CALGARY, March 1, 2018 /CNW/ - Secure Energy Services Inc.
("Secure" or the "Corporation") (TSX – SES) today announced
operational and financial results for the three and twelve months
ended December 31, 2017. The
following should be read in conjunction with the management's
discussion and analysis ("MD&A") and the annual audited
consolidated financial statements and notes thereto of Secure which
are available on SEDAR at www.sedar.com.
FOURTH QUARTER OPERATIONAL AND FINANCIAL HIGHLIGHTS
The Corporation's financial performance continues to improve
year over year as the oil and gas sector rebounds on the back of
rising, more stable crude oil prices, which closed out the year at
the highest levels seen since mid-2015. Along with these
higher activity levels, contributions from capital projects and
acquisitions over the last several years, new service offerings,
and geographic expansion contributed to Secure generating
$51.2 million in Adjusted
EBITDA1 in the fourth quarter of 2017, a 55% increase
over the same period in 2016. Highlights from the fourth quarter
include:
- Within the PRD division, disposal and processing volumes
increased by 48% and 19%, respectively, over the fourth quarter of
2016, contributing to a 30% increase in PRD services revenue. The
increase in volumes can be attributed to the continued trend of
higher fluid volumes pumped per well while fracing in the
Corporation's key service areas, higher oil and gas activity
levels, the acquisition of new facilities, and increases in
disposal capacity at existing facilities;
- Revenues generated from facilities in the U.S. nearly doubled
in the fourth quarter of 2017 over 2016 because of increased
volumes due to improved drilling and completion activity levels,
new sales initiatives and higher average crude oil prices impacting
recovered oil revenues;
- Pipeline capacity constraints have resulted in a higher demand
for the Corporation's full service rail terminals, which offer
customers treating and storage solutions with rail access;
- The DPS division approximately doubled its contribution to the
Corporation's total Adjusted EBITDA in the fourth quarter of 2017
over the same period in 2016 as a result of higher industry
drilling activity levels, increased average revenue per operating
day generated from more complex wells, the continued effects of
cost control measures previously implemented, and incremental
Adjusted EBITDA generated from the production chemicals service
line;
- The Corporation's OS division had its most profitable quarter
of 2017, driven primarily by positive industry activity levels and
from integrated service offerings resulting in incremental Project
work. Higher activity levels in the oil and gas sector also
increased demand for the Corporation's water pumping services.
Favorable weather conditions drove project execution and new
customer additions also contributed to the OS division's success in
the quarter.
2017 CAPITAL PROGRAM
During the fourth quarter, Secure incurred growth and expansion
capital of $45.3 million,
advancing construction on several projects. The expenditures in the
quarter related primarily to:
- Ongoing construction of a light oil feeder pipeline system and
receipt terminal in the Kindersley-Kerrobert region of Saskatchewan. The system includes gathering
pipelines for customer production, as well as a larger pipeline
commencing at the Corporation's existing Kindersley FST, which will
transport processed oil from the gathering pipelines and Secure's
facility to a Secure owned and operated receipt terminal, and
ultimately to the Enbridge Inc. mainline in Kerrobert. Key Viking light oil producers have
contracted volume on both an annual and cumulative term basis over
10 years, supporting both FST and pipeline economics. The pipeline
system is expected to be completed and operational in the fourth
quarter of 2018 and cost approximately $75
million in total;
- Construction of the Gold Creek SWD facility in the Montney region of Alberta, with commissioning expected by
mid-2018;
- Engineering, site work and long lead costs for the addition of
a third well at the Big Mountain SWD located south of Grande Prairie to increase disposal capacity
in order to meet customer demands in the region. Facility upgrades
and the third well are expected to be completed in the first
quarter of 2018;
- Completing construction of additional landfill cells at the
South Grande Prairie, Pembina and
Fox Creek landfills to increase
capacity;
- Improvements to increase disposal capacity at various existing
facilities, including the recently acquired facilities from Ceiba
Energy Services Inc. Improvements included the deepening of a
disposal well, pump replacements and well workovers;
- Long lead items and upfront engineering costs on various other
PRD division projects; and
- Addition of rental equipment for the IFS service line,
including two water injection skids and several frac ponds and
pumps.
INCREASED DIVIDEND BY 6%
On November 9, 2017, Secure's
Board of Directors approved a 6% increase to the monthly dividend
rate from $0.02125 to
$0.0225 per common share of the
Corporation ("Common Share") commencing with the January 15, 2018 dividend payment date for
shareholders of record on January 1, 2018. The dividend
was previously increased in the second quarter of 2017 from
$0.02 per Common Share.
Additional operating and financial highlights for the three
months ended December 31, 2017 and 2016 can be summarized as
follows:
|
Three months ended
Dec 31,
|
($000's except
share and per share data)
|
2017
|
2016
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
184,740
|
124,584
|
48
|
Oil purchase and
resale
|
494,816
|
405,939
|
22
|
Total
revenue
|
679,556
|
530,523
|
28
|
Adjusted EBITDA
(1)
|
51,177
|
33,046
|
55
|
|
Per share ($),
basic
|
0.31
|
0.21
|
48
|
Net loss
|
(23,934)
|
(10,075)
|
138
|
|
Per share ($), basic
and diluted
|
(0.15)
|
(0.06)
|
150
|
Adjusted net loss
(1)
|
(2,057)
|
(11,430)
|
(82)
|
|
Per share ($),
basic
|
(0.01)
|
(0.07)
|
(86)
|
Cash flows from
operating
activities
|
22,925
|
15,361
|
49
|
|
Per share ($),
basic
|
0.14
|
0.10
|
40
|
Funds flow
(1)
|
45,075
|
33,978
|
33
|
|
Per share ($),
basic
|
0.28
|
0.21
|
33
|
Dividends per common
share
|
0.06
|
0.06
|
6
|
Capital expenditures
(1)
|
51,815
|
15,408
|
236
|
Total
assets
|
1,562,746
|
1,425,250
|
10
|
Net debt
(1)
|
166,647
|
73,176
|
128
|
Common shares - end
of period
|
163,352,572
|
160,652,221
|
2
|
Weighted average
common shares - basic and diluted
|
163,325,590
|
160,314,786
|
2
|
(1)
Refer to "Non-GAAP measures and operational definitions" for
further information.
|
- REVENUE OF $679.6 MILLION FOR THE THREE MONTHS ENDED
DECEMBER 31, 2017
-
- Total processing, recovery and disposal volumes at PRD
facilities for the three months ended December 31, 2017
increased from the 2016 comparative period due to increased
drilling and completion activity levels across the Western Canadian
Sedimentary Basin ("WCSB") and North
Dakota, ongoing and moderately increasing production related
volumes, and the contribution of volumes from facility acquisitions
and expansions in 2017. Overall, this resulted in the PRD division
achieving revenue (excluding oil purchase and resale) of
$80.6 million in the three months
ended December 31, 2017, an increase of 30% from 2016;
- Oil purchase and resale revenue in the PRD division for the
three months ended December 31, 2017
increased by 22% from the 2016 comparative period to $494.8 million due to higher average crude oil
prices and increased oil purchase and resale volumes from
heightened industry activity at various pipeline connected
facilities;
- DPS division revenue increased by 61% to $61.4 million in the three months ended
December 31, 2017. Activity in the DPS division is
strongly correlated with oil and gas drilling activity in the WCSB,
which experienced a 9% increase in active rig counts in the three
months ended December 31, 2017 over
2016. Along with these improved activity levels, producers continue
to drill longer and more complex wells, which require more
sophisticated drilling fluid systems and expertise, generating
higher revenue for the division. Additionally, contributions from
the acquisition of a production chemicals business in April 2017 resulted in incremental revenue for
the DPS division in the fourth quarter of 2017;
- OS division revenue increased 74% to $42.7 million in the three months ended
December 31, 2017 primarily due to
higher activity levels in the oil and gas sector over the prior
year resulting in increased demand for oilfield services such as
water pumping and storage, and drilling waste management services.
As well, revenue improvements were due to increased Project work in
the quarter, good weather conditions conducive to project
execution, new customer additions, and geographic
expansion.
- ADJUSTED EBITDA OF $51.2 MILLION FOR THE THREE MONTHS ENDED
DECEMBER 31, 2017
-
- Adjusted EBITDA of $51.2 million,
a 55% increase from the three months ended December 31, 2016, resulted primarily from
increased production and drilling related activity and additional
volumes from acquisitions and facility expansions in 2017 which
drove both PRD revenues and operating margins. Increased rig
counts, metres drilled and completion activity also positively
impacted the DPS and OS divisions, along with contributions from
the DPS production services line, and increased Project work in the
OS division.
- NET LOSS OF $23.9 MILLION
FOR THE THREE MONTHS ENDED DECEMBER 31,
2017
-
- Net loss for the three months ended December 31, 2017 was $23.9 million compared to $10.1 million in the comparative period of
2016. The variance is primarily due to non-cash impairment of
$29.2 million recorded related
to the goodwill and intangible assets associated with the
Corporation's Alida crude oil terminalling facility, and increased
tax expense resulting from higher net income before non-deductible
expenses. Net loss was positively impacted by higher Adjusted
EBITDA resulting from the factors discussed above.
- ADJUSTED NET LOSS OF $2.1 MILLION FOR THE THREE MONTHS ENDED
DECEMBER 31, 2017
-
- Adjusted net loss of $2.1 million for the three months ended
December 31, 2017 improved by
$9.4 million over the
comparative period as a result of the factors discussed above
impacting Adjusted EBITDA, partially offset by increased tax
expense resulting from higher net income before non-deductible
expenses.
- FINANCIAL FLEXIBILITY
-
- The total amount drawn on Secure's credit facilities as at
December 31, 2017 increased by 44% to $300.0 million compared to $209.0 million at
December 31, 2016. The amount drawn on Secure's credit
facilities increased in the year in order to fund the Corporation's
organic capital program and the two acquisitions completed in 2017,
partially offset by increased cash flows from operating
activities.
- As at December 31, 2017, the
Corporation had $260.3 million
available under its credit facilities, subject to covenant
restrictions. The Corporation is well positioned, based on this
availability and expected cash flows from operating activities, to
pursue further accretive acquisition opportunities and execute on
the 2018 capital program.
- CAPITAL EXPENDITURES OF $51.8
MILLION FOR THE THREE MONTHS ENDED DECEMBER 31, 2017
-
- Total capital expenditures for the three months ended
December 31, 2017 of $51.8 million were comprised of $45.3 million related to growth and
expansion projects, as described above, and $6.5 million of sustaining capital related
primarily to maintenance on Secure's disposal wells. There were no
acquisitions completed during the quarter.
ANNUAL OPERATIONAL AND FINANCIAL HIGHLIGHTS
|
Twelve months
ended Dec 31,
|
($000's except
share and per share data)
|
2017
|
2016
|
2015
|
Revenue (excludes oil
purchase and resale)
|
603,421
|
393,159
|
560,898
|
Oil purchase and
resale
|
1,724,787
|
1,016,904
|
785,527
|
Total
revenue
|
2,328,208
|
1,410,063
|
1,346,425
|
Adjusted EBITDA
(1)
|
157,211
|
94,100
|
126,652
|
|
Per share ($),
basic
|
0.97
|
0.61
|
0.95
|
Net loss
|
(34,202)
|
(48,943)
|
(159,870)
|
|
Per share ($), basic
and diluted
|
(0.21)
|
(0.32)
|
(1.20)
|
Adjusted net
loss(1)
|
(13,088)
|
(48,111)
|
(30,166)
|
|
Per share ($),
basic
|
(0.08)
|
(0.31)
|
(0.23)
|
Cash flows from
operating activities
|
108,872
|
96,682
|
131,018
|
|
Per share ($),
basic
|
0.67
|
0.63
|
0.98
|
Funds flow
(1)
|
157,186
|
97,291
|
89,905
|
|
Per share ($),
basic
|
0.97
|
0.63
|
0.67
|
Dividends per common
share
|
0.25
|
0.24
|
0.24
|
Capital expenditures
(1)
|
191,837
|
150,877
|
117,518
|
Total
assets
|
1,562,746
|
1,425,250
|
1,315,420
|
Long-term
liabilities
|
422,251
|
336,830
|
393,774
|
Net debt
(1)
|
166,647
|
73,176
|
153,263
|
Common Shares - end
of period
|
163,352,572
|
160,652,221
|
137,708,127
|
Weighted average
common shares - basic and diluted
|
162,827,541
|
154,625,869
|
133,380,634
|
(1)Refer to "Non-GAAP measures and
operational definitions" for further
information.
|
- REVENUE OF $2.3 BILLION
FOR THE YEAR ENDED DECEMBER 31, 2017
-
- Total processing, recovery and disposal volumes at PRD
facilities for the year ended December 31,
2017 increased from 2016 due to increased drilling and
completion activity levels across the WCSB and North Dakota, ongoing and moderately
increasing production related volumes and the contribution of
volumes from facility expansions and new facilities added in 2016
and 2017. Overall, this resulted in the PRD division achieving
revenue (excluding oil purchase and resale) of $274.4 million in the year ended
December 31, 2017, an increase of 38% from the year ended
December 31, 2016;
- Oil purchase and resale revenue in the PRD division for the
year ended December 31, 2017
increased by 70% from the 2016 comparative period to $1.7 billion due to higher average crude oil
prices and increased oil purchase and resale volumes from
heightened industry activity at various pipeline connected
facilities and additional volumes through new facilities;
- Activity in the DPS division is strongly correlated with oil
and gas drilling activity in the WCSB, which experienced a 60%
increase in active rig counts in the year ended December 31, 2017 over 2016. As a result of these
improved activity levels, and contributions from the production
chemicals service line, the DPS division revenue increased by 85%
to $205.8 million in the year
ended December 31, 2017;
- OS division revenue increased 48% to $123.2 million for the year ended
December 31, 2017 primarily due to
higher revenue from Project jobs, geographic expansion into
Manitoba and Ontario, and from increased demand for
services tied to oil and gas drilling and completions activity,
such as water pumping in the Deep Basin region of Alberta.
- ADJUSTED EBITDA OF $157.2
MILLION FOR THE YEAR ENDED DECEMBER
31, 2017
-
- Adjusted EBITDA of $157.2 million, a 67% increase from the year
ended December 31, 2016, resulted
from increased production and drilling related activity and
additional volumes from acquisitions and facility expansions in
2017 which drove both PRD revenues and operating margins. Increased
rig counts, metres drilled and completion activity also positively
impacted the DPS and OS divisions, along with contributions from
the DPS production services line, and increased Project work in the
OS division.
- NET LOSS OF $34.2 MILLION FOR
THE YEAR ENDED DECEMBER 31, 2017
-
- For the year ended December 31,
2017, Secure's net loss of $34.2
million improved from a net loss of $48.9 million in 2016. The positive variance
is primarily a result of the factors discussed above impacting
Adjusted EBITDA, partially offset by non-cash impairment charges of
$29.2 million and increased tax
expense resulting from higher net income before non-deductible
expenses.
- ADJUSTED NET LOSS OF $13.1 MILLION FOR THE YEAR ENDED
DECEMBER 31, 2017
-
- Adjusted net loss of $13.1 million for the year ended
December 31, 2017 improved from
$48.1 million in 2016 as a
result of the factors discussed above impacting Adjusted EBITDA,
partially offset by increased tax expense resulting from higher net
income before non-deductible expenses.
- CAPITAL EXPENDITURES OF $191.8
MILLION FOR THE YEAR ENDED DECEMBER
31, 2017
-
- Total capital expenditures (excluding business combinations)
for the year ended December 31, 2017
of $137.3 million include:
-
- Commencement of construction on the Kindersley-Kerrobert light oil feeder pipeline system and
receipt terminal;
- Pre-design and commencement of construction of the Gold Creek
SWD in the Montney region of
Alberta which is expected to be
completed and commissioned in mid-2018;
- Cell expansions at four of the Corporation's landfills;
- Expansions and improvements to increase disposal capacity at
various existing facilities;
- Pre-design and engineering for future facility locations and
expansions;
- Long lead items for various projects commencing in 2018;
and
- Sustaining capital expenditures at existing facilities required
to maintain ongoing business operations.
- PRODUCTION CHEMICALS ACQUISITION
-
- On April 13, 2017, the
Corporation acquired the Canadian division of a production chemical
business from a U.S. based multi-national company for an aggregate
purchase price of $30.3 million, with
consideration paid in cash (the "Production Chemicals
Acquisition").
- The acquired assets were integrated into the DPS division's
production chemicals service line and has strengthened Secure's
position in the market by adding over 100 fully formulated
proprietary products, as well as key infrastructure related to the
product offering and an experienced and dedicated employee
base.
- The addition of advanced chemical products improves the
Corporation's ability to help customers optimize production,
provide flow assurance and maintain the integrity of their
production assets. The research lab facility acquired demonstrates
the Corporation's commitment to innovation and is intended to
design customized chemical solutions for customers.
- CEIBA ACQUISITION
-
- On August 1, 2017, the
Corporation acquired all of the outstanding shares of Ceiba Energy
Services Inc. ("Ceiba") which added ten new facilities to the PRD
division ("Ceiba Acquisition"). The new facilities are a good fit
with Secure's existing PRD facility network, increasing capacity
and expanding the Corporation's geographic footprint. Secure has
added incremental capital to the assets which will enhance
throughput and service capabilities in 2018. The acquisition has
enabled Secure to expand its facility network while realizing
synergies related to senior management, sales and general and
administrative costs.
- STRONG BALANCE SHEET LEVERAGED THROUGH NEW CREDIT
FACILITIES
-
- On June 30, 2017, Secure entered
into new credit facilities consisting of a $470 million first
lien credit facility ("First Lien Facility") and a $130 million second lien credit facility ("Second
Lien Facility"). The combined facilities total $600 million and replace the Corporation's
previous $700 million syndicated
facility. The reduction in the total borrowing capacity allows the
Corporation to optimize its debt structure to reduce costs
associated with standby fees on undrawn amounts while maintaining
target levels of liquidity.
- Secure is in compliance with all covenants related to its
credit facilities at December 31, 2017. Secure's senior
and total debt to trailing twelve month EBITDA ratios, where EBITDA
is defined in the lending agreement as earnings before interest,
taxes, depreciation, depletion and amortization, and is adjusted
for non-recurring losses, any non-cash impairment charges and any
other non-cash charges, and acquisitions on a pro-forma basis, was
1.1 to 1 and 1.9 to 1 at December 31, 2017
compared to 2.2 to 1 for both senior and total debt to trailing
twelve month EBITDA at December 31, 2016.
- Senior debt is equal to amounts drawn on the First Lien
Facility plus financial leases less any cash balances exceeding
$5 million. Total debt includes senior debt plus the
$130 million borrowed under the Second Lien Facility. The
maximum covenant for the senior debt to EBITDA ratio is 3.5 to 1,
while the total debt to EBITDA ratio is 5.0 to 1.
PRD DIVISION OPERATING HIGHLIGHTS
|
Three months ended
Dec 31,
|
Twelve months
ended Dec 31,
|
($000's)
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
PRD services
(a)
|
80,611
|
61,988
|
30
|
274,372
|
198,813
|
38
|
|
Oil purchase and
resale service
|
494,816
|
405,939
|
22
|
1,724,787
|
1,016,904
|
70
|
Total PRD division
revenue
|
575,427
|
467,927
|
23
|
1,999,159
|
1,215,717
|
64
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
PRD services
(b)
|
33,877
|
25,805
|
31
|
117,655
|
91,620
|
28
|
|
Oil purchase and
resale service
|
494,816
|
405,939
|
22
|
1,724,787
|
1,016,904
|
70
|
Total PRD division
direct expenses
|
528,693
|
431,744
|
22
|
1,842,442
|
1,108,524
|
66
|
|
|
|
|
|
|
|
Operating Margin
(1) (a-b)
|
46,734
|
36,183
|
29
|
156,717
|
107,193
|
46
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
58%
|
58%
|
|
57%
|
54%
|
|
(1)Refer to "Non-GAAP measures"
for further information.
|
Highlights for the PRD division for the three and twelve
months ended December 31, 2017
included:
- Processing, recovery and disposal services revenue of
$80.6 million and $274.4 million for the three and twelve months
ended December 31, 2017 increased by
30% and 38% from the 2016 comparative periods, driven by higher
existing facility throughput due to higher produced water volumes
and higher drilling and completion related volumes, as well as new
facilities added and expansions at certain of the Corporation's
existing facilities in 2016 and 2017;
- The majority of the Corporation's facilities are located in
high impact resource plays, such as the Montney and Duvernay regions, where producers have been
most active in the WCSB. Fluids pumped from wells in these regions
are also significantly higher than other regions of the WCSB,
driving incremental volumes at Secure's facilities;
- Processing volumes increased 19% and 24% in the three and
twelve months ended December 31, 2017
from the comparative periods due to higher waste processing,
emulsion and completions processing volumes;
- Recovery revenues increased 73% and 65% in the three and twelve
months ended December 31, 2017 from
the comparative periods which was driven by a 72% and 46% increase
in volumes and the positive impact of oil price increases. Recovery
revenues at the Corporation's facilities in North Dakota were a strong contributor to this
increase due to higher volumes resulting from improved activity
levels, including new drilling and frac completions. Improved
activity levels were driven by higher average crude oil prices over
the prior periods, and the commissioning of the Dakota Access
Pipeline in June 2017 which has
improved economics for delivering producers' product to
market;
- Disposal volumes increased by 48% and 34% in the three and
twelve months ended December 31, 2017
from the comparative periods. Increased disposal of waste at
Secure's landfills resulting from higher drilling activity levels
and remediation work resulted in a 43% and 59% increase in landfill
revenues in the three and twelve months ended December 31, 2017 over 2016. Further driving the
increase in disposal volumes is increased produced, flowback, and
waste water volumes across Secure's facilities from the comparative
periods resulting from expansions at existing facilities to
increase disposal capacity, increasing water production as wells
mature and improved industry activity;
- The addition of new facilities, both organically and through
acquisitions, accounted for $2.2
million and $18.9 million of
the PRD services revenue in the three and twelve months ended
December 31, 2017, an impact of 4%
and 9% when comparing to the same periods of 2016;
- Oil purchase and resale revenue in the PRD division for the
three months ended December 31, 2017
increased 22% from the 2016 comparative period to $494.8 million due to higher average crude oil
prices and increased oil purchase and resale volumes from
heightened industry activity at various pipeline connected
facilities. Oil purchase and resale revenue increased to
$1.7 billion in the year ended
December 31, 2017, up 70% from the
year ended December 31, 2016, due to
the factors described above, as well as additional oil purchase and
resale volumes from new facilities added in 2016, which included
the Alida crude oil terminalling facility, the increased ownership
in the La Glace and Judy Creek
FSTs from 50% to 100%, and the Kakwa FST. Excluding the impact of
these new facilities, the year over year variance would have been
30%;
- Operating margin as a percentage of PRD services revenue for
the three months ended December 31,
2017 remained consistent at 58% compared to the three months
ended December 31, 2016. Operating
margin as a percentage of PRD services revenue for the twelve
months ended December 31, 2017
increased to 57% from 54% in the comparative period of 2016. The
increase in operating margin as a percentage of revenue over 2016
is due to increased revenues while minimizing fixed and related
costs. The Corporation's revised cost management structure has
resulted in improved operating margins realized across various
facilities including FSTs, SWDs and landfills;
- General and administrative ("G&A") expenses of $4.7 million and $17.4
million for the three and twelve months ended December 31, 2017 increased by 64% and 35% from
the comparative periods. Although the Corporation continues to
minimize G&A costs by streamlining operations where possible,
PRD G&A expenses have increased primarily due to the
acquisitions completed in 2016 and 2017 and the overhead
requirements to support new facilities and expansions. As a
percentage of PRD revenue, G&A costs are 6% for the three and
twelve months ended December 31, 2017
compared to 5% and 6% in the three and twelve months ended
December 31, 2016.
DPS DIVISION OPERATING HIGHLIGHTS
|
Three months ended
Dec 31,
|
Twelve months
ended Dec 31,
|
($000's)
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
Drilling and
production services (a)
|
61,403
|
38,063
|
61
|
205,833
|
111,329
|
85
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
Drilling and
production services (b)
|
48,928
|
31,776
|
54
|
166,568
|
95,516
|
74
|
Operating Margin
(1) (a-b)
|
12,475
|
6,287
|
98
|
39,265
|
15,813
|
148
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
20%
|
17%
|
|
19%
|
14%
|
|
(1)
Refer to "Non-GAAP measures" for further
information.
|
Highlights for the DPS division for the three and twelve
months ended December 31, 2017
included:
- Revenue in the DPS division correlates with oil and gas
drilling activity in the WCSB, most notably active rig counts and
metres drilled. Commodity pricing, weather conditions and activity
levels from oil and gas producers have a significant impact on the
DPS division. For the three and twelve months ended December 31, 2017, industry rig counts in the
WCSB increased 9% and 60%, and metres drilled increased 19% and 84%
from the 2016 comparative periods. Revenue from the DPS division
for the three and twelve months ended December 31, 2017 increased 61% and 85% to
$61.4 million and $205.8 million from the comparative periods of
2016. The increased drilling activity and traction in the
division's production chemicals service line through the Production
Chemicals Acquisition has strengthened the DPS division's revenue
in 2017;
- Revenue per operating day increased 23% from the prior year
comparative quarter from $6,873 to
$8,487 during the three months ended
December 31, 2017. The variance is a
result of the proportion of type of rigs serviced, which typically
fluctuates quarter over quarter, and location of wells which
impacts the type of fluid used and depth of well. Revenue per
operating day for the 2017 year was relatively consistent with
2016;
- Secure continues diversification efforts in the DPS division to
become less dependent on drilling activity through expansion of the
production chemicals and chemical EOR service lines which will
benefit the Corporation in the medium to long-term. Strategic
relationships with key suppliers and ongoing product development
has resulted in a significant expansion to Secure's product
offering resulting in multiple commercial projects in 2017. The
Production Chemicals Acquisition completed in April 2017 has strengthened Secure's position in
the market by adding over 100 fully formulated proprietary
products, as well as key infrastructure related to the product
offering and an experienced and dedicated employee base;
- The DPS division's operating margin for the three and twelve
months ended December 31, 2017
improved by 98% and 148% from the 2016 comparative periods to
$12.5 million and $39.3 million. Operating margin as a percentage
of revenue increased to 20% and 19% in the three and twelve months
ended December 31, 2017 from 17% and
14% in the comparative periods, respectively. Operating margins as
a percentage of revenue were positively impacted by the increased
revenues while minimizing fixed costs resulting in improved
drilling fluids product margins and achieving economies of scale as
activity increases, partially offset by higher production services
operating costs for chemicals sourced from the U.S.;
- G&A expense for the three and twelve months ended
December 31, 2017 increased by 88%
and 59% from the comparative periods of 2016. Although the
Corporation continues to manage costs efficiently and proactively
while still responding to customer demands and activity levels,
G&A expenses have increased as a result of expanding the
production chemicals and chemical EOR service lines, including the
Production Chemicals Acquisition in the second quarter of 2017. As
a percentage of DPS revenue, G&A expenses have increased to 8%
from 7% in the three months ended December
31, 2017 and decreased to 8% from 10% in the twelve months
ended December 31, 2017 from the
prior year comparative periods.
OS DIVISION OPERATING HIGHLIGHTS
|
Three months ended
Dec 31,
|
Twelve months
ended Dec 31,
|
($000's)
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
OnSite services
(a)
|
42,726
|
24,533
|
74
|
123,216
|
83,017
|
48
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
OnSite services
(b)
|
33,192
|
19,535
|
70
|
95,482
|
63,180
|
51
|
Operating Margin
(1) (a-b)
|
9,534
|
4,998
|
91
|
27,734
|
19,837
|
40
|
|
|
|
|
|
|
|
Operating Margin
(1) as a % of revenue (a)
|
22%
|
20%
|
|
23%
|
24%
|
|
(1)Refer to "Non-GAAP measures"
for further information.
|
Highlights for the OS division for the three and twelve
months ended December 31, 2017
included:
- OS division revenue increased 74% and 48% to $42.7 million and $123.2
million for the three and twelve months ended December 31, 2017 due to increased producer
activity which led to more Projects work and higher pumping and
fluid storage rental activity. Geographic expansion into
Manitoba and Ontario also contributed to increased
revenue;
- Projects revenue during the three and twelve months ended
December 31, 2017 increased 65% and
61% from the 2016 comparative periods. Projects revenue is
dependent on the type and size of jobs as well as weather
conditions which can vary quarter to quarter. For the three and
twelve months ended December 31,
2017, Projects revenue increased primarily because of new
jobs awarded due to the division's expertise in managing
remediation, demolition and spill response jobs and from overall
higher industry activity levels. Revenue also increased due to new
customer additions, geographic expansion and from the development
of new service offerings. In the fourth quarter, the group entered
into a long-term service agreement to manage a scrap metal
recycling program for a major oil sands producer. Projects
continues to seek opportunities like this contract as they provide
a steady stream of revenue over the life of the agreement;
- Integrated Fluids Solutions revenue for the three and twelve
months ended December 31, 2017
increased 275% and 80% from the 2016 comparative periods. Revenue
increased with overall industry activity as existing customers
ramped up activity and through the addition of new customers.
Pumping services and fluid storage rentals had increased job
volumes and higher equipment utilization over the 2016 comparative
periods;
- Environmental Services revenue for the three and twelve months
ended December 31, 2017 increased 39%
and 13% from the 2016 comparative periods due to higher drilling
waste and bin revenue resulting from improved levels of industry
activity. These increases were partially offset by decreased
reclamation and remediation revenue as many customers deferred this
type of spending throughout most of the year;
- Operating margins for the three and twelve months ended
December 31, 2017 improved by 91% and
40% to $9.5 million and $27.7 million over the prior year comparative
periods due primarily to increased revenue. The OS division
operating margin as a percentage of revenue for the three months
ended December 31, 2017 was 22% which
increased from 20% for the prior year three month comparative
period. Operating margin as a percentage of revenue for the twelve
months ended December 31, 2017
decreased to 23% from 24% as compared to the prior year twelve
month period. The OS division's operating margin as a percentage of
revenue can fluctuate depending on the volume and type of projects
undertaken and from the blend of business between remediation and
reclamation projects, demolition projects, pipeline integrity
projects, site clean-up, and other services provided in any given
period;
- G&A expenses for the three and twelve months ended
December 31, 2017 increased by
$0.2 million and $1.8 million from the 2016 comparative periods to
$2.1 million and $8.3 million due primarily to increased costs to
support additional Projects office locations resulting from growth
initiatives. As a percentage of OS revenue, G&A expenses have
decreased to 5% and 7% in the three and twelve months ended
December 31, 2017 from 8% in the
three and twelve months ended December 31,
2016.
OUTLOOK
Moderate oil, condensate and natural gas liquids ("NGL") price
increases along with favourable weather conditions throughout the
year drove increased drilling and completion activity in 2017
compared to 2016. Secure anticipates that there will be consistent
producer activity levels and demand for the Corporation's services
during 2018. In addition, there are also key fundamental drivers of
Secure's business that are expected to provide meaningful avenues
of growth for 2018 and beyond:
- Produced water volumes continue to increase based on maturing
basins and new shale completion techniques that result in increased
water volumes per well. Disposal volumes for Secure are up over 30%
in 2017 and Secure expects the trend for more produced water
volumes and disposal capacity to continue;
- Completion waters and processing volumes are also increasing as
high intensity fracs continue to be applied in liquids rich natural
gas shale reservoirs like the Montney and Duvernay formations. The increased use of
proppants, the number of completion stages and length of the
horizontal wells are expected to continue to drive more volumes to
Secure's PRD facilities;
- Oil and condensate treatment volumes are increasing as
producers bring on new production and are looking for incremental
treating capacity while minimizing transportation costs. Secure's
construction of the Kindersley-Kerrobert light oil feeder pipeline system to
the Corporation's existing Kindersley FST, and further on to
Kerrobert, is a growing trend
where producers seek to reduce truck traffic and lower transport
costs;
- Moving oil volumes on rail cars also continues to gain
momentum. Secure could see activity materially increase as supply
growth driven by large oil sands expansions are anticipated to
tighten pipeline takeaway capacity in 2018. Moreover, wide WTI –
Brent oil differentials influence certain U.S. refiners to look for
feedstock accessible by rail that is otherwise delivered by oil
tanker;
- Deep shale reservoirs and the increased need for new innovative
drilling fluid programs are reducing the number of days to drill a
well. This trend will continue in 2018 as Secure brings new
products to market from the Corporation's research lab;
- Demand for production chemicals is also increasing as producers
bring on new oil, condensate and NGLs. Production chemicals
optimize production, provide flow assurance and maintain the
integrity of their production assets. The Production Chemicals
Acquisition completed in 2017 provides a meaningful opportunity to
grow market share in western Canada leveraging off Secure's infrastructure,
key relationships and proprietary patents;
- As described above, completions in the oil and gas industry are
growing more geographically concentrated and even more penetrating
given the length of wells and amount of proppants used. As part of
this growing trend, there is a significant need from Secure's
customers for sourcing water, water logistics, storing water and
overall water re-use where it is cost effective. Secure's business
model provides the complete offering and is assisting customers
with large completion programs where significant amounts of water
are required to be managed at various stages; and
- Increased environmental regulations in all of our market areas
have created opportunities to help our customers operate in a
sustainable way with a focus on protecting the environment.
Secure's OS division has seen increased proactive environmental
projects that strive to prevent spills and reduce their future
environmental liabilities. A long-term contract signed in the
fourth quarter of 2017 to manage oil sands metal recycling is
another example of environmental sustainability and reducing our
customers' operating costs.
All of these growth trends provide Secure a significant
opportunity to grow and expand its business into 2018 and beyond.
Secure has made significant capital investments over the past few
years to ensure the business is well positioned to capture new
customer demand, and based on customer feedback there are more
opportunities to continue to deploy capital in western Canada. As a result, Secure is expecting to
allocate a minimum of $100 million in
growth capital to the areas described above in 2018, including
completion of the Kerrobert-Kindersley pipeline system and receipt
terminal and Gold Creek SWD, expansions at various existing
facilities to increase disposal capacity (additional wells,
landfill cells), pre-design and engineering for two potential SWD
locations in the Montney region,
and equipment to support existing services.
The Corporation could increase organic spending within the PRD
division up to $150 million depending
on the outcome of various opportunities in development, such as
timing of obtaining regulatory approvals, development permits and
other operating agreements. Secure expects cash flow to climb as a
result of improving activity levels as well as contributions from
capital investments made by Secure in key areas over the past
several years. Given annual sustaining capital of
approximately $20 million, cash interest expense of
approximately $15 million and minimal cash taxes, the amount
of free cash flow generated by the Corporation's assets can
adequately fund annual dividends while still providing cash to fund
growth capital, pay down debt, buy back shares and/or increase the
dividend.
Secure's strong balance sheet provides the Corporation the
flexibility to grow organically and execute on strategic
acquisition opportunities that align with the profitable growth
strategy of Secure. Helping Secure's customers grow and being their
trusted energy solutions partner will ensure that the Corporation
continues to create long-term shareholder value.
FINANCIAL STATEMENTS AND MD&A
The Corporation's
annual audited consolidated financial statements and notes thereto
for the years ended December 31, 2017 and 2016 and
MD&A for the three and twelve months ended December
31, 2017 and 2016 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 with respect to future events and operating
performance and speak only as of the date of this document. In
particular, this document contains or implies forward-looking
statements pertaining to: key priorities for the Corporation's
success; the oil and natural gas industry, including drilling and
production trends; activity levels in the oil and gas sector,
drilling levels, commodity prices for oil, natural gas liquids and
natural gas; industry fundamentals for 2018; capital forecasts and
spending by producers; demand for the Corporation's services and
products; expansion strategy; the impact of oil and gas activity on
2018 activity levels; the Corporation's proposed 2018 capital
expenditure program including expansion, growth and sustaining
capital expenditures, and the timing of completion for projects, in
particular the Kindersley-Kerrobert light oil feeder pipeline system,
Gold Creek SWD and Big Mountain facility upgrades and third well;
debt service; acquisition strategy and timing of potential
acquisitions; the impact of new facilities, potential acquisitions,
and the Production Chemicals Acquisition and Ceiba Acquisition on
the Corporation's financial and operational performance and growth
opportunities; future capital needs and how the Corporation intends
to fund its operations, working capital requirements, dividends and
capital program; access to capital; and the Corporation's ability
to meet obligations and commitments and operate within any credit
facility restrictions.
Forward-looking statements concerning expected operating and
economic conditions, including the Production Chemicals Acquisition
and Ceiba Acquisition, are based upon prior year results as well as
the assumption that levels of market activity and growth will be
consistent with industry activity in Canada and the U.S. and similar phases of
previous economic cycles. Forward-looking statements concerning the
availability of funding for future operations are based upon the
assumption that the sources of funding which the Corporation has
relied upon in the past will continue to be available to the
Corporation on terms favorable to the Corporation and that future
economic and operating conditions will not limit the Corporation's
access to debt and equity markets. Forward-looking statements
concerning the relative future competitive position of the
Corporation are based upon the assumption that economic and
operating conditions, including commodity prices, crude oil and
natural gas storage levels, interest and foreign exchange rates,
the regulatory framework regarding oil and natural gas royalties,
environmental regulatory matters, the ability of the Corporation
and its subsidiaries to successfully market their services and
drilling and production activity in North
America will lead to sufficient demand for the Corporation's
services and its subsidiaries' services including demand for
oilfield services for drilling and completion of oil and natural
gas wells, that the current business environment will remain
substantially unchanged, and that present and anticipated programs
and expansion plans of other organizations operating in the energy
industry may change the demand for the Corporation's services and
its subsidiaries' services. Forward-looking statements concerning
the nature and timing of growth are based on past factors affecting
the growth of the Corporation, past sources of growth and
expectations relating to future economic and operating conditions.
Forward-looking statements in respect of the costs anticipated to
be associated with the acquisition and maintenance of equipment and
property are based upon assumptions that future acquisition and
maintenance costs will not significantly increase from past
acquisition and maintenance costs.
Forward-looking statements involve significant risks and
uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate
indications of whether such results will be achieved. Readers are
cautioned not to place undue reliance on these statements as a
number of factors could cause actual results to differ materially
from the results discussed in these forward-looking statements,
including but not limited to those factors referred to under the
heading "Risk Factors" in the AIF for the year ended
December 31, 2017 and also includes the risks associated
with the possible failure to realize the anticipated synergies in
integrating the assets acquired in the Production Chemicals
Acquisition and Ceiba Acquisition with the operations of Secure.
Although forward-looking statements contained in this document are
based upon what the Corporation believes are reasonable
assumptions, the Corporation cannot assure investors that actual
results will be consistent with these forward-looking statements.
The forward-looking statements in this document are expressly
qualified by this cautionary statement. Unless otherwise required
by law, Secure does not intend, or assume any obligation, to update
these forward-looking statements.
NON-GAAP MEASURES 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
non-GAAP measures and operational definitions used by the
Corporation may not be comparable to similar measures presented by
other reporting issuers. These non-GAAP financial measures and
operational definitions are included because management uses the
information to analyze operating performance, leverage and
liquidity. Therefore, these non-GAAP financial measures and
operational definitions should not be considered in isolation or as
a substitute for measures of performance prepared in accordance
with GAAP. See the management's discussion and analysis available
at www.sedar.com for a reconciliation of the Non-GAAP
financial measures and operational definitions.
ABOUT SECURE ENERGY SERVICES INC.
Secure is a TSX
publicly traded energy services company that provides safe,
innovative, efficient and environmentally responsible fluids and
solids solutions to the oil and gas industry. The Corporation owns
and operates midstream infrastructure and provides environmental
solutions and innovative products to upstream oil and natural gas
companies operating in western Canada and certain regions in the United States ("U.S.").
The Corporation operates three divisions:
Processing, Recovery and Disposal Division ("PRD"): The PRD
division owns and operates midstream infrastructure that provides
processing, storing, pipelines, shipping and marketing of crude
oil, oilfield waste disposal and recycling. The PRD division
services include clean oil terminalling, rail transloading,
pipelines, crude oil marketing, custom treating of crude oil,
produced and waste water disposal, oilfield waste processing,
landfill disposal, and oil purchase/resale service. Secure
currently operates a network of facilities throughout western
Canada and in North Dakota, providing these services at its
full service terminals ("FST"), landfills, stand-alone water
disposal facilities ("SWD"), full service rail facilities ("FSR")
and crude oil terminalling facilities.
Drilling and Production Services Division ("DPS"): The DPS
division provides equipment, product solutions and chemicals for
drilling, completion and production operations for oil and gas
producers in western Canada. The
drilling service line currently comprises the majority of the
revenue for the division which includes the design and
implementation of drilling fluid systems for producers drilling for
oil, bitumen and natural gas. The drilling service line focuses on
providing products and systems that are designed for more complex
wells, such as medium to deep wells, horizontal wells and
horizontal wells drilled into the oil sands. The production
services line focuses on providing equipment and chemical solutions
that optimize production, provide flow assurance and maintain the
integrity of production assets.
Onsite Services Division ("OS"): The operations of the OS
division include Projects which include pipeline integrity
(inspection, excavation, repair, replacement and rehabilitation),
demolition and decommissioning, and reclamation and remediation of
former wellsites, facilities, commercial and industrial properties,
and environmental construction projects (landfills, containment
ponds, subsurface containment walls, etc.); Integrated Fluid
Solutions ("IFS") which include water management, recycling,
pumping and storage solutions; and Environmental services which
provide pre-drilling assessment planning, drilling waste
management, remediation and reclamation assessment services,
Naturally Occurring Radioactive Material ("NORM") management, waste
container services and emergency response services.
1
|
Refer to the
"Non-GAAP Measures and Operational Definitions" section
herein.
|
SOURCE SECURE Energy Services Inc.