CALGARY, July 27, 2016 /CNW/ - Secure Energy Services
Inc. ("Secure" or the "Corporation") (TSX – SES) announced today
operational and financial results for the three and six months
ended June 30, 2016. The following
should be read in conjunction with the management's discussion and
analysis ("MD&A") and the interim consolidated financial
statements and notes thereto of Secure which are available on SEDAR
at www.sedar.com.
Q2 2016 OPERATIONAL AND FINANCIAL HIGHLIGHTS
During the three months ended June 30,
2016, crude oil prices rebounded from the lowest prices in a
decade of $36/barrel realized in the
first quarter of 2016. However, average crude oil prices during the
quarter remained 18% lower than the comparative period in the prior
year. The Corporation's second quarter operating and financial
results were influenced by these low oil prices, combined with
typical seasonal weather conditions limiting producers' ability to
drill and service wells. The impact of these factors were partially
mitigated by ongoing production related volumes in the PRD division
and diversification of services offered across the Corporation. As
a result, Secure realized Adjusted EBITDA of $8.5 million, demonstrating continued
resilience during a period of reduced oil and gas activity
levels.
During the quarter, Secure expanded its market presence and
enhanced its service offering for continued midstream growth
through the strategic acquisition of the operating assets
(excluding working capital) of PetroLama Energy Canada Inc. (the
"PetroLama Acquisition"). Following the end of the quarter, Secure
also closed an acquisition resulting in an increase in Secure's
ownership of the La Glace and
Judy Creek full service terminals to
100% (the "JV Acquisition"). Secure is continuing to seek out and
evaluate opportunities that will provide meaningful growth for the
remainder of 2016, into 2017 and beyond.
During the extended downturn in oil and gas activity and
relatively poor price environment, Secure has continued to generate
positive funds from operations. This, combined with the
Corporation's strong balance sheet, has allowed Secure to maintain
a monthly $0.02 dividend, pursue
accretive acquisition opportunities, and continue investing in
organic capital projects in capacity constrained regions. At
June 30, 2016, Secure's net debt was
$69.3 million, and the
Corporation is operating well within its credit facility covenant
restrictions. The Corporation continues its disciplined approach to
maintaining a strong balance sheet to effectively manage the
business through a period of lower commodity pricing and industry
activity.
The operating and financial highlights for the three and six
months ended June 30, 2016 and 2015 can be summarized as
follows:
|
|
Three months ended June
30,
|
Six months ended June
30,
|
($000's except share and
per share data)
|
|
2016
|
2015
|
%
change
|
2016
|
2015
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
|
66,148
|
112,533
|
(41)
|
168,415
|
282,185
|
(40)
|
Oil purchase and
resale
|
|
202,460
|
244,036
|
(17)
|
309,325
|
440,931
|
(30)
|
Total
revenue
|
|
268,608
|
356,569
|
(25)
|
477,740
|
723,116
|
(34)
|
Adjusted EBITDA
(1)
|
|
8,540
|
19,446
|
(56)
|
33,623
|
59,482
|
(43)
|
|
Per share ($),
basic
|
|
0.05
|
0.14
|
(64)
|
0.23
|
0.46
|
(50)
|
Net
loss
|
|
(20,681)
|
(16,780)
|
23
|
(30,747)
|
(20,003)
|
54
|
|
Per share ($),
basic
|
|
(0.13)
|
(0.12)
|
8
|
(0.21)
|
(0.15)
|
40
|
|
Per share ($),
diluted
|
|
(0.13)
|
(0.12)
|
8
|
(0.21)
|
(0.15)
|
40
|
Adjusted net
loss(1)
|
|
(20,467)
|
(14,809)
|
38
|
(29,065)
|
(13,953)
|
108
|
|
Per share ($),
basic
|
|
(0.13)
|
(0.11)
|
18
|
(0.19)
|
(0.11)
|
73
|
Funds from operations
(1)
|
|
7,544
|
17,022
|
(56)
|
30,103
|
53,247
|
(43)
|
|
Per share ($),
basic
|
|
0.05
|
0.12
|
(58)
|
0.20
|
0.41
|
(51)
|
Dividends per common
share
|
|
0.06
|
0.06
|
-
|
0.12
|
0.12
|
-
|
Capital expenditures
(1)
|
|
74,356
|
18,654
|
299
|
95,845
|
60,738
|
58
|
Total
assets
|
|
1,374,164
|
1,420,412
|
(3)
|
1,374,164
|
1,420,412
|
(3)
|
Net debt
(1)
|
|
69,289
|
137,240
|
(50)
|
69,289
|
137,240
|
(50)
|
Common Shares - end of
period
|
|
159,321,292
|
136,440,802
|
17
|
159,321,292
|
136,440,802
|
17
|
Weighted average common
shares - basic and diluted
|
|
158,437,296
|
136,186,284
|
16
|
149,226,219
|
129,475,350
|
15
|
(1) Refer to
"Non-GAAP measures, operational definitions and additional
subtotals" for further information.
|
- REVENUE OF $268.6 MILLION AND
$477.7 MILLION FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 2016
- Total processing, recovery and disposal volumes at PRD
facilities for the three months and six months ended June 30, 2016 decreased over the 2015 comparative
periods as low oil prices and early spring break-up conditions
negatively impacted volumes at PRD facilities from drilling and
completion related activities. The impact of the above to the PRD
division's revenue was partially mitigated by ongoing production
related volumes, the addition of facilities in 2015, which included
the construction and commissioning of Tulliby Lake FST, Big
Mountain SWD, and Wonowon SWD, the conversion of the Rycroft FSR to
include water disposal services, the conversion of 13 Mile from an
SWD to an FST, and the PetroLama Acquisition on June 1, 2016. Overall, this resulted in the PRD
division achieving revenue (excluding oil purchase and resale) of
$37.5 million and $86.2 million, down 35% and 32% from the 2015
comparative periods;
- Oil purchase and resale revenue in the PRD division for the
three and six months ended June 30,
2016 decreased by 17% and 30% from the 2015 comparative
periods to $202.5 million and
$309.3 million. The average price of
crude oil declined by 18% and 20% for the three and six months
ended June 30, 2016 from the 2015
comparative periods, which directly reduced revenues from oil sales
and also resulted in lower volumes of oil being purchased and
resold in the year to date. In the three months ended June 30, 2016, the impact of the above was
partially mitigated by additional oil and purchase resale volumes
related to the newly acquired Alida facility through the PetroLama
Acquisition;
- Activity in the DPS division is strongly correlated with oil
and gas drilling activity in the Western Canadian Sedimentary Basin
("WCSB"), where the rig count in the three and six months ended
June 30, 2016 decreased by 48% and
49% from the respective 2015 comparative periods. As a result, DPS
division revenue correspondingly decreased by 54% and 46% to
$11.2 million and $46.4 million in the three and six months ended
June 30, 2016;
- OS division revenue decreased 34% and 38% in the three and six
months ended June 30, 2016 from the
2015 comparative periods to $17.5
million and $35.8 million,
respectively. The decrease is primarily due to reduced Projects
revenue resulting from two significant jobs in the first half of
2015 for which there was no equivalents to date in 2016, and lower
completion activities given the current oil price, early spring
break-up conditions, and wildfires during the second quarter of
2016 in Northern Alberta and
British Columbia. The impact to
revenue was partially mitigated by new service offerings and
geographic expansion.
- ADJUSTED EBITDA OF $8.5
MILLION AND $33.6 MILLION FOR
THE THREE AND SIX MONTHS ENDED JUNE 30,
2016
- Diversification and integration across Secure's three divisions
has contributed to positive Adjusted EBITDA for the three and six
months ended June 30, 2016 as certain
service lines are not as heavily impacted by drilling and
completion activity. Additionally, Secure has considerably reduced
the Corporation's cost structure and streamlined operations which
has resulted in strong operating margins and decreased fixed costs.
As a result, Adjusted EBITDA totaled $8.5
million and $33.6 million in
the three and six months ended June 30,
2016, a 56% and 43% decrease from the same periods in
2015;
- Overall, Adjusted EBITDA for the three and six months ended
June 30, 2016 was in line with
Secure's expectation given a reduction in drilling and completion
activity throughout the WCSB which most heavily impacted the DPS
division as the majority of operations are currently tied to
drilling operations. The decrease in the PRD division was partially
offset by ongoing production related volumes, the construction of
new facilities in 2015 and expansions at certain of the
Corporation's existing facilities in the past year, the PetroLama
Acquisition, and cost saving initiatives implemented in 2015 which
maintained a strong operating margin and reduced general and
administrative costs. The impact to the OS division resulting
primarily from reduced Projects work and services correlated to
completions activity was somewhat mitigated by geographic
expansion, new and diversified service lines and integrated service
offerings.
- NET LOSS OF $20.7 MILLION AND
$30.7 MILLION FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 2016
- For the three and six months ended June
30, 2016, Secure's net loss of $20.7
million and $30.7 million
increased 23% and 54% compared to $16.8
million and $20.0 million in
the three and six months ended June 30,
2015 primarily as a result of the factors discussed above
impacting Adjusted EBITDA, offset partially by lower general and
administrative expenses, business development expenses and
share-based compensation as the Corporation is realizing the cost
saving initiatives implemented in 2015. Secure has reduced
personnel levels to match current industry activity levels, as well
as reduced discretionary spending and streamlined and consolidated
support functions where possible.
- CAPITAL EXPENDITURES OF $74.4
MILLION and $95.8 MILLION FOR
THE THREE AND SIX MONTHS ENDED JUNE 30,
2016
- Total capital expenditures (excluding business combinations)
for the three and six months ended June 30,
2016 of $12.9 million and
$34.4 million includes:
- Construction of the Kakwa FST, which is expected to be
completed and commissioned in September
2016;
- Disposal well expansions at the Kaybob and Big Mountain SWD
facilities;
- Landfill cell expansion at the Grande
Prairie landfill;
- Sustaining capital expenditures at existing facilities required
to maintain ongoing business operations.
- PETROLAMA ACQUISITION
- On June 1, 2016, Secure closed
the acquisition of all the operating assets (excluding working
capital) of PetroLama Energy Canada Inc. PetroLama is a privately
owned Calgary-based midstream
company specializing in the storage, terminalling and transport of
crude oil from western Canada to
the North American market. PetroLama's main asset is a crude oil
terminal in Alida, Saskatchewan
which is connected to the Enbridge Pipelines (Saskatchewan) Inc. pipeline system and
includes truck unload risers and storage tanks. Secure also
acquired various marketing contracts relating the purchase, sale
and transportation of propane, butane and condensate, including
access to crude oil storage at Cushing,
Oklahoma;
- The PetroLama Acquisition provides Secure with an attractive
entry point into the southeast Saskatchewan midstream market. Secure has
expanded its market presence and enhance its service offering for
continued midstream growth. The Alida terminal, a facility constructed in
2013, is uniquely positioned for sustainable cash flow generation
in a new market area. Secure expects to leverage PetroLama's
existing business into further growth opportunities and build upon
PetroLama's relationships with oil producers, marketers and
refiners with its breadth of oil and gas services. Secure expects
its size and strong history of operational expertise in the PRD
division will allow the Corporation to achieve certain operating
efficiencies;
- The purchase price was paid with $61.5
million in cash and the balance of $5.9 million through the issuance of 664,972
common shares of the Corporation ("Common Shares"), and included
all of PetroLama's inventory on hand at closing.
- JV ACQUISITION
- Subsequent to quarter end, Secure completed the acquisition of
the outstanding 50% interest in all of the joint venture assets of
the La Glace and Judy Creek facilities, increasing Secure's
interest in these facilities to 100%;
- The purchase price of $26.7
million included working capital and was funded through
existing capacity under the Corporation's credit facility. The JV
Acquisition relieves Secure of the administrative requirements of
operating the facilities under a joint venture structure, while
adding additional cash flow from an increase in ownership in the
facilities.
- FINANCIAL FLEXIBILITY
- On March 22, 2016, the
Corporation completed a bought deal common share financing (the
"Offering"), issuing a total of 19,550,000 Common Shares at a price
of $7.65 per Common Share for gross
proceeds of $149.6 million. Proceeds
of the Offering have been used to repay outstanding debt and fund
the cash portion of the PetroLama Acquisition and JV Acquisition,
with the remaining balance expected to be used to fund capital
expenditures, for other strategic acquisition opportunities, and/or
general working capital purposes;
- Secure's total long-term borrowings as at June, 2016 have
decreased 33% to $176.0 million
compared to $262.0 million at
December 31, 2015. The Corporation
strengthened its balance sheet and increased its financial
flexibility to take advantage of opportunities during the current
low commodity price environment;
- Secure is in compliance with all covenants related to its
credit facility at June 30, 2016.
Secure's debt to trailing twelve month EBITDA ratio, where EBITDA
is defined in the lending agreement as earnings before interest,
taxes, depreciation, depletion and amortization, and is adjusted
for non-recurring losses, any non-cash impairment charges and any
other non-cash charges, and acquisitions on a pro-forma basis, was
1.7 as at June 30, 2016 compared to
2.2 as at December 31, 2015. The
Corporation is required under its credit facility to maintain a
debt to EBITDA ratio of less than 3.5 to 1.0;
- As at June 30, 2016, the
Corporation had $489.8 million
available under its credit facility, subject to maintaining the
debt to EBITDA ratio described above.
PRD DIVISION OPERATING HIGHLIGHTS
|
|
Three months ended June
30,
|
Six months ended June
30,
|
($000's)
|
|
2016
|
2015
|
%
Change
|
2016
|
2015
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
|
PRD services
(a)
|
|
37,450
|
57,188
|
(35)
|
86,156
|
126,682
|
(32)
|
|
Oil purchase and resale
service
|
|
202,460
|
244,036
|
(17)
|
309,325
|
440,931
|
(30)
|
Total PRD division
revenue
|
|
239,910
|
301,224
|
(20)
|
395,481
|
567,613
|
(30)
|
|
|
|
|
|
|
|
|
Direct Operating
Expenses
|
|
|
|
|
|
|
|
|
PRD
services
|
|
19,670
|
29,902
|
(34)
|
42,493
|
63,732
|
(33)
|
|
Deduct: non-recurring
items
|
|
|
|
|
|
|
|
|
|
Severance and related
costs
|
|
(44)
|
-
|
100
|
(579)
|
(188)
|
208
|
|
PRD services less
non-recurring items (b)
|
|
19,626
|
29,902
|
(34)
|
41,914
|
63,544
|
(34)
|
|
Oil purchase and resale
service
|
|
202,460
|
244,036
|
(17)
|
309,325
|
440,931
|
(30)
|
Total PRD division
direct operating expenses
|
|
222,130
|
273,938
|
(19)
|
351,818
|
504,663
|
(30)
|
|
|
|
|
|
|
|
|
Operating Margin
(1) (a-b)
|
|
17,824
|
27,286
|
(35)
|
44,242
|
63,138
|
(30)
|
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue
(a)
|
|
48%
|
48%
|
|
51%
|
50%
|
|
(1) Refer to
"Non-GAAP measures, operational definitions and additional
subtotals" for further information.
|
Highlights for the PRD division for the three and six months
ended June 30, 2016 included:
- Processing, recovery and disposal revenue: Revenue of
$37.5 million and $86.2 million for the three and six months ended
June 30, 2016 is down 35% and 32%
from the 2015 comparative periods, primarily as a result of lower
drilling and completion activity impacting volumes. The decrease in
oil prices since the first quarter of 2015, combined with an
extended spring break-up, has resulted in a 49% and 69% drop during
the first half of 2016 in industry rig counts in the WCSB and
North Dakota, respectively, from
the 2015 comparative period, which has resulted in a significant
decline in volumes associated with drilling and completion
activities in the Corporation's service areas. Production related
services have been impacted by a much lesser extent in the three
and six months ended June 30, 2016
compared to the same periods in 2015 due to ongoing production
related volumes, the construction of new facilities in 2015 and
expansions at certain of the Corporation's existing facilities in
the past year, and the PetroLama Acquisition;
- Processing volumes in the three and six months ended
June 30, 2016 declined 23% and 21%
from the 2015 comparative periods and relate primarily to emulsion
and waste processing. Disposal volumes declined 22% in both the
three and six months ended June 30,
2016 from the 2015 comparative periods due to a decrease in
flow back water from completion activities and disposal of drilling
waste in Secure's landfills. Recovery revenues decreased 35% in the
three and six months ended June 30,
2016 from the comparative 2015 periods due to lower
recovered oil sales as a result of the factors described above,
compounded by an 18% and 20% decrease in crude oil prices in the
quarter and year to date. The impact on recovery revenues from
recovered oil sales was partially mitigated by the Corporation's
ability to capitalize on crude oil marketing opportunities at its
pipeline connected FSTs, resulting in relatively stable crude oil
marketing revenues in the three and six months ended June 30, 2016 and 2015;
- Oil purchase and resale revenue: Oil purchase and resale
revenue in the PRD division for the three and six months ended
June 30, 2016 decreased by 17% and
30% from the 2015 comparative period to $202.5 million and $309.3
million, respectively. The price of crude oil declined by
18% and 20% for the three and six months ended June 30, 2016 from the 2015 comparative periods
which directly reduced revenues from oil sales and also resulted in
lower volumes of oil being purchased and resold during the year to
date. In the three months ended June 30,
2016, the impact of the above was partially mitigated by
additional oil and purchase resale volumes related to the newly
acquired Alida facility through
the PetroLama Acquisition;
- Direct operating expenses less non-recurring items from PRD
services for the three and six months ended June 30, 2016 decreased 34% to $19.6 million and $41.9
million from $29.9 million and
$63.5 million in the comparative
periods of 2015. The decrease in direct operating expenses relates
primarily to fewer variable costs resulting from lower volumes in
the periods, fewer fixed costs associated with Secure's rail
operations as the Corporation has reduced the cost structure
associated with the rail transloading facilities to best match
current activity levels, upfront commissioning costs incurred in
the first half of 2015 associated with the 13 Mile and Tulliby Lake
FSTs, the Wonowon and Big Mountain
SWDs, and the Rycroft FSR (none in the first half of 2016), and a
decrease in employee and other costs resulting from cost saving
initiatives implemented by the Corporation in 2015;
- Operating margin as a percentage of revenue for the three and
six months ended June 30, 2016 was
48% and 51% compared to 48% and 50% in the comparative periods of
2015. The stability in operating margin as a percentage of revenue
during the three and six months ended June
30, 2016 and 2015 is due to cost saving initiatives
implemented in 2015, including reducing employee costs, reduced
costs associated with the Corporation's rail transloading
facilities, and the elimination of start-up costs associated with
new facilities commissioned in the first quarter of 2015, offset by
lower drilling and completion volumes, and reduced recovered oil
sales;
- General and administrative ("G&A") expenses less
non-recurring items for the three and six months ended June 30, 2016 decreased 54% from the 2015
comparative periods to $2.7 million
and $5.6 million as cost saving
initiatives undertaken during 2015 are being realized. The
Corporation continues to minimize future costs by streamlining
operations in the current oil and gas price environment. As part of
these initiatives, certain costs in the current year have been
moved to the Corporate division. Non-recurring items relate to
employee severance payments.
DPS DIVISION OPERATING HIGHLIGHTS
|
|
Three months ended June
30,
|
Six months ended June
30,
|
($000's)
|
|
2016
|
2015
(1)
|
%
Change
|
2016
|
2015
(1)
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
|
Drilling and production
services (a)
|
|
11,235
|
24,181
|
(54)
|
46,442
|
86,278
|
(46)
|
|
|
|
|
|
|
|
|
Direct Operating
Expenses
|
|
|
|
|
|
|
|
|
Drilling and production
services
|
|
12,396
|
21,085
|
(41)
|
42,123
|
72,054
|
(42)
|
|
Deduct: non-recurring
items
|
|
|
|
|
|
|
|
|
|
Inventory
impairment
|
|
-
|
-
|
-
|
-
|
(1,970)
|
(100)
|
|
|
Severance and related
costs
|
|
(142)
|
(50)
|
184
|
(803)
|
(647)
|
24
|
Drilling and production
services less non-recurring items (b)
|
|
12,254
|
21,035
|
(42)
|
41,320
|
69,437
|
(40)
|
|
|
|
|
|
|
|
|
Operating Margin
(2) (a-b)
|
|
(1,019)
|
3,146
|
(132)
|
5,122
|
16,841
|
(70)
|
|
|
|
|
|
|
|
|
Operating Margin
(2) as a % of revenue
(a)
|
|
-9%
|
13%
|
|
11%
|
20%
|
|
(1) Excludes
the results from drilling services operations in the U.S. as these
operations were wound down in the latter part of 2015 and are
considered non-recurring.
(2) Refer to "Non-GAAP
measures, operational definitions and additional subtotals" for
further information.
|
Highlights for the DPS division for the three and six months
ended June 30, 2016 included:
- Revenue in the DPS division correlates with oil and gas
drilling activity in the WCSB, most notably active rig counts and
meters drilled. As a result, the weakness in commodity pricing and
the resulting drop off in activity levels from oil and gas
producers had a significant impact on the DPS division in the three
and six months ended June 30, 2016.
For the three and six months ended June 30,
2016, industry rig counts in the WCSB declined 48% and 49%,
while meters drilled declined 54% and 42% from the 2015 comparative
periods. As a result, revenue from the DPS division for the three
and six months ended June 30, 2016
decreased 54% and 46% to $11.2
million and $46.4 million from
$24.2 million and $86.3 million (net of Restructuring) in the
comparative periods of 2015. This decrease in revenues was
consistent with Secure's expectation given the decline in drilling
activity, combined with pricing pressures on services and rental
rates. Revenue in the DPS division was also impacted by the decline
in the price of oil which reduced revenue earned on oil based
drilling fluids sold to customers;
- Revenue per operating day increased by 20% and 4% during the
three and six months ended June 30,
2016 compared to the same periods in 2015. The increase in
the second quarter is a result of a higher proportion of rigs
serviced with oil based drilling fluids, which typically generate a
higher revenue per operating day. Additionally, Secure continues to
focus on providing customers with innovative solutions for deeper
and more technically complex wells. The DPS division's market share
decreased from 31% in the first quarter of 2016 to 19% during the
second. The decrease in market share is due to the volatility of
low rig counts that comes with spring break-up, resulting in the
timing of customer drilling activities having a significant effect
on market shares, as one rig can change the percentage of market
share held when rig counts are low;
- Secure continues diversification efforts in the DPS division
through production chemicals expansion and ancillary offerings
which should benefit the Corporation in the medium to long-term.
Strategic relationships with key suppliers has resulted in a
significant expansion to Secure's production chemicals product
offerings in 2016 to date;
- The DPS division's direct operating expenses less non-recurring
items for the three and six months ended June 30, 2016 decreased by 42% and 40% to
$12.3 million and $41.3 million from $21.0
million and $69.4 million (net
of Restructuring) in the 2015 comparative period. Overall, the
decrease in direct operating expenses over the 2015 comparative
periods was primarily due to decreased activity levels, the
realization of cost saving initiatives implemented in 2015, and a
reduction in cost of goods sold for oil based drilling fluids.
However, the stronger U.S. dollar in the first half of 2016
compared to the first half of 2015 impacted the cost of goods
sourced from the U.S., specifically for specialty chemicals, which
increased direct operating expenses;
- The DPS division's operating margin for the three and six
months ending June 30, 2016 was a
loss of $1.0 million and income of
$5.1 million, compared to income of
$3.1 million and $16.8 million in the 2015 comparative periods.
The DPS division's operating margin decreased as a result of the
factors discussed above, combined with price discounts given to
customers to reflect the depressed price of crude oil, a higher
cost associated with specialty chemicals purchased from the U.S.
due to foreign exchange movements, and a higher proportion of lower
margin products sold when compared to the same periods in 2015. As
a result, operating margin as a percentage of revenue declined from
20% in the first half of 2015 to 11% in the first half of
2016;
- G&A expense less non-recurring items for the three and six
months ended June 30, 2016 decreased
51% and 45% from the comparative periods of 2015 as a result of
cost saving initiatives undertaken during 2015 and reduced shared
service allocations from the Corporate division. Non-recurring
items relate to severance costs incurred as the Corporation
eliminated positions in order to properly align staff with activity
levels.
OS DIVISION OPERATING HIGHLIGHTS
|
|
Three months ended June
30,
|
Six months ended June
30,
|
($000's)
|
|
2016
|
2015
|
%
Change
|
2016
|
2015
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
|
OnSite services
(a)
|
|
17,463
|
26,306
|
(34)
|
35,817
|
57,600
|
(38)
|
|
|
|
|
|
|
|
|
Direct Operating
Expenses
|
|
|
|
|
|
|
|
|
OnSite
services
|
|
13,437
|
21,333
|
(37)
|
27,204
|
43,158
|
(37)
|
|
Deduct: non-recurring
items
|
|
|
|
|
|
|
|
|
|
Severance and related
costs
|
|
(100)
|
-
|
100
|
(177)
|
(116)
|
53
|
OnSite services less
non-recurring items (b)
|
|
13,337
|
21,333
|
(37)
|
27,027
|
43,042
|
(37)
|
|
|
|
|
|
|
|
|
Operating Margin
(1) (a-b)
|
|
4,126
|
4,973
|
(17)
|
8,790
|
14,558
|
(40)
|
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue
(a)
|
|
24%
|
19%
|
|
25%
|
25%
|
|
(1) Refer to
"Non-GAAP measures, operational definitions and additional
subtotals" for further information.
|
Highlights for the OS division for the three and six months
ended June 30, 2016 included:
- Diversified service lines, integrated service offerings and
organic growth partially mitigated reduced customer activity driven
by lower commodity prices, wet weather conditions, and wildfires in
Northern Alberta and British Columbia, which resulted in a 34% and
38% decrease in revenue from $26.3
million and $57.6 million in
the three and six months June 30,
2015 to $17.5 million and
$35.8 million in the three and six
months ended June 30, 2016;
- Projects revenue during the three and six months ended
June 30, 2016 was approximately half
of that in the 2015 comparative periods. Projects revenue is
dependent on the type and size of jobs which vary quarter to
quarter. The first and second quarters of 2015 included a
significant demolition job and a major remediation job. Excluding
these jobs, Projects revenue decreased only 15% in the first half
of 2016 from the 2015 comparative period due primarily to lower
activity levels from reduced spending initiatives by customers and
as a result of poor weather conditions delaying projects. Partially
offsetting the decrease is a multi-year contract to manage a
landfill in northern Alberta and
diversified offerings to new geographic regions and sectors outside
of the oil and gas industry;
- Environmental services revenue for the three and six months
ended June 30, 2016 decreased 13% and
20% from the 2015 comparative periods as a result of reduced
reclamation and remediation revenue resulting from deferred
customer spending due to low commodity prices, and due to lower
drilling waste revenue from decreases in drilling activity period
over period. The decreases noted above were partially offset by
increased bin revenue resulting from geographic expansion, growth
in NORM related solution services, and revenue generated by the new
emergency response service line;
- Integrated fluids solutions revenue for the three and six
months ended June 30, 2016 increased
21% and decreased 26% from the 2015 comparative periods. The
increase quarter over quarter is as a result of the addition of
fluid sales and treatment services, and increased pumping revenue
generated from higher activity levels from a large customer. The
year to date revenue decreased due to reduced customer field
activity resulting from spring break-up and low commodity prices,
therefore decreasing equipment utilization. Rental unit pricing
decreased from the prior year due to the competitive pricing
pressures from the current depressed industry environment;
- Direct operating expenses less non-recurring items for the
three and six months ended June 30,
2016 decreased 37% to $13.3
million and $27.0 million from
$21.3 and $43.0 million in the 2015 comparative periods.
Overall, the variance in direct operating expenses was a direct
result of the change in activity and revenues from the 2015
comparative periods;
- The three and six months ended June 30,
2016 operating margin in the OS division of $4.1 million and $8.8
million was lower than the prior year comparative periods
due primarily to decreased revenues. The operating margin as a
percentage of revenue for the OS division in the three and six
months ended June 30, 2016 was 24%
and 25% versus 19% and 25% in the comparative 2015 periods. The OS
division's operating margin as a percentage of revenue fluctuates
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,
and other services in any given period. As a percentage of revenue,
the increased operating margin in the quarter resulted from
increased bin rental and NORM service revenue from the
Environmental service line and from higher pumping revenues in the
IFS service line that more than offset the lower margins resulting
from the Projects service line. The quarter and year to date had a
higher proportion of smaller projects which typically have lower
associated operating margins when compared to the same period in
2015;
- G&A expenses less non-recurring items for the three months
and six ended June 30, 2016 decreased
24% and 32% from the 2015 comparative periods to $1.6 million and $2.9
million. G&A expenses in the three and six months ended
June 30, 2016 decreased due to lower
volumes of activity, reduced shared service allocations from the
Corporate division's service departments, and cost saving
initiatives taken across the organization.
OUTLOOK
As expected, activity levels during the second quarter of 2016
were significantly impacted by an extended spring break-up, a weak
commodity price environment, and a significant decrease in drilling
and completion activity. During the second quarter, oil and gas
producers were unwilling to incur additional costs due to weather
related issues if the oil and gas activity could be delayed into
the third quarter where weather is more predictable. As a
result, Secure anticipates that activity levels will ramp up into
the second half of the year; however, where actual activity levels
will reach in the remainder of 2016 remains difficult to predict as
customers revise previous strategies and capital budgets in light
of the commodity price environment.
The Corporation remains well positioned in the energy services
sector. The equity offering completed during the first quarter
further strengthened Secure's balance sheet and has provided the
Corporation with significant flexibility to seek out and evaluate
opportunities that will provide accretive growth to the Corporation
in 2016 and beyond. The PetroLama Acquisition provided Secure with
an attractive entry point into the southeast Saskatchewan midstream market. Following that
strategic acquisition, Secure acquired the outstanding 50% interest
in all of the joint venture assets of the La Glace and Judy
Creek facilities, increasing Secure's interest in these
facilities to 100%. Secure anticipates both of these acquisitions
will result in additional stable cash flows and provide a solid
platform for further midstream growth. Secure will continue to
evaluate and assess further acquisition opportunities and/or
partnership opportunities that provide strategic advantages. Secure
remains patient to ensure the right acquisitions are executed to
complement existing services and/or expand geographical presence in
key operating areas, particularly in the current oil and gas
environment.
During the remainder of the year, the Corporation will continue
its prudent approach to organic capital spending. In July, Secure
opened a second disposal well at the Big Mountain SWD located in
the Alberta Deep Basin. During the third quarter, Secure expects to
open the new Kakwa FST, also located in the Deep Basin. The
Corporation will continue to increase capacity at current
facilities by adding additional tanks, disposal wells and expansion
landfill cells.
Overall, Secure has a solid balance sheet and is well positioned
to respond with solutions and the right people to the market's
needs today. Secure continues to work with its customers to support
their needs relating to new facilities, disposal wells, landfill
expansions and specialized equipment. Secure's key priorities for
success in the remainder of 2016 include:
- Working with partners to reduce the overall cost structure,
gain efficiencies and provide new services;
- Maintaining financial flexibility;
- Leveraging on all three operating divisions to gain
efficiencies for customers for drilling, completion, production and
remediation services;
- Gaining further traction on new services and products
associated with production chemicals and chemical enhanced oil
recovery ("EOR");
- Working with customers on water recycling, storage and
logistics. This market continues to expand as producers understand
the need to access water sources and reuse fluids during completion
activities;
- Expanding Secure's midstream facility network.
FINANCIAL STATEMENTS AND MD&A
The Corporation's unaudited condensed consolidated financial
statements and notes thereto for the three and six months ended
June 30, 2016 and 2015 and MD&A
for the three months and six months ended June 30, 2016 and 2015 are available immediately
on Secure's website at www.secure-energy.com. The unaudited
condensed consolidated financial statements and MD&A will be
available tomorrow on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document 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
document. In particular, this document contains or implies
forward-looking statements pertaining to: key priorities for the
Corporation's success; the oil and natural gas industry; activity
levels in the oil and gas sector, drilling levels, commodity prices
for oil, natural gas liquids and natural gas; industry fundamentals
for the third and fourth quarters of 2016; capital forecasts and
spending by producers; demand for the Corporation's services and
products; expansion strategy; the impact of the reduction in oil
and gas activity on 2016 activity levels; the Corporation's
proposed 2016 capital expenditure program; debt service; completion
of facilities (including the new PRD FST); acquisition strategy and
timing of potential acquisitions; the impact of new facilities,
potential acquisitions, the PetroLama Acquisition, and JV
Acquisition on the Corporation's financial and operational
performance and growth opportunities; future capital needs and how
the Corporation intends to fund its operations, working capital
requirements, dividends and capital program; access to capital; and
the Corporation's ability to meet obligations and commitments and
operate within the credit facility restrictions.
Forward-looking statements concerning expected operating and
economic conditions, including the PetroLama Acquisition and JV
Acquisition, are based upon prior year results as well as the
assumption that levels of market activity and growth will be
consistent with industry activity in Canada and the U.S. and 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 and foreign exchange 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
industry may change the demand for the Corporation's services and
its subsidiaries' 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 AIF for the year ended
December 31, 2015 and also includes the risks associated
with the possible failure to realize the anticipated synergies in
integrating the assets acquired in the Acquisition with the
operations of Secure. Although forward-looking statements contained
in this document 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 document 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, OPERATIONAL DEFINITIONS AND ADDITIONAL
SUBTOTALS
The Corporation uses accounting principles that are generally
accepted in Canada (the issuer's
"GAAP"), which includes International Financial Reporting Standards
("IFRS"). Certain supplementary measures in this document do
not have any standardized meaning as prescribed by IFRS. These
non-GAAP measures, operational definitions and additional subtotals
used by the Corporation may not be comparable to similar measures
presented by other reporting issuers. These non-GAAP financial
measures, operational definitions and additional subtotals are
included because management uses the information to analyze
operating performance, leverage and liquidity. Therefore, these
non-GAAP financial measures, operational definitions and additional
subtotals should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with GAAP. See
the management's discussion and analysis available at
www.sedar.com for a reconciliation of the Non-GAAP financial
measures, operational definitions and additional subtotals.
ABOUT SECURE ENERGY SERVICES INC.
Secure is a TSX publicly traded energy services company that
provides safe, innovative, efficient and environmentally
responsible fluids and solids solutions to the oil and gas
industry. The Corporation owns and operates midstream
infrastructure and provides environmental services and innovative
products to upstream oil and natural gas companies operating in
western Canada and certain regions
in the United States
("U.S.").
The Corporation operates three divisions:
Processing, Recovery and Disposal Division ("PRD"): The PRD
division owns and operates midstream infrastructure that provides
processing, storing, shipping and marketing of crude oil, oilfield
waste disposal and recycling. More specifically these services are
clean oil terminalling and rail transloading, custom treating of
crude oil, crude oil marketing, produced and waste water disposal,
oilfield waste processing, landfill disposal, and oil
purchase/resale service. Secure currently operates a network
of facilities throughout Western
Canada and in North Dakota,
providing these services at its full service terminals ("FST"),
landfills, stand-alone water disposal facilities ("SWD") and full
service rail facilities ("FSR").
Drilling and Production Services Division ("DPS"): The DPS
division provides equipment and product solutions for drilling,
completion and production operations for oil and gas producers in
Western Canada. The drilling
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 service line 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. The production services line focuses on providing equipment
and chemical solutions that optimize production, provide flow
assurance and maintain the integrity of production
assets.
Onsite Services Division ("OS"): The operations of the OS
division include Environmental services which provide pre-drilling
assessment planning, drilling waste management, remediation and
reclamation assessment services, Naturally Occurring Radioactive
Material ("NORM") management, waste container services, and
emergency response services; Integrated Fluid Solutions ("IFS")
which include water management, recycling, pumping and storage
solutions; and Projects which include pipeline integrity
(inspection, excavation, repair, replacement and rehabilitation);
demolition and decommissioning, and reclamation and remediation of
former wellsites, facilities, commercial and industrial properties,
and environmental construction projects (landfills, containment
ponds, subsurface containment walls, etc.).
SOURCE SECURE Energy Services Inc.