CALGARY, Alberta, August 10, 2022 (GLOBE NEWSWIRE) — STEP Energy Services, LLC (“the Company” or “STEP”) is pleased to announce that its June 2022 financial and operating results release is to be accompanied by Discussion and Analysis management (“MD&A”) and the Unaudited Condensed Consolidated Interim Financial Statements and Notes for the period ended 30 June 2022 (“Financial Statements”). Read them together. Readers should also refer to the legal guidance “Forward-Looking Information and Statements” and to the “Non-IFRS Measures and Ratios” section at the end of this press release. All financial amounts and measures are expressed in Canadian dollars unless otherwise indicated. Additional information about STEP is available on the SEDAR website at www.sedar.com, including the Company’s Annual Information Form for the year ended December 31, 2021 dated March 16, 2022 (“AIF”).
(1) Adjusted EBITDA and free cash flow are non-IFRS financial ratios, and Adjusted EBITDA% is a non-IFRS financial ratio. These indicators are not defined and do not have a standardized value in accordance with IFRS. See non-IFRS measures and ratios. (2) A business day is defined as any CT or hydraulic fracturing job completed within 24 hours, excluding auxiliary equipment. (3) Effective power indicates the unit that is active at the customer’s site. 15-20% of this value is also required to provide a maintenance cycle for the equipment.
(1) Working capital, total long-term financial liabilities and net debt are not IFRS financial measures. They are not defined under IFRS and do not have a standardized meaning. See non-IFRS measures and ratios.
Q2 2022 Overview The second quarter of 2022 was a record-breaking for STEP, delivering the best financial performance in the company’s history. Strong demand for services across the Canadian and US geographies generated $273 million in revenue and $38.1 million in net income, a significant improvement from last year. The company also generated $55.3 million in adjusted EBITDA and $33.2 million in free cash flow during the quarter, improving consistently year on year.
Activity levels in the second quarter experienced a typical bifurcation between Canada and the northern US, which is affected by seasonal spring break conditions (“breakdown”), and the southern US, which is unaffected. According to the Baker Hughes rig count, the number of land rigs in Canada averaged 115 per square meter. 2022, down 40% qoq due to unbundling, but up 62% y/y. In the second quarter of 2022, U.S. land-based rigs averaged 704 units, up 11% quarter-on-quarter and 61% year-on-year. In line with lower rig utilization, Canada and the northern US experienced a period of low utilization from mid-April to mid-May, with some regions experiencing more pronounced fragmentation.
Strategic positioning of customers with large porous platforms kept STEP’s fracturing lines running efficiently in Canada and the US in the second quarter, with performance in Canada supported by some customers moving operations from the third quarter to the second quarter. Take advantage of high prices to support commodities. . The company pumped 697,000 tons of sand in 279 working days in Canada and 229 working days in the US. Usage was up year-over-year in both regions, but Canada has consistently declined as it split. The coiled tubing segment was more affected by cracking conditions in Canada and the northern US, with utilization consistently declining and down 17% quarter-on-quarter. Coiled tubing had 371 business days in Canada and 542 business days in the US.
Prices in Canada have remained largely stable compared to the first quarter of 2022, while prices have risen block by block in the US, where we have made additional profits by supplying more proppants and chemicals to more customers. was the most obvious. STEP successfully passed this cost increase on to customers in the second quarter of 2022.
Several notable items in the second quarter of 2022 contributed to net income of $38.1 million. In response to strong year-to-date financials and a more constructive outlook, the company has reversed the total impairment of Canadian cash generating units of about $32.7 million it received in the first quarter of 2020. STEP’s total share-based compensation expense was $9.5 million, of which $8.9 million was in cash-paid share-based compensation, reflecting a nearly 67 percent increase in the company’s share price in the second quarter. second quarter.
Strong financial performance delivered basic and diluted EPS of $0.557 and $0.535, respectively, in the second quarter of 2022, compared to $0.135 and $0.132 in the prior year quarter and net income, respectively. Loss per share (basic and diluted) for the same period last year was $0.156.
The company continues to focus on strengthening its balance sheet in the second quarter of 2022. Working capital increased to $54.4 million from $52.8 million as of March 31, 2022. Net debt decreased from $214.3 million in March to $194.2 million as of June 30, 2022 as of March 31, 2022, which was slightly affected by a slowdown in the receivables collection rate at the end of the second quarter of 2022. The company’s Financial Debt to Bank Adjusted EBITDA ratio of 1.54:1 is below the 3.00:1 limit and remains in line with all other financial and non-financial covenants as at 30 June 2022.
At the end of the second quarter of 2022, STEP made changes and extended the loan agreement. The amended and revised agreement provides STEP with more flexibility in managing its capital structure by converting the Term Facility to a Revolving Credit Facility and ensures long-term stability by extending it until July 2025.
OUTLOOKSTEP expects the current rise in oil and gas prices to continue through the end of this year and into 2023. Risks of short-term volatility in financial markets will remain while recession worries persist, but fundamentals of the economy The physical oil market remains strong and industry reports indicate that oil supply is expected to remain tight through 2023. The shift between financial and physical markets was supported by STEP clients, who did not say that any slowdown in activity was a result of recent price volatility. Natural gas prices are expected to remain high in 2023, supported by a geopolitical risk premium and storage levels at the low five-year average.
The company is constructively looking at the second half of the year and expects the loading to remain stable. The third quarter of 2022 starts modestly, allowing equipment maintenance to be completed for a busy second quarter of 2022, but activity picks up as the quarter progresses. The company expects that in the third quarter, the proportion of hydraulic fracturing in the annulus and single wells will be higher than in the second quarter of 2022. This change in work mix is expected to maintain high utilization rates, albeit at slightly lower margins due to lower efficiency, as STEP completed construction of a large multilateral well platform in Q2 2022. Visibility has improved in the fourth quarter of 2022, the company expects clients to remain active in the fourth quarter, and early discussions with clients are leaning toward a 2022 budget increase to complete additional wells before the end of the year as concerns continue to mount. Availability of equipment in 2023.
In the first half of 2022, prices are reacting to inflationary pressures and supply shortages. The company expects a slower pace of change in the second half of 2022, especially in Canada, as competitors signal a greater ability to enter the market. However, STEP believes that the Canadian pump market is close to equilibrium and does not expect to bring more equipment to market in 2022 until full cycle payback is achieved. US prices are expected to rise through the end of the year as all major market players indicate that their fleets are sold out before the end of the year.
The outlook for 2023 looks increasingly constructive. The projected number of drilling rigs for 2023 is expected to exceed 2022 levels, and the demand for injection pumps is expected to increase accordingly. In 2023, the industry may need to bring some capacity to market to meet demand, especially in Canada if contract negotiations with the Blueberry River Indigenous peoples are resolved to re-open their territory for continued development. Supply will remain limited, STEP said, as much of the industry’s idle capacity is likely to require significant investment to move from stagnation to activity. Current supply chains and labor shortages expected to last until 2023 could complicate the restart. Following upstream companies, listed service providers are also focusing on profitability and key free cash flow metrics, the company said. Focus on de-leveraging the balance sheet and delivering value to shareholders.
For the remainder of 2022 and 2023, STEP will focus on generating free cash flow. The strong results reported in the second quarter of 2022 accelerated the company’s goal of reducing balance sheet leverage and making orderly investments in support of STEP’s goals of building a resilient company and creating shareholder value.Canadian Financial and Operational Review
STEP has 16 coiled tubing units at WCSB. The company’s coiled tubing units are designed to serve the deepest WCSB wells. STEP’s hydraulic fracturing operations are focused on deeper and more technically challenging areas in Alberta and northeast British Columbia. STEP has a power of 282,500 hp, of which approximately 132,500 hp are dual fuel. Companies deploy or idle coiled tubing units or hydraulic fracturing capacity depending on the ability of the market to maintain intended use and economic return.
(1) Adjusted EBITDA and Free Cash Flow are not IFRS financial measures, and Adjusted EBITDA percentage and Daily Revenue are not IFRS financial measures. They are not defined under IFRS and do not have a standardized meaning. See non-IFRS measures and ratios. (2) A business day is defined as any CT or hydraulic fracturing job completed within 24 hours, excluding auxiliary equipment. (3) Available power indicates that the units are operating at the customer’s job site. Another 15-20% of this amount is needed to ensure equipment maintenance cycles.
Comparison of Q2 2022 and Q2 2021 Revenue for the three months ended June 30, 2022 was $165.1 million compared to $73.2 million in the second quarter of 2021. Revenue increased due to increased activity in the industry. The number of hydraulic fracturing days has increased from 174 days in the second quarter of 2021 to 279 days in the second quarter of 2022, partly due to a slight increase in pressure drop in the previous quarter, but mainly due to additional pad work in this quarter. A focus on pad operations during the quarter resulted in improved efficiency and increased proppant injection, ultimately resulting in higher daily revenue compared to the second quarter of 2021. Coiled tubing days increased from 304 days in Q2 2021 to 371 days in Q2 2021, with revenue per day up slightly by 13%.
Operating expenses increase as activity levels increase. Adjustments to base and incentive salaries to remain competitive in the current market, as well as the restoration of various benefits and benefits that were removed in 2020 to reduce costs, have led to an increase in staff costs. Inflationary pressures remained a factor this quarter as supply chain disruptions, higher commodity prices and increased industry activity pushed up costs across all spending categories. Selling, general and administrative (SG&A) administrative expenses and cost structure increased compared to the second quarter of 2021 to support an increase in field operations, however the company expects it will continue to maintain a lean cost structure, fully supporting business growth.
Adjusted EBITDA was $39.7 million (24% of revenue) in the second quarter of 2022 compared to $15.6 million (21% of revenue) in the second quarter of 2021. Adjusted EBITDA increased due to higher prices and usage due to an improved operating environment, partly offset by higher costs due to continued inflationary pressures. In the second quarter of 2021, the CEWS program received $1.8 million.
Canada’s hydraulic fracturing revenue for the three months ended June 30, 2022 was $140.5 million, up 154% from $55.3 million for the three months ended June 30, 2021. In the second quarter of 2022, STEP operates five 215,000 hp hydraulic fracturing rigs. compared to the previous four units and 200,000 hp. in the second quarter of 2021. The number of fracturing days increased from 174 days in Q2 2021 to 279 days in Q2 2022 as strong industry fundamentals boosted pad work in a traditionally slower quarter due to reservoir conditions. Daily revenue increased compared to the same period in 2021 as increased pad work led to efficiency gains and improved market conditions enabled better pricing.
Coiled Tubing For the three months ended June 30, 2022, Canadian coiled tubing companies generated $24.6 million in revenue, up 38% from the $17.8 million for the three months ended June 30, 2021. The service line operated eight coiled tubing units in the second quarter, operating 371 working days through 2022, compared to seven units and 304 working days during the same period in 2021. Higher utilization helped improve prices in the quarter as drilling and completion activity increased and demand for ancillary services increased.
Q2 2022 QoQ 2022 Revenue for the three months ended June 30, 2022 was $165.1 million, up 13% from $146.8 million quarter ended March 31, 2022 due to overall improvements in operating efficiency and pricing. Strong commodity price fundamentals have kept demand for the company’s services generally slower this quarter as spin-off conditions limit the company’s ability to move devices.
Canadian business adjusted EBITDA was $39.7 million (24% of revenue) in the second quarter of 2022, compared to $31.9 million (22% of revenue) in the first quarter of 2022. Inflationary pressures continue to weigh on the industry in the second quarter of 2022 as high commodity prices, supply chain disruptions and harsh working conditions drive up costs. STEP monitors inflation closely to ensure offers and prices reflect these cost increases, and may work with customers to increase prices to avoid depressing margins.
FracturingSTEP has five 215,000 hp hydraulic fracturing units. in the second quarter of 2022, i.e. the same number of active installs as in the first quarter of 2022. Strong industry fundamentals allow STEP to have high utilization rates among large crews operating in gas oriented regions during traditionally slower pools. Total business days decreased by 29% sequentially, but revenue increased to $140.5 million, up 18% sequentially. STEP produced 358,000 tons of proppant in the second quarter of 2022, compared to 323,000 tons in the first quarter of 2022.
Price increases that began in the first quarter of 2022 continued into the second quarter of 2022, coupled with increased proppant injection and improved efficiency in well pad operations, resulting in higher daily revenue.
Coiled Tubing The Coiled Tubing business, which operates eight coiled tubing units, generated $24.6 million in revenue in 371 business days in the second quarter of 2022 compared to $27.8 million in 561 business days in the first quarter of 2022 . Pricing has been consistently improving since the first quarter of 2022, with revenue rising day by day due to changes in work structure and additional demand for ancillary services.
Revenue for the six months ended June 30, 2022 was $311.9 million compared to $182.5 million for the six months ended June 30, 2021. Revenue was driven by higher usage and pricing activity across both service lines as a result of industry-wide growth. The number of hydraulic fracturing days for the first half of 2022 increased to 674 from 454 for the same period in 2021. individual. The company’s tariffs for hydraulic fracturing services increased by 22% due to a more constructive pricing environment and inflationary pressure. Coiled tubing days increased from 765 days in the same period in 2021 to 932 days in the first half of 2022, and the number of active installations increased from 7 days in 2021 to 8 days. Strong industry fundamentals allow STEP to maintain levels of activity across both product lines during the first six months of 2022 with minimal decline in usage during the outage.
A company’s operating expenses increase as the level of activity increases. Base and incentive salaries have been adjusted to remain competitive in the current market, and various benefits and perks that were removed in 2020 to cut costs have been reinstated, resulting in higher staff costs. Inflationary pressures are a factor in the first six months of 2022, with supply chain disruptions, higher commodity prices and increased industry activity pushing up costs across all spending categories. The structure of overheads and general and administrative expenses has expanded compared to the second quarter of 2021 to support an increase in field operations, however, the company expects it will continue to maintain a lean cost structure, adequately supporting business growth.
STEP’s US operations began in 2015 providing coiled tubing services. STEP has 13 coiled tubing units in the Permian and Eagle Ford pools in Texas, the Bakken Shale in North Dakota, and the Uinta-Piceance and Niobrara-DJ pools in Colorado. STEP commenced hydraulic fracturing operations in the US in April 2018 with a fracturing capacity of 207,500 hp, of which 80,000 hp falls on diesel fuel level 4, and 50,250 hp. – for dual fuel with direct fuel injection. Fracking is primarily carried out in the Permian and Eagle Ford Basins in Texas. Companies deploy or idle flexible tubing or hydraulic fracturing capacity, depending on the ability of the market to maintain intended use and economic returns.
(1) Adjusted EBITDA and Free Cash Flow are not IFRS financial measures, and Adjusted EBITDA percentage and Daily Revenue are not IFRS financial measures. They are not defined under IFRS and do not have a standardized meaning. See non-IFRS measures and ratios. (2) A business day is defined as any CT or hydraulic fracturing job completed within 24 hours, excluding auxiliary equipment. (3) Available power indicates that the units are operating at the customer’s job site. Another 15-20% of this amount is needed to ensure equipment maintenance cycles.
Q2 2022 vs. Q2 2021 Revenue for the three months ended June 30, 2022 was $107.9 million compared to $34.4 million in the second quarter of 2021. Businesses in the US have seen pricing improvements driven by strong industry fundamentals and greater use of both service lines driven by broad-based growth in industry activity. Hydraulic fracturing operating days increased from 146 in 2Q21 to 229 in 2Q22 due to improved macroeconomic conditions and additional hydraulic fracturing operations during the period. Daily revenue increased by 173% due to an increase in the amount of proppant supplied by STEP and higher prices. Coiled tubing days increased from 422 in the second quarter of 2021 to 542 in the second quarter of 2022, and revenue per day increased by 34%.
Business in the US continued the upward trend in figures and adjusted EBITDA. Adjusted EBITDA for the three months ended June 30, 2022 was $20.3 million compared to $1.0 million for the three months ended June 30, 2021. Adjusted EBITDA margin of 19% was better than the same period in 2021, thanks in part to continued discipline from U.S. service providers, relocating divisions, resulting in higher rates and significantly higher margins. Despite this discipline, higher inflation resulted in higher costs across all spending categories, preventing full implementation of pricing improvements.
In the second quarter of 2022, FracturSTEP ran three 165,000 hp spreads. compared to two spreads and 110,000 bhp. in the second quarter of 2021. Operating days have increased from 146 days in Q2 2021 to 229 days in Q2 2022 as improved fundamental market conditions support additional frac spreads in the current period.
U.S. hydraulic fracturing revenue was $81.6 million, up 329% from the same period in 2021, and daily revenue in the second quarter of 2022 was up 173% from the same period in 2021. The change in the company’s customer mix led to an increase in proppant revenue, which was an important factor in the higher daily revenue in the second quarter of 2022 compared to the second quarter of 2021. However, the company’s US fracking business was also able to show an increase in base operating rates over the same period.
Coiled tubing in the US Coiled tubing continued its growth in the second quarter of 2022, with revenue increasing to $26.3 million from $15.3 million in the second quarter of 2021. STEP is equipped with eight coiled tubing units and STEP will operate for 542 days in the second quarter of 2022, compared to 422 days in the second quarter of 2021 with eight units. Higher occupancy coupled with higher daily revenue of $49,000 compared to $36,000 in the same period in 2021; with higher rates and greater activity in all regions of presence. STEP’s strategic market position and reputation continues to contribute to safer use and higher prices in all regions.
Q2 2022 Compared to Q1 2022, Q2 2022 revenue increased $35.2 million to $107.9 million from $72.7 million. USA in the first quarter of 2022, mainly due to additional proppant revenues and an increase in the cost of cracking operations. From the first quarter of 2022 to the second quarter of 2022, the US market continues to tighten significantly, leading to higher prices and constant changes in the relationship between service providers and companies involved in exploration and production.
Adjusted EBITDA was $20.3 million (19% of revenue) in 2Q 2022 compared to $9.8 million (13% of revenue) in 1Q 2022, with continued positive business trends in the US. Utilization rates across both lines of business remained strong despite ongoing inflationary pressures, and sustained price increases led to a consistent improvement in Adjusted EBITDA.
Increased hydraulic fracturing demand and higher rates have led to a shift in client mix and work, resulting in U.S. hydraulic fracturing revenue of $81.6M in Q2 2022, up from $49.7M USA in Q1 2022. While activity in the second quarter of 2022 remained relatively flat at 229 business days compared to 220 in the first quarter of 2022, revenue increased from $226,000 to $356,000 per day, thanks in part to STEP supplies of proppants and chemicals. additives, as well as improved prices. Part of the price increase in the second quarter of 2022 is due to counteracting inflation, which limits margin growth.
The Coiled Tubing Division continued to operate 8 coiled tubing units in the US with 542 business days generating $26.3 million in revenue in the second quarter of 2022 compared to 514 business days and $23.1 million in revenue in 1Q 2022 ; modest improvements in usage and pricing. While inflationary pressures continue to drive margin growth at these companies, recent price momentum has begun to push margins up significantly. The pricing power for these services has shifted in a similar fashion to previous price increases for hydraulic fracturing services, as the demand for coiled tubing services, combined with limited labor resources, has resulted in improved pricing beyond inflation adjustments.
Revenue for the six months ended June 30, 2022 was $180.7 million compared to $61.8 million for the same period in 2021. Business in the US saw improved usage across both service lines on strong industry fundamentals driven by higher activity and improved pricing in the industry. Operating days for hydraulic fracturing operations increased from 280 days in the same period in 2021 to 449 days in the first six months of 2022 due to the improved macro environment and additional hydraulic fracturing differentials for ongoing operations. Revenue per day increased by 131%, primarily due to higher volumes of proppants supplied by STEP and higher prices. Coiled tubing days increased from 737 days in the same period in 2021 to 1,056 days in the first six months of 2022, with daily revenue up 31%. Business in the US continued the upward trend in figures and adjusted EBITDA. Adjusted EBITDA for the six months ended June 30, 2022 was $30.1 million compared to an Adjusted EBITDA loss of $2.0 million for the six months ended June 30, 2021.
In the first six months of 2022, the company’s operating expenses rose in line with higher levels of activity and inflationary pressures, as well as supply chain disruptions, higher commodity prices and increased industry activity, pushing up costs across all expense categories. Staff costs rose as a result of adjustments to base and incentives to remain competitive in the current market and the restoration of benefits that were removed in 2020 to reduce costs.
The company’s corporate activities are separate from operations in Canada and the United States. Corporate operating expenses include expenses associated with the Asset Reliability and Optimization teams, as well as general and administrative expenses, which include expenses related to the executive team, board of directors, public company fees and other activities that benefit operations in Canada and USA.
(1) Adjusted EBITDA and free cash flow are non-IFRS financial ratios, and Adjusted EBITDA% is a non-IFRS financial ratio. They are not defined under IFRS and do not have a standardized meaning. See non-IFRS measures and ratios.
Comparison of the second quarter of 2022 and the second quarter of 2021 For the three months ended June 30, corporate expenses in 2022 were $12.6 million compared to $7.0 million for the same period in 2021. Equity-based cash compensation was higher in the second quarter of 2022 as the share price rose 67% or $1.88 from March 31, 2022 to June 30, 2022, compared to a $0.51 increase in that year. the same period last year. in an increase in current market spending. In addition, payroll costs have risen as companies increase overall incentives to retain and attract talent in an increasingly competitive job market. STEP is recognizing $100,000 CEWS incentives in the second quarter of 2021, reducing overall costs.
Q2 2022 Compared to Q1 2022, corporate spending in Q2 2022 was $12.6 million compared to $9.3 million in Q1 2022, up by $3.3 million. As in the first quarter of 2022, an important factor in the second quarter of 2022 are adjustments to the market value of compensation paid in cash. Equity-based cash compensation increased from $4.2 million to $7.3 million in the second quarter of 2022 to $1 million in the first quarter of 2022, with shares up 67% in the second quarter, or 1. $88, down from $1.19 in the first quarter. STEP is committed to providing its professionals with a competitive overall package of awards in recognition of their contributions to improved results.
Corporate expenses for the six months ended June 30, 2022 were $21.9 million compared to $12.5 million for the same period in 2021. In the first six months of 2022, higher compensation for cash-settled shares due to a $3.07 increase in share price compared to the December increase in fees at current market value. In addition, payroll costs have risen as companies increase overall incentives to retain and attract talent in an increasingly competitive job market. STEP recognizes $300,000 in CEWS benefits for the six months ended June 30, 2021, which reduces the total amount of payments.
This press release includes terms and performance measures commonly used in the oilfield services industry that are not defined in IFRS. The paragraphs provided are intended to provide additional information and should not be considered in isolation or as a substitute for performance measures prepared in accordance with IFRS. These non-IFRS measures do not have a standard value under IFRS and therefore may not be comparable to similar measures offered by other issuers. Non-IFRS figures should be read in conjunction with the company’s quarterly and annual financial statements and notes.
“Adjusted EBITDA” is a financial indicator not presented in accordance with IFRS, which is equal to net (loss) profit before deduction of financial costs, depreciation and amortization, loss (gain) from the disposal of property, plant and equipment, current and deferred income taxes. Reserves and reimbursements, equity. and share-based cash considerations, transaction costs, forward foreign exchange losses (gains), foreign exchange losses (gains), impairment losses. “Adjusted EBITDA %” is a non-IFRS ratio calculated by dividing Adjusted EBITDA by revenue. Adjusted EBITDA and Adjusted EBITDA % are introduced because they are widely used by the investment community as they provide insight into the results generated from a company’s ordinary business activities before considering how those activities are funded and the results are taxed. The Company uses Adjusted EBITDA and Adjusted EBITDA % to evaluate operating and segment performance as management believes they provide better inter-period comparability. The table below shows the reconciliation of non-IFRS Adjusted EBITDA to financial net income (loss) under IFRS.
Post time: Feb-15-2023