STEP Energy Services Announces Capital Spending and Balance Sheet Update as Well as Commentary on Fourth Quarter 2022 Activity and a Strong First Quarter 2023 Outlook
Press Releases

STEP Energy Services Announces Capital Spending and Balance Sheet Update as Well as Commentary on Fourth Quarter 2022 Activity and a Strong First Quarter 2023 Outlook

CALGARY, Alberta, Jan. 09, 2023 (GLOBE NEWSWIRE) — STEP Energy Services Ltd. (the “Company” or “STEP”) is pleased to provide an update on its approved 2023 capital spending plan against a backdrop of continued progress on debt reduction. STEP also announces an update to fourth quarter 2022 activity levels as well as an outlook for a very strong first quarter of 2023.

“STEP has just completed the best year in its corporate history as measured by revenues and Adjusted EBITDA. Our professionals and equipment were ready for the increased demand from our clients and I’m extremely proud of how STEP and the North American oil and gas industry contributed to global energy security,” said Steve Glanville, President, and CEO. “We look forward to 2023 with a lot of confidence in our future and it shows in our approved 2023 capital budget. We will continue to invest in our fracturing and coiled tubing fleet to make it highly relevant to our North American clients. We will finish the upgrade of our first Tier 4 dual-fuel fleet, which has been backed by a unique financial commitment from a leading E&P client; given the excellent progress in lowering our net debt levels we also expanded our 2023 capital program to include an additional $45 million for optimization and refurbishment projects.”

Balance Sheet Update and Capital Spending Program for 2023

STEP’s balance sheet continues to strengthen. Net debt is expected to end the year in the $140-$145 million range1 – well ahead of internal targets set earlier in the year. The internal targets also included a Funded Debt to Adjusted Bank EBITDA ratio of less than 1.0x, which was achieved in the third quarter of 2022. STEP has paid down approximately $45 million in 2022, and nearly $170 million of long-term debt since 2018, while retaining a well-maintained fracturing and deep coiled tubing fleet throughout North America. Even through the deep activity downturn from 2015 to 2020, STEP was one of the few in its North American pressure pumping peer group to continue spending enough capital to approximately equal its rate of depreciation.

STEP’s Board of Directors has approved a $45 million increase in the 2023 capital program, bringing the total 2023 capital budget to approximately $100 million. The additional capital was approved for projects that are expected to bring incremental margin through improved reliability and/or efficiency to STEP’s current operations. The total sustaining and optimization budget will be split approximately 60/40 between the U.S. and Canada.

Looking ahead to 2023, free cash flow will be used to continue to strengthen the balance sheet as well invest opportunistically to add greater size and/or efficiency in both of STEP’s major business lines.

Net debt is a non-IFRS financial measure that is not defined and has not standardized meaning under IFRS. See Non-IFRS Measures. Estimated December 31, 2022 results are preliminary and have not been audited or reviewed by the Company’s auditors. See Forward-Looking Information & Statements, Future Oriented Financial Information and Financial Outlooks.

Fourth Quarter 2022 Activity Update and First Quarter 2023 Update

STEP’s fourth quarter activity levels in Canada were sequentially lower from the third quarter of 2022, affected by year end budget exhaustion along with cold weather that resulted in some work getting pushed into the first quarter of 2023. U.S. fourth quarter activity levels were sequentially higher than third quarter activity, with utilization staying steady before slowing down towards the holidays in December.

The first quarter of 2023 is expected to see high levels of utilization in Canada and the U.S. The Company anticipates that its five Canadian and three U.S. fracturing fleets will be fully booked through the quarter. STEP expects the Canadian market to shift from an oversupplied position in the fourth quarter of 2022 to a more balanced position in the first quarter of 2023, demonstrating that the current complement of crewed equipment in the basin is sufficient to meet peak demand and that additional fracturing capacity is not needed in this market. The strong fourth quarter coiled tubing activity is expected to continue into the first quarter of 2023 and STEP expects to operate nine and twelve coiled tubing units in Canada and the U.S., respectively. STEP’s 21 active units make it one of the largest deep coiled tubing providers in North America.

High utilization in both fracturing and coiled tubing is expected to keep strong pricing tension in the respective markets, with a positive effect on sequential operating margins expected in both Canada and the U.S. Cost inflation remains a concern, particularly around proppant, wages and equipment related items. STEP has secured the inputs needed for its upcoming work scope in Canada and the U.S. and will continue to work with its supply chain and clients to manage the effects of inflation, passing on cost increases as needed.

Visibility into the second quarter and second half is limited, but the Company is encouraged at the longer-term opportunity that U.S. and Canadian LNG project development may present for its full North American operations. Canada is expected to see a step-up in field spending starting in mid to late 2023 as the launch of trains 1 and 2 of the LNG Canada project comes into view. On the U.S. side, a recent study by Rystad Energy forecast that 56% of global incremental LNG capacity would originate in the U.S. STEP’s southern U.S. footprint puts the Company in a very good position to benefit from this multi-year spending trajectory.

Non-IFRS Measures

This press release includes terms and performance measures commonly used in the oilfield services industry that are not defined under IFRS. The terms presented are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-IFRS measures have no standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. The non-IFRS measure should be read in conjunction with the Company’s quarterly financial statements and annual financial statements and the accompanying notes thereto.

“Net debt” is equal to loans and borrowings before deferred financing charges less cash and cash equivalents and CCS derivatives. Net debt is presented to provide additional information about items on the statement of financial position. The Company’s Net debt for the year ended December 31, 2022 is forward-looking in nature. The following table presents the equivalent historical composition of the Company’s Net debt as at September 30, 2022, which composition does not differ significantly from the composition of the Company’s Net debt as at December 31, 2022 other than the change in loans and borrowings as discussed in this press release:

($000s)   September 30,
  December 31,  
      2022     2021  
Loans and borrowings   $ 153,148   $ 189,957  
Add back: Deferred financing costs     2,977     626  
Less: Cash and cash equivalents     (1,756 )   (3,698 )
Less: CCS Derivatives Asset     (6,831 )    
Net debt   $ 147,538   $ 186,885  

Forward-Looking Information & Statements, Future Oriented Financial Information and Financial Outlooks

Certain statements contained in this press release constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws (collectively, “forward-looking statements”). These statements relate to the expectations of management about future events, results of operations and the Company’s future performance (both operational and financial) and business prospects. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “anticipates”, “expects”, “expected”, “opportunity”, “may”, “should”, and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. While STEP believes the expectations reflected in the forward-looking statements included in this press release are reasonable, such statements are not guarantees of future performance or outcomes and may prove to be incorrect and should not be unduly relied upon.

In particular, but without limitation, this press release contains forward-looking statements pertaining to: planned investments in the Company’s fracturing and coiled tubing fleet, the completion of the upgrade of STEP’s first Tier 4 dual-fuel fleet, the expansion of the Company’s capital program and intended use of capital program funds, the company’s expectations for its new projects, including incremental margin through improved reliability and/or efficiency to STEP’s current operations, the geographic split of the Company’s sustaining and optimization budget, the use of the Company’s free cash flow to strengthen its balance sheet as well as grow/optimize business lines, utilization levels in Canada and the U.S., the Company’s expectations for Canadian fracturing capacity and demand, coiled tubing activity, the number of coiled tubing units to be operated by the Company in Canada and the U.S., pricing and operating margins in both Canada and the U.S., the Company’s ability to manage its supply chain to dampen effects of cost inflation, the Company’s expectations for sand cost inflation, and requirements for forecasted work and the potential opportunities arising from U.S. and Canadian LNG project development, including additional field spending as a result of the launch of trains 1 and 2 of LNG Canada and incremental LNG capacity levels in the U.S.

The forward-looking information and statements contained in this press release reflect several material factors and expectations and assumptions of STEP including, without limitation: the general continuance of current or, where applicable, assumed industry conditions; the effect of inflation on the cost of goods and equipment; the ability of suppliers to complete the Tier 4 dual-fuel fleet upgrade process; the fulfilment of STEP’s customers obligations under its contracts with the Company; STEP’s ability to utilize its equipment; STEP’s ability to collect on trade and other receivables; STEP’s ability to obtain and retain qualified staff and equipment in a timely and cost effective manner; levels of deployable equipment in the marketplace; future capital expenditures to be made by STEP; future funding sources for STEP’s capital program; STEP’s future debt levels; and the availability of unused credit capacity on STEP’s credit lines. STEP believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove correct.

This press release also contains future-oriented financial information and financial outlook information (collectively, "FOFI") about STEP’s expected capital budget and the Company’s expected year-end 2022 Net debt may also constitute FOFI. The FOFI in this press release is subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs.

In addition to the assumptions, risk factors, limitations and qualifications described above, the estimated net debt at December 31, 2022 is based on the Company’s internally generated monthly financial statements for the month of December 2022 and the assumption that these internally generated monthly financial statements will not differ materially from the fourth quarter and year end 2022 financial information inherent in the Company’s audited annual financial statements for the year ended December 31, 2022.

The actual results of operations of STEP and the resulting financial results, including the Company’s year-end 2022 Net debt, may vary from the amounts set forth in this press release and such variation may be material. STEP and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management’s best estimates and judgments as of the date hereof; however, because this information is subjective and subject to numerous risks, it should not be relied on as necessarily indicative of future results. The FOFI contained in this press release is provided for the purpose of providing an update on the Company’s 2023 capital budget and certain expected results for the year ended December 31, 2022 prior to the completion and approval of STEP’s audited financial statements for the year ended December 31, 2022. Readers are cautioned that any such FOFI contained herein should not be used for any purposes other than those for which it is disclosed herein.

The forward-looking information and FOFI contained in this press release speak only as of the date of the document, and none of STEP or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws. Actual results could also differ materially from those anticipated in these forward‐looking statements and FOFI due to the risk factors set forth under the heading “Risk Factors” in STEP’s Annual Information Form for the year ended December 31, 2021 dated March 16, 2022 and under the heading “Risk Factors and Risk Management” in STEP’s Management Discussion and Analysis for the three and nine months ended September 30, 2022 dated as of November 2, 2022.

About STEP

STEP is an energy service company providing deep capacity coiled tubing and hydraulic fracturing services to operators in North America. In Canada, STEP delivers coiled tubing and fracturing services in the Western Canadian Sedimentary Basin. In the U.S., STEP provides coiled tubing and fracturing services in the Permian Basin and Eagle Ford Shale Play in Texas along with coiled tubing services in the Bakken Shale Play in North Dakota and the Uinta-Piceance and Niobrara-DJ Basin in Utah and Colorado, respectively. STEP delivers the expertise – the people, the equipment, and the knowledge – required to improve operational efficiencies and productivity in extended reach wellbore designs. At the heart of STEP’s strategy is the company’s commitment to the execution of safe projects, its dedication to its team of field professionals and ultimately to providing oil and gas producers an Exceptional Client Experience.

For more information please contact:

Steve Glanville
President & Chief Operating Officer
Klaas Deemter
Chief Financial Officer
Telephone: 403-457-1772 Telephone: 403-457-1772

Email: investor_relations@step-es.com
Web: www.stepenergyservices.com

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