CALGARY, AB, Oct. 28, 2020 /CNW/ - SECURE ENERGY Services
Inc. ("SECURE") (TSX: SES) reported today its operational and
financial results for the three and nine months ended September 30, 2020. The following should be read
in conjunction with the Corporation's management's discussion and
analysis ("MD&A") and the interim consolidated financial
statements and notes thereto for the three and nine months ended
September 30, 2020, which are available on SEDAR at
www.sedar.com.
THIRD QUARTER SUMMARY
The Corporation recorded Adjusted EBITDA1 of
$37.0 million for the three
months ended September 30, 2020, a decrease of 14% compared to
the prior year third quarter, reflecting the level of production
and contracted volumes during a period of reduced drilling and
completion activity levels. As production came back online
following short-term shut-ins due to uneconomic pricing in the
second quarter of 2020, the Corporation benefited from increased
cash flow stability driven by production-related volumes at
SECURE's midstream infrastructure located in low cost light oil and
gas related plays in western Canada. The Corporation's newly constructed
East Kaybob oil pipeline also contributed to the Corporation's
third quarter results, delivering fees-for-service from pipeline
tariffs and reliable volumes at the Fox
Creek facility. Drilling and completion activity remained
muted during the third quarter as producers continue to prudently
manage capital and protect their balance sheet.
Ongoing cost rationalizations, the impact of organizational
restructuring, and wage subsidies of $8.8 million reduced the impact of lower
industry activity levels on the Corporation's current period
results. As a result of these reductions which aligned the
Corporation's cost structure with expected activity levels, the
following was achieved during the third quarter of 2020:
- Increased Adjusted EBITDA margin1 to 36%, up from
29% in the prior year comparative period;
- Increased the Midstream Infrastructure segment's profit margin
as a percentage of revenue (excluding oil purchase and resale) to
71% (63% excluding wage subsidies) from 62% in the prior year
comparative period;
- Increased the Environmental and Fluid Management segment's
profit margin as a percentage of revenue to 25% (19% excluding wage
subsidies) compared to 20% for the three months ended September 30, 2020;
- Reduced overall general and administrative ("G&A") expenses
(excluding depreciation, depletion and amortization and share-based
compensation) by more than 50% from the prior year comparative
period. As a percentage of revenue (excluding oil purchase and
resale), G&A expense was 9% for the three months ended
September 30, 2020;
- Maintained a strong balance sheet. During the quarter, the
Corporation extended the existing $130
million second lien credit facility ("Second Lien facility")
by one year to July 31, 2022. The
interest rate on the Second Lien facility remains at 5.5% and all
other terms, conditions and covenants also remain the same.
Additional measures taken this year to protect the Corporation's
balance sheet include:
-
- Managing a strict capital program. The Corporation's 2020
capital program is $60 million,
comprised of $50 million of growth
capital and $10 million of sustaining
capital. The majority of the capital program for the year has been
spent and related primarily to substantially completing the East
Kaybob oil pipeline;
- Reducing the Corporation's dividend. Beginning in May 2020, SECURE reduced the monthly dividend
from $0.0225 per share to
$0.0025 (0.25
cents). This reduction results in annualized cash savings of
approximately $38 million. The
Corporation has also moved to paying the dividend quarterly, with
the first payment of $0.0075
(0.75 cents) per common share made on
October 15, 2020;
- Minimizing counterparty risk and optimizing working capital.
The Corporation has a robust credit review process and has been
working with customers to ensure timely collection of receivables.
As a result of these diligent procedures, the Corporation has not
recorded any allowances for expected credit losses since
March 31, 2020. At September 30, 2020, the Corporation's working
capital was $77.6 million, down from
$125.3 million at December 31, 2019.
The factors noted above have partially mitigated the negative
impact of reduced industry activity levels and corresponding lower
Adjusted EBITDA on the Corporation's financial
position. During the three months ended
September 30, 2020, SECURE generated discretionary free
cash flow1 of $28.4
million, an increase of 9% from the prior year comparative
period. During the quarter, the Corporation primarily applied
discretionary free cash flow against outstanding debt. As a result,
the Corporation reduced the amount drawn on the Corporation's
$600 million first lien credit facility ("First Lien
facility") by 10% during the third quarter of 2020. At September
30, 2020, the First Lien facility had $301.0 million drawn, resulting in available
capacity of $299.0 million,
subject to covenant restrictions.
The following table outlines SECURE's Senior and Total Debt to
trailing twelve-month EBITDA ratios2 at
September 30, 2020, compared to the covenant thresholds
outlined in our credit facility agreements.
|
Sept 30,
2020
|
Threshold
|
Senior Debt to
EBITDA
|
2.2
|
3.5
|
Total Debt to
EBITDA
|
3.1
|
5.0
|
The Corporation is well within the covenant restrictions at
September 30, 2020, and expects sufficient liquidity to
be generated by cash flow from operating activities to fund
operations, working capital requirements, dividends and the
Corporation's capital program, with excess cash flow available to
pay down debt.
OUTLOOK
Reduced energy demand resulting from the coronavirus
("COVID-19") health pandemic and over supply concerns continue
to create considerable uncertainty with regards to the short-term
outlook on oil and liquids prices. SECURE's customers have
prudently employed increased financial and capital discipline,
resulting in capital spending plans that remain well below prior
year levels. Nonetheless, with its third quarter results, the
Corporation has demonstrated that SECURE's midstream infrastructure
and production-based service offerings deliver strong cash flows
that are sustainable at the current commodity prices and activity
levels, positioning the Corporation for success in the event of a
longer-term economic downturn.
Based on current macroeconomic conditions and commodity prices,
SECURE expects:
- A modest increase in drilling and completion activity in the
fourth quarter of 2020 and in 2021 from current levels as producers
seek to add production to offset natural declines in order to
maintain flat production levels to hold cash flow levels, satisfy
reserve-based lending commitments and take advantage of hedge
contracts. However, SECURE anticipates that producers will remain
focused on controlling costs and improving balance sheet strength
in favor of production growth at current commodity prices.
- Stability from our core midstream infrastructure business, of
which approximately 30% is underpinned by contracted volumes
associated with the Corporation's oil and water pipelines, which
provides a base level of cash flows. Additionally, SECURE's
business remains highly concentrated on production volumes and
related services that historically represent approximately 75% of
the Corporation's Adjusted EBITDA. The majority of the
Corporation's operations are in low cost light oil and gas related
plays in western Canada, which
should support ongoing production at current benchmark
pricing.
- Increased abandonment and remediation activity as a result
of the Canadian Federal Government's $1.7 billion stimulus package announced in
the second quarter of 2020. The stimulus is intended to help fund
the closure and reclamation of orphan and inactive wells in the
Western Canadian Sedimentary Basin ("WCSB") over the next two
years. SECURE expects increased abandonment and remediation
activity to positively impact all Canadian operations over
the term of the program, particularly within our Environmental
Management group as a result of higher demand for environmental
site assessments, onsite abandonment, remediation and reclamation
management and decommissioning work. Waste volumes resulting from
these activities will also require disposal; SECURE owns and
operates six industrial landfills in Alberta capable of handling this waste.
- To incur minimal restructuring costs for the remainder of the
year. The Corporation expects the reductions made during the second
quarter to our fixed cost structure will result in annualized
savings to Adjusted EBITDA in excess of $40
million.
- To continue its prudent approach to capital spending. The
Corporation has established a 2021 capital program of $15 million, which includes $12 million of sustaining capital.
- To proceed with the planned divestitures announced last year
related to specific service lines that do not have recurring or
production-related revenue streams, with targeted completion by the
end of the 2021. However, SECURE continues to remain patient in
executing any divestitures as the Corporation is committed to
obtaining a sales price commensurate with the value of the service
lines, and believes our debt position is manageable irrespective of
any divestitures.
For the remainder of 2020 and throughout 2021, SECURE will
continue to focus on maintaining financial resiliency by maximizing
cash flows and paying down debt with discretionary free cash flow.
By doing so, the Corporation will remain well positioned to respond
to the market's needs when activity levels increase. SECURE's
business is uniquely positioned to deliver economic and
environmental benefits that make the oil and gas industry more
efficient and sustainable. We are committed to helping our
customers by working transparently with them to identify
opportunities where we can provide innovative solutions that help
their objectives of responsible development, while reducing costs.
Remaining focused on this strategy will ultimately contribute to
our combined success in the long-term, despite market challenges
faced along the way.
OPERATING AND FINANCIAL HIGHLIGHTS
The following table summarizes the operating and financial
highlights for the three- and nine-month periods ending
September 30, 2020 and 2019:
|
|
|
Three months ended
Sept 30,
|
Nine months ended
Sept 30,
|
($000's except
share and per share data)
|
2020
|
2019
|
%
change
|
2020
|
2019
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
103,499
|
149,096
|
(31)
|
341,068
|
456,207
|
(25)
|
Oil purchase and
resale
|
|
348,674
|
577,877
|
(40)
|
1,007,873
|
1,843,998
|
(45)
|
Total
revenue
|
|
|
452,173
|
726,973
|
(38)
|
1,348,941
|
2,300,205
|
(41)
|
Adjusted EBITDA
(1)
|
|
37,018
|
43,173
|
(14)
|
99,565
|
133,278
|
(25)
|
|
Per share ($),
basic
|
0.23
|
0.27
|
(15)
|
0.63
|
0.83
|
(24)
|
Net loss attributable
to shareholders of SECURE
|
(4,588)
|
(639)
|
(618)
|
(47,415)
|
(1,058)
|
(4,382)
|
|
Per share ($), basic
and diluted
|
(0.03)
|
-
|
(100)
|
(0.30)
|
(0.01)
|
(2,900)
|
Cash flows from
operating activities
|
38,470
|
35,976
|
7
|
106,418
|
147,204
|
(28)
|
|
Per share ($),
basic
|
0.24
|
0.23
|
4
|
0.67
|
0.92
|
(27)
|
Capital expenditures
(1)
|
|
10,475
|
30,725
|
(66)
|
62,395
|
102,956
|
(39)
|
Dividends paid per
common share
|
-
|
0.0675
|
(100)
|
0.0950
|
0.2025
|
(53)
|
Total
assets
|
|
|
1,470,513
|
1,635,106
|
(10)
|
1,470,513
|
1,635,106
|
(10)
|
Long-term
liabilities
|
|
593,192
|
633,037
|
(6)
|
593,192
|
633,037
|
(6)
|
Common shares - end
of period
|
158,629,808
|
157,979,909
|
-
|
158,629,808
|
157,979,909
|
-
|
Weighted average
common shares - basic and diluted
|
158,577,224
|
158,075,674
|
-
|
158,526,801
|
159,620,638
|
(1)
|
(1)Refer
to "Non-GAAP Measures" for further information
|
|
|
|
|
|
- REVENUE OF $452.2 MILLION AND
$1.3 BILLION FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30,
2020
-
- Midstream Infrastructure segment revenue (excluding oil
purchase and resale) for the three and nine months ended
September 30, 2020, decreased by 40%
and 33% from the comparative periods of 2019 to $44.8 million and $153.5
million, respectively. The decrease in revenues is
attributable to lower processing and disposal volumes at the
Corporation's midstream infrastructure facilities due to reduced
drilling and completion activity across the WCSB and North Dakota since March 2020, and lower period over period
production volumes due to short-term shut-ins primarily impacting
the second quarter of 2020, and natural declines due to limited
capital investment. Reduced overall volumes, compounded by lower
crude and liquids pricing in the three and nine months ended
September 30, 2020, also negatively
impacted recovered oil and crude oil marketing revenue compared to
the respective prior year periods.
- Partially offsetting these negative factors on the Midstream
Infrastructure segment's revenue was increased stability provided
by contracted volumes associated with SECURE's water feeder
pipelines, including full period contributions of contracted
infrastructure added in 2019.
- Oil purchase and resale revenue for the three and nine months
ended September 30, 2020, decreased
40% and 45% from the 2019 comparative periods to $348.7 million and $1.0
billion, respectively. The decrease in revenues is a result
of a 29% and 37% decrease in Canadian light oil benchmark pricing
during the three and nine month periods ended September 30, 2020 over 2019, combined with
reduced marketing activity as a result of lower production volumes
and more limited opportunities to work with our customers to
optimize pricing by utilizing multiple crude oil and condensate
streams at SECURE's midstream facilities due to lower crude and
condensate pricing.
- Environmental and Fluid Management segment revenue for the
three and nine months ended September 30,
2020, decreased 21% and 18% from the 2019 comparative
periods to $58.7 million and
$187.5 million. Reduced drilling and
completion activity in the WCSB decreased revenue generated from
service lines supporting these activities. Revenue from these
service lines, which includes drilling and completion fluid
services, solids control equipment rentals, drilling waste
management, water management, and industrial landfill disposal, was
down approximately 50% and 30% for the three and nine months ended
September 30, 2020, from the prior
year comparative periods, consistent with the decline in the active
rig count. Higher production chemical revenue generated from
greater bid awards and growing market share, stable Oil Sands
region project work and further customer diversification outside of
the oil and gas industry partially offset the extent of the
decrease in revenue.
- ADJUSTED EBITDA OF $37.0
MILLION AND $99.6 MILLION FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2020
-
- Adjusted EBITDA of $37.0 million
and $99.6 million decreased 14% and
25% from the three and nine months ended September 30, 2019, primarily as a result of
reduced period over period revenue as described above. For the
three months ended September 30,
2020, the impact of the 31% reduction in revenue (excluding
oil purchase and resale) was partially offset by an $8.8 million recovery recorded in cost of sales
and G&A expenses for wage subsidies, primarily related to the
Canada Emergency Wage Subsidy
("CEWS"), a program provided by the Canadian Federal Government to
reduce the impact of the downturn on the Corporation's staffing
levels. The impact of reduced activity on the Corporation's
Adjusted EBITDA was also mitigated by aggressive cost reduction
measures taken in April 2020 to align
the Corporation's fixed cost structure with current industry
activity levels, which included organizational restructuring and
associated personnel and salary reductions.
- NET LOSS ATTRIBUTABLE TO SHAREHOLDERS OF SECURE OF
$4.6 MILLION AND $47.4 MILLION FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2020
-
- For the three months ended September 30,
2020, there was a net loss attributable to shareholders of
SECURE of $4.6 million, an increased
loss of $3.9 million from the
comparative period of 2019. The increase is primarily due to lower
Adjusted EBITDA as described above. For the nine months ended
September 30, 2020, the Corporation's
net loss of $47.4 million increased
$46.4 million from the comparative
period of 2019. In addition to lower Adjusted EBITDA, the net loss
in the current year period also included $27.1 million of impairment and restructuring
charges.
-
- Impairment of non-current assets: In accordance with
applicable accounting standards, the Corporation assesses at each
reporting date whether there is an indication that an asset or cash
generating unit ("CGU") may be impaired. With the rapid and
significant decline in oil prices in March
2020 and resulting decrease to producer capital spending,
indicators of impairment were present at March 31, 2020 for SECURE's CGUs with cash flows
tied primarily to drilling and completion activities. The value in
use of the Technical Solutions CGU, determined using a five-year
cash flow estimate discounted to March 31,
2020, exceeded the carrying amount of the CGU. Consequently,
a $15.7 million impairment charge was
recorded in the first quarter of 2020 against intangible assets in
order to write the CGU down to its recoverable amount. There were
no indicators of impairment or impairment reversal at September 30, 2020.
- Restructuring costs: SECURE recorded an expense of
$11.4 million during the nine months
ended September 30, 2020, related
primarily to employee termination benefits resulting from
restructuring plans undertaken by the Corporation beginning at the
end of March 2020 to right-size the
Corporation's workforce to anticipated activity levels and
streamline business processes which resulted in the suspension or
termination of certain functions.
- These negative variances were partially offset by a higher
income tax recovery for 2020 year to date resulting primarily from
a higher pre-tax loss.
- CASH FLOWS FROM OPERATING ACTIVITIES OF $38.5 MILLION AND $106.4
MILLION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
-
- The Corporation generated cash flows from operating activities
of $38.5 million and $106.4 million during the three and nine months
ended September 30, 2020, an increase
of 7% and a decrease of 28% from the respective prior year
comparative periods. For the three months ended September 30, 2020, the impact of lower Adjusted
EBITDA was partially offset by changes in non-cash working capital
during the period corresponding to lower activity levels. SECURE
carried total net working capital at September 30, 2020, of $77.6 million, down from $125.3 million at December
31, 2019.
- GROWTH CAPITAL EXPENDITURES OF $8.1
MILLION AND $46.9 MILLION FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2020
-
- During the three months ended September
30, 2020, SECURE incurred $8.1
million of growth capital related primarily to the
substantial completion of the East Kaybob oil pipeline. During the
nine months ended September 30, 2020,
SECURE incurred $46.9 million of
growth capital largely related to the East Kaybob oil pipeline, as
well as certain carryover costs related to expansion and
optimization projects at existing facilities.
- The Corporation also incurred sustaining capital of
$1.5 million and $6.5 million during the three and nine months
ended September 30, 2020 relating
primarily to well and facility maintenance. SECURE is committed to
maintaining capital discipline as we navigate this downturn, while
continuing to ensure the integrity and safety of our assets for
long-term sustainability.
- DIVIDEND PAYMENTS OF $15.0
MILLION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
-
- During the three and nine months ended September 30, 2020, the Corporation paid monthly
dividend payments of nil and $15.0
million, respectively, to holders of common shares. On
March 24, 2020, the Corporation
announced that the monthly dividend would be reduced from
$0.0225 per common share to
$0.0025 (0.25
cents) per common share, effective for the May 2020 dividend. This reduction of the dividend
results in annualized cash savings of approximately $38 million. Following the June 2020 monthly dividend, the Corporation moved
to a quarterly dividend of $0.0075
(0.75 cents) with the first payment
made on October 15, 2020 for
shareholders of record on October 1,
2020.
- SECURE believes the sharing of excess cash flows with
shareholders is a core business principle; as a result, management
and the Board of Directors of the Corporation will continue to
monitor the Corporation's dividend policy with respect to
forecasted Adjusted EBITDA, debt, capital expenditures and other
investment opportunities, as well as expected interest, lease and
tax payments, and will look for opportunities to increase the
dividend as business conditions warrant.
- RENEWAL OF THE NORMAL COURSE ISSUER BID
-
- During the second quarter of 2020, SECURE renewed the normal
course issuer bid ("NCIB") first initiated in May 2018. Pursuant to the renewed NCIB, the
Corporation may repurchase from time to time up to a maximum of
10,796,069 common shares of the Corporation. Any common shares
purchased under the NCIB will be cancelled. The renewed NCIB period
commenced on May 28, 2020, and will
end on May 27, 2021, or such earlier
date as the NCIB is completed or is terminated at the Corporation's
election.
- The renewed NCIB provides the Corporation with an additional
capital allocation alternative to acquire common shares under the
appropriate circumstances. The Board of Directors and senior
management believe that, from time to time, the prevailing market
price of the common shares may not fully reflect the underlying
value of SECURE's business and future business prospects. In such
circumstances, the repurchase of common shares under the NCIB
represents an attractive investment for the Corporation and an
opportunity to enhance shareholder value. No shares were
repurchased during the third quarter of 2020.
MIDSTREAM INFRASTRUCTURE SEGMENT HIGHLIGHTS
|
Three months ended
Sept 30,
|
Nine months ended
Sept 30,
|
($000's)
|
2020
|
2019
|
%
Change
|
2020
|
2019
|
%
Change
|
|
|
|
|
|
|
|
Midstream
Infrastructure services revenue (a)
|
44,757
|
75,045
|
(40)
|
153,521
|
228,281
|
(33)
|
Oil purchase and
resale
|
348,674
|
577,877
|
(40)
|
1,007,873
|
1,843,998
|
(45)
|
Midstream
Infrastructure Revenue
|
393,431
|
652,922
|
(40)
|
1,161,394
|
2,072,279
|
(44)
|
|
|
|
|
|
|
|
Cost of
Sales
|
|
|
|
|
|
|
Cost of sales
excluding items noted below
|
13,077
|
28,359
|
(54)
|
57,187
|
88,362
|
(35)
|
Depreciation and
amortization
|
21,988
|
18,545
|
19
|
69,058
|
54,740
|
26
|
Oil purchase and
resale
|
348,674
|
577,877
|
(40)
|
1,007,873
|
1,843,998
|
(45)
|
Midstream
Infrastructure Cost of Sales
|
383,739
|
624,781
|
(39)
|
1,134,118
|
1,987,100
|
(43)
|
|
|
|
|
|
|
|
Segment Profit
Margin (1)
|
31,680
|
46,686
|
(32)
|
96,334
|
139,919
|
(31)
|
|
|
|
|
|
|
|
Segment Profit
Margin (1) as a % of revenue (a)
|
71%
|
62%
|
|
63%
|
61%
|
|
|
|
|
|
|
|
|
(1)
Calculated as revenue less cost of sales excluding depreciation and
amortization. Refer to "Non-GAAP Measures" for further
information
|
- Revenue generated from Midstream Infrastructure services of
$44.8 million decreased 40% for the
three months ended September 30,
2020, from the 2019 comparative period. The decrease was due
to lower processing and disposal volumes tied to drilling and
completion activity. Produced water, emulsion treating and
terminalling volumes at the Corporation's midstream processing
facilities also decreased primarily as a result of natural
production declines in the WCSB, production shut-ins in
North Dakota, and limited overflow
volumes from producers with capacity to handle their own product.
The factors above also negatively impacted recovered oil revenue,
compounded by lower realized pricing on recovered oil. Lower crude
and liquids pricing and less volatile differentials also limited
the upside for price optimization at the Corporation's pipeline
connected FSTs compared to the three months ended September 30, 2019, resulting in reduced crude
oil marketing revenue;
- Midstream Infrastructure services revenue for the nine months
ended September 30, 2020, of
$153.5 million decreased 33% from the
prior year comparative period. The impact of the drop in oil prices
and corresponding decrease in activity levels and crude oil
marketing opportunities during the second and third quarters of
2020 was partially offset by higher processing and disposal volumes
during the first two months of the year resulting primarily from
infrastructure additions during 2019, including produced water
pipelines added at Gold Creek and Tony
Creek, crude oil storage at Kerrobert, Cushing and the Pipestone facility, along with various
expansions at existing facilities;
- Disposal volumes decreased 49% and 30% during the three and
nine months ended September 30, 2020,
from the respective 2019 comparative periods as a result of
production shut-ins, storage of production water for completions
anticipated for the fourth quarter and lower waste water volumes
corresponding to limited producer completion activity during the
second and third quarter of 2020. Production shut-ins across the
Corporation's operating regions during the second quarter of 2020,
carried into the third quarter particularly in North Dakota. Higher stability from the
Corporation's pipeline connected water disposal facilities with
contracted volumes helped to partially reduce the overall decrease
to disposal volumes. During the nine months ended September 30, 2020, the impact of the reductions
to drilling, completion and production on disposal volumes
beginning in March 2020 was partially
offset by higher activity levels in January and February of the
current year;
- Processing volumes decreased 29% and 16% during the three and
nine months ended September 30, 2020,
from the respective 2019 comparative periods due primarily to lower
waste processing volumes corresponding to the decrease in drilling
and completion activity beginning in March
2020. Emulsion treating volumes were also down due to lower
overall production levels, particularly in North Dakota where second quarter production
shut-ins were slower to come back online;
- Oil volumes recovered through our processing operations
decreased 36% and 23% during the three and nine months ended
September 30, 2020, from the
respective 2019 comparative periods, consistent with lower overall
volumes received at the Corporation's midstream processing
facilities. The impact of lower volumes on recovered oil revenue
was compounded by lower benchmark oil pricing in the current year
periods;
- Crude oil terminalling and pipeline volumes decreased modestly
by 13% and 2% during the three and nine months ended September 30, 2020, from the respective 2019
comparative periods primarily as a result of reduced terminalling
at certain facilities due to lower production, partially offset by
the addition of the East Kaybob oil pipeline in June 2020, and relative stability of volumes
associated with the contracted Kerrobert crude oil pipeline;
- Oil purchase and resale revenue in the Midstream Infrastructure
segment decreased 40% and 45% to $348.7
million and $1.0 billion for
the three and nine months ended September
30, 2020, from the respective 2019 comparative periods. The
decrease in the three and nine months ended September 30, 2020, corresponds to the decrease
in benchmark oil prices, compounded by reduced marketing activities
compared to the prior year comparative periods;
- The Midstream Infrastructure segment's profit margin decreased
32% and 31% to $31.7 million and
$96.3 million for the three and nine
months ended September 30, 2020, from
the respective 2019 comparative periods. As a percentage of
Midstream Infrastructure services revenue, segment profit margin
was 71% for the three months ended September
30, 2020, up from 62% for the three months ended
September 30, 2019. Service mix, the
impact of fixed cost structure reductions, and wage subsidies more
than offset lower revenue;
- For the nine months ended September 30,
2020, segment profit margin as a percentage of revenue
(excluding oil purchase and resale) was 63%, up from 61% in the
prior year comparative period. The positive variance is primarily a
result of the factors described above impacting the second and
third quarters of 2020, partially offset by service mix in the
first quarter of 2020, including reduced marketing revenue and
associated blending margins due to fewer optimization opportunities
compared to the prior year;
- G&A expenses decreased by 35% and 29% to $4.5 million and $15.1
million for the three and nine months ended September 30, 2020, from the respective 2019
comparative periods. The decrease is mainly due to lower personnel
costs and strict cost control measures restricting discretionary
spending. Excluding depreciation and amortization, G&A expenses
as a percentage of the segment's services revenue was 8% for both
the three and nine months ended September
30, 2020, compared to 8% and 7% for the three and nine
months ended September 30, 2019,
respectively;
- Earnings before tax decreased 77% and 88% to $4.8 million and $7.6
million for the three and nine months ended September 30, 2020, from the respective 2019
comparative periods. The decrease is a result of lower segment
profit margin and increased depreciation and amortization expense
in the 2020 period, as well as restructuring costs of $3.9 million related to right sizing the
Corporation's workforce to anticipated activity levels and
streamlining business processes resulting in the suspension or
termination of certain functions.
ENVIRONMENTAL AND FLUID MANAGEMENT SEGMENT
|
Three months ended
Sept 30,
|
Nine months ended
Sept 30,
|
($000's)
|
2020
|
2019
|
%
Change
|
2020
|
2019
|
%
Change
|
|
|
|
|
|
|
|
Environmental and
Fluid Management Revenue
|
58,742
|
74,051
|
(21)
|
187,547
|
227,926
|
(18)
|
|
|
|
|
|
|
|
Cost of sales
excluding depreciation, depletion and amortization
|
44,191
|
59,235
|
(25)
|
146,960
|
183,575
|
(20)
|
Depreciation,
depletion and amortization
|
7,533
|
10,208
|
(26)
|
26,706
|
33,180
|
(20)
|
Environmental and
Fluid Management Cost of Sales
|
51,724
|
69,443
|
(26)
|
173,666
|
216,755
|
(20)
|
|
|
|
|
|
|
|
Segment Profit
Margin (1)
|
14,551
|
14,816
|
(2)
|
40,587
|
44,351
|
(8)
|
|
|
|
|
|
|
|
Segment Profit
Margin (1) as a % of revenue
|
25%
|
20%
|
|
22%
|
19%
|
|
|
|
|
|
|
|
|
(1)
Calculated as revenue less cost of sales excluding depreciation,
depletion and amortization. Refer to "Non-GAAP Measures" for
further information
|
- The Environmental and Fluid Management segment revenue
decreased 21% and 18% to $58.7
million and $187.5 million for
the three and nine months ended September
30, 2020, from the respective 2019 comparative periods.
Limited producer spending in the current year periods decreased
drilling and completion activity, therefore reducing drilling waste
volumes at the Corporation's landfills and demand for fluid
management associated with drilling and completions. In total,
revenue from these service lines decreased approximately 50% for
the three months ended September 30,
2020, and 30% in the 2020 year to date period, consistent
with the reduction in drilling activity as evidenced by active rig
counts in the WCSB. Site rehabilitation revenue was minimal during
the third quarter of 2020 as slower deployment of the government
stimulus programs is delaying work into the fourth quarter and
2021;
- The extent of the revenue decrease in the segment was partially
mitigated by higher revenue from production chemicals as the
Corporation continues to win new bids and gain market share. SECURE
has experience and expertise in key production fields where
producers have been the most active in WCSB. As a result, the
Corporation can provide tailored solutions and improved product
formulations that optimize production, provide flow assurance and
maintain the integrity of production assets. Additionally,
stability from contracted operations in the Oil Sands region and
increased environmental project job volumes for customers outside
of the oil and gas industry helped offset the impact of reduced
drilling and completion activity on the segment;
- Segment profit margin decreased 2% and 8% to $14.6 million and $40.6
million for the three and nine months ended September 30, 2020 from the respective 2019
comparative periods. For the three months ended September 30, 2020, segment profit margin as a
percentage of revenue of 25% increased from 20% in the prior year
comparative period. The profit margin increase was primarily a
result of the impact of wage subsidies and fixed cost reductions
that began to take effect in the second quarter. Additionally, the
prior year comparative period had unusually wet weather, resulting
in higher leachate management costs negatively impacting
margins;
- For the nine months ended September 30,
2020, segment profit margin as a percentage of revenue
increased to 22%, up from 19% in the prior year comparative period
due to a greater proportion of higher margin work during the first
quarter of 2020 which included increased volumes of project jobs in
the Fort McMurray region. Wage
subsidies and fixed cost reductions that began to take effect in
the second quarter also contributed to improvements in profit
margin;
- G&A expenses decreased 59% and 35% to $3.1 million and $14.3
million for the three and nine months ended September 30, 2020, from the respective 2019
comparative periods. The decrease is primarily due to lower
personnel related costs and reduced discretionary spending as the
Corporation manages costs to correspond to current industry
activity levels. For the nine months ended September 30, 2020, the impact of cost reductions
taking effect in the second quarter were partially offset by higher
loss allowances for expected credit losses as a result of negative
macro-economic factors as at March 31,
2020. Excluding depreciation and amortization, G&A
expenses as a percentage of the segment's revenue was 4% and 7% for
the three and nine months ended September
30, 2020, respectively, compared to 9% for
both the three and nine months ended September 30, 2019;
- The Environmental and Fluid Management segment had earnings
before tax of $3.0 million for the
three months ended September 30,
2020, an improvement of $6.0
million compared to the three months ended September 30, 2019. Lower G&A expenses and
operational DD&A expense more than offset the reduced segment
profit margin. For the nine months ended September 30, 2020, the segment's loss before tax
of $22.7 million increased
$11.5 million primarily as a result
of a non-cash impairment charge recorded in the first quarter of
2020.
FINANCIAL STATEMENTS AND MD&A
The Corporation's condensed consolidated financial statements
and notes thereto for the three and nine months ended
September 30, 2020 and 2019 and MD&A for the three
and nine months ended September 30,
2020 and 2019 are available immediately on SECURE's website
at www.secure-energy.com. The condensed consolidated financial
statements and MD&A will be available tomorrow on SEDAR at
www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document constitute
"forward-looking statements" and/or "forward-looking information"
within the meaning of applicable securities laws (collectively
referred to as "forward-looking statements"). When used in this
document, the words "may", "would", "could", "will", "intend",
"plan", "anticipate", "believe", "estimate", "expect", and similar
expressions, as they relate to SECURE, or its management, are
intended to identify forward-looking statements. Such statements
reflect the current views of SECURE and speak only as of the date
of this document.
In particular, this document contains or implies forward-looking
statements pertaining but not limited to: management's expectations
with respect to the impact of COVID-19 on demand for oil, supply
and demand balance, and our operations generally; the outlook for
oil and liquids prices; spending by producers and the impact of
this on SECURE's activity levels; the oil and natural gas industry
in Canada and the U.S., including
drilling, completion and production activity levels for the
remainder of 2020 and beyond in the Corporation's operating areas,
and the impact of this on SECURE's business, operations and
financial results; the benefits of contracted and/or
fee-for-service contracts on SECURE's cash flow and the expected
stability of such sources; the benefit of production concentrated
volumes on SECURE's cash flow and the expected stability of such
sources of cash flow; the timing and stability of contributions
from new projects, particularly the East Kaybob oil pipeline; the
impact the Canadian Federal Government's orphan and inactive well
fund may have to the business, operations and results of the
Corporation; restructuring costs for the remainder of the year; the
Corporation's ability to execute our restructuring plans and align
the Corporation's cost structure with expected industry activity
levels; the expected impacts and amounts of the Corporation's cost
and capital expenditure reductions; the Corporation's proposed 2020
and 2021 capital expenditure programs, including growth and
expansion and sustaining capital expenditures; timing associated
with potential divestitures related to specific service lines that
do not have recurring or production-related revenue streams and the
outcome of such sales process; future dividend payments and
expected cash savings resulting from the reduction of the
Corporation's cash dividend payments; debt service; and the
Corporation's ability to meet obligations and commitments and
operate within any credit facility restrictions, including the
financial covenants related to our debt facilities; expectations
that our capital investment, share repurchases and cash dividends
will be funded from internally generated cash flows; the
Corporation's credit risk levels and it's ability to collect on
trade receivables; expected benefits customers will receive from
our midstream and environmental solutions; key factors driving the
Corporation's success; demand for the Corporation's services and
products; industry fundamentals driving the success of SECURE's
core operations; future capital needs and how the Corporation
intends to fund its operations, working capital requirements,
dividends and capital program; and access to capital
Forward-looking statements are based on certain assumptions that
SECURE has made in respect thereof as at the date of this document
regarding, among other things: the impact of COVID-19, including
related government responses related thereto and lower global
energy pricing on oil and gas industry exploration and development
activity levels and production volumes (including as a result of
demand and supply shifts caused by COVID-19 and the actions of OPEC
and non-OPEC countries); the success of SECURE's operations and
growth projects; the Corporation's competitive position remaining
substantially unchanged; future acquisition and sustaining costs
will not significantly increase from past acquisition and
sustaining costs; that counterparties comply with contracts in a
timely manner; that there are no unforeseen events preventing the
performance of contracts or the completion of the relevant
facilities; that there are no unforeseen material costs in relation
to the Corporation's facilities; and that prevailing regulatory,
tax and environmental laws and regulations apply.
Forward-looking statements involve significant known and unknown
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 under the
heading "Risk Factors" in the AIF. In addition, the effects and
impacts of the COVID–19 outbreak, the rapid decline in global
energy prices and the length of time to significantly reduce the
global threat of COVID-19 on SECURE's business, the global economy
and markets are unknown at this time and could cause SECURE's
actual results to differ materially from the forward-looking
statements contained in this document.
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
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
measures are intended as a complement to results provided in
accordance with IFRS. The Corporation believes these measures
provide additional useful information to analysts, shareholders and
other users to understand the Corporation's financial results,
profitability, cost management, liquidity and ability to generate
funds to finance its operations. However, they should not be used
as an alternative to IFRS measures because they do not have a
standardized meaning under IFRS and therefore may not be comparable
to similar measures presented by other companies. See the MD&A
available at www.sedar.com for further details, including
reconciliations of the Non-GAAP measures and additional GAAP
measures to the most directly comparable measures calculated in
accordance with IFRS.
ABOUT SECURE
SECURE is a publicly traded energy business listed on the
Toronto Stock Exchange ("TSX") providing industry leading customer
solutions to upstream oil and natural gas companies operating in
western Canada and certain regions
in the United States ("U.S.")
through its network of midstream processing and
storage facilities, crude oil and water pipelines, and crude by
rail terminals
located throughout key resource plays in western
Canada, North Dakota and Oklahoma. SECURE's core midstream
infrastructure operations generate cash flows from oil production
processing and disposal, produced water disposal, and crude oil
storage, logistics, and marketing. SECURE also provides
comprehensive environmental and fluid management for landfill
disposal, onsite abandonment, remediation and reclamation,
drilling, completion and production operations for oil and gas
producers in western Canada.
__________________
|
1 Refer to the "Non-GAAP
Measures" section herein
|
2 Refer to the "Liquidity and
Capital Resources" section herein for details on the
Corporation's covenant calculations
|
SOURCE SECURE Energy Services Inc.