UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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: 001-38383
Quintana Energy Services Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
82-1221944
(I.R.S. Employer
Identification No.)
1415 Louisiana Street, Suite 2900
Houston, TX 77002
(832) 518-4094
(Address, including zip code, and telephone number, including area code, of principal executive offices of registrant)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.01 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-
T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be
contained, to the best of the 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. ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☒
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. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant on the last business day of the Registrant’s most recently completed
second fiscal quarter (based on the closing sales price on the New York Stock Exchange on June 30, 2018) was $65.0 million.
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at March 1, 2019, was 33,907,414.
Portions of the Registrant’s proxy statement for its annual meeting of stockholders to be held on May 14, 2019, which proxy statement will be filed with the Securities
Exchange Commission within 120 days of December 31, 2018, are incorporated by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE:
QUINTANA ENERGY SERVICES INC.
FORM 10-K
TABLE OF CONTENTS
PART I
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 II
Item 5. Market for Registrant's Common Equity, Related Shareholder 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 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder 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 Statement Schedules
Item 16. Form 10-K Summary
Signatures
i
4
14
35
36
37
37
37
38
38
53
54
81
81
82
82
82
82
82
82
83
85
86
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K for the year ended December 31, 2018 (this "Annual Report”) contains forward-looking statements that are subject to a number of risks
and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this Annual Report, regarding our strategy,
future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When
used in this Annual Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-
looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations
and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in this Annual Report. These
forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events.
Forward-looking statements may include statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our business strategy;
our operating cash flows, the availability of capital and our liquidity;
our future revenue, income and operating performance;
uncertainty regarding our future operating results;
our ability to sustain and improve our utilization, revenue and margins;
our ability to maintain acceptable pricing for our services;
our future capital expenditures;
our ability to finance equipment, working capital and capital expenditures;
competition and government regulations;
our ability to obtain permits and governmental approvals;
pending legal or environmental matters;
loss or corruption of our information in a cyberattack on our computer systems;
the supply and demand for oil and natural gas;
the ability of our customers to obtain capital or financing needed for exploration and production (“E&P”) operations;
business acquisitions;
general economic conditions;
credit markets;
the occurrence of a significant event or adverse claim in excess of the insurance we maintain;
seasonal and adverse weather conditions that can affect oil and natural gas operations;
our ability to successfully develop our research and technology capabilities and implement technological developments and enhancements; and
1
•
plans, objectives, expectations and intentions contained in this Annual Report that are not historical.
We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond
our control. These risks include, but are not limited to, decline in demand for our services, the cyclical nature and volatility of the oil and natural gas industry, a decline in,
or substantial volatility of, crude oil and natural gas commodity prices, environmental risks, regulatory changes, the inability to comply with the financial and other
covenants and metrics in our New ABL Facility (as defined below), cash flow and access to capital, the timing of development expenditures and the other risks described
under “Risk Factors” in this Annual Report. For more information on our New ABL Facility, please see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Our Credit Facility section.”
Should one or more of the risks or uncertainties described in this Annual Report or any other risks or uncertainties of which we are currently unaware occur, or should
underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Annual Report are expressly qualified in their entirety by this cautionary statement. This cautionary
statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in
this section, to reflect events or circumstances after the date of this Annual Report.
GLOSSARY OF SELECTED TERMS
Basin. A large geography of oil and gas deposits generally understood in the industry.
Bbl. Stock tank barrel, or 42 U.S. gallons liquid volume, used in this Annual Report in reference to crude oil or other liquid hydrocarbons.
British thermal unit. The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
Cementing. To prepare and pump cement into place in a wellbore.
Completion. The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole,
the reporting of abandonment to the appropriate agency.
Crude oil. Liquid hydrocarbons retrieved from geological structures underground to be refined into fuel sources.
Directional drilling. The intentional deviation of a wellbore from the path it would naturally take. This is accomplished through the use of whipstocks, bottomhole assembly
(“BHA”) configurations, instruments to measure the path of the wellbore in three-dimensional space, data links to communicate measurements taken downhole to the
surface, mud motors and special BHA components and drill bits, including rotary steerable systems, and drill bits. The directional driller also exploits drilling parameters
such as weight on bit and rotary speed to deflect the bit away from the axis of the existing wellbore. In some cases, such as drilling steeply dipping formations or
unpredictable deviation in conventional drilling operations, directional-drilling techniques may be employed to ensure that the hole is drilled vertically. While many
techniques can accomplish this, the general concept is simple: point the bit in the direction that one wants to drill. The most common way is through the use of a bend near
the bit in a downhole steerable mud motor. The bend points the bit in a direction different from the axis of the wellbore when the entire drillstring is not rotating. By
pumping mud through the mud motor, the bit turns while the drillstring does not rotate, allowing the bit to drill in the direction it points. When a particular wellbore
direction is achieved, that direction may be maintained by rotating the entire drillstring (including the bent section) so that the bit does not drill in a single direction off the
wellbore axis, but instead sweeps around and its net direction coincides with the existing wellbore. Rotary steerable tools allow steering while rotating, usually with higher
rates of penetration and ultimately smoother boreholes.
Drillstring. The combination of the drillpipe, the BHA and any other tools used to make the drill bit turn at the bottom of the wellbore.
EM. Electromagnetic navigational systems used in directional drilling.
E&P. Exploration and production of oil and natural gas.
Field. An area consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic
condition.
HHP. Hydraulic horsepower.
Horizontal drilling. A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at approximately a right angle with a
specified interval.
Horizontal wells. Wells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.
2
Hydraulic fracturing. A stimulation treatment routinely performed on oil and natural gas wells in low permeability reservoirs. Specially engineered fluids are pumped at
high pressure and rate into the reservoir interval to be treated, causing a vertical fracture to open. The wings of the fracture extend away from the wellbore in opposing
directions according to the natural stresses within the formation. Proppant, such as grains of sand of a particular size, is mixed with the treatment fluid to keep the fracture
open when the treatment is complete. Hydraulic fracturing creates high-conductivity communication with a large area of formation and bypasses any damage that may exist
in the near-wellbore area.
Hydrocarbon. A naturally occurring organic compound comprising hydrogen and carbon. Hydrocarbons can be as simple as methane, but many are highly complex
molecules, and can occur as gases, liquids or solids. Petroleum is a complex mixture of hydrocarbons. The most common hydrocarbons are natural gas, oil and coal.
Large Diameter. A coiled tubing unit or coil tubing with a capacity of 2.38 inch units or larger.
Mcf. Thousand cubic feet of natural gas.
MMBtu. Million British thermal units.
MWD. Measurement-while-drilling.
Mud motors. A positive displacement drilling motor that uses hydraulic horsepower of the drilling fluid to drive the drill bit. Mud motors are used extensively in directional
drilling operations.
Proppant. Sized particles mixed with fracturing fluid to hold fractures open after a hydraulic fracturing treatment. In addition to naturally occurring sand grains, man-made
or specially engineered proppants, such as resin-coated sand or high-strength ceramic materials like sintered bauxite, may also be used. Proppant materials are carefully
sorted for size and sphericity to provide an efficient conduit for production of fluid from the reservoir to the wellbore.
Reserves. Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by
application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to
produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to
implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated
as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of
reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered
accumulations).
Reservoir. A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or
water barriers and is separate from other reservoirs.
Resource play. A set of discovered or prospective oil and/or natural gas accumulations sharing similar geologic, geographic and temporal properties, such as source rock,
reservoir structure, timing, trapping mechanism and hydrocarbon type.
Shale. A fine-grained, fissile, sedimentary rock formed by consolidation of clay- and silt-sized particles into thin, relatively impermeable layers.
Unconventional resource. An umbrella term for oil and natural gas that is produced by means that do not meet the criteria for conventional production. What has qualified
as “unconventional” at any particular time is a complex function of resource characteristics, the available E&P technologies, the economic environment, and the scale,
frequency and duration of production from the resource. Perceptions of these factors inevitably change over time and often differ among users of the term. At present, the
term is used in reference to oil and gas resources whose porosity, permeability, fluid trapping mechanism or other characteristics differ from conventional sandstone and
carbonate reservoirs. Coalbed methane, gas hydrates, shale gas, fractured reservoirs and tight gas sands are considered unconventional resources.
Wellbore. The physical conduit from surface into the hydrocarbon reservoir.
Wireline. A general term used to describe well-intervention operations conducted using single-strand or multi-strand wire or cable for intervention in oil or gas wells.
Although applied inconsistently, the term commonly is used in association with electric logging and cables incorporating electrical conductors.
Workover. The process of performing major maintenance or remedial treatments on an oil or gas well. In many cases, workover implies the removal and replacement of the
production tubing string after the well has been killed and a workover rig has been placed on location. Through-tubing workover operations, using coiled tubing, snubbing
or slickline equipment, are routinely conducted to complete treatments or well service activities that avoid a full workover where the tubing is removed. This operation
saves considerable time and expense.
WTI. West Texas Intermediate Spot Oil Price.
3
Item 1.
Business
Overview
Quintana Energy Services Inc. (either individually or together with its subsidiaries, as the context requires, the “Company,” “QES,” “we,” “us,” and “our”) is a Delaware
corporation that was incorporated on April 13, 2017. Our accounting predecessor, Quintana Energy Services LP (“QES LP” and “Predecessor”), was formed as a Delaware
partnership on November 3, 2014. In connection with our initial public offering (the “IPO”) which closed on February 13, 2018, the existing investors in QES LP and QES
Holdco LLC contributed all of their direct and indirect equity interests to QES in exchange for shares of common stock in QES, and we became the holding company for the
reorganized QES LP and its subsidiaries.
We are a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas E&P companies operating in conventional and unconventional plays
in all of the active major basins throughout the United States. We classify the services we provide into four reportable segments: (1) Directional Drilling, (2) Pressure
Pumping, (3) Pressure Control and (4) Wireline. Our Directional Drilling segment enables efficient drilling and guidance of the horizontal section of a wellbore using our
technologically-advanced fleet of downhole motors and 115 MWD kits. Our Pressure Pumping segment includes hydraulic fracturing, cementing and acidizing services, and
such services are supported by a high-quality pressure pumping fleet of approximately 267,500 HHP as of December 31, 2018. Our primary pressure pumping focus is on
large hydraulic fracturing jobs. Our Pressure Control segment provides various forms of well control, completions and workover applications through our 24 coiled tubing
units (10 of which are Large Diameter units), 36 rig-assisted snubbing units and ancillary equipment. As of December 31, 2018, our wireline services included 41 wireline
units providing a full range of pump-down services in support of unconventional completions, and cased-hole wireline services enabling reservoir characterization.
Our operations are diversified by our broad customer base and expansive geographical reach. We currently operate throughout all active major onshore oil and gas basins in
the United States and we served approximately 1,100 customers as of December 31, 2018. We have cultivated and maintain strong relationships with our E&P company
customers, including leading companies such as EOG Resources, Parsley Energy, Matador Resources, Pioneer Natural Resources, Seneca Energy, Triumph Energy Partners
and XTO Energy.
Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and natural gas in the United States. Industry
conditions are influenced by numerous factors, such as the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, political stability in
oil producing countries, merger and divestiture activity among oil and gas producers and changes in oil and natural gas prices. The volatility of the oil and natural gas
industry and the consequent impact on E&P activity could adversely impact the level of drilling, completion and workover activity by some of our customers. This volatility
affects the demand for our services and the price of our services.
We derive a majority of our revenues from services supporting oil and natural gas operations. As oil and natural gas prices fluctuate significantly, demand for our services
correspondingly changes as our customers must balance expenditures for drilling and completion services against their available cash flows. Because our services are
required to support drilling and completions activities, we are also subject to changes in spending by our customers as oil and natural gas prices fluctuate.
During the fourth quarter of 2018, the price of crude oil fell approximately 38.6%, with WTI closing at $45.15 per barrel on December 28, 2018. This precipitous decline in
crude oil prices had a moderate negative impact on our fourth quarter 2018 consolidated results of operations. We expect further customer-driven activity declines in early
2019 as customers reassess their budgets and plans in light of lower commodity prices. If the current pricing environment for crude oil does not improve, or declines further,
our customers may be required to further reduce their capital expenditures, causing additional declines in the demand for, and prices of, our products and services, which
would adversely affect our future results of operations, cash flows and financial position. Despite the recent decline in oil prices, demand for our services has improved
since May 2016. From the second quarter of 2016 through the fourth quarter of 2018, our Directional Drilling segment increased the number of days we provided services to
rigs and earned revenues during the period, including days that standby revenues were earned (“rig days”) by 311.4%, while day rates have improved from the lows we
experienced during the second quarter of 2016. We reactivated our second and third pressure pumping hydraulic fracturing fleets in February and October 2017, and placed
our fourth hydraulic fracturing fleet into service during June 2018. Utilization of our Pressure Control assets has also continued to improve since the second quarter of 2016.
Since 2016, we have worked to optimize our cost structure and increase efficiency to better serve our customers. As part of these cost control initiatives, we closed
unprofitable locations serving non-key regions, renegotiated supplier contracts and certain equipment leases to improve profitability and reduced general and administrative
expenses. To improve operational efficiencies, we streamlined our internal processes and further improved customer focus.
4
Our Services
We classify the services we provide into four reportable segments: (1) Directional Drilling, (2) Pressure Pumping, (3) Pressure Control and (4) Wireline. We describe each
of these segments below.
Directional Drilling
Our Directional Drilling segment is comprised of directional drilling services, downhole navigational and rental tools businesses and support services, including well
planning and site supervision, which assists customers in the drilling and placement of complex directional and horizontal wellbores. This segment utilizes its fleet of in-
house positive pulse MWD navigational tools, mud motors and ancillary downhole tools, as well as EM navigational systems. The demand for these services tends to be
influenced primarily by customer drilling-related activity levels. We provide directional drilling and associated services to E&P companies in many of the most active areas
of onshore oil and natural gas development in the United States, including the Permian Basin, Eagle Ford Shale, Mid-Continent region (including the SCOOP/STACK),
Marcellus/Utica Shale and DJ/Powder River Basin.
Our Directional Drilling segment provides the highly technical and essential services of guiding horizontal and directional drilling operations for E&P companies. We offer
premium drilling services including directional drilling, horizontal drilling, under balanced drilling, MWD and logging tools. Our package also offers various technologies,
including our positive pulse MWD navigational tool asset fleet, Q-Series Mud Motors and ancillary downhole tools, as well as EM navigational systems. We also provide a
suite of integrated and related services, including rotational gamma, pressure-while-drilling, continuous inclination and continuous azimuth.
Although we do not typically enter into long-term contracts for our services in this segment, we have long standing relationships with our customers in this segment and
believe they will continue to utilize our services. As of the quarter ended December 31, 2018, 90.2% of our directional drilling activity is tied to “follow-me rigs,” which
involve non-contractual, generally recurring services as our Directional Drilling team members follow a drilling rig from well-to-well or pad-to-pad for multiple wells or
pads, and in some cases, multiple years. With increasing use of pad drilling and reactivation of rigs, through 2018 we have increased the number of “follow me rigs” from
approximately 32 in January of 2016 to 74 as of the month ended December 31, 2018. We intend to continue to re-deploy additional MWD kits into 2019, as market
conditions warrant.
Our Directional Drilling segment accounted for approximately 31.9%, 33.2% and 35.8% of our revenues for the years ended December 31, 2018, 2017 and 2016,
respectively.
Pressure Pumping
Our Pressure Pumping segment provides hydraulic fracturing stimulation services, cementing services and acidizing services. The majority of the revenues generated in this
segment are derived from pressure pumping services focused on fracturing, cementing and acidizing services in the Mid-Continent and Rocky Mountains regions. These
pressure pumping and stimulation services are primarily used in the completion, production and maintenance of oil and gas wells. Customers for this segment include major
E&P operators as well as independent oil and gas producers. Our personnel have extensive technical expertise and customer relationships, which we believe enables us to
maintain and further expand our presence in these regions. Additionally, we believe these regions will continue to benefit from E&P companies’ increasing design of more
complex wells, with higher service intensity that increases demand for our services.
We focus on providing services for larger hydraulic fracturing jobs, but have the capability to provide a customized range of hydraulic fracturing services to meet the
particular needs of our customers. We believe our technical capabilities, depth of talent and operational flexibility allow us to accommodate the increasing requirements of
our customers’ hydraulic fracturing jobs and such strengths provide us with access to a large number of customers. In addition, many of these jobs require logistically
intensive service and mobility capabilities for which we are well suited as a result of our basin-specific experience. We believe such operational flexibility allows us to be
responsive to our customers’ needs, increasing the utilization of our assets and strengthening our existing customer relationships.
As of December 31, 2018, our Pressure Pumping fleet had a capacity of 267,500 HHP, of which 241,500 HHP was dedicated to hydraulic fracturing, 14,500 HHP was
dedicated to cementing and 11,500 HHP was dedicated to acidizing and other. As of December 31, 2018, we had 214,600 total hydraulic fracturing HHP deployed in the
Mid-Continent region. Of our total deployed HHP dedicated to hydraulic fracturing, approximately 92% is dedicated to unconventional hydraulic fracturing services in the
Mid-Continent, approximately 7% is dedicated to hydraulic fracturing services in the Rockies, and approximately 1% is dedicated to vertical fracturing services. We have
successfully grown our Pressure Pumping segment through organic growth and acquisitions. From January 1, 2007 to December 31, 2018, we increased from 15,500 HHP
to 267,500 HHP.
In addition, we have multi-year proppant supply contracts for approximately 143,000 average annual tons through 2020. We also have 13,250 tons of flat sand storage in
Enid, Oklahoma in our facility located on the BNSF Railway, which provides access to the materials needed to ensure consistently reliable operations. Our Pressure
Pumping segment accounted for approximately 35.4%, 35.0% and 21.5% of our revenues for the years ended December 31, 2018, 2017 and 2016, respectively.
5
Pressure Control
Our Pressure Control segment supplies a wide variety of equipment, services and expertise in support of completion and workover operations throughout the United States.
Its capabilities include coiled tubing, snubbing, fluid pumping, nitrogen, well control and other pressure control related services. Our pressure control equipment is tailored
to the unconventional resources market with the ability to operate under high pressures without having to delay or cease production during completion or workover
operations. Our pressure control services help E&P companies minimize the risk of such damage during completion activities. We provide our pressure control services
primarily in the Mid-Continent region (including the SCOOP/STACK), Eagle Ford Shale, Permian Basin, Marcellus/Utica Shale, DJ/Powder River Basin, Haynesville
Shale, Fayetteville Shale and Williston Basins (including the Bakken Shale).
Our coiled tubing units are used in the provision of unconventional completion services or in support of well-servicing and workover applications. Our rig-assisted snubbing
units are used in conjunction with a workover rig to insert or remove downhole tools or in support of other well services while maintaining pressure in the well, or in
support of unconventional completions. Our nitrogen pumping units provide a non-combustible environment downhole and are used in support of other pressure control or
well-servicing applications. We also offer highly-technical and specialized well control services, which are typically required in response to emergencies at the well,
requiring a variety of solutions including freezing, hot tapping and gate valve drilling services, as well as critical well control and containment operations. Our team is
comprised of oilfield services veterans with extensive domestic and international experience in well control operations dating back to the 1980s.
As of December 31, 2018, we provided our services through our fleet of 24 coiled tubing units (10 of which are Large Diameter units, allowing us to service extended reach
laterals), 36 rig-assisted snubbing units and 24 nitrogen pumping units. We accepted delivery of two new larger diameter coil units during the month of December 2018.
One of the new Large Diameter units was deployed immediately.
Our Pressure Control segment accounted for approximately 20.3%, 20.5% and 24.9% of our revenues for the years ended December 31, 2018, 2017 and 2016, respectively.
Wireline
Our Wireline segment provides new well wireline conveyed tight-shale reservoir perforating services across many of the major U.S. shale basins and also offers a range of
services such as cased-hole investigation and production logging services, conventional wireline and tubing conveyed perforating services, mechanical services and pipe
recovery services. These services are offered in both new well completions and for remedial work. The majority of the revenues generated in our Wireline segment are
derived from the Permian Basin, Eagle Ford Shale, Mid-Continent region (including the SCOOP/STACK), Haynesville Shale and East Texas Basin as well as in industrial
and petrochemical facilities. Our Wireline segment principally works in connection with hydraulic fracturing services in the form of pump-down services for setting plugs
between hydraulic fracturing stages, as well as with the deployment of perforation equipment in connection with “plug-and-perf” operations.
As of December 31, 2018, we operated 41 wireline units of which 21 are suited for unconventional activity, and operated from seven facilities throughout the Permian
Basin, Eagle Ford Shale, Mid-Continent, South Texas and Gulf Coast regions. Of the 21 wireline units suited for unconventional activity, 10 units are crewed and the
remaining 11 are available to deploy as conditions warrant. We offer our wireline services in most markets in which we provide pressure pumping services. From January
2017 to December 31, 2018, we completed approximately 19,195 stages in the United States with an overall run efficiency of approximately 97.9%.
Our Wireline segment accounted for approximately 12.4%, 11.4% and 17.8% of our revenues for the years ended December 31, 2018, 2017 and 2016, respectively.
Geographic Areas of Operation
Our Directional Drilling segment operates in the Permian Basin, Eagle Ford Shale, Mid-Continent region (including the SCOOP/STACK), Marcellus/Utica Shale and
DJ/Powder River Basin. Our Pressure Pumping segment has historically operated in the Mid-Continent region (including the SCOOP/STACK) where we have a leading
market position, as well as the Rocky Mountain region (including the Williston Basin). Our Pressure Control segment operates in the Mid-Continent region (including the
SCOOP/STACK), Eagle Ford Shale, Permian Basin, Marcellus/Utica Shale, DJ/Powder River Basin, Haynesville Shale, Fayetteville Shale and Williston Basin (including
the Bakken Shale), providing access across the continental United States. Lastly, our Wireline segment provides services throughout the Permian Basin, Eagle Ford Shale,
Mid-Continent region (including the SCOOP/STACK), Gulf Coast region and East Texas/Haynesville Shale. These expansive operating areas provide us with access to a
number of nearby unconventional crude oil and natural gas basins, both with existing customers expanding their production footprint and third parties acquiring new
acreage. Our proximity to existing and prospective customer activities allows us to anticipate or respond quickly to such customers’ needs and efficiently deploy our assets.
6
We believe that our strategic geographic positioning will benefit us as activity increases in our core operating areas. Our broad geographic footprint provides us with
exposure to the ongoing recovery in drilling and completion activity and will allow us to opportunistically pursue new business in basins with the most active drilling
environments.
Seasonality
Our operations are located in different regions of the United States. Some of these areas are adversely affected by seasonal weather conditions, primarily in the winter and
spring. During periods of heavy snow, ice or rain, we may be unable to move our equipment between locations, thereby reducing our ability to provide services and generate
revenues. The exploration activities of our customers may also be affected during such periods of adverse weather conditions. Weather conditions also affect the demand
for, and prices of, oil and natural gas and, as a result, demand for our services.
Marketing and Customers
We operate in a highly competitive industry. Our competition includes many large and small oilfield service companies. As such, we price our services and products to
remain competitive in the markets in which we operate, adjusting our rates to reflect current market conditions as necessary. We examine the rate of utilization of our
equipment as a measure of our ability to compete in the current market environment.
We have also established over time a diverse and balanced mix of customers, including large, midsize and small E&P companies. We served approximately 1,100 customers
in 2018. For the year ended December 31, 2018, EOG Resources represented approximately 11.9% of the Company’s consolidated revenues. For the years ended December
31, 2018 and 2017, no customer individually accounted for more than 10.3% of our consolidated revenues. The loss of a material customer could have an adverse effect on
our business until the equipment is redeployed at similar utilization and pricing levels.
Competition
The markets in which we operate are highly competitive. To be successful, a company must provide services and products that meet the specific needs of oil and natural gas
E&P companies and drilling services contractors at competitive prices. We provide our services and products across the United States and we compete against different
companies in each service and product line we offer. Our competition includes many large and small oilfield service companies, including some of the largest integrated
oilfield services companies.
Our major competitors in Directional Drilling include Schlumberger, Baker Hughes, Halliburton, Phoenix Technology Services, ProDirectional, Scientific Drilling
International, LEAM Drilling Systems and Nabors Industries. Our major competitors for Pressure Pumping, Pressure Control and Wireline include Halliburton,
Schlumberger, RPC, C&J Energy Services, Keane Group, Basic Energy Services, Nine Energy Services, Superior Energy Services, Key Energy Services, Forbes Energy
Services, STEP Energy Services and KLX.
We believe that the principal competitive factors in the market areas that we serve are quality of service and products, reputation for safety and technical proficiency,
availability and price. While we must be competitive in our pricing, we believe our customers select our services and products based on the local leadership and basin-
expertise that our field management and operating personnel use to deliver quality services and products.
Suppliers
We have dedicated supply chain teams that manage sourcing and logistics to ensure flexibility and continuity of our supply chain in a cost effective manner across our
geographic areas of operation. We have fostered long-term relationships with numerous industry leading suppliers of proppant, chemicals, coil tubing and select directional
drilling, pressure pumping, pressure control and wireline equipment. In addition, we have multi-year proppant supply contracts for approximately 143,000 average annual
tons through 2020.
We purchase a wide variety of raw materials, parts and components that are manufactured and supplied for our operations. We are not dependent on any single source of
supply for those parts, supplies or materials. To date, we have generally been able to obtain the equipment, parts and supplies necessary to support our operations on a
timely basis. While we believe that we will be able to make satisfactory alternative arrangements in the event of any interruption in the supply of these materials and/or
products by one of our suppliers, we may not always be able to do so. In addition, certain materials for which we do not currently have long-term supply agreements could
experience shortages and significant price increases in the future. As a result, we may be unable to mitigate any future supply shortages and our results of operations,
prospects and financial condition could be adversely affected.
Intellectual Property
We have pending applications and registered trademarks for various names under which our entities conduct business or provide products or services. Except for the
foregoing, we do not own or license any patents, trademarks or other intellectual property that we believe to be material to the success of our business. In addition, we rely
to a great extent on the technical expertise and know-how of our personnel to maintain our competitive position, and we take commercially reasonable measures to protect
trade secrets and other confidential and/or proprietary information relating to the technologies we develop.
7
Risk Management and Insurance
Our operations are subject to hazards inherent in the oilfield services industry, such as accidents, blowouts, explosions, fires and spills and releases that can cause:
•
•
•
personal injury or loss of life;
damage or destruction of property, equipment, natural resources and the environment; and
suspension of operations.
In addition, claims for loss of oil and natural gas production and damage to formations can occur in the oilfield services industry. If a serious accident were to occur at a
location where our equipment and services are being used, it could result in us being named as a defendant in lawsuits asserting large claims.
Because our business involves the transportation of heavy equipment and materials, we may also experience traffic accidents which may result in spills, property damage
and personal injury.
Despite our efforts to maintain safety standards, we from time to time have suffered accidents in the past and anticipate that we could experience accidents in the future. In
addition to the property damage, personal injury and other losses from these accidents, the frequency and severity of these incidents affect our operating costs and
insurability and our relationships with customers, employees, regulatory agencies and other parties.
Any significant increase in the frequency or severity of these incidents, or the general level of compensation awards, could adversely affect the cost of, or our ability to
obtain, workers’ compensation and other forms of insurance, and could have other material adverse effects on our financial condition and results of operations.
Although we maintain insurance coverage of types and amounts that we believe to be customary in the industry, we are not fully insured against all risks, either because
insurance is not available or because of the high premium costs relative to perceived risk. Further, 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. Liabilities for which we are not insured, or which exceed the policy
limits of our applicable insurance, could have a material adverse effect on us.
Employees
As of December 31, 2018, we had approximately 1,500 full time employees and our overall personnel count increased approximately 13.3% from the year ended December
31, 2017. None of our employees are represented by labor unions or covered by any collective bargaining agreements. We also hire independent contractors and consultants
as needed.
Safety and Remediation Program
In the oilfield services industry, an important competitive factor in establishing and maintaining long term E&P customer relationships is having an experienced and skilled
workforce. Recently, many of our large customers have placed an emphasis not only on pricing, but also on safety records and quality management systems of contractors.
We believe these factors will gain further importance in the future. We have dedicated safety personnel and training facilities for each of our four segments. We have
committed resources toward employee safety and quality management training programs. Our field employees are required to complete both technical and safety training
programs.
As part of our safety procedures, we also have the capability to shut down our pressure pumping and fracturing operations both at the lines and in our data van. In addition,
we maintain spill kits on location for containment of pollutants that may be spilled in the process of providing our hydraulic fracturing services. The spill kits are generally
comprised of pads and booms for absorption and containment of spills, as well as soda ash for neutralizing acid. Fire extinguishers are also in place on job sites at each
pump.
We have used third-party contractors to provide remediation and spill response services when necessary to address spills that travel beyond our containment capabilities.
Historically, these prior spills have not had a material adverse effect on our hydraulic fracturing services. To the extent our hydraulic fracturing or other oilfield services
operations result in a future spill or release, we will engage the services of a remediation company or an alternative company, as necessary, to assist us with clean-up and
remediation.
Government Regulations and Environmental, Health and Safety Matters
We operate under the jurisdiction of a number of regulatory bodies that regulate worker safety standards, the handling of hazardous materials, the storage and transportation
of explosives, the protection of human health and the environment and standards of operation. Regulations concerning equipment certification create an ongoing need for
regular maintenance that is incorporated into our daily operating procedures. Moreover, the oil and natural gas industry is subject to environmental regulation pursuant to
local, state and federal legislation and regulatory initiatives.
8
Transportation Matters
In connection with our transportation and relocation of our oilfield service equipment and shipment of hydraulic fracturing sand, we operate trucks and other heavy
equipment. As such, we operate as a commercial motor carrier in providing certain of our services and therefore are subject to regulation by the U.S. Department of
Transportation (“DOT”) and analogous state agencies. These regulatory authorities exercise broad powers, governing activities such as the authorization to engage in motor
carrier operations and regulatory safety, driver licensing and insurance requirements, financial reporting and review of certain mergers, consolidations and acquisitions and
hazardous materials labeling, placarding and marking. There are additional regulations specifically related to the trucking industry, including testing and specification of
equipment and product handling requirements. In addition, our trucking operations are subject to possible regulatory and legislative changes that may increase our costs by
requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload services. Some of these
possible changes include increasingly stringent environmental regulations, changes in the hours of service regulations which govern the amount of time a driver may drive
or work in any specific period, onboard electronic logging device (“ELD”) requirements or limits on vehicle weight and size.
Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. To a large degree, intrastate motor carrier operations are subject to state safety
regulations that mirror federal regulations but may be more stringent. Such matters as weight and dimension of equipment are also subject to federal and state regulations.
Finally, from time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes on motor fuels, which
may increase our costs or adversely impact the recruitment of contracted drivers. We cannot predict whether, or in what form, any increase in such taxes applicable to us
would be enacted.
Environmental Matters and Regulation
General. Our operations and the operations of our oil and natural gas E&P customers are subject to stringent federal, tribal, regional, state and local laws and regulations
governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous federal, state and local governmental agencies, such
as the U.S. Environmental Protection Agency (“EPA”) and analogous state agencies have the power to enforce compliance with these laws and regulations and the permits
issued under them, often requiring difficult and costly actions. These laws and regulations may require the acquisition of a permit before conducting regulated activities,
restrict the types, quantities and concentrations of various substances that may be released into the environment, limit or prohibit construction or drilling activities on certain
lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, require action to prevent or remediate pollution from current or former operations,
result in the suspension or revocation of necessary permits, licenses and authorizations, require that additional pollution controls be installed and impose substantial
liabilities for pollution resulting from our operations or relating to our owned or operated facilities. Any failure to comply with these laws and regulations may result in the
assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations or the incurrence of
capital expenditures; the occurrence of restrictions, delays or cancellations in the permitting or performance of projects; and the issuance of orders enjoining performance of
some or all of our operations in a particular area.
The trend in environmental regulation is to place more restrictions and limitations on activities that may adversely affect the environment, and thus any new laws and
regulations, amendment of existing laws and regulations, reinterpretation of legal requirements or increased governmental enforcement that result in more stringent and
costly completion activities, or waste handling, storage transport, disposal or remediation requirements could have a material adverse effect on our financial position and
results of operations. We may be unable to pass on such increased compliance costs to our customers. Moreover, accidental releases or spills may occur in the course of our
operations, and we cannot assure you that we will not incur significant costs and liabilities as a result of such releases or spills, including any third-party claims for personal
injury to persons and damage to properties or natural resources. Historically, our environmental compliance costs have not had a material adverse effect on our results of
operations; however, there can be no assurance that such costs will not be material in the future or that such future compliance will not have a material adverse effect on our
business and operating results. Additionally, our customers may also incur increased costs or delays, restrictions or cancellations in permitting or operating activities as a
result of more stringent environmental laws and regulations, which may result in a curtailment of exploration, development or production activities that would reduce the
demand for our services.
The following is a summary of the more significant existing environmental laws, as amended from time to time, to which our business is subject and for which compliance
may have a material adverse impact on our capital expenditures, results of operations or financial position.
Waste Handling. The Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, regulate the generation, treatment, storage, transportation,
disposal and clean-up of hazardous and nonhazardous wastes. Pursuant to rules issued by the EPA, the individual states administer some or all of the provisions of RCRA,
sometimes in conjunction with their own, more requirements, which may be more stringent. In the course of our operations, we generate some amounts of ordinary
industrial wastes that may be regulated as hazardous wastes. Additionally, drilling fluids, produced waters and most of the other wastes
9
associated with the exploration, development and production of oil or natural gas, if properly handled, are currently exempt from regulation as hazardous waste under
RCRA and, instead, are regulated under RCRA’s less stringent non-hazardous waste provisions, state laws or other federal laws. However, it is possible that certain oil and
natural gas drilling and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. For example, in response to a consent
decree issued by the U.S. District Court for the District of Columbia in 2016, the EPA is required to propose no later than March 15, 2019, a rulemaking for revision of
certain Subtitle D criteria regulations that could result in oil and natural gas wastes being regulated as hazardous wastes, or sign a determination that revision of the
regulations is unnecessary. If the EPA proposes a rulemaking for revised oil and natural gas waste regulations, the consent decree requires that the EPA take final action
following notice and comment rulemaking no later than July 15, 2021. A loss of the RCRA exclusion for drilling fluids, produced waters and related wastes could result in
an increase in our, as well as the oil and natural gas E&P industry’s, costs to manage and dispose of generated wastes, which could have a material adverse effect on the
industry as well as on our business.
Remediation of Hazardous Substances. The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as the “Superfund” law,
and comparable state statutes impose liability, without regard to fault or legality of the original conduct, on classes of persons that are considered to have contributed to the
release of a hazardous substance into the environment. Such classes of persons include the current and past owners or operators of sites where a hazardous substance was
released, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, these persons may be subject to joint and
several, strict liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. In addition, it
is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property or natural resources damage allegedly caused by the
hazardous substances released into the environment. We currently own, lease or operate upon numerous properties and facilities that for many years have been used for
industrial activities, including oil and natural gas-related operations. Hazardous substances, wastes or hydrocarbons may have been released on or under the properties
owned, leased or operated upon by us, or on or under other locations where such substances have been taken for recycling or disposal. In addition, some of these properties
have been operated by third parties or by previous owners whose treatment and disposal or release of hazardous substances, wastes or hydrocarbons, were not under our
control. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be
required to remove previously disposed substances and wastes and remediate contaminated property (including groundwater contamination), including instances where the
prior owner or operator caused the contamination, or perform remedial activities to prevent future contamination.
Handling and Exposure to Radioactive Materials. In the course of our operations, some of our equipment may be exposed to naturally occurring radioactive materials
(“NORM”) associated with oil and natural gas deposits and, accordingly may result in the generation of wastes and other materials containing NORM. Any NORM
exhibiting levels of naturally occurring radiation in excess of established state standards are subject to special handling and disposal requirements, and any storage vessels,
piping and work area affected by NORM may be subject to remediation or restoration requirements. Because certain of the properties presently or previously owned,
operated or occupied by us may have been used for oil and natural gas production operations, it is possible that we may incur costs or liabilities associated with NORM.
In addition, some of our operations utilize equipment that contains sealed, low-grade radioactive sources. Our activities involving the use of radioactive materials are
regulated by the U.S. Nuclear Regulatory Commission (“NRC”) and also by state regulatory agencies under agreement with the NRC. Standards implemented by these
regulatory agencies require us to obtain licenses or other approvals for the use of such radioactive materials. These regulatory agencies have adopted regulations
implementing and enforcing these laws, for which compliance is often costly and difficult.
Water Discharges and Discharges into Belowground Formations. The Federal Water Pollution Control Act (the “Clean Water Act”) and analogous state laws, impose
restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and hazardous substances, into state waters and waters of the
United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state
agency. Spill prevention, control and countermeasure plan requirements imposed under the Clean Water Act require appropriate containment berms and similar structures to
help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. In addition, the Clean Water Act and analogous state
laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. The Clean Water Act also prohibits
the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by permit. The Clean Water Act and analogous state laws also may
impose substantial civil and criminal penalties for non-compliance including spills and other non-authorized discharges. In 2015, the EPA and the U.S. Army Corps of
Engineers (“Corps”) published a final rule outlining their position on the federal jurisdictional reach over waters of the United States, including wetlands, but legal
challenges to this rule followed. Beginning in the first quarter of 2017, the EPA and the Corps agreed to reconsider the 2015 rule and, thereafter, the agencies have (i)
published a proposed rule in 2017 to rescind the 2015 rule and recodify the regulatory text that governed waters of the United States prior to promulgation of the 2015 rule,
(ii) published a final rule in February 2018 adding a February 6, 2020 applicable date to the 2015 rule, and (iii) published a proposed rule in December 2018 re-defining the
Clean Water Act’s jurisdiction over waters of the United States for which the agencies will seek public comment. The 2015 and February 2018 final rules are being
10
challenged by various factions in federal district court and implementation of the 2015 rule has been enjoined in twenty-eight states pending resolution of the various federal
district court challenges. As a result of these legal developments, future implementation of the 2015 rule is uncertain at this time. Any expansion of the Clean Water Act’s
jurisdiction in areas where we or our oil and natural gas E&P customers operate could impose additional permitting obligations on us and our customers.
The Oil Pollution Act of 1990 (“OPA”) amends the Clean Water Act and sets minimum standards for prevention, containment and cleanup of oil spills. The OPA applies to
vessels, offshore facilities and onshore facilities, including E&P facilities that may affect waters of the United States. Under OPA, responsible parties including owners and
operators of onshore facilities may be held strictly liable for oil cleanup costs and natural resource damages as well as a variety of public and private damages that may
result from oil spills. The OPA also requires owners or operators of certain onshore facilities to prepare Facility Response Plans for responding to a worst case discharge of
oil into waters of the United States.
Our oil and natural gas E&P customers dispose of flowback and produced water or certain other oilfield fluids gathered from oil and natural gas producing operations in
accordance with permits issued by government authorities overseeing such disposal activities. While these permits are issued pursuant to existing laws and regulations,
these legal requirements are subject to change based on concerns of the public or governmental authorities regarding such disposal activities. One such concern relates to
recent seismic events near underground disposal wells used for the disposal by injection of flowback and produced water or certain other oilfield fluids resulting from oil
and natural gas activities. Developing research suggests that the link between seismic activity and wastewater disposal may vary by region, and that only a very small
fraction of the tens of thousands of injection wells have been suspected to be, or may have been, the likely cause of induced seismicity. In 2016, the United States
Geological Survey identified six states with the most significant hazards from induced seismicity, including Oklahoma, Kansas, Texas, Colorado, New Mexico and
Arkansas. In response to concerns regarding induced seismicity, regulators in some states have imposed, or are considering imposing, additional requirements in the
permitting of produced water disposal wells or otherwise to assess any relationship between seismicity and the use of such wells. For example, Texas and Oklahoma have
issued rules for wastewater disposal wells that imposed certain permitting restrictions, operating restrictions and/or reporting requirements on disposal wells in proximity to
faults. States may, from time to time, develop and implement plans directing certain wells where seismic incidents have occurred to restrict or suspend disposal well
operations. In Oklahoma, the Oklahoma Corporation Commission’s (“OCC”) Oil and Gas Conservation Division and the Oklahoma Geological Survey released well
completion seismicity guidance in late 2016, which requires operators to take certain prescriptive actions, including an operator’s planned mitigation practices, following
certain unusual seismic activity within 1.25 miles of hydraulic fracturing operations. In recent years, including during 2018, the OCC’s Oil and Gas Conservation Division
has issued orders limiting future increases in the volume of oil and natural gas wastewater injected belowground into the Arbuckle formation in an effort to reduce the
number of earthquakes in the state. Another consequence of seismic events may be lawsuits alleging that disposal well operations have caused damage to neighboring
properties or otherwise violated state and federal rules regulating waste disposal.
These developments could result in additional regulation and restrictions on the use of injection wells by our customers to dispose of flowback and produced water and
certain other oilfield fluids. Increased regulation and attention given to induced seismicity also could lead to greater opposition to, and litigation concerning, oil and natural
gas activities utilizing injection wells for waste disposal. Any one or more of these developments may result in our customers having to limit disposal well volumes,
disposal rates or locations, or require our customers or third party disposal well operators that are used to dispose of customer wastewater to shut down disposal wells,
which developments could adversely affect our customers’ business and result in a corresponding decrease in the need for our services, which would could have a material
adverse effect on our business, financial condition and results of operations.
Air Emissions. Certain of our operations also result in emissions of regulated air pollutants. The federal Clean Air Act (the “CAA”) and analogous state laws require permits
for certain facilities that have the potential to emit substances into the atmosphere that could adversely affect environmental quality. These laws and their implementing
regulations also impose generally applicable limitations on air emissions and require adherence to maintenance, work practice, reporting and record keeping, and other
requirements. Failure to obtain a permit or to comply with permit or other regulatory requirements could result in the imposition of sanctions, including administrative, civil
and criminal penalties. In addition, we or our oil and natural gas E&P customers could be required to shut down or retrofit existing equipment, leading to additional
expenses and operational delays.
Many of these regulatory requirements, including new source performance standards (“NSPS”) and Maximum Achievable Control Technology standards are expected to be
made more stringent over time as a result of stricter ambient air quality standards and other air quality protection goals adopted by the EPA. Compliance with these or other
new regulations could, among other things, require installation of new emission controls on some of our equipment, result in longer permitting timelines, and significantly
increase our capital expenditures and operating costs, which could adversely impact on our business. For example, in 2015, the EPA lowered the National Ambient Air
Quality Standard (“NAAQs”), for ground-level ozone from 75 to 70 parts per billion for both the eight-hour primary and secondary standards. In 2017 and 2018, the EPA
issued area designations with respect to ground-level ozone as either “attainment/unclassifiable,” unclassifiable” or “non-attainment.” Additionally, in November 2018, the
EPA issued final requirements that apply to state, local, and tribal air agencies for implementing the 2015 NAAQS for ground-level ozone. States are also expected to
implement requirements as a result of this NAAQs final rule, which could result in stricter
11
permitting requirements, delay or prohibit our ability to obtain such permits, and result in increased expenditures for pollution control equipment, the costs of which could
be significant. Compliance with these and other air pollution control and permitting requirements has the potential to delay the development of oil and natural gas projects
and increase costs for us and our customers. Moreover, our business could be materially affected if our E&P customers’ operations are significantly affected by these or
other similar requirements. These requirements could increase the cost of doing business for us and our customers and reduce the demand for the oil and natural gas our
customers produce, and thus have an adverse effect on the demand for our services.
Climate Change. The U.S. Congress and the EPA, in addition to some state and regional efforts, have in recent years considered legislation or regulations to reduce
emissions of greenhouse gases (“GHGs”). These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and
regulations that directly limit GHG emissions from certain sources. In the absence of federal GHG-limiting legislations, the EPA has determined that GHG emissions
present a danger to public health and the environment and has adopted regulations that, among other things, restrict emissions of GHGs under existing provisions of the
CAA and may require the installation of “best available control technology” to limit emissions of GHGs from any new or significantly modified facilities that we may seek
to construct in the future if they would otherwise emit large volumes of GHGs together with other criteria pollutants. Also, the EPA has adopted rules requiring the
monitoring and annual reporting of GHG emissions from oil and natural gas production, processing, transmission and storage facilities in the United States. In 2015, the
EPA amended and expanded the GHG reporting requirements to all segments of the oil and natural gas industry, including gathering and boosting stations as well as
completions and workovers from hydraulically fractured oil wells.
The EPA has also taken steps to limit methane emissions, a GHG, from certain new modified or reconstructed facilities in the oil and natural gas sector through the adoption
of a final rule in 2016 establishing Subpart OOOOa standards for methane emissions. However, in 2017, the EPA published a proposed rule to stay certain portions of these
Subpart OOOOa standards for two years but the rule was not finalized. Rather, in February 2018, the EPA finalized amendments to certain requirements of the 2016 final
rule, and in September 2018 the EPA proposed additional amendments, including rescission of certain requirements and revisions to other requirements, such as fugitive
emission monitoring frequency. Furthermore, in late 2016, the federal Bureau of Land Management (“BLM”) published a final rule to reduce methane emissions by
regulating venting, flaring and leaks from oil and natural gas production activities on onshore federal and Native American lands. However, in September 2018, the BLM
published a final rule that rescinds most of the new requirements of the 2016 final rule and codifies the BLM’s prior approach to venting and flaring but the rule rescinding
the 2016 final rule has been challenged in federal court and remains pending. In the event that the EPA’s 2016 or the BLM’s 2016 rules should remain or be placed in effect,
or should any other new methane emission standards be imposed on the oil and natural gas sector, such requirements could result in increased costs to our or our oil and
natural gas E&P customers’ operations as well as result in restrictions, delays or cancellations in such operations, which costs, restrictions, delays or cancellations could
adversely affect our business.
Internationally, in April 2016, the United States joined other countries in entering into a United Nations-sponsored non-binding agreement negotiated in Paris, France
(“Paris Agreement”) for nations to limit their GHG emissions through individually determined reduction goals every five years beginning in 2020. However, in August
2017, the U.S. State Department informed the United Nations of the intent of the United States to withdraw from the Paris Agreement, which provides for a four-year exit
process beginning when it took effect in November 2016. The United States’ adherence to the exit process and/or the terms on which the United States may reenter the Paris
Agreement or a separately negotiated agreement are unclear at this time. Substantial limitations on GHG emissions could adversely affect demand for the oil and natural gas
our E&P customers produce and lower the value of their reserves, which developments could reduce demand for our services and have a corresponding material adverse
effect on our results of operations and financial position. Moreover, recent activism directed at shifting investments away from companies with energy-related assets could
result in limitations or restrictions on certain sources of funding for the energy sector
Endangered Species. The federal Endangered Species Act (“ESA”) and analogous state laws regulate activities that could have an adverse effect on threatened and
endangered species or their habitats. Similar protections are offered to migratory birds under the federal Migratory Bird Treaty Act (“MBTA”). The U.S. Fish and Wildlife
Service (“FWS”) may designate critical habitat and suitable habitat areas that it believes are necessary for survival of threatened or endangered species. A critical habitat or
suitable habitat designation could result in further material restrictions to federal and private land use and could delay or prohibit land access or oil and gas development. If
harm to species or damages to habitat occur, government entities or, at times, private parties may act to prevent oil and gas exploration or development activities or seek
damages for harm to species, habitat or natural resources resulting from drilling or construction or releases of oil, wastes, hazardous substances or other regulated materials,
and, in some cases, may seek criminal penalties. Permanent restrictions imposed to protect these species or their habitat could delay, restrict or prohibit drilling in certain
areas by our oil and natural gas E&P customers, which could reduce demand for our services.
In addition, as a result of one or more settlements entered into by the FWS, the agency is required to consider listing numerous species as endangered or threatened under
the ESA pursuant to specific time lines. The designation of previously unprotected species as threatened or endangered in areas where our oil and natural gas customers
operate could cause certain of our customers to incur increased costs arising from species protection measures or could result in limitations on their E&P activities that
could have an adverse effect on our ability to provide products and services to those customers.
12
Regulation of Hydraulic Fracturing
We perform hydraulic fracturing services for our oil and natural gas E&P customers. Hydraulic fracturing is an important and common practice that is used to stimulate
production of natural gas and/or oil from dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, sand or other proppant and
chemical additives under pressure into the formation to fracture the surrounding rock and stimulate production.
Hydraulic fracturing typically is regulated by state oil and natural gas commissions or similar agencies, but the EPA has asserted federal regulatory authority and performed
investigations over aspects of the process. For example, the EPA has asserted regulatory authority pursuant to the federal Safe Drinking Water Act (“SDWA”) Underground
Injection Control (“UIC”) program over hydraulic fracturing activities involving the use of diesel and issued guidance covering such activities as well as published an
Advance Notice of Proposed Rulemaking regarding Toxic Substances Control Act reporting of the chemical substances and mixtures used in hydraulic fracturing.
Additionally, the EPA issued final CAA regulations in 2012 and in 2016 governing performance standards, including standards for the capture of emissions of methane and
volatile organic compounds (“VOCs”) released during hydraulic fracturing. The EPA also published an effluent limit guideline final rule in 2016 prohibiting the discharge
of wastewater from onshore unconventional oil and natural gas extraction facilities to publicly owned wastewater treatment plant. The BLM published a final rule in 2015
that established new or more stringent standards for performing hydraulic fracturing on federal and Indian lands but the BLM rescinded the 2015 rule in late 2017; however,
litigation challenging the BLM’s decision to rescind the 2015 rule is pending in federal district court. Also, in late 2016, the EPA released its final report on the potential
impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water
resources under certain circumstances.
Additionally, various state and local governments have implemented, or are considering, increased regulatory oversight of hydraulic fracturing through additional permit
requirements, operational restrictions, disclosure requirements, well construction and temporary or permanent bans on hydraulic fracturing in certain areas. For example,
Texas, Colorado and North Dakota, among others, have adopted regulations that impose new or more stringent permitting, disclosure, disposal and well construction
requirements on hydraulic fracturing operations. States could also elect to prohibit high volume hydraulic fracturing altogether, following the approach taken by the State of
New York. In addition to state laws, local land use restrictions, such as city ordinances, may restrict drilling in general and/or hydraulic fracturing in particular. Moreover,
non-governmental organizations may seek to restrict hydraulic fracturing, as has been the case in Colorado in recent years, when certain interest groups therein have
unsuccessfully pursued ballot initiatives in recent general election cycles that, had they been successful, would have revised the state constitution or state statutes in a
manner that would have made exploration and production activities in the state more difficult or costly in the future including, for example, by increasing mandatory setback
distances of oil and natural gas operations, including hydraulic fracturing, from specific occupied structures and/or certain environmentally sensitive or recreational areas. If
new federal, state or local laws, regulations or ballot initiatives that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays,
eliminate certain drilling and injection activities and make it more difficult or costly to perform hydraulic fracturing. Any such regulations limiting or prohibiting hydraulic
fracturing could result in decreased oil and natural gas E&P activities and, therefore, adversely affect demand for our services and our business. Such laws or regulations
could also materially increase our costs of compliance and doing business.
Historically, our hydraulic fracturing compliance costs have not had a material adverse effect on our results of operations; however, there can be no assurance that such costs
will not be material in the future. It is possible, however, that substantial costs for compliance or penalties for non-compliance may be incurred in the future. Moreover, it is
possible that other developments, such as the adoption of stricter environmental laws, regulations, ballot initiatives and enforcement policies, could result in additional costs
or liabilities that we cannot currently quantify.
Other Regulation of the Oil and Natural Gas Industry
The oil and natural gas industry is extensively regulated by numerous federal, state and local authorities. Legislation affecting the oil and natural gas industry is under
constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized
by statute to issue rules and regulations that are binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure
to comply. Although changes to the regulatory burden on the oil and natural gas industry could affect the demand for our services, we would not expect to be affected any
differently or to any greater or lesser extent than other companies in the industry with similar operations.
Drilling. Our customers’ operations are subject to various types of regulation at the federal, state and local level. These types of regulation include requiring permits for the
drilling of wells, drilling bonds and reports concerning operations. The state and some counties and municipalities in which our customers are located also regulate one or
more of the following:
•
the location of wells;
13
•
•
•
•
the method of drilling and casing wells;
the timing of construction or drilling activities, including seasonal wildlife closures;
the surface use and restoration of properties upon which wells are drilled; and
notice to, and consultation with, surface owners and other third parties.
State Regulation. States regulate the drilling for oil and natural gas, including imposing severance taxes and requirements for obtaining drilling permits. States also regulate
the method of developing new fields, the spacing and operation of wells and the prevention of waste of oil and natural gas resources. States do not regulate wellhead prices
or engage in other similar direct economic regulation, but we cannot assure you that they will not do so in the future. The oil and natural gas industry is also subject to
compliance with various other federal, state and local regulations and laws. Some of those laws relate to resource conservation and equal employment opportunity. We do
not believe that compliance with these laws will have a material adverse effect on us. To the extent that such regulations result in the curtailment of our customers’
operations or production, we may incur decreased demand for our services, which may have an adverse effect on our financial condition and results of operations.
Storage and Handling of Explosive Materials.
Our operations involve the handling of explosive materials for our wireline services provided to our oil and natural gas E&P customers. Despite our use of specialized
facilities to store explosive materials and intensive employee training programs, the handling of explosive materials could result in incidents that temporarily shut down or
otherwise disrupt our or our customers’ operations or could cause restrictions, delays or cancellations in the delivery of our services. It is possible that an explosion could
result in death or significant injuries to employees and other persons. Material property damage to us, our customers and other third parties could also occur. Any explosive
incident could expose us to adverse publicity or liability for damages, including environmental natural resource damages, or cause production restrictions, delays or
cancellations, any of which developments could have a material adverse effect on our business, financial condition and results of operations.
Occupational Safety and Health Matters
We are subject to the requirements of the federal Occupational Safety and Health Act which is administered and enforced by the Occupational Safety and Health
Administration, commonly referred to as OSHA, and comparable state laws that regulate the protection of the health and safety of workers. In addition, the OSHA hazard
communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state
statutes require that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local
government authorities and the public. We believe that our operations are in substantial compliance with the OSHA requirements, including general industry standards,
record keeping requirements and monitoring of occupational exposure to regulated substances. OSHA continues to evaluate worker safety and to propose new regulations,
such as but not limited to, the proposed new rule regarding respirable silica sand. Although it is not possible to estimate the financial and compliance impact of the proposed
respirable silica sand rule or any other proposed rule, the imposition of more stringent requirements could have a material adverse effect on our business, financial condition
and results of operations.
Corporate Information
the New York Stock Exchange and
We were formed in Delaware in 2017 and maintain our principal corporate offices at 1415 Louisiana Street, Suite 2900, Houston, Texas 77002. Our common stock is listed
on
is
www.quintanaenergyservices.com. We will make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission ("SEC").
is 832-518-4094 and our
the symbol “QES.” Our
telephone number
internet address
traded under
is
In addition to the reports filed or furnished with the SEC, we publicly disclose information from time to time in our press releases, at annual meetings of stockholders, in
publicly accessible conferences and investor presentations, and through our website (principally on our “Investors” page). References to our website in this Annual Report
on Form 10-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available
through, the website, and such information should not be considered part of this Annual Report .
Item 1A.
Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the information in this Annual Report, including the matters addressed under
“Cautionary Note Regarding Forward-Looking Statements” and the following risks before making an investment decision. If any of the following risks or uncertainties or
any other risks or uncertainties of which we are
14
currently unaware actually occur, our business, financial condition and results of operations could be materially adversely effected. The trading price of our common stock
could decline due to any of these risks, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Our business depends on domestic capital spending by the oil and natural gas industry, and reductions in capital spending could have a material adverse effect on our
business, financial condition and results of operations.
Our business is cyclical and directly affected by our customers’ capital spending to explore for, develop and produce oil and natural gas in the United States. The significant
decline in oil and natural gas prices that began in late 2014 has caused a reduction in the exploration, development and production activities of most of our customers and
their spending on our services. These cuts in spending have curtailed drilling programs, which has resulted in a reduction in the demand for our services as compared to
activity levels in late 2014, as well as the prices we can charge. Although a recovery began in late 2016 and continued through 2017 and early 2018, the recovery has been
marked by periods of volatility, most recently in the fourth quarter of 2018, and the outlook for 2019 remains unclear. If oil and natural gas prices decline below current
levels for an extended period of time, certain of our customers may be unable to pay their vendors and service providers, including us, as a result of the decline in
commodity prices. Reduced discovery rates of new oil and natural gas reserves in our areas of operation as a result of decreased capital spending may also have a negative
long-term impact on our business, even in an environment of stronger oil and natural gas prices. Any of these conditions or events could adversely affect our operating
results. If the recent recovery does not continue or our customers fail to further increase their capital spending, it could have a material adverse effect on our business,
financial condition and results of operations.
Industry conditions are influenced by numerous factors over which we have no control, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
expected economic returns to E&P companies of new well completions;
domestic and foreign economic conditions and supply of and demand for oil and natural gas;
the level of prices, and expectations about future prices, of oil and natural gas;
the cost of exploring for, developing, producing and delivering oil and natural gas;
the level of global oil and natural gas E&P;
the level of domestic and global oil and natural gas inventories;
federal, state and local regulation of hydraulic fracturing activities, as well as oil and natural gas E&P activities, including public pressure on governmental
bodies and regulatory agencies to regulate our industry;
U.S. federal, state and local and non-U.S. governmental taxes and regulations, including the policies of governments regarding the exploration for and
production and development of their oil and natural gas reserves;
political and economic conditions in oil and natural gas producing countries;
actions by the members of the Organization of Petroleum Exporting Countries (“OPEC”) and certain non-OPEC producers, including Russia, with respect to
oil production levels and announcements of potential changes in such levels;
moratoriums on drilling activity resulting in a cessation of operation or a failure to expand operations;
global weather conditions and natural disasters;
worldwide political, military and economic conditions;
lead times associated with acquiring equipment and products and availability of qualified personnel;
the discovery rates of new oil and natural gas reserves;
stockholder activism or activities by non-governmental organizations to limit certain sources of funding for the energy sector or restrict the exploration,
development and production of oil and natural gas;
15
•
•
•
•
•
•
•
•
•
•
•
the availability of water resources, suitable proppant and chemical additives in sufficient quantities for use in hydraulic fracturing fluids;
advances in exploration, development and production technologies or in technologies affecting energy consumption;
the potential acceleration of development of alternative fuels;
the price and availability of alternative fuels;
merger and divestiture activity among oil and natural gas producers and drilling contractors;
uncertainty in capital and commodities markets and the ability of oil and natural gas companies to raise equity capital and debt financing;
any prolonged reduction in the overall level of oil and natural gas E&P activities, whether resulting from changes in oil and natural gas prices or otherwise,
could adversely impact us in many ways by negatively affecting;
our utilization, revenues, cash flows and profitability;
our ability to maintain or increase borrowing capacity;
our ability to obtain additional capital to finance our business and the cost of that capital; and
our ability to attract and retain skilled personnel.
The volatility of oil and natural gas prices may adversely affect the demand for our services and negatively impact our results of operations.
The demand for our services is primarily determined by current and anticipated oil and natural gas prices and the related levels of capital spending and drilling activity in
the areas in which we have operations. Volatility or weakness in oil prices or natural gas prices (or the perception that oil prices or natural gas prices will decrease) affects
the spending patterns of our customers and may result in the drilling of fewer new wells. This, in turn, could lead to lower demand for our services and may cause lower
utilization of our assets. We have, and may in the future, experience significant fluctuations in operating results as a result of the reactions of our customers to changes in oil
and natural gas prices. For example, prolonged low commodity prices experienced by the oil and natural gas industry beginning in late 2014 and uncertainty about future
prices even when prices increased, combined with adverse changes in the capital and credit markets, caused many E&P companies to significantly reduce their capital
budgets and drilling activity. This resulted in a significant decline in demand for oilfield services and adversely impacted the prices oilfield services companies could charge
for their services.
Prices for oil and natural gas historically have been extremely volatile and are expected to continue to be volatile. During the past five years, WTI has ranged from a low of
$26.21 per Bbl in February 2016 to a high of $107.26 per Bbl in June 2014. As of December 28, 2018 WTI closed at $45.15 per Bbl, a 25.3% decrease compared to WTI on
December 31, 2017. As of March 1, 2019, WTI closed at $55.76 per Bbl. If the prices of oil and natural gas continue to be volatile, reverse their recent increases or decline,
our business, financial condition and results of operations may be materially and adversely affected.
We have operated at a loss in the past, and there is no assurance of our profitability in the future.
Historically, we have experienced periods of low demand for our services and have incurred operating losses. For example, in 2016 we had a net loss of $154.7 million, in
2017 we had a net loss of $21.2 million and in 2018 we had a net loss of $18.2 million. In the future, we may not be able to reduce our costs, increase our revenues or
reduce our debt service obligations sufficient to achieve or maintain profitability and generate positive operating income. Under such circumstances, we may incur further
operating losses and experience negative operating cash flow.
Restrictions in our New ABL Facility could limit our growth and our ability to engage in certain activities.
Concurrently with the closing of our IPO, we entered into a new asset-based revolving credit facility, which we refer to as our “New ABL Facility,” borrowing $13.0
million. The operating and financial restrictions and covenants in our New ABL Facility and any future financing agreements may restrict our ability to finance future
operations or capital needs or to expand or pursue our business activities. For example, our New ABL Facility restricts or limits our ability to:
•
pay dividends and move cash;
16
•
•
•
•
•
•
•
•
incur additional liens;
incur additional indebtedness;
hedge interest rates;
engage in a merger, consolidation or dissolution;
enter into transactions with affiliates;
sell or otherwise dispose of assets, businesses and operations;
materially alter the character of our business as conducted at the closing of our IPO; and
make acquisitions, investments and capital expenditures.
Furthermore, our New ABL Facility contains a minimum fixed charge coverage ratio financial covenant tested from time to time. Our ability to comply with the covenants
and restrictions contained in our New ABL Facility may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If
market or other economic conditions deteriorate, our ability to comply with such covenants may be impaired. Any violation of the restrictions, covenants, ratios or tests in
our New ABL Facility could result in an event of default, which may cause indebtedness under our New ABL Facility to become immediately due and payable, and our
lender's commitment to provide further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. Any
subsequent replacement of our New ABL Facility or any new indebtedness could have similar or more restrictive covenants and conditions. For more information about our
New ABL Facility, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our New ABL Facility.”
Our operations are subject to inherent risks, some of which are beyond our control. These risks may be self-insured, or may not be fully covered under our insurance
policies.
Our operations are subject to hazards inherent in the oil and natural gas industry, such as, but not limited to, accidents, blowouts, explosions, craterings, fires, natural gas
leaks, oil and produced water spills and releases of gases, hydraulic fracturing fluids or wastewater into the environment. These conditions can cause:
•
•
•
•
•
•
•
•
disruption in operations;
substantial repair, restoration or remediation costs;
personal injury or loss of human life;
significant damage to or destruction of property and equipment;
environmental pollution, including groundwater contamination;
unusual or unexpected geological formations or pressures and industrial accidents;
impairment or suspension of operations; and
substantial revenue loss.
In addition, our operations are subject to, and exposed to, employee/employer liabilities and risks such as wrongful termination, discrimination, labor organizing, retaliation
claims and general human resource related matters.
The occurrence of a significant event or adverse claim in excess of the insurance coverage that we maintain or that is not covered by insurance could have a material adverse
effect on our business, financial condition and results of operations. Claims for loss of oil and natural gas production and damage to formations can occur in the well
services industry. Litigation arising from a catastrophic occurrence at a location where our equipment and services are being used may result in our being named as a
defendant in lawsuits asserting large claims.
We do not have insurance against all foreseeable risks, either because insurance is not available or because of the high premium costs. The occurrence of an event not fully
insured against or the failure of an insurer to meet its insurance obligations could result in substantial losses. In addition, we may not be able to maintain adequate insurance
in the future at rates we consider reasonable.
17
Insurance may not be available to cover any or all of the risks to which we are subject, or, even if available, it may be inadequate, or insurance premiums or other costs
could rise significantly in the future so as to make such insurance prohibitively expensive.
We face intense competition that may cause us to lose market share and could negatively affect our ability to market our services and expand our operations.
The oilfield services business is highly competitive. Some of our competitors have a broader geographic scope, greater financial and other resources, or other cost
efficiencies. Additionally, there may be new companies that enter our business, or re-enter our business with significantly reduced indebtedness following emergence from
bankruptcy, or our existing and potential customers may develop their own service businesses. Our ability to maintain current revenue and cash flows and our ability to
market our services and expand our operations could be adversely affected by the activities of our competitors and our customers. If our competitors substantially increase
the resources they devote to the development and marketing of competitive services or substantially decrease the prices at which they offer their services, we may be unable
to effectively compete. All of these competitive pressures could have a material adverse effect on our business, financial condition and results of operations. Some of our
larger competitors provide a broader range of services on a regional, national or worldwide basis. These companies may have a greater ability to continue oilfield service
activities during periods of low commodity prices and to absorb the burden of present and future federal, state, local and other laws and regulations.
We may be unable to implement price increases or maintain existing prices on our core services.
We generate revenue from our core service lines, the majority of which is provided on a spot market basis. Pressure on pricing for our core services, including due to
competition and industry and/or economic conditions, may impact, among other things, our ability to implement price increases or maintain pricing on our core services. We
operate in a very competitive industry and, as a result, we may not always be successful in raising or maintaining our existing prices. Additionally, during periods of
increased market demand, a significant amount of new service capacity, including hydraulic fracturing equipment, may enter the market, which also puts pressure on the
pricing of our services and limits our ability to increase or maintain prices. Furthermore, during periods of declining pricing for our services, we may not be able to reduce
our costs accordingly, which could further adversely affect our profitability.
Even when we are able to increase our prices, we may not be able to do so at a rate that is sufficient to offset such rising costs. Also, we may not be able to successfully
increase prices without adversely affecting our activity levels. The inability to maintain our prices or to increase our prices as costs increase could have a material adverse
effect on our business, financial condition and results of operations.
We rely on a limited number of third parties for sand, proppant and chemicals, and delays in deliveries of such materials increases in the cost of such materials or our
contractual obligations to pay for materials that we ultimately do not require could harm our business, results of operations and financial condition.
We have established relationships with a limited number of suppliers of our raw materials (such as sand, proppant and chemical additives). Should any of our current
suppliers be unable to provide the necessary materials or otherwise fail to deliver the materials in a timely manner and in the quantities required, any resulting delays in the
provision of services could have a material adverse effect on our business, financial condition and results of operations. Additionally, increasing costs of such materials may
negatively impact demand for our services or the profitability of our business operations. In the past, our industry faced sporadic proppant shortages associated with
hydraulic fracturing operations requiring work stoppages, which adversely impacted the operating results of several competitors. We may not be able to mitigate any future
shortages of materials, including proppant. Furthermore, to the extent our contracts require us to purchase more materials, including proppant, than we ultimately require,
we may be forced to pay for the excess amount under “take or pay” contract provisions.
We have multi-year proppant supply contracts for approximately 143,000 average annual tons through 2020. The proppant market remains highly competitive and relatively
volatile. An increase in the cost of proppant as a result of increased demand or a decrease in the number of proppant providers as a result of consolidation could increase our
cost of an essential raw material in hydraulic stimulation and have a material adverse effect on our business, financial condition and results of operations.
We may be adversely affected by uncertainty in the global financial markets and the deterioration of the financial condition of our customers.
Our future results may be impacted by the uncertainty caused by an economic downturn, volatility or deterioration in the debt and equity capital markets, inflation, deflation
or other adverse economic conditions that may negatively affect us or parties with whom we do business resulting in a reduction in our customers’ spending and their non-
payment or inability to perform obligations owed to us, such as the failure of customers to honor their commitments or the failure of major suppliers to complete orders.
Additionally, during times when the natural gas or crude oil markets weaken, our customers are more likely to experience financial difficulties, including being unable to
access debt or equity financing, which could result in a reduction in our customers’ spending for our services. In addition, in the course of our business we hold accounts
receivable from our customers. In the event of the financial distress or bankruptcy of a customer, we could lose all or a portion of such outstanding accounts receivable
associated with that
18
customer. Further, if a customer was to enter into bankruptcy, it could also result in the cancellation of all or a portion of our service contracts with such customer at
significant expense or loss of expected revenues to us.
Our assets require significant amounts of capital for maintenance, upgrades and refurbishment and may require significant capital expenditures for new equipment.
Our Pressure Pumping and Pressure Control fleets and other drilling and completion service-related equipment require significant capital investment in maintenance,
upgrades and refurbishment to maintain their competitiveness. The costs of components and labor have increased in the past and may increase in the future with increases in
demand, which will require us to incur additional costs to upgrade any fleets we may acquire in the future. Our fleets and other equipment typically do not generate revenue
while they are undergoing maintenance, upgrades or refurbishment. Any maintenance, upgrade or refurbishment project for our assets could increase our indebtedness or
reduce cash available for other opportunities. Furthermore, such projects may require proportionally greater capital investments as a percentage of total asset value, which
may make such projects difficult to finance on acceptable terms. To the extent we are unable to fund such projects, we may have less equipment available for service or our
equipment may not be attractive to potential or current customers. Additionally, competition or advances in technology within our industry may require us to update or
replace existing fleets or build or acquire new fleets and equipment. Such demands on our capital or reductions in demand for our hydraulic fracturing fleets and the
increase in cost of labor necessary for such maintenance and improvement, in each case, could have a material adverse effect on our business, financial condition and results
of operations and may increase our costs.
Delays or restrictions in obtaining permits by us for our operations or by our customers for their operations could impair our business.
In most states, our operations and the operations of our oil and natural gas E&P customers require permits from one or more governmental agencies in order to perform
drilling and completion activities, secure water rights, or other regulated activities. Such permits are typically issued by state agencies, but federal and local governmental
permits may also be required. The requirements for such permits vary depending on the location where such regulated activities will be conducted. As with all governmental
permitting processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit to be issued and the conditions that may be
imposed in connection with the granting of the permit. In addition, some of our customers’ drilling and completion activities may take place on federal land or Native
American lands, requiring leases and other approvals from the federal government or Native American tribes to conduct such drilling and completion activities or other
regulated activities. Under certain circumstances, federal agencies may cancel proposed leases for federal lands and refuse to grant or otherwise delay required approvals.
Therefore, our E&P customers’ operations in certain areas of the United States may be canceled or interrupted or suspended for varying lengths of time, causing a loss of
revenue to us and adversely affecting our results of operations in support of those customers.
Federal or state legislative and regulatory initiatives related to induced seismicity could result in operating restrictions or delays in the drilling and completion of oil
and natural gas wells that may reduce demand for our services and could have a material adverse effect on our business, financial condition and results of operations.
Our oil and natural gas E&P customers dispose of flowback and produced water or certain other oilfield fluids gathered from oil and natural gas E&P operations in
accordance with permits issued by government authorities overseeing such disposal activities. While these permits are issued pursuant to existing laws and regulations,
these legal requirements are subject to change based on concerns of the public or governmental authorities regarding such disposal activities. One such concern relates to
recent seismic events near underground disposal wells that are used for the disposal by injection of flowback and produced water or certain other oilfield fluids resulting
from oil and natural gas activities. Developing research suggests that the link between seismic activity and wastewater disposal may vary by region, and that only a very
small fraction of the tens of thousands of injection wells have been suspected to be, or may have been, the likely cause of induced seismicity. In 2016, the United States
Geological Survey identified six states with the most significant hazards from induced seismicity, including Oklahoma, Kansas, Texas, Colorado, New Mexico, and
Arkansas. In response to concerns regarding induced seismicity, regulators in some states have imposed, or are considering imposing, additional requirements in the use of
such wells. For example, Oklahoma issued rules for wastewater disposal wells that imposed certain permitting and operating restrictions and reporting requirements on
disposal wells in proximity to faults and also, from time to time, is developing and implementing plans directing certain wells where seismic incidents have occurred to
restrict or suspend disposal well operations. Texas adopted similar rules. Also, in late 2016, the OCC’s Oil and Gas Conservation Division and the Oklahoma Geological
Survey released well completion seismicity guidance, which requires operators to take certain prescriptive actions, including an operator’s planned mitigation practices,
following certain unusual seismic activity within 1.25 miles of hydraulic fracturing operations. In recent years, including during 2018, the OCC’s Oil and Gas Conservation
Division has issued orders limiting future increases in the volume of oil and natural gas wastewater injected belowground into the Arbuckle formation in an effort to reduce
the number of earthquakes in the state. Another consequence of seismic events may be lawsuits alleging that disposal well operations have caused damage to neighboring
properties or otherwise violated state and federal rules regulating waste disposal. These developments could result in additional regulation and restrictions on the use of
injection wells by our customers to dispose of flowback and produced water and certain other oilfield fluids. Increased regulation and attention
19
given to induced seismicity also could lead to greater opposition to, and litigation concerning, oil and natural gas activities utilizing injection wells for waste disposal. Any
one or more of these developments may result in our customers having to limit disposal well volumes, disposal rates or locations, or require our customers or third party
disposal well operators that are used to dispose of customers’ wastewater to shut down disposal wells, which developments could adversely affect our customers’ business
and result in a corresponding decrease in the need for our services, which could have a material adverse effect on our business, financial condition and results of operations.
Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing as well as governmental reviews of such activities may serve to limit future
oil and natural gas E&P activities and could have a material adverse effect on our business, financial condition and results of operations.
We perform hydraulic fracturing services for our oil and natural gas E&P customers. The hydraulic fracturing process involves the injection of water, sand or other proppant
and chemical additives under pressure into the formation to fracture the surrounding rock and stimulate production.
Hydraulic fracturing typically is regulated by state oil and natural gas commissions or similar agencies, but the EPA has asserted federal regulatory authority and performed
investigations over aspects of the process. For example, the EPA has asserted regulatory authority pursuant to the SDWA’s UIC program over hydraulic fracturing activities
involving the use of diesel and issued guidance covering such activities, as well as published an Advance Notice of Proposed Rulemaking regarding Toxic Substances
Control Act reporting of the chemical substances and mixtures used in hydraulic fracturing. Additionally, in June 2016, the EPA published an effluent limit guideline final
rule prohibiting the discharge of wastewater from onshore unconventional oil and gas extraction facilities to publicly owned wastewater treatment plants. The BLM also
published a final rule in 2015 that established new or more stringent standards relating to hydraulic fracturing on federal and Native American lands but the BLM rescinded
the 2015 rule in late 2017; however, litigation challenging the BLM’s decision to rescind the 2015 rule is pending in federal district court. Also, in late 2016, the EPA
released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic
fracturing may impact drinking water resources under certain circumstances. From time to time, legislation has been introduced, but not enacted, in Congress to provide for
federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the hydraulic fracturing process. In the event that new federal restrictions
relating to the hydraulic fracturing process are adopted in areas where we or our E&P customers conduct business, we or our customers may incur additional costs or
permitting requirements to comply with such federal requirements that may be significant and, in the case of our customers, also could result in added restrictions, delays or
cancellations in the pursuit of exploration, development, or production activities, which would in turn reduce the demand for our services.
Moreover, some states and local governments have adopted, and other governmental entities are considering adopting, regulations that could impose more stringent
permitting, disclosure and well-construction requirements on hydraulic fracturing operations, including states where we or our customers operate. For example, Texas,
Colorado and North Dakota, among others, have adopted regulations that impose new or more stringent permitting, disclosure, disposal and well construction requirements
on hydraulic fracturing operations. States could also elect to prohibit high volume hydraulic fracturing altogether, following the approach taken by the State of New York. In
addition to state laws, local land use restrictions, such as city ordinances, may restrict drilling in general and/or hydraulic fracturing in particular. Also, non-governmental
organizations may seek to restrict hydraulic fracturing, as has been the case in Colorado in recent years, when certain interest groups therein have unsuccessfully pursued
ballot initiatives in recent general election cycles that, had they been successful, would have revised the state constitution or state statutes in a manner that would have made
exploration and production activities in the state more difficult or costly in the future including, for example, by increasing mandatory setback distances of oil and natural
gas operations, including hydraulic fracturing, from specific occupied structures and/or certain environmentally sensitive or recreational areas. Increased regulation and
attention given to the hydraulic fracturing process could lead to greater opposition to, and litigation concerning, oil and natural gas production activities using hydraulic
fracturing techniques. Additional legislation, regulation or ballot initiatives could also lead to operational restrictions, delays or cancellations for our customers or increased
operating costs in the production of oil and natural gas, including from the developing shale plays, or could make it more difficult for us and our customers to perform
hydraulic fracturing. The adoption of any federal, state or local laws or ballot initiatives, or the implementation of regulations or ballot initiatives regarding hydraulic
fracturing could potentially cause a decrease in the completion of new oil and natural gas wells and an associated decrease in demand for our services and increased
compliance costs and time, which could have a material adverse effect on our business, financial condition and results of operations.
Changes in transportation regulations may increase our costs and negatively impact our business, financial condition and results of operations.
We are subject to various transportation regulations including as a motor carrier by the DOT and by various federal, state and tribal agencies, whose regulations include
certain permit requirements of highway and safety authorities. These regulatory authorities exercise broad powers over our trucking operations, generally governing such
matters as the authorization to engage in motor carrier operations, safety, equipment testing, driver requirements and specifications and insurance requirements. The
trucking industry is subject to possible regulatory and legislative changes that may impact our operations, such as changes in fuel
20
emissions limits, hours of service regulations that govern the amount of time a driver may drive or work in any specific period, onboard ELD requirements and limits on
vehicle weight and size. As the federal government continues to develop and propose regulations relating to fuel quality, engine efficiency and GHG emissions, we may
experience an increase in costs related to truck purchases and maintenance, impairment of equipment productivity, a decrease in the residual value of vehicles, unpredictable
fluctuations in fuel prices and an increase in operating expenses. Increased truck traffic may contribute to deteriorating road conditions in some areas where our operations
are performed. Our operations, including routing and weight restrictions, could be affected by road construction, road repairs, detours and state and local regulations and
ordinances restricting access to certain roads. Proposals to increase federal, state or local taxes, including taxes on motor fuels, are also made from time to time, and any
such increase would increase our operating costs. Also, state and local regulation of permitted routes and times on specific roadways could adversely affect our operations.
We cannot predict whether, or in what form, any legislative or regulatory changes or municipal ordinances applicable to our logistics operations will be enacted and to what
extent any such legislation or regulations could increase our costs or otherwise have a material adverse effect on our business, financial condition and results of operations.
We are subject to environmental and occupational health and safety laws and regulations that may expose us to significant costs and liabilities.
Our operations and the operations of our oil and natural gas E&P customers are subject to numerous federal, tribal, regional, state and local laws and regulations relating to
protection of the environment, including natural resources, health and safety aspects of our operations and waste management, including the transportation and disposal of
waste and other materials. These laws and regulations may impose numerous obligations on our operations and the operations of our E&P customers, including the
acquisition of permits to conduct regulated activities, the imposition of restrictions on the types, quantities and concentrations of various substances that can be released into
the environment or injected in non-producing formations in connection with E&P activities, the incurrence of capital expenditures to mitigate or prevent releases of
materials from our equipment, facilities or from customer locations where we are providing services, the imposition of substantial liabilities for pollution resulting from our
operations, and the application of specific health and safety criteria addressing worker protection. Any failure on our part or the part of our E&P customers to comply with
these laws and regulations could result in prohibitions or restrictions on operations, assessment of sanctions including administrative, civil and criminal penalties, issuance
of corrective action orders requiring the performance of investigatory, remedial or curative activities or enjoining performance of some or all of our operations in a
particular area and the occurrence of restrictions, delays or cancellations in the permitting or performance of projects.
Our business activities present risks of incurring significant environmental costs and liabilities, including costs and liabilities resulting from our handling of oilfield and
other wastes, because of air emissions and wastewater discharges related to our operations, and due to historical oilfield industry operations and waste disposal practices. In
addition, private parties, including the owners of properties upon which we perform services and facilities where our wastes are taken for reclamation or disposal, also may
have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury
or property or environmental natural resource damages. Some environmental laws and regulations may impose strict liability, which means that in some situations we could
be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties.
Additionally, multiple environmental laws provide for citizen suits, which allow private parties, including environmental organizations, to act in place of the government
and sue operators for alleged violations of environmental law. Remedial costs and other damages arising as a result of environmental laws and costs associated with changes
in environmental laws and regulations could be substantial and could have a material adverse effect on our business, financial condition and results of operations.
Laws and regulations protecting the environment generally have become more stringent in recent years and are expected to continue to do so, which could lead to material
increases in costs for future environmental compliance and remediation. New laws and regulations, amendment of existing laws and regulations, reinterpretation of legal
requirements or increased governmental enforcement, could restrict, delay or cancel exploratory or developmental drilling for oil and natural gas and could limit well
servicing opportunities. We may not be able to recover some or any of our costs of compliance with these laws and regulations from insurance
The occurrence of explosive incidents could disrupt our or our customers' operations and could adversely affect our business, financial condition and results of
operations.
Our operations involve the storage and handling of explosive materials for our wireline services provided to our oil and natural gas E&P customers. Despite our use of
specialized facilities to store explosive materials and intensive employee training programs, the handling of explosive materials could result in incidents that temporarily
shut down or otherwise disrupt our or our E&P customers’ operations or could cause restrictions, delays or cancellations in the delivery of our services. It is possible that an
explosion could result in death or significant injuries to employees and other persons. Material property damage to us, our E&P customers and other third parties could also
occur. Any explosive incident could expose us to adverse publicity or liability for damages or cause production restrictions, delays or cancellations, any of which
developments could have a material adverse effect on our business, financial condition and results of operations.
21
Silica-related legislation, health issues and litigation could have a material adverse effect on our business, financial condition, results of operation and reputation.
We are subject to laws and regulations relating to human exposure to crystalline silica. For example, in 2016, OSHA published a final rule that established a more stringent
permissible exposure limit for exposure to respirable crystalline silica and provided other provisions to protect employees, such as requirements for exposure assessments,
methods for controlling exposure, respiratory protection, medical surveillance, hazard communication, and recording. Compliance with most aspects of the 2016 rule
relating to hydraulic fracturing was required by June 2018, and the 2016 rule further requires compliance with engineering control obligations to limit exposures to
respirable crystalline silica in connection with hydraulic fracturing activities by June 2021. Federal regulatory authorities, including OSHA and analogous state agencies
may continue to propose changes in their regulations regarding workplace exposure to crystalline silica. We may not be able to comply with any new laws and regulations
that are adopted, and any new laws and regulations could have a material adverse effect on our operating results by requiring us to modify or cease our operations.
In addition, the inhalation of respirable crystalline silica is associated with the lung disease silicosis. There is evidence of an association between crystalline silica exposure
or silicosis and lung cancer and a possible association with other diseases, including immune system disorders such as scleroderma. These health risks have been, and may
continue to be, a significant issue confronting the hydraulic fracturing industry. Concerns over silicosis and other potential adverse health effects, as well as concerns
regarding potential liability from the use of hydraulic fracture sand, may have the effect of discouraging our oil and natural gas E&P customers’ use of hydraulic fracture
sand. The actual or perceived health risks of handling hydraulic fracture sand could materially and adversely affect hydraulic fracturing service providers, including us,
through reduced use of hydraulic fracture sand, the threat of product liability or employee or third-party lawsuits, increased scrutiny by federal, state and local regulatory
authorities of us and our E&P customers or reduced financing sources available to the hydraulic fracturing industry.
We are exposed to potential liabilities arising from our business operations and, if realized, such liabilities will affect our business, financial condition, results of
operations and reputation.
Our operations are subject to equipment malfunctions and failures, equipment misuse and defects, explosions and uncontrollable flows of oil, natural gas or well fluids and
natural disasters that can cause personal injury, loss of life, damage to property, equipment, the environment or facilities and the suspension of operations. Any fluctuations
in operating efficiencies affect our ability to deliver services to our customers on a timely basis, which could have a material adverse effect on our financial condition and
results of operations. Despite our quality assurance measures, errors, defects or other performance problems could result in financial, reputational or other losses, including
personal injury liability, costs of repair and clean-up and potential criminal and civil penalties and damages. The frequency and severity of such incidents will affect
operating costs, insurability and relationships with customers, employees and regulators. Any errors, defects or other performance problems could adversely affect our
reputation.
Generally, our oil and natural gas E&P customers agree to indemnify us against claims arising from their employees’ personal injury or death to the extent that, in the case
of our well site services, their employees are injured or their properties are damaged by such operations, unless, in most instances, resulting from our gross negligence or
willful misconduct. Similarly, we generally agree to indemnify our E&P customers for liabilities arising from personal injury to or death of any of our employees, unless, in
most instances, resulting from gross negligence or willful misconduct of the E&P customer. In addition, our E&P customers generally agree to indemnify us for loss or
destruction of customer-owned property or equipment and in turn, we agree to indemnify our customers for loss or destruction of property or equipment we own. Losses due
to catastrophic events, such as blowouts, are generally the responsibility of the E&P customer. However, despite this general allocation of risk, we might not succeed in
enforcing such contractual allocation, might incur an unforeseen liability falling outside the scope of such allocation or may be required to enter into a service agreement
with terms that vary from the above allocations of risk. As a result, we may incur substantial losses which could materially and adversely affect our business, financial
condition and results of operations.
Although either we or our affiliates expect to maintain insurance at a level that we believe is consistent with that of similarly situated companies in our industry, we cannot
guarantee that this insurance will be adequate to cover all liabilities. Further, insurance may not be generally available in the future or, if available, insurance premiums may
make such insurance commercially unjustifiable.
Anti-indemnity provisions enacted by many states may restrict or prohibit a party’s indemnification of us.
We typically enter into agreements with our customers governing the provision of our services, which agreements usually include certain indemnification provisions for
losses resulting from operations (see the preceding risk factor). Such agreements may require each party to indemnify the other against certain claims regardless of the
negligence or other fault of the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a
party against the consequences of its own negligence. Furthermore, certain states, including Texas, Louisiana, New Mexico and Wyoming, have enacted statutes generally
referred to as “oilfield anti-indemnity acts” expressly prohibiting certain indemnity agreements contained in or related to oilfield services agreements. Such anti-indemnity
acts may restrict or void a party’s indemnification of us, which could have a material adverse effect on our business, financial condition and results of operations.
22
Oil and natural gas companies’ operations using hydraulic fracturing are substantially dependent on the availability of water. Restrictions on the ability to obtain water
for E&P activities and the disposal of flowback and produced water may impact their operations and have a corresponding adverse effect on our business, financial
condition and results of operations.
Water is an essential component of shale oil and natural gas production during both the drilling and hydraulic fracturing processes. Our oil and natural gas E&P customers’
access to water to be used in these processes may be adversely affected due to reasons such as periods of extended drought, private, third-party competition for water in
localized areas or the implementation of local or state governmental programs to monitor or restrict the beneficial use of water subject to their jurisdiction for hydraulic
fracturing to assure adequate local water supplies. The occurrence of these or similar developments may result in limitations being placed on allocations of water due to
needs by third-party businesses with more senior contractual or permitting rights to the water. Our customers’ inability to locate or contractually acquire and sustain the
receipt of sufficient amounts of water could adversely impact their E&P operations and have a corresponding adverse effect on our business, financial condition and results
of operations.
Moreover, the imposition of new environmental regulations and other regulatory initiatives could include increased restrictions on our E&P customers’ ability to dispose of
flowback and produced water generated in hydraulic fracturing or other fluids resulting from E&P activities. Applicable laws, including the Clean Water Act, impose
restrictions and strict controls regarding the discharge of pollutants into waters of the United States and require that permits or other approvals be obtained to discharge
pollutants to such waters. In 2015, the EPA and the Corps published a final rule outlining their position on the federal jurisdictional reach over waters of the United States,
including wetlands, but legal challenges to this rule followed. Beginning in the first quarter of 2017, the EPA and the Corps agreed to reconsider the 2015 rule and,
thereafter, the agencies have (i) published a proposed rule in 2017 to rescind the 2015 rule and recodify the regulatory text that governed waters of the United States prior to
promulgation of the 2015 rule, (ii) published a final rule in February 2018 adding a February 6, 2020 applicable date to the 2015 rule, and (iii) published a proposed rule in
December 2018 re-defining the Clean Water Act’s jurisdiction over waters of the United States for which the agencies will seek public comment. The 2015 and February
2018 final rules are being challenged by various factions in federal district court and implementation of the 2015 rule has been enjoined in twenty-eight states pending
resolution of the various federal district court challenges. Also, in 2016, the EPA published final regulations prohibiting wastewater discharges from hydraulic fracturing and
certain other natural gas operations to publicly-owned wastewater treatment plants. The Clean Water Act and analogous state laws provide for civil, criminal and
administrative penalties for any unauthorized discharges of pollutants and unauthorized discharges of reportable quantities of oil and hazardous substances. Compliance
with current and future environmental regulations and permit requirements governing the withdrawal, storage and use of surface water or groundwater necessary for
hydraulic fracturing of wells and any inability to secure transportation and access to disposal wells with sufficient capacity to accept all of the flowback and produced water
on economic terms may increase our customers’ operating costs and cause restrictions, delays, interruptions or termination of our E&P customers’ operations, the extent of
which cannot be predicted.
Any future indebtedness could restrict our operations and adversely affect our financial condition.
We may incur indebtedness to fund capital expenditures and for working capital needs. Our level of indebtedness may adversely affect our operations and limit our growth,
and we may have difficulty making debt service payments on our indebtedness as such payments become due. Our indebtedness may affect our operations in several ways,
including the following:
•
•
•
•
•
•
our indebtedness may increase our vulnerability to general adverse economic and industry conditions;
the covenants contained in the agreements that will govern our indebtedness limit our ability to borrow funds, dispose of assets, pay dividends and make certain
investments;
our debt covenants will also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;
any failure to comply with the financial or other covenants of our indebtedness could result in an event of default, which could result in some or all of our
indebtedness becoming immediately due and payable;
our indebtedness could impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general
corporate purposes; and
our business may not generate sufficient cash flows from operations to enable us to meet our obligations under our indebtedness. If our cash flows and capital
resources are insufficient to fund any debt service obligations, we may be forced to reduce or delay investments and capital expenditures, sell assets, seek
additional capital or restructure or refinance indebtedness.
Increases in interest rates could adversely impact the price of our shares, our ability to issue equity or incur debt for acquisitions or other purposes.
23
Interest rates on future borrowings, credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. A rising
interest rate environment could have an adverse impact on the price of our shares, our ability to issue equity or incur debt for acquisitions or other purposes.
We rely on a few key employees whose absence or loss could adversely affect our business.
Many key responsibilities within our business have been assigned to a small number of employees. The loss of their services could adversely affect our business. In
particular, the loss of the services of one or more members of our management team, including our Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, Chief Compliance Officer, Chief Accounting Officer, Divisional Presidents, and certain of our Vice Presidents, could disrupt our operations. We do not maintain
“key person” life insurance policies on any of our employees. As a result, we are not insured against any losses resulting from the death of our key employees.
Our industry overall has experienced a high rate of employee turnover. Any difficulty we experience replacing or adding personnel could have a material adverse effect
on our business, financial condition and results of operations.
We are dependent upon the available labor pool of skilled employees and may not be able to find enough skilled labor to meet our needs, which could have a negative effect
on our growth. We are also subject to the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions. Our services
require skilled workers who can perform physically demanding work. As a result of our industry volatility, including the recent and pronounced decline in drilling activity,
as well as the demanding nature of the work, many workers have left the hydraulic fracturing industry to pursue employment in different fields. If we are unable to retain or
meet growing demand for skilled technical personnel, our operating results and our ability to execute our growth strategies may be adversely affected.
The growth of our business through acquisitions may expose us to various risks, including those relating to difficulties in identifying suitable, accretive acquisition
opportunities, as well as difficulties in obtaining financing for targeted acquisitions and the potential for increased leverage or debt service requirements.
As a component of our business strategy, we intend to pursue selected, accretive acquisitions of complementary assets, businesses and technologies. Acquisitions involve a
number of risks, including:
•
•
•
•
•
•
unanticipated costs and assumption of liabilities and exposure to unforeseen liabilities of acquired businesses, including environmental liabilities;
limitations on our ability to properly assess and maintain an effective internal control environment over an acquired business, in order to comply with public
reporting requirements;
potential losses of key employees and customers of the acquired business;
inability to commercially develop acquired technologies;
risks of entering markets in which we have limited prior experience; and
increases in our expenses and working capital requirements.
In addition, we may not have sufficient capital resources to complete additional acquisitions. We may incur substantial indebtedness to finance future acquisitions and also
may issue equity or debt securities in connection with such acquisitions. Debt service requirements could represent a significant burden on our results of operations and
financial condition and the issuance of additional equity or convertible securities could be dilutive to our existing stockholders. Furthermore, we may not be able to obtain
additional financing on satisfactory terms. Even if we have access to the necessary capital, we may be unable to continue to identify suitable acquisition opportunities,
negotiate acceptable terms or successfully acquire identified targets. There is intense competition for acquisition opportunities in our industry. Competition for acquisitions
may increase the cost of, or cause use to refrain from, completing acquisitions.
Our ability to grow through acquisitions and manage growth will require us to continue to invest in operational, financial and management information systems to attract,
retain, motivate and effectively manage our employees. Our business, financial condition and results of operations may fluctuate significantly from quarter to quarter, based
on whether or not significant acquisitions are completed in particular quarters.
Integrating acquisitions may be time-consuming and create costs that could reduce our net income and cash flows.
Part of our strategy includes pursuing acquisitions that we believe will be accretive to our business. If we consummate an acquisition, the process of integrating the acquired
business may be complex and time consuming, may be disruptive to the business and may
24
cause an interruption of, or a distraction of management’s attention from, the business as a result of a number of obstacles, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
a failure of our due diligence process to identify significant risks or issues;
the loss of customers of the acquired company or our company;
negative impact on the brands or banners of the acquired company or our company;
a failure to maintain or improve the quality of customer service;
difficulties assimilating the operations and personnel of the acquired company;
our inability to retain key personnel of the acquired company;
the incurrence of unexpected expenses and working capital requirements;
our inability to achieve the financial and strategic goals, including synergies, for the combined businesses;
difficulty in maintaining internal controls, procedures and policies;
mistaken assumptions about the overall costs of equity or debt; and
unforeseen difficulties operating in new product areas or new geographic areas.
Any of the foregoing obstacles, or a combination of them, could decrease gross profit margins or increase selling, general and administrative expenses in absolute terms
and/or as a percentage of net sales, which could in turn negatively impact our financial condition.
We may not be able to consummate acquisitions in the future on terms acceptable to us, or at all. In addition, future acquisitions are accompanied by the risk that the
obligations and liabilities of an acquired company may not be adequately reflected in the historical financial statements of that company and the risk that those historical
financial statements may be based on assumptions which are incorrect or inconsistent with our assumptions or approach to accounting policies. Any of these material
obligations, liabilities or incorrect or inconsistent assumptions could adversely impact our business, financial condition and results of operations.
If our intended expansion of our business is not successful, our business, financial condition and results of operations could be materially adversely affected, and we
may not achieve the increases in revenue and profitability that we hope to realize.
A key element of our business strategy involves the expansion of our services, geographic presence and customer base. These aspects of our strategy are subject to
numerous tasks and uncertainties, including:
•
•
•
•
•
•
an inability to retain or hire experienced crews and other personnel;
a lack of customer demand for the services we intend to provide;
an inability to secure necessary equipment, raw materials or technology to successfully execute our expansion objective;
shortages of water used in our hydraulic fracturing operations;
unanticipated delays that could limit or defer the provision of services by us and jeopardize our relationships with existing customers and adversely affect our
ability to obtain new customers for such services; and
competition from new and existing service providers.
Encountering any of these or any unforeseen problems in implementing our planned expansion could have a material adverse impact on our business, financial condition
and results of operations, and could prevent us from achieving the increases in revenues and profitability that we hope to realize.
Fuel conservation measures could reduce demand for oil and natural gas which would in turn reduce the demand for our services.
25
Fuel conservation measures, alternative fuel requirements and increasing consumer demand for alternatives to oil and natural gas could reduce demand for oil and natural
gas. The impact of the changing demand for oil and natural gas may have a material adverse effect on our business, financial condition, prospects, results of operations and
cash flows. Additionally, the increased competitiveness of alternative energy sources (such as wind, solar geothermal, tidal and biofuels) could reduce demand for
hydrocarbons and therefore for our services, which would lead to a reduction in our revenues.
Unsatisfactory safety performance may negatively affect our customer relationships and, to the extent we fail to retain existing customers or attract new customers,
adversely impact our revenues.
Our ability to retain existing customers and attract new business is dependent on many factors, including our ability to demonstrate that we can reliably and safely operate
our business in a manner that is consistent with applicable laws, rules and permits, which legal requirements are subject to change. Existing and potential customers
consider the safety record of their third-party service providers to be of high importance in their decision to engage such providers. If one or more accidents were to occur at
one of our operating sites, the affected customer may seek to terminate or cancel its use of our facilities or services and may be less likely to continue to use our services,
which could cause us to lose substantial revenues. Furthermore, our ability to attract new customers may be impaired if they elect not to engage us because they view our
safety record as unacceptable. In addition, it is possible that we will experience multiple or particularly severe accidents in the future, causing our safety record to
deteriorate. This may be more likely as we continue to grow, if we experience high employee turnover or labor shortage, or hire inexperienced personnel to bolster our
staffing needs.
Climate change legislation and regulations restricting or regulating emissions of GHGs could result in increased operating and capital costs and reduced demand for
our hydraulic fracturing services.
Climate change continues to attract considerable public, governmental and scientific attention. As a result, numerous proposals have been made and are likely to continue to
be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs. These efforts have included consideration of cap-
and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources.
At the federal level, no comprehensive climate change legislation has been implemented to date. The EPA has, however, adopted rules under authority of the CAA that,
among other things, establish Potential for Significant Deterioration (“PSD”) construction and Title V operating permit reviews for GHG emissions from certain large
stationary sources that are also potential major sources of certain principal, or criteria, pollutant emissions, which reviews could require securing PSD permits at covered
facilities emitting GHGs and meeting “best available control technology” standards for those GHG emissions. Additionally, the EPA has adopted rules requiring the
monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the United States, including, among others, onshore and
offshore production facilities, which include certain of our E&P customers’ operations. The EPA has expanded the GHG reporting requirements to all segments of the oil
and natural gas industry, including gathering and boosting facilities as well as completions and workovers from hydraulically fractured oil wells.
Federal agencies also have begun directly regulating emissions of methane, a GHG, from oil and natural gas operations. In 2016, the EPA published NSPS, known as
Subpart OOOOa, which requires certain new, modified or reconstructed facilities in the oil and natural gas sector to reduce these methane gas and VOC emissions. These
Subpart OOOOa standards expand previously issued NSPS published by the EPA in 2012 and known as Subpart OOOOa, by using certain equipment-specific emissions
control practices. However, in 2017, the EPA published a proposed rule to stay certain portions of these Subpart OOOOa standards for two years but the rule was not
finalized. Rather, in February 2018, the EPA finalized amendments to certain requirements of the 2016 final rule, and in September 2018 the EPA proposed additional
amendments, including rescission of certain requirements and revisions to other requirements, such as fugitive emission monitoring frequency. Furthermore, in 2016, the
BLM published a final rule that established, among other things, requirements to reduce methane emissions by regulating venting, flaring and leaks from oil and natural gas
production activities on onshore federal and Native American lands. However, in September 2018, the BLM published a final rule that rescinds most of the new
requirements of the 2016 final rule and codifies the BLM’s prior approach to venting and flaring but the rule rescinding the 2016 final rule has been challenged in federal
court and remains pending.
Internationally, in late 2015, the United States joined other countries in entering into a United Nations-sponsored non-binding agreement negotiated in Paris, France (“Paris
Agreement”) for nations to limit their GHG emissions through individually determined reduction goals every five years beginning in 2020. However, in August 2017, the
U.S. State Department informed the United Nations of the intent of the United States to withdraw from the Paris Agreement. The Paris Agreement provides for a four-year
exit process beginning when it took effect in November 2016. The United States’ adherence to the exit process and/or the terms on which the United States may reenter the
Paris Agreement or separately negotiated agreement are unclear at this time. The adoption and implementation of any international, federal or state legislation or regulations
that require reporting of GHGs or otherwise restrict emissions of GHGs could result in increased compliance costs or additional operating restrictions, and could have a
material adverse effect on our business, financial condition, demand for our services and results of operations. Moreover, recent activism directed at shifting funds away
from companies with energy-related assets could result in limitations or restrictions on certain sources of funding for the energy sector.
26
Finally, some scientists have concluded that increasing concentrations of GHG in the atmosphere may produce climate changes that have significant physical effects, such
as increased frequency and severity of storms, droughts, and floods and other climate events that could have an adverse effect on our operations and the operations of our
customers.
The ESA and MBTA laws and other restrictions intended to protect certain species of wildlife govern our and our customers’ operations and additional restrictions may
be imposed in the future, which constraints could have an adverse impact on our ability to expand some of our existing operations or limit our customers’ ability to
develop new oil and natural gas wells.
Oil and natural gas E&P operations in our operating areas can be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various
wildlife, which may limit our ability to operate in protected areas. Permanent restrictions imposed to protect endangered species could prohibit drilling in certain areas or
require the implementation of expensive mitigation measures.
For example, the ESA restricts activities that may affect endangered or threatened species or their habitats. Similar protections are offered to migratory birds under the
MBTA. To the extent species that are listed under the ESA or similar state laws, or are protected under the MBTA, live in the areas where we or our oil and natural gas E&P
customers operate, our and our customers’ abilities to conduct or expand operations and construct facilities could be limited or be forced to incur material additional costs.
Moreover, our customer’s drilling activities may be delayed, restricted or precluded in protected habitat areas or during certain seasons, such as breeding and nesting
seasons. Some of our operations and the operations of our customers are located in areas that are designated as habitats for protected species.
Moreover, as a result of one or more settlements approved by the federal government, FWS must make determinations on the listing of numerous species as endangered or
threatened under the ESA pursuant to specific timelines. The designation of previously unidentified endangered or threatened species could indirectly cause us to incur
additional costs, cause our or our customers’ operations to become subject to operating restrictions or bans, and limit future development activity in affected areas. The
FWS and similar state agencies may designate critical or suitable habitat areas that they believe are necessary for the survival of threatened or endangered species. Such a
designation could materially restrict use of or access to federal, state and private lands.
Technology advancements in drilling and well service technologies, including those involving hydraulic fracturing, could have a material adverse effect on our
business, financial condition and results of operations.
The hydraulic fracturing and completions tool industry is characterized by rapid and significant technological advancements and introductions of new products and services
using new technologies. As competitors and others use or develop new technologies or technologies comparable to ours in the future, we may lose market share or be placed
at a competitive disadvantage. Further, we may face competitive pressure to implement or acquire certain new technologies at a substantial cost. Some of our competitors
may have greater financial, technical and personnel resources than we do, which may allow them to gain technological advantages or implement new technologies before
we can. Additionally, we may be unable to implement new technologies or services at all, on a timely basis or at an acceptable cost. New technology could also make it
easier for our oil and natural gas E&P customers to vertically integrate their operations, thereby reducing or eliminating the need for our services. Limits on our ability to
effectively use or implement new technologies may have a material adverse effect on our business, financial condition and results of operations.
Seasonal weather conditions and natural disasters could severely disrupt normal operations and harm our business.
Our operations are located in different regions of the United States. Some of these areas are adversely affected by seasonal weather conditions, primarily in the winter and
spring. During periods of heavy snow, ice or rain, we may be unable to move our equipment between locations, thereby reducing our ability to provide services and generate
revenues. The exploration activities of our customers may also be affected during such periods of adverse weather conditions. Additionally, extended drought conditions in
our operating regions could impact our ability or our customers’ ability to source sufficient water or increase the cost for such water. As a result, a natural disaster or
inclement weather conditions could severely disrupt the normal operation of our business and adversely impact our financial condition and results of operations.
Certain of our segments may be concentrated in particular geographic regions, which could exacerbate any negative performance of those companies to the extent
those companies perform poorly.
We have historically focused our Pressure Pumping services in the Mid-Continent and Rocky Mountain regions. During periods of adverse weather, difficult market
conditions or slowdowns in oil and natural gas exploration in these geographic regions, the decreased revenues, difficulty in obtaining access to financing and increased
funding costs we experience may be exacerbated by the geographic concentration of our completion and production operations. We could experience any of these conditions
at the same time, resulting in a relatively greater impact on our results of operations than they might have on other companies that have more geographically diversified
operations. Such delays or interruptions could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to interruptions or failures in our information technology systems.
We rely on sophisticated information technology systems and infrastructure to support our business, including process control technology. Any of these systems may be
susceptible to outages due to fire, floods, power loss, telecommunication failures, usage
27
errors by employees, computer viruses, cyberattacks or other security breaches or similar events. The failure of any of our information technology systems may cause
disruptions in our operations, which could adversely affect our sales and profitability.
We are subject to cyber security risks. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss.
The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain processing activities. For example, we depend on digital
technologies to perform many of our services and to process and record financial and operating data. At the same time, cyber incidents, including deliberate attacks, have
increased. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Our technologies, systems and
networks, and those of our vendors, suppliers and other business partners, may become the target of cyberattacks or information security breaches that could result in the
unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of business operations. In addition, certain
cyber incidents, such as surveillance, may remain undetected for an extended period. Our systems and insurance coverage for protecting against cyber security risks may not
be sufficient. As cyber incidents continue to evolve, we will likely be required to expend additional resources to continue to modify or enhance our protective measures or to
investigate and remediate any vulnerability to cyber incidents. Our insurance coverage for cyberattacks may not be sufficient to cover all the losses we may experience as a
result of such cyberattacks.
If we are unable to fully protect our intellectual property rights, we may suffer a loss in our competitive advantage or market share.
We do not have patents or patent applications relating to many of our key processes and technology. If we are not able to maintain the confidentiality of our trade secrets, or
if our competitors are able to replicate our technology or services, our competitive advantage would be diminished. We also cannot assure you that any patents we may
obtain in the future would provide us with any significant commercial benefit or would allow us to prevent our competitors from employing comparable technologies or
processes.
We may be adversely affected by disputes regarding intellectual property rights of third parties.
Third parties from time to time may initiate litigation against us by asserting that the conduct of our business infringes, misappropriates or otherwise violates intellectual
property rights. We may not prevail in any such legal proceedings related to such claims, and our products and services may be found to infringe, impair, misappropriate,
dilute or otherwise violate the intellectual property rights of others. If we are sued for infringement and lose, we could be required to pay substantial damages and/or be
enjoined from using or selling the infringing products or technology. Any legal proceeding concerning intellectual property could be protracted and costly regardless of the
merits of any claim and is inherently unpredictable and could have a material adverse effect on our financial condition, regardless of its outcome.
If we were to discover that our technologies or products infringe valid intellectual property rights of third parties, we may need to obtain licenses from these parties or
substantially re-engineer our products in order to avoid infringement. We may not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-
engineer our products successfully. If our inability to obtain required licenses for our technologies or products prevents us from selling our products, our business, financial
condition and results of operations could be materially adversely impacted.
A terrorist attack or armed conflict could harm our business.
The occurrence or threat of terrorist attacks in the United States or other countries, anti-terrorist efforts and other armed conflicts involving the United States or other
countries, including continued hostilities in the Middle East, may adversely affect the United States and global economies and could prevent us from meeting our financial
and other obligations. Additionally, destructive forms of protest and opposition by activists and other disruptions, including acts of sabotage or eco-terrorism against oil and
natural gas development and production activities could potentially result in personal injury to persons, damages to property, natural resources or the environment or lead to
extended interruptions of our or our customers’ operations. If any of these events occur, the resulting political instability and societal disruption could reduce overall
demand for oil and natural gas, potentially putting downward pressure on demand for our services and causing a reduction in our revenues. Oil and natural gas related
facilities could be direct targets of terrorist attacks, and our operations could be adversely impacted if infrastructure integral to our customers’ operations is destroyed or
damaged. Costs for insurance and other security may increase as a result of these threats, and some insurance coverage may become more difficult to obtain, if available at
all.
We engage in transactions with related parties and such transactions present possible conflicts of interest that could have an adverse effect on us.
We have entered into a significant number of transactions with related parties. The details of certain of these transactions are set forth in the section “Certain Relationships
and Related Transactions, and Director Independence.” Related party transactions create the possibility of conflicts of interest with regard to our management, including
that:
28
•
•
•
we may enter into contracts between us, on the one hand, and related parties, on the other, that are not as a result of arm’s-length transactions;
our executive officers and directors that hold positions of responsibility with related parties may be aware of certain business opportunities that are appropriate
for presentation to us as well as to such other related parties and may present such business opportunities to such other parties; and
our executive officers and directors that hold positions of responsibility with related parties may have significant duties with, and spend significant time
serving, other entities and may have conflicts of interest in allocating time.
Such conflicts could cause an individual in our management to seek to advance his or her economic interests or the economic interests of certain related parties above ours.
Further, the appearance of conflicts of interest created by related party transactions could impair the confidence of our investors. Our Board of Directors (the "Board of
Directors" or "Board") regularly reviews these transactions. Notwithstanding this, it is possible that a conflict of interest could have a material adverse effect on our
business, financial condition and results of operations.
We may record losses or impairment charges related to idle assets or assets that we sell.
Prolonged periods of low utilization, changes in technology or the sale of assets below their carrying value may cause us to experience losses. These events could result in
the recognition of impairment charges that negatively impact our financial results. Significant impairment charges as a result of a decline in market conditions or otherwise
could have a material adverse effect on our results of operations in future periods.
We may be required to take write-downs of the carrying values of our long-lived assets.
We evaluate our long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate that their carrying value may not
be recoverable. Recoverability is measured by a comparison of their carrying amount to the estimated undiscounted cash flows to be generated by those assets. Based on
specific market factors and circumstances at the time of prospective impairment reviews and the continuing evaluation of development plans, economics and other factors,
we may be required to write down the carrying value of our long-lived and other intangible assets. There was no impairment on our long-lived assets for the years ended
December 31, 2018 and 2017.
The requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and the requirements of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), may strain our resources, increase our costs and distract management,
and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a public company, we are required to comply with new laws, regulations and requirements, certain corporate governance provisions of Sarbanes-Oxley, related
regulations of the SEC and the requirements of the New York Stock Exchange (the “NYSE”), with which we were not required to comply as a private company. Complying
with these statutes, regulations and requirements occupies a significant amount of time of our Board of Directors and management and significantly increases our costs and
expenses. We are required to:
•
•
•
•
•
institute a more comprehensive compliance function;
comply with rules promulgated by the NYSE;
continue to prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;
establish new internal policies, such as those relating to insider trading; and
involve and retain to a greater degree outside counsel and accountants in the above activities.
Specifically, Sarbanes-Oxley requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to
develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the
SEC, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed in
reports under the Exchange Act, is accumulated and communicated to our principal executive and financial officers. Any failure to develop or maintain effective controls
could adversely affect the results of periodic management evaluations. In the event that we are not able to demonstrate compliance with Sarbanes-Oxley, that our internal
control over financial reporting is perceived as inadequate, or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our
operating results and the price of our common stock could decline.
29
Sarbanes-Oxley requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and disclosure controls and
procedures quarterly. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report
on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley. This assessment includes the disclosure of any material
weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. To achieve compliance with
Section 404 within the prescribed period, we continue to dedicate internal resources and utilize outside consultants and continue to execute a detailed work plan to assess
and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are
functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. If material weaknesses are
identified in the future or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated, we
could receive an adverse opinion regarding our internal controls over financial reporting from our accounting firm, if and when required, and we could be subject to
investigations or sanctions by regulatory authorities, which would require additional financial and management resources, which could result in an adverse reaction in the
financial markets due to a loss of confidence in the reliability of our financial statements. We cannot assure you that there will not be material weaknesses or significant
deficiencies in our disclosure controls or our internal controls over financial reporting in the future. For so long as we remain as an emerging growth company, our
accounting firm will not be required to provide an opinion regarding our internal controls over financial reporting.
In addition, we expect that being a public company subject to these rules and regulations may make it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a
result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers.
Our stock price may be volatile.
The market price of our common stock could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market
price of our common stock, you could lose a substantial part or all of your investment in our common stock. The following factors could affect our stock price:
•
•
•
•
•
•
•
•
•
•
•
•
•
quarterly variations in our financial and operating results;
the public reaction to our press releases, our other public announcements and our filings with the SEC;
strategic actions by our competitors;
changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;
speculation in the press or investment community;
the failure of research analysts to cover our common stock;
sales of our common stock by us, our Principal Stockholders (as defined below) or other stockholders, or the perception that such sales may occur;
changes in accounting principles, policies, guidance, interpretations or standards;
additions or departures of key management personnel;
actions by our stockholders;
general market conditions, including fluctuations in commodity prices;
domestic and international economic, legal and regulatory factors unrelated to our performance; and
the realization of any risks described under this “Risk Factors” section.
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market
fluctuations may adversely affect the trading price of our common stock. Securities class action litigation has often been instituted against companies following periods of
volatility in the overall market and in the
30
market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and
harm our business, financial condition and results of operations.
The Principal Stockholders have the ability to direct the voting of a majority of our voting stock, and their interests may conflict with those of our other stockholders.
Upon completion of our IPO, investment funds managed by Quintana Capital Group (“Quintana”), Archer Well Company Inc. ("Archer"), Geveran Investments Limited
and its affiliates (“Geveran”), Robertson QES Investment LLC (“Robertson QES”) and Corbin J. Robertson, Jr. (“Mr. Robertson” and, together with Quintana, Archer,
Geveran, and Robertson QES, the “Principal Stockholders”), own, on a combined basis, approximately 75.7% of our voting stock as of March 1, 2019. As a result, on a
combined basis, the Principal Stockholders are able to control matters requiring stockholder approval, including the election of directors, changes to our organizational
documents and significant corporate transactions. This concentration of ownership makes it unlikely that any other holder or group of holders of our common stock will be
able to affect the way we are managed or the direction of our business. The interests of the Principal Stockholders with respect to matters potentially or actually involving or
affecting us, such as future acquisitions, financings and other corporate opportunities and attempts to acquire us, may conflict with the interests of our other stockholders.
Given this concentrated ownership, the Principal Stockholders would have to approve any potential acquisition of us. The existence of significant stockholders may have the
effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve
transactions that they may deem to be in the best interests of our company. Moreover, the Principal Stockholders’ concentration of stock ownership may adversely affect the
trading price of our common stock to the extent investors perceive a disadvantage in owning stock of a company with significant stockholders.
In addition, our second amended and restated equity rights agreement (the “Equity Rights Agreement”), provides Quintana with the right to appoint two directors to our
Board of Directors, provides Archer with the right to appoint two directors to our Board of Directors and provides Geveran with the right to appoint one director to our
Board of Directors. Pursuant to the Equity Rights Agreement, the Principal Stockholders are also deemed a “group” for purposes of certain rules and regulations of the SEC.
As a result, we are a controlled company within the meaning of the NYSE corporate governance standards. See “Management—Status as a Controlled Company.”
Certain of our directors have significant duties with, and spend significant time serving, entities that may compete with us in seeking acquisitions and business opportunities
and, accordingly, may have conflicts of interest in allocating time or pursuing business opportunities. Certain of our directors, who are responsible for managing the
direction of our operations, hold positions of responsibility with other entities (including affiliated entities) that are in the oil and natural gas industry. These directors may
become aware of business opportunities that may be appropriate for presentation to us as well as to the other entities with which they are or may become affiliated. Due to
these existing and potential future affiliations, they may present potential business opportunities to other entities prior to presenting them to us, which could cause additional
conflicts of interest. They may also decide that certain opportunities are more appropriate for other entities with which they are affiliated, and as a result, they may elect not
to present those opportunities to us. These conflicts may not be resolved in our favor. For additional discussion of our directors’ business affiliations and the potential
conflicts of interest of which our stockholders should be aware, see “Certain Relationships and Related Transactions, and Director Independence.”
Quintana, Archer and their respective affiliates are not limited in their ability to compete with us, and the corporate opportunity provisions in our amended and restated
certificate of incorporation could enable Quintana or Archer to benefit from corporate opportunities that might otherwise be available to us.
Our governing documents provide (a) that we renounce any interest and expectancy in any business opportunity that may be from time to time presented to Quintana or
Archer or their respective affiliates, and (b) that Quintana and Archer and their respective affiliates (including their portfolio investments) are not restricted from owning
assets or engaging in businesses that compete directly or indirectly with us. In particular, subject to the limitations of applicable law, our amended and restated certificate of
incorporation does, among other things:
•
•
permit Quintana and Archer, and their respective affiliates to conduct business that competes with us and to make investments in any kind of property in which we
may make investments; and
provide that if Quintana or Archer or their respective affiliates, or any employee, partner, member, manager, officer or director of Quintana or Archer or their
respective affiliates who is also one of our directors or officers, becomes aware of a potential business opportunity, transaction or other matter, they will have no
duty to communicate or offer that opportunity to us.
Quintana or Archer or their respective affiliates may become aware, from time to time, of certain business opportunities (such as acquisition opportunities) and may direct
such opportunities to other businesses in which they have invested, in which case we may not become aware of or otherwise have the ability to pursue such opportunity.
Furthermore, such businesses may choose to
31
compete with us for these opportunities, possibly causing these opportunities to not be available to us or causing them to be more expensive for us to pursue. In addition,
Quintana and Archer and their respective affiliates may dispose of oil and natural gas properties or other assets in the future, without any obligation to offer us the
opportunity to purchase any of those assets. As a result, our renouncing our interest and expectancy in any business opportunity that may be from time to time presented to
Quintana and Archer and their respective affiliates could adversely impact our business or prospects if attractive business opportunities are procured by such parties for their
own benefit rather than for ours.
A significant reduction by any of the Principal Stockholders of their respective ownership interests in us could adversely affect us.
We believe that the Principal Stockholders' ownership interests in us provide each of them with an economic incentive to assist us to be successful. None of the Principal
Stockholders are subject to any obligation to maintain their respective ownership interest in us and may elect at any time to sell all or a substantial portion of or otherwise
reduce their respective ownership interest in us. If any of the Principal Stockholders sell all or a substantial portion of their respective ownership interest in us, such
Principal Stockholder may have less incentive to assist in our success and such Principal Stockholders' affiliate(s) that are expected to serve as members of our Board of
Directors may resign. Such actions could adversely affect our ability to successfully implement our business strategies which could adversely affect our business, financial
condition and results of operations.
Our amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law, contain provisions that could discourage acquisition
bids or merger proposals, which may adversely affect the market price of our common stock and could deprive our investors of the opportunity to receive a premium for
their shares.
Our amended and restated certificate of incorporation authorizes our Board of Directors to issue preferred stock without stockholder approval in one or more series,
designate the number of shares constituting any series, and fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences of such series. If our Board of Directors elects to issue preferred stock, it could be more difficult
for a third party to acquire us. In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it more
difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders. These provisions include:
•
•
•
•
•
•
•
•
•
after we cease to be a controlled company, dividing our Board of Directors into three classes of directors, with each class serving staggered three-year terms, other
than directors which may be elected by holders of our preferred stock, if any;
after we cease to be a controlled company, providing that all vacancies, including newly created directorships, may, except as otherwise required by law or, if
applicable, the rights of holders of one or more series of our preferred stock, be filled only by the affirmative vote of a majority of directors then in office, even if
less than a quorum (prior to such time, vacancies may also be filled by stockholders holding a majority of the outstanding shares);
providing that, after we cease to be a controlled company, any action required or permitted to be taken by the stockholders must be effected at a duly called annual
or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders, subject to the rights of the holders
of any series of our preferred stock with respect to such series;
providing that, after we cease to be a controlled company, our certificate of incorporation and bylaws may be amended by the affirmative vote of the holders of not
less than 66% of our then outstanding common stock;
providing that, after we cease to be a controlled company, permitting special meetings of our stockholders to be called only by our Board of Directors pursuant to a
resolution adopted by the affirmative vote of a majority of the members of the board of directors serving at the time of such vote (prior to such time, a special
meeting may also be called at the request of stockholders holding a majority of the then outstanding shares entitled to vote);
providing that, after we cease to be a controlled company, the affirmative vote of the holders of not less than 66% in voting power of all then outstanding common
stock entitled to vote generally in the election of directors, voting together as a single class, is required to remove any or all of the directors from office at any time,
and directors will be removable only for “cause”;
prohibiting cumulative voting by our stockholders on all matters;
establishing advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of
stockholders;
providing that our Board of Directors has the ability to authorize undesignated preferred stock;
32
•
•
providing that the authorized number of directors constituting our Board of Directors may be changed only by a resolution of the board of directors; and
providing that our Board of Directors is expressly authorized to adopt, alter or repeal our bylaws.
Our amended and restated certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation
Law (the “DGCL”), and prevents us from engaging in a business combination, such as a merger, with a person or group who acquires at least 15% of our voting stock for a
period of three years from the date such person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the
person became an interested stockholder is approved as prescribed in our amended and restated certificate of incorporation. However, our amended and restated certificate
of incorporation also provides that our Principal Stockholders and any persons to whom our Principal Stockholders sell their common stock will be excluded from the
definition of “interested stockholder”.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of
actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us
or our directors, officers, employees or agents.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State
of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any
action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim
arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a
claim against us that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable
parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and
consented to, the provisions of our amended and restated certificate of incorporation described in the preceding sentence. This choice of forum provision may limit a
stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage
such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or
unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other
jurisdictions, which could adversely affect our business, financial condition or results of operations.
We do not intend to pay cash dividends on our common stock. Consequently, your only opportunity to achieve a return on your investment is if the price of our common
stock appreciates.
We do not plan to declare cash dividends on shares of our common stock in the foreseeable future. Additionally, our New ABL Facility places certain restrictions on our
ability to pay cash dividends. Consequently, your only opportunity to achieve a return on your investment in us may be if you sell your common stock at a price greater than
you paid for it. There is no guarantee that the price of our common stock that will prevail in the market will ever exceed the price at which you purchased your shares of
common stock.
Future sales of our common stock in the public market, or the perception that such sales may occur, could reduce our stock price, and any additional capital raised by
us through the sale of equity or convertible securities may dilute your ownership in us.
We may sell additional shares of common stock in subsequent public offerings or may issue additional shares of common stock or convertible securities. We have
33,907,414 shares of our common stock outstanding as of March 1, 2019.
In connection with our IPO, on February 14, 2018, we filed a registration statement with the SEC on Form S-8 providing for the registration of 5,257,215 shares of our
common stock issued or reserved for issuance under our equity incentive plan. Subject to the satisfaction of vesting conditions and the requirements of Rule 144, shares
registered under the registration statement on Form S-8 may be made available for resale immediately in the public market without restriction.
Additionally, on December 21, 2018, pursuant to our contractual obligations under the Registration Rights Agreement, dated February 13, 2018, by and among the
Company and certain of the Principal Stockholders, the Company filed a selling stockholder shelf registration statement on Form S-1 with the SEC and registered
25,654,384 shares of our common stock, par value $0.01 per share, which may be offered for sale from time to time by the selling stockholders named therein (the
“December 2018 Form S-1”). The shares of our common stock covered by the December 2018 Form S-1 were issued by us to the selling stockholders in the corporate
reorganization connected to our IPO or were purchased by the selling stockholders in our IPO, which closed on February 13, 2018. We are not selling any shares of common
stock pursuant to the December 2018 Form S-1 and will not receive any proceeds from the sale of any shares of common stock by the selling stockholders. We cannot
predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and/or sales of shares
33
of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an
acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock.
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our amended and restated certificate of incorporation authorizes our Board of Directors to issue, without the approval of our stockholders, one or more classes or series of
preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions,
as our Board of Directors may determine. The terms of one or more classes or series of our preferred stock could adversely impact the voting power or value of our common
stock. For example, we might grant holders of a class or series of our preferred stock the right to elect some number of our directors in all events or on the happening of
specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred
stock could affect the residual value of our common stock.
We are a “controlled company” within the meaning of the NYSE rules and, as a result, qualify for and intend to rely on exemptions from certain corporate governance
requirements.
The Principal Stockholders own, on a combined basis, a majority of the combined voting power of all classes of our outstanding voting stock. Additionally, the Principal
Stockholders are deemed a group for purposes of certain rules and regulations of the SEC as a result of the Equity Rights Agreement. As a result, we are a controlled
company within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by
another person or group of persons acting together is a controlled company and may elect not to comply with certain NYSE corporate governance requirements, including
the requirements that:
•
•
•
a majority of the board of directors consist of independent directors as defined under the rules of the NYSE;
the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and
responsibilities; and
the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
These requirements will not apply to us as long as we remain a controlled company. We intend to utilize some or all of these exemptions. For example, while not currently
mandatory given our controlled company status, we have voluntarily established a compensation committee as of the closing of our IPO. Accordingly, you may not have the
same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. See “Management—Status as a
Controlled Company.”
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting
standards and disclosure about our executive compensation, that apply to other public companies.
We are classified as an emerging growth company under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike
other public companies, we will not be required to, among other things: (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our
system of internal control over financial reporting pursuant to Section 404(b) of Sarbanes-Oxley; (ii) comply with any new requirements adopted by the Public Company
Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide
additional information about the audit and the financial statements of the issuer; (iii) provide certain disclosures regarding executive compensation required of larger public
companies; or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years, although we will lose that
status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700.0 million in market value of our common stock held by non-affiliates, or
issue more than $1.07 billion of non-convertible debt over a three-year period.
To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and
internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our common stock to be less attractive as a result, there
may be a less active trading market for our common stock and our stock price may be more volatile.
As a smaller reporting company, we cannot be certain if such reduced disclosure will make our common stock less attractive to investors.
We are currently a “smaller reporting company” as defined in the Exchange Act, and are thus allowed to provide simplified executive compensation disclosures in
our filings, are exempt from the provisions of Section 404(b) of Sarbanes-Oxley requiring
34
that an independent registered public accounting firm provide an attestation report on the effectiveness of internal control over financial reporting and have certain other
reduced disclosure obligations with respect to our SEC filings. We will remain a “smaller reporting company” until the aggregate market value of our outstanding common
stock held by non-affiliates as of the last business day our recently completed second fiscal quarter is over $250 million. We cannot predict whether investors will find our
common stock less attractive because of our reliance on any of these exemptions. If some investors find our common stock less attractive as a result, there may be a less
active trading market for our common stock and our stock price may be more volatile.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock or
if our operating results do not meet their expectations, our stock price could decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of
these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock
price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our common stock or if our operating results do not meet
their expectations, our stock price could decline.
Item 1B.
Unresolved Staff Comments
None.
35
Properties
Item 2.
We currently lease our corporate headquarters, which are located at 1415 Louisiana Street, Suite 2900, Houston, Texas 77002. We currently own or lease the following
additional material facilities:
Leased or Owned
Expiration of Lease
Directional Drilling
Midland, TX
Midland, TX
Oklahoma City, OK
Willis, TX
Willis, TX
Mills, WY
Morgantown, WV
Pressure Pumping
Gillette, WY
Ponca City, OK
Union City, OK
Oakley, KS
Chanute, KS
Thayer, KS
El Dorado, KS
Ottawa, KS
Pressure Control
Williston, ND
Greeley, CO
Odessa, TX
Victoria, TX
Longview, TX
Arnett, OK
Elk City, OK
Oklahoma City, OK
Kensett, AR
Lore City, OH
Wireline
Guthrie, OK
Levelland, TX
Odessa, TX
Alice, TX
Rosharon, TX
Longview, TX
Cresson, TX
Fort Worth, TX
We believe that our facilities are adequate for our current operations.
36
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Owned
Leased
6/30/2022
12/31/2021
6/30/2026
N/A
Month-to-Month
10/31/2026
Month-to-Month
11/30/2021
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3/31/2021
N/A
N/A
N/A
4/30/2027
12/12/2026
Month-to-Month
4/14/2020
N/A
N/A
3/31/2021
12/31/2021
7/31/2019
3/8/2021
N/A
12/31/2020
Item 3.
Legal Proceedings
Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including
workers’ compensation claims and employment related disputes. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided
adversely, will have a material adverse effect on our financial condition, cash flows or results of operations.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information
In connection with our IPO, our common stock began trading on the NYSE under the symbol “QES” on February 9, 2018.
As of March 1, 2019, we had approximately 33,907,414 shares of common stock outstanding and 46 stockholders of record. The number of record holders does not include
persons who held shares of our common stock in nominee or “street name” accounts through brokers.
Dividend Policy
We do not anticipate declaring or paying cash dividends to holders of our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to
finance the growth of our business. Our future dividend policy is within the discretion of our Board of Directors and will depend upon then existing conditions, including
our results of operations, financial condition, capital requirements, investment opportunities, statutory restrictions on our ability to pay dividends and other factors our
Board of Directors may deem relevant. In addition, our New ABL Facility places restrictions on our ability to pay cash dividends to holders of our common stock. For more
information on our New ABL Facility, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations-New ABL Facility” below.
Securities Authorized for Issuance under Equity Compensation Plans
Information covering securities authorized for issuance under equity compensation plans is incorporated by reference to our definitive proxy statement for our 2019 Annual
Meeting of Stockholders pursuant to Regulation 14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year ended
December 31, 2018.
Recent Sales of Unregistered Securities
The Company has had no unregistered sales of equity securities not previously reported.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Under our common stock repurchase program, repurchases are being made from time to time in the open market or privately negotiated transactions based on market
conditions, securities law limitations and other factors. The following table includes repurchases made under these programs during the fourth quarter of 2018.
Period
October 2018
November 2018
December 2018 (1)
October to December 31, 2018 Total
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs (in
thousands)
5,667 $
47,112 $
43,528 $
96,307
6.40
6.26
4.72
5,667 $
47,112 $
43,528 $
96,307
5,964
5,669
5,463
(1) On August 8, 2018, our Board of Directors approved a $6.0 million stock repurchase program authorizing us to repurchase common stock in the open market. The timing and amount
of stock repurchases will depend on market conditions and corporate, regulatory and other relevant considerations. Repurchases may be commenced or suspended at any time without
notice. The program does not obligate
37
QES to purchase any particular number of shares of common stock during any period or at all, and the program may be modified or suspended at any time, subject to the Company's
insider trading policy, at the Company’s discretion.
During the quarter ended December 31, 2018, approximately 2,033 shares were withheld from certain executives and employees under the terms of our share-based
compensation agreements to provide funds for the payment of payroll and income taxes due at vesting of restricted stock awards.
Item 6.
Selected Financial Data
As a smaller reporting company, we are not required to provide the disclosure required by this Item.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the historical consolidated financial statements and related notes included elsewhere in this
Annual Report on Form 10-K (“Annual Report”). This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions
concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from
those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Note
Regarding Forward-Looking Statements” appearing elsewhere in this Annual Report.
Overview
We are a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas exploration and production (“E&P”) companies operating in
conventional and unconventional plays in all of the active major basins throughout the United States. We classify the services we provide into four reportable segments:
(1) Directional Drilling, (2) Pressure Pumping, (3) Pressure Control and (4) Wireline. Our Directional Drilling segment enables efficient drilling and guidance of the
horizontal section of a wellbore using our technologically-advanced fleet of downhole motors and 115 MWD kits. Our Pressure Pumping segment includes hydraulic
fracturing, cementing and acidizing services, and such services are supported by a high-quality pressure pumping fleet of approximately 267,500 hydraulic horsepower
(“HHP”) as of December 31, 2018. Our primary pressure pumping focus is on large hydraulic fracturing jobs. Our Pressure Control segment provides various forms of well
control, completions and workover applications through our 24 coiled tubing units (10 of which are Large Diameter), 36 rig-assisted snubbing units and ancillary
equipment. As of December 31, 2018, our wireline services included 41 wireline units providing a full range of pump-down services in support of unconventional
completions, and cased-hole wireline services enabling reservoir characterization.
The Company was incorporated on April 13, 2017 and this Annual Report includes the results of our accounting Predecessor, Quintana Energy Services LP (“QES LP” or
our “Predecessor”), which was formed as a Delaware partnership on November 3, 2014. In connection with our initial public offering (the “IPO”), we became the holding
company for QES LP and its subsidiaries.
How We Generate Revenue and the Costs of Conducting Our Business
Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and natural gas in the United States. Industry
conditions are influenced by numerous factors, such as the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, political instability
in oil producing countries and merger and divestiture activity among oil and natural gas producers. The volatility of the oil and natural gas industry and the consequent
impact on E&P activity could adversely impact the level of drilling, completion and workover activity by some of our customers. This volatility affects the demand for our
services and the price of our services.
We derive a majority of our revenues from services supporting oil and natural gas operations. As oil and natural gas prices fluctuate significantly, demand for our services
correspondingly change as our customers must balance expenditures for drilling and completion services against their available cash flows. Because our services are
required to support drilling and completions activities, we are also subject to changes in spending by our customers as oil and natural gas prices fluctuate.
During the fourth quarter of 2018, the price of crude oil fell approximately 38.6%, with WTI closing at $45.15 per barrel on December 28, 2018. This precipitous decline in
crude oil prices had a moderately negative impact on our fourth quarter 2018 consolidated results of operations, particularly those tied to activity in the U.S. shale play
regions. If the current pricing environment for crude oil does not improve, or declines further, our customers may be required to further reduce their capital expenditures,
causing additional declines in the demand for, and prices of, our products and services, which would adversely affect our future results of operations, cash flows and
financial position.
Demand for our services has continued to improve since May 2016 as oil and natural gas prices have increased from previous levels and as the Baker Hughes Incorporated
(“Baker Hughes”) lower 48 U.S. states land rig count has increased from 375 rigs on May 27, 2016 to 1,052 rigs as of December 31, 2018. Although our industry
experienced a significant downturn beginning in late 2014 and remained depressed for a prolonged period, which materially adversely affected our results in 2015 and 2016,
the rebound in demand and increasing rig count beginning in May 2016 has improved both activity levels and pricing for our services.
Despite the recent decline in oil prices, demand for our services has improved since May 2016. From the second quarter of 2016 through the fourth quarter of 2018, our
Directional Drilling segment increased the number of days we provided services to rigs and earned revenues during the period, including days that standby revenues were
earned (“rig days”) by 311.4%, while day rates have improved from the lows we experienced during the second quarter of 2016. We reactivated our second and third
pressure
38
pumping hydraulic fracturing fleets in February and October 2017, and placed our fourth hydraulic fracturing fleet into service during June 2018. Utilization of our Pressure
Control assets has also continued to improve since the second quarter of 2016.
Directional Drilling: Our Directional Drilling segment provides the highly technical and essential services of guiding horizontal and directional drilling operations for E&P
companies. We offer premium drilling services including directional drilling, horizontal drilling, under balanced drilling, MWD and rental tools. Our package also offers
various technologies, including our positive pulse MWD navigational tool asset fleet, mud motors and ancillary downhole tools, as well as electromagnetic navigational
systems. We also provide a suite of integrated and related services, including downhole rental tools. We generally provide directional drilling services on a day rate or
hourly basis. We charge prevailing market prices for the services provided in this segment, and we may also charge fees for set up and mobilization of equipment depending
on the job. Generally, these fees and other charges vary by location and depend on the equipment and personnel required for the job and the market conditions in the region
in which the services are performed. In addition to fees that are charged during periods of active directional drilling, a stand-by fee is typically agreed upon in advance and
charged on an hourly basis during periods when drilling must be temporarily ceased while other on-site activity is conducted at the direction of the operator or another
service provider. We will also charge customers for the additional cost of oilfield downhole tools and rental equipment that is involuntarily damaged or lost-in-hole.
Proceeds from customers for the cost of oilfield downhole tools and other equipment that is involuntarily damaged or lost-in-hole are reflected as product revenues.
Although we do not typically enter into long-term contracts for our services in this segment, we have long standing relationships with our customers in this segment and
believe they will continue to utilize our services. As of December 31, 2018, 90.2% of our directional drilling activity is tied to “follow-me rigs,” which involve non-
contractual, generally recurring services as our Directional Drilling team members follow a drilling rig from well-to-well or pad-to-pad for multiple wells or pads, and in
some cases, multiple years. With increasing use of pad drilling and reactivation of rigs, during the year ended December 31, 2018 we have increased the number of “follow
me rigs” from approximately 32 in January of 2016 to 74 as of December 31, 2018. We intend to continue to re-deploy additional MWD kits over the course of the fourth
quarter and into 2019, as market conditions warrant.
Our Directional Drilling segment accounted for approximately 31.9%, 33.2% and 35.8% of our revenues for the years ended December 31, 2018, 2017 and 2016,
respectively.
Pressure Pumping: Our Pressure Pumping segment provides Pressure Pumping services including hydraulic fracturing stimulation, cementing and acidizing services. The
majority of the revenues generated in this segment are derived from Pressure Pumping services in the Mid-Continent and Rocky Mountain regions.
Our Pressure Pumping services are based upon a purchase order, contract or on a spot market basis. Services are bid on a stage rate or job basis (for fracturing services) or
job basis (for cementing and acidizing services), contracted or hourly basis. Jobs for these services are typically short-term in nature and range from a few hours to multiple
days. Customers are charged for the services performed on location and mobilization of the equipment to the location. Additional revenue can be generated through product
sales of some materials that are delivered as part of the service being performed.
Our Pressure Pumping segment accounted for approximately 35.4%, 35.0% and 21.5% of our revenues for the years ended December 31, 2018, 2017 and 2016,
respectively.
Pressure Control: Our Pressure Control segment provides a wide scope of Pressure Control services, including coiled tubing, rig assisted snubbing, nitrogen, fluid pumping
and well control services.
Our coiled tubing units are used in the provision of unconventional completion services or in support of well-servicing and workover applications. Our rig-assisted snubbing
units are used in conjunction with a workover rig to insert or remove downhole tools or in support of other well services while maintaining pressure in the well, or in
support of unconventional completions. Our nitrogen pumping units provide a non-combustible environment downhole and are used in support of other pressure control or
well-servicing applications.
Jobs for our Pressure Control services are typically short-term in nature and range from a few hours to multiple days. Customers are charged for the services performed and
any related materials (such as friction reducers and nitrogen materials) used during the course of the services, which are reported as product sales. We may also charge for
the mobilization and set-up of equipment, the personnel on the job, any additional equipment used on the job and other miscellaneous materials.
39
Our Pressure Control segment accounted for approximately 20.3%, 20.5% and 24.9% of our revenues for the years ended December 31, 2018, 2017 and 2016, respectively.
Wireline: Our Wireline segment principally works in connection with hydraulic fracturing services in the form of pump-down services for setting plugs between hydraulic
fracturing stages, as well as with the deployment of perforation equipment in connection with “plug-and-perf” operations. We offer a full range of other pump-down and
cased-hole wireline services. We also provide cased-hole production logging services, injection profiling, stimulation performance evaluation and water break-through
identification via this segment. In addition, we provide industrial logging services for cavern, storage and injection wells.
We provide our wireline services on a spot market basis or subject to a negotiated pricing agreement. Jobs for these services are typically short-term in nature, lasting
anywhere from a few hours to a few weeks. We typically charge the customer for these services on a per job basis at agreed-upon spot market rates.
Our Wireline segment accounted for approximately 12.4%, 11.4% and 17.8% of our revenues for the years ended December 31, 2018, 2017 and 2016, respectively.
How We Evaluate Our Operations
Our management team utilizes a number of measures to evaluate the results of operations and efficiently allocate personnel, equipment and capital resources. We evaluate
our segments primarily by asset utilization, revenue and Adjusted EBITDA.
For each of our business services segments, we measure our utilization levels primarily by the total number of days that our asset base works on a monthly basis, based on
the available working days per month. We generally consider an asset to be working such days that it is at or in transit to a job location. Undue reliance should not be placed
on utilization as an indicator of our financial or operating performance because depending on the type of service performed, requirements of the job as well as competitive
factors, revenue and profitability can vary from job to job.
Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts,
investors, lenders and rating agencies. Adjusted EBITDA is not a measure of net income or cash flows as determined by U.S. generally accepted accounting principles
("GAAP"). We define Adjusted EBITDA as net income (loss) plus income taxes, net interest expense, depreciation and amortization, impairment charges, net (gain)/loss on
disposition of assets, stock based compensation, transaction expenses, rebranding expenses, settlement expenses, severance expenses and equipment stand-up expense.
We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period
to period without regard to our financing methods or capital structure. We exclude the items listed above in arriving at Adjusted EBITDA because these amounts can vary
substantially from company to company within our industry depending upon accounting methods, book values of assets, capital structures and the method by which the
assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income as determined by GAAP, or as an indicator of
our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial
performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA.
Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. For a definition and description of Adjusted EBITDA
and reconciliations of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, please see
“Adjusted EBITDA” below.
Items Affecting the Comparability of our Future Results of Operations to our Historical Results of Operations
The historical financial results of our Predecessor discussed below may not be comparable to our future financial results for the reasons described below.
•
During 2017, we sold select pressure pumping and wireline assets for aggregate sale proceeds of $27.6 million. During 2018 we completed strategic investments of
approximately $30.0 million to expand our hydraulic fracturing fleet and our fleet of Large Diameter coiled tubing units. While we expect continued growth,
expansions and strategic divestitures in the future, it is likely such growth, expansions and divestitures will be economically different from the acquisitions and
divestitures discussed above, and such differences in economics will impact the comparability of our future results of operations to our historical results.
40
•
•
•
QES is subject to U.S. federal and state income taxes as a corporation. Our Predecessor was treated as a flow-through entity for U.S. federal income tax purposes,
and as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income was passed through to
its partners. Accordingly, the financial data attributable to our Predecessor contains no expense for U.S. federal income taxes or income taxes in any state or locality
(other than franchise tax in the State of Texas).
Our IPO served as a vesting event under the phantom unit awards granted under our Predecessor's 2015 and 2017 LTIP Plans. As a result, certain of our
Predecessor's phantom unit awards fully vested and were settled in connection with the IPO and additional phantom unit awards will fully vest and be settled
according to their vesting schedules. We recognized $17.9 million of stock-based compensation expense for the year ended December 31, 2018. Stock-based
compensation expense of approximately $10.0 million associated with these phantom unit awards was recognized for the year ended December 31, 2018. See "Note
1 - Organization and Nature of Operations" for additional details on our IPO and related phantom unit awards.
As we continue to implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur
additional selling, general and administrative (“G&A”), expenses relative to historical periods.
Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy and other factors we may not have the ability
to control in addition to those explained above.
Recent Trends and Outlook
Demand for our services is predominantly influenced by the level of drilling and completion activity by E&P companies (“operators”), which is driven largely by the
current and anticipated profitability of developing oil and natural gas reserves. WTI has increased from its low of $26.21 per Bbl in early 2016 to $45.15 per Bbl as of
December 28, 2018. Natural gas prices have increased from their lows of $1.64 per MMBtu in early 2016 to $3.26 per MMBtu as of December 31, 2018. Drilling and
completion activity in the United States has increased significantly as commodity prices have generally increased, which corresponds with increased demand for our
services. Despite the significant increase in demand from the lows of 2016, there remains opportunity for growth in 2019 and beyond.
Commodity price volatility remains present in the market and WTI dropped over 38.6% in the fourth quarter of 2018. This price volatility created headwinds for the
industry in late 2018 and into early 2019. However, oil prices have climbed since the beginning of 2019, and we believe supply and demand fundamentals for multi-year
industry growth are still intact. The shale revolution in the United States continues to evolve with both operators and service companies introducing significant efficiencies
to drive cost from exploration and production work. Both public and private operators appear to have shifted their strategies from production growth to operating within
cash flow and generating returns. While it may create some near term budget constraints, we believe this is a positive sign for the long-term prospects of our industry. If
widely implemented, this strategic shift may moderate volatility in demand for our services, which over time will drive improved results.
The drop in oil prices in late 2018 appears to have contributed to the moderation of 2019 budgets for operators. We believe the mix of moderated 2019 budgets, a shifting
strategy for operators to remain within cash flow, and the takeaway constraints in the Permian Basin may reduce overall completions activity levels during the beginning of
2019. While we do not provide hydraulic fracturing services in the Permian Basin, we have seen the impact of the slowdown in that region in the Mid-Continent and other
regions as hydraulic fracturing fleets migrate from the Permian Basin to other basins, placing pressure on pricing. We believe, however, that in the second half of 2019,
there are several catalysts that could increase demand for our services from their current levels, including reloaded operator budgets, a supportive commodity price
environment, improvements to takeaway capacity constraints in the Permian Basin and a material inventory of drilled but uncompleted wells. We will continue to refine our
cost structure, adjust headcount and reposition our assets with high utilization customers as market conditions evolve.
Our industry remains fragmented and there are ample opportunities for consolidation amongst service companies. For 2019, we intend to continue to strengthen our
operating divisions through a combination of organic growth and to pursue strategic acquisition opportunities.
41
Results of Operations
The following tables provide selected operating data for the periods indicated. (in thousands except Other Operational Data).
Revenues:
Costs and expenses:
Direct operating costs
General and administrative
Depreciation and amortization
Fixed asset impairment
Goodwill impairment
(Gain) loss on disposition of assets
Operating loss
Non-operating income (expense):
Interest expense
Other income
Loss before income tax
Income tax expense
Net loss
December 31, 2018
December 31, 2017
December 31, 2016
$
604,354 $
438,033 $
210,428
Year Ended
468,502
97,280
46,683
—
—
(2,375)
(5,736)
(11,825)
—
(17,561)
(621)
335,609
69,856
45,687
—
—
(2,639)
(10,480)
(11,251)
666
(21,065)
(91)
$
(18,182) $
(21,156) $
182,928
73,600
78,661
1,380
15,051
5,375
(146,567)
(8,015)
—
(154,582)
(167)
(154,749)
December 31, 2018
December 31, 2017
December 31, 2016
Year Ended
Segment Adjusted EBITDA:
Directional Drilling
Pressure Pumping
Pressure Control
Wireline
Adjusted EBITDA (1)
Other Operational Data:
Directional Drilling rig days (2)
Average monthly Directional Drilling rigs on revenue (3)
Total hydraulic fracturing stages
$
$
23,694 $
28,700
18,389
1,362
60,232 $
18,252
69
4,179
Average hydraulic fracturing revenue per stage
$
47,897
$
17,498 $
27,784
6,539
(1,794)
41,226 $
14,407
58
2,993
47,189 $
(76)
(19,372)
(5,804)
(6,161)
(36,679)
7,001
31
1,567
23,338
(1)
(2)
(3)
Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry
analysts, investors, lenders and rating agencies. For a definition and description of Adjusted EBITDA and reconciliations of Adjusted EBITDA to net income, the
most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Adjusted EBITDA” below.
Rig days represent the number of days we are providing services to rigs and are earning revenues during the period, including days that standby revenues are earned.
Rigs on revenue represents the number of rigs earning revenues during a time period, including days that standby revenues are earned.
42
Adjusted EBITDA
The following table presents a reconciliation of the non-GAAP financial measures of Adjusted EBITDA to the most directly comparable GAAP financial measure for the
year ended December 31, 2018, 2017 and 2016 (in thousands of dollars):
Adjustments to reconcile Adjusted EBITDA to net loss:
Net loss
Income tax expense
Interest expense
Other income
Depreciation and amortization expense
Fixed asset impairment
Goodwill impairment (1)
(Gain) loss on disposition of assets, net (2)
Non-cash stock based compensation
Transaction expense (3)
Rebranding expense (4)
Settlement expense (5)
Severance expense (6)
Equipment and stand-up expense (7)
Adjusted EBITDA
December 31, 2018
December 31, 2017
December 31, 2016
Year Ended
$
(18,182)
$
(21,156) $
(154,749)
621
11,825
—
46,683
—
—
(2,375)
17,898
—
322
825
235
$
2,380
60,232
$
91
11,251
(666)
45,687
—
—
(2,639)
—
977
9
3,680
243
3,749
167
8,015
—
78,661
1,380
15,051
5,375
—
4,358
2,237
1,740
1,075
11
41,226 $
(36,679)
1. For the year ended December 31, 2016, represents a non-cash goodwill impairment charge related to Directional Drilling and the continual decline in commodity
pricing and historical low rig activity in 2015, which continued in 2016.
2. Excludes gains on disposition of assets lost in hole of $5.4 million, $7.9 million and $4.1 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
3. For the years ended December 31, 2017 and 2016, represents professional fees related to investment banking, accounting and legal services associated with entering
into the Former Term Loan (as defined in Item 7 - Liquidity and Capital Resources), of which $1.0 million and $4.4 million was recorded in general and
administrative expenses.
4. Relates to expenses incurred in connection with rebranding our segments.
5. For the year ended December 31, 2018, represents lease buyouts, legal fees for FLSA claims, expenses associated with facility closures and other non-recurring
expenses that were recorded in general and administrative expenses. For the years ended December 31, 2017 and 2016 relates to the non-recurring settlement of
lease termination costs associated with the 2016 market downturn, and sales tax audit accrual and retention payments in the years ended December 31, 2017 and
2016 associated with the acquisition of the U.S. pressure pumping, directional drilling. wireline and pressure control businesses of Archer. In our performance for
the year ended December 31, 2017 and the year ended December 31, 2016, $0.5 million and $0.5 million was recorded in direct operating expenses, respectively,
and $3.1 million and $1.2 million was recorded in general and administrative expenses, respectively.
6. Relates to severance expenses in the years ended December 31, 2017 and 2016 incurred in connection with a program implemented to reduce headcount in
connection with the industry downturn, of which $0.2 million and $0.8 million was recorded to direct operating expenses, respectively and a nominal amount was
recorded to general and administrative expenses. In our performance for the year ended December 31, 2018, $0.2 million was recorded in general and administrative
expenses.
7. Relates to equipment stand-up costs incurred in connection with the mobilization and redeployment of assets. In our performance for the year ended December 31,
2018, approximately $2.2 million was recorded in direct operating expenses and approximately $0.2 million was recorded in general and administrative expenses for
the deployment of our fourth hydraulic fracturing fleet and upgrades of coiled tubing units to large diameter specification For the year ended December 31, 2017,
this primarily represents costs related to the deployment of our third hydraulic fracturing fleet, of which $2.2 million was recorded in direct operating expenses and
$0.2 million was recorded in general and administrative expenses. For the year ended December 31, 2016, approximately $0.01 million was recorded in direct
operating expenses
43
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenue. The following table provides revenues by segment for the periods indicated (in thousands of dollars):
Revenue:
Directional Drilling
Pressure Pumping
Pressure Control
Wireline
Total revenue
Year Ended
December 31, 2018
December 31, 2017
$
$
192,491 $
214,154
122,620
75,089
604,354 $
145,230
153,118
89,912
49,773
438,033
Revenue for the year ended December 31, 2018 increased by $166.4 million, or 38.0%, to $604.4 million from $438.0 million for the year ended December 31, 2017. The
increase in revenue by segment was as follows:
Directional Drilling revenue increased by $47.3 million, or 32.6%, to $192.5 million for the year ended December 31, 2018, from $145.2 million for the year ended
December 31, 2017. This increase was primarily attributable to a 28.2% increase in utilization and a 7.1% increase in pricing. Approximately 93.0% of our Directional
Drilling segment revenue was derived from directional drilling and MWD activities for the year ended December 31, 2018 compared to 94.0% for the year ended December
31, 2017. The change in utilization and pricing accounted for 74.9% and 25.1% of the Directional Drilling revenue increase, respectively.
Pressure Pumping revenue increased by $61.1 million, or 39.9%, to $214.2 million for the year ended December 31, 2018, from $153.1 million for year ended December
31, 2017. This increase was primarily attributable to the mobilization of additional hydraulic fracturing fleets in February 2017, October 2017 and June 2018, which drove a
39.6% increase in stages pumped for the year ended December 31, 2018. Additionally, we experienced a 1.5% increase in average revenue per stage for the year ended
December 31, 2018, due to a shift in the job types completed. Approximately 93.5% of our Pressure Pumping segment revenue was derived from hydraulic fracturing
services for the year ended December 31, 2018, compared to 92.2% for the year ended December 31, 2017.
Pressure Control revenue increased by $32.7 million, or 36.4%, to $122.6 million for the year ended December 31, 2018, from $89.9 million for the year ended December
31, 2017. This increase was primarily attributable to a 3.5% increase in weighted average utilization and a 48.6% increase in weighted average revenue per day for the year
ended December 31, 2018. The addition of new Large Diameter coiled tubing units deployed and higher well control activities positively impacted both Pressure Control
revenue and weighted average revenue per day during the year ended December 31, 2018.
Wireline revenue increased by $25.3 million, or 50.8%, to $75.1 million for the year ended December 31, 2018, from $49.8 million for the year ended December 31, 2017.
The increase was primarily attributable to a 24.8% increase in utilization and a 38.0% increase in revenue per day for the year ended December 31, 2018. Approximately
78.0% of our Wireline segment revenue was derived from unconventional services for the year ended December 31, 2018, compared to 71.4% for the year ended December
31, 2017. The change in utilization and pricing accounted for 23.4% and 76.6% of the Wireline revenue change, respectively.
Direct operating expenses. The following table provides our direct operating expenses by segment for the periods indicated (in thousands of dollars):
Direct operating expenses:
Directional Drilling
Pressure Pumping
Pressure Control
Wireline
Total direct operating expenses
Year Ended
December 31, 2018
December 31, 2017
$
$
148,272 $
171,974
88,717
59,539
468,502 $
111,978
115,526
69,483
38,622
335,609
Direct operating expenses for the year ended December 31, 2018 increased by $132.9 million, or 39.6%, to $468.5 million, from $335.6 million for the year ended
December 31, 2017. The increase in direct operating expense was attributable to our segments as follows:
Directional Drilling direct operating expenses increased by $36.3 million, or 32.4%, to $148.3 million for the year ended December 31, 2018, from $112.0 million for the
year ended December 31, 2017. This increase was primarily attributable to a 26.7% increase
44
in rig days over the same period, which in turn resulted in increased direct operating expenses for personnel, equipment, and repair and maintenance.
Pressure Pumping direct operating expenses increased by $56.5 million, or 48.9%, to $172.0 million for the year ended December 31, 2018, from $115.5 million for the
year ended December 31, 2017. This increase was primarily attributable to increased activity driven by a 39.6% increase in stages pumped compared to the prior period,
which resulted in direct operating expense increases in materials, equipment and personnel costs. Additionally, Pressure Pumping placed incremental hydraulic fracturing
fleets in service in February 2017, October 2017 and June 2018 driving direct operating expenses higher.
Pressure Control direct operating expenses increased by $19.2 million, or 27.6%, to $88.7 million for the year ended December 31, 2018, from $69.5 million for the year
ended December 31, 2017. This increase was primarily attributable to increased market activity, including a 3.5% increase in weighted average utilization, which resulted in
increased direct operating expenses associated with personnel, equipment and materials.
Wireline direct operating expenses increased by $20.9 million, or 54.1%, to $59.5 million for the year ended December 31, 2018, from $38.6 million for the year ended
December 31, 2017. This increase was primarily attributable to increased market activity, including a 24.8% increase in utilization which resulted in increased direct
operating expenses associated with personnel, equipment and consumables.
General and administrative expenses. G&A expenses represent the costs associated with managing and supporting our operations. These expenses increased by $27.4
million, or 39.2%, to $97.3 million for the year ended December 31, 2018, from $69.9 million for the year ended December 31, 2017. The increase in G&A expenses was
primarily driven by stock based compensation expense of $17.9 million recognized in 2018. No stock expense was recognized in 2017. The increase in G&A expenses was
also driven by additional administrative expenses related to being a publicly traded company and outsourced services for internal controls and tax consultancy compliance.
Increases in headcount also contributed to the increase in G&A expenses during the year ended December 31, 2018.
Depreciation and amortization. Depreciation and amortization expense increased $1.0 million, or approximately 2.2% to $46.7 million for the year ended December 31,
2018. The slight increase in depreciation and amortization expense was primarily attributable to the fourth hydraulic fracturing fleet, Large Diameter coiled tubing units and
additional equipment and machinery placed into service during the year ended December 31, 2018.
Gain on disposition of assets, net. Net gain on disposition of assets for year ended December 31, 2018 was $2.4 million, primarily attributable to gains on idle equipment
disposals in our Wireline segment, offset by losses in other segments, compared to a $2.6 million net gain on disposition of assets, primarily attributable to the disposition of
Pressure Pumping and Wireline assets for the year ended December 31, 2017.
Interest expense. Interest expense increased by $0.5 million, or approximately 4.4%, to $11.8 million for the year ended December 31, 2018, compared to $11.3 million for
the year ended December 31, 2017. Upon closing of the IPO, the proceeds were used to pay off the Former Revolving Credit Facility and Former Term Loan, which resulted
in the write-off of additional deferred financing costs of $1.9 million, discounts on the Former Term Loan of $5.3 million, a repayment premium of $1.3 million and interest
on the New ABL Facility. The increase was partially offset by lower borrowings on the New ABL Facility during the year ended December 31, 2018.
Adjusted EBITDA. Adjusted EBITDA for year ended December 31, 2018 increased by $19.0 million, or 46.1% to $60.2 million from $41.2 million for the year ended
December 31, 2017. The change in Adjusted EBITDA by segment was as follows:
Directional Drilling Adjusted EBITDA increased by $6.2 million, or 35.4%, to $23.7 million in the year ended December 31, 2018, compared to $17.5 million in the year
ended December 31, 2017. The increase was primarily attributable to a 32.6% increase in revenue as a result of higher utilization and pricing partially driven by greater use
of specialized technology and tools, which was offset by a 32.4% increase in direct operating costs and a 37.0% increase in G&A expenses due to increased activity levels.
Pressure Pumping Adjusted EBITDA increased by $0.9 million, or 3.2% to $28.7 million in the year ended December 31, 2018, compared to $27.8 million in the year
ended December 31, 2017. The increase was primarily attributable to a 39.9% increase in revenue driven by increased hydraulic fracturing activity, which was partially
offset by a 48.9% increase in direct operating expenses and a 20.0% increase in G&A expenses incurred as the business deployed additional equipment, including the third
and fourth hydraulic fracturing fleets.
Pressure Control Adjusted EBITDA increased by $11.9 million, or 183.1% to $18.4 million in the year ended December 31, 2018, compared to $6.5 million in the year
ended December 31, 2017. The increase was primarily attributable to a 36.4% increase in revenue driven by increased completions and well control activity, which was
offset by a 27.6% and 18.9% increase in direct operating and G&A expenses driven by increased personnel, materials and overhead costs.
45
Wireline Adjusted EBITDA increased by $3.2 million to $1.4 million in the year ended December 31, 2018, compared to $(1.8) million in the year ended December 31,
2017. The increase was primarily attributable to a 50.8% increase in revenue driven by increased pricing and utilization, partially offset by a 54.1% increase in direct
operating expenses and a 14.8% increase in G&A expense driven by increased personnel, consumables and overhead costs resulting from increased utilization.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenue. The following table provides our revenues by segment for the periods indicated (in thousands of dollars):
Revenue:
Directional Drilling
Pressure Pumping
Pressure Control
Wireline
Total revenue
Year Ended
December 31, 2017
December 31, 2016
$
$
145,230 $
153,118
89,912
49,773
438,033 $
75,326
45,165
52,388
37,549
210,428
Revenue for the year ended December 31, 2017 increased by $227.6 million, or 108.2%, to $438.0 million from $210.4 million for the year ended December 31, 2016. The
increase in revenue by segment was as follows:
Directional Drilling revenue increased by $69.9 million, or 92.8%, to $145.2 million for the year ended December 31, 2017, from $75.3 million for the year ended
December 31, 2016. This increase was primarily attributable to a 101.9% increase in utilization for the year ended December 31, 2017. The utilization increase was offset
by a (4.0)% decline in dayrate for the year ended December 31, 2017 as a result of a shift in geographic revenue mix as rig count expanded in 2017. Approximately 94.0%
of our Directional Drilling segment revenue was derived from directional drilling and MWD activities for the year ended December 31, 2017 compared to 91.0% for the
year ended December 31, 2016. The change in utilization and pricing accounted for 108.4% and (8.4)% of the Directional Drilling revenue change, respectively.
Pressure Pumping revenue increased by $107.9 million, or 238.7%, to $153.1 million for the year ended December 31, 2017, from $45.2 million for year ended
December 31, 2016. This increase was primarily attributable to the mobilization of additional hydraulic fracturing fleets in February 2017 and October 2017, which drove a
91.0% increase in stages for the year ended December 31, 2017. Additionally we experienced a 102.2% increase in average revenue per stage for year ended December 31,
2017, due to improving market conditions and shift in the job types completed. Approximately 92.2% of our Pressure Pumping segment revenue was derived from
hydraulic fracturing services for the year ended December 31, 2017, compared to 81.0% for the year ended December 31, 2016.
Pressure Control revenue increased by $37.5 million, or 71.6%, to $89.9 million for the year ended December 31, 2017, from $52.4 million for the year ended
December 31, 2016. This increase was primarily attributable to a 34.6% increase in weighted average utilization and a 28.0% increase in weighted average pricing for the
year ended December 31, 2017. The number of days for which we generated revenue (“revenue days”) increased 33.7% for the year ended December 31, 2017. The change
in utilization and pricing accounted for 56.4% and 43.6% of the pressure control revenue change, respectively.
Wireline revenue increased by $12.3 million, or 32.8%, to $49.8 million for the year ended December 31, 2017, from $37.5 million for the year ended December
31, 2016. During the year ended December 31, 2017, revenue per day was up 28.2%. Utilization during the year ended December 31, 2017 was up 31.8% driven by a
reduction in equipment fleet, while revenue days increased 3.5% for the year ended December 31, 2016. Approximately 71.4% of our Wireline segment revenue was
derived from unconventional services for the year ended December 31, 2017, compared to 53.0% for the year ended December 31, 2016. The change in pricing, as
measured by revenue per day, and the increased activity accounted for 3.0% and 10.7% of the Wireline revenue change, respectively.
46
Direct operating expenses. The following table provides our direct operating expenses by segment for the periods indicated:
Direct operating expenses:
Directional Drilling
Pressure Pumping
Pressure Control
Wireline
Total direct operating expenses
Year Ended
December 31, 2017
December 31, 2016
$
$
111,978 $
115,526
69,483
38,622
335,609 $
58,834
50,828
47,926
25,340
182,928
Direct operating expenses for the year ended December 31, 2017 increased by $152.7 million, or 83.5%, to $335.6 million, from $182.9 million for the year ended
December 31, 2016. The increase in direct operating expense was attributable to our segments as follows:
Directional Drilling direct operating expenses increased by $53.1 million, or 90.2%, to $112.0 million for the year ended December 31, 2017, from $58.9 million
for the year ended December 31, 2016. This increase was primarily attributable to a 105.8% increase in rig days over the same period, which in turn resulted in higher direct
operating expenses associated with both personnel and equipment.
Pressure Pumping direct operating expenses increased by $64.7 million, or 127.4%, to $115.5 million for the year ended December 31, 2017, from $50.8 million
for the year ended December 31, 2016. This increase was primarily attributable to increased activity driven by a 91.0% increase in hydraulic fracturing stages completed,
which resulted in an increase in consumables, equipment and personnel costs.
Pressure Control direct operating expenses increased by $21.6 million or 45.1%, to $69.5 million for the year ended December 31, 2017, from $47.9 million for the
year ended December 31, 2016. This increase was primarily attributable to increased market activity, including a 34.6% increase in weighted average utilization and a
33.6% increase in revenue days, which resulted in increased direct operating expenses associated with personnel, equipment and consumables.
Wireline direct operating expenses increased by $13.3 million, or 52.6%, to $38.6 million for the year ended December 31, 2017, from $25.3 million for the year
ended December 31, 2016. This increase was primarily attributable to increased market activity in our unconventional plug-and-perf business, which resulted in increased
direct operating expenses associated with personnel, equipment and consumables.
General and administrative. G&A expenses represent the costs associated with managing and supporting our operations. These expenses decreased by $3.7 million, or
5.0%, to $69.9 million for the year ended December 31, 2017, from $73.6 million for the year ended December 31, 2016. The decrease in G&A expenses was primarily
driven by reduction in overhead across our segments due to the Archer integration that occurred over the course of 2016.
Depreciation and amortization. Depreciation and amortization decreased by $33.0 million, or 41.9%, to $45.7 million for the year ended December 31, 2017, from $78.7
million for the year ended December 31, 2016. The decrease in depreciation and amortization was attributable to a $27.3 million disposition of assets in January 2017,
which resulted in a reduction in depreciation expense of $6.7 million, a reduction in impairment expense of $1.4 million recognized in 2016, and the remainder due to the
retirement of aging assets and fully depreciated assets.
Gain on disposition of assets, net. Net gain on disposition of assets for year ended December 31, 2017 was $2.6 million, primarily attributable to the disposition of Pressure
Pumping and Wireline assets, compared to a $5.4 million net loss primarily attributable to a $5.8 million loss on disposition of Pressure Pumping segment assets, $0.1
million gain on disposition of Pressure Control segment assets and $0.3 million gain on disposal of Wireline segment assets for the year ended December 31, 2016.
Interest expense. Net interest expense increased by $3.3 million, or approximately 41.3%, to $11.3 million for the year ended December 31, 2017, compared to $8.0 million
for the year ended December 31, 2016. The increase in interest expense was attributable to a combination of higher interest on the Term Loan and the deferred financing
cost associated with the Term Loan.
Income tax expense. For the year ended December 31, 2017, we recognized $0.1 million of income tax benefit compared to $0.2 million of income tax expense for the year
ended December 31, 2016.
Adjusted EBITDA. Adjusted EBITDA for year ended December 31, 2017 increased by $77.9 million to $41.2 million from $(36.7) million for the year ended December
31, 2016. The increase in Adjusted EBITDA by segment was as follows:
Directional Drilling Adjusted EBITDA for our Directional Drilling segment increased by $17.6 million to $17.5 million in the year ended December 31, 2017,
compared to $(0.1) million in the year ended December 31, 2016. The increase was primarily
47
attributable to a 92.8% increase in revenue associated with increased rig count and drilling capital spending by E&P operators, which was partially offset by direct operating
costs increasing by 90.3% due to increased activity levels.
Pressure Pumping Adjusted EBITDA for our pressure pumping segment increased by $47.2 million to $27.8 million in the year ended December 31, 2017,
compared to $(19.4) million in the year ended December 31, 2016. The increase was primarily attributable to a 238.7% increase in revenue driven by increased hydraulic
fracturing activity, which was partially offset by a 127.4% increase in direct operating expenses incurred as the business increased utilization and deployed additional
hydraulic fracturing fleets in February 2017 and October 2017.
Pressure Control Adjusted EBITDA for our Pressure Control segment increased by $12.3 million to $6.5 million in the year ended December 31, 2017, compared
to $(5.8) million in the year ended December 31, 2016. The increase was primarily attributable to a 71.6% increase in revenue driven by increased completions and
workover activity, which was offset by a 45.1% increase in direct operating expenses.
Wireline Adjusted EBITDA for our Wireline segment increased by $4.4 million, to $(1.8) million in the year ended December 31, 2017, compared to $(6.2) million
in the year ended December 31, 2016. The increase was primarily attributable to a 32.8% increase in revenue driven by increased pricing, increased unconventional activity
and utilization, partially offset by a 52.6% increase in direct operating expenses.
Liquidity and Capital Resources
We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and
acquisitions. Our primary sources of liquidity to date have been capital contributions from our equity holders and borrowings under our former revolving credit facility (the
“Former Revolving Credit Facility”), our former $40.0 million term loan (the “Former Term Loan”), the New ABL Facility (as defined below) and cash flows from
operations. At December 31, 2018, we had $13.8 million of cash and cash equivalents and $60.2 million available to draw on the New ABL Facility, which resulted in a
total liquidity position of $74.0 million.
As our drilling and completion activity has increased with the rise in commodity prices since 2016, our cash flow from operations has begun to improve and we expect cash
flow to continue to improve if drilling and completion activity continues to increase. However, there is no certainty that cash flow will continue to improve or that we will
have positive operating cash flow for a sustained period of time. Our operating cash flow is sensitive to many variables, the most significant of which are utilization and
profitability, the timing of billing and customer collections, payments to our vendors, repair and maintenance costs and personnel, any of which may affect our cash
available.
Our primary use of capital resources has been for investing in property and equipment used to provide our services. Our primary uses of cash are maintenance and growth
capital expenditures, including acquisitions and investments in property and equipment. We regularly monitor potential capital sources, including equity and debt
financings, in an effort to meet our planned capital expenditure and liquidity requirements. Our future success will be highly dependent on our ability to access outside
sources of capital.
The following table sets forth our cash flows for the periods indicated (in thousands of dollars) presented below:
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net change in cash
Cash balance end of period
Net cash provided by (used in) operating activities
December 31, 2018
December 31, 2017
December 31, 2016
Year Ended
$
39,939 $
(11,540) $
(54,213)
19,327
5,053
$
13,804 $
14,510
(6,438)
(3,468)
8,751 $
(42,835)
2,266
46,525
5,956
12,219
Net cash provided by operating activities was $39.9 million for the year ended December 31, 2018, compared to net cash used in operating activities of $11.5 million for the
year ended December 31, 2017. The increase in operating cash flows was primarily attributable to the faster collection of trade receivables and significant operational
performance improvements of major key indicators, Directional Drilling rig days, average monthly Directional Drilling rigs on revenue, total hydraulic fracturing stages and
average hydraulic fracturing revenue per stage, compared to the lower utilization and pricing experienced during the year ended December 31, 2017 as a result of prevailing
market conditions.
Net cash used in operating activities was $11.5 million for the year ended December 31, 2017, compared to $42.8 million for the year ended December 31, 2016. The
increase in operating cash flows was primarily attributable to a decrease in net loss.
48
Our operating cash flow is sensitive to many variables, the most significant of which are pricing, utilization and profitability, the timing of billing and customer collections,
the timing of payments to vendors, and maintenance and personnel costs, any of which may affect our available cash.
Net cash provided by (used in) investing activities
Net cash used in investing activities was $54.2 million for the year ended December 31, 2018, compared to net cash provided by investing activities of $14.5 million for the
year ended December 31, 2017. The cash flow used in investing activities for the year ended December 31, 2018 was primarily used on our existing fleet capital spending,
to activate our fourth hydraulic fracturing fleet, and additional Large Diameter coiled tubing capacity, compared to the net cash provided by divestiture activities during the
same period in 2017.
We used $65.0 million to purchase equipment and we received $10.7 million in exchange for selling assets for the year ended December 31, 2018, compared to $21.2
million of cash that was used to purchase equipment and the receipt of $35.8 million in exchange for selling assets during the year ended December 31, 2017.
Net cash provided by investing activities was $14.5 million for the year ended December 31, 2017, compared to $2.3 million for the year ended December 31, 2016.
We used $21.2 million to purchase equipment and we received $35.8 million in exchange for selling assets for the year ended December 31, 2017, as compared to the year
ended December 31, 2016, when we used $7.3 million cash to purchase equipment and received $9.6 million in exchange for selling assets.
Net cash provided by (used in) financing activities
Net cash provided by financing activities was $19.3 million for the year ended December 31, 2018, compared to net cash provided by financing activities of $6.4 million for
the year ended December 31, 2017. Net cash provided by financing activities was primarily the result of net proceeds received from draws made on our New ABL Facility
and the closing of our IPO totaling $90.5 million, which was offset by the repayments under our Former Revolving Credit Facility and Former Term Loan, which totaled
$92.3 million. In connection with the settlement of the Former Term Loan, a prepayment fee of 3.0%, or approximately $1.3 million was paid. Additionally, $1.3 million
was paid for treasury shares in connection with the settlement of equity based compensation, net of taxes, which vested during the year ended December 31, 2018. Common
stock repurchases of $0.5 million was paid for treasury shares in connection with our common stock repurchase program during the fourth quarter of 2018.
Net cash provided by (used in) financing activities was primarily the result of debt borrowings net of repayments under our Revolving Credit Facility and Term Loan. Net
cash provided by (used in) financing activities was $(6.4) million for the year ended December 31, 2017, compared to $46.5 million for the year ended December 31, 2016.
In the year ended December 31, 2017, we repaid $22.0 million under our Revolving Credit Facility and incurred $5.0 million under the Term Loan.
Our Credit Facility
Former Revolving Credit Facility
We had a revolving credit facility which had a maximum borrowing facility of $110.0 million that was scheduled to mature on September 19, 2018. All obligations under
the credit agreement for the Former Revolving Credit Facility were collateralized by substantially all of the assets of our Predecessor. The Former Revolving Credit
Facility’s credit agreement contained customary restrictive covenants that required the Company not to exceed or fall below two key ratios, a maximum loan to value ratio
of 70% and a minimum liquidity of $7.5 million. In connection with the closing of the IPO on February 13, 2018, we fully repaid and terminated the Former Revolving
Credit Facility. No early termination fees were incurred by the Company in connection with the termination of the Former Revolving Credit Facility. A loss on
extinguishment of $0.3 million relating to unamortized deferred costs was recognized in interest expense.
Former Term Loan
We also had a four-year, $40.0 million term loan agreement with a lending group, which included Geveran, Archer Holdco LLC, an affiliate of Archer, and Robertson QES,
that was scheduled to mature on December 19, 2020. The Former Term Loan contained customary restrictive covenants that required our Predecessor not to exceed or fall
below two key ratios, a maximum loan to value ratio of 77% and a minimum liquidity of $6.75 million. The interest rate on the unpaid principal was 10.0% interest per
annum and accrued on a daily basis. At the end of each quarter all accrued and unpaid interest was paid in kind by capitalizing and adding to the outstanding principal
balance. In connection with the closing of the IPO on February 13, 2018, the Former Term Loan was settled in full by cash and common shares in the Company. In
connection with the settlement of the Former Term Loan, a prepayment
49
fee of 3%, or approximately $1.2 million was paid. The prepayment fee is recorded as a loss on extinguishment of debt and included within interest expense. The Company
also recognized $5.4 million of unamortized discount expense and $1.7 million of unamortized deferred financing cost in connection with the termination of the Former
Term Loan.
New ABL Facility
In connection with the closing of the IPO on February 13, 2018, we entered into a new semi-secured asset-based revolving credit agreement (the “New ABL Facility”) with
each lender party thereto and Bank of America, N.A. as administrative agent and collateral agent. The New ABL Facility replaced the Former Revolving Credit Facility.
The New ABL Facility provides for a $100.0 million revolving credit facility subject to a borrowing base. Upon closing of the New ABL Facility the borrowing capacity
was $77.6 million and $13.0 million was immediately drawn. The loan interest rate on the borrowings outstanding at December 31, 2018, was 5.3% and $29.5 million was
outstanding and recorded as long term debt under the New ABL Facility as of December 31, 2018. At December 31, 2018, we had $13.8 million of cash and equivalents and
$60.2 million available to draw on the New ABL Facility, which resulted in a total liquidity position of $74 million.
The New ABL Facility contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers,
consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions) and transactions with affiliates.
Certain affirmative covenants, including certain reporting requirements and requirements to establish cash dominion accounts with the administrative agent, are triggered by
failing to maintain availability under the New ABL Facility at or above specified thresholds or by the existence of an event of default under the New ABL Facility. The New
ABL Facility provides for certain baskets and carve-outs from its negative covenants allowing the Company to make certain restricted payments and investments; subject to
maintaining availability under the New ABL Facility at or above a specified threshold and the absence of a default thereunder.
The New ABL Facility contains a minimum fixed charge coverage ratio of 1.0 to 1.0 that is triggered when availability under the New ABL Facility falls below a specified
threshold and is tested until availability exceeds a separate specified threshold for 30 consecutive days.
The New ABL Facility contains events of default customary for facilities of this nature, including, but not limited, to: (i) events of default resulting from the Borrowers’
failure or the failure of any credit party to comply with covenants (including the above-referenced financial covenant during periods in which the financial covenant is
tested); (ii) the occurrence of a change of control; (iii) the institution of insolvency or similar proceedings against the Borrowers or any credit party; and (iv) the occurrence
of a default under any other material indebtedness the Borrowers or any guarantor may have. Upon the occurrence and during the continuation of an event of default, subject
to the terms and conditions of the New ABL Facility, the lenders will be able to declare any outstanding principal balance of our New ABL Facility, together with accrued
and unpaid interest, to be immediately due and payable and exercise other remedies, including remedies against the collateral, as more particularly specified in the New
ABL Facility. As of December 31, 2018, we were in compliance with our debt covenants.
Capital Requirements and Sources of Liquidity
During the year ended December 31, 2018, our capital expenditures were approximately $13.0 million, $29.3 million, $20.1 million and $2.6 million in our Directional
Drilling, Pressure Pumping, Pressure Control and Wireline segments, respectively, for aggregate capital expenditures of approximately $65.0 million, primarily for the
activation of our fourth hydraulic fracturing fleet, the addition of a new Large Diameter coiled tubing unit, upgrades to two existing coiled tubing units to Large Diameter
specification and maintenance capital expenditures on existing equipment.
For the year ended December 31, 2017, our capital expenditures, excluding acquisitions, were approximately $9.0 million, $5.3 million, $6.4 million and $0.5 million in our
Directional Drilling, Pressure Pumping, Pressure Control and Wireline segments for aggregate net capital expenditures of approximately $21.2 million, primarily for
purchase of new drilling motors, the redeployment of a hydraulic fracturing fleet and maintenance capital expenditures.
For the year ended December 31, 2016, our capital expenditures (net of proceeds from dispositions of equipment), excluding acquisitions, were approximately $6.5 million,
$0.1 million, $0.7 million and $0.0 million in our Directional Drilling segment, Pressure Pumping segment, Pressure Control segment and Wireline segment, respectively,
for aggregate net capital expenditures of approximately $7.3 million primarily for the purchase of new drilling motors and replacement of MWD kits.
We currently estimate that our capital expenditures for our existing fleets, approved capacity additions and other projects during 2019 will range from $40.0 million to
$50.0 million. We expect to fund these expenditures through a combination of cash on hand, cash generated by our operations and borrowings under our New ABL Facility.
50
We believe that our operating cash flow and available borrowings under our New ABL Facility will be sufficient to fund our operations for the next twelve months. Our
operating cash flow is sensitive to many variables, the most significant of which are pricing, utilization and profitability, the timing of billing and customer collections, the
timing of payments to vendors, and maintenance and personnel costs, any of which may affect our cash available. Significant additional capital expenditures will be
required to conduct our operations and there can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or
future levels of capital expenditures and make expected distributions. Further, we do not have a specific capital expenditures acquisition budget for 2019 since the timing
and size of acquisitions cannot be accurately forecasted. In the event we make one or more acquisitions and the amount of capital required is greater than the amount we
have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures or distributions and/or seek additional capital. If we
seek additional capital for that or other reasons, we may do so through borrowings under our New ABL Facility, joint venture partnerships, asset sales, offerings of debt and
equity securities or other means. We cannot assure that this additional capital will be available on acceptable terms or at all. If we are unable to obtain funds we need, we
may not be able to complete acquisitions that may be favorable to us or to finance the capital expenditures necessary to conduct our operations.
On August 8, 2018, our Board of Directors approved a $6.0 million stock repurchase program authorizing us to repurchase common stock in the open market. The timing
and amount of stock repurchases will depend on market conditions and corporate, regulatory and other relevant considerations. Repurchases may be commenced or
suspended at any time without notice. The program does not obligate QES to purchase any particular number of shares of common stock during any period or at all, and the
program may be modified or suspended at any time, subject to the Company's insider trading policy and at the Company’s discretion. As of December 31, 2018, the
Company repurchased 96,307 shares under this program.
Contractual Obligations
As a smaller reporting company, we are not required to provide the disclosure required by Item 303(a)(5)(i) of Regulation S-K.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, as of December 31, 2018.
Critical Accounting Policies and Estimates
The preparation of financial statements requires the use of judgments and estimates. Our critical accounting policies are described below to provide a better understanding
of how we develop our assumptions and judgments about future events and related estimations and how they can impact our financial statements. A critical accounting
estimate is one that requires our most difficult, subjective or complex judgments and assessments and is fundamental to our results of operations.
We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to the current facts and circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe the following are
the critical accounting policies used in the preparation of our consolidated financial statements, as well as the significant estimates and judgments affecting the application
of these policies. This discussion and analysis should be read in conjunction with QES's consolidated financial statements and related notes included therewith.
Emerging Growth Company Status
The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards
applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when
they are adopted. This decision to opt out of the extended transition period is irrevocable.
Allowance for bad debts
We evaluate our accounts receivable through a continuous process of assessing our portfolio on an individual customer and overall basis. This process consists of a thorough
review of historical collection experience, current aging status of the customer accounts, and financial condition of our customers. We also consider the economic
environment of our customers, both from a marketplace and geographic perspective, in evaluating the need for an allowance. Based on our review of these factors, we
establish or adjust allowances for specific customers and the accounts receivable portfolio as a whole. This process involves a high degree of judgment and estimation, and
periodically involves significant dollar amounts. Accordingly, our results of operations can be affected by adjustments to the allowance due to actual write-offs that differ
from estimated amounts. Our estimates of allowances for bad debts have historically been accurate. Over the last five years, our estimates of allowances for bad debts, as a
percentage of accounts receivable before the allowance, have ranged from 0.9% to 2.3%. At December 31, 2018, our allowance for bad debts totaled $1.8 million, or 1.8%
of accounts receivable before the allowance. At December 31, 2017, allowance for bad debts totaled $0.8 million,
51
or 0.9% of accounts receivable before the allowance. At December 31, 2016, allowance for bad debts totaled $0.9 million, or 2.3% of accounts receivable before allowance.
Plant, Property, and Equipment
We calculate depreciation based on estimated useful lives of our assets. When assets are placed into service, we separately identify and account for certain significant
components of our directional drilling, pressure pumping, pressure control and wireline equipment and make estimates with respect to their useful lives that we believe are
reasonable. However, the cyclical nature of our business, which results in fluctuations in the use of our equipment and the environments in which we operate, could cause
our estimates to change, thus affecting the future calculations of depreciation.
Impairment of Long-lived assets, Including Intangible Assets
We carry a variety of long-lived assets on our balance sheet including property, plant and equipment, and intangibles. We conduct impairment tests on long-lived assets
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment is the condition that exists when the carrying amount of a
long-lived asset exceeds its fair value, and any impairment charge that we record reduces our earnings. We review the carrying value of these assets based upon estimated
undiscounted future cash flows while taking into consideration assumptions and estimates, including the future use of the asset, remaining useful life of the asset and service
potential of the asset. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for
which there are identifiable cash flows independent of the cash flows of other groups of assets, with such cash flows to be realized over the estimated remaining useful life
of the primary asset within the asset group.
The quantitative impairment test we perform for long-lived assets utilizes certain assumptions, including forecasted revenue and costs assumptions. The forecasted revenue
can be affected by rig count, day rates and the number of well completions, while our cost assumptions can be impacted by the price of sand and labor rates. If the U.S. rig
count and the price of crude oil remains at low levels for a sustained period of time, we could record an impairment of the carrying value of our long lived assets in the
future. If rig count and crude oil prices decline further or remain at low levels, to the extent appropriate we expect to perform our impairment assessment on a more frequent
basis to determine whether an impairment is required.
Insurance Accruals
We self-insure for certain losses relating to workers’ compensation, general liability, automobile, and our employee health plan. We estimate the level of our liability related
to the insurance and record reserves for these amounts in the consolidated financial statements. These estimates, which are actuarially determined, are based on the facts and
circumstances specific to existing claims and past experience with similar claims. These loss estimates and accruals recorded in the financial statements for claims have
historically been reasonable in light of the actual amount of claims paid and are actuarially supported. Although we believe our insurance coverage and reserve estimates are
reasonable, a significant accident or other event that is not fully covered by insurance or contractual indemnity could occur and could materially affect our financial position
and results of operations for a particular period.
Legal and Environmental Matters
As of December 31, 2018, we assessed the legal action pending against the Company and have accrued an estimate of probable and estimated costs. Our legal department
monitors and manages all claims filed and potential claims against us and reviews all pending investigations. Generally, the estimate of probable costs related to these
matters is developed in consultation with internal and outside legal counsel representing us. Our estimates are based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies. The accuracy of these estimates is impacted by, among other things, the complexity of the issues and the amount of due
diligence we have been able to perform. We attempt to resolve these matters through settlements, mediation and arbitration proceedings when possible. If the actual
settlement costs, final judgments or fines, after appeals, differ from our estimates, our future financial results may be adversely affected.
Income Taxes
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit
carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the
period that includes the enactment date. If applicable, a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than
not that such assets will be realized. The Company’s policy is to account for interest and penalties with respect to income taxes as operating expenses.
On December 22, 2017, the President of the United States signed into law legislation informally known as the Tax Cuts and Jobs Act (the “Act”). The Act represents major
tax reform legislation that, among other provisions, reduces the U.S. corporate tax rate.
52
As of December 31, 2018 management considers that the abovementioned Act will have an immaterial impact. However, going forward, the Company will analyze the
impact based on revised circumstances.
Equity Based Compensation
We are required to value our common stock or, in the case of our predecessor QES LP, our common units, for purposes of recognizing equity based compensation. In order
to determine the fair market value of our common units on the grant date of our equity based compensation issued prior to the IPO, our management utilized a combination
of two valuation methodologies: (i) discounted cash flow (“DCF”) analysis, and (ii) public peer trading analysis. For the grant date our equity based compensation issued
after the IPO, our management utilized the quoted closing price of the common stock on the grant date for awards that had no market conditions and for awards that had a
market condition we utilized a third-party valuation firm that used a Monte Carlo Simulation and Cholesky models to arrive at the fair market value.
The DCF analysis is predicated upon a five-year projection with material assumptions made for revenue, EBITDA margin, capital expenditures and tax rate. Those
assumptions are used to arrive at a forecasted free cash flow (“FCF”). We then assume a terminal event at the end of the 5-year projection period and derive an implied
terminal value by applying our public company peer group’s EBITDA multiple to our projected terminal year EBITDA result. The terminal value and FCF are then
discounted using our public company peer group’s average weighted average cost of capital (“WACC”). Estimating a five-year projection and the applicable assumptions is
highly complex and subjective and determining the appropriate peer group to determine our peer group EBITDA multiple and average WACC is subjective. Our
management selects a group of comparable public companies in each valuation exercise whose equity market pricing reflects the market’s view on key sector, geographic
and service lines similar to those that drive our business.
The public peer trading analysis is predicated upon the selection of public peers described above and calculating implied trading multiples of enterprise value to EBITDA.
These multiples are then applied to our forecasted EBITDA results for the selected forecast period which calculates an implied enterprise value for us. The current net debt
is subtracted from the enterprise value to arrive at an equity value. As described above, both forecasting our EBITDA to apply to the market multiple and selecting our peer
group involve subjective judgment by management. In addition, because we are not publicly traded, common valuation practice dictates that we apply an illiquidity discount
to the implied equity value produced by the public company multiples, and there is subjective judgement in determining the illiquidity discount as well.
The equity values derived by the DCF analysis and public trading peer analysis are then weighted based on relevance and appropriateness given the current market
environment at the time the valuation exercise is performed to arrive at a consolidated equity valuation. There is an element of subjectivity to each of the valuation
methodologies as well as the weighting of the three methodologies in arriving at fair market value
A Monte Carlo simulation performs risk analysis by modeling numerous possible scenarios to determine a probability distribution for any variable with inherent uncertainty.
The model runs 100,000 iterations to determine the earned market condition as an average of the iterations. It then calculates results over and over, each time using a
different set of random values from the probability functions. Depending upon the number of uncertainties and the ranges specified for them, a Monte Carlo simulation
could involve thousands or tens of thousands of recalculations before it is complete. Monte Carlo simulation produces distributions of possible outcome values
Using the results from the Monte-Carlo, the Cholesky model converts the correlation of each security into a matrix which populates relation of all companies with each
other. The Monte Carlo simulation then considers the co-relation effect to arrive at a fair market value for the equity grants that have a market condition.
We recognized stock based compensation expense of $17.9 million for the year ended December 31, 2018 and approximately $10.0 million was recognized upon closing
our IPO.
Recent Accounting Pronouncements
See "Note - 1 Nature of Operations, Basis of Presentation and Significant Accounting Policies" to our consolidated financial statements for a discussion of recently issued
accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information required by this Item.
53
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
QUINTANA ENERGY SERVICES INC.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
54
55
56
57
58
59
61
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Quintana Energy Services Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Quintana Energy Services Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017,
and the related consolidated statements of operations, of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2018, including
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 financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2018 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 audits of these consolidated financial statements 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 audits 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 audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Houston, Texas
March 7, 2019
We have served as the Company or its predecessors’ auditor since 2010, which includes periods before the Company became subject to SEC reporting requirements.
55
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 1.
Financial Statements
Quintana Energy Services Inc.
Consolidated Balance Sheets
(in thousands, except per share and share amounts)
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $1,841 and $776
Unbilled receivables
Inventories (Note 2)
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
ASSETS
$
Intangible assets, net
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued liabilities (Note 5)
LIABILITIES AND SHAREHOLDERS' EQUITY
$
324,549 $
$
51,568 $
December 31, 2018
December 31, 2017
Current portion of debt and capital lease obligations (Note 6)
Total current liabilities
Long-term debt, net of deferred financing costs of $0 and $1,709 (Note 6)
Long-term capital lease obligations (Note 6)
Deferred tax liability
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
Shareholders’ and members’ equity:
Members’ equity
Preferred shares, $0.01 par value, 10,000,000 authorized; none issued and outstanding
Common shares, $0.01 par value, 150,000,000 authorized; 33,774,053 issued; 33,541,161 outstanding
Additional paid-in-capital
Treasury stock, at cost, 232,892 common shares
Accumulated deficit
Total shareholders’ and members’ equity
Total liabilities, shareholders’ and members’ equity
$
324,549 $
The accompanying notes are an integral part of these consolidated financial statements.
56
13,804 $
101,620
13,766
23,464
7,481
160,135
153,878
9,019
1,517
37,533
422
89,523
29,500
3,451
130
125
122,729
—
—
344
349,080
(1,821)
(145,783)
201,820
8,751
83,325
9,645
22,693
9,520
133,934
128,518
10,832
2,375
275,659
36,027
33,825
79,443
149,295
37,199
3,829
185
183
190,691
212,630
—
—
—
—
(127,662)
84,968
275,659
Quintana Energy Services Inc.
Consolidated Statements of Operations
(in thousands of dollars and shares, except per share amounts)
December 31, 2018
December 31, 2017
December 31, 2016
Years Ended
$
604,354 $
438,033 $
Revenues:
Costs and expenses:
Direct operating costs
General and administrative
Depreciation and amortization
Fixed asset impairment
Goodwill impairment
(Gain) loss on disposition of assets
Operating loss
Non-operating income (expense):
Interest expense
Other income
Loss before income tax
Income tax expense
Net loss
Net loss attributable to predecessor
Net loss attributable to Quintana Energy Services Inc.
Net loss per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
468,502
97,280
46,683
—
—
(2,375)
(5,736)
(11,825)
—
(17,561)
(621)
(18,182)
(1,546)
(16,636) $
(0.50) $
(0.50) $
33,573
33,573
335,609
69,856
45,687
—
—
(2,639)
(10,480)
(11,251)
666
(21,065)
(91)
(21,156)
(21,156)
— $
— $
— $
—
—
210,428
182,928
73,600
78,661
1,380
15,051
5,375
(146,567)
(8,015)
—
(154,582)
(167)
(154,749)
(154,749)
—
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
57
Quintana Energy Services Inc.
Consolidated Statement of Shareholders’ Equity
(in thousands of dollars, units and shares)
Balance at December 31, 2016
Net loss
Balance at December 31, 2017
Effect of reorganization transactions
Issuance of common stock sold in initial public
offering, net of offering costs
Net loss prior to reorganization transactions
Cost incurred for stock issuance
Equity-based compensation
Tax withholding on stock vesting
Stock buyback plan activity
Opening deferred tax adjustment
Net loss subsequent to reorganization transactions
Balance at December 31, 2018
Common
Unitholders
Number of
Units
Members’
Equity
417,441
$
212,630
—
417,441
$
(417,441)
—
212,630
(212,630)
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
Common
Shareholders
Number of
Shares
Outstanding
Common
Stock
Additional
Paid in
Capital
Treasury
Stock
Retained
Deficit
Total
Shareholders’
Equity
—
—
—
23,598
9,632
—
—
544
(137)
(96)
—
—
— $
—
— $
— $
—
— $
238
246,023
96
—
—
10
—
—
—
—
90,446
—
(5,277)
17,888
—
—
—
—
— $
—
— $
—
—
—
—
—
(1,284)
(537)
—
—
(106,506)
$
(21,156)
(127,662)
$
—
—
(1,546)
—
—
—
—
61
(16,636)
33,541
$
344
$
349,080
$
(1,821)
$
(145,783)
$
106,124
(21,156)
84,968
33,631
90,542
(1,546)
(5,277)
17,898
(1,284)
(537)
61
(16,636)
201,820
The accompanying notes are an integral part of these consolidated financial statements.
58
Quintana Energy Services Inc.
Consolidated Statements of Cash Flows
(in thousands of dollars)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
December 31, 2018
December 31, 2017 December 31, 2016
Year Ended
$
(18,182)
$
(21,156) $
(154,749)
Depreciation and amortization
(Gain) loss on disposition of assets
Non-cash interest expense
Fixed asset impairment
Goodwill impairment
Loss on debt extinguishment
Provision for doubtful accounts
Deferred income tax expense
Stock-based compensation
Changes in operating assets and liabilities:
Accounts receivable
Unbilled receivables
Inventories
Prepaid expenses and other current assets
Other noncurrent assets
Accounts payable
Accrued liabilities
Other long-term liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from revolving debt
Payments on revolving debt
Proceeds from term loans
Proceeds from warrants, net of issuance costs
Payments on term loans
Payments on capital lease obligations
Payments on financed payables
Issuance of units
Payment of deferred financing costs
Prepayment premiums on early debt extinguishment
Payments for treasury shares
Proceeds from new shares issuance, net of underwriting commissions
Costs incurred for stock issuance
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents beginning of period
Cash and cash equivalents end of period
46,683
(7,785)
1,032
—
—
8,594
1,103
92
17,898
(19,398)
(4,121)
(770)
1,442
(3)
10,647
2,767
(60)
39,939
(64,957)
10,744
(54,213)
41,500
(91,071)
—
—
(11,225)
(380)
(2,139)
—
(1,564)
(1,346)
(1,816)
90,542
(3,174)
19,327
5,053
8,751
45,687
(10,500)
5,960
—
—
—
289
50
—
(46,869)
(1,953)
(3,144)
1,812
(1,439)
6,969
12,810
(56)
(11,540)
(21,244)
35,754
14,510
11,035
(21,964)
5,000
—
—
(315)
—
—
(194)
—
—
—
—
(6,438)
(3,468)
12,219
$
13,804
$
8,751 $
59
78,661
1,268
845
1,380
15,051
—
142
(42)
—
9,688
(4,213)
1,559
3,894
632
8,842
(5,778)
(15)
(42,835)
(7,340)
9,606
2,266
35,159
(22,000)
28,600
5,961
—
(317)
—
1,000
(1,878)
—
—
—
—
46,525
5,956
6,263
12,219
Supplemental cash flow information
Cash paid for interest
Income taxes paid, net of refund
Supplemental non-cash investing and financing activities
Non-cash proceeds from sale of assets held for sale
Fixed asset purchases in accounts payable and accrued liabilities
Financed payables
Non-cash capital lease additions
Non-cash payment for property, plant and equipment
Equity issued as payment for professional services
Debt conversion of Former Term Loan to equity
Conversion of accrued interest to debt
Issuance of common shares for members’ equity
$
2,087 $
105
—
4,900
2,994
53
3,279
—
33,631
—
$
212,630 $
5,755 $
77
3,990
934
1,666
70
711
—
—
4,202
— $
5,935
198
—
93
950
—
—
2,000
—
126
—
The accompanying notes are an integral part of these consolidated financial statements.
60
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Nature of Operations, Basis of Presentation and Significant Accounting Policies
Organization and Nature of Operations
Quintana Energy Services Inc. (either individually or together with its subsidiaries, as the context requires, the “Company,” “QES,” “we,” “us,” and “our”) is a Delaware
corporation that was incorporated on April 13, 2017. Our accounting predecessor, Quintana Energy Services LP (“QES LP” and “Predecessor”), was formed as a Delaware
partnership on November 3, 2014. In connection with our initial public offering (the “IPO”) which closed on February 13, 2018, the existing investors in QES LP and QES
Holdco LLC contributed all of their direct and indirect equity interests to QES in exchange for shares of common stock in QES, and we became the holding company for the
reorganized QES LP and its subsidiaries.
We are a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas exploration and production (“E&P”) companies operating in both
conventional and unconventional plays in all of the active major basins throughout the United States. The Company operates through four reporting segments which are
Directional Drilling, Pressure Pumping, Pressure Control and Wireline.
Initial Public Offering
As of December 31, 2017, our Predecessor had approximately 417,441,074 common units outstanding and 227,885,579 warrants to purchase common units outstanding.
Immediately prior to the IPO on February 13, 2018, the warrants were net settled for 223,394,762 common units, and immediately thereafter our Predecessor and affiliated
entities were reorganized through mergers and related transactions and 20,235,193 shares of our common stock were issued to the holders of equity in our Predecessor at a
ratio of 1 share of our common stock for 31.669363 common units of our Predecessor (with elimination of fractional shares) (the “Merger Transactions”). On February 13,
2018, immediately after the Merger Transactions, but prior to our IPO, our Predecessor’s Former Term Loan (as defined below) was extinguished and in partial
consideration therefore 3,363,208 shares were issued to our Predecessor’s Former Term Loan lenders based on the price to the public of our IPO (representing 1 share of
common stock for each $10.00 in Former Term Loan obligations converted) (together with the “Merger Transactions”, the “Reorganization Transactions”).
The gross proceeds of the IPO to the Company, at the public offering price of $10.00 per share, were $92.6 million, which resulted in net proceeds to the Company of
approximately $87.0 million, after deducting $5.6 million of underwriting discounts and commissions associated with the shares sold by the Company, excluding
approximately $5.3 million in offering expenses payable by the Company. Taking together the Reorganization Transactions and the issuance of 9,259,259 shares of our
common stock to the public in our IPO, as of February 13, 2018, we had 32,857,660 shares outstanding immediately following our IPO. Subsequent to our IPO, we issued
139,921 shares in connection with the vesting of awards under our Predecessor’s 2015 LTIP Plan on February 22, 2018, and 260,529 shares of our common stock were
issued on March 8, 2018 in consideration of vesting of awards under our Predecessor’s 2017 LTIP which we assumed. In connection with both awards, certain shares were
withheld to satisfy tax obligations of the holder of the award, which shares are currently treasury shares totaling 136,585 shares of common stock. Also in connection with
the consummation of the IPO, on March 9, 2018, the underwriters exercised their overallotment option to purchase an additional 372,824 shares of common stock of QES,
which resulted in additional net proceeds of approximately $3.5 million (the “Option Exercise”), net of underwriter’s discounts and commission of $0.1 million. Upon the
completion of the Reorganization Transactions, the IPO and the Option Exercise, QES had 33,630,934 shares of common stock outstanding.
The net proceeds received from the IPO and a $13.0 million drawdown on the New ABL Facility (described below) were used to fully repay the Company’s revolving credit
facility balance of $81.1 million and repay $12.6 million of the Company’s $40.0 million, 10% Former Term Loan due 2020, as described in “Note 6 - Long-Term Debt and
Capital Lease Obligations.” The remaining proceeds from the IPO were used for general corporate purposes.
Basis of Presentation and Principles of Consolidation
The accompanying interim consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”). The consolidated financial accounts include all QES accounts and all of our subsidiaries where we exercise control. All inter-company transactions and
account balances have been eliminated upon consolidation.
61
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain reclassifications have been made to the prior year financial statements to conform to the current period financial statement presentation.
Segment Reporting
The Company’s reportable segments are: (1) Pressure Pumping, (2) Directional Drilling, (3) Pressure Control, and (4) Wireline.
The Company routinely evaluates whether its separate operating and reportable segments continue to reflect the way its Chief Operating Decision Maker (“CODM”)
evaluates the business. The determination is based on the following factors: (1) how the Company’s CODM is currently managing each operating segment as a separate
business and evaluating the performance of each segment and making resource allocation decisions distinctly and expects to do so for the foreseeable future, and (2)
whether discrete financial information for each operating segment is available. The Company considers its Chief Executive Officer to be its CODM.
The current structure in place continues to reflect the financial information and reports used by the Company’s management, specifically its CODM, to make decisions
regarding the Company’s business, including resource allocations and performance assessments. See “Note 12 - Segment Information” for further discussion regarding the
Company’s reportable segments.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those estimates.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This
ASU amended the existing accounting standards for revenue recognition and requires companies to recognize revenue when control of the promised goods or services is
transferred to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. QES adopted this ASU on
January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Prior to the adoption of ASU
No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), on January 1, 2018, the revenue was recognized when persuasive evidence of an arrangement existed,
services are performed, the sales price was fixed or determinable and collectability was reasonably assured.
QES recognizes revenue upon the transfer of control of promised products or services to customers at an amount that reflects the consideration it expects to receive in
exchange for these products or services. The vast majority of our services and product offerings are short-term in nature, generally between 30 to 60 days. Services are sold
without warranty and QES generates revenue from multiple sources within its four operating segments outlined as follows:
Pressure Pumping revenue. Through its Pressure Pumping segment, the Company provides completion and production services based upon a purchase order, contract or on
a spot market basis. Services are provided based on the price book and bid on a stage rate (for hydraulic fracturing services) or job basis (for cementing and acidizing
services), contracted or hourly basis, and revenue is recognized when the stage or job is completed. Jobs for these services are typically short-term in nature and range from
a few hours to multiple days. Revenue is recognized upon the completion of each day’s work (or job, if longer than a day) based upon a completed field ticket, which
includes the charges for the services performed, mobilization of the equipment to the location and the personnel involved in such services or mobilization. Additional
revenue is generated through labor charges and reimbursable consumable supplies that are incidental to the service being performed. Labor charges and the use of
consumable supplies are included on completed field tickets.
Directional Drilling revenue. Through its directional drilling segment, the Company provides directional drilling services on a day rate or hourly basis, and recognizes the
revenue as the services are provided. QES recognizes mobilization revenue and costs for day-work over the days of actual drilling. Included in revenue are proceeds from
customers for the cost of oilfield downhole tools and other equipment that are involuntarily damaged or lost-in-hole.
Pressure Control revenue. Through its Pressure Control segment, the Company provides a range of coiled tubing, snubbing, well control and other well completion and
production-related services, including nitrogen and fluid pumping services, on both a contract and spot market basis. Jobs for these services are typically short-term in
nature and range from a few hours to multiple days. Revenue is recognized upon completion of each day’s work based upon a completed field ticket. The field ticket
includes charges for the services performed and any related consumables (such as friction reducers and nitrogen materials) used during the course
62
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the services, which are reported as product sales. The field ticket may also include charges for the mobilization and set-up of equipment, the personnel on the job, any
additional equipment used on the job, and other miscellaneous consumables.
Wireline revenue. Through its Wireline segment, the Company provides cased-hole production logging, casing evaluation logging, through tubing and casing perforating,
pressure control, pipe recovery, plug setting, dump-bailing, and other complementary services, on a spot market basis or subject to a negotiated pricing agreement. Jobs for
these services are typically short-term in nature, lasting anywhere from a few hours to a few weeks. The Company typically charges the customer for these services on a per
job basis at agreed-upon spot market rates. Revenue is normally recognized based on a field ticket issued upon the completion of the job. However, for large stage jobs that
starts in one period and finishes in another, revenue is recognized on the stages completed for which a field ticket is issued.
The timing of revenue recognition may differ from contract billing or payment schedules, resulting in revenues that have been earned but not billed (“unbilled revenue”) or
amounts that have been collected, but not earned.
Typical Contractual Arrangements
The Company typically provides the services based upon a combination of a Master Service Agreement (“MSA”) or its General Terms & Conditions (T&Cs”) and a
purchase order or other similar forms of work requests that primarily operate on a spot market basis for a defined work scope on a particular well or well pad. Services are
provided based on a price book and bid on a day rate, stage rate or job basis. QES may also charge for the mobilization and set-up of equipment and for materials and
consumables used in the services. Contracts generally are short-term in nature, ranging from a few hours to multiple weeks. Contracts typically do not stipulate substantive
early termination penalties for either party. As such, the Company determined that its contracts are day to day, even though parties typically do not terminate the contract
early during the normal course of business. In cases where the customer terminates the contract early, the Company has an enforceable right to payment for services
performed to date. Under day rate contracts, we generally receive a contractual day rate for each day we are performing services. The contractual day rate may vary based
on the status of the operations and generally includes a full operating rate and a standby rate. Other fees may be stipulated in the contract related to mobilization and setup of
equipment and reimbursements for consumables and cost of tools and equipment, that are involuntarily damaged or lost-in-hole.
Performance Obligations and Transaction Price
Customers generally contract with us to provide an integrated service of personnel and equipment for directional drilling, pressure pumping, pressure control or wireline
services. The Company is seen by the operator as the overseer of its services and is compensated to provide an entire suite for its scope of services. QES determined that
each service contract contains a single performance obligation, which is each day’s service. In addition, each day’s service is within the scope of the series guidance as both
criteria of series guidance are met: 1) each distinct increment of service (i.e. days available to supervise or number of stages determined at contract inception) that the
Company agrees to transfer represents a performance obligation that meets the criteria for recognizing revenue over time, and 2) the Company would use the same method
for measuring progress toward satisfaction of the performance obligation for each distinct increment of service in the series. Therefore, the Company has determined that
each service contract contains one single performance obligation, which is the series of each distinct stage or day’s service.
The transaction price for the Company’s service contracts is based on the amount of consideration the Company expects to receive for providing the services over the
specified term and includes both fixed amounts and unconstrained variable amounts. In addition, the contract term may impact the determination and allocation of the
transaction price and recognition of revenue. As the Company’s contracts do not stipulate substantive termination penalties, the contract is treated as day to day. Typically,
the only fixed or known consideration at contract inception is initial mobilization and demobilization (where it is contractually guaranteed). In cases where the
demobilization fee is not fixed, the Company estimates the variable consideration using the expected value method and includes this in the transaction price to the extent it
is not constrained. Variable consideration is generally constrained if it is probable that a significant reversal in the amount of cumulative revenue recognized will occur
when the uncertainty associated with the variable consideration is subsequently resolved. As the contracts are not enforceable, the contract price should not include any
estimation for the day rate or stage rate charges.
Recognition of Revenue
Directional drilling, pressure pumping, pressure control and wireline services are consumed as the services are performed and generally enhances the customer or operators
well site. Work performed on a well site does not create an asset with an alternative use to the contractor since the well/asset being worked on is owned by the customer.
Therefore, the Company’s measure of progress for our contracts are hours available to provide the services over the contracted duration. This unit of measure is
representative of an output method as described in ASC 606.
63
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following chart details the types of fees found in a typical service contract and the related recognition method under ASC 606:
Fee type
Day rate
Revenue Recognition
Revenue is recognized based on the day rates earned as it relates to the level of service provided for each day throughout the contract.
Initial mobilization
Revenue is estimated at contract inception and included in the transaction price to be recognized ratably over contract term.
Demobilization
Unconstrained demobilization revenue is estimated at contract inception, included in the transaction price, and recognized ratably over the
contract term.
Reimbursement
Recognized (gross of costs incurred) at the amount billed to the customer.
Disaggregation of Revenue
The Company discloses a reconciliation of the disaggregated revenue with the reported results in "Note 12 - Segment Information."
Future Performance Obligations and Financing Arrangements
As our contracts are day to day and short-term in nature, the Company determined that it does not have material future performance obligations or financing arrangements
under its service contracts. Payments are typically due within 30 days after the services are rendered. The timing between the recognition of revenue and receipt of payment
is not significant.
No contract assets or liabilities were recognized related to contracts with our customers.
The Company has also exercised the following practical expedients and accounting policy elections provided by ASC 606 for all its service contracts.
1) QES occasionally pays commissions to its sales staff for successfully obtaining a contract. The commission payment is incremental costs of obtaining a contract
and should be capitalized and amortized over the contract period. However, ASC 340-40-25-4 provides a practical expedient, which states that “an entity may
recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have
recognized is one year or less.” Management has elected to use this practical expedient as most of the Company’s service contracts are less than a month.
Accordingly, the Company expenses the commission expense as incurred.
2)
In May 2016, the FASB issued ASU 2016-12 that allows an entity to make an accounting policy election to exclude from the transaction price certain types of taxes
collected from a customer (i.e. present revenue net of these taxes), including sales, use, value-added and some excise taxes.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents consist of cash on hand, and certificates of deposits. QES considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
The Company maintains its cash and cash equivalents in various financial institutions, which at times may exceed federally insured amounts. Management believes that this
risk is not significant.
Accounts Receivable and Allowance for Doubtful Accounts
QES grants credit to qualified customers, which potentially subjects the Company to credit risk resulting from, among other factors, adverse changes in the industry in
which the Company operates and the financial condition of its customers. Estimated losses on accounts receivable are provided through an allowance for doubtful accounts.
The level of allowance is determined by specifically evaluating customers deemed to be an elevated credit risk, as well as a general analysis of the overall aging of our
accounts. As the financial condition of any party changes, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful
accounts may be required. As of December 31, 2018 and 2017, the allowance for doubtful accounts was approximately $1.8 million and $0.8 million, respectively. Bad debt
expense of $1.1 million, $0.3 million and $0.1 million was included in selling, general and administration expenses on the consolidated statement of operations for the years
ended December 31, 2018, 2017 and 2016, respectively.
Activity in our allowance for doubtful accounts during the years ended December 31, 2018, 2017 and 2016 is set forth in the table below (in thousands of dollars):
64
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance at beginning of
period
Charged to costs and
expenses
Deductions (1)
Balance at end of period
2018
Allowance for doubtful accounts
2017
Allowance for doubtful accounts
2016
Allowance for doubtful accounts
$
$
776 $
880
994 $
1,103 $
289
142 $
(38) $
(393)
(256) $
1,841
776
880
(1) Accounts receivable balances written off during the period, net of recoveries.
Unbilled Receivables
Unbilled receivables are the amounts of recoverable revenue that have been earned and not billed at the balance sheet date. Unbilled receivables relate principally to revenue
that is billed in the month after services are performed. These items are expected to be collected in the normal course of business.
Inventories
Inventories consisting primarily of cement mix, sand, fuel, chemicals, proppants, and downhole tool spare parts are stated at the lower of cost or net realizable value. The
average cost method is used for inventory held by all segments.
Property, Plant, and Equipment
Property, plant, and equipment (“PP&E”) are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred while the cost of
additions and improvements that substantially extend the useful life and/or the functionality of a particular asset are capitalized. The cost and related accumulated
depreciation of assets retired or otherwise disposed of are eliminated from the accounts, and any resulting gains or losses are recognized in operations in the period of
disposal.
PP&E are evaluated on an annual basis to identify events or changes in circumstances (“triggering events”) that indicate that the carrying value of certain PP&E may not be
recoverable. PP&E are reviewed for impairment upon the occurrence of a triggering event. An impairment loss is recorded in the period in which it is determined that the
carrying amount of PP&E is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at
the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated
remaining useful life of the primary asset within the asset group. If the estimated undiscounted future net cash flows for a given asset group is less than the carrying amount
of the related assets, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then
allocated across the asset group’s major classifications.
Based on management’s assessment and consideration of the current business environment, the financial performance of the business, and the current outlook, it was
determined there has been no impairment the current period. As such, no impairment of PP&E was recorded for the years ended December 31, 2018 and 2017. The
company reported an impairment of PP&E of approximately $1.4 million for the year ended December 31, 2016.
Goodwill and Definite-Lived Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired. In accordance with U.S. GAAP, goodwill is
not amortized since it has an indefinite life. Instead, the Company's Goodwill balance, if any, it is tested at least annually for impairment; impairment losses, if any, are
recorded in the statement of operations as part of income from operations. The Company tests goodwill for impairment at the reporting unit level on an annual basis as of
September 30, or when events or changes in circumstances, referred to as triggering events, indicate the carrying value of goodwill may not be recoverable and that a
potential impairment exists. The quantitative impairment test for goodwill requires a two-step approach, which is performed at a reporting unit level. Step one of the test
identifies potential impairments by comparing the fair value of the reporting unit to its carrying amount. Step two, which is performed if the fair value of a reporting unit is
less than its carrying value, calculates the impairment loss as the difference between the carrying amount of the reporting unit’s goodwill and the implied fair value of that
goodwill.
65
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company uses the income and market approach to estimate the fair value of its reporting units. The income approach is based on a discounted cash flow model, which
utilizes present values of estimated cash flows to estimate fair value. The future cash flows are projected based on estimates of projected revenue growth, fleet and rig count,
utilization, gross profit rates, SG&A rates, working capital fluctuations and capital expenditures. Management’s anticipated business outlook, which has been impacted by
the sustained decline in commodity prices, falling Company stock prices, and negative cash flows, is taken into consideration. The future cash flows are discounted using a
market-participant risk-adjusted weighted average cost of capital. These assumptions are derived from unobservable Level 3 inputs, as described below, and reflect
management’s judgments and assumptions.
The market approach is based upon selected public companies operating within the same industry as the reporting unit. Based on this set of comparable competitor data,
enterprise value-to-earnings multiples are derived and applied to the estimated earnings of the reporting unit to determine an estimated fair value. Earnings estimates are
derived from unobservable inputs that require significant estimates, judgments and assumptions as described in the income approach.
Definite-lived intangible assets are amortized over their estimated useful lives. When events or changes in circumstances (a triggering event) indicate that the asset may
have a net book value in excess of their recoverable value, the Company performs a recoverability test on its definite-lived intangible assets by comparing the estimated
future net undiscounted cash flows expected to be generated from the use of the asset to the carrying amount of the asset. If the estimated undiscounted cash flows exceed
the carrying amount of the asset, an impairment does not exist, and a loss will not be recognized. If the undiscounted cash flows are less than the carrying amount of the
asset, the asset is deemed to not be recoverable, and the amount of impairment must be determined by fair valuing the asset.
Deferred Financing Costs
Costs incurred to obtain financing are capitalized and amortized over the term of the loan using the effective interest method. These costs are classified within interest
expense on the consolidated statements of operations.
Income Taxes
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit
carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the
period that includes the enactment date. If applicable, a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than
not that such assets will be realized. The Company’s policy is to account for interest and penalties with respect to income taxes as operating expenses.
On December 22, 2017, the President of the United States signed into law legislation informally known as the Tax Cuts and Jobs Act (the “Act”). The Act represents major
tax reform legislation that, among other provisions, reduces the U.S. corporate tax rate.
Comprehensive Income (loss)
Any comprehensive income (loss) and its components are displayed in our financial statements. When they arise, we classify items of comprehensive income by their nature
in the financial statements and display the accumulated balance and other comprehensive income in members’ equity. Comprehensive income equals net income for all
periods presented in the accompanying consolidated financial statements.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at
the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset
or liability, and are developed based on market data obtained from sources independent of QES. Unobservable inputs are inputs that reflect QES’ assumptions of what
market participants would use in pricing the asset or liability based on the best information available in the circumstances. The financial and nonfinancial assets and
liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels based on the
reliability of the inputs.
Level 1
Quoted prices are available in active markets for identical assets or liabilities;
66
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 2
Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or
Level 3
Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or
valuations.
Stock-based compensation
The Company records compensation relating to stock-based compensation transactions and includes such costs in general and administrative expenses in the consolidated
statement of operations. The cost is measured at the grant date and based on the calculated fair value of the award. See “Note 13 - Stock-Based Compensation” for
additional information related to stock-based compensation.
Recent Accounting Pronouncements
Adopted in 2018
In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), a comprehensive new revenue recognition standard that supersedes
most existing industry-specific guidance. ASC 606 creates a framework by which an entity allocates the transaction price to separate performance obligations and
recognizes revenue when each performance obligation is satisfied. Under the new standard, entities are required to use judgment and make estimates, including identifying
performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate
performance obligation and determining when an entity satisfies its performance obligations. The standard allows for either “full retrospective” adoption, meaning that the
standard is applied to all of the periods presented with a cumulative catch-up in the earliest period presented, or “modified retrospective” adoption, meaning the standard is
applied only to the most current period presented in the financial statements with a cumulative catch-up in the current period. In July and December 2016, the FASB issued
various additional authoritative guidance for the new revenue recognition standard. The accounting standard is effective for reporting periods beginning after December 15,
2017 and did not have a material impact on the Company’s 2018 first quarter interim condensed consolidated financial position, results of operations and cash flows. The
Company adopted ASC 606, effective January 1, 2018, utilizing the modified retrospective method of adoption.
In January 2017, FASB issued ASU No. 2017-1, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments provide a more robust
framework to use in determining when a set of assets and activities constitutes a business. The new standard was effective for the Company beginning on January 1, 2018.
The standard did not have a material impact on the Company’s interim condensed consolidated financial position, results of operations and cash flows as it did not have any
business combinations transactions.
In May 2017, the FASB issued ASU 2017-9, Compensation (Topic 718): Scope of Modification Accounting, which clarifies what constitutes a modification of a stock-based
payment award. The new standard was effective for the Company beginning on January 1, 2018. The standard did not have a material impact on the Company’s interim
condensed consolidated financial position, results of operations and cash flows because there has been no modification to our equity-based payment awards.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments providing new guidance on the classification of certain cash
receipts and payments including debt extinguishment costs, debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments,
proceeds from the settlement of insurance claims and life insurance policies and distributions received from equity method investees in the statement of cash flows. This
update is required to be applied using the retrospective transition method to each period presented unless it is impracticable to be applied retrospectively. In such situation,
this guidance is to be applied prospectively. The new standard was effective for the Company beginning on January 1, 2018, which did not impact 2017 results, but resulted
in a $1.3 million prepayment premium cost being reported under financing activities relating to the debt extinguishment of the Company’s $40.0 million term loan at the
closing of the IPO.
Accounting Standards not yet adopted
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This
ASU is intended to simplify aspects of stock-based compensation issued to non-employees by making the guidance consistent with the accounting for employee stock-based
compensation. The guidance is effective for the Company for the fiscal year beginning January 1, 2020. While the exact impact of this standard is not known, the guidance
is not
67
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expected to have a material impact on the Company’s consolidated financial statements, as non-employee stock compensation is nominal relative to the Company's total
expenses as of December 31, 2018.
In February 2016, the FASB issued ASU No. 2016-2, Leases, to provide guidance for the accounting for leasing transactions. The standard requires the lessee to recognize a
lease liability along with a right-of-use asset for all leases with a term longer than one year. A lessee is permitted to make an accounting policy election by class of
underlying asset to not recognize the lease liability and related right-of-use asset for leases with a term of one year or less. The provisions of this standard also apply to
situations where the Company is the lessor. The requirements in this update are effective during interim and annual periods beginning after December 15, 2018. The
Company adopted this new guidance effective January 1, 2019. ASC 842 requires a modified retrospective approach to each lease that existed at the date of initial
application as well as leases entered into after that date. The Company has elected to report all leases at the beginning of the period of adoption and not restate its
comparative periods. Based on the Company’s lease portfolio, the Company anticipates recognizing a right-of-use asset and a related lease liability of approximately $33.0
million on its balance sheet, with an immaterial impact on the Company’s consolidated statement of operations compared to the previous lease accounting guidance.
Practical Expedients Adopted with Topic 842
The Company has elected to adopt the following practical expedients upon the transition date to Topic 842 on January 1, 2019:
•
•
•
Transitional practical expedients package: An entity may elect to apply the listed practical expedients as a package to all the leases that commenced before the
effective date. The practical expedients are:
◦
◦
◦
The entity need not reassess whether any expired or existing contracts are or contains leases;
The entity need not reassess the lease classification for expired or existing contracts;
The entity need not reassess initial direct costs for any existing leases.
Use of portfolio approach: An entity can apply this guidance to a portfolio of leases with similar characteristics if the entity reasonably expects that the application
of the lease model to the portfolio would not differ materially from the application of the lease model to the individual leases in that portfolio. This approach can
also be applied to other aspects of the leases guidance for which lessees/lessors need to make judgments and estimates, such as determining the discount rate and
determining and reassessing the lease term.
Lease and non-lease components: As a practical expedient, a lessor may combine lease and non-lease components where the revenue recognition pattern is the
same and where the lease component, when accounted for separately, would be considered an operating lease.
NOTE 2 - Inventories
Inventories consisted of the following (in thousands of dollars):
Consumables and materials
Spare parts
Inventories
NOTE 3 - Property, Plant and Equipment
December 31, 2018
December 31, 2017
December 31, 2016
$
$
7,566 $
15,898
23,464 $
7,085
15,608
22,693
6,056
13,493
19,549
Depreciation of assets is computed using the straight-line method over the lesser of the estimated useful lives of the respective assets or the lease term, if shorter.
Depreciation expense and capital lease amortization expense for the years ended December 31, 2018, 2017 and 2016 was $44.9 million, $43.3 million and $76.3 million,
respectively. A substantial portion of the Company’s tools are designed for specific applications in oil and gas exploration. Changes in industry drilling processes or
technology could impact the estimated useful lives of the Company’s equipment. Gains recorded for assets lost in hole for the years ended December 31, 2018, 2017 and
2016 were $5.4 million, $7.9 million and $4.1 million, respectively. Gain/(loss) related to the sale of PP&E for the years ended December 31, 2018, 2017 and 2016 were
$2.4 million, $2.6 million and ($5.4) million, respectively.
Major classifications of PP&E and their respective useful lives were as follows (in thousands of dollars):
68
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Land
Service equipment
Machinery and equipment
Buildings and leasehold improvements
Software
Office furniture and equipment
Less: Accumulated depreciation
Construction in progress
Property, plant and equipment, net
Property, plant and equipment under capital leases included in the above are as follows:
Machinery and equipment
Buildings and leasehold improvements
Less: Accumulated amortization
NOTE 4 - Intangible Assets
Definite-Lived Intangible Assets
Estimated
Useful Lives
Indefinite
3-10 years
7-15 years
5-39 years
3-5 years
3-10 years
As of December 31,
2018
2017
2016
$
3,740 $
298,782
3,999 $
262,795
70,749
24,648
2,348
2,792
403,059
(255,843)
147,216
6,662
51,333
27,061
2,012
2,376
349,576
(224,764)
124,812
3,706
$
153,878 $
128,518 $
4,050
250,435
55,897
27,290
1,123
3,098
341,893
(193,985)
147,908
2,798
150,706
Estimated
Useful Lives
3 Years
20 Years
As of December 31,
2018
2017
2016
$
233 $
181 $
2,252
2,485
(676)
2,252
2,433
(415)
$
1,809 $
2,018 $
—
2,252
2,252
(193)
2,059
There were no impairment triggering events during 2018, 2017 and 2016. The changes in the carrying amounts of other intangible assets for the year ended December 31,
2018, 2017 and 2016 are as follows (in thousands of dollars):
Estimated useful life (years)
3
13
5
Trademarks
Customer
Relationships
Non-compete
Agreement
Total
Gross Amount as of December 31, 2016
Accumulated Amortization
Net Balance as of December 31, 2016
Gross Amount as of December 31, 2017
Accumulated Amortization
Net Balance as of December 31, 2017
Gross Amount as of December 31, 2018
Accumulated Amortization
Net Balance as of December 31, 2018
$
$
$
1,750 $
11,710 $
(1,166)
584
1,750 $
(1,750)
—
1,750 $
(1,750)
—
(1,802)
9,908
11,710 $
(2,702)
9,008
11,710 $
(3,603)
8,107
4,560 $
(1,824)
2,736
4,560 $
(2,736)
1,824
4,560 $
(3,648)
912
18,020
(4,792)
13,228
18,020
(7,188)
10,832
18,020
(9,001)
9,019
Amortization expense for the years ended December 31, 2018, 2017 and 2016 were $1.8 million, $2.4 million and $2.4 million, respectively.
Amortization expense of these intangibles for each of the subsequent five fiscal years is expected to be as follows (in thousands of dollars):
69
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
Year Ending December 31,
2019
2020
2021
2022
Thereafter
NOTE 5 - Accrued Liabilities
Accrued liabilities consist of the following (in thousands of dollars):
Current accrued liabilities
Accrued payables
Payroll and payroll taxes
Bonus
Workers compensation insurance premiums
Sales tax
Ad valorem tax
Health insurance claims
Other accrued liabilities
Total accrued liabilities
NOTE 6 - Long-Term Debt and Capital Lease Obligations
Long-term debt consisted of the following (in thousands of dollars):
Total
1,813
901
901
901
4,503
9,019
$
$
December 31, 2018
December 31, 2017
$
12,943 $
7,051
6,117
1,532
2,599
581
921
5,789
$
37,533 $
11,905
6,089
6,019
1,760
2,923
728
913
3,488
33,825
December 31, 2018
December 31, 2017
New ABL revolving credit facility due February 2023
$
29,500 $
Revolving credit facility
2017 term loan facility
Less: deferred financing costs
Less: discount on term loan
Total debt obligations, net of discounts and deferred financing
Capital leases
Less: current portion of debt and capital lease obligation
Long-term debt and capital lease obligations
Long-Term Debt
Former Revolving Credit Facility
—
—
—
—
29,500
3,873
(422)
32,951 $
$
—
79,071
44,328
(1,709)
(5,420)
116,270
4,200
(79,443)
41,027
The Company had a revolving credit facility (“the Former Revolving Credit Facility”), which had a maximum borrowing facility of $110.0 million that was scheduled to
mature on September 19, 2018. All obligations under the credit agreement for the Former Revolving Credit Facility were collateralized by substantially all of the assets of
the Company. The Revolving Credit Facility’s credit agreement contained customary restrictive covenants that required the Company not to exceed or fall below two key
ratios, a maximum loan to value ratio of 70% and a minimum liquidity of $7.5 million. In connection with the closing of the IPO on February 13, 2018, we fully repaid and
terminated the Former Revolving Credit Facility. No early termination fees were incurred by the Company in connection with the termination of the Former Revolving
Credit Facility. A loss on extinguishment of $0.3 million relating to unamortized deferred costs was recognized in interest expense, during the first quarter of 2018.
Former Term Loan
The Company also had a four-year, $40.0 million term loan agreement with a lending group, which included Geveran Investments Limited, Archer Holdco LLC and
Robertson QES Investment LLC, an affiliate of Quintana Capital Group, L.P., that was scheduled to mature on December 19, 2020. The Former Term Loan agreement
contained customary restrictive covenants that required the
70
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company not to exceed or fall below two key ratios, a maximum loan to value ratio of 77% and a minimum liquidity of $6.8 million. The interest rate on the unpaid
principal was 10.0% interest per annum and accrued on a daily basis. At the end of each quarter all accrued and unpaid interest was paid in kind by capitalizing and adding
to the outstanding principal balance. In connection with the closing of the IPO on February 13, 2018, the Former Term Loan was settled in full by cash and common shares
in the Company. In connection with the settlement of the Former Term Loan, a prepayment fee of 3%, or approximately $1.3 million was paid. The prepayment fee is
recorded as a loss on extinguishment and included within interest expense. The Company also recognized within interest expense $5.4 million of unamortized discount
expense and $1.7 million of unamortized deferred financing cost in interest expense, during the first quarter of 2018.
New ABL Facility
In connection with the closing of the IPO on February 13, 2018, we entered into a new asset-based revolving credit agreement (the “New ABL Facility”) with each lender
party thereto and Bank of America, N.A. as administrative agent and collateral agent. The New ABL Facility replaced the Former Revolving Credit Facility, which was
terminated in conjunction with the effectiveness of the New ABL Facility. The New ABL Facility provides for a $100.0 million revolving credit facility subject to a
borrowing base. Upon closing of the New ABL Facility, the borrowing capacity was $77.6 million and $13.0 million was immediately drawn. The loan interest rate on the
borrowings outstanding at December 31, 2018, was 5.3% and $29.5 million was outstanding and recorded as long term debt under the New ABL Facility as of
December 31, 2018. At December 31, 2018, we had $13.8 million of cash and cash equivalents and $60.2 million available to draw on the New ABL Facility, which
resulted in a total liquidity position of $74.0 million.
The New ABL Facility contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers,
consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions) and transactions with affiliates.
Certain affirmative covenants, including certain reporting requirements and requirements to establish cash dominion accounts with the administrative agent, are triggered by
failing to maintain availability under the New ABL Facility at or above specified thresholds or by the existence of an event of default under the New ABL Facility. The New
ABL Facility provides for some exemptions to its negative covenants allowing the Company to make certain restricted payments and investments; subject to maintaining
availability under the New ABL Facility at or above a specified threshold and the absence of a default.
The New ABL Facility contains a minimum fixed charge coverage ratio of 1.0 to 1.0 that is triggered when availability under the New ABL Facility falls below a specified
threshold and is tested until availability exceeds a separate specified threshold for 30 consecutive days.
The New ABL Facility contains events of default customary for facilities of this nature, including, but not limited, to: (i) events of default resulting from the Borrowers’
failure or the failure of any credit party to comply with covenants (including the above-referenced financial covenant during periods in which the financial covenant is
tested); (ii) the occurrence of a change of control; (iii) the institution of insolvency or similar proceedings against the Borrowers or any credit party; and (iv) the occurrence
of a default under any other material indebtedness the Borrowers or any guarantor may have. Upon the occurrence and during the continuation of an event of default, subject
to the terms and conditions of the New ABL Facility, the lenders will be able to declare any outstanding principal balance of our New ABL Facility, together with accrued
and unpaid interest, to be immediately due and payable and exercise other remedies, including remedies against the collateral, as more particularly specified in the New
ABL Facility. As of December 31, 2018 the Company was in compliance with debt covenants.
Capital Lease Obligations
The Company has long-term lease agreements for a manufacturing and office facility for the operations of its Pressure Control segment in Oklahoma City, Oklahoma and
Elk City, Oklahoma. Each lease is accounted for as a capital lease. The lease for the facility in Oklahoma City, Oklahoma commenced in December 2006, creating a lease
obligation of $3.3 million as of March 2007. The lease is payable monthly in amounts ranging from $28,000 to $31,000 over the lease term. The lease for the facility in Elk
City, Oklahoma commenced in April 2007, creating a lease obligation of $2.9 million as of May 2008. The lease is payable monthly in amounts ranging from $25,000 to
$27,000 over the lease term.
The Company leases certain machinery and equipment, and service equipment under capital leases that were entered into during the year and expire in 2020. The capital
lease obligation for the assets have a lease term of 36 months and an interest rate of 5.5%.
71
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018, the future minimum lease payments acquired under the Company’s capital leases are as follows (in thousands of dollars):
Years Ending December 31,
2019
2020
2021
2022
2023
Thereafter
$
$
721
687
640
630
630
1,937
5,245
The interest expense associated with the lease payments during the year ended December 31, 2018, 2017 and 2016, under the Company’s capital leases totaled $0.3 million,
$0.3 million and $0.4 million respectively.
NOTE 7 - Stockholders’ Equity
The Company is authorized to issue 150,000,000 shares of common stock, par value $0.01 per share, of which 33,541,161 shares were outstanding on December 31, 2018.
As of December 31, 2017 approximately 417,441,074 common units and 227,885,579 warrants to purchase common units were outstanding on December 31, 2018 and
2017, respectively. See "Note 1 - Nature of Operations, Basis of Presentation and Significant Accounting Policies" for more details on how the IPO, conversion and stock
split impacted the Predecessor units and warrants. We are also authorized to issue 10,000,000 shares of preferred stock, par value $0.01 per share, which may be issued in
series with terms and conditions determined by our Board of Directors. All common units and warrants for common units have been converted to shares of common stock.
No shares of preferred stock have been issued.
NOTE 8 - Income Taxes
Quintana Energy Services LP was originally organized as a limited partnership and treated as a flow-through entity for federal and most state income tax purposes. As such,
taxable income and any related tax credits were passed through to its members and included in their respective tax returns. As a result of the IPO and related Organizational
Transactions, Quintana Energy Services, Inc. was formed as a corporation to hold all of the operational assets of Quintana Energy Services Inc. Due to the fact that Quintana
Energy Services, Inc. is a taxable entity, the Company established a provision for deferred income taxes as of February 8, 2018. Accordingly, a provision for federal and
state corporate income taxes has been made only for the operations of Quintana Energy Services, Inc. from February 8, 2018 through December 31, 2018 in the
accompanying consolidated and combined financial statements.
As the Company does not operate internationally, income from continuing operations is sourced exclusively from the United States.
The provision for income taxes consisted of the following (in thousands of dollars):
Current income tax (expense) benefit
Federal
State
Total current income tax (expense)
Deferred income tax (expense) benefit
Federal
State
Total deferred income tax (expense) benefit
Year Ended December 31,
2018
2017
2016
$
(22) $
(507)
(529)
—
(92)
(92)
(40) $
(1)
(41)
(45)
(5)
(50)
(244)
35
(209)
37
5
42
$
(621) $
(91) $
(167)
The following table presents the reconciliation of our income taxes calculated at the statutory federal tax rate, currently 21.0%, to the income tax provision in our financial
statements. The Company’s effective tax rate for 2018 of (3.9)% differs from the statutory
72
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rate, primarily due to nondeductible expenses, state taxes and a valuation allowance. The Company's effective tax rate for 2017 and 2016 was (0.4)% and (0.1)%,
respectively.
Income tax provision computed at the statutory federal rate
State income taxes, net of federal tax benefit
Non-deductible wages
Non-deductible meals and entertainment
Stock based compensation
Valuation allowance
Flow through income not taxable
Other differences
Effective tax rate
Year Ended December 31,
2018
2017
2016
21.0 %
(3.7)
(4.1)
(4.1)
(6.5)
(6.3)
—
(0.2)
(3.9)%
34.0 %
—
—
—
—
—
(34.4)
—
(0.4)%
34.0 %
—
—
—
—
—
(34.2)
0.1
(0.1)%
On December 22, 2017, the US enacted the Tax Cuts and Jobs Act of 2017 (“US Tax Reform”), a comprehensive U.S. tax reform package that, effective January 1, 2018,
among other things, lowered the corporate income tax rate from 35% to 21% and moved the country toward a territorial tax system. Under ASC 740 “Income Taxes,”
companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted.
As a result, all deferred tax assets and liabilities were appropriately measured at the effective rate. Our 2018 provision for income taxes includes the new provisions of US
Tax Reform as enacted on January 1, 2018, based on authoritative and proposed guidance, issued by the Internal Revenue Service.
Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts
in the financial statements using enacted tax rates. Deferred tax assets and liabilities were classified in the consolidated balance sheet as follows (in thousands of dollars):
Deferred tax assets:
Reserves & accruals
Stock based compensation
Intangible assets
Net operating loss carryforwards
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liability:
Prepaid expenses
Property plant and equipment
Total deferred tax liabilities
Net deferred tax liability
Year Ended December 31,
2018
2017
2016
$
1,698 $
— $
1,844
60,978
40,987
56
105,563
(90,027)
15,536
(180)
(15,486)
(15,666)
—
—
—
—
—
—
—
—
(185)
(185)
$
(130) $
(185) $
—
—
—
—
—
—
—
—
—
(135)
(135)
(135)
As of December 31, 2018, the Company had total U.S. federal tax net operating loss (“NOL”) carryforwards of $93.5 million and state NOL carryforwards of $472.9
million. Of these amounts, for U.S. federal purposes, $77.9 million related to the Company’s current year federal tax loss, and the remaining $15.6 million was generated
prior to the IPO transaction. In regard to the state NOL carryforwards, $472.3 million is related to the Company’s current year state tax losses and less than $0.6 million is
related to periods prior to the IPO. As a result of the US Tax Reform enacted in January 2018, federal net operating losses generated after December 31, 2017 can be carried
forward indefinitely. As such, the Company’s federal carryforwards of $15.6 million will begin to expire in 2029 and the remaining carryforwards have no expiration. The
Company’s state NOL carryforwards will begin to expire in 2019.
73
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASC 740, "Income Taxes", requires the Company to reduce its deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more
likely than not that all or a portion of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences are deductible. As a result of the Company’s evaluation of both the positive and negative evidence,
the Company determined it does not believe it is more likely than not that its deferred tax assets will be utilized in the foreseeable future and has recorded a valuation
allowance. The valuation allowance as of December 31, 2018 fully offsets the impact of the initial benefit recorded related to the formation of Quintana Energy Services,
Inc. This initial deferred impact was recorded as an adjustment to equity due to a transaction between entities under common control.
Changes in the valuation allowance for deferred tax assets were as follows (in thousands of dollars):
Valuation allowance as of the beginning of January 1, 2018
Charged to equity
Charged to income tax provision for current year activity
Valuation allowance as of December 31, 2018
$
$
(379)
(68,908)
(20,740)
(90,027)
There were no unrecognized tax positions or unrecognized tax benefits nor any accrued interest or penalties associated with unrecognized tax positions during the years
ended December 31, 2018, 2017 and 2016. The Company believes it has appropriate support for the income tax positions taken and to be taken on the Company's tax
returns and its accruals for tax liabilities are adequate for all open years based on our assessment of many factors including past experience and interpretations of tax law
applied to the facts of each matter. The Company's tax returns are open to audit under the statute of limitations for the years ended December 31, 2015 through February 8,
2018 for federal tax purposes and for the years ended December 31, 2015 through December 31, 2017 for state tax purposes.
NOTE 9 - Related Party Transactions
The Company utilizes some Quintana Capital Group affiliate employees for certain corporate functions, such as accounting and risk management. These amounts are
reimbursed by the Company on a monthly basis.
At December 31, 2018, 2017 and 2016, QES had the following transactions with related parties (in thousands of dollars):
Accounts payable to affiliates of Quintana Capital Group
Accounts payable to affiliates of Archer Well Company Inc.
Operating expenses from affiliates of Quintana Capital Group
Operating expenses from affiliates of Archer Well Company Inc.
NOTE 10 - Business Concentration
December 31, 2018
December 31, 2017
$
$
— $
40 $
Year Ended December 31,
2018
2017
2016
$
$
384 $
81 $
529 $
10 $
81
9
1,628
2,095
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited because the Company performs credit evaluations, sets credit limits, and monitors the payment
patterns of its customers. Cash balances on deposits with financial institutions, at times, may exceed federally insured limits. The Company regularly monitors the
institutions’ financial condition.
The majority of the Company’s business is conducted with large, midsized, small, and independent oil and gas operators and exploration and production (“E&P”)
companies. The Company evaluates the financial strength of customers and provide allowances for probable credit losses when deemed necessary. The market for the
Company’s services is the oil and gas industry in the United States. This market has historically experienced significant volatility.
As of December 31, 2018 and 2017 one customer revenue represented 11.9% and 10.3% respectively, of the Company’s consolidated revenue. There were no customers
whose revenue exceeded 10.0% of consolidated revenue for the year ended December 31, 2016.
As of December 31, 2018, 2017 and 2016, one customer had a balance due that represented 10.7%, 18.3% and 11.2% respectively, of the Company’s consolidated accounts
receivable.
NOTE 11 - Commitments and Contingencies
74
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental Regulations & Liabilities
The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of the
environment. The Company continues to monitor the status of these laws and regulations. However, the Company cannot predict the future impact of such standards and
requirements on its business, which are subject to change and can have retroactive effectiveness.
Currently, the Company has not been fined, cited or notified of any environmental violations or liabilities that would have a material adverse effect upon its consolidated
financial position, results of operations, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be
incurred in the near term to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of
possible regulation or liabilities, the unknown timing and extent of the corrective actions which may be required, the determination of the Company’s liability in proportion
to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Litigation
The Company is a defendant or otherwise involved in a number of lawsuits in the ordinary course of business. Estimates of the range of liability related to pending litigation
are made when the Company believes the amount and range of loss can be estimated and records its best estimate of a loss when the loss is considered probable. When a
liability is probable, and there is a range of estimated loss with no best estimate in the range, the minimum estimated liability related to the lawsuits or claims is recorded.
As additional information becomes available, the potential liability related to pending litigation and claims is assessed and the estimate is revised. Due to uncertainties
related to the resolution of lawsuits and claims, the ultimate outcome may differ from estimates. The Company’s ultimate exposure with respect to pending lawsuits and
claims is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
A class action has been filed against one of the Company’s subsidiaries alleging violations of state based wage and hour laws and the Fair Labor Standards Act (“FLSA”)
relating to non-payment of overtime pay. The Company believes its pay practices comply with the FLSA. The case is working its way through the various stages of the legal
process, however, management believes the Company’s exposure is not material.
The Company is not aware of any other matters that may have a material effect on its financial position or results of operations.
NOTE 12 - Segment Information
QES currently has four reportable segments: Directional Drilling, Pressure Pumping, Pressure Control and Wireline. These segments have been selected based on the
Company’s CODM assessment of resource allocation and performance. The Company considers its Chief Executive Officer to be its CODM. The CODM evaluates the
performance of our segments based on revenue and income measures, which include non-GAAP measures.
Directional Drilling
Our Directional Drilling segment is comprised of directional drilling services, downhole navigational and rental tools businesses and support services, including well
planning and site supervision, which assists customers in the drilling and placement of complex directional and horizontal wellbores. This segment utilizes its fleet of in-
house positive pulse measurement-while-drilling navigational tools, mud motors and ancillary downhole tools, as well as electromagnetic navigational systems. The demand
for these services tends to be influenced primarily by customer drilling-related activity levels. We provide directional drilling and associated services to E&P companies in
many of the most active areas of onshore oil and natural gas development in the United States, including the Permian Basin, Eagle Ford Shale, Mid-Continent region
(including the SCOOP/STACK), Marcellus/Utica Shale and DJ/Powder River Basin.
Pressure Pumping
Our Pressure Pumping segment provides hydraulic fracturing stimulation services, cementing services and acidizing services. The majority of the revenues generated in this
segment are derived from pressure pumping services focused on fracturing, cementing and acidizing services in the Mid-Continent and Rocky Mountains regions. These
pressure pumping and stimulation services are primarily used in the completion, production and maintenance of oil and gas wells. Customers for this segment include major
E&P operators as well as independent oil and gas producers.
75
Table of Contents
Pressure Control
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our Pressure Control segment supplies a wide variety of equipment, services and expertise in support of completion and workover operations throughout the United States.
Its capabilities include coiled tubing, snubbing, fluid pumping, nitrogen, well control and other pressure control related services. Our Pressure Control equipment is tailored
to the unconventional resources market with the ability to operate under high pressures without having to delay or cease production during completion operations. We
provide our pressure control services primarily in the Mid-Continent region (including the SCOOP/STACK), Eagle Ford Shale, Permian Basin, Marcellus/Utica Shale,
DJ/Powder River Basin, Haynesville Shale, Fayetteville Shale and Williston Basins (including the Bakken Shale).
Wireline
Our Wireline segment provides new well wireline conveyed tight-shale reservoir perforating services across many of the major U.S. shale basins and also offers a range of
services such as cased-hole investigation and production logging services, conventional wireline and tubing conveyed perforating services, mechanical services and pipe
recovery services. These services are offered in both new well completions and for remedial work. The majority of the revenues generated in our Wireline segment are
derived from the Permian Basin, Eagle Ford Shale, Mid-Continent region (including the SCOOP/STACK), Haynesville Shale and East Texas Basin as well as in industrial
and petrochemical facilities.
Segment Adjusted EBITDA
The Company views Adjusted EBITDA as an important indicator of segment performance. The Company defines Segment Adjusted EBITDA as net income (loss) plus
income taxes, net interest expense, depreciation and amortization, impairment charges, net (gain) loss on disposition of assets - excluding (gain) loss of lost in hole assets,
stock based compensation, transaction expenses, rebranding expenses, settlement expenses, severance expenses and equipment stand-up expense. The CODM uses Segment
Adjusted EBITDA as the primary measure of segment operating performance.
The following table presents a reconciliation of Segment Adjusted EBITDA to net loss (in thousands of dollars):
Directional Drilling
Pressure Pumping
Pressure Control
Wireline
Corporate and Other
Income tax expense
Interest expense
Depreciation and amortization
Fixed asset impairment
Goodwill impairment
Gain on disposition of assets, net
Other income
Net loss
Year Ended December 31,
2018
2017
2016
$
23,694 $
17,498 $
28,700
18,389
1,362
(33,573)
(621)
(11,825)
(46,683)
—
—
2,375
—
27,784
6,539
(1,794)
(17,459)
(91)
(11,251)
(45,687)
—
—
2,639
666
(76)
(19,372)
(5,804)
(6,161)
(14,687)
(167)
(8,015)
(78,661)
(1,380)
(15,051)
(5,375)
—
$
(18,182) $
(21,156) $
(154,749)
Financial information related to the Company’s total assets position as of December 31, 2018 and December 31, 2017, by segment, is as follow (in thousands of dollars):
76
Table of Contents
Directional Drilling
Pressure Pumping
Pressure Control
Wireline
Total
Corporate & Other
Eliminations
Total assets
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
December 31, 2017
$
105,942 $
121,824
70,401
28,039
326,206 $
7,344
(9,001)
324,549 $
$
$
82,789
111,322
52,884
28,988
275,983
7,695
(8,019)
275,659
The following tables set forth certain financial information with respect to QES’ reportable segments (in thousands of dollars):
Revenues
Depreciation and amortization
Capital expenditures
Revenues
Depreciation and amortization
Capital expenditures
Revenues
Depreciation and amortization
Capital expenditures
NOTE 13 - Stock-Based Compensation
Year Ended December 31, 2018
Directional
Drilling
Pressure
Pumping
Pressure
Control
Wireline
Total
192,491 $
214,154 $
122,620 $
10,849
13,003 $
22,571
29,235 $
9,207
20,125 $
75,089 $
4,056
2,594 $
604,354
46,683
64,957
Year Ended December 31, 2017
Directional
Drilling
Pressure
Pumping
Pressure
Control
Wireline
Total
145,230 $
153,118 $
11,994
9,038 $
22,867
5,268 $
89,912 $
6,560
6,446 $
49,773 $
4,266
492 $
438,033
45,687
21,244
Year Ended December 31, 2016
Directional
Drilling
Pressure
Pumping
Pressure
Control
Wireline
Total
75,326 $
21,585
6,465 $
45,165 $
37,876
101 $
52,388 $
11,391
741 $
37,549 $
7,809
33 $
210,428
78,661
7,340
$
$
$
$
$
$
As of December 31, 2018, the Company had three types of stock-based compensation under the Company's 2018 Long-Term Incentive Plan (i) restricted stock awards
("RSA") issued to directors (ii) restricted stock units (“RSU”) issued to executive officers and other key employees and (iii) performance stock units (“PSU”), which are
RSUs with performance requirements, issued to executive officers and other senior management. Stock-based compensation issued prior to the Company’s IPO was subject
to a dual component, one of which was the consummation of a specified transaction, which included a public offering. As the public offering occurred on February 7, 2018,
there was no stock-based compensation expense recognized in periods prior to the IPO.
The following table summarizes stock-based compensation costs for the years ended December 31, 2018, 2017 and 2016 (in thousands of dollars):
Restricted stock awards
Restricted stock units
Performance stock units
Stock-based compensation expense
Years Ended December 31,
2018
2017
2016
$
438 $
16,293
1,167
$
17,898 $
— $
—
—
— $
—
—
—
—
77
Table of Contents
i.
Restricted Stock Awards
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2018, the Company's Compensation Committee of the Board of Directors approved the issuance of RSAs to the Company's non-executive directors. During the
second quarter 2018, we granted 57,145 RSAs, which had a grant date fair value of $8.75 per share. The stock awards fully vest on the anniversary date of the Company’s
IPO. RSAs were not granted in the first, third or fourth quarter of 2018.
For the years ended December 31, 2018 and 2017, the Company recognized $0.4 million and zero of non-cash stock compensation expense into earnings, respectively,
which is presented within selling, general and administration expense in the consolidated statement of operations.
As of December 31, 2018, the total unamortized compensation costs related to the non-executive RSAs was $0.1 million, which the Company expects to recognize over the
remaining vesting period of 0.1 years.
ii.
Restricted Stock Units
During the second quarter 2018, executive officers and key employees were granted a total of 476,042 RSUs under the 2018 Long-Term Incentive Plan. These RSUs vest
ratably over a three-year service condition with one-third vesting on each anniversary of the Company’s IPO provided that the employee remains employed by the Company
at the applicable vesting date. RSUs were not granted in the first, third or fourth quarter of 2018.
The Company recognized these RSUs at fair value based on the closing price of the Company's common stock on the date of grant. The compensation expense associated
with these RSUs will be amortized into income on a straight-line basis over the vesting period.
Total RSU non-cash stock based compensation expense for the years ended December 31, 2018 and 2017, was $16.3 million and zero, which is presented within selling,
general and administrative expense in the consolidated statements of operations.
As of December 31, 2018 and 2017 total unamortized compensation cost related to unvested restricted stock units were $16.9 million and $28.9 million, respectively.
A summary of the status and changes during the year ended December 31, 2018 of the Company’s shares of non-vested RSUs is as follows:
Outstanding at December 31, 2017
Granted
Forfeited
Vested
Outstanding at December 31, 2018
iii.
Performance Stock Units
Number of Shares
(in thousands)
Grant Date Fair
Value per Share
Weighted Average
Remaining Life
(in years)
1,627
476
(8)
(544)
1,551
17.73
8.92
—
—
15.74
3.46
2.11
—
—
2.36
During the second quarter 2018, executive officers and senior management were granted a total of 425,083 PSUs under the 2018 Long-Term Incentive Plan. The PSUs are
subject to both a performance and time vesting requirement. The PSUs require the achievement of a certain performance as measured on December 31, 2018, based on (i)
the Company’s performance with respect to relative total stockholder return and (ii) the Company’s performance with respect to absolute total stockholder return. Any PSUs
that have not been earned at the end of a performance period are forfeited. Should the grantee satisfy the service requirement applicable to such earned performance share
unit, vesting shall occur in equal installments on the first three anniversaries of the Company’s IPO.
The Company recognized these PSUs at the fair value determined using the Monte Carlo simulation model. The compensation expense associated with these PSUs will be
amortized into income on a straight-line basis over the vesting period. For the year ended December 31, 2018 and 2017, the Company recognized $1.2 million and zero of
non-cash stock compensation expense into
78
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
income, which is presented within selling, general and administrative expense in the consolidated statements of operations. PSUs were not granted during the first, third or
fourth quarter of 2018.
As of December 31, 2018, total unamortized compensation cost related to unvested PSUs was $1.2 million, which the Company expects to recognize over the remaining
weighted-average period of 2.11 years.
A summary of the outstanding PSUs as of December 31, 2018 is as follows:
Outstanding at December 31, 2017
Granted
Forfeited
Vested
Outstanding at December 31, 2018
NOTE 14 - Loss Per Share
Number of Shares
(in thousands)
Grant Date Fair
Value per Share
Weighted Average
Remaining Life
(in years)
—
425 $
—
—
425 $
—
5.49
—
—
5.49
—
2.11
—
—
2.11
Basic loss per share (“EPS”) is based on the weighted average number of common shares outstanding during the period. A reconciliation of the number of shares used for
the basic EPS computation is as follows (in thousands, except per share amounts):
Numerator:
Net loss attributed to common share holders
Denominator:
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
Net loss per common share:
Basic
Diluted
Year Ended December 31, 2018
$
$
$
(16,636)
33,573
33,573
(0.50)
(0.50)
The Company granted 2.1 million potentially dilutive RSAs, RSUs and PSUs as of the year ended December 31, 2018.
NOTE 15 - Selected Quarterly Financial Data
The following tables sets forth certain unaudited financial and operating information for each quarter in the years ended December 31, 2018, 2017 and 2016. The unaudited
quarterly information includes all adjustments that, in the opinion of management, are necessary for the fair presentation of the information presented. Operating results for
interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
79
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2018
$
Revenue
Cost and Expenses:
Direct operating Expenses
General and administrative expenses
Depreciation and amortization
Gain on disposition of assets, net
Operating (loss) income
Interest expense, net
(Loss) income before income taxes
Income tax (expense) benefit
Net (loss) income
Net loss attributable to Predecessor
First Quarter
Second Quarter Third Quarter Fourth Quarter
159,653
152,536 $
150,897 $
141,268 $
118,525
126,904
106,492
29,917
11,078
(106)
(6,113)
(10,192)
(16,305)
(51)
(16,356)
(1,546)
116,581
22,500
11,155
(594)
2,894
(433)
2,461
(326)
2,135
—
22,540
12,033
(629)
(1,572)
(574)
(2,146)
(207)
(2,353)
—
22,323
12,417
(1,046)
(945)
(626)
(1,571)
(37)
(1,608)
—
(1,608)
Net (loss) income attributable to Quintana Energy Services Inc.
$
(14,810) $
2,135 $
(2,353) $
Year Ended December 31, 2017
Revenue
Cost and Expenses:
Direct operating Expenses
General and administrative expenses
Depreciation and amortization
Gain on disposition of assets, net
Operating (loss) income
Interest expense, net
Other income (expense), net
(Loss) income before income taxes
Income tax (expense) benefit
Net (loss) income
First Quarter
$
85,439 $
Second Quarter Third Quarter Fourth Quarter
130,863
108,457 $
113,274 $
67,429
17,150
11,594
(1,657)
(9,077)
(2,601)
—
(11,678)
6
81,667
16,025
11,432
(332)
(335)
(2,788)
—
(3,123)
9
89,910
18,613
11,238
(310)
(6,177)
(2,901)
724
(8,354)
(84)
$
(11,672) $
(3,114) $
(8,438) $
96,603
18,068
11,423
(340)
5,109
(2,961)
(58)
2,090
(22)
2,068
80
Table of Contents
QUINTANA ENERGY SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2016
Revenue
Cost and Expenses:
Direct operating Expenses
General and administrative expenses
Depreciation and amortization
Fixed asset impairment
Goodwill impairment
Loss (gain) on disposition of assets, net
Operating loss
Interest expense, net
Loss before income taxes
Income tax (expense) benefit
Net loss
Item 9.
None.
First Quarter
$
61,786 $
Second Quarter Third Quarter Fourth Quarter
58,252
40,771 $
49,619 $
58,902
20,673
21,269
—
—
(210)
(38,848)
(1,460)
(40,308)
34
35,722
17,387
18,603
—
—
(63)
(30,878)
(1,674)
(32,552)
(81)
42,047
16,502
19,565
—
15,051
53
(43,599)
(2,405)
(46,004)
20
$
(40,274) $
(32,633) $
(45,984) $
46,257
19,038
19,224
1,380
—
5,595
(33,242)
(2,476)
(35,718)
(140)
(35,858)
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures that are designed to ensure that the information required to be disclosed by the Company in the reports that it files or
submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in
SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer
(who are our Chief Executive Officer and Chief Financial Officer, respectively) as appropriate to allow timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures can provide only reasonable, not absolute, assurance that
the objectives of the disclosure controls and procedures are met.
In connection with the preparation of this Annual Report on Form 10-K for the year ended December 31, 2018, an evaluation was performed under the supervision and with
the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures as
defined in Rules 13a-15(c) and 15d-15(e) of the Exchange Act of were effective as of December 31, 2018 to provide reasonable assurance that information required to be
disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in
the SEC rules and forms and (ii) accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f).
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018 using the criteria established in Internal Control-
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment and those criteria,
management concluded that our internal control over financial reporting was effective at a reasonable assurance level as of December 31, 2018.
81
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting due to a transition period established by the JOBS Act for emerging growth companies.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated by reference to our definitive proxy statement for our 2019 Annual Meeting of Stockholders pursuant to Regulation
14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year ended December 31, 2018.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our definitive proxy statement for our 2019 Annual Meeting of Stockholders pursuant to Regulation
14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year ended December 31, 2018.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item is incorporated by reference to our definitive proxy statement for our 2019 Annual Meeting of Stockholders pursuant to Regulation
14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year ended December 31, 2018.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to our definitive proxy statement for our 2019 Annual Meeting of Stockholders pursuant to Regulation
14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year ended December 31, 2018.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to our definitive proxy statement for our 2019 Annual Meeting of Stockholders pursuant to Regulation
14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year ended December 31, 2018.
82
Item 15. Exhibits and Financial Statement Schedules
Index to Exhibits
2.1†
Master Reorganization Agreement, dated as of February 8, 2018, by and among the Quintana Energy Services Inc., Quintana Energy Services LP, QES Holdco LLC and the
other parties named therein (Incorporated by reference to Exhibit 2.1 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February 14, 2018).
2.2†
Letter Agreement re: Reorganization Document Correction, dated November 5, 2018, between the Company and the entities party thereto (Incorporated by reference to Exhibit
2.1 of Quintana Energy Services, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018).
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9+
10.10+
10.11+
10.12+
10.13+
Amended and Restated Certificate of Incorporation of Quintana Energy Services Inc. (Incorporated by reference to Exhibit 3.1 of Quintana Energy Services Inc.’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2018).
Amended and Restated Bylaws of Quintana Energy Services Inc. (Incorporated by reference to Exhibit 3.3 of Quintana Energy Services Inc.’s Current Report on Form 8-K
filed on February 14, 2018).
Second Amended and Restated Equity Rights Agreement, dated February 13, 2018, by and among Quintana Energy Services Inc. and the other parties named therein
(Incorporated by reference to Exhibit 4.1 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February 14, 2018).
Registration Rights Agreement, dated February 13, 2018, by and among Quintana Energy Services Inc. and the other parties named therein (Incorporated by reference to
Exhibit 4.2 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February 14, 2018).
Credit Agreement, dated as of September 9, 2014, among QES Holdco LLC, as Borrower, certain of the subsidiaries of Borrower party thereto, as Guarantors, the lenders from
time to time party thereto, as Lenders, and Amegy Bank National Association, as Administrative Agent, Issuing Bank and Swing Line Lender (Incorporated by reference to
Exhibit 10.1 of Quintana Energy Services Inc.’s Registration Statement on Form S-1 filed on August 9, 2017).
Assignment, Release, Consent and First Amendment to Credit Agreement, dated January 9, 2015, by and among Quintana Energy Services LP, as Borrower, certain
subsidiaries of Borrower party thereto, as Guarantors, the lenders from time to time party thereto, as Lenders and ZA, N.A. DBA Amegy Bank, as Administrative Agent,
Issuing Bank and Swing Line Lender (Incorporated by reference to Exhibit 10.2 of Quintana Energy Services Inc.’s Registration Statement on Form S-1 filed on August 9,
2017).
Second Amendment to Credit Agreement, dated December 31, 2015, by and among Quintana Energy Services LP, as Borrower, certain subsidiaries of Borrower party thereto,
as Guarantors, the lenders from time to time party thereto, as Lenders and ZA, N.A. DBA Amegy Bank, as Administrative Agent, Issuing Bank and Swing Line Lender
(Incorporated by reference to Exhibit 10.3 of Quintana Energy Services Inc.’s Registration Statement on Form S-1 filed on August 9, 2017).
Third Amendment and Waiver to Credit Agreement, dated December 19, 2016, by and among Quintana Energy Services LP, as Borrower, certain subsidiaries of Borrower
party thereto, as Guarantors, the lenders from time to time party thereto, as Lenders and ZA, N.A. DBA Amegy Bank, as Administrative Agent, Issuing Bank and Swing Line
Lender (Incorporated by reference to Exhibit 10.4 of Quintana Energy Services Inc.’s Form S-1 Registration Statement (File No. 333-219837) filed with the Commission on
August 9, 2017).
Second Lien Credit Agreement, dated December 19, 2016, by and among Quintana Energy Services LP, as Borrower, certain subsidiaries of Borrower party thereto, as
Guarantors, the lenders from time to time party thereto, as Lenders and Cortland Capital Market Services LLC, as Administrative Agent (Incorporated by reference to Exhibit
10.5 of Quintana Energy Services Inc.’s Form S-1 Registration Statement (File No. 333-219837) filed with the Commission on August 9, 2017).
Pledge Agreement, dated December 19, 2016, by and among Quintana Energy Services LP, as Borrower, certain subsidiaries of the Borrower party thereto, as Guarantors, and
together with Borrower, the Pledgors, and Cortland Capital Market Services, LLC, as Administrative Agent (Incorporated by reference to Exhibit 10.6 of Quintana Energy
Services Inc.’s Form S-1 Registration Statement ( File No. 333-219837) filed with the Commission on August 9, 2017).
Warrant Agreement, dated December 19, 2016, by and among Quintana Energy Services LP, Archer Holdco LLC, Robertson QES Investment LLC and Geveran Investments
Limited (Incorporated by reference to Exhibit 10.7 of Quintana Energy Services Inc. Form S-1 Registration Statement (File No. 333-219837) filed with the Commission on
August 9, 2017).
Loan, Security and Guaranty Agreement, dated February 13, 2018, by and among Quintana Energy Services Inc., Quintana Energy Services LP, the various borrowers thereto,
Bank of America, N.A., as agent, joint lead arranger and sole bookrunner, ZB, N.A. DBA Amegy Bank, as joint lead arranger, and Citibank, N.A., as joint lead arranger
(Incorporated by reference to Exhibit 10.3 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February 14, 2018).
Quintana Energy Services Inc. 2018 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed
on February 14, 2018).
Quintana Energy Services Inc. Amended and Restated Long-Term Incentive Plan (also referred to as the QES Legacy Long-Term Incentive Plan) (Incorporated by reference to
Exhibit 10.2 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February 14, 2018).
Form of Phantom Unit Agreement under the Quintana Energy Services Inc. Amended and Restated Long-Term Incentive Plan (Incorporated by reference to Exhibit 4.10 of
Quintana Energy Services Inc.’s Registration Statement on Form S-8 filed on February 14, 2018).
Form of Phantom Unit Agreement (Corporate Executives) under the Quintana Energy Services Inc. Amended and Restated Long-Term Incentive Plan (Incorporated by
reference to Exhibit 4.11 of Quintana Energy Services Inc.’s Registration Statement on Form S-8 filed on February 14, 2018).
Indemnification Agreement (D. Rogers Herndon) (Incorporated by reference to Exhibit 10.4 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February
14, 2018).
83
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
Indemnification Agreement (Christopher J. Baker) (Incorporated by reference to Exhibit 10.5 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on
February 14, 2018).
Indemnification Agreement (Keefer M. Lehner) (Incorporated by reference to Exhibit 10.6 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February
14, 2018).
Indemnification Agreement (Max L. Bouthillette) (Incorporated by reference to Exhibit 10.7 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February
14, 2018).
Indemnification Agreement (Dag Skindlo) (Incorporated by reference to Exhibit 10.8 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February 14,
2018).
Indemnification Agreement (Gunnar Eliassen) (Incorporated by reference to Exhibit 10.9 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February
14, 2018).
Indemnification Agreement (Rocky L. Duckworth) (Incorporated by reference to Exhibit 10.10 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on
February 14, 2018).
Indemnification Agreement (Dalton Boutté, Jr.) (Incorporated by reference to Exhibit 10.11 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on February
14, 2018).
Indemnification Agreement (Corbin J. Robertson, Jr.) (Incorporated by reference to Exhibit 10.12 of Quintana Energy Services Inc.’s Current Report on Form 8-K filed on
February 14, 2018).
10.22†**
Indemnification Agreement (Bobby S. Shackouls)
10.23+
10.24+
10.25+
10.26†*
10.27†*
10.28†*
10.29†*
10.30†*
10.31†*
21.1
23.1**
31.1*
31.2*
32.1**
32.2**
Executive Employment Agreement, dated July 1, 2017, by and between Quintana Energy Services Inc. and Rogers Herndon (Incorporated by reference to Exhibit 10.14 of
Quintana Energy Services Inc.’s Form S-1 Registration Statement (File No. 333-219837) filed with the Commission on August 9, 2017).
Executive Employment Agreement, dated July 1, 2017, by and between Quintana Energy Services Inc. and Christopher Baker (Incorporated by reference to Exhibit 10.15 of
Quintana Energy Services Inc.’s Form S-1 Registration Statement (File No. 333-219837) filed with the Commission on August 9, 2017).
Executive Employment Agreement, dated July 1, 2017, by and between Quintana Energy Services Inc. and Keefer M. Lehner (Incorporated by reference to Exhibit 10.16 of
Quintana Energy Services Inc.’s Form S-1 Registration Statement (File No. 333-219837) filed with the Commission on August 9, 2017).
Form of Performance Share Unit Agreement (Executive Officers - 2018 Form) under the Quintana Energy Services Inc. 2018 Long-Term Incentive Plan.
Form of Performance Share Unit Agreement (Employees - 2018 Form) under the Quintana Energy Services Inc. 2018 Long-Term Incentive Plan.
Form of Performance Share Unit Agreement (Executive Officers - 2019 Form) under the Quintana Energy Services Inc. 2018 Long-Term Incentive Plan.
Form of Restricted Stock Unit Agreement (Executive Officers) under the Quintana Energy Services Inc. 2018 Long-Term Incentive Plan.
Form of Restricted Stock Unit Agreement (Employees) under the Quintana Energy Services Inc. 2018 Long-Term Incentive Plan.
Form of Restricted Stock Unit Agreement (Directors) under the Quintana Energy Services Inc. 2018 Long-Term Incentive Plan.
List of Subsidiaries of Quintana Energy Services Inc. (Incorporated by reference to Exhibit 21.1 of Quintana Energy Services Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 2017).
Consent of PricewaterhouseCoopers LLP
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
Filed herewith.
** Furnished herewith.
†
The schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.
+ Management contract or compensatory plan or arrangement
84
Item 16.
Form 10-K Summary
None.
85
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
QUINTANA ENERGY SERVICES INC.
By:
/s/ D. Rogers Herndon
D. Rogers Herndon
President, Chief Executive Officer and Director
Date: March 7, 2019
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 indicated on March 7, 2019.
Signature
Title
/s/ D. Rogers Herndon
D. Rogers Herndon
/s/ Keefer M. Lehner
Keefer M. Lehner
/s/ Geoffrey C. Stanford
Geoffrey C. Stanford
/s/ Corbin J. Robertson, Jr.
Corbin J. Robertson, Jr.
/s/ Dalton Boutté, Jr.
Dalton Boutté, Jr.
/s/ Rocky L. Duckworth
Rocky L. Duckworth
/s/ Gunnar Eliassen
Gunnar Eliassen
/s/ Bobby S. Shackouls
Bobby S. Shackouls
/s/ Dag Skindlo
Dag Skindlo
President, Chief Executive Officer, and Director (Principal Executive Officer)
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Vice President and Chief Accounting Officer (Principal Accounting Officer)
Chairman of the Board of Directors
Director and Chairman of the Compensation Committee
Director and Chairman of the Audit Committee
Director
Director
Director
86
QUINTANA ENERGY SERVICES INC.
INDEMNIFICATION AGREEMENT
This Agreement (“Agreement”) is made and entered into as of the 9th day of January, 2019, by and between Quintana Energy Services
Inc., a Delaware corporation (the “Company”), and Bobby S. Shackouls (“Indemnitee”).
RECITALS
A. Highly competent and experienced persons are reluctant to serve corporations as directors, executive officers or in other capacities
unless they are provided with adequate protection through insurance and indemnification against claims and actions against them arising out of
their service to and activities on behalf of the Company.
B. The Board of Directors of the Company (the “Board”) has determined that the inability to attract and retain such persons would be
detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be
increased certainty of such protection in the future.
C. The Board has also determined that it is reasonable, prudent and necessary for the Company, in addition to purchasing and
maintaining directors’ and officers’ liability insurance (or otherwise providing for adequate arrangements of self-insurance), contractually to
obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be adequately protected.
D. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company, but only on the
condition that Indemnitee be so indemnified to the fullest extent permitted by law, as permitted herein.
E. Article Thirteen of the Amended and Restated Certificate of Incorporation of the Company provides for indemnification of
directors and officers to the fullest extent permitted by law.
In consideration of the foregoing and the mutual covenants herein contained, and other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
Certain Definitions
As used herein, the following words and terms shall have the following respective meanings (whether singular or plural):
“Acquiring Person” means any Person other than (i) the Company, (ii) any of the Company’s Subsidiaries, (iii) any employee benefit
plan of the Company or of a Subsidiary of the Company or of a Company owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company, or (iv) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a Subsidiary of the Company or of a Company owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of the Company.
“Change in Control” means the occurrence of any of the following events:
(i) The acquisition, after the date of this Agreement, by any Person of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 40% or more of either (x) the then outstanding shares of Common Stock of the Company (the
“Outstanding Company Common Stock”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this
Subparagraph (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses
(A), (B) and (C) of paragraph (iii) below; or
(ii) Members of the Incumbent Board cease for any reason to constitute at least a majority of the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of
the Company or an acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than
2
50% of, respectively, the then outstanding shares of common equity and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors or other similar governing body, as the case may be, of the entity resulting from such
Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially
all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or the entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 40% or more of, respectively, the then outstanding shares of common equity of
the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity
except to the extent that such ownership results solely from ownership of the Company that existed prior to the Business Combination and (C)
at least a majority of the members of the board of directors or other similar governing body of the entity resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
“Claim” means an actual or threatened claim or request for relief which was, is or may be made by reason of anything done or not done
by Indemnitee in, or by reason of any event or occurrence related to, Indemnitee’s Corporate Status, including any threatened, pending or
completed action, suit, arbitration, investigation, inquiry, alternate dispute resolution mechanism, administrative or legislative hearing, or any
other proceeding (including, without limitation, any securities laws action, suit, arbitration, alternative dispute resolution mechanism, hearing,
or procedure) whether civil, criminal, administrative, arbitrative or investigative and whether or not based upon events occurring, or actions
taken, before the date hereof, and any appeal in or related to any such action, suit, arbitration, investigation, hearing or procedure and any
inquiry or investigation (including discovery), whether conducted by or in the right of the Company or any other Person, that Indemnitee in
good faith believes could lead to any such action, suit, arbitration, alternative dispute resolution mechanism, hearing or other proceeding or
appeal thereof.
“Corporate Status” means the status of a person who is, becomes or was a director, officer, employee, agent or fiduciary of the
Company or is, becomes or was serving at the request of the Company as a director, officer, partner, member, venturer, proprietor, trustee,
employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, limited
3
liability company, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise. For purposes of this Agreement, the
Company agrees that Indemnitee’s service on behalf of or with respect to any Subsidiary of the Company shall be deemed to be at the request
of the Company.
“DGCL” means the Delaware General Corporation Law and any successor statute thereto, as either of them may from time to time be
amended.
“Disinterested Director” with respect to any request by Indemnitee for indemnification hereunder, means a director of the Company
who at the time of the vote is not a named defendant or respondent in the Claim in respect of which indemnification is sought by Indemnitee.
“Exchange Act” means the Securities Exchange Act of 1934.
“Expenses” means all attorneys’ fees and disbursements, retainers, accountant’s fees and disbursements, private investigator fees and
disbursements, court costs, transcript costs, fees and expenses of experts, witness fees and expenses, costs and obligations under any bond
posted in connection with any Claim, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements, costs or expenses of the types customarily incurred in connection with prosecuting, defending (including
affirmative defenses and counterclaims), preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise
participating in or preparing to participate in (including on appeal) a Claim and all interest or finance charges attributable to any thereof. Should
any payments by the Company under this Agreement be determined to be subject to any federal, state or local income or excise tax, “Expenses”
shall also include such amounts as are necessary to place Indemnitee in the same after-tax position (after giving effect to all applicable taxes) as
Indemnitee would have been in had no such tax been determined to apply to such payments. Also, in this Agreement “witness” includes
responding (or objecting) to a discovery request, whether in writing or in an oral deposition, in any Claim.
“Final Adjudication” means a final adjudication by a court from which there is no further right of appeal or a final adjudication of an
arbitration pursuant to Section 5.1 if Indemnitee elects to seek such arbitration.
“Incumbent Board” means the individuals who, as of the date of this Agreement, constitute the Board and any other individual who
becomes a director of the Company after that date and whose election or appointment by the Board or nomination for election by the
Company’s stockholders was approved by a vote of at least a majority of the directors then comprising the
4
Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Incumbent Board.
“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither
contemporaneously is, nor in the five years theretofore has been, retained to represent: (a) the Company, any subsidiary of the Company, or
Indemnitee in any matter material to either such Person (other than as Independent Counsel under this Agreement or similar agreements),
(b) any other party to the Claim giving rise to a claim for indemnification hereunder or (c) the beneficial owner, directly or indirectly, of
securities of the Company representing 5% or more of the combined voting power of the Company’s then outstanding voting securities, or
Person controlled by such beneficial owner (other than, in each such case under clauses (a) through (c)), with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements). Notwithstanding the foregoing,
the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this
Agreement.
“Independent Directors” means the directors on the Board that are independent directors as defined in Section 303A.02(a)(i) of the
NYSE Listed Company Manual or successor provision, or, if the Company’s Common Stock is not then quoted on the NYSE, that qualify as
independent, disinterested, or a similar term as defined in the rules of the principal securities exchange or inter-dealer quotation system on
which the Company’s Common Stock is then listed or quoted.
“NYSE” means the New York Stock Exchange.
“Person” means any individual, entity or group (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act).
“Potential Change in Control” shall be deemed to have occurred if (i) any Person shall have announced publicly an intention to effect a
Change in Control, or commenced any action (such as the commencement of a tender offer for the Company’s Outstanding Company Common
Stock or Outstanding Company Voting Securities or the solicitation of proxies for the election of any of the Company’s directors) that, if
successful, could reasonably be expected to result in the occurrence of a Change in Control; (ii) the Company enters into an agreement, the
consummation of which
5
would constitute a Change in Control; or (iii) any other event occurs which the Board declares to be a Potential Change of Control.
“Subsidiary” means, with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting
equity securities or equity interest is owned, directly or indirectly, by that Person.
“Voting Securities” means any securities that vote generally in the election of directors, in the admission of general partners, or in the
selection of any other similar governing body.
ARTICLE II
Services by Indemnitee
Indemnitee is serving as a director of the Company. Indemnitee may from time to time also agree to serve, as the Company may request
from time to time, in another capacity for the Company (including another officer or director position) or as a director, officer, partner, member,
venturer, proprietor, trustee, employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, joint
venture, limited liability company, sole proprietorship, trust, employee benefit plan or other enterprise. Indemnitee and the Company each
acknowledge that they have entered into this Agreement as a means of inducing Indemnitee to serve, or continue to serve, the Company in such
capacities. Indemnitee may at any time and for any reason resign from such position or positions (subject to any other contractual obligation or
any obligation imposed by operation of law). The Company shall have no obligation under this Agreement to continue Indemnitee in any such
position or positions.
ARTICLE III
Indemnification
Section 3.1 General. Subject to the provisions set forth in Article IV, the Company shall indemnify, and advance Expenses to,
Indemnitee to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may
hereafter from time to time permit. The other provisions set forth in this Agreement are provided in addition to and as a means of furtherance
and implementation of, and not in limitation of, the obligations expressed in this Article III. No requirement, condition to or limitation of any
right to indemnification or to advancement of Expenses under this Article III shall in any way limit the rights of Indemnitee under Article VII.
6
Section 3.2 Additional Indemnity of the Company. Indemnitee shall be entitled to indemnification pursuant to this Section 3.2 if, by
reason of anything done or not done by Indemnitee in, or by reason of any event or occurrence related to, Indemnitee’s Corporate Status,
Indemnitee is, was or becomes, or is threatened to be made, a party to, or witness or other participant in any Claim. Pursuant to this Section 3.2,
Indemnitee shall be indemnified against any and all Expenses, judgments, penalties (including excise or similar taxes), fines and amounts paid
in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of any such Expenses,
judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in
connection with such Claim, issue or matter therein. Notwithstanding the foregoing, the obligations of the Company under this Section 3.2 shall
be subject to the condition that no determination (which, in any case in which Independent Counsel is involved, shall be in a form of a written
opinion) shall have been made pursuant to Article IV that Indemnitee would not be permitted to be indemnified under applicable law. Nothing
in this Section 3.2 shall limit the benefits of Section 3.1, Section 3.3 or any other Section hereunder.
Section 3.3 Advancement of Expenses. The Company shall pay, on a current and as-incurred basis, all Expenses reasonably incurred
by, or in the case of retainers to be incurred by, or on behalf of Indemnitee (or, if applicable, reimburse Indemnitee for any and all Expenses
reasonably incurred by Indemnitee and previously paid by Indemnitee) in connection with any Claim, whether brought by the Company or
otherwise, in advance of the later of (a) the final, non-appealable determination or resolution of all such Claims and (b) any determination
respecting entitlement to indemnification pursuant to Article IV hereof (and shall continue to pay such Expenses after such determination and
until it shall ultimately be determined (in a Final Adjudication) that Indemnitee is not entitled to be indemnified by the Company against such
Expenses). Such payments and advances shall be made within 10 days after the receipt by the Company of a written request from Indemnitee
requesting such payment or payments from time to time, whether prior to or after the final, non-appealable determination or resolution of such
Claim. Any such payment by the Company is referred to in this Agreement as an “Expense Advance.” Any dispute as to the reasonableness of
the incurrence of any Expense shall not delay an Expense Advance by the Company, and the Company agrees that any such dispute shall be
resolved only upon the final, non-appealable determination or resolution of the respective underlying Claim involving Indemnitee. Indemnitee
hereby undertakes and agrees that Indemnitee will reimburse and repay the Company without interest for any Expense Advances to the extent
that it shall ultimately be determined (in a Final Adjudication) that Indemnitee is not entitled under the law to be indemnified by the Company
against such Expenses. Indemnitee shall not be required to provide collateral or otherwise secure the undertaking and agreement described in
the prior sentence. The Company shall make all Expense Advances pursuant to this Section 3.3 without regard to the financial ability of the
Indemnitee to
7
make repayment and without regard to whether or not the Indemnitee may ultimately be found to be entitled to indemnification under the
provisions of this Agreement.
Section 3.4 Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all costs and
expenses (of the types described in the definition of Expenses in Article I) and, if requested by Indemnitee, shall (within two business days of
that request) advance those costs and expenses to Indemnitee, that are incurred by Indemnitee in connection with any claim asserted against, or
action brought by, Indemnitee for (i) indemnification or an Expense Advance by the Company under this Agreement or any other agreement or
provision of the Company’s Certificate of Incorporation or Bylaws now or hereafter in effect relating to any Claim, (ii) recovery under any
directors’ and officers’ liability insurance policies maintained by the Company, or (iii) enforcement of, or claims for breaches of, any provision
of this Agreement, in each of the foregoing situations regardless of whether Indemnitee ultimately is determined to be entitled to that
indemnification, Expense Advance payment, insurance recovery, enforcement, or damage claim, as the case may be, and regardless of whether
the nature of the proceeding with respect to such matters is judicial, by arbitration, or otherwise.
Section 3.5 Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for
some or a portion of the Expenses, judgments, fines, penalties, and amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover,
notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense
of any or all Claims, or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against
all Expenses incurred in connection therewith.
ARTICLE IV
Procedure for Determination of Entitlement to Indemnification
Section 4.1 Request by Indemnitee. To obtain indemnification under this Agreement, Indemnitee shall, at such time as determined by
Indemnitee in Indemnitee’s sole discretion, submit to the Company a written request, including therein or therewith such documentation and
information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled
to indemnification. The Secretary or an Assistant Secretary of the Company shall, promptly upon receipt of such a request for indemnification,
advise the Board in writing that Indemnitee has requested indemnification. Nevertheless, any failure of Indemnitee to provide a request to the
Company, or to provide such a request within any time frame, shall not relieve the Company of any liability that it may have to Indemnitee
hereunder.
8
Section 4.2 Determination of Request. Upon written request by Indemnitee for indemnification pursuant to the first sentence of
Section 4.1 hereof, a determination, if required by applicable law, with respect to whether Indemnitee is permitted under applicable law to be
indemnified shall be made in accordance with the terms of Section 4.5, in the specific case as set forth in this Section 4.2:
(a) If a Potential Change in Control or a Change in Control shall have occurred, by Independent Counsel (selected in
accordance with Section 4.3) in a written opinion to the Board and Indemnitee, unless Indemnitee shall request that such determination
be made by the Board, or a committee of the Board, in which case by the person or persons or in the manner provided for in clause (i) or
(ii) of paragraph (b) below; or
(b) If a Potential Change in Control or a Change in Control shall not have occurred, then the determination shall be made by
one of the following, in Indemnitee’s sole discretion, as the Indemnitee requests in writing: (i) by the Board by a majority vote of the
Disinterested Directors even though less than a quorum of the Board, or (ii) by a majority vote of a committee solely of two or more
Disinterested Directors designated to act in the matter by a majority vote of all Disinterested Directors even though less than a quorum
of the Board, or (iii) by Independent Counsel selected by the Board or a committee of the Board by a vote as set forth in clauses (i) or
(ii) of this paragraph (b), or if such vote is not obtainable or such a committee cannot be established, by a majority vote of all directors,
or (iv) by the stockholders of the Company in a vote that excludes the shares held by directors who are not Disinterested Directors.
If it is so determined that Indemnitee is permitted to be indemnified under applicable law, payment to Indemnitee shall be made within 10 days
after such determination. Nothing contained in this Agreement shall require that any determination be made under this Section 4.2 prior to the
final, non-appealable determination or resolution of a Claim involving Indemnitee for which indemnification is sought hereunder; provided,
that Expense Advances shall continue to be made by the Company pursuant to, and to the extent required by, the provisions of Article III.
Indemnitee shall cooperate with the person or persons making such determination with respect to Indemnitee’s entitlement to indemnification,
including providing to such person upon reasonable advance request any documentation or information that is not privileged or otherwise
protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses
(including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person or persons making such determination
shall be borne by the Company
9
(irrespective of the determination as to Indemnitee’s entitlement to indemnification), and the Company shall indemnify and hold harmless
Indemnitee therefrom.
Section 4.3 Independent Counsel. If the determination of entitlement to indemnification is to be made by Independent Counsel, the
Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company, within 10 days after
submission of Indemnitee’s request for indemnification, specifying the identity and address of the Independent Counsel so selected unless
Indemnitee shall request that such selection be made by the Disinterested Directors or a committee of the Board, in which event the Company
shall give written notice to Indemnitee within 10 days after receipt of Indemnitee’s request for the Board or a committee of the Disinterested
Directors to make such selection, specifying the identity and address of the Independent Counsel so selected. In either event, (i) such notice to
Indemnitee or the Company, as the case may be, shall be accompanied by a written confirmation by the Independent Counsel so selected that it
satisfies the requirements of the definition of “Independent Counsel” in Article I and that it agrees to serve in such capacity and (ii) Indemnitee
or the Company, as the case may be, may, within seven days after such written notice of selection shall have been given, deliver to the
Company or to Indemnitee, as the case may be, a written objection to such selection. Any objection to the selection of Independent Counsel
pursuant to this Section 4.3 may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of the
definition of “Independent Counsel” in Article I, and the objection shall set forth with particularity the factual basis of such assertion. If such
written objection is timely made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court of
competent jurisdiction (the “Court”) has determined that such objection is without merit or such objection is withdrawn. In the event of a timely
written objection to a choice of Independent Counsel, the party originally selecting the Independent Counsel shall have seven days to make an
alternate selection of Independent Counsel and to give written notice of such selection to the other party, after which time such other party shall
have five days to make a written objection to such alternate selection. If, within 30 days after submission of Indemnitee’s request for
indemnification pursuant to Section 4.1, no Independent Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court for resolution of any objection that shall have been made by the Company or Indemnitee to the other’s
selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person
as the Court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as
Independent Counsel under Section 4.2. The Company shall pay any and all fees and expenses reasonably incurred by, such Independent
Counsel in connection with acting pursuant to Section 4.2, and the Company shall pay all fees and expenses reasonably incurred incident to the
procedures of this Section 4.3, regardless of the manner in which such Independent Counsel was selected or appointed. Upon the
10
due commencement of any judicial proceeding or arbitration pursuant to Section 5.1, Independent Counsel shall be discharged and relieved of
any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
Section 4.4 Establishment of a Trust. In the event of a Potential Change in Control or a Change in Control, the Company shall, upon
written request by Indemnitee, create a trust for the benefit of Indemnitee (the “Trust”) and from time to time upon written request of
Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request
to be incurred in connection with investigating, preparing for, and defending any Claim, and any and all judgments, fines, penalties, and
settlement amounts of any and all Claims from time to time actually paid or claimed, reasonably anticipated, or proposed to be paid. The
amount to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Independent Counsel (or other
person(s) making the determination of whether Indemnitee is permitted to be indemnified by applicable law). The terms of the Trust shall
provide that, upon a Change in Control, (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of
Indemnitee; (ii) the trustee of the Trust shall advance to Indemnitee, within ten days of a request by Indemnitee, any and all Expenses
reasonably incurred by, or in case of retainer to be incurred by, or on behalf of Indemnitee (or, if applicable, reimburse Indemnitee for any
Expense reasonably incurred by Indemnitee and previously paid by Indemnitee), with any required determination concerning the
reasonableness of the Expenses to be made by the Independent Counsel (and Indemnitee hereby agrees to reimburse the Trust under the
circumstances in which Indemnitee would be required to reimburse the Company for Expense Advances under Section 3.3 of this Agreement);
(iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above; (iv) the trustee of the Trust
shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement; and (v) all
unexpended funds in the Trust shall revert to the Company upon a final determination by the Independent Counsel or a Final Adjudication, as
the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. The trustee of the Trust shall be chosen by
Indemnitee and shall be an institution that is not affiliated with Indemnitee. Nothing in this Section 4.4 shall relieve the Company of any of its
obligations under this Agreement.
Section 4.5 Presumptions and Effect of Certain Proceedings.
(a) Indemnitee shall be presumed to be entitled to indemnification under this Agreement upon submission of a request for
indemnification under Section 4.1, and the Company shall have the burden of proof in overcoming that presumption in reaching a
determination contrary to that presumption. Such presumption shall be used by Independent
11
Counsel (or other person or persons determining entitlement to indemnification) as a basis for a determination of entitlement to
indemnification unless the Company provides information sufficient to overcome such presumption by clear and convincing evidence
or unless the investigation, review and analysis of Independent Counsel (or such other person or persons) convinces Independent
Counsel by clear and convincing evidence that the presumption should not apply.
(b) If the person or persons empowered or selected under Article IV of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within 60 days after receipt by the Company of the request by
Indemnitee therefor, the determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the person making the determination with respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating of documentation and/or information relating to such determination; and provided,
further, that the 60-day limitation set forth in this Section 4.5(b) shall not apply and such period shall be extended as necessary (i) if
within 30 days after receipt by the Company of the request for indemnification under Section 4.1 Indemnitee and the Company have
agreed, and the Board has resolved, to submit such determination to the stockholders of the Company pursuant to Section 4.2(b) for
their consideration at an annual meeting of stockholders to be held within 90 days after such agreement and such determination is made
thereat, or a special meeting of stockholders is called within 30 days after such receipt for the purpose of making such determination,
such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat, or (ii) if the
determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 4.2(a) of this Agreement, in
which case the applicable period shall be as set forth in Section 5.1(c).
(c) The termination of any Claim, issue or matter by judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) by
itself adversely affect the rights of Indemnitee to indemnification or create a presumption that Indemnitee failed to meet any particular
standard of conduct, that Indemnitee had any particular belief, or that a court has determined that indemnification is not permitted by
applicable law. Indemnitee may be found to have failed to meet any particular standard of
12
conduct in respect of any Claim, issue or matter only after Indemnitee shall have been so adjudged by the Court or arbitrator, as
applicable, after exhaustion of all appeals therefrom.
(d) For purposes of the second sentence of Section 3.5, a settlement or other resolution of a Claim short of final judgment may
be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. For purposes of the second sentence of
Section 3.5, in the event that any Claim to which Indemnitee is a party is resolved in any manner other than by adverse judgment
against Indemnitee (including settlement of such Claim with or without payment of money or other consideration), it shall be presumed
that Indemnitee has been successful on the merits or otherwise in suchClaim. Anyone seeking to overcome this presumption shall have
the burden of proof by clear and convincing evidence.
(e) The failure of the Company (including by its directors or Independent Counsel) to have made a determination before the
commencement of any action pursuant to this Agreement that indemnification is proper because Indemnitee has met the applicable
standard of conduct shall not be a defense to the action or create a presumption that Indemnitee has not met the standard of conduct.
ARTICLE V
Certain Remedies of Indemnitee
Section 5.1 Indemnitee Entitled to Adjudication in an Appropriate Court. If (a) a determination is made pursuant to Article IV that
Indemnitee is not entitled to indemnification under this Agreement; (b) there has been any failure by the Company to make timely payment or
advancement of any amounts due hereunder (including, without limitation, any Expense Advances); or (c) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 4.2 and such determination shall not have been made and delivered
in a written opinion within 60 days after the latest of (i) such Independent Counsel’s being appointed, (ii) the overruling by the Court of
objections to such counsel’s selection, or (iii) expiration of all periods for the Company or Indemnitee to object to such counsel’s selection,
Indemnitee shall be entitled to commence an action seeking an adjudication in the Court of Indemnitee’s entitlement to such indemnification or
advancements due hereunder, including, without limitation, Expense Advances. Alternatively, Indemnitee, in Indemnitee’s sole discretion, may
seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial arbitration rules of the American Arbitration
Association. Indemnitee shall commence such action seeking an adjudication or an award in arbitration within 180 days following the date on
which Indemnitee first has the right to commence such action pursuant to this Section 5.1, or such right shall expire. The Company agrees
13
not to oppose Indemnitee’s right to seek any such adjudication or award in arbitration and it shall continue to pay Expense Advances pursuant
to Section 3.3 until it shall ultimately be determined (in a Final Adjudication) that Indemnitee is not entitled to be indemnified by the Company
against such Expenses.
Section 5.2 Adverse Determination Not to Affect any Judicial Proceeding. If a determination shall have been made pursuant to Article
IV that Indemnitee is not entitled to indemnification under this Agreement, any judicial proceeding or arbitration commenced pursuant to this
Article V shall be conducted in all respects as a de novo trial or arbitration on the merits, and Indemnitee shall not be prejudiced by reason of
such initial adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Article V, Indemnitee shall be
presumed to be entitled to indemnification or advancement of Expenses, as the case may be, under this Agreement and the Company shall have
the burden of proof in overcoming such presumption and to show by clear and convincing evidence that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
Section 5.3 Company Bound by Determination Favorable to Indemnitee in any Judicial Proceeding or Arbitration. If a determination
shall have been made or deemed to have been made pursuant to Article IV that Indemnitee is entitled to indemnification, the Company shall be
irrevocably bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Article V, and shall be precluded
from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and
enforceable.
Section 5.4 Company Bound by the Agreement. The Company shall be precluded from asserting in any judicial proceeding or
arbitration commenced pursuant to this Article V that the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this
Agreement. Without limiting the generality of the preceding sentence, the Company shall not seek from a court, or agree to, a “bar order” that
would have the effect of prohibiting or limiting Indemnitee’s rights to advancement of any Expenses under this Agreement.
Section 6.1 Contribution Payment.
ARTICLE VI
Contribution
14
(a) Whether or not the indemnification provided in Article III hereof is available, in respect of any threatened, pending or
completed action, suit or Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such action, or Claim),
the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or Claim without
requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may
have against Indemnitee. The Company shall not enter into any settlement of any action, suit or Claim in which the Company is jointly
liable with Indemnitee (or would be if joined in such action, suit or Claim) unless such settlement provides for a full and final release of
all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any
reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or
completed action, suit or Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or
Claim), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers,
directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such
action, suit or Claim), on the one hand, and Indemnitee, on the other hand, from the transaction or events from which such action, suit
or Claim arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the
Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or Claim), on the one
hand, and Indemnitee, on the other hand, in connection with the transaction or events that resulted in such Expenses, judgments, fines or
settlement amounts, as well as any other equitable considerations which applicable law may require to be considered.
(c) The Company hereby agrees, to the fullest extent permitted by applicable law, to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than
Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law and without diminishing or impairing the obligations of the Company
set forth in the preceding subparagraphs of
15
this Section 6.1, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the
Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines,
penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of
such Claim in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or
transaction(s) giving cause to such Claim; and/or (ii) the relative fault of the Company (and its directors, officers, employees and
agents) and Indemnitee in connection with such event(s) and/or transaction(s).
Section 6.2 Relative Fault. The relative fault of the Indemnitee, on the one hand, and of the Company and any and all other parties
(including officers and directors of the Company other than Indemnitee) who may be at fault with respect to such matter shall be determined (i)
by reference to the relative fault of Indemnitee as determined by the court or other governmental agency assessing the contribution amounts or
(ii) to the extent such court or other governmental agency does not apportion relative fault, by the Independent Counsel (or such other party
which makes a determination under Article IV) after giving effect to, among other things, the degree of which their actions were motivated by
intent to gain personal profit or advantage, the degree to which their liability is primary or secondary, the degree to which their conduct is
active or passive, the degree of the knowledge, access to information, and opportunity to prevent or correct the subject matter of the Claims and
other relevant equitable considerations of each party. The Company and Indemnitee agree that it would not be just and equitable if contribution
pursuant to this Section 6.2 were determined by pro rata allocation or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 6.2.
ARTICLE VII
Miscellaneous
Section 7.1 Non-Exclusivity. The rights of Indemnitee to receive indemnification and advancement of Expenses under this Agreement
shall be in addition to, and shall not be deemed exclusive of, any other rights Indemnitee shall under the DGCL or other applicable law, the
charter or bylaws of the Company, any other agreement, vote of stockholders or a resolution of directors, or otherwise. Every other right or
remedy of Indemnitee shall be cumulative of the rights and remedies granted Indemnitee hereunder. No amendment or alteration of the charter
or bylaws of the Company or any provision thereof shall adversely affect Indemnitee’s rights hereunder, and such rights shall be in addition to
any rights Indemnitee may have under the charter, bylaws and the DGCL or other applicable law. To the extent that there is a change in the
DGCL or other applicable
16
law (whether by statute or judicial decision) that allows greater indemnification by agreement than would be afforded currently under the
Company’s charter or bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by virtue of this Agreement
the greater benefit so afforded by such change. Any amendment, alteration or repeal of the DGCL that adversely affects any right of Indemnitee
shall be prospective only and shall not limit or eliminate any such right with respect to any Claim involving any occurrence or alleged
occurrence of any action or omission to act that took place before the effective date of such amendment or repeal.
Section 7.2 Insurance and Subrogation.
(a) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors,
officers, employees, agents or fiduciaries of the Company or for individuals serving at the request of the Company as directors, officers,
partners, members, venturers, proprietors, trustees, employees, agents, fiduciaries or similar functionaries of another foreign or domestic
corporation, partnership, limited liability company, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise,
Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee, agent or fiduciary under such policy or policies.
(b) In the event of any payment by the Company under this Agreement for which reimbursement is available under any
insurance policy or policies obtained by the Company, the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee under such insurance policy or policies, who shall execute all papers required and take all action
necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce
such rights, provided that all Expenses relating to such action shall be borne by the Company.
(c) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that Indemnitee has otherwise actually received such payment under the Company’s charter or bylaws or any
insurance policy, contract, agreement or otherwise.
(d) If Indemnitee is a director of the Company, the Company will advise the Board of any proposed material reduction in the
coverage for Indemnitee to be provided by the Company’s directors’ and officers’ liability insurance policy and will not effect such a
17
reduction with respect to Indemnitee without the prior approval of at least 80% of the Independent Directors of the Company.
(e) If Indemnitee is a director of the Company during the term of this Agreement and if Indemnitee ceases to be a director of
the Company for any reason, the Company shall procure a run-off directors’ and officers’ liability insurance policy with respect to
claims arising from facts or events that occurred before the time Indemnitee ceased to be a director of the Company and covering
Indemnitee, which policy, without any lapse in coverage, will provide coverage for a period of six years after the time Indemnitee
ceased to be a director of the Company and will provide coverage (including amount and type of coverage and size of deductibles) that
are substantially comparable to the Company’s directors’ and officers’ liability insurance policy that was most protective of Indemnitee
in the 12 months preceding the time Indemnitee ceased to be a director of the Company and that is reasonably satisfactory to
Indemnitee; provided, however, that:
(i) this obligation shall be suspended during the period immediately following the time Indemnitee ceases to be a
director of the Company if and only so long as the Company has a directors’ and officers’ liability insurance policy in effect
covering Indemnitee for such claims that, if it were a run-off policy, would meet or exceed the foregoing standards, but in any
event this suspension period shall end when a Change in Control occurs; and
(ii) no later than the end of the suspension period provided in the preceding clause (i) (whether because of failure to
have a policy meeting the foregoing standards or because a Change in Control occurs), the Company shall procure a run-off
directors’ and officers’ liability insurance policy meeting the foregoing standards and lasting for the remainder of the six-year
period.
(f) Notwithstanding the preceding clause (e) including the suspension provisions therein, if Indemnitee ceases to be an officer
or a director of the Company in connection with a Change in Control or at or during the one-year period following the occurrence of a
Change in Control, the Company shall procure a run-off directors’ and officers’ liability insurance policy covering Indemnitee that is
reasonably satisfactory to Indemnity, meets the foregoing standards in clause (e), and lasts for a six-year period upon the Indemnitee’s
ceasing to be an officer or a director of the Company in such circumstances.
18
(g) If at the time of the receipt of a notice of a Claim pursuant to the terms hereof, the Company has directors’ and officers’
liability insurance in effect, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.
Section 7.3 Self Insurance of the Company; Other Arrangements. The parties hereto recognize that the Company may, but except as
provided in Section 7.2(d), Section 7.2(e), and Section 7.2(f) is not required to, procure or maintain insurance or other similar arrangements, at
its expense, to protect itself and any person, including Indemnitee, who is or was a director, officer, employee, agent or fiduciary of the
Company or who is or was serving at the request of the Company as a director, officer, partner, member, venturer, proprietor, trustee, employee,
agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, limited liability company, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss asserted against or incurred by such person,
in such a capacity or arising out of the person’s status as such a person, whether or not the Company would have the power to indemnify such
person against such expense or liability or loss.
Except as provided in Section 7.2(d), Section 7.2(e) and Section 7.2(f), in considering the cost and availability of such insurance, the
Company (through the exercise of the business judgment of its directors and officers) may, from time to time, purchase insurance which
provides for certain (i) deductibles, (ii) limits on payments required to be made by the insurer, or (iii) coverage which may not be as
comprehensive as that previously included in insurance purchased by the Company or its predecessors. The purchase of insurance with
deductibles, limits on payments and coverage exclusions, even if in the best interest of the Company, may not be in the best interest of
Indemnitee. As to the Company, purchasing insurance with deductibles, limits on payments and coverage exclusions is similar to the
Company’s practice of self-insurance in other areas. In order to protect Indemnitee who would otherwise be more fully or entirely covered
under such policies, the Company shall, to the maximum extent permitted by applicable law, indemnify and hold Indemnitee harmless to the
extent (i) of such deductibles, (ii) of amounts exceeding payments required to be made by an insurer, or (iii) of amounts that prior policies of
directors’ and officers’ liability insurance held by the Company or its predecessors have provided for payment to Indemnitee, if by reason of
Indemnitee’s Corporate Status Indemnitee is or is threatened to be made a party to any Claim. The obligation of the Company in the preceding
sentence shall be without regard to whether the Company would otherwise be required to indemnify such officer or director under the other
provisions of this Agreement, or under any law, agreement, vote of stockholders or directors or other arrangement. Without limiting the
generality of any provision of this Agreement, the procedures in Article IV
19
hereof shall, to the extent applicable, be used for determining entitlement to indemnification under this Section 7.3.
Section 7.4 Certain Settlement Provisions. The Company shall have no obligation to indemnify Indemnitee under this Agreement for
amounts paid in settlement of a Claim without the Company’s prior written consent. The Company shall not settle any Claim in any manner
that would impose any fine or other obligation on Indemnitee without Indemnitee’s prior written consent. Neither the Company nor Indemnitee
shall unreasonably withhold their consent to any proposed settlement.
Section 7.5 Duration of Agreement. This Agreement shall continue for so long as Indemnitee serves as a director, officer, employee,
agent or fiduciary of the Company or, at the request of the Company, as a director, officer, partner, member, venturer, proprietor, trustee,
employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, limited liability company, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise, and thereafter shall survive until and terminate upon the later to
occur of: (a) the expiration of 20 years after the latest date that Indemnitee shall have ceased to serve in any such capacity; (b) the final non-
appealable determination or resolution of all pending Claims in respect of which Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Article IV relating thereto; or (c) the
expiration of all statutes of limitation applicable to possible Claims arising out of Indemnitee’s Corporate Status.
Section 7.6 Notice by Each Party. Indemnitee shall promptly notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document or communication relating to any Claim for which Indemnitee may
be entitled to indemnification or advancement of Expenses hereunder; provided, however, that any failure of Indemnitee to so notify the
Company shall not adversely affect Indemnitee’s rights under this Agreement except to the extent the Company shall have been materially
prejudiced as a direct result of such failure. The Company shall promptly notify Indemnitee in writing as to the pendency of any Claim that
may involve a claim against Indemnitee for which Indemnitee may be entitled to indemnification or advancement of Expenses hereunder.
Section 7.7 Amendment. This Agreement may not be modified or amended except by a written instrument executed by or on behalf of
each of the parties hereto.
20
Section 7.8 Waivers. The observance of any term of this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce such term only by a writing signed by the party against which such waiver
is to be asserted. Unless otherwise expressly provided herein, no delay on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege
hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.
Section 7.9 Entire Agreement. This Agreement and the documents expressly referred to herein constitute the entire agreement between
the parties hereto with respect to the matters covered hereby, and any other prior or contemporaneous oral or written understandings or
agreements with respect to the matters covered hereby, including without limitation any prior indemnification agreements, are expressly
superseded by this Agreement.
Section 7.10 Severability. If any provision of this Agreement (including any provision within a single section, paragraph or sentence),
or the application of such provision to any Person or circumstance, shall be judicially declared to be invalid, unenforceable or void, such
decision will not have the effect of invalidating or voiding the remainder of this Agreement or affect the application of such provision to other
Persons or circumstances, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to render it valid, legal and enforceable while preserving its intent, or if such modification is not possible, by
substituting therefor another provision that is valid, legal and enforceable and that achieves the same objective. Any such finding of invalidity
or unenforceability shall not prevent the enforcement of such provision in any other jurisdiction to the maximum extent permitted by applicable
law.
Section 7.11 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon (a)
transmitter’s confirmation of a receipt of a facsimile transmission if during normal business hours of the recipient, otherwise on the next
business day, (b) confirmed delivery of a standard overnight courier or when delivered by hand or (c) the expiration of five business days after
the date mailed by certified or registered mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such
other addresses for a party as shall be specified by like notice):
21
If to the Company, to it at:
Quintana Energy Services Inc.
1415 Louisiana Street
Suite 2900
Houston, Texas 77002
Attn: Corporate Secretary
If to Indemnitee, to Indemnitee at:
1100 Uptown Park Blvd., Unit #283
Houston, Texas 77056
or to such other address or to such other individuals as any party shall have last designated by notice to the other parties. All notices and other
communications given to any party in accordance with the provisions of this Agreement shall be deemed to have been given when delivered or
sent to the intended recipient thereof in accordance with and as provided in the provisions of this Section 7.11.
Section 7.12 Governing Law. This Agreement and the legal relations among the parties shall, to the fullest extent permitted by law, be
governed by, and construed and enforced in accordance with , the laws of the State of Delaware without regard to its conflict of laws rule.
Section 7.13 Submission to Jurisdiction. The Company and Indemnitee hereby irrevocably and unconditionally (a) agree that any action
or proceeding arising out of or in connection with this Agreement (other than an arbitration provided for in Section 5.1) shall be brought only in
the Court of Chancery of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of
America or any court in any other country, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for the purposes of any
action or proceeding arising out of or in connection with this Agreement, (c) waive any objection to the laying of venue of any such action or
proceeding in the Delaware Court, and (d) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in
the Delaware Court has been brought in an improper or otherwise inconvenient forum.
22
Section 7.14 Certain Construction Rules.
(a) The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. As used in this Agreement, unless otherwise provided to the contrary, (1) all references
to days shall be deemed references to calendar days and (2) any reference to a “Section” or “Article” shall be deemed to refer to a
section or article of this Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this
Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Whenever the words “include,”
“includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” Unless
otherwise specifically provided for herein, the term “or” shall not be deemed to be exclusive. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns,
pronouns and verbs shall include the plural and vice versa.
(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to
“fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; references to “serving at the
request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or
involves services by, such director, nominee, officer, employee or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interests of the
participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interest of
the Company” for purposes of this Agreement and the DGCL.
(c) In the event of a merger, consolidation or amalgamation of the Company with or into any other entity, references to the
“Company” shall include the entity surviving or resulting from the merger, consolidation or amalgamation as well as the Company, and
Indemnitee shall stand in the same position under this Agreement with respect to the surviving or resulting entity as Indemnitee would
stand with respect to the Company if its existence had continued upon and after the merger, consolidation or amalgamation.
Section 7.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an
original and all of which together shall be deemed to be
23
one and the same instrument, notwithstanding that both parties are not signatories to the original or same counterpart.
Section 7.16 Certain Persons Not Entitled to Indemnification. Notwithstanding any other provision of this Agreement (but subject to
Section 7.1), Indemnitee shall not be entitled to indemnification or advancement of Expenses pursuant to the terms of this Agreement with
respect to any Claim, issue or matter therein, brought or made by Indemnitee against the Company, except as specifically provided in Article
III, Article IV or Section 7.3. In addition, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) To indemnify Indemnitee if (and to the extent that) a final, non-appealable decision by a court or arbitration body having
jurisdiction in the matter shall determine that such indemnification is not lawful; or
(b) To indemnify Indemnitee for the payment to the Company of profits pursuant to Section 16(b) of the Exchange Act, or
Expenses incurred by Indemnitee for Claims in connection with such payment under Section 16(b) of the Exchange Act.
Section 7.17 Indemnification for Negligence, Gross Negligence, etc. Without limiting the generality of any other provision hereunder, it is the
express intent of this Agreement that Indemnitee be indemnified and Expenses be advanced regardless of Indemnitee’s acts of negligence, gross
negligence, intentional or willful misconduct to the extent that indemnification and advancement of Expenses is allowed pursuant to the terms
of this Agreement and under applicable law.
Section 7.18 Mutual Acknowledgments. Both the Company and Indemnitee acknowledge that, in certain instances, applicable law
(including applicable federal law that may preempt or override applicable state law) or public policy may prohibit the Company from
indemnifying the directors, officers, employees, agents or fiduciaries of the Company under this Agreement or otherwise. For example, the
Company and Indemnitee acknowledge that the U.S. Securities and Exchange Commission has taken the position that indemnification of
directors, officers and controlling Persons of the Company for liabilities arising under federal securities laws is against public policy and,
therefore, unenforceable. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a
determination of the Company’s right under public policy to indemnify Indemnitee. In addition, the Company and Indemnitee acknowledge
that federal law prohibits indemnifications for certain violations of the Employee Retirement Income Security Act of 1974, as amended.
24
Section 7.19 Enforcement. The Company agrees that its execution of this Agreement shall constitute a stipulation by which it shall be
irrevocably bound in any court or arbitration in which a proceeding by Indemnitee for enforcement of Indemnitee’s rights hereunder shall have
been commenced, continued or appealed, that its obligations set forth in this Agreement are unique and special, and that failure of the Company
to comply with the provisions of this Agreement will cause irreparable and irremediable injury to Indemnitee, for which a remedy at law will
be inadequate. As a result, in addition to any other right or remedy Indemnitee may have at law or in equity with respect to breach of this
Agreement, Indemnitee shall be entitled to injunctive or mandatory relief directing specific performance by the Company of its obligations
under this Agreement. The Company agrees not to seek, and agrees to waive any requirement for the securing or posting of, a bond in
connection with Indemnitee’s seeking or obtaining such relief.
Section 7.20 Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon, shall inure to the
benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators, legal
representatives.
Section 7.21 Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the
Company or any affiliate of the Company against Indemnitee or Indemnitee’s spouse, heirs, executors, or personal or legal representatives after
the expiration of one year from the date of accrual of that cause of action, and any claim or cause of action of the Company or its affiliate shall
be extinguished and deemed released unless asserted by the timely filing of a legal action within that one-year period; provided, however, that
for any claim based on Indemnitee’s breach of fiduciary duties to the Company or its stockholders, the period set forth in the preceding
sentence shall be three years instead of one year; and provided, further, that, if any shorter period of limitations is otherwise applicable to any
such cause of action, the shorter period shall govern.
[signatures on following page]
25
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the date first above written.
QUINTANA ENERGY SERVICES INC.
By: /s/Max Bouthillette
Name: Max Bouthillette
Title: Executive Vice President & General Counsel
INDEMNITEE:
By: /s/ Bobby S. Shackouls
Name: Bobby S. Shackouls
26
QUINTANA ENERGY SERVICES INC.
2018 LONG TERM INCENTIVE PLAN
PERFORMANCE SHARE UNIT GRANT NOTICE
(Executive Officers – 2018 Form)
Pursuant to the terms and conditions of the Quintana Energy Services Inc. 2018 Long Term Incentive Plan, as amended from time to
time (the “Plan”), Quintana Energy Services Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the
number of performance share units (the “PSUs”) set forth below. This award of PSUs (this “Award”) is subject to the terms and conditions set
forth herein and in the Performance Share Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant:
________________
Date of Grant:
________________
Award Type and Description:
Other Stock-Based Award granted pursuant to Section 6(h) of the Plan. This Award represents the
right to receive shares of Stock in an amount up to ___% of the Target PSUs (defined below),
subject to the terms and conditions set forth herein and in the Agreement.
Following the Committee’s certification of the level of achievement with respect to the
Performance Goals (defined below), a portion of the Target PSUs ranging from ___% to ___% of
the Target PSUs shall be deemed “Earned PSUs.” Thereafter, your right to receive settlement of the
Earned PSUs shall vest and become nonforfeitable upon your satisfaction of the continued
employment or service requirements described below under “Service Requirement.”
Target Number of PSUs:
________________ (the “Target PSUs”).
Performance Period:
Performance Goals:
Service Requirement:
______________ (the “Performance Period Commencement Date”) through _____________ (the
“Performance Period End Date”).
The “Performance Goals” are based on (i) the Company’s achievement with respect to relative
total stockholder return and (ii) the Company’s achievement with respect to absolute total
stockholder return, in each case, as described in Exhibit B attached hereto.
Except as expressly provided in Section 3 of the Agreement, you must remain continuously
employed by, or continuously provide services to, the Company or an Affiliate, as applicable, from
the Date of Grant through the following dates in order to receive settlement of the specified number
of Earned PSUs: __________________________.
Settlement:
Settlement of the Earned PSUs shall be made solely in shares of Stock, which shall be delivered to
you in accordance with Section 4 of the Agreement.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Performance Share
Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their
entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive
and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or
this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile
counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the
Participant has executed this Grant Notice, effective for all purposes as provided above.
COMPANY
Quintana Energy Services Inc.
By:
Name: Rogers Herndon
Its: Chief Executive Officer and President
PARTICIPANT
Name:
EXHIBIT A
PERFORMANCE SHARE UNIT AGREEMENT
This Performance Share Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is
made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Quintana Energy Services Inc., a
Delaware corporation (the “Company”), and (the “Participant”). Capitalized terms used but not specifically defined herein shall have the
meanings specified in the Plan or the Grant Notice.
1.
Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or its
Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date
of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the target number of PSUs set forth
in the Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by
reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall
control. To the extent earned and vested, each PSU represents the right to receive one share of Stock, subject to the terms and conditions set
forth in the Grant Notice, this Agreement and the Plan; provided, however, that, depending on the level of performance determined to be
attained with respect to the Performance Goal, the number of shares of Stock that may be earned hereunder in respect of this Award may range
from ___% to ___% of the Target PSUs. Unless and until the PSUs have become earned and vested in accordance with this Agreement, the
Participant will have no right to receive any shares of Stock or other payments in respect of the PSUs. Prior to settlement of this Award, the
PSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.
2. Earning and Vesting of PSUs. Except as otherwise set forth in Section 3, the PSUs shall become Earned PSUs based on the extent
to which the Company has satisfied the Performance Goals set forth in the Grant Notice, which shall be determined by the Committee in its
sole discretion following the end of the Performance Period as described in Exhibit B attached hereto. Any PSUs that do not become Earned
PSUs shall be automatically forfeited. Once the number of Earned PSUs has been determined, the Participant must satisfy the Service
Requirement as set forth in the Grant Notice or pursuant to Section 3 in order for such Earned PSUs to vest and become nonforfeitable. Any
Earned PSUs that do not vest and become nonforfeitable shall automatically be forfeited. Unless and until the PSUs have become Earned PSUs
and the Service Requirement with respect to such Earned PSUs has been satisfied in accordance with this Section 2 or Section 3, the Participant
will have no right to receive any dividends or other distribution with respect to the PSUs.
3. Effect of Termination of Employment or Service.
(a) Termination of Employment or Service Relationship due to Death or Disability.
(i) Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate
due to the Participant’s “Disability” (as defined in the employment agreement between the Participant and the Company (as amended from time
to time, the “Employment Agreement”)) or death that occurs prior to the Performance Period End Date, then a number of PSUs equal to ___%
of the Target PSUs shall be deemed Earned PSUs and the Participant shall be deemed to have satisfied the Service Requirement with respect to
such Earned PSUs as of the date of termination.
(ii) Upon the termination of the Participant’s employment or other service relationship with the Company or an
Affiliate due to the Participant’s Disability or death that occurs on or following the Performance Period End Date, the Participant shall be
deemed to have satisfied the Service Requirement with respect to all Earned PSUs as of the date of termination.
(b) Termination of Employment or Service Relationship by the Company other than for Cause or by the Participant for Good
Reason.
(i) Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate
(A) by the Company or such Affiliate without “Cause” (as defined in the Employment Agreement) (and not due to death, Disability or non-
renewal of the term of the Employment Agreement) or (B) by the Participant for “Good Reason” (as defined in the Employment Agreement), in
each case, that occurs prior to the Performance Period End Date, then, provided that the Participant executes within the time provided to do so
(and does not revoke within any time provided to do so) a release of claims in a form acceptable to the Committee, a number of PSUs equal to
___% of the Target PSUs (or, if such termination occurs during the “Protection Period” (as defined below), ___% of the Target PSUs) shall be
deemed Earned PSUs and the Participant shall be deemed to have satisfied the Service Requirement with respect to such Earned PSUs as of the
date of termination (or, if such termination occurs during the Protection Period, as of the later of the date of a Change in Control or the date of
such termination). For purposes of this Agreement, “Protection Period” means the period of time beginning on the date that is six months prior
to the date of a Change in Control and ending on the first anniversary of the date of such Change in Control.
(ii) Upon the termination of the Participant’s employment or other service relationship with the Company or an
Affiliate (A) by the Company or such Affiliate without Cause (and not due to death, Disability or non-renewal of the term of the Employment
Agreement) or (B) by the Participant for Good Reason, in each case, that occurs on or following the Performance Period End Date, then,
provided that the Participant executes within the time provided to do so (and does not revoke within any time provided to do so) a release of
claims in a form acceptable to the Committee, the Participant shall be deemed to have satisfied the Service Requirement with respect to all
Earned PSUs as of the date of termination.
(c) Other Termination of Employment or Service. Except as otherwise provided in Section 3(a) or 3(b), upon the termination of
the Participant’s employment or other service relationship with the Company or an Affiliate for any reason, any unearned PSUs (and all rights
arising from such PSUs and from being a holder thereof) and any Earned PSUs for which the Service Requirement has not been satisfied will
terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
4. Settlement of Earned PSUs. As soon as administratively practicable following the date that the Participant satisfies the Service
Requirement with respect to any Earned PSUs, but in no event later than 60 days following the date the Service Requirement is satisfied, the
Company shall deliver to the Participant (or the Participant’s permitted transferee, if applicable), a number of shares of Stock equal to the
number of Earned PSUs for which the Service Requirement has been satisfied; provided, however, that any fractional PSU that becomes earned
hereunder shall be rounded down at the time shares of Stock are issued in settlement of such PSU. No fractional shares of Stock, nor the cash
value of any fractional shares of Stock, shall be issuable or payable to the Participant pursuant to this Agreement. All shares of Stock, if any,
issued hereunder shall be delivered either by delivering one or more certificates for such shares of Stock to the Participant or by entering such
shares of Stock in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Stock shall not bear any
interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this Agreement shall be
construed to create a trust or a funded or secured obligation of any kind.
5. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the
Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the
satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include
the delivery of cash or cash equivalents, shares of Stock (including previously owned shares of Stock, net settlement, a broker-assisted sale, or
other cashless withholding or reduction of the amount of shares of Stock otherwise issuable or delivered pursuant to this Award), other
property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the
surrender of previously owned shares of Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the
number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of
such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll
taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the
Committee. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or
disposition of the underlying shares of Stock and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The
Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their
respective managers, directors, officers, employees or authorized representatives (including, without limitation, attorneys, accountants,
consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.
6. Non-Transferability. During the lifetime of the Participant, the PSUs may not be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent and distribution, unless and until the shares of Common Stock underlying the PSUs have been
issued, and all restrictions applicable to such shares have lapsed. Neither the PSUs nor any interest or right therein shall be liable for the debts,
contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law
by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
7. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of
Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the
requirements of any stock exchange or market system upon which the shares of Stock may then be listed. No shares of Stock will be issued
hereunder if such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market
system upon which the shares of Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration
statement under the Securities Act of 1933, as amended, is in effect at the time of such issuance with respect to the shares of Stock to be issued
or (b) in the opinion of legal counsel to the Company, the shares of Stock to be issued are permitted to be issued in accordance with the terms of
an applicable exemption from the registration requirements of the Securities Act of 1933, as amended. The inability of the Company to obtain
from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful
issuance and sale of any shares of Stock hereunder will relieve the Company of any liability in respect of the failure to issue such shares of
Stock as to which such requisite authority has not been obtained. As a condition to any issuance of shares of Stock hereunder, the Company
may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.
8. Legends. If a stock certificate is issued with respect to shares of Stock issued hereunder, such certificate shall bear such legend or
legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the
terms and provisions of this Agreement, the rules, regulations and other requirements of the Securities and Exchange Commission, any
applicable laws or the requirements of any stock exchange on which the shares of Stock are then listed. If the shares of Stock issued hereunder
are held in book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.
9. Rights as a Stockholder; Dividend Equivalents.
(a) The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become
deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be
made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise
specifically provided for in the Plan or this Agreement (including Section 9(b)).
(b) Each PSU subject to this Award is hereby granted in tandem with a corresponding dividend equivalent (“DER”), which
DER shall remain outstanding from the Date of Grant until the earlier of the settlement or forfeiture of the PSU to which the DER corresponds.
Each vested DER entitles the Participant to receive payments, subject to and in accordance with this Agreement, in an amount equal to any
dividends paid by the Company in respect of the share of Stock underlying the PSU to which such DER relates. The Company shall establish,
with respect to each PSU, a separate DER bookkeeping account for such PSU (a “DER Account”), which shall be credited (without interest) on
the applicable dividend payment dates with an amount equal to any dividends paid during the period that such PSU remains outstanding with
respect to the share of Stock underlying the PSU to which such DER relates. Upon the date that the Service Requirement is satisfied with
respect to a Earned PSU, the DER (and the DER Account) with respect to such Earned PSU shall become vested. Similarly, upon the forfeiture
of a PSU (regardless of whether such forfeiture occurs because such PSU did not become an Earned PSU or such PSU was an Earned PSU that
did not vest and become nonforfeitable), the DER (and the DER Account) with respect to such forfeited PSU shall also be forfeited. DERs shall
not entitle the Participant to any payments relating to dividends paid after the earlier to occur of the date that the applicable Earned PSU is
settled in accordance with Section 4 or the forfeiture of the PSU underlying such DER. Payments with respect to vested DERs shall be made as
soon as practicable, and within 60 days, after the date that such DER vests. The Participant shall not be entitled to receive any interest with
respect to the payment of DERs.
10. Protection of Information.
(a) Disclosure to and Property of the Company Group. All information, trade secrets, designs, ideas, concepts, improvements,
product developments, discoveries and inventions, whether patentable or not, that are conceived, made, developed or acquired by, or disclosed
to, the Participant, individually or in conjunction with others, during the period of the Participant’s employment with, or service to, the
Company or its Affiliates (collectively, the “Company Group”) (whether during business hours or otherwise and whether on a Company Group
member’s premises or otherwise) that relate to the business or trade secrets of any member of the Company Group (including, without
limitation, all such information relating to corporate opportunities, strategies, product specifications, compositions, manufacturing and
distribution methods and processes, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key contacts within the customer’s organizations or within the
organization of acquisition prospects, or exploration, production, marketing and merchandising techniques, prospective names and marks) and
all writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other
similar forms of expression (collectively, “Confidential Information”) are and shall be the sole and exclusive property of the Company Group.
On the date of termination of the Participant’s employment or other service relationship with the Company Group and at any other time upon
the request of any member of the Company Group, the Participant shall surrender and deliver to the Company Group all documents (including
all electronically stored information) and all copies thereof and all other materials of any nature containing or pertaining to all Confidential
Information in the Participant’s possession, custody and control and shall not retain any such document or other materials or copies thereof.
Within 10 days of any such request, the Participant shall certify to the Company Group in writing that all such documents and materials have
been returned to the Company Group. Notwithstanding any provision of this Section 10(a) to the contrary, the term Confidential Information
does not include (i) any information that, at the time of disclosure by a member of the Company Group, is available to the public other than as a
result of any unauthorized act of the Participant, or (ii) any information that becomes available to the Participant on a non-confidential basis
from a source other than the members of the Company Group or any of their respective directors, officers, employees, agents or advisors;
provided, that such source is not known by the Participant to be bound by a confidentiality agreement with, or other obligation of
confidentiality to, a member of the Company Group regarding such information.
(b) Disclosure to the Participant. The Participant expressly acknowledges and agrees that the Participant has obtained
Confidential Information during the period of the Participant’s employment with, or service to, the Company Group and the parties
acknowledge and agree that the Participant will be provided with additional Confidential Information in the course of the Participant’s future
employment, or service to, the Company Group.
(c) No Unauthorized Use or Disclosure. The Participant agrees to preserve and protect the confidentiality of all Confidential
Information. The Participant agrees that the Participant will not, at any time during the period of the Participant’s employment with, or service
to, the Company Group or thereafter, make any unauthorized disclosure of Confidential Information, or make any use thereof, except, in each
case, in the carrying out of the Participant’s responsibilities to the Company Group. The Participant expressly acknowledges and agrees that the
Participant would inevitably violate the terms of this Section 10 if the Participant breaches any of the provisions of Section 11. The Participant
shall use commercially reasonable efforts to cause all persons or entities to whom the Participant discloses any Confidential Information to
preserve and protect the confidentiality of such Confidential Information. The Participant shall have no obligation hereunder to keep
confidential any Confidential Information if and to the extent disclosure thereof is specifically required by applicable law; provided, however,
that in the event disclosure is required by applicable law and the Participant is making such disclosure, the Participant shall provide the
Company with prompt notice of such requirement (which such notice shall be received by the Company no later than 48 hours after the
Participant is informed of such requirement) prior to making any such disclosure, so that the Company may seek an appropriate protective
order.
(d) Permitted Disclosures. Notwithstanding the foregoing, nothing herein will prevent the Participant from: (i) making a good
faith report of possible violations of applicable law to any governmental agency or entity; or (ii) making disclosures that are protected under the
whistleblower provisions of applicable law. Further, an individual shall not be held criminally or civilly liable under any federal or state trade
secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state or local government official, either directly or
indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a
complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for
retaliation by an employer of reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the
trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal; and (y) does not
disclose the trade secret, except pursuant to court order.
11. Non-Competition; Non-Solicitation.
(a) The Participant and the Company agree to the non-competition and non-solicitation provisions of this Section 11 in order to
protect the Confidential Information provided to the Participant or developed by the Participant for any member of the Company Group, and to
protect the Company Group’s legitimate business interests (including the goodwill the Participant has helped build, and that the Participant will
continue to help build, during the Participant’s service relationship with the Company Group) and as an express incentive for the Company to
provide the Participant with Confidential Information and to enter into this Agreement. For the avoidance of doubt, the Participant expressly
acknowledges and agrees that this Award (x) further aligns the Participant’s interests with the Company’s long-term business interests, (y)
enhances the Company’s goodwill and (z) creates an additional incentive for the Participant to build the Company’s goodwill, thus increasing
the value of the Company’s interest that is worthy of protection through the non-solicitation provisions of this Section 11.
(b) Non-Competition Covenants.
(i) The Participant covenants and agrees that during the period of the Participant’s employment with, or service to, the
Company Group and continuing through the date that is 12 months after the date that the Participant is no longer providing employed by, or
providing services to, any member of the Company Group (the “Prohibited Period”), the Participant will not directly or indirectly (other than
on behalf of a member of the Company Group) engage or carry on in the business in which the Company Group is engaged and for which the
Participant has responsibility during the period of the Participant’s employment with, or service to, the Company Group, which business
includes, without limitation, the business of comprehensive oilfield services, including directional drilling, pressure control, pressure pumping
and wireline (the “Business”) within the States of Kansas, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming
(the “Restricted Area”) (or with responsibilities that relate to the Restricted Area) in any capacity in which the Participant is employed,
performs services or otherwise has duties that are the same as, or are similar to, those performed by the Participant for any member of the
Company Group.
(ii) Nothing in the foregoing Section 11(b)(i) will prevent the Participant from owning an aggregate of not more than
1% of the outstanding stock or other equity securities of any class of any corporation or other entity engaged in the Business, if such stock or
equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market by a member of a national
securities exchange, so long as neither the Participant nor any of the Participant’s affiliates has the power, directly or indirectly, to control or
direct the management or affairs of any such corporation or entity and is not involved in the management of such corporation or entity.
(c) Non-Solicitation Covenants. The Participant covenants and agrees that during the Prohibited Period, the Participant will not
directly or indirectly (other than on behalf of a member of the Company Group): (i) engage or employ, or solicit or contact with a view to the
engagement or employment of, any person who is an officer or employee of any member of the Company Group; or (ii) canvass, solicit,
approach or entice away or cause to be canvassed, solicited, approached or enticed away from the Company Group any of the Company
Group’s customers about which the Participant obtained Confidential Information, with whom or which the Participant had contact, or for
whom or which the Participant had responsibility on behalf of any member of the Company Group.
(d) Relief. The Participant and the Company agree and acknowledge that the limitations as to time, geography, and scope of
activity to be restrained as set forth in Section 11 are reasonable in all respects, not adverse to the public welfare, and do not impose any greater
restraint than is necessary to protect the legitimate business interests of the Company Group, including the protection of its Confidential
Information, trade secrets and goodwill. The Participant and the Company also acknowledge that money damages would not be a sufficient
remedy for any breach or threatened breach of Section 10 or 11 by the Participant, and in the event of any such breach or threatened breach, the
Company shall be entitled to enforce the provisions of Section 10 and 11 by causing the Participant to immediately forfeit to the Company,
without consideration, any unvested portion of this Award and obtaining specific performance, injunctive relief and other equitable relief,
without bond, as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of
Section 10 or 11 , but shall be in addition to all remedies available at law or in equity, including the recovery of damages from the Participant
and the Participant’s agents.
(e) Reformation. The Participant hereby represents to the Company that the Participant has read and understands, and agrees to
be bound by, the terms of this Section 11. It is the desire and intent of the parties that the provisions of this Section 11 be enforced to the fullest
extent permitted under any applicable laws, whether now or hereafter in effect. The Company and the Participant agree that the foregoing
restrictions are reasonable under the circumstances and that any breach of the covenants contained in this Section 11 would cause irreparable
injury to the Company Group. Nevertheless, if any of the aforesaid restrictions (or any portions thereof) are found by a court of competent
jurisdiction to be unreasonable, overly broad, or otherwise unenforceable, the parties intend for the restrictions herein (and portions thereof) set
forth to be modified by the court making such determination so as to be reasonable and enforceable and, as so modified, to be fully enforced.
By agreeing to this contractual modification prospectively at this time, the Company and the Participant intend to make this provision
enforceable under all applicable laws so that the entire non-competition and non-solicitation agreement of this Section 11 and this entire
Agreement as prospectively modified shall remain in full force and effect and shall not be rendered void or illegal.
12. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the
Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such
person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal
representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such
form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with
respect to Earned PSUs.
13. No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the PSUs
thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a
continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any
such Affiliate, or any other entity to terminate such employment or other service relationship at any time. The grant of the PSUs is a one-time
benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future
Awards will be granted at the sole discretion of the Company.
14. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or
delivered to the Participant at the address for the Participant indicated on the signature page to this Agreement (as such address may be updated
by the Participant providing written notice to such effect to the Company). Any notice that is delivered personally or by overnight courier or
telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if
such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein
provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the
recipient, on the fourth day after the day it is so placed in the mail.
15. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to
the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but
not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly
reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic
delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access.
The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for
delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is
the same as, and shall have the same force and effect as, his or her manual signature.
16. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company
to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter
hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the PSUs
granted hereby; provided¸ however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any
employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of
the date a determination is to be made under this Agreement, including but not limited to the Employment Agreement. Without limiting the
scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating
to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this
Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the
Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall be effective only if it is in writing and
signed by both the Participant and an authorized officer of the Company. Notwithstanding the foregoing, the parties expressly acknowledge and
agree that this Agreement does not supersede or replace, but instead complements and is in addition to, all agreements and obligations that the
Participant has with or to any member of the Company Group (whether contained in a prior written agreement, at common law, by statute or
otherwise) with regard to (a) confidentiality and the non-use, non-disclosure, return and protection of trade secrets, confidential and proprietary
information and materials and Company Group property and (b) non-competition, or non-solicitation of officers, employees or customers.
18. Severability; Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of
this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to
exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of
such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or
condition giving rise to such rights continues.
19. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required
by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, any Securities and Exchange Commission rule or any applicable securities exchange listing standards and/or (b) any policy that may be
adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment
and/or cancellation to the extent necessary to comply with such law(s) and/or policy.
20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof.
21. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This
Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set
forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators
and the person(s) to whom the PSUs may be transferred by will or the laws of descent or distribution.
22. Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement.
23. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document
format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
24. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the PSUs granted pursuant to this Agreement are
intended to be exempt from the applicable requirements of Section 409A of the Code, as amended from time to time, including the guidance
and regulations promulgated thereunder and successor provisions, guidance and regulations thereto (the “Nonqualified Deferred
Compensation Rules”), and shall be construed and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee
determines that the PSUs may not be exempt from the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a
“specified employee” within the meaning of the Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when
the Participant becomes eligible for settlement of the PSUs upon his “separation from service” within the meaning of the Nonqualified
Deferred Compensation Rules, then to the extent necessary to prevent any accelerated or additional tax under the Nonqualified Deferred
Compensation Rules, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation
from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the
PSUs provided under this Agreement are exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall
the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the
Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.
25.
EXHIBIT B
PERFORMANCE GOALS FOR PERFORMANCE SHARE UNITS
The performance goals for the PSUs shall be based on (i) the relative total stockholder return (“Relative TSR”) ranking of the Company
as compared to the Company’s Performance Peer Group during the Performance Period and (ii) the Company’s absolute total stockholder
return (“Absolute TSR”) during the Performance Period.
1
QUINTANA ENERGY SERVICES INC.
2018 LONG TERM INCENTIVE PLAN
PERFORMANCE SHARE UNIT GRANT NOTICE
(Employees – 2018 Form)
Pursuant to the terms and conditions of the Quintana Energy Services Inc. 2018 Long Term Incentive Plan, as amended from time to
time (the “Plan”), Quintana Energy Services Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the
number of performance share units (the “PSUs”) set forth below. This award of PSUs (this “Award”) is subject to the terms and conditions set
forth herein and in the Performance Share Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant:
________________
Date of Grant:
________________
Award Type and Description:
Other Stock-Based Award granted pursuant to Section 6(h) of the Plan. This Award represents the
right to receive shares of Stock in an amount up to ___% of the Target PSUs (defined below),
subject to the terms and conditions set forth herein and in the Agreement.
Following the Committee’s certification of the level of achievement with respect to the
Performance Goals (defined below), a portion of the Target PSUs ranging from ___% to ___% of
the Target PSUs shall be deemed “Earned PSUs.” Thereafter, your right to receive settlement of the
Earned PSUs shall vest and become nonforfeitable upon your satisfaction of the continued
employment or service requirements described below under “Service Requirement.”
Target Number of PSUs:
________________ (the “Target PSUs”).
Performance Period:
Performance Goals:
Service Requirement:
______________ (the “Performance Period Commencement Date”) through _____________ (the
“Performance Period End Date”).
The “Performance Goals” are based on (i) the Company’s achievement with respect to relative
total stockholder return and (ii) the Company’s achievement with respect to absolute total
stockholder return, in each case, as described in Exhibit B attached hereto.
Except as expressly provided in Section 3 of the Agreement, you must remain continuously
employed by, or continuously provide services to, the Company or an Affiliate, as applicable, from
the Date of Grant through the following dates in order to receive settlement of the specified number
of Earned PSUs: ________________.
Settlement:
Settlement of the Earned PSUs shall be made solely in shares of Stock, which shall be delivered to
you in accordance with Section 4 of the Agreement.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Performance Share
Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their
entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive
and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or
this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile
counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the
Participant has executed this Grant Notice, effective for all purposes as provided above.
COMPANY
Quintana Energy Services Inc.
By:
Name: Rogers Herndon
Its: Chief Executive Officer and President
PARTICIPANT
Name:
EXHIBIT A
PERFORMANCE SHARE UNIT AGREEMENT
This Performance Share Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is
made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Quintana Energy Services Inc., a
Delaware corporation (the “Company”), and (the “Participant”). Capitalized terms used but not specifically defined herein shall have the
meanings specified in the Plan or the Grant Notice.
1.
Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or its
Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date
of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the target number of PSUs set forth
in the Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by
reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall
control. To the extent earned and vested, each PSU represents the right to receive one share of Stock, subject to the terms and conditions set
forth in the Grant Notice, this Agreement and the Plan; provided, however, that, depending on the level of performance determined to be
attained with respect to the Performance Goal, the number of shares of Stock that may be earned hereunder in respect of this Award may range
from ___% to ___% of the Target PSUs. Unless and until the PSUs have become earned and vested in accordance with this Agreement, the
Participant will have no right to receive any shares of Stock or other payments in respect of the PSUs. Prior to settlement of this Award, the
PSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.
2. Earning and Vesting of PSUs. Except as otherwise set forth in Section 3, the PSUs shall become Earned PSUs based on the extent
to which the Company has satisfied the Performance Goals set forth in the Grant Notice, which shall be determined by the Committee in its
sole discretion following the end of the Performance Period as described in Exhibit B attached hereto. Any PSUs that do not become Earned
PSUs shall be automatically forfeited. Once the number of Earned PSUs has been determined, the Participant must satisfy the Service
Requirement as set forth in the Grant Notice or pursuant to Section 3 in order for such Earned PSUs to vest and become nonforfeitable. Any
Earned PSUs that do not vest and become nonforfeitable shall automatically be forfeited. Unless and until the PSUs have become Earned PSUs
and the Service Requirement with respect to such Earned PSUs has been satisfied in accordance with this Section 2 or Section 3, the Participant
will have no right to receive any dividends or other distribution with respect to the PSUs.
3. Effect of Termination of Employment or Service.
(a) Termination of Employment or Service Relationship due to Death or Disability.
(i) Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate
due to the Participant’s “Disability” (as defined in Section 3(d) below) or death that occurs prior to the Performance Period End Date, then a
number of PSUs equal to ___% of the Target PSUs shall be deemed Earned PSUs and the Participant shall be deemed to have satisfied the
Service Requirement with respect to such Earned PSUs as of the date of termination.
(ii) Upon the termination of the Participant’s employment or other service relationship with the Company or an
Affiliate due to the Participant’s Disability or death that occurs on or following the Performance Period End Date, the Participant shall be
deemed to have satisfied the Service Requirement with respect to all Earned PSUs as of the date of termination.
(b) Termination of Employment or Service Relationship by the Company other than for Cause or by the Participant for Good
Reason.
(i) Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate
(A) by the Company or such Affiliate without “Cause” (as defined in Section 3(d) below) (and not due to death or Disability) or (B) by the
Participant for “Good Reason” (as defined in Section 3(d) below), in each case, that occurs prior to the Performance Period End Date, then,
provided that the Participant executes within the time provided to do so (and does not revoke within any time provided to do so) a release of
claims in a form acceptable to the Committee, a number of PSUs equal to ___% of the Target PSUs shall be deemed Earned PSUs and the
Participant shall be deemed to have satisfied the Service Requirement with respect to such Earned PSUs as of the date of termination.
(ii) Upon the termination of the Participant’s employment or other service relationship with the Company or an
Affiliate (A) by the Company or such Affiliate without Cause (and not due to death or Disability) or (B) by the Participant for Good Reason, in
each case, that occurs on or following the Performance Period End Date, then, provided that the Participant executes within the time provided
to do so (and does not revoke within any time provided to do so) a release of claims in a form acceptable to the Committee, the Participant shall
be deemed to have satisfied the Service Requirement with respect to all Earned PSUs as of the date of termination.
(c) Other Termination of Employment or Service. Except as otherwise provided in Section 3(a) or 3(b), upon the termination of
the Participant’s employment or other service relationship with the Company or an Affiliate for any reason, any unearned PSUs (and all rights
arising from such PSUs and from being a holder thereof) and any Earned PSUs for which the Service Requirement has not been satisfied will
terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
(d) Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:
(i) “Cause” means “cause” (or a term of like import) as defined under the Participant’s employment agreement with the
Company or an Affiliate or, in the absence of such an agreement or definition, shall mean a determination by the Company in its sole discretion
that the Participant has: (A) engaged in gross negligence or willful misconduct in the performance of the Participant’s duties with respect to the
Company or an Affiliate, (B) materially breached any material provision of any written agreement between the Participant and the Company or
an Affiliate or corporate policy or code of conduct established by the Company or an Affiliate and applicable to the Participant; (C) willfully
engaged in conduct that is materially injurious to the Company or an Affiliate; or (D) been convicted of, pleaded no contest to or received
adjudicated probation or deferred adjudication in connection with, a felony involving fraud, dishonestly or moral turpitude (or a crime of
similar import in a local, state or foreign jurisdiction).
(ii) “Disability” means “disability” (or a word of like import) as defined under the Participant’s employment agreement
with the Company or an Affiliate or, in the absence of such an agreement or definition, shall mean the Participant’s inability to perform the
Participant’s duties (after accounting for reasonable accommodation, if applicable and required by law) due to any medically determinable
physical or mental impairment that is expected to last for a period of 12 months or longer or to result in death.
(iii) “Good Reason” means “good reason” (or a term of like import) as defined under the Participant’s employment
agreement with the Company or an Affiliate or, in the absence of such an agreement or definition, shall mean a material diminution in the
Participant’s base salary; provided that, in the case of the Participant’s assertion of Good Reason, (1) the condition must have arisen without the
Participant’s consent; (2) the Participant must provide written notice to the Company of the condition in accordance with this Agreement within
45 days of the initial existence of the condition; (3) the condition must remain uncorrected for 30 days after receipt of such notice by the
Company; and (4) the date of termination of the Participant’s employment or other service relationship with the Company or an Affiliate must
occur within 90 days after such notice is received by the Company.
4. Settlement of Earned PSUs. As soon as administratively practicable following the date that the Participant satisfies the Service
Requirement with respect to any Earned PSUs, but in no event later than 60 days following the date the Service Requirement is satisfied, the
Company shall deliver to the Participant (or the Participant’s permitted transferee, if applicable), a number of shares of Stock equal to the
number of Earned PSUs for which the Service Requirement has been satisfied; provided, however, that any fractional PSU that becomes earned
hereunder shall be rounded down at the time shares of Stock are issued in settlement of such PSU. No fractional shares of Stock, nor the cash
value of any fractional shares of Stock, shall be issuable or payable to the Participant pursuant to this Agreement. All shares of Stock, if any,
issued hereunder shall be delivered either by delivering one or more certificates for such shares of Stock to the Participant or by entering such
shares of Stock in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Stock shall not bear any
interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this Agreement shall be
construed to create a trust or a funded or secured obligation of any kind.
5. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the
Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the
satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include
the delivery of cash or cash equivalents, shares of Stock (including previously owned shares of Stock, net settlement, a broker-assisted sale, or
other cashless withholding or reduction of the amount of shares of Stock otherwise issuable or delivered pursuant to this Award), other
property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the
surrender of previously owned shares of Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the
number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of
such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll
taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the
Committee. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or
disposition of the underlying shares of Stock and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The
Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their
respective managers, directors, officers, employees or authorized representatives (including, without limitation, attorneys, accountants,
consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.
6. Non-Transferability. During the lifetime of the Participant, the PSUs may not be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent and distribution, unless and until the shares of Common Stock underlying the PSUs have been
issued, and all restrictions applicable to such shares have lapsed. Neither the PSUs nor any interest or right therein shall be liable for the debts,
contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law
by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
7. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of
Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the
requirements of any stock exchange or market system upon which the shares of Stock may then be listed. No shares of Stock will be issued
hereunder if such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market
system upon which the shares of Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration
statement under the Securities Act of 1933, as amended, is in effect at the time of such issuance with respect to the shares of Stock to be issued
or (b) in the opinion of legal counsel to the Company, the shares of Stock to be issued are permitted to be issued in accordance with the terms of
an applicable exemption from the registration requirements of the Securities Act of 1933, as amended. The inability of the Company to obtain
from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful
issuance and sale of any shares of Stock hereunder will relieve the Company of any liability in respect of the failure to issue such shares of
Stock as to which such requisite authority has not been obtained. As a condition to any issuance of shares of Stock hereunder, the Company
may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.
8. Legends. If a stock certificate is issued with respect to shares of Stock issued hereunder, such certificate shall bear such legend or
legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the
terms and provisions of this Agreement, the rules, regulations and other requirements of the Securities and Exchange Commission, any
applicable laws or the requirements of any stock exchange on which the shares of Stock are then listed. If the shares of Stock issued hereunder
are held in book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.
9. Rights as a Stockholder; Dividend Equivalents.
(a) The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become
deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be
made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise
specifically provided for in the Plan or this Agreement (including Section 9(b)).
(b) Each PSU subject to this Award is hereby granted in tandem with a corresponding dividend equivalent (“DER”), which
DER shall remain outstanding from the Date of Grant until the earlier of the settlement or forfeiture of the PSU to which the DER corresponds.
Each vested DER entitles the Participant to receive payments, subject to and in accordance with this Agreement, in an amount equal to any
dividends paid by the Company in respect of the share of Stock underlying the PSU to which such DER relates. The Company shall establish,
with respect to each PSU, a separate DER bookkeeping account for such PSU (a “DER Account”), which shall be credited (without interest) on
the applicable dividend payment dates with an amount equal to any dividends paid during the period that such PSU remains outstanding with
respect to the share of Stock underlying the PSU to which such DER relates. Upon the date that the Service Requirement is satisfied with
respect to a Earned PSU, the DER (and the DER Account) with respect to such Earned PSU shall become vested. Similarly, upon the forfeiture
of a PSU (regardless of whether such forfeiture occurs because such PSU did not become an Earned PSU or such PSU was an Earned PSU that
did not vest and become nonforfeitable), the DER (and the DER Account) with respect to such forfeited PSU shall also be forfeited. DERs shall
not entitle the Participant to any payments relating to dividends paid after the earlier to occur of the date that the applicable Earned PSU is
settled in accordance with Section 4 or the forfeiture of the PSU underlying such DER. Payments with respect to vested DERs shall be made as
soon as practicable, and within 60 days, after the date that such DER vests. The Participant shall not be entitled to receive any interest with
respect to the payment of DERs.
10. Protection of Information.
(a) Disclosure to and Property of the Company Group. All information, trade secrets, designs, ideas, concepts, improvements,
product developments, discoveries and inventions, whether patentable or not, that are conceived, made, developed or acquired by, or disclosed
to, the Participant, individually or in conjunction with others, during the period of the Participant’s employment with, or service to, the
Company or its Affiliates (collectively, the “Company Group”) (whether during business hours or otherwise and whether on a Company Group
member’s premises or otherwise) that relate to the business or trade secrets of any member of the Company Group (including, without
limitation, all such information relating to corporate opportunities, strategies, product specifications, compositions, manufacturing and
distribution methods and processes, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key contacts within the customer’s organizations or within the
organization of acquisition prospects, or exploration, production, marketing and merchandising techniques, prospective names and marks) and
all writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other
similar forms of expression (collectively, “Confidential Information”) are and shall be the sole and exclusive property of the Company Group.
On the date of termination of the Participant’s employment or other service relationship with the Company Group and at any other time upon
the request of any member of the Company Group, the Participant shall surrender and deliver to the Company Group all documents (including
all electronically stored information) and all copies thereof and all other materials of any nature containing or pertaining to all Confidential
Information in the Participant’s possession, custody and control and shall not retain any such document or other materials or copies thereof.
Within 10 days of any such request, the Participant shall certify to the Company Group in writing that all such documents and materials have
been returned to the Company Group. Notwithstanding any provision of this Section 10(a) to the contrary, the term Confidential Information
does not include (i) any information that, at the time of disclosure by a member of the Company Group, is available to the public other than as a
result of any unauthorized act of the Participant, or (ii) any information that becomes available to the Participant on a non-confidential basis
from a source other than the members of the Company Group or any of their respective directors, officers, employees, agents or advisors;
provided, that such source is not known by the Participant to be bound by a confidentiality agreement with, or other obligation of
confidentiality to, a member of the Company Group regarding such information.
(b) Disclosure to the Participant. The Participant expressly acknowledges and agrees that the Participant has obtained
Confidential Information during the period of the Participant’s employment with, or service to, the Company Group and the parties
acknowledge and agree that the Participant will be provided with additional Confidential Information in the course of the Participant’s future
employment, or service to, the Company Group.
(c) No Unauthorized Use or Disclosure. The Participant agrees to preserve and protect the confidentiality of all Confidential
Information. The Participant agrees that the Participant will not, at any time during the period of the Participant’s employment with, or service
to, the Company Group or thereafter, make any unauthorized disclosure of Confidential Information, or make any use thereof, except, in each
case, in the carrying out of the Participant’s responsibilities to the Company Group. The Participant expressly acknowledges and agrees that the
Participant would inevitably violate the terms of this Section 10 if the Participant breaches any of the provisions of Section 11. The Participant
shall use commercially reasonable efforts to cause all persons or entities to whom the Participant discloses any Confidential Information to
preserve and protect the confidentiality of such Confidential Information. The Participant shall have no obligation hereunder to keep
confidential any Confidential Information if and to the extent disclosure thereof is specifically required by applicable law; provided, however,
that in the event disclosure is required by applicable law and the Participant is making such disclosure, the Participant shall provide the
Company with prompt notice of such requirement (which such notice shall be received by the Company no later than 48 hours after the
Participant is informed of such requirement) prior to making any such disclosure, so that the Company may seek an appropriate protective
order.
(d) Permitted Disclosures. Notwithstanding the foregoing, nothing herein will prevent the Participant from: (i) making a good
faith report of possible violations of applicable law to any governmental agency or entity; or (ii) making disclosures that are protected under the
whistleblower provisions of applicable law. Further, an individual shall not be held criminally or civilly liable under any federal or state trade
secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state or local government official, either directly or
indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a
complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for
retaliation by an employer of reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the
trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal; and (y) does not
disclose the trade secret, except pursuant to court order.
11. Non-Competition; Non-Solicitation.
(a) The Participant and the Company agree to the non-competition and non-solicitation provisions of this Section 11 in order to
protect the Confidential Information provided to the Participant or developed by the Participant for any member of the Company Group, and to
protect the Company Group’s legitimate business interests (including the goodwill the Participant has helped build, and that the Participant will
continue to help build, during the Participant’s service relationship with the Company Group) and as an express incentive for the Company to
provide the Participant with Confidential Information and to enter into this Agreement. For the avoidance of doubt, the Participant expressly
acknowledges and agrees that this Award (x) further aligns the Participant’s interests with the Company’s long-term business interests, (y)
enhances the Company’s goodwill and (z) creates an additional incentive for the Participant to build the Company’s goodwill, thus increasing
the value of the Company’s interest that is worthy of protection through the non-solicitation provisions of this Section 11.
(b) Non-Competition Covenants.
(i) The Participant covenants and agrees that during the period of the Participant’s employment with, or service to, the
Company Group and continuing through the date that is 12 months after the date that the Participant is no longer providing employed by, or
providing services to, any member of the Company Group (the “Prohibited Period”), the Participant will not directly or indirectly (other than
on behalf of a member of the Company Group) engage or carry on in the business in which the Company Group is engaged and for which the
Participant has responsibility during the period of the Participant’s employment with, or service to, the Company Group, which business
includes, without limitation, the business of comprehensive oilfield services, including directional drilling, pressure control, pressure pumping
and wireline (the “Business”) within the States of Kansas, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming
(the “Restricted Area”) (or with responsibilities that relate to the Restricted Area) in any capacity in which the Participant is employed,
performs services or otherwise has duties that are the same as, or are similar to, those performed by the Participant for any member of the
Company Group.
(ii) Nothing in the foregoing Section 11(b)(i) will prevent the Participant from owning an aggregate of not more than
1% of the outstanding stock or other equity securities of any class of any corporation or other entity engaged in the Business, if such stock or
equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market by a member of a national
securities exchange, so long as neither the Participant nor any of the Participant’s affiliates has the power, directly or indirectly, to control or
direct the management or affairs of any such corporation or entity and is not involved in the management of such corporation or entity.
(c) Non-Solicitation Covenants. The Participant covenants and agrees that during the Prohibited Period, the Participant will not
directly or indirectly (other than on behalf of a member of the Company Group): (i) engage or employ, or solicit or contact with a view to the
engagement or employment of, any person who is an officer or employee of any member of the Company Group; or (ii) canvass, solicit,
approach or entice away or cause to be canvassed, solicited, approached or enticed away from the Company Group any of the Company
Group’s customers about which the Participant obtained Confidential Information, with whom or which the Participant had contact, or for
whom or which the Participant had responsibility on behalf of any member of the Company Group.
(d) Relief. The Participant and the Company agree and acknowledge that the limitations as to time, geography, and scope of
activity to be restrained as set forth in Section 11 are reasonable in all respects, not adverse to the public welfare, and do not impose any greater
restraint than is necessary to protect the legitimate business interests of the Company Group, including the protection of its Confidential
Information, trade secrets and goodwill. The Participant and the Company also acknowledge that money damages would not be a sufficient
remedy for any breach or threatened breach of Section 10 or 11 by the Participant, and in the event of any such breach or threatened breach, the
Company shall be entitled to enforce the provisions of Section 10 and 11 by causing the Participant to immediately forfeit to the Company,
without consideration, any unvested portion of this Award and obtaining specific performance, injunctive relief and other equitable relief,
without bond, as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of
Section 10 or 11 , but shall be in addition to all remedies available at law or in equity, including the recovery of damages from the Participant
and the Participant’s agents.
(e) Reformation. The Participant hereby represents to the Company that the Participant has read and understands, and agrees to
be bound by, the terms of this Section 11. It is the desire and intent of the parties that the provisions of this Section 11 be enforced to the fullest
extent permitted under any applicable laws, whether now or hereafter in effect. The Company and the Participant agree that the foregoing
restrictions are reasonable under the circumstances and that any breach of the covenants contained in this Section 11 would cause irreparable
injury to the Company Group. Nevertheless, if any of the aforesaid restrictions (or any portions thereof) are found by a court of competent
jurisdiction to be unreasonable, overly broad, or otherwise unenforceable, the parties intend for the restrictions herein (and portions thereof) set
forth to be modified by the court making such determination so as to be reasonable and enforceable and, as so modified, to be fully enforced.
By agreeing to this contractual modification prospectively at this time, the Company and the Participant intend to make this provision
enforceable under all applicable laws so that the entire non-competition and non-solicitation agreement of this Section 11 and this entire
Agreement as prospectively modified shall remain in full force and effect and shall not be rendered void or illegal.
12. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the
Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such
person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal
representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such
form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with
respect to Earned PSUs.
13. No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the PSUs
thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a
continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any
such Affiliate, or any other entity to terminate such employment or other service relationship at any time. The grant of the PSUs is a one-time
benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future
Awards will be granted at the sole discretion of the Company.
14. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or
delivered to the Participant at the address for the Participant indicated on the signature page to this Agreement (as such address may be updated
by the Participant providing written notice to such effect to the Company). Any notice that is delivered personally or by overnight courier or
telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if
such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein
provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the
recipient, on the fourth day after the day it is so placed in the mail.
15. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to
the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but
not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly
reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic
delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access.
The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for
delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is
the same as, and shall have the same force and effect as, his or her manual signature.
16. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company
to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter
hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the PSUs
granted hereby; provided¸ however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any
employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of
the date a determination is to be made under this Agreement. Without limiting the scope of the preceding sentence, except as provided therein,
all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no
further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not
inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that
materially reduces the rights of the Participant shall be effective only if it is in writing and signed by both the Participant and an authorized
officer of the Company. Notwithstanding the foregoing, the parties expressly acknowledge and agree that this Agreement does not supersede or
replace, but instead complements and is in addition to, all agreements and obligations that the Participant has with or to any member of the
Company Group (whether contained in a prior written agreement, at common law, by statute or otherwise) with regard to (a) confidentiality and
the non-use, non-disclosure, return and protection of trade secrets, confidential and proprietary information and materials and Company Group
property and (b) non-competition, or non-solicitation of officers, employees or customers.
18. Severability; Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of
this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to
exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of
such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or
condition giving rise to such rights continues.
19. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required
by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, any Securities and Exchange Commission rule or any applicable securities exchange listing standards and/or (b) any policy that may be
adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment
and/or cancellation to the extent necessary to comply with such law(s) and/or policy.
20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof.
21. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This
Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set
forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators
and the person(s) to whom the PSUs may be transferred by will or the laws of descent or distribution.
22. Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement.
23. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document
format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
24. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the PSUs granted pursuant to this Agreement are
intended to be exempt from the applicable requirements of Section 409A of the Code, as amended from time to time, including the guidance
and regulations promulgated thereunder and successor provisions, guidance and regulations thereto (the “Nonqualified Deferred
Compensation Rules”), and shall be construed and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee
determines that the PSUs may not be exempt from the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a
“specified employee” within the meaning of the Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when
the Participant becomes eligible for settlement of the PSUs upon his “separation from service” within the meaning of the Nonqualified
Deferred Compensation Rules, then to the extent necessary to prevent any accelerated or additional tax under the Nonqualified Deferred
Compensation Rules, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation
from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the
PSUs provided under this Agreement are exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall
the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the
Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.
25.
EXHIBIT B
PERFORMANCE GOALS FOR PERFORMANCE SHARE UNITS
The performance goals for the PSUs shall be based on (i) the relative total stockholder return (“Relative TSR”) ranking of the Company
as compared to the Company’s Performance Peer Group during the Performance Period and (ii) the Company’s absolute total stockholder
return (“Absolute TSR”) during the Performance Period.
QUINTANA ENERGY SERVICES INC.
2018 LONG TERM INCENTIVE PLAN
PERFORMANCE SHARE UNIT GRANT NOTICE
(Executive Officers – 2019 Form)
Pursuant to the terms and conditions of the Quintana Energy Services Inc. 2018 Long Term Incentive Plan, as amended from time to
time (the “Plan”), Quintana Energy Services Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the
number of performance share units (the “PSUs”) set forth below. This award of PSUs (this “Award”) is subject to the terms and conditions set
forth herein and in the Performance Share Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant:
________________
Date of Grant:
________________
Award Type and Description:
Other Stock-Based Award granted pursuant to Section 6(h) of the Plan. This Award represents the
right to receive shares of Stock in an amount up to ___% of the Target PSUs (defined below),
subject to the terms and conditions set forth herein and in the Agreement.
Following the Committee’s certification of the level of achievement with respect to the
Performance Goals (defined below), a portion of the Target PSUs ranging from ___% to ___% of
the Target PSUs shall be deemed “Earned PSUs.” Thereafter, your right to receive settlement of the
Earned PSUs shall vest and become nonforfeitable upon your satisfaction of the continued
employment or service requirements described below under “Service Requirement.”
Target Number of PSUs:
________________ (the “Target PSUs”).
Performance Period:
Performance Goals:
Service Requirement:
________________
________________ (the “Performance Period End Date”).
“Performance
(the
Period Commencement Date”)
through
The “Performance Goals” are based on (i) the Company’s achievement with respect to relative
total stockholder return and (ii) the performance of management and the Company as determined in
the sole discretion of the Committee, in each case, as described in Exhibit B attached hereto.
Except as expressly provided in Section 3 of the Agreement, you must remain continuously
employed by, or continuously provide services to, the Company or an Affiliate, as applicable, from
the Date of Grant through the following dates in order to receive settlement of the specified number
of Earned PSUs: ________________.
Settlement:
Settlement of the Earned PSUs shall be made solely in shares of Stock, which shall be delivered to
you in accordance with Section 4 of the Agreement.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Performance Share
Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their
entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive
and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or
this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile
counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the
Participant has executed this Grant Notice, effective for all purposes as provided above.
COMPANY
Quintana Energy Services Inc.
By:
Name: Rogers Herndon
Its: Chief Executive Officer and President
PARTICIPANT
Name:
EXHIBIT A
PERFORMANCE SHARE UNIT AGREEMENT
This Performance Share Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is
made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Quintana Energy Services Inc., a
Delaware corporation (the “Company”), and (the “Participant”). Capitalized terms used but not specifically defined herein shall have the
meanings specified in the Plan or the Grant Notice.
1.
Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or its
Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date
of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the target number of PSUs set forth
in the Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by
reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall
control. To the extent earned and vested, each PSU represents the right to receive one share of Stock, subject to the terms and conditions set
forth in the Grant Notice, this Agreement and the Plan; provided, however, that, depending on the level of performance determined to be
attained with respect to the Performance Goal, the number of shares of Stock that may be earned hereunder in respect of this Award may range
from ___% to ___% of the Target PSUs. Unless and until the PSUs have become earned and vested in accordance with this Agreement, the
Participant will have no right to receive any shares of Stock or other payments in respect of the PSUs. Prior to settlement of this Award, the
PSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.
2. Earning and Vesting of PSUs. Except as otherwise set forth in Section 3, the PSUs shall become Earned PSUs based on the extent
to which the Company has satisfied the Performance Goals set forth in the Grant Notice, which shall be determined by the Committee in its
sole discretion following the end of the Performance Period as described in Exhibit B attached hereto. Any PSUs that do not become Earned
PSUs shall be automatically forfeited. Once the number of Earned PSUs has been determined, the Participant must satisfy the Service
Requirement as set forth in the Grant Notice or pursuant to Section 3 in order for such Earned PSUs to vest and become nonforfeitable. Any
Earned PSUs that do not vest and become nonforfeitable shall automatically be forfeited. Unless and until the PSUs have become Earned PSUs
and the Service Requirement with respect to such Earned PSUs has been satisfied in accordance with this Section 2 or Section 3, the Participant
will have no right to receive any dividends or other distribution with respect to the PSUs.
3. Effect of Termination of Employment or Service.
(a) Termination of Employment or Service Relationship due to Death or Disability.
(i) Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate
due to the Participant’s “Disability” (as defined in the employment agreement between the Participant and the Company (as amended from time
to time, the “Employment Agreement”)) or death that occurs prior to the Performance Period End Date, then a number of PSUs equal to ___%
of the Target PSUs shall be deemed Earned PSUs and the Participant shall be deemed to have satisfied the Service Requirement with respect to
such Earned PSUs as of the date of termination.
(ii) Upon the termination of the Participant’s employment or other service relationship with the Company or an
Affiliate due to the Participant’s Disability or death that occurs on or following the Performance Period End Date, the Participant shall be
deemed to have satisfied the Service Requirement with respect to all Earned PSUs as of the date of termination.
(b) Termination of Employment or Service Relationship by the Company other than for Cause or by the Participant for Good
Reason.
(i) Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate
(A) by the Company or such Affiliate without “Cause” (as defined in the Employment Agreement) (and not due to death, Disability or non-
renewal of the term of the Employment Agreement) or (B) by the Participant for “Good Reason” (as defined in the Employment Agreement), in
each case, that occurs prior to the Performance Period End Date, then, provided that the Participant executes within the time provided to do so
(and does not revoke within any time provided to do so) a release of claims in a form acceptable to the Committee, a number of PSUs equal to
___% of the Target PSUs (or, if such termination occurs during the “Protection Period” (as defined below), ___% of the Target PSUs) shall be
deemed Earned PSUs and the Participant shall be deemed to have satisfied the Service Requirement with respect to such Earned PSUs as of the
date of termination (or, if such termination occurs during the Protection Period, as of the later of the date of a Change in Control or the date of
such termination). For purposes of this Agreement, “Protection Period” means the period of time beginning on the date that is six months prior
to the date of a Change in Control and ending on the first anniversary of the date of such Change in Control.
(ii) Upon the termination of the Participant’s employment or other service relationship with the Company or an
Affiliate (A) by the Company or such Affiliate without Cause (and not due to death, Disability or non-renewal of the term of the Employment
Agreement) or (B) by the Participant for Good Reason, in each case, that occurs on or following the Performance Period End Date, then,
provided that the Participant executes within the time provided to do so (and does not revoke within any time provided to do so) a release of
claims in a form acceptable to the Committee, the Participant shall be deemed to have satisfied the Service Requirement with respect to all
Earned PSUs as of the date of termination.
(c) Other Termination of Employment or Service. Except as otherwise provided in Section 3(a) or 3(b), upon the termination of
the Participant’s employment or other service relationship with the Company or an Affiliate for any reason, any unearned PSUs (and all rights
arising from such PSUs and from being a holder thereof) and any Earned PSUs for which the Service Requirement has not been satisfied will
terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
4. Settlement of Earned PSUs. As soon as administratively practicable following the date that the Participant satisfies the Service
Requirement with respect to any Earned PSUs, but in no event later than 60 days following the date the Service Requirement is satisfied, the
Company shall deliver to the Participant (or the Participant’s permitted transferee, if applicable), a number of shares of Stock equal to the
number of Earned PSUs for which the Service Requirement has been satisfied; provided, however, that any fractional PSU that becomes earned
hereunder shall be rounded down at the time shares of Stock are issued in settlement of such PSU. No fractional shares of Stock, nor the cash
value of any fractional shares of Stock, shall be issuable or payable to the Participant pursuant to this Agreement. All shares of Stock, if any,
issued hereunder shall be delivered either by delivering one or more certificates for such shares of Stock to the Participant or by entering such
shares of Stock in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Stock shall not bear any
interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this Agreement shall be
construed to create a trust or a funded or secured obligation of any kind.
5. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the
Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the
satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include
the delivery of cash or cash equivalents, shares of Stock (including previously owned shares of Stock, net settlement, a broker-assisted sale, or
other cashless withholding or reduction of the amount of shares of Stock otherwise issuable or delivered pursuant to this Award), other
property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the
surrender of previously owned shares of Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the
number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of
such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll
taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the
Committee. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or
disposition of the underlying shares of Stock and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The
Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their
respective managers, directors, officers, employees or authorized representatives (including, without limitation, attorneys, accountants,
consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.
6. Non-Transferability. During the lifetime of the Participant, the PSUs may not be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent and distribution, unless and until the shares of Common Stock underlying the PSUs have been
issued, and all restrictions applicable to such shares have lapsed. Neither the PSUs nor any interest or right therein shall be liable for the debts,
contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law
by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
7. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of
Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the
requirements of any stock exchange or market system upon which the shares of Stock may then be listed. No shares of Stock will be issued
hereunder if such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market
system upon which the shares of Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration
statement under the Securities Act of 1933, as amended, is in effect at the time of such issuance with respect to the shares of Stock to be issued
or (b) in the opinion of legal counsel to the Company, the shares of Stock to be issued are permitted to be issued in accordance with the terms of
an applicable exemption from the registration requirements of the Securities Act of 1933, as amended. The inability of the Company to obtain
from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful
issuance and sale of any shares of Stock hereunder will relieve the Company of any liability in respect of the failure to issue such shares of
Stock as to which such requisite authority has not been obtained. As a condition to any issuance of shares of Stock hereunder, the Company
may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.
8. Legends. If a stock certificate is issued with respect to shares of Stock issued hereunder, such certificate shall bear such legend or
legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the
terms and provisions of this Agreement, the rules, regulations and other requirements of the Securities and Exchange Commission, any
applicable laws or the requirements of any stock exchange on which the shares of Stock are then listed. If the shares of Stock issued hereunder
are held in book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.
9. Rights as a Stockholder; Dividend Equivalents.
(a) The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become
deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be
made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise
specifically provided for in the Plan or this Agreement (including Section 9(b)).
(b) Each PSU subject to this Award is hereby granted in tandem with a corresponding dividend equivalent (“DER”), which
DER shall remain outstanding from the Date of Grant until the earlier of the settlement or forfeiture of the PSU to which the DER corresponds.
Each vested DER entitles the Participant to receive payments, subject to and in accordance with this Agreement, in an amount equal to any
dividends paid by the Company in respect of the share of Stock underlying the PSU to which such DER relates. The Company shall establish,
with respect to each PSU, a separate DER bookkeeping account for such PSU (a “DER Account”), which shall be credited (without interest) on
the applicable dividend payment dates with an amount equal to any dividends paid during the period that such PSU remains outstanding with
respect to the share of Stock underlying the PSU to which such DER relates. Upon the date that the Service Requirement is satisfied with
respect to a Earned PSU, the DER (and the DER Account) with respect to such Earned PSU shall become vested. Similarly, upon the forfeiture
of a PSU (regardless of whether such forfeiture occurs because such PSU did not become an Earned PSU or such PSU was an Earned PSU that
did not vest and become nonforfeitable), the DER (and the DER Account) with respect to such forfeited PSU shall also be forfeited. DERs shall
not entitle the Participant to any payments relating to dividends paid after the earlier to occur of the date that the applicable Earned PSU is
settled in accordance with Section 4 or the forfeiture of the PSU underlying such DER. Payments with respect to vested DERs shall be made as
soon as practicable, and within 60 days, after the date that such DER vests. The Participant shall not be entitled to receive any interest with
respect to the payment of DERs.
10. Protection of Information.
(a) Disclosure to and Property of the Company Group. All information, trade secrets, designs, ideas, concepts, improvements,
product developments, discoveries and inventions, whether patentable or not, that are conceived, made, developed or acquired by, or disclosed
to, the Participant, individually or in conjunction with others, during the period of the Participant’s employment with, or service to, the
Company or its Affiliates (collectively, the “Company Group”) (whether during business hours or otherwise and whether on a Company Group
member’s premises or otherwise) that relate to the business or trade secrets of any member of the Company Group (including, without
limitation, all such information relating to corporate opportunities, strategies, product specifications, compositions, manufacturing and
distribution methods and processes, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key contacts within the customer’s organizations or within the
organization of acquisition prospects, or exploration, production, marketing and merchandising techniques, prospective names and marks) and
all writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other
similar forms of expression (collectively, “Confidential Information”) are and shall be the sole and exclusive property of the Company Group.
On the date of termination of the Participant’s employment or other service relationship with the Company Group and at any other time upon
the request of any member of the Company Group, the Participant shall surrender and deliver to the Company Group all documents (including
all electronically stored information) and all copies thereof and all other materials of any nature containing or pertaining to all Confidential
Information in the Participant’s possession, custody and control and shall not retain any such document or other materials or copies thereof.
Within 10 days of any such request, the Participant shall certify to the Company Group in writing that all such documents and materials have
been returned to the Company Group. Notwithstanding any provision of this Section 10(a) to the contrary, the term Confidential Information
does not include (i) any information that, at the time of disclosure by a member of the Company Group, is available to the public other than as a
result of any unauthorized act of the Participant, or (ii) any information that becomes available to the Participant on a non-confidential basis
from a source other than the members of the Company Group or any of their respective directors, officers, employees, agents or advisors;
provided, that such source is not known by the Participant to be bound by a confidentiality agreement with, or other obligation of
confidentiality to, a member of the Company Group regarding such information.
(b) Disclosure to the Participant. The Participant expressly acknowledges and agrees that the Participant has obtained
Confidential Information during the period of the Participant’s employment with, or service to, the Company Group and the parties
acknowledge and agree that the Participant will be provided with additional Confidential Information in the course of the Participant’s future
employment, or service to, the Company Group.
(c) No Unauthorized Use or Disclosure. The Participant agrees to preserve and protect the confidentiality of all Confidential
Information. The Participant agrees that the Participant will not, at any time during the period of the Participant’s employment with, or service
to, the Company Group or thereafter, make any unauthorized disclosure of Confidential Information, or make any use thereof, except, in each
case, in the carrying out of the Participant’s responsibilities to the Company Group. The Participant expressly acknowledges and agrees that the
Participant would inevitably violate the terms of this Section 10 if the Participant breaches any of the provisions of Section 11. The Participant
shall use commercially reasonable efforts to cause all persons or entities to whom the Participant discloses any Confidential Information to
preserve and protect the confidentiality of such Confidential Information. The Participant shall have no obligation hereunder to keep
confidential any Confidential Information if and to the extent disclosure thereof is specifically required by applicable law; provided, however,
that in the event disclosure is required by applicable law and the Participant is making such disclosure, the Participant shall provide the
Company with prompt notice of such requirement (which such notice shall be received by the Company no later than 48 hours after the
Participant is informed of such requirement) prior to making any such disclosure, so that the Company may seek an appropriate protective
order.
(d) Permitted Disclosures. Notwithstanding the foregoing, nothing herein will prevent the Participant from: (i) making a good
faith report of possible violations of applicable law to any governmental agency or entity; or (ii) making disclosures that are protected under the
whistleblower provisions of applicable law. Further, an individual shall not be held criminally or civilly liable under any federal or state trade
secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state or local government official, either directly or
indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a
complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for
retaliation by an employer of reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the
trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal; and (y) does not
disclose the trade secret, except pursuant to court order.
11. Non-Competition; Non-Solicitation.
(a) The Participant and the Company agree to the non-competition and non-solicitation provisions of this Section 11 in order to
protect the Confidential Information provided to the Participant or developed by the Participant for any member of the Company Group, and to
protect the Company Group’s legitimate business interests (including the goodwill the Participant has helped build, and that the Participant will
continue to help build, during the Participant’s service relationship with the Company Group) and as an express incentive for the Company to
provide the Participant with Confidential Information and to enter into this Agreement. For the avoidance of doubt, the Participant expressly
acknowledges and agrees that this Award (x) further aligns the Participant’s interests with the Company’s long-term business interests, (y)
enhances the Company’s goodwill and (z) creates an additional incentive for the Participant to build the Company’s goodwill, thus increasing
the value of the Company’s interest that is worthy of protection through the non-solicitation provisions of this Section 11.
(b) Non-Competition Covenants.
(i) The Participant covenants and agrees that during the period of the Participant’s employment with, or service to, the
Company Group and continuing through the date that is 12 months after the date that the Participant is no longer providing employed by, or
providing services to, any member of the Company Group (the “Prohibited Period”), the Participant will not directly or indirectly (other than
on behalf of a member of the Company Group) engage or carry on in the business in which the Company Group is engaged and for which the
Participant has responsibility during the period of the Participant’s employment with, or service to, the Company Group, which business
includes, without limitation, the business of comprehensive oilfield services, including directional drilling, pressure control, pressure pumping
and wireline (the “Business”) within the States of Kansas, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming
(the “Restricted Area”) (or with responsibilities that relate to the Restricted Area) in any capacity in which the Participant is employed,
performs services or otherwise has duties that are the same as, or are similar to, those performed by the Participant for any member of the
Company Group.
(ii) Nothing in the foregoing Section 11(b)(i) will prevent the Participant from owning an aggregate of not more than
1% of the outstanding stock or other equity securities of any class of any corporation or other entity engaged in the Business, if such stock or
equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market by a member of a national
securities exchange, so long as neither the Participant nor any of the Participant’s affiliates has the power, directly or indirectly, to control or
direct the management or affairs of any such corporation or entity and is not involved in the management of such corporation or entity.
(c) Non-Solicitation Covenants. The Participant covenants and agrees that during the Prohibited Period, the Participant will not
directly or indirectly (other than on behalf of a member of the Company Group): (i) engage or employ, or solicit or contact with a view to the
engagement or employment of, any person who is an officer or employee of any member of the Company Group; or (ii) canvass, solicit,
approach or entice away or cause to be canvassed, solicited, approached or enticed away from the Company Group any of the Company
Group’s customers about which the Participant obtained Confidential Information, with whom or which the Participant had contact, or for
whom or which the Participant had responsibility on behalf of any member of the Company Group.
(d) Relief. The Participant and the Company agree and acknowledge that the limitations as to time, geography, and scope of
activity to be restrained as set forth in Section 11 are reasonable in all respects, not adverse to the public welfare, and do not impose any greater
restraint than is necessary to protect the legitimate business interests of the Company Group, including the protection of its Confidential
Information, trade secrets and goodwill. The Participant and the Company also acknowledge that money damages would not be a sufficient
remedy for any breach or threatened breach of Section 10 or 11 by the Participant, and in the event of any such breach or threatened breach, the
Company shall be entitled to enforce the provisions of Section 10 and 11 by causing the Participant to immediately forfeit to the Company,
without consideration, any unvested portion of this Award and obtaining specific performance, injunctive relief and other equitable relief,
without bond, as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of
Section 10 or 11 , but shall be in addition to all remedies available at law or in equity, including the recovery of damages from the Participant
and the Participant’s agents.
(e) Reformation. The Participant hereby represents to the Company that the Participant has read and understands, and agrees to
be bound by, the terms of this Section 11. It is the desire and intent of the parties that the provisions of this Section 11 be enforced to the fullest
extent permitted under any applicable laws, whether now or hereafter in effect. The Company and the Participant agree that the foregoing
restrictions are reasonable under the circumstances and that any breach of the covenants contained in this Section 11 would cause irreparable
injury to the Company Group. Nevertheless, if any of the aforesaid restrictions (or any portions thereof) are found by a court of competent
jurisdiction to be unreasonable, overly broad, or otherwise unenforceable, the parties intend for the restrictions herein (and portions thereof) set
forth to be modified by the court making such determination so as to be reasonable and enforceable and, as so modified, to be fully enforced.
By agreeing to this contractual modification prospectively at this time, the Company and the Participant intend to make this provision
enforceable under all applicable laws so that the entire non-competition and non-solicitation agreement of this Section 11 and this entire
Agreement as prospectively modified shall remain in full force and effect and shall not be rendered void or illegal.
12. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the
Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such
person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal
representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such
form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with
respect to Earned PSUs.
13. No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the PSUs
thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a
continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any
such Affiliate, or any other entity to terminate such employment or other service relationship at any time. The grant of the PSUs is a one-time
benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future
Awards will be granted at the sole discretion of the Company.
14. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or
delivered to the Participant at the address for the Participant indicated on the signature page to this Agreement (as such address may be updated
by the Participant providing written notice to such effect to the Company). Any notice that is delivered personally or by overnight courier or
telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if
such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein
provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the
recipient, on the fourth day after the day it is so placed in the mail.
15. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to
the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but
not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly
reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic
delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access.
The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for
delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is
the same as, and shall have the same force and effect as, his or her manual signature.
16. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company
to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter
hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the PSUs
granted hereby; provided¸ however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any
employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of
the date a determination is to be made under this Agreement, including but not limited to the Employment Agreement. Without limiting the
scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating
to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this
Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the
Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall be effective only if it is in writing and
signed by both the Participant and an authorized officer of the Company. Notwithstanding the foregoing, the parties expressly acknowledge and
agree that this Agreement does not supersede or replace, but instead complements and is in addition to, all agreements and obligations that the
Participant has with or to any member of the Company Group (whether contained in a prior written agreement, at common law, by statute or
otherwise) with regard to (a) confidentiality and the non-use, non-disclosure, return and protection of trade secrets, confidential and proprietary
information and materials and Company Group property and (b) non-competition, or non-solicitation of officers, employees or customers.
18. Severability; Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of
this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to
exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of
such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or
condition giving rise to such rights continues.
19. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required
by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, any Securities and Exchange Commission rule or any applicable securities exchange listing standards and/or (b) any policy that may be
adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment
and/or cancellation to the extent necessary to comply with such law(s) and/or policy.
20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof.
21. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This
Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set
forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators
and the person(s) to whom the PSUs may be transferred by will or the laws of descent or distribution.
22. Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement.
23. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document
format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
24. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the PSUs granted pursuant to this Agreement are
intended to be exempt from the applicable requirements of Section 409A of the Code, as amended from time to time, including the guidance
and regulations promulgated thereunder and successor provisions, guidance and regulations thereto (the “Nonqualified Deferred
Compensation Rules”), and shall be construed and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee
determines that the PSUs may not be exempt from the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a
“specified employee” within the meaning of the Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when
the Participant becomes eligible for settlement of the PSUs upon his “separation from service” within the meaning of the Nonqualified
Deferred Compensation Rules, then to the extent necessary to prevent any accelerated or additional tax under the Nonqualified Deferred
Compensation Rules, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation
from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the
PSUs provided under this Agreement are exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall
the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the
Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.
25.
EXHIBIT B
PERFORMANCE GOALS FOR PERFORMANCE SHARE UNITS
The performance goals for the PSUs shall be based on (i) the relative total stockholder return (“Relative TSR”) ranking of the Company
as compared to the Company’s Performance Peer Group during the Performance Period and (ii) the performance of management and the
Company during the Performance Period, as determined in the sole discretion of the Committee (“Discretionary Performance”).
QUINTANA ENERGY SERVICES INC.
2018 LONG TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
(Executive Officers)
Pursuant to the terms and conditions of the Quintana Energy Services Inc. 2018 Long Term Incentive Plan, as amended from time to
time (the “Plan”), Quintana Energy Services Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the
number of Restricted Stock Units (the “RSUs”) set forth below. This award of RSUs (this “Award”) is subject to the terms and conditions set
forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant:
________________
Date of Grant:
________________
Total Number of Restricted Stock
Units:
________________
Vesting Commencement Date:
________________
Vesting Schedule:
Except as expressly provided in Section 3 of the Agreement, the RSUs shall vest in accordance
with the following schedule: ________________.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit
Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety
and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and
final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this
Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile
counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the
Participant has executed this Grant Notice, effective for all purposes as provided above.
COMPANY
Quintana Energy Services Inc.
By:
Name: Rogers Herndon
Its: Chief Executive Officer and President
PARTICIPANT
Name:
EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made
as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Quintana Energy Services Inc., a
Delaware corporation (the “Company”), and ________________ (the “Participant”). Capitalized terms used but not specifically defined herein
shall have the meanings specified in the Plan or the Grant Notice.
1.
Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or its
Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date
of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the number of RSUs set forth in the
Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference
as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the
extent vested, each RSU represents the right to receive one share of Stock, subject to the terms and conditions set forth in the Grant Notice, this
Agreement and the Plan. Unless and until the RSUs have become vested in accordance with this Agreement, the Participant will have no right
to receive any Stock or other payments in respect of the RSUs, except as otherwise specifically provided for in the Plan or this Agreement
(including Section 9(b)). Prior to settlement of this Award, the RSUs and this Award represent an unsecured obligation of the Company,
payable only from the general assets of the Company.
2. Vesting of RSUs. Except as otherwise set forth in Section 3, the RSUs shall vest in accordance with the vesting schedule set forth
in the Grant Notice. Unless and until the RSUs have vested in accordance with such vesting schedule, the Participant will have no right to
receive any dividends or other distribution with respect to the RSUs.
3. Effect of Termination of Employment or Service.
(a) Termination of Employment or Service Relationship due to Death or Disability. Upon the termination of the Participant’s
employment or other service relationship with the Company or an Affiliate due to the Participant’s “Disability” (as defined in the employment
agreement between the Participant and the Company (as amended from time to time, the “Employment Agreement”)) or death, all unvested
RSUs shall immediately become fully vested as of the date of termination.
(b) Termination of Employment or Service Relationship by the Company other than for Cause or by the Participant for Good
Reason.
(i) Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate
(A) by the Company or such Affiliate without “Cause” (as defined in the Employment Agreement) (and not due to death, Disability or non-
renewal of the term of the Employment Agreement) or (B) by the Participant for “Good Reason” (as defined in the Employment Agreement), in
each case, that does not occur during the “Protection Period” (as defined below), then, provided that the Participant executes within the time
provided to do so (and does not revoke within any time provided to do so) a release of claims in a form acceptable to the Committee, (x) all
unvested RSUs that would have vested on the next applicable vesting date shall immediately become vested as of the date of such termination
and (y) __% of all remaining unvested RSUs after giving effect to clause (x) shall immediately become vested as of the date of such
termination.
(ii) Upon the termination of the Participant’s employment or other service relationship with the Company or an
Affiliate (i) by the Company or such Affiliate without Cause (and not due to death, Disability or non-renewal of the term of the Employment
Agreement) or (ii) by the Participant for Good Reason, in each case, that occurs during the Protection Period, then, provided that the Participant
executes within the time provided to do so (and does not revoke within any time provided to do so) a release of claims in a form acceptable to
the Committee, all unvested RSUs shall immediately become fully vested as of the later of the date of a Change in Control or the date of such
termination.
months prior to the date of a Change in Control and ending on the first anniversary of the date of such Change in Control.
(iii) For purposes of this Agreement, “Protection Period” means the period of time beginning on the date that is six
(c) Other Termination of Employment or Service. Except as otherwise provided in Section 3(a) or 3(b), in the event of the
termination of the Participant’s employment or other service relationship with the Company or an Affiliate for any reason, any unvested RSUs
(and all rights arising from such RSUs and from being a holder thereof) will terminate automatically as of the date of termination without any
further action by the Company and will be forfeited without further notice and at no cost to the Company.
4. Settlement of RSUs. As soon as administratively practicable following the vesting of RSUs pursuant to Section 2 or 3, but in no
event later than 60 days after such vesting date, the Company shall deliver to the Participant a number of shares of Stock equal to the number of
RSUs subject to this Award. All shares of Stock issued hereunder shall be delivered either by delivering one or more certificates for such shares
to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of
Stock shall not bear any interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this
Agreement shall be construed to create a trust or a funded or secured obligation of any kind.
5. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the
Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the
satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include
the delivery of cash or cash equivalents, Stock (including previously owned Stock, net settlement, a broker-assisted sale, or other cashless
withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal
consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously
owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that
have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined
based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without
creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. The Participant
acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying
shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that he is in no
manner relying on the Board, the Committee, the Company or any of its Affiliates or any of their respective managers, directors, officers,
employees or authorized representatives (including, without limitation, attorneys, accountants, consultants, bankers, lenders, prospective
lenders and financial representatives) for tax advice or an assessment of such tax consequences.
6. Non-Transferability. During the lifetime of the Participant, the RSUs may not be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the RSUs have been issued,
and all restrictions applicable to such shares have lapsed. Neither the RSUs nor any interest or right therein shall be liable for the debts,
contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law
by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
7. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of
Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the
requirements of any stock exchange or market system upon which the Stock may then be listed. No shares of Stock will be issued hereunder if
such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration statement under the
Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the
Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any shares of Stock hereunder will relieve the
Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition
to any issuance of Stock hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate
to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as
may be requested by the Company.
8. Legends. If a stock certificate is issued with respect to shares of Stock delivered hereunder, such certificate shall bear such legend
or legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the
terms and provisions of this Agreement, the rules, regulations and other requirements of the Securities and Exchange Commission, any
applicable laws or the requirements of any stock exchange on which the Stock is then listed. If the shares of Stock issued hereunder are held in
book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.
9. Rights as a Stockholder; Dividend Equivalents.
(a) The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become
deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be
made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise
specifically provided for in the Plan or this Agreement (including Section 9(b)).
(b) Each RSU subject to this Award is hereby granted in tandem with a corresponding dividend equivalent (“DER”), which
DER shall remain outstanding from the Date of Grant until the earlier of the settlement or forfeiture of the RSU to which the DER corresponds.
Each vested DER entitles the Participant to receive payments, subject to and in accordance with this Agreement, in an amount equal to any
dividends paid by the Company in respect of the share of Stock underlying the RSU to which such DER relates. The Company shall establish,
with respect to each RSU, a separate DER bookkeeping account for such RSU (a “DER Account”), which shall be credited (without interest)
on the applicable dividend payment dates with an amount equal to any dividends paid during the period that such RSU remains outstanding
with respect to the share of Stock underlying the RSU to which such DER relates. Upon the vesting of an RSU, the DER (and the DER
Account) with respect to such vested RSU shall also become vested. Similarly, upon the forfeiture of a RSU, the DER (and the DER Account)
with respect to such forfeited RSU shall also be forfeited. DERs shall not entitle the Participant to any payments relating to dividends paid after
the earlier to occur of the date that the applicable RSU is settled in accordance with Section 4 or the forfeiture of the RSU underlying such
DER. Payments with respect to vested DERs shall be made as soon as practicable, and within 60 days, after the date that such DER vests. The
Participant shall not be entitled to receive any interest with respect to the payment of DERs.
10. Protection of Information.
(a) Disclosure to and Property of the Company Group. All information, trade secrets, designs, ideas, concepts, improvements,
product developments, discoveries and inventions, whether patentable or not, that are conceived, made, developed or acquired by, or disclosed
to, the Participant, individually or in conjunction with others, during the period of the Participant’s employment with, or service to, the
Company or its Affiliates (collectively, the “Company Group”) (whether during business hours or otherwise and whether on a Company Group
member’s premises or otherwise) that relate to the business or trade secrets of any member of the Company Group (including, without
limitation, all such information relating to corporate opportunities, strategies, product specifications, compositions, manufacturing and
distribution methods and processes, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key contacts within the customer’s organizations or within the
organization of acquisition prospects, or exploration, production, marketing and merchandising techniques, prospective names and marks) and
all writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other
similar forms of expression (collectively, “Confidential Information”) are and shall be the sole and exclusive property of the Company Group.
On the date of termination of the Participant’s employment or other service relationship with the Company Group and at any other time upon
the request of any member of the Company Group, the Participant shall surrender and deliver to the Company Group all documents (including
all electronically stored information) and all copies thereof and all other materials of any nature containing or pertaining to all Confidential
Information in the Participant’s possession, custody and control and shall not retain any such document or other materials or copies thereof.
Within 10 days of any such request, the Participant shall certify to the Company Group in writing that all such documents and materials have
been returned to the Company Group. Notwithstanding any provision of this Section 10(a) to the contrary, the term Confidential Information
does not include (i) any information that, at the time of disclosure by a member of the Company Group, is available to the public other than as a
result of any unauthorized act of the Participant, or (ii) any information that becomes available to the Participant on a non-confidential basis
from a source other than the members of the Company Group or any of their respective directors, officers, employees, agents or advisors;
provided, that such source is not known by the Participant to be bound by a confidentiality agreement with, or other obligation of
confidentiality to, a member of the Company Group regarding such information.
(b) Disclosure to the Participant. The Participant expressly acknowledges and agrees that the Participant has obtained
Confidential Information during the period of the Participant’s employment with, or service to, the Company Group and the parties
acknowledge and agree that the Participant will be provided with additional Confidential Information in the course of the Participant’s future
employment, or service to, the Company Group.
(c) No Unauthorized Use or Disclosure. The Participant agrees to preserve and protect the confidentiality of all Confidential
Information. The Participant agrees that the Participant will not, at any time during the period of the Participant’s employment with, or service
to, the Company Group or thereafter, make any unauthorized disclosure of Confidential Information, or make any use thereof, except, in each
case, in the carrying out of the Participant’s responsibilities to the Company Group. The Participant expressly acknowledges and agrees that the
Participant would inevitably violate the terms of this Section 10 if the Participant breaches any of the provisions of Section 11. The Participant
shall use commercially reasonable efforts to cause all persons or entities to whom the Participant discloses any Confidential Information to
preserve and protect the confidentiality of such Confidential Information. The Participant shall have no obligation hereunder to keep
confidential any Confidential Information if and to the extent disclosure thereof is specifically required by applicable law; provided, however,
that in the event disclosure is required by applicable law and the Participant is making such disclosure, the Participant shall provide the
Company with prompt notice of such requirement (which such notice shall be received by the Company no later than 48 hours after the
Participant is informed of such requirement) prior to making any such disclosure, so that the Company may seek an appropriate protective
order.
(d) Permitted Disclosures. Notwithstanding the foregoing, nothing herein will prevent the Participant from: (i) making a good
faith report of possible violations of applicable law to any governmental agency or entity; or (ii) making disclosures that are protected under the
whistleblower provisions of applicable law. Further, an individual shall not be held criminally or civilly liable under any federal or state trade
secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state or local government official, either directly or
indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a
complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for
retaliation by an employer of reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the
trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal; and (y) does not
disclose the trade secret, except pursuant to court order.
11. Non-Competition; Non-Solicitation.
(a) The Participant and the Company agree to the non-competition and non-solicitation provisions of this Section 11 in order to
protect the Confidential Information provided to the Participant or developed by the Participant for any member of the Company Group, and to
protect the Company Group’s legitimate business interests (including the goodwill the Participant has helped build, and that the Participant will
continue to help build, during the Participant’s service relationship with the Company Group) and as an express incentive for the Company to
provide the Participant with Confidential Information and to enter into this Agreement. For the avoidance of doubt, the Participant expressly
acknowledges and agrees that this Award (x) further aligns the Participant’s interests with the Company’s long-term business interests, (y)
enhances the Company’s goodwill and (z) creates an additional incentive for the Participant to build the Company’s goodwill, thus increasing
the value of the Company’s interest that is worthy of protection through the non-solicitation provisions of this Section 11.
(b) Non-Competition Covenants.
(i) The Participant covenants and agrees that during the period of the Participant’s employment with, or service to, the
Company Group and continuing through the date that is 12 months after the date that the Participant is no longer providing employed by, or
providing services to, any member of the Company Group (the “Prohibited Period”), the Participant will not directly or indirectly (other than
on behalf of a member of the Company Group) engage or carry on in the business in which the Company Group is engaged and for which the
Participant has responsibility during the period of the Participant’s employment with, or service to, the Company Group, which business
includes, without limitation, the business of comprehensive oilfield services, including directional drilling, pressure control, pressure pumping
and wireline (the “Business”) within the States of Kansas, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming
(the “Restricted Area”) (or with responsibilities that relate to the Restricted Area) in any capacity in which the Participant is employed,
performs services or otherwise has duties that are the same as, or are similar to, those performed by the Participant for any member of the
Company Group.
(ii) Nothing in the foregoing Section 11(b)(i) will prevent the Participant from owning an aggregate of not more than
1% of the outstanding stock or other equity securities of any class of any corporation or other entity engaged in the Business, if such stock or
equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market by a member of a national
securities exchange, so long as neither the Participant nor any of the Participant’s affiliates has the power, directly or indirectly, to control or
direct the management or affairs of any such corporation or entity and is not involved in the management of such corporation or entity.
(c) Non-Solicitation Covenants. The Participant covenants and agrees that during the Prohibited Period, the Participant will not
directly or indirectly (other than on behalf of a member of the Company Group): (i) engage or employ, or solicit or contact with a view to the
engagement or employment of, any person who is an officer or employee of any member of the Company Group; or (ii) canvass, solicit,
approach or entice away or cause to be canvassed, solicited, approached or enticed away from the Company Group any of the Company
Group’s customers about which the Participant obtained Confidential Information, with whom or which the Participant had contact, or for
whom or which the Participant had responsibility on behalf of any member of the Company Group.
(d) Relief. The Participant and the Company agree and acknowledge that the limitations as to time, geography, and scope of
activity to be restrained as set forth in Section 11 are reasonable in all respects, not adverse to the public welfare, and do not impose any greater
restraint than is necessary to protect the legitimate business interests of the Company Group, including the protection of its Confidential
Information, trade secrets and goodwill. The Participant and the Company also acknowledge that money damages would not be a sufficient
remedy for any breach or threatened breach of Section 10 or 11 by the Participant, and in the event of any such breach or threatened breach, the
Company shall be entitled to enforce the provisions of Section 10 and 11 by causing the Participant to immediately forfeit to the Company,
without consideration, any unvested portion of this Award and obtaining specific performance, injunctive relief and other equitable relief,
without bond, as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of
Section 10 or 11 , but shall be in addition to all remedies available at law or in equity, including the recovery of damages from the Participant
and the Participant’s agents.
(e) Reformation. The Participant hereby represents to the Company that the Participant has read and understands, and agrees to
be bound by, the terms of this Section 11. It is the desire and intent of the parties that the provisions of this Section 11 be enforced to the fullest
extent permitted under any applicable laws, whether now or hereafter in effect. The Company and the Participant agree that the foregoing
restrictions are reasonable under the circumstances and that any breach of the covenants contained in this Section 11 would cause irreparable
injury to the Company Group. Nevertheless, if any of the aforesaid restrictions (or any portions thereof) are found by a court of competent
jurisdiction to be unreasonable, overly broad, or otherwise unenforceable, the parties intend for the restrictions herein (and portions thereof) set
forth to be modified by the court making such determination so as to be reasonable and enforceable and, as so modified, to be fully enforced.
By agreeing to this contractual modification prospectively at this time, the Company and the Participant intend to make this provision
enforceable under all applicable laws so that the entire non-competition and non-solicitation agreement of this Section 11 and this entire
Agreement as prospectively modified shall remain in full force and effect and shall not be rendered void or illegal.
12. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the
Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such
person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal
representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such
form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with
respect to vested RSUs.
13. No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the RSUs
thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a
continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any
such Affiliate, or any other entity to terminate such employment or other service relationship at any time. The grant of the RSUs is a one-time
benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future
Awards will be granted at the sole discretion of the Company.
14. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or
delivered to the Participant at the address on file with the Company or, in either case, at such other address as one party may subsequently
furnish to the other party in writing. Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein
shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant,
upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have
been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed
in the mail.
15. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to
the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but
not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly
reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic
delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access.
The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for
delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is
the same as, and shall have the same force and effect as, his or her manual signature.
16. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company
to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter
hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the RSUs
granted hereby; provided¸ however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any
employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of
the date a determination is to be made under this Agreement, including but not limited to the Employment Agreement. Without limiting the
scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating
to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this
Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the
Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall be effective only if it is in writing and
signed by both the Participant and an authorized officer of the Company. Notwithstanding the foregoing, the parties expressly acknowledge and
agree that this Agreement does not supersede or replace, but instead complements and is in addition to, all agreements and obligations that the
Participant has with or to any member of the Company Group (whether contained in a prior written agreement, at common law, by statute or
otherwise) with regard to (a) confidentiality and the non-use, non-disclosure, return and protection of trade secrets, confidential and proprietary
information and materials and Company Group property and (b) non-competition, or non-solicitation of officers, employees or customers.
18. Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of
this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to
exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of
such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or
condition giving rise to such rights continues.
19. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required
by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, any Securities and Exchange Commission rule or any applicable securities exchange listing standards and/or (b) any policy that may be
adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment
and/or cancellation to the extent necessary to comply with such law(s) and/or policy.
20. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE
OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.
21. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This
Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set
forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators
and the person(s) to whom the RSUs may be transferred by will or the laws of descent or distribution.
22. Headings. Headings are for convenience only and are not deemed to be part of this Agreement.
23. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document
format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
24. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the RSUs granted pursuant to this Agreement are
intended to be exempt from the applicable requirements of the Nonqualified Deferred Compensation Rules and shall be limited, construed and
interpreted in accordance with such intent. Nevertheless, to the extent that the Committee determines that the RSUs may not be exempt from
the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a “specified employee” within the meaning of the
Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when the Participant becomes eligible for settlement of
the RSUs upon his “separation from service” within the meaning of the Nonqualified Deferred Compensation Rules, then to the extent
necessary to prevent any accelerated or additional tax under the Nonqualified Deferred Compensation Rules, such settlement will be delayed
until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death.
Notwithstanding the foregoing, the Company and its Affiliates make no representations that the RSUs provided under this Agreement are
exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall the Company or any Affiliate be liable for
all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with
the Nonqualified Deferred Compensation Rules.
QUINTANA ENERGY SERVICES INC.
2018 LONG TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
(Employees)
Pursuant to the terms and conditions of the Quintana Energy Services Inc. 2018 Long Term Incentive Plan, as amended from time to
time (the “Plan”), Quintana Energy Services Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the
number of Restricted Stock Units (the “RSUs”) set forth below. This award of RSUs (this “Award”) is subject to the terms and conditions set
forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant:
________________
Date of Grant:
________________
Total Number of Restricted Stock
Units:
________________
Vesting Commencement Date:
________________
Vesting Schedule:
Except as expressly provided in Section 3 of the Agreement, the RSUs shall vest in accordance
with the following schedule: ________________.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit
Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety
and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and
final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this
Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile
counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the
Participant has executed this Grant Notice, effective for all purposes as provided above.
COMPANY
Quintana Energy Services Inc.
By:
Name: Rogers Herndon
Its: Chief Executive Officer and President
PARTICIPANT
Name:
EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made
as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Quintana Energy Services Inc., a
Delaware corporation (the “Company”), and ________________ (the “Participant”). Capitalized terms used but not specifically defined herein
shall have the meanings specified in the Plan or the Grant Notice.
1.
Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or its
Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date
of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the number of RSUs set forth in the
Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference
as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the
extent vested, each RSU represents the right to receive one share of Stock, subject to the terms and conditions set forth in the Grant Notice, this
Agreement and the Plan. Unless and until the RSUs have become vested in accordance with this Agreement, the Participant will have no right
to receive any Stock or other payments in respect of the RSUs, except as otherwise specifically provided for in the Plan or this Agreement
(including Section 9(b)). Prior to settlement of this Award, the RSUs and this Award represent an unsecured obligation of the Company,
payable only from the general assets of the Company.
2. Vesting of RSUs. Except as otherwise set forth in Section 3, the RSUs shall vest in accordance with the vesting schedule set forth
in the Grant Notice. Unless and until the RSUs have vested in accordance with such vesting schedule, the Participant will have no right to
receive any dividends or other distribution with respect to the RSUs.
3. Effect of Termination of Employment or Service.
(a) Termination of Employment or Service Relationship due to Death or Disability. Upon the termination of the Participant’s
employment or other service relationship with the Company or an Affiliate due to the Participant’s “Disability” (as defined in Section 3(d)
below) or death, all unvested RSUs shall immediately become fully vested as of the date of termination.
(b) Termination of Employment or Service Relationship by the Company other than for Cause or by the Participant for Good
Reason. Upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate (i) by the
Company or such Affiliate without “Cause” (as defined in Section 3(d) below) (and not due to death or Disability) or (ii) by the Participant for
“Good Reason” (as defined in Section 3(d) below), then, provided that the Participant executes within the time provided to do so (and does not
revoke within any time provided to do so) a release of claims in a form acceptable to the Committee, (x) all unvested RSUs that would have
vested on the next applicable vesting date shall immediately become vested as of the date of such termination and (y) __% of all remaining
unvested RSUs after giving effect to clause (x) shall immediately become vested as of the date of such termination.
(c) Other Termination of Employment or Service. Except as otherwise provided in Section 3(a) or 3(b), in the event of the
termination of the Participant’s employment or other service relationship with the Company or an Affiliate for any reason, any unvested RSUs
(and all rights arising from such RSUs and from being a holder thereof) will terminate automatically as of the date of termination without any
further action by the Company and will be forfeited without further notice and at no cost to the Company.
(d) Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:
(i) “Cause” means “cause” (or a term of like import) as defined under the Participant’s employment agreement with the
Company or an Affiliate or, in the absence of such an agreement or definition, shall mean a determination by the Company in its sole discretion
that the Participant has: (A) engaged in gross negligence or willful misconduct in the performance of the Participant’s duties with respect to the
Company or an Affiliate, (B) materially breached any material provision of any written agreement between the Participant and the Company or
an Affiliate or corporate policy or code of conduct established by the Company or an Affiliate and applicable to the Participant; (C) willfully
engaged in conduct that is materially injurious to the Company or an Affiliate; or (D) been convicted of, pleaded no contest to or received
adjudicated probation or deferred adjudication in connection with, a felony involving fraud, dishonestly or moral turpitude (or a crime of
similar import in a local, state or foreign jurisdiction).
(ii) “Disability” means “disability” (or a word of like import) as defined under the Participant’s employment agreement
with the Company or an Affiliate or, in the absence of such an agreement or definition, shall mean the Participant’s inability to perform the
Participant’s duties (after accounting for reasonable accommodation, if applicable and required by law) due to any medically determinable
physical or mental impairment that is expected to last for a period of 12 months or longer or to result in death.
(iii) “Good Reason” means “good reason” (or a term of like import) as defined under the Participant’s employment
agreement with the Company or an Affiliate or, in the absence of such an agreement or definition, shall mean a material diminution in the
Participant’s base salary; provided that, in the case of the Participant’s assertion of Good Reason, (1) the condition must have arisen without the
Participant’s consent; (2) the Participant must provide written notice to the Company of the condition in accordance with this Agreement within
45 days of the initial existence of the condition; (3) the condition must remain uncorrected for 30 days after receipt of such notice by the
Company; and (4) the date of termination of the Participant’s employment or other service relationship with the Company or an Affiliate must
occur within 90 days after such notice is received by the Company.
4. Settlement of RSUs. As soon as administratively practicable following the vesting of RSUs pursuant to Section 2 or 3, but in no
event later than 60 days after such vesting date, the Company shall deliver to the Participant a number of shares of Stock equal to the number of
RSUs subject to this Award. All shares of Stock issued hereunder shall be delivered either by delivering one or more certificates for such shares
to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of
Stock shall not bear any interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this
Agreement shall be construed to create a trust or a funded or secured obligation of any kind.
5. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the
Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the
satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include
the delivery of cash or cash equivalents, Stock (including previously owned Stock, net settlement, a broker-assisted sale, or other cashless
withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal
consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously
owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that
have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined
based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without
creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. The Participant
acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying
shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that he is in no
manner relying on the Board, the Committee, the Company or any of its Affiliates or any of their respective managers, directors, officers,
employees or authorized representatives (including, without limitation, attorneys, accountants, consultants, bankers, lenders, prospective
lenders and financial representatives) for tax advice or an assessment of such tax consequences.
6. Non-Transferability. During the lifetime of the Participant, the RSUs may not be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the RSUs have been issued,
and all restrictions applicable to such shares have lapsed. Neither the RSUs nor any interest or right therein shall be liable for the debts,
contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law
by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
7. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of
Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the
requirements of any stock exchange or market system upon which the Stock may then be listed. No shares of Stock will be issued hereunder if
such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration statement under the
Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the
Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any shares of Stock hereunder will relieve the
Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition
to any issuance of Stock hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate
to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as
may be requested by the Company.
8. Legends. If a stock certificate is issued with respect to shares of Stock delivered hereunder, such certificate shall bear such legend
or legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the
terms and provisions of this Agreement, the rules, regulations and other requirements of the Securities and Exchange Commission, any
applicable laws or the requirements of any stock exchange on which the Stock is then listed. If the shares of Stock issued hereunder are held in
book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.
9. Rights as a Stockholder; Dividend Equivalents.
(a) The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become
deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be
made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise
specifically provided for in the Plan or this Agreement (including Section 9(b)).
(b) Each RSU subject to this Award is hereby granted in tandem with a corresponding dividend equivalent (“DER”), which
DER shall remain outstanding from the Date of Grant until the earlier of the settlement or forfeiture of the RSU to which the DER corresponds.
Each vested DER entitles the Participant to receive payments, subject to and in accordance with this Agreement, in an amount equal to any
dividends paid by the Company in respect of the share of Stock underlying the RSU to which such DER relates. The Company shall establish,
with respect to each RSU, a separate DER bookkeeping account for such RSU (a “DER Account”), which shall be credited (without interest)
on the applicable dividend payment dates with an amount equal to any dividends paid during the period that such RSU remains outstanding
with respect to the share of Stock underlying the RSU to which such DER relates. Upon the vesting of an RSU, the DER (and the DER
Account) with respect to such vested RSU shall also become vested. Similarly, upon the forfeiture of a RSU, the DER (and the DER Account)
with respect to such forfeited RSU shall also be forfeited. DERs shall not entitle the Participant to any payments relating to dividends paid after
the earlier to occur of the date that the applicable RSU is settled in accordance with Section 4 or the forfeiture of the RSU underlying such
DER. Payments with respect to vested DERs shall be made as soon as practicable, and within 60 days, after the date that such DER vests. The
Participant shall not be entitled to receive any interest with respect to the payment of DERs.
10. Protection of Information.
(a) Disclosure to and Property of the Company Group. All information, trade secrets, designs, ideas, concepts, improvements,
product developments, discoveries and inventions, whether patentable or not, that are conceived, made, developed or acquired by, or disclosed
to, the Participant, individually or in conjunction with others, during the period of the Participant’s employment with, or service to, the
Company or its Affiliates (collectively, the “Company Group”) (whether during business hours or otherwise and whether on a Company Group
member’s premises or otherwise) that relate to the business or trade secrets of any member of the Company Group (including, without
limitation, all such information relating to corporate opportunities, strategies, product specifications, compositions, manufacturing and
distribution methods and processes, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key contacts within the customer’s organizations or within the
organization of acquisition prospects, or exploration, production, marketing and merchandising techniques, prospective names and marks) and
all writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other
similar forms of expression (collectively, “Confidential Information”) are and shall be the sole and exclusive property of the Company Group.
On the date of termination of the Participant’s employment or other service relationship with the Company Group and at any other time upon
the request of any member of the Company Group, the Participant shall surrender and deliver to the Company Group all documents (including
all electronically stored information) and all copies thereof and all other materials of any nature containing or pertaining to all Confidential
Information in the Participant’s possession, custody and control and shall not retain any such document or other materials or copies thereof.
Within 10 days of any such request, the Participant shall certify to the Company Group in writing that all such documents and materials have
been returned to the Company Group. Notwithstanding any provision of this Section 10(a) to the contrary, the term Confidential Information
does not include (i) any information that, at the time of disclosure by a member of the Company Group, is available to the public other than as a
result of any unauthorized act of the Participant, or (ii) any information that becomes available to the Participant on a non-confidential basis
from a source other than the members of the Company Group or any of their respective directors, officers, employees, agents or advisors;
provided, that such source is not known by the Participant to be bound by a confidentiality agreement with, or other obligation of
confidentiality to, a member of the Company Group regarding such information.
(b) Disclosure to the Participant. The Participant expressly acknowledges and agrees that the Participant has obtained
Confidential Information during the period of the Participant’s employment with, or service to, the Company Group and the parties
acknowledge and agree that the Participant will be provided with additional Confidential Information in the course of the Participant’s future
employment, or service to, the Company Group.
(c) No Unauthorized Use or Disclosure. The Participant agrees to preserve and protect the confidentiality of all Confidential
Information. The Participant agrees that the Participant will not, at any time during the period of the Participant’s employment with, or service
to, the Company Group or thereafter, make any unauthorized disclosure of Confidential Information, or make any use thereof, except, in each
case, in the carrying out of the Participant’s responsibilities to the Company Group. The Participant expressly acknowledges and agrees that the
Participant would inevitably violate the terms of this Section 10 if the Participant breaches any of the provisions of Section 11. The Participant
shall use commercially reasonable efforts to cause all persons or entities to whom the Participant discloses any Confidential Information to
preserve and protect the confidentiality of such Confidential Information. The Participant shall have no obligation hereunder to keep
confidential any Confidential Information if and to the extent disclosure thereof is specifically required by applicable law; provided, however,
that in the event disclosure is required by applicable law and the Participant is making such disclosure, the Participant shall provide the
Company with prompt notice of such requirement (which such notice shall be received by the Company no later than 48 hours after the
Participant is informed of such requirement) prior to making any such disclosure, so that the Company may seek an appropriate protective
order.
(d) Permitted Disclosures. Notwithstanding the foregoing, nothing herein will prevent the Participant from: (i) making a good
faith report of possible violations of applicable law to any governmental agency or entity; or (ii) making disclosures that are protected under the
whistleblower provisions of applicable law. Further, an individual shall not be held criminally or civilly liable under any federal or state trade
secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state or local government official, either directly or
indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a
complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for
retaliation by an employer of reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the
trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal; and (y) does not
disclose the trade secret, except pursuant to court order.
11. Non-Competition; Non-Solicitation.
(a) The Participant and the Company agree to the non-competition and non-solicitation provisions of this Section 11 in order to
protect the Confidential Information provided to the Participant or developed by the Participant for any member of the Company Group, and to
protect the Company Group’s legitimate business interests (including the goodwill the Participant has helped build, and that the Participant will
continue to help build, during the Participant’s service relationship with the Company Group) and as an express incentive for the Company to
provide the Participant with Confidential Information and to enter into this Agreement. For the avoidance of doubt, the Participant expressly
acknowledges and agrees that this Award (x) further aligns the Participant’s interests with the Company’s long-term business interests, (y)
enhances the Company’s goodwill and (z) creates an additional incentive for the Participant to build the Company’s goodwill, thus increasing
the value of the Company’s interest that is worthy of protection through the non-solicitation provisions of this Section 11.
(b) Non-Competition Covenants.
(i) The Participant covenants and agrees that during the period of the Participant’s employment with, or service to, the
Company Group and continuing through the date that is 12 months after the date that the Participant is no longer providing employed by, or
providing services to, any member of the Company Group (the “Prohibited Period”), the Participant will not directly or indirectly (other than
on behalf of a member of the Company Group) engage or carry on in the business in which the Company Group is engaged and for which the
Participant has responsibility during the period of the Participant’s employment with, or service to, the Company Group, which business
includes, without limitation, the business of comprehensive oilfield services, including directional drilling, pressure control, pressure pumping
and wireline (the “Business”) within the States of Kansas, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming
(the “Restricted Area”) (or with responsibilities that relate to the Restricted Area) in any capacity in which the Participant is employed,
performs services or otherwise has duties that are the same as, or are similar to, those performed by the Participant for any member of the
Company Group.
(ii) Nothing in the foregoing Section 11(b)(i) will prevent the Participant from owning an aggregate of not more than
1% of the outstanding stock or other equity securities of any class of any corporation or other entity engaged in the Business, if such stock or
equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market by a member of a national
securities exchange, so long as neither the Participant nor any of the Participant’s affiliates has the power, directly or indirectly, to control or
direct the management or affairs of any such corporation or entity and is not involved in the management of such corporation or entity.
(c) Non-Solicitation Covenants. The Participant covenants and agrees that during the Prohibited Period, the Participant will not
directly or indirectly (other than on behalf of a member of the Company Group): (i) engage or employ, or solicit or contact with a view to the
engagement or employment of, any person who is an officer or employee of any member of the Company Group; or (ii) canvass, solicit,
approach or entice away or cause to be canvassed, solicited, approached or enticed away from the Company Group any of the Company
Group’s customers about which the Participant obtained Confidential Information, with whom or which the Participant had contact, or for
whom or which the Participant had responsibility on behalf of any member of the Company Group.
(d) Relief. The Participant and the Company agree and acknowledge that the limitations as to time, geography, and scope of
activity to be restrained as set forth in Section 11 are reasonable in all respects, not adverse to the public welfare, and do not impose any greater
restraint than is necessary to protect the legitimate business interests of the Company Group, including the protection of its Confidential
Information, trade secrets and goodwill. The Participant and the Company also acknowledge that money damages would not be a sufficient
remedy for any breach or threatened breach of Section 10 or 11 by the Participant, and in the event of any such breach or threatened breach, the
Company shall be entitled to enforce the provisions of Section 10 and 11 by causing the Participant to immediately forfeit to the Company,
without consideration, any unvested portion of this Award and obtaining specific performance, injunctive relief and other equitable relief,
without bond, as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of
Section 10 or 11 , but shall be in addition to all remedies available at law or in equity, including the recovery of damages from the Participant
and the Participant’s agents.
(e) Reformation. The Participant hereby represents to the Company that the Participant has read and understands, and agrees to
be bound by, the terms of this Section 11. It is the desire and intent of the parties that the provisions of this Section 11 be enforced to the fullest
extent permitted under any applicable laws, whether now or hereafter in effect. The Company and the Participant agree that the foregoing
restrictions are reasonable under the circumstances and that any breach of the covenants contained in this Section 11 would cause irreparable
injury to the Company Group. Nevertheless, if any of the aforesaid restrictions (or any portions thereof) are found by a court of competent
jurisdiction to be unreasonable, overly broad, or otherwise unenforceable, the parties intend for the restrictions herein (and portions thereof) set
forth to be modified by the court making such determination so as to be reasonable and enforceable and, as so modified, to be fully enforced.
By agreeing to this contractual modification prospectively at this time, the Company and the Participant intend to make this provision
enforceable under all applicable laws so that the entire non-competition and non-solicitation agreement of this Section 11 and this entire
Agreement as prospectively modified shall remain in full force and effect and shall not be rendered void or illegal.
12. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the
Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such
person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal
representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such
form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with
respect to vested RSUs.
13. No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the RSUs
thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a
continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any
such Affiliate, or any other entity to terminate such employment or other service relationship at any time. The grant of the RSUs is a one-time
benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future
Awards will be granted at the sole discretion of the Company.
14. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or
delivered to the Participant at the address on file with the Company or, in either case, at such other address as one party may subsequently
furnish to the other party in writing. Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein
shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant,
upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have
been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed
in the mail.
15. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to
the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but
not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly
reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic
delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access.
The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for
delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is
the same as, and shall have the same force and effect as, his or her manual signature.
16. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company
to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter
hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the RSUs
granted hereby; provided¸ however, that the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any
employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of
the date a determination is to be made under this Agreement. Without limiting the scope of the preceding sentence, except as provided therein,
all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no
further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not
inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that
materially reduces the rights of the Participant shall be effective only if it is in writing and signed by both the Participant and an authorized
officer of the Company. Notwithstanding the foregoing, the parties expressly acknowledge and agree that this Agreement does not supersede or
replace, but instead complements and is in addition to, all agreements and obligations that the Participant has with or to any member of the
Company Group (whether contained in a prior written agreement, at common law, by statute or otherwise) with regard to (a) confidentiality and
the non-use, non-disclosure, return and protection of trade secrets, confidential and proprietary information and materials and Company Group
property and (b) non-competition, or non-solicitation of officers, employees or customers.
18. Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of
this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to
exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of
such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or
condition giving rise to such rights continues.
19. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required
by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, any Securities and Exchange Commission rule or any applicable securities exchange listing standards and/or (b) any policy that may be
adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment
and/or cancellation to the extent necessary to comply with such law(s) and/or policy.
20. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE
OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.
21. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This
Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set
forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators
and the person(s) to whom the RSUs may be transferred by will or the laws of descent or distribution.
22. Headings. Headings are for convenience only and are not deemed to be part of this Agreement.
23. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document
format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
24. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the RSUs granted pursuant to this Agreement are
intended to be exempt from the applicable requirements of the Nonqualified Deferred Compensation Rules and shall be limited, construed and
interpreted in accordance with such intent. Nevertheless, to the extent that the Committee determines that the RSUs may not be exempt from
the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a “specified employee” within the meaning of the
Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when the Participant becomes eligible for settlement of
the RSUs upon his “separation from service” within the meaning of the Nonqualified Deferred Compensation Rules, then to the extent
necessary to prevent any accelerated or additional tax under the Nonqualified Deferred Compensation Rules, such settlement will be delayed
until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death.
Notwithstanding the foregoing, the Company and its Affiliates make no representations that the RSUs provided under this Agreement are
exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall the Company or any Affiliate be liable for
all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with
the Nonqualified Deferred Compensation Rules.
QUINTANA ENERGY SERVICES INC.
2018 LONG TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
(Directors)
Pursuant to the terms and conditions of the Quintana Energy Services Inc. 2018 Long Term Incentive Plan, as amended from time to
time (the “Plan”), Quintana Energy Services Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the
number of Restricted Stock Units (the “RSUs”) set forth below. This award of RSUs (this “Award”) is subject to the terms and conditions set
forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant:
________________
Date of Grant:
________________
Total Number of Restricted Stock
Units:
________________
Vesting Commencement Date:
________________
Vesting Schedule:
Except as expressly provided in Section 3 of the Agreement, the RSUs shall vest in accordance
with the following schedule: ________________.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit
Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety
and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and
final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this
Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile
counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the
Participant has executed this Grant Notice, effective for all purposes as provided above.
COMPANY
Quintana Energy Services Inc.
By:
Name: Rogers Herndon
Its: Chief Executive Officer and President
PARTICIPANT
Name:
EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made
as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Quintana Energy Services Inc., a
Delaware corporation (the “Company”), and ________________ (the “Participant”). Capitalized terms used but not specifically defined herein
shall have the meanings specified in the Plan or the Grant Notice.
1.
Award. In consideration of the Participant’s past and/or continued service to the Company and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date of Grant set forth in the Grant Notice (the
“Date of Grant”), the Company hereby grants to the Participant the number of RSUs set forth in the Grant Notice on the terms and conditions
set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference as a part of this Agreement. In the event of
any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the extent vested, each RSU represents the right
to receive one share of Stock, subject to the terms and conditions set forth in the Grant Notice, this Agreement and the Plan. Unless and until
the RSUs have become vested in accordance with this Agreement, the Participant will have no right to receive any Stock or other payments in
respect of the RSUs, except as otherwise specifically provided for in the Plan or this Agreement (including Section 9(b)). Prior to settlement of
this Award, the RSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.
2. Vesting of RSUs. Except as otherwise set forth in Section 3, the RSUs shall vest in accordance with the vesting schedule set forth
in the Grant Notice. Unless and until the RSUs have vested in accordance with such vesting schedule, the Participant will have no right to
receive any dividends or other distribution with respect to the RSUs.
3. Effect of Termination of Service.
(a) Termination of Service Relationship due to Death or Disability. Upon the termination of the Participant’s service
relationship with the Company due to the Participant’s “Disability” (as defined below) or death, all unvested RSUs shall immediately become
fully vested as of the date of termination. For purposes of this Agreement, “Disability” means the Participant’s inability to perform the
Participant’s duties (after accounting for reasonable accommodation, if applicable and required by law) due to any medically determinable
physical or mental impairment that is expected to last for a period of 12 months or longer or to result in death.
(b) Other Termination of Service. Except as otherwise provided in Section 3(a), in the event of the termination of the
Participant’s service relationship with the Company for any reason, any unvested RSUs (and all rights arising from such RSUs and from being
a holder thereof) will terminate automatically as of the date of termination without any further action by the Company and will be forfeited
without further notice and at no cost to the Company.
(c) Change in Control. Upon the occurrence of a Change in Control, all unvested RSUs shall immediately become fully vested
as of the date of such Change in Control so long as the Participant has continuously provided services to the Company from the Date of Grant
through the date of such Change in Control.
4. Settlement of RSUs. As soon as administratively practicable following the vesting of RSUs pursuant to Section 2 or 3, but in no
event later than 60 days after such vesting date, the Company shall deliver to the Participant a number of shares of Stock equal to the number of
RSUs subject to this Award. All shares of Stock issued hereunder shall be delivered either by delivering one or more certificates for such shares
to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of
Stock shall not bear any interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this
Agreement shall be construed to create a trust or a funded or secured obligation of any kind.
5. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the
Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company for the
satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include
the delivery of cash or cash equivalents, Stock (including previously owned Stock, net settlement, a broker-assisted sale, or other cashless
withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal
consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously
owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that
have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined
based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without
creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. The Participant
acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying
shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that he is in no
manner relying on the Board, the Committee, the Company or any of its Affiliates or any of their respective managers, directors, officers,
employees or authorized representatives (including, without limitation, attorneys, accountants, consultants, bankers, lenders, prospective
lenders and financial representatives) for tax advice or an assessment of such tax consequences.
6. Non-Transferability. During the lifetime of the Participant, the RSUs may not be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the RSUs have been issued,
and all restrictions applicable to such shares have lapsed. Neither the RSUs nor any interest or right therein shall be liable for the debts,
contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law
by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
7. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of
Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the
requirements of any stock exchange or market system upon which the Stock may then be listed. No shares of Stock will be issued hereunder if
such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration statement under the
Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the
Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any shares of Stock hereunder will relieve the
Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition
to any issuance of Stock hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate
to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as
may be requested by the Company.
8. Legends. If a stock certificate is issued with respect to shares of Stock delivered hereunder, such certificate shall bear such legend
or legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the
terms and provisions of this Agreement, the rules, regulations and other requirements of the Securities and Exchange Commission, any
applicable laws or the requirements of any stock exchange on which the Stock is then listed. If the shares of Stock issued hereunder are held in
book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.
9. Rights as a Stockholder; Dividend Equivalents.
(a) The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become
deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be
made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise
specifically provided for in the Plan or this Agreement (including Section 9(b)).
(b) Each RSU subject to this Award is hereby granted in tandem with a corresponding dividend equivalent (“DER”), which
DER shall remain outstanding from the Date of Grant until the earlier of the settlement or forfeiture of the RSU to which the DER corresponds.
Each vested DER entitles the Participant to receive payments, subject to and in accordance with this Agreement, in an amount equal to any
dividends paid by the Company in respect of the share of Stock underlying the RSU to which such DER relates. The Company shall establish,
with respect to each RSU, a separate DER bookkeeping account for such RSU (a “DER Account”), which shall be credited (without interest)
on the applicable dividend payment dates with an amount equal to any dividends paid during the period that such RSU remains outstanding
with respect to the share of Stock underlying the RSU to which such DER relates. Upon the vesting of an RSU, the DER (and the DER
Account) with respect to such vested RSU shall also become vested. Similarly, upon the forfeiture of a RSU, the DER (and the DER Account)
with respect to such forfeited RSU shall also be forfeited. DERs shall not entitle the Participant to any payments relating to dividends paid after
the earlier to occur of the date that the applicable RSU is settled in accordance with Section 4 or the forfeiture of the RSU underlying such
DER. Payments with respect to vested DERs shall be made as soon as practicable, and within 60 days, after the date that such DER vests. The
Participant shall not be entitled to receive any interest with respect to the payment of DERs.
10. Protection of Information.
(a) Disclosure to and Property of the Company Group. All information, trade secrets, designs, ideas, concepts, improvements,
product developments, discoveries and inventions, whether patentable or not, that are conceived, made, developed or acquired by, or disclosed
to, the Participant, individually or in conjunction with others, during the period of the Participant’s service to the Company (together with the
Company’s Affiliates, the “Company Group”) (whether during business hours or otherwise and whether on a Company Group member’s
premises or otherwise) that relate to the business or trade secrets of any member of the Company Group (including, without limitation, all such
information relating to corporate opportunities, strategies, product specifications, compositions, manufacturing and distribution methods and
processes, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition prospects, the identity of
customers or their requirements, the identity of key contacts within the customer’s organizations or within the organization of acquisition
prospects, or exploration, production, marketing and merchandising techniques, prospective names and marks) and all writings or materials of
any type embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other similar forms of expression
(collectively, “Confidential Information”) are and shall be the sole and exclusive property of the Company Group. On the date of termination
of the Participant’s service relationship with the Company and at any other time upon the request of any member of the Company Group, the
Participant shall surrender and deliver to the Company Group all documents (including all electronically stored information) and all copies
thereof and all other materials of any nature containing or pertaining to all Confidential Information in the Participant’s possession, custody and
control and shall not retain any such document or other materials or copies thereof. Within 10 days of any such request, the Participant shall
certify to the Company Group in writing that all such documents and materials have been returned to the Company Group. Notwithstanding
any provision of this Section 10(a) to the contrary, the term Confidential Information does not include (i) any information that, at the time of
disclosure by a member of the Company Group, is available to the public other than as a result of any unauthorized act of the Participant, or
(ii) any information that becomes available to the Participant on a non-confidential basis from a source other than the members of the Company
Group or any of their respective directors, officers, employees, agents or advisors; provided, that such source is not known by the Participant to
be bound by a confidentiality agreement with, or other obligation of confidentiality to, a member of the Company Group regarding such
information.
(b) Disclosure to the Participant. The Participant expressly acknowledges and agrees that the Participant has obtained
Confidential Information during the period of the Participant’s service to the Company and the parties acknowledge and agree that the
Participant will be provided with additional Confidential Information in the course of the Participant’s future service to the Company.
(c) No Unauthorized Use or Disclosure. The Participant agrees to preserve and protect the confidentiality of all Confidential
Information. The Participant agrees that the Participant will not, at any time during the period of the Participant’s service to the Company or
thereafter, make any unauthorized disclosure of Confidential Information, or make any use thereof, except, in each case, in the carrying out of
the Participant’s responsibilities to the Company. The Participant shall use commercially reasonable efforts to cause all persons or entities to
whom the Participant discloses any Confidential Information to preserve and protect the confidentiality of such Confidential Information. The
Participant shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure thereof is
specifically required by applicable law; provided, however, that in the event disclosure is required by applicable law and the Participant is
making such disclosure, the Participant shall provide the Company with prompt notice of such requirement (which such notice shall be received
by the Company no later than 48 hours after the Participant is informed of such requirement) prior to making any such disclosure, so that the
Company may seek an appropriate protective order.
(d) Permitted Disclosures. Notwithstanding the foregoing, nothing herein will prevent the Participant from: (i) making a good
faith report of possible violations of applicable law to any governmental agency or entity; or (ii) making disclosures that are protected under the
whistleblower provisions of applicable law. Further, an individual shall not be held criminally or civilly liable under any federal or state trade
secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state or local government official, either directly or
indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a
complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for
retaliation by an employer of reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the
trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal; and (y) does not
disclose the trade secret, except pursuant to court order.
11. Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the
Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such
person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal
representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such
form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with
respect to vested RSUs.
12. No Right to Continued Service or Awards. Nothing in the adoption of the Plan, nor the award of the RSUs thereunder pursuant
to the Grant Notice and this Agreement, shall confer upon the Participant the right to a continued service relationship with the Company or
affect in any way the right of the Company to terminate such service relationship at any time. The grant of the RSUs is a one-time benefit and
does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future Awards will be
granted at the sole discretion of the Company.
13. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or
delivered to the Participant at the address on file with the Company or, in either case, at such other address as one party may subsequently
furnish to the other party in writing. Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein
shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant,
upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have
been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed
in the mail.
14. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to
the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but
not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly
reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic
delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access.
The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for
delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is
the same as, and shall have the same force and effect as, his or her manual signature.
15. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company
to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
16. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter
hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the RSUs
granted hereby. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if
any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee
may, in its sole discretion, amend this Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however,
that except as otherwise provided in the Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall
be effective only if it is in writing and signed by both the Participant and an authorized officer of the Company.
17. Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of
this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to
exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of
such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or
condition giving rise to such rights continues.
18. Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required
by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, any Securities and Exchange Commission rule or any applicable securities exchange listing standards and/or (b) any policy that may be
adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment
and/or cancellation to the extent necessary to comply with such law(s) and/or policy.
19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE
OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.
20. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This
Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set
forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators
and the person(s) to whom the RSUs may be transferred by will or the laws of descent or distribution.
21. Headings. Headings are for convenience only and are not deemed to be part of this Agreement.
22. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document
format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
23. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the RSUs granted pursuant to this Agreement are
intended to be exempt from the applicable requirements of the Nonqualified Deferred Compensation Rules and shall be limited, construed and
interpreted in accordance with such intent. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the
RSUs provided under this Agreement are exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall
the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the
Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.
Subsidiaries of Quintana Energy Services Inc.
Entity
Quintana Energy Services LLC
QES Pressure Pumping, LLC
QES Pressure Control LLC
Great White Well Control LLC
QES Wireline LLC
QES Directional Drilling, LLC
Centerline Trucking, LLC
Twister Drilling Tools, LLC
QES Management LLC
Consolidated OWS Management, Inc.
Q Directional MGMT, Inc.
State of Formation
Delaware
Delaware
Oklahoma
Delaware
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (No. 333-228938) and Form S-8 (No. 333-223021) of Quintana Energy
Services Inc. of our report dated March 7, 2019 relating to the financial statements, which appears in this Form 10-K.
Exhibit 23.1
/s/PricewaterhouseCoopers LLP
Houston, Texas
March 7, 2019
1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, D. Rogers Herndon, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Quintana Energy Services Inc. (the “registrant”);
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;
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;
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.
b.
c.
d.
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;
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;
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
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.
b.
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
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.
Date: March 7, 2019
/s/ D. Rogers Herndon
D. Rogers Herndon
Chief Executive Officer, President and Director
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Keefer M. Lehner, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Quintana Energy Services Inc. (the “registrant”);
2.
3.
4.
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;
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;
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.
b.
c.
d.
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;
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;
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
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.
b.
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
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.
Date: March 7, 2019
/s/ Keefer M. Lehner
Keefer M. Lehner
Executive Vice President and Chief Financial Officer
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the Annual Report of Quintana Energy
Services Inc. (the “Company”) on Form 10-K for the period ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the
“Periodic Report”), I, D. Rogers Herndon, Chief Executive Officer, President and Director of the Company, hereby certify that, to my knowledge:
(1) the Periodic 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 Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 7, 2019
/s/ D. Rogers Herndon
D. Rogers Herndon
Chief Executive Officer, President and Director
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the Annual Report of Quintana Energy
Services Inc. (the “Company”) on Form 10-K for the period ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the
“Periodic Report”), I, Keefer M. Lehner, Executive Vice President and Chief Financial Officer, hereby certify that, to my knowledge:
(1) the Periodic 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 Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 7, 2019
/s/ Keefer M. Lehner
Keefer M. Lehner
Executive Vice President and Chief Financial Officer