Q3 2021 Secure Energy Services Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the D. C Cure energy Q3, 2021 results conference call.

At this time all lines are in listen only mode.

Following the presentation, we will conduct a question and answer session.

At any time during this call you require immediate assistance, please press zero or zero for the operator.

Call is being recorded on October 29, 2021.

I would now like to turn the call over to Reni Amarelle. Please go ahead.

Thank you Kathy welcome.

Welcome to Superior Energy's conference call for the third quarter of 2021.

Joining me on the call today is Alan branch, our Chief operating officer.

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Our Chief Financial Officer.

And Aneel Agarawala, our VP of IR and Treasury during.

During the call today, we will make forward looking statements and we will refer to certain financial measures that do not have any standardized meaning prescribed by GAAP.

<unk> looking statements reflect the current views of secure with respect to future events and are based on certain key expectation assumptions considered reasonable by secure since forward looking information address future events and conditions by their very nature of the involve inherent risks and uncertainties and actual results could differ materially from those anticipated.

Numerous factors and risks.

Please refer to our forward looking statement disclaimers in our corporate presentation in our third quarter MD&A and in our continuous disclosure documents, including our <unk>.

Joining information circular relating to our transaction with Davita Corporation, and then identify the risks and other factors, which may cause actual results to differ materially from any forward looking statements and identify and define our non-GAAP measures.

Before I begin I just wanted to say how great. It is to see the vaccination rates continue to rise in Alberta and across Canada. However.

We know that COVID-19 hasn't gone away and I assure you at secure we are not letting our guard down the help and our well being of our workforce and our communities remain the company's priority.

This morning, we will review our financial and operational results for Q3 2021, followed by an update on the integration of the <unk> merger and our outlook for the remainder of 'twenty, one and 2022.

We are extremely pleased with the strong results for the third quarter of 2021 hour.

Our first quarter as a combined company demonstrates that as expected our increased size and scope is generating significant EBITDA and free cash flow, which are which we are using to improve our overall leverage and enhancing our ability to deliver strong returns to our shareholders.

Our Q3 results reflect strong performance in both our midstream infrastructure business and environmental and fluid management in line with the increased activity levels in our markets.

Our disciplined and focused on executing on operational excellence, managing cost and achieving business efficiencies helped drive a 184% year on year increase in Q3, adjusted EBITDA to $105 million and up 47% on a per share basis.

Encouraged by this strong momentum throughout the company with increased free cash flow generation capabilities and a strengthened balance sheet, we're well positioned to meet our debt reduction targets at the same time able to capitalize on growth.

And the positive continuing the trend of our industry.

Chad will now walk us through the key highlights of our Q3 results then Alan will review, our integration plan update and operational highlights and finally, I will move into our synergies update and outlook for the remainder of the year and next year.

Thanks, Renee and good morning, everyone.

As Randy noted our Q3 results demonstrate the strength of our combined business and the underlying markets continue to improve.

Adjusted EBITDA of $105 million increase in 34% from the prior year as higher oil prices drove increased activity levels in the areas, where we operate.

Led to higher processing and disposal volumes that our midstream infrastructure facilities higher disposal volumes at our landfills and increased demand for drilling and completion services.

On a pro forma basis Davita unsecured combined are about $93 million of adjusted EBITDA last year in Q3, which also included $19 million of subsidy support our most recent quarter represents a 13% increase over 2000, Twenty's pro forma results and impressive 42% year over year increase when you exclude the.

Wage subsidies.

Secure generated $149 million of discretionary free cash flow over the last 12 months, which includes $76 million in the recent third quarter. Our primary use of free cash flow will generate going forward into Q4, and thrilled 2022 will be on debt repayment.

Once our leverage has been reduced over the medium term our capital allocation priorities will be continuing to pay down debt increasing returns to shareholders spending on growth capital or a balance thereof.

And midstream infrastructure Q3 segment profit margin increased 166% compared to the prior year and was a strong 64% of revenue.

The increase was largely due to our expanded facility footprint as well as higher crude oil pricing and more stable market dynamics, which led.

The increased drilling completion and production volumes.

And environmental and fluid management Q3 segment profit margin increased 240%.

Compared to last year, driven largely by our expanded asset base as well as drilling fluids business, which was positively impacted by a substantial increase in drilling activity compared to 2020.

Higher activity levels also resulted in increased drilling waste volumes of corporations landfill that drive somewhere and Paul resulted in lower leachate handling cost compared to the prior year.

Segment profit margin as a percentage of revenue of 26% was in line with our expectation.

With respect to our capital structure in the last few months, we've issued $340 million of 700, a quarter percent December 2026% unsecured notes that allowed us to redeem $200 million U S of the 11% to Vietnam.

<unk> and interest savings of approximately $9 million per year.

$9 million of interest savings is in addition to the $31 million of addition.

<unk> operational synergies, which benefited adjusted EBITDA and that we have realized for the third quarter.

Our debt structure consists of no near term maturities with the state.

First the fixed notes maturing in December 2025.

Additionally, we have approximately $280 million.

Availability on our revolving credit facility, providing ample liquidity to the company and not maturing until 2020.

I will now pass to Alan to discuss an update on the integration of <unk> operational highlights.

Thanks, Chad good morning, everyone with regards to the update on our integration with Davita. We're extremely pleased with the progress of our integration since closing the transaction on July 2nd.

<unk> realized approximately $31 million to the annualized $31 million on an annualized basis of our 75 million target.

We expect to end the year with approximately 35% to $38 million of realized synergies and remain confident on being able to reach.

$75 million of synergies or more by the end of 2022, we see no change in our cost targets of approximately $30 million to achieve these synergies.

Our business is uniquely positioned to deliver economic and environmental benefits that make the oil and gas industry more efficient and sustainable we will continue to be focused in 2022 on projects that will reduce our customers cost and lower emission as we work with our customers on additional oil and water gathering water and gathering pipeline.

Looking at our operational highlight in Q3, our midstream infrastructure segment saw improved oil prices and higher drilling and completion activity.

In line with our expectation midstream processing facilities are experiencing experiencing increased utilization as higher drilling completion and production volume from increased activity levels that required more treating processing and disposal or water disposal volumes increased 139% from Q3 2020 due to the impact.

The merger as well as the combination of higher activity in 2021 and production shut ins in 2010 and 2020.

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In addition processing volumes have increased 223% and recovery volumes have increased 256% from 2020 as a result of increased production level higher waste processing volumes due to increased drilling and completion activity.

In our environmental and fluid management business is also benefiting from higher commodity prices and increased activity levels and merger greatly enhance the scale of this business segment as we respond to increased activity level.

Project work remained strong and customers love to complete work before winter and we're also continuing to see increased demand for drilling completion and production services within our fluid management segment.

Our weight metal are weak metals and rail service businesses, all performed well in Q3 ferrous metal prices were strong which helped drive volumes in our metal recycling business. We're also pleased with the progress made on increased bad and that remediation and reclamation activity work from the government stimulus packages to help fund the <unk>.

Those are in recognition of warfarin and inactive wells.

We are seeing the impact of inflation on our cost structure and supply chain disruptions, but we are trying to find ways to offset these costs and supply challenges.

We have seen the highest cost pressures in areas such as production chemical drilling fluids electricity and fuel some of these inflationary cost increases happening the pass onto our customers lay.

Labor available availability for our mobile crews and environmental and fluid management business has been challenging Fortunately in our larger Mitch Midstream segment labor is less of an issue due to the nature of our fixed facility network.

We expect to increase the Baronet, mediation and reclamation activity to positively impact our Canadian operations over the term of program, particularly with the environmental management group as a result of higher demand for environmental site assessment onsite abandonment remediation and reclamation management and decommissioning work.

Waste volumes, resulting from these activities will also require additional disposal with the addition of the merged network secures broad geographic coverage of Brazilians across Western Canada are capable of handling this waste.

In Q3, we spent $13 million of capital, which included $10 million of sustaining in line with our expectations, we expect to spend approximately $7 million to $10 million for the remainder of 2021 comprised primarily of sustaining capital.

In terms of 2022 capital spending we're currently undertaking a full evaluation of capital project opportunities and expect to finalize this in Q4, along with our customers as they determine their plans for the coming year, our growth budget will primarily focus on opportunities to connect producers to existing midstream infrastructure to further increase volumes and utilization.

You should not have long term contracted basis.

We expect sustaining capital in 2022 to be approximately $40 million, though we do anticipate we'll need to spend an additional $15 million of sustaining capital on landfill expansion as a result of a significant increase in activity levels and the need for additional landfill cell capacity.

Finally, we have set a 2022 scope one greenhouse gas emissions reduction target of 5%.

I'll now turn it back to Ray to provide some additional highlights and comment on the outlook for the remainder of 2021 and into 2022.

Thanks, Chad and now we are extremely pleased with the results in Q3 and the progress made to date with the <unk> merger and the integration is going very well and delivering exactly the kind of incremental benefits. We had envisioned with a strengthened midstream infrastructure and environmental asset base that provides for enhanced scale and geographic.

Beverage company as a strong deleveraging plan in place that will reduce the combined debt balance over time, our enhanced scale better positions us to optimize existing assets and operations. So that we can add more value to our customers and provides greater optionality in allocating capital through all market environment.

With regards to the competition Bureau process, we understand that work under review with continuing we believe that this merger does not substantially lessened competition in our market and deliver significant efficiencies that benefit the Canadian economy. The tribunal has recently set the dates of the competition here for the second quarter of <unk>.

Next year. After the tribunal is complete and based on recent cases, we expect that a decision will be forthcoming closer to the end of 2022.

Turning to our outlook over the next year, we expect that higher crude oil and natural gas prices should continue to provide significant improvement in overall industry activity in Q4 and into 2022 oil and gas producing countries, including Canada have under spent on developing oil and gas resources since 2014.

For the remainder of 2021 and ended 2022, we expect to see in our operating areas producer capital spend on both maintaining and growing production levels, we anticipate higher year over year discretionary free cash flow for the remainder of 2021 and into 2022 based on the following expectations first increased drilling and completion activity is expected.

It to continue for the remainder of the year since April the monthly active rig counts in the western Canadian sedimentary.

Sedimentary basin has been trending relatively in line with 2019 levels. We expect producers will continue to add production to offset natural declines that occurred in 2020 to maintain flat production levels.

Second we also expect to see contributions to our adjusted EBITDA from the realization up 35% to $38 million in annualized synergies by the end of 2021 and $75 million by the end of 2022.

Third we anticipate increased utilization at midstream processing facilities, and landfills as higher drilling completion and production volumes from the increased activity levels required treating processing and disposal and finally higher abandonment remediation reclamation activity from the government stimulus package to help fund the closure and reclamation.

Orphan inactive wells overall, we remain focused on operational excellence.

Pressing our ESG initiatives deleveraging, our balance sheet and disciplined cost management, while leveraging opportunities to grow our business and provide value for our shareholders and customers.

Clothing, we're extremely happy about the progress already made in these first few months post close and bringing the company together and making the combined company's stronger I would like to thank our employees for all their continued hard work energy and enthusiasm I would also like to thank all our customers and stakeholders for their continued support and partnership.

That concludes our prepared remarks, we would now be happy to take your questions.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.

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One moment. Please for your first question.

Your first question does come from Aaron Macneil from TD Securities. Please go ahead.

Hey, good morning, all thanks for taking my questions I know you reiterated the $75 million in synergy guidance, but now that you've sort of had a chance to look under the hood could you share with us any updated thoughts on <unk>.

Operational optimization or maybe revenue focused opportunities rather than what I assume are mostly cost based synergies that would make up that $75 million.

Hi, Good morning, good morning, Erinn that Alan here.

Yes.

We took our time and planning.

Which areas, we thought we were going to get the most benefit up to $75 million synergy and I would say, we have roughly about 50% of that number and our G&A and that's in terms of employees and public corporate costs.

When we look at operational synergies we.

We do our we have identified a number of facilities, where we believe we can rationalize some of the service line and really take a look at optimizing those facilities, if it's whether or not it's a service line that we want to get higher utilization and we can get that from that facility I think close proximity that's what we're going to do.

I think what we are identifying is when we do shut down these service lines over and above just the operational cost savings that we're going to achieve we're also going to have some redundant equipment something like a centrifuge for example that we know can place at another location and so we are going to get savings beyond just the G&A and the operational.

Cost will get the savings from having that redundant equipment and so.

We did a great job in Q3 of getting a lot of the synergies right out of the gate and those are the G&A corporate lines. The one you can execute very quickly. We're now turning our focus to the operational side, where we can get transportation savings and look at some of these facility rationalizations, but.

But I do believe.

As we get into 2022, we will achieve that.

75, and I believe there are going to be other areas, where I think we can get additional benefit as we get through all aspects of our operation.

Understood and maybe another high level question, but.

At least what I would consider some early successes and positive shareholder feedback on the back of the acquisition.

Do you think secure should continue to be a consolidator.

The companies that maybe don't have the market relevance.

And if so what type of assets or businesses.

Got it.

Well the great thing about.

This merger with Davita was we truly have a network now from.

Nelson.

Southeast ask into North Dakota, and so there's been great geographic coverage both on the midstream in the environmental side of the business, obviously some of that environmental business.

Those into the lower mainland in British Columbia, but also into Ontario.

So I think our strategy on a go forward basis.

Not too many business units out there that we're missing in terms of our toolbox I think it's more of a focus on debt repayment.

Really optimizing what we've got and part of what you've just asked earlier was really.

You're standing all the different business units and where can we get the overlap between various business units to get more out of them. So I would say for right now its just pure focus on getting more out of what we've done.

Understood and maybe on the flip side last question for me can you also give us an update on your view of potential disposition opportunities now that we've started to see a sector recovery and thinking.

Non core assets.

<unk> for sale, a few years back anything noncore or beta or.

Anything that might relate to the competition Bureau.

Yeah, Great Great question and obviously.

The next six months is really again, just understanding how everything fits together because we just don't want to automatically say two years ago. Our view this was noncore and today, it's noncore, we're going to take the time to really understand all the different operational G&A corporate synergies as well as how do we help our customer so.

It's going to take US six months really just to understand how these all fit together and how do we ultimately enhance the customer solution. So don't we really don't want to prejudge that at this time, Eric until we've had time to really understand what we have.

Understood. Thanks, I'll turn it over.

Your next question comes from Patrick Kenny.

National Bank. Please go ahead.

Hey, good morning, guys.

So obviously a lot has changed on the macro front since you announced the deal back in early March.

As you pointed out.

<unk> appear to be adopting a much more prudent capital allocation strategy at this time around I was just curious how do you think that this might impact the dynamic between you guys and your customers, who now have a much cleaner balance sheets.

A lot more excess free cash flow that may not be going directly back into the ground are you seeing any increase in competition from your own customers looking to invest more of their own capital into processing and infrastructure needs or do you still see opportunities to increase your overall market share realm.

To what's currently owned by the producers.

Yes, great Great question.

Alan and his team are all over this because if you think about what went wrong in the last 10 years than we had lots of free cash flow back in 13 and 14. What went wrong was this idea that you go out and spend with you or whether you were secure the producer and spend a lot of capital and not get.

That utilization or not have the economies of scale. So.

I'm really really impressed.

On how the Ceos.

The oil and gas companies are thinking these days in terms of.

If we're going to spend capital whether it's their capital are coming to us to spend our capital how do we get the most out of it and what Youre seeing is really.

US combining two or three anchor tenants together for a facility or a pipeline as opposed to in the past. It was a one off one customer 111 project.

Alan if you want to elaborate on that.

You are talking to the customers everyday on this aspect, yes, I think when you look at our infrastructure and where a lot of the activity is happening in the Montney Duvernay Ace and we're in the heart of where that activity is happening when we locate our infrastructure is close to where the producer is and a lot of our discussions is around.

How do we get that fluid whether its production water completion water, whether it's oil that needs to be treated handle how do we get that to our facilities in the most efficient way and.

A lot of our discussions have been around these water pipelines and oil pipeline, where they can say 50% of their transportation costs. So you know the economics make a lot of sense for these producers to tie in and in some cases, we do have to tie in one or two other anchor tenant but the.

Other on the flip side of that we're also saving on the GHT emissions because youre, taking hundreds of trucks off the road that are there every day burning diesel and that you are moving at a lot more efficiently by putting these pipelines in place.

Okay great.

Appreciate that color guys Thats great.

My second question just relates to the marketing side of the business wondering if you can comment on.

I mean, I know spreads have been relatively tight here for some time, but perhaps there is some tailwind simply from benchmark prices trending higher.

And then maybe a follow on to that now that your operations that are a much larger scale. How are you thinking about expanding.

Horizon, so to speak on the marketing front with respect to.

Accessing new international markets or.

Really becoming a long term shipper on the mainline or Tms mix, just curious how you might be able to take advantage of your increased size and scale.

A marketing perspective.

Well Youre absolutely right I mean, if you think about today.

Sure.

We have 32 pipeline connections.

And really it's optimizing whether its economy or a light sweet light sours some of the heavies trying to help the customer get the best Netback. So if you think back couple of years ago, where we kind of dipped our toe in the water down at Cushing, We still believe that there is a model here where the June.

And mid caps, we can help them consolidate their volumes and get a better net price whether that's.

X.

Ex Cushing, our ex Gulf Coast.

That's still going to I think be part of our long term five year vision because.

The reality is that <unk> will do this on their own but for the junior to mid cap I think theres, a theres a value play that brought us to help them out.

It's not something that.

We're going to go out and spend a lot of money doing but were looking at unique innovative ways to get that barrel from grand Prairie to the Gulf Coast.

And try to ultimately give them a better netback. So stay tuned for that it's certainly something that was part of our five year vision and certainly something that I think as we touch more barrels. So I think it's just it's a natural evolution.

Sounds good thanks, guys I'll leave it there.

Your next question comes from Mr. Vince.

From Stifel. Please go ahead.

Hey, good morning, guys.

So about halfway through the synergies by the end of this year I'm just wondering how should we be thinking about the pace of realizations through 2022.

Michael Good question.

<unk>.

Most or a good portion.

The synergies that we've already realized.

I'll go into more on that.

Corporate overhead side. So lot of those were done that we could do day one.

Now the next phase.

With respect to those synergies will be really through.

And into Q1 once we.

Move the two accounting systems onto one in the line some other.

It infrastructure, so there'll be a little there'll be some more changes at that point in time.

But then really the bigger pieces the operational synergies.

To start two.

Recognize those and a larger matter as well in Q1, and those will be fairly ratable through.

'twenty two.

Okay perfect that's helpful. Thanks.

So pretty strong results across the board, but in particular quite a bit of incremental EBITDA in the <unk> segment as well from the <unk> to assets I mean.

Bit of a silly question, but what would it be fair to say that a lot of that incremental earnings power is stemming from the landfill assets as opposed to some of the other environmental businesses from Davita.

But it kind of goes hand in hand. So you have that you have that project management, where our teams are out there helping.

Remediate reclaim those those various sites and facilities decommissioning some of the old.

Whether it's gas plants and fire pits.

And then the residual sum of the contaminated soil, making the way at the landfills and so it's a great great thing about that that business model is.

When the landfills are busy the projects side of it is quite busy as well so.

I think that will that trend will continue for a long long time.

Alan.

With the recent changes there's government incentives right now, but with the recent changes with the Alberta government maybe elaborate on that why we think it's a 20 year tailwind yes.

There has been a recent announcement.

Berta energy regulator came out and the official guidance is really around 4% to 5%.

Theyre <unk> theyre looking at non producing asset and having those producers clean up 4% to 5% of that balance every year on a reoccurring basis.

And so that's something that a regulatory standard is going to mandate that they do and I think the fact that.

Oil is sitting at $80. These guys have the cash flow to be able to view do this work I mean, obviously I think theyre going to pay attention to the site rehabilitation program that ends at the end of 2022, but I think we will have this reoccurring cleanup.

Imagine thats going to occur over the next 20 years, so great tailwind for that business to continue to clean up some of these these oversight.

Okay perfect. That's all from me I'll turn it back thanks, guys.

Your next question comes from Matthew Weekes from high capital Andy Go ahead.

Hi, Thanks for taking my question I think I'm, just going to ask first of all with what sort of inflation rising and kind of supply chain concerns here, what sort of impact are you seeing so far and do you see going forward and you know where.

Where do you think you'll be able to pass those through a little bit and how are you seeing those conversations go with customers so far.

While the.

Definitely.

Anything to do with <unk>.

Chemical these days.

Our specialty chemicals come from from Asia, and obviously, there is some not only cost pressure there, but there's also just.

I think all chemical companies.

And drilling fluids companies production chemical companies.

We're having a time getting some of the specialty chemicals out of Asia, So that that I don't see any easing of inflationary pressures there.

Certainly the Alan.

Alan alluded to the labor side of it.

I think.

The drillers.

And the Frac crews are going to be increasing wages to attract.

People. So they have enough crews on a go forward basis and that will ripple into some of our other <unk>.

Some of our business units and then obviously.

We're we're processing and recycling business, so guess, what we use a lot of.

We used a lot of natural gas and power and we all know what has happened there so.

We're certainly.

Well aware of we need to get more efficient just generally so some of thats offset by efficiencies and then going into the new year, we will look at any type of an inflationary.

Cost and just sitting down with the various types of.

Customers, but it's probably more prevalent on the on the drilling fluids side and the production chemical right now so thats really been the focus.

Okay. Thanks for the color on that Mike.

My second question is going to be about the competition Bureau, do you see a possibility saddling there or do we assume at this stage that it might be close to a hearing.

Well the way the way it works and just looking at other cases over the last 10 years.

The Bureau, typically sets the schedule as we outlined and then as they have a chance to do more work and there is more evidence that gets shown to them. There are there are.

Situations, where we've seen it.

Halfway through three quarters, the way through and on the door.

The day of the hearing settlements. So that's why we just didn't want to try to give you any false expectations here and say that for now.

We don't think there'll be decision one way or another until the end of 2022, but we have seen other cases, where at the information. The Bureau gets more and more information they are able to better assess.

What the true.

Efficiencies are in some of the other aspects of the case.

Never say never that something might happen before the end of 2022, but for now we're just focused on that indeed.

Okay. Thanks, I appreciate the color on that that's it for me I'll turn the call back.

Okay.

Your next question comes from Keith Mackey from RBC. Please go ahead.

Hi, good morning, and thanks for taking my questions.

Just wanted to start off on the on capital spending for next year, so targeting mostly sustaining type investments talked about some landfill expansion.

Im just curious how are you thinking about the return metrics and criteria for <unk>.

New growth capital projects beyond beyond the internal sustaining projects are you thinking about.

Increased IRR is maybe relative to the past or increased take or pay type commitments or just curious where your thoughts are on that right now.

Sure. Good question, Keith as Alan here, Yes, I think in terms of 2022 capital, where we're right now in our budget.

Budgeting process. So we're going to take the next month month, and a half year to see where our expectations are going to be into 2022, and we're waiting on a lot of producer conversations on what their plans are but I'd say, we're very confident in what we need to deliver on the maintenance side.

As I mentioned $40 million in maintenance capital on our facilities and some of our equipment and then as we're seeing more volumes coming into our landfill, we do have to expand the south as well, but when we think about growth capital. We said this numerous times our focus right now is integration pay down debt.

Pay down debt and so any sort of capital we look to spend has to have a high rate of return and we have been looking at opportunities where there is simple tie ins into our existing infrastructure and this is where our east K Bob pipeline. If you have a few anchor tenants and you add an additional anchor tenant that has a great IRR youre, adding vol.

And then Youre, making sure that utilization is at its highest level because ultimately time value of net time value of money is going to drive your return to the highest level and so theyre low dollar capital spend I would say for the most part in 2022, where we're saving the customer money, we're getting good returns, but as I said.

Main focus here is going to be paying down debt throughout 2022, but we will come back to you on clear guidance as we get through our budgeting process.

Okay.

Perfect. Thanks for that.

Just wanted to follow up on on the line in the press release as well.

Talking about longer term opportunities such as CEO to sequestration infrastructure. Just curious if any of those types of conversations have started yet if you've done any internal analysis on maybe the amenability of reservoirs or infrastructure to handle that type of that type of work as well.

Any color you can provide on that would be helpful. Please.

Got it great great question.

We did want to elaborate on that in the press release, because we both we've been doing a lot of evaluation internally, but we've also had customers coming to us looking for that type of solution and if you think about it what do we bring to the table. We have obviously a lot of engineering construction.

Reservoir disposal pipeline facility processing background. So when you line that up with the whole field to solution, it's a pretty good solution.

And so now it's really a case of working with your customers to figure out where that whereas the.

The most feel too kind of density per square mile being generated.

How does that overlap with our network and so thats that is whats going to take us some time to figure out and then you can come up with some.

Some project parameters and preliminary economics to say this makes sense for both us and our customer, but it's pretty exciting and it's certainly in its early days.

But there's great potential there and certainly.

It's being driven by both us and our customers, which is always a good place to be and when youre trying to come up with new solutions. So we should have some more color for you over the next 12 months, but it's definitely in the in.

In the first inning and certainly not in the fourth inning.

Thanks, very much that's it for me.

Your next question comes from.

<unk> capital markets.

Paul.

No.

Good morning, and congrats on what I thought was a pretty strong start to the <unk> integration just first off I am wondering if you could give.

A sense of what utilization is on your midstream.

<unk> infrastructure currently and I guess, where do you think it could go with some facility optimization obviously.

Understanding this.

Probably varies quite significantly across your asset base.

Thanks, Sean.

Our utilization across our network has been increasing throughout that early 2021 here and into the third quarter I would say you know.

The first half of 2021, we would have been in that high 40%.

Collaboration and now we've moved into that low bid season. So I think when you look across our infrastructure. We've got lots of lots of room to accept a lot of the byproducts that we're seeing in a lot of the terminalling and at disposal. So we don't need to spend a lot of capital there.

What I think will end up doing is we're really trying to figure out where our customers are going to be spending money because as we look at these facility rationalizations, we don't want to impact our customer to the point, where it's going to cost them more money. So we will look across our facilities and be very methodical about how we are going to shut down and get higher utilization in some.

All of our locations that are going to be good year, and we do have I am giving you averages here. There are facilities that are slightly higher utilization and some that are lower but we're going to take our time and work with our customers here over the next few months and make sure that we're optimizing the utilization at these locations and where we do rationalize where getting the <unk>.

<unk>.

That we can help the overall cost structure of handling all of these products and just I would add to that.

Any anything that we're looking at doing.

<unk> facilities.

Around the efficiencies.

At the moment is really temporary suspension, because we really don't know what the activity level is going to do over the next two years. So the idea being that we can not temporary mothball them.

But they can be.

If it's just to say the waste processing component, we can restart that in two to four weeks and the whole idea here is everything is.

Over the next 24 months would be in a situation, where we can reopen very quickly and respond to customer demand.

Got it and then I guess just following on that.

With a utilization uptick you talked about is that mostly just been driven by increasing production and drilling activity or is it have you started that.

Rationalization at all yet.

Just just getting into that side of it as the guys alluded to so that's why when you look at our synergies rolling out into 2022, we're just getting into that what makes sense with a good part of this process was sitting down with your customers and just trying to forecast what are they going to do over the next 24 months. So we didn't really want to do anything until we talk to our.

Customers.

Okay got it great.

Second one just around pricing.

Touched on it a little bit I'm just wondering if.

If you could maybe talk about pricing across your various service lines I realize you're pretty diversified company. So if you could maybe just highlight any areas of strength or weakness right now.

Well, it's really the pricing question is really around.

This is Ben.

The the core goal.

<unk> vision with us and our customers.

We want as an industry. This isn't just secure as an industry, we want the lowest cost structure with the highest ESG stance of world. So for us to just.

Blindly say that prices should do this or do that I think is the wrong thing for Canada I think it's the wrong thing for the industry and I think we have to look out 510 15 years that we have to be the lowest cost structure. So a lot of lot of what we're trying to do right. Now is how do we get more efficient and let's just use one example of that.

Element alluded to so if you have X amount of volume coming into our facility by truck and we're able to put some small small gathering line.

Takes those trucks off the road well, you've just reduced your carbon intensity, but <unk> also probably saved with customer anywhere from 30% to 40% in terms of their cost. So that's that's a big part of that midstream world honestly I alluded to earlier.

Drilling fluids and production chemicals.

That's a little tougher because.

<unk> got a basic chemical block that your cost of goods sold even your oil based muds guess what.

So the customers have been very understanding it's almost what when it comes to the chemical side of the world has kind of flowed through its showing sitting down with your customers and say look.

Our base cost for whether it's.

Invert mud to.

Barite to whatever.

Non op X percentage so.

The customers are quite understand and when you actually show them the cost pressures.

What the chemicals and how that fits into your cost of goods sold. So you are right every business unit is different.

Little bit different strategy with midstream, where we're just trying to get that lowest the lowest cost structure for our customer and then on the production chemical drilling fluids side, it's a little bit of a flow through situations, where the chemicals and even year your cost of oil based mud is it more of a floor.

Got it thanks and last one for me, it's a pretty high level I'm not even sure you can answer this but it's obviously nice to see you set specific carbon intensity targets I think it kind of sets you apart from your competition I'm wondering if you could put up.

Costs on achieving these goals as we look out into 2030 in 2015 event and I guess also do you expect to.

To realize the economic benefits from the capital that you're going to put into achieving these goals.

Yes that is a difficult.

Yeah.

Right now we're looking at scope, one and scope one is it really all the emissions out of our facilities and the lease vehicles that we have and there are things that we can do operationally with minimal cost to achieve that 5% reduction in targeting and I think what what everyone wants to see is not that you set a target and don't address it.

Year. They wanted to see the fact that every year, you're progressing towards that target and youre, taking steps toward it and so I don't think we've done enough assessment beyond the next couple of years as we look to our internal operations, we're going to look externally on is there additional capital that we need to spend that will help us achieve that target I think.

We need more time to assess it.

But I do think industry in general moving in the right direction, just looking internally how can we do things more efficiently with our operations.

Great. Thanks for the color I'll turn it back.

Your next question comes from.

John Thank you.

Canaccord. Please go ahead.

Hey, good morning, gentlemen, thanks for fitting me in.

Good morning, good to hear from you.

Yes.

Hey, just wanted to pick up on one of the previous questions.

With heavy oil light oil and even natural gas all catching some tailwind curious if there is parts of the portfolio now that maybe youre seeing some green shoots that you haven't seen in a while.

Yes, definitely I was quite worried about heavy oil, especially.

Three types of the heavy oil question. One is obviously the coal production in <unk> and then there is obviously the the mines.

And so.

Obviously.

As a combined entity now we're big time in the heavy oil in.

Im really really pleased how.

The pricing is turnaround E tighter differentials and obviously.

The free cash flow.

<unk> is coming out of that sector. So I think that's a tailwind for us I think all of those.

A lot of the a lot of.

Obviously, you don't see NRL suncor, but the customer is below that level are all being cautious about how they grow production and how they spend their capital and whatnot.

One area that surprised me to the upside in.

I think the best is yet to come in that in that sector I think that would be more of a 2022 story.

Got it and maybe just to pick up on that.

Obviously, the caverns are pretty unique assets I know, you're very familiar with those or any just curious how you think about those heading into 2022.

Yes.

The caverns are great great option in terms of.

Letting mother nature recover that oil and certainly.

They're a very safe and environmental solution.

<unk>.

The good news is that Davita has some fabulous assets and.

And had spent the capital for the last 15 years, having spare capacity. So there's a lot of spare capacity. There. So we don't see having to spend a whole lot of capital.

Any of those.

In any of our caverns because there is spare capacity. So that's and again. It just gives you that flexibility with the customers when they have upsets and whatnot that.

You can you can help them out.

It's not a case, where sorry, we're full.

We have we have the caverns.

Really that governor in terms of being able to take whatever the customer throws at us.

Got it great color. Thanks, I'll throw one more here quickly.

North Dakota kind of what are you seeing there and how do you view those assets strategically longer term.

Yes, North Dakota.

In a similar similar similar situation where activity has started to pick up.

I'd say when you look at our infrastructure, we've got a number of locations that provide waste processing services and I would say we are one of the top providers in those service lines in North Dakota, and as Randy said.

Looking across the entire network as we look at where do we see the most optimal benefits from our core operations and what does it look like once we've integrated them and I think North Dakota is one where when we looked at it back when we started building facilities in 2013 was very close in proximity with the Bakken.

And in Saskatchewan, and we were able to.

Look at those locations and proximity wise and being able to be there operationally and work with our guys both across the border and.

It's one of those areas, where I think we will continue to.

Look as we as we get through the next few months here I've integration and see what we want to do.

Great. That's it for me thanks, guys.

Thanks, John Thanks, John.

There are no further questions.

Mr. <unk>. Please proceed.

Alright, well thank you everybody.

I think.

It's been a while since then.

And Investor Conference call also appreciate the support of my team here in pulling this altogether Neal and his team did a fabulous job.

There will be a broadcast of the call.

That will be available on secures website and as always we're going to look forward to providing you with updates on secures performance. Obviously your next quarter is coming in March.

We look forward to continuing with this.

This format as we go forward.

Leading that business.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

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