INVESTOR UPDATE SEPTEMBER 2015 TSX: SES SECURE - ENERGY.COM MIDSTREAM, ENVIRONMENTAL & TECHNICAL SOLUTIONS

Transcription

1 INVESTOR UPDATE SEPTEMBER 2015 TSX: SES SECURE-ENERGY.COM MIDSTREAM, ENVIRONMENTAL & TECHNICAL SOLUTIONS

2 A Unique Suite of Integrated Services All three integrated divisions working together to provide 90+ service solutions at all stages of the oilfield lifecycle Processing, Recovery and Disposal (PRD) Processing oil & gas by-products Maximizing the recycling of oil Recycling and disposal of waste fluids Crude oil treatment with pipeline and rail access OnSite Services (OS) Pipeline integrity Environmental services Integrated fluid solutions Drilling Services (DS) Drilling & completion fluids Solids control & specialized equipment Innovative products Completion & production chemicals 2

3 PRD Full Service Terminal (FST) Expansion Fox Creek FST Original Construction: 2009 Fox Creek FST Expansion: 2013/2014 3

4 PRD Class II Oilfield Landfill Engineered oilfield landfill cells have a high-quality, multi-layer liner and environmental monitoring programs. Types of Non-Hazardous Waste: Contaminated Soils Treated FST Solids Sulphur Waste Drill Cuttings Frac Sand 4

5 PRD Canadian & US Footprint 5

6 PRD Market Share Continuing to encourage producers to outsource water and waste handling needs 12% 4% 13% 6% 20% 58% 19% 43% 6% 19% (est.) Producers SECURE Tervita Newalta Other Source: Internal estimates based on WCSB conventional oil & gas byproducts. 6

7 Thousand barrels per day PRD - Full Service Rail (FSR) 7,000 6,000 5,000 4,000 3,000 WCS Takeaway Capacity vs. Supply Forecast* Enbridge AB Clipper Spectra Express TransCanada Keystone Kinder Morgan Trans Mountain TransCanada Energy East TransCanada Energy East (est. 2022) Trans Mountain Expansion (est. 2020) Enbridge Line 3 (est. 2019) Full Service Rail Strategy: View rail as supplemental capacity for enhanced market access Ability to optimize pipelines and/or rail options for customers Close to the well head Ability to ship raw crude vs. diluted crude 2,000 1,000 Enbridge Mainline FSR facilities will combine treating and storage solutions with rail access Existing Pipeline Takeaway Capacity Proposed Pipeline Takeaway Capacity Forecasted Canadian Oil Supply *Source: Internal estimates. 7

8 OS Environmental Services Full cycle pipeline integrity services Technical and environmentally challenging projects Extensive water course crossing services to inspect or repair pipelines Integrated fluid solutions ( IFS ) Full cycle remediation and reclamation services 8

9 OS Integrated Fluid Solutions ( IFS ) 9

10 DS Industry Trends The shift to horizontal drilling has resulted in increased: Metres drilled per well year over year Demand for more complex, technical drilling fluid systems such as oil based systems Increased infrastructure requirements associated with supporting oil based muds Technology demands which require significant R&D resources Risks to the operator requiring high levels of support and specialized equipment $8,000 Revenue per Operating Day $6,000 $4,000 $2,000 $0 (1) (2) (3) (1) (2) (3) YTD 2015 Internally estimated for Marquis Alliance and XL Fluids. DS Division revenue per operating day for the seven months ended December 31, For the six months ended June 30, Note: The Marquis Alliance and XL Fluids acquisitions closed on July 1,

11 DS Integrated Drilling Fluids Solutions Leading market share position in Canada: 32% market share in 2014 Drilling fluids: Oil Based Mud ( OBM ) Conventional Water Based Mud SAGD/Heavy Oil Mud Specialty Brines OBM Blending Plant Completion fluids: Displacement Brines Acids & Solvents Industry Leading Infrastructure: Strategically located OBM blending facilities Specialty chemical blending facilities Own & operate a barite processing plant Manage the back end of the rig: Solids control and oilfield equipment services Target Tanks 43MT Barite Silos 11

12 DS Innovation and R&D Committed to the development and testing of innovative new drilling completion and production fluid products to enhance performance and productivity: Calgary Research Lab Industry leading R&D New 7,000 sq ft research lab in Calgary, AB >20 scientists developing products for drilling, completion, chemical EOR and production >20 patented products OBM Recycling (TCC in South GP) >25 proprietary products & systems OBM Recycling: Recycling oil from oil based mud at our FST facilities Production Chemicals: Heavy oil EOR Conventional oil production 12

13 Production Chemicals & Chemical EOR CDN Market Size Production Chemicals: ~$900 million (CDN) market in Canada Growth expected due to forecasted increase in production Production from mature field require additional chemicals due to increased water production Forecasted growth in thermal heavy oil production will require usage of customized demulsifier blends Chemical EOR: ~$340 million (CDN) market in Canada Mature fields transitioning from primary production to secondary production Chemical EOR floods cost effectively improve oil production while significantly increasing recovery factor 13

14 Production Chemicals & Chemical EOR - Update Production Chemicals: Established infrastructure with experienced professionals Technical resources and labs close to customer activities Significant progress in product development and establishing strategic relationships with suppliers Chemical EOR: Wide range of Chemical EOR products to address customers needs Lab techniques (porous media) allow customers to optimize chemical selection prior to field implementation Pilot project initiated with major producer 14

15 Long-Term Growth Drivers 15

16 000s metres metres drilled per well Long-Term Growth Drilling Activity Western Canada Drilling Activity (1) 30,000 Total Meters Drilled Meters Drilled per Well 3,000 25,000 20,000 15,000 2,500 2,000 1,500 Greater volumes of drilling waste and completion fluid waste per well 10,000 5,000 (2) Edm Par ($CAD/bbl): $ (2) AECO ($CAD/GJ): (1) (2) $3.78 $77.81 $3.78 $95.39 $86.38 $93.10 $94.80 $3.45 $2.26 $3.01 $4.27 $55.70 $2.18 1, Longer and deeper well bores need specialized drilling fluids Source: Daily Oil Bulletin, Data Central Canada and the Canadian Association of Oilwell Drilling Contractors (CAODC). Forecast for 2015 is based on total meters drilled to June 30, 2015 and extrapolated for the second half of the year, and CAODC s forecast for total wells drilled in Based on the average price for each year for using Bloomberg, Shorcan TMX, and NetEnergy and FirstEnergy s 2015 forecasted pricing for oil as at August 28, 2015 and natural gas as at June 25,

17 Produced Volume (MBOE/d) Long-Term Growth Water Volumes Increasing 18,000 16,000 WCSB Oil, Gas & Associate Water Production 14,000 12,000 10,000 Maturing Oil and Gas Reservoirs with mounting water-cuts (average 5% growth/year) 8,000 6,000 4,000 2,000 Treatment and Disposal Services for Oil & Gas byproducts continue to be in high demand Total Water Production Oil Production Gas Production Source: GeoScout. Data based on December 31 year-ends. Data includes production from AB, SK and BC only and does not include oil sands production. 17

18 Value Chain Driving New Services DRILLING Innovative drilling fluids Oil based mud ( OBM ) storage tanks OBM blending and storage at FSTs Recycling of OBM COMPLETIONS Completion fluids Integrated fluid storage/hubs Water recycling solutions PRODUCTION Water recycling solutions Production chemicals Feeder pipelines Storage tanks NORM Solutions WELL WORKOVER & PRODUCTION ENHANCEMENT Optimization fluids Re-completion fluids WELL ABANDONMENT & FACILITY DECOMMISSION Environmental consulting Remediation & reclamation Demolition/metal recycling 18

19 2015 Strategy: Lower Cost Structure & Grow Customer Value PRD Targeted organic growth, based on customer needs Acquire producer facilities Acquire third party facilities DS Leverage integrated sales model Field trials for new products Production chemicals OS Large projects (technical/environmental) Expand Integrated Fluid Solutions ( IFS ) Expand Abandonment/Decommissioning services NORM consulting 19

20 Adj. EBITDA ($ Millions) Adj. EBITDA/FD share Delivering Long-Term Sustainable Growth Vision: The North American leader in energy services that grows shareholder value at 30% per year $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 Adjusted EBITDA/Share CAGR: 56% Adjusted EBITDA CAGR: 92% $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $ (1) See Non-GAAP Measures herein. Adjusted EBITDA (1) (1) Adjusted EBITDA/share $

21 Q Financial Performance Revenue (in $000 s) Q2 15 YoY Change Operating Margin Q2 15 YoY Change Adj. EBITDA 2 (in $000 s) Q2 15 YoY Change PRD 1 57,188 (14%) 48% (12%) 21,570 (37%) Highlights Consistent processing & disposal volumes; offset by decreased recovery revenue due to continued weak crude oil prices. Commissioned two new SWDs and one expansion. DS 29,039 (57%) 8% (16%) (3,496) (135%) Extended spring break-up and continued weak commodity prices reduced customer activity. 53% reduction in rig count and 43% decline in meters drilled. Initiated EOR chemical pilot project. OS 26,306 24% 19% (4%) 2,894 (11%) Strong quarter for project based revenue. Increased demand for large, technically challenging projects. Offset by a decline in IFS revenue due to spring break-up and late ramp-up of drilling activity. (1) Revenue excludes oil purchase and re-sale. (2) Adjusted EBITDA is defined as earnings before finance costs, taxes, depreciation, depletion, amortization, non-cash impairments, 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. 21

22 Corporate Financials For the Three Months Ended June 30, 2015 Q Q % Change ($000 s except per share data) (1) Total Revenue 112, ,690 (28%) Direct Operating Exp. 78,450 94,371 (17%) G&A Exp. 15,029 15,887 (5%) Business Development Exp. 2,271 5,039 (55%) Adjust: Severance (724) - - (2) (1) Adjusted EBITDA 17,507 40,393 (57%) Adjusted EBITDA/share (61%) Wtd. Avg. Shares Outstanding 136,186, ,489,217 15% (1) Excludes oil purchase and resale. (2) Adjusted EBITDA is defined as earnings before finance costs, taxes, depreciation, depletion, amortization, non-cash impairments, 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. 22

23 CAPEX ($MMs) Organic Capital Spending by Year Sustaining Capital Organic Capital Discretionary Capital $ $98 $171 $198 $158 Contributing to 2016 & 2017 EBITDA Discretionary Capex: $50 MM Capex: $100 MM f month lag from organic capital spending to full facility ramp-up. Sustaining Capex: $8 MM 23

24 Strong Balance Sheet and Financial Flexibility Total Credit Facility: $700 MM (1) 1.6X Debt/EBITDA (2) *Note: Current interest rate is less than 3% $446.1 MM $18.2 MM $235.6 MM 0.25 Long-Term Debt/Equity $190 million Net Proceeds from Equity (3) Issuance Amount Drawn on Credit Facility Letters of Credit Available Credit Facility (1) $700 million 4 year term credit facility - $100 million accordion feature. Recently extended the maturity date by one year to September 26, (2) Trailing twelve month EBITDA as of June 30, Debt includes amounts drawn on our credit facility, financial leases and letters of credit. (3) Closed $198 million equity financing March 24, 2015, issuing 13.5 million shares for net proceeds of $190 million. 24

25 SECURE Energy Services Summary Integrated midstream solutions Environmental and recycling solutions Technical drilling solutions Innovation to help the customer 25

26 Corporate Profile Mission: Exceeding the expectations of the oil and gas industry by providing safe, innovative, efficient and environmentally responsible fluids and solids solutions (all dollar values are in Canadian dollars) TSX Symbol Market Capitalization (in $ millions) $1,744 (1) Enterprise Value (in $ millions) $1,993 Basic Shares Outstanding (in millions) (2) Insider + Employee Ownership ~17% (3) 52-Week Price Range $ $27.18 (1) Dividend Yield ~2% Annualized Dividend per Share $0.24 (1) (2) (3) As at June 30, Percentage of shares held by officers, directors and employees of Secure as at March 24, Source: ThomsonOne, June 30, (1) (1) SES 26

27 Analyst Coverage Firm Analyst Phone AltaCorp Capital Inc. Mark Westby BMO Capital Markets Michael Mazar, CA, CFA Canaccord Genuity Corp. John Bereznicki CIBC World Markets Inc. Jon Morrison FirstEnergy Capital Ian Gillies National Bank Financial Greg Colman Paradigm Capital Jason Tucker Peters & Co. Limited Jeff Fetterly, CFA RBC Capital Markets Dan MacDonald Raymond James Ltd. Andrew Bradford, CFA Scotia Capital Inc. Vladislav C. Vlad, MBA, P.Eng TD Securities Scott Treadwell, P.Eng

28 Forward-Looking Statement and Information This presentation contains "forward-looking statements" and/or "forward looking information" within the meaning of applicable securities laws (collectively referred to as "forward-looking statements"). Forward looking statements included or implied herein may include: corporate strategy, vision and mission; environmental and regulatory standards; general market conditions; the oil and natural gas industry; activity levels in the oil and gas sector, including 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; 2015 market share and market expansion; oil supply and pipeline capacity; Drilling Services revenue per operating day; expansion strategy; full service rail services; acquisition strategy; the 2015 capital expenditure forecasts; the amounts of the PRD, DS and Onsite divisions' 2015 capital budgets and the intended use thereof; debt service; dividend level and commitment; capital expenditures; future capital needs; access to capital; completion of facilities in 2014 and 2015; and 2015 market share. Forward-looking statements 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 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 its PRD (as defined herein) services in the Western Canadian Sedimentary Basin ( WCSB ) and its DS division (as defined herein) in the WCSB, Eastern Canada, the Rocky Mountain region (consisting of Colorado, Wyoming, Montana and Utah) and North Dakota and 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 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, eastern Canada, the Rocky Mountain region 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 3, 2015 and in the MD&A of the audited December 31, 2014 financial statements and in the MD&A of our most recent interim financial statements as well as any material change reports and news releases. The Corporation cannot assure investors that actual results will be consistent with the forward-looking statements and readers are cautioned not to place undue reliance on them. 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. 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 Corporation's MD&A of the audited December 31, 2014 financial statements and in the MD&A of our interim financial statements. 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. 28