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

Form 10-K
____________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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 no. 001-16337

Oil States International, Inc.
(Exact name of registrant as specified in its charter)
Delaware
76-0476605
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

Three Allen Center, 333 Clay Street, Suite 4620, Houston, Texas 77002
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code is (713) 652-0582

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Exchange on Which Registered
Common Stock, par value $.01 per share
 
OIS
 
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
Non-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 

As of June 30, 2019, the aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant was $1,060,682,700.

As of February 17, 2020, the number of shares of common stock outstanding was 60,402,022.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, which the registrant intends to file with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10‑K, are incorporated by reference into Part III of this Annual Report on Form 10‑K.

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TABLE OF CONTENTS
 
 
 
Page
PART I
 
 
Cautionary Statement Regarding Forward-Looking Statements 
 
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 Stockholder Matters and Issuer Purchases of Equity Securities
 
Item 6.
Selected Financial Data
 
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 8.
Financial Statements and Supplementary Data
 
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 Stockholder Matters
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
Item 14.
Principal Accounting Fees and Services
 
 
 
PART IV
 
 
Item 15.
Exhibits, Financial Statement Schedules
 
Item 16.
Form 10-K Summary
 
 
 
 
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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PART I
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K and other statements we make contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including incorrect or changed assumptions. For a discussion of known material factors that could affect our results, please refer to "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" below.
You can typically identify "forward-looking statements" by the use of forward-looking words such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "potential," "plan," "forecast," "proposed," "should," "seek," and other similar words. Such statements may relate to our future financial position, budgets, capital expenditures, projected costs, plans and objectives of management for future operations and possible future strategic transactions. Actual results frequently differ from assumed facts and such differences can be material, depending upon the circumstances.
While we believe we are providing forward-looking statements expressed in good faith and on a reasonable basis, there can be no assurance that actual results will not differ from such forward-looking statements. The following are important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, our Company:
the level of supply of and demand for oil and natural gas;
fluctuations in the current and future prices of oil and natural gas;
the cyclical nature of the oil and natural gas industry;
the level of exploration, drilling and completion activity;
the financial health of our customers;
political, economic and litigation efforts to restrict or eliminate certain oil and natural gas exploration, development and production activities due to concerns over the threat of climate change;
the availability of and access to attractive oil and natural gas field prospects, which may be affected by governmental actions or actions of other parties which may restrict drilling and completion activities;
the level of offshore oil and natural gas developmental activities;
general global economic conditions;
the ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production levels and pricing;
global weather conditions and natural disasters;
public health crises, such as the coronavirus outbreak at the beginning of 2020, which could impact the global economy;
changes in tax laws and regulations;
the impact of tariffs and duties on imported materials and exported finished goods;
impact of environmental matters, including future regulatory efforts to adopt environmental or climate change regulations that may result in increased operating costs or reduced commodity demand globally;
our ability to timely obtain critical permits for constructing or operating facilities and find and retain skilled personnel;
negative outcome of litigation, threatened litigation or government proceedings;
our ability to develop new competitive technologies and products;
fluctuations in currency exchange rates;
physical, digital, cyber, internal and external security breaches;
the availability and cost of capital;
our ability to protect our intellectual property rights;
our ability to complete the integration of acquired businesses and achieve the expected accretion in earnings; and
the other factors identified in "Part I, Item 1A. Risk Factors."
Should one or more of these risks or uncertainties materialize, or should the assumptions on which our forward-looking statements are based prove incorrect or change, actual results may differ materially from those expected, estimated or projected. In addition, the factors identified above may not necessarily be all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us, or on our behalf. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made.

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In addition, in certain places in this Annual Report on Form 10-K, we refer to information and reports published by third parties that purport to describe trends or developments in the energy industry. The Company does so for the convenience of our stockholders and in an effort to provide information available in the market that will assist the Company's investors in better understanding the market environment in which the Company operates. However, the Company specifically disclaims any responsibility for the accuracy and completeness of such information and undertakes no obligation to update such information.
Item 1. Business
Our Company
Oil States International, Inc., through its subsidiaries, is a global oilfield products and services company serving the drilling, completion, subsea, production and infrastructure sectors of the oil and natural gas industry. Our manufactured products include highly engineered capital equipment as well as products consumed in the drilling, well construction and production of oil and natural gas. Through our acquisition of GEODynamics, Inc. ("GEODynamics") in 2018, we are a leading researcher, developer and manufacturer of engineered solutions to connect the wellbore with the formation in oil and natural gas well completions. Oil States is headquartered in Houston, Texas with manufacturing and service facilities strategically located across the globe. Our customers include many national oil and natural gas companies, major and independent oil and natural gas companies, onshore and offshore drilling companies and other oilfield service companies. We operate through three business segments – Well Site Services, Downhole Technologies and Offshore/Manufactured Products – and maintain a leadership position with certain of our product and service offerings in each segment. In this Annual Report on Form 10‑K, references to the "Company" or "Oil States," or to "we," "us," "our," and similar terms are to Oil States International, Inc. and its consolidated subsidiaries.
Available Information
The Company's website can be found at www.oilstatesintl.com. The Company makes available, free of charge through its website, its Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, its proxy statement, Forms 3, 4 and 5 filed on behalf of directors and executive officers, and amendments to these reports, as soon as reasonably practicable after the Company electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (the "SEC"). The Company is not including the information contained on the Company's website or any other website as a part of, or incorporating it by reference into, this Annual Report on Form 10‑K or any other filing the Company makes with the SEC. The filings are also available through the SEC's website at www.sec.gov. The Board of Directors of the Company (the "Board") has documented its governance practices by adopting several corporate governance policies. These governance policies, including the Company's Corporate Governance Guidelines, Corporate Code of Business Conduct and Ethics and Financial Code of Ethics for Senior Officers, as well as the charters for the committees of the Board (Audit Committee, Compensation Committee and Nominating & Corporate Governance Committee) may also be viewed at the Company's website. The financial code of ethics applies to our principal executive officer, principal financial officer, principal accounting officer and other senior officers. Copies of such documents will be provided to stockholders without charge upon written request to the corporate secretary at the address shown on the cover page of this Annual Report on Form 10‑K.
Our Business Strategy
We have historically grown our product and service offerings organically, through capital spending and strategic acquisitions. Our investments are focused in growth areas and on areas where we expect to be able to expand market share through our technology offerings and where we believe we can achieve an attractive return on our investment. As part of our long-term strategy, we continue to review complementary acquisitions, invest in research and development and make organic capital expenditures to enhance our cash flows, leverage our cost structure and increase our stockholders' returns. For additional discussion of our business strategy, please read "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Recent Developments
In addition to capital spending, we have invested in acquisitions of businesses complementary to our growth strategy. Our acquisition strategy has allowed us to leverage our existing and acquired products and services into new geographic locations and has expanded the breadth of our technology and product offerings while allowing us to leverage our cost structure. We have made strategic and complementary acquisitions in each of our business segments in recent years.
On December 12, 2017 we entered into an agreement to acquire GEODynamics, which provides oil and gas perforation systems and downhole tools in support of completion, intervention, wireline and well abandonment operations. On January 12, 2018, we closed the acquisition of GEODynamics for total consideration of approximately $615 million (the "GEODynamics Acquisition"), consisting of (i) $295 million in cash (net of cash acquired), (ii) approximately 8.66 million shares of our common stock (valued at $34.05 per share on the date of closing) and (iii) an unsecured $25 million promissory note.

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In connection with the GEODynamics Acquisition, we completed several financing transactions in 2018 to extend the maturity of our debt and to provide flexibility in repaying outstanding borrowings under our revolving credit facility (the "Revolving Credit Facility") with anticipated future cash flows from operations.
On January 30, 2018, we sold $200 million aggregate principal amount of our 1.50% convertible senior notes due February 2023 (the "Notes") through a private placement to qualified institutional buyers. We received net proceeds from the offering of the Notes of approximately $194 million, after deducting issuance costs. We used the net proceeds to repay a portion of the borrowings outstanding under our Revolving Credit Facility, substantially all of which were drawn to fund the cash portion of the purchase price paid for GEODynamics.
Concurrently with the Notes offering, we amended our Revolving Credit Facility to extend the maturity date to January 2022, permit the issuance of the Notes and provide for up to $350 million in borrowing capacity, subject to certain limitations.
On February 28, 2018, we acquired Falcon Flowback Services, LLC ("Falcon"), a full-service provider of flowback and well testing services for the separation and recovery of fluids, solid debris and proppant used during hydraulic fracturing operations. Falcon provides additional scale and diversity to our Completion Services operations in key shale plays in the United States. The acquisition price was $84.2 million in cash, funded with borrowings under our Revolving Credit Facility.
During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market. As a result of this decision, our Drilling Services business recorded a non-cash impairment charge of $33.7 million to decrease the carrying value of the business' fixed assets to their estimated fair value. Substantially all of the decommissioned rigs were sold in the fourth quarter of 2019.
During the fourth quarter of 2019, our Downhole Technologies segment recorded a non-cash goodwill impairment charge of $165.0 million due to, among other factors, a reduction in our near-term outlook for demand related to our short-cycle products and services in the U.S. shale play regions.
See Note 4, "Details of Selected Balance Sheet Accounts," Note 5, "Business Acquisitions" and Note 7, "Long-term Debt" to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion of these recent developments.
Our Industry
We principally operate in the oilfield services industry and provide a broad range of products and services to our customers through each of our business segments. See Note 15, "Segments and Related Information," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for financial information by segment along with a geographical breakout of revenues and long-lived assets for each of the three years in the period ended December 31, 2019. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and natural gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their outlook for near-term and long-term commodity prices, economic growth, commodity demand and estimates of resource production. As a result, demand for our products and services is largely sensitive to expectations with respect to future crude oil and natural gas prices.
Our consolidated results of operations include contributions from the GEODynamics and Falcon acquisitions completed in the first quarter of 2018. Our reported results of operations reflect the impact of current industry trends and customer spending activities with investments weighted toward U.S. shale play regions. However, in 2019, we began to see a general improvement in the level of planned investments in deepwater markets globally.
Our historical financial results reflect the cyclical nature of the oilfield services industry – witnessed by periods of increasing and decreasing activity in each of our operating segments. Lower oil and natural gas prices since 2014 have caused a reduction in most of our customers' drilling, completion and other production activities and related spending on our products and services. The reduction in demand from our customers has resulted in an oversupply of many of the services and products we provide. Such oversupply has substantially reduced the prices we can charge our customers for many of our products and services. Although oil prices have improved since the trough in 2016, these price improvements have not resulted in significant, sustained global improvements in the demand for our products and services or the prices we are able to charge. Following material price declines in the fourth quarter of 2018, Brent and West Texas Intermediate ("WTI") crude oil prices averaged $64 and $57 per barrel, respectively, in 2019 - down 10% and 13%, respectively, compared to 2018 average prices. While the commodity price environment improved in 2019 relative to December of 2018, the crude oil price outlook and associated volatility continues to have a moderating impact on our customers' operating results and capital spending plans, particularly those operating in the U.S. shale play regions. The U.S.

-5-



rig count at December 31, 2019 totaled 805 rigs, which was down 26% since the most recent peak of 1,083 rigs in December of 2018. We expect further customer-driven activity declines in early 2020 given crude oil price declines since the end of 2019 as our customers strive for financial discipline and spending levels that are within their capital budgets and generated cash flow ranges. This may cause 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. For additional information about activities in each of our segments, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Our Well Site Services segment is primarily affected by drilling and completion activity in the United States, including the Gulf of Mexico, and, to a lesser extent, the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services segment results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the call-out nature of our operations in the segment.
Similarly, demand for our Downhole Technologies segment products is predominantly tied to land-based oil and natural gas exploration and production activity levels in the United States. The primary driver for this activity is the price of crude oil and, to a lesser extent, natural gas. Activity levels have been, and we expect will continue to be, highly correlated with hydrocarbon commodity prices. Over recent years, our industry experienced increased customer spending in crude oil and liquids-rich exploration and development in the U.S. shale plays utilizing enhanced horizontal drilling and completion techniques.
Demand for the products and services supplied by our Offshore/Manufactured Products segment is generally driven by both the longer-term outlook for commodity prices and changes in land-based drilling and completion activity. Over recent years, lower crude oil prices, coupled with a relatively uncertain outlook around shorter-term and possibly longer-term commodity price improvements, caused exploration and production companies to reevaluate their future capital expenditures in regards to deepwater projects since they are expensive to drill and complete, have long lead times to first production and may be considered uneconomical relative to the risk involved. This resulted in reduced bidding and quoting activity, as well as reduced orders from customers, for our Offshore/Manufactured Products segment in 2017 and 2018 relative to the peak in 2014. Bidding and quoting activity, along with orders from customers, for deepwater projects improved in 2019 from 2018 levels and the potential for future awards appears to be improving.
See "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Macroeconomic Environment" for further discussion on our industry.
Well Site Services
Overview
For the years ended December 31, 2019, 2018 and 2017, our Well Site Services segment generated approximately 42%, 44% and 43%, respectively, of our consolidated revenue. Our Well Site Services segment includes a broad range of equipment and services that are used to drill for, establish and maintain the flow of oil and natural gas from a well throughout its life cycle. In this segment, our operations primarily include completion-focused equipment and services and, to a much lesser extent, land drilling services in the United States. We use our fleet of completion tools and drilling rigs to serve our customers at well sites and project development locations. Our equipment and services are used in both onshore and offshore applications throughout the drilling, completion and production phases of a well's life cycle.
Well Site Services Market
Demand for our completion and drilling services is predominantly tied to the level of oil and natural gas exploration and production activity on land in the United States. The primary driver for this activity is the price of crude oil and, to a lesser extent, natural gas. Activity levels have been, and we expect will continue to be, highly correlated with hydrocarbon commodity prices.
Completion Services
Our Completion Services business, which is primarily marketed through the brand names Oil States Energy Services, Falcon and Tempress, provides a wide range of services used in the onshore and offshore oil and gas industry, including:
wellhead isolation services;
flowback and frac valve services;
wireline and coiled tubing support services;
well testing, including separators and line heaters;
downhole extended-reach technology;
pipe recovery systems;

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thru-tubing milling and fishing services;
hydraulic chokes and manifolds;
blowout preventers; and
gravel pack and sand control operations on wellbores.
Employees in our Completion Services business typically rig up and operate our equipment on the well site for our customers. Our Completion Services equipment is primarily used during the completion and production stages of a well. As of December 31, 2019, we provided completion services through approximately 35 distribution locations serving our customers in the United States, including the Gulf of Mexico, and international markets. We typically provide our services and equipment based on daily rates which vary depending on the type of equipment and the length of the job. Billings to our customers typically separate charges for our equipment from charges for our field technicians. We own patents or have patents pending covering some of our technology, particularly in our wellhead isolation equipment and downhole extended-reach technology product lines. Our customers in the Completion Services business include major, independent and private oil and gas companies and other large oilfield service companies. No customer in Completion Services represented more than 10% of our total consolidated revenue in any period presented. Competition in the Completion Services business is widespread and includes many smaller companies, although we also compete with the larger oilfield service companies for certain equipment and services.
Drilling Services
Our Drilling Services business, which is marketed to oil and gas companies under the brand name Capstar Drilling, provides vertical land drilling services in the United States for shallow to medium depth wells generally of less than 15,000 feet. We historically served two primary markets with our Drilling Services business: the Permian Basin in West Texas and the U.S. Rocky Mountain area. During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market. Since September 2019, the operations are primarily focused on serving operators in the U.S. Rocky Mountain region. See Note 4, "Details of Selected Balance Sheet Accounts," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for additional discussion.
Downhole Technologies
Overview
Our Downhole Technologies segment is comprised of the GEODynamics business we acquired in January 2018. GEODynamics was founded in 2004 as a researcher, developer and manufacturer of consumable engineered products used in completion applications. For the years ended December 31, 2019 and 2018, our Downhole Technologies segment contributed approximately 18% and 20%, respectively, of our consolidated revenue. This segment provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies.
Downhole Technologies Market
Similar to our Well Site Services segment, demand for our Downhole Technologies segment products is predominantly tied to the level of oil and natural gas exploration and production activity on land in the United States. The primary driver for this activity is the price of crude oil and, to a lesser extent, natural gas. Activity levels have been, and we expect will continue to be, highly correlated with hydrocarbon commodity prices. Demand for this segment's products is also influenced by continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments.
Products
Product and service offerings for this segment include advanced perforation technology achieved through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary toe valve and frac plug products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications.

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Customers and Competitors
Our customers in the Downhole Technologies segment include other oilfield services companies as well as major, independent and private oil and gas companies. No customer in this segment represented more than 10% of our total consolidated revenue in any period presented. Competition in the Downhole Technologies business is widespread and includes many smaller companies, although we also compete with the larger oilfield service companies for certain products and services.
Offshore/Manufactured Products
Overview
For the years ended December 31, 2019, 2018 and 2017, our Offshore/Manufactured Products segment generated approximately 40%, 36% and 57%, respectively, of our consolidated revenue. Through this segment, we provide technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities, as well as certain products and services to the offshore and land-based drilling and completion markets. Our products and services used primarily in deepwater producing regions include our FlexJoint® technology, advanced connector systems, high-pressure riser systems, compact valves, deepwater mooring systems, cranes, subsea pipeline products, specialty welding, fabrication, cladding and machining services, offshore installation services and inspection and repair services. In addition, we design, manufacture and market numerous other products and services used in both land and offshore drilling and completion activities and by non-oil and gas customers, including consumable downhole elastomer products used in onshore completion activities, valves and sound and vibration dampening products used in military applications. We have facilities that support our Offshore/Manufactured Products segment in Arlington, Houston and Lampasas, Texas; Houma, Louisiana; Oklahoma City and Tulsa, Oklahoma; the United Kingdom; Brazil; Singapore; Spain; Thailand; Vietnam; China; the United Arab Emirates; and India.
Offshore/Manufactured Products Market
The market for products and services offered by our Offshore/Manufactured Products segment centers primarily on the development of infrastructure for offshore production facilities and their subsequent operations, exploration and drilling activities, and to a lesser extent, new rig and vessel construction, refurbishments or upgrades. Demand for oil and natural gas, and the related drilling and production in offshore areas throughout the world, particularly in deeper water, drive spending for these activities. Sales of our shorter-cycle products to land-based drilling and completion markets are driven by the level and complexity of drilling, completion and workover activity, particularly in North America.
Products and Services
In operation for more than 75 years, our Offshore/Manufactured Products segment provides a broad range of products and services for use in offshore development and drilling activities. This segment also provides products for onshore oil and natural gas, defense and general industries. Our Offshore/Manufactured Products segment is dependent in part on the industry's continuing innovation and creative applications of existing technologies. We own various patents covering some of our technology, particularly in our connector and valve product lines.
Offshore Development and Drilling Activities. We design, manufacture, inspect, assemble, repair, test and market equipment for mooring, pipeline, production and drilling risers, and subsea applications along with equipment for offshore vessel and rig construction. Our products are components of equipment used for the drilling and production of oil and natural gas wells on offshore fixed platforms and mobile production units, including floating platforms, such as tension leg platforms, floating production, storage and offloading ("FPSO") vessels, Spars, and other marine vessels and offshore rigs. Our products and services include:
flexible bearings and advanced connection systems;
casing and conductor connections and joints;
subsea pipeline products;
compact ball valves, manifold system components and diverter valves;
marine winches, mooring systems, cranes and other heavy-lift rig equipment;
production, workover, completion and drilling riser systems and their related repair services;
blowout preventer ("BOP") stack assembly, integration, testing and repair services;
consumable downhole products; and
other products and services, including welding, cladding and other metallurgical technologies.

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Flexible Bearings and Advanced Connection Systems. We are the key supplier of flexible bearings, or FlexJoint® connectors, to the offshore oil and natural gas industry as well as weld-on connectors and fittings that join lengths of large diameter conductors or casing used in offshore drilling and production operations. A FlexJoint® is a flexible bearing that allows for rotational movement of a riser or tension leg platform tether while under high tension and/or pressure. When positioned at the top, bottom, or, in some cases, middle of a deepwater riser, it reduces the stress and loads on the riser while compensating for the pitch and rotational forces on the riser as the production facility or drilling rig moves with ocean forces. FlexJoint® connectors are used on drilling, production and export risers and are used increasingly as offshore production moves to deeper water.
Drilling riser systems provide the vertical conduit between the floating drilling vessel and the subsea wellhead. Through the drilling riser, the drill string is guided into the well and drilling fluids are returned to the surface. Production riser systems provide the vertical conduit for the hydrocarbons from the subsea wellhead to the floating production facility. Oil and natural gas flows to the surface for processing through the production riser. Export risers provide the vertical conduit from the floating production facility to the subsea export pipelines. Our FlexJoint® connectors are a critical element in the construction and operation of production and export risers on floating production systems in deepwater.
Floating production systems, including tension leg platforms, FPSO facilities and Spars (defined below), are a significant means of producing oil and natural gas, particularly in deepwater environments. We provide many important products for the construction of these facilities. A tension leg platform ("TLP") is a floating platform that is moored by vertical pipes, or tethers, attached to both the platform and the sea floor. Our FlexJoint® tether bearings are used at the top and bottom connections of each of the tethers, and our Merlin™ connectors are used to efficiently assemble the tether joints during offshore installation. An FPSO is a floating vessel, typically ship shaped, used to produce and process oil and natural gas from subsea wells. A Spar is a floating vertical cylindrical structure which is approximately six to seven times longer than its diameter and is anchored in place. Our FlexJoint® connectors are used to attach the various production, injection, import or export risers to all of these floating production systems.
Casing and Conductor Connections and Joints. Our advanced connection systems provide connectors used in various drilling and production applications offshore. These connectors are welded onto pipe to provide more efficient joint to joint connections with enhanced tensile and burst capabilities that exceed those of connections machined onto plain-end-pipe. Our connectors are reusable and pliable and, depending on the application, are equipped with metal-to-metal seals. We offer a suite of connectors offering differing specifications depending on the application. Our Merlin™ connectors are our premier connectors combining superior static strength and fatigue life with fast, non-rotational make-up and a slim profile. Merlin™ connectors have been used in sizes up to 60 inches (outside diameter) for applications including open-hole and tie-back casing, offshore conductor casing, pipeline risers and TLP tendons which moor the TLP to the sea floor.
Subsea Pipeline Products. We design and manufacture a variety of equipment used in the construction, maintenance, expansion and repair of offshore oil and natural gas pipelines. New construction equipment includes:
pipeline end manifolds and pipeline end terminals;
deep and shallow water pipeline connectors;
midline tie-in sleds;
forged steel Y-shaped connectors for joining two pipelines into one;
pressure-balanced safety joints for protecting pipelines and related equipment from anchor snags or a shifting sea-bottom;
electrical isolation joints; and
hot-tap clamps that allow new pipelines to be joined into existing lines without interrupting the flow of petroleum products.
We provide diverless connection systems for subsea flowlines and pipelines. Our HydroTech® collet connectors provide a high-integrity, proprietary metal-to-metal sealing system for the final hook-up of deep offshore pipelines and production systems. They also are used in diverless pipeline repair systems and future pipeline tie-in systems. Our lateral tie-in sled, which is installed with the original pipeline, allows a subsea tie-in to be made quickly and efficiently using proven HydroTech® connectors without costly offshore equipment mobilization and without shutting off product flow.
We provide pipeline repair hardware, including deepwater applications beyond the depth of diver intervention. Our products include:
repair clamps used to seal leaks and restore the structural integrity of a pipeline;
mechanical connectors used in repairing subsea pipelines without having to weld;
misalignment and swivel ring flanges; and
pipe recovery tools for recovering dropped or damaged pipelines.

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Compact Ball Valves, Manifold System Components and Diverter Valves. Our Piper Valve division designs and manufactures compact high-pressure valves and manifold system components for all environments of the oil and gas industry including onshore, offshore, drilling and subsea applications. Our valve and manifold bores are designed to closely match the inside diameter of the required pipe schedule for the system working pressure. The result is elimination of piping transition areas that minimize erosion and system friction pressure loss, resulting in a more efficient flow path. Our floating ball valve design with its large ball/seat interface has over 30 years of field service experience in upstream unprocessed produced liquids and gasses, assuring reliable service. Oil States Piper Valve Optimum Flow Technology is our way of helping end users maximize space, minimize weight and increase production.
Marine Winches, Mooring Systems, Cranes and other Heavy-Lift Rig Equipment. We design, engineer and manufacture marine winches, mooring systems, cranes and certain rig equipment. Our Skagit® winches are engineered for mooring floating and semi-submersible drilling rigs as well as positioning pipelay and derrick barges, anchor handling boats and jack-ups. Our Nautilus® marine cranes are used on production platforms throughout the world. We also design and fabricate rig equipment such as automatic pipe racking, blowout preventer handling equipment, as well as handling equipment used in the installation of offshore wind turbine platforms. Our engineering teams, manufacturing capability and service technicians, who install and service our products, provide our customers with a broad range of equipment and services to support their operations. Aftermarket service and support of our installed base of equipment to our customers is also an important source of revenue to us.
Production, Workover, Completion and Drilling Riser Systems and their related repair services. Utilizing the expertise of our welding technology group, we have extended the boundaries of our Merlin connector technology with the design and manufacture of multiple riser systems. The unique Merlin connection has proven to be a robust solution for even the most demanding high-pressure (up to 20,000 psi) riser systems used in high-fatigue, deepwater applications. Our riser systems are designed to meet a range of static and fatigue stresses on par with those of our Tension Leg Element connectors. The connector can be welded or machined directly onto upset riser pipe and provide sufficient material to perform "re-cuts" after extended service. We believe that our marine riser offers superior tension capabilities together with one of the fastest run times in the industry. Auxiliary riser system components and running tools can be provided along with full-service inspection and repair of these riser systems.
BOP Stack Assembly, Integration, Testing and Repair Services. While not typically a manufacturer of BOP components, we design and fabricate lifting and protection frames for BOP stacks and offer the complete system integration of BOP stacks and subsea production trees. We can provide complete turnkey and design fabrication services. We also design and manufacture a variety of custom subsea equipment, such as riser flotation tank systems, guide bases, running tools and manifolds. In addition, we also offer blowout preventer and drilling riser testing and repair services.
Consumable Downhole Products. North American shale play development has expanded the need for more advanced completion tools. In order to reduce well completion costs, minimizing the time to drill out tools is very important. Our Offshore/Manufactured Products segment has leveraged its knowledge of molded thermoset composites and elastomers to help meet this demand. For example, we have had success in developing and producing composite drillable zonal isolation tools (i.e., bridge/frac plugs) utilizing design and production techniques that reduce cost while still delivering high-quality performance. Time to drill out has been reduced significantly in comparison to other filament wound products in the market. Our products also include:
Swab Cups - used primarily in well servicing work;
Rod Guides/Centralizers - used in both drilling and production for pipe protection;
Gate Valve and Butterfly Valve Seats – we service many markets in the valve industry including well completion, refining, and distribution;
Casing and Cementing Products – we are a custom manufacturer of cementing plugs, wellbore wipers, valve assemblies, combination plugs, specialty seals and gaskets; and
Service Tools – our products include frac balls, packer elements, zonal isolation tools, as well as many custom molded products used in the well servicing industry.
Other Products & Services. Our Offshore/Manufactured Products segment also produces a variety of products for use in industrial, military and other applications outside the oil and gas industry. For example, we provide:
sound and vibration isolation equipment for marine vessels;
metal-elastomeric FlexJoint® bearings used in a variety of naval and marine applications;
products used in the construction and maintenance of offshore wind projects; and
drum-clutches and brakes for heavy-duty power transmission in the mining, paper, logging and marine industries.

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Backlog
Offshore/Manufactured Products' backlog consists of firm customer purchase orders for which contractual commitments exist and delivery is scheduled. Backlog in our Offshore/Manufactured Products segment was $280 million at December 31, 2019, compared to $179 million at December 31, 2018 and $168 million at December 31, 2017. We expect approximately 75% of our backlog at December 31, 2019 to be recognized as revenue during 2020. In some instances, these purchase orders are cancelable by the customer, subject to the payment of termination fees and/or the reimbursement of our costs incurred. While backlog cancellations have historically been insignificant, we incurred cancellations totaling $5.0 million during 2019 and $6.5 million during 2018, which we believe is attributable to lower commodity prices, the resultant decrease in capital spending by our customers and, in some cases, the financial condition of our customers. Additional cancellations may occur in the future, which would reduce our backlog. Our backlog is an important indicator of future Offshore/Manufactured Products' shipments and major project revenues; however, backlog as of any particular date may not be indicative of our actual operating results for any future period. We believe that the offshore construction and development business is characterized by lengthy projects and a "long lead-time" order cycle. The change in backlog levels from one period to the next does not necessarily evidence a long-term trend.
Regions of Operations
Our Offshore/Manufactured Products segment provides products and services to customers in the major offshore crude oil and natural gas producing regions of the world, including the U.S. Gulf of Mexico, Brazil, West Africa, the North Sea, Azerbaijan, Russia, India, Southeast Asia, China, the United Arab Emirates and Australia. In addition, we provide shorter-cycle products to customers in the land-based drilling and completion markets in the United States and, to a lesser extent, outside the United States.
Customers and Competitors
We market our products and services to a broad customer base, including direct end-users, engineering and design companies, prime contractors, and at times, our competitors through outsourcing arrangements. While no customer accounted for more than 10% of our consolidated revenues in 2019, Halliburton Company individually accounted for 10% and 16% of our total consolidated revenues in the years ended December 31, 2018 and 2017, respectively. Our main competitors in this segment include Cameron (a division of Schlumberger Limited), Dril-Quip, Inc., National Oilwell Varco, Inc., Baker Hughes Company, Hutchinson Group (a subsidiary of Total S.A.), Sparrows Offshore Group LTD, Oceaneering International, Inc. and Raina Engineers.
Seasonality of Operations
Our operations are directly affected by seasonal weather differences in certain areas in which we operate, most notably in the Rocky Mountain region, and the Gulf of Mexico. Severe winter weather conditions in the Rocky Mountain region can restrict access to work areas for our Well Site Services and Downhole Technologies segment operations. Our operations in the Gulf of Mexico are also affected by weather patterns. Seasonal weather trends in the Gulf Coast region generally result in higher drilling activity in the spring, summer and fall months with the lowest levels of activity in the winter months. Summer and fall drilling activity can be interrupted by hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast. As a result of these seasonal differences, full-year results are not likely to be a direct multiple of any particular quarter or combination of quarters.
Employees
As of December 31, 2019, the Company employed 3,428 full-time employees on a consolidated basis, 42% of whom are in our Well Site Services segment, 14% of whom are in our Downhole Technologies segment, 41% of whom are in our Offshore/Manufactured Products segment, and 2% of whom are in our corporate headquarters. During 2019, company-wide headcount was reduced 13% from a total of 3,926 full-time employees as of December 31, 2018. We were party to collective bargaining agreements covering fewer than 100 employees located in the United Kingdom and Argentina as of December 31, 2019. We believe we have good labor relations with our employees.

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Environmental and Occupational Health and Safety Matters
Our business operations are subject to numerous environmental and occupational health and safety laws and regulations that may be imposed domestically at the federal, regional, state, tribal and local levels or by foreign governments. These laws and regulations impose stringent environmental and/or worker safety regulation. Numerous governmental entities, including domestically the U.S. Environmental Protection Agency ("EPA"), the federal Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF"), the U.S. Occupational Safety and Health Administration ("OSHA") 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, among other things, (i) require the acquisition of permits to conduct drilling and other regulated activities; (ii) restrict the types, quantities and concentration of various substances that can be released into the environment or injected into subsurface formations in connection with oil and natural gas drilling and production activities and wellsite support services; (iii) limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; (iv) impose stringent regulations on the licensing or storage and use of explosives; (v) require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells or decommission offshore facilities; (vi) impose specific safety and health criteria addressing worker protection; and (vii) impose substantial liabilities for pollution resulting from drilling operations and well site support services.
The more significant of these existing environmental and occupational health and safety laws and regulations include the following U.S. legal standards, as amended from time to time:
the Clean Air Act ("CAA"), which restricts the emission of air pollutants from many sources and imposes various pre-construction, operational, monitoring and reporting requirements, and that the EPA has relied upon as authority for adopting climate change regulatory initiatives relating to greenhouse gas ("GHG") emissions;
the Federal Water Pollution Control Act, also known as the Clean Water Act, which regulates discharges of pollutants from facilities to state and federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;
the Oil Pollution Act of 1990, which subjects owners and operators of vessels, onshore facilities, and pipelines, as well as lessees or permittees of areas in which offshore facilities are located, to liability for removal costs and damages arising from an oil spill in waters of the United States;
U.S. Department of the Interior regulations, which govern oil and natural gas operations on federal lands and waters and impose obligations for establishing financial assurances for decommissioning activities, liabilities for pollution cleanup costs resulting from operations, and potential liabilities for pollution damages;
the Comprehensive Environmental Response, Compensation and Liability Act of 1980, which imposes liability on generators, transporters, and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur;
the Resource Conservation and Recovery Act ("RCRA"), which governs the generation, treatment, storage, transport, and disposal of solid wastes, including oil and natural gas exploration and production wastes and hazardous wastes;
the Safe Drinking Water Act ("SDWA"), which ensures the quality of the nation's public drinking water through adoption of drinking water standards and controlling the injection of waste fluids into below-ground formations that may adversely affect drinking water sources;
the Emergency Planning and Community Right-to-Know Act, which requires facilities to implement a safety hazard communication program and disseminate information to employees, local emergency planning committees, and response departments on toxic chemical uses and inventories;
the Occupational Safety and Health Act, which establishes workplace standards for the protection of the health and safety of employees, including the implementation of hazard communications programs designed to inform employees about hazardous substances in the workplace, potential harmful effects of these substances, and appropriate control measures;
the Endangered Species Act, which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating restrictions or a temporary, seasonal, or permanent ban in affected areas;
the National Environmental Policy Act, which requires federal agencies, including the Department of the Interior, to evaluate major agency actions having the potential to impact the environment and that may require the preparation of environmental assessments and more detailed environmental impact statements that may be made available for public review and comment;

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the Department of Transportation regulations, which relate to advancing the safe transportation of energy and hazardous materials, including explosives, and emergency response preparedness; and
regulations adopted by the ATF, a law enforcement agency under the U.S. Department of Justice, that impose stringent licensing conditions with respect to the acquisition, storage and use of explosives for well site support services in the oil and natural gas sector.
These federal environmental and occupational health and safety laws and regulations generally restrict the level of substances generated as a result of our operations that may be emitted to ambient air, discharged to surface water, and disposed or otherwise released to surface and below-ground soils and groundwater. Additionally, there exist regional, state, tribal and local jurisdictions in the United States where we operate that also have, are developing or considering developing, similar environmental and occupational health and safety laws and regulations governing many of these same types of activities. Outside of the United States, there are countries and provincial, regional, tribal or local jurisdictions therein where we are conducting business that also have, or may be developing, regulatory initiatives or analogous controls that regulate our environmental-related activities. While the legal requirements imposed in foreign countries or jurisdictions therein may be similar in form to U.S. laws and regulations, in some cases, the actual implementation of these requirements may impose additional, or more stringent, conditions or controls that can significantly restrict, delay or cancel the permitting, development or expansion of a project or significantly increase the cost of doing business. Any failure by us to comply with these laws, regulations and regulatory initiatives or controls may result in the assessment of sanctions, including administrative, civil, and criminal penalties; the imposition of investigatory, remedial, and corrective action obligations or the incurrence of capital expenditures; the occurrence of restrictions, delays or cancellations in the permitting, development or expansion of projects; and the issuance of injunctions restricting or prohibiting some or all of our activities in a particular area. Certain environmental laws also provide for citizen suits, which allow environmental organizations to act in place of the government and sue operators for alleged violations of environmental laws. We have incurred and will continue to incur operating and capital expenditures, some of which may be material, to comply with environmental and occupational health and safety laws and regulations. Historically, our environmental and worker safety 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 operational results.
We own, lease or operate numerous properties that have been used for crude oil and natural gas wellsite support services for many years. We also have acquired certain properties supportive of oil and natural gas activities from third parties whose actions with respect to the management and disposal or release of hydrocarbons, hazardous substances or wastes at or from such properties were not under our control prior to acquiring them. Under environmental laws and regulations, we could incur strict joint and several liability for remediating hydrocarbons, hazardous substances or wastes disposed of or released by prior owners or operators. We also could incur costs related to the clean-up of third-party sites to which we sent regulated substances for disposal or to which we sent equipment for cleaning, and for damages to natural resources or other claims related to releases of regulated substances at or from such third-party sites.
Over time, both in the United States and in foreign countries, the trend in environmental and occupational health and safety laws and regulations is to typically place more restrictions and limitations on activities that may adversely affect the environment or expose workers to injury. Consequently, any new or amended legal requirement that may arise in the future to address potential environmental, health or safety-related concerns including, for example, as a result of oil and natural gas development in close proximity to occupied structures or environmentally-sensitive lands or recreational areas, could have a material adverse effect on our business, results of operations and financial position. While we maintain insurance coverage for certain environmental and occupational health and safety risks that we believe is consistent with insurance coverage held by other similarly situated industry participants, our insurance does not cover any penalties or fines that may be issued by a government authority. In addition, it is possible that other developments, such as stricter and more comprehensive environmental and occupational health and safety laws and regulations, claims for damages to property or persons or disruption of our customers' operations resulting from our actions or omissions, and imposition of penalties due to our operations could have a material adverse effect on us and our results of operations. See Risk Factors under Part I, Item 1A of this Form 10‑K for further discussion on environmental laws and regulations, including with respect to hydraulic fracturing; ozone standards, induced seismicity regulatory developments; climate change, including methane or other GHG emissions; storage and use of explosives; offshore drilling and related regulatory developments, including with respect to decommissioning obligations; and other risks or regulations relating to environmental protection.

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Item 1A. Risk Factors
The risks described in this Annual Report on Form 10‑K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Demand for the majority of our products and services is substantially dependent on the levels of expenditures by companies in the oil and natural gas industry. Lower oil and natural gas prices since 2014 have significantly reduced the demand for our products and services and the prices we are able to charge. This has had and may continue to have a material adverse effect on our financial condition and results of operations.
Demand for most of our products and services depends substantially on the level of expenditures by companies in the oil and natural gas industry. Lower oil and natural gas prices since 2014 have caused a reduction in most of our customers' drilling, completion and other production activities and related spending on our products and services. The reduction in demand from our customers has resulted in an oversupply of many of the services and products we provide, and such oversupply has substantially reduced the prices we can charge our customers for many of our products and services. Although oil prices improved since the trough in 2016, these price improvements have not resulted in significant global improvements in the demand for our products and services or the prices we are able to charge. If oil prices remain persistently low or decline further, our customers' activity levels and spending, along with the prices we charge, could worsen. In addition, a continuation or worsening of these conditions may result in a material adverse impact on certain of our customers' liquidity and financial position, resulting in further spending reductions, delays in the collection of amounts owing to us and similar impacts. These conditions have had, and may continue to have, an adverse impact on our financial condition, results of operations and cash flows, and it is difficult to predict how long the current depressed commodity price environment will continue.
While conditions in our industry improved in 2018, particularly in the shale resource plays in the United States, crude oil prices again declined significantly beginning in the fourth quarter of 2018. Given the historical volatility of crude oil prices, there remains a degree of risk that prices could remain highly volatile due to increases in global inventory levels, increasing domestic or international crude oil production, trade tensions with China, sanctions on Iranian production and tensions with Iran, civil unrest in Libya and Venezuela, increasing price differentials between markets, slowing growth rates in China and other global regions, use of alternative fuels, improved vehicle fuel efficiency, a more sustained movement to electric vehicles and/or the potential for ongoing supply/demand imbalances. If oil prices remain low or decline further, we could encounter difficulties such as an inability to access needed capital on attractive terms or at all, the incurrence of asset impairment charges, the inability to meet financial ratios contained in our debt agreements, the need to reduce our capital spending and other similar impacts. For example, our reduced EBITDA during recent periods resulted in our inability to access the full borrowing capacity available under our Revolving Credit Facility as a result of the maximum leverage ratio covenant. As more fully disclosed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Liquidity, Capital Resources and Other Matters," we discuss our expectations regarding liquidity and covenant compliance for 2020.
Many factors affect the supply of and demand for oil and natural gas and, therefore, influence product prices, including:
the level of drilling and completion activity;
the level of oil and natural gas production;
the levels of oil and natural gas inventories;
depletion rates;
worldwide demand for oil and natural gas;
the expected cost of finding, developing and producing new reserves;
delays in major offshore and onshore oil and natural gas field permitting or development timetables;
the availability of attractive offshore and onshore oil and natural gas field prospects that may be affected by governmental actions or environmental activists that may restrict development;
the availability of transportation infrastructure for oil and natural gas, refining capacity and shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
public health crises, such as the coronavirus outbreak at the beginning of 2020, which could impact the global economy;
global weather conditions and natural disasters;
worldwide economic activity including growth in developing countries;

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national government political requirements, including the ability and willingness of OPEC to set and maintain production levels and prices for oil and government policies which could nationalize or expropriate oil and natural gas exploration, production, refining or transportation assets;
shareholder activism or activities by non-governmental organizations to limit or cease certain sources of funding for the energy sector or restrict the exploration, development and production of oil and natural gas;
the impact of armed hostilities involving one or more oil producing nations;
rapid technological change and the timing and extent of development of energy sources, including liquefied natural gas or alternative fuels;
environmental and other governmental laws and regulations; and
domestic and foreign tax policies, including those regarding tariffs and duties.
In response to lower oil prices, many of our customers have reduced or delayed their capital spending, which reduced the demand for our products and services and exerted downward pressure on the prices paid for our products and services. Although some of our customers increased their 2019 capital expenditure budgets, these customers are still spending significantly less than their pre-2015 levels. Additionally, if oil prices remain at current levels or decline further, these customers may further reduce their spending levels. We expect that we will continue to encounter weakness in the demand for, and prices of, our products and services until commodity prices stabilize at higher levels and our customers' capital spending increases. Any prolonged reduction in the overall level of exploration and production activities, whether resulting from changes in oil and natural gas prices or otherwise, could materially adversely affect our financial condition, results of operations and cash flows in many ways including by negatively affecting:
our equipment utilization, revenues, cash flows and profitability;
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.
Given the cyclical nature of our business, a severe prolonged downturn could negatively affect the value of our goodwill and other intangible assets.
As of December 31, 2019, goodwill and other intangible assets represented 28% and 13%, respectively, of our total assets. We record goodwill when the consideration we pay in acquiring a business exceeds the fair market value of the tangible and separately measurable intangible net assets of that business. We are required to at least annually review the goodwill and other intangible assets of our applicable reporting units (Completion Services, Downhole Technologies and Offshore/Manufactured Products) for impairment in value and to recognize a non-cash charge against earnings causing a corresponding decrease in stockholders' equity if circumstances, some of which are beyond our control, indicate that the carrying amounts will not be recoverable. In the fourth quarter of 2019, for example, we recognized a goodwill impairment charge of $165 million in our Downhole Technologies reporting unit due to, among other factors, a reduction in our near-term outlook for demand related to our short-cycle products and services in the U.S. shale play regions. It is possible that we could recognize goodwill or other intangible assets impairment losses in the future if, among other factors:
global economic and industry conditions deteriorate;
the outlook for future profits and cash flow for any of our reporting units deteriorate further as the result of many possible factors, including, but not limited to, increased or unanticipated competition, lack of technological development, further reductions in customer capital spending plans, loss of key personnel, adverse legal or regulatory judgment(s), future operating losses at a reporting unit, downward forecast revisions, or restructuring plans;
domestic and/or foreign income tax rates increase, or regulations change;
costs of equity or debt capital increase;
valuations for comparable public companies or comparable acquisition valuations deteriorate; or
our stock price experiences a sustained decline.
Laws, regulations and other regulatory initiatives regarding hydraulic fracturing could increase our costs of doing business and result in additional operating restrictions, delays or cancellations in the completion of oil and natural gas wells, or possible bans on the performance of hydraulic fracturing that may reduce demand for our products and services and could have a material adverse effect on our business, results of operations and financial condition.
Although we do not directly engage in hydraulic fracturing, a material portion of our Completion Services, Downhole Technologies and Offshore/Manufactured Products operations support many of our oil and natural gas exploration and production customers in such activities. Hydraulic fracturing is an important and commonly used process for the completion of oil and natural

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gas wells in targeted subsurface formations with low permeability, such as shale formations, and involves the pressurized injection of water, sand or other proppants and chemical additives into rock formations to stimulate oil and natural gas production.
Hydraulic fracturing onshore in the United States is typically regulated by state oil and natural gas commissions and similar agencies. However, the practice continues to attract considerable public, scientific and governmental attention in certain parts of the country, resulting in increased scrutiny and regulation, including by federal agencies.
For example, in 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, Congress has from time to time considered legislation to provide for federal regulation of hydraulic fracturing in the United States and to require disclosure of the chemicals used in the hydraulic fracturing process. Due primarily to the threat of climate change arising from GHG emissions, certain candidates seeking the office of President of the United States in 2020 have pledged to take actions banning hydraulic fracturing of oil and natural gas.
At the state level, some states have adopted, and other states are considering adopting, legal requirements that could impose new or more stringent permitting, public disclosure or well construction requirements on hydraulic fracturing activities, including states where we or our customers operate, in addition to assessing more taxes, fees or royalties on production, or otherwise limiting the use of the technique. For example, in April 2019, the Governor of Colorado signed Senate Bill 19-181 into law, which legislation, among other things, revises the mission of the state oil and gas agency from fostering energy development in the state to instead focusing on regulating the oil and natural gas industry, in a manner that is protective of public health and safety and the environment, as well as authorizing cities and counties to regulate oil and natural gas operations within their jurisdiction as they do other developments. Among other things, the state oil and gas agency will consider enhanced safety and environmental protections during well development operations, including drilling and hydraulic fracturing activities. States could also elect to place prohibitions on hydraulic fracturing, following the approach taken by the States of Vermont, Maryland and New York. Local governments may seek to adopt ordinances within their jurisdictions regulating the time, place or manner of drilling activities in general or hydraulic fracturing activities in particular.
In the event that new or more stringent federal, state or local legal restrictions relating to use of the hydraulic fracturing process in the United States are adopted in areas where our oil and natural gas exploration and production customers operate, those customers could incur potentially significant added costs to comply with requirements relating to permitting, construction, financial assurance, monitoring, recordkeeping, and/or plugging and abandonment, as well as could experience delays or cancellations in the pursuit of production or development activities, any of which could reduce demand for the products and services of each of our business segments and have a material adverse effect on our business, financial condition, and results of operations.
In countries outside of the United States, including provincial, regional, tribal or local jurisdictions therein where we conduct operations, there may exist similar governmental restrictions or controls on our customers' hydraulic fracturing activities, which, if such restrictions or controls exist or are adopted in the future, our customers may incur significant costs to comply with such requirements or may experience delays or cancellations in the permitting or pursuit of their operations, which could have a material adverse effect on our business, results of operations and financial condition.
Explosive incidents arising out of dangerous materials used in our business could disrupt operations and result in bodily injuries and property damages, which occurrences could have a material adverse effect our business, results of operations and financial conditions.
Our Downhole Technologies business operations include the licensing, storage and handling of explosive materials. Despite our use of specialized facilities to store and handle dangerous materials and our performance of employee training programs, the storage and handling of explosive materials could result in explosive 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 such incidents could result in death or significant injuries to employees and other persons. Material property damage to us, our customers and third parties arising from an explosion or resulting fire could also occur. Any explosion could expose us to adverse publicity and liability for damages or cause production restrictions, delays or cancellations, any of which occurrences could have a material adverse effect on our operating results, financial condition and cash flows. Moreover, failure to comply with applicable requirements or the occurrence of an explosive incident may also result in the loss of our license to store and handle explosives, which would have a material adverse effect on our business, results of operations and financial conditions.

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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 products and services and could have a material adverse effect on our business, results of operations and financial condition.
Our oil and natural gas producing customers dispose of flowback 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. In recent years, wells in the United States used for the disposal by injection of flowback water or certain other oilfield fluids below ground into non-producing formations have been associated with an increased number of seismic events. When seismic events are caused by human activity, such events are called induced seismicity and developing research suggests that the link between seismic events and wastewater disposal may vary by region and local geology. In 2016, the U.S. geological survey identified six states with the most significant hazards from induced seismicity: 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, in recent years, Oklahoma and Texas have issued rules for wastewater disposal wells that imposed certain permitting and operating restrictions and reporting requirements on disposal wells in proximity to faults. States such as Oklahoma have also issued orders, from time to time, for certain wells where seismic incidents have occurred to restrict or suspend disposal well operations. 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. In countries outside of the United States where we conduct operations, there may exist similar governmental restrictions or controls over well disposal activities in an effort to limit the occurrence of induced seismicity. Increased regulation and public scrutiny of induced seismicity could lead to greater opposition, including litigation, to oil and natural gas activities utilizing injection wells for waste disposal. As a result, our customers may have to limit disposal well volumes, disposal rates or locations, or require those 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 products and services, which could have a material adverse effect on our business, results of operations and financial condition.
We do business in international jurisdictions which exposes us to unique risks.
A portion of our revenue and net assets are attributable to operations in countries outside the United States. Risks associated with our international operations include, but are not limited to:
expropriation, confiscation or nationalization of assets;
renegotiation or nullification of existing contracts;
foreign capital controls or similar monetary or exchange limitations;
foreign currency fluctuations;
foreign taxation;
tariffs and duties on imported and exported goods;
the inability to repatriate earnings or capital in a tax efficient manner;
changing political conditions;
economic or trade sanctions;
changing foreign and domestic monetary and trade policies;
regulatory restrictions or controls more stringently applied or enforced;
changes in trade activity;
military or social situations, such as a widespread outbreak of an illness such as the coronavirus or other public health issues, in foreign areas where we do business, and the possibilities of war, other armed conflict or terrorist attacks; and
regional economic downturns.
Additionally, in some jurisdictions we are subject to foreign governmental regulations favoring or requiring the awarding of contracts to local contractors, or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These regulations may adversely affect our ability to compete in such jurisdictions.
The U.S. Foreign Corrupt Practices Act (the "FCPA"), and similar anti-bribery laws in other jurisdictions, including the United Kingdom Bribery Act 2010, generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. We operate in many parts of the world that have experienced governmental

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corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices and impact our business. Any failure to comply with the FCPA or other anti-bribery legislation could subject us to civil and criminal penalties or other sanctions, which could have a material adverse impact on our business, financial condition and results of operations. We could also face fines, sanctions, and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in, or curtailment of, business operations in those jurisdictions and the seizure of assets. Additionally, we may have competitors who are not subject to the same ethics-related laws and regulations which provides them with a competitive advantage over us by securing business awards, licenses, or other preferential treatment, in those jurisdictions using methods that certain ethics-related laws and regulations prohibit us from using.
The regulatory regimes in some foreign countries may be substantially different than those in the United States, and may be unfamiliar to U.S. investors. Violations of foreign laws could result in monetary and criminal penalties against us or our subsidiaries and could damage our reputation and, therefore, our ability to do business.
The ultimate impact of recent changes to tariffs and duties imposed by the United States and other countries is uncertain. We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. In 2018, the United States imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these new tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continues to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase further as a result of customs, anti-dumping and countervailing duty regulations or otherwise, and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position and results of operations. See Note 14, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
Additional domestic and international deepwater drilling laws, regulations and other restrictions, any delays in the processing and approval of drilling permits and exploration, development, oil spill-response and decommissioning plans and any other offshore-related developments may reduce demand for our services and products and have a material adverse effect on our business, financial condition, or results of operations.
A significant portion of our Offshore/Manufactured Products segment provides products and services for oil and natural gas exploration and production customers operating offshore in the deepwaters of the United States' outer continental shelf ("OCS") and in other countries. In the United States, the Bureau of Ocean Energy Management ("BOEM") and the Bureau of Safety and Environmental Enforcement ("BSEE"), each an agency of the U.S. Department of the Interior, have, over time, imposed more stringent permitting procedures and regulatory safety and performance requirements with respect to new wells to be drilled in federal waters. Our customers' compliance with these more stringent regulatory requirements, as well as with existing environmental and oil spill regulations, which compliance may be exacerbated by any uncertainties or inconsistencies in decisions and rulings by governmental agencies, delays in the processing and approval of drilling permits or exploration, development, oil spill-response and decommissioning plans and possible additional regulatory initiatives, could result in those customers incurring difficult and more costly actions and adversely affect, delay or curtail new drilling and ongoing development efforts.
Additionally, the trend in the United States over the past decade has been for governmental agencies to continue to evaluate and, as necessary, develop and implement new, more restrictive requirements that could result in additional costs, delays, restrictions or obligations on offshore oil and natural gas exploration and production operations, although in recent years under the Trump Administration, there have been actions seeking to mitigate or delay certain of those more rigorous standards. For example, in 2016, the BSEE under the Obama Administration published a final rule on well control that, among other things, imposed rigorous standards relating to the design, operation and maintenance of blowout preventers, real-time monitoring of deepwater and high temperature, high pressure drilling activities, and enhanced reporting requirements. Pursuant to certain executive orders issued by President Trump in 2017 ("Executive Orders"), however, the BSEE initiated a review of the well control rule and other offshore rules and initiatives to determine whether they are consistent with the stated policy of encouraging energy exploration and production, while ensuring that any such activity is safe and environmentally responsible. One consequence of this review is that in May 2019, the BSEE published final revisions to the existing April 2016 rule on well control that, among other things, eliminated the requirement for a BSEE-approved verification organization for third party-parties providing certifications of certain critical well control functions and the removal or modification of certain other prescriptive requirements. Additional consequences of this BSEE review were (i) the September 2018 BSEE publication of final revisions to its Production Safety Systems Rule, pursuant to which the agency removed a requirement for offshore operators to certify through an independent third party that their critical safety and pollution prevention equipment (e.g., subsea safety equipment, including blowout preventers) was operational and functioning as designed in the most

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extreme conditions , and (ii) a June 2017 delay in implementation of a Notice to Lessees and Operators ("NTL") issued by BSEE under the Obama Administration that would bolster supplemental bonding procedures for the decommissioning of offshore wells, platforms, pipelines, and other facilities by oil and natural gas exploration and production operators on the OCS. Implementation of this NTL could result in significant increases in financial assurances for our customers operating on the OCS but the NTL was delayed indefinitely beyond June 30, 2017 so that BOEM could further assess this financial assurance program. This delay is expected to be temporary in nature. There exists the possibility that certain of these recent mitigatory actions under the Trump Administration could be withdrawn or revised in the future by a different administration to impose or re-implement more stringent standards. Moreover, due primarily to the threat of climate change arising from GHG emissions, certain candidates seeking the office of President of the United States in 2020 have pledged to take actions banning new mineral leases on federal properties, including offshore leases on the OCS.
Outside of the United States, there are countries and provincial, regional, tribal or local jurisdictions therein where our offshore oil and gas exploration and production customers are conducting business that also have, or may be developing, regulatory initiatives or analogous controls that regulate the permitting and regulatory safety and performance aspects of those customers’ development and production activities. While the legal requirements imposed in foreign countries or jurisdictions therein may be similar in form to U.S. laws and regulations, in some cases the actual implementation of these requirements may impose additional, or more stringent, conditions or controls that can significantly restrict, delay or cancel the permitting, development or expansion of an offshore energy project or substantially increase the cost of doing business offshore. These regulatory actions, or any new rules, regulations, or legal initiatives or controls, whether in the United States under the Trump Administration or another administration following the 2020 U.S. presidential elections or in other countries, that impose increased costs or more stringent operational standards could delay or disrupt our customers' operations, increase the risk of expired leases due to the time required to develop new technology, result in increased supplemental bonding and costs and limit activities in certain areas, or cause our customers to incur penalties, fines, or shut-in production at one or more of their facilities or result in the suspension or cancellation of leases, any or all of which could reduce demand for our products and services under our Offshore/Manufactured Products segment. While the United States under the Trump Administration has generally indicated an interest in scaling back or rescinding regulations that inhibit the development of the domestic oil and natural gas industry, it is difficult to predict the extent to which such policies will be implemented or the outcome of any litigation challenging such implementation.
Also, if material spill events were to occur in the future, the United States or other countries where such an event were to occur could elect to issue directives to temporarily cease drilling activities and, in any event, may from time to time issue further safety and environmental laws and regulations regarding offshore oil and natural gas exploration and development, any of which developments could have a material adverse effect on our business. We cannot predict with any certainty the full impact of any new laws, regulations or legal initiatives or controls on our customers' drilling operations or on the cost or availability of insurance to cover the risks associated with such operations. The matters described above, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
Consolidation of our customers and competitors may impact our results of operations.
The oil and gas industry continues to experience consolidation. Industry consolidation may result in reduced capital spending by some of our customers, the acquisition of one or more of our primary customers or competitors or consolidated entities using size and purchasing power to seek pricing or other concessions, which may lead to decreased demand for our products and services. In addition, recent, ongoing and future mergers, combinations and consolidations in our industry could result in existing competitors increasing their market share and may result in stronger competitors. As a result, industry consolidation may have a significant negative impact on our results of operations, financial position or cash flows.
Exchange rate fluctuations could adversely affect our U.S. reported results of operations and financial position.
In the ordinary course of our business, we enter into purchase and sales commitments that are denominated in currencies that differ from the functional currency used by our operating subsidiaries. Currency exchange rate fluctuations can create volatility in our consolidated financial position, results of operations, and/or cash flows. Although we may enter into foreign exchange agreements with financial institutions in order to reduce our exposure to fluctuations in currency exchange rates, these transactions, if entered into, will not eliminate that risk entirely. To the extent that we are unable to match revenues received in foreign currencies with expenses paid in the same currency, exchange rate fluctuations could have a negative impact on our consolidated financial position, results of operations, and/or cash flows. Additionally, because our consolidated financial results are reported in U.S. dollars, if we generate net revenues or earnings in countries whose currency is not the U.S. dollar, the translation of such amounts into U.S. dollars can result in an increase or decrease in the amount of our net revenues and earnings depending upon exchange rate movements. As a result, a material decrease in the value of these currencies relative to the U.S. dollar may have a negative impact on our reported results of operations and cash flows. Any currency controls implemented by local monetary authorities in countries where we currently operate could also adversely affect our business, financial condition, and results of operations.

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The results of the United Kingdom's decision to withdraw from the European Union including subsequent exchange rate fluctuations and political and economic uncertainties may have a negative effect on global economic conditions, financial markets and our business.
We are a multinational company and are subject to the risks inherent in doing business in other countries, including the United Kingdom (the "U.K."). In June 2016, a majority of voters in the U.K. elected to withdraw from the European Union in a national referendum ("Brexit"). On January 31, 2020, the U.K. Parliament ratified a withdrawal agreement between the U.K. government and the European Union, which contemplates a transition period to allow time for a future trade deal to be agreed upon. The terms of these trade agreements could potentially disrupt the markets we serve and the jurisdictions in which we operate and may cause us to lose customers, suppliers and employees.
The impact from Brexit on our business and operations will depend on the outcome of tariff, tax treaty, trade, regulatory and other negotiations, as well as the impact of the withdrawal on macroeconomic growth and currency volatility, which are uncertain at this time. Any of these effects of Brexit could have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous environmental laws and regulations that may expose us to significant costs and liabilities.
Our operations are significantly affected by numerous laws and regulations domestically at the federal, regional, state, tribal and local levels or by foreign governments regarding the discharge of substances into the environment or otherwise relating to environmental protection. We could be exposed to liabilities for cleanup costs, natural resource damages, and other damages under these laws and regulations, with certain of these legal requirements imposing strict liability for such damages and costs, even though our conduct was lawful at the time it occurred or the conduct resulting in such damage and costs were caused by prior operators or other third-parties. Our oil and natural gas exploration and production customers are similarly subject to these environmental laws and regulations, which could result in increased costs or delay or cancel new drilling and ongoing development efforts, which developments could reduce the demand for our services and products.
Environmental laws and regulations in the United States and in foreign countries are subject to change in the future, possibly resulting in more stringent legal requirements. If existing regulatory requirements or enforcement policies change or new regulatory or enforcement initiatives are developed and implemented in the future, we or our customers may be required to make significant, unanticipated capital and operating expenditures. Examples of recent regulations or other regulatory initiatives in the United States include the following:
Ground-Level Ozone Standards.    In 2015, the EPA issued a final rule under the CAA, lowering the National Ambient Air Quality Standard ("NAAQS") for ground-level ozone from 75 parts per billion to 70 parts per billion under both the primary and secondary standards to provide requisite protection of public health and welfare, respectively. Since that time, the EPA has issued area designations with respect to ground-level ozone and final requirements that apply to state, local, and tribal air agencies for implementing the 2015 NAAQS for ground-level ozone. State implementation of the revised NAAQS could, among other things, require installation of new emission controls on some of our or our customers' equipment, result in longer permitting timelines, and significantly increase our or our customers' capital expenditures and operating costs.
EPA Review of Drilling Waste Classification.    Drilling, fluids, produced water and most of the other wastes associated with the exploration, development and production of oil or natural gas, if properly handled, are currently exempt from regulation as hazardous waste under the RCRA and instead, are regulated under RCRA's less stringent non-hazardous waste provisions. However, it is possible that certain of our oil and natural gas customers' drilling and production wastes, now classified as non-hazardous, could be classified as hazardous wastes in the future. For example, pursuant to a consent decree issued by the U.S. District Court for the District of Columbia in late 2016, the EPA was required to propose by no later than March 15, 2019, a rulemaking for revision of certain Subtitle D criteria regulations that could result in oil and natural gas exploration and production wastes being regulated as hazardous wastes. In response, the EPA conducted a review as required under the consent decree and, on April 23, 2019, issued its determination that revisions to the Subtitle D regulations were unnecessary. Nonetheless, this determination could be made subject to legal challenge, or the EPA may in the future propose a rulemaking for revised oil and natural gas waste regulations. Notwithstanding the EPA's 2019 determination, any future loss of such RCRA exemption could require our customers to make significant expenditures to attain and maintain compliance.

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Waters of the United States.    In 2015, the EPA and U.S. Army Corps of Engineers ("Corps") released a final rule outlining federal jurisdictional reach under the Clean Water Act over waters of the United States, including wetlands. In 2017, the EPA and the Corps agreed to reconsider the 2015 rule and, thereafter, on October 22, 2019, the agencies published a final rule to rescind the 2015 rule and recodify the regulatory text that governed waters of the United States prior to promulgation of the 2015 rule. This final rule became effective on December 23, 2019. The re-codified regulatory text will govern waters of the United States until such time as the EPA and Corps issue a final rule re-defining the Clean Water Act's jurisdiction over waters of the United States in replacement of the 2015 rule but, to date, the two agencies have only published a proposed rulemaking on re-defining such jurisdiction in February 2019. The 2015 final rule is being challenged by various factions in federal district court with the 2015 rule currently being in force in twenty-two states; however, with the December 2019 effectiveness of the rule rescinding the 2015 rule, it is expected that those challenges will become moot unless additional legal actions challenging this 2019 rule arise. The adoption of any laws, regulations or other legal enforceable mandates that result in expanding the scope of the Clean Water Act's jurisdiction in areas where we or our customers conduct operations could result in us or our customers incurring increased costs and restrictions, delays or cancellations in permitting or development of projects.
Compliance with these regulations and other regulatory initiatives, or any other new environmental laws and regulations could, among other things, require us or our customers to install new or modified emission controls on equipment or processes, incur longer permitting timelines, and incur significantly increased capital or operating expenditures, which costs may be significant. Additionally, one or more of these developments that impact our oil and natural gas exploration and production customers could reduce demand for our products and services. Moreover, any failure by us to comply with applicable environmental laws and regulations may result in governmental authorities taking actions against our business that could adversely impact our operations and financial condition, including the:
issuance of administrative, civil, and/or criminal penalties;
denial or revocation of permits or other authorizations;
reduction, delay or cessation in operations, including any development or expansion of projects; and
performance of site investigatory, remedial, or other corrective actions or the incurrence of capital expenditures.
An accidental release of pollutants into the environment may cause us to incur significant costs and liabilities.
Our business activities present risks of incurring significant environmental costs and liabilities in our business as a result of our handling of petroleum hydrocarbons, because of air emissions and waste water discharges related to our operations, and due to historical industry operations and waste disposal practices. Additionally, private parties, including the owners or operators 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 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 owners or operators of properties or other third parties. Remedial costs and other damages, including natural resources 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 liquidity, results of operations and financial condition. We may not be able to recover some or any of these costs from insurance.
We could incur significant costs in complying with stringent occupational health and safety requirements
We are subject to stringent federal and state laws and regulations, including the federal Occupational Safety and Health Act and comparable state statutes, whose purpose is to protect the health and safety of workers, both generally and within the Well Site Services, Downhole Technologies, and Offshore Manufactured Products industries. In addition, OSHA's 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 concerning hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and citizens. We, and the entities in which we own an interest, are subject to OSHA Process Safety Management regulations, which are designed to prevent or minimize the consequences of catastrophic releases of toxic, reactive, flammable or explosive chemicals. The regulations apply to any process that (1) involves a listed chemical in a quantity at or above the threshold quantity specified in the regulation for that chemical or (2) involves certain flammable gases or flammable liquids present on site in one location in a quantity of 10,000 pounds or more.

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Our and our customers' operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide.
The threat of climate change continues to attract considerable attention in the United States and in foreign countries. Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate such future emissions. As a result, our operations as well as the operations of our oil and natural gas exploration and production customers are subject to a series of regulatory, political, financial and litigation risks associated with the production and processing of fossil fuels and emission of GHGs.
In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, with the U.S. Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources, implement New Source Performance Standards directing the reduction of methane from certain new, modified, or reconstructed facilities in the oil and natural gas sector, and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the United States. Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. At the international level, there exists the United Nations-sponsored "Paris Agreement," which is a non-binding agreement for nations to limit their GHG emissions through individually-determined reduction goals every five years after 2020, although the United States has announced its withdrawal from such agreement, effective November 4, 2020.
Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in federal political risks in the United States in the form of pledges made by certain candidates seeking the office of the President of the United States in 2020. Critical declarations made by one or more presidential candidates include proposals to ban hydraulic fracturing of oil and natural gas wells and ban new leases for production of minerals on federal properties, including onshore lands and offshore waters. Other actions to oil and natural gas production activities that could be pursued by presidential candidates may include more restrictive requirements for the establishment of pipeline infrastructure or the permitting of liquefied natural gas export facilities, as well as the rescission of the United States’ withdrawal from the Paris Agreement in November 2020. Litigation risks are also increasing, as a number of cities, local governments and other plaintiffs have sought to bring suit against the largest oil and natural gas exploration and production companies in state or federal court, alleging, among other things, that such energy companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore, are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.
There are also increasing financial risks for fossil fuel producers as shareholders and bondholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-fossil fuel energy related sectors. Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. Additionally, the lending practices of institutional lenders have been the subject of intensive lobbying efforts in recent years, oftentimes public in nature, by environmental activists, proponents of the international Paris Agreement, and foreign citizenry concerned about climate change not to provide funding for fossil fuel producers. Limitation of investments in and financings for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities.
The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate GHG emissions could result in increased costs of compliance or costs of consuming fossil fuels. Such legislation or regulations could consequently reduce demand for oil and natural gas, which could reduce demand for our services and products. Additionally, political, financial and litigation risks may result in our oil and natural gas customers restricting or canceling production activities, incurring liability for infrastructure damages as a result of climatic changes, or impairing the ability to continue to operate in an economic manner, which also could reduce demand for our services and products. One or more of these developments could have a material adverse effect on our business, financial condition and results of operation.

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The Endangered Species Act, the Migratory Bird Treaty Act and other laws intended to protect certain species of wildlife govern our and our oil and natural gas exploration and production customers' operations, 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.
In the United States, the federal Endangered Species Act and comparable state laws were established to protect endangered and threatened species. Under the Endangered Species Act, if a species is listed as threatened or endangered, restrictions may be imposed on activities adversely affecting that species' habitat. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act. Oil and natural gas operations in our operating areas may 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 and threatened species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures.
Moreover, as a result of one or more settlements approved by the United States federal government, the U.S. Fish and Wildlife Service must make determinations on the listing of numerous species as endangered or threatened under the Endangered Species Act. The designation of previously unidentified endangered or threatened species could indirectly cause us to incur additional costs, cause our or our oil and natural gas exploration and production customers' operations to become subject to operating restrictions or bans, and limit future development activity in affected areas, which could reduce demand for our products and services to those customers.
Our inability to control the inherent risks of identifying and integrating businesses that we may acquire, including any related increases in debt or issuances of equity securities, could adversely affect our operations.
Acquisitions have been, and our management believes will continue to be, a key element of our growth strategy. We continually review complementary acquisition opportunities and we expect to seek to consummate acquisitions of such businesses in the future. However, we may not be able to identify and acquire acceptable acquisition candidates on favorable terms in the future or at all. In addition, we may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in connection with such acquisitions. Such additional debt service requirements could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders.
We expect to gain certain business, financial, and strategic advantages as a result of business combinations we undertake, including synergies and operating efficiencies. Our forward-looking statements assume that we will successfully integrate our business acquisitions and realize these intended benefits. However, our inability to realize expected financial performance and strategic advantages as a result of an acquisition could negatively affect the anticipated benefits of the acquisition. Additional risks we could face in connection with acquisitions include:
retaining key employees and customers of acquired businesses;
retaining supply and distribution relationships key to the supply chain;
increased administrative burden, including additional costs associated with regulatory compliance;
diversion of management time and attention;
developing our sales and marketing capabilities;
managing our growth effectively;
integrating operations, workforce, product lines and technology;
managing tax and foreign exchange exposure;
operating a new line of business;
increased logistical problems common to large, expansive operations;
inability to pursue and protect patents covering acquired technology;
addition of acquisition-related debt and increased expenses and working capital requirements;
substantial accounting charges for restructuring and related expenses, write-off of in-process research and development, impairment of goodwill, amortization of intangible assets, and stock-based compensation expense;

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becoming subject to unanticipated liabilities of the acquired business, including litigation related to the acquired business; and
achieving the expected benefits from the acquisition, including certain cost savings and operational efficiencies or synergies.
If we fail to manage any of these risks successfully, our business could be harmed. Our capitalization and results of operations may change significantly following an acquisition, and stockholders of the Company may not have the opportunity to evaluate the economic, financial, and other relevant information that we will consider in evaluating future acquisitions.
Following our acquisition of GEODynamics in January 2018, we determined that certain steel products historically imported by GEODynamics from China for use in its manufacturing process may potentially be subject to anti-dumping and countervailing duties based on recent clarifications/decisions rendered by the U.S. Department of Commerce and the U.S. Court of International Trade. Following these findings, we commenced an internal review of this matter and ceased further purchases of these potentially affected Chinese products. As part of our internal review, we engaged trade counsel and decided to voluntarily disclose this matter to U.S. Customs and Border Protection in September 2018. In connection with the GEODynamics Acquisition, the seller agreed to indemnify and hold us harmless against certain claims related to matters such as this, and we have provided notice to and asserted indemnification claims against the seller. Additionally, we are able to set-off payments due under the $25.0 million promissory note issued to the seller of GEODynamics in respect of indemnification claims. Such note was scheduled to mature on July 12, 2019, but, because we have provided notice to and asserted indemnification claims, the maturity date of the note is extended until the resolution of such claim. We expect that the amount ultimately paid in respect of such note will be reduced as a result of these indemnification claims. See Note 7, "Long-term Debt," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
We might be unable to compete successfully with other companies in our industry.
The markets in which we operate are highly competitive and certain of them have relatively few barriers to entry. The principal competitive factors in our markets are product, equipment and service quality, availability, responsiveness, experience, technology, safety performance, and price. In some of our product and service offerings, we compete with the oil and natural gas industry's largest oilfield service providers. These large national and multi-national companies have longer operating histories, greater financial, technical, and other resources, and greater name recognition than we do. Several of our competitors provide a broader array of services and have a stronger presence in more geographic markets. In addition, we compete with many smaller companies capable of competing effectively on a regional or local basis. Our competitors may be able to respond more quickly to new or emerging technologies and services, and changes in customer requirements. Many contracts are awarded on a bid basis, which further increases competition based on price. As a result of competition, we may lose market share or be unable to maintain or increase prices for our present services, or to acquire additional business opportunities, which could have a material adverse effect on our business, financial condition, and results of operations.
Our business and results of operations could be negatively impacted by security threats, including cybersecurity threats, and other disruptions.
We rely heavily on information systems to conduct our business. Although we devote significant resources to protect our systems and data, we may experience various security threats, including cybersecurity threats to gain unauthorized access to sensitive information or to render data or systems unusable; threats to the safety of our employees; threats to the security of our facilities and infrastructure, or third-party facilities and infrastructure; and threats from terrorist acts. Cybersecurity attacks in particular are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. Although we utilize various procedures and controls to monitor these threats and mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing. If any of these events were to materialize, they could lead to losses of sensitive information (including our intellectual property and customer data), critical infrastructure, personnel or capabilities, essential to our operations, and could have a material adverse effect on our reputation, financial position, results of operations, or cash flows.
We may not have adequate insurance for potential liabilities and our insurance may not cover certain liabilities, including litigation risks.
The products that we manufacture and the services that we provide are complex, and the failure of our equipment to operate properly or to meet specifications may greatly increase our customers' costs. In addition, many of these products are used in inherently hazardous applications where an accident or product failure can cause personal injury or loss of life, damages to property, equipment, or the environment, regulatory investigations and penalties, and the suspension or cancellation of the end-user's operations. If our products or services fail to meet specifications, or are involved in accidents or failures, we could face warranty, contract, or other litigation claims for which we may be held responsible and our reputation for providing quality products may suffer. In the ordinary

-24-



course of business, we become the subject of various claims, lawsuits, and administrative proceedings, seeking damages or other remedies concerning our commercial operations, products, employees, and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our products or operations. Some of these claims relate to the activities of businesses that we have sold, and some relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to our acquisition of such businesses.
We maintain insurance to cover many of our potential losses, and we are subject to various self-retentions and deductibles under our insurance policies. It is possible, however, that a judgment could be rendered against us in cases in which we could be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for such matters. Even a partially uninsured or underinsured claim, if successful and of significant size, could have a material adverse effect on our results of operations or consolidated financial position. We also face the following other risks related to our insurance coverage:
we may not be able to continue to obtain insurance on commercially reasonable terms;
we may be faced with types of liabilities that will not be covered by our insurance, such as damages from environmental contamination or terrorist attacks;
the counterparties to our insurance contracts may pose credit risks; and
we may incur losses from interruption of our business that exceed our insurance coverage.
Weather conditions in our regions of operations may limit our ability to operate our business and could adversely affect our operating results, which are susceptible to seasonal earnings volatility.
Our operations are directly affected by seasonal differences in weather in the areas in which we operate, most notably in the Rocky Mountain region of the United States and the Gulf of Mexico. Severe winter weather conditions in the Rocky Mountain region of the United States can restrict access to work areas for our Well Site Services and Downhole Technologies segment customers. Our operations in and near the Gulf of Mexico are also affected by weather patterns. Weather conditions in the Gulf Coast region generally result in higher drilling activity in the spring, summer and fall months, with the lowest levels of activity in the winter months. In addition, summer and fall drilling activity can be restricted due to hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast. As a result of these seasonal differences, full year results are not likely to be a direct multiple of any particular quarter or combination of quarters.
Some forecasters also expect that potential climate changes may have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events and could have an adverse effect on our or our customers’ operations. Any unusual or prolonged severe weather or increased frequency thereof, such as freezing rain, earthquakes, hurricanes, droughts, or floods in our or our oil and gas exploration and production customers’ areas of operations or markets, whether due to climate change or otherwise, could have a material adverse effect on our business, results of operations and financial condition. Our planning for normal climatic variation, insurance programs and emergency recovery plans may inadequately mitigate the effects of such weather conditions, and not all such effects can be predicted, eliminated or insured against.
We are exposed to risks relating to subcontractors' performance in some of our projects.
In many cases, we subcontract the performance of portions of our operations to subcontractors. While we seek to obtain appropriate indemnities and guarantees from these subcontractors, we remain ultimately responsible for the performance of our subcontractors. Industrial disputes, natural disasters, financial failure or default, or inadequate performance in the provision of services, or the inability to provide services by such subcontractors, has the potential to materially adversely affect us.
We depend on several significant customers in each of our business segments, and the loss of one or more such customers or the inability of one or more such customers to meet their obligations to us, could adversely affect our results of operations.
We depend on several significant customers in each of our business segments. While no customer accounted for more than 10% of our consolidated revenues in 2019, Halliburton Company individually accounted for 10% and 16% of our total consolidated revenues in 2018 and 2017, respectively.
The loss of a significant portion of customers in any of our business segments, or a sustained decrease in demand by any of such customers, could result in a loss of revenues and could have a material adverse effect on our results of operations. In addition, the concentration of customers in one industry impacts our overall exposure to credit risk, in that customers may be similarly affected by changes in economic and industry conditions. While we perform ongoing credit evaluations of our customers, we do not generally require collateral in support of our trade receivables.

-25-



As a result of our customer concentration, risks of nonpayment and nonperformance by our counterparties are a concern in our business. Many of our customers finance their activities through cash flow from operations, the incurrence of debt, or the issuance of equity. Many of our customers have experienced substantial reductions in their cash flows from operations, and some are experiencing liquidity shortages, lack of access to capital and credit markets, a reduction in borrowing bases under reserve-based credit facilities, and other adverse impacts to their financial condition. These conditions may result in a significant reduction in our customers' liquidity and ability to pay or otherwise perform on their obligations to us. The inability, or failure of, our significant customers to meet their obligations to us, or their insolvency or liquidation, may adversely affect our financial results.
We may assume contractual risks in developing, manufacturing and delivering products in our Offshore/Manufactured Products business segment.
Many of our products from our Offshore/Manufactured Products segment are ordered by customers under frame agreements or project-specific contracts. In some cases these contracts stipulate a fixed price for the delivery of our products and impose liquidated damages or late delivery fees if we do not meet specific customer deadlines. Our actual costs, and any gross profit realized on these fixed-price contracts, may vary from the initially expected contract economics. This may occur for various reasons, including but not limited to:
errors in estimates or bidding;
changes in availability and cost of materials and labor;
failures of our suppliers to deliver raw materials and other goods that comply with our specifications;
variations in productivity from our original estimates;
changes in tariffs or tax regimes; and
material changes in foreign currency exchange rates.
These variations and the risks inherent in our projects may result in reduced profitability or losses on projects. Depending on the size of a project, variations from estimated contract performance could have a material adverse impact on our operating results.
In addition, some customer contracts stipulate consequential damages payable, generally as a result of our gross negligence or willful misconduct. The final delivered products may also include customer and third-party supplied equipment, the delay of which can negatively impact our ability to deliver our products on time at our anticipated profitability.
In certain cases these orders include new technology or unspecified design elements. There is inherent risk in the estimation process including significant unforeseen technical and logistical challenges, or longer than expected lead times. In some cases we may not be fully, or, properly compensated for the cost to develop and design the final products, negatively impacting our profitability on the projects. In addition, our customers, in many cases, request changes to the original design or bid specifications for which we may not be fully or properly compensated.
In fulfilling some contracts, we provide limited warranties for our products. Although we estimate and record a provision for potential warranty claims, repair or replacement costs under warranty provisions in our contracts could exceed the estimated cost to cure the claim, which could be material to our financial results. We utilize percentage-of-completion accounting, depending on the size and length of a project, and variations from estimated contract performance could have a significant impact on our reported operating results as we progress toward completion of major jobs.
Backlog in our Offshore/Manufactured Products segment is subject to unexpected adjustments and cancellations and, therefore, has limitations as an indicator of our future revenues and earnings.
The revenues projected in our Offshore/Manufactured Products segment backlog may not be realized or, if realized, may not result in profits. Because of potential changes in the scope or schedule of our customers' projects, we cannot predict with certainty when or if backlog will be realized. Material delays, cancellations or payment defaults could materially affect our financial condition, results of operations, and cash flows.
Reductions in our backlog due to cancellations or deferrals by customers, or for other reasons, would adversely affect, potentially to a material extent, the revenues and earnings we actually receive from contracts included in our backlog. Some of the contracts in our backlog are cancellable by the customer, subject to the payment of termination fees and/or the reimbursement of our costs incurred. We typically have no contractual right to the total revenues reflected in our backlog once a project is canceled. While backlog cancellations have not been significant in the past, we incurred cancellations totaling $5.0 million, $6.5 million and $3.5 million during 2019, 2018 and 2017, respectively. If commodity prices do not improve, or decline further, we may incur additional cancellations or experience declines in our backlog.

-26-



We might be unable to employ a sufficient number of technical and service personnel.
Many of the products that we sell in our Offshore/Manufactured Products and Downhole Technologies segments are complex and highly engineered, and often must perform in harsh conditions. We believe that our success depends upon our ability to employ and retain technical personnel with the ability to design, utilize, and enhance these products. In addition, our ability to expand our operations in each of our businesses depends in part on our ability to increase our skilled labor force. As observed in the U.S. shale play regions such as the Permian Basin in recent years, during periods of increased activity, the demand for skilled workers is high, and the supply is limited. When these events occur, our cost structure increases and our growth potential could be impaired. Conversely, during periods of reduced activity, we are forced to reduce headcount, freeze or reduce wages, and implement other cost-saving measures which could lead to job abandonment by our technical and service personnel.
If we do not develop new competitive technologies and products, our business and revenues may be adversely affected.
The market for our products and services is characterized by continual technological developments to provide better performance in increasingly greater depths, higher pressure levels and harsher conditions. If we are unable to design, develop, and produce commercially competitive products in a timely manner in response to changes in technology, our business and revenues will be adversely affected. Many of our competitors are large multinational companies that may have significantly greater financial resources than we have, and they may be able to devote greater resources to research and development of new systems, services and technologies than we are able to do. In addition, competitors or customers may develop new technologies, which address similar or improved solutions to our existing technology. In 2019, for example, our Downhole Technologies segment sales of perforating products declined due, in part, to the introduction of integrated gun systems by its competitors. Additionally, the development and commercialization of new products and services requires substantial capital expenditures and we may not have access to needed capital at attractive rates or at all due to our financial condition, disruptions of the bank or capital markets, or other reasons beyond our control to continue these activities. Should our technologies become the less attractive solution, our operations and profitability would be negatively impacted.
We may be subject to litigation if another party claims that we have infringed upon its intellectual property rights.
The tools, techniques, methodologies, programs, and components we use to provide our products and services may infringe, or be alleged to infringe, upon the intellectual property rights of others. Infringement claims generally result in significant legal and other costs, and may distract management from running our core business. Royalty payments under a license from third parties, if available, would increase our costs. If a license was not available, we might not be able to continue providing a particular service or product. Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.
During periods of strong demand or limited supply, we may be unable to obtain critical materials on a timely basis.
Our operations depend on our ability to procure, on a timely basis, certain project materials, such as forgings, to complete projects and produce products in an efficient and timely manner. Our inability to procure critical materials during times of strong demand/limited supply or at reasonable costs due to supply issues, plant closures due to heath concerns or other issues, import taxes or the like, could have a material adverse effect on our business and operations.
Our oilfield operations involve a variety of operating hazards and risks that could cause losses.
Our operations are subject to the hazards inherent in the oilfield business. These include, but are not limited to, equipment defects, blowouts, explosions, spills, fires, collisions, capsizing, and severe weather conditions. These hazards could result in personal injury and loss of life, severe damage to, or destruction of, property and equipment, pollution or environmental damage, and suspension of operations. We may incur substantial liabilities or losses as a result of these hazards as part of our ongoing business operations. We may agree to indemnify our customers against specific risks and liabilities. While we maintain insurance protection against some of these risks, and seek to obtain indemnity agreements from our customers requiring the customers to hold us harmless from some of these risks, our insurance and contractual indemnity protection may not be sufficient or effective enough to protect us under all circumstances or against all risks. The occurrence of a significant event not fully insured or indemnified against or the failure of a customer to meet its indemnification obligations to us could materially and adversely affect our results of operations and financial condition.
Our common stock price has been and is likely to continue to be highly volatile.
The trading price of our common stock is subject to wide fluctuations in response to the highly cyclical nature of our industry and a variety of other factors, including quarterly variations in operating results, conditions in the oil and gas industry, perceptions of our industry, analyst reports, estimates and commentary, general economic conditions and numerous other events or factors that are beyond our control.

-27-



In addition, the U.S. stock markets in general and the market for oilfield service companies in particular, have experienced large price and volume fluctuations that have often been unrelated or disproportionate to the operating results or asset values of those companies. These broad market and industry factors may materially impact the market price and trading volume of our common stock regardless of our actual operating performance.
We might be unable to protect our intellectual property rights and we may be subject to litigation if another party claims that we have infringed upon its intellectual property rights.
We rely on a variety of intellectual property rights that we use in our businesses, including our patents relating to our FlexJoint®, Merlin™ and SmartStart Plus® technologies, and intervention and downhole extended-reach tools (including our HydroPull® tool) utilized in the completion or workover of oil and natural gas wells. The market success of our technologies will depend, in part, on our ability to obtain and enforce our proprietary rights in these technologies, to preserve rights in our trade secret and non-public information, and to operate without infringing the proprietary rights of others. We may not be able to successfully preserve these intellectual property rights and these rights could be invalidated, circumvented or challenged. In addition, we may be required to expend significant amounts of money pursuing and defending our intellectual property rights, and these proceedings may not ultimately be successful. For example, during 2018 we incurred expenses in excess of $8 million in connection with patent defense. If any of our patents or other intellectual property rights are determined to be invalid or unenforceable, or if a court or other tribunal limits the scope of claims in a patent or fails to recognize our trade secret rights, our competitive advantages could be significantly reduced in the relevant technology, allowing competition for our customer base to increase.
In addition, the laws of some foreign countries in which our products and services may be sold do not protect intellectual property rights to the same extent as the laws of the United States. The failure of our Company to protect our proprietary information and any successful intellectual property challenges or infringement proceedings against us could adversely affect our competitive position.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company owns or leases numerous manufacturing facilities, service centers, sales and administrative offices, storage yards and data processing centers in support of its worldwide operations. The following presents the location of the Company's principal owned or leased facilities, by segment.
Well Site Services – Neuquén and Cutral Co, Argentina, Red Deer, Canada; and in the United States: Alice, Houston, and Midland, Texas; New Iberia and Houma, Louisiana; Oklahoma City, Oklahoma; Casper and Rock Springs, Wyoming; Williston, North Dakota and Renton, Washington.
Downhole Technologies – Millsap, Fort Worth, Weatherford, Pleasanton and Midland, Texas; Clearfield, Pennsylvania; Dickinson, North Dakota and Piedmont, Oklahoma in the United States; and Aberdeen, Scotland.
Offshore/Manufactured Products – Rio de Janeiro and Macae, Brazil; Aberdeen, Bathgate and West Lothian, Scotland; Barrow-in-Furness, England; Rayong, Thailand; Singapore; Navi Mumbai, India; Las Palmas, Spain; Shenzhen, China; Abu Dhabi, UAE; and in the United States: Arlington, Houston and Lampasas, Texas; Oklahoma City and Tulsa, Oklahoma and Houma, Louisiana.
Our principal corporate offices are located in Houston, Texas.
We believe that our leases are at competitive or market rates and do not anticipate any difficulty in leasing additional suitable space upon the expiration of our current lease terms.
Item 3. Legal Proceedings
Information regarding legal proceedings is set forth in Note 14, "Commitments and Contingencies," of the Consolidated Financial Statements included in this Annual Report on Form 10‑K and is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.

-28-



PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Information
Our authorized common stock consists of 200,000,000 shares of common stock. There were 60,402,022 shares of common stock outstanding as of February 17, 2020. The approximate number of record holders of our common stock as of February 17, 2020 was 13. Our common stock is traded on the New York Stock Exchange ("NYSE") under the ticker symbol "OIS."
We have not declared or paid any cash dividends on our common stock since our initial public offering in 2001 and our Revolving Credit Facility limits the payment of dividends. For additional discussion of such restrictions, please see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Any future determination as to the declaration and payment of dividends will be at the discretion of our Board of Directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our Board of Directors considers relevant.
Performance Graph
The following graph and table compare the cumulative five-year total stockholder return on the Company's common stock relative to the cumulative total returns of the Standard & Poor's 500 Stock Index, the PHLX Oil Service Sector index, an index of oil and gas related companies that represent an industry composite of the Company's peer group, and a customized peer group of sixteen and thirteen companies, with the individual companies listed in footnote (2) and (3) below, respectively, for the period from December 31, 2014 to December 31, 2019. The graph and chart show the value at the dates indicated of $100 invested at December 31, 2014 and assume the reinvestment of all dividends. The stockholder return set forth below is not necessarily indicative of future performance. The following graph and related information shall not be deemed "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Oil States specifically incorporates it by reference into such filing.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(1) 
Among Oil States International, Inc., the S&P 500 Index,
the PHLX Oil Service Sector Index, Old Peer Group(2) and New Peer Group(3) 
https://cdn.kscope.io/801f9494a32c9ffb2cd161d9050e8d9c-chart-c8ae0eb27e545db6ac6.jpg

-29-



 
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
Oil States International, Inc.
 
$
100.00

 
$
55.73

 
$
79.75

 
$
57.87

 
$
29.20

 
$
33.35

Old Peer Group(2)
 
100.00

 
73.17

 
94.19

 
80.29

 
44.00

 
40.18

New Peer Group(3)
 
100.00

 
73.61

 
91.55

 
79.51

 
46.29

 
43.34

PHLX Oil Service Sector
 
100.00

 
76.62

 
91.16

 
75.48

 
41.35

 
41.12

S&P 500
 
100.00

 
101.38

 
113.51

 
138.29

 
132.23

 
173.86

____________________
(1)
$100 invested on December 31, 2014 in stock or index, including reinvestment of dividends. Fiscal year ended December 31.
(2)
The fifteen companies included in the Company's first customized peer group ("Old Peer Group") are: Archrock, Inc., Carbo Ceramics Inc., Core Laboratories N.V., Dril-Quip, Inc., Forum Energy Technologies, Inc., Franks International N.V., Helix Energy Solutions Group, Inc., Helmerich & Payne, Inc., Key Energy Services, Inc., McDermott International Inc., Oceaneering International, Inc., Patterson-UTI Energy, Inc., RPC, Inc., Superior Energy Services, Inc. and Tidewater Inc.
(3)
The thirteen companies included in the Company's second customized peer group ("New Peer Group") are: Archrock, Inc., Core Laboratories N.V., Dril-Quip, Inc., Exterran Corporation, Forum Energy Technologies, Inc., Franks International N.V., Helix Energy Solutions Group, Inc., Helmerich & Payne, Inc., Key Energy Services, Inc., Newpark Resources, Oceaneering International, Inc., RPC, Inc., and Superior Energy Services, Inc.
Information used in the graph and table was obtained from Research Data Group, Inc., a source believed to be reliable, but we are not responsible for any errors or omissions in such information. Used with permission.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
Period
 
Total Number of Shares Purchased(1)
 
Average Price Paid per Share(1)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2)
October 1 through October 31, 2019
 

 
$

 

 
$
119,788,435

November 1 through November 30, 2019
 

 

 

 
119,788,435

December 1 through December 31, 2019
 

 

 

 
119,788,435

Total
 

 
$

 

 
 
____________________
(1)
No shares were purchased during the three-month period ended December 31, 2019.
(2)
We maintain a share repurchase program providing for the repurchase of up to $150 million of our common stock, which, following extension, was scheduled to expire on July 29, 2019. On July 24, 2019, our Board of Directors extended the share repurchase program for one year to July 29, 2020.

-30-



Item 6. Selected Financial Data
The selected financial data on the following pages include selected historical financial information of our company as of and for each of the five years ended December 31, 2019. The following data should be read in conjunction with "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and related notes included in "Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10‑K in order to understand factors, such as business combinations, charges and credits, financing transactions and changes in tax regulations, which may impact the comparability of the selected financial data.
Selected Financial Data
(In thousands, except per share amounts)
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenues
$
1,017,354

 
$
1,088,133

 
$
670,627

 
$
694,444

 
$
1,099,977

Costs and expenses:
 
 
 
 
 
 
 
 
 
Product and service costs (exclusive of depreciation and amortization expense presented below)
802,589

 
834,513

 
520,755

 
526,770

 
785,698

Selling, general and administrative expenses
122,932

 
138,070

 
114,816

 
124,033

 
132,664

Depreciation and amortization expense
123,319

 
123,530

 
107,667

 
118,720

 
131,257

Impairment of goodwill(1)
165,000

 

 

 

 

Impairment of fixed assets(2)
33,697

 

 

 

 

Other operating (income) expense, net
(2,003
)
 
(2,104
)
 
1,261

 
(5,796
)
 
(4,648
)
 
1,245,534

 
1,094,009

 
744,499

 
763,727

 
1,044,971

Operating income (loss)
(228,180
)
 
(5,876
)
 
(73,872
)
 
(69,283
)
 
55,006

Interest expense, net
(17,636
)
 
(18,995
)
 
(4,315
)
 
(4,944
)
 
(5,884
)
Other income, net
5,089

 
3,139

 
775

 
902

 
1,446

Income (loss) from continuing operations before income taxes
(240,727
)
 
(21,732
)
 
(77,412
)
 
(73,325
)
 
50,568

Income tax benefit (provision)(3)
8,919

 
2,627

 
(7,438
)
 
26,939

 
(22,197
)
Net income (loss) from continuing operations
(231,808
)
 
(19,105
)
 
(84,850
)
 
(46,386
)
 
28,371

Net income (loss) from discontinued operations, net of tax

 

 

 
(4
)
 
226

Net income (loss)
$
(231,808
)
 
$
(19,105
)
 
$
(84,850
)
 
$
(46,390
)
 
$
28,597

 
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share from:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(3.90
)
 
$
(0.33
)
 
$
(1.69
)
 
$
(0.92
)
 
$
0.55

Discontinued operations

 

 

 

 
0.01

Net income (loss)
$
(3.90
)
 
$
(0.33
)
 
$
(1.69
)
 
$
(0.92
)
 
$
0.56

 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
59,379

 
58,712

 
50,139

 
50,174

 
50,269

Diluted
59,379

 
58,712

 
50,139

 
50,174

 
50,335

 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
Other Data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
137,432

 
$
103,170

 
$
95,382

 
$
149,257

 
$
256,121

Net cash used in investing activities, including acquisition of businesses and capital expenditures
(51,982
)
 
(461,375
)
 
(47,615
)
 
(29,292
)
 
(147,196
)
Net cash provided by (used in) financing activities
(95,908
)
 
324,058

 
(65,060
)
 
(84,875
)
 
(124,722
)
EBITDA, as defined(4)
98,925

 
120,793

 
34,570

 
50,339

 
187,709

Capital expenditures
56,116

 
88,024

 
35,171

 
29,689

 
114,738

Acquisitions of businesses, net of cash acquired

 
379,676

 
12,859

 

 
33,427

Cash used for treasury stock purchases
757

 

 
16,283

 

 
105,916

Cash paid for interest
9,626

 
9,864

 
4,206

 
3,942

 
5,629


-31-



 
As of December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8,493

 
$
19,316

 
$
53,459

 
$
68,800

 
$
35,973

Total current assets
483,429

 
534,031

 
455,937

 
489,977

 
611,473

Property, plant and equipment, net(2)
459,724

 
540,427

 
498,890

 
553,402

 
638,725

Operating lease assets(5)
43,616

 

 

 

 

Intangible assets, including goodwill(1)
712,397

 
902,319

 
318,274

 
316,115

 
323,172

Total assets
1,727,867

 
2,003,821

 
1,301,511

 
1,383,898

 
1,596,471

Long-term debt, excluding current portion
222,552

 
306,177

 
4,870

 
45,388

 
125,887

Long-term operating lease liabilities, excluding current portion(5)
35,777

 

 

 

 

Total stockholders' equity
1,223,967

 
1,439,768

 
1,132,713

 
1,204,307

 
1,255,672

We believe that net income (loss) attributable to continuing operations is the financial measure calculated and presented in accordance with generally accepted accounting principles that is most directly comparable to EBITDA as defined. The following table reconciles EBITDA as defined with our net income (loss) attributable to continuing operations, as derived from our financial information (in thousands):
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
Net income (loss) from continuing operations
$
(231,808
)
 
$
(19,105
)
 
$
(84,850
)
 
$
(46,386
)
 
$
28,371

Depreciation and amortization expense
123,319

 
123,530

 
107,667

 
118,720

 
131,257

Impairment of goodwill(1)
165,000

 

 

 

 

Impairment of fixed assets(2)
33,697

 

 

 

 

Interest expense, net
17,636

 
18,995

 
4,315

 
4,944

 
5,884

Income tax provision (benefit)(3)
(8,919
)
 
(2,627
)
 
7,438

 
(26,939
)
 
22,197

EBITDA, as defined(4)
$
98,925

 
$
120,793

 
$
34,570

 
$
50,339

 
$
187,709

____________________
(1)
During 2019, our Downhole Technologies segment recognized a non-cash impairment charge of $165.0 million to partially reduce the carrying value of the segment's goodwill. See Note 6, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
(2)
During 2019, our Drilling Services business recognized a non-cash impairment charge of $33.7 million to decrease the carrying value of the business' fixed assets to their estimated fair value. See Note 4, "Details of Selected Balance Sheet Accounts," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
(3)
During 2017, we recorded a provisional non-cash charge of $28.2 million associated with U.S. income tax legislation enacted in December 2017. During 2018, we adjusted our 2017 provisional estimate and recorded a tax benefit of $5.8 million following the issuance of updated guidance with respect to this U.S. income tax legislation. See Note 9, "Income Taxes," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
(4)
The term EBITDA as defined consists of net income (loss) attributable to continuing operations plus depreciation and amortization expense, non-cash impairments of goodwill and fixed assets, interest expense, net, and income tax provision (benefit). EBITDA as defined does not give effect to cash used for debt service requirements, reinvestment or other discretionary uses and is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. We have included EBITDA as defined as a supplemental disclosure because our management believes that EBITDA as defined provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We use EBITDA as defined to compare and to monitor the performance of our business segments to other comparable public companies and as a benchmark for the award of incentive compensation under our annual incentive compensation plan.
(5)
On January 1, 2019, we adopted the new accounting guidance for leases, which requires the recognition of lease assets and lease liabilities for all leases that are not short-term in nature. Prior periods were not retrospectively adjusted. See Note 3, "Recent Accounting Pronouncements," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.

-32-



ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are based on management's current expectations, estimates and projections about our business operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors, including the known material factors set forth in "Part I, Item 1A. Risk Factors." You should read the following discussion and analysis together with our Consolidated Financial Statements and the notes to those statements included elsewhere in this Annual Report on Form 10‑K.
We provide a broad range of products and services to the oil and gas industry through our Well Site Services, Downhole Technologies and Offshore/Manufactured Products business segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, economic growth, commodity demand and estimates of resource production. As a result, demand for our products and services is largely sensitive to future expectations with respect to crude oil and natural gas prices.
Our consolidated results of operations include contributions from the GEODynamics and Falcon acquisitions completed in the first quarter of 2018. Our reported results of operations reflect the impact of current industry trends and customer spending activities with investments weighted toward U.S. shale play regions. However, in 2019, we began to see a general improvement in the level of planned investments in deepwater markets globally.
Recent Developments
In addition to capital spending, we have invested in acquisitions of businesses complementary to our growth strategy. Our acquisition strategy has allowed us to leverage our existing and acquired products and services into new geographic locations and has expanded the breadth of our technology and product offerings while allowing us to leverage our cost structure. We have made strategic and complementary acquisitions in each of our business segments in recent years.
On December 12, 2017 we entered into an agreement to acquire GEODynamics, Inc. ("GEODynamics"), which provides oil and gas perforation systems and downhole tools in support of completion, intervention, wireline and well abandonment operations. On January 12, 2018, we closed the acquisition of GEODynamics for total consideration of approximately $615 million (the "GEODynamics Acquisition"), consisting of (i) $295 million in cash (net of cash acquired), (ii) approximately 8.66 million shares of our common stock (valued at $34.05 per share on the date of closing) and (iii) an unsecured $25 million promissory note.
In connection with the GEODynamics Acquisition, we completed several financing transactions in 2018 to extend the maturity of our debt and to provide flexibility in repaying outstanding borrowings under the Revolving Credit Facility with anticipated future cash flows from operations.
On January 30, 2018, we sold $200 million aggregate principal amount of our 1.50% convertible senior notes due February 2023 (the "Notes") through a private placement to qualified institutional buyers. We received net proceeds from the offering of the Notes of approximately $194 million, after deducting issuance costs. We used the net proceeds to repay a portion of the borrowings outstanding under our Revolving Credit Facility, substantially all of which were drawn to fund the cash portion of the purchase price paid for GEODynamics.
Concurrently with the Notes offering, we amended our Revolving Credit Facility to extend the maturity date to January 2022, permit the issuance of the Notes and provide for up to $350 million in borrowing capacity, subject to certain limitations.
On February 28, 2018, we acquired Falcon Flowback Services, LLC ("Falcon"), a full-service provider of flowback and well testing services for the separation and recovery of fluids, solid debris and proppant used during hydraulic fracturing operations. Falcon provides additional scale and diversity to our Completion Services operations in key shale plays in the United States. The acquisition price was $84.2 million in cash, funded with borrowings under our Revolving Credit Facility.
During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market. As a result of this decision, our Drilling Services business recorded a non-cash impairment charge of $33.7 million to decrease the carrying value of the business' fixed assets to their estimated fair value. Substantially all of the decommissioned rigs were sold in the fourth quarter of 2019.

-33-



During the fourth quarter of 2019, our Downhole Technologies segment recorded a non-cash goodwill impairment charge of $165.0 million due to, among other factors, a reduction in our near-term outlook for demand related to our short-cycle products and services in the U.S. shale play regions.
See Note 4, "Details of Selected Balance Sheet Accounts," Note 5, "Business Acquisitions" and Note 7, "Long-term Debt" to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion.
Macroeconomic Environment
Our long-term outlook for the energy industry remains constructive – guided by expected population growth, projected future growth in global demand for crude oil, an underinvestment in major offshore projects over the past five years, a decline in the productivity of wells drilled on U.S. land over recent years and increased capital discipline during 2019 by operators in the U.S. shale play regions. Additionally, OPEC, along with Russia, have demonstrated a willingness since late 2016 to adjust crude oil production in an effort to balance crude oil supply and demand in the market. In December 2019, OPEC and other countries announced further curtailments of crude oil production. We believe that the currently demonstrated restraint by operators to invest in projects without a reasonable return on investment at lower commodity prices creates the potential for crude oil prices to increase over time as production growth slows, providing for improved market fundamentals over the longer term.
The macroeconomic environment for the energy sector has been and continues to be extremely volatile due to uncertainties regarding short- and medium-term commodity price expectations. Most recently, this volatility was driven by significant production growth from the U.S. shale play regions and concerns over the possible slowing of global demand growth.
Following material declines in the fourth quarter of 2018, Brent and WTI crude oil prices averaged $64 and $57 per barrel in 2019 – down 10% and 13%, respectively, compared to 2018 average prices. While the commodity price environment improved in 2019 relative to the December 2018 lows, the crude oil price outlook and associated volatility continues to have a moderating impact on our customers' operating results and capital spending plans, particularly those operating in the U.S. shale play regions. Consequently, the U.S. rig count at December 31, 2019 of 805 rigs fell 26% from the most recent peak of 1,083 rigs working in December of 2018.
Current and expected future pricing for WTI crude will continue to influence our customers' willingness to invest in U.S. shale play developments as our customers strive for financial discipline and spending levels that are within their capital budgets and cash flows. Expectations for the longer-term price for Brent crude oil will continue to influence our customers' spending related to global offshore drilling and development and, thus, a significant portion of the activity of our Offshore/Manufactured Products segment.
There remains a likelihood that crude oil prices could remain highly volatile due to increases in global inventory levels, increasing domestic or international crude oil production, trade tensions with China, sanctions on Iranian production and tensions with Iran, civil unrest in Libya and Venezuela, increasing price differentials between markets, slowing growth rates in China and other global regions, use of alternative fuels, improved vehicle fuel efficiency, a more sustained movement to electric vehicles and/or the potential for ongoing supply/demand imbalances. However, if the global supply of crude oil were to decrease due to a prolonged reduction in capital investment by our customers or if government instability in a major oil-producing nation develops, and energy demand were to continue to increase, a sustained recovery in WTI and Brent crude oil prices could occur. In any event, crude oil price improvements will depend upon the balance of global supply and demand, with a corresponding continued reduction in global inventories.
Customer spending in the natural gas shale plays has been limited due to natural gas production from prolific basins in the Northeastern United States and from associated gas produced from the drilling and completion of unconventional oil wells in North America.

-34-



Recent WTI crude oil, Brent crude oil and natural gas pricing trends are as follows:
 
 
Average price(1) for quarter ended
 
Average price(1) for year ended December 31
Year
 
March 31
 
June 30
 
September 30
 
December 31
 
WTI Crude (per bbl)
 
 
 
 
 
 
 
 
2019
 
$
54.82

 
$
59.88

 
$
56.34

 
$
56.82

 
$
56.98

2018
 
62.91

 
68.07

 
69.70

 
59.97

 
65.25

2017
 
51.62

 
48.14

 
48.18

 
55.27

 
50.80

2016
 
33.35

 
45.46

 
44.85

 
49.14

 
43.29

Brent Crude (per bbl)
 
 
 
 
 
 
 
 
2019
 
$
63.10

 
$
69.01

 
$
61.95

 
$
63.17

 
$
64.26

2018
 
66.86

 
74.53

 
75.08

 
68.76

 
71.32

2017
 
53.59

 
49.59

 
52.10

 
61.40

 
54.12

2016
 
33.84

 
45.57

 
45.80

 
49.11

 
43.67

Henry Hub Natural Gas (per mmBtu)
 
 
 
 
 
 
2019
 
$
2.92

 
$
2.57

 
$
2.38

 
$
2.40

 
$
2.56

2018
 
3.08

 
2.85

 
2.93

 
3.77

 
3.15

2017
 
3.02

 
3.08

 
2.95

 
2.90

 
2.99

2016
 
1.99

 
2.15

 
2.88

 
3.04

 
2.52

https://cdn.kscope.io/801f9494a32c9ffb2cd161d9050e8d9c-chart-f8a977e359bc5781bf6.jpg
https://cdn.kscope.io/801f9494a32c9ffb2cd161d9050e8d9c-chart-3c200d7e67005a8291f.jpg
____________________
(1)
Source: U.S. Energy Information Administration. As of February 18, 2020, WTI crude oil, Brent crude oil and natural gas traded at approximately $52.10 per barrel, $57.35 per barrel and $2.04 per mmBtu, respectively.

-35-



Overview
Our Well Site Services segment provides completion services and, to a much lesser extent land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations.
Within this segment, our Completion Services business supplies equipment and service personnel utilized in the completion and initial production of new and recompleted wells. Activity for the Completion Services business is dependent primarily upon the level and complexity of drilling, completion, and workover activity in the areas of operations mentioned above. Well intensity and complexity has increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells. Similarly, demand for our Drilling Services operations has historically been driven by activity in our primary land drilling markets of the Permian Basin in West Texas and the U.S. Rocky Mountain area. During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market. Prospectively, the operations will primarily focus on serving operators in the U.S. Rocky Mountain region. See Note 4, "Details of Selected Balance Sheet Accounts," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
Our Downhole Technologies segment is comprised of the GEODynamics business we acquired in January 2018. GEODynamics was founded in 2004 as a researcher, developer and manufacturer of consumable engineered products used in completion applications. This segment provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies. Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary toe valve and frac plug products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications. Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity.
Demand for our Well Site Services and Downhole Technologies segments' businesses is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count. The following table sets forth a summary of the average U.S. drilling rig count, as measured by Baker Hughes, for the periods indicated.
 
As of February 14, 2020
 
Average Rig Count for Year Ended December 31,
 
 
2019
 
2018
 
2017
 
2016
 
2015
Land – Oil
656

 
753

 
826

 
684

 
390

 
723

Land – Natural gas and other
110

 
165

 
185

 
169

 
97

 
219

Offshore
24

 
25

 
21

 
23

 
25

 
35

Total
790

 
943

 
1,032

 
876

 
512

 
977

Over recent years, our industry experienced an increase in customer spending on crude oil and liquids-rich exploration and development activities in U.S. shale plays utilizing horizontal drilling and completion techniques. As of December 31, 2019, oil-directed drilling accounted for 84% of the total U.S. rig count – with the balance largely natural gas related. Following the significant decline in crude oil prices in the fourth quarter of 2018, coupled with customer spending within their cash flows, the U.S. rig count declined steadily during the 2019 and exited the year at 805 rigs – 278 rigs, or 26%, below the level reported at the end of 2018. As a result, the average U.S. rig count in 2019 decreased 89 rigs, or 9%, from the level reported in 2018.
Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities, as well as certain products and services to the offshore and land-based drilling and completion markets. This segment is particularly influenced by global deepwater drilling and production spending, which are primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 60% of Offshore/Manufactured Products sales in 2016 were driven by our customers' capital spending for offshore production systems and subsea pipelines, repairs and, to a lesser extent, upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels (referred to herein as "project-driven products"). While increasing substantially from levels reported in 2017 and 2018, these activities only represented approximately 40% of the segment's revenue in 2019. Deepwater oil

-36-



and gas development projects typically involve significant capital investments and multi-year development plans. Such projects are generally undertaken by larger exploration, field development and production companies (primarily international oil companies ("IOCs") and state-run national oil companies ("NOCs")) using relatively conservative crude oil and natural gas pricing assumptions. Given the long lead times associated with field development, we believe some of these deepwater projects, once approved for development, are less susceptible to short-term fluctuations in the price of crude oil and natural gas. However, lower crude oil prices that have persisted since 2014, coupled with the relatively uncertain outlook around shorter-term and possibly longer-term pricing improvements, led exploration and production companies to reduce their capital expenditures in regards to these deepwater projects since they are expensive to drill and complete, have long lead times to first production and may be considered uneconomical relative to the risk involved. Customers have focused on improving the economics of major deepwater projects at lower commodity breakeven prices by re-bidding projects, identifying advancements in technology, and reducing overall project costs through equipment standardization. This resulted in reduced bidding and quoting activity, as well as reduced orders from customers and backlog levels, for our Offshore/Manufactured Products segment in 2017 and 2018 relative to 2014. Bidding and quoting activity, along with orders from customers, for deepwater projects improved in 2019 from 2018 levels and the potential for future awards appears to be improving.
Reflecting increased project award activity, backlog in our Offshore/Manufactured Products segment increased from $179 million at December 31, 2018 to $280 million at December 31, 2019. The segment received four notable orders during 2019 for production facility content destined for South America and Southeast Asia, as well as connector products destined for the Middle East and military products for the United States. The following table sets forth backlog reported by our Offshore/Manufactured Products segment as of the dates indicated (in millions).
 
 
Backlog as of
Year
 
March 31
 
June 30
 
September 30
 
December 31
2019
 
$
234

 
$
283

 
$
293

 
$
280

2018
 
157

 
165

 
175

 
179

2017
 
204

 
202

 
198

 
168

2016
 
306

 
268

 
203

 
199

Reduced demand for our products and services, coupled with a reduction in the prices we charge our customers for our services, has adversely affected our results of operations, cash flows and financial position since the second half of 2014. If the current pricing environment for crude oil does not improve, or declines, 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 results of operations, cash flows and financial position.
We use a variety of domestically produced and imported raw materials and component products, including steel, in manufacturing our products. The United States recently imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these new tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase as a result of customs, anti-dumping and countervailing duty regulations or otherwise, and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations.
Other factors that can affect our business and financial results include but are not limited to the general global economic environment, competitive pricing pressures, regulatory changes and changes in tax laws in the United States and international markets. We continue to monitor the global economy, the prices of and demand for crude oil and natural gas, and the resultant impact on the capital spending plans and operations of our customers in order to plan and manage our business.

-37-



Consolidated Results of Operations
We manage and measure our business performance in three operating segments: Well Site Services, Downhole Technologies and Offshore/Manufactured Products. Selected financial information by business segment for the years ended December 31, 2019, 2018 and 2017 is summarized as follows (dollars in thousands):
 
Year Ended December 31,
 
 
 
 
 
Variance 2019 vs. 2018
 
 
 
Variance 2018 vs. 2017
 
2019
 
2018
 
$
 
%
 
2017
 
$
 
%
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Well Site Services -
 
 
 
 
 
 
 
 
 
 
 
 
 
Completion Services
$
390,748

 
$
411,019

 
$
(20,271
)
 
(5
)%
 
$
234,252

 
$
176,767

 
75
 %
Drilling Services
41,346

 
69,235

 
(27,889
)
 
(40
)%
 
54,462

 
14,773

 
27
 %
Total Well Site Services
432,094

 
480,254

 
(48,160
)
 
(10
)%
 
288,714

 
191,540

 
66
 %
Downhole Technologies
182,314

 
213,813

 
(31,499
)
 
(15
)%
 

 
213,813

 
n.m.

Offshore/Manufactured Products -
 
 
 
 
 
 
 
 
 
 
 
 
 
Project-driven products
159,205

 
120,894

 
38,311

 
32
 %
 
126,960

 
(6,066
)
 
(5
)%
Short-cycle products
123,222

 
144,367

 
(21,145
)
 
(15
)%
 
147,463

 
(3,096
)
 
(2
)%
Other products and services
120,519

 
128,805

 
(8,286
)
 
(6
)%
 
107,490

 
21,315

 
20
 %
Total Offshore/Manufactured Products
402,946

 
394,066

 
8,880

 
2
 %
 
381,913

 
12,153

 
3
 %
Total
$
1,017,354

 
$
1,088,133

 
$
(70,779
)
 
(7
)%
 
$
670,627

 
$
417,506

 
62
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Well Site Services -
 
 
 
 
 
 
 
 
 
 
 
 
 
Completion Services
$
(11,621
)
 
$
(7,647
)
 
$
(3,974
)
 
52
 %
 
$
(45,169
)
 
$
37,522

 
(83
)%
Drilling Services(1)
(43,419
)
 
(9,363
)
 
(34,056
)
 
364
 %
 
(13,909