The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Marketwire

Secure Energy Services Inc.: Acquisitions, New Facilities and Industry Activity Drive Record Third Quarter Results for Secure Energy

Thursday, November 03, 2011

Secure Energy Services Inc.: Acquisitions, New Facilities and Industry Activity Drive Record Third Quarter Results for Secure Energy22:30 EDT Thursday, November 03, 2011CALGARY, ALBERTA--(Marketwire - Nov. 3, 2011) - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX:SES) today announced its operating and financial results for the three and nine months ended September 30, 2011.THIRD QUARTER HIGHLIGHTSThree Months EndedNine months EndedSeptember 30,September 30,20112010% Change20112010% Change($000's except share and per share data)(unaudited)Revenue (excludes oil purchase and resale)86,59413,929522134,80636,013274Oil purchase and resale71,6022,6792,573185,1324,0494,472Total revenue158,19616,608853319,93840,062699EBITDA (1)20,6536,43322137,17916,564124Per share ($), basic0.230.101300.500.2972Per share ($), diluted0.220.101200.470.2868Profit for the period7,8531,52341612,0953,077293Per share ($), basic0.090.023500.160.05220Per share ($), diluted0.080.023000.150.05200Capital Expenditures (1)34,79116,081116154,72443,844253Total assets535,448175,007206535,448175,007206Long term borrowings73,979-10073,979-100Common Shares - end of period89,274,29163,703,1484089,274,29163,703,14840Weighted average common sharesbasic89,242,50663,701,9414074,853,14956,818,04732diluted93,949,86865,859,6484379,314,46558,352,07336(1)Refer to "Non GAAP measures and operational definitions"Highlights for the third quarter included:Achieved record revenue (excluding oil purchase and resale) of $86.6 million and $134.8 million for the three and nine months ended September 30, 2011 compared to $13.9 million and $36.0 million in the comparable periods of 2010. Revenue has increased dramatically over the prior period as a result of the new drilling services division added on June 1, 2011, which contributed $63.5 million in revenue during the third quarter. Revenue per operating day for the drilling service division was $4,334 which was positively influenced by increased industry activity. The processing, recovery and disposal division ("PRD") contributed $23.1 million of revenue compared to $13.9 million in the third quarter of 2010 (excluding oil purchase and resale) which also benefited from increased activity and the new South Grande Prairie full service terminal ("FST") waste expansion and the Wild River stand alone water disposal facility ("SWD") which became operational at the beginning of July; Oil purchase and resale revenue also increased substantially in the nine 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 and throughput at the Corporation's facilities. On October 1, 2011 the Corporation became a single shipper at its La Glace FST, and as a result the Corporation expects oil purchase and resale service revenue to increase significantly in the fourth quarter of 2011; Record EBITDA of $20.7 million and $37.2 million for the three and nine months ended September 30, 2011 compared to $6.4 million and $16.6 million in the same period of 2010. The substantial increase relates to the acquisition of the new drilling services division, the added expansion services and new facilities in the PRD division and a general increase in energy sector activity in the third quarter; In the third quarter, the CorporationΓǃs capital budget was increased from $55 million to $95 million. The revised $95 million capital budget included $34 million related to projects that started in 2010, $36 million for expansion/new services at existing facilities, $15 million for long lead items for new 2012 facilities, and $10 million for rental equipment used in the new drilling services division. During the third quarter the Corporation incurred capital expenditures of $34.8 million in relation to the new Drayton Valley FST, expansion services at Dawson FST, expansion services at Fox Creek FST, long lead inventory purchases and the ongoing construction of numerous expansion projects; On July 1, 2011 the Corporation closed the strategic acquisition of the operating assets (excluding working capital) of XL Fluids which was integrated into the drilling services division. The acquisition of XL Fluids significantly expanded the geographic presence of the drilling services division which will allow the division to capitalize on the drilling fluids market in Saskatchewan and Manitoba combined with expanded exposure to horizontal drilling activity associated with the Cardium, Viking, Elkton and Bluesky formations in Alberta; On August 4, 2011, the Corporation completed the financing of a $150 million credit facility with a syndicate of lenders. The syndicated facility consists of an $140 million extendible revolving term credit facility and a $10 million revolving operating facility that replaces the CorporationΓǃs previous $55 million non-syndicated revolving term facility. The syndicated facility can be expanded to $200 million through the exercise of an additional $50 million accordion feature, available upon request by the Corporation and subject to review and approval by the lenders. 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 On September 12, 2011, the Corporation announced that it entered into an agreement with Emerge Oil & Gas Inc. ("Emerge") to acquire EmergeΓǃs Silverdale (02-06-049-27 W3M) processing facility for an aggregate cash purchase price of $18.0 million. The Silverdale processing facility currently provides oil terminalling, emulsion processing and produced water disposal services. The transaction closed on October 1, 2011. PRD DIVISION OPERATING HIGHLIGHTSThe PRD division provides services relating to clean oil terminalling, custom treating of crude oil, crude oil marketing, produced and waste water disposal, oilfield waste processing, landfill disposal and oil purchase/resale service.Three Months EndedNine Months EndedSeptember 30,September 30,20112010% Change20112010% Change($000's) (unaudited)RevenueProcessing, recovery and disposal services23,06813,9296661,77536,01372Oil purchase and resale service71,6022,6792,573185,1324,0494,472Total PRD division revenue94,67016,608470246,90740,062516Operating ExpensesProcessing, recovery and disposal services10,9905,9918329,57915,11796Oil purchase and resale service71,6022,6792,573185,1324,0494,47282,5928,670853214,71119,1661,020Depreciation, depletion, and amortization5,0403,6054013,1809,77335Total PRD division operating expenses87,63212,275614227,89128,939687General and administrative3,4651,908828,8105,02675Business development690768081,5894422602,8832,349238,6175,65552Operating Margin (1)12,0787,9385232,19620,89654Operating Margin (1)(excluding oil purchase/resale) as a % of revenue52%57%(9)52%58%(10)(1) Refer to "Non GAAP measures and operational definitions"Highlights for the PRD division for the third quarter included:Revenue from the PRD division increased significantly for the three and nine months ended September 30, 2011 to $23.1 million and $61.8 million from $13.9 million and $36.0 million in the comparative periods in 2010. The substantial increase is a result of Dawson FST added in the fourth quarter of 2010, Obed FST waste expansion in the first quarter of 2011, the South Grande Prairie waste expansion added at the beginning of the third quarter of 2011, and higher demand for the divisionΓǃs services; Operating expenses for the PRD division increased for the three months ended September 30, 2011 to $11.0 million from $6.0 million in the comparative period in 2010. The increase contributed to a decline in operating margin as a percentage of revenue from processing, recovery and disposal services to 52% in the third quarter down from 57% in the same period of 2010. Operating costs not normally incurred impacted the margin as expenses were higher due to extremely wet weather conditions experienced in the second quarter and into the month of July that caused an increase in leachate disposal costs, road maintenance costs and site costs. In addition, DawsonΓǃs FST waste processing was temporarily shut down for six weeks to install an expanded waste receiving pad and upgraded processing equipment. This shut down increased operating expenses for the third quarter, and negatively impacting revenue that was lost during construction. DRILLING SERVICES DIVISION OPERATING HIGHLIGHTSThe drilling services division provides services relating to drilling fluid systems, solids control equipment rental service, and environmental services.Three Months Ended September 30,Nine Months Ended September 30,20112010% Change20112010% Change($000's) (unaudited) (*)RevenueDrilling Services division63,526-10073,031-100Operating expensesDrilling services46,240-52,831-Depreciation and amortization2,284-1003,134-100Total Drilling Services division operating expenses48,524-10055,965-100General and administrative5,364-1006,525-100Business development166-100222-1009,472-10010,319-100Operating Margin (1)17,286-10020,200-100Operating Margin (1)%27%-10028%-100* Includes drilling services division from its acquisition on June 1, 2011. (1) Refer to "Non GAAP measures and operational definitions"Highlights for the drilling services division for the third quarter included:Revenue from the drilling services division for the three month period ended September 30, 2011 was $63.5 million. The Canadian operations accounted for 95% or $69.4 million of the total revenue of $73.0 million from the acquisition date of June 1, 2011. The drilling and completions fluids service line contributed $61.8 million and the remaining service lines of solids control, equipment rental and environmental services contributed $7.6 million for the nine months ended September 30, 2011. For the three months ended September 30, 2011 the drilling fluids line contributed $54.2 million in revenue. The Canadian Association of Oilwell Drilling Contractors ("CAODC") published that the average monthly rig count for Western Canada for the three months ended September 30, 2011 was 453 rigs. Therefore, based on the average monthly rig count of 453 rigs, the Canadian operations of the drilling services division achieved a 30% market share (refer to "Non GAAP measures and operational definitions") in Western Canada over the third quarter of 2011. The drilling services division had a total of 12,512 operating days (refer to "Non GAAP measures and operational definitions") in Canada for the three months ended September 30, 2011. Therefore, the revenue per operating day was $4,334. Operating margins for the three and nine months of September 30, 2011 were 27% and 28%, respectively, which are in line with managementΓǃs expectations. CAPITAL EXPENDITURE HIGHLIGHTSThe capital expenditure highlights for the nine month period ended September 30, 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 facility –commissioned in July 2011; Drayton Valley FST facility –(excluding waste processing and terminalling) commissioned in September 2011; Fox Creek FST facility – (expansion services–additional risers and tanks) completed in the third quarter 2011; and Dawson FST facility – (expansion services – expanded waste receiving pad and upgraded processing equipment) completed in the third quarter 2011 OUTLOOKThe commodity and equity markets have recently been volatile as investors react to the sovereign-debt crisis in Europe. Investors fear global economies are heading into another recession and central banks and governments will be required to increase debt loads in an effort to avoid it. Even though this uncertainty is causing fluctuations in the market place, Secure maintains the view that activity levels in the oil and gas sector will continue to remain robust through the fourth quarter of 2011 as market fundamentals remain positive. Secure expects commodity prices in the fourth quarter of 2011 to continue to support strong levels of activity. Oil and gas producers will continue to focus on the development of oil and liquids-rich gas plays in formations such as the Bakken, Viking, Spearfish and Cardium. This development activity will continue to be beneficial to both the CorporationΓǃs PRD division and the drilling services division in the fourth quarter of 2011.In the fourth quarter, the PRD division will benefit from increased services and capacity with the acquisition of the Silverdale processing facility. The acquisition represents the Corporation's first facility servicing the heavy oil market. The Silverdale processing facility is strategically located within the Lloydminster conventional heavy oil market place and will serve as a base upon which the Corporation will expand its heavy oil presence through new locations and additional services. This acquisition will form the platform upon which the Corporation will seek to acquire additional processing and disposal facilities from oil and gas producers. In addition to Silverdale, the Corporation started commissioning the Drayton Valley FST at the end of September and began operating the water and oil treating services in October. During October, Secure will continue construction on the waste portion of the Drayton facility which is expected to be operational in late November. The pipeline connection for the Drayton facility is expected to be tied into the Pembina system by December. As a result, the Drayton facility is scheduled to be fully operational by the end of the year. In addition, the Wild River SWD permanent facility construction is anticipated to start in November.The drilling services division expects to maintain a similar market share and revenue per operating day through the fourth quarter. The drilling services division has a suite of proprietary and patented drilling fluid systems and products that will support this increased activity. In addition, the rental equipment and drilling waste management components of the business continue to operate at peak levels. Current rental equipment continues to remain at full utilization while newly ordered equipment has been fully booked to the end of the winter drilling season. Continuing with the strategy of a fully integrated approach, the division offers high performance, exceptional service quality, advanced technical support, well specific experience, competitive pricing, and environmental and safety compliance in drilling fluids, solids control solutions, drilling waste management and reclamation services. Oil and gas producers are continually recognizing the reliability and performance of the services of Marquis Alliance and its ability to optimize the drilling process.Secure continues to execute its strategic plan to exploit the value chain from &bdquote;cradle to graveΓǃ focusing on complimentary services, recycling services, organic growth and acquisitions that complement the existing network of facilities. This includes completing and connecting a number of new disposal wells, increasing storage, and adding truck offload risers to support customer demand in Dawson, B.C., South Grande Prairie, and Nose Hill, Alberta. In addition, Secure began the construction of operational upgrades to its Kotcho facility near Fort Nelson B.C adding increased waste processing capacity and additional tankage. Furthermore, Secure currently has applications underway for two FST's and two Landfills forecasted to be completed in 2012. The Corporation is also in the process of moving forward on adding drilling fluid blending and storage facilities at the PRD divisionΓǃs FSTΓǃs to better serve the CorporationΓǃs customers. Overall, the Corporation remains very optimistic about the prospects ahead.FORWARD-LOOKING STATEMENTSCertain statements contained in this document constitute "forward-looking statements" within the meaning of securities laws, including the "safe harbor" provisions of Canadian securities legislation and the United States Private Securities Litigation Reform Act of 1995. 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, commodity prices for oil, NGLs and natural gas, expansion strategy, debt service, capital expenditures, completion of facilities, future capital needs, access to capital, acquisition strategy, the balance of the corporations capital spending on new full service terminals and landfills, oil purchase and resale revenue, Drayton facility completion and pipeline tie-in and commencement of the permanent facility construction at Wild River.Forward-looking information concerning expected operating and economic conditions are based upon prior year results as well as assumptions that increases in market activity and growth will be consistent with industry activity and growth levels in similar phases of previous economic cycles. Forward-looking information concerning the availability of funding for future operations is based upon assumptions that 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 CorporationΓǃs access to debt and equity markets. Forward-looking information concerning the relative future competitive position of the Corporation is based upon assumptions 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 to successfully market its services and drilling and production activity in the Western Canadian Sedimentary Basin will lead to sufficient demand for the CorporationΓǃs services, 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 CorporationΓǃs services. Forward- looking information concerning the nature and timing of growth is 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 information 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. We caution readers 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 "Risk Factors" in the CorporationΓǃs annual information form "AIF" for the year ended December 31, 2010 and the CorporationΓǃs short form prospectus filed May 6,2011. 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 DefinitionsThe 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. These non-GAAP financial measures are included because management uses the information to analyze operating performance, leverage and liquidity. Therefore, these non-GAAP financial measures 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 condensed consolidated interim financial statements for the period ended September 30, 2011. The following should be read in conjunction with the management's discussion and analysis, the condensed consolidated interim financial statements and notes of Secure which are available on SEDAR at www.sedar.com.FOR FURTHER INFORMATION PLEASE CONTACT: Rene AmiraultSecure Energy Services Inc.Chairman, President and Chief Executive Officer(403) 984-6100(403) 984-6101 (FAX)ORNick WielerSecure Energy Services Inc.Chief Financial Officer(403) 984-6100(403) 984-6101 (FAX)www.secure-energy.ca