CALGARY, AB, Nov. 12, 2020 /CNW/ - CES Energy
Solutions Corp. ("CES" or the "Company") (TSX: CEU)
(OTC - Nasdaq Intl: CESDF) announced today the Company's results
for the three and nine months ended September 30, 2020.
CES is pleased to announce Q3 2020 financial results
demonstrating the resiliency of our business model, commitment to
our customers, and the realization of benefits related to
initiatives undertaken in response to the impact of the coronavirus
("COVID-19") pandemic on industry activity.
While overall oil and gas industry activity levels remained at
depressed levels during the third quarter of 2020, the North
American market realized stabilization when compared to trough
levels experienced in the second quarter of 2020. As a result,
throughout the third quarter and to date, CES has benefited from
the reversal of temporary production shut-ins across major basins
and more recently, a modest improvement in drilling and completion
activity. Our established infrastructure, cost
rationalization initiatives, and committed employee presence in key
basins allowed CES to realize market share gains and sequential
improvements in financial performance. Despite the challenges
presented by the current economic environment, CES' overall
liquidity position and balance sheet strength continued to improve
in the third quarter, as the Company once again displayed its
defensible business model and counter cyclical balance sheet at low
points of the cycle.
CES' Q3 2020 financial results included herein demonstrate our
continued emphasis on established financial goals comprised of
balance sheet strength, ample liquidity, working capital
optimization and cost structure rationalization. CES generated
revenue of $166.3 million during Q3
2020 and Adjusted EBITDAC of $18.2
million, and revenue of $675.2
million and Adjusted EBITDAC of $77.5
million for the nine months ended September 30, 2020. CES exited the quarter with a
net cash position of $29.4 million
and an undrawn Senior Facility with full availability of
$236.7 million, driven by strong cash
flow generation achieved through a combination of working capital
harvest, continued inventory management and cost containment
measures. Demonstrating the Company's disciplined approach to
protecting its balance sheet through the downturn, CES has been
able to reduce Total Debt, net of cash from $426.6 million at March
31, 2020 to $292.4 million at
September 30, 2020, of which
$289.0 million relates to the
Company's Senior Notes which don't mature until October 21, 2024. Subsequent to September 30, 2020, industry activity continued
to improve from trough levels seen earlier in the year in both
production chemical and drilling fluids end markets requiring the
Company to make modest investments in working capital, while still
retaining a net cash balance of approximately $23.0 million and an undrawn, fully accessible
Senior Facility.
CES believes that continued focus on ensuring employee safety,
preserving quality of operations, working capital management,
balance sheet strength, and liquidity will allow the Company to
best serve high quality customers during this challenging
environment and continue to successfully gain attractive market
share. Moreover, as we demonstrated with record US Drilling Fluids
Market Share in the quarter of 17%, while some of our peers have
had to take steps to reduce exposure to or withdraw from key market
segments, our solid financial position will enable CES to maintain
and strengthen our talent base and strategic infrastructure which
will further improve our competitive position in a recovery.
Revenue for both the three and nine month periods ended
September 30, 2020 was significantly
affected by the global economic impacts of COVID-19 and low
commodity price environment, which resulted in temporary production
shut-ins, deferred completions and significant declines in drilling
activity in North America. The
financial results reported for 2020 also reflect the importance of
CES' geographic positioning and strategic commitment to the US
market which generated 68% of the Company's overall revenue in Q3
2020. These results demonstrate the significance of CES'
diversification through operating efficiencies and capitalizing on
the completed infrastructure buildout in both the US and
Canada. As activity levels
declined significantly in Q3 2020 as compared to Q3 2019, CES has
been able to maintain and grow its commitment to a strong and high
quality customer base in both operating regions.
Revenue generated in the US in Q3 2020 was $113.9 million compared to $227.3 million in Q3 2019, a decrease of
$113.4 million or 50%. US revenues in
the quarter were negatively impacted by lower activity levels
across all operating divisions. US land drilling activity
fell by 73% from Q3 2019 to Q3 2020 as operators quickly curtailed
2020 capex spending in order to preserve capital and avoid
uneconomic completions. In this challenging environment, CES was
able to increase its US Drilling Fluids Market Share to 17%, up
from 13% in both Q3 2019 and Q2 2020. Year over year, production
related volumes were also down significantly, however,
sequentially, the Company benefited from the reversal of certain
production shut-ins which partially offset the impact of lower
drilling fluids activity quarter over quarter.
Revenue generated in Canada
decreased 41% to $52.4 million in Q3
2020 over the 2019 comparative period. Both the production
chemicals and drilling fluids businesses in Canada saw significant declines in industry
activity levels and experienced intense pricing pressure from
customers. Sequentially, the Company benefited from increased
production volumes and a seasonal uptick in activity levels,
however peak drilling activity levels were considerably lower than
previous year highs as customers curtailed spending, temporarily
shut in some existing production, and scaled back drilling in order
to preserve capital.
In light of the increasingly challenging global oilfield market
and the cost containment initiatives executed by the Company to
right-size the business for the current environment, CES recorded
the following items during the three and nine months ended
September 30, 2020 which negatively
impacted net income and EBITDAC and are considered to be
non-recurring:
- Within cost of sales, the Company recorded $nil and
$12.3 million, respectively, of
inventory write-downs as certain commodity based products were
revalued to net realizable value to reflect the commodity price
environment at the time of the revaluation;
- Within general and administrative expenses, the Company
recorded $0.5 million and
$3.1 million, respectively, in
additional bad debt allowances; and
- Within cost of sales and general and administrative expenses,
the Company recorded $0.4 million and
$2.4 million, respectively, in
restructuring costs.
Excluding the items noted above, CES achieved Adjusted EBITDAC
of $18.2 million in Q3 2020, compared
to $42.2 million in Q3 2019. For the
nine months ended September 30, 2020,
CES achieved Adjusted EBITDAC of $77.5
million compared to $127.5
million for the respective 2019 period.
CES' Adjusted EBITDAC of $18.2
million and margin of 11.0% in Q3 2020 represent significant
improvements from the $8.2 million
and 5.1% recorded in Q2 2020 as the Company recognized a full
quarter of cost rationalization efforts in the third quarter, and
further benefitted from the reversal of certain production shut-ins
in both the US and Canada. CES
responded to falling activity levels by significantly rationalizing
costs and headcount in Canada and
the US early in the second quarter, along with the implementation
of a number of cost cutting measures with respect to compensation
and discretionary expenses. In light of the uncertainty surrounding
current market conditions, as activity levels fluctuate, CES will
continue to diligently manage its cost base through reductions in
personnel and overhead costs, compensation levels and discretionary
spending as required.
During the three and nine months ended September 30, 2020, the Company recognized the
Federal Government's Canada Emergency Wage Subsidy ("CEWS")
program benefits in the amount of $5.6
million and $11.8 million,
respectively, as a reduction to wage expense with $2.9 million and $6.2
million allocated to cost of sales, for the respective
periods, and $2.7 million and
$5.6 million allocated to general and
administrative expenses, for the respective periods. The CEWS
program has been instrumental in allowing CES to mitigate further
Canadian personnel reductions while navigating uncertainty
surrounding the severity and duration of current market conditions,
and CES is encouraged by the Federal Government's planned extension
of the program until June of 2021.
Net loss for Q3 2020 was $12.7
million, compared to net income of $7.6 million in Q3 2019. Net income decreased
from Q3 2019 to Q3 2020 primarily due to the factors outlined
above, offset by lower interest expense due to lower debt levels,
recognition of $5.6 million benefit
from the CEWS program, and a reduction in stock based compensation
expense. For the nine months ended September
30, 2020, net loss was $263.4
million compared to net income of $18.2 million for the nine months ended
September 30, 2019. For the
nine month comparative periods, net loss was further impacted by a
$248.9 million goodwill impairment
recorded by the Company in Q1 2020 and the associated deferred
income tax recovery of $14.7
million.
As at September 30, 2020, CES had a Working Capital Surplus
of $266.9 million, which represents a
$34.5 million reduction from
$301.4 million at June 30, 2020, and a $150.4 million reduction from $417.3 million at March
31, 2020. This reduction in working capital is primarily
driven by the reduction in activity levels experienced across the
Company's operating divisions, and was further amplified by the
Company's focus on working capital optimization over the last
eighteen months. Through the pandemic, CES has benefited greatly
from the high quality of its customers and diligent internal credit
monitoring processes. As a result, CES has managed to maintain a
strong collection record and has minimized accounts receivable
losses, recording only $3.1 million
in credit loss provisions to date in 2020, representing less than
0.5% of revenue during the nine months ended September 30, 2020. With the working capital
harvest in the third quarter, CES generated $40.3 million in cash provided by operating
activities and was able to repay all remaining outstanding draws on
the Company's Senior Facility. While CES' countercyclical leverage
model provides the Company with significant balance sheet
protection through a downtown, the Company continued to generate
positive Funds Flow From Operations in both the second and third
quarters of 2020 in this low commodity price environment, which
excludes the impact of working capital release and is reflective of
the Company's cost rationalization efforts and marginally improved
market conditions in the quarter.
CES exited the quarter with a net cash balance of $29.4 million, an undrawn Senior Facility, and
Total Debt, net of cash, of $292.4
million, of which $289.0
million relates to the Company's Senior Notes which don't
mature until October 21, 2024
(December 31, 2019 - net cash of $nil, net draw of
$76.7 million and Total Debt of
$407.6 million). CES' Senior Facility
was fully accessible at September 30, 2020 with a maximum
available draw of $170.0 million on
the Canadian facility and US$50.0
million on the US facility (December 31, 2019 -
$170.0 million and US$50.0 million, respectively), and the facility
does not mature until September 28,
2022.
Starting in mid-March of this year, the Company acted quickly on
a number of proactive measures to preserve balance sheet strength
through the downturn. Among these actions were initiatives relating
to capex reductions, dividend suspension, and NCIB activity:
- In Q3 2020, CES incurred $3.1
million in capital expenditures, representing a 67% decrease
from $9.5 million in Q3 2019 and a
39% decrease from $5.1 million in Q2
2020. Year-to-date, CES incurred $20.6
million in capital expenditures, representing a decrease of
32% year over year. Current quarter capital expenditures are
primarily comprised of the expansion of the lab capabilities just
outside of Midland, Texas, and
other processing equipment expenditures primarily associated with
the production chemical business. In light of challenging market
conditions, the Company has suspended all non-essential capital
expenditures and expects 2020 capital expenditures, excluding
amounts financed through leasing arrangements, to be up to
$30.0 million in 2020, compared to
$45.2 million in 2019, and
representing a $20.0 million or 40%
reduction from the original 2020 capex plan of $50.0 million.
- The Company reduced its monthly dividend on March 12, 2020 from $0.06 per share to $0.015 per share on an annualized basis. As
industry conditions continued to deteriorate, CES suspended its
monthly dividend on April 16, 2020.
This decision will conserve approximately $16.0 million on an annualized basis.
- CES temporarily suspended activity under the NCIB program in
the second quarter of 2020 after using $4.8
million to repurchase for cancellation 2,325,277 common
shares in Q1 2020. On July 16, 2020
the Company announced the renewal of its previous NCIB, which
allows for the repurchase and cancellation of up to 19,025,236
common shares, being 7.5% of the public float at the time of
renewal before expiry on July 20,
2021. During Q3 2020, the Company opportunistically
repurchased 2,633,400 common shares at an average price of
$0.90 per share for a total amount of
$2.4 million. Since inception of the
Company's NCIB programs and up to September 30, 2020, the
Company has repurchased 15,560,280 common shares at an average
price of $2.56 per share for a total
amount of $39.8 million. Subsequent
to September 30, 2020, the Company has repurchased 2,430,500
additional shares at a weighted average price of $0.73 for a total of $1.8
million.
Outlook
Continually evolving impacts on the global oil and gas industry
resulting from COVID-19 and the public health containment measures
implemented worldwide have resulted in significantly reduced global
oil demand with oil prices experiencing record low levels during
the second quarter of 2020. CES remains cautious with its 2020
outlook and expects significantly reduced upstream activity across
North America, reduced production
levels, deferred completions, downward pressure on margins, further
industry consolidation, and some customers potentially experiencing
formal restructurings and bankruptcies. The high level of
uncertainty surrounding the magnitude and duration of this downturn
has resulted in customers announcing material reductions to their
capital spending and temporarily shutting in existing production,
therefore resulting in a corresponding reduction in demand for the
Company's products and services. Although several producers have
started bringing shut-in production back on-stream, CES has
undertaken significant steps to rationalize its cost structure and
will take additional appropriate actions as necessary. During the
second and third quarters of 2020, CES applied for and received
funding from the Canadian Federal Government's CEWS program,
recognizing an aggregate benefit of $11.8
million, thereby mitigating further personnel reductions
while we navigate through this downturn. Further, in the
September 23, 2020 Throne Speech from
the Government of Canada, it was
announced that the CEWS program would be extended until
June 2021. While details regarding
the program require further clarification, CES expects to continue
to participate in the program through the duration of its extension
as applicable.
CES believes it will benefit from its asset light, consumables
business model and its ability to maintain a prudent cost structure
in this low oil price environment. CES' counter cyclical leverage
model allows the Company to remain resilient despite expected
declines in industry activity. During the 2015-2016 downturn, CES
experienced a reduction in Working Capital Surplus of $152.7 million from December 31, 2014 to June
30, 2016, and was able to reduce Total Debt outstanding,
fully pay down the Senior Facility, and grow cash balances through
the end of Q2 2016 to $111.1 million.
From Q1 2020 to Q3 2020, CES has again demonstrated its financial
resiliency with positive Funds Flow from Operations, and a
$133.7 million working capital
harvest resulting in an undrawn and fully accessible Senior
Facility and a positive net cash balance of $29.4 million as at September 30, 2020. Currently, the Company's
Senior Facility continues to remain undrawn and the Company has a
net cash balance of $23.0
million.
CES has proactively managed both the duration and the
flexibility of its debt. In August
2019, CES successfully amended and extended its Senior
Facility to September 2022. In
October 2017, CES successfully
re-financed and reduced its coupon on its previously outstanding
$300.0 million Senior Notes by
issuing new 6.375% Senior Notes which mature in October 2024. This provides the Company with an
additional level of financial stability during the ongoing COVID-19
crisis and the related deterioration of the global crude oil
market.
Although CES previously expected 2020 capital expenditures to be
at or below 2019 levels, in light of recent developments in the
global oil and gas markets, the Company has suspended all
non-essential capital expenditures and currently expects 2020
capital expenditures to be up to $30.0
million, a 40% reduction from the original 2020 capex plan
of $50.0 million. CES will
continue its disciplined and prudent approach to capital
expenditures and is currently reviewing 2021 planned expenditures
which will be adjusted as required as conditions continue to
unfold.
CES continues to believe that coming out of this downturn it can
continue to grow its share of the oilfield consumable chemical
markets in which it competes. CES also believes that competitor
consolidations and business failures will provide further
opportunities for CES in a recovery scenario. CES sees the
consumable chemical market increasing its share of the oilfield
spend as operators continue to: drill longer reach laterals and
drill them faster; expand and optimize the utilization of pad
drilling; increase the intensity and size of their fracs; and
require increasingly technical and specialized chemical treatments
to effectively maintain existing cash flow generating wells and
treat growing production volumes and water cuts from new wells.
CES' strategy is to continue to use its decentralized management
model; its vertically integrated manufacturing model; its problem
solving through science approach; its patented and proprietary
technologies; and its superior people and execution to increase
market share. By being basic in the manufacture of the
consumable chemicals it sells, CES continues to be price
competitive and a technology leader. Operators require increasingly
technical solutions and deeper customer-centric coverage models to
meet their needs. CES believes that its unique value proposition
makes it the premier independent provider of technically advanced
consumable chemical solutions to the North American oilfield.
In its core businesses, CES will focus on profitably growing
market share, controlling costs and managing working capital,
developing or acquiring new technologies and making strategic
investments as required to position the business to capitalize on
current and future opportunities. CES remains committed to the
safety of our employees, support of our customers, defense of our
strong financial position, and preservation of shareholder value.
CES' counter cyclical leverage model and capital light business
will continue to demonstrate our resiliency to weather this
challenging business environment while preparing the Company to
excel as headwinds subside. The suspension of CES' dividend,
accompanied by implemented cost reduction initiatives, will
continue to preserve the strength of the Company's balance sheet
while maintaining liquidity to fund existing operations and
potential growth initiatives. CES will be protective of its balance
sheet and prudent with its capital allocation, particularly in the
current low oil price environment, and will continue to
opportunistically utilize its NCIB program.
Conference Call Details
With respect to the third quarter results, CES will host a
conference call / webcast at 9:00 am
MT (11:00 am ET) on
Friday, November 13, 2020.
North American toll-free:
1-(800)-319-4610
International / Toronto callers: (416)-915-3239
Link to Webcast: http://www.cesenergysolutions.com/
Financial Highlights
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
($000s, except per
share amounts)
|
2020
|
2019
|
%Change
|
2020
|
2019
|
%Change
|
Revenue
|
|
|
|
|
|
|
United
States
|
113,859
|
227,282
|
(50)%
|
463,636
|
688,950
|
(33)%
|
Canada
|
52,434
|
88,489
|
(41)%
|
211,597
|
272,746
|
(22)%
|
Total
Revenue
|
166,293
|
315,771
|
(47)%
|
675,233
|
961,696
|
(29.8)%
|
Net (loss)
income
|
(12,725)
|
7,637
|
nmf
|
(263,356)
|
18,196
|
nmf
|
per share –
basic
|
(0.05)
|
0.03
|
nmf
|
(1.00)
|
0.07
|
nmf
|
per share -
diluted
|
(0.05)
|
0.03
|
nmf
|
(1.00)
|
0.07
|
nmf
|
Adjusted
EBITDAC(2)
|
18,212
|
42,233
|
(57)%
|
77,517
|
127,474
|
(39)%
|
Adjusted
EBITDAC(2) % of Revenue
|
11.0
%
|
13.4
%
|
(2.4)%
|
11.5
%
|
13.3
%
|
(1.8)%
|
Cash provided by
operating activities
|
40,300
|
30,586
|
32 %
|
156,665
|
145,849
|
7 %
|
Funds Flow From
Operations(2)
|
10,342
|
33,667
|
(69)%
|
55,160
|
100,775
|
(45)%
|
Capital
expenditures
|
|
|
|
|
|
|
Expansion
Capital(2)
|
2,604
|
7,839
|
(67)%
|
13,326
|
23,406
|
(43)%
|
Maintenance
Capital(2)
|
532
|
1,649
|
(68)%
|
7,231
|
7,027
|
3 %
|
Total capital
expenditures
|
3,136
|
9,488
|
(67)%
|
20,557
|
30,433
|
(32)%
|
Dividends
declared
|
—
|
3,984
|
(100)%
|
2,948
|
11,972
|
(75)%
|
per
share
|
—
|
0.0150
|
(100)%
|
0.0113
|
0.0450
|
(75)%
|
Common Shares
Outstanding
|
|
|
|
|
|
|
End of
period
|
262,567,958
|
265,647,874
|
|
262,567,958
|
265,647,874
|
|
Weighted average -
basic
|
264,841,429
|
265,762,689
|
|
263,760,203
|
266,206,652
|
|
Weighted average -
diluted
|
264,841,429
|
272,971,478
|
|
263,760,203
|
272,874,517
|
|
|
As at
|
Financial
Position ($000s)
|
September 30,
2020
|
June 30,
2020
|
%Change
|
March 31,
2020
|
%Change
|
December 31,
2019
|
%Change
|
Total
assets
|
838,270
|
852,955
|
(2)%
|
1,072,067
|
(22)%
|
1,219,772
|
(31)%
|
Long-term financial
liabilities(1)
|
300,370
|
304,056
|
(1)%
|
402,036
|
(25)%
|
385,865
|
(22)%
|
Total Debt, net of
cash(2)
|
292,397
|
327,484
|
(11)%
|
426,560
|
(31)%
|
407,631
|
(28)%
|
Working Capital
Surplus(2)
|
266,897
|
301,444
|
(11)%
|
417,291
|
(36)%
|
369,628
|
(28)%
|
Net
Debt(2)
|
25,500
|
26,040
|
(2)%
|
9,269
|
175 %
|
38,003
|
(33)%
|
Shareholders'
equity
|
443,054
|
468,581
|
(5)%
|
515,446
|
(14)%
|
679,310
|
(35)%
|
Notes:
|
1Includes the long-term portion
of the Senior Facility, the Senior Notes, lease obligations and
cash settled incentive obligations.
|
2CES uses certain performance
measures or operational definitions that are not recognizable under
International Financial Reporting Standards ("IFRS"). These
performance measures include net income (loss) before interest,
taxes, depreciation and amortization, finance costs, other gains
and losses, and stock-based compensation ("EBITDAC"), Adjusted
EBITDAC, Gross Margin (excluding depreciation), Funds Flow From
Operations, Total Debt, Working Capital Surplus, Net Debt,
Expansion Capital and Maintenance Capital. Management believes that
these measures provide supplemental financial information that is
useful in the evaluation of CES' operations. Readers should
be cautioned, however, that these measures should not be construed
as alternatives to measures determined in accordance with IFRS as
an indicator of CES' performance. CES' method of calculating
these measures may differ from that of other organizations and,
accordingly, these may not be comparable. Please refer to the
Non-GAAP Measures section and Operational Definitions Section of
CES' MD&A for the three and nine months ended September 30,
2020 for additional details regarding the calculation of these
measures.
|
Business of CES
CES is a leading provider of technically advanced consumable
chemical solutions throughout the life-cycle of the oilfield. This
includes total solutions at the drill-bit, at the point of
completion and stimulation, at the wellhead and pump-jack, and
finally through to the pipeline and midstream market. At the
drill-bit, CES' designed drilling fluids encompass the functions of
cleaning the hole, stabilizing the rock drilled, controlling
subsurface pressures, enhancing drilling rates, and protecting
potential production zones while conserving the environment in the
surrounding surface and subsurface area. At the point of completion
and stimulation, CES' designed chemicals form a critical component
of fracturing solutions or other forms of remedial well stimulation
techniques. The shift to horizontal drilling and multi-stage
fracturing with long horizontal well completions has been
responsible for significant growth in the drilling fluids and
completion and stimulation chemicals markets. At the wellhead and
pump-jack, CES' designed production and specialty chemicals provide
down-hole solutions for production and gathering infrastructure to
maximize production and reduce costs of equipment maintenance. Key
solutions include corrosion inhibitors, demulsifiers,
H2S scavengers, paraffin control products, surfactants,
scale inhibitors, biocides and other specialty products. Further,
specialty chemicals are used throughout the pipeline and midstream
industry to aid in hydrocarbon movement and manage transportation
and processing challenges including corrosion, wax build-up and
H2S.
CES operates in all major basins throughout the United States ("US"), including Permian,
Eagleford, Bakken, Marcellus and Scoop/Stack, as well as in the
Western Canadian Sedimentary Basin ("WCSB") with an emphasis on
servicing the ongoing major resource plays; Montney, Duvernay, Deep Basin and SAGD. In the US, CES
operates under the trade names AES Drilling Fluids ("AES"), JACAM
Chemicals ("JACAM"), Catalyst Oilfield Services ("Catalyst") and
Superior Weighting Products ("Superior Weighting"). In Canada, CES operates under the trade names
Canadian Energy Services, PureChem Services ("PureChem"), StimWrx
Energy Services Ltd. ("StimWrx"), Sialco Materials Ltd. ("Sialco"),
and Clear Environmental Solutions ("Clear").
The JACAM, Catalyst, PureChem, and Sialco brands are vertically
integrated manufacturers of advanced specialty chemicals. In
addition to being basic in the manufacture of oilfield chemicals,
JACAM, Catalyst, and PureChem have expanding distribution channels
into the oilfield. The StimWrx brand provides near matrix
stimulation and remediation of oil, gas, and injection wells
in Western Canada and the US. The
Canadian Energy Services and AES brands are focused on the design
and implementation of drilling fluids systems and completion
solutions sold directly to oil and gas producers. The Superior
Weighting brand custom grinds minerals including barite, which is
the weighting agent utilized in most drilling fluid systems.
Clear is a complimentary business division that supports the
operations and augments the product offerings in the WCSB. Clear is
CES' environmental division, providing environmental consulting,
water management and water transfer services, and drilling fluids
waste disposal services primarily to oil and gas producers active
in the WCSB.
CES continues to invest in research and development of new
technologies and in the top-end scientific talent that can develop
and refine these technologies. CES operates nine separate lab
facilities across North America:
two in Houston, Texas; two in
Midland, Texas; one in
Sterling, Kansas; and one in each
of Calgary, Alberta; Grand Prairie, Alberta; Carlyle,
Saskatchewan; and Delta, British
Columbia. In the US, CES' main chemical manufacturing and
reacting facility is located in Sterling,
Kansas with additional low-temperature reacting and chemical
blending capabilities just outside of Midland, Texas and chemical blending
capabilities in Sonora, Texas. In
Canada, CES has a chemical
manufacturing and reacting facility located in Delta, British Columbia with additional
chemical blending capabilities located in Carlyle, Saskatchewan, Nisku, Alberta, and Grand Prairie, Alberta. CES also leverages third party
partner relationships to drive innovation in the consumable fluids
and chemicals business.
Cautionary Statement
Except for the historical and
present factual information contained herein, the matters set forth
in this press release, may constitute forward-looking information
or forward-looking statements (collectively referred to as
"forward-looking information") which involves known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance or achievements of CES, or industry results,
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
information. When used in this press release, such
information uses such words as "may", "would", "could", "will",
"intend", "expect", "believe", "plan", "anticipate", "estimate",
and other similar terminology. This information reflects CES'
current expectations regarding future events and operating
performance and speaks only as of the date of the press
release. Forward-looking information involves significant
risks and uncertainties, should not be read as a guarantee of
future performance or results, and will not necessarily be an
accurate indication of whether or not such results will be
achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward-looking
information, including, but not limited to, the factors discussed
below. The management of CES believes the material factors,
expectations and assumptions reflected in the forward-looking
information are reasonable but no assurance can be given that these
factors, expectations and assumptions will prove to be
correct. The forward-looking information contained in this
document speaks only as of the date of the document, and CES
assumes no obligation to publicly update or revise such information
to reflect new events or circumstances, except as may be required
pursuant to applicable securities laws or regulations. The material
assumptions in making forward-looking statements include, but are
not limited to, assumptions relating to demand levels and pricing
for the oilfield consumable chemical offerings of the Company;
fluctuations in the price and demand for oil and natural gas;
anticipated activity levels of the Company's significant customers;
commodity pricing; general economic and financial market
conditions; the successful integration of recent acquisitions; the
Company's ability to finance its operations; levels of drilling and
other activity in the WCSB, the Permian and other US basins, the
effects of seasonal and weather conditions on operations and
facilities; changes in laws or regulations; currency exchange
fluctuations; the ability of the Company to attract and retain
skilled labour and qualified management; and other unforeseen
conditions which could impact the Company's business of supplying
oilfield consumable chemistry to the Canadian and US markets and
the Company's ability to respond to such conditions.
In particular, this press release contains forward-looking
information pertaining to the following: the certainty and
predictability of future cash flows and earnings; expectations that
EBITDAC will exceed the sum of expenditures on interest, taxes and
capital expenditures; expectations of capital expenditures in
2020; expectations regarding CES' ability to harvest working
capital as activity levels decline based on historical performance
and current circumstances; expectations that EBITDAC will provide
sufficient free cash flow to pay down the Company's Senior Facility
and add cash to the balance sheet; expectations regarding the
impact of the COVID-19 pandemic on CES' operations and the oil and
natural gas industry generally; CES' ability to execute
on financial goals relating to its balance sheet, liquidity,
working capital and cost structure; expectations regarding CES'
ability to qualify and participate in the Canadian Government's
CEWS program; expectations regarding reduced capital expenditures
by CES' customers and the quantum of shut-in production by CES'
customers; expectations that CES' financial position will provide a
competitive advantage in a recovery; the sufficiency of liquidity
and capital resources to meet long-term payment obligations; CES'
ability to increase or maintain its market share, including
expectations that PureChem and JACAM will increase market share in
the oilfield consumable chemical market, that Catalyst will
increase market-share of production and specialty chemicals in the
Permian Basin, and that AES will increase drilling fluids market
share in the Permian Basin; optimism with respect to future
prospects for CES; impact of CES' vertically integrated business
model on future financial performance; CES' ability to leverage
third party partner relationships to drive innovation in the
consumable fluids and chemicals business; supply and demand for
CES' products and services, including expectations for growth in
CES' production and specialty chemical sales, expected growth in
the consumable chemicals market; industry activity levels;
commodity prices; uncertainty surrounding the duration and severity
of a low oil and natural gas price environment; development of new
technologies; expectations regarding CES' growth opportunities in
Canada and the US; expectations
regarding the performance or expansion of CES' operations and
working capital optimization; expectations regarding end
markets for production chemicals and drilling fluids in
Canada and the US; expectations
regarding the impact of production curtailment policies;
expectations regarding demand for CES' services and technology;
investments in research and development and technology
advancements; access to debt and capital markets and
cost of capital; expectations regarding capital allocation
including the use of surplus free cash flow, the purchase of CES'
common shares by CES pursuant to the NCIB, debt reduction through
the repayment of the Company's Senior Facility or repurchases of
the Company's Senior Notes, investments in current operations,
issuing dividends, or market acquisitions; CES' ability to continue
to comply with covenants in debt facilities; and competitive
conditions.
CES' actual results could differ materially from those
anticipated in the forward-looking information as a result of the
following factors: general economic conditions in the US,
Canada, and internationally;
geopolitical risk; fluctuations in demand for consumable fluids and
chemical oilfield services, the severity of the downturn in
oilfield activity; the severity of the decline in activity in the
Permian, the WCSB, and other basins in which the Company
operates; a decline in frac related chemical sales; a decline in
operator usage of chemicals on wells; an increase in the number of
customer well shut-ins; a shift in types of wells drilled;
volatility in market prices for oil, natural gas, and natural gas
liquids and the effect of this volatility on the demand for
oilfield services generally; the declines in prices for natural
gas, natural gas liquids, oil, and pricing differentials between
world pricing; pricing in North
America and pricing in Canada; impacts of production level decisions
among OPEC+ members and the potential demand impacts of COVID-19;
competition, and pricing pressures from customers in the current
commodity environment; the degree and severity of the COVID-19
pandemic, including government laws and regulations implemented in
response to the pandemic and the resulting impact on the demand for
oil and natural gas; government support programs implemented in
response to the COVID-19 pandemic and potential changes to the
qualification criteria and amount of available support; political
and societal unrest that may impact CES' operations as well as
impact the market for oil and natural gas generally; currency risk
as a result of fluctuations in value of the US dollar; liabilities
and risks, including environmental liabilities and risks inherent
in oil and natural gas operations; sourcing, pricing and
availability of raw materials, consumables, component parts,
equipment, suppliers, facilities, and skilled management, technical
and field personnel; the collectability of accounts receivable,
particularly in the current low oil and natural gas price
environment; ability to integrate technological advances and match
advances of competitors; ability to protect the Company's
proprietary technologies; availability of capital; uncertainties in
weather and temperature affecting the duration of the oilfield
service periods and the activities that can be completed; the
ability to successfully integrate and achieve synergies from the
Company's acquisitions; changes in legislation and the regulatory
environment, including uncertainties with respect to oil and gas
royalty regimes, programs to reduce greenhouse gas and other
emissions, carbon pricing schemes, and regulations restricting the
use of hydraulic fracturing; pipeline capacity and other
transportation infrastructure constraints; government mandated
production curtailments; reassessment and audit risk and other tax
filing matters; changes and proposed changes to US policies
including tax policies or policies relating to the oil and
gas industry; international and domestic trade disputes,
including restrictions on the transportation of oil and natural gas
and regulations governing the sale and export of oil, natural gas
and refined petroleum products; divergence in climate change
policies between the US and Canada; potential changes to the crude by rail
industry; changes to the fiscal regimes applicable to entities
operating in the US and the WCSB; supply chain disruptions
including those caused by global pandemics or disease or from
political unrest and blockades; access to capital and the liquidity
of debt markets; fluctuations in foreign exchange and interest
rates; CES' ability to maintain adequate insurance at rates it
considers reasonable and commercially justifiable; and the other
factors considered under "Risk Factors" in CES' Annual
Information Form for the year ended December
31, 2019 dated March 12, 2020,
and "Risks and Uncertainties" in CES' MD&A for the three and
nine months ended September 30, 2020,
dated November 12, 2020.
THE TORONTO
STOCK EXCHANGE HAS NOT REVIEWED
AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF
THIS RELEASE.
SOURCE CES Energy Solutions Corp.