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| PART I—FINANCIAL INFORMATION | |
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| Item 1. | Financial Statements (Unaudited) | 6 |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 41 |
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 58 |
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| Item 4. | Controls and Procedures | 58 |
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| PART II—OTHER INFORMATION | | |
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| Item 1. | Legal Proceedings | 59 |
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| Item 1A. | Risk Factors | 59 |
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 59 |
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| Item 3. | Defaults Upon Senior Securities | 60 |
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| Item 4. | Mine Safety Disclosures | 60 |
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| Item 5. | Other Information | 60 |
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| Item 6. | Exhibits | 60 |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) 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 Quarterly 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 Quarterly 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 in our most recent Annual Report on Form 10-K, in this Quarterly Report and 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, including heightened tensions with Iran, inflation and elevated 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; |
| ● | changes in global political or economic conditions, generally, including as a result of the fall 2024 United States presidential election and any resultant political and economic uncertainty, including the rate of inflation and potential economic recession; |
| ● | 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, elevated rates of interest in response to high rates of inflation, and disruptions in the bank and capital markets; |
| ● | 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 federal and 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; |
| ● | 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 exploration and production (“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; |
| ● | the severity and duration of world health events and any resulting impact on commodity prices and supply and demand considerations; |
| ● | accidents, weather, natural disasters or other events affecting our business; and |
| ● | the other risks identified in our most recent Annual Report on Form 10-K and under the headings “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II—Item 1A. Risk Factors” in this Quarterly Report. |
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 under the heading “Part I―Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K and under the heading “Part II―Item 1A. Risk Factors” in this Quarterly 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.
