- Delivered another record quarter with Q4 2021 Adjusted
EBITDA1 of $111
million, up 208% compared to Q4 2020, and up 57% on a per
share basis
- Increased 2021 revenue to $893
million, excluding oil purchase and resale, up 94% from
2020
- 2021 Adjusted EBITDA of $286
million and $1.22 per share,
up 110% and 42%, respectively from 2020
- Increased Q4 2021 Adjusted EBITDA margin2 from
30% to 34% compared to 2020
- Net loss in Q4 2021 of $166
million, an increase of $127
million from Q4 2020, due primarily to non-cash impairment
charges associated with facility rationalizations driven by the
impact of the transaction (the "Transaction") with Tervita
Corporation ("Tervita")
- Realized $40 million of
run-rate synergies in 2021 impacting Adjusted EBITDA and on track
for a minimum of $75 million
synergies by end of 2022. Also realized an additional $9 million of run-rate interest cost savings from
the redemption of USD 11% Secured notes with CAD 7.25% Unsecured
notes
- Generated $171 million of
discretionary free cash flow1 and $0.73 per share2 in 2021, up 80% and
22%, respectively, from 2020. Funds flow from operations in 2021
totaled $176 million, an increase of
68% from 2020
- Executed on Environment, Social and Governance (ESG)
initiatives by setting targets to reduce water usage by 5% in 2022
and lower greenhouse gas emissions intensity 15% by 2024
- Inclusion to the S&P/TSX Composite Index on December 20, 2021
- On March 2, 2022, added
Mark Bly to our board of directors,
an executive with over 35 years of experience in the oil and gas
industry, with a strong background in ESG, and current Chair of the
board of Baytex Energy
CALGARY, AB, March 2, 2022 /CNW/ - SECURE ENERGY Services Inc.
("SECURE" or the "Corporation") (TSX: SES) reported the
Corporation's operational and financial results for the three and
twelve months ended December 31,
2021.
"Results in the fourth quarter of 2021 demonstrated the strength
of our business, as we delivered exceptional operational
performance and continued to successfully integrate the assets
acquired in the Tervita transaction," said Rene Amirault, President and Chief Executive
Officer of SECURE. "Our Midstream Infrastructure and Environmental
and Fluid Management segments benefited from improved oil and gas
industry fundamentals that drove higher demand for
drilling and completion services, reclamation and remediation work,
incremental facility and landfill volumes, increased recovered oil
pricing and crude oil marketing opportunities. Our ongoing focus on
managing costs resulted in strong margins across all of our
operations.
"We are extremely pleased with the results and progress of the
integration with Tervita, which is proceeding on track to achieve a
minimum of $75 million of synergies
impacting Adjusted EBITDA by the end of 2022. In Q4 2021, we
achieved $11 million of cost savings,
and $40 million on an annual run-rate
basis for realized savings of 53% of the $75
million target just six months since closing the merger. In
addition, we have made improvements to our capital structure by
extending long-term maturities, introducing more flexibility into
our capital structure, and lowering our cash interest costs by
approximately $9 million since we completed the second bond
issue on October 4th,
2021.
"We are also pleased to announce the appointment of Mark Bly to our Board on March 2, 2022. Mark has over 35 years of
experience in the oil and gas industry focused on safety and
operations and is currently the Chair of the board of Baytex
Energy. We look forward to the added depth and expertise that Mark
will bring in helping us grow our operations.
"Looking forward in 2022, we expect to see continued industry
improvement which will support our strong momentum and drive higher
year over year discretionary free cash flow in 2022. Our key
priorities remain synergies, operational optimization and
efficiencies, progressing our ESG initiatives, and paying down debt
with free cash flow, while leveraging key opportunities to grow and
provide value for shareholders and customers.
"I want to thank all SECURE employees that have contributed to
finding ways to make our merger successful in all aspects. We still
have a lot of work in front of us but having a great team will
ensure a successful execution of our 2022 goals."
1 Non-GAAP financial
measure that is not a standardized financial measure under
International Financial Reporting Standards ("IFRS") and may not be
comparable to similar financial measures disclosed by other
issuers. Refer to the "Non-GAAP and other financial measures"
section herein.
|
|
2 Non-GAAP financial ratio that is
not a standardized financial measure under IFRS and may not be
comparable to similar financial measures disclosed by other
issuers. Refer to the "Non-GAAP and other financial measures"
section herein.
|
FINANCIAL AND OPERATING HIGHLIGHTS
The Corporation's operating and financial highlights for the three
and twelve months ended December
31, 2021 and 2020 can be summarized
as follows:
|
Three months ended
December 31,
|
Twelve months
ended December 31,
|
($ millions except
share and per share data)
|
2021
|
2020
|
%
change
|
2021
|
2020
|
%
change
|
Revenue (excludes oil
purchase and resale)
|
327
|
119
|
175
|
893
|
460
|
94
|
Oil purchase and
resale
|
1,013
|
356
|
185
|
2,873
|
1,364
|
111
|
Total
revenue
|
1,340
|
475
|
182
|
3,766
|
1,824
|
106
|
Adjusted EBITDA
(1)
|
111
|
36
|
208
|
286
|
136
|
110
|
Per share ($), basic
and diluted (1)
|
0.36
|
0.23
|
57
|
1.22
|
0.86
|
42
|
Net loss attributable
to shareholders of SECURE (2)(3)
|
(166)
|
(39)
|
326
|
(203)
|
(85)
|
139
|
Per share ($), basic
and diluted
|
(0.54)
|
(0.25)
|
116
|
(0.87)
|
(0.54)
|
61
|
Funds flow from
operations
|
54
|
27
|
100
|
176
|
105
|
68
|
Per share ($), basic
and diluted (4)
|
0.18
|
0.17
|
6
|
0.75
|
0.66
|
14
|
Discretionary free
cash flow (1)
|
47
|
25
|
88
|
171
|
95
|
80
|
Per share ($), basic
and diluted (1)
|
0.15
|
0.16
|
(6)
|
0.73
|
0.60
|
22
|
Capital
expenditures
|
17
|
9
|
89
|
43
|
71
|
(39)
|
Dividends per common
share
|
0.0075
|
0.0075
|
—
|
0.0300
|
0.1100
|
(73)
|
Total assets
(2)
|
2,937
|
1,376
|
113
|
2,937
|
1,376
|
113
|
Long-term liabilities
(2)
|
1,498
|
502
|
198
|
1,498
|
502
|
198
|
Common shares - end
of period
|
308,158,691
|
158,700,373
|
94
|
308,158,691
|
158,700,373
|
94
|
Weighted average
common shares - basic and diluted
|
308,135,731
|
158,664,323
|
94
|
234,226,176
|
158,561,369
|
48
|
|
|
|
|
|
|
|
(1) Refer to "Non-GAAP and other
financial measures" section herein.
|
(2)
Prior year amounts have been restated, refer to "Accounting
Policies" section in the Q4 2021 Management's Discussion &
Analysis ("MD&A") for additional information.
|
(3)
Includes non-cash impairment charges of $247 million and $34
million for the three months ended December 31, 2021 and 2020,
respectively and $269 million and $50 million for the twelve months
ended December 31, 2021 and 2020, respectively.
|
(4)
Supplementary financial measure. Refer to the "Non-GAAP and
other financial measures" section in the Q4 2021 MD&A
which information is incorporated by reference into this news
release.
|
FINANCIAL AND OPERATIONAL RESULTS
The following should be read in conjunction with the
Corporation's MD&A for the three and twelve months ended
December 31, 2021, and the
consolidated financial statements and notes thereto for the three
and twelve months ended December 31,
2021 ("Annual Financial Statements"), which are both
available on SEDAR at www.sedar.com.
FOURTH QUARTER HIGHLIGHTS
- Revenue (excluding oil purchase and resale) of $327 million - an increase of 175% compared
to the fourth quarter of 2020 with Midstream Infrastructure revenue
(excluding oil purchase and resale) increasing by $91 million to $138
million and Environmental and Fluid Management revenue
increasing by $117 million to
$189 million for the quarter. These
increases were primarily due to additional revenue associated with
the Transaction and the increase in activity levels. Both
reportable segments benefited from improved industry activity
levels, driving incremental volumes at Midstream Infrastructure
facilities and industrial landfills, and demand for drilling and
completion related services as evidenced by an increase in average
active rig count of approximately 75%. Higher crude oil pricing in
2021 also positively impacted recovered oil revenue and increased
oil purchase and resale revenue by 185% to $1.0 billion
- Net loss attributable to shareholders of $166 million - an increase of $127 million compared to the fourth quarter of
2020. The increase was primarily driven by the impact of the
Transaction which includes a $247
million non-cash impairment charge recorded in the quarter.
The non-cash impairment charge is predominantly attributable to the
suspension or closure of facilities in order to achieve the
integration cost savings related to the Transaction as discussed
below and assets identified and assigned value in the purchase
price allocation of the Transaction that do not have continuing
value to SECURE, including intangible assets such as trade names.
In addition, higher depreciation, depletion and amortization
("DD&A"), $23 million of higher
finance costs associated with debt assumed during the Transaction
and incurring $10 million of
transaction costs were partially offset by higher period over
period Adjusted EBITDA as described below and an increase in the
deferred tax recovery of $45
million.
- Adjusted EBITDA of $111
million - an increase of 208% compared to the fourth
quarter of 2020, primarily due to improved market conditions and
synergies as a result of the Transaction, which demonstrates the
strength and scale of the combined business. In addition, higher
oil prices resulted in increased activity levels in the
Corporation's operating areas, which led to higher processing and
disposal volumes at our Midstream Infrastructure facilities and
landfills and increased demand for drilling and completion services
within the Environmental and Fluid Management segment.
- Integration cost savings of $40
million realized - achieved $11
million of cost savings impacting Adjusted EBITDA in the
fourth quarter of 2021, and $40
million on an annual run-rate basis for realized cost
savings of 53% of the $75 million
target after six months of integration following completion of the
Transaction. The $11 million achieved
in the quarter is mainly a result of a reduction of headcount and
operational optimizations and facility rationalizations. The
Corporation suspended or closed 17 facilities in order to achieve
the cost savings associated with facility rationalizations. As we
suspend facilities and redirect water and waste volumes to another
location it improves overall utilization and lowers greenhouse gas
emissions intensity. In the three months ended December 31, 2021, $10
million of costs related to the Transaction and integration
of the business were incurred.
- Adjusted EBITDA margin of 34% - increased from 30% in
the fourth quarter of 2020, due to the positive impact from the
cost savings mentioned above and higher revenue contributing to
improved fixed cost absorption particularly in the service lines
impacted by the increased drilling and completion activity. In the
prior year, Adjusted EBITDA margin in the fourth quarter benefited
from wage subsidies under the Canadian Emergency Wage Subsidy
("CEWS") program.
- Discretionary free cash flow of $47
million - which was primarily used to fund the increase
in working capital from higher activity levels, as well as pay the
Corporation's quarterly dividend, transaction costs and growth
capital expenditures. Funds flow from operations were $54 million in the quarter, an increase of
$27 million from the prior year comparative period. Higher
Adjusted EBITDA in the fourth quarter of 2021 was offset by
transaction costs incurred and the payment of the semi-annual
interest payments on the Corporation's unsecured and senior secured
notes.
- Liquidity1 of $289 million - decreased by $11 million from September
30, 2021 primarily due to increased investment in working
capital associated with higher activity levels and
transaction-related costs incurred, partially offset by
discretionary free cash flow generated during the fourth quarter of
2021.
- Total capital expenditures of $17
million - consisting of $4
million growth capital and $13
million of sustaining capital. Growth capital included
spend related to increasing the handling capacity at a water
disposal facility and optimization upgrades to facility equipment.
Sustaining capital relates primarily to landfill cell expansions,
well and facility maintenance, spare parts, asset integrity and
inspection programs.
- G&A expense before depreciation, depletion, amortization
and share-based compensation expense as a percentage of revenue
(excluding oil purchase and resale) was 8%, which improved by two
percentage points compared to the fourth quarter of 2020.
- Private offering of $140
million - Completed an additional private offering of
$140 million aggregate principal
amount of 7.25% unsecured notes due December
30, 2026 ("2026 unsecured notes") at an issue price of
$100.75, representing a yield of
approximately 7%. The proceeds were primarily used to fund the
redemption of US$100 million
aggregate principal amount of the US$500
million aggregate principal amount of 11.00% senior second
lien secured notes previously issued by Tervita due December 1, 2025 (the "2025 senior secured
notes"), at a redemption price of 105.5%, plus accrued but unpaid
interest to, but not including, the applicable redemption date. The
redemptions were completed on October
7 and 8, 2021.
These redemptions of 2025 senior secured notes, along with the
redemption of another US$100 million
aggregate principal amount of 2025 senior secured notes completed
on July 16, 2021, are anticipated to
result in annual interest cost savings of approximately
$9 million.
- Declared dividends of $2
million - representing $0.0075 (0.75
cents) per common share for the quarter.
- The Corporation was added to the S&P/TSX Composite index on
December 20, 2021. The S&P/TSX
Composite is the headline index for the Canadian equity market and
tracks the performance of the largest companies listed on the TSX
and is used as the benchmark for Canadian equity performance.
__________________________
|
1
Capital management measure. Refer to the "Non-GAAP and other
financial measures" section in the Q4 2021 MD&A which
information is incorporated by reference into this news
release.
|
ANNUAL HIGHLIGHTS
- Revenue (excluding oil purchase and resale) of $893 million - an increase of 94% compared to
2020. The increase was primarily due to same factors that impacted
the quarter, partially offset by lower drilling and completion and
project activity in the first quarter of 2021.
- Net loss attributable to shareholders of $203 million - an increase of $118 million compared to 2020. The increase was
primarily driven by the same factors that impacted the quarter. The
net loss for 2021 included a non-cash impairment charge of
$269 million. The non-cash impairment
charge is predominantly attributable to the suspension or closure
of facilities in order to achieve the integration cost savings
related to the Transaction and assets identified and assigned value
in the purchase price allocation of the Tervita acquisition that do
not have continuing value to SECURE, including intangible assets
such as trade names. Refer to Note 9 of the Annual Financial
Statements for additional information.
- Adjusted EBITDA of $286
million - an increase of 110% compared to 2020,
primarily due to the same factors that impacted the quarter.
Adjusted EBITDA in 2021 benefited from the cost savings achieved
from the Transaction and the cost reduction measures that took
effect in April 2020 to align the
Corporation's fixed cost structure to levels consistent with
industry activity levels. The measures in April 2020 included organizational restructuring
and associated personnel reductions. These positive factors were
partially offset by $23 million of
CEWS benefits received in 2020, which had an insignificant impact
in 2021.
- Discretionary free cash flow of $171
million - an increase of $76
million from the prior year which was used to pay costs
associated with the Transaction, fund growth capital expenditures
and the Corporation's quarterly dividend, as well as increased
working capital associated with higher activity levels. In 2021,
the Corporation generated funds flow from operations of
$176 million, an increase of 68% from 2020. The increase was
driven by the same factors that impacted the quarter. At
December 31, 2021, SECURE carried
working capital2 of $183
million compared to $64 million at December 31, 2020, the increase being primarily
due to the increased scale of the Corporation's operations and the
investment associated with higher activity levels.
- Total capital expenditures of $43
million - consisting of $14
million growth capital and $29
million of sustaining capital. Growth capital included
spend related to connecting an additional segment of the East
Kaybob oil pipeline, increasing the handling capacity at a water
disposal facility and optimization upgrades. Sustaining capital
related primarily to well and facility maintenance, spare parts,
asset integrity and inspection programs.
- Financial capacity
-
- In connection with the closing of the Transaction, SECURE
entered into the "Revolving Credit Facility" which is an
$800 million three-year senior
secured revolving credit facility with nine financial institutions.
SECURE also entered into a $30
million unsecured letter of credit facility guaranteed by
Export Development Canada (the "SECURE LC Facility"), providing
additional stability and capacity to the Corporation's capital
structure.
- During 2021, the Corporation closed private offerings totaling
$340 million aggregate principal
amount of 7.25% unsecured notes due December
30, 2026. SECURE used the proceeds from these private
offerings primarily to fund the redemption of US$200 million aggregate principal amount of the
2025 senior secured notes previously issued by Tervita and
assumed in the Transaction, at a redemption price of 105.5%.
The remaining proceeds have been used to repay indebtedness, pay
fees and expenses incurred in connection with the note issuance and
for general corporate purposes.
- The above financing transactions provide stability to the
Corporation's capital structure with no near-term fixed debt
maturities. In addition, the financing transactions are estimated
to save approximately $9 million a year in interest
charges.
- As at December 31, 2021, the
Corporation had drawn $460 million
aggregate principal amount on the Revolving Credit Facility and a
total of $91 million of letters of
credit ("LCs") have been issued against SECURE's facilities
resulting in $289 million of
Liquidity (available capacity under the Revolving Credit Facility,
the SECURE LC Facility and cash on hand, subject to covenant
restrictions).
- The following table outlines SECURE's covenant
ratios3, calculated in accordance with the Corporation's
credit facilities, at December 31,
2021, and December 31,
2020:
|
|
|
December 31,
2021
|
Covenant
|
December 31,
2020
|
|
|
Senior Debt to
EBITDA
|
1.5
|
not to exceed
3.0
|
2.2
|
|
|
Total Debt to
EBITDA
|
3.4
|
not to exceed
4.75
|
3.2
|
|
|
Interest
coverage
|
3.4
|
not to be less than
2.5
|
6.4
|
- Received the following credit ratings from S&P Global
Ratings ("S&P"), Fitch Ratings ("Fitch") and Moody's Investor
Service, Inc. ("Moody's"), providing increased transparency and
comparability for debt investors and other capital market
participants:
|
|
|
S&P
|
Fitch
|
Moody's
|
|
|
Corporate
Rating
|
B
|
B+
|
B1
|
|
|
2025 senior secured
notes
|
BB-
|
BB
|
B1
|
|
|
2026 unsecured
notes
|
B
|
B+
|
B3
|
Prior to completion of the
Transaction, the 2025 senior secured notes were rated CCC+ by
S&P and B3 by Moody's.
- Declared dividends of $7
million - representing $0.03 (3 cents) per
common share for the year.
-
- SECURE believes sharing excess cash flows with its shareholders
is a core business principle; as a result, management and the Board
will continue to monitor the Corporation's dividend policy with
respect to forecasted Adjusted EBITDA, debt, capital expenditures
and other investment opportunities, as well as expected interest,
lease, tax and transaction costs, and will look for opportunities
to return additional capital after the successful integration with
Tervita and as business conditions warrant.
______________________________________
|
2
Capital management measure. Refer to the "Non-GAAP and other
financial measures" section in the Q4 2021 MD&A which
information is incorporated by reference into this news
release.
|
3 Calculated in accordance with the
Corporation's credit facility agreements. Refer to the "Liquidity
and Capital Resources" section in the Q4 2021 MD&A which
information is incorporated by reference into this news
release.
|
OUTLOOK
The Corporation's 2021 results exceeded expectations as rising
crude oil, liquids and natural gas prices and producer cash flows
drove industry activity, including increased demand for drilling
and completion services, incremental facility volumes, increased
recovered oil revenue and crude oil marketing opportunities.
Benchmark crude oil prices recently reached seven-year highs, with
macroeconomic factors including significant inflationary pressures,
geopolitical risk premium due to current world events, as well as
lessening COVID-19 demand impacts, supporting current prices. The
higher prices and broader economic factors lead us to believe that
oil and gas producers will spend capital on both maintaining and
growing production levels. In early 2022, industry fundamentals
have continued to be very strong and SECURE anticipates
significantly higher discretionary free cash flow for 2022 based on
the following expectations:
- Increased activity in drilling and completions along with
higher production volumes. To date in the first quarter of 2022,
the average active rig count in the WCSB is approximately 2% higher
than in the first quarter of 2019 (the most recent first quarter in
which there were no COVID-19 related impacts), and 20% above the
first quarter of 2021.
- Increased utilization at our midstream processing facilities as
higher drilling, completion and production volumes from increased
activity levels require additional treating, processing,
terminalling and disposal. The Corporation has significant capacity
to increase facility throughput and disposal with minimal
incremental fixed costs or additional capital. Higher drilling and
completion activity is expected to have a positive impact on our
drilling and production services business within the Environmental
and Fluid Management segment.
- Increased volumes at the Corporation's industrial landfills as
both industry activity and abandonment, remediation and reclamation
material and activity continue to trend higher as a result of the
Canadian Federal Government's $1.7
billion stimulus package to help fund the closure and
reclamation of orphan and inactive wells in the WCSB within
Alberta, Saskatchewan and British Columbia, which is scheduled to end in
December of 2022. In addition, there is recent direction from the
Alberta Energy Regulator requiring energy producers and other
companies that have retirement obligations related to inactive
(non-producing) wells and facilities to spend an amount each year
towards addressing those obligations. SECURE expects both of these
programs and policy changes to increase abandonment, remediation
and reclamation activity to positively impact all Canadian
operations in 2022, particularly within the Environmental and Fluid
Management segment as a result of higher demand for environmental
site assessments, onsite abandonment, remediation and reclamation
management and decommissioning work. In 2023, the Saskatchewan provincial government will enact
a mandatory spending program similar to the new program of the
Alberta Energy Regulator.
- SECURE's focus for 2022 is to continue to successfully
integrate and optimize the addition of the legacy Tervita
facilities and operating networks acquired pursuant to the
Transaction and deliver on expected integration cost savings to
become a more resilient, profitable, and efficient business. In
2021, the increased contribution to Adjusted EBITDA from the
realization of synergies was $18
million. By the end of 2021, we realized $40 million of synergies impacting Adjusted
EBITDA on an annual run-rate basis. During 2022, the Corporation
expects to execute on the remaining $35
million of administrative and operational synergies. The
operational synergies include optimizations and facility
rationalizations with the expectation that the synergies will
contribute a partial benefit in 2022 with the full run rate of
$75 million cost savings in 2023.
Additional savings through initiatives such as improving our
capital structure as well as minimizing sustaining capital by
managing underutilized assets, are expected to provide incremental
discretionary free cash flow beyond our $75
million cost savings target that impact Adjusted
EBITDA.
SECURE's key priority in 2022 is to use increased discretionary
free cash flow including any proceeds from non-core asset sales to
drive further debt reduction during the year; in the medium-term we
are committed to allocating capital towards increased shareholder
returns as an important element of our capital allocation
framework, as well as incremental organic growth opportunities that
provide stable cash flow. These shareholder returns may include
further debt repayment, increased dividends or share buybacks, or a
combination thereof. SECURE will continue to work diligently to
manage inflationary costs throughout the year; including purchasing
materials in bulk, working with customers and negotiating with
suppliers or finding alternate suppliers.
A full evaluation of the Corporation's capital project
opportunities is ongoing, and the capital budget may be revised in
accordance with opportunities to connect producers to existing
midstream infrastructure to further increase volumes and
utilization on a long-term basis. We expect sustaining capital in
2022 to be approximately $40 million,
and additional sustaining capital related to landfill expansions of
approximately $15 million, which
assumes growth in industry activity from 2021 levels. We anticipate
that the majority of our growth capital in 2022 will be focused on
projects that both reduce our customer's costs and lower emissions
as we build oil and water gathering pipelines. We expect to spend
approximately $45 million on growth
capital opportunities in 2022. Assisting customers to recycle and
reduce wherever possible continues to be part of our long-term
strategy and other long-term opportunities such as carbon dioxide
sequestration infrastructure will continue to be evaluated as part
of our ESG goals.
Progression of the Capital Structure
The Corporation's current capital structure consists of no
near–term maturities, as well as flexibility with an early
redemption option available on the 2026 unsecured notes, and
capacity on the Revolving Credit Facility, subject to covenant
restrictions. The Corporation's current capital structure
includes:
- $800 million Revolving Credit
Facility (which matures in July
2024). Total amount drawn on the Revolving Credit Facility
as at December 31, 2021 was
$460 million. LCs issued against the
Revolving Credit Facility in the amount of $66 million reduce the amount available to be
drawn under the Revolving Credit Facility. As a result, at
December 31, 2021, the Corporation
had availability of $274 million on
the Revolving Credit Facility, subject to covenant restrictions.
The Corporation incurred an average interest rate of approximately
3.8% for funds drawn on the Revolving Credit Facility in the fourth
quarter of 2021.
- $30 million SECURE LC Facility.
As at December 31, 2021, SECURE has
issued LCs in the amount of approximately $25 million against this SECURE LC Facility.
- US$300 million aggregate
principal amount of 2025 senior secured notes.
- $340 million aggregate principal
amount of 2026 unsecured notes.
Since the end of 2021 the Corporation has used cash flow to pay
down $47 million on the Revolving
Credit Facility, resulting in $413
million drawn as at February 28,
2022.
The Corporation will continue to focus on maintaining financial
resiliency and prioritize the repayment of debt to best position
the Corporation for long-term success.
Industry macro fundamentals are currently very favourable, due
to the combination of projected oil demand recovery, and an
increasingly tight supply market, resulting in supportive oil and
gas prices. These strong market conditions are similar to those
experienced from 2009 to 2014. In addition, there is increased
discipline by both oil and gas producers and energy service
companies to maximize free cash flow. With SECURE's operating
leverage and high ESG standards we will be there to help our
customers in 2022 and in future years. We are protecting the
Corporation's balance sheet by focusing on recurring revenue
streams along with efficient operations, which help protect our
cash flows throughout all market cycles.
Enhanced ESG platform
The Corporation's business is uniquely positioned to deliver
economic and environmental benefits that make the oil and gas
industry more efficient and sustainable. We are committed to work
with our customers to challenge what's possible and develop
innovative solutions that lower their cost structure, improve
capital efficiency, and minimize the environmental impacts
associated with the development of our shared resources. SECURE's
platform provides the size and scale, utilization, and efficiencies
to enhance the services and capabilities the Corporation provides
our customers to help achieve their objectives of responsible
development, while reducing costs. We believe, by working
collaboratively, Canada's energy
industry can have the lowest cost structure and operate with the
highest ESG standards in the world.
SECURE continues to implement its ESG strategy which prioritizes
the initiatives that will establish SECURE as an ESG leader.
Performance improvements include proactive measures to reduce the
environmental impact of our operations, and to positively
contribute to the health, safety, social and economic well-being of
our employees and the communities where we live and work. The
Transaction elevates our position to accelerate the Corporation's
environmental and social sustainability initiatives for the benefit
of all stakeholders. SECURE has set short and long-term emission
reduction targets to guide our efforts to manage climate risk and
meet our net zero greenhouse gas emission commitment by 2050. We
will also begin to integrate ESG initiatives deeper into our
business.
Conclusion
In summary, industry fundamentals remain favourable and provide
support for our business outlook in 2022. Our priorities are to
achieve the remaining $35 million of
run-rate Adjusted EBITDA synergies and to use our discretionary
free cash flow to strengthen our balance sheet. With our efforts to
date and the continuing hard work of our employees, we believe we
are well positioned to achieve both of these priorities in
2022.
NON-GAAP and OTHER FINANCIAL MEASURES
The Corporation uses accounting principles that are generally
accepted in Canada (the issuer's
"GAAP"), which includes International Financial Reporting Standards
("IFRS"). This news release contains certain supplementary non-GAAP
financial measures, such as Adjusted EBITDA and discretionary free
cash flow and certain non-GAAP financial ratios, such as Adjusted
EBITDA Margin, Adjusted EBITDA per share and discretionary free
cash flow per share, which do not have any standardized meaning as
prescribed by IFRS. These measures are intended as a complement to
results provided in accordance with IFRS. The Corporation believes
these measures provide additional useful information to analysts,
shareholders and other users to understand the Corporation's
financial results, profitability, cost management, liquidity and
ability to generate funds to finance its operations. However, these
measures should not be used as an alternative to IFRS measures
because they are not standardized financial measures under IFRS and
therefore might not be comparable to similar financial measures
disclosed by other companies. See the "Non-GAAP and other financial
measures" section of the Corporation's MD&A for the three and
twelve months ended December 31, 2021
for further details, which is incorporated by reference herein and
available on SECURE's profile at www.sedar.com and on our website
at www.secure-energy.com.
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted
EBITDA per basic and diluted share
Adjusted EBITDA is calculated as noted in the table below and
reflects items that the Corporation considers appropriate to adjust
given the irregular nature and relevance to comparable operations.
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by
revenue (excluding oil purchase and resale). Adjusted EBITDA per
basic and diluted share is defined as Adjusted EBITDA divided by
basic and diluted weighted average common shares.
The following table reconciles the Corporation's net loss, being
the most directly comparable financial measure disclosed in the
Corporation's Annual Financial Statements, to Adjusted EBITDA.
|
Three months ended
December 31,
|
Twelve months
ended December 31,
|
|
2021
|
2020
|
%
Change
|
2021
|
2020
|
%
Change
|
Net loss
(1)
|
(166)
|
(39)
|
326
|
(204)
|
(86)
|
137
|
Add:
|
|
|
|
|
|
|
Depreciation,
depletion and amortization (1) (2)
|
51
|
39
|
31
|
173
|
141
|
23
|
Impairment
(2)
|
247
|
34
|
626
|
269
|
50
|
438
|
Current tax
expense
|
(2)
|
—
|
100
|
(2)
|
1
|
(300)
|
Deferred tax
recovery
|
(56)
|
(11)
|
409
|
(67)
|
(24)
|
179
|
Share-based
compensation (2)
|
3
|
3
|
—
|
13
|
10
|
30
|
Interest, accretion
and finance costs (1)
|
28
|
5
|
460
|
60
|
28
|
114
|
Unrealized loss on
mark to market transactions (3)
|
2
|
—
|
100
|
2
|
—
|
100
|
Other
expense
|
(6)
|
—
|
100
|
3
|
—
|
100
|
Transaction and
restructuring costs
|
10
|
5
|
100
|
39
|
16
|
144
|
Adjusted
EBITDA
|
111
|
36
|
208
|
286
|
136
|
110
|
|
|
|
|
|
|
|
(1) Prior year amounts have been
restated, refer to "Accounting Policies" section in the Q4
2021 MD&A for additional information.
|
(2) Included in cost of sales and/or
general and administrative expenses on the Consolidated Statements
of Comprehensive Loss.
|
(3) Net balance. Includes amounts
presented in revenue and cost of sales on the Consolidated
Statements of Comprehensive Loss.
|
Discretionary Free Cash Flow and Discretionary Free Cash Flow
per share
Discretionary free cash flow is defined as funds flow from
operations adjusted for sustaining capital expenditures, and lease
payments (net of sublease receipts). The Corporation may deduct or
include additional items in its calculation of discretionary free
cash flow that are unusual, non-recurring, or non-operating in
nature. Discretionary free cash flow per basic and diluted share is
defined as discretionary free cash flow divided by basic and
diluted weighted average common shares.
The following table reconciles the Corporation's funds flow from
operations, being the most directly comparable financial measure
disclosed in the Corporation's Annual Financial Statements, to
discretionary free cash flow.
|
Three months ended
December 31,
|
Twelve months
ended December 31,
|
|
2021
|
2020
|
%
Change
|
2021
|
2020
|
%
Change
|
Funds flow from
operations
|
54
|
27
|
100
|
176
|
105
|
68
|
Adjust:
|
|
|
|
|
|
|
Sustaining
capital
|
(13)
|
(3)
|
333
|
(29)
|
(9)
|
222
|
Lease liability
principal payment (net of sublease receipts)
|
(4)
|
(4)
|
—
|
(15)
|
(17)
|
(12)
|
Transaction and
restructuring costs
|
10
|
5
|
100
|
39
|
16
|
144
|
Discretionary free
cash flow
|
47
|
25
|
88
|
171
|
95
|
80
|
FINANCIAL STATEMENTS AND MD&A
The Corporation's consolidated financial statements and notes
thereto for the year ended December 31,
2021, and MD&A for the three and twelve months ended
December 31, 2021 are available on
SECURE's website at www.secure-energy.com and on SEDAR at
www.sedar.com.
FOURTH QUARTER AND YEAR-END 2021 CONFERENCE CALL
SECURE will host a conference call on Thursday, March 3, 2022 at 9:00 a.m. MST to discuss the fourth quarter and
year-end results. To participate in the conference call, dial
416-764-8650 or toll free 888-664-6383. To access the simultaneous
webcast, please visit www.secure-energy.com. For those unable to
listen to the live call, a taped broadcast will be available at
www.secure-energy.com and, until midnight MST on Thursday, March 10, 2022 by dialing 888-390-0541
and using the pass code 512137#.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this press release 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
press release, the words "achieve", "advance", "anticipate",
"believe", "can be", "capacity", "commit", "continue", "could",
"deliver", "drive", "enhance", "ensure", "estimate", "execute",
"expect", "focus", "forecast", "forward", "future", "goal", "grow",
"integrate", "intend", "may", "maintain", "objective", "ongoing",
"opportunity", "outlook", "plan", "position", "potential",
"prioritize", "realize", "result", "seek", "should", "strategy",
"target" "will", and similar expressions, as they relate to SECURE,
its management, or the combined company, are intended to identify
forward-looking statements. Such statements reflect the current
views of SECURE and speak only as of the date of this press
release.
In particular, this press release contains or implies
forward-looking statements pertaining but not limited to: the
expected benefits of the Transaction, including expectations with
respect to synergies, Adjusted EBITDA, cost savings and the timing
thereof; the impact of financing transactions on the Corporation;
the levels of discretionary free cash flow and uses thereof;
disclosure with respect to ESG; the Corporation's priorities
including sustainability and ESG targets; the successful execution
of the Corporation's goals; the integration of Tervita's legacy
business; the Corporation's dividends policy or declarations and
payments of dividends; expenditures by oil and gas producers;
geopolitical conditions and the effects thereof; commodity prices;
causes and effects of increased oil and gas activity and
governmental policies on the Corporation's business; the
Corporation's future focuses and priorities; debt repayment and
reduction; increased shareholder returns; share buybacks;
sustaining and growth capital, and the allocation thereof; the
Corporation's commitment to ESG; specific ESG commitments, targets
and ambitions, including emissions target reductions; discretionary
spending and limits thereon; the Corporation's access to capital
markets and the resulting effect on its future growth and
acquisition plans; the relevance of SECURE's credit ratings to debt
investors and capital market participants; the complementary nature
of the Corporation's asset base and environmental service lines
following the Transaction, and the ability to enhance scale and
increase utilization as a result thereof; the Corporation's
expected discretionary free cash flow profile;; plans to reduce
carbon intensity and achieving net zero emissions by 2050; plans to
reduce water use by 5% by 2022 and lower greenhouse gas emissions
by 15% by 2024; SECURE's ability to deliver economic and
environmental benefits; the outlook for oil and liquids prices; the
effect of the current economic conditions on the future demand for
SECURE's services; capacity at the Corporation's existing
facilities; the introduction by the Alberta and Saskatchewan provincial governments of
mandatory spending programs for well closure and reclamation
obligations; the timing of the introduction of the new closure and
reclamation program of the Saskatchewan provincial government; the impact
the Canadian Federal Government's orphan and inactive well stimulus
package and the impact of similar programs of the Alberta and Saskatchewan provincial governments may have
to the business, operations and results of the Corporation;
increased abandonment and reclamation activity in the oil and gas
industry and the related effect on SECURE's results of operations
and the timing thereof; the Corporation's 2022 capital budget and
the future evaluation of the Corporation's capital project
opportunities; debt service and the Corporation's ability to meet
obligations and commitments and operate within any credit facility
restrictions, including the financial covenants related to our debt
facilities; the sufficiency of the Corporation's liquidity and
expectations that our capital investment, working capital, debt
repayment, share repurchases and cash dividends will be funded from
internally generated cash flows; the Corporation's credit risk
levels; expected benefits customers will receive from our midstream
and environmental solutions; key factors driving the Corporation's
success; demand for the Corporation's services and products;
industry fundamentals driving the success of SECURE's core
operations; future capital needs; and access to capital.
Forward-looking statements are based on certain assumptions that
SECURE has made in respect thereof as at the date of this press
release regarding, among other things: economic and operating
conditions, including commodity prices, crude oil and natural gas
storage levels, interest rates, exchange rates, and
inflation; the changes in market activity and growth will be
consistent with industry activity in Canada and the U.S. and growth levels in
similar phases of previous economic cycles; the impact of COVID-19,
including government responses related thereto and lower global
energy pricing on oil and gas industry exploration and development
activity levels and production volumes; the ability of the
Corporation to realize the anticipated benefits of the Transaction;
the resolution of the review of the Transaction under the
Competition Act on terms acceptable to the Corporation; SECURE's
ability to successfully integrate Tervita's legacy business;
anticipated sources of funding being available to SECURE on terms
favourable to SECURE; the success of the Corporation'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; the Corporation's ability to
attract and retain customers (including Tervita's historic
customers); that counterparties comply with contracts in a timely
manner; that there are no unforeseen events preventing the
performance of contracts or the completion and operation of the
relevant facilities; that there are no unforeseen material costs in
relation to the Corporation's facilities and operations; that
prevailing regulatory, tax and environmental laws and regulations
apply or are introduced as expected, and the timing of such
introduction; the end of the Canadian Federal Government's stimulus
package; increases to the Corporation's share price and market
capitalization over the long term; the Corporation's ability to
repay debt and return capital to shareholders; the Corporation's
ability to obtain and retain qualified staff and equipment in a
timely and cost-efficient manner; the Corporation's ability to
access capital and insurance; operating and borrowing costs,
including costs associated with the acquisition and maintenance of
equipment and property the ability of the Corporation and our
subsidiaries to successfully market our services in the WCSB and
the U.S.; an increased focus on environmental considerations in the
oil and gas industry; the impacts of climate-change on the
Corporation's business; the current business environment remaining
substantially unchanged; present and anticipated programs and
expansion plans of other organizations operating in the energy
service industry resulting in an increased demand for the
Corporation's services and our subsidiaries' services; future
acquisition and maintenance costs; the Corporation's ability to
achieve its ESG targets and commitments; and other risks and
uncertainties described from time to time in filings made by SECURE
with securities regulatory authorities.
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: general global financial conditions,
including general economic conditions in Canada and the U.S.; the effect of the
COVID-19 pandemic (including its variants) and governmental
responses thereto on economic conditions, commodity prices and the
Corporation's business and operations; changes in the level of
capital expenditures made by oil and natural gas producers and the
resultant effect on demand for oilfield services during drilling
and completion of oil and natural gas wells; volatility in market
prices for oil and natural gas and the effect of this volatility on
the demand for oilfield services generally; a transition to
alternative energy sources; the Corporation's inability to retain
customers; risks inherent in the energy services industry,
including physical climate-related impacts; the Corporation's
ability to generate sufficient cash flow from operations to meet
our current and future obligations; the seasonal nature of the oil
and gas industry; increases in debt service charges including
changes in the interest rates charged under the Corporation's
current and future debt agreements; inflation and supply chain
disruptions; the Corporation's ability to access external sources
of debt and equity capital and insurance; disruptions to our
operations resulting from events out of our control; the timing and
amount of stimulus packages and government grants relating to site
rehabilitation programs; the cost of compliance with and changes in
legislation and the regulatory and taxation environment, including
uncertainties with respect to implementing binding targets for
reductions of emissions and the regulation of hydraulic fracturing
services and services relating to the transportation of dangerous
goods; uncertainties in weather and temperature affecting the
duration of the oilfield service periods and the activities that
can be completed; competition; impairment losses on physical
assets; sourcing, pricing and availability of raw materials,
consumables, component parts, equipment, suppliers, facilities, and
skilled management, technical and field personnel; supply chain
disruption; the Corporation's ability to effectively complete
acquisition and divestiture transactions on acceptable terms or at
all; a failure to realize the benefits of the Transaction and risks
related to the associated business integration; the inaccuracy of
pro forma information prepared in connection with the Transaction;
risks related to a new business mix and significant shareholder;
liabilities and risks, including environmental liabilities and
risks, inherent in oil and natural gas operations, including those
associated with the Transaction; the Corporation's ability to
integrate technological advances and match advances of our
competition; credit, commodity price and foreign currency risk to
which the Corporation is exposed in the conduct of our business;
compliance with the restrictive covenants in the Corporation's
current and future debt agreements; the Corporation's or our
customers' ability to perform their obligations under long-term
contracts; misalignment with our partners and the operation of
jointly owned assets; the Corporation's ability to source products
and services on acceptable terms or at all; the Corporation's
ability to retain key or qualified personnel; uncertainty relating
to trade relations and associated supply disruptions; the effect of
changes in government and actions taken by governments in
jurisdictions in which the Corporation operates, including in the
U.S.; the effect of climate change activism on our operations and
ability to access capital and insurance; exposure of the
Corporation's information technology systems to external threats
and the effects of any unauthorized access to such system and
potential disclosure of confidential information; the Corporation's
ability to bid on new contracts and renew existing contracts;
potential closure and post-closure costs associated with landfills
operated by the Corporation; the Corporation's ability to protect
our proprietary technology and our intellectual property rights;
legal proceedings and regulatory actions to which the Corporation
may become subject, including in connection with the review of the
Transaction under the Competition Act and any claims for
infringement of a third parties' intellectual property rights; the
Corporation's ability to meet its ESG targets or commitments and
the costs associated therewith; claims by, and consultation with,
Indigenous Peoples in connection with project approval; disclosure
controls and internal controls over financial reporting; and those
risk factors identified from time to time in filings made by the
Corporation with securities regulatory authorities.
Although forward-looking statements contained in this press
release 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 press release are expressly
qualified by this cautionary statement. Unless otherwise required
by applicable securities laws, SECURE does not intend, or assume
any obligation, to update these forward-looking statements.
ABOUT SECURE
SECURE is a publicly traded energy infrastructure and
environmental business listed on the Toronto Stock Exchange
("TSX"). SECURE provides industry leading midstream infrastructure
and environmental and fluid management to upstream oil and natural
gas companies operating in western Canada and certain regions in the U.S.
SECURE's Midstream Infrastructure business segment includes a
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 midstream infrastructure operations generate cash flows
from oil production processing and disposal, produced water
disposal, and crude oil storage, logistics, and marketing.
SECURE's Environmental and Fluid Management business segment
includes a network of industrial landfills, hazardous and
non-hazardous waste management and disposal, onsite abandonment,
environmental solutions for site remediation and reclamation,
bio-remediation and technologies, waste treatment & recycling,
emergency response, rail services, metal recycling services, as
well as fluid management for drilling, completion and production
activities.
TSX Symbol: SES
SOURCE SECURE Energy Services Inc.