Item 2.02 Results of Operations and Financial Condition.
On June 1, 2020, ProPetro Holding Corp. (the "Company") issued a press release
announcing, among other things, its preliminary first quarter 2020 financial
results. A copy of the press release is furnished as Exhibit 99.1.
The information furnished with this report, including Exhibit 99.1, shall not be
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise subject to the
liabilities of that section, nor shall it be deemed to be incorporated by
reference into any other filing under the Securities Act of 1933, as amended, or
the Exchange Act, except as expressly set forth by specific reference in such a
filing.
Item 8.01 Other Events.
Pioneer Pressure Pumping Services Agreement
On December 31, 2018, the Company consummated the purchase of pressure pumping
and related assets of Pioneer Natural Resources USA, Inc. ("Pioneer") and
Pioneer Pumping Services, LLC. In connection with the acquisition, the Company
became a long-term service provider to Pioneer under a Pressure Pumping Services
Agreement (the "Pioneer Services Agreement"), providing pressure pumping and
related services for a term of up to 10 years; provided, that Pioneer has the
right to terminate the Pioneer Services Agreement, in whole or part, effective
as of December 31 of each of the calendar years of 2022, 2024 and 2026. The
material terms of the Pioneer Services Agreement were previously described in
the Company's Current Report on Form 8-K filed with the U.S. Securities and
Exchange Commission on November 16, 2018, and the Pioneer Services Agreement was
filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2018. Pursuant to the Pioneer Services Agreement, the Company
is entitled to receive compensation if Pioneer were to idle committed fleets
("idle fees"); however, the Company is first required to use all economically
reasonable effort to deploy the idled fleets to another customer. At the
present, the Company has eight fleets committed to Pioneer.
The Company is entitled to receive idle fees on certain fleets that are not
utilized. During times when there is a significant reduction in overall demand
for our services the idle fees could represent a material portion of our
revenues. Based on our current expectations and utilization outlook (which are
subject to change based on market volatility and changing capital plans of our
customers), the Company expects to receive $32 million to $36 million in idle
fees during the second quarter of 2020 and $12 million to $18 million for the
second half of 2020.
Shareholder Litigation
In April 2020, Jye-Chun Chang filed a shareholder derivative suit in the U.S.
District Court for the Western District of Texas (the "Chang Lawsuit") against
certain of the Company's current and former officers and directors (the "Chang
Defendants"). The Company was named as a nominal defendant only. The claims
include (i) violations of section 14(a) of the Exchange Act, (ii) breach of
fiduciary duties, (iii) unjust enrichment, (iv) abuse of control, (v) gross
mismanagement and (vi) waste of corporate assets. Chang did not quantify any
alleged damages in its complaint but, in addition to attorneys' fees and costs,
Chang seeks various forms of relief, including (i) declaring that Chang may
sustain the action on behalf of the Company, (ii) declaring that the Chang
Defendants breached their fiduciary duties to the Company, (iii) damages
sustained by the Company as a result of the Chang Defendants' alleged
misconduct, (iv) equitable relief in the form of improvements to the Company's
governance and controls and (v) restitution.
The Company is presently unable to predict the duration, scope or result of the
Chang Lawsuit. The Chang Lawsuit and any related future litigation give rise to
risks and uncertainties that could adversely affect the Company's business,
results of operations and financial condition. Such risks and uncertainties
include, but are not limited to, the costs and expenses of the Chang Lawsuit,
including legal fees and possible monetary penalties in the event of an adverse
outcome; the risk of additional potential litigation or regulatory action
arising from this matter; and potential reputational damage that the Company may
suffer as a result of this matter. The outcome of the Chang Lawsuit is
necessarily uncertain. The Company could be forced to expend significant
resources in the defense of the Chang Lawsuit or future lawsuits, and it may not
prevail.
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Forward-Looking Statements
Except for historical information contained herein, the statements in this
Current Report on Form 8-K are forward-looking statements that are made pursuant
to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995, including statements regarding our expected idle fees. Forward-looking
statements are subject to a number of risks and uncertainties that may cause
actual events and results to differ materially from the forward-looking
statements. Such risks and uncertainties include the volatility of and recent
declines in oil prices, the operational disruption and market volatility
resulting from the COVID-19 pandemic and other factors described in the
Company's most recent Annual Report on Form 10-K and subsequent Quarterly
Reports on Form 10-Q, particularly the "Risk Factors" sections of such filings,
and other filings with the SEC. In addition, the Company may be subject to
currently unforeseen risks that may have a materially adverse impact on it,
including matters related to the audit committee's internal review, the
shareholder litigation and the SEC investigation. Accordingly, no assurances can
be given that the actual events and results will not be materially different
than the anticipated results described in the forward-looking statements.
Readers are cautioned not to place undue reliance on such forward-looking
statements and are urged to carefully review and consider the various
disclosures made in the Company's most recent Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and other filings made with the SEC from time to
time that disclose risks and uncertainties that may affect the Company's
business. The forward-looking statements contained herein are made as of the
date of this report. The Company does not undertake, and expressly disclaims,
any duty to publicly update these statements, whether as a result of new
information, new developments or otherwise, except to the extent that disclosure
is required by law.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Description of Exhibit
99.1 Press release dated June 1, 2020
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