CALGARY, Alberta, March 12, 2020 (GLOBE NEWSWIRE) -- STEP Energy Services Ltd. (the “Company” or “STEP”) is pleased to announce its financial and operating results for the three and twelve months ended December 31, 2019. The following press release should be read in conjunction with the management’s discussion and analysis (“MD&A”) and audited consolidated financial statements as at and for the year ended December 31, 2019. The above documents are available on STEP’s website at www.stepenergyservices.com or on SEDAR at www.sedar.com.
MESSAGE FROM THE PRESIDENT
“Our 2019 strategy recognized that continued pricing pressure for our services necessitated a reduction in our operating costs, a diligent focus on finding efficiencies in our business and alignment with clients, with larger scope projects, to drive stronger utilization of our assets,” commented Regan Davis, President and CEO. “I am very pleased with the results STEP delivered as we managed capital spending, maximized cash flow and reduced our outstanding debt. I extend a genuine thanks to all our professionals who worked diligently to increase the quality and predictability of our field execution while maintaining a resolute focus on safe operations. We have undoubtedly demonstrated that we are a best-in-class service provider.” Davis adds, “Despite the geopolitical and economic uncertainties that continue to impact our sector, we enter 2020 with an ongoing commitment to find further cost efficiencies, maintain our emphasis on safe operations, and execute flawlessly in every facet of our business.”
FINANCIAL
(1) See Non-IFRS Measures. “Adjusted EBITDA” is a financial measure not presented in accordance with IFRS and is equal to net (loss) income before finance costs, depreciation and amortization, loss (gain) on disposal of property and equipment, current and deferred income tax provisions and recoveries, share-based compensation, transaction costs, foreign exchange forward contract (gain) loss, foreign exchange (gain) loss, and impairment losses. “Adjusted EBITDA %” is calculated as Adjusted EBITDA divided by revenue.
(2) See Non-IFRS Measures. “Working capital”, “Total long-term financial liabilities” and “Net debt” are financial measures not presented in accordance with IFRS. “Working capital” is equal to total current assets less total current liabilities. “Total long-term financial liabilities” is comprised of Loans and borrowings, Long-term lease obligations and Other liabilities. “Net debt” is equal to loans and borrowings before deferred financing charges less cash and cash equivalents.
2019 RESULTS
Through the efforts of STEP’s professionals, the Company maintained high levels of operating execution and efficiency, having finished the year with strong margins despite ongoing industry headwinds. Exploration and production clients continued to demonstrate capital budget discipline, using surplus cash flows to return capital to shareholders through dividends or share-buy backs rather than increasing capital budgets. 2019 activity, as evidenced by the Baker Hughes North American land rig count, was down 13% when compared to 2018. In the fourth quarter, many operators experienced budget exhaustion reducing demand for services, however the Company was able to align with active clients to maintain utilization. This resulted in an oversupplied market which put service pricing under pressure and resulted in weaker financial performance for the Company. Due to the decreased demand, the industry has parked equipment in efforts to help balance the market.
Management took actions throughout 2019 to adjust to the market environment and position the Company for success. In the year, the Company focused on executing work programs for large clients with active and stable work programs. This allowed the Company to drive utilization and increase efficiencies in operations. There was also success in deploying assets to areas of greater activity, including opening a new coiled tubing operation in North Dakota towards the end of the year. The Company’s emphasis on cost control, focus on improving pumping efficiencies and relocating assets to create new opportunities allowed the Company to maintain positive margins and generate improved year to date margins from Canadian operations relative to 2018. Throughout 2019, STEP concentrated on optimizing costs by implementing changes to salary and benefits and reducing overhead and selling, general and administrative spending. Employee headcount decreased by 13% as the Company rightsized the deployed equipment fleet to meet demand. STEP made select capital investments including expanding our dual fuel fleet, developing and trialing our auto start/stop technology as well as operational changes related to maintenance activities, fluid chemistries and engineering processes that will enable us to reduce greenhouse gas emissions and lessen the environmental impact from operations.
Net debt decreased by $21.7 million to $232.6 million at December 31, 2019 as all cash flow remaining after capital, interest, lease obligation payments and working capital changes was directed to repayment of debt. As of January 22, 2020, the Company entered into an agreement with its syndicate of lenders to make an amendment to its credit facilities in order to provide increased financial flexibility. The amendment was a change to the required Funded Debt to EBITDA Ratio (as defined in the capital management section of the MD&A). Available financial resources as at December 31, 2019 were $116.7 million, consisting of cash and cash equivalents and the remaining capacity on the credit facilities.
Effective January 1, 2019, the Company implemented the following accounting changes:
FINANCIAL HIGHLIGHTS –2019 COMPARED TO 2018
FINANCIAL HIGHLIGHTS – FOURTH QUARTER 2019 COMPARED TO FOURTH QUARTER 2018
FINANCIAL HIGHLIGHTS – FOURTH QUARTER 2019 SEQUENTIAL
INDUSTRY CONDITIONS & OUTLOOK
During the fourth quarter of 2019, commodity prices remained volatile with West Texas Intermediate (“WTI”) crude prices starting the quarter at approximately US$54 per barrel. WTI rose to almost US$62 per barrel by the end of the year. However, STEP’s clients remained focused on maintaining capital discipline and market activity fell as clients experienced budget exhaustion as they completed their 2019 capital programs. This resulted in decreased drilling and completion spending and lower demand for completion services. Throughout 2019, service providers have made significant reductions in manned equipment in both Canada and the U.S. in response to lower activity.
In early 2020 in Canada, STEP was able to renew its strategic fracturing work programs from 2019 with similar-to-larger work scopes. In addition, the Company added another large fracturing work program with a large client while retaining other key clients. STEP’s suite of technologies continues to be a differentiator as the Company retained and added key coiled tubing clients. In the U.S., STEP was able to retain major work programs for fracturing operations and executed on the goal of obtaining more consistent work programs. For coiled tubing, STEP was awarded first call options with large clients across the Permian, Eagle Ford and the newly opened operations in the Bakken.
Recently, global trade, geopolitical and economic uncertainty have begun to impact global oil supply and demand outlook. Commodity prices were volatile in the first two months of 2020 with WTI oil prices falling 27% to approximately US$45 per barrel at the end of February 2020. The decline in oil price was primarily due to uncertainty around the impact that the COVID-19 outbreak will have on global oil demand. Most recently, an impasse within OPEC+ regarding future cooperation on production cuts has enhanced market uncertainty and negatively impacted commodity prices, resulting in WTI at approximately US$33 per barrel. These developments have amplified the earlier uncertainty bringing further ambiguity to the outlook for 2020. Extreme volatility in commodity prices has reinforced caution amongst STEP’s clients’ spending plans and could potentially lead to a deferral or cancelation of completion programs.
The Company believes these emerging issues will have a negative impact on demand for services, client capital spending and activity levels. The full extent of these events on the oil field services market and STEP is currently unfolding and is uncertain. STEP is reacting quickly to the emerging market challenges and will continue to monitor the markets, diligently manage costs and engage with clients. Additionally, STEP will adjust the amount of manned equipment deployed to optimize utilization in changing market conditions.
CAPITAL UPDATE
The amended 2019 capital program was $44 million and consisted primarily of maintenance, optimization and reliability spending. Spending on the 2019 capital program was on budget as the company incurred $38 million in the year and will carry-forward approximately $6 million to 2020.
In February 2020, STEP’s board of directors approved a 2020 capital program of $47 million based on expected work activity. The approved capital program was evenly split between Canada and the U.S. and was comprised of $42 million for maintenance capital to sustain operating equipment deployed and $5 million to support several equipment optimization programs.
With the current market uncertainty, management will evaluate and balance the Company’s manned equipment fleet and capital program with market conditions and demand for STEP’s services and will suspend or cancel expenditures as warranted.
OPERATIONS
During the fourth quarter, Canadian operations contributed stronger Adjusted EBITDA and Adjusted EBITDA % compared to last year through higher utilization and effective cost management, despite tougher market conditions. Both fracturing and coiled tubing services increased operating days and utilization over last year’s fourth quarter, as budget exhaustion, holiday impacts and activity level declines were not as pronounced in December as witnessed in the prior year.
Similar to the Canadian operations, U.S. fracturing increased operating days and utilization over last year’s fourth quarter as coiled tubing activity remained largely the same. STEP’s ability to pivot assets to areas of higher activity allowed STEP to broaden its client base and support stronger utilization. Utilization and activity levels were offset by market pricing pressure, which impacted the fourth quarter’s results.
CANADIAN OPERATIONS REVIEW
STEP maintains a fleet of 16 coiled tubing units in the WCSB, of which nine were operating at December 31, 2019. The Company’s coiled tubing units are designed to service the deepest wells in the region. STEP’s fracturing business is primarily focused on the deeper, more technically challenging plays in Alberta and northeast British Columbia, with growing exposure to oilier plays in eastern Alberta and southern Saskatchewan. Canadian operations currently include six fracturing spreads representing 225,000 HP (including approximately 132,500 HP with dual fuel capabilities). STEP has an additional 57,500 HP available for deployment, 15,000 HP of which will require capital for maintenance and refurbishment. The Company will deploy or idle coiled tubing or fracturing units as dictated by the market’s ability to support targeted utilization and pricing.
(1) See Non-IFRS Measures.
(2) An operating day is defined as any coiled tubing and fracturing work that is performed in a 24-hour period, exclusive of support equipment.
(3) Represents total owned HP in Canada, of which 225,000 HP is currently deployed and some of the remainder requires certain maintenance and refurbishment.
(4) 2018 amounts were reclassified as the Company reorganized the composition of its operating segments. See “Corporate review” section.
FINANCIAL HIGHLIGHTS – FULL YEAR
Revenue for the year ended December 31, 2019 was $354.7 million compared to $478.9 million for the same period in 2018. The decrease in annual revenue was primarily due to an ongoing industry slowdown in the WCSB with the average Canadian land rig count decreasing approximately 30% over 2018. Fracturing operations worked 5% fewer days in 2019 compared to 2018 as increased fracturing intensity partially offset the decline in activity. Revenue per day decreased by 24% year over year, as clients provided approximately 58% of the proppant pumped in the year compared to 20% in the prior year. Client supplied proppant reduces revenue but yields higher margins. Coiled tubing operating days decreased by 23% in 2019 compared to 2018, consistent with the decline in land rig count. However, coiled tubing revenue per day was higher as revenue from ancillary product lines did not show similar declines. Adjusted EBITDA decreased from $79.0 million (or 16% of revenue) in 2018 to $65.2 million (or 18%) in 2019. Despite the reduction in activity and increased pricing pressure, Adjusted EBITDA % improved year over year as operating and selling, general and administrative costs decreased due to field efficiencies, management of manned equipment and cost controls. Throughout 2019, STEP controlled costs by implementing changes to staffing costs and reduced overhead and selling, general and administrative spending.
FINANCIAL HIGHLIGHTS – FOURTH QUARTER
Revenue for the three months ended December 31, 2019 was $72.5 million compared to $97.8 million for the fourth quarter of 2018. In fracturing, the Company experienced reduced revenue per day as clients self-supplied 60% of the proppant pumped in the quarter, which reduces revenue for the job. A shift in job mix to less intense work in the quarter also impacted revenue per day. Fracturing and coiled tubing operating days increased by 15% and 17%, respectively, when compared to 2018 as the activity in the fourth quarter of 2018 was negatively impacted by a decrease in commodity price realized by Canadian producers that wasn’t experienced in 2019. Coiled tubing also faced pricing pressure as competition increased for limited work with revenue per day decreasing by 20%. Adjusted EBITDA for the three months ended December 31, 2019 was $9.4 million (or 13% of revenue) compared to $9.0 million (or 9%) in 2018. Despite pricing pressure, Adjusted EBITDA % percentage increased on a quarterly basis due to the focus on cost control and efficiencies outlined above.
FINANCIAL HIGHLIGHTS – SEQUENTIAL QUARTER
Revenue for the three months ended December 31, 2019 decreased 26% from the quarter ended September 30, 2019 as the industry was again faced with budget exhaustion as clients depleted budgets prior to year end. In fracturing, the fourth quarter was impacted by a shift of work to a less intense job type and an increased proportion of client supplied proppant, leading to lower realized revenue per day. Additionally, coiled tubing revenue per day was impacted by reduced activity and lower pricing. The lower revenue impacted Adjusted EBITDA %, decreasing 11 percentage points from the third quarter 2019. Operating and selling, general and administrative costs decreased in the quarter from the initiatives outlined above, however this was not enough to offset revenue declines.
OPERATING HIGHLIGHTS
UNITED STATES OPERATIONS REVIEW
STEP’s U.S. business commenced operations in 2015 with coiled tubing services. At December 31, 2019, STEP maintained a fleet of 13 coiled tubing units, of which eight units were operating in the Permian and Eagle Ford basins in Texas and the Bakken shale in North Dakota. On April 2, 2018, STEP closed the Tucker Acquisition, which established its U.S. fracturing operations. The U.S. fracturing operations consist of 207,500 HP, 157,500 HP of which is deployed as three spreads operating in the Permian and Eagle Ford basins in Texas. Management continues to adjust capacity and regional deployment to optimize utilization, efficiency and returns.
(1) See Non-IFRS Measures.
(2) An operating day is defined as any coiled tubing and fracturing work that is performed in a 24-hour period, exclusive of support equipment.
(3) Represents total owned HP in the U.S., some of which will require capital for maintenance and refurbishment.
(4) 2018 amounts were reclassified as the Company reorganized the composition of its operating segments. See “Corporate review” section.
FINANCIAL HIGHLIGHTS – FULL YEAR
For the year ended December 31, 2019 revenue was $313.6 million, a 4% increase from $302.9 million in 2018. The year to date increase in revenue of $10.8 million was primarily due to the operation of the U.S. fracturing assets for twelve months in 2019 versus only nine months in the prior year. A slow down in activity in the U.S. fracturing market and the increased proportion of client supplied proppant impacted revenue per day which fell by 16% compared to 2018. Coiled tubing worked 129 additional days in 2019 compared to 2018 due to more equipment deployed on average over the period while revenue per day decreased due to pressure on price from new entrants to the market. Adjusted EBITDA decreased by $24.4 million or 46% over the period primarily due to pricing pressure. Operating expenses and selling, general and administrative expenses increased modestly as a result of the full year of fracturing administration, partially offset by cost saving initiatives.
FINANCIAL HIGHLIGHTS – FOURTH QUARTER
Revenue of $54.0 million in the three months ended December 31, 2019 decreased by $17.3 million from the same quarter in 2018. The fourth quarter of 2019 saw an increase in the proportion of client supplied proppant with 54% of sand pumped being supplied by the client. Client supplied proppant decreases revenue and operating expenses and contributed to a 44% decrease in revenue per day in the fourth quarter. Fracturing services worked 29% more operating days in the fourth quarter of 2019 compared to 2018 due to the redistribution of spreads earlier in the year to more active basins. Coiled tubing worked approximately the same number of days in the fourth quarter of 2019 compared to 2018, however, market pressure continues to weigh on pricing with day rates declining 14% compared to fourth quarter 2018. New entrants to the coiled tubing market increased competition in the fourth quarter, and management responded by leveraging client relationships and relocating assets to new areas to maintain utilization. Adjusted EBITDA for the fourth quarter 2019 was $2.2 million (or 4% of revenue) compared to $8.8 million (or 12%) for the same quarter in the prior year. Operating expenses declined through management’s cost saving initiatives. The Adjusted EBITDA percentage decline was primarily due to the pricing pressure across all service lines.
FINANCIAL HIGHLIGHTS – SEQUENTIAL QUARTER
In the U.S., seasonality is generally not a factor and the prior quarter is often utilized when comparing financial results. Revenue and Adjusted EBITDA decreased by 33% and 42%, respectively compared to the prior quarter. Clients faced pronounced budget exhaustion in the fourth quarter, resulting in a 7% and 22% decline in operating days for fracturing and coiled tubing, respectively, when compared to the third quarter of 2019. Day rates for fracturing services were impacted by the proportion of client supplied proppant in the quarter. Despite the decrease in revenue, Adjusted EBITDA % only decreased by one percentage point as operating costs decreased as a result of cost saving initiatives undertaken during the year.
OPERATING HIGHLIGHTS
CORPORATE REVIEW
Effective January 1, 2019, the Company reorganized the composition of its operating segments to reflect how management makes strategic decisions and assesses the performance of the Company’s operations. Corporate activities are separated from Canadian and U.S. Operations. Corporate operating expenses include expenses related to asset reliability, maintenance and optimization teams. Corporate selling, general and administrative costs include costs associated with the executive team, Board of Directors, and other activities that benefit Canadian and U.S. operating segments collectively. The Company has reclassified prior period information to align with the new composition of operating segments and has identified such reclassification where applicable.
(1) See Non-IFRS Measures.
(2) Adjusted EBITDA percentage calculated using the Consolidated revenue for the period.
(3) 2018 amounts were reclassified as the Company reorganized the composition of its operating segments.
FINANCIAL HIGHLIGHTS – FULL YEAR
Adjusted EBITDA loss for the year ended December 31, 2019 totalled $15.0 million compared to a $14.3 million loss in 2018. The increased loss was due to a full year of administration of the U.S. fracturing operations. Specifically, increased costs included the transfer of professionals from operating segments to work on corporate initiatives, increased professional fees, integration of information technology data centers and increased system security.
FINANCIAL HIGHLIGHTS – FOURTH QUARTER
Adjusted EBITDA loss for the fourth quarter of 2019 was $2.4 million compared to a $5.5 million loss in the fourth quarter of 2018. Throughout the year, the Company initiated several cost saving programs that have reduced overhead and selling, general and administrative expenses including review of ancillary expenses, adjustment of annual incentive accruals, reduction in consulting expenses, review and curtailment of payroll and benefits as well as right sizing corporate functions earlier in the year.
FINANCIAL HIGHLIGHTS – SEQUENTIAL QUARTER
Corporate Adjusted EBITDA for the fourth quarter of 2019 decreased by $1.8 million or 42% compared to the third quarter of 2019 as corporate cost saving initiatives had begun to show results, primarily due to salary and benefit adjustments and the restriction of consulting expenses.
NON‐IFRS MEASURES
Please see the discussion in the Non‐IFRS Measures section of the MD&A for the reconciliation of non‐IFRS items to IFRS measures.
FORWARD‐LOOKING INFORMATION & STATEMENTS
Certain statements contained in this 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 STEP’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 “anticipate”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “shall”, “project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “pursue”, “potential”, “objective” and “capable” 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 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 release contains forward-looking statements pertaining to: 2020 operation outlook; including potential deferral or cancellation of completion programs; supply and demand for oilfield services and industry activity levels, including the Company’s integrated service offerings; OPEC production, related market uncertainty, and its effect on commodity prices; the Company’s anticipated business strategies and expected success; effect of weather conditions on the Company’s operations; expected completions activity, utilization levels and operating margins in 2020; pricing received for the Company’s services; the Company’s capital program in 2020; expected profitability; adequacy of resources to find operations, financial obligation and planned capital expenditures in 2020; ability of the Company to maintain its track record of returns and margin performance; the Company’s expected performance in 2020; future development activities; planned deployment and staffing levels for the Company’s equipment; the Company’s ability to retain existing clients and attract new business; monitoring of industry demand, client capital budgets and market conditions; and on the effect of the COVID-19 outbreak and OPEC related market uncertainty on client work programs and activity in 2020.
The forward-looking information and statements contained in this release reflect several material factors and expectations and assumptions of the Company including, without limitation: the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; pricing of the Company’s services; the Company’s ability to market successfully to current and new clients; the Company’s ability to utilize its equipment; the Company’s ability to collect on trade and other receivables; the Company’s ability to obtain qualified staff and equipment in a timely and cost effective manner; levels of deployable equipment; future capital expenditures to be made by the Company; future funding sources for the Company’s capital program; the Company’s future debt levels; the impact of competition on the Company; the Company’s ability to obtain financing on acceptable terms; the amount of available equipment in the marketplace; and client activity levels. The Company 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.
Actual results could differ materially from those anticipated in these forward-looking statements due to the risk factors set forth below and elsewhere in this release: volatility of the oil and natural gas industry; excess equipment levels; competition in the oilfield services industry; restrictions on access to capital; reliance on suppliers of raw materials, diesel fuel and component parts; reliance on equipment suppliers and fabricators; direct and indirect exposure to volatile credit markets; fluctuations in currency exchange rates; merger and acquisition activity among the Company’s clients; federal and provincial legislative and regulatory initiatives could result in increased costs and additional operating restrictions or delays; health, safety and environment laws and regulations may require the Company to make substantial expenditures or cause it to incur substantial liabilities; loss of a significant client could cause the Company’s revenue to decline substantially; negative cash flows from operating activities; third party credit risk; hazards inherent in the oilfield services industry which may not be covered to the full extent by the Company’s insurance policies; difficulty in retaining, replacing or adding personnel; seasonal volatility due to adverse weather conditions; reliance on a few key employees; legal proceedings involving the Company; failure to maintain the Company’s safety standards and record; inability to manage growth; failure to continuously improve operating equipment and proprietary fluid chemistries; actual results may differ materially from management estimates and assumptions; and the risk factors set forth under the heading “Risk Factors” in the AIF.
Any financial outlook or future orientated financial information contained in this release regarding prospective financial performance, financial position or cash flows is based on the assumptions about future events, including economic conditions and proposed courses of action based on management’s assessment of the relevant information that is currently available. Projected operational information, including the Company’s capital program, contains forward looking information and is based on a number of material assumptions and factors, as are set out above. These projections may also be considered to contain future oriented financial information or a financial outlook. The actual results of the Company’s operations will likely vary from the amounts set forth in these projections and such variations may be material. Readers are cautioned that any such financial outlook and future oriented financial information contains herein should not be used for purposes other than those for which it is disclosed herein.
The forward‐looking information and statements contained in this release speak only as of the date of the document, and none of the Company 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. The reader is cautioned not to place undue reliance on forward‐looking information.
ABOUT STEP
STEP is an oilfield service company that provides stand-alone and fully integrated fracturing, coiled tubing and wireline solutions. Our combination of modern equipment along with our commitment to safety and quality execution has differentiated STEP in plays where wells are deeper, have longer laterals and higher pressures.
Founded in 2011 as a specialized deep capacity coiled tubing company, STEP now provides an integrated solution for deep capacity coiled tubing services and fracturing to exploration and production (“E&P”) companies in Canada and the U.S. Our Canadian integrated services are focused in the Western Canadian Sedimentary Basin (“WCSB”), while in the U.S., our fracturing and coiled tubing services are focused in the Permian and Eagle Ford in Texas, and the Haynesville in Louisiana.
Our four core values; Safety, Trust, Execution and Possibilities inspire our team of professionals to provide differentiated levels of service, with a goal of flawless execution and an unwavering focus on safety.
For more information please contact:
Regan Davis
President & Chief Executive Officer Michael Kelly
Executive Vice President &
Chief Financial Officer Rob Kukla
Director, Corporate DevelopmentTelephone: 403-457-1772 Telephone: 403-457-1772 Telephone: 281-606-3644
Email: investor_relations@step-es.com
Web: www.stepenergyservices.com
Head Office
Bow Valley Square II
1200, 205 - 5th Ave SW
Calgary, AB T2P 2V7
Main: 403-457-1772
USA: View Office Listings
Canada: View Office Listings
Employee Links
STEP Intranet
Email Login
LMS
EHS Insights
Replicon
.svg)
.svg)