Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.20.4
Commitments and Contingencies
12 Months Ended
Dec. 31, 2020
Commitments And Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 16 – 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. Smart Sand alleges that the Company breached a multi-year contract under which Smart Sand supplied frac sand to the Company. Smart Sand claims damages of approximately $54 million. The Company denies that it breached the contract, has alleged that Smart Sand breached the contract first, and has asserted counterclaims for the misuse of the Company’s confidential information. The Company also asserts that the contract contains unenforceable penalty provisions. The case was tried to the Court during December 2020 and when trial concluded, the Court requested post-trial briefing. No prediction can be made as to the outcome of the case at this time nor can the Company reasonably estimate the potential losses or range of losses resulting from this litigation.

 

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.

 

Sand Purchase Agreements

 

The Company entered into agreements for the supply of proppant for use in its hydraulic fracturing 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, 2020, we estimated and accrued for a shortfall in quantities. This accrual is presented as part of accrued liabilities on the consolidated balance sheets.

 

As of December 31, 2020, the Company’s contracted volumes in dollars was $16,002. The Company’s minimum commitments was $13,393, which represents the aggregate amounts that we would be obligated to pay if we procured no additional proppant under the contracts after December 31, 2020.

 

Operating Lease Agreements

 

The Company has various operating leases for facilities with terms ranging from 24 to 76 months.

 

Rent expense was $2,359 and $2,646 for the years ended December 31, 2020 and 2019, respectively, of which $1,655 and $2,130, respectively, are recorded as part of cost of services and $704, and $516, respectively, are recorded as part of selling, general and administrative expenses in the consolidated statements of operations.

 

The following is a schedule of future minimum payments on non-cancellable operating leases as of December 31, 2020:

 

2021

 

$

1,114

 

2022

 

 

828

 

2023

 

 

308

 

2024

 

 

258

 

2025

 

 

67

 

Thereafter

 

 

-

 

Total future minimum rentals

 

$

2,575

 

 

On April 1, 2020, the Company entered into an agreement to extend the lease on one of its facilities. The extended term of the lease is for a period of 36 months commencing on April 1, 2020, with rent throughout the term totaling $0.7 million.

 Self-insurance

 

The Company establishes a self-insured plan for employees’ healthcare benefits except for losses more than 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, 2020 and 2019 was $189 and $588, respectively, and was reported as accrued expenses in the consolidated balance sheets. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially more than the amounts already accrued for existing claims.