SES Secure Energy Services Inc

CALGARY, AB, Feb. 25, 2021 /CNW/ - SECURE ENERGY Services Inc. ("SECURE") (TSX: SES) reported today its operational and financial results for the three and twelve months ended December 31, 2020, highlighted by 2020 discretionary free cash flowⁱ of $95.8 million.

The following press release should be read in conjunction with the Corporation's management's discussion and analysis ("MD&A") for the three and twelve months ended December 31, 2020, and the audited consolidated financial statements and notes thereto for the years ended December 31, 2020 and 2019 which are available on SEDAR at www.sedar.com.

SECURE is also pleased to announce the publication of our second comprehensive sustainability report, which can be found on the Corporation's website. The 2020 Sustainability Report features the Corporation's performance in 2020 related to critical environmental, social and governance issues and highlights our commitments to sustainability, the positive impacts made by our ongoing initiatives, and information on how we continue to refine our sustainability strategies and processes.

2020 REVIEW

Financial and operational highlights

• Completed organizational restructuring resulting in an expected $40 million reduction to cost of sales and general and administrative expenses on an annualized basis;
• Increased segment profit marginⁱ as a percentage of revenue in both the Midstream Infrastructure and Environmental and Fluid Management segments from prior year;
• Generated discretionary free cash flow of $95.8 million;
• Reduced debt outstanding on the Corporation's credit facilities by $54.9 million;
• Completed construction of the East Kaybob oil pipeline, the Corporation's second oil gathering system, providing SECURE with long-term fees-for-service from pipeline tariffs, and reliable volumes at the Fox Creek facility;
• Reduced scope 1 greenhouse gas emissions for the fourth consecutive year, both on an absolute and intensity basis;
• Extended the existing $130 million second lien credit facility by one year to July 31, 2022.

2020 was a year marked by unprecedented challenges for the oil and gas industry. The impact of the COVID–19 pandemic on the demand for oil was exacerbated by over supply concerns stemming from failed negotiations between OPEC+ countries on production curtailments. The result of these factors was a dramatic drop in crude oil and liquids pricing beginning in March 2020 which had deep negative consequences on producer cash flows. SECURE's customers responded by reducing capital investment, temporarily shutting in production and employing the highest degree of vigilance on operating costs. In May 2020, crude oil and liquids pricing started to recover, with steady improvements throughout the remainder of the year. However, on average, benchmark crude oil prices in 2020 remained 31% lower than the prior year.

Resilient financial results

The strategies employed by SECURE over the past several years to increase the stability of the Corporation's cash flows, including the addition of oil and water pipelines underpinned by long-term contracts, crude oil storage, production chemicals and recurring environmental project work, helped reduce the impact of low drilling and completion activity on the Corporation's results in 2020. The Corporation recorded Adjusted EBITDAⁱ of $136.2 million for the year ended December 31, 2020, a decrease of 24% compared to 2019. This reflects the level of SECURE's production and contracted volumes and the significant measures taken during the year to reduce operating and general and administrative ("G&A") expenses to adjust the Corporation's cost structure to levels consistent with activity levels, including:

• Reduced personnel costs by approximately 25%. Measures taken to reduce personnel costs included modified work schedules, job sharing, salary reductions and layoffs. SECURE expects annualized savings in excess of $40 million as a result of the Corporation's leaner organizational structure, the majority of which is expected to endure even as activity levels increase.
• Utilized the Canadian Federal Government's wage subsidy program to reduce the impact of the downturn on our staff. In total in 2020, the Corporation recorded a $23.9 million recovery in cost of sales and G&A expenses, primarily associated with the wage subsidy program.
• Restricted discretionary spending and suspended all non-essential travel for SECURE employees.

Also as a result of these cost containment measures, the following results were achieved during 2020:

• Reduced overall G&A expenses (excluding depreciation, depletion and amortization and share-based compensation) by $28.2 million, or 37%, from the prior year. As a percentage of revenue (excluding oil purchase and resale), G&A expenses were 10% for the year ended December 31, 2020, down from 12% in the prior year.
• Increased Adjusted EBITDA marginⁱ to 30%, up from 29% in the prior year.
• Increased the Midstream Infrastructure segment's profit margin as a percentage of revenue (excluding oil purchase and resale) to 62%, up from 61% in the prior year.
• Increased the Environmental and Fluid Management segment's profit margin as a percentage of revenue to 23%, up from 20% in the prior year.

With these results, the Corporation demonstrated that SECURE's Midstream Infrastructure and production-based service offerings deliver strong cash flows that are sustainable at the low commodity prices and activity levels faced in 2020.

Solid balance sheet

Maintaining a strong balance sheet has always been a key priority for the Corporation. SECURE took additional steps in 2020 to maximize discretionary free cash flow and direct these funds towards debt reduction to best position the Corporation for long-term success:

• Reduced total capital expenditures by 47% from 2019, to $71.3 million. $53.0 million of the total spend related to growth and expansion capital, incurred primarily to construct the East Kaybob oil pipeline, a light oil and condensate gathering system underpinned by 15-year commitments from multiple producers, aligning with our underlying strategy to increase the stability of our cash flows through long-term fee for service contracts. The Corporation also incurred $9.1 million of sustaining capital.
• Reduced the monthly dividend from $0.0225 (2.25 cents) to $0.0025 (0.25 cents) effective May 1, 2020. 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, with the first payment of $0.0075 (0.75 cents) per common share made in October 2020.
• Minimized counterparty risk and optimized working capital. The Corporation has a robust credit review process and worked closely with customers this year to ensure timely collection of receivables. As a result of these diligent procedures, the Corporation's credit losses in 2020 were in line with low historic averages. At December 31, 2020, the Corporation's working capital (current assets less accounts payable and accrued liabilities) was $63.8 million, down from $125.3 million at December 31, 2019.

During the year ended December 31, 2020, the Corporation extended the existing $130 million second lien credit facility ("Second Lien Facility") by one year to July 31, 2022. There have been no changes to the remaining terms, conditions and covenants of the Second Lien Facility. The Corporation also entered into interest rate swaps to fix the interest rate for the Second Lien Facility at 5.5%. The extended term reduces near-term liquidity risk and provides the Corporation with increased financial flexibility.

The following table outlines SECURE's Senior and Total Debt to trailing twelve-month EBITDA ratiosⁱⁱ at December 31, 2020, compared to the covenant thresholds outlined in our credit facility agreements.

SECURE will continue to focus on managing the Corporation's financial position throughout 2021. Strong line of sight for significant discretionary free cash flow in 2021 will provide increased flexibility for continued debt repayment, opportunistic share repurchases, and midstream infrastructure growth in a manner consistent with SECURE's business strategy.

Discretionary Free Cash Flow

During the year ended December 31, 2020, SECURE generated discretionary free cash flow of $95.8 million, a decrease of 17% from 2019, as lower Adjusted EBITDA resulting from reduced activity levels was partially mitigated by additional cash saving initiatives employed in 2020, as described above. The Corporation utilized discretionary free cash flow to fund the capital program, with the remainder directed against outstanding debt. In total, the Corporation reduced the amount drawn on the Corporation's $600 million first lien credit facility ("First Lien Facility") by $54.9 million, or 17%, during 2020. At December 31, 2020, the First Lien Facility had $269.5 million drawn, resulting in available capacity of $330.5 million, subject to covenant restrictions.

Environmental, Social and Governance ("ESG")

SECURE recognizes that the long-term success of the Corporation goes beyond the financial results generated by the Corporation. SECURE is focused on connecting our strong employee culture with our corporate strategies to drive improved ESG performance. We are continually refining our strategies and processes to further enhance the sustainability of our business by incorporating ESG factors into our overall business strategy, risk management and business development. Our commitments to sustainability, including putting safety first, minimizing the environmental impacts of our operations, and creating positive relationships with stakeholders in the communities where we live and work, guide these strategies.

Over the past year, the Corporation has taken the following actions to advance our ESG framework and address key issues:

Please refer to SECURE's 2020 Sustainability Report available on the Corporation's website for more information on the progress we've made this year with respect to our commitments to sustainability.

SECURE also acknowledges the larger role we are able to play in reducing the overall environmental impact associated with delivering energy to the world. This is core to our overall business strategy, and the Corporation is dedicated to working with customers to provide innovative midstream and environmental solutions that not only reduce costs, but also lower emissions, improve safety, manage water, recycle by-products, and protect the land.

ANNUAL HIGHLIGHTS

The operating and financial highlights for the years ended December 31, 2020, 2019 and 2018 can be summarized as follows:

• REVENUE OF $1.8 BILLION FOR THE YEAR ENDED DECEMBER 31, 2020
  
  
• • Midstream Infrastructure segment revenue (excluding oil purchase and resale) in 2020 decreased by 35% over 2019 to $200.7 million. The decrease in revenue is attributable to lower processing and disposal volumes at the Corporation's midstream infrastructure facilities due to lower period over period production volumes resulting from short-term shut-ins primarily impacting the second quarter of 2020, reduced drilling and completion activity across the Western Canadian Sedimentary Basin ("WCSB") and North Dakota since March 2020, and natural declines due to limited capital investment. Reduced overall volumes, compounded by lower crude and liquids pricing in the twelve months ended December 31, 2020, also negatively impacted recovered oil and crude oil marketing revenue compared to the prior year.
    
    
  • Partially offsetting these negative factors on the Midstream Infrastructure segment's revenue was increased stability provided by contracted volumes associated with SECURE's oil and water feeder pipelines, including full period contributions of contracted infrastructure added in 2019.
    
    
  • Oil purchase and resale revenue in 2020 decreased 44% over 2019 to $1.4 billion. The decrease in revenues is a result of a 34% decrease in Canadian light oil benchmark pricing during 2020 from 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.
    
    
  • Environmental and Fluid Management segment revenue in 2020 decreased 15% over 2019 to $258.9 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 30% for the twelve months ended December 31, 2020, from the prior year, consistent with the decline in the average active rig count. Higher production chemical revenue generated from greater bid awards and growing market share, stable environmental consulting and project work resulting from further customer diversification outside of the oil and gas industry and contracts in the Fort McMurray region partially offset the extent of the decrease in revenue.
    
    
• ADJUSTED EBITDA OF $136.2 MILLION FOR THE YEAR ENDED DECEMBER 31, 2020
  
  
• • Adjusted EBITDA in 2020 decreased 24% over 2019 to $136.2 million primarily as a result of reduced period over period revenue as described above. The impact of reduced revenue was partially offset by a $23.9 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 which reduced the impact of the downturn, the COVID-19 pandemic and related restrictions 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 started 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 $85.2 MILLION FOR THE YEAR ENDED DECEMBER 31, 2020
  
  
• • For the year ended December 31, 2020, net loss attributable to shareholders of SECURE was $85.2 million, compared to income of $1.6 million in 2019. In addition to the lower Adjusted EBITDA described above, the variance is primarily a result of impairment and restructuring charges incurred during the year.
    
    
  • • Impairment of non-current assets: The impact of macroeconomic conditions, including the COVID–19 pandemic, on crude oil and liquids demand and supply fundamentals and commodity pricing outlook resulted in a significant pullback in customer activity levels in 2020 as producers prudently managed cash flows. Near-term crude oil and liquids pricing remains below recent year averages and considerable uncertainty exists with respect to short and medium-term activity levels. As such, SECURE determined that indicators of impairment existed in 2020 for several assets and cash generating units ("CGUs"). As a result of the ensuing impairment testing performed, non-cash impairment of $34.4 million was recognized against the carrying value of property, plant and equipment, and $15.7 million was recognized against the carrying value of intangible assets.
      
      
    • Restructuring costs: SECURE recorded expenses of $16.4 million during 2020 related primarily to employee termination benefits resulting from restructuring plans undertaken by the Corporation 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 resulting primarily from a higher pre-tax loss.
    
    
• CASH FLOWS FROM OPERATING ACTIVITIES OF $148.7 MILLION FOR THE YEAR ENDED DECEMBER 31, 2020
  
  
• • The Corporation generated cash flows from operating activities of $148.7 million in 2020, a decrease of 24% from 2019, primarily as a result of lower Adjusted EBITDA in the current year and restructuring costs incurred, partially offset by lower interest paid as a result of reduced debt outstanding and a lower weighted average interest rate.
    
    
• CAPITAL EXPENDITURES OF $71.3 MILLION FOR THE YEAR ENDED DECEMBER 31, 2020
  
  
• • SECURE's organic growth and expansion capital during 2020 of $53.0 million was primarily related to the East Kaybob oil pipeline, the Corporation's second oil gathering system. This project aligns with our underlying strategy of increasing the stability of our cash flows through long-term contracts and fixed fee for service cash flows. In the prior year, SECURE directed $103.4 million towards midstream infrastructure growth and expansion projects, including water pipelines, crude oil storage, and incremental processing and disposal capacity at various existing facilities.
    
    
  • Sustaining capital of $9.1 million for the year ended December 31, 2020, decreased by $8.4 million from the prior year. 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.
    
    
• FINANCIAL FLEXIBILITY
  
  
• • During the year ended December 31, 2020, the Corporation paid down its credit facilities by $54.9 million. The 12% decrease in total amount drawn was primarily a result of SECURE's efforts to direct discretionary free cash flow, net of the 2020 capital program, against outstanding debt during the year. As at December 31, 2020, the Corporation had drawn $399.5 million on its credit facilities, resulting in availability of $330.5 million, subject to covenant restrictions, up from $275.7 million at December 31, 2019.
    
    
  • In September 2020, SECURE closed an amendment to its $130 million Second Lien Facility to extend the term by one year to July 31, 2022. All other terms, conditions and covenants are unchanged.
    
    
  • The following table outlines SECURE's Senior and Total Debt to trailing twelve-month EBITDA ratio at December 31, 2020, and December 31, 2019. SECURE remains well within compliance of all covenants related to its credit facilities at December 31, 2020.

• DIVIDENDS OF $17.3 MILLION FOR THE YEAR ENDED DECEMBER 31, 2020
  
  
• • During the year ended December 31, 2020, the Corporation declared dividends in the aggregate amount of $17.3 million to holders of common shares. In total, $14.2 million, representing a monthly dividend of $0.0225 (2.25 cents) per share, was paid out prior to the May 1, 2020 reduction. Subsequently, the Corporation has declared dividends in the aggregate amount of $3.2 million, representing a quarterly dividend of $0.0075 (0.75 cents) per share.
    
    
  • 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
  
  
• • The Corporation repurchased and cancelled 0.3 million common shares during the year ended December 31, 2020, compared to 5.4 million in the prior year.
    
    
  • During the second quarter of 2020, SECURE renewed the normal course issuer bid ("NCIB") first initiated in May 2018 and renewed in 2019. 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 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.

FOURTH QUARTER HIGHLIGHTS

The Corporation's operating and financial highlights for the three-month periods ended December 31, 2020 and 2019 can be summarized as follows:

• REVENUE OF $474.7 MILLION FOR THE THREE MONTHS ENDED DECEMBER 31, 2020
  
  
• • Midstream Infrastructure segment revenue (excluding oil purchase and resale) decreased 40% to $47.2 million during the three months ended December 31, 2020 from the 2019 comparative period. Reduced drilling, completion and production volumes at the Corporation's facilities negatively impacted treating and disposal revenues. Reduced overall volumes, compounded by lower crude and liquids pricing in the three months ended December 31, 2020, also negatively impacted recovered oil and crude oil marketing revenue compared to the prior year period.
    
    
  • Oil purchase and resale revenue for the three months ended December 31, 2020, decreased 40% from the 2019 comparative period to $356.1 million. The decrease in revenues is a result of a 26% decrease in Canadian light oil benchmark pricing during the three-month period ended December 31, 2020 over the 2019 comparative period, 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.
    
    
  • Environmental and Fluid Management segment revenue decreased 8% during the three months ended December 31, 2020 from the 2019 comparative to $71.4 million. Reduced drilling and completion activity in the WCSB decreased revenue generated from service lines supporting these activities. Higher production chemical revenue generated from greater bid awards and growing market share, more reclamation and demolition jobs underway quarter over quarter and further customer diversification outside of the oil and gas industry partially offset the impact of the decrease in revenue.
    
    
• ADJUSTED EBITDA OF $36.6 MILLION FOR THE THREE MONTHS ENDED DECEMBER 31, 2020
  
  
• • Adjusted EBITDA decreased 22% to $36.6 million during the three months ended December 31, 2020 from the 2019 comparative period primarily as a result of lower revenues as described above, partially offset by cost reductions and a $3.9 million recovery recorded in cost of sales and G&A expenses related to CEWS recorded in the current year quarter.
    
    
• NET LOSS ATTRIBUTABLE TO SHAREHOLDERS OF SECURE OF $37.8 MILLION FOR THE THREE MONTHS ENDED DECEMBER 31, 2020
  
  
• • Net loss attributable to shareholders of SECURE was $37.8 million during the three months ended December 31, 2020, compared to income of $2.7 million for the 2019 comparative period. The variance is due primarily to $34.4 million of non-cash impairment charges recorded against property, plant and equipment, as described above, net of the associated tax impact. The Corporation also recorded $5.1 million of restructuring charges during the three months ended December 31, 2020.
    
    
• CASH FLOWS FROM OPERATING ACTIVITIES OF $42.3 MILLION FOR THE THREE MONTHS ENDED DECEMBER 31, 2020
  
  
• • The Corporation generated cash flows from operating activities of $42.3 million during the three months ended December 31, 2020, a decrease of 14% from the prior year comparative period. 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 December 31, 2020, of $63.8 million, down from $125.3 million at December 31, 2019.
    
    
• CAPITAL EXPENDITURES OF $8.9 MILLION FOR THE THREE MONTHS ENDED DECEMBER 31, 2020
  
  
• • Total capital expenditures for the three months ended December 31, 2020 included $6.1 million of organic growth and expansion capital related primarily to construction costs for the final segment of the East Kaybob oil pipeline.
    
    
  • Sustaining capital incurred in the three months ended December 31, 2020 of $2.6 million relates primarily to well and facility maintenance.

MIDSTREAM INFRASTRUCTURE SEGMENT HIGHLIGHTS

• Revenue generated from Midstream Infrastructure services of $47.2 million decreased 40% for the three months ended December 31, 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, continued 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 December 31, 2019, resulting in reduced crude oil marketing revenue.
• Midstream Infrastructure services revenue for the twelve months ended December 31, 2020, of $200.7 million decreased 35% 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 since the second quarter 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 and Cushing and the Pipestone facility, along with various expansions at existing facilities.
• Disposal volumes decreased 46% and 34% during the three and twelve months ended December 31, 2020, from the respective 2019 comparative periods as a result of production shut-ins, storage of production water for completions anticipated for 2021 and lower waste water volumes corresponding to limited producer completion activity. Production shut-ins across the Corporation's operating regions during the second quarter of 2020, carried into the back half of the year 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 twelve months ended December 31, 2020, the impact of the reductions to drilling, completion and production on disposal volumes beginning in March 2020 was partially offset by higher year over year activity levels during the first two months of the year.
• Processing volumes decreased 42% and 23% during the three and twelve months ended December 31, 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 48% and 31% during the three and twelve months ended December 31, 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 remained relatively stable during the twelve months ended December 31, 2020 from 2019 despite production shut-ins earlier in the year. The marginal decline of 7% was primarily 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 stability of volumes associated with the contracted Kerrobert crude oil pipeline. For the three months ended December 31, 2020, crude oil terminalling and pipeline volumes declined 21% as lower terminalling volumes more than offset relative stability from the Corporation's oil pipelines.
• Oil purchase and resale revenue in the Midstream Infrastructure segment decreased 40% and 44% to $356.1 million and $1.4 billion for the three and twelve months ended December 31, 2020, from the respective 2019 comparative periods. The decrease in the three and twelve months ended December 31, 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 43% and 34% to $28.0 million and $124.4 million for the three and twelve months ended December 31, 2020, from the respective 2019 comparative periods. As a percentage of Midstream Infrastructure services revenue, segment profit margin was 59% for the three months ended December 31, 2020, down from 62% for the three months ended December 31, 2019. The variance is primarily a result of lower revenue and service mix factors, partially offset by fixed cost structure reductions and wage subsidies.
• For the twelve months ended December 31, 2020, segment profit margin as a percentage of revenue (excluding oil purchase and resale) was 62%, up from 61% in the prior year. The positive variance is primarily a result of the cost reductions which began to take effect in April 2020, partially offset by service mix, including reduced marketing revenue and associated blending margins due to fewer optimization opportunities compared to the prior year.
• G&A expense decreased by 56% and 35% to $2.8 million and $17.9 million for the three and twelve months ended December 31, 2020, from the respective 2019 comparative periods. The decrease is mainly due to lower personnel costs, including the benefit of wage subsidies primarily related to CEWS, and strict cost control measures restricting discretionary spending. Excluding depreciation and amortization, G&A expense as a percentage of the segment's services revenue was 4% and 7%, respectively, for the three and twelve months ended December 31, 2020, compared to 7% for both the three and twelve months ended December 31, 2019.
• Loss before tax of $34.9 million and $27.2 million for the three and twelve months ended December 31, 2020 was primarily a result of non-cash impairment charges of $34.4 million recorded against property, plant and equipment in the three months ended December 31, 2020, combined with lower segment profit margin and increased depreciation and amortization expense in the 2020 periods. Additionally, the Midstream Infrastructure segment incurred restructuring costs of $0.2 million and $4.1 million for the three and twelve months ended December 31, 2020, respectively, 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

• The Environmental and Fluid Management segment revenue decreased 8% and 15% to $71.4 million and $258.9 million for the three and twelve months ended December 31, 2020, from the respective 2019 comparative periods. Reduced producer spending in the 2020 periods decreased drilling and completion activity, lowering drilling waste volumes at the Corporation's landfills and demand for fluid management associated with drilling and completions. Site rehabilitation revenue has been minimal in 2020 as slower deployment of government stimulus programs has delayed work into 2021.
• The extent of the revenue decrease in the Environmental and Fluid Management 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 Fort McMurray area, increased environmental project job volumes for customers outside of the oil and gas industry, and continued demand for environmental consulting services helped offset the impact of reduced drilling and completion activity on the segment.
• Segment profit margin increased 1% and decreased 6% to $18.2 million and $58.8 million for the three and twelve months ended December 31, 2020 from the respective 2019 comparative periods. For the three months ended December 31, 2020, segment profit margin as a percentage of revenue of 26% increased from 23% in the prior year comparative period. The profit margin increase was primarily a result of service mix, the impact of wage subsidies and fixed cost reductions that began to take effect in the second quarter.
• For the twelve months ended December 31, 2020, segment profit margin as a percentage of revenue increased to 23%, up from 20% in the prior year comparative period due to a greater proportion of higher margin work which included increased volumes of environmental project work and higher production chemical stimulation work in the second half of 2020. Wage subsidies and fixed cost reductions that began to take effect in the second quarter also contributed to improvements in segment profit margin.
• G&A expenses decreased 31% and 34% to $5.0 million and $19.3 million for the three and twelve months ended December 31, 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. Excluding depreciation and amortization, G&A expenses as a percentage of the segment's revenue was 6% for both the three and twelve months ended December 31, 2020, compared to 9% in each of the prior comparative periods.
• The Environmental and Fluid Management segment had a loss before tax of $1.0 million for the three months ended December 31, 2020, an improvement of $0.9 million compared to the three months ended December 31, 2019. The increase was a result of higher segment profit margin, lower G&A expenses and lower operational DD&A expense, partially offset by restructuring charges of $3.3 million. For the twelve months ended December 31, 2020, the segment's loss before tax of $23.7 million increased $10.6 million primarily as a result of a non-cash impairment charge of $15.7 million recorded in the first quarter of 2020, as well as restructuring costs of $9.5 million incurred related to organizational restructuring.

OUTLOOK

Crude oil prices have started the year off higher, reaching a trailing 12-month high in February 2021 following the announcement of short-term production cuts by Saudi Arabia, and renewed optimism for rising energy demand with the deployment of COVID-19 vaccines underway. However, continuing near-term COVID-19 lockdowns, COVID-19 variants and longer-term over supply concerns create considerable uncertainty with regards to the outlook on oil and liquids prices. Nonetheless, with our 2020 results, the Corporation has demonstrated that SECURE's Midstream Infrastructure and production–based service offerings deliver strong cash flows that are sustainable at low 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:

• Continued stability from our core Midstream Infrastructure business, of which approximately 35% 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.
• Higher producer cash flows resulting from improved commodity prices. As a result, the Corporation expects an increase in drilling and completion activity from 2020 levels as producers seek to add production to offset natural declines occurring in 2020 in order to maintain flat production levels. SECURE anticipates that producers will remain focused on controlling costs and improving balance sheet strength in favor of production growth in the short-term. Over the medium-term, optimism on incremental pipeline egress with the expansion and/or optimization of Line 3 and Trans Mountain, which are set to provide additional capacity in excess of 1 million barrels of crude oil per day over the next few years, is expected to continue to drive increased activity levels in the WCSB. Furthermore, proposed Canadian liquefied natural gas export terminals are expected to increase exports of natural gas produced with world-class ESG standards over the next five years.
• Increased utilization at our Midstream Infrastructure facilities and landfills as higher drilling, completion and production volumes from increased activity levels require treating, processing and disposal. The majority of our network of long-life assets are located in high impact light oil and liquids rich resource plays where producers are expected to be the most active in the WCSB in 2021. The Corporation has capacity to increase facility throughput and disposal with minimal additional fixed costs, which should result in improved cost absorption.
• Increased abandonment, remediation and reclamation activity, primarily in the second half of 2021 and into 2022, as a result of the Canadian Federal Government's $1.7 billion stimulus package to help fund the closure and reclamation of orphan and inactive wells in the WCSB. SECURE expects increased abandonment, remediation and reclamation 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.
• Progression of ESG initiatives within the Canadian oil and gas industry as demand for responsibly produced energy sources increases. Canada has best in class safety, environmental and social practices, and the natural resources to make it a reliable provider of sustainably produced energy. In addition to working with our customers to challenge what's possible and develop innovative solutions that are both cost effective and minimize the environmental impacts associated with the development of our shared resources, SECURE will continue to take proactive measures to reduce the environmental impact of our own operations, and positively contribute to the health, safety, and economic wellbeing of our employees and communities where we live and work.
• Ongoing consolidation within the oil and gas industry as producers strive to remain competitive. Consolidation provides an avenue for producers to eliminate redundant cost and achieve operational efficiencies, strengthen their balance sheets, and access new capital, allowing for growth that may otherwise not be possible. This is expected to benefit SECURE in many ways, including:
• • Reduced counterparty risk;
  • Higher volumes and utilization at existing facilities;
  • Improved economies of scale to support the economics for building and connecting oil and water pipelines and increases volumes using pipelines or incremental third party infrastructure;
  • Long-term partnerships to support the construction and operation of new midstream infrastructure; and
  • Accelerated clean up of the industry's environmental liabilities.
• 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. The capital budget will be reviewed quarterly in 2021 and may be revised in accordance with opportunities to connect producers to existing midstream infrastructure to further increase volumes and utilization on a long-term basis. 
• To take advantage of the Corporation's specific service lines that do not have recurring or production-related revenue streams. With improved commodity prices and increased producer spending expected this year, these service lines are expected to increase the Corporation's discretionary free cash flow, which can be allocated against debt to strengthen SECURE's balance sheet, or provide incremental capital for continued midstream infrastructure growth, and/or to support opportunistic share repurchases.

The factors above are expected to drive higher year over year discretionary free cash flow. Throughout 2021, SECURE will continue to focus on maintaining financial resiliency and prioritize the repayment of debt and opportunistic share repurchases based on market conditions. The Corporation remains well positioned to respond to the market's needs as 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. We believe that remaining focused on this strategy will ultimately contribute to our success in the long-term, despite market challenges faced along the way.

FINANCIAL STATEMENTS AND MD&A

The Corporation's audited consolidated financial statements and notes thereto for the year ended December 31, 2020 and 2019 and MD&A for the three and twelve months ended December 31, 2020 and 2019 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 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 duration of the COVID-19 pandemic and related restrictions and the related effect 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 2021 and beyond in the Corporation's operating areas, and the related impact on SECURE's business, operations and financial results; increased year over year discretionary cash flow; the effect of the current economic conditions on the future demand for SECURE's services and the impact on SECURE's cash flows and impairment charges on long-term assets; SECURE's financial resiliency and corporate priorities, including of debt repayment and share repurchases, and strategies to achieve such priorities; increased restructuring costs; 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; incremental pipeline egress in the WCSB over the next few years, LNG projects, and the impact on oil and gas drilling, completion, production and export activity and the timing thereof; the expansion or optimization of pipelines and other infrastructure and the related impact on pipeline capacity; capacity at the Corporation's existing facilities; increases to the Corporation's throughput at existing facilities and costs thereof; Canada's ESG standards ; the impact consolidation of oil and gas production companies may have to the business, operations and results of the Corporation; the impact the Canadian Federal Government's orphan and inactive well fund may have to the business, operations and results of the Corporation; increased abandonment and reclamation activity in the oil and gas industry and the related effect on SECURE's results of operations and the timing thereof; the Corporation's ability to control costs 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 2021 capital expenditure programs, including growth and expansion and sustaining capital expenditures; future dividend payments and expected cash savings resulting from the reduction of the Corporation's cash dividend payments; future opportunities to increase dividend payments; the amount and timing of government stimulus programs and the related effect on the Corporation's operations; 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; the sufficiency of the Corporation's liquidity and expectations that our capital investment, working capital, debt repayment, share repurchases and cash dividends will be funded from internally generated cash flows; the Corporation's credit risk levels; 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.

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 and operation of the relevant facilities; that there are no unforeseen material costs in relation to the Corporation's facilities and operations; 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 applicable securities laws, 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"). This news release contains certain supplementary measures, such as discretionary free cash flow, segment profit margin, Adjusted EBITDA and Adjusted EBITDA margin, which 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. 

SOURCE SECURE Energy Services Inc.