CALGARY, April 27, 2020 /CNW/ - Secure Energy
Services Inc. ("SECURE" or the "Corporation") (TSX – SES) announced
today the retirement of Murray Cobbe
and David Johnson from the
Corporation's Board of Directors, reported its operational and
financial results for the three months ended March 31, 2020, and provided an outlook for the
remainder of 2020.
RETIREMENT OF LONG-TIME DIRECTORS
Messrs. Murray Cobbe and
David Johnson, two of SECURE's
longest serving directors, are not standing for re-election at the
Corporation's Annual Meeting of Shareholders to be held on
April 28, 2020, which will mark the
end of their term on the Corporation's Board of Directors (the
"Board"). The addition of Rick Wise
and Deanna Zumwalt to the Board last
year allowed for the orderly retirement of these long-time
directors as Mr. Wise and Ms. Zumwalt gained familiarity and
experience with the affairs of the Corporation.
"Both Murray and David are accomplished business leaders who
have brought an immeasurable wealth of industry experience and
insight to SECURE's Board," said Rene
Amirault, Chairman, President and CEO. "Their leadership and
guidance over the past 14 years have been instrumental
in growing and defining SECURE into the company it is today.
On behalf of the Board and management, we would like to thank
Murray and David for their valuable contributions as directors. We
wish them both all the best in their retirement."
FIRST QUARTER SUMMARY
The following should be read in conjunction with the
Corporation's management's discussion and analysis ("MD&A") and
the audited consolidated financial statements and notes thereto
which are available on SEDAR at www.sedar.com.
Global oil prices declined radically in the latter part of the
first quarter of 2020 as a result of reduced demand driven by the
novel coronavirus ("COVID-19") health pandemic, including
government responses thereto, and over supply concerns stemming
from failed negotiations between OPEC+ countries on production
curtailments. As a result of the weak macro-economic environment,
the prudent response from SECURE's customers has been to employ
increased financial and capital discipline, resulting in reduced
activity levels during March 2020 and
a significant reduction to planned capital spending during the
remainder of 2020.
Financial results
During the three months ended March 31, 2020, the
Corporation recorded Adjusted EBITDAi of $42.1 million, down 24% from the prior year
comparative period. Higher year over year drilling and completion
activity levels during January and February contributed to higher
facility volumes and increased revenues from fluid management.
However, this was more than offset by activity slowdowns in March
as a result of the market conditions described above, and reduced
year over year Adjusted EBITDA from marketing activities and
crude-by-rail transactions.
The Corporation recognized a net loss of $22.4 million during the three months ended
March 31, 2020, compared to income of $1.3 million during the prior year
comparative period. In addition to lower Adjusted EBITDA, the
Corporation incurred a non-cash impairment charge on intangible
assets and one-time costs related to restructuring efforts, as
described below, for a total of $25.1 million.
Cost reduction initiatives
At the end of March 2020, SECURE
undertook prudent measures to reduce our cost structure in response
to further anticipated activity declines. These measures included
reducing personnel costs by approximately 25%, to levels consistent
with anticipated activity levels. Measures taken to reduce
personnel costs included layoffs, salary reductions, modified work
schedules and job sharing. SECURE recorded $9.4 million of severance and related costs
as a result of these measures and other restructuring plans
underway during the three months ended
March 31, 2020.
Solid financial position
Maintaining a strong balance sheet has always been a priority of
SECURE as this allows the Corporation to effectively manage the
business through periods of lower commodity pricing and industry
activity. At March 31, 2020, the Corporation has
$272.7 million of available capacity
on our First Lien Credit Facility, subject to covenant
restrictions. The following table outlines SECURE's Senior and
Total Debt to trailing twelve-month EBITDA ratiosii at
March 31, 2020, compared to the covenant thresholds
outlined in our credit facility agreements. SECURE remains well
within compliance of all covenants related to its credit
facilities.
|
Mar 31,
2020
|
Threshold
|
Senior Debt to
EBITDA
|
2.1
|
3.5
|
Total Debt to
EBITDA
|
2.9
|
5.0
|
In addition, SECURE has a $75
million letter of credit facility with $45.8 million available for use under this
facility as of March 31, 2020.
Low counterparty risk
The Corporation extends credit to customers, primarily comprised
of oil and gas exploration and production companies, in the normal
course of operations. SECURE has a robust credit review process and
has successfully prevented any material credit losses during
previous market downturns. Historically, bad debt expenses have
been limited to specific customer circumstances. However, the
sudden and severe decline in oil prices may result in higher
collection risk on trade receivables. As a result, the Corporation
has increased our expected credit loss provision at
March 31, 2020, to $3.3 million, an increase of $1.9 million from
December 31, 2019. The resulting loss allowance for
expected credit losses has been included with general and
administrative ("G&A") expenses during the three months ended
March 31, 2020.
Contracted midstream growth
During the first quarter of 2020, SECURE progressed construction
of the East Kaybob Oil Pipeline, a 120-kilometre pipeline system
gathering light oil and condensate from multiple producers and
terminating at the Corporation's Fox
Creek midstream processing facility. The project provides
SECURE with long-term fee-for-service revenues from pipeline
tariffs, and reliable volumes at the Fox
Creek facility. The pipeline is expected to be operational
by the start of the third quarter.
Resilient business
SECURE's midstream infrastructure growth over the past several
years, including strategic investments in oil feeder pipelines,
pipeline-connected produced water disposal facilities, and crude
oil storage, have helped transform the nature and reliability of
the Corporation's cash flows by significantly increasing the
Corporation's exposure to production-based revenues supported by
long-term contracts. The Corporation expects a certain degree of
cash flow stability from our midstream infrastructure that is
expected to partially offset the impact of reduced industry
activity on drilling and completion volumes and demand for
associated services throughout the remainder of the year.
Please refer to 'Outlook' section of this press release.
Moving to a quarterly dividend
After the June monthly dividend expected to be paid on or about
June 15, 2020, the Corporation will
be moving to a quarterly dividend, with the first planned payment
of 0.75 cents per share to occur on
or about October 15, 2020, to
shareholders of record on October 1,
2020.
REPORTING CHANGES
During the three months ended March 31, 2020, the
Corporation realigned its reporting structure to reflect changes in
the aggregation of operating segments based on the economic
prospects of these operating segments. The results of the
Corporation are now being reported in the following two reportable
segments:
- Midstream Infrastructure includes a network of midstream
infrastructure assets that includes oil and water pipelines,
midstream processing facilities, oil storage terminals, and crude
by rail terminals throughout western Canada, North
Dakota and Oklahoma. The
Midstream Infrastructure segment services include clean oil
terminalling and storage, rail transloading, pipeline
transportation, crude oil marketing, custom treating of crude oil,
produced and waste water disposal, oilfield waste processing, and
oil purchase/resale service. The only change to this segment from
prior periods is the removal of landfills.
- Environmental and Fluid Management includes a network of
landfill disposal facilities; onsite abandonment, remediation and
reclamation management; a suite of comprehensive environmental
management solutions provided by the Corporation to a diversified
customer base; and drilling, completion and production fluid
operations management for oil and gas producers in western
Canada. Services offered include
secure disposal of oilfield and industrial solid wastes into
SECURE's owned or managed landfill network located in western
Canada and North Dakota; project assessment and planning;
demolition and decommissioning; and reclamation and
remediation.
The new reporting structure provides a more direct connection
between the Corporation's operations, the services it provides to
customers and the ongoing strategic direction of the Corporation.
Comparative information has been recast to conform to the current
segmented reporting information. No changes were implemented with
respect to the consolidated data as a result of the recast.
QUARTERLY HIGHLIGHTS
The following table summarizes the operating and financial
highlights for the three months ending March
31, 2020 and 2019:
|
|
Three months ended
March 31,
|
($000's except
share and per share data)
|
2020
|
2019
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
177,541
|
177,379
|
-
|
Oil purchase and
resale
|
433,555
|
611,503
|
(29)
|
Total
revenue
|
|
611,096
|
788,882
|
(23)
|
Adjusted EBITDA
(1)
|
|
42,094
|
55,139
|
(24)
|
|
Per share ($),
basic
|
0.27
|
0.34
|
(21)
|
Net (loss) income
attributable to shareholders of Secure
|
(21,952)
|
1,259
|
(1,844)
|
|
Per share ($), basic
and diluted
|
(0.14)
|
0.01
|
(1,500)
|
Cash flows from
operating activities
|
45,850
|
57,302
|
(20)
|
|
Per share ($),
basic
|
0.29
|
0.36
|
(19)
|
Dividends per common
share
|
0.0675
|
0.0675
|
-
|
Capital expenditures
(1)
|
41,360
|
23,619
|
75
|
Total
assets
|
|
1,574,420
|
1,648,660
|
(5)
|
Long-term
liabilities
|
|
609,122
|
582,313
|
5
|
Common shares - end
of period
|
158,444,194
|
161,437,474
|
(2)
|
Weighted average
common shares
|
|
|
|
|
Basic
|
158,513,800
|
160,440,879
|
(1)
|
|
Diluted
|
158,513,800
|
163,456,268
|
(3)
|
(1)Refer
to "Non-GAAP Measures and Operational Definitions" for
further information
|
- REVENUE OF $611.1 MILLION FOR
THE THREE MONTHS ENDED MARCH 31,
2020
-
- Midstream Infrastructure segment revenue (excluding oil
purchase and resale) during the three months ended March 31, 2020, decreased by 6% over the
comparative period of 2019 to $80.1
million. The decrease is attributable to reduced crude oil
marketing and rail activity as certain opportunities in the first
quarter of 2019 resulting from volatile price differentials did not
re-occur during the three months ended March
31, 2020. Partially offsetting this decrease is an
unrealized gain resulting from crude oil futures and options
contracts held at March 31, 2020, to
help manage certain exposures to fluctuations in commodity prices.
Facility revenues were relatively flat year over year as
contributions from infrastructure additions in 2019 and higher
drilling and completion activity at the beginning of the year were
partially offset by the drop off in activity levels in March 2020;
- Oil purchase and resale revenue during the three months ended
March 31, 2020, decreased 29% over
the 2019 comparative period to $433.6
million as a result of reduced marketing activity and a 22%
decrease in Canadian light oil benchmark pricing;
- Environmental and Fluid Management segment revenue during the
three months ended March 31, 2020,
increased 5% over the 2019 comparative period to $97.5 million due to higher drilling and
completion activity in the Western Canadian Sedimentary Basin
("WCSB"), positively impacting revenue generated from service lines
supporting these activities, including drilling and completion
fluid services, solids control equipment rentals, drilling waste
management, water management, and industrial landfill
disposal.
- ADJUSTED EBITDA OF $42.1
MILLION FOR THE THREE MONTHS ENDED MARCH 31, 2020
-
- Adjusted EBITDA of $42.1 million
decreased 24% from the three months ended March 31, 2019, or 21% on a per share basis.
Higher year over year drilling and completion activity levels
during January and February contributed to higher facility volumes
and increased revenues from fluid management. However, this was
more than offset by activity slowdowns in March, and reduced year
over year Adjusted EBITDA from marketing activities and
crude-by-rail transactions. Extraordinary price volatility and
large differentials during the first quarter of 2019 created
considerable crude oil marketing and rail opportunities that did
not re-occur in the current year period. Additionally, the
Corporation recorded a $1.9 million
loss allowance for expected credit losses during the three months
ended March 31, 2020, in light of the
current macroeconomic environment.
- NET LOSS ATTRIBUTABLE TO SHAREHOLDERS OF SECURE OF
$22.0 MILLION FOR THE THREE MONTHS
ENDED MARCH 31, 2020
-
- For the three months ended March 31,
2020, there was a net loss attributable to shareholders of
SECURE of $22.0 million, compared to
income of $1.3 million in the three
months ended March 31, 2019. The
variance is primarily due to $25.1
million of impairment and restructuring charges recorded in
the current year period, and higher depreciation, depletion and
amortization expense.
-
- Impairment of non-current assets: In accordance with the
accounting standards, the Corporation assesses at each reporting
date whether there is an indication that an asset or cash generated
unit ("CGUs") may be impaired. With the rapid and significant
decline in oil prices and planned producer spending, indicators of
impairment were present for SECURE's CGUs with cash flows tied
primarily to drilling and completion activities. The value in use
of the Technical Solutions CGU, determined using a five-year cash
flow estimate discounted to March 31,
2020, exceeded the carrying amount of the CGU. Consequently,
a $15.7 million impairment charge was
recorded against intangible assets in order to write the CGU down
to its recoverable amount;
- Restructuring costs: SECURE recorded an expense of
$9.4 million during the three months
ended March 31, 2020, related
primarily to employee termination benefits expected to result from
restructuring plans undertaken by the Corporation in the period,
including right sizing the Corporation's workforce to anticipated
activity levels and streamlining business processes resulting in
the suspension or termination of certain functions;
- Depreciation, depletion and amortization ("DD&A"):
DD&A increased $7.8 million as a
result of new midstream infrastructure put into use in 2019 and the
write-down of certain projects in development that may be delayed
or suspended as a result of the current operating environment.
- These negative variances were partially offset by lower income
tax expense resulting primarily from lower pre-tax earnings.
- CASH FLOWS FROM OPERATING ACTIVITIES OF $45.9 MILLION FOR THE THREE MONTHS ENDED
MARCH 31, 2020
-
- The Corporation generated cash flows from operating activities
of $45.9 million during the three
months ended March 31, 2020, a
decrease of $11.5 million 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. SECURE carried total net working capital at
March 31, 2020, of $96.6 million, down from $125.3 million at December
31, 2019.
- CAPITAL EXPENDITURES OF $41.4
MILLION FOR THE THREE MONTHS ENDED MARCH 31, 2020
-
- SECURE incurred $38.0 million of
organic growth and expansion capital during the three months ended
March 31, 2020, largely related to
the East Kaybob Oil Pipeline System, as well as certain carryover
costs related to expansion and optimization projects at existing
facilities in the prior year. The Corporation also incurred
sustaining capital of $3.4 million
during the period relating primarily to well and facility
maintenance. SECURE is committed to maintaining capital discipline
as we navigate this downturn.
MIDSTREAM INFRASTRUCTURE SEGMENT HIGHLIGHTS
|
Three months ended
Mar 31,
|
($000's)
|
2020
|
2019
|
%
Change
|
|
|
|
|
Midstream
Infrastructure services revenue
|
80,091
|
84,818
|
(6)
|
Oil purchase and
resale
|
433,555
|
611,503
|
(29)
|
Midstream
Infrastructure Revenue
|
513,646
|
696,321
|
(26)
|
|
|
|
|
Cost of
Sales
|
|
|
|
Cost of sales
excluding items noted below
|
36,384
|
34,752
|
5
|
Depreciation and
amortization
|
23,502
|
17,281
|
36
|
Oil purchase and
resale
|
433,555
|
611,503
|
(29)
|
Midstream
Infrastructure Cost of Sales
|
493,441
|
663,536
|
(26)
|
|
|
|
|
Segment Profit
Margin (1)
|
43,707
|
50,066
|
(13)
|
|
|
|
|
Segment Profit
Margin (1) as a % of revenue (a)
|
55%
|
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
decreased 6% for the three months ended March 31, 2020, from the respective 2019
comparative period. The decrease was due primarily to lower
marketing and rail revenues in the current year period as certain
opportunities presented in the first quarter of 2019 did not
re-occur. Significant and volatile commodity price differentials at
the beginning of 2019 created increased opportunities for price
optimization at the Corporation's pipeline connected FSTs and
supported economics for transporting crude by rail, resulting in
higher revenues generated from the Corporation's crude oil
marketing business and rail terminals during the prior year
comparative period;
- 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, positively contributed to
revenues during the three months ended March
31, 2020, partially offsetting the decrease discussed above.
Additionally, increased production, drilling and completion
activity in January and February of 2020 resulted in higher
processing and disposal volumes in the current year period.
Partially offsetting the positive impact to facilities revenue was
lower realized pricing on recovered oil volumes due to a 22%
decrease in benchmark oil prices in Canada year over year;
- Disposal volumes increased 17% during the three months ended
March 31, 2020, from the respective
2019 comparative period due primarily to increased produced water
disposal volumes delivered through pipelines added to the
Corporation's Gold Creek and Pipestone facilities in 2019, along with
expansions to increase water disposal capacity at various other
facilities since the start of 2019 through additional disposal
wells and improved injection rates;
- Processing volumes, including emulsion treating, and various
waste stream processing, increased 8% during the three months ended
March 31, 2020, from the 2019
comparative period due primarily to higher drilling waste as a
result of increased activity levels in the Corporation's operating
areas;
- Oil volumes recovered through our processing operations
increased 18% during the three months ended March 31, 2020, from the 2019 comparative period
as a result of higher overall volumes received at the Corporation's
facilities. The impact of higher volumes on recovered oil revenue
was offset by lower benchmark oil pricing in the current year
period;
- Crude oil terminalling and pipeline volumes increased 18%
during the three months ended March 31,
2020, from the 2019 comparative period as a result of the
Corporation's best quarter to date for the Kerrobert crude oil pipeline system. During
the first quarter, there were 20 approved shippers on the pipeline,
with nearly 600,000 cubic metres shipped during the period, up 43%
from the prior year;
- Oil purchase and resale revenue in the Midstream Infrastructure
segment decreased 29% to $433.6
million for the three months ended March 31, 2020, from the respective 2019
comparative period. The decrease in the three months ended
March 31, 2020, relates to reduced
marketing activities and lower commodity prices in the current
period;
- The Midstream Infrastructure segment's segment profit margin
decreased 13% to $43.7 million for
the three months ended March 31,
2020, from the 2019 comparative period. As a percentage of
Midstream Infrastructure services revenue, segment profit margin
was 55% for the three months ended March 31,
2020, down from 59% in the 2019 comparative period. The
decrease was primarily a result of reduced marketing and rail
revenue described above and associated blending margins due to
lower stream pricing and flat differentials;
- G&A expenses decreased by 4% to $6.7
million for the three months ended March 31, 2020, from the respective 2019
comparative period. The decrease is mainly due to lower personnel
costs partially offset by an increased loss allowance on trade
receivables;
- Earnings before tax decreased 61% to $9.9 million for the three months ended
March 31, 2020, from the respective
2019 comparative period. The decrease is a result of lower segment
profit margin and increased depreciation and amortization expense
in the 2020 period, as described above, as well as restructuring
costs of $3.4 million related to
right sizing the Corporation's workforce to anticipated activity
levels and streamlining business processes resulting in the
suspension or termination of certain functions.
ENVIRONMENTAL AND FLUID MANAGEMENT SEGMENT
|
Three months ended
Mar 31,
|
($000's)
|
2020
|
2019
|
%
Change
|
|
|
|
|
Environmental and
Fluid Management Revenue
|
97,450
|
92,561
|
5
|
|
|
|
|
Cost of
Sales
|
|
|
|
Cost of sales
excluding depreciation, depletion and amortization
|
74,408
|
72,669
|
2
|
Depreciation,
depletion and amortization
|
12,089
|
11,294
|
7
|
Environmental and
Fluid Management Cost of Sales
|
86,497
|
83,963
|
3
|
|
|
|
|
Segment Profit
Margin (1)
|
23,042
|
19,892
|
16
|
|
|
|
|
Segment Profit
Margin (1) as a % of revenue
|
24%
|
21%
|
|
(1)
Calculated as revenue less cost of sales excluding depreciation,
depletion and amortization. Refer to "Non-GAAP Measures and
Operational Definitions" for further information
|
- The Environmental and Fluid Management segment revenue
increased 5% to $97.5 million for the
three months ended March 31, 2020,
from the 2019 comparative period. The impact of reduced
decommissioning, site reclamation and abandonment jobs on the
Environmental Solution group was more than offset by greater
project work awarded in Fort
McMurray as the Corporation gains a reputation as a
preferred service provider in the Oil Sands region, and higher
contributions from Fluids Management resulting from production
chemicals work awarded at the end of 2019. Also, drilling activity
improvements from the first two months of the year drove higher
drilling fluid sales and water pumping jobs;
- Segment profit margin increased 16% for the three months ended
March 31, 2020, to $23.0 million from the 2019 comparative period
due to higher revenues, a favourable job mix, and reduced fixed
costs. The current year period had a greater proportion of higher
margin business, including completion related water pumping and
fracing services, and projects work in the Fort McMurray region. Segment profit margin as
a percentage of revenue was 24% for the three months ended
March 31, 2020, compared to 21% for
the 2019 comparative period;
- G&A expense increased 2% to $8.1
million for the three months ended March 31, 2020, from the 2019 comparative period.
The increase is primarily due to higher allowance for expected
credit losses resulting from macro-economic factors at March 31, 2020, partially offset by lower
personnel related costs as the Corporation manages costs in the
current operating environment;
- The Environmental and Fluid Management segment had a loss
before tax of $17.7 million for the
three months ended March 31, 2020,
compared to earnings of $0.6 million
during the comparative period of 2019. The loss is largely
attributable to a non-cash impairment charge recorded against
intangible assets for the three months ended March 31, 2020.
OUTLOOK
The public health containment measures in place to limit the
spread of COVID-19 have significantly reduced global oil
demand, pressuring oil prices to the lowest levels seen in over
20 years. On April 12, 2020, a historic agreement to cut
global oil production by almost 10% was finalized, which is
expected to help balance the market and partially offset ongoing
pressure on oil prices caused by such measures employed to control
the COVID-19 outbreak. This health pandemic is an unprecedented
situation whose ultimate duration and magnitude are unknown
currently, and as a result raises a significantly higher degree of
uncertainty on crude oil demand for the remainder of 2020.
It is however encouraging to have a historic agreement around
longer term supply reductions and the potential to have further
discussions when the 'return to normal' allows for greater insight
on the true go forward demand for crude oil. While the supply cuts
are expected to help in the back half of this year, the near-term
issues of over supply are anticipated to have a significant impact
on the crude oil market, specifically:
- Drilling and completion activity in the second quarter has
historically been lower in Canada
due to road bans and the effects of spring break up. We expect
minimal drilling and completion volumes in the second quarter of
2020 and the typical ramp up in drilling and completion activity to
be significantly lower in the back half of the year;
- Production in the second quarter of 2020 will be impacted by
the current price of crude oil, crude oil differentials as well as
storage constraints in both Canada
and in the US. Storage constraints may be the largest factor
contributing to production shut-ins if crude oil does not have a
downstream destination and it physically has nowhere to be stored.
Excluding the impact of storage, production shut-ins are difficult
to predict as the decision to continue to produce may be a result
of contract obligations or agreements, take or pay obligations,
concern of well or reservoir damage, costs to shut-in/start up,
bank covenants or cash flow requirements. In addition, there are
producers that have risk management hedges to protect the downside
throughout 2020.
SECURE's business remains highly concentrated on production
volumes or related services that represent approximately 75% of the
Corporation's Adjusted EBITDA. A portion of these production
volumes are contracted and/or fee-for-service contracts that are
expected to provide a certain degree of cash flow stability. The
factors noted above relating to production shut-ins may have a
short-term impact on financial results for the second quarter,
however the pricing environment and supply cuts should support
fewer production shut-ins in the third and fourth quarters of 2020.
The resulting reduction in revenues from production shut-ins are
expected to be partially offset by opportunities to leverage
SECURE's crude oil storage assets at both Kerrobert and Cushing. In addition, SECURE will complete and
commission the East Kaybob Oil Pipeline in the third quarter which
provides the Corporation with additional, long-term,
fee-for-service revenues from pipeline tariffs, and reliable
volumes at the Fox Creek
facility.
On April 17, 2020, the Canadian
Federal Government announced a $1.7 billion fund to accelerate orphan and
inactive well abandonments as part of an effort to reduce the
economic fallout on oil-producing provinces from COVID-19. SECURE
expects increased abandonment and remediation activity to
positively impact all Canadian business units, particularly within
the Environmental Management group as a result of higher demand for
onsite abandonment, remediation and reclamation management and
decommissioning work. Solid and waste volumes resulting from these
operations will also require disposal; SECURE owns and operates six
industrial landfills in Alberta
capable of handling waste of this nature.
SECURE has also taken prudent measures to reduce costs to best
position the Corporation for long-term success, including:
- Reduced the 2020 capital program by $20
million, or 25%, from previously anticipated amounts to
$60 million, including approximately
$50 million of growth and expansion
capital, and $10 million of
sustaining capital;
- Establishing a minimal preliminary capital program of
$15 million for 2021, comprised
primarily of sustaining capital;
- Reduced the monthly dividend from 2.25
cents to 0.25 cents effective
May 1, 2020;
- Assessed the Canadian Federal Government's wage subsidy program
to reduce the impact of the downturn on our staffing levels. The
Corporation intends to file an application once the system is in
operation;
- Reduced personnel costs by approximately 25%, to levels
consistent with anticipated activity levels. Measures taken to
reduce personnel costs included layoffs, salary reductions,
modified work schedules and job sharing;
- Restricted discretionary spending and suspended all
non-essential travel;
- Restructured into two reporting segments and corporate that
should allow for SECURE to gain cost efficiencies across all
reporting segments; and
- Delayed timing for the completion of planned divestitures
announced in late 2019 related to specific service lines that do
not have recurring or production-related revenue streams in light
of the current economic environment. SECURE will remain patient in
executing any divestitures and is committed to obtaining a price
for these service lines that is commensurate with their long-term
value.
The outlook on oil prices and drilling and completion activity
levels resulting from the COVID-19 pandemic is difficult to
predict; however, SECURE has positioned the business to navigate
this challenging time through 2020 and beyond. The majority of our
midstream processing facilities are located in low cost light oil
and gas related plays in western Canada, which supports ongoing production at
lower benchmark pricing. This activity will support oil treating,
production chemicals, water disposal and terminalling. Furthermore,
SECURE's oil and water pipelines have committed volumes, which will
provide a recurring revenue stream. In addition, SECURE's
contracted operations in Fort
McMurray also support recurring revenue.
SECURE will continue to protect the strength in the balance
sheet and is well positioned to withstand the impact this commodity
price cycle will have on our activity levels, and to respond when
industry activity resumes. Our $600
million first lien revolving credit facility matures
June 2023 and had $272.7 million of available capacity (subject to
covenant restrictions) at March 31,
2020.
SECURE's key strategic priorities for 2020 include:
- Maintaining financial resilience, protecting a strong balance
sheet by maximizing cash flows and monitoring credit exposure;
- Implementing restructuring plans and cost reductions to align
the Corporation's cost structure with expected industry activity;
and
- Continuing to work with our customers to deliver innovative
midstream and environmental solutions that reduce their costs,
lower emissions, and improve safety.
SECURE's greatest assets are our people and the relationships we
have with our customers, investors and the communities in which we
have a presence. The Corporation will continue to keep our
stakeholders top of mind and supported as it navigates through
these events.
FINANCIAL STATEMENTS AND MD&A
The Corporation's condensed consolidated financial statements
and notes thereto for the three months ended
March 31, 2020 and 2019 and MD&A for the three months
ended March 31, 2020 and 2019 are
available immediately on SECURE's website at www.secure-energy.com.
The condensed consolidated financial statements and MD&A will
be available tomorrow on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document constitute
"forward-looking statements" and/or "forward-looking information"
within the meaning of applicable securities laws (collectively
referred to as "forward-looking statements"). When used in this
document, the words "may", "would", "could", "will", "intend",
"plan", "anticipate", "believe", "estimate", "expect", and similar
expressions, as they relate to SECURE, or its management, are
intended to identify forward-looking statements. Such statements
reflect the current views of SECURE with respect to future events,
global economic events arising from COVID-19 and the OPEC decisions
and operating performance and speak only as of the date of this
document.
In particular, this document contains or implies forward-looking
statements pertaining but not limited to: management's expectations
with respect to the impact of COVID-19, including government
responses thereto on demand for oil and our operations generally;
the outlook for oil prices; spending by producers and the impact of
this on SECURE's activity levels; the impact OPEC+ supply cuts may
have on crude oil pricing; the impact of over supply on the crude
oil market; the oil and natural gas industry in Canada and the U.S., including drilling,
completion and production activity levels for the remainder of 2020
and beyond, and the impact of this on SECURE's business, operations
and financial results; the benefits of midstream infrastructure and
production concentrated volumes on SECURE's cash flow and the
expected stability of such sources of cash flow; opportunities for
the Corporation's storage assets; the timing of completion for
projects underway, in particular the East Kaybob Oil Pipeline, and
the timing and stability of contributions from new projects; the
impact the Canadian Federal Government's orphan and inactive well
fund may have to the business, operations and results of the
Corporation; timing associated with potential divestitures related
to specific service lines that do not have recurring or
production-related revenue streams and the outcome of such sales
process; activity levels in the Corporation's operating areas; the
benefits of contracted and/or fee for service contracts on SECURE's
cash flow and the expected stability of such sources of cash flow;
the Corporation's proposed 2020 and 2021 capital expenditure
programs, including growth and expansion and sustaining capital
expenditures; the Corporation's ability to execute our
restructuring plans and align the Corporation's cost structure with
expected industry activity levels; the expected impacts of the
Corporation's cost and capital expenditure reductions; future
dividend payments and expected cash savings resulting from the
reduction of the Corporation's cash dividend payments; debt
service; and the Corporation's ability to meet obligations and
commitments and operate within any credit facility restrictions,
including the financial covenants related to our debt facilities;
expectations that our capital investment, share repurchases and
cash dividends will be funded from internally generated cash
flows; the Corporation's credit risk levels and it's ability
to collect on trade receivables; expected benefits customers will
receive from our midstream and environmental solutions; key factors
driving the Corporation's success; demand for the Corporation's
services and products; industry fundamentals driving the success of
SECURE's core operations; future capital needs and how the
Corporation intends to fund its operations, working capital
requirements, dividends and capital program; and access to
capital.
Forward-looking statements are based on certain assumptions that
SECURE has made in respect thereof as at the date of this document
regarding, among other things: the impact of COVID-19, including
related government responses related thereto and lower global
energy pricing on oil and gas industry exploration and development
activity levels and production volumes (including as a result of
demand and supply shifts caused by COVID-19 and the actions of OPEC
and non-OPEC countries); the success of SECURE's operations and
growth projects; the Corporation's competitive position remaining
substantially unchanged; future acquisition and sustaining costs
will not significantly increase from past acquisition and
sustaining costs; that counterparties comply with contracts in a
timely manner; that there are no unforeseen events preventing the
performance of contracts or the completion of the relevant
facilities; that there are no unforeseen material costs relation to
the Corporation's facilities; and that prevailing regulatory, tax
and environmental laws and regulations apply.
Forward-looking statements involve significant known and unknown
risks and uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate
indications of whether such results will be achieved. Readers are
cautioned not to place undue reliance on these statements as a
number of factors could cause actual results to differ materially
from the results discussed in these forward-looking statements,
including but not limited to those factors referred to under the
heading "Risk Factors" in the Corporation's Annual Information Form
for the year ended December 31, 2019. In addition, the
effects and impacts of the COVID-19 outbreak, the rapid decline in
global energy prices and the length of time to significantly reduce
the global threat of COVID-19 on SECURE's business, the global
economy and markets are unknown at this time and could cause
SECURE's actual results to differ materially from the
forward-looking statements contained in this document.
Although forward-looking statements contained in this document
are based upon what the Corporation believes are reasonable
assumptions, the Corporation cannot assure investors that actual
results will be consistent with these forward- looking statements.
The forward-looking statements in this document are expressly
qualified by this cautionary statement. Unless otherwise required
by law, SECURE does not intend, or assume any obligation, to update
these forward-looking statements.
NON-GAAP MEASURES 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 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.
____________________________
|
i Refer to the "Non-GAAP Measures
and Operational Definitions" section herein
|
ii As
defined in the Corporation's lending agreements. Refer to the
MD&A for details on the Corporation's covenant
calculations
|
SOURCE SECURE Energy Services Inc.