News Releases

CALGARY, Alberta--(BUSINESS WIRE)--STEP Energy Services Ltd. (the “Company” or “STEP”) (TSX: STEP) is pleased to announce its financial and operating results for the three months and twelve months ended December 31, 2024. 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, 2024 (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.sedarplus.ca, including the Company’s Annual Information Form for the year ended December 31, 2024 dated March 11, 2025 (the “AIF”).

CONSOLIDATED HIGHLIGHTS

FINANCIAL REVIEW

OPERATIONAL REVIEW

2024 ANNUAL HIGHLIGHTS

• The year ended December 31, 2024 was STEP’s best performance for the following financial metrics since 2022, when oil and natural gas prices were significantly higher than they were in 2024:
  • Consolidated revenue for the year ended December 31, 2024 was $955.0 million, in line with $945.7 million in the prior year.
  • For the year ended December 31, 2024, Adjusted EBITDA was $169.1 million or 18% of revenue compared to $163.6 million or 17% of revenue in the prior year.
  • Free Cash Flow for the year ended December 31, 2024 was $85.7 million compared to $82.8 million in 2023.
• Net income for the year ended December 31, 2024 was $1.8 million, or $0.02 per diluted share, compared to $50.4 million in 2023, or $0.67 per diluted share. Included in net income for the year ended December 31, 2024 was:
  • Impairment expense of $36.7 million compared to nil in the same period of the prior year. The impairment was taken on real estate and fracturing pumps with Tier 1 and Tier 2 engines (the tiers established by the U.S. Environmental Protection Agency to control emissions) and associated ancillary fracturing equipment held in the U.S. fracturing cash generating unit (“CGU”).
  • Transaction costs of $2.2 million related to the proposed take private transaction discussed below, consisting of legal and consulting fees, compared to nil in the same period of the prior year, and;
  • Share based compensation expense of $6.3 million, compared to $1.1 million in the same period of the prior year.
• STEP continued to advance its shareholder return strategy in 2024:
  • During 2024, the Company repurchased and cancelled 1,873,134 shares at an average price of $4.17 per share under its Normal Course Issuer Bid (“NCIB”). Under the NCIB, the Company was permitted to repurchase and cancel 3.6 million shares, representing 5% of Company’s issued and outstanding shares.
  • Subsequent to year end, STEP renewed its NCIB in January 2025. The Company is authorized to repurchase and cancel up to 3.6 million shares, representing 5% of the Company’s issued and outstanding shares.
• STEP also made significant progress on debt reduction during the year while continuing to invest into the long-term sustainability of the business:
  • The Company had Net Debt of $52.7 million at December 31, 2024, compared to $87.8 million at December 31, 2023. STEP has reduced Net Debt by approximately $255 million from peak levels in 2018.
  • The Company invested $93.3 million in capital expenditures, continuing the upgrades of fracturing pumps to Tier 4 dual fuel technology, enhancing STEP's internal sand delivery and storage services, and the refurbishment of other ancillary equipment, including STEP’s first fully electrified back side fracturing equipment.
• Working Capital as at December 31, 2024 of $35.4 million was $6.7 million lower than the $42.1 million at December 31, 2023. Working capital fluctuations are typical and are influenced by activity levels and timing of client receipts.
• In 2024 STEP pumped a record 2.3 million tonnes of proppant, an 8% increase from 2023.
• STEP continued to develop its position in 2024 as the leading provider of coiled tubing technology in North America with the following actions:
  • Acquired the proprietary technology and intellectual property behind the STEP-conneCT downhole tool, making STEP the exclusive provider of this technology across North America.
  • STEP worked with a key U.S. client to further develop the Company’s ultra deep coiled tubing capability, giving the Company the ability to service deeper wells. STEP used this technology, known as Coil+, to reach a depth record of 30,210 feet (9,208 meters) in 2024.
• On December 19, 2024, STEP, 2659160 Alberta Ltd. and the limited partnerships comprising ARC Energy Fund 8 (a private equity fund advised by ARC Financial Corp.) mutually agreed to terminate the arrangement agreement originally entered into on November 3, 2024. The November 3, 2024, agreement stated that STEP’s major shareholder (ARC Energy Fund 8) and 2659160 Alberta Ltd would acquire all the issued and outstanding common shares of STEP not already owned, directly or indirectly, by ARC. The decision to terminate the agreement was made after it became clear that the requisite minority shareholder approval could not be achieved.
• In mid to late Q1 2025, the U.S. fracturing CGU was subject to changes in business conditions that materially impacts its expected economic performance. As a result, STEP will begin an orderly wind down of operations of this CGU following completion of the current Q1 work scope and will present the financial results for U.S. fracturing as discontinued operations going forward.

FOURTH QUARTER 2024 OVERVIEW

Natural gas prices in the fourth quarter recovered, with the average benchmark U.S. Henry Hub and Canadian AECO natural gas prices increasing from the third quarter of 2024. Henry Hub averaged $3.00 per MMBtu (USD) in Q4, up from $2.23 per MMBtu in Q3 2024, while AECO averaged $2.02 per Mcf (CAD) in Q4, up from $0.85 per Mcf in Q3 2024. Natural gas prices typically rally into the winter heating season, with colder weather driving higher demand. Oil prices traded in a tight range, with the benchmark West Texas Intermediate (“WTI”) crude price averaging $70.34 per barrel (USD) in Q4, down from $75.21 per barrel in Q3 2024, over concerns about weakening global demand and excess supply.

Oilfield service levels are primarily reflected in drilling rig counts publicly reported by Baker Hughes and estimates made by Primary Vision for fracturing crews in the U.S. land based drilling rigs in the U.S. were stable, with an average of 569 rigs in the fourth quarter, in line with the 565 in the third quarter of 2024 but down from the 600 rigs in the fourth quarter of 2023. Canadian rig counts averaged 194 during the fourth quarter, down from 207 in the third quarter but up from the 180 rigs in the fourth quarter of 2023. U.S. fracturing fleets declined in the fourth quarter to an average of 224, down from 234 in the third quarter of 2024 and down from 267 in the fourth quarter of 2023. Declines in the fourth quarter are typical as producer budgets are exhausted and the Christmas and New Year holidays result in lower December activity.

STEP’s Canadian geographic region generated quarterly revenue of $110.0 million and Adjusted EBITDA of $10.8 million, which was sequentially lower than the third quarter of 2024 and slightly below fourth quarter performance in 2023. STEP’s focus on working with clients with larger scale programs has been a key factor in maintaining a baseline level of activity in the fourth quarter for both the fracturing and coiled tubing service lines. STEP’s U.S. geographic region generated quarterly revenue of $37.4 million and an Adjusted EBITDA loss of $3.1 million, a decline sequentially and year over year. The decline in drilling activity in the U.S. resulted in a slow down in coiled tubing and fracturing activity and reduced financial performance.

STEP’s consolidated revenue in the fourth quarter was $147.5 million, down $47.6 million from the same period last year, and Adjusted EBITDA of $4.1 million (3% Adjusted EBITDA margin) was down from $18.4 million (9% Adjusted EBITDA margin) in the same period last year. The margin compression is the result of the activity declines in the U.S. and ongoing pricing pressures in both the U.S. and Canada as well as the cumulative effect of several years of high inflation and deteriorating foreign exchange rates which have increased the Company’s cost profile.

Net loss was $44.6 million in Q4 2024 ($0.62 diluted loss per share), sequentially lower than the $5.5 million loss in Q3 2024 ($0.08 diluted loss per share) and the $5.2 million loss in Q4 2023 ($0.07 diluted loss per share). Net loss included $2.5 million in share‐based compensation expense (Q3 2024 ‐ $1.0 million, Q4 2023 ‐ $0.8 million expense), transaction costs of $2.2 million related to the arrangement agreement discussed above (Q3 2024 – nil, Q4 2023 – nil), impairment expense of $23.9 million (Q3 2024 – $12.7 million, Q4 2023 – nil) and $2.4 million in finance costs (Q3 2024 ‐ $4.3 million, Q4 2023 ‐ $2.6 million).

Free Cash Flow was negative $16.6 million in Q4 2024 ($0.23 diluted negative Free Cash Flow per share), sequentially lower than the positive $28.4 million in Q3 2024 and the negative $4.5 million in Q4 2023. Large client receipts near the end of the quarter resulted in Net Debt decreasing to $52.7 million at the close of Q4 2024 from $60.7 million at close of Q3 2024. Net Debt is now $255 million lower than peak levels in 2018. The reduction in Net Debt and improvement in Adjusted EBITDA resulted in a 12-month trailing Funded Debt to Adjusted Bank EBITDA of 0.43:1.00, well under the limit of 3.00:1 in the Company’s Credit Facilities (as defined in Capital Management – Debt below). Phase two of STEP’s shareholder return framework was the initiation of a NCIB in late 2023. Although the NCIB was paused mid-year, 1,873,134 shares were repurchased under the NCIB program during 2024 at a weighted average price of $4.17 per share.

MARKET OUTLOOK

STEP is approaching 2025 with cautious optimism. Benchmark oil prices are expected to trade in a relatively tight band as global demand is not expected to meaningfully increase, although returns to Canadian producers are expected to increase with the full year operation of the Trans Mountain Expansion Project (“TMX”). This project was completed in mid-2024 and added nearly 600,000 barrels of oil per day in capacity to the existing Trans Mountain Pipeline. In contrast to the range bound oil prices, natural gas prices are expected to increase through the year as LNG production is expected to take a big step forward in both Canada and the U.S. After many years of anticipation, LNG Canada is expected to begin shipping liquefied natural gas mid-year, with full operation expected by the fourth quarter. This will add 2.1 billion cubic feet (“Bcf”) per day in demand to the Western Canadian Sedimentary Basin (“WCSB”) production that already produces approximately 19 Bcf per day. Several large projects in the U.S. are also expected to reach completion in the second half of the year, adding 2.6 Bcf per day in demand to the U.S. gas market.

Looking further into 2026, an additional 3 to 4 Bcf per day in demand is expected and the U.S. Energy Information Administration (“EIA”) is projecting that LNG capacity will double to almost 25 Bcf per day by 2028, with additional projects expected to be added following the decision by the new U.S. Administration to reverse the freeze on LNG export permit approvals. Collectively these projects demonstrate that North America is becoming a cornerstone supplier of reliable energy to the world, providing constructive economic conditions for North American producers and service providers.

The forecasted growth in 2025 is expected to begin drawing down storage levels, which are at the top end of the five-year range. This constructive outlook for natural gas is reflected in Henry Hub strip pricing and the U.S. EIA 2025 forecast of $3.80 per mmBTU¹, up from $2.20 in 2024. Canadian AECO pricing continues to trade at a discount to the U.S. prices but the ramp up of LNG Canada is expected to narrow the differential into the autumn, similar to the narrowing that was seen in the differentials between Canadian oil and WTI when the TMX started flowing.

The constructive commodity price backdrop is supporting modest client growth. STEP clients have provided guidance that the completions portion of their 2025 capital budget will be up slightly over 2024, with potential to increase if prices and demand hold strong into the year end. The dynamic political situation in both Canada and the U.S. is adding uncertainty, particularly for Canadian energy producers and oilfield service companies. The recent decision by the U.S. government to levy tariffs on certain Canadian goods and the retaliatory response from the Canadian government has created considerable economic uncertainty. The uncertainty creates financial risk to input costs and revenues, and while STEP has taken action to lessen the impact of these actions the Company cautions that this situation remains unpredictable.

Canada

Canadian activity levels are expected to increase year over year. Completion of major projects such as the TMX and LNG Canada are expected to add demand to a market that has been largely egress constrained. The secondary beneficiaries of the TMX expansion are the producers of condensate, which is a natural gas liquid (“NGL”) that is used by the heavy oil producers to dilute their heavy crude for transport. Canada remains a net importer of condensate, giving liquids rich natural gas producers in the WCSB premium access and pricing for their product. Natural gas producers will also benefit from the increase in demand for their product once LNG Canada begins operations this year.

The Montney and Duvernay plays in Alberta and British Columbia (“B.C.”) are expected to be the primary growth engines for the growing gas and NGL demand. The Montney is a prolific gas producing play that produces roughly half of Canada’s gas production and is still recognized to be in the very early stages. The B.C. government has estimated that the play holds approximately 4,274 trillion cubic feet (“Tcf”) of natural gas, of which 449 Tcf are recoverable using their base case recovery factor of approximately 10.5%. A recent report by RBC Capital Markets² estimated that only 8% of recoverable gas had been produced by late 2023. The Duvernay is a growing domestic source of NGLs that will supplement imported condensate and will be critical in supporting the Alberta government’s drive to increase oilsands production in the province. STEP’s fracturing and coiled tubing equipment was specifically designed for the high pressure, continuous duty work that is needed in these basins.

First quarter activity in Canada is expected to be robust, with high utilization across the Company’s fracturing and coiled tubing fleets. Strategic alignment with key clients has driven strong activity in January and February, with sand volumes tracking ahead of Q1 2024 volumes. STEP’s industry leading logistics fleet has handled a significant proportion of this volume, delivering additional value to the business. Coiled tubing, pumping and nitrogen services are similarly busy, with activity in line with Q1 2024 levels. A shift in completion design with a key client in the Montney towards single point entry has driven high utilization on coiled tubing, providing steady activity for two units in a service line that is highly dependent on call out work. STEP’s coiled tubing service line set a company record of 299 stages completed using this completion design, with the combined services pumping 14,043 tonnes of proppant on a simul-frac operation.

Weather conditions are unpredictable in Q1, swinging between the extreme cold experienced in February to the uncertain onset of spring break up in March, but are anticipated to have only modest impact on operations. STEP’s fracturing services are primarily engaged on large pads, where continuous pumping operations are less affected by the extreme cold. Timing of spring break up could have some impact if reduced day time weights are mandated on roads, but the large pads allow for some reserve sand stockpiling overnight to keep operations flowing. Reduced loads will likely place additional strain on industry third party trucking capacity, but STEP’s logistics fleet will insulate the Company from the expected increase in third party trucking rates.

Pricing for services has improved sequentially from the fourth quarter of 2024 but remains lower than the first quarter of 2024. The weakening of the Canadian dollar against the U.S. dollar has led to further margin compression, particularly on proppant.

The schedule for the second quarter of 2025 is taking shape, with expectations for a similar quarter to the same period in 2024. As usual, the schedule is subject to client readiness and weather conditions, which may shift work between quarters with limited notice. Second half of the 2025 year activity is difficult to project with certainty, but STEP has a good base of work already scheduled and is actively working to secure additional work, particularly in the fourth quarter. The expected first delivery of cargo from the LNG Canada facility in early Q3 could spur additional activity in the second half of the year.

United States

U.S. activity levels are expected to remain relatively stable for the first half of the year, with some cautious optimism that activity could increase in the second half with the completion of several large LNG products. Natural gas prices have rebounded considerably from 2024 levels, buoyed by cold weather that has drawn down natural gas inventories, providing stability that has eluded that part of the industry for much of 2024.

The reset of E&P budgets into the new year has provided a modest lift to oilfield service levels. Drilling rig and fracturing crew counts have recovered from the weak activity levels in late 2024, which has also led to improvement in coiled tubing activity. STEP reactivated a unit that was idled in Q4 2024, bringing total active units back to 12 midway through the first quarter and expects to reactivate another unit during the first half of 2025 if demand for our services continues to grow. Market activity is expected to be similar to Q1 2024 levels, despite the weather related delays earlier in the quarter. Demand for STEP’s coiled tubing technology continues to increase, particularly for the equipment that is capable of servicing the ultra deep wells with laterals of up to four miles. The technological differentiation allows STEP to realize higher pricing on the specialized work, but pricing on the conventional coiled tubing work remains very competitive, driven by a surplus of equipment.

The fracturing market has recovered sequentially, but conditions remain challenging and activity remains below 2024 levels. The significant consolidation in the E&P space that occurred in 2024 resulted in a reduction in the number of drilling rigs and fracturing crews, intensifying the price competition for the remaining service providers. One of STEP’s two dual fuel fracturing crews was utilized for much of the first quarter of 2025 but despite performing well, subsequent work was awarded to a larger competitor for the balance of the year, repeating a pattern STEP experienced repeatedly in 2024. As E&P clients continue to grow in scale through consolidation, smaller service providers have found it increasingly difficult to compete as the E&Ps demand larger scale service providers to support their larger consolidated operations. After careful consideration of options, STEP has determined that it is in the best interests of the Company to suspend operations in the U.S. fracturing service line and begin an orderly wind down process once the remaining Q1 2025 work scope is complete.

Consolidated

STEP’s focus for 2025 is on improvement of margins and generation of Free Cash Flow. The Company will continue to advance its shareholder return strategy through the NCIB and reducing balance sheet leverage while also selectively investing in upgrading the Company’s asset base.

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 basin. STEP’s fracturing business primarily focuses on the deeper, more technically challenging plays in Alberta and northeast British Columbia. STEP deploys, or idles, coiled tubing units and fracturing horsepower as dictated by the market’s ability to support targeted utilization and economic returns.

For more information:
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