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STEP Energy Services set to be oil patch’s first big IPO in two years

STEP Energy Services aims to raise roughly $200-million in an initial public offering this year.

Todd Korol/The Globe and Mail

STEP Energy Services Ltd. is poised to make its public debut at a difficult time for companies that specialize in hydraulic fracturing and other oil-field services.

Calgary-based STEP filed paperwork this week indicating it aims to raise about $200-million in a public float, marking the first big initial public offering in the oil patch in more than two years.

The company, backed by private-equity firm ARC Financial Corp., said it would sell shares at between $14 and $16 apiece. Proceeds could reach $230-million if an overallotment option is exercised by underwriters, according to its prospectus.

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The offering, co-led by CIBC World Markets and Raymond James Ltd., is expected in the next five to six weeks, a person familiar with the timing said.

It comes at a tricky juncture for energy-service companies, with slack starting to emerge in what had until recently been an extremely tight market for labour and equipment as rising crude prices prompted oil producers to dust off growth plans. Shares in publicly traded frackers and pressure pumpers had chalked up gains reflecting expectations that demand for the services would far outstrip capacity. Yet many of those stocks have slumped in recent weeks, pressured by flat oil prices and an expected seasonal drop-off in drilling activity.

At the same time, a revival in U.S. shale production is seen as potentially limiting a recovery in oil prices, meaning oil-producer clients will spend cautiously. West Texas intermediate crude has hovered around $55 (U.S.) a barrel for weeks.

To be sure, that's up from lows under $30 a barrel that were hit a year ago, prompting companies to deploy more drilling rigs. But costs for service companies have increased, too, limiting upside as the industry heads into its annual seasonal slowdown.

"While 2Q17 is shaping up to be a much busier breakup quarter than we've grown accustomed to over the last couple of years, we think it's unlikely to be sufficiently busy to spur pricing increases over the spring breakup period," Raymond James analysts said in a Feb. 15 research note. "Rather, we expect pricing will resume its cyclical ascent in 3Q17."

Of the three peers STEP compares itself to in its prospectus, only one, Trican Well Service Ltd., has seen its shares climb this year. Trican is up nearly 7 per cent on the Toronto Stock Exchange. The other two, Calfrac Well Services Ltd. and Canyon Services Group Inc., have skidded a respective 20 per cent and 17 per cent.

Last week, Calfrac said revenue in the fourth quarter fell 33 per cent from a year earlier to $192.8-million (Canadian). The company, one of Canada's largest pressure pumpers, said pricing for its services in Canada decreased on average by 15 per cent compared with a year ago.

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With a file from reporter Kelly Cryderman

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