S-1 1 v360373_s1.htm FORM S-1

As filed with the Securities and Exchange Commission on November 13, 2013

Registration No. 333-       

 

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



 

Form S-1
REGISTRATION STATEMENT

UNDER
THE SECURITIES ACT OF 1933



 

Cypress Energy Partners, L.P.

(Exact name of Registrant as Specified in Its Charter)



 

   
Delaware   1389   61-1721523
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

5727 S. Lewis Avenue, Suite 500
Tulsa, Oklahoma 74105
(918) 748-3900

(Address, Including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)



 

G. Les Austin
Vice President and Chief Financial Officer
Cypress Energy Partners, L.P.
5727 S. Lewis Avenue, Suite 500
Tulsa, Oklahoma 74105
(918) 748-3900

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)



 

Copies to:

 
Ryan J. Maierson
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
(713) 546-5400
  Joshua Davidson
Hillary H. Holmes
Baker Botts L.L.P.
910 Louisiana Street
Houston, Texas 77002
(713) 229-1234


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
  Smaller reporting company o


 

CALCULATION OF REGISTRATION FEE

   
Title of Each Class of Securities to be Registered   Proposed Maximum Aggregate Offering Price (1)(2)   Amount of Registration Fee
Common units representing limited partner interests   $ 90,562,500     $ 11,664.45  

(1) Includes common units issuable upon exercise of the underwriters’ option to purchase additional common units.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

TABLE OF CONTENTS

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated           , 2013

PRELIMINARY PROSPECTUS

Common Units

Representing Limited Partner Interests

[GRAPHIC MISSING]

Cypress Energy Partners, L.P.



 

This is our initial public offering. We are offering      common units. We intend to apply to list our common units on the New York Stock Exchange under the symbol “CELP.”

Prior to this offering, there has been no public market for our common units. We currently estimate that the initial public offering price will be between $     and $    . We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act, or JOBS Act.



 

You should consider the risks we have described in “Risk Factors” beginning on page 19.

These risks include the following:

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cash reimbursement to our general partner and its affiliates, to enable us to pay our minimum quarterly distributions to holders of our units.
On a pro forma basis, we would not have had sufficient cash available for distribution to pay the full minimum quarterly distribution on all of our units for the year ended December 31, 2012 or the twelve months ended September 30, 2013.
We serve customers who are involved in drilling for, producing and transporting oil and natural gas. Adverse developments affecting the oil and natural gas industry or drilling activity, including sustained low natural gas prices, a decline in oil or natural gas liquids prices, reduced demand for oil and natural gas products and increased regulation of drilling and production, could have a material adverse effect on our results of operations.
The working capital needs of TIR are substantial, which will reduce our borrowing capacity for other purposes and reduce our cash available for distribution.
Our business is dependent upon the willingness of our customers to outsource their waste management activities and pipeline inspection and integrity activities.
We do not enter into long-term contracts with our customers, which subjects us to renewal or termination risks.
Our general partner and its affiliates, including Cypress Holdings, have conflicts of interest with us and limited fiduciary duties to us and our unitholders, and they may favor their own interests to our detriment and that of our unitholders.
Unitholders have very limited voting rights and, even if they are dissatisfied, cannot remove our general partner without its consent.
Our tax treatment depends on our status as a partnership for federal income tax purposes. If the Internal Revenue Service, or IRS, were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.
Our unitholders’ share of our income will be taxable to them for federal income tax purposes even if they do not receive any cash distributions from us.


 

   
  Per
Common Unit
  Total
Initial public offering price   $     $  
Underwriting discounts and commissions (1)   $     $  
Proceeds to Cypress Energy Partners, L.P., before expenses   $     $  

(1) Excludes an aggregate structuring fee equal to 0.50% of the gross proceeds of this offering payable to Raymond James & Associates, Inc., Robert W. Baird & Co. Incorporated and Stifel, Nicolaus & Company, Incorporated. Please read “Underwriting.”


 

The underwriters may also purchase up to an additional      common units from us at the public offering price, less the underwriting, to cover over-allotments, if any, within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the common units on or about            , 2013



 

   
RAYMOND JAMES   BAIRD   STIFEL

The date of this prospectus is            , 2013


 
 


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

 
PROSPECTUS SUMMARY     1  
Overview     1  
Business Strategies     2  
Competitive Strengths     3  
Our Assets and Operations     4  
Our Relationship with Cypress Holdings     5  
Risk Factors     5  
The Restructuring Transactions     5  
Organizational Structure After the Restructuring Transactions     6  
Management of Cypress Energy Partners, L.P.     8  
Principal Executive Offices and Internet Address     8  
Summary of Conflicts of Interest and Duties     8  
Our Emerging Growth Company Status     9  
The Offering     10  
Summary Historical and Pro Forma Financial Data and Operating Data     15  
RISK FACTORS     19  
Risks Related to Our Business     19  
Risks Inherent in an Investment in Us     42  
Tax Risks     51  
USE OF PROCEEDS     56  
CAPITALIZATION     57  
DILUTION     58  
CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS     60  
General     60  
Our Minimum Quarterly Distribution     62  
Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2012, and the Twelve Months Ended September 30, 2013     64  
Cypress Energy Partners, L.P. Pro Forma Operating Data     65  
Cypress Energy Partners, L.P. Unaudited Pro Forma Distributable Cash Flow     66  
Estimated Distributable Cash Flow for the Year Ending December 31, 2014     68  
Cypress Energy Partners, L.P. Estimated Distributable Cash Flow     70  
Assumptions and Considerations     73  
PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS     78  
Distributions of Available Cash     78  
Operating Surplus and Capital Surplus     79  
Capital Expenditures     81  
Subordinated Units and Subordination Period     82  
Distributions of Available Cash From Operating Surplus During the Subordination Period     83  
Distributions of Available Cash From Operating Surplus After the Subordination
Period
    84  
General Partner Interest and Incentive Distribution Rights     84  
Percentage Allocations of Available Cash from Operating Surplus     85  
General Partner’s Right to Reset Incentive Distribution Levels     85  
Distributions from Capital Surplus     88  
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels     88  
Distributions of Cash Upon Liquidation     89  

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SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA     92  
Non-GAAP Financial Measures     95  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     97  
Overview     97  
How We Generate Revenue     97  
How We Evaluate Our Operations     97  
Results Presented and Factors Affecting the Comparability of the Historical Financial Results of the CEP Successor with the SBG Predecessor and of our Future Results     100  
CEP Successor Nine Months Ended September 30, 2013 Compared to SBG Predecessor Nine Months Ended September 30, 2012     102  
SBG Predecessor’s Year Ended December 31, 2012 Compared to SBG Predecessor’s Period from June 1, 2011 (Inception) to December 31, 2011     103  
Liquidity and Capital Resources     104  
Off-Balance Sheet Arrangements     109  
Qualitative and Quantitative Disclosures About Market Risk     109  
Critical Accounting Policies and Estimates     110  
INDUSTRY     114  
Overview of Water and Environmental Services Industry     114  
Overview of Pipeline Inspection and Integrity Services Industry     120  
BUSINESS     127  
Overview     127  
Business Strategies     128  
Competitive Strengths     129  
Our Business Segments     131  
Our History     136  
Our Relationship with Cypress Holdings     137  
Employees     137  
Competition     137  
Seasonality     138  
Insurance     138  
Environmental and Occupational Health and Safety Matters     139  
Headquarters     144  
Legal Proceedings     144  
MANAGEMENT     145  
Management of Cypress Energy Partners, L.P.     145  
Directors and Executive Officers of Cypress Energy Partners GP, LLC     146  
Board Leadership Structure     149  
Board Role in Risk Oversight     149  
Compensation of Our Officers and Directors     150  
Directors Compensation     152  
Equity Compensation Plans     153  
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT     157  
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS     159  
Distributions and Payments to Our General Partner and Its Affiliates     159  
Agreements Governing the Restructuring Transactions     160  
Agreements with Affiliates     161  
Procedures for Review, Approval and Ratification of Related Person Transactions     163  

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CONFLICTS OF INTEREST AND DUTIES     164  
Conflicts of Interest     164  
Duties of the General Partner     170  
DESCRIPTION OF THE COMMON UNITS     174  
The Units     174  
Transfer Agent and Registrar     174  
Transfer of Common Units     174  
OUR PARTNERSHIP AGREEMENT     176  
Organization and Duration     176  
Purpose     176  
Capital Contributions     176  
Voting Rights     176  
Limited Liability     178  
Issuance of Additional Securities     179  
Amendment of Our Partnership Agreement     179  
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets     181  
Termination and Dissolution     182  
Liquidation and Distribution of Proceeds     182  
Withdrawal or Removal of Our General Partner     183  
Transfer of General Partner Interest     184  
Transfer of Ownership Interests in Our General Partner     184  
Transfer of Incentive Distribution Rights     184  
Change of Management Provisions     184  
Limited Call Right     185  
Redemption of Ineligible Holders     185  
Meetings; Voting     186  
Status as Limited Partner     186  
Indemnification     186  
Reimbursement of Expenses     187  
Books and Reports     187  
Right to Inspect Our Books and Records     188  
Registration Rights     188  
Exclusive Forum     188  
UNITS ELIGIBLE FOR FUTURE SALE     189  
Rule 144     189  
Our Partnership Agreement and Registration Rights     189  
Lock-up Agreements     190  
Registration Statement on Form S-8     190  
MATERIAL FEDERAL INCOME TAX CONSEQUENCES     191  
Partnership Status     192  
Limited Partner Status     193  
Tax Consequences of Unit Ownership     193  
Tax Treatment of Operations     200  
Disposition of Common Units     201  
Uniformity of Units     203  
Tax-Exempt Organizations and Other Investors     204  
Administrative Matters     205  
Recent Legislative Developments     208  
State, Local and Other Tax Considerations     208  

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INVESTMENT IN CYPRESS ENERGY PARTNERS, L.P. BY EMPLOYEE
BENEFIT PLANS
    209  
UNDERWRITING     211  
Option to Purchase Additional Common Units     211  
Discounts and Expenses     212  
Indemnification     212  
Lock-Up Agreements     212  
Stabilization     212  
Relationships     213  
Discretionary Accounts     213  
Directed Unit Program     213  
Listing     214  
Determination of Initial Offering Price     214  
Electronic Prospectus     214  
FINRA Conduct Rules     214  
Notice to Prospective Investors in the EEA     214  
Notice to Prospective Investors in the United Kingdom     215  
Notice to Prospective Investors in Switzerland     216  
Notice to Prospective Investors in Germany     216  
Notice to Prospective Investors in the Netherlands     216  
VALIDITY OF THE COMMON UNITS     217  
EXPERTS     217  
WHERE YOU CAN FIND ADDITIONAL INFORMATION     217  
FORWARD-LOOKING STATEMENTS     218  
INDEX TO FINANCIAL STATEMENTS     F-1  
APPENDIX A: Form of First Amended and Restated Agreement of Limited Partnership of Cypress Energy Partners, L.P.     A-1  
APPENDIX B: Glossary of Terms     B-1  

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus and any free writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. Please read “Risk Factors” and “Forward-Looking Statements.”

Industry and Market Data

The data included in this prospectus regarding the industries in which we operate, including descriptions of trends in the market and our position and the position of our competitors within our industries, is based on a variety of sources, including independent publications, government publications, information obtained from customers, distributors, suppliers and trade and business organizations and publicly available information, as well as our good faith estimates, which have been derived from management’s knowledge and experience in the industry in which we operate. Although we have not independently verified the accuracy or completeness of the third-party information included in this prospectus, we believe that the third-party sources are reliable and that the third-party information included in this prospectus or in our estimates is accurate and complete.

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Commonly Used Defined Terms

Unless the context otherwise requires, references in this prospectus to “Cypress Energy Partners, L.P.,” “our partnership,” “we,” “our,” “us,” or like terms, when used in an historical context or in the present tense, refer to Cypress Energy Partners, LLC, our successor for accounting purposes, together with TIR (as defined below). When used in the future tense, “we,” “our” and “us” refer to Cypress Energy Partners, L.P. and its subsidiaries.

References to:

“our general partner” refer to Cypress Energy Partners GP, LLC;
“Cypress Holdings” refer to Cypress Energy Holdings, LLC, the indirect owner of our general partner and the indirect owner of    % of our outstanding common units;
“CEM” refer to Cypress Energy Management, LLC, which is a wholly owned subsidiary of our general partner that performs certain administrative and management functions for our partnership;
“CEP Successor” or “Cypress LLC” refer to Cypress Energy Partners, LLC, our successor for financial accounting purposes, which will become our wholly owned subsidiary at the closing of this offering;
“CES” refer to Cypress Energy Services, LLC, our 51.0% owned subsidiary that performs management services for three SWD facilities in North Dakota;
“SBG Predecessor” refer to Cypress Energy Partners Predecessor, which represents the seven North Dakota limited liability companies we acquired from SBG Energy Services, LLC and collectively comprise our predecessor for accounting purposes;
“TIR” refer to the U.S. operations of Tulsa Inspection Resources, Inc., which will become “Tulsa Inspection Resources, LLC,” our subsidiary at the closing of this offering that will be 50.1% owned by our partnership and 49.9% owned indirectly by Cypress Holdings; and
“TIR Parent” refer to Tulsa Inspection Resources, Inc., which historically owned TIR.

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. You should carefully read the entire prospectus, including “Risk Factors” and the historical and unaudited pro forma condensed combined financial statements and related notes included elsewhere in this prospectus before making an investment decision. Unless otherwise indicated, the information in this prospectus assumes (1) an initial public offering price of $     per common unit (the mid-point of the price range set forth on the cover of this prospectus) and (2) that the underwriters do not exercise their option to purchase additional common units. You should read “Risk Factors” beginning on page 19 for more information about important factors that you should consider before purchasing our common units. We have provided definitions for some of the terms we use to describe our business and industry and other terms used in this prospectus in the “Glossary of Terms” beginning on page B-1 of this prospectus.

Cypress Energy Partners, L.P.

Overview

We are a growth-oriented master limited partnership that provides saltwater disposal and other water and environmental services to U.S. onshore oil and natural gas producers and trucking companies. We also provide independent pipeline inspection and integrity services to producers and pipeline companies. In both of these business segments, we work closely with our customers to help them comply with increasingly complex and strict environmental and safety rules and regulations and reduce their operating costs.

In our Water and Environmental Services segment, which is comprised of the historical operations of the SBG Predecessor and the CEP Successor, we own and operate nine saltwater disposal, or SWD, facilities, seven of which are in the Bakken Shale region of the Williston Basin in North Dakota and two of which are in the Permian Basin in west Texas. We also manage three other SWD facilities in the Bakken Shale region. Our Water and Environmental Services segment customers are oil and natural gas exploration and production companies and trucking companies operating in the regions that we serve. We generate revenue in our Water and Environmental Services segment primarily by treating produced water and flowback water and injecting them into our SWD facilities. Our results in the Water and Environmental Services segment are driven primarily by the volumes of produced water and flowback water we inject into our SWD facilities and the fees we charge for our services. These fees are charged on a per barrel basis and vary based on the quantity and type of saltwater disposed, competitive dynamics and operating costs. In addition, for minimal marginal cost, we generate revenue by selling residual oil we recover from the flowback and produced water. We have acquired and, in some cases, expanded recently constructed, high-capacity SWD facilities that are in close proximity to existing producing wells and expected future drilling sites, thereby making our facilities economically attractive options to our current and future customers. Through our 51.0% ownership interest in CES, we also generate revenue from fees associated with managing SWD facilities.

On a pro forma basis after giving effect to this offering and the related restructuring transactions described below under “Summary — The Restructuring Transactions,” for the year ended December 31, 2012 and the nine months ended September 30, 2013, respectively, we generated $9.5 million and $11.4 million in gross margin in our Water and Environmental Services segment. For the nine months ended September 30, 2013, we disposed of an average of approximately 53,000 barrels of water per day, approximately 75% of which was produced water. For the month ended September 30, 2013, we operated our SWD wells at approximately 42% of aggregate estimated capacity.

In our Pipeline Inspection and Integrity Services segment, which is comprised of the historical operations of TIR, including the 49.9% interest not being contributed to us, we provide independent inspection and integrity services to various energy, public utility and

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pipeline companies. TIR’s inspectors perform a variety of inspection and integrity services on midstream pipelines, gathering systems and distribution systems, including data gathering and supervision of third-party construction, inspection, maintenance and repair projects. Our results in the Pipeline Inspection and Integrity Services segment are driven primarily by the number and type of inspectors performing services for TIR’s customers and the fees TIR charges for those services, which depend on the nature and duration of the project.

On a pro forma basis after giving effect to this offering and the related restructuring transactions, for the year ended December 31, 2012 and the nine months ended September 30, 2013, respectively, TIR, in which we will own a 50.1% interest, generated $18.0 million and $21.5 million in gross margin in our Pipeline Inspection and Integrity Services segment. For the year ended December 31, 2012 and the nine months ended September 30, 2013, TIR employed an average of 788 and 1,252 inspectors, respectively.

Business Strategies

Our principal business objective is to increase the quarterly cash distributions that we pay to our unitholders over time while maintaining the ongoing stability of our business. We expect to achieve this objective through the following business strategies:

Capitalize on compelling industry fundamentals.
Water and environmental services.  We believe that the water and environmental services market offers attractive long-term growth fundamentals and we intend to continue to position ourselves as a high quality operator of SWD facilities. Over the last few years there has been an increase in the amount of flowback and produced water being disposed in the U.S. This increase has primarily been driven by an increase in the total number of wells drilled and the average length of wells in the U.S. onshore market, each of which generally has resulted in increased use of fracturing fluids in the completion process. We intend to capitalize on the increased demand for removal, treatment, storage and disposal of flowback and produced water by continuing to position ourselves as a trusted provider of safe, high-quality water and environmental services.
Pipeline inspection and integrity services.  We intend to continue to position ourselves as a trusted provider of high quality inspection and integrity services, as we believe the pipeline inspection and integrity services market offers attractive long-term growth fundamentals. Over the last few years, new laws have been enacted that in the future will require operators to undertake more frequent and more extensive inspections of their pipeline assets. Additionally, a significant portion of the pipeline infrastructure in the U.S. was installed decades ago and is therefore more susceptible to failure and requires more frequent inspections. We believe that increasingly stringent federal and state laws and regulations and aging pipeline infrastructures will result in increased need for inspection and integrity services and higher demand for independent, third-party inspectors capable of navigating these complicated requirements.
Optimize existing assets.  All of our SWD facilities have been constructed since June 2011. We estimate that we were using approximately 42% of the aggregate estimated capacity of these facilities for the month ended September 30, 2013. We are seeking to increase the utilization of our existing SWD facilities by attracting new volumes from existing customers and by developing new customer relationships. Because many of the costs of constructing and operating an SWD facility are either upfront capital costs or fixed costs, we expect that increased utilization of our existing SWD facilities will lead to increased gross margin and operating cash flow in our Water and Environmental Services segment.

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Increase the number of pipelines connecting to our SWD facilities.  As more oil and natural gas producers focus on improving operational safety and reducing liability, carbon footprint, road damage and the total transportation cost associated with trucking saltwater, we anticipate that they will increasingly prefer to utilize pipeline systems to transport their saltwater directly to SWD facilities. We intend to purchase or construct, whether alone or in joint ventures, saltwater pipeline systems that connect producers to our SWD facilities or newly developed SWD facilities.
Leverage customer relationships in both our business segments.  We intend to pursue new strategic development opportunities with oil and natural gas producing customers that increase the utilization of our assets and lead to cross-selling opportunities between our two business segments. Many customers of our Water and Environmental Services segment also own gathering systems and other pipeline assets to which we can offer pipeline inspection and integrity services. In addition, we intend to enhance our relationships with our customers in our Pipeline Inspection and Integrity Services segment by broadening the services we provide, including ultrasonic nondestructive examination services, aerial inspection services and right of way management services. By cross-selling our service offerings and adding complementary service offerings, we believe that we can further integrate our business segments into our customers’ operations and increase our profitability and distributable cash flow.
Pursue strategic, accretive acquisitions.  We intend to pursue accretive acquisitions that will complement both our Water and Environmental Services segment and our Pipeline Inspection and Integrity segment. Both of our business segments operate in industries that are fragmented, giving us the opportunity to make strategic and accretive acquisitions. We plan to expand our existing Water and Environmental Services segment by seeking acquisitions in existing and additional high-growth resource plays throughout the U.S. that will diversify our customer base. In addition, we intend to grow our Pipeline Inspection and Integrity Services segment by acquiring additional ownership interests in TIR and other pipeline inspection companies. The consummation and timing of any such acquisition will depend upon, among other things, Cypress Holdings’ willingness to offer additional ownership interests for sale and its and our ability to obtain any necessary consents, the determination that the acquisition is appropriate for our business at that particular time, our ability to agree on mutually acceptable terms of purchase, including price, and our ability to obtain financing on acceptable terms.

Competitive Strengths

We believe that we are well-positioned to successfully execute our business strategies because of the following competitive strengths:

High-quality and high-capacity SWD facilities located in active oil and natural gas producing regions.  Our Water and Environmental Services segment’s operations are currently located in two of the most active oil and natural gas producing regions in the U.S., the Bakken Shale region of the Williston Basin in North Dakota and the Permian Basin in west Texas. Substantially all of the wells now being completed in these regions utilize hydraulic fracturing and generate a significant amount of both flowback and produced water needing disposal.
Independent pipeline inspection and integrity business that serves some of the largest pipeline customers in the U.S.  Our pipeline inspection and integrity services customers include some of the largest pipeline companies in the U.S., including DCP Midstream, Enbridge Energy Partners and Enterprise Products Partners. TIR provides its customers throughout the U.S. with inspectors that have the experience, training, certifications and other attributes that are most appropriate to the customer’s specific needs on a job-by-job basis. Due to our extensive customer relationships, TIR is able to attract qualified inspectors by offering attractive compensation and benefits and a more stable work environment with a larger number of projects than smaller competitors.

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Commitment and ability to provide services throughout the long life of our customers’ assets.  The water and environmental services that we provide are integral to our customers’ operations through the life of the well. The ongoing management of produced water generated from producing wells can last several decades, and, in some cases, the amount of produced water increases as the well ages. In addition, to remain in regulatory compliance and operate safely, pipelines and gathering systems require inspections, repairs and maintenance over their lives, including more frequent inspections, repairs and maintenance as they age. We believe that this long-term demand will result in relatively stable and predictable cash flows and help solidify our role as an integrated part of our customers’ production or midstream operations.
Focus on regulatory compliance and safety in our operations.  We perform internal audits of our existing SWD facilities using third-party safety consultants and have a comprehensive environmental performance and safety compliance approach. We strive to achieve environmental and regulatory compliance “best practices” across all of our facilities and services, and we believe that our strong safety and environmental record increases the demand for our services among producers who seek providers that meet their strict requirements. Many of our facilities have been chosen by our customers after they complete thorough reviews of our facility and operations, which we believe further solidifies our reputation for safety and regulatory excellence. Additionally, we believe customers select TIR based on its experience, reputation and comprehensive approach to safety, compliance and training.
Management team with significant experience and industry connections.  Our senior management team has substantial experience working with public companies, and the senior operational team of TIR has an average of approximately 20 years of experience in the energy industry. Our management team has significant experience in identifying, evaluating and completing strategic acquisitions. In addition, our management team has developed strong business relationships with key industry participants throughout the U.S. We believe that their knowledge of the industry, relationships within the industry and experience in identifying, evaluating and completing acquisitions will provide us opportunities to execute our strategies successfully and to grow through strategic and accretive acquisitions that complement or expand our existing operations.

Our Assets and Operations

Water and Environmental Services segment. As of September 30, 2013, we had an aggregate of approximately 135,500 barrels of maximum daily disposal capacity in the following SWD facilities, all of which were built since June 2011 with new well bores, using completion techniques consistent with current industry practices and utilizing well depths of at least 5,000 feet and injection intervals beginning at least 4,000 feet beneath the surface:

     
Location
  County   In-service Date   Leased or Owned
Tioga, ND   Williams   June 2011   Owned
Manning, ND   Dunn   Dec. 2011   Owned
Grassy Butte, ND   McKenzie   May 2012   Leased
New Town, ND (1)   Mountrail   June 2012   Leased
Pecos, TX (1)   Reeves   July 2012   Owned
Williston, ND   Williams   Aug. 2012   Owned
Stanley, ND   Mountrail   Sept. 2012   Owned
Orla, TX (1)   Reeves   Sept. 2012   Owned
Green River, ND   Billings   Oct. 2012   Leased
Watford City, ND (2)   McKenzie   May 2013   Leased

(1) Currently receives piped water.
(2) We own 51.0% of CES, a management and development company that owns a 25.0% non-controlling interest in this SWD facility.

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Pipeline Inspection and Integrity Services segment. During the three months ended September 30, 2013, TIR employed an average of 1,529 inspectors, up approximately 70% and 145% from the three months ended September 30, 2012 and September 30, 2011, respectively. TIR’s approximately 47 pipeline inspection and integrity customers include oil and natural gas producers, pipeline owners and operators and public utility companies, and TIR provides inspection and integrity services to these customers throughout the U.S.

TIR’s scope of services includes the following:

Project coordination (construction or maintenance coordination for in-line pipeline inspection projects);
Staking services (marking a dig site for surveyed anomalies);
Pig tracking services (mapping and tracking of third-party pipeline cleaning and inspection units, called pigs);
Maintenance inspection (third-party pipeline periodic inspection to comply with Pipeline and Hazardous Materials Safety Administration regulations); and
Construction inspection (third-party new construction inspection/oversight on behalf of owner).

Our Relationship with Cypress Holdings

All of the equity interests in our general partner will be owned by Cypress Holdings, which is owned by Charles C. Stephenson, Jr., various family trusts and a company controlled by our Chief Executive Officer, Peter C. Boylan III. Cypress Holdings’ owners bring substantial industry relationships and specialized, value-creation capabilities that we believe will continue to benefit us. Mr. Stephenson has over 50 years of experience as a leader in the oil and natural gas industry. He was the founder, Chairman and Chief Executive Officer of Vintage Petroleum prior to its sale to Occidental Petroleum in 2006 and is currently the Chairman of Premier Natural Resources, a private oil and natural gas exploration and production company. Mr. Boylan has extensive executive management experience with public and private companies and currently serves as a director of two public companies, MRC Global Inc. and BOK Financial Inc., with significant energy, oil and natural gas customers. As the owner of our general partner and the direct or indirect owner of approximately   % of our outstanding common units, Cypress Holdings has a strong incentive to support and promote the successful execution of our business plan.

Risk Factors

An investment in our common units involves risks associated with our business, our partnership structure and the tax characteristics of our common units. You should carefully consider the risks described in “Risk Factors” and the other information in this prospectus before investing in our common units.

The Restructuring Transactions

We were formed in September 2013 by Cypress Holdings to provide saltwater disposal and other water and environmental services to U.S. onshore oil and natural gas producers and trucking companies and to provide independent pipeline inspection and integrity services to producers and pipeline companies. We believe these services will provide stable and predictable cash flows.

At or prior to the closing of this offering, each of the following transactions will occur:

certain affiliates of TIR, including Cypress Energy Partners — TIR, LLC, will convey their aggregate 50.1% interest in TIR to us in exchange for        common units and        subordinated units;
Cypress Holdings will indirectly convey to us its interests in Cypress LLC, which will become our operating subsidiary, except that Cypress Holdings will retain the assets and liabilities associated with Cypress LLC’s SWD facility in Sheridan, Wyoming, and a

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related-party receivable and permit associated with the construction of a potential new SWD facility, in exchange for        common units,       subordinated units and $   million in proceeds of this offering to reimburse it for certain capital expenditures incurred with respect to Cypress LLC;
Cypress Energy Partners GP, LLC will maintain its 0.0% non-economic general partner interest in us and will receive our incentive distribution rights;
we will issue        common units to the public (       common units if the underwriters exercise their option to purchase        additional common units in full) and will use the net proceeds of this offering to distribute $    million to a subsidiary of Cypress Holdings as reimbursement of certain capital expenditures it incurred with respect to assets contributed to us and to pay transaction expenses related to our new term loan facility;
Cypress LLC will enter into a new $   million revolving credit facility and $   million term loan facility, borrow $      million and $   million, respectively, under these facilities, and use these borrowings to make a capital contribution to TIR Parent, a portion of which will be distributed to TIR Parent’s equity owners, other than Cypress Energy Partners — TIR, LLC, in complete redemption of their interests in TIR Parent, and a portion of which TIR Parent will use to repay in full its indebtedness under its two credit facilities; and
we will enter into an omnibus agreement with Cypress Holdings and certain of its affiliates, including our general partner. Please read “Certain Relationships and Related Party Transactions — Agreements with Affiliate.”

We refer to these transactions collectively as the “restructuring transactions.”

The number of common units to be issued to Cypress Holdings includes      common units that will be issued at the expiration of the underwriters’ option to purchase additional common units, assuming that the underwriters do not exercise the option. Any exercise of the underwriters’ option to purchase additional common units would reduce the common units shown as issued to Cypress Holdings by the number to be purchased by the underwriters in connection with such exercise. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to any exercise will be sold to the public, and any remaining common units not purchased by the underwriters pursuant to any exercise of the option will be issued to a wholly owned subsidiary of Cypress Holdings at the expiration of the option period for no additional consideration. We will distribute to Cypress Holdings any net proceeds from the exercise of the underwriters’ option to purchase additional common units from us.

Organizational Structure After the Restructuring Transactions

After giving effect to the transactions described above, assuming the underwriters’ option to purchase additional common units from us is not exercised, our units will be held as follows:

 
Public common units     %  
Units held by affiliates         
Common units held by Cypress Holdings (1)     %  
Common units held by Cypress Energy Partners — TIR, LLC     %  
Common units held by Long-Term Incentive Plan Participants        % 
Subordinated units held by Cypress Holdings (1)     %  
Subordinated units held by Cypress Energy Partners — TIR, LLC     %  
General partner interest     0.0 % 
Total     100.0 % 

(1) Includes units held by a wholly owned subsidiary of Cypress Holdings (   % of common

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units and    % of subordinated units), certain members of management (   % of common units and    % of subordinated units) and owners of Cypress Holdings and TIR (   % of common units and    % of subordinated units).

The following simplified diagram depicts our organizational structure after giving effect to the restructuring transactions described above.

[GRAPHIC MISSING]

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Management of Cypress Energy Partners, L.P.

We are managed and operated by the board of directors and executive officers of Cypress Energy Partners GP, LLC, our general partner. Cypress Holdings is the sole owner of our general partner and has the right to appoint the entire board of directors of our general partner, including the independent directors appointed in accordance with the listing standards of the New York Stock Exchange, or the NYSE. Unlike shareholders in a publicly traded corporation, our unitholders will not be entitled to elect our general partner or the board of directors of our general partner. For more information about the directors and executive officers of our general partner, please read “Management — Directors and Executive Officers of Cypress Energy Partners GP, LLC.”

Under our omnibus agreement, we will pay our general partner a fixed annual fee of $3.0 million per year for providing us with certain general and administrative services, including for certain executive management services by certain officers of our general partner and compensation expense for all employees required to manage and operate our business. This fee will be subject to increase in future periods. Please read “Certain Relationships and Related Party Transactions — Agreements Governing the Transactions — Omnibus Agreement.”

Principal Executive Offices and Internet Address

Our principal executive offices are located at 5727 S. Lewis Avenue, Suite 500, Tulsa, Oklahoma 74105, and our telephone number is (918) 748-3900. Following the completion of this offering, our website will be located at www.            .com. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or the SEC, available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

Summary of Conflicts of Interest and Duties

Under our partnership agreement, our general partner has a contractual duty to manage us in a manner it believes is in the best interests of our partnership and unitholders. However, because our general partner is a wholly owned subsidiary of Cypress Holdings, the officers and directors of our general partner have a duty to manage the business of our general partner in a manner that is in the best interests of Cypress Holdings. As a result of this relationship, conflicts of interest may arise in the future between us and our unitholders, on the one hand, and our general partner and its affiliates, including Cypress Holdings, on the other hand. For example, our general partner will be entitled to make determinations that affect the amount of cash distributions we make to the holders of common units, which in turn has an effect on whether our general partner receives incentive cash distributions. In addition, our general partner may determine to manage our business in a way that directly benefits Cypress Holdings’ businesses, rather than indirectly benefitting Cypress Holdings solely through its ownership interests in us. We expect that any future decision by Cypress Holdings in this regard will be made on a case-by-case basis. However, all of these actions are permitted under our partnership agreement and will not be a breach of any duty (fiduciary or otherwise) of our general partner. For a more detailed description of the conflicts of interest and fiduciary duties of our general partner, please read “Conflicts of Interest and Duties.”

Delaware law provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the duties (including fiduciary duties) otherwise owed by the general partner to limited partners and the partnership. As permitted by Delaware law, our partnership agreement contains various provisions replacing the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing the duties of the general partner and contractual methods of resolving conflicts of interest. The effect of these provisions is to restrict the remedies available to unitholders for actions that might otherwise constitute breaches of our general partner’s fiduciary duties. Our partnership agreement also provides that affiliates of our general partner, including Cypress Holdings and its affiliates, are

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permitted to compete with us, and neither our general partner nor its affiliates have any obligation to present business opportunities to us. By purchasing a common unit, the purchaser agrees to be bound by the terms of our partnership agreement, and pursuant to the terms of our partnership agreement each holder of common units consents to various actions and potential conflicts of interest contemplated in our partnership agreement that might otherwise be considered a breach of fiduciary or other duties under Delaware law. Please read “Conflicts of Interest and Duties — 
Duties of the General Partner” for a description of the duties imposed on our general partner. For a description of our other relationships with our affiliates, please read “Certain Relationships and Related Party Transactions.”

Our Emerging Growth Company Status

As a company with less than $1.0 billion in revenue during its last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may, for up to five years, take advantage of specified exemptions from reporting and other regulatory requirements that are otherwise applicable generally to public companies. These exemptions include:

the presentation of only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
exemption from the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;
exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; and
reduced disclosure about executive compensation arrangements.

We are permitted to take advantage of these provisions until we are no longer an emerging growth company, which will occur on the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue, (iii) the date on which we have more than $700.0 million in market value of our common units held by non-affiliates or (iv) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period.

We have elected to take advantage of all of the applicable JOBS Act provisions, except that we will elect to opt out of the exemption that allows emerging growth companies to extend the transition period for complying with new or revised financial accounting standards (this election is irrevocable).

Accordingly, the information that we provide you may be different than what you may receive from other public companies in which you hold equity interests.

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The Offering

Common units offered to the public by us    
         common units, or      common units if the underwriters exercise in full their option to purchase additional common units from us.
Units outstanding after this offering    
         common units and      subordinated units, representing a   % and      limited partner interest in us, respectively. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to any exercise will be sold to the public. Any common units not purchased by the underwriters pursuant to their exercise of the option will be issued to a wholly owned subsidiary of Cypress Holdings at the expiration of the option period for no additional consideration. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units. Our general partner will own a 0.0% non-economic general partner interest in us.
Use of proceeds    
    We expect to receive net proceeds of approximately $    million from the sale of common units offered by this prospectus based on the initial public offering price of $    million per common unit (the mid-point of the price range set forth on the cover of this prospectus), after deducting underwriting discounts and structuring fees but before estimated offering expenses.
    We intend to use the net proceeds of this offering to distribute $    million to a subsidiary of Cypress Holdings as reimbursement for certain capital expenditures it incurred with respect to assets contributed to us and to pay transaction expenses related to our new term loan facility.
    Upon the closing of this offering, Cypress LLC, our operating subsidiary, will enter into a new $    million revolving credit facility and $    million term loan facility and borrow $     million and $     million under these facilities, respectively. We will use these borrowings to make a capital contribution to TIR Parent, a portion of which will be distributed to TIR Parent’s equity owners, other than Cypress Energy Partners — TIR, LLC, in complete redemption of their interests in TIR Parent, and a portion of which TIR Parent will use to repay in full its indebtedness under its two credit facilities.
    If the underwriters exercise their option to purchase additional common units in full, the additional net proceeds to us would be approximately $     million. The net proceeds from any exercise by the underwriters of their option to purchase additional common units from us will be distributed to a wholly owned subsidiary of Cypress Holdings.

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Cash distributions    
    We intend to make a minimum quarterly distribution of $     per unit ($     on an annualized basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. We refer to this cash as “available cash.” Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption “Cash Distribution Policy and Restrictions on Distributions.”
    For the quarter in which this offering closes, we will pay a prorated distribution on our units covering the period from the completion of this offering through            , 2013, based on the actual length of that period.
    In general, we will pay any cash distributions we make each quarter in the following manner:
   

•  

first, to the holders of common units, until each common unit has received a minimum quarterly distribution of $     plus any arrearages from prior quarters;

   

•  

second, to the holders of subordinated units, until each subordinated unit has received a minimum quarterly distribution of $     ; and

   

•  

third, to all unitholders, pro rata, until each unit has received a distribution of $    .

    If cash distributions to our unitholders exceed $     per unit in any quarter, our general partner will receive, increasing percentages, up to 50.0%, of the cash we distribute in excess of that amount. We refer to these distributions as “incentive distributions.” In certain circumstances, our general partner, as the initial holder of our incentive distribution rights, has the right to reset the target distribution levels described above to higher levels based on our cash distributions at the time of the exercise of this reset election. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”
    If we do not have sufficient available cash from operations, we may, but are under no obligation to, borrow funds to pay the minimum quarterly distribution to our unitholders.
    The amount of distributable cash flow we generated during the year ended December 31, 2012 on a pro forma basis would have been sufficient to pay 100% of the aggregate minimum quarterly distribution on all common units and    % of the aggregate minimum quarterly distribution on our subordinated units for that period. The amount of distributable cash flow we generated during the twelve months ended September 30, 2013 on a pro forma basis would have been sufficient to pay 100% of the aggregate minimum quarterly distribution on all common units and    % of the aggregate minimum quarterly distribution on

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    our subordinated units for that period. Please read “Cash Distribution Policy and Restrictions on Distributions — Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2012, and the Twelve Months Ended September 30, 2013.”
    We believe, based on our financial forecast and related assumptions included in “Cash Distribution Policy and Restrictions on Distributions — Estimated Distributable Cash Flow for the Year Ending December 31, 2014,” that we will have sufficient available cash to pay the aggregate minimum quarterly distribution of $     million on all of our common units and subordinated units for the year ending December 31, 2014. However, we do not have a legal obligation to pay distributions at our minimum quarterly distribution rate or at any other rate except as provided in our partnership agreement, and there is no guarantee that we will make quarterly cash distributions to our unitholders. Please read “Cash Distribution Policy and Restrictions on Distributions.”
Subordinated units    
    Cypress Holdings, Cypress Energy Partners — TIR, LLC and certain of their affiliates will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that for any quarter during the subordination period, the subordinated units will not be entitled to receive any distribution until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages.
Conversion of subordinated
units
   
    The subordination period will end on the first business day after the date that we have earned and paid at least (1) $     (the minimum quarterly distribution on an annualized basis) on each outstanding common unit and subordinated unit for each of three consecutive, non-overlapping four quarter periods ending on or after          ,    , or (2) $     (150.0% of the annualized minimum quarterly distribution) on each outstanding common unit and subordinated unit and the related distributions on the incentive distribution rights for any four-quarter period immediately preceding that date, in each case provided there are no arrearages on our common units at that time.
    The subordination period also will end upon the removal of our general partner other than for cause if no subordinated units or common units held by the holders of subordinated units or their affiliates are voted in favor of that removal.
    When the subordination period ends, each outstanding subordinated unit will convert into a common unit on a one-for-one basis, and all common units will no longer be entitled to arrearages. Please read “Provisions of Our

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    Partnership Agreement Relating to Cash Distributions — Subordinated Units and Subordination Period.”
Issuance of additional units    
    Our partnership agreement authorizes us to issue an unlimited number of additional units without the approval of our unitholders. Please read “Units Eligible for Future Sale” and “Our Partnership Agreement — Issuance of Additional Securities.”
Limited voting rights    
    Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, our unitholders will have only limited voting rights on matters affecting our business. Our unitholders will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 66 2/3% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. Upon consummation of this offering, Cypress Holdings will own an aggregate of   % of our common and subordinated units (or   % of our common and subordinated units, if the underwriters exercise their option to purchase additional common units in full). This will give Cypress Holdings the ability to prevent the removal of our general partner. Please read “Our Partnership Agreement — Voting Rights.”
Limited call right    
    If at any time our general partner and its affiliates own more than 80.0% of the outstanding common units, our general partner has the right, but not the obligation, to purchase all of the remaining common units at a price equal to the greater of (1) the average of the daily closing price of our common units over the 20 trading days preceding the date that is three business days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Please read “Our Partnership Agreement — Limited Call Right.”
Estimated ratio of taxable income to distributions    
    We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending   , you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be   % or less of the cash distributed to you with respect to that period. For example, if you receive an annual distribution of $     per unit, we estimate that your average allocable federal taxable income per year will be no more than approximately $     per unit. Thereafter, the ratio of allocable taxable income to cash distributions to you could substantially increase. Please read “Material Federal Income Tax Consequences — Tax Consequences of Unit

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    Ownership — Ratio of Taxable Income to Distributions” for the basis of this estimate.
Material federal income tax consequences    
    For a discussion of the material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read “Material Federal Income Tax Consequences.”
Directed unit program    
    At our request, the underwriters have reserved for sale, at the initial public offering price, up to   % of the common units being offered by this prospectus for sale to employees, consultants, directors, director nominees and executive officers of our general partner, directors of Cypress Holdings and certain other key employees of Cypress Holdings and select individuals who may be able to assist us in developing our business. We do not know if these persons will choose to purchase all or any portion of these reserved common units, but any purchases they do make will reduce the number of common units available to the general public. Please read “Underwriting — Directed Unit Program.”
Exchange listing    
    We intend to apply to list our common units on the New York Stock Exchange under the symbol “CELP.”

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Summary Historical and Pro Forma Financial Data and Operating Data

The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical and pro forma financial statements and accompanying notes included elsewhere in this prospectus. The financial data included in this prospectus may not be indicative of our future results of operations, financial position and cash flows.

We were formed in September 2013 and do not have historical financial operating results. Therefore, in this prospectus, we present the historical financial statements and data of the SBG Predecessor, which consists of seven North Dakota limited liability companies that were formed in 2011 and 2012, and which we collectively refer to as our predecessor for financial accounting purposes, for the period from June 1, 2011 (Inception) through December 31, 2012. We also present historical financial statements and data of the CEP Successor, which is our successor for financial accounting purposes, for the period from March 15, 2012 (Inception) through December 31, 2012 and for the nine months ended September 30, 2013.

Set forth below is the following financial data:

summary historical financial data as of December 31, 2011 and 2012 and for the period from June 1, 2011 (Inception) through December 31, 2011 and the year ended December 31, 2012 of the SBG Predecessor, which have been derived from the audited consolidated financial statements of the SBG Predecessor that are included elsewhere in this prospectus;
summary historical financial data as of December 31, 2012 and for the period from March 15, 2012 (Inception) through December 31, 2012 of the CEP Successor, which have been derived from the audited consolidated financial statements of the CEP Successor that are included elsewhere in this prospectus;
summary condensed unaudited historical financial data as of September 30, 2012 and for the nine months ended September 30, 2012 of the SBG Predecessor, which have been derived from the unaudited condensed consolidated financial statements of the SBG Predecessor that are included elsewhere in this prospectus;
summary condensed unaudited historical financial data as of September 30, 2013 and for the nine months ended September 30, 2013 of the CEP Successor, which have been derived from the unaudited condensed consolidated financial statements of the CEP Successor that are included elsewhere in this prospectus; and
pro forma condensed combined financial data as of September 30, 2013 and for the nine months ended September 30, 2013 and for the year ended December 31, 2012 of Cypress Energy Partners, L.P., which have been derived from our unaudited pro forma condensed combined financial statements that are included elsewhere in this prospectus.

We do not provide summary historical financial data for (i) TIR, in which we will receive a 50.1% interest at the closing of this offering, or in TIR Parent, or (ii) four newly constructed EPA Class II SWD facilities, or, collectively, the Moxie Assets, prior to their acquisition by us from Moxie Disposal Systems, LLC and Peach Energy Services, LLC, on December 4, 2012. For historical financial data for the Moxie Assets for the period ended December 3, 2012, please read the audited “Statement of Revenues and Direct Operating Expenses of Assets Purchased by Cypress Energy Partners, LLC From Moxie Disposal Systems, LLC and Peach Energy Services, LLC from July 1, 2012 (Inception) through December 3, 2012” and the accompanying notes, which are included elsewhere in this prospectus. For historical financial data for TIR Parent for the years ended December 31, 2011 and 2012 and for the nine months ended September 30, 2012 and 2013, please read the audited and unaudited historical consolidated financial statements of TIR Parent and the accompanying notes, and Note 5 to Unaudited Pro Forma Condensed Combined Financial Statements, which are included elsewhere in this prospectus.

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The pro forma adjustments have been prepared as if the transactions described below had taken place on September 30, 2013, in the case of the pro forma balance sheet, or as of January 1, 2012, in the case of the pro forma condensed combined statement of operations for the year ended December 31, 2012 and for the nine months ended September 30, 2013.

These transactions include:

the retention by Cypress Holdings of the assets and liabilities associated with the CEP Successor's SWD facility in Sheridan, Wyoming and a related-party receivable and permit associated with the construction of a potential new SWD facility;
the contribution to us of the CEP Successor and a 50.1% interest in TIR in exchange for the issuance by us of      common units and      subordinated units, representing an aggregate    % limited partner interest, to Cypress Holdings and its affiliates;
the issuance by us of the incentive distribution rights to our general partner;
the issuance by us of      common units to the public in this offering, representing a    % limited partner interest in us, the receipt by us of approximately $    million in net proceeds from this offering and the application of such net proceeds as described in “Use of Proceeds”;
our incurrence of $    million of indebtedness under our new $    million revolving credit facility and $    million of indebtedness under our new $     term loan facility and the application of the proceeds from these borrowings as described in “Use of Proceeds”; and
our entry into an omnibus agreement with Cypress Holdings pursuant to which, among other things, we will pay our general partner an annual administrative fee of $3.0 million per year for the provision of certain general and administrative services.

The pro forma financial information should not be considered as indicative of the historical results we would have had as a stand-alone partnership or the results we will have after this offering.

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The following table includes the non-GAAP financial measure Adjusted EBITDA. We define Adjusted EBITDA as our net income, plus interest expense, depreciation and amortization expenses, income tax expense and impairment expense related to an SWD facility retained by Cypress Holdings, less a gain on the reversal of a contingent liability related to the SBG acquisition. For reconciliations of Adjusted EBITDA to its most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles, or “GAAP,” please read “Selected Historical and Pro Forma Condensed Combined Financial Data — Non-GAAP Financial Measures.”

             
  SBG Predecessor   CEP Successor   Pro Forma
Cypress Energy Partners, L.P.
  Period from
June 1
(Inception)
through
December 31,
2011
  Year Ended
December 31,
2012
  Nine Months
Ended
September 30,
2012
  Period from
March 15
(Inception)
through
December 31,
2012 (1)
  Nine Months
Ended
September 30,
2013
  Year Ended
December 31,
2012
  Nine Months
Ended
September 30,
2013
     (in thousands, except per unit and operational data)
Income Statement Data
                                                              
Revenues   $ 2,944     $ 12,203     $ 9,182     $ 619     $  16,665     $  200,633     $ 246,930  
Gross margin     2,441       8,541       6,872       310       11,239       27,540       32,838  
General and administrative expense     138       477       241       2,056       2,427       10,054       13,290  
Depreciation and amortization expense     123       1,398       839       99       3,066       3,124       4,173  
Operating income (loss)     2,180       6,666       5,792       (1,845 )      1,371       14,362       15,375  
Interest expense, net     35       111       82                   4,269       3,520  
Net income (loss)   $ 2,162     $ 6,595     $ 5,746     $ (1,845 )    $ 12,581     $ 9,884     $ 22,763  
Less:
                                                              
Net income attributable to noncontrolling interests                                                $ 1,388     $ 2,224  
Net income (loss) attributable to
Cypress Energy Partners, L.P.
                                               $ 8,496     $ 20,539  
Basic earnings per common unit                                                               
Basic earnings per subordinated unit                                                               
Diluted earnings per common unit                                                               
Diluted earnings per subordinated unit                                                               
Balance Sheet Data (Period End)
                                                              
Total assets   $ 14,476     $ 27,588     $ 27,297     $ 85,342     $ 85,452                    
Total debt     2,798       2,314       2,395                                
Membership/Partnership equity     9,265       24,769       22,094       71,651       83,910                    
Cash Flows Data
                                                              
Cash flows from operating activities   $ 1,106     $ 7,246     $ 7,033     $ (2,244 )    $ 7,512                    
Cash flows from investing activities     (10,860 )      (15,236 )      (13,421 )      (70,670 )      (2,278 )                   
Cash flows from financing activities     9,901       8,425       6,241       73,496       (681 )                

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  SBG Predecessor   CEP Successor   Pro Forma
Cypress Energy Partners, L.P.
  Period from
June 1
(Inception)
through
December 31,
2011
  Year Ended
December 31,
2012
  Nine Months
Ended
September 30,
2012
  Period from
March 15
(Inception)
through
December 31,
2012 (1)
  Nine Months
Ended
September 30,
2013
  Year Ended
December 31,
2012
  Nine Months
Ended
September 30,
2013
     (in thousands, except per unit and operational data)
Other Financial Data
                                                              
Adjusted EBITDA (2)   $ 2,320     $ 8,104     $ 6,667     $ (1,746 )    $ 8,812     $ 17,531     $ 19,549  
Adjusted EBITDA attributable to
Cypress Energy Partners, L.P. (2)
                                               $ 12,320     $ 14,268  
Capital Expenditures (3)   $ 10,860     $ 15,236     $ 13,421     $ 70,670     $ 2,278                    
Ratio of total debt to Adjusted EBITDA                                                               
Operational Data
                                                              
Total barrels of saltwater disposed (in thousands)     1,641       8,674       6,226       551       14,489       10,962       14,489  
Average revenue per barrel   $ 1.79     $ 1.41     $ 1.47     $ 1.12     $ 1.15     $ 1.34     $ 1.14  
Average number of inspectors                                                  788       1,252  
Average revenue per inspector
(per week)
                                               $ 4,542     $ 4,601  

(1) During the period from its inception through the date of its acquisition of the SBG Predecessor on December 31, 2012, the CEP Successor had no significant assets or operations.
(2) For a definition of Adjusted EBITDA and a reconciliation to net income and to net cash provided by (used in) operating activities, please read “Selected Historical and Pro Forma Condensed Combined Consolidated Financial and Operating Data — Non-GAAP Financial Measures.”
(3) We historically did not make a distinction between maintenance and expansion capital expenditures; however, for the purposes of the presentation of “Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2012, and the Twelve Months Ended September 30, 2013,” we have estimated that approximately $0.7 million and $0.4 million of these capital expenditures were maintenance capital expenditures for both the year ended December 31, 2012 and the twelve months ended September 30, 2013, respectively. Please read “Cash Distribution Policy and Restrictions on Distributions — Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2012, and the Twelve Months Ended September 30, 2013.”

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RISK FACTORS

Investing in our common units involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before deciding to invest in our common units. Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In that case, we might not be able to pay distributions on our common units, the trading price of our common units could decline, and you could lose part or all of your investment in us.

Risks Related to Our Business

\n

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cash reimbursement to our general partner and its affiliates to enable us to pay our minimum quarterly distributions to holders of our units.

In order to pay the minimum quarterly distribution of $     per unit per quarter, or $     per unit on an annualized basis, we will require available cash of approximately $     million per quarter, or $     million per year, based on the number of common and subordinated units to be outstanding immediately after completion of this offering. We may not have sufficient available cash from operating surplus each quarter to enable us to pay the minimum quarterly distribution. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

the fees we charge, and the margins we realize, from our Water and Environmental Services Segment, as well as our Pipeline Inspection and Integrity Services segment;
the volume of saltwater we handle in our Water and Environmental Services segment and the number and types of projects conducted by our Pipeline Inspection and Integrity Services segment;
the amount of residual oil we are able to separate and sell from the saltwater we receive;
the cost of achieving organic growth in current and new markets;
our ability to make acquisitions of other SWD facilities and pipeline inspection companies, including the remaining interest in TIR held by our affiliate;
the level of competition from other companies;
governmental regulations, including changes in governmental regulations, in our industry;
prevailing economic and market conditions; and
weather and natural disasters, lightning, vandalism and acts of terror.

In addition, the actual amount of cash we will have available for distribution will depend on other factors, some of which are beyond our control, including:

the level of capital expenditures we make;
the cost of acquisitions;
the level of our operating costs and expenses and the performance of our various facilities, inspectors and staff;
our debt service requirements and other liabilities;
fluctuations in our working capital needs;

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our ability to borrow funds and access capital markets;
restrictions contained in our debt agreements;
the amount of cash reserves established by our general partner; and
other business risks affecting our cash levels.

For a description of additional restrictions and factors that may affect our ability to make cash distributions, please read “Cash Distribution Policy and Restrictions on Distributions.”

\n

On a pro forma basis, we would not have had sufficient cash available for distribution to pay the full minimum quarterly distribution on all of our units for the year ended December 31, 2012 or the twelve months ended September 30, 2013.

We must generate approximately $     million of cash available for distribution to pay the aggregate minimum quarterly distributions for four quarters on all units that will be outstanding immediately following this offering. The amount of cash available for distribution that we generated during the year ended December 31, 2012 on a pro forma basis would have been sufficient to pay 100% of the aggregate minimum quarterly distribution on all common units, and      % of the aggregate minimum quarterly distributions on our subordinated units for that period. In addition, the amount of cash available for distribution that we generated during the twelve months ended September 30, 2013 on a pro forma basis would have been sufficient to pay 100% of the aggregate minimum quarterly distribution on all common units, and      % of the aggregate minimum quarterly distributions on our subordinated units for that period. Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption “Cash Distribution Policy and Restrictions on Distributions.” If we are not able to generate additional cash for distribution to our unitholders in future periods, we may not be able to pay the full minimum quarterly distribution or any amount on our common or subordinated units, in which event the market price of our common units may decline materially.

\n

The assumptions underlying the forecast of cash available for distribution that we include in “Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and are subject to significant business, economic, financial, regulatory, weather and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

The forecast of cash available for distribution set forth in “Cash Distribution Policy and Restrictions on Distributions” includes our forecasted results of operations, Adjusted EBITDA and cash available for distribution for the year ending December 31, 2014. The forecast has been prepared by management, and we have not received an opinion or report on it from our or any other independent auditor. Our assumptions underlying the forecast include, among other things, an increase in our revenues based on the higher utilization and expansion of our existing SWD facilities, increasing regulation of SWD wells and pipeline integrity, an increase in the revenue generated by TIR based on the expansion of its pipeline and integrity services, an increase in the level of drilling activity and producing wells in the regions in which we operate that results in more saltwater being delivered to our SWD facilities, increased sales of our residual oil and increased management fees for managing third-party SWD facilities. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks. If we do not achieve the forecasted results, we may not be able to pay the full minimum quarterly distribution or any amount on our common or subordinated units, in which event the market price of our common units may decline materially.

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\n

We serve customers who are involved in drilling for, producing and transporting oil and natural gas. Adverse developments affecting the oil and natural gas industry or drilling activity, including sustained low natural gas prices, a decline in oil or natural gas liquids prices, reduced demand for oil and natural gas products and increased regulation of drilling and production, could have a material adverse effect on our results of operations.

Our Water and Environmental Services segment depends on our oil and natural gas customers’ willingness to make operating and capital expenditures to develop and produce oil and natural gas in the United States. A reduction in drilling activity generally results in decreases in the volumes of new flowback and produced water generated, which adversely impacts our revenues. Therefore, if these expenditures decline, our business is likely to be adversely affected.

The level of activity in the oil and natural gas exploration and production industry in the U.S. has been volatile. According to the Baker Hughes oil and gas drilling rig count, the U.S. weekly aggregate rig count reached an all-time high of 4,530 rigs in December 1981 and a post-1942 low of 488 rigs in April 1999. From January 2010 through October 2013, the aggregate U.S. weekly rig count has remained above 1,220 rigs, reaching a peak of 2,026 rigs in August 2008 and declining to 1,778 rigs in October 2013. Recently, there have been significant fluctuations in global crude oil prices, and there have been prolonged declines in natural gas prices. Treatment and disposing of saltwater constituted approximately 75% of our revenue in our Water and Environmental Services Segment for the nine months ended September 30, 2013; therefore a future significant decrease in drilling activity could have an adverse effect on our revenue and profitability.

Our customers’ willingness to engage in drilling and production of oil and natural gas depends largely upon prevailing industry conditions that are influenced by numerous factors over which our management has no control, such as:

the supply of and demand for oil and natural gas;
the level of prices, and expectations about future prices, of oil and natural gas;
the cost of exploring for, developing, producing and delivering oil and natural gas, including fracturing services;
the expected rate of decline of current oil and natural gas production;
the discovery rates of new oil and natural gas reserves;
available pipeline and other transportation capacity;
lead times associated with acquiring equipment and products and availability of personnel;
weather conditions, including hurricanes, tornadoes, wildfires, drought or man-made disasters that can affect oil and natural gas operations over a wide area, as well as local weather conditions in the Bakken Shale region of the Williston Basin in North Dakota that can have a significant impact on drilling activity in that region;
domestic and worldwide economic conditions;
contractions in the credit market;
political instability in certain oil and natural gas producing countries;
the continued threat of terrorism and the impact of military and other action, including military action in the Middle East;
governmental regulations, including income tax laws or government incentive programs relating to the oil and natural gas industry and the policies of governments regarding the exploration for and production and development of their oil and natural gas reserves;

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the level of oil production by non-OPEC countries and the available excess production capacity within OPEC;
oil refining capacity and shifts in end-customer preferences toward fuel efficiency;
potential acceleration in the development, and the price and availability, of alternative fuels;
the availability of water resources for use in hydraulic fracturing operations;
public pressure on, and legislative and regulatory interest in, federal, state, and local governments to stop, significantly limit or regulate hydraulic fracturing operations;
technical advances affecting energy consumption;
the access to and cost of capital for oil and natural gas producers;
merger and divestiture activity among oil and natural gas producers; and
the impact of changing regulations and environmental and safety rules and policies.
\n

The working capital needs of TIR are substantial, which will reduce our borrowing capacity for other purposes and reduce our cash available for distribution.

TIR has substantial working capital needs throughout the year as it pays its inspectors on a weekly basis but typically receives payment from its customers 45 to 90 days after the services have been performed. TIR has historically borrowed under its accounts receivable facility and will make borrowings under its revolving credit facility to fund these working capital needs. These borrowings will reduce the amount of credit available for other uses, such as acquisitions and growth projects, and increase interest expense, thereby reducing cash available for distribution to our unitholders. Any cash generated from operations used to fund working capital needs will also reduce cash available for distribution to our unitholders. Additionally, if we experience any delays in payment by our pipeline inspection and integrity services customers, we may be subject to significant and rapid increases in our working capital needs that could require us to make further borrowings under our new revolving credit facility or impact our ability to pay our minimum quarterly distributions.

\n

Our business is dependent upon the willingness of our customers to outsource their waste management activities and pipeline inspection and integrity activities.

Our business is largely dependent on the willingness of customers to outsource the treatment of their water and environmental services and pipeline inspection and integrity activities. Currently, many oil and natural gas producing companies own and operate waste treatment, recovery and SWD facilities, and some producers recycle saltwater on-site. In addition, most oilfield operators, including many of our customers, have numerous abandoned wells that could be licensed for use in the disposition of internally generated waste and third-party waste in competition with us. Additionally, technologies may be developed that could be used by our customers to recycle saltwater and to recover oil through oilfield waste processing. Furthermore, some pipeline owners and operators currently inspect and perform integrity activities on their own pipeline systems using the same techniques and technologies that we use as well as others that we currently do not employ such as pigging and aerial surveys. Our current customers could decide to process and dispose of their waste internally or inspect and perform integrity activities on their own pipeline systems, either of which could have a material adverse effect on our financial position, results of operations, cash flows and our ability to make cash distributions to our unitholders.

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\n

Our markets are highly competitive, and competition could adversely impact our financial position, results of operations, demand for services, cash flows or our ability to make required payments on debt outstanding.

We have many competitors in the Water and Environmental Services and Pipeline Inspection and Integrity Services segments of our business. Other companies offer similar third-party saltwater disposal or pipeline inspection and integrity services in our primary markets. Some of our customers also compete with us in the treatment and disposal sector by offering such services to other oil and natural gas companies. Our customers regularly evaluate the best combination of value and price from competing alternatives and new technologies and can move between alternatives or, in some cases, develop their own alternatives with relative ease. This competition influences the prices we charge and requires us to control our costs aggressively and maximize efficiency in order to maintain acceptable operating margins; however, we may be unable to do so and remain competitive on a cost-for-service basis. In addition, existing and future competitors may develop or offer services or new technologies that have pricing, location or other advantages over the services we provide, including a lower cost of capital.

\n

We do not enter into long-term contracts with our customers, which subjects us to renewal or termination risks.

We and TIR do not typically enter into long-term contracts with customers. While we and TIR each frequently operate under master services agreements with customers that set forth the terms on which we and TIR will provide services, customers operating under these agreements typically have the ability to terminate their relationship with us and TIR at any time at their sole discretion by ceasing to deliver saltwater to our SWD facilities or by choosing to not use us to provide pipeline inspection and integrity management services. Therefore, there is a heightened risk that our customers may decide not to dispose of their saltwater disposal through us or use our inspection and integrity services. The failure of customers to continue to use our services could adversely affect our operations, financial condition and ability to make cash distribution to our unitholders.

\n

We depend on a limited number of customers for a substantial portion of our revenues. The loss of, or a material nonpayment by, our key customers could adversely affect our results of operations, financial condition and ability to make cash distributions to our unitholders.

Our ten largest customers generated approximately 68% of our Water and Environmental Services segment revenue for the year ended December 31, 2012 and 56% of segment revenue for the nine months ended September 30, 2013. In addition, one of our water and environmental services customers, BS&W Solutions, LLC, accounted for 25% of our segment revenue for the year ended December 31, 2012. Our five largest customers of our Pipeline Inspection and Integrity Services segment accounted for approximately 71% of our segment revenue for the year ended December 31, 2012 and 74% of segment revenue for the nine months ended September 30, 2013. In addition, three of our pipeline inspection and integrity services customers, DCP Midstream, Enbridge Energy Partners and Enterprise Products Partners, each accounted for more than 10% of our revenue for the year ended December 31, 2012 and the nine months ended September 30, 2013, on a pro forma basis. The loss of all, or even a portion of, the revenues from these customers, as a result of competition, market conditions or otherwise, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

\n

Disruptions in the transportation services of trucking companies transporting saltwater could adversely affect our results of operations and cash available for distribution to our unitholders.

We primarily depend on trucking companies to transport saltwater to our SWD facilities. In recent years, certain states, including North Dakota and Texas, and counties have increased enforcement of weight limits on trucks used to transport raw materials on their public roads. It is possible that the states, counties and cities in which we operate our water and environmental

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services business may modify their laws to further reduce truck weight limits, or impose curfews or other restrictions on the use of roadways. Such legislation and enforcement efforts could result in delays in transporting saltwater to our SWD facilities and increased costs to transport saltwater to our facilities, which may either increase our operating costs or reduce the amount of saltwater transported to our SWD facilities. This could decrease our operating margins or amounts of saltwater disposed at our SWD facilities and thereby affect our results of operations and cash available for distribution.

\n

A significant increase in fuel prices may adversely affect the transportation costs of our trucking company customers, which could result in a decrease in the rates for our saltwater and environmental services they would be willing to pay.

Fuel is a significant operating expense for our trucking customers, and a significant increase in fuel prices will result in increased transportation costs to them. The price and supply of fuel is unpredictable and fluctuates based on events such as geopolitical developments, supply and demand for oil and natural gas, actions by oil and natural gas producers, war and unrest in oil producing countries and regions, regional production patterns and weather concerns. A significant increase in fuel prices could drive down the prices our trucking company customers would be willing to pay, which would reduce our revenues and impact our ability to make distributions to our unitholders.

\n

Volumes of residual oil recovered during the saltwater water treatment process can vary. Any significant reduction in residual oil content in the water we treat will affect our recovery of residual oil and, therefore, our profitability.

Approximately 25% of our revenue for the nine months ended September 30, 2013 in our Water and Environmental Services segment was derived from sales of residual oil recovered during the saltwater treatment process. Our ability to recover sufficient volumes of residual oil is dependent upon the residual oil content in the saltwater we treat, which is, among other things, a function of water type, chemistry, source and temperature. Generally, where outside temperatures are lower, there is less residual oil content and separation is more difficult. Thus, our residual oil recovery during the winter season is lower than our recovery during the summer season in North Dakota. 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. Also, the revenues we derive from sales of residual oil are subjected to fluctuations in the price of oil. Any reduction in residual crude oil content in the saltwater we treat or the prices we realize on our sales of residual oil could materially and adversely affect our profitability.

\n

Our business may be difficult to evaluate because we have a limited period of historical financial and operating data, and the historical financial and operating data presented in this prospectus may not be representative of our future results.

The SBG Predecessor’s historical results for 2011 and 2012 represent the results of only one of the water and environmental services companies we have acquired. The results of the other water and environmental services company that we acquired are only shown since the end of 2012. Furthermore, our historical and operating data does not include our Pipeline Integrity and Inspection Services segment or any ownership in TIR. As a result, we have provided only limited financial and operating data regarding the consolidated business that we will operate following this offering. The historical financial and operating results of our business may be materially different from our future financial and operating results. Our future results will depend on our ability to efficiently manage our integrated operations and execute our business strategy. Our historical financial performance and that of the SBG Predecessor and the CEP Successor should not be considered reliable indicators of our future performance.

In addition, we face challenges and uncertainties in financial and operational planning as a result of the limited access to historical data regarding volumes of oilfield waste treated and related sales and pricing. Our first facilities were opened during 2011, and other companies in the SWD

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industry do not regularly release historical data related to their SWD facilities. This limited data may make it more difficult for us and our investors to evaluate our business and prospects and to forecast our future operating results.

\n

We are vulnerable to the potential difficulties associated with rapid growth and expansion.

We have grown rapidly since our inception in 2012, primarily through acquisitions. Since our inception through September 30, 2013, we have acquired two businesses and an equity interest in TIR. We believe that our future success depends on our ability to manage the rapid growth that we have experienced and the demands from increased responsibility on our management personnel. The following factors could present difficulties to us:

organizational challenges common to large, expansive operations;
administrative burdens;
limitations with systems and technology;
safety and training;
ability to recruit, train and retain personnel and managers;
ability to obtain permits for expanded operations;
access to debt and equity capital on attractive terms; and
long lead times associated with acquiring equipment and building any new facilities.

Our operating results could be adversely affected if we do not successfully manage these potential difficulties.

\n

Our ability to grow in the future is dependent on our ability to access external growth capital.

We will distribute all of our available cash after expenses and prudent operating reserves to our unitholders. We expect that we will rely primarily upon external financing sources, including borrowings under our credit facilities and the issuance of debt and equity securities, to fund growth capital expenditures. However, we may not be able to obtain equity or debt financing on terms favorable to us, or at all. To the extent we are unable to efficiently finance growth externally, our cash distribution policy will significantly impair our ability to grow. In addition, because we distribute all of our available cash, we may not grow as quickly as businesses that reinvest their available cash to expand ongoing operations. Furthermore, Cypress Holdings and its affiliates are under no obligation to fund our growth. To the extent we issue additional units in connection with the financing of other growth capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of borrowings or other debt by us to finance our growth strategy would result in interest expense, which in turn would affect the available cash that we have to distribute to our unitholders.

\n

Our utilization of existing capacity, expansion of existing SWD facilities and construction or purchase of new SWD facilities may not result in revenue increases and will be subject to regulatory, environmental, political, legal and economic risks, which could adversely affect our operations and financial condition.

A portion of our strategy to grow and increase distributions to unitholders is dependent on our ability to utilize available capacity at our existing facilities, expand existing SWD facilities and construct or purchase new SWD facilities. The construction of a new SWD facility or the extension, renovation or expansion of an existing SWD facility, such as by connecting the SWD facility to pipeline systems, involves numerous business, competitive, regulatory, environmental, political and legal uncertainties, most of which are beyond our control. If we undertake these

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projects, they may not be completed on schedule or at all or at the budgeted cost. Furthermore, we will not receive any material increases in revenues until after completion of the project although we will have to pay financing and construction costs during the construction period. As a result, new SWD facilities may not be able to attract enough demand for water and environmental services to achieve our expected investment return, which could materially adversely affect our results of operations and financial condition and our ability in the future to make distributions to our unitholders.

\n

Our ability to acquire assets from Cypress Holdings or third parties is subject to risks and uncertainty. If we are unable to make acquisitions on economically acceptable terms, our future growth would be limited, and any acquisitions we may make may reduce, rather than increase, our cash flows and ability to make distributions to unitholders. Furthermore, we may not realize the benefits from or successfully integrate any acquisitions.

A portion of our strategy to grow our business and increase distributions to unitholders is dependent on our ability to make acquisitions that result in an increase in cash we generate on a per unit basis. The acquisition component of our strategy is based, in large part, both on our expectation of continuing consolidation in the industries in which we operate and our ability to acquire interests in additional assets from Cypress Holdings.

Cypress Holdings is developing or seeking to purchase several water and environmental services assets and facilities that may be suitable to our operations in the future. We expect to have the opportunity to make acquisitions directly from Cypress Holdings in the future, including acquiring the remaining 49.9% investment in TIR. The consummation and timing of any future acquisitions of these assets will depend upon, among other things, Cypress Holdings’ willingness to offer these assets for sale, our ability to negotiate acceptable purchase agreements and commercial agreements with respect to the assets and our ability to obtain financing on acceptable terms. We can offer no assurance that we will be able to successfully consummate any future acquisitions with Cypress Holdings, and Cypress Holdings is under no obligation to accept any offer that we may choose to make. In addition, certain of these assets may require substantial capital expenditures in order to maintain compliance with applicable regulatory requirements or otherwise make them suitable for our commercial needs. For these or a variety of other reasons, we may decide not to acquire these assets from Cypress Holdings if, and when, Cypress Holdings offers such assets for sale, and our decision will not be subject to unitholder approval. Please read “Certain Relationships and Related Party Transactions — Agreements Governing the Restructuring Transactions.”

Additionally, we may not be able to make accretive acquisitions from third parties if we are:

unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts;
unable to obtain financing for these acquisitions on economically acceptable terms;
outbid by competitors; or
for any other reason.

If we are unable to make acquisitions from Cypress Holdings or third parties, our future growth and ability to increase distributions will be limited. Furthermore, even if we do consummate acquisitions that we believe will be accretive, they may in fact result in a decrease in cash flow.

Any acquisition involves potential risks, including, among other things:

mistaken assumptions about disposal capacity, number and quality of inspectors, revenues and costs, cash flows, capital expenditures and synergies;
the assumption of unknown liabilities;
limitations on rights to indemnity from the seller;

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mistaken assumptions about the overall costs of equity or debt;
the diversion of management’s attention from other business concerns;
integrating business operations or unforeseen regulatory issues;
unforeseen difficulties operating in new geographic areas; and
customer or key personnel losses at the acquired businesses.

If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and other resources.

\n

We conduct a portion of our operations through two entities that we partially own, which subjects us to additional risks that could have a material adverse effect on our financial condition and results of operations.

CES is a joint venture with an affiliate of SBG Energy Services, LLC, in which we own 51.0%. We may also enter into other joint venture arrangements with third parties in the future. SBG Energy Services, LLC and the minority third-party owners of TIR have, and these third parties may have, obligations that are important to the success of the joint venture, such as the obligation to pay their share of capital and other costs of these partially owned entities. The performance of these third-party obligations, including the ability of our joint venture partner in CES and minority third-party owners of TIR have to satisfy their perspective obligations, is outside our control. If these parties do not satisfy their obligations under the arrangements, our business may be adversely affected.

Our joint venture arrangement for CES may involve risks not otherwise present without a partner, including, for example:

our joint venture partner shares certain blocking rights over transactions between CES and its affiliates, including us;
our joint venture partner may take actions contrary to our instructions or requests or contrary to our policies or objectives;
although we control CES, we owe contractual duties to CES and its other owners, which may conflict with our interests and the interests of our unitholders; and
disputes between us and our joint venture partner may result in delays, litigation or operational impasses.

Our TIR arrangement may involve other risks related to the minority third-party owners.

The risks described above or any failure to continue our joint venture or to resolve disagreements with our third-party partners could adversely affect our ability to transact the business that is the subject of such business, which would, in turn, negatively affect our financial condition, results of operations and ability to distribute cash to our unitholders. See “Certain Relationships and Related Party Transactions — Agreements Governing the Restructuring Transactions — Cypress Energy Services Joint Venture.”

\n

We will be required to generate sufficient cash to service our indebtedness.

Our outstanding long-term debt will impose significant cash interest payment obligations on us following the closing of this offering and, accordingly, we will have to generate significant cash flow from operating activities to fund our debt service obligations. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. See “Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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\n

Restrictions in our credit facilities could adversely affect our business, financial condition, results of operations, ability to make cash distributions to our unitholders and the value of our units.

We intend to enter into two credit facilities in connection with the closing of this offering. Our credit facilities are likely to limit our ability to, among other things:

incur or guarantee additional debt;
make distributions on or redeem or repurchase units;
make certain investments and acquisitions;
make capital expenditures;
incur certain liens or permit them to exist;
enter into certain types of transactions with affiliates;
enter into hedging transactions;
merge or consolidate with another company; and
transfer, sell or otherwise dispose of assets.

Our credit facilities also will likely contain covenants requiring us to maintain certain financial ratios. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests.

The provisions of our credit facilities may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. Our funds available for operations, future business opportunities and cash distributions to unitholders will be reduced by that portion of our cash flow required to make interest payments on our debt. Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service any future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity capital. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or satisfy our capital requirements, or that these actions would be permitted under the terms of our existing or future debt agreements, including the revolving credit facility and term loan. The revolving credit facility and term loan may restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. In addition, a failure to comply with the provisions of our credit facilities could result in a default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of our debt is accelerated, defaults under our other debt instruments, if any, may be triggered, and our assets may be insufficient to repay such debt in full, and the holders of our units could experience a partial or total loss of their investment. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information about our credit facilities.

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Our existing and future debt levels may limit our flexibility to obtain financing and to pursue other business opportunities.

At the closing of this offering, we intend to borrow $       million under our new credit facilities. Following this offering, we will have the ability to incur additional debt, subject to limitations in our credit facility. Our degree of leverage could have important consequences to us, including the following:

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;
our funds available for operations, future business opportunities and distributions to unitholders will be reduced by that portion of our cash flow required to make interest payments on our debt;
we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
our flexibility in responding to changing business and economic conditions may be limited.

Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity capital. We may not be able to effect any of these actions on satisfactory terms or at all.

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Our business could be adversely impacted if we are unable to obtain or maintain the regulatory permits required to develop and operate our facilities and to dispose of certain types of waste.

We own and operate SWD facilities in North Dakota and Texas, each with its own regulatory program for addressing the handling, treatment, recycling, and disposal of saltwater. We are also required to comply with federal laws and regulations governing our operations. These environmental laws and regulations require that we, among other things, obtain permits and authorizations prior to the development and operation of waste treatment and storage facilities and in connection with the disposal and transportation of certain types of waste. The applicable regulatory agencies strictly monitor waste handling and disposal practices at all of our facilities. For many of our sites, we are required under applicable laws, regulations, and/or permits to conduct periodic monitoring, company-directed testing and third-party testing. Any failure to comply with such laws, regulations, or permits may result in suspension or revocation of necessary permits and authorizations, civil or criminal liability and imposition of fines and penalties, which could adversely impact our operations and revenues and ability to continue to provide oilfield water and environmental services to our customers.

In addition, we may experience a delay in obtaining, be unable to obtain, or suffer the revocation of required permits or regulatory authorizations, which may cause us to be unable to serve customers, interrupt our operations and limit our growth and revenue. As of September 30, 2013, we have the required state and federal permits across the two states where we operate our SWD facilities. Regulatory agencies may impose more stringent or burdensome restrictions or obligations on our operations when we seek to renew or amend our permits. For example, permit conditions may limit the amount or types of waste we can accept, require us to make material expenditures to upgrade our facilities, implement more burdensome and expensive monitoring or sampling programs, or increase the amount of financial assurance that we provide to cover future facility closure costs. Moreover, nongovernmental organizations or the public may elect to protest the issuance or renewal of our permits on the basis of developmental, environmental or aesthetic

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considerations, which protests may contribute to a delay or denial in the issuance or reissuance of such permits. In August 2012, one saltwater disposal company withdrew its application to drill an SWD well in Helena, Texas five months after local residents formally protested the permit application to the Texas Railroad Commission. It is not uncommon for local property owners or, in some cases oil and natural gas producers, to oppose SWD permits. Any such limitations or requirements could limit the water and environmental services we provide to our customers, or make such services more expensive to provide, which could have a material adverse effect on our financial position, results of operations, cash flows and our ability to make cash distributions to our unitholders.

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Delays in obtaining permits by our customers for their operations could impair our business.

In most states, our customers are required to obtain permits from one or more governmental agencies in order to perform drilling and completion activities and to operate pipeline and gathering systems. Such permits are typically issued by state agencies, but federal and local governmental permits may also be required. The requirements for such permits vary depending on the location where such drilling and completion, and pipeline and gathering, activities will be conducted. As with all governmental permitting processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit to be issued, and the conditions that may be imposed in connection with the granting of the permit. Recently, moratoriums on the issuance of permits for certain types of drilling and completion activities have been imposed in some areas, such as New York. Some of our customers’ drilling and completion activities may also take place on federal land or Native American lands, requiring leases and other approvals from the federal government or Native American tribes to conduct such drilling and completion activities. In some cases, federal agencies have cancelled proposed leases for federal lands and refused or delayed required approvals. Consequently, our customers’ operations in certain areas of the U.S. may be interrupted or suspended for varying lengths of time, causing a loss of revenue to us and adversely affecting our results of operations in support of those customers.

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In the future we may face increased obligations relating to the closing of our SWD facilities and may be required to provide an increased level of financial assurance to guaranty the appropriate closure activities occur for an SWD facility.

Obtaining a permit to own or operate an SWD facility generally requires us to establish performance bonds, letters of credit or other forms of financial assurance to address clean up and closure obligations at our SWD facilities. In particular, the regulatory agencies of the two states in which we operate require us to post letters of credit in connection with the operation of our SWD facilities. As we acquire additional SWD facilities or expand our existing SWD facilities, these obligations will increase. Additionally, in the future regulatory agencies may require us to increase the amount of our closure bonds at existing SWD facilities. We have accrued approximately $9 thousand on our balance sheet related to our future closure obligations of our SWD facilities, as of September 30, 2013. However, actual costs could exceed our current expectations, as a result of, among other things, federal, state or local government regulatory action, increased costs charged by service providers that assist in closing SWD facilities and additional environmental remediation requirements. Increased regulatory requirements regarding our existing or future SWD facilities, including the requirement to pay increased closure and post-closure costs or to establish increased financial assurance for such activities could substantially increase our operating costs and cause our available cash that we have to distribute to our unitholders to decline.

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Changes in laws or government regulations regarding hydraulic fracturing could increase our customers’ costs of doing business, limit the areas in which our customers can operate and reduce oil and natural gas production by our customers, which could adversely impact our business.

We do not conduct hydraulic fracturing operations, but we do provide treatment, recycling and disposal services with respect to the fluids used and wastes generated by our customers in such operations, which are often necessary to drill and complete new wells and maintain existing

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wells. Hydraulic fracturing involves the injection of water, sand or other proppants and chemicals under pressure into target geological formations to fracture the surrounding rock and stimulate production. Recently, there has been increased public concern regarding an alleged potential for hydraulic fracturing to adversely affect drinking water supplies, and proposals have been made to enact separate federal, state and local legislation that would increase the regulatory burden imposed on hydraulic fracturing. The Safe Drinking Water Act, or SDWA, regulates the underground injection of substances through the Underground Injection Control, or UIC, program and exempts hydraulic fracturing from the definition of “underground injection”. Congress has in recent legislative sessions considered legislation to amend the SDWA including legislation that would repeal the exemption for hydraulic fracturing from the definition of “underground injection” and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, were proposed in recent sessions of Congress. The U.S. Congress may consider similar SDWA legislation in the future.

In addition, the Environmental Protection Agency, or EPA, has asserted federal regulatory authority pursuant to the SDWA over certain hydraulic fracturing activities involving the use of diesel fuels and published draft permitting guidance in May 2012 addressing the performance of such activities using diesel fuels in those states where EPA is the permitting authority. Also, in November 2011, the EPA announced its intent to develop and issue regulations under the Toxic Substances Control Act to require companies to disclose information regarding the chemicals used in hydraulic fracturing and the agency currently plans to issue a Notice of Proposed Rulemaking that would seek public input on the design and scope of such disclosure regulations. Further, on October 21, 2011, the EPA announced its intention to propose federal Clean Water Act regulations by 2014 governing wastewater discharges from hydraulic fracturing and certain other natural gas operations. In addition, the U.S. Department of the Interior published a revised proposed rule on May 16, 2013 that would update existing regulation of hydraulic fracturing activities on federal lands, including requirements for disclosure, well bore integrity and handling of flowback water. The revised proposed rule was presently subject to an extended 90-day public comment period, which ended on August 23, 2013.

Presently, hydraulic fracturing is regulated primarily at the state level, typically by state oil and natural gas commissions and similar agencies. Several states, including Texas and North Dakota, where we conduct our water and environmental services business, have either adopted or proposed laws and/or regulations to require oil and natural gas operators to disclose chemical ingredients and water volumes used to hydraulically fracture wells, in addition to more stringent well construction and monitoring requirements. The chemical ingredient information is generally available to the public via online databases, and this may bring more public scrutiny to hydraulic fracturing operations.

The EPA is conducting a study of the potential impacts of hydraulic fracturing activities on drinking water. The EPA issued a Progress Report in December 2012 and a final draft is anticipated by 2014 for peer review and public comment. As part of this study, the EPA requested that certain companies provide them with information concerning the chemicals used in the hydraulic fracturing process. This study or other studies that may be undertaken by the EPA or other governmental authorities, depending on their results, could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise. If new federal, state or local laws or regulations that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays, eliminate certain drilling and injection activities and make it more difficult or costly for our customers to perform fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could reduce oil and natural gas exploration and production activities by our customers and, therefore, adversely affect our business. Such laws or regulations could also materially increase our costs of compliance and doing business by more strictly regulating how hydraulic fracturing wastes are handled or disposed.

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Oil and natural gas producers’ operations, especially those using hydraulic fracturing, are substantially dependent on the availability of water. Restrictions on the ability to obtain water may incentivize water recycling efforts by oil and natural gas producers which would decrease the volume of saltwater delivered to our SWD facilities.

Water is an essential component of oil and natural gas production during the drilling, and in particular, hydraulic fracturing, process. However, the availability of suitable water supplies may be limited for oil and natural gas producers due to reasons such as prolonged drought. For example, according to the Lower Colorado River Authority, during 2011, Texas experienced the lowest inflows of water of any year in recorded history. As a result of this severe drought, some local water districts have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply. In response to continuing drought conditions in 2013, the Texas Legislature considered a number of bills that would have mandated recycling of flowback and produced water and/or prohibit recyclable water from being disposed of in wells. If oil and natural gas producers in Texas are unable to obtain water to use in their operations from local sources they may be incentivized to recycle and reuse saltwater instead of delivering such saltwater to our Texas SWD facilities (or in other states that adopt similar programs). Similarly, mandatory recycling programs could reduce the amount of materials sent to us for treatment and disposal. Any such limits or mandates could adversely affect our business and results of operations.

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We and our customers may incur significant liability under, or costs and expenditures to comply with, environmental and worker health and safety regulations, which are complex and subject to frequent change.

Our and our customer’s operations are subject to stringent federal, state and local laws and regulations relating to, among other things, protection of natural resources, wetlands, endangered species, the environment, worker health and safety, waste management, waste disposal, and transportation of waste and other materials. Such laws and regulations include the federal Resource, Conservation and Recovery Act, or RCRA, the Comprehensive Environmental Response Compensation and Liability Act, or CERCLA, the Clean Water Act, SDWA, the Clean Air Act, or CAA, the Oil Pollution Act of 1990, or OPA, and the Occupational Safety and Health Act, or OSHA, and analogous state laws. These laws and regulations may impose numerous obligations that are applicable to our and our customer’s operations, including the acquisition of permits to conduct regulated activities, the incurrence of capital or operating expenditures to limit or prevent releases of materials from our or our customers’ operations, the imposition of specific standards addressing worker protection, and the imposition of substantial liabilities and remedial obligations for pollution or contamination resulting from our and our customer’s operations.

Compliance with this complex array of laws and regulations is difficult and may require us to make significant expenditures. Our customers’ operations may be subject to existing and future CAA permitting and regulatory requirements that could have a material effect on their operations. For example, on August 16, 2012, EPA published final rules that establish new air emission controls for oil and natural gas production and natural gas processing operations under the CAA. EPA’s rule package requires new standards on all hydraulically-fractured wells constructed or refractured after January 1, 2015. The rules also establish new emission requirements for compressors, controllers, dehydrators, storage tanks, natural gas processing and certain other equipment. Compliance with these rules could result in significant costs to our customers, which may have an indirect adverse impact on our business.

Numerous governmental authorities, such as the EPA, and analogous state agencies have the power to enforce compliance with these laws and regulations and the permits issued under them, often requiring difficult and costly corrective actions or costly pollution control measures. Failure to comply with these laws, regulations and permits may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations and the issuance of injunctions limiting or preventing some or all of our and our customer’s operations.

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Our operations also pose risks of environmental liability due to leakage, migration, releases or spills from our operations to surface or subsurface soils, surface water or groundwater. Some environmental laws and regulations may impose strict, joint and several liabilities in connection with releases of regulated substances into the environment. Therefore, in some situations we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, third parties.

Laws protecting the environment generally have become more stringent over time. We expect this trend to continue, which could lead to material increases in our costs for future environmental compliance and remediation, and could adversely affect our operations by restricting the way in which we treat and dispose of exploration and production, or E&P, waste or our ability to expand our business.

In particular, the RCRA, which governs the disposal of solid and hazardous waste, currently exempts certain E&P wastes from classification as hazardous wastes. In recent years, proposals have been made to rescind this exemption from RCRA. For example, in September 2010 an environmental group filed a petition with the EPA requesting reconsideration of this RCRA exemption. To date, the EPA has not taken any action on the petition. If the exemption covering E&P wastes is repealed or modified, or if the regulations interpreting the rules regarding the treatment or disposal of this type of waste were changed, our operations could face significantly more stringent regulations, permitting requirements, and other restrictions, which could have a material adverse effect on our business.

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The effect of changes to healthcare laws in the United States may materially increase our healthcare costs and negatively impact our financial results.

The Patient Protection and Affordable Care Act as well as other healthcare reform legislation considered by federal and state legislators could significantly impact our business. These health care reform laws require employers such as us to provide health insurance for all qualifying employees or pay penalties for not providing coverage. We cannot predict the effects this legislation or any future state or federal healthcare legislation or regulation will have on our business because of the breadth and complexity of the legislation and because many of the rules, reforms and regulations required to implement these laws have not yet been adopted. However, we expect these reforms to materially increase our employee healthcare and other related costs. As the provisions of this legislation are phased in over time, the resulting changes to our healthcare cost structure and any inability to effectively modify our programs and operations in response to this legislation could have a material adverse effect on our business, financial conditions and results of operations.

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We could incur significant costs in cleaning up contamination that occurs at our facilities.

Petroleum hydrocarbons and other substances and wastes arising from E&P-related activities have been disposed of or released on or under many of our sites. At some of our facilities, we have conducted and continue to conduct monitoring, and we will continue to perform such monitoring and remediation of known contamination until the appropriate regulatory standards have been achieved. These monitoring and remediation efforts are usually overseen by state environmental regulatory agencies. Costs for such remediation activities may exceed estimated costs, and there can be no assurance that the future costs will not be material. It is possible that we may identify additional contamination in the future, which could result in additional remediation obligations and expenses, which could be material.

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We and our customers may be exposed to certain regulatory and financial risks related to climate change.

In response to certain scientific studies suggesting that emissions of greenhouse gases, or GHGs, including carbon dioxide and methane, are contributing to the warming of the Earth’s atmosphere and other climatic conditions, the U.S. Congress has considered adopting legislation to

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reduce emissions of GHGs, and almost one-half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap-and-trade programs. Most of these cap-and-trade programs work by requiring either major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved. These allowances would be expected to escalate significantly in cost over time.

In addition, in December 2009, the EPA determined that emissions of carbon dioxide, methane and certain other GHGs endanger public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic changes. Based on these findings, the EPA has begun adopting and implementing regulations to restrict emissions of GHGs under existing provisions of the CAA. The EPA has already adopted two sets of rules regulating GHG emissions under the CAA, one of which requires a reduction in emissions of GHGs from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources, both of which became effective in January 2011. The EPA’s rules relating to emissions of GHGs from large stationary sources of emissions are currently subject to a number of legal challenges, but the federal courts have thus far declined to issue any injunctions to prevent the EPA from implementing or requiring state environmental agencies to implement the rules. The EPA has also adopted rules requiring the monitoring and reporting of GHG emissions from specified GHG emission sources in the U.S., including oil and natural gas producer operations, on an annual basis. Additionally, on March 27, 2012, the EPA proposed New Source Performance Standards for Greenhouse Gas emissions from Electric Utility Generating Units. These actions represent increased government regulation of climate change-related issues and GHG emissions. We cannot predict which areas, if any, the EPA may choose to regulate with respect to GHG emissions next.

Although it is not possible at this time to estimate how potential future laws or regulations addressing GHG emissions would impact our business, either directly or indirectly, any future federal, state or local laws or implementing regulations that may be adopted to address GHG emissions in areas where we operate could require us or our customers to incur increased operating costs. Regulation of GHGs could also result in a reduction in demand for and production of oil and natural gas, which would result in a decrease in demand for our services. We cannot predict with any certainty at this time how these possibilities may affect our operations, but effects could be materially adverse.

Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events. If any such effects were to occur, they could adversely affect or delay demand for the oil or natural gas produced by our customers or otherwise cause us to incur significant costs in preparing for or responding to those effects.

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Certain plant or animal species could be designated as endangered or threatened, which could limit our ability to expand some of our existing operations or limit our customers’ ability to develop new oil and natural gas wells.

The federal Endangered Species Act, or ESA, restricts activities that may affect endangered or threatened species or their habitats. Many states also have analogous laws designed to protect endangered or threatened species. The designation of previously unidentified endangered or threatened species under such laws may affect our and our customers’ operations.

For example, the federal government is considering listing the greater sage-grouse and the dunes sagebrush lizard, species whose natural habitats coincide with some of our areas of operation and the areas of operation of some of our customers. Currently, greater sage-grouse are found in Washington, Oregon, Idaho, Montana, North Dakota, eastern California, Nevada, Utah, western Colorado, South Dakota and Wyoming. The U.S. Fish and Wildlife Service, or Service, has

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concluded that the greater sage-grouse warrants protection under the ESA; however, the Service has determined that proposing the species for protection is precluded by the need to take action on other species facing more immediate and severe extinction threats. As a result, the greater sage-grouse will be placed on the list of species that are candidates for ESA protection. The lesser prairie-chicken, which currently occupies a five-state range that includes Texas, New Mexico, Oklahoma, Kansas and Colorado, is also on the list as a candidate species for protection under the ESA. The Service will review the status of these species annually, as it does with all candidate species, and will propose the species for protection when funding and workload priorities for other listing actions allow. Additionally, as a result of a settlement approved by the U.S. District Court for the District of Columbia in September 2011, the Service is required to make a determination on the listing of more than 250 species as endangered or threatened under the ESA by the end of the Service’s 2017 fiscal year. Another species, the dunes sagebrush lizard, which is found only in the active and semi-stable shinnery oak dunes of southeastern New Mexico and adjacent portions of Texas, was a candidate species for listing under the ESA by the Service for many years. On June 13, 2012, however, the Service declined to list the species as endangered under the ESA, and it is no longer a candidate species. Nevertheless, the species remains listed as endangered by the New Mexico Department of Game and Fish, and thus is subject to certain protections under New Mexico state law.

We have customers in New Mexico, Texas, Oklahoma, Wyoming and North Dakota that have operations within the habitat of the greater sage-grouse, the dunes sage brush lizard and the lesser prairie-chicken, and our own operations are strategically located in proximity to our customers. To the extent these species, or other species that live in the areas where our operations and our customers’ operations are conducted, are listed under the ESA or similar state laws, this could limit our ability to expand our operations and facilities or could force us to incur material additional costs. Moreover, listing such species under the ESA or similar state laws could indirectly but materially affect our business by imposing constraints on our customers’ operations.

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We must comply with worker health and safety laws and regulations at our facilities and in connection with our operations and failure to do so could result in significant liability and/or fines and penalties.

Our activities are subject to a wide range of national, state and local occupational health and safety laws and regulations. These health and safety laws are subject to change, as are the priorities of those who enforce them. Failure to comply with these health and safety laws and regulations could lead to third-party claims, criminal and regulatory violations, civil fines and changes in the way we operate our facilities, which could increase the cost of operating our business and have a material adverse effect on our financial position, results of operations and cash flows and our ability to make cash distributions to our unitholders.

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Our business involves many hazards, operational risks and regulatory uncertainties, some of which may not be fully covered by insurance. If a significant accident or event occurs for which we are not adequately insured or if we fail to recover all anticipated insurance proceeds for significant accidents or events for which we are insured, our operations and financial results could be adversely affected.

Risks inherent to our industry, such as equipment defects, vehicle accidents, explosions, earthquakes, lightning strikes and incidents related to the handling of fluids and wastes, can cause personal injury, loss of life, suspension of operations, damage to formations, damage to facilities, business interruption and damage to or destruction of property, equipment and the environment. For instance, the fiberglass storage tank of one of the facilities owned by SBG’s entity in which we own an interest was not protected against lightning strikes and was struck by lightning in June 2013 and damaged. We use fiberglass tanks at our SWD facilities because fiberglass is less corrosive than other materials traditionally utilized. These tanks are, however, more prone to lighting strikes than traditional tanks, as a result of fiberglass’ tendency to store static electricity. Some of our other facilities are still without such protection systems. Furthermore, such protection

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systems are no guarantee that lightning will not strike and damage a facility. The risks associated with these types of accidents could expose us to substantial liability for personal injury, wrongful death, property damage, pollution and other environmental damages. The frequency and severity of such incidents will affect operating costs, insurability and relationships with customers, employees and regulators. In particular, our customers may elect not to purchase our services if they view our safety record as unacceptable, which could cause us to lose customers and substantial revenues.

Our insurance coverage may be inadequate to cover our liabilities. For instance, while our insurance policies apply to and cover costs imposed on us by retroactive changes in governmental regulations, the costs we incur as a result of such regulatory changes cannot be known in advance and may exceed our coverage limitations. In addition, we may not be able to maintain adequate insurance in the future at rates we consider reasonable and commercially justifiable and insurance may not continue to be available on terms as favorable as our current arrangements. The occurrence of a significant uninsured claim, a claim in excess of the insurance coverage limits maintained by us or a claim at a time when we are not able to obtain liability insurance could have a material adverse effect on our ability to conduct normal business operations and on our financial condition, results of operations and cash flows. In some cases, electrical storms can damage facility motors or electronics, and it may not be possible to prove to the insurance carrier that such storm caused the damage. We do not carry business interruption insurance on our SWD facilities and as a result could suffer a significant loss in revenue that could impact our ability to pay distributions on our units.

Accidents or incidents related to the handling of hydraulic fracturing fluids, saltwater or other wastes are covered by our insurance against claims made for bodily injury, property damage or environmental damage and clean-up costs stemming from a sudden and accidental pollution event, provided that we report the event within 30 days after its commencement. The coverage applies to incidents the company is legally obligated to pay resulting from pollution conditions caused by covered operations. We may not have coverage if the operator is unaware of the pollution event and unable to report the “occurrence” to the insurance company within the required time frame. Although we have coverage for gradual, long-term pollution events at certain locations, this coverage does not extend to all places where we may be located or where we may do business. We also may have liability exposure if any pipelines or gathering systems transporting water to our SWD facilities develop a leak depending upon the terms of the contracts.

Recent seismic events have been observed in some areas where deep well fluid injection of drilling or hydraulic fracturing saltwater has taken place. Some scientists believe the increased seismic activity may result from deep well fluid injection of drilling or hydraulic fracturing saltwater. Additional regulatory measures designed to minimize or avoid damage to geologic formations may be imposed to address such concerns. Although it is not possible at this time to predict the final outcome of the EPA's study or the requirements of any additional federal or state legislation or regulation regarding hydraulic fracturing, management of drilling fluids or well integrity requirements, any new federal or state restrictions imposed on such activities in areas in which we conduct business could significantly increase our operating, capital and compliance costs as well as delay our ability to develop oil and natural gas reserves. In addition to increased regulation of our business, we may also experience an increase in litigation seeking damages as a result of heightened public concerns related to air quality, water quality, and other environmental impacts.

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A failure by our employees to follow applicable procedures and guidelines or on-site accidents could have a material adverse effect on our business.

We require our employees to comply with various internal procedures and guidelines, including an environmental management program and worker health and safety guidelines. The failure by our employees to comply with our internal environmental, health and safety guidelines could result in personal injuries, property damage or non-compliance with applicable governmental laws and regulations, which may lead to fines, remediation obligations or third-party

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claims. Any such fines, remediation obligations, third-party claims or losses could have a material adverse effect on our financial position, results of operations and cash flows. In addition, on-site accidents can result in injury or death to our or other contractors’ employees or damage to our or other contractors’ equipment and facilities and damage to other people, truck drivers, area residents and property. Any fines or third-party claims resulting from any such on-site accidents could have a material adverse effect on our business.

In addition, while an inspector is performing pipeline inspection or integrity services for TIR, the inspector is considered an employee of TIR and is eligible for workers’ compensation claims if the inspector is injured or killed while working for TIR. As the inspectors generally travel to and from projects in their own vehicles, TIR may be responsible for workers compensation claims or third-party claims arising out of vehicle accidents, which could negatively affect our results of operation.

Our ability to retain existing customers and attract new business is dependent on many factors, including our ability to demonstrate that we can reliably and safely operate our business and stay current on constantly changing rules, regulations, training, and laws. Existing and potential customers consider the safety record of their service providers to be of high importance in their decision to engage third-party servicers. If one or more accidents were to occur at one of our operating sites, or pipelines or gathering systems we inspect, the affected customer may seek to terminate or cancel its use of our facilities or services and may be less likely to continue to use our services. In addition, it is possible that we will experience numerous or particularly severe accidents in the future, causing our safety record to deteriorate. This may be more likely as we continue to grow, if we experience high employee turnover or labor shortage, or add inexperienced personnel. In addition, we could be subject to liability for damages as a result of such accidents and could incur penalties or fines for violations of applicable safety laws and regulations.

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Conservation measures and technological advances could reduce demand for oil and natural gas.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy generation devices could reduce demand for oil and natural gas and our customers’ drilling and production activities, and therefore the amount of drilling and production waste provided to us for treatment and disposal. Management cannot predict the impact of the changing demand for oil and natural gas services and products, and any major changes may have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Due to our lack of asset and geographic diversification, adverse developments in the areas in which we are located could adversely impact our financial condition, results of operations and cash flows and reduce our ability to make distributions to our unitholders.

Our SWD facilities are located exclusively in North Dakota and Texas. This concentration could disproportionately expose us to operational, economic and regulatory risk in these areas. Additionally, our SWD facilities currently comprise nine owned and three managed facilities. Any operational, economic or regulatory issues at a single facility could have a material adverse impact on us. Due to the lack of diversification in our assets and the location of our assets, adverse developments in the our markets, including, for example, transportation constraints, adverse regulatory developments, or other adverse events at one of our SWD facilities, could have a significantly greater impact on our financial condition, results of operations and cash flows than if we were more diversified.

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New technology, including those involving recycling of saltwater or the replacement of water in fracturing fluid, may hurt our competitive position.

The saltwater disposal industry is subject to the introduction of new waste treatment and disposal techniques and services using new technologies including those involving recycling of saltwater, some of which may be subject to patent protection. As competitors and others use or

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develop new technologies or technologies comparable to ours in the future, we may lose market share or be placed at a competitive disadvantage. For example, some companies have successfully used propane as the fracturing fluid instead of water. Further, we may face competitive pressure to implement or acquire certain new technologies at a substantial cost. Some of our competitors have greater financial, technical and personnel resources than we do, which may allow them to gain technological advantages or implement new technologies before we can. Additionally, we may be unable to implement new technologies or products at all, on a timely basis or at an acceptable cost. New technology could also make it easier for our customers to vertically integrate their operations or reduce the amount of waste produced in oil and natural gas drilling and production activities, thereby reducing or eliminating the need for third-party disposal. Limits on our ability to effectively use or implement new technologies may have a material adverse effect on our business, financial condition and results of operations.

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Technology advancements in connection with alternatives to hydraulic fracturing could decrease the demand for our SWD facilities.

Some oil and natural gas producers are focusing on developing and utilizing non-water fracturing techniques, including those utilizing propane, carbon dioxide or nitrogen instead of water. If our producing customers begin to shift their fracturing techniques to waterless fracturing in the development of their wells, our saltwater disposal services could be materially impacted as these wells would not produce flowback water. In particular, our SWD facilities in west Texas could be negatively affected by these new technologies, as the drought conditions of west Texas make fracturing with materials other than water attractive alternatives.

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We may be unable to ensure that customers will continue to utilize our services or facilities and pay rates that generate acceptable margins for us.

We cannot ensure that customers will continue to pay rates that generate acceptable margins for us. Our margins for our Water and Environmental Services segment could decrease if the volume of saltwater processed and disposed of by our customers’ decreases or if we are unable to increase the rates charged to correspond with increasing costs of operations. Our margins for our Pipeline Inspection and Integrity Services segment could decrease if the demand for our inspectors decrease, if our safety record declines, if we are unable to recruit and retain qualified inspectors or if we are unable to increase the daily and hourly rates charged to correspond with increasing costs of operations. In addition, new agreements for our services in both of these business segments entered into by us and TIR may not be obtainable on terms acceptable to us or, if obtained, may not be obtained on terms consistent with current practices, in which case our revenue and profitability could decline. We also cannot ensure that the parties from whom we lease, license or otherwise occupy the land on which certain of our facilities are situated, or the parties from whom we lease certain of our equipment, will renew our current leases, licenses or other occupancy agreements upon their expiration on commercially reasonable terms or at all. Any such failure to honor the terms of the leases or licenses or renew our current leases or licenses could have a material adverse effect on our financial position, results of operations and cash flows.

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We may be unable to attract and retain a sufficient number of skilled and qualified workers.

The delivery of our water and environmental services and products requires personnel with specialized skills and experience who can perform physically demanding work. The saltwater disposal industry has experienced a high rate of employee turnover as a result of the volatility of the oilfield service industry and the demanding nature of the work, and workers may choose to pursue employment in fields that offer a less demanding work environment. In addition, our Pipeline Inspection and Integrity segment is dependent on TIR’s specialized inspectors, who must undergo specific training prior to performing inspection services.

Our ability to be productive and profitable will depend upon our ability to employ and retain skilled workers. In addition, our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force. The demand for skilled workers is high, and the supply is limited. A significant increase in the wages paid by competing employers or the unionization of

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groups of our employees could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. In addition, our customers in our Pipeline Inspection and Integrity Services segment could choose to hire TIR’s inspectors directly. If any of these events were to occur, our capacity and profitability could be diminished and our growth potential could be impaired.

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Our ability to operate our business effectively could be impaired if affiliates of our affiliates of our general partner fail to attract and retain key management personnel.

We depend on the continuing efforts of our executive officers, all of whom are employees of affiliates of our general partner. Additionally, neither we nor our subsidiaries have employees. CEM and its affiliates are responsible for providing the employees and other personnel necessary to conduct our operations. All of the employees that conduct our business are employed by affiliates of our general partner, including our President and Chief Executive Officer, Peter C. Boylan III, and our Vice President and Chief Financial Officer, G. Les Austin. The loss of any member of our management or other key employees could have a material adverse effect on our business. Consequently, our ability to operate our business and implement our strategies will depend on the continued ability of affiliates of our general partner to attract and retain highly skilled management personnel with industry experience. Competition for these persons is intense. Given our size, we may be at a disadvantage, relative to our larger competitors, in the competition for these personnel. We may not be able to continue to employ our senior executives and other key personnel or attract and retain qualified personnel in the future, and our failure to retain or attract our senior executives and other key personnel could have a material adverse effect on our ability to effectively operate our business.

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Our business would be adversely affected if we or our customers experienced significant interruptions.

We are dependent upon the uninterrupted operations of our SWD facilities for the processing of saltwater, as well as the operations of third-party facilities, such as our oil and natural gas producing customers, for uninterrupted demand of our water and environmental services. Any significant interruption at these facilities or inability to transport products to or from the third-party facilities to our SWD facilities for any reason would adversely affect our results of operations, cash flow and ability to make distributions to our unitholders. Operations at our facilities and at the facilities owned or operated by our customers could be partially or completely shut down, temporarily or permanently, as the result of any number of circumstances that are not within our control, such as:

catastrophic events, including hurricanes, seismic activity such as earthquakes, lightning strikes, fires and floods;
loss of electricity or power;
explosion, breakage, loss of power, accidents to machinery, storage tanks or facilities;
leaks in packers and tubing below the surface, failures in cement or casing or ruptures in the pipes, valves, fittings, hoses, pumps, tanks, containment systems or houses that lead to spills or employee injuries;
environmental remediation;
pressure issues that limit or restrict our ability to inject water into the disposal well or limitations with the injection zone formation and its permeability or porosity that could limit or prevent disposal of additional fluids;
road restrictions;
labor difficulties;
malfunctions in automated control systems at the facilities;
disruptions in the supply of saltwater to our facilities;
failure of third-party pipelines, pumps, equipment or machinery; and

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governmental mandates, restrictions or rules and regulations.

In addition, there can be no assurance that we are adequately insured against such risks. As a result, our revenue and results of operations could be materially adversely affected.

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The amount of cash we have available for distribution to holders of our common and subordinated units depends primarily on our cash flow rather than on our profitability, which may prevent us from making distributions, even during periods in which we record net income.

The amount of cash we have available for distribution depends primarily upon our cash flow and not solely on profitability, which will be affected by depreciation, amortization, impairment expense and other non-cash items. As a result, we may make cash distributions during periods when we record losses for financial accounting purposes and may not make cash distributions during periods when we record net earnings for financial accounting purposes.

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Increases in interest rates could adversely impact our unit price, our ability to issue equity or incur debt for acquisitions or other purposes, and our ability to make cash distributions at our intended levels.

Interest rates may increase in the future. As a result, interest rates on our anticipated credit facilities or future credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. As with other yield-oriented securities, our unit price will be impacted by our level of our cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank yield-oriented securities for investment decision making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest rate environment could have an adverse impact on our unit price and our ability to issue equity or incur debt for acquisitions or other purposes and to make cash distributions at our intended levels.

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A failure in our operational and communications systems, loss of power, natural disasters, or cyber security attacks on any of our facilities, or those of third-parties, may adversely affect our financial results.

Our business is dependent upon our operational systems to process a large amount of data and a substantial number of transactions. If any of our financial, operational or other data processing systems fail or have other significant shortcomings, our financial results could be adversely affected. Our financial results could also be adversely affected if an employee causes our operational systems to fail, either as a result of inadvertent error or by deliberately tampering with or manipulating our operational systems. In addition, dependence upon automated systems may further increase the risk that operational system flaws, employee tampering or manipulation of those systems will result in losses that are difficult to detect.

Due to technology advances, we have become more reliant on technology to help increase efficiency in our business. We use computer programs to help run our financial and operations processes, and this may subject our business to increased risks. Any future cyber security attacks that affect our facilities, communications systems, our customers or any of our financial data could have a material adverse effect on our business. In addition, cyber-attacks on our customer and employee data may result in a financial loss and may negatively impact our reputation. We do not maintain specialized insurance for possible liability resulting from a cyber-attack on our assets that may shut down all or part of our business. Third-party systems on which we rely could also suffer operational system failure. Any of these occurrences could disrupt our business, result in potential liability or reputational damage or otherwise have an adverse effect on our financial results.

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If we fail to develop or maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud, which would likely have a negative impact on the market price of our common units.

Prior to this offering, we have not been required to file reports with the SEC. Upon the completion of this offering, we will become subject to the public reporting requirements of the Exchange Act. We prepare our financial statements in accordance with GAAP, but our internal accounting controls may not currently meet all standards applicable to companies with publicly traded securities. Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and to operate successfully as a publicly traded partnership. Our efforts to develop and maintain our internal controls may not be successful, and we may be unable to maintain effective controls over our financial processes and reporting in the future or to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. For example, Section 404 will require us, among other things, to annually review and report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. We must comply with Section 404 (except for the requirement for an auditor’s attestation report, as described below) beginning with our fiscal year ending December 31, 2014. Any failure to develop, implement or maintain effective internal controls or to improve our internal controls could harm our operating results or cause us to fail to meet our reporting obligations. Given the difficulties inherent in the design and operation of internal controls over financial reporting, we can provide no assurance as to our, or our independent registered public accounting firms, conclusions about the effectiveness of our internal controls, and we may incur significant costs in our efforts to comply with Section 404. Ineffective internal controls will subject us to regulatory scrutiny and a loss of confidence in our reported financial information, which could have an adverse effect on our business and would likely have a negative effect on the trading price of our common units. We currently utilize two distinct accounting systems for our business, one for TIR and one for the remainder of our business. We may experience difficulties consolidating these accounting systems, or may be delayed in implementing our plan to consolidate these systems, and any such difficulties or delay may impact our ability to timely file reports with the SEC and/or to comply with the covenants under our credit facilities.

Although we will be required to disclose changes made in our internal control over financial reporting on a quarterly basis, we will be required to assess the effectiveness of our controls annually. However, for as long as we are an “emerging growth company” under the recently enacted JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years. See “Summary —  Our Emerging Growth Company Status.” Even if we conclude that the our internal controls over financial reporting are effective, our independent registered public accounting firm may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

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A sustained failure of our information technology systems could adversely affect our business.

An enterprise-wide information system will be developed and integrated into our operations. If our information technology systems are disrupted due to problems with the integration of our information system or otherwise, we may face difficulties in generating timely and accurate financial information. Such a disruption to our information technology systems could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. In addition, we may not realize the benefits we anticipate from the implementation of our enterprise-wide information system.

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Risks Inherent in an Investment in Us

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Our general partner and its affiliates, including Cypress Holdings, have conflicts of interest with us and limited fiduciary duties to us and our unitholders, and they may favor their own interests to our detriment and that of our unitholders. Additionally, we have no control over the business decisions and operations of Cypress Holdings, and Cypress Holdings is under no obligation to adopt a business strategy that favors us.

Following the offering, Cypress Holdings will own a 0.0% non-economic partner interest and a   % limited partner interest in us (or   % if the underwriters’ option to purchase additional common units is exercised in full) and will own and control our general partner and will appoint all of the officers and directors of our general partner. Although our general partner has a duty to manage us in a manner that is in the best interests of our partnership and our unitholders, the directors and officers of our general partner also have a fiduciary duty to manage our general partner in a manner that is in the best interests of its owner, Cypress Holdings. Conflicts of interest may arise between Cypress Holdings and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates, including Cypress Holdings, over the interests of our common unitholders. These conflicts include, among others, the following situations:

neither our partnership agreement nor any other agreement requires Cypress Holdings to pursue a business strategy that favors us or utilizes our assets, which could involve decisions by Cypress Holdings to invest in competitors, pursue and grow particular markets, or undertake acquisition opportunities for itself. Cypress Holdings’ directors and officers have a fiduciary duty to make these decisions in the best interests of Cypress Holdings;
our general partner is allowed to take into account the interests of parties other than us, such as Cypress Holdings, in resolving conflicts of interest;
Cypress Holdings may be constrained by the terms of its debt instruments from taking actions, or refraining from taking actions, that may be in our best interests;
our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limiting our general partner’s liabilities and restricting the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty;
except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;
our general partner will determine the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership securities and the creation, reduction or increase of cash reserves, each of which can affect the amount of cash that is distributed to our unitholders;
our general partner will determine the amount and timing of many of our cash expenditures, whether a cash expenditure is classified as an expansion capital expenditure, which would not reduce operating surplus, or a maintenance capital expenditure, which would reduce our operating surplus, and whether to set aside cash for future maintenance capital expenditures on certain of our assets that will need extensive repairs during their useful lives. This determination can affect the amount of available cash from operating surplus that is distributed to our unitholders and to our general partner, the amount of adjusted operating surplus generated in any given period and the ability of the subordinated units to convert into common units;
our general partner will determine which costs incurred by it are reimbursable by us;

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our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period;
our partnership agreement permits us to classify up to $     million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or to our general partner in respect of the general partner interest or the incentive distribution rights;
our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;
our general partner intends to limit its liability regarding our contractual and other obligations;
our general partner may exercise its right to call and purchase all of the common units not owned by it and its affiliates if it and its affiliates own more than 80.0% of the common units;
our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates;
our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and
our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner, which we refer to as our conflicts committee, or our unitholders. This election may result in lower distributions to our common unitholders in certain situations.

Under the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our general partner or any of its affiliates, including its executive officers, directors and owners. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and our unitholders. Please read “Certain Relationships and Related Party Transactions — Agreements Governing the Restructuring Transactions — Omnibus agreement” and “Conflicts of Interest and Duties.”

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Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.

Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. Therefore, to the extent we are unable to finance our growth externally, our cash distribution policy will significantly impair our ability to grow. In addition, because we will distribute all of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we

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issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement, and we do not anticipate there being limitations in our indebtedness, on our ability to issue additional units, including units ranking senior to our common units as to distributions or in liquidation or that have special voting rights and other rights, and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such additional units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may reduce the amount of cash that we have available to distribute to our unitholders.

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Our partnership agreement replaces our general partner’s fiduciary duties to holders of our common units with contractual standards governing its duties.

Delaware law provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by the general partner to limited partners and the partnership, provided that partnership agreements may not eliminate the implied contractual covenant of good faith and fair dealing. This implied covenant is a judicial doctrine utilized by Delaware courts in connection with interpreting ambiguities in partnership agreements and other contracts, and does not form the basis of any separate or independent fiduciary duty in addition to the express contractual duties set forth in our partnership agreement. Under the implied contractual covenant of good faith and fair dealing, a court will enforce the reasonable expectations of the partners where the language in the partnership agreement does not provide for a clear course of action.

As permitted by Delaware law, our partnership agreement contains provisions that eliminate the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law and replaces those duties with several different contractual standards. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, free of any duties to us and our unitholders other than the implied contractual covenant of good faith and fair dealing. This provision entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:

how to allocate corporate opportunities among us and its affiliates;
whether to exercise its limited call right;
whether to seek approval of the resolution of a conflict of interest by the conflicts committee of the board of directors of our general partner;
how to exercise its voting rights with respect to the units it owns;
whether to elect to reset target distribution levels;
whether to transfer the incentive distribution rights or any units it owns to a third party; and
whether or not to consent to any merger, consolidation or conversion of the partnership or amendment to the partnership agreement.

By purchasing a common unit, a unitholder is treated as having consented to the provisions in our partnership agreement, including the provisions discussed above. Please read “Conflicts of Interest and Duties — Duties of the General Partner.”

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Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements so that counterparties to such agreements have recourse only against our assets and not against our

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general partner or its assets or any affiliate of our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s fiduciary duties, even if we could have obtained terms that are more favorable without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.

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Our partnership agreement restricts the remedies available to holders of our common and subordinated units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement:

provides that whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is required to make such determination, or take or decline to take such other action, in good faith, meaning that it subjectively believed that the determination or the decision to take or decline to take such action was in the best interests of our partnership, and will not be subject to any other or different standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;
provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith;
provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and
provides that our general partner will not be in breach of its obligations under our partnership agreement or its fiduciary duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is approved in accordance with, or otherwise meets the standards set forth in, our partnership agreement.

In connection with a situation involving a transaction with an affiliate or a conflict of interest, our partnership agreement provides that any determination by our general partner must be made in good faith, and that our conflicts committee and the board of directors of our general partner are entitled to a presumption that they acted in good faith. In any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Please read “Conflicts of Interest and Duties.”

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Cost reimbursements and fees due to our general partner for services provided to us or on our behalf following the expiration of the omnibus agreement could be substantial and will reduce our cash available for distribution to our unitholders.

Pursuant to the omnibus agreement, prior to making any distributions to our unitholders, we will pay our general partner an administrative fee of $750,000 quarterly through        for the provision of certain general and administrative expenses. This fee is subject to increase for inflation and to increase, with the concurrence of the conflicts committee, in the event of an expansion of our operations, including through acquisitions or internal growth. The amount of this fee is below the amount we would expect to reimburse the general partner for such services in the absence of the fee. After         , in lieu of the quarterly fee, we will be required by our

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partnership agreement to reimburse our general partner and its affiliates for all costs and expenses that they incur on our behalf for managing and controlling our business and operations, at which time we expect our payment for these services to increase. This increase may be substantial. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. Furthermore, our general partner and its affiliates will allocate other expenses related to our operations to us and may provide us other services for which we will be charged fees as determined by our general partner. Payments to our general partner and its affiliates following the expiration of the omnibus agreement could be substantial and will reduce the amount of cash we have available to distribute to unitholders.

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Unitholders have very limited voting rights and, even if they are dissatisfied, they cannot remove our general partner without its consent.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. For example, unlike holders of stock in a public corporation, unitholders will not have “say-on-pay” advisory voting rights. Unitholders did not elect our general partner or the board of directors of our general partner and will have no right to elect our general partner or the board of directors of our general partner on an annual or other continuing basis. The board of directors of our general partner is chosen by the member of our general partner, which is a wholly owned subsidiary of Cypress Holdings. Furthermore, if the unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. As a result of these limitations, the price at which our common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

The unitholders will be unable initially to remove our general partner without its consent because our general partner and its affiliates will own sufficient units upon completion of the offering to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common units and subordinated units voting together as a single class is required to remove our general partner. At closing, our general partner and its affiliates will own   % of the common units and subordinated units (or   % if the underwriters’ option to purchase additional common units is exercised in full) (excluding common units purchased by certain of our officers, directors and other affiliates under our directed unit program). Also, if our general partner is removed without cause during the subordination period and common units and subordinated units held by our general partner and its affiliates are not voted in favor of that removal, all remaining subordinated units will automatically be converted into common units, and any existing arrearages on our common units will be extinguished. A removal of our general partner under these circumstances would adversely affect our common units by prematurely eliminating their distribution and liquidation preference over our subordinated units, which would otherwise have continued until we had met certain distribution and performance tests.

“Cause” is narrowly defined under our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding the general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business, so the removal of our general partner because of the unitholders’ dissatisfaction with our general partner’s performance in managing our partnership will most likely result in the termination of the subordination period and conversion of our subordinated unites to common units.

Furthermore, unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person that owns 20.0% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees, and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.

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Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

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Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, there is no restriction in our partnership agreement on the ability of Cypress Holdings to transfer its membership interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with its own choices.

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We may issue additional units without unitholder approval, which would dilute your existing ownership interests.

At any time, we may issue an unlimited number of general partner interests or limited partner interests of any type without the approval of our unitholders and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such general partner interests or limited partner interests. Further, there are no limitations in our partnership agreement on our ability to issue equity securities that rank equal or senior to our common units as to distributions or in liquidation or that have special voting rights and other rights. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

our existing unitholders’ proportionate ownership interest in us will decrease;
the amount of cash we have available to distribute on each unit may decrease;
because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
the ratio of taxable income to distributions may increase;
the relative voting strength of each previously outstanding unit may be diminished; and
the market price of our common units may decline.

The issuance by us of additional general partner interests may have the following effects, among others, if such general partner interests are issued to a person who is not an affiliate of Cypress Holdings:

management of our business may no longer reside solely with our current general partner; and
affiliates of the newly admitted general partner may compete with us, and neither that general partner nor such affiliates will have any obligation to present business opportunities to us.
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Cypress Holdings or its unitholders, directors or officers may sell units in the public or private markets, and such sales could have an adverse impact on the trading price of the common units.

After the completion of this offering, assuming that the underwriters do not exercise their option to purchase additional common units, our general partner and its affiliates will hold        common units and        subordinated units. All of the subordinated units will convert into common units at the end of the subordination period and may convert earlier under certain circumstances. Additionally, we have agreed to provide Cypress Holdings with certain registration rights under applicable securities laws. Please read “Units Eligible for Future Sale.” The sale of

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these units in the public or private markets could have an adverse impact on the price of the common units or on any trading market that may develop.

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Our general partner’s discretion in establishing cash reserves may reduce the amount of cash we have available to distribute to unitholders.

Our partnership agreement requires our general partner to deduct from operating surplus the cash reserves that it determines are necessary to fund our future operating expenditures. In addition, the partnership agreement permits the general partner to reduce available cash by establishing cash reserves for the proper conduct of our business, to comply with applicable law or agreements to which we are a party, or to provide funds for future distributions to partners. These cash reserves will affect the amount of cash we have available to distribute to unitholders.

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Affiliates of our general partner, including, but not limited to, Cypress Holdings, may compete with us, and neither our general partner nor its affiliates have any obligation to present business opportunities to us.

Neither our partnership agreement nor our omnibus agreement will prohibit Cypress Holdings or any other affiliates of our general partner from owning assets or engaging in businesses that compete directly or indirectly with us. Under the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not apply to our general partner or any of its affiliates, including Cypress Holdings. Any such entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Consequently, Cypress Holdings and other affiliates of our general partner may acquire, construct or dispose of additional SWD facilities, pipeline integrity or inspection assets or other assets in the future without any obligation to offer us the opportunity to purchase any of those assets. As a result, competition from Cypress Holdings and other affiliates of our general partner could materially and adversely impact our results of operations and distributable cash flow.

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Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80.0% of our then-outstanding common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. At the completion of this offering and assuming the underwriters’ option to purchase additional common units from us is not exercised, our general partner and its affiliates will own approximately   % of our common units (excluding any common units purchased by certain of our officers, directors and other affiliates under our directed unit program). At the end of the subordination period (which could occur as early as            , 2014), assuming no additional issuances of common units by us (other than upon the conversion of the subordinated units) and the underwriters’ option to purchase additional common units from us is not exercised, our general partner and its affiliates will own approximately   % of our outstanding common units (excluding any common units purchased by certain of our officers, directors and other affiliates under our directed unit program) and therefore would not be able to exercise the call right at that time. For additional information about our general partner’s call right, please read “Our Partnership Agreement — Limited Call Right.”

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Unitholders may have to repay distributions that were wrongfully distributed to them.

Under certain circumstances, unitholders may have to repay amounts wrongfully distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair

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value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Transferees of common units are liable for the obligations of the transferor to make contributions to the partnership that are known to the transferee at the time of the transfer and for unknown obligations if the liabilities could be determined from our partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

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There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for our common units. After this offering, there will be only publicly traded common units. Cypress Holdings through a wholly owned subsidiary and its affiliates will own      common units and        subordinated units, representing an aggregate   % limited partner interest in us (or   % if the underwriters’ option to purchase additional common units is exercised in full). We do not know the extent to which investor interest will lead to the development of an active trading market or how liquid that market might be. You may not be able to resell your common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

The initial public offering price for the common units offered hereby will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price.

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Our general partner, or any transferee holding incentive distribution rights, may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights, without the approval of our conflicts committee or the holders of our common units. This could result in lower distributions to holders of our common units.

Our general partner has the right, at any time units outstanding and it has received distributions on its incentive distribution rights at the highest level to which it is entitled (50.0%) for each of the prior four consecutive fiscal quarters and the amount of such distribution did not exceed the adjusted operating surplus for such quarter, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution, and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units equal to that number of common units that would have entitled their holder to an average aggregate quarterly cash distribution in the prior two quarters equal to the average of the distributions to our general partner on the incentive distribution rights in such two quarters. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive distributions based on the initial target distribution levels. This risk could be elevated if our incentive distribution rights have been transferred to a third party. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that

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they would have otherwise received had we not issued new common units in connection with resetting the target distribution levels. Additionally, our general partner has the right to transfer all or any portion of our incentive distribution rights at any time, and such transferee shall have the same rights as the general partner relative to resetting target distributions if our general partner concurs that the tests for resetting target distributions have been fulfilled. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions — General Partner’s Right to Reset Incentive Distribution Levels.”

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We will incur increased costs as a result of being a publicly traded partnership.

We have no history operating as a publicly traded partnership. As a publicly traded partnership, we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 and related rules subsequently implemented by the SEC and the NYSE have required changes in the corporate governance practices of publicly traded companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our publicly traded partnership reporting requirements and our general partner will maintain director and officer liability insurance under a separate policy. We have included $2.0 million of estimated annual incremental costs associated with being a publicly traded partnership in our financial forecast included elsewhere in this prospectus. However, it is possible that our actual incremental costs of being a publicly traded partnership will be higher than we currently estimate.

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The NYSE does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements.

We intend to apply to list our common units on the NYSE. Because we will be a publicly traded limited partnership, the NYSE does not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Additionally, any future issuance of additional common units or other securities, including to affiliates, will not be subject to the NYSE’s shareholder approval rules that apply to a corporation. Accordingly, unitholders will not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements. Please read “Management — Management of Cypress Energy Partners, L.P.”

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You will experience immediate and substantial dilution in net tangible book value of $    per common unit.

The assumed initial public offering price of $     per common unit (the midpoint of the price range set forth on the cover page of this prospectus) exceeds our pro forma net tangible book value of $     per unit. Based on the assumed initial public offering price of $     per common unit, you will incur immediate and substantial dilution in pro forma net tangible book value of $     per common unit. This dilution results primarily because the assets contributed by Cypress Holdings are recorded in accordance with GAAP at their historical cost, and not their fair value. Please read “Dilution.”

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The incentive distribution rights of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its incentive distribution rights to a third party at any time without the consent of our unitholders. If our general partner transfers its incentive distribution rights to a third party but retains its general partner interest, our general partner may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over

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time as it would if it had retained ownership of its incentive distribution rights. For example, a transfer of incentive distribution rights by our general partner could reduce the likelihood that Cypress Holdings, which owns our general partner, will sell or contribute additional assets to us, as Cypress Holdings would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base.

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Your liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law, and we conduct business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business. You could be liable for any and all of our obligations as if you were a general partner if a court or government agency were to determine that:

we were conducting business in a state but had not complied with that particular state’s partnership statute; or
your right to act with other unitholders to remove or replace our general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute “control” of our business.

For a discussion of the implications of the limitations of liability on a unitholder, please read “Our Partnership Agreement — Limited Liability.”

Tax Risks

In addition to reading the following risk factors, please read “Material Federal Income Tax Consequences” for a more complete discussion of the expected material federal income tax consequences of owning and disposing of common units.

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Our tax treatment depends on our status as a partnership for federal income tax purposes. If the IRS were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.

The anticipated after-tax economic benefit of an investment in the common units depends largely on our being treated as a partnership for federal income tax purposes. We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes.

Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes. A change in our business or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35.0%, and would likely pay state and local income tax at varying rates. Distributions would generally be taxed again as corporate dividends (to the extent of our current and accumulated earnings and profits), and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. Therefore, if we were treated as a corporation for federal income tax purposes, there would be a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.

Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to

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entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the impact of that law on us.

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If we were subjected to a material amount of additional entity-level taxation by individual states, counties or cities, it would reduce our cash available for distribution to our unitholders.

Changes in current state, county or city law may subject us to additional entity-level taxation by individual states, countries or cities. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any such taxes may substantially reduce the cash available for distribution to you. Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to entity-level taxation, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the impact of that law on us.

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The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. For example, from time to time, members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. Any modification to the federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for federal income tax purposes. Please read “Material Federal Income Tax Consequences — Partnership Status.” We are unable to predict whether any such changes will ultimately be enacted. However, it is possible that a change in law could affect us, and any such changes could negatively impact the value of an investment in our common units.

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Our unitholders’ share of our income will be taxable to them for federal income tax purposes even if they do not receive any cash distributions from us.

Because a unitholder will be treated as a partner to whom we will allocate taxable income that could be different in amount than the cash we distribute, a unitholder’s allocable share of our taxable income will be taxable to it, which may require the payment of federal income taxes and, in some cases, state and local income taxes, on its share of our taxable income even if it receives no cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.

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If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution to our unitholders.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt positions that differ from the conclusions of our counsel expressed in this prospectus or from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take and such positions may not ultimately be sustained. A court may not agree with some or all of our counsel’s conclusions or the positions we take. Any contest with the IRS, and the outcome of any IRS contest, may have a materially adverse impact on the market for our common units and the price at which they trade. In addition, our costs of any contest with the IRS will be borne indirectly by our unitholders and

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our general partner, because the costs will reduce our cash available for distribution to our unitholders and for incentive distributions to our general partner.

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Tax gain or loss on the disposition of our common units could be more or less than expected.

If our unitholders sell common units, they will recognize a gain or loss for federal income tax purposes equal to the difference between the amount realized and their tax basis in those common units. Because distributions in excess of their allocable share of our net taxable income decrease their tax basis in their common units, the amount, if any, of such prior excess distributions with respect to the common units a unitholder sells will, in effect, become taxable income to the unitholder if it sells such common units at a price greater than its tax basis in those common units, even if the price received is less than its original cost. Furthermore, a substantial portion of the amount realized on any sale of your common units, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, a unitholder that sells common units may incur a tax liability in excess of the amount of cash received from the sale. Please read “Material Federal Income Tax Consequences — Disposition of Common Units — Recognition of Gain or Loss” for a further discussion of the foregoing.

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Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file federal income tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult a tax advisor before investing in our common units.

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We will treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Because we cannot match transferors and transferees of common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. Latham & Watkins LLP is unable to opine as to the validity of such filing positions. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. Please read “Material Federal Income Tax Consequences — Tax Consequences of Unit Ownership — Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we will adopt.

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We prorate our items of income, gain, loss and deduction for federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

We will prorate our items of income, gain, loss and deduction for federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be permitted under existing Treasury Regulations, and, accordingly, our counsel is unable to opine as to the validity of this method. However, the

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U.S. Treasury Department has issued proposed regulations that provide a safe harbor pursuant to which publicly traded partnerships may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we will adopt. If the IRS were to challenge this method or new Treasury regulations were issued, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders. Latham & Watkins LLP has not rendered an opinion with respect to whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations. Please read “Material Federal Income Tax Consequences — Disposition of Common Units — Allocations Between Transferors and Transferees.”

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A unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed of those common units. If so, he would no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

Because a unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed of the loaned common units, he may no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Latham & Watkins LLP has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to effect a short sale of common units; therefore, our unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning their common units.

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We will adopt certain valuation methodologies and monthly conventions for federal income tax purposes that may result in a shift of income, gain, loss and deduction between our general partner and our unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.

When we issue additional units or engage in certain other transactions, we will determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner for purposes of determining our incentive distributions. Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and our general partner, which may be unfavorable to such unitholders. Moreover, under our valuation methods, subsequent purchasers of common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of the Section 743(b) adjustment attributable to our tangible and intangible assets, and allocations of taxable income, gain, loss and deduction between our general partner, in its capacity as holder of our incentive distribution rights, and certain of our unitholders.

A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of taxable gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.

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The sale or exchange of 50.0% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have technically terminated our partnership for federal income tax purposes if there is a sale or exchange of 50.0% or more of the total interests in our capital and profits within a twelve month period. For purposes of determining whether the 50.0% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two Schedules K-1 if relief was not available, as described below) for one fiscal year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections, including a new election under Section 754 of the Internal Revenue Code, and could be subject to penalties if we are unable to determine that a termination occurred. The IRS has announced a publicly traded partnership technical termination relief program whereby, if a publicly traded partnership that technically terminated requests publicly traded partnership technical termination relief and such relief is granted by the IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year notwithstanding two partnership tax years. Please read “Material Federal Income Tax Consequences — Disposition of Common Units — Constructive Termination” for a discussion of the consequences of our termination for federal income tax purposes.

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As a result of investing in our common units, you may become subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.

In addition to federal income taxes, our unitholders will likely be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or control property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. We initially expect to own property or conduct business in many states, most of which impose an income tax on individuals, corporations and other entities. As we make acquisitions or expand our business, we may control assets or conduct business in additional states that impose a personal income tax. It is your responsibility to file all federal, state and local tax returns. Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units. Please consult your tax advisor.

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USE OF PROCEEDS

We expect to receive net proceeds of approximately $     million from the sale of      common units offered by this prospectus, based on an assumed initial public offering price of $     per common unit (the mid-point of the price range set forth on the cover of the prospectus), after deducting underwriting discounts, structuring fees and estimated offering expenses. Our estimate assumes the underwriters’ option to purchase additional common units from us is not exercised. We expect to use the net proceeds of approximately $     million, after deducting underwriting discounts, commissions and a structuring fee, to distribute $    million to a subsidiary of Cypress Holdings as reimbursement for certain capital expenditures it incurred with respect to assets contributed to us and to pay transaction expenses related to our new term loan facility.

Upon the closing of this offering, Cypress LLC, our operating subsidiary, will enter into a new $    million revolving credit facility and $    million term loan facility and borrow $     million and $     million under these facilities, respectively, thereunder. We will use these borrowings to make a capital contribution to TIR Parent, a portion of which will be distributed to TIR Parent’s equity owners, other than Cypress Energy Partners — TIR, LLC, in complete redemption of their interests in TIR Parent, and a portion of which TIR Parent will use to repay in full its indebtedness under its two credit facilities.

If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder of the      additional common units, if any, will be issued to a wholly owned subsidiary of Cypress Holdings. Any such common units issued to Cypress Holdings will be issued for no additional consideration. If the underwriters exercise in full their option to purchase additional common units from us, we expect to receive net proceeds of approximately $     million, after deducting underwriting discounts and structuring fees. We will use any net proceeds from the exercise of the underwriters’ option to purchase additional common units from us to make a distribution to a wholly owned subsidiary of Cypress Holdings. Any common units not purchased by the underwriters pursuant to their exercise of the option will be issued to a wholly owned subsidiary of Cypress Holdings at the expiration of the option period for no additional consideration.

An increase or decrease in the initial public offering price of $1.00 per common unit would cause the net proceeds from the offering, after deducting underwriting discounts, structuring fees and offering expenses, to increase or decrease by $     million.

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CAPITALIZATION

The following table shows cash and cash equivalents and capitalization as of September 30, 2013:

on an historical basis with respect to the CEP Successor;
on an as adjusted basis to give effect to our acquisition of a 50.1% equity interest in TIR; and
on a pro forma basis with respect to Cypress Energy Partners to give effect to the pro forma adjustments described in our unaudited pro forma condensed combined financial statements included elsewhere in this prospectus, including this offering and the application of the net proceeds of this offering in the manner described under “Use of Proceeds” and the other restructuring transactions described under “Prospectus Summary — The Restructuring Transactions.”

This table is derived from, should be read together with and is qualified in its entirety by reference to the historical combined financial statements and the accompanying notes and the unaudited pro forma condensed combined financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

     
As of September 30, 2013   CEP Successor Historical   CEP Successor As Adjusted (1)   Cypress Energy
Partners, L.P.
Pro Forma (2)
     (in thousands)
Cash and Cash Equivalents   $ 5,135     $ 14,374     $       
Long-term Debt:
                          
TIR Parent notes payable            $ 20,463     $  
TIR Parent credit facility              37,758        
Cypress Energy Partners, L.P. revolving credit facility                        
Cypress Energy Partners, L.P. term loan facility                        
Total long-term debt (including current maturities)              58,221           
Member’s/Partners’ Equity (3):
                          
CEP Successor member’s equity     83,910                    
Limited Partners’ Units (3):
                          
Common units — public                        
Common units — Cypress Holdings and Cypress Energy Partners — TIR, LLC and affiliates (3)                        
Subordinated units — Cypress Holdings and Cypress Energy Partners — TIR, LLC and affiliates                        
Total member’s/partners’ equity                            
Non-controlling interest                           
Total equity     83,910                    
Total capitalization   $     $          $       

(1) Represents CEP Successor Historical, as adjusted for the historical operations of TIR.
(2) Assumes the mid-point of the price range set forth on the cover of this prospectus.
(3) Assumes the underwriters’ option to purchase additional common units from us is not exercised.

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DILUTION

Dilution is the amount by which the offering price per common unit in this offering will exceed the pro forma net tangible book value per unit after the offering. On a pro forma basis as of September 30, 2013, after giving effect to the offering of common units and the application of the related net proceeds, and assuming the underwriters’ option to purchase additional common units is not exercised, our net tangible book value was approximately $     million, or $     per unit. Purchasers of common units in this offering will experience substantial and immediate dilution in pro forma net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.

   
Assumed initial public offering price per common unit (1)            $       
Pro forma net tangible book value per unit before the offering (2)   $                
Decrease in net tangible book value per unit attributable to purchasers in the offering               
Less: Pro forma net tangible book value per unit after the offering (3)               
Immediate dilution in net tangible book value per common unit to purchasers in the offering (4)(5)         $       

(1) The mid-point of the price range set forth on the cover of this prospectus.
(2) Determined by dividing the number of units (      common units and      subordinated units) to be issued to the general partner and its affiliates for their contribution of assets and liabilities to us into the pro forma net tangible book value of the contributed assets and liabilities, of $     million.
(3) Determined by dividing the number of units to be outstanding after this offering (      common units and      subordinated units) and the application of the related net proceeds into our pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering, of $     million.
(4) If the initial public offering price were to increase or decrease by $1.00 per common unit, then dilution in net tangible book value per common unit would equal $      and $      , respectively.
(5) Because the total number of units outstanding following this offering will not be impacted by any exercise of the underwriters’ option to purchase additional common units and any net proceeds from such exercise will not be retained by us, there will be no change to the dilution in net tangible book value per common unit to purchasers in the offering due to any such exercise of the option.

The following table sets forth the number of units that we will issue and the total consideration contributed to us by the general partner and its affiliates in respect of their units and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus.

       
  Units Acquired   Total Consideration
  Number   %   Amount   %
     (in thousands)
General partner and its affiliates (1)(2)(3)                   %    $               % 
Public common unitholders                 %                  % 
Total              100.0 %    $          100.0 % 

(1) Upon the consummation of the transactions contemplated by this prospectus,      common units and      subordinated units will be owned by our general partner and its affiliates, including Cypress Holdings, and LTIP Participants.
(2) Assumes the underwriters’ option to purchase additional common units from us is not exercised.

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(3) The assets contributed by Cypress Holdings and its affiliates were recorded at historical cost in accordance with GAAP. Book value of the consideration provided by Cypress Holdings and its affiliates, as of September 30, 2013, after giving effect to the application of the net proceeds in this offering, was as follows:

 
  (in thousands)
Book value of net assets contributed   $  
Less:
        
Distribution from net proceeds of this offering           
Total consideration   $          

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CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

The following discussion of our cash distribution policy should be read in conjunction with the specific assumptions included in this section. In addition, “Forward-Looking Statements” and “Risk Factors” should be read for information regarding statements that do not relate strictly to historical or current facts and regarding certain risks inherent in our business.

For additional information regarding our historical and pro forma results of operations, please refer to our historical combined financial statements and the accompanying notes and the unaudited pro forma condensed combined financial statements and the accompanying notes included elsewhere in this prospectus.

General

Rationale for Our Cash Distribution Policy

Our partnership agreement requires that we distribute all of our available cash quarterly. This requirement forms the basis of our cash distribution policy and reflects a basic judgment that our unitholders will be better served by distributing our available cash rather than retaining it, because, among other reasons, we believe we will generally finance any expansion capital expenditures from external financing sources. Under our current cash distribution policy, we intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $     per unit, or $     per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including the payment of expenses to our general partner. However, other than the requirement in our partnership agreement to distribute all of our available cash each quarter, we have no legal obligation to make quarterly cash distributions in this or any other amount, and our general partner has considerable discretion to determine the amount of our available cash each quarter. In addition, our general partner may change our cash distribution policy at any time, subject to the requirement in our partnership agreement to distribute all of our available cash quarterly. Generally, our available cash is our (1) cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and (2) cash on hand resulting from working capital borrowings made after the end of the quarter. Because we are not subject to an entity-level federal income tax, we expect to have more cash to distribute than would be the case if we were subject to federal income tax. If we do not generate sufficient available cash from our operations, we may, but are under no obligation to, borrow funds to pay the minimum quarterly distribution to our unitholders.

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

Although our partnership agreement requires that we distribute all of our available cash quarterly, there is no guarantee that we will make quarterly cash distributions to our unitholders at our minimum quarterly distribution rate or at any other rate, and we have no legal obligation to do so. Our current cash distribution policy is subject to certain restrictions, as well as the considerable discretion of our general partner in determining the amount of our available cash each quarter. The following factors will affect our ability to make cash distributions, as well as the amount of any cash distributions we make:

Our cash distribution policy will be subject to restrictions on cash distributions under our credit facilities and other debt agreements we may enter into in the future. Our credit facilities may contain covenants requiring us to maintain certain financial ratios and restricting our ability to incur indebtedness, make distributions, make investments and engage in certain other partnership actions, including making cash distributions while an event of default has occurred and is continuing under the facility, notwithstanding our cash distribution policy. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources  — Our Anticipated Credit Facilities.”

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The amount of cash that we distribute and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. Specifically, our general partner will have the authority to establish cash reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment of or increase in those reserves could result in a reduction in cash distributions from levels we currently anticipate pursuant to our stated cash distribution policy. Any decision to establish cash reserves made by our general partner in good faith will be binding on our unitholders.
While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions, may be amended. During the subordination period our partnership agreement may not be amended without the approval of our public common unitholders, except in a limited number of circumstances when our general partner can amend our partnership agreement without any unitholder approval. For a description of these limited circumstances, please read “Our Partnership Agreement — Amendment of Our Partnership Agreement — No Unitholder Approval.” However, after the subordination period has ended, our partnership agreement may be amended with the consent of our general partner and the approval of a majority of the outstanding common units, including common units owned by our general partner and its affiliates. At the closing of this offering, Cypress Holdings will own indirectly our general partner and will indirectly own an aggregate of approximately     % of our outstanding common units and    % subordinated units (assuming no exercise of the underwriters’ option to purchase additional common units).
Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets.
We may lack sufficient cash to pay distributions to our unitholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operating and maintenance or general and administrative expenses, principal and interest payments on our debt, tax expenses, working capital requirements and anticipated cash needs. Our available cash is directly impacted by our cash expenses necessary to run our business and will be reduced dollar-for-dollar to the extent such uses of cash increase. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions — Distributions of Available Cash.”
Our ability to make cash distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make cash distributions to us may be restricted by, among other things, the provisions of future indebtedness, applicable state partnership and limited liability company laws and other laws and regulations.
If and to the extent our available cash materially declines from quarter to quarter, we may elect to change our current cash distribution policy and reduce the amount of our quarterly distributions in order to service or repay our debt or fund expansion capital expenditures.

To the extent that our general partner determines not to distribute the full minimum quarterly distribution on our common units with respect to any quarter during the subordination period, the common units will accrue an arrearage equal to the difference between the minimum quarterly distribution and the amount of the distribution actually paid on the common units with respect to that quarter. The aggregate amount of any such arrearages must be paid on the common units before any distributions of available cash from operating surplus may be made on the subordinated units and before any subordinated units may convert into common units. The subordinated units will not accrue any arrearages. Any shortfall in the payment of the minimum quarterly distribution on the common units with respect to any quarter during the subordination period may decrease

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the likelihood that our quarterly distribution rate would increase in subsequent quarters. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions — Subordinated Units and Subordination Period.”

Our Ability to Grow is Dependent on Our Ability to Access External Expansion Capital

Our partnership agreement requires us to distribute all of our available cash to our unitholders on a quarterly basis. As a result, we expect that we will rely primarily upon our cash reserves and external financing sources, including borrowings under our credit facilities and the issuance of debt and equity securities, to fund future acquisitions and other expansion capital expenditures. We do not have any commitment from Cypress Holdings or its affiliates to provide any capital to us following this offering. To the extent we are unable to finance growth with external sources of capital, the requirement in our partnership agreement to distribute all of our available cash and our current cash distribution policy will significantly impair our ability to grow. In addition, because we will distribute all of our available cash, our growth may not be as fast as businesses that reinvest all of their available cash to expand ongoing operations. Our credit facilities will restrict our ability to incur additional debt, including through the issuance of debt securities. Please read “Risk Factors — Risks Related to Our Business — Restrictions in our credit facilities could adversely affect our business, financial condition, results of operations, ability to make cash distributions to our unitholders and the value of our units.” To the extent we issue additional units, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our cash distributions per unit. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to our common units, and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such additional units. If we incur additional debt (under our credit facilities or otherwise) to finance our growth strategy, we will have increased interest expense, which in turn will reduce the available cash that we have to distribute to our unitholders. Please read “Risk Factors — Risks Related to Our Business — Our future debt level may limit our flexibility to obtain financing and to pursue other business opportunities.”

Our Minimum Quarterly Distribution

Upon the consummation of this offering, our partnership agreement will provide for a minimum quarterly distribution of $     per unit for each whole quarter, or $     per unit on an annualized basis. Our ability to make cash distributions at the minimum quarterly distribution rate will be subject to the factors described above under “Cash Distribution Policy and Restrictions on Distributions — General — Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.” Quarterly distributions, if any, will be made within 45 days after the end of each calendar quarter to holders of record on or about the first day of each such month in which such distributions are made. We do not expect to make distributions for the period that begins on            , 2013, and ends on the day prior to the closing of this offering. We will adjust the amount of our first distribution for the period from the closing of this offering through            , 2013, based on the actual length of the period.

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The amount of available cash needed to pay the minimum quarterly distribution on all of our common units and subordinated units to be outstanding immediately after this offering for one quarter and on an annualized basis (assuming no exercise and full exercise of the underwriters’ option to purchase additional common units) is summarized in the table below:

           
  No Exercise of Option to Purchase
Additional Common Units
  Full Exercise of Option to Purchase
Additional Common Units
     Aggregate Minimum
Quarterly Distributions
  Aggregate Minimum
Quarterly Distributions
  Number of
Units
  One
Quarter
  Annualized
(Four
Quarters)
  Number of
Units
  One
Quarter
  Annualized
(Four
Quarters)
     (in millions)
Publicly held common units              $          $                     $          $       
Common units held by Cypress Holdings and its affiliates and Cypress Energy Partners — TIR, LLC                                                      
Subordinated units held by Cypress Holdings and its affiliates and Cypress Energy Partners — TIR, LLC                                                      
LTIP participants common units                                                      
Total            $        $                 $        $     

Our general partner will initially hold all of the incentive distribution rights, which entitle the holder to increasing percentages, up to a maximum of 50.0%, of the cash we distribute in excess of $      per unit per quarter.

During the subordination period, before we make any quarterly distributions to our subordinated unitholders, our common unitholders are entitled to receive payment of the full minimum quarterly distribution for such quarter plus any arrearages in distributions of the minimum quarterly distribution from prior quarters. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions — Subordinated Units and Subordination Period.” We cannot guarantee, however, that we will pay distributions on our common units at our minimum quarterly distribution rate or at any other rate in any quarter.

Although holders of our common units may pursue judicial action to enforce provisions of our partnership agreement, including those related to requirements to make cash distributions as described above, our partnership agreement provides that any determination made by our general partner in its capacity as our general partner must be made in good faith and that any such determination will not be subject to any other standard imposed by the Delaware Act or any other law, rule or regulation or at equity. Our partnership agreement provides that, in order for a determination by our general partner to be made in “good faith,” our general partner must subjectively believe that the determination is in the best interests of our partnership. In making such determination, our general partner may take into account the totality of the circumstances or the totality of the relationships between the parties involved, including other relationships or transactions that may be particularly favorable or advantageous to us. Please read “Conflicts of Interest and Duties.”

The provision in our partnership agreement requiring us to distribute all of our available cash quarterly may not be modified without amending our partnership agreement; however, as described above, the actual amount of our cash distributions for any quarter is subject to fluctuations based on the amount of cash we generate from our business, the amount of reserves our general partner establishes in accordance with our partnership agreement and the amount of available cash from working capital borrowings.

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Additionally, our general partner may reduce the minimum quarterly distribution and the target distribution levels if legislation is enacted or modified that results in our becoming taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes. In such an event, the minimum quarterly distribution and the target distribution levels may be reduced proportionately by the percentage decrease in our available cash resulting from the estimated tax liability we would incur in the quarter in which such legislation is effective. The minimum quarterly distribution will also be proportionately adjusted in the event of any distribution, combination or subdivision of common units in accordance with the partnership agreement, or in the event of a distribution of available cash from capital surplus. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions — Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels.” The minimum quarterly distribution is also subject to adjustment if the holder(s) of the incentive distribution rights (initially only our general partner) elect to reset the target distribution levels related to the incentive distribution rights. In connection with any such reset, the minimum quarterly distribution will be reset to an amount equal to the average cash distribution amount per common unit for the two quarters immediately preceding the reset. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions — General Partner’s Right to Reset Incentive Distribution Levels.”

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our annualized minimum quarterly distribution of $     per unit for the year ending December 31, 2014. In those sections, we present two tables, consisting of:

“Unaudited Pro Forma Distributable Cash Flow,” in which we present the amount of distributable cash flow we would have generated on a pro forma basis for the year ended December 31, 2012, and the twelve months ended September 30, 2013, derived from our unaudited pro forma condensed combined financial statements that are included in this prospectus, as adjusted to give pro forma effect to this offering and the related restructuring transactions; and
“Estimated Distributable Cash Flow for the Year Ending December 31, 2014,” in which we provide our estimated forecast of our ability to generate sufficient distributable cash flow to support the payment of the minimum quarterly distribution on all units for the year ending December 31, 2014.

Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2012, and
the Twelve Months Ended September 30, 2013

If we had completed the transactions contemplated by this prospectus on January 1, 2012, our unaudited pro forma distributable cash flow generated for the year ended December 31, 2012 would have been approximately $9.7 million. This amount would have been sufficient to pay 100.0% of the aggregate minimum quarterly distribution on our common units during the period, and    % of the aggregate minimum quarterly distribution on our subordinated units during that period.

If we had completed the transactions contemplated by this prospectus on October 1, 2012, our unaudited pro forma distributable cash flow generated for the twelve months ended September 30, 2013, would have been approximately $15.0 million. This amount would have been sufficient to pay 100.0% of the aggregate minimum quarterly distribution on our common units during that period, and     % of the aggregate minimum quarterly distribution on our subordinated units during that period.

We based the pro forma adjustments upon currently available information and specific estimates and assumptions. The pro forma amounts below do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of the dates indicated. In addition, distributable cash flow is primarily a cash accounting concept, while our unaudited pro forma condensed combined financial statements have been prepared on an accrual basis. As a result, you should view the amount of pro forma distributable cash flow only as a general indication of the amount of distributable cash flow that we might have generated had we been formed in prior periods.

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The pro forma amounts described below are based on the following pro forma operating data for the periods indicated:

Cypress Energy Partners, L.P.
Pro Forma Operating Data

   
  Year Ended
December 31,
2012
  Twelve Months
Ended September 30,
2013
Total barrels of saltwater disposed (in thousands)     10,962       18,679  
Average revenue per barrel   $ 1.34     $ 1.16  
Average number of inspectors     788       1,194  
Average revenue per inspector, per week   $ 4,542     $ 4,689  

The following table illustrates, on a pro forma basis, for the year ended December 31, 2012 and the twelve months ended September 30, 2013, the amount of cash that would have been available for distribution to our unitholders, assuming that this offering and the other restructuring transactions contemplated in this prospectus had been consummated at the beginning of each such period. The adjustments presented below give effect to this offering and the related transactions. The following table does not include the results of operations from Cypress Energy Services, LLC because prior to our acquisition of the business it was not operated for profit and incurred a number of expenses no longer associated with the business. In addition, the results of operations of Cypress Energy Services are immaterial to our business as a whole, on a historical basis. Certain of the adjustments are explained in further detail in the footnotes.

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Cypress Energy Partners, L.P.
Unaudited Pro Forma Distributable Cash Flow

   
  Year Ended
December 31,
2012
  Twelve Months
Ended September 30,
2013
     (in thousands, except for per unit)
Revenues
                 
Water and environmental services revenue   $ 14,645     $ 21,575  
Pipeline inspection and integrity services revenue     185,988       291,058  
Total revenues     200,633       312,633  
Costs of sales and services
                 
Costs of saltwater disposal sales     5,136       7,829  
Costs of inspection services     167,957       263,695  
Total costs of sales and services     173,093       271,524  
Gross margin     27,540       41,109  
Operating costs and expenses:
                 
General and administrative expenses (1)     10,054       16,146  
Depreciation and amortization expenses     3,124       5,292  
Pro forma operating income     14,362       19,671  
Interest expense, net (2)     4,269       4,422  
Other income (expense), net (3)     45       4  
Income before income taxes     10,138       15,253  
Income tax expense     254       423  
Pro forma net income     9,884       14,830  
Less:
                 
Pro forma net income attributable to non-controlling
interests in TIR (4)
    1,388       3,421  
Pro forma net income attributable to Cypress Energy Partners, L.P.   $ 8,496     $ 11,409  
Adjustments to reconcile pro forma net income attributable to Cypress Energy Partners, L.P. to pro forma Adjusted EBITDA attributable to Cypress Energy Partners, L.P. :
                 
Add:
                 
Depreciation and amortization expense (excluding non-controlling interests)     2,191       4,412  
Income tax expense attributable to controlling interests     127       232  
Interest expense credit attributable to controlling interests (6)     1,506       1,583  
Pro forma Adjusted EBITDA attributable to Cypress Energy Partners, L.P. (5)   $ 12,320     $ 17,636