Canada NewsWire
CALGARY, Aug. 1, 2017
CALGARY, Aug. 1, 2017 /CNW/ - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX – SES) is pleased to announce the completion of the acquisition of Ceiba Energy Services Inc. ("Ceiba"), a service provider of stand-alone water disposal and oil treating facilities in western Canada. The acquisition was previously announced on May 15, 2017 and adds ten facilities that fit within, and add capacity to, Secure's existing PRD facility network. The additional facilities will provide customers with additional options to reduce their overall transportation costs for custom treating of crude oil, crude oil marketing, produced and waste water disposal and oilfield waste processing.
Pursuant to the acquisition, the Corporation paid approximately $35.5 million in cash (including outstanding debt) and issued 189,965 common shares for a total transaction value of approximately $37.0 million, subject to working capital and post-closing adjustments.
Secure also announced today its operational and financial results for the three and six months ended June 30, 2017. The following should be read in conjunction with the management's discussion and analysis ("MD&A") and the interim consolidated financial statements and notes thereto of Secure which are available on SEDAR at www.sedar.com.
Q2 2017 OPERATIONAL AND FINANCIAL HIGHLIGHTS
The second quarter of 2017 was very active for Secure as the Corporation completed the acquisition of a production chemicals business in April and entered into an agreement to acquire all of the issued and outstanding shares of Ceiba in May. In addition, the Corporation restructured its credit facilities in June to provide greater financial flexibility as Secure continues to be active on both acquisition and organic growth opportunities. There continues to be high demand for water disposal in many areas including the Montney and Deep Basin resource plays where Secure has recently added more disposal capacity.
Seasonality of the oil and gas industry, including the length of spring break-up, weather conditions, and the timing of road bans has the most significant effect on second quarter results. Financial results were positively influenced by more robust activity levels during the second quarter of 2017 and due to more favorable weather conditions resulting in shorter road bans.
ADJUSTED EBITDA INCREASE OF 135%
Average crude oil prices increased by 10% while industry rig counts and metres drilled in the WCSB increased by 142% and 215% respectively over the second quarter of 2016. As a result, all three of the Corporation's divisions were positively impacted and experienced increased revenues and improved margins compared to the second quarter of 2016. Increased industry activity, along with the addition of new facilities and expansions in underserviced markets in 2016, and ongoing production related volumes from existing facilities in the PRD division resulted in Adjusted EBITDA1 of $20.0 million and $62.2 million during the three and six months ended June 30, 2017 respectively, a 135% and 85% increase over the comparative periods.
INCREASED CAPITAL PROGRAM
In May, Secure announced an increase to its 2017 capital program. Secure expects to spend approximately $100 million on organic projects relating to the following:
STRONG BALANCE SHEET LEVERAGED THROUGH NEW CREDIT FACILITIES
On June 30, 2017, Secure entered into new credit facilities consisting of a $470 million first lien credit facility ("First Lien Facility") and a $130 million second lien credit facility ("Second Lien Facility"). The combined facilities total $600 million and replace the Corporation's previous $700 million syndicated facility. The reduction in the total borrowing capacity allows the Corporation to optimize its debt structure to reduce costs associated with standby fees on undrawn amounts while maintaining target levels of liquidity.
The First Lien Facility has a maturity date of June 30, 2021 and bears interest at the Corporation's option of either the Canadian prime rate plus 0.45% to 2.00% or the banker acceptance rate plus 1.45% to 3.00%, depending, in each case, on the ratio of senior debt to EBITDA.
The Second Lien Facility has a maturity date of July 31, 2021 and through the utilization of interest rate swaps has an interest rate of 5% for the first three years and 5.5% thereafter.
The Corporation's balance sheet provides significant financial flexibility to pursue accretive acquisitions and continue to invest in organic capital projects as described above. At June 30, 2017, Secure's net debt1 was $88.9 million, and the Corporation's senior debt and total debt to EBITDA ratios, as defined by the Corporation's credit facilities, were both 1.8 to 1.
The operating and financial highlights for the three and six month periods ending June 30, 2017 and 2016 can be summarized as follows:
Three months ended June 30, |
Six months ended June 30, | |||||||
($000's except share and per share data) |
2017 |
2016 |
% change |
2017 |
2016 |
% change | ||
Revenue (excludes oil purchase and resale) |
115,372 |
66,148 |
74 |
256,085 |
168,415 |
52 | ||
Oil purchase and resale |
468,952 |
202,460 |
132 |
778,828 |
309,325 |
152 | ||
Total revenue |
584,324 |
268,608 |
118 |
1,034,913 |
477,740 |
117 | ||
Adjusted EBITDA (1) |
20,044 |
8,540 |
135 |
62,214 |
33,623 |
85 | ||
Per share ($), basic and diluted |
0.12 |
0.05 |
140 |
0.38 |
0.23 |
65 | ||
Net loss |
(13,529) |
(20,681) |
35 |
(10,089) |
(30,747) |
67 | ||
Per share ($), basic and diluted |
(0.08) |
(0.13) |
38 |
(0.06) |
(0.21) |
71 | ||
Adjusted net loss (1) |
(13,315) |
(20,467) |
35 |
(9,813) |
(29,065) |
66 | ||
Per share ($), basic and diluted |
(0.08) |
(0.13) |
38 |
(0.06) |
(0.19) |
68 | ||
Funds from operations (1) |
17,376 |
5,994 |
190 |
57,428 |
24,694 |
133 | ||
Per share ($), basic and diluted |
0.11 |
0.04 |
175 |
0.35 |
0.17 |
106 | ||
Dividends per common share |
0.06125 |
0.06 |
2 |
0.12125 |
0.12 |
1 | ||
Capital expenditures (1) |
49,688 |
74,356 |
(33) |
61,784 |
95,845 |
(36) | ||
Total assets |
1,417,372 |
1,374,164 |
3 |
1,417,372 |
1,374,164 |
3 | ||
Net debt (1) |
88,926 |
69,289 |
28 |
88,926 |
69,289 |
28 | ||
Common shares - end of period |
162,949,160 |
159,321,292 |
2 |
162,949,160 |
159,321,292 |
2 | ||
Weighted average common shares - basic and diluted |
162,776,950 |
158,437,296 |
3 |
162,421,437 |
149,226,219 |
9 | ||
(1) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
PRD DIVISION OPERATING HIGHLIGHTS
Three months ended June 30, |
Six months ended June 30, | ||||||
($000's) |
2017 |
2016 |
% Change |
2017 |
2016 |
% Change | |
Revenue |
|||||||
PRD services (a) |
60,278 |
37,450 |
61 |
127,748 |
86,156 |
48 | |
Oil purchase and resale service |
468,952 |
202,460 |
132 |
778,828 |
309,325 |
152 | |
Total PRD division revenue |
529,230 |
239,910 |
121 |
906,576 |
395,481 |
129 | |
Direct expenses |
|||||||
PRD services (b) |
28,709 |
19,670 |
46 |
56,362 |
42,493 |
33 | |
Oil purchase and resale service |
468,952 |
202,460 |
132 |
778,828 |
309,325 |
152 | |
Total PRD division direct expenses |
497,661 |
222,130 |
124 |
835,190 |
351,818 |
137 | |
Operating Margin (1) (a-b) |
31,569 |
17,780 |
78 |
71,386 |
43,663 |
63 | |
Operating Margin (1) as a % of revenue (a) |
52% |
47% |
56% |
51% |
Highlights for the PRD division for the three and six months ended June 30, 2017 included:
DPS DIVISION OPERATING HIGHLIGHTS
Three months ended June 30, |
Six months ended June 30, | ||||||
($000's) |
2017 |
2016 |
% Change |
2017 |
2016 |
% Change | |
Revenue |
|||||||
Drilling and production services (a) |
33,921 |
11,235 |
202 |
84,389 |
46,442 |
82 | |
Direct expenses |
|||||||
Drilling and production services (b) |
31,878 |
12,396 |
157 |
70,745 |
42,123 |
68 | |
Operating Margin (1) (a-b) |
2,043 |
(1,161) |
276 |
13,644 |
4,319 |
216 | |
Operating Margin (1) as a % of revenue (a) |
6% |
-10% |
16% |
9% |
|||
(1) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
Highlights for the DPS division for the three and six months ended June 30, 2017 included:
OS DIVISION OPERATING HIGHLIGHTS
Three months ended June 30, |
Six months ended June 30, | ||||||
($000's) |
2017 |
2016 |
% Change |
2017 |
2016 |
% Change | |
Revenue |
|||||||
OnSite services (a) |
21,173 |
17,463 |
21 |
43,948 |
35,817 |
23 | |
Direct expenses |
|||||||
OnSite services (b) |
16,953 |
13,437 |
26 |
34,139 |
27,204 |
25 | |
Operating Margin (1) (a-b) |
4,220 |
4,026 |
5 |
9,809 |
8,613 |
14 | |
Operating Margin (1) as a % of revenue (a) |
20% |
23% |
22% |
24% |
|||
(1) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
Highlights for the OS division for the three and six months ended June 30, 2017 included:
OUTLOOK
The second quarter of 2017 results were in line with the Corporation's expectations as industry activity increased significantly compared to the second quarter of 2016. Currently, drilling and completion activities remain robust for the third quarter of 2017 and production related volumes have continued to increase at Secure's PRD facilities.
Secure continues to respond to customer demand by evaluating multiple opportunities relating to new infrastructure, as evidenced by the feeder pipeline project, and new and expanding facilities in the capacity constrained Montney region. Secure anticipates organic capital spending to be up to $100 million in 2017 subject to the timing of obtaining remaining permits for the feeder pipeline and other projects; and will spend approximately $15 million on sustaining and maintenance expenditures for the year within the PRD division. The Corporation will also continue to pursue opportunities for rail services, frac water hubs and water recycling, and expansion of services in the Fort McMurray region.
On May 15, 2017, Secure announced that it entered into an agreement to acquire Ceiba. The acquisition closed on August 1, 2017 and adds ten facilities to Secure's existing PRD facility network, increasing capacity and expanding the Corporation's geographic footprint. Secure expects to realize immediate volume increases in the third quarter of 2017 and plans to allocate incremental capital to the assets to enhance throughput and service capabilities. The acquisition enables Secure to expand its facility network while realizing synergies related to senior management, sales and general and administration costs.
The Production Chemicals Acquisition completed in the second quarter adds sizeable blending capacity and incremental revenue to our growing production chemicals service line, providing a platform capable of significant revenue growth with no further capital investment. The Corporation will continue to leverage off existing operator relationships and technical capabilities as we strive for increasing market share throughout the WCSB.
Secure's consistently strong balance sheet gives the Corporation flexibility to grow organically and to execute on strategic acquisition opportunities. Secure's focus remains on increasing production related services with a diverse asset base that lessens dependence on drilling related revenue streams. This diversification provides Secure with greater certainty on re-occurring cash flows and ensures the Corporation can optimize its capital structure to be well positioned for future growth.
AUTOMATIC SHARE DISPOSITION PLAN
The Corporation also announced today that Rene Amirault, President and Chief Executive Officer, and Amirault Partnership intend to adopt an automatic securities disposition plan ("ASDP") in accordance with applicable Canadian provincial securities legislation, including the guidance under the Ontario Securities Commission's Staff Notice 55-701. The objective of the ASDP is to facilitate the sale of up to 1,200,000 common shares of Secure held by Amirault Partnership, of which Mr. Amirault and The Rene Amirault Family Trust are the partners, during the term of the ASDP from August 4, 2017 to August 4, 2018. These shares represent approximately 28.5% of the total common shares under Mr. Amirault's control. Among other things, the ASDP provides for a minimum sales price of $10.00 and that not more than 100,000 shares may be sold each month.
Generally, Canadian securities legislation permits an insider to adopt a written ASDP to sell shares through an independent broker in accordance with a pre-arranged set of instructions, regardless of any subsequent material non-public information the insider may receive, as long as the ASDP satisfies certain requirements. In accordance with Canadian securities legislation, sales of shares under the ASDP will be effected by an independent securities broker in accordance with the trading parameters and other instructions set out in the ASDP. Mr. Amirault will not exercise any further discretion or influence over how dispositions will occur under the ASDP and the broker administrating the ASDP is not permitted to consult with him regarding any such dispositions. In addition, Mr. Amirault is subject to restrictions on his ability to modify, suspend or terminate his participation in the ASDP. In accordance with best practices, the ASDP includes a waiting period of 30 days between the date of adoption of the ASDP and the date the first disposition can be made under the ASDP. Dispositions pursuant to the ASDP will be reported on SEDI on an annual basis by no later than March 31 of each calendar year for all dispositions during the prior calendar year.
Secure recognizes that insiders may have reasons unrelated to their assessment of the Corporation or its prospects in deciding to sell shares of the Corporation. Secure also recognizes that many of its officers have a substantial portion of their personal net worth represented by shares of Secure and that such individuals are subject to lengthy restrictions on their ability to effect trades in Secure's shares because of trading blackouts imposed under the Company's Policy on Trading in Securities. The ASDP entered into by Mr. Amirault is intended to provide an orderly mechanism for Mr. Amirault to diversify his portfolio.
FINANCIAL STATEMENTS AND MD&A
The Corporation's unaudited condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2017 and 2016 and MD&A for the three and six months ended June 30, 2017 and 2016 are available immediately on Secure's website at www.secure-energy.com. The unaudited condensed consolidated financial statements and MD&A will be available tomorrow on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this news 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 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 priorities for the Corporation's success; the oil and natural gas industry; activity levels in the oil and gas sector, drilling levels, commodity prices for oil, natural gas liquids and natural gas; industry fundamentals for 2017; capital forecasts and spending by producers; demand for the Corporation's services and products; expansion strategy; the impact of oil and gas activity on 2017 activity levels; the Corporation's proposed 2017 capital expenditure program including growth, sustaining and maintenance capital expenditures; debt service; acquisition strategy and timing of potential acquisitions; the impact of new facilities, potential acquisitions, and the Production Chemicals Acquisition and Ceiba acquisition on the Corporation's financial and operational performance and growth opportunities; 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, including the Production Chemicals Acquisition and Ceiba Acquisition, 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 and its subsidiaries' 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 and under the heading "Business Risks" and under the heading "Risk Factors" in the AIF for the year ended December 31, 2016 and also includes the risks associated with the possible failure to realize the anticipated synergies in integrating the assets acquired in the Production Chemicals Acquisition and Ceiba Acquisition 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, OPERATIONAL DEFINITIONS AND ADDITIONAL SUBTOTALS
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 non-GAAP measures, operational definitions and additional subtotals used by the Corporation may not be comparable to similar measures presented by other reporting issuers. These non-GAAP financial measures, operational definitions and additional subtotals are included because management uses the information to analyze operating performance, leverage and liquidity. Therefore, these non-GAAP financial measures, operational definitions and additional subtotals should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. See the management's discussion and analysis available at www.sedar.com for a reconciliation of the Non-GAAP financial measures, operational definitions and additional subtotals.
ABOUT SECURE ENERGY SERVICES INC.
Secure is a TSX publicly traded energy services company that provides safe, innovative, efficient and environmentally responsible fluids and solids solutions to the oil and gas industry. The Corporation owns and operates midstream infrastructure and provides environmental services and innovative products to upstream oil and natural gas companies operating in western Canada and certain regions in the United States ("U.S.").
The Corporation operates three divisions:
Processing, Recovery and Disposal Division ("PRD"): The PRD division owns and operates midstream infrastructure that provides processing, storing, shipping and marketing of crude oil, oilfield waste disposal and recycling. More specifically these services are clean oil terminalling and rail transloading, custom treating of crude oil, crude oil marketing, produced and waste water disposal, oilfield waste processing, landfill disposal, and oil purchase/resale service. Secure currently operates a network of facilities throughout Western Canada and in North Dakota, providing these services at its full service terminals ("FST"), landfills, stand-alone water disposal facilities ("SWD") and full service rail facilities ("FSR").
Drilling and Production Services Division ("DPS"): The DPS division provides equipment and product solutions for drilling, completion and production operations for oil and gas producers in western Canada. The drilling service line comprises the majority of the revenue for the division which includes the design and implementation of drilling fluid systems for producers drilling for oil, bitumen and natural gas. The drilling service line focuses on providing products and systems that are designed for more complex wells, such as medium to deep wells, horizontal wells and horizontal wells drilled into the oil sands. The production services line focuses on providing equipment and chemical solutions that optimize production, provide flow assurance and maintain the integrity of production assets.
Onsite Services Division ("OS"): The operations of the OS division include Projects which include pipeline integrity (inspection, excavation, repair, replacement and rehabilitation), demolition and decommissioning, and reclamation and remediation of former wellsites, facilities, commercial and industrial properties, and environmental construction projects (landfills, containment ponds, subsurface containment walls, etc.); Environmental services which provide pre-drilling assessment planning, drilling waste management, remediation and reclamation assessment services, Naturally Occurring Radioactive Material ("NORM") management, waste container services, and emergency response services; and Integrated Fluid Solutions ("IFS") which include water management, recycling, pumping and storage solutions.
______________________________ |
1 Refer to the "Non-GAAP Measures, operational definitions and additional subtotals" section herein. |
SOURCE SECURE Energy Services Inc.
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