

 

(77.5%)

 Income from operations

 

 

241,821

 

 

 

203,414

 

 

 

38,407

 

 

 

 Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 Interest income, net

 

 

25,761

 

 

 

11,713

 

 

 

14,048

 

 

119.9%

 Loss on Blue Chip Swap securities

 

 

(19,856

)

 

 

-

 

 

 

(19,856

)

 

100.0%

 Other expense, net

 

 

(13,391

)

 

 

(1,804

)

 

 

(11,587

)

 

**

 Income from continuing operations before income taxes

 

 

234,335

 

 

 

213,323

 

 

 

21,012

 

 

 

 Income tax benefit (expense)

 

 

(59,741

)

 

 

77,719

 

 

 

(137,460

)

 

(176.9%)

 Net income from continuing operations

 

 

174,594

 

 

 

291,042

 

 

 

(116,448

)

 

 

 Income (loss) from discontinued operations, net of income tax

 

 

426

 

 

 

(4,577

)

 

 

5,003

 

 

(109.3%)

 Net income

 

$

175,020

 

 

$

286,465

 

 

$

(111,445

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 ** Not a meaningful percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and Cost of Revenues

Revenues from our Rentals segment increased $49.3 million, or 12.2%, in the Current Year as compared to the Prior Year. Cost of revenues also increased $12.2 million, or 8.9%, as compared to the Prior Year. These increases are primarily attributable to increased revenue across all rental product service lines, which include our premium drill pipe, accommodations and bottom hole assemblies. Additionally, higher offshore and international rig counts provided for greater utilization of these rentals, which contributed to an increase in gross margin of 66.9% for the Current Year as compared to 65.8% for the Prior Year.

 

Revenues from our Well Services segment decreased $13.8 million and cost of revenues decreased $15.0 million in the Current Year as compared to the Prior Year. Revenues and cost of revenues in the Current Year were negatively impacted by $36.0 million and $24.0 million, respectively, from the disposition of certain non-core businesses in the second half of 2022 and 2023. Excluding the impact of these dispositions, revenues in the Current Year increased $22.2 million and cost of revenues increased $9.0 million from improvements in our completion services and well control service lines. Excluding the impact of dispositions, gross margin for the Current Year increased to 31.5% as compared to 29.9% for the Prior Year due to continued increases in service revenues with higher margins, such as our U.S. offshore and international completion services and international well control services. Additionally, increased offshore and international rig counts allowed for higher activity in our U.S. offshore and international operations.

Depreciation, Depletion, Amortization and Accretion

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Depreciation, depletion, amortization and accretion expense for December 31, 2023 decreased $17.0 million, or 17.3%, as compared to the Prior Year. Depreciation expense for the Prior Year was impacted by the valuation process under fresh start accounting, where certain fully depreciated assets were assigned a new estimated fair value and a new remaining useful life of less than 36 months.

Restructuring and Transaction Expenses

 

Restructuring and transaction expenses relate to charges recorded as part of our strategic efforts to reconfigure our organization both operationally and financially. Current Year restructuring and transaction expense decreased $3.1 million or 48.3%, as compared to the Prior Year.

 

Other gains, net

 

Other gains in the Current Year declined by $22.6 million primarily due to inclusion of a $17.4 million gain from revisions in estimates related to our decommissioning liability in the Prior Year.

 

Loss on Blue Chip Swap Securities

 

During the Current Year, we utilized an indirect foreign mechanism known as a Blue Chip Swap (“BCS”) to remit a total of $13.9 million U.S. dollars from Argentina through the purchase and sale of BCS securities. These transactions resulted in a net loss of $19.9 million during the Current Year. See “Note 16 - Blue Chip Swap Securities”.

 

Interest Income, net

 

Interest income, net for Current Year was $25.8 million compared to $11.7 million for the Prior Year. The increase in interest income was driven by interest derived on overnight money market accounts primarily in the United States and Argentina.

 

Other Expense, net

 

Losses on foreign currencies during the Current Year and Prior Year were $12.8 million and $12.6 million, respectively. Losses on foreign currency primarily relate to our operations in Argentina which devalued its peso by more than 50% during the Current Year. Losses on foreign currencies related to our operations in Argentina totaled $14.8 million and $7.5 million in the Current Year and Prior Year, respectively.

Losses on foreign currencies during the Prior Year also include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy.

During the Prior Year, we disposed of 4.1 million shares of Select Energy Services, Inc. (“Select”) for $34.7 million, and we recognized gains totaling $8.9 million in connection with these transactions. As of December 31, 2022, we had disposed of all shares of Select.

Income Taxes

The effective tax rate in the Current Year was an expense of 25.5%. The effective tax rate for the Current Year is different from the U.S. federal statutory rate of 21.0% due to foreign income taxable in the U.S., a non-recurring non-deductible loss, and foreign tax rates that differ from the U.S. federal statutory rate. The effective tax rate in the Current Year was also impacted by $9.9 million in income tax benefits from reversals of uncertain tax positions in foreign jurisdictions. Finally, the effective tax rate in the Current Year was impacted by adjustments to valuation allowances in the U.S. and foreign jurisdictions. We evaluate deferred tax assets, including tax credits and net operating losses, on a routine basis and this may result in the release of all or a portion of currently recorded valuation allowance when there is sufficient positive evidence.

Additionally, we identified an error in the tax provision for the year ended December 31, 2022 pertaining to certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022. As such, we recognized an additional income tax expense of $7.6 million during the three months ended March 31, 2023, with a corresponding decrease to deferred tax assets, to correct this immaterial misstatement.

 

The effective tax rate for the Prior Year was a benefit of 36.4%. The effective tax rate for the Prior Year is different from the U.S. federal statutory rate of 21.0% primarily from the recognition of a worthless stock deduction for U.S. income tax purposes with an estimated net tax benefit of $104.0 million. In addition, there were valuation allowance releases primarily for foreign deferred tax

30


 

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assets and a portion of U.S. foreign tax credits offset by foreign losses for which no tax benefit was recorded resulting in net tax benefit of $18.5 million.

 

Discontinued Operations

 

Income from discontinued operations, net of tax, was $0.4 million for the Current Year as compared to a loss from discontinued operations of $4.6 million for the Prior Year. See “Note 18 - Discontinued Operations” to our consolidated financial statements for further discussion.

 

Liquidity and Capital Resources

 

Cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Certain sources and uses of cash, such as our level of discretionary capital expenditures and divestitures of non-core assets, are within our control and are adjusted as necessary based on market conditions.

Our primary sources of liquidity have been cash and cash equivalents, cash generated from operations and from asset sales, and availability under our Credit Facility. As of December 31, 2023, we had cash, cash equivalents and restricted cash of $477.1 million. During the Current Year, net cash provided by operating activities was $202.4 million. We received $31.1 million in cash proceeds from the sale of assets and $13.9 million in proceeds from the sale of BCS securities. The primary uses of liquidity are to provide support for operating activities, restructuring activities and capital expenditures. We spent $74.5 million of cash on capital expenditures and $33.8 million on the purchases of BCS securities during the Current Year. Additionally, during the Current Year, we paid $27.1 million to the Washington State Department of Revenue related to a use tax assessment from several years ago that we have appealed and is currently under review.

The energy industry faces growing negative sentiment in the market which may affect our ability to access capital on terms favorable to us. While we have confidence in the level of support from our lenders, this negative sentiment in the energy industry has not only impacted our customers in North America, but also affected the availability and pricing for most credit lines extended to participants in the energy industry. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.

Distributions to Shareholders

On November 16, 2022, we announced that our Board declared a special dividend of $12.45 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend was paid on December 28, 2022 to holders of record as of December 16, 2022.

On February 13, 2024, we announced that our Board declared a special dividend of $12.38 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend will be paid on March 12, 2024 to holders of record as of February 27, 2024.

Equity Reclassification

 

On December 18, 2023, following the approval of our Board and stockholders each share of Class B Common Stock was automatically reclassified into one share of Class A Common Stock.

 

Debt Instruments

 

During the Current Year, we entered into a new Credit Agreement providing for a $140.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”). The Credit Facility matures on December 6, 2028, subject to certain conditions set forth in the Credit Agreement. The issuance of letters of credit reduces availability under the Credit Facility on a dollar-for-dollar basis.

For additional information, please see Part II, Item 8, “Financial Statements and Supplementary Data – Note 9 - “Debt”.

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As of December 31, 2023, the borrowing base under the Credit Facility was approximately $140.0 million and we had $31.5 million of letters of credit outstanding that reduced the borrowing availability under the Credit Facility.

 

Critical Accounting Policies and Estimates

 

The accounting policies described below are considered critical in obtaining an understanding of our consolidated financial statements because their application requires significant estimates and judgments by management in preparing our consolidated financial statements. Management’s estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be critical if the following conditions apply:

the estimate requires significant assumptions; and
changes in estimate could have or, a material effect on our consolidated results of operations or financial condition; or
if different estimates that could have been selected had been used, there could be a material effect on our consolidated results of operations or financial condition.

It is management’s view that the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, actual results can differ significantly from those estimates under different assumptions and conditions. The sections below contain information about our most critical accounting estimates.

Long-Lived Assets Valuation We review long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. We record impairment losses on long-lived assets to be held and used in operations when the fair value of those assets is less than their respective carrying amount. Impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Fair value is measured, in part, by the estimated cash flows to be generated by those assets. Our cash flow estimates are based upon, among other things, historical results adjusted to reflect our best estimate of future market rates, utilization levels and operating performance. Our estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. Assets are generally grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell. Our estimate of fair value represents our best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying value of these assets and, in periods of prolonged down cycles, may result in impairment charges.

Decommissioning liability Our decommissioning liability is associated with our oil and gas property and include costs related to the plugging of wells, removal of the related platform and equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially. Estimates of our decommissioning liability are calculated using the income approach. Estimates of future retirement costs are adjusted for an estimated inflation rate over the expected time period prior to retirement and future cash outflows are discounted by a credit adjusted risk-free rate.

Income Taxes We use the asset and liability method of accounting for income taxes. This method considers the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Our deferred tax calculation requires us to make certain estimates about our future operations. Changes in state, federal and foreign tax laws, as well as changes in our financial condition or the carrying value of existing assets and liabilities, could affect these estimates. The effect of a change in tax rates is recognized as income or expense in the period that the rate is enacted.

 

Recently Adopted and Issued Accounting Guidance

 

See Part II, Item 8, “Financial Statements and Supplementary Data – Note 20New Accounting Pronouncements”.

 

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. A discussion of our market risk exposure in financial instruments follows.

 

Foreign Currency Exchange Rate Risk

 

While we continue to be exposed to foreign currency exchange rates, we do not hold derivatives for trading purposes or use derivatives with complex features. When we believe it is prudent, we may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. As of December 31, 2023, we did not have any outstanding foreign currency forward contracts.

 

For additional information, please see Part II, Item 8, “Financial Statements and Supplementary Data – Note 16 - ‘Blue Chip Swap Securities’”.

 

Interest Rate Risk

 

At December 31, 2023 and 2022, we had no variable rate debt outstanding.

 

Commodity Price Risk

 

Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically be produced.

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Item 8. Financial Statements and Supplementary Data

 

Consolidated Financial Statements and Notes

Page

Reports of Independent Registered Public Accounting Firm (PCAOB ID 238)

35

Consolidated Balance Sheets

38

Consolidated Statements of Operations

39

Consolidated Statements of Comprehensive Income (Loss)

40

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

41

Consolidated Statements of Cash Flows

42

Notes to Consolidated Financial Statements

43

 

 

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Table of Contents

 

 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Superior Energy Services, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Superior Energy Services, Inc. and its subsidiaries (Successor) (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity (deficit) and of cash flows for the years ended December 31, 2023 and 2022, and for the period from February 3, 2021 through December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 and 2022, and for the period from February 3, 2021 through December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

 

Basis of Accounting

 

As discussed in Note 1 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtors’ Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtors emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of February 2, 2021.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition

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As described in Notes 1 and 3 to the consolidated financial statements, the Company recognized total revenues of $919,420 thousand for the year ended December 31, 2023. Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration management expects to be entitled to in exchange for services rendered, rentals provided or products sold. Services revenue primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rentals revenue is primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of rental equipment over the term of the rental period, which is generally less than twelve months. Products are generally sold based upon purchase orders or contracts with customers that include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices charged for services rendered, rentals provided or products sold.

The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing the revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as contracts, purchase orders, invoices, proof of delivery or of services performed, and where applicable, subsequent cash receipts and (ii) testing a sample of outstanding accounts receivable balances as of December 31, 2023 by obtaining and inspecting source documents, such as invoices, proof of delivery or of services performed, and where applicable, subsequent cash receipts.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 7, 2024

 

We have served as the Company’s auditor since 2021.

 

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Superior Energy Services, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity (deficit) and of cash flows of Superior Energy Services, Inc. and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2021 through February 2, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2021 through February 2, 2021 in conformity with accounting principles generally accepted in the United States of America.

Basis of Accounting

As discussed in Note 1 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtors’ Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtors emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of February 2, 2021.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 21, 2022

We have served as the Company’s auditor since 2021.

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

 

 

 

December 31, 2023

 

 

December 31, 2022

 

 ASSETS

 

 

 

 

 

 

 Current assets:

 

 

 

 

 

 

 Cash and cash equivalents

 

$

391,684

 

 

$

258,999

 

 Accounts receivable, net

 

 

276,868

 

 

 

249,808

 

 Income taxes receivable

 

 

10,542

 

 

 

6,665

 

 Prepaid expenses

 

 

18,614

 

 

 

17,299

 

 Inventory

 

 

74,995

 

 

 

65,587

 

 Other current assets

 

 

7,922

 

 

 

6,276

 

 Assets held for sale

 

 

-

 

 

 

11,978

 

 Total current assets

 

 

780,625

 

 

 

616,612

 

 Property, plant and equipment, net

 

 

294,960

 

 

 

282,376

 

 Note receivable

 

 

69,005

 

 

 

69,679

 

 Restricted cash

 

 

85,444

 

 

 

80,108

 

 Operating lease right-of-use assets

 

 

15,972

 

 

 

18,797

 

 Deferred tax assets

 

 

67,241

 

 

 

97,492

 

 Other assets, net

 

 

27,746

 

 

 

25,948

 

 Total assets

 

$

1,340,993

 

 

$

1,191,012

 

 

 

 

 

 

 

 

 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 Current liabilities:

 

 

 

 

 

 

 Accounts payable

 

 

38,214

 

 

$

31,570

 

 Accrued expenses

 

 

103,782

 

 

 

116,575

 

 Income taxes payable

 

 

20,220

 

 

 

11,682

 

 Decommissioning liability

 

 

21,631

 

 

 

9,770

 

 Liabilities held for sale

 

 

-

 

 

 

3,349

 

 Total current liabilities

 

 

183,847

 

 

 

172,946

 

 Decommissioning liability

 

 

148,652

 

 

 

150,901

 

 Operating lease liability

 

 

11,338

 

 

 

14,634

 

 Other liabilities

 

 

36,245

 

 

 

69,647

 

 Total liabilities

 

 

380,082

 

 

 

408,128

 

 

 

 

 

 

 

 

 Stockholders’ equity:

 

 

 

 

 

 

 Class A Common Stock $0.01 par value; 52,000 shares authorized;
    
20,151 shares issued and outstanding at December 31, 2023 and 19,999 shares issued and outstanding at December 31, 2022

 

 

202

 

 

 

200

 

 Class B Common Stock $0.01 par value;
      
84 shares issued and 80 shares outstanding at December 31, 2022

 

 

-

 

 

 

1

 

 Class A Additional paid-in capital

 

 

911,388

 

 

 

902,486

 

 Class B Additional paid-in capital

 

 

-

 

 

 

5,896

 

 Accumulated deficit

 

 

49,321

 

 

 

(125,699

)

 Total stockholders’ equity

 

 

960,911

 

 

 

782,884

 

 Total liabilities and stockholders’ equity

 

$

1,340,993

 

 

$

1,191,012

 

See accompanying notes to consolidated financial statements.

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except share data)

 

 

Successor

 

 

 

Predecessor

 

 

 

For the Year Ended
December 31, 2023

 

 

For the Year Ended
December 31, 2022

 

 

For the Period February 3, 2021 through December 31, 2021

 

 

 

For the Period January 1, 2021 through February 2, 2021

 

 Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 Services

 

$

357,936

 

 

$

386,775

 

 

$

305,699

 

 

 

$

19,234

 

 Rentals

 

 

346,728

 

 

 

309,314

 

 

 

208,951

 

 

 

 

14,434

 

 Product sales

 

 

214,756

 

 

 

187,871

 

 

 

134,104

 

 

 

 

12,260

 

 Total revenues

 

 

919,420

 

 

 

883,960

 

 

 

648,754

 

 

 

 

45,928

 

 Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 Services

 

 

238,543

 

 

 

268,078

 

 

 

236,784

 

 

 

 

15,080

 

 Rentals

 

 

120,738

 

 

 

102,975

 

 

 

86,354

 

 

 

 

5,876

 

 Product sales

 

 

114,846

 

 

 

105,898

 

 

 

99,114

 

 

 

 

8,817

 

 Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion)

 

 

474,127

 

 

 

476,951

 

 

 

422,252

 

 

 

 

29,773

 

 Depreciation, depletion, amortization and accretion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 Services

 

 

26,878

 

 

 

37,168

 

 

 

105,426

 

 

 

 

3,500

 

 Rentals

 

 

26,036

 

 

 

29,724

 

 

 

69,443

 

 

 

 

2,627

 

 Product sales

 

 

28,154

 

 

 

31,168

 

 

 

44,990

 

 

 

 

2,231

 

 Total depreciation, depletion, amortization and accretion

 

 

81,068

 

 

 

98,060

 

 

 

219,859

 

 

 

 

8,358

 

 General and administrative expenses

 

 

125,659

 

 

 

128,294

 

 

 

117,575

 

 

 

 

11,052

 

 Restructuring and transaction expenses

 

 

3,294

 

 

 

6,375

 

 

 

22,952

 

 

 

 

1,270

 

 Other (gains) and losses, net

 

 

(6,549

)

 

 

(29,134

)

 

 

16,726

 

 

 

 

-

 

 Net income (loss) from operations

 

 

241,821

 

 

 

203,414

 

 

 

(150,610

)

 

 

 

(4,525

)

 Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest income, net

 

 

25,761

 

 

 

11,713

 

 

 

2,331

 

 

 

 

202

 

 Reorganization items, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

335,560

 

 Loss on Blue Chip Swap securities

 

 

(19,856

)

 

 

-

 

 

 

-

 

 

 

 

-

 

 Other expense, net

 

 

(13,391

)

 

 

(1,804