Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX:SES) today
announced financial and operational results for the three months and year ended
December 31, 2013. The following should be read in conjunction with the
management's discussion and analysis ("MD&A"), the annual audited consolidated
financial statements and notes of Secure which are available on SEDAR at
www.sedar.com.
2013 FINANCIAL AND OPERATIONAL HIGHLIGHTS
During 2013, Secure continued to execute on its corporate strategy to deliver
solid operational and financial performance resulting in record results both on
a quarterly and year to date basis. For the year ended December 31, 2013,
revenue (excluding oil purchase and resale) and EBITDA increased 38% to $541.9
million and $137.5 million respectively, while total assets increased 35% to
$1,039.7 million over the year ended December 31, 2012, reflecting the continued
focus on organic growth and expansion initiatives combined with the execution of
strategic acquisitions to strengthen the value chain of services offered by the
Corporation. The increase was driven by the commissioning of six new facilities
during 2013 and the Rocky Mountain and Judy Creek FSTs that were part of the
2012 capital program in the Processing, Recovery and Disposal ("PRD") division;
a 19% increase in revenue per operating day, and an increased rental fleet
including the acquisition of Target in the Drilling Services Division ("DS");
and the acquisition of Frontline in the OnSite Services ("OS") division. As a
result of the strong performance for the year, a strong balance sheet and stable
cash flows, the board of directors have approved an increase to the dividend of
$0.05 per share to $0.20 per share on an annualized basis.
The operating and financial highlights for the year ended December 31, 2013 are
summarized as follows:
Three Months Ended December 31, Year Ended Dec 31,
($000's except
share and per % %
share data) 2013 2012 change 2013 2012 change
----------------------------------------------------------------------------
Revenue
(excludes oil
purchase and
resale) 155,427 108,356 43 541,947 392,192 38
Oil purchase
and resale 232,522 170,501 36 950,593 637,248 49
----------------------------------------------------------------------------
Total revenue 387,949 278,857 39 1,492,540 1,029,440 45
----------------------------------------------------------------------------
EBITDA (1) 42,108 28,360 48 137,512 99,624 38
Per share
($), basic 0.38 0.27 41 1.28 1.03 24
Per share
($),
diluted 0.37 0.26 42 1.24 1.00 24
----------------------------------------------------------------------------
Net earnings 11,545 10,634 9 38,963 33,052 18
Per share
($), basic 0.10 0.10 - 0.36 0.34 6
Per share
($),
diluted 0.10 0.10 - 0.35 0.33 7
----------------------------------------------------------------------------
Funds from
operations
(1) 35,339 24,785 43 121,014 87,796 38
Per share
($), basic 0.32 0.24 33 1.12 0.91 23
Per share
($),
diluted 0.31 0.23 35 1.09 0.88 24
----------------------------------------------------------------------------
Cash dividends
per common
share 0.04 nil 100 0.10 nil 100
Capital
Expenditures
(1) 64,260 67,604 (5) 224,861 201,587 12
Total assets 1,039,725 767,911 35 1,039,725 767,911 35
Long term
borrowings 159,931 122,810 30 159,931 122,810 30
Total
liabilities 240,913 178,902 35 240,913 178,902 35
----------------------------------------------------------------------------
Common Shares
- end of
period 116,574,147 104,627,002 11 116,574,147 104,627,002 11
Weighted
average
common shares
basic 110,706,772 104,530,375 6 107,747,722 96,388,929 12
diluted 113,700,987 107,456,318 6 110,586,896 99,362,698 11
----------------------------------------------------------------------------
(1)Refer to "Non GAAP measures and operational definitions" and "Additional
GAAP measures" for further information
FULL YEAR REVENUE INCREASES
-- Revenue (excluding oil purchase and resale) of $541.9 million for the
year ended December 31, 2013 increased 38% compared to 2012.
-- PRD division revenue (excluding oil purchase/resale) for the year
ended December 31, 2013 increased 43% compared to 2012. Revenue
increased as a result of increased demand and new facility additions
and expansions including five facilities in Canada and three in
North Dakota. Crude oil marketing revenue increased 131% for the
year ended December 31, 2013 compared to the prior year as a result
of increased throughput at the Corporation's pipeline connected full
service terminals ("FSTs"), the Corporation's ability to capitalize
on market spread differential opportunities (including maximizing
crude oil marketing opportunities available by shipping crude oil
via rail), and the Judy Creek FST becoming pipeline connected in the
third quarter of 2013.
-- DS division revenue of $308.2 million increased 27% compared to
2012. Drilling Fluids Canadian market share increased from 29% to
32% and revenue per operating day increased by 19% from 2012.
Overall there was higher field activity as meters drilled in Canada
increased by 4% for the year ended December 31, 2013 compared to the
prior year as reported by the Canadian Association of Drilling
Contractors ("CAODC"). The acquisition of Target in the second
quarter increased the rental fleet and contributed to an increase of
31% in rental revenue for the year.
-- OS division revenue of $54.4 million for the year ended December 31,
2013 increased by 131% over 2012. The acquisition of Frontline on
April 1, 2013 significantly contributed to the increase in revenues
combined with a 29% increase in environmental projects completed,
and a full year of operations for the CleanSite business.
-- Oil purchase and resale revenue in the PRD division increased 49% to
$950.6 million for the year ended December 31, 2013 compared to 2012.
The increase resulted from increased throughput and crude oil marketing
activity at existing facilities and the Judy Creek FST becoming pipeline
connected in the third quarter of 2013.
-- 38% INCREASE IN EBITDA TO $137.5 MILLION
-- For the year ended December 31, 2013, EBITDA increased 38% as
compared to 2012. EBITDA increased in all three divisions through
the addition of new facilities, capitalizing on crude oil marketing
opportunities, and higher demand in the PRD division, increase in
market share and revenue per operating day in the DS division
combined with the acquisition of Target, and the acquisition of
Frontline combined with an increase in the number of environmental
projects in the OS division as detailed above in the revenue
highlights.
-- Earnings per share increased to $0.36 from $0.34 in the prior year.
The growth in earnings per share is lower than the growth in EBITDA
because of the addition of amortization and depreciation charges
related to the Corporation's continued investment in long term
strategic acquisitions and organic projects ahead of their
contribution to earnings. In addition, issuance of shares through
acquisitions and bought deal financings continue to increase the
weighted average number of shares.
-- INCREASED CAPITAL SPENDING THROUGH ORGANIC GROWTH AND STRATEGIC
AQUISITIONS
-- Organic growth capital totaled $193.8 million for the year ended
December 31, 2013 and includes 2012 carryover capital related to the
Judy Creek and Rocky FSTs. The Corporation increased its 2013
capital expenditure program from $155.0 million to $195.0 million
during the year and in the fourth quarter announced the 2014 capital
expenditure budget of $225.0 million. Major expenditures for the
year ended December 31, 2013 included:
-- 2012 carry over capital for the Rocky and Judy Creek FSTs, that
were completed and commissioned during the second and third
quarters of 2013;
-- Growth capital consisting of eight new PRD facilities with
construction commencing or completed in 2013:
-- Three FSTs - Kindersley FST (phase one treating and
disposal) which was commissioned in late December, 2013,
Edson, and Keene (North Dakota) which are expected to be
opened at the start of the second quarter of 2014;
-- Three stand-alone water disposals ("SWDs") - Kaybob, and
Stanley (North Dakota) were completed and commissioned
during the third and fourth quarter of 2013, Keene (North
Dakota) was completed and commissioned in the fourth
quarter;
-- Two landfills - Saddle Hills and 13 Mile (North Dakota) were
completed and opened during the fourth quarter of 2013;
-- Expansion capital consisting of:
-- Landfill cells were completed during the year at Pembina,
Fox Creek, and South Grande Prairie;
-- Second treaters at Fox Creek FST and Drayton Valley FST were
completed, commissioned and were fully operational in the
second half of 2013;
-- Second disposal well at 13 Mile (North Dakota) was completed
and commissioned in the fourth quarter;
-- Various long lead purchases for 2014 PRD capital projects and
rental equipment for the DS division. Both the PRD and DS
divisions continue to heavily invest in business development,
including research and development activities, pilot projects
for water and oil recycling, and front end development for 2014
projects.
-- During the year, the Corporation completed two strategic acquisitions;
-- On April 1, 2013 the Corporation acquired Frontline for an aggregate
purchase price of $22.4 million. Frontline's core services include
pipeline integrity; remediation and reclamation; and demolition and
decommissioning performed throughout Western Canada. The Frontline
acquisition created the OnSite Services division, which includes
environmental services and the integrated water solutions group.
-- On July 2, 2013, the Corporation acquired Target for an aggregate
purchase price, including assumed debt, of $40.1 million. Target was
a privately owned oilfield service company headquartered in Grande
Prairie, Alberta that offers equipment rental and support services
in both the drilling and completions sectors. Their core service is
the supply of a patented dual containment fluid storage tank system
for oil based drilling fluid applications. The "Target Tank" system
provides customers with a safe, environmentally responsible, cost
effective solution to storing oil based drilling fluids and other
sensitive fluids at the drill site.
-- BRAZEAU SWD UPDATE
-- During the fourth quarter, the Corporation completed the repairs to
the facility as a result of the lightning strike in the second
quarter of 2013 and the SWD is now operational.
-- SOLID BALANCE SHEET
-- On October 29, 2013, the Corporation entered into an amended and
extended $400.0 million revolving credit facility (the "credit
facility"). The previous revolving credit facility was increased
from $300.0 million to $400.0 million and includes an accordion
feature which if exercised, would increase the credit facility by
$50.0 million with the consent of the lenders. The credit facility
consists of a $390.0 million extendible revolving term credit
facility and a $10.0 million revolving operating facility. The
credit facility was extended along with an interest rate reduction
of 25 basis points.
-- On November 20, 2013, the Corporation entered into an agreement on a
bought deal basis (the "offering") with a syndicate of underwriters,
pursuant to which the underwriters agreed to purchase for resale to
the public 7,166,123 common shares (including overallotment) of the
Corporation at a price of $15.35 per common share for gross proceeds
of $110.0 million. The proceeds of the offering will be used by the
Corporation to fund capital expenditures and for general working
capital and corporate purposes.
-- During the year, the Corporation announced it would begin paying a
dividend commencing May 1, 2013. In conjunction with the dividend,
the Corporation also announced the adoption of a Dividend
Reinvestment Plan ("DRIP"). The DRIP provides eligible shareholders
with the opportunity to reinvest their cash dividends into the
Corporation.
-- Secure's debt to EBITDA ratio was 1.38 as of December 31, 2013
compared to 1.51 as of December 31, 2012.
-- SUBSEQUENT EVENTS
-- Subsequent to year end, Secure executed two strategic acquisitions
for an aggregate purchase price of approximately $28.7 million, paid
in cash and shares of the Corporation. These acquisitions fall into
the OS division with assets that will grow the Corporation's
integrated water solutions service line and establish an onsite
market presence in the US. This is a continuation of the
Corporation's strategy to add complementary services along the
energy services value chain.
-- In January of 2014, Secure entered into a purchase agreement for a
mineral products plant in Alberta for total consideration of $12.0
million. The mineral products plant mainly processes barite which is
a product used in drilling fluids. The mineral products plant allows
Secure to vertically integrate the operations into the DS division
to improve supply logistics and quality. The transaction is pending
and is anticipated to close in April of 2014.
FOURTH QUARTER HIGHLIGHTS
-- Revenue (excluding oil purchase and resale) of $155.4 million for the
three months ended December 31, 2013 increased 43% compared to the same
period in 2012.
-- PRD division revenue (excluding oil purchase/resale) for the three
months ended December 31, 2013 increased 46% compared to the same
period in 2012. Revenue for the quarter increased as a result of
increased demand and new facility additions and expansions
subsequent to the fourth quarter of 2012. Disposal volumes increased
36% over the comparative quarter of 2012 as a result of the
Corporation commissioning landfills in the fourth quarter at 13
Mile, North Dakota and Saddle Hills, Alberta combined with cell
expansions at the Fox Creek and South Grande Prairie landfills.
-- DS division revenue of $86.3 million increased 32% compared to the
same period in 2012. DS Canadian revenue per operating day increased
22% over the comparative quarter of 2012 combined with an overall
higher field activity level as reported by the CAODC as average rig
count increased 6% quarter over quarter. In addition, meters drilled
in Canada increased by 8% in the fourth quarter of 2013. The
acquisition of Target in the second quarter contributed to an
increase of 43% in rental revenue in the quarter.
-- OS division revenue of $17.6 million for the three months ended
December 31, 2013 increased by 134% over the same period in 2012.
The acquisition of Frontline on April 1, 2013 significantly
contributed to the increase in revenue, combined with an increase in
environmental projects completed resulting in an increase of 44% for
the quarter, and a full quarter of operations for the CleanSite
business which began operations in the fourth quarter of 2012.
-- EBITDA increased 48% over 2012 fourth quarter
-- For the three months ended December 31, 2013, EBITDA increased 48%
as compared to the same period in 2012. EBITDA increased in all
three divisions through the addition of new facilities, capitalizing
on crude oil marketing opportunities, and higher demand in the PRD
division, increase in revenue per operating day in the DS division,
combined with the acquisition of Target, contributed to higher
margins for the quarter, and the increase in environmental project
work and the acquisition of Frontline in the OS division as detailed
above in the revenue highlights.
PRD DIVISION OPERATING HIGHLIGHTS
Three Months Ended
December 31, Year Ended December 31,
% %
($000's) 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Revenue
Processing, recovery
and disposal
services (a) 51,586 35,269 46 179,343 125,833 43
Oil purchase and
resale service 232,522 170,502 36 950,593 637,248 49
-----------------------------------------------------
Total PRD division
revenue 284,108 205,771 38 1,129,936 763,081 48
Operating Expenses
Processing, recovery
and disposal
services (b) 20,857 13,346 56 68,385 48,601 41
Oil purchase and
resale service 232,522 170,502 36 950,593 637,248 49
Depreciation,
depletion, and
amortization 13,749 8,968 53 44,607 29,114 53
-----------------------------------------------------
Total operating
expenses 267,128 192,816 39 1,063,585 714,963 49
General and
administrative 5,982 3,961 51 23,247 12,392 88
-----------------------------------------------------
Total PRD division
expenses 273,110 196,777 39 1,086,832 727,355 49
Operating Margin (1)
(a-b) 30,729 21,923 40 110,958 77,232 44
Operating Margin (1)as
a % of revenue (a) 60% 62% 62% 61%
----------------------------------------------------------------------------
(1)Refer to "Non GAAP measures and operational definitions" and "Additional
GAAP measures" for further information
Full year highlights for the PRD division included:
-- Processing: For the year ended December 31, 2013, processing volumes
increased 20% from 2012. Part of the increase relates to the addition of
the following new facilities and services added after the third quarter
of 2012 ("new facilities and services"): completion of the Crosby SWD in
North Dakota in December 2012; Fox Creek Landfill in December 2012;
Edson temporary water injection facility in January 2013; Rocky and Judy
Creek FST's in May 2013; Kaybob SWD in August 2013; Stanley SWD in North
Dakota in September 2013; 13 Mile Landfill in North Dakota in October
2013; Keene SWD in North Dakota and Saddle Hills Landfill in November
2013; and the Kindersley FST in December 2013. Also contributing to the
increase in revenue was an increase in overall demand for the PRD
division's services.
-- Recovery: Revenue from recovery includes revenue from the sale of oil
recovered through waste processing, crude oil handling, marketing and
terminalling. Revenue from recovery for the year ended December 31, 2013
increased by 63% from 2012. A significant portion of the increase in
recovery revenue for the year ended December 31, 2013 is a result of the
Corporation's ability to capitalize on crude oil marketing opportunities
at its FSTs, higher throughput and an average 4% increase in the price
of crude oil over 2012. Crude oil marketing revenue increased by 131%
for the year ended December 31, 2013, from 2012. Increased oil
throughput at the Corporation's pipeline connected FSTs, in conjunction
with the Corporation's ability to capitalize on market spread
differential opportunities (including maximizing crude oil marketing
opportunities available by shipping crude oil via rail), led to the
significant increases in revenue from this service line as compared to
the same period of 2012. In addition, the Corporation's Dawson FST was
fully operational in 2013, and the Judy Creek FST was pipeline connected
and fully operational in the third quarter of 2013.
-- Disposal: Secure's disposal volumes increased by 40% for the year ended
December 31, 2013 from 2012. The following FSTs and landfills opened in
the year contributed to the increase in volumes: Fox Creek Landfill in
December 2012; Rocky and Judy Creek FST's in May 2013; 13 Mile Landfill
in North Dakota in October 2013; and Saddle Hills Landfill in November
2013.
-- Oil purchase/resale service: Revenue from oil purchase and resale
services increased 49% to $950.6 million over the prior year comparative
period. The increase in the year is due to increased pipeline capacity
added in the year at the Judy Creek FST in the third quarter, a 4%
increase in crude oil prices, increased oil throughput at the
Corporation's pipeline connected FSTs, and increasing crude oil volumes
shipped via rail. The revenue from this service line will fluctuate
monthly based on the factors described above.
-- Operating margin as a percentage of revenue for the year ended December
31, 2013 was 62% compared to 61% for 2012. The 1% increase to operating
margin for the year ended December 31, 2013 is a result of improvements
in operating efficiencies at the facilities, increases in recovery
including crude oil marketing activities at the Corporation's pipeline
connected FSTs, and from volumes managed by rail at the Silverdale FST.
-- General and administrative ("G&A") expenses for the year ended December
31, 2013 increased 88% to $23.2 million from $12.4 million in 2012. For
the year ended December 31, 2013, G&A increased to 13% of revenue
(excluding oil purchase/resale) from 10% in 2012. Major drivers of the
increase on year to date comparatives is a 58% increase in wages and
salaries to support the opening of new facilities and growth at existing
facilities both in Canada and the US, a $1.5 million increase in
building and lease costs to accommodate growth of staff in Canada, a
132% increase in facility costs to support growth in North Dakota with
the addition of four new facilities over the prior year, and a $0.9
million increase in information technology expenses related to
information technology systems and licensing of software to support the
growth of the division and consolidate software systems used in the head
office and the field to gain operational efficiencies. The increase in
G&A is reflective of management's intention to prepare for the growth of
the new and expanding facilities as well as the growth in the US PRD
operations. It is management's expectation that G&A as a percentage of
revenues will decrease as operations increase.
Fourth quarter highlights include the following:
-- Processing: For the three months ended December 31, 2013, processing
volumes increased 32% from the comparative period in 2012. Part of the
significant increase relates to the addition of new facilities and
expansions at current facilities as described in the results for the
year ended December 31, 2013. Also contributing to the increase in
revenue was an increase in overall demand for the PRD division's
services.
-- Recovery: Revenue from recovery for the three months ended December 31,
2013 increased by 55% from the comparative period in 2012. A significant
portion of the increase in recovery revenue for the three months ended
December 31, 2013 is a result of the Corporation's ability to capitalize
on crude oil marketing opportunities at its FSTs, higher throughput and
an increase in the price of crude oil of 12% as compared to the fourth
quarter of 2012. Crude oil marketing revenue increased by 111% for the
three months ended December 31, 2013, from the comparative period of
2012. Increased oil throughput at the Corporation's pipeline connected
FSTs, in conjunction with the Corporation's ability to capitalize on
market spread differential opportunities (including maximizing crude oil
marketing opportunities available by shipping crude oil via rail), led
to the significant increases in revenue from this service line as
compared to the same period of 2012. In addition, the Corporation's Judy
Creek FST was pipeline connected and fully operational in the third
quarter of 2013 which contributed to an increase in the quarter.
-- Disposal: Secure's disposal volumes increased by 36% for the three
months ended December 31, 2013 from the comparative period of 2012. As
described above, the increase is due to higher demand for the PRD
division's services and commissioning of the landfills at 13 Mile, North
Dakota and Saddle Hills combined with cell expansions at Fox Creek and
South Grande Prairie in the fourth quarter of 2013.
-- Operating margin as a percentage of revenue for the three months ended
December 31, 2013 was 60% compared to 62% for the comparative period of
2012. The 2% decrease to operating margin for the three months ended
December 31, 2013 is a direct result of one-time, non-recurring
maintenance costs of approximately $1.6 million. During the fourth
quarter, two of the Corporation's disposal wells were down for non-
recurring maintenance. As a result of the down time, produced water and
waste water was diverted to Secure's other facilities resulting in
increased trucking costs for the Corporation. In addition, the
Corporation also incurred costs at one of its landfills for liner
repairs.
DS DIVISION OPERATING HIGHLIGHTS
Three Months Ended
December 31, Year Ended December 31,
% %
($000's) 2013 2012 Change 2013 2012 Change
---------------------------------------------------------------------------
Revenue
Drilling services (a) 86,287 65,572 32 308,160 242,812 27
Operating expenses
Drilling services (b) 62,506 49,142 27 230,400 185,185 24
Depreciation and
amortization 5,104 2,968 72 17,762 12,308 44
--------------------------------------------------
Total DS division
operating expenses 67,610 52,110 30 248,162 197,493 26
General and
administrative 5,978 6,167 (3) 23,549 23,011 2
--------------------------------------------------
Total DS division
expenses 73,588 58,277 26 271,711 220,504 23
Operating Margin (1) (a-
b) 23,781 16,430 45 77,760 57,627 35
Operating Margin %(1) 28% 25% 25% 24%
---------------------------------------------------------------------------
(1)Refer to "Non GAAP measures and operational definitions" and "Additional
GAAP measures" for further information
Full year highlights for the DS division included:
-- Revenue from the DS Division for the year ended December 31, 2013
increased 27% to $308.2 million from $242.8 million in 2012. The
significant increase in revenue for the year ended December 31, 2013 is
the result of a combined 26% increase in drilling fluids service line
revenue and a 42% increase in revenue for the equipment rentals service
line from 2012. Major drivers for the drilling fluids service line
revenue increases in the year are due to increased market share, an
increase in meters drilled, increase in revenue per operating day, and
an increase in SAGD activity. The increase in the equipment rentals
service line is a result of a 5% increase in equipment utilization over
2012, an increase in rental equipment market share as the division
increased its rental fleet size, and the addition of Target on July 2,
2013.
-- Drilling fluids revenue per operating day for the year ended December
31, 2013 increased to $6,430 from $5,419 in 2012. The increase in
revenue per day for the year can be attributed to a 23% increase in
meters drilled for the Corporation which led to higher product usages,
increased probability of lost circulation events and a higher usage of
specialty chemicals. In addition, the Corporation realized a 23%
increase in the proportion of SAGD wells relative to 2012. SAGD wells
are more complex and require more costly drilling fluids which
contribute to the increase in revenue per operating day. For any given
quarter, revenue per operating day can fluctuate significantly due to
changes in the product mix, the type of well that is being drilled, and
the timing of specific drilling events such as the loss of well bore
control either due to pressure or lost circulation.
-- WCSB market share increased by 3% for the year ended December 31, 2013
to 32% from 29% for 2012. The CAODC average monthly rig count for
Western Canada provides the basis for market share calculations.
Operating rig days for the year ended December 31, 2013 were 39,991
compared to 37,203 for 2012. Market share has continued to increase as a
result of the addition of the Drayton Valley blending plant, increase in
SAGD wells drilled where the Corporation has a higher market share than
other operating areas, and the successful integration of the XL and New
West Drilling Fluids Inc. ("New West") acquisitions.
-- For the year ended December 31, 2013, operating margins increased to 25%
from 24% in 2012. The 1% increase can be attributed to the shift in
product mix. Equipment rentals, which have higher operating margins,
made up a larger portion of DS revenue in 2013 as a result of the
addition of Target and an increase in fleet utilization.
-- G&A expense for the year December 31, 2013 increased to $23.5 million
from $23.0 million in 2012. As a percentage of revenue for the year
ended December 31, 2013, G&A expenses were 8% compared to 10% for 2012.
The increase of $0.5 million is a result of supporting the US operations
and the acquisition of Target.
Fourth quarter highlights include the following:
-- Revenue from the DS Division for the three months ended December 31,
2013 increased 32% to $86.3 million from $65.6 million in the
comparative period of 2012. The significant increase in revenue for the
three months ended December 31, 2013 is the result of a combined 26%
increase in drilling fluids service line revenue and a 113% increase in
revenue for the equipment rentals service line from the comparative
period in 2012. Major drivers for the drilling fluids service line
revenue increases in the fourth quarter are due to an increase in meters
drilled, an increase in revenue per operating day, and an increase in
SAGD activity in the quarter. The increase in the equipment rentals
service line is a result of a 14% increase in equipment utilization over
the comparative period of 2012, an increase in rental equipment market
share as the division increased its rental fleet size, and the addition
of Target on July 2, 2013.
-- Drilling fluids revenue per operating day for the three months ended
December 31, 2013 increased to $6,857 from $5,642 from the comparative
period of 2012. The increase in revenue per day for the quarter can be
attributed to a 17% increase in meters drilled for the Corporation which
led to higher product usages, increased probability of lost circulation
events and a higher usage of specialty chemicals. In addition, the
Corporation realized an increase in the proportion of SAGD wells
relative to the 2012 comparable period. SAGD wells are more complex and
require more costly drilling fluids which contribute to the increase in
revenue per operating day.
-- WCSB market share increased by 1% for the three months ended December
31, 2013 to 31% from 30%, for the comparative period of 2012. The CAODC
average monthly rig count for Western Canada provides the basis for
market share calculations. Operating rig days for the three months ended
December 31, 2013 were 10,526 compared to 9,616 for the 2012 comparative
period.
-- For the three months ended December 31, 2013, operating margins
increased to 28% from 25% for the 2012 comparative period. The increase
in margin over the prior period quarter is a direct result of the
increase in rental equipment revenue, which contributes a higher margin
percentage, and was up 9% over the prior year quarter.
OS DIVISION OPERATING HIGHLIGHTS
Three Months Ended
December 31, Year ended December 31,
% %
($000's) 2013 2012 Change 2013 2012 Change
---------------------------------------------------------------------------
Revenue
Onsite services (a) 17,554 7,514 134 54,444 23,547 131
Operating expenses
Onsite services (b) 14,477 5,315 172 44,152 15,730 181
Depreciation and
amortization 1,425 116 1,128 4,020 346 1,062
--------------------------------------------------
Total OS division
operating expenses 15,902 5,431 193 48,172 16,076 200
General and
administrative 1,484 1,032 44 5,784 3,857 50
--------------------------------------------------
Total OS division
expenses 17,386 6,463 169 53,956 19,933 171
Operating Margin (1) (a-
b) 3,077 2,199 40 10,292 7,817 32
Operating Margin %(1) 18% 29% 19% 33%
---------------------------------------------------------------------------
(1)Refer to "Non GAAP measures and operational definitions" and "Additional
GAAP measures" for further information
Full year highlights for the OS division included:
-- Revenue for the year ended December 31, 2013 increased 131% to $54.4
million from $23.5 million for 2012 and is primarily due to the
acquisition of Frontline effective April 1, 2013. The prior year
comparative figures include environmental services revenue and
integrated water solutions revenue. The environmental services and
integrated water solutions groups were previously included in other
divisions but were allocated into the OS division in conjunction with
the Frontline acquisition. Environmental services revenue for the year
ended December 31, 2013 increased 46% over 2012 due to an increase in
the number of environmental projects completed and the start-up of the
CleanSite business in the fourth quarter of 2012.
-- Frontline utilization remained strong for the year despite a few
projects being impacted by wet weather in both the second and the fourth
quarter of 2013. Wet weather impacts the mobilization of equipment to
the customer site, increases overhead and delays the start of projects.
In addition, Frontline completed $5.4 million of internal projects for
the PRD division, of which intercompany profits are eliminated.
-- Operating margin for the year ended December 31, 2013 was reduced to 19%
as a result of combining the Frontline services in the second quarter of
2013 with that of the environmental services group. The operating margin
for the OS division is expected to fluctuate depending on the volume and
type of projects undertaken and the blend of business between
remediation and reclamation projects, demolition projects, pipeline
integrity projects, site clean-up, work completed internally and other
services in any given period.
Fourth quarter highlights include the following:
-- Revenue for the three months ended December 31, 2013 increased 134% to
$17.6 million from $7.5 million for the comparative period of 2012 and
is primarily due to the acquisition of Frontline effective April 1,
2013. The prior year comparative figures include environmental services
revenue and integrated water solutions revenue. The environmental
services and integrated water solutions groups were previously included
in other divisions but were allocated into the OS division in
conjunction with the Frontline acquisition. Environmental services
revenue for the three months ended December 31, 2013 increased 44% over
2012 comparative period due to an increase in the number of
environmental projects completed and the start-up of the CleanSite
business in the fourth quarter of 2012.
-- Frontline utilization was lower than the third quarter of 2013 due to
unfavorable weather conditions, longer than anticipated mobilization of
equipment for a significant project in Northern British Columbia and
shut down of projects over the holiday season in the last two weeks of
December. In addition, Frontline completed $2.1 million of internal
projects for the PRD division, of which intercompany profits are
eliminated.
-- Operating margin for the fourth quarter of 2013 was reduced to 18% as a
result of combining the Frontline services in the second quarter of 2013
with that of the environmental services group. The operating margin for
the OS division is expected to fluctuate depending on the volume and
type of projects undertaken and the blend of business between
remediation and reclamation projects, demolition projects, pipeline
integrity projects, site clean-up, work completed internally and other
services in any given period. During the fourth quarter, Frontline work
was weighted towards reclamation, remediation and demolition projects
which typically have lower margins.
OUTLOOK
The rig count in the fourth quarter of 2013 was up 6% from the previous year as
a result of increased winter drilling activity, driven in part by resource play
development. In addition, meters drilled in Canada increased 4% over the prior
year. The increase in the number of meters drilled as a result of a continued
emphasis on horizontal drilling is a positive indicator for the Corporation as
it is anticipated it will create higher demand for the Corporation's products
and services. Secure views meters drilled as a better indicator than the number
of wells drilled of future macro trends impacting the Corporation's results.
Market indicators suggest activity will rise in 2014 given the active capital
markets in the fourth quarter of 2013 and stronger balance sheets heading into
2014. This is expected to result in increased capital budgets by oil and gas
producers with spending plans trending higher into 2014 compared to 2013. In
addition, increased alternatives to crude transport such as rail have positively
impacted producer outlook and activity levels. Overall, the longer term
fundamentals of the North American oil and gas market are positive which will
drive customer demand for services the Corporation offers.
In the first quarter of 2014, the Corporation expects activity levels to remain
strong in both the PRD division and the DS division as a result of an expected
increase in the number of wells and meters drilled. The OS division activity
will also be strong as some project delays in the fourth quarter of 2013 will
carry into the first quarter of 2014. An early or late spring break up period
can impact revenue in all three divisions.
Secure recently announced its 2014 capital expenditure program of $225.0
million, the largest in the Corporation's history. Spending on 2014 capital
initiatives will have a minimal impact on 2014 results, which is typical for
these projects considering the approval and construction timelines. Material
cash flow effects from these projects will be seen in 2015. Included in the
capital program is $20.0 million of carry over capital from 2013 projects
related to the Kindersley, Edson, and Keene FSTs. $135.0 million of growth
capital is allocated to the PRD division for completion of the Corporation's
first full service rail facility, one FST, two SWDs, one landfill, and
conversion of two existing SWDs to FSTs; $45.0 million for expansion capital;
and $5.0 million for normal course maintenance capital. $14.0 million has been
allocated to the DS division for growth capital consisting of an oil based mud
blending plant and rental equipment. $6.0 million is allocated to the OS
division for growth capital consisting of heavy duty equipment and specialized
tools for ongoing OnSite projects.
Following the completion of the $110.0 million offering and expansion of the
credit facility by $100.0 million in the fourth quarter, along with increasing
cash flows from operations, the Corporation is well positioned to fund its
capital program for 2014. Secure has a strong balance sheet that will allow the
Corporation to continue in growth mode, capitalize on opportunities in
underserviced markets, and meet demand as it increases.
In 2014, Secure will continue to execute on its strategy of helping customers
with new facilities and services in both under-serviced and capacity constrained
markets, reduce waste, recycle and reuse fluids at Secure facilities and to
provide full cycle environmental and midstream solutions in the energy services
market. Secure's construction of five new facilities in Canada and three new
facilities in the United States during 2013 will provides a solid platform for
growth into 2014 and beyond.
Finally, Secure was strengthened at all levels through a focus on health and
safety, with reportable incidents well below industry standards in 2013. These
are numbers that Secure is proud of and will strive to improve this record in
2014. The commitment to talent development and recruitment of the right people
enabled us to grow to over 1,000 employees. The Corporation strives to keep its
agile and disciplined entrepreneurial culture to ensure that Secure's abundant
opportunities are adequately financed and executed by the right people. Secure
is excited about the future and providing safe and innovative solutions that
create continued value for our customers and shareholders.
FINANCIAL STATEMENTS AND MD&A
The audited consolidated financial statements and MD&A of Secure for the three
and twelve months ended December 31, 2013 are available immediately on Secure's
website at www.secure-energy.ca. The audited consolidated financial statements
and MD&A will be available tomorrow on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this press release constitute "forward-looking
statements" and/or "forward-looking information" within the meaning of
applicable securities laws (collectively referred to as forward-looking
statements). When used in this document, the words "may", "would", "could",
"will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and
similar expressions, as they relate to Secure, or its management, are intended
to identify forward-looking statements. Such statements reflect the current
views of Secure with respect to future events and operating performance and
speak only as of the date of this press release. In particular, this press
release contains forward-looking statements pertaining to: corporate strategy;
goals; general market conditions; the oil and natural gas industry; activity
levels in the oil and gas sector, including market fundamentals, drilling
levels, commodity prices for oil, natural gas liquids ("NGLs") and natural gas;
demand for the Corporation's services; expansion strategy; the amounts of the
PRD, DS and OS divisions' proposed 2014 capital budgets and the intended use
thereof; debt service; capital expenditures; completion of facilities; the
impact of new facilities on the Corporation's financial and operational
performance; use of proceeds from the 2013 offering; future capital needs;
access to capital; acquisition strategy; and the impact of the OWL program.
Forward-looking statements concerning expected operating and economic conditions
are based upon prior year results as well as the assumption that increases in
market activity and growth will be consistent with industry activity in Canada,
United States, and internationally and growth levels in similar phases of
previous economic cycles. Forward-looking statements concerning the availability
of funding for future operations are based upon the assumption that the sources
of funding which the Corporation has relied upon in the past will continue to be
available to the Corporation on terms favorable to the Corporation and that
future economic and operating conditions will not limit the Corporation's access
to debt and equity markets. Forward-looking statements concerning the relative
future competitive position of the Corporation are based upon the assumption
that economic and operating conditions, including commodity prices, crude oil
and natural gas storage levels, interest rates, the regulatory framework
regarding oil and natural gas royalties, environmental regulatory matters, the
ability of the Corporation and its subsidiaries' to successfully market their
services and drilling and production activity in North America will lead to
sufficient demand for the Corporation's services and its subsidiaries' services
including demand for oilfield services for drilling and completion of oil and
natural gas wells, that the current business environment will remain
substantially unchanged, and that present and anticipated programs and expansion
plans of other organizations operating in the energy service industry will
result in increased demand for the Corporation's services and its subsidiary's
services. Forward-looking statements concerning the nature and timing of growth
are based on past factors affecting the growth of the Corporation, past sources
of growth and expectations relating to future economic and operating conditions.
Forward-looking statements in respect of the costs anticipated to be associated
with the acquisition and maintenance of equipment and property are based upon
assumptions that future acquisition and maintenance costs will not significantly
increase from past acquisition and maintenance costs.
Forward-looking statements involve significant risks and uncertainties, should
not be read as guarantees of future performance or results, and will not
necessarily be accurate indications of whether such results will be achieved.
Readers are cautioned not to place undue reliance on these statements as a
number of factors could cause actual results to differ materially from the
results discussed in these forward-looking statements, including but not limited
to those factors referred to and under the heading "Business Risks" and under
the heading "Risk Factors" in the Corporation's annual information form ("AIF")
for the year ended December 31, 2013. Although forward-looking statements
contained in this Press Release are based upon what the Corporation believes are
reasonable assumptions, the Corporation cannot assure investors that actual
results will be consistent with these forward-looking statements. The
forward-looking statements in this Press Release are expressly qualified by this
cautionary statement. Unless otherwise required by law, Secure does not intend,
or assume any obligation, to update these forward-looking statements.
Non GAAP Measures and Operational Definitions
1. The Corporation uses accounting principles that are generally accepted
in Canada (the issuer's "GAAP"), which includes, International Financial
Reporting Standards ("IFRS"). These financial measures are Non-GAAP
financial measures and do not have any standardized meaning prescribed
by IFRS. These non-GAAP measures used by the Corporation may not be
comparable to a similar measures presented by other reporting issuers.
See the management's discussion and analysis available at www.sedar.com
for a reconciliation of the Non-GAAP financial measures and operational
definitions. These non-GAAP financial measures and operational
definitions are included because management uses the information to
analyze operating performance, leverage and liquidity. Therefore, these
non-GAAP financial measures and operational definitions should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP.
ABOUT SECURE ENERGY SERVICES INC.
Secure is a TSX publicly traded energy services company that focuses on
providing specialized services to upstream oil and natural gas companies.
The Corporation operates three divisions:
Processing, Recovery and Disposal Division: Operating under the name Secure
Energy Services Inc., the Processing, Recovery and Disposal Services division
focuses on clean oil terminalling, custom treating of crude oil, crude oil
marketing, produced and waste water disposal, oilfield waste processing,
landfill disposal and oil purchase/resale service.
Drilling Services Division: Operating under the name Marquis Alliance Energy
Group Inc. (together with its wholly owned subsidiaries "Marquis Alliance"), the
trade name XL Fluids Systems Inc. ("XL Fluids") and the trade name Target
Rentals Ltd. ("Target"), the Drilling Services division provides drilling fluid
systems and drilling equipment rentals and services. The drilling fluids service
line comprises the majority of the revenue for the division which includes the
design and implementation of drilling fluid systems for producers drilling for
oil, bitumen and natural gas. The Drilling Services division focuses on
providing products and systems that are designed for more complex wells, such as
medium to deep wells, horizontal wells and horizontal wells drilled into the oil
sands.
On Site Division: The On Site division, operating under the name of Frontline,
offers integrated water services through frac pond rentals; "CleanSite" waste
container services, environmental services which include pre-drilling assessment
planning, drilling waste management, remediation and reclamation of former
wellsites, facilities, commercial, and industrial properties, and laboratory
services; pipeline integrity (inspection, excavation, repair, replacement and
rehabilitation); demolition and decommissioning. These services are offered
throughout the WCSB.
FOR FURTHER INFORMATION PLEASE CONTACT:
Secure Energy Services Inc.
Rene Amirault
Chairman, President and Chief Executive Officer
(403) 984-6100
(403) 984-6101 (FAX)
Secure Energy Services Inc.
Allen Gransch
Chief Financial Officer
(403) 984-6100
(403) 984-6101 (FAX)
www.secure-energy.ca