CALGARY, March 5, 2012 /CNW/ - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX:SES) today announced financial and operational results for the three months and year ended December 31, 2011. The following should be read in conjunction with the management's discussion and analysis, the consolidated financial statements and notes of Secure which are available on SEDAR at www.sedar.com.
2011 FINANCIAL AND OPERATIONAL HIGHLIGHTS
|Three Months Ended December 31,||Year Ended December 31,|
|2011||2010||2009 (2||)||2011||2010||2009 (2||)|
|($000's except share and per share data)|
|Revenue (excludes oil purchase and resale)||104,288||18,445||7,520||239,094||54,458||22,377|
|Oil purchase and resale||126,973||14,486||-||312,105||18,535||-|
|Per share ($), basic||0.28||0.13||0.07||0.79||0.42||0.20|
|Per share ($), diluted||0.26||0.12||0.06||0.75||0.41||0.19|
|Profit for the period||10,290||2,291||(970||)||22,383||5,368||(2,758||)|
|Per share ($), basic||0.12||0.04||(0.02||)||0.28||0.09||(0.07||)|
|Per share ($), diluted||0.11||0.03||(0.02||)||0.27||0.09||(0.07||)|
|Capital Expenditures (1)||29,330||19,866||3,487||202,053||63,710||22,686|
|Long term borrowings||119,070||-||4,788||119,070||-||4,788|
|Common Shares - end of period||90,156,688||63,754,348||41,631,991||90,156,688||63,754,348||41,631,991|
|Weighted average common shares|
|(1)||Refer to "Non GAAP measures and operational definitions"|
|(2)||Prepared under Canadian Generally Accepted Accounting Principles (Previous GAAP)|
Secure had significant growth in 2011, increasing revenue (excluding oil purchase/resale) by 339% over 2010 and increasing earnings before interest, taxes, depreciation and amortization ("EBITDA") by 152% compared to the prior year. The Corporation's ability to execute on a strategy of organic growth combined with strategic acquisitions resulted in the creation of the drilling services "DS" division and the Corporation significantly expanding services available at its full service terminals ("FST"). The vertical integration into drilling services is a complementary fit with Secure's processing, recovery and disposal "PRD" division creating opportunities for the Corporation to leverage its existing facility infrastructure and provide a broad integrated drilling fluid service.
With the continued weakness in natural gas prices, drilling has been directed toward oil or liquids rich natural gas producing areas. The wells currently drilled in these resource plays commonly utilize horizontal drilling and multi-stage fracturing techniques which were positive drivers of the Corporation's financial and operating results in 2011. The corresponding increase in meters drilled and operating days required to drill a well has resulted in more demand for drilling, processing, and disposal services in both the PRD division and the DS division.
- EBITDA per share (basic) more than doubled to $0.28 for the three months ended December 31, 2011 and grew 88% to $0.79 for the year ended December 31, 2011 over the comparative period of 2010;
- Reported record revenue (excluding oil purchase and resale) of $104.3 million and $239.1 million for the three and twelve months ended December 31, 2011 compared to $18.4 million and $54.5 million in the comparable periods of 2010. The record revenue for the 2011 year was a result of the new DS division added on June 1, 2011, the Dawson FST operating for the entire year, the addition of the Brazeau stand alone water disposal ("SWD") facility, Obed and South Grande Prairie FST expansion, the addition of the Drayton Valley FST in the fourth quarter and overall increased demand for the Corporation's service offerings in both divisions. For the year ended December 31, 2011, the DS division (from June 1, 2011) had a total of 24,870 operating days in Canada and revenue per operating day of $4,995, both of which were positively impacted by increased industry activity;
- Reported higher oil purchase and resale revenue in the twelve months of 2011 compared to same period of 2010 as a result of the Corporation becoming a single shipper at the Fox Creek FST in December 2010, at the La Glace FST in October 2011, and increasing throughput at these facilities. Secure also became a single shipper at the Drayton Valley FST in January 2012 and as a result the Corporation expects oil purchase and resale service revenue to increase in the first quarter of 2012;
- Reported record EBITDA of $24.8 million and $62.0 million for the three and twelve months ended December 31, 2011 compared to $8.0 million and $24.6 million in the same period of 2010. EBITDA has grown significantly as a result of the new DS division, the new facilities and the added expansion services in the PRD division and an overall increase in energy sector activity in both the fourth quarter and the year;
- Completed three significant strategic acquisitions;
- On June 1, 2011 the Corporation closed the $131.4 million acquisition of Marquis Alliance which formed the new DS division;
- On July 1, 2011 the acquisition of the operating assets (excluding working capital) of XL Fluids was closed for $39.4 million which was integrated into the DS division;
- On October 1, 2011, Secure purchased Silverdale processing facility from Emerge Oil & Gas Inc. ("Emerge") for an aggregate cash purchase price of $18.0 million which was integrated into the PRD division;
- Completed $96.5 million of capital spending relating to organic growth which included $38.6 million related to projects that started in 2010, $31.7 million for expansion/new services at existing facilities, equipment totaling $26.2 million for long lead items for new 2012 facilities and for rental equipment used in the DS division;
- Closed a $150.0 million credit facility with a syndicate of lenders, with an option to expand to $200.0 million through the exercise of an additional $50.0 million accordion feature. The committed three year revolving facility is to be used for working capital, to refinance existing debt, for capital expenditures including permitted acquisitions, and for general corporate purposes; and
- Announced in December 2011 a capital budget for the 2012 year of $116.0 million. $98.0 million was allocated to the PRD division for the construction of two FST's, a landfill in Fox Creek, a landfill in Saddle Hills and the permanent Wild River SWD. The construction on the Wild River SWD is well underway and it is expected to be completed during the second quarter of 2012. The DS divisions' 2012 capital budget totals $18.0 million consisting of $14.0 million for growth capital allocated evenly between Canadian and U.S. operations and is largely comprised of onsite solid's control equipment.
Subsequent to December 31, 2011, the Corporation:
- Closed the exercise of the accordion feature and extended the credit facility to $200.0 million with its lenders. Secure's current available debt capacity and cash flow from operations provides sufficient funding to execute on the Corporation's 2012 capital strategy; and
- During January 2012, the Corporation announced it was acquiring the operating assets (excluding working capital) of New West Drilling Fluids Inc. ("NWDF") for an aggregate cash purchase price of $3.4 million. NWDF is a Canadian based drilling fluids company specializing in providing drilling fluid systems and products for the heavy oil and oil sands segment. NWDF is most well known for its patented SAGD system, "BITUDRIL", the first bitumen encapsulating polymer based system on the market. Adding NWDF's assets, including BITUDRIL, to Marquis Alliance's existing patented and proprietary SAGD product line will increase Marquis Alliance's ability to provide the most cost effective drilling fluid solutions in the SAGD market.
PRD DIVISION OPERATING HIGHLIGHTS
|Three Months Ended December 31,||Year Ended December 31,|
|2011||2010||% Change||2011||2010||% Change|
|Processing, recovery and disposal services||29,612||18,445||61||91,388||54,458||68|
|Oil purchase and resale service||126,973||14,486||777||312,105||18,535||1,584|
|Total PRD division revenue||156,585||32,931||375||403,493||72,993||453|
|Processing, recovery and disposal services||13,045||6,581||98||42,624||21,713||96|
|Oil purchase and resale service||126,973||14,486||777||312,105||18,535||1,584|
|Depreciation, depletion, and amortization||6,274||4,073||54||19,453||13,846||40|
|Total PRD division operating expenses||146,292||25,140||482||374,182||54,094||592|
|General and administrative||4,326||2,448||77||13,136||7,473||76|
|Operating Margin (1)||16,567||11,864||40||48,764||32,745||49|
|Operating Margin (1)(excluding oil purchase/resale)|
|as a % of revenue||56%||64%||(13||)||53%||60%||(12||)|
|(1) Refer to "Non GAAP measures and operational definitions"|
Highlights for the PRD division included:
- Revenue from processing, recovery and disposal increased significantly for the three months and the year ended December 31, 2011 to $29.6 million and $91.4 million from $18.4 million and $54.5 million in the comparative periods in 2010. The substantial increase is a result of the Dawson FST operating for the entire year, Obed and South Grande Prairie FST expansion, the addition of the Drayton Valley FST in the fourth quarter and overall increased demand for the PRD divisions service offerings;
- Operating expenses increased for the three months and the year ended December 31, 2011 to $13.0 million and $42.6 million from $6.6 million and $21.7 million in the comparative periods in 2010. Operating costs were higher as a result of the addition of the new facilities and expansion services during the year and increasing variable costs associated with higher demand for services. Operating costs were also impacted during the year by extremely wet weather conditions experienced in the second quarter and third quarter that caused an increase in leachate disposal costs, road maintenance costs and site costs;
- Operating margin was 56% in the fourth quarter of 2011, up from 52% in the third quarter of 2011, but down from 64% in the fourth quarter of 2010. The Corporation had higher costs in the fourth quarter of 2011 associated with the start up of the Drayton Valley FST. An incremental $1.0 million of trucking expense to a third party crude oil terminal was experienced as a result of a delay in the completion of the facility's crude oil pipeline connection. Ultimately, the Corporation recovered these costs directly from the customer. The overall impact of $1.0 million incremental revenue and expense resulted in a reduction in operating margin of 2% for the quarter. The change in operating margin may fluctuate as a result of changes in volumes affected by seasonality, as new facilities come online and activity levels change, as the Corporation's sales mix or type of services received varies, changes in input costs incurred to maximize differentials on various streams and as commodity prices rise and fall; and
- Over the past three years the PRD division has averaged a 56% operating margin through years of high growth compared to 53% in 2011. The decrease in operating margin for the year ended December 31, 2011 is attributed to the extremely wet weather conditions experienced during the spring and summer months. The heavy rains caused an increase in leachate disposal costs of $1.1 million, road maintenance/site costs of $0.5 million and repairs and maintenance costs of $1.2 million. As a result of the expansions and new facilities described above, the Corporation incurred higher training costs associated with the start up phase.
DS DIVISION OPERATING HIGHLIGHTS
|Three Months Ended December 31,||Year Ended December 31,|
|2011||2010||% Change||2011||2010||% Change|
|Drilling Services division||74,676||-||100||147,706||-||100|
|Depreciation and amortization||2,642||-||100||5,777||-||100|
|Total Drilling Services division operating expenses||59,730||-||100||115,696||-||100|
|General and administrative||5,791||-||100||12,316||-||100|
|Operating Margin (1)||17,588||-||100||37,787||-||100|
* Includes drilling services division from its acquisition on June 1, 2011. (1) Refer to "Non GAAP measures and operational definitions "
Highlights for the DS division included:
- Revenue for the three months and the year ended December 31, 2011 increased to $74.7 million and $147.7 million (from June 1, 2011) from nil in the comparative periods in 2010. In Canada and the United States, the drilling fluids service line contributed $64.4 million or 86% of the total revenue in the fourth quarter. Total revenue for the year ended December 31, 2011 in Canada and the United States is comprised of $129.1 million or 87% from the drilling fluids service line and $18.6 million or 13% from the environmental and solids control service lines. Demand for the environmental and solids control service lines remains strong, with high utilization and newly delivered equipment fully booked to the end of the winter drilling season;
- The drilling fluids service line's estimated Canadian market share for the year ended December 31, 2011 was 26% based on the Canadian Association of Oilwell Drilling Contractors ("CAODC") average monthly rig count for Western Canada of 438 rigs (June to December 2011). This compares to 340 rigs for the same period in 2010 (refer to "Non GAAP measures and Operational Definitions"). For the year ending December 31, 2011, the DS division (from June 1, 2011) in Canada had a total of 24,870 operating days and total revenue per operating day of $4,995. Fourth quarter revenue per operating day in Canada was $5,563 compared to $4,334 in the third quarter - an increase of 28%; and
- Operating margins for the three months and the year ended December 31, 2011 were 24% and 26%, respectively. Operating costs were impacted as a result of a changing product mix as more oil and gas producers moved from water based drilling fluids to oil based drilling fluids in the fourth quarter. Increased horizontal drilling combined with increasing technical drilling programs is driving demand for oil based drilling fluids. Oil base stock is an expensive, low margin and high volume commodity. Therefore, in periods of rising oil prices or increased activity in oil based drilling fluids, revenue and product costs will increase accordingly, resulting in decreasing margins on a percentage basis. Operating margins are in line with management expectations.
CAPITAL EXPENDITURE HIGHLIGHTS
For the year ended December 31, 2011, Secure incurred $286.3 million in capital expenditures. Of the $286.3 million, $188.8 million related to strategic acquisitions ($104.4 million cash portion), $96.5 million in equipment purchases, expansion, and new facilities and $1.0 million in sustaining capital. The capital expenditure highlights (excluding acquisitions) for the year ended December 31, 2011 are summarized as follows:
- Obed FST facility (waste expansion) - commissioned in February 2011;
- Brazeau SWD facility - commissioned in February 2011;
- South Grande Prairie FST facility (waste expansion) - commissioned in July 2011;
- Wild River SWD temporary facility - commissioned in July 2011;
- Drayton Valley FST facility - commissioned in September 2011;
- Fox Creek FST facility - (expansion services-additional risers and tanks) completed in the third quarter 2011;
- Dawson FST facility - (expansion services - expanded waste receiving pad and upgraded processing equipment) completed in the third quarter 2011;
- Kotcho FST facility - (expansion and upgrades to waste receiving bins, processing equipment and tank farm) ongoing construction as at December 31, 2011;
- Pembina Landfill - (cell expansion in the fourth quarter); and
- Rental equipment (centrifuges, tanks, etc.) and long lead items for 2012 capital projects.
Activity levels in the oil and gas sector remained strong throughout the fourth quarter of 2011. The strength in oil and natural gas liquids ("NGL's ") prices continue to drive drilling activity. However, further weakening of natural gas prices have caused the Petroleum Services Association of Canada ('PSAC') to lower its drilling forecast in 2012. Overall, PSAC is still forecasting growth in the number of wells drilled in 2012 over 2011. The Corporation's view is that despite the falling price of natural gas, the strong price of oil and NGL's will keep activity levels strong in 2012. In addition, Secure views operating days and meters drilled over the number of wells drilled as a better indicator of future macro trends impacting the Corporation's results. The Canadian Association of Oilwell Drilling Contractors ("CAODC") forecasts that in 2012 the number of operating days will continue to increase over 2011 levels. The increase continues to be a result of more complex drilling, a move to horizontal wells and greater lengths/depths being pursued by operators. The Corporation expects the increase in the number of operating days will drive demand for services at the Corporation's waste processing and disposal facilities and in the DS division's business.
There are a number of opportunities in 2012 to expand the Corporation through additional service lines, organic growth, and/or through strategic acquisitions in key market areas. Secure recently announced the Corporation's capital program for 2012 of $116.0 million. The PRD divisions' 2012 capital budget of $98.0 million includes the construction of two FST's, a landfill in Fox Creek, a landfill in Saddle Hills and the permanent Wild River SWD. The construction on the Wild River SWD is well underway and it is expected to be completed during the second quarter of 2012. The DS divisions' 2012 capital budget totals $18.0 million comprising $14.0 million for growth capital allocated evenly between Canadian and U.S. operations and is largely comprised of on-site solid's control equipment. Secure's available debt capacity and cash flow from operations provides sufficient funding that allows the Corporation to maintain a strong balance sheet throughout the execution of its capital strategy.
In 2012, we will focus on complementary services, recycling services, organic growth and acquisitions that complement the existing business. The Corporation's business development team will continue to evaluate and execute opportunities for new facilities including drilling fluid blending and storage facilities at the PRD division's FST's to better serve the Corporation's customers.
We have a strong team and entrepreneurial culture among all employees. It is this drive and leadership from all levels of the organization that makes us and industry leader. The commitment to providing innovative products and services ensures that we find new ways to help our customers every day.
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, NGLs and natural gas; the increase in 2012 operating days; demand for the Corporation's services; expansion strategy; the amounts of the PRD and DS divisions' 2012 capital budgets and the intended use thereof; debt service; capital expenditures; completion of facilities; future capital needs; access to capital; acquisition strategy; the balance of the Corporation's capital spending on new full service terminals and landfills; oil purchase and resale revenue; completion of the permanent facility construction at Wild River and the construction of landfills at Saddle Hills and Fox Creek, Alberta.
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
- 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 fi nancial 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.
The Corporation uses accounting principles that are generally accepted in Canada (the issuer's "GAAP"), which includes, International Financial Reporting Standards ("IFRS"). In previous periods, the Corporation prepared its consolidated financial statements and consolidated interim financial statements in accordance with Canadian generally accepted accounting principles in effect prior to January 1, 2011 ("Previous GAAP"). Comparative figures presented pertaining to Secure's 2010 results have been restated to be in accordance with IFRS. A reconciliation of comparative figures from Previous GAAP to IFRS is provided in the notes to the unaudited consolidated financial statements for the year ended December 31, 2011. The following should be read in conjunction with the management's discussion and analysis, the consolidated financial statements and notes of Secure which are available on SEDAR at www.sedar.com.