CALGARY, Alberta, March 16, 2022 (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, 2021. The following press release should be read in conjunction with the management’s discussion and analysis (“MD&A”) and audited consolidated financial statements and notes thereto as at and for the year ended December 31, 2021 (the “Financial Statements”). Readers should also refer to the “Forward-looking information & statements” legal advisory and the section regarding “Non-IFRS Measures and Ratios” at the end of this press release. All financial amounts and measures are expressed in Canadian dollars unless otherwise indicated. Additional information about STEP is available on the SEDAR website at www.sedar.com, including the Company’s Annual Information Form for the year ended December 31, 2021 dated March 16, 2022 (the “AIF”).
CONSOLIDATED HIGHLIGHTS
FINANCIAL REVIEW
(1) Adjusted EBITDA is a non-IFRS financial measure and Adjusted EBITDA % is a non-IFRS financial ratio. These metrics are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.(2) An operating day is defined as any coiled tubing or fracturing work that is performed in a 24-hour period, exclusive of support equipment.(3 )Active horsepower denotes units active on client work sites. An additional 15-20% of this amount is required to accommodate equipment maintenance cycles
(1)Working capital, Total long-term financial liabilities and Net debt are non-IFRS financial measures. They are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.
(4) Only includes land‐based rigs.
Source: PSAC, Baker Hughes, Bank of Canada
FINANCIAL HIGHLIGHTS – 2021 ANNUAL
FOURTH QUARTER 2021 OVERVIEW
The fourth quarter of 2021 continued the recovery in oilfield services across North America. The land drilling rig count is often used as an indicator of service sector activity levels. Led by higher commodity prices, the land rig count increased in both Canada and the US, with counts hitting levels not seen since before the onset of the Covid-19 pandemic (the “Pandemic”). Canada averaged 159 rigs, up modestly from 150 in the third quarter and up significantly from the 88 rigs recorded in the fourth quarter of 2020. The US averaged 545 rigs, up significantly from the 484 in the third quarter and the 297 rigs in the fourth quarter of 2020.
The increase in rig counts drove completions activity higher in the fourth quarter, benefitting STEP’s fracturing and coiled tubing service lines. Utilization was strong through most of the quarter outside of the typical holiday slowdowns around U.S. Thanksgiving and Christmas. STEP had 508 fracturing operating days and 955 coiled tubing operating days, a sequential and year over year increase for both service lines. The Canadian fracturing division was negatively impacted by extended delays on a client location due to challenging well conditions which resulted in some December work being pushed into the first quarter of 2022. The U.S. fracturing division had strong performance through the quarter, with high utilization across all three crews. Canada had some delays in late December due to weather, as did our northern based coiled tubing services in the U.S.
Total proppant pumped of 495,000 tonnes was in line with the third quarter of 2021 but significantly higher than the fourth quarter of 2020. The volume of proppant pumped per day was lower sequentially due to Canadian operations, where delays caused by challenging well conditions on a client location and a shift in job mix to include a higher proportion of smaller jobs with reduced efficiency. The increase in smaller completion jobs is the result of improving oil prices, which is incenting operators to revisit oil producing fields that previously had unfavourable economics.
STEP generated revenue of $158.7 million in fourth quarter 2021, which is STEP’s highest fourth quarter revenue since Q4 2018. The fourth quarter is typically impacted by lower utilization resulting from client budget exhaustion, which can also drive down pricing as equipment availability increases. STEP’s strong relationships with anchor clients resulted in steady activity through the quarter, including some work that was accelerated from 2022 into the fourth quarter of 2021 to take advantage of strong commodity prices and available fracturing capacity. STEP was successful in bringing pricing sequentially higher through the quarter, although cost inflation limited margin expansion.
The increased activity levels brought on by higher commodity prices delivered Adjusted EBITDA of $17.3 million in Q4 2021, modestly lower than the $18.0 million in Q3 2021 but significantly higher than the $2.4 million earned in Q4 2020. Inflationary pressures were felt acutely in the fourth quarter across all categories. The cost of labour continued to escalate in Q4 2021 relative to the comparative period as higher activity levels across the oilfield service sector tightened the supply of available field professionals. STEP is focused on creating an exceptional employee experience for our professionals, which meant sharing our strengthening margins through enhanced total rewards in the form of increased base and incentive pay, as well as reinstating various benefits and allowances. Management is very grateful for our professionals’ commitment to delivering an exceptional client experience, particularly with the added stresses of the Pandemic. STEP will continue to invest in these and other initiatives to remain an employer-of-choice.
The Company recorded a net loss of $6.2 million ($0.08 basic loss per share) in the fourth quarter 2021, an improvement from the net loss of $17.0 million ($0.25 basic loss per share) incurred in the same period last year but weaker than the net loss of $3.4 million ($0.05 basic loss per share) in the third quarter of 2021. The Q4 2021 net loss includes $4.2 million in finance costs (Q4 2020 - $3.3 million, Q3 2021 - $3.9 million) and $0.1 million in share-based compensation (Q4 2020 - $1.6 million, Q3 2021 - $0.3 million). The net loss was smaller on a year over year basis due to stronger Company and industry activity levels, but larger sequentially due to higher depreciation and amortization expense.
The Company managed its balance sheet cautiously, closing the quarter with a net debt position of $186.9 million (December 31, 2020 - $208.7 million). Working capital was $3.9 million at December 31, 2021 (December 31, 2020 - $42.9 million). The lower working capital balance was impacted by the inclusion of $28.0 million in current liabilities related to the scheduled debt repayments commencing in 2022 (December 31, 2020 - $nil), as well as the sequentially higher capital investment into our fleet to maintain our high standard of operational readiness. Total liquidity was $57.5 million at December 31, 2021 (December 31, 2020 - $49.0 million). The Company remained in compliance with all financial and non-financial covenants under our Credit Facilities as at December 31, 2021.
INDUSTRY CONDITIONS AND OUTLOOK
INDUSTRY CONDITIONS
The Russian invasion of Ukraine has added a significant level of geopolitical risk to our outlook. STEP does not have operations that are directly affected by the conflict, but like many North American companies, we have many employees of Ukrainian descent. We feel for our employees and the citizens of Ukraine and will support our employees and the industry however we can.
The geopolitical tensions have added a risk premium to oil and gas prices, but even before this conflict erupted, prices were forecasted to stay elevated throughout 2022 and into 2023, supported by a recovery in the world’s major economies. The strong price environment is expected to drive continued strong exploration and production (“E&P”) company cash flows, which will support higher oilfield service activity levels.
Public commentary from larger E&P companies has been broadly consistent around the need for measured growth that shows capital discipline and returns capital to shareholders, something we expect will continue unless there is an explicit call to increase North American production following a move to ban Russian oil. We are seeing private and smaller public E&P companies taking advantage of the strong cash flows generated by the high commodity prices to increase their investment into drilling and completions activity. This investment was a significant factor in 2021, and we expect that it will continue in 2022.
There were already signs that the global crude oil market is tightening, with some forecasters calling for an undersupplied crude oil market in the second half of 2022 following a prolonged period of underinvestment. The U.S. Energy Information Administration (“EIA”) reported in January that the inventory of drilled but uncompleted wells (“DUCs”) in the U.S. has steadily dropped, declining from a peak of 8,853 in June 2020 to 4,616 in December 2021. DUCs are an indicator of E&P company sentiment around increased capital spending, and the steady drawdown of DUCs through the last several years was reflective of the increased capital discipline. E&P companies have kept their drilling costs low through that drawdown, but the DUCs are now reaching a critical point where reinvestment is required to keep their oil and gas production flat, and growth will require considerably more investment. Capital spending by E&P companies in Canada has been depressed for a longer period compared to the U.S., with spending largely kept in check by concerns over pipeline egress and market access since the crash in oil prices in 2015.
The underinvestment in North America is mirrored globally, contributing to the current environment where world crude oil inventories are under pressure after world consumption has outpaced world production since mid 2020. The EIA estimates that global oil inventories have fallen for six consecutive quarters, declining at an average rate of 2.1 million barrels per day (“bbl/d”) in the second half of 2020 and by 1.4 million bbl/d in 2021. The scarcity of supply and the increase in demand as the world emerges from Pandemic induced lockdowns has created an environment that has contributed to the rise in price of the benchmark West Texas Intermediate (“WTI”) and Brent oil prices from $38.31 and $40.27 respectively in June 2020 to $71.71 and $74.17 in December 2021 (reported in U.S. dollars per barrel).
FULL YEAR OUTLOOK
Industry forecasts for 2022 are predicting a steady increase in activity across the oilfield service sector. Rig counts in 2022 are expected to track approximately 20% higher in Canada relative to 2021, and 25% or more in the U.S. relative to 2021. The increase in rig counts will drive demand for fracturing higher, pushing providers in Canada and the U.S. to the limits of their fleet capacity. The prolonged period of underinvestment by E&P companies required pressure pumping companies to cut costs and limited capital spending to the minimum required to keep their equipment operational. This limited investment will delay how quickly pressure pumping companies can return equipment to service, as much of the idled equipment will require significant investment. Energy research and business intelligence firm Rystad Energy estimates that approximately 4.2 million HP of the approximately 17.5 million total HP in the U.S. may not return to service given the cost of reactivation. The Canadian market has approximately 1.7 million HP and a similar proportion of that equipment is unlikely to be reactivated.
The tightness in equipment supply will be exacerbated by the difficulty in recruiting personnel to staff active equipment. The industry was forced to layoff thousands of qualified personnel, many of whom have found employment in competing industries and are unlikely to return given the volatility experienced in the oil and gas industry since 2015. STEP retained a highly trained core group of professionals through the downturn and has been able to distribute this experience through the company as we recruit lesser experienced professionals to join our company, but there is a limit to how many new recruits can be added safely and not compromise execution. STEP has already experienced higher third-party non-productive time in Q1 2022 on client well sites, underscoring the need for the industry to be measured in its recruitment so as not to compromise operational effectiveness.
As demand for fracturing services continues to recover, the market is moving to an undersupplied position in 2022, creating an environment where service providers will be able to capture pricing improvement beyond cost inflation. STEP has raised prices through Q4 2021 and into Q1 2022 for all clients, pushing to capture margin beyond inflation. STEP has remained disciplined and supportive of the need for higher pricing and is confident that as available capacity shrinks, all service providers will participate in raising prices and margins. STEP will continue to move pricing higher, targeting peak returns experienced in previous industry cycles.
FIRST AND SECOND QUARTER 2022 OUTLOOK
STEP is currently operating three large fracturing crews in the U.S. and four large fracturing crews in Canada. Through use of STEP’s purpose built, electric powered integrated combination unit (EPIC) that combines hydration, chemical storage, data van, and blender capabilities into one unit, one of the Canadian crews can be split into two smaller crews. These crews operate in the lower pressure regions in the WCSB that do not require as much pumping horsepower on location. STEP is also operating eight coil units in the U.S. and eight coil units in Canada.
The U.S. and Canadian operations have experienced strong levels of activity through the first quarter. Extreme cold in January resulted in some operational delays, but favourable conditions through February and into March have resulted in highly efficient operations. Inflation has continued to increase costs, but we have been successful in working with our clients to raise prices to offset this impact. It is clear from public commentary of our peers that supply has tightened and that pricing increases are occurring broadly across the sector, signalling that the oilfield service sector is positioned to deliver stronger margins going forward.
Our fracturing and coiled tubing crews are booked through the balance of the first quarter with strong utilization expected to continue into the second quarter. STEP’s northern US and Canadian operations will be affected by the seasonal spring break up conditions, which restrict our ability to move equipment in order to protect roads from damage as the ground thaws. The strong activity forecast is expected to keep second quarter pricing in line with first quarter pricing in Canada, in contrast to the typical practice of pricing break up work lower. Our U.S. operations are expected to continue testing the market for higher pricing.
STEP anticipates releasing its inaugural Environmental, Social and Governance (“ESG”) report in the second quarter. The themes of environmental protection, social engagement and governance accountability have deep roots in our Company, particularly as it relates to lowering emissions. STEP was an early adopter of dual fuel fracturing equipment that reduces the consumption of diesel and its associated emissions in favour of cleaner burning natural gas, and also operates 80,000 HP of Tier 4 equipment in the U.S. In total, 54% of STEP’s equipment has a low emissions profile. STEP has designed purpose built integrated coiled tubing and fracturing equipment that includes electric driven technology to reduce emissions and equipment noise.
CAPITAL EXPENDITURES
Total capital expenditures in the year ended December 31, 2021 were $37.2 million, comprised of $33.7 million from the 2021 budget, with the balance carried forward from the 2020 capital budget. STEP will carry approximately $5.4 million forward into 2022, in addition to the 2022 capital program.
STEP’s Board of Directors has approved a 2022 capital program of $47.6 million based on expected work activity, in addition to the carry forward amounts from 2021. The approved capital program is comprised of $40.2 million in maintenance capital and $7.4 million in optimization capital. The program is roughly split 60/40 between Canada and the U.S.
STEP will continue to evaluate and manage its manned equipment fleet and capital program based on market demand for STEP’s services.
CANADIAN OPERATIONS REVIEW
STEP has a fleet of 16 coiled tubing units in the Western Canadian Sedimentary Basin (“WCSB”). The Company’s coiled tubing units are designed to service the deepest wells in the WCSB. STEP’s fracturing business primarily focuses on the deeper, more technically challenging plays in Alberta and northeast British Columbia. STEP has 282,500 fracturing HP of which approximately 132,500 HP has dual-fuel capability. The Company deploys or idles coiled tubing units or fracturing HP as dictated by the market’s ability to support targeted utilization and economic returns.
(1) Adjusted EBITDA is a non-IFRS financial measure and Adjusted EBITDA % and Revenue per operating day are non-IFRS financial ratios. They are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.
(2) An operating day is defined as any coiled tubing or fracturing work that is performed in a 24-hour period, exclusive of support equipment.
(3) Active horsepower denotes units active on client work sites. An additional 15-20% of this amount is required to accommodate equipment maintenance cycles
FULL YEAR 2021 COMPARED TO FULL YEAR 2020
For the year ended December 31, 2021, Canadian operations had revenue of $357.5 million compared to $208.5 million in 2020. The 71% increase was a result of increased utilization and pricing for both fracturing and coiled tubing services as a result of the improved macro-economic environment and oilfield activity levels, relative to the difficult conditions throughout much of 2020.
Operating expenses scaled with increased activity levels with product and hauling costs increasing with the increase in STEP supplied proppant work. Personnel related costs increased as a result of the additional professionals that were hired to operate the equipment that was activated through the year, along with increases to base and incentive pay and the reinstatement of various benefits and allowances that were eliminated during the Pandemic to reduce costs. Inflationary pressures became more acute towards the end of the year, with supply chain disruptions, commodity price appreciation, and increased industry activity resulting in costs escalating across all expense categories. The Company received $6.7 million in CEWS for the year ended December 31, 2021, compared to $10.7 million in 2020, which was recorded as a reduction to wage expenses.
Canadian operations generated Adjusted EBITDA of $68.1 million (19% of revenue) for fiscal 2021 compared to $44.6 million (21% of revenue) in 2020. The $23.5 million increase was primarily the result of increased revenue from improved activity and modestly higher pricing for both fracturing and coiled tubing services.
Fracturing
STEP operated four fracturing spreads with 200,000 HP throughout 2021, compared to three spreads and 150,000 HP operated throughout most of 2020. Canadian fracturing revenue of $277.1 million for the year ended December 31, 2021 increased by 92% from $144.6 million for the year ended 2020. The increase was attributed to a 39% increase in operating days as a result of increased drilling activity combined with a 38% increase in revenue per day as a result of increased proppant sales and pricing improvements. Utilization increased as the service line completed 977 operating days, compared to 704 operating days in 2020, with notable contributions coming during the second and fourth quarters which have historically had lower revenues.
Coiled Tubing
Canadian coiled tubing revenue of $80.5 million for the year ended December 31, 2021 increased 26% from $63.9 million for the year ended 2020. The service line operated seven units for 1,569 operating days in 2021 compared to five units and 1,373 operating days in 2020. The increase in utilization followed increases in drilling and completions activity but pricing gains were limited due to the persistently competitive pricing environment in the WCSB.
FOURTH QUARTER 2021 COMPARED TO THIRD QUARTER 2021
Revenue for the three months ended December 31, 2021 of $91.5 million increased 10% from $83.5 million from the quarter ended September 30, 2021 due to an overall increase in utilization. The fourth quarter is typically lower on a sequential basis for STEP, but strong commodity pricing in the fourth quarter of 2021 and E&P concern around available capacity and higher service company pricing in 2022 drove strong drilling and completions activity.
Fracturing experienced a 14% increase in operating days which was partly offset by an 8% reduction in revenue per day as the job mix shifted towards more annular fracturing, resulting in decreased proppant pumped. Annular fracturing is typically done on single wells, which has lower efficiency relative to multi well pads. December efficiency and revenue per day was also impacted by significant delays on a client location due to challenging well conditions, causing some work slated for Q4 2021 to be moved into Q1 2022. Coiled tubing had 448 operating days in the fourth quarter of 2021 compared to 356 in the third quarter of 2021 while revenue per day remained consistent.
Canadian operations had Adjusted EBITDA of $13.6 million (15% of revenue) in the fourth quarter of 2021 compared to $17.3 million (21% of revenue) in the third quarter of 2021. The reduction in operational efficiency was a factor in the lower Adjusted EBITDA, as were sequentially higher personnel and repair costs, as the Company prepared for anticipated high activity through the first quarter of 2022.
FOURTH QUARTER 2021 COMPARED TO FOURTH QUARTER 2020
Revenue for the three months ended December 31, 2021 was $91.5 million compared to $41.0 million for the fourth quarter of 2020. Revenue increased due to a substantial increase in utilization for both service lines from an industry wide increase in activity and increases in service company pricing as a result of the strong commodity price environment. Operating days across the four fracturing crews increased to 279 in fourth quarter of 2021 from 138 days across three crews during fourth quarter of 2020. Revenue per day increased by 20% primarily due an increase in pricing and proppant supplied by STEP. Coiled tubing operating days increased to 448 in fourth quarter of 2021 from 275 during fourth quarter of 2020 while revenue per day increased by 10%.
Adjusted EBITDA for the fourth quarter of 2021 was $13.6 million (15% of revenue) versus $5.5 million (14% of revenue) in the fourth quarter of 2020. Operating expenses were higher as a result of inflationary pressures. The increase in revenue outpaced the increased costs, resulting in higher year over year Adjusted EBITDA.
UNITED STATES OPERATIONS REVIEW
STEP’s U.S. business commenced operations in 2015 with coiled tubing services. STEP has a fleet of 13 coiled tubing units in the Permian and Eagle Ford basins in Texas, the Bakken shale in North Dakota, and the Uinta-Piceance and Niobrara-DJ basins in Colorado. STEP entered the U.S. fracturing business in April 2018 and has 207,500 fracturing HP, of which approximately 50,000 HP has dual-fuel capabilities. Fracturing primarily operates in the Permian and Eagle Ford basins in Texas. Management continues to adjust capacity and regional deployment to optimize utilization, efficiency and returns.
(1) Adjusted EBITDA is a non-IFRS financial measure and Adjusted EBITDA % and Revenue per operating day are non-IFRS financial ratios. They are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.
(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) Active horsepower denotes units active on client work sites. An additional 15-20% of this amount is required to accommodate equipment maintenance cycles
FULL YEAR 2021 COMPARED TO FULL YEAR 2020
For the year ended December 31, 2021, U.S. operations had revenue of $178.8 million, an 11% increase compared to $160.5 million in 2020. The continuing recovery from the Pandemic was supported by a strong commodity price environment contributing to increased drilling activity driving increased utilization and pricing for both fracturing and coiled tubing services.
Operating expenses scaled with increased activity levels with product and hauling costs decreasing with the reduction in STEP supplied proppant work. Personnel related costs increased as a result of the additional professionals that were hired to operate the equipment that was activated through the year, along with increases to base and incentive pay and the reinstatement of various benefits and allowances that were eliminated during the Pandemic to reduce costs. Inflationary pressures became more acute towards the end of the year, with supply chain disruptions, commodity price appreciation, and increased industry activity resulting in costs escalating across all expense categories.
U.S. operations generated Adjusted EBITDA of $10.2 million (6% of revenue) for fiscal 2021 compared to a loss of $0.6 million (negative 1% of revenue) in 2020. The improvement in revenue was combined with strong cost control and optimized field operations to return the segment to positive margins. Operations were able to achieve modest pricing improvements through a highly competitive period combined with constructive increases to utilization.
Fracturing
U.S. fracturing revenue of $109.7 million for the year ended December 31, 2021 decreased slightly from $111.0 million for the year ended 2020. The Company activated a third fracturing fleet midway through the third quarter, providing better scale and supporting an increase in utilization to 704 operating days in 2021 from 425 in the prior year. STEP was able to achieve modest pricing increases through the year to address the escalating cost profile, although revenue per day decreased as a shift in the client mix resulted in a reduction of STEP supplied proppant work.
Coiled Tubing
U.S. coiled tubing revenue of $69.0 million for the year ended December 31, 2021 increased 39% from $49.5 million for the year ended 2020. The service line experienced significant improvement in utilization as the increase in drilling and completions activity led to a higher demand for coiled tubing work. The service line had 1,738 operating days from seven units in 2021, compared 1,210 operating days from seven units in 2020. The service line pursued pricing improvements but had limited success due to an over-supply of equipment, which created a competitive pricing market.
FOURTH QUARTER 2021 COMPARED TO THIRD QUARTER 2021
Revenue for the fourth quarter of 2021 increased $17.6 million to $67.3 million from $49.7 million in the third quarter of 2021 due to increased utilization combined with modest increases in rates. Fracturing operations had 229 operating days with increased revenue per day of $196 thousand, up from 195 operating days at $151 thousand per day in the third quarter of 2021 as a full quarter of activity with three spreads increased utilization and change in client mix resulted in increased STEP supplied proppant work. Coiled tubing operations also experienced modest increases in utilization and rates recording 507 operating days at $44 thousand per day in the fourth quarter of 2021 compared to 494 operating days at $41 thousand per day.
Adjusted EBITDA of $8.0 million (12% of revenue) for the fourth quarter of 2021 was a record for STEP’s U.S. business and demonstrates the potential of this business. The increase from Adjusted EBITDA of $4.2 million (8% of revenue) in the third quarter of 2021 was driven by increased utilization and improved pricing. The cost profile remained largely consistent, as a percent of revenue, on a sequential basis resulting in improved margins in the fourth quarter.
FOURTH QUARTER 2021 COMPARED TO FOURTH QUARTER 2020
Revenue for the three months ended December 31, 2021 was $67.3 million compared to $30.6 million for the fourth quarter of 2020. The improved economics for E&P companies from higher commodity prices spurred an increase in drilling and completions activity allowing the Company to increase active equipment and improve prices. We operated one additional fracturing spread in the fourth quarter of 2021 recording 229 operating days compared to 123 operating days in the fourth quarter of 2020. Coiled tubing operations were also able to add two units achieving total utilization of 507 operating days in the fourth quarter of 2021 compared to 292 in fourth quarter of 2020.
U.S. operations generated Adjusted EBITDA of $8.0 million for fourth quarter 2021 (12% of revenue) compared to a loss of $1.4 million (negative 5% of revenue) in the fourth quarter of 2020. The improvements in margins were primarily due to increased revenue combined with a proportionately lower fixed cost structure despite the impacts of inflation on chemicals, proppant, spare parts, and wage increases.
CORPORATE REVIEW
The Company’s corporate activities are separated from Canadian and U.S. operations. Corporate operating expenses include expenses related to asset reliability and optimization teams, general and administrative costs including costs associated with the executive team, the Board of Directors, public company costs, and other activities that benefit Canadian and U.S. operating segments collectively.
(1) Adjusted EBITDA is a non-IFRS financial measure and Adjusted EBITDA % is a non-IFRS financial ratio. They are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.
FULL YEAR 2021 COMPARED TO FULL YEAR 2020
Expenses from corporate activities were $20.7 million for the year ended December 31, 2021, an increase of 24% from $16.7 million for the year ended December 31, 2020. Payroll costs increased as the Company increased total rewards to retain and attract talented professionals while CEWS benefits reduced from $1.0 million in 2020 to $0.1 million in 2021. Share-based compensation increased as STEP’s improved results and overall economic recovery resulted in a higher share price throughout the year. Severance of $0.5 million was incurred for the year ended December 31, 2021 compared to $0.7 million in 2020. STEP recorded a recovery of $0.6 million to bad debt expense during 2021 (2020 – expense of $3.5 million) due to a reduction in credit risk as the global economic recovery from the impacts of the Pandemic continued. During 2021, STEP also recorded $1.6 million of incremental costs related to legal expenses and the settlement of a litigation matter.
FOURTH QUARTER 2021 COMPARED TO THIRD QUARTER 2021
Expenses from corporate activities increased 18% to $4.5 million in the fourth quarter of 2021 from $3.8 million in the third quarter of 2021. The third quarter of 2021 included a $0.6 million recovery to bad debt expense due to a reduction in credit risk as the global economic recovery from the impacts of the Pandemic continued.
FOURTH QUARTER 2021 COMPARED TO FOURTH QUARTER 2020
For the three months ended December 31, 2021 expenses from corporate activities were $4.5 million compared to $3.0 million for the same period in 2020. Payroll costs increased as the Company increased total rewards to retain and attract talented professionals in an increasingly competitive labour market. Other factors impacting payroll were an elimination of CEWS benefits in the fourth quarter of 2021 compared to $0.3 million in the same period in 2020 and severance costs of $0.5 million in fourth quarter of 2021 compared to no amounts incurred in the fourth quarter of 2020. Share based compensation was significantly higher in the fourth quarter of 2020 as the share price increased 42% from September 30, 2020 to December 31, 2020 resulting in increased expenses as a result of marking the cash settled instruments to market.
NON-IFRS MEASURES AND RATIOS
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 audited and unaudited Financial Statements and the accompanying notes thereto.
“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, (gain) loss 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 a non-IFRS ratio and is calculated as Adjusted EBITDA divided by revenue. Adjusted EBITDA and Adjusted EBITDA % are presented because they are widely used by the investment community as they provide an indication of the results generated by the Company’s normal course business activities prior to considering how the activities are financed and the results are taxed. The Company uses Adjusted EBITDA and Adjusted EBITDA % internally to evaluate operating and segment performance, because management believes they provide better comparability between periods. The following table presents a reconciliation of the non-IFRS financial measure of Adjusted EBITDA to the IFRS financial measure of net (loss) income.
“Revenue per operating day” is a financial ratio not presented in accordance with IFRS and is used as a reference to represent market pricing for our services. It is calculated based on total revenue divided by total operating days. An operating day is defined as any coiled tubing and fracturing work that is performed in a 24-hour period, exclusive of support equipment. This calculation may fluctuate based on both pricing and sales mix. See the tables under “Canadian Operations Review” and “United States Operations Review” for the inputs used to calculate STEP’s revenue per operating day metrics.
“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. The data presented is intended to provide additional information about items on the statement of financial position and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS.
The following table represents the composition of the non-IFRS financial measure of Working capital (including cash and cash equivalents).
The following table presents the composition of the non-IFRS financial measure of Net debt.
FORWARD-LOOKING INFORMATION & STATEMENTS
Certain statements contained in this press release constitute “forward-looking statements” or “forward-looking information” within t he 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 “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 the Company 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: 2022 industry conditions and outlook, including the price of crude oil, potential increased activity and the impact thereof on the Company’s equipment reactivation plans, performance, revenue and cash flows; a strengthening commodity price outlook; the Russian invasion of Ukraine and its effect on commodity prices and the global economy; E&P company needs for measured growth, capital discipline, and capital return to shareholders; the effect of high commodity prices on smaller public E&P company activity; stronger pricing discipline in the Company’s market sector; the Company’s bookings for fracturing and coiled tubing crews; the ability of the Company to maintain or increase pricing; the release of the Company’s ESG report; the effect of rising rig counts on service sector activity levels; the effect of prior industry investment levels on the ability to return equipment to service, and the quantity of equipment able to return to service; the Company’s anticipated business strategies and expected success; the ability of the Company to recruit additional personnel; the effect of new personnel on non-productive time; the Pandemic and related public health measures and their impact on energy demand and the Company’s financial position and business plans; adequacy of resources to funds operations, financial obligations and planned capital expenditures in 2022; the Company’s 2022 capital budget and management’s continued evaluation thereof; the monitoring of industry demand, client credit risk, including the Company’s ability to monitor payment patterns; the Company’s expected compliance with covenants under its Credit Facilities; and the Company’s ability to meet all financial commitments including interest payments over the next twelve months.
The forward-looking information and statements contained in this press release reflect several material factors and expectations and assumptions of the Company including, without limitation: the effect of recent military conflict in the Ukraine and related Canadian, U.S. and international sanctions involving Russia on the market for the Company’s services; OPEC or OPEC+ related market uncertainty on the market for the Company’s services; that the Company will continue to conduct its operations in a manner consistent with past operations; the Company will continue as a going concern; 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; predictable effect of seasonal weather on the Company’s operations; 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 and retain 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 availability of unused credit capacity on the Company’s credit lines; the impact of competition on the Company; the Company’s ability to obtain financing on acceptable terms; the Company’s continued compliance with financial covenants; the amount of available equipment in the marketplace; and client activity levels and spending. 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 under the heading “Risk Factors” in the AIF and under the heading “Risk Factors and Risk Management” in the MD&A, both of which are available on SEDAR (www.sedar.com) and are incorporated by reference herein.
Any financial outlook or future orientated financial information contained in this press 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 press 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, fluid and nitrogen pumping, and coiled tubing 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. STEP has a high-performance, safety-focused culture and its experienced technical office and field professionals are committed to providing innovative, reliable and cost-effective solutions to its E&P clients.
Founded in 2011 as a specialized deep capacity coiled tubing company, STEP has grown into a North American service provider delivering completion and stimulation services to exploration and production companies in Canada and the U.S. Our Canadian services are focused in the Western Canadian Sedimentary Basin, while in the U.S., our fracturing and coiled tubing services are focused in the Permian and Eagle Ford basins in Texas, the Uinta-Piceance and Niobrara-DJ basins in Colorado and the Bakken basin in North Dakota.
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
Chief Executive Officer Klaas Deemter
Chief Financial Officer Telephone: 403-457-1772
Telephone: 403-457-1772
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
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