Koil Energy Solutions Inc

General

Koil Energy Solutions, Inc., a Nevada corporation (the “Company”, “Koil Energy”, “we”, “our” and “us”), is an energy services company that provides equipment and support services to the world’s energy and offshore industries. Primary operations are conducted under Koil Energy Solutions, Inc., a Delaware corporation (“Koil Energy Delaware”), which is a wholly owned subsidiary of the Company.

Koil Energy’s website address iswww.koilenergy.com. The Company makes available, free of charge on its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Company electronically files such material with, or furnishes them to, the Securities and Exchange Commission (the “SEC”). Paper or electronic copies of these documents may be obtained upon request by contacting the Company. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including the Company, atwww.sec.gov.

Business Overview

Koil Energy is an energy services company that provides equipment and support services to the world’s energy and offshore industries. The Company provides innovative solutions to complex customer challenges presented between the production facility and the energy source. Koil Energy’s core services and technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, and related services. Additionally, Koil Energy’s experienced professionals can support subsea engineering, manufacturing, installation, commissioning, and maintenance projects located anywhere in the world. The Company’s broad line of solutions are engineered and manufactured primarily for major integrated, large independent, and foreign national energy companies in offshore areas throughout the world. These products are often developed in direct response to customer requests for solutions to critical needs in the field. The Company primarily serves the offshore oil and gas market; however, the Company’s product offerings and service capabilities are based on core competencies that are energy source agnostic and can be applied to additional markets, including offshore wind, offshore wave energy, hydrogen, and liquefied natural gas.

Koil Energy’s goal is to provide superior services and products to its customers in a safe, cost-effective, and timely manner. The Company believes there is significant demand for, and brand name recognition of, its established services and products due to the technical capabilities, reliability, cost-effectiveness, timeliness of delivery and execution, and operational efficiency features of these solutions.

In 2022, we changed our name from Deep Down, Inc., to Koil Energy Solutions, Inc. In connection with the name change, our ticker symbol was changed to “KLNG”.

For the years ended December 31, 2023 and 2022, the Company’s operations were organized as one reportable and one operating segment.

Services

Koil Energy supports all aspects of subsea field development with its engineering and project management services, including the design, installation, and retrieval of subsea equipment and systems, connection and termination operations, well-commissioning services, and construction support. The Company works closely with all customers to provide the fastest, safest, and most cost-effective solutions to a variety of complex issues. The Company also serves a range of customers, including operators, installation contractors, and subsea equipment manufacturers.

Project Management and Engineering. Koil Energy’s project managers and engineers have extensive experience and knowledge to support customers both on and offshore. Particularly, the Company specializes in the design and engineering of steel tube flying leads, umbilicals, flexible and rigid risers, flowlines, and jumpers. Koil Energy’s comprehensive subsea engineering services oversee all project requirements from conception to final commissioning, including offshore participation during installation to ensure proper execution and safe completion of projects.

Spooling Services. Koil Energy’s engineering teams provide the planning, supervision, specialized equipment, and coordination with offshore installation personnel for a customer’s pull-in and spooling needs. The Company has the ability to manage every stage of the process from terminations, spooling operations, installation, testing, monitoring, and pull-in for umbilicals and flying leads.

Testing and Commissioning Services. The Company can perform all aspects of testing related to connecting the umbilical termination assemblies, performing installations, and completing the commissioning of the system thereafter. This includes initial factory acceptance testing, extended factory acceptance testing, and system integration testing, and offshore installation and commissioning services. The Company also offers a variety of pumping systems to meet industry needs and offers maximum flexibility to ensure a safe and efficient commissioning program.

Storage Management. Koil Energy’s facility in Houston, Texas offers high quality warehousing and workshop capacity, external storage, and a strategic location near customers and key suppliers. Among other capabilities, the Company provides long-term specialized contract warehousing, long and short-term storage, material handling equipment, integrated inventory management, packing, and labeling.

*Equipment Refurbishment and Intervention Services.*The Company provides refurbishment and repurposing of recovered subsea equipment and associated support services for offshore interventions. As an emergency or intervention arises, the stored asset is engineered, reconfigured, and tested per customer specifications. Additionally, Koil Energy has developed a suite of proprietary equipment and tools available to address the critical offshore needs of its customers and minimize production disruptions due to unplanned events. A Koil Energy service technician is then deployed with the equipment to support the offshore campaign.

Products

Koil Energy designs, manufactures, fabricates, inspects, assembles, tests, and installs subsea distribution equipment used by major integrated, large independent, and foreign national energy companies in offshore areas throughout the world. The Company’s products are used during exploration, development, and production operations on offshore drilling rigs, installation and intervention vessels, and as part of the permanently installed subsea production infrastructure.

Flying Leads. Koil Energy designs, manufactures, and installs flying leads, particularly steel tube flying leads. Flying leads are umbilical jumpers with a termination plate at either end that support the transmission of hydraulic fluid and/or chemicals between the subsea equipment. The Company’s flagship product, the Loose Steel Tube Flying Lead (“LSFL®”), was developed to eliminate the residual memory left in traditional flying leads due to the bundling process. The loose lay of the tubes is more compliant allowing the bundle to lay flat on the sea floor and follow the prescribed lay path precisely. Koil Energy employs its Moray® termination system on each end of the LSFL®. The Moray® termination is a lightweight, high-strength, configurable, and field serviceable framework used to connect any commercially available multi-quick connect plate to the LSFL® bundle. The Moray® termination assembly offers several cost and time saving benefits over traditional competitive solutions that allow the Company to lower the total installed cost of customer projects.

Umbilical Hardware. Koil Energy designs and fabricates lightweight and compact umbilical hardware that covers the entire scope of a project’s needs from the topside platform to the subsea connection. The Company’s compliant Umbilical Termination Assembly (“UTA”) allows the installation team to terminate an umbilical with a higher degree of quality, place the critical components of the base unit on the reel or on the carousel, and handle it with additional ease and safety. The UTA can then be combined with the mud mat assembly easily and offers both first-end stab and hinge-over features as well as yoke second end landing.

Koil Energy’s termination services offer the ability to refurbish existing topside umbilical terminations from multiple manufacturers and provide a completely new connection, thus extending the life of the umbilical and the subsea field. Bend Stiffener Latchers™ are designed to secure a dynamic umbilical to an existing or standard flange offering significant cost savings without the need for modification to the rig interface or the use of divers. The quick-release and locking mechanism allows a single remotely operated vehicle to engage or disengage the locking mechanism resulting in significant savings to the customer.

Riser Isolation Valves and Subsea Isolation Valve Services. Koil Energy’s Riser Isolation Valve and Subsea Isolation Valve control systems are unique solutions that provide platform personnel hydraulic control and electrical indication for subsea production valves. These systems provide numerous advantages to the customer including emergency shutdown capabilities, valve positioning monitoring systems, and auxiliary positions for spare and/or future field development.

In addition to the fabrication of these systems, Koil Energy provides subsea installation engineering, consulting, and service personnel to support customers, installation contractors, valve vendors, and more. The Koil Energy team provides commissioning and technical assistance to customers and platform personnel and seeks to ensure that the systems are working properly.

Installation Aids. The Company has developed an extensive array of installation aids, including flying lead installation systems, tensioners, lay chutes, buoyancy modules, clump weights, mud mats, pumping and testing skids, control booths, fluid drum carriers, under-rollers, 200 ton, 400 ton, 3,400 ton, and 3,500 ton carousels, running and parking deployment frames, termination shelters, pipe straighteners, Subsea Deployment Basket® system, Horizontal Drive Units, and Rapid Deployment Cartridges.

Manufacturing

Koil Energy’s facilities located in Houston, TX are integral to our operations, serving as the backbone of our manufacturing process. Strategically organized and equipped, these spaces efficiently facilitate fabrication, manufacturing, assembly, and testing of our products. Within our well-structured environment, our skilled teams harness their expertise alongside machinery and tools, ensuring precise execution at every stage. We also have a significant footprint dedicated to our clean, stainless steel welding and tube bending environment, which is separated from all carbon steel fabrication.

Our manufacturing facility is ISO 9001 certified. We enhance our standards and product quality by having our quality assurance specialists work alongside our product manufacturing personnel throughout the manufacturing process. We have the capacity to complete large turn-key projects and still have reserve space for unforeseen emergency projects requiring immediate service and the attention to which our customers are accustomed.

Customers

Demand for our deepwater and ultra-deepwater services, equipment and offshore rig equipment is dependent on the condition of the energy industry and its ability and need to make capital expenditures, as well as continual maintenance and improvements on its offshore exploration, drilling, and production operations. The level of these expenditures is generally dependent upon various factors such as expected commodity prices, exploration and production costs, and the level of offshore drilling and production activity. The prevailing view of future commodity prices is influenced by numerous factors affecting supply and demand. These factors include, but are not limited to, worldwide economic activity, interest rates, cost of capital, environmental regulation, tax policies, and production levels and prices set and maintained by producing nations and the Organization of the Petroleum Exporting Countries. Capital expenditures are also dependent on the cost of exploring for and producing oil and gas, the sale and expiration dates of domestic and international offshore leases, the discovery rate of new oil and gas reserves in offshore areas and technological advances. Oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility.

Our principal customers are primarily major integrated, large independent, and foreign national energy companies as well as subsea equipment manufacturers and subsea equipment installation contractors involved in the offshore exploration, development, and production of natural and renewable resources. Offshore drilling contractors, engineering and construction companies, and other companies involved in maritime operations represent a smaller customer base.

Koil Energy is not dependent on any one customer or group of customers. The amount and variety of our products and services required in a given period by a customer can depend upon the customer’s capital expenditure budget as well as the results of competitive bids. Consequently, a customer may account for a material portion of revenues in one period and may represent an immaterial portion of revenues in a subsequent period. While we are not dependent on any one customer or group of customers, the loss of one or more of our significant customers could, at least on a short-term basis, have an adverse effect on the results of our operations and cash flows.

Marketing and Sales

We market our services and products worldwide through our Houston-based sales force. We periodically advertise in trade and technical publications targeting our customer base. We also participate in industry conferences and trade shows to enhance industry awareness of our products and services. Our customers generally order products and services after consulting with us on their project. Orders are typically completed within two weeks to three months depending on the type of product or service. Larger and more complex products may require significantly more time to complete. Our customers generally select our products and services based on the quality, reliability and reputation of the product or service, price, timely delivery, and advanced technology. For large production system orders, we engage our project management team to coordinate customer needs with our engineering, manufacturing, and service departments, as well as with our trusted subcontractors and vendors. Our profitability on projects is dependent on performing accurate and cost-effective bids as well as performing efficiently in accordance with bid specifications. Various factors can affect our performance on individual projects that could potentially adversely affect the profitability of a project.

Product Development and Engineering

The technological demands of the energy industry continue to increase as offshore exploration and drilling operations expand into deeper and more hostile environments. Conditions encountered in these environments could soon include well pressures of up to 20,000 psi, mixed flows of oil and gas under high pressure that may also be highly corrosive, and water depths exceeding 10,000 feet. We are continually engaged in product development activities to generate new products and to improve existing products and services to meet our customers’ needs. We also focus our activities on reducing the overall cost to the customer, which includes not only the initial capital costs, but also ongoing operating costs associated with our products.

We have an established track record of introducing new products and product enhancements. Our product development work is conducted at our facility in Houston, Texas, and in the field. Our application engineering staff also provides engineering services to customers in connection with the design and sales of our products. Our ability to develop new products and maintain technological advantages is important to our future growth and success.

We believe that the success of our business depends more on the technical competence, performance, creativity, and marketing abilities of our employees than on any individual patent, trademark, or copyright. Nevertheless, as part of our ongoing product development and manufacturing activities, our policy is to seek patents when appropriate on inventions concerning new products and product improvements. All patent rights for products developed by employees are assigned to us.

Competition

The principal competitive factors in the offshore drilling, development and production, and maritime equipment markets are quality, reliability, and reputation of the product, price, technology, and timely delivery. We face significant competition from other manufacturers of exploration, production, and maritime equipment. Several of our primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources and have a longer history in the manufacturing of these types of equipment.

Employees

At December 31, 2023, we had a total of 51 employees, all of whom were full-time. We also work with a pool of independent contractors who enable us to scale our operations at short notice, as business needs demand. Our employees are not covered by collective bargaining agreements, and we generally consider our employee relations to be good. Our operations depend in part on our ability to attract a skilled labor force. While we believe that our wage rates are competitive and that our relationship with our skilled labor force is good, a significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force or increases in the wage rates that we pay, or both.

Governmental Regulations

A significant portion of our business activities are subject to federal, state, local and foreign laws and regulations and similar agencies of foreign governments. The technical requirements of these laws and regulations are becoming increasingly expensive, complex, and stringent. These regulations are administered by various federal, state, and local health and safety and environmental agencies and authorities, including the Occupational Safety and Health Administration of the U.S. Department of Labor and the U.S. Environmental Protection Agency. From time to time, we are also subject to a wide range of reporting requirements, certifications and compliance as prescribed by various federal and state governmental agencies. Expenditures relating to such regulations are made in the normal course of our business and are neither material nor place us at any competitive disadvantage. We do not currently expect that compliance with such laws will require us to make material additional expenditures.

We are also affected by tax policies and other laws and regulations generally relating to the oil and gas industry, including those specifically directed to offshore operations. Adoption of laws and regulations that curtail exploration and development drilling for oil and gas could adversely affect our operations by limiting demand for our services or products.

Increased concerns about the environment have resulted in offshore drilling in certain areas being opposed by environmental groups, and certain areas have been restricted. To the extent that new or additional environmental protection laws that prohibit or restrict offshore drilling are enacted and result in increased costs to the oil and gas industry in general, our business could be materially affected. In addition, these laws may provide for “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for the environmental damage without regard to negligence or fault on the part of such party. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Certain environmental laws provide for joint and several liabilities for remediation of spills and releases of hazardous substances. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources. Such laws and regulations may also expose us to liability for the conduct of or conditions caused by others, or for our acts that complied with all applicable laws at the time such acts were performed. Compliance with environmental laws and regulations may require us to obtain permits or other authorizations for certain activities and to comply with various standards or procedural requirements.

We cannot determine to what extent our future operations and earnings may be affected by new legislation, new regulations, or changes in existing regulations. We believe that our facilities are in substantial compliance with current regulatory standards. Based on our experience to date, we do not currently anticipate any material adverse effect on our business or consolidated financial position as a result of future compliance with existing environmental laws and regulations controlling the discharge of materials into the environment. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures which may be material.

Intellectual Property

While we are the holder of various patents, trademarks and licenses relating to our business, we do not consider any individual intellectual property to be material to our business operations.