STEP STEP Energy Services Ltd

STEP Energy Services Ltd. (the “Company” or “STEP”) is pleased to announce its financial and operating results for the three and six months ended June 30, 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 June 30, 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 and per share amounts)	Three months ended											Six months ended
			June 30,			June 30,				March 31,		June 30,
		2022				2021				2022			2022			2021
Consolidated revenue	$	273,000			$	107,546			$	219,539		$	492,539		$	244,358
Net income (loss)	$	38,064			$	(10,582		)	$	9,173		$	47,237		$	(18,526	)
Per share-basic	$	0.557			$	(0.156		)	$	0.135		$	0.692		$	(0.272	)
Per share-diluted	$	0.535			$	(0.156		)	$	0.132		$	0.672		$	(0.272	)
Weighted average shares – basic		68,322,384				68,051,699				68,189,275			68,263,897			67,886,996
Weighted average shares – diluted		71,086,105				68,051,699				69,737,461			70,271,613			67,886,996
Adjusted EBITDA (1)	$	55,251			$	11,676			$	36,990		$	92,241		$	27,636
Adjusted EBITDA % (1)		20		%		11		%		17	%		19	%		11	%
Free Cash Flow (1)		33,167				962				16,172			49,339			8,131
Fracturing services
Fracturing operating days (2)		508				320				615			1,123			734
Proppant pumped (tonnes)		697,000				466,000				601,000			1,298,000			985,000
Active horsepower (“HP”), ending (3)		380,000				310,000				380,000			380,000			310,000
Total HP, ending		490,000				490,000				490,000			490,000			490,000
Coiled tubing services
Coiled tubing operating days (2)		913				726				1,075			1,988			1,502
Active coiled tubing units, ending		16				15				16			16			15
Total coiled tubing units, ending		29				29				29			29			29

(1) Adjusted EBITDA and Free Cash Flow are non-IFRS financial measures 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)		June 30,				December 31,
					2022			2021
Cash and cash equivalents			$		2,178	$		3,698
Working capital (including cash and cash equivalents) (1)			$		54,386	$		3,912
Total assets			$		615,952	$		483,848
Total long-term financial liabilities (1)			$		192,559	$		175,689
Net debt (1)			$		194,207	$		186,885
Shares outstanding				68,768,853			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
	June 30,		March 31,		December 31,		September 30,		June 30,
		2022		2022		2021		2021		2021
AECO-C Spot Average Price (CAD/MMBtu)	$	7.27	$	4.78	$	4.75	$	3.57	$	3.10
WTI – Average Price (USD/bbl)	$	108.61	$	94.77	$	77.31	$	70.61	$	66.19
WCS – Average Price (USD/bbl)	$	92.93	$	81.80	$	60.84	$	57.64	$	53.29
Condensate – Average Price (USD/bbl)	$	104.00	$	97.19	$	79.53	$	70.85	$	64.87
Average Exchange Rate (USD/CAD)	$	0.78	$	0.79	$	0.79	$	0.79	$	0.81
Canadian Average Drilling Rig Count (4)		115		193		159		150		71
U.S. Average Drilling Rig Count (4)		704		636		545		484		437

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

FINANCIAL HIGHLIGHTS

• Revenue of $273.0 million in the second quarter of 2022 was the strongest quarter in Company history and was significantly better than the $107.5 million generated in Q2 2021 and $219.5 million generated in Q1 2022.
• Q2 2022 generated net income of $38.1 million, benefitting from $32.7 million in reversal of impairment loss. STEP had a net loss of $10.6 million in Q2 2021 and net income of $9.2 million in Q1 2022.
• Q2 2022 Adjusted EBITDA of $55.3 million, was an increase of 373% over the $11.7 million generated in Q2 2021 and a sequential increase of 49% over the $37.0 million generated in Q1 2022. Q2 2021 benefited from $1.9 million of Canadian Emergency Wage Subsidy (“CEWS”) (Q1 2022 - $nil, Q2 2022 - $nil).
• Q2 2022 Free Cash Flow of $33.2 million, was a sequential increase of 105% over the $16.2 million generated in Q1 2022. Free Cash Flow of $49.3 million for the six months ended June 30, 2022 was $41.2 million increase over the $8.1 million generated for the six months ended June 30, 2021.
• STEP’s operations in Canada and the U.S. continued to benefit from improving market conditions, with net pricing gains and robust utilization driving stronger financial results in Q2 2022 relative to Q1 2022.
• As a result of the significant increase in operating activity in Q2 2022, Working Capital increased to $54.4 million at the end of Q2 from $3.9 million in Q4 2021 and Net debt increased to $194.2 million from $186.9 million in Q4 2021.
• Subsequent to June 30, 2022, STEP entered into an agreement to amend and extend its credit agreement for a three-year term with a maturity date of July 12, 2025.

SECOND QUARTER 2022 OVERVIEW The second quarter of 2022 was a record for STEP, delivering the best financial results in the Company’s history. Both the Canadian and U.S. geographic regions experienced strong demand for services, generating $273.0 million of revenue and $38.1 million of net income, a significant improvement on a sequential and year over year basis. The Company also generated $55.3 million in adjusted EBITDA and $33.2 million in Free Cash Flow in the quarter, also higher on a sequential and year over year basis.

Second quarter activity levels experienced the typical bifurcation between Canada and the northern U.S. regions that are affected by seasonal spring break up (“break up”) conditions and the southern U.S. region which is not affected by break up. According to the Baker Hughes rig count, the Canadian land rig count averaged 115 in Q2 2022, down 40% sequentially due to break up but up 62% on a year over year basis. The U.S. land rig count averaged 704 rigs in Q2 2022, up 11% sequentially and 61% on a year over year basis. In line with the lower rig count utilization, Canada and the northern U.S. experienced periods of low utilization from mid April to mid May, with some areas experiencing more pronounced break up conditions.

Strategic positioning with clients that had large multi-well pads provided STEP’s Canadian and U.S. fracturing service lines with highly efficient operations through the second quarter, with Canadian results bolstered by several clients moving work from the third quarter into the second quarter to capitalize on high commodity prices. The Company pumped 697 thousand tonnes of sand, across 279 operating days in Canada and 229 operating days in the US. Utilization was up year over year in both regions, although Canada was down sequentially due to break up. The coiled tubing division was more affected by break up conditions in Canada and the northern U.S. region, and had sequentially lower utilization, declining 17% from Q1. Coiled tubing had 371 operating days in Canada and 542 operating days in the U.S.

Pricing remained largely steady relative to the first quarter of 2022 in Canada and continued to improve on a pad-by-pad basis in the U.S., with additional margin earned in the U.S. from the supply of proppant and chemicals for a higher proportion of our clients. Inflation continued to advance through the second quarter of 2022, with the effect most pronounced on proppant. STEP was successful in passing these cost escalations through to its clients during the second quarter of 2022.

Net income of $38.1 million was affected by several notable items in the second quarter of 2022. In response to the strong year to date financial performance and the more constructive outlook, the Company reversed approximately $32.7 million of the general impairment of the Canadian cash generating units (CGU) taken in the first quarter of 2020. STEP’s total share-based compensation expense was $9.5 million, of which $8.9 million was for cash settled share-based compensation, reflecting the nearly 67% increase in the Company’s share price in the second quarter. The Company also accelerated depreciation expense in the second quarter of 2022 on certain assets as a result of changes in technology and operating conditions.

The strong financial results generated basic and diluted net income per share of $0.557 and $0.535, respectively, in the second quarter of 2022 compared to a net income per share, basic and diluted, of $0.135 and $0.132, respectively in the prior quarter and a net loss per share, basic and diluted, of $0.156 in the prior same period of the prior year.

The Company continued to focus on strengthening the balance sheet through the second quarter of 2022. Working Capital increased to $54.4 million from $52.8 million recorded at March 31, 2022. Net Debt was reduced to $194.2 million at June 30, 2022 from $214.3 million at March 31, 2022, impacted slightly by slower collection of trade receivables at the end of the second quarter of 2022. The Company had a Funded Debt to Adjusted Bank EBITDA of 1.54:1, under the limit of 3.00:1, and remained in compliance with all other financial and nonfinancial covenants, as at June 30, 2022.

Subsequent to the end of the second quarter 2022, STEP amended and extended its credit agreement. The amended and restated agreement provides STEP with more flexibility in managing its capital structure by converting the term loan facility into a revolving credit facility and provides longer-term stability through an extension to July 2025.

OUTLOOKSTEP anticipates that the current strength in oil and natural gas prices will continue through the balance of the year and into 2023. The risk of near-term volatility in the financial markets will continue to exist while concerns over recession persist, but the fundamentals of the physical oil market continue to remain strong, with industry reports showing that oil supply is expected to remain constrained through 2023. The dislocation between the financial markets and the physical market is supported by STEP’s clients, who have not messaged any pullback in their activity as a result of near-term price volatility. Natural gas prices are expected to remain robust into 2023, buoyed by a geopolitical risk premium and storage levels that are at the low end of the five-year averages.

The Company has a constructive view on the second half of the year, with utilization expected to stay steady. The third quarter of 2022 has had a softer start, allowing for maintenance work to be completed on equipment that was worked intensively through the second quarter of 2022, but activity is increasing as the quarter progresses. The Company anticipates that fracturing activity in the third quarter will see a higher proportion of annular fracturing and single well work relative to the second quarter of 2022. This shift in job mix is anticipated to keep utilization high, although at margins that are modestly lower than those driven by the large multi well pads that STEP completed in the second quarter of 2022, due to reduced efficiencies. There is improving visibility into the fourth quarter of 2022, and the Company expects that clients will remain active through the fourth quarter, and early client discussions are trending favourably towards adding to 2022 budgets to complete additional wells before year end as concerns continue to mount around equipment availability in 2023.

The first half of 2022 saw pricing respond to the inflationary pressures and tightness in supply. The Company expects the rate of change to be lower in the second half of 2022, particularly in Canada as competitors signal that more capacity is coming to the market. However, STEP believes the Canadian pumping market is close to balance and does not anticipate bringing additional equipment to the market in 2022 until full cycle returns are achievable. Pricing in the U.S. is anticipated to increase through the balance of the year as the major market participants all signal that their fleets are sold out for the remainder of the year.

The outlook for 2023 is looking increasingly constructive. Rig count forecasts for 2023 are expected to increase over 2022 levels and the call on pressure pumping is anticipated to rise with it. The industry may need to bring some capacity to market in 2023 to meet demand, particularly in Canada if the treaty negotiations with the Blueberry River First Nation are resolved in a manner that reopens their territory to continued development. STEP believes that supply will remain tight as much of the idled capacity in the industry will likely require significant investment to move from parked to active status. Reactivations may be further complicated by the ongoing supply chain and labour constraints that are expected to persist into 2023. The Company believes publicly traded service providers are also mindful of the fundamentals of profitability and free cash flow, following the lead of the E&P companies that are focused on deleveraging their balance sheets and delivering returns to shareholders.

STEP’s focus for the balance of 2022 and into 2023 is on generation of Free Cash Flow. The strong results posted in the second quarter of 2022 accelerate the Company’s goals to reduce its balance sheet leverage and making disciplined investments that support STEP’s goal of building a resilient company and creating shareholder value.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									Six months ended
	June 30,			June 30,			March 31,			June 30,
		2022			2021			2022			2022			2021
Revenue:
Fracturing	$	140,513		$	55,321		$	119,014		$	259,527		$	143,150
Coiled tubing		24,596			17,844			27,798			52,394			39,377
		165,109			73,165			146,812			311,921			182,527
Expenses:
Operating expenses		133,684			65,943			121,365			255,049			162,071
Selling, general and administrative		3,950			1,778			3,324			7,274			3,543
Results from operating activities	$	27,475		$	5,444		$	22,123		$	49,598		$	16,913
Add non-cash items:
Depreciation		11,124			9,792			9,126			20,250			19,031
Share-based compensation – Cash settled		838			267			544			1,382			629
Share-based compensation – Equity settled		273			130			75			348			589
Adjusted EBITDA (1)	$	39,710		$	15,633		$	31,867		$	71,578		$	37,162
Adjusted EBITDA % (1)		24	%		21	%		22	%		23	%		20		%
Sales mix (% of segment revenue)
Fracturing		85	%		76	%		81	%		83	%		78		%
Coiled tubing		15	%		24	%		19	%		17	%		22		%
Fracturing services
Fracturing revenue per operating day(1)	$	503,631		$	317,937		$	301,301		$	385,055		$	315,308
Number of fracturing operating days (2)		279			174			395			674			454
Proppant pumped (tonnes)		358,000			275,000			323,000			681,000			602,000
Stages completed		3,114			1,942			4,761			7,875			5,155
Proppant pumped per stage		115			142			68			86			117
Horsepower (“HP”)
Active pumping HP, end of period		215,000			200,000			215,000			215,000			200,000
Total pumping HP, end of period (3)		282,500			282,500			282,500			282,500			282,500
Coiled tubing services
Coiled tubing revenue per operating day(1)	$	66,296		$	58,697		$	49,551		$	56,217		$	51,473
Number of coiled tubing operating days (2)		371			304			561			932			765
Active coiled tubing units, end of period		8			7			8			8			7
Total coiled tubing units, end of period		16			16			16			16			16

(1) Adjusted EBITDA and Free Cash Flow are non-IFRS financial measures 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.

SECOND QUARTER 2022 COMPARED TO SECOND QUARTER 2021Revenue for the three months ended June 30, 2022 was $165.1 million compared to $73.2 million for the second quarter of 2021. Revenue improved due to a rise in utilization for both service lines as a result of an industry wide increase in activity. Fracturing operating days increased to 279 in second quarter of 2022 from 174 during second quarter of 2021, partially from the prior quarter’s addition of a small low pressure spread, but primarily as result of additional pad work during the quarter. The focus on pad work during the quarter resulted in improved efficiencies and increased proppant pumped, ultimately driving an increase in revenue per day relative to the second quarter of 2021. Coiled tubing operating days increased to 371 in second quarter of 2022 from 304 during second quarter of 2021, while revenue per day had a slight increase of 13%.

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 from the reinstatement of various benefits and allowances that were eliminated during 2020 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 selling, general and administrative expenses (SG&A) structure has been scaled up to support increased field operations compared to the second quarter of 2021, however, the Company anticipates that it will continue to maintain a lean cost structure while adequately supporting the growth of the business.

Adjusted EBITDA for the second quarter of 2022 was $39.7 million (24% of revenue) versus $15.6 million (21% of revenue) in the second 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. Q2 2021 benefited from $1.8 million received from the CEWS program.

FracturingCanadian fracturing revenue of $140.5 million for the three months ended June 30, 2022 increased by 154% from $55.3 million for the three months ended June 30, 2021. STEP operated five fracturing spreads with 215,000 HP during the second quarter of 2022, compared to four spreads and 200,000 HP operated during the second quarter of 2021. Fracturing operating days increased to 279 in the second quarter of 2022 from 174 during the second quarter of 2021, as strong industry fundamentals supported an increase in pad work during a quarter that is traditionally slower due to break up conditions. Revenue per day increased compared to the same period in 2021 as increased pad work generated higher efficiencies and the improved market environment enabled higher pricing.

Coiled TubingCanadian coiled tubing revenue of $24.6 million for the three months ended June 30, 2022 increased 38% from $17.8 million for the three months ended June 30, 2021. The service line operated eight coiled tubing units for 371 operating days during the second quarter of 2022 compared to seven units and 304 operating days in the comparable period of 2021. The increase in utilization followed improvement in drilling and completions activity and additional demand for ancillary services helped drive improved pricing during the quarter.

SECOND QUARTER 2022 COMPARED TO FIRST QUARTER 2022Revenue for the three months ended June 30, 2022 of $165.1 million increased 13% from $146.8 million from the quarter ended March 31, 2022 due to an overall increase in operating efficiency coupled with pricing improvement. Strong commodity price fundamentals drove continued demand for the Company’s services during a quarter that is traditionally slower due to break up conditions that limit the Company’s ability to move equipment.

Canadian operations had Adjusted EBITDA of $39.7 million (24% of revenue) in the second quarter of 2022 compared to $31.9 million (22% of revenue) in the first quarter of 2022. Inflationary pressures continued to impact the industry in Q2 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 second quarter of 2022, the same complement of active equipment as the first quarter of 2022. The strong industry fundamentals enabled STEP to enjoy high utilization on the larger crews that work in the gas focused areas of the basin during a period that is traditionally slower. Total operating days fell 29% on a quarter over quarter basis, however, revenue increased to $140.5 million, up 18% sequentially. STEP pumped 358 thousand tonnes of proppant in Q2 2022, up from 323 thousand tonnes in Q1 2022.

The pricing increases from the first quarter of 2022 took hold in the second quarter of 2022, and when combined with an increase in proppant pumped and improved efficiencies from operating on pad work, generated higher daily revenue.

Coiled TubingCoiled tubing operations operated eight coiled tubing units, generating $24.6 million in revenue over 371 operating days in the second quarter of 2022, compared to $27.8 million over 561 operating days in the first quarter of 2022. Pricing improved sequentially from Q1 2022, and revenue per day was higher on a sequential basis due to a change in job mix and additional demand for ancillary services.

SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO SIX MONTHS ENDED JUNE 30, 2021

Revenue for the six months ended June 30, 2022 was $311.9 million compared to $182.5 million for the six months ended June 30, 2021. Revenue improved due to a rise in utilization and pricing for both service lines as a result of an industry wide increase in activity. Fracturing operating days increased to 674 for the first six months of 2022 from 454 during the same period of 2021, enabling the addition of a small low pressure fracturing spread in the first half of 2022, bringing the Canadian fracturing spread count to five. The Company’s rates for fracturing services increased by 22% as a result of a more constructive pricing environment and inflationary pressures. Coiled tubing operating days increased to 932 for the first six months of 2022 from 765 during the comparable period of 2021, increasing the active unit count to eight from seven in 2021. Strong industry fundamentals enabled STEP to maintain activity levels on both product lines throughout the first six months of 2022 with minimal decline in utilization during break up.

The Company’s 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 reinstatement of various benefits and allowances that were eliminated during 2020 to reduce costs. Inflationary pressures were a factor during the first six months of 2022 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 second quarter of 2021, however, the Company anticipates that it will continue to maintain a lean cost structure while adequately supporting the growth of the business.

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 direct injection 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									Six months ended
	June 30,			June 30,			March 31,			June 30,
		2022			2021			2022			2022			2021
Revenue:
Fracturing	$	81,574		$	19,036		$	49,667		$	131,241		$	35,461
Coiled tubing		26,317			15,345			23,060			49,377			26,370
		107,891			34,381			72,727			180,618			61,831
Expenses:
Operating expenses		100,310			40,218			68,127			168,437			78,246
Selling, general and administrative		3,413			1,546			2,904			6,317			2,953
Results from operating activities	$	4,168		$	(7,383	)	$	1,696		$	5,864		$	(19,368		)
Add non-cash items:
Depreciation		15,406			8,133			7,694			23,100			16,825
Share-based compensation – Cash settled		750			272			430			1,180			549
Share-based compensation – Equity settled		-			-			-			-			-
Adjusted EBITDA (1)	$	20,324		$	1,022		$	9,820		$	30,144		$	(1,994		)
Adjusted EBITDA % (1)		19	%		3	%		14	%		17	%		(3		%)
Sales mix (% of segment revenue)
Fracturing		76	%		55	%		68	%		73	%		57		%
Coiled tubing		24	%		45	%		32	%		27	%		43		%
Fracturing services
Fracturing revenue per operating day(1)	$	356,218		$	130,384		$	225,759		$	292,296		$	126,646
Number of fracturing operating days (2)		229			146			220			449			280
Proppant pumped (tonnes)		339,000			191,000			278,000			617,000			383,000
Stages completed		1,435			816			1,122			2,557			1,725
Proppant pumped per stage		236			234			248			241			220
Horsepower (“HP”)
Active pumping HP, end of period		165,000			110,000			165,000			165,000			110,000
Total pumping HP, end of period (3)		207,500			207,500			207,500			207,500			207,500
Coiled tubing services
Coiled tubing revenue per operating day(1)	$	48,649		$	36,363		$	44,864		$	46,807		$	35,780
Number of coiled tubing operating days (2)		542			422			514			1,056			737
Active coiled tubing units, end of period		8			8			8			8			8
Total coiled tubing units, end of period		13			13			13			13			13

(1) Adjusted EBITDA and Free Cash Flow are non-IFRS financial measures 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.

SECOND QUARTER 2022 COMPARED TO SECOND QUARTER 2021 Revenue for the three months ended June 30, 2022 was $107.9 million compared to $34.4 million for the second quarter of 2021. U.S. operations realized improved pricing due to the strong industry fundamentals and an increase in utilization for both service lines as a result of the industry wide increase in activity. Operating days across the fracturing operations increased to 229 in the second quarter of 2022 from 146 days during the second 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 173% due to increased proppant supplied by STEP combined with improved pricing. Coiled tubing operating days increased to 542 in second quarter of 2022 from 422 during second quarter of 2021 while revenue per day increased by 34%.

U.S. operations continued the trend of improved performance and Adjusted EBITDA. Adjusted EBITDA was $20.3 million for the three months ended June 30, 2022, compared to an Adjusted EBITDA of $1.0 million for the three months ended June 30, 2021. The 19% Adjusted EBITDA margin was better than the comparable period in 2021 in part due to service providers in the U.S. continuing to maintain discipline in redeploying units that is enabling improved rates, resulting in meaningful margin improvements. Despite this discipline, rising inflation is leading to higher costs across all expense categories, preventing the full realization of the pricing improvements.

FracturingSTEP operated three fracturing spreads with 165,000 HP during the second quarter of 2022, compared to two spreads and 110,000 HP operated during the second quarter of 2021. Operating days increased to 229 in the second quarter of 2022 from 146 days during the second quarter of 2021 as the improved market fundamentals supported operating an additional fracturing spread in the current period.

U.S. fracturing revenue of $81.6 million increased 329% from the same period in 2021 while revenue per day for the second quarter of 2022 increased by 173% over the same period in 2021. A shift in the Company’s client mix, resulting in increased proppant revenue, was a significant factor in the higher revenue per day in the second quarter of 2022 compared to the second quarter of 2021. However, the Company’s U.S. fracturing operations was also able to realize an increase in base operating rate over this same period.

Coiled TubingU.S. coiled tubing continued to build momentum during the second quarter of 2022 with revenue of $26.3 million, increasing from $15.3 million in the second quarter of 2021. STEP staffed eight coiled tubing units, which operated 542 days during the second quarter of 2022 compared to eight units and 422 days in the second quarter of 2021. The increased utilization was combined with increased revenue per day of $49 thousand, compared to $36 thousand in the same quarter of 2021; with 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.

SECOND QUARTER 2022 COMPARED TO FIRST QUARTER 2022Revenue for the second quarter of 2022 increased $35.2 million to $107.9 million from $72.7 million in the first quarter of 2022 driven primarily from additional proppant revenue and price increases in fracturing operations. The U.S. market continued to tighten considerably from Q1 2022 to Q2 2022, leading to stronger pricing and continuing the shift in the supply narrative between service providers and E&P companies.

Adjusted EBITDA was $20.3 million (19% of revenue) for the second quarter of 2022 compared to $9.8 million (13% of revenue) for the first quarter of 2022 and 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.

FracturingImproved demand and higher rates drove a shift in client and job mix that resulted in revenue of $81.6 million for U.S. fracturing services in Q2 2022 compared to $49.7 million in Q1 2022. While activity remained relatively flat at 229 operating days in the second quarter of 2022 compared to 220 in the first quarter of 2022, revenue per day increased to $356 thousand from $226 thousand due in part to an increase in proppant and chemicals supplied by STEP along with pricing improvements. A portion of the pricing improvement in Q2 2022 was in response to inflation which limited margin growth.

Coiled TubingCoiled tubing operations continued to operate eight coiled tubing units in the U.S., with 542 operating days, generating $26.3 million in revenue in the second quarter of 2022 compared to $23.1 million over 514 operating days in the first quarter of 2022; realizing modest improvements in both utilization and pricing. While inflationary pressures continue to impact margin growth in these operations, recent pricing momentum has started to generate meaningful margins improvement. The pricing power for these services inflect in a similar manner that was previously seen when fracturing services pricing improved, as demand for coiled tubing services combined with a limited labour pool has allowed for pricing improvement beyond inflationary adjustments.

SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO SIX MONTHS ENDED JUNE 30, 2021

Revenue for the six months ended June 30, 2022 was $180.7 million compared to $61.8 million for the same period in 2021. U.S. operations realized an 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 449 in the first six month of 2022 from 280 days during the same period 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 131% primarily due to increased proppant supplied by STEP combined with improved pricing. Coiled tubing operating days increased to 1,056 in the first six month of 2022 from 737 during the same period of 2021 while revenue per day increased by 31%. U.S. operations continued the trend of improved performance and Adjusted EBITDA. Adjusted EBITDA was $30.1 million for the six months ended June 30, 2022, compared to an Adjusted EBITDA loss of $2.0 million for the six months ended June 30, 2021.

The Company’s operating expenses scaled upwards with increased activity levels and inflationary pressures were a factor during the first six months of 2022 with supply chain disruptions, commodity price appreciation, and increased industry activity resulting in costs escalating across all expense categories. Personnel related costs increased following adjustments to base and incentive pay to remain competitive in the current market and the reinstatement of benefits that were eliminated during 2020 to reduce costs.

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									Six months ended
		June 30,			June 30,			March 31,		June 30,
		2022			2021			2022			2022			2021
Expenses:
Operating expenses	$	795		$	278		$	571		$	1,366		$	491
General and administrative		11,828			6,771			8,722			20,550			11,974
Results from operating activities	$	(12,623	)	$	(7,049	)	$	(9,293	)	$	(21,916	)	$	(12,465		)
Add non-cash items:
Depreciation		148			155			138			286			327
Share-based compensation – Cash settled		7,292			1,734			4,192			11,484			3,297
Share-based compensation – Equity settled		400			181			265			665			1,309
Adjusted EBITDA (1)	$	(4,783	)	$	(4,979	)	$	(4,698	)	$	(9,481	)	$	(7,532		)
Adjusted EBITDA % (1,2)		(2	%)		(5	%)		(2	%)		(2	%)		(3		%)

(1) Adjusted EBITDA and Free Cash Flow are non-IFRS financial measures 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.

SECOND QUARTER 2022 COMPARED TO SECOND QUARTER 2021For the three months ended June 30, 2022 expenses from corporate activities were $12.6 million compared to $7.0 million for the same period in 2021. Cash settled share-based compensation was higher in the second quarter of 2022 as the share price increased 67% or $1.88, from March 31, 2022 to June 30, 2022 compared to a share price increase of $0.51 during the same period of the prior year, resulting in higher expenses from the mark to market adjustment in the current period. Additionally, payroll costs rose as the Company increased total rewards to retain and attract talented professionals in an increasingly competitive labour market. STEP recognized $0.1 million in CEWS benefits in Q2 2021, which reduced total expenses.

SECOND QUARTER 2022 COMPARED TO FIRST QUARTER 2022Expenses from corporate activities were $12.6 million for the second quarter of 2022 compared to $9.3 million for the first quarter of 2022, an increase of $3.3 million. The mark to market adjustments on cash settled share-based compensation were a significant factor in the second quarter of 2022, similar to the first quarter of 2022. Cash settled share-based compensation increased to $7.3 million in the second quarter of 2022 compared to $4.2 million in the first quarter of 2022 as the share price increased 67%, or $1.88, during the second quarter compared to a share price increase of $1.19 during the first quarter. STEP is committed to providing a competitive total reward package for its professionals to recognize the contribution they have made to the improving results.

SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO SIX MONTHS ENDED JUNE 30, 2021

For the six months ended June 30, 2022 expenses from corporate activities were $21.9 million compared to $12.5 million for the same period in 2021. Cash settled share-based compensation was higher in the first six months of 2022 as the share price increased $3.07 from December 31, 2021 to June 30, 2022 compared to a share price increase of $1.05 during the same period of the prior year, resulting in higher expenses from the mark to market adjustment in the current period. Additionally, payroll costs rose as the Company increased total rewards to retain and attract talented professionals in an increasingly competitive labour market. STEP recognized $0.3 million in CEWS benefits for the six months ended June 30, 2021, which reduced total expenses.

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 and per share amounts)	Three months ended										Six months ended
	June 30,			June 30,					March 31,		June 30,
		2022			2021				2022			2022			2021
Net loss	$	38,064		$	(10,582		)	$	9,173		$	47,237		$	(18,526		)
Add (deduct):
Depreciation and amortization		26,690			18,192				17,072			43,762			46,410
Loss (gain) on disposal of equipment		(832	)		(554		)		(818	)		(1,650	)		(185		)
Finance costs		2,904			3,433				3,317			6,221			6,520
Income tax recovery		11,811			(1,359		)		2,560			14,371			(2,908		)
Share-based compensation – Cash settled		8,880			2,274				5,166			14,046			4,475
Share-based compensation – Equity settled		673			310				340			1,013			1,898
Foreign exchange (gain) loss		(231	)		(38		)		180			(51	)		(48		)
Impairment reversal		(32,708	)		-				-			(32,708	)		-
Adjusted EBITDA	$	55,251		$	11,676			$	36,990		$	92,241		$	27,636
Adjusted EBITDA %		20	%		11		%		17	%		19	%		11		%

“Free Cash Flow” is a financial measure not presented in accordance with IFRS and is equal to net cash provided by operating activities adjusted for changes in non-cash Working Capital from operating activities, sustaining capital expenditures, term loan principal repayments and lease payments (net of sublease receipts). The Company may deduct or include additional items in its calculation of Free Cash Flow that are unusual, non-recurring or non-operating in nature. Free Cash Flow is presented as this measure is widely used in the investment community as an indication of the level of cash flow generated by ongoing operations. Management uses Free Cash Flow to evaluate the adequacy of internally generated cash flows to manage debt levels, invest in the growth of the business or return capital to shareholders. The following table presents a reconciliation of the non-IFRS financial measure of Free Cash Flow to the IFRS financial measure of net cash provided by operating activities.

($000s except percentages and per share amounts)	Three months ended										Six months ended
	June 30,					June 30,			March 31,		June 30,
		2022			2021				2022			2022			2021
Net cash provided by (used in) operating activities	$	34,060		$	19,697			$	(16,843	)	$	17,217		$	31,626
Add (deduct):
Changes in non-cash Working Capital from (used in) operating activities		18,836			(10,891		)		50,805			69,641			(9,571		)
Sustaining capital		(10,514	)		(6,258		)		(8,911	)		(19,425	)		(11,021		)
Term loan principal repayments		(6,987	)		-				(6,988	)		(13,975	)		-
Lease payments (net of sublease receipts)		(2,228	)		(1,496		)		(1,891	)		(4,119	)		(2,903		)
Free Cash Flow	$	33,167		$	962			$	16,172		$	49,339		$	8,131

“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 ancillary services. 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)				June 30,		December 31,
				2022			2021
Current assets			$	236,558		$	133,255
Current liabilities				(182,172	)		(129,343	)
Working Capital (including cash and cash equivalents)			$	54,386		$	3,912

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

($000s)					June 30,		December 31,
						2022		2021
Long-term loans					$	168,013	$	162,007
Long-term leases						12,270		9,163
Other long-term liabilities						12,276		4,519
Total long-term financial liabilities					$	192,559	$	175,689

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

($000s)					June 30,			December 31,
						2022			2021
Loans and borrowings					$	195,963		$	189,957
Add back: Deferred financing costs						422			626
Less: Cash and cash equivalents						(2,178	)		(3,698	)
Net debt					$	194,207		$	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 “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 MD&A contains forward-looking statements pertaining to: 2022 and 2023 industry conditions and outlook, including the continuation of strong oil and gas prices in 2023, and its effects on drilling activity levels and activity levels; anticipated Q3 2022 and 2023 results; 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 pricing for the Company’s services; the impact of weather and break up 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 near term commodity price volatility and recession risk; 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 anticipated operations, including increases in annular and single well fracturing in the third quarter of 2022; the effect of Blueberry First Nation negotiations on market demand and equipment requirements; the Company’s plans regarding additional equipment; the Company’s ability to manage its capital structure; pricing received for the Company’s services, including the Company’s ability to increase or maintain pricing; potential increases to client capital programs in 2022 ; market supply and demand balance for the Company’s services; 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; the Company’s ability to maintain a lean cost structure; and the Company’s expected compliance with covenants under its credit facilities and its ability to satisfy its financial commitments thereunder.

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; market concerns regarding economic recession; levels of oil and gas production and the effect of OPEC or OPEC+ related capacity and related 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 and break up 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 energy services company that provides coiled tubing, fluid and nitrogen pumping and hydraulic fracturing 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 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 (“E&P”) companies in Canada and the U.S.  Our Canadian services are focused in the Western Canadian Sedimentary Basin (“WCSB”), while in the U.S., our 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.

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.

For more information please contact:

Steve Glanville		Klaas Deemter
President and Chief Operating Officer		Chief Financial Officer
Telephone: 403-457-1772		Telephone: 403-457-1772

Email: investor_relations@step-es.com Web: www.stepenergyservices.com