Mr. Steve Glanville reports

STEP ENERGY SERVICES LTD. REPORTS FIRST QUARTER 2023 RESULTS

Step Energy Services Ltd. has released its financial and operating results for the three months ended March 31, 2023. The following press release should be read in conjunction with the management's discussion and analysis and unaudited condensed consolidated interim financial statements and notes thereto as at March 31, 2023. Additional information about Step Energy is available on the SEDAR website, including the company's annual information form for the year ended Dec. 31, 2022, dated March 1, 2023.

First quarter 2023 highlights:

• Consolidated revenue for the three months ended March 31, 2023, of $263.4-million, increased 20 per cent from $219.5-million as at three months ended March 31, 2022, and increased 5 per cent from $251.4-million as at three months ended Dec. 31, 2022.
• The company generated net income for the three months ended March 31, 2023, of $19.7-million, or 26 cents per diluted share, compared with $9.2-million, or 13 cents per diluted share in the same period of 2022 and $16.7-million or 23 cents per diluted share for the three months ended Dec. 31, 2022. Included in income for the three months ended March 31, 2023, was a share-based compensation recovery of $5.1-million, compared with an expense of $4.4-million during the three months ended Dec. 31, 2022.
• For the three months ended March 31, 2023, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $45.4-million or 17 per cent of revenue compared with $36.9-million or 17 per cent of revenue in Q1 2022 and $48.6-million or 19 per cent in Q4 2022.
• Free cash flow for the three months ended March 31, 2023, was $17.1-million compared with $16.2-million in Q1 2022 and $22.4-million in fourth quarter 2022.
• Step Energy made significant progress on debt reduction while also investing into the long-term sustainability of the business:
  • The company had net debt of $133.0-million at March 31, 2023, compared with $142.2-million at Dec. 31, 2022.
  • The company invested $26.6-million into its capital equipment, including $6.3-million into the company's first Tier 4 dual fuel fleet conversion that was started in Q4 2022. The company had eight Tier 4 dual fuel units in the field at the end of Q1, providing diesel substitution rates of up to 85 per cent.

Market outlook

The announcement by the OPEC+ group of oil-producing nations in early April to voluntarily reduce production provided support to commodity markets that were rattled by concerns over the stability of the global banking system and global recession fears. West Texas Intermediate oil prices have stabilized above $70 per barrel to start the second quarter, providing greater certainty for oil and liquids producers. Natural gas prices are anticipated to remain soft through the shoulder season, but the futures prices show a steady strengthening through the latter half of 2023. The long-term outlook for oil field services is very constructive. The structural underinvestment in hydrocarbon production capacity through the last seven years has been exacerbated by geopolitical tensions, forcing governments and policy-makers to confront the realty that oil and gas will be a key part of the energy mix for many years. Step Energy is proud to work in Canada and the United States, countries that have the natural resources, the regulatory frameworks and the technical expertise to deliver safe and affordable energy to the world.

Canada

Canadian activity levels have been strong to date in second quarter 2023, as warm, dry weather conditions in April allowed for the spillover work from Q1 to be completed. These conditions have also led to extreme wildfire risk in Step Energy's operating areas, which may have some impact on client work programs. Step Energy has an emergency response plan in place to protect company personnel and property, and does not anticipate any harm to its operations.

Spring breakup is having less of an impact than it traditionally has in Canada as clients recognize the value of working in the second quarter. As activity and service intensity in the WCSB (Western Canadian sedimentary basin) continue to increase, the second quarter is increasingly seen by clients and service providers as an opportunity to load level capital spending and activity. The intense pace of the first quarter, often accompanied by extreme weather conditions, typically moderates in the second quarter, reducing operating costs and the strain on the service infrastructure.

Pricing is anticipated to remain stable through the second quarter and the rest of the year. Inflationary pressures have largely eased, although lingering supply chain constraints can still produce unusual delays, particularly for equipment maintenance related items.

The company's first Tier 4 dual fuel fleet modernization is expected to be completed by the close of the second quarter. The performance of the Tier 4 equipped units already in the field has been exemplary, with diesel substitution rates consistently above 80 per cent, relative to a Tier 2 diesel engine. These high substitution rates bring immediate cost and emission reduction benefits to Step Energy's clients, as well as providing higher profitability to Step Energy.

The second half of the year is anticipated to remain highly utilized for fracturing and coiled tubing, with much of the calendar already booked with client commitments. The low natural gas prices have led to some primarily dry-gas-focused work being delayed into the later part of the year, although the impact has been relatively modest to date. Many gas producers have a high liquids content, which is more closely aligned with WTI (West Texas Intermediate) pricing, insulating them from the most severe impacts of the low natural gas prices.

United States

Step Energy's fracturing activity levels in the United States have returned to typical levels in the second quarter, recovering from the client delays that dominated the first quarter. The downtime in Q1 allowed for more robust preventative maintenance and some optimization to be completed on the idle fleets, which has been rewarded with very high pumping efficiencies across Step Energy's three fracturing fleets in the second quarter. Coiled tubing activity continues to remain strong into the second quarter, with demand outpacing supply in some regions.

Following a volatile period in Q1 where fracturing pricing temporarily came under pressure from undisciplined competitors, pricing in the second quarter has recovered and is expected to hold into the back half of the year. Pricing for coiled tubing services has been stable and is expected to stay in line for the balance of the year.

Second half visibility in the U.S. region continues to improve. The rig count in the Permian, home of Step Energy's three fracturing crews, has steadily increased following the OPEC+ announcement, reflecting increased confidence by exploration and production companies that oil prices are expected to stay stable in the near term. Step Energy's three fracturing crews are well placed in this market and are expected to see steady utilization through the balance of the year. Weak natural gas prices may limit opportunity for growth in the U.S. fracturing market, deferring Step Energy's plan to field a fourth fleet until market conditions improve. Demand for Step Energy's industry-leading coiled tubing services is expected to remain strong.

About Step Energy Services Ltd.

Step Energy is an energy service company that provides coiled tubing, fluid and nitrogen pumping, and hydraulic fracturing solutions. Its combination of modern equipment, along with its commitment to safety and quality execution, has differentiated Step Energy in plays where wells are deeper, have longer laterals and higher pressures. Step Energy 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 clients.

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

Its four core values -- safety, trust, execution and possibilities -- inspire its team of professionals to provide differentiated levels of service, with a goal of flawless execution and an unwavering focus on safety.

Step Energy will host a conference call on Thursday, May 11, 2023, at 9 a.m. MT, to discuss the results for the first quarter of 2023.

You can visit the investors section of its website and click on reports, presentations and key dates.

To participate in the question-and-answer session, please call the conference call operator at: 1-888-886-7786 (toll-free) 15 minutes prior to the call's start time and ask for the Step Energy first quarter and 2023 earnings results conference call.

The conference call will be archived on Step Energy's website.

We seek Safe Harbor.