Canada NewsWire
CALGARY, AB, July 27, 2021
CALGARY, AB, July 27, 2021 /CNW/ - SECURE ENERGY Services Inc. ("SECURE" or the "Corporation") (TSX: SES) provided today an update on the Tervita Corporation merger and reported the Corporation's operational and financial results for the three and six months ended June 30, 2021.
TERVITA MERGER UPDATE
On March 8, 2021, SECURE entered into an arrangement agreement with Tervita Corporation ("Tervita") to combine in an all-share transaction pursuant to which SECURE agreed to acquire all of the issued and outstanding common shares of Tervita on the basis of 1.2757 common shares of SECURE for each outstanding common share of Tervita (the "Transaction"). On July 2, 2021, the Transaction closed, resulting in the issuance of approximately 147.6 million common shares of SECURE and following which Tervita amalgamated with SECURE. The common shares of Tervita were delisted by the TSX at the close of market on July 6, 2021.
The key benefits of the Transaction include:
With the closing of the Transaction, all litigation between SECURE and Tervita has been discontinued.
In connection with the closing of the Transaction, SECURE entered into an $800 million three-year senior secured revolving credit facility (the "new SECURE Credit Facility") with nine financial institutions and Chartered Banks. The new SECURE Credit Facility has been used to replace and repay SECURE's existing first and second lien credit facilities, Tervita's first lien credit facility, and SECURE's two bilateral letter of credit facilities totaling $75 million. SECURE also entered into a $30 million unsecured letter of credit facility guaranteed by Export Development Canada (the "new SECURE LC Facility"), providing additional stability and capacity to the Corporation's capital structure.
The statutory waiting period for the completion of the Transaction under the Competition Act expired on June 30, 2021. SECURE continues to work cooperatively with the Competition Bureau and the Competition Tribunal to resolve any concerns relating to the Transaction, which it understands relate to certain waste disposal assets. SECURE believes the resolution of such proceedings will not be material to the combined company's asset base or Adjusted EBITDA.
Director Appointments
SECURE also confirmed today the appointments of Grant Billing, Susan Riddell Rose, Jay Thornton, and Michael Colodner to the Corporation's Board of Directors ("the Board") following the closing of the Transaction. All incoming directors previously served on the Tervita Board of Directors. Grant Billing, former Chairman of Tervita, will act as Chairman of the Corporation.
With these additions to the Board, Marion Burnyeat, Shaun Paterson, Dan Steinke, and Rick Wise have formally retired.
"We are happy to welcome our new Board members, all of whom are experts in their chosen fields and bring with them years of industry experience," said Rene Amirault, President and CEO. "I would also like to thank the retiring Board members for their service and contributions to SECURE's ongoing success."
"On behalf of the incoming directors, we are excited to be joining SECURE's Board and look forward to working with existing Board members and management of the Corporation," said Grant Billing, Chairman of the Board.
The Corporation would also like to thank former SECURE and Tervita employees that have moved on for their hard work and contributions driving each company's success. We continue to expect change as we work towards achieving target integration cost savings to transform SECURE into a stronger and more efficient company. Our purpose remains to deliver energy to the world so people and communities thrive. By partnering with our customers to challenge what's possible and develop innovative solutions that lower their cost structure, improve capital efficiency, and deliver energy with the highest ESG standards in the world, we all win.
OPERATIONAL AND FINANCIAL RESULTS
The following should be read in conjunction with the Corporation's management's discussion and analysis ("MD&A") for the three and six months ended June 30, 2021, and the condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2021, which are available on SEDAR at www.sedar.com.
Unless otherwise indicated, the financial information and references to SECURE Energy Services Inc. and its subsidiaries and partnership interests contained herein, exclude Tervita and its subsidiaries and is presented on a non-consolidated basis. SECURE will report its initial post-Transaction consolidated results as at and for the three and nine month period ended September 30, 2021.
SECOND QUARTER HIGHLIGHTS
S&P | Fitch | ||||||
Corporate Rating | B | B+ | |||||
Tervita Notes | BB- | BB | |||||
2026 unsecured notes | B | B+ |
Prior to completion of the Transaction, the Tervita Notes were rated CCC+ by S&P.
OPERATING AND FINANCIAL SUMMARY
The Corporation's operating and financial highlights for the three and six month periods ended June 30, 2021 and 2020 can be summarized as follows:
Three months ended June 30, | Six months ended June 30, | |||||
($000's except share and per share data) | 2021 | 2020 | % change | 2021 | 2020 | % change |
Revenue (excludes oil purchase and resale) | 116,705 | 65,546 | 78 | 248,840 | 237,569 | 5 |
Oil purchase and resale | 395,192 | 225,644 | 75 | 924,269 | 659,199 | 40 |
Total revenue | 511,897 | 291,190 | 76 | 1,173,109 | 896,768 | 31 |
Adjusted EBITDA (1) | 30,045 | 20,453 | 47 | 69,198 | 62,547 | 11 |
Per share ($), basic | 0.19 | 0.13 | 46 | 0.43 | 0.39 | 10 |
Net loss attributable to shareholders of SECURE | (14,876) | (20,889) | (29) | (15,506) | (42,827) | (64) |
Per share ($), basic and diluted | (0.09) | (0.13) | (31) | (0.10) | (0.27) | (63) |
Cash flows from operating activities | 20,811 | 22,098 | (6) | 45,396 | 67,948 | (33) |
Per share ($), basic | 0.13 | 0.14 | (7) | 0.28 | 0.43 | (35) |
Discretionary free cash flow (1) | 19,527 | 10,281 | 90 | 47,036 | 41,135 | 14 |
Per share ($), basic | 0.12 | 0.06 | 100 | 0.29 | 0.26 | 12 |
Capital expenditures (1) | 6,797 | 10,560 | (36) | 13,224 | 51,920 | (75) |
Dividends per common share | 0.0075 | 0.0275 | (73) | 0.0150 | 0.0950 | (84) |
Total assets | 1,553,574 | 1,493,949 | 4 | 1,553,574 | 1,493,949 | 4 |
Long-term liabilities | 526,463 | 624,495 | (16) | 526,463 | 624,495 | (16) |
Common shares - end of period | 160,499,821 | 158,543,252 | 1 | 160,499,821 | 158,543,252 | 1 |
Weighted average common shares - basic and diluted | 160,358,466 | 158,488,825 | 1 | 159,951,853 | 158,501,312 | 1 |
(1)Refer to "Non-GAAP Measures" for further information. |
June 30, 2021 | Dec 31, 2020 | Covenant | |
Senior Debt to EBITDA | 2.0 | 2.2 | 3.5 |
Total Debt to EBITDA | 2.9 | 3.2 | 5.0 |
OUTLOOK
TERVITA INTEGRATION
Cost Savings and Synergies
SECURE's priority for the next 18 months is to successfully integrate the Tervita facility and operating networks and deliver on expected integration cost savings to become a more resilient, profitable, and efficient business. Annual integration cost savings of at least $75 million are expected to be achieved by the end of 2022. The Corporation expects the integration cost savings will be attained through operational optimizations (approximately 60%), including increased facility utilization, reduced field overhead, field office closures, transportation savings and operating cost efficiencies, as well as corporate overhead reductions (approximately 40%).
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 continuing 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. The Transaction provides the increased size and scale, utilization, and efficiencies to enhance the services and capabilities the Corporation can provide to our customers to help achieve their objectives of responsible development, while reducing costs.
Improvement and Progression of the Capital Structure
The Corporation's revised capital structure following the close of the Transaction provides increased stability with no near–term maturities, as well as enhanced flexibility with early redemption options available on the 2026 unsecured notes and the Tervita Notes, and capacity on the new SECURE Credit Facility, subject to covenant restrictions. The Corporation's current capital structure includes:
Throughout the remainder of this year, 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. The Corporation has established a target to achieve a total debt to EBITDA ratio of less than 2.5x by mid-2023.
The Corporation will continue to take a prudent approach to capital spending for the remainder of the year. The capital expenditure budget for the second half of 2021 is expected to be approximately $20 million, which includes approximately $15 million of sustaining capital, including that associated with the acquired Tervita facilities. A full evaluation of SECURE and Tervita's combined 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.
Enhanced ESG platform
SECURE will continue to take proactive measures to reduce the environmental impact of our own operations, and positively contribute to the health, safety, and economic wellbeing of our employees and 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. During the remainder of 2021, SECURE expects to continue to explore opportunities to further reduce our carbon footprint so that we can continue to positively contribute to the efforts to mitigate climate change and integrate two strong ESG frameworks into a single one that will provide the roadmap to establish SECURE as an ESG leader. We will continue to help our customers find innovative ways to support their ESG goals. We believe that, by working collaboratively, Canada's energy industry can win the race to lowest emissions by 2050 and operate with the highest ESG standards in the world.
MARKET OUTLOOK
The second quarter of 2021 results exceeded the Corporation's expectations as rising crude oil and liquids prices and producer cash flows drove industry activity, including increased demand for drilling and completion services, incremental facility volumes, increased recovered oil pricing and crude oil marketing opportunities. Higher crude oil and natural gas prices are expected to continue to provide significant improvement in overall industry activity in the second half of 2021. Producers are ramping up spending in response to higher prices and increased discretionary cash flow growth. Based on current macroeconomic conditions and commodity prices, SECURE also anticipates higher year over year discretionary free cash flow for the remainder of 2021 based on the following expectations:
FINANCIAL STATEMENTS AND MD&A
The Corporation's condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2021, and MD&A are available on SECURE's website at www.secure-energy.com and on SEDAR at www.sedar.com.
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", "commit", "continue", "could", "deliver", "drive", "enhance", "estimate", "execute", "expect", "focus", "grow", "integrate", "intend", "may", "maintain", "ongoing", "opportunity", "plan", "position", "prioritize", "realize", "result", "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 and the combined company following close of the Transaction, including expectations with respect to the strength the combined company; the combined company's access to capital markets and the resulting effect on its future growth and acquisition plans; the relevance of SECURE's credit rating to debt investors and capital market participants; the complementary nature of the combined company's asset base and environmental service lines, and the ability to enhance scale and increase utilization as a result thereof; SECURE's ability to partner with its customers to execute on growth projects; the combined company's expected discretionary free cash flow profile; expected annual integration cost savings of the combined company and the methods and timing thereof; improvements to SECURE's cost structure to serve a growing customer base; debt repayment plans; the ability to achieve the combined company's target debt to EBITDA ratio of less than 2.5x and the timing thereof; ongoing cooperation with the Competition Bureau and Competition Tribunal; the resolution of any proceedings under the Competition Act and the materiality thereof, including the impact on the combined company's asset base and Adjusted EBITDA; prioritizing the advancement of SECURE's ESG goals; governance practices and priorities of SECURE's new board of directors; plans to reduce carbon intensity in half by 2030 and achieving net zero emissions by 2050; SECURE's ability to deliver economic and environmental benefits; future ESG goals and the ability of the Transaction to accelerate SECURE's environmental and social sustainability initiatives; Canada's energy industry's ability to win the race to lowest emissions by 2050 and operate with the highest ESG standards in the world; maintaining strict cost control measures and a prudent approach to capital spending; SECURE's capital structure and benefits thereof; the outlook for oil and liquids prices; the oil and natural gas industry in Canada and the U.S., including drilling, completion and production activity levels for the remainder of 2021 and beyond in the Corporation's operating areas, and the related impact on SECURE's business, operations and financial results; increased year over year discretionary free cash flow; the effect of the current economic conditions on the future demand for SECURE's services and the impact on SECURE's cash flows and impairment charges on long-term assets; SECURE's financial resiliency and corporate priorities, including the integration of Tervita's business, debt repayment, and strategies to achieve such priorities; increased contribution to Adjusted EBITDA from the realization of synergies and the timing thereof; the benefits of contracted and/or fee-for-service contracts on SECURE's cash flow and the expected stability of such sources; capacity at the Corporation's existing facilities; the impact the Canadian Federal Government's orphan and inactive well fund 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 2021 capital budget and the future evaluation of SECURE's and Tervita's combined capital project opportunities; future dividend plans and opportunities to increase dividend payments after the successful integration with Tervita; 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: the resolution of applications made under the Competition Act (Canada) on terms acceptable to SECURE; SECURE's ability to successfully integrate the previous standalone businesses of SECURE and Tervita; sources of funding that each of SECURE and Tervita have relied upon in the past continue to be available to SECURE on terms favorable to SECURE; the impact of COVID-19, including related government responses related thereto and lower global energy pricing on oil and gas industry exploration and development activity levels and production volumes (including as a result of demand and supply shifts caused by COVID-19 and the actions of OPEC and non-OPEC countries); the success of SECURE'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; SECURE's ability to retain Tervita's previous 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; increases SECURE's share price and market capitalization over the long term; SECURE's ability to repay debt and return capital to shareholders; SECURE's ability to obtain and retain qualified staff and equipment in a timely and cost-efficient manner; 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: SECURE's ability to realize the anticipated benefits of, and synergies and savings from, the Transaction and the timing thereof; actions taken by government entities or others seeking to prevent or alter the terms of the Transaction; the ongoing evaluation of SECURE's credit ratings; legal claims resulting from the announcement or completion of the Transaction; negative reactions to the Transaction, including from customers, suppliers or employees; potential undisclosed liabilities unidentified during the due diligence process; the accuracy of the pro forma financial information of the combined company; the interpretation of the Transaction by tax authorities; the success of business integration; the entry into new business activities and the resulting business mix of the combined company; the focus of management's time and attention on the Transaction and other disruptions arising from the Transaction; and those factors referred to under the heading "Risk Factors" in the AIF and the Joint Information Circular. In addition, the effects and impacts of the COVID–19 outbreak, the rapid decline in global energy prices and the length of time to significantly reduce the global threat of COVID-19 on SECURE's business, the global economy and markets are unknown at this time and could cause SECURE's or the combined company's actual results to differ materially from the forward-looking statements contained in this press release.
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.
NON-GAAP 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 measures, such as Adjusted EBITDA, discretionary free cash flow, and segment profit margin, 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, 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 MD&A 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
SECURE is a publicly traded energy business listed on the Toronto Stock Exchange ("TSX") 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.") through its 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 core midstream infrastructure operations generate cash flows from oil production processing and disposal, produced water disposal, and crude oil storage, logistics, and marketing. SECURE also provides comprehensive environmental and fluid management for landfill disposal, onsite abandonment, remediation and reclamation, drilling, completion and production operations for oil and gas producers in western Canada.
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i Refer to the "Non-GAAP Measures" section herein. |
ii Refer to the "Liquidity and Capital Resources" section of the MD&A for details on the Corporation's covenant calculations. |
SOURCE SECURE Energy Services Inc.
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