News Releases

CALGARY, Nov. 7, 2013 /CNW/ - 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, 2013. 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.

Revenue (excluding oil purchase and resale) for the three and nine months ended September 30, 2013 increased 55% and 36% respectively while earnings before interest, taxes, depreciation and amortization ("EBITDA") improved 67% and 34% respectively compared to the same periods in 2012. Secure continued to experience strong demand for its processing, recovery and disposal services, strong demand for its drilling services with an increase in revenue per operating day of 29% in the third quarter, and strong demand for services offered in the new on site division.

Secure completed the acquisition of Target Rentals Ltd. ("Target") on July 2, 2013. The acquisition continues to expand the value chain of services the Corporation offers its customers. In addition to the acquisition of Target, growth and expansion capital expenditures incurred during the three and nine months ended September 30, 2013 totaled $52.6 million and $130.3 million respectively. The Corporation continues to seize market opportunities by executing organic growth initiatives and strategic acquisitions to complement its current service offerings.

REVENUE INCREASES

• Revenue (excluding oil purchase and resale) of $153.9 million and $386.5 million for the three and nine months ended September 30, 2013 improved 55% and 36% respectively compared to the same periods in 2012.
  • PRD division revenue (excluding oil purchase/resale) for the three months and nine months ended September 30, 2013 increased 43% and 41% respectively compared to the same periods in 2012. Third quarter revenue increased due to increased demand and new facility additions and expansions subsequent to the third quarter of 2012. This includes the opening of the new Kaybob SWD in Alberta and Stanley SWD in North Dakota in the third quarter of 2013. Crude oil marketing revenue increased 46% and 57% for the three and nine months ended September 30, 2013 respectively compared to the same periods in 2012 as a result of increased throughput at the Corporation's pipeline connected FST's, the Corporation's ability to capitalize on market spread differential opportunities and the Judy Creek FST becoming pipeline connected in the third quarter.
  • DS division revenue of $87.6 million and $221.9 million for the three and nine months ended September 30, 2013 increased 46% and 25% respectively compared to the same periods in 2012. Third quarter revenue increased due to increased demand, activity and the acquisition of Target on July 2, 2013. DS Canadian revenue per operating day increased by 29% from the third quarter 2013 compared to third quarter of 2012. Overall higher field activity was reported by the Canadian Association of Drilling Contractors ("CAODC") as average rig count increased 4% quarter over quarter. In addition, meters drilled in Canada increased by 9% in the third quarter of 2013 compared to the third quarter of 2012.
  • OS division revenue for the three and nine months ended September 30, 2013 increased by 196% and 130% respectively compared to the same periods in 2012. Third quarter revenue increased due to the acquisition of Frontline Integrated Services Ltd ("Frontline") in the second quarter of 2013, the backlog of projects following a wet spring, and environmental services rental of CleanSite bins increased over the prior year quarter.
• Oil purchase and resale revenue in the PRD division increased to $289.9 million and $718.1 million for the three and nine months ended September 30, 2013 compared to the same periods in 2012. The increase resulted from increased throughput and crude oil marketing activity at existing facilities and the Judy Creek FST becoming pipeline connected in the third quarter of 2013.
• EBITDA OF $41.5 MILLION IN THE THIRD QUARTER AND $95.4 MILLION YEAR-TO-DATE
  • For the three months ended September 30, 2013 EBITDA increased 67% as compared to the same period in 2012. EBITDA increased in all three divisions through the addition of new facilities and higher demand in the PRD division, increase in market share and revenue per operating day in the DS division combined with the acquisition of Target, and the increase in project work and the acquisition of Frontline in the OS division as detailed above in the revenue highlights.
• DIVERSIFICATION INTO NEW MARKETS AND NEW AREAS
  • Organic expansion and growth capital totaled $130.3 million for the nine months ended September 30, 2013 and includes 2012 carryover capital related to the Judy Creek and Rocky FST's. Major expenditures for the nine months ended September 30, 2013 included:
    • 2012 carry over capital of Rocky and Judy Creek FST's, of which completion and commissioning of the Judy Creek and Rocky FST's occurred during the second quarter of 2013;
    • Growth capital consisting of seven new PRD facilities with construction commencing or completed in 2013:
      • Three FST's - Edson, Kindersley and Keene (North Dakota) of which all three are expected to be opened at the start of the second quarter of 2014;
      • Two SWD's - Kaybob and Stanley (North Dakota) were completed and commissioned during the third quarter of 2013;
      • Two landfills - Saddle Hills and 13 Mile (North Dakota) both were under construction in the third quarter. The landfills are expected to be open during the fourth quarter;
    • Expansion capital consisting of:
      • Landfill cells at Fox Creek, South Grande Prairie, Pembina and Willesden Green, all of which were under construction in the quarter. The additional cell capacity will be available for the fourth quarter and subsequent years;
      • Second treaters at Fox Creek and Drayton valley were completed and commissioned and were fully operational at the end of the third quarter;
      • Additional disposal wells at both 13 Mile and Obed were completed and commissioned, both of which will be operational during the fourth quarter;
    • Various long lead purchases for 2013 and 2014 PRD capital projects and rental equipment for the DS division. Both the PRD and DS divisions continue to heavily invest in business development, including research and development activities, pilot projects for water and oil recycling, and front end development for 2014 projects.
• SOLID BALANCE SHEET
  • Secure's debt to EBITDA ratio was 1.88 as of September 30, 2013; well under the Corporation's credit facility covenant of 3.00.
• BRAZEAU SWD UPDATE
  • During the third quarter, the Corporation began dismantling the damaged property within the facility. Brazeau is expected to be operational by the end of the year.
• SUBSEQUENT EVENT
  • Subsequent to September 30, 2013, the Corporation entered into an amended and extended $400 million revolving credit facility (the "new credit facility"). The previous revolving credit facility was increased from $300 million to $400 million and includes an accordion feature which if exercised, would increase the credit facility by $50 million. The credit facility consists of a $390 million extendible revolving term credit facility and a $10 million revolving operating facility. The new credit facility was extended with an interest rate reduction of 25 basis points.

Highlights for the PRD division included:

• Processing: For the three and nine months ended September 30, 2013, processing volumes increased 20% and 16% from the comparative periods in 2012. Part of the significant increase relates to the addition of the following new facilities and services added after the third quarter of 2012 ("new facilities and services"): completion of the Crosby SWD in North Dakota in December 2012; Fox Creek Landfill in December 2012; Edson temporary water injection facility in January 2013; Rocky and Judy Creek FST's in May 2013; Kaybob SWD in August 2013; and the Stanley SWD in North Dakota in September 2013. Also contributing to the increase in revenue was an increase in overall demand for the PRD division's services. 
   
• Recovery: Revenue from recovery includes revenue from the sale of oil recovered through waste processing, crude oil handling, marketing and terminalling. Revenue from recovery for the three and nine months ended September 30, 2013 increased by 61% and 47% from the comparative periods in 2012. A significant portion of the increase in recovery revenue for the three and nine months ended September 30, 2013 is a result of the Corporation's ability to capitalize on crude oil marketing opportunities at its FST's, higher throughput and an increase in the price of crude oil of 15% from the third quarter of 2012 to the third quarter of 2013. Crude oil marketing revenue increased by 46% and 57% for the three and nine months ended September 30, 2013, from the comparative periods of 2012. Increased oil throughput at the Corporation's pipeline connected FST's, in conjunction with the Corporation's ability to capitalize on market spread differential opportunities (including maximizing crude oil marketing opportunities available by shipping crude oil via rail), led to the significant increases in revenue from this service line as compared to the same periods of 2012. In addition, the Corporation's Judy FST was pipeline connected and fully operational in the third quarter of 2013. 
   
• Disposal: Secure's disposal volumes increased by 20% and 41% for the three and nine months ended September 30, 2013 from the comparative periods of 2012. As described above, increased demand for the PRD division's new facilities and services are the primary reasons for the increase. 
   
• Operating margin as a percentage of revenue for the three and nine months ended September 30, 2013 was 64% and 63% compared to 61% and 61% for the comparative period of 2012. The 3% increase to operating margin for the three months ended September 30, 2013 and the 2% increase to operating margin for the nine months ended September 30, 2013 is a result of improvements in operating efficiencies at the facilities, increases in recovery including crude oil marketing activities at the Corporation's pipeline connected FST's, and from volumes managed by rail at the Silverdale FST. 
   
• General and administrative ("G&A") expenses increased for the three and nine months ended September 30, 2013 to $6.6 million and $17.3 million from $3.5 million and $8.4 million in the comparative periods of 2012. Major drivers of the increase on quarter over quarter and year to date comparatives is a 52% and 60% increase in wages & salaries to support the opening of new facilities and growth at existing facilities both in Canada and the US, a 126% and 174% increase in building and lease costs to accommodate growth of staff in Canada, and the opening of the Denver, Colorado office in the second quarter of 2012, and a 51% and 61% increase in information technology expenses related to information technology systems and licensing of software to support the growth of the division and consolidate software systems used in the head office and the field to gain operational efficiencies. The increase in G&A is reflective of management's intention to prepare for the growth of the new and expanding facilities as well as the growth in the US PRD operations. 
   

Highlights for the DS division included:

• Revenue from the DS Division for the three and nine months ended September 30, 2013 increased to $87.6 million and $221.9 million from $60.1 million and $177.2 million in the comparative periods of 2012. The significant increase in revenue for the three months ended September 30, 2013 is the result of a combined 40% increase in drilling fluids service line revenue and a 98% increase in revenue for the equipment rentals service line from the comparative period in 2012. Major drivers for the drilling fluids service line revenue increases in the third quarter are due to increased market share, an increase in meters drilled, and an increase in revenue per operating day. The increase in the equipment rentals service line is a result of an 11% increase in equipment utilization over the comparative period of 2012, an increase in rental equipment market share as the division increased its rental fleet size, and the addition of Target on July 2, 2013 which contributed to an increase of 52% in revenue for the quarter. 
   
• Drilling fluids revenue per operating day for the three and nine months ended September 30, 2013 increased to $6,807 and $6,278 from $5,267 and $5,362 from the comparative periods of 2012. The increase in revenue per day for both the quarter and year to date can be attributed to an increase in meters drilled for the Corporation and the industry overall which led to higher product usages, higher probability of lost circulation events, and a higher usage of specialty chemicals. In addition, the Corporation realized a 21% and 31% increase in the proportion of SAGD wells relative to the 2012 comparable periods. SAGD wells are more complex and require more costly drilling fluids which contribute to the increase in revenue per operating day. 
   
• WCSB market share increased by 4% for the three months ended September 30, 2013 to 34% from 30% and 33% from 30% for the nine months ended September 30, 2013, from the comparative periods of 2012. The CAODC average monthly rig count for Western Canada provides the basis for market share calculations. Operating rig days for the three and nine months ended September 30, 2013 were 10,595 and 29,385 compared to 9,113 and 27,586 for the 2012 comparative periods. Market share has continued to increase as a result of the addition of the Drayton Valley blending plant, increase in SAGD wells drilled, and the successful integration of the XL and New West Drilling Fluids Inc. ("New West") acquisitions. 
   
• For the three months ended September 30, 2013, operating margins increased 4% to 27% from 23% for the 2012 comparative period. Operating margins for the drilling fluids service line increased 3% as the DS division saw an increase in the use of specialized products associated with the increase in meters drilled. Depending on the wells drilled in the quarter, the product mix and operating margin may fluctuate in the above range. The remaining 1% increase relates to the addition of Target rentals as rental items have higher operating margins, which also contributed to increasing the operating margin for the third quarter. 
   
• As a percentage of revenue for both the three and nine months ended September 30, 2013, G&A expenses were 8% compared to 10% for the comparable periods of 2012. G&A increased by $0.7 million for the three and nine months ended September 30, 2013 compared to the same periods in 2012 as a result of supporting the US operations as well as the newly acquired Target acquisition. 
   

Highlights for the OS division included:

• Revenue for the three and nine months ended September 30, 2013 increased to $18.8 million and $36.9 million from $6.4 million and $16.0 million for the comparative periods of 2012. Frontline was acquired on April 1, 2013 and significantly contributed to the increase in revenues for the three and nine months ended September 30, 2013. Frontline realized a substantial increase in utilization of its equipment fleet in the third quarter as projects ramped up quickly that were delayed due to wet weather in the second quarter. 
   
• Environmental services revenue for the three and nine months ended September 30, 2013 increased 21% and 46% respectively over 2012 comparative periods, due to an increase in the number of environmental projects completed and the start-up of the CleanSite business as this service line began operations in the fourth quarter of 2012. 
   
• Operating margin for the third quarter of 2013 declined to 27% as a result of combining the Frontline services in the second quarter of 2013 with that of the environmental services group. The operating margin for the OS division is expected to fluctuate depending on the volume and type of projects undertaken and the blend of business between remediation and reclamation projects, demolition projects, pipeline integrity projects, site clean-up and other services in any given period. 
   
• G&A expenses for the three and nine months ended September 30, 2013 increased to $1.6 million and $4.3 million from $0.9 million and $2.8 million for the comparative periods of 2012. G&A expenses increased due to the Frontline acquisition and increases in demand for Frontline services over the prior quarter, and increases in environmental services through the startup of the "CleanSite" business in the fourth quarter of 2012. 
   

OUTLOOK

Oil and gas industry pricing fundamentals during the third quarter did not see significant changes from the second quarter however, prices have rebounded significantly since the third quarter of 2012. Commodity prices have increased, heavy oil differentials between world and North American pricing have narrowed and oil transportation bottlenecks have been partially relieved. Expectations are that oil and gas producer capital spending will continue to slowly increase over the next few quarters due to expanded capital budgets, which in turn will improve activity for oil and gas service providers. In addition, several projects that were delayed by the wet spring have started late in the third quarter and will be completed before the year end. Rig count and related drilling services equipment utilization into the last quarter of the year is anticipated to improve, with expectations that prices could weaken in the fourth quarter through the peak drilling season into 2014. Despite the less than optimal field conditions in the second quarter and a slower start to the third quarter due to continued unfavourable weather, meters drilled in Canada increased by 9% in the third quarter of 2013 compared to the third quarter of 2012. The number of WCSB horizontal wells licensed in the nine months ended September 30, 2013 increased to 81.8% of the total wells licensed in 2013; this is an 11 percentage point increase over comparable period of 2012. The increase in the number of meters drilled and continued emphasis on horizontal drilling are positive indicators for the Corporation as it is anticipated these factors create demand for the Corporation's products and services. Secure is well positioned to take advantage of the expected industry upswing through its expanded geographic and service offerings.

The acquisition of Frontline in the second quarter and Target in the third quarter brings new growth platforms that complement the Corporation's existing PRD and DS divisions. The management teams of Frontline and Target are experienced with proven capabilities to manage growth. The financial strength of Secure will provide the capital necessary to finance the growth initiatives of both of these new service lines. The Corporation is excited to increase Secure's environmental expertise to expand the value chain of services provided.

Total capital expenditures for the nine months ended September 30, 2013 of $160.6 million are reflective of the continued execution of the Corporation's strategy. Capital expenditures on new facilities such as the Kindersley FST, the conversion of the Edson SWD to an FST, Saddle Hills landfill and construction of the Corporation's first landfill in the US are expected to enhance financial and operational performance once commissioned. The list of organic opportunities contains several other projects that reflect the ability of Secure to take advantage of market potential that exists today. The Corporation increased the 2013 capital expenditure budget in the second quarter from the previously announced total of $155.0 million to $195.0 to take advantage of Secure's opportunities. The added capital will be deployed in Canada and the US primarily for new growth projects and long lead items for 2014 projects. The Corporation is well positioned to fund its expanded 2013 capital program with its recently expanded debt capacity from its credit facilities and increasing cash flow from operations.

Managing growth in a prudent manner ensures the Corporation's strong balance sheet is maintained. Secure has a focused strategy of helping the Corporation's customers with new facilities and services in both under-serviced and capacity constrained markets complemented with strategic acquisitions. A solid balance sheet provides the leverage and flexibility to execute this strategy. With now over 1,000 employees, the Corporation strives to keep its agile and disciplined entrepreneurial culture to ensure that Secure's abundant opportunities are adequately financed and executed by the right people.

FINANCIAL STATEMENTS AND MD&A

The condensed consolidated financial statements and MD&A of Secure for the three and nine months ended September 30, 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 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; commodity prices for oil, natural gas liquids ("NGLs") and natural gas; the increase in quarter over quarter 2013 operating days; demand for the Corporation's services; expansion strategy; the amounts of the PRD, DS and OS divisions' expanded 2013 capital budgets and the intended use thereof; debt service; capital expenditures; completion of facilities including the Edson, Kindersley and Keene FSTs and the Saddle Hills and 13 Mile landfills as well as completion of repairs to the Brazeau FST and additional cells at the Fox Creek, South Grande Prairie, Pembina, and Willesden Green landfills; the impact of new facilities on the Corporation's financial and operational performance; future capital needs; access to capital; acquisition strategy; the Corporation's capital spending on the Kindersley, Saskatchewan FST; capital spending on the Kaybob, Alberta SWD; expansion of the new Edson, Alberta SWD to a FST; and capital spending on the Keene FST and Stanley SWD in North Dakota; and oil purchase and resale revenue.

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 subsidiaries' to successfully market their services and drilling and production activity in North America will lead to sufficient demand for the Corporation's services and its subsidiaries' services including demand for oilfield services for drilling and completion of oil and natural gas wells, that the current business environment will remain substantially unchanged, and that present and anticipated programs and expansion plans of other organizations operating in the energy 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 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 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.