Canada NewsWire
CALGARY, May 2, 2017
CALGARY, May 2, 2017 /CNW/ - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX – SES) announced today operational and financial results for the three months ended March 31, 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.
Secure's Board of Directors also approved a 6.25% increase to its monthly dividend rate from $.02 to $.02125 per common share commencing with the June 15, 2017 dividend payment date for shareholders of record on June 1, 2017.
"Secure has maintained a strong balance sheet throughout a period of oil and gas price volatility," said Rene Amirault, Secure's Chairman and Chief Executive Officer. "The increase to our monthly dividend reflects our confidence in the ability of our business model to generate meaningful cash flow while continuing to fund our organic capital and acquisition programs while maintaining a standard of excellence for our customers through our three integrated divisions."
Q1 2017 OPERATIONAL AND FINANCIAL HIGHLIGHTS
ADJUSTED EBITDA INCREASE OF 68%
A more stable commodity price environment during the first quarter of 2017 resulted in increased oil and gas producer activity across the Western Canadian Sedimentary Basin ("WCSB") which had a positive impact on all three of the Corporation's divisions. Industry rig counts and metres drilled in the WCSB increased by 86% and 116% respectively over the first quarter of 2016, driven primarily by a 49% increase in average crude oil prices, as well as improved weather conditions compared to the first quarter of 2016 which saw an early spring break-up. Higher drilling activity levels, along with the addition of new facilities and expansions in underserviced markets subsequent to March 2016, and ongoing production related volumes from existing facilities in the PRD division, resulted in Adjusted EBITDA of $42.2 million during the three months ended March 31, 2017, a 68% increase over the comparative period.
OPERATING MARGIN IMPROVEMENTS
During the quarter, Secure continued to exercise caution by maintaining its current cost structures which have enabled the Corporation to achieve strong operating margins of 59% in PRD, 23% in DPS and 25% in OS in part by minimizing overhead costs and streamlining operations to enhance customer service through the integrated services provided.
STRONG BALANCE SHEET MAINTAINED
The Corporation continues its disciplined approach to maintaining a strong balance sheet to effectively manage the business through this period of volatile commodity prices and industry activity. The Corporation's balance sheet provides significant financial flexibility to pursue accretive acquisitions and continue to invest in organic capital projects in capacity constrained regions. At March 31, 2017, Secure's net debt was $54.2 million, and debt to EBITDA ratio, as defined by the Corporation's credit facility, was 1.7 to 1.
CONTINUING TO ADD PRODUCTION RELATED SERVICES
Subsequent to quarter end, Secure completed an asset acquisition in the DPS division for cash consideration of $29.8 million, subject to any post-closing adjustments (the "Production Chemicals Acquisition"). The acquired assets will provide Secure with a complete suite of over 100 fully formulated proprietary production chemical products, along with key infrastructure across the WCSB. The addition of advanced chemical products is expected to bolster the Corporation's ability to help customers optimize production, provide flow assurance and maintain the integrity of their production assets. The research lab facility acquired demonstrates the Corporation's commitment to innovation for customers and is intended to design customized chemical solutions for customers. The Corporation expects the Production Chemicals Acquisition to be accretive to funds from operations, Adjusted EBITDA and net income.
The operating and financial highlights for the three month periods ending March 31, 2017 and 2016 can be summarized as follows:
Three months ended Mar 31, | ||||
($000's except share and per share data) |
2017 |
2016 |
% change | |
Revenue (excludes oil purchase and resale) |
140,713 |
102,267 |
38 | |
Oil purchase and resale |
309,876 |
106,865 |
190 | |
Total revenue |
450,589 |
209,132 |
115 | |
Adjusted EBITDA (1) |
42,170 |
25,083 |
68 | |
Per share ($), basic |
0.26 |
0.18 |
44 | |
Per share ($), diluted |
0.25 |
0.18 |
39 | |
Net earnings (loss) |
3,440 |
(10,066) |
134 | |
Per share ($), basic and diluted |
0.02 |
(0.07) |
129 | |
Adjusted net earnings (loss)(1) |
3,502 |
(8,598) |
141 | |
Per share ($), basic and diluted |
0.02 |
(0.06) |
133 | |
Funds from operations (1) |
40,052 |
18,700 |
114 | |
Per share ($), basic |
0.25 |
0.13 |
92 | |
Per share ($), diluted |
0.24 |
0.13 |
85 | |
Dividends per common share |
0.06 |
0.06 |
- | |
Capital expenditures (1) |
12,096 |
21,489 |
(44) | |
Total assets |
1,403,328 |
1,267,835 |
11 | |
Net debt (1) |
54,237 |
16,723 |
224 | |
Common shares - end of period |
162,580,599 |
157,932,560 |
3 | |
Weighted average common shares |
||||
basic |
162,049,821 |
140,015,143 |
16 | |
diluted |
165,944,906 |
140,015,143 |
19 | |
(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) |
2017 |
2016 |
% Change | |
Revenue |
||||
PRD services (a) |
67,470 |
48,706 |
39 | |
Oil purchase and resale service |
309,876 |
106,865 |
190 | |
Total PRD division revenue |
377,346 |
155,571 |
143 | |
Direct expenses |
||||
PRD services (b) |
27,653 |
22,823 |
21 | |
Oil purchase and resale service |
309,876 |
106,865 |
190 | |
Total PRD division direct expenses |
337,529 |
129,688 |
160 | |
Operating Margin (1) (a-b) |
39,817 |
25,883 |
54 | |
Operating Margin (1) as a % of revenue (a) |
59% |
53% |
||
(1) Refer to "Non-GAAP measures, operational definitions and additional subtotals" for further information. |
Highlights for the PRD division for the months ended March 31, 2017 included:
DPS DIVISION OPERATING HIGHLIGHTS
Three months ended Mar 31, | ||||
($000's) |
2017 |
2016 |
% Change | |
Revenue |
||||
Drilling and production services (a) |
50,468 |
35,207 |
43 | |
Direct expenses |
||||
Drilling and production services (b) |
38,867 |
29,727 |
31 | |
Operating Margin (1) (a-b) |
11,601 |
5,480 |
112 | |
Operating Margin (1) as a % of revenue (a) |
23% |
16% |
||
(1) 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, 2017 included:
OS DIVISION OPERATING HIGHLIGHTS
Three months ended Mar 31, | ||||
($000's) |
2017 |
2016 |
% Change | |
Revenue |
||||
OnSite services (a) |
22,775 |
18,354 |
24 | |
Direct expenses |
||||
OnSite services (b) |
17,186 |
13,767 |
25 | |
Operating Margin (1) (a-b) |
5,589 |
4,587 |
22 | |
Operating Margin (1) as a % of revenue (a) |
25% |
25% |
||
(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, 2017 included:
OUTLOOK
The first quarter of 2017 has demonstrated that activity levels in western Canada and North Dakota are continuing to trend higher as oil and gas producers gain confidence in commodity prices which facilitates an increase in capital spending. Secure anticipates an increase in oil and gas producers' capital budgets for the remainder of 2017 over 2016, which will continue to drive higher activity levels in the WCSB in subsequent quarters and benefit all three of the Corporation's divisions.
During the second quarter, results are typically impacted by seasonality as wet weather and road bans can significantly affect activity in certain areas. In the prior year, the second quarter was severely impacted by weather and the instability of commodity prices as oil and gas producers were unwilling to incur additional costs due to weather related issues if the oil and gas activity could be delayed into the third quarter where weather is more predictable. However, following a more robust first quarter 2017, Secure expects activity levels in the second quarter to outpace that of 2016, which is currently supported by a higher year over year rig count.
In April, Secure announced the completion of a Production Chemicals Acquisition. Over the next few months, Secure will complete the integration into the existing production chemicals business and begin to assess new areas for growth and new opportunities to help customers. Secure has added a highly qualified group of experienced and dedicated employees to the business with a complete suite of over 100 fully formulated proprietary production chemical products. In addition, a first class blending facility will provide opportunities to vertically integrate existing operations and provide additional capacity to grow Secure's market share.
As activity levels ramp up, Secure continues to respond to customer demand by evaluating multiple opportunities relating to new infrastructure and expansion of existing facilities. In previous guidance Secure had anticipated spending organic growth and expansion capital of $50 million in 2017, however depending on the timing of obtaining regulatory approvals, development permits, and other operating agreements, the Corporation may increase organic spending within PRD up to $100 million. The Corporation will also spend approximately $15 million on sustaining and maintenance expenditures for the year.
Secure's strong balance sheet gives the Corporation flexibility to continue growing 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.
FINANCIAL STATEMENTS AND MD&A
The Corporation's unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2017 and 2016 and MD&A for the three months ended March 31, 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 document constitute "forward-looking statements" and/or "forward-looking information" within the meaning of applicable securities laws (collectively referred to as forward-looking statements). When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and similar expressions, as they relate to Secure, or its management, are intended to identify forward-looking statements. Such statements reflect the current views of Secure with respect to future events and operating performance and speak only as of the date of this document. In particular, this document contains or implies forward-looking statements pertaining to: key 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 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, 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 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.
SOURCE SECURE Energy Services Inc.
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