CALGARY, Aug. 1, 2017 /CNW/ - Secure Energy Services
Inc. ("Secure" or the "Corporation") (TSX – SES) is pleased to
announce the completion of the acquisition of Ceiba Energy Services
Inc. ("Ceiba"), a service provider of stand-alone water disposal
and oil treating facilities in western Canada. The acquisition was previously
announced on May 15, 2017 and adds ten facilities that
fit within, and add capacity to, Secure's existing PRD facility
network. The additional facilities will provide customers with
additional options to reduce their overall transportation costs for
custom treating of crude oil, crude oil marketing, produced and
waste water disposal and oilfield waste processing.
Pursuant to the acquisition, the Corporation paid approximately
$35.5 million in cash (including
outstanding debt) and issued 189,965 common shares for a total
transaction value of approximately $37.0 million, subject to working capital
and post-closing adjustments.
Secure also announced today its operational and financial
results for the three and six months ended June 30, 2017.
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 2017 OPERATIONAL AND FINANCIAL HIGHLIGHTS
The
second quarter of 2017 was very active for Secure as the
Corporation completed the acquisition of a production chemicals
business in April and entered into an agreement to acquire all of
the issued and outstanding shares of Ceiba in May. In
addition, the Corporation restructured its credit facilities in
June to provide greater financial flexibility as Secure continues
to be active on both acquisition and organic growth
opportunities. There continues to be high demand for water
disposal in many areas including the Montney and Deep Basin resource plays where
Secure has recently added more disposal capacity.
Seasonality of the oil and gas industry, including the length of
spring break-up, weather conditions, and the timing of road bans
has the most significant effect on second quarter results.
Financial results were positively influenced by more robust
activity levels during the second quarter of 2017 and due to more
favorable weather conditions resulting in shorter road bans.
ADJUSTED EBITDA INCREASE OF 135%
Average crude
oil prices increased by 10% while industry rig counts and metres
drilled in the WCSB increased by 142% and 215% respectively over
the second quarter of 2016. As a result, all three of the
Corporation's divisions were positively impacted and experienced
increased revenues and improved margins compared to the second
quarter of 2016. Increased industry activity, along with the
addition of new facilities and expansions in underserviced markets
in 2016, and ongoing production related volumes from existing
facilities in the PRD division resulted in Adjusted
EBITDA1 of $20.0 million and $62.2 million during the three and six
months ended June 30, 2017
respectively, a 135% and 85% increase over the comparative
periods.
INCREASED CAPITAL PROGRAM
In May, Secure
announced an increase to its 2017 capital program. Secure
expects to spend approximately $100
million on organic projects relating to the following:
- A new feeder pipeline to transport crude oil from producers'
oil batteries to a storage and connection point. Long lead items
and upfront engineering costs have been incurred in the first six
months of 2017 with construction expected to be completed and the
pipeline in operation in the fourth quarter of 2018, subject to
obtaining remaining permits;
- A new SWD facility in the Montney region of Alberta with construction to commence during
the fourth quarter;
- Increased capacity at existing locations with added disposal
capacity, additional tanks and increased pump capacity, including
the newly acquired Ceiba facilities;
- Increased landfill capacity with expansions being completed at
South Grande Prairie, Fox Creek, Pembina and Saddle Hills landfills;
and
- Long lead items and upfront engineering costs on various
projects.
STRONG BALANCE SHEET LEVERAGED THROUGH NEW CREDIT
FACILITIES
On June 30,
2017, Secure entered into new credit facilities consisting
of a $470 million first lien credit
facility ("First Lien Facility") and a $130
million second lien credit facility ("Second Lien
Facility"). The combined facilities total $600 million and replace the Corporation's
previous $700 million syndicated
facility. The reduction in the total borrowing capacity allows the
Corporation to optimize its debt structure to reduce costs
associated with standby fees on undrawn amounts while maintaining
target levels of liquidity.
The First Lien Facility has a maturity date of
June 30, 2021 and bears interest at the Corporation's
option of either the Canadian prime rate plus 0.45% to 2.00% or the
banker acceptance rate plus 1.45% to 3.00%, depending, in each
case, on the ratio of senior debt to EBITDA.
The Second Lien Facility has a maturity date of
July 31, 2021 and through the utilization of interest
rate swaps has an interest rate of 5% for the first three years and
5.5% thereafter.
The Corporation's balance sheet provides significant financial
flexibility to pursue accretive acquisitions and continue to invest
in organic capital projects as described above. At June 30, 2017, Secure's net debt1 was
$88.9 million, and the
Corporation's senior debt and total debt to EBITDA ratios, as
defined by the Corporation's credit facilities, were both 1.8 to
1.
The operating and financial highlights for the three and six
month periods ending June 30, 2017
and 2016 can be summarized as follows:
|
|
Three months ended
June 30,
|
Six months ended
June 30,
|
($000's except
share and per share data)
|
|
2017
|
2016
|
%
change
|
2017
|
2016
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
|
115,372
|
66,148
|
74
|
256,085
|
168,415
|
52
|
Oil purchase and
resale
|
|
468,952
|
202,460
|
132
|
778,828
|
309,325
|
152
|
Total
revenue
|
|
584,324
|
268,608
|
118
|
1,034,913
|
477,740
|
117
|
Adjusted EBITDA
(1)
|
|
20,044
|
8,540
|
135
|
62,214
|
33,623
|
85
|
|
Per share ($), basic
and diluted
|
|
0.12
|
0.05
|
140
|
0.38
|
0.23
|
65
|
Net loss
|
|
(13,529)
|
(20,681)
|
35
|
(10,089)
|
(30,747)
|
67
|
|
Per share ($), basic
and diluted
|
|
(0.08)
|
(0.13)
|
38
|
(0.06)
|
(0.21)
|
71
|
Adjusted net loss
(1)
|
|
(13,315)
|
(20,467)
|
35
|
(9,813)
|
(29,065)
|
66
|
|
Per share ($), basic
and diluted
|
|
(0.08)
|
(0.13)
|
38
|
(0.06)
|
(0.19)
|
68
|
Funds from operations
(1)
|
|
17,376
|
5,994
|
190
|
57,428
|
24,694
|
133
|
|
Per share ($), basic
and diluted
|
|
0.11
|
0.04
|
175
|
0.35
|
0.17
|
106
|
Dividends per common
share
|
|
0.06125
|
0.06
|
2
|
0.12125
|
0.12
|
1
|
Capital expenditures
(1)
|
|
49,688
|
74,356
|
(33)
|
61,784
|
95,845
|
(36)
|
Total
assets
|
|
1,417,372
|
1,374,164
|
3
|
1,417,372
|
1,374,164
|
3
|
Net debt
(1)
|
|
88,926
|
69,289
|
28
|
88,926
|
69,289
|
28
|
Common shares - end
of period
|
|
162,949,160
|
159,321,292
|
2
|
162,949,160
|
159,321,292
|
2
|
Weighted average
common shares - basic and diluted
|
|
162,776,950
|
158,437,296
|
3
|
162,421,437
|
149,226,219
|
9
|
(1)
Refer to "Non-GAAP measures, operational definitions and
additional subtotals" for further
information.
|
- REVENUE OF $584.3 MILLION AND $1.0 BILLION FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2017
-
- Total processing, recovery and disposal volumes at PRD
facilities for the three and six months ended June 30, 2017
increased from the 2016 comparative periods due to increased
drilling activity levels across the WCSB, ongoing production
related volumes and the addition of facilities in 2016, which
included the acquisition of the Alida crude oil terminalling
facility in June 2016, the increased ownership in the
La Glace and Judy Creek FSTs from
50% to 100% in July 2016, and the commissioning of the Kakwa
FST in August 2016. Overall, this resulted in the PRD division
achieving revenue (excluding oil purchase and resale) of
$60.3 million and $127.7 million in the three and six months ended
June 30, 2017, up 61% and 48%,
respectively, from the comparative periods in 2016;
- Oil purchase and resale revenue in the PRD division for the
three and six months ended June 30,
2017 increased by 132% and 152% from the 2016 comparative
periods to $469.0 million and
$778.8 million due primarily to
additional oil purchase and resale volumes from new facilities in
2016, which included the Alida crude oil terminalling facility, the
increased ownership in the La
Glace and Judy Creek FSTs, and the Kakwa FST;
- Activity in the DPS division is strongly correlated with oil
and gas drilling activity in the WCSB, which experienced a 142% and
100% increase in active rig counts in the three and six months
ended June 30, 2017 from the 2016
comparative periods. As a result of these improved activity levels,
DPS division revenue increased by 202% and 82% to $33.9 million and $84.4 million in the three and six months ended
June 30, 2017;
- OS division revenue increased 21% and 23% to $21.2 million and $43.9 million in the three and six months ended
June 30, 2017 primarily due to
revenue from new service lines and increased activity related to
increased oil prices and industry activity compared to the prior
year comparative periods.
- ADJUSTED EBITDA OF $20.0 MILLION AND $62.2 MILLION FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2017
-
- Adjusted EBITDA of $20.0 million and $62.2 million, a 135% and 85% increase from the
2016 comparative periods, resulted from increased average crude oil
prices of 10% and 26% in the three and six months ended
June 30, 2017 from the prior year
comparative periods. This increase positively impacted all three of
the Corporation's divisions. Increased drilling and completion
activity positively impacted the DPS and OS divisions while ongoing
production related volumes and increased volumes from acquisitions
and facility expansions in the second and third quarters of 2016
drove both PRD revenues and operating margins.
- NET LOSS OF $13.5 MILLION
AND $10.1 MILLION FOR THE THREE AND
SIX MONTHS ENDED JUNE 30,
2017
-
- For the three and six months ended June
30, 2017, Secure's net loss of $13.5
million and $10.1 million
improved from a net loss of $20.7
million and $30.7 million in
the three and six months ended June 30, 2016. This improvement
resulted from increased activity due to an earlier spring break up
in the prior year, new facilities and expansions and the
Corporation's continued focus on managing costs.
- ADJUSTED NET LOSS1 OF $13.3 MILLION AND $9.8
MILLION FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2017
-
- For the three and six months ended June
30, 2017, Secure's adjusted net loss of $13.3 million and $9.8 million improved by $7.2 million and $19.3 million from an adjusted net loss of
$20.5 million and $29.1 million in the three and six months
ended June 30, 2016. The positive
variance is primarily a result of the factors discussed above
impacting Adjusted EBITDA.
- CAPITAL EXPENDITURES OF $49.7
MILLION AND $61.8 MILLION FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
-
- Total capital expenditures (excluding business combinations)
for the three and six months ended June 30,
2017 of $19.4 million and
$31.5 million include:
-
- Equipment upgrades at various PRD facilities to increase
capacity including additional tanks and pumps;
- Long lead items for various projects expected to commence in
the 3rd and 4th quarters of 2017, including
the feeder pipeline; and
- Sustaining capital expenditures at existing facilities required
to maintain ongoing business operations
- PRODUCTION CHEMICALS ACQUISITION
-
- On April 13, 2017, the
Corporation acquired the Canadian division of a production chemical
business from a U.S. based multi-national company for an aggregate
purchase price of $30.3 million, with
consideration paid in cash (the "Production Chemicals
Acquisition").
- The acquired assets will be integrated into the DPS division's
Production Chemicals service line. The acquisition is expected to
strengthen Secure's position in the market by adding over 100 fully
formulated proprietary products, as well as key infrastructure
related to the product offering and an experienced and dedicated
employee base.
- The addition of advanced chemical products is expected to
improve the Corporation's ability to help customers optimize
production, provide flow assurance and maintain the integrity of
their production assets. The research lab facility acquired
demonstrates the Corporation's commitment to innovation and is
intended to design customized chemical solutions for customers. The
Corporation expects the Production Chemicals Acquisition to be
accretive to funds from operations, Adjusted EBITDA and net
income
- FINANCIAL FLEXIBILITY
-
- The total amount drawn on Secure's credit facilities as at
June 30, 2017 increased by 6% to
$221.2 million compared to
$209.0 million at
December 31, 2016. The amount drawn on Secure's credit
facilities increased in order to fund the Production Chemicals
Acquisition, which was offset by increased cash flows from
operating activities. The Corporation continues to maintain its
strong balance sheet and increase its financial flexibility to take
advantage of accretive opportunities that may arise.
- Secure is in compliance with all covenants related to its
credit facilities at June 30, 2017.
Secure's senior and total debt to trailing twelve month EBITDA
ratios, 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, improved to 1.8 to 1
at June 30, 2017 compared to 2.2 to
1.0 at December 31, 2016. As no
amount was drawn on the Second Lien Facility until
July 5, 2017, senior debt was equal to total debt at
June 30, 2017. In future periods senior debt will only be
equal to amounts drawn on the First Lien Facility plus financial
leases less any cash balances in excess of $5 million, whereas
total debt will include senior debt plus the $130 million
borrowed under the Second Lien Facility. The maximum covenant for
the senior debt to EBITDA ratio is 3.5 to 1, while the total debt
to EBITDA ratio is 5.0 to 1.
PRD DIVISION OPERATING HIGHLIGHTS
|
Three months ended
June 30,
|
Six months ended
June 30,
|
($000's)
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
PRD services
(a)
|
60,278
|
37,450
|
61
|
127,748
|
86,156
|
48
|
|
Oil purchase and
resale service
|
468,952
|
202,460
|
132
|
778,828
|
309,325
|
152
|
Total PRD division
revenue
|
529,230
|
239,910
|
121
|
906,576
|
395,481
|
129
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
PRD services
(b)
|
28,709
|
19,670
|
46
|
56,362
|
42,493
|
33
|
|
Oil purchase and
resale service
|
468,952
|
202,460
|
132
|
778,828
|
309,325
|
152
|
Total PRD division
direct expenses
|
497,661
|
222,130
|
124
|
835,190
|
351,818
|
137
|
|
|
|
|
|
|
|
Operating
Margin (1) (a-b)
|
31,569
|
17,780
|
78
|
71,386
|
43,663
|
63
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
52%
|
47%
|
|
56%
|
51%
|
|
Highlights for the PRD division for the three and six months
ended June 30, 2017 included:
- Processing, recovery and disposal services revenue of
$60.3 million and $127.7 million for the three and six months ended
June 30, 2017 increased by 61% and 48% from the 2016
comparative periods, driven by higher facility volumes, largely
contributed from the new facilities added in 2016 and expansions at
certain of the Corporation's existing facilities in 2016 and the
first quarter of 2017, and higher drilling and completion related
volumes resulting from the increase in average crude oil
prices.
- The addition of new facilities, both organically and through
acquisitions, accounted for $7.8 million and $14.2 million of the PRD services revenue in the
three and six months ended June 30,
2017, an impact of 21% and 16% when comparing to the same
periods of 2016.
- Processing volumes increased 28% and 24% in the three and six
months ended June 30, 2017 from the
comparative periods due to higher waste processing, emulsion and
completions processing volumes.
- Recovery and terminalling revenues increased 85% and 74% in the
three and six months ended June 30,
2017 from the comparative periods which is consistent with
an 88% and 74% increase in recovery and terminalling volumes. The
increase was driven by the Alida crude oil terminalling facility
and crude oil marketing activities at the Corporation's pipeline
connected FSTs.
- Disposal volumes increased by 36% and 26% in the three and six
months ended June 30, 2017 from the
comparative periods due primarily to increased disposal of waste at
Secure's landfills resulting from higher drilling activity levels.
Further driving the increase in disposal volumes is increased
produced and waste water volumes across Secure's facilities from
the comparative periods driven by increasing water production as
wells mature and industry activity.
- Oil purchase and resale revenue in the PRD division for the
three and six months ended June 30,
2017 increased by 132% and 152% from the 2016 comparative
periods to $469.0 million and
$778.8 million due primarily to
additional oil purchase and resale volumes from new facilities in
2016, which included the Alida crude oil terminalling facility, the
increased ownership in the La
Glace and Judy Creek FSTs, and the Kakwa FST. The new
facilities added in 2016 accounted for 46% and 43% of oil purchase
and resale revenue in the three and six months ended June 30, 2017, or 107% and 109% of the increase
over the three and six months ended June 30,
2016.
- Direct expenses from PRD services increased by 46% and 33% in
the three and six months ended June 30,
2017 from the comparative periods of 2016. The increase in
direct expenses relates primarily to the increased revenue as the
Corporation maintains its ability to respond to higher activity
levels while managing its fixed and variable costs.
- Operating margin as a percentage of PRD services revenue for
the three and six months ended June 30,
2017 increased to 52% and 56% from 47% and 51% in the
comparative periods of 2016. The increase in operating margin as a
percentage of revenue over 2016 is due to increased revenues while
minimizing fixed and related costs. The Corporation's revised cost
management structure has resulted in improved operating margins
realized across various facilities including FSTs, SWDs and
landfills.
- General and administrative ("G&A") expenses of $4.4 million and $8.4 million for the three and six months
ended June 30, 2017 increased by 61% and 40% from the
comparative periods. Although the Corporation continues to minimize
G&A costs by streamlining operations where possible, PRD
G&A expenses have increased primarily due to the acquisitions
completed in 2016 and the overhead requirements to support new
facilities and expansions. As a percentage of PRD revenue, G&A
costs have remained consistent at 7% for the three and six months
ended June 30, 2017 and 2016.
DPS DIVISION OPERATING HIGHLIGHTS
|
Three months ended
June 30,
|
Six months ended
June 30,
|
($000's)
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
Drilling and
production services (a)
|
33,921
|
11,235
|
202
|
84,389
|
46,442
|
82
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
Drilling and
production services (b)
|
31,878
|
12,396
|
157
|
70,745
|
42,123
|
68
|
Operating
Margin (1) (a-b)
|
2,043
|
(1,161)
|
276
|
13,644
|
4,319
|
216
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
6%
|
-10%
|
|
16%
|
9%
|
|
(1)
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, 2017 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 activity
levels from oil and gas producers have a significant impact on the
DPS division. For the three and six months ended June 30, 2017, industry rig counts in the WCSB
increased 142% and 100%, and metres drilled increased 215% and 141%
from the 2016 comparative periods. Revenue from the DPS division
for the three and six months ended June 30,
2017 increased 202% and 82% to $33.9 million and $84.4 million from the comparative periods of
2016. Average crude oil price increases and improved weather
conditions during the three and six months ended June 30, 2017 compared to the 2016 comparative
periods drove increased industry activity strengthening the DPS
division's revenue in 2017.
- Revenue per operating day decreased to $7,417 and $6,221
during the three and six months ended June
30, 2017 compared to the same periods in 2016 which
generated revenue of $10,327 and
$7,947 per operating day. The
variance is a result of the geographic location and depth of wells
which impacts the type of fluid used. In the second quarter of 2016
the Corporation was servicing a particular geographic location for
certain customers resulting in a higher revenue per operating day
but with fewer operating days resulting in lower revenues.
- The DPS division's market share increased to 24% in the three
months ended June 30, 2017 from 19%
in the 2016 comparative period. The timing, type and location of
one customer's drilling activities can create fluctuations in the
market share from period to period.
- Secure continues diversification efforts in the DPS division to
become less dependent on drilling activity 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 2017. The
Production Chemicals Acquisition completed on
April 13, 2017 is expected to strengthen Secure's
position in the market by adding over 100 fully formulated
proprietary products, as well as key infrastructure related to the
product offering and an experienced and dedicated employee
base.
- The DPS division's direct expenses for the three and six months
ended June 30, 2017 increased by 157%
and 68% to $31.9 million and
$70.7 million from the 2016
comparative periods. Overall, the increase in direct expenses from
the 2016 period was primarily due to increased activity levels and
is consistent with the increased revenues discussed above.
- The DPS division's operating margin for the three and six
months ended June 30, 2017 improved
by 276% and 216% from the 2016 comparative periods to $2.0 million and $13.6
million.
- Operating margin as a percentage of revenue increased to 6% and
16% in the three and six months ended June
30, 2017 from -10% and 9% in the comparative periods.
Operating margins as a percentage of revenue were positively
impacted by the increased revenues while minimizing fixed costs
resulting in improved drilling fluids product margins and achieving
economies of scale as activity increases.
- G&A expense for the three and six months ended June 30, 2017 increased by 49% and 23% from the
comparative periods of 2016. Although the Corporation continues to
manage costs efficiently and proactively while still responding to
customer demands and activity levels, G&A expenses have
increased as a result of expanding the production chemicals and
chemical EOR service lines, including the Production Chemicals
Acquisition in the second quarter of 2017. As a percentage of DPS
revenue, G&A expenses have decreased to 10% and 8% in the three
and six months ended June 30, 2017
from 21% and 12% in the prior year comparative periods.
OS DIVISION OPERATING HIGHLIGHTS
|
Three months ended
June 30,
|
Six months ended
June 30,
|
($000's)
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
OnSite services
(a)
|
21,173
|
17,463
|
21
|
43,948
|
35,817
|
23
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
OnSite services
(b)
|
16,953
|
13,437
|
26
|
34,139
|
27,204
|
25
|
Operating
Margin (1) (a-b)
|
4,220
|
4,026
|
5
|
9,809
|
8,613
|
14
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
20%
|
23%
|
|
22%
|
24%
|
|
(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, 2017 included:
- Diversified service lines and integrated service offerings,
complemented by increased average oil prices and producer activity
in the three and six months ended June 30,
2017 drove a 21% and 23% increase in OS division revenue to
$21.2 million and $43.9 million in the three and six months ended
June 30, 2017.
- Projects revenue during the three and six months ended
June 30, 2017 increased 25% and 30%
from the 2016 comparative periods. Projects revenue is dependent on
the type and size of jobs as well as weather conditions, which can
vary quarter to quarter. In the three and six months ended
June 30, 2017, Projects revenue
increased primarily as a result of jobs with new customers, new
service offerings, regional expansion and acceptable weather
conditions given the operating locations and time of year. The
Projects service line continues to bid on larger scale work as
producers increase their capital spending.
- Integrated fluids solutions revenue for the three and six
months ended June 30, 2017 increased
27% and 26% from the 2016 comparative periods. Revenue increased
due to overall improved industry activity and improved weather
conditions compared to the three and six months ended June 30, 2016. The IFS services experienced
increased utilization as well as the demand for completing wells
carried over from the first quarter of 2017, and new customers were
added which contributed to the overall revenue increase.
- Environmental services revenue for the three and six months
ended June 30, 2017 increased 18% and
7% from the 2016 comparative periods, driven by higher drilling
waste and bin revenue due to increased industry activity. These
increases were partially offset by a decrease in reclamation and
remediation revenue resulting from deferred customer spending
created by relatively low commodity prices.
- Direct expenses for the three and six months ended June 30, 2017 increased 26% and 25% to
$17.0 million and $34.1 million from the 2016 comparative periods.
Overall, the variance in direct expenses was a direct result of the
change in activity levels from the 2016 comparative periods.
Additionally, operating overhead expenses have been reduced in
order to match activity levels. These reductions were partially
offset by operating expenses associated with new service lines
offered by the OS division this year.
- The three and six months ended June 30,
2017 operating margins in the OS division of $4.2 million and $9.8
million improved by 5% and 14% over the prior year
comparative periods due primarily to increased revenue. The
operating margin as a percentage of revenue for the OS division in
the three and six months ended June 30,
2017 was 20% and 22%, a slight decrease from 23% and 24% in
the comparative 2016 periods. The OS division's operating margin as
a percentage of revenue can fluctuate depending on the volume and
type of projects undertaken and the blend of business between
remediation and reclamation projects, demolition projects, pipeline
integrity projects, site clean-up, and other services in any given
period. As a percentage of revenue, the operating margin in the
three and six months ended June 30,
2017 decreased from the comparative periods due to
seasonality of activity and mix of customers work. Typically, in
the second quarter equipment repairs and maintenance are performed
to prepare for the increased activity in the third and fourth
quarters.
- G&A expenses for the three and six months ended
June 30, 2017 increased by
$0.6 million and $1.3 million from the 2016 comparative periods to
$2.2 million and $4.2 million due primarily to increased costs to
support geographic expansion of Environmental services including
bins and NORM management in the U.S.
OUTLOOK
The second quarter of 2017 results were in line with the
Corporation's expectations as industry activity increased
significantly compared to the second quarter of 2016. Currently,
drilling and completion activities remain robust for the third
quarter of 2017 and production related volumes have continued to
increase at Secure's PRD facilities.
Secure continues to respond to customer demand by evaluating
multiple opportunities relating to new infrastructure, as evidenced
by the feeder pipeline project, and new and expanding facilities in
the capacity constrained Montney
region. Secure anticipates organic capital spending to be up to
$100 million in 2017 subject to the
timing of obtaining remaining permits for the feeder pipeline and
other projects; and will spend approximately $15 million on
sustaining and maintenance expenditures for the year within the PRD
division. The Corporation will also continue to pursue
opportunities for rail services, frac water hubs and water
recycling, and expansion of services in the Fort McMurray region.
On May 15, 2017, Secure announced
that it entered into an agreement to acquire Ceiba. The acquisition
closed on August 1, 2017 and adds ten facilities to
Secure's existing PRD facility network, increasing capacity and
expanding the Corporation's geographic footprint. Secure expects to
realize immediate volume increases in the third quarter of 2017 and
plans to allocate incremental capital to the assets to enhance
throughput and service capabilities. The acquisition enables Secure
to expand its facility network while realizing synergies related to
senior management, sales and general and administration costs.
The Production Chemicals Acquisition completed in the second
quarter adds sizeable blending capacity and incremental revenue to
our growing production chemicals service line, providing a platform
capable of significant revenue growth with no further capital
investment. The Corporation will continue to leverage off existing
operator relationships and technical capabilities as we strive for
increasing market share throughout the WCSB.
Secure's consistently strong balance sheet gives the Corporation
flexibility to grow organically and to execute on strategic
acquisition opportunities. Secure's focus remains on increasing
production related services with a diverse asset base that lessens
dependence on drilling related revenue streams. This
diversification provides Secure with greater certainty on
re-occurring cash flows and ensures the Corporation can optimize
its capital structure to be well positioned for future growth.
AUTOMATIC SHARE DISPOSITION PLAN
The Corporation also announced today that Rene Amirault, President and Chief Executive
Officer, and Amirault Partnership intend to adopt an automatic
securities disposition plan ("ASDP") in accordance with applicable
Canadian provincial securities legislation, including the guidance
under the Ontario Securities Commission's Staff Notice 55-701. The
objective of the ASDP is to facilitate the sale of up to 1,200,000
common shares of Secure held by Amirault Partnership, of which Mr.
Amirault and The Rene Amirault Family Trust are the partners,
during the term of the ASDP from August 4, 2017 to
August 4, 2018. These shares represent approximately 28.5% of
the total common shares under Mr. Amirault's control. Among other
things, the ASDP provides for a minimum sales price of $10.00 and that not more than 100,000 shares may
be sold each month.
Generally, Canadian securities legislation permits an insider to
adopt a written ASDP to sell shares through an independent broker
in accordance with a pre-arranged set of instructions, regardless
of any subsequent material non-public information the insider may
receive, as long as the ASDP satisfies certain requirements. In
accordance with Canadian securities legislation, sales of shares
under the ASDP will be effected by an independent securities broker
in accordance with the trading parameters and other instructions
set out in the ASDP. Mr. Amirault will not exercise any further
discretion or influence over how dispositions will occur under the
ASDP and the broker administrating the ASDP is not permitted to
consult with him regarding any such dispositions. In addition, Mr.
Amirault is subject to restrictions on his ability to modify,
suspend or terminate his participation in the ASDP. In accordance
with best practices, the ASDP includes a waiting period of 30 days
between the date of adoption of the ASDP and the date the first
disposition can be made under the ASDP. Dispositions pursuant to
the ASDP will be reported on SEDI on an annual basis by no later
than March 31 of each calendar year
for all dispositions during the prior calendar year.
Secure recognizes that insiders may have reasons unrelated to
their assessment of the Corporation or its prospects in deciding to
sell shares of the Corporation. Secure also recognizes that many of
its officers have a substantial portion of their personal net worth
represented by shares of Secure and that such individuals are
subject to lengthy restrictions on their ability to effect trades
in Secure's shares because of trading blackouts imposed under the
Company's Policy on Trading in Securities. The ASDP entered into by
Mr. Amirault is intended to provide an orderly mechanism for Mr.
Amirault to diversify his portfolio.
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, 2017 and 2016 and MD&A
for the three and six months ended June 30, 2017 and 2016 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 news release constitute
"forward-looking statements" and/or "forward-looking information"
within the meaning of applicable securities laws (collectively
referred to as forward-looking statements). When used in this
document, the words "may", "would", "could", "will", "intend",
"plan", "anticipate", "believe", "estimate", "expect", and similar
expressions, as they relate to Secure, or its management, are
intended to identify forward-looking statements. Such statements
reflect the current views of Secure with respect to future events
and operating performance and speak only as of the date of this
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, and the
Production Chemicals Acquisition and Ceiba 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 Production Chemicals Acquisition
and Ceiba 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, 2016 and also includes the risks associated
with the possible failure to realize the anticipated synergies in
integrating the assets acquired in the Production Chemicals
Acquisition and Ceiba 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.
______________________________
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1 Refer to
the "Non-GAAP Measures, operational definitions and additional
subtotals" section herein.
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SOURCE SECURE Energy Services Inc.