STEP Energy Services Ltd. Reports Fourth Quarter and Year End 2017 Financial and Operating Results

CALGARY, Alberta, March 20, 2018 (GLOBE NEWSWIRE) — STEP Energy Services Ltd. (TSX:STEP) (the “Company” or “STEP”) today announces financial and operating results for the three and twelve months ended December 31, 2017. The following press release should be read in conjunction with Management’s Discussion and Analysis (“MD&A”) and audited consolidated financial statements as at and for the year ended December 31, 2017. 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’s operations in the fourth quarter and year end 2017 resulted in positive net earnings for both periods. The Company’s $100 million initial public offering completed in the first half of 2017 provided financial flexibility to execute on our capital program and significantly grow the business. 

  • Generated fourth quarter and full year 2017 consolidated revenue of $154.3 million and $553.2 million, respectively, compared to $64.2 million and $169.2 million in the same periods of 2016.
  • Coiled tubing revenue per operating day in Q4 and full year 2017 increased 18% to average $45,290 and 15% to average $44,053, respectively, relative to the same periods in 2016.
  • Revenue per operating day for fracturing services for Q4 and full year 2017 increased by 56% across both periods to average $259,866 and $246,527, respectively, compared to the same periods in 2016.
  • Fracturing and coiled tubing operating days for Q4 2017 increased 86% and 57%, respectively, over the same period in 2016, and increased 226% and 67% for the full year 2017 compared to 2016.
  • Adjusted EBITDA1 for Q4 2017 totaled $36.0 million (or 23%) and was a record $123.6 million (or 22%) for full year 2017, representing increases of $30.7 million and $117.4 million, respectively, over the same periods in 2016.
  • Net income for Q4 2017 was $17.5 million and was $57.7 million for the year ended December 31, 2017, compared to a loss of $2.6 million and a loss of $20.0 million, respectively, in the same periods of 2016.
  • As at December 31, 2017, STEP operated seven fracturing spreads representing 209,000 horsepower (“HP”) and a fleet of 19 coiled tubing spreads, including six in the U.S. In the first quarter of 2018, STEP deployed two additional coiled tubing spreads in the U.S., along with its eighth fracturing spread in Canada. The Company currently operates eight fracturing spreads representing 225,000 HP and a fleet of 21 coiled tubing spreads.
  • STEP exited 2017 with working capital of $121.0 million (including cash and cash equivalents of $36.9 million) and no drawings on our $100.0 million credit facility.

HIGHLIGHTS SUBSEQUENT TO YEAR END 2017

  • On February 22, 2018, STEP announced the acquisition of Tucker Energy Services Holdings, Inc. (“Tucker”), a U.S. based, privately-held provider of fracturing and completion solutions operating primarily in the SCOOP/STACK and Woodford plays in Oklahoma, for total cash consideration of US$275 million before closing adjustments (the “Acquisition”). The Acquisition increases STEP’s geographic diversification, as approximately 40% of our fracturing horsepower and coiled tubing spreads will be in the U.S. post-closing. STEP expects to fund the Acquisition with approximately $30 million of available cash, proceeds from a previously announced $56 million equity offering of subscription receipts (the “Offering”) and the remainder from our new credit facilities.  Closing of the Acquisition is expected on or about April 2, 2018. 

(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, current and deferred income tax, share‐based compensation, impairment, transaction costs and foreign exchange (gain) loss.

CONSOLIDATED HIGHLIGHTS

The Company’s consolidated fourth quarter and full year 2017 financial and operating highlights are presented below. 

FINANCIAL Three months ended
December 31,
   Year ended
December 31,
 
($000s except percentages, shares and per share amounts)   2017     2016     2017     2016  
Consolidated revenue $ 154,253   $ 64,162   $ 553,220   $ 169,153  
Net income (loss) attributable to shareholders $ 17,548   $ (2,615 ) $ 57,718   $ (19,956 )
Per share-basic $ 0.29   $ (0.05 ) $ 1.02   $ (0.47 )
Per share-diluted $ 0.28   $ (0.05 ) $ 1.00   $ (0.47 )
Adjusted EBITDA (1) $ 35,962   $ 5,255   $ 123,584   $ 6,222  
Adjusted EBITDA % (1)   23 %   8 %   22 %   4 %
OPERATIONAL Three months ended
December 31,
   Year ended
December 31,
 
($000’s except per day, days, units, and HP)   2017     2016     2017     2016  
Total fracturing operating days (2)   378     203     1,483     455  
Fracturing revenue per operating day $ 259,866   $ 166,353   $ 246,527   $ 157,985  
Fracturing capacity (HP):                
Average active HP   187,500     100,000     160,688     75,000  
Exit active HP   209,000     100,000     209,000     100,000  
Total HP (3)   297,500     297,500     297,500     297,500  
Total coiled tubing operating days (2)   1,237     789     4,259     2,546  
Coiled tubing revenue per operating day $ 45,290   $ 38,520   $ 44,053   $ 38,205  
Coiled tubing capacity:                
Average active coiled tubing units   19     13     16     12  
Exit active coiled tubing units   19     14     19     14  
Total coiled tubing units   19     16     19     16  
Capital expenditures $ 32,020   $ 11,622   $ 110,955   $ 100,124  

(1) See Non-IFRS Measures.
(2) An operating day is defined as any coiled tubing and fracturing work that is performed in a 24 hour period, exclusive of support equipment.
(3) Represents total owned HP, of which 225,000 HP is currently deployed and the remainder of which requires certain maintenance and refurbishment.

BALANCE SHEET As at December 31,   As at December 31,
($000s except shares and per share amounts)     2017       2016
Cash and cash equivalents   $ 36,859     $ 2,151
Working capital   $ 121,032     $ 29,872
Total assets   $ 533,845     $ 335,140
Total long-term financial liabilities   $ 8,049     $ 33,994
Shares outstanding              
Basic     60,309,738       47,719,703
Weighted average shares – basic     56,528,016       42,400,845
Weighted average shares – diluted     57,752,867       42,400,845

U.S. STRATEGIC ACQUISITION OF TUCKER

Consistent with STEP’s strategic growth plans, on February 22, 2018, the Company announced an agreement to acquire all of the issued and outstanding capital stock of Tucker for total cash consideration of U.S.$275 million, before closing adjustments. Tucker is a privately-owned and geographically-focused provider of fracturing and completion solutions. The Acquisition provides STEP an efficient and strategic entry into the U.S. fracturing market in key high-growth basins, with access to existing long-tenured clients holding large acreage positions and expansive drilling inventories in the SCOOP/STACK and Woodford plays in Oklahoma. This geographic expansion reduces STEP’s commodity price concentration risk and provides the Company with flexibility to allocate capital between our U.S. and Western Canadian operations, with the potential to improve asset utilization and realize stronger margins.

Through the Acquisition, STEP will add four fracturing spreads representing 192,500 HP (three spreads comprised of 142,500 HP are currently operating, and a fourth fracturing spread of 50,000 HP is expected to be delivered in the second quarter of 2018), two coiled tubing spreads and 15 wireline units. STEP’s scale and operational efficiency are enhanced through the Acquisition, with a total fracturing capacity of 490,000 HP (an increase of 65%), a total of 23 coiled tubing spreads and 15 wireline units. STEP intends to integrate the assets, client and supplier relationships, operational experience and expertise from the senior Tucker leadership team into our existing business and operations.  

Funding for the Acquisition is expected to come from cash on hand, proceeds from a $56 million equity offering of subscription receipts, and borrowings under STEP’s new credit facilities (the “New Credit Facilities”). The New Credit Facilities consist of a $330 million revolving syndicated credit facility, a $10 million operating facility and a U.S.$7.5 million operating facility.

Under the Offering, which closed on March 15, 2018, STEP issued 6,055,000 subscription receipts at a price of $9.30 per subscription receipt (the “Offering Price”), which included 675,000 subscription receipts issued pursuant to the partially exercised over-allotment option granted to the syndicate of underwriters, for gross proceeds of approximately $56 million. The over-allotment option is exercisable in whole or in part, at any time for a period of 30 days following the closing of the Offering, to purchase up to an aggregate of 807,000 subscription receipts at the Offering Price.  

OPERATIONS REVIEW

STEP’s quarterly and annual results reflect strong demand for our services and the resultant high equipment utilization. The significant increase in operating and financial performance in 2017 relative to 2016 is the result of strong utilization of an expanding active equipment base, improved pricing conditions in both Canada and the U.S., increasing fracturing intensity, proactive cost management and increasing economies of scale.

Canadian Segment
As at December 31, 2017, our Canadian operations were comprised of 297,500 fracturing HP, of which a fleet of seven fracturing spreads representing 209,000 HP was staffed with 24-hour operations, and 13 purpose-built coiled tubing spreads. STEP’s Canadian segment took delivery of its seventh fracturing spread in December and eighth fracturing spread in late February, bringing active operating capacity to 225,000 HP.

Completions activity in Canada improved dramatically in 2017 over 2016, allowing STEP to activate 109,000 HP and three deep capacity coiled tubing spreads during the year. This additional capacity, combined with improved utilization and pricing, increased revenue by 146% and 237% for the fourth quarter and full year 2017, respectively, over the comparable periods in 2016. The addition of STEP’s Medicine Hat operating base during 2017 allowed for positioning in the Viking play and closer proximity to other light oil plays, where industry activity is increasing. 

The Canadian segment generated Adjusted EBITDA for the three months and year ended December 31, 2017 of $28.5 million (or 21%) and $107.7 million (or 22%).

U.S. Segment
At December 31, 2017, our U.S. operations included six active coiled tubing spreads. The Company took delivery of its seventh and eighth coiled tubing spreads in the first quarter of 2018.

Strong demand for all units across all operating districts coupled with an expanded client base contributed to a 108% and 164% percent increase in revenue for the three months and year ended December 31, 2017, respectively, over the comparable periods in 2016. Adding the Midland, Texas and Arcadia, Louisiana operating bases in 2017 positioned STEP’s U.S. operations to benefit from increased geographical diversification. Depreciation in the U.S. dollar versus the Canadian dollar partially offset the revenue per day improvements during the second half of 2017. 

Adjusted EBITDA in the U.S. for the three months and year ended December 31, 2017 was $7.5 million (or 37%) and $15.9 million (or 27%), respectively, an increase of 189% and 429% over the comparable periods in 2016. The rebound in U.S. activity combined with the growing demand to service longer reach, high pressure wells supports the Company’s plans to grow its U.S. coiled tubing platform.

OUTLOOK

In Canada, STEP has experienced strong demand for its asset base during the first quarter of 2018, with visibility to above normal activity levels in the second quarter. At the beginning of the year, extreme weather conditions and clients’ third party related delays resulted in operational downtime. Due to these operational delays, we anticipate that our revenue mix in the first quarter will have a higher component of standby related charges, which could in turn impact margin performance. Furthermore, sand delivery interruptions resulted in minor scheduling delays and modest cost inflation. As a result of the recent weakness in Canadian natural gas prices, 2018 completions activity is expected to shift to oil and liquids-rich gas formations, reinforcing our strategy to construct fit-for-purpose equipment to target oil plays.

In the U.S., the market for completions activity remains robust and client inquiries continue to be supportive of deploying new equipment. We anticipate that our coiled tubing and newly acquired fracturing assets will experience strong demand through 2018. In addition to increasing U.S. activity, management believes fracturing supply may be constrained by the attrition of older equipment and the potential for supply chain limitations resulting in longer lead time for construction and delivery of new capacity.

Modest cost inflation is expected to persist due to continuing market demand for supply chain inputs. STEP will continue to focus on operational efficiencies to drive its financial performance in 2018. Management will continue to employ a real-time approach to assessing the market’s ability to absorb new capacity and adjust accordingly.

Prior to the Acquisition, the Board approved a 2018 capital program of $109 million, comprised of expansion capital of $73 million, maintenance capital of $29 million, and infrastructure and related investment of $7 million. Expansion capital includes the purchase of auxiliary equipment to support our Montney, Duvernay, and Viking activities, construction of fit-for-purpose equipment to target oil plays, and refurbishment and rebranding of idle fracturing assets. After the Acquisition and upon completion of the 2018 capital program we anticipate operating 15 fracturing spreads representing approximately 497,500 HP (305,000 HP in Canada and 192,500 in the U.S.), 16 coiled tubing spreads in Canada, 13 coiled tubing spreads in the U.S. and 15 wireline units in the U.S. STEP’s decision to deploy additional equipment will be influenced by market conditions, access to key components, shop capacity and the availability of qualified personnel to staff equipment.

STEP believes its commitment to modern fit-for-purpose equipment and our high performance culture differentiates the Company in the market place. STEP is continually developing and deploying technology to advance its business. Such advancements include: fiber optics; e-line and Coil Link™ real time downhole data; STEP-PLEX™ diverting agents used in recompletion activities and inter stage diversion on new wells; and SandCan, a containerized proppant delivery system.

NON‐IFRS MEASURES

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

FORWARD‐LOOKING STATEMENTS

This document contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “should”, “believe”, “plans” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this document contains forward- looking information and statements pertaining to the following: the completion of the Acquisition and the timing thereof; the financing of the Acquisition, including expectations regarding the availability of the New Credit Facilities and the timing thereof; the anticipated benefits of the Acquisition; the pro forma financial and operational information of STEP after completion of the Acquisition; expectations regarding growth in the U.S. oilfield services industry; future development activities of the Company; commissioning and staffing of equipment; the ability to deploy additional equipment; utilization; monitoring of client capital budgets; pricing thresholds in the current commodity environment; cost inflation; maintenance costs; market conditions and industry activity levels; and the amount of capital expenditures in 2018.

The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; the impact of seasonal weather conditions; the Company’s ability to deploy equipment; and certain cost assumptions. 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 to be correct.

The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and 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 information or statements including, without limitation: changes in the demand for or supply of the Company’s services; unanticipated operating results; market uncertainty; the ability to access key components and shop capacity; the ability to attract and retain qualified personnel; changes in tax or environmental laws, or other regulatory matters; changes in the development plans of third parties; increased debt levels or debt service requirements; limited, unfavourable or a lack of access to capital markets; increased costs; the impact of competitors; and reliance on industry partners.

The forward-looking information and statements contained in this document 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 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 is a 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 clients.

For more information please contact:

Regan Davis
President & Chief Executive Officer
 
Telephone:  403-457-1772
Email:  investor_relations@step-es.com
Web:  www.stepenergyservices.com