SECURE Energy announces 2019 fourth quarter and year end results
CALGARY, Feb. 24, 2020 – Secure Energy Services Inc. (“SECURE” or the “Corporation”) (TSX – SES) announced today its operational and financial results for the three and twelve months ended December 31, 2019, highlighted by 2019 Adjusted EBITDAi of $180.2 million, or $1.13 per basic share.
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.
In October 2019, the Corporation commissioned the Pipestone facility in the liquids rich Montney region of Alberta. The facility includes a produced water pipeline connecting directly from our anchor customer’s battery. The facility has multi‑year contracted volumes through facility and area dedications, providing reliable cash flows over the contract term.
New produced water pipelines
In addition to the produced water pipeline at Pipestone, SECURE added three other produced water pipelines in the year, connecting producer batteries/gas plants to SECURE’s midstream infrastructure at Gold Creek (two) and Tony Creek (one). These pipelines include long-term committed volumes from anchor tenants, resulting in a reliable rate of return on the investment, and driving volumes to our facilities. SECURE also has a fifth produced water pipeline, tying in produced water volumes to our 13 Mile facility in North Dakota.
Operational success at Kerrobert
In October 2018, SECURE commenced commercial operations at the Corporation’s first owned and operated oil feeder pipeline system and receipt terminal, located in the Kindersley Kerrobert region of Saskatchewan. The system gathers crude oil from multiple oil producers and transports the product to SECURE’s new Kerrobert terminal. From the terminal, the product is delivered onto the Enbridge mainline at Kerrobert. The oil feeder pipeline system includes area dedication and contracted volumes on both an annual and cumulative term basis over a 10‑year term resulting in a stable revenue source for the Corporation through pipeline tariffs. In 2019, SECURE completed the construction of two 130,000 barrel tanks, increasing the total crude oil storage at the Kerrobert terminal to 420,000 barrels resulting in increased operational flexibility and expanded commercial opportunities.
The performance of the Kerrobert crude oil pipeline system surpassed expectations during the year. Operational highlights include:
- 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 Alberta to gather light oil and condensate from multiple producers and transport the product to the Corporation’s Fox Creek facility. Several producer facilities will be tied into the pipeline system by way of four-inch diameter lateral pipelines, joining together into a six-inch line stretching approximately 25 kilometres to the Fox Creek facility. In total, the system will span approximately 120 kilometres. Construction commenced during the fourth quarter of 2019 and the pipeline system is expected to be operational by mid-2020, subject to timing of receipt of regulatory approvals or unanticipated delays.
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 Fox Creek facility. For our customers, the elimination of hauling product by truck is expected to positively impact their respective operating costs, safety and emissions.
Cushing storage acquisition
In April 2019, the Corporation completed two tuck-in acquisitions to secure crude oil storage at Cushing, Oklahoma. The acquisitions included a 27% interest in a crude oil storage facility and a 51% interest in an adjacent 80-acre parcel of undeveloped land. The storage facility was constructed in 2015 and is strategically located on 10 acres of land in South Cushing with long-term connection agreements in place, and provides connectivity to all major inbound and outbound pipelines in Cushing. Having access to multiple Canadian crude streams and well-connected infrastructure at hubs across North America is expected to benefit our customers’ ability to access markets at the optimum price and significantly expands SECURE’s commercial revenue generating opportunities.
SECURE’s majority investment in the 80-acre parcel of land provides the Corporation with significant optionality to develop additional midstream infrastructure at Cushing.
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 Peters & Co. Limited as financial advisors for the sales process. The sales process continues to advance, and the Corporation presently expects to conclude any divestitures by the end of 2020. Based on current market conditions and the views of our advisors, aggregate proceeds for these divestures are anticipated to range from $100 million to $200 million depending on which service lines are divested.
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.
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.
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 $50 million and relates primarily to completing construction of the East Kaybob oil pipeline system and other small expansion projects. Sustaining capital is expected to be approximately $20 million for 2020. In addition, the Corporation expects to incur approximately $10 million in 2020 for office construction costs due to a new sub-lease arrangement which will significantly lower our future rent and operating costs over the next 12 years.
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 December 31, 2019 (“AIF”) under the heading ‘Risk Factors’.
Adjusted EBITDA of $1.13 per share
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 December 31, 2019, SECURE achieved Adjusted EBITDA of $180.2 million, equal to $1.13 per share, down 3% compared to 2018.
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 $183.6 million, up 1% from 2018. This increase was offset by reduced contributions from the Corporation’s Technical Solutions and Environmental Solutions divisions as a result of lower drilling and completion activity in the Western Canadian Sedimentary Basin (“WCSB”) as over half of the service lines provide drilling and completion-related services. Activity levels were hampered by weather-related issues during several months of the year, compounded by the overall impact of reduced capital budgets as producers employ increased financial and capital discipline. Overall, the active rig count and wells completed were down 31% and 20% respectively during 2019 from 2018.
Read More: https://secure-energy.mediaroom.com/2020-02-24-SECURE-Energy-announces-2019-fourth-quarter-and-year-end-results