SECURE Energy Services Announces Results for the Third Quarter Ended September 30, 2015

CALGARY, Nov. 5, 2015 /CNW/ - Secure Energy Services Inc. ("Secure" or the "Corporation") (TSX – SES) today announced operational and financial results for the three and nine months ended September 30, 2015. The following should be read in conjunction with the management's discussion and analysis ("MD&A") and the condensed consolidated financial statements and notes thereto of Secure which are available on SEDAR at www.sedar.com.

OPERATIONAL AND FINANCIAL HIGHLIGHTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2015

During the three and nine months ended September 30, 2015, Secure realized adjusted EBITDA of $35.4 million and $94.8 million, respectively.   While financial results continue to be negatively influenced by reduced oil and gas activity levels due to low crude oil prices, both the PRD and OS divisions continued to show stable cash flows during the third quarter of 2015 on the back of production related volumes, ongoing project work, and integrated service offerings. The continued weakness in commodity pricing had the most significant impact on the DS divisional results as operations are tied directly to drilling activity. During the third quarter, the DS division results were lower based on continued muted drilling activity following spring break-up, as evidenced by industry rig counts declining 51%, while meters drilled declined 44% from 2014. Furthermore, the DS division incurred an additional $2.8 million in fixed costs year to date associated with new services offered relating to production chemicals and chemical enhanced oil recovery, which primarily related to the third quarter of 2015.

Throughout 2015, Secure has taken measures to minimize future costs by streamlining operations and appropriately managing general and administrative expenses in the current oil and gas price environment. As part of this initiative, Secure was also able to minimize the impact on margins in the divisions by working with customers in order to find more efficient ways to manage their fluids and solids through more integrated offerings, volume-based contracts and reducing costs where it did not impact safety, operations and environmental performance. These initiatives included a further reduction to the Corporation's workforce in the third quarter by approximately 6% in an effort to eliminate redundant positions or positions significantly impacted by the decline in activity. In addition, Secure decided to exit the U.S. drilling fluids and drilling equipment rental market as the Corporation determined that having a market share of less than 5% did not provide the economies of scale to compete in both North Dakota and Colorado.  For these services to be profitable, the Corporation determined more investment was required to gain these economies of scale. Given the opportunities in Canada and the rates of return achievable in less cyclical businesses, the Corporation determined it was prudent to wind down the drilling services business in the U.S. and focus its attention on opportunities in Canada, specifically production chemicals and chemical enhanced oil recovery ("EOR"). The costs to wind down operations and complete remaining work are shown as restructuring costs and are excluded from the DS division operating results as they are considered to be non-recurring following the exit of drilling services from the U.S.

In accordance with accounting standards, the Corporation reviews the carrying value of its long-lived assets at each reporting period for indications of impairment. With the significant decline in oil and natural gas prices and the resulting decrease in industry activity, Secure has reviewed the impact on its cash generating units ("CGUs"). Impairment is recognized when the carrying value of an asset or CGU exceeds its estimated recoverable amount, defined as the higher of its value in use or fair value less cost to sell. The recoverable amount of goodwill, intangibles and property plant and equipment was determined using a multi-year discounted cash flow with cash flow assumptions based on expected future results.  Following the assessment, the Corporation realized an impairment on the goodwill and intangibles originally recorded on the acquisition of a crude by rail company in 2014. In addition, the Corporation also recorded impairment related to winding down the drilling service operations in the U.S. As a result, impairment provisions of $62.8 million relating to goodwill, intangibles and property, plant and equipment were recognized. Management is of the opinion that the rail facilities remain as a key alternative for pipelines. However, the current uncertainty surrounding oil and gas prices and activity has created an environment where these assets are considered impaired for accounting purposes.

With the third quarter results, Secure has demonstrated with its current midstream infrastructure that positive cash flows are sustainable at the current oil and gas price and activity levels, and is well positioned to succeed in the event of a long-term economic downturn. The operating and financial highlights for the three and nine month periods ending September 30, 2015 compared to the same periods in 2014 can be summarized as follows:


Three months ended Sept 30,

Nine months ended Sept 30,








($000's except share and per share data)

2015

2014

% change

2015

2014

% change

Revenue (excludes oil purchase and resale) 

148,943

208,743

(29)

431,128

570,065

(24)

Oil purchase and resale 

184,393

 

390,671

(53)

625,324

1,123,500

(44)

Total revenue

333,336

599,414

(44)

1,056,452

1,693,565

(38)

Adjusted EBITDA (1)

35,362

57,438

(38)

94,844

153,393

(38)


Per share ($), basic

0.26

0.48

(46)

0.72

1.29

(44)


Per share ($), diluted

0.26

0.46

(43)

0.72

1.26

(43)

Net (loss) earnings

(53,042)

14,756

(459)

(73,045)

44,309

(265)


Per share ($), basic

(0.39)

0.12

(425)

(0.55)

0.37

(249)


Per share ($), diluted

(0.39)

0.12

(425)

(0.55)

0.36

(253)

Adjusted net (loss) earnings(1)

(1,563)

16,219

(110)

(15,516)

44,540

(135)


Per share ($), basic

(0.01)

0.14

(107)

(0.12)

0.38

(132)


Per share ($), diluted

(0.01)

0.13

(108)

(0.12)

0.37

(132)

Funds from operations (1)

29,808

58,746

(49)

83,055

156,058

(47)


Per share ($), basic

0.22

0.49

(55)

0.63

1.32

(52)


Per share ($), diluted 

0.22

0.47

(53)

0.63

1.28

(51)

Dividends per common share

0.06

0.05

20

0.18

0.14

29

Capital expenditures (1)

29,458

149,878

(80)

97,092

298,953

(68)

Total assets

1,400,438

1,428,857

(2)

1,400,438

1,428,857

(2)

Net debt (1)

143,547

245,737

(42)

143,547

245,737

(42)

Common Shares - end of period 

137,297,777

121,199,763

13

137,297,777

121,199,763

13

Weighted average common shares








basic 

136,944,300

120,048,665

14

131,992,359

118,601,288

11


diluted 

136,944,300

123,736,572

11

131,992,359

121,988,685

8

(1)Refer to "Non-GAAP measures and operational definitions" and "Additional GAAP measures" for further information.


  • REVENUE OF $148.9 and $431.1 MILLION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015
    • Total processing, recovery and disposal volumes at PRD facilities for the three and nine months ended September 30, 2015 remained relatively consistent over the 2014 comparative periods due to production related volumes and the addition of six new facilities subsequent to the third quarter of 2014, offset by the decline in drilling activity and lower recovered oil prices. Crude oil prices in the three and nine months ending September 30, 2015 decreased 53% and 49% from the 2014 comparative periods which negatively impacted recovered oil revenue. Overall, this resulted in the PRD division achieving revenue (excluding oil purchase and resale) for the three and nine months ended September 30, 2015 of $60.9 million and $187.6 million, down 13% and 6% respectively from the 2014 comparative periods;
    • Oil purchase and resale revenue in the PRD division for the three and nine months ended September 30, 2015 decreased by 53% and 44% from the 2014 comparative periods to $184.4 million and $625.3 million. The price of crude oil declined by 53% and 49% for the three and nine months ended September 30, 2015 from the 2014 comparative periods which directly reduced revenues from oil sales and also resulted in fewer volumes of oil being purchased and resold during the period;
    • Activity in the DS division is strongly correlated with oil and gas drilling activity in the Western Canadian Sedimentary Basin ("WCSB") which saw a decline in active rig count for the three and nine months ended September 30, 2015 of 51% and 47% from the 2014 comparative periods. As a result, DS division revenue for the three and nine months ended September 30, 2015 decreased 50% and 48% to $52.0 million and $149.9 million from the 2014 comparative periods. In the third quarter, the DS division increased its market share to 32%, up from the first six months of 2015 where it held a 29% market share;
    • OS division revenue has remained strong for the three and nine months ended September 30, 2015 increasing 1% and 16% to $36.0 million and $93.6 million over the 2014 comparative periods. The overall increase in 2015 is significant considering 20% of the OS division revenue relates to completion activities, where activity levels are substantially lower given the current oil and gas price. The higher revenues that have offset this reduction relates to projects service line work, and the acquisitions completed during 2014. The OS division continues to grow through larger scale project work, diversified and integrated services, and expansion into new geographic areas.
       
  • ADJUSTED EBITDA OF $35.4 MILLION AND $94.8 MILLION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015
    • Diversification and integration across Secure's three divisions has contributed to positive EBITDA for the three and nine months ended September 30, 2015 as certain service lines are not impacted by drilling activity and commodity prices. Adjusted EBITDA for the three and nine months ended September 30, 2015 was $35.4 million and $94.8 million, a 38% decrease from the 2014 comparative periods.  Overall, this result was in line with Secure's expectation given a reduction in drilling activity, primarily affecting the DS division, and reduced crude oil prices impacting both the PRD and DS divisions. These factors were partially offset by the addition of new facilities in 2014 and the first half of 2015 in the PRD division, and the strong performance of the OS division.

  • NET LOSS OF $53.0 MILLION AND $73.0 MILLION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015
    • For the three and nine months ended September 30, 2015, Secure's net loss of $53.0 million and $73.0 million, compared to net earnings of $14.8 million and $44.3 million in the 2014 comparative periods, is a result of the factors discussed above impacting adjusted EBITDA, combined with the following: non-cash impairments of $62.8 million resulting primarily from the write-down of intangible assets and goodwill associated with the Corporation's rail facilities acquired in 2014; increased share-based compensation in the year to date resulting from the timing of grants of options, RSUs and PSUs; increased depreciation expense from new PRD facilities commissioned in 2014 and 2015, partially offset by a change in the estimated useful life of property, plant and equipment at PRD facilities effective January 1, 2015; and increased amortization expense resulting from intangible assets acquired on the eight strategic acquisitions completed during 2014. 

  • ADJUSTED NET LOSS OF $1.6 MILLION AND $15.5 MILLION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015
    • For the three and nine months ended September 30, 2015, Secure's adjusted net loss of $1.6 million and $15.5 million, compared to earnings of $16.2 million and $44.5 million from the 2014 comparative periods, is a result of the factors discussed above impacting net loss, excluding non-cash impairments and other non-recurring charges.
  • 2015 CAPITAL EXPENDITURES
    • Total capital expenditures for the three and nine months ended September 30, 2015 were $29.5 million and $97.1 million, respectively. The Corporation expects a total 2015 capital spend of approximately $115 million, which includes initial costs for a new PRD FST expected to be completed and commissioned in the third quarter of 2016.
    • Major expenditures in 2015 include: 
      • Five facilities were completed and commissioned in the first half of 2015: Tulliby Lake FST, 13 Mile FST conversion, Rycroft FSR, Big Mountain SWD, and Wonowon SWD;
      • Construction of additional landfill cells at the Willesden Green and Pembina Landfills in the second quarter;
      • Commencement of construction of a new PRD full service terminal which is expected to be completed and commissioned in the third quarter of 2016;
      • Pre-design and engineering of future facility locations;
      • Various expansions at existing facilities to increase capacity including treaters, disposal wells and tanks; and
      • Specialized rental equipment for specific OS division projects.

  • FINANCIAL FLEXIBILITY
    • Secure's net debt as at September 30, 2015 was $143.5 million compared to $309.7 million at December 31, 2014. The Corporation has strengthened its balance sheet and increased its financial flexibility to take advantage of opportunities during the current low commodity price environment.
    • Secure's debt to trailing twelve month EBITDA ratio was 1.9 as at September 30, 2015 compared to 2.0 as at December 31, 2014.
    • As at September 30, 2015, the Corporation had $427.2 million available under its credit facility.

PRD DIVISION OPERATING HIGHLIGHTS


Three months ended Sept 30,

Nine months ended Sept 30,








($000's)

2015

2014

% Change

2015

2014

% Change

Revenue 








PRD services (a)

60,881

69,713

(13)

187,563

199,860

(6)


Oil purchase and resale service

184,393

390,671

(53)

625,324

1,123,500

(44)

Total PRD division revenue

245,274

460,384

(47)

812,887

1,323,360

(39)








Operating Expenses








PRD services

28,928

26,088

11

92,660

76,311

21


Deduct: non-recurring items









Severance and related costs

(119)

-

100

(307)

-

100


PRD services less non-recurring items (b)

28,809

26,088

10

92,353

76,311

21


Oil purchase and resale service

184,393

390,671

(53)

625,324

1,123,500

(44)

Total PRD division operating expenses

213,321

416,759

(49)

717,984

1,199,811

(40)








Operating Margin (1)  (a-b)

32,072

43,625

(26)

95,210

123,549

(23)








Operating Margin (1)  as a % of revenue (a)

53%

63%


51%

62%









(1)Refer to "Non-GAAP measures and operational definitions" for further information.

Highlights for the PRD division included:


  • Revenue of $60.9 million and $187.6 million for the three and nine months ended September 30, 2015, is down 13% and 6% from the 2014 comparative periods. For the three months ended September 30, 2015, industry rig counts declined 51% and meters drilled declined 44% from the 2014 comparative periods. This reduction in activity has resulted in a significant decline in volumes associated with drilling and completion activities. However, offsetting the significant decline in drilling and completion volumes are production related volumes and additional capacity at the Corporation's existing facilities and new facilities constructed in 2014 and 2015.  In addition, Secure's facilities are strategically located in high impact resource plays where producers have remained relatively active in a lower commodity price environment.
  • Processing: Processing volumes for the three and nine months ended September 30, 2015 remained relatively consistent with the 2014 comparative periods, which can be attributed to production related volumes and the addition of new facilities and expansions at existing facilities in the fourth quarter of 2014 and in 2015 to date, including the Brazeau FST in December 2014, and the Tulliby Lake and 13 Mile FSTs in March 2015. The increased volumes from the new facilities and expansions were offset by fewer volumes at existing facilities resulting from the lower drilling and completion activities.
  • Recovery: Recovery revenues have decreased by 16% and 27% for the three and nine month periods ending September 30, 2015 over the 2014 comparative periods as a result of the decline in crude oil pricing of 53% and 49% from the 2014 comparative periods directly impacting recovered oil revenue. In addition to lower recovered oil revenue, a continued compression of crude oil differentials has limited the Corporation's ability to fully utilize its FSR network.
  • Disposal: Disposal volumes for the three and nine months ended September 30, 2015 decreased 15% and 13%, respectively compared to the 2014 comparative period primarily due to a decrease in disposal of drilling waste in Secure's landfills and flow back water from completion activities as described above. Produced water has offset a portion of the decline as the Corporation continues to see more water volumes on maturing producing wells.
  • Oil purchase and resale revenue in the PRD division for the three and nine months ended September 30, 2015 decreased by 53% and 44% from the 2014 comparative periods to $184.4 million and $625.3 million. The price of crude oil declined by 53% and 49% for the three and nine months ended September 30, 2015 from the 2014 comparative periods which directly reduced revenues from oil sales and also resulted in fewer volumes of oil being purchased and resold during the period. 
  • Operating margin as a percentage of revenue for the three and nine months ended September 30, 2015 was 53% and 51% compared to 63% and 62% in the comparative periods of 2014. The impact to the operating margin in 2015 for both the three and nine months ended September 30, 2015 compared to 2014 comparative periods is approximately 8% operating margin impact as a result of lower drilling and completion volumes, reduced recovered oil sales and costs associated with new facilities commissioned in the second quarter of 2015. The remaining margin impact related to fixed costs associated with rail car leases as tightened differentials during the three and nine months ended September 30, 2015 were not favorable to optimize the use of the rail transloading facilities. Overall, the operating margin continues to improve from the first and second quarter of 2015 as the Corporation continues to streamline and optimize operating efficiencies where possible.
  • General and administrative ("G&A") expenses less non-recurring items for the three and nine months ended September 30, 2015 decreased 25% and 7% from the 2014 comparative periods to $5.0 million and $17.3 million as a result of cost saving initiatives undertaken 2015 as the Corporation continues to minimize future costs by streamlining operations in the current oil and gas price environment. Non-recurring items relate to severance payments made to terminated employees.

DS DIVISION OPERATING HIGHLIGHTS


Three months ended Sept 30,

Nine months ended Sept 30,








($000's)

2015

2014

% Change

2015

2014

% Change

Revenue 








Drilling services (a)

52,020

103,481

(50)

149,923

289,737

(48)








Operating Expenses








Drilling services

45,354

77,465

(41)

129,733

217,290

(40)


Deduct: non-recurring items









Inventory impairment

-

-

-

(1,970)

-

100



Severance and related costs

(262)

-

100

(909)

-

100

Drilling services less non-recurring items (b)

45,092

77,465

(42)

126,854

217,290

(42)








Operating Margin(a-b)

6,928

26,016

(73)

23,069

72,447

(68)


Adjust for: non-recurring items









Restructuring (Drilling Services U.S.)

3,481

(2,170)

(260)

4,183

(5,720)

(173)

Operating Margin after Restructuring (1)

10,409

23,846

(56)

27,252

66,727

(59)








Operating Margin after Restructuring (1)  as a % of Canadian revenue 

21%

26%


20%

25%









(1)Refer to "Non-GAAP measures and operational definitions" for further information.

Highlights for the DS division included:

  • Revenue in the DS division is directly correlated with oil and gas drilling activity in the WCSB, most notably active rig counts and meters drilled. As a result, the weakness in commodity pricing and the resulting drop off in activity levels from oil and gas producers had a significant negative impact on the DS division in the three and nine months ended September 30, 2015. For the three and nine months ended September 30, 2015, industry rig counts declined 51% and 47%, while meters drilled declined 44% and 43% respectively, from the 2014 comparative periods. As a result, revenue from the DS division for the three and nine months ended September 30, 2015 decreased 50% and 48% to $52.0 million and $149.9 million from $103.5 million and $289.7 million in the comparative periods of 2014. This decrease in revenues for the three and nine months ended September 30, 2015 was consistent with Secure's expectation given the decline in drilling activity.
  • Drilling fluids and production chemicals: Revenue from the drilling fluids service line for the three and nine months ended September 30, 2015 decreased 52% and 51% from the 2014 comparative periods. The contribution from production chemicals is insignificant as these services were introduced to the market in the third quarter of 2015. The decrease of drilling fluids revenue was a direct result of the decrease in active rig count and meters drilled from the 2014 comparative periods, combined with a decline in the price of oil which reduced revenue earned on oil based drilling fluids sold to customers.
  • Secure has continued to focus on providing customers with innovative solutions for deeper and increasingly technically complex wells. This has enabled the division to achieve a Canadian market share of 30% for the nine months ended September 30, 2015, a slight decrease from 32% in the comparative period. As the rig count has dropped substantially over the 2014 comparative periods, the timing of when customers ramp-up or slow down drilling activities has a significant effect on market share at any point in time as one rig can change the percentage of market share held. 
  • Revenue per operating day increased slightly to $7,504 and $7,575 for the three and nine months ended September 30, 2015 from $7,137 and $7,435 in the comparative periods of 2014. This increase was driven by a 5% and 7% increase in depth per well as customers continue to drill deeper, more complex wells  which requires greater amounts of specialized drilling fluids.
  • Fluids and solids equipment: The fluids and solids equipment revenue is driven by the size of the available equipment fleet, utilization, and rental rates in any given period. Fluids and solids equipment revenues for the three and nine months ended September 30, 2015 have decreased by 56% and 35% over the 2014 comparative periods. The decrease is due primarily to lower utilization of the equipment fleet resulting from a slowdown in industry activity, and pricing pressure on rental rates. All of Secure's unutilized equipment can be put back into service at any time with minimal cost.
  • Operating margin after Restructuring was $10.4 million and $27.3 million, down 56% and 59% compared to the same periods in 2014. The DS division achieved record results in the 2014 comparative periods resulting from strong crude oil prices combined with exceptionally high activity levels resulting from a shorter than normal spring break-up. The DS division's adjusted operating margin for the three and nine months ended September 30, 2015 was impacted by a significant reduction in drilling activity resulting in under-utilized crews, price discounts given to customers to reflect the depressed price of crude oil, losses realized on oil based drilling fluids and the higher cost of specialty chemicals purchased from the U.S. due to foreign exchange fluctuations. Further, the reduction in drilling activity resulted in lower revenues from higher margin complementary products which are used in various types of drilling activities.
  • G&A expense less non-recurring items for the three and nine months ended September 30, 2015 decreased 19% and 12% from the comparative periods of 2014 as a result of cost saving initiatives undertaken 2015 as the Corporation continues to minimize future costs by streamlining operations in the current oil and gas price environment. Non-recurring items relate to the wind-down of the DS operations in the U.S., and severance costs incurred in Canada as the Corporation eliminated positions significantly impacted by the decline in activity.

OS DIVISION OPERATING HIGHLIGHTS


Three months ended Sept 30,

Nine months ended Sept 30,








($000's)

2015

2014

% Change

2015

2014

% Change

Revenue 








OnSite services (a)

36,042

35,549

1

93,642

80,468

16








Operating Expenses








OnSite services

27,189

24,966

9

70,347

58,534

20


Deduct: non-recurring items









Severance and related costs

-

-

-

(116)

-

100

OnSite services less non-recurring items (b)

27,189

24,966

9

70,231

58,534

20








Operating Margin (1)  (a-b)

8,853

10,583

(16)

23,411

21,934

7








Operating Margin (1)  as a % of revenue (a)

25%

30%


25%

27%









(1)Refer to "Non-GAAP measures and operational definitions" for further information.

 

Highlights for the OS division included:

  • Diversified service lines and integrated service offerings, combined with the four strategic acquisitions completed in 2014, delivered strong results in the OS division for the three and nine months ended September 30, 2015. Revenues increased by 1% and 16% to $36.0 million and $93.6 million from $35.5 million and $80.5 million in the 2014 comparative periods. 
  • Projects: Projects revenue for the three and nine months ended September 30, 2015 increased 24% and 48% due to an acquisition completed in April 2014 which added a new geographic area and increased customer base. In addition, there was an increase in large scale demolition and remediation projects that contributed to increased revenues over the 2014 comparative periods. During the quarter, Secure also began a multi-year contract to manage a landfill in northern Alberta and diversified its offerings to industry sectors outside of oil and gas with additions to its customer base. 
  • Environmental services: Environmental services revenue for the three and nine months ended September 30, 2015 increased 29% and 6% from the 2014 comparative periods. Environmental remediation volumes increased year over year and CleanSite bins were added to the rental fleet during 2014 and 2015, increasing revenues from the 2014 comparative periods. In addition, integrated service offerings with the Projects service line has resulted in the award of larger scale projects during the three and nine months ended September 30, 2015.
  • Integrated fluids solutions: IFS revenue for the three and nine months ended September 30, 2015 decreased 51% and 19% from the 2014 comparative periods as a result of decreased industry activity resulting in lower equipment utilization, and pricing pressures resulting from the current economic environment. The decrease was partially offset by one acquisition completed subsequent to the second quarter of 2014 and increased offering of complementary services.
  • The operating margin in the OS division of $8.9 million in the third quarter was 16% lower compared to the prior year due to a slower ramp-up of activity following spring break-up, influenced by muted drilling activity levels and low commodity pricing. The operating margin for the nine months ended September 30, 2015 of $23.4 million was 7% higher than the 2014 comparative period, primarily as a result of increased project revenue in the period. The operating margin as a percentage of revenue for the OS division in both the three and nine months ended September 30, 2015 was 25%, a slight decrease from 30% and 27% in the comparative 2014 periods. Operating margin as a percentage of revenue fluctuates 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, and other services in any given period.  Larger scale and more technically challenging demolition and remediation projects undertaken in the nine months ended September 30, 2015 contributed a higher margin, which partially offset the impact of decreased industry activity and pricing pressures in the Environmental services and IFS service lines. G&A expenses for the three and nine months ended September 30, 2015 increased 1% and 21% to $2.0 million and $6.3 million from $2.0 million and $5.2 million in the comparative periods of 2014. G&A expenses in the nine months ended September 30, 2015 increased due to four acquisitions completed in 2014, an increase in activity and operations in the division and costs associated with moving to a new OS division office in the second quarter of 2014, partially offset by cost saving initiatives taken across the organization. G&A is expected to fluctuate based on the growth and activity of the division. 

OUTLOOK
There continues to be considerable uncertainty with regards to the short-term outlook on commodity prices. This uncertainty will influence activity levels for the remainder of the year and into 2016. The uncertainty has proven that Secure's infrastructure and diversified services continue to perform in a low commodity price environment. Most of Secure's 38 facilities are strategically located in each of the high impact resource plays in Western Canada and North Dakota. The core infrastructure is located in areas where production related volumes continue to support the required need for PRD facilities. Secure expected Drilling Services to be directly impacted by the decline in meters drilled but both PRD and OS have continued to show resilience through these muted activity levels.

Based on current activity levels and commodity prices, Secure expects:

  • Similar drilling and completion activity in the fourth quarter and anticipates that Q4 2015 adjusted EBITDA to be in the range of $25 to $35 million. The range is predicated upon the start of the December holiday drilling slow-down;
  • To gain further traction on new services and products associated with production chemicals and chemical EOR. The EOR pilot project has continued into the fourth quarter and to date Secure has seen positive results. Strategically, both the production chemicals and drilling fluids service lines can be supported by the 7,000 square foot, fully equipped state of the art research laboratory facility to work directly with customers to enhance production and create drilling efficiencies;
  • To incur minimal restructuring costs for the remainder of the year. Costs incurred throughout the year, including costs associated with winding down U.S. drilling services, led to a reduction in headcount to match activity levels, salary rollbacks, role restructuring and office consolidations, creating numerous continuous improvements and operating efficiencies while still maintaining exceptional customer service;
  • Activity and throughput at the Corporation's rail facilities to remain inconsistent. The market for crude-by-rail economics is challenged by narrowing crude spreads and by improved pipeline supply/demand balance. The strategy around rail remains unchanged: offer customers access close to the field level, ship raw versus diluted, provide access to other markets, and provide supplemental capacity to pipelines when they become constrained; 
  • To continue to work with customers on water recycling, storage and logistics. This market continues to expand as producers understand the need to reuse fluids during completion activities. Secure will work with its customers in 2015 and 2016 to execute on field trials and create long-term synergies to reduce the amount of freshwater used in completion activities;
  • To continue its prudent approach to capital spending by allocating capital to projects that generate the highest rates of return, including expansions of existing facilities. The Corporation expects to spend approximately $15 million in the fourth quarter to complete expansions at existing facilities and progress construction of a new FST. Secure will continue to focus on cost controls, which has resulted in a reduction in the capital costs to construct ranging from 15% to 20% in the second half of 2015;
  • Further evaluation and assessment of merger and acquisition opportunities. Secure remains patient to ensure the right acquisitions are executed on to complement existing services and/or expand geographical presence in key operating areas, particularly in the current oil and gas environment.  Over the past few months, expectations and valuations on these opportunities have continued to narrow. Secure has issued letters of intent and has entered into confidentiality agreements to allow further evaluation of these opportunities.

Overall, Secure has a solid balance sheet and is well positioned to respond with solutions and the right people to the market's needs today. When industry activity increases the Corporation will be able to respond quickly and remain agile. Given the Corporation's strong financial flexibility, Secure is preparing for a 2016 capital expenditure program between $50 and $125 million, consisting of new facilities, facility and disposal well expansions and specialized equipment. The range provided allows Secure to optimize rates of return on organic capital versus potential accretive acquisition opportunities that may arise under current market conditions.

FINANCIAL STATEMENTS AND MD&A
The interim condensed consolidated financial statements and MD&A of Secure for the three and nine months ended September 30, 2015 are available immediately on Secure's website at www.secure-energy.com. The interim condensed 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 to: corporate strategy; goals; general market conditions; the oil and natural gas industry; activity levels in the oil and gas sector, including market fundamentals and the impact to each division on revenue and operating margins, drilling levels, commodity prices for oil, natural gas liquids ("NGLs") and natural gas; industry fundamentals for the fourth quarter of 2015; capital forecasts and spending by producers; demand for the Corporation's services; expansion strategy; the impact of the reduction in oil and gas activity on 2015 activity levels; revenue and operating margin for the PRD, DS and OS divisions; the amount of the revised 2015 capital program; the amounts of the PRD, DS and OS divisions' proposed 2016 capital expenditure programs and the intended use thereof; debt service; completion of facilities; the impact of new facilities on the Corporation's financial and operational performance; future capital needs; access to capital; and acquisition strategy.

Forward-looking statements concerning expected operating and economic conditions are based upon prior year results as well as the assumption that increases in market activity and growth will be consistent with industry activity in Canada, and the U.S. and growth levels in 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 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 and its subsidiaries' 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 service industry will result in increased demand for the Corporation's services and its subsidiary'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. 

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.  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 and under the heading "Business Risks" and under the heading 'Risk Factors' in the Corporation's annual information form for the year ended December 31, 2014. 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

(1)   

The Corporation uses accounting principles that are generally accepted in Canada (the issuer's "GAAP"), which includes, International Financial Reporting Standards ("IFRS").  These financial measures are Non-GAAP financial measures and do not have any standardized meaning prescribed by IFRS.  These non-GAAP measures used by the Corporation may not be comparable to a similar measures presented by other reporting issuers.  See the management's discussion and analysis available at www.sedar.com for a reconciliation of the Non-GAAP financial measures and operational definitions. These non-GAAP financial measures and operational definitions are included because management uses the information to analyze operating performance, leverage and liquidity. Therefore, these non-GAAP financial measures and operational definitions should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

ABOUT SECURE ENERGY SERVICES INC.
SECURE is a TSX publicly traded energy services company that provides safe and environmentally responsible fluids and solids solutions to the oil and gas industry.  

The Corporation operates three divisions:

Processing, Recovery and Disposal Division ("PRD"): The PRD division owns and operates midstream infrastructure that provides processing, storing, shipping and marketing of crude oil, oilfield waste disposal and recycling.  Specifically these services are clean oil terminalling and rail transloading, custom treating of crude oil, crude oil marketing, produced and waste water disposal, oilfield waste processing, landfill disposal, and oil purchase/resale service.  Secure currently operates a network of facilities throughout western Canada and in North Dakota, providing these services at its full service terminals, landfills, stand-alone water disposal facilities, and rail transloading facilities.

Drilling Services Division ("DS"): The DS division provides equipment and chemicals for building, maintaining, processing and recycling of drilling, completion and production fluids.  The drilling fluids service line comprises the majority of the revenue for the division which includes the design and implementation of drilling fluid systems for producers drilling for oil, bitumen and natural gas.  The DS division focuses on providing products and systems that are designed for more complex wells, such as medium to deep wells, horizontal wells and horizontal wells drilled into the oil sands.

OnSite Division ("OS"): The operations of the OS division include environmental services which provide pre-drilling assessment planning, drilling waste management, remediation and reclamation assessment services, laboratory services, and "CleanSite" waste container services; integrated fluid solutions which include water management, recycling, pumping and storage solutions; and projects which include pipeline integrity (inspection, excavation, repair, replacement and rehabilitation); demolition and decommissioning and reclamation and remediation of former wellsites, facilities, commercial and industrial properties.

SOURCE Secure Energy Services Inc.

For further information: Secure Energy Services Inc., Rene Amirault, Chairman, President and Chief Executive Officer, Phone: (403) 984-6100, Fax: (403) 984-6101; Allen Gransch, Executive Vice President and Chief Financial Officer, Phone: (403) 984-6100, Fax: (403) 984-6101, Website: www.secure-energy.com, TSX Symbol: SES

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Secure Energy Services Inc.

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