(TheNewswire)
Calgary, Alberta – TheNewswire - July28, 2021 - ( TSX:SHLE )
Source Energy Services Ltd. (“Source” or the “Company”) ispleased to announce its 2021 second quarter financial results.
For the three months ended June 30, 2021, Source achieved thefollowing:
-
- grew market share in the Western Canadian SedimentaryBasin (“WCSB”), realizing sand sales volumes of 557,208 metrictonnes (“MT”) and sand revenue of $58.1 million;
- executed a new customer contract for proppant, Saharaand logistics services with a key exploration and production(“E&P”) company and secured contract extensions with two majorE&P companies, all operating in the Montney;
- achieved utilization of 76% for the Sahara fleetcurrently operating in Canada;
- realized gross margin of $11.7 million and Adjusted Gross Margin (1) of$16.2 million;
- realized Adjusted EBITDA (1) of $12.9million and a net loss of $0.9 million;
- achieved a strong liquidity position, with $3.0million of cash on hand and no draws on the asset backed loan(“ABL”) facility at the end of the quarter; and
- obtained full forgiveness for US$2.1 million ofoutstanding obligations related to proceeds received in 2020 from thePaycheck Protection Program of the Coronavirus Aid, Relief, andEconomic Security Act (the “PPP Loan”).
Note :
(1) Adjusted EBITDA and Adjusted GrossMargin (including on a per MT basis) are not defined under IFRS, referto ‘Non-IFRS Measures’ below.
Three months ended June 30, | Six months ended June 30, | |||
($000’s, except MT and per unit amounts) | 2021 | 2020 | 2021 | 2020 |
Sand volumes (MT) (1) | 557,208 | 122,375 | 1,202,774 | 884,697 |
Sand revenue | 58,098 | 12,826 | 124,213 | 95,845 |
Wellsite solutions | 14,033 | 2,313 | 28,154 | 14,426 |
Terminal services | 605 | 762 | 2,258 | 2,093 |
Sales | 72,736 | 15,901 | 154,625 | 112,364 |
Cost of sales | 56,526 | 12,485 | 120,145 | 89,141 |
Cost of sales – depreciation | 4,528 | 3,241 | 12,110 | 16,671 |
Cost of sales | 61,054 | 15,726 | 132,255 | 105,812 |
Gross margin | 11,682 | 175 | 22,370 | 6,552 |
Operating expense | 4,048 | 2,237 | 7,766 | 6,534 |
General & administrative expense | 2,390 | 3,399 | 4,994 | 5,955 |
Depreciation | 2,326 | 3,798 | 5,111 | 8,055 |
Income (loss) from operations | 2,918 | (9,259) | 4,499 | (13,992) |
Total other expense | 3,790 | 6,932 | 10,757 | 156,196 |
Loss before income taxes | (872) | (16,191) | (6,258) | (170,188) |
Deferred tax expense | — | — | — | 31,350 |
Net loss (2) | (872) | (16,191) | (6,258) | (201,538) |
Net loss per share ($/share) (3) | (0.06) | (3.16) | (0.46) | (40.07) |
Diluted net loss per share ($/share) (3) | (0.06) | (3.16) | (0.46) | (40.07) |
Adjusted EBITDA (4) | 12,947 | (2,068) | 25,621 | 12,542 |
Sand revenue sales/MT | 104.27 | 104.81 | 103.27 | 108.34 |
Gross margin/MT | 20.97 | 1.43 | 18.60 | 7.41 |
Adjusted Gross Margin (4) | 16,210 | 3,416 | 34,480 | 23,223 |
Adjusted Gross Margin/MT (4) | 29.09 | 27.91 | 28.67 | 26.25 |
Notes : (1) One MT is approximately equal to 1.102 short tons. |
Customers continued to focus on improving frac efficiencies withhigher volumes being required over shorter periods of time. BradThomson, CEO, commented,
“Frac efficiency has become acommon theme for the leading operators in the WCSB. These companieshave come to appreciate that optimal frac efficiency requires acombination of reliable frac sand supply, specialized logisticscapabilities and operational precision at the wellsite. This plays toSource’s strength in that we have the unique ability to enable ourcustomers to achieve these requirements in the most active portions ofthe Montney and the Duvernay. In July, we set new operating recordsthat saw the largest daily sand sales volume in the history of Source,and also set daily sand throughput records at two of our terminalfacilities.”
Rebounding global economies and energy demand drove a thirdconsecutive quarter of higher oil prices and stronger natural gaspricing, favorably impacting activity levels in the WCSB during thesecond quarter. Source realized strong sand sales volumes for theperiod, generating $58.1 million of sand revenue.
Wellsite solutions revenue was $14.0 million for the second quarter.As activity levels are improving in the WCSB, customers are demandinggreater volumes of frac sand over shorter periods of time. Source’sability to consistently meet this challenge with its logisticscapabilities was highlighted in the quarter, as dispatch servicescontinued to execute innovative solutions to meet increased customerdemand. The Sahara units remain a key component in the frac programsof many of Source’s customers resulting in the seven Sahara unitslocated in Canada achieving 76% utilization for the quarter, withSahara demand remaining strong for the balance of this year.
Gross margin was favorably impacted by Source’s focus on maintaininglower costs and improving production efficiencies. Adjusted GrossMargin benefited from strong volumes realized in the quarter and, on aper MT basis, improved by 3% compared to the first quarter of theyear. While substantially all of Source’s sales in the quarter wereunder long-term contracts, the increase in activity levels in thequarter also resulted in higher spot sales. This increased the averagesand price realized in the quarter relative to the first quarter ofthe year.
Adjusted EBITDA was $12.9 million for the quarter, reflecting strongsand sales volumes and a continued focus on maintaining loweroperating costs. Adjusted EBITDA also benefited from forgiveness forthe US$2.1 million outstanding on the PPP Loan, received in the secondquarter of 2020, as well as total proceeds of $0.3 million receivedfrom the Canada Emergency Wage Subsidy program during the period.
Liquidity and Capital Resources
As of June 30, 2021, Source had cash on hand of $3.0 million and under its ABL facility. Source’s credit facility was beingused to support $9.6 million of letters of credit, leaving $28.8million of available liquidity. Source is subject to externallyimposed capital requirements for its credit facility and as of June30, 2021, Source and its subsidiaries were compliant with all of thecovenants of its credit facility.
Previous investment in Source’s processing and logisticsinfrastructure allowed modest capital expenditures in the secondquarter. Capital expenditures were $1.3 million for the period,comprised primarily of overburden removal for mining operations.Additional expenditures were incurred for Sahara enhancements,providing increased unloading capacity, and an investment inproduction equipment that will generate increased yields in Source’ssand processing activities.
Earlier this year, Source published its 2021 ESGreport. Source is committed to operating in a sustainable manner,continually looking to implement efficiencies which will lessen theimpact of Source’s activities on the environment and specifically toreduce greenhouse gas emissions. Source’s objective to go above andbeyond current regulatory requirements is demonstrated by Source’svoluntary enrollment with the Department of Natural ResourcesSustainable Growth Program and Managed Forest Program, Source’srecycling of production water and Source’s participation in theWetlands Hydrology Program. Source has formally adopted a frameworkfrom the Sustainability Accounting Standards Board that providessector-specific guidelines against which Source will benchmark itselfin the relevant areas.
To view Source’s complete 2021 ESG report, please visit www.sourceenergyservices.com .
The strength in crude oil and natural gas prices have allowedSource’s customers to generate strong cash flows and the Companybelieves, given the current commodity price outlook, that customerswill increase capital expenditures in the latter half of 2021, as wellas expand drilling and completion programs in 2022.
Source also continues to be optimistic about industry prospects and inparticular, prospects for natural gas development. This growth innatural gas development will be fueled by the increased demand forWCSB natural gas driven by liquefied natural gas (“LNG”) exportprojects that are currently under construction, the conversion ofcoal- fired power generation facilities to natural gas and increasedgas pipeline capacity. Source also sees natural gas as an importanttransitional fuel that is readily available to support the movement toa less carbon intensive world.
Second quarter results, coupled with its new and extended contracts,affirmed Source’s terminal network and logistics capabilities are akey factor in the success of accelerated frac programs in the Montneyand the Duvernay. In July 2021, Source achieved a new record that sawthe largest daily sand sales volume in Source’s history, as well asdaily sand sales records at two of Source’s terminal facilities.Source is ideally positioned to serve the increase in demand for fracsand and logistics services as activity levels continue to strengthen.
Source continues to focus on increasing its involvement of theprovision of logistics services for other items needed at the wellsitein response to customer requests to expand its service offerings, andcontinues to develop opportunities to further utilize its existingWestern Canadian terminals to provide additional diversification ofits business. Over the longer-term, it is anticipated that these newterminal activities will be a meaningful part of Source’s business.
A conference call to discuss Source’s second quarter financialresults has been scheduled for 7:30 am MST (9:30 am ET) on Thursday,July 29, 2021.
Interested analysts, investors and media representatives are invitedto register to participate in the call. Once you are registered, adial-in number and passcode will be provided to you via email. Thelink to register for the call is on the Upcoming Events page of our website and as follows:
Source Energy ServicesQ2 2021 Results Call
The call will be recorded and available for playback approximately 2hours after the meeting end time, until August 29, 2021, using thefollowing dial-in:
Toll-Free: 1-800-319-6413 | 7288 |
Source is a company that focuses on the production and distribution ofhigh quality Northern White frac sand, as well as the distribution ofother bulk completion materials not produced by Source. Sourceprovides its customers with an end-to-end solution for frac sandsupported by its Wisconsin mines and processing facilities, itsWestern Canadian terminal network, its “last mile” logisticscapabilities and Sahara, a proprietary wellsite mobile sand storageand handling system.
Source’s full-service approach allows customers to rely on itslogistics platform to increase reliability of supply and to ensure thetimely delivery of frac sand and other bulk completion materials atthe wellsite.
These results should be read in conjunction with each of Source’sunaudited condensed consolidated interim financial statements for thethree and six months ended June 30, 2021 and 2020, and Source’saudited consolidated financial statements for the year ended December31, 2020, together with the accompanying notes (the “FinancialStatements”) and its corresponding MD&A for such periods. TheFinancial Statements and MD&A and other information relating toSource, including the Annual Information Form (“AIF”), areavailable under the Company’s SEDAR profile at www.sedar.com . The Financial Statements andcomparative statements have been prepared in accordance withInternational Financial Reporting Standards (“IFRS”) as issued bythe International Accounting Standards Board. Unless otherwise stated,all amounts are expressed in Canadian dollars.
In this press release Source has used the terms Adjusted Gross Marginand Adjusted EBITDA, including per MT, which do not have standardizedmeanings prescribed by IFRS and Source’s method of calculating thesemeasures may differ from the method used by other entities and,accordingly, they may not be comparable to similar measures presentedby other companies. These financial measures should not be consideredas an alternative to, or more meaningful than, net income (loss),gross margin and other measures of financial performance as determinedin accordance with IFRS. For additional information regarding non-IFRSmeasures, including their use to management and investors andreconciliations to measures recognized by IFRS, please refer to theMD&A, which is available online at www.sedar.com and throughSource’s website at www.sourceenergyservices.com .
Certain statements contained in this press release constituteforward-looking statements relating to, without limitation,expectations, intentions, plans and beliefs, including information asto the future events, results of operations and Source’s futureperformance (both operational and financial) and business prospects.In certain cases, forward- looking statements can be identified by theuse of words such as “expects”, “estimates”, “intends”,“anticipates”, “believes”, “continues”, “plans”,“projects” or variations of such words and phrases, or state thatcertain actions, events or results “may” or “will” be taken,occur or be achieved. Such forward-looking statements reflectSource’s beliefs, estimates and opinions regarding its futuregrowth, results of operations, future performance (both operationaland financial), and business prospects and opportunities at the timesuch statements are made, and Source undertakes no obligation toupdate forward-looking statements if these beliefs, estimates andopinions or circumstances should change unless required by applicable law. Forward-looking statements are necessarilybased upon a number of estimates and assumptions made by Source thatare inherently subject to significant business, economic, competitive,political and social uncertainties and contingencies. Forward-lookingstatements are not guarantees of future performance. In particular,this press release contains forward-looking statements pertaining, butnot limited, to: our continued optimism for longer term industryprospects and increased demand for WCSB natural gas driven by LNGexport projects; anticipated improvements in pipeline transportationcapacity, and the conversion of coal fired power generation facilitiesto natural gas; the Company’s view that natural gas is an importanttransitional fuel for the movement to a less carbon intensive world;outlook for operations and sales volumes; expectations respectingfuture conditions; revenue and profitability; industry activitylevels; the impact of COVID-19 or its variants on the global economyand the effect it may continue to have on the Company’s business, liquidity, operations and financial conditionand the pace of any subsequent recovery; industry conditionspertaining to the frac sand industry; the benefits that Source’s“last mile” services provide to customers; expectations regardingcustomer relationships and counterparty risk; the anticipated effectof terminal services on Source’s business; expectations regardingfunding for future working capital and capital expenditures;Source’s planned cash outflows relating to lease commitments andfinancial liabilities; the availability of any additional futurefunding; expectations on Source’s ability to meet their capitalneeds; expectations regarding fluctuations in foreign currency; andexpectations regarding the outcome of legal claims and proceedings,including but not limited to the outcome of Source’s anticipatedclaim for damages related to the structural failure of its Fox Creek Terminal Facility.
By their nature, forward-looking statements involve numerous currentassumptions, known and unknown risks, uncertainties and other factorswhich may cause the actual results, performance or achievements ofSource to differ materially from those anticipated by Source anddescribed in the forward-looking statements.
With respect to the forward-looking statements contained in this pressrelease assumptions have been made regarding, among other things:proppant market prices; future oil, natural gas and LNG prices; futureglobal economic and financial conditions; future commodity prices,demand for oil and gas and the product mix of such demand; levels ofactivity in the oil and gas industry in the areas in which Sourceoperates; the continued availability of timely and safe transportationfor Source’s products, including without limitation, Source’s railcar fleet and the accessibility of additional transportation by railand truck; the maintenance of Source’s key customers and thefinancial strength of its key customers; the maintenance of Source’ssignificant contracts or their replacement with new contracts on
substantially similar terms and that contractual counterparties willcomply with current contractual terms; operating costs; that theregulatory environment in which Source operates will be maintained inthe manner currently anticipated by Source; future exchange andinterest rates; geological and engineering estimates in respect ofSource’s resources; the recoverability of Source’s resources; theaccuracy and veracity of information and projections sourced fromthird parties respecting, among other things, future industryconditions and product demand; demand for horizontal drilling andhydraulic fracturing and the maintenance of current techniques andprocedures, particularly with respect to the use of proppants;Source’s ability to obtain qualified staff and equipment in a timelyand cost- efficient manner; the regulatory framework governingroyalties, taxes and environmental matters in the jurisdictions inwhich Source conducts its business and any other jurisdictions inwhich Source may conduct its business in the future; future capitalexpenditures to be made by Source; future sources of funding forSource’s capital program; Source’s future debt levels; the impactof competition on Source; and Source’s ability to obtain financingon acceptable terms.
A number of factors, risks and uncertainties could cause results todiffer materially from those anticipated and described hereinincluding, among others: the effects of competition and pricingpressures; risks inherent in key customer dependence; effects offluctuations in the price of proppants; risks related to indebtednessand liquidity, including Source’s leverage,restrictive covenants in Source’s debt instruments and Source’scapital requirements; risks related to interest rate fluctuations andforeign exchange rate fluctuations; changes in general economic,financial, market and business conditions in the markets in whichSource operates; changes in the technologies used to drill for andproduce oil and natural gas; Source’s ability to obtain, maintainand renew required permits, licenses and approvals from regulatoryauthorities; the stringent requirements of and potential changes toapplicable legislation, regulations and standards; the ability ofSource to comply with unexpected costs of government regulations;liabilities resulting from Source’s operations; the results oflitigation or regulatory proceedings that may be brought againstSource; the ability of Source to successfully bid on new contracts andthe loss of significant contracts; uninsured and underinsured losses;risks related to the transportation of Source’s products, includingpotential rail line interruptions or a reduction in rail caravailability; the geographic and customer concentration of Source; theimpact of climate change risk; the ability of Source to retain andattract qualified management and staff in the markets in which Sourceoperates; labor disputes and work stoppages and risks related toemployee health and safety; general risks associated with the oil andnatural gas industry, loss of markets, consumer and business spendingand borrowing trends; limited, unfavorable, or a lack of access tocapital markets; uncertainties inherent in estimating quantities ofmineral resources; sand processing problems; implementation ofrecently issued accounting standards; the use and suitability ofSource’s accounting estimates and judgments; the impact ofinformation systems and cyber security breaches; and risks anduncertainties related to COVID-19 or its variants, including changesin energy demand.
Although Source has attempted to identify important factors that couldcause actual actions, events or results to differ materially fromthose described in the forward-looking statements, there may be otherfactors that cause actions, events or results not to be asanticipated, estimated or intended. There can be no assurance thatforward-looking statements will materialize or prove to be accurate,as actual results and future events could differ materially from thoseanticipated in such statements. The forward-looking statementscontained in this press release are expressly qualified by thiscautionary statement. Readers should not place undue reliance onforward-looking statements. These statements speak only as of the dateof this press release. Except as may be required by law, Source expressly disclaims any intention orobligation to revise or update any forward-looking statements orinformation whether as a result of new information, future events orotherwise.
Any financial outlook and future-oriented financial informationcontained in this press release regarding prospective financialperformance, financial position or cash flows is based on assumptionsabout future events, including economic conditions and proposedcourses of action based on management’s assessment of the relevantinformation that is currently available. Projected operationalinformation contains forward-looking information and is based on anumber of material assumptions and factors, as are set out above.These projections may also be considered to contain future orientedfinancial information or a financial outlook. The actual results ofSource’s operations for any period will likely vary from the amountsset forth in these projections and such variations may be material.Actual results will vary from projected results. Readers are cautionedthat any such financial outlook and future-oriented financialinformation contained herein should not be used for purposes otherthan those for which it is disclosed herein. The forward-lookinginformation and statements contained in this document speak only as ofthe date hereof and have been approved by the Company’s managementas at the date hereof. The Company does not assume any obligation topublicly update or revise them to reflect new events or circumstances,except as may be required pursuant to applicable laws.
FOR FURTHER INFORMATION PLEASE CONTACT:
Meghan Somers
Communications Advisor
(403) 262-1312 (ext. 295)
communications@sourceenergyservices.com
Investor relations inquiries:
Brad Thomson
Chief Executive Officer
(403) 262-1312 (ext. 225)
investorrelations@sourceenergyservices.com
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