Canada NewsWire
CALGARY, May 2, 2016
CALGARY, May 2, 2016 /CNW/ - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX – SES) is pleased to announce today that it has entered into an agreement to acquire all of the operating assets (excluding working capital) of PetroLama Energy Canada Inc. ("PetroLama") for an aggregate purchase price of approximately $53.5 million, subject to certain customary closing conditions ("the Acquisition"). Secure also reports operational and financial results for the first quarter of 2016, including Adjusted EBITDA of $25.1 million.
SUMMARY OF THE ACQUISITION
PetroLama is a privately owned Calgary-based midstream company specializing in the physical trade, storage, terminalling and transport of crude oil from western Canada to the North American market. PetroLama's main asset is a crude oil terminal in Alida, Saskatchewan which is connected to the Enbridge Pipelines (Saskatchewan) Inc. pipeline system and includes truck unload risers and storage tanks. Under the terms of the Acquisition, Secure will also acquire various marketing contracts relating to the purchase, sale and transportation of propane, butane and condensate, including access to crude oil storage at Cushing, Oklahoma.
ACQUISITION DETAILS
Total consideration for the Acquisition is approximately $53.5 million, subject to certain closing adjustments. The purchase price will be paid with approximately $47.7 million in cash and the balance of approximately $5.8 million through the issuance of common shares of the Corporation. Secure has also agreed to purchase PetroLama's inventory on hand at closing. The expected range for PetroLama's contribution to consolidated Adjusted EBITDA for the next twelve months is anticipated to be approximately $8.0 to $9.0 million. The Acquisition will have an effective date of May 1, 2016 and is expected to close on or about June 1, 2016, subject to all necessary approvals being obtained.
STRATEGIC RATIONALE
The Acquisition provides Secure with an attractive entry point into the southeast Saskatchewan midstream market. Secure will be able to expand its market presence and enhance its current service offering for continued midstream growth. The Alida terminal, a facility constructed in 2013, is uniquely positioned for sustainable cash flow generation in a new market area. Secure expects to leverage PetroLama's existing business into further growth opportunities and build upon PetroLama's strong relationships with oil producers, marketers and refiners with its breadth of oil and gas services. Secure expects its size and strong history of operational expertise in the PRD division will allow the Corporation to achieve certain operating efficiencies.
"We are pleased to welcome the PetroLama team to Secure. This acquisition further expands our existing midstream infrastructure, strengthens our Crude Oil Marketing team and expands our strong alliances with both customers and suppliers," states Rene Amirault, Chairman, President and Chief Executive Officer of Secure. "With the current challenging outlook for commodity pricing, we have been patiently focused on looking to grow with the right acquisition of uniquely positioned assets that also offer opportunities for further expansion into new markets and services. We strive to deliver consistent financial results to our shareholders and this acquisition adds another cash flow generating midstream asset to our network."
Q1 2016 OPERATIONAL AND FINANCIAL HIGHLIGHTS
During the first quarter of 2016, oil and gas producers continued to reduce capital spending and activity levels in response to the persistent low crude oil and natural gas prices, which decreased compared to the end of 2015. In addition, spring break-up conditions commenced at the end of February, significantly shortening the typical length of the winter drilling season. The impact of these factors to Secure's operating and financial results in the quarter were partially mitigated by ongoing production related volumes in the PRD division and diversification of services offered across the Corporation. As a result, Secure realized Adjusted EBITDA of $25.1 million, demonstrating resilience during a period of reduced oil and gas activity levels. The continued weakness in commodity pricing continues to have the most significant impact on the DPS divisional results as the majority of operations are currently tied to drilling activity.
During the quarter, Secure strengthened its financial position by completing a bought deal equity financing raising gross proceeds of $149.6 million, consistent with the Corporation's disciplined approach to maintaining a strong balance sheet to effectively manage the business through a period of lower commodity pricing and industry activity.
In addition to the Acquisition described above, Secure is continuing to seek out and evaluate opportunities that will provide meaningful growth for the remainder of 2016, into 2017 and beyond.
The operating and financial highlights for the three months periods ending March 31, 2016 and 2015 can be summarized as follows:
Three months ended Mar 31, |
|||||||
($000's except share and per share data) |
2016 |
2015 |
% change |
||||
Revenue (excludes oil purchase and resale) |
102,267 |
169,652 |
(40) |
||||
Oil purchase and resale |
106,865 |
196,895 |
(46) |
||||
Total revenue |
209,132 |
366,547 |
(43) |
||||
Adjusted EBITDA (1) |
25,083 |
40,036 |
(37) |
||||
Per share ($), basic |
0.18 |
0.33 |
(45) |
||||
Net (loss) earnings |
(10,066) |
(3,223) |
212 |
||||
Per share ($), basic |
(0.07) |
(0.03) |
133 |
||||
Per share ($), diluted |
(0.07) |
(0.03) |
133 |
||||
Adjusted net (loss) earnings(1) |
(8,598) |
856 |
(1,104) |
||||
Per share ($), basic |
(0.06) |
0.01 |
(700) |
||||
Funds from operations (1) |
22,559 |
36,225 |
(38) |
||||
Per share ($), basic |
0.16 |
0.30 |
(47) |
||||
Dividends per common share |
0.06 |
0.06 |
- |
||||
Capital expenditures (1) |
21,489 |
42,084 |
(49) |
||||
Total assets |
1,267,835 |
1,465,364 |
(13) |
||||
Net debt (1) |
16,723 |
133,140 |
(87) |
||||
Common Shares - end of period |
157,932,560 |
135,824,597 |
16 |
||||
Weighted average common shares - basic and diluted |
140,015,143 |
122,689,850 |
14 |
||||
(1) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
PRD DIVISION OPERATING HIGHLIGHTS
Three months ended Mar 31, | ||||||||
($000's) |
2016 |
2015 |
% Change | |||||
Revenue |
||||||||
PRD services (a) |
48,706 |
69,494 |
(30) | |||||
Oil purchase and resale service |
106,865 |
196,895 |
(46) | |||||
Total PRD division revenue |
155,571 |
266,389 |
(42) | |||||
Direct Operating Expenses |
||||||||
PRD services |
22,823 |
33,830 |
(33) | |||||
Deduct: non-recurring items |
||||||||
Severance and related costs |
(535) |
(188) |
185 | |||||
PRD services less non-recurring items (b) |
22,288 |
33,642 |
(34) | |||||
Oil purchase and resale service |
106,865 |
196,895 |
(46) | |||||
Total PRD division direct operating expenses |
129,688 |
230,725 |
(44) | |||||
Operating Margin (1) (a-b) |
26,418 |
35,852 |
(26) | |||||
Operating Margin (1) as a % of revenue (a) |
54% |
52% |
||||||
(1) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
Highlights for the PRD division for the three months ended March 31, 2016 included:
DPS DIVISION OPERATING HIGHLIGHTS
Three months ended Mar 31, | |||||
($000's) |
2016 |
2015 (1) |
% Change | ||
Revenue |
|||||
Drilling and production services (a) |
35,207 |
62,098 |
(43) | ||
Direct Operating Expenses |
|||||
Drilling and production services |
29,727 |
50,969 |
(42) | ||
Deduct: non-recurring items |
|||||
Inventory impairment |
- |
(1,970) |
(100) | ||
Severance and related costs |
(661) |
(597) |
11 | ||
Drilling and production services less non-recurring items (b) |
29,066 |
48,402 |
(40) | ||
Operating Margin (2) (a-b) |
6,141 |
13,696 |
(55) | ||
Operating Margin (2) as a % of revenue (a) |
17% |
22% |
|||
(1) Excludes the results from the drilling services operations in the U.S. as these operations were wound down in the latter part of 2015 and are considered non-recurring. | |||||
(2) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
Highlights for the DPS division for the three months ended March 31, 2016 included:
OS DIVISION OPERATING HIGHLIGHTS
Three months ended Mar 31, | ||||||
($000's) |
2016 |
2015 |
% Change | |||
Revenue |
||||||
OnSite services (a) |
18,354 |
31,294 |
(41) | |||
Direct Operating Expenses |
||||||
OnSite services |
13,767 |
21,825 |
(37) | |||
Deduct: non-recurring items |
||||||
Severance and related costs |
(77) |
(116) |
(34) | |||
OnSite services less non-recurring items (b) |
13,690 |
21,709 |
(37) | |||
Operating Margin (1) (a-b) |
4,664 |
9,585 |
(51) | |||
Operating Margin (1) as a % of revenue (a) |
25% |
31% |
||||
(1) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
Highlights for the OS division for the three months ended March 31, 2016 included:
OUTLOOK
The Corporation remains well positioned in the current industry environment. The offering completed during the first quarter further strengthened the Corporation's balance sheet and has provided Secure with significant flexibility to seek out and evaluate opportunities that will provide accretive growth to the Corporation in 2016 and beyond. The acquisition of PetroLama's assets will provide a solid platform for further midstream growth.
While crude oil prices have begun trending upwards in recent weeks, on average crude oil prices declined 24% in the first quarter of 2016 compared to the first quarter of 2015, and currently remain lower than the average price in 2015. Based on current activity levels and commodity prices, Secure anticipates an extended spring break-up period as customers delay drilling and completion activities in the current commodity price environment, including a slower ramp up of activity into the third quarter. For the second quarter specifically, Secure anticipates oil and gas producers will be unwilling to incur additional costs due to weather related issues if the oil and gas activity can be delayed into the summer months.
Secure will continue to evaluate and assess further acquisition opportunities and/or partnership opportunities that provide strategic advantages. Secure remains patient to ensure the right acquisitions are executed to complement existing services and/or expand geographical presence in key operating areas, particularly in the current oil and gas environment. The Corporation expects to close the transaction to acquire all of the operating assets (excluding working capital) of PetroLama in the second quarter, which Secure believes will provide further opportunities to execute on the Corporation's midstream growth strategy.
During the remainder of the year, the Corporation will continue its prudent approach to organic capital spending by allocating funds to projects that generate the highest rates of return. Secure expects to spend approximately $30 million in the remainder of 2016 on the following:
Secure's key priorities for success in the remainder of 2016 include:
Overall, Secure has a solid balance sheet and is well positioned to respond with solutions and the right people to the market's needs today. As industry activity increases the Corporation will be able to respond quickly and remain agile. Secure continues to work with its customers to support their needs relating to new facilities, disposal wells, landfill expansions and specialized equipment. Market share gains and new service lines will ensure that Secure is well positioned for future growth.
FINANCIAL STATEMENTS AND MD&A
The Corporation's unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2016 and 2015 and MD&A for the three months ended March 31, 2016 and 2015 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 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: corporate strategy; goals; general market conditions; the oil and natural gas industry; activity levels in the oil and gas sector, including market fundamentals and the impact to each division on revenue and operating margins, drilling levels, commodity prices for oil, natural gas liquids ("NGLs") and natural gas; industry fundamentals for the second and third quarters of 2016; capital forecasts and spending by producers; demand for the Corporation's services and products; expansion strategy; the impact of the reduction in oil and gas activity on 2016 activity levels; revenue and operating margin for the PRD, DPS and OS divisions; the Corporation's proposed 2016 capital expenditure program and the intended use thereof; debt service; completion of facilities (including the new PRD FST); acquisition strategy and timing of potential acquisitions, including the expected closing of the Acquisition; the impact of new facilities and potential acquisitions, including the Acquisition, on the Corporation's financial and operational performance and growth opportunities, the expected range for PetroLama's contribution to consolidated Adjusted EBITDA in the next twelve months; future capital needs; and access to capital.
Forward-looking statements concerning expected operating and economic conditions and the 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, 2015 and also includes the risks associated with the possible failure to realize the anticipated synergies in integrating the assets acquired in the Acquisition with the operations of Secure. Any "financial outlook" in this document, as defined by applicable securities legislation, has been approved by management of Secure and is included for the purpose of illustrating the materiality of the Acquisition, and for no other purpose. 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 Environmental services which provide pre-drilling assessment planning, drilling waste management, remediation and reclamation assessment services, Naturally Occurring Radioactive Material ("NORM") management, and waste container services; Integrated Fluid Solutions ("IFS") which include water management, recycling, pumping and storage solutions; and 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.).
SOURCE SECURE Energy Services Inc.