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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Secure Energy Services Inc | TSX:SES | Toronto | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-0.06 | -0.53% | 11.32 | 11.28 | 11.39 | 11.50 | 11.25 | 11.44 | 661,116 | 21:12:40 |
CALGARY, Oct. 30, 2018 /CNW/ - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX – SES) announced today its operational and financial results for the three and nine months ended September 30, 2018. These results should be read in conjunction with the management's discussion and analysis ("MD&A") and the interim consolidated financial statements and notes thereto for the three and nine months ended September 30, 2018 of Secure which are available on SEDAR at www.sedar.com.
2018 THIRD QUARTER OPERATIONAL AND FINANCIAL HIGHLIGHTS
In the third quarter, the Corporation continued to execute a disciplined growth strategy, focused on the PRD division which achieved a 36% increase in Adjusted EBITDA1 over the 2017 comparative period resulting from new and expanded facilities, recurring cash flows generated from oil production processing and disposal, and higher terminalling and crude oil marketing revenue. Additionally, higher crude oil and liquids prices resulted in increased industry activity in the Corporation's core operating regions and increased recovered oil pricing. This, combined with strong contributions from the Corporation's OS and DPS divisions, resulted in an overall Adjusted EBITDA of $53.7 million for the three months ended September 30, 2018. The Corporation achieved net income during the quarter of $6.8 million, resulting in income of $0.04 per weighted average common share.
Secure continues to identify and develop midstream infrastructure to expand capacity and optimize capabilities at existing facilities. These efforts help Secure's customers by increasing their operating netbacks and improving their capital efficiency. The Corporation's Gold Creek and Tony Creek water disposal facilities commenced operations in July 2018 and expand Secure's footprint in the liquids-rich Montney region in Alberta. In total, over half of the Corporation's 51 facilities are now located in the Montney and Duvernay regions where production growth and water disposal requirements are higher than the rest of the Western Canadian Sedimentary Basin ("WCSB"). With a significant presence in areas where customers have been most active in the WCSB, Secure has been able to grow volumes despite overall WCSB activity being relatively flat in the quarter and year to date. Additionally, Secure's footprint of facilities in North Dakota generated a 58% increase in revenue from the U.S. during the three months ended September 30, 2018 over the same period last year as higher oil prices and improved market access continue to attract investment in the Bakken.
During the third quarter, the Corporation completed construction and commissioning of the light oil feeder pipeline system and receipt terminal in the Kindersley-Kerrobert region of Saskatchewan ("Kerrobert Light Pipeline System") at the estimated in-service date of October 1, 2018. The Kerrobert Light Pipeline System provides a capital efficient transportation solution for Secure's customers operating in the region and has operational flexibility to accommodate production growth. The $75 million project is supported by long-term commitments, providing Secure with recurring fee-for-service cash flows. The project is expected to contribute to Adjusted EBITDA during the fourth quarter. The Corporation has also commenced construction of two additional storage tanks at the receipt terminal in Kerrobert, which are expected to be commissioned in the second quarter of 2019 and offer a solution during periods of apportionment resulting from egress challenges.
Secure continues to take a disciplined approach to maintaining a strong balance sheet. This provides the Corporation with considerable flexibility to continue to grow the business organically and execute on strategic acquisition opportunities that align with the profitable growth strategy of Secure. Additionally, during the third quarter, the Corporation returned $11.0 million of cash flow to shareholders through the monthly dividend, and purchased and cancelled 1,613,400 common shares of the Corporation ("shares") at a weighted average price per share of $7.52 for a total of $12.1 million under the normal course issuer bid ("NCIB") approved at the end of May 2018.
The operating and financial highlights for the three and nine month periods ending September 30, 2018 and 2017 can be summarized as follows:
Three months ended September 30, | Nine months ended September 30, | |||||
($000's except share and per share data) | 2018 | 2017 | % change | 2018 | 2017 | % change |
Revenue (excludes oil purchase and resale) | 182,469 | 162,596 | 12 | 505,416 | 418,681 | 21 |
Oil purchase and resale | 646,565 | 451,143 | 43 | 1,748,986 | 1,229,971 | 42 |
Total revenue | 829,034 | 613,739 | 35 | 2,254,402 | 1,648,652 | 37 |
Adjusted EBITDA (1) | 53,746 | 43,820 | 23 | 132,711 | 106,034 | 25 |
Per share ($), basic | 0.33 | 0.27 | 22 | 0.81 | 0.65 | 25 |
Per share ($), diluted | 0.33 | 0.27 | 22 | 0.80 | 0.64 | 25 |
Net income (loss) | 6,809 | (179) | 3,904 | 5,985 | (10,268) | 158 |
Per share ($), basic and diluted | 0.04 | - | 100 | 0.04 | (0.06) | 167 |
Cash flows from operating activities | 19,879 | 2,864 | 594 | 127,205 | 85,947 | 48 |
Per share ($), basic | 0.12 | 0.02 | 500 | 0.78 | 0.53 | 47 |
Per share ($), diluted | 0.12 | 0.02 | 500 | 0.77 | 0.52 | 48 |
Funds flow from operations (1) | 48,407 | 54,326 | (11) | 117,597 | 111,235 | 6 |
Per share ($), basic | 0.30 | 0.33 | (9) | 0.72 | 0.68 | 6 |
Per share ($), diluted | 0.29 | 0.33 | (12) | 0.71 | 0.67 | 6 |
Dividends per common share | 0.06750 | 0.06375 | 6 | 0.2025 | 0.1850 | 9 |
Capital expenditures (1) | 43,478 | 78,238 | (44) | 136,322 | 140,022 | (3) |
Total assets | 1,591,913 | 1,488,328 | 7 | 1,591,913 | 1,488,328 | 7 |
Long-term liabilities | 522,304 | 379,443 | 38 | 522,304 | 379,443 | 38 |
Net debt (1) | 250,061 | 151,697 | 65 | 250,061 | 151,697 | 65 |
Common shares - end of period | 161,945,330 | 163,285,511 | (1) | 161,945,330 | 163,285,511 | (1) |
Weighted average common shares | ||||||
basic | 162,286,387 | 163,128,460 | (1) | 163,600,546 | 162,659,701 | 1 |
diluted | 164,911,044 | 164,661,749 | - | 165,779,889 | 164,980,327 | - |
(1)Refer to "Non-GAAP Measures, Additional GAAP Measures and Operational Definitions" for further information. |
Sept 30, 2018 | Dec. 31, 2017 | Threshold | |
Senior debt to EBITDA | 1.5 | 1.1 | 3.5 |
Total debt to EBITDA | 2.2 | 1.9 | 5.0 |
PRD DIVISION OPERATING HIGHLIGHTS
Three months ended Sept 30, | Nine months ended Sept 30, | |||||
($000's) | 2018 | 2017 | % Change | 2018 | 2017 | % Change |
Revenue | ||||||
PRD services (a) | 89,579 | 66,013 | 36 | 250,930 | 193,761 | 30 |
Oil purchase and resale service | 646,565 | 451,143 | 43 | 1,748,986 | 1,229,971 | 42 |
Total PRD division revenue | 736,144 | 517,156 | 42 | 1,999,916 | 1,423,732 | 40 |
Direct expenses | ||||||
PRD services (b) | 35,913 | 27,416 | 31 | 107,160 | 83,778 | 28 |
Oil purchase and resale service | 646,565 | 451,143 | 43 | 1,748,986 | 1,229,971 | 42 |
Total PRD division direct expenses | 682,478 | 478,559 | 43 | 1,856,146 | 1,313,749 | 41 |
Segment Profit Margin (1) (a-b) | 53,666 | 38,597 | 39 | 143,770 | 109,983 | 31 |
Segment Profit Margin (1) as a % of revenue (a) | 60% | 58% | 57% | 57% | ||
(1)Refer to "Non-GAAP Measures, Additional GAAP Measures and Operational Definitions" for further information. |
Highlights for the PRD division for the three and nine months ended September 30, 2018 included:
OS DIVISION OPERATING HIGHLIGHTS
Three months ended Sept 30, | Nine months ended Sept 30, | |||||
($000's) | 2018 | 2017 | % Change | 2018 | 2017 | % Change |
Revenue | ||||||
OnSite services (a) | 29,617 | 36,542 | (19) | 87,824 | 80,490 | 9 |
Direct expenses | ||||||
OnSite services (b) | 23,149 | 28,151 | (18) | 69,778 | 62,290 | 12 |
Segment Profit Margin (1) (a-b) | 6,468 | 8,391 | (23) | 18,046 | 18,200 | (1) |
Segment Profit Margin (1) as a % of revenue (a) | 22% | 23% | 21% | 23% | ||
(1)Refer to "Non-GAAP Measures, Additional GAAP Measures and Operational Definitions" for further information. |
Highlights for the OS division for the three and nine months ended September 30, 2018 included:
DPS DIVISION OPERATING HIGHLIGHTS
Three months ended Sept 30, | Nine months ended Sept 30, | |||||
($000's) | 2018 | 2017 | % Change | 2018 | 2017 | % Change |
Revenue | ||||||
Drilling and production services (a) | 63,273 | 60,041 | 5 | 166,662 | 144,430 | 15 |
Direct expenses | ||||||
Drilling and production services (b) | 50,191 | 46,895 | 7 | 137,495 | 117,640 | 17 |
Segment Profit Margin (1) (a-b) | 13,082 | 13,146 | - | 29,167 | 26,790 | 9 |
Segment Profit Margin (1) as a % of revenue (a) | 21% | 22% | 18% | 19% | ||
(1) Refer to "Non-GAAP Measures, Additional GAAP Measures and Operational Definitions" for further information. |
Highlights for the DPS division for the three and nine months ended September 30, 2018 included:
OUTLOOK
Secure's strategy remains focused on working with customers to identify opportunities and integrated solutions where the Corporation can add value and lower customers' costs. By focusing on new and innovative ways to offer solutions, Secure's customers will be able to gain efficiencies for drilling, completing and producing their hydrocarbon reserves. Helping Secure's customers grow and being their trusted energy solutions partner will ensure that the Corporation continues to create long-term shareholder value.
The fundamental drivers that are expected to provide meaningful avenues of growth during 2019 and beyond include:
Increasing Volumes: Supporting Growth of Midstream Infrastructure and Services
Production-related volumes represent the majority of the volumes processed and disposed at Secure's midstream facilities, providing the Corporation with recurring cash flows. The majority of Secure's facilities are located in high impact resource plays which have experienced higher production growth than the remainder of the WCSB over the past several years. Produced water, which accounts for over 85% of total production fluids in the WCSB, continues to increase at a disproportionate rate relative to aggregate production as a result of aging wells and maturing basins.
Flowback waters and processing volumes are also increasing as high intensity fracs continue to be applied in liquids rich natural gas shale reservoirs like the Montney and Duvernay formations. The increased use of proppants, the number of completion stages and length of the horizontal wells are expected to continue as producers use innovative means to develop unconventional resources. As a result, there is a significant need from Secure's customers for sourcing water, water logistics, storing water and overall water re-use where it is cost effective. Secure's integrated business model provides full-cycle service offerings to assist customers with large completion programs where significant amounts of water are required to be managed at various stages.
As oil sands projects have come on stream over the past few years, bitumen production has increased along with demand for condensate that is used as a diluent in order to transport the final product to market. Condensate production levels have increased in response; however, Canada currently remains a net importer of condensate and, as a result, drilling activity in the Montney and Duvernay regions is expected to increase to try to meet demand. As new production comes on, demand for production chemicals is expected to increase. In addition to continuing to provide customers with technical solutions for drilling and completion, the Corporation's DPS division is developing chemistry to optimize fluid production, provide flow assurance and maintain the integrity of assets, both for producers as well as Secure's own midstream assets.
These trends are all expected to result in increased demand for incremental treating, processing and disposal capacity. It is also expected that additional terminals and storage will be required to meet this increased demand. Secure has made significant capital investments over the past few years to ensure the business is well positioned to capture new demand. By offering exceptional customer service and owning and operating midstream facilities near customer production, Secure expects these trends will drive more volumes to Secure's midstream facilities.
Additionally, customers continue to seek cost effective transportation solutions for water, oil and condensate volumes. Secure's successful execution of the Kerrobert Light Pipeline System from the planning phase to final completion positions the Corporation to take advantage of similar opportunities creating value for both the customer and Secure.
Pipeline Constraints and Wide Differentials: Driving Higher Crude by Rail Activity
Rail offers an alternative mode of transportation that is becoming increasingly relied upon by the industry to transport crude oil as new pipeline projects in Canada continue to face challenges and delays. With a loading capacity of over 50,000 barrels per day across the Corporation's four full service rail terminals, Secure has meaningful exposure to the growing market for Canadian crude shipped by rail. Given the recent widening of WCSB crude oil pricing differentials, Secure expects more producers will agree to long-term commitments to make transporting crude by rail a more recurring cash flow stream. As rail operations normalize, Secure should see increased activity during 2019 and beyond. Moreover, wide WCS/WTI to Brent oil differentials influence certain U.S. refiners to look for feedstock accessible by rail that is otherwise delivered by oil tanker.
As crude oil price differentials have widened even further during October, and are expected to remain so headed into 2019, the Corporation remains attentive to opportunities at both pipeline-connected FSTs and with respect to transporting crude by rail. Secure continues to strive to position itself to offer producers egress solutions with better pricing for their products in western Canada.
The potential impact of wider crude oil differentials on producer capital budgets and drilling activity is expected to be more than offset by increased crude by rail shipments and ongoing and increasing production related volumes at Secure's midstream facilities, as described above.
U.S. Macroeconomic Environment: Increasing Activity Levels in North Dakota
Higher average crude oil prices, improved market access, a favourable regulatory environment and recent tax reform has driven capital investment into North Dakota in recent years. Record production levels were reached during the third quarter and are expected to continue to increase along with drilling and completion activity. The Corporation has meaningful exposure through Secure's six midstream facilities located in key resource plays in North Dakota to capture incremental production, drilling and completion related volumes. The continuing strength of oil prices in the region along with additional takeaway capacity from the Dakota Access Pipeline expansion under construction is expected to continue to facilitate advantageous project economics for Secure's customers operating in the region.
Environmental Regulations: Creating Demand for Secure's Environmental Solutions
Increased environmental regulations in all of Secure's market areas have created opportunities to help customers operate in a sustainable way with a focus on protecting the environment. Secure's OS division has seen increased proactive efforts by customers to prevent spills and reduce their future environmental liabilities. Recent changes to remediation regulations in Alberta through the Alberta Energy Regulator's Area-Based Closure program could initiate increased abandonment, decommissioning, remediation and reclamation activity levels which may result in additional demand for OS division services.
These drivers are expected to provide Secure with significant potential to grow and expand the business into the future. The Corporation expects to incur approximately $150 million of growth and expansion capital in 2018, and allocate $100 million in 2019, depending on the outcome of various opportunities in development, such as timing of obtaining regulatory approvals, development permits and other operating agreements. During the remainder of 2018, capital will be incurred on advancing the construction of additional storage tanks at the receipt terminal in Kerrobert, completing the permanent water disposal facility at Tony Creek, completing the expansion at the Williston landfill, increasing processing and disposal capacity at various other facilities, and purchasing equipment to support existing services. Providing value-adding solutions to increase customer operating netbacks and improve capital efficiency remains Secure's primary objective.
FINANCIAL STATEMENTS AND MD&A
The Corporation's unaudited condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 2018 and 2017 and MD&A for the three and nine months ended September 30, 2018 and 2017 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, including drilling and production trends; activity levels in the oil and gas sector, drilling levels, commodity prices for oil, natural gas liquids and natural gas; industry fundamentals for 2018; capital forecasts and spending by producers; demand for the Corporation's services and products; expansion strategy; the impact of oil and gas activity on Secure's activity levels; the Corporation's proposed 2018 and 2019 capital expenditure program including expansion, growth and sustaining capital expenditures, and the timing of completion for projects, in particular the additional storage at the Kerrobert terminal; debt service; acquisition strategy and timing of potential acquisitions; the impact of new facilities, new service offerings, potential acquisitions, and prior year acquisitions on the Corporation's financial and operational performance and growth opportunities; growth opportunities; future capital needs and how the Corporation intends to fund its operations, working capital requirements, dividends and capital program; access to capital; the impact of the NCIB on shareholder value; 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 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 under the heading "Risk Factors" in the AIF for the year ended December 31, 2017 and also includes the risks associated with the possible failure to realize the anticipated synergies in integrating the assets acquired in prior year acquisitions 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, ADDITIONAL GAAP MEASURES AND OPERATIONAL DEFINITIONS
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 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 management's discussion and analysis 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 ENERGY SERVICES INC.
Secure is a TSX publicly traded integrated energy business with midstream infrastructure, environmental and technical solutions divisions 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.").
1 Refer to the "Non-GAAP Measures, Additional GAAP Measures and Operational Definitions" section herein. |
SOURCE SECURE Energy Services Inc.
Copyright 2018 Canada NewsWire
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