Secure Energy Services Inc. ("Secure" or the "Corporation")
(TSX:SES) today announced financial and operational results for the
three and nine months ended September 30, 2012. The following
should be read in conjunction with the management's discussion and
analysis ("MD&A"), the condensed consolidated interim financial
statements and notes of Secure which are available on SEDAR at
www.sedar.com.
THIRD QUARTER AND YEAR-TO-DATE 2012
HIGHLIGHTS
Three Months Ended Sept 30, Nine Months Ended Sept 30,
($000's except
share and per
share data)
(unaudited)(1 % %
) 2012 2011 Change 2012 2011 Change
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Revenue
(excludes oil
purchase and
resale) 99,503 84,088 18 283,836 129,052 120
Oil purchase
and resale 149,705 74,108 102 466,747 190,886 145
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Total revenue 249,208 158,196 58 750,583 319,938 135
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EBITDA (2) 24,915 20,653 21 71,264 37,179 92
Per share
($), basic 0.25 0.23 9 0.76 0.50 52
Per share
($), diluted 0.25 0.22 14 0.74 0.47 57
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Profit for the
period 6,354 7,853 (19) 22,418 12,095 85
Per share
($), basic 0.06 0.09 (33) 0.24 0.16 50
Per share
($), diluted 0.06 0.08 (25) 0.23 0.15 53
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Capital
Expenditures 50,245 34,791 44 133,983 154,724 (13)
Total assets 699,982 535,448 31 699,982 535,448 31
Long term
borrowings 89,187 73,979 21 89,187 73,979 21
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Common Shares
- end of
period 104,492,885 89,274,291 17 104,492,885 89,274,291 17
Weighted
average
common shares
basic 98,724,604 89,242,506 11 93,655,304 74,853,149 25
diluted 101,492,349 93,949,868 8 96,645,131 79,314,465 22
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(1)Certain amounts were reclassified
to conform with current period
presentation
(2)Refer to "Non GAAP measures and
operational definitions"
-- Earnings before interest, taxes, depreciation and amortization
("EBITDA") increased 21% in the third quarter of 2012 to $24.9 million
as compared to the third quarter of 2011, a record for the third
quarter. EBITDA for the nine months ended September 30, 2012 increased
92% to $71.3 million as compared to the same period in 2011. EBITDA per
share (diluted) of $0.25 and $0.74 for the three and nine months of 2012
increased 14% and 57% respectively as compared to the same periods in
2011. EBITDA improved through the addition of new facilities,
acquisitions, higher demand for processing, recovery and disposal
division ("PRD") products and servic es and increased operating margins;
-- Revenue (excluding oil purchase and resale) of $99.5 million and $283.8
million for the three and nine months ended September 30, 2012 improved
18% and 120% respectively compared to the same periods in 2011. PRD
division third quarter disposal volumes and processing volumes increased
28% and 127% respectively over the third quarter of 2011. Contributions
from new facilities started in late 2011 and in 2012 increased revenues.
In particular, the Drayton Valley full service terminal ("FST"),
Silverdale FST, Wild River stand-alone w ater disposal ("SWD") and the
two U.S. SWD facilities al l added to processing and disposal volumes in
the third quarter. Third quarter 2012 revenue for the Drilling Services
("DS") division increased 3% to $65.3 million from the third quarter of
2011, despite lower drilling activity in the third quarter of 2012
compared to the third quarter of 2011. U.S. based revenue increased
quarter-over-quarter due to the Corporation establishing the U.S.
business in the third quarter of 2011 and the acquisition of a U.S.
based drilling fluids company in the third quarter of 2012. The average
rig count in Canada was 339 rigs in the third quarter of 2012 down 25%
from the same period last year. The DS division's Canadian drilling
fluid market share remained constant at approximately 30% in the third
quarter of 2012 compared to the third quarter of 2011;
-- Oil purchase and resale revenue of $149.7 million and $466.7 million for
the three and nine months ended September 30, 2012 increased compared to
revenue of $74.1 million and $190.9 million in the comparable periods of
2011. Revenue increases are a result of higher throughput at all
pipeline connected facilities and the Drayton Valley FST, La Glace FST
and Dawson FST becoming single shipper facilities within the past year;
-- Profit for the period per share (diluted) decreased to $0.06 for the
three months ended September 30, 2012 compared to $0.08 for the three
months ended September 30, 2011 as a result of an increased number of
shares issued in conjunction with the bought deal financing in August
2012 and lower profit for the period mainly due to higher interest and
taxes in the third quarter of 2012;
-- The Corporation received board of director approval in the third quarter
to increase the 2012 organic capital budget by $50.0 million to a total
of $166.0 million. The increased capital is allocated to the PRD
division with $30.0 million targeted for additional growth initiatives
and $20.0 million for expansion projects. Capital expenditures from
growth and expansion (excludes acquisitions and sustaining capital) for
the three and nine months ended September 30, 2012 was $42.7 million and
$101.4 million, respectively and is summarized as follows:
-- Wild River SWD (permanent facility);
-- Phase III (oil treating and terminalling) at Dawson FST;
-- Oil based mud ("OBM") blending plant at the Drayton Valley FST;
-- Judy Creek FST (joint venture with Pembina Pipelines Corporation);
-- Rocky Mountain House ("Rocky") FST;
-- Obed, Dawson and Fox Creek FST expansions;
-- Fox Creek landfill;
-- Crosby SWD (North Dakota); and
-- Rental equipment & long lead equipment (centrifuges, tanks,
treaters, frac ponds);
-- In July, the Corporation successfully completed an asset purchase
agreement with DRD Saltwater Disposal LLC ("DRD") for total cash and
share consideration of U .S. $29.9 million. The operating assets
acquired include two recently constructed fully operational SWD
facilities servicing the Bakken oil play in North Dakota, which aligns
with the Corporation's strategy of expanding operations into
underserviced markets. Results for the acquisition are recorded in the
PRD division;
-- In August, the Corporation successfully acquired the operating assets of
Imperial Drilling Fluids Engineering Inc. ("IDF"), a Colorado based
drilling fluids company that services the Niobrara and Cordell Shale
plays for U.S. $7.0 million and a series of future earn out payments
that in aggregate range from U.S. $2.7 million to U.S. $8.0 million for
total maximum consideration of U.S. $15.0 million;
-- In August, Secure closed a bought deal financing (the "Offering")
raising total proceeds of $86.3 million. The net proceeds from the
Offering were initially used to repay the Corporation's credit facility.
It is management's intent to redraw on the credit facility to fund a
portion of the increased 2012 capital expenditure program and for
working capital and general corporate purposes; and
-- Subsequent to the third quarter, the Corporation increased the
syndicated credit facility from $200.0 million to $300.0 million through
an amended and restated extendible credit facility agreement. The credit
agreement also includes an accordion provision allowing the Corporation
to increase the credit facility by $50.0 million to $350.0 million. The
increase in the credit facility will be used to fund the 2013 and 2014
capital expenditure program, and for working capital and general
corporate purposes.
PRD DIVISION
OPERATING
HIGHLIGHTS
Three Months Ended Sept 30, Nine Months Ended Sept 30,
($000's)
(unaudited)(1) 2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
Revenue
Processing,
recovery and
disposal
services (a) 34,252 20,562 67 93,335 56,021 67
Oil purchase and
resale service 149,705 74,108 102 466,746 190,886 145
----------------------------------------------------------
Total PRD
division
revenue 183,957 94,670 94 560,081 246,907 127
----------------------------------------------------------
Operating Expenses
Processing,
recovery and
disposal
services (b) 13,211 8,484 56 36,342 23,825 53
Oil purchase and
resale service 149,705 74,108 102 466,746 190,886 145
Depreciation,
depletion, and
amortization 7,408 4,951 50 20,299 12,960 57
----------------------------------------------------------
Total operating
expenses 170,324 87,543 95 523,387 227,671 130
General and
administrative 3,955 2,704 46 9,798 6,736 45
----------------------------------------------------------
Total PRD division
expenses 174,279 90,247 93 533,185 234,407 127
Operating Margin
(2) (a-b) 21,041 12,078 74 56,993 32,196 77
Operating Margin
(2)as a % of
revenue (a) 61% 59% 3 61% 57% 7
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(1)Certain amounts were reclassified to conform
with current period presentation (see note
below)
(2)Refer to "Non GAAP measures and operational
definitions"
Note: In the prior year, the Corporation completed the
acquisition of Marquis Alliance Energy Group Inc. and its wholly
owned subsidiaries ("Marquis Alliance") and XL Fluids Systems Inc.
("XL Fluids"), creating the DS division. In 2012, Secure has
reclassified certain costs previously included in the PRD division,
including segregating out costs associated with Corporate overhead.
Accordingly, any reclassifications in 2012 were adjusted in the
prior year to conform to current period presentation.
Highlights for the PRD division included:
-- For the three and nine months ended September 30, 2012, revenue from
processing, recovery and disposal increased to $34.3 million and $93.3
million from $20.6 million and $56.0 million in the comparable periods
of 2011. Processing volumes increased 127% and 158% for the three and
nine months ended September 30, 2012 compared to the same periods of
2011. Added facilities and expansions in 2011 and 2012 plus increased
demand contributed to the improvement in revenue. The following new
facilities and services were added after the third quarter of 2011;
Drayton Valley FST and Silverdale FST both operational in the fourth
quarter of 2011; Secure's frac pond rental service starting in October
of 2011; the completion of construction of the Wild River SWD permanent
facility in April of 2012; the addition of Dawson FST crude oil treating
in June of 2012; and the acquisition of DRD in June of 2012 (the "new
facilities and services"). Secure's disposal volumes increased by 28%
and 31% for the three and nine months ended September 30, 2012 compared
to the same periods of 2011;
-- Operating expenses from processing, recovery and disposal services for
the three and nine months ended September 30, 2012 increased to $13.2
million and $36.3 million from $8.5 million and $23.8 million in the
comparative periods of 2011. Operating expenses to a large degree are
variable and will correspond to changes in revenue. Variable expenses
include items such as trucking, utilities, facility repairs and
maintenance. Revenue for both the three and nine months ending September
30, 2012 increased 67% which corresponds to the 56% and 53% increase in
operating expenses over the comparable prior year periods. Operating
expenses are also higher as a result of Secure's new facilities and
services completed in 2011 and 2012 as mentioned above; and
-- Operating margin as a percentage of revenue from processing, recovery
and disposal services for the three and nine months ended September 30,
2012 was consistent at 61% for both periods, an increase from 59% and
57% for the three and nine months ended September 30, 2011,
respectively. Operating margins increased by two percentage points over
the third quarter of 2011. Third quarter 2011 operating costs and
margins were negatively impacted by heavy rains in July which increased
road maintenance, site and equipment, and leachate disposal expenses.
These expenses decreased $0.8 million in the third quarter of 2012 as
compared to the third quarter of 2011. Operating margins are in line
with management expectations.
DS DIVISION
OPERATING
HIGHLIGHTS
Three Months Ended Sept 30, Nine Months Ended Sept 30,
($000's)
(unaudited) (1) 2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
Revenue
Drilling
services (a) 65,251 63,526 3 190,502 73,031 161
Operating
expenses
Drilling
services (b) 50,259 46,240 9 145,371 52,832 175
Depreciation
and
amortization 3,709 2,284 62 9,417 3,134 200
------------------------------------------------------------
Total DS
division
operating
expenses 53,968 48,524 11 154,788 55,966 177
General and
administrative 6,830 5,273 30 19,668 6,416 207
------------------------------------------------------------
Total DS
division
expenses 60,798 53,797 13 174,456 62,382 180
------------------------------------------------------------
Operating Margin
(2) (a-b) 14,992 17,286 (13) 45,131 20,199 123
Operating Margin
% (2) 23% 27% (15) 24% 28% (14)
----------------------------------------------------------------------------
(1)Includes DS division from its acquisition on June 1, 2011.
(2)Refer to "Non GAAP measures and operational definitions"
Highlights for the DS division included:
-- Revenue from the DS division for the three and nine months ended
September 30, 2012 was $65.3 million and $190.5 million. This compares
to $63.5 million and $73.0 million in the same periods of 2011. Results
for the nine months ended September 30, 2011 are not comparable to 2012
as the DS division was acquired on June 1, 2011. The 3% increase in DS
division revenue in the third quarter of 2012 compared to the third
quarter of 2011 is due to increased sales volumes of low margin oil
based drilling fluids as well as revenue from the U.S. segment. Oil
based drilling fluids are preferred for use in horizontal and
directional drilling applications;
-- The drilling fluids service line estimated Canadian market share over
the third quarter of 2012 was approximately 30% consistent to the third
quarter of 2011. The market share percentage was based on the Canadian
Association of Oilwell Drilling Contractors ("CAODC")- average monthly
rig count for Western Canada of 339 rigs for the third quarter of 2012,
compared to 453 rigs through the first quarter (refer to "Non-GAAP
measures and Operational Definitions");
-- Third quarter operating days for the Canadian drilling fluids service
line were 9,113 operating days compared to 12,512 operating days in the
third quarter of 2011. The 27% decrease in operating days is a result of
the slowdown in drilling activity reflected by weakened customer demand.
Revenue per operating day for the third quarter of 2012 was $5,267
compared to $4,334 in the third quarter of 2011. Revenue per operating
day improved as a result of higher sales volumes of low margin oil based
fluids in 2012 versus; and
-- For the three months ended September 30, 2012 operating margins were
$15.0 million or 23% of revenue compared to $17.3 million or 27% of
revenue for the third quarter of 2011, a 13% quarter-over-quarter
decline. The decline in both absolute dollars and margin percentage are
due to slower industry conditions as demonstrated by the 25% drop in
Western Canadian Sedimentary Basin ("WCSB") industry rig count, a higher
proportion of sales volume relating to the purchase and sale of low
margin oil based stock used in oil based drilling, an increase in U.S.
lower margin drilling fluid revenue, and a decrease in high margin
Canadian rental revenue. In periods of rising oil based stock prices or
increased activity in oil based drilling fluids, revenue and product
costs increase accordingly resulting in decreased margins on a
percentage basis. On an absolute basis, operating margins remain in line
with management expectations.
OUTLOOK
WCSB industry conditions in the third quarter of 2012 were lower
than those experienced in the prior year's quarter. Activity in the
WCSB was slower than expected due to wet weather continuing into
July as well as spending restraint exhibited by Secure's customers.
The quarter over quarter active rig count in the WCSB where focus
continues to be on oil and natural gas liquid plays was down 25%.
Low dry natural gas prices make exploration and production of the
commodity uneconomical therefore dampening overall industry
activity. The WCSB industry trend is consistent in the United
States where the active land rig count softened for a fourth
consecutive quarter and decreased 3% quarter over quarter. Oil
drilling accounted for 75% of active rigs as rigs were redirected
from the Marcellus and Haynesville shale gas resource plays. In
Canada, the average rig count declined year-over-year to the end of
September, consistent to the total metres drilled decline to 16.8
million metres for the nine months ended September 2012 from 20.4
million metres the previous year. Metres drilled has become a more
relevant statistic as more complex drilling, shifts to horizontal
wells and greater well depths drive overall industry activity.
Secure's customers remain cautious given macro-economic factors,
low natural gas prices and the desire to maintain reasonable debt
levels.
Given the mixed industry conditions, Secure's strategy of
focusing on underserviced geographic areas has proven to be
effective. The addition of the Wild River SWD, crude oil treating
and terminalling at the Dawson facility, the Drayton Valley FST and
U.S. acquisitions contributed to improved operating and financial
performance in the third quarter. Secure exploits the industry
value chain from "crad le to grave" and focuses on environmental
and midst ream services. By doing so, the Corporation lessens its
dependence on drilling related revenue streams in favour of
production related services.
The Corporation is exploring a number of strategic growth
opportunities through acquisition and organic expansion in order to
provide additional service lines in key market areas in Canada and
the United States. In the quarter, Secure expanded its PRD business
into North Dakota through the acquisition of the operating assets
of DRD. DRD's assets included two recently constructed operating
SWD facilities serving the Bakken oil play. The DRD acquisition
provides the foundation for Secure to expand its PRD services at
the two existing locations. Secure anticipates the opening of its
first constructed SWD at Crosby, North Dakota, by the end of the
fourth quarter. The DS division added to its drilling fluids
presence in Colorado by acquiring a drilling fluids company that
focuses on the Niobrara and Cordell Shale plays. Both of these
acquisitions provide the Corporation a platform to capitalize on
the potential in the active Bakken and Niorbrara areas.
Secure announced a $50.0 million increase in its organic capital
expenditure program in the third quarter. The total capital program
for 2012 is forecast to be $166.0 million, with a portion being
carried into 2013 for long lead items and the completion of both
the Judy Creek and Rocky FST's in the first quarter of 2013. The
construction of the Saddle Hills landfill will be started in the
spring of 2013 as the approvals for the facility were not received
in time to complete construction in the fourth quarter. The new oil
based mud blending facility at the Drayton Valley FST became fully
operational in September; the new facility reduces costs associated
with logistics, develops recycling opportunities, and provides
support to the ongoing activities in the DS division. The DS
division also added $3.6 million of rental equipment to its fleet
in Canada and the United States. Management believes the capital
growth projects undertaken in 2012 and into 2013 provide a basis
for improved results on a go forward basis.
To ensure growth is executed in a disciplined manner the
Corporation completed a bought deal financing raising $86.3 million
in the quarter. The financing ensures a strong balance sheet is
maintained allowing the Corporation to manage the cycles of the oil
and gas industry. Subsequent to the third quarter, the Corporation
executed an amending agreement to its credit facility increasing
the available amount from $200.0 million to $300.0 million. The
bought deal financing and increased credit facility permits the
Corporation to seize growth initiatives while maintaining optimum
debt and equity levels on the balance sheet.
Management believes the added facilities, new products and new
services, combined with future opportunities, will provide
continued growth over the long term.
The positive operational and financial results for the year are
due to the commitment of Secure's employees, consultants and
industry partners. Secure's focus remains on providing integrated
innovative solutions for its customers.
INTERIM FINANCIAL STATEMENTS AND MD&A
The condensed consolidated interim financial statements and
MD&A of Secure for the three and nine months ended September
30, 2012 are available immediately on Secure's website at
www.secure-energy.ca. The condensed consolidated interim 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 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; demand for the Corporation's services
and the factors contributing thereto; expansion strategy; the
expanded 2012 capital budget, the allocation between the PRD and DS
divisions 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 Rocky Mountain House and Judy Creek, Alberta full
service terminals and the timing of completion thereof; oil
purchase and resale revenue; the construction of a landfill at Fox
Creek, Alberta and the timing for completion thereof and the amount
of the Corporation's asset retirement obligations and the timing
thereof; the construction of a standalone water disposal at Crosby,
North Dakota and the timing for completion thereof.
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, 2011. 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 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 No n- 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.
Contacts: Secure Energy Services Inc. Rene Amirault Chairman,
President and Chief Executive Officer (403) 984-6100 (403) 984-6101
(FAX) Secure Energy Services Inc. Nick Wieler Chief Financial
Officer (403) 984-6100 (403) 984-6101 (FAX)
www.secure-energy.ca
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