OREANDA-NEWS. STEP Energy Services Ltd. (the “Company” or “STEP”) today announces financial and operating results for the three and six months ended June 30, 2017. The following press release should be read in conjunction with Management’s Discussion and Analysis (“MD&A”), condensed unaudited consolidated interim financial statements and notes thereto as at and for the three and six months ended June 30, 2017 and the MD&A and audited consolidated financial statements as at and for the year ended December 31, 2016. All of the above documents are available on STEP’s website at www.stepenergyservices.com or on SEDAR at www.sedar.com.

FINANCIAL AND OPERATING HIGHLIGHTS 

STEP had record second quarter revenue and Adjusted EBITDA1 resulting in positive net earnings for the period.

  • Consolidated revenue was $105.4 million compared to $19.2 million for the same period in 2016.  Year to date consolidated revenue was $223.4 million compared to $46.8 million for the first half of 2016. Growth in deployed equipment, improved pricing, utilization, and increased fracturing intensity contributed to the increase in both periods.  
  • Revenue per operating day in Q2 2017 increased for coiled tubing and fracturing services relative to the same period in 2016 by 22% and 107%, respectively, averaging $42,485 and $252,405.  Operating days in Q2 2017 increased 777% for fracturing to 272 days and increased 95% for coiled tubing to 866 days compared to Q2 of 2016, driven by additional deployed equipment to support the higher demand for our services.
  • Adjusted EBITDA1 for Q2 2017 was $16.4 million (or 16%) and $37.6 million (or 17%) in the first half of 2017, which is an increase of $20.1 million and $41.6 million, respectively, over the same periods in 2016.  Stronger pricing, higher utilization over a larger fleet of deployed equipment, and better operating efficiencies all contributed to the increase.
  • Recorded positive net income of $2.6 million in the second quarter, a period traditionally represented by net losses for oilfield service companies in Canada due to seasonality, and $11.6 million for the first six months of 2017, compared to a loss $7.5 million and a loss of $16.1 million, respectively, in the same periods of 2016. 
  • Upon full execution of our 2017 capital program of $100 million (plus the 2016 carry-forward capital of $9 million), STEP expects to have an operating fleet of 21 coiled tubing spreads (including eight in the U.S.) and eight fracturing spreads representing approximately 225,000 horsepower (“HP”).  Deployment of the eighth U.S. coiled tubing spread and eighth fracturing spread is scheduled for the first quarter of 2018.
  • Strong financial position at June 30, 2017 with significant working capital of $96.3 million (including cash and cash equivalents of $57.1 million) and no drawings on our $100 million credit facility.
  • STEP completed an initial public offering on May 2, 2017, issuing 10.0 million common shares at $10.00 per share, raising aggregate gross proceeds $100.0 million.  Proceeds were initially used to repay debt and will support the ongoing execution of our capital program. 

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1See Non-IFRS Measures. “Adjusted EBITDA” is a financial measure not presented in accordance with IFRS and is equal to net income before finance costs, depreciation and amortization, loss (gain) on disposal of property and equipment, impairment, current and deferred income tax, share?based compensation, transaction costs and foreign exchange (gain) loss.

CONSOLIDATED HIGHLIGHTS

The Company’s consolidated second quarter financial and operating highlights are presented below. 

FINANCIAL     Three months ended
June 30,		   Six months ended
June 30, 
($000s except percentages, shares and per share amounts)   2017     2016     2017     2016  
Consolidated revenue $ 105,446   $ 19,230   $ 223,430   $ 46,808  
Net income (loss) attributable to shareholders $ 2,600   $ (7,471 ) $ 11,592   $ (16,096 )
  Per share-basic $ 0.05   $ (0.18 ) $ 0.22   $ (0.43 )
  Per share-diluted $ 0.04   $ (0.18 ) $ 0.22   $ (0.43 )
Adjusted EBITDA (1) $ 16,439   $ (3,653 ) $ 37,580   $ (3,987 )
Adjusted EBITDA % (1)   16 %   n/m    17 %   n/m 
                 
OPERATIONAL                
($000s except per day, days, units, and HP)                
Total fracturing operating days (1)   272     31     633     67  
Fracturing revenue per operating day $ 252,405   $ 121,865   $ 233,800   $ 112,338  
Fracturing capacity (HP):                
  Average active HP   145,000     50,000     145,000     50,000  
  Exit active HP   145,000     50,000     145,000     50,000  
  Total HP (2)   297,500     290,000     297,500     290,000  
Total coiled tubing operating days (1)   866     445     1,772     1,058  
Coiled tubing revenue per operating day $ 42,485   $ 34,725   $ 42,570   $ 37,128  
Coiled tubing capacity:                
  Average active coiled tubing units   14     9     14     11  
  Exit active coiled tubing units   15     10     15     10  
  Total coiled tubing units   16     15     16     15  
Capital expenditures $  32,654   $ 66,369   $   53,596   $ 72,931  

(1) An operating day is defined as any coiled tubing and fracturing work that is performed in a 24 hour period, exclusive of support equipment.
(2) Represents total owned HP, of which 176,750 HP is currently deployed and the remainder of which requires certain maintenance and refurbishment. 

BALANCE SHEET     As at June 30,   As at December 31, 
($000s except shares and per share amounts)       2017       2016 
Cash and cash equivalents     $ 57,051     $ 2,151 
Working capital     $ 96,284     $ 29,872 
Total long-term financial liabilities     $ 5,475     $ 33,994 
Total assets     $ 460,877     $ 335,140 
Shares Outstanding                
  Basic       60,120,191       47,719,703 
  Weighted average shares - basic       53,053,199       42,400,845 
  Weighted average shares - diluted       53,654,521       42,400,845 

(1) See Non-IFRS Measures. “Adjusted EBITDA” is a financial measure not presented in accordance with IFRS and is equal to net income before finance costs, depreciation and amortization, loss (gain) on disposal of property and equipment, impairment, current and deferred income tax, share?based compensation, transaction costs and foreign exchange (gain) loss.

OPERATIONS REVIEW

Increased North American drilling activity in response to strengthening commodity prices led to increased demand for STEP’s services in the first half of 2017.  A backlog of work was created during the first quarter of 2017 by the undersupply of active fracturing equipment, resulting in some Q1 2017 drilling and completion programs being deferred to the second quarter (or later) of 2017.  Improved pricing for our services in response to strong demand was partially offset by inflation in input costs such as chemicals, hauling, proppant, coiled tubing strings and personnel.  The improvement in industry conditions has resulted in a tightening of the supply chain including major components, select proppants and chemicals. We continue to work closely with key suppliers to provide projections to support our business and client requirements.  Competition for skilled personnel, particularly field professionals, has increased significantly. 

Canadian Segment
As at June 30, 2017, our Canadian operations were comprised of 297,500 fracturing HP of which a fleet of five fracturing spreads were staffed and operating representing 145,000 HP, compared with two spreads representing 50,000 HP at June 30, 2016.  The additional deployed assets in the quarter enabled us to expand our client base and increase activity with existing clients to support market demand resulting in a significant improvement in fracturing operating days from 31 days in Q2 2016 to 272 days in Q2 2017.  Increased fracturing intensity and improved pricing contributed to the higher fracturing revenue per day in Q2 2017 of $252,405, 107% higher than Q2 2016.  The majority of STEP’s HP is deployed in plays in Canada where fracturing intensity is increasing, which has a positive impact on revenue per operating day.

At June 30, 2017, STEP had 12 purpose-built coiled tubing spreads in Canada, of which 11 were staffed and deployed.  This compares to seven staffed units (out of a fleet of 12 units) in Canada at June 30, 2016.  The additional deployed equipment contributed to an increase in utilized days from 378 days in Q2 2016 to 573 days in Q2 2017. 

The Canadian Segment generated Adjusted EBITDA of $13.3 million (or 14%) in the second quarter of 2017 and $33.8 million (or 17%) year-to-date.

U.S. Segment
As of quarter end, STEP had four active coiled tubing spreads in the U.S.  During Q2 2017, improving demand, additional U.S. coiled tubing capacity, and continued growth in STEP’s client base contributed to increased coil tubing operating days from 67 days in Q2 2016 to 293 days in Q2 2017. 

The U.S. Segment generated Adjusted EBITDA of $3.1 million (or 24%) in the second quarter of 2017 and $3.8 million (or 18%) year-to-date.

OUTLOOK

Subsequent to quarter end, our sixth fracturing spread in Canada was staffed bringing total deployed horsepower to 176,750 HP.  We continue to be encouraged by the growth and profitability of our U.S. coiled tubing operation and took delivery of our fifth U.S. coiled tubing spread in July 2017 in Louisiana. 

Upon completion of our previously announced 2017 capital program of $100 million (plus the 2016 carry-forward capital of $9 million), STEP expects to have an operating fleet of 21 coiled tubing spreads (including eight in the U.S.) and eight fracturing spreads representing approximately 225,000 horsepower. Deployment of the eighth U.S. coiled tubing spread and eighth fracturing spread is scheduled for the first quarter of 2018.  STEP’s ability to deploy additional equipment will be dependent on access to key components, shop capacity and the availability of qualified personnel to staff equipment.

Based on client discussions, activity levels are expected to remain robust for the second half of 2017. Recent commodity price volatility has the potential to reduce industry activity as the year progresses.  Management continuously monitors commodity prices and takes a real-time approach to assessing demand for our services.  We engage with our clients to understand potential changes to the drilling and completion programs and will continue to take a measured approach to the pace of our equipment deployment and capital allocation. 

We continue to be committed to technology advancements and our approach in developing modern fit-for-purpose equipment and solutions.  Such advancements include fiber optics and e-line with our coiled tubing operations, STEP-PLEX™ diverting agents in association with recompletion activities, and field equipment automation.

NON IFRS MEASURES

Please see the discussion in the Non?IFRS Measures section of the MD&A for the reconciliation of non?IFRS items to IFRS measures.

 

ABOUT STEP

STEP Energy Services is an oilfield service company founded in 2011 that provides fully integrated coiled tubing and fracturing solutions.  Our combination of modern, fit-for-purpose fracturing and coiled tubing equipment has differentiated STEP in plays where wells are deeper, have longer laterals, and higher pressure.

Initially operating only in Canada as a specialized, deep capacity coiled tubing company, in 2015 we expanded into the U.S. and also began offering fracturing services to our Canadian clients.  Currently, STEP is a fully integrated, deep capacity coiled tubing and fracturing solutions provider focused primarily in the Montney and Duvernay in Canada, and as coiled tubing services provider in the Permian and Eagle Ford in Texas and the Haynesville in Louisiana.  Our U.S. business is a key differentiator for STEP, as the rate of expansion and profitability from that segment is expected to contribute meaningfully to the Company’s growth.  Our continuing track record of safety, efficiency and execution drives repeat business from our blue-chip exploration and production (“E&P”) clients.