CALGARY, April 29, 2019 /CNW/ - Secure Energy Services
Inc. ("Secure" or the "Corporation") (TSX – SES) announced today
its operational and financial results for the three months ended
March 31, 2019, highlighted by
Adjusted EBITDAi of $55.1 million, a 15% increase over the
comparative period of 2018. Secure is also pleased to announce that
it has amended the Corporation's existing First Lien Credit
Facility ("the Facility") with a syndicate co-led by ATB Financial
and National Bank of Canada of ten
financial institutions and Canadian Chartered banks. The amendments
increase the total availability under the Facility by
$130 million to $600 million and extend the maturity date
by two years, from June 30, 2021 to June 30, 2023. The Facility also includes an
accordion feature which, if exercised and approved by the syndicate
of lenders, would increase the Facility by $100 million.
The Facility substantially retains the terms, conditions and
covenants of the original first lien credit facility. In addition,
Secure entered into a new $75 million
bilateral Letter of Credit Facility with a syndicate of two
financial institutions and Chartered banks.
These amendments provide total capacity of $805 million and
additional stability to the Corporation's capital structure,
offering Secure significant flexibility to continue to grow the
business organically and execute on strategic acquisition
opportunities that align with the profitable growth strategy of
Secure.
Secure is also pleased to announce the appointment of
Allen Gransch as Chief Operating
Officer ("COO") Midstream. Mr. Gransch joined Secure in
September 2007 and most recently
served as Executive Vice President, Corporate Development. Prior to
this, he held the role of Executive Vice President and Chief
Financial Officer since December
2012. In his new role as COO Midstream, Mr. Gransch will
oversee the Corporate Development, Midstream Operations, Commercial
& Transportation and Corporate Services departments.
"Allen has been instrumental to Secure's success since 2007,"
said Rene Amirault, Secure's
Chairman of the Board, President and Chief Executive Officer. Going
forward, Allen will lead the midstream team operationally and guide
the continued growth and development of the Corporation's midstream
business."
2019 FIRST QUARTER OPERATIONAL AND FINANCIAL
HIGHLIGHTS
The following operational and financial highlights 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 months ended
March 31, 2019 of Secure which are
available on SEDAR at www.sedar.com.
During the quarter, Secure remained focused on executing the
Corporation's strategy for enhanced fluid management, providing
customers with solutions to increase operating netbacks and improve
capital efficiency. Secure's dedication to helping the customer has
proven to be a competitive advantage to the Corporation and
continued to drive Secure's growth and success in the three months
ended March 31, 2019. Highlights from
the first quarter include:
- Despite lower oil and gas industry drilling and completions
activity levels, Secure achieved Adjusted EBITDA of $55.1 million, a 15% increase over the comparable
period of 2018, demonstrating the reliability of the Corporation's
cash flows. The increase was driven by growth initiatives over the
last several years, ongoing production-related revenues, and a
continued focus on efficient and proactive cost management.
Additionally, Adjusted EBITDA increased by $3.8 million in the quarter as a result
of the adoption of International Financial Reporting Standard
16, Leases ("IFRS 16" or the "new standard")ii on
January 1, 2019;
- The Midstream Infrastructure division continued to lead the
Corporation's financial results, generating revenue from services
of $94.1 million, a 16% increase over
the same period in 2018. The increase in revenues was driven by
infrastructure added in 2018, which resulted in new revenue streams
and increased disposal capacity, and the Corporation's continued
commitment to optimize realized pricing by utilizing multiple crude
oil and condensate streams at Secure's pipeline connected FSTs,
benefiting both the Corporation and our customers. The increase in
revenue was partially offset by lower drilling and completions
related processing and disposal volumes resulting from a slowdown
in Canadian drilling and completion activity, as evidenced by a 39%
decline in industry rig count from the first quarter of 2018;
- Revenue from the Technical Solutions division's production
chemicals business modestly increased in the quarter as the
Corporation continued to grow market share in western Canada leveraging off Secure's infrastructure,
key relationships and proprietary patents. This, along with
recurring work in the Environmental Solutions division, helped
mitigate the impact of reduced demand for drilling fluids and water
pumping services and rentals for fracing, which strongly correlate
with drilling and completions activity in the Western Canadian
Sedimentary Basin ("WCSB");
- Secure invested growth and expansion capital of $19.8 million during the quarter, advancing
several projects including construction of additional crude oil
storage at the receipt terminal in Kerrobert and a produced water transfer and
injection pipeline in the Montney
region. The Corporation also initiated and continued work on
several projects geared towards increasing the processing and
disposal capacity at various other facilities, including additional
disposal wells, purchasing equipment to support existing services,
and long lead items and upfront costs on future projects;
- Subsequent to quarter end, the Corporation acquired a 27%
interest in a crude oil storage facility located in Cushing, Oklahoma, and a 51% interest in an
adjacent 80 acre parcel of undeveloped land (the "Cushing
Acquisition"). The facility was constructed in 2015 and is
strategically located on 10 acres of land in South Cushing with long-term connection
agreements in place, ultimately providing connectivity to all major
inbound and outbound pipelines in Cushing. Having access to multiple Canadian
crude streams and well-connected tankage will benefit our customers
getting their product to market at the optimum price. Secure's
majority investment in the 80 acre parcel of land provides the
Corporation with significant optionality to develop additional
midstream infrastructure in one of North
America's key trading hubs;
- At March 31, 2019, Secure's Total
Debt to EBITDA ratio, as defined in the Corporation's lending
agreements, was 2.1 to 1. The strength of the Corporation's balance
sheet provides significant financial flexibility to continue to
grow the business organically and execute on strategic acquisition
opportunities that align with the profitable growth strategy of
Secure.
The operating and financial highlights for the three months
ending March 31, 2019 and 2018 can be
summarized as follows:
|
Three months ended
March 31,
|
($000's except
share and per share data)
|
2019
|
2018
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
177,379
|
181,698
|
(2)
|
Oil purchase and
resale
|
611,503
|
523,747
|
17
|
Total
revenue
|
788,882
|
705,445
|
12
|
Adjusted
EBITDA(1)
|
55,139
|
47,807
|
15
|
|
Per share ($), basic
and diluted
|
0.34
|
0.29
|
17
|
Net income
(loss)
|
1,259
|
6,077
|
(79)
|
|
Per share ($), basic
and diluted
|
0.01
|
0.04
|
(75)
|
Cash flows from
operating activities
|
57,302
|
32,754
|
75
|
|
Per share ($), basic
and diluted
|
0.36
|
0.20
|
80
|
Dividends per common
share
|
0.06750
|
0.06750
|
-
|
Capital
expenditures(1)
|
22,792
|
56,581
|
(60)
|
Total
assets
|
1,648,660
|
1,579,907
|
4
|
Long-term
liabilities
|
582,143
|
560,863
|
4
|
Common shares - end
of period
|
161,437,474
|
164,547,187
|
(2)
|
Weighted average
common shares
|
|
|
|
|
basic
|
160,440,879
|
164,009,829
|
(2)
|
|
diluted
|
163,456,268
|
166,079,649
|
(2)
|
(1) Refer
to "Non-GAAP Measures and Operational Definitions" for
further information.
|
- REVENUE OF $788.9 MILLION FOR THE THREE MONTHS ENDED
MARCH 31, 2019
-
- The Midstream Infrastructure division's revenue (excluding oil
purchase and resale) increased to $94.1
million during the three months ended March 31, 2019, up 16% from the comparative
period in 2018. The increase was driven by the addition of new
infrastructure since the first quarter of 2018, including the light
oil feeder pipeline system and receipt terminal in the Kindersley-Kerrobert region of Saskatchewan (the "Kerrobert Light Pipeline
System") and two new water disposal facilities, expansion
initiatives over the past several years to increase capacity and
offer additional services at Secure's existing facilities, Secure's
utilization of multiple crude oil and condensate streams at the
Corporation's pipeline connected FSTs to optimize realized pricing
which benefited both the Corporation and our customers, and
increased rail activity due to wide crude oil differentials. The
increases to revenue were partially offset by a decrease in
processing and disposal volumes tied to drilling and completions
activity the three months ended March 31,
2019 compared to the same period in 2018;
- Oil purchase and resale revenue in the Midstream Infrastructure
division for the three months ended March
31, 2019 increased by 17% from the 2018 comparative period
to $611.5 million driven by the
addition of the Kerrobert Light Pipeline System and increased rail
activity;
- Environmental Solutions division revenue of $29.7 million in the first quarter of 2019
decreased 8% from the three months ended March 31, 2018 primarily due to lower completion
activity in the WCSB which resulted in lower revenue from the
integrated fluids solutions service line;
- Technical Solutions division revenue decreased 22% to
$53.6 million in the three months
ended March 31, 2019 as a result of a
slowdown in drilling activity driven by deteriorating commodity
prices in Canada, as evidenced by
a 39% decrease in rigs drilling in the WCSB from the same period in
2018. A significant portion of the Technical Solutions division's
revenue comes from drilling fluids and related equipment, which
strongly correlates with oil and gas drilling activity in the WCSB.
However, the impact of reduced drilling activity was partially
mitigated by the Corporation's growing production chemicals service
line. Since the acquisition of a production chemicals business in
April 2017, related revenue has been
increasing at a steady rate as the Corporation wins bids for new
jobs and expands its customer base.
- ADJUSTED EBITDA OF $55.1
MILLION FOR THE THREE MONTHS ENDED MARCH 31, 2019
-
- Adjusted EBITDA of $55.1 million
increased 15% from the three months ended March 31, 2018, primarily from higher revenues
(excluding oil purchase and resale) and segment profit
margini achieved by the Midstream Infrastructure
division, both up 16% from the three months ended March 31, 2018, a continued focus on cost
controls, and the adoption of IFRS 16. In the Midstream
Infrastructure division, Adjusted EBITDA increased 29% in the first
quarter of 2019 compared to 2018. Higher water disposal volumes and
Secure's utilization of multiple crude oil and condensate streams
to optimize pricing at the Corporation's pipeline connected FSTs,
benefiting both the Corporation and our customers, more than
mitigated a decrease in facility volumes relating to less drilling
and completions waste processing and disposal during the three
months ended March 31, 2019;
- Adjusted EBITDA generated from the Environmental Solutions
division decreased 31% in the three months ended March 31, 2019 over the comparative period in
2018, primarily as a result of the variance in revenue, as
described above. The majority of the Environmental Solutions
division's cost of sales are variable, and fluctuations will
correspond to change in revenue and project mix;
- The Technical Solutions division's Adjusted EBITDA decreased
39% in the three months ended March 31,
2019 over the 2018 comparative period primarily due to lower
revenue driven by reduced drilling activity.
- NET INCOME OF $1.3 MILLION FOR
THE THREE MONTHS ENDED MARCH 31,
2019
-
- For the three months ended March 31,
2019, Secure's net income of $1.3
million decreased by $4.8
million from the three months ended March 31, 2018. The $7.3
million increase to Adjusted EBITDA described above was more
than offset by increased interest expense resulting from higher
debt levels to fund organic development in the past year, increased
share based compensation expense driven by higher expense
associated with deferred share units and performance share unit
grants in the quarter, and higher depreciation expense resulting
from the adoption of IFRS 16 and new assets put into use since the
first quarter of 2018.
- CAPITAL EXPENDITURES OF $22.8
MILLION FOR THE THREE MONTHS ENDED MARCH 31, 2019
-
- Total capital expenditures for the three months ended
March 31, 2019 of $22.8 million were comprised of $19.8 million related to growth and expansion
projects, and $3.0 million of
sustaining capital. Growth and expansion capital in the quarter
relates primarily to advancing construction of additional crude oil
storage at the receipt terminal in Kerrobert; increasing processing and disposal
capacity at various other facilities, including a second disposal
well at the Tony Creek water disposal facility; ongoing
construction of a produced water transfer and injection pipeline
from a customer plant; purchasing equipment to support existing
services; and long lead items and upfront costs for future
projects. Sustaining capital incurred in the three months ended
March 31, 2019 relates primarily to
regular well and facility maintenance.
- FINANCIAL FLEXIBILITY
-
- The total amount drawn on Secure's credit facilities as at
March 31, 2019 decreased by 2% to
$405.2 million compared to
$413.5 million at December 31, 2018. The amount drawn decreased as
a result of strong cash flows from operating activities, offset by
amounts needed to fund the Corporation's organic capital program,
monthly dividend payments and working capital changes;
- As at March 31, 2019, the
Corporation had $156.3 million
available under its credit facilities, subject to covenant
restrictions. On April 29, 2019,
Secure closed an amendment to its First Lien Credit Facility,
increasing the capacity by $130
million and issued a new $75
million bilateral Letter of Credit Facility, resulting in
total credit capacity of $805
million. The Corporation is well positioned to pursue
further accretive acquisition opportunities and execute on the
expected 2019 capital program;
- Secure is in compliance with all covenants related to its
credit facilities at March 31, 2019.
The following table outlines Secure's Senior Debt and Total Debt to
trailing twelve month EBITDA ratios, as defined in the
Corporation's lending agreements, at March
31, 2019 and December 31,
2018:
|
|
|
|
Mar 31,
2019
|
Threshold
|
%
Variance
|
|
|
|
Senior Debt to
EBITDA
|
1.5
|
3.5
|
(57)
|
|
|
|
Total Debt to
EBITDA
|
2.1
|
5.0
|
(58)
|
MIDSTREAM INFRASTRUCTURE DIVISION HIGHLIGHTS
|
Three months ended
Mar 31,
|
($000's)
|
2019
|
2018
|
%
Change
|
Revenue
|
|
|
|
Midstream
Infrastructure (a)
|
94,138
|
80,855
|
16
|
Oil purchase and
resale
|
611,503
|
523,747
|
17
|
Total Midstream
Infrastructure division revenue
|
705,641
|
604,602
|
17
|
|
|
|
|
Cost of
Sales
|
|
|
|
Midstream
Infrastructure excluding items noted below
|
39,237
|
33,451
|
17
|
Depreciation,
depletion and amortization
|
20,364
|
18,479
|
10
|
Oil purchase and
resale
|
611,503
|
523,747
|
17
|
Total Midstream
Infrastructure division cost of sales
|
671,104
|
575,677
|
17
|
|
|
|
|
Segment Profit
Margin(1)
|
54,901
|
47,404
|
16
|
|
|
|
|
Segment Profit
Margin (1) as a % of revenue (a)
|
58%
|
59%
|
|
(1)Calculated as revenue less cost of
sales excluding depreciation and amortization. Refer to
"Non-GAAP Measures and Operational
Definitions" for further information.
|
- Revenue generated from Midstream Infrastructure services of
$94.1 million for the three months
ended March 31, 2019 increased 16%
from the 2018 comparative period. The increase in revenue during
the quarter was primarily driven by higher volumes associated with
new infrastructure, including the Kerrobert Light Pipeline System
and expansions at certain of the Corporation's existing facilities
during 2018. Further increases in revenue during the first quarter
ended 2019 were due to Secure's continued utilization of multiple
crude oil and condensate streams at the Corporation's pipeline
connected FSTs to optimize realized pricing, which benefited both
the Corporation and our customers, partially offset by a decrease
in processing and disposal volumes tied to drilling and completion
activity and lower realized pricing on recovered oil in the three
months ended March 31, 2019, compared
to the same period in 2018;
- Processing volumes decreased by 21% in the three months ended
March 31, 2019 from the 2018 driven
by decreases in both completion fluids processing and drilling mud
processing over the comparative period due to cold weather in the
first quarter of 2019 and the slowdown of oil and gas activity
resulting from challenging industry fundamentals as evidenced by a
decline in both rig activity and meters drilled of 39% and 31%,
respectively, in the WCSB. Overall, disposal volumes decreased by
6% in the three months ended March 31,
2019 from the comparative period in 2018. Drilling activity
slowed in the quarter causing a 59% decrease in landfill disposal
volumes compared to the same period in 2018, as cold weather in the
period further compounded lower capital spending in light of
volatile crude oil pricing, low natural gas prices and uncertainty
with respect to the addition of pipeline capacity out of the
WCSB;
- The overall decrease in landfill disposal volumes was partially
mitigated by an increase in water disposal volumes relating to
production activities. The majority of the Corporation's facilities
are located in high impact resource plays, such as the Montney and Duvernay regions, where producers were most
active in the WCSB. Average fluids pumped per well in these regions
are also significantly higher than other regions of the WCSB,
driving incremental volumes at Secure's facilities. In the past
year, Secure has strategically added new facilities, including the
Gold Creek and Tony Creek water disposal facilities, and increased
capacity for water disposal at various other facilities in these
regions, including at the Dawson
Creek and Fox Creek FSTs, Rycroft FSR and Big Mountain water
disposal facility, in response to customer demand. These additions
and expansions were the driving force behind an 8% increase in
water disposal volumes during the three months ended March 31, 2019 over the comparative periods of
2018;
- The Kerrobert Light Pipeline System commenced commercial
operations on October 1, 2018,
resulting in a new revenue source for the Corporation in the three
months ended March 31, 2019 compared
to the same quarter of 2018 through pipeline tariffs. The feeder
pipeline project includes area dedication and contracted volume on
both an annual and cumulative term basis over a 10 year term;
- Oil purchase and resale revenue in the Midstream Infrastructure
division for the three months ended March
31, 2019 increased by 17% from the 2018 comparative period
to $611.5 million driven by the
addition of the Kerrobert Light Pipeline System and increased rail
activity resulting from volatile crude oil differentials, partially
offset by a decline in volumes at certain of the Corporation's
pipeline connected FSTs in the first quarter of 2019 over the 2018
comparative period;
- The Midstream Infrastructure's segment profit margin for the
three months ended March 31, 2019 of
$54.9 million increased by 16% from
the prior year comparative period, driven by the impact of
increased revenues, as discussed above. As a percentage of
Midstream Infrastructure services revenue, segment profit margin
decreased 1% for the three months ended March 31, 2019 from the comparative period in
2018 to 58%. The impact of higher revenues and the adoption of IFRS
16 was offset by the service mix in the three months ended
March 31, 2019 compared to the same
period of 2018;
- General and administrative ("G&A") expenses of $7.3 million for the three months ended
March 31, 2019 increased from the
comparative period balances of $6.2
million. Although the Corporation continues to minimize
G&A costs by streamlining operations where possible, Midstream
Infrastructure G&A expenses have increased primarily due to
overhead requirements to support new service lines, facilities and
expansions;
- Earnings before tax of $26.8
million during the three months ended March 31, 2019 increased $4.4 million from the three months ended
March 31, 2018. The increase is
primarily a result of a $7.6 million
increase in segment profit margin driven primarily as a result of
facilities constructed in the second half of 2018. This increase
was partially offset by higher G&A expenses incurred to support
higher activity levels.
ENVIRONMENTAL SOLUTIONS DIVISION HIGHLIGHTS
|
Three months ended
Mar 31,
|
($000's)
|
2019
|
2018
|
%
Change
|
Revenue
|
|
|
|
Environmental
Solutions
|
29,672
|
32,164
|
(8)
|
|
|
|
|
Cost of
Sales
|
|
|
|
Environmental
Solutions excluding depreciation and amortization
|
24,664
|
25,529
|
(3)
|
Depreciation and
amortization
|
2,537
|
2,397
|
6
|
Total
Environmental Solutions division cost of sales
|
27,201
|
27,926
|
(3)
|
|
|
|
|
Segment Profit
Margin(1)
|
5,008
|
6,635
|
(25)
|
|
|
|
|
Segment Profit
Margin(1) as a % of revenue
|
17%
|
21%
|
|
(1)
Calculated as revenue less cost of sales excluding depreciation and
amortization. Refer to "Non-GAAP Measures and Operational
Definitions" for further information.
|
- Environmental Solutions division revenue of $29.7 million for the three months ended
March 31, 2019 decreased by 8% from
the comparative period of 2018. Higher revenue from projects
generated from new customers, including several large
decommissioning projects, and an increase in revenues from the
management of scrap metal recycling programs in the oil sands, were
offset by lower activity levels negatively impacting onsite water
management and pumping services in the first quarter, and from
lower environmental remediation revenue as major customers deferred
this spending;
- Segment profit margin for the three months ended March 31, 2019 of $5.0
million decreased by 25% from the prior year comparative
period. As a percentage of revenue, segment profit margin was 17%
for the three months ended March 31,
2019 compared to 21% in the three months ended March 31, 2018. The Environmental Solutions
division's segment profit margin as a percentage of revenue can
fluctuate depending on the volume and type of projects undertaken
and the blend of business between remediation and reclamation
projects, demolition projects, pipeline integrity projects, site
clean-up, and other services in any given period. As a percentage
of revenue, the segment profit margin in the three months ended
March 31, 2019 decreased primarily
due to lower demand for water pumping and fracing services which in
turn creates a competitive pricing environment leading to lower
margins as a percentage of revenue. This was partially offset by
the nature of project work in the quarter which included several
highly specialized projects which generate higher margins;
- G&A expenses for the three months ended March 31, 2019 decreased 16% from the 2018
comparative period to $1.9 million as
a result of ongoing initiatives to minimize costs, and the impact
from the adoption of IFRS 16. Additionally, depreciation and
amortization expenses were lower in the 2019 period as intangible
assets recorded for two previous acquisitions were fully amortized
in the second quarter of 2018;
- Earnings before tax of $0.6
million during the three months ended March 31, 2019 has decreased $1.4 million from the 2018 comparative period.
The variances correspond primarily to the change in segment profit
margin, offset by the positive impact of a $0.3 million reduction in G&A expense in the
quarter.
TECHNICAL SOLUTIONS DIVISION HIGHLIGHTS
|
Three months ended
Mar 31,
|
($000's)
|
2019
|
2018
|
%
Change
|
Revenue
|
|
|
|
Technical
Solutions
|
53,569
|
68,679
|
(22)
|
|
|
|
|
Cost of
Sales
|
|
|
|
Technical Solutions
excluding depreciation and amortization
|
43,520
|
55,316
|
(21)
|
Depreciation and
amortization
|
5,675
|
5,173
|
10
|
Total Technical
Solutions division cost of sales
|
49,195
|
60,489
|
(19)
|
|
|
|
|
Segment Profit
Margin(1)
|
10,049
|
13,363
|
(25)
|
|
|
|
|
Segment Profit
Margin (1) as a % of revenue
|
19%
|
19%
|
|
(1)
Calculated as revenue less cost of sales excluding depreciation and
amortization. Refer to "Non-GAAP Measures and Operational
Definitions" for further information.
|
- During the three months ended March 31,
2019, rig activity and metres drilled in the WCSB decreased
39% and 31%, respectively, compared to the three months ended
March 31, 2018. The Technical
Solutions division's drilling fluids and equipment revenue
correlates with oil and gas drilling activity in the WCSB. As a
result, revenue generated from this service line was negatively
impacted by fewer operating days and rigs serviced. Secure was able
to partially mitigate the impact of reduced activity levels by
continuing to focus on more complex wells which require specialized
fluids, equipment and expertise. The increased contribution from
Secure's production chemicals related services has also helped to
lessen the impact of reduced activity levels, and the dependence on
drilling activity through ongoing product development, new
customers and increasing market share. Overall revenue from the
Technical Solutions division for the three months ended
March 31, 2019 decreased 22% to
$53.6 million from the comparative
period of 2018;
- The Technical Solutions division's segment profit margin for
the three months ended March 31, 2019
decreased 25% from the comparative period to $10.0 million as a result of lower revenue and
proportionately lower expenses. Although the continued cost
inflation associated with drilling and production chemicals have
outpaced the Technical Solutions division's ability to realize
meaningful price increases during the period, the adoption of IFRS
16 has positively impacted the segment profit margin as certain
production chemical blending plants are operated under lease
agreements. As a result, segment profit margin as a percentage of
revenue was 19%, unchanged from the comparable three months ended
March 31, 2018;
- G&A expenses decreased 5% to $5.7
million as a result of the Corporation's continued efforts
to manage costs efficiently and proactively while still responding
to customer demands and activity levels, including the positive
impact on G&A from the adoption of IFRS 16. This is partially
offset by costs associated with research and development projects
as Secure continues its focus on expanding the value chain of
services offered to customers, including innovative and
cost-effective solutions to reduce waste in the drilling and
production processes;
- During the three months ended March 31,
2019, the Technical Solutions division had a loss before tax
of $1.3 million compared to earnings
of $2.2 million in the 2018
comparative period. The variance of $3.5
million was a result of a 25% decrease in segment profit
margin, partially offset by a 5% decrease in G&A expense.
OUTLOOK
In April, Alberta elected a new
Provincial Government which ran on a platform of regulatory and
economic reform, sending a message that Alberta is "Open for Business." Among other
things, the new government is expected to reduce regulatory red
tape to expedite project development, lower corporate taxes,
guarantee that the royalty regimes in place at the time of project
permitting remain in place into perpetuity, reduce regulatory costs
for drilling rigs, repeal the carbon tax, and wind down production
curtailments imposed by the previous administration as rail
activity ramps up. These changes are expected to improve producer
confidence and drive increased investment, activity levels and cash
flows for the oil and gas sector in the province.
Narrowing price differentials in the first quarter of 2019 were
positive for oil and gas producers, the majority of which also
limited drilling and completion expenditures, resulting in higher
than expected cash flows and improved balance sheets. These
stronger financial positions combined with increased investment
confidence in the WCSB is expected to result in increased drilling,
completion and production activity in the second half of 2019 and
beyond.
Production-related volumes represent the majority of the volumes
processed and disposed of at Secure's midstream facilities,
providing the Corporation with recurring cash flows that are more
consistent during periods of reduced drilling and completion
activity. These recurring cash flows, the addition of new
infrastructure and expansions during 2018 and 2019, and the
anticipation that drilling and completion activity will strengthen
in the second half of 2019, are expected to result in increased
volumes and cash flows for the Corporation following the second
quarter's seasonal slowdown.
Secure's strategy remains focused on what is in the
Corporation's control: working with customers to identify
opportunities and integrated solutions where the Corporation can
add value by increasing customer operating netbacks and improving
capital efficiency. The recent Cushing Acquisition supports the
continued growth and development of the Corporation's midstream
business, providing Secure with a strategic footprint in a key U.S.
crude market and the ability to offer customers market access
flexibility to optimize pricing and increase operating netbacks. By
continuing to focus on new and innovative ways to offer solutions,
Secure's customers will be able to gain efficiencies for drilling,
completing and producing their hydrocarbon reserves. Helping
Secure's customers grow and being their trusted energy solutions
partner will ensure that the Corporation continues to create
long-term shareholder value.
The industry fundamentals driving the success of Secure's core
operations remain unchanged:
- Trend towards increased outsourcing of midstream work by
producers;
- Produced water increasing at a disproportionate rate relative
to aggregate production as a result of larger fracs, aging wells
and maturing basins in both Canada
and the U.S.;
- Increasing opportunities relating to crude oil logistics as
volatile differentials allow for opportunities related to crude oil
storage, and transporting crude by rail and via pipeline;
- Well density improving economics to pipeline connect production
volumes to midstream facilities;
- Forecast global oil and gas demand driving production growth in
the WCSB;
- Highly regulated and best in the world environmental
standards.
These factors are expected to result in the need for additional
facilities to meet incremental requirements for processing and
disposal capacity. Secure has made significant capital investments
to ensure the business is well positioned to capture new demand. By
offering exceptional customer service and owning and operating
midstream facilities near customer production, Secure expects these
trends will drive more volumes to the Corporation's midstream
facilities. Additionally, customers continue to seek cost effective
transportation solutions for water, oil and condensate volumes.
Secure's successful execution of the Kerrobert Light Pipeline
System will help the Corporation to take advantage of similar
opportunities creating value for both the customer and Secure.
Secure has a solid balance sheet and is well positioned to
respond with solutions and the right people to the market's
requirements. With the Corporation's amended First Lien Credit
Facility and the new Letter of Credit Facility, the Corporation now
has total credit capacity of $805 million providing financial
flexibility and the incremental borrowing capacity required for
Secure to continue to operate efficiently and execute on the
Corporation's growth and capital investment strategy. The
Corporation expects to incur approximately
$115 million of total growth and expansion
capital in 2019 (acquisition and organic) depending on the outcome
of various opportunities in development, such as regulatory
approvals, development permits and other operating agreements. The
initial organic growth and expansion capital plan of approximately
$100 million includes completing construction of two crude oil
storage tanks at the receipt terminal in Kerrobert to be commissioned in May 2019;
completing construction of two produced water transfer and
injection pipelines from customer processing plants; optimizing
capabilities and increasing processing and disposal capacity at
various other facilities, including additional
disposal wells; and purchasing equipment to support
existing services.
REPORTING CHANGES
The Corporation adopted IFRS 16 as at the effective date of
January 1, 2019 which replaced IAS 17, Leases ("IAS 17").
The new standard introduces a single lessee accounting model and
requires a lessee to recognize assets and liabilities for all
leases with a term of more than 12 months, unless the underlying
asset is of low value.
The Corporation elected the modified retrospective transition
approach, which provides lessees a method for recording existing
leases at adoption with no restatement of prior period financial
information. Under this approach, a lease liability was recognized
at January 1, 2019 in respect of leases previously
classified as operating leases, measured at the present value of
the remaining lease payments, discounted using the lessee's
incremental borrowing rate at transition. The associated
right-of-use assets were measured at amounts equal to the
respective lease liabilities, subject to certain adjustments
allowed under IFRS 16.
Adoption of the new standard at January 1, 2019 resulted in
the recording of additional right-of-use assets and lease
liabilities of $33.4 million and
$35.9 million, respectively,
related to office space, warehouses, surface land, rail cars and
certain heavy equipment. The new standard did not materially impact
consolidated net income as the depreciation of right-of-use assets
and interest and finance costs related to the lease liabilities
recognized under IFRS 16 were mostly offset by reductions in
operating lease expense, which were previously recognized in cost
of sales and general and administrative expenses. The adoption of
IFRS 16 had no impact on cash flows.
FINANCIAL STATEMENTS AND MD&A
The Corporation's condensed consolidated financial statements
and notes thereto for the three months ended
March 31, 2019 and 2018 and MD&A for the three months
ended March 31, 2019 and 2018 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 with respect to future events
and operating performance and speak only as of the date of this
document. In particular, this document contains or implies
forward-looking statements pertaining to: key factors driving the
Corporation's success; the impact of new facilities, new service
offerings, potential acquisitions, and prior year acquisitions on
the Corporation's future financial results; demand for the
Corporation's services and products; growth and expansion strategy;
the Corporation's ability to continue to grow the business
organically and execute on strategic growth opportunities based on
current financial position; the oil and natural gas industry in
Canada and the U.S., including
2019 and 2020 activity levels, spending by producers and the impact
of this on Secure's activity levels; future pipeline development in
Canada; industry fundamentals
driving the success of Secure's core operations, including
increased outsourcing of midstream work by producers, drilling,
completion and production trends, opportunities relating to crude
oil logistics, well density and economics for pipeline connecting
production volumes to midstream facilities, and global oil and gas
demand; the Corporation's proposed 2019 capital expenditure program
including growth and expansion and sustaining capital expenditures,
and the timing of completion for projects, in particular the
additional storage at the Kerrobert terminal; debt service; future
capital needs and how the Corporation intends to fund its
operations, working capital requirements, dividends and capital
program; access to capital; the Corporation's ability to meet
obligations and commitments and operate within any credit facility
restrictions; and the impact on Adjusted EBITDA in 2019 from the
adoption of IFRS 16.
Forward-looking statements concerning expected operating and
economic conditions are based upon prior year results as well as
the assumption that levels of market activity and growth will be
consistent with industry activity in Canada and the U.S. and similar phases of
previous economic cycles. Forward-looking statements concerning the
availability of funding for future operations are based upon the
assumption that the sources of funding which the Corporation has
relied upon in the past will continue to be available to the
Corporation on terms favorable to the Corporation and that future
economic and operating conditions will not limit the Corporation's
access to debt and equity markets. Forward-looking statements
concerning the relative future competitive position of the
Corporation are based upon the assumption that economic and
operating conditions, including commodity prices, crude oil and
natural gas storage levels, interest and foreign exchange rates,
the regulatory framework regarding oil and natural gas royalties,
environmental regulatory matters, the ability of the Corporation
and its subsidiaries to successfully market their services and
drilling and production activity in North
America will lead to sufficient demand for the Corporation's
services including demand for oilfield services for drilling and
completion of oil and natural gas wells, that the current business
environment will remain substantially unchanged, and that present
and anticipated programs and expansion plans of other organizations
operating in the energy industry may change the demand for the
Corporation's services and its subsidiaries' services.
Forward-looking statements concerning the nature and timing of
growth are based on past factors affecting the growth of the
Corporation, past sources of growth and expectations relating to
future economic and operating conditions. Forward-looking
statements in respect of the costs anticipated to be associated
with the acquisition and maintenance of equipment and property are
based upon assumptions that future acquisition and maintenance
costs will not significantly increase from past acquisition and
maintenance costs.
Forward-looking statements involve significant risks and
uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate
indications of whether such results will be achieved. Readers are
cautioned not to place undue reliance on these statements as a
number of factors could cause actual results to differ materially
from the results discussed in these forward-looking statements,
including but not limited to those factors referred to under the
heading "Risk Factors" in the AIF for the year ended
December 31, 2018 and also includes the risks associated
with the possible failure to realize the anticipated synergies in
integrating the assets acquired in prior year acquisitions with the
operations of Secure. Although forward-looking statements contained
in this document are based upon what the Corporation believes are
reasonable assumptions, the Corporation cannot assure investors
that actual results will be consistent with these forward-looking
statements. The forward-looking statements in this document are
expressly qualified by this cautionary statement. Unless otherwise
required by law, Secure does not intend, or assume any obligation,
to update these forward-looking statements.
NON-GAAP MEASURES AND OPERATIONAL DEFINITIONS
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
management's discussion and analysis 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 ENERGY SERVICES INC.
Secure is a TSX publicly traded integrated energy business with
midstream infrastructure, environmental and technical solutions
divisions 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.").
______________________________
|
i Refer to the "Non-GAAP Measures
and Operational Definitions" section herein.
|
ii Refer to the "Reporting
Changes" section herein for more information on Secure's
adoption of IFRS 16. Secure anticipates the impact of the new
standard to result in an increase of approximately $12 to $14
million to Adjusted EBITDA for the 2019 year following the
reassignment of certain lease commitments during the second
quarter.
|
SOURCE SECURE Energy Services Inc.