CALGARY, Alberta, March 01, 2023 (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, 2022. 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 December 31, 2022 (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, 2022 dated March 1, 2023 (the “AIF”).
CONSOLIDATED HIGHLIGHTS
FINANCIAL REVIEW
(1)Adjusted EBITDA and Free Cash Flow are non-IFRS financial measures, 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.
OPERATIONAL REVIEW
(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 20-25% 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.
2022 ANNUAL HIGHLIGHTS
2022 was an exceptional year for STEP, with the Company achieving record results across many of its key financial metrics:
FOURTH QUARTER 2022 OVERVIEW
The fourth quarter of 2022 capped a successful year for STEP, with the Company setting a record for annual revenue and Adjusted EBITDA on a consolidated basis. The fourth quarter was not as strong as the third quarter in Canada as many E&P companies completed their capital programs in mid to late Q4 and wound down their activities in December in advance of the holiday season. At times companies will pull capital forward if there is a strong commodity price incentive, but that did not materialize in Q4 2022 as commodity prices were on a weakening trend. Furthermore, most E&P companies significantly outperformed their budgets in the year, further limiting their appetite to add more capital. The reverse occurred in the U.S. as activity stayed strong to year end.
Weather conditions are typically a factor in Canada, which can result in a reduction in activity relative to the third quarter. Specifically, the Q4 2022 Canadian rig count was down 7% from Q3 2022 and data from Rystad Energy(12), an independent energy research and business intelligence company, showed that fracturing activity fell by 17% relative to Q3 2022. STEP’s fracturing utilization in Canada declined quarter over quarter and the job mix shifted towards lower-intensity well completions. The lower activity and shift in job mix is reflected in the reduction in proppant pumped, which declined in Q4 2022 to 145,000 tonnes from 234,000 tonnes in Q3 2022, resulting in lower average revenue per day. The decline in activity resulted in lower pricing for a minority of our services in the quarter and the deferral of some scheduled work.
The value in having a geographically diversified business model was demonstrated in Q4 2022. In contrast to the declining Canadian market, the U.S. rig count increased 2% sequentially, averaging 760 rigs in Q4 2022. Fracturing activity was also up 2% relative to Q3 2022, according to data from Rystad Energy. The U.S. is a key market for STEP, particularly in Texas. STEP has operating bases in the Permian and Eagleford plays and the gas-focused Haynesville play is within the Company’s operating range. The Permian play had 45% of the rigs operating in the U.S. in Q4 2022, and the highest proportion of the high-spec drilling rigs, followed by the Eagleford and Haynesville, which had just over 9% each. STEP’s fracturing utilization in the U.S. rose quarter over quarter, increasing to 227 days from 173 days, while proppant pumped increased to 309,000 tonnes in Q4 from 244,000 tonnes in Q3.
Overall, STEP posted the second-highest level of quarterly revenue in its history, achieving $251.4 million in Q4 2022, up 2.6% from $245.1 million in Q3 2022 and up 58.4% from the $158.7 million generated in Q4 2021. Higher activity, particularly in the U.S., drove the sequential increase, while significantly improved pricing in Canada and the U.S. was the differentiating factor in the year-over-year increase. The Company pumped 453,000 tonnes of proppant, which was lower than Q3 2022 and Q4 2021. The reduction in Q4 2022 volumes was due to a shift in job mix to smaller job types in Canada, which place less proppant per day.
Profitability increased in the U.S. while the decrease in work scope in Canada put pressure on margins as fracturing crews bid pricing lower to maintain utilization. The Company generated consolidated Adjusted EBITDA of $48.6 million, a margin of 19.3%. This was lower than the $58.1 million (23.7% margin) achieved in Q3 2022, which was a record quarter for the Company, but significantly higher than the $17.3 million (10.9% margin) posted in Q4 2021.
Net income was $16.7 million in Q4 2022 ($0.23 diluted earnings per share), sequentially lower than the $30.9 million in Q3 ($0.43 diluted earnings per share), but higher than the $6.2 million loss ($0.08 diluted loss per share) realized in Q4 2021. Net income included $3.0 million in finance costs (Q3 2022 ‐ $1.3 million, Q4 2021 ‐ $4.2 million) and $4.4 million in share‐based compensation (Q3 2022 ‐ $1.4 million, Q4 2021 ‐ $0.1 million), as well as a $5.7 million reversal of the remaining balance of a previously recorded impairment in the U.S in 2020. STEP was profitable in all four quarters in 2022 – a sign of meaningful progress for the Company and the energy business broadly.
Free Cash Flow was $22.4 million in Q4 2022, sequentially lower than the $40.1 million in Q3 2022 but higher than the $14.2 million in Q4 2021. STEP allocated a significant amount of its Free Cash flow through the year to debt reduction, balanced with an increased investment into its fleet. Net debt was reduced to $142.4 million at the close of Q4 2022 from $147.5 million at close of Q3 2022 and is down nearly $45 million on a year-over-year basis. This debt reduction was accomplished while simultaneously investing $55.3 million into working capital in 2022 and $25.6 million into optimization capital expenditures during the full year 2022. STEP has now reduced debt by nearly $170 million from peak levels in 2018. The reduction in debt and improvement in Adjusted EBITDA meant that the Company had a 12-month trailing Funded Debt to Adjusted Bank EBITDA of 0.75:1, well under the limit of 3.00:1 in the Company’s Credit Facilities (as defined in Capital Management – Debt below).
MARKET OUTLOOK
The recovery in demand for oil and gas across the world and a renewed focus on energy security is expected to continue driving demand for oilfield services in North America. Commodity prices have moderated from the highs seen in 2022 but are expected to stay constructive through 2023.
West Texas Intermediate (“WTI”) oil prices remain more influenced by global market trends and are only modestly off Q4 2022 levels as the world continues to grapple with the effects of sanctions on Russian oil supply and continued production discipline across the market. These commitments to limit supply growth have come from nations belonging to the OPEC+ oil cartel as well as companies in non-OPEC countries that have made public commitments to return free cash flow to shareholders rather than expand production. Management’s view is that the current softness in oil prices to date is expected to reverse in the second half of 2023 as concerns over the impact of a potential recession ease and China continues to reopen following two years of tight COVID-19 lockdowns.
The market for natural gas in early 2023 has weakened relative to 2022. Henry Hub prices, the benchmark price for North American natural gas, have been negatively affected by a warmer winter, reduced Liquified Natural Gas (“LNG”) exports following the unexpected Freeport LNG terminal shutdown, and a growing supply of associated gas coming from oil-driven production, particularly in the Permian. Offsetting this concern is the continued resiliency in the price of natural gas liquids (“NGLs”), which have been more stable than natural gas due to their correlation to oil prices. Canadian gas production is heavily affected by NGLs, with strong demand for condensate to support growing oil sands production. Encouragingly, the lower natural gas prices have driven demand higher on STEP’s dual fuel fleets. These fleets can achieve substitution rates of up to 70%, using STEP’s proprietary operational procedures. Management is of the view that natural gas prices are unlikely to return to the elevated levels seen in 2022, but a resumption in LNG exports through the Freeport LNG facility and the oncoming summer season are expected to bring support to prices as 2023 unfolds.
The long-term outlook for oilfield services is very constructive. The structural under-investment in hydrocarbon production capacity through the last seven years has been exacerbated by geopolitical tensions, forcing governments and policy makers to confront the realty that oil and gas will be a key part of the energy mix for many years. STEP is proud to work in Canada and the U.S., countries that have the natural resources, the regulatory frameworks, and the technical expertise to deliver safe and affordable energy to the world.
Canada
Canadian activity levels have been strong for Q1 2023, directionally in line with the sharp increase in the drilling rig count from Q4 2022. Fracturing utilization levels have been high through the quarter to date. Four of STEP’s fracturing crews are focused on large multi-well pads in the gas-focused Montney and Duvernay plays, with the smaller fifth crew optimized for coiled tubing fracturing across different plays. This crew operates with a fully electrified combination unit that replaces individual blender, data van and chemical additive units, reducing the wellsite footprint and emissions. Demand for STEP’s coiled tubing services has been strong, following a slow start in January. Demand for the Company’s nine coiled tubing units has been robust following a slow start. Coiled tubing depends heavily on fracturing activity, so the lower level of fracturing activity in Canada during Q4 2022 resulted in low utilization at the start of the year. Both service lines are largely booked for the balance of the quarter, although timing of spring break-up may affect utilization levels in March. If break-up conditions come early, the remaining Q1 work scope will be pushed into Q2 2023.
Q2 2023 activity levels are expected to be solid for fracturing and coiled tubing, although current market conditions are unlikely to result in the record levels of performance reached in Q2 2022. The Company has been delivering the Tier 4 DGB fracturing pumpers into the field, supplementing STEP’s existing Tier 2 dual fuel equipment until the completion of the full Tier 4 DGB fleet, which is anticipated in the second quarter.
The Company has early indications of solid work scope for the second half of the year and expects to finalize agreements with clients in the near term. STEP believes that the re-opening of Blueberry River First Nation lands to industrial development and early LNG-related activity are positive catalysts that are likely to increase demand for oilfield services.
United States
Following a robust year in 2022 where drilling rig counts recovered to pre-COVID levels, rig activity has trickled modestly lower from the start of 2023. The idled rigs are mostly older, legacy, mechanical rigs that have lower efficiency but were pressed into service due to the shortage of the latest generation high-spec rigs. The high-spec rig market remains strong, with activity levels in the Permian basin, home of STEP’s three large fracturing crews, holding steady.
Fracturing utilization at the start of the quarter was negatively impacted by drilling delays on two client locations and winter storm conditions in early February. The Company took advantage of this downtime to accelerate some of its optimization capital spending on pump upgrades that will improve efficiency and reliability. Utilization recovered midway through the quarter and is expected to stay steady into the second quarter. Coiled tubing utilization has been strong to date, buoyed by high fracturing activity in Q4 2022, and the Company has activated its twelfth coiled tubing unit in the first quarter. Spring break-up conditions may impact activity at STEP’s northern coiled tubing bases in Colorado and North Dakota in late Q1 and early Q2, but utilization is expected to stay steady outside of these periods.
Visibility into the second half of the year is improving, with discussions ongoing with clients for fracturing services into the third and fourth quarters. The drop in natural gas prices will likely result in some fracturing capacity repositioning from the gas-focused regions into the more oil-focused regions, but demand has stayed steady to date. The U.S. fracturing market was in an undersupplied position for much of 2022, which may move closer to a balanced position in 2023 if commodity prices stay lower. STEP is well positioned in oil-focused regions across the U.S. and has the ability to shift fleets to areas where demand is strongest. Demand for STEP’s coiled tubing services has steadily grown through 2022 and has shown little sign of slowing in 2023.
CAPITAL EXPENDITURE OUTLOOK
STEP’s Board of Directors approved a $103 million capital expenditure budget for 2023, split into $55 million for sustaining capital and $48 million for optimization capital. The sustaining capital is heavily influenced by activity levels and is oriented towards replacement of major components such as engines, transmissions or power ends required for daily operations, whereas the optimization capital is directed to projects that can generate additional return through improved reliability and/or efficiency to STEP’s operations.
Supply chain constraints remain a factor that are impacting new-build and refurbishment timelines. Long lead times on major components and limited third-party shop space can result in cost escalation and project delays. The Company has strong relationships with key vendors which ensures supply, although lead times remain a concern. In certain circumstances, the Company may require approval of capital earlier than otherwise would be typical.
STEP continually monitors its capital budget against industry conditions, striking the balance between continued deleveraging of the balance sheet and investing opportunistically where adequate returns can be generated.
CANADIAN FINANCIAL AND OPERATIONS REVIEW
STEP has a fleet of 16 coiled tubing units in the WCSB, all of which 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. STEP deploys or idles coiled tubing units and fracturing horsepower 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 % 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 20-25% of this amount is required to accommodate equipment maintenance cycles.
FOURTH QUARTER 2022 COMPARED TO FOURTH QUARTER 2021
Revenue for the three months ended December 31, 2022 was $114.8 million compared to $91.5 million for the three months ended December 31, 2021. Revenue improved in Q4 2022 over Q4 2021 primarily due to a rise in pricing for both service lines as a result of an industry-wide increase in activity resulting from a significant improvement in oil and gas prices.
Fracturing operating days decreased to 249 for Q4 of 2022 from 279 during the same period of 2021. E&P companies did not have the same commodity price signal in Q4 2022 to bring capital forward to continue completions activity through December that they had in Q4 2021, when completions activity held steady from Q3 2021 to Q4 2021. Data from Rystad Energy showed basin wide fracturing activity holding flat in 2021 from Q3 to Q4, whereas in 2022 fracturing activity declined by 17% from Q3 to Q4. The slowdown in Q4 2022 activity was exacerbated by the addition of fracturing capacity by a competitor, which resulted in some pressure on pricing as margins were bid lower to gain utilization. Notwithstanding this late quarter pricing pressure, the Company’s rates for fracturing services increased period over period as a result of a more constructive pricing environment and inflationary pressures. Coiled tubing revenue benefitted from higher year over year fracturing activity and saw operating days increase to 496 for Q4 2022 from 448 during the comparable period of 2021.
Adjusted EBITDA for the fourth quarter of 2022 was $23.6 million (21% of revenue) versus $13.6 million (15% of revenue) in the fourth quarter of 2021. Operating expenses increased in line with the surge in activity experienced through the year, with inflation further increasing costs. STEP has strong client relationships and negotiated pricing increases to cover the cost inflation as well as provide the needed margin expansion that is critical for the Company to reinvest into the business.
FULL YEAR 2022 COMPARED TO FULL YEAR 2021
For the year ended December 31, 2022, Canadian operations had revenue of $567.8 million, which was a record year for the Company. The 59% increase over the $357.5 million generated in 2021 was largely the result of increased pricing and operating days for both fracturing and coiled tubing services as a result of the substantially improved macro-economic environment and oilfield activity levels, relative to the difficult conditions that existed throughout much of 2021.
STEP operated five fracturing crews in Canada in 2022, having introduced the fifth crew in early Q1 2022. This smaller crew typically consisted of four fracturing pumps plus ancillary equipment and targeted the oil focused Cardium and Viking plays, which were seeing higher activity levels as the price of oil increased. The additional fracturing crew resulted in a 22% increase in fracturing days, although the smaller size of the fifth crew was a factor in the proppant pumped only increasing approximately 5% during that period. STEP also operated eight coiled tubing units in 2022 with utilization increasing to 67% from 62% one year ago.
Inflation on operating inputs was a major concern in 2022. Lingering and ongoing effects of the COVID-19 pandemic, combined with sanctions imposed on Russia for its invasion of Ukraine, disrupted supply chains. Cost of products, parts and services escalated rapidly and delivery timelines were stretched as the oil and gas sector roared back to life after a multi-year down-cycle. STEP increased its Canadian workforce by 15% in 2022, providing good, high-paying jobs to more than 800 Canadians, drawn from across the country. Compensation costs rose as wages increased and benefits were reinstated. The year-over-year variance in personnel costs was also impacted by the $6.8 million ($nil – 2022) that STEP received in 2021 from the Canadian Emergency Wage Subsidy (“CEWS”), which was recorded as a reduction to wage expenses. STEP worked with clients to pass on this inflation, moving in near real time to adjust programs as costs shifted.
Canadian operations generated Adjusted EBITDA of $136.0 million (24% of revenue) for fiscal 2022 compared to $68.1 million (19% of revenue) in 2021. The most significant factors in the $67.9 million increase were the improvement in pricing earned for our services, followed by higher utilization. The margin improvement provides the critical cash flow needed to reinvest into the business to ensure that clients receive the best equipment on their wellsites.
UNITED STATES FINANCIAL AND OPERATIONS REVIEW
STEP’s U.S. business commenced operations in 2015 with coiled tubing services. STEP has a fleet of 19 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. The U.S. fracturing business has 207,500 fracturing HP, of which 80,000 HP is Tier 4 diesel and 50,250 HP has direct injection dual-fuel capabilities. The U.S. fracturing business primarily operates in the Permian and Eagle Ford basins in Texas. The Company deploys or idles coiled tubing units and fracturing horsepower 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 % is 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.
FOURTH QUARTER 2022 COMPARED TO FOURTH QUARTER 2021
Revenue for the three months ended December 31, 2022 was $136.6 million, a record result for the U.S. geographic region. The U.S. is a key market for STEP, particularly in Texas. STEP has operating bases in the prolific oil-focused Permian and Eagleford plays and the gas-focused Haynesville play is within the Company’s operating range. The Permian play had 45% of the rigs operating in the U.S. in Q4 2022, and the highest proportion of the high-spec drilling rigs, followed by the Eagleford and Haynesville which had just over 9% each. Rig counts in these plays increased by 124, or 34%, from Q4 2021 to Q4 2022. The 103% increase over the $67.3 million of revenue generated for the same period in 2021 was largely the result of increased pricing and higher operating days for coiled tubing services as a result of the substantially improved macro-economic environment and oilfield activity levels, relative to the difficult conditions that existed throughout much of 2021.
Fracturing operating days for the fourth quarter of 2022 were flat on a year-over-year basis, with only a marginal increase in proppant pumped. The $52.9 million increase in revenue was primarily due to the improvement in pricing for STEP’s services. Further impacting the increase in prices was due to the increase in STEP-sourced proppant, which increased from 36% in 2021 to 49% in 2022. Coiled tubing operations were able to add three units primarily as a result of the acquisition of Pro-Petro’s coiled tubing division in September 2023. The service line had 655 operating days in Q4 2022 compared to 507 in Q4 2021.
U.S. operations generated Adjusted EBITDA of $28.6 million (21% of revenue) for fourth quarter 2022. The earnings potential that exists within a pressure pumping business was clearly demonstrated when comparing the Q4 results of 2022 versus 2021. Adjusted EBITDA was 3.5x higher on nearly the same number of operating days, increasing by $20.6 million over the $8.0 million of Adjusted EBITDA generated for the same period a year prior.
FULL YEAR 2022 COMPARED TO FULL YEAR 2021
Revenue for the year ended December 31, 2022 was $421.2 million, a record result for the U.S. geographic region. The significant increase in commodity prices, particularly in the second and third quarters, propelled the U.S. rig count from an average of 477 in 2021 to 723 in 2022. STEP operated three fracturing crews for the entirety of 2022, increasing its operating days by 20% over 2021, when it added the third crew in mid-Q3. The acquisition of Pro-Petro’s coiled tubing division in late Q3 2022 enabled STEP to add three coiled tubing units to its active fleet, contributing to the 636 year-over-year increase in operating days, which increased to 2,374 in 2022. The increase in operating days was a key factor in the increase in revenue, as was the pricing improvement made possible by the discipline shown by much of the industry to keep available capacity in check. These factors drove the 136% increase in revenue from 2021 revenue of $178.8 million.
Inflation was a significant headwind for the industry, creating volatility in input costs as supply chains struggled to keep up with the sharp increase in activity while overcoming the lingering effects of the COVID-19 pandemic and the geopolitical challenges associated with the war in Ukraine. Inflation hit every major cost category in the value chain, raising costs, but also stretching lead times for major components and parts, requiring the Company to increase the number of active units required to support ongoing operations. STEP’s North American buying power blunted some of the extreme effects of inflation, but the remainder was passed on to clients.
U.S. operations produced an Adjusted EBITDA of $79.6 million (19% of revenue) in 2022, almost eight times higher compared to the $10.2 million (6% of revenue) generated in 2021. Increased activity and improved pricing led to higher leverage on the fixed cost structure, returning the geographic region to more sustainable profitability.
CORPORATE FINANCIAL 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, as well as general and administrative costs which include 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.
FOURTH QUARTER 2022 COMPARED TO FOURTH QUARTER 2021
For the three months ended December 31, 2022 expenses from corporate activities were $7.3 million compared to $4.5 million for the same period in 2021. Cash settled share-based compensation expense was $3.5 million higher in Q4 2022 relative to Q4 2021, as the Company’s share price increased by $3.72 from December 31, 2021 to December 31, 2022 compared to a share price increase of $0.87 during the same period of the prior year. This resulted in higher expenses from the mark to market adjustment in the current period.
FULL YEAR 2022 COMPARED TO FULL YEAR 2021
Expenses from corporate activities were $33.8 million for the year ended December 31, 2022, an increase of 63% from $20.7 million for the year ended December 31, 2021. Share-based compensation increased as STEP’s improved results and overall economic recovery resulted in a higher share price throughout the year which impacted the value of both the cash settled awards as well as the fair value assigned to new equity settled grants in fiscal 2022.
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 measures should be read in conjunction with the Company’s quarterly financial statements and Annual 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, equity and cash settled 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 income (loss).
“Free Cash Flow” is a financial measure not presented in accordance with IFRS and is equal to net cash provided by operating activities adjusted for changes in non-cash Working Capital from operating activities, sustaining capital expenditures, term loan principal repayments and lease payments (net of sublease receipts). The Company may deduct or include additional items in its calculation of Free Cash Flow that are unusual, non-recurring or non-operating in nature. Free Cash Flow is presented as this measure is widely used in the investment community as an indication of the level of cash flow generated by ongoing operations. Management uses Free Cash Flow to evaluate the adequacy of internally generated cash flows to manage debt levels, invest in the growth of the business or return capital to shareholders. The following table presents a reconciliation of the non-IFRS financial measure of Free Cash Flow to the IFRS financial measure of net cash provided by operating activities.
“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 and CCS derivatives. 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 Total long-term financial liabilities.
The following table presents the composition of the non-IFRS financial measure of Net debt.
RISK FACTORS AND RISK MANAGEMENT
The oilfield services industry involves many risks, which may influence the ultimate success of the Company. The risks and uncertainties set out in the AIF and Annual MD&A are not the only ones the Company is facing. There are additional risks and uncertainties that the Company does not currently know about or that the Company currently considers immaterial which may also impair the Company’s business operations and can cause the price of the Common Shares to decline. Readers should review and carefully consider the disclosure provided under the heading “Risk Factors” in the AIF and “Risk Factors and Risk Management” in the Annual MD&A, both of which are available on www.sedar.com, and the disclosure provided in this Press Release under the headings “Market Outlook”. In addition, global and national risks associated with inflation or economic contraction may adversely affect the Company by, among other things, reducing economic activity resulting in lower demand, and pricing, for crude oil and natural gas products, and thereby the demand and pricing for the Company’s services. Other than as supplemented in this Press Release, the Company’s risk factors, and management thereof has not changed substantially from those disclosed in the AIF and Annual MD&A.
FORWARD-LOOKING INFORMATION & STATEMENTS
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 “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: 2023 industry conditions and outlook, including the effect of Russia related sanctions and OPEC+ supply limitations, recovery in demand for oil and gas, a renewed focus global energy security concerns, industry production discipline, and other macroeconomic factors; the effect of return on capital goals vs. production goals; anticipated 2023 results; recession risk, including its effect on oil prices; the effect of the reopening of the Chinese economy on oil prices; the effect of resumed industrial activity on Blueberry River First Nation territorial lands; the potential for fracturing capacity repositioning from gas to oil focused regions; anticipated diesel substitution rates in the Company’s dual fuel fracturing fleets; the effect of new LNG facilities as well as the resumption of U.S. LNG exports; the effect of natural gas liquids and condensate on gas production; the effect of under-investment in hydrocarbon production; supply and demand for the Company’s and its competitors’ services, including the ability for the industry to respond to demand increases; the effect of inflation and related cost increases; expected pricing for the Company’s services; the impact of weather and break up on the Company’s operations; the competitive labour market; the potential for commodity price volatility; the effect of competitor consolidation on industry pricing discipline; the effect of changes in work scope on expected margins; the remaining effects of the COVID-19 pandemic; timing of completion of the Company’s Tier 4 DGB fracturing fleet; the Company’s ability to meet all financial commitments including interest payments over the next twelve months; the Company’s plans regarding additional equipment; the Company’s ability to manage its capital structure; expected debt repayment and Funded Debt to Adjusted Bank EBITDA ratios; expected income tax liabilities; adequacy of resources to funds operations, financial obligations and planned capital expenditures; the Company’s ability to retain its existing clients; the monitoring of impairment, amount and age of balances owing, and the Company’s financial assets and liabilities denominated in U.S. dollars, and exchange rates; the potential for the fracturing market to shift from an undersupplied state to a more balanced state, resulting in possible pressure to pricing and margins; supply chain constraints impact on new-build and refurbishment timelines; and the Company’s expected compliance with covenants under its Credit Facilities and its ability to satisfy its financial commitments thereunder.
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 macroeconomic factors, including global energy security concerns and levels of oil and gas inventories; market concerns regarding economic recession; levels of oil and gas production and the effect of OPEC or OPEC+ related capacity and related 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 and break up 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 this Press Release and the Annual MD&A.
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.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND OTHER COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED STATEMENTS OF CASH FLOWS
ABOUT STEP
STEP is an energy services company that provides coiled tubing, fluid and nitrogen pumping and hydraulic fracturing 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 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 (“E&P”) companies in Canada and the U.S. Our Canadian 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, the Uinta-Piceance and Niobrara-DJ basins in Colorado and the Bakken 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:
Steve Glanville
President and Chief Executive Officer
Telephone: 403-457-1772
Klaas Deemter
Chief Financial Officer
Telephone: 403-457-1772
Email: investor_relations@step-es.com
Web: www.stepenergyservices.com
STEP will host a conference call on Thursday, March 2, 2023 at 9:00 a.m. MT to discuss the results for the Fourth Quarter and Year End 2022 and outlook on 2023.
To listen to the webcast of the conference call, please click on the following URL:
https://viavid.webcasts.com/starthere.jsp?ei=1587943&tp_key=0d3ba1e791.
You can also visit the Investors section of our website at www.stepenergyservices.com and click on “Reports, Presentations & Key Dates”.
To participate in the Q&A session, please call the conference call operator at: 1-888-886-7786 (toll free) 15 minutes prior to the call’s start time and ask for “STEP Energy Services Fourth Quarter and Year End 2022 Earnings Results Conference Call”.
The conference call will be archived on STEP’s website at www.stepenergyservices.com/investors.
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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