Natural Gas Services Group, Inc. Annual Report 2021

FY2021 Annual Report · Natural Gas Services Group, Inc.

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2021 ANNUAL REPORT

The year just passed was a period of significant transition for your
Company, our industry and the world. In 2021 we began to emerge
from the throes of the COVID-19 pandemic which had wide-ranging
impacts on our colleagues and our business. While we continue to
experience the lingering impacts of the pandemic in areas such as raw
material costs, supply chain and labor challenges, we ended 2021 well-
positioned for significant growth in the year ahead.

While 2021 presented its challenges, there were also opportunities that
will provide enduring benefits for your Company, foremost of which
was the continuation of our strategy to evolve into a leader in large
horsepower compression. By the end of the year, our large horsepower
segment comprised more than 45% of our total rental fleet, compared
to just 4% when we embarked on this mission in 2017. While we will
continue to aggressively build our larger horsepower fleet, our initial
strategic goal of refocusing our fleet on this more lucrative market has
been achieved.

Rental revenues grew 5% in 2021 when compared to 2020 with the
majority of the growth coming from large horsepower fleet additions.
Total revenues increased 6% in the same period, thanks to additional
contributions from our sales and service and maintenance business
lines.

My pride comes from what we – the entire
team at NGS – have built: a leading energy
compression company.

Stephen C. Taylor
Chairman of the Board

inventory

adjustments

Our operating losses increased in 2021, compared to
the previous year, primarily due to fleet equipment
retirements,
and higher
expenses from large horsepower mobilization and
start-up expenses. While start-up expenses certainly
have
such
an impact on initial profitability,
expenditures are investments that create future
profitability and cash flow for your Company. As
noted earlier, NGS is not unique as we face the same
pricing pressures and supply chain challenges as our
oilfield and industrial brethren.

However, we remain focused on managing costs and are optimistic that we can find additional operating efficiencies and
revenue enhancements that will, at least in part, mitigate these challenges.

Through our share repurchase program, which we restarted in the second quarter, we repurchased over 5.5% of our outstanding
shares at a value well below what we believe to be the intrinsic value of your Company. We will continue to use our repurchase
program to invest in your Company when we believe the repurchases provide compelling accretion to shareholders. We look at
our repurchase program as a tool in a range of capital allocation strategies that also include our capital expenditure program and
other potential strategic expenditures. We continue to be fortunate to have one of the strongest balance sheets in the oilfield
which provides flexibility, both to be opportunistic when appropriate and to continue to operate our business without limitations
when unexpected challenges - such as a major health pandemic – impact our short-term operations and opportunities.

Our rental equipment capital expense in 2021 totaled $22.8 million, with more than 90% focused on the fabrication of larger
horsepower units. Better yet, over 80% of the units are under contract with market-leading rates and terms before they begin
production.

… Continued

In addition to continuing our growth in high horsepower markets, there are a number of opportunities ahead for your
Company. We are beginning to see unique opportunities to apply our compression technology to transitional energy projects,
with the initial projects beginning to contribute revenue opportunities. We will continue to pursue opportunities across new
energy ventures and other applications for our compression technologies.

I am proud of the fact that Natural Gas Services Group remains one of the few companies in the oilfield with a strong recurring
revenue stream, no debt, a significant cash position and the ability to consistently generate meaningful operating cash flow.
Our financial focus has served your Company well as we navigate through the inherent volatility of our industry and in an
increasing volatile global backdrop for the energy industry.

I write this letter with a mixture of pride and retrospection. I announced my retirement as President and Chief Executive
Officer of your Company in May after over 17 years leading Natural Gas Services Group. My pride comes from what we – the
entire team at NGS – have built: a leading energy compression company with a focus on medium-to-large horsepower that is a
leader in operational excellence and financial strength. Retrospection due to the remarkable memories of my experiences and
the people I have had the pleasure of working with along the way. I am forever grateful to have been a part of this
organization and the experiences that are the result.

I am looking forward to continuing my role as Chairman of the Board until June, 2023 and assisting John Chisholm, our former
independent lead director and now interim president and Chief Executive Officer, in any way possible to continue our success
at NGS. I remain a significant shareholder of our Company and am committed to working alongside John and the NGS team to
continue our quest to enhance shareholder value.

I offer my heartfelt gratitude to everyone who has helped make this journey so special.

In appreciation,
Steve Taylor

NATURAL GAS SERVICES GROUP, INC.
404 Veterans Airpark Lane, Suite 300
Midland, Texas 79705

Important Notice Regarding the Availability of Online Voting for the
Shareholder Meeting to be Held on Thursday, June 16, 2022

The proxy statement and annual report to shareholders are available at
www.ngsgi.com and www.proxyvote.com

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on Thursday, June 16, 2022

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Natural Gas Services Group, Inc., a Colorado
corporation (the “Company”), will be held at 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705 on Thursday,
June 16, 2022 at 8:30 a.m., Central Time, for the purpose of considering and voting upon proposals:

To elect one Director to serve until the Annual Meeting of Shareholders to be held in 2025, or until his successor
is elected and qualified;

To consider an advisory vote on executive compensation of our named executive officers;

To approve an amendment to the 2019 Equity Incentive Plan to increase the number of shares of common stock
reserved for issuance under the plan by 650,000 shares;

To ratify the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm
for 2022; and

To transact such other business as may properly be presented at the meeting, or at any adjournment(s) of the
meeting.

Only shareholders of record at the close of business on April 14, 2022 are entitled to notice of and to vote at the
meeting and at any adjournment(s) of the meeting. On that day, 12,561,408 shares of our common stock were outstanding and
entitled to vote. A complete list of our shareholders entitled to vote at the meeting will be available for examination at our
offices in Midland, Texas during ordinary business hours for a period of ten (10) days prior to the annual meeting.

Our Board of Directors recommends that you vote FOR the (i) election of the Director nominees named in this proxy
statement, (ii) approval, on an advisory basis, of the compensation programs of our named executive officers, (iii) approval to
increase the number of shares reserved for issuance under the 2019 Equity Incentive Plan, and (iv) the ratification of the
appointment of Moss Adams LLP as our independent registered public accounting firm for 2022.

We cordially invite you to attend the meeting. To ensure your representation at the meeting, please vote promptly even
if you plan to attend the meeting. Voting now will not prevent you from voting in person at the meeting if you are a shareholder
of record and wish to do so.

May 18, 2022

BY ORDER OF THE BOARD OF DIRECTORS

/s/ John W. Chisholm

John W. Chisholm

Interim President, Chief Executive Officer and Director

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NATURAL GAS SERVICES GROUP, INC.
404 Veterans Airpark Lane, Suite 300
Midland, Texas 79705

PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, June 16, 2022

GENERAL INFORMATION

This proxy statement is furnished in connection with the solicitation of proxies from the shareholders of the Company
to be voted at our Annual Meeting of Shareholders (the “Annual Meeting”) to be held at 404 Veterans Airpark Lane, Suite 300,
Midland Texas, 79705 on Thursday, June 16, 2022, at 8:30 a.m. Central Time and any adjournment thereof. YOUR
PROXY IS SOLICITED BY THE COMPANY’S BOARD OF DIRECTORS. If not otherwise specified, all proxies
received pursuant to this solicitation will be voted “FOR” the proposals as specified in this proxy statement and, at the
discretion of the proxy holder, upon such other matters as may properly come before the Annual Meeting or any adjournment
thereof. This proxy statement (including the Notice of Annual Meeting of Shareholders) and Annual Report on Form 10-K for
the year ended December 31, 2021 is first being made available to shareholders beginning on or before May 25, 2022. This
proxy statement, including the Notice of Annual Meeting, proxy card, and Annual Report on Form 10-K for the year ended
December 31, 2021, are collectively referred to herein as the “Meeting Materials.”

Solicitation/Cost of the Meeting

Proxies are being solicited by the Company’s Board of Directors (the “Board”). The costs of the solicitation will be
borne by the Company. Proxies may be solicited personally or by mail, telephone, facsimile or email by Directors, officers and
employees of the Company, none of whom will receive any additional compensation for such solicitations. The Company will
reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable out-of-pocket expenses incurred in sending
the Meeting Materials to beneficial owners of our shares.

Principal Executive Offices

Our principal executive offices are located at 404 Veterans Airpark Lane, Suite 300, Midland, Texas, 79705.

TABLE OF CONTENTS

Questions and Answers About the Proxy Materials and the Meeting

Householding of Proxy Materials

Proposal 1- Election of Directors

The Board of Directors and its Committees

Code of Ethics

Shareholder Engagement

Environmental, Social and Governance

Executive Officers

Executive Compensation

Principal Shareholders and Security Ownership of Management

Proposal 2 - Consideration of an Advisory Vote on Executive Compensation of our Named Executive Officers

Proposal 3 - Approve an Amendment to the 2019 Equity Incentive Plan to Increase the Number of Shares of
Common Stock Reserved for Issuance under the Plan by 650,000 Shares

Report of the Audit Committee

Proposal 4 - Ratification of Appointment of Independent Registered Public Accounting Firm

Shareholder Proposals

Communications with the Board of Directors

Other Matters

2022 Proxy Card

EX-1

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND THE MEETING

Q: Why am I receiving these materials?

A: Our Board is providing these proxy materials to you in connection with our 2022 Annual Meeting of Shareholders, which
will take place on Thursday, June 16, 2022. As a shareholder on the Record Date for the meeting, you are invited to attend the
meeting. We also encourage you to vote on the matters described in this proxy statement.

Q: What information is contained in these materials?

A: This proxy statement includes information about the nominee for Director and the other matters to be voted on at the
meeting. The proxy statement also includes information about the voting process and requirements, the compensation of our
Directors and executive officers, and certain other required information.

Q: What can I vote on at the meeting?

A: There are four matters to be voted on at the meeting:

To elect one Director to serve until the Annual Meeting of Shareholders to be held in 2025, or until his successor
is elected and qualified;

To consider an advisory vote on executive compensation of our named executive officers;

To approve the amendment to the 2019 Equity Incentive Plan to increase the number of shares reserved for
issuance under the plan by 650,000;

To ratify the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm
for 2022; and

To transact such other business as may properly be presented at the meeting, or at any adjournment(s) of the
meeting.

Q: How does the Board recommend that I vote on each of the matters?

A: Our Board recommends that you vote FOR the Director nominee (Proposal #1); FOR the amendment to increase the number
of shares reserved for issuance under the 2019 Equity Incentive Plan by 650,000 shares (Proposal #3) and FOR the ratification
of the appointment of Moss Adams LLP as our independent registered public accounting firm for 2022 (Proposal #4). With
respect to Proposal #2, the Board of Directors recommends that you vote FOR approval, on an advisory basis, of the
compensation programs of our named executive officers as set forth under the caption “Executive Compensation” of this proxy
statement.

Q: Can I receive next year’s proxy materials by email?

A: Yes. All shareholders who have active email accounts and Internet access may sign up for email delivery of shareholder
materials. To sign up, go to www.proxyvote.com and click on “Electronic Enrollment.” If you have multiple registered or
beneficial accounts, you need to enroll for each account. If you elect to receive proxy materials by email, we will not mail you
any proxy-related materials next year. Your enrollment in the email program will remain in effect as long as your account
remains active or until you cancel it.

Q: Who is entitled to vote at our annual meeting of shareholders?

A: Holders of our outstanding common stock on April 14, 2022, are entitled to one vote per share on each of the items being
voted on at the meeting. We refer to this date as the Record Date. On the Record Date, we had 12,561,408 shares of common
stock outstanding. We have no other classes of stock outstanding.

Q: What shares can I vote?

A: You can vote all shares you owned on the Record Date. These shares include (1) shares held directly in your name as the
shareholder of record and (2) shares held for you as the beneficial owner through a stockbroker, bank or other nominee.

Q: How do I vote my shares?

A: Shareholders of record may vote using one of the following four methods:

•
•
•

•

over the Internet, which you are encouraged to do so if you have access to the Internet;
by telephone;
by completing, signing and returning the included proxy card, for those who requested to receive printed proxy
materials in the mail; or
by attending the Annual Meeting and voting in person.

The Notice provides instructions on how to access your proxy, which contains instructions on how to vote via the
Internet or by telephone. Alternatively, you may vote by marking the proxy card you received in the mail and return it to the
address set forth in the instructions contained in the proxy card. Due to timing issues in connection with mail delivery, we
recommend that you vote your shares over the Internet or by telephone.

If you hold shares in street name, the organization holding your account is considered the shareholder of record for
purposes of voting at the Annual Meeting. The shareholder of record will provide you with instructions on how to vote your
shares. Internet and telephone voting will be offered to shareholders owning shares through most brokerage firms and banks.
Additionally, if you would like to vote in person at the Annual Meeting, contact the brokerage firm, bank or other nominee who
holds your shares to obtain a proxy from them and bring it with you to the Annual Meeting. You will not be able to vote at the
Annual Meeting unless you have a proxy from your brokerage firm, bank or other nominee.

Q: What is the difference between holding shares as a shareholder of record and as a beneficial owner?

A: Most of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own
name. There are some important distinctions between shares held of record and those owned beneficially.

Shareholder of Record

If your shares are registered in your name with our transfer agent, Computershare, you are the shareholder of record
for those shares and are receiving Meeting Materials directly from us. As the shareholder of record, you have the right to grant
your voting proxy directly to us or to vote in person at the meeting.

Beneficial Owner

If your shares are held in a stock brokerage account, by a bank or other nominee (commonly referred to as being held
in “street name”), you are the beneficial owner of those shares. Your broker, bank or nominee is the shareholder of record and
therefore has forwarded Meeting Materials to you as beneficial owner. As the beneficial owner, you have the right to direct
your broker, bank or other nominee how to vote your shares and are also invited to attend the meeting. However, since you are
not the shareholder of record, you may not vote your shares in person at the meeting unless you obtain a signed proxy from
your broker, bank or nominee giving you the right to vote the shares.

Q: Can I change my vote or revoke my proxy?

A: Yes. You can change your vote or revoke your proxy at any time before the final vote at the meeting. You can do this by
casting a later proxy through any of the available methods described above. If you are a shareholder of record, you can also
revoke your proxy by delivering a written notice of your revocation to our Corporate Secretary at our principal executive office
at 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705. If you are a beneficial owner, you can revoke your proxy by
following the instructions sent to you by your broker, bank or other nominee.

Q: What does it mean if I get more than one set of Meeting Materials?

A: It means you hold shares registered in more than one account. Follow the instructions in each set of Meeting Materials to
ensure that all of your shares are voted.

Q: What is the quorum requirement for the meeting?

A: For a “quorum” to exist at the meeting, shareholders holding a majority of the votes entitled to be cast by the shareholders
entitled to vote must be present in person or represented by proxy at the meeting. There must be a quorum for any action to be
taken at the meeting (other than adjournment or postponement of the meeting). If you submit a properly completed proxy, even
if you abstain from voting, then your shares will be counted for purposes of determining the presence of a quorum.

If a broker indicates on a proxy that it lacks discretionary authority as to certain shares to vote on a particular matter,
commonly referred to as “broker non-votes,” those shares will still be counted for purposes of determining the presence of a
quorum at the meeting. Please see the next question and answer for further information about "broker non-votes."

Q: What are broker non-votes and how are broker non-votes and abstentions counted?

A: If you are a beneficial owner and hold your shares in street name and do not provide your broker or other nominee with
voting instructions, the broker, bank, or other nominee will determine if it has the discretionary authority to vote on the
particular matter. The New York Stock Exchange permits brokers to vote their customers' shares on routine matters when the
brokers have not received voting instructions from the customers. The ratification of independent public accountants is an
example of a routine matter on which brokers may vote. Brokers may not vote their customers' shares on non-routine matters
unless they have received instructions from the customers. Non-voted shares on non-routine matters are referred to as broker
non-votes. The ratification of the appointment of Moss Adams LLP as our independent public accountants for 2022 (Proposal
4) is a matter considered "routine" under applicable rules. The election of a Director (Proposal 1), the advisory vote to approve
the named executive officers' compensation programs (Proposal 2) and the vote to approve the increase in shares issuable under
our 2019 Equity Incentive Plan (Proposal 3) are matters considered "non-routine" under applicable rules. For purposes of the
election of a Director and all of the proposals set forth in this proxy statement, abstentions and broker non-votes, if any, will not
be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the
purpose of determining the presence of a quorum.

Q: What is the voting requirement to approve each of the matters?

Proposals

Board
Recommendation

Votes Required

Effect of
Abstentions

Effect of Broker Non-
Votes

Election of a Director

FOR the nominee

Majority of votes cast

None

FOR

Majority of votes cast

None

FOR

Majority of votes cast

None

Advisory Vote to Approve
Executive Compensation
("Say on Pay" Vote)

Increase of Reserved Shares
under the 2019 Equity
Incentive Plan

Ratification of Independent
Registered Public
Accounting Firm

FOR

Majority of votes cast

None

No Broker Non-Votes
(Routine Matter)

We also will consider any other business that properly comes before the annual meeting.

Q: How can I vote on each of the matters and how will the votes be counted?

A: In the election of Directors, you may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to the nominee. For the (i)
advisory vote on compensation of our named executive officers, (ii) approval of an amendment to the 2019 Equity Incentive
Plan to increase the number of shares of Company common stock that may be issued thereunder by 650,000 shares and (iii) the
ratification of the appointment of Moss Adams LLP as our independent auditors you may vote “FOR,” “AGAINST,” or
“ABSTAIN” with respect to these two proposals. Under Colorado law (under which the Company is incorporated), abstentions
are counted as shares present and entitled to vote at the Annual Meeting, and therefore counted as present for the purpose of
determining whether a quorum is present, but they are not counted as shares cast and will therefore have no effect on the
outcome of the vote.

If you sign and return your proxy card or voting instruction form without giving specific voting instructions, your shares will be
voted as recommended by our Board. If you are a beneficial holder and do not return a voting instruction form, your broker may
only vote on the ratification of the appointment of Moss Adams (Proposal 4).

Q: Who will count the votes?

A: Broadridge, an international investor relations company, is assisting us with the voting of proxies for our meeting. Prior to
the meeting, Broadridge will provide us with a tabulation of the votes cast prior to the meeting. We believe that Broadridge will
use procedures that are consistent with Colorado law concerning the voting of shares, the determination of the presence of a
quorum and the determination of the outcome of each matter submitted for a vote. In addition, we will appoint a voting
inspector at the meeting to count and tabulate any votes cast at the meeting.

Q: Who may attend the meeting?

A: All shareholders as of the Record Date may attend. Please bring to the meeting:

•

proof of ownership such as: a copy of your proxy or voting instruction card; the two-page notice regarding the
internet availability of proxy materials you received in the mail; or a copy of a brokerage or bank statement
showing your share ownership as of the Record Date; and

proof of identification such as a valid driver’s license or passport.

Q: How will voting on any other business be conducted?

A: We do not expect any matters to be presented for a vote at the meeting other than the four matters described in this proxy
statement. If you grant a proxy, either of the officers named as proxy holders, Stephen C. Taylor and Micah C. Foster, or their
nominees or substitutes, will have the discretion to vote your shares on any additional matters that are properly presented for a
vote at the meeting and at any adjournment or postponement that may take place. If, for any unforeseen reason, our nominee is
not available as a candidate for Director, the persons named as the proxy holder will vote your proxy for another candidate or
other candidates nominated by our Board.

Q: May I propose actions for consideration at next year’s meeting of shareholders?

A: Yes. Please see the section entitled "Shareholder Proposals" in this proxy statement for information concerning making
shareholder proposals and director nominations.

Q: Who is paying for this proxy solicitation?

A: We will pay the cost of soliciting the proxies. In addition, our officers, Directors and employees may solicit proxies or votes
in person, by telephone or by email. These people will not be paid any additional compensation for these activities. We will
send copies of proxy-related materials or additional solicitation materials to brokers, fiduciaries and custodians who will
forward these materials to the beneficial owners of our shares. On request, we will reimburse brokers and other persons
representing beneficial owners of shares for their reasonable expenses in forwarding these materials to beneficial owners.

Q: How can I find out the results of the voting at the Annual Meeting?

A: Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a current
report on Form 8-K that we expect to file with the SEC no later than four business days after the conclusion of the Annual
Meeting. If final voting results are not available to us in time to file a Form 8-K on or before the fourth business day after the
Annual Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final
results are known to us, file an additional Form 8-K to publish the final results.

HOUSEHOLDING OF PROXY MATERIALS

In an effort to reduce printing costs and postage fees, we have adopted a practice called “householding.” Under this
practice, shareholders who have the same address and last name and do not participate in email delivery of proxy-related
materials will receive only one set of our proxy statement, annual report or notice of internet availability of proxy-related
materials unless one or more of these people notifies us that he or she wishes to continue to receive individual copies.

If you share an address with another shareholder and receive only one set of proxy-related materials and would like to
request a separate copy for this year’s annual meeting or for any future meetings, please: (1) call our Investor Relations contact
at (432) 262-2700; (2) send an email to alicia.dada@ngsgi.com; or (3) mail your request to Natural Gas Services Group, Inc.,
404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705, Attn: Investor Relations. Similarly, you may also contact us
through any of these methods if you receive multiple copies of the materials and would prefer to receive a single copy in the
future.

PROPOSAL 1 - ELECTION OF DIRECTORS

Our Board of Directors is divided into three classes, each class to be as nearly equal in number as possible. At each
annual meeting of shareholders, members of one of the classes, on a rotating basis, are elected for a three-year term. The
authorized number of Directors is currently set at nine. We currently have five Directors serving on our Board. Our Board may
fill the vacancies if a qualified candidate is vetted. The following table sets forth, by class, the members of our Board of
Directors as of the date of this proxy statement:

Term Expiring at the 2022
Annual Meeting

Terms Expiring at the 2023 Annual
Meeting

John W. Chisholm

Leslie A. Beyer

Stephen C. Taylor

Terms Expiring at the
2024 Annual Meeting

David L. Bradshaw

Nigel J. Jenvey

Shareholders will be electing one Director at the meeting. The Board is recommending the re-election of Mr. John W.

Chisholm to the Board of Directors to serve a three-year term expiring at the annual meeting of shareholders in 2025.

The person named in our form of proxy will vote the shares represented by such proxy for the election of the nominee
for Director named above unless other instructions are shown on the proxy card. If, at the time of the meeting, the nominee
becomes unavailable for any reason, which is not expected, the persons entitled to vote the proxy will vote for such substitute
nominee, if any, as they determine in their sole discretion, or we may reduce the size of the Board.

Biographical information and qualifications for the person nominated as a Director, and for each person whose term of

office as a Director will continue after the 2022 Annual Meeting, is set forth below.

Nominee for Director for Term to Expire in 2025

John W. Chisholm

John W. Chisholm, 67, was appointed as a Director of Natural Gas Services Group in December 2006. On May 17,
2022, Mr. Chisholm was appointed Interim Chief Executive Officer of the Company in connection with the retirement of
Stephen C. Taylor. Mr. Chisholm was appointed as Lead Independent Director in June 2020, although he will no longer act as
Lead Independent Director while he remains Interim Chief Executive Officer. Mr. Chisholm is the founder of Wellogix, an oil
and gas software company that develops software aimed at expediting the exchange of enterprise data and communication of
complex engineered services. Prior to founding Wellogix, Mr. Chisholm co-founded and served as President of ProTechnics
Company from 1985 until its sale to Core Laboratories in December of 1996. Mr. Chisholm served as Senior Vice President of
Global Sales and Marketing of Core Laboratories until 1998, when he started Chisholm Energy Partners, an investment fund
focused on mid-size energy service companies. From 2002 to 2009, Mr. Chisholm served on the Board of Directors of Flotek
Industries, Inc. ("Flotek"), and became its interim President in August 2009. Mr. Chisholm became President of Flotek in
August 2010, was appointed as its Chief Executive Officer in March 2012, and served in those roles until January 2020. Flotek
is a public company which files reports under the Securities Exchange Act of 1934. Mr. Chisholm is presently CEO of The
John Chisholm Group. Mr. Chisholm holds a Business Administration degree from Fort Lewis College in Colorado.

Mr. Chisholm brings significant natural resources experience to our Board, in connection with his background in
supplying drilling and production related products and services to the oil, gas and mining industries, and his investment fund
experience with mid-size energy service companies is an invaluable resource as the Company assesses its capital and liquidity
needs. In addition, Mr. Chisholm's experience as a board member and executive officer of a public company provides us with a
wealth of leadership and management skills.

Required Vote for This Proposal

The election of the Director nominee requires the affirmative vote of a majority of the votes cast at the Annual
Meeting with respect to the nominee. The number of shares voted "for" the Director nominee must exceed the number of votes
cast "against" that nominee for the nominee to be elected as a Director to serve until his term expires or until his successor has
been duly elected and qualified. Abstentions and broker non-votes are not counted as votes cast in the election of directors and
therefore will not have any effect on the outcome of the vote.

Pursuant to the resignation policy adopted by our Board and further described in our Corporate Governance

Guidelines, any nominee for Director who is not elected shall promptly tender his or her resignation to our Board following
certification of the stockholder vote. The Environmental, Social and Governance and Personnel Development ("ESG")
Committee will consider the resignation offer and recommend to our Board the action to be taken with respect to the offered
resignation. In determining its recommendation, the ESG Committee shall consider all factors it deems relevant. Our Board will
act on the ESG Committee's recommendation within 90 days following certification of the stockholder vote and will publicly
disclose its decision with respect to the Director's resignation offer (and the reasons for rejecting the resignation offer if
applicable).

Any Director who tenders his or her resignation pursuant to the resignation policy shall not participate in the ESG
Committee's recommendation or Board action regarding whether to accept the resignation offer. If each member of the ESG
Committee is required to tender his or her resignation pursuant to the resignation policy in the same election then the
independent Directors of our Board of Directors who are not required to tender a resignation pursuant to the resignation policy
shall consider the resignation offers and make a recommendation to our Board.

To the extent that one or more Directors' resignations are accepted, our Board, in its discretion, may determine either

to fill such vacancy or vacancies or to reduce the size of the Board within the authorized range.

Continuing Directors Whose Term Expires in 2023

Leslie A. Beyer

Leslie A. Beyer, 46, joined our Board in June 2020. Ms. Beyer is the Chief Executive Officer of the Energy Workforce
and Technology Council (“EWTC”) formed through the merger of the Petroleum Equipment & Services Association (“PESA”)
and the Association of Energy Service Companies, a position she has held since the merger in February, 2021. EWTC
represents more than 600 member companies in energy services, supply, manufacturing and drilling with a focus on enabling its
members to safely, profitably and sustainably produce the energy needed to meet rising demand around the world. Prior to
leading EWTC, Ms. Beyer was the Chief Executive Officer of PESA. Prior to joining PESA, Ms. Beyer served as Director,
Member and Board Relations for the National Association of Manufacturers from 2012 to 2014. Previously, Ms. Beyer served
in leadership roles at Burson-Marsteller Public Affairs and at a boutique public relations firm for more than six years. Prior to
her time in public affairs, Ms. Beyer served in media relations capacities in The White House, Executive Office of the President
and on the Bush 2000 Presidential Campaign. She began her career in legislative policy roles in the U.S. Senate, U.S.
Department of State and U.S. Department of Housing. Ms. Beyer holds a Bachelor of Arts in Latin American Studies and
Spanish from the University of Texas at Austin.

As a strong advocate for the oilfield services and equipment sector, Ms. Beyer provides the Board with a wealth of
knowledge and insight about the strategic and tactical matters impacting our business and industry. In addition, Ms. Beyer's
public affairs, policy and leadership experience significantly adds to our Board's capabilities.

Stephen C. Taylor

Stephen C. Taylor, 68, was President and Chief Executive Officer of Natural Gas Services Group from January 2005
until his retirement from the positions effective May 17, 2022. He was elected as a Director of Natural Gas Services Group at
the annual meeting of shareholders in June 2005. Effective January 1, 2006, Mr. Taylor was appointed Chairman of the Board
and he will continue in that role notwithstanding his retirement as an officer and employee of the Company. Immediately prior
to joining Natural Gas Services Group, Mr. Taylor held the position of General Manager − US Operations for Trican
Production Services, Inc. from 2002 through 2004. Mr. Taylor joined Halliburton Resource Management in 1976, becoming its
Vice President − Operations in 1989. Beginning in 1993, he held multiple senior level management positions with Halliburton
Energy Services until 2000 when he was elected Senior Vice President/Chief Operating Officer of Enventure Global
Technology, LLC, a joint-venture deep water drilling technology company owned by Halliburton Company and Shell Oil
Company. Mr. Taylor elected early retirement from Halliburton Company in 2002 to join Trican Production Services, Inc. Mr.
Taylor holds a Bachelor of Science degree in Mechanical Engineering from Texas Tech University and a Master of Business
Administration degree from the University of Texas at Austin.

Mr. Taylor’s senior management experience in the natural resources industry provides the Board and our company
with significant insight into our business. Mr. Taylor’s engineering and advanced business training uniquely qualifies him to
provide leadership, technical expertise and financial acumen to our Board.

Continuing Director Whose Term Expires in 2024

David L. Bradshaw

David L. Bradshaw, 67, joined our board in December of 2011. On May 17, 2022, Mr. Bradshaw was appointed as the
Lead Independent Director at the time John W. Chisholm was appointed as Interim Chief Executive Officer. Since 2005, Mr.
Bradshaw has acted as a consultant in the oil and gas exploration and production sector and has overseen his investments in this
area. From August 2007 through November 2009, Mr. Bradshaw served as a Director and Audit Committee Chairman for
Triangle Petroleum, a publicly traded company listed on the American Stock Exchange. From November 2007 through
November 2008, Mr. Bradshaw served as a Director for Comet Ridge Limited, an Australian company listed on the Australian
Securities Exchange. From 1986 to 2005, Mr. Bradshaw worked for Tipperary Corporation, a U.S. public company listed on the
American Stock Exchange. During his tenure at Tipperary, the company was involved in oil and gas exploration and
production, and natural gas processing and transportation. He held the positions of Chief Executive Officer from 1996 to 2005,
Chairman of the Board from 1997 to 2005, Chief Financial Officer from 1990 to 1996 and Chief Operating Officer from 1993
to 1996. From 1999 to 2005, Mr. Bradshaw also served as Chief Executive Officer and Chairman of Tipperary Oil & Gas
(Australia) Pty Ltd, a subsidiary of Tipperary, which explored for and produced natural gas in Queensland, Australia. From
1983 to 1986, Mr. Bradshaw was an owner and officer of Bradcorp, Inc., a private exploration and production company. Prior
to this, Mr. Bradshaw spent six years in public accounting serving predominantly oil and gas clients. Mr. Bradshaw graduated
from Texas A&M University with a BBA in Accounting in 1976 and a MBA in 1977, and is also a Certified Public Accountant.

Mr. Bradshaw's educational and professional training and achievements as a Certified Public Accountant and MBA,
along with his past experience as both a Chief Financial Officer and Chief Executive Officer of a public company involved in
the natural resources industry, provides us with considerable accounting and corporate finance skills. In addition, Mr.
Bradshaw's career has spanned over forty years in the oil and gas industry and as a public accountant. His executive
management positions in both private and public companies bring us significant leadership, planning and management skills
and background.

Nigel J. Jenvey

Nigel. J. Jenvey, 49, was appointed as a Director of Natural Gas Services Group in April 2021. Mr. Jenvey is currently
Executive - Strategy & Growth Initiatives at Baker Hughes and serves as a board member for their interests in a hydrogen
production technology company called Ekona Power and the Long Duration Energy Storage Council, and previously held the
position of Global Head of Carbon Management at their consultancy Gaffney, Cline & Associates. Prior to joining Baker
Hughes, Mr. Jenvey spent eight years at BP as the company’s head of Carbon, Capture, Use and Storage (CCUS) and carbon
solutions manager. He also led similar efforts at Maersk Oil as Technical Director of carbon & climate, and served in various
managerial and project leadership roles at Royal Dutch Shell, including Shell’s global Enhanced Oil Recovery (EOR) Center of
Expertise and European operating business. He began his career as a petroleum engineer at Texaco in 1995 supervising offshore
oil and gas production operations in the North Sea. Mr. Jenvey is an industry leader in Carbon Management and expert in
CCUS having been involved in leading projects across the world since 2004. These have included providing study leadership to
the National Petroleum Council, industry capability development in the Society of Petroleum Engineers, and provision of
advise to various major energy companies in the US and Canada. Mr. Jenvey is the Editor of the annual Decarbonization
feature in the SPE Journal of Petroleum Technology and has been a peer reviewer to the International Energy Agency. Mr.
Jenvey has also provided testimony to Congress on CO2 Capture technologies. Mr. Jenvey holds a Bachelor degree (Hons.) in
Mining Engineering from the University of Leeds and both a Diploma and a Master of Science degree in Petroleum
Engineering from Imperial College in London.

Mr. Jenvey brings significant carbon management, sustainability and ESG experience to our Board. His experience of
working with companies, investors, governments, academia, and non-governmental organizations provides us a wealth of
knowledge and insight regarding the challenges and solutions that exist for the oil and gas industry, and adds to our Board’s
capabilities to successfully guide the Company through these matters that are impacting our business and industry.

THE BOARD OF DIRECTORS AND ITS COMMITTEES

Natural Gas Services Group’s Board of Directors held six meetings in 2021. Each Director attended at least 75% of the
total number of Board meetings held while such person was a Director. Each Director also attended at least 75% of all of the
meetings held by all committees of the Board for which he served (during the periods that he served). The Board acts from time
to time by unanimous written consent in lieu of holding a meeting.

Our non-management Directors hold regularly scheduled executive sessions in which those Directors meet without

management participation. Generally, our Lead Director, John W. Chisholm, presides over these sessions.

We typically schedule a Board meeting in conjunction with our annual meeting of shareholders. We expect our
Directors to attend each annual meeting, absent a valid reason, such as illness or an unavoidable schedule conflict. Last year, all
of the individuals then serving as Directors attended our 2021 Annual Meeting of Shareholders.

To assist it in carrying out its duties, the Board has delegated certain authority to four separately designated standing

committees. These committees are described below.

Audit Committee

The primary functions of our Audit Committee include:

•

assisting the Board in fulfilling its oversight responsibilities as they relate to our accounting policies, internal
controls, financial reporting practices and legal and regulatory compliance;

discussing with management policies with respect to risk assessment and risk management;

hiring our independent registered public accounting firm;

• monitoring the independence and performance of our independent registered public accounting firm;

• maintaining, through regularly scheduled meetings, a line of communication between the Board, our financial

management and independent registered public accounting firm; and

•

overseeing compliance with our policies for conducting business, including ethical business standards.

The members of the Audit Committee are David L. Bradshaw (Chairman), Leslie A. Beyer, and Nigel J. Jenvey. Our
common stock is listed for trading on the New York Stock Exchange, or “NYSE”. Under rules of the NYSE, the Audit
Committee is to be comprised of three or more Directors, each of whom must be independent. Our Board has determined that
all of the members of the Audit Committee are independent, as defined under the applicable NYSE rules and listing
standards. In addition, our Board has determined that David L. Bradshaw is qualified as an “audit committee financial expert”
as that term is defined in the rules of the United States Securities and Exchange Commission. The Audit Committee met eight
times during the last fiscal year. The audit committee has also received from, and discussed with, Moss Adams the matters
required to be discussed by Public Accounting Oversight Board Auditing Standard No. 1301 (AS 1301) (Communications with
Audit Committees).

Any shareholder may obtain free of charge a printed copy of our Audit Committee Charter by sending a written
request to Investor Relations, Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705
or by visiting the “Governance” tab on the investor relations page of our website at www.ngsgi.com.

Compensation Committee

The primary functions of our Compensation Committee include:

•

assisting the Board in overseeing the management of our human resources;

evaluating our Chief Executive Officer’s performance and compensation;

formulating and administering our overall compensation principles and plans; and

evaluating management.

The Compensation Committee’s policy is to offer the executive officers competitive compensation packages that will

permit us to attract and retain individuals with superior abilities and to motivate and reward such individuals in an appropriate
fashion in the long-term interests of Natural Gas Services Group and its shareholders. Currently, executive compensation is
comprised of salary and cash bonuses and awards of long-term incentive opportunities in the form of restricted stock or
restricted stock unit awards under the 2019 Equity Incentive Plan, as well as other long-term incentives payable in cash.

The members of the Compensation Committee are Leslie A. Beyer. (Chairperson since April 2021), John W.
Chisholm, and David L. Bradshaw. However, due to Mr. Chisholm's appointment as our Interim Chief Executive Officer and
pursuant to NYSE rules, his membership on this committee will be suspended while he acts as our Interim Chief Executive
Officer. Our Board has determined that all of the members of the Compensation Committee are independent, as defined under
the applicable NYSE rules and listing standards. During the last fiscal year there were six meetings of the Compensation
Committee.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee members are not officers or employees of our company, and there is not, nor was there
during fiscal 2021, any compensation committee interlock (in other words, no executive of our company serves as a Director or
on the compensation committee of a company that has one or more executives serving on our Board or our Compensation
Committee).

Any shareholder may obtain free of charge a printed copy of our Compensation Committee Charter by sending a
written request to Investor Relations, Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite 300, Midland, Texas
79705 or by visiting the “Governance” tab on the investor relations page of our website at www.ngsgi.com .

Environmental, Social and Governance and Personnel Development Committee

The primary functions of our Environmental, Social and Governance ("ESG") and Personnel Development Committee include:

•

overseeing the governance of the Board and its committees;

interpreting the Governance Guidelines, the Code of Business Conduct and Ethics and other similar governance
documents adopted by the Board;

overseeing the evaluation of the Board and its committees; and

developing, with input from executive leadership, the principles guiding our Environmental, Social and
Governance efforts and monitoring our progress in meeting such principles

The members of the ESG and Governance and Personnel Development Committee are Nigel J. Jenvey (Chairman),
David L. Bradshaw, and John W. Chisholm. However, due to Mr. Chisholm's appointment as our Interim Chief Executive
Officer and pursuant to NYSE rules, his membership on this committee will be suspended while he acts as our Interim Chief
Executive Officer. Our Board has determined that each of the ESG and Personnel Development Committee members are
independent, as defined under the applicable NYSE rules and listing standards. During the last fiscal year there were four
meetings of the ESG and Personnel Development Committee.

Any shareholder may obtain free of charge a printed copy of our Environmental, Social and Governance and Personnel
Development Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 404
Veterans Airpark Lane, Suite 300, Midland, Texas 79705 or by visiting the “Governance” tab on the investor relations page of
our website at www.ngsgi.com.

Nominating Committee

The primary functions of our Nominating Committee include:

•

identifying individuals qualified to become board members, consistent with the criteria approved by the Board;

recommending Director nominees and individuals to fill vacant positions; and

overseeing executive development and succession and diversity efforts.

The members of the Nominating Committee are John C. Chisholm (Chairman), Leslie A. Beyer, and Nigel J. Jenvey.
However, due to Mr. Chisholm's appointment as our Interim Chief Executive Officer and pursuant to NYSE rules, his

membership on this committee will be suspended while he acts as our Interim Chief Executive Officer. Our Board of Directors
has determined that each of the Nominating Committee members is independent as defined under the applicable NYSE rules
and listing standards. During the last fiscal year there were six meetings of the Nominating Committee.

Any shareholder may obtain free of charge a printed copy of our Nominating Committee Charter by sending a written
request to Investor Relations, Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705
or by visiting the “Governance” tab on the investor relations page of our website at www.ngsgi.com. The Committee’s goal is
to nominate candidates who possess a range of experiences and backgrounds which will contribute to the board’s overall
effectiveness in meeting its duties and forwarding the goals of our company.

The Board is responsible for identifying individuals qualified to become Directors, and nominees are selected by the
Board. The Board takes into account many factors, including being highly qualified in terms of business experience, finance
and other disciplines relevant to the success of a publicly traded company in today’s business environment; understanding of
the Company’s business on a technical level and the industry in which it competes; and educational and professional
background. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a
group that can best support the success of the business and, based on its diversity of experience and backgrounds, represent
stockholder interests through the exercise of sound judgment.

The Nominating Committee will consider a Director candidate recommended by a shareholder. A candidate must be
highly qualified based on the factors noted above and be both willing and expressly interested in serving on the Board. A
shareholder wishing to recommend a candidate for the Committee’s consideration must follow Securities and Exchange
Commission Rule 14a-8 or our advance notice provisions contained in our Bylaws. Please see "Shareholder Proposals" on page
55 of this proxy statement for further information.

Director Independence

The Board has determined that each of the following four members of the Board is “independent” within the meaning
of applicable listing standards of the NYSE and under the standards, set forth in Exhibit A to our Environmental Social and
Governance and Personnel Development Charter which are consistent with the NYSE listing standards: Leslie A. Beyer, Nigel
J. Jenvey and David L. Bradshaw. John W. Chisholm was independent up until May 17, 2022, when he was appointed to act as
our Interim Chief Executive Officer in connection with the retirement of Stephen C. Taylor. We anticipate that Mr. Chisholm
will return as an independent director of the Board upon the conclusion of his term as Interim Chief Executive Officer, subject
to NYSE regulations and applicable law. The Board has made an affirmative determination that each of Directors named above
satisfies these categorical standards. In making its determination, the Board examined relationships between Directors or their
affiliates with us and our affiliates and determined that each such relationship, if any, did not impair the Director’s
independence. A copy of Exhibit A to our Governance Charter is available at our website, www.ngsgi.com, under the heading
“Investor Relations-Governance.”

Board of Directors Diversity

The Company values diversity and the benefits that a diverse workforce can bring to the Company and to the Board of
Directors. Diversity can promote the inclusion of different perspectives and ideas which can lead to more robust discussion
regarding strategic and governance policy alternatives and, ultimately, result in better corporate governance and decision
making.

The Company seeks to maintain a Board comprised of talented and dedicated Directors with a diverse mix of
expertise, experience, skills and backgrounds. The skills and backgrounds collectively represented on the Board should reflect
the diverse nature of the business environment in which the Company operates. As new members of the Board are considered,
diversity considerations should include - but not be limited to - business expertise, geography, age, gender and ethnicity.

The Company is committed to a merit-based system for Board composition within a diverse and inclusive culture
which solicits multiple perspectives and views and is free of conscious or unconscious bias. When assessing Board composition
or identifying suitable candidates for appointment to the Board, the Company will consider candidates on merit with due
consideration to the benefits of diversity and the needs of the Board. The Board and its Nominating Committee are especially
cognizant of the benefits of gender and ethnic diversity and will continue to focus on important diversity metrics in future
searches.

The Board’s Leadership Structure

Under our Corporate Governance Guidelines, our Chief Executive Officer also serves as our Chairman of the Board,
and that person is responsible to the Board for the overall management and functioning of the company. Stephen C. Taylor
serves as Chairman of the Board and served as our President and Chief Executive Officer (“CEO”) up until his retirement on
May 17, 2022. The Board believed this was the most effective Board leadership structure at the time and believed that
Mr. Taylor, in his role as Chairman and CEO, had the ability to execute on both our short-term and long-term strategies
necessary for the challenging marketplace in which we compete. The independent Directors believed that Mr. Taylor's detailed
and in-depth knowledge of the issues, opportunities and challenges facing us and our business make him the best qualified
Director to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. Further, as
the individual with primary responsibility for managing day-to-day operations, Mr. Taylor was best positioned to chair regular
Board meetings and ensure that key business issues and risks are brought to the attention of our Board and/or Audit
Committee. Notwithstanding his retirement as an officer and employee of the Company, Mr. Taylor will continue his position
as Chairman of the Board.

Through May 17, 2022, each of our Directors, other than Mr. Taylor, was independent, and the Board believes that the
independent Directors provide effective oversight of management. In connection with Mr. Chisholm's appointment as Interim
Chief Executive Officer, under NYSE rules he will no longer be deemed independent while he acts in this capacity. The Board
may subsequently decide, however, to change that leadership structure which would require a revision to our Corporate
Governance Guidelines. The Board believes that it has in place safeguards to ensure that we maintain the highest standards of
corporate governance and continued accountability of the CEO to the Board. These safeguards include:

•

All members of the Board were independent Directors except for Mr. Taylor.

The establishment of the Lead Director position, described below, which assumes the role of ensuring fair, open
and independent discussions and decisions amongst the Board. John W. Chisholm served as Lead Director until he
was appointed as our Interim Chief Executive Officer. David Bradshaw will serve as our Lead Director during this
transition period.

Each of the Board’s standing committees, including the Audit, Compensation, ESG and Nominating Committees,
are comprised of and chaired solely by non-employee Directors who meet the independence requirements under
the NYSE listing standards and other governing laws and regulations. As noted above, these committees meet
frequently.

Review and determination of Mr. Taylor’s compensation and performance remains within the purview of the
Compensation Committee.

The independent Directors continue to meet in executive sessions without management present to discuss the
effectiveness of the company’s management, the quality of the Board meetings and any other issues and concerns.

Lead Director

To promote the independence of the Board and appropriate oversight of management and to demonstrate our
commitment to strong corporate governance, the independent Directors designate an independent, non-employee Director to
serve as our Lead Director. The Lead Director helps to facilitate free and open discussion and communication among the
independent, non-employee Directors. The responsibilities of the Lead Director are set forth in our Corporate Governance
Guidelines, which is available under “Investor Relations - Governance Documents” on our website at www.ngsgi.com. John
W. Chisholm was appointed Lead Director in June 2020 but while he acts as our Interim Chief Executive Officer, David
Bradshaw will serve as our Lead Director during his transition period.

Role in Risk Oversight

Our Board of Directors oversees the management of risks inherent in the operation of our business and the
implementation of our strategic plan. Our executive management is responsible for the day-to-day management of risks we
face. The Board is periodically advised by management on the status of various factors that could impact our business and
operating results, including oil and gas industry issues, operational issues (such as compressor manufacturing issues, backlog
for compressor equipment etc.), legal and regulatory risks. The full Board is also responsible for reviewing our strategy,
business plan, and capital expenditure budget.

Our Board committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. Our Audit
Committee serves an important role in providing risk oversight, as further detailed in its charter. One of the Audit Committee’s

primary duties and responsibilities is to monitor the integrity of our financial statements, financial reporting processes, systems
of internal controls regarding accounting, and disclosure controls and procedures. The Compensation Committee assists the
Board with risk management relating to our compensation policies and programs, and the Governance and Nominating
Committee assists with risk management relating to Board organization, membership and structure, succession planning for our
Directors and executive officers, and corporate governance.

CODE OF ETHICS

Our Board of Directors has adopted a Code of Business Conduct and Ethics (“Code”), which is posted on our website
at www.ngsgi.com. You may also obtain a copy of our Code by requesting a copy in writing at 404 Veterans Airpark Lane,
Suite 300, Midland, Texas 79705 or by calling us at (432) 262-2700.

Our Code provides general statements of our expectations regarding ethical standards that we expect our Directors,
officers and employees, including our Chief Executive Officer and Chief Financial Officer, to adhere to while acting on our
behalf. Among other things, the Code provides that:

•

we will comply with all laws, rules and regulations;

our Directors, officers and employees are to avoid conflicts of interest and are prohibited from competing with us
or personally exploiting our corporate opportunities;

our Directors, officers and employees are to protect our assets and maintain our confidentiality;

we are committed to promoting values of integrity and fair dealing; and that

we are committed to accurately maintaining our accounting records under generally accepted accounting
principles and timely filing our periodic reports.

Our Code also contains procedures for our employees to report, anonymously or otherwise, violations of the Code.

SHAREHOLDER ENGAGEMENT

The Company's Board of Directors and executive management believes that building long-term relationships with all
Company stakeholders is vital to meeting our corporate governance goals, and to stand in support of our commercial success.
Our shareholders, who invest in our company and elect the Board, are entitled to important information about the company's
business, policies and practices so they can make informed decisions and knowledgeably participate in the governance process.

The Company’s executive management has directly engaged shareholders throughout the year in many diverse ways
including quarterly conference calls, investor and industry conferences and individual meetings initiated by both the Company
and shareholders. It is our policy to actively engage our shareholders in dialogue about our financial and operational trends, the
structure of our business, and certain governance issues, including executive compensation.

As our engagement efforts relate to executive compensation and our annual advisory vote on executive compensation,
in late 2021 and early 2022, the Natural Gas Services Group Compensation Committee, comprised exclusively of independent
directors, solicited meetings with shareholders representing approximately 65% of the Company's outstanding common shares.
Of this group, the Compensation Committee held meetings with investors representing approximately 20% of shares
outstanding. The Chairperson of the Compensation Committee and our lead independent director (and member of the
committee) attended all meetings to understand the investor concerns. You will find more on these meetings and the outcome in
the Executive Compensation section of this Proxy.

During 2021, due to the COVID-19 pandemic, direct person-to-person meetings with shareholders were limited.
However, through virtual road shows, conference calls, and video meetings, we were able to meet with nearly all of our largest
institutional shareholders, including multiple touch points with many. In addition, we held virtual road shows, conference calls
and video meetings with other current and prospective shareholders. These meetings not only allowed the Company to
communicate about its current business operations with shareholders, the Company used these meetings to actively solicit
shareholders’ views on key corporate governance issues including executive compensation as well as the Company’s
Environmental, Social and Governance (“ESG”) initiatives. We have incorporated this feedback into both our compensation
and ESG programs.

Overall, the Company engages our shareholders on a regular basis. In addition to periodic reports filed with the U.S.
Securities and Exchange Commission, the Company holds quarterly conference calls to discuss interim financial and
operational results with its stakeholders, participates in several industry conferences which are available to Company
stakeholders in person (temporarily suspended due to the COVID-19 pandemic) or via various public online platforms and
meets with shareholders in person throughout the year (also temporarily suspended due to the COVID-19 pandemic and public
health considerations). The Company believes that its consistent and continuous shareholder engagement strategy has created
an environment in which shareholders are comfortable in providing candid feedback and critique of the Company’s operations,
governance and executive compensation policies.

Additionally, independent Directors have taken a proactive approach in participating in shareholder engagement
efforts resulting from feedback received from shareholders and proxy advisory services. Independent Directors continue to
regularly review the Company’s shareholder outreach and communication programs and participate as appropriate. The
Company anticipates continuing to increase the role of independent Directors in appropriate stakeholder outreach programs.

During 2021, the Company estimates it met with approximately 65 unique shareholders and prospective shareholders
in various meetings across North America. These engagements provided detailed information about the Company’s financial
and operational performance as well as key information of certain corporate governance matters, including executive
compensation. Such information is publicly disseminated in the form of periodic filings with the U.S. Securities and Exchange
Commission, press releases and information on the Company’s website, including the investor relations section.

CORPORATE RESPONSIBILITY

Natural Gas Services Group believes that effective corporate governance is a combination of oversight, responsiveness
and positioning of our business operations on a day-to-day basis with a focus on mitigation of our environmental impact,
accountability in corporate governance and progress in our social policies.

Our Board of Directors believes that integrating these values into our everyday business practices creates a holistic
approach to good governance and best aligns the interests of our leadership team, our employees and the Company’s other
stakeholders. Moreover, as a smaller company, our holistic approach and consistent focus on these important tenets allows us to
focus on continuous improvement without an untenable financial impact, providing a mechanism to optimize the interests of all
stakeholders.

Further demonstrating our commitment to ESG matters, the Board of Directors has chartered the Environmental,
Social and Governance and Personnel Development Committee to proactively engage with management and other NGS
stakeholders on key ESG issues. The Committee, chaired by director Nigel J. Jenvey – a leader in environmental issues in the
energy industry – will focus on continuous improvement of the Company’s ESG programs and policies.

Our Environmental Initiatives

We continuously work to eliminate or mitigate our impact on the environment through our innovative product designs,
focus on reducing our environmental footprint across all operations, and remediation of our impact through control mechanisms
and technologies in all aspects of our business. In addition, our innovation in product design and service delivery systems is
intended to support the sustainability goals and initiatives of our customers.

The design and construction of our corporate headquarters in Midland is an example of our commitment to
environmental stewardship. Our state-of-the art headquarters include the use of “daylight harvesting” technologies; “smart
lighting” that use artificial intelligence to determine office occupancy times and adjust light accordingly; and advanced
mechanical systems including variable refrigerant flow systems and energy recovery systems; and high-performance glass and
advanced solar shades that reduce glare and heat gain. These are significant capital investments for a company our size that will
have a long-term impact on our environmental footprint.

In addition, we strive to continuously improve the environmental footprint of our core compression equipment and
services with new technology and innovations that focus on best-in-class emissions and impact on the environment. Recent
innovations include:

• We have and continue to pursue the most energy efficient and emissions-controlled engine systems available for
our compression equipment. All of our engines have the latest catalytic technology and air-fuel ratio (AFR)
controllers to provide the cleanest fuel burn available, well exceeding EPA standards. These advanced systems
continuously monitor multiple engine and compressor parameters to ensure optimum engine emissions
efficiencies and adjust to varying fuel quality available from wellhead production.

• To ensure consistent efficient engine performance, we have invested in state-of-the-art emissions detection
equipment to ensure our engines exceed all state and federal air emissions regulations. Additionally, we perform
preventative maintenance on all engine systems twice per quarter and comprehensive emissions tests to ensure
optimum performance. The company is acutely focused on reducing our environment impact on noise, emissions
and carbon footprint.

•

Our compressor units are equipped with advanced safety and containment features that provide for safe
containment and disposal of used oils, antifreeze and other fluids. Skid containment rails and fluid dumps are
manifolded together to mitigate the risk of fluid spills and environmental leaks as a result of operating error or
system failures. Active monitoring systems provide further assurance of safe and optimal operations.

In our mechanical compression packages, we have meaningfully reduced our oil consumption and associated
disposal issues with a unique engine and compressor lubricating system.

In our flaring business, we have designed and exclusively sell “Quad O” flare systems which meet the most
stringent federal standards, allowing our customers to exceed all emission standards when natural gas flaring is
necessary.

•

In our Michigan service location, we have installed two oil burner systems which allows us to efficiently recycle
waste oil into energy and heat capacity for our service facility.

• We also work with our customers and suppliers toward policies and processes that reduce the environmental
impact of our work. We continuously engage with our top customers to share best practices, new technologies and
operating innovations that can be implemented to improve our collective environmental footprint.

• We completed construction of our corporate headquarters in Midland, Texas where we incorporated the latest
energy-efficient technologies designed for commercial buildings. Innovations include the use of “daylight
harvesting” technologies; “smart lighting” that use artificial intelligence to determine office occupancy times and
adjust light accordingly; and advanced mechanical systems including variable refrigerant flow systems and energy
recovery systems; and high-performance glass and advanced solar shades that reduce glare and heat gain.

•

The Board of Directors regularly considers new technologies to further reduce the Company’s environmental
footprint and has directed Company leadership to evaluate further opportunities for reducing the impact on the
environment.

Our Social Initiatives

In response to the COVID-19 pandemic, we implemented a sweeping work-from-home policy for the majority of our
office employees and we committed to minimize employment disruption to the best of our ability. For our service employees
who provide critical services on customer locations, we invested in important personal protective equipment and developed
additional safety protocols to ensure appropriate distancing and other COVID-19 safety measures. In 2020 and 2021, we also
invested in significant employee training and development. While the COVID-19 pandemic created unique challenges related to
employment and hiring, the Company remains committed to a diverse and inclusive workforce with both executive
management and the Board of Directors focused on ensuring equality of opportunity in all our human resources practices.

The Company also believes that workplace and workforce safety is a hallmark of our social responsibility initiatives.
As a result, we also incorporate our Health, Safety, Environment and Quality (“HSEQ”) initiatives into these programs and
policies. In addition to the protection of the environment, we are steadfastly committed to the safety of our employees and other
stakeholders as well as the physical and mental well-being of all members of the NGS family. Our commitment centers on
mitigating risks to employees and those with whom they interact and maintaining safe work environments and procedures. Our
focus on regular, required safety and procedure training helps ensure a consistent and safe work environment. Our strong safety
program has allowed us to consistently post one of the lowest Total Recordable Incident Rates (“TRIR”) in the industry.

Our Governance Initiatives

The recent creation of the Environmental, Social and Governance and Personnel Development Committee of the Board
of Directors is an important step and indication of the Company’s commitment to continuous improvement in corporate
governance and responsibility.

This committee was chartered to be proactive in assisting the Board and Company leadership in its oversight of ESG-
related policies and issues affecting Natural Gas Services Group, its stockholders, employees, customers and the communities
in which the Company operates. We believe that the integration of our environmental and social initiatives with our governance
responsibilities is the best way to optimize our commitment to being an industry leader in corporate responsibility.

In addition to the Board ESG Committee, our audit committee is engaged in independently reviewing the Company’s
financial governance practices for accuracy and transparency as well as ensuring they provide the Company stakeholders with a
consistent method by which to evaluate performance.

While qualifying as a smaller reporting company with fewer disclosure requirements, the Board of Directors and
leadership of the Company nonetheless have continued to provide an array of disclosures and reports as it remains committed to
a high level of transparency, a practice it believes is in the best interests of the Company’s shareholders and other stakeholders.

EXECUTIVE OFFICERS

Biographical information for the executive officers of Natural Gas Services Group who are not Directors is set forth
below. There are no family relationships between any Director or executive officer and any other Director or executive
officer. Executive officers serve at the discretion of the Board of Directors and until their successors have been duly elected and
qualified, unless sooner removed by the Board of Directors. Officers are elected by the Board annually at its first meeting
following the annual meeting of shareholders.

James R. Hazlett, 67, has served as Vice President-Technical Services since June 2005. He also served as Vice
President of Sales of Screw Compression Systems, Inc. from 1997 until June 2007 when Screw Compression Systems, Inc. was
merged into Natural Gas Services Group. After the merger in June 2007, Mr. Hazlett continues to remain employed by Natural
Gas Services Group as Vice President-Technical Services. From 1982 to 1996, Mr. Hazlett served in management roles for
Ingersoll Rand/Dresser Rand, working with compression of all types in several different departments from sales and service to
engineering. From 1978 to 1982, Mr. Hazlett was employed by the down-hole tool division of Hughes Tool, designing and
installing gas lift and plunger systems. Mr. Hazlett holds a Bachelor of Science degree from the College of Engineering at
Texas A&M University and has over 40 years of industry experience.

Micah C. Foster, 42, has served as our Vice President, Chief Financial Officer, and Corporate Secretary since his
appointment on May 11, 2021. Mr. Foster has over 17 years of professional experience in the energy industry and public
accounting. Prior to joining the Company, Mr. Foster served as the Chief Accounting Officer of Legacy Reserves Inc. and its
predecessor Legacy Reserves LP, a publicly traded oil and natural gas production company from April 2012 to April 2020.
Legacy Reserves Inc. filed for protection under Chapter 11 of the federal bankruptcy code in July, 2019 and emerged from
bankruptcy in December, 2019. Prior to his appointment as Chief Accounting Officer in 2012, Mr. Foster served in various
roles for Legacy ranging from Financial Accountant to Corporate Controller. Prior to joining Legacy, Mr. Foster worked as a
staff auditor and senior auditor for Ernst&Young, LLP from July 2003 to January 2006. Mr. Foster holds a BBA in Accounting
and Finance from Abilene Christian University and is a Certified Public Accountant.

G. Larry Lawrence (a former officer), 70, served as our interim Vice President, Chief Financial Officer, and Corporate
Secretary from January 5, 2021 to May 11, 2021. Mr. Lawrence also served as Vice President, Chief Financial Officer and
Corporate Secretary prior to his retirement from the Company on November 15, 2019. Mr. Lawrence was originally appointed
to those positions on July 1, 2011. Previously, Mr. Lawrence was our Controller since September 2010. From June 2006 to
August 2010, Mr. Lawrence was self-employed as a management consultant doing business as Crescent Consulting.
Overlapping this time, from September 2006 to August 2009, he also served as the CFO of Lynx Operating Company. Lynx is a
private company engaged in oil and gas production and gas processing activities. From May 2004 through April 2006, Mr.
Lawrence served as Controller of Pure Resources, an exploration and production company and wholly owned subsidiary of
Unocal Corporation which was acquired by Chevron Corporation. From June 2000 through May 2004, Mr. Lawrence was a
practice manager of the Parson Group, LLC, a financial management consulting firm whose services included Sarbanes Oxley
engagements with oil and natural gas industry clients. From 1973 through May 2000, Mr. Lawrence was employed by Atlantic
Richfield Company, where he most recently (from 1993 through 2000) served as Controller of ARCO Permian. From May
2006 to December 2019, Mr. Lawrence served as a director of Legacy Reserves Inc. and its predecessor, Legacy Reserves LP.
Mr. Lawrence currently serves as a Director of ProPetro Holding Corporation. Mr. Lawrence has a Bachelor of Arts in
Accounting, with honors, from Dillard University.

EXECUTIVE COMPENSATION

Fellow Shareholders:

Note From the Compensation Committee Chairperson

As you consider your vote on Executive Compensation, we encourage you to review the information provided in this discussion
of our Executive Compensation program. My colleagues on the Compensation Committee - in response to your concerns and
suggestions - have worked diligently over the past year to improve our disclosures, respond to your concerns and recraft
portions of our compensation program to better address your expectations.

As our Committee and the independent directors of the Company engage in a dialogue regarding the goals of our compensation
program, we have focused on three tenets: encourage long-term accountability, reward outstanding performance and promote
retention of highly-qualified leaders. Based on our discussions with many of you, we believe these core values should drive our
compensation decisions.

As a relative newcomer to the Board of Directors and Chair of the Compensation Committee I am committed to making sure we
maintain an open dialogue with all our stakeholders on issues related to compensation and governance. Throughout 2021, our
committee and independent directors -as well as senior management - engaged with shareholders representing well over half of
our institutional base to discuss Company operations, strategy and compensation matters. On behalf of the Compensation
Committee, we appreciate the time and effort expended by each of you and your honesty and candor regarding our Company,
our compensation program and, especially, the constructive suggestions made that will assist us in our continuing quest to
improve all aspects of our business, especially our compensation program and communication with you.

While we believe this year’s discussion of Executive Compensation and changes made to our program are meaningful
improvements in the Company’s policies, we will continue to evolve and adjust our program to ensure alignment with our core
values as well as the best ideas from our stakeholders.

In addition to changes to our Executive Compensation program, we are asking shareholders to approve a modest addition of
common shares to our 2019 Equity Incentive Plan. We believe this plan – which provides equity ownership to our executive
leadership team and other associates – aligns the interests of our employees with our shareholders and serves as an excellent
tool for retention of today’s – as well as tomorrow’s – highly qualified leaders.

On behalf of the Compensation Committee, I appreciate your support of Natural Gas Services Group and hope you will vote
“FOR” Items 2 and 3 in this year’s proxy.

Leslie Beyer
Chair, Compensation Committee
Natural Gas Services Group, Inc.

Overview

This Compensation Discussion and Analysis (“CD&A”) is intended to assist shareholders in understanding the
executive compensation relating to the named executive officers herein. The CD&A is a supplement to and should be used in
conjunction with the compensation tables and related narratives of this Proxy Statement as well as Part III of our annual report
on Form 10-K filed with the United States Securities and Exchange Commission. For 2021 our named executive officers are:

Stephen C. Taylor, Chairman of the Board, President and Chief Executive Officer

•
• Micah C. Foster, Vice President and Chief Financial Officer
James R. Hazlett, Vice President of Technical Services
•
G. Larry Lawrence, our former interim Chief Financial Officer
•

While we discuss our operational and financial performance in more detail elsewhere in this Proxy as well as in our
annual report on Form 10-K filed with the U.S. Securities and Exchange Commission, the Compensation Committee considered
these factors to complete our compensation program for 2021 and setting the compensation program for 2022.

Summary of Business Highlights for 2021

Operational Highlights of 2021

• We continued to adjust our approach to work in response to the COVID-19 pandemic. We continued our stay-at-home
work policies for much of our office personnel and added additional health and safety measures to protect our field
personnel. That said, we were able to maintain high operational standards while preserving the health and welfare of
our team.

• We continued our penetration into the high horsepower market through the addition of 65 new rental fleet units that
totaled 18,035 HP with 38% of this being classified as larger horsepower. We also increased our average rental fleet
horsepower to 207 horsepower per unit. This is an increase of 43% per unit since 2017.
NGS recorded a TRIR (Total Recordable Incident Rate) of 0.63 in 2021. This is an OSHA approved calculation that
conveys the number of recordable injuries for every 200,000 man-hours worked in the year.
Through the creation of the Environmental, Social and Governance Committee of the Board of Directors, we elevated
both action and visibility on our efforts on key ESG initiatives.

•

Financial Highlights of 2021

• While the overall compression industry remained anemic, NGS delivered 5% higher rental revenue than the prior year

•

and 6% higher overall revenue.
In a market that continued to pressure margins, we generated cash flow from operations of $28.5 million in 2021. We
provided conversion of revenue to operating cash flow of 39%; for every dollar of revenue collected, over one-third
was available as cash to the Company.
NGS ended 2021 with $22.9 million in cash on the balance sheet and no debt while repurchasing 737,405 shares of our
outstanding common stock for approximately $7.9 million.

The Compensation Committee of the Board of Directors is responsible for determining the types and amounts of
compensation paid to our named executive officers. The Compensation Committee operates under a written charter that may be
viewed on our website at www.ngsgi.com. The Board has determined that each member of the Compensation Committee meets
the independence and financial literacy requirements of the New York Stock Exchange ("NYSE"). The Board determines, in its
business judgment, whether a particular Director satisfies the requirements for membership on the Compensation Committee set
forth in the Compensation Committee’s charter. None of the members of the Compensation Committee are current or former
employees of Natural Gas Services Group or any of its subsidiaries.

The Compensation Committee

As of April 30, 2022, the members of the Compensation Committee are:

•
•
•

Leslie Beyer, Committee Chairperson
David L. Bradshaw, Independent Director and Committee Member
John W. Chisholm, Lead Independent Director and Committee Member

The Compensation Committee is responsible for formulating and administering our overall compensation principles
and plans. This includes establishing the compensation paid to our Chief Executive Officer, meeting and consulting with our
Chief Executive Officer to establish the compensation paid to our other named executive officers, counseling our Chief
Executive Officer as to different compensation approaches, administering our stock equity plans, monitoring adherence to our
compensation philosophy and conducting annual, and interim, reviews of our compensation programs and philosophy regarding
executive compensation.

The Compensation Committee periodically meets in executive session without members of management or
management Directors present and reports to the Board of Directors on its actions and recommendations. The Compensation
Committee, from time-to-time, engages compensation consultants and other experts to provide data and guidance on
appropriate compensation practices, industry standards, peer selection and other items relevant to the responsibilities and
deliberations of the Compensation Committee. For 2021, the Compensation Committee engaged Korn Ferry to provide certain
services related to compensation analysis and program development.

The Compensation Committee is also responsible for shareholder outreach and engagement to ascertain shareholder
feedback on the Company’s compensation program and philosophy. Over the course of the past year, the Compensation
Committee contacted shareholders representing over 60% of the Company’s outstanding shares and directly engaged with
shareholders representing nearly 20% of the outstanding common shares. We detail our outreach program, the input from
shareholders and our responsiveness in this CD&A under Response to 2021 Shareholder Say-on-Pay Advisory Vote.

Compensation Philosophy and Objectives

As part of our annual review of our compensation program, the Compensation Committee has reviewed the tenets of
our compensation philosophy. After review and considering the input from Company stakeholders, the Compensation
Committee has established three core values for our executive compensation program:

The Natural Gas Services Group Executive Compensation Program should encourage long-term accountability.

Tenet Number One:

The Company’s primary objective is to create long-term value for our shareholders. While we are engaged in a cyclical
industry, our compensation program should encourage executives to create opportunities for durable value through innovation,
strategic vision and with a keen sense of trends that impact the future of our industry. The Compensation Committee is taking a
more proactive role in developing annual and multi-year goals and plans that will be used to assess performance and award
future compensation.

The Natural Gas Services Group Executive Compensation Program should reward superior performance.

Tenet Number Two:

Performance is the foundation of the Company’s compensation program design. The development and achievement of
pre-established goals – based on both near- and longer-term time horizons – is a key factor in committee deliberations on
executive pay. For example, the Compensation Committee, in conjunction with other independent directors responsible for
developing the Company’s nascent ESG strategy, will assign higher weighting to ESG performance beginning in 2022. Going
forward, individual performance evaluation will directly impact base salary and short-term incentives as well have a role in
long-term share incentives.

Tenet Number Three:
The Natural Gas Services Group Executive Compensation Program should promote retention of highly-qualified leaders.

Exceptional leadership, continuity of leadership and the development of high-potential leaders are all critical aspects of
corporate success. As such, the Compensation Committee is committed to a compensation program that promotes retention of
today’s high-performance leaders and incentivizes tomorrow’s exceptional leaders to join and remain a part of the Natural Gas
Services Group team. The Committee’s goal is to design a compensation program that attracts and retains talent across the
career lifecycle through remuneration which is market competitive, differentiated by individual performance and with award
vesting periods that promote retention.

The Compensation Committee believes these tenets to be fundamental to the development of an equitable, attractive
and lasting compensation program that balances the interests of all Natural Gas Services Group stakeholders. The

implementation of these tenets in the compensation program may, from time-to-time, be adjusted and adapted based on market
conditions, competitive needs and new and emerging trends in and around our industry. Through our program of intra-year
reviews, shareholder engagement, counsel from our compensation consultants and other resources available, it is the intent of
the Compensation Committee to remain true to these tenets while remaining a leader in an equitable and responsive
compensation program.

Response to the 2021 Shareholder Advisory Vote on Executive Compensation (“Say on Pay”)

At the Company’s 2021 Annual Meeting of Shareholders held on June 17, 2021, only approximately 26% of the
Company’s shareholders cast votes in support of the agenda item related to Named Executive Officer compensation as
disclosed in the Company’s 2021 proxy statement. Members of the Compensation Committee were disappointed with this level
of support and, as a result, were proactive in engaging shareholders to understand the reasons for the unacceptably low support
for the Company’s executive compensation program.

In late 2021 and early 2022, Natural Gas Services Group solicited meetings with shareholders representing
approximately 65% of the Company’s outstanding common shares. Of this group, the Compensation Committee held meetings
with investors representing approximately 20% of shares outstanding. The Chairperson of the Compensation Committee and
our lead independent director (and member of the committee) attended all meetings to understand the investor concerns.

While comments from our shareholders varied significantly, the following key, universal themes emerged from these

engagements:

•

•
•

•

Incentive targets were not viewed as sufficiently challenging in some cases, and the Compensation Discussion and
Analysis did not sufficiently explain and detail the goal setting.
Shareholders would like a greater commitment to pay for performance.
Shareholders expressed concern around the lack of clear disclosure of several compensation decisions, such as
incentive goal setting as well as the creation and use of the peer group.
Targeted CEO pay was too high relative to the company’s selected peer group.

As a result of our outreach efforts and the valuable feedback received, the Compensation Committee sought to address

these key themes as well as make other improvements to the compensation program.

Following the shareholder engagement process and consideration of the feedback provided, the Committee made

several modifications to the Chief Executive Officer’s incentive programs:

•

In the Long-Term Incentive Program, the Compensation Committee has adjusted the administration of the Relative
Total Shareholder Return (R-TSR”) awards.

◦

The R-TSR component of the program will require performance at the 60th percentile to earn target awards.
(The target award was previously granted at the 50th percentile).
Awards will be capped at target if TSR is negative over the performance period, regardless of relative
performance. (Previously, no “negative performance cap” existed.)

The Committee commits to not making discretionary awards outside of the short- and long-term incentive programs
for a period of three years, with the exception of new-hire awards that are consistent with industry practice.
The Committee will adjust the short-term incentive program metrics to reduce the weighting on revenue and increase
weighting more closely tied to profitability.
CD&A disclosure will be enhanced to explain the Company’s decisions more thoroughly, particularly as they relate to
peer groups and goal setting.
Beginning in 2023, the Committee will work to better align the Chief Executive Officer’s compensation with the
median of the selected peer group.

The Compensation Committee is grateful for the time and candor of the Company’s shareholders in assisting with the
evolution and improvements in the Company’s executive compensation program. While the committee is confident that these
changes provide for significant improvement in our overall compensation program, the committee will continue to reach out to
and engage shareholders in the future as we endeavor to continuously review and improve our compensation programs.

In the fourth quarter, 2021 the Compensation Committee – in conjunction with our consultants and other independent
directors – undertook a detailed review of our peer group. We identified companies with qualities similar to Natural Gas

Peer Group Philosophy, Development and Selection Process

Services Group. We looked across the energy and industrial spectrum for companies with similar qualities and characteristics as
Natural Gas Services Group. We considered a number of variables including: (1) the industry in which a company operates and
the business lines it offers, looking at companies in and around the Global Industry Classification (GICS) codes in which
Natural Gas Services operates; (2) the size of a company relative to Natural Gas Services Group, understanding size can be
measured in many ways including revenue, market capitalization and asset base; and (3) the human capital and talent pool of a
company, while subjective, is an important consideration in that companies with which we compete for talent provide important
insights into competitive compensation practices. Although secondary, we also considered the operating regions of potential
peers, understanding that cost-of-living differences can impact compensation. While our focus was on companies in the oil and
gas services business, we did not limit our search to just those companies, rather expanding our search to a broader energy and
industrial universe.

Specifically, the Compensation Committee considered the following strategic criteria in selection of the 2022 peer

group:

EVALUATE the 2021 peer group for relevance and to ensure each peer is a fit for the criteria identified above.

IDENTIFY and REMOVE 2021 peers that are no longer appropriate. Key Energy Services was removed due to
bankruptcy; RigNet was removed due to acquisition; Mammoth Energy Services was removed due to revenue
mismatch.

SEARCH and IDENTIFY potential new peer group members based on criteria of industry/
functional fit, size based primarily on revenue and market capitalization and strategic competitors for
compensation relevance. Secondary considerations include location and other strategic fit.

SELECT most relevant peers from pool of candidates by focusing on our GICS code,
Oil & Gas Equipment & Services; expanding to Energy Equipment and Services; Oil,
Gas & Consumable Fuels and the broader industry code of Energy.

The Compensation Committee’s process resulted in a peer group of fourteen (14) companies, inclusive of Natural Gas

Services Group.

Peer Group Member

Company Description

CSI Compressco, LP

Dawson Geophysical Company

DMC Global, Inc.*

CSI Compressco, LP provides compression services and equipment for natural gas and
oil production, gathering, transportation, processing and storage. The company is a
strategic competitor with which NGS competes for talent.
Dawson Geophysical Company provides onshore seismic data acquisition and
processing services in the United States.
DMC Global, Inc. operates a portfolio of differentiated businesses that lead niche
segments of the energy, industrial infrastructure and building products industries.

Geospace Technology Corporation Geospace Technology Corporation designs and manufactures instruments and

equipment used in the acquisition and processing of seismic data and markets its
instruments primarily in the global oil and gas industry.

ION Geophysical Corporation

NCS Multistage Holdings, Inc.

PrimeEnergy Resources Corp.*

Nuverra Environmental Solutions,
Inc.

Independence Contract Drilling, Inc. Independence Contract Drilling, Inc. provides land-based contract drilling services for
oil and natural gas producers in the United States.
ION Geophysical Corporation provides geophysical technology, services and solutions
for the global oil and gas industry.
NCS Multistage Holdings, Inc. provides engineered products and support services that
facilitate the optimization of oil and natural gas well completions and field development
strategies for the onshore oil and gas exploration and production industry.
Nuverra Environmental Solutions, Inc. provides environmental solutions and oilfield
support services including removal, treatment, recycling, transportation, and disposal of
restricted solids, fluids, and hydrocarbons for exploration and production companies.
PrimeEnergy Resources Corporation acquires, explores, develops, and produces crude
oil and natural gas. The Company offers site preparation, construction and oil and gas
drilling services.
Ranger Energy Services, Inc. provides well site services and associated equipment,
including well rigs, water transfer, plug and abandonment, wireline, fluid management
and handling, snubbing, transportation, and equipment renting services.
Smart Sand, Inc. provides industrial sand. The Company offers proppants, sand products
and renders logistics services to oil and gas companies in North America.
Solaris Oilfield Infrastructure, Inc. provides mobile sand silo and rail-to-truck transload
systems to enhance drilling, completions, and safety in shale plays in the United States.
US Well Services, Inc. provides hydraulic fracturing services, including natural gas
powered electric frac, for customers in the oil and gas industry in the United States.

Solaris Oilfield Infrastructure, Inc.

Ranger Energy Services, Inc.

US Well Services, Inc.*

Smart Sand, Inc

* New peers for 2022; not utilized in establishing 2021 awards.

In 2021 we continued to adhere to core principles and practices that, the Compensation Committee believes, strengthen
the alignment between the compensation of our named executive officers, Company performance and shareholder returns.
Important principles related to our compensation program include:

Shareholder Alignment Through Compensation Practices

WHAT WE DO

WHAT WE DON’T DO

No Repricing or Exchange: We do not allow
for the repricing or exchange of outstanding
equity units or options without shareholder
approval.

No gross-ups: Executive Officers are not
eligible to receive any tax reimbursement
payments or “gross ups” in connection with any
severance or change-in-control payments or
benefits.
No Pledging of Shares: We do not permit
pledging of NGS common shares as collateral
for a loan. We also strongly discourage our
executives and Directors from entering into
hedging or similar monetization transactions
with respect to our common stock. Any
No Excessive Perquisites: With the exception
of certain expense reimbursements which stand
in support of key business strategies and are
fully disclosed in the Summary Compensation
Tables herein, we do not provide any
perquisites.

No unlimited/subjective incentives: New in
2022, both our short-term and long-term
incentive programs are capped at maximum
payout levels. In addition, the Committee has
determined that discretionary awards outside our
established incentive plans will be restricted to

No Related Party Transactions: There are no
related party transactions.

No Excessive Employee Equity Grants: We
have consistently operated our stock-based
incentive compensation programs within
expected industry burn rates.

No Future Gross-Ups: There will be no tax
gross-ups in future executive officer agreements.

+ Independent Compensation Committee:

Only independent directors set our
compensation policies, practices and programs
as well as measure performance, allowing for
objective, conflict-free compensation
programs.

+ Independent Compensation Consultant:
The Committee engages independent
consultants to assist with compensation
reviews.

+ Share ownership requirements: Our
executive officers as well as all of our
Directors are subject to minimum holding
levels, providing for alignment between
Company leadership and shareholders.

+ Annual Compensation Review & Annual

Shareholder Advisory “Say-on-Pay” Vote:
The Committee conducts a comprehensive
review of all executive compensation matters
on an annual – or more frequent – basis. The
Company has chosen to ask Shareholders to
opine on its Executive Compensation program
on an annual basis.

+ Total Shareholder Return Governor: New
in 2022, the Long-Term Equity Compensation
program caps awards at the target level if TSR
is negative, regardless of relative performance
with the peer group.

+ More Stringent Performance Guidelines:
New in 2022, the Long-Term Equity
Compensation program requires Total
Shareholder Return relative to the peer group
reach the 60th percentile before the plan pays
out at the target level.

+ Shareholder Engagement Program:
Improved in 2022, the Committee and
independent directors proactively engage with
shareholders to receive feedback and consider
improvements to the executive compensation
program.

+ Shareholder Alignment: Align pay with

financial and operational performance using
relative and absolute metrics; moving greater
levels of executive pay to “performance
based”/”at risk” standards.”

+ Longer-Term Equity Awards: Vesting of
Executive Officer Long-Term Incentive
Awards occurs over three years.

In addition to our Compensation Committee, members of the Natural Gas Services Group leadership team and our

compensation consultants play an important role in the determination of our executive compensation program.

Other Participants in the Compensation Policy Process

Role of Executive Leadership Team

As noted in this CD&A, the Compensation Committee is responsible for all compensation decisions regarding our
named executive officers. Our Chief Executive Officer annually reviews the performance of each of our executive officers
(with the exception of the Chief Executive Officer which is reviewed solely by the Compensation Committee) and provides
important data and recommendations to the Committee with respect to salary and incentives under the Company’s short-term
and long-term incentive programs. The Compensation Committee relies on these evaluations in establishing compensation for
the other named executive officers, although the Committee may exercise its discretion in modifying any recommendation
provided by the Chief Executive Officer.

The Committee may, from time-to-time, also seek input from the Chief Executive Officer regarding other financial and
operating performance, metrics and data that may be relevant in the evaluation and establishment of compensation policy. In
addition, the Company may seek input from other members of the Company’s leadership team and associates as they evaluate
financial and operational data in support of executive compensation decisions.

Role of Compensation Consultants

The Compensation Committee has the sole authority to retain, obtain the advice of, and terminate, any compensation
consultant, independent legal counsel, or other advisors to assist the Compensation Committee in the discharge of its duties and
responsibilities, including the evaluation of director and executive compensation. In completing its duties, the Compensation
Committee may rely on independent consultants and legal counsel to:

•
•
•
•

•
•

•

Provide information and analysis on executive compensation trends and market developments;
Advise on potential peer group members to evaluate our named executive officers compensation;
Review and analyze peer group information to assist with developing our executive compensation program;
Update the Compensation Committee periodically on legislative and regulatory developments impacting executive
compensation;
Provide assistance in developing and executing the Committee’s shareholder engagement program;
Provide assistance to the Committee in developing its narrative describing the Company’s executive compensation
program; and
Provide additional assistance as requested by the Compensation Committee.

In 2021 and into 2022, the Compensation Committee engaged Korn Ferry to provide independent compensation
consulting services. In addition to other assistance, Korn Ferry assisted the Company with its shareholder outreach and
engagement program as well as responding to shareholder concerns which arose as a result of such outreach. Korn Ferry also
provided a review of the Company’s overall executive compensation program. The Company determined that Korn Ferry
qualified as an independent compensation consultant under the standards established by the U.S. Securities and Exchange
Commission and the New York Stock Exchange.

The Committee engaged additional legal counsel and data services during the term to assist in the analysis of potential

peer group members and provide legal advice to the Committee.

Annual Base Salaries

The base salary of our named executive officers is the exclusive fixed component of our executive officers’ annual
cash compensation. The Compensation Committee periodically reviews and makes its determination, taking into account
various factors, including the Company’s performance, the executives experience and expertise in business and the industry
(including, to a certain extent, the tenure and cumulative performance of the executive), industry conditions, and shareholder
feedback.

In addition, the Compensation Committee may take into account certain competitive factors which can include:

•

•
•

Compensation levels of similarly-situated executives of other compression companies, oilfield service concerns and
other relevant comparable companies in our peer group;
Levels of compensation necessary to attract and retain highly talented executives, both within and outside our industry;
Comparable starting base salaries at comparable companies for new hires.

The Compensation Committee reviews the base salaries of all named executive officers on an annual basis and makes
adjustments based on the above criteria, the results of which can be found in the summary compensation tables. For 2022, the
Compensation Committee chose not to change the salary of the Chief Executive Officer from the previous year. The Committee
did provide cost-of-living and merit increases to both the Chief Financial Officer and Vice President of Technical Services.

Annual Cash Incentive Program

The Company’s annual cash incentive awards are based on selected performance metrics. The annual cash incentive is
only paid if certain threshold levels are reached. The annual cash incentive program sets targets that, if reached, provide a cash
payment of 100% of the named executive officers base salary. Should certain “stretch targets” be met, the annual cash incentive
payments could be paid at 125% of the named executive officers’ base salary. The hierarchy of payments under our Annual
Cash Incentive Program is set forth in the following table:

Below Minimum Threshold – No Cash Bonus Payment
Threshold Levels Reached – 75% of Base Salary
Target Levels Reached – 100% of Base Salary
Stretch Levels Reached – 125% of Base Salary

A primary purpose of the short-term incentive program is to create a collection of key objectives on which the entire
enterprise can focus. The Compensation Committee expects the named executive officers to communicate the financial and
operational goals to the various business units and functions of the Company to ensure all associates are focused on the same
goals. Early in the year, following the plan year, the Compensation Committee determines whether the financial and operational
goals have been attained and approves cash awards based on the level of achievement of the previously established annual
performance goals.

In 2021, the Compensation Committee approved the following financial and operational metrics to be used in
assessing and awarding awards on the Annual Cash Incentive Program: (1) Cash Flow from Operations (35%); (2) Revenues
(25%); (3) Environmental, Social and Governance Objectives (20%); and (4) Strategic and Tactical Initiatives (20%).

The measurement metrics used in determining the awards as well as the actual awards made under the Annual Cash

Incentive Program for 2021 can be found in the Summary Compensation Tables found on page 30.

As a result of the Compensation Committee’s shareholder outreach and engagement program and a comprehensive
review by the Compensation Committee, the Committee has chosen to adjust the metrics to be used in the assessment and
awards under the Annual Cash Incentive Program. For 2022, the Committee will use the following criteria for awards: (1) Cash
Flow from Operations (30%); (2) Earnings Before Interest, Taxes, Depreciation and Amortization (30%); (3) Revenue (5%); (4)
Environmental, Social and Governance Objectives (20%); and (5) Strategic and Tactical Initiatives (15%).

The Compensation Committee will continue to review the metrics used in the Annual Cash Incentive Program on an
annual basis with an emphasis on both input from our shareholders received through our outreach and engagement program as
well as trends ascertained from a review of our peer group companies. The Committee believes this approach allows us to be
responsive to the input of our shareholders as well as competitive with practices among our peers and the compression and
oilfield services industry.

Long-Term Equity Incentive Program

Our named executive officers are eligible to earn performance-based equity awards, based on the relative performance
of the Company’s common shares relative to the performance of our peer group members, referred to as “Relative Total
Shareholder Return”.

The 2021 Long-Term Equity Incentive Program was governed by the following guidelines:

•
•
•

Awards made on an annual basis with vesting occurring, in equal amounts, over the following three years.
Relative Total Shareholder Return minimum threshold must be reached for awards to be granted.
Target award (100% of base salary) is achieved when Relative Total Shareholder Returns falls at or above the 50th
percentile of the identified peer group.

• Maximum award (200% of base salary) is achieved only if the Company’s relative TSR is at the 100th percentile

(ranked first) of the identified peer group.

In 2021, our peer group included CSI Compressco, LP; Dawson Geophysical Corporation; Independence Contract
Drilling, Inc.; ION Geophysical Company; Key Energy Services, Inc.; Mammoth Energy Services, Inc.; NCS Multistage
Holdings, Inc.; Nuverra Environmental Solutions, Inc.; Ranger Energy Services, Inc.; RigNet, Inc.; Smart Sand, Inc.; and
Solaris Oilfield Infrastructure, Inc.

Based on the Company's share performance from January 1 - December 31, 2021, the Company's relative Total
Shareholder Return performance was 6th out of the 14-member peer group. Based on the 2021 compensation plan, that results in
an award at 118% of the target award (100% of base salary). As noted below, in response to our shareholder engagement and
outreach efforts, the award metrics will be changed, creating more rigorous performance standards.

For 2022, in response to recommendations received in conjunction with the Company’s shareholder outreach and
engagement program, the Compensation Committee has made the following changes to the Long-Term Equity Incentive
Program:

•

Target award (100% of base salary) will be achieved only when Relative Total Shareholder Return reaches the 60th
percentile of the identified peer group, creating a more rigorous standard for achieving the target award level. In
addition, the Committee made additional adjustments to the payout levels of the program, consistent with change in the
target payout percentile.
Awards will be capped at the target level if absolute Total Shareholder Return is negative over the performance period,
regardless of relative performance. Previously, there was no “negative performance cap” on equity awards.
The Compensation Committee adjusted the peer group for 2022 to be more relevant, to better reflect the Committee’s
core tenets of peer group selection and the remove and replace peers that were no longer appropriate given certain
corporate actions.

Also, and in response to feedback received from the Committee’s shareholder outreach and engagement efforts, other
than the performance-based equity awards described herein, the Compensation Committee did not grant any time-based or
discretionary awards to the Chief Executive Officer in 2021 and is committed to not grating such awards in any of the next
three years.

The Compensation Committee will continue to review the metrics used in the Long-Term Equity Incentive Program on
an annual basis with an emphasis on both input from our shareholders received through our outreach and engagement program
as well as trends ascertained from a review of our peer group companies. The Committee believes this approach allows us to be
responsive to the input of our shareholders as well as competitive with practices among our peers and the compression and
oilfield services industry.

The table below shows the Long-Term Equity Incentive Award Payout Levels for both 2021 and 2022, side-by-side,
providing a comparison of the changes made by the Compensation Committee as a result of its shareholder outreach and
engagement program.

Long-Term Equity Incentive Award Payouts

2021

2022

Relative TSR Rank Payout vs. Target

Payout Level

Percentile Relative TSR Rank Payout vs. Target

Payout Level

200%

190%

172%

154%

136%

118%

100%

75%

50%

25%

Maximum

100%

93%

86%

79%

71%

64%

57%

50%

43%

36%

29%

21%

14%

Target

Threshold

Below Threshold

Maximum

Target

Threshold

Below Threshold

200%

180%

160%

140%

120%

100%

80%

60%

40%

25%

The awards made under the Long-Term Equity Incentive Program for 2021 can be found in the Summary
Compensation Tables. The Compensation Committee only granted equity awards to the Chief Executive Officer in 2021
based on performance goals and did not make any additional discretionary awards based on tenure or otherwise.

The table below sets forth the compensation earned by our CEO, Stephen C. Taylor, and our other named executive

officers for services rendered to us for the fiscal years ended December 31, 2021, 2020 and 2019.

Summary Compensation Table

Year

(b)

Salary(4)
(c)

Bonus (5)
(d)

Stock
Awards(6)
(e)

Option
Awards(7)
(f)

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(9)
(h)

Non-Equity
Incentive Plan
Compensation
(8)

(g)

All Other
Compensation(10)
(i)

Total

(j)

2021

$ 612,000 $

— $ 722,160 $

— $

397,800 $

— $

17,319 $ 1,749,279

2020

612,000

— 973,079

—

1,585,080

2019

607,181

— 530,910

—

1,289,513

2021

225,100

— 184,025

—

73,158

2020

225,100

— 178,200

—

112,550

2019

224,596

—

56,400

—

42,112

2021

153,863

— 196,300

—

78,000

2020

2019

2021

2020

—

2019

198,858

—

32,871

2021

—

2020

205,346

—

2019

45,385

—

61,300

—

18,790 3,188,949

15,733 2,443,337

30,726

513,009

23,619

539,469

34,824

357,932

16,312

444,475

—

15,461

247,190

—

19,022

224,368

4,381

111,066

Name
and
Principal
Position

(a)

Stephen C.
Taylor,
Chairman,
President &
CEO*

James R.
Hazlett, Vice
President-
Technical
Services

Micah C.
Foster, VP &
Chief
Financial
Officer(1)

G. Larry
Lawrence,
Former VP
& Chief
Financial
Officer(2)

James R.
Lawrence,
VP & Chief
Financial
Officer(3)

* Mr. Taylor resigned his officer positions on May 17, 2022.

(1) Mr. Foster was appointed as our Vice President and Chief Financial Officer on May 11, 2021.

(2) Mr. G.L. Lawrence retired from the Company on November 15, 2019. Mr. G.L. Lawrence rejoined the Company in
January 2021 and was appointed our interim Vice President and Chief Financial Officer until the appointment of Mr.
Foster on May 11, 2021.

(3) Mr. J.R. Lawrence joined the Company on October 1, 2019 and was appointed as our Vice President and Chief Financial

Officer on November 16, 2019. Mr. J.R. Lawrence gave notice of his resignation in December 2020.

(4) The amounts in column (c) includes amounts deferred under our Deferred Compensation Plan and 401(k) Plan. The

Company has not made any contributions to the Deferred Compensation Plan.

(5) The amounts reflected in column (d) reflect discretionary bonus payments not covered under our Annual Incentive

Bonus Plan.

(6) The amounts in column (e) reflect the grant date fair value of restricted stock/unit awards in accordance with FASB ASC
Topic 718. The amounts shown for 2021 reflect the grant date fair value of stock granted contingent upon the approval

by our shareholders of Proposal #3 to increase the number of shares of our common stock reserved for issuance under the
Natural Gas Services Group, Inc. 2019 Equity Incentive Plan (the "2019 Plan") by 650,000 shares. To the extent that we
are unable to obtain shareholder approval to increase the reserved shares under the 2019 Plan, we intend to pay the value
of the awards in cash as they vest.

(7) The amounts in column (f) reflect the dollar amounts recognized for financial statement reporting purposes for the fiscal
years ended December 31, 2021, 2020 and 2019, in accordance with FASB ASC Topic 718, associated with stock option
grants under our Stock Option Plan.

(8) The amounts in column (g) reflect the cash bonus awards to the named executive officers under our Annual Incentive
Bonus Plan, including amounts deferred under our Deferred Compensation Plan. This is discussed in further detail on
page 31 under the caption “Short-Term Incentives - Annual Incentive Bonus Plan.” The amount in column (g) for Mr.
Taylor also includes a long-term incentive award of $973,080 and $1,061,820 (50% of his long-term incentive awards
earned for each year), for 2020 and 2019, respectively, payable in either cash or a variable number of shares at the
discretion of the Compensation Committee. These fixed value awards are subject to three-year vesting in equal, annual
tranches.

(9) The Deferred Compensation Plan referred to column (h) does not pay above-market or preferential earnings.

(10) The amounts shown in column (i) include matching contributions made by Natural Gas Services Group to each named
executive officer under our 401(k) plan and the aggregate incremental cost to Natural Gas Services Group of perquisites
provided to our named executive officers as shown in the table below.

Name

Stephen C. Taylor

James R. Hazlett

Micah C. Foster

G. Larry Lawrence

James R. Lawrence

All Other Compensation Table

Year

Automobile
Allowance

Personal Use of
Company Provided
Automobiles

Additional
Incremental Portion
of Health Insurance
Premiums Paid for Officers
Only

401(k)
Plan

Total

2021

2020

2019

2021

2020

2019

2021

2020

2019

2021

2020

2019

2021

2020

2019

— $

—

10,200

5,538

—

9,219

—

9,000

2,008

1,800 $

1,800

—

7,698 $

7,821 $

17,319

8,440

8,103

13,467

6,360

17,580

8,619

—

3,567

1,650

8,550

5,830

7,059

7,044

2,155

—

18,790

15,733

30,726

23,619

34,824

16,312

—

6,242

15,461

—

6,455

19,022

723

4,381

Grants of Plan-Based Awards

The table below sets forth the estimated future payouts under non-equity incentive plan awards and restricted stock/

unit awards granted and the grant date fair value of such awards.

Grants of Plan-Based Awards for 2021

Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards

Estimated Future Payouts
Under Equity Incentive
Plan Awards

Name

Grant Date

Threshold
($)

Target ($)

(a)

(b)

(c)

(d)

Maxi-
mum
($)

(e)

All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)

All Other
Option
Awards:
Number of
Securities
Underlying
Option (#)

Exercise or
Base
Price of
Option
Awards
($/Sh)

Grant Date
Fair
Value of
Stock and
Option
Awards ($)

Threshold
(#)

Target

Maxi-
mum
($)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

Stephen
C.
Taylor

James R.
Hazlett

Micah C.
Foster

4/25/2022(1) $

— $

— $ —

— — $ — 60,839

— $

— $ 722,160

3/29/2021(2) $ 474,300 $ 612,000 $ 749,700

— — —

—

4/25/2022(1)

—

— — — 15,503

3/29/2021(3) $ 87,188 $ 112,500 $ 137,813

— — —

—

4/25/2022(1)

—

— — — 16,537

3/29/2021(3) $ 93,000 $ 120,000 $ 147,000

— — —

—

184,025

—

196,300

—

(1) The amounts shown on these rows reflects the awards of restricted stock or units earned in 2021 to be issued in 2022,
contingent upon the approval by our shareholders of Proposal #3 to increase the number of shares of common stock
reserved for issuance under the 2019 Plan by 650,000 shares. To the extent we are unable to obtain shareholder approval
to increase the reserved shares under the 2019 plan, we intend to pay the value of the award in cash as they vest.

(2) The amounts on these rows assume, under the structure of our Annual Incentive Bonus Plan, that each of the metrics are
achieved under threshold (75% payout), target (100% payout), and maximum/stretch (125% payout) levels. The actual
payouts in April 2022 that were earned in 2021 were as follows: Mr. Taylor - $397,800, Mr. Hazlett - 73,158 and Mr.
Foster - $78,000.

Short-Term Incentives - Annual Incentive Bonus Plan

In 2006, the Committee adopted an Annual Incentive Bonus Plan or, the “IBP,” that provides guidelines for the
calculation of annual non-equity incentive based compensation in the form of cash bonuses to our executives, subject to
Committee oversight and modification. The bonuses awarded under the IBP are short-term awards in recognition of the overall
performance and efforts made by certain of our executives during a particular year. Each year, the Committee approves the
group of executives eligible to participate in the IBP and establishes target award opportunities for such executives. For 2021,
the Committee maintained Mr. Taylor’s target award opportunity at 100% of his base salary. Target award opportunity was
50% of average base salary for Mr. Hazlett and Mr. Foster.

For 2021, 100% of an executive officer’s IBP award was based on achievement of company financial and other

objectives relating to:

•

Cash flow from operations;

Total revenues;

ESG objectives; and

Strategic and tactical initiatives.

Cash flow from operations accounts for 35% of the IBP, total revenues accounts for 25% of the IBP, ESG objectives

accounts for 20% of the IBP and strategic and tactical initiatives accounts for the remaining 20%.

Each year, the Committee sets the performance levels for each component of the company objective portion of the
IBP. The payment of awards under the IBP is based upon whether these performance levels are achieved for the year. Payout
on each of the three financial objectives is as follows:

•

75% of the bonus amount attributable to a financial component will be paid if we achieve the "threshold" amount;

100% of the bonus amount attributable to a financial component will be paid if we achieve the "target" amount;
and

125% of the bonus amount attributable to a financial component will be paid if we achieve the "stretch" amount.

2021 Annual Incentive Bonus Plan

2021 Executive Bonus Criteria

Threshold achievement pays 75% of bonus
Target achievement pays 100% of bonus
Stretch achievement pays 125% of bonus

Cash Flow from
Operations (1)

22,398,000 $
22,973,000
23,547,000

Revenue

69,672,000
71,458,000
73,245,000

(1) Cash flow from operations is an indicator of operating performance and is defined as the Company's rental and service
and maintenance gross margins, before depreciation, less selling, general and administrative expenses adjusted to
exclude (i) non-cash charges related to the Company's Non-qualified Deferred Compensation Plan, (ii) non-cash stock
compensation expenses and (iii) director and officer cash long-term incentive compensation expenses.

The following table sets forth the maximum bonus eligibility set by the Committee for 2021 for each of our named
executive officers, and based upon the payout percentages noted in the table above, the bonus payout amount earned by each
named executive for 2021 under our Annual Incentive Bonus Plan:

Criteria

Actual 2021
Performance

Target Metric

Stretch Metric

Eligible Bonus
Payment
Percentage

Bonus
Component

Payable Bonus

Cash flow from operations (1)

20,344,000 $ 22,973,000 $

23,547,000

Revenue

ESG objectives

Strategic and tactical initiatives

Total

72,420,000

71,458,000

73,245,000

— %

100 %

35 %

25 %

20 %

— %

25.0 %

20.0 %

65.0 %

In 2021, the Compensation Committee determined the following metrics justified the annual incentives paid to our

named executives officers:

• No payout was justified on the Cash Flow From Operations ("CFFO") metric as the $20.3 million in CFFO

for the 2021 measurement year fell short of the threshold level of $22.4 million.

• Revenue of $72.4 million for the 2021 measurement year exceeded the target of $71.5 million but was less

than the stretch level of $73.2 million. As a result, the revenue metric justified payout at the target level.

• As noted in the operational highlights found on page 20 of this Proxy, the named executive officers achieved
strong safety performance as well as provided support for the development of the Board's newly-formed ESG
Committee. In addition, the named executive officers were instrumental in the early development of new metrics to
assist the Company in assessing various environmental measures. Finally, the Board recognized the extraordinary
efforts needed to maintain appropriate governance controls in a remote work environment. As such, the Compensation
Committee believes a target payout on ESG objectives is justified.

• As noted in the operational highlights found on page 20 of this Proxy, the named executive officers were
instrumental in continuing the growth of the Company's large horespower deployment during 2021, adding to the
Company's revenue and earnings growth potential in future years. The named executive officers also provided
leadership necessary to continue uninterrupted operations while under social distancing guidelines related to the

COVID-19 pandemic. The Compensation Committee also recognizes the strategic benefits of maintaining a strong
balance sheet during the recent uncertainty in the energy markets, largely a result of the global pandemic. As such, the
Compensation Committee believes a target payout on strategic and tactical objectives is justified.

Additional information on operational and financial objectives and performance can be found on page 20 of this Proxy as well
as in the Company's annual report filed on Form 10-K and quarterly reports filed on Form 10-Q with the U.S. Securities and
Exchange Commission.

The following table summarizes the bonuses awarded under the IBP for 2021:

Name

Title

Base Salary

Max Bonus
Eligibility

Bonus Base

Payout % Bonus Payouts

Bonus

Stephen C. Taylor
Micah C. Foster

James R. Hazlett

President & CEO
VP & CFO

VP- Technical
Services

612,000
153,863

225,100

100.0 % $
50.0 %

50.0 %

612,000
240,000

225,100

65 % $ 397,800
78,000
65 %

65 %

73,158

1998 Stock Option Plan

Our 1998 Stock Option Plan, as amended and restated, provides for the issuance of stock options to purchase up to
1,000,000 shares of our common stock. The purpose of this plan is to attract and retain the best available personnel for positions
of substantial responsibility and to provide long-term incentives to employees and consultants and to promote the long-term
growth and success of our business. The plan is administered by the Compensation Committee of the Board of Directors. At its
discretion, the Compensation Committee determines the persons to whom stock options may be granted and the terms upon
which options will be granted. In addition, the Compensation Committee may interpret the plan and may adopt, amend and
rescind rules and regulations for its administration. Option awards are generally granted with an exercise price equal to the
closing price of our common stock at the date of grant and generally vest based on three years of continuous service and have
ten-year contractual terms.

As of December 31, 2021, stock options to purchase a total of 200,834 shares of our common stock were outstanding
under the 1998 Stock Option Plan, as amended and restated, and a total of 345,003 shares of common stock were available at
December 31, 2021 for future grants of stock options under the plan. Since the beginning of 2022, we have issued 2,500 stock
options to purchase shares of our common stock with an additional 12,500 stock options that were either forfeited or expired,,
leaving 355,003 shares available under the 1998 Stock Option Plan as of April 29, 2022.

2019 Equity Incentive Plan

On June 20, 2019, the Company's shareholders approved our 2019 Equity Incentive Plan ("2019 Plan"). Except with
respect to awards then outstanding, unless sooner terminated by the Board, the Plan will expire on the tenth anniversary of the
date it was approved by shareholders (June 20, 2029) and no further awards may be granted after such date. The purposes of
the 2019 Plan are to enable the Company to attract and retain the types of employees, consultants and Directors who will
contribute to the Company’s long range success; provide incentives that align the interests of employees, consultants and
Directors with those of the shareholders of the Company; and promote the success of the Company’s business.

The following summary of the material terms of the 2019 Plan is qualified in its entirety by the full text of the 2019
Plan, a copy of which was filed with our proxy statement for 2019 and may be obtained, free of charge, by writing to the
Company, Attention: Alicia Dada, Investors Relations, 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705.

Shares Available for Awards and Limits on Awards. The Company has reserved an aggregate of 500,000 shares of
common stock to be awarded under the 2019 Plan. Up to 250,000 of these shares may be issued under the 2019 Plan, in the
aggregate, through the exercise of incentive stock options. No non-employee Director may be granted awards, during any fiscal
year, with respect to shares of common stock that, together with any cash fees paid to the Director during the fiscal year, have a
total value that exceeds $250,000 (calculating the value of any awards based on the grant date fair value for financial reporting
purposes).

As of March 31, 2022, we have issued 456,198 shares under the 2019 Plan. Of these shares, 287,011 have vested and
are no longer subject to any restrictions or possible forfeiture and 3,333 shares were forfeited and returned to the pool. Vested
shares include shares that were withheld for taxes and, under the terms of the 2019 Plan, cannot be re-issued. 165,854 unvested
shares of common stock remain reserved for potential issuance under outstanding awards and may be issued if the vesting terms

of such outstanding awards are met. Accordingly, 47,135 shares are available to be issued under the 2019 Plan as of March 31,
2022.

If any outstanding award expires or is canceled, forfeited, or terminated without issuance of the full number of shares
of common stock to which the award related, then the number of shares available under the 2019 Plan will be increased by the
portion of the award that expired, or was canceled, forfeited or terminated. Shares tendered in payment of the option exercise
price, shares delivered or withheld by the Company to satisfy any tax withholding obligation, or shares covered by a stock-
settled stock appreciation right or other awards that were not issued upon the settlement of the award will not again become
available for future grants under the 2019 Plan.

Awards may be granted under the 2019 Plan in assumption of, or in substitution for, outstanding awards previously
granted by an entity acquired by the Company or with which the Company combines. The Committee (as defined below) will
make appropriate adjustments to these limits to prevent dilution or enlargement of the rights of participants under the 2019
Plan.

Administration and Amendment. The 2019 Plan will be administered by the one or more Directors appointed by the
Board (the "Committee"), or, in the Board’s discretion, by the Board. The Committee will have the authority to, among other
things, interpret the 2019 Plan; determine who will be granted awards under the 2019 Plan; prescribe the terms and conditions
of each award; interpret, administer, reconcile any inconsistency in, correct any defect in, and supply any omission in the 2019
Plan; and exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the
administration of the 2019 Plan.

The Committee may also amend the terms of any one or more awards. However, the Committee may not affect any
amendment which would otherwise constitute an impairment of the rights under any award unless the Company requests the
consent of the participant and the participant consents in writing.

The Board may amend the 2019 Plan. However, except in the case of adjustments upon changes in common stock, no
amendment will be effective unless approved by the shareholders of the Company to the extent shareholder approval is
necessary to satisfy any applicable laws.

Eligibility. The Board selects participants from among the key employees, consultants and Directors of the Company

and its affiliates. Only employees are eligible to receive incentive stock options.

Available Awards. Awards that may be granted under the 2019 Plan include restricted stock, restricted stock units
(RSUs), performance awards, stock options (including both incentive stock options (ISOs) and nonqualified stock options),
stock appreciation rights (SARs), and other stock-based awards. The terms of each award will be set forth in a written
agreement.

Restricted Stock. A restricted stock award is an award of actual shares of common stock which are subject to certain
restrictions for a period of time determined by the Committee. Restricted stock may be held by the Company in escrow or
delivered to the participant pending the release of the restrictions. The participant generally has the rights and privileges of a
shareholder as to such restricted stock during the restricted period, including the right to vote the restricted stock and the right to
receive dividends

Restricted Stock Units. An RSU is an award of hypothetical common stock units having a value equal to the fair
market value of an identical number of shares of common stock, which are subject to certain restrictions for a period of time
determined by the Committee. No shares of common stock are issued at the time an RSU is granted, and the Company is not
required to set aside any funds for the payment of any RSU award. Prior to settlement of an RSU award and the receipt of
shares, the participant does not have any rights as a shareholder with respect to such shares. The Committee may grant RSUs
with a deferral feature (deferred stock units or DSUs), whereby settlement of the RSU is deferred beyond the vesting date until
a future payment date or event set out in the participant’s award agreement. The Committee has the discretion to credit RSUs or
DSUs with dividend equivalents.

Performance Share Awards. A performance share award is an award of shares of common stock that are only earned if
certain conditions are met. The Committee has the discretion to determine the following: the number of shares of common stock
or stock-denominated units subject to a performance share award; the applicable performance period; the conditions that must
be satisfied for a participant to earn an award; and the other terms, conditions and restrictions of the award. The number of
performance shares earned by a participant depends on the extent to which the performance goals established by the Committee

are attained within the applicable performance period. No payout is made with respect to any performance share award except
upon written certification by the Committee that the minimum threshold performance goal(s) have been achieved.

Stock Options. A stock option is the right to purchase shares of common stock at a future date at a specified price per
share called the exercise price. An option may be either an ISO or a nonqualified stock option. ISOs and nonqualified stock
options are taxed differently. Except in the case of options granted pursuant to an assumption or substitution for another option,
the exercise price of a stock option may not be less than the fair market value (or in the case of an ISO granted to a ten percent
shareholder, 110% of the fair market value) of a share of common stock on the grant date. As of the record date, the closing
price of our common stock was $9.05. Full payment of the exercise price must be made at the time of such exercise either in
cash or bank check or in another manner approved by the Committee.

Stock Appreciation Rights. A SAR is the right to receive payment of an amount equal to the excess of the fair market
value of a share of common stock on the date of exercise of the SAR over the exercise price. The exercise price of a SAR may
not be less than the fair market value of a share of common stock on the grant date. SARs may be granted alone ("freestanding
rights”) or in tandem with options ("related rights”).

Other Equity-Based Awards. The Committee may grant other equity-based awards, either alone or in tandem with

other awards, in amounts and subject to conditions as determined by the Committee as set out in an award agreement.

Vesting. The 2019 Plan allows for awards subject to either time-based vesting or performance-based vesting, or both.
All awards granted under the 2019 Plan must have a minimum vesting period of at least one year. The Committee has the
authority to determine the vesting schedule of each award (subject to the minimum one-year requirement), and to accelerate the
vesting and ability to exercise any award. The Company’s practice over the last several years has been to grant restricted stock/
unit awards to its executive officers and independent Directors, and stock options to selected non-executive employees.
Restricted stock/unit awards to our (i) executive officers have been subject to time-based vesting in equal one-third installments
over a three-year period from the grant date and (ii) independent Directors have been subject to time-based vesting in equal
quarterly installments beginning in the year following the year in which they are granted. Starting in 2020, the awards to
independent Directors are subject to one-year cliff vesting. Stock options granted to our non-executive employees typically
vest in equal, one-third tranches over a three-year period. Past vesting requirements may not be indicative of future vesting
requirements set by the Committee, which may be less or more onerous than in prior years.

Clawback and Recoupment. The Company may cancel any award or require the participant to reimburse any
previously paid compensation provided under the 2019 Plan or an award agreement in accordance with the Company’s
clawback policy.

Termination of Service. Unless otherwise set forth in an individual award agreement or in an employment agreement
approved by the Committee, any unvested restricted shares, performance shares, RSUs, PSUs and other equity-based awards
will immediately be forfeited upon termination of continuous service under the 2019 Plan. Under the Company's restricted
stock and RSU award agreements, if the grantee's continuous service terminates as a result of the grantee's death, Disability (as
defined in the 2019 Plan), termination without Cause (as defined in the 2019 Plan and below) or termination for Good Reason
(as defined), 100% of the grantee's unvested shares will vest.

Unless otherwise set forth in an individual award agreement or in an employment agreement approved by the
Committee, in the event an option holder's continuous service terminates, an option holder may exercise his or her option (to the
extent the option holder was entitled to exercise such option at the date of termination) within the earlier of three months
following the date of termination or the expiration of the option term. Unless otherwise set forth in an individual award
agreement, in the event an option holder's continuous service terminates upon his or her death or Disability (as defined), an
option holder or his or her estate may exercise his or her option (to the extent the option holder was entitled to exercise such
option at the date of termination), within the earlier of 12 months following the date of termination or the expiration of the
option term.

In regard to the definition of Cause under the 2019 Plan, if a participant is under an employment or service agreement
with the Company and such agreement provides for a definition of Cause, that definition should be used. If no such agreement
exists, or if such agreement does not define Cause, then Cause is defined as (i) the conviction of, or plea of guilty or no contest
to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material
fiduciary breach with respect to the Company or an Affiliate; (ii) conduct that results in or is reasonably likely to result in harm
to the reputation or business of the Company or any of its Affiliates; (iii) gross negligence or willful misconduct with respect to
the Company or an Affiliate; or (iv) material violation of state or federal securities laws.

In regard to the definition of Good Reason under the 2019 Plan, if a participant is under an employment or service
agreement with the Company and such agreement provides for a definition of Good Reason, that definition should be used. If
no such agreement exists, or if such agreement does not define Good Reason, Good Reason is defined as the occurrence of one
or more of the following without the participant’s express written consent, which circumstances are not remedied by the
Company within thirty (30) days of its receipt of a written notice from the participant describing the applicable circumstances
(which notice must be provided by the participant within ninety (90) days of the participant's knowledge of the applicable
circumstances): (i) any material, adverse change in the participant's duties, responsibilities, authority, title, status or reporting
structure; (ii) a material reduction in the participant’s base salary or bonus opportunity; or (iii) a geographical relocation of the
participant's principal office location by more than fifty (50) miles.

Change in Control. A Change in Control is defined as (a) the acquisition by one person or more than one person
acting as a group, of Company stock representing more than 50% of the total fair market value or total voting power of the
Company’s stock; (b) a merger, consolidation or other reorganization in which the Company is not the surviving entity unless
the Company’s shareholders immediately prior to the merger, consolidation or other reorganization maintain at least 50% of the
voting power; (c) a majority of the incumbent members of the Board are replaced by Directors whose appointment or election is
not endorsed by at least two-thirds of the Board; or (d) the acquisition by one person or more than one person acting as a group,
of all or substantially all of the Company’s assets.

Unless otherwise provided in an award agreement, in the event of a participant’s termination of service without Cause
or for Good Reason during the 18-month period following a Change in Control, the vesting of all awards will fully accelerate
and all outstanding options and SARs will become immediately exercisable as of the date of the participant’s termination of
service.

In the case of performance awards, in the event of a participant’s termination of service without Cause or for Good
Reason, in either case, within 18 months following a Change in Control, all performance goals or other vesting criteria will be
deemed achieved at 100% of target levels and all other terms and conditions will be deemed met as of the date of the
participant’s termination of service.

In the event of a Change in Control, the Committee may in its discretion and upon at least 10 days’ advance notice to
the affected persons, cancel any outstanding awards and pay to the holders the value of the awards based upon the price per
share of common stock received or to be received by other shareholders of the Company in the event. In the case of any option
or SAR with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the change
in control, the Committee may cancel the option or SAR without the payment of any consideration.

Outstanding Equity Awards at Fiscal Year-End

The following table shows certain information about unvested restricted stock/units and unexercised stock options
outstanding as of December 31, 2021 and held by our Chief Executive Officer, Stephen C. Taylor, and each other named
executive officer.

Outstanding Equity Awards at 2021 Fiscal Year-End

Option Awards

Stock Awards

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Options
(#)

Number
of Shares
of Stock
That
Have
Not
Vested
(#)

Market Value
of Shares of
Stock that
Have Not
Vested ($)

Option
Exercise
Price
($)

Option
Expiration
Date

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares or
Other
Rights
that Have
Not
Vested
(#)

Equity
Incentive
Plan
Awards:
Market or
Payout
Value
of Unearned
Shares or
Other Rights
that Have
Not
Vested ($)

(b)

(c)

(d)

—
—
—
—
—
—

—

—
—
—
—
—
—

—

(f)

(e)
— —
— —
— —
— —
— —
— —

657,045

(h)
459,539

(g)
— 43,891 $
— 62,755
— 109,212 1,143,450
69,803
— 6,667
69,803
— 6,667
209,400
— 20,000

(i)

(j)

—

—
—
—
—

— —

— 5,000

52,350

—

—
—
—
—

—

Name

(a)

Stephen C.
Taylor

James R.
Hazlett

Micah C. Foster

Option Exercises and Stock Vested in 2021

In the table below, we show certain information about (i) the number of shares of common stock acquired upon
exercise of stock options by each of the named executive officers in 2021 and the value realized on exercise of the stock options
and (ii) stock awards.

Name

(a)

Stephen C. Taylor

James R. Hazlett

Option Awards

Stock Awards

Number of Shares
Acquired
on Exercise (#)

(b)

—

Value Realized on
Exercise ($)

Number of Shares
Acquired on Vesting(1)

Value Realized
on Vesting(1)

(c)

$—

—

(d)

(e)

80,075 $

15,332

744,316

143,601

(1) Excludes the following shares that vested (with values upon vesting) and were contributed to the Company's
nonqualified deferred compensation plan as follows: Mr. Taylor - 23,428 shares for $220,208; and Mr. Hazlett - 1,333
shares for $12,983.

Nonqualified Deferred Compensation

We adopted a Deferred Compensation Plan in December 2015, which permits eligible employees, including our
NEOs, and our Directors to annually elect to defer a portion of their salary, commissions, cash bonus, Director fees and/or stock
awards they would otherwise have received when earned. Under this plan, participants can defer up to 90% of their salary,
commissions, cash bonus, Director fees and stock awards. Cash amounts deferred under the Deferred Compensation Plan are
deemed invested in the investment funds selected by the participant with similar options as available under the Company’s
401(k) Plan. We have option to contribute but do not currently contribute to the Deferred Compensation Plan on behalf of its
participants or match the deferrals made by participants.

At the time of deferral, a participant must indicate whether he or she wishes to receive the amount deferred while in-
service or upon separation of service. In either case, the payment will be in either a lump sum or in substantially equal annual
installments. In-service installments cannot exceed five years, while installments elected to start upon separation of service
cannot exceed ten years. If separation is due to a disability or a change in control, deferrals will be paid similar to deferrals paid
upon separation of service, while deferrals related to death will be paid in a lump sum to the participant’s beneficiary. If a

participant experiences an unforeseeable emergency during the deferral period, the participant may petition to receive a partial
or full payout from the Deferred Compensation Plan. All distributions are made in cash, except for deferred stock awards which
are settled in Company stock.

Deferred Compensation Table

Name

Beginning
Aggregate
Balance

Executive
Contributions in
Last FY ($) (1)

Registrant
Contributions in
Last FY ($)

Aggregate
Earnings in Last
FY ($)

Aggregate
Withdrawals/
Distributions ($)

Aggregate Balance at
Last Fiscal Year End
($)

Stephen C. Taylor

2,573,055 $

278,251 $

G. Larry Lawrence

James R. Hazlett

157,550

339,004

—

24,672

— $

—

551,250 $

— $

3,402,556

18,651

63,469

(65,865)

—

110,336

427,145

(1) All contributions were from salary, bonus and stock deferrals in 2021. The Company has made no contributions to the
Deferred Compensation Plan.

Compensation of Directors

We use a combination of cash and equity-based incentive compensation to attract and retain qualified candidates to
serve on our Board of Directors. In setting compensation for our Directors, we consider the substantial amount of time that
Directors expend in fulfilling their duties to us and our shareholders, as well as the skill-sets required to fulfill these duties.

The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may

be, to each of our non-employee Directors during the fiscal years ended December 31, 2021, 2020 and 2019:

Fees
Earned
Or Paid
($)(1)
(b)

Year

Stock
Awards
($)(2)
(c)

Option
Awards
($)

(d)

Non-Equity
Incentive
Plan
Compensation
($)

Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings

All
Other
Compensation
($)

(e)

(f)

(g)

Total
($)

(h)

2021 $ 66,250 $

50,003 $

— $

50,000 $

— $

Name

(a)

Leslie A. Beyer

2020

27,500

12,499

2019

—

2021

68,750

50,003

David L. Bradshaw

2020

65,000

24,996

John Chisholm

2019

65,000

100,005

2021

68,750

50,003

2020

60,000

24,996

2019

55,000

100,005

2021

—

Charles G. Curtis

2020

32,500

24,996

2019

60,000

100,005

2021

16,250

—

William F. Hughes, Jr.

2020

65,000

24,996

Nigel J. Jenvey

2019

65,000

100,005

2021

52,500

50,000

2020

2019

—

25,000

—

50,000

—

50,000

—

50,000

—

50,000

—

— $ 166,253

— 64,999

—

— 168,753

— 139,996

— 165,005

— 168,753

— 134,996

— 155,005

—

— 57,496

— 160,005

— 16,250

— 139,996

— 165,005

— 152,500

—

(1) Our non-employee Directors are paid a quarterly cash fee. The cash fee payable to our non-employee Directors was
$13,750 per quarter for 2021 and $12,500 per quarter for 2020 and 2019. In addition, the Chairman of the Audit
Committee, David L. Bradshaw, the Chairman of the Compensation Committee, Leslie A. Beyer, the Chairman of the
ESG and Personnel Development Committee, Nigel J. Jenvey and the Chairman of the Nominating Committee and Lead
Director, John Chisholm, were entitled to an additional quarterly cash fee in the amount of $3,750.

(2) On March 18, 2021, each of our non-employee Directors were granted 5,612 restricted shares at an issue price of $8.91
per share; on April 1, 2021, Mr. Jenvey was granted 5,291 restricted shares at an issue price of $9.45; on April 28, 2020,
each of our non-employee Directors were granted 4,432 restricted shares at an issue price of $5.64 per share; on
October 15, 2020, Ms. Beyer was granted 1,324 restricted shares at an issue price of $9.44; and on March 29, 2019, each
of our non-employee Directors were granted 5,784 restricted shares/units at an issue price of $17.29 per share.

Cash Compensation Paid to Independent Directors

We pay our non-employee Directors a quarterly cash fee for their attendance at each meeting of our Board of
Directors. The cash fee payable to our non-employee Directors for 2021 was $13,750 per quarter and $12,500 per quarter for
2020 and 2019. In addition, the Chairmen of the Audit, Compensation, ESG and Nominating Committees were entitled to an
additional quarterly cash fee in the amount of $3,750.

For 2022, the Compensation recommended and the Board of Directors approved no changes to the current

compensation structure of our Directors.

Equity Based Compensation Paid to Independent Directors

Our compensation policy for independent Directors is to grant an annual award of restricted shares based upon a
review of equity award values paid by other public companies in the Company's peer group and the Company's market and
financial performance in comparison to such peer group companies. For 2021, based upon the Company's performance
compared to its peer group, the Compensation Committee recommended and the Board approved an equity award value of
approximately $100,000 in restricted stock. However, because of the depressed nature of the energy industry and dilutive nature
of the Company's stock at then current market prices, the Board determined to modify the award into a 50/50 split of stock and
cash. In connection therewith, on March 18, 2021, each of our three independent Directors were granted the following:

•

An award of $50,000 in cash (50% of the total) that vests one year from the date of grant; and

An award of 5,612 shares of restricted stock, which was calculated by dividing $50,000 by the closing share price
of $8.91 on that day. These awards of restricted stock vest one year from the date of grant and are subject to
acceleration in certain events.

On April 1, 2021, William F. Hughes retired and resigned from his position as a member of the Board of Directors of
the Company. In recognition of Mr. Hughes’ longstanding service, the Compensation Committee voted to accelerate the vesting
of the following unvested shares, free of any further restrictions:

•

3,989 restricted stock units

443 restricted stock awards

On April 1, 2021, the Board appointed Nigel J. Jenvey as a Director of the Company. Consistent with the

compensation of the other non-employee Directors, the Compensation Committee awarded Mr. Jenvey the following:

•

An award of $50,000 in cash (50% of the total) that vests one year from the date of grant; and

An award of 5,291 shares of restricted stock, which was calculated by dividing $50,000 by the closing share price
of $9.45 on that day. These awards of restricted stock vest one year from the date of grant and are subject to
acceleration in certain events.

On April 25, 2022, the Compensation Committee recommended and the Board approved the continuation of its annual
equity award policy of $100,000 in value of restricted stock and cash, for 2022. In connection therewith, four independent
Directors were granted the following:

•

An award of $50,000 in cash (50% of the total) that vests one year from the date of grant; and

An award of 4,212 shares of restricted stock, which was calculated by dividing $50,000 by a deemed share price
of $11.87. These awards of restricted stock vest one year from the date of grant and are subject to acceleration in
certain events.

Directors who are our employees do not receive any compensation for their services as Directors.

Other

All Directors are reimbursed for their expenses incurred in connection with attending meetings. We provide liability
insurance for our Directors and officers. The cost of this coverage for 2021 was $221,723. We do not offer non-employee
Directors travel accident insurance, life insurance, or a pension or retirement plan.

Compensation Agreements with Management

On May 17, 2022, the Company and Stephen C. Taylor, our President and Chief Executive Officer, terminated his
Employment Agreement dated April 24, 2015, in connection with Mr. Taylor's retirement. The Company will be providing
further information in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission regarding the
terms of his retirement.

We do not have any written employment agreements with our other named executive officers.

Limitation on Directors’ and Officers’ Liability

Our Articles of Incorporation provide our Directors and Officers with certain limitations on liability to us or any of our
shareholders for damages for breach of fiduciary duty as a Director or officer involving certain acts or omissions of any such
Director or Officer.

This limitation on liability may have the effect of reducing the likelihood of derivative litigation against Directors and
Officers, and may discourage or deter shareholders or management from bringing a lawsuit against Directors and Officers for
breach of their duty of care even though such an action, if successful, might otherwise have benefited our shareholders and us.

Our Articles of Incorporation and bylaws provide certain indemnification privileges to our Directors, employees,
agents and officers against liabilities incurred in legal proceedings. Also, our Directors, employees, agents or officers who are
successful, on the merits or otherwise, in defense of any proceeding to which he or she was a party, are entitled to receive
indemnification against expenses, including attorneys’ fees, incurred in connection with the proceeding.

We are not aware of any pending litigation or proceeding involving any of our Directors, officers, employees or agents
as to which indemnification is being or may be sought, and we are not aware of any other pending or threatened litigation that
may result in claims for indemnification by any of our Directors, officers, employees or agents.

Even though we maintain Directors’ and Officers’ liability insurance, the indemnification provisions contained in our

Articles of Incorporation and bylaws remain in place.

PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT

For purposes of the following tables, "beneficial ownership" is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, pursuant to which a person or group of persons is deemed to have "beneficial ownership" of
any shares of Common Stock that such person has the right to acquire within 60 days.

The following table indicates the beneficial ownership of our Common Stock as of May 18, 2022 by: (1) each of our
Directors and nominees for election; (2) our Chief Executive Officer, principal accounting officer and our other named
executive officers (as defined in Item 402(a) (3) of Regulation S-K) (together as a group, the "Named Executive Officers "); and
(3) all of our current Directors, nominees and executive officers as a group, based on our records and data supplied by each of
the current Directors, nominees and executive officers.

Schedule of Beneficial Ownership

Name of Beneficial Owner and Position

Directors & Nominees Who Are Not Named Executive Officers

Amount and Nature
of Beneficial
Ownership (1)

Percent of Class

Leslie A. Beyer - Current Director

David L. Bradshaw - Current Director

John W. Chisholm - Director Nominee

Nigel J. Jenvey - Current Director

Named Executive Officers

Stephen C. Taylor - Chief Executive Officer and Current Director(2)
James R. Hazlett - Vice President - Technical Services(3)
Micah C. Foster - Vice President and Chief Financial Officer

11,148

36,256

13,004

9,503

645,740

95,018

5,000

All Directors (and nominees) and executive officers as a group (7 persons)

815,669

* Less than one percent.

5.18%

6.54%

(1) The number of shares listed includes all shares of common stock owned or indirectly owned by, which vest within 60
days of May 18, 2022, under outstanding restricted stock units. Beneficial ownership is calculated in accordance with the
rules of the Securities and Exchange Commission. Unless otherwise indicated, all shares of common stock are held
directly with sole voting and investment powers. As of May 18, 2022, none of the shares of common stock owned by our
officers and Directors had been pledged as collateral to secure repayment of loans.

(2) Includes 130,563 shares of common stock held indirectly by a “rabbi trust” the receipt of which has been deferred by Mr.

Taylor pursuant to the Company’s Nonqualified Deferred Compensation Plan.

(3) Includes 19,000 shares of common stock held indirectly by a “rabbi trust” the receipt of which has been deferred by Mr.

Hazlett pursuant to the Company’s Nonqualified Deferred Compensation Plan.

The following table sets forth information as of May 18, 2022 regarding the beneficial owners of more than five
percent of the outstanding shares of our Common Stock. To our knowledge, there are no beneficial owners of more than five
percent of the outstanding shares of our Common Stock as of May 18, 2022 other than those set forth below.

Name and Address of Beneficial Owner

Amount and Nature of Beneficial
Ownership

Percent of
Class

FMR LLC(1)
245 Summer Street

Boston, Massachusetts 02210

1,315,540

10.54%

Dimensional Fund Advisors LP(2)
Palisades West, Building One, 6300 Bee Cave Road

943,255

7.56

Austin, Texas 78746

Mill Road Capital III, LP(3)
382 Greenwich Avenue, Suite One

Greenwich, CT 06830

Franklin Mutual Advisors, LLC(4)
101 John F. Kennedy Parkway

Short Hills, New Jersey 07078

AWM Investment Company, Inc.(5)
c/o Special Situations Funds

527 Madison Avenue, Suite 2600

New York, New York 10022

839,445

6.73%

768,834

6.16%

678,008

5.43%

(1) As reported in Amendment No. 3 to Schedule 13G filed with the Securities and Exchange Commission on March 10,
2022. According to the filing, FMR LLC holds voting and/or investment power over the shares, but economic ownership
is beneficially held by two investment companies. FMR LLC has sole dispositive and voting power over all of the shares
reported in the table above.

(2) As reported in Amendment No. 10 to Schedule 13G filed with the Securities and Exchange Commission on February 8,
2022. According to the filing, Dimensional Fund Advisors holds voting and/or investment power over the shares, but
economic ownership is beneficially held by four investment companies. Dimensional Fund Advisors has sole dispositive
power over all and sole voting power over 916,154 of the shares reported in the table above.

(3) As reported in Schedule 13D filed with the Securities and Exchange Commission on January 4, 2021.

(4) As reported in Amendment No. 4 to Schedule 13G filed with the Securities and Exchange Commission on February 2,
2022. According to the filing, Franklin Advisory Services, LLC is an indirect wholly owned subsidiary of Franklin
Resources, Inc., and it holds investment power over all the securities and sole voting power over 732,020 of the shares
reported in the table above. However, economic ownership is held by one or more open-end investment companies or
other managed accounts that are investment management clients of Franklin Advisory Services, LLC or affiliated
companies.

(5) As reported in Schedule 13G filed with the Securities and Exchange Commission on February 11, 2022. According to
the filing, AWM Investment Company Inc. holds voting and/or investment power over the shares, but economic
ownership is beneficially held by three investment companies. AWM Investment Company Inc. has sole dispositive and
voting power over all of the shares reported in the table above.

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors, officers and persons who
beneficially own more than 10% of our Common Stock to file certain reports of beneficial ownership with the Securities and
Exchange Commission. These reports show the Directors’, officers’ and greater than 10% shareholders' ownership and the
changes in ownership of our common stock and other equity securities. The SEC regulations also require that a copy of all such

Section 16(a) forms filed must be furnished to us by the person or entity filing the report. To the Company’s knowledge, during
the fiscal year ended December 31, 2021, all reports required to be filed pursuant to Section 16(a) were filed on a timely basis.

PROPOSAL 2 - CONSIDERATION OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), gives the
shareholders the right to endorse or not endorse the compensation of our named executive officers as disclosed in this Proxy
Statement in accordance with the SEC's rules. The proposal, commonly known as a “Say-on-Pay” proposal, gives our
shareholders the opportunity to express their views on the Company's executive compensation.

At the Company's annual meeting of shareholders held in June 2017, our shareholders recommended that the advisory
vote on the Say-on-Pay of our named executives in our proxy materials be submitted annually pursuant to the recommendation
of our Board of Directors that the advisory vote be submitted annually. Thus we include the Say-on-Pay advisory vote in our
proxy materials on an annual basis until the next shareholder vote on the frequency of Say-on-Pay or our Board of Directors
otherwise determines that a different frequency of Say-on-Pay vote is in the best interests of the shareholders.

We are asking our shareholders to indicate whether or not they support the compensation program as described in this
proxy statement. This proposal is not intended to address any specific item of compensation, but rather the overall
compensation of the named executive officers and the compensation policies, methodologies and practices described in this
proxy statement. Accordingly, we ask our stockholders to vote “FOR” the following resolution at our annual meeting:

“RESOLVED, that the shareholders approve the compensation of the Company's named executive officers, as
disclosed in the compensation section, the compensation tables, and the related disclosure contained in the proxy statement set
forth under the caption “Executive Compensation” of this proxy statement.”

The Company believes its compensation philosophy and programs are strongly linked to performance and results and
appropriately aligned with the interests of shareholders. Our compensation philosophy is to provide an executive compensation
program that:

•

rewards performance and skills necessary to advance our objectives and further the interests of our shareholders;

is fair and reasonable and appropriately applied to each executive officer;

is competitive with compensation programs offered by our competitors; and

is appropriately focused on achieving annual financial and operational goals through the Company's cash bonus
plan and on maximizing stockholder value over the long term, through grants of restricted shares and stock
options.

The Board of Directors recommends that you vote FOR approval, on an advisory basis, of the compensation
programs of our named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation
tables, and the related disclosure contained in the proxy statement set forth under the caption “Executive
Compensation” of this proxy statement.

PROPOSAL 3 - APPROVAL OF AN AMENDMENT TO THE 2019 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE PLAN BY 650,000 SHARES

Introduction

The New York Stock Exchange requires shareholder approval for the establishment or material amendment of any
equity compensation arrangement, with limited exceptions. We are seeking the approval of our shareholders of an amendment
to our 2019 Equity Incentive Plan (the “2019 Plan”) to increase the number of shares reserved under the 2019 Plan by 650,000
shares. Our Board has approved the amendment to the 2019 Plan and recommends the approval of the amendment by our
stockholders.

The 2019 Plan was originally adopted by our stockholders on June 20, 2019 and, at that time, we initially reserved
500,000 shares of our common stock under the 2019 Plan. As of March 31, 2022, we have issued a total of 456,198 shares of
common stock under the 2019 Plan, of which 165,854 continue to be subject to vesting requirements.

Our Board has reviewed the 2019 Plan and the lack of available shares thereunder and determined that the 2019 Plan
requires additional shares to provide the flexibility with respect to stock-based compensation that our Board believes is
necessary to establish appropriate long-term incentives to achieve our objectives. The amount of available shares under the
2019 Plan has been negatively impacted due to the COVID-19 pandemic shut down which precipitated material decline in the
market values of equity securities of companies in the oil and gas industry, including service providers such as Natural Gas
Services. These unanticipated and unavoidable stock price declines, which were beyond the control of companies in our
industry, have had drastic effects on equity incentive plans because more shares have been required to cover the value of
customary long-term incentive grants. Thus, our Board believes that it is advisable to increase the share limit in the 2019 Plan
in order to attract and compensate employees, officers, directors and others upon whose judgment, initiative and effort we
depend. The issuance of common shares and stock options to eligible participants is designed to align the interests of such
participants with those of our stockholders.

Proposal 3 increases the number of shares of common stock that may be issued under the 2019 Plan by 650,000 shares,
or approximately 5.17% of the 12,561,408 shares of common stock outstanding on April 14, 2022. The closing price of our
common stock on April 14, 2022 was $13.54. The major features of the 2019 Plan are summarized below. This summary is
qualified in its entirety by reference to the full text of the 2019 Plan, a copy of which is attached to this Proxy Statement as
APPENDIX A.

If shareholders do not approve this proposal, the current share limit under the 2019 Plan, which has been nearly
exhausted, will continue in effect.

Board Recommendation

Our Board recommends a vote “for” an amendment to our 2019 Stock Incentive Plan to increase the number of shares of
common stock reserved under the plan by 650,000 shares.

Material Terms of the Plan

The following summary of the material terms of the 2019 Plan is qualified in its entirety by the full text of the 2019
Plan, a copy of which is attached to this Proxy Statement as Annex 1. You also may obtain a copy of the 2019 Plan, free of
charge, by writing to the Company, Attention Alicia Dada, Investors Relations, 404 Veterans Airpark Lane, Suite 300, Midland,
Texas 79705.

Effective Date; Duration of the 2019 Plan

The 2019 Plan became effective upon approval by the Company’s shareholders at our June 2019 annual meeting.
Except with respect to awards then outstanding, unless sooner terminated, the 2019 Plan will expire on June 20, 2029 and no
further awards may be granted after such date.

Plan Administration

The 2019 Plan is administered by the Committee or, in the Board’s discretion, by the Board. The Committee has the
authority to, among other things, interpret the 2019 Plan, determine who will be granted awards under the 2019 Plan, prescribe
the terms and conditions of each award, interpret, administer, reconcile any inconsistency in, correct any defect in and supply
any omission in the 2019 Plan, and exercise discretion to make any and all other determinations which it determines to be
necessary or advisable for the administration of the 2019 Plan.

Eligibility

The Committee selects participants from among the key employees, consultants and directors of the Company and its

affiliates. Only employees are eligible to receive incentive stock options.

Shares Available for Awards; Limits on Awards

The Company initially reserved an aggregate of 500,000 shares of common stock to be awarded under the 2019 Plan.
If this proposal is approved by our shareholders at the Meeting, the aggregate shares that may awarded under the 2019 Plan will
increase to 1,150,000 (the “Total Share Reserve”). We anticipate that, based on our recent historical awards, the amount of
shares reserved would provide about 3 years of availability under the 2019 Plan, although since the number of shares granted
under the 2019 Plan in any single year can fluctuate significantly due to fluctuations in the market price of our common stock.
See “Overhang and Burn Rate” below for further information.

One of the requirements for the favorable tax treatment available to incentive stock options under the Internal Revenue
Code of 1986, as amended (the “Code”), is that the 2019 Plan must specify, and our stockholders must approve, the maximum
number of shares available for issuance pursuant to incentive stock options. As a result, in order to provide flexibility, the 2019
Plan will provide that up to 575,000 of the Total Share Reserve may be issued pursuant to incentive stock options.

No non-employee director may be granted awards, during any fiscal year, with respect to shares of common stock that,
together with any cash fees paid to the director during the fiscal year, have a total value that exceeds $250,000 (calculating the
value of any awards based on the grant date fair value for financial reporting purposes).

Shares tendered in payment of the option exercise price or delivered or withheld by the Company to satisfy any tax
withholding obligation, or shares covered by a stock-settled stock appreciation right or other awards that were not issued upon
the settlement of the award will not again become available for future grants under the 2019 Plan.

Awards may be granted under the 2019 Plan in assumption of, or in substitution for, outstanding awards previously
granted by an entity acquired by the Company or with which the Company combines. The Committee will make appropriate
adjustments to these limits to prevent dilution or enlargement of the rights of participants under the 2019 Plan (see
“Adjustments upon Changes in Stock” below for further information).

Available Awards

Awards that may be granted under the 2019 Plan include stock options (including both incentive stock options (ISOs)
and nonqualified stock options), stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs), performance
awards, and other stock-based awards. The terms of each award will be set forth in a written agreement.

Stock Options

A stock option is the right to purchase shares of common stock at a future date at a specified price per share called the
exercise price. An option may be either an ISO or a nonqualified stock option. ISOs and nonqualified stock options are taxed
differently, as described under Federal Income Tax Treatment of Awards under the 2019 Plan. Except in the case of options
granted pursuant to an assumption or substitution for another option, the exercise price of a stock option may not be less than
the fair market value (or in the case of an ISO granted to a ten percent shareholder, 110% of the fair market value) of a share of
common stock on the grant date. Full payment of the exercise price must be made at the time of such exercise either in cash or
bank check or in another manner approved by the Committee.

Stock Appreciation Rights

A SAR is the right to receive payment of an amount equal to the excess of the fair market value of a share of common
stock on the date of exercise of the SAR over the exercise price. The exercise price of a SAR may not be less than the fair
market value of a share of common stock on the grant date. SARs may be granted alone (”freestanding rights”) or in tandem
with options (”related rights”).

Restricted Stock

A restricted stock award is an award of actual shares of common stock which are subject to certain restrictions for a
period of time determined by the Committee. Restricted stock may be held by the Company in escrow or delivered to the
participant pending the release of the restrictions. The participant generally has the rights and privileges of a shareholder as to
such restricted stock during the restricted period, including the right to vote the restricted stock and the right to receive
dividends

Restricted Stock Units

An RSU is an award of hypothetical common stock units having a value equal to the fair market value of an identical
number of shares of common stock, which are subject to certain restrictions for a period of time determined by the Committee.
No shares of common stock are issued at the time an RSU is granted, and the Company is not required to set aside any funds for
the payment of any RSU award. Prior to settlement of an RSU award and the receipt of shares, the participant does not have any
rights as a shareholder with respect to such shares. The Committee may grant RSUs with a deferral feature (deferred stock units
or DSUs), whereby settlement of the RSU is deferred beyond the vesting date until a future payment date or event set out in the
participant’s award agreement. The Committee has the discretion to credit RSUs or DSUs with dividend equivalents.

Performance Share Awards

A performance share award is an award of shares of common stock that are only earned if certain conditions are met.
The Committee has the discretion to determine: the number of shares of common stock or stock-denominated units subject to a
performance share award; the applicable performance period; the conditions that must be satisfied for a participant to earn an
award; and the other terms, conditions and restrictions of the award.

The number of performance shares earned by a participant depends on the extent to which the performance goals
established by the Committee are attained within the applicable performance period. No payout is made with respect to any
performance share award except upon written certification by the Committee that the minimum threshold performance goal(s)
have been achieved.

Other Equity-Based Awards

The Committee may grant other equity-based awards, either alone or in tandem with other awards, in amounts and

subject to conditions as determined by the Committee as set out in an award agreement.

Vesting

The 2019 Plan allows for awards subject to either time-based vesting or performance-based vesting, or both. The
Committee has the authority to determine the vesting schedule of each award, and to accelerate the vesting and exercisability of
any award. The Company’s practice over the last several years has been to grant restricted stock awards to its executive officers
and independent directors, and stock options to selected non-executive employees. Restricted Stock awards to our (i) executive
officers have been subject to time-based vesting in equal one-third installments over a three year period from the grant date and
(ii) independent directors have been subject to time-based vesting in equal quarterly installments beginning in the year
following the year in which they are granted. Stock options granted to our non-executive employees typically vest in equal
one-third installments over a three year period. Past vesting requirements may not be indicative of future vesting requirements
set by the Committee, which may be less or more onerous than in prior years.

Adjustments upon Changes in Stock

In the event of changes in the outstanding common stock or in the capital structure of the Company by reason of any
stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any
recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization
occurring after the grant date of any award, awards granted under the 2019 Plan and any award agreements, the exercise price
of options and SARs, the maximum number of shares of common stock subject to all awards will be equitably adjusted or
substituted, as to the number, price or kind of a share of common stock or other consideration subject to such awards to the
extent necessary to preserve the economic intent of the award.

Unless the Committee specifically determines that such adjustment is in the best interests of the Company or its
affiliates, the Committee will, in the case of ISOs, ensure that any adjustments made will not constitute a modification,
extension or renewal of the ISO within the meaning of Code Section 424(h)(3) and in the case of non-qualified stock options,
ensure that any adjustments will not constitute a modification of such non-qualified stock options within the meaning of Code
Section 409A. Any adjustments will be made in a manner which does not adversely affect the exemption provided under Rule
16b-3 under the Exchange Act. The Company will give participants notice of any adjustment.

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Change in Control

Unless otherwise provided in an award agreement, in the event of a participant’s termination of service without cause
or for good reason during the 18-month period following a change in control, the vesting of all awards will fully accelerate and
all outstanding options and SARs will become immediately exercisable as of the date of the participant’s termination of service.

In the case of performance awards, in the event of a participant’s termination of service without cause or for good
reason, in either case, within 18 months following a change in control, all performance goals or other vesting criteria will be
deemed achieved at 100% of target levels and all other terms and conditions will be deemed met as of the date of the
participant’s termination of service.

In the event of a change in control, the Committee may in its discretion and upon at least 10 days’ advance notice to
the affected persons, cancel any outstanding awards and pay to the holders the value of the awards based upon the price per
share of common stock received or to be received by other shareholders of the Company in the event. In the case of any option
or SAR with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the change
in control, the Committee may cancel the option or SAR without the payment of any consideration.

A change in control is defined as (a) the acquisition by one person or more than one person acting as a group, of
Company stock representing more than 50% of the total fair market value or total voting power of the Company’s stock; (b) a
merger, consolidation or other reorganization in which the Company is not the surviving entity unless the Company’s
shareholders immediately prior to the merger, consolidation or other reorganization maintain at least 50% of the voting power;
(c) a majority of the incumbent members of the Board are replaced by directors whose appointment or election is not endorsed
by at least two-thirds of the Board; or (d) the acquisition by one person or more than one person acting as a group, of all or
substantially all of the Company’s assets.

Amendment or Termination of the 2019 Plan

The Board may amend or terminate the 2019 Plan. However, except in the case of adjustments upon changes in
common stock, no amendment will be effective unless approved by the shareholders of the Company to the extent shareholder
approval is necessary to satisfy any applicable laws. The 2019 Plan shall terminate on June 20, 2029, unless previously
terminated by the Board.

Amendment of Awards

The Committee may amend the terms of any one or more awards. However, the Committee may not affect any
amendment which would otherwise constitute an impairment of the rights under any award unless the Company requests the
consent of the participant and the participant consents in writing.

Clawback and Recoupment

The Company may cancel any award or require the participant to reimburse any previously paid compensation

provided under the 2019 Plan or an award agreement in accordance with the Company’s clawback policy.

Federal Income Tax Consequences of Awards

The following is a summary of the U.S. federal income tax consequences of awards granted under the 2019 Plan. This
summary is based on U.S. federal income tax laws and regulations in effect on the date of this Proxy Statement and is not a
complete description of the U.S. federal income tax laws. This summary is not intended to be exhaustive and does not constitute
legal or tax advice. This summary does not address municipal, state or foreign income tax consequences of awards, or federal
employment taxes.

Nonqualified Stock Options

The grant of a nonqualified stock option will not result in taxable income to the participant. The participant will
recognize ordinary income at the time of exercise equal to the excess of the fair market value of the shares on the date of
exercise over the exercise price and the Company will be entitled to a corresponding deduction for tax purposes. Gains or losses
realized by the participant upon the sale of the shares acquired on exercise will be treated as capital gains or losses.

Incentive Stock Options (ISOs)

The grant of an ISO will not result in taxable income to the participant. The exercise of an ISO will not result in
taxable income to the participant if at the time of exercise the participant has been employed by the Company or its subsidiaries

at all times beginning on the date the ISO was granted and ending not more than 90 days before the date of exercise. However,
the excess of the fair market value of the shares on the date of exercise over the exercise price is an adjustment that is included
in the calculation of the participant’s alternative minimum tax liability for the year the shares are sold.

If the participant does not sell the shares acquired on exercise within two years from the date of grant and one year
from the date of exercise then on the sale of the shares any amount realized in excess of the exercise price will be taxed as
capital gain. If the amount realized in the sale is less than the exercise price, then the participant will recognize a capital loss.
If these holding requirements are not met, then the participant will generally recognize ordinary income at the time the shares
are sold in an amount equal to the lesser of (a) the excess of the fair market value of the shares on the date of exercise over the
exercise price, or (b) the excess, if any, of the amount realized on the sale of the shares over the exercise price, and the
Company will be entitled to a corresponding deduction.

SARs

The grant of a SAR will not result in taxable income to the participant. The participant will recognize ordinary income
at the time of exercise equal to the amount of cash received or the fair market value of the shares received and the Company
will be entitled to a corresponding deduction for tax purposes. If the SARs are settled in shares, then when the shares are sold
the participant will recognize capital gain or loss on the difference between the sale price and the amount recognized at
exercise. Whether it is a long-term or short-term gain or loss depends on how long the shares are held.

Restricted Stock and Performance Shares

Unless a participant makes an election to accelerate the recognition of income to the grant date (as described below),
the grant of restricted stock or performance shares awards will not result in taxable income to the participant. When the
restrictions lapse, the participant will recognize ordinary income on the excess of the fair market value of the shares on the
vesting date over the amount paid for the shares, if any, and the Company will be entitled to a corresponding deduction.

If the participant makes an election under Code Section 83(b) within thirty days after the grant date, the participant
will recognize ordinary income as of the grant date equal to the fair market value of the shares on the grant date over the
amount paid, if any, and the Company will be entitled to a corresponding deduction. Any future appreciation will be taxed at
capital gains rates. However, if the shares are later forfeited, the participant will not be able to recover any taxes paid.

RSUs and PSUs

The grant of an RSU or Performance Share Units will not result in taxable income to the participant. When the RSU or
PSU is settled, the participant will recognize ordinary income equal to the fair market value of the shares or the cash provided
on settlement and the Company will be entitled to a corresponding deduction. Any future appreciation will be taxed at capital
gains rates.

Section 409A

Code Section 409A imposes complex rules on nonqualified deferred compensation arrangements, including
requirements with respect to elections to defer compensation and the timing of payment of deferred amounts. Depending on
how they are structured, certain equity-based awards may be subject to Code Section 409A, while others are exempt. If an
award is subject to Code Section 409A and a violation occurs, the compensation is includible in income when no longer subject
to a substantial risk of forfeiture and the participant may be subject to a 20% penalty tax and, in some cases, interest penalties.
The 2019 Plan and awards granted under the 2019 Plan are intended to be exempt from or conform to the requirements of Code
Section 409A.

Section 162(m) and the Company’s Deduction

Generally, whenever a participant recognizes ordinary income under the 2019 Plan, a corresponding deduction is
available to the Company provided that the Company complies with certain reporting requirements. However, under Code
Section 162(m), the Company will be denied a deduction for compensation paid to certain senior executives that exceeds
$1,000,000.

The foregoing is only a summary of the current effect of certain U.S. federal income taxation upon the participant and
us with respect to the grant and exercise of awards or compensation granted under the Amended Plan. Participants are
hereby notified that (i) any discussion of U.S. federal tax issues in this proxy statement is not intended to be written or
used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Code, and (ii)
participants should seek advice based on their particular circumstances from an independent tax advisor.

Equity Compensation Plan Information

The following table provides information related to our Voting Common Stock which may be issued under our two

existing equity compensation plans as of March 31, 2022, including the 2019 Plan:

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column a)

(a)

(b)

(c)

355,688 (2) $

21.59 (3)

402,138

—

355,688

—

21.59 (3)

—

402,138

PLAN CATEGORY

Equity compensation plans
approved by security
holders:(1)
Equity compensation plans
not approved by security
holders:

Total

(1)
We have two equity incentive plans approved by our shareholders: (a) our legacy 1998 Stock Option Plan, as amended
and restated, which is of limited nature as only stock options may be granted under that plan and (b) the 2019 Plan, which is
described above.

(2)
Of this total (i) 189,834 shares represents the number of shares of common stock underlying outstanding stock options
and (ii) 165,854 shares represent underlying outstanding time-vested restricted stock and restricted stock unit ("RSU") awards
to our executive officers and independent directors and assumes a 100% issuance related to the RSUs.

(3)

The outstanding restricted stock and RSU awards do not have an exercise price.

Overhang and Burn Rate.

As of March 31, 2022, 189,834 shares of the Company’s common stock were subject to outstanding stock options at a
weighted average exercise price of $21.59 granted under our 1998 Stock Option Plan, as amended and restated. In addition, our
1998 Stock Option Plan, as amended and restated, has an additional 355,003 shares reserved for potential issuance pursuant to
future awards that may be granted during the remaining term of that plan.

As of March 31, 2022, we have issued a total of 456,198 shares of common stock under the 2019 Plan, of which
165,854 continue to be subject to vesting requirements and 47,135 remain reserved for subsequent issuance. The total of these
212,989 shares represents 1.7% of our shares outstanding. We believe this "overhang" is reasonable compared to that of our
peers.

“Burn rate” refers to the number of shares that are subject to awards that we grant over a particular period of time. The
total number of shares of the Company’s common stock subject to awards that the Company granted under the 2019 Plan in
each of the last three calendar years, and to date (as of March 31, 2022), are as follows:

● 199,810 shares in 2019 (which was 1.5% of the number of shares of the Company’s common stock issued and

outstanding at the end of 2019);

● 123,185 shares in 2020 (which was 0.9% of the number of shares of the Company’s common stock issued and

outstanding at the end of 2020);

● 156,339 shares in 2021 (which was 1.2% of the number of shares of the Company’s common stock issued and

outstanding at the end of 2021);

● No shares in 2022, although we intend to grant restricted stock awards totaling 92,879 shares if this proposal is

approved by our shareholders at the Annual Meeting (see "New Plan Benefits" below);

Thus, the total number of shares of the Company’s common stock subject to awards granted under the 2019 Plan per
year over the last three fiscal years (2019, 2020 and 2021) has been, on average, 1.3% of the weighted-average number of
shares of the Company’s common stock issued and outstanding for the corresponding year.

We anticipate that the Total Share Reserve will provide us with flexibility to continue to grant equity awards under the
2019 Plan through approximately the end of 2025. However, this is only an estimate, in the Company’s judgment, based on
current circumstances. The total number of shares that are subject to the Company’s award grants in any one year or from year-
to-year may change based on a number of variables, including, without limitation, the value of the Company’s common stock
(since higher stock prices generally require that fewer shares be issued to produce awards of the same grant date fair value),
changes in competitors’ compensation practices or changes in compensation practices in the market generally, changes in the
number of employees, changes in the number of directors and officers, whether and the extent to which vesting conditions
applicable to equity-based awards are satisfied, acquisition activity and the need to grant awards to new employees in
connection with acquisitions, the need to attract, retain and incentivize key talent, the type of awards the Company grants, and
how the Company chooses to balance total compensation between cash and equity-based awards.

New Plan Benefits

The following table sets forth the number of shares of common stock underlying awards that will be issued to the
officers listed below under the 2019 Plan if this proposal to increase the reserved shares under the plan is approved by our
shareholders at the Meeting.

Name and Position

Stephen C. Taylor, CEO

Micah C. Foster, CFO

James R. Hazlett, VP - Technical Services

Executive Group (three persons)

Dollar Value ($)

Number of Restricted Stock Shares/Units(1)

722,160

196,300

184,025

1,102,485

60,839

16,537

15,503

92,879

(1)
the awards will be paid in cash as they vest to the extent the reserved shares under the 2019 Plan have been exhausted.

The awards vest in annual one-third increments. If this proposal is not approved by our shareholders at the Meeting,

Except as set forth above, additional awards under the 2019 Plan are subject to the discretion of the Compensation
Committee, and no determination has been made as to the types or amounts of awards that will be granted in the future to
specific individuals pursuant to the 2019 Plan. Therefore, it is not possible to determine the future benefits that will be received
by participants.

Required Vote

Approval of this Proposal #3 requires a majority of the votes cast at the meeting. Abstentions and broker non-votes

will have no effect on the outcome of this Proposal.

Board Recommendation

The Board recommends that the shareholders vote ‘FOR” the approval of the amendment to the 2019 Plan to increase the
number of shares reserved for issuance under the plan by 650,000 shares of common stock.

REPORT OF THE AUDIT COMMITTEE

The primary function of the Audit Committee of Natural Gas Services Group, Inc. is oversight of the Company’s
financial reporting process, public financial reports, internal accounting and financial controls, and the independent audit of the
annual consolidated financial statements. The Committee acts under a charter, which can be found on the Company’s website at
www.ngsgi.com. The adequacy of the charter is reviewed at least annually. The Chairman and all members of the Audit
Committee are independent directors within the meaning of Section 303A of the New York Stock Exchange Listed Company
Manual.

The Committee met eight (8) times in 2021. In these meetings, as discussed in more detail below, it had extensive

reports and discussions with the independent auditors, internal accounting professionals, and members of management.

In performing its oversight function, the Committee reviewed and discussed the consolidated financial statements with
management and Moss Adams LLP (“Moss Adams”), the Company’s independent auditors. Management indicated, and Moss
Adams' audit opinion stated, that the Company’s consolidated financial statements were fairly stated in accordance with
generally accepted accounting principles. The Committee discussed significant accounting policies applied by the Company in
its financial statements, as well as alternative treatments. It also discussed with Moss Adams matters covered by Public
Company Accounting Oversight Board (“PCAOB”) standards, including PCAOB AS 1301 Communication with Audit
Committees. In addition, the Committee reviewed and discussed management’s report on internal control over financial
reporting, which confirmed the effectiveness of the Company’s internal control over financial reporting.

The Audit Committee also discussed with Moss Adams its independence from the Company and management,
including the communications Moss Adams is required to provide under applicable PCAOB rules. The Committee considered
any non-audit services provided or proposed by Moss Adams to the Company, and concluded that the auditors’ independence
has been maintained. In the year ended December 31, 2021 and up until the filing of this Proxy statement, Moss Adams had not
provided any material non-audit services to the Company.

The Audit Committee discussed with the Company’s internal accounting professionals and Moss Adams the overall
scope and plans for the audit and met periodically with Moss Adams, both with and without management present. Discussions
included the results of their reviews and examination, their evaluations of the Company’s internal controls, and the overall
quality of the Company’s financial reporting.

The Audit Committee met with the Company’s management to discuss the comprehensive risk management and

compliance processes of the Company, and reviewed other topics of interest.

Based on the reviews and discussions referred to above, in reliance on management and the opinion Moss Adams
included in its report on the financial statements, and subject to the limitations of its role described below, the Audit Committee
recommended to the Board, and the Board approved, the inclusion of the audited financial statements in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2021, for filing with the U.S. Securities and Exchange Commission.

In carrying out its responsibilities, the Audit Committee looks to management and the independent auditors.
Management is responsible for the preparation and fair presentation of the Corporation’s financial statements and for
maintaining effective internal control. Management is also responsible for assessing and maintaining the effectiveness of
internal control over the financial reporting process in compliance with Sarbanes-Oxley Section 404 requirements. The
independent auditors are responsible for auditing the Company’s annual financial statements, and expressing an opinion as to
whether the statements are fairly stated, in all material respects, in conformity with generally accepted accounting principles.
The independent auditors perform their responsibilities in accordance with the standards of the PCAOB. Audit Committee
members are not professionally engaged in the practice of accounting or auditing, and are not experts under the Securities Act
of 1933 in either of those fields or in auditor independence.

Shareholders approved the appointment of Moss Adams as the Company’s independent auditors at the annual meeting
of the Company held on June 17, 2021. The Audit Committee appointed Moss Adams to audit the Company’s financial
statements for 2022, subject to shareholder ratification of the appointment.

The Committee, along with the other members of the Board, management, and the Company’s internal accounting
professionals annually evaluates Moss Adams qualifications, performance, and independence, including the performance of the
lead audit partner, in deciding whether or not to retain Moss Adams. That evaluation includes consideration of: (1) Moss
Adams’ quality control; (2) All relationships between Moss Adams and the Company covered by the PCAOB; (3) Moss

Adams’ expertise and experience in the oil and gas industry with specific attention to the oilfield services and compression
sectors; and (4) The quality of Moss Adams’ audit plans.

The Committee believes that Moss Adams’ role as the Company’s independent registered public accounting firm is
appropriate given their experience and expertise with middle market public companies in the oilfield service industry and their
knowledge of the Company’s business, as well as the effectiveness of their audit plans. Based on the Audit Committee’s
evaluation of Moss Adams’ qualifications, performance, and independence, as well as regular meetings with the lead partner,
the Audit Committee believes that the continued retention of Moss Adams as the Company’s independent registered public
accounting firm is in the best interest of the Company and its stockholders.

Respectfully submitted by the Audit Committee,

David L. Bradshaw, Chairman
Leslie A. Beyer
Nigel J. Jenvey

PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

We are asking the shareholders to ratify the Audit Committee’s appointment of Moss Adams LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2022. Moss Adams LLP is a registered public
accounting firm with the Public Company Accounting Oversight Board (“PCAOB”), as required by the Sarbanes-Oxley Act of
2002 and the rules of the PCAOB. Shareholder ratification of the appointment is not required under the laws of the State of
Colorado, but the Board believes it is important to allow shareholders to vote on the proposal. In the event the shareholders fail
to ratify the appointment, the Audit Committee will reconsider this appointment. Even if the appointment is ratified, the Audit
Committee, in its discretion, may direct the appointment of different independent registered public accounting firm at any time
during the year if the Audit Committee determines that such a change would be in our best interests and that of our
shareholders.

Moss Adams LLP representatives are expected to attend the 2022 Annual Meeting in person or via video conference.
They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate
shareholder questions.

The Board of Directors recommends that the shareholders vote “FOR” the ratification of the appointment of

Moss Adams LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022.

Principal Accountant Fees

Our Principal Accountant for the fiscal years ended December 31, 2021 and 2020, was Moss Adams.

Audit Fees

The aggregate fees billed for professional services rendered by Moss Adams for the audit of our consolidated financial
statements for the years ended December 31, 2021 and 2020, and the review of the financial statements on Forms 10-Q for the
quarters in such years were approximately $242,250 and $257,575, respectively.

Audit Related Fees

During the years ended December 31, 2021 and 2020, there were no audit related fees.

Tax Fees

We were not billed by nor was there any tax work performed by Moss Adams during the years ended December 31,

2021 and 2020.

All Other Fees

No other fees were billed by Moss Adams during our fiscal years ended December 31, 2021 and 2020, other than as

described above.

Audit Committee Pre-Approval Policies and Procedures

As of the date of this proxy statement, our Audit Committee has not established general pre-approval policies and as of
December 31, 2021, our Audit Committee had not established pre-approval policies and procedures for the engagement of our
principal accountant to render audit or non-audit services. However, in accordance with Section 10A(i) of the Exchange Act,
our Audit Committee, as a whole, approves the engagement of our principal accountant prior to the accountant rendering audit
or non-audit services.

Certain rules of the Securities and Exchange Commission provide that an auditor is not independent of an audit client
if the services it provides to the client are not appropriately approved, subject, however, to a de minimis exception contained in
the rules. The Audit Committee pre-approved all services provided by Moss Adams in 2021 and the de minimis exception was
not used.

SHAREHOLDER PROPOSALS

Under SEC Rule 14a-8, if a shareholder wants us to include a proposal in our proxy statement and form of proxy for
presentation at our 20222 Annual Meeting of Shareholders, the proposal must be received by us at our principal executive
offices at 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705 by January 25, 2023 unless the date of our 2023 Annual
Meeting of Shareholders is more than 30 days from the anniversary date of our 2022 Annual Meeting of Shareholders, in which
case the deadline is a reasonable time before we print and mail our proxy materials for the 2022 Annual Meeting of
Shareholders. The proposal should be sent to the attention of the Corporate Secretary of Natural Gas Services Group, Inc. In
order to curtail controversy as to the date on which a proposal was received by us, it is suggested that proponents submit their
proposals by certified mail-return receipt requested. Such proposals must also meet the other requirements established by the
SEC for stockholder proposals.

In addition, pursuant to our Bylaws, a stockholder who intends to nominate a candidate for election to the Board or to
propose other business for consideration at the 2023 Annual Meeting of Stockholders must deliver to the Company notice and
certain information concerning themselves and their shareholder proposal or director nomination not less than 90 days nor more
than 120 days prior to the anniversary date of the immediately preceding annual meeting (the “annual meeting anniversary
date”); provided, however, that, if the annual meeting is scheduled to be held on a date more than 30 days before or more than
60 days after the annual meeting anniversary date, notice must be delivered to us not later than the close of business on the later
of the 120th day prior to the scheduled date of such annual meeting and not later than the latest of (i) the 90th day prior to such
annual meeting, or (ii) the 10th day after public disclosure of the date of such annual meeting.

Accordingly, any notice given by or on behalf of a stockholder pursuant to these provisions of our Bylaws (and not
pursuant to Rule 14a-8 of the Exchange Act) must be received no earlier than February 16, 2023, and no later than March 20,
2023 Such notice should be addressed to: Natural Gas Services Group, Inc., Corporate Secretary, at 404 Veterans Airpark Lane,
Suite 300, Midland, Texas 79705.

With respect to special meetings of the shareholders, the business that may be brought at the meeting will be limited to
that stated in the Company's notice of meeting. In the event we call a special meeting of shareholders for the purpose of electing
one or more directors to the Board, any such shareholder entitled to vote in such election of directors may nominate a person or
persons (as the case may be) for election to such position(s) as specified our notice of meeting, if such shareholder delivers a
notice that complies with the requirements of our Bylaws to the secretary of the Company at its principal executive offices not
earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the
later of: (x) the 90th day prior to such special meeting; or (y) the tenth (10th) day following the first date of public disclosure of
the date of the special meeting and of the nominees proposed by the Board.

These requirements are separate from and in addition to the SEC’s requirements described in the first paragraph of this

section relating to including a proposal in our proxy statements.

COMMUNICATIONS WITH THE BOARD OF DIRECTORS

Because of our relatively small size, to date we have not developed formal processes by which shareholders or other
interested parties may communicate directly with Directors. Until formal procedures are developed and posted on our website
(www.ngsgi.com), any communication to one or more members of our Board of Directors may be made by sending them in
care of Investor Relations, Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite 300, Midland, Texas
79705. Shareholders should clearly note on the mailing envelope that the letter is a “Shareholder-Board Communication.” All
such communications will be forwarded to the intended recipients.

OTHER MATTERS

Our Board of Directors does not know of any matters to be presented at the meeting other than the matters set forth
herein. If any other business should come before the meeting, the person’s named in the enclosed proxy card will vote such
proxy according to their judgment on such matters.

New York Stock Exchange Certification. We listed our common stock on the New York Stock Exchange in October
2008. The certification of our Chief Executive Officer required by the NYSE Listing Standards, Section 303A.12(a), relating to
our compliance with the NYSE Corporate Governance Listing Standards, was submitted to the NYSE on July 22, 2019, in
connection with our listing on the exchange. The certifications of our Chief Executive Officer and principal accounting officer
required by the SEC in connection with our Annual Report on Form 10-K for the year ended December 31, 2021, were
submitted to the SEC on March 18, 2022, with our Annual Report on Form 10-K.

You may obtain our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, without charge upon
written request to John W. Chisholm, Interim President, at Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite
300, Midland, Texas 79705. In addition, the exhibits to the Annual Report on Form 10-K for the fiscal year ended December
31, 2021, may be obtained by any shareholder upon written request to Mr. Chisholm.

In addition, we use our website as a channel of distribution for company information. We make available free of
charge on the Investor Relations section of our website (www.ngsgi.com) our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, and Current Reports on Form 8-K. We also make available through our website other reports filed with or
furnished to the SEC under the Securities Exchange Act of 1934, as amended, including our proxy statements and reports filed
by officers and Directors under Section 16(a) of the Exchange Act, as well as our Code of Business Ethics and the charters to
our various Committees of our Board of Directors. We do not intend for information contained in our website to be part of this
proxy statement.

BY ORDER OF THE BOARD OF DIRECTORS

May 18, 2022

Midland, Texas

/s/ John W. Chisholm

John W. Chisholm Interim President, Chief Executive Officer and Director

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________________to__________________________
Commission file number: 1-31398

NATURAL GAS SERVICES GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)

Colorado
(State or other jurisdiction of incorporation or
organization)
404 Veterans Airpark Lane, Suite 300, Midland, Texas
(Address of principal executive offices)
Registrant’s telephone number, including area code:

75-2811855
(I.R.S. Employer Identification No.)

79705
(Zip Code)
(432) 262-2700

Title of each class
Common Stock, $.01 par value
Securities registered pursuant to section 12(g) of the Act: None.

Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
NGS

Name of each exchange on which registered
New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No �

Yes ☐ No �
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

Yes � No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File to be submitted and posted pursuant to Rule 405 of Regulation S-T (§40232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).

Yes � No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. Yes ☐ No �

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated
filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting
company ☒

Emerging growth company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes � No �

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant as of June 30, 2021 was
approximately $129,415,763 based on the closing price of the common stock on that date on the New York Stock Exchange.

At March 14, 2022, there were 12,717,486 shares of the Registrant's common stock outstanding.

Documents incorporated by reference

Certain information called for in Items 10, 11, 12, 13 and 14 of Part III are incorporated by reference to the registrant’s definitive proxy
statement for the annual meeting of shareholders expected to be held on June 16, 2022.

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FORM 10-K
NATURAL GAS SERVICES GROUP, INC.
TABLE OF CONTENTS

Item No.

Page

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4. Mine Safety Disclosures

PART I

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

Item 6.

Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 8.

Item 9.

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

PART III

Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

PART IV

Item 15. Exhibits and Financial Statements

Item 16. Form 10-K Summary

Signatures

Index to Financial Statements

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, and information pertaining
to us, our industry and the oil and natural gas industry that is based on the beliefs of our management, as well as assumptions
made by and information currently available to our management. All statements, other than statements of historical facts
contained in this Annual Report on Form 10-K, including statements regarding our future financial position, growth strategy,
budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements. We use the
words “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “continue,” “intend,” “plan,” “budget” and other similar
words to identify forward-looking statements. You should read statements that contain these words carefully and should not
place undue reliance on these statements because they discuss future expectations, contain projections of results of operations
or of our financial condition and/or state other “forward-looking” information. We do not undertake any obligation to update or
revise publicly any forward-looking statements. Although we believe our expectations reflected in these forward-looking
statements are based on reasonable assumptions, no assurance can be given that these expectations or assumptions will prove to
have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the
forward-looking statements include, but are not limited to, the following factors and the other factors described in this Annual
Report on Form 10-K under the caption “Risk Factors”:

•

significant economic disruptions and adverse consequences resulting from current and possible long-term effects of the
COVID-19 global pandemic;

conditions in the oil and natural gas industry, including the supply and demand for natural gas and wide fluctuations in
the prices of oil and natural gas;

regulation or prohibition of new well completion techniques;

competition among the various providers of compression services and products;

changes in safety, health and environmental regulations;

changes in economic or political conditions in the markets in which we operate;

failure of our customers to continue to rent equipment after expiration of the primary rental term;

the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters;

our inability to comply with covenants in our debt agreements and the decreased financial flexibility associated with
our debt;

future capital requirements and availability of financing;

fabrication and manufacturing costs;

general economic conditions;

acts of terrorism; and

fluctuations in interest rates.

We believe that it is important to communicate our expectations of future performance to our investors. However,
events may occur in the future that we are unable to accurately predict or that we are unable to control. When considering our
forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Annual Report on
Form 10-K.

Glossary of Industry Terms

"CiP" - A branded gas compressor product line designed, manufactured and packaged by the Company. The
'Cylinder in Plane' design results in a compact and vibration-free compressor unit that particularly lends itself to unconventional
wellhead applications, air compression and compressed natural gas requirements.

"flare" – A tall stack equipped with burners used as a safety device at wellheads, refining facilities, gas processing
plants, and chemical plants. Flares are used for the combustion and disposal of combustible gases. The gases are piped to a
remote, usually elevated, location and burned in an open flame in the open air using a specially designed burner tip, auxiliary
fuel, and steam or air. Combustible gases are flared most often due to emergency relief, overpressure, process upsets, startups,

shutdowns and other operational safety reasons. Natural gas that is uneconomical for sale is also flared. Often natural gas is
flared as a result of the unavailability of a method for transporting such gas to markets.

"gas lift" – A production enhancement technique whereby natural gas is injected into an oil well to increase/improve

the oil production.

"oil shale" – Also referred to as tight oil, is petroleum that consists of light crude oil contained in petroleum-bearing

formations of low-permeability, often shale or tight sandstone.

"reciprocating compressors" – A reciprocating compressor is a type of compressor which compresses vapor by using

a piston in a cylinder and a back-and-forth motion.

"screw compressors" – A type of compressor used in low-pressure and vapor compression applications where two
intermesh rotors create pockets of continuously decreasing volume, in which the gas is compressed and its pressure is
increased.

iii

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ITEM 1.

BUSINESS

PART I

Unless the context otherwise requires, references in this Annual Report on Form 10-K to “Natural Gas Services
Group,” the “Company”, "NGS", “we,” “us,” “our” or “ours” refer to Natural Gas Services Group, Inc. Certain specialized
terms used in describing our natural gas compressor business are defined in "Glossary of Industry Terms" on page i.

Smaller Reporting Company

We are a “smaller reporting company” as defined by the SEC. As such, we are eligible to comply with the scaled
disclosure requirements in several Regulation S-K and Regulation S-X items. Our disclosures in this Annual Report reflect
these scaled requirements.

The Company

We are a provider of natural gas compression equipment and services to the energy industry. We manufacture,
fabricate, rent, sell and maintain natural gas compressors and flare systems for oil and natural gas production and plant
facilities. We are headquartered in Midland, Texas, with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas,
and service facilities located in major oil and natural gas producing basins in the U.S.

We have shifted our focus over the last several years to medium to large horsepower applications that apply to natural
gas associated with oil-weighted production. Our primary customers are exploration and production companies that utilize our
compressor units for artificial lift applications, i.e., production enhancement enabled with high-pressure gas compression
equipment, on unconventional oil wells on single and multi-well pads. In addition, our customer base includes oil and natural
gas exploration and production ("E&P") companies that are focused on natural gas-weighted production (with typically smaller
horsepower applications) as well as midstream companies. The Company's largest rental area is the Permian Basin
(approximately 51.8% of rental revenues in 2021), with the large majority of its remaining rental revenue being generated in
other oil and natural gas producing regions and plays in Texas, New Mexico and Oklahoma, including the San Juan Basin, the
Texas Panhandle/western Oklahoma, the Barnett Shale, and central Oklahoma. Other regions and plays in which we provide
service include the Utica and Marcellus Shales, Michigan and the DJ Basin.

Our revenue increased 6.4% to $72.4 million for the year ended December 31, 2021 from $68.1 million for the year
ended December 31, 2020. This increase was largely the result of our rental revenues increasing 4.6% to $63.6 million in 2021
from $60.8 million in 2020 as well as sales revenue increasing 21.7% to $6.9 million in 2021 from $5.7 million in 2020. For the
year ended December 31, 2021 the Company reported a net loss of $9.2 million as compared to net income of $1.8 million for
the year ended December 31, 2020. In addition, the Company's adjusted earnings before interest, taxes, depreciation and
amortization ("EBITDA") decreased 24.8% to $18.7 million in 2021 from $24.9 million in 2020. See "Item 6, Selected
Financial Data, Non-GAAP Financial Measures" for a reconciliation of adjusted EBITDA to its closest GAAP financial
measure, net (loss) income.

At December 31, 2021, current assets were $65.1 million, which included $22.9 million of cash and cash
equivalents. Current liabilities were $20.3 million at year end 2021. Our stockholders' equity as of December 31, 2021 was
$235.9 million.

Please see "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations" for

further information.

Our Operating Units

We identify our operating units based upon major revenue sources as Rental, Sales and Service and Maintenance.

Rental. Our rental compression units provide small, medium and large horsepower applications for unconventional oil
and natural gas production. Our rental contracts typically provide for initial terms of six to 24 months, with our larger
horsepower units having contract terms of up to 60 months. By outsourcing their compression needs, we believe our customers
are able to increase their revenues by producing higher volumes of oil and natural gas due to greater equipment run
time. Outsourcing allows our customers to reduce their compressor downtime, operating and maintenance costs, and capital
investments, and more efficiently meet their changing compression needs. We maintain and service all of the compression
equipment we rent to our customers.

The size, type and geographic diversity of our rental fleet enables us to provide our customers with a range of
compression units that can serve a wide variety of applications, and to select the correct equipment for the job, rather than the
customer trying to fit the job to its own equipment. We base our gas compressor rental rates on several factors, including the
cost and size of the equipment, the type and complexity of service desired by the customer, the length of contract and the
inclusion of any other services desired, such as installation, transportation and daily operation.

As of December 31, 2021, we had 2,023 natural gas compressors in our rental fleet totaling 418,041 horsepower. Of
this total, we had 1,254 natural gas compressors totaling 297,808 horsepower rented to 83 customers. The utilization rate of our
rental fleet as of December 31, 2021 was 62.0%, while our horsepower utilization for the same period was 71.2%. We added
65 units with approximately 18,035 horsepower to our fleet during 2021. 25 of those units were 400 horsepower or larger,
representing approximately 56% of the horsepower added.

Engineered Equipment Sales. This operating unit includes the following components:

• Compressor fabrication. Fabrication involves the design, fabrication and assembly of compressor components
manufactured by us or other vendors into compressor units that are ready for rental or sale. In addition to fabricating
compressors for our rental fleet, we engineer and fabricate custom-made natural gas compressors for sale to customers
to meet their specifications based on well pressure, production characteristics and the particular applications for which
compression is sought. Fabricated compressors comprised 27.5% of our sales revenue during 2021.

• Parts sales and compressor rebuilds. To provide customer support for our compressor and flare sales businesses, we
stock varying levels of replacement parts at our Midland, Texas facility and at field service locations. We also provide
an exchange and rebuild program for small horsepower screw compressors and maintain an inventory of new and used
compressors to facilitate this part of our business. Parts sales and compressor rebuilds comprised 67.2% of our sales
revenue during 2021.

• Flare fabrication. We design, fabricate, sell, install and service flare stacks and related ignition and control devices
for the onshore and offshore incineration of gas compounds such as hydrogen sulfide, carbon dioxide, natural gas and
liquefied petroleum gases. Applications for this equipment are often environmentally and regulatory driven.

• Compressor manufacturing. We design and manufacture our own proprietary line of reciprocating natural gas
compressor frames, cylinders and parts known as our “CiP”, or Cylinder-in-Plane, product line. We use the finished
components to fabricate compressor units for our rental fleet or for sale to customers. We also sell finished
components to other fabricators.

Service and Maintenance. We service and maintain compressors owned by our customers on an “as needed” and
contract basis. Natural gas compressors require routine maintenance and periodic refurbishing to prolong their useful
life. Routine maintenance includes physical and visual inspections and other parametric checks that indicate a change in the
condition of the compressors. We perform engine and compressor overhauls on a condition-based interval or a time-based
schedule or at the customer's request. Based on our past experience, these maintenance procedures maximize component life
and unit availability and minimize downtime.

Business Strategy

Our long-term intentions to grow our revenue and profitability are based on the following business strategies:

• Expand rental fleet. We intend to prudently increase the size of our medium and large horsepower rental fleet by
fabricating compressor units in numbers that correspond to pre-contracted agreements with our customers and to
market share gains we seek to achieve. We believe our future growth will be primarily driven through our placement of
larger horsepower, centralized wellhead natural gas compressors for unconventional oil production, with select
fabrication of medium horsepower compressors to meet customer demand beyond our inventory.

• Geographic expansion. We will continue to expand our operations in existing areas, as well as pursue focused
expansion into new geographic regions as opportunities are identified. Our largest rental area is the Permian Basin
(approximately 51.8% of rental revenues in 2021), where we have continued to gain market share and believe we have
the most expansion opportunities going forward. The large majority of the Company's remaining rental revenue is
being generated in other oil and natural gas producing regions and plays in Texas, New Mexico and Oklahoma,

including the San Juan Basin, the Texas Panhandle/western Oklahoma, the Barnett Shale, and central Oklahoma. Other
regions and plays in which we provide service include the Utica and Marcellus Shales, Michigan and the DJ Basin.

•

Selectively pursue acquisitions. We will continue to evaluate potential acquisitions, joint ventures and other
opportunities that could enhance our current market position, but only those that provide compelling returns to the
Company.

All of the above strategies are subject to revisions and adjustments as a result of several factors discussed in Item 1A,

Risk Factors.

Competitive Strengths

We believe our competitive strengths include:

•

Superior customer service. Our availability to provide a broad range of compressors has enabled us to effectively
meet the evolving needs of our customers. We believe this ability, coupled with our personalized services and in-depth
knowledge of our customers’ operating needs and growth plans, have allowed us to enhance our relationships with
existing customers as well as attract new customers. The size, type and geographic diversity of our rental fleet enable
us to provide customers with a range of compression units that can serve a wide variety of applications. We are able to
select the correct equipment for the job, rather than the customer trying to fit its application to our equipment.

• Diversified product line. Our compressors are available as low pressure rotary screw and higher pressure
reciprocating packages. They are designed to meet a number of applications, including compression assisted gas lift
on oil wells, wellhead compression on natural gas wells, natural gas gathering and transmission, and others. In
addition, our compressors can be built to handle a variety of gas mixtures, including air, nitrogen, carbon dioxide,
hydrogen sulfide and hydrocarbon gases. A diversified compression product line helps us compete by being able to
satisfy widely varying pressure, volume and production conditions that customers encounter.

• Purpose-built rental compressors. Our rental compressor packages have been designed and built to address the
primary requirements of our customers in the producing regions in which we operate. Our units are purpose-built but
standardized, as the units are compact in design and are easy, quick and inexpensive to move, install and start-up. Our
control systems are technically advanced, as these systems allow the operator to monitor as well as start and stop the
majority of our units remotely and/or in accordance with well conditions.

• Experienced management team. On average, our executive and operating team members have over 25 years of
oilfield services and other energy industry experience. We believe our management team has successfully
demonstrated its ability to grow our business during times of expansion and to manage through downturns.

• Broad geographic presence. We presently provide our products and services to a customer base of oil and natural gas
exploration and production companies operating in Texas, New Mexico, Oklahoma, Pennsylvania, West Virginia,
Ohio, Michigan, Colorado and Wyoming. Our footprint allows us to service many of the largest oil and natural gas
producing regions in the United States. We believe that operating in diverse geographic regions allows us better
utilization of our compressors, minimal incremental expenses, operating synergies, volume-based purchasing,
leveraged inventories and cross-trained personnel.

• Long-standing customer relationships. We have developed long-standing relationships providing compression
equipment to many major and independent oil and natural gas companies. Our customers generally continue to rent
our compressors after the expiration of the initial terms of our rental agreements, which we believe reflects their
satisfaction with the reliability and performance of our services and products.

Overview and Outlook

The market for compression equipment and services is dependent on the condition of the oil and natural gas industry,
including the capital expenditure budgets of domestic oil and gas companies. The level of activity and capital expenditures has
generally been dependent upon the prevailing view of future gas and oil prices, which are influenced by numerous supply and
demand factors, including availability and cost of capital, well productivity and development costs, global and domestic
economic conditions, environmental regulations, policies of OPEC countries and Russia, and other factors. In addition, while
some recent capital budget increases have occurred, capital expenditure budgets of energy companies have become significantly
more constrained over the last several years due to the deterioration of energy equity markets and strong demands from
institutional investors that companies keep capital spending within operating cash flow and return capital through dividends and
share repurchases. While our rental agreements are not typically capital in nature, overall capital investment typically drives our

customers demand for incremental compression needs. Oil and natural gas prices and the level of development and production
activity have historically been characterized by significant volatility.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a
new strain of coronavirus known as COVID-19 due to the risks it imposes on the international community as the virus spreads
globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure
globally. During this time, the market began to experience a decline in oil prices in response to oil demand concerns due to the
global economic impacts of COVID-19. These developments led to significant weakness in oil prices and ensuing reductions of
exploration and production company capital and operating budgets. In recent months, oil and natural gas prices have shown
significant increases but we believe energy company capital budgets have not increased at the same levels which continues to
adversely affect our compressor sales.

Finally, due to supply chain disruptions as a result of the COVID-19 pandemic, we continue to experience cost
increases and sporadic availability of many of our parts needed to fabricate and maintain our rental fleet. While we have a
robust supplier network, pricing pressure from our customers and competitors presents challenges in increasing our rental rates
to offset these increased costs. Our relationship with our major customer continues to be strong, and they have continued to pay
our invoices in a timely, consistent manner. Nevertheless, if any of these circumstances change, our business could be adversely
affected. Please read Item 1A, Risk Factors, in this report.

Major Customers

Sales and rental income to Occidental Permian, LTD. ("Oxy") for the years ended December 31, 2021 and 2020
amounted to 40% and 30% of our revenue, respectively. No other single customer accounted for more than 10% of our
revenues in 2021 or 2020.

Oxy amounted to 46% of our accounts receivable as of December 31, 2021 and 35% of our accounts receivable as of
December 31, 2020. No other customers amounted to more than 10% of our accounts receivable as of December 31, 2021 and
2020. The loss of this key customer would have a material adverse effect on our business, financial condition, results of
operations and cash flows, depending upon the demand for our compressors at the time of such loss and our ability to attract
new customers.

Sales and Marketing

Our sales force pursues the rental and sales market for compressors and flare equipment and other services in their
respective territories. Additionally, our personnel coordinate with each other to develop relationships with customers who
operate in multiple regions. Our sales and marketing strategy is focused on communication with current customers and potential
customers through frequent direct contact, technical assistance, print literature, direct mail and referrals. Our sales and
marketing personnel coordinate with our operations personnel in order to promptly respond to and address customer needs. Our
overall sales and marketing efforts concentrate on demonstrating our commitment to enhancing the customer’s cash flow
through enhanced product design, fabrication, manufacturing, installation, operations, customer service and support.

Competition

We have a number of competitors in the natural gas compression segment, some of which have greater financial
resources. We believe that we compete effectively on the basis of price, customer service, including the ability to place
personnel in remote locations, flexibility in meeting customer needs, and quality and reliability of our compressors and related
services.

Compressor industry participants can achieve significant advantages through increased size and geographic
breadth. As the number of rental compressors in our rental fleet increases, the number of sales, support, and maintenance
personnel required and the minimum level of inventory do not increase proportionately.

Backlog

As of December 31, 2021, we had a sales backlog of approximately $1.5 million compared to $1.4 million as of
December 31, 2020. Sales backlog consists of firm customer orders for which a purchase or work order has been received,
satisfactory credit or a financing arrangement exists, and delivery is scheduled. In addition, the major components of our
compressors are acquired from suppliers through periodic purchase orders that currently require three to six months of lead time
prior to delivery of the order.

Employees

As of December 31, 2021, we had 247 total employees, none of which are represented by a labor union. We believe we

have good relations with our employees.

Liability and Other Insurance Coverage

Our equipment and services are provided to customers who are subject to hazards inherent in the oil and natural gas
industry, such as explosions, fires, and oil spills. We maintain liability insurance that we believe is customary in the industry
and which includes environmental cleanup, but excludes product warranty insurance because the majority of components on
our compressor unit are covered by the manufacturers. We also maintain insurance with respect to our facilities. Based on our
historical experience, we believe that our insurance coverage is adequate. However, there is a risk that our insurance may not be
sufficient to cover any particular loss or that insurance may not cover all losses. In addition, insurance rates have in the past
been subject to wide fluctuation, and changes in coverage could result in less coverage, increases in cost or higher deductibles
and retentions.

Government Regulation

All of our operations and facilities are subject to numerous federal, state, foreign and local laws, rules and regulations
related to various aspects of our business, including containment and disposal of hazardous materials, water quality and
wastewater discharges, oilfield waste and other waste materials and protection of human health.

To date, we have not been required to expend significant resources in order to satisfy applicable environmental laws
and regulations. We do not anticipate any material capital expenditures for environmental control facilities or extraordinary
expenditures to comply with environmental rules and regulations in the foreseeable future. However, compliance costs under
existing laws or under any new requirements could become material and we could incur liabilities for noncompliance. And as
noted below, we may be indirectly affected by environmental laws that affect our customers.

Our business is generally affected by political developments and by federal, state, foreign and local laws and
regulations, which relate to the oil and natural gas industry. The adoption of laws and regulations affecting the oil and natural
gas industry for economic, environmental and other policy reasons could increase our costs and could have an adverse effect on
our operations. The state and federal environmental laws and regulations that currently apply to our operations could become
more stringent in the future.

We have utilized operating and disposal practices that were or are currently standard in the industry. However,
materials such as solvents, thinner, waste paint, waste oil, wash down waters and sandblast material may have been disposed of
or released in or under properties currently or formerly owned or operated by us or our predecessors. In addition, some of these
properties have been operated by third parties over whom we have no control either as to such entities' treatment of materials or
the manner in which such materials may have been disposed of or released.

The federal Comprehensive Environmental Response Compensation and Liability Act of 1980, commonly known as

CERCLA, and comparable state statutes impose strict liability on:

•

owners and operators of sites, and

persons who disposed of or arranged for the disposal of "hazardous substances" found at sites.

The modification of existing laws or regulations or the adoption of new laws or regulations that result in the
curtailment of exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by
discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays. For
example, on January 20, 2021, the Acting Secretary for the Department of the Interior signed an order effectively suspending
new fossil fuel leasing and permitting on federal lands, including in the US Gulf of Mexico, for 60 days. Then on January 27,
2021, President Biden issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in
offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and
leasing practices. Demand for our compression products and services could be diminished in connection with these initiatives.
Further, to the extent that the review results in the development of additional restrictions on exploration and drilling, limitations

on the availability of leases, or restrictions on the ability to obtain required permits, it could have a material adverse impact on
our operations by reducing our customers’ compression needs and the demand for our services.

Further, as discussed below under the heading "Climate Change", President Biden has announced that he intends to

take aggressive action to address climate-related issues and to set the United States on a path to be carbon-neutral by 2050.

Waste Management and Disposal

The federal Resource Conservation and Recovery Act ("RCRA") and analogous state laws and their implementing
regulations govern the generation, transportation, treatment, storage and disposal of hazardous and non-hazardous solid wastes.
During the course of our operations, we generate wastes (including, but not limited to, used oil, antifreeze, filters, paints and
solvents) in quantities regulated under RCRA. The EPA and various state agencies have limited the approved methods of
disposal for these types of wastes. CERCLA and analogous state laws and their implementing regulations impose strict, and
under certain conditions, joint and several liability without regard to fault or the legality of the original conduct on classes of
persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons
include current and past owners and operators of the facility or disposal site where the release occurred and any company that
transported, disposed of, or arranged for the transport or disposal of the hazardous substances released at the site. Under
CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that
have been released into the environment, for damages to natural resources and for the costs of certain health studies. In
addition, where contamination may be present, it is not uncommon for neighboring landowners and other third parties to file
claims for personal injury, property damage and recovery of response costs allegedly caused by hazardous substances or other
pollutants released into the environment.

We currently own or lease, and in the past have owned or leased, a number of properties that have been used in support
of our operations for a number of years. Although we have utilized operating and disposal practices that were standard in the
industry at the time, hydrocarbons, hazardous substances, or other regulated wastes may have been disposed of or released on
or under the properties owned or leased by us or on or under other locations where such materials have been taken for disposal
by companies sub-contracted by us. In addition, some of these properties may have been previously owned or operated by third
parties whose treatment and disposal or release of hydrocarbons, hazardous substances or other regulated wastes was not under
our control. These properties and the materials released or disposed thereon may be subject to CERCLA, RCRA and analogous
state laws. Under such laws, we could be required to remove or remediate historical property contamination, or to perform
certain operations to prevent future contamination. We are not currently under any order requiring that we undertake or pay for
any cleanup activities. However, we cannot provide any assurance that we will not receive any such order in the future.

The Clean Water Act ("CWA") and the Oil Pollution Act of 1990 and implementing regulations govern:

•

the prevention of discharges, including oil and produced water spills, and

liability for drainage into waters.

The CWA and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants,
including spills and leaks of oil and other substances, into waters of the United States. The discharge of pollutants into regulated
waters and wetlands is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state
agency. The CWA also requires the development and implementation of spill prevention, control and countermeasures to help
prevent the contamination of navigable waters in the event of a petroleum hydrocarbon spill or leak at hydrocarbon facilities. In
addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of
storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and
criminal penalties as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements
of the CWA and analogous state laws and regulations. Our compression operations do not generate process wastewaters that are
discharged to waters of the U.S. However, the operations of our customers may generate such wastewaters subject to the CWA.
While it is the responsibility of our customers to follow CWA regulations and obtain proper permits, violations of the CWA may
indirectly impact our operations in a negative manner.

Safe Drinking Water Act. Some of our customers’ natural gas production is developed from unconventional sources that require
hydraulic fracturing as part of the completion process. Legislation to amend the Safe Drinking Water Act (“SDWA”) to repeal
the exemption for hydraulic fracturing from the definition of “underground injection” and require federal permitting and
regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of
the fluids used in the fracturing process, have been proposed from time to time and the federal government continues to
consider legislation to amend the SDWA. Some states have also proposed or adopted legislative or regulatory restrictions on

hydraulic fracturing, including prohibitions on the practice. We cannot predict the future of such legislation and what additional,
if any, provisions would be included. Additional levels of regulation or interpretation are adopted at the federal or state level
could lead to increased operating costs and prohibitions or curtailment of current hydraulic practices could reduce demand for
our compression services, which could materially adversely affect our results of operations and financial position.

Air Emissions

Our operations are also subject to federal, state, and local regulations. The Clean Air Act and implementing regulations
and comparable state laws and regulations regulate emissions of air pollutants from various industrial sources and also impose
various monitoring and reporting requirements, including requirements related to emissions from certain stationary engines,
such as those on our compressor units. These laws and regulations impose limits on the levels of various substances that may be
emitted into the atmosphere from our compressor units and require us to meet more stringent air emission standards and install
new emission control equipment on all of our engines built after July 1, 2008.

For instance, in 2010, the U.S. Environmental Protection Agency (“EPA”) published new regulations under the CAA
to control emissions of hazardous air pollutants from existing stationary reciprocal internal combustion engines. In 2012, the
EPA proposed amendments to the final rule in response to several petitions for reconsideration, which were finalized and
became effective in 2013. The rule requires us to undertake certain expenditures and activities, including purchasing and
installing emissions control equipment on certain compressor engines and/or purchasing certified engines from complaint
manufacturers.

In recent years, the EPA has lowered the National Ambient Air Quality Standard (“NAAQs”) for several air pollutants.
For example, in 2013, the EPA lowered the annual standard for fine particulate matter from 15 to 12 micrograms per cubic
meter. In 2015, the EPA published the final rule strengthening the standards for ground level ozone, and the states are expected
to establish revised attainment/non-attainment regions. State implementation of the revised NAAQS could result in stricter
permitting requirements, delay or prohibit our customers’ ability to obtain such permits, and result in increased expenditures for
pollution control equipment, which could negatively impact our customers’ operations by increasing the cost of additions to
equipment, and negatively impact our business.

In 2012, the EPA finalized rules that establish new air emission controls for oil and natural gas production and natural
gas processing operations. Specifically, the EPA’s rule package included New Source Performance Standards to address
emissions of sulfur dioxide and volatile organic compounds (“VOCs”) and a separate set of emission standards to address
hazardous air pollutants frequently associated with oil and natural gas production and processing activities. The
rules established specific new requirements regarding emissions from compressors and controls at natural gas processing plants,
dehydrators, storage tanks and other production equipment as well as the first federal air standards for natural gas wells that are
hydraulically fractured. The EPA has taken a number of steps to amend or expand on these regulations since 2012. For
example, in June 2016, the EPA published New Source Performance Standards that require certain new, modified or
reconstructed facilities in the oil and natural gas sector to reduce methane gas and VOC emissions. These standards expanded
the 2012 standards by using certain equipment-specific emissions control practices, requiring additional controls for pneumatic
controllers and pumps as well as compressors, and imposing leak detection and repair requirements for natural gas compressor
and booster stations. In addition, in November 2021, the EPA proposed a rule to further reduce methan and VOC emissions
from new and existing sources in the oil and gas sector. These standards, as well as any future laws and their implementing
regulations, may impose stringent air permit requirements, or mandate the use of specific equipment or technologies to control
emissions. We cannot predict the final regulatory requirements or the cost to comply with such requirements with any certainty.

We are also subject to air regulation at the state level. For example, sources of air emissions within Texas are
controlled by the Texas Commission on Environmental Quality (“TCEQ”). Air emission sources that emit at greater than de
minimis levels must obtain a permit prior to operation through the TCEQ. In addition, TCEQ has implemented revisions to
certain air permit programs that significantly increase the air permitting requirements for new and certain existing oil and gas
production and gathering sites for a number of counties in the Barnett Shale production area that established new emissions
standards for engines, which impact the operation of specific categories of engines by requiring the use of alternative engines,
compressor packages or the installation of aftermarket emissions control equipment. Expansion by the TCEQ of this type of
program and the adoption of similar regulations in other states may increase our compliance costs.

Climate Change

In response to findings that emissions of carbon dioxide, methane and other Greenhouse Gases (“GHG”) endanger
public health and the environment, federal legislation has been donsidere to reduce GHG emissions. At the federal level, the
government could seek to pursue legislative, regulatory or executive initiatives that may impose significant restrictions on
fossil-fuel exploration and production and use such as limitations or bans on hydraulic fracturing of oil and gas wells, bans or

restrictions on new leases for production of minerals on federal properties, and imposing restrictive requirements on new
pipeline infrastructure or fossil-fuel export facilities. Other energy legislation and initiatives could include a carbon tax,
methane fee or cap and trade program. At the state level, many states, including the states in which we or our customers conduct
operations, have adopted legal requirements that have imposed new or more stringent permitting, disclosure or well
construction requirements on oil and gas activities. Further, although Congress has not passed such legislation, almost half of
the states have begun to address GHG emissions, primarily through the planned development of emissions inventories or
regional GHG cap and trade programs. Depending on the particular program, we could be required to control GHG emissions
or to purchase and surrender allowances for GHG emissions resulting from our operations. The EPA has adopted regulations
under existing provisions of the CAA that, among other things, establish construction and operating permit reviews for GHG
emissions of certain large GHG emissions sources, including petroleum and natural gas facilities, such as natural gas
transmission compression facilities that emit 25,000 metric tons or more of carbon dioxide equivalent per year. In addition, the
Department of Transportation (the “DOT”) has implemented GHG emissions limits on vehicles manufactured for operation in
the United States.

At the international level, there is an agreement, the United Nations-sponsored “Paris Agreement,” for nations to limit
their GHG emissions through non-binding, individually-determined reduction goals every five years after 2020. President
Biden pledged the renewed participation of the United States on his first day in office. In November 2021, the United States
participated in the United Nations Climate Change Conference in Glasgow, Scotland, United Kingdom that resulted in a pact
among approximately 200 countries, including the United States, called the Glasgow Climate Pact. Relatedly, the United States
and European Union jointly announced the launch of the “Global Methane Pledge,” which aims to cut global methane pollution
at least 30% by 2030 relative to 2020 levels, including “all feasible reductions” in the energy sector. In conjunction with these
pacts, the United States committed to an economy-wide target of reducing net greenhouse gas emissions by 50-52 percent
below 2005 levels by 2030. Also in November 2021, President Biden signed a $1 trillion dollar infrastructure bill into law. The
new infrastructure law includes several climate-focused investments, including upgrades to power grids to accommodate
increased use of renewable energy and expansion of electric vehicle infrastructure. Although it is not possible at this time to
predict what additional domestic legislation may be adopted in light of the Paris Agreement or the Glasgow Climate Pact, or
how legislation or new regulations that may be adopted based on the Paris Agreement or the Glasgow Climate Pact to address
GHG emissions would impact our business, any such future laws and regulations imposing reporting obligations on, or limiting
emissions of GHGs from, our compressors could require us to incur costs to reduce emissions of GHGs associated with our
operations and could decrease demand for oil and natural gas.

Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or
other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking
programs, and restriction of emissions. For example, in 2019, Colorado passed a bill which delegates authority to local
governments to regulate oil and gas activities and requires the Colorado Oil and Gas Conservation Commission to minimize
emissions of methane and other air contaminants. Likewise, the New Mexico Environment Department has adopted regulations
to restrict the venting or flaring of methane.

Litigation risks are also increasing, as a number of cities and other local governments have sought to bring suit against
the largest oil and natural gas exploration and production companies in state or federal court, alleging, among other things, that
such companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea
levels, and therefore are responsible for roadway and infrastructure damages, or alleging that the companies have been aware of
the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those
impacts.

There are also increasing financial risks for fossil fuel producers and oil and gas field service providers (such as the
Company) as shareholders currently invested in fossil-fuel energy and related service companies concerned about the potential
effects of climate change may elect in the future to shift some or all of their investments into non-energy related sectors.
Institutional lenders who provide financing to fossil-fuel energy and related companies also have become more attentive to
sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. Additionally,
the lending practices of institutional lenders have been the subject of intensive lobbying efforts in recent years, oftentimes
public in nature, by environmental activists, proponents of the international Paris Agreement, and foreign citizenry concerned
about climate change not to provide funding for fossil fuel producers. Limitation of investments in and financings for fossil fuel
energy companies could result in the restriction, delay or cancellation of drilling programs or development or production
activities of our customers, which in turn could have a material adverse effect on our compressor rental and sale business.

The adoption and implementation of new or more stringent international, federal or state legislation, regulations or

other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or
otherwise restrict the areas in which this sector may produce oil and natural gas or generate GHG emissions could result in
increased costs of compliance or additional operating restrictions or reduced demand for our compressor products and services,
and could have a material adverse effect on our business, financial condition and results of operations.

We believe that our existing environmental control procedures are adequate and that we are in substantial compliance
with environmental laws and regulations, and the phasing in of emission controls and other known regulatory requirements
should not have a material adverse affect on our financial condition or operational results. However, it is possible that future
developments, such as new or increasingly strict requirements and environmental laws and enforcement policies there under,
could lead to material costs of environmental compliance by us. While we may be able to pass on the additional cost of
complying with such laws to our customers, there can be no assurance that attempts to do so will be successful. Some risk of
environmental liability and other costs are inherent in the nature of our business, however, and there can be no assurance that
environmental costs will not rise.

To the extent that new laws or other governmental actions restrict the energy industry or impose additional
environmental protection requirements that result in increased costs to the oil and gas industry, we could be adversely affected.
We cannot determine to what extent our future operations and earnings may be affected by new legislation, new regulations or
changes in existing regulations.

Occupational Safety and Health

We are subject to the requirements of Occupational Safety and Health Administration ("OSHA") and comparable state
statutes. These laws and the implementing regulations strictly govern the protection of the health and safety of employees. The
OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA, and similar
state statutes require that we maintain and/or disclose information about hazardous materials used or produced in our
operations. We believe that we are in compliance with these applicable requirements and with other comparable laws.

Patents, Trademarks and Other Intellectual Property

We believe that the success of our business depends more on the technical competence, creativity and marketing
abilities of our employees than on any individual patent, trademark, or copyright. Nevertheless, as part of our ongoing research,
development and manufacturing activities, we may seek patents when appropriate on inventions concerning new products and
product improvements. Although we continue to use technology that was previously covered by a patent and consider it useful
in certain applications, we do not consider the expired patent to be material to our business as a whole.

Suppliers and Raw Materials

Fabrication of our rental compressors involves the purchase by us of engines, compressors, coolers and other
components, and the assembly of these components on skids for delivery to customer locations. These major components of our
compressors are acquired through periodic purchase orders placed with third-party suppliers on an "as needed" basis, which
typically requires a three to six month lead time with delivery dates scheduled to coincide with our estimated production
schedules. Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate
alternative sources available. In the past, we have not experienced any sudden and dramatic increases in the prices of the major
components for our compressors. However, the occurrence of such an event could have a material adverse effect on the results
of our operations and financial condition, particularly if we are unable to increase our rental rates and sale prices proportionate
to any such component price increases.

In addition, the COVID-19 outbreak poses the risk that our suppliers may be prevented from conducting their business
at sufficient levels to provide us with necessary equipment and supplies in a timely and sufficient amount. We have experienced
no significant supply disruptions but have incurred longer than normal delivery estimates. To the extent we have difficulties in
obtaining needed products and supplies in a timely manner, our results of operations and financial position may be adversely
affected.

Available Information

We use our website as a channel of distribution for Company information. We make available free of charge on the
Investor Relations section of our website ( www.ngsgi.com ) our Annual Report on Form 10-K, Quarterly Reports on Form 10-
Q, and Current Reports on Form 8-K. We also make available through our website other reports filed with or furnished to the
SEC under the Securities Exchange Act of 1934, as amended, including our proxy statements and reports filed by officers and
directors under Section 16(a) of the Exchange Act, as well as our Code of Business Ethics and the charters to our various
Committees of our Board of Directors. Paper copies of our filings are also available, without charge upon written request.
Please mail requests to Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite 300, Midland, TX 79705. The
information contained on our website is not part of this Report.

ITEM 1A.

RISK FACTORS

You should carefully consider the following risks associated with owning our common stock. Although the risks
described below are the risks that we believe are material, they are not the only risks relating to our industry, our business and
our common stock. Additional risks and uncertainties, including those that we have not yet identified or that we currently
believe are immaterial, may also adversely affect our business, financial condition or results of operations.

Risks Associated With Our Industry

Decreased oil and natural gas prices and oil and gas industry expenditure levels adversely affect our revenue.

Our revenue is derived primarily from expenditures in the oil and natural gas industry, which, in turn, are based on
budgets to explore for, develop and produce oil and natural gas. When these expenditures decline, as they have at various times
during the past several years, our revenue will suffer. The industry’s willingness to explore for, develop and produce oil and
natural gas depends largely upon the prevailing view of future oil and natural gas prices. Prices for oil and natural gas
historically have been, and are likely to continue to be, highly volatile. Many factors affect the supply and demand for oil and
natural gas and, therefore, influence oil and natural gas prices, including:

•

the level of oil and natural gas production;

the level of oil and natural gas inventories;

domestic and worldwide demand for oil and natural gas;

the expected cost of developing new reserves;

the cost of producing oil and natural gas;

the level of drilling and completions activity;

inclement weather;

domestic and worldwide economic activity;

regulatory and other federal and state requirements in the United States;

the ability of the Organization of Petroleum Exporting Countries, national oil companies and other large producers to
set and maintain production levels and prices for oil;

political conditions in or affecting oil and natural gas producing countries;

terrorist activities in the United States and elsewhere;

the cost of developing alternative energy sources;

environmental regulation; and

tax policies.

Our rental contracts are generally short-term, and oil and natural gas companies tend to respond quickly to upward or
downward changes in prices. Any prolonged reduction in drilling and production activities historically has reduced our
compressor sales and materially eroded both rental pricing and utilization rates for our equipment and services and adversely
affects our financial results. As a result of any such prolonged reductions, we may suffer losses, be unable to make necessary
capital expenditures and be unable to meet our financial obligations.

The intense competition in our industry could result in reduced profitability and loss of market share for us.

We compete with the oil and natural gas industry’s largest equipment and service providers who have greater name
recognition than we do. These companies also have substantially greater financial resources, larger operations and greater
budgets for marketing, research and development than we do. They may be better able to compete because of their broader
geographic dispersion and ability to take advantage of international opportunities, the greater number of compressors in their
fleet or their product and service diversity. As a result, we could lose customers and market share to those competitors. These
companies may also be better positioned than us to successfully endure downturns in the oil and natural gas industry.

Our operations may be adversely affected if our current competitors or new market entrants introduce new products or
than our products and

services with better prices, features, performance or other competitive characteristics

services. Competitive pressures or other factors also may result in significant price competition that could harm our revenue and
our business. Additionally, we may face competition in our efforts to acquire other businesses.

The outbreak of COVID-19 and recent oil market developments could adversely impact our financial condition and results
of operations.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a
new strain of coronavirus known as COVID-19 due to the risks it imposes on the international community as the virus spreads
globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure
globally. During this time, the market began to experience a decline in oil prices in response to oil demand concerns due to the
global economic impacts of COVID-19. These developments led to significant weakness in oil prices and ensuing reductions of
E&P company capital and operating budgets. While economic and industry conditions have improved, further or increased
outbreaks of COVID-19 could impact our financial condition and results of operations in 2022 and perhaps beyond, as further
discussed in risk factors below.

In addition, the continued spread of the virus into our workforce could prevent us meeting the demands of our
customers and adequately servicing existing compressors. Similarly, if our customers or suppliers experience adverse business
consequences due to COVID-19, demand for our equipment and services could also be adversely affected. The magnitude and
duration of potential social, economic and labor instability as a direct result of COVID-19 cannot be estimated at this time.
Should any of these potential impacts continue for an extended period of time, the impact on our business could have an
adverse effect on our financial position and results of operations.

Adverse macroeconomic and business conditions may significantly and negatively affect our results of operations.

As a result of the COVID-19 outbreak discussed above and other economic conditions in the United States and abroad,
our revenue and profitability has been and will likely continue to be adversely affected. The condition of domestic and global
financial markets and the potential for disruption and illiquidity in the credit markets could have an adverse effect on our
operating results and financial condition, and if sustained for an extended period, such adverse effects could also become
significant. Uncertainty and turmoil in the credit markets may negatively impact the ability of our customers to finance
purchases of our products and services and could result in a decrease in, or cancellation of, orders included in our backlog or
adversely affect the collectability of our receivables. If the availability of credit to our customers is reduced, they may reduce
their drilling and production expenditures, thereby decreasing demand for our products and services, which could have a
negative impact on our financial condition. A prolonged period of depressed prices for oil and natural gas would likely result in
delays or cancellation of projects by our customers, reducing the demand for our products and services.

Additionally, if we are not able to pass along increases to our costs due to inflation on parts, fluids, labor and other

aspects of our business, it may adversely affect our results of operations and cash flows.

A reduction in demand for oil could adversely affect our business.

Our results of operations depend upon the level of activity in the energy market, including oil development,
production, and transportation. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. As a
result, the demand for our natural gas compression services will be adversely affected. A reduction in demand has, and could
continue to, force us to reduce our pricing substantially. Additionally, our customers’ production from oil-weighted reserves
constitutes the majority percentage of our business. These unconventional sources are generally less economically feasible to be
developed in low oil price environments. A decline in demand for oil and natural gas generally has an adverse effect on our
business, financial condition and results of operations.

Our industry is highly cyclical, and our results of operations may be volatile.

Our industry is highly cyclical, with periods of high demand and high pricing followed by periods of low demand and
low pricing. Periods of low demand intensify the competition in the industry and often result in rental equipment being idle for
long periods of time. We have been required to enter into lower rate rental contracts in response to market conditions and our
rentals and sales revenue have decreased as a result of such conditions. Due to the short-term nature of most of our rental
contracts, changes in market conditions can quickly affect our business. As a result of the cyclicality of our industry, we
anticipate our results of operations will be volatile in the future.

Increased regulation or ban of current fracturing techniques could reduce demand for our compressors.

From time to time, for example, legislation has been proposed in Congress to amend the federal Safe Drinking Water
Act (“SDWA”) to require federal permitting of hydraulic fracturing and the disclosure of chemicals used in the hydraulic
fracturing process. Further, the EPA completed a study finding that hydraulic fracturing could potentially harm drinking water
resources under adverse circumstances such as injection directly into groundwater or into production wells lacking mechanical
integrity. Further, legislation to amend the SDWA to repeal the exemption for hydraulic fracturing (except when diesel fuels are
used) from the definition of “underground injection” and require federal permitting and regulatory control of hydraulic
fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing
process, have been proposed in recent sessions of Congress. Several states and local jurisdictions also have adopted or are
considering adopting regulations that could restrict or prohibit hydraulic fracturing in certain circumstances, impose more
stringent operating standards and/or require the disclosure of the composition of hydraulic fracturing fluids. While we do not
perform hydraulic fracturing, many of our customers do and their activity level drives demand for our products.

More recently, federal and state governments have begun investigating whether the disposal of produced water into
underground injection wells has caused increased seismic activity in certain areas. The results of these studies could lead
federal and state governments and agencies to develop and implement additional regulations.

A ban of hydraulic fracturing would likely halt some projects, including unconventional projects, at least temporarily.
Expanded regulations are likely to introduce a period of uncertainty as companies determine ways to proceed. Any curtailment
could result in a reduction of demand for our compressors, potentially affecting both sales and rentals of our units.

We are subject to extensive environmental laws and regulations that could require us to take costly compliance actions that
could harm our financial condition.

Our fabrication and maintenance operations are significantly affected by stringent and complex federal, state and local
laws and regulations governing the discharge of substances into the environment or otherwise relating to environmental
protection. In these operations, we generate and manage hazardous wastes such as solvents, thinner, waste paint, waste oil,
wash down wastes, and sandblast material. We attempt to use generally accepted operating and disposal practices and, with
respect to acquisitions, will attempt to identify and assess whether there is any environmental risk before completing an
acquisition. Based on the nature of the industry, however, hydrocarbons or other wastes may have been disposed of or released
on or under properties owned or leased by us or on or under other locations where such wastes have been taken for
disposal. The waste on these properties may be subject to federal or state environmental laws that could require us to remove
the wastes or remediate sites where they have been released. We could be exposed to liability for cleanup costs, natural
resource and other damages as a result of our conduct or the conduct of, or conditions caused by, prior owners, lessees or other
third parties. Environmental laws and regulations have changed in the past, and they are likely to change in the future. If
current existing regulatory requirements or enforcement policies change, we may be required to make significant unanticipated
capital and operating expenditures.

Any failure by us to comply with applicable environmental laws and regulations may result in governmental

authorities taking actions against our business that could harm our operations and financial condition, including the:

•

issuance of administrative, civil and criminal penalties;

denial or revocation of permits or other authorizations;

reduction or cessation in operations; and

performance of site investigatory, remedial or other corrective actions.

Increasing attention to environmental, social and governance matters and future related reporting requirements may impact
our business, financial results and stock price.

In recent years, increasing attention has been given to corporate activities related to environmental, social and
governance (“ESG”) matters in public discourse and the investment community. A number of advocacy groups, both
domestically and internationally, have campaigned for governmental and private action to promote change at public companies
related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds,
universities and other members of the investing community. These activities include increasing attention and demands for
action related to climate change and energy transition matters, such as promoting the use of substitutes to fossil fuel products

and encouraging the divestment of fossil fuel equities, as well as pressuring lenders and other financial services companies to
limit or curtail activities with fossil fuel companies.

Members of the investment community have begun to screen companies for sustainability performance, including
practices related to climate change. In addition, organizations that provide information to investors on corporate governance and
related matters have developed ratings systems for evaluating companies on their approach to ESG matters. These ratings are
used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings may lead to increased
negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have
a negative impact on our stock price and our access to and costs of capital.

Regulatory requirements related to ESG or sustainability reporting have been issued in the European Union that apply
to financial market participants. In the United States, such regulations have been issued related to pension investments in
California, and for the responsible investment of public funds in Illinois. Additional regulation is pending in other states. We
expect regulatory requirements related to ESG matters to continue to expand globally. If we are not able to meet future
sustainability reporting requirements of regulators or current and future expectations of investors, customers or other
stakeholders, our business and ability to raise capital may be adversely affected.

Increasing attention to climate change, increasing societal expectations on companies to address climate change, and
potential consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our customers’
hydrocarbon products which will likely translate to reduced demand for compression services, reduced profits, increased
investigations and litigation, increased governmental regulations and negative impacts on our stock price and access to capital
markets.

International, national and state governments and agencies continue to evaluate and promulgate legislation and regulations
that are focused on restricting greenhouse gas (GHG) emissions. Compliance with climate action regulations applicable to
our customers' operations may have significant implications that could adversely affect our business and operating results
in the fossil fuel sectors, and boosting demand for technologies contributing to the climate action agenda.

In the United States, the U.S. Environmental Protection Agency (EPA) has taken steps to regulate GHG emissions as
air pollutants under the U.S. Clean Air Act of 1970, as amended. The EPA's Greenhouse Gas Reporting Rule requires
monitoring and reporting of GHG emissions from, among others, certain mobile and stationary GHG emission sources in the oil
and natural gas industry. In addition, the U.S. government has proposed rules in the past setting GHG emissions standards for,
or otherwise aimed at reducing GHG emissions from, the oil and natural gas industry. Caps or fees on carbon emissions,
including in the U.S., have been and may continue to be established and the cost of such caps or fees could disproportionately
affect the fossil fuel sectors. We are unable to predict whether and when the proposed changes in laws or regulations ultimately
will occur or what they ultimately will require, and accordingly, we are unable to assess the potential financial or operational
impact they may have on our business. Other developments focused on restricting GHG emissions include the Regional
Greenhouse Gas Initiative, the Western Climate Action initiative, and various state programs implementing the California
Global Warming Solutions Act of 2006 (known as Assembly Bill 32).

Requirements and voluntary initiatives to reduce greenhouse gas emissions, as well as increased climate change awareness,
may result in increased costs for the oil and gas industry to curb greenhouse gas emissions and could have an adverse
impact on demand for oil and natural gas.

International, national, and state governments, agencies and bodies continue to evaluate and promulgate regulations
and voluntary initiatives that are focused on restricting GHG emissions. These requirements and initiatives are likely to become
more stringent over time and to result in increased costs for the oil and gas industry to curb GHG emissions. In addition, these
developments, and public perception relating to climate change, may curtail production and demand for hydrocarbons such as
oil and natural gas by shifting demand towards and investment in relatively lower carbon energy sources such as wind, solar
and alternative energy solutions. If renewable energy becomes more competitive than fossil-fuel energy globally, it could have a
material effect on our results of operations.

The potential for climate related changes may pose future risks to our operations and those of our customers.

These changes can include extreme variability in weather patterns such as increased frequency and severity of
significant weather events (e.g. flooding, hurricanes and tropical storms), natural hazards (e.g., increased wildfire risk), rising
mean temperature and sea levels, and long-term changes in precipitation patterns (e.g. drought, desertification, or poor water
quality). Such changes have the potential to affect business continuity and operating results, particularly at facilities in coastal
areas or areas prone to chronic water scarcity.

Risks Associated With Our Company

A significant majority of our compressor rentals are for terms of six months or less which, if terminated or not renewed,
would adversely impact our revenue and our ability to recover our initial equipment costs.

The length of our compressor rental agreements with our customers varies based on customer needs, equipment
configurations and geographic area. In most cases, under currently prevailing rental rates, the initial rental periods are not long
enough to enable us to fully recoup the average cost of acquiring or fabricating the equipment. Of the 1,254 compressors rented
at December 31, 2021, 827 were rented on a month-to-month basis. Given the volatility of the oil and gas market, we cannot be
sure that a substantial number of our customers will continue to renew their rental agreements or that we will be able to re-rent
the equipment to new customers or that any renewals or re-rentals will be at comparable rental rates. The inability to timely
renew or re-rent a substantial portion of our compressor rental fleet has and will have a material adverse effect upon our
business, financial condition, results of operations and cash flows.

We could be subject to substantial liability claims that could harm our financial condition.

Our products are used in production applications where an accident or a failure of a product can cause personal injury,
loss of life, damage to property, equipment or the environment, or suspension of operations. While we maintain insurance
coverage, we face the following risks under our insurance coverage:

• we may not be able to continue to obtain insurance on commercially reasonable terms;

• we may be faced with types of liabilities that will not be covered by our insurance, such as damages from significant

product liabilities and from environmental contamination;

•

the dollar amount of any liabilities may exceed our policy limits; and

• we do not maintain coverage against the risk of interruption of our business.

Any claims made under our policies will likely cause our premiums to increase. Any future damages caused by our
products or services that are not covered by insurance, are in excess of policy limits or are subject to substantial deductibles,
would reduce our earnings and our cash available for operations.

A significant amount of our revenues and accounts receivable are related to one customer and a loss of this customer or
other current customers could adversely affect our results of operations.

Our business is dependent not only on securing new customers but also on maintaining current customers. We had one
customer that accounted for an aggregate of approximately 40% of our revenue for the year ended December 31, 2021, and the
same customer accounted for an aggregate of approximately 30% of our revenue for the year ended December 31, 2020. At
December 31, 2021, this same customer accounted for an aggregate of 46% of our accounts receivable. Unless we are able to
retain our existing customers, or secure new customers if we lose one or more of our significant customers, our revenue and
results of operations would be adversely affected. In addition, the default on payments by our significant customer or other
important customers would negatively impact our cash flow and current assets.

Loss of key members of our management could adversely affect our business.

In keeping with our streamlined approach to our business, our executive management team consists of three officers:
our (i) Chief Executive Officer, (ii) Chief Financial Officer and (iii) Vice President of Technical Services. We depend on the
continued employment and performance of these three key members of our executive management team. In particular, we are
significantly reliant upon the leadership and guidance of Stephen C. Taylor, who has been our President, Chief Executive
Officer and Board member since 2004. In addition to his management duties, Mr. Taylor has been instrumental in our
communications and standing with the investment community. If any of our key executives resign or become unable to continue
in their present role and is not adequately replaced, our business operations could be materially adversely affected. We do not
carry any key-man insurance on any of our officers or directors.

The erosion of the financial condition of our customers could adversely affect our business.

Many of our customers finance their exploration and development activities through cash flow from operations, the
incurrence of debt or the issuance of equity. During times when the oil or natural gas markets are weak, our customers are more
likely to experience a downturn in their financial condition. Many of our customers’ equity values and liquidity substantially
declined during the most recent fall in oil and natural gas prices, and in some cases access to capital markets may be an
unreliable source of financing for some customers. The combination of a reduction in cash flow resulting from declines in
commodity prices, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or
equity financing may result in a reduction in our customers’ spending for our products and services in 2022. For example, our
customers could seek to preserve capital by canceling month-to-month contracts, canceling or delaying scheduled maintenance
of their existing natural gas compression equipment or determining not to enter into any new natural gas compression service
contracts or purchase new compression equipment.

We might be unable to employ qualified technical personnel, which could hamper our present operations or increase our
costs.

Many of the compressors that we sell or rent are mechanically complex and often must perform in harsh
conditions. We believe that our success depends upon our ability to employ and retain a sufficient number of technical
personnel who have the ability to design, utilize, enhance and maintain these compressors. Our ability to maintain and expand
our operations depends in part on our ability to utilize and increase our skilled labor force. The demand for skilled workers is
high, and supply is limited. A significant increase in the wages paid by competing employers could result in a reduction of our
skilled labor force or cause an increase in the wage rates that we must pay or both. If either of these events were to occur, our
cost structure could increase and our operations and growth potential could be impaired.

We may require a substantial amount of capital to expand our compressor rental fleet and grow our business.

During 2022, the amount we will spend on capital expenditures related to rental compression equipment will be
determined primarily by the activity of our customers. The amount and timing of any capital expenditures may vary depending
on a variety of factors, including the level of activity in the oil and natural gas exploration and production industry and the
presence of alternative uses for our capital, including any acquisitions that we may pursue.

During the past year, we funded our capital expenditures through cash flows from operations. Although we believe that
cash on hand and cash flows from our operations and/or potential bank borrowing from line of credit will provide us with
sufficient cash to fund our planned capital expenditures for 2022, we cannot assure you that these sources will be sufficient. We
may require additional capital to fund any significant unanticipated capital expenditures, such as a material acquisition. To the
extent we would require any necessary capital, it may not be available to us when we need it or on acceptable terms. Our ability
to raise additional capital will depend on the results of our operations and the status of various capital and industry markets at
the time we seek such capital. Failure to generate sufficient cash flow, together with the absence of alternative sources of
capital, could have a material adverse effect on our business, financial condition, results of operations or cash flow.

Our debt levels may negatively impact our current and future financial stability.

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

•

our ability to obtain additional financing for working capital, acquisitions, capital expenditures and other purposes may
be limited;

a significant portion of our cash flow from operations may be dedicated to the payment of principal and interest on our
debt, thereby reducing funds available for other purposes; and

our leverage if increased to an unacceptable level, could make us more vulnerable to economic downturns.

If we borrow under our credit line and are unable to service our debt, we will likely be forced to take remedial steps that are
contrary to our business plan.

We believe that our current cash position and anticipated cash flow from operations and the amount available under
our line of credit will be sufficient to meet our capital needs through 2022. However, if we were to materially borrow under our
line of credit or other borrowing arrangements, it is possible that our business will not generate sufficient cash flow from

operations to meet any debt service requirements and the payment of principal when due depending on the amount of
borrowings at any given time. If this were to occur, we may be forced to:

•

sell assets at disadvantageous prices;

obtain additional financing; or

refinance all or a portion of our indebtedness on terms that may be less favorable to us.

Our current credit agreement contains covenants that limit our operating and financial flexibility and, if breached, could
expose us to severe remedial provisions.

Under the terms of our current credit agreement, we must:

comply with various leverage, commitment coverage and other customary ratios;

not exceed specified levels of debt

comply with limits on asset sales;

comply with limits on cash dividends;

and other customary limitations.

•

Our ability to meet the financial ratios and tests under our credit agreement can be affected by events beyond our
control, and we may not be able to satisfy those ratios and tests. A breach of any one of these covenants or requirements could
permit the lending organization to accelerate outstanding amounts so that it is immediately due and payable. If a breach occurs,
no further borrowings would be available under our credit arrangement. If we are unable to repay any outstanding amounts, the
lending organization could proceed against and foreclose on the assets we pledged as collateral to secure payment of our
indebtedness.

If we fail to acquire or successfully integrate additional businesses, our growth may be limited and our results of operations
may suffer.

As part of our business strategy, we evaluate potential acquisitions of other businesses or assets. However, there can be
no assurance that we will be successful in consummating any such acquisitions. Successful acquisition of businesses or assets
will depend on various factors, including, but not limited to, our ability to obtain financing and the competitive environment for
acquisitions. In addition, we may not be able to successfully integrate any businesses or assets that we acquire in the future. The
integration of acquired businesses is likely to be complex and time consuming and place a significant strain on management and
may disrupt our business. We also may be adversely impacted by any unknown liabilities of acquired businesses, including
environmental liabilities. We may encounter substantial difficulties, costs and delays involved in integrating common
accounting, information and communication systems, operating procedures, internal controls and human resources practices,
including incompatibility of business cultures and the loss of key employees and customers. These difficulties may reduce our
ability to gain customers or retain existing customers, and may increase operating expenses, resulting in reduced revenues and
income and a failure to realize the anticipated benefits of acquisitions.

Failure to effectively manage our business and growth could adversely affect our operating results and our internal
controls.

Our strategy envisions the expansion and growth of our business, subject to the demand for oil and gas and the impact
of the other risks set forth in this risk factor section and elsewhere in this Report. Growth may place a strain on our
management systems and resources. We must continue to refine and expand our business capabilities, our systems and
processes, and our access to financing sources. If we expand, we must continue to hire, train, supervise and manage new
employees. We cannot assure that we will be able to:

• meet our capital needs;

•

upgrade and expand our office and manufacturing infrastructure so that it is appropriate for our level of activity;

expand our systems effectively or efficiently or in a timely manner, including financial and management controls,
reporting systems and procedures; and

attract, hire, train and retain additional highly skilled and motivated officers and employees and allocate our human
resources optimally.

If we are unable to manage our growth, our financial conditions and results of operations may be adversely affected.

Liability to customers under warranties and indemnification provisions may materially and adversely affect our results of
operations.

We provide warranties as to the proper operation and conformance to specifications of the equipment we
manufacture. Our equipment is complex and often deployed in harsh environments. Failure of this equipment to operate
properly or to meet specifications may increase our costs by requiring additional engineering resources and services,
replacement of parts and equipment or monetary reimbursement to a customer. We have in the past received warranty claims
and we expect to continue to receive them in the future. To the extent that we incur substantial warranty claims in any period,
our reputation, our ability to obtain future business and our results of operations could be materially and adversely affected.

Our rental and sales contracts provide for varying forms of indemnification from our customers and in most cases may
require us to indemnify our customers. Under some of our rental and sales contracts, liability with respect to personnel and
property is customarily assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our
respective personnel and property. However, in certain rental and sales contracts we assume liability for damage to our
customer’s property and other third-party on the site resulting from our negligence. Since our products are used in production
applications in the energy industry, expenses and liabilities in connection with accidents involving our products and services
could be extensive and may exceed our insurance coverages.

Our income taxes may change.

We are subject to income tax on a jurisdictional or legal entity basis and significant judgment is required in certain
instances to allocate our taxable income to a jurisdiction and to determine the related income tax expense and benefits. Losses
in one jurisdiction generally may not be used to offset profits in other jurisdictions. As a result, changes in the mix of our
earnings (or losses) between jurisdictions, among other factors, could alter our overall effective income tax rate, possibly
resulting in significant tax rate increases.

We are regularly audited by various tax authorities. Income tax audit assessments or changes in tax laws, regulations,
or other interpretations may result in increased tax provisions which could materially affect our operating results in the period
or periods in which such determinations are made or changes occur.

Failure to maintain effective internal controls could have a material adverse effect on our operations.

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal
control over financial reporting. If we fail to maintain effective internal controls, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and to
help prevent financial fraud. If, as a result of deficiencies in our internal controls, we cannot provide reliable financial reports or
prevent fraud, our business decision process may be adversely affected, our business and operating results could be harmed,
investors could lose confidence in our reported financial information, and the price of our stock could decrease as a result.

We are exposed to risks related to computer systems failures or cyber security threats

In the conduct of our business we are dependent upon our computing systems and those of third parties to collect,
store, transmit and process data used in our operational activities and to record, process and track financial transactions. If
interruptions were to occur we would be unable to access these systems for a period of time and there is a risk of data loss. Data
backup and storage measures are in place that would allow recovery in a time frame that we believe would not materially
impact our ability to conduct business.

We are also subject to cyber security attacks and have taken steps to minimize the probability of an attack penetrating

our systems. These include network security, virus protection, filtering software and intrusion protection measures.

Risks Associated With Our Common Stock

The price of our common stock may fluctuate.

The trading price of our common stock and the price at which we may sell securities in the future are subject to
substantial fluctuations in response to various factors, including our ability to successfully accomplish our business strategy, the
trading volume of our stock, changes in governmental regulations, actual or anticipated variations in our quarterly or annual
financial results, our involvement in litigation, general market conditions, the prices of oil and natural gas, announcements by
us and our competitors, our liquidity, our ability to raise additional funds, and other events such as those discussed in the factors
above.

Future sales of our common stock could adversely affect our stock price.

Substantial sales of our common stock in the public market, or the perception by the market that those sales could
occur, may lower our stock price or make it difficult for us to raise additional equity capital in the future. According to filings
made with the Securities and Exchange Commission in February 2022, an aggregate of approximately 27.9% of the outstanding
shares of our common stock are owned by four institutional investors, each of which owns more than 5% of our outstanding
shares as of the date of their respective filings in February 2022. Potential sales of large amounts of these shares in a short
period of time by one or more of these significant investors could have a negative impact on our stock price. In addition,
potential sales of our common stock by our directors and officers, who beneficially own approximately 6.5% of the outstanding
shares of our common stock as of March 14, 2022, and because of the negative perception of sales by insiders, could also have
a negative impact on our stock price.

We have a comparatively low number of shares of common stock outstanding and, therefore, our common stock may suffer
from limited liquidity and its prices will likely be volatile and its value may be adversely affected.

Because of our relatively low number of outstanding shares of common stock, the trading price of our common stock
will likely be subject to significant price fluctuations and limited liquidity. This may adversely affect the value of your
investment. In addition, our common stock price is subject to fluctuations in response to variations in quarterly operating
results, changes in management, future announcements concerning us, general trends in the industry and other events or factors
such as those described above.

If we issue debt or equity securities, you may lose certain rights and be diluted.

If we raise funds in the future through the issuance of debt or equity securities, the securities issued may have rights
and preferences and privileges senior to those of holders of our common stock, and the terms of the securities may impose
restrictions on our operations or dilute your ownership in our Company.

We currently have on file with the SEC an effective "universal" shelf registration statement on Form S-3, which
enables us to sell, from time to time, our common stock and other securities covered by the registration statement in one or
more public offerings. The shelf registration statement allows us to enter the public markets and consummate sales of the
registered securities in rapid fashion and with little or no notice. Issuances of securities under our shelf registration statement
may dilute our existing shareholders.

If securities analysts downgrade our stock or cease coverage of us, the price of our stock could decline.

The trading market for our common stock relies in part on the research and reports that industry or financial analysts
publish about us or our business. We do not control these analysts. Furthermore, there are many large, well-established, publicly
traded companies active in our industry and market, which may mean that it is less likely that we will receive widespread
analyst coverage. If one or more of the analysts who do cover us downgrade our stock, our stock price would likely decline
rapidly. If one or more of these analysts cease coverage of our company, we could lose visibility in the market, which in turn
could cause our stock price to decline.

Provisions contained in our governing documents could hinder a change in control of us.

Our articles of incorporation and bylaws contain provisions that may discourage acquisition bids and may limit the

price investors are willing to pay for our common stock. Our articles of incorporation and bylaws provide that:

•

directors are elected for three-year terms, with approximately one-third of the board of directors standing for election
each year;

cumulative voting is not allowed, which limits the ability of minority shareholders to elect any directors;

advance notice for nominations of directors by shareholders and for shareholders to include matters to be considered at
our annual meeting;

the unanimous vote of the board of directors or the affirmative vote of the holders of not less than 80% of the votes
entitled to be cast by the holders of all shares entitled to vote in the election of directors is required to change the size
of the board of directors; and

directors may be removed only for cause or by the holders of not less than 80% of the votes entitled to be cast on the
matter.

Our Board of Directors has the authority to issue up to five million shares of preferred stock. The Board of Directors
can fix the terms of the preferred stock without any action on the part of our shareholders. The issuance of shares of preferred
stock may delay or prevent a change in control transaction. In addition, preferred stock could be used in connection with the
Board of Directors’ adoption of a shareholders’ rights plan (also known as a poison pill), which would make it much more
difficult to effect a change in control of our Company through acquiring or controlling blocks of stock. Also, our directors and
officers as a group will continue to beneficially own stock and although this is not a majority of our stock, it confers substantial
voting power in the election of directors and management of our Company. This would make it difficult for other minority
shareholders to effect a change in control or otherwise extend any significant control over our management. This may adversely
affect the market price and interfere with the voting and other rights of our common stock.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

The table below describes the material facilities owned or leased by Natural Gas Services Group as of December 31,

2021:

Location

Tulsa, Oklahoma
Midland, Texas
Lewiston, Michigan
Midland, Texas
Bloomfield, New Mexico
Godley, Texas
Galeton, Colorado
Bridgeport, Texas
Midland, Texas
Vernal, Utah
Carrollton, Ohio
Wheeler, Texas

Status

Square Feet

Uses

Owned and Leased
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Leased

91,780 Compressor fabrication, rental and services
70,000 Compressor fabrication, rental and services
15,360 Compressor fabrication, rental and services
45,000 Corporate office
7,000 Office and parts and services
5,000 Parts and services
4,800 Parts and services
4,500 Office and parts and services
4,100 Parts and services
3,200 Parts and services
2,600 Parts and services
2,160 Parts and services

We believe that our properties are generally well maintained and in good condition and adequate for our purposes.

ITEM 3.

LEGAL PROCEEDINGS

actions will not have a material effect on our financial position, results of operations or cash flow. We are not currently a party
to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any material
threatened litigation.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock currently trades on the New York Stock Exchange under the symbol “NGS”. As of December 31,
2021 as reflected by our transfer agent records, we had 15 record holders of our common stock. This number does not include
any beneficial owners for whom shares of common stock may be held in “nominee” or “street” name. On March 14, 2022, the
last reported sale price of our common stock as reported by the New York Stock Exchange was $11.82 per share.

Dividends

To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying a
cash dividend on our common stock. Although we intend to retain our earnings, if any, to finance the growth of our business,
our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future
will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant. Our
credit agreement also contains restrictions on our paying dividends under certain circumstances.

Equity Compensation Plans

The following table summarizes certain information regarding our equity compensation plans as of December 31,

2021:

(c)
Number
of securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))

(a)
Number of
securities to vest
or be issued upon
exercise of
outstanding
options

(b)
Weighted-
average
issuance or
exercise price of
outstanding
options

200,834 (1)
276,319
477,153

$
$

21.17
9.67

345,003
47,135
392,138

Plan Category

Equity compensation plans approved by security holders:
Stock Option Plan
2019 Equity Incentive Plan
Total

(1)
1998 Stock Option Plan.

Total number of shares to be issued upon exercise of options granted to employees, officers, and directors under our

Sale of Unregistered Securities

We made no sales of unregistered securities during the year ended December 31, 2021. The following table

summarizes our purchases of shares of common stock during the three months ended December 31, 2021.

For the Three Months
Ended December 31,
2021

ISSUER PURCHASES OF EQUITY SECURITIES1,2
(c)
(b)
(a)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Total Number of
Shares Purchased

Average Price Paid
per Share
Common Stock

(d)
Approximate Dollar
Value of Shares that
may yet be Purchased
Under Plans or
Programs3

(dollars in thousands)

October 1, 2021 to
October 31, 2021
November 1, 2021 to
November 30, 2021
December 1, 2021 to
December 31, 2021
1 The table summarizes repurchases of (and remaining authority to repurchase) shares of our Common Stock.

110,243

101,481

110,243

$10.51

$11.57

$11.53

92,950

$8,908

$7,637

$6,660

2 The figures in the table reflect transactions according to the settlement dates. For purposes of our consolidated financial
statements included in this Form 10-K, the impact of these repurchases is recorded according to the settlement dates.

3 On September 30, 2021, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding Common
Stock in the open market (pursuant to Rule 10b5-1 plans or otherwise), block trades or privately negotiated transactions. This
repurchase program is set to expire on September 30, 2022. The amounts in this column indicate the remaining amounts that
may yet be expended to repurchase shares under these authorizations.

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion is intended to assist you in understanding our financial position and results of operations for
each of the years ended December 31, 2021 and 2020. You should read the following discussion and analysis in conjunction
with our audited financial statements and the related notes.

The following discussion contains forward-looking statements. For a description of limitations inherent in forward-

looking statements, see “Special Note Regarding Forward-Looking Statements” on page ii.

Overview

We fabricate, manufacture, rent and sell natural gas compressors and related equipment. Our primary focus is on the
rental of natural gas compressors. Our rental contracts generally provide for initial terms of six to 60 months, with our larger
horsepower units having longer initial terms. After the initial term of our rental contracts, most of our customers have continued
to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of
the rented compressors. As of December 31, 2021, we had 1,254 natural gas compressors totaling 297,808 horsepower rented to
83 customers, compared to 1,274 natural gas compressors totaling 287,646 horsepower rented to 80 customers at December 31,
2020. Of the 1,254 compressors rented at December 31, 2021, 827 were rented on a month-to-month basis.

We also fabricate natural gas compressors for sale to our customers, designing compressors to meet unique
specifications dictated by well pressures, production characteristics and particular applications for which compression is
sought. Fabrication of compressors involves our purchase of engines, compressors, coolers and other components, and our
assembling of these components on skids for delivery to customer locations. These major components of our compressors are
acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a
a minimum three to six month lead time with delivery dates scheduled to coincide with our estimated production
schedules. Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate
alternative sources available. In the past, we have not experienced any sudden and dramatic increases in the prices of the major
components for our compressors; however, the occurrence of such an event could have a material adverse effect on the results
of our operations and financial condition, particularly if we were unable to increase our rental rates and sales prices
proportionate to any such component price increases.

We also manufacture a line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product
line. We use finished CiP component products in the fabrication of compressor units for sale or rental by us or sell the finished
component products to other compressor fabricators. We also design, fabricate, sell, install and service flare stacks and related
ignition and control devices for onshore and offshore incineration of gas compounds such as hydrogen sulfide, carbon dioxide,
natural gas and liquefied petroleum gases. To provide customer support for our compressor and flare sales businesses, we stock
varying levels of replacement parts at our Midland, Texas facility and at field service locations. We also provide an exchange
and rebuild program for screw compressors and maintain an inventory of new and used compressors to facilitate this business.

We provide service and maintenance to our non-rental customers under written maintenance contracts or on an as-
required basis in the absence of a service contract. Maintenance agreements typically have terms of six months to one year and
require payment of a monthly fee.

The following table sets forth our revenues from each of our three operating categories for the periods presented:

Rental
Sales
Service and maintenance
Total

Year Ended December 31,

2021

2020

(in thousands)
63,624 $
6,882
1,914
72,420 $

60,826
5,657
1,572
68,055

Our strategy for growth is focused on our compressor rental business. Margins, exclusive of depreciation and
amortization, for our rental business historically run in the mid-40% to low-60% range, while margins for the compressor sales
business tend to be in the mid-20% range. If our rental business grows and contributes a larger percentage of our total revenues,
we expect our overall company-wide margins, exclusive of depreciation and amortization, to improve over time.

The oil and natural gas equipment rental and services industry is cyclical in nature. The most critical factor in
assessing the outlook for the industry is the worldwide supply and demand for oil and natural gas and the corresponding
changes in commodity prices. As demand and prices increase, oil and natural gas producers typically increase their capital
expenditures for drilling, development and production activities, although recent equity capital constraints and demands from
institutional investors to keep spending within operating cash flow have meaningfully restrained capital expenditure budgets of
domestic exploration and production companies. Generally, increased capital expenditures ultimately result in greater revenues
and profits for service and equipment companies.

In general, we expect our overall business activity and revenues to track the level of activity in the oil and natural gas
industry, with changes in crude oil and condensate production and consumption levels and prices affecting our business more
than changes in domestic natural gas production and consumption levels and prices. In recent years we have increased our
rental and sales in unconventional oil shale plays, which are more dependent on crude oil prices. With this shift towards oil
production the demand for overall compression services and products is driven by two general factors; an increased focus by
producers on artificial lift applications, e.g., production enhancement with compression assisted gas lift; and declining reservoir
pressure in maturing natural gas producing fields, especially non-conventional production. These types of applications have
historically been serviced by wellhead size compressors, and continue to be, but there has also been an economic move by our
customers towards centralized drilling and production facilities, which have increased the market need for larger horsepower
compressor packages. We recognized this need in recent years and have shifted our cash and fabrication resources towards
designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 1,500 horsepower. While this
is a response to market conditions and trends, it also provides us with the opportunity to compete as a full-line compression
provider.

We typically experience a decline in demand during periods of low crude oil and natural gas prices. During 2019, we
witnessed a moderation of crude oil prices as well as drilling and completion activity levels. During the first quarter of 2020, we
saw a substantial decline in the prices for oil and natural gas. Activity levels of exploration and production companies have
been and will continue to be dependent not only on commodity prices, but also on their ability to generate sufficient operational
cash flow to fund their activities. Generally, though, we feel that production activities (in which we are involved) will fare
better than drilling activity.

For fiscal year 2022, our forecasted capital expenditures will be directly dependent upon our customers’ compression
requirements and are not anticipated to exceed our internally generated cash flows. Any required capital will be for additions to
our compressor rental fleet and/or addition or replacement of service vehicles. We believe that cash on hand and cash flows
from operations will be sufficient to satisfy our capital and liquidity requirements through 2022. If we require additional capital
to fund any significant unanticipated expenditures, including any material acquisitions of other businesses, joint ventures or
other opportunities, this additional capital could exceed our current resources, might not be available to us when we need it, or
might not be on acceptable terms.

Critical Accounting Policies and Practices

We have identified the policies below as critical to our business operations and the understanding of our results of
operations. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of
results of operations and financial condition in the preparation of our financial statements in conformity with accounting

principles generally accepted in the United States. Actual results could differ significantly from those estimates under different
assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are
those that are most important to the portrayal of our financial condition and results of operations and require our most difficult,
subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain. We describe our significant accounting policies more fully in Note 2 ("Summary of Significant Accounting Policies")
to our consolidated financial statements.

Our critical accounting policies are as follows:

•

revenue recognition;

estimating the allowance for doubtful accounts receivable;

accounting for income taxes;

accounting for long-lived assets; and

accounting for inventory.

Revenue Recognition Policy

The Company adopted ASC 606, Revenue from Contracts with Customers ("ASC 606") on January, 1, 2018. Revenue
is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on
behalf of third parties (i.e. sales and property taxes). We recognize revenue once a performance obligation has been satisfied
and control over a product or service has transferred to the customer. Shipping and handling costs incurred are accounted for as
fulfillment costs and are included in cost of revenues in our Consolidated Statements of Operations.

Nature of Goods and Services

Rental Revenue. The Company generates revenue from renting compressors and flare systems to our customers. These
contracts may also include a fee for servicing the compressor or flare during the rental contract. Our rental contracts typically
range from six to 60 months, with our larger horsepower compressors having longer minimum contract terms. Our rental
revenue is recognized over time, with equal monthly payments over the term of the contract. After the terms of the contract
have expired, a customer may renew their contract or continue renting on a monthly basis thereafter.

Sales Revenue. The Company generates revenue by the sale of custom/fabricated compressors, flare systems and
parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment. The Company designs
and fabricates compressors and flares based on the customer’s specifications outlined in their contract. Though the equipment
being built is customized by the customer, control under these contracts does not pass to the customer until the compressor or
flare package is completed and shipped, or, in accordance with a bill and hold arrangements, the customer accepts title and
assumes the risk and rewards of ownership. We request some of our customers to make progressive payments as the product is
being built; these payments are recorded as a contract liability on the Deferred Income line on the consolidated balance sheet
until control has been transferred. These contracts also may include an assurance warranty clause to guarantee the product is
free from defects in material and workmanship for a set duration of time; this is a standard industry practice and is not
considered a performance obligation.

Allowance for Doubtful Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based on management's assessment of
the customer's financial condition and payment history, as well as industry conditions and general economic conditions. We
continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based
upon our historical experience and any specific customer collection issues that we have identified. While such credit losses
have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to
experience the same credit loss rates that we have in the past. Management believes that its allowance for doubtful accounts is
adequate; however, actual write-offs may exceed the recorded allowance.

Accounting for Income Taxes

As part of the process of preparing our financial statements, we are required to estimate our federal income taxes as
well as income taxes in each of the states in which we operate. This process involves us estimating our actual current tax
exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance

sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the
extent we believe that recovery is not probable, we must establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense in the tax provision in the statement of income.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets
and liabilities and any valuation allowance recorded against our net deferred tax assets. We currently have no valuation
allowance and fully expect to utilize all of our deferred tax assets.

ASC 740 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. In order to record any financial statement benefit,
we are required to determine, based on technical merits of the position, whether it is more likely than not (a likelihood of more
than 50 percent) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation
processes. If that step is satisfied, then we must measure the tax position to determine the amount of benefit to recognize in the
financial statements. The tax position is measured at the largest amount of the benefit that is greater than 50 percent likely of
being realized upon ultimate settlement. Our policy regarding income tax interest and penalties is to expense those items as
other expense.

Long-Lived Assets

Rental Equipment, Property and Equipment (Including Retirement of Rental Equipment)

Rental equipment and property and equipment are recorded at cost less accumulated depreciation, except for work-in-
progress on new rental equipment which is recorded at cost until it’s complete and added to the fleet. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets. Our rental equipment has an estimated useful life
between 15 and 25 years, while our property and equipment has an estimate useful lives which range from 3 to 39 years. The
majority of our property and equipment, including rental equipment, is a direct cost to generating revenue.

We assess the impairment of rental equipment and property and equipment whenever events or changes in
circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment
review: significant underperformance relative to historical or projected future cash flows; significant adverse changes in the
extent or manner in which asset (or asset group) is being used or its condition, including a meaningful drop in fleet utilization
over the prior four quarters; significant negative industry or company-specific trends or actions, including meaningful capital
expenditure budget reductions by our major customers or other sizable exploration and production or midstream companies, as
well as significant declines in oil and natural gas prices; legislative changes prohibiting us from leasing our units or flares; or
poor general economic conditions. An impairment loss is recognized if the future undiscounted cash flows associated with the
asset (or asset group) and the estimated fair value of the asset are less than the asset's carrying value.

Inventories

We value our total inventory (current and long-term) at the lower of the actual cost and net realizable value of the
inventory. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based
primarily on current and anticipated customer demand and production requirements. The Company accesses anticipated
customer demand based on current and upcoming capital expenditure budgets of its major customers as well as other significant
companies in the industry, along with oil and natural gas price forecasts and other factors affecting the industry. For the year
ended December 31, 2021, inventory allowance and write-off totaled $0.2 million. We ended 2021 with an inventory allowance
balance of $64,000.

Our Performance Trends and Outlook

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a
new strain of coronavirus known as COVID-19 due to the risks it imposes on the international community as the virus spreads
globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure
globally. During this time, the market began to experience a decline in oil prices in response to oil demand concerns due to the
global economic impacts of COVID-19. These developments led to significant weaknesses in oil prices and ensuing reductions
of exploration and production company capital and operating budgets. Oil markets largely recovered in 2021, and prices have
continued to rise in the early months of 2022.

With the increases in oil prices, we expect rental demand for our large and medium horsepower units to remain strong
for the remainder of 2022. In terms of sales, we expect minimal compressor sales for the year due to shifts in capital

expenditure budget concentrations throughout the industry, including those of our major customers, as many upstream
producers prefer to rent compression as opposed to purchasing units as part of their capital budget allocations. Finally, we have
recently experienced and expect to continue to experience supply chain disruptions. While we believe we have a strong vendor
network that provides flexibility in sourcing needed materials, we have incurred longer than normal wait times for certain
components as well as increases in costs. Lastly, our relationship with our major customers continues to be strong, and they
have continued to pay our invoices in a timely, consistent manner. Nevertheless, if any of these circumstances change, our
business could be adversely affected.

While management anticipates that the industry and economic impact of the pandemic may have a negative effect on
its results of operations in 2022 and perhaps beyond, the degree to which these factors will impact our business remains
uncertain. Please read Item 1A, Risk Factors, in this report.

Results of Operations

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

The table below shows our revenues and percentage of total revenues for each of our product lines for the years ended

December 31, 2021 and 2020.

Rental
Sales
Service & Maintenance
Total

Revenue

Year Ended December 31,

2021

2020

(dollars in thousands)

$ 63,624
6,882
1,914
$ 72,420

87.9 % $ 60,826
5,657
9.5 %
1,572
2.6 %
$ 68,055

89.4 %
8.3 %
2.3 %

Total revenue increased to $72.4 million from $68.1 million, or 6.4%, for the year ended December 31, 2021 compared
to 2020. This increase was mainly a result of increased rental revenue (4.6% increase) primarily due to a greater number of
large horsepower units being rented as well as higher sales revenue (21.7% increase) primarily due to increased parts sales
partially offset by decreased compressor sales.

Rental revenue increased to $63.6 million (4.6%) from $60.8 million for the year ended December 31, 2021 compared
to 2020. As of December 31, 2021, we had 2,023 natural gas compressors in our rental fleet, down from 2,224 units at year end
2020. In addition, the Company's total unit horsepower decreased by 4.7% to 418,041 at December 31, 2021 compared to
438,524 horsepower year end 2020. However, as of December 31, 2021, we had 1,254 natural gas compressors totaling 297,808
horsepower rented to 83 customers, compared to 1,274 natural gas compressors totaling 287,646 horsepower rented to 80
customers as of December 31, 2020. This increase in rented horsepower reflects the addition of 25 high horsepower
compressors with 10,020 horsepower to the Company's fleet during 2021. The rental fleet had a unit utilization as of
December 31, 2021 and 2020 of 62.0% and 57.3%, respectively, while our horsepower utilization for the same periods was
71.2% and 65.6%, respectively. The increase in both utilization metrics was mainly the result of the addition and increased
demand for our higher horsepower units.

Sales revenue increased to $6.9 million from $5.7 million for the year ended December 31, 2021, compared to 2020.
This increase in largely attributable to an increase in parts sales during 2021. Sales are subject to fluctuations in timing of
industry activity related to capital projects and, as such, can vary substantially between periods.

Company management routinely reviews its inventory balances for obsolescence. Due to the slow moving nature or
obsolescence of a portion of the Company's long-term inventory and inventory related to the retirement of certain rental
equipment, management recorded an increase of $208,000 in the inventory allowance reserve for costs that may not be
recoverable in the future. We ended 2021 with an inventory allowance balance of $64,000.

Company management routinely reviews its rental fleet to determine which units are no longer of the type,
configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or
operate. As a result of this review, we determined 263 units should be retired from our rental fleet. Accordingly, we recorded a
$3.1 million loss on retirement of rental equipment during the year ended December 31, 2021.

Operating loss increased to $12.4 million for the year ended December 31, 2021 compared to an operating loss of $3.6
million for the year ended December 31, 2020. The increase in operating loss was mainly due to 1) an $8.1 million increase in
costs of rentals primarily related to a significant increase in repair and maintenance work on our rental fleet as well as increased
costs related to newly set units which experience higher upfront costs than typical run rates and 2) a $2.8 million increase in
loss related to the retirement of 263 units. During the year ended December 31, 2021 we had 233 newly set units during the
year, of which 51 units were 400 horsepower or larger. Upon initial installation, these units require oil volumes and other
materials that exceed general run rate costs. In addition, we experienced higher than normal repair and maintenance needs for
our rental fleet during the year. Consistent with our recent shift to a higher horsepower fleet concentration, these large
horsepower units are more cost intensive to repair than our legacy fleet. While we have routine repair and maintenance
requirements, we believe a large portion of these costs are one-time in nature. These increases were partially offset by higher
rental and sales revenues.

Selling, general, and administrative expenses remained relatively unchanged at $10.8 million for the year ended
December 31, 2021, as compared to $10.6 million for 2020. This 2.0% increase was primarily the result of increases in health
insurance costs.

Depreciation and amortization expense increased to $25.4 million from $25.2 million, or 0.8%, for the year ended
December 31, 2021, compared to 2020. The increase is the result of higher capital expenditures for larger horsepower units
being added to the fleet. We added 65 units (approximately 18,035 horsepower) to our fleet during the twelve-month period
ended December 31, 2021. Twenty-five of those units were 400 horsepower or larger, representing approximately 56% of the
horsepower added.

Income tax benefit decreased to $2.6 million from $4.8 million for the year ended December 31, 2021 compared to
2020. Our effective tax rate for both years differs from the U.S. federal statutory rate of 21%. On March 27, 2020, the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the economic impact caused
the COVID-19 pandemic. The CARES Act allows federal net operating losses ("NOL") incurred in 2018, 2019, and 2020 to be
carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes. The
Company generated significant NOLs during 2018 and 2019. The Company filed its NOL carryback claims for 2018 and 2019
during 2020. Accordingly, the Company recorded a federal income tax receivable of $15.0 million and an increase to its
deferred income tax liability of $10.1 million on its condensed consolidated balance sheet. During the third quarter of 2020, the
Company received refunds totaling $3.9 million related to its 2018 NOLs, which, along with year-end provision adjustments,
reduced its federal income tax receivable to $11.5 million on its consolidated balance sheet as of December 31, 2021. In
addition, the Company recorded a current income tax benefit of $4.8 million on its consolidated statement of operations for the
year ended December 31, 2020. Our income tax benefit in 2021 was largely due to our net loss before income taxes of $11.8
million.

Adjusted Gross Margin Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

The table below shows our adjusted gross margin and related percentages for each of our product lines for the years
ended December 31, 2021 and December 31, 2020. Adjusted gross margin is the difference between revenue and cost of
revenues, exclusive of depreciation and amortization expense.

Rental
Sales
Service & Maintenance
Total

Adjusted Gross Margin (1)
Year Ended December 31,

2021

2020

$ 26,986
(947)
1,016
$ 27,055

(dollars in thousands)

42.4 %
(13.8) %
53.1 %
37.4 %

$ 32,320
(554)
858
$ 32,624

53.1 %
(9.8) %
54.6 %
47.9 %

(1) For a reconciliation of adjusted gross margin to its most directly comparable financial measure calculated and presented in
accordance with GAAP, please read "Non-GAAP Financial Measures" below.

Our overall adjusted gross margin percentage decreased to 37.4% for the year ended December 31, 2021 compared to
47.9% for the year ended December 31, 2020, exclusive of depreciation and amortization. Our decrease in gross margins is
mainly due to an increase in costs of rentals. While rental revenues increased 4.6% over 2020, our costs of rentals increased
28.5% primarily driven by a significant increase in repair and maintenance work on our rental fleet as well as increased costs

related to newly set units which experience higher upfront costs than typical run rates. Rental revenues comprised 88% of our
total revenues for the year ended December 31, 2021 compared to 89% of total revenues for the year ended December 31, 2020.
While rental activity inherently realizes higher adjusted gross margins, the significant increase in costs of rentals beyond the
increase in rental revenues resulted in a large reduction in total gross margins. Sales margin decreased to (13.8)% in 2021 from
(9.8)% in 2020. While sales revenues increased 21.7%, this increase was attributable to increased parts sales, which realizes a
lower gross margin than compressor sales. While many sales costs are variable, certain costs such as labor are less variable as a
certain staff level is retained to meet demand when market forces shift. Third party service and maintenance margins decreased
to 53.1% from 54.6% for the year ended December 31, 2021 compared to 2020. Service and maintenance only represents 2.6%
of our revenue in 2021, providing minimal impact on our overall adjusted gross margin.

Non-GAAP Financial Measures

Our definition and use of Adjusted EBITDA

“Adjusted EBITDA” is a non-GAAP financial measure that we define as earnings (net (loss) income) before interest,
taxes, depreciation and amortization, as well as an increase in inventory allowance and inventory write-offs, retirement of rental
equipment and non-cash equity compensation expenses. This term, as used and defined by us, may not be comparable to
similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with
GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash
flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in
accordance with GAAP. However, management believes Adjusted EBITDA is useful to an investor in evaluating our operating
performance because:

•

it is widely used by investors in the energy industry to measure a company’s operating performance without regard to
items excluded from the calculation of Adjusted EBITDA, which can vary substantially from company to company
depending upon accounting methods and book value of assets, capital structure and the method by which assets were
acquired, among other factors;

it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by
removing the impact of our capital structure and asset base from our operating structure; and

it is used by our management for various purposes, including as a measure of operating performance, in presentations
to our Board of Directors, as a basis for strategic planning and forecasting, and as a component for setting incentive
compensation.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute

for analysis of our results as reported under generally accepted accounting principles. Some of these limitations are:

• Adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual

commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the cash requirements necessary to service interest or principal payments on our

debts; and

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often
have to be replaced in the future, and Adjusted EBITDA does not reflect any capital expenditures for such
replacements.

There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to
analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of
results of operations of different companies. Please read the table below under “Reconciliation” to see how Adjusted EBITDA
reconciles to our net income, the most directly comparable GAAP financial measure.

Reconciliation

The following table reconciles our net (loss) income, the most directly comparable GAAP financial measure, to

Adjusted EBITDA:

Net income (loss)
Interest expense
Income tax benefit
Depreciation and amortization
Inventory allowance
Retirement of rental equipment
Stock compensation expense

Adjusted EBITDA

Our definition and use of Adjusted Gross Margin

Year Ended December 31,

2021

2020

(in thousands)
(9,183) $
65
(2,603)
25,397
208
3,096
1,738
18,718 $

1,808
14
(4,792)
25,198
184
291
2,195
24,898

We define “Adjusted Gross Margin” as total revenue less costs of revenues (excluding depreciation and amortization
expense). Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by our
management as it represents the results of revenue and costs (excluding depreciation and amortization expense), which are key
components of our operations. Adjusted gross margin differs from gross margin, in that gross margin includes depreciation
expense. We believe adjusted gross margin is important because it focuses on the current operating performance of our
operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those
operations. Depreciation expense does not accurately reflect the costs required to maintain and replenish the operational usage
of our assets and therefore may not portray the costs from current operating activity. Rather, depreciation expense reflects the
systematic allocation of historical property and equipment values over the estimated useful lives.

Adjusted gross margin has certain material limitations associated with its use as compared to gross margin. These
limitations are primarily due to the exclusion of depreciation expense, which is material to our results of operations. Because
we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue. In order to
compensate for these limitations, management uses this non-GAAP measure as a supplemental measure to other GAAP results
to provide a more complete understanding of our performance.

As an indicator of our operating performance, adjusted gross margin should not be considered an alternative to, or
more meaningful than, gross margin as determined in accordance with GAAP. Our adjusted gross margin may not be
comparable to a similarly titled measure of another company because other entities may not calculate adjusted gross margin in
the same manner.

Reconciliation

The following table calculates gross margin, the most directly comparable GAAP financial measure, and reconciles it

to adjusted gross margin:

Total revenue
Costs of revenue, exclusive of depreciation and amortization
Depreciation allocable to costs of revenue
Gross margin
Depreciation allocable to costs of revenue
Adjusted gross margin

Liquidity and Capital Resources

Year Ended December 31,

2021

2020

(in thousands)
72,420 $
(45,365)
(24,753)
2,302
24,753
27,055 $

68,055
(35,431)
(24,578)
8,046
24,578
32,624

Our working capital positions as of December 31, 2021 and 2020 are set forth below.

Current Assets:

Cash and cash equivalents
Trade accounts receivable, net
Inventory, net
Federal income tax receivable
Prepaid income taxes
Prepaid expenses and other
Total current assets

Current Liabilities:

Accounts payable
Accrued liabilities
Line of credit
Current operating leases
Deferred income
Total current liabilities

Net working capital

As of December 31,
2020
2021

(in thousands)

22,942 $
10,389
19,329
11,538
51
854
65,103

4,795 $
14,103
—
68
1,312
20,278
44,825 $

28,925
11,884
19,926
11,538
66
379
72,718

2,373
6,770
417
198
1,103
10,861
61,857

For the year ended December 31, 2021, we invested approximately $25.7 million in rental equipment, property and
other equipment. During the year, the Company added $24.3 million in new equipment to our rental fleet and $1.4 million in
other property and equipment. Our investment in rental equipment includes any changes to work-in-progress related to our
rental fleet jobs at the beginning of the year compared to the end of the year. Our rental work-in-progress increased by $1.4
million during 2021. We financed our investment in rental equipment, property and other equipment with cash flows from
operations during 2021. We anticipate that our cash flows from operations as well as our borrowing capacity under our New
Credit Agreement will provide ample liquidity for our planned capital expenditures during 2022 and beyond.

Cash flows

At December 31, 2021, we had cash and cash equivalents of $22.9 million compared to $28.9 million at year end
2020. Our cash flow from operations of $28.5 million was partially offset by capital expenditures of $25.7 million during 2021.
In addition, we expended $7.9 million in connection with our share repurchase program. We also had working capital of $44.8

million at December 31, 2021 compared to $61.9 million at December 31, 2020. We had net cash flow from operating activities
of $28.5 million during 2021 compared $32.6 million during 2020. Our cash flow from operating activities of $28.5 million was
primarily the result of our rental and sales gross margins.

At December 31, 2020, we had cash and cash equivalents of $28.9 million, working capital of $61.9 million and
total debt of $417,000, under our credit agreement which was due on March 31, 2021. We had positive net cash flow from
operating activities of approximately $32.6 million during 2020.

Senior Bank Borrowings

Previous Credit Agreement

We had a senior secured revolving credit agreement (the "Previous Credit Agreement") with JP Morgan Chase Bank,
N.A (the "Lender") that matured on March 31, 2021. Prior to maturation, the outstanding balance of $417,000 was repaid. The
Previous Credit Agreement had an aggregate commitment of $30 million, subject to collateral availability.

New Credit Agreement

On May 11, 2021, we entered into a five-year senior secured revolving credit agreement ("New Credit Agreement")
with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $20 million and an accordion
feature that would increase the maximum commitment to $30 million, subject to collateral availability. We also have a right to
request from the Lender, on an uncommitted basis, an increase of up to $30 million on the aggregate commitment; provided,
however, the aggregate commitment amount is not permitted to exceed $50 million. The maturity date of the New Credit
Agreement is May 11, 2026. The obligations under the New Credit Agreement are secured by a first priority lien on a variety of
our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.

Borrowing Base. At any time before the maturity of the New Credit Agreement, we may draw, repay and re-borrow
amounts available under the borrowing base up to the maximum aggregate availability discussed above. Generally, the
borrowing base equals the sum of (a) 90% of eligible accounts receivable owed to the Company by investment grade debtors,
plus (b) 85% of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50% of the eligible inventory,
valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $2 million, plus (d)
the lesser of (i) 95% of the net book value of the compressors that the Lender has determined are eligible for the extension of
credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80% of the net
liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for
the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus
(e) 80% of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new
compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion. The Lender may
adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. As
of December 31, 2021, our allowable borrowing base was $20.0 million.

Interest and Fees. Under the terms of the New Credit Agreement, we have the option of selecting the applicable
variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable
Margin, or (b) in the case of a Eurodollar Rate Loan, the Adjusted Eurodollar Rate plus the Applicable Margin. "Base Rate"
means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day; (b) the sum of the federal
funds rate for such day plus 0.50%; and (c) the Adjusted Eurodollar Rate for such day plus 1.00%. The Applicable Margin is
determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each
fiscal quarter from time to time pursuant to the New Credit Agreement. Depending on the leverage ratio, the Applicable Margin
can be 0.25% to 0.75% for Base Rate Loans (as defined in the New Credit Agreement) and 1.25% to 1.75% for Eurodollar Rate
Loans and for requested letters of credit. In addition, we are required to pay a monthly commitment fee on the daily average
unused amount of the commitment while the New Credit Agreement is in effect at an annual rate equal to 0.25% of the unused
commitment amount. Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee,
provided that accrued interest on Eurodollar Rate Loans is payable at the end of each interest period, but in no event less
frequently than quarterly.

Covenants. The New Credit Agreement contains customary representations and warranties, as well as covenants
which, among other things, condition or limit our ability to incur additional indebtedness and liens; enter into transactions with
affiliates; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes;
make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our
business. In addition, we also have certain financial covenants that are applicable during certain trigger periods specified in the
Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to 3.00 to 1.00 as of
the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of
each fiscal quarter.

agreements contained in the Credit Agreement and the other transaction documents; inaccuracies in representations and
warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company
indebtedness in excess of $1.0 million; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of
$1.0 million; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured
revolving credit agreement. Obligations outstanding under the Credit Agreement may be accelerated upon the occurrence of an
event of default.

As of December 31, 2021, we were in compliance with all financial covenants in our New Credit Agreement. At

December 31, 2021, we had no amounts outstanding under the New Credit Agreement.

Components of Our Principal Capital Expenditures

Capital expenditures for the years ended December 31:

Expenditure Category

Rental equipment and property and equipment

2021

2020

(in thousands)
25,710 $

15,257

The level of our expenditures will vary in future periods depending on energy market conditions and other related
economic factors. Based upon existing economic and market conditions, we believe that our cash on hand, operating cash flow
and available line of credit are adequate to fully fund our net capital expenditures requirements for 2022. We also believe we
have flexibility with respect to our financing alternatives and adjustments to our capital expenditure plans if circumstances
warrant. We do not have any material continuing commitments related to our current operations that cannot be met with our
cash on hand and our line of credit. However, our financing capacity could be negatively impacted by the COVID-19 pandemic.
Please see Item 1A, Risk Factors, of this report.

Off-Balance Sheet Arrangements

From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance

sheet obligations. As of December 31, 2021, we did not have any material off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides temporary optional guidance
to companies impacted by the transition away from the London Interbank Offered Rate ("LIBOR"). The guidance provides
certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging
relationships and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon
issuance and expires on December 31, 2022. We are currently evaluating the impact of the LIBOR transition and this ASU
2020-04 on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326): Measurement of
Credit Losses on Financial Instruments. The amendments to ASC Topic 326 require immediate recognition of estimated credit
losses expected to occur over the remaining life of many financial assets, including trade receivables. For companies that
qualify as smaller reporting companies, the amendments in this update are effective for interim and annual periods beginning
after January 1, 2023. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and
note disclosures.

Environmental Regulations

Various federal, state and local laws and regulations covering the discharge of materials into the environment, or
otherwise relating to protection of human safety and health and the environment, affect our operations and costs. Compliance
with these laws and regulations could cause us to incur remediation or other corrective action costs or result in the assessment
of administrative, civil and criminal penalties and the issuance of injunctions delaying or prohibiting operations. In addition, we
have acquired certain properties and plant facilities from third parties whose actions with respect to the management and
disposal or release of hydrocarbons or other wastes were not under our control. Under environmental laws and regulations, we
could be required to remove or remediate wastes disposed of or released by prior owners. In addition, we could be responsible
under environmental laws and regulations for properties and plant facilities we lease, but do not own. Compliance with such
laws and regulations increases our overall cost of business, but has not had a material adverse effect on our operations or
financial condition. It is not anticipated, based on current laws and regulations, that we will be required in the near future to
expend amounts that are material in relation to our total expenditure budget in order to comply with environmental laws and
regulations but such laws and regulations are frequently changed and we are unable to predict the ultimate cost of

compliance. We also could incur costs related to the cleanup of sites to which we send equipment and for damages to natural
resources or other claims related to releases of regulated substances at such sites.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and supplementary financial data are included in this Annual Report on Form

10-K beginning on page F-1.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our
President and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of the design of
our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended or, the “Exchange Act”) as of December 31, 2021, pursuant to Exchange Act Rule 13a-15.
Based upon that evaluation, the President and Chief Executive Officer and our Vice President and Chief Financial Officer
concluded that our disclosure controls and procedures as of December 31, 2021, are effective to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules and forms and include controls and procedures
designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our
management, including our principal executive and financial officers as appropriate to allow timely decisions regarding
required disclosures. Due to the inherent limitations of control systems, not all misstatements may be detected. Those inherent
limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of
simple errors or mistakes. Additionally, controls could be circumvented by the individual acts of some persons or by collusion
of two or more people. Our controls and procedures can only provide reasonable, not absolute, assurance that the above
objectives have been met.

Management’s Report on Internal Control Over Financial Reporting

Our management, including the President and Chief Executive Officer and our Principal Accounting Officer, is
responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America, and that our receipt and
expenditures are being made only in accordance with authorizations of management and our Board of Directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. A system of internal control may
become inadequate over time because of changes in conditions or deterioration in the degree of compliance with the policies or
procedures. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.

Management, including our President and Chief Executive Officer and our Vice President and Chief Financial Officer,
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control—Integrated Framework (2013). Based on this assessment, management has concluded
that our internal control over financial reporting was effective as of December 31, 2021.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended
December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting. We will continue to review and document our disclosure controls and procedures, including our internal control over
financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our
systems evolve with our business.

ITEM 9B.

OTHER INFORMATION

None.

ITEM 9C.

DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to the sections “Election of
Directors,” “Executive Officers,” “Corporate Governance” and “The Board of Directors and its Committees” in our definitive
proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2021 or
as such period may be extended by action of the Securities and Exchange Commission.

We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees. The
Code of Business Conduct and Ethics is posted in the "Investor Relations" section of our website at www.ngsgi.com. The Code
of Business Conduct and Ethics maybe obtained free of charge by writing before to Natural Gas Services Group, Inc., Attn:
Investor Relations, 404 Veterans Airpark Lane, Ste 300 Midland, TX 79705.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the section “Executive Compensation”
in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after
December 31, 2021 or as such period may be extended by action of the Securities and Exchange Commission.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the section “Principal Shareholders and
Security Ownership of Management” in our definitive proxy statement which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 2021 or as such period may be extended by action of the Securities and
Exchange Commission.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The information required by this item is incorporated herein by reference to the sections “Related Person
Transactions” and “Corporate Governance” in our definitive proxy statement which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 2021 or as such period may be extended by action of the Securities
and Exchange Commission.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the section “Principal Accounting Fees
and Services” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120
days after December 31, 2021 or as such period may be extended by action of the Securities and Exchange Commission.

PART IV

ITEM 15.

EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENTS

The following documents are filed as part of this Annual Report on Form 10-K:

(a)(1) and (a)(2) Consolidated Financial Statements

For a list of Consolidated Financial Statements, see “Index to Consolidated Financial Statements” incorporated herein
by reference.

(a)(3) Exhibits

A list of exhibits to this Annual Report on Form 10-K is set forth below:

Exhibit No. Description

3.1

3.2

4.1

4.2

4.3

10.1

10.2

10.3

10.4

10.5

10.6

10.7

Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of the 10-QSB filed and dated
November 10, 2004).
Bylaws, as amended (Incorporated by reference to Exhibit 3.11 of the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 21, 2016.)
Description of Securities (Incorporated by reference to the Registrant's Registration Statement on From 8-A, filed
with the SEC on October 27, 2008.)
Form of Senior Indenture (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on
From S-3 (No. 333-261091) and filed on November 16, 2021)
Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.4 of the Registrant's Registration
Statement on Form S-3 (No. 333-261091) and filed on November 16, 2021

2019 Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-
K dated June 20, 2019 and filed with the Securities and Exchange Commission on June 21, 2019.)
Stock Option Plan, as amended and restated (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2016.)
Amended and restated Employment Agreement dated April 27, 2015 between Natural Gas Services Group, Inc. and
Stephen C. Taylor (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 29, 2015.)
The Executive Nonqualified Excess Plan Adoption Agreement, referred to as the Nonqualified Deferred
Compensation Plan (Incorporated by reference to Exhibit 10.11 of the Registrant's Quarterly report on Form 10-Q
filed with the Securities and Exchange Commission on May 6, 2016.)
Credit Agreement dated as of May 11, 2021, among the Natural Gas Services Group, Inc. and NGSG Properties,
LLC, a Colorado limited liability company, the banks and other financial institutions identified therein as Lenders
from time to time party thereto and Texas Capital Bank, National Association, as Administrative Agent, Swing Line
Lender and L/C Issuer.
Pledge and Security Agreement dated as of May 11, 2021, among Natural Gas Services Group, Inc., the Loan
Parties (as defined therein) and Texas Capital Bank, National Association, as Administrative Agent.
Note dated as of May 11, 2021, by Natural Gas Services Group, Inc. in favor of Texas Capital Bank, National
Association, as Lender.

10.8

*21.1

*23.1

*31.1

*31.2

*32.1

Annual Incentive Bonus Plan (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December 18, 2012.)
Subsidiaries of the registrant
Consent of Moss Adams LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*32.2
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

ITEM 16.

FORM 10-K SUMMARY

None.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly

caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

March 18, 2022

NATURAL GAS SERVICES GROUP, INC.

By: /s/ Stephen C. Taylor
Stephen C. Taylor
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Stephen C. Taylor and Micah C. Foster, jointly and severally, as his/her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby
ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the

following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature
/s/ Stephen C. Taylor

Stephen C. Taylor

/s/ Micah C. Foster
Micah C. Foster

/s/ Leslie A. Beyer
Leslie A. Beyer

/s/ Nigel J. Jenvey
Nigel J. Jenvey

/s/ David L. Bradshaw

David L. Bradshaw

/s/ John W. Chisholm

John W. Chisholm

Title

Date

Chairman of the Board of Directors, Chief Executive
Officer and President (Principal Executive Officer)

March 18, 2022

Vice President and Chief Financial Officer (Principal
Accounting Officer)

March 18, 2022

Director

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (Moss Adams, LLP; Dallas, Texas; PCAOB ID
659)

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

Page

F-1

F-2

F-3

F-4

F-5

F-6

[This page intentionally left blank]

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of
Natural Gas Services Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Natural Gas Services Group, Inc. and subsidiary (the
“Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity,
and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We
determined that there are no critical audit matters.

/s/ Moss Adams LLP

Dallas, Texas
March 18, 2022

We have served as the Company's auditor since 2020.

F - 1

NATURAL GAS SERVICES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

ASSETS

Current Assets:
Cash and cash equivalents
Trade accounts receivable, net of allowance for doubtful accounts of $1,129 and $1,161,
respectively
Inventory
Federal income tax receivable
Prepaid income taxes
Prepaid expenses and other
Total current assets

Long-Term Inventory, net of allowance for obsolescence of $64 and $221, respectively

Rental equipment, net of accumulated depreciation of $172,563 and $175,802,
respectively
Property and equipment, net of accumulated depreciation of $15,784 and $13,916,
respectively
Right of use assets - operating leases, net of accumulated amortization $555 and $356,
respectively
Intangibles, net of accumulated amortization of $2,134 and $2,008, respectively
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable
Accrued liabilities
Line of credit
Current operating leases
Deferred income
Total current liabilities
Deferred income tax liability
Long-term operating leases
Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, 5,000 shares authorized, no shares issued or outstanding

Common stock, 30,000 shares authorized, par value $0.01; 13,394 and 13,296 shares
issued, respectively
Additional paid-in capital
Retained earnings
Treasury shares, at cost, 775 shares and 38, respectively

Total stockholders' equity
Total liabilities and stockholders' equity

December 31,

2021

2020

22,942 $

28,925

10,389
19,329
11,538
51
854
65,103
1,582

11,884
19,926
11,538
66
379
72,718
1,065

206,985

207,585

20,828

21,749

285
1,025
2,698
298,506 $

483
1,151
2,050
306,801

4,795 $
14,103
—
68
1,312
20,278
39,288
217
2,813
62,596

2,373
6,770
417
198
1,103
10,861
41,890
285
2,221
55,257

—

134
114,017
130,103
(8,344)
235,910
298,506 $

133
112,615
139,286
(490)
251,544
306,801

See accompanying notes to these consolidated financial statements.

F - 2

NATURAL GAS SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)

Revenue:
Rental income
Sales
Service and maintenance income
Total revenue
Operating costs and expenses:
Cost of rentals, exclusive of depreciation stated separately below
Cost of sales, exclusive of depreciation stated separately below
Cost of service and maintenance, exclusive of depreciation stated separately below
Selling, general and administrative expenses
Depreciation and amortization
Inventory allowance
Retirement of rental equipment
Total operating costs and expenses
Operating loss
Other income (expense):
Interest expense
Other income
Total other income, net
Loss before income taxes:
(Provision for) benefit from income taxes:
Current
Deferred
Total income tax benefit
Net income (loss)

Earnings (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted

For the Years Ended
December 31,

2021

2020

63,624 $
6,882
1,914
72,420

36,638
7,829
898
10,762
25,397
208
3,096
84,828
(12,408)

(65)
687
622
(11,786)

1
2,602
2,603
(9,183) $

(0.70) $
(0.70) $

60,826
5,657
1,572
68,055

28,506
6,211
714
10,550
25,198
184
291
71,654
(3,599)

(14)
629
615
(2,984)

15,438
(10,646)
4,792
1,808

0.14
0.14

13,100
13,100

13,224
13,261

See accompanying notes to these consolidated financial statements.

F - 3

BALANCES, December 31,
2019
Compensation expense on
common stock options

Issuance of restricted stock
Compensation expense on
restricted common stock
Taxes paid related to net shares
settlement of equity awards

Net loss
BALANCES, December 31,
2020
Compensation expense on
common stock options

Issuance of restricted stock
Compensation expense on
restricted common stock
Taxes paid related to net shares
settlement of equity awards

Purchase of treasury shares

—

— —

Net loss
BALANCES, December 31,
2021

—

— —

NATURAL GAS SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

Preferred Stock Common Stock Additional
Paid-In
Shares Amount Shares Amount
Capital

Treasury Stock

Retained
Earnings

Shares Amount

Total
Stockholders'
Equity

— $ — 13,178 $

132 $ 110,573 $ 137,478

38 $

(490) $

247,693

—

— —

—

118

—

— —

—

— —

2,175

— —

—

— —

—

— —

—

(152)

— —

—

1,808 —

—

2,176

(152)

1,808

—

— 13,296

133 112,615 139,286

(490)

251,544

—

— —

—

— —

—

— —

1,737

— —

—

— —

(336)

— —

—

737

(7,854)

—

(9,183) —

—

1,738

(336)

(7,854)

(9,183)

— $ — 13,394 $

134 $ 114,017 $ 130,103

775 $ (8,344) $

235,910

See accompanying notes to these consolidated financial statements.

F - 4

NATURAL GAS SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

For the Years Ended December 31,

2021

2020

(9,183) $

1,808

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:

Depreciation and amortization
Amortization of debt issuance costs
Deferred taxes
Gain on disposal of assets
Retirement of rental equipment
Bad debt allowance
Inventory allowance
Stock-based compensation
Gain on company owned life insurance
Changes in operating assets and liabilities:

Trade accounts receivables
Inventory
Prepaid income taxes and prepaid expenses
Accounts payable and accrued liabilities
Deferred income
Other

NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of rental equipment, property and other equipment
Purchase of company owned life insurance
Proceeds from sale of property and equipment
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds of other long-term liabilities
Repayments of line of credit, net
Payments of debt issuance costs
Purchase of treasury shares
Taxes paid related to net share settlement of equity awards

NET CASH USED IN FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid
Income taxes paid

NON-CASH TRANSACTIONS

Right of use asset acquired through an operating lease

See accompanying notes to these consolidated financial statements.

F - 5

25,397
31
(2,602)
(182)
3,096
65
208
1,738
(298)

1,430
(1,277)
(460)
9,756
208
600
28,527

(25,710)
(150)
195
(25,665)

(1)
(417)
(237)
(7,854)
(336)
(8,845)
(5,983)
28,925
22,942 $

30 $
—

—

25,198
—
10,646
(284)
291
329
184
2,195
(168)

(3,107)
1,033
(11,346)
4,880
463
527
32,649

(15,257)
(296)
394
(15,159)

(5)
—
—
—
(152)
(157)
17,333
11,592
28,925

14
105

NATURAL GAS SERVICES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

Natural Gas Services Group, Inc. (the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado
corporation), is a leading provider of natural gas compression equipment and services to the energy industry. The Company
manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for oil and natural gas production
and plant facilities. NGS is headquartered in Midland, Texas, with fabrication facilities located in Tulsa, Oklahoma and
Midland, Texas, and service facilities located in major oil and natural gas producing basins in the U.S. The Company was
formed on December 17, 1998.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its subsidiary, NGSG
Properties, LLC and the rabbi trust associated with the Company’s deferred compensation plan, see Note 10. All significant
intercompany accounts and transactions for the periods presented have been eliminated in consolidation.

Use of Estimates

The preparation of our consolidated financial statements in conformity with generally accepted accounting principles
in the United States of America requires our management to make estimates and assumptions that affect the amounts reported in
these consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant
estimates include fixed asset lives, bad debt allowance and the allowance for inventory obsolescence. Additionally, NGS
conducts a yearly review of impairment of long-lived assets. Throughout the review, determining factors are based on estimates
that can significantly impact the carrying value of these assets. It is at least reasonably possible these estimates could be revised
in the near term and the revisions could be material.

Cash Equivalents and Financial Instruments

For purposes of reporting cash flows, we consider all short-term investments with an original maturity of three months
or less to be cash equivalents. We invest our cash primarily in deposits and money market funds with commercial banks. At
times, cash balances at banks and financial institutions may exceed federally insured amounts. We believe that the risk to our
cash balance is minimal because we have chosen a large regional bank with strong long-term ratings of Baa3/BBB-.

Accounts Receivable

Our trade receivables consist of customer obligations for the sale of compressors and flare systems due under normal
trade terms, and operating leases for the use of our natural gas compressors. The receivables are not collateralized except as
provided for under lease agreements. However, we typically require deposits of as much as 50% or use of progress payments
for large custom sales contracts. We perform ongoing credit evaluations of our customers and adjust credit limits based on
management's assessment of the customer's financial condition and payment history, as well as industry conditions and general
economic conditions. We continuously monitor collections and payments from our customers, and maintain a provision for
estimated credit losses based upon our historical experience and any specific customer collection issues that we have
identified. While such credit losses have historically been within our expectations and the provisions established, we cannot
guarantee that we will continue to experience the same credit loss rates that we have in the past. One customer accounted for
46% and 35% of our accounts receivable as of December 31, 2021 and 2020, respectively. A significant change in the liquidity
or financial position of this customer could have a material adverse impact on the collectability of our accounts receivable and
our future operating results. The allowance for doubtful accounts was $1.1 million and $1.2 million at December 31, 2021 and
2020, respectively. Management believes that the allowance is adequate; however, actual write-offs may exceed the recorded
allowance.

F - 6

A summary of our allowance for doubtful accounts is as follows:

($ in thousands)
Beginning balance
Accruals
Recoveries
Write-offs
Ending balance

Revenue Recognition Policy

Year Ended December 31,
2021

2020

1,161 $
65
8
(105)
1,129 $

918
329
—
(86)
1,161

Revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and
taxes collected on behalf of third parties (i.e. sales and property taxes). Revenue is recognized when a customer obtains control
of promised goods or services in an amount that reflects the consideration that we expect to receive for those goods or services.
To recognize revenue, we (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v)
recognize revenue when, or as, we satisfy the performance obligation(s). Shipping and handling costs incurred are accounted
for as fulfillment costs and are included in cost of revenues in our Consolidated Statements of Operations.

Nature of Goods and Services

The following is a description of principal activities from which the Company generates its revenue:

Rental Revenue. The Company generates revenue from renting compressors and flare systems to our customers. These
contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing
the compressor or flare during the rental contract. Our rental contracts typically range from six to 24 months, with our larger
horsepower compressors having contract terms of up to 60 months. Our revenue is recognized over time, with equal monthly
payments over the term of the contract. After the terms of the contract have expired, a customer may renew their contract or
continue renting on a monthly basis thereafter. In accordance ASC 842 – Leases, we have applied the practical expedient ASC
842-10-15-42A, which allows the Company to combine lease and non-lease components.

Sales Revenue. The Company generates revenue by the sale of custom/fabricated compressors, flare systems and parts,

as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.

Custom/fabricated compressors and flare systems - The Company designs and fabricates compressors and flares based
on the customer’s specifications outlined in their contract. Though the equipment being built is customized by the customer,
control under these contracts does not pass to the customer until the compressor or flare package is completed and shipped, or
in accordance with a bill and hold arrangements the customer accepts title and assumes the risk and rewards of ownership. We
request some of our customers to make progressive payments as the product is being built; these payments are recorded as a
contract liability on the Deferred Income line on the consolidated balance sheet until control has been transferred. These
contracts also may include an assurance warranty clause to guarantee the product is free from defects in material and
workmanship for a set duration of time; this is a standard industry practice and is not considered a performance obligation.

From time to time, upon the customer’s written request, we recognize revenue when manufacturing is complete and
the equipment is ready for shipment. At the customer’s request, we will bill the customer upon completing all performance
obligations, but before shipment. The customer will formally request we ship the equipment per their direction from our
manufacturing facility at a later specified date and that we segregate the equipment from our finished goods, such that they are
not available to fill other orders. Per the customer’s agreement change of control is passed to the customer once the equipment
is complete and ready for shipment. We have operated using bill and hold agreements with certain customers for many years,
with consistent satisfactory results for both the customer and us. The credit terms on these agreements are consistent with the
credit terms on all other sales. All control is shouldered by the customer and there are no exceptions to the customer’s
commitment to accept and pay for the manufactured equipment. Revenues recognized related to bill and hold arrangements for
the years ended December 31, 2021 and 2020 was approximately $20,000 and $852,000, respectively.

Parts - Revenue is recognized after the customer obtains control of the parts. Control is passed either by the customer
taking physical possession or the parts being shipped. The amount of revenue recognized is not adjusted for expected returns, as
our historical part returns have been de minimis.

F - 7

Exchange or rebuilding customer owned compressors - Based on the contract, the Company will either exchange a
new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor. Revenue is
recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e.,
by physical delivery, delivery and installment, or shipment of the compressor.

Used compressors or flares - From time to time, a customer may request to purchase a used compressor or flare out of
our rental fleet. Revenue from the sale of rental equipment is recognized when the control has passed to the customer based on
the terms of the contract, i.e. when the customer has taken physical possession or the equipment has been shipped.

Service and Maintenance Revenue. The Company provides routine or call-out services on customer owned equipment.

Revenue is recognized after services in the contract are rendered.

Payment terms for sales revenue and service and maintenance revenue discussed above are generally 30 to 60 days
although terms for specific customers can vary. Also, the transaction prices are not subject to variable consideration constraints.

Disaggregation of Revenue

The following table shows the Company's revenue disaggregated by product or service type for the years ended:

Compressors - sales

Flares - sales

Other (Parts/Rebuilds) - sales
Service and maintenance
Total revenue from contracts with customers
Add: ASC 842 rental revenue
Total revenue

Contract Balances

Year Ended December 31,
2020
2021

(in thousands)
1,891 $
365
4,626
1,914
8,796
63,624
72,420 $

2,211
489
2,957
1,572
7,229
60,826
68,055

As of December 31, 2021 and 2020, we had the following receivables and deferred income from contracts with

customers:

Accounts Receivable

Accounts receivable - contracts with customers
Accounts receivable - ASC 842

Total Accounts Receivable
Less: Allowance for doubtful accounts
Total Accounts Receivable, net

Deferred income

December 31,

2021

2020

(in thousands)

3,354 $
8,164
11,518
(1,129)
10,389 $

1,312 $

3,243
9,802
13,045
(1,161)
11,884

1,103

The Company recognized $1.1 million in revenue for the year ended December 31, 2021 that was included in deferred
income at the beginning of 2021. For the period ended December 31, 2020, the Company recognized revenue of $73,000 from
amounts related to sales that were included in deferred income at the beginning of 2020.

The increases (decreases) of accounts receivable and deferred income were primarily due to normal timing differences

between our performance and the customers’ payments.

F - 8

Transaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2021, the Company did not have revenue related to unsatisfied performance obligations.

Contract Costs

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization
period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling,
general and administrative expense on our Consolidated Statements of Operations.

Leases

Accounting Standards Codification ("ASC") 842 requires all leases to be reported on the balance sheet as right-of-use
("ROU") assets and lease obligations. We determine if an arrangement is a lease at inception and determine lease classification
and recognize ROU assets and liabilities on the lease commencement date based on the present value of lease payments over
the lease term. As the discount rate implicit in the lease is rarely readily determinable, we estimate our incremental borrowing
rate using information available at the commencement date in determining the present value of the lease payments. We, as a
lessee, apply the practical expedient to not separate non-lease components from lease components, therefore, accounting for
each separate lease component and its associated non-lease component, as a single lease component. For each lease that 1)
contains the same timing and pattern of transfer for lease and non-lease components and 2) if the lease component, if accounted
for separately, would be classified as an operating lease, the Company has elected to not separate non-lease components from
lease components.

Major Customers and Concentration of Credit Risk

Sales and rental income from Occidental Permian, LTD. ("Oxy") in 2021 and 2020 amounted to 40% and 30% of
revenue, respectively. No other single customer accounted for more than 10% of our revenues in 2021 and 2020. Oxy's
accounts receivable balances amounted to 46% and 35% of our accounts receivable as of December 31, 2021 and 2020,
respectively. No other customers amounted to more than 10% of our accounts receivable as of December 31, 2021 and 2020.

Inventory

Inventory (current and long-term) is valued at the lower of cost and net realizable value. The cost of inventories is
determined by the weighted average method. We regularly review inventory quantities on hand and record a provision for
excess and obsolete inventory based primarily on current and anticipated customer demand and production requirements. The
Company assesses anticipated customer demand based on current and upcoming capital expenditure budgets of its major
customers as well as other significant companies in the industry, along with oil and natural gas price forecasts and other factors
affecting the industry. In addition, our long-term inventory consists of raw materials and replacement parts that remain viable
but which the Company does not expect to sell within the next year.

Rental Equipment and Property and Equipment

F - 9

Sales of equipment out of the rental fleet are included with sales revenue and cost of sales, while retirements of units
are shown a separate operating expense. Gains and losses resulting from sales and dispositions of other property and equipment
are included with other income. Maintenance and repairs are charged to cost of rentals as incurred.

Intangibles

At December 31, 2021 and 2020, NGS had intangible assets, which relate to developed technology and a trade name.
Developed technology is amortized on a straight-line basis with a useful life of 20 years, with a weighted average remaining life
of approximately four years as of December 31, 2021. NGS has an intangible asset related to the trade name of SCS which was
acquired in our acquisition of Screw Compression Systems in January 2005. This asset is not being amortized as it has been
deemed to have an indefinite life.

Our policy is to review intangibles that are being amortized for impairment when indicators of impairment are present.
In addition, it is our policy to review indefinite-lived intangible assets for impairment annually or when indicators of
impairment are present. We review intangibles through an assessment of the estimated future cash flows related to such
assets. In the event that assets are found to be carried at amounts in excess of estimated undiscounted future cash flows, then
the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying
assets.

Warranty

When warranted, we accrue amounts for estimated warranty claims based upon current and historical product warranty

costs and any other related information known. There was no warranty reserve as of December 31, 2021 and 2020.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating losses
and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. We assess the
likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery
is not probable, we establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance
in a period, we include an expense in the tax provision in the statement of income.

ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. In order to record any financial statement
benefit, we are required to determine, based on technical merits of the position, whether it is more likely than not (a likelihood
of more than 50 percent) that a tax position will be sustained upon examination, including resolution of any related appeals or
litigation processes. If that step is satisfied, then we must measure the tax position to determine the amount of benefit to
recognize in the financial statements. The tax position is measured at the largest amount of the benefit that is greater than 50
percent likely of being realized upon ultimate settlement.

Our policy regarding income tax interest and penalties is to expense those items as other expense.

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date under current market conditions. ASC Topic 820 established a
fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs
are categorized as follows:

Level 1- quoted prices in an active market for identical assets or liabilities;

F - 10

Level 2- quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for
similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other
means; and

Level 3- valuation methodology with unobservable inputs that are significant to the fair value measurement.

Management believes that the fair value of our cash and cash equivalents, trade receivables, accounts payable and line
of credit at December 31, 2021 and 2020 approximate their carrying values due to the short-term nature of the instruments or
the use of prevailing market interest rates.

Segments and Related Information

ASC 280-10-50, “Operating Segments”, define the characteristics of an operating segment as a) being engaged in
business activity from which it may earn revenue and incur expenses, b) being reviewed by the company's chief operating
decision maker (CODM) for decisions about resources to be allocated and assess its performance and c) having discrete
financial information. Although we indeed look at our products to analyze the nature of our revenue, other financial
information, such as certain costs and expenses, net income and EBITDA are not captured or analyzed by these categories. Our
CODM does not make resource allocation decisions or access the performance of the business based on these categories, but
rather in the aggregate. Based on this, management believes that it operates in one business segment.

We are engaged in the business of designing and manufacturing compressors and flares. Our compressors and flares
are sold and rented to our customers. In addition, we provide service and maintenance on compressors in our fleet and to third
parties. These business activities are similar in all geographic areas. Our manufacturing process is essentially the same for the
entire Company and is performed in house at our facilities in Midland, Texas and Tulsa, Oklahoma. Our customers primarily
consist of entities in the business of producing natural gas. The maintenance and service of our products is consistent across the
entire Company and is performed via an internal fleet of vehicles. The regulatory environment is similar in every jurisdiction in
that the most impacting regulations and practices are the result of federal energy policy.

Recently Issued Accounting Pronouncements

3. Inventory

Our inventory, net of allowance for obsolescence of $64,000 and $221,000 at December 31, 2021 and 2020,

respectively, consisted of the following:

Raw materials - current
Work-in-process
Inventory - current
Raw materials - long term (net of allowances of $64 and $221, respectively)
Inventory - total

December 31,

2021

2020

(in thousands)
17,528 $
1,801
19,329
1,582
20,911 $

18,026
1,900
19,926
1,065
20,991

F - 11

Our long-term inventory consists of raw materials that remain viable but which the Company does not expect to sell

within the next year.

Inventory Allowance

We routinely review our inventory allowance balance to account for slow moving or obsolete inventory costs that may

not be recoverable in the future.

A summary of our inventory allowance is as follows:

Year Ended December 31,

2021

2020

(in thousands)
221 $
208
(365)
64 $

24
251
(54)
221

Beginning balance
Accruals
Write-offs
Ending balance

4. Rental Equipment, Property and Equipment

Rental Equipment

Our rental equipment and associated accumulated depreciation as of December 31, 2021 and 2020, respectively,

consisted of the following:

Compressor units
Work-in-progress
Rental equipment
Accumulated depreciation
Rental equipment, net of accumulated depreciation

2021

December 31,

(in thousands)

2020

374,336 $
5,212
379,548
(172,563)
206,985 $

379,623
3,764
383,387
(175,802)
207,585

Our rental equipment has an estimated useful life between 15 and 25 years. Depreciation expense for rental equipment
was $22.9 million and $22.7 million for the year ended December 31, 2021 and 2020, respectively. During the year ended
December 31, 2021 we added 65 units to our rental fleet, 35 of which were repurchased from a significant customer who had
previously purchased these units from us under a bill and hold arrangement in prior years, but had not yet placed the units in
service.

Retirement of Rental Equipment

Company management routinely reviews its inventory of rental equipment for retirement or obsolescence. During
2021, management reviewed the rental fleet to determine which units were not of the type, configuration, make or model that
our customers are demanding or that were not cost efficient to refurbish, maintain and/or operate. As a result of this review, we
determined 263 units should be retired from our rental fleet. Accordingly, we recorded a $3.1 million loss on retirement of
rental equipment during the year ended December 31, 2021.

During our review of our rental compressor units in 2020, we determined 216 units should be retired from our rental

fleet. We recorded a $0.3 million loss on retirement of rental equipment.

F - 12

Property and Equipment

Property and equipment consists of the following at December 31, 2021 and 2020:

Land
Building
Leasehold improvements
Office equipment and furniture
Software
Machinery and equipment
Vehicles
Total
Less accumulated depreciation
Total

December 31,

Useful Lives
(Years)

2021

2020

—
39
39
5
5
7
3

($ in thousands)
1,680 $
18,977
1,197
2,016
573
3,874
8,295
36,612
(15,784)
20,828 $

1,680
18,977
1,168
2,016
573
3,653
7,598
35,665
(13,916)
21,749

Depreciation expense for property and equipment was $2.4 million and $2.3 million for the year ended December 31,

2021 and 2020, respectively.

Depreciation Expense by Product Line

The following table depicts annual depreciation expense associated with each product line as well as our corporate

activities at December 31, 2021 and 2020:

Rentals
Sales
Service & Maintenance
Corporate
Total

5. Rental Activity

December 31,

2021

2020

(in thousands)
24,423 $
281
49
476
25,229 $

24,255
281
42
495
25,073

We rent natural gas compressor packages to entities in the petroleum industry. These rental arrangements are
classified as operating leases and generally have original terms of six months to sixty months and continue on a month-to-
month basis thereafter.

Future minimum rent payments for arrangements not on a month-to-month basis at December 31, 2021 are as follows:

Years Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total

F - 13

(in thousands)
$29,583
18,684
18,277
8,739
2,614
462
$78,359

6. Leases

The Company determines if an arrangement is a lease at inception by assessing whether it conveys the right to control
the use of an identified asset for a period of time in exchange for consideration. The Company’s leases are primarily related to
property leases for its field offices. The Company's leases have remaining lease terms of one to eight years. Renewal and
termination options are included in the lease term when it is reasonably certain that the Company will exercise the option.

The Company's lease agreements do not contain any contingent rental payments, material residual guarantees or

material restrictive covenants.

Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of
lease payments over the lease term. As substantially all of the Company's leases do not provide an implicit rate, the Company
uses its incremental borrowing rate, which is based on a fully collateralized loan over the lease term, to determine the present
value of lease payments. The Company has no finance leases. The following table reflects the amounts related to leases that are
recorded on our consolidated balance sheets as of December 31, 2021 and 2020:

Classification on Consolidated
Balance Sheets

December 31,

2021

2020

Operating lease assets

Right of use assets-operating leases $

($ in thousands)
$
285

Current lease liabilities
Noncurrent lease liabilities
Total lease liabilities

Weighted average remaining lease term in years
Implicit Rate

Current operating leases
Long-term operating leases

217

285

6.6
3.4 %

483

198

285

483

1.5
3.2 %

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the year

ended December 31, 2021 was approximately $556,000.

Cash paid for amounts included in the measurement of lease liabilities

Operating lease cost (1) (2)

December 31,

2021

2020

(in thousands)

556 $

550

(1)
selling, general and administrative expenses.

Lease costs are classified on the Consolidated Statements of Operations in cost of sales, cost of compressors and

Includes costs of $346,000 for leases with terms of 12 months or less and $210,000 for leases with terms greater than
(2)
12 months for the year ended December 31, 2021. Includes costs of $333,000 for leases with terms of 12 months or less and
$217,000 for leases with terms greater than 12 months for the year ended December 31, 2020.

The following table shows the future maturities of lease liabilities:

F - 14

2022
2023
2024
2025
2026
Thereafter

Total lease payments

Less: Imputed interest

Total

Years Ending December 31,

Lease Liabilities
(in thousands)

77
38
38
38
38
92
321
(36)
285

Rent expense under such leases was $210,000 and $217,000 for the years ended December 31, 2021 and 2020,

respectively.

7. Intangibles

At December 31, 2021 and 2020, the Company had intangible assets, which relate to developed technology and a trade
name. Amortization expense recognized in each of the years ending December 31, 2021 and 2020 was $125,000. Estimated
amortization expense for the years 2022-2024 is approximately $125,000 per year. The Company has an intangible asset with a
gross carrying value of $654,000 at December 31, 2021 related to the trade name of SCS which was acquired in our acquisition
of Screw Compression Systems in January 2005. This asset is not being amortized as it has been deemed to have an indefinite
life.

The following table represents the identified intangible assets by major asset class (in thousands):

December 31, 2021

December 31, 2020

Useful
Life
(years)
$
20
Indefinite
$

Gross
Carrying
Value

Accumulated
Amortization

Net Book
Value

Gross
Carrying
Value

Accumulated
Amortization

Net Book
Value

2,505 $
654
3,159 $

2,134 $
—
2,134 $

371
654
1,025

2,505 $
654
3,159 $

2,008 $
—
2,008 $

497
654
1,151

Developed Technology
Trade Name

Total

Our policy is to review intangibles that are being amortized for impairment when indicators of impairment are
present. In addition, it is our policy to review indefinite-lived intangible assets for impairment annually or when indicators of
impairment are present. We review intangibles through an assessment of the estimated future cash flows related to such
assets. In the event that assets are found to be carried at amounts in excess of estimated undiscounted future cash flows, then
the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying
assets. Based upon our analysis, we experienced no impairment of intangible assets during the years ended December 31, 2021
or 2020.

8. Credit Facility

Previous Credit Agreement

New Credit Agreement

F - 15

On May 11, 2021, we entered into a five year senior secured revolving credit agreement ("New Credit Agreement")
with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $20 million and an accordion
feature that would increase the maximum commitment to $30 million, subject to collateral availability. We also have a right to
request from the Lender, on an uncommitted basis, an increase of up to $30 million on the aggregate commitment; provided,
however, the aggregate commitment amount is not permitted to exceed $50 million. The maturity date of the New Credit
Agreement is May 11, 2026. The obligations under the New Credit Agreement are secured by a first priority lien on a variety of
our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.

Events of Default and Acceleration. The New Credit Agreement contains customary events of default for credit
facilities of this size and type, and includes, without limitation, payment defaults; defaults in performance of covenants or other
agreements contained in the Credit Agreement and the other transaction documents; inaccuracies in representations and
warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company
indebtedness in excess of $1.0 million; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of
$1.0 million; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured
revolving credit agreement. Obligations outstanding under the Credit Agreement may be accelerated upon the occurrence of an
event of default.

As of December 31, 2021, we were in compliance with all financial covenants in our New Credit Agreement. At

December 31, 2021, we had no amounts outstanding under the New Credit Agreement.

F - 16

9. Income Taxes

The (provision for) benefit from income taxes for the years ended December 31, 2021 and 2020, consists of the

following (in thousands):

Current benefit:
Federal benefit
State (expense) benefit
Total current benefit

Deferred benefit:
Federal benefit (expense)
State benefit (expense)
Total deferred benefit (expense)
Total benefit

2021

2020

— $
1
1

1,991
611
2,602
2,603 $

15,587
(149)
15,438

(10,234)
(412)
(10,646)
4,792

The effective tax rate for the years ended December 31, 2021 and 2020, differs from the statutory rate as follows:

Statutory rate
State and local taxes
Stock based compensation
Nondeductible compensation
Effect of CARES Act
Other
Effective rate
Effective rate

2021

2020

21.0 %
5.2 %
(0.7) %
(3.6) %
— %
0.2 %
22.1 %
22.1 %

21.0 %
(17) %
(13.1) %
(11.6) %
180.3 %
0.5 %
160.1 %
160.1 %

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response
to the economic impact caused by the COVID-19 pandemic. The CARES Act, among other things, permits federal income tax
net operating loss ("NOL") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before
2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five
preceding taxable years to generate a refund of previously paid federal income taxes. The Company generated significant NOLs
during 2018 and 2019 and filed carryback claims for these losses to the preceding five years. Accordingly, as of March 31,
2020, the Company recorded a federal income tax receivable of $15.0 million and an increase to its deferred tax liability of
$10.1 million on its condensed balance sheet. During the third quarter of 2020, the Company received refunds corresponding
to the 2018 NOL carryback, leaving a balance in the federal income tax receivable of $11.5 million at December 31, 2021.

F - 17

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and

(liabilities) as of December 31, 2021 and 2020, are as follows (in thousands):

Deferred income tax assets:
Net operating loss
Research and development credits
Stock compensation
Deferred compensation
Other
Total deferred income tax assets
Deferred income tax liabilities:
Property and equipment
Goodwill and other intangible assets
Total deferred income tax liabilities
Net deferred income tax liabilities

2021

2020

5,355 $
1,363
114
632
515
7,979

(47,044)
(223)
(47,267)
(39,288) $

3,361
1,363
175
705
398
6,002

(47,626)
(266)
(47,892)
(41,890)

As of December 31, 2021, the Company had NOL carryforwards for federal income tax purposes of $20.8 million,
which may be carried forward indefinitely and can offset up to 80% of future taxable income in any given year. Future changes
in ownership, as defined by Section 382 of the Internal Revenue Code ("IR"), could limit the amount of NOL carryforwards
used in any one year. In general, under Section 382 and 383 of the IRC, a corporation that undergoes an “ownership change” is
subject to limitations on its ability to utilize its pre-change NOLs and certain tax credits, to offset future taxable income and tax.
In general, an ownership change occurs if the aggregate stock ownership of certain stockholders changes by more than 50
percentage points over such stockholders’ lowest percentage of ownership during the testing period (generally three years).

We account for uncertain tax positions in accordance with guidance in FASB ASC 740, which prescribes the minimum
recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in
the financial statements. The Company assessed whether it had any uncertain tax positions related to open tax years and
concluded there were none. Accordingly, no reserve for uncertain tax positions has been recorded as of December 31, 2021 and
2020.

Our policy regarding income tax interest and penalties is to expense those items as incurred. During the years ended

December 31, 2021 and 2020, there were no significant income tax interest or penalty items in the statement of operations.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, we are

no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2015.

10. Deferred Compensation Plans

Effective January 1, 2016, the Company established a non-qualified deferred compensation plan for executive officers,
directors and certain eligible employees. The assets of the deferred compensation plan are held in a rabbi trust and are subject to
additional risk of loss in the event of bankruptcy or insolvency of the Company. The plan allows for deferral up to 90% of a
participant’s base salary, bonus, commissions, director fees and restricted stock awards. A Company owned life insurance
policy held in a rabbi trust is utilized as a source of funding for the plan. The cash surrender value of the life insurance policy is
$2.5 million and $2.0 million as of December 31, 2021 and 2020, respectively, with a gain related to the policy of $298,000 and
$168,000 reported in other income in our consolidated statement of operations for the year ended December 31, 2021 and 2020,
respectively.

For deferrals of base salary, bonus, commissions and director fees, settlement payments are made to participants in
cash, either in a lump sum or in periodic installments. The deferred obligation to pay the deferred compensation and the
deferred director fees is adjusted to reflect the positive or negative performance of investment measurement options selected by
each participant and was $2.8 million and $2.2 million as of December 31, 2021 and 2020, respectively. The deferred obligation
is included in other long-term liabilities in the consolidated balance sheets.

For deferrals of restricted stock units, the plan does not allow for diversification, therefore, distributions are paid in
shares of our common stock and the obligation is carried at grant value. As of December 31, 2021 and 2020, respectively, we

F - 18

have 17,248 and 45,998 unvested restricted stock units being deferred. As of December 31, 2021 and 2020, respectively we
have released and issued 174,452 and 145,702 shares to the deferred compensation plan with a value of $2.5 million and $2.2
million, respectively.

11. Stockholders' Equity

Preferred Stock

We have a total of 5.0 million authorized preferred shares which may be issued in series with rights and preferences
as designated by the Board of Directors. As of December 31, 2021 and 2020, there were no issued or outstanding preferred
shares.

12. Stock-Based and Other Long-Term Incentive Compensation

Restricted Stock

On June 20, 2019, at our annual meeting of shareholders, our shareholders approved an Equity Incentive Plan for
restricted shares/units, stock options and other equity awards. The Equity Incentive Plan allows issuance up to 500,000 share of
common stock. As of December 31, 2021, we had 276,319 shares outstanding under the Equity Incentive Plan that will vest
over the next three years. As of December 31, 2021, 47,135 shares were still available for issuance under the Equity Incentive
Plan.

On March 18, 2021, the Compensation Committee awarded 129,212 shares of restricted common stock to two
executive officers that vest ratably over three years, beginning on March 18, 2022. On June 17, 2021, the Compensation
Committee awarded 5,000 shares of restricted common stock to an executive officer that vest ratably over three years beginning
on June 17, 2022. In addition, on March 18, 2021, 5,612 shares of restricted common stock were awarded to each of our three
independent Board members. Lastly, on April 1, 2021, 5,291 shares of restricted common stock were awarded to a newly
appointed independent Board member. The restricted stock issued to our directors vests in one year from the date of grant.

Compensation expense related to the restricted shares was approximately $1.7 million and $2.2 million for the years
ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was a total of approximately $1.4 million of
unrecognized compensation expense related to the unvested portion of these restricted shares/units. This expense is expected to
be recognized over the next three years.

A summary of all restricted stock activity as of December 31, 2020 and 2021 and changes during the years then ended

are presented below.

Outstanding, December 31, 2019

Granted
Vested
Canceled/Forfeited

Outstanding, December 31, 2020

Granted
Vested
Canceled/Forfeited

Outstanding, December 31, 2021

Other Long-Term Incentive Compensation

Number
of
Shares

Grant Date
Fair Value

279,766 $
123,185 $
(144,850) $
—
258,101 $
156,339 $
(134,788) $
(3333) $
276,319 $

20.15
5.68
20.82
—
12.87
8.99
14.94
12.26
9.67

Weighted
Average
Remaining
Contractual
Life (years)

Aggregate
Intrinsic
Value
(in thousands)
3,430
700
946
—
2,447
1,406
1,258
31
2,893

8.77 $
— $
— $
—
8.61 $
— $
— $
— $
1.77 $

On April 28, 2020, the Compensation Committee issued a long-term incentive award of $1.1 million to an executive
officer that vests in equal, annual tranches over three years. At the time of vesting, each tranche will be payable in cash or
common stock at the discretion of the Compensation Committee. On March 18, 2020, the Compensation Committee issued a
long-term incentive award of $1.0 million to an executive officer that vests in equal, annual tranches over three years. In

F - 19

addition, on April 28, 2020, we issued a $50,000 award to each of our four independent members of our Board of Directors as
partial payment for their services in 2020. These awards vest one year from the date of grant and are payable in cash upon
vesting. On March 18, 2021, we issued a $50,000 award to each of our three independent Board members. On April 1, 2021, we
issued a $50,000 award to a newly appointed independent Board member. These awards vest one year from the date of grant
and are payable in cash upon vesting. The Company accounts for these other long-term incentive awards as liabilities under
accrued liabilities on our condensed consolidated balance sheet. The vesting of these awards is subject to acceleration upon
certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of
the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive
officers, resignation for good reason (as defined). Total compensation expense related to these other long-term incentive awards
was approximately $0.8 million for the year ended December 31, 2021. As of December 31, 2021 there was a total of $1.2
million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be
recognized over the next three years.

Stock Option Plan

Our Stock Option Plan, which is stockholder approved, permits the granting of stock options to its employees for up to
1.0 million shares of common stock. We believe that such awards align the interests of our employees with our
stockholders. Option awards are generally granted with an exercise price equal to the market price of our stock at the date of
grant; those option awards generally vest in equal increments over three years of continuous service and have ten-year
contractual terms. Certain option and share awards provide for accelerated vesting if there is a change in control of the
Company (as defined in the Stock Option Plan). The last date that grants can be made under the Stock Option Plan is February
28, 2026. As of December 31, 2021, 345,003 shares were still available to be granted under the Stock Option Plan.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model
that uses the assumptions noted in the following table. The risk-free rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of options granted is based on the
vesting period and historical exercise and post-vesting employment termination behavior for similar grants. We use historical
data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have
similar historical exercise behavior are considered separately for valuation purposes.

Weighted average Black -Scholes fair value assumption during the year ended December 31, are as follows:

2021

Risk free rate

Expected life

Expected volatility

Expected dividend yield

During the year ended December 31, 2021, 55,500 stock option grants were made.

1.45 %

6.86

46.8 %

— %

F - 20

A summary of all option activity as of December 31, 2020 and 2021 and changes during the years then ended are

presented below:

Outstanding, December 31, 2019

Granted

Exercised

Canceled/Forfeited

Expired

Outstanding, December 31, 2020

Granted

Exercised

Canceled/Forfeited

Expired

Outstanding, December 31, 2021
Exercisable, December 31, 2021

Number
of
Shares

Weighted
Average
Exercise
Price

208,334 $
5,000 $
—
(12,000) $
(40,000) $
161,334 $
55,500 $
—
—
(16,000) $
200,834 $
145,334 $

23.67
4.91
—
20.20
19.11
24.48
10.58
—
—
17.81
21.17
25.21

Weighted
Average
Remaining
Contractual
Life (years)

Aggregate
Intrinsic
Value
(in thousands)
—
—
—
24
—
—
—
—
—
—
—
—

3.66 $
—
—
— $
—
3.48
—
—
—
—
4.83 $
2.86 $

The weighted average grant date fair value of options granted during 2021 was $5.15 per option. We had no grants in

2020. There were no option exercises in either 2021 or 2020.

The following table summarizes information about our stock options outstanding at December 31, 2021:

Range of Exercise Prices

Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)

Weighted
Average
Exercise
Price

$0.01-$18.00
$18.01-$22.00

$22.01-$26.00

$26.01-$30.00

$30.01-$34.00

64,000
20,500
42,167
30,000
44,167
200,834

8.68 $
1.22
3.28
5.13
2.22
4.83 $

11.15
18.75
22.90
28.15
30.41
21.17

Options Exercisable

Weighted
Average
Exercise
Price

8,500 $
20,500 $
42,167 $
30,000 $
44,167 $
145,334 $

14.89
18.75
22.90
28.15
30.41
25.21

The summary of the status of our unvested stock options as of December 31, 2021 and changes during the year then

ended is presented below.

Unvested stock options:
Unvested at December 31, 2020

Granted
Vested
Canceled/Forfeited

Unvested at December 31, 2021

Weighted
Average
Grant Date
Fair Value

— $
55,500 $
—
—
55,500 $

—
10.58
—
—
10.58

We recognized stock compensation expense from stock options vesting of $728 and $19,366 for the years ended
December 31, 2021 and 2020, respectively. As of December 31, 2021, there was $247,000 of unamortized compensation cost

F - 21

related to unvested stock options.

13. (Loss) Earnings per Share

Basic (loss) earnings per common share is computed using the weighted average number of common shares
outstanding during the period. Diluted (loss) earnings per common share is computed using the weighted average number of
common stock and common stock equivalent shares outstanding during the period.

The following table sets forth the computation of basic and diluted (loss) earnings per share (in thousands, except per

share amounts):

Numerator:
Net (loss) income
Denominator for basic net (loss) income per common share:
Weighted average common shares outstanding
Denominator for diluted net (loss) income per share:
Weighted average common shares outstanding
Dilutive effect of stock options and restricted shares
Diluted weighted average shares
(Loss) earnings per common share:
Basic
Diluted

Year Ended December 31,

2021

2020

(9,183) $

1,808

13,100

13,224

13,100
—
13,100

13,224
37
13,261

$
$

(0.70) $
(0.70) $

0.14
0.14

In the year ended ended December 31, 2021, 276,319 restricted stock/units and 200,834 stock options were not
included in the computation of dilutive income per share, due to their anti-dilutive effect. In the year ended ended December 31,
2020, 221,061 restricted stock/units and 161,334 stock options were not included in the computation of diluted loss per share
due to their antidilutive effect.

14. Commitments and Contingencies

Legal Proceedings

From time to time, we are a party to various legal proceedings in the ordinary course of our business. While
management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these
actions will not have a material effect on our financial position, results of operations or cash flow. We are not currently a party
to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any other threatened
litigation.

15. Subsequent Events

None.

F - 22

Exhibit 21.1

Subsidiaries of the Registrant

Listed below are subsidiaries of Natural Gas Services Group, Inc. with their jurisdiction of organization shown in parenthesis:

NGSG Properties, LLC (Colorado)
Rabbi Trust associated with the Company's Non-qualified Deferred Compensation Plan (Texas)

Consent of Independent Registered Public Accounting Firm

Exhibit 23.1

Natural Gas Services Group, Inc.
Midland, Texas

We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-261091 and Form S-8 Nos. 333-232269, 333-
212411, 333-160063, 333-147311, and 333-110954) of our report dated March 18, 2022, relating to the consolidated financial statements of
Natural Gas Services Group, Inc. which report expresses an unqualified opinion, appearing in this Annual Report (Form 10-K) for the year
ended December 31, 2021.

/s/ Moss Adams LLP

Dallas, Texas
March 18, 2022

Exhibit 31.1

I, Stephen C. Taylor, certify that:

I have reviewed this Annual Report on Form 10-K of Natural Gas Services Group, Inc;

Certifications

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the

effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and

1. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to

the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are

reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal

control over financial reporting.

Dated: March 18, 2022

Natural Gas Services Group, Inc.

By: /s/ Stephen C. Taylor
Stephen C. Taylor,
President, CEO and Chairman of the Board of Directors
(Principal Executive Officer)

Exhibit 31.2

I, Micah C. Foster, certify that:

1. I have reviewed this Annual Report on Form 10-K of Natural Gas Services Group, Inc;

Certifications

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the

effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are

reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal

control over financial reporting.

Dated: March 18, 2022

Natural Gas Services Group, Inc.

By: /s/ Micah C. Foster
Micah C. Foster
Vice President and Chief Financial Officer
(Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Natural Gas Services Group, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2021 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen C. Taylor, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 18, 2022

Natural Gas Services Group, Inc.

By: /s/ Stephen C. Taylor
Stephen C. Taylor,
President, CEO and Chairman of the Board of Directors
(Principal Executive Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Natural Gas Services Group, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2021 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Micah C. Foster, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 18, 2022

Natural Gas Services Group, Inc.

By: /s/ Micah C. Foster
Micah C. Foster
Vice President and Chief Financial Officer
(Principal Accounting Officer)

EXECUTIVE OFFICERS
&
DIRECTORS

JOHN W. CHISHOLM
Interim President, CEO and Director

MICAH C. FOSTER
Vice President and Chief Financial
Officer

STEPHEN C. TAYLOR
Chairman of the Board, Former
President and CEO

JAMES R. HAZLETT
Vice President –Technical Services

DAVID L. BRADSHAW
Lead Director
Oil and Gas Investor, Former
Chairman and CEO, Tipperary
Corporation

NIGEL J. JENVEY
Director
Executive – Strategy & Growth
Initiatives, Baker Hughes

LESLIE A. BEYER
Director
Chief Executive Officer,
Energy Workforce & Technology
Council

LEGAL COUNSEL
David A. Thayer
Jones & Keller, P.C.
1999 Broadway, Suite #3150
Denver, Colorado 80202

INDEPENDENT AUDITORS
Moss Adams LLP
14555 Dallas Parkway, Suite 300
Dallas, Texas 75254

INVESTOR RELATIONS
Alicia M. Dada
Natural Gas Services Group
Investor Relations Coordinator

STOCK TRANSFER AGENT
Computershare
8742 Lucent Blvd. Suite 225
Highlands Ranch, CO 80129

Photo credit: Keith Talley

ABOUT NATURAL GAS SERVICES GROUP, INC.: Headquartered in Midland TX, Natural Gas Services Group (NGS) maintains a
growing rental fleet of high quality rotary screw and reciprocating wellhead compressors in the 50-1500 horsepower range.
Repair and maintenance services for our rental fleet units are provided through a network of district offices in Midland,
Bridgeport and Godley TX, Farmington NM, Vernal UT, Tulsa OK, Carrollton OH and Lewiston MI. Additionally, the Company
designs, fabricates, sells, installs and services gas compression and technologically advanced flare and combustion systems in our
custom fabrication facilities in Midland TX and Tulsa OK.

(432) 262-2700 404 VETERANS AIRPARK LANE, SUITE 300 MIDLAND, TX 79705 WWW.NGSGI.COM