STEP Energy Services Ltd. announced a client-backed upgrade to Canadian fracturing fleet as well as a capital budget and balance sheet update. Tier Four Canadian Fracturing Fleet Upgrade Program: STEP announced that it has entered into a three-year services agreement with a intermediate E&P company (“Producer”) in Canada whereby STEP will refurbish 16 pumps with 2,500 horsepower (“HP”) Caterpillar Tier 4 Dynamic Gas Blending (DGB) engines at a cost of $26.8 million. The 40,000 HP upgrade has been secured by a $10 million prepayment commitment to STEP by the Producer and a three-year, first-right-of-use agreement.

Tier 4 DGB engines with dual-fuel (natural gas and diesel) technology offer up to 85% reduction in diesel fuel use, in addition to reducing nitrogen oxide and particulate matter emissions relative to diesel-powered Tier 2 engines. STEP's experience has shown that over a 12-month period at high utilization, Tier 4 DGB engines can save clients up to $10 million in fuel costs while adding enhanced reliability. Pricing on the Tier 4 fracturing work is linked to commodity prices and includes cost inflation adjustment mechanisms, apportioning these risks between STEP and the Producer.

This creates a formula that delivers both cost and availability certainty to the Producer, while generating returns that will be sufficient to meet STEP's internal return thresholds. STEP anticipates refurbishments will occur at a rate of roughly two pumps per month over an eight-month period starting in October 2022 and ending in mid-Q2 2023. Given the staggered upgrade timing and the cycling in of other pumps held out for maintenance back-up, STEP does not anticipate any reductions to its effective fracturing capacity over this period.

Importantly, the deployment of this technology does not represent additional capacity to a Canadian fracturing market that is viewed as roughly in balance from a supply-demand perspective. In addition to the Tier 4 DGB upgrade, STEP will retrofit certain other assets, including the upgrade of Tier 2 diesel-powered fracturing pumps to add the Company's Tier 2 dual-fuel kits. At the conclusion of the upgrade program, STEP will have 227,500 HP of dual-fuel capable fracturing equipment, representing approximately 46% of the Company's total fracturing horsepower.

STEP also operates 80,000 HP of Tier 4 conventional equipment in the U.S., bringing the total proportion of low emissions horsepower in STEP's fleet to just over 60%.