- Delivered another record quarter with Q4 2021 Adjusted EBITDA1 of $111 million, up 208% compared to Q4 2020, and up 57% on a per share basis
- Increased 2021 revenue to $893 million, excluding oil purchase and resale, up 94% from 2020
- 2021 Adjusted EBITDA of $286 million and $1.22 per share, up 110% and 42%, respectively from 2020
- Increased Q4 2021 Adjusted EBITDA margin2 from 30% to 34% compared to 2020
- Net loss in Q4 2021 of $166 million, an increase of $127 million from Q4 2020, due primarily to non-cash impairment charges associated with facility rationalizations driven by the impact of the transaction (the "Transaction") with Tervita Corporation ("Tervita")
- Realized $40 million of run-rate synergies in 2021 impacting Adjusted EBITDA and on track for a minimum of $75 million synergies by end of 2022. Also realized an additional $9 million of run-rate interest cost savings from the redemption of USD 11% Secured notes with CAD 7.25% Unsecured notes
- Generated $171 million of discretionary free cash flow1 and $0.73 per share2 in 2021, up 80% and 22%, respectively, from 2020. Funds flow from operations in 2021 totaled $176 million, an increase of 68% from 2020
- Executed on Environment, Social and Governance (ESG) initiatives by setting targets to reduce water usage by 5% in 2022 and lower greenhouse gas emissions intensity 15% by 2024
- Inclusion to the S&P/TSX Composite Index on December 20, 2021
- On March 2, 2022, added Mark Bly to our board of directors, an executive with over 35 years of experience in the oil and gas industry, with a strong background in ESG, and current Chair of the board of Baytex Energy
CALGARY, AB, March 2, 2022 /CNW/ - SECURE ENERGY Services Inc. ("SECURE" or the "Corporation") (TSX: SES) reported the Corporation's operational and financial results for the three and twelve months ended December 31, 2021.
"Results in the fourth quarter of 2021 demonstrated the strength of our business, as we delivered exceptional operational performance and continued to successfully integrate the assets acquired in the Tervita transaction," said Rene Amirault, President and Chief Executive Officer of SECURE. "Our Midstream Infrastructure and Environmental and Fluid Management segments benefited from improved oil and gas industry fundamentals that drove higher demand for drilling and completion services, reclamation and remediation work, incremental facility and landfill volumes, increased recovered oil pricing and crude oil marketing opportunities. Our ongoing focus on managing costs resulted in strong margins across all of our operations.
"We are extremely pleased with the results and progress of the integration with Tervita, which is proceeding on track to achieve a minimum of $75 million of synergies impacting Adjusted EBITDA by the end of 2022. In Q4 2021, we achieved $11 million of cost savings, and $40 million on an annual run-rate basis for realized savings of 53% of the $75 million target just six months since closing the merger. In addition, we have made improvements to our capital structure by extending long-term maturities, introducing more flexibility into our capital structure, and lowering our cash interest costs by approximately $9 million since we completed the second bond issue on October 4th, 2021.
"We are also pleased to announce the appointment of Mark Bly to our Board on March 2, 2022. Mark has over 35 years of experience in the oil and gas industry focused on safety and operations and is currently the Chair of the board of Baytex Energy. We look forward to the added depth and expertise that Mark will bring in helping us grow our operations.
"Looking forward in 2022, we expect to see continued industry improvement which will support our strong momentum and drive higher year over year discretionary free cash flow in 2022. Our key priorities remain synergies, operational optimization and efficiencies, progressing our ESG initiatives, and paying down debt with free cash flow, while leveraging key opportunities to grow and provide value for shareholders and customers.
"I want to thank all SECURE employees that have contributed to finding ways to make our merger successful in all aspects. We still have a lot of work in front of us but having a great team will ensure a successful execution of our 2022 goals."
1 Non-GAAP financial measure that is not a standardized financial measure under International Financial Reporting Standards ("IFRS") and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP and other financial measures" section herein.
2 Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP and other financial measures" section herein.
FINANCIAL AND OPERATING HIGHLIGHTS
The Corporation's operating and financial highlights for the three and twelve months ended December 31, 2021 and 2020 can be summarized as follows:
Three months ended December 31,
Twelve months ended December 31,
($ millions except share and per share data)
Revenue (excludes oil purchase and resale)
Oil purchase and resale
Adjusted EBITDA (1)
Per share ($), basic and diluted (1)
Net loss attributable to shareholders of SECURE (2)(3)
Per share ($), basic and diluted
Funds flow from operations
Per share ($), basic and diluted (4)
Discretionary free cash flow (1)
Per share ($), basic and diluted (1)
Dividends per common share
Total assets (2)
Long-term liabilities (2)
Common shares - end of period
Weighted average common shares - basic and diluted
(1) Refer to "Non-GAAP and other financial measures" section herein.
(2) Prior year amounts have been restated, refer to "Accounting Policies" section in the Q4 2021 Management's Discussion & Analysis ("MD&A") for additional information.
(3) Includes non-cash impairment charges of $247 million and $34 million for the three months ended December 31, 2021 and 2020, respectively and $269 million and $50 million for the twelve months ended December 31, 2021 and 2020, respectively.
(4) Supplementary financial measure. Refer to the "Non-GAAP and other financial measures" section in the Q4 2021 MD&A which information is incorporated by reference into this news release.
FINANCIAL AND OPERATIONAL RESULTS
The following should be read in conjunction with the Corporation's MD&A for the three and twelve months ended December 31, 2021, and the consolidated financial statements and notes thereto for the three and twelve months ended December 31, 2021 ("Annual Financial Statements"), which are both available on SEDAR at www.sedar.com.
FOURTH QUARTER HIGHLIGHTS
- Revenue (excluding oil purchase and resale) of $327 million - an increase of 175% compared to the fourth quarter of 2020 with Midstream Infrastructure revenue (excluding oil purchase and resale) increasing by $91 million to $138 million and Environmental and Fluid Management revenue increasing by $117 million to $189 million for the quarter. These increases were primarily due to additional revenue associated with the Transaction and the increase in activity levels. Both reportable segments benefited from improved industry activity levels, driving incremental volumes at Midstream Infrastructure facilities and industrial landfills, and demand for drilling and completion related services as evidenced by an increase in average active rig count of approximately 75%. Higher crude oil pricing in 2021 also positively impacted recovered oil revenue and increased oil purchase and resale revenue by 185% to $1.0 billion
- Net loss attributable to shareholders of $166 million - an increase of $127 million compared to the fourth quarter of 2020. The increase was primarily driven by the impact of the Transaction which includes a $247 million non-cash impairment charge recorded in the quarter. The non-cash impairment charge is predominantly attributable to the suspension or closure of facilities in order to achieve the integration cost savings related to the Transaction as discussed below and assets identified and assigned value in the purchase price allocation of the Transaction that do not have continuing value to SECURE, including intangible assets such as trade names. In addition, higher depreciation, depletion and amortization ("DD&A"), $23 million of higher finance costs associated with debt assumed during the Transaction and incurring $10 million of transaction costs were partially offset by higher period over period Adjusted EBITDA as described below and an increase in the deferred tax recovery of $45 million.
- Adjusted EBITDA of $111 million - an increase of 208% compared to the fourth quarter of 2020, primarily due to improved market conditions and synergies as a result of the Transaction, which demonstrates the strength and scale of the combined business. In addition, higher oil prices resulted in increased activity levels in the Corporation's operating areas, which led to higher processing and disposal volumes at our Midstream Infrastructure facilities and landfills and increased demand for drilling and completion services within the Environmental and Fluid Management segment.
- Integration cost savings of $40 million realized - achieved $11 million of cost savings impacting Adjusted EBITDA in the fourth quarter of 2021, and $40 million on an annual run-rate basis for realized cost savings of 53% of the $75 million target after six months of integration following completion of the Transaction. The $11 million achieved in the quarter is mainly a result of a reduction of headcount and operational optimizations and facility rationalizations. The Corporation suspended or closed 17 facilities in order to achieve the cost savings associated with facility rationalizations. As we suspend facilities and redirect water and waste volumes to another location it improves overall utilization and lowers greenhouse gas emissions intensity. In the three months ended December 31, 2021, $10 million of costs related to the Transaction and integration of the business were incurred.
- Adjusted EBITDA margin of 34% - increased from 30% in the fourth quarter of 2020, due to the positive impact from the cost savings mentioned above and higher revenue contributing to improved fixed cost absorption particularly in the service lines impacted by the increased drilling and completion activity. In the prior year, Adjusted EBITDA margin in the fourth quarter benefited from wage subsidies under the Canadian Emergency Wage Subsidy ("CEWS") program.
- Discretionary free cash flow of $47 million - which was primarily used to fund the increase in working capital from higher activity levels, as well as pay the Corporation's quarterly dividend, transaction costs and growth capital expenditures. Funds flow from operations were $54 million in the quarter, an increase of $27 million from the prior year comparative period. Higher Adjusted EBITDA in the fourth quarter of 2021 was offset by transaction costs incurred and the payment of the semi-annual interest payments on the Corporation's unsecured and senior secured notes.
- Liquidity1 of $289 million - decreased by $11 million from September 30, 2021 primarily due to increased investment in working capital associated with higher activity levels and transaction-related costs incurred, partially offset by discretionary free cash flow generated during the fourth quarter of 2021.
- Total capital expenditures of $17 million - consisting of $4 million growth capital and $13 million of sustaining capital. Growth capital included spend related to increasing the handling capacity at a water disposal facility and optimization upgrades to facility equipment. Sustaining capital relates primarily to landfill cell expansions, well and facility maintenance, spare parts, asset integrity and inspection programs.
- G&A expense before depreciation, depletion, amortization and share-based compensation expense as a percentage of revenue (excluding oil purchase and resale) was 8%, which improved by two percentage points compared to the fourth quarter of 2020.
- Private offering of $140 million - Completed an additional private offering of $140 million aggregate principal amount of 7.25% unsecured notes due December 30, 2026 ("2026 unsecured notes") at an issue price of $100.75, representing a yield of approximately 7%. The proceeds were primarily used to fund the redemption of US$100 million aggregate principal amount of the US$500 million aggregate principal amount of 11.00% senior second lien secured notes previously issued by Tervita due December 1, 2025 (the "2025 senior secured notes"), at a redemption price of 105.5%, plus accrued but unpaid interest to, but not including, the applicable redemption date. The redemptions were completed on October 7 and 8, 2021.
These redemptions of 2025 senior secured notes, along with the redemption of another US$100 million aggregate principal amount of 2025 senior secured notes completed on July 16, 2021, are anticipated to result in annual interest cost savings of approximately $9 million.
- Declared dividends of $2 million - representing $0.0075 (0.75 cents) per common share for the quarter.
- The Corporation was added to the S&P/TSX Composite index on December 20, 2021. The S&P/TSX Composite is the headline index for the Canadian equity market and tracks the performance of the largest companies listed on the TSX and is used as the benchmark for Canadian equity performance.
1 Capital management measure. Refer to the "Non-GAAP and other financial measures" section in the Q4 2021 MD&A which information is incorporated by reference into this news release.
- Revenue (excluding oil purchase and resale) of $893 million - an increase of 94% compared to 2020. The increase was primarily due to same factors that impacted the quarter, partially offset by lower drilling and completion and project activity in the first quarter of 2021.
- Net loss attributable to shareholders of $203 million - an increase of $118 million compared to 2020. The increase was primarily driven by the same factors that impacted the quarter. The net loss for 2021 included a non-cash impairment charge of $269 million. The non-cash impairment charge is predominantly attributable to the suspension or closure of facilities in order to achieve the integration cost savings related to the Transaction and assets identified and assigned value in the purchase price allocation of the Tervita acquisition that do not have continuing value to SECURE, including intangible assets such as trade names. Refer to Note 9 of the Annual Financial Statements for additional information.
- Adjusted EBITDA of $286 million - an increase of 110% compared to 2020, primarily due to the same factors that impacted the quarter. Adjusted EBITDA in 2021 benefited from the cost savings achieved from the Transaction and the cost reduction measures that took effect in April 2020 to align the Corporation's fixed cost structure to levels consistent with industry activity levels. The measures in April 2020 included organizational restructuring and associated personnel reductions. These positive factors were partially offset by $23 million of CEWS benefits received in 2020, which had an insignificant impact in 2021.
- Discretionary free cash flow of $171 million - an increase of $76 million from the prior year which was used to pay costs associated with the Transaction, fund growth capital expenditures and the Corporation's quarterly dividend, as well as increased working capital associated with higher activity levels. In 2021, the Corporation generated funds flow from operations of $176 million, an increase of 68% from 2020. The increase was driven by the same factors that impacted the quarter. At December 31, 2021, SECURE carried working capital2 of $183 million compared to $64 million at December 31, 2020, the increase being primarily due to the increased scale of the Corporation's operations and the investment associated with higher activity levels.
- Total capital expenditures of $43 million - consisting of $14 million growth capital and $29 million of sustaining capital. Growth capital included spend related to connecting an additional segment of the East Kaybob oil pipeline, increasing the handling capacity at a water disposal facility and optimization upgrades. Sustaining capital related primarily to well and facility maintenance, spare parts, asset integrity and inspection programs.
- Financial capacity
- In connection with the closing of the Transaction, SECURE entered into the "Revolving Credit Facility" which is an $800 million three-year senior secured revolving credit facility with nine financial institutions. SECURE also entered into a $30 million unsecured letter of credit facility guaranteed by Export Development Canada (the "SECURE LC Facility"), providing additional stability and capacity to the Corporation's capital structure.
- During 2021, the Corporation closed private offerings totaling $340 million aggregate principal amount of 7.25% unsecured notes due December 30, 2026. SECURE used the proceeds from these private offerings primarily to fund the redemption of US$200 million aggregate principal amount of the 2025 senior secured notes previously issued by Tervita and assumed in the Transaction, at a redemption price of 105.5%. The remaining proceeds have been used to repay indebtedness, pay fees and expenses incurred in connection with the note issuance and for general corporate purposes.
- The above financing transactions provide stability to the Corporation's capital structure with no near-term fixed debt maturities. In addition, the financing transactions are estimated to save approximately $9 million a year in interest charges.
- As at December 31, 2021, the Corporation had drawn $460 million aggregate principal amount on the Revolving Credit Facility and a total of $91 million of letters of credit ("LCs") have been issued against SECURE's facilities resulting in $289 million of Liquidity (available capacity under the Revolving Credit Facility, the SECURE LC Facility and cash on hand, subject to covenant restrictions).
- The following table outlines SECURE's covenant ratios3, calculated in accordance with the Corporation's credit facilities, at December 31, 2021, and December 31, 2020:
December 31, 2021
December 31, 2020
Senior Debt to EBITDA
not to exceed 3.0
Total Debt to EBITDA
not to exceed 4.75
not to be less than 2.5
- Received the following credit ratings from S&P Global Ratings ("S&P"), Fitch Ratings ("Fitch") and Moody's Investor Service, Inc. ("Moody's"), providing increased transparency and comparability for debt investors and other capital market participants:
2025 senior secured notes
2026 unsecured notes
Prior to completion of the Transaction, the 2025 senior secured notes were rated CCC+ by S&P and B3 by Moody's.
- Declared dividends of $7 million - representing $0.03 (3 cents) per common share for the year.
- SECURE believes sharing excess cash flows with its shareholders is a core business principle; as a result, management and the Board will continue to monitor the Corporation's dividend policy with respect to forecasted Adjusted EBITDA, debt, capital expenditures and other investment opportunities, as well as expected interest, lease, tax and transaction costs, and will look for opportunities to return additional capital after the successful integration with Tervita and as business conditions warrant.
2 Capital management measure. Refer to the "Non-GAAP and other financial measures" section in the Q4 2021 MD&A which information is incorporated by reference into this news release.
3 Calculated in accordance with the Corporation's credit facility agreements. Refer to the "Liquidity and Capital Resources" section in the Q4 2021 MD&A which information is incorporated by reference into this news release.
The Corporation's 2021 results exceeded expectations as rising crude oil, liquids and natural gas prices and producer cash flows drove industry activity, including increased demand for drilling and completion services, incremental facility volumes, increased recovered oil revenue and crude oil marketing opportunities. Benchmark crude oil prices recently reached seven-year highs, with macroeconomic factors including significant inflationary pressures, geopolitical risk premium due to current world events, as well as lessening COVID-19 demand impacts, supporting current prices. The higher prices and broader economic factors lead us to believe that oil and gas producers will spend capital on both maintaining and growing production levels. In early 2022, industry fundamentals have continued to be very strong and SECURE anticipates significantly higher discretionary free cash flow for 2022 based on the following expectations:
- Increased activity in drilling and completions along with higher production volumes. To date in the first quarter of 2022, the average active rig count in the WCSB is approximately 2% higher than in the first quarter of 2019 (the most recent first quarter in which there were no COVID-19 related impacts), and 20% above the first quarter of 2021.
- Increased utilization at our midstream processing facilities as higher drilling, completion and production volumes from increased activity levels require additional treating, processing, terminalling and disposal. The Corporation has significant capacity to increase facility throughput and disposal with minimal incremental fixed costs or additional capital. Higher drilling and completion activity is expected to have a positive impact on our drilling and production services business within the Environmental and Fluid Management segment.
- Increased volumes at the Corporation's industrial landfills as both industry activity and abandonment, remediation and reclamation material and activity continue to trend higher as a result of the Canadian Federal Government's $1.7 billion stimulus package to help fund the closure and reclamation of orphan and inactive wells in the WCSB within Alberta, Saskatchewan and British Columbia, which is scheduled to end in December of 2022. In addition, there is recent direction from the Alberta Energy Regulator requiring energy producers and other companies that have retirement obligations related to inactive (non-producing) wells and facilities to spend an amount each year towards addressing those obligations. SECURE expects both of these programs and policy changes to increase abandonment, remediation and reclamation activity to positively impact all Canadian operations in 2022, particularly within the Environmental and Fluid Management segment as a result of higher demand for environmental site assessments, onsite abandonment, remediation and reclamation management and decommissioning work. In 2023, the Saskatchewan provincial government will enact a mandatory spending program similar to the new program of the Alberta Energy Regulator.
- SECURE's focus for 2022 is to continue to successfully integrate and optimize the addition of the legacy Tervita facilities and operating networks acquired pursuant to the Transaction and deliver on expected integration cost savings to become a more resilient, profitable, and efficient business. In 2021, the increased contribution to Adjusted EBITDA from the realization of synergies was $18 million. By the end of 2021, we realized $40 million of synergies impacting Adjusted EBITDA on an annual run-rate basis. During 2022, the Corporation expects to execute on the remaining $35 million of administrative and operational synergies. The operational synergies include optimizations and facility rationalizations with the expectation that the synergies will contribute a partial benefit in 2022 with the full run rate of $75 million cost savings in 2023. Additional savings through initiatives such as improving our capital structure as well as minimizing sustaining capital by managing underutilized assets, are expected to provide incremental discretionary free cash flow beyond our $75 million cost savings target that impact Adjusted EBITDA.
SECURE's key priority in 2022 is to use increased discretionary free cash flow including any proceeds from non-core asset sales to drive further debt reduction during the year; in the medium-term we are committed to allocating capital towards increased shareholder returns as an important element of our capital allocation framework, as well as incremental organic growth opportunities that provide stable cash flow. These shareholder returns may include further debt repayment, increased dividends or share buybacks, or a combination thereof. SECURE will continue to work diligently to manage inflationary costs throughout the year; including purchasing materials in bulk, working with customers and negotiating with suppliers or finding alternate suppliers.
A full evaluation of the Corporation's capital project opportunities is ongoing, and the capital budget may be revised in accordance with opportunities to connect producers to existing midstream infrastructure to further increase volumes and utilization on a long-term basis. We expect sustaining capital in 2022 to be approximately $40 million, and additional sustaining capital related to landfill expansions of approximately $15 million, which assumes growth in industry activity from 2021 levels. We anticipate that the majority of our growth capital in 2022 will be focused on projects that both reduce our customer's costs and lower emissions as we build oil and water gathering pipelines. We expect to spend approximately $45 million on growth capital opportunities in 2022. Assisting customers to recycle and reduce wherever possible continues to be part of our long-term strategy and other long-term opportunities such as carbon dioxide sequestration infrastructure will continue to be evaluated as part of our ESG goals.
Progression of the Capital Structure
The Corporation's current capital structure consists of no near–term maturities, as well as flexibility with an early redemption option available on the 2026 unsecured notes, and capacity on the Revolving Credit Facility, subject to covenant restrictions. The Corporation's current capital structure includes:
- $800 million Revolving Credit Facility (which matures in July 2024). Total amount drawn on the Revolving Credit Facility as at December 31, 2021 was $460 million. LCs issued against the Revolving Credit Facility in the amount of $66 million reduce the amount available to be drawn under the Revolving Credit Facility. As a result, at December 31, 2021, the Corporation had availability of $274 million on the Revolving Credit Facility, subject to covenant restrictions. The Corporation incurred an average interest rate of approximately 3.8% for funds drawn on the Revolving Credit Facility in the fourth quarter of 2021.
- $30 million SECURE LC Facility. As at December 31, 2021, SECURE has issued LCs in the amount of approximately $25 million against this SECURE LC Facility.
- US$300 million aggregate principal amount of 2025 senior secured notes.
- $340 million aggregate principal amount of 2026 unsecured notes.
Since the end of 2021 the Corporation has used cash flow to pay down $47 million on the Revolving Credit Facility, resulting in $413 million drawn as at February 28, 2022.
The Corporation will continue to focus on maintaining financial resiliency and prioritize the repayment of debt to best position the Corporation for long-term success.
Industry macro fundamentals are currently very favourable, due to the combination of projected oil demand recovery, and an increasingly tight supply market, resulting in supportive oil and gas prices. These strong market conditions are similar to those experienced from 2009 to 2014. In addition, there is increased discipline by both oil and gas producers and energy service companies to maximize free cash flow. With SECURE's operating leverage and high ESG standards we will be there to help our customers in 2022 and in future years. We are protecting the Corporation's balance sheet by focusing on recurring revenue streams along with efficient operations, which help protect our cash flows throughout all market cycles.
Enhanced ESG platform
The Corporation's business is uniquely positioned to deliver economic and environmental benefits that make the oil and gas industry more efficient and sustainable. We are committed to work with our customers to challenge what's possible and develop innovative solutions that lower their cost structure, improve capital efficiency, and minimize the environmental impacts associated with the development of our shared resources. SECURE's platform provides the size and scale, utilization, and efficiencies to enhance the services and capabilities the Corporation provides our customers to help achieve their objectives of responsible development, while reducing costs. We believe, by working collaboratively, Canada's energy industry can have the lowest cost structure and operate with the highest ESG standards in the world.
SECURE continues to implement its ESG strategy which prioritizes the initiatives that will establish SECURE as an ESG leader. Performance improvements include proactive measures to reduce the environmental impact of our operations, and to positively contribute to the health, safety, social and economic well-being of our employees and the communities where we live and work. The Transaction elevates our position to accelerate the Corporation's environmental and social sustainability initiatives for the benefit of all stakeholders. SECURE has set short and long-term emission reduction targets to guide our efforts to manage climate risk and meet our net zero greenhouse gas emission commitment by 2050. We will also begin to integrate ESG initiatives deeper into our business.
In summary, industry fundamentals remain favourable and provide support for our business outlook in 2022. Our priorities are to achieve the remaining $35 million of run-rate Adjusted EBITDA synergies and to use our discretionary free cash flow to strengthen our balance sheet. With our efforts to date and the continuing hard work of our employees, we believe we are well positioned to achieve both of these priorities in 2022.
NON-GAAP and OTHER FINANCIAL MEASURES
The Corporation uses accounting principles that are generally accepted in Canada (the issuer's "GAAP"), which includes International Financial Reporting Standards ("IFRS"). This news release contains certain supplementary non-GAAP financial measures, such as Adjusted EBITDA and discretionary free cash flow and certain non-GAAP financial ratios, such as Adjusted EBITDA Margin, Adjusted EBITDA per share and discretionary free cash flow per share, which 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, these measures should not be used as an alternative to IFRS measures because they are not standardized financial measures under IFRS and therefore might not be comparable to similar financial measures disclosed by other companies. See the "Non-GAAP and other financial measures" section of the Corporation's MD&A for the three and twelve months ended December 31, 2021 for further details, which is incorporated by reference herein and available on SECURE's profile at www.sedar.com and on our website at www.secure-energy.com.
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per basic and diluted share
Adjusted EBITDA is calculated as noted in the table below and reflects items that the Corporation considers appropriate to adjust given the irregular nature and relevance to comparable operations. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue (excluding oil purchase and resale). Adjusted EBITDA per basic and diluted share is defined as Adjusted EBITDA divided by basic and diluted weighted average common shares.
The following table reconciles the Corporation's net loss, being the most directly comparable financial measure disclosed in the Corporation's Annual Financial Statements, to Adjusted EBITDA.
Three months ended December 31,
Twelve months ended December 31,
Net loss (1)
Depreciation, depletion and amortization (1) (2)
Current tax expense
Deferred tax recovery
Share-based compensation (2)
Interest, accretion and finance costs (1)
Unrealized loss on mark to market transactions (3)
Transaction and restructuring costs
(1) Prior year amounts have been restated, refer to "Accounting Policies" section in the Q4 2021 MD&A for additional information.
(2) Included in cost of sales and/or general and administrative expenses on the Consolidated Statements of Comprehensive Loss.
(3) Net balance. Includes amounts presented in revenue and cost of sales on the Consolidated Statements of Comprehensive Loss.
Discretionary Free Cash Flow and Discretionary Free Cash Flow per share
Discretionary free cash flow is defined as funds flow from operations adjusted for sustaining capital expenditures, and lease payments (net of sublease receipts). The Corporation may deduct or include additional items in its calculation of discretionary free cash flow that are unusual, non-recurring, or non-operating in nature. Discretionary free cash flow per basic and diluted share is defined as discretionary free cash flow divided by basic and diluted weighted average common shares.
The following table reconciles the Corporation's funds flow from operations, being the most directly comparable financial measure disclosed in the Corporation's Annual Financial Statements, to discretionary free cash flow.
Three months ended December 31,
Twelve months ended December 31,
Funds flow from operations
Lease liability principal payment (net of sublease receipts)
Transaction and restructuring costs
Discretionary free cash flow
FINANCIAL STATEMENTS AND MD&A
The Corporation's consolidated financial statements and notes thereto for the year ended December 31, 2021, and MD&A for the three and twelve months ended December 31, 2021 are available on SECURE's website at www.secure-energy.com and on SEDAR at www.sedar.com.
FOURTH QUARTER AND YEAR-END 2021 CONFERENCE CALL
SECURE will host a conference call on Thursday, March 3, 2022 at 9:00 a.m. MST to discuss the fourth quarter and year-end results. To participate in the conference call, dial 416-764-8650 or toll free 888-664-6383. To access the simultaneous webcast, please visit www.secure-energy.com. For those unable to listen to the live call, a taped broadcast will be available at www.secure-energy.com and, until midnight MST on Thursday, March 10, 2022 by dialing 888-390-0541 and using the pass code 512137#.
Certain statements contained in this press release 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 press release, the words "achieve", "advance", "anticipate", "believe", "can be", "capacity", "commit", "continue", "could", "deliver", "drive", "enhance", "ensure", "estimate", "execute", "expect", "focus", "forecast", "forward", "future", "goal", "grow", "integrate", "intend", "may", "maintain", "objective", "ongoing", "opportunity", "outlook", "plan", "position", "potential", "prioritize", "realize", "result", "seek", "should", "strategy", "target" "will", and similar expressions, as they relate to SECURE, its management, or the combined company, are intended to identify forward-looking statements. Such statements reflect the current views of SECURE and speak only as of the date of this press release.
In particular, this press release contains or implies forward-looking statements pertaining but not limited to: the expected benefits of the Transaction, including expectations with respect to synergies, Adjusted EBITDA, cost savings and the timing thereof; the impact of financing transactions on the Corporation; the levels of discretionary free cash flow and uses thereof; disclosure with respect to ESG; the Corporation's priorities including sustainability and ESG targets; the successful execution of the Corporation's goals; the integration of Tervita's legacy business; the Corporation's dividends policy or declarations and payments of dividends; expenditures by oil and gas producers; geopolitical conditions and the effects thereof; commodity prices; causes and effects of increased oil and gas activity and governmental policies on the Corporation's business; the Corporation's future focuses and priorities; debt repayment and reduction; increased shareholder returns; share buybacks; sustaining and growth capital, and the allocation thereof; the Corporation's commitment to ESG; specific ESG commitments, targets and ambitions, including emissions target reductions; discretionary spending and limits thereon; the Corporation's access to capital markets and the resulting effect on its future growth and acquisition plans; the relevance of SECURE's credit ratings to debt investors and capital market participants; the complementary nature of the Corporation's asset base and environmental service lines following the Transaction, and the ability to enhance scale and increase utilization as a result thereof; the Corporation's expected discretionary free cash flow profile;; plans to reduce carbon intensity and achieving net zero emissions by 2050; plans to reduce water use by 5% by 2022 and lower greenhouse gas emissions by 15% by 2024; SECURE's ability to deliver economic and environmental benefits; the outlook for oil and liquids prices; the effect of the current economic conditions on the future demand for SECURE's services; capacity at the Corporation's existing facilities; the introduction by the Alberta and Saskatchewan provincial governments of mandatory spending programs for well closure and reclamation obligations; the timing of the introduction of the new closure and reclamation program of the Saskatchewan provincial government; the impact the Canadian Federal Government's orphan and inactive well stimulus package and the impact of similar programs of the Alberta and Saskatchewan provincial governments may have to the business, operations and results of the Corporation; increased abandonment and reclamation activity in the oil and gas industry and the related effect on SECURE's results of operations and the timing thereof; the Corporation's 2022 capital budget and the future evaluation of the Corporation's capital project opportunities; debt service and the Corporation's ability to meet obligations and commitments and operate within any credit facility restrictions, including the financial covenants related to our debt facilities; the sufficiency of the Corporation's liquidity and expectations that our capital investment, working capital, debt repayment, share repurchases and cash dividends will be funded from internally generated cash flows; the Corporation's credit risk levels; expected benefits customers will receive from our midstream and environmental solutions; key factors driving the Corporation's success; demand for the Corporation's services and products; industry fundamentals driving the success of SECURE's core operations; future capital needs; and access to capital.
Forward-looking statements are based on certain assumptions that SECURE has made in respect thereof as at the date of this press release regarding, among other things: economic and operating conditions, including commodity prices, crude oil and natural gas storage levels, interest rates, exchange rates, and inflation; the changes in market activity and growth will be consistent with industry activity in Canada and the U.S. and growth levels in similar phases of previous economic cycles; the impact of COVID-19, including government responses related thereto and lower global energy pricing on oil and gas industry exploration and development activity levels and production volumes; the ability of the Corporation to realize the anticipated benefits of the Transaction; the resolution of the review of the Transaction under the Competition Act on terms acceptable to the Corporation; SECURE's ability to successfully integrate Tervita's legacy business; anticipated sources of funding being available to SECURE on terms favourable to SECURE; the success of the Corporation's operations and growth projects; the Corporation's competitive position remaining substantially unchanged; future acquisition and sustaining costs will not significantly increase from past acquisition and sustaining costs; the Corporation's ability to attract and retain customers (including Tervita's historic customers); that counterparties comply with contracts in a timely manner; that there are no unforeseen events preventing the performance of contracts or the completion and operation of the relevant facilities; that there are no unforeseen material costs in relation to the Corporation's facilities and operations; that prevailing regulatory, tax and environmental laws and regulations apply or are introduced as expected, and the timing of such introduction; the end of the Canadian Federal Government's stimulus package; increases to the Corporation's share price and market capitalization over the long term; the Corporation's ability to repay debt and return capital to shareholders; the Corporation's ability to obtain and retain qualified staff and equipment in a timely and cost-efficient manner; the Corporation's ability to access capital and insurance; operating and borrowing costs, including costs associated with the acquisition and maintenance of equipment and property the ability of the Corporation and our subsidiaries to successfully market our services in the WCSB and the U.S.; an increased focus on environmental considerations in the oil and gas industry; the impacts of climate-change on the Corporation's business; the current business environment remaining substantially unchanged; present and anticipated programs and expansion plans of other organizations operating in the energy service industry resulting in an increased demand for the Corporation's services and our subsidiaries' services; future acquisition and maintenance costs; the Corporation's ability to achieve its ESG targets and commitments; and other risks and uncertainties described from time to time in filings made by SECURE with securities regulatory authorities.
Forward-looking statements involve significant known and unknown 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: general global financial conditions, including general economic conditions in Canada and the U.S.; the effect of the COVID-19 pandemic (including its variants) and governmental responses thereto on economic conditions, commodity prices and the Corporation's business and operations; changes in the level of capital expenditures made by oil and natural gas producers and the resultant effect on demand for oilfield services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; a transition to alternative energy sources; the Corporation's inability to retain customers; risks inherent in the energy services industry, including physical climate-related impacts; the Corporation's ability to generate sufficient cash flow from operations to meet our current and future obligations; the seasonal nature of the oil and gas industry; increases in debt service charges including changes in the interest rates charged under the Corporation's current and future debt agreements; inflation and supply chain disruptions; the Corporation's ability to access external sources of debt and equity capital and insurance; disruptions to our operations resulting from events out of our control; the timing and amount of stimulus packages and government grants relating to site rehabilitation programs; the cost of compliance with and changes in legislation and the regulatory and taxation environment, including uncertainties with respect to implementing binding targets for reductions of emissions and the regulation of hydraulic fracturing services and services relating to the transportation of dangerous goods; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; competition; impairment losses on physical assets; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, and skilled management, technical and field personnel; supply chain disruption; the Corporation's ability to effectively complete acquisition and divestiture transactions on acceptable terms or at all; a failure to realize the benefits of the Transaction and risks related to the associated business integration; the inaccuracy of pro forma information prepared in connection with the Transaction; risks related to a new business mix and significant shareholder; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations, including those associated with the Transaction; the Corporation's ability to integrate technological advances and match advances of our competition; credit, commodity price and foreign currency risk to which the Corporation is exposed in the conduct of our business; compliance with the restrictive covenants in the Corporation's current and future debt agreements; the Corporation's or our customers' ability to perform their obligations under long-term contracts; misalignment with our partners and the operation of jointly owned assets; the Corporation's ability to source products and services on acceptable terms or at all; the Corporation's ability to retain key or qualified personnel; uncertainty relating to trade relations and associated supply disruptions; the effect of changes in government and actions taken by governments in jurisdictions in which the Corporation operates, including in the U.S.; the effect of climate change activism on our operations and ability to access capital and insurance; exposure of the Corporation's information technology systems to external threats and the effects of any unauthorized access to such system and potential disclosure of confidential information; the Corporation's ability to bid on new contracts and renew existing contracts; potential closure and post-closure costs associated with landfills operated by the Corporation; the Corporation's ability to protect our proprietary technology and our intellectual property rights; legal proceedings and regulatory actions to which the Corporation may become subject, including in connection with the review of the Transaction under the Competition Act and any claims for infringement of a third parties' intellectual property rights; the Corporation's ability to meet its ESG targets or commitments and the costs associated therewith; claims by, and consultation with, Indigenous Peoples in connection with project approval; disclosure controls and internal controls over financial reporting; and those risk factors identified from time to time in filings made by the Corporation with securities regulatory authorities.
Although forward-looking statements contained in this press release 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 press release are expressly qualified by this cautionary statement. Unless otherwise required by applicable securities laws, SECURE does not intend, or assume any obligation, to update these forward-looking statements.
SECURE is a publicly traded energy infrastructure and environmental business listed on the Toronto Stock Exchange ("TSX"). SECURE provides industry leading midstream infrastructure and environmental and fluid management to upstream oil and natural gas companies operating in western Canada and certain regions in the U.S.
SECURE's Midstream Infrastructure business segment includes a network of midstream processing and storage facilities, crude oil and water pipelines, and crude by rail terminals located throughout key resource plays in western Canada, North Dakota and Oklahoma. SECURE's midstream infrastructure operations generate cash flows from oil production processing and disposal, produced water disposal, and crude oil storage, logistics, and marketing.
SECURE's Environmental and Fluid Management business segment includes a network of industrial landfills, hazardous and non-hazardous waste management and disposal, onsite abandonment, environmental solutions for site remediation and reclamation, bio-remediation and technologies, waste treatment & recycling, emergency response, rail services, metal recycling services, as well as fluid management for drilling, completion and production activities.
TSX Symbol: SES
SOURCE SECURE Energy Services Inc.