CALGARY, March 1, 2017 /CNW/ - Secure Energy Services
Inc. ("Secure" or the "Corporation") (TSX – SES) today announced
operational and financial results for the three and twelve months
ended December 31, 2016. The
following should be read in conjunction with the management's
discussion and analysis ("MD&A") and the annual audited
consolidated financial statements and notes thereto of Secure which
are available on SEDAR at www.sedar.com.
Secure also announced today that it intends to suspend its
Dividend Reinvestment Plan ("DRIP"). The Corporation's strong
balance sheet provides significant flexibility to fund future
growth without the dilutive impact to shareholders. Commencing with
the April 1, 2017 dividend
declaration, shareholders participating in the DRIP at that time
will receive cash dividends starting with the
April 17, 2017 dividend payment date.
ANNUAL OPERATIONAL AND FINANCIAL HIGHLIGHTS
2016 was another challenging year for the oil and gas industry.
The steep and rapid deterioration in commodity prices beginning in
late 2014 impacted industry cash flows, resulting in reduced
capital investment and drilling activity across the Western
Canadian Sedimentary Basin ("WCSB").
However, the Corporation has continued to demonstrate resilience
during this period of reduced oil and gas activity levels on the
back of production related volumes in the Processing, Recovery and
Disposal ("PRD") division, the addition of new facilities in
underserved markets, both through organic growth and acquisitions,
a focus on cost controls, and diversification of services offered
across the Corporation. As a result, during the year ended December
31, 2016, Secure realized Adjusted EBITDA of $94.1 million.
In 2016, Secure demonstrated its ability to achieve numerous
operational successes and generate positive cash flows during an
extended downturn in oil and gas activity and in a relatively poor
commodity price environment. Furthermore, the Corporation was also
able to expand its market presence and enhance its service
offerings by taking advantage of accretive acquisition
opportunities throughout the year. Operational highlights for 2016
include:
- Completing construction of the Kakwa Full Service Terminal
("FST"), a facility that was designed and constructed to meet
specific customer requirements in a capacity constrained
region;
- Expanding Secure's midstream facility network in Saskatchewan through the acquisition of
PetroLama Energy Canada Inc. ("PetroLama") and the expansion of the
Corporation's Kindersley FST to increase capacity and
throughput;
- Increased ownership from 50 to 100 percent at its La Glace and Judy
Creek facilities, which relieved Secure from administrative
requirements under a joint venture structure while adding cash
flow;
- Increasing capacity to meet demand at various existing
facilities by adding additional tanks and disposal wells, and
expanding landfill cells;
- Performing various drilling, completion, production and
remediation services for ten of the most active drillers in western
Canada;
- Gaining customer traction with the Drilling and Production
Services ("DPS") division's new production chemicals and enhanced
oil recovery ("EOR") service line;
- Enhancing the OnSite ("OS") division's reputation for
completing successful projects on pipeline integrity, demolition
and decommissioning, and reclamation and remediation of
contaminated sites;
- Working with customers operating in the Alberta Deep Basin and
Duvernay Formation on water recycling, storage and logistics.
The equity offering completed in the first quarter of 2016
further strengthened the Corporation's balance sheet and provided
significant financial flexibility to pursue accretive acquisitions
and continue to invest in organic capital projects in capacity
constrained regions. The Corporation continues its disciplined
approach to maintaining a strong balance sheet to effectively
manage the business through a period of deteriorating commodity
prices and industry activity. As a result of this approach, Secure
has maintained a debt to EBITDA ratio, as defined by the
Corporation's credit facility, of 2.2 to 1 at
December 31, 2016, well below many other oilfield service
providers during the extended downturn in oil and gas activity.
The operating and financial highlights for the year ended
December 31, 2016 and each of the previous two years can be
summarized as follows:
|
Twelve months ended Dec
31,
|
($000's except
share and per share data)
|
2016
|
2015
|
2014
|
Revenue (excludes oil
purchase and resale)
|
393,159
|
560,898
|
794,590
|
Oil purchase and
resale
|
1,016,904
|
785,527
|
1,477,061
|
Total
revenue
|
1,410,063
|
1,346,425
|
2,271,651
|
Adjusted EBITDA
(1)
|
94,100
|
126,652
|
208,990
|
|
Per share ($),
basic
|
0.61
|
0.95
|
1.75
|
|
Per share ($),
diluted
|
0.61
|
0.95
|
1.71
|
Net (loss)
earnings
|
(48,943)
|
(159,870)
|
30,651
|
|
Per share ($),
basic
|
(0.32)
|
(1.20)
|
0.26
|
|
Per share ($),
diluted
|
(0.32)
|
(1.20)
|
0.25
|
Adjusted net (loss)
earnings (1)
|
(48,111)
|
(30,166)
|
59,246
|
|
Per share ($),
basic
|
(0.31)
|
(0.23)
|
0.50
|
|
Per share ($),
diluted
|
(0.31)
|
(0.23)
|
0.48
|
Funds from operations
(1)
|
97,291
|
89,905
|
184,624
|
|
Per share ($),
basic
|
0.63
|
0.67
|
1.55
|
|
Per share ($),
diluted
|
0.63
|
0.67
|
1.51
|
Dividends per common
share
|
0.24
|
0.24
|
0.19
|
Capital expenditures
(1)
|
150,877
|
117,518
|
400,806
|
Total
assets
|
1,425,250
|
1,315,420
|
1,496,117
|
Long-term
liabilities
|
336,830
|
393,774
|
522,557
|
Common Shares - end
of period
|
160,652,221
|
137,708,127
|
121,367,451
|
Weighted average
common shares
|
|
|
|
|
basic
|
154,625,869
|
133,380,634
|
119,272,994
|
|
diluted
|
154,625,869
|
133,380,634
|
122,364,419
|
(1)Refer to "Non-GAAP measures,
operational definitions and additional subtotals" for further
information.
|
- REVENUE OF $1,410.1 MILLION FOR THE YEAR ENDED
DECEMBER 31, 2016
- Total processing, recovery and disposal volumes at PRD
facilities for the year ended December 31, 2016 decreased
from the 2015 comparative periods as poor weather conditions during
the second and third quarters and continued low oil prices during
the year 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 and the addition of facilities in 2015
and 2016, which included the construction and commissioning of
Tulliby Lake FST, Kakwa FST, Big Mountain stand-alone water
disposal facility ("SWD"), and Wonowon SWD, the conversion of the
Rycroft full service rail facility
("FSR") to include water disposal services, the conversion of the
13 Mile facility from an SWD to an FST, the acquisition of the
Alida crude oil terminalling
facility from PetroLama in June 2016, and the increased
ownership in the La Glace and Judy
Creek FSTs from 50% to 100% in July 2016. Overall, this
resulted in the PRD division achieving revenue (excluding oil
purchase and resale) of $198.8 million in 2016, down 18% from
2015;
- Oil purchase and resale revenue in the PRD division for the
year ended December 31, 2016
increased by 29% from the 2015 comparative period to $1,016.9 million due primarily to additional
oil purchase and resale volumes related to the newly acquired
Alida crude oil terminalling
facility, the Kakwa FST commissioned in 2016 and the increased
ownership in the La Glace and Judy
Creek FSTs;
- Activity in the DPS division is strongly correlated with oil
and gas drilling activity in the WCSB, which experienced a 33%
decline in active rig count in 2016 from 2015 levels. As a result
of these decreased activity levels and pricing pressures, DPS
division revenue decreased by 42% to $111.3 million in 2016;
- OS division revenue decreased 34% in 2016 primarily due to
reduced Projects revenue resulting from two significant jobs in
2015 for which there was no equivalents in 2016, wet weather conditions in the second and
third quarters restricting site access and delaying job starts, and
lower completion activities given the poor weather conditions and
relatively low oil price during the year. The impact to revenue was
partially mitigated by new service offerings and geographic
expansion.
- ADJUSTED EBITDA OF $94.1 MILLION FOR THE YEAR ENDED
DECEMBER 31, 2016
- Adjusted EBITDA of $94.1 million, a 26% decrease from 2015 and
comparable to the decline in revenue as Secure has streamlined
operations decreasing fixed costs across the Corporation's cost
structure, resulting in strong operating margin percentages.
- Adjusted EBITDA in 2016 was impacted by unseasonable weather
conditions in the middle of the year causing a reduction in
drilling and completion activity throughout the WCSB which most
heavily impacted the DPS division as the majority of operations are
tied directly 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 2016 and
expansions at certain of the Corporation's existing facilities in
the past year, two acquisitions, and cost saving initiatives
implemented in 2015 and 2016 which have resulted in a strong
operating margin and reduced general and administrative costs. The
decrease in the OS division due to project work delays resulting
from wet weather, and reduced services correlated to completions
activity was somewhat mitigated by geographic expansion, new and
diversified service lines and integrated service offerings.
- NET LOSS OF $48.9 MILLION
FOR THE YEAR ENDED DECEMBER 31, 2016
- For the year ended December 31,
2016, Secure's net loss of $48.9 million improved by 69% compared to
the net loss of $159.9 million in
2015. The decrease in net loss is primarily a result of non-cash
impairments of non-current assets totaling $157.7 million recorded in the second half
of 2015 in response to the decrease in commodity prices and
industry activity levels.
- ADJUSTED NET LOSS OF $48.1
MILLION FOR THE YEAR ENDED DECEMBER
31, 2016
- For the year ended December 31,
2016, Secure's adjusted net loss of $48.1 million increased from $30.2 million in 2015 primarily as a result
of the factors discussed above impacting Adjusted EBITDA, partially
offset by lower general and administrative expenses and business
development expenses as the Corporation is realizing the benefit of
the cost saving initiatives implemented in 2015 and 2016. 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.
- 2016 CAPITAL EXPENDITURES OF $150.9
MILLION FOR THE YEAR ENDED DECEMBER
31, 2016
- Excluding business acquisitions, capital expenditures for the
year ended December 31, 2016 of
$62.6 million include:
- Construction of the Kakwa FST, which opened in August 2016;
- Disposal well additions at the Kaybob and Big Mountain SWD
facilities;
- Cell expansions at the South Grande
Prairie and Fox Creek
landfills;
- Expansion of the Kindersley FST to increase storage and
throughput capacity; and
- 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 ("PetroLama Acquisition"). The main asset
acquired by the Corporation from PetroLama is a crude oil terminal
in Alida, Saskatchewan which is
connected to the Tundra Energy Marketing Limited (formerly Enbridge
Pipelines (Saskatchewan) Inc.)
pipeline system and includes truck unload risers and storage tanks.
Secure also acquired various marketing contracts relating to the
purchase, sale and transportation of propane, butane and
condensate.
- The PetroLama Acquisition provides Secure with an attractive
entry point into the southeast Saskatchewan midstream market. Secure has
expanded its market presence and enhanced 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 additional operating
efficiencies.
- The purchase price was paid with $61.7 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 $13.8 million
of crude oil inventory stored at Cushing,
Oklahoma. The value of the oil inventory fluctuates with oil
prices and the U.S. dollar. At December 31, 2016, the oil
inventory was valued at $15.6 million and is hedged with futures
contracts. Subsequent to December 31,
2016 the oil inventory was sold and the storage lease
expired on January 31, 2017.
- JV ACQUISITION
- On July 12, 2016, Secure
completed the acquisition of the outstanding 50% interest in all of
the joint venture assets of the La
Glace and Judy Creek
facilities (the "JV Acquisition"), increasing Secure's interest in
these facilities to 100%.
- The purchase price of $26.6 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.
- The total amount drawn on Secure's credit facility as at
December 31, 2016 decreased by 20% to $209.0 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 December 31, 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
2.2 to 1 as at December 31, 2016
(2015 – 2.2 to 1).
FOURTH QUARTER OPERATIONAL AND FINANCIAL HIGHLIGHTS
|
Three months ended
Dec 31,
|
($000's except
share and per share data)
|
2016
|
2015
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
124,584
|
129,770
|
(4)
|
Oil purchase and
resale
|
405,939
|
160,203
|
153
|
Total
revenue
|
530,523
|
289,973
|
83
|
Adjusted EBITDA
(1)
|
33,046
|
31,808
|
4
|
|
Per share ($),
basic
|
0.21
|
0.23
|
(9)
|
Net loss
|
(10,075)
|
(86,825)
|
(88)
|
|
Per share ($), basic
and diluted
|
(0.06)
|
(0.63)
|
(90)
|
Adjusted net
loss(1)
|
(11,430)
|
(14,650)
|
(22)
|
|
Per share ($),
basic
|
(0.07)
|
(0.11)
|
(36)
|
Funds from operations
(1)
|
33,978
|
25,631
|
33
|
|
Per share ($),
basic
|
0.21
|
0.19
|
11
|
Dividends per common
share
|
0.06
|
0.06
|
-
|
Capital expenditures
(1)
|
15,408
|
29,359
|
(48)
|
Total
assets
|
1,425,250
|
1,315,420
|
8
|
Common Shares - end
of period
|
160,652,221
|
137,708,127
|
17
|
Weighted average
common shares - basic and diluted
|
160,314,786
|
137,500,242
|
17
|
(1)Refer to "Non-GAAP measures,
operational definitions and additional subtotals" for further
information.
|
- REVENUE OF $530.5 MILLION FOR THE THREE MONTHS
ENDED DECEMBER 31, 2016
- Total processing, recovery and disposal volumes at PRD
facilities for the three months ended December 31, 2016
increased approximately 6% from the 2015 comparative period due
primarily to the addition of new facilities subsequent to
December 31, 2015 and contributions
from the PetroLama and JV Acquisitions in 2016. The increased
volumes, combined with an average crude oil pricing increase of 17%
from the comparative period of 2015, resulted in the PRD division
achieving revenue (excluding oil purchase and resale) for the three
months ended December 31, 2016 of $62.0 million, an increase of 12% from the
2015 comparative period;
- Oil purchase and resale revenue in the PRD division for the
three months ended December 31, 2016
increased by 153% from the 2015 comparative period to $405.9 million, primarily due to additional
oil purchase and resale volumes related to the newly acquired
Alida facility and the increased
ownership in the La Glace and Judy
Creek FSTs;
- DPS division revenue for the three months ended December 31, 2016 was $38.1 million, a 10% decrease from the 2015
comparative period. Reduced pricing to customers, shifts in the
product mix between oil and non-oil based product, and the wind
down of the DPS U.S. operations in the fourth quarter of 2015 were
partially offset by an 8% increase in active rig count in the
WCSB;
- OS division revenue of $24.5 million in the three months ended
December 31, 2016 decreased 24% from
the 2015 comparative period. Reduced revenues across all three OS
service lines was a result of decreased large scale Projects
revenues from two significant jobs in 2015 for which there was no
equivalents in 2016, wet weather
conditions continuing into the fourth quarter restricting site
access and delaying job starts, and lower completion activities
given the poor weather conditions and relatively low oil price
during the year. Many reclamation and remediation projects were
reduced or deferred into 2017 as capital budgets were revised.
- ADJUSTED EBITDA OF $33.0
MILLION FOR THE THREE MONTHS ENDED DECEMBER 31, 2016
- Diversification across Secure's three divisions has contributed
to Adjusted EBITDA for the three months ended December 31, 2016 of $33.0
million, a 4% increase from the 2015 comparative period. The
fourth quarter of 2016 saw a 17% increase in average crude oil
pricing from the 2015 comparative period and benefitted from
ongoing production related volumes, new facilities, facility
expansions, and the PetroLama and JV acquisitions in the PRD
division in 2016, partially offset by certain service lines which
were still negatively impacted by reduced drilling and completion
activity.
- Q4 2016 CAPITAL EXPENDITURES
- Total capital expenditures for the three months ended
December 31, 2016 of $15.4 million relate primarily to various
expansion and sustaining projects at existing PRD facilities,
including the addition of a cell at the Fox Creek landfill, and expansion at the
Kindersley FST to increase capacity and throughput.
PRD DIVISION OPERATING HIGHLIGHTS
|
Three months ended
Dec 31,
|
Twelve months
ended Dec 31,
|
($000's)
|
2016
|
2015
|
%
Change
|
2016
|
2015
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
PRD services
(a)
|
61,988
|
55,171
|
12
|
198,813
|
242,734
|
(18)
|
|
Oil purchase and
resale service
|
405,939
|
160,203
|
153
|
1,016,904
|
785,527
|
29
|
Total PRD division
revenue
|
467,927
|
215,374
|
117
|
1,215,717
|
1,028,261
|
18
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
PRD services
(b)
|
25,805
|
25,855
|
-
|
91,620
|
118,515
|
(23)
|
|
Oil purchase and
resale service
|
405,939
|
160,203
|
153
|
1,016,904
|
785,527
|
29
|
Total PRD division
direct expenses
|
431,744
|
186,058
|
132
|
1,108,524
|
904,042
|
23
|
|
|
|
|
|
|
|
Operating Margin
(1) (a-b)
|
36,183
|
29,316
|
23
|
107,193
|
124,219
|
(14)
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
58%
|
53%
|
|
54%
|
51%
|
|
(1)Refer to "Non-GAAP measures,
operational definitions and additional subtotals" for further
information.
|
Highlights for the PRD division for the three and twelve
months ended December 31, 2016
included:
- Processing, recovery and disposal services revenue of
$62.0 million for the three months
ended December 31, 2016 increased by
12% from the 2015 comparative period, driven by a 28% increase in
recovery volumes contributed from the new facilities added in 2016,
expansions at certain of the Corporation's existing facilities in
2016, and the PetroLama and JV Acquisitions. Increased volumes and
production activity in the quarter was further strengthened by the
increase in average crude oil prices by 17% from the 2015
comparative period;
- Processing, recovery and disposal services revenue of
$198.8 million for the twelve months
ended December 31, 2016 decreased by
18% from the 2015 comparative period. With an average crude oil
price decrease of 8% year over year, the continued low crude oil
price impacted oil and gas producers' capital spending resulting in
a 33% drop in industry rig counts in the WCSB and North Dakota, respectively, in 2016 from 2015.
This 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 to a much
lesser extent in the twelve months ended December 31, 2016 compared to the same periods in
2015 due to ongoing production related volumes, the construction of
new facilities in 2015 and 2016, expansions at certain of the
Corporation's existing facilities in the past year, and the
PetroLama and JV Acquisitions;
- The addition of new facilities, both organically and through
acquisitions, accounted for $7.0
million and $25.9 million of
revenue in the three and twelve months ended December 31, 2016, an impact of 13% and 11% when
comparing to the same periods of 2015;
- Processing volumes remained relatively stable in the three
months ended December 31, 2016 and
decreased by 12% in the twelve months ended December 31, 2016 from the comparative periods
due to decreases in emulsion and waste processing volumes;
- Disposal volumes remained stable in the three months ended
December 31, 2016 and decreased by
13% in the twelve months ended December 31,
2016 from the comparative periods due mainly to a decrease
in flow back water from less completion activities and less
disposal of drilling waste in Secure's landfills;
- Recovery revenues increased 35% in the three months ended
December 31, 2016 from the
comparative period. The increase was driven by crude oil marketing
activities at the Corporation's pipeline connected FSTs and the
Alida crude oil terminalling
facility, combined with the average crude oil price increase of 17%
from the comparative period. The strong crude oil marketing
revenues were partially offset by decreased recovered oil volumes
and revenues from lower drilling and completion activity;
- Recovery revenues decreased 16% in the twelve months ended
December 31, 2016 from the
comparative 2015 period due to lower recovered oil sales as a
result of the factors described above, compounded by an 8% decrease
in average crude oil prices. 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 and the Alida crude oil terminalling facility;
- Oil purchase and resale revenue in the PRD division for the
three and twelve months ended December 31,
2016 increased by 153% and 29% from the 2015 comparative
periods to $405.9 million and
$1,016.9 million. The increase is
primarily due to additional oil and purchase resale volumes related
to the newly acquired Alida
facility and the increased ownership in the La Glace and Judy Creek FSTs, which in total
accounted for 48% and 43% of oil purchase and resale revenue in the
three and twelve months ended December 31,
2016;
- Operating margin as a percentage of PRD services revenue for
the three and twelve months ended December
31, 2016 increased to 58% and 54% from 53% and 51% in the
comparative periods of 2015. The increase in operating margin as a
percentage of revenue over 2015 is due to the cost saving
initiatives implemented in 2015 and 2016, including reducing
employment costs, reduced costs associated with the Corporation's
rail transloading facilities, and the elimination of start-up costs
associated with new facilities commissioned, partially offset by
lower drilling and completion volumes, and reduced recovered oil
sales. The Corporation's revised cost management structure has
resulted in improved operating margins realized across various
facilities including FSTs, SWDs and landfills. In the three and
twelve months ended December 31,
2015, the PRD division incurred $0.9
million and $1.2 million of
severance and related costs which impacted the comparative
operating margin percentages by 2% and 1%, respectively. Severance
costs of $0.6 million were incurred
in the twelve months ended December 31,
2016, which impacted the operating margin percentage by
0.5%;
- General and administrative ("G&A") expenses for the three
and twelve months ended December 31,
2016 decreased 45% and 46% from the 2015 comparative periods
to $2.9 million and $12.8 million as cost saving initiatives
undertaken during 2015 and 2016 are being realized. In the twelve
months ended December 31, 2016, the
Corporation incurred $0.5 million in
severance and related costs as part of its cost saving initiatives,
compared to $0.4 million and
$1.9 million in the three and twelve
months ended December 31, 2015. The
Corporation continues to minimize future costs by streamlining
operations resulting in certain costs in the current year being
re-allocated to the Corporate division.
DPS DIVISION OPERATING HIGHLIGHTS
|
Three months ended
Dec 31,
|
Twelve months
ended Dec 31,
|
($000's)
|
2016
|
2015
|
%
Change
|
2016
|
2015
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
Drilling and
production services (a)
|
38,063
|
42,153
|
(10)
|
111,329
|
192,076
|
(42)
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
Drilling and
production services (b)
|
31,776
|
36,248
|
(12)
|
95,516
|
165,981
|
(42)
|
Operating Margin
(1) (a-b)
|
6,287
|
5,905
|
6
|
15,813
|
26,095
|
(39)
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
17%
|
14%
|
|
14%
|
14%
|
|
(1)
Refer to "Non-GAAP measures, operational definitions and additional
subtotals" for further information.
|
Highlights for the DPS division for the three and twelve
months ended December 31, 2016
included:
- Revenue in the DPS division correlates with oil and gas
drilling activity in the WCSB, most notably active rig counts and
metres drilled. Commodity pricing, weather conditions and the
resulting drop off in activity levels from oil and gas producers
had a significant impact on the DPS division in 2016. For the three
months ended December 31, 2016,
industry rig counts in the WCSB increased 8% and metres drilled
increased 32% from the 2015 comparative periods. For the twelve
months ended December 31, 2016,
industry rig counts and metres drilled in the WCSB declined 33% and
23% from the 2015 comparative periods, respectively. With
compressed industry activity throughout the year combined with
pricing pressures on services and rental rates, revenue from the
DPS division for the three and twelve months ended December 31, 2016 decreased 10% and 42% to
$38.1 million and $111.3 million from the comparative periods of
2015. Average crude oil prices increases and improved weather
conditions during the three months ended December 31, 2016 compared to the 2015
comparative period drove increased industry activity strengthening
the DPS division's revenue in the latter part of the fourth quarter
of 2016;
- Revenue per operating day decreased slightly to $6,877 and $7,279
during the three and twelve months ended December 31, 2016 compared to the same periods in
2015 which generated revenue of $7,171 and $7,481
per operating day. The variance is a result of the proportion of
type of rigs serviced, which typically fluctuates quarter over
quarter, and location of wells which impacts the type of fluid used
and depth of well. In general, the DPS division has experienced
increasing drilling fluids revenue per operating day over the past
few years as a result of the industry trend towards drilling longer
and more challenging wells which require specialty drilling
fluids;
- The DPS division's market share decreased slightly to 29% in
the three and twelve months ended December
31, 2016 from the comparative periods in 2015 (31% and 30%,
respectively). During periods when the total rig count is low, the
timing of one customer's drilling activities can have a significant
impact on market share;
- Secure continues diversification efforts in the DPS division
through expansion of the Production Chemicals and Chemical EOR
service lines which will benefit the Corporation in the medium to
long-term. Strategic relationships with key suppliers and ongoing
product development has resulted in a significant expansion to
Secure's product offering resulting in multiple commercial projects
in 2016;
- The DPS division's operating margin for the three months ended
December 31, 2016 increased 6% from
the 2015 comparative period to $6.3
million. Operating margin for the twelve months ended
December 31, 2016 decreased 39% from
2015 to $15.8 million. In the 2015
three and twelve month comparative periods the Corporation incurred
$1.8 million and $5.9 million in restructuring costs related to
the wind down of the DPS operations in the U.S., and $0.1 million and $2.9
million in severance and related costs and inventory
impairment. The DPS division incurred $0.8
million in comparable charges in the twelve months ended
December 31, 2016;
- Operating margin as a percentage of revenue increased to 17% in
the three months ended December 31,
2016 from 14% in the comparative period, and remained
consistent at 14% for the twelve months ended December 31, 2016. Offsetting the impact of the
restructuring and severance charges discussed above, 2016 operating
margins as a percentage of revenue were negatively impacted by
reduced equipment utilization, the economies of scale required to
operate the division's barite plant and price discounts provided to
customers;
- G&A expense for the three and twelve months ended
December 31, 2016 decreased 50% and
57% from the comparative periods of 2015 as a result of cost saving
initiatives undertaken during 2015 and 2016. In the three and
twelve month 2015 comparative periods, the Corporation incurred
$1.1 million and $6.2 million including severance costs, and
restructuring costs related to the wind down of DPS operations in
the U.S.
OS DIVISION OPERATING HIGHLIGHTS
|
Three months ended
Dec 31,
|
Twelve months
ended Dec 31,
|
($000's)
|
2016
|
2015
|
%
Change
|
2016
|
2015
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
OnSite services
(a)
|
24,533
|
32,446
|
(24)
|
83,017
|
126,088
|
(34)
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
OnSite services
(b)
|
19,535
|
23,614
|
(17)
|
63,180
|
93,961
|
(33)
|
Operating Margin
(1) (a-b)
|
4,998
|
8,832
|
(43)
|
19,837
|
32,127
|
(38)
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
20%
|
27%
|
|
24%
|
25%
|
|
(1)Refer to "Non-GAAP measures,
operational definitions and additional subtotals" for further
information.
|
Highlights for the OS division for the three and twelve
months ended December 31, 2016
included:
- Diversified service lines, integrated service offerings and
organic growth partially mitigated reduced activity driven by wet
weather conditions and low commodity prices, resulting in a 24% and
34% decrease in revenue to $24.5
million and $83.0 million in
the three and twelve months ended December
31, 2016;
- Projects revenue during the three and twelve months ended
December 31, 2016 decreased 17% and
39% from the 2015 comparative periods. Projects revenue is
dependent on the type and size of jobs which can vary quarter to
quarter. Projects completed significant demolition and remediation
jobs during 2015; similar scale jobs were not repeated in 2016 and
weather and site conditions postponed several projects into 2017
that were scheduled for the fourth quarter of 2016. Partially
offsetting the decrease was revenue generated from new services
which include non-oil and gas related industries and abandonment
services, geographic expansion, and a 31% increase in pipeline
integrity activity in the three months ended December 31, 2016 from the comparative period.
The Projects service line is continuing to bid on the larger scale
jobs as producers revise their capital spending due to increased
commodity prices;
- Environmental services revenue for the three and twelve months
ended December 31, 2016 decreased 44%
and 37% from the 2015 comparative periods primarily due to reduced
reclamation and remediation revenue resulting from deferred
customer spending created by low commodity prices. Drilling waste
revenue has also decreased due to lower drilling activity combined
with pricing reductions. This lack of activity has produced a
competitive pricing environment for drill waste services. These
decreases were partially offset by revenue generated from an
emergency response job managed by the drill waste group, and by
increased bin revenue in the three and twelve months ended
December 31, 2016 compared to the
same periods in 2015 resulting from geographic expansion and growth
in Naturally Occurring Radioactive Material ("NORM") related
solution services;
- Integrated fluids solutions revenue for the three and twelve
months ended December 31, 2016
decreased approximately 50% and 31% from the 2015 comparative
periods. Revenue decreased primarily due to lower customer field
activity from continued depressed commodity prices. Wet weather
conditions limiting field access in the third quarter and lower
than anticipated activity during spring break-up decreased rental
equipment utilization. Revenue has also been impacted in 2016 from
competitive pricing pressure as a result of lower industry
activity;
- The three and twelve months ended December 31, 2016 operating margin in the OS
division of $5.0 million and
$19.8 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 twelve months ended December 31, 2016 was 20% and 24%, a decrease
from 27% 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
decreased operating margin in the three and twelve months ended
December 31, 2016 resulted from
reduced large scale work in the Projects service line, an overall
mix of lower margin projects, and costs to add or expand services
within the division;
- G&A expenses for the three months and twelve months ended
December 31, 2016 decreased 21% and
25% from the 2015 comparative periods to $1.9 million and $6.5
million due to re-allocating certain costs to the Corporate
division and cost saving initiatives.
OUTLOOK
Crude oil prices remained depressed in 2016, with an average
crude oil price decrease of 8% from 2015, driven by the continued
imbalance of global oil supply and demand. However, since The
Organization of the Petroleum Exporting Countries' ("OPEC")
announcement on November 30, 2016 to
cut production by 1.2 million barrels per day commencing in
January 2017, there has been an
upward shift on crude oil prices and the oil and gas industry is
cautiously anticipating a more stable commodity price environment
to operate in.
Because of the increased stability in commodity prices over the
past number of months, Secure anticipates an increase in oil and
gas producers' capital budgets for 2017 over 2016, which will drive
higher activity levels in the WCSB and benefit all three of the
Corporation's divisions. In January
2017, industry rig counts increased by 27% from January 2016 evidencing increased activity levels
during the first quarter of 2017, primarily driven by the
stabilized commodity environment, but also due to an improvement of
weather conditions from the fourth quarter of 2016, which delayed
projects until early 2017. Secure will continue to exercise caution
and demonstrate the ability to operate profitably in this climate
by maintaining its current cost structures which have enabled the
Corporation to improve margins, reduce overhead costs and
streamline operations to enhance customer service through the
integrated services provided.
Secure anticipates 2017 capital spending of approximately
$50 million primarily focused in PRD
and directed towards high rate of return organic growth and
expansion projects. The Corporation will spend approximately
$15 million on sustaining and
maintenance expenditures for the year. Total capital spending of
$65 million is well within the
Corporation's forecasted cash flow and is comparable to organic
spending levels in 2016. Secure's strong balance sheet and
financial flexibility positions the company to be able to increase
capital spending levels above $65
million for the right opportunities.
Secure's key priorities for success throughout 2017 include:
- Working with industry partners to continue to reduce the
overall cost structure, gain efficiencies and provide new
services;
- Leveraging on all three operating divisions to provide benefits
to customers for drilling, completion, production and remediation
services;
- Gaining further traction on new services and products
associated with production chemicals and chemical 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;
- Continuing a prudent approach to acquisitions and organic
capital spending while maintaining financial flexibility;
- Continue to evaluate and assess further acquisition
opportunities and/or partnership opportunities that provide
strategic advantages;
- Focus on innovative technologies that help our customers
achieve operational efficiencies while also reducing their overall
impact on the environment.
Secure has a solid balance sheet and significant financial
flexibility to continue to meet customer and market demands. The
Corporation will continue to work with its customers to support
their requirements relating to new facilities, disposal wells,
landfill expansions and specialized equipment. Market share growth
and new service lines will ensure that Secure is well positioned
for future growth.
FINANCIAL STATEMENTS AND MD&A
The Corporation's annual audited consolidated financial
statements and notes thereto for the years ended
December 31, 2016 and 2015 and MD&A for the three and
twelve months ended December 31, 2016 and 2015 are available
immediately on Secure's website at www.secure-energy.com. 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 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 2017; capital forecasts and spending by producers; demand for
the Corporation's services and products; expansion strategy; the
impact of oil and gas activity on 2017 activity levels; the
Corporation's proposed 2017 capital expenditure program including
growth, sustaining and maintenance capital expenditures; debt
service; 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 any 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 Corporation's annual information form ("AIF")
for the year ended December 31, 2016 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 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.); 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; and Integrated
Fluid Solutions ("IFS") which include water management, recycling,
pumping and storage solutions.
SOURCE SECURE Energy Services Inc.