Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX:SES) today
announced financial and operational results for the three months ended March 31,
2013. The following should be read in conjunction with the management's
discussion and analysis ("MD&A"), the condensed consolidated financial
statements and notes of Secure which are available on SEDAR at www.sedar.com.
FIRST QUARTER 2013 FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three Months Ended
March 31,
($000's except share and per share
data) 2013 2012 % change
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Revenue (excludes oil purchase and
resale) 147,122 115,426 27
Oil purchase and resale 175,856 162,286 8
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Total revenue 322,978 277,712 16
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EBITDA (1) 39,705 32,559 22
Per share ($), basic 0.38 0.36 6
Per share ($), diluted 0.37 0.35 6
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Net earnings 17,758 14,977 19
Per share ($), basic 0.17 0.17 -
Per share ($), diluted 0.17 0.16 6
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Capital Expenditures 42,268 35,833 18
Total assets 828,058 622,099 33
Long term borrowings 168,353 119,002 41
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Common Shares - end of period 104,894,191 91,196,885 15
Weighted average common shares
basic 104,734,964 90,658,046 16
diluted 107,363,836 94,179,644 14
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(1) Refer to "Non GAAP measures and operational definitions"
Secure's financial results for the three months ended March 31, 2013 were at
all-time highs. Revenue (excluding oil purchase/resale) and earnings before
interest, taxes, depreciation and amortization ("EBITDA") increased 27% and 22%
respectively over the previous high established in the first quarter of 2012.
Revenue and EBITDA increased on a sequential basis over the fourth quarter of
2012 by 36% and 40% respectively.
The positive results were achieved notwithstanding mixed industry activity in
the first quarter of 2013 compared to the first quarter of 2012. The average rig
count dropped 8% in Canada and 12% in the United States countered by a 3%
increase in total number of meters drilled in the WCSB.
The Corporation continues to develop organic opportunities with 2013 first
quarter capital expenditures of $42.3 million in the Processing, Recovery and
Disposal ("PRD") and Drilling Services ("DS") division for projects in Canada
and the United States. Total assets of $828.1 million have grown 33% since March
2012.
Subsequent to the end of the first quarter, Secure announced the acquisition of
Frontline Integrated Services Ltd. ("Frontline") for an aggregate purchase price
of $23.1 million. This strategic acquisition brings new business lines that add
to the value chain of services by supporting and expanding the DS division's
existing environmental and project management offerings.
-- RECORD REVENUE AND EBITDA
-- Revenue for the three months ended March 31, 2013 (excluding oil
purchase and resale) increased 27% to $147.1 million from $115.4
million for the three months ended March 31, 2012. PRD division
revenue (excluding oil purchase/resale) increased 33% from the first
quarter of 2012 to $45.4 million. Major contributing factors
increasing first quarter revenue in the PRD division included the
new facilities and expansions added in 2012, namely the Wild River
stand alone water disposal facility "SWD", the full service terminal
("FST") expansions at Dawson Creek and Fox Creek, the Fox Creek
landfill, additional facilities in the United States through the DRD
Saltwater Disposal LLC ("DRD") purchase and organic addition of the
Crosby water disposal facilities in North Dakota. Disposal volumes
for the first quarter increased 48% mostly due to the addition of
the US facilities and processing volumes increased 14% due to
increased demand from drilling and production activities and
expansion at existing facilities. Crude oil marketing revenue in the
first quarter of 2013 increased 145% over the prior year as a result
of an added pipeline connection, increased oil throughput and due to
the Corporation's ability to capitalize on market spread
differential opportunities. DS division revenue increased 25% from
the first quarter of 2012 to $101.7 million despite mixed oil field
service conditions experienced in the first quarter of 2013. Revenue
increased quarter over quarter due to increased DS division serviced
meters drilled and due to a three percentage point increase in DS's
market share to 31% ;
-- Oil purchase and resale revenue in the PRD division for the three
months ended March 31, 2013 of $175.9 million increased 8% from the
same period in 2012. The increase resulted from the
Drayton Valley, Silverdale and Dawson FST's being fully operational
the first quarter of 2013 whereas they were in start-up in the first
quarter of 2012. Overall demand also increased quarter over quarter;
EBITDA for the three months ended March 31, 2013 increased 22% to
$39.7 million from $32.6 million for the three months ended March
31, 2012. EBITDA per diluted share for the three months ended March
31, 2013 was $0.37, a 6% increase from the three months ended March
31, 2012. Increases in revenue as discussed above and higher
operating margins translated into improved EBITDA for Secure for the
first quarter of 2013 as compared to the prior year period; and
-- Net earnings per share (basic) of $0.17 for the first quarter of
2013 was consistent to the first quarter of 2012. Net earnings per
share was not reflective of the increase in net earnings as the
number of shares outstanding increased quarter over quarter; the
number of shares increased during 2012 as the Corporation completed
a bought deal financing and issued shares as consideration in
certain acquisitions completed.
-- DIVERSIFICATION INTO NEW MARKETS AND NEW AREAS
-- Organic expansion and growth capital totaled $41.5 million for the
three months ended March 31, 2013 and included $15.0 million of 2012
carryover capital related to the Judy Creek and
Rocky FST's. Total assets as of March 31, 2013 were $828.1 million
compared to $622.1 million as of March 31, 2012. Major expenditures
in the quarter included:
-- Judy Creek FST expected to be operational in the second quarter
of 2013;
-- Rocky FST which began accepting produced water in the second
quarter. The facility will become fully operational following
the commissioning of the crude oil treater and the waste
processing equipment in the second quarter of 2013;
-- Edson SWD, temporary facility opened in the quarter with
construction of the permanent facility expected to commence at
the start of the third quarter;
-- Kabob SWD, construction commencing in the second quarter;
-- Keene and Stanley water disposal facility preliminary
construction in North Dakota;
-- Expansion at Drayton Valley and Fox Creek FST's with second
treaters added; and
-- Various long lead purchases for 2013 PRD capital projects and
rental equipment for DS Canada and the United States.
-- SOLID BALANCE SHEET
-- Secure's debt to EBITDA ratio was 1.84 as of March 31, 2013; well
under the Corporation's credit facility covenant of 3.00;
-- Maintained a strong balance sheet exiting the first quarter of 2013
with positive working capital of $106.9 million and available
borrowings of $111.4 million; and
-- During the quarter the Corporation announced it would begin paying a
monthly dividend of $0.0125 per common share commencing May 1, 2013.
Monthly distributions amount to approximately $1.3 million. In
conjunction with the dividend, the Corporation also announced the
adoption of a Dividend Reinvestment Plan ("DRIP"). The DRIP provides
eligible shareholders with the opportunity to reinvest their cash
dividends, on each dividend payment date, in additional Common
Shares, which will be issued from treasury. Eligible shareholders
may elect to participate in the DRIP commencing with the May 2013
dividend.
-- SUBSEQUENT EVENT
-- Subsequent to the three months ended March 31, 2013, the Corporation
acquired all of the issued and outstanding shares of Frontline
Integrated Services Ltd. ("Frontline") for an aggregate purchase
price of $23.1 million including the issuance of $16.3 million in
common shares of Secure. Frontline's core services include pipeline
integrity; remediation and reclamation; and demolition and
decommissioning performed throughout Western Canada. The Frontline
acquisition is a continuation of Secure's strategy to add
complementary services along the energy services value chain. The
acquisition will support and expand the existing environmental and
project management services of the Corporation's DS division. Going
forward, all of Frontline's customers will now have the ability to
receive an integrated service solution.
PRD DIVISION OPERATING HIGHLIGHTS
Three Months Ended
March 31,
($000's) 2013 2012 % Change
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Revenue
Processing, recovery and disposal
services (a) 45,444 34,066 33
Oil purchase and resale service 175,856 162,286 8
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Total PRD division revenue 221,300 196,352 13
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Operating Expenses
Processing, recovery and disposal
services (b) 15,418 11,862 30
Oil purchase and resale service 175,856 162,286 8
Depreciation, depletion, and
amortization 9,189 6,551 40
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Total PRD division operating
expenses 200,463 180,699 11
General and administrative 4,959 2,648 87
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Total PRD division expenses 205,422 183,347 12
Operating Margin (1) (a-b) 30,026 22,204 35
Operating Margin as a % of revenue
(a) 66% 65% -
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(1) Refer to "Non GAAP measures and operational definitions"
Highlights for the PRD division included:
-- Revenue from processing, recovery and disposal for the three months
ended March 31, 2013 increased 33% to $45.4 million from $34.1 million
for the three months ended March 31, 2012. The 33% increase quarter over
quarter relates to the following:
-- New facility additions and expansions subsequent to the first
quarter of 2012 which include: the completion of the Wild River SWD
permanent facility in the second quarter of 2012; expansion of the
Dawson Creek facility in June 2012 to include a pipeline connection;
the acquisition of DRD in July 2012; the completion of the Crosby
SWD in North Dakota in December 2012; the completion of Fox Creek
Landfill in December 2012; and the completion of the new Edson
temporary water injection facility in January 2013; and
-- Increased demand for the Corporation's products and services.
Quarter over quarter processing volumes from existing facilities
have increased (excludes processing volumes from new facilities
added after the first quarter of 2012).
-- Revenue from processing activity was higher as quarter over quarter
processing volumes increased by 14%. First quarter 2013 disposal volumes
increased by 48% over the prior year quarter. A significant portion of
the increase relates to the addition of the new US SWD facilities (DRD
acquisition and the completion of Crosby SWD) in North Dakota in the
second half of 2012. Disposal volumes at existing facilities also
increased on a quarter over quarter basis.
-- Recovery revenue from the sale of oil recovered through waste
processing, crude oil handling, marketing and terminalling increased by
41% for the three months ended March 31, 2013 compared to the same
period in 2012. The amount of recovery revenue increased as processing
volumes related to the addition of the new facilities and expansions
subsequent to the first quarter of 2012 as mentioned under the first
bullet point above. A large portion of the increase in recovery revenue
quarter over quarter is a result of the Corporation's ability to
capitalize on crude oil marketing opportunities at its FST's. Crude oil
marketing revenue increased by 145% for the quarter ended March 31, 2013
compared to the same period of 2012 as a result of the Dawson FST crude
oil pipeline connection in July 2012, increased oil throughput at
Drayton Valley and Silverdale FST's and the Corporation's ability to
capitalize on market spread differential opportunities throughout the
quarter. This includes crude oil marketing opportunities available by
shipping crude oil out by rail.
-- Operating expenses from PRD services for the three months ended March
31, 2013 increased 30% to $15.4 million from $11.9 million for the
comparative period of 2012. The increase in operating expenses relates
to the new facilities and expansions added organically, the DRD
acquisition and due to an increase in processing volumes from existing
facilities. Revenue for the three months ended March 31, 2013 increased
33% which is consistent with the 30% increase in operating expenses over
the comparable period of 2012.
-- Operating margin as a percentage of revenue from PRD services was 66%
for the three months ended March 31, 2013 compared to 65% for the same
period of 2012. The increase in the operating margin quarter over
quarter was a result of improvements in operating efficiencies at the
facilities and through increased crude oil marketing activity from the
Dawson FST crude oil pipeline connection and from volumes managed at the
Silverdale FST.
-- General and administrative ("G&A") expenses for the three months ended
March 31, 2013 increased 87% to $5.0 million from $2.6 million in the
comparative period in 2012. Wages and salaries increased 68% as new
employees were hired to support growth in the PRD division in Canada and
the United States. The establishment of the PRD divisional office in
Denver, Colorado plus a 25% increase in building rent expenses
contributed to the quarter over quarter increase.
DIVISION OPERATING HIGHLIGHTS
Three Months Ended
March 31,
($000's) 2013 2012 % Change
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Revenue
Drilling services (a) 101,678 81,360 25
Operating expenses
Driling services (b) 77,746 60,663 28
Depreciation and amortization 3,704 2,785 33
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Total DS division operating
expenses 81,450 63,448 28
General and administrative 7,255 6,728 8
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Total DS division expenses 88,705 70,176 26
Operating Margin (1) (a-b) 23,932 20,697 16
Operating Margin % (1) 24% 25% (4)
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(1) Refer to "Non GAAP measures and operational definitions"
Highlights for the DS division included:
-- First quarter 2013 DS divisional revenue was $101.7 million or 25%
higher than the $81.4 million of revenue generated in the first quarter
of 2012. Overall, the quarter over quarter increase in revenue is the
result of an 18% increase in Canadian revenue per operating day, an
increase in market share to 31% versus 28% in Canada and due to an
increase in the number of meters drilled by DS. These improvements were
despite an 8% drop in the CAODC's average rig count to 496 rigs in the
first quarter of 2013 from the 540 average rigs working during the
comparative period of 2012. The drop in rig count was offset by a late
spring breakup in 2013 compared to 2012 which led to higher sustained
demand for drilling fluids late into the quarter. The late spring
breakup helped to keep Canadian DS division operating rig days
relatively unchanged; DS operating days totaled 13,918 for the first
quarter of 2013 compared to 13,875 for the first quarter of 2012.
-- The drilling fluids service line contributed $87.4 million or 86% of
total DS division revenue during the first quarter of 2013, compared to
$71.3 million or 88% of total revenue in the comparative quarter of
2012, a 23% dollar improvement. Major drivers for the revenue
improvement in addition to those mentioned above include a higher
proportion of activity related to SAGD wells and higher revenue in the
U.S. as a result of the IDF acquisition. First quarter revenue per
operating day for the drilling fluids service line in Canada increased
to $5,815 compared to $4,919 in 2012 or an 18% increase. Increases in
the proportion of SAGD wells helped drive the revenue per operating day
improvement in the first quarter of 2013. SAGD wells tend to be more
complex and require more costly drilling fluids. The first quarter of
2013 saw an increase in the proportion of SAGD wells relative to the
first quarter of 2012. The volumes of oil based fluids used in the first
quarter of 2013 were consistent with the first quarter of 2012.
-- Despite an 8% quarter over quarter decrease in Canadian rig count, the
drilling fluid service line in Canada was able to increase its market
share to approximately 31%, compared to 28% for the same period of 2012.
The CAODC's average monthly rig count for Western Canada provides the
basis for market share calculations.
-- Operating margins for the first quarter of 2013 were $23.9 million or
24% of revenue compared to $20.7 million or 25% in 2012. Of the 1%
margin decrease; $0.7 million relates to lower environmental and solids
control service lines. Environment margins decreased as a result of a
higher proportion of flow through revenue and expenses. Solids control
margins were impacted by lower utilization rates. Drilling fluids
service line operating margins improved on a quarter over quarter basis
and helped to offset environmental and solid control quarter over
quarter decreased margins.
-- G&A expenses for the first quarter ending March 31, 2013 were $7.3
million compared to $6.7 million for the three months ended March 31,
2012. The 8% increase is attributable to increases in headcount quarter
over quarter in addition to associated costs to improve infrastructure
and manage the growing business. G&A expenses as a percentage of revenue
were 7% for the three months ended March 31, 2013, versus 8% for the
same period of 2012. The most significant accounts within G&A expense
include: salaries and benefits for office staff, professional fees,
office leases, insurance, utilities, and communications. The increase in
G&A is in line with management expectations.
OUTLOOK
Secure posted record first quarter 2013 financial and operating results which
increased on a sequential basis over the fourth quarter of 2012 despite a
continuation of subdued industry conditions. Producer spending was cautious in
the quarter due to weak commodity prices and oil transporting bottlenecks
resulting in regional oil price discounts. Lower producer spending is reflected
in the 8% decrease in quarter over quarter rig activity in the WCSB. Oil and
liquid price weaknesses have recently subsided and natural gas prices have seen
improvement of late as a result of higher withdrawals from storage. This
continued strength in commodity prices may lead to improved activity as the year
unfolds. Alternatives to crude transport such as rail have also positively
impacted Canadian crude pricing. Analyst expectations are now that activity will
increase in the latter part of the year particularly in the fourth quarter. The
longer term fundamentals of the North American oil and gas market are positive
which bodes well for customer demand for the services the Corporation offers.
Quarter over quarter, WCSB meters drilled reported by the Canadian Association
of Oilwell Drilling Contractors increased 3% to 7.4 million which is positive to
the Corporation as meters drilled is more indicative as to volumes of drilling
fluid required and produced waters requiring processing and disposal. Higher
meters drilled is a result of more complex drilling, a move to horizontal wells
and greater lengths and depths being pursued by operators. The Corporation
anticipates the number of operating days and meters drilled in 2013 combined
with high levels of produced drilling by products will increase demand for
services at the Corporation's waste processing and disposal facilities and in
the DS division's business.
Capital deployed for growth and expansion opportunities in the quarter totaled
$41.5 million. Consolidated Capital expenditures for the year are expected to
total $155.0 million plus $23.1 million for the acquisition of Frontline. Both
the Judy Creek and Rocky FST's are nearing completion and it is anticipated both
will become fully operational in the second quarter. The SWD projects at Edson
and Kabob in Canada and Keene and Stanely in North Dakota are progressing and
pending customer demand and regulatory approval, will be evaluated for
conversion to FST's. The 2013 capital budget consists of three FST's two SWD's
and two landfills in Canada and the United States for a total of $115.0 million.
Although the capital expenditures will occur in 2013, meaningful cash flow from
the new facilities is not expected until 2014. The DS division continues to
build out its solids control fleet. The fleet now includes a greater proportion
of high capacity centrifuges which are in high demand and generate greater
revenue. The DS capital budget is forecast to total $15.0 million and is
allocated equally between Canada and the United States.
One of the Corporation's primary objectives is to maintain and strengthen its
market position by consistently providing operational excellence, innovative
solutions and cost efficiencies to its customers. The addition of Frontline
subsequent to the end of the quarter is an example how Secure continues to
enhance its customer value chain. Frontline is an integrated provider servicing
the energy, resource and civil construction industries. Their core services are
environmental project management and remediation and reclamation which feed
volume into Secure's fixed facilities. Their experienced team has extensive
industry experience with values that are consistent to Secure's. Frontline
generated $4.8 million of EBITDA in 2012.
Secure's strong balance sheet gives the Corporation flexibility to continue
growing organically and to execute on strategic acquisition opportunities. The
Corporation's diverse asset base lessens its dependence on drilling related
revenue streams in favour of production related services. Secure has a focused
strategy to continually add and expand facilities and services in key
under-serviced and capacity constrained markets organically and via acquisition.
The Corporation recently announced the implementation of a monthly $0.0125 per
share dividend. The initiation of the dividend reflects management's confidence
in its ability to generate returns to shareholders while continuing to invest in
the Corporation's organic capital program facilitating future growth.
FINANCIAL STATEMENTS AND MD&A
The condensed consolidated financial statements and MD&A of Secure for the three
months ended March 31, 2013 are available immediately on Secure's website at
www.secure-energy.ca. The 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 MD&A 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 MD&A. In particular, this MD&A contains
forward-looking statements pertaining to: general market conditions; the oil and
natural gas industry; activity levels in the oil and gas sector, including
drilling levels; commodity prices for oil, natural gas liquids ("NGLs") and
natural gas; the increase in the first quarter of 2013 operating days; demand
for the Corporation's services; expansion strategy; the amounts of the PRD and
DS divisions' 2013 capital budgets and the intended use thereof; debt service;
capital expenditures; completion of facilities; future capital needs; access to
capital; acquisition strategy; the Corporation's capital spending on the new
Rocky Mountain House and Judy Creek, Alberta full service terminals; capital
spending on the Kabob and Edson, Alberta SWD; the construction of landfills at
Saddle Hills and Fox Creek, Alberta; capital spending on the Keene and Stanley
water disposal facilities in North Dakota; oil purchase and resale revenue; and
the completion of the permanent facility.
Forward-looking statements concerning expected operating and economic conditions
are based upon prior year results as well as the assumption that increases in
market activity and growth will be consistent with industry activity in Canada,
United States, and internationally and growth levels in 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 rates, the regulatory framework
regarding oil and natural gas royalties, environmental regulatory matters, the
ability of the Corporation and its subsidiary 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 subsidiary's 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 service industry will
result in increased demand for the Corporation's services and its subsidiary's
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 Corporation's annual information form ("AIF")
for the year ended December 31, 2012. Although forward-looking statements
contained in this MD&A 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 MD&A 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 and Operational Definitions
(1) The Corporation uses accounting principles that are generally accepted
in Canada (the issuer's "GAAP"), which includes, International Financial
Reporting Standards ("IFRS"). These financial measures are Non-GAAP
financial measures and do not have any standardized meaning prescribed
by IFRS. These non-GAAP measures used by the Corporation may not be
comparable to a similar measures presented by other reporting issuers.
See the management's discussion and analysis available at www.sedar.com
for a reconciliation of the Non-GAAP financial measures and operational
definitions. These non-GAAP financial measures and operational
definitions are included because management uses the information to
analyze operating performance, leverage and liquidity. Therefore, these
non-GAAP financial measures and operational definitions should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP.
FOR FURTHER INFORMATION PLEASE CONTACT:
Secure Energy Services Inc.
Rene Amirault
Chairman, President and Chief Executive Officer
(403) 984-6100
(403) 984-6101 (FAX)
Secure Energy Services Inc.
Allen Gransch
Chief Financial Officer
(403) 984-6100
(403) 984-6101 (FAX)
www.secure-energy.ca
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