The following discussion and analysis of the Partnership's financial condition
and results of operations should be read in conjunction with our unaudited
consolidated financial statements and accompanying notes included in "Item 1.
Financial Statements" contained herein. In addition, the following discussion
and analysis also should be read in conjunction with our Annual Report on Form
10-K for the year ended December 31, 2021 filed with the SEC on March 14, 2022
(" 2021 Annual Report "). This discussion includes forward-looking statements
that involve certain risks and uncertainties.
Business Overview
We provide services including natural gas compression and treating services.
Natural gas compression equipment is used for natural gas and oil production,
gathering, artificial lift, production enhancement, transmission, processing,
and storage. We also provide a variety of natural gas treating services. Our
compression business includes a fleet of approximately 4,800 compressor packages
providing approximately 1.2 million in aggregate horsepower, utilizing a full
spectrum of low-, medium-, and high-horsepower engines. Our treating fleet
includes amine units, gas coolers, and related equipment. Our aftermarket
business provides compressor package overhaul, repair, engineering and design,
reconfiguration and maintenance services, as well as the sale of compressor
package parts and components manufactured by third-party suppliers. Our
customers operate throughout many of the onshore producing regions of the United
States, as well as in a number of international locations, including Mexico,
Canada, Argentina, Egypt and Chile.
Demand for our services is directly driven by the production of crude oil and
associated natural gas from unconventional shale plays, production of natural
gas from conventional plays and the transmission of natural gas to and within
sales pipelines. Our fleet of compressors, ranging from 20 to 2,500 horsepower
per unit, allows us to service our customers compression needs at the wellhead
through high-horsepower compression needs at centralized gathering and gas lift
facilities.
During 2021, our financial results were affected by the economic impact of the
COVID-19 pandemic. Reduced spending by oil and gas operators led to a decline in
our compression fleet utilization which impacted revenues and pricing. Oil and
natural gas commodity prices gained strength throughout 2021 and remained strong
in the first half of 2022. West Texas Intermediate oil prices reached an average
of $109 per barrel in the second quarter of 2022, a $13 per barrel increase from
the first quarter. This increase in commodity prices, coupled with the waning
impact of the COVID-19 pandemic on the economy, resulted in an increase in the
demand for our contract services, aftermarket services and equipment rentals.
Our compression fleet utilization increased to 82.8% as of June 30, 2022
compared to 76.9% as of June 30, 2021. In addition, as a result of the increased
customer demand, we implemented price increases on many of our compression
contracts in the first and second quarters of 2022. Revenue from contract
services increased each quarter in 2021 and this trend has continued through the
first half of 2022. We secured orders from key customers for high-horsepower and
electric compressors that started generating revenues in the fourth quarter of
2021 and continue to be deployed throughout 2022. Our customers remain focused
on capital discipline; however, the levels of quote activity and awards remain
strong. As the market environment continues to evolve, competition for field
employees continues to increase and inflationary pressures continue to drive
certain costs higher. In addition, supply chain disruptions have impacted the
availability of parts and supplies. External factors such as war and other armed
conflicts, including Russia's invasion of Ukraine, and any resulting economic
downturn, could adversely affect our results of operations, impair our ability
to raise capital or otherwise adversely impact our ability to realize certain
business strategies. We continue to monitor these risks and take the necessary
actions to mitigate them. We have and will continue to evaluate the sale of
non-core assets, including our low-horsepower compression fleet. We can provide
no assurance that we will consummate a future sale of our low-horsepower
compression fleet.
With the rapidly changing market environment, we will continue to proactively
manage our capital allocation strategies, our liquidity requirements and monitor
our expenses and financial performance.
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While we are not able to predict how long the COVID-19 pandemic, the conflict
between Russia and Ukraine, inflation and other factors will continue to impact
overall market conditions, the demand for oil and gas, and the effect they will
ultimately have on our business, we continued to see activity levels increase in
the first half of 2022. Strong oil and gas commodity prices and the increase in
demand for our services have positively impacted our results of operations in
2022. Although we have seen favorable trends in the first half of 2022, the risk
of additional strains of COVID-19 or the potential outbreak of a new or mutated
virus, the possibility of future lockdowns, the impact of continued inflationary
pressures, and the impact of continued political conflicts, makes any forecast
uncertain. In addition, continued capital discipline throughout the energy
sector may limit production growth even as the economy recovers from these
external factors. Despite challenging and changing market conditions, we will
continue to maintain our commitment to safety and service quality for our
customers.
Results of Operations
The following data should be read in conjunction with the Consolidated Financial
Statements and the associated Notes contained elsewhere in this document. On
November 10, 2021, Spartan contributed Spartan Treating to the Partnership. As
the Partnership and Spartan Treating were under common control at the time of
the Spartan Acquisition, the results of operations have been combined for the
Partnership and Spartan Treating from the date common control began which was
January 29, 2021. See Note 4 - "Common Control Acquisition" in the Notes to
Consolidated Financial Statements for further information. Previously, our
equipment sales business included our new unit sales business that consisted of
the fabrication and sale of new standard and custom-designed, engineered
compressor packages fabricated primarily at our facility in Midland, Texas. We
sold the Midland facility in July 2020. In the fourth quarter of 2020, we fully
exited the new unit sales business and we have reflected these operations as
discontinued operations for all periods presented. See Note 2 - "Discontinued
Operations" in the Notes to Consolidated Financial Statements for further
information. Used equipment sales revenue continues to be included in equipment
sales revenue.
Three months ended June 30, 2022 compared to three months ended June 30, 2021
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