Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.22.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Litigation

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

The Company was named a defendant in a case filed on January 14, 2019 in the Superior Court of the State of Delaware styled Smart Sand, Inc. v. U.S. Well Services LLC, C.A. 19C-01-144 PRW. On June 1, 2021, the court ruled against the Company in the case on the breach of contract claim and subsequently, on June 17, 2021, entered judgement in favor of Smart Sand, Inc. (“Smart Sand”) in the amount of approximately $51,000. On June 28, 2021, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) with Smart Sand, pursuant to which the Company and Smart Sand reached a settlement of all matters in dispute. Pursuant to the Settlement Agreement, the Company agreed to pay $35,000 in cash and to provide Smart Sand certain rights of first refusal related to the supply of proppant for a period of two years (the “Settlement”). The parties to the Settlement Agreement also released each other from claims arising from or related to the Smart Sand litigation or the final judgment of the court. As of December 31, 2021, the Company paid $35,000 to Smart Sand and the settlement expense was reflected as litigation settlement on the consolidated statement of operations.

In addition to the case noted above, the Company is involved in various pending or potential legal actions in the ordinary course of business. Management is unable to predict the ultimate outcome of these actions because of the inherent uncertainty of litigation. However, management believes that the most probable, ultimate resolution of the remaining matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Purchase Commitments

The Company entered into an Equipment Purchase and Sale Agreement to purchase equipment. The Company intends to fund the commitments due in the next twelve months under the Equipment Purchase and Sale Agreement through additional financing transactions and cash on hand.

As of December 31, 2021, future minimum purchase commitments for equipment are as follows:

Fiscal Year

 

 

 

2022

 

$

32,800

 

2023

 

 

16,400

 

Total

 

$

49,200

 

Sand Purchase Agreements

The Company entered into agreements for the supply of proppant for use in its pressure pumping operations. Under the terms of these agreements, the Company is subject to minimum purchase quantities on a monthly, quarterly, or annual basis at fixed prices or may pay penalties in the event of any shortfall. As of December 31, 2021, the Company has met its obligated minimum purchase commitments under the agreement for the supply of proppant.

Lease Agreements

The Company has various long-term operating leases for facilities with terms ranging from 36 to 76 months.

Rent expense was $1,275 and $2,359 for the years ended December 31, 2021 and 2020, respectively, of which $1,001 and $1,655, respectively, are recorded as cost of services and $274, and $704, respectively, are recorded as selling, general and administrative expenses in the consolidated statements of operations.

The Company has capital leases for light duty vehicles and equipment with terms ranging from 18 to 48 months. Assets under capital leases and related accumulated amortization is recorded under property and equipment in the consolidated balance sheets.

The following is a schedule of minimum future payments on non-cancellable operating leases and capital leases as of December 31, 2021:

Fiscal Year

 

Operating Leases

 

 

Capital Leases

 

2022

 

$

1,107

 

 

$

1,241

 

2023

 

 

308

 

 

 

896

 

2024

 

 

258

 

 

 

891

 

2025

 

 

67

 

 

 

447

 

Total

 

$

1,740

 

 

$

3,475

 

The total capital leases payments include imputed interest.

The Company has also entered into short-term and long-term equipment lease agreements with certain power generation providers. The short-term equipment lease agreement has a term of twelve months and minimum future payments of $17,550 due in 2022. As of December 31, 2021, the long-term equipment lease agreements had not commenced, and the Company was in negotiations to amend and extend the start dates based on current supply constraints. The long-term equipment lease agreements were subsequently scheduled to commence in the first half of 2022 and will have minimum future payments of approximately $11,700 in 2022, $15,600 in 2023 and $3,900 in 2024. The Company expects to offset a portion of the commitments it will owe under these lease agreements through additional customer charges.

Self-insurance

The Company established a self-insured plan for employees’ healthcare benefits except for losses in excess of varying threshold amounts. The Company charges to expense all actual claims made during each reporting period, as well as an estimate of claims incurred, but not yet reported. The amount of estimated claims incurred, but not reported as of December 31, 2021 and 2020 was $288 and $189, respectively, and was reported as accrued expenses in the consolidated balance sheets. The Company believes that the liabilities recorded are appropriate based on the known facts and circumstances and does not expect further losses materially in excess of the amounts already accrued for existing claims.