CALGARY, Alberta, Nov. 08, 2018 (GLOBE NEWSWIRE) — STEP Energy Services Ltd. (the “Company” or “STEP”) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2018. This news 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 nine months ended September 30, 2018 and the MD&A and audited consolidated financial statements as at and for the year ended December 31, 2017. The above documents are available on STEP’s website at www.stepenergyservices.com or on SEDAR at www.sedar.com.
Q3 2018 FINANCIAL AND OPERATING HIGHLIGHTS
Through the third quarter, STEP continued the integration of the Tucker Energy Services Holdings Inc. (“Tucker”) operations in Oklahoma, which included relocating a senior leader to the U.S. The Company is pleased with progress to date and has been successful in retaining key senior management and clients through the transition.
“We’re pleased that STEP has achieved record results in a challenging third quarter. The Tucker integration is continuing as planned and provides the Company with important flexibility for deploying capital and assets between our Canadian and U.S. markets. With Tucker, the Company has established a strategic opportunity for continued organic growth.” said Regan Davis, President and Chief Executive Officer.
- Generated record third quarter and year-to-date consolidated revenue of $240.5 million and $612.7 million, respectively, compared to $175.5 million and $399.0 million in the same periods of 2017, representing increases of 37% and 54%. The improvements were primarily attributable to the acquisition of Tucker, increased equipment deployed from STEP’s capital program, and higher fracturing intensity.
- Consolidated revenue per operating day for fracturing services was $278,122, an increase of 10% relative to the same period in 2017, while consolidated coiled tubing revenue per operating day increased 14% to $51,157.
- Consolidated operating days in Q3 2018 increased 32% for fracturing and 5% for coiled tubing, driven by additional deployed equipment, the addition of Tucker and continued demand for STEP’s coiled tubing services in the U.S.
- Adjusted EBITDA(1) in the third quarter of 2018 decreased 15% to $42.5 million relative to the same period in 2017, and increased over 20% to $105.3 million for the nine months ended September 30, 2018 as compared to the same period in 2017.
- STEP generated net income of $9.3 million in Q3 2018, compared to $28.6 million of net income recorded for the same period in 2017.
- Working capital at the end of the quarter totaled $116.8 million (including cash and cash equivalents of $4.7 million).
(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.
CONSOLIDATED HIGHLIGHTS
The Company’s consolidated third quarter financial and operating highlights are presented below.
| FINANCIAL | Three months ended September 30, |
Nine months ended September 30, |
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| ($000s except percentages, shares and per share amounts) | 2018 | 2017 | 2018 | 2017 | |||||||||
| Consolidated revenue | $ | 240,541 | $ | 175,537 | $ | 612,735 | $ | 398,967 | |||||
| Net income (loss) attributable to shareholders | $ | 9,260 | $ | 28,575 | $ | 19,245 | $ | 40,167 | |||||
| Per share-basic | $ | 0.14 | $ | 0.48 | $ | 0.30 | $ | 0.72 | |||||
| Per share-diluted | $ | 0.14 | $ | 0.46 | $ | 0.29 | $ | 0.71 | |||||
| Adjusted EBITDA (1) | $ | 42,451 | $ | 50,043 | $ | 105,335 | $ | 87,621 | |||||
| Adjusted EBITDA % (1) | 18% | 29% | 17% | 22% | |||||||||
| (1) See Non-IFRS Measures. | |||||||||||||
| OPERATIONAL | Three months ended September 30, |
Nine months ended September 30, |
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| ($000s except per day, days, units, and HP) | 2018 | 2017 | 2018 | 2017 | |||||||||
| Total fracturing operating days (1) | 623 | 472 | 1,509 (2) | 1,105 | |||||||||
| Fracturing revenue per operating day | $ | 278,122 | $ | 252,912 | $ | 285,234 | $ | 241,964 | |||||
| Fracturing capacity (HP): | |||||||||||||
| Average active HP | 384,200 | 176,750 | 328,700 | 151,750 | |||||||||
| Exit active HP | 367,500 | 176,750 | 367,500 | 176,750 | |||||||||
| Total HP (3) | 490,000 | 297,500 | 490,000 | 297,500 | |||||||||
| Proppant pumped (tonnes) | 313,000 | 201,000 | 782,000 | 495,000 | |||||||||
| Total coiled tubing operating days (1) | 1,315 | 1,250 | 3,755 | 3,022 | |||||||||
| Coiled tubing revenue per operating day | $ | 51,157 | $ | 44,930 | $ | 48,553 | $ | 43,546 | |||||
| Coiled tubing capacity: | |||||||||||||
| Average active coiled tubing units | 21 | 17 | 21 | 15 | |||||||||
| Exit active coiled tubing units | 22 | 18 | 22 | 18 | |||||||||
| Total coiled tubing units | 24 | 18 | 24 | 18 | |||||||||
| Capital expenditures | $ | 34,300 | $ | 25,338 | $ | 98,242 | $ | 78,934 | |||||
(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) Q2 2018 U.S fracturing operating days were revised to align with the corporate definition of an operating day. As a result, the operating days for U.S. fracturing have been amended to 199 from the previously disclosed 242.
(3) Represents total owned HP, of which 367,500 HP is currently deployed.
| Balance Sheet ($000s except shares and per share amounts) |
At as September 30, | As at December 31, | ||||||||
| 2018 | 2017 | |||||||||
| Cash and cash equivalents | $ | 4,672 | $ | 36,859 | ||||||
| Working capital | $ | 116,802 | $ | 121,032 | ||||||
| Total assets | $ | 983,527 | $ | 533,845 | ||||||
| Total long-term financial liabilities | $ | 296,173 | $ | 8,049 | ||||||
| Shares outstanding Basic | 66,596,644 | 60,309,738 | ||||||||
| Weighted average shares year to date – basic | 64,497,647 | 56,528,016 | ||||||||
| Weighted average shares year to date – diluted | 65,673,283 | 57,752,867 | ||||||||
(1) See Non-IFRS Measures.
OPERATIONS REVIEW
Canadian Segment
In the third quarter of 2018, the Company’s Canadian operations were comprised of 297,500 fracturing HP, of which eight fracturing spreads, representing 225,000 HP, and 13 purpose-built coiled tubing spreads were staffed for 24-hour operations. Subsequent to quarter end, the Company took possession of its latest coiled tubing unit, equipped with modern systems, software and equipment and designed to automate coiled tubing operations using real-time data. As the length of wells continues to increase in Canada, STEP’s coiled tubing units are well positioned to meet the demand, recently setting a new depth record of 7,325 metres with 2-3/8” (60.3mm) coil.
Revenue in the third quarter of 2018 was $148.0 million, a decrease of 7% from the same quarter of 2017, due to fewer days worked in both fracturing and coiled tubing. Early winter conditions impacted utilization in September, which, when coupled with Canadian oil and gas price volatility and client capital spending discipline, results in work being postponed later into the fourth quarter of 2018 or early 2019. In addition, STEP has witnessed aggressive pricing in the marketplace as competitors attempt to fill short term gaps in their operations schedule. The Company has been successful in maintaining its core client base and will continue to focus on producing industry-leading results.
The Canadian segment posted third quarter Adjusted EBITDA of $35.2 million (or 24%), compared with Adjusted EBITDA of $45.5 million (or 29%) in the comparable prior year period. The third quarter margin percentage decrease is attributable to lower utilization, activity deferrals and a 3% increase in operating costs.
U.S. Segment
STEP’s U.S. operations took delivery of its ninth coiled tubing spread during the third quarter and it was placed into services in west Texas at the start of the fourth quarter. This new unit is equipped with a 14-foot wide reel trailer capable of carrying 11,500 m (37,920 ft) of 2-3/8” coiled tubing. The Company plans to take delivery of two additional coiled tubing spreads prior to year end and they will be deployed subject to client demand. STEP’s current U.S. fracturing capacity includes four fracturing spreads comprising of 192,500 HP, of which three are currently operating; 11 coiled tubing spreads of which nine are operating; and 15 wireline units. During the quarter, STEP opted to reduce its fracturing operating capacity from four to three fleets in response to near term lower demand and uneconomic spot market pricing.
Relative to prior periods, STEP’s third quarter 2018 financial results reflect the addition of Tucker’s operations. Revenue in the three months ended September 30, 2018 increased to $92.6 million from $16.3 million in the same period of 2017. Fracturing contributed 70% of the U.S. revenue in the third quarter. Adjusted EBITDA in the U.S. for the three months ended September 30, 2018 was $7.3 million (or 8%) and compared to $4.6 million (or 28%) for the same period in 2017.
A very competitive pricing environment for fracturing services emerged in the quarter as extra crews moved into Oklahoma due to Permian takeaway issues. This lowered pricing and margins as service companies struggled to maintain utilization on manned equipment. Also impacting STEP’s utilization was changes in schedules by its larger fracturing clients. STEP is pleased to report that these larger clients had all resumed operations with the Company by quarter end.
OUTLOOK
Canadian Operations
Activity levels in the fourth quarter thus far have benefited from work deferrals that carried over from the third quarter. Market over supply conditions for fracturing services are expected to persist through out the quarter which will negatively impact spot pricing for services. As is typically experienced, activity is expected to slow in the later part of the quarter due to the traditional holiday season and budget exhaustion.
Referencing the Company’s October 25, 2018 business update press release, STEP is well positioned for an active 2019. The Company has invested capital to enhance its fracturing asset base with efficient continuous duty assets, bi-fuel equipment, technology platforms and fine-tuning its high performance operating model. These investments position the company to execute at a very high level and maintain profitable operations in a competitive environment. Over the past 12 months, STEP has completed work for several large-cap operators, demonstrating its unique capabilities and high quality field execution and as a result, has successfully expanded its scope of committed work with these clients in 2019.
As previously announced, STEP has secured firm commitments for more than half of its manned fracturing fleets in 2019. STEP has also broadened its service offering to include coiled tubing services for these clients. The Company expects to have active work programs which positions STEP to improve second quarter 2019 performance relative to the second quarter of 2018. In addition, the portfolio of committed work is expected to provide key strategic benefits, including:
1) Effectively hedging a portion of STEP’s revenue stream to offset the fixed cost element of its business while maintaining flexibility between full year committed work and spot market activity;
2) Aligning STEP to clients which have large capital programs, diversified market egress arrangements and existing processing and infrastructure facilities, insulating them from short-term commodity volatility;
3) Providing a basis of consistent utilization that should result in year-over-year margin improvement; and
4) Allowing STEP to leverage its quality and safety-focused field execution, technology-focused asset base and low-cost structure.
STEP has a proud track record of industry-leading returns and margin performance, and management believes that the strategy deployed for 2019 will allow the Company to maintain that position.
U.S. Operations
In the U.S., STEP expects current market conditions for fracturing services to continue to be challenging until egress issues in major resource basins have been alleviated. Management expects demand for coiled tubing services to temper during the same period as completion activity is curtailed. Client discussions confirm that fracturing capacity should tighten in the second half of 2019, with most industry watchers predicting increased completions activity as a result of ongoing drilling and the increasing inventory of drilled and uncompleted wells. The Company’s strategy to increase its business scale and capabilities in the U.S., particularly given the headwinds to growth in the Canadian markets, has positioned it to benefit from higher activity levels when these issues are alleviated.
CAPITAL UPDATE
Based on an assessment of current market conditions, management has elected to reduce STEP’s 2018 capital program by $20 million, bringing the total projected capital spend to $141 million, inclusive of 2017 carry forward capital.
Under the revised plan, STEP will take delivery of its two fit-for-purpose Viking spreads by year end and will utilize horsepower currently dedicated to this Viking market to support existing larger, deeper market spreads. In Canada, to accommodate the work scope recently awarded to the Company, STEP expects to operate eight fracturing spreads, representing approximately 255,000 HP, along with 16 coiled tubing spreads in the first quarter of 2019.
In the U.S., STEP will take delivery of its two remaining deep capacity coiled tubing spreads. Upon completion of the 2018 capital program, STEP expects to operate three fracturing spreads, with one unstaffed spread, along with 11 coiled tubing spreads.
Management will continue to monitor industry activity levels and will adjust available equipment as market demand and economic returns dictate.
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: commissioning and staffing of equipment; utilization; fourth quarter 2018 and 2019 operational outlook; expected reduction in pricing pressure; completions activity and utilization levels in 2019; ability of the Company to maintain its track record of returns and margin performance; timing of delivery and deployment of additional fracturing and coiled tubing spreads; timing of refurbishment of asset base; market conditions and industry activity levels; the amount of capital expenditures in 2018 and 2019; and the Company’s expected performance in the fourth quarter of 2018 and 2019.
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; future oil, natural gas and natural gas liquids prices; the impact of seasonal weather conditions; the Company’s ability to take delivery of and deploy equipment; integration of cross-border operations; client activity levels; access to capital investment; expected utilization levels; 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; reduction in client activity levels; operational volatility due to adverse weather conditions; 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; reliance on industry partners; and the risk factors set forth under the heading “Risk Factors” in the Company’s annual information form dated March 19, 2018.
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 is an oilfield service company founded in 2011 that provides fully integrated coiled tubing and fracturing solutions. STEP’s combination of modern, fit-for-purpose fracturing and coiled tubing equipment has differentiated it in plays where wells are deeper, have longer laterals, and higher pressure.
Initially operating as a specialized, deep capacity coiled tubing provider, STEP’s service offering expanded to include fully integrated coiled tubing and fracturing solutions. STEP operates primarily in the Montney, Duvernay, and Viking in Canada, and in the Anadarko, Arkoma, Permian, Eagle Ford, and Haynesville in the U.S. STEP’s track record of safety, efficiency and execution drives repeat business from its blue-chip exploration and production clients.
For more information please contact:
| Regan Davis President & Chief Executive Officer |
Ivan Cheng Investor Relations & Corporate Development |
|
| Telephone: 403-457-1772 Email: [email protected]. Web: www.stepenergyservices.com |
Telephone: 587-393-8760 |
