STEP Energy Services Ltd. Reports First Quarter 2022 Results

STEP Energy Services Ltd. (the “Company” or “STEP”) is pleased to announce its financial and operating results for the three months ended March 31, 2022. The following press release should be read in conjunction with the management’s discussion and analysis (“MD&A”) and unaudited condensed consolidated interim financial statements and notes thereto as at and for the three months ended March 31, 2022 (the “Financial Statements”). Readers should also refer to the “Forward-looking information & statements” legal advisory and the section regarding “Non-IFRS Measures and Ratios” 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 (the “AIF”).

CONSOLIDATED HIGHLIGHTS

FINANCIAL REVIEW

($000s except percentages, per share amounts, days, proppant pumped, horsepower, and units)		Three months ended
		March 31,			March 31,			December 31,
		2022			2021			2021
Consolidated revenue	$	219,539		$	136,812		$	158,716
Net income (loss)	$	9,173		$	(7,944	)	$	(6,212	)
Per share-basic	$	0.135		$	(0.117	)	$	(0.091	)
Per share-diluted	$	0.132		$	(0.117	)	$	(0.091	)
Weighted average shares – basic		68,189,275			67,720,318			68,141,058
Weighted average shares – diluted		69,737,461			67,720,318			68,141,058
Adjusted EBITDA (1)	$	36,990		$	15,960		$	17,340
Adjusted EBITDA % (1)		17	%		12	%		11	%
Fracturing services
Fracturing operating days (2)		615			414			508
Proppant pumped (tonnes)		601,000			516,000			495,000
Active horsepower (“HP”), ending (3)		380,000			310,000			365,000
Total HP, ending		490,000			490,000			490,000
Coiled tubing services
Coiled tubing operating days (2)		1,075			776			955
Active coiled tubing units, ending		16			14			15
Total coiled tubing units, ending		29			29			29

(1) Adjusted EBITDA is a non-IFRS financial measure and Adjusted EBITDA % is a non-IFRS financial ratio. These metrics are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.(2) An operating day is defined as any coiled tubing or fracturing work that is performed in a 24-hour period, exclusive of support equipment.(3) Active horsepower denotes units active on client work sites. An additional 15-20% of this amount is required to accommodate equipment maintenance cycles.

($000s except shares)	March 31,				December 31,
				2022			2021
Cash and cash equivalents		$		6,637	$		3,698
Working capital (including cash and cash equivalents) (1)		$		52,800	$		3,912
Total assets		$		546,651	$		483,848
Total long-term financial liabilities (1)		$		211,928	$		175,689
Net debt (1)		$		214,278	$		186,885
Shares outstanding			68,204,590			68,156,981

(1) Working capital, Total long-term financial liabilities and Net debt are non-IFRS financial measures. They are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.

	Three months ended
	March 31,		December 31,		September 30,		June 30,		March 31,
		2022		2021		2021		2021		2021
AECO-C Spot Average Price (CAD/MMBtu)	$	4.78	$	4.75	$	3.57	$	3.10	$	3.10
WTI – Average Price (USD/bbl)	$	94.77	$	77.31	$	70.61	$	66.19	$	58.04
WCS – Average Price (USD/bbl)	$	81.80	$	60.84	$	57.64	$	53.29	$	46.21
Condensate – Average Price (USD/bbl)	$	97.19	$	79.53	$	70.85	$	64.87	$	59.16
Average Exchange Rate (USD/CAD)	$	0.79	$	0.79	$	0.79	$	0.81	$	0.79
Canadian Average Drilling Rig Count (4)		193		159		150		71		144
U.S. Average Drilling Rig Count (4)		636		545		484		437		378

Source: Baker Hughes, Bloomberg (4) Only includes land-based rigs.

FINANCIAL HIGHLIGHTS

Revenue of $219.5 million in the first quarter of 2022 was the strongest first quarter in company history and was significantly better than the $136.8 million generated in Q1 2021 and $158.7 million generated in Q4 2021.
Q1 2022 adjusted EBITDA of $37.0 million, was an increase of 131% over the $16.0 million generated in Q1 2021 and a sequential increase of 114% over the $17.3 million generated in Q4 2021. Q1 2021 benefited from $3.6 million of Canadian Emergency Wage Subsidy (“CEWS”) (Q4 2021 - $nil, Q1 2022 - $nil).
Q1 2022 generated net income of $9.2 million, the first quarter since Q3 2018 that STEP generated net income. STEP had a net loss of $7.9 million in Q1 2021 and a net loss of $6.2 million in Q4 2021.
STEP’s operations in Canada and the U.S. continued to benefit from improving market conditions, with net pricing and utilization improvements driving stronger financial results in Q1 2022 relative to Q4 2021.
As a result of the significant increase in operating activity in Q1 2022, Working capital increased to $52.8 million at the end of Q1 from $3.9 million in Q4 2021 and Net debt increased to $214.3 million from $186.9 million in Q4 2021.
Subsequent to March 31, 2022, STEP delivered notice to its syndicate of lenders of early termination of the covenant relief, reflecting the Company’s return to conventional credit metrics and lowering the Company’s borrowing costs by 200 basis points for the remainder of the second quarter.

FIRST QUARTER 2022 OVERVIEW The first quarter of 2022 delivered the confident start to the year that the Company had signalled in its Q4 2021 release. Industry activity levels, as represented by rig counts, increased markedly on a sequential and year over year basis. According to the Baker Hughes rig count, the Canadian land rig count averaged 193 in Q1 2022, up 21% sequentially and 35% on a year over year basis. The U.S. land rig count averaged 636 in Q1 2022, up 17% sequentially and 68% on a year over year basis.

STEP’s fracturing and coiled tubing crews experienced high utilization across both countries, despite the typical cold weather impacts early in Q1 2022 and the Omicron COVID 19 variant that caused significant operational disruption. The health and safety of our professionals is our utmost priority, and Management is extremely proud of the resilience shown by our operational teams as they managed crews in the field that were impacted by quarantine requirements while still delivering the Exceptional Client Experience that STEP prides itself in. Management estimates that COVID 19 had an impact of $0.4-0.5 million in the quarter through reduced operating days and higher costs. The Company pumped 601 thousand tonnes of sand, across 395 operating days in Canada and 220 operating days in the US. Following a January that was characterized by smaller single well jobs in both countries, the Company moved on to larger multi-well pad work through most of February and March, driving strong efficiencies and delivering sequentially improved returns. The coiled tubing division had similarly strong utilization, with 561 operating days in Canada and 514 operating days in the U.S. The coiled tubing service line was more severely impacted by COVID 19 compared to the fracturing service line, as coiled tubing’s smaller crew sizes cannot absorb an absence of professionals in the same way that a fracturing crew can.

Rising industry activity supported our continued drive for higher pricing, as exploration and production (“E&P”) companies faced inflationary pressure from service providers across their value chain. STEP faced similar inflationary pressure from its supply chain but has been successful in passing on these costs to our clients and through strategic buying has been able to secure supply and cost certainty. Our U.S. region had sand contracts in place for the quarter, which was a key factor in maintaining steady utilization through a quarter where sand supply disrupted fracturing operations in the Permian basin.

STEP generated $219.5 million of revenue in the quarter, the strongest first quarter in company history, with $146.8 million coming from Canada and $72.7 million coming from the U.S. This was a significant increase from $158.7 million in the prior quarter and $136.8 million in the same period last year. U.S. revenue benefitted from STEP supplied sand in Q1 2022, supplying 38% of sand pumped in the quarter, up from 36% in the prior quarter and up from 16% in the same period of the prior year. Canadian operations saw improved utilization and pricing resulting in 61% revenue increase over the prior quarter and 34% increase over the same period in the prior year.

STEP earned $37.0 million in Adjusted EBITDA for the quarter and $9.2 million in net income. Both metrics are a meaningful improvement over the prior quarter and same period in the prior year and are the best first quarter results since Q1 2018. STEP generated net income for the first time since Q3 2018, producing basic and diluted net income per share of $0.135 and $0.132, respectively. This is a significant improvement compared to a net loss per share, basic and diluted, of $0.091 and $0.117 in the prior quarter and same period of the prior year, respectively. The improvement in Adjusted EBITDA outpaced the improvement in net income as there was a 74% increase in the Company’s share price through the quarter, which led to a $5.2 million expense for cash settled share-based compensation. STEP has added back equity and cash settled share-based compensation to its Adjusted EBITDA calculation since becoming a public company in 2017 as Management believes this is a better representation of the operational performance of the Company.

The sharp ramp up in activity and increased STEP supplied sand in the U.S. resulted in an increased draw on our credit facilities and higher Working capital. Net Debt at quarter end was $214.3 million, higher than the $186.9 million at December 31, 2021 while Working capital increased to $52.8 million at March 31, 2022, up from $3.9 million at December 31, 2021. Liquidity was $77.5 million at March 31, 2022, an increase of $20.0 million from $57.5 million at December 31, 2021. The Company made a $7 million payment on its term loan facility during the first quarter and remained in compliance with all financial and nonfinancial covenants at March 31, 2022. Subsequent to the quarter end, the Company provided notice of early termination of the covenant relief provisions that were granted in Q3 2021. The termination will reduce the Company’s borrowing costs by approximately 200 basis points for the balance of Q2 2022.

OUTLOOKSTEP anticipates that the current strength in oil and gas prices will continue through the balance of the year, supporting higher demand for oilfield services. Global inventories of oil and gas were already at the low end of their five-year ranges, and there are indications that the fallout from Russia’s unprovoked invasion of Ukraine is leading to a rebalancing of global oil and gas flows and a call for higher North American energy exports. STEP is aligned with the broader commentary expressed by our peers and clients that the North American oil and gas industry is positioned well to respond to this increased demand, and STEP will participate in this growth with its operations in the major basins.

The Company has a constructive view on the second quarter, which could show stronger results than the second quarter of 2021, itself the strongest on record for the Company. Fracturing capacity in the U.S. is largely committed through the second quarter, carrying forward the steady utilization experienced in the first quarter. Coiled tubing in the U.S. and Canada are both expected to see steady utilization, with some impact from spring break up conditions and heavy snowstorms already experienced in Canada and in northern U.S. operating regions. Fracturing activity in Canada has similarly had some impact from spring break up from mid April to mid May, providing an opportunity to complete needed maintenance and give our professionals some time off. The balance of the quarter is anticipated to see robust utilization, with virtually no pricing discounts given relative to the first quarter, unlike the typical pattern in Canada where spring break up work is priced at a discount. Inclement weather conditions and their impact on activity are always a concern in the second quarter in Canada, but we anticipate that any missed work will push into the third and fourth quarter.

Visibility into the second half of the year is improving, with much of the third quarter fracturing schedule already filled. Consistent with the commentary coming from the publicly traded drilling companies, our clients are indicating that rig count will build and that the Q4 rig count will be higher than Q1, which will be supportive of a highly utilized fourth quarter.

Inflationary pressures are expected to continue building. Costs of proppant, chemicals, equipment parts, electronics, major components are all increasing, with availability becoming more of a concern than it has been in the past. Labour costs are expected to continue escalating, adding costs through direct compensation expense and through higher third party service costs. STEP will be resolute in passing these costs through to our clients.

The limited availability of qualified labour and field ready equipment will constrain the ability of the oilfield service sector to add capacity, creating a market that has tightened considerably since the fourth quarter of 2021. These restraints are fortifying the oilfield service narrative around the need for increased pricing not just to cover the cost of inflation but also the need for return to shareholders. STEP will continue to move prices higher, targeting top of cycle returns, and anticipates sequential margin growth in the coming quarters as the market shifts from oversupplied in 2021 to an undersupplied position in 2022.

STEP is also pleased to announce the inaugural publication of its Environment, Social and Governance Report (“ESG Report”) which highlights the Company’s historic and current drive to incorporate sustainable practices and strategies throughout its operations, and to communicate its progress and commitment to continual improvement with key stakeholders. The ESG Report covers the period between January 1 and December 31, 2021 and is informed by sustainability practices and the reporting framework as per Sustainability Accounting Standards Board (SASB). The ESG Report is available on STEP’s website at www.stepenergyservices.com.

CAPITAL EXPENDITURESIn response to the higher activity expectations, STEP’s Board of Directors has approved an increase of $8.3 million to the 2022 capital program, increasing it to $56.0 million. The additional capital will fund further investment into low emissions focused equipment upgrades that support the Company’s Environmental, Social and Governance objectives as well as additional maintenance capital to support operations.

The Company will continue to evaluate and manage its manned equipment fleet and capital program based on market demand for STEP’s services. CANADIAN FINANCIAL AND OPERATIONS REVIEW

STEP has a fleet of 16 coiled tubing units in the WCSB. The Company’s coiled tubing units are designed to service the deepest wells in the WCSB. STEP’s fracturing business primarily focuses on the deeper, more technically challenging plays in Alberta and northeast British Columbia. STEP has 282,500 fracturing HP of which approximately 132,500 HP has dual-fuel capability. The Company deploys or idles coiled tubing units or fracturing horsepower as dictated by the market’s ability to support targeted utilization and economic returns.

($000’s except per day, days, units, proppant pumped and HP)	Three months ended
	March 31,			March 31,			December 31,
		2022			2021			2021
Revenue:
Fracturing	$	119,014		$	87,829		$	68,590
Coiled tubing		27,798			21,533			22,868
		146,812			109,362			91,458
Expenses:
Operating expenses		121,365			96,126			85,391
Selling, general and administrative		3,324			1,764			1,820
Results from operating activities	$	22,123		$	11,472		$	4,247
Add non-cash items:
Depreciation		9,126			9,239			9,294
Share-based compensation – Cash settled		544			361			72
Share-based compensation – Equity settled		75			459			(22	)
Adjusted EBITDA (1)	$	31,867		$	21,531		$	13,591
Adjusted EBITDA % (1)		22	%		20	%		15	%
Sales mix (% of segment revenue)
Fracturing		81	%		80	%		75	%
Coiled tubing		19	%		20	%		25	%
Fracturing services
Fracturing revenue per operating day (1)	$	301,301		$	313,675		$	245,842
Number of fracturing operating days (2)		395			280			279
Proppant pumped (tonnes)		323,000			327,000			193,000
Stages completed		4,761			3,213			3,593
Proppant pumped per stage		68			102			54
Horsepower (“HP”)
Active pumping HP, end of period (3)		215,000			200,000			200,000
Total pumping HP, end of period		282,500			282,500			282,500
Coiled tubing services
Coiled tubing revenue per operating day (1)	$	49,551		$	46,709		$	51,045
Number of coiled tubing operating days (2)		561			461			448
Active coiled tubing units, end of period		8			7			7
Total coiled tubing units, end of period		16			16			16

(1) Adjusted EBITDA is a non-IFRS financial measure and Adjusted EBITDA % and Revenue per operating day are non-IFRS financial ratios. They are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.(2) An operating day is defined as any coiled tubing or fracturing work that is performed in a 24-hour period, exclusive of support equipment. (3) Active horsepower denotes units active on client work sites. An additional 15-20% of this amount is required to accommodate equipment maintenance cycles.

FIRST QUARTER 2022 COMPARED TO FIRST QUARTER 2021Revenue for the three months ended March 31, 2022 was $146.8 million compared to $109.4 million for the first quarter of 2021. Revenue improved due to a substantial rise in utilization for both service lines as a result of an industry wide increase in activity. Fracturing operating days increased to 395 in first quarter of 2022 from 280 during first quarter of 2021 allowing us to add a small low pressure spread in the oil focused Viking and Cardium areas, bringing the Canadian fracturing spread count to five. The oil focused work is typically characterized by higher stages and lower proppant per stage, which resulted in a lower revenue per day and proppant per stage relative to Q1 2021, which was more focused on the natural gas plays in the Montney and Duvernay areas. The low-pressure crew typically fractures through coiled tubing, leading to additional coiled tubing operating days, albeit at lower revenue per day. Coiled tubing operating days increased to 561 in first quarter of 2022 from 461 during first quarter of 2021, while revenue per day had a slight increase of 6%.

Operating expenses scaled upwards with increased activity levels. Personnel related costs increased following adjustments to base and incentive pay to remain competitive in the current market and the reinstatement of various benefits and allowances that were eliminated during the Pandemic to reduce costs. Inflationary pressures continued to be a factor in the current quarter with supply chain disruptions, commodity price appreciation, and increased industry activity resulting in costs escalating across all expense categories. The overhead and SG&A structure has been scaled up to support increased field operations compared to the first quarter of 2021, however, the Company will continue to maintain a lean cost structure while adequately supporting the growth of the business.

Adjusted EBITDA for the first quarter of 2022 was $31.9 million (22% of revenue) versus $21.5 million (20% of revenue) in the first quarter of 2021. Adjusted EBITDA increased as a result of the improved operating environment enabling higher pricing and utilization partially offset by rising costs due to continued inflationary pressure. Q1 2021 benefited from $3.6 million received from the CEWS program.

FracturingCanadian fracturing revenue of $119.0 million for the three months ended March 31, 2022 increased by 36% from $87.8 million for the three months ended March 31, 2021. STEP operated five fracturing spreads with 215,000 HP during the first quarter of 2022, compared to four spreads and 200,000 HP operated during the first quarter of 2021. Fracturing operating days increased to 395 in first quarter of 2022 from 280 during first quarter of 2021, as strong demand in the Viking and Cardium areas allowed STEP to add a small low pressure spread to these oil focused areas.

The oil focused work is typically characterized by higher stages and lower proppant per stage, which resulted in a lower revenue per day and proppant per stage relative to Q1 2021, which was more focused on the natural gas plays in the Montney and Duvernay areas. The shift in job mix resulting from the additional low-pressure crew resulted in a lower revenue per day, offsetting the increase in pricing realized from Q1 2021 to Q1 2022.

Coiled TubingCanadian coiled tubing revenue of $27.8 million for the three months ended March 31, 2022 increased 29% from $21.5 million for the three months ended March 31, 2021. The service line operated eight units for 561 operating days during the first quarter of 2022 compared to seven units and 461 operating days in the comparable period of 2021. The increase in utilization followed improvement in drilling and completions activity while pricing gains have been slower to materialize.

FIRST QUARTER 2022 COMPARED TO FOURTH QUARTER 2021Revenue for the three months ended March 31, 2022 of $146.8 million increased 60% from $91.5 million from the quarter ended December 31, 2021 due to an overall increase in utilization coupled with some pricing improvement. Strong commodity price fundamentals drove our operations to a quick start, despite the cold weather and Omicron COVID-19 challenges experienced at the start of the quarter.

Canadian operations had Adjusted EBITDA of $31.9 million (22% of revenue) in the first quarter of 2022 compared to $13.6 million (15% of revenue) in the fourth quarter of 2021. Inflationary pressures hit the industry hard in Q1 2022, with high commodity prices, supply chain interruptions and tight labour conditions combining to increase costs. STEP monitors inflation closely to ensure that bids and pricing reflect these cost increases and was able to work with clients to increase pricing to avoid margin erosion.

FracturingSTEP operated five fracturing spreads with 215,000 HP during the first quarter of 2022, compared to four spreads and 200,000 HP operated during the fourth quarter of 2021. The growing demand from oil focused E&P clients enabled STEP to add a small low pressure fracturing spread in Q1 2022, while continuing to enjoy strong utilization on the larger crews that work in the gas focused areas of the basin. Total operating days surged 42% on a quarter over quarter basis and revenue increased to $119.0 million, up 61% sequentially. STEP pumped 323 thousand tonnes of proppant in Q1 2022, up from 193 thousand tonnes in Q4 2021.

The high level of activity throughout the basin created a more constructive pricing environment, allowing for recovery of costs as well as modest margin expansion. Pricing in Q1 2022 increased in response to inflation by approximately 10-15% from Q4 2021 although timing of the increase limited the immediate quarterly benefit to less than 5%. The full benefit of the pricing increase is expected to be realized in the coming quarters.

Coiled TubingCoiled tubing operations operated eight coiled tubing units, with 561 operating days, generating $27.8 million in revenue in the first quarter of 2022, compared to $22.9 million over 448 operating days in the fourth quarter of 2021. Pricing improved sequentially from Q4 2021, but revenue per day was marginally lower on a sequential basis due to a change in job mix.

UNITED STATES FINANCIAL AND OPERATIONS REVIEW

STEP’s U.S. business commenced operations in 2015 with coiled tubing services. STEP has a fleet of 13 coiled tubing units in the Permian and Eagle Ford basins in Texas, the Bakken shale in North Dakota, and the Uinta-Piceance and Niobrara-DJ basins in Colorado. STEP entered the U.S. fracturing business in April 2018. The U.S. fracturing business has 207,500 fracturing HP, of which 80,000 HP is Tier 4 diesel and 50,250 HP has dual-fuel capabilities. Fracturing primarily operates in the Permian and Eagle Ford basins in Texas. The Company deploys or idles coiled tubing units or fracturing horsepower as dictated by the market’s ability to support targeted utilization and economic returns.

($000’s except per day, days, units, proppant pumped and HP)	Three months ended
		March 31,			March 31,			December 31,
		2022			2021			2021
Revenue:
Fracturing	$	49,667		$	16,425		$	44,773
Coiled tubing		23,060			11,025			22,485
		72,727			27,450			67,258
Expenses:
Operating expenses		68,127			38,029			66,520
Selling, general and administrative		2,904			1,406			2,496
Results from operating activities	$	1,696		$	(11,985	)	$	(1,758	)
Add non-cash items:
Depreciation		7,694			8,691			9,829
Share-based compensation – Cash settled		430			277			(59	)
Share-based compensation – Equity settled		-			-			-
Adjusted EBITDA (1)	$	9,822		$	(3,017	)	$	8,012
Adjusted EBITDA % (1)		14	%		(11	%)		12	%
Sales mix (% of segment revenue)
Fracturing		68	%		60	%		67	%
Coiled tubing		32	%		40	%		33	%
Fracturing services
Fracturing revenue per operating day (1)	$	225,759		$	122,575		$	195,515
Number of fracturing operating days (2)		220			134			229
Proppant pumped (tonnes)		278,000			189,000			302,000
Stages completed		1,122			909			1,515
Proppant pumped per stage		248			208			199
Horsepower (“HP”)
Active pumping HP, end of period (3)		165,000			110,000			165,000
Total pumping HP, end of period		207,500			207,500			207,500
Coiled tubing services
Coiled tubing revenue per operating day (1)	$	44,864		$	35,000		$	44,349
Number of coiled tubing operating days (2)		514			315			507
Active coiled tubing units, end of period		8			7			8
Total coiled tubing units, end of period		13			13			13

FIRST QUARTER 2022 COMPARED TO FIRST QUARTER 2021 Revenue for the three months ended March 31, 2022 was $72.7 million compared to $27.5 million for the first quarter of 2021. U.S. operations realized a substantial increase in utilization for both service lines as a result of the industry wide increase in activity and improved pricing due to the strong industry fundamentals. Operating days across the fracturing operations increased to 220 in the first quarter of 2022 from 134 days during the first quarter of 2021 due to the improved macro environment and as result of operating an additional fracturing spread in the current period. Revenue per day increased by 84% primarily due to increased proppant supplied by STEP combined with improved pricing. Coiled tubing operating days increased to 514 in first quarter of 2022 from 315 during first quarter of 2021 while revenue per day increased by 28%.

U.S. operations continued the trend of improved performance and Adjusted EBITDA. Adjusted EBITDA was $9.8 million for the three months ended March 31, 2022, compared to an Adjusted EBITDA loss of $3.0 million for the three months ended March 31, 2021. The 14% Adjusted EBITDA margin is inline with STEP’s larger U.S. based competitors, who also publicly raised concern over the rising inflation which is leading to higher costs across all expense categories.

FracturingSTEP operated three fracturing spreads with 165,000 HP during the first quarter of 2022, compared to two spreads and 110,000 HP operated during the first quarter of 2021. Operating days across the fracturing operations increased to 220 in the first quarter of 2022 from 134 days during the first quarter of 2021 due to an improved operating environment and from operating an additional fracturing spread in the current period.

Revenue per day for the first quarter of 2022 increased by 84% primarily due to increased proppant supplied by STEP combined with improved pricing. U.S. fracturing revenue of $49.7 million increased 203% from the same period in 2021. A shift in client mix resulting in increased proppant revenue was a significant factor in the higher revenue per day in the first quarter of 2022 compared to the first quarter of 2021, however, the U.S. fracturing operations was also able to realize a significant increase in base operating rate over this same period.

Coiled TubingU.S. coiled tubing continued to build momentum during the first quarter of 2022 with revenue of $23.0 million, increasing from $11.0 million in the first quarter of 2021. STEP staffed eight coiled tubing units, which operated 514 days during the first quarter of 2022 compared to seven units and 315 days in the first quarter of 2021. The increased utilization was combined with increased revenue per day of $45 thousand, compared to $35 thousand in the same period last year; improved rates and stronger activity is materializing in all operating regions. STEP’s strategic market presence and reputation for execution continues to help secure utilization and drive higher pricing in all regions.

FIRST QUARTER 2022 COMPARED TO FOURTH QUARTER 2021Revenue for the first quarter of 2022 increased $5.4 million to $72.7 million from $67.3 million in the fourth quarter of 2021 driven primarily from additional proppant revenue and price increases in fracturing operations. The U.S. market tightened considerably from Q4 2021 to Q1 2022, leading to stronger pricing and a shift in the supply narrative between service providers and E&P companies.

Adjusted EBITDA of $9.8 million (14% of revenue) for the first quarter of 2022 compared to $8.0 million (12% of revenue) for the fourth quarter of 2021 continues the positive trend in the U.S. business. Utilization remains strong across both business lines and steady price increases have allowed for the continuous improvement of Adjusted EBITDA on a sequential basis despite ongoing inflationary pressures.

FracturingChanging client mix, improved demand and higher rates resulted in revenue of $49.7 million for U.S. fracturing services in Q1 2022 compared to $44.8 million in Q4 2021. While activity remained relatively flat at 220 operating days in the first quarter of 2022 compared to 229 in the fourth quarter of 2021, revenue per day increased to $266 thousand from $196 thousand due to an increase in proppant and chemicals supplied by STEP along with pricing improvements. Pricing in Q1 2022 increased in response to inflation by approximately 20-25% from Q4 2021 although timing of the increase limited the immediate quarterly benefit to less than 5%. The full benefit of the pricing increase is expected to be realized in the coming quarters.

Coiled TubingCoiled tubing operations continued to operate eight coiled tubing units, with 514 operating days, generating $23.0 million in revenue in the first quarter of 2022 compared to $22.5 million over 507 operating days in the fourth quarter of 2021; sequentially flat in both utilization and pricing. While there were modest increases in both rates and operating days, weather delays during the quarter and continued pressure from low-cost providers limited STEP’s ability to further increase revenue in these operations.

CORPORATE FINANCIAL REVIEW

The Company’s corporate activities are separated from Canadian and U.S. operations. Corporate operating expenses include expenses related to asset reliability and optimization teams, as well as general and administrative costs which include costs associated with the executive team, the Board of Directors, public company costs, and other activities that benefit Canadian and U.S. operating segments collectively.

($000’s)	Three months ended
	March 31,			March 31,			December 31,
		2022			2021			2021
Expenses:
Operating expenses	$	571		$	214		$	360
General and administrative		8,722			5,205			4,108
Results from operating activities	$	(9,293	)	$	(5,419	)	$	(4,468	)
Add items:
Depreciation		138			173			137
Share-based compensation – Cash settled		4,192			1,564			7
Share-based compensation – Equity settled		265			1,128			61
Adjusted EBITDA (1)	$	(4,699	)	$	(2,554	)	$	(4,263	)
Adjusted EBITDA % (1)		(2	%)		(2	%)		(3	%)

(1) Adjusted EBITDA is a non-IFRS financial measure and Adjusted EBITDA % is a non-IFRS financial ratio. They are not defined and have no standardized meaning under IFRS. See Non-IFRS Measures and Ratios.

FIRST QUARTER 2022 COMPARED TO FIRST QUARTER 2021For the three months ended March 31, 2022 expenses from corporate activities were $9.3 million compared to $5.4 million for the same period in 2021. Share based compensation was significantly higher in the first quarter of 2022 as the share price increased $1.19 (74%) from December 31, 2021 to March 31, 2022 compared to an increased share price of only $0.54 (73%) during the same period of the prior year resulting in higher expenses as a result the mark to market adjustment in the current period on cash settled share-based compensation. Additionally, payroll costs rose as the Company increased total rewards to retain and attract talented professionals in an increasingly competitive labour market while Q1 2021 recognized $0.2 million in CEWS benefits, which reduced total expenses.

FIRST QUARTER 2022 COMPARED TO FOURTH QUARTER 2021Expenses from corporate activities were $9.3 million for the first quarter of 2022 compared to $4.5 million for the fourth quarter of 2021, an increase of $4.8 million. The mark to market adjustments on cash settled share-based compensation were a significant factor in the first quarter of 2022, unlike the fourth quarter of 2021 which saw minimal mark to market adjustments due to limited share price appreciation. The Company accrued an additional performance bonus for our professionals in Q1 2022 in recognition of the strong year to date performance. This bonus was paid in Q2 2022, at the same time as the 2021 performance bonus, which was accrued through the prior year. STEP is committed to increasing the total reward package for its professionals to recognize the contribution that they have made to the improving results.

NON-IFRS MEASURES AND RATIOS

This Press Release includes terms and performance measures commonly used in the oilfield services industry that are not defined under IFRS. The terms presented are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-IFRS measures have no standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. The non-IFRS measures should be read in conjunction with the Company’s Quarterly Financial Statements and Annual Financial Statements and the accompanying notes thereto.

“Adjusted EBITDA” is a financial measure not presented in accordance with IFRS and is equal to net (loss) income before finance costs, depreciation and amortization, (gain) loss on disposal of property and equipment, current and deferred income tax provisions and recoveries, equity and cash settled share-based compensation, transaction costs, foreign exchange forward contract (gain) loss, foreign exchange (gain) loss, and impairment losses. “Adjusted EBITDA %” is a non-IFRS ratio and is calculated as Adjusted EBITDA divided by revenue. Adjusted EBITDA and Adjusted EBITDA % are presented because they are widely used by the investment community as they provide an indication of the results generated by the Company’s normal course business activities prior to considering how the activities are financed and the results are taxed. The Company uses Adjusted EBITDA and Adjusted EBITDA % internally to evaluate operating and segment performance, because management believes they provide better comparability between periods. The following table presents a reconciliation of the non-IFRS financial measure of Adjusted EBITDA to the IFRS financial measure of net income (loss).

($000s except percentages)	Three months ended
	March 31,			March 31,			December 31,
		2022			2021			2021
Net income (loss)	$	9,173		$	(7,944	)	$	(6,212	)
Add (deduct):
Depreciation and amortization		17,072			18,217			19,376
(Gain) loss on disposal of equipment		(818	)		369			(638	)
Finance costs		3,317			3,087			4,196
Income tax expense (recovery)		2,560			(1,549	)		314
Share-based compensation – Cash settled		5,166			2,202			21
Share-based compensation – Equity settled		340			1,587			38
Foreign exchange loss (gain)		180			(9	)		245
Adjusted EBITDA	$	36,990		$	15,960		$	17,340
Adjusted EBITDA %		17	%		12	%		11	%

“Revenue per operating day” is a financial ratio not presented in accordance with IFRS and is used as a reference to represent market pricing for our services. It is calculated based on total revenue divided by total operating days. An operating day is defined as any coiled tubing and fracturing work that is performed in a 24-hour period, exclusive of support equipment. This calculation may fluctuate based on both pricing and sales mix. See the tables under “Canadian Operations Review” and “United States Operations Review” for the inputs used to calculate STEP’s revenue per operating day metrics.

“Working capital”, “Total long-term financial liabilities” and “Net debt” are financial measures not presented in accordance with IFRS. “Working capital” is equal to total current assets less total current liabilities. “Total long-term financial liabilities” is comprised of loans and borrowings, long-term lease obligations and other liabilities. “Net debt” is equal to loans and borrowings before deferred financing charges less cash and cash equivalents. The data presented is intended to provide additional information about items on the statement of financial position and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS.

The following table represents the composition of the non-IFRS financial measure of Working capital (including cash and cash equivalents).

($000s)	March 31,				December 31,
			2022			2021
Current assets		$	198,478		$	133,255
Current liabilities			(145,678	)		(129,343	)
Working capital (including cash and cash equivalents)		$	52,800		$	3,912

The following table presents the composition of the non-IFRS financial measure of Total long-term financial liabilities.

($000s)	March 31,		December 31,
		2022		2021
Long-term loans	$	192,442		162,007
Long-term leases		11,324		9,163
Other long-term liabilities		8,162		4,519
Total long-term financial liabilities	$	211,928		175,689

The following table presents the composition of the non-IFRS financial measure of Net debt.

($000s)	March 31,			December 31,
		2022			2021
Loans and borrowings	$	220,392			189,957
Add back: Deferred financing costs		523			626
Less: Cash and cash equivalents		(6,637	)		(3,698	)
Net debt	$	214,278			186,885

RISK FACTORS AND RISK MANAGEMENT

The oilfield services industry involves many risks, which may influence the ultimate success of the Company. The risks and uncertainties set out in the AIF and Annual MD&A are not the only ones the Company is facing. There are additional risks and uncertainties that the Company does not currently know about or that the Company currently considers immaterial which may also impair the Company’s business operations and can cause the price of the Common Shares to decline. Readers should review and carefully consider the disclosure provided under the heading “Risk Factors” in the AIF and “Risk Factors and Risk Management” in the Annual MD&A, both of which are available on www.sedar.com, and the disclosure provided in this Press Release under the headings “Industry Conditions & Outlook”. In addition, global and national risks associated with inflation or economic contraction may adversely affect the Company by, among other things, reducing economic activity resulting in lower demand, and pricing, for crude oil and natural gas products, and thereby the demand and pricing for the Company’s services. Other than as supplemented in this Press Release, the Company’s risk factors, and management thereof has not changed substantially from those disclosed in the AIF and Annual MD&A.

FORWARD-LOOKING INFORMATION & STATEMENTS Certain statements contained in this Press Release constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws (collectively, “forward-looking statements”). These statements relate to the expectations of management about future events, results of operations and the Company’s future performance (both operational and financial) and business prospects. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “shall”, “project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “pursue”, “potential”, “objective” and “capable” and similar expressions are intended to identify forward-looking statements. These 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 statements. While the Company believes the expectations reflected in the forward-looking statements included in this Press Release are reasonable, such statements are not guarantees of future performance or outcomes and may prove to be incorrect and should not be unduly relied upon.

In particular, but without limitation, this Press Release contains forward-looking statements pertaining to: 2022 industry conditions and outlook, including the continuation of string oil and gas prices in 2022, and its effects on drilling activity levels and activity levels; anticipated Q2 2022 results; the potential for higher North American energy exports; supply and demand for the Company’s and its competitors’ services, including the ability for the industry to respond to demand increases and the Company’s capacity commitments; expected price improvements for the Company’s services; the impact of weather on the Company’s operations; staffing challenges and labour shortages, and its effect on activity and equipment levels and service sector supply; the potential for an undersupplied market in 2022; the Company’s ability to realize the benefits of pricing increases in subsequent quarters; the Company’s ability to meet all financial commitments including interest payments over the next twelve months; the Company’s anticipated business strategies and expected success, including the level of operating capacity in Canada and U.S.; the Company’s ability to manage its capital structure; pricing received for the Company’s services, including the Company’s ability to increase pricing; the Company’s capital program in 2022 and management’s continued evaluation thereof; expected profitability; expected income tax liabilities; adequacy of resources to funds operations, financial obligations and planned capital expenditures in 2022; the Company’s ability to retain its existing clients; the monitoring of industry demand, client capital budgets and market conditions; client credit risk, including the Company’s ability to set credit limits, monitor client payment patterns, and to apply liens; and the Company’s expected compliance with covenants under its Credit Facilities and its ability to satisfy its financial commitments under its Credit Facilities.

The forward-looking information and statements contained in this Press Release reflect several material factors and expectations and assumptions of the Company including, without limitation: the effect of military conflict in the Ukraine and related Canadian, U.S. and international sanctions involving Russia on the market for the Company’s services; OPEC or OPEC+ related market uncertainty on the market for the Company’s services; that the Company will continue to conduct its operations in a manner consistent with past operations; the Company will continue as a going concern; the general continuance of current or, where applicable, assumed industry conditions; pricing of the Company’s services; the Company’s ability to market successfully to current and new clients; predictable effect of seasonal weather on the Company’s operations; the Company’s ability to utilize its equipment; the Company’s ability to collect on trade and other receivables; the Company’s ability to obtain and retain qualified staff and equipment in a timely and cost effective manner; levels of deployable equipment; future capital expenditures to be made by the Company; future funding sources for the Company’s capital program; the Company’s future debt levels; the availability of unused credit capacity on the Company’s credit lines; the impact of competition on the Company; the Company’s ability to obtain financing on acceptable terms; the Company’s continued compliance with financial covenants; the amount of available equipment in the marketplace; and client activity levels and spending. 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.

Actual results could differ materially from those anticipated in these forward‐looking statements due to the risk factors set forth under the heading “Risk Factors” in the AIF and under the heading “Risk Factors and Risk Management” in this Press Release and the Annual MD&A.

Any financial outlook or future orientated financial information contained in this Press Release regarding prospective financial performance, financial position or cash flows is based on the assumptions about future events, including economic conditions and proposed courses of action based on management’s assessment of the relevant information that is currently available. Projected operational information, including the Company’s capital program, contains forward looking information and is based on a number of material assumptions and factors, as are set out above. These projections may also be considered to contain future oriented financial information or a financial outlook. The actual results of the Company’s operations will likely vary from the amounts set forth in these projections and such variations may be material. Readers are cautioned that any such financial outlook and future oriented financial information contains herein should not be used for purposes other than those for which it is disclosed herein.

The forward-looking information and statements contained in this Press Release 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 STEPSTEP is an oilfield service company that provides stand-alone and fully integrated fracturing, fluid and nitrogen pumping, and coiled tubing solutions. Our combination of modern equipment along with our commitment to safety and quality execution has differentiated STEP in plays where wells are deeper, have longer laterals and higher pressures. STEP has a high-performance, safety-focused culture and its experienced technical office and field professionals are committed to providing innovative, reliable and cost-effective solutions to its E&P clients.

Founded in 2011 as a specialized deep capacity coiled tubing company, STEP has grown into a North American service provider delivering completion and stimulation services to exploration and production companies in Canada and the U.S. Our Canadian services are focused in the Western Canadian Sedimentary Basin, while in the U.S., our fracturing and coiled tubing services are focused in the Permian and Eagle Ford basins in Texas, the Uinta-Piceance and Niobrara-DJ basins in Colorado and the Bakken basin in North Dakota.

Our four core values; Safety, Trust, Execution and Possibilities inspire our team of professionals to provide differentiated levels of service, with a goal of flawless execution and an unwavering focus on safety.

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