CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information in this Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Annual Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Annual Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “preliminary,” “forecast,” and similar expressions or variations are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included elsewhere in this Annual Report on Form 10-K, as well as those set forth from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.
Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
| ● | global economic distress, including that resulting from the sustained Russia-Ukraine war and related economic sanctions, the conflict in the Israel-Gaza region and continued hostilities in the Middle East, inflation and high interest rates, and potential energy insecurity in Europe, each of which may decrease demand for oil and natural gas or contribute to volatility in the prices for oil and natural gas, which may decrease demand for our services; |
| ● | actions taken by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”) with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with announced supply limitations, which may be exacerbated by an increase in hostilities in the Middle East; |
| ● | the level of capital spending and access to capital markets by oil and gas companies in response to changes in commodity prices or reduced demand; |
| ● | the ability to source certain raw materials and other critical components or manufactured products globally on a timely basis from economically advantaged sources, including any delays and/or supply chain disruptions due to increased hostilities in the Middle East; |
| ● | the impact of central bank policy actions, such as sustained interest rate increases in response to high rates of inflation, and disruptions in the bank and capital markets; |
| ● | the severity and duration of world health events, including the coronavirus (“COVID-19”) pandemic and associated repercussions, and any resulting impact on commodity prices and supply and demand considerations; |
| ● | the potential deterioration of our customers’ financial condition, including defaults resulting from actual or potential insolvencies; |
| ● | the degree to which consolidation among our customers may affect spending on U.S. drilling and completions, including the recent consolidation in the Permian Basin; |
| ● | trends and volatility in oil and gas prices, and our ability to manage through such volatility; |
| ● | the impact of current and future laws, rulings and governmental regulations, including those related to hydraulic fracturing, accessing water, disposing of wastewater, transferring produced water, interstate freshwater transfer, chemicals, carbon pricing, pipeline construction, taxation or emissions, leasing, permitting or drilling on federal lands and various other environmental matters; |
| ● | regional impacts to our business, including our key infrastructure assets within the Bakken, the Northern Delaware and Midland Basin portions of the Permian Basin, and the Haynesville; |
| ● | capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a decrease in the demand for our services in our core markets; |
| ● | regulatory and related policy actions intended by federal, state and/or local governments to reduce fossil fuel use and associated carbon emissions, or to drive the substitution of renewable forms of energy for oil and gas, may over time reduce demand for oil and gas and therefore the demand for our services, including as a result of the Inflation Reduction Act of 2022 (“IRA 2022”) or otherwise; |
| ● | actions taken by the Biden Administration or state governments, such as executive orders or new or expanded regulations, that may negatively impact the future production of oil and natural gas in the U.S. or our customers’ access to federal and state lands for oil and gas development operations, thereby reducing demand for our services in the affected areas; |
| ● | changes in global political or economic conditions, generally, and in the markets we serve, including the rate of inflation and potential economic recession; |
| ● | growing demand for electric vehicles that may result in reduced demand for refined products deriving from crude oil such as gasoline and diesel fuel, and therefore the demand for our services; |
| ● | our ability to hire and retain key management and employees, including skilled labor; |
| ● | our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms, including as a result of sustained increases in cost of capital resulting from Federal Reserve policies and otherwise; |
| ● | our health, safety and environmental performance; |
| ● | the impact of competition on our operations; |
| ● | the degree to which our E&P customers may elect to operate their water-management services in-house rather than source these services from companies like us; |
| ● | our level of indebtedness and our ability to comply with covenants contained in our Sustainability-Linked Credit Facility (as defined herein) or future debt instruments; |
| ● | delays or restrictions in obtaining permits by us or our customers; |
| ● | constraints in supply or availability of equipment used in our business; |
| ● | the impact of advances or changes in well-completion technologies or practices that result in reduced demand for our services, either on a volumetric or time basis; |
| ● | acts of terrorism, war or political or civil unrest in the U.S. or elsewhere, such as the Russia-Ukraine war, the conflict in the Israel-Gaza region and/or other instability and hostilities in the Middle East; |
| ● | accidents, weather, natural disasters or other events affecting our business; and |
| ● | the other risks identified in this Annual Report on Form 10-K, including, without limitation, those under the headings “Item 1A. Risk Factors,” “Item 1. Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 13. Certain Relationships and Related Transactions, and Director Independence.” |
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Our future results will depend upon various other risks and uncertainties, including those described elsewhere in this Annual Report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are qualified in their entirety by this cautionary note.
Risk Factor Summary
Risks Related to Our Business Operations
| ● | Our business depends on capital spending by the oil and gas industry in the U.S. and reductions in capital spending could have a material adverse effect on our liquidity, results of operations and financial condition. |
| ● | Continuing or worsening inflationary issues and associated changes in monetary policy have resulted in and may result in additional increases to the costs of our goods, services and personnel, which in turn could cause our capital expenditures and operating costs to rise. |
| ● | The failure to successfully integrate acquired assets or operations on a timely basis. |
| ● | Continued volatility in oil and/or natural gas prices may adversely affect the demand for our services. |
| ● | The IRA 2022 could accelerate the transition to new energy sources and could impose new costs on our customers’ operations. |
| ● | Our key infrastructure assets in Louisiana, North Dakota, New Mexico and Texas are immobile and thus vulnerable to risks associated with conducting business in these regions. |
| ● | Restrictions on the ability to procure water or changes in sourcing or disposal requirements could add costs or decrease demand for some of our services. |
| ● | Regulatory and societal efforts to reduce fossil fuel use and associated carbon emissions could reduce demand for oil and natural gas, and thereby the demand for our services, including as a result of the IRA 2022 or otherwise. |
| ● | We may be subject to claims for personal injury and property damage. |
| ● | We may be subject to cybersecurity risks. |
| ● | We may be adversely affected by uncertainty in the global financial markets and a worldwide economic downturn. |
| ● | A significant increase in fuel prices may adversely affect our transportation costs. |
Risks Related to Customers and Suppliers
| ● | Significant price volatility or interruptions in supply of our raw materials for our chemicals business may result in increased costs and negatively impact our financial results. |
Risks Related to Compliance with Regulations
| ● | Legislative and regulatory initiatives in the U.S. relating to hydraulic fracturing or water management could result in operating restrictions, delays or cancellations in our customers’ operations, reducing demand for our services. |
| ● | Our and our customers' operations are subject to a number of regulatory risks as a result of climate change initiatives. |
| ● | Our chemical products are subject to regulations that tend to become more onerous over time, that could result in increased costs. |
| ● | State and federal legislation and regulatory initiatives relating to our disposal operations and seismicity could harm our business. |
Risks Related to Personnel and Related Parties
| ● | Our industry typically experiences a high rate of employee turnover. |
| ● | Transactions with related parties present possible conflicts of interest. |
Risks Related to Our Capital Structure
| ● | If we fail to maintain and enhance an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. |
| ● | We may incur indebtedness or issue additional equity securities to execute our long-term growth strategy. |
| ● | Our Sustainability-Linked Credit Facility subjects us to various financial and other restrictive covenants. |
| ● | Future sales or issuances of our equity securities may depress our share price or dilute your ownership. |
| ● | Provisions in our governing documents and Delaware law may discourage takeover attempts. |
| ● | SES Legacy Holdings, LLC (“Legacy Owner Holdco”) controls a significant percentage of our voting power. |
| ● | Our amended and restated certificate of incorporation may limit certain corporate opportunities. |
| ● | Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings. |
Risks Related to Our Organizational Structure
| ● | We are a holding company and our sole material asset consists of common units (“SES Holdings LLC Units”) in SES Holdings, LLC (“SES Holdings”), which we are dependent upon for distributions and payments. |
| ● | We are party to two tax receivable agreements (the “Tax Receivable Agreements”) that require payments for certain tax benefits, and such payment amounts could be significant. |
| ● | In certain cases, payments under the Tax Receivable Agreements may be accelerated and/or significantly exceed the actual benefits. |
| ● | If SES Holdings were to become a publicly-traded partnership taxable as a corporation for U.S. federal income tax purposes, we could experience tax inefficiencies. |
| ● | Crestview Partners II GP, L.P. (“Crestview GP”) may have interests that conflict with the interests of holders of the Class A common stock. |
| ● | Our ability to use certain of our current and future net operating loss carryforwards (“NOLs”) may be limited and could adversely affect our operating results and cash flows. |
General Risks
| ● | We may not be able to finance future growth of our operations or future acquisitions. |
| ● | The growth of our business through acquisitions may expose us to various risks. |
| ● | Our success depends on key members of our management. |
| ● | We may be required to take write-downs of the carrying values of our long-lived assets and finite-lived intangible assets. |
