Natural Gas Services Group Inc. (NGS) 2023年年度報告「AMEX」.pdf

《Natural Gas Services Group Inc. (NGS) 2023年年度報告「AMEX」.pdf》由會員分享，可在線閱讀，更多相關《Natural Gas Services Group Inc. (NGS) 2023年年度報告「AMEX」.pdf（101頁珍藏版）》請在三個皮匠報告上搜索。

1、UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,2023or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For th

2、e transition period from_to_Commission file number:1-31398NATURAL GAS SERVICES GROUP,INC.(Exact Name of Registrant as Specified in its Charter)Colorado 75-2811855(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)404 Veterans Airpark Lane,Suite 300,Midla

3、nd,Texas79705(Address of principal executive offices)(Zip Code)Registrants telephone number,including area code:(432)262-2700Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,$.01 par valueNGSNew York S

4、tock ExchangeSecurities 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 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or

5、Section 15(d)of the Act.Yes No 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 forsuch shorter period that the registrant was required to file such reports),and(

6、2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,if any,every Interactive Data File to be submitted and posted pursuant to Rule 405of Regulation S-T(40232.405 of

7、this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best

8、 of registrants knowledge,indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smalle

9、r reporting company.See definition of“accelerated filer and largeaccelerated filer”in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if t

10、he registrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards 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 managements assessm

11、ent of the effectiveness of its internal control over financial reporting underSection 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.If securities are registered pursuant to Section 12(b)of the Act,indicate by check

12、mark whether the financial statements of the registrant included in the filing reflect the correction of an error topreviously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation

13、received by any of the registrants executiveofficers 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 The aggregate market value of voting and non-voting common equity he

14、ld by non-affiliates of the Registrant as of June 30,2023,was approximately$123.1 million based on the closing price ofthe common stock on that date on the New York Stock Exchange.At March 28,2024,there were 12,437,074 shares of the Registrants common stock outstanding.Documents Incorporated by Refe

15、renceCertain information called for in Items 10,11,12,13 and 14 of Part III are incorporated by reference to the registrants definitive proxy statement for the annual meeting of shareholders expectedto be held on June 15,2024.FORM 10-KNATURAL GAS SERVICES GROUP,INC.TABLE OF CONTENTS Item No.Page PAR

16、T IItem 1.Business1Item 1A.Risk Factors11Item 1B.Unresolved Staff Comments20Item 1C.Cybersecurity21Item 2.Properties22Item 3.Legal Proceedings22Item 4.Mine Safety Disclosures22PART IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases ofEquity Securities22Ite

17、m 6.Reserved24Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations24Item 7A.Quantitative and Qualitative Disclosures About Market Risk34Item 8.Financial Statements and Supplementary Data34Item 9.Changes in and Disagreements with Accountants on Accounting and Fi

18、nancial Disclosure34Item 9A.Controls and Procedures34Item 9B.Other Information36Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections33PART IIIItem 10.Directors,Executive Officers and Corporate Governance37Item 11.Executive Compensation37Item 12.Security Ownership of Certain Be

19、neficial Owners and Management and Related StockholderMatters37Item 13.Certain Relationships and Related Transactions,and Director Independence37Item 14.Principal Accountant Fees and Services37PART IVItem 15.Exhibits and Financial Statement Schedules38Item 16.Form 10-K Summary39Signatures37Index to

20、Financial Statements38SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains certain forward-looking statements,within the meaning of Section 27A of the Securities Act of1933 and Section 21E of the Securities Exchange Act of 1934,as amended,and information pertain

21、ing to us,our industry and the oil and natural gasindustry that is based on the beliefs of our management,as well as assumptions made by and information currently available to our management.Allstatements,other than statements of historical facts contained in this Annual Report on Form 10-K,includin

22、g statements regarding our future financialposition,growth strategy,budgets,projected costs,plans and objectives of management for future operations,are forward-looking statements.We use thewords“may,”“will,”“expect,”“anticipate,”“estimate,”“believe,”“continue,”“intend,”“plan,”“budget”and other simi

23、lar words to identify forward-looking statements.You should read statements that contain these words carefully and should not place undue reliance on these statements because theydiscuss future expectations,contain projections of results of operations or of our financial condition and/or state other

24、“forward-looking”information.Wedo not undertake any obligation to update or revise publicly any forward-looking statements.Although we believe our expectations reflected in theseforward-looking statements are based on reasonable assumptions,no assurance can be given that these expectations or assump

25、tions will prove to have beencorrect.Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include,butare not limited to,the following factors and the other factors described in this Annual Report on Form 10-K under t

26、he caption“Risk Factors”:conditions in the oil and natural gas industry,including the supply and demand for oil and natural gas and wide fluctuations in the prices of oil andnatural gas;our reliance on a major customer;fluctuations in interest rates;regulation or prohibition of new well completion t

27、echniques;competition among the various providers of compression services and products;changes in safety,health and environmental regulations;changes in economic or political conditions in the markets in which we operate;failure of our customers to continue to rent equipment after expiration of the

28、primary rental term;the inherent risks associated with our operations,such as equipment defects,malfunctions and natural disasters;our inability to comply with covenants in our debt agreements and the decreased financial flexibility associated with our debt;our future capital requirements and availa

29、bility of financing;capacity availability,costs and performance of our outsourced compressor fabrication providers and overall inflationary pressures;significant economic disruptions and adverse consequences resulting from current and possible long-term effects of the COVID-19 globalpandemic and oth

30、er potential pandemics and other public health crises;general economic conditions;andacts of terrorism.We believe that it is important to communicate our expectations of future performance to our investors.However,events may occur in the futurethat we are unable to accurately predict or that we are

31、unable to control.When considering our forward-looking statements,you should keep in mind therisk factors and other cautionary statements in this Annual Report on Form 10-K.Glossary of Industry TermsCiP-A branded gas compressor product line designed,manufactured and packaged by the Company.The Cylin

32、der in Plane design results ina compact and vibration-free compressor unit that particularly lends itself to unconventional wellhead applications,air compression and compressed naturalgas requirements.flare A tall stack equipped with burners used as a safety device at wellheads,refining facilities,g

33、as processing plants,and chemical plants.Flares are used for the combustion and disposal of combustible gases.The gases are piped to airemote,usually elevated,location and burned in an open flame in the open air using a specially designed burner tip,auxiliary fuel,and steam or air.Combustible gases

34、are flared most often due to emergency relief,overpressure,process upsets,startups,shutdowns and other operational safety reasons.Natural gas that is uneconomical for sale is also flared.Often natural gas is flared as a result of the unavailability of a method for transporting such gas tomarkets.gas

35、 lift A production technique whereby natural gas is injected into a well to increase/improve the oil production.oil shale Also referred to as tight oil,is petroleum that consists of light crude oil contained in petroleum-bearing formations of low-permeability,often shales or tight sandstones.recipro

36、cating compressors A reciprocating compressor is a positive displacement device which compresses gas and/or vapor by using apiston in a cylinder and a back-and-forth,or reciprocating,motion.screw compressors A positive displacement compressor used in low-pressure and vapor compression applications w

37、here two rotating rotorsintermesh to create pockets of continuously decreasing volume,in which the gas is compressed and its pressure is increased.iiPART IITEM 1.BUSINESSUnless the context otherwise requires,references in this Annual Report on Form 10-K to“Natural Gas Services Group,”the“Company”,NG

38、S,“we,”“us,”“our”or“ours”refer to Natural Gas Services Group,Inc.Certain specialized terms used in describing our natural gas compressor business aredefined in Glossary of Industry Terms on page i.Smaller Reporting CompanyWe are a“smaller reporting company”as defined by the SEC.As such,we are eligib

39、le to follow the scaled disclosure requirements in severalRegulation S-K and Regulation S-X items.Our disclosures in this Annual Report reflect many of these scaled requirements.The CompanyWe are a provider of natural gas compression equipment and services to the energy industry.We rent,operate and

40、maintain natural gascompressors for oil and natural gas production and plant facilities.We also design,fabricate and manufacture compressor units both for sale and rental toour customers.We are headquartered in Midland,Texas,with a fabrication facility located in Tulsa,Oklahoma,a rebuild shop locate

41、d in Midland,Texas,and service facilities located in major oil and natural gas producing basins in the U.S.Our primary business and source of gross profit is the rental of natural gas compressor units for applications associated with oil and natural gasproduction with a focus on large and medium hor

42、sepower applications.Our customers,specifically for large and medium horsepower applications,areexploration and production companies that utilize our compressor units for artificial lift applications,i.e.,production enhancement enabled with high-pressure gas compression equipment,on unconventional o

43、il wells on single and multi-well pads.In addition,our customer base includes oil and natural gasexploration and production companies that focus primarily on natural gas production(with typically smaller horsepower applications).The Companyslargest rental area is the Permian Basin(approximately 63.6

44、%of rental revenues in 2023),with the majority of our remaining rental revenue generated inother oil and natural gas producing regions and basins in Texas,New Mexico and Oklahoma,including the San Juan Basin,the Texas Panhandle/westernOklahoma,the Barnett Shale,and central Oklahoma.Other regions and

45、 plays in which we provide services include the Utica and Marcellus Shales in Ohio,and the Antrim Shale in Michigan.Our revenue increased 42.8%to$121.2 million for the year ended December 31,2023,from$84.8 million for the year ended December 31,2022.Our rental revenues increased 42.6%to$106.2 millio

46、n in 2023 from$74.5 million in 2022 as well as sales revenue increasing 4.1%to$8.9 million in 2023from$8.6 million in 2022.The increase in rental revenue was primarily due to additional rented compressor units and increased rental rates.For the yearended December 31,2023,the Company reported net inc

47、ome of$4.7 million as compared to a net loss of$0.6 million for the year ended December 31,2022.In addition,the Companys adjusted earnings before interest,taxes,depreciation and amortization(EBITDA)increased 57.0%to$45.8 million in2023 from$29.2 million in 2022.See Item 7,Managements Discussion and

48、Analysis of Financial Condition and Results of Operations for areconciliation of adjusted EBITDA to its closest GAAP financial measure,net income(loss).At December 31,2023,our current assets were$76.3 million,which included$2.7 million of cash and cash equivalents.Current liabilities were$32.7 milli

49、on at year end 2023.Our stockholders equity as of December 31,2023,was$235.9 million.Recent EventsWe are transitioning from fabricating a majority of our compressor units in-house to contracting with third-party fabricators who assemble theunits to our specifications,utilizing parts and components f

50、rom original equipment manufacturers.We continue to design and engineer our compressors andunder this arrangement,we procure and pay for the components of our compressor packages which are delivered to one of our third-party fabricators,whothen assemble the components and test the compressor units p

51、rior to our receiving them.During the fabrication process,we hold title to the compressorsand related components.Notwithstanding this transition,we will continue to provide maintenance services,compressor make-ready work and rebuilds atour Midland,Texas facility but we will no longer perform new uni

52、t fabrication at this location.We continue to maintain new unit fabrication capability atour Tulsa,Oklahoma facility.1The Company is making this transition for a number of reasons,including(i)the Company feels that the cost advantage of fabricating new units atthe Midland facility has been decreasin

53、g in recent years;(ii)the Companys fabrication facilities are not capable of producing large horsepower units asefficiently as certain third-party providers;(iii)third party providers have improved in quality and cost competitiveness;and(iv)use of third-partyfabricators relives the Company of issues

54、 related to efficiency,inventory and labor scarcity.Please see Item 7,Managements Discussion and Analysis of Financial Condition and Results of Operations for further information.Our Operating UnitsWe identify our operating units based upon major revenue sources as Rental,Sales and Aftermarket Servi

55、ces.Rental.Our rental compression units provide large,medium and small horsepower applications for conventional and unconventional oil andnatural gas production.Our rental contracts generally provide for initial terms of six to 60 months and generally extend on a month-to-month basisafterward.We bel

56、ieve that,by outsourcing their compression needs,our customers are able to increase their revenues by producing higher volumes of oiland natural gas due to higher equipment run time,decrease their operating and maintenance cost of operating compression,lower their capital investmentneeds and more ef

57、ficiently meet their changing compression needs.We maintain and service all of the compression equipment we rent to our customers.The size,type and geographic diversity of our rental fleet enables us to provide our customers with a range of compression units that can serve awide variety of applicati

58、ons,and to select the correct equipment for the job,rather than the customer trying to fit the job to its own equipment.We base ourgas compressor rental rates on several factors,including the cost and size of the equipment,the type and complexity of service desired by the customer,thelength of contr

59、act and the inclusion of any other services desired,such as installation,transportation and daily operation.As of December 31,2023,we had 1,876 natural gas compressors in our rental fleet totaling 520,365 horsepower.Of this total,we had 1,247natural gas compressors totaling 420,432 horsepower rented

60、 to 84 customers.The unit utilization rate of our rental fleet as of December 31,2023,was66.5%,while our horsepower utilization for the same period was 80.8%.We added 92 units with a total of 98,349 horsepower to our fleet during 2023.73of those units were 400 horsepower or larger,representing appro

61、ximately 96%of the horsepower added.Sales.This operating unit includes the following components:Compressor fabrication.Fabrication involves the design,fabrication and assembly of compressor components manufactured by us or othervendors into compressor units that are ready for rental or sale.In addit

62、ion to fabricating compressors for our rental fleet,we engineer and fabricatecustom-made natural gas compressors for sale to customers to meet their specifications based on well pressure,production characteristics and theparticular applications for which compression is sought.Fabricated compressors

63、comprised 20.2%and 42.0%of our sales revenue during 2023and 2022,respectively.Parts sales and compressor rebuilds.To provide customer support for our compressor sales business,we stock varying levels of replacement partsat our Midland,Texas facility and at field service locations.We also provide an

64、exchange and rebuild program for small horsepower screwcompressors and maintain an inventory of new and used compressors to facilitate this part of our business.Parts sales and compressor rebuildscomprised 78.8%and 55.2%of our sales revenue during 2023 and 2022,respectively.As noted elsewhere herein

65、,we have ceased in-housefabrication of new compressor units at our Midland facility in favor of contracting our fabrication needs with third-party fabricators and continuednew unit fabrication at our Tulsa,Oklahoma facility.Compressor manufacturing.We design and manufacture our own proprietary line

66、of reciprocating natural gas compressor frames,cylinders andparts known as our“CiP”,or Cylinder-in-Plane,product line.We use the finished components to fabricate compressor units for our rental fleet orfor sale to customers.We also sell finished components to other fabricators.Aftermarket Services.W

67、e service and maintain compressors owned by our customers on an“as needed”and contract basis,as well as providingservices related to the installation and start-up of new compressor units.Natural gas compressors require routine maintenance and periodic refurbishing toprolong their useful life.Routine

68、 maintenance includes physical and2visual inspections and other parametric checks that indicate a change in the condition of the compressors.We perform engine and compressor overhauls ona condition-based interval or a time-based schedule or at the customers request.Based on our past experience,these

69、 maintenance procedures maximizecomponent life and unit availability and minimize downtime.Business StrategyOur long-term intentions to grow our revenue and profitability are based on the following business strategies;Optimize existing utilized fleet.We believe there are opportunities to modestly im

70、prove the profitability of our existing utilized rental fleetthrough targeted price increases,particularly in geographic areas that have experienced high rates of cost inflation,along with operationalefficiencies by using improved data collection and analysis to optimize our costs in labor,parts,and

71、 maintenance costs.Improve asset utilization.We believe we can improve the overall cash flow of the business by increasing utilization of the existing fleet as well ascreating investable cash from non-cash assets.We have a significant number of unutilized unitswe will review these assets to determin

72、e whererelatively low-cost capital expenditures can improve the marketability and cash flow potential of the units.We also have a significant amount ofcapital tied up in non-cash assets(including working capital and fixed assets)that we believe can be monetized and invested back in the fleet at orab

73、ove target levels of return on invested capital.Expand rental fleet.We intend to prudently increase the size of our rental fleet mainly through pre-contracted agreements with our customers.Webelieve our future growth in this part of our strategy will be primarily driven through our placement of larg

74、er horsepower,centralized wellheadnatural gas compressors for unconventional oil production,with select increases in medium horsepower units to meet customer demand beyondour inventory.Execute accretive mergers and acquisitions.We believe there are opportunities in mergers with or acquisitions of co

75、mpetitive rental compressioncompanies or related businesses providing similar services.While there is no certainty as to the probability of any particular deal,we will continueto evaluate potential acquisitions,joint ventures and other opportunities that could enhance value for our shareholders.All

76、of the above strategies are subject to revisions and adjustments as a result of several factors discussed in Item 1A,Risk Factors.Competitive StrengthsWe believe our competitive strengths include:Strong operational performance.We deliver very high levels of mechanical availability to our customers.M

77、echanical availability is defined asthe percentage of time that our units are capable of operating as designed and is a measure of reliability.The cost of rental compression is anappreciable operating expense for a producer and the improved productivity delivers material incremental profitability to

78、 customers.This createssignificant value for our customers we believe our high levels of mechanical availability,particularly for our large horsepower rental compressionunits,is a competitive differentiator for customers selecting our units.Innovative rental compression units.We have made a series o

79、f technical innovations to our rental compression units that have improvedoperational performance while also reducing the environmental impact,largely related to the volume of fugitive emissions,from our compressorunits.Environmental considerations have increased in importance for our customers,part

80、icularly with recent environmental regulations andtaxation,most notably the Methane Emissions Reduction Program.We believe the superior operating and environmental performance of ournatural gas engine and electric-drive units,particularly our large horsepower units,is a significant competitive diffe

81、rentiator.Long-standing customer relationships.We have developed long-standing relationships providing compression equipment to many major andindependent oil and natural gas companies.Our customers generally continue to rent our compressors after the expiration of the initial terms ofour rental agre

82、ements,which we believe reflects their satisfaction with the reliability and performance of our services and products.High level of customer service.Our ability to provide a broad range of compressors has enabled us to effectively meet the evolving needs of ourcustomers.We believe this ability,coupl

83、ed with our personalized services and in-depth knowledge of our customers operating needs and growthplans,have allowed us to enhance our relationships with existing customers as well as attract new customers.The size,type and geographicdiversity of our rental fleet enable3us to provide customers wit

84、h a range of compression units that can serve a wide variety of applications.We are able to select the correctequipment for the job,rather than the customer trying to fit its application to our equipment.Availability of new units.The rental compression industry has undergone significant change over

85、the last five years.Capital constraints,in theform of reduced debt availability,higher interest rates,and shareholder demands for return of capital,have forced capital discipline upon theindustry.These factors,along with supply chain challenges,led to a dearth of available rental compression units a

86、t a time of solid customerdemand.Our strong balance sheet allowed us to strategically gain market share with desirable customers renting large horsepower units on pre-contracted units.We believe our relatively modest leverage remains a strategic advantage for the company to continue to gain market s

87、hare onattractive terms for shareholder return.Overview and OutlookThe market for compression equipment and services is highly dependent on the production levels and pricing of oil and natural gas.The level ofproduction for oil activity and capital expenditures has generally been dependent upon the

88、prevailing view of future gas and oil prices,which are influencedby numerous supply and demand factors,including availability and cost of capital,well productivity and development costs,global and domestic economicconditions,environmental regulations,policies of OPEC countries and Russia,and other f

89、actors.We feel that the current oil market production outlook isfavorable,with current oil prices creating strong incentives for our customers to maximize their production levels.We believe that the current natural gasmarket outlook is not as strong,as the current level of natural gas prices makes t

90、his a more challenging market.While oil prices have historically beenvolatile,we expect demand for our existing compressor fleet to remain positive assuming oil prices remain in reasonable bands around current pricinglevels.While the current production outlook for natural gas is not as strong,given

91、the continued level of depressed prices,we do feel that opportunitiesexist for increased utilization of our small and medium horsepower units.The oil and natural gas industries have historically been cyclical and production levels of oil and natural gas are dependent upon numerous factors.We will co

92、ntinue to evaluate our business and operating strategy and we will continue to remain prudent in both our allocation of capital and our capitalstructure.Nevertheless,if any of these circumstances change,our business could be adversely affected.Please read Item 1A,Risk Factors,in this report.Major Cu

93、stomer Sales and rental income to Occidental Permian,LTD.(Oxy)for the years ended December 31,2023 and 2022 amounted to 50%and 42%of ourrevenue,respectively.No other single customer accounted for more than 10%of our revenues in 2023 or 2022.Oxy amounted to 64%of our accounts receivable as of Decembe

94、r 31,2023,and 55%of our accounts receivable as of December 31,2022.Noother customers amounted to more than 10%of our accounts receivable as of December 31,2023 or 2022.The loss of this key customer would have amaterial adverse effect on our business,financial condition,results of operations and cash

95、 flows,depending upon the demand for our compressors at thetime of such loss and our ability to attract new customers.Sales and MarketingOur sales force pursues the rental and sales market for compressors and other services in their respective territories.Additionally,our personnelcoordinate with ea

96、ch other to develop relationships with customers who operate in multiple regions.Our sales and marketing strategy is focused oncommunication with current customers and potential customers through frequent direct contact,technical assistance,print literature,direct mail andreferrals.Our sales and mar

97、keting personnel coordinate with our operations personnel in order to promptly respond to and address customer needs.Ouroverall sales and marketing efforts concentrate on demonstrating our commitment to enhancing the customers cash flow through enhanced product design,fabrication,manufacturing,insta

98、llation,operations,customer service and support.4CompetitionWe have several competitors in the natural gas compression segment,some of which have greater financial resources.We believe that we competeeffectively on the basis of price,compression unit availability,customer service,flexibility in meet

99、ing customer needs,and quality and reliability of ourcompressors and related services.Compressor industry participants can achieve significant advantages through increased size and geographic breadth.As the number of rentalcompressors in our rental fleet increases,the number of sales,support,and mai

100、ntenance personnel required and the minimum level of inventory may notincrease proportionately.BacklogAs of December 31,2023,we had$0.8 million sales backlog compared to none as of December 31,2022.Sales backlog consists of firm customerorders for which a purchase or work order has been received,sat

101、isfactory credit or a financing arrangement exists,and delivery is scheduled.In addition,the major components of our compressors are acquired from suppliers through periodic purchase orders that currently require three to six months or moreof lead time prior to delivery of the order.We do not believ

102、e that backlog is a good indicator of the future growth potential of our business.EmployeesAs of December 31,2023,we had 266 total employees,none of which are represented by a labor union.We believe we have good relations withour employees.Liability and Other Insurance CoverageOur equipment and serv

103、ices are provided to customers who are subject to hazards inherent in the oil and natural gas industry,such as explosions,fires,and oil spills.We maintain liability insurance that we believe is customary in the industry and which includes environmental cleanup but excludesproduct warranty insurance

104、because the majority of components on our compressor unit are covered by the manufacturers and our outsourced fabricationproviders.We also maintain insurance with respect to our facilities.Based on our historical experience,we believe that our insurance coverage isadequate.However,there is a risk th

105、at our insurance may not be sufficient to cover any particular loss or that insurance may not cover all losses.Inaddition,insurance rates have in the past been subject to wide fluctuation,and changes in coverage could result in less coverage,increases in cost or higherdeductibles and retentions.Gove

106、rnment RegulationAll of our operations and facilities are subject to numerous federal,state,foreign and local laws,rules and regulations related to various aspects ofour business,including containment and disposal of hazardous materials,water quality and wastewater discharges,oilfield waste and othe

107、r waste materialsand protection of human health.To date,we have not been required to expend significant resources in order to satisfy applicable environmental laws and regulations.We do notanticipate any material capital expenditures for environmental control facilities or extraordinary expenditures

108、 to comply with environmental rules andregulations in the foreseeable future.However,compliance costs under existing laws or under any new requirements could become material and we couldincur liabilities for noncompliance.And as noted below,we may be indirectly affected by environmental laws that af

109、fect our customers.Our business is generally affected by political developments and by federal,state,foreign and local laws and regulations,which relate to the oiland natural gas industry.The adoption of laws and regulations affecting the oil and natural gas industry for economic,environmental and o

110、ther policyreasons could increase our costs and could have an adverse effect on the demand for our services and our operations.The state and federal environmentallaws and regulations that currently apply to our operations could become more stringent in the future.Climate ChangeIn response to finding

111、s that emissions of carbon dioxide,methane and other Greenhouse Gases(“GHGs”)endanger public health and theenvironment,federal legislation has been considered from time to time to reduce GHG emissions.Methane,a primary component of natural gas,andcarbon dioxide,a byproduct of the burning of natural

112、gas,are examples of GHGs.At the federal level,the government could seek to pursue legislative,regulatory or executive initiatives that may impose significant restrictions on fossil-fuel exploration and production and use such as limitations or bans onhydraulic fracturing of5oil and gas wells,bans or

113、 restrictions on new leases for production of minerals on federal properties,and imposing restrictive requirements on new pipelineinfrastructure or fossil-fuel export facilities.The Inflation Reduction Act of 2022(the“IRA 2022”)imposes a methane emissions charge on certain oil and gas facilities,inc

114、luding onshorepetroleum and natural gas production facilities,which emit 25,000 metric tons or more of carbon dioxide equivalent gas per year and exceed certainemissions thresholds.We do not operate any facilities that are subject to this emissions charge.In July 2023,the EPA proposed to expand the

115、scope of theGreenhouse Gas Reporting Program for petroleum and natural gas facilities,as required by the Inflation Reduction Act.Among other things,the proposedrule expands the emissions events that are subject to reporting requirements to include“other large release events”and applies reporting req

116、uirements tocertain new sources and sectors.The rule is currently scheduled to be finalized in 2024 and would take effect on January 1,2025,for reporting year 2025(due March 2026)in certain circumstances,with the potential to also impact GHG reporting for reporting year 2024(due March 2025)in certai

117、ncircumstances.In January 2024,the EPA proposed a rule implementing the Inflation Reduction Acts methane emissions charge.The proposed ruleincludes potential methodologies for calculating the amount by which a facilitys reported methane emissions are below or exceed the waste emissionsthresholds and

118、 contemplates approaches for implementing certain exemptions created by the Inflation Reduction Act.The methane emissions chargeimposed under the Methane Emissions and Waste Reduction Incentive Program for calendar year 2024 would be$900 per ton emitted over annual methaneemissions thresholds,and wo

119、uld increase to$1,200 in 2025,and$1,500 in 2026.The proposed rule for the waste emissions charge has been published inthe Federal Register and EPA is seeking public comment by March 26,2024.Although it is not currently possible to predict how any proposed or future GHG legislation,regulation,agreeme

120、nts or initiatives will impact ourbusiness,any such legislation or regulation of GHG emissions could result in increased compliance or operating costs,additional operating restrictions orreduced demand for our compressor services,and could have a material adverse effect on our business,financial con

121、dition and results of operations.Other energy legislation and initiatives could include a carbon tax,methane fee or cap and trade program.At the state level,many states,includingthe states in which we or our customers conduct operations,have adopted legal requirements that have imposed new or more s

122、tringent permitting,disclosure or well construction requirements on oil and gas activities.For instance,various states and groups of states have adopted or are consideringadopting legislation,regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs,car

123、bon taxes,reporting andtracking programs,and restriction of emissions.For example,in 2019,Colorado passed a bill which delegates authority to local governments to regulate oiland gas activities and requires the Colorado Oil and Gas Conservation Commission to minimize emissions of methane and other a

124、ir contaminants.Likewise,the New Mexico Environment Department has adopted regulations to restrict the venting or flaring of methane.In an executive order issued on January 20,2021,President Biden established an Interagency Working Group on the Social Cost of GreenhouseGases,which is called on to,am

125、ong other things,capture the full costs of GHG emissions,including the“social cost”of carbon,nitrous oxide and methane,which are essentially the monetized damages associated with incremental increases in greenhouse gas emissions.The current administration adopted aninterim social cost of carbon of$5

126、1 per ton in February 2021,but in recent rulemakings the EPA has referenced a figure as high as$2,400 per ton effectivein 2030.This figure is intended to be used to guide federal decisions on the costs and benefits of various policies and approvals;such efforts have been thesubject of a series of ju

127、dicial challenges,which have been largely unsuccessful to date.At this time,we cannot determine whether the administrationsefforts on social cost or other interagency climate efforts will lead to any particular actions that give rise to a material adverse effect on our business,financial condition,r

128、esults of operations and cash flows.At the international level,there is an agreement,the United Nations-sponsored“Paris Agreement,”for nations to limit their GHG emissionsthrough non-binding,individually determined reduction goals every five years after 2020.President Biden pledged the renewed parti

129、cipation of the UnitedStates on his first day in office.In November 2021,the United States participated in the United Nations Climate Change Conference in Glasgow,Scotland,United Kingdom that resulted in a pact among approximately 200 countries,including the United States,called the Glasgow Climate

130、Pact.Relatedly,theUnited States and European Union jointly announced the launch of the“Global Methane Pledge,”which aims to cut global methane pollution at least 30%by 2030 relative to 2020 levels,including“all feasible reductions”in the energy sector.In conjunction with these pacts,the United State

131、s committed to aneconomy-wide target of reducing net greenhouse gas emissions by 50-52 percent below 2005 levels by 2030.Also in November 2021,President Bidensigned a$1 trillion dollar infrastructure bill into law.The new infrastructure law includes several climate-focused investments,including upgr

132、ades to powergrids to accommodate increased use of renewable energy and expansion of electric vehicle infrastructure.Although it is not possible at this time to predictwhat additional domestic legislation may be adopted in light of the Paris Agreement or the Glasgow Climate Pact,or how legislation o

133、r new regulationsthat may be adopted based on the Paris Agreement or the Glasgow Climate Pact to address6GHG emissions would impact our business,any such future laws and regulations imposing reporting obligations on,or limiting emissions of GHGs from,our compressors could require us to incur costs t

134、o reduce emissions of GHGs associated with our operations and could decrease demand for oil and naturalgas.Litigation risks are also increasing,as a number of cities and other local governments have sought to bring suits against the largest oil and naturalgas exploration and production companies in

135、state or federal court,alleging,among other things,that such companies created public nuisances byproducing fuels that contributed to global warming effects,such as rising sea levels,and therefore are responsible for roadway and infrastructure damages,or alleging that the companies have been aware o

136、f the adverse effects of climate change for some time but defrauded their investors by failing to adequatelydisclose those impacts.There are also increasing financial risks for fossil fuel producers and oil and gas field service providers(such as the Company)as shareholderscurrently invested in foss

137、il-fuel energy and related service companies concerned about the potential effects of climate change may elect in the future to shiftsome or all of their investments into non-energy related sectors.Institutional lenders who provide financing to fossil-fuel energy and related companies alsohave becom

138、e more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies.Additionally,the lending practices of institutional lenders have been the subject of intensive lobbying efforts in recent years,oftentimes public in nature,byenvironme

139、ntal activists,proponents of the international Paris Agreement,and foreign citizenry concerned about climate change not to provide funding forfossil fuel producers.Limitation of investments in and financings for fossil fuel energy companies could result in the restriction,delay or cancellation ofdri

140、lling programs or development or production activities of our customers,which in turn could have a material adverse effect on our compressor rental andsale business.The adoption and implementation of new or more stringent international,federal or state legislation,regulations or other regulatory ini

141、tiatives thatimpose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oiland natural gas or generate GHG emissions could result in increased costs of compliance or additional operating restrictions or reduc

142、ed demand for ourcompressor products and services,and could have a material adverse effect on our business,financial condition and results of operations.We believe that our existing environmental control procedures are adequate and that we are in substantial compliance with environmental laws andreg

143、ulations,and the phasing in of emission controls and other known regulatory requirements should not have a material adverse effect on our financialcondition or operational results.However,it is possible that future developments,such as new or increasingly strict requirements and environmental lawsan

144、d enforcement policies there under,could lead to material costs of environmental compliance by us.While we may be able to pass on the additional costof complying with such laws to our customers,there can be no assurance that attempts to do so will be successful.Some risk of environmental liability a

145、ndother costs are inherent in the nature of our business,however,and there can be no assurance that environmental costs will not rise.To the extent that new laws or other governmental actions restrict the energy industry or impose additional environmental protection requirementsthat result in increa

146、sed costs to the oil and gas industry,we could be adversely affected.We cannot determine to what extent our future operations andearnings may be affected by new legislation,new regulations or changes in existing regulations.Site Remediation and Waste Management and DisposalThe Comprehensive Environm

147、ental Response,Compensation and Liability Act of 1980(“CERCLA”),also known as the Superfund law,andanalogous state laws impose liability on certain classes of persons,known as“potentially responsible parties,”for the disposal or release of a regulatedhazardous substance into the environment.These po

148、tentially responsible parties include(1)the current owners and operators of a facility,(2)the pastowners and operators of a facility at the time the disposal or release of a hazardous substance occurred,(3)parties that arranged for the offsite disposal ortreatment of a hazardous substance,and(4)tran

149、sporters of hazardous substances to off-site disposal or treatment facilities.Potentially responsible partiesunder CERCLA may be subject to strict,joint and several liability for the costs of investigating and cleaning up environmental contamination,for damagesto natural resources and for the costs

150、of certain health studies.In addition to statutory liability under CERCLA,common law claims for personal injury orproperty damage can also be brought by neighboring landowners and other third parties related to contaminated sites.The Resource Conservation and Recovery Act(“RCRA”),and comparable stat

151、e statutes and their implementing regulations,regulate thegeneration,transportation,treatment,storage,disposal,and cleanup of hazardous and solid(non-hazardous)wastes.Under a delegation of authority fromthe EPA,most states administer some or all of the provisions of RCRA,sometimes in conjunction wit

152、h their own,more stringent requirements.Federal andstate regulatory agencies can seek7to impose administrative,civil,and criminal penalties for alleged non-compliance with RCRA and analogous state requirements.In general,hazardouswaste is waste with properties that can potentially endanger human hea

153、lth or the environment.Under CERCLA,RCRA and analogous state laws,we could be required to remove or remediate environmental impacts on properties we currentlyown and lease or formerly owned or leased(including hazardous substances or wastes disposed of or released by prior owners or operators),to cl

154、ean upcontaminated off-site disposal facilities where our wastes have come to be located or to implement remedial measures to prevent or mitigate futurecontamination.Compliance with these laws may constitute a significant cost and effort for us.No specific accounting for environmental compliance has

155、been maintained or projected by us at this time.We are not presently aware of any material environmental demands,claims,or adverse actions,litigation oradministrative proceedings in which either we or our acquired properties are involved in or subject to or arising out of any predecessor operations.

156、We currently own or lease,and in the past have owned or leased,a number of properties that have been used in support of our operations for anumber of years.We have utilized operating and disposal practices that were or are currently standard in the industry.However,materials such as solvents,thinner

157、,waste paint,waste oil,wash down water and sandblast material may have been disposed of or released in or under properties currently or formerlyowned or operated by us or our predecessors.Although we have utilized operating and disposal practices that were standard in the industry at the time,hydroc

158、arbons,hazardous substances,or other regulated wastes may have been disposed of or released on or under the properties owned or leased by us oron or under other locations where such materials have been taken for disposal by companies sub-contracted by us.In addition,some of these propertiesmay have

159、been previously owned or operated by third parties whose treatment and disposal or release of hydrocarbons,hazardous substances or otherregulated wastes was not under our control.These properties and the materials released or disposed thereon may be subject to CERCLA,RCRA andanalogous state laws.Und

160、er such laws,we could be required to remove or remediate historical property contamination,or to perform certain operations toprevent future contamination.We are not currently under any order requiring that we undertake or pay for any cleanup activities.However,we cannotprovide any assurance that we

161、 will not receive any such order in the future.Under CERCLA and analogous state laws,we could be required to remove or remediate environmental impacts on properties we currently ownand lease or formerly owned or leased(including hazardous substances or wastes disposed of or released by prior owners

162、or operators),to clean upcontaminated off-site disposal facilities where our wastes have come to be located or to implement remedial measures to prevent or mitigate futurecontamination.Compliance with these laws may constitute a significant cost and effort for us.No specific accounting for environme

163、ntal compliance hasbeen maintained or projected by us at this time.We are not presently aware of any material environmental demands,claims,or adverse actions,litigation oradministrative proceedings in which either we or our acquired properties are involved in or subject to or arising out of any pred

164、ecessor.Furthermore,the modification of existing laws or regulations or the adoption of new laws or regulations that result in the curtailment ofexploratory or developmental drilling for oil and gas could materially and adversely affect our operations by discouraging our customers from drilling forh

165、ydrocarbons,disrupting revenue through permitting or similar delays.Demand for our compression products and services could be diminished inconnection with these initiatives.Further,to the extent that the review results in the development of additional restrictions on exploration and drilling,limitat

166、ions on the availability of leases,or restrictions on the ability to obtain required permits,it could have a material adverse impact on our operations byreducing our customers compression needs and the demand for our services.Air EmissionsOur operations are also subject to federal,state,and local re

167、gulations.The Clean Air Act and implementing regulations and comparable state lawsand regulations regulate emissions of air pollutants from various industrial sources and also impose various monitoring and reporting requirements,including requirements related to emissions from certain stationary eng

168、ines,such as those on our compressor units.These laws and regulations imposelimits on the levels of various substances that may be emitted into the atmosphere from our compressor units and required us to meet more stringent airemission standards and install new emission control equipment on all of o

169、ur engines built after July 1,2008.In recent years,the EPA has lowered the National Ambient Air Quality Standard(“NAAQs”)for several air pollutants.For example,in 2013,theEPA lowered the annual standard for fine particulate matter from 15 to 12 micrograms per cubic meter.In 2015,the EPA published th

170、e final rulestrengthening the standards for ground level ozone,and the states are expected to establish revised attainment/non-attainment regions.State implementationof the revised NAAQS could result in stricter permitting requirements,delay or prohibit our customers ability to obtain such permits,a

171、nd result inincreased expenditures for8pollution control equipment,which could negatively impact our customers operations by increasing the cost of additions to equipment,and negativelyimpact our business.In 2012,the EPA finalized rules that establish new air emission controls for oil and natural ga

172、s production and natural gas processing operations.Specifically,the EPAs rule package included New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds(“VOCs”)and a separate set of emission standards to address hazardous air pollutants frequently associa

173、ted with oil and natural gas production andprocessing activities.The rules established specific new requirements regarding emissions from compressors and controls at natural gas processing plants,dehydrators,storage tanks and other production equipment as well as the first federal air standards for

174、natural gas wells that are hydraulically fractured.TheEPA has taken a number of steps to amend or expand on these regulations since 2012.For example,in June 2016,the EPA published New SourcePerformance Standards that require certain new,modified or reconstructed facilities in the oil and natural gas

175、 sector to reduce methane gas and VOCemissions.These standards expanded the 2012 standards by using certain equipment-specific emissions control practices,requiring additional controls forpneumatic controllers and pumps as well as compressors,and imposing leak detection and repair requirements for n

176、atural gas compressor and boosterstations.In addition,in December 2023,the EPA proposed a rule to further reduce methane and VOC emissions from new and existing sources in the oiland gas sector.These standards,as well as any future laws and their implementing regulations,may impose stringent air per

177、mit requirements,or mandatethe use of specific equipment or technologies to control emissions.We cannot predict the final regulatory requirements or the future costs to comply withsuch requirements with any certainty.We are also subject to air regulation at the state level.For example,sources of air

178、 emissions within Texas are controlled by the Texas Commissionon Environmental Quality(“TCEQ”).Air emission sources that emit at greater than de minimis levels must obtain a permit prior to operation through theTCEQ.In addition,TCEQ has implemented revisions to certain air permit programs that signi

179、ficantly increase the air permitting requirements for new andcertain existing oil and gas production and gathering sites for a number of counties in the Barnett Shale production area that established new emissionsstandards for engines,which impact the operation of specific categories of engines by r

180、equiring the use of alternative engines,compressor packages or theinstallation of aftermarket emissions control equipment.Expansion by the TCEQ of this type of program and the adoption of similar regulations in otherstates may increase our compliance costs.Water DischargeClean Water Act.The Clean Wa

181、ter Act(CWA)and the Oil Pollution Act of 1990 and implementing regulations govern:the prevention of discharges,including oil and produced water spills,andliability for drainage into waters.The CWA and analogous state laws impose restrictions and strict controls with respect to the discharge of pollu

182、tants,including spills and leaks ofoil and other substances,into waters of the United States.The discharge of pollutants into regulated waters and wetlands is prohibited,except in accordancewith the terms of a permit issued by the EPA or an analogous state agency.The CWA also requires the developmen

183、t and implementation of spill prevention,control and countermeasures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon spill or leak at hydrocarbonfacilities.In addition,the CWA and analogous state laws require individual permits or coverage under general

184、permits for discharges of storm water runofffrom certain types of facilities.Federal and state regulatory agencies can impose administrative,civil and criminal penalties as well as other enforcementmechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous st

185、ate laws and regulations.Our compressionoperations do not generate process wastewaters that are discharged to waters of the U.S.However,the operations of our customers may generate suchwastewaters subject to the CWA.While it is the responsibility of our customers to follow CWA regulations and obtain

186、 proper permits,violations of theCWA may indirectly impact our operations in a negative manner.Safe Drinking Water Act.Some of our customers natural gas production is developed from unconventional sources that require hydraulicfracturing as part of the completion process.Legislation to amend the Saf

187、e Drinking Water Act(“SDWA”)to repeal the exemption for hydraulic fracturingfrom the definition of“underground injection”and require federal permitting and regulatory control of hydraulic fracturing,as well as legislative proposalsto require disclosure of the chemical constituents of the fluids used

188、 in the fracturing process,have been proposed from time to time and the federalgovernment continues to consider legislation to amend the SDWA.Some states have also proposed or adopted legislative or regulatory restrictions onhydraulic fracturing,including prohibitions on the practice.We cannot predi

189、ct the future of such legislation and what additional,if any,provisions would beincluded.Additional levels of regulation or interpretation are adopted at the federal or state level could lead to increased operating costs and prohibitions orcurtailment of current hydraulic practices could reduce dema

190、nd for our compression services,which could materially adversely affect our results ofoperations and financial position.9Occupational Safety and Health We are subject to the requirements of Occupational Safety and Health Administration(OSHA)and comparable state statutes.These laws and theimplementin

191、g regulations strictly govern the protection of the health and safety of employees.The OSHA hazard communication standard,the EPAcommunity right-to-know regulations under Title III of CERCLA,and similar state statutes require that we maintain and/or disclose information abouthazardous materials used

192、 or produced in our operations.We believe that we are in compliance with these applicable requirements and with othercomparable laws.Patents,Trademarks and Other Intellectual PropertyWe believe that the success of our business depends more on the technical competence,creativity and marketing abiliti

193、es of our employees than onany individual patent,trademark,or copyright.Nevertheless,as part of our ongoing research,development and manufacturing activities,we may seekpatents when appropriate on inventions concerning new products,process and product improvements.Suppliers and Raw MaterialsFabricat

194、ion of our rental compressors involves the purchase by us of engines,compressors,coolers and other components,and the assembly ofthese components on skids for delivery to customer locations.These major components of our compressors are acquired through periodic purchase ordersplaced with third-party

195、 suppliers on an as needed basis,which typically requires a three to twelve month lead time with delivery dates scheduled tocoincide with our estimated production schedules.Although we do not have formal continuing supply contracts with any major supplier,we believe wehave adequate alternative sourc

196、es available.In the past,we have not experienced any sudden and dramatic increases in the prices of the major componentsfor our compressors.However,the occurrence of such an event could have a material adverse effect on the results of our operations and financial condition,particularly if we are una

197、ble to increase our rental rates and sale prices proportionate to any such component price increases.Available InformationWe use our website as a channel of distribution for Company information.We make available free of charge on the Investor Relations section ofour website()our Annual Report on For

198、m 10-K,Quarterly Reports on Form 10-Q,and Current Reports on Form 8-K.We also makeavailable through our website other reports filed with or furnished to the SEC under the Securities Exchange Act of 1934(Exchange Act),as amended,including our proxy statements and reports filed by officers and directo

199、rs under Section 16(a)of the Exchange Act,as well as our Code of Business Ethicsand the charters to our various Committees of our Board of Directors.Paper copies of our filings are also available,without charge upon written request.Please mail requests to Natural Gas Services Group,Inc.,404 Veterans

200、 Airpark Lane,Suite 300,Midland,TX 79705.The information contained on ourwebsite is not part of this Report.10ITEM 1A.RISK FACTORSYou should carefully consider the following risks associated with owning our common stock.Although the risks described below are the risks thatwe believe are material,the

201、y are not the only risks relating to our industry,our business and our common stock.Additional risks and uncertainties,including those that we have not yet identified or that we currently believe are immaterial,may also adversely affect our business,financial condition orresults of operations.Risks

202、Associated With Our IndustryDecreased oil and natural gas prices and oil and gas industry expenditure levels adversely affect our revenue.Our revenue is derived primarily from expenditures in the oil and natural gas industry,which,in turn,are based on budgets to explore for,developand produce oil an

203、d natural gas.When these expenditures decline,as they have at various times during the past several years,our revenue will suffer.Theindustrys willingness to explore for,develop and produce oil and natural gas depends largely upon the prevailing view of future oil and natural gasprices.Prices for oi

204、l and natural gas historically have been,and are likely to continue to be,highly volatile.Many factors affect the supply and demand foroil and natural gas and,therefore,influence oil and natural gas prices,including:the level of oil and natural gas production;the level of oil and natural gas invento

205、ries;domestic and worldwide demand for oil and natural gas;the expected cost of developing new reserves;the cost of producing oil and natural gas;the level of drilling and completions activity;inclement weather;domestic and worldwide economic activity;regulatory and other federal and state requireme

206、nts in the United States;the ability of the Organization of Petroleum Exporting Countries,national oil companies and other large producers to set and maintain productionlevels and prices for oil;political conditions in or affecting oil and natural gas producing countries;terrorist activities affecti

207、ng traditional supply routes and other possible terrorist activities in the United States and elsewhere;the cost of developing alternative energy sources;environmental regulation;andtax policies.The rental contracts of many of our operating compressor units have a short-term duration,and oil and nat

208、ural gas companies tend to respondquickly to upward or downward changes in prices.Any prolonged reduction in drilling and production activities historically has reduced our compressorsales and materially eroded both rental pricing and utilization rates for our equipment and services and adversely af

209、fected our financial results.As a resultof any such prolonged reductions,we may suffer losses,be unable to make necessary capital expenditures or be unable to meet our financial obligations.The intense competition in our industry could result in reduced profitability and loss of market share for us.

210、We compete with the oil and natural gas industrys largest equipment and service providers who have greater name recognition than we do.Thesecompanies also have substantially greater financial resources,larger operations and greater budgets for marketing,research and development than wedo.They may be

211、 better able to compete because of their broader geographic dispersion and ability to take advantage of international opportunities,thegreater number of compressors in their fleet,their product and service diversity or a lower cost of capital.As a result,we could lose customers and marketshare to th

212、ose competitors.These companies may also be better positioned than us to successfully endure downturns in the oil and natural gas industry.11Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices,features,perfo

213、rmance or other competitive characteristics than our products and services.Competitive pressures or other factors also may result insignificant price competition that could harm our revenue and our business.Additionally,we may face competition in our efforts to acquire otherbusinesses.Adverse macroe

214、conomic and business conditions may significantly and negatively affect our results of operations.As a result of the COVID-19 outbreak and other economic conditions in the United States and abroad,our revenue and profitability wereadversely affected in the ensuing years.The condition of domestic and

215、 global financial markets and the potential for disruption and illiquidity in the creditmarkets could have an adverse effect on our operating results and financial condition,and if sustained for an extended period,such adverse effects couldalso become significant.Uncertainty and turmoil in the credi

216、t markets may negatively impact the ability of our customers to finance utilization of ourproducts and services and could result in a decrease in,or cancellation of,orders or adversely affect the collectability of our receivables.If the availabilityof credit to our customers is reduced,they may redu

217、ce their drilling and production expenditures,thereby decreasing demand for our products and services,which could have a negative impact on our financial condition.A prolonged period of depressed prices for oil and natural gas would likely result in delaysor cancellation of projects by our customers

218、,reducing the demand for our products and services.Continued elevated levels of inflation could have an adverse impact on our operating results.The U.S.economy has experienced elevated levels of inflation since early 2022.While such levels of inflation have moderated in recent months,uncertainty rem

219、ains on expectations of inflation during 2024.Should inflationary pressures return or increase,the result will be an increase in our coststructure,including labor costs,parts costs,lubricants and other items used in our operations.If such cost increases occur,we may be unable to pass alongsuch incre

220、ases to our customers in the form of higher rental rates for our compressor units.Increases in inflation could also increase the costs of newcompressor units,making them less attractive and decreasing the demand from our customers for such assets.Should any of these items occur,they couldnegatively

221、impact the results of our operations.A reduction in demand for oil could adversely affect our business.Our results of operations depend upon the level of activity in the energy market,including oil development,production,and transportation.Oiland natural gas prices and the level of drilling and expl

222、oration activity can be volatile.As a result,the demand for our natural gas compression services canbe adversely affected.A reduction in demand has,and could in the future continue to,force us to reduce our pricing substantially.Additionally,ourcustomers production from oil-weighted reserves constit

223、utes the majority percentage of our business.These are considered unconventional sources and aregenerally less economically feasible to be developed in low oil price environments.A decline in demand for oil and natural gas generally has an adverseeffect on our business,financial condition and result

224、s of operations.Our industry is highly cyclical,and our results of operations may be volatile.Our industry is highly cyclical,with periods of high demand and high pricing followed by periods of low demand and low pricing.Periods of lowdemand intensify the competition in the industry and often result

225、 in rental equipment being idle for long periods of time.We have been required to enterinto lower rate rental contracts in response to market conditions and our rentals and sales revenue have decreased as a result of such conditions.Due to theshort-term nature of most of our rental contracts,changes

226、 in market conditions can quickly affect our business.As a result of the cyclicality of our industry,we anticipate our results of operations will be volatile in the future.12Increased regulation or ban of current fracturing techniques could reduce demand for our compressors.From time to time,for exa

227、mple,legislation has been proposed in Congress to amend the federal Safe Drinking Water Act(“SDWA”)to requirefederal permitting of hydraulic fracturing and the disclosure of chemicals used in the hydraulic fracturing process.Further,the EPA completed a studyfinding that hydraulic fracturing could po

228、tentially harm drinking water resources under adverse circumstances such as injection directly into groundwateror into production wells lacking mechanical integrity.Further,legislation to amend the SDWA to repeal the exemption for hydraulic fracturing(exceptwhen diesel fuels are used)from the defini

229、tion of“underground injection”and require federal permitting and regulatory control of hydraulic fracturing,aswell as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process,have been proposed in recentsessions of Congress.Several states

230、and local jurisdictions also have adopted or are considering adopting regulations that could restrict or prohibithydraulic fracturing in certain circumstances,impose more stringent operating standards and/or require the disclosure of the composition of hydraulicfracturing fluids.While we do not perf

231、orm hydraulic fracturing,many of our customers do and their activity level drives demand for our products.More recently,federal and state governments have begun investigating whether the disposal of produced water into underground injection wellshas caused increased seismic activity in certain areas

232、.The results of these studies could lead federal and state governments and agencies to develop andimplement additional regulations.A ban of hydraulic fracturing would likely halt some projects,including unconventional projects,at least temporarily.Expanded regulations arelikely to introduce a period

233、 of uncertainty as companies determine ways to proceed.Any curtailment could result in a reduction in demand for ourcompressors,potentially affecting both sales and rentals of our units.We are subject to extensive environmental laws and regulations that could require us to take costly compliance act

234、ions that could harm our financialcondition.Our fabrication and maintenance operations are significantly affected by stringent and complex federal,state and local laws and regulationsgoverning the discharge of substances into the environment or otherwise relating to environmental protection.In these

235、 operations,we generate and managehazardous wastes such as solvents,thinner,waste paint,waste oil,wash down wastes,and sandblast material.We attempt to use generally acceptedoperating and disposal practices and,with respect to acquisitions,will attempt to identify and assess whether there is any env

236、ironmental risk beforecompleting an acquisition.Based on the nature of the industry,however,hydrocarbons or other wastes may have been disposed of or released on or underproperties owned or leased by us or on or under other locations where such wastes have been taken for disposal.The waste on these

237、properties may besubject to federal or state environmental laws that could require us to remove the waste or remediate sites where they have been released.We could beexposed to liability for cleanup costs,natural resource and other damages as a result of our conduct or the conduct of,or conditions c

238、aused by,priorowners,lessees or other third parties.Environmental laws and regulations have changed in the past,and they are likely to change in the future.If currentexisting regulatory requirements or enforcement policies change,we may be required to make significant unanticipated capital and opera

239、ting expenditures.Any failure by us to comply with applicable environmental laws and regulations may result in governmental authorities taking actions against ourbusiness that could harm our operations and financial condition,including the:issuance of administrative,civil and criminal penalties;deni

240、al or revocation of permits or other authorizations;reduction or cessation in operations;andperformance of site investigatory,remedial or other corrective actions.Increasing attention to environmental,social and governance matters and future related reporting requirements may impact our business,fin

241、ancialresults and stock price.In recent years,increasing attention has been given to corporate activities related to environmental,social and governance(“ESG”)matters inpublic discourse and the investment community.A number of advocacy groups,both domestically and internationally,have campaigned for

242、 governmentaland private action to promote change at public companies related to ESG matters,including through the investment and voting practices of investmentadvisers,public pension funds,universities and other members of the investing community.These activities include increasing attention and de

243、mands foraction related to climate change and energy transition matters,such as promoting the use of substitutes to fossil fuel products13and encouraging the divestment of fossil fuel equities,as well as pressuring lenders and other financial services companies to limit or curtail activities withfos

244、sil fuel companies.Members of the investment community have begun to screen companies for sustainability performance,including practices related to climatechange.In addition,organizations that provide information to investors on corporate governance and related matters have developed ratings systems

245、 forevaluating companies on their approach to ESG matters.These ratings are used by some investors to inform their investment and voting decisions.Unfavorable ESG ratings may lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to otherindustrie

246、s,which could have a negative impact on our stock price and our access to and costs of capital.Regulatory requirements related to ESG or sustainability reporting have been issued in the European Union that apply to financial marketparticipants.In the United States,such regulations have been issued r

247、elated to pension investments in California,and for the responsible investment ofpublic funds in Illinois.Additional regulation is pending in other states.We expect regulatory requirements related to ESG matters to continue to expandglobally.If we are not able to meet future sustainability reporting

248、 requirements of regulators or current and future expectations of investors,customers orother stakeholders,our business and ability to raise capital may be adversely affected.Increasing attention to climate change,increasing societal expectations on companies to address climate change,and potential

249、consumer use ofsubstitutes to energy commodities may result in increased costs,reduced demand for our customers hydrocarbon products which will likely translate toreduced demand for compression services,reduced profits,increased investigations and litigation,increased governmental regulations and ne

250、gative impactson our stock price and access to capital markets.International,national and state governments and agencies continue to evaluate and promulgate legislation and regulations that are focused onrestricting greenhouse gas(GHG)emissions.Compliance with climate action regulations applicable t

251、o our customers operations may have significantimplications that could adversely affect our business and operating results in the fossil fuel sectors,and boosting demand for technologies contributingto the climate action agenda.In the United States,the U.S.Environmental Protection Agency(EPA)has tak

252、en steps to regulate GHG emissions as air pollutants under the U.S.Clean Air Act of 1970,as amended.The EPAs Greenhouse Gas Reporting Rule requires monitoring and reporting of GHG emissions from,among others,certain mobile and stationary GHG emission sources in the oil and natural gas industry.In ad

253、dition,the U.S.government has proposed rules in the pastsetting GHG emissions standards for,or otherwise aimed at reducing GHG emissions from,the oil and natural gas industry.Caps or fees on carbonemissions,including in the U.S.,have been and may continue to be established and the cost of such caps

254、or fees could disproportionately affect the fossilfuel sectors.We are unable to predict whether and when the proposed changes in laws or regulations ultimately will occur or what they ultimately willrequire,and accordingly,we are unable to assess the potential financial or operational impact they ma

255、y have on our customers and therefore our business.Risks Associated With Our CompanyA significant majority of our compressor unit rental agreements are either month-to-month or short-term in duration.which,if terminated or notrenewed,would adversely impact our revenue and our ability to recover our

256、initial equipment costs.The length of our compressor rental agreements with our customers varies based on customer needs,equipment configurations and geographicarea.In most cases,under currently prevailing rental rates,the initial rental periods are not long enough to enable us to fully recoup the a

257、verage cost ofacquiring or fabricating the equipment.On a unit basis,of the 1,247 compressors rented at December 31,2023,773 were rented on a month-to-monthbasis.On a horsepower basis,of the 420,432 total rented horsepower,we had 141,194 of that total rented on a month-to-month basis,with the remain

258、der oncontracts expiring between 2024 and 2028.Given the volatility of the oil and gas market,we cannot be sure that a substantial number of our customers willcontinue their rental agreements or that,if such agreements were terminated we will be able to re-rent the equipment to new customers or that

259、 any re-rentalswould be at comparable rental rates.The inability to timely renegotiate or re-rent a substantial portion of our compressor rental fleet could have a materialadverse effect upon our business,financial condition,results of operations and cash flows.14We could be subject to substantial l

260、iability claims that could harm our financial condition.Our products are used in production applications where an accident or a failure of a product can cause personal injury,loss of life,damage toproperty,equipment or the environment,or suspension of operations.While we maintain insurance coverage,

261、we face the following risks under ourinsurance coverage:we may not be able to continue to obtain insurance on commercially reasonable terms;we may be faced with types of liabilities that will not be covered by our insurance,such as damages from significant product liabilities and fromenvironmental c

262、ontamination;the dollar amount of any liabilities may exceed our policy limits;andwe do not maintain coverage against the risk of interruption of our business.Any claims made under our policies will likely cause our premiums to increase.Any future damages caused by our products or services that aren

263、ot covered by insurance,are in excess of policy limits or are subject to substantial deductibles,would reduce our earnings and our cash available foroperations.A significant amount of our revenues and accounts receivable are related to one customer and a loss of this customer or other current custom

264、ers couldadversely affect our results of operations.Our business is dependent not only on securing new customers but also on maintaining current customers.We had one customer that accounted foran aggregate of approximately 50%of our revenue for the year ended December 31,2023,and the same customer a

265、ccounted for an aggregate ofapproximately 42%of our revenue for the year ended December 31,2022.At December 31,2023,this same customer accounted for an aggregate of 64%of our accounts receivable.Unless we are able to retain our existing customers,or secure new customers if we lose one or more of our

266、 significantcustomers,our revenue and results of operations would be adversely affected.In addition,the default on payments by our significant customer or otherimportant customers would negatively impact our cash flow and current assets.Loss of key members of our management could adversely affect ou

267、r business.In keeping with our streamlined approach to our business,our executive management team consists of four officers:our(i)Chief ExecutiveOfficer,(ii)Chief Financial Officer(iii)Chief Technical Officer and(iv)President and Chief Operating Officer.On February 1,2024,Justin Jacobs,amember of ou

268、r board of directors,was named as Chief Executive Officer and assumed these duties beginning on February 12,2024.We have had twoInterim Chief Financial Officers since the resignation of our prior Chief Financial Officer on February 28,2023.While there is an ongoing search for apermanent Chief Financ

269、ial Officer,if this position is not adequately or timely replaced,our business operations could be materially adversely affected.Inaddition,we rely on James Hazlett,our long-time Chief Technical Officer,in connection with the design and engineering of our compressor lines.Whilewe have recently hired

270、 Brian Tucker as our Chief Operating Officer,we expect that Mr.Hazletts services will also continue to be available to us in theforeseeable future.However,the complete loss of either Messrs.Tuckers or Hazletts services could have an adverse impact on our business.We do notcarry any key-man insurance

271、 on any of our officers or directors.The erosion of the financial condition of our customers could adversely affect our business.Many of our customers finance their exploration and development activities through cash flow from operations,the incurrence of debt or theissuance of equity.During times w

272、hen the oil or natural gas markets are weak,our customers are more likely to experience a deterioration in their financialcondition.Many of our customers equity values and liquidity substantially decline during declines in oil and natural gas prices,and in some cases accessto capital markets may be

273、an unreliable source of financing for some customers.The combination of a reduction in cash flow resulting from declines incommodity prices,an increase in the interest rates charged for debt financing,a reduction in borrowing bases under reserve-based credit facilities and thelack of availability of

274、 debt or equity financing may result in a reduction in our customers spending for our products and services.For example,ourcustomers could seek to preserve capital by canceling month-to-month contracts,canceling or delaying scheduled maintenance of their existing natural gascompression equipment or

275、determining not to enter into any new natural gas compression service contracts or purchase new compression equipment.15We might be unable to employ qualified technical personnel,which could hamper our present operations or increase our costs.Many of the compressors that we sell or rent are mechanic

276、ally complex and often must perform in harsh conditions.We believe that our successdepends upon our ability to employ and retain a sufficient number of technical personnel who have the ability to design,utilize,enhance and maintain thesecompressors.Our ability to maintain and expand our operations d

277、epends in part on our ability to utilize and increase our skilled labor force.The demandfor skilled workers is high,and supply is limited.A significant increase in the wages paid by competing employers could result in a reduction of our skilledlabor force or cause an increase in the wage rates that

278、we must pay or both.If either of these events were to occur,our cost structure could increase and ouroperations and growth potential could be impaired.We may require a substantial amount of capital to expand our compressor rental fleet and grow our business.In late 2022 and for 2023,we significantly

279、 expanded and borrowed under our bank credit facility in order to finance the growth of our largehorsepower compressor fleet,increasing the outstanding balance on our facility from$25 million at December 31,2022,to$164 million at December 31,2023.The current commitment on our credit facility is$225

280、million,subject to borrowing base limitations.At December 31,2023,our borrowing baseunder the credit facility was approximately$219.7 million,leaving approximately$55.7 million available for future borrowing.During 2024,the amount we will spend on capital expenditures related to compression equipmen

281、t will be determined primarily by the activity ofour customers,our financial resources and access to capital.The amount and timing of any capital expenditures may vary depending on a variety of factors,including the level of activity in the oil and natural gas exploration and production industry and

282、 the presence of alternative uses for our capital,includingany acquisitions that we may pursue.In addition,although a significant portion of the value of a new compressor increases our borrowing base under ourcredit facility once it has been fully constructed and put into service,we generally have a

283、n approximate lag of 9 to 12 months between borrowing moneyunder the credit facility to fund progress payments to build a compressor and the time it becomes eligible for inclusion in our borrowing base.This lag canreduce the amount of future borrowings available for working capital purposes and new

284、compressor unit acquisition until the unit is placed into service.During the past year,we funded our capital expenditures through cash flows from operations and borrowings from our revolving credit facility.Although we believe that cash on hand,cash flows from our operations and bank borrowing from

285、our revolving credit facility will provide us withsufficient cash to fund our planned capital expenditures for 2024,we cannot provide assurance that these sources will be sufficient considering the factorsand limitations noted above.In addition to expanding our existing business through organic grow

286、th opportunities,we may require additional capital to fund any significantunanticipated capital expenditures,such as a material acquisition.To the extent we would require any necessary capital,due to the existing constraintsnoted above and any issues or limitations in the equity and debt capital mar

287、kets,such capital,may not be available to us when we need it or on acceptableterms.Our ability to raise additional capital will depend on the results of our operations and the status of various capital and industry markets at the timewe seek such capital.Failure to generate sufficient cash flow,toge

288、ther with the absence of alternative sources of capital,could stagnate our growth andhave a material adverse effect on our business,financial condition,results of operations or cash flow.Our debt levels may negatively impact our current and future financial stability.In November 2023,we increased th

289、e borrowing commitment of our revolving credit facility from$175 million to$225 million(subject toborrowing base limitation and customary covenants)and at December 31,2023,we had$164 million outstanding on the revolving credit facility andanticipate additional borrowing on the facility through 2024.

290、Should we utilize our full debt capacity growth beyond that point could be impacted.As aresult of our indebtedness at any given point in time,we might not have the ability to incur any substantial additional indebtedness.The level of ourindebtedness could have several important effects on our future

291、 operations,including:our ability to obtain additional financing for working capital,acquisitions,capital expenditures and other purposes may be limited;a significant portion of our cash flow from operations may be dedicated to the payment of principal and interest(which is variable on ourrevolving

292、credit facility)on our debt,thereby reducing funds available for other purposes;andour leverage if increased to an unacceptable level,could make us more vulnerable to economic downturns.16If we borrow under our credit line and are unable to service our debt,we will likely be forced to take remedial

293、steps that are contrary to our businessplan.If we were to materially borrow further under our line of credit or other borrowing arrangements,it is possible that our business will not generatesufficient cash flow from operations to meet any debt service requirements and the payment of principal when

294、due depending on the amount of borrowingsat any given time.If this were to occur,we may be forced to:sell assets at disadvantageous prices;obtain additional financing on less favorable terms;orrefinance all or a portion of our indebtedness on terms that may be less favorable to us.Our current credit

295、 agreement contains covenants that limit our operating and financial flexibility and,if breached,could expose us to severe remedialprovisions.Under the terms of our current credit agreement,we must:comply with various leverage,commitment coverage and other customary financial ratios;not exceed speci

296、fied levels of debt;comply with limits on asset sales;comply with limits on cash dividends;andother customary financial and operational limitations.Our ability to meet the financial ratios and tests under our credit agreement can be affected by events beyond our control,and we may not be ableto sati

297、sfy those ratios and tests.A breach of any one of these covenants or requirements could permit the lending organization to accelerate outstandingamounts so that it is immediately due and payable.If a breach occurs,no further borrowings would be available under our credit arrangement.If we areunable

298、to repay any outstanding amounts,the lending organization could proceed against and foreclose on the assets we pledged as collateral to securepayment of our indebtedness.Our current credit agreement contains a variable interest rate and increases to such rate may increase our borrowing cost.The inte

299、rest expense charged on our outstanding borrowings under our current credit agreement is based upon a variable rate which fluctuates asinterest rates change.Changes in macroeconomic conditions outside of our control could result in a higher interest rate being charged on our outstandingborrowings an

300、d an increase in the overall interest costs charged.This could have an adverse impact on our operations,our free cash flow and our ability toinvest in future growth.If we fail to acquire or successfully integrate additional businesses,our growth may be limited and our results of operations may suffe

301、r.As part of our business strategy,we evaluate potential acquisitions of other businesses or assets.However,there can be no assurance that we willbe successful in consummating any such acquisitions.The successful acquisition of businesses or assets will depend on various factors,including,but notlim

302、ited to,our ability to obtain financing and the competitive environment for acquisitions.In addition,we may not be able to successfully integrate anybusinesses or assets that we acquire in the future.The integration of acquired businesses is likely to be complex and time-consuming,place a significan

303、tstrain on management and may disrupt our business.We also may be adversely impacted by any unknown liabilities of acquired businesses,includingenvironmental liabilities.We may encounter substantial difficulties,costs and delays involved in integrating common accounting,information andcommunication

304、systems,operating procedures,internal controls and human resources practices,including incompatibility of business cultures and the lossof key employees and customers.These difficulties may reduce our ability to gain customers or retain existing customers,and may increase operatingexpenses,resulting

305、 in reduced revenues and income and a failure to realize the anticipated benefits of acquisitions.Failure to effectively manage our business and growth could adversely affect our operating results and our internal controls.In 2023,we had significant growth in our revenue and operations.Our strategy

306、envisions the continued expansion and growth of our business,subject to the demand for oil and gas and the impact of the other risks set forth in this risk factor section and elsewhere in this Report.Continued rapidgrowth will likely challenge and place a strain on our management systems and17resour

307、ces if we are unable to timely adapt and expand such systems and resources.Many of our ongoing reporting functions rely on data capture andrecording using manual entry of transaction data.In order to efficiently and effectively manage our planned growth,we will need to continue to analyzeand upgrade

308、 our use of technology,including our ERP and other operating systems and this will likely require future capital investment.We must continueto refine and expand our business capabilities,our workforce,our systems and processes,and our access to financing sources.As we continue to grow,wemust continu

309、e to hire,train,supervise and manage new employees.We cannot assure that we will be able to:meet our capital needs;upgrade and expand our office and field management infrastructure so that it is appropriate for our level of activity;continue to improve our systems effectively or efficiently and in a

310、 timely manner,including financial and management controls,reporting systemsand procedures;andattract,hire,train and retain additional highly skilled and motivated officers,sales staff,district managers and employees and allocate our humanresources optimally.If we are unable to manage our growth,our

311、 financial conditions and results of operations may be adversely affected.Liability to customers under warranties and indemnification provisions may materially and adversely affect our results of operations.We provide warranties as to the proper operation and conformance to specifications of the equ

312、ipment we manufacture.Our equipment is complexand often deployed in harsh environments.Failure of this equipment to operate properly or to meet specifications may increase our costs by requiringadditional engineering resources and services,replacement of parts and equipment or monetary reimbursement

313、 to a customer.We have in the past receivedwarranty claims and we expect to continue to receive them in the future.To the extent that we incur substantial warranty claims in any period,ourreputation,our ability to obtain future business and our results of operations could be materially and adversely

314、 affected.Our rental and sales contracts provide for varying forms of indemnification from our customers and in most cases may require us to indemnify ourcustomers.Under some of our rental and sales contracts,liability with respect to personnel and property is customarily assigned on a“knock-for-kno

315、ck”basis,which means that we and our customers assume liability for our respective personnel and property.However,in certain rental and sales contracts weassume liability for damage to our customers property as well as the property of certain other third parties on the site resulting from our neglig

316、ence.Sinceour products are used in production applications in the energy industry,expenses and liabilities in connection with accidents involving our products andservices could be extensive and may exceed our insurance coverage.Our income taxes may change.We are subject to income tax on a jurisdicti

317、onal or legal entity basis and significant judgment is required in certain instances to allocate our taxableincome to a jurisdiction and to determine the related income tax expense and benefits.Losses in one jurisdiction generally may not be used to offset profitsin other jurisdictions.As a result,c

318、hanges in the mix of our earnings(or losses)between jurisdictions,among other factors,could alter our overall effectiveincome tax rate,possibly resulting in significant tax rate increases.We are regularly audited by various tax authorities.Income tax audit assessments or changes in tax laws,regulati

319、ons,or other interpretations mayresult in increased tax provisions which could materially affect our operating results in the period or periods in which such determinations are made orchanges occur.Failure to maintain effective internal controls could have a material adverse effect on our operations

320、.Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financialreporting.If we fail to remediate our material weakness or maintain effective internal controls,we may not be able to ensure that we can conclude on anongoing basi

321、s that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.Moreover,effective internal controls are necessary for us to produce reliable financial reports and to help prevent financial fraud.If,as a result of deficiencies in ourintern

322、al controls,we cannot provide reliable financial reports or prevent fraud,our business decision process may be adversely affected,our business andoperating results could be harmed,investors could lose confidence in our reported financial information,and the price of our stock could decrease as aresu

323、lt.18We rely on computer and telecommunications systems,and failures in our systems or cyber security attacks or breaches could result in informationtheft,data corruption,disruption in operations and/or financial loss.In the conduct of our business,we rely heavily on information technology systems(“

324、digital technology”),including internet-based systems,toprocess,transmit and store electronic information.In particular,we depend upon our digital technology for supply chain management,inventorymanagement,payment processing and data storage.Like many companies,we have become increasingly dependent

325、upon digital technology to conductdaily operations.Our business partners,including vendors,service providers and financial institutions,are also dependent upon digital technology.We are continually exposed to various cybersecurity risks,including but not limited to,unauthorized access to our systems

326、 or data,malware andransomware attacks,denial-of-service attacks,phishing,theft or loss of intellectual property,and data breaches.These risks could result from maliciousactors,employee error,malfeasance,or other operational vulnerabilities.A cybersecurity attack could have a significant adverse imp

327、act on our businessoperations,financial condition and reputation.Potential consequences include loss of sensitive or proprietary information,disruption of businessoperations,financial losses from remedial actions,litigation and potential legal liabilities and damage to customer and investor confiden

328、ce.We have taken steps to protect against cyber-attacks to minimize the risk of our systems being penetrated and compromised by implementing acomprehensive cybersecurity program,such as regular risk assessments and penetration testing,deployment of firewalls and intrusion detection systems,deploymen

329、t of encryption technologies,implementation of access controls and the development of incident response and recovery plans.Additionally,wehave employed data backup and storage measures that could allow for recovery of our data.However,we cannot assure that our efforts to prevent such anattack or,tha

330、t if an attack were to occur,that we would be able to access our data in a timely fashion.Risks Associated With Our Common StockThe price of our common stock may fluctuate.The trading price of our common stock and the price at which we may sell securities in the future are subject to substantial flu

331、ctuations in responseto various factors,including our ability to successfully accomplish our business strategy,the trading volume of our stock,changes in governmentalregulations,actual or anticipated variations in our quarterly or annual financial results,our involvement in litigation,general market

332、 conditions,the pricesof oil and natural gas,announcements by us and our competitors,our liquidity,our ability to raise additional funds,and other events such as those discussedin the factors above.Future sales of our common stock could adversely affect our stock price.Substantial sales of our commo

333、n stock in the public market,or the perception by the market that those sales could occur,may lower our stockprice or make it difficult for us to raise additional equity capital in the future.According to filings made with the Securities and Exchange Commission asof March 28,2024,an aggregate of approximately 37.1%of the outstanding shares of our common stock are owned by five institutional invest