CALGARY, AB, Nov. 11, 2021 /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, 2021.

In Q3 2021 CES demonstrated continued strong revenues, margins, and surplus free cash flow generation, underpinned by a focus on strategic investments in working capital and preservation of strong balance sheet and liquidity metrics. Revenue for the quarter was $314.4 million, representing a sequential increase of $60.8 million or 24.0% over $253.6 million in Q2 2021.  Adjusted EBITDAC was $42.0 million, representing a $10.0 million or 31.3% increase over $32.0 million in Q2 2021, and Adjusted EBITDAC margins continued to improve, reaching 13.4% in Q3 2021 versus 12.6% in Q2 2021.

CES realized improvements throughout its business lines amid strengthening industry conditions as it was able to leverage its established infrastructure, strong industry positioning, committed employees, and strategic investments in key raw materials.  The continued positive momentum demonstrated in the quarter has been supported by improvements in rig activity, higher volumes, pricing increases, and strategic procurement initiatives that are expected to continue through the balance of the year and into 2022.

As industry activity levels continued to improve, CES remained disciplined on capital expenditures during the quarter, retaining substantial liquidity while also making strategic use of its balance sheet to finance key surplus raw material purchases in order to meet the increasing needs of existing and new customers, manage product cost inflation, and mitigate the effects of global supply chain constraints. CES exited the quarter with a net draw on its Senior Facility of $50.5 million versus a net cash position of $11.9 million on June 30, 2021 and Total Debt, net of cash, of $372.1 million versus $304.6 million on June 30, 2021, of which $288.0 million relates to Senior Notes which don't mature until October 21, 2024. CES' Senior Facility has a maximum available draw of approximately C$ equivalent $232.5 million providing ample liquidity to support increasing business activity levels.  The increases realized during the quarter were primarily driven by strategic investments in working capital to support strong sequential revenue growth and strategic purchases of key raw material inventories, along with the repurchase of 863,400 common shares for $1.4 million, at an average price of $1.66 per share, under the Company's NCIB program. As of this date, the Company had a net draw on its Senior Facility of approximately $81.0 million in support of working capital levels associated with strong revenue growth and continued strategic investment in surplus inventory levels.

In the third quarter, CES generated revenue of $314.4 million, an increase of $148.1 million or 89.1% compared to $166.3 million in revenue for Q3 2020 and a sequential increase of 24.0% compared to $253.6 in revenue for Q2 2021. For the nine months ended September 30, 2021, CES generated revenue of $828.6 million, an increase of $153.4 million or 22.7% from $675.2 million in the 2020 comparative period. As producers' capital spending improved and production levels increased, activity and industry rig counts have seen a significant uptick from the lows seen during the height of the COVID-19 pandemic in 2020.

Revenue generated in the US during Q3 2021 was $197.0 million, representing a sequential increase of $21.7 million or 12.4% from Q2 2021 and an increase of $83.1 million or 73.0% from the comparative period in 2020. US revenues were positively impacted by increased industry activity levels and the reversal of temporary production shut-ins year-over-year, along with a significant increase in bulk product sales in the production chemicals division. US land drilling activity in Q3 2021 has improved by 101.7% from Q3 2020 and by 11.0% on a sequential quarterly basis. For the nine months ended September 30, 2021, revenue generated in the US increased by 16.5% to $540.3 million compared to $463.6 million in the prior year. CES continues to participate in the improved drilling environment, with US Drilling Fluids Market Share of 17.3% in Q3 2021.

Revenue generated in Canada during Q3 2021 was $117.4 million representing a sequential increase of $39.1 million or 49.9% on seasonally higher activity and associated revenue levels from Q2 2021, and an increase of $65.0 million or 124.0% from the 2020 comparative period. Canadian revenues benefited from increased rig counts on improvement in land drilling activity of 203.8% as compared to Q3 2020 and the reversal of temporary production shut-ins. For the nine months ended September 30, 2021, revenue generated in Canada increased 36.3% to $288.4 million compared to $211.6 million in the prior year.

CES achieved Adjusted EBITDAC of $42.0 million in Q3 2021, representing an increase of $23.8 million or 130.8% over $18.2 million in Q3 2020. Adjusted EBITDAC as a percentage of revenue of 13.4% achieved in Q3 2021 represented a significant improvement from the 11.0% recorded in Q3 2020 and a sequential improvement from 12.6% in Q2 2021, as the Company benefited from strong competitive positioning, pricing increases, improved production levels and increased drilling activity in both the US and Canada. For the nine months ended September 30, 2021, CES achieved Adjusted EBITDAC of $108.4 million, relative to $77.5 million in the comparative 2020 period as a result of higher period over period revenues driven by the factors described above. Margins for both the three and nine month periods experienced pressure as product and labour costs rose substantially, the impact of which was somewhat contained as a result of higher activity levels, strategic surplus inventory purchasing and the preservation of G&A at prudent levels.

Net income for the three months ended September 30, 2021 was $13.4 million compared to a net loss of $12.7 million in Q3 2020. Higher net income for the period was driven by higher industry activity levels and associated revenues, partially offset by rising product and labor costs during the quarter. The benefit recognized from the CEWS program in Q3 2021 was $0.7 million, compared to $5.6 million in Q3 2020. Net income for the nine months ended September 30, 2021 was $25.2 million compared to a net loss of $263.4 million for the comparative 2020 period. Net loss for the three and nine months ended September 30, 2020 was impacted by $0.9 million and $17.8 million, respectively, of inventory valuation write-downs, additional bad debt allowances and restructuring costs recorded in light of the challenging global oilfield market. For the nine months ended September 30, 2020, net loss was further impacted by a $248.9 million goodwill impairment.

On September 1, 2021, the Company completed an amendment and two year extension of its existing syndicated Senior Facility (the "Senior Facility"). The amendment took effect September 1, 2021 and will remain in effect until maturity on September 28, 2024, subject to certain terms and conditions, and the Senior Facility may be extended by one year upon agreement of the lenders and the Company. The Senior Facility is comprised of a Canadian facility of $145.0 million and a US facility of US$70.0 million. The principal amendment made to the Senior Facility was to shift availability to the US through an increase to the US facility from US$50.0 million to US$70.0 million and a corresponding reduction in the Canadian facility from $170.0 million to $145.0 million, for a total facility size of approximately C$ equivalent $232.5 million. The agreement also preserves the Company's ability to use proceeds under the Senior Facility to repurchase or redeem a portion of the Company's outstanding senior unsecured notes, subject to minimum liquidity requirements. Other terms and conditions from the amendment remain materially consistent with those of the previous senior facility.

Outlook

There has been continued optimism toward industry activity in 2021 to date as economic activity has resumed its growth trajectory and oil and gas demand has begun to return toward pre-COVID levels. As the global economic recovery continues to gain momentum, increased activity and demand have led to improving commodity prices, production levels and drilling activity. CES remains optimistic with its outlook for the remainder of the year and into 2022 as it expects to benefit from elevated upstream activity and improved pricing across North America by capitalizing on its established infrastructure, industry leading positioning, vertically integrated business model, and strategic procurement practices.

CES believes it will continue to benefit from its asset light, consumable chemical business model and its ability to maintain a prudent cost structure in this industry activity level environment. CES' counter cyclical leverage model was tested during the pandemic and demonstrated its ability to remain resilient despite declines in industry activity. As industry activity has continued to improve, the Company has made strategic investments in working capital to manage global supply chain challenges, and will continue to focus on working capital optimization and balance sheet strength and liquidity as the year progresses and into 2022.

CES has proactively managed both the duration and the flexibility of its debt. In September 2021, CES successfully amended and extended its Senior Facility to September 2024. 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.

CES expects 2021 capital expenditures to be approximately $30.0 million, of which $10.0 million is expansion and $20.0 million is maintenance. CES plans to continue its disciplined and prudent approach to capital expenditures in 2021 and will adjust its plans as required to support growth throughout divisions as required.

CES' underlying business model is capex light and asset light, enabling generation of significant surplus free cash flow. As our customers increasingly regulate their business models to maintain spending within cash flows, we believe that CES will be able to leverage its established infrastructure, business model, and nimble customer-oriented culture to deliver superior products and services to the industry. 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' vertically integrated business model enables it 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.

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 12, 2021.

North American toll-free: 1-(800)-319-4610
International / Toronto callers: (416)-915-3239
Link to Webcast: http://www.cesenergysolutions.com/

Financial Highlights

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 second quarter of 2021, CES also began to provide products and services in Oman through AES Drilling Fluids and to Nigeria through PureChem Services. In the US, CES operates under the trade names AES Drilling Fluids ("AES"), Jacam Catalyst LLC ("Jacam 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").

Following a series of transformative acquisitions, including the purchase of Jacam Chemicals ("Jacam") in 2013 and Catalyst Oilfield Services ("Catalyst") in 2016, the Company has been focused on integrating these businesses into its existing operations and driving efficiencies and organic growth. On December 31, 2020, the Company completed an internal organization which combined the retail businesses of Jacam and Catalyst to form Jacam Catalyst, LLC. 

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 2021; 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 improving industry conditions and the Company's ability to generate free cash flow to sustain the quarterly dividend; 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 the performance of CES' business model and counter cyclical balance sheet during downturns; expectations regarding CES' ability to qualify and participate in various government support programs including the Canadian Government's CEWS program; expectations that CES will continue to remain open and fully operating during the COVID-19 pandemic; expectations regarding the availability and distribution of COVID-19 vaccines and the corresponding impact on government mandated travel and gathering restrictions, increased demand for fossil-fuels, improving commodity prices, increased production levels and drilling activity; 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 the US and overseas; 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, oilfield 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; 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, shipping containers and skilled management, technical and field personnel; the collectability of accounts receivable, 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; the impact of climate change policies in regions which CES operates; the impact and speed of adoption of low carbon technologies; 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, 2020 dated March 11, 2021, and "Risks and Uncertainties" in CES' MD&A for the three and twelve months ended December 31, 2020, dated March 11, 2021.

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SOURCE CES Energy Solutions Corp.

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