(TheNewswire)
Calgary, Alberta - TheNewswire - March9, 2022 – ( TSX:SHLE ) (OTC: SCEYF) SourceEnergy Services Ltd. (“Source” or the “Company”) is pleased toannounce its financial results for the three and twelve months endedDecember 31, 2021.
Economic recovery in 2021 led to a rebound in the demand for crude oiland natural gas, driving strong commodity prices and increasingindustry activity levels. As a result, Source approached record levelsof activity for the year, nearly achieving its historical high fortotal sand sales volumes. Key achievements for the year ended December31, 2021 included the following:
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realized sand sales volumes of 2,483,362 MT and sandrevenue of $258.5 million;
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distributed 2,578,444 MT of proppants and chemicalsthrough Source’s Western Canadian Sedimentary Basin (“WCSB”)terminal network;
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executed three new customer contracts and securedcontract extensions with two major Montney exploration and production(“E”) companies;
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achieved multiple records including new service recordsthat saw the largest daily and the largest monthly sand sales volumein Source’s history;
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increased utilization of the Sahara fleet by 25%,resulting in overall utilization for the year of 65%, including thedeployment of a Sahara unit in the US through the entire fourthquarter of the year;
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realized gross margin of $39.3 million and AdjustedGross Margin (1) of $60.4 million;
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reported net loss of $24.4 million, an improvement of$161.1 million from the same period last year; and
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realized Adjusted EBITDA (1) of$38.6 million.
Note :
(1) Adjusted Gross Margin(including on a per MT basis) and Adjusted EBITDA are not definedunder IFRS, refer to ‘Non-IFRS Measures’ below. For additionalinformation and reconciliations to measures recognized by IFRS, pleaserefer to Source’s MD&A available online a t www.sedar.com .
On the backdrop of an improved commodity price environment, there wereclear indications that larger volumes of frac sand would again be soldwith higher margins. This shift in our business environment has been along time coming, and Source is optimistic that this trend willproduce strong results in the near term.
Three months ended December 31, | Year ended December 31, | |||
($000’s, except MT and per unitamounts) | 2021 | 2020 | 2021 | 2020 |
Sand volumes (MT) (1) | 528,977 | 474,345 | 2,483,362 | 1,968,511 |
Sand revenue | 54,989 | 48,936 | 258,545 | 210,021 |
Wellsite solutions | 11,913 | 9,582 | 57,621 | 36,644 |
Terminal services | 648 | 451 | 3,695 | 3,213 |
Sales | 67,550 | 58,969 | 319,861 | 249,878 |
Cost of sales | 59,290 | 42,650 | 259,429 | 193,033 |
Cost of sales – depreciation | 4,071 | 5,253 | 21,102 | 32,188 |
Cost of sales | 63,361 | 47,903 | 280,531 | 225,221 |
Gross margin | 4,189 | 11,066 | 39,330 | 24,657 |
Operating expense | 4,142 | 3,198 | 16,514 | 12,485 |
General & administrative expense | 1,990 | 1,203 | 9,283 | 9,379 |
Depreciation | 2,426 | 2,647 | 9,873 | 13,860 |
Income (loss) from operations | (4,369) | 4,018 | 3,660 | (11,067) |
Total other expense (income) | 10,197 | (19,997) | 28,063 | 143,049 |
Income (loss) before incometaxes | (14,566) | 24,015 | (24,403) | (154,116) |
Deferred tax expense | — | — | — | 31,350 |
Net income (loss) (2) | (14,566) | 24,015 | (24,403) | (185,466) |
Net earnings (loss) per share ($/share) | (1.08) | 4.58 | (1.80) | (36.81) |
Diluted net earnings (loss) per share ($/share) | (1.08) | 4.58 | (1.80) | (36.81) |
Adjusted EBITDA (3) | 1,656 | 12,161 | 38,587 | 37,721 |
Sand revenue sales/MT | 103.95 | 103.17 | 104.11 | 106.69 |
Gross margin/MT | 7.92 | 23.33 | 15.84 | 12.53 |
Adjusted Gross Margin (3) | 8,260 | 16,319 | 60,432 | 56,845 |
Adjusted Gross Margin/MT (3) | 15.62 | 34.40 | 24.33 | 28.88 |
Notes : |
(1) One MT is approximately equalto 1.102 short tons.
(2) The average Canadian toUnited States (“US”) dollar exchange rate for the three and twelvemonths ended December 31, 2021 was $0.7935 and $0.7978, respectively(2020 - $0.7675 and $0.7454, respectively).
(3) Adjusted EBITDA and AdjustedGross Margin (including on a per MT basis) are not defined under IFRS,refer to ‘Non-IFRS Measures’ below. For additional information and reconciliationsto measures recognized by IFRS, please refer to Source’s MD&Aavailable online at www.sedar.com .
Despite ongoing challenges created by the COVID-19 pandemic thatcontinued through much of 2021, oil and natural gas pricesstrengthened through the year with benchmark oil prices hitting thehighest levels since 2014. This resulted in improved activity levelsin the WCSB, allowing Source to set new daily and monthly salesrecords, add new customers and realize a 26% increase in sales volumesover 2020, generating $258.5 million of sand revenue. Total revenue from wellsite solutions and terminalservices grew 54% over last year, as the demandfor greater volumes of frac sand over shorter periods of timehighlighted Source’s logistics capabilities and the importance ofSahara units in customer frac programs.
Cost of sales, excluding depreciation, benefited from the continuationof certain operational cost reduction initiatives implemented bySource last year, as well as a focus onmaintaining lower costs and improving production efficiencies.However, Source’s results for the year were impacted by lowerproceeds from the CEWS program of $0.7 million, the impact of salesmix changes and higher costs for transportation and freight, due toincreased prices for fuel and a tighter trucking market. These costswere partially offset by the impact of a stronger Canadian dollar onUS dollar denominated costs.
Gross margin was favorably impacted by lower cost of sales -depreciation realized, attributed to a lower asset base resulting fromthe impairment recognized early last year and the benefit realizedfrom the renegotiation of certain lease contracts in 2020, whileAdjusted Gross Margin on a per MT was impacted by higher cost ofsales, as discussed above. The majority of Source’s sales continueto be under long-term contracts; however, strong activity levels alsodrove higher spot sale activities for the year which benefited averagesand price realized, partially offsetting the impact of a strongerCanadian dollar on revenue denominated in US dollars.
An increase in employee compensation expense, the direct result ofimproved activity levels leading to higher incentive compensation,combined with lower proceeds from the CEWS program, drove higheroperating expense for 2021 compared to last year, while general and administrative expense remained relativelyflat to 2020. Adjusted EBITDA was $38.6 million for 2021, a reflectionof the strong sand sales volumes realized; however, Adjusted EBITDAwas unfavorably impacted by the higher costs incurred for diesel andfreight, particularly in the latter half of the year.
Liquidity and Capital Resources
The Company has a banking operating facility, comprised of an assetbacked loan facility (“ABL”), a standby letter of credit facilityand a senior secured term loan (collectively, the “CreditFacility”). As of December 31, 2021, Source had $18.4 million drawnunder its ABL facility. The Credit Facility was also being used tosupport $10.0 million of letters of credit, leaving $12.5 million ofavailable liquidity. Source is subject toexternally imposed capital requirements for its Credit Facility andas of December 31, 2021, Source and its subsidiaries were compliantwith all covenants of its Credit Facility. Source is focused onreducing its debt levels in 2022.
Three months ended December 31, Year ended December 31,
($000’s) | 2021 | 2020 | 2021 | 2020 |
Terminal | — | — | 232 | 43 |
Wellsite solutions | 1,021 | 943 | 1,896 | 1,613 |
Production | 48 | 58 | 919 | 582 |
Overburden removal | 791 | 137 | 3,330 | 1,341 |
Other | 140 | — | 140 | 104 |
Capital expenditures | 2,000 | 1,138 | 6,517 | 3,683 |
Growth capital | 1,113 | 1,001 | 2,220 | 1,722 |
Maintenance and sustaining capital | 887 | 137 | 4,297 | 1,961 |
Capital expenditures | 2,000 | 1,138 | 6,517 | 3,683 |
Capital expenditures for the fourth quarter of 2021 were $2.0 million,an increase from the same period last year driven by an increase inoverburden removal for mining operations, resulting from increasedsand sales volume. For the year ended December 31, 2021, capitalexpenditures increased by $2.8 million compared to the prior year, due to the higher overburden removal andexpenditures for Sahara enhancements, providing increased unloadingcapacity. In 2021, Source also invested in production equipment thatwill generate increased yields in Source’s sand processingactivities.
Source believes its previous investment in processing assets andlogistics infrastructure will allow for modest capital expendituresthrough 2022 and beyond.
Source sold sand volumes of 528,977 MT for the three months endedDecember 31, 2021, generating sand revenue of $55.0 million. Sandrevenue was favorably impacted by higher sand volumes realized withother non-contracted E&P and pressure pumping customers, inaddition to increased sand volumes resulting from new customercontracts, including the execution of a new contract in the fourthquarter of 2021. Average realized sand price, excluding mine gatesales and the impact of the strengthening Canadian dollar on US dollardenominated revenue, increased by $1.67 per MT for the fourth quartercompared to the same period last year.
Wellsite solutions revenue was $11.9 million for the fourth quarter of2021, an increase of 24% or $2.3 million compared to the fourthquarter of 2020. The increase in wellsite solutions revenue was due toa 6% increase in sand volumes trucked to wellsite. Sahara-relatedrevenue benefited from a 58% improvement in days utilized across theeight-unit fleet compared to the fourth quarter of 2020, including afully utilized Sahara unit in the US.
Cost of sales, excluding depreciation, increased by $16.6 million forthe three months ended December 31, 2021, compared to the same periodlast year, primarily driven by higher sandvolumes realized. Cost of sales, excluding depreciation, was impactedby an increase in transportation and freight costs during the quarter,driven by higher volumes and increasing fuel costs, as noted above.Higher production costs were recorded during the fourth quarter of2021, attributed to several factors including the impact of one-timerepair costs and mine yield changes experienced during the year, as well as extreme weather during December whichresulted in a slowdown in rail service, driving higher logistics costsand less operating time at production facilities, compared to the sameperiod last year. A strengthening of theCanadian dollar on US dollar denominated components of cost of salesfavorably impacted cost of sales for the quarter, partially offsettingthe increases noted above. Lower proceeds received from the CEWSprogram of $0.3 million also increased cost of sales for the period,compared to the same period last year. Thefourth quarter of 2020 benefited from warmer weather realized,resulting in increased efficiencies and lower energy costs for theperiod.
For the fourth quarter of 2021, total operating and general andadministrative expense was $6.1 million, an increase of $1.7 million,or 39%, from the fourth quarter of 2020. Operating and general andadministrative expense increased due to higher compensation resultingfrom increased activity levels and lower proceeds from the CEWSprogram. Selling costs increased due to higher royalty costs incurreddriven by higher sand volumes sold compared to the fourth quarter oflast year.
Source is committed to operating in a sustainable manner, continuallylooking to implement efficiencies to lessen the impact of Source’sactivities on the environment and specifically to reduce greenhousegas emissions. Source works closely with its stakeholders to go aboveand beyond current regulatory requirements through initiatives such asvoluntary enrollment with the Department of Natural ResourcesSustainable Growth Program and Managed Forest Program, as well asSource’s production water recycling process.
Source has formally adopted the Sustainability Accounting StandardsBoard (“SASB”) framework that provides sector-specific guidelinesagainst which Source will benchmark itself in environment, social andgovernance (“ESG”) categories. Late last year, Source completedits benchmarking and materiality assessment which will align theCompany’s upcoming annual ESG performance report, expected to bereleased in spring of 2022, with the relevant SASB performanceindicators.
To view Source’s complete 2021 ESG report, please visit www.sourceenergyservices.com .
The growing demand for oil and natural gas globally, coupled with theunder investment in supply over the past few years, resulted in highercrude oil and natural gas prices in 2021 and into 2022. This operatingenvironment allowed Source’s customers to generate strong 2021 cashflows which in turn is expected to result in expanded drilling andcompletion programs in 2022. With the increased activity levels acrossNorth America the frac sand supply and demand fundamentals have been,and are expected to remain, tight for 2022. These fundamentals,coupled with Source’s leading service offerings and logisticscapabilities, have translated into meaningful pricing gains early in2022, a trend that is expected to continue for the balance of theyear.
In the longer-term, Source believes the increased demand for naturalgas, driven by the conversion of coal-fired power generationfacilities, increased natural gas pipeline export capabilities andliquefied natural gas (“LNG”) exports will drive incrementaldemand for Source’s services in the WCSB. Source continues to seeincreased demand from customers that are primarily focused on thedevelopment of natural gas properties in the Montney, Duvernay and Deep Basin. This trend is consistent with our viewthat natural gas will be an important transitional fuel that’scritical for the successful movement to a less carbon intensive world.
In support of the move to a less carbon intensive world, Source hasbegun focusing on exploring and developing economic growthopportunities which transition from traditional fossil fuels to lesscarbon intense energy solutions. As a pathway to diversifying ourbusiness, and to participate in the decarbonization of the economy,Source is advancing opportunities in our own operations as well as atthe well site and at our terminals. Source also continues to focus onincreasing its involvement of the provision of logistics services forother items needed at the wellsite in response to customer requests toexpand its service offerings and to further utilize its existingWestern Canadian terminals to provide additional services. Over thelonger-term, it is anticipated that these opportunities will be ameaningful part of Source’s business.
UPDATED NI 43-101TECHNICAL REPORTS FOR THE MINERAL PROJECTS IN WISCONSIN, UNITEDSTATES
Source is pleased to announce that it has filed with the applicableCanadian securities regulatory authorities updated National Instrument43-101 – Standards of Disclosure for Mineral Projects (“NI43-101”) technical reports for each of its three mineral projects inWisconsin, United States (collectively, the “Technical Reports”).
The Technical Reports have each been prepared with an effective dateof December 31, 2021 and were updated as part of an annual assessmentthat accounts for conventional mining depletion of the mineralresources and include updated production records. The updatedresources do not represent a 100% or greater change in the totalmineral resources.
Mineral resources are not mineral reserves and do not havedemonstrated economic viability. There is no guarantee that all or anypart of the mineral resource will be converted into a mineral reserve.Source has not based its production decisions and ongoing mineproduction on mineral reserve estimates, preliminary economicassessments, prefeasibility studies or feasibility studies. As aresult, there may be an increased uncertainty of achieving anyparticular level of recovery of minerals or the cost of such recoveryand historically projects without any mineral reserves have increaseduncertainty and risk of failure.
Further details with respect to the scientific and technicalinformation contained in this press release are available in theTechnical Reports, which are available under the Company’s SEDARprofile at www.sedar.com .
A conference call to discuss Source’s fourth quarter financialresults has been scheduled for 7:30 am MST (9:30 am ET) on Thursday,March 10, 2022.
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:
Registering for the ResultsConference Call
Source Energy Services Q4 2021 Results Call
The call will be recorded and available for playback approximately 2hours after the meeting end time, until April 10, 2022, using thefollowing dial-in:
Toll-Free: 1-800-319-6413 | 8401 |
ABOUT SOURCE ENERGYSERVICES
Source is a company that focuses on the integrated production anddistribution of high quality Northern White frac sand, as well as thedistribution of other bulk completion materials not produced bySource. Source provides its customers with an end-to-end solution forfrac sand supported by its Wisconsin mines and processing facilities,its Western 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’saudited consolidated financial statements for the years ended December31, 2021 and 2020, together with the accompanying notes (the“Financial Statements”) and its corresponding MD&A for suchperiods. The Financial Statements and MD&A and other informationrelating to Source, including the Annual Information Form (“AIF”),are available under the Company’s SEDAR profile at www.sedar.com . The Financial Statements and comparativestatements have been prepared in accordance with InternationalFinancial Reporting Standards (“IFRS”) as issued by theInternational Accounting Standards Board. Unless otherwise stated, allamounts 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) andgross margin, respectively, which represent the most directlycomparable measures of financial performance as determined inaccordance with IFRS. For additional information regarding non- IFRSmeasures, including their use to management and investors andreconciliations to measures recognized by IFRS, please refer to the‘Non-IFRS Measures’ section of the MD&A, which is availableonline at www.sedar.com and through Source’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”,“anticipates”, “believes”, “continues”, “focus” orvariations of such words and phrases, or state that certain actions,events or results “may” or “will” be taken, occur or beachieved. Such forward-looking statements reflect Source’s beliefs,estimates and opinions regarding its future growth, results ofoperations, future performance (both operational and financial), andbusiness prospects and opportunities at the time such statements aremade, and Source undertakes no obligation to update forward-lookingstatements if these beliefs, estimates and opinions or circumstancesshould change unless required by applicable law. Forward-looking statements are necessarily based upon a numberof estimates and assumptions made by Source that are inherentlysubject to significant business, economic, competitive, political andsocial uncertainties and contingencies. Forward-looking statements arenot guarantees of future performance. In particular, this pressrelease contains forward-looking statements pertaining, but notlimited, to: Source's optimism that the trend of large volumes of fracsand being sold with higher margins will continue; our focus onreducing debt levels in 2022; investments in production equipmentgenerating increased yields in Source's sand processing activities;our belief that will have modest capital expenditures in 2022 andbeyond; Source’s search for efficiencies to implement in order tolessen the impact of Source’s activities on the environment;expectations regarding our 2022 annual ESG performance report; ourexpectation that strong cash flows among Source’s customers in 2021will result in expanded drilling and completion programs in 2022; ourexpectation that frac sand supply and demand will remain tight for2022; increased demand for natural gas, increased natural gas pipelineexport capabilities and LNG exports will drive incremental demand forSource’s services in the WCSB; industry activity levels, includingthe continued increase in demand from customers primarily focused onthe development of natural gas properties in Montney, Duvernay and Deep Basin; the Company’s view that natural gasis an important transitional fuel for the successful movement to aless carbon intensive world; our focus on exploring and developing,and advancement of economic growth opportunities related to thetransition to less carbon intense energy solutions; our focus on andexpectations regarding increasing Source’s involvement in theprovision of logistics services for other wellsite items; outlook forcommodity prices and sales volumes; expectations respecting futureconditions; revenue and profitability; expectations regarding fundingfor capital expenditures; and the availability of any additionalfuture funding.
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 onsubstantially 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 PLEASECONTACT:
Meghan Somers | Brad Thomson |
Communications Advisor | Chief Executive Officer |
(403) 262-1312 (ext. 295) | (403) 262-1312 (ext. 225) |
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