Canada: Technology Adoption and Environment
We have already discussed STEP Energy Services' (STEP) Q2 2025 financial performance in our recent article. Here is an outline of its strategies and outlook. STEP is advancing technology leadership in Canada’s fracturing market with the NGx, the country’s first 100% natural gas-powered reciprocating engine. The 3,600-horsepower unit integrates with STEP’s proprietary control and automation platform. It claims to deliver twice the pumping capacity of a conventional unit with a smaller footprint. Early trials achieved up to 90% diesel displacement across the dual-fuel fleet. Strong client feedback led to Board approval for four more NGx pumps, set for deployment in Q1 2026.
In coiled tubing, STEP operated 21 units in Q2. Adoption of its Coil Plus technology for extended lateral mills is growing. The U.S. business is nearing its 100th well with Coil Plus. STEP is preparing its first Canadian program in the coming weeks. This technology lets clients drill longer laterals, reach more rock volume, and hit total depth during mill operations.
Canada Fracking Outlook
STEP expects Canada’s fracturing market to shift toward efficiency, reliability, and site-specific fuel solutions. It aims to deliver cost-effective, high-performing completions despite volatile commodity prices and potential client capital deferrals into 2026. Advances in completions have lowered drilling activity, creating oversupply and pressuring service prices. Inflation and tariffs remain headwinds, though recent tariff relief on proppant imports offers some cost relief. Management anticipates flat to down Q3 revenues due to a shift toward client-supplied sand but is working to fill capacity and protect margins through cost control.
Challenges Ahead
In Q4, pricing typically softens, but clients benefit from schedule efficiencies. Long-term growth prospects are supported by Canada’s first LNG export facility and rising power demand, with analysts projecting a 40% increase in Montney and Duvernay drilling by 2030. STEP’s ~30% Montney share and NGx pump rollout position it to capture this upside.
We have already discussed STEP’s Q2 results in our short article. Note that STEP generated no U.S. fracturing revenue as it winds down the CGU, redeploying and selling equipment. The move, while challenging, refocuses resources on higher-return opportunities.
Relative Valuation
STEP is currently trading at an EV/EBITDA multiple of 3.2x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is lower, at 2.6x.
STEP's forward EV/EBITDA multiple contraction versus the current EV/EBITDA is steeper than its peers because its EBITDA is expected to increase more sharply than its peers in the next year. This typically results in a premium in the EV/EBITDA multiple compared to its peers. However, the stock's EV/EBITDA multiple is lower than its peers' (CFWFF, TOLWF, and NINE) average (5.3x). So, the stock is undervalued versus its peers.
Final Commentary
STEP is advancing Canadian fracking technology with NGx. Four additional units are approved for deployment in Q1 2026. Coil Plus adoption is expanding, with the U.S. nearing its 100th well and the first Canadian program upcoming.
The Canadian fracturing outlook emphasizes efficiency, reliability, and fuel flexibility amid volatile prices and possible 2026 capital deferrals. Inflation and tariffs weigh on margins, though recent tariff relief offers some cost savings. Long-term growth is supported by LNG export expansion and rising Montney/Duvernay activity, with STEP’s 30% Montney share and NGx rollout positioning it for market gains. The stock is undervalued compared to its peers.
