SECURE Energy announces 2019 fourth quarter and year end results

CALGARY, Feb. 24, 2020 /CNW/ - 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.

2019 ACHIEVEMENTS

Pipestone facility

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.

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 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.

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 $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'.

2019 RESULTS

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.

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. At December 31, 2019, the Corporation had $312.1 million available under these credit facilities, subject to covenant restrictions, up from $148.4 million at December 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 $0.0225 per share monthly dividend and executed on strategic share repurchases under the Corporation's normal course issuer bid ("NCIB"). In aggregate, SECURE returned $43.0 million of cash flow to shareholders through the dividend payments, and purchased and cancelled 5,393,392 common shares of the Corporation ("shares") at a weighted average price per share of $6.44 for a total of $34.7 million under the NCIB. At December 31, 2019, the Corporation had 156,460,158 shares outstanding.

ANNUAL HIGHLIGHTS

The operating and financial highlights for the years ended December 31, 2019, 2018 and 2017 can be summarized as follows:

			Twelve months ended Dec 31,
($000's except share and per share data)			2019	2018	2017
Revenue (excludes oil purchase and resale)			632,409	698,172	603,421
Oil purchase and resale			2,440,071	2,239,281	1,724,787
Total revenue			3,072,480	2,937,453	2,328,208
Adjusted EBITDA ^(1)			180,172	190,521	157,211
Per share ($), 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 ENDED DECEMBER 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 in Canada 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 the Kerrobert crude oil pipeline system which was placed in service October 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 in Canada. 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 the Fort 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 ENDED DECEMBER 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 in Canada 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 ended December 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 in Alberta.
• CAPITAL EXPENDITURES OF $134.7 MILLION FOR THE YEAR ENDED DECEMBER 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 at December 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 at December 31, 2018. In April 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 at December 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 and December 31, 2018. SECURE remains well within compliance of all covenants related to its credit facilities at December 31, 2019.

	Dec 31, 2019	Dec 31, 2018	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 December 31, 2019 and 2018 can be summarized as follows:

				Three months ended Dec 31,
($000's except share and per share data)				2019	2018	% change
Revenue (excludes oil purchase and resale)				162,014	192,756	(16)
Oil purchase and resale				596,073	490,295	22
Total revenue				758,087	683,051	11
Adjusted EBITDA ^(1)				46,894	57,810	(19)
Per share ($), 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 ENDED DECEMBER 31, 2019
• Midstream Infrastructure division revenue (excluding oil purchase and resale) decreased 11% to $94.2 million during the three months ended December 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 ended December 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 ended December 31, 2019 from the 2018 comparative period. The increase is primarily attributable to a 38% increase in average Canadian Light Sweet crude oil prices in the three months ended December 31, 2019 of 2019 over the 2018 comparative period;
• Environmental Solutions division revenue decreased 29% to $20.7 million during the three months ended December 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 in Canada. 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 the Fort 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 ended December 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 ENDED DECEMBER 31, 2019
• Adjusted EBITDA decreased 19% to $46.9 million during the three months ended December 31, 2019 from the 2018 comparative period primarily as a result of lower revenues across all three divisions as described above. Segment profit margin^iv as a percentage of revenue also decreased 5% in the Midstream Infrastructure division from 62% in the three months ended December 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 ENDED DECEMBER 31, 2019
• Net income attributable to shareholders of SECURE decreased 81% to $2.6 million during the three months ended December 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 ENDED DECEMBER 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 Dec 31,			Twelve months ended Dec 31,
($000's)	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 ended December 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 and Tony Creek, crude oil storage at Kerrobert and Cushing, and the Pipestone facility, along with various expansions at existing facilities, partially offset lower revenues during the three months ended December 31, 2019. Additionally, the Corporation realized higher pricing on recovered oil volumes due to a 38% increase in benchmark oil prices in Canada 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 the Gold Creek and Tony Creek water disposal facilities at the end of the second quarter of 2018 which are underpinned by committed volumes, and commenced commercial operations at the Kerrobert crude oil pipeline system on October 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 the Pipestone facility in the fourth quarter of 2019 and the Gold Creek and Tony 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 ended December 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 ended December 31, 2019 from the respective 2018 comparative periods. The increase in the three months ended December 31, 2019 relates to higher commodity prices in such period. In the twelve months ended December 31, 2019, the increase is primarily attributable to SECURE's expanded commercial operations, particularly related to the Kerrobert crude oil pipeline system;
• The Midstream Infrastructure division's segment profit margin decreased 18% to $53.8 million for the three months ended December 31, 2019 from the 2018 comparative period. As a percentage of Midstream Infrastructure services revenue, segment profit margin was 57% for the three months ended December 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 at Cushing 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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 the Cushing acquisition.

ENVIRONMENTAL SOLUTIONS DIVISION HIGHLIGHTS

	Three months ended Dec 31,			Twelve months ended Dec 31,
($000's)	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 ended December 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 in Fort McMurray combined with new project work in the Fort 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 ended December 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 the Fort 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 ended December 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 ended December 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 ended December 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 Dec 31,			Twelve months ended Dec 31,
($000's)	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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 January 1, 2019 which replaced IAS 17, Leases. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

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 January 1, 2019 in respect of leases previously classified as operating leases, measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate at transition. The associated right-of-use assets were measured at amounts equal to the respective lease liabilities, subject to certain adjustments allowed under IFRS 16.

Adoption of the new standard at January 1, 2019 resulted in the recording of additional right-of-use assets and lease liabilities of $33.5 million and $35.9 million, respectively, related to office space, warehouses, surface land, rail cars and certain heavy equipment. The new standard resulted in an increase to Adjusted EBITDA from 2018 of approximately $14.6 million from lease payments previously expensed in cost of sales and general and administrative expenses. The new standard did not materially impact consolidated net income as the depreciation of right-of-use assets and interest and finance costs related to the lease liabilities recognized under IFRS 16 were mostly offset by reductions in operating lease expense, which were previously recognized in cost of sales and general and administrative expenses. The adoption of IFRS 16 had no impact on cash flows. 

FINANCIAL STATEMENTS AND MD&A
The Corporation's audited consolidated financial statements and notes thereto for the year ended December 31, 2019 and 2018 and MD&A for the three and twelve months ended December 31, 2018 and 2017 are available immediately on SECURE's website at www.secure-energy.com. The audited consolidated financial statements and MD&A will be available tomorrow on SEDAR at www.sedar.com.

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 Pipestone and Fox Creek facilities and East Kaybob oil pipeline system; expected benefits customers will receive from our pipeline systems and crude oil storage facilities; key factors driving the Corporation's success; the oil and natural gas industry in Canada and the U.S., including 2020 activity levels, spending by producers and the impact of this on SECURE's activity levels; the impact of new facilities, and new service offerings, potential acquisitions, and prior year acquisitions on the Corporation's future financial results; demand for the Corporation's services and products; industry fundamentals driving the success of SECURE's core operations, including increased outsourcing of midstream work by producers, drilling, completion and production trends, volatile commodity price differentials and limited pipeline capacity, opportunities relating to crude oil logistics, well density and economics for pipeline connecting production volumes to midstream facilities, and global oil and gas demand; debt service; adjustments in our dividend; future share repurchases; expectations that our capital investment, share repurchases and cash dividends will be funded from internally generated cash flows; future capital needs and how the Corporation intends to fund its operations, working capital requirements, dividends and capital program; access to capital; and the Corporation's ability to meet obligations and commitments and operate within any credit facility restrictions.

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 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 the assumption that the 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 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 North America will lead to sufficient demand for the Corporation's services including demand for oilfield services for drilling and completion of oil and natural gas wells, 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 and its subsidiaries' 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.

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 December 31, 2019 and also includes risks associated with general economic conditions in Canada and the U.S.; changes in the level of capital expenditures made by oil and natural gas producers and the resultant effect on demand for oilfield services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; risks inherent in the Corporation's ability to generate sufficient cash flow from operations to meet its current and future obligations; increases in debt service charges; the Corporation's ability to access external sources of debt and equity capital; changes in legislation and the regulatory environment, including uncertainties with respect to implementing binding targets for reductions of emissions and the regulation of hydraulic fracturing services; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; competition; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, and skilled management, technical and field personnel; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; ability to integrate technological advances and match advances of completion; credit risk to which the Corporation is exposed in the conduct of its business; SECURE's ability to complete anticipated divestiture transactions on acceptable terms or at all; updates or changes to SECURE's strategy; risks associated with the possible failure to realize the anticipated synergies in integrating the assets acquired in prior year acquisitions with SECURE's operations; and other factors, many of which are beyond the control of the Corporation.

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 Canada (the issuer's "GAAP"), which includes International Financial Reporting Standards ("IFRS"). Certain supplementary measures in this document do not have any standardized meaning as prescribed by IFRS. These measures are intended as a complement to results provided in accordance with IFRS. The Corporation believes these measures provide additional useful information to analysts, shareholders and other users to understand the Corporation's financial results, profitability, cost management, liquidity and ability to generate funds to finance its operations. However, they should not be used as an alternative to IFRS measures because they do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. See the MD&A available at www.sedar.com for further details, including reconciliations of the Non-GAAP measures and additional GAAP measures to the most directly comparable measures calculated in accordance with IFRS.

ABOUT SECURE
SECURE is a publicly traded energy business listed on the Toronto Stock Exchange ("TSX") providing industry leading customer solutions to upstream oil and natural gas companies operating in western Canada and certain regions in the United States ("U.S.") through its three operating segments: Midstream Infrastructure, Environmental Solutions and Technical Solutions.

The Corporation owns and operates a network of over fifty midstream facilities throughout key resource plays in western Canada, North Dakota and Oklahoma. SECURE's core midstream infrastructure operations generate cash flows from oil production processing and disposal, produced water disposal, and crude oil logistics, marketing and storage.

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 January 1, 2019 and resulted in the reclassification of certain lease payments previously included in the determination of EBITDA to depreciation and amortization expense and interest costs. Refer to the "Reporting Changes" section herein.
^iv Refer to the "Non-GAAP Measures and Operational Definitions" section herein.

SOURCE SECURE Energy Services Inc.

Rene Amirault, Chairman, President and Chief Executive Officer, Phone: [phone], Fax: [phone]; Allen Gransch, Chief Operating Officer, Midstream, Phone: [phone], Fax: [phone]; Chad Magus, Executive Vice President and Chief Financial Officer, Phone: [phone], Fax: [phone], Website: www.secure-energy.com

Related Links

www.secure-energy.ca