1、TableofContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington D.C.20549FORM 10-K(Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,2018OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCH
2、ANGE ACT OF 1934For the transition period from to Commission File Number 001-38382FTS INTERNATIONAL,INC.(ExactNameofRegistrantasSpecifiedinItsCharter)Delaware30-0780081(StateorotherJurisdictionofIncorporationorOrganization)(I.R.S.EmployerIdentificationNo.)777 Main Street,Suite 2900,Fort Worth,Texas7
3、6102(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 ExchangeSecurit
4、iesregisteredpursuanttoSection12(g)oftheSecuritiesExchangeActof1934:NoneIndicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesNoIndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesNoIndicatebycheckma
5、rkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesNoIndicatebycheckmarkwhetherth
6、eregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).YesNoIndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem
7、405ofRegulationS-K(229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrantsknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacce
8、leratedfiler,anon-acceleratedfiler,asmallerreportingcompany,oranemerginggrowthcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany,”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct.LargeAcceleratedFilerAcceleratedFilerNon-AcceleratedFilerSmallerreportin
9、gcompanyEmerginggrowthcompanyIfanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.Indicatebycheckmarkwhethertheregistrantisashellcompany(asdef
10、inedinRule12b-2oftheExchangeAct).YesNoAsofJune29,2018,thelasttradingdayoftheregistrantsmostrecentlycompletedsecondfiscalquarter,theaggregatemarketvalueofthecommonstockheldbynon-affiliatesoftheregistrantwasapproximately$468.2million,basedontheclosingpriceoftheregistrantscommonstockonthatdate.AsofFebr
11、uary22,2019,theregistranthad109,794,386sharesofcommonstock,$0.01parvalue,outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortionsoftheproxystatementfortheregistrants2019annualmeetingofstockholdersareincorporatedbyreferenceinPartIIIofthisForm10-K.TableofContentsFTS INTERNATIONAL,INC.Form 10 KYear Ende
12、d December 31,2018INDEXPageCautionaryStatementRegardingForward-LookingStatementsiiPARTI1Item1.Business1Item1A.RiskFactors12Item1B.UnresolvedStaffComments29Item2.Properties29Item3.LegalProceedings30Item4.MineSafetyDisclosures30PARTII30Item5.MarketforRegistrantsCommonEquity,RelatedStockholderMattersan
13、dIssuerPurchasesofEquitySecurities30Item6.SelectedFinancialData32Item7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations35Item7A.QuantitativeandQualitativeDisclosuresAboutMarketRisk45Item8.FinancialStatementsandSupplementaryData45Item9.ChangesinandDisagreementsWithAccountant
14、sonAccountingandFinancialDisclosure45Item9A.ControlsandProcedures45Item9B.OtherInformation46PARTIII47Item10.Directors,ExecutiveOfficersandCorporateGovernance47Item11.ExecutiveCompensation47Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters47Item13.CertainRelat
15、ionshipsandRelatedTransactions,andDirectorIndependence47Item14.PrincipalAccountantFeesandServices47PARTIV47Item15.ExhibitsandFinancialStatementSchedules47IndextoConsolidatedFinancialStatementsF-1iTableofContentsCautionary Statement Regarding Forward-Looking StatementsThisannualreportcontains“forward
16、-lookingstatements”thataresubjecttorisksanduncertainties.Allstatementsotherthanstatementsofhistoricalorcurrentfactincludedinthisannualreportareforward-lookingstatements.Forward-lookingstatementsrefertoourcurrentexpectationsandprojectionsrelatingtoourfinancialcondition,resultsofoperations,plans,objec
17、tives,strategies,futureperformanceandbusiness.Forward-lookingstatementsmaybeidentifiedbythefactthattheydonotrelatestrictlytohistoricalorcurrentfacts.Thesestatementsmayincludewordssuchas“anticipate,”“assume,”“believe,”“canhave,”“contemplate,”“continue,”“could,”“design,”“due,”“estimate,”“expect,”“goal
18、,”“intend,”“likely,”“may,”“might,”“objective,”“plan,”“predict,”“project,”“potential,”“seek,”“should,”“target,”“will,”“would”andotherwordsandtermsofsimilarmeaninginconnectionwithanydiscussionofthetimingornatureoffutureoperationalperformanceorotherevents.Forexample,allstatementswemakerelatingtoouresti
19、matedandprojectedcosts,expendituresandgrowthrates,ourplansandobjectivesforfutureoperations,growthorinitiativesorstrategiesareforward-lookingstatements.Allforward-lookingstatementsaresubjecttorisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthosethatweexpectand,therefore,investorss
20、houldnotundulyrelyonsuchstatements.Therisksthatcouldcausetheseforward-lookingstatementstobeinaccurateincludebutarenotlimitedto:adeclineindomesticspendingbytheonshoreoilandnaturalgasindustry;volatilityinoilandnaturalgasprices;customersinabilitytomaintainorincreasetheirreservesgoingforward;deteriorati
21、oningeneraleconomicconditionsoraweakeningofthebroaderenergyindustry;thecompetitivenatureoftheindustryinwhichweconductourbusiness;theeffectofalossof,orfinancialdistressof,oneormoresignificantcustomers;nonpaymentbycustomersweextendcreditto;demandforservicesinourindustry;actionsofOPEC,itsmembersandothe
22、rstate-controlledoilcompaniesrelatingtooilpriceandproductioncontrols;adeclineindemandforproppant;ourinabilitytoemployasufficientnumberofkeyemployees,technicalpersonnelandotherskilledorqualifiedworkers;theoccurrenceofasignificanteventoradverseclaiminexcessoftheinsurancecoveragewemaintain;finesorpenal
23、ties(administrative,civilorcriminal),revocationsofpermits,orissuanceofcorrectiveactionordersfornoncompliancewithhealth,safetyandenvironmentallawsandregulations;changesinlawsandregulationswhichimposeadditionalrequirementsorrestrictionsonbusinessoperations;federal,stateandlocalregulationofhydraulicfra
24、cturingandotheroilfieldserviceactivities,aswellasexplorationandproduction(“E&P”)activities,includingpublicpressureongovernmentalbodiesandregulatoryagenciestoregulateourindustry;existingorfuturelawsandregulationsrelatedtogreenhousegasesandclimatechange;ourabilitytoobtainpermits,approvalsandauthorizat
25、ionsfromgovernmentalandthirdparties,andtheeffectsoforchangestoU.S.andforeigngovernmentregulation;restrictionsondrillingactivitiesintendedtoprotectcertainspeciesofwildlife;conservationmeasuresandtechnologicaladvanceswhichreducedemandforoilandnaturalgas;thelevelofglobalanddomesticoilandnaturalgasinven
26、tories;iiTableofContentsthepriceandavailabilityofalternativefuelsandenergysources;thediscoveryratesofnewoilandnaturalgasreserves;limitationsonconstructionofnewnaturalgaspipelinesorincreasesinfederalorstateregulationofnaturalgaspipelines;theavailabilityofwaterresources,suitableproppantandchemicalsins
27、ufficientquantitiesforuseinhydraulicfracturingfluids;thecostofexploringfor,developing,producinganddeliveringoilandnaturalgas;thirdpartyclaimsforpossibleinfringementofintellectualpropertyrights;introductionofnewdrillingorcompletiontechniques,orservicesusingnewtechnologiessubjecttopatentorotherintelle
28、ctualpropertyprotections;leadtimesassociatedwithacquiringequipmentandproductsandavailabilityofqualifiedpersonnel;lossorcorruptionofourinformationoracyberattackonourcomputersystems;oneormoreofourdirectorsmaynotresideintheUnitedStateslimitingtheabilityofinvestorsfromobtainingorenforcingjudgmentsagains
29、tthem;adverseweatherconditionscausingstoppageordelayinoperations;aterroristattackorarmedconflictdisruptingoperations;additionaleconomic,politicalandregulatoryrisksrelatedtointernationaloperations;geopoliticaldevelopmentsandpoliticalinstabilityinoilandnaturalgasproducingcountries;ourabilitytoutilizeo
30、urnetoperatinglosses;ourinabilitytoserviceourdebtobligations;adverseeffectsonourfinancialstrategyandliquidity;increasesininterestrates;anduncertaintyincapitalandcommoditiesmarketsandtheabilityofoilandnaturalgasproducerstoraiseequitycapitalanddebtfinancing.Wemakemanyofourforward-lookingstatementsbase
31、donouroperatingbudgetsandforecasts,whicharebasedupondetailedassumptions.Whilewebelievethatourassumptionsarereasonable,wecautionthatitisverydifficulttopredicttheimpactofknownfactors,anditisimpossibleforustoanticipateallfactorsthatcouldaffectouractualresults.Seethe“RiskFactors”includedinItem1Aofthisan
32、nualreportforamorecompletediscussionoftherisksanduncertaintiesmentionedaboveandfordiscussionofotherrisksanduncertaintieswefacethatcouldcauseourforward-lookingstatementstobeinaccurate.Allforward-lookingstatementsattributabletousareexpresslyqualifiedintheirentiretybythesecautionarystatementsaswellasot
33、hersmadeinthisannualreportandhereafterinourotherSECfilingsandpubliccommunications.Allforward-lookingstatementsmadebyusshouldbeevaluatedinthecontextoftheserisksanduncertainties.Wecautionthattherisksanduncertaintiesidentifiedbyusmaynotbeallofthefactorsthatareimportanttoinvestors.Furthermore,theforward
34、-lookingstatementsincludedinthisannualreportaremadeonlyasofthedatehereof.Weundertakenoobligationtopubliclyupdateorreviseanyforward-lookingstatementasaresultofnewinformation,futureeventsorotherwise,exceptasrequiredbylaw.iiiTableofContentsPART IITEM 1.BUSINESSGeneralFTSInternational,Inc.(the“Company”,
35、“we”,“our”)wasoriginallyformedin2000.WeareoneofthelargestprovidersofhydraulicfracturingservicesinNorthAmerica.OurservicesenhancehydrocarbonflowfromoilandnaturalgaswellsdrilledbyE&Pcompaniesinshaleandotherunconventionalresourceformations.Wehave1.7milliontotalhydraulichorsepoweracross34fleets,with19fl
36、eetsactiveandonefleetunderconstructionandawaitingfinalassemblyasofDecember31,2018.OursignificantcustomershaveincludedAnadarkoPetroleumCorporation,AscentResourcesUticaHoldings,LLC,CentennialResourceDevelopment,Inc.,ChesapeakeEnergyCorporation,DevonEnergyCorporation,DiamondbackEnergy,Inc.,EOGResources
37、,Inc.,EQTCorporation,andotherleadingE&PcompaniesthatspecializeinunconventionaloilandnaturalgasresourcesinNorthAmerica.WeoperateinfiveofthemostactivemajorunconventionalbasinsintheUnitedStates:thePermianBasin,theSCOOP/STACKFormation,theMarcellus/UticaShale,theEagleFordShaleandtheHaynesvilleShale.Thefo
38、llowingmapshowsthebasinsinwhichweoperateandthenumberoffleetsoperatedineachbasinasofJanuary31,2019.Wemanufactureandrefurbishmanyofthecomponentsusedbyourfleets,includingconsumables,suchasfluid-ends.Wealsoperformsubstantiallyallthemaintenance,repairandrefurbishmentofourhydraulicfracturingfleets,includi
39、ngthereactivationofidleequipment.Ourcosttoproducecomponentsandreactivatefleetsissignificantlylessthanthecosttopurchasecomparablequalitycomponentsandfleetsfromthird-partysuppliers.Forexample,wemanufacturefluid-endsandpower-endsatacostthatisapproximately50%lessthanpurchasingthemfromoutsidesuppliers.In
40、addition,ourcapabilitiesallowustoperformfull-scalerefurbishmentsofourfracturingunits,includingrefurbishingtheenginesandtransmissions,atacostthatisapproximatelyhalfthecostofutilizinganoriginalequipmentmanufacturerorotheroutsidesupplier.Wedesignedandassembledallofourexistingfleetsusinginternalresource
41、sandareabletoassemblenewfleetsinternallyatasubstantialdiscounttothecostofbuyingthemnewfromthird-partyproviders.Wehaveauniformfleetofhigh-horsepowerhydraulicfracturingequipment,designedforcompletionsworkinoilandnaturalgasbasins1TableofContentsrequiringhighlevelsofpressure,flowrateandsandintensity.The
42、standardized,“plugandplay”natureofourfleetprovidesuswithseveraladvantages,including:reducedrepairandmaintenancecosts;reducedinventorycosts;theabilitytoredeployequipmentamongoperatingbasins;andreducedcomplexityinouroperations,whichimprovesoursafetyandoperationalperformance.Ourlargescaleandcultureofin
43、novationallowsustotakeadvantageofleadingtechnologicalsolutions.Wehavebeenafastadopterofnewtechnologiesfocusedon:increasingfracturingeffectivenessforourcustomers;reducingtheoperatingcostsofourequipment;andenhancingthehealth,safety,andenvironmental(“HSE”)conditionsatourwellsites.Safetyisatthecoreofour
44、operations.Oursafetyrecordoverthelastthreeyearswasthebestinourhistory.Webelieveoursafetyrecordissignificantlybetterthanourindustrypeergroup,basedonU.S.BureauofLaborStatisticsreportsfrom2011through2017.Forthepastthreeyears,webelieveourtotalrecordableincidentratewaslessthanhalfoftheindustryaverage.Man
45、yofourcustomersimposeminimumsafetyrequirementsontheirsuppliersofhydraulicfracturingservices,andsomeofourcompetitorsarenotpermittedtobidonworkforcertaincustomersbecausetheydonotmeetthosecustomersminimumsafetyrequirements.Becausesafetyisimportanttoourcustomers,oursafetyscorehelpsourcommercialteamtowin
46、businessfromourcustomers.Oursafetyfocusisalsoamoralebenefitforourcrews,whichenhancesouremployeeretentionrates.Finally,webelievethatcontinuallysearchingforwaystomakeouroperationssaferistherightthingtodoforouremployeesandourcustomers.Our ServicesHydraulicFracturingOurprimaryserviceofferingisprovidingh
47、ydraulicfracturingservices,alsoknownaspressurepumping,tooilandnaturalgasE&Pcompanies.Theseservicesaredesignedtoenhancehydrocarbonflowinoilandnaturalgaswells,thusincreasingtheamountofhydrocarbonsrecovered.Thedevelopmentofresourcesinunconventionalreservoirs,includingoilandnaturalgasshales,isatechnical
48、lyandoperationallychallengingsegmentoftheoilfieldservicesmarketthathasexperiencedstronggrowthworldwide,particularlyintheUnitedStates.Oilandnaturalgaswellsaretypicallydividedintooneormore“stages,”whichareisolatedzonesthatfocusthehigh-pressurefluidandproppantfromthehydraulicfracturingfleetintodistinct
49、portionsofthewellandsurroundingreservoir.Thenumberofstagesthatwilldivideawellisdeterminedbythecustomersproposedjobdesign.Ourcustomerstypicallymeasureouroperationalperformanceintermsofthenumberofstagesfracturedandhowwellweminimizenon-productivetimeonourjobs.Asaresult,webelievetheaveragenumberofstages
50、completedperactivefleetinagivenperiodoftimeisanimportantoperatingmetricforourbusiness.Duringthelasttwoyears,asaresultofourcustomerstrendingtowardmoreintensecompletions,ourquarterlyaveragestagelength,measuredinminutestocomplete,hasincreasedbyapproximately8%.Despitethelongeraveragestagelengths,wehaveb
51、eenabletoincreaseouraveragestagesperactivefleettoachieverecordlevelsin2017and2018.Wewereabletoincreaseouraveragestageperactivefleetsbecausetheprimarycontributortothenumberofstageswecompleteinaquarterisourabilitytoreducenon-productivetimeonourequipment,ratherthanvariabilityinoperatingbasinsorformatio
52、ncharacteristics.Hydraulicfracturingrepresentsthelargestcostofcompletingashaleoilornaturalgaswell.Theprocessconsistsofpumpingafracturingfluidintoawellcasingortubingatsufficientpressuretofracture,orpropopen,theformation.Thefracturingfluidconsistsofwaterandsand,orotherproppant,mixedwithasmallamountofc
53、hemicals.Oncethepressureopensthefractures,theproppantsactasawedgethatkeepthefracturesopen,allowingthetrappedhydrocarbonstoflowmorefreely.Ourcustomersareresponsibleforthedisposalofthefracturingfluidthatflowsbackoutofthewell,andwearenotinvolvedinthatprocessorinthedisposalofthefluid.Asaresultofasuccess
54、fulfracturingprocess,hydrocarbonrecoveryratesaresubstantiallyenhanced;thus,increasingthereturnoninvestmentforourcustomer.Theamountofhydrocarbonsproducedfromatypicalshaleoilornaturalgaswellgenerallydeclinesquickly.Asaresult,E&Pcompaniesmustfracturenewwellstomaintainproductionlevels.2TableofContentsEa
55、chofourfleetstypicallyconsistsof10to20hydraulicfracturingunitsalongwithcertainancillaryequipment.Ourhydraulicfracturingunitsconsistprimarilyofahigh-pressurepump,adieselorcombineddieselandnaturalgasengine,atransmissionandvariousothersupportingequipmentmountedonatrailer.Thehighpressurepumpconsistsoftw
56、okeyassemblies:thefluid-endandthepower-end.Althoughthepower-endofourpumpsgenerallylastsseveralyears,thefluid-end,whichisthepartofthepumpthroughwhichthefracturingfluidisexpelledunderhighpressure,isashorter-lastingconsumable,typicallylastinglessthanoneyear.Werefertothegroupofhydraulicfracturingunits,a
57、uxiliaryequipmentandvehiclesnecessarytoperformatypicalfracturingjobasa“fleet”andthepersonnelassignedtoeachfleetasa“crew.”Ourfleetsoperateprimarilyona24-hour-per-daybasis,inwhichwetypicallystaffthreecrewsperfleet,includingonecrewwiththedayoff.Ourfocuson24-houroperationsallowsustokeepourequipmentworki
58、ngformorehoursperday,whichwebelieveenhancesourreturn-on-assetsovertime.Eachhydraulicfracturingfleetincludesamobile,on-sitecontrolcenterthatmonitorspressures,ratesandvolumes,asapplicable.Eachcontrolcenterisequippedwithhighbandwidthsatellitehardwarethatprovidescontinuousuploadanddownloadofjobtelemetry
59、data.Thedataisdeliveredonareal-timebasistoon-sitejobpersonnel,thecustomerandournationaloperationscenterfordisplayinbothdigitalandgraphicalform.Weprefertoenterintoserviceagreementswithourcustomersforoneormore“dedicated”fleets,ratherthanprovidingourfleetsfor“spotwork.”Underourtypicaldedicatedfleetagre
60、ement,wedeployoneormoreofourhydraulicfracturingfleetsexclusivelytothecustomertofollowthecustomerscompletionscheduleandjobspecificationsuntiltheagreementexpiresoristerminatedinaccordancewithitsterms.Bycontrast,underatypicalspotworkagreement,thefleetmovesbetweencustomersasworkbecomesavailable.Webeliev
61、ethatourstrategyofpursuingdedicatedfleetagreementsleadstohigherfleetutilization,asmeasuredbythenumberofdayseachfleetisworkingpermonth,whichwebelievereducesourmonth-to-monthrevenuevolatilityandimprovesourrevenueandprofitability.SeeNote2“SummaryofSignificantAccountingPolicies”inNotestoourConsolidatedF
62、inancialStatementsfordiscussionofourrevenuerecognitionandpricingunderourserviceagreements.WirelineServicesOurwirelineservicesprimarilyconsistofsettingplugsbetweenhydraulicfracturingstages,creatingperforationswithinhydraulicfracturingstagesandloggingthecharacteristicsofresourceformations.Ourwirelines
63、ervicesequipmentisdesignedtooperateunderhighpressureinunconventionalresourceformationswithoutdelayinghydraulicfracturingoperations.OtherWeowna45%interestinSinoFTS,whichisaChinesejointventurethatweformedinJune2014withSinopecOilfieldServiceCorporation(“Sinopec”)toprovidehydraulicfracturingservicesinCh
64、ina.OnJanuary9,2019,wefiledanarbitrationproceedingwiththeSingaporeInternationalArbitrationCentretoresolveadisputerelatedtothemannerofoperationsbyourJVpartner.Our Strategy Ourprimarybusinessobjectiveistobethelargestpure-playproviderofhydraulicfracturingserviceswithinU.S.unconventionalresourcebasins.W
65、eintendtoachievethisobjectivethroughthefollowingstrategies:MaintainadisciplinedapproachthatoptimizescashflowAlllevelsofourorganizationfocusonprovidingthesafestworkenvironmentforouremployeesandongeneratingthehighestlevelofprofitabilityandcashgenerationaspossible,withinthelimitationsofindustryconditio
66、ns.Wefocusonoperatingourequipmentatthehighestlevelofefficiencytomaximizebillingactivityforeachofourfleets,whichisoftenmeasuredintermsofstagescompletedperactivefleet.Inturn,westrivetochargeacompetitiveratetoourcustomerandtobecompensatedforthehighlevelofefficiencythatweprovide.Thisultimatelyleadstoano
67、veralllowercostofproductionforourcustomer.3TableofContentsInaddition,weareacostfocusedorganizationthatembracesinnovationtocontinuallyfindwaystolowerthecosttooperateourbusiness.Thisisenabledbyourcultureandourin-housemanufacturingcapabilities,whichallowustocontinuouslyidentifyandexecuteimprovementsint
68、hedesignandoperationofourequipment.CapitalizeonanincreaseddemandforourserviceswithquickdeploymentandlowcostfleetreactivationsWebelievethedemandforhydraulicfracturingisstrongandwillcontinuetogrowintothefutureasmorecustomersfocusonthedevelopmentoftheironshoreresources.Webelievethatthecostperbarrelofoi
69、lfromunconventionalonshoreproductionisoneofthelowestintheUnitedStates,and,asaresult,E&Pcapitalhasshiftedtowardsthistypeofproduction.IndustryreportshaveforecastedthatthenumberofhorizontalwellsdrilledintheUnitedStateswillcontinuetoincrease.Inaddition,thesandutilizedinthecompletionofahorizontalwellhasm
70、orethandoubledsince2014asoperatorscontinuetoinnovatetofindtheoptimaljobdesign.AsoneofthelargesthydraulicfracturingserviceprovidersinNorthAmerica,webelievewearewellpositionedtocapitalizeonthecontinuedincreaseintheonshoreoilandnaturalgasE&Pmarket.Wehave1.7milliontotalhydraulichorsepoweracross34totalfl
71、eets,with19fleetsactiveandonefleetunderconstructionandawaitingfinalassemblyasofDecember31,2018.Webelieveourin-housemanufacturingcapabilitiesallowustoreactivateequipmentquickerandatalowercostthancompetitors.DeepenandexpandrelationshipswithcustomersthatvalueourcompletionsefficiencyWeserviceourcustomer
72、sprimarilywithdedicatedfleetsand24-houroperations.Wededicateoneormoreofourfleetsexclusivelytothecustomerforaperiodoftime,allowingforthosefleetstobeintegratedintothecustomersdrillingandcompletionschedule.Asaresult,weareabletoachievehigherlevelsofutilization,asmeasuredbythenumberofdayseachfleetisworki
73、ngpermonth,whichincreasesourprofitability.Inaddition,weoperateourfleetsona24-hourbasis,allowingustocompleteourservicesmoreefficientlywiththeleastamountofnon-productivetime.Accordingly,weseektopartnerwithcustomersthathavealargenumberofwellsneedingcompletionandthatvalueefficiencyintheperformanceofours
74、ervice.Specifically,wetargetcustomerswhosecompletionsactivitytypicallyinvolvesminimalnon-productivetimebetweenstages,ahighnumberofstagesperwell,multiplewellsperpadandashortdistancefromonewellpadsitetothenext.Thisstrategyalignswiththestrategyofmanyofourcustomers,whoaretryingtoachieveamanufacturing-st
75、ylemodelofdrillingandcompletingwellsinasequentialpatterntomaximizeeffectiveacreage.Weplantoleveragethisstrategytoexpandourrelationshipswithourexistingcustomersaswecontinuetoattractnewcustomers.Capitalizeonouruniformfleet,leadingscaleandsignificantbasindiversitytoprovidesuperiorperformancewithreduced
76、operatingcostsWeprimarilyservelargeindependentE&PcompaniesthatspecializeinunconventionaloilandnaturalgasresourcesinNorthAmerica.Becauseweoperateforcustomerswithsignificantscaleineachofouroperatingbasins,wehavethediversitytoreacttoandbenefitfrompositiveactivitytrendsinanybasinwithabalancedexposuretoo
77、ilandnaturalgas.Ouruniformfleetallowsustocost-effectivelyredeployequipmentandfleetsamongexistingoperatingbasinstocapturethebestpricingandactivitytrends.Theuniformfleetiseasiertooperateandmaintain,resultinginreducednon-productivetimeaswellaslowertrainingcostsandinventorystockingrequirements.Ourgeogra
78、phicbreadthalsoprovidesuswithopportunitiestocapitalizeoncustomerrelationshipsinonebasininordertowinbusinessinotherbasinsinwhichthecustomeroperates.Weintendtoleverageourscale,standardizedequipmentandcoststructuretogainmarketshareandwinnewbusiness.RapidlyadoptnewtechnologiesinacapitalefficientmannerOu
79、rlargescaleandcultureofinnovationallowustotakeadvantageofleadingtechnologicalsolutions.Wehavebeenafastadopterofnewtechnologiesfocusedon:increasingfracturingeffectivenessforourcustomers,reducingtheoperatingcostsofourequipmentandenhancingtheHSEconditionsatourwellsites.4TableofContentsRecentexamplesofi
80、nitiativesaimedatreducingouroperatingcostsinclude:vibrationsensorswithpredictivemaintenanceanalyticsonourheavyequipment;stainlesssteelfluid-endswithalongerusefullife;theabilitytoautomatecertainportionsofouroperations;andadoptionofhardenedalloysandlubricantblendsforourconsumables.Recentexamplesofinit
81、iativesaimedatimprovingourHSEconditionsinclude:dualfuelenginesthatcanrunonbothnaturalgasanddieselfuel;electronicpressurereliefsystems;spillpreventionandcontainmentsolutions;dustcontrolmitigation;electronicloggingdevices;andleadingcontainerizedproppantdeliverysolutions.Reducedebtandmaintainamoreconse
82、rvativecapitalstructureToimproveourfinancialflexibility,wehavebeenfocusedonreducingourdebtlevelsandmaintainingasufficientliquiditylevel.Webelieveweshouldbeabletonotonlymaketheinvestmentsnecessarytoremainamarketleaderinhydraulicfracturing,butalsotocontinuetostrengthenourbalancesheet.Reducingourindebt
83、ednessremainsatoppriority.Ifweareabletofurtherreduceourindebtednessandcontinuetogeneratehighlevelsofcashflowfromoperations,wecouldreturnvaluetostockholders.CustomersThecustomersweserveareprimarilylarge,independentE&PcompaniesthatspecializeinunconventionaloilandnaturalgasresourcesinNorthAmerica.Thefo
84、llowingtableshowsthecustomersthatrepresentedmorethan10%ofourtotalrevenueduringtheyearsendedDecember31,2018,2017and2016.Thelossofanyofourlargestexistingcustomerscouldhaveamaterialadverseeffectonourresultsofoperations.Whileweviewrevenueasanimportantmetricinassessingcustomerconcentration,wealsocomparea
85、ndmanageourcustomerportfoliobasedonthenumberoffleetsweplacewitheachcustomer.Year Ended December 31,201820172016EQTProductionCompany12%*12%DevonEnergyCorporation12%*NewfieldExploration*18%EPEnergyCorporation*11%VineOilandGas,L.P.*10%*Lessthan10%.SuppliersWepurchasesomeofthepartsthatweuseintherefurbis
86、hmentandrepairofourheavyequipment,suchashydraulicfracturingunitsandblenders,andintherefurbishment,repairandmanufacturingofcertainmajorreplacementcomponentsofourheavyequipmentsuchasfluid-ends,power-ends,engines,transmissions,radiatorsandtrailers.Wedonotcurrentlyexpectsignificantinterruptionsinthesupp
87、lyofthesematerials.Whilewebelievethatwewillbeabletomakesatisfactoryalternativearrangementsintheeventofanyinterruptioninthesupplyofthesematerialsand/orproductsbyoneofoursuppliers,therecanbenoassurancethattherewillbenopriceorsupplyissuesoverthelong-term.Whenrequestedbythecustomer,wealsopurchasetheprop
88、pantsandchemicalsweuseinouroperationsandthedieselfuelforourequipmentfromavarietyofsuppliersthroughouttheUnitedStates.Todate,wehavegenerallybeenabletoobtainthesuppliesnecessarytosupportouroperationsonatimelybasisatcompetitiveprices.Inthepast,wehaveexperiencedsomedelaysinobtainingthesematerialsduringp
89、eriodsofhighdemand.Wehavealong-termsupplyagreementwithonevendortosupplyasignificantportionoftheproppantweprocureuntil2024.Thisagreementcontainsafixedvolumeofpurchasesatmarket-basedvariablepricingwithminimumunconditionalpurchaseobligations.Theseminimumpurchaseobligationscanchangebaseduponthevendorsab
90、ilitytosupplytheminimumrequirements.5TableofContentsCompetitionThemarketinwhichweoperateishighlycompetitiveandhighlyfragmented.Ourcompetitionincludesmulti-nationaloilfieldservicecompaniesaswellasregionalcompetitors.Ourmajormulti-nationalcompetitorsareHalliburtonCompanyandSchlumbergerLimited,eachofwh
91、ichhassignificantlygreaterfinancialresourcesthanwedo.OurmajordomesticcompetitorsareRPC,Inc.,SuperiorEnergyServices,ProPetroHoldingCorp.,Patterson-UTIEnergy,Inc.,BJServices,Inc.,LibertyOilfieldServicesInc.andKeaneGroup,Inc.Certainofthesecompetitorsprovideanumberofoilfieldservicesandproductsinaddition
92、tohydraulicfracturing.Wealsofacecompetitionfromsmallerregionalserviceprovidersinsomeofthegeographiesinwhichweoperate.Competitioninourindustryisbasedonanumberoffactors,includingprice,servicequality,safety,andinsomecases,breadthofproducts.Webelieveweconsistentlydeliverexceptionalservicequality,basedin
93、partonthedurabilityofourequipment.Ourdurableequipmentreducesnon-productivetimeduetoequipmentfailureandallowsourcustomerstoavoidcostsassociatedwithdelaysincompletingtheirwells.Bybeingabletomeetthemostdemandingpressureandflowraterequirements,ourequipmentalsoenablesustooperateefficientlyinchallengingge
94、ologicalenvironmentsinwhichsomeofourcompetitorscannotoperateeffectively.Cyclical Nature of Industry WeoperateinahighlycyclicalindustrydrivenmainlybythelevelofhorizontaldrillingactivityintheUnitedStates,whichinturndependslargelyoncurrentandanticipatedfuturecrudeoilandnaturalgaspricesandproductiondecl
95、inerates.Acriticalfactorinassessingtheoutlookfortheindustryisthesupplyanddemandforbothoilandnaturalgas.Demandforoilandnaturalgasissubjecttolargeandrapidfluctuations.Thesefluctuationsaredrivenbycommoditydemandintheindustryandcorrespondingpriceincreases.Whenoilandnaturalgaspricesincrease,producersgene
96、rallyincreasetheircapitalexpenditures,whichgenerallyresultsingreaterrevenuesandprofitsforoilfieldservicecompanies.However,increasedcapitalexpendituresalsoultimatelyresultingreaterproduction,whichhistorically,hasresultedinincreasedsuppliesandreducedpricesthat,inturn,tendtoreducedemandforoilfieldservi
97、cessuchashydraulicfracturingservices.Thepricingforourservicesisalsodrivenbytheindustrycapacityofhydraulicfracturingequipment.Historically,theindustryhasbuiltadditionalequipmenttosupplytheincreaseddemand.Whenthedemanddeclines,theindustryhasmoreequipmentthanwhatisneededbycustomers.Thisoftenleadstoadec
98、lineinthepriceforourservicesuntilequipmentisde-activatedandthesupplyanddemandfundamentalsareclosertobalanced.Forthesereasons,ourresultsofoperationsmayfluctuatefromquartertoquarterandfromyeartoyear,andthesefluctuationsmaydistortperiod-to-periodcomparisonsofourresultsofoperations.SeasonalitySeasonalit
99、yhasnotsignificantlyaffectedouroveralloperations.However,towardtheendofsomeyears,weexperiencesloweractivityinourpressurepumpingoperationsinconnectionwiththeholidaysandascustomerscapitalexpenditurebudgetsaredepleted.Similarly,thebeginningofsomeyearshaveaslowstartascustomersarestartinganewcapitalbudge
100、tcycleandouroperationsaremorepronetoexperiencewinterweather.Occasionally,ouroperationshavebeennegativelyimpactedbysevereweatherconditionsthatcausedisruptiontooursupplychainorourabilitytotransportmaterialsandequipmenttothejobsite.EmployeesAtDecember31,2018,wehadapproximately1,780employees.Ouremployee
101、sarenotcoveredbycollectivebargainingagreements,noraretheymembersoflaborunions.Weconsiderourrelationshipwithouremployeestobegood.6TableofContentsInsuranceOuroperationsaresubjecttohazardsinherentintheoilandnaturalgasindustry,includingaccidents,blowouts,explosions,fires,oilspillsandhazardousmaterialssp
102、ills.Theseconditionscancausepersonalinjuryorlossoflife,damagetoordestructionofproperty,equipment,theenvironmentandwildlifeandinterruptionorsuspensionofoperations,amongotheradverseeffects.Ifaseriousaccidentweretooccuratalocationwhereourequipmentandservicesarebeingused,itcouldresultinourbeingnamedasad
103、efendanttoalawsuitassertingsignificantclaims.Despiteourhighsafetystandards,wefromtimetotimehavesufferedaccidentsinthepastandweanticipatethatwecouldexperienceaccidentsinthefuture.Inadditiontothepropertyandpersonallossesfromtheseaccidents,thefrequencyandseverityoftheseincidentsaffectouroperatingcostsa
104、ndinsurability,aswellasourrelationshipswithcustomers,employeesandregulatoryagencies.Anysignificantincreaseinthefrequencyorseverityoftheseincidents,orthegenerallevelofcompensationawards,couldadverselyaffectthecostof,orourabilitytoobtain,workerscompensationandotherformsofinsuranceandcouldhaveotheradve
105、rseeffectsonourfinancialconditionandresultsofoperations.Wecarryavarietyofinsurancecoveragesforouroperations,andwearepartiallyself-insuredforcertainclaims,intypesandamountsthatwebelievetobecustomaryandreasonableforourindustry.Thesecoveragesandretentionsaddresscertainrisksrelatingtocommercialgeneralli
106、ability,workerscompensation,businessauto,propertyandequipment,directorsandofficers,environment,pollutionandotherrisks.Althoughwemaintaininsurancecoverageoftypesandamountsthatwebelievetobecustomaryinourindustry,wearenotfullyinsuredagainstallrisks,eitherbecauseinsuranceisnotavailableorbecauseofthehigh
107、premiumcostsrelativetoperceivedrisk.Environmental RegulationOuroperationsaresubjecttostringentlawsandregulationsgoverningthedischargeofmaterialsintotheenvironmentorotherwiserelatingtoenvironmentalprotection.Numerousfederal,stateandlocalgovernmentalagencies,suchastheU.S.EnvironmentalProtectionAgency(
108、the“EPA”),issueregulationsthatoftenrequiredifficultandcostlycompliancemeasuresthatcarrysubstantialadministrative,civilandcriminalpenaltiesandmayresultininjunctiveobligationsfornon-compliance.Inaddition,somelawsandregulationsrelatingtoprotectionoftheenvironmentmay,incertaincircumstances,imposestrictl
109、iabilityforenvironmentalcontamination,renderingapersonliableforenvironmentaldamagesandcleanupcostswithoutregardtonegligenceorfaultonthepartofthatperson.Strictadherencewiththeseregulatoryrequirementsincreasesourcostofdoingbusinessandconsequentlyaffectsourprofitability.However,environmentallawsandregu
110、lationshavebeensubjecttofrequentchangesovertheyears,andtheimpositionofmorestringentrequirementscouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.HydraulicFracturingActivities.Certaingovernmentalreviewsareeitherunderwayorbeingproposedthatfocusonenvironmentalaspects
111、ofhydraulicfracturingpractices.Forexample,inDecember2016,theEPAreleaseditsfinalreport,entitled“HydraulicFracturingforOilandGas:ImpactsfromtheHydraulicFracturingWaterCycleonDrinkingWaterResourcesintheUnitedStates,”onthepotentialimpactsofhydraulicfracturingondrinkingwaterresources.Thereportstatesthatt
112、heEPAfoundscientificevidencethathydraulicfracturingactivitiescanimpactdrinkingwaterresourcesundersomecircumstances,notingthatthefollowinghydraulicfracturingwatercycleactivitiesandlocal-orregional-scalefactorsaremorelikelythanotherstoresultinmorefrequentormoresevereimpacts:waterwithdrawalsforfracturi
113、ngintimesorareasoflowwateravailability;surfacespillsduringthemanagementoffracturingfluids,chemicalsorproducedwater;injectionoffracturingfluidsintowellswithinadequatemechanicalintegrity;injectionoffracturingfluidsdirectlyintogroundwaterresources;dischargeofinadequatelytreatedfracturingwastewatertosur
114、facewaters;anddisposalorstorageoffracturingwastewaterinunlinedpits.Thereportdoesnotmakeanypolicyrecommendations.TheseongoingorproposedstudiescouldspurinitiativestofurtherregulatehydraulicfracturingunderthefederalSafeDrinkingWaterAct(“SDWA”)orotherregulatorymechanisms.Forexample,onNovember29,2018,EPA
115、andtheStateReviewofOilandNaturalGasEnvironmentalRegulation(“STRONGER”)enteredintoaMemorandumofUnderstandingpursuanttowhichEPAandStrongerwillcollaborateonoilandnaturalgasexplorationanddevelopmentregulatoryprograms.7TableofContentsAtthestatelevel,severalstateshaveadoptedorareconsideringlegalrequiremen
116、tsthatcouldimposemorestringentpermitting,disclosureandwellconstructionrequirementsonhydraulicfracturingactivities.Forexample,inMay2013,theRailroadCommissionofTexasissueda“wellintegrityrule,”whichupdatestherequirementsfordrilling,puttingpipedownandcementingwells.Therulealsoincludesnewtestingandreport
117、ingrequirements,suchas(i)therequirementtosubmitcementingreportsafterwellcompletionoraftercessationofdrilling,whicheverislater,and(ii)theimpositionofadditionaltestingonwellslessthan1,000feetbelowusablegroundwater.ThewellintegrityruletookeffectinJanuary2014.Localgovernmentsalsomayseektoadoptordinances
118、withintheirjurisdictionsregulatingthetime,placeandmannerofdrillingactivitiesingeneralorhydraulicfracturingactivitiesinparticular.Somestates,countiesandmunicipalitiesarecloselyexaminingwater-useissues,suchaspermitanddisposaloptionsforprocessedwater.Ifnewormorestringentfederal,stateorlocallegalrestric
119、tionsrelatingtothehydraulicfracturingprocessareadoptedinareaswhereweoperate,wecouldincurpotentiallysignificantaddedcoststocomplywithsuchrequirements,experiencedelaysorcurtailmentinthepursuitofdevelopmentactivitiesandperhapsevenbeprecludedfromdrillingwells.See“RiskFactorsFederalandstatelegislativeand
120、regulatoryinitiativesrelatingtohydraulicfracturingcouldresultinincreasedcostsandadditionaloperatingrestrictionsordelays”inItem1Aofthisannualreport.RemediationofHazardousSubstances.TheComprehensiveEnvironmentalResponse,CompensationandLiabilityAct,asamended,referredtoas“CERCLA”orthe“Superfundlaw,”andc
121、omparablestatelawsgenerallyimposeliability,withoutregardtofaultorlegalityoftheoriginalconduct,oncertainclassesofpersonsthatareconsideredtoberesponsibleforthereleaseofhazardoussubstancesintotheenvironment.Thesepersonsincludethecurrentowneroroperatorofacontaminatedfacility,aformerowneroroperatorofthef
122、acilityatthetimeofcontaminationandthosepersonsthatdisposedorarrangedforthedisposalofthehazardoussubstancesatthefacility.UnderCERCLAandcomparablestatestatutes,personsdeemed“potentiallyresponsibleparties”aresubjecttostrictliabilitythat,insomecircumstances,maybejointandseveralforthecostsofremovingorrem
123、ediatingpreviouslydisposedwastes(includingwastesdisposedoforreleasedbypriorownersoroperators)orpropertycontamination(includinggroundwatercontamination),fordamagestonaturalresourcesandforthecostsofcertainhealthstudies.Inaddition,itisnotuncommonforneighboringlandownersandotherthirdpartiestofileclaimsf
124、orpersonalinjuryandpropertydamageallegedlycausedbyhazardoussubstancesreleasedintotheenvironment.WaterDischarges.TheFederalWaterPollutionControlActof1972,asamended,alsoknownasthe“CleanWaterAct,”theSafeDrinkingWaterAct,theOilPollutionActandanalogousstatelawsandregulationsissuedthereunderimposerestrict
125、ionsandstrictcontrolsregardingtheunauthorizeddischargeofpollutants,includingproducedwatersandothernaturalgasandoilwastes,intonavigablewatersoftheUnitedStates,aswellasstatewaters.OnDecember13,2016,theEPAreleasedafinalreportwhichidentifieddischargeofinadequatelytreatedhydraulicfracturingwastewatertosu
126、rfacewaterresourcesashavingpotentialtoimpactdrinkingwaterresources.Thedischargeofpollutantsintoregulatedwatersisprohibited,exceptinaccordancewiththetermsofapermitissuedbytheEPAorthestate.UndertheCleanWaterAct,theEPAhasadoptedregulationsconcerningdischargesofstormwaterrunoff,whichrequirecoveredfacili
127、tiestoobtainpermits.TheselawsandregulationsalsoprohibitcertainotheractivityinwetlandsunlessauthorizedbyapermitissuedbytheU.S.ArmyCorpsofEngineers,whichwerefertoastheCorps.InSeptember2015,anewrulebecameeffectivewhichwasissuedbytheEPAandtheCorpsdefiningthescopeofthejurisdictionoftheEPAandtheCorpsoverw
128、etlandsandotherwatersoftheUnitedStates.TherulehasbeenchallengedincourtonthegroundsthatitunlawfullyexpandsthereachofCleanWaterActsprograms,andimplementationoftherulehasbeenstayedincertainstatespendingresolutionofthecourtchallenge.OnFebruary6,2018,theEPAandtheCorpspublishedafinalruledelayingimplementa
129、tionoftheruleuntilFebruary6,2020.TheFebruary2018rulehasbeenchallengedincourtandissubjecttoanationwideinjunction.OnJune29,2018,EPAandtheCorpspublishedasupplementalnoticeofproposedrulemakingthatsolicitedpubliccommentonEPAsandtheCorpsplantorepealtheSeptember2015rule.OnDecember11,2018,EPAproposedaruleth
130、atwouldrevisethedefinitionof“watersoftheUnitedStatesandclarifythescopeoffederalauthorityundertheCleanWaterAct.Therapidlychanginglandscapeoffederalregulationcreatesuncertaintyinourandourcustomersbusiness.UndertheCleanWaterActwearealsosubjecttospillprevention,controlandcountermeasureplanrequirementsth
131、atrequireappropriatecontainmentbermsandsimilarstructurestohelppreventthecontaminationofnavigablewaters.Noncompliancewiththeserequirementsmayresultinsubstantialadministrative,civilandcriminalpenalties,aswellasinjunctiveobligations.8TableofContentsWasteHandling.Wastesfromcertainofouroperations(suchase
132、quipmentmaintenanceandpastchemicaldevelopment,blending,anddistributionoperations)aresubjecttothefederalResourceConservationandRecoveryActof1976(“RCRA”),andcomparablestatestatutesandregulationspromulgatedthereunder,whichimposerequirementsregardingthegeneration,transportation,treatment,storage,disposa
133、landcleanupofhazardousandnon-hazardouswastes.Withfederalapproval,theindividualstatesadministersomeoralloftheprovisionsofRCRA,sometimesinconjunctionwiththeirown,morestringentrequirements.AlthoughcertainoilproductionwastesareexemptfromregulationashazardouswastesunderRCRA,suchwastesmayconstitute“solidw
134、astes”thataresubjecttothelessstringentrequirementsofnon-hazardouswasteprovisions.IntheEPAs2016finalreportontheimpactsfromhydraulicfracturingondrinkingwaterresources,theEPAidentifieddisposalorstorageofhydraulicfracturingwastewaterinunlinedpitsasresultingincontaminationofgroundwaterresources.Administr
135、ative,civilandcriminalpenaltiescanbeimposedforfailuretocomplywithwastehandlingrequirements.Moreover,theEPAorstateorlocalgovernmentsmayadoptmorestringentrequirementsforthehandlingofnon-hazardouswastesorcategorizesomenon-hazardouswastesashazardousforfutureregulation.Legislationhasbeenproposedfromtimet
136、otimeinCongresstore-categorizecertainoilandnaturalgasexploration,developmentandproductionwastesas“hazardouswastes.”SeveralenvironmentalorganizationshavealsopetitionedtheEPAtomodifyexistingregulationstorecategorizecertainoilandnaturalgasexploration,developmentandproductionwastesas“hazardous.”Anysuchc
137、hangesinthelawsandregulationscouldhaveamaterialadverseeffectonourcapitalexpendituresandoperatingexpenses.Fromtimetotime,releasesofmaterialsorwasteshaveoccurredatlocationsweown,ownedpreviouslyoratwhichwehaveoperations.ThesepropertiesandthematerialsorwastesreleasedthereonmaybesubjecttoCERCLA,RCRA,thef
138、ederalCleanWaterAct,andanalogousstatelaws.Undertheselawsorotherlawsandregulations,wehavebeenandmayberequiredtoremoveorremediatethesematerialsorwastesandmakeexpendituresassociatedwithpersonalinjuryorpropertydamage.Atthistime,withrespecttoanypropertieswherematerialsorwastesmayhavebeenreleased,butofwhi
139、chwehavenotbeenmadeaware,itisnotpossibletoestimatethepotentialcoststhatmayarisefromunknown,latentliabilityrisks.AirEmissions.ThefederalCleanAirAct,asamended,andcomparablestatelawsandregulations,regulateemissionsofvariousairpollutantsthroughtheissuanceofpermitsandtheimpositionofotherrequirements.Inad
140、dition,theEPAhasdeveloped,andcontinuestodevelop,stringentregulationsgoverningemissionsoftoxicairpollutantsfromspecifiedsources.Federalandstateregulatoryagenciescanimposeadministrative,civilandcriminalpenaltiesfornon-compliancewithairpermitsorotherrequirementsoftheCleanAirActandassociatedstatelawsand
141、regulations.Wearerequiredtoobtainfederalandstatepermitsinconnectionwithsomeactivitiesunderapplicablelaws.Thesepermitsimposecertainconditionsandrestrictionsonouroperations,someofwhichrequiresignificantexpendituresforcompliance.Changesintheserequirements,orinthepermitsweoperateunder,couldincreaseourco
142、stsorlimitoperations.Additionally,theEPAsTierIVregulationsapplytocertainoff-roaddieselenginesusedbyustopowerequipmentinthefield.Undertheseregulations,wearerequiredtoretrofitorretirecertainenginesandwearelimitedinthenumberofnon-compliantoff-roaddieselengineswecanpurchase.TierIVenginesarecostlierandno
143、twidelyavailable.UntilTierIV-compliantenginesthatmeetourneedsaremorewidelyavailable,theseregulationscouldlimitourabilitytoacquireasufficientnumberofdieselenginestoexpandourfleetandtoreplaceexistingenginesastheyaretakenoutofservice.OtherEnvironmentalConsiderations.E&Pactivitiesonfederallandsmaybesubj
144、ecttotheNationalEnvironmentalPolicyAct,whichwerefertoasNEPA.NEPArequiresfederalagencies,includingtheDepartmentofInterior,toevaluatemajoragencyactionsthathavethepotentialtosignificantlyimpacttheenvironment.Inthecourseofsuchevaluations,anagencywillprepareanenvironmentalassessmentthatassessesthepotenti
145、aldirect,indirectandcumulativeimpactsofaproposedprojectand,ifnecessary,willprepareamoredetailedenvironmentalimpactstatementthatmaybemadeavailableforpublicreviewandcomment.E&Pactivities,aswellasproposedexplorationanddevelopmentplans,onfederallandsrequiregovernmentalpermitsthataresubjecttotherequireme
146、ntsofNEPA.Thisprocesshasthepotentialtodelaythedevelopmentofoilandnaturalgasprojects.9TableofContentsVariousstateandfederalstatutesprohibitcertainactionsthatadverselyaffectendangeredorthreatenedspeciesandtheirhabitat,migratorybirds,wetlands,andnaturalresources.ThesestatutesincludetheEndangeredSpecies
147、Act,theMigratoryBirdTreatyAct,theCleanWaterActandCERCLA.Wheretakingsoforharmtospeciesordamagestojurisdictionalstreamsorwetlandshabitatornaturalresourcesoccurormayoccur,governmententitiesorattimesprivatepartiesmayacttopreventoilandnaturalgasexplorationactivitiesorseekdamagesforharmtospecies,habitat,o
148、rnaturalresourcesorresultingfromfillingofjurisdictionalstreamsorwetlandsorreleasesofoil,wastes,hazardoussubstancesorotherregulatedmaterials.TheBureauofLandManagement(“BLM”)hasestablishedregulationstogovernhydraulicfracturingonfederalandIndianlands.In2016,BLMpublishedtheMethaneandWasteReductionRuleto
149、reducewasteofnaturalgassuppliesandreduceairpollution,includinggreenhousegases,foroilandnaturalgasproducedonfederalandIndianlands.VariousstatesfiledforapetitionforreviewoftheMethaneandWasteReductionRule.OnDecember8,2017,BLMpublishedafinalruledelayuntilJanuary2019forcertainrequirementsoftherulethathad
150、notyetgoneintoeffectpendingjudicialreviewoftherule.Acoalitionofenvironmentalgroupsfiledsuitchallengingthedelay.OnSeptember28,2018,BLMpublishedafinalrulerevisingthe2016MethaneandWasteReductionRule,whichbecameeffectiveonNovember27,2018.Impositionofthisrulescouldincreaseourcostsorlimitoperations.TheTox
151、icSubstancesControlAct(“TSCA”),requiresmanufacturersofnewchemicalsubstancestoprovidespecificinformationtotheAgencyforreviewpriortomanufacturingchemicalsorintroducingthemintocommerce.EPAhaspermittedmanufactureofnewchemicalnanoscalematerialsthroughtheuseofconsentordersorSignificantNewUseRulesunderTSCA
152、.TheAgencyhasalsoallowedthemanufactureofnewchemicalnanoscalematerialsunderthetermsofcertainregulatoryexemptionswhereexposureswerecontrolledtoprotectagainstunreasonablerisks.OnMay19,2014,theEPApublishedanAdvancedNoticeofProposedRulemakingtoobtaindataonhydraulicfracturingchemicalsubstancesandmixtures.
153、TheEPAhasnotyetproceededwiththerulemakingbutmaydosointhefuture.AnychangesinTSCAregulationscouldincreaseourcapitalexpendituresandoperatingexpenses.ClimateChange.InDecember2009,theEPAissuedanEndangermentFindingthatdeterminedthatemissionsofcarbondioxide,methaneandothergreenhousegasespresentanendangerme
154、nttopublichealthandtheenvironmentbecause,accordingtotheEPA,emissionsofsuchgasescontributetowarmingoftheearthsatmosphereandotherclimaticchanges.TheEPAlateradoptedtwosetsofrelatedrules,oneofwhichregulatesemissionsofgreenhousegasesfrommotorvehiclesandtheotherofwhichregulatesemissionsfromcertainlargesta
155、tionarysourcesofemissions.Themotorvehiclerule,whichbecameeffectiveinJuly2010,limitsemissionsfrommotorvehicles.TheEPAadoptedthestationarysourcerule,whichwerefertoasthetailoringrule,inMay2010,anditbecameeffectiveJanuary2011.Thetailoringruleestablishednewemissionsthresholdsthatdeterminewhenstationaryso
156、urcesmustobtainpermitsunderthePreventionofSignificantDeterioration(“PSD”),andTitleVprogramsoftheCleanAirAct.OnJune23,2014,inUtilityAirRegulatoryGroupv.EPA,theSupremeCourtheldthatstationarysourcescouldnotbecomesubjecttoPSDorTitleVpermittingsolelybyreasonoftheirgreenhousegasemissionsandinvalidatedthet
157、ailoringrule.However,theCourtruledthattheEPAmayrequireinstallationofbestavailablecontroltechnologyforgreenhousegasemissionsatsourcesotherwisesubjecttothePSDandTitleVprograms.OnDecember19,2014,theEPAissuedtwomemorandaprovidingguidanceongreenhousegaspermittingrequirementsinresponsetotheSupremeCourtsde
158、cision.Initspreliminaryguidance,theEPAstatedthatitwouldundertakearulemakingactiontorescindanyPSDpermitsissuedundertheportionsofthetailoringrulethatwerevacatedbytheCourt.Intheinterim,theEPAissuedanarrowlycrafted“noactionassurance”indicatingitwillexerciseitsenforcementdiscretionnottopursueenforcemento
159、fthetermsandconditionsrelatingtogreenhousegasesinanEPA-issuedPSDpermit,andforrelatedtermsandconditionsinaTitleVpermit.OnApril30,2015,theEPAissuedafinalruleallowingpermittingauthoritiestorescindPSDpermitsissuedundertheinvalidregulations.InOctober2015,theEPAamendedthegreenhousegasreportingruletoaddthe
160、reportingofemissionsfromoilwellsusinghydraulicfracturing.Becauseofthiscontinuedregulatoryfocus,futureemissionregulationsoftheoilandnaturalgasindustryremainapossibility,whichcouldincreasethecostofouroperations.Inaddition,theU.S.Congressoccasionallyattemptstoadoptlegislationtoreduceemissionsofgreenhou
161、segases,andalmostone-halfofthestateshavetakenlegalmeasurestoreduceemissionsprimarilythroughtheplanneddevelopmentofgreenhousegasemissioninventoriesorregionalcapandtradeprograms.AlthoughtheU.S.Congresshasnotyetadoptedsuchlegislation,itmaydosointhefuture.Severalstatescontinuetopursuerelatedregulationsa
162、swell.InDecember2015,theUnitedStatesjoinedtheinternationalcommunityatthe21stConferenceofthePartiesof10TableofContentstheUnitedNationsFrameworkConventiononClimateChangeinParis,France.TheresultingParisAgreementcallsforthepartiestoundertake“ambitiousefforts”tolimittheaverageglobaltemperature,andtoconse
163、rveandenhancesinksandreservoirsofgreenhousegases.TheParisAgreement,whichcameintoforceonNovember4,2016,establishesaframeworkforthepartiestocooperateandreportactionstoreducegreenhousegasemissions.AlthoughtheTrumpAdministrationhaswithdrawntheUnitedStatesfromtheParisAgreement,manystateandlocalofficialsh
164、avepubliclystatedtheyintendtoabidebythetermsoftheParisAgreement.Restrictionsonemissionsofmethaneorcarbondioxidethatmaybeimposedinvariousstatescouldadverselyaffecttheoilandnaturalgasindustrywhichcouldhaveamaterialadverseeffectonfuturedemandforourservices.Atthistime,itisnotpossibletoaccuratelyestimate
165、howpotentialfuturelawsorregulationsaddressinggreenhousegasemissionswouldimpactourcustomersbusinessandconsequentlyourown.Inaddition,claimshavebeenmadeagainstcertainenergycompaniesallegingthatgreenhousegasemissionsfromoilandnaturalgasoperationsconstituteapublicnuisanceunderfederalorstatecommonlaw.Asar
166、esult,privateindividualsmayseektoenforceenvironmentallawsandregulationsandcouldallegepersonalinjuryorpropertydamages,whichcouldincreaseouroperatingcosts.NORM.Inthecourseofouroperations,someofourequipmentmaybeexposedtonaturallyoccurringradioactivematerials(“NORM”)associatedwithoilandnaturalgasdeposit
167、sand,accordinglymayresultinthegenerationofwastesandothermaterialscontainingNORM.NORMexhibitinglevelsofnaturallyoccurringradiationinexcessofestablishedstatestandardsaresubjecttospecialhandlinganddisposalrequirements,andanystoragevessels,pipingandworkareaaffectedbyNORMmaybesubjecttoremediationorrestor
168、ationrequirements.Becausecertainofthepropertiespresentlyorpreviouslyowned,operatedoroccupiedbyusmayhavebeenusedforoilandnaturalgasproductionoperations,itispossiblethatwemayincurcostsorliabilitiesassociatedwithNORM.PollutionRiskManagement.Weseektominimizethepossibilityofapollutioneventthroughequipmen
169、tandjobdesign,aswellasthroughemployeetraining.Wealsomaintainapollutionriskmanagementprogramifapollutioneventoccurs.Thisprogramincludesaninternalemergencyresponseplanthatprovidesspecificproceduresforouremployeestofollowintheeventofachemicalreleaseorspill.Inaddition,wehavecontractedwithseveralthird-pa
170、rtyemergencyrespondersinourvariousoperatingareasthatareavailableona24-hourbasistohandletheremediationandclean-upofanychemicalreleaseorspill.Wecarryinsurancedesignedtorespondtoforeseeableenvironmentalexposures.Thisinsuranceportfoliohasbeenstructuredinanefforttoaddressincidentsthatresultinbodilyinjury
171、orpropertydamageandanyensuingcleanupneededatourownedfacilitiesasaresultofthemobilizationandutilizationofourfleet,aswellasanyclaimsresultingfromouroperations.Wealsoseektomanageenvironmentalliabilityrisksthroughprovisionsinourcontractswithourcustomersthatallocaterisksrelatingtosurfaceactivitiesassocia
172、tedwiththefracturingprocess,otherthanwaterdisposal,tousandrisksrelatingto“downhole”liabilitiestoourcustomers.Ourcustomersareresponsibleforthedisposalofthefracturingfluidthatflowsbackoutofthewellaswastewater.Thecustomersremovethewaterfromthewellusingacontrolledflow-backprocess,andwearenotinvolvedinth
173、atprocessorthedisposalofthefluid.Ourcontractsgenerallyrequireourcustomerstoindemnifyusagainstpollutionandenvironmentaldamagesoriginatingbelowthesurfaceofthegroundorarisingoutofwaterdisposal,orotherwisecausedbythecustomer,othercontractorsorotherthirdparties.Inturn,weindemnifyourcustomersforpollutiona
174、ndenvironmentaldamagesoriginatingatorabovethesurfacecausedsolelybyus.Weseektomaintainconsistentrisk-allocationandindemnificationprovisionsinourcustomeragreementstothegreatestextentpossible.Someofourcontracts,however,containlessexplicitindemnificationprovisions,whichtypicallyprovidethateachpartywilli
175、ndemnifytheotheragainstliabilitiestothirdpartiesresultingfromtheindemnifyingpartysactions,excepttotheextentsuchliabilityresultsfromtheindemnifiedpartysgrossnegligence,willfulmisconductorintentionalact.Safety and Health RegulationWearesubjecttotherequirementsofthefederalOccupationalSafetyandHealthAct
176、,whichisadministeredandenforcedbyOSHA,andcomparablestatelawsthatregulatetheprotectionofthehealthandsafetyofworkers.Inaddition,theOSHAhazardcommunicationstandardrequiresthatinformationbemaintainedabouthazardousmaterialsusedorproducedinoperationsandthatthisinformationbeprovidedtoemployees,stateandloca
177、lgovernment11TableofContentsauthoritiesandthepublic.WebelievethatouroperationsareinsubstantialcompliancewiththeOSHArequirements,includinggeneralindustrystandards,recordkeepingrequirements,andmonitoringofoccupationalexposuretoregulatedsubstances.OSHAcontinuestoevaluateworkersafetyandtoproposenewregul
178、ations,suchasbutnotlimitedto,thenewruleregardingrespirablesilicasand.Althoughitisnotpossibletoestimatethefinancialandcomplianceimpactofthenewrespirablesilicasandruleoranyotherproposedrule,theimpositionofmorestringentrequirementscouldhaveamaterialadverseeffectonourbusiness,financialconditionandresult
179、sofoperations.Intellectual Property RightsOurresearchanddevelopmenteffortsarefocusedonprovidingspecificsolutionstothechallengesourcustomersfacewhenfracturingandstimulatingwells.Inadditiontothedesignandmanufactureofinnovativeequipment,wehavealsodevelopedproprietaryblendsofchemicalsthatweuseinconnecti
180、onwithourhydraulicfracturingservices.WehavethreeU.S.patentsandtwopatentsinCanadarelatingtofracturingmethods,thetechnologyusedinfluidends,hydraulicpumpsandotherequipment.Webelievetheinformationregardingourcustomerandsupplierrelationshipsarealsovaluableproprietaryassets.Wehaveregisteredtrademarksandpe
181、ndingtrademarkapplicationsforvariousnamesunderwhichourentitiesdoorintendtoconductbusinessandofferproducts.Exceptfortheforegoing,wedonotownorlicenseanypatents,trademarksorotherintellectualpropertythatwebelievetobematerialtothesuccessofourbusiness.Company InformationOurprincipalexecutiveofficeislocate
182、dat777MainStreet,Suite2900,FortWorth,Texas,76102andourtelephonenumberis817-862-2000.O.Theinformationonourwebsiteisnotincorporatedbyreferenceintothisreport.Item 1A.Risk FactorsOurinvestorsshouldcarefullyconsiderthefollowingrisksandotherinformationinthisannualreportinevaluatingusandourcommonstock.Anyo
183、fthefollowingrisks,aswellasadditionalrisksanduncertaintiesnotcurrentlyknowntousorthatwecurrentlydeemimmaterial,couldmateriallyandadverselyaffectourbusiness,financialconditionorresultsofoperations,andcould,inturn,impactthetradingpriceofourcommonstock.Risks Relating to Our BusinessOurbusinessdependson
184、domesticspendingbytheonshoreoilandnaturalgasindustry,whichiscyclicalandhassignificantlydeclinedinpastperiods.Ourbusinessiscyclicalanddependsonthewillingnessofourcustomerstomakeoperatingandcapitalexpenditurestoexplorefor,developandproduceoilandnaturalgasintheUnitedStates.Thewillingnessofourcustomerst
185、oundertaketheseactivitiesdependslargelyuponprevailingindustryconditionsthatareinfluencedbynumerousfactorsoverwhichwehavenocontrol,suchas:prices,andexpectationsaboutfutureprices,foroilandnaturalgas;domesticandforeignsupplyof,anddemandfor,oilandnaturalgasandrelatedproducts;thelevelofglobalanddomestico
186、ilandnaturalgasinventories;thesupplyofanddemandforhydraulicfracturingandotheroilfieldservicesandequipmentintheUnitedStates;thecostofexploringfor,developing,producinganddeliveringoilandnaturalgas;availablepipeline,storageandothertransportationcapacity;leadtimesassociatedwithacquiringequipmentandprodu
187、ctsandavailabilityofqualifiedpersonnel;12TableofContentsthediscoveryratesofnewoilandnaturalgasreserves;federal,stateandlocalregulationofhydraulicfracturingandotheroilfieldserviceactivities,aswellasE&Pactivities,includingpublicpressureongovernmentalbodiesandregulatoryagenciestoregulateourindustry;the
188、availabilityofwaterresources,suitableproppantandchemicalsinsufficientquantitiesforuseinhydraulicfracturingfluids;geopoliticaldevelopmentsandpoliticalinstabilityinoilandnaturalgasproducingcountries;actionsofOPEC,itsmembersandotherstate-controlledoilcompaniesrelatingtooilpriceandproductioncontrols;adv
189、ancesinexploration,developmentandproductiontechnologiesorintechnologiesaffectingenergyconsumption;thepriceandavailabilityofalternativefuelsandenergysources;weatherconditionsandnaturaldisasters;uncertaintyincapitalandcommoditiesmarketsandtheabilityofoilandnaturalgasproducerstoraiseequitycapitalanddeb
190、tfinancing;andU.S.federal,stateandlocalandnon-U.S.governmentalregulationsandtaxes.Volatilityorweaknessinoilandnaturalgasprices(ortheperceptionthatoilandnaturalgaspriceswilldecreaseorremaindepressed)generallyleadstodecreasedspendingbyourcustomers,whichinturnnegativelyimpactsdrilling,completionandprod
191、uctionactivity.Inparticular,thedemandforneworexistingdrilling,completionandproductionworkisdrivenbyavailableinvestmentcapitalforsuchwork.Whenthesecapitalinvestmentsdecline,ourcustomersdemandforourservicesdeclines.Becausethesetypesofservicescanbeeasily“started”and“stopped,”andoilandnaturalgasproducer
192、sgenerallytendtoberiskaversewhencommoditypricesareloworvolatile,wetypicallyexperienceamorerapiddeclineindemandforourservicescomparedwithdemandforothertypesofenergyservices.Anynegativeimpactonthespendingpatternsofourcustomersmaycauselowerpricingandutilizationforourservices,whichcouldhaveamaterialadve
193、rseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.Oilandnaturalgaspricesarevolatileandhavedeclinedsignificantlyinpastperiods,whichhasadverselyaffected,andmayagainadverselyaffect,ourfinancialcondition,resultsofoperationsandcashflows.Thedemandforourservicesdependsonthelevelofsp
194、endingbyoilandnaturalgascompaniesfordrilling,completionandproductionactivities,whichareaffectedbyshort-termandlong-termtrendsinoilandnaturalgasprices,includingcurrentandanticipatedoilandnaturalgasprices.Oilandnaturalgasprices,aswellasthelevelofdrilling,completionandproductionactivities,historicallyh
195、avebeenextremelyvolatileandareexpectedtocontinuetobehighlyvolatile.Whenoilpriceshavedeclinedsignificantlyinpastperiods,wehavecorrespondinglyexperiencedadeclineinpressurepumpingactivitylevelsacrossourcustomerbaseduringtheseperiods.Thevolatileoilandnaturalgaspricesadverselyaffected,andcouldcontinuetoa
196、dverselyaffect,ourfinancialcondition,resultsofoperationsandcashflows.Ourcustomersmaynotbeabletomaintainorincreasetheirreservelevelsgoingforward.Inadditiontotheimpactoffutureoilandnaturalgaspricesonourfinancialperformanceovertime,ourabilitytogrowfuturerevenuesandincreaseprofitabilitywilldependlargely
197、uponourcustomersabilitytofind,developoracquireadditionalshaleoilandnaturalgasreservesthatareeconomicallyrecoverabletoreplacethereservestheyproduce.Hydraulicfracturedwellsaregenerallymoreshort-livedthanconventionalwells.OurcustomersownorhaveaccesstoafiniteamountofshaleoilandnaturalgasreservesintheUni
198、tedStatesthatwillbedepletedovertime.Theproductionratefromshaleoilandnaturalgaspropertiesgenerallydeclinesasreservesaredepleted,whilerelatedper-unitproductioncostsgenerallyincreaseasaresultofdecreasingreservoirpressuresandotherfactors.Ifourcustomersareunabletoreplacetheshaleoilreservestheyownorhaveac
199、cesstoattheratetheyproducesuchreserves,theirprovedreservesandproductionwilldeclineovertime.Reductionsinproductionlevelsbyourcustomersovertimemayreduce13TableofContentsthefuturedemandforourservicesandadverselyaffectourbusiness,financialcondition,resultsofoperationsandcashflows.Ourbusinessmaybeadverse
200、lyaffectedbyadeteriorationingeneraleconomicconditionsoraweakeningofthebroaderenergyindustry.AprolongedeconomicslowdownorrecessionintheUnitedStates,adverseeventsrelatingtotheenergyindustryorregional,nationalandglobaleconomicconditionsandfactors,particularlyaslowdownintheE&Pindustry,couldnegativelyimp
201、actouroperationsandthereforeadverselyaffectourresults.Therisksassociatedwithourbusinessaremoreacuteduringperiodsofeconomicslowdownorrecessionbecausesuchperiodsmaybeaccompaniedbydecreasedexplorationanddevelopmentspendingbyourcustomers,decreaseddemandforoilandnaturalgasanddecreasedpricesforoilandnatur
202、algas.Competitioninourindustryintensifiesduringindustrydownturns,andwemaynotbeabletoprovideservicesthatmeetthespecificneedsofourcustomersatcompetitiveprices.Themarketsinwhichweoperatearegenerallyhighlycompetitiveandhaverelativelyfewbarrierstoentry.Theprincipalcompetitivefactorsinourmarketsareprice,s
203、ervicequality,safety,andinsomecases,breadthofproducts.Wecompetewithlargenationalandmulti-nationalcompaniesthathavelongeroperatinghistories,greaterfinancial,technicalandotherresourcesandgreaternamerecognitionthanwedo.Severalofourcompetitorsprovideabroaderarrayofservicesandhaveastrongerpresenceinmoreg
204、eographicmarkets.Inaddition,wecompetewithseveralsmallercompaniescapableofcompetingeffectivelyonaregionalorlocalbasis.Ourcompetitorsmaybeabletorespondmorequicklytoneworemergingtechnologiesandservicesandchangesincustomerrequirements.Somecontractsareawardedonabidbasis,whichfurtherincreasescompetitionba
205、sedonprice.Pricingisoftentheprimaryfactorindeterminingwhichqualifiedcontractorisawardedajob.Thecompetitiveenvironmentmaybefurtherintensifiedbymergersandacquisitionsamongoilandnaturalgascompaniesorothereventsthathavetheeffectofreducingthenumberofavailablecustomers.Asaresultofincreasedcompetitiondurin
206、gthesecondhalfof2018,wehadtolowerthepricesforourservices.Inthefuture,wemaylosemarketshareorbeunabletomaintainorincreasepricesforourpresentservicesortoacquireadditionalbusinessopportunities,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.Pressureon
207、pricingforourservicesresultingfromtheincreasedcompetitioninthesecondhalfof2018impactedourabilitytomaintainutilizationandpricingforourservicesorimplementpriceincreases,whichmayalsobeimpactedinfuturedownturns.Duringanyfutureperiodsofdecliningpricingforourservices,wemaynotbeabletoreduceourcostsaccordin
208、gly,whichcouldfurtheradverselyaffectourresultsofoperations.Also,wemaynotbeabletosuccessfullyincreasepriceswithoutadverselyaffectingourutilizationlevels.Theinabilitytomaintainourutilizationandpricinglevels,ortoincreaseourpricesascostsincrease,couldhaveamaterialadverseeffectonourbusiness,financialcond
209、itionandresultsofoperations.Inaddition,someE&Pcompanieshavebegunperforminghydraulicfracturingontheirwellsusingtheirownequipmentandpersonnel.Anyincreaseinthedevelopmentandutilizationofin-housefracturingcapabilitiesbyourcustomerscoulddecreasethedemandforourservicesandhaveamaterialadverseimpactonourbus
210、iness.Wearedependentonafewcustomersoperatinginasingleindustry.Thelossofoneormoresignificantcustomerscouldadverselyaffectourfinancialconditionandresultsofoperations.OurcustomersareengagedintheE&PbusinessintheUnitedStates.Historically,wehavebeendependentuponafewcustomersforasignificantportionofourreve
211、nues.Ourfourlargestcustomersgeneratedapproximately40%,32%,and52%ofourtotalrevenuein2018,2017and2016,respectively.Foradiscussionofourcustomersthatmakeup10%ormoreofourrevenues,see“BusinessCustomers”inItem1ofthisannualreport.Ourbusiness,financialconditionandresultsofoperationscouldbemateriallyadversely
212、affectedifoneormoreofoursignificantcustomersceasestoengageusforourservicesonfavorabletermsoratallorfailstopayordelaysin14TableofContentspayingussignificantamountsofouroutstandingreceivables.Althoughwedohavecontractsformultipleprojectswithcertainofourcustomers,mostofourservicesareprovidedonaproject-b
213、y-projectbasis.Additionally,theE&Pindustryischaracterizedbyfrequentconsolidationactivity.Changesinownershipofourcustomersmayresultinthelossof,orreductionin,businessfromthosecustomers,whichcouldmateriallyandadverselyaffectourfinancialcondition.Weextendcredittoourcustomers,whichpresentsariskofnonpayme
214、ntofouraccountsreceivable.Weextendcredittoallourcustomers.Duringindustrydownturnsinpastperiods,manyofourcustomersexperiencedfinancialandoperationalchallenges,andsomeofourcustomersfiledforbankruptcyprotection.GiventhecyclicalnatureoftheE&Pindustry,ourcustomersmayexperiencesimilarchallengesinthefuture
215、.Asaresult,wemayhavedifficultycollectingoutstandingaccountsreceivablefrom,orexperiencelongercollectioncycleswith,someofourcustomers,whichcouldhaveanadverseeffectonourfinancialconditionandcashflows.Decreaseddemandforproppanthasadverselyaffected,andcouldcontinuetoadverselyaffect,ourcommitmentsundersup
216、plyagreements.Wehavepurchasecommitmentswithcertainvendorstosupplytheproppantusedinouroperations.Someoftheseagreementshaveminimumpurchaseobligations.Duringindustrydownturnsinpastperiods,ourminimumcontractualcommitmentshaveexceededtheamountofproppantneededinouroperations.Asaresult,wemademinimumpayment
217、sforproppantthatwewereunabletouse.Furthermore,someofourcustomershaveboughtandinthefuturemaybuysandminesorproppantdirectlyfromvendors,reducingourneedforproppant.Ifmarketconditionsdonotcontinuetoimprove,orourcustomersbuytheirownsandminesorproppantdirectlyfromvendors,wemayberequiredtomakeminimumpayment
218、sinfutureperiods,whichmayadverselyaffectourresultsofoperations,liquidityandcashflows.Wemaybeunabletoemployasufficientnumberofkeyemployees,technicalpersonnelandotherskilledorqualifiedworkers.Thedeliveryofourservicesandproductsrequirespersonnelwithspecializedskillsandexperiencewhocanperformphysicallyd
219、emandingwork.Asaresultofthevolatilityintheenergyserviceindustryandthedemandingnatureofthework,workersmaychoosetopursueemploymentwithourcompetitorsorinfieldsthatofferamoredesirableworkenvironment.Ourabilitytobeproductiveandprofitablewilldependuponourabilitytoemployandretainskilledworkers.Inaddition,o
220、urabilitytofurtherexpandouroperationsaccordingtogeographicdemandforourservicesdependsinpartonourabilitytorelocateorincreasethesizeofourskilledlaborforce.Thedemandforskilledworkersinourareasofoperationscanbehigh,thesupplymaybelimitedandwemaybeunabletorelocateouremployeesfromareasoflowerutilizationtoa
221、reasofhigherdemand.Asignificantincreaseinthewagespaidbycompetingemployerscouldresultinareductionofourskilledlaborforce,increasesinthewageratesthatwemustpay,orboth.Furthermore,asignificantdecreaseinthewagespaidbyusorourcompetitorsasaresultofreducedindustrydemandcouldresultinareductionoftheavailablesk
222、illedlaborforce,andthereisnoassurancethattheavailabilityofskilledlaborwillimprovefollowingasubsequentincreaseindemandforourservicesoranincreaseinwagerates.Ifanyoftheseeventsweretooccur,ourcapacityandprofitabilitycouldbediminishedandourgrowthpotentialcouldbeimpaired.Wedependheavilyontheeffortsofexecu
223、tiveofficers,managersandotherkeyemployeestomanageouroperations.Theunexpectedlossorunavailabilityofkeymembersofmanagementortechnicalpersonnelmayhaveamaterialadverseeffectonourbusiness,financialcondition,prospectsorresultsofoperations.Ouroperationsaresubjecttoinherentrisks,includingoperationalhazards.
224、Theserisksmaynotbefullycoveredunderourinsurancepolicies.Ouroperationsaresubjecttohazardsinherentintheoilandnaturalgasindustry,suchasaccidents,blowouts,explosions,craters,firesandoilspills.Thesehazardsmayleadtopropertydamage,personalinjury,deathorthedischargeofhazardousmaterialsintotheenvironment.The
225、occurrenceofasignificanteventoradverseclaiminexcess15TableofContentsoftheinsurancecoveragethatwemaintainorthatisnotcoveredbyinsurancecouldhaveamaterialadverseeffectonourfinancialconditionandresultsofoperations.Asiscustomaryinourindustry,ourservicecontractsgenerallyprovidethatwewillindemnifyandholdha
226、rmlessourcustomersfromanyclaimsarisingfrompersonalinjuryordeathofouremployees,damagetoorlossofourequipment,andpollutionemanatingfromourequipmentandservices.Similarly,ourcustomersagreetoindemnifyandholdusharmlessfromanyclaimsarisingfrompersonalinjuryordeathoftheiremployees,damagetoorlossoftheirequipm
227、ent,andpollutioncausedfromtheirequipmentorthewellreservoir.Ourindemnificationarrangementsmaynotprotectusineverycase.Inaddition,ourindemnificationrightsmaynotfullyprotectusifthecustomerisinsolventorbecomesbankrupt,doesnotmaintainadequateinsuranceorotherwisedoesnotpossesssufficientresourcestoindemnify
228、us.Furthermore,ourindemnificationrightsmaybeheldunenforceableinsomejurisdictions.Ourinabilitytofullyrealizethebenefitsofourcontractualindemnificationprotectionscouldresultinsignificantliabilitiesandcouldadverselyaffectourfinancialcondition,resultsofoperationsandcashflows.Wemaintaincustomaryinsurance
229、coverageagainstthesetypesofhazards.Weareself-insureduptoretentionlimitswithregardto,amongotherthings,workerscompensationandgeneralliability.Wemaintainaccrualsinourconsolidatedbalancesheetsrelatedtoself-insuranceretentionsbyusingthird-partydataandhistoricalclaimshistory.Theoccurrenceofaneventnotfully
230、insuredagainst,orthefailureofaninsurertomeetitsinsuranceobligations,couldresultinsubstantiallosses.Inaddition,wemaynotbeabletomaintainadequateinsuranceinthefutureatratesweconsiderreasonable.Insurancemaynotbeavailabletocoveranyoralloftheriskstowhichwearesubject,or,evenifavailable,itmaybeinadequate.We
231、aresubjecttolawsandregulationsregardingissuesofhealth,safety,andprotectionoftheenvironment,underwhichwemaybecomeliableforpenalties,damages,orcostsofremediation.Ouroperationsaresubjecttostringentlawsandregulationsrelatingtoprotectionoftheenvironment,naturalresources,cleanair,drinkingwater,wetlands,en
232、dangeredspeciesandhealthandsafety,aswellaschemicaluseandstorage,wastemanagement,andtransportationofhazardousandnon-hazardousmaterials.Theselawsandregulationssubjectustorisksofenvironmentalliability,includingleakagefromanoperatorscasingduringouroperationsoraccidentalspillsorreleasesontoorintosurfaceo
233、rsubsurfacesoils,surfacewater,groundwaterorambientair.Someenvironmentallawsandregulationsmayimposestrictliability,jointandseveralliabilityorboth.Strictliabilitymeansthatwecouldbeexposedtoliabilityasaresultofourconductthatwaslawfulatthetimeitoccurred,ortheconductoforconditionscausedbythirdpartieswith
234、outregardtowhetherwecausedorcontributedtotheconditions.Additionally,environmentalconcerns,includingairanddrinkingwatercontaminationandseismicactivity,havepromptedinvestigationsthatcouldleadtotheenactmentofregulationsthatpotentiallycouldhaveamaterialadverseimpactonourbusiness.Sanctionsfornoncomplianc
235、ewithenvironmentallawsandregulationscouldresultinfinesandpenalties(administrative,civilorcriminal),revocationsofpermits,expendituresforremediation,andissuanceofcorrectiveactionorders,andactionsarisingundertheselawsandregulationscouldresultinliabilityforpropertydamage,exposuretowasteandotherhazardous
236、materials,nuisanceorpersonalinjuries.Suchclaimsorsanctionscouldcauseustoincursubstantialcostsorlossesandcouldhaveamaterialadverseeffectonourbusiness,financialcondition,andresultsofoperations.Changesinlawsandregulationscouldprohibit,restrictorlimitouroperations,increaseouroperatingcosts,adverselyaffe
237、ctourresultsorresultinthedisclosureofproprietaryinformationresultingincompetitiveharm.Variouslegislativeandregulatoryinitiativeshavebeenundertakenthatcouldresultinadditionalrequirementsorrestrictionsbeingimposedonouroperations.Legislationand/orregulationsarebeingconsideredatthefederal,stateandlocall
238、evelsthatcouldimposechemicaldisclosurerequirements(suchasrestrictionsontheuseofcertaintypesofchemicalsorprohibitionsonhydraulicfracturingoperationsincertainareas)andpriorapprovalrequirements.Iftheybecomeeffective,theseregulationswouldestablishadditionallevelsofregulationthatcouldleadtooperationaldel
239、aysandincreasedoperatingcosts.Disclosureofourproprietarychemicalinformationtothirdpartiesortothepublic,evenifinadvertent,coulddiminishthevalueofourtradesecretsandcouldresultincompetitiveharmtous,whichcouldhaveanadverseimpactonourfinancialconditionandresultsofoperations.16TableofContentsAdditionally,
240、somejurisdictionsareorhaveconsideredzoningandotherordinances,theconditionsofwhichcouldimposeadefactobanondrillingand/orhydraulicfracturingoperations,andarecloselyexaminingpermitanddisposaloptionsforprocessedwater,whichifimposedcouldhaveamaterialadverseimpactonouroperatingcosts.Moreover,anymoratorium
241、orincreasedregulationofourrawmaterialsvendors,suchasourproppantsuppliers,couldincreasethecostofthosematerialsandadverselyaffecttheresultsofouroperations.WearealsosubjecttotherequirementsoftheOccupationalSafetyandHealthAdministrations(“OSHA”)RespirableCrystallineSilicaStandard,whichrequiresemployerst
242、olimitworkerexposurestorespirablecrystallinesilicaandtotakeotherstepstoprotectworkers,suchasmedicalsurveillance,providingemployeetraining,andimplementingawrittenexposurecontrolplan.TheserequirementsbecameapplicabletohydraulicfracturingoperationsintheoilandgasindustryonJune23,2018.Therulealsorequires
243、hydraulicfracturingoperationsintheoilandgasindustrytoimplementengineeringcontrolstolimitexposurestotherespirablesilicabyJune23,2021.TheRespirableCrystallineSilicaStandardhasandwillcontinuetoimposeincreasedoperatingcostsonourandourcustomersbusiness.Employeeexposuretosilicapresentsasourceofpotentialli
244、abilitytoourandourcustomersbusiness,whichifrealizedcouldincreaseourcostsorotherwiseadverselyaffectourbusinessoroperations.Wearealsosubjecttovarioustransportationregulationsthatincludecertainpermitrequirementsofhighwayandvehicleandhazardousmaterialsafetyauthorities.Theseregulationsgovernsuchmattersas
245、theauthorizationtoengageinmotorcarrieroperations,safety,equipmenttesting,driverrequirementsandspecificationsandinsurancerequirements.Astheseregulationsdevelopandanynewregulationsareproposed,wehaveexperiencedandmaycontinuetoexperienceanincreaseinrelatedcosts.Wereceiveaportionoftheproppantusedinourope
246、rationsbyrail.Anydelayorfailureinrailservicesduetochangesintransportationregulations,workstoppagesorlaborstrikes,couldadverselyaffecttheavailabilityofproppant.Wecannotpredictwhether,orinwhatform,anylegislativeorregulatorychangesormunicipalordinancesapplicabletoourlogisticsoperationswillbeenactedandt
247、owhatextentanysuchlegislationorregulationscouldincreaseourcostsorotherwiseadverselyaffectourbusinessoroperations.Federalandstatelegislativeandregulatoryinitiativesrelatingtohydraulicfracturingcouldresultinincreasedcostsandadditionaloperatingrestrictionsordelays.Ourbusinessisdependentonourabilitytoco
248、nducthydraulicfracturingandhorizontaldrillingactivities.Hydraulicfracturingisusedtostimulateproductionofhydrocarbons,particularlynaturalgas,fromtightformations,includingshales.Theprocess,whichinvolvestheinjectionofwater,sandandchemicals,orproppants,underpressureintoformationstofracturethesurrounding
249、rockandstimulateproduction,istypicallyregulatedbystateoilandnaturalgascommissions.However,federalagencieshaveassertedregulatoryauthorityovercertainaspectsoftheprocess.Forexample,onMay9,2014,theEPAissuedanAdvancedNoticeofProposedRulemakingseekingcommentonthedevelopmentofregulationsundertheToxicSubsta
250、ncesControlActtorequirecompaniestodiscloseinformationregardingthechemicalsusedinhydraulicfracturing.TheEPAhasnotproceededfurtherwiththisrulemakingbutcoulddosointhefuture.OnJune28,2016,theEPApublishedafinalruleprohibitingthedischargeofwastewaterfromonshoreunconventionaloilandnaturalgasextractionfacil
251、itiestopubliclyownedwastewatertreatmentplants.TheEPAalsoconductedastudyofprivatewastewatertreatmentfacilities(alsoknownascentralizedwastetreatment(“CWT”)facilities)acceptingoilandnaturalgasextractionwastewaterandinMay2018publisheddataandinformationrelatedtotheextenttowhichCWTfacilitiesacceptsuchwast
252、ewater,availabletreatmenttechnologies(andtheirassociatedcosts),dischargecharacteristics,financialcharacteristicsofCWTfacilitiesandtheenvironmentalimpactsofdischargesfromCWTfacilities.TheEPAenteredaconsentdecreewhichrequirestheagencytodeterminewhethertorevisetheResourceConservationandRecoveryActSubti
253、tleDrulesforoilandgaswastebyMarch5,2019.Furthermore,legislationtoamendtheSDWA,torepealtheexemptionforhydraulicfracturing(exceptwhendieselfuelsareused)fromthedefinitionof“undergroundinjection”andrequirefederalpermittingandregulatorycontrolofhydraulicfracturing,aswellaslegislativeproposalstorequiredis
254、closureofthechemicalconstituentsofthefluidsusedinthefracturingprocess,wereproposedinrecentsessionsofCongress.Additionally,BLMhasestablishedregulationsimposingdrillingandconstructionrequirementsforoperationsonfederalorIndianlandsincludingmanagementrequirementsforsurfaceoperationsandpublicdisclosureso
255、fchemicalsusedinthehydraulicfracturingfluids.However,onDecember29,2017,BLMpublishedarescissionoftheseregulations.Futureimpositionoftheseorsimilarregulationscouldcauseusorourcustomerstoincursubstantialcompliancecostsandanyfailuretocomplycouldhaveamaterialadverseeffectonourfinancialconditionorresultso
256、foperations.17TableofContentsOnMay12,2016,theEPAamendedtheNewSourcePerformanceStandardsunderthefederalCleanAirActtoimposenewstandardsformethaneandvolatileorganiccompounds(“VOCs”),emissionsforcertainnew,modified,andreconstructedequipment,processes,andactivitiesacrosstheoilandnaturalgassector.Onthesam
257、eday,theEPAfinalizedaplantoimplementitsminornewsourcereviewprograminIndiancountryforoilandnaturalgasproduction,anditissuedforpubliccommentaninformationrequestthatwillrequirecompaniestoprovideextensiveinformationinstrumentalforthedevelopmentofregulationstoreducemethaneemissionsfromexistingoilandnatur
258、algassources.TheEPAproposedchangestotheNewSourcePerformanceStandardsonSeptember11,2018,whichiffinalizedwouldstreamlineimplementationoftherule.TheEPAisexpectedtopublishafinalrevisedruleinSeptember2019.InNovember2016,BLMpromulgatedregulationsaimedatcurbingairpollution,includinggreenhousegases,foroilan
259、dnaturalgasproducedonfederalandIndianlands.Variousstateshavefiledforapetitionforreviewoftheseregulations.OnJune15,2017,BLMpublishedaNoticeintheFederalRegisterproposingtopostponecompliancedatesforprovisionsoftherulethathadnotyetgoneintoeffectpendingjudicialreviewoftherule.OnOctober4,2017,theU.S.Distr
260、ictCourtfortheNorthernDistrictofCaliforniainvalidatedBLMsJune15,2017proposedpostponementofcompliancedeadlines.OnDecember8,2017,BLMpromulgatedafinalruledelaytotemporarilysuspendordelaycertainrequirementsuntilJanuary17,2019.Acoalitionofenvironmentalgroupshasfiledsuitchallengingthedelay.BLMfinalizedfur
261、therrevisionstoitsNovember2016ruleonSeptember28,2018.Atthispoint,wecannotpredictthefinalregulatoryrequirementsorthecosttocomplywithsuchrequirementswithanycertainty.Therearecertaingovernmentalreviewseitherunderwayorbeingproposedthatfocusontheenvironmentalaspectsofhydraulicfracturingpractices.Theseong
262、oingorproposedstudies,dependingontheirdegreeofpursuitandwhetheranymeaningfulresultsareobtained,couldspurinitiativestofurtherregulatehydraulicfracturingundertheSDWAorotherregulatoryauthorities.TheEPAcontinuestoevaluatethepotentialimpactsofhydraulicfracturingondrinkingwaterresourcesandtheinducedseismi
263、cactivityfromdisposalwellsandhasrecommendedstrategiesformanagingandminimizingthepotentialforsignificantinjection-inducedseismicevents.Forexample,inDecember2016,theEPAreleaseditsfinalreport,entitled“HydraulicFracturingforOilandGas:ImpactsfromtheHydraulicFracturingWaterCycleonDrinkingWaterResourcesint
264、heUnitedStates,”onthepotentialimpactsofhydraulicfracturingondrinkingwaterresources.ThereportstatesthattheEPAfoundscientificevidencethathydraulicfracturingactivitiescanimpactdrinkingwaterresourcesundersomecircumstances,notingthatthefollowinghydraulicfracturingwatercycleactivitiesandlocal-orregional-s
265、calefactorsaremorelikelythanotherstoresultinmorefrequentormoresevereimpacts:waterwithdrawalsforfracturingintimesorareasoflowwateravailability;surfacespillsduringthemanagementoffracturingfluids,chemicalsorproducedwater;injectionoffracturingfluidsintowellswithinadequatemechanicalintegrity;injectionoff
266、racturingfluidsdirectlyintogroundwaterresources;dischargeofinadequatelytreatedfracturingwastewatertosurfacewaters;anddisposalorstorageoffracturingwastewaterinunlinedpits.Othergovernmentalagencies,includingtheU.S.DepartmentofEnergy,theU.S.GeologicalSurveyandtheU.S.GovernmentAccountabilityOffice,havee
267、valuatedorareevaluatingvariousotheraspectsofhydraulicfracturing.Theseongoingorproposedstudiescouldspurinitiativestofurtherregulatehydraulicfracturing,andcouldultimatelymakeitmoredifficultorcostlytoperformfracturingandincreasethecostsofcomplianceanddoingbusinessforourcustomers.Furthermore,theEPAplans
268、tocontinueanenforcementinitiativetoensureenergyextractionactivitiescomplywithfederallaws.InadditiontobansonhydraulicfracturingactivitiesinMaryland,NewYorkandVermont,severalstates,includingTexasandOhio,aswellasregionalauthoritiesliketheDelawareRiverBasinCommission,haveadoptedorareconsideringadoptingr
269、egulationsthatcouldrestrictorprohibithydraulicfracturingincertaincircumstances,imposemorestringentoperatingstandardsand/orrequirethedisclosureofthecompositionofhydraulicfracturingfluids.Anyincreasedregulationofhydraulicfracturing,intheseorotherstates,couldreducethedemandforourservicesandmateriallyan
270、dadverselyaffectourrevenuesandresultsofoperations.Therehasbeenincreasingpubliccontroversyregardinghydraulicfracturingwithregardtotheuseoffracturingfluids,inducedseismicactivity,impactsondrinkingwatersupplies,useofwaterandthepotentialforimpactstosurfacewater,groundwaterandtheenvironmentgenerally.Anum
271、beroflawsuitsandenforcementactionshavebeeninitiatedacrossthecountryimplicatinghydraulicfracturingpractices.Ifnewlawsorregulationsareadoptedthatsignificantlyrestricthydraulicfracturing,suchlawscouldmakeitmoredifficultorcostlyforustoperformfracturingtostimulateproductionfromtightformationsaswellasmake
272、iteasierforthirdpartiesopposingthehydraulicfracturingprocessto18TableofContentsinitiatelegalproceedingsbasedonallegationsthatspecificchemicalsusedinthefracturingprocesscouldadverselyaffectgroundwater.Inaddition,ifhydraulicfracturingisfurtherregulatedatthefederal,stateorlocallevel,ourcustomersfractur
273、ingactivitiescouldbecomesubjecttoadditionalpermittingandfinancialassurancerequirements,morestringentconstructionspecifications,increasedmonitoring,reportingandrecordkeepingobligations,pluggingandabandonmentrequirementsandalsotoattendantpermittingdelaysandpotentialincreasesincosts.Suchlegislativeorre
274、gulatorychangescouldcauseusorourcustomerstoincursubstantialcompliancecosts,andcomplianceortheconsequencesofanyfailuretocomplybyuscouldhaveamaterialadverseeffectonourfinancialconditionandresultsofoperations.Atthistime,itisnotpossibletoestimatetheimpactonourbusinessofnewlyenactedorpotentialfederal,sta
275、teorlocallawsgoverninghydraulicfracturing.Existingorfuturelawsandregulationsrelatedtogreenhousegasesandclimatechangecouldhaveanegativeimpactonourbusinessandmayresultinadditionalcomplianceobligationswithrespecttotherelease,capture,anduseofcarbondioxidethatcouldhaveamaterialadverseeffectonourbusiness,
276、resultsofoperations,andfinancialcondition.Changesinenvironmentalrequirementsrelatedtogreenhousegasesandclimatechangemaynegativelyimpactdemandforourservices.Forexample,oilandnaturalgasexplorationandproductionmaydeclineasaresultofenvironmentalrequirements,includinglandusepoliciesresponsivetoenvironmen
277、talconcerns.Local,state,andfederalagencieshavebeenevaluatingclimate-relatedlegislationandotherregulatoryinitiativesthatwouldrestrictemissionsofgreenhousegasesinareasinwhichweconductbusiness.Becauseourbusinessdependsonthelevelofactivityintheoilandnaturalgasindustry,existingorfuturelawsandregulationsr
278、elatedtogreenhousegasesandclimatechange,includingincentivestoconserveenergyorusealternativeenergysources,couldhaveanegativeimpactonourbusinessifsuchlawsorregulationsreducedemandforoilandnaturalgas.Likewise,suchrestrictionsmayresultinadditionalcomplianceobligationswithrespecttotherelease,capture,sequ
279、estration,anduseofcarbondioxideorothergasesthatcouldhaveamaterialadverseeffectonourbusiness,resultsofoperations,andfinancialcondition.Delaysinobtaining,orinabilitytoobtainorrenew,permitsorauthorizationsbyourcustomersfortheiroperationsorbyusforouroperationscouldimpairourbusiness.Inmoststates,ourcusto
280、mersarerequiredtoobtainpermitsorauthorizationsfromoneormoregovernmentalagenciesorotherthirdpartiestoperformdrillingandcompletionactivities,includinghydraulicfracturing.Suchpermitsorapprovalsaretypicallyrequiredbystateagencies,butcanalsoberequiredbyfederalandlocalgovernmentalagenciesorotherthirdparti
281、es.Therequirementsforsuchpermitsorauthorizationsvarydependingonthelocationwheresuchdrillingandcompletionactivitieswillbeconducted.Aswithmostpermittingandauthorizationprocesses,thereisadegreeofuncertaintyastowhetherapermitwillbegranted,thetimeitwilltakeforapermitorapprovaltobeissuedandtheconditionswh
282、ichmaybeimposedinconnectionwiththegrantingofthepermit.Insomejurisdictions,suchasNewYorkStateandwithinthejurisdictionoftheDelawareRiverBasinCommission,certainregulatoryauthoritieshavedelayedorsuspendedtheissuanceofpermitsorauthorizationswhilethepotentialenvironmentalimpactsassociatedwithissuingsuchpe
283、rmitscanbestudiedandappropriatemitigationmeasuresevaluated.InTexas,ruralwaterdistrictshavebeguntoimposerestrictionsonwateruseandmayrequirepermitsforwaterusedindrillingandcompletionactivities.Permitting,authorizationorrenewaldelays,theinabilitytoobtainnewpermitsortherevocationofcurrentpermitscouldcau
284、sealossofrevenueandpotentiallyhaveamateriallyadverseeffectonourbusiness,financialcondition,prospectsorresultsofoperations.Wearealsorequiredtoobtainfederal,state,localand/orthird-partypermitsandauthorizationsinsomejurisdictionsinconnectionwithourwirelineservices.Thesepermits,whenrequired,imposecertai
285、nconditionsonouroperations.Anychangesintheserequirementscouldhaveamaterialadverseeffectonourfinancialcondition,prospectsandresultsofoperations.Restrictionsondrillingactivitiesintendedtoprotectcertainspeciesofwildlifemayadverselyaffectourabilitytoconductdrillingactivitiesinsomeoftheareaswhereweoperat
286、e.Oilandnaturalgasoperationsinouroperatingareascanbeadverselyaffectedbyseasonalorpermanentrestrictionsondrillingactivitiesdesignedtoprotectvariouswildlife,whichmaylimitourabilitytooperateinprotected19TableofContentsareas.Permanentrestrictionsimposedtoprotectendangeredspeciescouldprohibitdrillingince
287、rtainareasorrequiretheimplementationofexpensivemitigationmeasures.Additionally,thedesignationofpreviouslyunprotectedspeciesasthreatenedorendangeredinareaswhereweoperatecouldresultinincreasedcostsarisingfromspeciesprotectionmeasures.Restrictionsonoilandnaturalgasoperationstoprotectwildlifecouldreduce
288、demandforourservices.Conservationmeasuresandtechnologicaladvancescouldreducedemandforoilandnaturalgasandourservices.Fuelconservationmeasures,alternativefuelrequirements,increasingconsumerdemandforalternativestooilandnaturalgas,technologicaladvancesinfueleconomyandenergygenerationdevicescouldreducede
289、mandforoilandnaturalgas,resultinginreduceddemandforoilfieldservices.Theimpactofthechangingdemandforoilandnaturalgasservicesandproductsmayhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.Theremaybeareductionindemandforourfutureservicesduetocompetitionfromalte
290、rnativeenergysources.Oilandnaturalgascompeteswithothersourcesofenergyforconsumerdemand.TherearesignificantgovernmentalincentivesandconsumerpressurestoincreasetheuseofalternativeenergysourcesintheUnitedStatesandabroad.Anumberofautomotive,industrialandpowergenerationmanufacturersaredevelopingmorefuele
291、fficientengines,hybridenginesandalternativecleanpowersystemsusingfuelcellsorcleanburningfuels.Greateruseofthesealternativesasaresultofgovernmentalincentivesorregulations,technologicaladvances,consumerdemand,improvedpricingorotherwiseovertimewillreducethedemandforourproductsandservicesandadverselyaff
292、ectourbusiness,financialcondition,resultsofoperationsandcashflowsgoingforward.Limitationsonconstructionofnewnaturalgaspipelinesorincreasesinfederalorstateregulationofnaturalgaspipelinescoulddecreasedemandforourservices.Therehasbeenincreasingpubliccontroversyregardingconstructionofnewnaturalgaspipeli
293、nesandthestringencyofcurrentregulationofnaturalgaspipelines.Delaysinconstructionofnewpipelinesorincreasedstringencyofregulationofexistingnaturalgaspipelinesateitherthestateorfederallevelcouldreducethedemandforourservicesandmateriallyandadverselyaffectourrevenuesandresultsofoperations.Ourexistingflee
294、tsrequiresignificantamountsofcapitalformaintenance,upgradesandrefurbishmentandanynewfleetswebuildoracquiremayrequiresignificantcapitalexpenditures.Ourfleetsrequiresignificantcapitalinvestmentinmaintenance,upgradesandrefurbishmenttomaintaintheireffectiveness.Whilewemanufacturemanyofthecomponentsneces
295、sarytomaintain,upgradeandrefurbishourfleets,laborcostshaveincreasedinthepastandmayincreaseinthefuturewithincreasesindemand,whichwillrequireustoincuradditionalcoststoupgradeanyofourexistingfleetsorbuildanynewfleets.Additionally,competitionoradvancesintechnologywithinourindustrymayrequireustoupdateorr
296、eplaceexistingfleetsorbuildoracquirenewfleets.Suchdemandsonourcapitalorreductionsindemandforourexistingfleetsandtheincreaseincostoflabornecessaryforsuchmaintenanceandimprovement,ineachcase,couldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.Ouroperationsre
297、quiresubstantialcapitalandwemaybeunabletoobtainneededcapitalorfinancingonsatisfactorytermsoratall,whichcouldlimitourabilitytogrow.Theoilfieldservicesindustryiscapitalintensive.Inconductingourbusinessandoperations,wehavemade,andexpecttocontinuetomake,substantialcapitalexpenditures.Ourtotalcapitalexpe
298、nditureswere$100.5million,$64.0millionand$10.3million,respectively,in2018,2017and2016.Since2015,wehavefinancedcapitalexpendituresprimarilywithfundingfromcashonhand.Wemaybeunabletogeneratesufficientcashfromoperationsandothercapitalresourcestomaintainplannedorfuturelevelsofcapitalexpenditureswhich,amo
299、ngotherthings,maypreventus20TableofContentsfromproperlymaintainingourexistingequipmentoracquiringnewequipment.Furthermore,anydisruptionsorcontinuingvolatilityintheglobalfinancialmarketsmayleadtoanincreaseininterestratesoracontractionincreditavailabilityimpactingourabilitytofinanceouroperations.Thisc
300、ircumstancecouldputusatacompetitivedisadvantageorinterferewithourgrowthplans.Furthermore,ouractualcapitalexpendituresforfutureyearscouldexceedourcapitalexpenditurebudgets.Intheeventourcapitalexpenditurerequirementsatanytimearegreaterthantheamountwehaveavailable,wecouldberequiredtoseekadditionalsourc
301、esofcapital,whichmayincludedebtfinancing,jointventurepartnerships,salesofassets,offeringsofdebtorequitysecuritiesorothermeans.Wemaynotbeabletoobtainanysuchalternativesourceofcapital.Wemayberequiredtocurtailoreliminatecontemplatedactivities.Ifwecanobtainalternativesourcesofcapital,thetermsofsuchalter
302、nativemaynotbefavorabletous.Inparticular,thetermsofanydebtfinancingmayincludecovenantsthatsignificantlyrestrictouroperations.Ourinabilitytogrowasplannedmayreduceourchancesofmaintainingandimprovingprofitability.Athirdpartymayclaimweinfringeduponitsintellectualpropertyrights,andwemaybesubjectedtocostl
303、ylitigation.Ouroperations,includingequipment,manufacturingandfluidandchemicaloperationsmayunintentionallyinfringeuponthepatentsortradesecretsofacompetitororothercompanythatusesproprietarycomponentsorprocessesinitsoperations,andthatcompanymayhavelegalrecourseagainstouruseofitsprotectedinformation.Ift
304、hisweretohappen,theseclaimscouldresultinlegalandothercostsassociatedwithlitigation.Iffoundtohaveinfringeduponprotectedinformation,wemayhavetopaydamagesormakeroyaltypaymentsinordertocontinueusingthatinformation,whichcouldsubstantiallyincreasethecostspreviouslyassociatedwithcertainproductsorservices,o
305、rwemayhavetodiscontinueuseoftheinformationorproductaltogether.Anyofthesecouldmateriallyandadverselyaffectourbusiness,financialconditionorresultsofoperations.Newtechnologymaycauseustobecomelesscompetitive.Theoilfieldservicesindustryissubjecttotheintroductionofnewdrillingandcompletiontechniquesandserv
306、icesusingnewtechnologies,someofwhichmaybesubjecttopatentorotherintellectualpropertyprotections.Althoughwebelieveourequipmentandprocessescurrentlygiveusacompetitiveadvantage,ascompetitorsandothersuseordevelopneworcomparabletechnologiesinthefuture,wemaylosemarketshareorbeplacedatacompetitivedisadvanta
307、ge.Furthermore,wemayfacecompetitivepressuretoimplementoracquirecertainnewtechnologiesatasubstantialcost.Someofourcompetitorshavegreaterfinancial,technicalandpersonnelresourcesthatmayallowthemtoenjoytechnologicaladvantagesandimplementnewtechnologiesbeforewecan.Wecannotbecertainthatwewillbeabletoimple
308、mentallnewtechnologiesorproductsonatimelybasisoratanacceptablecost.Thus,limitsonourabilitytoeffectivelyuseandimplementnewandemergingtechnologiesmayhaveamaterialadverseeffectonourbusiness,financialconditionorresultsofoperations.Lossorcorruptionofourinformationoracyberattackonourcomputersystemscouldad
309、verselyaffectourbusiness.Weareheavilydependentonourinformationsystemsandcomputer-basedprograms,includingourwelloperationsinformationandaccountingdata.Ifanyofsuchprogramsorsystemsweretofailorcreateerroneousinformationinourhardwareorsoftwarenetworkinfrastructure,whetherduetocyberattackorotherwise,poss
310、ibleconsequencesincludeourlossofcommunicationlinksandinabilitytoautomaticallyprocesscommercialtransactionsorengageinsimilarautomatedorcomputerizedbusinessactivities.Anysuchconsequencecouldhaveamaterialadverseeffectonourbusiness.Theoilandnaturalgasindustryhasbecomeincreasinglydependentondigitaltechno
311、logiestoconductcertainactivities.Atthesametime,cyberattackshaveincreased.TheU.S.governmenthasissuedpublicwarningsthatindicatethatenergyassetsmightbespecifictargetsofcybersecuritythreats.Ourtechnologies,systemsandnetworksmaybecomethetargetofcyberattacksorinformationsecuritybreaches.Thesecouldresultin
312、theunauthorizedaccess,misuse,lossordestructionofourproprietaryandotherinformationorotherdisruptionofourbusinessoperations.Anyaccessorsurveillancecouldremainundetectedforanextendedperiod.Oursystemsforprotectingagainstcybersecurityrisksmaynotbesufficient.Ascyberincidentscontinuetoevolve,wemayberequire
313、dtoexpendadditionalresourcesto21TableofContentscontinuetomodifyorenhanceourprotectivemeasuresortoinvestigateandremediateanyvulnerabilitytocyberincidents.Additionally,ourinsurancecoverageforcyberattacksmaynotbesufficienttocoverallthelosseswemayexperienceasaresultofsuchcyberattacks.Anyadditionalcostsc
314、ouldmateriallyadverselyaffectourresultsofoperations.OneormoreofourdirectorsmaynotresideintheUnitedStates,whichmaypreventinvestorsfromobtainingorenforcingjudgmentsagainstthem.BecauseoneormoreofourdirectorsmaynotresideintheUnitedStates,itmaynotbepossibleforinvestorstoeffectserviceofprocesswithintheUni
315、tedStatesonournon-U.S.residentdirectors,enforcejudgmentsobtainedinU.S.courtsbasedonthecivilliabilityprovisionsoftheU.S.federalsecuritieslawsagainstournon-U.S.residentdirectors,enforceinforeigncourtsU.S.courtjudgmentsbasedoncivilliabilityprovisionsoftheU.S.federalsecuritieslawsagainstournon-U.S.resid
316、entdirectors,orbringanoriginalactioninforeigncourtstoenforceliabilitiesbasedontheU.S.federalsecuritieslawsagainstournon-U.S.residentdirectors.Adverseweatherconditionscouldimpactdemandforourservicesorimpactourcosts.Ourbusinesscouldbeadverselyaffectedbyadverseweatherconditions.Forexample,unusuallywarm
317、winterscouldadverselyaffectthedemandforourservicesbydecreasingthedemandfornaturalgasorunusuallycoldwinterscouldadverselyaffectourcapabilitytoperformourservices,forexample,duetodelaysinthedeliveryofequipment,personnelandproductsthatweneedinordertoprovideourservicesandweather-relateddamagetofacilities
318、andequipment,resultingindelaysinoperations.Ouroperationsinaridregionscanbeaffectedbydroughtsandlimitedaccesstowaterusedinourhydraulicfracturingoperations.Theseconstraintscouldadverselyaffectthecostsandresultsofoperations.Aterroristattackorarmedconflictcouldharmourbusiness.Terroristactivities,anti-te
319、rroristeffortsandotherarmedconflictsinvolvingtheUnitedStatescouldadverselyaffecttheU.S.andglobaleconomiesandcouldpreventusfrommeetingfinancialandotherobligations.Wecouldexperiencelossofbusiness,delaysordefaultsinpaymentsfrompayorsordisruptionsoffuelsuppliesandmarketsifwells,operationssitesorotherrel
320、atedfacilitiesaredirecttargetsorindirectcasualtiesofanactofterrororwar.Suchactivitiescouldreducetheoveralldemandforoilandnaturalgas,which,inturn,couldalsoreducethedemandforourproductsandservices.Terroristactivitiesandthethreatofpotentialterroristactivitiesandanyresultingeconomicdownturncouldadversel
321、yaffectourresultsofoperations,impairourabilitytoraisecapitalorotherwiseadverselyimpactourabilitytorealizecertainbusinessstrategies.Internationaloperationssubjectustoadditionaleconomic,politicalandregulatoryrisks.WehaveajointventurewithSinopectoprovidehydraulicfracturingoperationsinChina.Internationa
322、loperationsrequiresignificantresourcesandmayresultinforeignoperationsthatultimatelyarenotsuccessful.Ourjointventureoperationsexposeustooperationalrisks,includingexposuretoforeigncurrencyratefluctuations,warorpoliticalinstability,limitationsonthemovementoffunds,foreignanddomesticgovernmentregulation,
323、includingcompliancewiththeU.S.ForeignCorruptPracticesAct,tradewars,andbureaucraticdelays.Thesemayincreaseourcostsanddistractkeypersonnel,whichmayadverselyaffectourbusiness,financialconditionorresultsofoperations.Weandcertainofourdirectors,executiveofficersandstockholdersarecurrentlysubjecttosecuriti
324、esclassactionlitigationinconnectionwithourIPO,andotherlitigationandlegalproceeding(includingarbitration)thatareexpensiveandtimeconsuming,andifresolvedadversely,couldharmourbusiness,financialconditionorresultsoroperation.Apurportedsecuritiesclassactionwasfiledagainstusandcertainofourdirectors,executi
325、veofficersandstockholdersallegingviolationoffederalsecuritieslaws.Whilewebelievethislawsuitiswithoutmeritandintendtovigorouslydefendagainstit,therecanbenoassurancesthatafavorablefinaloutcomewillbeobtained.Inconnectionwiththislitigation,wecouldincursubstantialcostsandsuchcostsandanyrelatedsettlements
326、orjudgmentsmaynotbe22TableofContentscoveredbyinsurance.Wecouldalsosufferanadverseimpactonourreputationandadiversionofmanagementsattentionandresources,whichcouldhaveamaterialadverseeffectonourbusiness.Inadditiontotheclassactionlawsuit,weareinvolvedinotherlawsuitsandlegalproceedings,includingarbitrati
327、on,intheordinarycourseofourbusiness.Anylitigationorotherlegalproceedings,includingarbitration,couldresultinanonerousorunfavorablejudgmentthatmaynotbereverseduponappealorinpaymentsofsubstantialmonetarydamagesorfines,orwemaydecidetosettlelawsuitsonsimilarlyunfavorableterms,eitherofwhichcouldadverselya
328、ffectourbusiness,financialconditions,orresultsofoperation.Ourabilitytoutilizeournetoperatinglosscarryforwardsandcertaintaxamortizationdeductionsmaybedelayedorlimited.AsofDecember31,2018,wehadfederalandstatenetoperatinglosscarryforwards(“NOLs”)inexcessof$1,500million,whichifnotutilizedwillbegintoexpi
329、restartingin2032forfederalpurposesand2019forstatepurposes.WemayusetheseNOLstooffsetagainsttaxableincomeforU.S.federalandstateincometaxpurposes.Additionally,weareallowedtodeductapproximately$190millionofamortizationexpenseonourfederalandstatetaxreturnsperyearfortaxyears2019through2025.However,Section
330、382oftheInternalRevenueCodeof1986,asamended,mayreducetheamountoftheNOLswemayuseortaxamortizationwemaydeductforU.S.federalincometaxpurposesintheeventofcertainchangesinownershipofourCompany.ASection382“ownershipchange”generallyoccursifoneormorestockholdersorgroupsofstockholderswhoownatleast5%ofacompan
331、ysstock(withownersholdinglessthan5%ofthecompanysstockbeingconsolidatedtogetherintooneormore“publicgroups”)increasetheirownershipbymorethan50percentagepointsovertheirlowestownershippercentagewithinarollingthreeyearperiodforexample,ifweand/orourthreelargeststockholdersweretosellsharesofourcommonstock,
332、sothatfollowingsuchsales,the“publicgroup”ownedmorethan50%ofourcommonstock,an“ownershipchange”wouldoccurforpurposesofCodeSection382.Similarrulesmayapplyunderstatetaxlaws.Futureissuancesorsalesofourstock,includingbyourlargestockholdersorcertainothertransactionsinvolvingourstockthatareoutsideofourcontr
333、ol,couldcausean“ownershipchange.”Ifan“ownershipchange”hasoccurredinthepastoroccursinthefuture,Section382wouldimposeanannuallimitontheamountofpre-ownershipchangeNOLsandothertaxattributes,potentiallyincludingaportionofourtaxamortizationdeduction,thatwecanusetoreduceourtaxableincomeeachyear,potentiallyincreasingandacceleratingourliabilityforincometaxes,andalsopotentiallycausingthosetaxattributestoexp
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