Q1 2022 Secure Energy Services Inc Earnings Call

April 28, 2022

Yeah.

Operator: Good afternoon, ladies and gentlemen, and welcome to the secure energy quarter one 2022 results conference call. At this time all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance please press star zero for the operator. This call is being recorded on Thursday April 29th 2022. I would like to turn the conference over to Anil Aggarwala, VP of Treasury and Investor Relations. Please go ahead.

This call is being recorded on Thursday April 29 2022.

I would like to turn the conference over to Aneel Agarawala VP of Treasury and Investor Relations. Please go ahead.

Anil Aggarwala: Thank you, Brad. Welcome to Secure Energy's conference call for the first quarter of 2022, joining me on the call today is Rene E. Amirault, our president and Chief Executive Officer, Allen Gransch, our Chief Operating Officer, and Chad Magus, our Chief Financial officer. During the call today, we will make forward-looking statements related to future performance and we will refer to certain financial measures that do not have any standardized meaning prescribed by GAAP and may not be comparable to similar financial measures disclosed by other companies.

<unk> Energy's conference call for the first quarter of 2022, joining me on the call today is Reni MRO, our president and Chief Executive Officer, Alan Graf, Our Chief operating Officer, and chat me I guess, our Chief financial officer. During the call today, we will make forward looking statements related to future performance and we will refer to.

Certain financial measures that do not have any standardized meaning prescribed by GAAP and may not be comparable to similar financial measures disclosed by other companies.

The forward-looking statements reflect the current views of Secure with respect to future events and are based on certain key expectations and assumptions considered reasonable by Secure. These forward-looking information address future events and conditions by their very nature, they involve inherent assumptions risks and uncertainties and actual results could differ materially from those anticipated due to numerous factors and risks. Please refer to our continuous disclosure documents available on SEDAR as they identify risk factors applicable to Secure. Factors which may cause actual results to differ materially from any forward-looking statements and identify and define our non-GAAP measures. I will now turn the call over to [inaudible] for his opening remarks.

These forward looking information address future events and conditions by their very nature, they involve inherent assumptions risks and uncertainties and actual results could differ materially from those anticipated due to numerous factors and risks.

He's referred to our continuous disclosure documents available on SEDAR as they identify risk factors applicable to secure factors, which may cause actual results to differ materially from any forward looking statements and identify and define our numbers yet. I will now turn the call over to Ray for his opening remarks.

I will now turn the call over to Ray for his opening remarks.

Unknown Speaker: Thank you, Anil and good afternoon, everyone. Today, we will review our financial and operational results for Q1, followed by our outlook for the remainder of the year. The first quarter was another record for Secure and our results continue to demonstrate the strength and scale of our expanded network and business model. Industry activity levels drove increased demand for our customer solutions. Synergies realized and combined with their ongoing focus on managing cost resulted in strong performance across our operations and a 250% year on year increase in Q1, adjusted EBITDA to $126 million.

Today, We will review our financial and operational results for Q1, followed by our outlook for the remainder of the year. The first quarter was another record for secure and our results continue to demonstrate the strength and scale of our expanded network and business model.

Industry activity levels drove increased demand for our customer solutions.

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Buying with their ongoing focus on managing cost resulted in strong performance across our operations and a 250% year on year increase in Q1, adjusted EBITDA to $126 million.

We also made significant progress with our deleveraging plan paying down $90 million in debt, helping to reduce our total debt to EBITDA to $2.9 from 3.4 at the end of Q4 2021. We are extremely pleased with the successful progress of the integration with Tervita, which is proceeding ahead of our plan and creating a stronger company. We have achieved $53 billion of annualized cost savings, reaching 71% of our 75 million target after just nine months since the closing of the merger. Including savings on our bond refinancing, we have achieved $62 million of run-rate free cash flow savings.

With our deleveraging plan.

Paying down $90 million in debt, helping to reduce our total debt to EBITDA to $2 nine from three four.

Q4 2021.

We are extremely pleased with the successful progress of the integration with Davita, which is proceeding ahead of our plan and creating a stronger company.

We have achieved $53 billion of annualized cost savings, reaching 71% of our 75 million target. After just nine months since the closing of the merger including savings on our bond refinancing we have achieved $62 million of run rate free cash flow savings.

I'm also pleased to report that we are releasing our 2021 report on sustainability next week, demonstrating our commitment to ESG, including putting safety first, minimizing the environmental impacts of our operations and creating positive relationships with stakeholders and the communities where we live and work. In addition, the report solidifies our targets for water and emissions reductions and lays out a roadmap to achieving net-zero greenhouse gas emissions by 2050, including reducing [GHG] emissions intensity by 50% by the end of 2024. We're encouraged by continued strong momentum through our operations.

We live and work in addition.

Solidifies, our targets for water and emissions reductions and lays out a roadmap to achieving net zero greenhouse gas emissions by 2050, including reducing <unk> emissions intensity by 50% by the end of 2024, we're encouraged by continued strong momentum through our operations.

With our increased free cash flow generation capabilities, and a strengthened balance sheet, we remain well-positioned to meet our debt reduction targets and at the same time able to capitalize on growth at existing facilities and the continued positive trends of our industry. Chad will now walk us through the key highlights of our Q1 result, and then Allen will review our integration plan update and operational highlights and I will conclude with our outlook for the year.

I will now walk us through the key highlights of our Q1 result, and then Alan will review, our integration plan update and operational highlights and I will conclude with our outlook for the year.

Chad William Magus: Thanks, [Rene] and good afternoon to everyone on the call. Our first-quarter results continue to demonstrate the strength of our combined business, our ongoing focus on managing costs and overall improvement in the underlying markets. For the first time since the fourth quarter of 2019, we recorded positive net income of 38 million or 12 cents per share in the first quarter. Funds flow from operations increased 257% to $107 million. We also divested $22 million of non-core assets in the first quarter, which we used towards repaying $90 million of debt as [Rene] mentioned. Our adjusted EBITDA of $126 million increased 215%. Per basic share basis was 41 cents.

Our first quarter results continue to demonstrate the strength of our combined business, our ongoing focus on managing costs and overall improvement in the underlying markets.

For the first time since the <unk>.

Fourth quarter of 2019, we recorded positive net income of 38 million or <unk> 12 per share in the first quarter.

Funds flow from operations increased 257% to $107 million, we also divested $22 million of noncore assets in the first quarter, which we used towards repaying $90 million of debt as already mentioned.

Our adjusted EBITDA $126 million increased 215%.

Per ship per basic share basis was <unk> 41.

Chad William Magus: Equating to a 64% increase from the prior year as realized synergies and increased activity levels in our operating areas led to higher processing and disposal volumes or midstream infrastructure facilities and landfills, and increased demand for services related to drilling and completion activity within the environmental and fluid management segment. Adjusted EBITDA margin up 35% increase from 30% in the first quarter of 2021 due to the positive impacts from the cost savings and synergies and increased industry activity levels. As well, our G&A improved to 7% of revenue excluding will purchase and resale.

<unk> segment.

Adjusted EBITDA margin up 35% increase from 30% in the first quarter of 2021 due to the positive impacts from the cost savings and synergies and increased industry activity levels as well, our G&A improved to 7% of revenue excluding will purchase and resale.

And midstream infrastructure Q1 segment profit margin of 63% increase from 59% in the prior year largely due to our expanded facility footprint and synergies realized from the merger transaction as well as higher crude oil pricing and more stable market dynamics, which led to increased drilling completion and production volumes. Higher crude oil pricing in the first quarter also positively impacted recovered oil revenue and increased well purchase and resale revenue by 163% to $1.4 billion. In environmental and fluid management, Q1 segment profit margin of 27% was consistent with the prior year. The strong margin performance was largely due to the positive impact of the combined businesses offset by inflationary pressures, most notably in our fluids management business, metals prices remained strong in Q1 as did demand for our environmental work.

Volumes.

Higher crude oil pricing in the first quarter also positively impacted recovered oil revenue and increased well purchase and resale revenues by 163% to $1 4 billion.

In environmental and fluid management Q1 segment profit margin of 27% was consistent with the prior year. The strong margin performance was largely due to the positive impact of the combined businesses offset by inflationary pressures, most notably in our fluids management business metals prices remained strong in Q1 as did demand for our <unk>.

Environmental work.

Our positive operating results and sustaining capital spending was in line with our expectations, allowing secure to generate $100 million of discretionary free cash flow in the first quarter, an increase of 245% compared to the prior year or 78% on a per-share basis. In 2022, our key capital allocation priority will continue to be on debt repayment. Our capital structure consistent with no near term maturities with the first fixed note maturing in 2025. In addition, we retained a strong liquidity position with approximately $370 million of availability on our credit facilities maturing in 2024.

Capital spending was in line with our expectations, allowing secure to generate $100 million of discretionary free cash flow in the first quarter, an increase of 245% compared to the prior year or <unk>, 78% on a per share basis in.

In 2022.

Key capital allocation priority, we will continue to be on debt repayment.

Our capital structure consistent no near term maturities with the first fixed note maturing in 2025.

In addition, we retained a strong liquidity position with approximately $370 million of availability on our credit facilities maturing in 2024.

We're pleased with our balance sheet management since the merger and remain on track to achieve our debt reduction targets and we'll continue to look for ways to optimize our capital structure as we move forward. I'll now pass to Allen to provide an update on the integration with Tervita and some operational highlights.

Reduction targets and we'll continue to look for ways to optimize our capital structure as we move forward.

I'll now pass to Alan to provide an update on the integration with Davita and some operational highlights.

Allen Peter Gransch: Thanks, Chad and good afternoon, everyone looking at our operational highlights. In Q1, our midstream infrastructure segments saw continued improved oil prices and higher drilling and completion activity and overall average rig count of 192 for the quarter. The increased activity that we saw in Q4 continued on in Q1. Water disposal volumes increased to 109% for Q1 of 2021 with total volume of water handled a 2.1 million cubic meters. In addition, we saw processing volumes increase 147% from Q1 of 2021, mainly as a result of the merger improving production levels at higher waste in processing volumes. Our oil terminalling and pipeline volumes remained steady from Q4 2021 at about 1.2 million cubic meters and up 48% for Q1 of 2021.

Q1.

Water disposal volumes increased to 109% for Q1 of 2021 with total volume of water handled a $2 1 million cubic meters. In addition, we saw processing volumes increased 147% from Q1 of 2021, mainly as a result of the merger improving production levels at higher waste and <unk>.

The volumes.

Our oil Terminalling and pipeline volumes remained steady from Q4 2021 at about one 2 million cubic meters and up 48% for Q1 of 2021.

Overall very strong quarter for the midstream processing facilities as they are experiencing increased utilization as higher drilling completion and production volumes from increased activity levels required more treating processing and disposal. Our facility utilization continues to trend in the right direction and it's now up to 60% in that business. We continue to have lots of capacity to handle additional increases in volume without the need to invest any additional capital.

Our facility utilization continues to trend in the right direction and it's now what problem.

It's now up to 60%.

In that business, we continue to have lots of capacity to handle additional increases in volume without the need to invest any additional capital.

Our environmental and fluid management business also continues to benefit from higher commodity prices and increased activity levels external landfill volumes were up another 13% sequentially from Q4 and over 40% year over year for Q1, 2021 pro forma volumes as a result of drilling and reclamation activity tailwind. We're continuing to see increased demand for drilling and completion services with the fluid management business metal recycling continues to benefit from strong commodity pricing as ferrous prices remained high which has helped drive higher volumes.

Palin.

We're continuing to see increased demand for drilling and completion services with the fluid management business metal recycling continues to benefit from strong commodity pricing as ferrous prices remained high which has helped drive higher volumes.

With regards to our project business, we're pleased with the progress made on increased abandonment remediation and reclamation work from the government stimulus package to help the closure and reclamation of orphan in the inactive wells. We have seen revenue in our fluid management business rise almost 20% in Q1 of 2022 compared to Q4 '21. Specifically, our market share is just over 25% in the quarter slightly higher than our position in Q1 of last year and our blend plant continues to run at full capacity.

We have seen revenue in our fluid management business rise almost 20% in Q1 of 2022 compared to Q4 'twenty one.

Specifically our market share is just over 25% in the quarter slightly higher than our position in Q1 of last year and our blend plant continues to run at full capacity we.

We continue to expect increased abandonment, remediation and reclamation activity positively impacting our Canadian operations over the term of the program. In terms of the federal programs, so far $627 million out of the 1 billion allocated to Alberta has been granted. The Alberta program has also been extended by six weeks to February of 2023, similar to the 400 million Saskatchewan program. This gasoline has also introduced a program nearing with the Alberta energy regulator has done with targeted spending levels that the companies with retirement obligations must spend. Secure is well positioned to the environmental business segment at the project teams are positioned to bid on additional work and landfills will likely see more volumes as a result of these regulatory changes.

The Alberta program has also been extended by six weeks of February of 2023, similar to the 400 million Saskatchewan program.

This gasoline has also introduced a program nearing with the Alberta energy regulator has done with targeted spending levels at the companies with retirement obligations must spend.

<unk> is well positioned to the environmental business segment at the project teams are positioned to bid on additional work and landfills will likely see more volumes as a result of these regulatory changes.

We're also extremely pleased with the progress made to date on integration that the two businesses and after nine months, we've already realized $53 million or 71% on an annual basis of our 75 million share target. Up to $53 million approximately $37 million related to corporate overhead and G&A and the remainder were operational efficiencies and facility rationalizations. To date, we have closed or partially suspended a total of 20 facilities and we are targeting an additional six to eight expansions during the remainder of 2022. We are confident on being able to reach the minimum of 75 million of synergies or more by the end of 2022.

So efficiencies and facility rationalizations to date, we have closed or partially suspended a total of 20 facilities and we are targeting an additional six to eight expansions. During the remainder of 2022, we are confident on being able to reach the minimum of 75 million of synergies or more by the end of 2022.

The focus for cost savings in 2022 will be further on the facility rationalizations and operational optimization, including increased facility utilization transportation savings and operating cost efficiencies. The operational synergies include optimizations and facility rationalizations with the expectation that the synergies will contribute a partial benefit in 2022 with full run rate of $75 million cost savings in 2023. Additional savings through initiatives, such as improving our capital structure as well as minimizing sustaining capital by managing underutilized assets are also expected to provide incremental discretionary cash flow beyond our $75 million cost savings targets.

The operational synergies include optimizations and facility rationalizations with the expectation that the synergies will contribute a partial benefit in 2022 with full run full run rate of $75 million cost savings in 2023.

Additional savings through initiatives, such as improving our capital structure as well as minimizing sustaining capital by managing underutilized assets are also expected to provide incremental discretionary cash flow beyond our $75 million cost savings targets.

In Q1, we spent a total of $13 million of capital, which included $10 million of sustaining capital primarily spent on well and facility maintenance, landfill cell expansions and asset integrity and inspection programs. Our growth capital of $3 million related largely to an expansion of one of our water disposal facilities which is backstopped by a commercial agreement with an existing customer at that facility. During the quarter, we generated $22 million of proceeds from the disposal of assets. Included in the disposals were some vacant land and some excess equipment that came as a result of the Tervita transaction.

Which is backstopped by a commercial agreement with an existing customer at that facility.

During the quarter, we generated $22 million of proceeds from the disposal of assets included in the disposals were some vacant land and some excess equipment.

That came as a result of the <unk> transaction.

Additionally, we sold a noncore environmental consulting business, which represented a very small part of our overall projects business. In terms of overall 2022 capital spending, our 45 million growth budget. We will continue to focus on opportunities to connect producers to existing midstream infrastructure and to further increase volumes and utilization on a long term basis. With respect to sustaining capital, we continue to expect to spend $55 million in 2022, including three landfill expansions. Our focus remains on customer back longer life opportunities as we continue to prioritize delevering. I'll now turn it back to Rene to address our outlook for 2022.

In terms of overall 22, 2022 capital spending our 45 million growth budget.

We will continue to focus on opportunities to connect producers to existing midstream infrastructure and to further increase volumes and utilization on a long term basis with respect to sustaining capital. We continue to expect to spend $55 million in 2022, including three landfill expansion our focus remains on customer.

Back longer life opportunities as we continue to provide prioritize delevering.

I'll now turn it back to Randy to address our outlook for 2022.

Rene E. Amirault: Thanks, Chad. We are extremely pleased with the results to start the year and the ongoing progress made with the Tervita merger and we continue to see the benefits we expected from combining the companies. We have a strong deleveraging plan in place as demonstrated in Q1, and we expect to continue to reduce our debt position this year. Our enhanced scale better positions us to optimize existing assets in operations that we can add more value to our customers and provide greater optionality in allocating capital through all market environments.

We are extremely pleased with the results to start the year and the ongoing progress made with the <unk> merger and we continue to see the benefits we expected from combining the companies we have a strong deleveraging plan in place as demonstrated in Q1, and we expect to continue to reduce our debt position this year.

Hence scale better positions us to optimize existing assets and operations. So that we can add more value to our customers and provide greater optionality in allocating capital through all market environments.

Turning to our outlook near term focus will be on continuing to strengthen our business deleveraging our balance sheet. We anticipate looking to increase returns to shareholders. After this is completed we expect to see continued industry improvement, which will support our strong momentum and drive higher year over year discretionary free cash flow in 2022 current. Crude oil and natural gas prices should continue to buy significant improvement in overall industry activity in 2022.

Crude oil and natural gas prices should continue to buy significant improvement in overall industry activity in 2022.

As we have seen so far this year macroeconomic factors, including significant inflationary pressures, geopolitical risk premium due to the current war in Ukraine as well as lessening COVID-19 demand impacts are driving the increases in current prices. The current prices and broader economic factors have led to an increased rig count that is expected to continue throughout the year.

<unk> is expected to continue throughout the year.

We also expect to benefit from the following we expect to see contributions to our adjusted EBITDA from the realization of $75 million of annualized synergies by the end of 2022. We also anticipate increased utilization at midstream processing facilities in landfills as higher drilling completion and production volumes from increased activity levels require treating processing and disposal. And finally higher abandonment remediation and reclamation activity from the government stimulus package to help fund the closure reclamation of [warfarin and inactive] wells.

Required treating processing and disposal and finally higher abandonment remediation and reclamation activity from the government stimulus package to help fund the closure reclamation of warfarin and inactive wells.

In closing, we have significantly strengthened our business and demonstrated the resiliency and efficiencies achieved with our strategy to consolidate capacity in our markets by managing our costs. We remain well-positioned to generate strong discretionary free cash flow from our expanded network. Our key priorities remain on operational excellence inefficiencies progressing our ESG initiatives and paying down debt and optimizing the capital structure of our business while leveraging opportunities to grow and provide value for shareholders and customers. With our efforts to date and the continued hard work of our employees, we believe we are well-positioned to achieve our priorities during the remainder of 2022. I want to thank all Secure employees that have continued to contribute to our successes. I also want to thank our customers and stakeholders for their continued support and partnership. That concludes our prepared remarks. We would now be happy to take your questions.

Our key priorities remain on operational excellence inefficiencies progressing our ESG initiatives and paying down debt and optimizing the capital structure of our business, while leveraging opportunities to grow and provide value for shareholders and customers with our efforts to date and the continued hard work of our employees. We believe we are well positioned to <unk>.

<unk> our priorities during the remainder of 2022 I want to thank all secure employees that have continued to contribute to our successes I also want to thank our customers and stakeholders for their continued support and partnership.

That concludes our prepared remarks, we would.

Now I'll be happy to take your questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question please press the star followed by the one on your touchtone phone, you'll hear three tome prompt acknowledging your request and your questions will be pulled in the order that they are received. Should you wish to decline from pulling process, please press the star followed by the two. If you're using a speakerphone. Please lift the handset before pressing the keys. Our first question comes from Cole J. Pereira from Stifel. Please go ahead.

Should you wish to decline from pulling process. Please press the star followed by the two if you're using a speaker phone. Please lift the handset before pressing the keys.

Our first question comes from coal per ore from Stifel. Please go ahead.

Cole J. Pereira: So a pretty meaningful step-change in midstream EBITDA quarter over quarter. I'm just wondering if you're able to sort of rank order of magnitude what drove that between call Ait synergies higher activity any oil trading margin stuff like that.

So a pretty meaningful step change in midstream EBITDA quarter over quarter I'm, just wondering if you're able to sort of rank order of magnitude what drove that between call. It synergies higher activity any oil trading margin stuff like that.

Hey call Alan hair, Yes, no a great question I think.

Allen Peter Gransch: Hey, Cole. It's Allen here. Yes, no a great question I think the answer is all of the above. I mean, the activity levels we saw in Q1 definitely strengthened from Q4, so robust volumes and activity coming into the facility. We did shut down for facilities. So we move some volumes, which ultimately resulted in higher utilization at the facilities that we moved the volume to.

So the guys did a great job of lowering some of the op costs and getting better efficiency on some of our fixed costs. And with the price of oil moving around there's obviously arms that we can take advantage of our crude oil marketing business. So that also played a role in helping to contribute to our solid performance here in Q1.

And some of the op costs and getting better efficiency on some of our fixed cost and with the price of oil moving around there's obviously arms that we can take advantage of our crude oil marketing business. So that also played a role in helping to contribute to our solid performance here in Q1.

Cole J. Pereira: Okay. Great. That's helpful. Thanks, and just coming back to cost inflation, obviously, theres materials exposure and production chemicals in your drilling fluids business, but can you just sort of refresh what the extent of that exposure would be in the midstream segment?

Allen Peter Gransch: On production chemicals?

Cole J. Pereira: No sorry, just cost inflation in general.

Allen Peter Gransch: In general, we're seeing roughly 10% to 15% increase in costs in our midstream segment. Primarily that would be related to our electricity, our fuel costs, our chemical costs and R&M at the plant would be the top four. And partly offset that because you will note that the margins did improve by 4% throughout the quarter and part of that is the synergies that we've now realized with the closure of 20 facilities in increasing and improving our utilization. And obviously, we look at how much volume we can flow through the facility will help manage some of your overall cost when you get into chemical unpopular. And then as we look to inflation for the remainder of the year, we're going to look at how much of our pricing will offset some of the increased inflation that we've seen the 10% to 15%, but so far the guys in the field have done a great job managing the Opex.

In general, we're seeing roughly 10% to 15% increase in costs in our midstream segment.

Primarily that would be related to our electricity our fuel costs are chemical costs and R&M at the plant would be the top four.

And partly offset that because you will note that the margins did improve by 4% throughout the quarter and part of that is the synergies that we've now realized with the closure of two facilities in increasing and improving our utilization and obviously, we look at how much volume we can flow through the facility.

Help manage some of your your overall cost when you get into chemical unpopular and then as we look to inflation for the remainder of the year, we're going to look at how much of our pricing will offset some of the increased inflation that we've seen the 10% to 15%, but so far the guys in the field.

<unk> done a great job managing the Opex.

Cole J. Pereira: Okay, perfect and then just going back to shareholder returns quickly. So I mean, the thoughts from your guys' perspective is, I mean, obviously, the debt targets are well within range before the end of the year and so if you. If you do get there I mean, then you start to think about that and maybe some sort of combination of dividend increases and share buybacks.

And share buybacks.

Allen Peter Gransch: Yes, I mean, the trend line is going in the right direction and certainly, we want to continue to pay down debt. And as we get closer to the end of the year. Have a better sense of what the go-forward plan is around providing that shareholder value and what that looks like. But I think the way the way we're looking at it is. That is number one and everything else is secondary so as we get closer to the end of the year, we could start to formulate a plan that probably it's not one lever another, there's probably four or five different levers that we have here.

We want to continue to pay down debt and as we get closer to the end of the year.

Have a better sense.

What what the go forward plan is around <unk>.

Around.

Providing that.

Shareholder value and what that looks like but I think the way the way we're looking at it is.

No.

That is number one and everything else is secondary so as we get closer to the end of the year, we could start to formulate a plan that probably it's not one lever another theres, probably four or five different levers that we have here, but really.

This team and you saw it in Q1. This team is laser-focused on debt reduction and we are taking nothing for granted we don't know what the price of oil or gas is going to do tomorrow. We don't know what's going to happen around the world with things happening in Ukraine. So just laser-focused on getting the debt down and obviously over the next 16 months or so. We have opportunities to refinance some of that debt. There's a lot of things we're going to look at to formulate that plan as we go into the end of the year.

Just laser focused on getting the debt down and obviously.

Over the next.

16 months or so.

We have opportunities to refinance some of that debt.

There's a lot a lot of things, we're going to look at to formulate that plan as we go into the end of the year.

Cole J. Pereira: Okay. Great. That's helpful. Thanks, I'll turn it back.

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

Keith Mackey: Hi. Thanks. And good afternoon. I guess, maybe if we could just start off. I know you mentioned you plan to release your sustainability report in May 2nd question, a little bit more about sustainability and roadmap to net zero, but just curious if you can give us a bit more of a preview of what to expect in that report as you look to release it in the next little bit.

And good afternoon.

I guess, maybe if we could just start off.

I know you mentioned you plan to release your sustainability report in May 2nd question, a little bit more about sustainability and roadmap to.

Net zero, but just curious if you can give us a bit more of a preview of what to expect in that report.

If you look to release it in the next little bit.

Unknown Speaker: Well, the good news is that we've tried to put it in a format that you can identify all the great things we're doing. I think everybody, it's a little too focused on our carbon intensity and everything revolving around that. But there is a lot of other things that are happening in this world around the S and the G and so it's outlined in that report in terms of, you saw in our circuit that we want to increase our females on the board. We're now over 25 different aboriginal partners. Giving back to the community.

Put it in a format that.

You can identify all the all the great things, we're doing I think everybody, it's a little too focused on the on the.

Our carbon intensity and everything revolving around that but there is a lot of other things that are happening in this world around the S and the G and so it's outlined in that report in terms of you saw in our circuit that we want to increase.

Our females on the board.

We're now over 25 different Aboriginal partners.

Giving back to the community.

All those things are important to us and then setting the ESG goals is great around carbon intensity, but it's much much more. And the great thing Keith is we're really trying to work hand in hand, with our customers to help them achieve some of those ESG goals as well, so and that's why I like to thank our employees who work tirelessly day after day in terms of all of this the safety side of it. Helping out with the communities and the [aboriginal] side and are coming to us every day with carbon reduction emission reduction plans to so. You're going to see all of it in there and the nice part is it's very open and transparent.

And the Great thing Keith is we're really.

Trying to work hand in hand, with our customers to help them achieve some of those ESG goals as well, so and that's why I like to.

The.

Thank our employees who.

Work tirelessly day after day in terms of all of this the safety side of it.

Helping out with the communities and the average sell side and are coming to US every day with with carbon reduction emission reduction plans to so youre going to see all of it in there and the nice part is it's very open and transparent.

We're we want on the first service companies to put that out. It was down three or four years ago. We're committed to that. You'll get to see that on Monday, but the entire team has done a great job of not only showing you what we're doing but we're also showing you where we're going.

It was down three or four years ago and.

We're committed to that.

You'll get to see that on Monday, but.

Entire team has done a great job of not only showing you what we're doing but we're also showing you where we're going.

Keith Mackey: Sounds good. Maybe just on the Capex. So it looks like most of the growth Capex allocation is yet to come can you just talk a little bit more about the spread of that CAPEX throughout the year? And perhaps how I guess locked in the supply chain is as far as completing those projects, having a labor and materials and so forth that you'd need to to be able to complete those projects on time on budget.

Maybe just on the Capex. So it looks like most of the growth Capex allocation is yet to come can you just talk a little bit more about the.

The spread of that capex throughout the year and perhaps how how I guess locked in the supply chain is as far as completing those projects, having a labor and materials and so forth that you'd need to to be able to complete those projects on time on budget.

Unknown Speaker: Yes, great question. In Q1, we spent 3 million and that primarily was adding that additional infrastructure into a water disposal facility, where a customer of ours needed additional capacity. We don't do a lot of capital work in Q2. We've got road bans on you've got spring-like conditions, where it's just hard and more expensive to put in rate math to construct. But what we're looking at in terms of the back half spend all the projects in the hopper that we have come with negotiated contracts with our customers and those take time to get through. But at the same time, they're all very similar in nature where we're either tying in oil volumes into our existing oil pipelines or we're tying in water pipelines into our existing infrastructure.

In Q1, we spent 3 million and that primarily was adding that additional infrastructure into a water disposal facility, where a customer of ours needed additional capacity. We don't do a lot of capital work in Q2, We've got road bans on you've got spring like conditions, where it's just hard and more.

Expenses to put in rate math to construct but what we're looking at in terms of the back half spend all the projects in the hopper that we have.

With negotiated contracts with our customers and those take time to get through but at the same time, they're all very similar in nature, where we're either tying in oil volumes into our existing oil pipelines or we're tying in water pipelines into our existing infrastructure.

Multiple speakers: And so you'll see some spend in Q3, and then you'll see a lot more in Q4 because a lot of the pipeline work that we do we want to do it when it's cold outside. We can get into some of these locations are very challenging to get into to, to be able to connect the customer and so we will provide more clarity as we get into Q3 on where we're spending this capital. But the 45 billion that we have allocated to growth capital is still a number that is very solid and more geared toward a kind of acute later half of this year span and Keith, I think it also helps that these are a lot of small projects. We don't have the one big $45 million price so that. The risk around inflation and cost increases just isn't there because it's a lot of small projects.

This capital.

But the 45 billion that we have.

Allocated to growth capital is still a number that is very solid and more geared toward a kind of acute later half of this year span and Keith I think it also helps that these are a lot of small projects. We don't have the one big $45 million price so that.

Unknown Speaker: The risk around inflation and cost increases just isn't there because it's a lot of small projects.

Keith Mackey: Got it, okay. That's it for me thanks very much.

Operator: Your next question comes from John Gibson from BMO Capital markets. Please go ahead.

John Gibson: Good morning, or afternoon, guys I guess now. I was wondering facility closures. Thanks for the color on your go-forward plans. And obviously market dynamics have changed quite significantly since you announced the Tervita acquisition. I'm just wondering if any plans to change with regard to facility closures or any other synergy plan since you announced the deal.

I was wondering facility closures. Thanks for the color on your go forward plans and obviously market dynamics have changed quite significantly significantly since you announced the <unk> acquisition I'm just wondering if any plans to change with regard to facility closures or any.

Any other synergy plan since you announced the deal.

Allen Peter Gransch: Yes, I mean, there are wins on things that we didn't anticipate and there are areas where as we look at the back half of this year and some facility closures. We are very cognizant that we don't want to close a facility where we are going to impact customer service. And even the four facilities, we closed we had consultations with our customers prior to doing that because we want to make sure we're supporting their needs on the disposal of our treating and processing side. So you're exactly right in Q3 and Q4, we do have some planned facility rationalizations and it might not be the full facility. It might just be a service line or partial shut down of that location.

The four facilities, we closed we had consultation with our customers prior to doing that because we want to make sure we're supporting their needs on the disposal of our treating and processing side. So you're exactly right in Q3 and Q4, we do have some planned facility rationalizations and it might not be the full facility. It might just be a service line or partial.

But we do want to do it in conjunction because some of the discussions we're having with producers are very methodical on how they want to allocate the remaining capital budgets for this year. And some of them have suggested they might add a rig or add a well that they would like to drill and so we want to make sure from flow backwater to completion waters that treating some of the drill waste that we can handle it and they're not transporting it from farther away. But I think as you know as we get through Q2 and as our facilities look at some more of these operational efficiencies. We are finding every month different ways we can look at doing and processing some of this waste and we're actually finding some more savings. So there will be a bit of give and take but I think we'll understand more in Q3 once we have had some more further discussions with our customer on their plans and activity levels.

Treating some of the drill waste.

We can handle it and theyre not transporting at FERC farther away, but I think as you know.

As we get through Q2 and as our facilities look at some more of these operational efficiencies. We are finding every month different ways. We can look at doing and processing. Some of this waste and we're actually finding some some more savings. So there will be a bit of give and take but I think we'll understand more in Q3. Once we have had some more further discussions with our customer.

On their plans and activity levels.

John Gibson: Got it thanks. Just to follow on the $75 million target you originally announced it looks like you could come above. That's kind of following on to your prior comments. What could potentially drive this gain over and above the 75 is it just you know you've gotten into the weeds with Tervita and sort of experience what it's like to run the company or our other things driving that.

Just to follow on the $75 million target you originally announced it looks like you could come above.

That's.

Kind of following on to your prior comments.

What could potentially drive this gain over and above the 75 is it.

Just you know you've gotten into the weeds with Davita and sort of you don't.

So what it's like to run the company or our other things driving that.

Yeah. No. There are there are different operational element I always use. The example of our metals recycling business, we handle metal not only in our midstream group, but even in our projects group as we.

Our reclamation and cleaning up a lot of these old method, we're seeing a lot of a lot of steel that gets migrated now into red year, because we actually happened metal recycling topic, which we can net processing and ship out we handle a lot of.

Metal out in Fort Mac same scenario and I think as we look at the numbers of the number of tons that we process and recycle we see wins there. So so.

I agree we're going to be over the 75, just based on what we're seeing while we're well on our way with 53 million already achieved so I think you will provide more clarity on which areas. We are seeing it but these wins are coming up all the time.

Great. Thanks, and last one from me just kind of touching on <unk> question on cost inflation in them. We're looking at your drilling fluids business.

Comments from your peers that there were some significant costs in Q1 were you able to catch up on the cost increases this quarter or could we see some maybe some incremental margins.

Moving forward as pricing takes hold.

Yes.

And there's two parts of that really but I mean it.

It all feeds from.

Whether you're getting chemical out of the U S are you getting chemical overseas.

If you think back to Q4 team did a fabulous job of.

Pre buying some of that chemicals. So that you saw a little bump in the working capital that really helped us out.

In Q1, but also we have some competitors that ran out of chemicals. So.

Team did a fabulous job of being proactive and both from a cost point of view, but actually having the actual inventory on hand.

So going into Q2.

That's that's.

That's not going away the cost impact from future inflation on the chemical side, what I can tell you is the team has been extremely proactive with our customers and really sitting down with customers and sharing that information. So they can see exactly what has gone up from a cost point of view.

Some of those increases came in March some of them are going to come in April so it's kind of a little bit of a mix John but I think all in all the team is doing a fabulous job of staying ahead of it and.

Being very proactive both with our suppliers, but also with our customers.

Great I appreciate the color and congrats on the fall quarter turn it back.

Thanks, Joe.

Your next question comes from Patrick Kenny from National Bank Financial. Please go ahead.

Hey, good afternoon.

Just curious given the momentum in the Clearwater.

Any update on potentially tapping that market over the near term.

And if not today would you consider building a new gathering pipe into the region some point down the road.

Just to bring in some third party competition.

While also optimizing some of your existing assets nearby.

Yeah, I think the Clearwater has got a lot of attention and secure.

It has three locations in that general area.

Given our our experience and our operating knowledge of not only E K, Bob but also our corroborate operating gathering system I think looking at Clearwater that play as it continues to grow is more infrastructure and it can tie into some.

Some of the network out there to help these producers out that they're not trucking volumes to advocate that they've got to weigh out that reduces that the ghd and putting all of this while on a truck so.

Lot of the customers up there they are in other areas that deliver us volume today. So we're in constant discussion with them on how do we help you guys manage them on your your your cost on moving moving the oil and so definitely it's an area, where we're paying close attention to just because of the nature of that that area.

How much volume, we're seeing out of it.

Okay, that's great Alan Thanks for that and then.

On the carbon capture front any update on potential opportunities across the portfolio, especially on the back of this.

37, 5% ITC on transportation and storage investments.

I'm just curious if this might bring any of your potential projects more to the front burner over the coming months.

Yes.

The good news is that on the surface.

Having something like an ITC.

Instrument.

A lot of sense.

There is going to be huge capital required for.

Some of these projects I don't think Youll see us get into the big trunk line space.

The transcanada's and the Enbridge is in the world and some of the bigger players will play around that so whats the opportunity for us it's really around helping.

Helping that.

Call it the <unk>.

Mid caps in terms of maybe some aggregations and consolidation and maybe tapping into some of our oil reservoirs that we have or wherever there's a.

Fit with our both our skill set but also with our network and.

Time will tell how that will all play out in terms of those.

Those tax credits.

We were talking to one of the major producers in the Devil is in the details and so it's going to take a while for the rules of engagement and how that might work and how its all going to.

Be credited and actually show up in terms of your economics. So it's a great first start but I think we're probably just getting into the first inning of what that might look like in.

But it's on our radar it's in our business development Hopper and we're trying to find.

Just trying to find that.

<unk> hurdle that fit our wheelhouse and where we truly we can add value.

Yes early days for sure, but I appreciate the color.

One last housekeeping item, if I could just looking outside of the base $75 million of synergies.

It looks like your lease liabilities on the balance sheet continue.

Continues to grind lower here post merger.

Even though the payments came in a little bit lower here in Q1 so.

Maybe just a refresh on where you expect run rate lease payments to land once you fully completed the integration.

Hey, Pat.

Yes, good attention to detail there.

We have had leases.

For the combined entity coming off however, we've been using this loss.

Time since the merger to kind of evaluate this.

Fleet of equipment, and Theres lots of equipment and those leases there's lots of them.

Office leases in there.

And some storage leases as well.

Are going to replace some of the <unk>.

The equipment yellow wire and leases falling off.

So it's not going to.

Keep grinding down at that rate I think we're going to level out to an.

An annualized number that's in the low <unk>.

About $20 million.

Annual basis.

Okay. That's great I appreciate the color guys.

Thanks, Patrick Thanks, Pat.

Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by one.

There are no further questions at this time. Please proceed.

Thank you for being on the conference call today, a tape broadcast of the call will be available unsecured website. We look forward to providing you with updates on secures performance in July after the completion of the second quarter of 2022.

<unk>.

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

Q1 2022 Secure Energy Services Inc Earnings Call

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