STEP Energy Services Ltd. (STEP) delivered a strong performance in the first quarter of 2024, with a significant increase in consolidated revenues and adjusted EBITDA. The company reported a record quarterly revenue in Canada, with substantial gains in both fracturing and coiled tubing services. Despite expectations of volatility in the U.S. fracturing division in the second quarter, the company anticipates a strong quarter for its Canadian operations. A focus on strategic investments, geographic diversity, and technology has been highlighted as drivers for the company's success.
Key Takeaways
- STEP Energy Services reported $321 million in consolidated revenues for Q1 2024, marking a substantial increase from previous quarters.
- Adjusted EBITDA for the quarter stood at $80 million, with free cash flow at $53 million.
- The company achieved record quarterly revenue in Canada, with fracturing revenues of $198 million and coiled tubing revenues of $43 million.
- In the U.S., fracturing revenues were $38 million, and coiled tubing revenues were $41 million.
- Net income for Q1 2024 was reported at $41 million.
- STEP plans to prioritize debt reduction, generating free cash flow, and executing a share buyback program.
Company Outlook
- STEP anticipates some volatility in the U.S. fracturing division in Q2 but expects a good quarter for Canada.
- The company remains cautious about Q4 and will focus on free cash flow, debt reduction, and share repurchases.
Bearish Highlights
- The company's representative indicated that Q1 performance levels are unlikely to be matched again for the remainder of the year, which is typical for most years.
Bullish Highlights
- High utilization on fluid pumping services and the addition of a 10th coil unit have led to record running meters and revenue.
- U.S. operations saw improved profitability due to higher operating efficiencies and cost management.
- The company's strategic investments in dual fuel capable systems have reduced diesel consumption and emissions.
Misses
- The company acknowledged the need for pricing increases for its U.S. dual-fuel fleets in the Permian region.
Q&A highlights
- All 490,000 horsepower in the company's fleet is considered active, with additional assets available for maintenance and continuous pumping.
- Bookings for later in the year and into 2025 are seen in both British Columbia and Northwest Alberta.
- The BC rig count is at a five-year high, related to increased activity from LNG Canada and the full Coastal GasLink Pipeline.
- The company's STEP-conneCT technology is garnering interest for lower pressure reservoirs, offering monitoring capabilities and minimized risks.
In summary, STEP Energy Services is capitalizing on strategic investments and geographic diversity to optimize margins and leverage market opportunities. The company's representative, Steve Glanville, emphasized their commitment to technology development and operational efficiency, which have contributed to their strong Q1 2024 performance. With bookings already in place for the latter part of the year and into 2025, STEP Energy Services is poised to maintain its momentum, despite expected seasonal fluctuations.
Full transcript - None (SNVVF) Q1 2024:
Operator: Good morning, ladies and gentlemen, and welcome to the STEP Energy Services First Quarter 2024 Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Steve Glanville, President and CEO. Please go ahead.
Steve Glanville: Thank you, and good morning. Welcome to our Q1 2024 conference call. My name is Steve Glanville, and I’m the President and CEO of STEP Energy Services. I’d like to invite Klaas Deemter, our Chief Financial Officer, to provide an overview of our financial results for Q1, and then I’ll provide some comments on operating conditions thus far in 2024 and what we’re seeing for the remainder of the year. And then we’ll open the call for questions. Over to you, Klaas.
Klaas Deemter: Good morning. Thanks, Steve. Before I begin, I’d like to remind listeners that this conference call may contain forward-looking statements and other information based on current expectations or results for the company. Certain material factors or assumptions that were applied in drawing conclusions or making projections are reflected in the forward-looking information section of our Q1 2024 MD&A. A number of business risks and uncertainties could cause actual results to differ materially from these forward-looking statements and our financial outlook. Please refer to our annual information form for the year ended December 31, 2023, for a more complete description of the business risks and uncertainties facing STEP. The AIF, along with our financial statements and MD&A are available on our website and on SEDAR. Finally, please note, all numbers are in Canadian dollars, unless noted otherwise, and I round where possible. STEP had an exceptional Q1 with consolidated revenues of $321 million, up from both the Q4 and Q1 2023 revenues of $195 million and $263 million, respectively. Adjusted EBITDA for the quarter came in at $80 million as compared to $18 million in Q4 and $45 million in Q1 of the prior year. And free cash flow was $53 million for the quarter compared to negative $4 million in Q4 and $17 million in Q1 of last year. These results were mainly attributable to higher utilization, exceptional operating efficiencies and tight cost management in the quarter as well as the transfer of some U.S. fracturing equipment to Canada. Stepper in $41 million or $0.55 per diluted share in net income for Q1 24 compared to a loss of $5 million in Q4 or $0.07 per diluted share and $20 million or $0.26 per diluted share in Q1 of 2023. These first quarter results demonstrate the powerful economic potential of steady utilization and is a template for what this company is capable of doing. Turning now to the geographical regions of Canada and the U.S., so I’ll provide a few key highlights. In the Canadian segment, Q1 revenue was $241 million and was a record quarter for the company. As a reminder, our previous high watermark was $174 million achieved in Q1 of 2023 compare this to $112 million for Q4 of last year. Canadian fracturing revenues were approximately $198 million in the quarter, up from both Q4 and Q1 of the prior year, representing STEP’s highest revenue quarter for Canadian fracturing. Steve will touch more on this, but the key factor in this performance was strong client alignment, which enabled STEP to operate extremely efficiently and maintain high utilization through the quarter, increasing operating days to 450 from 233 in Q4 and 312 in Q1 of ‘23. The Canadian coiled tubing business unit, which also includes ancillary fluid and nitrogen pumping crews, also generated a record quarter, earning revenue of $43 million, surpassing the revenue of $31 million in Q4 and $35 million in Q1 of 2023. Operating days were also higher for this service line increasing to 615 days from 510 in Q4 and 572 in Q1 of 23%. Q1 segment adjusted EBITDA for the Canadian region was $72 million versus $15 million in Q4 and $45 million in the first quarter of 2023. Pricing has come off a bit in Canada this year with the higher utilization and tight cost management gave the company better leverage on its fixed cost structure, resulting in an adjusted EBITDA margin of 30%, up from 13% in Q4 and 26% in Q1 of ‘23, both quarters that had lower utilization. Turning to the U.S. We had Q1 revenues of $79 million, down from $83 million in Q4 and $89 million in Q1 of last year. Q1 fracturing revenues of $38 million were down 6% from Q4 and 23% from the first quarter of 2023. U.S. fracturing at 3 active fracturing fleets in Q1 of last year but only 2 active fracturing fleets in Q1 of this year and Q4 of last year. Utilization was studied through much of the quarter and with some weakness towards the end of the period. U.S. coiled tubing Q1 revenue was $41 million, which was down 3% from Q4, but up 4% from a year ago. Utilization was affected by inclement weather conditions in both the Southern and Northern operating basins during the quarter, but was down only marginally from Q4 and was up from Q1 of 2023. Adjusted EBITDA of $13 million was up from $7 million in Q4 and $5 million in Q1 of 2023. Adjusted EBITDA margin was 16%, up from 9% in Q4 and 5% in Q1 of 2023. Turning out to the allocation of our cash flow on our balance sheet. We spent $36 million on capital in the quarter, up from $27 million in the first quarter of 2023. Our Q1 capital spend can be divided into $11 million of sustaining capital, $19 million of optimization capital and $5 million of right-of-use asset additions. Approximately two-thirds of the ROU asset additions were units that we had been renting on a short-term basis and have now converted to a long-term lease. Our cash flow commitment won’t change, but the reclassification will result in a slight boost to our EBITDA. The intensity of the work scope in the first quarter resulted in a substantial working capital build of $49 million. Our working capital fluctuates with the seasonality of our business. And as expected, working capital was higher at the end of Q1 when compared to Q4 due to the high utilization in the quarter, pushing up our AR balance. We expect working capital to go lower at the end of Q2 as we harvest these receivables. A consequence of our working capital build is that we ended the quarter with a net debt of $108 million, up from approximately $88 million at the end of last year. Debt reduction remains a core focus of our management team, and we expect that this balance will reduce at our Q2 release and continue reducing through the balance of the year. Going back to 2018, the company has paid down over $200 million of debt. This reduction of debt is the first phase of our shareholder return framework, and we’ve seen that value accrue to equity holders. In addition to adjusted EBITDA, one of the steps other key non-GAAP measures is free cash flow. We had free cash flow in the first quarter of $54 million compared to $17 million in Q1 of 2023. This translates to free cash flow of $0.72 per diluted share or a 20% quarterly yield, which is higher than the prior year’s Q1 ‘23 results of $0.23 per share or 7% quarterly yield. Our rolling fourth quarter free cash flow per diluted share is $1.62 or a 46% yield. You can read more details on this in the non-GAAP measures section of our MD&A. Finally, I’m going to – I’d like to provide an update on our normal course issuer bid, which began at the end of 2023. To date, steps has purchased just over 1.5 million shares at an average price of $4.16 per share. of which just over 900,000 shares were repurchased in Q1. For reference, our book value per share at Q1 was 5.56%, substantially higher than where we’re trading at today. We continue to see excellent value in step shares, and we’ll continue with our share buyback program. I’ll now turn it back to Steve for his comments on operations and outlook.
Steve Glanville: Thanks, Klaas. Let’s start by reviewing the current market dynamics. In the first quarter of 2024, we saw a divergence in pricing trends between natural gas and crude oil. Mild winter conditions across North America and Europe contributed to high natural gas supply levels, keeping prices low. We’ve seen major energy few players like EQT (ST:EQTAB) and Chesapeake Energy (NYSE:CHK) and others curtail production and reduce capital programs to manage volumes, but storage levels have continued to grow in Canada and the U.S. Conversely, crude oil prices rallied supported by ongoing production restraint from OPEC+ and concerns over tensions in the Middle East. Despite this, U.S. drilling rig count remained stable with modest increases in oil-directed rig count, offset by declines in gas-directed drilling. The Canadian market was relatively stronger with rig counts tracking at or close to the upper end of the 5-year range through the quarter. As Klaas has highlighted, Q1 was an incredible quarter for our company. We achieved record quarterly revenue, demonstrating the torque in our business from combining steady utilization, high-intensity work programs and a commitment to operational excellence. I want to draw your attention to a few highlights. In Canada, we saw a significant fracturing revenue growth driven by improved efficiencies and higher intensity well completions, reflecting strong client alignment and technical leadership. We deployed a 6 fleet in Canada in the first quarter based on client-backed commitments and saw a substantial increase in operating days. As you can see from the stats we show in our MD&A, our fraction utilization improved significantly from Q1 last year, increasing from 69% to 83%. The higher intensity was reflected in the amount of proppant pumped, which increased in Q1 2024 to 559,000 tons, a 150% increase over Q4 2023 and almost a 90% increase compared to Q1 of 2023. The amount of sand we pumped is staggering. All the sand gets to the well site on a truck, meaning that we had nearly 14,000 lows of sand delivered to our job sites. We hold a significant amount of this sand ourselves with our industry-leading logistics fleet, providing additional value to our clients as well through our company. Activity for STEP’s coil tubing and ancillary pumping and fluid services was also strong throughout the first quarter. We had high utilization on our fluid pumping services and added a 10th coil unit to our fleet, enabling us to set a record for the amount of running meters and revenue record for this combined service link. This outstanding performance could not be possible without strong alignment with our valued clients. We strive to deliver outstanding service to our clients and earn a fair return for our stakeholders. Managing the challenging – the challenges of weather, drilling delays and subsurface issues require service providers and clients to work together to make things work, and we thank our clients for their flexibility. Our U.S. operations delivered improved profitability this quarter despite running fewer fleets, thanks to higher operating efficiencies and a focus on cost management. The improvement in efficiencies is evident in the proppant pumped, which increased by 27% and compared to the prior year despite a decrease in operating days by 28%. Our coil tubing utilization was higher than last year despite some challenging weather conditions in both the southern and northern basins. We continue to see strong results from this business with a focus on client alignment delivering some of the most complex milling programs for the largest operators in each basin. Our success in the first quarter underscores the importance of evaluating our business on a year-over-year basis rather than a quarter-over-quarter. We continue to focus on high utilization model, coupled with high pumping and profit intensities. This model reflects our culture of continuous improvement and operational optimization, which is integral to our success. Additionally, this quarter underscored that the model is most effective when it is executed by the best professionals in the business. I’m incredibly proud of the work our teams of operations professionals did this quarter, their drive towards excellence, their sedocity and focus on exceeding client expectation. Expectations is the main factor in our reputation and success. I’d like to discuss several key differentiators that set STEP apart, including our technology and performance. Our strategic investment in equipment enhancements such as upgrading our asset base to Tier 4 dual fuel capable systems have proven to be significant differentiators for our company. Clients are increasingly interested in reducing diesel consumption during operations and our dual fuel capable assets, along with our operational expertise and process can displace up to 85% of diesel consumption. In our recently published 2023 ESG report, we highlighted that approximately 26.7 million liters of our client’s diesel was displaced with natural gas using dual fuel equipment in 2023. In this past quarter, we displaced 17.5 million liters, representing substantial savings for energy producers as they seek ways to reduce diesel consumption and associated emissions. This quarter, STEP achieved several records in addition to the amount of proppant pumped by our Canadian business units, STEP’s fracturing service line set monthly pumping records in both geographic regions, achieving 629 hours in 1 month in Canada and 547 hours in the U.S. This underscores the capabilities of the professionals operating and managing these service lines as well as the exceptional alignment with key clients that made this possible. During the quarter, STEP reactivated one coil tubing spread, bringing the total active spreads in Canada and in the U.S. to 22, which is among the largest fleets in North America. The fleet continues to set depth records in the U.S., where we had a depth record of 8,356 meters or 27,413 feet during the first quarter. On the topic of coil tubing services, wells are becoming increasingly complex with long laterals exceeding 3 miles in length. As coil tubing services evolve, our technology offering, like STEP-connect, which is a real-time data acquisition tool conveyed by an E-line string allows clients to optimize complex well operations and achieve cost savings. In a recent post-project analysis, we determined that a client saves approximately 15% of the project budget using STEP-connect. Additionally, the tools significantly enhances operational consistency and supports real-time decision-making in these complex extended laterals. We are industry leaders in deploying this technology, and our clients are seeing the benefits. Finally, I want to emphasize our geographic diversity as a key differentiator. Our ability to deploy assets between the U.S. and Canada was evident in Q1. We moved fracturing equipment from the U.S. to Canada based on a client-backed work program, allowing us to allocate resources to the basins that keep the fleet highly utilized, supporting our high utilization model. This quarter’s results demonstrate the benefits of our geographic diversity, enabling us to optimize margins and leverage market opportunities effectively. The medium to long-term outlook for the North American energy sector remains positive with major infrastructure projects like the TMX and the upcoming LNG initiatives expected to strengthen the market. We anticipate some near-term volatility in our U.S. fracturing division in Q2 but are seeing our coiled tubing division pick up some of that slack. We’ll see a bit of a spring breakup slowdown in Canada mid-quarter, but overall, we expect a good quarter for Canada. Visibility into the second half of the year is good. We expect an active Q3 to carry into Q4. What is likely that activity will ramp down in a mid-quarter as our clients reach the limits of their capital budgets and achieve their production targets. Q4 is becoming increasingly difficult to predict. So our outlook is similar cautious. Our strategic priority is focused on generating free cash flow to continue our dual strong shareholder return model of debt reduction and share buybacks as well as upgrading our asset base. We believe in our business value and our commitment to delivering shareholder returns to technological leadership and operational excellence. Finally, I want to recognize our exceptional professionals at STEP Energy Services for their dedication and achievements. Now I invite the operator to open the floor for any questions or comments.
Operator: Thank you. [Operator Instructions] Your first question comes from the line of Keith MacKey from RBC Capital Markets. Your line is now open. Please ask your question.
Keith MacKey: Hi, good morning. Just wanted to start out in Canada for a second on that fixed fleet. Can you just talk about the outlook for utilization running 6 fleets in Canada? I know you’ve got some ability to move equipment back and forth across the border. Do you expect to keep all of that equipment in Canada and utilized in an acceptable manner? Or do you think some of that might have to – that footprint might have to change throughout the year?
Steve Glanville: Hi, good morning, Keith. I am Steve. Good question. I mean, we’ve made that decision back in Q4 based on our client backed program to move some assets up from the U.S and as we see our work schedule, obviously, Q2 with the typical seasonal breakup. We’ll see a bit lighter utilization. But our team, of course, is looking for a well-deserved kind of a nice reset, but we do see activity for 6 Frac fleets in the Q3 and then as well as into Q4. So our plan is to continue to operate that. But we will shut it down, if we see prices drop and it’s an oversupply but we think the market is pretty balanced right now.
Keith MacKey: Yes. Okay. Got it. And just continuing that comment about a balanced market, and you also, I think, mentioned pricing was down a bit year-over-year. Can you talk about what you think the current state of the market means for pricing going forward? Do you see it being kind of flat from Q1? Or is there going to be some move up or down, do you think?
Steve Glanville: I think, Keith, we demonstrated that, obviously, we’re happy with where the prices are at, but it is all based on high utilization. And I think our clients are realizing that. They see the value in keeping a dedicated Frac fleet or what we’ve proven is from an efficiency standpoint, we can gain margin as long as they can provide the hours to us. And I think pricing, of course, is important, but more to that is not having gaps in our schedule. And I think that’s where the industry really needs to lead to is just keeping that asset base active.
Keith MacKey: Yes, okay. Got it. I will leave it there. Thank you very much.
Steve Glanville: Thank you.
Operator: Your next question comes from the line of Waqar Syed from ATB Capital Markets. Your line is now open. Please ask your question.
Waqar Syed: Good morning and congrats on a great quarter. Steve, I just wanted to understand a little bit about the concept of client alignment. Does that mean that you’re picking up clients that can you provide you with efficiencies that your fleet can deliver or is it more so you’re choosing clients or are you just with the existing client base, are you working better together as a team to create those efficiencies?
Steve Glanville: That’s been an interesting dynamic, Waqar and thank you for recognizing a great quarter that we had. As you’ve seen, like our clients are getting larger through acquisitions. And I would say that we are – we saw that in the U.S. primarily last year and as well as some in Canada. But really, what we talk about client alignment is for us is aligning with clients that have full steady programs. And sorry, I am just hearing a bunch of typing is that you Waqar or is that maybe the operator?
Waqar Syed: No, it’s not mine. That sound was at your end.
Steve Glanville: No I’m not, the operator. Sorry. Yes, really, what we’re seeing is our clients are consolidating. They have, the Montney, of course, is a world-class resource that we have in Canada. And we’re just seeing operators or clients having programs that are lasting a full year of activity with a full-time Frac crew. And I think that’s where you gain back to my point about efficiencies, we’re able to haul a majority of our sand that’s pumped in Canada with our logistics team. And I just – when you couple that all together, you really have a, I would say, a finally oiled machine on creating the margins that we’re happy with.
Klaas Deemter: And if I can just add to, we were delivered in targeting certain clients that had that large work scope car. So where we’ve got three clients or kind of two big ones and then a number of very solid ones that are kind of just a bit smaller that provides steady work scope. So it’s much easier for us to forecast utilization when you – these longer-term commitments from clients.
Steve Glanville: And as well, like with our bundled services offering that a couple of these clients, not only do we provide fracturing service, we provide pump down services and coiled tubing.
Waqar Syed: So this efficiency gains then and this client alignment, you think is sticky at least through the course of this year.
Steve Glanville: Yes, this year and we believe into next year as well.
Waqar Syed: Okay, great. Second on the U.S. side in the Permian, there was some wording in the MD&A which leads to me believe that you may be thinking of maybe reallocating some assets or could you talk about what your plan is for your two U.S. dual-fuel fleets?
Steve Glanville: Yes. As of today, we are happy with our size of operating the two fleets in the U.S. I don’t think it’s a surprise to anybody that the pricing isn’t where we need it to be. It needs to go higher. And the crews that have left the Haynesville or the gas markets to kind of rush to the Permian hasn’t benefited us at all or really a lot of the frac companies. So, I think we do have a niche offering with our dual fuel technology. There is still 40% of the frac fleets that are operating today are strictly using diesel. So, we do have that advantage. And I guess, Waqar, as we mentioned before, is our diversity of having operating basins in both U.S. and Canada, this allows us to put that asset base where we see the best margin.
Waqar Syed: Sure. So, when you think of relocation, you are not thinking of moving from Permian to the North of the U.S. or some other bases in the U.S., if you ever think about it would be relocation to Canada.
Steve Glanville: Yes, I would say, right now we are were focused in West Texas and the Permian.
Waqar Syed: Okay. And just one final question, of the 490,000 horsepower that you have, how much horsepower is fully active today?
Steve Glanville: Yes, we would basically consider all of it active Waqar. When you look at these large pads, we were on a pad in Canada for like 62 days from the time we wake up to the time we break down. And in order to be pumping at 22 hours a day on average, you need to make sure you have an additional asset base that’s available to basically come in and provide relief for maintenance. And so in order for that, you have this taxi squad of assets that we have talked about in the past.
Waqar Syed: Great. Well, thank you very much and congrats again on a great quarter.
Steve Glanville: Thank you, Waqar.
Operator: Your next question comes from the line of John Gibson from BMO Capital Markets. Your line is now open. Please ask your question.
John Gibson: Good morning and congrats on the strong quarter again. I am just wondering, first on cadence of spending from producers in Canada. Are you seeing a lot more front weighting at the beginning of the year? Now, I guess what I am wondering is pending all things come together, could you achieve these results even if it’s on a monthly basis at some point in the back half of the year?
Steve Glanville: Great question, John and I mean our clients that we have aligned with in the past have typically been front-end loaded, call it, the first three quarters, they are quite active. And then as unfortunately, we demonstrated in Q4, not a great quarter to continue to have fixed costs, which are very high in this business. So, I think we have troughed on a natural gas perspective, I hope anyways. And I would see more activity if gas sort of reached $3 in the back half of this year. We are not modeling that today. We are being quite conservative for kind of Q4. But I guess, John, it doesn’t take much, right, where people move capital forward. What we saw in Q1 was everyone was full. The calendars were full. And I think from our clients’ perspective, we were fortunate enough to have a March that we didn’t have an early fall season or else there would have been a lot of work that never got done in the quarter. So, just bearing that in mind, I believe if we do see obviously, the LNG Canada starts off taking product, call it, this time next year, perhaps even earlier, I do believe that there will be some more activity that we see in Q4.
Klaas Deemter: I think one thing to add to Steve, you talked about is the size of these pads. If a pad hasn’t started by kind of mid to late-November, clients are very reluctant to start just given the challenges of keeping water heated over a holiday break and things like that. So, that’s where we saw that in last year in Q4 of last year where the work in kind of late in mid-November, it just – it could ramp down considerably. LNG Canada could be a catalyst that would change that for this coming year. Obviously, gas prices weren’t that attractive at the end of last year. But the clients’ focus is to have things wound down comfortably, but before the end of the year, there are some that we can incent with some attractive pricing to work into December. But by and large, it’s getting more difficult to convince some of that as these pads get bigger and bigger.
John Gibson: Okay. Great. Second one for me. You touched on last mile logistics being a constraint. Obviously, you have done a lot of work on this front. But wondering how you frame this in terms of monetization? Are you charging clients for last mile or just gaining more work based on your availability to do so?
Steve Glanville: No, we are definitely charging for that, John. I think we looked at this opportunity a number of years back of – we have seen, obviously, proppant intensity increase per stage to really compare itself to the Permian. And the difference, of course, in the Permian, you have localized sand mines. In Canada, we ship about 80% of our proppant that’s shipped up on rail. So, for us, it’s really quite a, I would say, an orchestrated event to be able to have about 60 trucks running around the clock, 24-hours a day, providing proppant to all of our frac fleets. And I would argue our team is one of the best in the business to be able to gain those efficiencies. So, there is two benefits with that, that we see. Number one is, we can provide proppant to crews that are pumping faster, being more efficient. So, we have that flexibility. And two, it’s just isolating us from any third-party charges that increase. Typically, in Q1, we see an increase of third-party trucking costs. So, we are isolated by having our own fleet.
John Gibson: Okay. Great. Last one for me, on your U.S. business, it’s obviously been challenged on the frac side, but offset by more stability in coil tubing. How do you think about these two things for offsetting each other for the balance of the year in terms of margin?
Steve Glanville: Yes. The coil tubing business, we obviously like that. We have stood up a 13th coil tubing unit in the U.S. When we started looking at these 3-mile laterals, it’s quite amazing the technology that we are able to see with our STEP-conneCT and knowing how much further we can get out the string designs, 2 and 5.8s [ph] quench and tempered strings were able to – they are about $400,000 of string. So, for us, it’s managing that, getting the most life out of that pipe, and you have to do that with the data that’s provided to you. And so investing in our real-time data acquisition or real-time information to be able to monitor that is important. So, we do see gains in the coil tubing business for this year. I think we have proven, John, that there is – at one time, it used to be a pretty low barrier to entry on the coiled tubing side. Now, there has been some consolidation that has happened. And to get into this business, you are about $10 million per spread of coil tubing assets. And then, of course when you add the cost of these strings, you need to make sure that you are financed properly for that. And secondly, on the frac side, I think we have troughed. There has been some discipline recently on laying down frac crews by a lot of the larger players. And I will just go back to we are happy running our two fleets currently today. Our team has done an amazing job of managing the cost through this. And it’s not a business that we are going to be able to kind of quadruple our size in the near-term, but it is something that we are still proud of to have and it still generates good margins.
John Gibson: Great. Appreciate the responses and great quarter. I will turn it back.
Steve Glanville: Thanks John.
Operator: Your next question comes from the line of Josef Schachter from Schachter Energy Research. Your line is now open. Please ask your question.
Josef Schachter: Good morning Steve and Klaas. I have two questions, looking at the [indiscernible] data, it shows the rig count up 29% for Canada, 120 rigs, up from 93 a year ago. But it shows the gas side, only up about 2%, 60 rigs working, but it shows oil 60 versus 34. Of your 6 frac fleets are all of them working on natural gas liquids in the Montney, or what mix do you have of this are working for the oil side versus the liquids-rich Montney play?
Steve Glanville: Yes. I would say – I mean it’s really good information to highlight, Joseph. I appreciate you talking about that. When we look at rig count, it’s hard to actually get a number of rigs per frac fleet ratio just because a lot of the rigs are working in the heavy oil, which, of course, doesn’t require simulation services. But what we – we basically have five Montney-Duvernay type fleets from a horsepower standpoint. And the sixth fleet is what we consider more focused on shallower oil plays like the Cardium, the Viking and even the Bakken. So, that’s sort of how we operate today is sort of five in the Montney and the Duvernay and one elsewhere, but they have wheels, they can travel to different basins.
Josef Schachter: On margin, of course, fabulous utilization and margin, is – are we looking at this being peak given as you mentioned that you had long utilization, 22 hours a day of utilization, is that 30% about as high as you are going to be able to go, or what’s your thoughts on that?
Steve Glanville: Q1 is typically the best quarter that we have Q3 comes close, but just the Q1 performance is unlikely to be matched again for the rest of the year, and that’s typical for most years.
Josef Schachter: Okay. And in terms of bookings for later this year into ‘25 with LNG Canada startup, are you seeing more bookings in – on your BC side of the business, or is it North West Alberta that is getting the bulk of your business going forward?
Steve Glanville: Have a little bit of both, Joe. So, we are seeing – I mean you look at the BC rig count, it’s call it, post-breakup, it’s been the highest, it’s been in 5 years. So, obviously, the activity is showing up for LNG Canada. I think we need to – from our understanding is that the Coastal GasLink Pipeline is full, and it’s basically flaring gas right now. So, they are taking product and I guess I would expect some additional drilling rigs to hit the field kind of Q4. Talking with the drillers, they do expect that as well as the high-spec rigs to be sold out. I think I will just couple that comment, Joseph, with the efficiencies from the drilling rigs side. They are drilling these Montney wells in 10 days or 11 days. And it takes us about, call it, three days to four days to frac these Montney wells depending on the number of stages. So, you can kind of look at a ratio of, call it, two drilling rigs to one frac crew for the Montney, if things go from a pad drilling perspective
Josef Schachter: Super. Thanks very much for answering my questions and congratulations on a great quarter.
Steve Glanville: Thanks Josef.
Operator: We don’t have any further questions at this time. Presenters, please continue. We have a follow-up question from the line of John Daniel from Daniel Energy Partners. Your line is now open. Please ask your question.
John Daniel: Yes. Thanks for including me. So, just one question, as you go to do more of these 3-mile laterals of the coil business, have you seen legacy stick pipe customers that officially make the conversion or at least always sort of coil to being enthusiast, trying to see the transition in the market.
Steve Glanville: John, a bit harder to hear about maybe I will repeat the question that I thought I heard you. You are wondering if these 3-mile laterals are – with our success of our coiled tubing being switched from a sub-unit or service rate perspective to coil, is that the question?
John Daniel: Yes…
Steve Glanville: Yes. We are definitely seeing some interest, particularly in – with our STEP-conneCT technologies. The advantage with that is on these lower pressure reservoirs that typically have been used with stick pipe. We are seeing success deploying that technology because we can really monitor the bottom hole pressure. So, the advantage of that just allows us not to be stuck in the hole that minimizes that risk. So, I think going forward, you are going to see that as well as some other technologies that are coming out to be able to put additional weight on bit on these long horizontals.
John Daniel: Okay. Thank you. Sorry for the issues with the phone.
Steve Glanville: No worries, John. Thank you.
Operator: We don’t have further questions at this time. Steve, please continue.
Steve Glanville: Yes, I will just close off by thanking everyone for your interest in STEP Energy Services. We had a wonderful quarter, we are proud of that, and we look forward to our call that will happen for Q2 this summer. Thank you very much.
Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
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