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, instability and continued hostilities in the Middle East, including increased tensions with Iran, inflation and high interest rates, 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 increased hostilities in the Middle East and heightened tensions with Iran; |
| ● | 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 impact of central bank policy actions 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; |
| ● | 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; |
| ● | 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; |
| ● | the impact of regulatory and related policy actions by federal, state and/or local governments, such as the Inflation Reduction Act of 2022 (“IRA 2022”), that may negatively impact the future production of oil and gas in the U.S., thereby reducing demand for our services; |
| ● | changes in global political or economic conditions, generally, and in the markets we serve, including the rate of inflation and potential economic recession; |
| ● | impacts related to changing U.S. and foreign trade policies, including increased trade restrictions or tariffs; |
| ● | 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, or at all; |
| ● | 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 instability and hostilities in the Middle East, including heightened tensions with Iran; |
| ● | information technology failures or cyberattacks; |
| ● | 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. |
| ● | Political instability or armed conflict in crude oil or natural gas producing regions and OPEC+ policy decisions. |
| ● | The failure to successfully integrate acquired assets or operations on a timely basis. |
| ● | 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. |
| ● | Our industry typically experiences a high rate of employee turnover. |
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 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. |
| ● | 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. |
| ● | 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. |
| ● | We may be required to take write-downs of the carrying values of our long-lived assets and finite-lived intangible assets as well as the carrying value of goodwill. |
