Source Energy Services Reports Q1 2019 Results

TSX: SHLE

CALGARY, Alberta - May 1, 2019 - Source Energy Services Ltd. ("Source") is pleased to announce its 2019 first quarter financial results.

HIGHLIGHTS

Source achieved the following results for the three months ended March 31, 2019:

• sand sales of 698,347 metric tonnes ("MT") and sand revenue of $91.1 million, an increase of 9% and 5%, respectively, quarter-over-quarter;
• achieved 17% growth in sales volumes in the Western Canadian Sedimentary basin (the "WCSB");
• distributed total volumes of 732,722 MT, which includes third party sand and other products, distributed through Source's WCSB terminal network;
• extended an existing contract with a leading WCSB E&P to 2021;
• substantially completed our 2019 growth capex program including the expansion at our Fox Creek terminal to support the previously announced Shell contract;
• deployed a second Sahara unit into the Marcellus;
• advanced our diversification initiatives by obtaining permits to ship crude by rail from our Wembley terminal;
• realized Gross Margin of 10.4 million and Adjusted Gross margin⁽¹⁾ of 24.3 million; and
• realized Adjusted EBITDA⁽¹⁾ of 14.8 million and Net Loss of 7.3 million or (0.12) per share.

Note:

(1)

Adjusted EBITDA and Adjusted Gross Margin (including on a per MT basis) are not defined under IFRS, see "Non-IFRS Measures" below.

RESULTS OVERVIEW

Notes:

(1)

One MT is approximately equal to 1.102 short tons.

(2)

The average Canadian to US dollar exchange rate for the three months ended March 31, 2019 was $0.7522 (2018 - $0.7907).

(3)

Adjusted EBITDA and Adjusted Gross Margin (including on a per MT basis) are not defined under IFRS. See "Non-IFRS Measures" below.

(4)

Certain prior year amounts have been reclassified to conform to current year presentation.

Q1 2019 ACTIVITIES

Despite significant macro headwinds in the WCSB Source increased its revenue by 5% when compared to Q1 of 2018. Volume and revenue growth were driven by contracted customers increasing their completion program efficiencies requiring the delivery of greater volumes of completion materials over shorter periods of time. We experienced pricing pressure early in the quarter in the spot market driven by competitors aggressive pricing to lock up Q1 programs. However, as the quarter progressed, and the weather deteriorated we witnessed short periods of stronger 2019 pricing.

During the first quarter we substantially completed our growth capital program for the year with the expansion of the Fox Creek terminal. In addition, we completed the permitting for initial phase of crude by rail at our Wembley terminal.

Sahara activity levels increased year over year in the WCSB and we have expanded an existing contract to include an additional Sahara unit for the balance of the term. We have deployed two units to the North East US and we have completed our 8th unit which will be deployed to the WCSB or the lower 48 in the second quarter.

BUSINESS OUTLOOK

Our customers' activity levels in the first quarter of 2019 increased significantly from the fourth quarter of 2018. Source is expecting its 2019 sales volumes to be substantially in line with 2018, despite the expectation of lower capital spending throughout the WCSB. The growth in direct source exploration and production ("E&P") contracts year-over-year is expected to lead to increased market share which should help maintain Source's sales volumes. Customer capital programs, and, demand for frac sand, could be impacted by several factors, including: timing of spring break-up in the WCSB, commodity price fluctuations and condensate demand in the WCSB.

As E&P companies continue to shift into manufacturing mode the trend towards direct sourcing continues and Source is pleased to be working directly with five E&P customers under these types of contractual arrangements. These contracted sales are in addition to sales to other E&P companies that wish to direct source sand on a non-contract basis, as well as traditional sales to pressure pumping customers.

Beyond 2019, we are excited by the industry prospects with anticipated improved pipeline and other transportation capacity and the longer-term impacts of increased demand for liquefied natural gas ("LNG") on WCSB activity levels. In addition, Source deployed a second Sahara unit to the Marcellus. These units represent an important step for Source as we diversify our revenue streams into additional basins in North America.

FIRST QUARTER CONFERENCE CALL

A conference call to discuss Source's first quarter financial results has been scheduled for 7:30 am MT (9:30 am ET) on May 2, 2019, for interested analysts, investors and media representatives.

The conference call dial-in details are:

Dial-In Number

Participant Passcode

Toll-Free:   1-888-231-8191

2893108

The call will be recorded and available for playback approximately 2 hours after the meeting end time, until June 2, 2019, using the following dial-in:

Playback Number

Playback Passcode

Toll-Free:   1-855-859-2056

2893108

ABOUT SOURCE ENERGY SERVICES

Source is a logistics company that focuses on the supply and distribution of high quality Northern White frac sand. Source provides its customers with a full end-to-end solution supported by its Wisconsin mines and processing facilities, its Western Canadian terminal network and its "last mile" logistics capabilities. In addition to its industry leading frac sand transload terminal network and in-basin frac sand storage capabilities, Source also provides storage and logistics services for other bulk oil and gas well completion materials that aren't produced by Source. Source has also developed Sahara, a proprietary wellsite mobile sand storage and handling system.

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

IMPORTANT INFORMATION

These results should be read in conjunction with each of Source's unaudited condensed interim financial statements for the three months ended March 31, 2019, and Source's audited consolidated financial statements for the year ended December 31, 2018, together with the accompanying notes (the "Financial Statements") and its corresponding management's discussion and analysis for such period (the "MD&A"). The Financial Statements and MD&A and other information relating to Source, including the Annual Information Form ("AIF"), is available under the Company's SEDAR profile at www.sedar.com. 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 ("IASB"). Unless otherwise stated, all amounts are expressed in Canadian dollars.

NON-IFRS MEASURES

In this press release Source has used the terms 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), Gross Margin and other measures of financial performance as determined in accordance with IFRS. For additional information regarding Non-IFRS measures, including their use to management and investors and reconciliations to measures recognized by IFRS, please refer to the MD&A, which is available online at www.sedar.com and through Source's website at www.sourceenergyservices.com.

FORWARD-LOOKING STATEMENTS

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", "estimates", "forecasts", "intends", "anticipates", "believes", "plans", "seeks", "projects" 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. 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 regarding increased demand for and sales volumes of sand in 2019, expectations regarding improved egress and associated increased demand for LNG; expectations regarding the price of proppants and sensitivity to changes in such prices; outlook for operations and sales volumes; expectations respecting future competitive conditions; industry activity levels; industry conditions pertaining to the frac sand industry; increased drilling and well completion activity in 2019; the continued increase of sand sales volumes and sand spot pricing in 2019; and increased sand intensities for Canadian well completions.

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 natural gas liquids 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 care 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 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 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, unfavourable, 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; and the use and suitability of Source's accounting estimates and judgments.

Although Source has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in its 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.