Canada NewsWire
CALGARY, Feb. 26, 2019
CALGARY, Feb. 26, 2019 /CNW/ - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX – SES) announced today its operational and financial results for the three and twelve months ended December 31, 2018, highlighted by Adjusted EBITDA1 of $57.8 million and $190.5 million, an increase of 16% and 21% per basic share over the respective comparative periods of 2017. Secure is also pleased to announce the appointment of Richard (Rick) Wise to the Corporation's Board of Directors ("the Board"). Secure is also announcing the recent retirement of Daniel Steinke from his role as Executive Vice President of New Ventures and Government Affairs.
Director Appointment
Mr. Wise brings to the Board a wealth of midstream experience from his career of over 30 years in leadership, technical and commercial roles. Over the past ten years, Mr. Wise held various senior and executive leadership positions with Gibson Energy Inc., including Chief Operating Officer and Chief Commercial Officer (interim), where he provided leadership to the company's terminal, pipeline, wholesale and refinery operations. Mr. Wise obtained a Bachelor of Science degree in Chemical & Petroleum Engineering from the University of Calgary. He currently serves as a director for the Canadian Mental Health Association, Calgary.
"As we look ahead, Rick is an outstanding addition to our Board. His midstream experience will help guide Secure as it continues to execute the Corporation's growth strategy through expanded midstream offerings," said Rene Amirault, Chairman of the Board, President and CEO.
Officer Retirement
Dan Steinke was one of the founding members of Secure in 2007 and has been instrumental in growing and defining Secure into the company it is today. In his most recent role of Executive Vice President of New Ventures and Government Affairs, Dan's responsibilities included directing the Corporation's safety, regulatory, and Government relations teams, and evaluating industry trends and customer requirements to continue to grow Secure's core business and find new and better ways to help our customers. Dan's previous roles with Secure included executive positions in sales, business development and operations.
"Dan has been an invaluable asset to Secure over the past twelve years, providing vision and insight across all aspects of our business," said Rene Amirault. "Dan's mission to help the customer not only shaped our company, but the treatment and disposal industry as we know it. The honesty and integrity that Dan instilled in Secure's culture built the trust with our customers and partners that we enjoy today. We congratulate Dan on his retirement and welcome his continued counsel and knowledge as a director on Secure's Board."
Dan's retirement was effective December 31, 2018. His responsibilities have been transitioned to Corey Higham, Executive Vice President Processing, Recovery and Disposal, and Dave Engel, Executive Vice President, Technical Services.
Fourth Quarter and Year End 2018 Operational and Financial Highlights
The following operational and financial highlights should be read in conjunction with the Corporation's management's discussion and analysis ("MD&A") and the audited consolidated financial statements and notes thereto which are available on SEDAR at www.sedar.com.
2018 was another volatile year for the oil and gas industry in Canada. Four years following the global oil price collapse, the industry appeared to be in a cautious state of recovery, with stable commodity prices, increased drilling activity and rising production levels. However, Canadian oil and gas producers continue to face the challenge of exporting their products due to a lack of pipeline infrastructure. As a result of a significant oversupply of Canadian crude caused by these export constraints, crude price differentials in Canada relative to U.S. and global benchmarks reached unprecedented highs during the fourth quarter. The steep deterioration in realized crude pricing across the Western Canadian Sedimentary Basin ("WCSB") from these wide differentials impacted industry cash flows, resulting in decreased producer confidence and a slowdown of drilling and completion activity.
Amidst these extraordinary industry conditions, Secure remained focused on executing the Corporation's strategy for enhanced fluid management, providing customers with solutions to increase operating netbacks and improve capital efficiency. In the Corporation's core Midstream Infrastructure division, Secure achieved record revenue and Adjusted EBITDA resulting from infrastructure additions and expansions during the year, and stable production-driven activity at existing facilities. Additionally, the Corporation's pipeline connected FSTs and rail terminals located near customer operations enabled Secure to help our customers move product with lower transportation costs and realize higher pricing during the quarter, which favourably impacted revenue. Overall, Secure achieved Adjusted EBITDA of $57.8 million and $190.5 million in the three and twelve months ended December 31, 2018, an increase of 13% and 21%, respectively, from the comparative periods of 2017. Secure's net income of $13.9 million and $19.9 million in the three and twelve months ended December 31, 2018 resulted in net income per weighted average common share of $0.09 and $0.12 in the respective periods.
Secure's dedication to helping the customer has proven to be a competitive advantage to the Corporation, and continued to drive Secure's growth and success in the three and twelve months ended 2018, highlighted by the following achievements:
Strategic Growth Secure continues to identify and develop midstream infrastructure to expand capacity and optimize capabilities at existing facilities. During 2018, Secure completed construction and commissioning of the light oil feeder pipeline system and receipt terminal in the Kindersley-Kerrobert region of Saskatchewan ("Kerrobert Light Pipeline System"), the Corporation's first owned and operated crude oil pipeline system. Secure also commenced operations at two new water disposal facilities during year, expanding the Corporation's footprint in the liquids-rich Montney region in Alberta where activity levels, production growth and water disposal requirements are higher than the rest of the WCSB. These capital investments are supported by long-term commitments, providing Secure with recurring volumes and fee-for-service cash flows.
In total, the Corporation incurred $32.3 million and $156.7 million of growth and expansion capital during the three and twelve months ended December 31, 2018, comprised primarily of the growth projects noted above and expansions at several facilities to increase throughput, emulsion treating and storage and disposal capacity. These investments are expected to position the Corporation to capture new demand and drive more volumes to Secure's facilities.
Resilient Cash Flows Secure's focus in recent years on growing the Midstream Infrastructure division has lessened the Corporation's dependence on drilling-related revenue streams and provides the Corporation with greater certainty on recurring cash flows. 84% of the Corporation's Adjusted EBITDA (before Corporate costs) during 2018 was generated from the Midstream Infrastructure division, where facility volumes are driven primarily from production-related activities. Stable cash flows generated from these production volumes, along with the growth of the production chemicals business in the Technical Solutions division, and recurring work in the Environmental Solutions division, including new long-term contracts in the oil sands for large scale waste management and recycling programs, mitigated the impact of periods of decreased drilling activity during the year. Additionally, Secure has made investments in the U.S. market that continued to show significant signs of growth specifically noted in the performance of the Corporation's facilities located in North Dakota. Production in North Dakota was at record levels during 2018 and producers in the region do not face the egress challenges producers are experiencing in Canada. With Secure's core business, the Corporation is well positioned to succeed in periods of industry uncertainty, with significant upside potential resulting from increased activity levels.
Solid Financial Performance Successful project execution and strategic acquisitions over the past several years, along with recurring cash flows generated from production-related activities resulted in revenue (excluding oil purchase and resale) of $192.8 million and $698.2 million in the three and twelve months ended December 31, 2018, a 4% and 16% increase over the comparative periods of 2017 despite lower oil and gas drilling and completion activity in the WCSB. The Midstream Infrastructure division's segment profit margin1 as a percentage of revenue (excluding oil purchase and resale) was 62% and 59% in the three and twelve months ended December 31, 2018 as a result of higher revenue and an ongoing commitment to cost control and efficiency. Overall, Secure's Adjusted EBITDA increased by greater than 10% each quarter of 2018 over 2017. As a result of higher Adjusted EBITDA, net income also saw substantial quarter over quarter increases in 2018 over 2017.
Financial Strength Secure continues to take a disciplined approach to maintaining a strong balance sheet. At December 31, 2018, the Corporation's total debt to EBITDA, as defined in the lending agreements, was 2.2 to 1. This provides the Corporation with considerable flexibility to continue to grow the business organically and execute on strategic acquisition opportunities that align with the profitable growth strategy of Secure.
Shareholder Value Creation During the three and twelve months ended December 31, 2018, the Corporation returned $10.9 million and $44.0 million, respectively, of cash flow to shareholders through the monthly dividend of $0.0225 per share. Secure was also active during the year on the normal course issuer bid ("NCIB") approved by the TSX in May 2018. The Corporation repurchased and cancelled 5,546,681 common shares for $41.1 million during the year at an average price of $7.42 per common share, representing over 3% of the Corporation's outstanding shares. During the three months ended December 31, 2018, Secure repurchased and cancelled 2,740,108 common shares for $20.3 million at an average price of $7.40 per common share.
FOURTH QUARTER HIGHLIGHTS
The operating and financial highlights for the three month periods ending December 31, 2018 and 2017 can be summarized as follows:
Three months ended December 31, | ||||
($000's except share and per share data) | 2018 | 2017 | % change | |
Revenue (excludes oil purchase and resale) | 192,756 | 184,740 | 4 | |
Oil purchase and resale | 490,295 | 494,816 | (1) | |
Total revenue | 683,051 | 679,556 | 1 | |
Adjusted EBITDA (1) | 57,810 | 51,177 | 13 | |
Per share ($), basic | 0.36 | 0.31 | 16 | |
Net income (loss) | 13,944 | (23,934) | 158 | |
Per share ($), basic and diluted | 0.09 | (0.15) | 160 | |
Cash flows from operating activities | 59,310 | 22,925 | 159 | |
Per share ($), basic | 0.37 | 0.14 | 164 | |
Dividends per common share | 0.06750 | 0.06375 | 6 | |
Capital expenditures (1) | 40,754 | 51,815 | (21) | |
Total assets | 1,583,501 | 1,562,746 | 1 | |
Long-term liabilities | 560,863 | 422,251 | 33 | |
Net debt (1) | 268,692 | 166,647 | 61 | |
Common shares - end of period | 159,274,147 | 163,352,572 | (2) | |
Weighted average common shares | ||||
basic | 161,251,096 | 163,325,590 | (1) | |
diluted | 164,374,324 | 163,325,590 | 1 |
(1)Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
Dec 31, 2018 | Dec. 31, 2017 | Threshold | |
Senior debt to EBITDA | 1.6 | 1.1 | 3.5 |
Total debt to EBITDA | 2.2 | 1.9 | 5.0 |
ANNUAL HIGHLIGHTS
The operating and financial highlights for the years ended December 31, 2018, 2017 and 2016 can be summarized as follows:
Twelve months ended Dec 31, | ||||
($000's except share and per share data) | 2018 | 2017 | 2016 | |
Revenue (excludes oil purchase and resale) | 698,172 | 603,421 | 393,159 | |
Oil purchase and resale | 2,239,281 | 1,724,787 | 1,016,904 | |
Total revenue | 2,937,453 | 2,328,208 | 1,410,063 | |
Adjusted EBITDA (1) | 190,521 | 157,211 | 94,100 | |
Per share ($), basic | 1.17 | 0.97 | 0.61 | |
Net income (loss) | 19,929 | (34,202) | (48,943) | |
Per share ($), basic and diluted | 0.12 | (0.21) | (0.32) | |
Cash flows from operating activities | 186,515 | 108,872 | 96,682 | |
Per share ($), basic | 1.14 | 0.67 | 0.63 | |
Dividends per common share | 0.27000 | 0.25000 | 0.24000 | |
Capital expenditures (1) | 177,076 | 191,837 | 150,877 | |
Total assets | 1,583,501 | 1,562,746 | 1,425,250 | |
Long-term liabilities | 560,863 | 422,251 | 336,830 | |
Net debt (1) | 268,692 | 166,647 | 73,176 | |
Common shares - end of period | 159,274,147 | 163,352,572 | 160,652,221 | |
Weighted average common shares | ||||
basic | 163,008,356 | 162,827,541 | 154,625,869 | |
diluted | 165,425,609 | 162,827,541 | 154,625,869 |
(1)Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
MIDSTREAM INFRASTRUCTURE DIVISION HIGHLIGHTS
Three months ended Dec 31, | Year ended Dec 31, | |||||
($000's) | 2018 | 2017 | % Change | 2018 | 2017 | % Change |
Revenue | ||||||
Midstream Infrastructure (a) | 105,420 | 80,611 | 31 | 356,350 | 274,372 | 30 |
Oil purchase and resale | 490,295 | 494,816 | (1) | 2,239,281 | 1,724,787 | 30 |
Total Midstream Infrastructure division revenue | 595,715 | 575,427 | 4 | 2,595,631 | 1,999,159 | 30 |
Cost of Sales | ||||||
Midstream Infrastructure excluding items noted below | 39,607 | 33,877 | 17 | 146,767 | 117,655 | 25 |
Depreciation, depletion and amortization | 20,175 | 22,564 | (11) | 81,094 | 81,674 | (1) |
Oil purchase and resale | 490,295 | 494,816 | (1) | 2,239,281 | 1,724,787 | 30 |
Total Midstream Infrastructure division cost of sales | 550,077 | 551,257 | - | 2,467,142 | 1,924,116 | 28 |
Segment Profit Margin(1) | 65,813 | 46,734 | 41 | 209,583 | 156,717 | 34 |
Segment Profit Margin (1) as a % of revenue (a) | 62% | 58% | 59% | 57% |
(1) Calculated as revenue less cost of sales excluding depreciation and amortization. Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
ENVIRONMENTAL SOLUTIONS DIVISION HIGHLIGHTS
Three months ended Dec 31, | Year ended Dec 31, | |||||
($000's) | 2018 | 2017 | % Change | 2018 | 2017 | % Change |
Revenue | ||||||
Environmental Solutions | 29,236 | 42,726 | (32) | 117,060 | 123,216 | (5) |
Cost of Sales | ||||||
Environmental Solutions excluding depreciation and amortization | 22,464 | 33,192 | (32) | 92,242 | 95,482 | (3) |
Depreciation and amortization | 2,093 | 2,204 | (5) | 8,525 | 9,302 | (8) |
Total Environmental Solutions division cost of sales | 24,557 | 35,396 | (31) | 100,767 | 104,784 | (4) |
Segment Profit Margin(1) | 6,772 | 9,534 | (29) | 24,818 | 27,734 | (11) |
Segment Profit Margin(1) as a % of revenue | 23% | 22% | 21% | 23% |
(1) Calculated as revenue less cost of sales excluding depreciation and amortization. Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
TECHNICAL SOLUTIONS DIVISION HIGHLIGHTS
Three months ended Dec 31, | Year ended Dec 31, | |||||
($000's) | 2018 | 2017 | % Change | 2018 | 2017 | % Change |
Revenue | ||||||
Technical Solutions | 58,100 | 61,403 | (5) | 224,762 | 205,833 | 9 |
Cost of Sales | ||||||
Technical Solutions excluding depreciation and amortization | 48,737 | 48,928 | - | 186,232 | 166,568 | 12 |
Depreciation and amortization | 5,670 | 5,450 | 4 | 21,252 | 20,879 | 2 |
Total Technical Solutions division cost of sales | 54,407 | 54,378 | - | 207,484 | 187,447 | 11 |
Segment Profit Margin(1) | 9,363 | 12,475 | (25) | 38,530 | 39,265 | (2) |
Segment Profit Margin (1) as a % of revenue | 16% | 20% | 17% | 19% |
(1) Calculated as revenue less cost of sales excluding depreciation and amortization. Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
OUTLOOK
In response to the historic differentials during the fourth quarter, the Alberta Government implemented a temporary 8.7% production cut of raw crude oil and bitumen effective January 2019 to reduce excess oil storage in western Canada. In addition to the mandated production curtailment, uncertainty resulting from volatile commodity prices and ongoing egress constraints has resulted in producers continuing to delay drilling and completion activity. As a result, oil price differentials in the WCSB have tightened since the announcement. As the year progresses, Secure anticipates higher producer cash flows in Canada resulting from narrowing differentials. This, along with greater visibility toward pipeline development for improved market access, including the completion of the Enbridge Inc. Line 3 pipeline, will help restore confidence and may result in a rebound in activity levels in the second half of 2019 and into 2020.
Production-related volumes represent the majority of the volumes processed and disposed at Secure's midstream facilities, providing the Corporation with recurring cash flows that are more resilient during periods of reduced drilling and completion activity. This, combined with the addition of new infrastructure and expansions during 2018, is expected to mitigate the impact reduced activity levels, particularly in the drilling fluids and onsite integrated fluids management businesses, will have on the Corporation's financial results in 2019.
Secure's strategy remains focused on what is in the Corporation's control: working with customers to identify opportunities and integrated solutions where the Corporation can add value and lower customers' costs. By focusing on new and innovative ways to offer solutions, Secure's customers will be able to gain efficiencies for drilling, completing and producing their hydrocarbon reserves. Helping Secure's customers grow and being their trusted energy solutions partner will ensure that the Corporation continues to create long-term shareholder value.
The industry fundamentals driving the success of Secure's core operations remain unchanged:
These factors are expected to result in the need for additional facilities to meet incremental requirements for treating, processing and disposal capacity. Secure has made significant capital investments to ensure the business is well positioned to capture new demand. By offering exceptional customer service and owning and operating midstream facilities near customer production, Secure expects these trends will drive more volumes to the Corporation's midstream facilities. Additionally, customers continue seek cost effective transportation solutions for water, oil and condensate volumes; Secure's successful execution of the Kerrobert Light Pipeline System will help the Corporation to take advantage of similar opportunities creating value for both the customer and Secure.
Secure has a solid balance sheet and is well positioned to respond with solutions and the right people to the market's needs. Secure continues to work with its customers to support their needs relating to new facilities and expansions. The Corporation expects to incur approximately $100 million of growth and expansion capital in 2019 depending on the outcome of various opportunities in development, such as regulatory approvals, development permits and other operating agreements. The initial capital plan includes completing construction of two crude oil storage tanks at the receipt terminal in Kerrobert, expected to be commissioned in May 2019; construction of two produced water transfer and injection pipelines from customer processing plants; optimizing capabilities and increasing processing and disposal capacity at various other facilities, including additional disposalwells; and purchasing equipment to support existing services. Providing value-adding solutions to increase customer operating netbacks and improve capital efficiency remains Secure's primary objective.
FINANCIAL STATEMENTS AND MD&A
The Corporation's audited consolidated financial statements and notes thereto for the year ended December 31, 2018 and 2017 and MD&A for the three and twelve months ended December 31, 2018 and 2017 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 factors driving the Corporation's success; the impact of new facilities, new service offerings, potential acquisitions, and prior year acquisitions on the Corporation's future financial results; demand for the Corporation's services and products; growth and expansion strategy; the Corporation's ability to continue to grow the business organically and execute on strategic growth opportunities based on current financial position; the oil and natural gas industry in Canada and the U.S., including 2019 and 2020 activity levels, spending by producers and the impact of this on Secure's activity levels; future pipeline development in Canada, specifically related to timing of the completion of Enbridge Inc.'s Line 3 replacement; industry fundamentals driving the success of Secure's core operations, including increased outsourcing of midstream work by producers, drilling, completion and production trends, opportunities relating to crude oil logistics, well density and economics for pipeline connecting production volumes to midstream facilities, and global oil and gas demand; the Corporation's proposed 2019 capital expenditure program including growth and expansion and sustaining capital expenditures, and the timing of completion for projects, in particular the additional storage at the Kerrobert terminal; debt service; future capital needs and how the Corporation intends to fund its operations, working capital requirements, dividends and capital program; access to capital; 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 are based upon prior year results as well as the assumption that levels of market activity and growth will be consistent with industry activity in Canada and the U.S. and similar phases of previous economic cycles. Forward-looking statements concerning the availability of funding for future operations are based upon the assumption that the sources of funding which the Corporation has relied upon in the past will continue to be available to the Corporation on terms favorable to the Corporation and that future economic and operating conditions will not limit the Corporation's access to debt and equity markets. Forward-looking statements concerning the relative future competitive position of the Corporation are based upon the assumption that economic and operating conditions, including commodity prices, crude oil and natural gas storage levels, interest and foreign exchange rates, the regulatory framework regarding oil and natural gas royalties, environmental regulatory matters, the ability of the Corporation and its subsidiaries to successfully market their services and drilling and production activity in North America will lead to sufficient demand for the Corporation's services including demand for oilfield services for drilling and completion of oil and natural gas wells, that the current business environment will remain substantially unchanged, and that present and anticipated programs and expansion plans of other organizations operating in the energy industry may change the demand for the Corporation's services and its subsidiaries' services. Forward-looking statements concerning the nature and timing of growth are based on past factors affecting the growth of the Corporation, past sources of growth and expectations relating to future economic and operating conditions. Forward-looking statements in respect of the costs anticipated to be associated with the acquisition and maintenance of equipment and property are based upon assumptions that future acquisition and maintenance costs will not significantly increase from past acquisition and maintenance costs.
Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether such results will be achieved. Readers are cautioned not to place undue reliance on these statements as a number of factors could cause actual results to differ materially from the results discussed in these forward-looking statements, including but not limited to those factors referred to under the heading "Risk Factors" in the AIF for the year ended December 31, 2018 and also includes the risks associated with the possible failure to realize the anticipated synergies in integrating the assets acquired in prior year acquisitions with the operations of Secure. Although forward-looking statements contained in this document are based upon what the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements in this document are expressly qualified by this cautionary statement. Unless otherwise required by law, Secure does not intend, or assume any obligation, to update these forward-looking statements.
NON-GAAP MEASURES AND OPERATIONAL DEFINITIONS
The Corporation uses accounting principles that are generally accepted in Canada (the issuer's "GAAP"), which includes International Financial Reporting Standards ("IFRS"). Certain supplementary measures in this document do not have any standardized meaning as prescribed by IFRS. These measures are intended as a complement to results provided in accordance with IFRS. The Corporation believes these measures provide additional useful information to analysts, shareholders and other users to understand the Corporation's financial results, profitability, cost management, liquidity and ability to generate funds to finance its operations. However, they should not be used as an alternative to IFRS measures because they do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. See the management's discussion and analysis available at www.sedar.com for further details, including reconciliations of the Non-GAAP measures and additional GAAP measures to the most directly comparable measures calculated in accordance with IFRS.
ABOUT SECURE ENERGY SERVICES INC.
Secure is a TSX publicly traded integrated energy business with midstream infrastructure, environmental and technical solutions divisions providing industry leading customer solutions to upstream oil and natural gas companies operating in western Canada and certain regions in the United States ("U.S.").
1 Refer to the "Non-GAAP Measures and Operational Definitions" section herein. |
SOURCE SECURE Energy Services Inc.
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