STEP Energy Services Ltd. (“STEP” or the “Company”) is announcing its 2025 capital budget and is providing an operational and financial update.
2025 Capital Budget
STEP is pleased to announce its full-year 2025 capital budget will be $78.9 million. The budget includes $46.7 million of optimization capital and $32.2 million of sustaining capital. The optimization capital will facilitate the deepening of the Company’s natural gas strategy, including the trialing of the first fully natural gas-powered hydraulic fracturing pump in Canada and electrification of certain assets; expansion of the Company’s sand logistics capabilities; and refurbishments on assets approaching end of life. The 2025 capital budget is a decrease from the $91.2 million capital budget for 2024.
Operational Update and Outlook
Fracturing activity across major North American oil and gas regions that STEP operates in slowed during the fourth quarter of 2024 as high natural gas storage levels and an uncertain commodity price environment pushed operators to prioritize capital discipline over adding capital to their 2024 budgets.
STEP’s Canadian operations will see much softer fourth quarter utilization on a sequential and year-over-year basis, with activity shifting to lower intensity operations that generate lower returns. STEP’s U.S. fracturing operations continue to be challenged by the weak operating conditions, with only one fracturing crew active early in the quarter. This crew is expected to restart operations early in 2025. STEP’s U.S. coiled tubing operations saw a sequential and year-over-year decline in the quarter.
Activity expectations for the first quarter of 2025 are robust for Canadian fracturing and coiled tubing in both Canada and the U.S., while U.S. fracturing has scheduled work for one crew that will provide steady utilization for much of the quarter. The Company managed expenses carefully in the fourth quarter while also using the downtime in the quarter to prepare the equipment for a resumption of high intensity operations in Q1. Canadian and U.S. fracturing and coiled tubing crews are expected to begin mobilizing in late December in anticipation of operations beginning in the early days of January.
Financial Update
Net debt (see Non-IFRS Measures below) at the close of Q4 2024 is expected to meet STEP’s year-end corporate target of approximately $60 - $65 million, continuing the deleveraging trend that has seen debt come down from $310 million in 2018. The significant progress made in deleveraging through this period enabled STEP to act on its Normal Course Issuer Bid in 2024, returning a further $8 million in value to shareholders.
Intensifying competition that started in the second half of 2024 will result in further margin degradation in the fourth quarter in both Canada and the U.S. Corporate costs are also expected to be higher in the fourth quarter due to one-time expenses associated with the take private transaction announced on November 4, 2024. The softening utilization will result in Adjusted EBITDA (see Non-IFRS Measures below) before transaction expenses around breakeven levels for the fourth quarter. Despite the weaker fourth quarter performance, STEP’s Canadian geographic region is expected to post its best ever annual revenue and Adjusted EBITDA performance. President and CEO Steve Glanville commented “We’re clearly disappointed with how the year finished, but I’m incredibly proud of what our Canadian operations accomplished this year, with both our coiled tubing and fracturing service lines expected to deliver record financial and operational results. Our U.S. operations have been impacted by the extremely challenging market conditions this year. Despite this, our coiled tubing division has remained resilient, introducing new technology and increasing market share. I thank all our professionals for their hard work in 2024 and wish all of you a Merry Christmas and Happy New Year.”
TRANSACTION UPDATE
Due to the Canada Post service disruption, shareholders in Canada may not have received physical meeting materials with respect to the special meeting of shareholders (the “Meeting”) scheduled for December 19, 2024, to approve the previously announced plan of arrangement (the “Arrangement”). Whether or not you have received the physical mailing, you can still vote your STEP shares. Materials related to the Meeting have been posted on the Company’s website at https://www.stepenergyservices.com/special-meeting and on STEP’s SEDAR+ profile at http://sedarplus.ca.
Many STEP shareholders can submit their vote quickly and easily over the phone with STEP’s proxy solicitation agent, Laurel Hill Advisory Group (“Laurel Hill”), and Laurel Hill can otherwise provide voting assistance and answer shareholder questions about the Arrangement. STEP will deliver, by email, a copy of the management information circular (the “Circular”) and related documents for the Meeting to reach registered and non-registered shareholder entitled to vote who requests such materials. STEP shareholders can reach Laurel Hill by telephone at 1-877-452-7184 (North American Toll Free) or 1-416-304-0211 (Outside North America), or by email at assistance@laurelhill.com.
The Circular provides important information on the Arrangement and related matters, including voting procedures, dissent procedures and instructions for shareholders unable to attend the Meeting. Shareholders are urged to read the Circular and its schedules carefully and in their entirety.
VOTING IS OPEN NOW; YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN
As previously announced, on November 14, 2024, STEP was granted an interim order by the Court of King’s Bench of Alberta (the “Court”), and such interim order authorizes STEP to proceed with various matters, including the holding of the Meeting to consider the vote on the Arrangement resolution. A copy of the interim order is included in the Circular. Such interim order was amended by the Court on November 29, 2024 (to facilitate the delivery of the Circular and related materials for the Meeting to non-registered Shareholders via email where requested).
