April Investor Update. TSX : SES secure-energy.com

Transcription

1 April 2018 Investor Update TSX : SES secure-energy.com

2 SES: A Leading North American Energy Services Company Three integrated divisions working together to provide solutions at all stages of the energy cycle Processing, Recovery & Disposal (PRD)» Processing oil and gas by-products» Midstream facilities with pipeline access and rail solutions Drilling & Production Services (DPS)» Drilling fluids» Production, frac and EOR chemicals Onsite Services (OS) TSX : SES Common Shares Outstanding (millions) Market Capitalization (billions) 1 $1.4 Enterprise Value (billions) 1,2 $1.7 Dividend Yield ~3% Annualized Dividend per Share $ Based on $8.50 per share 2 Using debt less cash as at Dec. 31, 2017» Environmental services» Recycling, remediation and reclamation» Frac fluid and pumping solutions 2

3 2018/2019 Value Drivers Profit drivers supporting SECURE in achieving its 2018 goals» Over $170 million growth capital spent in 2017» Minimum $100 million on growth capital to be spent in 2018» Pipeline capacity constraints forcing more crude transport via rail» Increasing produced water volumes» Oil and water pipelines connected to Full Service Terminals» Increasing frac intensity drives more flowback water and improves initial production» Drilling fluids and waste in shale resource plays» Onsite frac water management and recycling 3 3

4 PRD Division Competitive Advantage» 49 strategically located facilities in high impact resource plays» Reduced transportation costs for customers Facilities close to customers production Facilities pipeline connected and offer rail transportation» Multiple services offered in one location» Design, build and operate facilities with best-in-class engineering practices and environmental safety standards 4

5 PRD Division Driving Growth in 2018» $140 million of organic growth capital spent in 2016/2017» Frac intensity driving increased flow back waters and incremental crude/condensate/ngl volumes» Produced water market increasing in Western Canada and North Dakota» Water pipeline growth to reduce producers transportation costs» Feeder oil pipelines to optimize producer netbacks 5

6 PRD Canadian & US Footprint Strategically located facilities in high impact resource plays 6

7 Expanding Midstream Infrastructure FST Feeder Pipeline Project» Light oil feeder pipeline system and receipt terminal in the Kindersley- Kerrobert region of Saskatchewan» Expected to be operational in Q4 2018; on schedule and on budget ($75 million)» Contracted volumes on an annual and cumulative basis over 10 years Strategic Rationale» Increased oil volumes from feeder pipelines will drive utilization and efficiencies at SECURE s existing Kindersley FST» Supports SECURE s long-term growth strategy of expanding FST midstream infrastructure through customer partnerships» Supports customer driven initiative of reducing transportation costs 7

8 Full Service Rail Rail has become a viable option as supply exceeds pipeline takeaway capacity» Supply growth outpacing pipeline takeaway capacity in 2018» Crude by rail provides a buffer for pipeline capacity constraints» Driven by WTI/Brent spread, foreign exchange, rail vs. pipe access, differentials, capacity» Full Service Rail (FSR) facilities: Combine treating and storage solutions with rail access Ability to ship raw heavy, light sour, and light sweet crude Loading capacity over 50,000 bbl per day» Railways driving long-term commitments Western Canadian Crude Oil Capacity vs. Supply Forecasts Note: Post 2021, additional pipeline capacity could be added from the Kinder Morgan Trans Mountain Expansion and the Keystone XL pipeline Source: CAPP Crude Oil Forecast 8

9 DPS Division Drilling Fluids Competitive Advantage» Multiple patents, innovative chemical solutions, customized programs for drilling fluids» Technical expertise in long and deep horizontal wells drilling fluids systems» Ability to leverage off PRD infrastructure» Full fleet of solids control equipment provides customers with tailored service packages Driving Growth in 2018» Increased metres drilled will drive higher revenue» Trend towards drilling longer and more complex wells» Industry leader in silicate and brine fluids» Increased customer activity in Montney, Duvernay and SAGD regions 9

10 DPS Division Production Chemicals Competitive Advantage» Industry Leader Products: flow assurance, asset integrity, production optimization, H 2 S, and completion products» Production chemicals acquisition in 2017 fully integrated and added 100 fully formulated proprietary products» Highly qualified employees creating new products in two research labs» Field response time to find new product solutions Driving Growth in 2018» Launching five new products in H1/18 (pre-tested at FSTs to ensure QA/QC)» Enhanced service offerings and product depots utilizing FST network» Leveraging PRD customer base which accelerates market share growth» Product blending facility provides flexibility in manufacturing at lower delivered costs 10

11 OS Division Competitive Advantage» Equipment and expertise to work on projects close to water crossings and/or highly sensitive environmental areas» Offers full suite of services including decommissioning, remediation and reclamation» Operates large scale waste management and recycling programs» Provides full-cycle frac water management solutions» Customer recognized safety excellence award 11

12 OS Division Driving Growth in 2018» Fee-based long-term contracts» Pipeline integrity replacement/remediation requirements» Expanding waste management and recycling in the oil sands market» Expanding NORM service offering» Increasing demand for frac fluid pumping, storage and recycling» Increasing environmental regulatory standards 12

13 Five Year Strategy Work with customers to increase their operating netbacks and capital efficiency Optimize Water» Source multiple types of frac water» Store frac and flowback water» Build and operate pipelines» Recycle and/or dispose» Reduce environmental footprint» Technical solutions to automate water requirements» Strategically located disposal wells» Treat emulsions Maximize Oil» Build and operate terminals and pipelines» Optimize different streams» Optimize associated gas/ngl» Production chemicals to extract more oil» Technical solutions to drill and complete wells more efficiently 13

14 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Fluid Pumped per Well (m 3 ) Long-Term Growth Drivers Processing more fluids and solids in the Montney/Duvernay Region SECURE s Facilities in the Montney/Duvernay Region Average Fluid Pumped per Well Completion in Western Canada and the Montney/Duvernay (Trailing 6 Month Average) 25,000 20,000 15,000 10,000 5,000 0 All WCSB Montney and Duvernay Source: Raymond James, GeoScout 14

15 m 3 /month Long-Term Growth Drivers Increasing produced water driving volumes to injection facilities 700,000 Montney, Duvernay, Deep Basin Injection Facility Volumes 600, , , , , ,000 0 Total Injection Volumes - Montney/Duvernay/Deep Basin 12 Month Moving Average (Total Injection Volumes Montney/Duvernay/Deep Basin) Source: Petronex, SECURE Energy Services 15

16 Q and 2017 Financial Performance by Division Q (% change vs. Q4 2016) Revenue (in $000 s) 2017 (% change vs. 2016) Operating Adj. EBITDA (3) Margin (2) (in $000 s) Q Q (% change vs. Q4 2016) 2017 (% change vs. 2016) PRD (1) 80,611 (+30%) 274,372 (+38%) 58% 57% 42,089 (+34%) 139,602 (+50%) DPS 61,403 (+61%) 205,833 (+85%) 20% 19% 7,515 (+106%) 21,806 (+272%) OS 42,726 (+74%) 123,216 (+48%) 22% 23% 7,455 (+140%) 19,402 (43%) (1) Revenue excludes oil purchase and resale. (2) Figures indicated are operating margin as a percentage of revenue. Operating margin is calculated as the difference between revenue and direct expenses. See Non-GAAP Measures herein. (3) Adjusted EBITDA is defined as earnings before finance costs, taxes, depreciation, depletion, amortization, non-cash impairments, unrealized gain or losses on mark to market transactions, share-based compensation and other income/expense. It also removes the impact of other adjustments that are considered non-recurring in nature. See Non-GAAP Measures herein. 16

17 000 s Quarterly EBITDA and Revenue by Division Q Highlights» Achieved 55% increase in EBITDA vs. Q4 2016» PRD revenue and EBITDA achieving highest fourth quarter to date» EBITDA positively impacted by increasing: Ongoing production related volumes Volumes from facility expansions and acquisitions Drilling & completion activity vs. Q Frac water volumes and services Production Chemicals sales $100,000 $80,000 $60,000 $40,000 $20,000 $- Quarterly EBITDA and Revenue by Division Q Q Q Q PRD EBITDA DPS EBITDA OS EBITDA PRD Revenue DPS Revenue OS Revenue 17

18 2018 Capital Spend Focus on growth and expansion projects» Minimum $100 million forecast for 2018 growth and expansion projects primarily allocated to PRD: Light oil feeder pipeline system to Kindersley FST and onto Kerrobert Terminal Three new SWD facilities in Montney/Duvernay region Capacity expansions at existing facilities Long lead items on various projects» Potential to increase growth and expansion capital up to $150 million in 2018 in response to customer commitments and dependent on timing of regulatory approvals» Targeting highest rates of return projects» $20 million forecast for 2018 sustaining capital 18

19 Free Cash Flow Generation Trailing 12 Month Adjusted EBITDA: $157 Million 1 Free Cash Flow $88M Interest $13M Dividend $37M Sustaining Capital $19M» Trailing 12 Months have provided $88 million in free cash flow. Future free cash flow generated is available to potentially fund the following: Growth & expansion capital Increase dividend Buyback shares Decrease debt: Senior debt to EBITDA ratio of 1.1:1, as at Dec. 31, 2017 Total debt to EBITDA ratio of 1.9:1, as at Dec. 31, 2017 Available borrowing capacity of $260 million as at Dec. 31, 2017» Dividend increased 6% effective January 1, As at December 31, 2017 Cash Taxes $0 19

20 Analyst Coverage Firm Analyst Phone AltaCorp Capital Inc. TBA TBA BMO Capital Markets Michael Mazar Canaccord Genuity Corp. John Bereznicki CIBC World Markets Inc. Jon Morrison Cormark Securities Jason Zhang GMP FirstEnergy Ian Gillies Industrial Alliances Securities Inc. Elias Foscolos National Bank Financial Greg Colman Paradigm Capital Jason Tucker Peters & Co. Limited Jeff Fetterly Raymond James Ltd. Andrew Bradford RBC Capital Markets Benjamin Owens Scotia Capital Inc. Vladislav C. Vlad

21 Forward-Looking Statements and Information This presentation contains "forward-looking statements" and/or "forward-looking information" within the meaning of applicable securities laws (collectively referred to as "forwardlooking statements"). Forward looking statements included or implied herein may include: corporate strategy, future business drivers; environmental and regulatory standards; general market conditions; the oil and natural gas industry; activity levels in the oil and gas sector; drilling levels; commodity prices for oil, NGLs and natural gas; growth in oil and gas production in western Canada; demand for the Corporation's services and products; market share and market expansion; western Canadian oil supply and pipeline capacity; drilling industry trends; expansion strategy; full service rail services; acquisition strategy; the amounts of 2018 capital expenditure programs and the intended use thereof; debt service; capital expenditures; future capital needs; and access to capital. Forward-looking statements concerning expected operating and economic conditions are based upon prior year results as well as assumptions that levels of market activity and growth will be consistent with industry activity in Canada and the U.S. and similar phases of previous economic cycles. Forward-looking statements concerning the availability of funding for future operations are 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 statements concerning the relative future competitive position of the Corporation are 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 matters, the ability of the Corporation to successfully market the Corporation s services, and drilling and production activity in North America 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 industry may change the demand for the Corporation's services. Forward-looking statements concerning the nature and timing of growth are 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 statements 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. Many of these factors, expectations and assumptions are based on management's knowledge and experience in the industry and on public disclosure of industry participants and analysts relating to anticipated exploration and development programs of oil and natural gas producers, the effect of changes to regulatory, taxation and royalty regimes, expected industry equipment utilization in the WCSB and North Dakota, and other matters. The Corporation believes that the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable; however, no assurances can be given that these factors, expectations and assumptions will prove to be correct. 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. 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 discussed below and under the heading "Risk Factors" in the Corporation's Annual Information Form dated March 1, 2018 and in the MD&A for the year ended December 31, 2017 as well as any material change reports and news releases. Although forward-looking statements contained in this presentation 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 and readers are cautioned not to place undue reliance on them. 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: Certain supplementary measures in this presentation do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-gaap measures. These measures are described and presented in order to provide information regarding the Corporation s financial results, liquidity and its ability to generate funds to finance its operations. These measures should not be used as an alternative to IFRS measures because they may not be consistent with calculations of other companies. These non-gaap measures, and certain operational definitions used by the Corporation, are further explained in the Corporation's MD&A for the year ended December 31, Capital Expenditures: Expansion, growth or acquisition capital are capital expenditures with the intent to expand or restructure operations, enter into new locations or emerging markets, or complete a business acquisition. Sustaining capital refers to capital expenditures in respect of capital asset additions, replacements or improvements required to maintain ongoing business operations. The determination of what constitutes sustaining capital expenditures versus expansion capital involves judgment by management. 21