The following press release should be read in conjunction with the Corporation's management's discussion and analysis ("MD&A") and the audited consolidated financial statements and notes thereto which are available on SEDAR at www.sedar.com.
Over the past several years, increasing the stability of the Corporation's cash flows has been a key priority for SECURE to reduce the risk of our capital investments and maximize the return and value from our existing assets, ensuring profitable growth for our shareholders, and positioning the Corporation for sustained success. The strategies the Corporation has developed to achieve this priority include:
- Building and connecting produced water pipelines and disposal facilities to reduce customers' transportation costs and environmental footprint;
- Building and connecting gathering oil pipelines from producer batteries to reduce customers' transportation costs and environmental footprint;
- Utilizing crude oil storage and blending capabilities to optimize pricing and manage pipeline transportation constraints; and
- Providing crude oil transport via rail for access to higher priced markets and to minimize egress constraints.
During 2019, the Corporation executed on its corporate strategy by increasing the Corporation's exposure to production‑based revenues through the growth of our core midstream infrastructure business, and limiting exposure to cyclical drilling and completion activities.
2019 ACHIEVEMENTS
In
New produced water pipelines
In addition to the produced water pipeline at
Operational success at
In
The performance of the
- Nearly 1.9 million cubic metres shipped during 2019 with growing volumes each quarter;
- 20 approved shippers;
- Zero environmental or safety incidents; and
- No unscheduled downtime.
The execution of this pipeline system on time and on budget, and the operational success demonstrated to date positions SECURE to take advantage of similar opportunities to create value for customers seeking cost effective and sustainable solutions for water, oil and condensate volumes.
Development of our second oil pipeline system
During the third quarter of 2019, the Corporation entered into long-term contracts in the Bigstone and East Kaybob regions of
The development of the East Kaybob oil pipeline system is underpinned by 15-year commitments with multiple customers, which should provide SECURE with stable, long-term fee-for-service revenues from pipeline tariffs, and reliable volumes at the
In
SECURE's majority investment in the 80-acre parcel of land provides the Corporation with significant optionality to develop additional midstream infrastructure at
Expansion projects
During 2019, the Corporation also undertook several projects to optimize capabilities and increase processing and disposal capacity at various existing facilities with the intention of maximizing the return and value from our existing assets. These projects included:
- Additional disposal wells added at the Tony Creek, 13 Mile, and Keene facilities;
- Blend optimization projects at several pipeline connected full service terminals; and
- Upgrades at our
Big Mountain facility for the handling of sour fluids.
SECURE will continue to pursue high-return expansion projects at our existing facilities where it is supported by highly reliable volumes.
Announcement of strategic divestitures
During the fourth quarter of 2019, SECURE initiated a process for the divestiture of specific service lines that do not have recurring or production-related revenue streams. SECURE has engaged
Monetizing assets that primarily support drilling and completion activity is expected to allow management to focus on longer-term strategy, strengthen SECURE's balance sheet, provide incremental capital for continued midstream infrastructure growth, and support continued opportunistic share repurchases. SECURE believes these divestitures will best position the Corporation for sustainable future growth and shareholder value creation in the midstream space.
LOOKING AHEAD
SECURE will continue to follow a sensible approach to capital spending by focusing our capital spending on projects underpinned by long-term committed volumes that will generate stable cash flows and capture a secure rate of return. Additional opportunities to execute on this objective are expected to continue based on current industry trends such as:
- Producers increasingly outsourcing midstream work;
- Produced water volumes increasing at a disproportionate rate relative to aggregate production;
- Increased use of concentrated pad drilling with multiple wells creating large centralized volumes that improve the economics of building pipelines to connect production volumes to midstream facilities; and
- Volatile commodity price differentials and limited pipeline capacity.
Pipeline connecting volumes creates value for our customers by providing a capital efficient transportation solution that lowers operating costs and enhances operating netbacks. Additionally, the use of pipelines significantly reduces or eliminates trucking logistics and constraints, reduces greenhouse gas emissions and increases safety for all road users by reducing the number of trucks required to transport producer's product.
ESG focused
SECURE recognizes that the long-term success of the Corporation goes beyond the financial results generated by the Corporation. SECURE is focused on continually improving our strategies and processes to further enhance the sustainability of our business by incorporating environmental, social, and governance ("ESG") factors in our overall business strategy, risk management and business development. Our commitments to sustainability, including putting safety first, minimizing the environmental impacts of our operations, and creating positive relationships with stakeholders in the communities where we live and work, guide these strategies.
Over the past year, the Corporation has taken the following actions to advance our ESG framework and address key issues:
- Integrated sustainability into the mandate of the Board's standing Health, Safety and Environment committee;
- Published our first climate policy for increasing energy efficiency and reducing emissions;
- Adopted an 'Every Drop Matters' initiative for spill prevention;
- Formalized stakeholder relations and Aboriginal vendor policies;
- Linked executive compensation targets to key corporate sustainability goals; and
- Increased the diversity of our Board of Directors with the addition of a second female director.
The Corporation has established environmental targets to reduce our carbon intensity in half by 2030 and achieve net zero emissions by 2050. The Corporation is committed to developing and implementing new practices and technologies to achieve these targets.
SECURE also acknowledges the larger role we are able to play in reducing the overall environmental impact associated with delivering energy to the world. The Corporation is dedicated to working with customers to provide innovative midstream and environmental solutions that not only reduce costs, but also lower emissions, improve safety, manage water, recycle by-products, and protect the land.
2020 capital guidance
The current growth capital plan for 2020 is approximately
The capital budget will be reviewed quarterly in 2020 and may be revised in accordance with growth and expansion opportunities available to further expand SECURE's midstream infrastructure business in a manner consistent with SECURE's business strategy and such other factors as management considers appropriate including, among other things, the risks set out in the in the Corporation's Annual Information Form for the year ended
2019 RESULTS
Adjusted EBITDA of
Successful project execution and strategic acquisitions over the past several years contributing recurring cash flows generated from production-related activities helped offset the impact of continued reduced oil and gas drilling and completion activity in 2019. For the year ended
In the Midstream Infrastructure division, growth initiatives over the last several years to increase capacity in response to customer demand and expand production-related service offerings resulted in Adjusted EBITDA of
Solid balance sheet
SECURE continues to follow a disciplined approach to maintaining a strong balance sheet.
- In April 2019, SECURE closed an amendment to its first lien credit facility (the "First Lien Credit Facility"), increasing the borrowing capacity by $130 million to
$600 million and entered into a new $75 million bilateral Letter of Credit Facility. SECURE's total credit capacity is$805 million , comprised of the First Lien Credit Facility, the Corporation's $130 million second lien credit facility entered into in 2017, and the new Letter of Credit Facility. AtDecember 31, 2019 , the Corporation had$312.1 million available under these credit facilities, subject to covenant restrictions, up from$148 .4 million atDecember 31, 2018 . - The Corporation remained compliant with all covenants related to its credit facilities in 2019, ending the year with a senior debt to trailing twelve-month EBITDA ratioii of 2.0x, well within the covenant threshold.
SECURE will continue to focus on managing the Corporation's financial position throughout 2020. Funds flow from operations after sustaining capital and dividend payments, along with any proceeds from divestitures, will provide increased flexibility for debt repayment, midstream infrastructure growth underpinned by long-term committed volume contracts, and opportunistic share repurchases.
Shareholder value creation
During 2019, SECURE continued to pay a
ANNUAL HIGHLIGHTS
The operating and financial highlights for the years ended
Twelve months ended | |||||
( | 2019 | 2018 | 2017 | ||
Revenue (excludes oil purchase and resale) | 632,409 | 698,172 | 603,421 | ||
Oil purchase and resale | 2,440,071 | 2,239,281 | 1,724,787 | ||
Total revenue | 3,072,480 | 2,937,453 | 2,328,208 | ||
Adjusted EBITDA (1) | 180,172 | 190,521 | 157,211 | ||
Per share ($), basic | 1.13 | 1.17 | 0.97 | ||
Per share ($), diluted | 1.11 | 1.15 | 0.97 | ||
Net income (loss) attributable to shareholders of Secure | 1,600 | 19,929 | (34,202) | ||
Per share ($), basic and diluted | 0.01 | 0.12 | (0.21) | ||
Cash flows from operating activities | 196,604 | 186,515 | 108,872 | ||
Per share ($), basic | 1.24 | 1.14 | 0.67 | ||
Per share ($), diluted | 1.21 | 1.13 | 0.67 | ||
Dividends per common share | 0.27 | 0.27 | 0.25 | ||
Capital expenditures (1) | 134,725 | 178,646 | 195,867 | ||
Total assets | 1,647,651 | 1,583,501 | 1,562,746 | ||
Long-term liabilities | 624,739 | 560,863 | 422,251 | ||
Common shares - end of period | 156,460,158 | 159,274,147 | 163,352,572 | ||
Weighted average common shares | |||||
basic | 158,984,770 | 163,008,356 | 162,827,541 | ||
diluted | 161,817,532 | 165,425,609 | 162,827,541 | ||
(1)Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
- REVENUE OF
$3.1 BILLION FOR THE YEAR ENDEDDECEMBER 31, 2019 - Midstream Infrastructure division revenue (excluding oil purchase and resale) in 2019 increased by 2% over 2018 to
$362.1 million . Higher revenues were driven primarily by infrastructure added during 2018 and 2019 which resulted in new production-related revenue streams and increased disposal capacity with committed volumes. Lower revenue from existing facilities due to lower drilling and completions related processing and disposal volumes resulting from poor weather throughout the second and third quarter, compounded by reduced spending by producers inCanada across the Corporation's operating areas, partially offset the contributions from new infrastructure; - Oil purchase and resale revenue in 2019 increased 9% over 2018 to
$2.4 billion primarily due to higher volumes attributable to SECURE's expanded commercial operations, particularly related to theKerrobert crude oil pipeline system which was placed in serviceOctober 1, 2018 ; - Environmental Solutions division revenue in 2019 decreased 26% over 2018 to
$86.8 million . The integrated fluids solutions service line was impacted by lower well completion activity in the WCSB and from reduced spending from major exploration and production companies inCanada . Project revenue also decreased due to fewer reclamation and demolition jobs underway year over year and from the deferral of ongoing remediation and demolition jobs as wet weather conditions during most of the second and third quarters limited field access required to complete these jobs. Increases in recurring revenue from scrap metal recycling agreements combined with new project work in theFort McMurray region partially offset the reduced revenue from the lower job volumes and program deferrals; - Technical Solutions division revenue in 2019 decreased 18% over 2018 to
$183.4 million due to lower drilling and completion activity in the WCSB, negatively impacting revenue generated from drilling and completion fluid services, solids control equipment rentals and drilling waste management. Increased production services revenue from an expanded customer base partially offset this impact; - ADJUSTED EBITDA OF
$180.2 MILLION FOR THE YEAR ENDEDDECEMBER 31, 2019 - Adjusted EBITDA in 2019 decreased 5% over 2018 to
$180.2 million due to a 34% decrease in Adjusted EBITDA generated by the Environmental Solutions and Technical Solutions divisions. Approximately half of these divisions' business lines provide services for drilling and completions, which were down year over year by 31% and 20%, respectively. Additionally, reduced spending from major exploration and production companies inCanada and weather-related delays impacted certain project work in the Environmental Solutions division. Midstream Infrastructure Adjusted EBITDA increased slightly year over year as a result of infrastructure additions with stable, production-related revenue streams. - NET INCOME ATTRIBUTABLE TO SHAREHOLDERS OF SECURE FOR THE YEAR ENDED
DECEMBER 31, 2019 - For the year ended
December 31, 2019 , net income attributable to shareholders of SECURE was$1 .6 million, compared to income of$19.9 million in the year endedDecember 31, 2018 . The variance is primarily due to a$10.3 million decrease to Adjusted EBITDA resulting from the factors described above, higher depreciation expense resulting from the adoption of International Financial Reporting Standard 16 ("IFRS 16")iii and new infrastructure put into use in 2018 and 2019. These increases were partially offset by lower tax expense resulting from lower pre-tax earnings and a deferred tax recovery booked in the second quarter of 2019 due to a reduction in corporate tax rates inAlberta . - CAPITAL EXPENDITURES OF
$134.7 MILLION FOR THE YEAR ENDEDDECEMBER 31, 2019 - SECURE's organic growth and expansion capital during 2019 of
$103.4 million was heavily weighted toward infrastructure projects that aligned with our underlying strategy to increase the stability of our cash flows, including: - Construction of 260,000 barrels of additional crude oil storage at Kerrobert;
- Construction of the new
Pipestone water disposal facility and water pipeline; - The addition of produced water transfer and injection pipelines;
- Long lead items and commencing construction of the East Kaybob oil pipeline system;
- The addition of three water disposal wells at existing facilities (Tony Creek, Keene and 13 Mile);
- Increasing processing and disposal capacity and creating efficiencies at various other facilities; and
- Upgrades at our
Big Mountain facility for the handling of sour fluids. - Two tuck-in acquisitions at
Cushing to secure crude oil storage for$13.9 million . - Sustaining capital of
$17.4 million relating primarily to well and facility maintenance. - FINANCIAL FLEXIBILITY
- The total amount drawn on SECURE's credit facilities as at December 31, 2019 increased 10% to $454.3 million compared to
$413.5 million atDecember 31, 2018 primarily as a result of the Corporation's capital program; - As at
December 31, 2019 , the Corporation had$312.1 million available under its credit facilities, subject to covenant restrictions, up from$148.4 million atDecember 31, 2018 . InApril 2019 , SECURE closed an amendment to its First Lien Credit Facility, increasing the borrowing capacity by$130 million to$600 million and entered into a new$75 million bilateral Letter of Credit Facility. SECURE's total credit capacity atDecember 31, 2019 is$805 million ; - The following table outlines SECURE's senior and total debt to trailing twelve-month EBITDA ratios at
December 31, 2019 andDecember 31, 2018 . SECURE remains well within compliance of all covenants related to its credit facilities atDecember 31, 2019 .
Covenant | |||
Senior Debt to EBITDA | 2.0 | 1.6 | 3.5 |
Total Debt to EBITDA | 2.8 | 2.2 | 5.0 |
FOURTH QUARTER HIGHLIGHTS
The Corporation's operating and financial highlights for the three-month periods ending
Three months ended | ||||||
( | 2019 | 2018 | % change | |||
Revenue (excludes oil purchase and resale) | 162,014 | 192,756 | (16) | |||
Oil purchase and resale | 596,073 | 490,295 | 22 | |||
Total revenue | 758,087 | 683,051 | 11 | |||
Adjusted EBITDA (1) | 46,894 | 57,810 | (19) | |||
Per share ($), basic | 0.30 | 0.36 | (17) | |||
Per share ($), diluted | 0.29 | 0.35 | (17) | |||
Net income attributable to shareholders of Secure | 2,658 | 13,944 | (81) | |||
Per share ($), basic | 0.02 | 0.09 | (78) | |||
Per share ($), diluted | 0.02 | 0.08 | (75) | |||
Cash flows from operating activities | 49,401 | 59,310 | (17) | |||
Per share ($), basic | 0.31 | 0.37 | (16) | |||
Per share ($), diluted | 0.31 | 0.36 | (14) | |||
Dividends per common share | 0.0675 | 0.0675 | - | |||
Capital expenditures (1) | 31,769 | 40,754 | (22) | |||
Total assets | 1,647,651 | 1,583,501 | 4 | |||
Long-term liabilities | 624,739 | 560,863 | 11 | |||
Common shares - end of period | 156,460,158 | 159,274,147 | (2) | |||
Weighted average common shares | ||||||
basic | 157,097,902 | 161,251,096 | (3) | |||
diluted | 159,430,711 | 164,374,324 | (3) | |||
(1)Refer to "Non-GAAP Measures and Operational Definitions"for further information. |
- REVENUE OF
$758.1 MILLION FOR THE THREE MONTHS ENDEDDECEMBER 31, 2019 - Midstream Infrastructure division revenue (excluding oil purchase and resale) decreased 11% to
$94 .2 million during the three months endedDecember 31, 2019 from the 2018 comparative period. Lower revenue associated with drilling and completions related processing and disposal volumes at the Corporation's facilities negatively impacted drilling waste and flowback water disposal volumes, and processing volumes from drilling and completion activities. Additionally, commodity price differentials were less volatile in the three months endedDecember 31, 2019 compared to the same period of 2018, resulting in fewer marketing opportunities and reduced rail activity compared to the prior year period. Infrastructure additions and expansions generating stable, production-related revenues during the year helped partially offset the negative factors described above; - Oil purchase and resale revenue in the Midstream Infrastructure division increased 22% to
$596 .1 million during the three months endedDecember 31, 2019 from the 2018 comparative period. The increase is primarily attributable to a 38% increase in average CanadianLight Sweet crude oil prices in the three months endedDecember 31, 2019 of 2019 over the 2018 comparative period; - Environmental Solutions division revenue decreased 29% to
$20.7 million during the three months endedDecember 31, 2019 from the 2018 comparative period. The integrated fluids solutions service line was impacted by lower well completion activity in the WCSB and from reduced spending from major exploration and production companies inCanada . Project revenue decreased due to fewer reclamation and demolition jobs underway quarter over quarter. Increases in recurring revenue from the scrap metal recycling agreements combined with new project work in theFort McMurray region partially offset the reduced revenue from the lower job volumes and program deferrals; - Technical Solutions division revenue decreased 19% to
$47.1 million during the three months endedDecember 31, 2019 from the 2018 comparative period due to lower drilling and completion activity in the WCSB, negatively impacting revenue generated from drilling and completion fluid services, solids control equipment rentals and drilling waste management. Increased production services revenue from an expanded customer base partially offset this impact. - ADJUSTED EBITDA OF
$46.9 MILLION FOR THE THREE MONTHS ENDEDDECEMBER 31, 2019 - Adjusted EBITDA decreased 19% to
$46.9 million during the three months endedDecember 31, 2019 from the 2018 comparative period primarily as a result of lower revenues across all three divisions as described above. Segment profit marginiv as a percentage of revenue also decreased 5% in the Midstream Infrastructure division from 62% in the three months endedDecember 31, 2018 primarily as a result of lower revenue with ongoing fixed costs at facilities and service mix. - NET INCOME ATTRIBUTABLE TO SHAREHOLDERS OF SECURE OF
$2.6 MILLION FOR THE THREE MONTHS ENDEDDECEMBER 31, 2019 - Net income attributable to shareholders of SECURE decreased 81% to
$2.6 million during the three months endedDecember 31, 2019 from the 2018 comparative period. The variance is due primarily to a$10 .9 million decrease to Adjusted EBITDA, partially offset by lower tax expense driven by lower pre-tax income. - CAPITAL EXPENDITURES OF
$31.8 MILLION FOR THE THREE MONTHS ENDEDDECEMBER 31, 2019 - Total capital expenditures for the three months ended
December 31, 2019 included$25.6 million of organic growth and expansion capital related primarily to: - Construction of the new East Kaybob oil pipeline system;
- Acquisition of a second produced water transfer and injection pipeline from a customer plant to SECURE's Gold Creek water disposal facility;
- Tying in of new disposal wells drilled during the first half of the year; and
- Ongoing optimization projects at existing facilities, including upgrades to disposal well water injection pumps to increase throughput.
- Sustaining capital incurred in the three months ended
December 31, 2019 of$6.1 million relates primarily to well and facility maintenance.
MIDSTREAM INFRASTRUCTURE DIVISION HIGHLIGHTS
Three months ended | Twelve months ended | |||||
( | 2019 | 2018 | % Change | 2019 | 2018 | % Change |
Revenue | ||||||
Midstream Infrastructure (a) | 94,150 | 105,420 | (11) | 362,148 | 356,350 | 2 |
Oil purchase and resale | 596,073 | 490,295 | 22 | 2,440,071 | 2,239,281 | 9 |
Total Midstream Infrastructure division revenue | 690,223 | 595,715 | 16 | 2,802,219 | 2,595,631 | 8 |
Cost of Sales | ||||||
Midstream Infrastructure excluding items noted below | 40,351 | 39,607 | 2 | 158,836 | 146,767 | 8 |
Depreciation, depletion and amortization | 23,265 | 20,175 | 15 | 86,545 | 81,094 | 7 |
Oil purchase and resale | 596,073 | 490,295 | 22 | 2,440,071 | 2,239,281 | 9 |
Total Midstream Infrastructure division cost of sales | 659,689 | 550,077 | 20 | 2,685,452 | 2,467,142 | 9 |
Segment Profit Margin (1) | 53,799 | 65,813 | (18) | 203,312 | 209,583 | (3) |
Segment Profit Margin (1) as a % of revenue (a) | 57% | 62% | 56% | 59% | ||
(1)Calculated as revenue less cost of sales excluding depreciation, depletion and amortization. Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
- Revenue generated from Midstream Infrastructure services decreased 11% and increased 2% to
$94.2 million and$362.1 million for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods. In the three month period, the decrease in Midstream Infrastructure services revenue from the 2018 comparative period was due to lower processing and disposal volumes tied to lower drilling and completion activity in the WCSB. Additionally, exceptionally volatile commodity price differentials in the fourth quarter of 2018 created increased opportunities for transporting crude by rail and for price optimization at the Corporation's pipeline connected FSTs, resulting in higher revenues generated from the Corporation's rail terminal and crude oil marketing during such period; - Infrastructure additions during the year, including produced water pipelines added at
Gold Creek andTony Creek , crude oil storage atKerrobert andCushing , and thePipestone facility, along with various expansions at existing facilities, partially offset lower revenues during the three months endedDecember 31, 2019 . Additionally, the Corporation realized higher pricing on recovered oil volumes due to a 38% increase in benchmark oil prices inCanada during such period; - During the twelve months ended
December 31, 2019 , the 2% increase in Midstream Infrastructure service revenue from the 2018 comparative period was primarily due to higher volumes associated with new infrastructure. In addition to the above, the Corporation strategically added theGold Creek andTony Creek water disposal facilities at the end of the second quarter of 2018 which are underpinned by committed volumes, and commenced commercial operations at theKerrobert crude oil pipeline system onOctober 1, 2018 , providing a new stable revenue source for the Corporation and expanded commercial marketing opportunities; - Disposal volumes were relatively flat as an 11% and 14% increase in produced water disposal volumes during the three and twelve months ended
December 31, 2019 from the respective 2018 comparative periods was offset by the impact of lower completion-related water volumes and reduced drilling waste disposed at the Corporation's landfills. Increased produced water disposal volumes were driven by the addition of thePipestone facility in the fourth quarter of 2019 and theGold Creek andTony Creek water disposal facilities at the end of the second quarter of 2018, along with expansions to increase water disposal capacity at various other facilities since the start of 2018 through additional disposal wells and improved injection rates. Additionally, SECURE's facilities are strategically located in regions where production levels have not decreased, and where average fluids pumped per well are higher than other regions of the WCSB, driving incremental volumes at SECURE's facilities; - Processing volumes decreased 9% and 21% during the three and twelve months ended
December 31, 2019 from the 2018 comparative periods due primarily to lower processing volumes of drilling waste and completion fluids. Weather related issues during the year, including cold weather in the first quarter, a prolonged spring break-up and unseasonably wet weather throughout the third quarter of 2019, resulted in year over year declines in drilling and completions activity in the WCSB. These issues were compounded by the overall slowdown of oil and gas activity during 2019 due to challenging industry fundamentals stemming from volatile crude oil pricing and uncertainty with respect to the addition of pipeline capacity out of the WCSB. Overall, rig activity in the WCSB declined 29% and 31% during the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods, and well completions decreased 12% and 20% in these same periods; - Oil purchase and resale revenue in the Midstream Infrastructure division increased 22% and 9% to
$596.1 million and$2.4 billion for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods. The increase in the three months endedDecember 31, 2019 relates to higher commodity prices in such period. In the twelve months endedDecember 31, 2019 , the increase is primarily attributable to SECURE's expanded commercial operations, particularly related to theKerrobert crude oil pipeline system; - The Midstream Infrastructure division's segment profit margin decreased 18% to
$53.8 million for the three months endedDecember 31, 2019 from the 2018 comparative period. As a percentage of Midstream Infrastructure services revenue, segment profit margin was 57% for the three months endedDecember 31, 2019 , down from 62% in the 2018 comparative period. The decrease was primarily a result of lower drilling and completion revenue available to absorb ongoing fixed costs at existing facilities during such period, and reduced crude by rail activity as a result of narrower commodity price differentials. Profit margin percentage atCushing was also lower than the Midstream Infrastructure division's historical average, partly due to start-up costs. Additionally, in the fourth quarter of 2018, segment profit margin as a percentage of revenue was higher than the Midstream Infrastructure division's historic average as a result of a favorable service mix, including certain higher margin services that did not re-occur in 2019; - The Midstream Infrastructure division's segment profit margin decreased 3% to
$203.3 million for the twelve months endedDecember 31, 2019 from the 2018 comparative period due primarily to the fourth quarter impacts described above. As a percentage of revenue, segment profit margin was 56% for the twelve months endedDecember 31, 2019 , down from 59% in the 2018 comparative period as a result of service mix, including the addition of new lower margin revenue streams; - General and administrative ("G&A") expenses increased to
$7.2 million and$29.5 million for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods balances of$5.4 million and$25.1 million . Excluding depreciation and amortization, G&A expenses increased 26% and 1% during the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods primarily due to severance costs associated with a reduction in the division's workforce during the fourth quarter to align with activity levels. This impact was partially offset by the impact of IFRS 16 on office leases. The Corporation continues to minimize G&A costs by streamlining operations where possible; - Earnings before tax decreased 42% and 16% to
$23.0 million and$85.5 million for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods. The decrease is a result of lower segment profit margin, and increased depreciation and amortization expense in the 2019 period resulting from new infrastructure put into service as well as theCushing acquisition.
ENVIRONMENTAL SOLUTIONS DIVISION HIGHLIGHTS
Three months ended | Twelve months ended | |||||
( | 2019 | 2018 | % Change | 2019 | 2018 | % Change |
Revenue | ||||||
Environmental Solutions | 20,745 | 29,236 | (29) | 86,831 | 117,060 | (26) |
Cost of Sales | ||||||
Environmental Solutions excluding depreciation and amortization | 15,909 | 22,464 | (29) | 69,252 | 92,242 | (25) |
Depreciation and amortization | 2,037 | 2,093 | (3) | 9,074 | 8,525 | 6 |
Total Environmental Solutions division cost of sales | 17,946 | 24,557 | (27) | 78,326 | 100,767 | (22) |
Segment Profit Margin (1) | 4,836 | 6,772 | (29) | 17,579 | 24,818 | (29) |
Segment Profit Margin (1) as a % of revenue | 23% | 23% | 20% | 21% | ||
(1)Calculated as revenue less cost of sales excluding depreciation and amortization. Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
- The Environmental Solutions division revenue decreased 29% and 26% to
$20.7 million and$86.8 million for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods. Project services revenue decreased as there were fewer large-scale job opportunities in 2019 compared to 2018. In addition, revenue from onsite water management and pumping services were negatively impacted by lower well completion activity in the WCSB. Increases in recurring revenue from scrap metal recycling agreements inFort McMurray combined with new project work in theFort McMurray region partially offset the reduced revenue from the other service lines; - Segment profit margin decreased 29% for both the three and twelve months ended
December 31, 2019 to$4.8 million and$17.6 million from the respective 2018 comparative periods due primarily to lower revenue. As a percentage of revenue, segment profit margin was 23% for the three months endedDecember 31, 2019 , consistent with the prior year comparative period. The Environmental Solutions division's segment profit margin as a percentage of revenue can 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, metal recycling and other services in any given period; - During the three months ended
December 31, 2019 , segment profit as a percentage of revenue benefited from improved project type margins and higher margins associated with revenue generated from theFort McMurray region which offset the impact of reduced completion related water pumping and fracing services. Segment profit margin as a percentage of revenue decreased slightly to 20% in the twelve months endedDecember 31, 2019 , from 21% in the 2018 comparative period primarily due to a lower proportion of revenue from water pumping and fracing services, which typically generates higher margins than project type work; - G&A expense decreased 11% and 18% to
$1.3 million and$6.5 million for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods. The overall decrease is primarily a result of lower personnel costs due to headcount reductions to align staff with activity levels. Additionally, amortization expense decreased as certain intangible assets were fully amortized in the prior year; - The Environmental Solutions division had earnings before tax of
$1.5 million and$2.0 million during the three and twelve months endedDecember 31, 2019 , down from$3.2 million and$8.3 million during the respective 2018 comparative periods. The variances correspond primarily to the decrease in segment revenue and profit margin, offset by the positive impact of reduced G&A expense in the period.
TECHNICAL SOLUTIONS DIVISION HIGHLIGHTS
Three months ended | Twelve months ended | |||||
( | 2019 | 2018 | % Change | 2019 | 2018 | % Change |
Revenue | ||||||
Technical Solutions | 47,119 | 58,100 | (19) | 183,430 | 224,762 | (18) |
Cost of Sales | ||||||
Technical Solutions excluding depreciation and amortization | 38,821 | 48,737 | (20) | 153,118 | 186,232 | (18) |
Depreciation and amortization | 6,616 | 5,670 | 17 | 24,219 | 21,252 | 14 |
Total Technical Solutions division cost of sales | 45,437 | 54,407 | (16) | 177,337 | 207,484 | (15) |
Segment Profit Margin (1) | 8,298 | 9,363 | (11) | 30,312 | 38,530 | (21) |
Segment Profit Margin (1) as a % of revenue | 18% | 16% | 17% | 17% | ||
(1)Calculated as revenue less cost of sales excluding depreciation and amortization. Refer to "Non-GAAP Measures and Operational Definitions" for further information. |
- The Technical Solutions division's revenue decreased 19% and 18% to
$47.1 million and$183.4 million in the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods. The Technical Solutions division's drilling fluids and equipment revenue correlates with oil and gas drilling activity in the WCSB. Rig activity in the WCSB decreased 29% and 31% during the three and twelve months endedDecember 31, 2019 from the 2018 comparative periods. As a result, drilling services revenue was negatively impacted by fewer operating days and rigs serviced. SECURE was able to partially mitigate the impact of reduced activity levels through higher contributions from production chemicals as the Corporation continues to win new bids, and expand its customer base and product offerings; - The Technical Solutions division's segment profit margin decreased 11% and 21% to
$8.3 million and$30.3 million for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods. Segment profit margin as a percentage of revenue was 18% and 17% for the three and twelve months endedDecember 31, 2019 , compared to 16% and 17% for the respective 2018 comparative periods. Improved production services margins resulting from margin improvement initiatives to lower material costs, a favorable product mix, and the adoption of IFRS 16 resulting in the capitalization of certain production chemical blending plants operated under lease agreements offset the impact of reduced drilling fluids and equipment rental revenues and ongoing overhead costs; - Overall G&A expenses decreased 18% and 10% to
$5.2 million and$20.7 million for the three and twelve months endedDecember 31, 2019 from the respective 2018 comparative periods as a result of the Corporation's continued efforts to manage costs efficiently and proactively while still responding to customer demands and activity levels. Additionally, G&A expenses during the three months endedDecember 31, 2018 included severance payments made related to a reduction of the division's workforce to align with activity levels; - The Technical Solutions division had losses before tax of
$3.5 million and$14.6 million during the three and twelve months endedDecember 31, 2019 , compared to losses of$2.6 million and$5.8 million in the respective 2018 comparative periods. These variances were primarily a result of lower segment profit margin as described above.
REPORTING CHANGES
The Corporation adopted IFRS 16 as at the effective date of
The Corporation elected the modified retrospective transition approach, which provides lessees a method for recording existing leases at adoption with no restatement of prior period financial information. Under this approach, a lease liability was recognized at
Adoption of the new standard at
FINANCIAL STATEMENTS AND MD&A
The Corporation's audited consolidated financial statements and notes thereto for the year ended
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 or implies forward-looking statements pertaining but not limited to: management's expectations with respect to the business, financial prospects and future opportunities for the Corporation; the Corporation's growth and expansion strategy; the Corporation's ability to continue to grow the business organically and execute on strategic growth opportunities based on current financial position; sales process for the divestiture of specific service lines that do not have recurring or production-related revenue streams, including outcome of the sales process, proceeds and timing of proposed divestitures, and the announcements, anticipated proceeds and use of proceeds therefrom; the Corporation's proposed 2020 capital expenditure programs including growth and expansion and sustaining capital expenditures, and the timing of completion for projects, in particular the East Kaybob oil pipeline system; the benefits of long-term contracts and commitments entered into by SECURE for its projects and facilities, in particular at the
Forward-looking statements concerning expected operating and economic conditions are based upon prior year results as well as the assumption that levels of market activity and growth will be consistent with industry activity in
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 and foreign exchange 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
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 for the year ended
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
ABOUT SECURE
SECURE is a publicly traded energy business listed on the
The Corporation owns and operates a network of over fifty midstream facilities throughout key resource plays in western
TSX Symbol: SES
i Refer to the "Non-GAAP Measures and Operational Definitions" section herein.
ii As defined in the Corporation's lending agreements. Refer to the MD&A for details on the Corporation's covenant calculations.
iii IFRS 16 was adopted by the Corporation on
iv Refer to the "Non-GAAP Measures and Operational Definitions" section herein.
SOURCE
© Canada Newswire, source