Calgary, Alberta – October 25, 2018 – STEP Energy Services Ltd. (the “Company” or “STEP”) provides an operational update and timing details for its third quarter results and conference call.
Strategic 2019 Outlook
STEP has been very strategic in positioning the Company for 2019. As a relatively new entrant into the Canadian pressure pumping space, management appreciates the need to “prove” itself to larger, more demanding clients. During 2018, STEP had the opportunity to complete work for several of these clients and demonstrate its operational capabilities and field execution. With the strategic capital investments STEP has made in enhancing its pressure pumping asset base with efficient continuous duty assets, bi-fuel equipment, technology platforms and a high performance operating model, the Company believes it has demonstrated that it can add value to these larger clients and has hence been afforded the opportunity to earn their work programs for 2019.
STEP has been deliberate in aligning itself with clients who are expected to have active work programs throughout 2019. In doing so, the Company believes it will be well positioned to improve on second quarter 2019 performance relative to the second quarter of 2018 and expects to set itself up for improved profitability for completion services. STEP is pleased to announce that it has been successful in this strategy and has secured firm commitments for over half of its manned fracturing fleets in 2019, with an expected work scope that the Company believes will materially improve second quarter results. The portfolio of committed work is expected to provide key strategic benefits:
1) Effectively hedge 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) Aligns 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) Provides a basis of consistent utilization that should result in year-over-year margin improvement and;
4) Allows 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 that has been deployed for 2019 will allow the Company to maintain that position.
In the U.S., the Company is pleased to report that its newest coiled tubing spread equipped with a 14 ft wide reel trailer capable of carrying 11,500 m (37,920 ft) of 2-3/8” pipe was put into service at the beginning of the fourth quarter. STEP is proud of its history of bringing fit-for-purpose equipment to market to support its clients in their quest to drill and complete deeper, more technically challenging wells. As noted in the ‘Operational Update’ section below, STEP is realizing stronger utilization of its fracturing assets relative to prior quarters. Client discussions confirm the outlook that fracturing capacity should tighten as 2019 progresses. The Company’s strategy to increase its business scale and capabilities in the U.S. market, particularly given the headwinds to growth in the Canadian business, has positioned it to benefit from the outlook for higher activity levels as the pipeline egress issues in the Permian are alleviated.
As communicated in the Company’s second quarter results, much of the backlog of 2018 second quarter completions work was moved into the third quarter, resulting in STEP’s Canadian operations experiencing strong demand for service, however, activity in the third quarter was once again impacted due to weather. Specifically, early snow and rain during September resulted in operational setbacks and delays. These weather related delays have extended into the fourth quarter of 2018 and, when coupled with recent volatility in Canadian oil price differentials and client capital spending discipline, has led to clients rescheduling some completions work later into the fourth quarter of 2018 or into the first quarter of 2019.
In the U.S., operations continue to benefit from strong utilization for coiled tubing in Texas and Louisiana. Third quarter 2018 pressure pumping utilization in Oklahoma was inconsistent as a result of STEP’s larger clients adjusting their activity. STEP is pleased to report that these larger clients have all resumed operations with the Company and look to remain active through most of the fourth quarter. Additionally, STEP has had success in expanding its fracturing client base.
Management categorizes the pressure pumping market in Oklahoma and Texas as currently oversupplied, partly due to reduced activity caused from Permian takeaway capacity issues and year end budget exhaustion beginning to surface. These issues have consequently led to pricing pressure. STEP expects the pricing competition to be transitional as client discussions point to a recovery in activity beginning in the first half of 2019 in anticipation of pipeline infrastructure being completed in the second half of the year.
Third Quarter 2018 Release Date and Conference Call Details
STEP intends to release its third quarter 2018 results on Thursday, November 8, 2018 before markets open and will host a conference call at 8:00 a.m. MT (10:00 a.m. ET) on the same morning.
To access the conference call in North America, dial toll-free 1 (877) 375-3078 and enter the conference passcode, 8795667 or ask for the “STEP Energy Services Conference Call”. To listen to a live webcast of the conference call, please enter the following URL into your web browser: https://edge.media-server.com/m6/p/y3uhb2bu.
The conference call will be available for replay approximately two hours after the end of the call at 1 (800) 585-8367 and entering passcode 8795667. It will remain available until November 15, 2018. An audio recording of the call will also be available within 24 hours on STEP’s website at http://www.stepenergyservices.com.
Financial Statements and Management's Discussion and Analysis will also be posted to www.stepenergyservices.com and SEDAR immediately after the press release is disseminated by newswire.
Forward Looking Statements
This press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “ongoing”, “will”, “should”, “believe” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements with respect to: fourth quarter 2018 and 2019 operation outlook; expected completion of Permian pipeline projects in the second half of 2019; expected reduction in pricing pressure; completions activity and utilization levels in 2019; expected profitability for fracturing services in 2019; ability of the Company to maintain its track record of returns and margin performance; expected utilization levels in the fourth quarter of 2018; and the Company’s expected performance in the fourth quarter of 2018 and in 2019.
The forward-looking information and statements contained in this press release reflect several material factors and expectations of the Company including, without limitation: 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; completion of, and timing for availability of, additional pipeline capacity; and client activity levels. 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 correct.
The forward‐looking information and statements included in this press release 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: volatility in the oil and natural gas industry in North America; reduction in client activity levels; operational volatility due to adverse weather conditions; 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 press release speak only as of the date of the press release, 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.
For more information please contact:
President & Chief Executive Officer
Investor Relations & Corporate Development