Source Energy Services Reports Q2 2020 Results

Source Energy Services Reports Q2 2020 Results
Calgary, Alberta (July 29, 2020) TSX: SHLE
Source Energy Services Ltd. (“Source” or the “Company”) is pleased to announce its 2020 second
quarter financial results.
SUMMARY
In the latter part of the first quarter of 2020, the oil and gas industry was significantly impacted by a reduction to
global demand caused by the coronavirus pandemic (“COVID-19”), and uncertainty surrounding production level
decisions amongst the Organization of the Petroleum Exporting Countries (“OPEC”) and other oil exporting nations.
Governments worldwide, including Canada and the United States (“US”) in which the Company operates, enacted
emergency measures to combat the spread of the virus. These measures caused a material disruption to businesses
globally, resulting in an economic slowdown and decreased demand for oil (refer to “COVID-19” below). Though
Source achieved a new direct customer sale and provided services to a new wellsite customer in the second quarter
of 2020, the impacts of COVID-19 on the industry and the Company’s operations led to Source realizing a net loss of
$16.2 million, or $(0.26) per share, for the three months ended June 30, 2020.
RESULTS OVERVIEW

Notes:
(1) One MT is approximately equal to 1.102 short tons.
(2) Includes write-off of $1.6 million for receivables deemed uncollectible, see below.
(3) Reflects costs associated with the Fox Creek Incident, see below.
(4) The average Canadian to US dollar exchange rate for the three and six months ended June 30, 2020 was $0.7219 and $0.7325, respectively
(2019 - $0.7476 and $0.7499, respectively).
(5) Adjusted EBITDA and Adjusted Gross Margin (including on a per MT basis) are not defined under IFRS, see “Non-IFRS Measures” below.
Q2 2020 RESULTS
Results for the second quarter of 2020 were materially impacted by COVID-19 and certain actions of OPEC members
which led to the collapse of commodity prices, causing customers to either cut or defer the bulk of their completion
activities in the quarter (refer to “COVID-19” below). This led to a significant decline in second quarter sand sales
volumes as programs were wound down and completed. Industry activity levels bottomed in May and in turn Source
recorded its lowest level of monthly sales volumes. A modest recovery of activity was realized in June, partially
attributed to the addition of a new exploration and production (“E&P”) customer in the second quarter of 2020.
The significant reduction in activity levels in the Western Canadian Sedimentary Basin (“WCSB”) also negatively
impacted wellsite solutions revenues for the second quarter of 2020, with lower trucking revenue and lower Sahara-
related revenue realized as a result of the cancellation of jobs and significantly reduced utilization rates, directly
attributed to commodity price volatility and the impacts of COVID-19, as noted above.
In 2020, cost of sales, excluding depreciation and depletion, has been favorably impacted by previously implemented
cost savings initiatives and production efficiencies. Reductions in cost of sales have been further impacted by
ongoing optimization efforts related to logistics costs.
With the onset of the pandemic, Source took immediate steps to ensure the safety of its employees and customers,
and implemented a COVID-19 Program to protect the health and well-being of employees which included the
successful transition of 100% of its office staff to remote working arrangements. In order to further mitigate the impact
of the operating environment, Source implemented operational cost reductions and other measures which include the
following:
• reduced operating staff levels and hours of operations;
• reduced board, executive and salaried employee compensation and benefits;
• eliminated all discretionary expenditures;
• negotiated deferrals for certain lease obligation payment commitments;
• negotiated deferral of interest payment obligation on the senior secured notes;
• received proceeds from the US Small Business Administration’s Paycheck Protection Program (the “US
PPP Loan”); and
• received proceeds from the Canadian Emergency Wage Subsidy (“CEWS”) program.
Gross margin and Adjusted Gross Margin decreased by $8.7 million and $16.2 million, respectively, compared to the
second quarter of 2019, a direct result of factors contributing to the economic slowdown and its impact on Source’s
operations, as discussed above (refer to “COVID-19” below).
On a quarter-over-quarter basis, operating and general and administrative expenses for the three months ended June
30, 2020 were lower by $2.1 million, or 27%. Workforce optimization efforts implemented in 2019 as well as cost
control measures undertaken in response to COVID-19, as discussed above, drove further reductions in people
costs. In the second quarter of 2020, general and administrative expenses were negatively impacted by the write-off
of $1.6 million of uncollectible receivables. The receivables were attributed to a pressure pumping customer who
recently filed for creditor protection.
For the three months ended June 30, 2020, Adjusted EBITDA was $(2.1) million, $14.7 million, lower than the $12.6
million of Adjusted EBITDA generated in the three months ended June 30, 2019.
COVID-19
On March 11, 2020, the COVID-19 outbreak was declared a global pandemic by the World Health Organization.
Measures enacted to prevent the spread of the virus have resulted in global business disruption with significant
economic repercussions. The current economic climate has caused uncertainty and extraordinary volatility in the oil
and gas industry, particularly in the WCSB. The demand for oil has significantly deteriorated and has been further
impacted by certain actions taken by OPEC. The convergence of these events has created an unprecedented
simultaneous impact of a decline in global oil demand and a risk of a substantial increase in oil inventories.

These events have negatively impacted Source’s business in the second quarter of 2020. Although countries have
begun gradually easing previously enacted containment measures and the Company’s activity levels have begun to
increase, the demand for the Company’s products and services has declined as customers revise capital budgets
and adjust operations in response to the volatility in oil prices.
At the end of the first quarter of 2020, as a result of the weakening economic climate due to the pandemic and the
decrease in global demand for crude oil, the Company carried out an assessment of the recoverable value of its
operations. Ongoing uncertainty in the current climate created increased credit spreads and risk adjustments
resulting in an increased weighted average cost of capital used in the assessment. As a result, an impairment loss
was recognized in the first quarter of 2020. For the three months ended June 30, 2020, the Company performed an
updated analysis and concluded no further impairment was required.
FUTURE OPERATIONS
In May 2020, as a result of the weakened operating climate, the Company obtained covenant relief from its banking
syndicate, including the waiver of the application of the fixed charge coverage ratio from May 31, 2020 through
August 13, 2020. In the event of an occurrence of a covenant violation the Company would be in default, allowing
lenders to demand immediate repayment of all outstanding amounts. In June 2020, Source completed a Support and
Interest Deferral Agreement (the “Deferral Agreement”) with noteholders holding approximately 72% of Source’s
Notes. Under the Deferral Agreement, the June 15, 2020 interest payment on the Notes was deferred for a period of
60 days. The Company is currently involved in ongoing discussions with its lenders and noteholders to seek further
relief, but no agreement has been finalized as of the date of Source’s second quarter Management’s Discussion and
Analysis (the “MD&A”). There can be no assurance that such an agreement will be reached, and therefore there is
material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern.
Source’s condensed consolidated interim financial statements have been prepared on a going concern basis and do
not reflect adjustments and classifications of assets, liabilities, revenues and expenses which would be necessary if
the Company were unable to continue as a going concern. Such adjustments could be material.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a banking operating facility, comprised of an asset backed loan facility (“ABL”) and a standby letter
of credit facility (collectively, with the ABL, the “Credit Facility”). As of June 30, 2020, Source had $13.4 million drawn
under its ABL. The Credit Facility was also being used to support $16.2 million of letters of credit leaving $3.3 million
of available liquidity. Source is subject to externally imposed capital requirements for the Credit Facility, requiring
Source Energy Services Canada LP to maintain a springing fixed charge ratio of 1.25:1 to be measured when
Source’s excess availability is less than 20% of the lesser of the borrowing base and the operating facility. In
February 2020 an amendment to the ABL was completed, effective January 1, 2020, which included a reduction of
the springing fixed charge ratio from 1.25:1 to 1.10:1 for all periods ending on or before December 31, 2020. In May
2020, as a result of the weakened operating environment, as noted above, Source obtained covenant relief from its
banking syndicate, including the waiver of the application of the fixed charge coverage ratio from May 31, 2020
through August 13, 2020.

In the second quarter of 2020, capital expenditures were $0.5 million, $5.6 million lower than the same period last
year. Source previously announced that capital spending for 2020 was expected to be limited to $5.6 million.
Previous investment in processing assets and logistics infrastructure will allow for modest capital expenditures
through 2020 and beyond even as industry activity returns to more normalized levels.
BUSINESS OUTLOOK
As restrictions previously imposed by governments across Canada and the US to combat the spread of COVID-19
are lifted, Source’s activity levels have begun to increase as customers revisit spending. However, the rebound in
economic activity is expected to be slow and gradual. While the Company expects lower revenue and profitability for
the remainder of 2020, relative to 2019, Source cannot predict the extent of the impact COVID-19 may have on

energy demand, or how OPEC will react to those changes in demand and how those events could impact the
Company’s operations. Given the fluid nature of these events, and in order to address the current environment and
better position the Company for the future, Source has reduced headcount, reduced production activities, and is
currently negotiating leasing commitments and modifications to its banking and bond facilities. Source cannot
reasonably estimate the period of time that adverse business conditions will persist, the impact they will have on the
Company’s business, liquidity, consolidated results of operations and consolidated financial condition, or the pace of
any subsequent recovery.
Beyond 2020, we continue to remain optimistic about the longer-term industry prospects, including increased demand
for LNG on WCSB activity levels. Analysis of pipeline egress capacity, coal to natural gas power generation
conversions and the potential for additional hydrocarbon shipments by rail continue to support the Company’s
expectation that activity levels should substantially increase in the coming years.
Source has seen E&P companies drive additional efficiencies in their completion programs by completing fracs over
much shorter periods of time, requiring larger volumes of frac sand. Source’s terminal network and logistics
capabilities have become a key component in the success of these accelerated frac programs, further enhanced by
the delivery capability of the Sahara units. Source is ideally positioned to serve the increase in demand for frac sand
and logistics services as activity levels rebound.
Source continues to focus on improving logistics for other items needed at the wellsite, in response to customer
requests to expand its service offerings, and continues to develop opportunities to further utilize its existing Western
Canadian terminals to provide additional diversification of its business. Over the longer-term, Source anticipates that
these new terminal services will be a meaningful part of its business.
SECOND QUARTER CONFERENCE CALL
Due to the uncertain operating environment as a result of COVID-19, as well as ongoing negotiations with the
Company’s noteholders, Source will not be holding a conference call this quarter.
ABOUT SOURCE ENERGY SERVICES
Source is a logistics company that focuses on the production and distribution of high quality Northern White 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 mines and processing facilities, its
Western Canadian terminal network and its “last mile” logistics capabilities. Source also provides storage and
logistics services for other bulk oil and gas well completion materials and has developed 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 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 consolidated interim
financial statements for the three and six months ended June 30, 2020 and 2019, and Source’s audited consolidated
financial statements for the year ended December 31, 2019, 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 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. 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 beyond 2020; expectations regarding increased demand
for LNG on WCSB activity levels; anticipated improvements in pipeline egress and transportation capacity, coal to
natural gas power generation conversions and the potential for additional hydrocarbon shipments by rail; outlook for
operations and sales volumes; expectations respecting future conditions; revenue and profitability; industry activity
levels; the impact of COVID-19 on the global economy and the effect it may have on the Company’s business,
liquidity, operations and financial condition and the pace of any subsequent recovery; expectations regarding market
share; industry conditions pertaining to the frac sand industry; the benefits that Source’s “last mile” services provide
to customers; expectations regarding customer relationships and counterparty risk; the anticipated effect of terminal
services on Source’s business; sand sales volumes and sand spot pricing in 2020; expectations regarding funding for
future working capital and capital expenditures; Source’s planned cash outflows relating to lease commitments and
financial liabilities; the ability to secure future funding; expectations on Source’s ability to meet their capital needs; the
ability to find relief for a potential breach of a covenant on its Credit Facility; the ability of the Company to reach
further agreement with its noteholders; uncertainty regarding Source’s ability to continue as a going concern;
expectations regarding fluctuations in foreign currency; expectations regarding the severity and outcome of legal
claims and proceedings; expectations regarding the impact of climate change; risks associated with information
systems and cyber security; and operational risks.
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 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 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 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, 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; the use and suitability of Source’s accounting estimates and judgments; and the impact of information
systems and cyber security breaches.
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