1、TableofContents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington D.C.20549FORM 10-K(Mark One)xxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,2017ORooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
2、EXCHANGE ACT OF1934For the transition period from to Commission File Number 333-215998FTS INTERNATIONAL,INC.(ExactNameofRegistrantasSpecifiedinItsCharter)Delaware30-0780081(StateorotherJurisdictionofIncorporationorOrganization)(I.R.S.EmployerIdentificationNo.)777 Main Street,Suite 2900,Fort Worth,Te
3、xas76102(AddressofPrincipalExecutiveOffices)(ZipCode)(817)862-2000(TelephoneNumber,IncludingAreaCode)SecuritiesregisteredpursuanttoSection12(b)oftheSecuritiesExchangeActof1934:Title of each class Name of each exchange on which registeredCommon Stock,par value$0.01 per shareNew York Stock ExchangeSec
4、uritiesregisteredpursuanttoSection12(g)oftheSecuritiesExchangeActof1934:NoneIndicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesoNoxIndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesoNoxIndicateb
5、ycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesoNoxIndicatebycheckmar
6、kwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesxN
7、ooIndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrantsknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.xIndi
8、catebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,asmallerreportingcompany,oranemerginggrowthcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany,”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct.LargeA
9、cceleratedFileroAcceleratedFileroNon-AcceleratedFilerx(Donotcheckifasmallerreportingcompany)SmallerreportingcompanyoEmerginggrowthcompanyoIfanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandar
10、dsprovidedpursuanttoSection13(a)oftheExchangeAct.oIndicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).YesoNoxAsofJune30,2017,thelastdayoftheregistrantsmostrecentlycompletedsecondfiscalquarter,therewasnopublicmarketforregistrantscommonstock.Theregistrantscommo
11、nstockbegantradingontheNewYorkStockExchangeonFebruary2,2018.AsofMarch7,2018,aggregatemarketvalueofthecommonstockheldbynon-affiliatesoftheregistrantwasapproximately$632.2million,basedontheclosingpriceoftheregistrantscommonstockonMarch7,2018.AsofMarch7,2018,theregistranthad109,274,564sharesofcommonsto
12、ck,$0.01parvalue,outstanding.DOCUMENTS INCORPORATED BY REFERENCENone.TableofContentsFTS INTERNATIONAL,INC.Form 10-KYear Ended December 31,2017INDEX PageCautionaryStatementRegardingForward-LookingStatementsiiPART IItem1.Business1Item1A.RiskFactors14Item1B.UnresolvedStaffComments28Item2.Properties28It
13、em3.LegalProceedings29Item4.MineSafetyDisclosures29PART IIItem5.MarketforRegistrantsCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities30Item6.SelectedFinancialData31Item7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations33Item7A.QuantitativeandQualita
14、tiveDisclosuresAboutMarketRisk42Item8.FinancialStatementsandSupplementaryData43Item9.ChangesinandDisagreementsWithAccountantsonAccountingandFinancialDisclosure43Item9A.ControlsandProcedures43Item9B.OtherInformation43PART IIIItem10.Directors,ExecutiveOfficersandCorporateGovernance44Item11.ExecutiveCo
15、mpensation49Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters62Item13.CertainRelationshipsandRelatedTransactions,andDirectorIndependence64Item14.PrincipalAccountantFeesandServices66PART IVItem15.ExhibitsandFinancialStatementSchedules67IndextoConsolidatedFinan
16、cialStatementsF-1iTableofContentsCautionary Statement Regarding Forward-Looking StatementsThisannualreportcontains“forward-lookingstatements”thataresubjecttorisksanduncertainties.Allstatementsotherthanstatementsofhistoricalorcurrentfactincludedinthisannualreportareforward-lookingstatements.Forward-l
17、ookingstatementsrefertoourcurrentexpectationsandprojectionsrelatingtoourfinancialcondition,resultsofoperations,plans,objectives,strategies,futureperformanceandbusiness.Forward-lookingstatementsmaybeidentifiedbythefactthattheydonotrelatestrictlytohistoricalorcurrentfacts.Thesestatementsmayincludeword
18、ssuchas“anticipate,”“assume,”“believe,”“canhave,”“contemplate,”“continue,”“could,”“design,”“due,”“estimate,”“expect,”“goal,”“intend,”“likely,”“may,”“might,”“objective,”“plan,”“predict,”“project,”“potential,”“seek,”“should,”“target,”“will,”“would”andotherwordsandtermsofsimilarmeaninginconnectionwitha
19、nydiscussionofthetimingornatureoffutureoperationalperformanceorotherevents.Forexample,allstatementswemakerelatingtoourestimatedandprojectedcosts,expendituresandgrowthrates,ourplansandobjectivesforfutureoperations,growthorinitiativesorstrategiesareforward-lookingstatements.Allforward-lookingstatement
20、saresubjecttorisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthosethatweexpectand,therefore,investorsshouldnotundulyrelyonsuchstatements.Therisksthatcouldcausetheseforward-lookingstatementstobeinaccurateincludebutarenotlimitedto:adeclineindomesticspendingbytheonshoreoilandnatural
21、gasindustry;volatilityinoilandnaturalgasprices;customersinabilitytomaintainorincreasetheirreservesgoingforward;deteriorationingeneraleconomicconditionsoraweakeningofthebroaderenergyindustry;thecompetitivenatureoftheindustryinwhichweconductourbusiness;theeffectofalossof,orfinancialdistressof,oneormor
22、esignificantcustomers;nonpaymentbycustomersweextendcreditto;demandforservicesinourindustry;actionsofOPEC,itsmembersandotherstate-controlledoilcompaniesrelatingtooilpriceandproductioncontrols;adeclineindemandforproppant;ourinabilitytoemployasufficientnumberofkeyemployees,technicalpersonnelandotherski
23、lledorqualifiedworkers;theoccurrenceofasignificanteventoradverseclaiminexcessoftheinsurancecoveragewemaintain;finesorpenalties(administrative,civilorcriminal),revocationsofpermits,orissuanceofcorrectiveactionordersfornoncompliancewithhealth,safetyandenvironmentallawsandregulations;changesinlawsandre
24、gulationswhichimposeadditionalrequirementsorrestrictionsonbusinessoperations;federal,stateandlocalregulationofhydraulicfracturingandotheroilfieldserviceactivities,aswellasexplorationandproduction(“E&P”)activities,includingpublicpressureongovernmentalbodiesandregulatoryagenciestoregulateourindustry;e
25、xistingorfuturelawsandregulationsrelatedtogreenhousegasesandclimatechange;ourabilitytoobtainpermits,approvalsandauthorizationsfromgovernmentalandthirdparties,andtheeffectsoforchangestoU.S.andforeigngovernmentregulation;restrictionsondrillingactivitiesintendedtoprotectcertainspeciesofwildlife;conserv
26、ationmeasuresandtechnologicaladvanceswhichreducedemandforoilandnaturalgas;thelevelofglobalanddomesticoilandnaturalgasinventories;thepriceandavailabilityofalternativefuelsandenergysources;thediscoveryratesofnewoilandnaturalgasreserves;limitationsonconstructionofnewnaturalgaspipelinesorincreasesinfede
27、ralorstateregulationofnaturalgaspipelines;theavailabilityofwaterresources,suitableproppantandchemicalsinsufficientquantitiesforuseinhydraulicfracturingfluids;thecostofexploringfor,developing,producinganddeliveringoilandnaturalgas;thirdpartyclaimsforpossibleinfringementofintellectualpropertyrights;ii
28、TableofContentsintroductionofnewdrillingorcompletiontechniques,orservicesusingnewtechnologiessubjecttopatentorotherintellectualpropertyprotections;leadtimesassociatedwithacquiringequipmentandproductsandavailabilityofqualifiedpersonnel;lossorcorruptionofourinformationoracyberattackonourcomputersystem
29、s;oneormoreofourdirectorsmaynotresideintheUnitedStateslimitingtheabilityofinvestorsfromobtainingorenforcingjudgmentsagainstthem;adverseweatherconditionscausingstoppageordelayinoperations;aterroristattackorarmedconflictdisruptingoperations;additionaleconomic,politicalandregulatoryrisksrelatedtointern
30、ationaloperations;geopoliticaldevelopmentsandpoliticalinstabilityinoilandnaturalgasproducingcountries;ourabilitytoutilizeournetoperatinglosses;ourinabilitytoserviceourdebtobligations;adverseeffectsonourfinancialstrategyandliquidity;increasesininterestrates;anduncertaintyincapitalandcommoditiesmarket
31、sandtheabilityofoilandnaturalgasproducerstoraiseequitycapitalanddebtfinancing.Wemakemanyofourforward-lookingstatementsbasedonouroperatingbudgetsandforecasts,whicharebasedupondetailedassumptions.Whilewebelievethatourassumptionsarereasonable,wecautionthatitisverydifficulttopredicttheimpactofknownfacto
32、rs,anditisimpossibleforustoanticipateallfactorsthatcouldaffectouractualresults.Seethe“RiskFactors”includedinItem1Aofthisannualreportforamorecompletediscussionoftherisksanduncertaintiesmentionedaboveandfordiscussionofotherrisksanduncertaintieswefacethatcouldcauseourforward-lookingstatementstobeinaccu
33、rate.Allforward-lookingstatementsattributabletousareexpresslyqualifiedintheirentiretybythesecautionarystatementsaswellasothersmadeinthisannualreportandhereafterinourotherSECfilingsandpubliccommunications.Allforward-lookingstatementsmadebyusshouldbeevaluatedinthecontextoftheserisksanduncertainties.We
34、cautionthattherisksanduncertaintiesidentifiedbyusmaynotbeallofthefactorsthatareimportanttoinvestors.Furthermore,theforward-lookingstatementsincludedinthisannualreportaremadeonlyasofthedatehereof.Weundertakenoobligationtopubliclyupdateorreviseanyforward-lookingstatementasaresultofnewinformation,futur
35、eeventsorotherwise,exceptasrequiredbylaw.iiiTableofContentsPART IITEM 1.BUSINESSGeneralFTSInternational,Inc.(the“Company”,“we”,“our”)wasoriginallyformedin2000.WeareoneofthelargestprovidersofhydraulicfracturingservicesinNorthAmerica.OurservicesenhancehydrocarbonflowfromoilandnaturalgaswellsdrilledbyE
36、&Pcompaniesinshaleandotherunconventionalresourceformations.OurcustomersincludeChesapeakeEnergyCorporation,ConocoPhillips,DevonEnergyCorporation,EOGResources,Inc.,DiamondbackEnergyInc.,EQTCompany,RangeResourcesCorporation,andotherleadingE&Pcompaniesthatspecializeinunconventionaloilandnaturalgasresour
37、cesinNorthAmerica.Wehave1.6milliontotalhydraulichorsepoweracross32fleets,with27fleetsactiveasofDecember31,2017.AsoneofthelargesthydraulicfracturingserviceprovidersinNorthAmerica,webelievewearewellpositionedtocapitalizeontherecoveryoftheNorthAmericanoilandnaturalgasexplorationandproductionmarket.Wear
38、eoneofthetopthreehydraulicfracturingprovidersacrossouroperatingfootprint,whichconsistsoffiveofthemostactivemajorunconventionalbasinsintheUnitedStates:thePermianBasin,theSCOOP/STACKFormation,theMarcellus/UticaShale,theEagleFordShaleandtheHaynesvilleShale.Ourmarketshareandourlarge-scaleoperatingpresen
39、ceacrossavarietyofactivebasinsprovidesuswithimportantstrategicadvantages,suchas:theabilitytoservelarge,multi-basincustomers;betternegotiatingpowerwithourcustomersandsuppliers;reducedvolatilityinouractivitylevelsascompletionsactivityendurescyclesindifferentbasins;andalowerrelativecoststructureforfixe
40、doverheadandcorporatecosts.ThefollowingmapshowsthebasinsinwhichweoperateandthenumberoffleetsoperatedfromeachbasinasofDecember31,2017.Weareexperiencingasurgeindemandforourservices,whichhasledustoreactivate10fleetssincethebeginningof2017.Basedoncontinuedrequestsfromcustomersforadditionalfleets,wearein
41、theprocessofreactivatingadditionalequipmentatourin-housemanufacturingfacility.Thesurgeindemandforourserviceshasallowedustoraisepricessignificantly.Oilpriceshavemorethandoubledsincethe12-yearlowof$26.14inFebruary2016,reachingahighof$64.89inJanuary2018andaveraging$50.80in2017.Similarly,theU.S.horizont
42、alrigcounthasincreasedby155%,fromalowof314rigsasofMay27,2016to802rigsasofJanuary19,2018,accordingtoanindustryreport.ThelargegrowthinE&Pdrillingactivityhascauseddemandforpressurepumpingservicestoexceedthesupplyofreadilyavailablefleets,whichhasledaveragepricingforourservicestorisemorethanapproximately
43、56%fromthefourthquarterof2016.ThesepriceincreasesstartedinJanuary2017andcontinuedtoprogresstohigherlevelsthroughout2017.Duringthelasttwoyears,weimplementedmeasurestoreduceouroperatingcostsandtoimproveouroperatingefficiency,includingreducingthenumberofouractivefleetsasdemandforourservicesdeclined.Wef
44、ocusedonourabilitytooperateouractivefleetsforasmanyhoursperdayanddayspermonthaspossibleinordertolimitthenon-productivetimeofouractivefleets.Asaresult,wehaveincreasedouraveragestagesperactivefleetperquartertorecordlevels.Theseoperationalimprovementsoccurreddespitesignificantreductionsinouroperatingco
45、sts,includingreducingourquarterlyselling,generalandadministrativeexpensebyapproximately60%from2014levels.Wemaintainedtheseimprovedcostandefficiencylevelsin2017,which,combinedwiththerecentriseinpricingforourservices,allowedustoachieveEBITDAlevelsgreaterthanwhatweexperiencedin2014.Weachievedtheseresul
46、tsdespitehaving1TableofContentsconsiderablylowerpricingandfeweractivefleetsonaveragethanwehadin2014.Webelievewecancontinuetosustainthesecostreductionsandefficiencyimprovementsasactivitylevelsincrease.Ourcustomerstypicallycompensateusbasedonthenumberofstagesfracturedandtheprimarycontributortothenumbe
47、rofstageswecompleteisourabilitytoreducedowntimeonourequipment.Asaresult,webelievethenumberofstagesfracturedandtheaveragenumberofstagescompletedperactivefleetinagivenperiodoftimeareimportantoperatingmetricsforourbusiness.Thegraphsbelowshowthenumberofstageswecompletedperquarterandtheaveragestagesperac
48、tivefleetwecompletedperquarter.Foradditionalinformationregardingourfleetcapacityandaveragestagesperactivefleetperquarterasanoperatingmetric,see“ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsResultsofOperationsRevenue”and“OurServicesHydraulicFracturing”inItem7ofthisannualr
49、eport.Wemanufactureandrefurbishmanyofthecomponentsusedbyourfleets,includingconsumables,suchasfluid-ends.Wealsoperformsubstantiallyallthemaintenance,repairandrefurbishmentofourhydraulicfracturingfleets,includingthereactivationofidleequipment.Ourcosttoproducecomponentsandreactivatefleetsissignificantl
50、ylessthanthecosttopurchasecomparablequalitycomponentsandfleetsfromthird-partysuppliers.Forexample,wemanufacturefluid-endsandpower-endsatacostthatisapproximately50%to60%lessthanpurchasingthemfromoutsidesuppliers.Weestimatethatourcostadvantagesavesusapproximately$85millionperyearatpeakproductionlevels
51、.Inaddition,weperformfull-scalerefurbishmentsofourfracturingunitsatacostthatisapproximatelyhalfthecostofutilizinganoutsidesupplier.Ourmanufacturingcapabilitiesalsoreducetheriskthatwewillbeunabletosourceimportantcomponents,suchasfluid-ends,power-endsandotherconsumableparts.Duringperiodsofhighdemandfo
52、rhydraulicfracturingservices,externalequipmentvendorsoftenreportorderbacklogsofuptoninemonths.Ourcompetitorsmaybeunabletosourcecomponentswhenneededormayberequiredtopayamuchhigherpricefortheircomponents,orboth,duetobottlenecksinsupplierproductionlevels.Wehavehistoricallymanufactured,andbelievewehavet
53、hecapacitytomanufacture,allmajorconsumablecomponentsrequiredtooperateall32ofourfleetsatfullcapacity.Wedesignedandassembledallofour32existingfleetsusinginternalresourcesandwebelievewecouldassemblenewfleetsinternallyatasubstantialdiscounttothecostofbuyingthemnewfromthird-partyproviders.Wehaveauniformf
54、leetofhydraulicfracturingequipment.Wedesignedourequipmenttouniformspecificationsintendedspecificallyforcompletionsworkinoilandnaturalgasbasinsrequiringhighlevelsofpressure,flowrateandsandintensity.Thestandardized,“plugandplay”natureofourfleetprovidesuswithseveraladvantages,including:reducedrepairand
55、maintenancecosts;reducedinventorycosts;theabilitytoredeployequipmentamongoperatingbasins;andreducedcomplexityinouroperations,whichimprovesoursafetyandoperationalperformance.Ourlargescaleandcultureofinnovationallowsustotakeadvantageofleadingtechnologicalsolutions.Wehavebeenafastadopterofnewtechnologi
56、esfocusedon:increasingfracturingeffectivenessforourcustomers,reducingtheoperatingcostsofourequipmentandenhancingtheHSEconditionsatourwellsites.Wehelpcustomersmonitorandmodifyfracturingfluidsanddesigns,throughourfluidresearchanddevelopmentoperationsthatweconductthroughastrategicpartnershipwithathird-
57、partytechnologycenterthatutilizeskeyemployeeswhowerepreviouslyaffiliatedwithourCompany.InJune2017,werenewedourservicesagreementwiththisthird-partytechnologycenterforaone-yearterm,withanoptionforustorenewforadditionalone-yearterms.Thispartnershipallowsustoworkcloselywithourcustomerstorapidlyadoptandi
58、ntegratenext-generationfluidbreakthroughs,suchasourNuFlo1000fracturingfluiddiverter,intoourproductofferings.Weowna45%interestinSinoFTS,whichisaChinesejointventurethatweformedinJune2014withSinopec.SinoFTSfractureditsfirstwellsinChinain2016.Althoughwedonotexpectrapidshort-termgrowth,thisjointventurepr
59、ovidesuswithexperienceinoverseasoperationsthatcouldbebeneficialtousifhydraulicfracturingactivitybeginstogrowsignificantlyininternationalmarkets.2TableofContentsOur ServicesHydraulic FracturingOurprimaryserviceofferingisprovidinghydraulicfracturingservices,alsoknownaspressurepumping,tooilandnaturalga
60、sE&Pcompanies.Theseservicesaredesignedtoenhancehydrocarbonflowinoilandnaturalgaswells,thusincreasingtheamountofhydrocarbonsrecovered.Thedevelopmentofresourcesinunconventionalreservoirs,includingoilandnaturalgasshales,isatechnicallyandoperationallychallengingsegmentoftheoilfieldservicesmarketthathase
61、xperiencedstronggrowthworldwide,particularlyintheUnitedStates.Oilandnaturalgaswellsaretypicallydividedintooneormore“stages,”whichareisolatedzonesthatfocusthehigh-pressurefluidandproppantfromthehydraulicfracturingfleetintodistinctportionsofthewellandsurroundingreservoir.Thenumberofstagesthatwilldivid
62、eawellisdeterminedbythecustomersproposedjobdesign,andourcustomerstypicallycompensateusbasedoneachstagecompleted.Althoughthenumberandlengthofstagesmayvarybybasinandformationcharacteristics,wehavehistoricallymaintainedarelativelyconsistentpresenceineachoperatingbasin.Duringthelasttwoyears,asaresultofo
63、urcustomerstrendingtowardmoreintensecompletions,ourquarterlyaveragestagelength,measuredinminutestocomplete,hasincreasedbyapproximately16%.Despitethelongeraveragestagelengths,wehavebeenabletoincreaseouraveragestagesperactivefleetcomparedtotheendof2014.Wewereabletoincreaseouraveragestageperactivefleet
64、sbecausetheprimarycontributortothenumberofstageswecompleteinaquarterisourabilitytoreducedowntimeonourequipment,ratherthananyvariabilityinoperatingbasinsorformationcharacteristics.Therefore,webelievethenumberofstagesthateachofouractivefleetscompletesinagivenperiodoftimeisanimportantoperatingmetric.Hy
65、draulicfracturingrepresentsthelargestcostofcompletingashaleoilornaturalgaswell.Theprocessconsistsofpumpingafracturingfluidintoawellcasingortubingatsufficientpressuretofracturetheformation.Thefracturingfluidprimarilyconsistsofwatermixedwithasmallamountofchemicalsandguar,formingahighlyviscousliquid.Ma
66、terialsknownasproppants,inourcaseprimarilysand,aresuspendedinthefracturingfluidandarepumpedintothefracturetopropitopen.Oncethefracturesareopen,thefluidisdesignedto“break,”orreduceitsviscosity,sothatitwillmoreeasilyflowbackoutoftheformation.Theproppants,whichremainbehindintheformation,actasawedgethat
67、keepsthefracturesopen,allowingthetrappedhydrocarbonstoflowmorefreely.Asaresultofasuccessfulfracturingprocess,hydrocarbonrecoveryratesaresubstantiallyenhanced;thus,increasingthereturnoninvestmentforourcustomer.Theamountofhydrocarbonsproducedfromatypicalshaleoilornaturalgaswellgenerallydeclinesquickly
68、,withproductionfromashalewelltypicallyfalling60%to70%inthefirstyear.Asaresult,E&Pcompaniesmustfracturenewwellstomaintainproductionlevels.Wedesignedallofthehydraulicfracturingunitsandmuchoftheauxiliaryequipmentusedinourfleetstouniformspecificationsintendedspecificallyforworkinoilandnaturalgasbasinsre
69、quiringhighpressuresandhighlevelsofsandintensity.Eachofourfleetstypicallyconsistsof16to25hydraulicfracturingunits;twoormoreblenders(oneusedasabackup),whichblendtheproppantandchemicalsintothehydraulicfluid;sandkingsandothertypesoflargecontainersusedtostoresandonlocation;variousvehiclesusedtotransport
70、chemicals,gelsandothermaterials;andvariousservicetrucks.Eachhydraulicfracturingfleetincludesamobile,on-sitecontrolcenterthatmonitorspressures,ratesandvolumes,asapplicable.Eachcontrolcenterisequippedwithhighbandwidthsatellitehardwarethatprovidescontinuousuploadanddownloadofjobtelemetrydata.Thedataisd
71、eliveredonareal-timebasistoon-sitejobpersonnel,thecustomerandanassignedcoordinatoratourheadquartersfordisplayinbothdigitalandgraphicalform.Ourhydraulicfracturingunitsconsistprimarilyofahigh-pressurepump,adieselorcombineddieselandnaturalgasengine,atransmissionandvariousothersupportingequipmentmounted
72、onatrailer.Thehighpressurepumpconsistsoftwokeyassemblies:thefluid-endandthepower-end.Althoughthepower-endofourpumpsgenerallylastsseveralyears,thefluid-end,whichisthepartofthepumpthroughwhichthefracturingfluidisexpelledunderhighpressure,isashorter-lastingconsumable,typicallylastinglessthanoneyear.Wer
73、efertothegroupofhydraulicfracturingunits,auxiliaryequipmentandvehiclesnecessarytoperformatypicalfracturingjobasa“fleet”andthepersonnelassignedtoeachfleetasa“crew.”Ourfleetsoperateprimarilyona24-hour-per-daybasis,inwhichwetypicallystaffthreecrewsperfleet,includingonecrewwiththedayoff.Ourfocuson24-hou
74、roperationsallowsustokeepourequipmentworkingformorehoursperday,whichwebelieveenhancesourreturn-on-assetsovertime.Weprimarilyenterintoserviceagreementswithourcustomersforoneormore“dedicated”fleets,ratherthanprovidingourfleetsprimarilyfor“spotwork.”Underourtypicaldedicatedfleetagreement,wedeployoneorm
75、oreofourhydraulicfracturingfleetsexclusivelytothecustomertofollowthecustomerscompletionscheduleandjobspecificationsuntiltheagreementexpiresoristerminatedinaccordancewithitsterms.Bycontrast,underatypicalspotworkagreement,thefleetmovesbetweencustomersasworkbecomesavailable.Webelievethatourstrategyofpu
76、rsuingdedicatedfleetagreementsleadstohigherfleetutilization,asmeasuredbythenumberofdayseachfleetisworkingpermonth,whichwebelievereducesourmonth-to-monthrevenuevolatilityandimprovesourrevenueandprofitability.SeeNote2“SummaryofSignificantAccountingPoliciesRevenueRecognition”inNotes3TableofContentstoou
77、rAuditedConsolidatedFinancialStatementsfordiscussionofpricingunderourserviceagreementsandrevenuerecognizedforservices.Animportantelementofhydraulicfracturingistheproperhandlingofthefracturingfluid.Inallofourhydraulicfracturingjobs,ourcustomersspecifythecompositionofthefracturingfluidtobeused.Sometim
78、esthisfluidincludesproductsmarketedbyus.Ourcustomersareresponsibleforthedisposalofthefracturingfluidthatflowsbackoutofthewell,andwearenotinvolvedinthatprocessorinthedisposalofthefluid.Ourcontractsgenerallyrequireourcustomerstoindemnifyusagainstpollutionandenvironmentaldamagesoriginatingbelowthesurfa
79、ceofthegroundorarisingoutofwaterdisposal,orotherwisecausedbythecustomer,othercontractorsorotherthirdparties.Inturn,weindemnifyourcustomersforpollutionandenvironmentaldamagesoriginatingatorabovethesurfacecausedsolelybyus.Wireline ServicesOurwirelineservicesprimarilyconsistofsettingplugsbetweenhydraul
80、icfracturingstages,creatingperforationswithinhydraulicfracturingstagesandloggingthecharacteristicsofresourceformations.Ourwirelineservicesequipmentisdesignedtooperateunderhighpressureinunconventionalresourceformationswithoutdelayinghydraulicfracturingoperations.Wecurrentlyprovidewirelineservicesinea
81、choftheareaswhereourhydraulicfracturingfleetsoperate.AsofDecember31,2017,weowned51wirelineunits.Industry Overview and TrendsTheoilandnaturalgasindustryhastraditionallybeenvolatileandisinfluencedbyacombinationoflong-term,short-termandcyclicaltrends,includingthedomesticandinternationalsupplyanddemandf
82、oroilandnaturalgas,currentandexpectedfuturepricesforoilandnaturalgasandtheperceivedstabilityandsustainabilityofthoseprices,productiondepletionratesandtheresultantlevelsofcashflowsgeneratedandallocatedbyE&Pcompaniestotheirwellcompletionsbudget.Theoilandnaturalgasindustryisalsoimpactedbygeneraldomesti
83、candinternationaleconomicconditions,politicalinstabilityinoilproducingcountries,governmentregulations(bothintheUnitedStatesandelsewhere),levelsofcustomerdemand,theavailabilityofpipelinecapacityandotherconditionsandfactorsthatarebeyondourcontrol.Theprincipalfactorinfluencingdemandforhydraulicfracturi
84、ngservicesisthelevelofhorizontaldrillingactivitybyE&Pcompanies.Since2006,thesecompanieshaveincreasinglyfocusedonexploitingthehydrocarbonreservescontainedinNorthAmericasunconventionaloilandnaturalgasreservoirsbyutilizinghorizontaldrillingandhydraulicfracturing.Overthelastdecade,advancesinthesetechnol
85、ogieshavemadethedevelopmentofmanyunconventionalresources,suchasoilandnaturalgasshaleformations,economicallyattractive.Theseadvancementsledtoadramaticincreaseinthedevelopmentofoil-andnaturalgas-producingbasinsintheUnitedStatesandacorrespondingincreaseinthedemandforhydraulicfracturingservices.Ourindus
86、trygrewrapidlyuntilasignificantdeclineinoilandnaturalgaspricesfrom2014to2016causedadramaticreductionindrillingandcompletionactivity.Thesignificantdeclineinoilandnaturalgaspricesthatbeganinthethirdquarterof2014continuedintoFebruary2016,whentheclosingpriceofoilreacheda12-yearlowof$26.14inFebruary2016.
87、ThehorizontalrigcountintheUnitedStatesdeclinedby77%,fromitspeakof1,372rigsinNovember2014toalowof314rigsinMay2016,accordingtoaBakerHughes,Inc.reportdatedJanuary6,2017.Thereduceddrillingactivityledtoareductionindemandforhydraulicfracturingservicesandresultedinincreasedcompetitionandlowerpricesforhydra
88、ulicfracturingservices.Thelowcommoditypriceenvironmentcausedareductioninthecompletionactivitiesofmostofourcustomersandtheirspendingonourservices,whichsubstantiallyreducedthepriceswecouldchargeourcustomersandhadanegativeimpactonouractivitylevelsduringthisperiod.Webelievethefinancialdistressofmanyothe
89、rprovidersofhydraulicfracturingservicesledtosignificantmaintenancedeferralsandtheuseofidlefleetsforspareparts,resultinginamaterialreductionintotaldeployablefracturingfleets.Recently,oilpriceshaveincreasedsincethe12-yearlowrecordedinFebruary2016,reachingahighof$64.89inDecember2017andaveraging$50.80in
90、2017.Ascommoditypriceshaverebounded,wehaveexperiencedanincreaseinthelevelofdemandforourservices.Althoughourindustrytraditionallyhasbeenvolatile,thefollowingtrendsinourindustryshouldbenefitouroperationsandourabilitytoachieveourbusinessobjectivesascommoditypricesrecover:Large production growth from U.
91、S.oil and natural gas formations.TheaverageoilfieldproductionintheUnitedStatesgrewatacompoundannualgrowthrateof8.4%overtheperiodfrom2010through2016duetoproductiongainsfromunconventionalreservoirs.AccordingtotheU.S.EnergyInformationAdministration,orEIA,U.S.tightoilproductiongrewfromapproximately430,0
92、00barrelsperdayin2007toover4.6millionbarrelsperdayin2017throughNovember,representing70%oftotalU.S.crudeoilproductionin2017(asoftheendofNovember).AmajorityofthisincreasecamefromthePermianBasin,theSCOOP/STACKFormation,theMarcellus/UticaShale,theEagleFordShaleandtheHaynesvilleShale,whichareourfiveopera
93、tingbasins,aswellas4TableofContentstheWillistonBasin.Weexpectthatthiscontinuedgrowthwillresultinincreaseddemandforourservicesascommoditypricescontinuetostabilizeorincrease.Increased use of horizontal drilling to develop high-pressure U.S.resource basins.Thehorizontalrigcountasapercentageoftheoverall
94、onshorerigcounthasincreasedeveryyearsince2007,whenhorizontalrigsrepresentedonlyapproximately25%ofthetotalU.S.onshorerigcounttoapproximately86%attheendof2017.WebelievehorizontaldrillingactivitywillcontinuetogrowasaportionofoverallonshorewellsdrilledintheUnitedStates,primarilyduetoE&Pcompaniesincreasi
95、nglydevelopingunconventionalresourcessuchasshales.Successfuleconomicproductionoftheseunconventionalresourcebasinsfrequentlyrequireshydraulicfracturingserviceslikethoseweprovide.Faster drilling speed.Thespeedofdrillingrigsisincreasingsignificantly,whichhasincreasedthenumberofwellsdrilledforagivenrigc
96、ount.Thespeedofdrillingmeansthatmorefracturingfleetsareneededforeveryactivedrillingrig.Onaveragethereusedtobefourdrillingrigsforeachfracturingfleet,butthatratioisnowlessthan3-to-1,andcontinuingtodecline.Asaresult,E&Pcompaniesareabletocompletemorestagesusingfewerrigs,andindustrysourcesexpectthattotal
97、stagescompletedin2017willsurpass2014levelsatasignificantlylowercorrespondingrigcount.Increasing completions intensity.Longerlaterallengthsforhorizontalwellsandmoresandperlateralfootrequireincreasedhorsepowertoexecuteacompletion,whichmeansthatmorefracturingunitswillberequiredforeachfleet.Theincreased
98、amountofsandperlateralfootalsoincreasesthewear-and-tearoneachunitscomponentsandparts,whichincreasestherepairandmaintenancecostsforeachfleet.Weexpectthattheprojectedincreaseindrillingspeedandsandintensitywillresultinanincreaseddemandfor,anddiminishedsupplyof,pressurepumpingservices.Reduced supply of
99、hydraulic fracturing services from our competitors.ThehydraulicfracturingindustryintheUnitedStatesischaracterizedbyafewlargeproviders(sixwithover1millionhorsepower),severalmediumsizedproviders(ninewithbetween1millionand300,000horsepower)andasignificantnumberofsmallerproviders.Webelievethatmanyofthes
100、eprovidershavebeendeferringordecliningtorepairtheirhydraulicfracturingequipmentasitbreaksdownfromordinaryuse.Thisphenomenonofproviderschoosingtoretireratherthanrepairbrokenequipmentisoftenreferredtoas“attrition.”Accordingtoanindustryreport,thetotalworkinghorsepowerinNorthAmericadeclinedfromapproxima
101、tely15millionin2014toapproximately6millionin2016.Additionally,thelargenumberofsmallserviceprovidersinourindustrymaymakeitanattractivecandidateforindustryconsolidation,whichwouldfurtherreducecompetition.Thesefactorsshouldleadtoabetterbalanceofsupplyanddemandandtohigherpricinglevelsforourservices.Comp
102、letion of refracturings and drilled-but-uncompleted wells.Asproducingshalewellsage,theirlevelofproductiondeclines,typicallyfalling60%to70%inthefirstyear.Refracturingthesewellscanincreaseproductionlevels.Asthenumberandageofproducingunconventionalwellsincreases,themarketforrecompletionsisexpectedtoinc
103、rease.Inaddition,becausethecostofrecompletingawellisgenerallylowerthanthetotalcostofdrillingandcompletinganewwell,thedemandforrecompletionsisexpectedtoincreaserelativetodemandfornewcompletionsduringdepressedcommoditypriceenvironments.Potential development of international markets for our hydraulic f
104、racturing services.Therehasbeengrowinginternationalinterestinthedevelopmentofunconventionalresourcessuchasoilandnaturalgasshales.ThisinteresthasresultedinanumberofrecentlycompletedjointventuresbetweenmajorU.S.andinternationalE&PcompaniesrelatedtoshalebasinsintheUnitedStatesandacquisitionsofsignifica
105、ntacreageinshalebasinsintheUnitedStatesbylarge,non-U.S.E&Pcompanies.Webelievethattheseacquisitionsandjointventures,whichgenerallyrequiretheinternationalpartnertocommittosignificantfuturecapitalexpenditures,willprovideadditionaldemandforhydraulicfracturingservicesinthecomingyears.Additionally,suchact
106、ivitymaystimulatedevelopmentofoilandnaturalgasshalesoutsidetheUnitedStates,suchastherecentactivitybyourSinoFTSjointventureinChongqing,China.Increase in demand for oil and natural gas.TheEIAprojectsthattheaverageWTIpricewillincreasethrough2040fromgrowingdemandandthedevelopmentofmorecostlyoilresources
107、.TheEIAalsoanticipatescontinuedgrowthinlong-termU.S.domesticdemandfornaturalgas.Webelievethatasdemandforoilandnaturalgasincreases,E&Pactivitywillriseanddemandforourserviceswillincrease.RecenteventsincludingdeclinesinNorthAmericanproduction,attritioninthesupplyofhorsepowerinourindustryandagreementsby
108、OPECandcertainotheroil-producingcountriestoreduceoilproductionhaveprovidedupwardmomentumforenergyprices.Ifnear-termcommoditypricesstabilizeatcurrentlevelsorrecoverfurther,weexpectamoreactivedemandenvironmentduring2018and2019thanwasexperiencedin2015and2016.Competitive StrengthsWebelievethatwearewellp
109、ositionedbecauseofthefollowingcompetitivestrengths:5TableofContentsLarge scale and leading market share across five of the most active major U.S.unconventional resource basinsWith1.6milliontotalhydraulichorsepowerinourfleet,weareoneofthelargesthydraulicfracturingserviceprovidersinNorthAmerica.Weoper
110、ateinfiveofthemostactivemajorunconventionalbasinsintheUnitedStates,includingthePermianBasin,theSCOOP/STACKFormation,theMarcellus/UticaShale,theEagleFordShaleandtheHaynesvilleShale,whichprovideusexposuretoavarietyofoilandnaturalgasproducersaswellasgeographies.Weareoneofthetopthreehydraulicfracturingp
111、rovidersacrossthisoperatingfootprintbasedonmarketshare.AccordingtoanindustryreportfromDecember2017,thesefiveoperatingbasinswillaccountforapproximately80%ofwell-completionsspendingin2018and2019.Thisgeographicdiversityreducesthevolatilityinourrevenueduetobasintrends,relativeoilandnaturalgasprices,adve
112、rseweatherandotherevents.Ourfivehydraulicfracturingdistrictsenableustorapidlyrepositionourfleetsbasedondemandtrendsamongdifferentbasins.Additionally,ourlargemarketshareineachofouroperatingbasinsallowsustospreadourfixedcostsoveragreaternumberoffleets.Furthermore,ourlargescalestrengthensournegotiating
113、positionwithoursuppliersandourcustomers.Pure-play,efficient hydraulic fracturing services provider with extensive experience in U.S.unconventional oil and natural gas productionOurprimaryfocusishydraulicfracturing.FortheyearsendedDecember31,2016andDecember31,2017,95%ofourrevenuescamefromhydraulicfra
114、cturingservices.FromDecember31,2010toJanuary8,2018,wehavecompletedmorethan163,000fracturingstagesacrossfiveofthemostactivemajorunconventionalbasinsintheUnitedStates.Thishistorygivesusinvaluableexperienceandoperationalcapabilitiesthatareattheleadingedgeofhorizontalwellcompletionsinunconventionalforma
115、tions.Wedesignedandassembledallofthehydraulicfracturingunitsandmuchoftheauxiliaryequipmentusedinourfleetstouniformspecificationsintendedspecificallyforworkinoilandnaturalgasbasinsrequiringhighpressuresandhighlevelsofsandintensity.Inaddition,weuseproprietarypumpswithfluid-endsthatarecapableofmeetingt
116、hemostdemandingpressure,flowrateandproppantloadingrequirementsencounteredinthefield.Inordertoachievethehighestrevenuepotentialandhighestreturnsonourinvestedcapital,werunallofourfleetsin24-houroperationsallowingustooptimizetherevenue-producingabilityofouractivefleets.Inaddition,ratherthanperform“spot
117、work,”weprefertodedicateeachofourfleetstoaspecificcustomer,integratingourfleetintotheirdrillingprogramschedule.Thesearrangementsallowustoincreasethenumberofdayspermonththatourfleetisgeneratingrevenueandallowourcrewstobetterunderstandcustomerexpectationsresultinginimprovedefficiencyandsafety.In-house
118、 manufacturing,equipment maintenance and refurbishment capabilitiesWemanufactureandrefurbishmanyofthecomponentsusedbyourfleets,includingconsumables,suchasfluid-ends.Wealsoperformsubstantiallyallthemaintenance,repairandrefurbishmentofourhydraulicfracturingfleets,includingthereactivationofouridleequip
119、ment.Ourcosttoproducecomponentsandreactivateidlefleetsissignificantlylessthanthecosttopurchasecomparablequalitycomponentsandfleetsfromthird-partysuppliers.Forexample,wemanufacturefluid-endsandpower-endsatacostthatisapproximately50%to60%lessthanpurchasingthemfromoutsidesuppliers.Inaddition,weperformf
120、ull-scalerefurbishmentsofourfracturingunitsatacostthatisapproximatelyhalfthecostofutilizinganoutsidesupplier.Weestimatethatthiscostadvantagesavesusapproximately$85millionperyearatpeakproductionlevels.Astrendsinourindustrycontinuetowardincreasingproppantlevelsandserviceintensity,theaddedwear-and-tear
121、onhydraulicfracturingequipmentwillincreasetherateatwhichcomponentsneedtobereplacedforatypicalfleet,increasingourlong-termcostadvantageversusourcompetitorsthatdonothavesimilarin-housemanufacturingcapabilities.Ourmanufacturingcapabilitiesalsoreducetheriskthatwewillbeunabletosourceimportantcomponents,s
122、uchasfluid-ends,power-endsandotherconsumableparts.Duringperiodsofhighdemandforhydraulicfracturingservices,externalequipmentvendorsoftenreportorderbacklogsofuptoninemonths.Ourcompetitorsmaybeunabletosourcecomponentswhenneededormayberequiredtopayamuchhigherpricefortheircomponents,orboth,duetobottlenec
123、ksinsupplierproductionlevels.Wehavehistoricallymanufactured,andbelievewehavethecapacitytomanufacture,allmajorconsumablecomponentsrequiredtooperateall32ofourfleetsatfullcapacity.Wealsodesignedandassembledallofour32existingfleetsusinginternalresourcesandbelievewecanassemblenewfleetsinternallyatasubsta
124、ntialdiscounttothecostofbuyingthemnewfromthird-partyproviders.Additionally,manufacturingourequipmentinternallyallowsustoconstantlyimproveourequipmentdesigninresponsetotheknowledgewegainbyoperatinginharshgeologicalenvironmentsunderchallengingconditions.Thisrapidfeedbackloopbetweenourfieldoperationsan
125、dourmanufacturingoperationspositionsourequipmentattheleadingedgeofdevelopmentsinhydraulicfracturingdesign.6TableofContentsUniform fleet of standardized,high specification hydraulic fracturing equipmentWehaveauniformfleetofhydraulicfracturingequipment.Wedesignedourequipmenttouniformspecificationsinte
126、ndedspecificallyforcompletionsworkinoilandnaturalgasbasinsrequiringhighlevelsofpressure,flowrateandsandintensity.Thestandardized,“plugandplay”natureofourfleetprovidesuswithseveraladvantages,including:reducedrepairandmaintenancecosts;reducedinventorycosts;theabilitytoredeployequipmentamongoperatingba
127、sins;andreducedcomplexityinouroperations,whichimprovesoursafetyandoperationalperformance.Webelieveourtechnologicallyadvancedfleetsareamongthemostreliableandbestperformingintheindustrywiththecapabilitiestomeetthemostdemandingpressureandflowraterequirementsinthefield.Ourstandardizedequipmentreducesour
128、downtimeasourmechanicscanquicklyandefficientlydiagnoseandrepairourequipment.Ouruniformequipmentalsoreducestheamountofinventoryweneedonhand.Weareabletomoreeasilyshiftfracturingpumpsandotherequipmentamongoperatingareasasneededtotakeadvantageofmarketconditionsandtoreplacetemporarilydamagedequipment.Thi
129、sflexibilityallowsustotargetcustomersthatareofferinghigherpricesforourservices,regardlessofthebasinsinwhichtheyoperate.Standardizedequipmentalsoreducesthecomplexityofouroperations,whichlowersourtrainingcosts.Additionally,webelieveourindustry-leadingsafetyrecordispartlyattributabletothestandardizatio
130、nofourequipment,whichmakesiteasierformechanicsandequipmentoperatorstoidentifyanddiagnoseproblemswithequipmentbeforetheybecomesafetyhazards.Safety leaderSafetyisatthecoreofouroperations.Oursafetyrecordfor2016wasthebestinourhistoryandwebelievesignificantlybetterthanourindustrypeergroup,basedondataprov
131、idedbyreportsoftheU.S.BureauofLaborStatisticsfrom2011through2016.Forthepastthreeyears,webelieveourtotalrecordableincidentratewaslessthanhalfoftheindustryaverage.Duringthefirstquarterof2017,wereachedamilestoneofover10millionman-hourswithoutalosttimeincident.Manyofourcustomersimposeminimumsafetyrequir
132、ementsontheirsuppliersofhydraulicfracturingservices,andsomeofourcompetitorsarenotpermittedtobidonworkforcertaincustomersbecausetheydonotmeetthosecustomersminimumsafetyrequirements.Becausesafetyisimportanttoourcustomers,oursafetyscorehelpsourcommercialteamtowinbusinessfromourcustomers.Oursafetyfocusi
133、salsoamoralebenefitforourcrews,whichenhancesouremployeeretentionrates.Finally,webelievethatcontinuallysearchingforwaystomakeouroperationssaferistherightthingtodoforouremployeesandourcustomers.Experienced management and operating teamDuringthedownturn,ourmanagementteamfocusedonreducingcosts,increasin
134、goperatingefficiencyanddifferentiatingourselvesthroughinnovation.Theteamhasanextensiveanddiverseskillset,withanaverageofover23yearsofprofessionalexperience.Ouroperationalandcommercialexecutiveshaveadeepunderstandingofunconventionalresourceformations,withanaverageofapproximately31yearsofoilandnatural
135、gasindustryexperience.Inaddition,asaresultofourpure-playfocusonhydraulicfracturinganddedicatedfleetstrategy,ouroperationsteamshaveextensiveknowledgeofthegeographiesinwhichweoperateaswellasthetechnicalspecificationsandotherrequirementsofourcustomers.Webelievethisknowledgeandexperienceallowsustoservic
136、eavarietyofE&Pcompaniesacrossdifferentbasinsefficientlyandsafely.Our StrategyOurprimarybusinessobjectiveistobethelargestpure-playproviderofhydraulicfracturingserviceswithinU.S.unconventionalresourcebasins.Weintendtoachievethisobjectivethroughthefollowingstrategies:Capitalize on expected recovery and
137、 demand for our servicesAsdemandforoilfieldservicesintheUnitedStatesrecovers,thehydraulicfracturingsectorisexpectedtogrowsignificantly.WebelievethatthecostperbarrelofoilfromunconventionalonshoreproductionisoneofthelowestintheUnitedStates,and,asaresult,E&Pcapitalhasshiftedtowardsthistypeofproduction.
138、IndustryreportshaveforecastedthatthenumberofhorizontalwellsdrilledintheUnitedStateswillincreaseatacompoundannualgrowthrate,orCAGR,of20.7%from2016through2020.Inaddition,thesandutilizedinthecompletionofahorizontalwellhasmorethandoubledsince2014asoperatorscontinuetoinnovatetofindtheoptimaljobdesign.Aso
139、neofthelargesthydraulicfracturingserviceprovidersinNorthAmerica,webelievewearewellpositionedtocapitalizeonthecontinuedincreaseintheonshoreoilandnaturalgasexplorationandproductionmarket.Wehave1.6milliontotalhydraulichorsepoweracross32totalfleets,with27fleetsactiveasofDecember31,2017.Asurgeindemandfor
140、ourservicesledustoreactivate10fleetssincethebeginningof2017.Weareintheprocessofactivatingadditionalfleetsbasedoncontinuedcustomerinterest,andwebelieveallofthisequipmentcanbereturnedtoservicewithinninemonths,ifmarketconditionsrequire.Weestimatetheaveragecosttoreactivateourinactivefleetstobeapproximat
141、ely$6.9millionperfleet,whichincludescapitalexpenditures,repairschargedasoperatingexpenses,laborcostsandotheroperatingexpenses.7TableofContentsDeepen and expand relationships with customers that value our completions efficiencyWeserviceourcustomersprimarilywithdedicatedfleetsand24-houroperations.Wede
142、dicateoneormoreofourfleetsexclusivelytothecustomerforaperiodoftime,allowingforthosefleetstobeintegratedintothecustomersdrillingandcompletionschedule.Asaresult,weareabletoachievehigherlevelsofutilization,asmeasuredbythenumberofdayseachfleetisworkingpermonth,whichincreasesourprofitability.Inaddition,w
143、eoperateourfleetsona24-hourbasis,allowingustocompleteourservicesmoreefficientlywiththeleastamountofdowntime.Accordingly,weseektopartnerwithcustomersthathavealargenumberofwellsneedingcompletionandthatvalueefficiencyintheperformanceofourservice.Specifically,wetargetcustomerswhosecompletionsactivitytyp
144、icallyinvolvesminimaldowntimebetweenstages,ahighnumberofstagesperwell,multiplewellsperpadandashortdistancefromonewellpadsitetothenext.Thisstrategyalignswiththestrategyofmanyofourcustomers,whoaretryingtoachieveamanufacturing-stylemodelofdrillingandcompletingwellsinasequentialpatterntomaximizeeffectiv
145、eacreage.Weplantoleveragethisstrategytoexpandourrelationshipswithourexistingcustomersaswecontinuetoattractnewcustomers.Capitalize on our uniform fleet,leading scale and significant basin diversity to provide superior performance with reduced operating costsWeprimarilyservelargeindependentE&Pcompanie
146、sthatspecializeinunconventionaloilandnaturalgasresourcesinNorthAmerica.Becauseweoperateforcustomerswithsignificantscaleineachofouroperatingbasins,wehavethediversitytoreacttoandbenefitfrompositiveactivitytrendsinanybasinwithabalancedexposuretooilandnaturalgas.Ouruniformfleetallowsustocost-effectively
147、redeployequipmentandfleetsamongexistingoperatingbasinstocapturethebestpricingandactivitytrends.Theuniformfleetiseasiertooperateandmaintain,resultinginreduceddowntimeaswellaslowertrainingcostsandinventorystockingrequirements.Ourgeographicbreadthalsoprovidesuswithopportunitiestocapitalizeoncustomerrel
148、ationshipsinonebasininordertowinbusinessinotherbasinsinwhichthecustomeroperates.Weintendtoleverageourscale,standardizedequipmentandcoststructuretogainmarketshareandwinnewbusiness.Rapidly adopt new technologies in a capital efficient mannerOurlargescaleandcultureofinnovationallowustotakeadvantageofle
149、adingtechnologicalsolutions.Wehavebeenafastadopterofnewtechnologiesfocusedon:increasingfracturingeffectivenessforourcustomers,reducingtheoperatingcostsofourequipmentandenhancingtheHSEconditionsatourwellsites.Wehelpcustomersmonitorandmodifyfracturingfluidsanddesignsthroughourfluidresearchanddevelopme
150、ntoperationsthatweconductthroughastrategicpartnershipwithathird-partytechnologycenterthatutilizeskeyemployeeswhowerepreviouslyaffiliatedwithourCompany.InJune2017,werenewedourservicesagreementwiththisthird-partytechnologycenterforaone-yearterm,withanoptionforustorenewforadditionalone-yearterms.Thispa
151、rtnershipallowsustoworkcloselywithourcustomerstorapidlyadoptandintegratenext-generationfluidbreakthroughs,suchasourNuFlo1000fracturingfluiddiverter,intoourproductofferings.Recentexamplesofinitiativesaimedatreducingouroperatingcostsinclude:vibrationsensorswithpredictivemaintenanceanalyticsonourheavye
152、quipment;stainlesssteelfluid-endswithalongerusefullife;high-definitioncamerastoremotelymonitortheperformanceofourequipment;andadoptionofhardenedalloysandlubricantblendsforourconsumables.RecentexamplesofinitiativesaimedatimprovingourHSEconditionsinclude:dualfuelenginesthatcanrunonbothnaturalgasanddie
153、selfuel;electronicpressurereliefsystems;spillpreventionandcontainmentsolutions;dustcontrolmitigation;electronicloggingdevices;andleadingcontainerizedproppantdeliverysolutions.Reduce debt and maintain a more conservative capital structureToimproveourfinancialflexibility,weenteredintoa$250.0millionass
154、et-basedrevolvingcreditfacilityonFebruary22,2018.Ourfocuswillbeonthecontinuedprudentmanagementofourcapitalstructure.Webelievethisfocuscreatespotentialforsignificantoperatingleverageandstrongfreecashflowgenerationduringanindustryupcycle.Asaresult,webelieveweshouldbeabletonotonlymaketheinvestmentsnece
155、ssarytoremainamarketleaderinhydraulicfracturing,butalsotocontinuetostrengthenourbalancesheet.Ifweareabletosufficientlyreduceourindebtednessandcontinuetogeneratecashflowfromoperations,weexpecttoreturnvaluetoshareholders,includingbymeansofcashreturns,accretiveacquisitionsthatfitourmodelandfootprint,or
156、theconstructionofnewfleetsdependingonourbusinessoutlook.See“MarketforRegistrantsCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecuritiesDividends”inItem5ofthisannualreportand“RiskFactorsRisksRelatingtoOurIndebtedness”inItem1Aofthisannualreportformoreinformation.CustomersThecustomer
157、sweserveareprimarilylarge,independentE&PcompaniesthatspecializeinunconventionaloilandnaturalgasresourcesinNorthAmerica.Thefollowingtableshowsthecustomersthatrepresentedmorethan10%ofourtotalrevenueduring8TableofContentstheyearsendedDecember31,2015,2016and2017.Nocustomeraccountedformorethan10%ofourtot
158、alrevenueduringtheyearendedDecember31,2017.Thelossofanyofourlargestexistingcustomerscouldhaveamaterialadverseeffectonourresultsofoperations.Year Ended December 31,2015 2016 2017 EPEnergyCorporation*11%*ChesapeakeEnergyCorporation*EQTProductionCompany12%12%*VineOilandGas,L.P.*10%*RangeResourcesCorpor
159、ation13%*NewfieldExploration*18%*MurphyOilCorporation11%*Lessthan10%.SuppliersWepurchasesomeofthepartsthatweuseintherefurbishmentandrepairofourheavyequipment,suchashydraulicfracturingunitsandblenders,andintherefurbishment,repairandmanufacturingofcertainmajorreplacementcomponentsofourheavyequipmentsu
160、chasfluid-ends,power-ends,engines,transmissions,radiatorsandtrailers.WealsopurchasetheproppantsandchemicalsweuseinouroperationsandthedieselfuelforourequipmentfromavarietyofsuppliersthroughouttheUnitedStates.Wehavelong-termsupplyagreementswithfourvendorstosupplyasignificantportionoftheproppantusedino
161、uroperations,rangingfromtwotoeightyears.Thesearetake-or-payagreementswithminimumunconditionalpurchaseobligations.Theseminimumpurchaseobligationswouldchangebaseduponthevendorsabilitytosupplytheminimumrequirements.Todate,wehavegenerallybeenabletoobtaintheequipment,partsandsuppliesnecessarytosupportour
162、operationsonatimelybasisatcompetitiveprices.Inthepast,wehaveexperiencedsomedelaysinobtainingthesematerialsduringperiodsofhighdemand.Wedonotcurrentlyexpectsignificantinterruptionsinthesupplyofthesematerials.Whilewebelievethatwewillbeabletomakesatisfactoryalternativearrangementsintheeventofanyinterrup
163、tioninthesupplyofthesematerialsand/orproductsbyoneofoursuppliers,therecanbenoassurancethattherewillbenopriceorsupplyissuesoverthelong-term.CompetitionThemarketinwhichweoperateishighlycompetitiveandhighlyfragmented.Ourcompetitionincludesmulti-nationaloilfieldservicecompaniesaswellasregionalcompetitor
164、s.Ourmajormulti-nationalcompetitorsareHalliburtonCompanyandSchlumbergerLimited,eachofwhichhassignificantlygreaterfinancialresourcesthanwedo.OurmajordomesticcompetitorsareRPC,Inc.,SuperiorEnergyServices,ProPetroHoldingCorp.,Patterson-UTIEnergy,Inc.,BJServices,Inc.,LibertyOilfieldServicesInc.andKeaneG
165、roup,Inc.Certainofthesecompetitorsarelarge,multi-nationalandmajordomesticbusinessesthatprovideanumberofoilfieldservicesandproductsinadditiontohydraulicfracturing.Wealsofacecompetitionfromsmallerregionalserviceprovidersinsomeofthegeographiesinwhichweoperate.Competitioninourindustryisbasedonanumberoff
166、actors,includingprice,servicequality,safety,andinsomecases,breadthofproducts.Webelieveweconsistentlydeliverexceptionalservicequality,basedinpartonthedurabilityofourequipment.Ourdurableequipmentreducesdowntimeduetoequipmentfailureandallowsourcustomerstoavoidcostsassociatedwithdelaysincompletingtheirw
167、ells.Bybeingabletomeetthemostdemandingpressureandflowraterequirements,ourequipmentalsoenablesustooperateefficientlyinchallenginggeologicalenvironmentsinwhichsomeofourcompetitorscannotoperateeffectively.Cyclical Nature of IndustryWeoperateinahighlycyclicalindustrydrivenmainlybythelevelofhorizontaldri
168、llingactivitybyE&PcompaniesinunconventionaloilandnaturalgasreservoirsinNorthAmerica,whichinturndependslargelyoncurrentandanticipatedfuturecrudeoilandnaturalgaspricesandproductiondepletionrates.Acriticalfactorinassessingtheoutlookfortheindustryistheworldwidesupplyanddemandforoilandthedomesticsupplyan
169、ddemandfornaturalgas.Demandforoilandnaturalgasissubjecttolargeandrapidfluctuations.Thesefluctuationsaredrivenbycommoditydemandintheindustryandcorrespondingpriceincreases.Whenoilandnaturalgaspricesincrease,producersgenerallyincreasetheircapitalexpenditures,whichgenerallyresultsingreaterrevenuesandpro
170、fitsforoilfieldservicecompanies.However,increasedcapitalexpendituresalsoultimatelyresultingreaterproduction,whichhistorically,hasresultedinincreasedsuppliesandreducedpricesthat,inturn,tendtoreducedemandforoilfieldservicessuchas9TableofContentshydraulicfracturingservices.Forthesereasons,ourresultsofo
171、perationsmayfluctuatefromquartertoquarterandfromyeartoyear,andthesefluctuationsmaydistortperiod-to-periodcomparisonsofourresultsofoperations.SeasonalitySeasonalityhasnotsignificantlyaffectedouroveralloperations.However,towardtheendofsomeyears,weexperiencesloweractivityinourpressurepumpingoperationsi
172、nconnectionwiththeholidaysandascustomerscapitalexpenditurebudgetsaredepleted.Occasionally,ouroperationshavebeennegativelyimpactedbysevereweatherconditions.EmployeesAtDecember31,2017,wehadapproximately2,400employees.Ouremployeesarenotcoveredbycollectivebargainingagreements,noraretheymembersoflaboruni
173、ons.Weconsiderourrelationshipwithouremployeestobegood.InsuranceOuroperationsaresubjecttohazardsinherentintheoilandnaturalgasindustry,includingaccidents,blowouts,explosions,fires,oilspillsandhazardousmaterialsspills.Theseconditionscancausepersonalinjuryorlossoflife,damagetoordestructionofproperty,equ
174、ipment,theenvironmentandwildlifeandinterruptionorsuspensionofoperations,amongotheradverseeffects.Ifaseriousaccidentweretooccuratalocationwhereourequipmentandservicesarebeingused,itcouldresultinourbeingnamedasadefendanttoalawsuitassertingsignificantclaims.Despiteourhighsafetystandards,wefromtimetotim
175、ehavesufferedaccidentsinthepastandweanticipatethatwecouldexperienceaccidentsinthefuture.Inadditiontothepropertyandpersonallossesfromtheseaccidents,thefrequencyandseverityoftheseincidentsaffectouroperatingcostsandinsurability,aswellasourrelationshipswithcustomers,employeesandregulatoryagencies.Anysig
176、nificantincreaseinthefrequencyorseverityoftheseincidents,orthegenerallevelofcompensationawards,couldadverselyaffectthecostof,orourabilitytoobtain,workerscompensationandotherformsofinsuranceandcouldhaveotheradverseeffectsonourfinancialconditionandresultsofoperations.Wecarryavarietyofinsurancecoverage
177、sforouroperations,andwearepartiallyself-insuredforcertainclaims,intypesandamountsthatwebelievetobecustomaryandreasonableforourindustry.Thesecoveragesandretentionsaddresscertainrisksrelatingtocommercialgeneralliability,workerscompensation,businessauto,propertyandequipment,directorsandofficers,environ
178、ment,pollutionandotherrisks.Althoughwemaintaininsurancecoverageoftypesandamountsthatwebelievetobecustomaryinourindustry,wearenotfullyinsuredagainstallrisks,eitherbecauseinsuranceisnotavailableorbecauseofthehighpremiumcostsrelativetoperceivedrisk.Environmental RegulationOuroperationsaresubjecttostrin
179、gentlawsandregulationsgoverningthedischargeofmaterialsintotheenvironmentorotherwiserelatingtoenvironmentalprotection.Numerousfederal,stateandlocalgovernmentalagencies,suchastheU.S.EnvironmentalProtectionAgency(the“EPA”),issueregulationsthatoftenrequiredifficultandcostlycompliancemeasuresthatcarrysub
180、stantialadministrative,civilandcriminalpenaltiesandmayresultininjunctiveobligationsfornon-compliance.Inaddition,somelawsandregulationsrelatingtoprotectionoftheenvironmentmay,incertaincircumstances,imposestrictliabilityforenvironmentalcontamination,renderingapersonliableforenvironmentaldamagesandclea
181、nupcostswithoutregardtonegligenceorfaultonthepartofthatperson.Strictadherencewiththeseregulatoryrequirementsincreasesourcostofdoingbusinessandconsequentlyaffectsourprofitability.However,environmentallawsandregulationshavebeensubjecttofrequentchangesovertheyears,andtheimpositionofmorestringentrequire
182、mentscouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Hydraulic Fracturing Activities.Certaingovernmentalreviewsareeitherunderwayorbeingproposedthatfocusonenvironmentalaspectsofhydraulicfracturingpractices.Forexample,inDecember2016,theEPAreleaseditsfinalreport,en
183、titled“HydraulicFracturingforOilandGas:ImpactsfromtheHydraulicFracturingWaterCycleonDrinkingWaterResourcesintheUnitedStates,”onthepotentialimpactsofhydraulicfracturingondrinkingwaterresources.ThereportstatesthattheEPAfoundscientificevidencethathydraulicfracturingactivitiescanimpactdrinkingwaterresou
184、rcesundersomecircumstances,notingthatthefollowinghydraulicfracturingwatercycleactivitiesandlocal-orregional-scalefactorsaremorelikelythanotherstoresultinmorefrequentormoresevereimpacts:waterwithdrawalsforfracturingintimesorareasoflowwateravailability;surfacespillsduringthemanagementoffracturingfluid
185、s,chemicalsorproducedwater;injectionoffracturingfluidsintowellswithinadequatemechanicalintegrity;injectionoffracturingfluidsdirectlyintogroundwaterresources;dischargeofinadequatelytreatedfracturingwastewatertosurfacewaters;anddisposalorstorageoffracturingwastewaterinunlinedpits.Thereportdoesnotmakea
186、nypolicy10TableofContentsrecommendations.TheseongoingorproposedstudiescouldspurinitiativestofurtherregulatehydraulicfracturingunderthefederalSDWAorotherregulatorymechanisms.Atthestatelevel,severalstateshaveadoptedorareconsideringlegalrequirementsthatcouldimposemorestringentpermitting,disclosureandwe
187、llconstructionrequirementsonhydraulicfracturingactivities.Forexample,inMay2013,theRailroadCommissionofTexasissueda“wellintegrityrule,”whichupdatestherequirementsfordrilling,puttingpipedownandcementingwells.Therulealsoincludesnewtestingandreportingrequirements,suchas(i)therequirementtosubmitcementing
188、reportsafterwellcompletionoraftercessationofdrilling,whicheverislater,and(ii)theimpositionofadditionaltestingonwellslessthan1,000feetbelowusablegroundwater.ThewellintegrityruletookeffectinJanuary2014.Localgovernmentsalsomayseektoadoptordinanceswithintheirjurisdictionsregulatingthetime,placeandmanner
189、ofdrillingactivitiesingeneralorhydraulicfracturingactivitiesinparticular.Somestates,countiesandmunicipalitiesarecloselyexaminingwater-useissues,suchaspermitanddisposaloptionsforprocessedwater.Ifnewormorestringentfederal,stateorlocallegalrestrictionsrelatingtothehydraulicfracturingprocessareadoptedin
190、areaswhereweoperate,wecouldincurpotentiallysignificantaddedcoststocomplywithsuchrequirements,experiencedelaysorcurtailmentinthepursuitofdevelopmentactivitiesandperhapsevenbeprecludedfromdrillingwells.See“RiskFactorsFederalandstatelegislativeandregulatoryinitiativesrelatingtohydraulicfracturingcouldr
191、esultinincreasedcostsandadditionaloperatingrestrictionsordelays”inItem1Aofthisannualreport.Remediation of Hazardous Substances.TheComprehensiveEnvironmentalResponse,CompensationandLiabilityAct,asamended,referredtoas“CERCLA”orthe“Superfundlaw,”andcomparablestatelawsgenerallyimposeliability,withoutreg
192、ardtofaultorlegalityoftheoriginalconduct,oncertainclassesofpersonsthatareconsideredtoberesponsibleforthereleaseofhazardousorotherstate-regulatedsubstancesintotheenvironment.Thesepersonsincludethecurrentowneroroperatorofacontaminatedfacility,aformerowneroroperatorofthefacilityatthetimeofcontamination
193、andthosepersonsthatdisposedorarrangedforthedisposalofthehazardoussubstancesatthefacility.UnderCERCLAandcomparablestatestatutes,personsdeemed“responsibleparties”aresubjecttostrictliabilitythat,insomecircumstances,maybejointandseveralforthecostsofremovingorremediatingpreviouslydisposedwastes(including
194、wastesdisposedoforreleasedbypriorownersoroperators)orpropertycontamination(includinggroundwatercontamination),fordamagestonaturalresourcesandforthecostsofcertainhealthstudies.Inaddition,itisnotuncommonforneighboringlandownersandotherthirdpartiestofileclaimsforpersonalinjuryandpropertydamageallegedly
195、causedbyhazardoussubstancesreleasedintotheenvironment.Water Discharges.TheFederalWaterPollutionControlActof1972,asamended,alsoknownasthe“CleanWaterAct,”theSafeDrinkingWaterAct,theOilPollutionActandanalogousstatelawsandregulationsissuedthereunderimposerestrictionsandstrictcontrolsregardingtheunauthor
196、izeddischargeofpollutants,includingproducedwatersandothernaturalgasandoilwastes,intonavigablewatersoftheUnitedStates,aswellasstatewaters.OnDecember13,2016,theEPAreleasedafinalreportwhichidentifieddischargeofinadequatelytreatedhydraulicfracturingwastewatertosurfacewaterresourcesashavingpotentialtoimp
197、actdrinkingwaterresources.Thedischargeofpollutantsintoregulatedwatersisprohibited,exceptinaccordancewiththetermsofapermitissuedbytheEPAorthestate.UndertheCleanWaterAct,theEPAhasadoptedregulationsconcerningdischargesofstormwaterrunoff,whichrequirecoveredfacilitiestoobtainpermits.Theselawsandregulatio
198、nsalsoprohibitcertainotheractivityinwetlandsunlessauthorizedbyapermitissuedbytheU.S.ArmyCorpsofEngineers,whichwerefertoastheCorps.InSeptember2015,anewrulebecameeffectivewhichwasissuedbytheEPAandtheCorpsdefiningthescopeofthejurisdictionoftheEPAandtheCorpsoverwetlandsandotherwaters.Therulehasbeenchall
199、engedincourtonthegroundsthatitunlawfullyexpandsthereachofCleanWaterActsprograms,andimplementationoftherulehasbeenstayedpendingresolutionofthecourtchallenge.InNovember2017,theEPAandtheCorpspublishedanewproposedruledefiningthescopeofjurisdictionandaddinganapplicabilitydateoftwoyearsafterthedateofafina
200、lruleundertheproposedrulemakingeffort.Also,spillprevention,controlandcountermeasureplanrequirementsunderfederallawrequireappropriatecontainmentbermsandsimilarstructurestohelppreventthecontaminationofnavigablewaters.Noncompliancewiththeserequirementsmayresultinsubstantialadministrative,civilandcrimin
201、alpenalties,aswellasinjunctiveobligations.Waste Handling.Wastesfromcertainofouroperations(suchasequipmentmaintenanceandpastchemicaldevelopment,blending,anddistributionoperations)aresubjecttothefederalResourceConservationandRecoveryActof1976(“RCRA”),andcomparablestatestatutesandregulationspromulgated
202、thereunder,whichimposerequirementsregardingthegeneration,transportation,treatment,storage,disposalandcleanupofhazardousandnon-hazardouswastes.Withfederalapproval,theindividualstatesadministersomeoralloftheprovisionsofRCRA,sometimesinconjunctionwiththeirown,morestringentrequirements.Althoughcertainoi
203、lproductionwastesareexemptfromregulationashazardouswastesunderRCRA,suchwastesmayconstitute“solidwastes”thataresubjecttothelessstringentrequirementsofnon-hazardouswasteprovisions.IntheEPAs2016finalreportontheimpactsfromhydraulicfracturingondrinkingwaterresources,theEPAidentifieddisposalorstorageofhyd
204、raulicfracturingwastewaterinunlinedpitsasresultingincontaminationofgroundwaterresources.11TableofContentsAdministrative,civilandcriminalpenaltiescanbeimposedforfailuretocomplywithwastehandlingrequirements.Moreover,theEPAorstateorlocalgovernmentsmayadoptmorestringentrequirementsforthehandlingofnon-ha
205、zardouswastesorcategorizesomenon-hazardouswastesashazardousforfutureregulation.LegislationhasbeenproposedfromtimetotimeinCongresstore-categorizecertainoilandnaturalgasexploration,developmentandproductionwastesas“hazardouswastes.”SeveralenvironmentalorganizationshavealsopetitionedtheEPAtomodifyexisti
206、ngregulationstorecategorizecertainoilandnaturalgasexploration,developmentandproductionwastesas“hazardous.”Anysuchchangesinthelawsandregulationscouldhaveamaterialadverseeffectonourcapitalexpendituresandoperatingexpenses.Fromtimetotime,releasesofmaterialsorwasteshaveoccurredatlocationsweown,ownedprevi
207、ouslyoratwhichwehaveoperations.ThesepropertiesandthematerialsorwastesreleasedthereonmaybesubjecttoCERCLA,RCRA,thefederalCleanWaterAct,andanalogousstatelaws.Undertheselawsorotherlawsandregulations,wehavebeenandmayberequiredtoremoveorremediatethesematerialsorwastesandmakeexpendituresassociatedwithpers
208、onalinjuryorpropertydamage.Atthistime,withrespecttoanypropertieswherematerialsorwastesmayhavebeenreleased,butofwhichwehavenotbeenmadeaware,itisnotpossibletoestimatethepotentialcoststhatmayarisefromunknown,latentliabilityrisks.Air Emissions.ThefederalCleanAirAct,asamended,andcomparablestatelawsandreg
209、ulations,regulateemissionsofvariousairpollutantsthroughtheissuanceofpermitsandtheimpositionofotherrequirements.Inaddition,theEPAhasdeveloped,andcontinuestodevelop,stringentregulationsgoverningemissionsoftoxicairpollutantsfromspecifiedsources.Federalandstateregulatoryagenciescanimposeadministrative,c
210、ivilandcriminalpenaltiesfornon-compliancewithairpermitsorotherrequirementsoftheCleanAirActandassociatedstatelawsandregulations.Wearerequiredtoobtainfederalandstatepermitsinconnectionwithsomeactivitiesunderapplicablelaws.Thesepermitsimposecertainconditionsandrestrictionsonouroperations,someofwhichreq
211、uiresignificantexpendituresforcompliance.Changesintheserequirements,orinthepermitsweoperateunder,couldincreaseourcostsorlimitoperations.Additionally,theEPAsTierIVregulationsapplytocertainoff-roaddieselenginesusedbyustopowerequipmentinthefield.Undertheseregulations,wearerequiredtoretrofitorretirecert
212、ainenginesandwearelimitedinthenumberofnon-compliantoff-roaddieselengineswecanpurchase.TierIVenginesarecostlierandnotwidelyavailable.UntilTierIV-compliantenginesthatmeetourneedsaremorewidelyavailable,theseregulationscouldlimitourabilitytoacquireasufficientnumberofdieselenginestoexpandourfleetandtorep
213、laceexistingenginesastheyaretakenoutofservice.Other Environmental Considerations.E&PactivitiesonfederallandsmaybesubjecttotheNationalEnvironmentalPolicyAct,whichwerefertoasNEPA.NEPArequiresfederalagencies,includingtheDepartmentofInterior,toevaluatemajoragencyactionsthathavethepotentialtosignificantl
214、yimpacttheenvironment.Inthecourseofsuchevaluations,anagencywillprepareanenvironmentalassessmentthatassessesthepotentialdirect,indirectandcumulativeimpactsofaproposedprojectand,ifnecessary,willprepareamoredetailedenvironmentalimpactstatementthatmaybemadeavailableforpublicreviewandcomment.E&Pactivitie
215、s,aswellasproposedexplorationanddevelopmentplans,onfederallandsrequiregovernmentalpermitsthataresubjecttotherequirementsofNEPA.Thisprocesshasthepotentialtodelaythedevelopmentofoilandnaturalgasprojects.Variousstateandfederalstatutesprohibitcertainactionsthatadverselyaffectendangeredorthreatenedspecie
216、sandtheirhabitat,migratorybirds,wetlands,andnaturalresources.ThesestatutesincludetheEndangeredSpeciesAct,theMigratoryBirdTreatyAct,theCleanWaterActandCERCLA.Wheretakingsoforharmtospeciesordamagestojurisdictionalstreamsorwetlandshabitatornaturalresourcesoccurormayoccur,governmententitiesorattimespriv
217、atepartiesmayacttopreventoilandnaturalgasexplorationactivitiesorseekdamagesforharmtospecies,habitat,ornaturalresourcesresultingfromfillingofjurisdictionalstreamsorwetlandsorconstructionorreleasesofoil,wastes,hazardoussubstancesorotherregulatedmaterials.BLMhasestablishedregulationstogovernhydraulicfr
218、acturingonfederalandIndianlands.The2015HydraulicFracturingonFederalandIndianLandsRule(the“FederalandIndianLandsRule”)imposesdrillingandconstructionrequirementsforoperationsonfederalorIndianlandsincludingmanagementrequirementsforsurfaceoperationsandpublicdisclosuresofchemicalsusedinthehydraulicfractu
219、ringfluids.InJune2016,theU.S.DistrictCourtofWyomingruledthattheBLMlackedstatutoryauthoritytopromulgatetheFederalandIndianLandsRule.OnJuly25,2017,BLMpublishedaNoticeintheFederalRegisterproposingtorescindtheFederalandIndianLandsRule.OnSeptember21,2017,theTenthCircuitdismissedasmoottheappealchallenging
220、theruleandvacatedtheJune2016U.S.DistrictCourtofWyomingdecisionthatinvalidatedtheFederalandIndianLandsRule.OnDecember29,2017,BLMpublishedarescissionoftheseregulations.BLMalsopromulgatedthe2016MethaneandWasteReductionRuletoreducewasteofnaturalgassuppliesandreduceairpollution,includinggreenhousegases,f
221、oroilandnaturalgasproducedonfederalandIndianlands.VariousstateshavefiledforapetitionforreviewoftheMethaneandWasteReductionRule.OnDecember8,2017,BLMpublishedafinalruledelayuntilJanuary2019forcertainrequirementsoftherulethathadnotyetgoneintoeffectpendingjudicialreviewoftherule.Acoalitionofenvironmenta
222、lgroupshasfiledsuitchallengingthedelay.Impositionoftheserulescouldincreaseourcostsorlimitoperations.12TableofContentsTheToxicSubstancesControlAct(“TSCA”),requiresmanufacturersofnewchemicalsubstancestoprovidespecificinformationtotheAgencyforreviewpriortomanufacturingchemicalsorintroducingthemintocomm
223、erce.EPAhaspermittedmanufactureofnewchemicalnanoscalematerialsthroughtheuseofconsentordersorSignificantNewUseRulesunderTSCA.TheAgencyhasalsoallowedthemanufactureofnewchemicalnanoscalematerialsunderthetermsofcertainregulatoryexemptionswhereexposureswerecontrolledtoprotectagainstunreasonablerisks.OnMa
224、y19,2014,theEPApublishedanAdvancedNoticeofProposedRulemakingtoobtaindataonhydraulicfracturingchemicalsubstancesandmixtures.TheEPAprojectspublicationofanoticeofproposedrulemakinginJuneof2018.AnychangesinTSCAregulationscouldincreaseourcapitalexpendituresandoperatingexpenses.Climate Change.InDecember20
225、09,theEPAissuedanEndangermentFindingthatdeterminedthatemissionsofcarbondioxide,methaneandothergreenhousegasespresentanendangermenttopublichealthandtheenvironmentbecause,accordingtotheEPA,emissionsofsuchgasescontributetowarmingoftheearthsatmosphereandotherclimaticchanges.TheEPAlateradoptedtwosetsofre
226、latedrules,oneofwhichregulatesemissionsofgreenhousegasesfrommotorvehiclesandtheotherofwhichregulatesemissionsfromcertainlargestationarysourcesofemissions.Themotorvehiclerule,whichbecameeffectiveinJuly2010,limitsemissionsfrommotorvehicles.TheEPAadoptedthestationarysourcerule,whichwerefertoasthetailor
227、ingrule,inMay2010,anditbecameeffectiveJanuary2011.ThetailoringruleestablishednewemissionsthresholdsthatdeterminewhenstationarysourcesmustobtainpermitsunderthePreventionofSignificantDeterioration“(PSD”),andTitleVprogramsoftheCleanAirAct.OnJune23,2014,inUtility Air Regulatory Group v.EPA,theSupremeCou
228、rtheldthatstationarysourcescouldnotbecomesubjecttoPSDorTitleVpermittingsolelybyreasonoftheirgreenhousegasemissions.However,theCourtruledthattheEPAmayrequireinstallationofbestavailablecontroltechnologyforgreenhousegasemissionsatsourcesotherwisesubjecttothePSDandTitleVprograms.OnDecember19,2014,theEPA
229、issuedtwomemorandaprovidingguidanceongreenhousegaspermittingrequirementsinresponsetotheSupremeCourtsdecision.Initspreliminaryguidance,theEPAstatedthatitwouldundertakearulemakingactiontorescindanyPSDpermitsissuedundertheportionsofthetailoringrulethatwerevacatedbytheCourt.Intheinterim,theEPAissuedanar
230、rowlycrafted“noactionassurance”indicatingitwillexerciseitsenforcementdiscretionnottopursueenforcementofthetermsandconditionsrelatingtogreenhousegasesinanEPA-issuedPSDpermit,andforrelatedtermsandconditionsinaTitleVpermit.OnApril30,2015,theEPAissuedafinalruleallowingpermittingauthoritiestorescindPSDpe
231、rmitsissuedundertheinvalidregulations.InOctober2015,theEPAamendedthegreenhousegasreportingruletoaddthereportingofemissionsfromoilwellsusinghydraulicfracturing.Becauseofthiscontinuedregulatoryfocus,futureemissionregulationsoftheoilandnaturalgasindustryremainapossibility,whichcouldincreasethecostofour
232、operations.Inaddition,theU.S.Congressoccasionallyattemptstoadoptlegislationtoreduceemissionsofgreenhousegases,andalmostone-halfofthestateshavetakenlegalmeasurestoreduceemissionsprimarilythroughtheplanneddevelopmentofgreenhousegasemissioninventoriesorregionalcapandtradeprograms.AlthoughtheU.S.Congres
233、shasnotyetadoptedsuchlegislation,itmaydosointhefuture.Severalstatescontinuetopursuerelatedregulationsaswell.InDecember2015,theUnitedStatesjoinedtheinternationalcommunityatthe21stConferenceofthePartiesoftheUnitedNationsFrameworkConventiononClimateChangeinParis,France.TheresultingParisAgreementcallsfo
234、rthepartiestoundertake“ambitiousefforts”tolimittheaverageglobaltemperature,andtoconserveandenhancesinksandreservoirsofgreenhousegases.TheParisAgreement,whichcameintoforceonNovember4,2016,establishesaframeworkforthepartiestocooperateandreportactionstoreducegreenhousegasemissions.AlthoughtheTrumpAdmin
235、istrationhaswithdrawntheUnitedStatesfromtheParisAgreement,manystateandlocalofficialshavepubliclystatedtheyintendtoabidebythetermsoftheParisAgreement.Restrictionsonemissionsofmethaneorcarbondioxidethatmaybeimposedinvariousstatescouldadverselyaffecttheoilandnaturalgasindustrywhichcouldhaveamaterialadv
236、erseeffectonfuturedemandforourservices.Atthistime,itisnotpossibletoaccuratelyestimatehowpotentialfuturelawsorregulationsaddressinggreenhousegasemissionswouldimpactourcustomersbusinessandconsequentlyourown.Inaddition,claimshavebeenmadeagainstcertainenergycompaniesallegingthatgreenhousegasemissionsfro
237、moilandnaturalgasoperationsconstituteapublicnuisanceunderfederalorstatecommonlaw.Asaresult,privateindividualsmayseektoenforceenvironmentallawsandregulationsandcouldallegepersonalinjuryorpropertydamages,whichcouldincreaseouroperatingcosts.NORM.Inthecourseofouroperations,someofourequipmentmaybeexposed
238、tonaturallyoccurringradioactivematerialsassociatedwithoilandnaturalgasdepositsand,accordinglymayresultinthegenerationofwastesandothermaterialscontainingnaturallyoccurringradioactivematerials(“NORM”).NORMexhibitinglevelsofnaturallyoccurringradiationinexcessofestablishedstatestandardsaresubjecttospeci
239、alhandlinganddisposalrequirements,andanystoragevessels,pipingandworkareaaffectedbyNORMmaybesubjecttoremediationorrestorationrequirements.Becausecertainofthepropertiespresentlyorpreviouslyowned,operatedoroccupiedbyusmayhavebeenusedforoilandnaturalgasproductionoperations,itispossiblethatwemayincurcost
240、sorliabilitiesassociatedwithNORM.Pollution Risk Management.Weseektominimizethepossibilityofapollutioneventthroughequipmentandjobdesign,aswellasthroughemployeetraining.Wealsomaintainapollutionriskmanagementprogramifapollutioneventoccurs.Thisprogram13TableofContentsincludesaninternalemergencyresponsep
241、lanthatprovidesspecificproceduresforouremployeestofollowintheeventofachemicalreleaseorspill.Inaddition,wehavecontractedwithseveralthird-partyemergencyrespondersinourvariousoperatingareasthatareavailableona24-hourbasistohandletheremediationandclean-upofanychemicalreleaseorspill.Wecarryinsurancedesign
242、edtorespondtoforeseeableenvironmentalexposures.Thisinsuranceportfoliohasbeenstructuredinanefforttoaddressincidentsthatresultinbodilyinjuryorpropertydamageandanyensuingcleanupneededatourownedfacilitiesasaresultofthemobilizationandutilizationofourfleet,aswellasanyclaimsresultingfromouroperations.Weals
243、oseektomanageenvironmentalliabilityrisksthroughprovisionsinourcontractswithourcustomersthatallocaterisksrelatingtosurfaceactivitiesassociatedwiththefracturingprocess,otherthanwaterdisposal,tousandrisksrelatingto“downhole”liabilitiestoourcustomers.Ourcustomersareresponsibleforthedisposalofthefracturi
244、ngfluidthatflowsbackoutofthewellaswastewater.Thecustomersremovethewaterfromthewellusingacontrolledflow-backprocess,andwearenotinvolvedinthatprocessorthedisposalofthefluid.Ourcontractsgenerallyrequireourcustomerstoindemnifyusagainstpollutionandenvironmentaldamagesoriginatingbelowthesurfaceoftheground
245、orarisingoutofwaterdisposal,orotherwisecausedbythecustomer,othercontractorsorotherthirdparties.Inturn,weindemnifyourcustomersforpollutionandenvironmentaldamagesoriginatingatorabovethesurfacecausedsolelybyus.Weseektomaintainconsistentrisk-allocationandindemnificationprovisionsinourcustomeragreementst
246、othegreatestextentpossible.Someofourcontracts,however,containlessexplicitindemnificationprovisions,whichtypicallyprovidethateachpartywillindemnifytheotheragainstliabilitiestothirdpartiesresultingfromtheindemnifyingpartysactions,excepttotheextentsuchliabilityresultsfromtheindemnifiedpartysgrossneglig
247、ence,willfulmisconductorintentionalact.Safety and Health RegulationWearesubjecttotherequirementsofthefederalOccupationalSafetyandHealthAct,whichisadministeredandenforcedbyOSHA,andcomparablestatelawsthatregulatetheprotectionofthehealthandsafetyofworkers.Inaddition,theOSHAhazardcommunicationstandardre
248、quiresthatinformationbemaintainedabouthazardousmaterialsusedorproducedinoperationsandthatthisinformationbeprovidedtoemployees,stateandlocalgovernmentauthoritiesandthepublic.WebelievethatouroperationsareinsubstantialcompliancewiththeOSHArequirements,includinggeneralindustrystandards,recordkeepingrequ
249、irements,andmonitoringofoccupationalexposuretoregulatedsubstances.OSHAcontinuestoevaluateworkersafetyandtoproposenewregulations,suchasbutnotlimitedto,thenewruleregardingrespirablesilicasand.Althoughitisnotpossibletoestimatethefinancialandcomplianceimpactofthenewrespirablesilicasandruleoranyotherprop
250、osedrule,theimpositionofmorestringentrequirementscouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Intellectual Property RightsOurresearchanddevelopmenteffortsarefocusedonprovidingspecificsolutionstothechallengesourcustomersfacewhenfracturingandstimulatingwells.In
251、additiontothedesignandmanufactureofinnovativeequipment,wehavealsodevelopedproprietaryblendsofchemicalsthatweuseinconnectionwithourhydraulicfracturingservices.WehavefourU.S.patents,onepatentinCanadaandonepatentinMexico,andhavefiledonepatentapplicationintheU.S.,relatingtofracturingmethods,thetechnolog
252、yusedinfluidends,hydraulicpumpsandotherequipment.WehavealsofiledtwoapplicationswiththePatentCooperationTreaty,therebypreservingourrighttoseekpatentprotectionincountriesthatareapartytothetreaty.Webelievetheinformationregardingourcustomerandsupplierrelationshipsarealsovaluableproprietaryassets.Wehaver
253、egisteredtrademarksforvariousnamesunderwhichourentitiesconductbusiness.Exceptfortheforegoing,wedonotownorlicenseanypatents,trademarksorotherintellectualpropertythatwebelievetobematerialtothesuccessofourbusiness.Item 1A.Risk FactorsOur investors should carefully consider the following risks and other
254、 information in this annual report in evaluating us and our common stock.Any of thefollowing risks,as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial,could materially and adversely affectour business,financial condition or results of operatio
255、ns,and could,in turn,impact the trading price of our common stock.Risks Relating to Our BusinessOur business depends on domestic spending by the onshore oil and natural gas industry,which is cyclical and significantly declined in 2015 and 2016.Ourbusinessiscyclicalanddependsonthewillingnessofourcust
256、omerstomakeoperatingandcapitalexpenditurestoexplorefor,developandproduceoilandnaturalgasintheUnitedStates.Thewillingnessofourcustomerstoundertakethese14TableofContentsactivitiesdependslargelyuponprevailingindustryconditionsthatareinfluencedbynumerousfactorsoverwhichwehavenocontrol,suchas:prices,ande
257、xpectationsaboutfutureprices,foroilandnaturalgas;domesticandforeignsupplyof,anddemandfor,oilandnaturalgasandrelatedproducts;thelevelofglobalanddomesticoilandnaturalgasinventories;thesupplyofanddemandforhydraulicfracturingandotheroilfieldservicesandequipmentintheUnitedStates;thecostofexploringfor,dev
258、eloping,producinganddeliveringoilandnaturalgas;availablepipeline,storageandothertransportationcapacity;leadtimesassociatedwithacquiringequipmentandproductsandavailabilityofqualifiedpersonnel;thediscoveryratesofnewoilandnaturalgasreserves;federal,stateandlocalregulationofhydraulicfracturingandotheroi
259、lfieldserviceactivities,aswellasE&Pactivities,includingpublicpressureongovernmentalbodiesandregulatoryagenciestoregulateourindustry;theavailabilityofwaterresources,suitableproppantandchemicalsinsufficientquantitiesforuseinhydraulicfracturingfluids;geopoliticaldevelopmentsandpoliticalinstabilityinoil
260、andnaturalgasproducingcountries;actionsofOPEC,itsmembersandotherstate-controlledoilcompaniesrelatingtooilpriceandproductioncontrols;advancesinexploration,developmentandproductiontechnologiesorintechnologiesaffectingenergyconsumption;thepriceandavailabilityofalternativefuelsandenergysources;weatherco
261、nditionsandnaturaldisasters;uncertaintyincapitalandcommoditiesmarketsandtheabilityofoilandnaturalgasproducerstoraiseequitycapitalanddebtfinancing;andU.S.federal,stateandlocalandnon-U.S.governmentalregulationsandtaxes.Volatilityorweaknessinoilandnaturalgasprices(ortheperceptionthatoilandnaturalgaspri
262、ceswilldecreaseorremaindepressed)generallyleadstodecreasedspendingbyourcustomers,whichinturnnegativelyimpactsdrilling,completionandproductionactivity.Inparticular,thedemandforneworexistingdrilling,completionandproductionworkisdrivenbyavailableinvestmentcapitalforsuchwork.Whenthesecapitalinvestmentsd
263、ecline,ourcustomersdemandforourservicesdeclines.Becausethesetypesofservicescanbeeasily“started”and“stopped,”andoilandnaturalgasproducersgenerallytendtoberiskaversewhencommoditypricesareloworvolatile,wetypicallyexperienceamorerapiddeclineindemandforourservicescomparedwithdemandforothertypesofenergyse
264、rvices.Anynegativeimpactonthespendingpatternsofourcustomersmaycauselowerpricingandutilizationforourservices,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.Oil and natural gas prices declined significantly in 2015 and 2016 and remain volatile,whic
265、h has adversely affected,and may continue to adverselyaffect,our financial condition,results of operations and cash flows.Thedemandforourservicesdependsonthelevelofspendingbyoilandnaturalgascompaniesfordrilling,completionandproductionactivities,whichareaffectedbyshort-termandlong-termtrendsinoilandn
266、aturalgasprices,includingcurrentandanticipatedoilandnaturalgasprices.Oilandnaturalgasprices,aswellasthelevelofdrilling,completionandproductionactivities,historicallyhavebeenextremelyvolatileandareexpectedtocontinuetobehighlyvolatile.Forexample,oilpricesdeclinedsignificantlyin2015and2016,withWTIcrude
267、oilspotpricesdecliningfromamonthlyaverageof$105.79perbarrelinJune2014to$26.14perbarrelinFebruary2016.ThespotpriceperbarrelasofDecember29,2017was$60.42.Inlinewiththissustainedvolatilityinoilandnaturalgasprices,weexperiencedasignificantdeclineinpressurepumpingactivitylevelsacrossourcustomerbase.Thevol
268、atileoilandnaturalgaspricesadverselyaffected,andcouldcontinuetoadverselyaffect,ourfinancialcondition,resultsofoperationsandcashflows.Our customers may not be able to maintain or increase their reserve levels going forward.Inadditiontotheimpactoffutureoilandnaturalgaspricesonourfinancialperformanceov
269、ertime,ourabilitytogrowfuturerevenuesandincreaseprofitabilitywilldependlargelyuponourcustomersabilitytofind,developoracquireadditionalshaleoiland15TableofContentsnaturalgasreservesthatareeconomicallyrecoverabletoreplacethereservestheyproduce.Hydraulicfracturedwellsaregenerallymoreshort-livedthanconv
270、entionalwells.OurcustomersownorhaveaccesstoafiniteamountofshaleoilandnaturalgasreservesintheUnitedStatesthatwillbedepletedovertime.Theproductionratefromshaleoilandnaturalgaspropertiesgenerallydeclinesasreservesaredepleted,whilerelatedper-unitproductioncostsgenerallyincreaseasaresultofdecreasingreser
271、voirpressuresandotherfactors.Ifourcustomersareunabletoreplacetheshaleoilreservestheyownorhaveaccesstoattheratetheyproducesuchreserves,theirprovedreservesandproductionwilldeclineovertime.Reductionsinproductionlevelsbyourcustomersovertimemayreducethefuturedemandforourservicesandadverselyaffectourbusin
272、ess,financialcondition,resultsofoperationsandcashflows.Our business may be adversely affected by a deterioration in general economic conditions or a weakening of the broader energy industry.AprolongedeconomicslowdownorrecessionintheUnitedStates,adverseeventsrelatingtotheenergyindustryorregional,nati
273、onalandglobaleconomicconditionsandfactors,particularlyaslowdownintheE&Pindustry,couldnegativelyimpactouroperationsandthereforeadverselyaffectourresults.Therisksassociatedwithourbusinessaremoreacuteduringperiodsofeconomicslowdownorrecessionbecausesuchperiodsmaybeaccompaniedbydecreasedexplorationandde
274、velopmentspendingbyourcustomers,decreaseddemandforoilandnaturalgasanddecreasedpricesforoilandnaturalgas.Competition in our industry intensifies during industry downturns,and we may not be able to provide services that meet the specific needs of ourcustomers at competitive prices.Themarketsinwhichweo
275、peratearegenerallyhighlycompetitiveandhaverelativelyfewbarrierstoentry.Theprincipalcompetitivefactorsinourmarketsareprice,servicequality,safety,andinsomecases,breadthofproducts.Wecompetewithlargenationalandmulti-nationalcompaniesthathavelongeroperatinghistories,greaterfinancial,technicalandotherreso
276、urcesandgreaternamerecognitionthanwedo.Severalofourcompetitorsprovideabroaderarrayofservicesandhaveastrongerpresenceinmoregeographicmarkets.Inaddition,wecompetewithseveralsmallercompaniescapableofcompetingeffectivelyonaregionalorlocalbasis.Ourcompetitorsmaybeabletorespondmorequicklytoneworemergingte
277、chnologiesandservicesandchangesincustomerrequirements.Somecontractsareawardedonabidbasis,whichfurtherincreasescompetitionbasedonprice.Pricingisoftentheprimaryfactorindeterminingwhichqualifiedcontractorisawardedajob.Thecompetitiveenvironmentmaybefurtherintensifiedbymergersandacquisitionsamongoilandna
278、turalgascompaniesorothereventsthathavetheeffectofreducingthenumberofavailablecustomers.Asaresultofcompetitionduringtherecentdownturn,wehadtolowerthepricesforourservices.Infuturedownturns,wemaylosemarketshareorbeunabletomaintainorincreasepricesforourpresentservicesortoacquireadditionalbusinessopportu
279、nities,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.Pressureonpricingforourservicesresultingfromtherecentindustrydownturnimpactedourabilitytomaintainutilizationandpricingforourservicesorimplementpriceincreases,whichmayalsobeimpactedinfuturedown
280、turns.Duringanyfutureperiodsofdecliningpricingforourservices,wemaynotbeabletoreduceourcostsaccordingly,whichcouldfurtheradverselyaffectourresultsofoperations.Also,wemaynotbeabletosuccessfullyincreasepriceswithoutadverselyaffectingourutilizationlevels.Theinabilitytomaintainourutilizationandpricinglev
281、els,ortoincreaseourpricesascostsincrease,couldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Inaddition,someE&Pcompanieshavebegunperforminghydraulicfracturingontheirwellsusingtheirownequipmentandpersonnel.Anyincreaseinthedevelopmentandutilizationofin-housefracturing
282、capabilitiesbyourcustomerscoulddecreasethedemandforourservicesandhaveamaterialadverseimpactonourbusiness.We are dependent on a few customers operating in a single industry.The loss of one or more significant customers could adversely affect ourfinancial condition and results of operations.Ourcustome
283、rsareengagedintheE&PbusinessintheUnitedStates.Historically,wehavebeendependentuponafewcustomersforasignificantportionofourrevenues.FortheyearsendedDecember31,2016andDecember31,2017,ourfourlargestcustomersgeneratedapproximately52%and32%,respectively,ofourtotalrevenue.Infiscalyears2015and2014,ourfourl
284、argestcustomersgeneratedapproximately44%and45%,respectively,ofourtotalrevenue.Foradiscussionofourcustomersthatmakeup10%ormoreofourrevenues,see“BusinessCustomers”inItem1ofthisannualreport.Ourbusiness,financialconditionandresultsofoperationscouldbemateriallyadverselyaffectedifoneormoreofoursignificant
285、customersceasestoengageusforourservicesonfavorabletermsoratallorfailstopayordelaysinpayingussignificantamountsofouroutstandingreceivables.Althoughwedohavecontractsformultipleprojectswithcertainofourcustomers,mostofourservicesareprovidedonaproject-by-projectbasis.16TableofContentsAdditionally,theE&Pi
286、ndustryischaracterizedbyfrequentconsolidationactivity.Changesinownershipofourcustomersmayresultinthelossof,orreductionin,businessfromthosecustomers,whichcouldmateriallyandadverselyaffectourfinancialcondition.We extend credit to our customers,which presents a risk of nonpayment of our accounts receiv
287、able.Weextendcredittoallourcustomers.Duringtherecentindustrydownturn,manyofourcustomersexperiencedthesamefinancialandoperationalchallengesthatwedid,andsomeofourcustomersfiledforbankruptcyprotection.GiventhecyclicalnatureoftheE&Pindustry,we,aswellasourcustomers,mayexperiencesimilarchallengesinthefutu
288、re.Asaresult,wemayhavedifficultycollectingoutstandingaccountsreceivablefrom,orexperiencelongercollectioncycleswith,someofourcustomers,whichcouldhaveanadverseeffectonourfinancialconditionandcashflows.Decreased demand for proppant has adversely affected,and could continue to adversely affect,our commi
289、tments under supply agreements.Wehavepurchasecommitmentswithcertainvendorstosupplytheproppantusedinouroperations.Someoftheseagreementsaretake-or-payarrangementswithminimumpurchaseobligations.Duringtheindustrydownturn,ourminimumcontractualcommitmentsexceededtheamountofproppantneededinouroperations.As
290、aresult,wemademinimumpaymentsforproppantthatwewereunabletouse.Furthermore,someofourcustomershaveboughtandinthefuturemaybuyproppantdirectlyfromvendors,reducingourneedforproppant.Ifmarketconditionsdonotcontinuetoimprove,orourcustomersbuyproppantdirectlyfromvendors,wemayberequiredtomakeminimumpaymentsi
291、nfutureperiods,whichmayadverselyaffectourresultsofoperations,liquidityandcashflows.We may be unable to employ a sufficient number of key employees,technical personnel and other skilled or qualified workers.Thedeliveryofourservicesandproductsrequirespersonnelwithspecializedskillsandexperiencewhocanpe
292、rformphysicallydemandingwork.Asaresultofthevolatilityintheenergyserviceindustryandthedemandingnatureofthework,workersmaychoosetopursueemploymentwithourcompetitorsorinfieldsthatofferamoredesirableworkenvironment.Ourabilitytobeproductiveandprofitablewilldependuponourabilitytoemployandretainskilledwork
293、ers.Inaddition,ourabilitytofurtherexpandouroperationsaccordingtogeographicdemandforourservicesdependsinpartonourabilitytorelocateorincreasethesizeofourskilledlaborforce.Thedemandforskilledworkersinourareasofoperationscanbehigh,thesupplymaybelimitedandwemaybeunabletorelocateouremployeesfromareasoflow
294、erutilizationtoareasofhigherdemand.Asignificantincreaseinthewagespaidbycompetingemployerscouldresultinareductionofourskilledlaborforce,increasesinthewageratesthatwemustpay,orboth.Furthermore,asignificantdecreaseinthewagespaidbyusorourcompetitorsasaresultofreducedindustrydemandcouldresultinareduction
295、oftheavailableskilledlaborforce,andthereisnoassurancethattheavailabilityofskilledlaborwillimprovefollowingasubsequentincreaseindemandforourservicesoranincreaseinwagerates.Ifanyoftheseeventsweretooccur,ourcapacityandprofitabilitycouldbediminishedandourgrowthpotentialcouldbeimpaired.Wedependheavilyont
296、heeffortsofexecutiveofficers,managersandotherkeyemployeestomanageouroperations.Theunexpectedlossorunavailabilityofkeymembersofmanagementortechnicalpersonnelmayhaveamaterialadverseeffectonourbusiness,financialcondition,prospectsorresultsofoperations.Our operations are subject to inherent risks,includ
297、ing operational hazards.These risks may not be fully covered under our insurance policies.Ouroperationsaresubjecttohazardsinherentintheoilandnaturalgasindustry,suchasaccidents,blowouts,explosions,craters,firesandoilspills.Thesehazardsmayleadtopropertydamage,personalinjury,deathorthedischargeofhazard
298、ousmaterialsintotheenvironment.Theoccurrenceofasignificanteventoradverseclaiminexcessoftheinsurancecoveragethatwemaintainorthatisnotcoveredbyinsurancecouldhaveamaterialadverseeffectonourfinancialconditionandresultsofoperations.Asiscustomaryinourindustry,ourservicecontractsgenerallyprovidethatwewilli
299、ndemnifyandholdharmlessourcustomersfromanyclaimsarisingfrompersonalinjuryordeathofouremployees,damagetoorlossofourequipment,andpollutionemanatingfromourequipmentandservices.Similarly,ourcustomersagreetoindemnifyandholdusharmlessfromanyclaimsarisingfrompersonalinjuryordeathoftheiremployees,damagetoor
300、lossoftheirequipment,andpollutioncausedfromtheirequipmentorthewellreservoir.Ourindemnificationarrangementsmaynotprotectusineverycase.Inaddition,ourindemnificationrightsmaynotfullyprotectusifthecustomerisinsolventorbecomesbankrupt,doesnotmaintainadequateinsuranceorotherwisedoesnotpossesssufficientres
301、ourcestoindemnifyus.Furthermore,ourindemnificationrightsmaybeheldunenforceableinsome17TableofContentsjurisdictions.Ourinabilitytofullyrealizethebenefitsofourcontractualindemnificationprotectionscouldresultinsignificantliabilitiesandcouldadverselyaffectourfinancialcondition,resultsofoperationsandcash
302、flows.Wemaintaincustomaryinsurancecoverageagainstthesetypesofhazards.Weareself-insureduptoretentionlimitswithregardto,amongotherthings,workerscompensationandgeneralliability.Wemaintainaccrualsinourconsolidatedbalancesheetsrelatedtoself-insuranceretentionsbyusingthird-partydataandhistoricalclaimshist
303、ory.Theoccurrenceofaneventnotfullyinsuredagainst,orthefailureofaninsurertomeetitsinsuranceobligations,couldresultinsubstantiallosses.Inaddition,wemaynotbeabletomaintainadequateinsuranceinthefutureatratesweconsiderreasonable.Insurancemaynotbeavailabletocoveranyoralloftheriskstowhichwearesubject,or,ev
304、enifavailable,itmaybeinadequate.We are subject to laws and regulations regarding issues of health,safety,and protection of the environment,under which we may become liable forpenalties,damages,or costs of remediation.Ouroperationsaresubjecttostringentlawsandregulationsrelatingtoprotectionofnaturalre
305、sources,cleanair,drinkingwater,wetlands,endangeredspecies,greenhousegases,nonattainmentareas,theenvironment,healthandsafety,chemicaluseandstorage,wastemanagement,andtransportationofhazardousandnon-hazardousmaterials.Theselawsandregulationssubjectustorisksofenvironmentalliability,includingleakagefrom
306、anoperatorscasingduringouroperationsoraccidentalspillsorreleasesontoorintosurfaceorsubsurfacesoils,surfacewater,groundwaterorambientair.Someenvironmentallawsandregulationsmayimposestrictliability,jointandseveralliabilityorboth.Strictliabilitymeansthatwecouldbeexposedtoliabilityasaresultofourconductt
307、hatwaslawfulatthetimeitoccurred,ortheconductoforconditionscausedbythirdpartieswithoutregardtowhetherwecausedorcontributedtotheconditions.Additionally,environmentalconcerns,includingairanddrinkingwatercontaminationandseismicactivity,havepromptedinvestigationsthatcouldleadtotheenactmentofregulationsth
308、atpotentiallycouldhaveamaterialadverseimpactonourbusiness.Sanctionsfornoncompliancewithenvironmentallawsandregulationscouldresultinfinesandpenalties(administrative,civilorcriminal),revocationsofpermits,expendituresforremediation,andissuanceofcorrectiveactionorders,andactionsarisingundertheselawsandr
309、egulationscouldresultinliabilityforpropertydamage,exposuretowasteandotherhazardousmaterials,nuisanceorpersonalinjuries.Suchclaimsorsanctionscouldcauseustoincursubstantialcostsorlossesandcouldhaveamaterialadverseeffectonourbusiness,financialcondition,andresultsofoperations.Changes in laws and regulat
310、ions could prohibit,restrict or limit our operations,increase our operating costs,adversely affect our results or result inthe disclosure of proprietary information resulting in competitive harm.Variouslegislativeandregulatoryinitiativeshavebeenundertakenthatcouldresultinadditionalrequirementsorrest
311、rictionsbeingimposedonouroperations.Legislationand/orregulationsarebeingconsideredatthefederal,stateandlocallevelsthatcouldimposechemicaldisclosurerequirements(suchasrestrictionsontheuseofcertaintypesofchemicalsorprohibitionsonhydraulicfracturingoperationsincertainareas)andpriorapprovalrequirements.
312、Iftheybecomeeffective,theseregulationswouldestablishadditionallevelsofregulationthatcouldleadtooperationaldelaysandincreasedoperatingcosts.Disclosureofourproprietarychemicalinformationtothirdpartiesortothepublic,evenifinadvertent,coulddiminishthevalueofourtradesecretsandcouldresultincompetitiveharmt
313、ous,whichcouldhaveanadverseimpactonourfinancialconditionandresultsofoperations.Additionally,somejurisdictionsareorhaveconsideredzoningandotherordinances,theconditionsofwhichcouldimposeadefactobanondrillingand/orhydraulicfracturingoperations,andarecloselyexaminingpermitanddisposaloptionsforprocessedw
314、ater,whichifimposedcouldhaveamaterialadverseimpactonouroperatingcosts.Moreover,anymoratoriumorincreasedregulationofourrawmaterialsvendors,suchasourproppantsuppliers,couldincreasethecostofthosematerialsandadverselyaffecttheresultsofouroperations.Wearealsosubjecttovarioustransportationregulationsthati
315、ncludecertainpermitrequirementsofhighwayandvehicleandhazardousmaterialsafetyauthorities.Theseregulationsgovernsuchmattersastheauthorizationtoengageinmotorcarrieroperations,safety,equipmenttesting,driverrequirementsandspecificationsandinsurancerequirements.Astheseregulationsdevelopandanynewregulation
316、sareproposed,wehaveexperiencedandmaycontinuetoexperienceanincreaseinrelatedcosts.Wereceiveaportionoftheproppantusedinouroperationsbyrail.Anydelayorfailureinrailservicesduetochangesintransportationregulations,workstoppagesorlaborstrikes,couldadverselyaffecttheavailabilityofproppant.Wecannotpredictwhe
317、ther,orinwhatform,anylegislativeorregulatorychangesormunicipalordinancesapplicabletoourlogisticsoperationswillbeenactedandtowhatextentanysuchlegislationorregulationscouldincreaseourcostsorotherwiseadverselyaffectourbusinessoroperations.WecontinuetoassesstheimpactoftherecentlyenactedTaxCutsandJobsAct
318、(the“newtaxlaw”)aswellasanyfutureregulationsimplementingthenewtaxlawandanyinterpretationsofthenewtaxlaw.Theeffectofthoseregulationsand18TableofContentsinterpretations,aswellasanyadditionaltaxreformlegislationintheUnitedStatesorelsewhere,couldadverselyaffectourbusinessandfinancialcondition.Federal an
319、d state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operatingrestrictions or delays.Ourbusinessisdependentonourabilitytoconducthydraulicfracturingandhorizontaldrillingactivities.Hydraulicfracturingisusedtostimulateproductiono
320、fhydrocarbons,particularlynaturalgas,fromtightformations,includingshales.Theprocess,whichinvolvestheinjectionofwater,sandandchemicals,orproppants,underpressureintoformationstofracturethesurroundingrockandstimulateproduction,istypicallyregulatedbystateoilandnaturalgascommissions.However,federalagenci
321、eshaveassertedregulatoryauthorityovercertainaspectsoftheprocess.Forexample,onMay9,2014,theEPAissuedanAdvancedNoticeofProposedRulemakingseekingcommentonthedevelopmentofregulationsundertheToxicSubstancesControlActtorequirecompaniestodiscloseinformationregardingthechemicalsusedinhydraulicfracturing.The
322、EPAprojectspublishingaNoticeofProposedRulemakingbyJune2018,whichwoulddescribeaproposedmechanismregulatory,voluntaryoracombinationofbothtocollectdataonhydraulicfracturingchemicalsubstancesandmixtures.OnJune28,2016,theEPApublishedafinalruleprohibitingthedischargeofwastewaterfromonshoreunconventionaloi
323、landnaturalgasextractionfacilitiestopubliclyownedwastewatertreatmentplans.TheEPAisalsoconductingastudyofprivatewastewatertreatmentfacilities(alsoknownascentralizedwastetreatment(“CWT”)facilities)acceptingoilandnaturalgasextractionwastewater.TheEPAiscollectingdataandinformationrelatedtotheextenttowhi
324、chCWTfacilitiesacceptsuchwastewater,availabletreatmenttechnologies(andtheirassociatedcosts),dischargecharacteristics,financialcharacteristicsofCWTfacilitiesandtheenvironmentalimpactsofdischargesfromCWTfacilities.TheEPAenteredaconsentdecreewhichrequirestheagencytodeterminewhethertorevisetheResourceCo
325、nservationandRecoveryActSubtitleDrulesforoilandgaswastebyMarch5,2019.Furthermore,legislationtoamendtheSafeDrinkingWaterAct(“SDWA”),torepealtheexemptionforhydraulicfracturing(exceptwhendieselfuelsareused)fromthedefinitionof“undergroundinjection”andrequirefederalpermittingandregulatorycontrolofhydraul
326、icfracturing,aswellaslegislativeproposalstorequiredisclosureofthechemicalconstituentsofthefluidsusedinthefracturingprocess,wereproposedinrecentsessionsofCongress.Additionally,theBureauofLandManagement(“BLM”),hasestablishedregulationsimposingdrillingandconstructionrequirementsforoperationsonfederalor
327、Indianlandsincludingmanagementrequirementsforsurfaceoperationsandpublicdisclosuresofchemicalsusedinthehydraulicfracturingfluids.However,onDecember29,2017,BLMpublishedarescissionoftheseregulations.Futureimpositionoftheseorsimilarregulationscouldcauseusorourcustomerstoincursubstantialcompliancecostsan
328、danyfailuretocomplycouldhaveamaterialadverseeffectonourfinancialconditionorresultsofoperations.OnMay12,2016,theEPAamendedtheNewSourcePerformanceStandardsunderthefederalCleanAirActtoimposenewstandardsformethaneandvolatileorganiccompounds(“VOCs”),emissionsforcertainnew,modified,andreconstructedequipme
329、nt,processes,andactivitiesacrosstheoilandnaturalgassector.Onthesameday,theEPAfinalizedaplantoimplementitsminornewsourcereviewprograminIndiancountryforoilandnaturalgasproduction,anditissuedforpubliccommentaninformationrequestthatwillrequirecompaniestoprovideextensiveinformationinstrumentalforthedevel
330、opmentofregulationstoreducemethaneemissionsfromexistingoilandnaturalgassources.TheEPAannouncedintentionstopublishreconsideredproposedNewSourcePerformanceStandardsbyAugustof2018withafinalrevisedruleinSeptember2019.InNovember2016,BLMpromulgatedregulationsaimedatcurbingairpollution,includinggreenhouseg
331、ases,foroilandnaturalgasproducedonfederalandIndianlands.Variousstateshavefiledforapetitionforreviewoftheseregulations.OnJune15,2017,BLMpublishedaNoticeintheFederalRegisterproposingtopostponecompliancedatesforprovisionsoftherulethathadnotyetgoneintoeffectpendingjudicialreviewoftheRule.OnOctober4,2017
332、,theU.S.DistrictCourtfortheNorthernDistrictofCaliforniainvalidatedBLMsJune15,2017proposedpostponementofcompliancedeadlines.OnDecember8,2017,BLMpromulgatedafinalruledelaytotemporarilysuspendordelaycertainrequirementsuntilJanuary17,2019.Acoalitionofenvironmentalgroupshasfiledsuitchallengingthedelay.At
333、thispoint,wecannotpredictthefinalregulatoryrequirementsorthecosttocomplywithsuchrequirementswithanycertainty.Therearecertaingovernmentalreviewseitherunderwayorbeingproposedthatfocusontheenvironmentalaspectsofhydraulicfracturingpractices.Theseongoingorproposedstudies,dependingontheirdegreeofpursuitandwhetheranymeaningfulresultsareobtained,couldspurinitiativestofurtherregulatehydraulicfracturingunde
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