Le Lézard
Classified in: Oil industry, Business, Covid-19 virus
Subject: ERN

SECURE Energy Announces 2020 Third Quarter Results


CALGARY, AB, Oct. 28, 2020 /CNW/ - SECURE ENERGY Services Inc. ("SECURE") (TSX: SES) reported today its operational and financial results for the three and nine months ended September 30, 2020. The following should be read in conjunction with the Corporation's management's discussion and analysis ("MD&A") and the interim consolidated financial statements and notes thereto for the three and nine months ended September 30, 2020, which are available on SEDAR at www.sedar.com.

THIRD QUARTER SUMMARY

The Corporation recorded Adjusted EBITDA1 of $37.0 million for the three months ended September 30, 2020, a decrease of 14% compared to the prior year third quarter, reflecting the level of production and contracted volumes during a period of reduced drilling and completion activity levels. As production came back online following short-term shut-ins due to uneconomic pricing in the second quarter of 2020, the Corporation benefited from increased cash flow stability driven by production-related volumes at SECURE's midstream infrastructure located in low cost light oil and gas related plays in western Canada. The Corporation's newly constructed East Kaybob oil pipeline also contributed to the Corporation's third quarter results, delivering fees-for-service from pipeline tariffs and reliable volumes at the Fox Creek facility. Drilling and completion activity remained muted during the third quarter as producers continue to prudently manage capital and protect their balance sheet.

Ongoing cost rationalizations, the impact of organizational restructuring, and wage subsidies of $8.8 million reduced the impact of lower industry activity levels on the Corporation's current period results. As a result of these reductions which aligned the Corporation's cost structure with expected activity levels, the following was achieved during the third quarter of 2020:

The factors noted above have partially mitigated the negative impact of reduced industry activity levels and corresponding lower Adjusted EBITDA on the Corporation's financial position. During the three months ended September 30, 2020, SECURE generated discretionary free cash flow1 of $28.4 million, an increase of 9% from the prior year comparative period. During the quarter, the Corporation primarily applied discretionary free cash flow against outstanding debt. As a result, the Corporation reduced the amount drawn on the Corporation's $600 million first lien credit facility ("First Lien facility") by 10% during the third quarter of 2020. At September 30, 2020, the First Lien facility had $301.0 million drawn, resulting in available capacity of $299.0 million, subject to covenant restrictions.

The following table outlines SECURE's Senior and Total Debt to trailing twelve-month EBITDA ratios2 at September 30, 2020, compared to the covenant thresholds outlined in our credit facility agreements.


Sept 30, 2020

Threshold

Senior Debt to EBITDA

2.2

3.5

Total Debt to EBITDA

3.1

5.0

The Corporation is well within the covenant restrictions at September 30, 2020, and expects sufficient liquidity to be generated by cash flow from operating activities to fund operations, working capital requirements, dividends and the Corporation's capital program, with excess cash flow available to pay down debt.

OUTLOOK

Reduced energy demand resulting from the coronavirus ("COVID-19") health pandemic and over supply concerns continue to create considerable uncertainty with regards to the short-term outlook on oil and liquids prices. SECURE's customers have prudently employed increased financial and capital discipline, resulting in capital spending plans that remain well below prior year levels. Nonetheless, with its third quarter results, the Corporation has demonstrated that SECURE's midstream infrastructure and production-based service offerings deliver strong cash flows that are sustainable at the current commodity prices and activity levels, positioning the Corporation for success in the event of a longer-term economic downturn.

Based on current macroeconomic conditions and commodity prices, SECURE expects:

For the remainder of 2020 and throughout 2021, SECURE will continue to focus on maintaining financial resiliency by maximizing cash flows and paying down debt with discretionary free cash flow. By doing so, the Corporation will remain well positioned to respond to the market's needs when activity levels increase. SECURE'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 helping our customers by working transparently with them to identify opportunities where we can provide innovative solutions that help their objectives of responsible development, while reducing costs. Remaining focused on this strategy will ultimately contribute to our combined success in the long-term, despite market challenges faced along the way.

OPERATING AND FINANCIAL HIGHLIGHTS

The following table summarizes the operating and financial highlights for the three- and nine-month periods ending September 30, 2020 and 2019: 




Three months ended Sept 30,

Nine months ended Sept 30,

($000's except share and per share data)

2020

2019

% change

2020

2019

% change

Revenue (excludes oil purchase and resale)

103,499

149,096

(31)

341,068

456,207

(25)

Oil purchase and resale


348,674

577,877

(40)

1,007,873

1,843,998

(45)

Total revenue



452,173

726,973

(38)

1,348,941

2,300,205

(41)

Adjusted EBITDA (1)


37,018

43,173

(14)

99,565

133,278

(25)


Per share ($), basic

0.23

0.27

(15)

0.63

0.83

(24)

Net loss attributable to shareholders of SECURE

(4,588)

(639)

(618)

(47,415)

(1,058)

(4,382)


Per share ($), basic and diluted

(0.03)

-

(100)

(0.30)

(0.01)

(2,900)

Cash flows from operating activities

38,470

35,976

7

106,418

147,204

(28)


Per share ($), basic

0.24

0.23

4

0.67

0.92

(27)

Capital expenditures (1)


10,475

30,725

(66)

62,395

102,956

(39)

Dividends paid per common share

-

0.0675

(100)

0.0950

0.2025

(53)

Total assets



1,470,513

1,635,106

(10)

1,470,513

1,635,106

(10)

Long-term liabilities


593,192

633,037

(6)

593,192

633,037

(6)

Common shares - end of period

158,629,808

157,979,909

-

158,629,808

157,979,909

-

Weighted average common shares - basic and diluted

158,577,224

158,075,674

-

158,526,801

159,620,638

(1)

(1)Refer to "Non-GAAP Measures" for further information






MIDSTREAM INFRASTRUCTURE SEGMENT HIGHLIGHTS


Three months ended Sept 30,

Nine months ended Sept 30,

($000's)

2020

2019

% Change

2020

2019

% Change








Midstream Infrastructure services revenue (a)

44,757

75,045

(40)

153,521

228,281

(33)

Oil purchase and resale

348,674

577,877

(40)

1,007,873

1,843,998

(45)

Midstream Infrastructure Revenue

393,431

652,922

(40)

1,161,394

2,072,279

(44)








Cost of Sales







Cost of sales excluding items noted below

13,077

28,359

(54)

57,187

88,362

(35)

Depreciation and amortization

21,988

18,545

19

69,058

54,740

26

Oil purchase and resale

348,674

577,877

(40)

1,007,873

1,843,998

(45)

Midstream Infrastructure Cost of Sales

383,739

624,781

(39)

1,134,118

1,987,100

(43)








Segment Profit Margin (1)

31,680

46,686

(32)

96,334

139,919

(31)








Segment Profit Margin (1)  as a % of revenue (a)

71%

62%


63%

61%









(1) Calculated as revenue less cost of sales excluding depreciation and amortization. Refer to "Non-GAAP Measures" for further information

ENVIRONMENTAL AND FLUID MANAGEMENT SEGMENT


Three months ended Sept 30,

Nine months ended Sept 30,

($000's)

2020

2019

% Change

2020

2019

% Change








Environmental and Fluid Management Revenue

58,742

74,051

(21)

187,547

227,926

(18)








Cost of sales excluding depreciation, depletion and amortization

44,191

59,235

(25)

146,960

183,575

(20)

Depreciation, depletion and amortization

7,533

10,208

(26)

26,706

33,180

(20)

Environmental and Fluid Management Cost of Sales

51,724

69,443

(26)

173,666

216,755

(20)








Segment Profit Margin (1)

14,551

14,816

(2)

40,587

44,351

(8)








Segment Profit Margin (1)  as a % of revenue

25%

20%


22%

19%









(1) Calculated as revenue less cost of sales excluding depreciation, depletion and amortization. Refer to "Non-GAAP Measures" for further information

FINANCIAL STATEMENTS AND MD&A

The Corporation's condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 2020 and 2019 and MD&A for the three and nine months ended September 30, 2020 and 2019 are available immediately on SECURE's website at www.secure-energy.com. 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 and speak only as of the date of this document.

In particular, this document contains or implies forward-looking statements pertaining but not limited to: management's expectations with respect to the impact of COVID-19 on demand for oil, supply and demand balance, and our operations generally; the outlook for oil and liquids prices; spending by producers and the impact of this on SECURE's activity levels; the oil and natural gas industry in Canada and the U.S., including drilling, completion and production activity levels for the remainder of 2020 and beyond in the Corporation's operating areas, and the impact of this on SECURE's business, operations and financial results; the benefits of contracted and/or fee-for-service contracts on SECURE's cash flow and the expected stability of such sources; the benefit of production concentrated volumes on SECURE's cash flow and the expected stability of such sources of cash flow; the timing and stability of contributions from new projects, particularly the East Kaybob oil pipeline; the impact the Canadian Federal Government's orphan and inactive well fund may have to the business, operations and results of the Corporation; restructuring costs for the remainder of the year; the Corporation's ability to execute our restructuring plans and align the Corporation's cost structure with expected industry activity levels; the expected impacts and amounts of the Corporation's cost and capital expenditure reductions; the Corporation's proposed 2020 and 2021 capital expenditure programs, including growth and expansion and sustaining capital expenditures; timing associated with potential divestitures related to specific service lines that do not have recurring or production-related revenue streams and the outcome of such sales process; future dividend payments and expected cash savings resulting from the reduction of the Corporation's cash dividend payments; 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; expectations that our capital investment, share repurchases and cash dividends will be funded from internally generated cash flows; the Corporation's credit risk levels and it's ability to collect on trade receivables; 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 how the Corporation intends to fund its operations, working capital requirements, dividends and capital program; 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 document regarding, among other things: the impact of COVID-19, including related government responses related thereto and lower global energy pricing on oil and gas industry exploration and development activity levels and production volumes (including as a result of demand and supply shifts caused by COVID-19 and the actions of OPEC and non-OPEC countries); the success of SECURE'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; that counterparties comply with contracts in a timely manner; that there are no unforeseen events preventing the performance of contracts or the completion of the relevant facilities; that there are no unforeseen material costs in relation to the Corporation's facilities; and that prevailing regulatory, tax and environmental laws and regulations apply.

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 those factors referred to under the heading "Risk Factors" in the AIF. In addition, the effects and impacts of the COVID?19 outbreak, the rapid decline in global energy prices and the length of time to significantly reduce the global threat of COVID-19 on SECURE's business, the global economy and markets are unknown at this time and could cause SECURE's actual results to differ materially from the forward-looking statements contained in this document.

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

The Corporation uses accounting principles that are generally accepted in Canada (the issuer's "GAAP"), which includes International Financial Reporting Standards ("IFRS"). Certain supplementary measures in this document 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, they should not be used as an alternative to IFRS measures because they do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. See the MD&A available at www.sedar.com for further details, including reconciliations of the Non-GAAP measures and additional GAAP measures to the most directly comparable measures calculated in accordance with IFRS.

ABOUT SECURE

SECURE is a publicly traded energy business listed on the Toronto Stock Exchange ("TSX") providing industry leading customer solutions to upstream oil and natural gas companies operating in western Canada and certain regions in the United States ("U.S.") through its 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 core midstream infrastructure operations generate cash flows from oil production processing and disposal, produced water disposal, and crude oil storage, logistics, and marketing. SECURE also provides comprehensive environmental and fluid management for landfill disposal, onsite abandonment, remediation and reclamation, drilling, completion and production operations for oil and gas producers in western Canada. 

__________________

1 Refer to the "Non-GAAP Measures" section herein

2 Refer to the "Liquidity and Capital Resources" section herein for details on the Corporation's covenant calculations

 

SOURCE SECURE Energy Services Inc.


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