Secure Energy Services Inc.
TSX : SES

Secure Energy Services Inc.

August 11, 2011 01:13 ET

Secure Energy Services Inc. Announces Solid Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 11, 2011) - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX:SES)

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 June 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.

Secure Energy Services Inc. today announced the operating and financial results for the three and six months ended June 30, 2011. On June 1, 2011 the Corporation completed the acquisition of Marquis Alliance Energy Group Inc. and its wholly owned subsidiaries ("Marquis Alliance"). With this acquisition, the Corporation now operates two divisions which form the basis for the two operating segments reported in the second quarter of 2011. The two reportable segments are as follows:

PROCESSING, RECOVERY AND DISPOSAL DIVISION ("PRD"): The processing, recovery and disposal services 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.

DRILLING SERVICES DIVISION: The drilling services division provides services relating to drilling fluid systems, solids control, equipment rental service, drilling waste management and environmental services. The drilling fluids service line comprises 88% of business for the division, which includes the design and implementation of drilling fluid systems for producers drilling for oil, bitumen and natural gas.

SECOND QUARTER HIGHLIGHTS (CONSOLIDATED)
Three Months Ended June 30, Six months Ended June 30,

2011

2010
%
Change

2011

2010
%Change
($000's except share and per share data)
(unaudited)
Revenue (excludes oil purchase and resale) (1) 26,482 9,876 168 48,212 22,084 118
Oil purchase and resale 67,262 1,370 4,810 113,530 1,370 8,187
Total revenue 93,744 11,246 734 161,742 23,454 590
EBITDA (1) 5,824 3,648 60 16,560 10,131 63
Per share ($), basic 0.08 0.06 33 0.25 0.19 32
Per share ($), diluted 0.08 0.06 17 0.23 0.19 21
Profit for the period 10 18 (44) 4,240 1,554 173
Per share ($), basic 0.00 0.00 - 0.07 0.03 133
Per share ($), diluted 0.00 0.00 - 0.06 0.03 100
Funds from operations (1) 5,664 3,551 59 16,321 9,927 64
Per share ($), basic 0.08 0.06 33 0.24 0.19 26
Per share ($), diluted 0.07 0.05 40 0.23 0.18 28
Cash dividends per common share nil nil nil nil nil nil
Capital Expenditures (1) 84,823 22,622 275 101,458 27,763 265
Total assets 399,772 170,224 135 399,772 170,224 135
Long term borrowings and bank indebtedness 16,539 - - 16,539 - -
Total long term liabilities 29,910 8,593 248 29,910 8,593 248
Common Shares - end of period 86,942,806 63,695,648 36 86,942,806 63,695,648 36
Weighted average common shares
basic 71,207,964 63,187,252 13 67,539,221 53,319,051 27
diluted 75,851,338 64,716,438 17 71,875,475 54,536,068 32
(1)Refer to "Non GAAP measures"

FINANCIAL HIGHLIGHTS

  • Secure reported solid revenue (excluding oil purchase and resale) of $26.5 million for the three months ended June 30, 2011 compared to $9.9 million in the comparable period of 2010.

  • Revenue increased significantly over the prior period as a result of the new drilling services division added on June 1, 2011, the new Dawson Full Service Terminal ("FST") added in the fourth quarter of 2010 and Obed FST expansion added in the first quarter, and overall increased demand for the Corporation's service offerings.

  • EBITDA of $5.8 million and $16.6 million for the three and six months ended June 30, 2011 compared to $3.6 million and $10.1 million in the same period of 2010. EBITDA basic per share increased by 32% for the six months ended June 30, 2011. The increase relates to the new drilling services division, the added facilities and expansion services, and increased demand.

PRD DIVISION OPERATING RESULTS
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 % Change 2011 2010 % Change
($000's) (unaudited)
Revenue
Processing, recovery and disposal services 16,976 9,876 72 38,706 22,084 75
Oil purchase and resale service 67,262 1,370 4,810 113,530 1,370 8,187
Total PRD division revenue 84,238 11,246 649 152,236 23,454 549
Operating Expenses
Processing, recovery and disposal services 9,979 4,689 113 18,588 9,256 101
Oil purchase and resale service 67,262 1,370 4,810 113,530 1,370 8,187
77,241 6,059 1,175 132,118 10,626 1,143
Depreciation, depletion, and amortization 3,889 2,728 43 8,140 6,168 32
Total PRD division operating expenses 81,130 8,787 823 140,258 16,794 735
General and administrative 2,643 1,839 44 5,344 3,118 71
Business development 711 252 182 898 366 145
(246 ) 368 (167 ) 5,736 3,176 81
Operating Margin (excluding oil
purchase/resale)

6,997


5,187


35


20,118


12,828


57

Operating Margin as a % of revenue 41 % 53 % (23 ) 52 % 58 % (10 )
  • Revenue from the PRD division increased significantly for the three and six months ended June 30, 2011 to $17.0 million and $38.7 million from $9.9 million and $22.1 million in the comparative periods in 2010.

  • Secure's operating expenses for the PRD division increased for the three months ended June 30, 2011 to $10.0 million from $4.7 million in the comparative period in 2010, respectively. The increase also resulted in a decline in the operating margin as a percentage of revenue from processing, recovery and disposal services to 41% in the second quarter down from 53% in the same period of 2010. Operating costs not normally incurred impacted the margin as expenses were higher due to heavy rains that caused an increase in road maintenance costs, site costs, and leachate disposal costs. Also, in the second quarter the Corporation incurred additional one time expenses relating to start up costs for the new Wild River Stand Alone Water Disposal facility ("SWD") and waste expansion services at South Grande FST, and some minor facility turnarounds at Dawson, LaGlace and Emerson.

  • The PRD division's general and administrative ("G&A") expenses increased for the three months ended June 30, 2011 to $2.6 million from $1.8 million in 2010. The increase relates to additional employees required to support growth, public company costs and an increase in non-cash share-based payments.

  • Business development expenses increased during the quarter as a result of $0.4 million of transaction costs incurred in connection with the Marquis Alliance acquisition and the XL Fluids Systems Inc. ("XL Fluids") acquisition.

DRILLING SERVICES DIVISION OPERATING RESULTS
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 % Change 2011 2010 % Change
($000's) (unaudited)
Revenue
Drilling Services division 9,506 - 100 9,506 - 100
Operating expenses
Drilling services 6,593 - 6,593 -
Depreciation and amortization 850 - 100 850 - 100
Total Drilling Services division operating expenses 7,443 - 100 7,443 - 100
General and administrative 1,162 - 100 1,162 - 100
Business development 56 - 100 56 - 100
845 - 100 845 - 100
Operating Margin 2,913 - 100 2,913 - 100
Operating Margin % 31% - 100 31% - 100
  • Revenue from the drilling services division in the month of June was $9.5 million. The drilling and completions fluids service line contributed $8.3 million and the remaining service lines of solids control, equipment rental, drilling waste management and environmental contributed $1.2 million for the month of June.

  • The drilling service division achieved an operating margin for the month of June 30, 2011 of $2.9 million or 31% of revenue. The operating margin is usually lower in the second quarter because of spring break up, however the above operating margin only includes activity for the month of June when spring break up is over and is therefore not indicative of typical second quarter results.

  • The drilling services division G&A does not include any public company costs or corporate overhead costs. G&A expenses for the month of June 2011 were $1.2 million.

CAPITAL EXPENDITURE HIGHLIGHTS
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 % Change 2011 2010 % Change
($000's) (unaudited)
Capital Expenditures (1)
Expansion and Growth Capital Expenditures 20,642 10,745 92 37,224 15,760 136
Acquisitions 63,985 11,750 445 63,985 11,750 445
Sustaining Capital Expenditures 196 127 54 249 253 (2)
Total Capital Expenditures 84,823 22,622 275 101,458 27,763 265
(1) Refer to "Non GAAP measures"
  • During the six months ended June 30, 2011, the Corporation incurred $37.2 of expansion and growth capital of which $24.0 million related to capital projects initiated in 2010 including the Drayton Valley FST, Brazeau SWD, South Grande Prairie FST and Obed FST. The Corporation also invested $6.7 million on additional risers, meters, second disposal wells and similar projects, and an additional $3.3 million related to purchasing assets for other upcoming projects for the 2011 capital program and $1.1 million for centrifuges and control panels for the drilling services division.

  • Acquisitions increased significantly for the six months ended June 30, 2011 to $64.0 million from $11.8 million in the comparative period of 2010. On June 1, 2011, Secure acquired all of the issued and outstanding shares of Marquis Alliance for a total cash and share consideration of $132.0 million.

  • The Corporation has received board approval to revise its 2011 capital budget to $95 million, from the previously announced 2011 capital budget of $55 million. The majority of the increase relates to expansion/new services at existing facilities, long lead items, and rental equipment in the new drilling services division.

RECENT TRANSACTIONS

  • On July 1, 2011, the Corporation completed the acquisition of all of the operating assets (excluding working capital) of XL Fluids for total cash and share consideration of $36.5 million. The Corporation paid $18.5 million in cash and issued 2,297,885 Secure common shares at a closing price per share of $9.58 for consideration of $22.0 million, which was adjusted to fair value consideration for accounting purposes of $17.0 million.
  • 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. 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.

Non GAAP Measures

(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. 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.

OUTLOOK

Secure expects activity levels to remain robust as strong oil and NGL's prices continue to drive oil and liquids-rich gas plays in new and revitalized markets. This higher level of activity will be beneficial to both the Corporation's PRD division and the drilling services division for the remainder of 2011. The drilling services division has a suite of proprietary and patented drilling fluid systems and products that will support this increased demand. In addition to responding to higher demand, the drilling services division will also be focusing on drilling fluids blending and recycling opportunities with the PRD division as the Corporation moves toward a full cycle "cradle to grave" drilling fluid solutions offering.

In July, the Corporation closed the acquisition of the drilling fluid service company XL Fluids. XL Fluids is well positioned in central Alberta, south Saskatchewan and southeast Manitoba to participate in the development of oil plays in formations such as the Bakken, Viking, Spearfish and Cardium. In particular, the Bakken formation, which extends from southeast Saskatchewan into South Dakota and west into Montana, has the potential of being one of the largest light oil pools discovered in Western Canada and one of the top onshore fields found in the United States. Moreover, as drilling has become more complex, the applied down hole technologies are becoming increasingly important in driving success for oil and gas producers. Currently, the drilling services division has an extensive technical services team with multiple laboratory facilities which continue to focus on the development of new technologies in response to down hole and environmental issues. Marquis Alliance and XL Fluids will pool resources and leverage off these resources to meet the growing demands of oil and gas producers. In addition, Marquis Alliance and XL Fluids will be able to pool sales resources to expand its current environmental and solids control services. With this fully integrated approach, the division can offer high performance, exceptional service quality, greater availability, advanced technical support, well specific experience, competitive pricing, and environmental and safety compliance. The success of this new division is predicated on reliability and performance of a fluid system and its ability to enhance and improve production, and to lower overall drilling time and costs for oil and gas producers. The Corporation is excited to be offering this new division heading into the third and fourth quarter of a very active drilling season.

In the second half of 2011, the PRD division will have increased services and capacity at the Obed FST, South Grande Prairie FST and the expected completion of the Drayton Valley FST. South Grande Prairie FST was commissioned at the beginning of July and will be operational for the third quarter 2011. Drayton Valley FST is expected to be completed toward the end of August and it is anticipated that it will be commissioned in September 2011.

The Corporation's board originally approved a capital budget of $55 million for 2011 projects. Subsequent to the second quarter of 2011, the board has approved an additional $40 million to the capital budget. The revised $95 million capital budget includes $34 million related to projects that started in 2010, $36 million 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.

The expansion projects include a new Class 1 landfill cell, an additional five new disposal wells, and increased storage and truck offload risers to support customer demand in Dawson, B.C., and LaGlace and South Grande Prairie, Alberta. As well, the Dawson facility is currently undergoing construction of phase three (emulsion treatment, terminal and crude oil pipeline connection.) It is expected to be completed in the later part of the fourth quarter.

To support customer demand in the Hinton, Alberta market area, Secure opened a new SWD facility at Wild River in July. This is a temporary facility until final engineering work is completed on a permanent facility with construction expected in the fourth quarter of 2011. Applications are currently underway for two FST's and two Landfills forecast to be completed in 2012.

In the third quarter, both divisions will focus on FST expansion opportunities for efficiencies in drilling waste handling, environmental recycling process improvements and cost saving initiatives for customers. This includes drilling fluids blending at the Secure's FST's to better serve the Corporation's customers. Furthermore, the Corporation will begin investing in infrastructure to support the opportunities identified with the addition of the drilling services division. These initiates will ultimately determine the amount of acquisition synergies the Corporation will benefit from in future periods. The Corporation does not anticipate benefiting from any acquisition synergies in 2011 given that establishing the infrastructure and changing the operational processes will require time to construct and implement.

Secure is also excited by the closing of the Corporation's $150 million credit facility with a syndicate of lenders. This new and expanded facility allows the Corporation greater flexibility in deploying its capital strategy. Secure will continue to work on a variety of organic projects and acquisitions for 2011 and 2012 to ensure we stay ahead of customer demand. Overall, the Corporation is very optimistic about the remainder of 2011 and it will continue to focus on strengthening market position in both divisions and across all service lines.

FORWARD-LOOKING STATEMENTS

Certain 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, anticipated completion of the Drayton Valley full service terminal, anticipated construction of the Wild River stand alone water disposal facility and the balance of the corporations capital spending on new full service terminals and landfills.

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 Corporation's 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 Corporation's 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 Corporation's 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 Corporation's annual information form "AIF" for the year ended December 31, 2010 and the Corporation's 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.

Contact Information

  • Secure Energy Services Inc.
    Rene Amirault
    Chairman, President and Chief Executive Officer
    (403) 984-6100
    (403) 984-6101 (FAX)

    Secure Energy Services Inc.
    Nick Wieler
    Chief Financial Officer
    (403) 984-6100
    (403) 984-6101 (FAX)
    www.secure-energy.ca
    TSX Symbol: SES