CHAMPIONX CORP MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

The MD&A is our analysis of our financial performance, financial condition and significant trends that may affect our future performance. It should be read in conjunction with the condensed consolidated financial statements and accompanying notes included elsewhere in this report. It contains forward-looking statements, including, without limitation, statements relating to ChampionX’s plans, strategies, objectives, expectations and intentions that are expressed pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the words “believe”, “anticipate”, “expect”, “may”, “intend”, “plan”, “direction”, “estimate”, “potential”, “outlook”, “plan”, “should” , “should”, “could”, “target”, “forecast” and similar expressions, including their negative form. We undertake no obligation to publicly update, revise or correct any of our forward-looking statements. after the date on which they are made, whether as a result of new information, future events or otherwise, except to the extent required by federal securities laws.Readers are cautioned that these forward-looking statements should be read together with the information ns provided under the heading “CAUTION REGARDING FORWARD-LOOKING STATEMENTS”.

GENERAL OVERVIEW AND BUSINESS OUTLOOK

We are a global leader in chemical solutions, artificial lift systems, and advanced equipment and technologies that help companies drill for and produce oil and gas safely, efficiently, and sustainably around the world. Our expertise, innovative products and digital technologies improve the production, transportation and real-time monitoring of oil and gas emissions throughout the life cycle of a well. Our business is organized into four reportable segments: Production Chemical Technologies, Production and Automation Technologies, Drilling Technologies and Reservoir Chemical Technologies. Together we refer to the Production Chemical Technologies segment and the Reservoir Chemical Technologies segment as the Chemical Technologies business.

Recent Events

Russia invasion of Ukraine and the related sanctions imposed present an economic risk for companies that carry out activities within, or have economic links with,
Russia. Our Russia (the “CT Russia Business”) are wholly contained in the country and include a manufacturing facility and related inventory, service operations, established customer base and local employees, and has the ability to operate as a stand-alone business under the brand, Master Chemicals. CT Russia’s revenues, net income and total assets represent less than 2% of our consolidated operating results. Given the continued economic pressure and the sanctions imposed by United States, European Union and UK, during the second quarter of 2022, we launched a plan to divest the CT Russia business. Accordingly, the CT Russia business qualified to be declared as held for sale and, accordingly, has been reflected in our Condensed Consolidated Balance Sheet at June 30, 2022 at the lower of its carrying value or its fair value less costs to sell (“estimated selling price”). We recorded an initial charge of $22.9 million in the second quarter of 2022, representing the amount by which the carrying value exceeds the estimated sale price. In the three months ended September 30, 2022we recognized a gain of $6.4 million to adjust the book value of the disposal group. Upon final disposal, we will recognize the cumulative balance of translation differences associated with the CT Russia business in our condensed consolidated statement of income as part of the gain or loss on sale.

On June 7, 2022we have entered into an updated credit agreement (the “Updated Credit Agreement”), which amends and restates the Credit Agreement dated
May 9, 2018 (the “Credit Agreement”). The updated credit agreement provides for (i) a $625 million 7-year senior secured B term loan facility (the “2022 Term Loan Facility”) and (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of $700 millionwhose $100 million is available for issuance of letters of credit (the “2022 Revolving Credit Facility”, together with the 2022 Term Loan Facility, the “Senior Secured Credit Facility”). The full amount of the 2022 Term Loan Facility has been funded, and
$135 million of the 2022 Revolving Credit Facility has been drawn, the June 7, 2022together with the aggregate proceeds used to repay amounts outstanding under our credit agreement, repay and terminate the term loan facility we entered into on June 3, 2020, and to repay all outstanding 6.375% senior bonds due 2026. Proceeds from future borrowings under the 2022 revolving credit facility are expected to be used for working capital and general corporate purposes. . 2022 term loan facility matures June 7, 2029 and the 2022 revolving credit facility matures
June 7, 2027. The 2022 Term Loan Facility is subject to mandatory amortization payments of 1% per annum of the initial commitment paid quarterly, commencing on December 30, 2022.

Working environment

We monitor macroeconomic conditions and industry-specific drivers and key risk factors affecting our businesses when formulating our strategic plans and making decisions related to capital and human resource allocation. Our business segments offer a wide range of technologies and products to support the production, exploration and development of oil and gas, and the

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intermediate sector. As a result, we are largely dependent on global oil production levels, as well as new levels of investment activity in the oil and gas and midstream sectors. Demand for our products, technologies and services is influenced by overall global demand for oil and gas, the continued depletion rates of existing oil and gas wells, and our customers’ willingness to invest in exploration and the development of new oil and gas resources. Our clients determine their operating and capital budgets based on current and expected future crude oil and natural gas prices, United States (“United States”) and the number of platforms worldwide, WE well completions and forecast industry cost levels, among other factors. Crude oil and natural gas prices are driven by supply and demand, which are influenced by geopolitical, macroeconomic and local events, and have historically been subject to significant volatility and cyclicality. The number of rigs, drilled pictures and investment in exploration and production (“E&P”) by oil and gas operators have often been used as leading indicators of the level of drilling and development activity and future production levels in the oil and gas sector.

Market conditions and outlook

Oil prices rose steadily throughout 2021 and into the first half of 2022, reaching a 13-year high, in part due to the reopening of the global economy following the COVID-19 pandemic and supply-side constraints. However, during the third quarter of 2022, oil prices weakened partly in response to slowing global economic growth. At the beginning of October 2022, oil prices have started to rise due to OPEC+ production cuts. Future oil prices remain uncertain due to growing macroeconomic uncertainty and geopolitical tensions, including the Russian invasion of Ukrainewhich started in February 2022 and put upward pressure on oil prices.

Although oil production is still below pre-pandemic levels as many publicly traded oil and gas companies continue to focus on returning capital to shareholders rather than increasing production, we have seen a steady increase in WE number of oil and gas rigs and some increase in international activity. However, we have also experienced supply chain disruptions, due at least in part to the impact of the COVID-19 pandemic around the world, the invasion of Ukraine, and global logistical challenges. The WE The inflation rate is the highest recorded in four decades, mainly due to supply chain constraints and partially attributed to rising prices for oil and natural gas, which is a major economic input. The reopening of the global economy has also contributed to general inflationary pressures. We continue to work diligently to offer price increases to offset the impact of inflation related to raw materials, labor and logistics that we have experienced in our business. We expect to continue to face inflationary pressures throughout 2022 and into 2023.

CRITICAL ACCOUNTING ESTIMATES

Refer to our “Critical Accounting Estimates” included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our critical accounting estimates.

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