UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q
  (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended MARCH 31, 2019

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to ______
 
Commission File Number 001-35195  
CSI Compressco LP
(Exact name of registrant as specified in its charter)
Delaware 
94-3450907
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
24955 Interstate 45 North
 
The Woodlands, Texas
77380
(Address of Principal Executive Offices)
(Zip Code)
 
(281) 364-2244
(Registrant’s Telephone Number, Including Area C ode)

_______________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ]  No [   ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X ]  No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [   
Accelerated filer [ X ] 
Non-accelerated filer [ ]
Smaller reporting company [ ]
Emerging growth company [ ]
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No [ X ]
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
COMMON UNITS REPRESENTING LIMITED
PARTNERSHIP INTERESTS
CCLP
NASDAQ GLOBAL MARKET
As of May 7, 2019 , there were 47,065,859 Common Units outstanding.



CSI Compressco LP
Table of Contents
 
Page
PART I—FINANCIAL INFORMATION
 
 
 
 
PART II—OTHER INFORMATION
 

CERTAIN REFERENCES IN THIS QUARTERLY REPORT
 
References in this Quarterly Report to “CSI Compressco,” “we,” “our,” “us,” “the Partnership” or like terms refer to CSI Compressco LP and its wholly owned subsidiaries. References to “CSI Compressco GP” or “our General Partner” refer to our general partner, CSI Compressco GP Inc. References to “TETRA” refer to TETRA Technologies, Inc. and TETRA’s controlled subsidiaries, other than us.



Table of Contents

PART I
FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
CSI Compressco LP
Consolidated Statements of Operations
(In Thousands, Except Unit and Per Unit Amounts)
(Unaudited)

Three Months Ended
March 31,
 
2019
 
2018
Revenues:
 

 
 

Compression and related services
$
63,032

 
$
53,735

Aftermarket services
13,601

 
14,016

Equipment sales
26,803

 
17,666

Total revenues
103,436

 
85,417

Cost of revenues (excluding depreciation and amortization expense):
 

 
 
Cost of compression and related services
32,621

 
31,380

Cost of aftermarket services
11,250

 
11,157

Cost of equipment sales
24,229

 
15,449

Total cost of revenues
68,100

 
57,986

Depreciation and amortization
18,532

 
17,367

Selling, general, and administrative expense
10,665

 
8,297

Interest expense, net
13,299

 
11,433

Series A Preferred fair value adjustment (income) expense
1,304

 
1,553

Other (income) expense, net
(381
)
 
3,204

Loss before income tax provision
(8,083
)
 
(14,423
)
Provision for income taxes
4,373

 
1,314

Net loss
$
(12,456
)
 
$
(15,737
)
General partner interest in net loss
$
(177
)
 
$
(264
)
Common units interest in net loss
$
(12,279
)
 
$
(15,473
)
 
 

 
 
Net loss per common unit:
 
 
 
Basic
$
(0.26
)
 
$
(0.40
)
Diluted
$
(0.26
)
 
$
(0.40
)
Weighted average common units outstanding:
 
 
 
Basic
46,830,605

 
38,717,086

Diluted
46,830,605

 
38,717,086



See Notes to Consolidated Financial Statements

1

Table of Contents

CSI Compressco LP
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2019
 
2018
Net loss
$
(12,456
)
 
$
(15,737
)
Foreign currency translation adjustment, net of tax of $0 in 2019 and 2018
272

 
(649
)
Comprehensive loss
$
(12,184
)
 
$
(16,386
)
 

See Notes to Consolidated Financial Statements

2

Table of Contents

CSI Compressco LP
Consolidated Balance Sheets
(In Thousands, Except Unit Amounts)
 
March 31,
2019
 
December 31,
2018
 
(Unaudited)
 
 

ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
16,870

 
$
15,858

Trade accounts receivable, net of allowances for doubtful accounts of $1,214 as of March 31, 2019 and $1,229 as of December 31, 2018
58,951

 
65,067

Inventories
74,528

 
65,222

Prepaid expenses and other current assets
6,172

 
5,600

Total current assets
156,521

 
151,747

Property, plant, and equipment:
 

 
 

Land and building
35,026

 
35,024

Compressors and equipment
932,150

 
913,488

Vehicles
10,336

 
10,354

Construction in progress
46,055

 
41,086

Total property, plant, and equipment
1,023,567

 
999,952

Less accumulated depreciation
(373,516
)
 
(358,633
)
Net property, plant, and equipment
650,051

 
641,319

Other assets:
 

 
 

Deferred tax asset
13

 
13

Intangible assets, net of accumulated amortization of $25,530 as of March 31, 2019 and $24,790 as of December 31, 2018
30,238

 
30,978

Operating lease right-of-use assets
9,721

 

Other assets
3,325

 
2,687

Total other assets
43,297

 
33,678

Total assets
$
849,869

 
$
826,744

LIABILITIES AND   PARTNERS' CAPITAL
 

 
 
Current liabilities:
 

 
 
Accounts payable
$
45,830

 
$
33,408

Unearned income
49,296

 
24,898

Accrued liabilities and other
21,469

 
32,530

Amounts payable to affiliates
9,856

 
3,517

Total current liabilities
126,451

 
94,353

Other liabilities:
 

 
 

Long-term debt, net
633,692

 
633,013

Series A Preferred Units
20,890

 
30,900

Deferred tax liabilities
2,494

 
1,012

Long-term affiliate payable
2,402

 

Operating lease liabilities
5,845

 

Other long-term liabilities
61

 
63

Total other liabilities
665,384

 
664,988

Commitments and contingencies
 

 
 

Partners' capital:
 

 
 

General partner interest
322

 
505

Common units (46,998,713 units issued and outstanding at March 31, 2019 and 45,769,019 units issued and outstanding at December 31, 2018)
72,526

 
81,984

Accumulated other comprehensive income (loss)
(14,814
)
 
(15,086
)
Total partners' capital
58,034

 
67,403

Total liabilities and partners' capital
$
849,869

 
$
826,744

 
See Notes to Consolidated Financial Statements

3

Table of Contents

CSI Compressco LP
Consolidated Statements of Partners’ Capital
(In Thousands)
(Unaudited)
 
 
Partners' Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Total Partners' Capital
 
 
 
 
General
Partner
 
Common
Unitholders
 
 
 
Amount
 
Units
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
505

 
45,769

 
$
81,984

 
$
(15,086
)
 
$
67,403

Net loss
(177
)
 

 
(12,279
)
 

 
(12,456
)
Distributions ($0.01 per unit)
(6
)
 

 
(470
)
 

 
(476
)
Equity compensation

 

 
312

 

 
312

Vesting of Phantom Units

 
117

 

 

 

Conversions of Series A Preferred

 
1,113

 
3,048

 

 
3,048

Translation adjustment, net of taxes of $0

 

 

 
272

 
272

Other

 

 
(69
)
 

 
(69
)
Balance at March 31, 2019
$
322

 
46,999

 
$
72,526

 
$
(14,814
)
 
$
58,034

 
 
Partners' Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Total Partners' Capital
 
 
 
 
General
Partner
 
Common
Unitholders
 
 
 
Amount
 
Units
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
1,618

 
37,618

 
$
104,898

 
$
(11,489
)
 
$
95,027

Net loss
(264
)
 

 
(15,473
)
 

 
(15,737
)
Distributions ($0.1875 per unit)
(126
)
 

 
(7,186
)
 

 
(7,312
)
Equity compensation, net

 

 
(655
)
 

 
(655
)
Vesting of Phantom Units

 
32

 

 

 

Conversions of Series A Preferred

 
1,778

 
11,555

 

 
11,555

Translation adjustment, net of taxes of $0

 

 

 
(649
)
 
(649
)
Balance at March 31, 2018
$
1,228

 
39,428

 
$
93,139

 
$
(12,138
)
 
$
82,229


See Notes to Consolidated Financial Statements

4

Table of Contents

CSI Compressco LP
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2019
 
2018
Operating activities:
 

 
 

Net income (loss)
$
(12,456
)
 
$
(15,737
)
Reconciliation of net income (loss) to cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
18,532

 
17,367

Provision for deferred income taxes
1,466

 
96

Series A Preferred redemption premium
448

 

Series A Preferred paid in kind distributions in interest expense
685

 
1,742

Series A Preferred fair value adjustments
1,304

 
1,553

Equity compensation expense
365

 
(604
)
Provision for doubtful accounts
56

 
139

Amortization of deferred financing costs
600

 
830

Expense for unamortized finance costs

 
3,539

Other non-cash charges and credits
54

 
328

(Gain) loss on sale of property, plant, and   equipment
(26
)
 
85

Changes in operating assets and liabilities:
 

 
 
Accounts receivable
5,992

 
(5,404
)
Inventories
(11,990
)
 
(13,009
)
Prepaid expenses and other current assets
(567
)
 
(1,703
)
Accounts payable and accrued expenses
27,442

 
10,399

Other
(273
)
 
14

Net cash provided by (used in) operating activities
31,632

 
(365
)
Investing activities:
 

 
 
Purchases of property, plant, and equipment, net
(23,152
)
 
(17,039
)
Advances and other investing activities

 
(59
)
Net cash used in   investing activities
(23,152
)
 
(17,098
)
Financing activities:
 

 
 
Proceeds from long-term debt

 
380,000

Payments of long-term debt
(2
)
 
(258,000
)
Cash redemptions of Preferred Units
(9,399
)
 

Distributions
(476
)
 
(7,312
)
Debt issuance costs

 
(5,971
)
Advances from affiliate
2,402

 

Net cash provided by (used in) financing activities
(7,475
)
 
108,717

Effect of exchange rate   changes on cash
7

 
(48
)
Increase (decrease) in cash and cash equivalents
1,012

 
91,206

Cash and cash equivalents at beginning of period
15,858

 
7,601

Cash and cash equivalents at end of period
$
16,870

 
$
98,807

Supplemental cash flow information:
 

 
 
Interest paid
$
10,727

 
$
14,042

Income taxes paid
$
648

 
$
763



See Notes to Consolidated Financial Statements

5

Table of Contents

CSI Compressco LP
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE A ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
 
Organization

CSI Compressco LP, a Delaware limited partnership, is a provider of compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage. We sell standard and custom-designed compressor packages and provide aftermarket services and compressor package parts and components manufactured by third-party suppliers. We provide these compression services and equipment to a broad base of natural gas and oil exploration and production, midstream, and transmission companies operating throughout many of the onshore producing regions of the United States as well as in a number of foreign countries, including Mexico, Canada, and Argentina. We design and fabricate a majority of the compressor packages that we use to provide compression services or that we sell to customers.

Presentation
 
Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. In the opinion of our management, our unaudited consolidated financial statements as of March 31, 2019 , and for the three month periods ended March 31, 2019 and 2018 , include all normal recurring adjustments that are necessary to provide a fair statement of our results for these interim periods. Operating results for the three month periods ended March 31, 2019 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2019 .

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission ("SEC") and do not include all information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2018 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 4, 2019.

Segments

Our General Partner has concluded that we operate in one business segment.

Significant Accounting Policies

We have added policies for the recording of leases in conjunction with the adoption of the new lease standard discussed in our "Leases" and "New Accounting Pronouncements" sections below. Other than the additional lease policies described herein, there have been no significant changes in our accounting policies or the application of these policies.

Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be material.

Foreign Currencies
 
Accumulated other comprehensive income (loss) is included in partners’ capital in the accompanying consolidated balance sheets and consists of the cumulative currency translation adjustments associated with our international operations. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $(1.0) million and $(1.1) million during the three month periods ended March 31, 2019 and March 31, 2018 , respectively.

6



Leases

As a lessee, unless the lease meets the criteria of short-term and is excluded per our policy election, described below, we initially recognize a lease liability and related right-of-use asset on the commencement date. The right-of-use asset represents our right to use an underlying asset and the lease liability represents our obligation to make lease payments to the lessor over the lease term.    

All of our long-term leases are operating leases and are included in operating lease right-of-use assets, accrued liabilities and other, and operating lease liabilities in our consolidated balance sheet as of March 31, 2019 . We determine whether a contract is or contains a lease at inception of the contract. Where we are a lessee in a contract that includes an option to extend or terminate the lease, we include the extension period or exclude the period covered by the termination option in our lease term, if it is reasonably certain that we would exercise the option.

As an accounting policy election, we do not include short-term leases on our balance sheet. Short-term leases include leases with a term of 12 months or less, inclusive of renewal options we are reasonably certain to exercise. The lease payments for short-term leases are included as operating lease costs on a straight-line basis over the lease term in cost of revenues or selling, general, and administrative expense based on the use of the underlying asset. We recognize lease costs for variable lease payments not included in the determination of a lease liability in the period in which an obligation is incurred.

As allowed by U.S. GAAP, we do not separate nonlease components from the associated lease component for our compression services contracts and instead account for those components as a single component based on the accounting treatment of the predominant component. In our evaluation of whether Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 842 "Leases" or ASC 606 "Revenue from Contracts with Customers" is applicable to the combined component based on the predominant component, we determined the services nonlease component is predominant, resulting in the ongoing recognition of our compression services contracts following ASC 606.

Our operating leases are recognized at the present value of lease payments over the lease term. When the implicit discount rate is not readily determinable, we use our incremental borrowing rate to calculate the discount rate used to determine the present value of lease payments. Consistent with other long-lived assets or asset groups that are held and used, we test for impairment of our right-of-use assets when impairment indicators are present.

Earnings Per Common Unit
 
Our computations of earnings per common unit are based on the weighted average number of common units outstanding during the applicable period. Basic earnings per common unit are determined by dividing net income (loss) allocated to the common units after deducting the amount allocated to our General Partner (including any distributions to our General Partner on its incentive distribution rights) by the weighted average number of outstanding common units during the period.
 
When computing earnings per common unit under the two class method in periods when distributions are greater than earnings, the amount of the distribution is deducted from net income (loss) and the excess of distributions over earnings is allocated between the General Partner and common units based on how our Partnership Agreement allocates net losses.
 
Diluted earnings per common unit are computed using the treasury stock method, which considers the potential future issuance of limited partner common units. Unvested phantom units are not included in basic earnings per common unit, as they are not considered to be participating securities, but are included in the calculation of diluted earnings per common unit. For the three month periods ended March 31, 2019 and March 31, 2018 , all unvested phantom units were excluded from the calculation of diluted common units because the impact was anti-dilutive. Diluted earnings per common unit are computed using the "if converted" method, whereby the amount of net income (loss) and the number of common units issuable are each adjusted as if the Preferred Units, discussed in Note D - "Series A Convertible Preferred Units", had been converted as of the beginning of the period presented. The number of common units that may be issued upon future conversion of the Preferred Units is excluded from the calculation of diluted common units for the three month periods ended March 31, 2019 and 2018 as the impact would be anti-dilutive.

7



Distributions
 
On January 22, 2019 , our General Partner declared a cash distribution attributable to the quarter ended December 31, 2018 of $0.01 per common unit. This distribution equates to a distribution of $0.04 per outstanding common unit on an annualized basis. Also on January 22, 2019 , our General Partner approved the paid in kind distribution of 85,565 Preferred Units attributable to the quarter ended December 31, 2018 in accordance with the provisions of our partnership agreement, as amended. These distributions were paid on February 14, 2019 , to each of the holders of common units and the holders of the Preferred Units in the aggregate, respectively, of record as of the close of business on February 1, 2019 .
    
New Accounting Pronouncements

Standards adopted in 2019

In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" to increase comparability and transparency among different organizations. Organizations are required to recognize right-of-use lease assets and lease liabilities in the balance sheet related to the right to use the underlying asset for the lease term. In addition, through improved disclosure requirements, ASC 842 will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. We adopted the standard effective January 1, 2019. The standard had a material impact on our consolidated balance sheet, specifically, the reporting of our operating leases.

We chose to transition using a modified retrospective approach which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. Comparative information is reported under the accounting standards that were in effect for those periods. In addition, upon transition, we elected the package of practical expedients, which allows us to continue to apply historical lease classifications to existing contracts. Upon adoption, we recognized $8.3 million in operating right-of-use assets, $3.5 million in accrued liabilities, and $4.8 million in operating lease liabilities. Refer to Note J - “Leases” for further information on our leases.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220)" that gives entities the option to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This is effective for us on January 1, 2019, however, as we do not have associated tax effects in accumulated other comprehensive income, there was no impact.

In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to align the measurement and classification guidance for share-based payments to nonemployees with the guidance currently applied to employees, with certain exceptions. We adopted this ASU during the three months ended March 31, 2019, with no material impact to our consolidated financial statements.
      
Standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 has an effective date of the first quarter of fiscal 2020. We are currently assessing the potential effects of these changes to our consolidated financial statements.    


8


NOTE B INVENTORIES

Components of inventories as of March 31, 2019 and December 31, 2018 , are as follows: 

 
March 31, 2019
 
December 31, 2018
 
(In Thousands)
Parts and supplies
$
40,234

 
$
43,538

Work in progress
34,294

 
21,684

Total inventories
$
74,528

 
$
65,222


Inventories consist primarily of compressor package parts and supplies. Work in progress inventories consist primarily of new compressor packages located at our fabrication facility in Midland, Texas.
NOTE C LONG-TERM DEBT AND OTHER BORROWINGS

Long-term debt consists of the following:
 
 
 
 
March 31, 2019
 
December 31, 2018
 
 
Scheduled Maturity
 
(In Thousands)
Credit Agreement
 
June 29, 2023
 

 

7.25% Senior Notes (presented net of the unamortized discount of $2.1 million as of March 31, 2019 and $2.2 million as of December 31, 2018 and unamortized deferred financing costs of $3.6 million as of March 31, 2019 and $3.9 million as of December 31, 2018)
 
August 15, 2022
 
290,204

 
289,797

7.50% Senior Secured Notes (presented net of the unamortized deferred financing costs of $6.5 million as of March 31, 2019 and $6.8 million as of December 31, 2018)
 
April 1, 2025
 
343,488

 
343,216

 
 
 
 
633,692

 
633,013

Less current portion
 
 
 

 

Total long-term debt
 
 
 
$
633,692

 
$
633,013


There was no balance outstanding under the Credit Agreement as of March 31, 2019 . As of March 31, 2019 , and subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the Credit Agreement, we had availability of $18.4 million .
    
Our credit and senior note agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. We are in compliance with all covenants of our respective credit and senior note agreements as of March 31, 2019 .
NOTE D – SERIES A CONVERTIBLE PREFERRED UNITS

During 2016, we issued an aggregate of 6,999,126 Preferred Units for a cash purchase price of $11.43 per Preferred Unit (the “Issue Price”). One of the purchasers was TETRA, which purchased 874,891 of the Preferred Units at the aggregate Issue Price of $10.0 million .

Unless otherwise redeemed for cash, a ratable portion of the Preferred Units has been, and may be, converted into common units on the eighth day of each month over a period of thirty months that began in March 2017 and will end in August 2019 (each, a “Conversion Date”). Based on the number of Preferred Units outstanding as of March 31, 2019 , the maximum aggregate number of common units that could be required to be issued pursuant to the conversion provisions of the Preferred Units is approximately 10.2 million common units; however, the Partnership may, at its option, pay cash, or a combination of cash and common units, to the holders of Preferred Units instead of issuing common units on any Conversion Date, subject to certain restrictions as described in the Second Amended and Restated Partnership Agreement and the Credit Agreement. Beginning with the January 2019 Conversion Date, we have elected to redeem the remaining Preferred Units for cash, resulting in 783,046 Preferred Units being redeemed during the three months ended March 31, 2019 for $9.4 million , which includes

9


approximately $0.4 million of redemption premium that was paid and charged to other (income) expense, net in the accompanying consolidated statements of operations. The total number of Preferred Units outstanding as of March 31, 2019 was 1,779,417 .

The fair value of the Preferred Units is classified as a long-term liability on our consolidated balance sheets. The fair value of the Preferred Units as of March 31, 2019 was $20.9 million . During the three month periods ended March 31, 2019 and March 31, 2018 , changes in the fair value resulted in $1.3 million and $1.6 million being charged to earnings, respectively, in the accompanying consolidated statements of operations.

Based on the conversion provisions of the Preferred Units, and using the Conversion Price calculated as of March 31, 2019 , the theoretical number of common units that would be issued if all of the outstanding Preferred Units were converted on March 31, 2019 on the same basis as the monthly conversions would be approximately 7.4 million common units, with an aggregate market value of $21.0 million . A $1 decrease in the Conversion Price would result in the issuance of approximately 2.8 million additional common units pursuant to these conversion provisions.
NOTE E – FAIR VALUE MEASUREMENTS

Financial Instruments

Preferred Units

The Preferred Units are valued using a lattice modeling technique that, among a number of lattice structures, includes significant unobservable items (a Level 3 fair value measurement). These unobservable items include (i) the volatility of the trading price of our common units compared to a volatility analysis of equity prices of comparable peer companies, (ii) a yield analysis that utilizes market information related to the debt yields of comparable peer companies, and (iii) a future conversion price analysis. During the three month periods ended March 31, 2019 and March 31, 2018 , the changes in the fair value of the Preferred Units resulted in $1.3 million and $1.6 million being charged to earnings, respectively, in the consolidated statements of operations.

Derivative Contracts

As of March 31, 2019 , we had the following foreign currency derivative contract outstanding relating to a portion of our foreign operations:
Derivative Contracts
 
US Dollar Notional Amount
 
Traded Exchange Rate
 
Settlement Date

 
(In Thousands)
 

 

Forward sale Mexican peso
 
$
6,301

 
19.52
 
4/17/2019

Under a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries, we may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as economic hedges of the cash flow of our currency exchange risk exposure, they will not be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period.

The fair values of our foreign currency derivative instruments are based on quoted market values (a Level 2 fair value measurement). The fair values of our foreign currency derivative instruments as of March 31, 2019 and December 31, 2018 , are as follows:
Foreign currency derivative instruments
 
Balance Sheet
 
Fair Value at
 
Location
 
March 31, 2019
 
December 31, 2018
 
 
 
 
(In Thousands)
Forward sale contracts
 
Current liabilities
 
(19
)
 
(98
)
Net asset
 
 
 
$
(19
)
 
$
(98
)


10


None of the foreign currency derivative contracts contains credit risk related contingent features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three month periods ended March 31, 2019 and March 31, 2018 , we recognized $0.1 million and $0.5 million , respectively, of net (gains) losses associated with our foreign currency derivative program, and such amounts are included in other (income) expense, net, in the accompanying consolidated statement of operations.
    
A summary of these recurring fair value measurements by valuation hierarchy as of March 31, 2019 and December 31, 2018 is as follows:
 
 
 
 
Fair Value Measurements Using
Description
 
Total as of
March 31, 2019
 
Quoted Prices
in Active
Markets for
Identical
Assets
or Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
 
(In Thousands)
Series A Preferred Units
 
$
(20,890
)
 
$

 
$

 
$
(20,890
)
Liability for foreign currency derivative contracts
 
(19
)
 

 
(19
)
 

 
 
$
(20,909
)
 
 
 
 
 
 
    
 
 
 
 
Fair Value Measurements Using
 
 
 
 
Quoted Prices
in Active
Markets for
Identical
Assets
or Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Description
 
Total as of
December 31, 2018
 
 
 
 
 
(In Thousands)
Series A Preferred Units
 
$
(30,900
)
 
$

 
$

 
$
(30,900
)
Liability for foreign currency derivative contracts
 
(98
)
 

 
(98
)
 

 
 
$
(30,998
)
 
 
 
 
 
 

The fair values of cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings, and variable-rate long-term debt pursuant to our Credit Agreement approximate their carrying amounts. The fair values of our publicly traded long-term 7.25% Senior Notes at March 31, 2019 and December 31, 2018 were approximately $264.9 million and $266.3 million , respectively. Those fair values compare to aggregate principal amounts of such notes at March 31, 2019 and December 31, 2018 of $295.9 million . The fair value of our publicly traded long-term 7.50% Senior Secured Notes at March 31, 2019 and December 31, 2018 were approximately $336.0 million and $332.5 million , respectively. This fair value compares to an aggregate principal amount of such notes at March 31, 2019 of $350.0 million . We based the fair values of our 7.25% Senior Notes and our 7.50% Senior Secured Notes as of March 31, 2019 on recent trades for these notes.
NOTE F – RELATED PARTY TRANSACTIONS
 
Omnibus Agreement
 
Under the terms of the Omnibus Agreement, our General Partner provides all personnel and services reasonably necessary to manage our operations and conduct our business (other than in Mexico, Canada, and Argentina), and certain of TETRA’s Latin American-based subsidiaries provide personnel and services necessary for the conduct of certain of our Latin American-based businesses. In addition, under the Omnibus Agreement, TETRA provides certain corporate and general and administrative services as requested by our General Partner, including,

11


without limitation, legal, accounting and financial reporting, treasury, insurance administration, claims processing and risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, and tax services. Pursuant to the Omnibus Agreement, we reimburse our General Partner and TETRA for services they provide to us.

TETRA and General Partner Ownership

As of March 31, 2019 , TETRA's ownership interest in us was approximately 34% of the outstanding common units, 12.6% of the outstanding Preferred Units, and an approximately 1% general partner interest, through which it holds incentive distribution rights. As Preferred Units are converted to common units, TETRA's percentage ownership of the common units will decrease.

Other Sources of Financing

In February 2019, we entered into a transaction with TETRA whereby TETRA has agreed to purchase up to $15.0 million of new compression services equipment and lease it to us in exchange for a monthly rental fee. As of March 31, 2019 , pursuant to this arrangement, $2.4 million has been advanced to us by TETRA for the construction of new compression equipment, and is included in long-term affiliate payable in our consolidated balance sheet.
NOTE G – INCOME TAXES
 
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. Certain of our operations are located outside of the U.S., and the Partnership, through its foreign subsidiaries, is responsible for income taxes in these countries.

Our effective tax rate for the three month period ended March 31, 2019 , was negative 54.1% primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes combined with losses generated in entities for which no related tax benefit has been recorded. In addition, the application of ASC 740-270 "Income Taxes - Interim Reporting," resulted in an accrual of current income taxes for the three month period ended March 31, 2019 equal to approximately the full year estimate. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.    
NOTE H – COMMITMENTS AND CONTINGENCIES
 
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. While the outcome of any lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on our financial condition, results of operations, or cash flows. 
NOTE I – REVENUE RECOGNITION

Performance Obligations. Revenue is generally recognized when we transfer control of our products or services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services to our customers.

Compression and related services. For compression services revenues recognized over time, our customer contracts typically provide agreed upon monthly service rates and we recognize service revenue based upon the number of days that services have been performed. We receive cash equal to the invoice price for most product sales and services and payment terms typically range from 30 to 60 days from the date we invoice our customer. With the exception of the initial terms of our compression services contracts of our medium- and high-horsepower compressor packages, our customer contracts are generally for terms of one year or less. Since the period between when we deliver products or services and when the customer pays for products or services are not expected to exceed one year, we have elected not to calculate or disclose a financing component for our customer contracts.


12


Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation. For example, consideration received from customers during the fabrication of new compressor packages is typically deferred until control of the compressor package is transferred to our customer. For revenue associated with mobilization of service equipment as part of a service contract arrangement, such revenue, if significant, is deferred and amortized over the estimated service period. As of March 31, 2019 , we had $24.6 million of remaining performance obligations related to our compression service contracts. As a practical expedient, thi s amount does not reflect revenue for compression service contracts whose original expected duration is less than 12 months an d does not consider the effects of the time value of money . The remaining performance obligations, and associated revenues, will be recognized through 2023 as follows:
 
2019
 
2020
 
2021
 
2022
 
2023
 
Total
 
(In Thousands)
Compression service contracts remaining performance obligations
$
10,444

 
$
9,851

 
$
4,240

 
$
32

 
$

 
$
24,567


Sales taxes, value added taxes, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We recognize the cost for freight and shipping costs when control over our products (i.e. delivery) has transferred to the customer as part of cost of product sales.

Equipment Sales & Aftermarket Services. Equipment sales and most aftermarket service revenues are recognized at a point in time when we transfer control of our products and complete the delivery of services to our customers.

Use of Estimates. Our revenues do not include material amounts of variable consideration, as our revenues typically do not require significant estimates or judgments. The transaction price on a majority of our arrangements are fixed and product returns are immaterial. Additionally, our arrangements typically do not include multiple performance obligations that require estimates of the stand-alone purchase price for each performance obligation. Revenue on certain aftermarket service arrangements that include time as a component of the transaction price is not recognized until the performance obligation is complete.

Contract Assets and Liabilities. Any contract assets, along with billed and unbilled accounts receivable, are included in trade accounts receivable in our consolidated balance sheets. We classify contract liabilities as Unearned Income in our consolidated balance sheets. Such unearned income typically results from advance payments received on orders for new compressor equipment prior to the time such equipment is completed and transferred to the customer in accordance with the customer contract.

There were no contract assets as of December 31, 2018 and March 31, 2019 . The following table reflects the changes in our contract liabilities during the three month period ended March 31, 2019 :

 
March 31, 2019
 
(In Thousands)
Unearned income, beginning of period
$
24,898

Additional unearned income
48,955

Revenue recognized
(24,557
)
Unearned income, end of period
$
49,296


During the three months ended March 31, 2019 , contract liabilities increased due to unearned income for consideration received on new compressor equipment being fabricated. During the three months ended March 31, 2019 , $24.6 million of unearned income was recognized as product sales revenue, primarily associated with deliveries of new compression equipment.

Contract Costs. As of March 31, 2019 and March 31, 2018, contract costs are immaterial.


13


Disaggregation of Revenue. We disaggregate revenue from contracts with customers by geography based on the following table.
 
Three Months Ended
March 31,
 
2019
 
2018
 
(In Thousands)
Compression and related services
 
 
 
U.S.
$
54,017

 
$
46,404

International
9,015

 
7,331

 
63,032

 
53,735

Aftermarket services
 
 
 
U.S.
13,319

 
13,353

International
282

 
663

 
13,601

 
14,016

Equipment sales
 
 
 
U.S.
26,180

 
17,222

International
623

 
444

 
26,803

 
17,666

Total Revenue
 
 
 
U.S.
93,516

 
76,979

International
9,920

 
8,438

 
$
103,436

 
$
85,417

NOTE J – LEASES

We have operating leases for some of our office space, warehouse space, operating locations, and machinery and equipment. Our leases have remaining lease terms ranging from 1 to 10 years . Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. Our leases generally require us to pay all maintenance and insurance costs. We do not have leases that have not yet commenced that create significant rights and obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease costs are included in either cost of revenues or selling, general, and administrative expense depending on the use of the underlying asset. Components of lease expense (inclusive of lease expense for leases not included on our consolidated balance sheet based on our accounting policy election to exclude leases with a term of 12 months or less), were $1.8 million for the three months ended March 31, 2019, of which, $0.4 million was related to short-term leases. Variable rent expense was not material.

Operating lease supplemental cash flow information:
 
Three Months Ended March 31, 2019
 
(In Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
     Operating cash flows - operating leases
$
1,174

 
 
Right-of-use assets obtained in exchange for lease obligations:
 
     Operating leases
$
2,487



14


Supplemental balance sheet information:
 
March 31, 2019
 
(In Thousands)
Operating leases:
 
     Operating right-of-use asset
$
9,721

 
 
     Accrued liabilities and other
$
3,876

     Operating lease liabilities
5,845

     Total operating lease liabilities
$
9,721

 
 
Additional operating lease information:
 
March 31, 2019
Weighted average remaining lease term:
 
     Operating leases
4 years

 
 
Weighted average discount rate:
 
     Operating leases
6.60
%

Future minimum lease payments by year and in the aggregate, under non-cancelable operating leases with terms in excess of one year, consist of the following at March 31, 2019 :
 
Operating Leases
 
(In Thousands)
 
 
2019
$
3,240

2020
3,868

2021
1,853

2022
462

2023
286

Thereafter
1,342

Total lease payments
11,051

Less imputed interest
(1,330
)
Total lease liabilities
$
9,721

NOTE K — SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
    
The $295.9 million and $350.0 million in aggregate principal amounts outstanding of the 7.25% Senior Notes and 7.50% Senior Secured Notes, respectively, as of March 31, 2019 are fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several senior unsecured and secured basis, respectively, by certain of our domestic restricted subsidiaries.


15


Condensed Consolidating Balance Sheet
March 31, 2019
(In Thousands)
 
Issuers
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
$

 
$
130,248

 
$
26,273

 
$

 
$
156,521

Property, plant, and equipment, net

 
622,738

 
27,313

 

 
650,051

Investments in subsidiaries
149,600

 
23,466

 

 
(173,066
)
 

Operating lease right-of-use assets

 
9,196

 
525

 

 
9,721

Intangible and other assets, net

 
31,531

 
2,045

 

 
33,576

Intercompany receivables
569,667

 

 

 
(569,667
)
 

Total non-current assets
719,267

 
686,931

 
29,883

 
(742,733
)
 
693,348

Total assets
$
719,267

 
$
817,179

 
$
56,156

 
$
(742,733
)
 
$
849,869

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS' CAPITAL
 
 
 
 
 
 
 
 
 
Current liabilities
$
5,254

 
$
108,678

 
$
2,663

 
$

 
$
116,595

Amounts payable to affiliates

 
5,872

 
3,984

 

 
9,856

Long-term debt, net
633,692

 

 

 

 
633,692

Series A Preferred Units
20,890

 

 

 

 
20,890

Operating lease liabilities

 
5,370

 
475

 

 
5,845

Intercompany payables

 
545,068

 
24,599

 
(569,667
)
 

Other long-term liabilities
1,397

 
2,591

 
969

 

 
4,957

Total liabilities
661,233

 
667,579

 
32,690

 
(569,667
)
 
791,835

Total partners' capital
58,034

 
149,600

 
23,466

 
(173,066
)
 
58,034

Total liabilities and partners' capital
$
719,267

 
$
817,179

 
$
56,156

 
$
(742,733
)
 
$
849,869


16



Condensed Consolidating Balance Sheet
December 31, 2018
(In Thousands)
 
Issuers
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets
$

 
$
128,084

 
$
23,663

 
$

 
$
151,747

Property, plant, and equipment, net

 
614,982

 
26,337

 

 
641,319

Investments in subsidiaries
146,852

 
21,330

 

 
(168,182
)
 

Intangible and other assets, net

 
31,874

 
1,804

 

 
33,678

Intercompany receivables
599,145

 

 

 
(599,145
)
 

Total non-current assets
745,997

 
668,186

 
28,141

 
(767,327
)
 
674,997

Total assets
$
745,997

 
$
796,270

 
$
51,804

 
$
(767,327
)
 
$
826,744

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS' CAPITAL
 
 
 
 
 
 
 
 
 
Current liabilities
$
14,681

 
$
72,985

 
$
3,170

 
$

 
$
90,836

Amounts payable to affiliates

 

 
3,517

 

 
3,517

Long-term debt, net
633,013

 

 

 

 
633,013

Series A Preferred Units
30,900

 

 

 

 
30,900

Intercompany payables

 
576,242

 
22,903

 
(599,145
)
 

Other long-term liabilities

 
191

 
884

 

 
1,075

Total liabilities
678,594

 
649,418

 
30,474

 
(599,145
)
 
759,341

Total partners' capital
67,403

 
146,852

 
21,330

 
(168,182
)
 
67,403

Total liabilities and partners' capital
$
745,997

 
$
796,270

 
$
51,804

 
$
(767,327
)
 
$
826,744


17


Condensed Consolidating Statement of Operations
and Comprehensive Income
Three Months Ended March 31, 2019
(In Thousands)
 
Issuers
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
98,062

 
$
9,033

 
$
(3,659
)
 
$
103,436

Cost of revenues (excluding depreciation and amortization expense)

 
65,739

 
6,020

 
(3,659
)
 
68,100

Selling, general and administrative expense
365

 
9,825

 
475

 

 
10,665

Depreciation and amortization

 
17,553

 
979

 

 
18,532

Interest expense, net
13,291

 
8

 

 

 
13,299

Series A Preferred FV Adjustment
1,304

 

 

 

 
1,304

Other expense, net
448

 
143

 
(972
)
 

 
(381
)
Equity in net income (loss) of subsidiaries
(2,952
)
 
(2,135
)
 

 
5,087

 

Income before income tax provision
(12,456
)
 
6,929

 
2,531

 
(5,087
)
 
(8,083
)
Provision (benefit) for income taxes

 
3,977

 
396

 

 
4,373

Net income
(12,456
)
 
2,952

 
2,135

 
(5,087
)
 
(12,456
)
Other comprehensive income (loss)
272

 
272

 

 
(272
)
 
272

Comprehensive income (loss)
$
(12,184
)
 
$
3,224

 
$
2,135

 
$
(5,359
)
 
$
(12,184
)

Condensed Consolidating Statement of Operations
and Comprehensive Income
Three Months Ended March 31, 2018
(In Thousands)
 
Issuers
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
79,390

 
$
7,386

 
$
(1,359
)
 
$
85,417

Cost of revenues (excluding depreciation and amortization expense)

 
54,290

 
5,055

 
(1,359
)
 
57,986

Selling, general and administrative expense
(604
)
 
8,438

 
463

 

 
8,297

Depreciation and amortization

 
16,644

 
723

 

 
17,367

Interest expense, net
8,099

 
3,334

 

 

 
11,433

Series A Preferred FV Adjustment
1,553

 

 

 

 
1,553

Other expense, net

 
4,335

 
(1,131
)
 

 
3,204

Equity in net income (loss) of subsidiaries
6,689

 
(1,499
)
 

 
(5,190
)
 

Income before income tax provision
(15,737
)
 
(6,152
)
 
2,276

 
5,190

 
(14,423
)
Provision (benefit) for income taxes

 
537

 
777

 

 
1,314

Net income
(15,737
)
 
(6,689
)
 
1,499

 
5,190

 
(15,737
)
Other comprehensive income (loss)
(649
)
 
(649
)
 

 
649

 
(649
)
Comprehensive income (loss)
$
(16,386
)
 
$
(7,338
)
 
$
1,499

 
$
5,839

 
$
(16,386
)


18


Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2019
(In Thousands)

 
Issuers
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$

 
$
32,320

 
$
(688
)
 
$

 
$
31,632

Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant, and equipment, net

 
(22,749
)
 
(403
)
 

 
(23,152
)
Advances and other investing activities

 

 

 

 

Net cash provided by (used in) investing activities

 
(22,749
)
 
(403
)
 

 
(23,152
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 

 

 

 

Payments of long-term debt

 
(2
)
 

 

 
(2
)
Cash redemptions of Preferred Units
(9,399
)
 

 

 

 
(9,399
)
Distributions
(476
)
 

 

 

 
(476
)
Intercompany contribution (distribution)
9,875

 
(9,875
)
 

 

 

Advances from affiliate

 
2,402

 

 

 
2,402

Net cash provided by (used in) financing activities

 
(7,475
)
 

 

 
(7,475
)
Effect of exchange rate changes on cash

 

 
7

 

 
7

Increase (decrease) in cash and cash equivalents

 
2,096

 
(1,084
)
 

 
1,012

Cash and cash equivalents at beginning of period

 
14,148

 
1,710

 

 
15,858

Cash and cash equivalents at end of period
$

 
$
16,244

 
$
626

 
$

 
$
16,870


19


Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2018
(In Thousands)
 
Issuers
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$

 
$
(5,095
)
 
$
4,730

 
$

 
$
(365
)
Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant, and equipment, net

 
(14,869
)
 
(2,170
)
 

 
(17,039
)
Advances and other investing activities

 
(59
)
 
 
 

 
(59
)
Net cash provided by (used in) investing activities

 
(14,928
)
 
(2,170
)
 

 
(17,098
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
344,100

 
35,900

 

 

 
380,000

Payments of long-term debt

 
(258,000
)
 

 

 
(258,000
)
Distributions
(7,312
)
 

 

 

 
(7,312
)
Other financing activities
(5,971
)
 

 

 

 
(5,971
)
Intercompany contribution (distribution)
(330,817
)
 
330,817

 

 

 

Net cash provided by (used in) financing activities

 
108,717

 

 

 
108,717

Effect of exchange rate changes on cash

 

 
(48
)
 

 
(48
)
Increase (decrease) in cash and cash equivalents

 
88,694

 
2,512

 

 
91,206

Cash and cash equivalents at beginning of period

 
4,197

 
3,404

 

 
7,601

Cash and cash equivalents at end of period
$

 
$
92,891

 
$
5,916

 
$

 
$
98,807

NOTE L – SUBSEQUENT EVENTS

On April 18, 2019 , the board of directors of our General Partner declared a cash distribution attributable to the quarter ended March 31, 2019 of $0.01 per common unit. This distribution equates to a distribution of $0.04 per outstanding common unit, on an annualized basis. Also on April 18, 2019 , the board of directors of our General Partner approved the paid-in-kind distribution of 59,953 Preferred Units attributable to the quarter ended March 31, 2019 , in accordance with the provisions of our partnership agreement, as amended. These distributions will be paid on May 15, 2019 to each of the holders of common units, and to the holders of the Preferred Units in the aggregate, respectively, of record as of the close of business on May 1, 2019 .

On April 8, 2019, 355,883 Preferred Units were redeemed for $4.3 million . On May 8, 2019, 355,883 Preferred Units were redeemed for $4.3 million .

20


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. 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, 2018 filed with the SEC on March 4, 2019 (" 2018 Annual Report "). This discussion includes forward-looking statements that involve certain risks and uncertainties.
 
Business Overview
    
Growth in demand for our compression services and equipment continues to drive increases in our revenues and gross margin. Compression and related services revenues increased $9.3 million during the current quarter compared to the prior year quarter. Our first quarter utilization rates in our overall compression service fleet increased to 87.2% as of March 31, 2019 from 86.6% as of December 31, 2018 and 84.2% as of March 31, 2018. For our high-horsepower class, the utilization rate increased to 95.6% at March 31, 2019 from 95.0% as of December 31, 2018 and 92.9% as of March 31, 2018. In addition to increasing our utilization rates, the increase in demand has provided us the ability to benefit from improved contract pricing on our compression services and the opportunity to gain efficiencies on repeat orders of new equipment sales. Demand was consistent for our aftermarket services when compared to the prior year quarter, as customers spent maintenance capital to deploy compression units that were previously idle.

New equipment sales revenues increased $9.1 million during the current quarter compared to the prior year quarter. The construction of infrastructure to alleviate current takeaway capacity constraints that is limiting production and new drilling in the Permian Basis has resulted in increased demand for equipment. Our new equipment sales backlog was $93.9 million as of March 31, 2019 . The decrease in our backlog from December 31, 2018 of $105.2 million is the result of converting backlog into revenue for completed orders during the current year quarter. New equipment sales orders generally take less than twelve months to build and deliver. We expect all of our current backlog to be recognized in revenue during fiscal year 2019. Our results of operations for the three month period ending March 31, 2019 reflect margins on equipment sales contracts entered into in prior periods. Our equipment sales orders are largely prepaid by the customer through progressive billings, which allows us to fabricate new compression units using our customers' funding.

Our focus remains on our ability to appropriately expand and maintain our compression equipment fleet in order to serve our customers. During the first three months of 2019, we spent $17.6 million (inclusive of $2.4 million paid by TETRA as discussed below), to expand primarily our high-horsepower class of compression equipment, and $5.7 million to maintain our compression fleet. In order to meet current and future demand, we continue to evaluate options to fund the expansion of our compression and related services. Through currently available cash and operating cash flows, we have sufficient liquidity to allow us to fund additional capital expenditures during the remainder of 2019 without having to access available borrowings under our Credit Agreement and without having to access the debt and equity markets, as current conditions in the debt and equity markets have increased the difficulty of obtaining attractive financing. Pursuant to agreements executed in February 2019, TETRA has agreed to purchase up to $15.0 million of new compression services equipment and lease it to us in exchange for a monthly rental fee. In addition to these anticipated additional growth capital expenditures, we also seek to grow through targeted acquisition opportunities, with expected funding through the issuance of additional debt and equity securities, to the extent possible and financially prudent. Our Credit Agreement provides up to $50.0 million of working capital, subject to borrowing base limitations, to fund the working capital needs of our business. As a result of increased borrowings at a higher rate to finance the growth of our medium- and high- horsepower compression fleet, interest expense increased during the current quarter compared to the prior year quarter.

Beginning with the distribution made during the first quarter of 2019, and consistent with our December 20, 2018 announcement, given the decline in our common unit price, we reduced our common unit distributions from $0.75 per unit per year (or $0.1875 per quarter) to $0.04 per unit per year (or $0.01 per quarter). During the first quarter of 2019, we began to redeem the remaining Series A Convertible Preferred Units (the "Preferred Units") for cash and avoid the further dilution to our common unitholders that would occur if the Preferred Units were converted into common units.

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How We Evaluate Our Operations
 
Operating Expenses . We use operating expenses as a performance measure for our business. We track our operating expenses using month-to-month, quarter-to-quarter, year-to-date, and year-to-year comparisons and as compared to budget. This analysis is useful in identifying adverse cost trends and allows us to investigate the cause of these trends and implement remedial measures if possible. The most significant portions of our operating expenses are for our field labor, repair and maintenance of our equipment, and for the fuel and other supplies consumed while providing our services. Other materials consumed while performing our services, ad valorem taxes, other labor costs, truck maintenance, rent on storage facilities, and insurance expenses comprise the significant remainder of our operating expenses. Our operating expenses generally fluctuate with our level of activity.

Our labor costs consist primarily of wages and benefits for our field and fabrication personnel, as well as expenses related to their training and safety. Additional information regarding our operating expenses for the three month period ended March 31, 2019 , is provided within the Results of Operations sections below.

Adjusted EBITDA . We view Adjusted EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (typically compared to the prior month, prior year period, and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, and before certain non-cash charges, consisting of impairments, bad debt expense attributable to bankruptcy of customer, equity compensation, non-cash costs of compressors sold, fair value adjustments of our Preferred Units, gain on extinguishment of debt, administrative expenses under the Omnibus Agreement paid in equity using common units, write-off of unamortized financing costs, and excluding acquisition and transaction costs, Series A Preferred redemption premiums, and severance. Adjusted EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements, including investors, to:
assess our ability to generate available cash sufficient to make distributions to our common unitholders and general partner;
evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;
measure operating performance and return on capital as compared to our competitors; and
determine our ability to incur and service debt and fund capital expenditures.

 The following table reconciles net income (loss) to Adjusted EBITDA for the periods indicated:
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
(In Thousands)
Net loss
$
(12,456
)
 
$
(15,737
)
Provision for income taxes
4,373

 
1,314

Depreciation and amortization
18,532

 
17,367

Interest expense, net
13,299

 
11,433

Equity compensation
365

 
(604
)
Expense for unamortized finance costs

 
3,541

Series A Preferred redemption premium
448

 

Series A Preferred fair value adjustments
1,304

 
1,553

Non-cash cost of compressors sold
940

 
324

Adjusted EBITDA
$
26,805


$
19,191

 

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The following table reconciles cash flow from operating activities to Adjusted EBITDA:
 
Three Months Ended
March 31,
 
2019
 
2018
 
(In Thousands)
Cash flow from operating activities
$
31,632

 
$
(365
)
Changes in current assets and current liabilities
(20,604
)
 
9,705

Deferred income taxes
(1,466
)
 
(96
)
Other non-cash charges
(684
)
 
(1,382
)
Interest expense, net
13,299

 
11,433

Series A Preferred accrued paid in kind distributions
(685
)
 
(1,742
)
Provision for income taxes
4,373

 
1,314

Non-cash cost of compressors sold
940

 
324

Adjusted EBITDA
$
26,805

 
$
19,191


Free Cash Flow . We define Free Cash Flow as cash from operations less capital expenditures, net of sales proceeds. Management primarily uses this metric to assess our ability to retire debt, evaluate our capacity to further invest and grow, and measure our performance as compared to our peers. The following table reconciles cash provided by operations, net, to Free Cash Flow for the periods indicated:

 
Three Months Ended
March 31,
 
2019
 
2018
 
(In Thousands)
Cash from operations
$
31,632

 
$
(365
)
Capital expenditures, net of sales proceeds
(23,152
)
 
(17,039
)
Free cash flow
$
8,480

 
$
(17,404
)
    
Adjusted EBITDA and Free Cash Flow are financial measures that are not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash flows from operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. These measures may not be comparable to similarly titled financial metrics of other entities, as other entities may not calculate Adjusted EBITDA or Free Cash Flow in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA and Free Cash Flow as an analytical tool by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes. Adjusted EBITDA and Free Cash Flow should not be viewed as indicative of the actual amount we have available for distributions or that we plan to distribute for a given period, nor should it be equated with “available cash” as defined in our partnership agreement.

Horsepower Utilization Rate of our Compressor Packages . We measure the horsepower utilization rate of our fleet of compressor packages as the amount of horsepower of compressor packages used to provide services as of a particular date, divided by the amount of horsepower of compressor packages in our services fleet as of such date. Management primarily uses this metric to determine our future need for additional compressor packages for our service fleet and to measure marketing effectiveness.
 
The following table sets forth the total horsepower in our compressor fleet, our total horsepower in service, and our horsepower utilization rate as of the dates shown.

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March 31,
 
2019
 
2018
Horsepower
 
 
 
Total horsepower in fleet
1,167,164

 
1,085,088

Total horsepower in service
1,017,452

 
913,962

Total horsepower utilization rate
87.2
%
 
84.2
%

The following table sets forth our horsepower utilization rates by each horsepower class of our compression fleet as of the dates shown.

 
March 31,
 
2019
 
2018
Horsepower utilization rate by class
 
 
 
Low-horsepower (0-100)
65.7
%
 
65.8
%
Mid-horsepower (101-1,000)
85.4
%
 
82.7
%
High-horsepower (1,001 and over)
95.6
%
 
92.9
%

Net Increases/Decreases in Compression Fleet Horsepower . We measure the net increase (or decrease) in our compression fleet horsepower during a given period by taking the difference between the aggregate horsepower of compressor packages added to the fleet during the period, less the aggregate horsepower of compressor packages removed from the fleet during the period. We measure the net increase (or decrease) in our compression fleet horsepower in service during a given period by taking the difference between the aggregate horsepower of compressor packages placed into service during the period, less the aggregate horsepower of compressor packages removed from service during the period.
New Equipment Sales Backlog . Our new equipment sales business includes the fabrication and sale of standard compressor packages and custom-designed compressor packages designed and fabricated primarily at our facility in Midland, Texas. The equipment is fabricated to customer and standard specifications, as applicable. Our custom fabrication projects are typically greater in size and scope than standard fabrication projects, requiring more labor, materials, and overhead resources. Our fabrication business requires diligent planning of those resources and project and backlog management in order to meet the customer delivery dates and performance criteria. During the three months ended March 31, 2019 , we received cumulative orders of $11.2 million for new compressor equipment. As of March 31, 2019 , our new equipment sales backlog was $93.9 million , all of which is expected to be recognized during 2019. Our new equipment sales backlog consists of firm customer orders for which a purchase or work order has been received, satisfactory credit or financing arrangements exist, and delivery has been scheduled. Our new equipment sales backlog is a measure of marketing effectiveness that allows us to plan future labor and raw material needs and measure our success in winning bids from our customers.
Critical Accounting Policies and Estimates
 
There have been no material changes or developments in the evaluation of the accounting estimates and the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed in our 2018 Annual Report . In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.


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Results of Operations

Three months ended March 31, 2019 compared to three months ended March 31, 2018 .
 
Three Months Ended March 31,
 
 
 
 
 
Period-to-Period Change
 
Percentage of Total Revenues
Period-to-Period Change
Consolidated Results of Operations
2019
 
2018
 
2019 vs. 2018
 
2019
 
2018
 
2019 vs. 2018
 
(In Thousands)
 
 
 
 
 
 
Revenues:
 
 
 
 
 

 
 
 
 
 
 
Compression and related services
$
63,032

 
$
53,735

 
$
9,297

 
60.9
 %
 
62.9
 %
 
17.3
 %
Aftermarket services
13,601

 
14,016

 
(415
)
 
13.1
 %
 
16.4
 %
 
(3.0
)%
Equipment sales
26,803

 
17,666

 
9,137

 
25.9
 %
 
20.7
 %
 
51.7
 %
Total revenues
103,436

 
85,417

 
18,019

 
100.0
 %
 
100.0
 %
 
21.1
 %
Cost of revenues:
 

 
 
 
 
 
 

 
 

 
 

Cost of compression and related services
32,621

 
31,380

 
1,241

 
31.5
 %
 
36.7
 %
 
4.0
 %
Cost of aftermarket services
11,250

 
11,157

 
93

 
10.9
 %
 
13.1
 %
 
0.8
 %
Cost of equipment sales
24,229

 
15,449

 
8,780

 
23.4
 %
 
18.1
 %
 
56.8
 %
Total cost of revenues
68,100

 
57,986

 
10,114

 
65.8
 %
 
67.9
 %
 
17.4
 %
Depreciation and amortization
18,532

 
17,367

 
1,165

 
17.9
 %
 
20.3
 %
 
6.7
 %
Selling, general and administrative expense
10,665

 
8,297

 
2,368

 
10.3
 %
 
9.7
 %
 
28.5
 %
Interest expense, net
13,299

 
11,433

 
1,866

 
12.9
 %
 
13.4
 %
 
16.3
 %
Series A Preferred fair value adjustment (income) expense
1,304

 
1,553

 
(249
)
 
1.3
 %
 
1.8
 %
 
(16.0
)%
Other (income) expense, net
(381
)
 
3,204

 
(3,585
)
 
(0.4
)%
 
3.8
 %
 


Income (loss) before income taxes
(8,083
)
 
(14,423
)
 
6,340

 
(7.8
)%
 
(16.9
)%
 
(44.0
)%
Provision (benefit) for income taxes
4,373

 
1,314

 
3,059

 
4.2
 %
 
1.5
 %
 
232.8
 %
Net income (loss)
$
(12,456
)
 
$
(15,737
)
 
$
3,281

 
(12.0
)%
 
(18.4
)%
 
(20.8
)%

Revenues
 
Compression and related services revenues increased by $9.3 million , or 17.3% , in the current year quarter compared to the prior year quarter. Growth in demand for compression services positively impacted our compression fleet utilization rates. Utilization of our medium-horsepower (101-1,000 HP) and high-horsepower (over 1,000 HP) compression fleets, which are used to provide services in natural gas gathering and transmission applications, have increased compared to the prior year quarter. As a result, the overall compression fleet horsepower utilization rate as of March 31, 2019 increased to 87.2% compared to 84.2% as of March 31, 2018 . Our low horsepower compression fleet, which is primarily used to provide services for wellhead natural gas production enhancement, continues to experience lower utilization compared to the higher horsepower classes of our compression fleet. Primarily as a result of our medium-horsepower and high-horsepower compression fleets, we have seen our overall compression fleet horsepower utilization rate increase sequentially over the past two years. Increased demand has also led to improved customer contract pricing for compression services. In response to the overall improving demand for compression services, we continue to invest in growth capital projects to increase certain horsepower categories of our compression fleet.

Aftermarket services revenues decreased $0.4 million , or 3.0% , during the current year quarter compared to the prior year quarter. In the prior year quarter, we experienced increased sales backlog for aftermarket projects as well as an increase in requests for quotes for aftermarket services as our customers increased their maintenance capital expenditure activities and deployed compression units that were previously idle.

Equipment sales revenues increased $9.1 million , or 51.7% , during the current year quarter compared to the prior year quarter, as we continue to see improving demand. This increase is primarily due to the increased number of customer projects compared to the prior year quarter requiring fabrication, particularly projects requiring high-horsepower compressor packages. New equipment sales backlog was $93.9 million as of March 31, 2019

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compared to $105.2 million and $102.5 million as of December 31, 2018 and March 31, 2018 , respectively. Changes in our new equipment sales backlog are a function of additional customer orders less completed orders that result in equipment sales revenues. Our backlog associated with new equipment sales decreased from the prior year quarter as completed customer orders, recorded as revenue during the current quarter, exceeded new orders received during the current quarter. During the year ended December 31, 2018, we reached our highest backlog since 2014, some of which was recognized as revenues during the three months ended March 31, 2019 . All of our new equipment sales backlog as of March 31, 2019 is expected to be recognized as revenues in 2019. The level of revenues from equipment sales is typically volatile and difficult to forecast, as these revenues are tied to specific customer projects that vary in scope, design, complexity, and customer needs. In comparison, our revenues from compression and related services and aftermarket services are typically more consistent and predictable.

Cost of revenues
 
The increase in the cost of compression and related services revenue, compared to the prior year quarter, was primarily due to the increased overall utilization of compressor packages. The costs of compression and related services as a percentage of compression and related services revenues were 51.8% and 58.4% during the current and prior year quarters, respectively. Costs of compression and related services as a percent of associated revenues decreased compared to the prior year quarter primarily due to improved customer contract pricing and internal efficiencies gained on repeat orders. Costs of aftermarket services increased slightly compared to the prior year quarter, despite a slight decrease in activity and parts sales due to the mix between parts and services during the periods.

Cost of equipment sales revenues increased in accordance with the increase in associated revenues. Costs of equipment sales as a percentage of equipment sales revenues increased primarily due to pricing on equipment orders placed in early 2018. We expect to capture greater margin on equipment sales included in our current backlog in future periods as the orders are completed.

Depreciation and amortization
 
Depreciation and amortization expense primarily consists of the depreciation of compressor packages in our service fleet. In addition, it includes the depreciation of other operating equipment and facilities and the amortization of intangibles. Depreciation and amortization expense increased slightly compared to the prior year quarter due to increases in the compression services fleet.

Selling, general and administrative expense
 
Selling, general and administrative expenses increased during the current year quarter compared to the prior year quarter, largely due to increased employee expenses, including wages, incentives, benefits, and other employee related expenses of $2.1 million , and increased other general expenses of $0.3 million . As a result of these increases, selling, general and administrative expense as a percentage of revenues increased .
 
Interest expense, net
 
Interest expense, net, increased compared to the prior year quarter due to higher outstanding debt balances and higher interest rates associated with the issuance of our 7.50% Senior Secured Notes in March 2018. Interest expense, net, during the current and prior year quarter includes $0.7 million and $1.0 million , respectively, of finance cost amortization and other non-cash charges.

Series A Preferred fair value adjustment

The Series A Preferred fair value adjustment was $1.3 million charged to earnings during the current year quarter compared to $1.6 million charged to earnings during the prior year quarter. As of March 31, 2019 , the fair value of the Preferred Units was $20.9 million . Changes in the fair value of the Preferred Units may generate additional volatility to our earnings going forward.
 
Other (income) expense, net
 
Other (income) expense, net, was $0.4 million of income during the current year quarter, compared to $3.2 million of expense during the prior year quarter. This decrease in expense is primarily due to $3.5 million of

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unamortized deferred financing costs charged to other expense as a result of the termination of the previous credit agreement in the prior year quarter. The current year period includes approximately $0.4 million of redemption premium incurred in connection with the redemption of Preferred Units for cash.

Provision for income taxes
 
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. Certain of our operations are located outside of the U.S. and the Partnership, through its foreign subsidiaries, is responsible for income taxes in these countries.

Our effective tax rate for the three month period ended March 31, 2019 , was negative 54.1% primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes combined with losses generated in entities for which no related tax benefit has been recorded. In addition, the application of ASC 740-270 "Income Taxes - Interim Reporting," resulted in an accrual of current income taxes for the three month period ended March 31, 2019 equal to approximately the full year estimate. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
Liquidity and Capital Resources
 
Our primary cash requirements are for distributions, working capital requirements, debt service, normal operating expenses, and capital expenditures. Our potential sources of funds are our existing cash balances, cash generated from our operations, long-term and short-term borrowings, financing transactions with TETRA, issuances of debt and equity securities, and leases, which we believe will be sufficient to meet our working capital and planned growth requirements during 2019. Continued competitive market environments have resulted in ongoing challenges in each of our domestic and international business regions. We are monitoring the 2019 spending plans of our customers due to oil price volatility and its impact on our customer's demand for our products and services. If oil prices decrease during 2019, our businesses could be negatively impacted. In addition, current conditions in the market for debt and equity securities in the energy sector have increased the difficulty of obtaining equity and debt financing to grow our business. Despite these challenges, we remain committed to a long-term growth strategy. Our near-term focus is to selectively expand our compression fleet to serve the growing demand for compression services, while continuing to preserve and enhance liquidity through strategic operating and financial measures.

On December 20, 2018, we announced that, given the decline in our common unit price, we were reducing our common unit distributions from $0.75 per unit per year (or $0.1875 per quarter) to $0.04 per unit per year (or $0.01 per quarter) for a period of up to four quarters, beginning with the February 2019 distribution. We intend to use the approximately $34 million of savings from the reduced distribution to redeem the remaining Preferred Units for cash and avoid the dilution to our common unitholders that would occur if the Preferred Units were converted into common units. The stated value of the Preferred Units as of May 8, 2019 was approximately $13.3 million .

We expect to fund any future capital expenditures, along with potential acquisitions, if any, with existing cash balances, cash flow generated from our operations, financing transactions with TETRA and funds received from the issuance of additional debt and equity securities. However, we are subject to business and operational risks that could materially adversely affect our cash flows and together with risks associated with current debt and equity market conditions, our ability or desire to issue such securities. Please read Part I, Item 1A "Risk Factors" included in our 2018 Annual Report .
 
Meeting increased demand for our compression services, both internationally and in the U.S., will require ongoing capital expenditure investment, which could be significant. The level of future growth capital expenditures depends on demand for compression services, the level of cash available to fund these expenditures, and our decisions whether to utilize available cash to fund distribution increases, retire debt or make capital expenditures. We anticipate capital expenditures in 2019 to range from $60.0 million to $65.0 million . These capital expenditures include approximately $18.0 million to $20.0 million of maintenance capital expenditures and approximately $42 million to $45 million of capital expenditures primarily associated with the expansion of our compression services fleet. We expect that the combination of $16.9 million of cash on hand at March 31, 2019 and operating cash flows expected to be generated during the remainder of the year will be sufficient to fund these capital expenditures

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without having to incur additional long-term debt and without having to access the equity markets. In addition to these capital expenditures, pursuant to agreements executed in February 2019, TETRA has agreed to purchase up to $15.0 million of new compression services equipment and lease it to us in exchange for a monthly rental fee. During the three months ended March 31, 2019 , $2.4 million of the $15.0 million was paid to us from TETRA. As a result of this agreement, approximately 20,700 horsepower of additional compression equipment will be deployed, and we will have the right to purchase the equipment from TETRA at any time over the five year lease term. These anticipated 2019 growth plans are to expand our high-horsepower compression fleet by approximately 98,000 horsepower, focused on key customers as they look to their 2020 compression needs. However, if additional desired capital expenditures exceed available sources, and other financing sources are not available, we will not have the ability to expand our compression services fleet to meet the increased demand. We are reviewing all capital expenditure plans carefully in an effort to conserve cash and fund our liquidity needs.
 
On April 18, 2019 , our General Partner declared a cash distribution attributable to the quarter ended March 31, 2019 of $0.01 per common unit. This distribution equates to a distribution of $0.04 per outstanding common unit, on an annualized basis. Also on April 18, 2019 , our General Partner approved the paid-in-kind distribution of 59,953 Preferred Units attributable to the quarter ended March 31, 2019 , in accordance with the provisions of our partnership agreement, as amended. These quarterly distributions will be paid on May 15, 2019 to each of the holders of common units and to the holders of the Preferred Units in the aggregate, respectively, of record as of the close of business on May 1, 2019 .

Cash Flows

A summary of our sources and uses of cash during the three months ended March 31, 2019 and 2018 is as follows:
 
Three Months Ended March 31,
 
(In Thousands)
 
2019
 
2018
Operating activities
$
31,632

 
$
(365
)
Investing activities
(23,152
)
 
(17,098
)
Financing activities
(7,475
)
 
108,717


Operating Activities
 
Net cash provided by operating activities increased by $32.0 million . Our cash provided from operating activities is primarily generated from the provision of compression and related services and the sale of new compressor packages. The decrease in our backlog from December 31, 2018 is the result of converting backlog into revenue for completed orders during the current year quarter. New equipment sales orders generally take less than twelve months to build and deliver.
  
Cash provided from our foreign operations is subject to various uncertainties, including the volatility associated with interruptions caused by customer budgetary decisions, uncertainties regarding the renewal of our existing customer contracts, and other changes in contract arrangements, security concerns, the timing of collection of our receivables, and the repatriation of cash generated by our international operations.

Investing Activities
 
Capital expenditures during the three months ended March 31, 2019 , increased by $6.1 million compared to the same period in 2018 primarily to grow and maintain the capacity of our compression fleet. As a result of overall improving demand for compression services, beginning in late 2017 we began growth capital expenditure projects to increase certain horsepower categories of our compression fleet. Maintenance capital expenditures also increased during the three months ended March 31, 2019 compared to the prior year period. Total capital expenditures, net of disposals and proceeds, during the current year period of $23.2 million include $5.7 million of maintenance capital expenditures and are net of $0.9 million of non-cash cost of fleet compression units sold. The level of growth capital expenditures depends on forecasted demand for compression services. If the forecasted demand for compression services during 2019 increases or decreases, the amount of planned expenditures on

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growth and expansion will be adjusted, subject to the availability of funds. We continue to review all capital expenditure plans carefully in an effort to conserve cash and fund our liquidity needs.

Financing Activities
 
Beginning with the distribution to common unitholders during February 2019, we reduced our common unit distributions from $0.75 per unit per year (or $0.1875 per quarter) to $0.04 per unit per year (or $0.01 per quarter). We intend to use the approximately $34 million of savings from the reduced distribution to redeem the remaining Preferred Units for cash and avoid the further dilution to our common unitholders that would occur if the Preferred Units were converted into common units. Accordingly, during the three months ended March 31, 2019 , we distributed $0.5 million of cash distributions to our common unitholders and General Partner.
    
Our sources of funds for liquidity needs are existing cash balances, cash generated from our operations, and long-term and short-term borrowings. In addition to redeeming the remaining Preferred Units, we anticipate that we will utilize available cash to fund our anticipated growth capital expenditures. In February 2019, we entered into a transaction with TETRA whereby TETRA agreed to purchase up to $15 million of new compression services equipment and agreed to lease it to us in exchange for a monthly rental fee. As of March 31, 2019 , pursuant to this arrangement, $2.4 million has been paid to us from TETRA for the construction of new compression equipment.

Series A Convertible Preferred Units . The Preferred Units rank senior to all classes or series of equity securities of the Partnership with respect to distribution rights and rights upon liquidation. The holders of Preferred Units receive quarterly distributions, which are paid in kind in additional Preferred Units, equal to an annual rate of 11.00% of the Issue Price (or $1.2573 per Preferred Unit annualized) of their outstanding Preferred Units, subject to certain adjustments.

Unless otherwise redeemed for cash, a ratable portion of the Preferred Units has been, and will be, converted into common units on the eighth day of each month over a period of thirty months that began in March 2017 and will end in August 2019 (each, a “Conversion Date”). Beginning with the January 2019 Conversion Date, we have elected to redeem the remaining Preferred Units for cash, resulting in 783,046 Preferred Units being redeemed during the three months ended March 31, 2019 for $9.4 million , which includes approximately $0.4 million of redemption premium that was paid. Including the impact of paid in kind distributions of Preferred Units and the conversions of Preferred Units into common units, and the redemptions of Preferred Units for cash, the total number of Preferred Units outstanding as of March 31, 2019 was 1,779,417 . As of May 8, 2019 , the total number of Preferred Units outstanding was 1,165,756, having an aggregate stated value of approximately $13.3 million .

The fair value of the Preferred Units as of March 31, 2019 was $20.9 million . Changes in the fair value during each quarterly period, if any, are charged or credited to earnings in the accompanying consolidated statements of operations. Charges or credits to earnings for changes in the fair value of the Preferred Units, along with the interest expense for the accrual and payment of paid-in-kind distributions associated with the Preferred Units, are non-cash charges or credits associated with the Preferred Units.

       Bank Credit Facilities . The Credit Agreement includes a maximum credit commitment of $50.0 million available for loans, letters of credit (with a sublimit of $25.0 million ) and swingline loans (with a sublimit of $5.0 million ), subject to a borrowing base to be determined by reference to the value of the Partnership’s and any other Borrowers’ accounts receivable. Such maximum credit commitment may be increased by $25.0 million in accordance with the terms and conditions of the Credit Agreement. As of March 31, 2019 , and subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the Credit Agreement, we had availability of $18.4 million .

The maturity date of the Credit Agreement is June 29, 2023. As of March 31, 2019 , we had no outstanding balance and had $3.5 million in letters of credit against our Credit Agreement. As of May 8, 2019 , we have no balance outstanding under our Credit Agreement and $5.3 million in letters of credit, leaving availability under the CCLP Credit Agreement of $16.6 million .

7.50% Senior Secured Notes . As of May 8, 2019 , $350.0 million in aggregate principal amount of our 7.50% Senior Secured Notes are outstanding. The 7.50% Senior Secured Notes accrue interest at a rate of 7.50% per annum and are scheduled to mature on April 1, 2025.


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7.25% Senior Notes . As of May 8, 2019 , $295.9 million in aggregate principal amount of our 7.25% Senior Notes are outstanding. The 7.25% Senior Notes accrue interest at a rate of 7.25% per annum and are scheduled to mature on August 15, 2022 .

Off Balance Sheet Arrangements
 
As of March 31, 2019 , we had no “off balance sheet arrangements” that may have a current or future material effect on our consolidated financial condition or results of operations.

Recently Adopted Accounting Guidance

We adopted the new lease accounting standard on January 1, 2019. The new lease standard had a material impact to our consolidated financial statements, resulting from the inclusion of operating lease right-of-use assets and operating lease liabilities in our consolidated balance sheet. Refer to Part I, Item 1. Financial Statements- Note A - "Organization, Basis of Presentation and Significant Accounting Policies" and Note J - “Leases” for further discussion.
Commitments and Contingencies
 
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. While the outcome of these lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on our financial condition, results of operations, or cash flows.

Contractual Obligations

Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness and obligations under operating leases. During the first three months of 2019, there were no material
changes outside of the ordinary course of business in the specified contractual obligations.

For additional information about our contractual obligations as of December 31, 2018 , see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2018 Annual Report .
Cautionary Statement for Purposes of Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” and information based on our beliefs and those of our general partner. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should, “targets”, “will” and “would”.

Such forward-looking statements reflect our current views with respect to future events and financial performance and are based on assumptions that we believe to be reasonable but such forward-looking statements
are subject to numerous risks, and uncertainties, including, but not limited to:
economic and operating conditions that are outside of our control, including the supply, demand, and prices of oil and natural gas;
the availability of adequate sources of capital to us;
our existing debt levels and our flexibility to obtain additional financing;
our ability to continue to make cash distributions, or increase cash distributions from current levels, after the establishment of reserves, payment of debt service and other contractual obligations;
the restrictions on our business that are imposed under our long-term debt agreements;
our dependence upon a limited number of customers and the activity levels of our customers;
the levels of competition we encounter;
our ability to replace our contracts with customers, which are generally short-term contracts;
the availability of raw materials and labor at reasonable prices;
risks related to acquisitions and our growth strategy;

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our operational performance;
risks related to our foreign operations;
the credit and risk profile of TETRA;
the ability of our general partner to retain key personnel;
information technology risks including the risk from cyberattack;
the effect and results of litigation, regulatory matters, settlements, audits, assessments, and contingencies, and
other risks and uncertainties under “Item 1A. Risk Factors” in our 2018 Annual Report , and as included in our other filings with the U.S. Securities and Exchange Commission ("SEC"), which are available free of charge on the SEC website at www.sec.gov .

The risks and uncertainties referred to above are generally beyond our ability to control and we cannot predict all the risks and uncertainties that could cause our actual results to differ from those indicated by the forward-looking statements. If any of these risks or uncertainties materialize, or if any of the underlying assumptions prove incorrect, actual results may vary from those indicated by the forward-looking statements, and such variances may be material.

All subsequent written and oral forward-looking statements made by or attributable to us or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements we may make, except as may be required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Market risk is the risk of loss arising from adverse changes in market rates and prices. We do not take title to any natural gas or oil in connection with our services and, accordingly, have no direct exposure to fluctuating commodity prices. For a discussion of our indirect exposure to fluctuating commodity prices, please read “Risk Factors — Certain Business Risks” in our 2018 Annual Report . We depend on domestic and international demand for and production of natural gas and oil and a reduction in this demand or production could adversely affect the demand or the prices we charge for our services, which could impact our revenues and cash available for distribution to our common unitholders in the future. We do not currently hedge, and do not intend to hedge, our indirect exposure to fluctuating commodity prices.

Interest Rate Risk
 
Through March 31, 2019 , there have been no material changes in the information pertaining to our interest rate risk exposures as disclosed in our 2018 Annual Report . There is no balance outstanding under the Credit Agreement as of March 31, 2019 . As such, we currently do not have any long-term debt obligations that have a variable rate of interest.

Exchange Rate Risk

As of March 31, 2019 , there have been no material changes pertaining to our exchange rate exposures as disclosed in our 2018 Annual Report .

Item 4. Controls and Procedures.
 
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer of our General Partner, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Principal Executive Officer and Principal Financial Officer of our General Partner concluded that our disclosure controls and procedures were effective as of March 31, 2019 , the end of the period covered by this quarterly report.


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In connection with the adoption of the new lease accounting standard on January 1, 2019, we evaluated and updated certain internal controls to facilitate the proper capture and assessment of contractual information required to support proper preparation of financial information upon adoption.
There were no other changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II
OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. While the outcome of these lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on our financial condition, results of operations, or cash flows.
Item 1A. Risk Factors.

 There have been no material changes in the information pertaining to our Risk Factors as disclosed in our 2018 Annual Report .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
(a)  None.
 
(b)  None.
 
(c)  Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Period
 
Total Number
of Units Purchased
 
Average
Price
Paid per Unit
 
Total Number of Units Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Units that May Yet be Purchased Under the Publicly Announced
Plans or Programs
January 1 – January 31, 2019
 

 
$

 
N/A
 
N/A
February 1 – February 28, 2019
 

 

 
N/A
 
N/A
March 1 – March 31, 2019
 

 

 
N/A
 
N/A
Total
 

 
 

 
N/A
 
N/A
Item 3. Defaults Upon Senior Securities.
 
None.
Item 4. Mine Safety Disclosures.
 
None.
Item 5. Other Information.
 
None.

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Item 6. Exhibits.
 
Exhibits: 
10.1*
10.2*
10.3*
10.4*
31.1*
31.2*
32.1**
32.2**
101.INS+
XBRL Instance Document
101.SCH+
XBRL Taxonomy Extension   Schema Document
101.CAL+
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+
XBRL Taxonomy Extension Label Linkbase Document
101.PRE+
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed with this report.
**
Furnished with this report.
+
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three month periods ended March 31, 2019 and 2018 ; (ii) Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2019 and 2018 ; (iii) Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 ; (iv) Consolidated Statement of Partners’ Capital for the three month period ended March 31, 2019 ; (v) Consolidated Statements of Cash Flows for the three month periods ended March 31, 2019 and 2018 ; and (iv) Notes to Consolidated Financial Statements for the three months ended March 31, 2019 .


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
CSI COMPRESSCO LP
 
 
 
By:
CSI Compressco GP Inc.,
 
 
 
its   General Partner
 
 
 
 
 
Date:
May 8, 2019
By:
/s/Owen Serjeant
 
 
 
Owen Serjeant, President
 
 
 
Principal Executive Officer
 
 
 
 
Date:
May 8, 2019
By:
/s/Elijio V. Serrano
 
 
 
Elijio V. Serrano
 
 
 
Chief Financial Officer
 
 
 
Principal Financial Officer
 
 
 
 
Date:
May 8, 2019
By:
/s/Michael E. Moscoso
 
 
 
Michael E. Moscoso
 
 
 
Vice President - Finance
 
 
 
Principal Accounting Officer
 
 
 
 

35
Exhibit 10.1


CSI COMPRESSCO LP
SECOND AMENDED AND RESTATED 2011 LONG TERM INCENTIVE PLAN
DIRECTOR RESTRICTED UNIT AGREEMENT

Director:
 
Date of Grant:
 
Number of Restricted Units:
 
This Restricted Unit Agreement (this “ Agreement ”) is made as of _____________ between CSI Compressco GP Inc., a Delaware corporation (the “ Company ”), and __________________________ (the “ Director ”) pursuant to the terms and conditions of the CSI Compressco LP Second Amended and Restated 2011 Long Term Incentive Plan (the “ Plan ”). The Director acknowledges receipt of a copy of the Plan, and agrees that the terms and provisions of the Plan, including any future amendments thereto, shall be deemed a part of this Agreement as if fully set forth herein. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan, unless the context requires otherwise.
WHEREAS , the Board of Directors of the Company (the “ Board ”), has adopted the Plan to, among other things, attract, retain and motivate certain employees, directors and consultants of the Company, the Partnership and their respective Affiliates (each, a “ Company Entity ” and, collectively, the “ Company Entities ”); and
WHEREAS , the Company desires to grant to the Director on the terms and conditions set forth herein and in the Plan, and the Director desires to accept on such terms and conditions, the number of Restricted Units set forth herein.
NOW, THEREFORE , in consideration of the Director’s agreement to provide or to continue providing services for the benefit of the Company Entities, the Company and the Director agree as follows:
1. Grant of Restricted Units . The Company hereby grants to the Director, effective as of _____________ (the “ Date of Grant ”), _____________ Restricted Units, subject to all of the terms and conditions set forth in the Plan and in this Agreement (the “ Restricted Units ”).
2.      Forfeiture Restrictions . The Restricted Units may not be sold, assigned, pledged, exchanged, hypothecated, or otherwise transferred, encumbered, or disposed of to the extent then subject to the Forfeiture Restrictions (as defined below), and in the event of the termination of the Director’s service as a director of the Company for any reason or no reason whatsoever, except as provided below, the Director shall automatically upon such termination, for no consideration, forfeit to the Company all of the Restricted Units to the extent then subject to the Forfeiture Restrictions. The prohibition against transfer and the obligation to forfeit the Restricted Units to the Company upon termination of employment are referred to herein as the “ Forfeiture Restrictions .”

    



3.      Rights of Director . The Restricted Units shall be evidenced either (a) by certificates issued in the Director’s name that are retained by the Company until the Restricted Units are no longer subject to the Forfeiture Restrictions or are forfeited or (b) in book entry form by the Partnership’s transfer agent with a notation that they are subject to restrictions. Notwithstanding the foregoing, the Director shall have all voting rights, if any, with respect to the Restricted Units and the right to receive any Unit Distribution Rights thereon; provided, however, that any Unit Distribution Rights made by the Partnership with respect to a Restricted Unit that remains subject to the Forfeiture Restrictions at the time such Unit Distribution Right is made shall be held by the Company and shall be paid to the Director (without interest) when the Restricted Unit with respect to which such Unit Distribution Right was made vests or shall be forfeited when such Restricted Unit is forfeited, as the case may be. Notwithstanding the preceding provisions of this Section 3 , the Unit Distribution Rights shall be subject to all of the restrictions described herein, including, without limitation, the Forfeiture Restrictions.
4.      Vesting of Restricted Units . Except as otherwise provided in this Agreement, the Restricted Units will vest in accordance with the vesting schedule set forth in the following table, provided that the Director serves as a director of the Company from the Date of Grant through each vesting date set forth below (each, a “ Vesting Date ”):
Vesting Date

Cumulative Vested Percentage
[ ]
[ ]%

If, on any Vesting Date, the application of the vesting schedule set forth above results in a fractional Restricted Unit becoming vested, the number of Restricted Units vesting on such date shall be rounded up to the next whole number of Restricted Units. Restricted Units that have become vested pursuant to the schedule above are referred to herein as “ Vested Units .”
5.      Transferability and Assignment . This Agreement and the Restricted Units granted hereunder will not be transferable by the Director other than by will or the laws of descent and distribution. Any purported transfer, assignment, alienation, pledge, hypothecation, attachment, sale, transfer or encumbrance shall be null, void and unenforceable against the Company Entities.
6.      Status of Units . The Director agrees that any Vested Units that he acquires upon vesting of the Restricted Units will not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws, the Plan or the rules, regulations and other requirements of the SEC and any stock exchange upon which the Units are then listed. The Director also agrees that (a) any certificates representing the Units acquired under this award may bear such legend or legends as the Committee deems appropriate in order to assure compliance with applicable securities laws, (b) the Company may refuse to register the transfer of the Units acquired under this award with the Partnership’s transfer agent if such proposed transfer would, in the opinion of counsel satisfactory to the Partnership, constitute a violation of any applicable securities law, and (c) the Partnership may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Units to be acquired under this award. In addition

A- 2


to the terms and conditions provided herein, the Company may require that the Director make such covenants, agreements, and representations as the Committee, in its sole discretion, deems advisable in order to comply with any such laws, rules, regulations, or requirements.
7.      Tax Withholding . The Company Entities shall have the authority and the right to deduct or withhold, or to require the Director to remit to a Company Entity, an amount sufficient to satisfy all applicable federal, state and local taxes required by law to be withheld with respect to any taxable event arising in connection with the Restricted Units and the Unit Distribution Rights granted hereunder. In satisfaction of the foregoing requirement, unless other arrangements have been made that are acceptable to Board or a committee of the Board that is composed solely of two or more Qualified Members, the Director shall surrender the number of Units otherwise issuable to the Director having an aggregate Fair Market Value on the date of such surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for any Company Entity with respect to the Restricted Units, as determined by the Committee.
8.      General Provisions .
(a)      Administration . This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and all decisions of a majority of the Committee with respect thereto and this Agreement shall be final and binding upon the Director and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.
(b)      No Guarantee of Board Membership . Nothing in this Agreement or in the Plan shall be construed as giving the Director any right with respect to continuance of service as a director of the Company, nor shall it interfere in any way with any right the Company would otherwise have to terminate such Director’s board membership or other service at any time.
(c)      Tax Consultation . None of the Board, the Committee or the Company Entities have made any warranty or representation to the Director with respect to the income tax consequences of the grant or vesting of the Restricted Units or the transactions contemplated by this Agreement, and the Director represents that he is in no manner relying on such entities or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences. The Director represents that he has consulted with any tax consultants that the Director deems advisable in connection with the Restricted Units.
(d)      Severability . If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

A- 3


(e)      Successors . This Agreement shall be binding upon the Director, the Director’s legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.
(f)      Entire Agreement . This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Restricted Units granted hereby. Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect.
(g)      Headings . The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
(h)      Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.
(i)      Gender . Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Agreement dictates, the plural shall be read as the singular and the singular as the plural.
(j)      Amendments, Suspension and Termination . This Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee (i) to the extent permitted by the Plan or (ii) to the extent necessary to comply with applicable laws and regulations or to conform the provisions of this Agreement to any changes thereto. Except as provided in the preceding sentence, this Agreement cannot be modified, altered or amended, except by a written agreement signed by both the Company and the Director.
(k)      Insider Trading Policy . The terms of the Company’s insider trading policy with respect to Units are incorporated herein by reference.
(l)      Clawback . Notwithstanding any provisions in the Plan or this Agreement to the contrary, any portion of the payments and benefits provided under this Agreement or the sale of the Units granted hereunder shall be subject to a clawback or other recovery by the Company Entities to the extent necessary to comply with applicable law including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any SEC rule.
(m)      Community Interest of Spouse . The Director’s spouse shall be required to execute the spousal consent set forth on the signature page attached hereto to evidence such spouse’s agreement and consent to be bound by the terms and conditions of this Agreement and the Plan as to such spouse’s interest, whether as community property or otherwise, if any, in the Restricted Units granted to the Director hereunder.

A- 4


(n)      Consent to Electronic Delivery; Electronic Signature . In lieu of receiving documents in paper format, the Director agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, without limitation, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Director has access. The Director hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

[Signature Page Follows]

A- 5



IN WITNESS WHEREOF , the Company has caused this Agreement to be executed by its duly authorized officer, effective for all purposes as provided above.

CSI COMPRESSCO GP INC.


By:                             
Name:                         

Title:
                             


DIRECTOR


__________________________________________
    


SPOUSAL CONSENT
The Director’s spouse, if any, is fully aware of, understands and fully consents and agrees to the provisions of this Agreement and the Plan and their binding effect upon any marital or community property interests he or she may now or hereafter own, and agrees that the termination of his or her and the Director’s marital relationship for any reason shall not have the effect of removing any Units otherwise subject to this Agreement from coverage hereunder and that his or her awareness, understanding, consent and agreement are evidenced by his or her signature below.

        
                                                     
Printed Name:                         
                            


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Exhibit 10.2

CSI COMPRESSCO LP
SECOND AMENDED AND RESTATED 2011 LONG TERM INCENTIVE PLAN
PERFORMANCE PHANTOM UNIT AGREEMENT

Employee:
 
Date of Grant:
 
 
 
 
 
Number of Performance Phantom Units:
 
Performance Period:
 
This Performance Phantom Unit Agreement (this “ Agreement ”) is made as of [ ], between CSI Compressco GP Inc., a Delaware corporation (the “ Company ”), as the general partner of CSI Compressco LP (the “ Partnership ”), and [ ] (the “ Employee ”) pursuant to the terms and conditions of the CSI Compressco LP Second Amended and Restated 2011 Long Term Incentive Plan (the “ Plan ”). The Employee acknowledges receipt of a copy of the Plan, and agrees that the terms and provisions of the Plan, including any future amendments thereto, shall be deemed a part of this Agreement as if fully set forth herein. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan, unless the context requires otherwise.
WHEREAS , the Board of Directors of the Company (the “ Board ”), has adopted the Plan to, among other things, attract, retain and motivate certain employees, directors and consultants of the Company, the Partnership and their respective Affiliates (each, a “ Company Entity ” and, collectively, the “ Company Entities ”); and
WHEREAS , the Company desires to grant to the Employee on the terms and conditions set forth herein and in the Plan, and the Employee desires to accept on such terms and conditions, the number of Phantom Units set forth herein.
NOW, THEREFORE , in consideration of the Employee’s agreement to provide or to continue providing services for the benefit of the Company Entities, the Company and the Employee agree as follows:
1.      Grant of Phantom Units . The Company hereby grants to the Employee, effective as of [ ] (the “ Date of Grant ”), [ ] Phantom Units (individually, a “ Phantom Unit ” and collectively, the “ Phantom Units ”), subject to all of the terms and conditions set forth in the Plan and in this Agreement including, without limitation, the achievement of the Performance Measures (as herein defined). Such number of Phantom Units represents the maximum number of Phantom Units that may be earned by the Employee in accordance with Section 4 below. The number of Phantom Units that are earned will be determined based upon the achievement of the Performance Measures, employment status and any other relevant provisions of the Plan.
2.      Grant of Distribution Equivalent Rights . The Company hereby grants to the Employee, effective as of the Date of Grant, a Distribution Equivalent Right (or “ DER ”) in tandem with each Phantom Unit and such DER shall be subject to the same restrictions as, and shall be




earned and settled or forfeited along with, the Phantom Unit with respect to which such DER was granted in tandem. The effect of a DER is as follows: in the event the Partnership pays any cash distributions in respect of its outstanding Units and, on the record date for such cash distribution, the Employee holds Phantom Units granted pursuant to this Agreement that have not both been earned and settled, the Company shall credit to the Employee’s benefit (whether in a book keeping account or such other method determined by the Company) an amount equal to the cash distributions the Employee would have received if the Employee were the record owner, as of such record date, of the number of Units related to the portion of the Employee’s Phantom Units that have not been settled as of such record date. Such amounts shall accumulate for each Phantom Unit, without interest or other imputed income, and shall be earned and settled (as provided in Section 5 ) if and when the Phantom Unit with respect to which the DER was granted in tandem is earned and settled, or shall be forfeited if the Phantom Unit with respect to which the DER was granted in tandem is forfeited.
3.      Forfeiture Restrictions . In the event of the termination of the Employee’s employment with the Company Entities for any reason or no reason whatsoever, the Employee shall upon such termination automatically forfeit to the Company, for no consideration, every Phantom Unit (and the DER granted in tandem with such Phantom Unit and accumulated but unpaid distributions with respect to such DER) that has not both previously become an Earned Phantom Unit in accordance with Section 4 and settled in accordance with Section 5 . The Employee’s rights with respect to the Phantom Units and the DERs granted in tandem with such Phantom Units shall remain forfeitable at all times prior to the date on which such rights both are earned in accordance with Section 4 and are settled in accordance with Section 5 .
4.      Determination of Phantom Units Earned .
(a)      Except as otherwise provided in this Agreement and the Plan, the number of Phantom Units earned will be based upon performance relative to following Performance Measures, provided that the Employee remains continuously employed by a Company Entity from the Date of Grant through the Settlement Date (as herein defined).
(b)      The performance measure (“ Performance Measure ”) for the Phantom Units shall be Distributable Cash Flow (as herein defined) and the “ Performance Period ” shall be January 1, [ ] through December 31, [ ]. “ Distributable Cash Flow ” or “ DCF ” for the year ended December 31, [ ] is defined as the Partnership’s earnings before interest, taxes, and depreciation and amortization for the Performance Period plus (i) the non-cash cost of compressors sold, and (ii) the non-cash equity compensation expenses, minus (x) interest expense, (y) income tax and withholding, and (z) maintenance capital expenditures.
(c)      The number of Phantom Units earned (“ Earned Phantom Units ”) will be determined based upon actual DCF for the Performance Period relative to the following performance objectives (the “ Performance Objectives ”):



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DCF Per Limited Partner Unit for the
Year Ending Dec. 31, [ ]

% of Phantom Units Earned
Less than $[ ]
[ ]%
$[ ]
[ ]%
$[ ] (Target)
[ ]%
$[ ]
[ ]%
> $[ ] (Maximum)
[ ]%

Notwithstanding the foregoing, in the event Employee’s employment with the Company Entities terminates for any reason or no reason whatsoever following the end of the Performance Period and prior to the Settlement Date, the Employee shall upon such termination automatically forfeit to the Company, for no consideration, every Phantom Unit (and all DERs granted in tandem with such Phantom Units and accumulated but unpaid distributions with respect to such DERs) regardless of the number of any such Phantom Units (and associated DERs) earned in accordance with the foregoing provisions.
(d)      Once the Performance Period has been completed, the Distributable Cash Flow of the Partnership for the Performance Period shall be calculated and evaluated to determine the extent to which the Performance Objectives have been achieved. In making such determination, the Committee may make such adjustments to the Distributable Cash Flow and/or the Performance Objectives as the Committee may determine to be appropriate. The Committee shall make such determination no later than March 15 of the calendar year immediately following the last day of the Performance Period (the date of such determination being referred to as the “ Determination Date ”).
5.      Settlement of Phantom Units and DERs .
(a)      Settlement Date . Earned Phantom Units (and accumulated but unpaid distributions with respect to DERs) shall be settled on a date determined by the Company (the “ Settlement Date ”), which date shall be within ten days following the Determination Date and in any event be no later than March 15 of the calendar year immediately following the last day of the Performance Period.
(b)      Settlement of Earned Phantom Units . Upon settlement of the Earned Phantom Units, the Employee shall receive that number of Units equal to the number of Earned Phantom Units.
(c)      Settlement of DERs . Upon settlement of any DERs, the Employee shall receive the number of Units equal to the aggregate dollar amount (without interest) of the accumulated but unpaid distributions with respect to such DERs divided by the Fair Market Value of a Unit on the day the corresponding Phantom Units with respect to which such DER was granted in tandem are settled. Partial Units will be paid in cash (without interest). Payment of any DERs shall be made at the same time the corresponding Phantom Units with respect to which such DER was granted in tandem are paid pursuant to Section 5(b) .

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(d)      Procedures . Settlement of Phantom Units and DERs shall be subject to and pursuant to rules and procedures established by the Committee in its sole discretion.
6.      Transferability and Assignment . Neither this Agreement, the Phantom Units nor the DERs granted hereunder may be sold, assigned, pledged, exchanged, hypothecated, or otherwise transferred, encumbered, or disposed of by the Employee. Any purported transfer, assignment, alienation, pledge, hypothecation, attachment, sale, transfer or encumbrance shall be null, void and unenforceable against the Company Entities.
7.      Status of Units . The Phantom Units granted pursuant to this Agreement do not and shall not entitle the Employee to any rights of a holder of Units and the Employee shall not have any rights of a holder of Units hereunder unless and until the Phantom Units are settled and the Units received by the Employee. The Employee agrees that any Units that he acquires upon the settlement of Earned Phantom Units and DERs will not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws, the Plan or the rules, regulations and other requirements of the SEC and any stock exchange upon which the Units are then listed. Notwithstanding any provision of this Agreement to the contrary, the grant of the Phantom Units and the DERs granted in tandem therewith, and issuance of any Units in settlement thereof, will also be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to this Agreement will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make Units available for issuance. The Employee agrees that (a) any certificates representing the Units acquired in settlement of Earned Phantom Units and DERs under this Agreement may bear such legend or legends as the Committee deems appropriate in order to assure compliance with applicable securities laws, (b) the Company and the Partnership may refuse to issue or deliver the Units acquired in settlement of Earned Phantom Units and DERs under this Agreement if such proposed issuance or delivery would, in the opinion of counsel satisfactory to the Partnership, constitute a violation of any applicable securities law, and (c) the Partnership may give appropriate instructions to its transfer agent or the Company, as applicable, to stop the issuance or delivery of the Units to be acquired in settlement of Earned Phantom Units and DERs under this Agreement. In addition to the terms and conditions provided herein, the Company may require that the Employee make such covenants, agreements, and representations as the Committee, in its sole discretion, deems advisable in order to comply with any such laws, rules, regulations, or requirements.
8.      Tax Withholding . The Company Entities shall have the authority and the right to deduct or withhold, or to require the Employee to remit to a Company Entity, an amount sufficient

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to satisfy all applicable federal, state and local taxes (including the Employee’s employment tax obligations) required by law to be withheld with respect to any taxable event arising in connection with the Phantom Units and the DERs granted hereunder. In satisfaction of the foregoing requirement, unless other arrangements have been made that are acceptable to the Committee, the Board or a committee of the Board that is composed solely of two or more Qualified Members, the Employee shall either (a) pay to the applicable Company Entity, or make arrangements satisfactory to the applicable Company Entity for the payment of, an amount equal to the sums required to be withheld by the applicable Company Entity, or (b) surrender the number of Units otherwise issuable to the Employee having an aggregate Fair Market Value on the date of such surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for any Company Entity with respect to the Phantom Units and the DERs granted hereunder, as determined by the Committee.
9.      General Provisions .
(a)      Administration . This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and all decisions of the Committee with respect thereto and this Agreement shall be final and binding upon the Employee and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.
(b)      No Effect on Service . Nothing in this Agreement or in the Plan shall be construed as giving the Employee the right to be retained in the employ or service of the Company Entities. Furthermore, the Company Entities may at any time dismiss the Employee from employment free from any liability or any claim under the Plan or this Agreement, unless otherwise expressly provided in the Plan, this Agreement or other written agreement.
(c)      Tax Consultation . None of the Board, the Committee or the Company Entities have made any warranty or representation to the Employee with respect to the income tax consequences of the grant or settlement of the Phantom Units or the transactions contemplated by this Agreement, and the Employee represents that he is in no manner relying on such entities or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences. The Employee represents that he has consulted with any tax consultants that the Employee deems advisable in connection with the Phantom Units.
(d)      Severability . If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

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(e)      Successors . This Agreement shall be binding upon the Employee, the Employee’s legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.
(f)      Entire Agreement . This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Phantom Units granted hereby. Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect.
(g)      Headings . The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
(h)      Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.
(i)      Gender . Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Agreement dictates, the plural shall be read as the singular and the singular as the plural.
(j)      Amendments, Suspension and Termination . This Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee, as applicable (i) to the extent permitted by the Plan, (ii) to the extent necessary to comply with applicable laws and regulations or to conform the provisions of this Agreement to any changes thereto or (iii) to settle the Phantom Units pursuant to all applicable provisions of the Plan. Except as provided in the preceding sentence, this Agreement cannot be modified, altered or amended, except by a written agreement signed by both the Company and the Employee.
(k)      Insider Trading Policy . The terms of the Company’s insider trading policy with respect to Units are incorporated herein by reference.
(l)      Clawback . Notwithstanding any provisions in the Plan or this Agreement to the contrary, any portion of the payments and benefits provided under this Agreement or the sale of the Units granted hereunder shall be subject to a clawback or other recovery by the Company Entities to the extent necessary to comply with applicable law including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any SEC rule.
(m)      Community Interest of Spouse . The Employee’s spouse shall be required to execute the spousal consent set forth on the signature page attached hereto to evidence such spouse’s agreement and consent to be bound by the terms and conditions of this Agreement and the Plan as to such spouse’s interest, whether as community property or otherwise, if any, in the Phantom Units granted to the Employee hereunder.

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(n)      Consent to Electronic Delivery; Electronic Signature . In lieu of receiving documents in paper format, the Employee agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, without limitation, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Employee has access. The Employee hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

[Signature Page Follows]

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IN WITNESS WHEREOF , the Company has caused this Agreement to be executed by its duly authorized officer, effective for all purposes as provided above.

CSI COMPRESSCO GP INC.


By:     
Name:     
Title:     


EMPLOYEE


__________________________________________
    


SPOUSAL CONSENT
The Employee’s spouse, if any, is fully aware of, understands and fully consents and agrees to the provisions of this Agreement and the Plan and their binding effect upon any marital or community property interests he or she may now or hereafter own, and agrees that the termination of his or her and the Employee’s marital relationship for any reason shall not have the effect of removing any Units otherwise subject to this Agreement from coverage hereunder and that his or her awareness, understanding, consent and agreement are evidenced by his or her signature below.

        
    
___________________________________
Printed Name: _______________________
                    

A- 8
Exhibit 10.3

CSI COMPRESSCO LP
SECOND AMENDED AND RESTATED 2011 LONG TERM INCENTIVE PLAN
PHANTOM UNIT AGREEMENT

Employee:
 
Date of Grant:
 
Number of Phantom Units:
 
This Phantom Unit Agreement (this “ Agreement ”) is made as of [ ] , between CSI Compressco GP Inc., a Delaware corporation (the “ Company ”), as the general partner of CSI Compressco LP (the “ Partnership ”), and __________________________ (the “ Employee ”) pursuant to the terms and conditions of the CSI Compressco LP Second Amended and Restated 2011 Long Term Incentive Plan (the “ Plan ”). The Employee acknowledges receipt of a copy of the Plan, and agrees that the terms and provisions of the Plan, including any future amendments thereto, shall be deemed a part of this Agreement as if fully set forth herein. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan, unless the context requires otherwise.
WHEREAS , the Board of Directors of the Company (the “ Board ”) has adopted the Plan to, among other things, attract, retain and motivate certain employees, directors and consultants of the Company, the Partnership and their respective Affiliates (each, a “ Company Entity ” and, collectively, the “ Company Entities ”); and
WHEREAS , the Company desires to grant to the Employee on the terms and conditions set forth herein and in the Plan, and the Employee desires to accept on such terms and conditions, the number of Phantom Units set forth herein.
NOW, THEREFORE , in consideration of the Employee’s agreement to provide or to continue providing services for the benefit of the Company Entities, the Company and the Employee agree as follows:
1.      Grant of Phantom Units . The Company hereby grants to the Employee, effective as of [ ] (the “ Date of Grant ”), _____________ Phantom Units, subject to all of the terms and conditions set forth in the Plan and in this Agreement (individually, a “ Phantom Unit ” and collectively, the “ Phantom Units ”).
2.      Grant of Distribution Equivalent Rights . The Company hereby grants to the Employee, effective as of the Date of Grant, a Distribution Equivalent Right (or “ DER ”) in tandem with each Phantom Unit and such DER shall be subject to the same restrictions as, and shall vest and be settled or forfeited along with, the Phantom Unit with respect to which such DER was granted in tandem. The effect of a DER is as follows: in the event the Partnership pays any cash distributions in respect of its outstanding Units and, on the record date for such cash distribution, the Employee holds Phantom Units granted pursuant to this Agreement that have not both vested and been settled, the Company shall credit to the Employee’s benefit (whether in a book keeping account or such other method determined by the Company) an amount equal to the cash distributions the Employee




would have received if the Employee were the record owner, as of such record date, of the number of Units related to the portion of the Employee’s Phantom Units that have not been settled as of such record date. Such amounts shall accumulate for each Phantom Unit, without interest or other imputed income, and shall vest and be settled (as provided in Section 5 ) if and when the Phantom Unit with respect to which the DER was granted in tandem vests and is settled, or shall be forfeited if the Phantom Unit with respect to which the DER was granted in tandem is forfeited.
3.      Forfeiture Restrictions . In the event of the termination of the Employee’s employment with the Company Entities for any reason or no reason whatsoever, the Employee shall upon such termination automatically forfeit to the Company, for no consideration, every Phantom Unit (and the DER granted in tandem with such Phantom Unit and accumulated but unpaid distributions with respect to such DER) that has not previously become a Vested Phantom Unit in accordance with Section 4 . The Employee’s rights with respect to the Phantom Units and any DERs granted in tandem with such Phantom Units shall remain forfeitable at all times prior to the date on which such rights vest and the forfeiture restrictions with respect to the Phantom Units lapse in accordance with Section 4 .
4.      Vesting of Phantom Units . Except as otherwise provided in this Agreement and the Plan, the Phantom Units will vest in accordance with the vesting schedule set forth in the following table, provided that the Employee remains continuously employed by a Company Entity from the Date of Grant through each vesting date set forth below (each, a “ Vesting Date ”):
Vesting Date
Cumulative Vested Percentage
[ ]
[ ]%

If, on any Vesting Date other than the final Vesting Date, the application of the vesting schedule set forth above results in a fractional Phantom Unit becoming vested, the number of Phantom Units vesting on such date shall be rounded up to the next whole number of Phantom Units. On the final Vesting Date, only the Phantom Units not previously vested shall be eligible to become Vested Phantom Units. Phantom Units that have become vested pursuant to the schedule above are referred to herein as “ Vested Phantom Units .”
5.      Settlement of Phantom Units and DERs .
(a)      Settlement Date . Vested Phantom Units (and accumulated but unpaid distributions with respect to DERs) shall be settled on a date determined by the Company, which date shall be not more than 10 days following the Vesting Date of such Vested Phantom Units (“ Settlement Date ”).
(b)      Settlement of Vested Phantom Units . Upon settlement of the Vested Phantom Units, the Employee shall receive that number of Units equal to the number of Vested Phantom Units.
(c)      Settlement of DERs . Upon settlement of any DERs, the Employee shall receive the number of Units equal to the aggregate dollar amount (without interest) of the

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accumulated but unpaid distributions with respect to such DERs divided by the Fair Market Value of a Unit on the day the corresponding Phantom Units with respect to which such DER was granted in tandem vest and become non-forfeitable. Partial Units will be paid in cash (without interest). Payment of any DERs shall be made at the same time the corresponding Phantom Units with respect to which such DER was granted in tandem are paid pursuant to Section 5(b) .
(d)      Procedures . Settlement of Phantom Units and DERs shall be subject to and pursuant to rules and procedures established by the Committee in its sole discretion.
6.      Transferability and Assignment . Except as provided in this Section 6 , neither this Agreement, the Phantom Units nor the DERs granted hereunder may be sold, assigned, pledged, exchanged, hypothecated, or otherwise transferred, encumbered, or disposed of by the Employee. Notwithstanding the foregoing, if the Employee should die after a Phantom Unit has become a Vested Phantom Unit, but before such Vested Phantom Unit and corresponding DER have been settled, such Vested Phantom Unit and corresponding DER shall be subject to transfer by reason of the Employee’s death by will or the laws of descent and distribution. Any purported transfer, assignment, alienation, pledge, hypothecation, attachment, sale, transfer or encumbrance not in accordance with the foregoing shall be null, void and unenforceable against the Company Entities.
7.      Status of Units . The Phantom Units granted pursuant to this Agreement do not and shall not entitle the Employee to any rights of a holder of Units and the Employee shall not have any rights as a holder of Units hereunder unless and until the Phantom Units are settled and the Units are received by the Employee. The Employee agrees that any Units that he acquires upon the settlement of Vested Phantom Units and DERs will not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws, the Plan or the rules, regulations and other requirements of the SEC and any stock exchange upon which the Units are then listed. Notwithstanding any provision of this Agreement to the contrary, the grant of the Phantom Units and the DERs granted in tandem therewith, and issuance of any Units in settlement thereof, will also be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to this Agreement will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make Units available for issuance. The Employee agrees that (a) any certificates representing the Units acquired in settlement of Vested Phantom Units and DERs under this Agreement may bear such legend or legends as the Committee deems appropriate in order to assure compliance with applicable securities laws, (b) the Company and the Partnership may refuse to issue or deliver the Units acquired in settlement of Vested Phantom Units and DERs under this Agreement if such proposed issuance or delivery would, in the opinion of

A- 3


counsel satisfactory to the Partnership, constitute a violation of any applicable securities law, and (c) the Partnership may give appropriate instructions to its transfer agent or the Company, as applicable, to stop the issuance or delivery of the Units to be acquired in settlement of Vested Phantom Units and DERs under this Agreement. In addition to the terms and conditions provided herein, the Company may require that the Employee make such covenants, agreements, and representations as the Committee, in its sole discretion, deems advisable in order to comply with any such laws, rules, regulations, or requirements.
8.      Tax Withholding . The Company Entities shall have the authority and the right to deduct or withhold, or to require the Employee to remit to a Company Entity, an amount sufficient to satisfy all applicable federal, state and local taxes (including the Employee’s employment tax obligations) required by law to be withheld with respect to any taxable event arising in connection with the Phantom Units and the DERs granted hereunder. In satisfaction of the foregoing requirement, unless other arrangements have been made that are acceptable to the Committee, the Board or a committee of the Board that is composed solely of two or more Qualified Members, the Employee shall either (a) pay to the applicable Company Entity, or make arrangements satisfactory to the applicable Company Entity for the payment of, an amount of cash equal to the sums required to be withheld by the applicable Company Entity, or (b) surrender the number of Units otherwise issuable to the Employee having an aggregate Fair Market Value on the date of such surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for any Company Entity with respect to the Phantom Units and the DERs granted hereunder, as determined by the Committee.
9.      General Provisions .
(a)      Administration . This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and all decisions of the Committee with respect thereto and this Agreement shall be final and binding upon the Employee and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.
(b)      No Effect on Service . Nothing in this Agreement or in the Plan shall be construed as giving the Employee the right to be retained in the employ or service of the Company Entities. Furthermore, the Company Entities may at any time dismiss the Employee from employment free from any liability or any claim under the Plan or this Agreement, unless otherwise expressly provided in the Plan, this Agreement or other written agreement.
(c)      Tax Consultation . None of the Board, the Committee or the Company Entities have made any warranty or representation to the Employee with respect to the income tax consequences of the grant or vesting of the Phantom Units or the transactions contemplated by this Agreement, and the Employee represents that he is in no manner relying on such entities or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences. The Employee represents

A- 4


that he has consulted with any tax consultants that the Employee deems advisable in connection with the Phantom Units.
(d)      Severability . If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.
(e)      Successors . This Agreement shall be binding upon the Employee, the Employee’s legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.
(f)      Entire Agreement . This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Phantom Units granted hereby. Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect.
(g)      Headings . The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
(h)      Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.
(i)      Gender . Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Agreement dictates, the plural shall be read as the singular and the singular as the plural.
(j)      Amendments, Suspension and Termination . This Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee, as applicable (i) to the extent permitted by the Plan, (ii) to the extent necessary to comply with applicable laws and regulations or to conform the provisions of this Agreement to any changes thereto or (iii) to settle the Phantom Units pursuant to all applicable provisions of the Plan. Except as provided in the preceding sentence, this Agreement cannot be modified, altered or amended, except by a written agreement signed by both the Company and the Employee.
(k)      Insider Trading Policy . The terms of the Company’s insider trading policy with respect to Units are incorporated herein by reference.
(l)      Clawback . Notwithstanding any provisions in the Plan or this Agreement to the contrary, any portion of the payments and benefits provided under this Agreement or the sale of the Units granted hereunder shall be subject to a clawback or other recovery by the Company Entities to the extent necessary to comply with applicable law including, without limitation, the

A- 5


requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any SEC rule.
(m)      Community Interest of Spouse . The Employee’s spouse shall be required to execute the spousal consent set forth on the signature page attached hereto to evidence such spouse’s agreement and consent to be bound by the terms and conditions of this Agreement and the Plan as to such spouse’s interest, whether as community property or otherwise, if any, in the Phantom Units granted to the Employee hereunder.
(n)      Consent to Electronic Delivery; Electronic Signature . In lieu of receiving documents in paper format, the Employee agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, without limitation, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Employee has access. The Employee hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

[Signature Page Follows]

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IN WITNESS WHEREOF , the Company has caused this Agreement to be executed by its duly authorized officer, effective for all purposes as provided above.

CSI COMPRESSCO GP INC.


By:     
Name:     

Title:
    


EMPLOYEE


__________________________________________



SPOUSAL CONSENT
The Employee’s spouse, if any, is fully aware of, understands and fully consents and agrees to the provisions of this Agreement and the Plan and their binding effect upon any marital or community property interests he or she may now or hereafter own, and agrees that the termination of his or her and the Employee’s marital relationship for any reason shall not have the effect of removing any Units otherwise subject to this Agreement from coverage hereunder and that his or her awareness, understanding, consent and agreement are evidenced by his or her signature below.

__________________________________
Printed Name: _____________________    
            

A- 7
Exhibit 10.4

CSI COMPRESSCO LP
SECOND AMENDED AND RESTATED 2011 LONG TERM INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR PHANTOM UNIT AGREEMENT

Director:
 
Date of Grant:
 
Number of Phantom Units:
 
This Phantom Unit Agreement (this “ Agreement ”) is made as of _____________, between CSI Compressco GP Inc., a Delaware corporation (the “ Company ”), as the General Partner of CSI Compressco LP (the “Partnership”), and __________________________ (the “ Director ”) pursuant to the terms and conditions of the CSI Compressco LP Second Amended and Restated 2011 Long Term Incentive Plan (the “ Plan ”). The Director acknowledges receipt of a copy of the Plan, and agrees that the terms and provisions of the Plan, including any future amendments thereto, shall be deemed a part of this Agreement as if fully set forth herein. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan, unless the context requires otherwise.
WHEREAS , the Board of Directors of the Company (the “ Board ”), has adopted the Plan to, among other things, attract, retain and motivate certain employees, directors and consultants of the Company, the Partnership and their respective Affiliates (each, a “ Company Entity ” and, collectively, the “ Company Entities ”); and
WHEREAS , the Company desires to grant to the Director on the terms and conditions set forth herein and in the Plan, and the Director desires to accept on such terms and conditions, the number of Phantom Units set forth herein.
NOW, THEREFORE , in consideration of the Director’s agreement to provide or to continue providing services for the benefit of the Company Entities, the Company and the Director agree as follows:
1. Grant of Phantom Units . The Company hereby grants to the Director, effective as of _____________ (the “ Date of Grant ”), _____________ Phantom Units, subject to all of the terms and conditions set forth in the Plan and in this Agreement (individually, a “ Phantom Unit ” and collectively, the “ Phantom Units ”).
2. Grant of Distribution Equivalent Rights . The Company hereby grants to the Director, effective as of the Grant Date, a Distribution Equivalent Right (or “ DER ”) in tandem with each Phantom Unit and such DER shall be subject to the same restrictions as, and shall vest and be settled or forfeited along with, the Phantom Unit with respect to which such DER was granted in tandem. The effect of a DER is as follows: in the event the Partnership pays any cash distributions in respect of its outstanding Units and, on the record date for such cash distribution, the Director holds Phantom Units granted pursuant to this Agreement that have not both vested and been settled, the Company shall credit to the Director’s benefit (whether in a book keeping account or such other method determined by the Company) an amount equal to the cash distributions the Director would




have received if the Director were the record owner, as of such record date, of the number of Units related to the portion of the Director’s Phantom Units that have not been settled as of such record date. Such amounts shall accumulate for each Phantom Unit, without interest or other imputed income, and shall vest and be settled (as provided in Section 5 ) if and when the Phantom Unit with respect to which the DER was granted in tandem vests and is settled, or shall be forfeited if the Phantom Unit with respect to which the DER was granted in tandem is forfeited.
3. Forfeiture Restrictions . In the event of the termination of the Director’s service as a director of the Company for any reason or no reason whatsoever, the Director shall upon such termination automatically forfeit to the Company, for no consideration, every Phantom Unit (and the DER granted in tandem with such Phantom Unit and accumulated but unpaid distributions with respect to such DER) that has not previously become a Vested Phantom Unit in accordance with Section 4 . The Director’s rights with respect to the Phantom Units and any DERs granted in tandem with such Phantom Units shall remain forfeitable at all times prior to the date on which such rights vest and the forfeiture restrictions with respect to the Phantom Units lapse in accordance with Section 4 .
4. Vesting of Phantom Units . Except as otherwise provided in this Agreement and the Plan, the Phantom Units will vest in accordance with the vesting schedule set forth in the following table, provided that the Director serves as a director of the Company from the Date of Grant through each vesting date set forth below (each, a “ Vesting Date ”):
Vesting Date
Cumulative Vested Percentage
[ ]
[ ]%

If, on any Vesting Date other than the final Vesting Date, the application of the vesting schedule set forth above results in a fractional Phantom Unit becoming vested, the number of Phantom Units vesting on such date shall be rounded up to the next whole number of Phantom Units. On the final Vesting Date, only the Phantom Units not previously vested shall be eligible to become Vested Phantom Units. Phantom Units that have become vested pursuant to the schedule above are referred to herein as “ Vested Phantom Units .”
5. Settlement of Phantom Units and DERs .
(a)      Settlement Date . Vested Phantom Units (and accumulated but unpaid distributions with respect to DERs) shall be settled on a date determined by the Company, which date shall be not more than 10 days following the Vesting Date of such Vested Phantom Units (“ Settlement Date ”).
(b)      Settlement of Vested Phantom Units . Upon settlement of the Vested Phantom Units, the Director shall receive that number of Units equal to the number of Vested Phantom Units.
(c)      Settlement of DERs . Upon settlement of any DERs, the Director shall receive the number of Units equal to the aggregate dollar amount (without interest) of the accumulated but unpaid distributions with respect to such DERs divided by the Fair Market Value of a Unit on the

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day the corresponding Phantom Units with respect to which such DER was granted in tandem vest and become non-forfeitable. Partial Units will be paid in cash (without interest). Payment of any DERs shall be made at the same time the corresponding Phantom Units with respect to which such DER was granted in tandem are paid pursuant to Section 5(b) .
(d)      Procedures . Settlement of Phantom Units and DERs shall be subject to and pursuant to rules and procedures established by the Committee in its sole discretion.
6. Transferability and Assignment . Except as provided in this Section 6 , neither this Agreement, the Phantom Units nor the DERs granted hereunder may be sold, assigned, pledged, exchanged, hypothecated, or otherwise transferred, encumbered, or disposed of by the Director. Notwithstanding the foregoing, if the Director should die after a Phantom Unit has become a Vested Phantom Unit, but before such Vested Phantom Unit and corresponding DER have been settled, such Vested Phantom Unit and corresponding DER shall be subject to transfer by reason of the Director’s death by will or the laws of descent and distribution. Any purported transfer, assignment, alienation, pledge, hypothecation, attachment, sale, transfer or encumbrance not in accordance with the foregoing shall be null, void and unenforceable against the Company Entities.
7. Status of Units . The Phantom Units granted pursuant to this Agreement do not and shall not entitle the Director to any rights of a holder of Units and the Director shall not have any rights as a holder of Units hereunder unless and until the Phantom Units are settled and the Units are received by the Director. The Director agrees that any Units that he acquires upon the settlement of Vested Phantom Units and DERs will not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws, the Plan or the rules, regulations and other requirements of the SEC and any stock exchange upon which the Units are then listed. Notwithstanding any provision of this Agreement to the contrary, the grant of the Phantom Units and the DERs granted in tandem therewith, and issuance of any Units in settlement thereof, will also be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to this Agreement will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make Units available for issuance. The Director agrees that (a) any certificates representing the Units acquired in settlement of Vested Phantom Units and DERs under this Agreement may bear such legend or legends as the Committee deems appropriate in order to assure compliance with applicable securities laws, (b) the Company and the Partnership may refuse to issue or deliver the Units acquired in settlement of Vested Phantom Units and DERs under this Agreement if such proposed issuance or delivery would, in the opinion of counsel satisfactory to the Partnership, constitute a violation of any applicable securities law, and (c) the

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Partnership may give appropriate instructions to its transfer agent or the Company, as applicable, to stop the issuance or delivery of the Units to be acquired in settlement of Vested Phantom Units and DERs under this Agreement. In addition to the terms and conditions provided herein, the Company may require that the Director make such covenants, agreements, and representations as the Committee, in its sole discretion, deems advisable in order to comply with any such laws, rules, regulations, or requirements.
8. Tax Withholding . The Company Entities shall have the authority and the right to deduct or withhold, or to require the Director to remit to a Company Entity, an amount sufficient to satisfy all applicable federal, state and local taxes (including the Director’s employment tax obligations) required by law to be withheld with respect to any taxable event arising in connection with the Phantom Units and the DERs granted hereunder. In satisfaction of the foregoing requirement, unless other arrangements have been made that are acceptable to the Committee, the Board or a committee of the Board that is composed solely of two or more Qualified Members, the Director shall either (a) pay to the applicable Company Entity, or make arrangements satisfactory to the applicable Company Entity for the payment of, an amount of cash equal to the sums required to be withheld by the applicable Company Entity, or (b) surrender the number of Units otherwise issuable to the Director having an aggregate Fair Market Value on the date of such surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for any Company Entity with respect to the Phantom Units and the DERs granted hereunder, as determined by the Committee.
9. General Provisions .
(a)      Administration . This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and all decisions of the Committee with respect thereto and this Agreement shall be final and binding upon the Director and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.
(b)      No Guarantee of Board Membership . Nothing in this Agreement or in the Plan shall be construed as giving the Director any right with respect to continuance of service as a director of the Company, nor shall it interfere in any way with any right the Company would otherwise have to terminate such Director’s Board membership or other service at any time.
(c)      Tax Consultation . None of the Board, the Committee or the Company Entities have made any warranty or representation to the Director with respect to the income tax consequences of the grant or vesting of the Phantom Units or the transactions contemplated by this Agreement, and the Director represents that he is in no manner relying on such entities or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences. The Director represents that he has consulted with any tax consultants that the Director deems advisable in connection with the Phantom Units.

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(d)      Severability . If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.
(e)      Successors . This Agreement shall be binding upon the Director, the Director’s legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.
(f)      Entire Agreement . This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Phantom Units granted hereby. Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect.
(g)      Headings . The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
(h)      Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof.
(i)      Gender . Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Agreement dictates, the plural shall be read as the singular and the singular as the plural.
(j)      Amendments, Suspension and Termination . This Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee, as applicable (i) to the extent permitted by the Plan, (ii) to the extent necessary to comply with applicable laws and regulations or to conform the provisions of this Agreement to any changes thereto or (iii) to settle the Phantom Units pursuant to all applicable provisions of the Plan. Except as provided in the preceding sentence, this Agreement cannot be modified, altered or amended, except by a written agreement signed by both the Company and the Director.
(k)      Insider Trading Policy . The terms of the Company’s insider trading policy with respect to Units are incorporated herein by reference.
(l)      Clawback . Notwithstanding any provisions in the Plan or this Agreement to the contrary, any portion of the payments and benefits provided under this Agreement or the sale of the Units granted hereunder shall be subject to a clawback or other recovery by the Company Entities to the extent necessary to comply with applicable law including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any SEC rule.

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(m)      Community Interest of Spouse . The Director’s spouse shall be required to execute the spousal consent set forth on the signature page attached hereto to evidence such spouse’s agreement and consent to be bound by the terms and conditions of this Agreement and the Plan as to such spouse’s interest, whether as community property or otherwise, if any, in the Phantom Units granted to the Director hereunder.
(n)      Consent to Electronic Delivery; Electronic Signature . In lieu of receiving documents in paper format, the Director agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, without limitation, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Director has access. The Director hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

[Signature Page Follows]

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IN WITNESS WHEREOF , the Company has caused this Agreement to be executed by its duly authorized officer, effective for all purposes as provided above.

CSI COMPRESSCO GP INC.


By:     
Name:     

Title:
    


DIRECTOR


__________________________________________
    


SPOUSAL CONSENT
The Director’s spouse, if any, is fully aware of, understands and fully consents and agrees to the provisions of this Agreement and the Plan and their binding effect upon any marital or community property interests he or she may now or hereafter own, and agrees that the termination of his or her and the Director’s marital relationship for any reason shall not have the effect of removing any Units otherwise subject to this Agreement from coverage hereunder and that his or her awareness, understanding, consent and agreement are evidenced by his or her signature below.

__________________________________________
Printed Name:     

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Exhibit 31.1
Certification Pursuant to
Rule 13a-14(a) or 15d-14(a) of the Exchange Act
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Owen Serjeant, certify that:
 
1.
I have reviewed this report on Form 10-Q for the fiscal quarter ended March 31, 2019 , of CSI Compressco LP;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
  
Date:
May 8, 2019
/s/Owen Serjeant
 
 
Owen Serjeant
 
 
President
 
 
(Principal Executive Officer)





Exhibit 31.2
Certification Pursuant to
Rule 13a-14(a) or 15d-14(a) of the Exchange Act
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Elijio V. Serrano, certify that:
 
1.
I have reviewed this report on Form 10-Q for the fiscal quarter ended March 31, 2019 , of CSI Compressco LP;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
 
Date:
May 8, 2019
/s/Elijio V. Serrano
 
 
Elijio V. Serrano
 
 
Chief Financial Officer
 
 
Principal Financial Officer and Principal Accounting Officer
 
 
(Principal Financial   Officer)





Exhibit 32.1
 
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 
In connection with the Quarterly Report of CSI Compressco LP (the “Partnership”) on Form 10-Q for the period ending March 31, 2019 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Owen Serjeant, President of CSI Compressco GP Inc., the General Partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
  
Dated:
May 8, 2019
/s/Owen Serjeant
 
 
Owen Serjeant, President
 
 
(Principal Executive Officer)
 
 
A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.





Exhibit 32.2
 
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 
In connection with the Quarterly Report of CSI Compressco LP (the “Partnership”) on Form 10-Q for the period ending March 31, 2019 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elijio V. Serrano, Chief Financial Officer of CSI Compressco GP Inc., the General Partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
  
Dated:  
May 8, 2019
/s/Elijio V. Serrano
 
 
Elijio V. Serrano
 
 
Chief Financial Officer
 
 
Principal Financial Officer and Principal Accounting Officer
 
 
(Principal Financial Officer)
 
 
A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.