CYPRESS ENVIRONMENTAL PARTNERS, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains a discussion of our business, including a general overview
of our properties, our results of operations, our liquidity and capital
resources, and our quantitative and qualitative disclosures about market risk.

The following discussion contains forward-looking statements that reflect our
future plans, estimates, beliefs, and expected performance. The forward-looking
statements are dependent upon events, risks, and uncertainties that may be
outside our control, including among other things, the risk factors discussed in
"Item 1A. Risk Factors" of this Annual Report on Form 10-K. Our actual results
could differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, market prices for oil and natural gas, production
volumes, estimates of proved reserves, capital expenditures, economic and
competitive conditions, regulatory changes and other uncertainties, as well as
those factors discussed below and elsewhere in this Annual Report on Form 10-K,
all of which are difficult to predict. In light of these risks, uncertainties,
and assumptions, the forward-looking events discussed may not occur. See
"Cautionary Remarks Regarding Forward-Looking Statements" in the front of this
Annual Report on Form 10-K.

Overview

We are a master limited partnership formed in September 2013. We offer essential
services that help protect the environment and ensure sustainability. We provide
a wide range of environmental services including independent inspection,
integrity, and support services for pipeline and energy infrastructure owners
and operators and public utilities. We also provide water pipelines, hydrocarbon
recovery, disposal, and water treatment services. The Inspection Services
segment comprises the operations of our TIR Entities. We also provide water
treatment and other water and environmental services to U.S. onshore oil and
natural gas producers and trucking companies through our Environmental Services
segment. We operate nine (eight wholly-owned) water treatment facilities, all of
which are in the Bakken Shale region of the Williston Basin in North Dakota. We
also have a management agreement in place to provide staffing and management
services to one 25%-owned water treatment facility in the Bakken Shale region.
In all of our business segments, we work closely with our customers to help them
comply with increasingly complex and strict environmental and safety rules and
regulations applicable to production and pipeline operations, assisting in
reducing their operating costs.

How We Generate Revenue

The Inspection Services segment generates revenue primarily by providing
essential environmental services, including inspection and integrity services on
a variety of infrastructure assets such as midstream pipelines, gathering
systems, and distribution systems. Services include nondestructive examination,
in-line inspection support, pig tracking, data gathering, and supervision of
third-party contractors. Our revenues in this segment are driven primarily by
the number of inspectors that perform services for our customers and the fees
that we charge for those services, which depend on the type, skills, technology,
equipment, and number of inspectors used on a particular project, the nature of
the project, and the duration of the project. The number of inspectors engaged
on projects is driven by customer schedules, the type of project, prevailing
market rates, the age and condition of customers' assets including pipelines,
gas plants, compression stations, storage facilities, and gathering and
distribution systems including the legal and regulatory requirements relating to
the inspection and maintenance of those assets. We also bill our customers for
per diem charges, mileage, and other reimbursement items. Revenue and costs in
this segment are subject to seasonal variations and interim activity may not be
indicative of yearly activity, considering many of our customers develop yearly
operating budgets and enter into contracts with us during the winter season for
work to be performed during the remainder of the year. Additionally, inspection
work throughout the United States during the winter months (especially in the
northern states) may be hampered or delayed due to inclement weather.


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The Environmental Services segment owns and operates nine (9) water treatment
facilities with ten (10) EPA Class II injection wells in the Bakken shale region
of the Williston Basin in North Dakota. We wholly-own eight of these water
treatment facilities and we own a 25% interest in the other facility. These
water treatment facilities are connected to thirteen (13) pipeline gathering
systems, including two (2) that we developed and own. We specialize in the
treatment, recovery, separation, and disposal of waste byproducts generated
during the lifecycle of an oil and natural gas well to protect the environment
and our drinking water. All of the water treatment facilities utilize
specialized equipment and remote monitoring to minimize the facilities' downtime
and increase the facilities' efficiency for peak utilization. Revenue is
generated on a fixed-fee per barrel basis for receiving, separating, filtering,
recovering, processing, and injecting produced and flowback water. We also sell
recovered oil, receive fees for pipeline transportation of water, and receive
fees from a partially-owned water treatment facility for management and staffing
services.

How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics to analyze our performance. We view these metrics as significant factors in assessing our operating results and profitability. These metrics include:

? inspector headcount in our Inspection Services segment;

? gross margin percentages in our Inspection Services segment;

? volume of water treated and residual oil recovered in our Environmental

   Services segment;



 ? operating expenses;



 ? segment gross margin;



 ? safety metrics;



 ? Adjusted EBITDA;

? maintenance capital expenditures; and

 ? distributable cash flow.



Inspector Headcount

The amount of revenue we generate in our Inspection Services segment depends
primarily on the number of inspectors that perform services for our customers.
The number of inspectors engaged on projects is driven by the type of project,
prevailing market rates, the age and condition of customers' midstream
pipelines, gathering systems, miscellaneous infrastructure, distribution
systems, and the legal and regulatory requirements relating to the inspection
and maintenance of those assets.

Water Treatment and Residual Oil Volumes

The amount of revenue we generate in the Environmental Segment depends primarily
on the volume of produced water and flowback water that we treat and dispose for
our customers pursuant to published or negotiated rates, as well as the volume
of residual oil that we sell pursuant to rates that are determined based on the
quality of the oil sold and prevailing oil prices. Most of the revenue generated
from water delivered to our facilities by truck is generated pursuant to
contracts that are short-term in nature. Most of the revenue generated from
water delivered to our facilities by pipeline is generated pursuant to contracts
that are several years in duration, but do contain cancellation terms. The
volumes of water processed at our water treatment facilities are driven by water
volumes generated from existing oil wells during their useful lives and
development drilling and production volumes from new wells located near our
facilities. Producers' willingness to engage in new drilling is determined by a
number of factors, the most important of which are the prevailing and projected
prices of oil, natural gas, and natural gas liquids, the cost to drill and
operate a well, the availability and cost of capital, and environmental and
governmental regulations. We generally expect the level of drilling to
positively correlate with long-term trends in prices of oil, natural gas, and
natural gas liquids.

Approximately 9%, 3%, and 6% of our Environmental Services segment revenue in
2021, 2020, and 2019, respectively, was derived from sales of residual oil
recovered during the water treatment process. Our ability to recover residual
oil is dependent upon the oil content in the water we treat, which is, among
other things, a function of water type, chemistry, source, and temperature.
Generally, where outside temperatures are lower, oil separation is more
difficult. Thus, our residual oil recovery during the winter season is lower
than our recovery during the summer season. Additionally, residual oil content
will decrease if, among other things, producers begin recovering higher levels
of residual oil in saltwater prior to delivering such saltwater to us for
treatment.

Operating Expenses

The primary components of our operating expenses include cost of services, general and administrative expense, and depreciation, amortization and accretion.

Costs of services. Employee-related costs and reimbursable expenses are the
primary cost of services components in the Inspection Services segment. These
expenses fluctuate based on the number, type, and location of projects on which
we are engaged at any given time. Repair and maintenance costs, employee-related
costs, residual oil disposal costs, and utility expenses are the primary cost of
services components in the Environmental Services segment. Certain of these
expenses remain relatively stable with fluctuations in the volume of water
processed (although certain expenses, such as utilities, vary based on the
volume of water processed). Maintenance expenses fluctuate depending on the
timing of maintenance needs.

General and administrative. General and administrative expenses include compensation and related costs of employees performing general and administrative functions, general office expenses, insurance, legal and other professional fees, software, travel and promotion, and other expenses.

Depreciation, amortization and accretion. Depreciation, amortization and
accretion expense primarily consists of the decrease in value of assets as a
result of using the assets over their estimated useful life. Depreciation and
amortization are recorded on a straight-line basis. We estimate that our assets
have useful lives ranging from 3 to 39 years. The fixed assets of our
Environmental Services segment constituted approximately 83% of the net book
value of our consolidated fixed assets as of December 31, 2021.


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Segment Gross Margin, Adjusted EBITDA, and Distributable Cash Flow

We view segment gross margin as one of our primary management tools, and we
track this item on a regular basis, both as an absolute amount and as a
percentage of revenue. We also track Adjusted EBITDA, defined as net income or
loss exclusive of (i) interest expense, (ii) depreciation, amortization, and
accretion expense, (iii) income tax expense or benefit, (iv) equity-based
compensation expense, and (v) certain other unusual or nonrecurring items. We
use distributable cash flow, defined as Adjusted EBITDA less cash interest paid,
cash taxes paid, maintenance capital expenditures, and distributions on
preferred equity, as an additional measure to analyze our performance. Adjusted
EBITDA and distributable cash flow do not reflect changes in working capital
balances, which could be significant, as headcounts of the Inspection Services
segment vary from period to period. Adjusted EBITDA and distributable cash flow
are non-GAAP, supplemental financial measures used by management and by external
users of our financial statements, such as investors, lenders, and analysts, to
assess:

? our operating performance as compared to those of other providers of similar

services, without regard to financing methods, historical cost basis, or

capital structure;

? the ability of our assets to generate sufficient cash flow to support our

indebtedness and make distributions to our partners; and

? our ability to incur and service debt and fund capital expenditures.

Adjusted EBITDA and distributable cash flow are not financial measures presented
in accordance with GAAP. We believe that the presentation of these non-GAAP
financial measures provide useful information to investors in assessing our
financial condition and results of operations. Net (loss) income is the GAAP
measure most directly comparable to Adjusted EBITDA. The GAAP measure most
directly comparable to distributable cash flow is net cash provided by operating
activities. Our non-GAAP financial measures should not be considered as
alternatives to the most directly comparable GAAP financial measures. Each of
these non-GAAP financial measures has important limitations as an analytical
tool because it excludes some, but not all, of the items that affect the most
directly comparable GAAP financial measure. You should not consider Adjusted
EBITDA or distributable cash flow in isolation or as a substitute for analysis
of our results as reported under GAAP. Because Adjusted EBITDA and distributable
cash flow may be defined differently by other companies in our industry, our
definitions of these non-GAAP financial measures may not be comparable to
similarly titled measures of other companies, thereby diminishing their utility.

For a further discussion of the non-GAAP financial measures of Adjusted EBITDA
and reconciliation of that measure to their most comparable financial measures
calculated and presented in accordance with GAAP, please read "Item 6 - Selected
Financial Data - Non-GAAP Financial Measures."

Overview and Outlook


Financing

We are party to a credit agreement (the "Credit Agreement") with a syndicate of
seven banks (the "Lenders"). The obligations under the Credit Agreement are
secured by a first priority lien on substantially all of our assets. The Credit
Agreement matures on May 31, 2022. Outstanding borrowings were $54.2 million at
December 31, 2021. Because the Credit Agreement matures within one year, there
is substantial doubt about the Partnership's ability to continue as a going
concern. In addition, the audit report from our independent registered public
accounting firm on the financial statements in this Annual Report contains a
going concern uncertainty paragraph, which is an event of default under our
Credit Agreement. Upon the occurrence and during the continuation of an event of
default, subject to the terms and conditions of the Credit Agreement, the
Lenders may declare any outstanding principal, together with any accrued and
unpaid interest, to be immediately due and payable and may exercise the other
remedies set forth or referred to in the Credit Agreement. We continue to work
with Lenders and their financial and legal advisors regarding the Credit
Agreement. With the support of the Lenders, we engaged an advisor to solicit
potential debt and equity investors to submit proposals to recapitalize the
Partnership and have received several proposals that are currently being
evaluated by the board of directors and the Lenders. We and the Lenders may
pursue a number of options, including but not limited to the possibility of i) a
sale of the debt to a third party; ii) a sale of the debt to a related party;
iii) entering into an agreement with a new investor for a stalking horse bid
that would lead to an in-court restructuring and section 363 process; or some
combination of these actions which may include a court-supervised restructuring.
We have incurred and expect to continue to incur significant legal and advisory
fees in developing our financing plans.  Under the Credit Agreement we are
responsible for certain Lender-mandated legal and financial advisor fees, and
our total payments to legal and financial advisors related to this process have
exceeded $2 million dollars.

It is likely that our common units would be delisted from the NYSE in the event
of any restructuring or liquidation proceeding. Such a proceeding would also
likely lead to our common and preferred equity (including accrued and unpaid
distributions) having no value, given the amount of our senior secured debt,
which is $58.1 million as of April 14, 2022.

We believe that we and the Lenders are aligned on the importance of business continuity and normal operations to ensure ongoing reliable service to our customers.

It is possible that any future financing arrangements could further reduce our
borrowing capacity, further limit our payment of distributions, or add other new
restrictions, which could further limit our ability to borrow for working
capital to fund revenue growth and/or capital expenditures. Future financing
arrangements could also result in increased interest rates and fees.

Overall Business

Our financial results declined in 2021 and 2020 following our best year in 2019.
Beginning in March 2020 our financial results were adversely affected by a
significant decline in oil prices, which was driven in part by increased supply
from Russia, Saudi Arabia, and other oil-producing nations as a result of a
price war and in part by a significant decrease in demand as a result of the
COVID-19 pandemic. The combination of these events led many of our customers to
cancel planned construction projects and to defer regular maintenance projects
when possible. The effects of these events placed significant financial
pressures on the vast majority of our customers to reduce costs, which led some
of our customers to aggressively pursue pricing concessions. We value our
long-term customer relationships and worked closely with them to address this
reality, which in turn required us to modify what pay we could offer to our
valued inspectors. Despite the COVID-19 pandemic, we continued our field
operations without any significant disruption in our service to our customers .

Previously, OPEC started a price war for market share in November 2014 that led
to a downturn that lasted through 2017. The industry, our customers, and we
benefitted from a rebound in 2018 and 2019. In the years leading into 2020, many
companies had been active in constructing new energy infrastructure, such as
pipelines, gas plants, compression stations, pumping stations, and storage
facilities, which afforded us the opportunity to provide our inspection and
integrity services on these projects. The commodity price decline in 2020 led
our customers to change their budgets and plans, and to decrease their spending
on capital expenditures. This, in turn, had an impact on regular maintenance
work and the construction of new pipelines, gathering systems, and related
energy infrastructure. Lower exploration and production activity also affected
the midstream industry and led to delays and cancellations of projects. The
volatility in crude oil prices is illustrated in the chart below, which shows
the average monthly spot price for West Texas Intermediate crude oil from 2018
through 2021:


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                               [[Image Removed]]

Recognizing the impact of the COVID-19 pandemic, we took swift and decisive
actions in 2020 to reduce overhead and other costs through a combination of
temporary salary reductions, reductions in workforce, and other cost-cutting
measures. We elected to defer some discretionary capital expenditures and we
remained focused on opportunities to reduce our working capital needs. In early
2021, we took additional actions to further reduce our costs with some
additional reductions in workforce. These actions have significantly lowered our
general and administrative costs. While reducing certain costs, we have also
made investments in personnel in our account management and business development
teams, to position ourselves to take advantage of the market's eventual
recovery. In addition, the challenging market conditions notwithstanding, in May
2021 we prospectively restored the salaries of certain key employees that had
accepted temporary salary reductions in 2020. In October 2021, we decided to
wind down our survey service line, which represented less than 1% of the total
revenues of the Inspection Services segment during 2021.

In light of the adverse market conditions, we made the difficult decision in
July 2020 to suspend payment of common unit distributions. This has enabled us
to retain more cash to manage our working capital and financing requirements
during these challenging market conditions. Our credit facility, as amended in
2021, contains significant restrictions on our ability to pay cash distributions
to common and preferred unitholders. As a result, we expect to use cash
generated from operations for working capital needs including restructuring
expenses.

The vaccination process for COVID-19 has progressed, which has likely been a
leading factor in the recovery in demand for crude oil. Crude oil prices rose
again after the invasion of Ukraine by Russia and the sanctions imposed on
Russia by various countries in response to the invasion. The price of crude oil
increased in 2021 and early 2022, with the average daily spot price for West
Texas Intermediate crude oil increasing from $48.35 per barrel at December 31,
2020 to $100.53 per barrel at March 31, 2022. We expect that a sustained
increase in crude oil prices would lead customers to increase their maintenance
and capital spending plans, although to this point, customers have been slow to
increase activity. We continue to focus on winning new customers while
supporting our existing customers.

Sales and business development continue to be among our top priorities, and we
continue to bid on projects with both existing and prospective new customers.
Despite the increase in commodity prices, most customers have not yet announced
significant new construction projects. Our customers continue to evaluate the
changing circumstances in the market. We have continued to invest in talent in
the areas of account management and business development. These business
development efforts have not led to our winning any significant new customers in
the first three months of 2022.



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The U.S. Pipeline and Hazardous Materials Safety Administration ("PHMSA")
recently issued new rules that impose several new requirements on operators of
onshore gas transmission systems and hazardous liquids pipelines. The new rules
expand requirements to address risks to pipelines outside of environmentally
sensitive and populated areas. In addition, the rules make changes to integrity
management requirements, including emphasizing the use of in-line inspection
technology. The new rules took effect on July 1, 2020 with various
implementation phases over a period of years.

In 2018, Holdings completed an acquisition to further broaden our collective
suite of environmental services. This acquisition provided entry into the
municipal water industry, whereby we can offer our traditional inspection
services, including corrosion and nondestructive testing services, as well as
in-line inspection ("ILI"). Holdings' next generation 5G ultra high-resolution
magnetic flux leakage ("MFL") ILI technology called EcoVision™ UHD, is capable
of helping pipeline owners and operators better manage the integrity of their
pipeline assets in both the municipal water and energy industries. Holdings has
been investing in building tools to serve oil and gas pipelines of various
sizes. At some point in the future, this business may be offered to the
Partnership when appropriate. We do not expect to acquire this business in the
near term, although we continue to use our affiliation with this business as a
cross-selling opportunity for our services.

Our parent company's ownership interests continue to remain fully aligned with
our unitholders, as our General Partner and insiders collectively own 76% of our
total common and preferred units.

As part of our efforts to reduce our outstanding debt and working capital needs,
we will consider asset sales, which could result in impairments to long-lived
assets in future periods. In September 2021, we discontinued the operations of
our Pipeline & Process Services segment, which is now reported within
discontinued operations in the accompanying Consolidated Financial Statements.
In the fourth quarter of 2021, we wound down our survey service line, which
represented less than 1% of the total revenues of the Inspection Services
segment during 2021.

We have been treated as a partnership for federal and state income tax purposes
through December 31, 2021. We are considering whether to continue to be treated
as a partnership for this purpose or whether to elect to be treated as a
corporation for federal and state income tax purposes effective January 1, 2022.
In making this decision, we will weigh the benefits of being treated as a
partnership for tax purposes against the costs. The costs of being treated as a
partnership for tax purposes include the additional complexity for investors in
preparing their tax returns, the continued lower demand for and reduced
liquidity of our common units resulting from decreased interest in investing in
publicly traded partnerships, and the additional professional fees we incur in
complying with the tax requirements of a partnership.

Inspection Services

Revenues of our Inspection Services segment decreased from $181.5 million during
2020 to $113.0 million during 2021, a decrease of 38%. Gross margins in this
segment decreased from $19.8 million during 2020 to $13.0 million during 2021, a
decrease of 34%. At the end of the first quarter of 2020, the outbreak of the
COVID-19 pandemic, combined with a significant decrease in crude oil prices
resulting from reduced demand and an anticipated increase in supply from Saudi
Arabia and Russia, led many of our customers to reduce their spending on capital
expenditures and maintenance projects. Most projects that were already in
process continued, despite the COVID-19 pandemic. However, many customers
announced reductions in their capital expansion budgets and deferrals of planned
construction projects, which significantly reduced our opportunities to generate
revenue from inspection services. The lower level of activity continued into
2021, and many of our customers have not yet resumed significant spending on
capital expansion.

The macroeconomic fundamentals have strengthened recently with a recovery in demand for oil, natural gas, and refined products. The development by our customers of large expansion projects typically lags behind increases in commodity prices, due to the time required to plan, permit, and initiate large-scale projects.

In 2021, a large majority of our revenues were generated from services to
utility customers and maintenance services to our customers in the energy
industry, rather than from new construction projects. Services to public utility
customers represented over 50% of the Inspection Services segment's revenues in
2021. Average headcount of the Inspection Segment was 436 in January 2021,
peaked at 481 in July 2021, and fell to 391 in December 2021, consistent with
the customary seasonal cycle.

We continue to bid on new inspection opportunities. We operate in a very large
market, with more than 3,000 customer prospects who require federally and/or
state-mandated inspection and integrity services. Our focus remains on
maintenance and integrity work on existing pipelines, as well as work on new
projects.


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In January 2022, we made significant changes to our inspector remuneration
programs to address longstanding industry practices whereby (i) inspectors are
provided with fixed reimbursements based on estimates of their out-of-pocket
expenditures and (ii) many inspectors are paid on day rates. We completed our
process of converting all inspectors from day rates to hourly rates. We also
significantly reduced fixed expense reimbursements to our inspectors and added a
variety of new benefits, including increased hourly wages, a 401(k) match,
retention bonuses, and subsidized health, dental, vision, and life insurance.
These changes were designed to give each inspector the same or greater
remuneration as they were previously receiving. While some inspectors welcomed
these changes, other inspectors preferred the old pay practices, and
approximately 20% of our inspectors chose to switch to other providers in early
2022. This may give us a competitive disadvantage in recruiting and retaining
inspectors, since many competitors still operate under the old pay practices.

Certain of our current and former inspectors who were compensated on a day rate
have filed lawsuits and arbitration claims against us, alleging that they were
entitled to hourly wages with overtime under the Fair Labor Standards Act. Such
inspectors have, in certain circumstances, also sued our customers, asserting
that the customers were co-employers, and certain of those customers have made
indemnification claims against us related to such litigation. Many of our
competitors are experiencing similar claims, and at least one of our competitors
has entered into a settlement agreement with the Department of Labor involving
the payment of significant fees. The strategies of the plaintiffs' counsel have
continued to evolve. We incurred $1.9 million of legal fees during 2021 and we
have spent a significant amount of time defending against these claims. These
costs include defending numerous arbitration claims from individual inspectors,
defending our rights to enforce the arbitration provisions in employment
agreements with inspectors, assisting customers in their defense of the claims,
and monitoring various lawsuits unrelated to us that could create precedents
that could affect the claims against us and our customers. In early 2022 we
agreed to settle 64 of these claims for a combined amount of approximately $1.0
million, to be paid in installments during 2022. The settlement covers most of
the claims where we have been sued directly, but we expect to continue to incur
significant legal costs to defend suits that have been filed against our
customers, as our customers have pursued or could pursue indemnity claims
against us if they incur losses related to these claims. We could incur
significant additional costs associated with future settlements, including costs
associated with indemnification claims from customers. Our insurance policies
generally do not offer coverage to us for these types of claims.


                                      47




Environmental Services

Revenues of our Environmental Services segment decreased from $5.8 million in
2020 to $4.3 million in 2021, a decrease of 25%. The decrease was primarily due
to a decrease of 2.7 million barrels of water processed in 2021 compared to
2020. The decrease in volume resulted primarily from the fact that, during late
2020, the largest customer of one of our highest-volume facilities notified us
of its decision to build its own facility and began sending most of its water to
that facility in February 2021. Gross margins in this segment decreased from
$3.7 million in 2020 to $2.6 million in 2021, a decrease of 32%. The decrease in
gross margin was due to a $1.4 million decrease in revenue, partially offset by
a $0.2 million decrease in cost of services.

Low commodity prices, an excess of supply, and low demand led to a significant
reduction in activity by producers in North Dakota beginning in March 2020.
Bakken Clearbrook oil pricing was under intense pressure during 2020, along with
WTI oil prices. WTI oil prices, which were at $61.14 at December 31, 2019,
decreased in January and February 2020, decreased even more sharply in March and
April 2020, gradually increased to $40 per barrel in early July, and begin
increasing in December to $48.35 at December 31, 2020. Pipeline capacity and
storage constraints also adversely affected this market. Several prominent
exploration and production customers elected to shut in their production instead
of selling oil at the low market prices. According to a published rig count as
of December 31, 2020, the Williston basin of the Bakken totaled 11 rigs, down
82% from its peak in 2019 of 61 rigs.

WTI prices recovered in 2021, increasing to $75.33 per barrel at December 31,
2021, and increasing further to $100.53 per barrel at March 31, 2022. According
to a published rig count, the number of rigs in the Williston basis increased to
27 at December 31, 2021 and increased further to 33 at March 31, 2022. Our
opportunity to receive significant increases in the volume of flowback water
depends on whether new drilling activity occurs close enough to the location of
our facilities.

Although market conditions have been challenging, we have benefitted from the
fact that 98% of our water in 2021 was produced water from existing wells
(rather than flowback water from new wells) and 54% of our water in 2021 was
from pipelines. We took steps to reduce our operating costs, including the
temporary closure during the second quarter of 2020 of several of our
facilities. We have since reopened these facilities after market conditions
improved. In 2020 we completed a new contract with a public energy company to
connect its pipeline to one of our water treatment facilities. This facility
began receiving volumes from the pipeline in October 2020.

We generate a portion of our revenue from a contract to operate a facility that
we own a 25% interest in. The majority owner of the facility has notified us of
its intention to reopen negotiations over the pricing of this contract when the
contract expires in November 2022. We generated $0.6 million of revenue from
this contract in 2021.

In March 2022, we determined that we needed to cease operations at one of our
facilities until the underground tubing is replaced, which we estimate would
cost approximately $0.2 million. This facility generated $0.6 million of revenue
in 2021.

In July 2020, in relation to an ongoing lawsuit challenging various federal
authorizations for the Dakota Access Pipeline ("DAPL"), the U.S. District Court
for the District of Columbia ("D.C. District Court") issued an order vacating an
easement granted by the U.S. Army Corps of Engineers ("Army Corps") and
directing the DAPL to be shut down and drained of oil by August 5, 2020. The
U.S. Court of Appeals for the District of Columbia Circuit ("D.C. Circuit")
issued a stay of the order to shut down the DAPL on August 5, 2020.
Subsequently, the D.C. Circuit issued an opinion upholding the D.C. District
Court's decision to vacate the easement on the merits, but allowing the DAPL to
continue operating while the Army Corps completes an environmental impact
statement ("EIS") as required under the National Environmental Policy Act. The
plaintiffs in the case sought another injunction against the DAPL's continued
operation, which was denied by the D.C. District Court on May 21, 2021. The Army
Corps is expected to complete the required EIS in the fall of 2022. The DAPL
transports approximately 40% of the crude oil that is produced in the Bakken
region. The closure of the pipeline would likely have an adverse effect on
overall production in the Bakken, which would likely reduce the volume of water
delivered to our facilities. In addition, the uncertainty associated with
current and possible future litigation may reduce E&P companies' incentive to
invest in new production in the Bakken.


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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to select appropriate accounting
policies and make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. See "Note 2 - Summary of Significant
Accounting Policies" in the audited financial statements included in "Item 8 -
Financial Statements and Supplementary Data" for descriptions of our major
accounting policies and estimates. Certain of these accounting policies and
estimates involve judgments and uncertainties to such an extent that there is a
reasonable likelihood that materially different amounts could have been reported
under different conditions, or if different assumptions had been used. The
following discussions of critical accounting estimates, including any related
discussion of contingencies, address all important accounting areas where the
nature of accounting estimates or assumptions could be material due to the
levels of subjectivity and judgment necessary to account for highly uncertain
matters or the susceptibility of such matters to change.

Impairments of Long-Lived Assets

Property and Equipment

We assess property and equipment for possible impairment whenever events or
changes in circumstances indicate that the carrying value of the assets may not
be recoverable. Such indicators include, among others, the nature of the asset,
the projected future economic benefit of the asset, changes in regulatory and
political environments, and historical and future cash flow and profitability
measurements. If the carrying value of an asset group exceeds the undiscounted
cash flows estimated to be generated by the asset group, we recognize an
impairment loss equal to the excess of carrying value of the asset group over
its estimated fair value. Estimating the future cash flows and the fair value of
an asset group involves management estimates on highly uncertain matters such as
future commodity prices, the effects of inflation on operating expenses, and the
outlook for national or regional market supply and demand for the services we
provide.

In the fourth quarter of 2021, the near-term outlook for one of our water
treatment facilities declined, due primarily to the fact that its primary
customer built a competing facility, and a planned new customer did not deliver
the volume of water that we expected. We considered these developments to be
potential indicators of impairment and therefore performed a property and
equipment impairment analysis for this water treatment facility as of December
31, 2021. We estimated the fair value of this water treatment facility utilizing
the income approach (discounted cash flows) valuation method, which is a Level 3
measurement as defined in ASC 820, Fair Value Measurement. Significant inputs in
the valuation included projections of future revenues, anticipated operating
costs, and appropriate discount rates. Based on the results of this property and
equipment impairment analysis, we recorded an impairment of $0.9 million to the
property and equipment and the lease assets of this water treatment facility in
the fourth quarter of 2021, which reduced the book value of the property and
equipment of this facility to a nominal amount.

An estimate as to the sensitivity to earnings for these periods had we used
other assumptions in our impairment reviews and impairment calculations is not
practicable, given the number of assumptions involved in the estimates.
Unfavorable changes in our assumptions might have caused an unknown number of
assets to become impaired. Additionally, further unfavorable changes in our
assumptions in the future are reasonably possible, and therefore, it is possible
that we may incur impairment charges in the future.

Identifiable Intangible Assets

Our recorded net identifiable intangible assets of $13.0 million and $15.1
million at December 31, 2021 and 2020, respectively, consist primarily of
customer relationships and trademarks and trade names, amortized on a
straight-line basis over estimated useful lives ranging from 5 - 20 years.
Identifiable intangible assets with finite lives are amortized on a
straight-line basis over their estimated useful lives, which is the period over
which the asset is expected to contribute directly or indirectly to our future
cash flows. We have no indefinite-lived intangibles other than goodwill. The
determination of the fair value of the intangible assets and the estimated
useful lives are based on an analysis of all pertinent factors including (1) the
use of widely-accepted valuation approaches, such as the income approach or the
cost approach, (2) our expected use of the asset, (3) the expected useful life
of related assets, (4) any legal, regulatory, or contractual provisions,
including renewal or extension periods that would cause substantial costs or
modifications to existing agreements, and (5) the effects of demand,
competition, and other economic factors. Should any of the underlying
assumptions indicate that the value of the intangible assets might be impaired,
we may be required to reduce the carrying value and/or subsequent useful life of
the asset. If the underlying assumptions governing the amortization of an
intangible asset were later determined to have significantly changed, we may be
required to adjust the amortization period of such asset to reflect any new
estimate of its useful life. Any write-down of the value or unfavorable change
in the useful life of an intangible asset would increase expense at that time.

Goodwill

We have $50.4 million of goodwill on our Consolidated Balance Sheet at December
31, 2021. Of this amount, $40.3 million relates to the Inspection Services
segment and $10.1 million relates to the Environmental Services segment.
Goodwill is not amortized, but is subject to annual assessments on November 1
(or at other dates if events or changes in circumstances indicate that the
carrying value of goodwill may be impaired) for impairment at a reporting unit
level. The reporting units used to evaluate and measure goodwill for impairment
are determined primarily by the manner in which the business is managed or
operated. We have determined that our Inspection Services and Environmental
Services operating segments are the appropriate reporting units for testing
goodwill impairment.

To perform a goodwill impairment assessment, we first evaluate qualitative
factors to determine whether it is more likely than not that the fair value of a
reporting unit exceeds its carrying value. If this assessment reveals that it is
more likely than not that the carrying value of a reporting unit exceeds its
fair value, we then determine the estimated fair value of the reporting unit. If
the carrying amount exceeds the reporting unit's fair value, we record a
goodwill impairment charge for the excess (not exceeding the carrying value of
the reporting unit's goodwill).


                                      49

Crude oil prices decreased significantly in 2020, due in part to decreased
demand as a result of the worldwide COVID-19 pandemic. This decline in oil
prices led many of our customers to change their budgets and plans, which
resulted in reduced spending on drilling, completions, and exploration. This had
an adverse effect on construction of new pipelines, gathering systems, and
related energy infrastructure. Lower exploration and production activity has
also adversely effected the midstream industry and has led to delays and
cancellations of projects. Such developments reduced our opportunities to
generate revenues. It is impossible at this time to determine what may occur, as
customer plans will evolve over time. It is possible that the cumulative nature
of these events could have a material adverse effect on our results of
operations and financial position.

Inspection Services

We completed our annual goodwill impairment assessment as of November 1, 2021
and concluded the $40.3 million of goodwill of the Inspection Services segment
was not impaired. Our evaluations included various qualitative and corroborating
quantitative factors, including current and projected earnings and current
customer relationships and projects, and a comparison of our enterprise value to
the sum of the estimated fair values of our business segments. The qualitative
and supporting quantitative assessments on this reporting unit indicated that
there was no need to conduct further quantitative testing for goodwill
impairment. The use of different assumptions and estimates from the assumptions
and estimates we used in our analyses could have resulted in the requirement to
perform further quantitative goodwill impairment analyses as of November 1,
2021.

Between November 1, 2021 and December 31, 2021, our near-term outlook for the Inspection Services segment declined for the following reasons:

? We began to implement significant changes to our inspector remuneration

programs to address longstanding industry practices whereby (i) inspectors are

provided with fixed reimbursements based on estimates of their out-of-pocket

expenditures and (ii) many inspectors are paid on day rates. We completed our

process of converting all inspectors from day rates to hourly rates. We also

significantly reduced fixed expense reimbursements to our inspectors and added

a variety of new benefits, including increased hourly wages, a 401(k) match,

retention bonuses, and subsidized health, dental, vision, and life insurance.

These changes were designed to give each inspector the same or greater

remuneration as they were previously receiving. While some inspectors welcomed

these changes, other inspectors preferred the old pay practices, and

approximately 20% of our inspectors chose to switch to other providers in early

   2022.

? We operate in a large market with many potential future customers that we do

not currently serve, and we have invested heavily in business development

efforts. These efforts did not lead to any significant new customer wins during

November or December 2021.

We considered these developments to be potential indicators of impairment and
therefore performed a quantitative goodwill impairment analysis as of December
31, 2021. We estimated the fair value of the reporting unit utilizing the income
approach (discounted cash flows) valuation method, which is a Level 3
measurement as defined in ASC 820, Fair Value Measurement. Significant inputs in
the valuation included projections of future revenues, anticipated operating
costs, and appropriate discount rates. We estimated revenues and costs for a
period of 9 years and estimated a terminal value calculated as a multiple of the
cash flows in the preceding year. We assumed that a hypothetical buyer would
expect to benefit from revenue growth opportunities, both from new customers as
a result of business development efforts and from existing customers as a result
of an assumed recovery in market activity. We discounted these estimated future
cash flows at a rate of 15%. We assumed that a hypothetical buyer would be a
private company that would be subject to income taxes but that could obtain
savings in general and administrative expenses from the elimination of certain
expenses associated with being a publicly traded entity. Based on this
quantitative analysis, we concluded that the goodwill of the Inspection Services
segment was not impaired at December 31, 2021. Our analysis indicated that the
fair value of the reporting unit of the Inspection Services segment exceeded its
book value by 4% at December 31, 2021. The use of different assumptions and
estimates from those we used in our analysis could have resulted in the need to
record a goodwill impairment. For example, a 1% increase to the discount rate
would have resulted in the need to record a goodwill impairment.

Our estimates of fair value are sensitive to changes in a number of variables,
many of which relate to broader macroeconomic conditions outside of our control.
As a result, actual performance could be different from our expectations and
assumptions. Estimates and assumptions used in determining fair value of the
reporting units that are outside the control of management include, but are not
limited to, an increase or decrease in new construction projects, commodity
prices, operating costs, interest rates, and cost of capital. While we believe
we have made reasonable estimates and assumptions to estimate the fair value of
the Inspection Services segment based on information available as of December
31, 2021, it is reasonably possible that changes could occur that would require
a goodwill impairment charge in the future.

Subsequent to December 31, 2021, the following events occurred:

? We learned in March 2022 that we did not win our bid to provide inspection

services on a large project in a new service line with an existing customer. We

previously believed we had a good chance of winning this bid.

? Our nondestructive examination service line did not win any significant new

revenue in the first three months of 2022 and its activity remains below the

level estimated in our December 31, 2021 goodwill impairment analysis.

? We did not win any significant new bids for services to new customers in the

first three months of 2022.

? Our competitors continue to pursue recruitment of our inspectors, using

aggressive non-taxable pay packages.

Due to these recent developments, it is likely that we will need to perform an
interim goodwill impairment assessment for the Inspection Services segment as of
March 31, 2022 and it is reasonably possible that we will conclude that the
goodwill of the Inspection Services segment is impaired as of March 31, 2022.

Environmental Services

We completed our annual goodwill impairment assessment as of November 1, 2021
and concluded that the $10.1 million of goodwill of the Environmental Services
segment was not impaired. We estimated the fair value of the reporting unit
utilizing the income approach (discounted cash flows) valuation method, which is
a Level 3 measurement as defined in ASC 820, Fair Value Measurement. Significant
inputs in the valuation included projections of future revenues, anticipated
operating costs, and appropriate discount rates. Since the volume of water we
receive at our facilities is heavily influenced by the extent of exploration and
production in the areas near our facilities, and since exploration and
production is in turn heavily influenced by crude oil prices, we estimated
future revenues by reference to crude prices in the forward markets. We used a
forward price curve that reflects in the West Texas Intermediate ("WTI") crude
price each month, with the price remaining around $71 - $84 per barrel through
January 2023 and declining to $57.49 per barrel in January 2032. We estimated
future operating costs by reference to historical per-barrel costs and estimated
future volumes. We estimated revenues and costs for a period of approximately 10
years and estimated a terminal value calculated as a multiple of the cash flows
in the preceding year. We discounted these estimated future cash flows at a rate
of 13.5%. We assumed that a hypothetical buyer would be a partnership that is
not subject to income taxes and that could obtain savings in general and
administrative expenses through synergies with its other operations. Based on
this quantitative analysis, we concluded that the goodwill of the Environmental
Services segment was not impaired. Our analysis indicated that the fair value of
the reporting unit of the Environmental Services segment exceeded its book value
by 13% at November 1, 2021. The use of different assumptions and estimates from
those we used in our analysis could have resulted in the need to record a
goodwill impairment. For example, a 1% increase in the discount rate would have
reduced the estimated fair value to 9% in excess of its book value at November
1, 2021.


                                      50




Our estimates of fair value are sensitive to changes in a number of variables,
many of which relate to broader macroeconomic conditions outside of our control.
As a result, actual performance could be different from our expectations and
assumptions. Estimates and assumptions used in determining fair value of the
reporting units that are outside the control of management include, but are not
limited to, commodity prices, operating costs, interest rates, and cost of
capital. Our water treatment facilities are concentrated in one basin, and
changes in oil and gas production in that basin could have a significant impact
on the profitability of the Environmental Services segment. While we believe we
have made reasonable estimates and assumptions to estimate the fair values of
the Environmental Services segment, it is reasonably possible that changes could
occur that would require a goodwill impairment charge in the future. Such
changes could include, among others, a slower recovery in demand for petroleum
products than assumed in our projections, an increase in supply from other areas
(or other factors) that result in reduced production in North Dakota, and
increased pessimism among market participants, which could increase the discount
rate on (and therefore decrease the value of) estimated future cash flows.

Revenue Recognition

Under Accounting Standards Codification ("ASC") 606 - Revenue from Contracts
with Customers, an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those
goods or services. Based on this accounting guidance, our revenue is earned and
recognized through the service offerings of our two reportable business
segments. Our sales contracts have terms of less than one year. As such, we have
used the practical expedient contained within the accounting guidance which
exempts us from the requirement to disclose the transaction price allocated to
remaining performance obligations if the performance obligation is part of a
contract with an original expected duration of one year or less. We apply
judgment in determining whether we are the principal or the agent in instances
where we utilize subcontractors to perform all or a portion of the work under
our contracts. Based on the criteria in ASC 606, we have determined we are
principal in all such circumstances, with the exception of $0.2 million of
revenue and $0.2 million of associated costs, which are presented net in
revenue, subcontracted to an affiliated entity for which we determined we were
an agent during 2021.

In 2021 and 2020, we recognized $0.2 million and $0.3 million of revenue within
our Inspection Services segment, respectively, on services performed in previous
years. We had constrained recognition of this revenue until the expiration of a
contract provision that had given the customer the opportunity to reopen
negotiation of the fee paid for the services. As of December 31, 2021, and
December 31, 2020, we recognized a refund liability of $0.2 million and $0.8
million within our Inspection Services segment, respectively, for revenue
associated with such variable consideration. In addition, we have recorded other
refund liabilities of $0.8 million and $0.8 million at December 31, 2021 and
2020, respectively.


Discontinued Operations



In September 2021, we discontinued the operations of Cypress Brown Integrity,
LLC ("CBI"), which previously represented our Pipeline & Process Services
segment. CBI provided customers with hydrotesting, chemical cleaning, drying,
water treatment, nitrogen and other related services. CBI was located in
Giddings, Texas and a plan of termination impacted approximately 18 employees.
Our reasons for exiting the business included the decline in new pipeline
construction projects and the inability to obtain more work directly with
pipeline owners on maintenance projects, which led to operating losses in 2021.
We have recast the financial information for all periods presented in these
Consolidated Financial Statements to report the assets, liabilities, revenues,
and expenses of CBI within discontinued operations.



In 2021, we recorded a loss of $1.9 million on the disposal of intangible assets
associated with CBI. We sold the majority of CBI's equipment and vehicles during
2021 and recorded gains of $1.0 million on these sales. In early 2022 we
completed the sale of CBI's remaining assets, including its real estate, and
recorded a gain on sale of assets of $0.3 million in 2022. We recorded employee
severance expenses of $0.1 million in 2021.

Business Combinations and Intangible Assets Including Goodwill

We account for acquisitions of businesses using the acquisition method of
accounting. Accordingly, assets acquired and liabilities assumed are recorded at
their estimated fair values at the acquisition date. The excess of purchase
price over fair value of net assets acquired, including the amount assigned to
identifiable intangible assets, is recorded as goodwill. The results of
operations of acquired businesses are included in the Consolidated Financial
Statements from the acquisition date.



                                      51

Consolidated Results of Operations - Cypress Environmental Partners, L.P.

The Consolidated Results of Operations and Segment Operating Results sections
generally discuss 2021 and 2020 items and year-to-year comparisons between 2021
and 2020. Discussions of 2019 items and year-to-year comparisons between 2020
and 2019 that are not included in this Form 10-K can be found in the
Consolidated Results of Operations and Segment Operating Results sections of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year
ended December 31, 2020.

Consolidated Results of Operations

The following table compares the operating results of Cypress Environmental Partners, L.P. for the years ended December 31:

                                                                2021           2020
                                                                  (in thousands)

 Revenue                                                     $  117,317     $  187,280
 Costs of services                                              101,776        163,741
 Gross margin                                                    15,541         23,539

 Operating costs and expense:
 General and administrative                                      17,897         18,242

 Depreciation, amortization and accretion                         4,535    

     4,325
 Impairments                                                        881              -
 Loss on asset disposals, net                                        32              5
 Operating (loss) income                                         (7,804 )          967

 Other (expense) income:
 Interest expense                                                (3,601 )       (3,959 )

 Foreign currency (losses) gains                                    (16 )  

107

 Other, net                                                       2,024    

530

 Net loss before income tax expense                              (9,397 )  

(2,355 )

 Income tax expense                                                  40    

482

 Net loss from continuing operations                             (9,437 )  

(2,837 )

 Net (loss) income from discontinued operations, net of
tax                                                              (2,642 )        2,471
 Net loss                                                    $  (12,079 )   $     (366 )

 Net loss from continuing operations                         $   (9,437 )

$ (2,837 )

Net income attributable to noncontrolling interests - continuing operations

                                                30     

19

 Net loss attributable to limited partners - continuing
operations                                                       (9,467 )  

(2,856 )

Net (loss) income attributable to controlling interests - discontinued operations

                                          (1,132 )   

1,441

 Net loss attributable to limited partners                   $  (10,599 )

$ (1,415 )

 Net loss attributable to limited partners - continuing
operations                                                   $   (9,467 )

$ (2,856 )

 Net income attributable to preferred unitholder                  4,133    

4,133

 Net loss attributable to common unitholders - continuing
operations                                                      (13,600 )  

(6,989 )

Net (loss) income attributable to common unitholders - discontinued operations

                                          (1,132 )   

1,441

 Net loss attributable to common unitholders                 $  (14,732 )

$ (5,548 )

See the detailed discussion of elements of operating income (loss) by reportable segment below. See also Note 14 to our Consolidated Financial Statements included in "Item 8. - Financial Statement and Supplementary Data."

The following is a discussion of significant changes in the non-segment related
corporate other income and expenses for the years ended December 31, 2021 and
2020.

General and administrative - corporate. General and administrative expense -
corporate includes equity-based compensation expense for certain employees,
certain administrative expenses not directly attributable to the operating
segments, and certain administrative expenses that were previously allocated to
the Pipeline & Process Services segment as indirect expenses, and which are now
reported within "corporate" now that we have classified the Pipeline & Process
Services segment as a discontinued operation. Consolidated general and
administrative expense in 2021 included $0.5 million of advisory fees related to
our analysis of our financing plans and negotiations with the lenders on our
Credit Agreement. The Credit Agreement requires us to continue to retain
advisors.


                                      52




Interest expense. Interest expense primarily consists of interest on borrowings
under our Credit Agreement, amortization of debt issuance costs, and unused
commitment fees. Changes in interest expense resulted primarily from changes in
the balance of outstanding debt, changes in interest rates, and changes in the
amortization of debt issuance costs. During 2021, there was an increase in the
amortization of debt issuance costs primarily due to an increase in debt
issuance costs associated with the amendments of the Credit Agreement in 2021.
During 2021 and 2020, the interest rate on our Credit Agreement floated based on
LIBOR. In March and April 2020, in an abundance of caution, we borrowed a
combined $39.1 million on the Credit Agreement to provide substantial liquidity
to manage our business in light of the COVID-19 pandemic and the significant
decline in the price of crude oil. In January, May, June, and September 2020, we
repaid a combined $52.0 million on the Credit Agreement. The average debt
balance outstanding and average interest rates are summarized in the table

below:

                     Average            Average
Year Ended         Debt Balance        Interest
December 31        Outstanding           Rate
                  (in thousands)

   2021                 55,326             4.69%
   2020                 80,763             4.03%



Foreign currency gain (losses). Our Canadian subsidiary has certain intercompany
payables to our U.S.-based subsidiaries. Such intercompany payables and
receivables among our consolidated subsidiaries are eliminated in our
Consolidated Balance Sheets. We report currency translation adjustments on these
intercompany payables and receivables within foreign currency (losses) gains in
our Consolidated Statements of Operations. The net foreign currency gains during
2020 resulted from the appreciation of the Canadian dollar relative to the U.S.
dollar. The net foreign currency loss in 2021 resulted from the depreciation of
the Canadian dollar relative to the U.S. dollar.

Other, net. Other income in 2021 includes a gain of $1.6 million on the
settlement of a dispute with another party. Other income in 2021 and 2020 also
includes royalty income, interest income, and income associated with our 25%
interest in a water treatment facility that we account for under the equity
method.

Income tax expense. We qualified as a partnership for income tax purposes
through December 31, 2021, and therefore we generally did not pay income tax;
instead, each owner reported his or her share of our income or loss on his or
her individual tax return. Our income tax provision relates primarily to (1) our
U.S. corporate subsidiaries that provide services to public utility customers,
which do not appear to fit within the definition of qualified income as it is
defined in the Internal Revenue Code, Regulations, and other guidance, which
subjects this income to U.S. federal and state income taxes, (2) our Canadian
subsidiary, which is subject to Canadian federal and provincial income taxes,
and (3) certain other state income taxes, including the Texas franchise tax.

Income tax expenses decreased from $0.5 million in 2020 to less than $0.1
million in 2021, primarily due a decrease in income of our U.S. corporate
subsidiary that provides services to public utility customers and to a decrease
in revenue that is subject to the Texas franchise tax in our Inspection Services
segment.

As a publicly-traded partnership, we are subject to a statutory requirement that
90% of our total gross income represent "qualifying income" (as defined by the
Internal Revenue Code, related Treasury Regulations, and Internal Revenue
Service pronouncements), determined on a calendar-year basis. Income generated
by taxable corporate subsidiaries is excluded from this calculation. In 2021 and
2020, more than 90% of our gross income (exclusive of the income generated by
our taxable corporate subsidiaries), represented "qualifying income." Certain
inspection services are not qualifying income and we therefore had separate
taxable entities that paid state and federal income tax on these earnings.

Net (loss) income from discontinued operations, net of tax. In September 2021 we
discontinued the operations of CBI. CBI generated $18.7 million of revenue
during 2020. Hydrotesting is one of the last steps to be completed before a
pipeline is placed into service, and a number of pipeline construction projects
that began prior to the COVID-19 pandemic continued, which benefitted revenues
in 2020. However, the pandemic and the volatility in oil prices led to a
significant reduction in the launch of new construction projects, and as a
result there were fewer hydrotesting projects to bid on in 2021, and CBI
generated only $2.3 million of revenue during 2021. We recorded a loss of $1.9
million on the disposal of CBI's intangible assets and gains of $1.0 million on
the sales of fixed assets during 2021 after deciding to discontinue CBI's
operations.

Net income (loss) attributable to noncontrolling interests - continuing
operations. We own a 49% interest in CF Inspection. The accounts of this
subsidiary are included within our Consolidated Financial Statements. The
portion of the net income of this entity that is attributable to outside owners
is reported in net income (loss) attributable to noncontrolling interests in our
Consolidated Statements of Operations.

Net income (loss) attributable to noncontrolling interests - discontinued
operations. We own a 51% interest in CBI. The portion of net (loss) income from
discontinued operations, net of tax of this entity that is attributable to
outside owners is reported in net (loss) income attributable to noncontrolling
interests - discontinued operations in Note 2 t o our Consolidated Financial
Statements.

Net income attributable to preferred unitholder. On May 29, 2018, we issued and
sold $43.5 million of preferred equity. The holder of the preferred units is
entitled to an annual return of 9.5% on this investment. This is reported in net
income attributable to preferred unitholder in the Consolidated Statements

of
Operations.


                                      53




Segment Operating Results

Inspection Services

The following table summarizes the operating results of our Inspection Services segment for the years ended December 31, 2021 and 2020.

                                                               Years Ended December 31
                                2021         % of Revenue        2020         % of Revenue       Change       % Change
                                              (in thousands, except average

revenue and inspector data)

Revenues                      $ 112,981                        $ 181,526                        $ (68,545 )       (37.8 )%
Costs of services                99,995                          161,726                          (61,731 )       (38.2 )%
Gross margin                     12,986               11.5 %      19,800               10.9 %      (6,814 )       (34.4 )%

General and administrative       14,719               13.0 %      15,282                8.4 %        (563 )        (3.7 )%
Depreciation, amortization
and accretion                     2,306                2.0 %       2,217                1.2 %          89           4.0 %
Loss on asset disposals,
net                                  23                0.0 %           -                0.0 %          23
Operating (loss) income       $  (4,062 )             -3.6 %   $   2,301                1.3 %   $  (6,363 )      (276.5 )%

Operating Data
Average number of
inspectors                          456                              730                             (274 )       (37.5 )%
Average revenue per
inspector per week            $   4,752                        $   4,769                        $     (17 )        (0.4 )%
Revenue variance due to
number of inspectors                                                                            $ (67,898 )
Revenue variance due to
average revenue per
inspector                                                                                       $    (647 )

Revenue. Revenue decreased $68.5 million in 2021 compared to 2020, due to a
decrease in the average number of inspectors engaged (a decrease of 274
inspectors accounting for $67.9 million of the revenue decrease) and a decrease
in the average revenue billed per inspector (accounting for $0.6 million of the
revenue decrease). At the end of the first quarter of 2020, the outbreak of the
COVID-19 pandemic, combined with a significant decrease in crude oil prices
resulting from reduced demand and an anticipated increase in supply from Saudi
Arabia and Russia, led many of our customers to reduce their spending on capital
expenditures and maintenance projects. Most projects that were already in
process continued, despite the COVID-19 pandemic, which enabled us to continue
to generate revenue on the projects until they were completed. However, many
customers announced reductions in their capital expansion budgets and deferrals
of planned construction projects, which significantly reduced our opportunities
to generate revenue from inspection services on new projects. As a result of
these factors, revenues from basic inspection services to pipeline customers
decreased by $67.8 million from 2020 to 2021 and revenues from in-line
inspection support services to pipeline customers decreased by $1.5 million from
2020 to 2021. Revenues from nondestructive examination services decreased by
$4.6 million from 2020 to 2021, due in part to the departure of certain
employees who joined a competitor. We hired new management for the
nondestructive examination service line and we have been working to rebuild the
customer relationships. Revenues of our subsidiary that serves public utility
companies increased by $5.3 million in 2021 compared to 2020. Public utilities
are more insulated from changes in commodity prices than are pipeline companies,
and demand for our services among the public utility customers remained strong.

The decrease in average revenue per inspector is due to changes in customer mix.
Fluctuations in the average revenue per inspector are common, given that we
charge different rates for different types of inspectors and different types of
inspection services.

Costs of services. Costs of services decreased $61.7 million in 2021 compared to 2020, primarily related to a decrease in the average number of inspectors employed during the period.

Gross margin. Gross margin decreased $6.8 million in 2021 compared to 2020, as a
result of lower revenues. The gross margin percentage increased modestly from
2020 to 2021, due primarily to the fact that our mix of revenues was more
heavily weighted toward public utility customers, and these services typically
yield a higher margin percentage. This benefit was partially offset by lower
revenues in our nondestructive examination service line, which typically
generates a lower margin percentage during low-volume periods as a result of
incurring certain fixed costs. Our gross margin percentage reflects the fact
that we have certain revenue associated with mileage and per diem reimbursements
for our inspectors travelling away from home that is typically not entitled to
any profit margin or mark up.

Gross margin in 2021 and 2020 benefited from the fact that we recognized $0.2
million and $0.3 million, respectively, of revenue on services performed in
previous years. We had constrained recognition of this revenue until the
expiration of a contract provision that had given the customer the opportunity
to reopen negotiation of the fee paid for the services.

General and administrative. General and administrative expenses decreased by
$0.6 million in 2021 compared to 2020. Changes in general and administrative
expenses during 2021 compared to 2020 included:

? a decrease of $0.5 million in employee compensation expense through a

combination of salary reductions, reductions in workforce, furloughs, hiring

freezes, and reductions in incentive compensation and sales commission expense;

? a decrease of $0.5 million in bad debt expense (bad debt expense in 2020

included an allowance of $0.5 million against receivables from a customer that

declared bankruptcy, and these receivables were written off in 2021);

                                      54

? a decrease of $0.2 million in office lease expense, due primarily to a

consolidation of office space;

? a decrease of $0.1 million in allocated corporate expenses (under our

allocation formula, a larger percentage of expense was allocated to "corporate"

in 2021 than in 2020);

? a decrease of $0.1 million in travel and marketing expense, due primarily to

travel limitations associated with the pandemic; and

? an increase of $0.6 million in legal fees, primarily as a result of costs

associated with Fair Labor Standards Act employment litigation and certain

other employment-related lawsuits and claims.

We also recorded general and administrative expenses of $0.8 million and $0.5
million in 2021 and 2020, respectively, related to the completed or proposed
settlements of various litigation matters.

Depreciation, amortization, and accretion. Depreciation, amortization, and accretion expense in 2021 was similar to depreciation, amortization and accretion expense during 2020.

Operating (loss) income. Operating (loss) income decreased by $6.4 million in
2021 compared to 2020, due primarily to the decrease in gross margin, partially
offset by a decrease in general and administrative expenses.


                                      55




Environmental Services

The following table summarizes the operating results of our Environmental Services segment for the years ended December 31, 2021 and 2020.

                                                              Year Ended December 31
                                2021       % of Revenue         2020        % of Revenue       Change      % Change
                                                      (in thousands, except per barrel data)

Revenues                      $  4,336                        $  5,754                        $ (1,418 )       (24.6 )%
Costs of services                1,781                           2,015                            (234 )       (11.6 )%
Gross margin                     2,555              58.9 %       3,739               65.0 %     (1,184 )       (31.7 )%

General and administrative       1,647              38.0 %       1,802               31.3 %       (155 )        (8.6 )%
Depreciation, amortization
and accretion                    1,731              39.9 %       1,648               28.6 %         83           5.0 %
Impairments                        881              20.3 %           -                0.0 %        881
Loss on asset disposals,
net                                  9               0.2 %           5                0.1 %          4          80.0 %
Operating (loss) income       $ (1,713 )           (39.5 )%   $    284                4.9 %   $ (1,997 )      (703.2 )%

Operating Data
Total barrels of water
processed                        5,233                           7,932                          (2,699 )       (34.0 )%
Average revenue per barrel
processed (a)                 $   0.83                        $   0.73                        $   0.10          13.7 %
Revenue variance due to
barrels processed                                                                             $ (1,941 )
Revenue variance due to
revenue per barrel                                                                            $    523




(a)  Average revenue per barrel processed is calculated by dividing revenues
(which includes water treatment revenues, residual oil sales, and management
fees) by the total barrels of water processed.

Revenue. Revenue of the Environmental Services segment decreased by $1.4 million
in 2021 compared to 2020. The decrease in revenues was due primarily to a
decrease of 2.7 million barrels in the volume of water processed. The largest
customer of one of our facilities chose to build its own facility and began
sending its piped water to its new facility, which resulted in a reduction of
revenue at our facility of $1.6 million. In October 2020 a customer connected a
new pipeline to another of our facilities, which led to an increase in revenue
of $0.2 million at this facility in 2021 compared to 2020. Revenues from the
sale of recovered crude oil increased by $0.2 million during 2021 compared to
2020, due primarily to a temporary arrangement whereby we took delivery of
product from another party that lacked the facilities to process it. Although
oil prices have increased significantly in 2021, producers in North Dakota have
been slow to increase production. The rig count in the Bakken has increased
slowly but steadily from a low of 9 in September 2020 to 27 in December 2021.

Costs of services. Costs of services decreased by $0.2 million in 2021 compared
to 2020 due in part to a decrease of $0.1 million in variable costs, such as
chemical and utility expense, resulting from a decrease in volumes, and a
decrease of $0.1 million in compensation expense as a result of salary
reductions and reductions in force. Repairs and maintenance expense remained
relatively consistent from 2020 to 2021.

Gross margin. Gross margin decreased $1.2 million in 2021 compared to 2020, due to a $1.4 million decrease in revenue, partially offset by a $0.2 million decrease in cost of services.

General and administrative. General and administrative expenses include general
overhead expenses such as employee compensation costs, insurance, property
taxes, royalty expenses, and other miscellaneous expenses. These expenses
decreased by $0.2 million in 2021 compared to 2020, due primarily to lower
compensation expense through a combination of salary reductions, reductions in
workforce, furloughs, hiring freezes, and other cost-cutting measures, and to a
reduction in royalty expense as a result of lower volumes at the facilities
where we are required to pay a royalty.

Depreciation, amortization, and accretion. Depreciation, amortization, and
accretion expenses include depreciation of property and equipment and
amortization of intangible assets associated with customer relationships, trade
names, and noncompete agreements. Depreciation, amortization, and accretion
expense in 2021 was similar to depreciation, amortization, and accretion expense
in 2020.

Impairments of long-lived assets. In fourth quarter of 2021, we recorded an
impairment of $0.9 million to the property and equipment and the lease assets of
one of our water treatment facilities. The near-term outlook for this facility
declined, due primarily to the fact that its primary customer built a competing
facility and a planned new customer did not deliver the volume of water that we
expected. In response to these events, we reduced the book value of the property
and equipment of this facility to a nominal amount.

Operating (loss) income. Operating (loss) income decreased by $2.0 million in
2021 compared to 2020. This decrease was due to a decrease in gross margin of
$1.2 million and a fixed asset impairment of $0.9 million, partially offset by a
decrease of $0.2 million in general and administrative expense.


                                      56

Liquidity and Capital Resources

The working capital needs of the Inspection Services segment are substantial,
driven by payroll costs and reimbursable expenses paid to our inspectors on a
weekly basis. Please read "Item 1A. Risk Factors - Risks Related to Our Business
- The working capital needs of the Inspection Services segment are substantial",
which require us to seek financing that we may not be able to obtain on
satisfactory terms, or at all.

At December 31, 2021, our sources of liquidity included:

? $10.6 million of cash ($2.3 million of which was held by CBI); and

? available borrowings under our Credit Agreement.

We had outstanding borrowings on the Credit Agreement of $54.2 million at
December 31, 2021. As amended in August 2021, the Credit Agreement has a maximum
borrowing capacity of $70.0 million, and any borrowings in excess of $60.0
million may only be used to fund working capital needs. The Credit Agreement
requires that we maintain liquidity in excess of $7.0 million at all times, with
liquidity defined as cash and cash equivalents plus unused capacity on the
credit facility. In the first three months of 2022, we borrowed $7.8 million and
made payments of $3.9 million on the Credit Agreement, which increased the
outstanding balance on the Credit Agreement to $58.1 million at April 14, 2022.

The Credit Agreement matures on May 31, 2022, and as a result there is
substantial doubt about the Partnership's ability to continue as a going
concern. In addition, the audit report from our independent registered public
accounting firm on the financial statements in this Annual Report contains a
going concern uncertainty paragraph, which is an event of default under our
Credit Agreement. Upon the occurrence and during the continuation of an event of
default, subject to the terms and conditions of the Credit Agreement, the
Lenders may declare any outstanding principal, together with any accrued and
unpaid interest, to be immediately due and payable and may exercise the other
remedies set forth or referred to in the Credit Agreement. We continue to work
with Lenders and their financial and legal advisors regarding the Credit
Agreement. With the support of the Lenders, we engaged an advisor to solicit
potential debt and equity investors to submit proposals to recapitalize the
Partnership and have received several proposals that are currently being
evaluated by the board of directors and the Lenders. We and the Lenders may
pursue a number of options, including but not limited to the possibility of i) a
sale of the debt to a third party; ii) a sale of the debt to a related party;
iii) entering into an agreement with a new investor for a stalking horse bid
that would lead to an in-court restructuring and section 363 process; or some
combination of these actions which may include a court-supervised restructuring.
It is likely that our common units would be delisted from the NYSE in the event
of any restructuring or liquidation proceeding. Such a proceeding would also
likely lead to our common and preferred equity (including accrued and unpaid
distributions) having no value, given the amount of our senior secured debt. We
have incurred and expect to continue to incur significant legal and advisory
fees in developing our financing plans.

In 2020, in light of market conditions, we made the difficult decision to
suspend payment of common unit distributions. This has enabled us to retain more
cash to manage our financing needs during these challenging market conditions.
As amended in 2021, the Credit Agreement contains significant limitations on our
ability to pay cash distributions. We may only pay the following cash
distributions:

? distributions to common and preferred unitholders, to the extent of income

taxes estimated to be payable by these unitholders resulting from allocations

   of our earnings; and

? distributions to the noncontrolling interest owners of CBI and CF Inspection.

At-the-Market Equity Program

In April 2019, we established an at-the-market equity program ("ATM Program"),
which would have allowed us to offer and sell common units from time to time, to
or through the sales agent under the ATM Program. We were under no obligation to
sell any common units under this program and did not sell any common units under
the ATM Program and, as such, did not receive any net proceeds or pay any
compensation to the sales agent under the ATM Program. The program expired in
March 2022. We expect to record expense of $0.2 million in the first quarter of
2022 to write off the deferred costs of establishing the program which were
included in other assets on our Consolidated Balance Sheets as of December

21,
2021 and 2020.

Employee Unit Purchase Plan

In 2019, we established an employee unit purchase plan ("EUPP"), which would
allow us to offer and sell up to500,000 common units. Employees could elect to
have up to 10 percent of their annual base pay withheld to purchase common
units, subject to terms and limitations of the EUPP. The purchase price of the
common units is 95% of the volume weighted average of the closing sales prices
of our common units on the ten immediately preceding trading days at the end of
each offering period. We have not yet made and no longer expect to make the EUPP
available to employees, and as a result there have been no common unit offerings
or issuances under the EUPP and no offerings or issuances are currently
contemplated.



                                      57




Common Unit Distributions

The following table summarizes the distributions on common and subordinated units declared and paid since our initial public offering:

                                                                                               Total Cash
                                                   Per Unit Cash         Total Cash           Distributions
                 Payment Date                      Distributions       Distributions        to Affiliates (a)
                                                                                   (in thousands)

 Total 2014 Distributions                         $      1.104646     $         13,064     $             8,296
 Total 2015 Distributions                                1.625652               19,232                  12,284
 Total 2016 Distributions                                1.625652               19,258                  12,414
 Total 2017 Distributions                                1.036413               12,310                   7,928
 Total 2018 Distributions                                0.840000               10,019                   6,413

 February 14, 2019                                       0.210000                2,510                   1,606
 May 15, 2019                                            0.210000                2,531                   1,622
 August 14, 2019                                         0.210000                2,534                   1,624
 November 14, 2019                                       0.210000                2,534                   1,627
 Total 2019 Distributions                                0.840000               10,109                   6,479

 February 14, 2020                                       0.210000                2,534                   1,627
 May 15, 2020                                            0.210000                2,564                   1,641
 Total 2020 Distributions                                0.420000                5,098                   3,268

 Total Distributions (since IPO)                  $      7.492363     $    

    89,090     $            57,082

(a) 64% of the Partnership's outstanding common units at December 31, 2021 were

     held by affiliates.




                                      58

Preferred Unit Distributions

On May 29, 2018 we issued and sold in a private placement 5,769,231 Series A
Preferred Units representing limited partner interests in the Partnership (the
"Preferred Units") for a cash purchase price of $7.54 per Preferred Unit,
resulting in gross proceeds to the Partnership of $43.5 million. The purchaser
of the Preferred Units is entitled to receive quarterly distributions that
represent an annual return of 9.5% (which amounts to $4.1 million per year). The
Preferred Units rank senior to our common units, and we must pay distributions
on the Preferred Units (including any arrearages) before paying distributions on
our common units.

The following table summarizes the distributions paid to our preferred
unitholder:

                                   Cash
      Payment Date            Distributions
                              (in thousands)

 November 14, 2018 (a)      $            1,412
 Total 2018 Distributions                1,412

 February 14, 2019                       1,033
 May 15, 2019                            1,033
 August 14, 2019                         1,033
 November 14, 2019                       1,034
 Total 2019 Distributions                4,133

 February 14, 2020                       1,033
 May 15, 2020                            1,033
 August 14, 2020                         1,033
 November 14, 2020                       1,034
 Total 2020 Distributions                4,133

 Total Distributions        $            9,678

(a) This distribution relates to the period from May 29, 2018 (date of preferred

unit issuance) through September 30, 2018.

In 2020, in light of the challenging market conditions, we made the difficult decision to suspend payment of common and preferred unit distributions. As described in Note 6, our Credit Facility, as amended in 2021, contains significant restrictions on our ability to pay cash distributions.

CBI

CBI's company agreement generally requires CBI to make an annual distribution to
its members equal to or greater than the amount of CBI's taxable income
multiplied by the maximum federal income tax rate. In 2021, CBI declared and
paid distributions of $4.0 million, of which $2.0 million was distributed to us
and $2.0 million was distributed to noncontrolling interest owners. In 2020, CBI
declared and paid distributions of $2.8 million, of which $1.4 million was
distributed to us and the remainder of which was distributed to noncontrolling
interest owners.

As of March 31, 2022, CBI had $3.3 million of cash. We believe that the full
amount of CBI's cash should be distributed to us, as CBI's assets were pledged
as collateral under our Credit Agreement. The noncontrolling interest owners
have taken the position that a portion of CBI's cash should be distributed to
them. We continue to have discussions about this matter with the noncontrolling
interest owners of CBI and with our lenders, and the ultimate outcome is
uncertain at this time.


                                      59




Cash Flows

The following table sets forth a summary of the net cash provided by (used in) operating, investing, and financing activities for the periods identified.

                                                         Year Ended December 31
                                                           2021            2020
                                                             (in thousands)

Net cash provided by operating activities              $      3,317      $ 

27,922

Net cash provided by (used in) investing activities           1,173         (1,654 )
Net cash used in financing activities                       (11,396 )      (23,977 )
Effect of exchange rates on cash                                (2)        

2

Net increase (decrease) in cash and cash equivalents $ (6,908 ) $

2,293

Operating activities. In 2021, we generated net operating cash inflows from
continuing operations of $3.3 million, consisting of a net loss from continuing
operations of $9.4 million plus non-cash expenses of $7.7 million and net
changes in working capital of $5.1 million. Non-cash expenses included
depreciation, amortization, and accretion, long-lived asset impairments, and
equity-based compensation expense, among others. The net change in working
capital includes a net decrease of $4.5 million in accounts receivable and $0.4
million in prepaid expenses and other, and a net increase of $0.2 million in
current liabilities. During periods of revenue growth, changes in working
capital typically reduce operating cash flows, based on the fact that we pay our
employees before we collect accounts receivable from our customers. During 2021,
we experienced a decrease in inspectors in our Inspection Services segment,
which reduced the need to expend cash for working capital. Net operating cash
outflows from discontinued operations of $0.1 million resulted from the
operation of CBI.

In 2020, we generated net operating cash inflows from continuing operations of
$22.7 million, consisting of a net loss from continuing operations of $2.8
million plus non-cash expenses of $6.7 million and net changes in working
capital of $18.9 million. Non-cash expenses included depreciation, amortization,
and accretion, and equity-based compensation expense, among others. The net
change in working capital includes a net decrease of $30.5 million in accounts
receivable, partially offset by a net increase of $0.9 million in prepaid
expenses and other, and by a net decrease of $10.7 million in current
liabilities. During periods of revenue growth, changes in working capital
typically reduce operating cash flows, based on the fact that we pay our
employees before we collect accounts receivable from our customers. During 2020,
we experienced a decrease in inspectors in our Inspection Services segment,
which reduced the need to expend cash for working capital. Net operating cash
inflows from discontinued operations of $5.2 million resulted from the operation
of CBI.

Investing activities. In 2021, net cash inflows were from investing activities
were $1.2 million, which consisted primarily of proceeds from the sales of the
property and equipment of our discontinued operation CBI.

In 2020, net cash outflows from investing activities were $1.7 million, which
included costs associated with a new software system for payroll and human
resources management, field equipment for our Inspection Services segment and
CBI, and facility improvements for our Environmental Services segment.

Financing activities. Financing cash outflows in 2021 consisted primarily of
$7.8 million of net payments on our revolving credit facility, $1.2 million of
debt issuance costs, $0.3 million of cash paid for net settlements of
equity-based compensation, and $2.1 million in net cash outflows from financing
activities from discontinued operations, which included a $2.0 million
distribution to the noncontrolling interest owners of CBI.

In 2020, financing cash outflows included $12.9 million of net repayments on our
revolving credit facility. In March and April 2020, in an abundance of caution,
we borrowed a combined $39.1 million on the Credit Agreement to provide
substantial liquidity to manage our business in light of the COVID- 19 pandemic
and the significant decline in the price of crude oil. In January, May, June and
September 2020, we repaid a combined $52.0 million on the Credit Agreement.
Financing cash outflows also included $5.1 million of distributions to common
unitholders, $4.1 million of distributions to preferred unitholders, and $1.4
million of distributions to noncontrolling interest owners.

Working Capital

Our working capital (defined as current assets less current liabilities) was
($35.7) million at December 31, 2021, which included $10.6 million of cash and
cash equivalents, inclusive of $2.3 million in cash and cash equivalents
classified as assets of discontinued operations on our Consolidated Balance
Sheets, and $54.2 million of borrowings under our revolving credit facility. As
described above under "Our Credit Agreement", our revolving credit facility
contains limitations on borrowing capacity, which may limit our ability to fund
working capital needed to support revenue growth.


Our Inspection Services segment has substantial working capital needs, as they
generally pay their personnel on a weekly basis, but typically receive payment
from their customers 45 to 90 days after the services have been performed.
Please read "Risk Factors - Risks Related to Our Business - The working capital
needs of the Inspection Services segment are substantial, and will continue to
be substantial. This will reduce our borrowing capacity for other purposes and
reduce our cash available for distribution," and "Risk Factors - Risks Related
to Our Business - Our existing and future debt levels may limit our flexibility
to obtain financing and to pursue other business opportunities".

Capital Requirements

We generally have small capital expenditure requirements compared to many other
master limited partnerships. Our Inspection Services segment does not generally
require significant capital expenditures, other than the purchase of
nondestructive examination technology. Our inspectors provide their own
four-wheel drive vehicles and receive mileage reimbursements. Our Environmental
Services segment has modest capital expenditure requirements for the maintenance
of existing water treatment facilities. We do not plan on investing in any
growth capital in this segment. Our partnership agreement requires that we
categorize our capital expenditures as either maintenance capital expenditures
or expansion capital expenditures.

? Maintenance capital expenditures are those cash expenditures that will enable

us to maintain our operating capacity or operating income over the long-term.

Maintenance capital expenditures include expenditures to maintain equipment

reliability, integrity, and safety, as well as to address environmental laws

and regulations. Maintenance capital expenditures, inclusive of finance lease

obligation payments, were $0.3 million and $0.7 million for the years ended

December 31, 2021 and 2020, respectively (cash basis).

? Expansion capital expenditures are those capital expenditures that we expect

will increase our operating capacity or operating income over the long-term.

Expansion capital expenditures include the acquisition of assets or businesses

and the construction or development of additional water treatment capacity, to

the extent such expenditures are expected to expand our long-term operating

capacity or operating income. Expansion capital expenditures were less than

$0.1 million and $1.3 million in 2021 and 2020, respectively (cash basis).

                                      60

Future capital expenditures will be dependent on the availability of capital.

Credit Agreement

We are party to a credit agreement (the "Credit Agreement") with a syndicate of
seven banks (the "Lenders"), with Deutsche Bank Trust Company Americas serving
as the Administrative Agent. The obligations under the Credit Agreement are
secured by a first priority lien on substantially all of our assets. The Credit
Agreement was amended in March 2021 and in August 2021. As amended, the Credit
Agreement has a total capacity of $70.0 million, subject to various customary
covenants and restrictive provisions, and matures on May 31, 2022. Any
borrowings in excess of $60.0 million may only be used to fund working capital
needs. Outstanding borrowings at December 31, 2021 and 2020 were $54.2 million
and $62.0 million, respectively, and are reflected as current portion of
long-term debt and long-term debt, respectively, on our Consolidated Balance
Sheets.

Because the Credit Agreement matures within one year, there is substantial doubt
about the Partnership's ability to continue as a going concern. In addition, the
audit report from our independent registered public accounting firm on the
financial statements in this Annual Report contains a going concern uncertainty
paragraph, which is an event of default under our Credit Agreement. Upon the
occurrence and during the continuation of an event of default, subject to the
terms and conditions of the Credit Agreement, the Lenders may declare any
outstanding principal, together with any accrued and unpaid interest, to be
immediately due and payable and may exercise the other remedies set forth or
referred to in the Credit Agreement. We continue to work with Lenders and their
financial and legal advisors regarding the Credit Agreement. With the support of
the Lenders, we engaged an advisor to solicit potential debt and equity
investors to submit proposals to recapitalize the Partnership and have received
several proposals that are currently being evaluated by the board of directors
and the Lenders. We and the Lenders may pursue a number of options, including
but not limited to the possibility of i) a sale of the debt to a third party;
ii) a sale of the debt to a related party; iii) entering into an agreement with
a new investor for a stalking horse bid that would lead to an in-court
restructuring and section 363 process; or some combination of these actions
which may include a court-supervised restructuring. We have incurred and expect
to continue to incur significant legal and advisory fees in developing our
financing plans.  Under the Credit Agreement we are responsible for certain
Lender-mandated legal and financial advisor fees, and our total payments to
legal and financial advisors related to this process have exceeded $2 million
dollars.

It is likely that our common units would be delisted from the NYSE in the event
of any restructuring or liquidation proceeding. Such a proceeding would also
likely lead to our common and preferred equity (including accrued and unpaid
distributions) having no value, given the amount of our senior secured debt,
which is $58.1 million as of April 14, 2022.

All borrowings under the Credit Agreement bear interest, at our option, on a
leveraged based grid pricing at (i) a base rate plus a margin of 2.00% to 3.75%
per annum ("Base Rate Borrowing") or (ii) an adjusted LIBOR rate plus a margin
of 3.00% to 4.75% per annum ("LIBOR Borrowings"). The applicable margin is
determined based on our leverage ratio, as defined in the Credit Agreement.
Interest on Base Rate Borrowings is payable monthly. Interest on LIBOR
Borrowings is paid upon maturity of the underlying LIBOR contract, but no less
often than quarterly. Commitment fees are charged at a rate of 0.50% on any
unused credit and are payable quarterly.

The interest rate on our borrowings ranged from 3.61% to 4.91% in 2021, 3.33% to
4.80% in 2020, and 4.70% to 6.02% in 2019. Interest paid, including commitment
fees but excluding debt issuance costs, was $2.3 million, $3.4 million, and $4.8
million during 2021, 2020, and 2019, respectively. Prior to the 2021 amendments,
the borrowing capacity on the Credit Agreement was higher than $70.0 million,
and the average debt balance outstanding in 2021, 2020, and 2019 was $55.3
million, $80.8 million, and $81.4 million, respectively.

The Credit Agreement contains various customary covenants and restrictive
provisions. Prior to the August 2021 amendment, the Credit Agreement also
required us to maintain certain financial covenants, including a leverage ratio
and an interest coverage ratio. After the August 2021 amendment, these financial
ratio covenant requirements have been removed. As amended in August 2021, the
Credit Agreement requires that we maintain liquidity in excess of $7.0 million
at all times, with liquidity defined as cash and cash equivalents plus unused
capacity on the credit facility.

As amended in August 2021, the Credit Agreement contains significant limitations on our ability to pay cash distributions. We may only pay the following cash distributions:

        distributions to common and preferred unitholders, to the extent of income
     ?  taxes estimated to be payable by these unitholders resulting from
        allocations of our earnings; and

? distributions to the noncontrolling interest owners of CBI and CF Inspection.

The Credit Agreement, as amended, restricts our ability to redeem or repurchase
our equity interests and requires us to use the proceeds from asset sales in
excess of $0.5 million to repay amounts outstanding under the Credit Agreement.
The Credit Agreement also requires us to make payments to reduce the outstanding
balance if, for any consecutive period of five business days, our cash on hand
(less amounts expected to be paid in the following five business days) exceeds
$7.5 million.

Debt issuance costs are reported as debt issuance costs, net on the Consolidated
Balance Sheets and total $0.4 million and $0.2 million at December 31, 2021 and
2020, respectively. These debt issuance costs are being amortized on a
straight-line basis over the term of the Credit Agreement. In 2021, we incurred
$1.1 million of debt issuance costs related to two amendments to the Credit
Agreement in 2021. Also in 2021, we incurred approximately $0.1 million of debt
issuance costs related to an amendment that we expected to enter into in the
first quarter of 2022. Because we have not entered into such an amendment, we
will likely write off these debt issuance costs in 2022.

In the first three months of 2022, we borrowed $7.8 million and made payments of
$3.9 million on the Credit Agreement, which increased the outstanding balance on
the Credit Agreement to $58.1 million at April 14, 2022.




                                      61

Off-Balance Sheet Arrangements

We do not have any off-balance sheet or hedging arrangements.

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