Source Energy Services Reports Q1 2023 Results

(May 04, 2023)


Calgary, Alberta (May 4, 2023) TSX: SHLE

Source Energy Services Ltd. (“Source” or the “Company”) is pleased to announce its financial results for the three months ended March 31, 2023.


Source achieved the following results for the first quarter of 2023:

  • realized record sand sales volumes of 907,483 MT, the highest quarterly sand sales volumes in Source’s history, and a 25% increase from the first quarter of 2022;
  • achieved total revenue of $163.7 million, a 69% increase from the first quarter of 2022, and the highest quarterly revenue generated since the inception of Source;
  • recorded utilization of 94% for the Canadian Sahara fleet and 73% for the US Sahara fleet, and achieved a record for the highest trucked volumes in Source history;
  • realized gross margin of $31.8 million and Adjusted Gross Margin(1) of $37.8 million, increases of 118% and 86%, respectively, when compared to the same period in 2022;
  • reported net income of $7.9 million, a $14.5 million improvement from the $6.6 million net loss recognized in the first quarter of 2022; and
  • realized Adjusted EBITDA(1) of $27.6 million, a 94% increase from the first quarter of 2022.


  1. Adjusted Gross Margin (including on a per MT basis) and Adjusted EBITDA are not defined under IFRS and might not be comparable to similar financial measures disclosed by other issuers, refer to ‘Non-IFRS Measures’ below for reconciliations to measures recognized by IFRS. For additional information, please refer to Source’s MD&A available online at


 Three months ended March 31,
($000’s, except MT and per unit amounts)20232022
Sand volumes (MT)(1)907,483726,101
Sand revenue131,75580,661
Wellsite solutions30,62715,416
Terminal services1,342892
Cost of sales125,92776,603
Cost of sales – depreciation6,0455,793
Cost of sales131,97282,396
Gross margin31,75214,573
Operating expense5,8844,336
General & administrative expense4,2292,489
Income from operations18,5485,094
Total other expense10,66911,734
Net income (loss)(2)7,879(6,640)
Basic and diluted earnings (loss) per share ($/share)0.58(0.49)
Adjusted EBITDA(3)27,61814,217
Sand revenue sales/MT145.19111.09
Gross margin/MT34.9920.07
Adjusted Gross Margin(3)37,79720,366
Adjusted Gross Margin/MT(3)41.6528.05


  1. One MT is approximately equal to 1.102 short tons.
  2. The average Canadian to United States (“US”) dollar exchange rate for the three months ended March 31, 2023, was $0.7394 (2022 - $0.7898).
  3. Adjusted EBITDA and Adjusted Gross Margin (including on a per MT basis) are not defined under IFRS, refer to ‘Non-IFRS Measures’ below for reconciliations to measures recognized by IFRS. For additional information, please refer to Source’s MD&A available online at

First Quarter 2023 Performance

Source recorded total revenue of $163.7 million, an increase of $66.8 million or 69% compared to the first quarter of 2022, driven by strong sand sales volumes and higher average realized sand pricing. Strong Western Canadian Sedimentary Basin (“WCSB”) completion activity levels throughout the first quarter of the year drove records in sand sales volumes, trucked sand volumes and utilization days for the Canadian Sahara fleet. Pricing improved for all lines of business, as renewed contract pricing became effective and spot pricing remained strong. The renewal of a major customer contract in the quarter positions the Company for strong pricing performance for the near term.

Cost of sales, excluding depreciation, increased during the first quarter of 2023, due to the 25% increase in sand sales volumes and higher costs for transportation, compared to the three months ended March 31, 2022. During the first quarter, Source incurred costs for third party sand purchases, procured to complement production from the Wisconsin facilities and to ensure no supply interruptions due to the significant increase in customer demand for certain mesh sizes. During the first quarter of 2022, no third party sand purchases were completed. These cost increases were partly mitigated by improved sales distribution across mesh sizes resulting in improved yields. Cost of sales was also impacted by a weakening Canadian dollar on US denominated costs relative to the first quarter last year.

For the three months ended March 31, 2023, gross margin increased by $17.2 million, attributed to higher sand sales volumes and improved pricing. Excluding gross margin from mine gate volumes, Adjusted Gross Margin was $44.87 per MT, compared to $28.54 per MT in the first quarter of 2022, favorably impacted by improved contract customer and spot market pricing, despite higher costs for transportation. Gross margin and Adjusted Gross Margin also benefited from the 51% increase in sand volumes trucked and strong Sahara fleet utilization for the first quarter, driving a 61% increase in Sahara-related revenue, compared to the same period last year.

Operating expenses increased on a quarter-over-quarter basis, largely attributed to the increased activity realized during the period, as higher sand shipments drove increased royalty costs, higher repairs and maintenance costs and higher variable incentive compensation cost. General and administrative expense also increased relative to the first quarter of 2022, primarily driven by higher people costs resulting from increased variable incentive compensation expense.

Adjusted EBITDA was $27.6 million for the first quarter, an increase of $13.4 million or 94% compared to the three months ended March 31, 2022, the result of record activity levels and strong sales pricing realized. The weakening of the Canadian dollar negatively impacted Adjusted EBITDA by $0.6 million for the first quarter; however, the renegotiation of certain customer contracts which are now denominated in US dollars will assist with mitigating the impact of fluctuations in foreign exchange rates for the balance of the year.

Liquidity and Capital Resources                 

Free Cash FlowThree months ended March 31,
Adjusted EBITDA(1)27,61814,217
Financing expense paid(7,539)(2,347)
Capital expenditures, net of proceeds on disposal of property, plant and equipment(2,146)(2,024)
Payment of lease obligations(5,047)(3,518)
Free Cash Flow(1)12,8866,327


  1. Adjusted EBITDA and Free Cash Flow are not defined under IFRS, refer to ‘Non-IFRS Measures’ below. The reconciliation to the comparable IFRS measure can be found in the table below.

Source generated Free Cash Flow of $12.9 million for the three months ended March 31, 2023, compared to $6.3 million generated for the first quarter of 2022. The increase is attributed to a $13.4 million improvement in Adjusted EBITDA, reflecting strong activity levels and increased prices compared to the prior year. This was partially offset by higher financing expense paid, as $4.4 million of interest on the senior secured first lien notes (the “Notes”) was paid in cash during the quarter, compared to 2022 where interest incurred for the Notes during the first quarter was paid in kind. An increase in payments for lease obligations, including interest expense for these lease obligations, was attributed to lease payments for the Peace River facility which did not commence until April of 2022.

Source’s capital expenditures for the first quarter of 2023 were $2.6 million, an increase of $0.6 million compared to the same period last year. The increase in expenditures for maintenance and sustaining capital was primarily related to maintenance completed for the Peace River facility, and an increase in costs associated with overburden removal for mining operations of $0.4 million, driven by higher sand sales volumes. Growth capital expenditures were lower, on a quarter-over-quarter basis, due to the completion of assessments for the drilling program at the Peace River mine, and the completion of Source’s ninth Sahara unit mid-last year. During the first quarter of 2023, Source sold excess equipment, generating proceeds of $0.5 million. Management continues to assess equipment and other assets required to service Source’s operations to ensure optimal levels are maintained on an on-going basis.


Source is committed to operating in a sustainable manner and works closely with its stakeholders to go above and beyond current regulatory requirements through various ongoing initiatives. Source’s third annual ESG report will be released later this year and will detail the Company’s 2022 ESG performance, including recent developments related to greenhouse gas emissions reductions, its production water recycling program and community involvement.

For more information, Source’s most recent ESG report is available at


Strong industry activity continued to favorably impact frac sand supply and demand fundamentals in the WCSB which are expected to remain strong through 2023. Previous well permitting issues in the northeastern British Columbia region, which caused customer delays through 2022, have now been resolved and customers are expected to bring increased activity to the region again as exploration and production (“E&P”) companies catch up on their development plans. Source has renewed customer contracts with terms and conditions reflective of the current operating environment and continues to improve production efficiencies through an expansion of mesh sizes and ongoing operating cost management. Source believes these fundamentals, coupled with Source’s leading service offerings and logistics capabilities required for larger volumes of sand per well, as well as Source’s terminal network footprint, will continue to support strong gross margins for the remainder of 2023.

In the longer-term, Source believes the increased demand for natural gas, driven by power generation facilities, increased natural gas pipeline export capabilities and liquefied natural gas exports will drive incremental demand for Source’s services in the WCSB. Source continues to see increased demand from customers that are primarily focused on the development of natural gas properties in the Montney, Duvernay and Deep Basin. This trend is consistent with Source’s view that natural gas will be an important transitional fuel that is critical for the successful movement to a less carbon intensive world.

Source continues to focus on increasing its involvement in the provision of logistics services for other items needed at the wellsite in response to customer requests to expand its service offerings and to further utilize its existing Western Canadian terminals to provide additional services.


A conference call to discuss Source’s first quarter financial results has been scheduled for 7:30 am MST (9:30 am ET) on Friday, May 5, 2023.

Interested analysts, investors and media representatives are invited to register to participate in the call. Once you are registered, a dial-in number and passcode will be provided to you via email. The link to register for the call is on the Upcoming Events page of our website and as follows:

Source Energy Services Q1 2023 Results Call

The call will be recorded and available for playback approximately 2 hours after the meeting end time, until June 5, 2023, using the following dial-in:

Playback Number (Toll-Free): 1-800-319-6413

Playback Passcode: 9672


Source’s 2023 Annual Meeting of Shareholders (the “AGM”) will be held on Friday, May 5, 2023 at 10:00 a.m. MST (12:00 pm ET) in a virtual, audio only, webcast format. Shareholder engagement is extremely important to Source and all shareholders will have equal opportunity to ask questions. Below are the details to attend the virtual-only AGM:

Log in: Password: source2023

If you experience technical or logistical issues related to accessing the virtual AGM, technical support is available:

1-888-290-1175 (toll-free in Canada and the United States)

1-587-885-0960 (long distance charges may apply)


Source is a company that focuses on the integrated production and distribution of frac sand, as well as the distribution of other bulk completion materials not produced by Source. Source provides its customers with an end-to-end solution for frac sand supported by its Wisconsin and Peace River mines and processing facilities, its Western Canadian terminal network, its “last mile” logistics capabilities and Sahara, a proprietary wellsite mobile sand storage and handling system.

Source’s full-service approach allows customers to rely on its logistics platform to increase reliability of supply and to ensure the timely delivery of frac sand and other bulk completion materials at the wellsite.


These results should be read in conjunction with each of Source’s interim condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, together with the accompanying notes (the “Financial Statements”) and its corresponding MD&A for such periods. The Financial Statements and MD&A and other information relating to Source, including the Annual Information Form (“AIF”), are available under the Company’s SEDAR profile at The Financial Statements and comparative statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Unless otherwise stated, all amounts are expressed in Canadian dollars.


In this press release Source has used the terms Free Cash Flow, Adjusted Gross Margin and Adjusted EBITDA, including per MT, which do not have standardized meanings prescribed by IFRS and Source’s method of calculating these measures may differ from the method used by other entities and, accordingly, they may not be comparable to similar measures presented by other companies. These financial measures should not be considered as an alternative to, or more meaningful than, net income (loss) and gross margin, respectively, which represent the most directly comparable measures of financial performance as determined in accordance with IFRS.

Reconciliation of Adjusted EBITDA and Free Cash Flow to Net Income (Loss) 


(1)  Includes expenses related to the incident at the Fox Creek terminal facility and one-time retirement payments.

Reconciliation of Gross Margin to Adjusted Gross Margin  

For additional information regarding non-IFRS measures, including their use to management and investors, their composition and discussion of changes to either their composition or label, if any, please refer to the ‘Non-IFRS Measures’ section of the MD&A, which is incorporated herein by reference. Source’s MD&A is available online at and through Source’s website at


Certain statements contained in this press release constitute forward-looking statements relating to, without limitation, expectations, intentions, plans and beliefs, including information as to the future events, results of operations and Source’s future performance (both operational and financial) and business prospects. In certain cases, forward- looking statements can be identified by the use of words such as “expects”, “believes”, “continues”, “focus”, “trends”, “anticipates”, “positions” or variations of such words and phrases, or state that certain actions, events or results “may” or “will” be taken, occur or be achieved. Such forward-looking statements reflect Source’s beliefs, estimates and opinions regarding its future growth, results of operations, future performance (both operational and financial), and business prospects and opportunities at the time such statements are made, and Source undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or circumstances should change unless required by applicable law. Forward-looking statements are necessarily based upon a number of estimates and assumptions made by Source that are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Forward-looking statements are not guarantees of future performance. In particular, this press release contains forward-looking statements pertaining, but not limited, to: expectations that the renewal of a major customer contract will position the Company for strong pricing performance; plans to renegotiate certain customer contracts denominated in US dollars and expectations that this renegotiation will mitigate the impact of fluctuations in foreign exchange rates; ESG initiatives and goals, including but not limited to those related to greenhouse gas emissions reduction, production water recycling, health and safety, and contributions to charitable initiatives; expectations that frac sand supply and demand fundamentals will remain strong through 2023; expectations that the resolution of permitting issues in northeastern British Columbia will bring increased activity to the region; beliefs respecting strong gross margins in 2023; expectations that increased demand for natural gas, increased natural gas pipeline export capabilities and liquefied natural gas exports will drive incremental demand for Source’s services in the WCSB; continued increase in demand from customers primarily focused on the development of natural gas properties in Montney, Duvernay and Deep Basin; views that natural gas is an important transitional fuel for the successful movement to a less carbon intensive world; Source’s focus on and expectations regarding increasing Source’s involvement in the provision of logistics services for other wellsite items; expectations respecting future conditions; and profitability.

By their nature, forward-looking statements involve numerous current assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Source to differ materially from those anticipated by Source and described in the forward-looking statements.

With respect to the forward-looking statements contained in this press release assumptions have been made regarding, among other things: proppant market prices; future oil, natural gas and liquefied natural gas prices; future global economic and financial conditions; future commodity prices, demand for oil and gas and the product mix of such demand; levels of activity in the oil and gas industry in the areas in which Source operates; the continued availability of timely and safe transportation for Source’s products, including without limitation, Source’s rail car fleet and the accessibility of additional transportation by rail and truck; the maintenance of Source’s key customers and the financial strength of its key customers; the maintenance of Source’s significant contracts or their replacement with new contracts on substantially similar terms and that contractual counterparties will comply with current contractual terms; operating costs; that the regulatory environment in which Source operates will be maintained in the manner currently anticipated by Source; future exchange and interest rates; geological and engineering estimates in respect of Source’s resources; the recoverability of Source’s resources; the accuracy and veracity of information and projections sourced from third parties respecting, among other things, future industry conditions and product demand; demand for horizontal drilling and hydraulic fracturing and the maintenance of current techniques and procedures, particularly with respect to the use of proppants; Source’s ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which Source conducts its business and any other jurisdictions in which Source may conduct its business in the future; future capital expenditures to be made by Source; future sources of funding for Source’s capital program; Source’s future debt levels; the impact of competition on Source; and Source’s ability to obtain financing on acceptable terms.

A number of factors, risks and uncertainties could cause results to differ materially from those anticipated and described herein including, among others: the effects of competition and pricing pressures; risks inherent in key customer dependence; effects of fluctuations in the price of proppants; risks related to indebtedness and liquidity, including Source’s leverage, restrictive covenants in Source’s debt instruments and Source’s capital requirements; risks related to interest rate fluctuations and foreign exchange rate fluctuations; changes in general economic, financial, market and business conditions in the markets in which Source operates; changes in the technologies used to drill for and produce oil and natural gas; Source’s ability to obtain, maintain and renew required permits, licenses and approvals from regulatory authorities; the stringent requirements of and potential changes to applicable legislation, regulations and standards; the ability of Source to comply with unexpected costs of government regulations; liabilities resulting from Source’s operations; the results of litigation or regulatory proceedings that may be brought by or against Source; the ability of Source to successfully bid on new contracts and the loss of significant contracts; uninsured and underinsured losses; risks related to the transportation of Source’s products, including potential rail line interruptions or a reduction in rail car availability; the geographic and customer concentration of Source; the impact of extreme weather patterns and natural disasters; the impact of climate change risk; the ability of Source to retain and attract qualified management and staff in the markets in which Source operates; labour disputes and work stoppages and risks related to employee health and safety; general risks associated with the oil and natural gas industry, loss of markets, consumer and business spending and borrowing trends; limited, unfavorable, or a lack of access to capital markets; uncertainties inherent in estimating quantities of mineral resources; sand processing problems; implementation of recently issued accounting standards; the use and suitability of Source’s accounting estimates and judgments; the impact of information systems and cyber security breaches; the impact of inflation on capital expenditures; and risks and uncertainties related to pandemics such as COVID-19, including changes in energy demand.

Although Source has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will materialize or prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Readers should not place undue reliance on forward-looking statements. These statements speak only as of the date of this press release. Except as may be required by law, Source expressly disclaims any intention or obligation to revise or update any forward-looking statements or information whether as a result of new information, future events or otherwise.

Any financial outlook and future-oriented financial information contained in this press release regarding prospective financial performance, financial position or cash flows is based on 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 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 Source’s operations for any period will likely vary from the amounts set forth in these projections and such variations may be material. Actual results will vary from projected results. Readers are cautioned that any such financial outlook and future-oriented financial information contained 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 document speak only as of the date hereof and have been approved by the Company’s management as at the date hereof. The Company does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.


Scott Melbourn

Chief Executive Officer

Derren Newell

Chief Financial Officer