Source Energy Services Ltd. — Interim / Quarterly Report 2021

May 6, 2021

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MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2021

www.sourceenergyservices.com

500, 438 – 11 Ave SE, Calgary, AB Canada T2G 0Y4 |Telephone 403-262-1312

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following Management’s Discussion and Analysis (“MD&A”), dated May 5, 2021, reflects the operating and financial results of Source Energy Services Ltd. and its subsidiaries, collectively (“Source” or the “Company”), as at and for the three months ended March 31, 2021 compared with the corresponding period in the prior year. The MD&A is provided to assist readers in understanding the Company’s financial performance and position during the periods presented and significant trends that may impact the future performance of Source.

This discussion should be read in conjunction with Source’s unaudited condensed consolidated interim financial statements for the three months ended March 31, 2021 and 2020 and the audited consolidated financial statements for the years ended December 31, 2020 and 2019, together with the accompanying notes (the “Financial Statements”). The Financial Statements 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 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.

Certain financial measures referred to in this MD&A are not prescribed by IFRS. “EBITDA” and “Adjusted EBITDA” are, among other things, used by management as a representation of earnings generated to fund capital investments and meet financial obligations, and “Adjusted Gross Margin” is used by management to assist in comparisons with peers. “Free Cash Flow” is generally used to assess the ability to fund discretionary capital and non-capital spend, including the repayment of debt, from cash flows provided by operating activities. Refer to ‘Non-IFRS Measures’ for further information regarding the following non-IFRS measures used in this MD&A: “EBITDA”, “Adjusted EBITDA”, “Adjusted Gross Margin” and “Free Cash Flow”, as well as a reconciliation to IFRS measures of the Company.

This MD&A contains “forward-looking statements” or “forward-looking information” within the meaning of applicable Canadian securities laws (collectively, “forward-looking statements”) based on Source’s current expectations and projections. For information on the material factors and assumptions underlying such forward-looking statements, refer to ‘Forward-Looking Statements’ included at the end of this MD&A.

About Source

Source is a 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.

First Quarter 2021 Overview

The first quarter of 2021 follows an unprecedented year in the history of the oil and gas industry, where Source made significant changes to the Company’s balance sheet and cost structure. These initiatives put Source in a solid position to benefit from the return of completion activities in the Western Canadian Sedimentary Basin (“WCSB”). Over the last three quarters, Source’s customers have cautiously resumed completion activities and the first quarter realized continued growth in activity levels from previous quarters. This resulted in Source achieving the following highlights for the three months ended March 31, 2021:

• realized sand sales volumes of 645,566 metric tonnes (“MT”) and sand revenue of $66.1 million;

• achieved a new service record in March which saw seven Sahara units fully utilized for the month;

• achieved a 25% increase in sand volumes trucked to customer wellsites;

• distributed 698,298 MT of proppants and chemicals through Source’s WCSB terminal network;

• realized gross margin of $10.7 million and Adjusted Gross Margin[(1)] of $18.3 million;

• realized Adjusted EBITDA[(1)] of $12.7 million; and

• reported net loss of $5.4 million, an improvement of $180.0 million from the same period last year.

Note:

• (1) Adjusted EBITDA and Adjusted Gross Margin (including on a per MT basis) are not defined under IFRS, refer to ‘Non-IFRS Measures’ below.

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Results Overview

Results Overview
	Three months ended March 31,
($000’s, except MT andper unit amounts)	2021	2020
Sand volumes (MT)(1)	645,566	762,322
Sand revenue	66,115	83,019
Wellsite solutions	14,121	12,113
Terminal services	1,653	1,331
Sales	81,889	96,463
Cost of sales	63,619	76,656
Cost of sales – depreciation	7,582	13,430
Cost of sales	71,201	90,086
Gross margin	10,688	6,377
Operating expense	3,718	4,297
General & administrative expense	2,604	2,557
Depreciation	2,785	4,257
Income (loss) from operations	1,581	(4,734)
Other expense (income):
Finance expense	7,463	7,246
Share-based compensation expense (recovery)	186	(96)
Loss on asset disposal	—	5
Other income	(162)	(1,344)
Other expense	44	108
Impairment expense	—	143,656
Foreign exchangegain(2)	**(564) **	(312)
Total other expense	6,967	149,263
Loss before income taxes	(5,386)	(153,997)
Deferred tax expense	—	31,350
Net loss	**(5,386) **	(185,347)
Net lossper share($/share)(3)	**(0.40) **	(36.91)
Diluted net lossper share($/share)(3)	**(0.40) **	(36.91)
Adjusted EBITDA(4)	12,674	14,609
Sand revenue sales/MT	102.41	108.90
	March 31, 2021	December 31, 2020
Total assets	258,262	266,261
Total non-current financial liabilities	182,319	187,537

Notes:

(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, 2021 was $0.7899 (2020 - $0.7435).

(3) Prior year amounts have been restated to reflect the 12:1 share consolidation pursuant to the Recapitalization Transaction (as defined below). (4) Adjusted EBITDA is not defined under IFRS, refer to ‘Non-IFRS Measures’ below. Includes receipt of proceeds from the CEWS program (as defined below) of $0.4 million during the three months ended March 31, 2021 (2020 - $nil).

The recovery of activity levels witnessed in the latter half of 2020 continued into the first quarter of 2021, fueled by the ongoing strength of commodity prices. Extreme weather in February caused some delays in customer completions programs; however, Source was able to continue to effectively service customers and the spot market from the Company’s in-basin inventories. Source realized a recovery of sand sales volumes for the three months ended March 31, 2021, generating $66.1 million of sand revenue. Sand revenue was lower by $16.9 million compared to the first quarter of 2020 due to lower sand sales volumes and lower realized average sand prices, as lingering uncertainty and continued price instability resulting from the impact of the coronavirus pandemic (“COVID-19”) continued to influence customers. Sand revenue for the quarter was also impacted by a stronger Canadian dollar on US dollar denominated sand sales.

Wellsite solutions revenue was $14.1 million for the first quarter, an increase of 17%, compared to the first quarter of 2020. The increase was due to a higher number of customers that utilized Source’s dispatch services to orchestrate the movement of large volumes of frac sand to the wellsite in the quarter. Many of these customers have also adopted Sahara as a key component in their frac programs, resulting in the seven Sahara units located in Canada achieving 100% utilization for the month of March, and an average utilization rate of 81% for the quarter.

Cost of sales, excluding depreciation, was favorably impacted by cost savings initiatives and production efficiencies implemented last year as well as the impact of the stronger Canadian dollar on US dollar denominated production costs.

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	Three months ended March 31,	Three months ended March 31,
($000’s, except MT andper unit amounts)	2021	2020
Gross margin	10,688	6,377
Cost of sales – depreciation	7,582	13,430
Adjusted Gross Margin(1)	18,270	19,807
Gross margin/MT	16.56	8.37
Adjusted Gross Margin/MT(1)	28.30	25.98
Percentage of sand volumes sold in the WCSB	100 %	100 %

Note:

(1) Adjusted Gross Margin (including on a per MT basis) is not defined under IFRS, refer to ‘Non-IFRS Measures’ below.

For the three months ended March 31, 2021, gross margin increased by $4.3 million while Adjusted Gross Margin fell by $1.5 million compared to the first quarter in 2020. Gross margin was favorably impacted by lower cost of sales - depreciation realized, attributed to a lower equipment asset base resulting from the impairment recognized in the first quarter of 2020. Adjusted Gross Margin was negatively impacted by lower volumes and continued pricing pressure realized in the quarter; however, as a percentage of revenue, Adjusted Gross Margin improved on a quarter-overquarter basis due to Source’s focus on maintaining lower costs and production efficiencies.

Operating expense was lower by $0.6 million, or 13%, for the three months ended March 31, 2021, resulting from workforce optimization efforts implemented as part of cost control measures undertaken in 2020. The receipt of proceeds from the Canada Emergency Wage Subsidy (“CEWS”) program of $0.1 million also favorably impacted operating expense. General and administrative expense remained unchanged from the same period last year, as higher variable incentive compensation expense was offset by the receipt of proceeds from the CEWS program of $0.1 million and lower professional fees incurred in the quarter.

For the quarter ended March 31, 2021, Adjusted EBITDA was $12.7 million, $1.9 million lower than the first quarter of 2020, as lower sand sales volumes was offset by improved gross margin and lower operating costs.

Operating Environment and COVID-19

The global economic environment and commodity pricing remain uncertain, as COVID-19 continues to impact global energy demand while countries wrestle with the third wave of the virus and the speed of vaccination program delivery. Commodity price fluctuations are continuing to influence exploration & production (“E&P”) capital spending programs, which remain disciplined as these companies remain focused on protecting balance sheets. Renewed measures to prevent the spread of the virus could result in further global business disruption, with economic repercussions that are yet to be determined.

Source has implemented effective procedures that have allowed the Company to safely operate through the pandemic. Source continues to prioritize the safety of its employees, contractors and customers through its COVID-19 program which minimizes exposure for employees and contractors in the field, at the production plants and at its corporate offices.

Certain operational cost reductions and other measures implemented last year in response to the weakened economic climate resulting from COVID-19 continue to be monitored, including staffing levels and the receipt of governmental wage subsidies, as Source accommodates increased customer demand while remaining focused on maximizing operational efficiencies.

Business Outlook

The recovery of Source’s activity levels continued through the first quarter of 2021, supported by the ongoing strength of commodity prices which stabilized late in 2020. Source’s customers continue to be focused on strengthening their balance sheets; however, Source believes the generation of stronger cash flows may result in enhanced capital expenditures in the last half of the year, as well as the possible expansion of drilling and completion programs in 2022.

Source continues to remain optimistic about the longer-term industry prospects, including increased demand for WCSB natural gas driven by LNG, coal to natural gas power generation conversions and increased gas pipeline capacity. In addition, planned expansion of oil pipeline egress capacity and the potential for additional hydrocarbon shipments by rail continue to support the Company’s expectation that activity levels should steadily increase in the coming years.

Source continues to see E&P companies require large volumes of frac sand, but now they are driving additional efficiencies in their completion programs by completing fracs over much shorter periods of time. Source’s terminal network and logistics capabilities have become a key component in the success of these accelerated frac programs in the Montney and the Duverney, and Source’s success in capturing a large portion of this market is further

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enhanced by the delivery capability of the Sahara units. Source’s reliability of supply and wellsite service offering have become a key component in many large Western Canadian completions programs. In April, Source’s service offering allowed a customer to complete a frac very quickly through its delivery of 8,459 MT of sand to one pad with a dual completion in a single day. 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.

Source cannot predict the extent of the impact COVID-19 or its variants 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. 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.

Source’s Operations

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Sand revenue is predominately comprised of sand sales into the WCSB at a Source terminal or to a customer at the wellsite utilizing Source’s integrated logistics business model. This is referred to as “In Basin” sales and it represents Source’s core business.

Sand revenue may also include mine gate sand sales, which include the sale of products that are in lower demand in the WCSB and sold at the mine sites in the US. Mine gate sand sales are undertaken to maximize production efficiencies and sand volumes but are not considered Source’s core business and are typically at a lower sales price than In Basin sales and provide a comparatively lower margin per MT sold.

Wellsite solutions revenue is comprised of revenue from “last mile” logistics (i.e., from a Source terminal to the wellsite), and wellsite service offerings including Sahara units. Source believes its “last mile” services benefit customers by managing overall trucking activity, increasing reliability of supply at the wellsite and increasing operational efficiencies. Source also provides terminal services for certain well-completion products that aren’t produced by Source. These products primarily consist of hydrochloric acid, chemicals and resin-coated proppants. The magnitude of terminal services revenues realized by Source generally follows completion activity trends in the WCSB.

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Review of Operations

Sales

Sales
	Three months ended March 31,
($000’s, except MT andper unit amounts)	2021	2020
Sand volumes (MT)	645,566	762,322
Sand revenue	66,115	83,019
Wellsite solutions	14,121	12,113
Terminal services	1,653	1,331
Sales	81,889	96,463

Sand Revenue

Source’s sand revenue for the three months ended March 31, 2021 was $66.1 million, a decrease of $16.9 million, or 20%, from the same period in 2020. As discussed above, sand revenue was favorably impacted by stabilizing commodity prices and the recovery in activity levels relative to those realized during 2020. However, total sand volumes were lower compared to the same period last year as customers continue to take a cautious approach regarding capital deployment while managing financial positions. Sand revenue decreased due to lower realized average sand prices, as pricing pressure continued to impact results compared to the first quarter of 2020. A stronger Canadian dollar on US dollar denominated sand sales also impacted sand revenue for the quarter.

Wellsite Solutions and Terminal Services

Wellsite solutions revenue was $14.1 million for the three months ended March 31, 2021, an increase of $2.0 million, or 17%, compared to the same period in 2020. Wellsite solutions revenue in the first quarter improved due to a 25% increase in sand volumes that were trucked to the wellsite when compared to prior year, as noted above. Sahara revenue benefited from increased utilization realized late in the first quarter, resulting in quarter-over-quarter revenue that remained relatively unchanged.

Terminal services revenue was $1.7 million for the three months ended March 31, 2021, an increase of $0.3 million, or 24%, compared with the same period in 2020. Higher proppant storage revenue, partially offset by a decrease in hydrochloric acid transloading revenue, resulted in the increase relative to the same period last year.

Cost of Sales

Cost of Sales
	Three months ended March 31,
($000’s)	2021	2020
Direct materials	51,252	64,543
People costs	2,330	2,814
Equipment costs	530	714
Transportation costs	9,417	8,061
Facilitycosts	90	524
Cost of sales	63,619	76,656
Cost of sales - depreciation	7,582	13,430

Cost of sales, excluding depreciation, decreased by $13.0 million, or 17%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by 15% lower sand volumes realized. On a per MT basis, cost of sales, excluding depreciation, decreased 2%, favorably impacted by continued operational cost reductions as a result of production efficiencies and lower repairs and maintenance expenses, relative to the same quarter last year, partially offset by increased costs for trucking customer sand to the wellsite. Proceeds of $0.3 million from the CEWS program also contributed to the quarter-over-quarter decrease in cost of sales, excluding depreciation.

Significant components of cost of sales are mainly US dollar denominated including sand processing and rail freight and are therefore subject to exchange rate fluctuations. For the three months ended March 31, 2021, a strengthening of the Canadian dollar on US dollar denominated components of cost of sales of 5.9% contributed to lower cost of sales.

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Gross Margin

Gross Margin
	Three months ended March 31,
($000’s, except MT andper unit amounts)	2021	2020
Gross margin	10,688	6,377
Cost of sales — depreciation	7,582	13,430
Adjusted Gross Margin(1)	18,270	19,807
Gross margin %	13.1 %	6.6 %
Gross margin/MT	16.56	8.37
Adjusted Gross Margin %(1)	22.3 %	20.5 %
Adjusted Gross Margin/MT(1)	28.30	25.98

Note:

(1) Adjusted Gross Margin is not defined under IFRS, refer to ‘Non-IFRS Measures’ below.

Gross margin increased by $4.3 million on a quarter-over-quarter basis, primarily due to lower cost of sales - depreciation realized, attributed to a lower equipment asset base resulting from impairment recognized in the first quarter of 2020 and the benefits of the rail car lease negotiations completed in late 2020. Adjusted Gross Margin decreased by $1.5 million for the first quarter of 2021, compared to the same period last year, as lower volumes and lower average realized sand prices for the quarter were partially mitigated by operational efficiencies achieved.

Operating and General & Administrative Expense

Operating and General & Administrative Expense
		Three months	ended March 31,
		2021	2020
($000’s)	OPEX	G&A	OPEX	G&A
People	2,059	1,886	1,740	1,629
Equipment	573	—	483	1
Facility	322	17	372	16
Sellingand administrative	764	701	1,702	911
Operating and General & Administrative Expense	3,718	2,604	4,297	2,557

For the first quarter of 2021, total operating and general and administrative expense was $6.3 million, a reduction of $0.5 million or 8% from the first quarter of 2020. Operating expense decreased by $0.6 million from the same period last year, primarily attributable to lower insurance expense as well as lower selling costs, driven by reduced royalty costs incurred as a result of lower sand shipments from mines with higher royalty obligations. Higher variable compensation expense, partially offset by proceeds of $0.1 million received from the CEWS program, contributed to increased people costs relative to the same period last year.

General and administrative expense for the three months ended March 31, 2021 was relatively unchanged from the same period in 2020. Increased variable incentive compensation expense, partially offset by proceeds of $0.1 million received from the CEWS program, resulted in higher people costs. Lower selling and administrative costs, due to reduced professional fees incurred, offset the increased people costs relative to the three months ended March 31, 2020.

Depreciation

Depreciation expense decreased by $1.5 million for the three months ended March 31, 2021, compared to the same period in 2020, the result of depreciation calculated on a lower asset base due to the impairment recognized in the first quarter of 2020.

Finance Expense

Finance expense increased by $0.2 million for the three months ended March 31, 2021 compared to the first quarter last year. The increase in finance expense was primarily due to higher interest on the Notes (as defined below) resulting from interest paid in kind at a higher rate, as well as interest expense for the senior secured term loan. These increases were partially offset by lower interest expense resulting from lower draws on the asset backed loan facility (“ABL”) and decreased interest expense incurred for lease liabilities due to the the renegotiation of certain rail car and equipment lease contracts executed in the third quarter of 2020.

Share-based Compensation

For the three months ended March 31, 2021, share-based compensation expense was $0.2 million, compared to a recovery of $0.1 million in the first quarter 2020. The change is attributed to the movement in Source’s share price

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relative to the prior period. Share-based compensation expense is associated with the deferred share units (“DSUs”), restricted share units (“RSUs”) and performance share units (“PSUs”).

Other (Income) Expense

For the three months ended March 31, 2021, other income was $0.2 million, a decrease of $1.2 million compared to the first quarter of 2020 primarily due to a recovery for certain sales and use taxes incurred at the US operating facility, recognized in the prior year. Other income for the quarter includes $0.1 million of proceeds from the Canada Emergency Rent Subsidy program.

For the three months ended March 31, 2021, other expense decreased by $0.1 million compared to the same period last year, reflecting lower professional fees associated with the incident that occurred at the Fox Creek Terminal Facility in 2019, as discussed below.

Impairment Expense

Impairment expense for the three months ended March 31, 2021 was $nil compared to $143.7 million for the same period last year. Early in 2020, as a result of the weakening economic climate and demand for crude oil, Source carried out an assessment of the recoverable value of its operations which resulted in an impairment loss recognized in the first quarter of 2020.

Income Tax

Source recorded an income tax expense of $nil for the three months ended March 31, 2021, compared to $31.4 million for the same period in 2020. The decrease in income tax expense was due to the reversal of the cumulative deferred tax asset recognized in the first quarter of 2020.

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Summary of Quarterly Results

($000’s, except MT and per unit amounts)	2019 2020 2021
	Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Sand volumes (MT) Sand revenue Wellsite solutions Terminal services	504,907 550,762 479,017 762,322 122,375 609,469 474,345 645,566 64,677 67,639 58,401 83,019 12,826 65,240 48,936 66,115 10,494 10,999 9,235 12,113 2,313 12,636 9,582 14,121 1,172 1,200 1,006 1,331 762 669 451 1,653
Sales Cost of sales Cost of sales - depreciation	76,343 79,838 68,642 96,463 15,901 78,545 58,969 81,889 56,681 61,158 51,669 76,656 12,485 61,242 42,650 63,619 10,772 10,936 6,351 13,430 3,241 10,264 5,253 7,582
Cost of sales	67,453 72,094 58,020 90,086 15,726 71,506 47,903 71,201
Gross margin Operating expense General & administrative expense Depreciation	8,890 7,744 10,622 6,377 175 7,039 11,066 10,688 5,352 4,753 5,423 4,297 2,237 2,753 3,198 3,718 2,373 2,398 2,712 2,557 3,399 2,220 1,203 2,604 4,011 3,875 4,020 4,257 3,798 3,158 2,647 2,785
Income (loss) from operations Other expense (income): Finance expense Share-based compensation expense (recovery) Loss (gain) on asset disposal Loss (gain) on derivative liability Other income (loss) Other expense Impairment expense Gain on debt extinguishment Foreign exchange loss(gain)	(2,846) (3,282) (1,533) (4,734) (9,259) (1,092) 4,018 1,581 6,852 7,230 7,108 7,246 7,045 7,651 7,747 7,463 (407) (113) (201) (96) 27 (22) 77 186 73 80 8 5 — (155) — — (466) 51 (144) — — — — — (120) (156) (328) (1,344) (382) (127) 228 (162) 13,929 7,780 (5,755) 108 12 66 112 44 — 61,215 — 143,656 — — — — — — — — — — (27,690) — (525) (362) (18) (312) 230 (562) (471) (564)
Total other expense(income)	19,336 75,725 670 149,263 6,932 6,851(19,997) 6,967
Income (loss) before income taxes Deferred tax expense(recovery)	(22,182) (79,007) (2,203) (153,997) (16,191) (7,943) 24,015 (5,386) (3,155) (18,020) 416 31,350 — — — —
Net income(loss)	(19,027) (60,987) (2,619) (185,347) (16,191) (7,943) 24,015 (5,386)
Net income(loss) per share($/share)(1)	(3.66) (12.12) (0.58) (36.91) (3.16) (1.53) 4.58 (0.40)
Diluted net income(loss) per share($/share)(1)	(3.66) (12.12) (0.58) (36.91) (3.16) (1.53) 4.58 (0.40)
Net income (loss) Interest Income taxes Depreciation Cost of sales - depreciation Impairment expense	(19,027) (60,987) (2,619) (185,347) (16,191) (7,943) 24,015 (5,386) 5,920 6,255 6,097 6,175 5,890 6,373 6,615 6,362 (3,155) (18,020) 416 31,350 — — — — 4,011 3,875 4,020 4,257 3,798 3,158 2,647 2,785 10,772 10,936 6,351 13,430 3,241 10,264 5,253 7,582 — 61,215 — 143,656 — — — —
EBITDA(2)	(1,479) 3,274 14,265 13,521 (3,262) 11,852 38,530 11,343
Add: Loss (gain) on asset disposal Finance expense Loss (gain) on derivative liability Share-based compensation expense (recovery) Other expense Gain on debt extinguishment	73 80 8 5 — (155) — — 932 975 1,011 1,071 1,155 1,278 1,132 1,101 (466) 51 (144) — — — — — (407) (113) (201) (96) 27 (22) 77 186 13,929 7,780 (5,755) 108 12 66 112 44 — — — — — —(27,690) —
Adjusted EBITDA(2)	12,582 12,047 9,184 14,609 (2,068) 13,019 12,161 12,674
Sand revenue sales/MT Gross margin Cost of sales - depreciation	128.10 122.81 121.92 108.90 104.81 107.04 103.17 102.41 8,890 7,744 10,622 6,377 175 7,039 11,066 10,688 10,772 10,936 6,351 13,430 3,241 10,264 5,253 7,582
Adjusted Gross Margin(2)	19,662 18,680 16,973 19,807 3,416 17,303 16,319 18,270
Gross margin/MT Adjusted Gross Margin/MT(2)	17.61 14.06 22.17 8.37 1.43 11.55 23.33 16.56 38.94 33.92 35.43 25.98 27.91 28.39 34.40 28.30

Notes:

(1) Prior year amounts have been restated to reflect the 12:1 share consolidation pursuant to the Recapitalization Transaction.

(2) EBITDA, Adjusted EBITDA and Adjusted Gross Margin are not defined under IFRS, refer to ‘Non-IFRS Measures’ below.

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Source’s business is seasonal in nature with the majority of activity normally being in the first and third quarters of the year. Lower activity levels are usually realized in the fourth quarter, as E&P companies evaluate remaining capital spend for the year, and in the second quarter due to spring break-up. Spring break-up occurs for a period of approximately eight weeks between March and June as the frost comes out of the roads in Western Canada and hauling weight restrictions are put in place. The severity of the winter snowfalls and the amount of moisture received during this period impact the length of spring break-up. As a result, Source’s operating results may vary on a quarterly basis. In addition, some exploration and production areas in Northern Canada are accessible only in the winter months when the ground is frozen. There are other factors that will impact the Company’s activities from quarter-toquarter including commodity prices and completion activity levels of E&P companies.

As a general industry practice, frac sand washing facilities in Wisconsin are not operated during the winter months. However, Source’s sand washing facility at its Sumner facility is fully enclosed and heated, making it capable of operating year-round. Winter operations at the Sumner facility are an important aspect of Source’s business, as the WCSB is seasonally busiest in the winter months. Regardless of its ability to wash sand in the winter, Source mines and washes more sand than current delivery requirements during the warmer months when Source’s processing facilities are more efficient. The excess sand is placed in stockpiles that feed drying operations throughout the year. Source’s wash plants at the Blair and Preston facilities are not enclosed and therefore are generally not operated during the winter months unless the temperature is warm enough, but the dry plants are operated year-round.

Liquidity and Capital Resources

Free Cash Flow

Free Cash Flow
	Three months ended March 31,
($000’s)	2021	2020
Cash flows provided by operating activities	5,364	8,787
Financing expense paid	(2,141)	(2,534)
Maintenance and sustaining capital spend	(1,120)	(1,413)
Repayment of lease obligations	(3,458)	(5,802)
Satisfaction ofperformance obligations, net ofproceeds on contract liabilities	827	1,368
Free Cash Flow(1)	**(528) **	406

Note:

(1) Free Cash Flow is not defined under IFRS, refer to ‘Non-IFRS Measures’ below. The reconciliation to the comparable IFRS measure can be found in the table above.

For the three months ended March 31, 2021, Free Cash Flow was negative $0.5 million compared with $0.4 million generated for the three months ended March 31, 2020. The reduction was primarily due to higher changes in noncash working capital due to lower levels of activity which resulted in smaller reductions in inventory levels at the end of the first quarter relative to the same quarter last year. Free Cash Flow benefited from the renegotiation of long-term lease obligations completed last year, lowering lease obligation repayments and financing expense paid in the quarter.

Source funded its capital spend in the first quarters of 2021 and 2020 through amounts available under the Credit Facility and cash flows from operations. Free Cash Flow generated will be used to lower amounts outstanding on the ABL, which fluctuates with the movement in working capital balances, as well as funding requirements of the operations of the business. Source continues to focus on expenditure levels to ensure that it can generate free cash flows which can be used to continue to deleverage the business.

Source operates in a working capital and capital expenditure intensive industry where capital is required to fund working capital growth and maintenance capital expenditures for the Company. Late last year Source completed a restructuring transaction as a result of the prolonged slowdown in the Western Canadian oil and gas industry (the “Recapitalization Transaction”). The Recapitalization Transaction provided the Company with a stronger long-term capital structure, including the issuance of new senior secured notes (the “Notes”). The Company has a banking operating facility comprised of the ABL, a standby letter of credit facility and, as a result of the Recapitalization Transaction, a senior secured term loan (collectively, the “Credit Facility”). Source intends to fund future working capital and capital expenditures using cash flows from operating activities, amounts available under the existing Credit Facility and additional debt or equity issuances as may be required. The availability of any additional future funding beyond that provided by the Recapitalization Transaction will depend on, among other things, operating performance and the current state of the equity and debt capital markets.

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Capital Management

Capital expenditures	Three months ended March 31,	Three months ended March 31,
($000’s)	2021	2020
Terminal	13	4
Wellsite solutions	156	205
Production	191	484
Overburden removal	956	828
Other	—	100
Capital expenditures	1,316	1,621

Source’s capital expenditures fall into three main categories: capital expenditures at existing terminals and mine facilities to make improvements and maintain operations, growth capital expenditures for new capacity to grow production or distribution and overburden removal. Capital expenditures for the first quarter of 2021 were $1.3 million, a decrease of $0.3 million from the same period last year.

Source’s capital management policy is to maintain a strong capital base that optimizes its ability to grow, maintain investor and creditor confidence and to provide a platform to create value for its stakeholders. Source considers its capital structure to include Source’s equity, the Notes and Credit Facility and manages its capital structure through various means including monthly management meetings and quarterly Board meetings to review financial information. Source evaluates and monitors its capital based on its current working capital, available bank line, projected cash flows provided by operating activities and anticipated capital expenditures. Source’s management prepares annual capital expenditure and operating budgets which are approved by the Board and are regularly reviewed and updated as necessary.

As noted above, Source completed the Recapitalization Transaction late in 2020 which resulted in a stronger longterm capital structure. Source’s ability to fund future operating expenses and capital expenditures, to make scheduled payments of interest on the Notes and the Credit Facility and to satisfy any of Source’s other present or future debt obligations will depend on Source’s future operating performance which will be affected by general economic, financial and other factors.

The Company’s share capital is not subject to external restrictions; however, the amount of the ABL facility available for use is determined by levels of accounts receivable and inventory. Pursuant to the amended and restated credit agreement, the Company is subject to externally imposed capital requirements as follows:

• a minimum level of excess availability of $5,000;

• a minimum level of the average of the prior three months trailing twelve months of earnings before interest, tax, depreciation and amortization ending at predetermined dates through December 31, 2022 and calculated at each fiscal calendar month, equal to a range of $8,500 to $12,000 for 2021 and $12,000 to $25,000 for 2022;

• maximum capital expenditures totaling $6,000 plus permitted capital expenditures, for each of the fiscal calendar years ended 2021 and 2022 and increased to $8,000 for 2023; and

• commencing June 30, 2022, a springing fixed charge ratio of 1.10:1 which shall increase to 1.25:1 on September 30, 2022 and all time thereafter. The fixed charge coverage ratio is defined as the ratio of (i) earnings before interest, tax, depreciation and amortization for the twelve calendar months ending at each fiscal calendar month end less unfinanced capital expenditures, cash taxes and distributions to shareholders and (ii) the interest expense paid in cash plus accrued and unpaid interest related to the senior secured notes for the twelve calendar months ending at such fiscal calendar month.

As of March 31, 2021, Source was in compliance with all of its covenants. Source’s capital management policy has not changed during the three months ended March 31, 2021.

Long-term Debt

Long-term Debt
($000’s)	March 31, 2021	December 31, 2020
Senior secured notes, net of derivative asset	129,204	124,022
ABL facility	7,505	3,736
Senior secured term loan	18,000	20,000

Senior Secured Notes

On December 30, 2020, Source issued $142.2 million in aggregate principal amount of new senior secured notes (as defined above), thereby replacing the previously issued senior secured notes. The Notes bear interest at 10.5% and

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mature on March 15, 2025. The Company has the option to defer payment of interest owed in cash and pay interest in kind, at a rate of 12.5%, for all quarterly interest payments due on or before February 15, 2022 through the issuance of additional notes. For the three months ended March 31, 2021, Source elected to pay interest in kind resulting in $2.3 million of additional Notes issued. The Notes are secured by a fixed and floating charge over all assets of the business, except for an amount up to a maximum of $20 million, plus accrued interest and fees, for amounts committed under the senior secured term loan, as outlined below. The Notes also have a second charge on accounts receivable and inventory.

The Notes contain prepayment options, whereby the Company may redeem all or a part of the Notes at any time after December 31, 2020 at the applicable percentage (2021 - 102%, 2022 - 101%, 2023 and thereafter - 100%), plus accrued and unpaid interest. The prepayment options have been classified as a derivative asset which are measured at fair value through profit and loss.

Credit Facility

The Company has an ABL facility which matures on September 30, 2023 and bears interest based on the bank’s prime lending rate and CDOR or LIBOR rates, plus an applicable margin. The ABL is secured by a floating first lien charge on the accounts receivable and inventory of the Company under a general business security agreement and a second lien charge on all other assets of the business. The amount available under the general operating facility is subject to a borrowing base formula applied to accounts receivable and inventories. As of March 31, 2021, $7.5 million (excluding unamortized transaction costs) was drawn under this facility (December 31, 2020 - $3.7 million).

The ABL facility includes a standby letter of credit that does not affect the facility’s borrowing base. In March 2021, this facility was increased by US$3.5 million, thereby reducing amounts committed to supporting letters of credit under the ABL facility by the same amount. Concurrent with the facility reduction and as per the terms of the senior secured term loan, a $2.0 million repayment was completed (see below). The Credit Facility was also being used to support $9.9 million of letters of credit (December 31, 2020 - $14.6 million) leaving $26.5 million of available liquidity (December 31, 2020 - $17.3 million). Source is subject to externally imposed capital requirements for the Credit Facility, requiring the Company to maintain the financial covenants as outlined above.

Source has an additional credit facility in the form of a senior secured term loan (the “Term Loan”) with an initial principal amount of up to $20 million. The Term Loan bears interest at Canadian prime plus 6% and matures on September 30, 2023, provided that the Term Loan shall be reduced to $10.5 million on March 31, 2022 and further reduced to $5.0 million on March 31, 2023. The Term Loan is secured by a fixed and floating first charge over all assets of the business. In March 2021, a $2.0 million repayment was completed reducing the amount drawn on this facility to $18.0 million as at March 31, 2021, as outlined above.

Foreign Currency Risk

Source is exposed to currency price risk on sales denominated in US dollars to the extent that the receipt of payment of the US denominated accounts receivable are subject to fluctuations in the related foreign exchange rate. In addition, foreign currency risk exists on the cost of manufacturing and transporting inventory for sale to the extent that the payment of those costs are foreign denominated accounts payable and are subject to fluctuations in the foreign exchange rate. Source monitors its net foreign currency exposure on a regular basis. Included in accounts receivable and accounts payable and accrued liabilities at March 31, 2021 are $20.7 million (December 31, 2020 - $18.5 million) and $13.7 million (December 31, 2020 - $14.9 million) denominated in foreign currency, respectively. The net effect of each 1% change in foreign exchange would have an impact on net income of $0.2 million for the three months ended March 31, 2021 (three months ended March 31, 2020 - $0.2 million).

Cash and Net Working Capital

As at March 31, 2021, Source had no cash on hand and had senior long-term debt outstanding of $153.4 million, compared to $147.3 million as at December 31, 2020. The increase in senior long-term debt outstanding was due to $2.3 million of additional Notes issued as a result of the Company electing to pay its February 15, 2021 quarterly interest payment in kind, and accrued interest for the Notes to the end of the quarter. Higher draws made on the ABL also contributed to the increase, partially offset by lower amounts outstanding for the Term Loan.

Total current assets less total current liabilities (net working capital) as at March 31, 2021 was $41.1 million, compared to $45.5 million as at December 31, 2020. The decrease in net working capital relative to the fourth quarter of 2020 was due to lower inventories resulting from higher sales volumes in the period and an increase in current liabilities related to the current portion of the Term Loan, partially offset by higher levels of accounts receivable.

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Contract Liabilities

Source entered into an agreement with one of its customers, effective January 1, 2018, where Source received $14.8 million (US$11.5 million) as a prepayment for future purchases of proppant. In consideration for the prepayment, the price per MT to the customer was reduced for each MT of sand sold to the customer. The cash price per MT was also reduced for each MT of sand sold or pumped by the customer.

In December 2020, the Company recognized deferred revenue with a customer where the completion of terminal services had not been fulfilled. Source realized revenue for the value of these services which were performed during the three months ended March 31, 2021.

During the three months ended March 31, 2021, $0.9 million of these obligations were satisfied, with a balance of $nil remaining.

Contractual Obligations

Source has various commitments regarding lease agreements and physical natural gas contracts. The leases expire between April 2021 and March 2032. The natural gas contracts expire in March 2023. The financial liabilities on Source’s condensed consolidated interim statements of financial position consist of the Notes, Credit Facility and leases. Source’s planned cash outflows relating to lease commitments and financial liabilities are outlined in the table below:

below:
							2026 and
($000’s)	Total	2021	2022	2023	2024	2025	beyond
Lease liabilities	43,145	9,543	9,929	7,799	6,644	4,020	5,210
Other commitments	2,354	867	1,177	310	—	—	—
Credit Facility(1)	25,505	—	7,500	18,005	—	—	—
Notes(2)	216,264	—	15,047	17,160	17,169	166,888	—

Notes:

(1) Interest payments on such balances have been excluded from the above table as the amount and timing of any interest payments will fluctuate depending on balances outstanding and applicable interest rates. Based on March 31, 2021 balances and interest rates, and assuming amounts remain outstanding until maturity, estimated total interest expense would be $6.2 million.

(2) Includes interest for future periods and assumes the Company will elect to pay interest in kind at a rate of 12.5% through February 15, 2022 and subsequently pay interest in cash at 10.5% (refer to Long-term Debt section above for additional information).

Source is a party to contracts with numerous customers. Source’s customers consist primarily of E&P companies and pressure pumping companies operating in the WCSB. Source has structured contracts with customers outlining volume commitments and, in some cases, fixed pricing, the terms of which vary from one to three years. This mitigates the impact of any non-payment or non-performance or significant reduction in purchases by any of these contracted customers. Source’s customers are also serviced on a spot basis where volume thresholds are not set, and orders are serviced on an as-available basis at prevailing market prices.

In the ordinary course of conducting business, Source occasionally becomes involved in legal proceedings relating to contracts, environmental issues or other matters. While any proceeding or litigation has an element of uncertainty, management of Source believes that the outcome of any pending or threatened actions will not have a material adverse effect on the business or on the financial condition of Source, except as follows:

Source is currently pursuing claims against certain organizations in respect of damages related to the structural failure of assets at its Fox Creek Terminal Facility. Source intends to pursue this matter for which the damages, if awarded to the Company in their entirety, could be a material amount. However, litigation is inherently uncertain and a favourable outcome cannot be assured.

Off-Balance Sheet Arrangements

Source does not have any off-balance sheet arrangements at this time.

Outstanding Shares

As at March 31, 2021 and May 5, 2021, Source had issued and outstanding 13,545,055 common shares (March 31, 2020 - 4,971,042).

Transactions between Related Parties

During the first quarter of 2021 there were no related party transactions.

Proposed Transactions

Source does not have any proposed transactions other than those occurring in the ordinary course of business.

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Controls and Procedures

The Company is required to comply with National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings . The certificate for annual filings requires the Chief Executive Officer and the Chief Financial Officer to certify the design of Source’s disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”) as at March 31, 2021. There were no material weaknesses in the design of the DC&P and the ICFR at March 31, 2021, and no changes in ICFR during the period beginning on January 1, 2021 and ended on March 31, 2021 that have materially affected or are reasonably likely to materially affect Source’s ICFR. The control framework used to design the Company’s ICFR is the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. While the Company’s certifying officers believe that the Company’s DC&P and ICFR provide a reasonable level of assurance with regard to their effectiveness, a control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met and it should not be expected that the control system will prevent all errors or fraud.

Financial Instruments and Other Instruments

Risk Management Overview

Source’s activities expose it to a variety of financial risks including credit risk, liquidity risk and market risk. Further quantitative disclosures are included in the Company’s financial statements. Source employs risk management strategies and policies to ensure that any exposures to risk are in compliance with Source’s business objectives and risk tolerance levels. While the Board has the overall responsibility for Source’s risk management framework, Source’s management has the responsibility to administer and monitor these risks.

For additional information regarding the risks that Source is exposed to, see the disclosure provided under the heading ‘Risk Factors’ in the AIF.

Fair Value of Financial Instruments

The fair values of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying values due to the short-term maturity of those instruments. The fair value of the Credit Facility approximates the carrying value as it bears interest at floating market rates consistent with market rates for similar debt. Based on the closing market price as of March 31, 2021, the fair value of the Notes was $37.0 million. The fair value for the prepayment options were determined using various inputs including comparable securities trading in the secondary market. Based on this analysis, as of March 31, 2021, the fair value of prepayment options was $1.5 million.

Critical Accounting Estimates

The following discussion sets forth management’s most critical estimates and assumptions in determining the value of assets, liabilities and equity.

Allowance for doubtful accounts

The Company performs ongoing credit evaluations of its customers and grants credit based on a review of historical collection experience, current aging status, the customer’s financial condition and anticipated industry conditions. Customer payments are regularly monitored. A provision for doubtful accounts is established based on the expected credit loss model under IFRS 9.

Inventories

The Company evaluates its inventory to ensure it is carried at the lower of average cost and net realizable value. Allowances are made against obsolete or damaged inventories and charged to cost of sales. The reversal of any write-down of inventory arising from an increase in net realizable value would be recognized as a reduction in cost of sales in the period in which the reversal occurred.

Depreciation

The amounts recorded for depreciation of property and equipment are based on estimates of the useful lives of the assets and residual values. This estimated residual value and useful lives of property and equipment are reviewed at the end of each reporting period and adjusted if required.

Decommissioning liabilities

The amounts recorded for decommissioning liabilities are based on the Company’s mining activities and the estimated costs to abandon and reclaim the land and facilities, the estimated time period in which these costs will be incurred in the future and the discount and inflation rates. Any changes to these estimates could change the amount

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of decommissioning liability and may materially impact the condensed consolidated interim financial statements in future periods.

Income taxes

The amounts recorded for deferred income taxes are based on estimates regarding the timing of the reversal of temporary differences and tax rates currently substantively enacted. Legislation and regulations in the various jurisdictions that the Company operates in are subject to change and differing interpretations require management judgment. Income tax filings are subject to audits, re-assessments and changes in facts, circumstances and interpretations of the standards could result in a material change in the Company’s provision for income taxes. As such, income taxes are subject to measurement uncertainty.

Share-based compensation

Liability-settled compensation plans include RSUs, PSUs and DSUs. RSUs and PSUs may be settled in common shares or cash. DSUs, RSUs and PSUs may be settled for cash payments and accordingly are considered a liabilitysettled award for accounting purposes. The fair value of stock options to purchase common shares is estimated at the grant date using the Black-Scholes option pricing model, which includes underlying assumptions related to the riskfree interest rate, average expected unit life, estimated forfeitures and estimated volatility of Source.

Cash-generating units

The determination of a cash-generating unit (“CGU”) is based on management’s judgment regarding geographical proximity, shared equipment and mobility of equipment. Management has determined that the Company’s operations represent one CGU.

Impairment of non-financial assets

Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (CGUs). The recoverable amount of a CGU is determined using an approach which considers a discounted cash flow model and an earnings multiple approach. The discounted cash flow model incorporates significant assumptions including a revenue growth rate and discount rate. The earnings multiple approach uses earnings before interest, taxes, depreciation and amortization less corporate expenses and comparable market multiples to determine the recoverable amount of the CGU. Prior impairments of non-financial assets are reviewed for possible reversal at each reporting date.

Embedded derivatives

An embedded derivative is a component of a contract that modifies the cash flows of the contract. Embedded derivatives are separated from the contract and accounted for as derivative liabilities or assets. Embedded derivatives are measured at fair value through profit or loss. The fair value of the derivatives may be based on prices or valuation techniques that require inputs that are not based on observable market data.

Revenue recognition

Contractual arrangements for revenue are intricate and may have multiple contractual elements within them, resulting in complex recognition in the financial statements. The contractual elements which require significant consideration may include embedded derivatives, contract liabilities, take-or-pay commitments and leasing arrangements. Significant judgement is required in identifying and assessing the appropriate accounting recognition for each contractual element identified within these contractual arrangements.

NON-IFRS MEASURES

This MD&A refers to certain financial measures that are not determined in accordance with IFRS. These financial measures 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. Source believes that these non-IFRS measures are useful to both management and investors in providing relative performance and measuring changes in respect of Source as well as measuring Source’s financial performance in the context of earnings generated to fund capital investments and meet financial obligations. More specifically, EBITDA, Adjusted EBITDA, Adjusted Gross Margin and Free Cash Flow are considered key nonIFRS measures as they reflect the ability of Source to generate earnings necessary to meet its capital investments

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and financial obligations. Adjusted EBITDA per MT and Adjusted Gross Margin per MT are calculated by taking the non-IFRS measures and dividing by sand volumes for the periods stated.

Adjusted EBITDA represents earnings generated to fund capital investments and meet financial obligations. It represents, for the period presented, EBITDA as adjusted to add back or deduct, as applicable, the following expenses, costs, charges or benefits incurred in such period which in management’s view are not indicative of the underlying business performance: (a) finance expense excluding interest expense; (b) loss (gain) on asset disposal; (c) transaction and professional fees; (d) loss (gain) on derivative liability; (e) gain on settlement of deferred revenue; (f) share-based compensation; and (g) other expense as it relates to the Fox Creek Incident.

EBITDA represents, for the period presented, net income (loss) plus: (a) income taxes; (b) interest expense; (c) cost of sales – depreciation; (d) depreciation; (e) amortization; (f) impairment; and (g) gain on debt extinguishment, in each case to the extent deducted from net income in such period determined on a combined basis in accordance with IFRS.

Adjusted Gross Margin represents a margin more comparable to its peers. It represents, for the period presented, gross margin plus costs of sales - depreciation.

Free Cash Flow represents, for the period presented, cash flows provided by (used in) operating activities adjusted for financing expense paid, maintenance and sustaining capital spend needed to maintain operations, mandatory debt repayments and various non-cash operating activities. Free Cash Flow is considered a key non-IFRS measure as it reflects the ability of Source to fund its discretionary capital and non-capital spend from cash flows provided by operating activities. The reconciliation to the comparable IFRS measure, Cash flows provided by (used in) operating activities, can be found on page 9.

This MD&A makes reference to these non-IFRS measures. These non-IFRS measures and other financial estimates of management are based upon variable components. There can be no assurance that these components and future calculations of non-IFRS measures will not vary. Investors are cautioned not to consider these non-IFRS measures in isolation or place undue reliance on ratios or percentages calculated using these non-IFRS measures.

Reconciliation of EBITDA and Adjusted EBITDA to Net Income

	Three months ended March 31,	Three months ended March 31,
($000’s)	2021	2020
Net loss	(5,386)	(185,347)
Add:
Income taxes	—	31,350
Interest expense	6,362	6,175
Cost of sales – depreciation	7,582	13,430
Depreciation	2,785	4,257
Impairment expense	—	143,656
EBITDA	11,343	13,521
Add:
Finance expense excluding interest expense	1,101	1,071
Share-based compensation expense (recovery)	186	(96)
Loss on asset disposal	—	5
Other expense	44	108
Adjusted EBITDA	12,674	14,609

Reconciliation of Gross Margin to Adjusted Gross Margin

	Three months ended March 31,	Three months ended March 31,
($000’s)	2021	2020
Gross margin	10,688	6,377
Cost of sales – depreciation	7,582	13,430
Adjusted Gross Margin	18,270	19,807

FORWARD-LOOKING STATEMENTS

Certain statements contained in this MD&A 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-

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looking statements can be identified by the use of words such as “expects”, “estimates”, “intends”, “anticipates”, “believes”, “plans”, “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 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 MD&A contains forward-looking statements pertaining, but not limited, to: our continued optimism for longer term industry prospects and 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 continue to have on the Company’s business, liquidity, operations and financial condition and the pace of any subsequent recovery; 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; 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; expectations regarding fluctuations in foreign currency; and expectations regarding the outcome of legal claims and proceedings, including but not limited to the outcome of Source’s anticipated claim for damages related to the structural failure of its Fox Creek Terminal Facility.

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 MD&A, 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;

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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; the impact of information systems and cyber security breaches; and risks and uncertainties related to COVID-19 or its variants, 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 MD&A 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 MD&A. 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 MD&A 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 forwardlooking 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.

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