Q3 2023 Secure Energy Services Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the secure energy Q3, 'twenty 'twenty results conference call. At this time all lines are in a 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.
<unk> zero.
Operator.
All of these being recorded on Wednesday November 1st 2023, I will now turn the conference over to Allison. Please go ahead.
Thank you welcome to secured conference call for the third quarter of 2023, joining me on the call today are already on their own our Chief Executive Officer, Alan <unk>, Our President and Todd and I guess, our Chief financial Officer during.
During the call today, we will make forward looking statements related to future performance and we will refer to certain financial measures that ratio, but do not have any standardized meaning prescribed by GAAP.
Not be comparable to similar financial measures or ratios.
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.
Forward looking information addresses 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.
Please refer to our continuous disclosure documents available on SEDAR.
Risk factors applicable for secure factors, which may cause actual results to differ materially from any forward looking statements and identify and define our non-GAAP measure.
Today, We will review, our financial and operational results for the third quarter of 2023, and our outlook for the remainder of the year in 2024, I will now turn the call over to Randy for his opening remarks.
Thank you Alison and good morning, everyone Q3 was another strong quarter for our business showcasing secures the ability to generate significant free cash flow across our effort infrastructure network re report recorded adjusted EBITDA of $158 million 54 per share up 8% from the prior year.
This robust performance enabled us to convert 66% of that EBITDA into $104 million of discretionary free cash flow, which we used to execute on our capital allocation priorities year to date, we have delivered an annualized 12% return to shareholders achieved through our <unk> 40 per share.
Our annualized dividend payment and the repurchase of 7% of our outstanding shares under the normal course issuer bid.
These actions underscore our commitment to enhance returns to our shareholders complemented by our growth capital program. This year.
We were pleased to bring into service, our Clearwater oil terminal and gathering infrastructure in our Montney water disposal infrastructure expansion at the end of the third quarter, both of which are backstopped by commercial agreements. These growth projects were completed and safely commissioned on time and on budget and provide critical.
Sure for the handling of production volume for our customers are.
Our infrastructure network maintain significant capacity to support customers' accommodating increased volumes for processing disposal recycling recovery internally with minimal incremental fixed costs or additional capital.
We also continue to see strong opportunities with customers seeking further expansions based on reducing their cost and environmental footprint.
Turning now to an update on the competition Tribunal, Canada decision early this year ordering the divestiture of 2009 facilities acquired from Davita in 2021.
<unk> combination of secure and Davita enable the combined company to better serve our customers provided significant synergies and enhanced value to our shareholders and elevated our position to deliver on environmental and social sustainability initiatives.
Despite the significant benefits brought to our customers shareholders and the communities, where we operate we received the decision of the federal Court of appeal in August that our appeal of the competition Tribunal decision has been dismissed.
And the decision we have proceeded with an appeal to the Supreme Court of Canada, and I'm pleased that we've been granted a stay while the Supreme Court determines whether to appeal to hear the appeal.
As a prudent course of action secure has also engaged an advisor with respect to our sales process of the 2009 facilities in the event of hearing is not granted or the corporation is not successful women's appeal due to the uncertainty with respect to the timing of a hearing being granted or resolution of the matter our board of directors and management.
You need to consider all options with respect to the tribunal order to best serve our customers and other stakeholders I will now pass it over to Chad to go through financial highlights from the third quarter.
Thanks, Randy and good morning to everyone on the call.
We are pleased with the strong performance of the business during the third quarter driving record financial results net revenue of $427 million in the quarter, the highest and secures history increased 2% from the third quarter of 2022 due to continued demand for our critical services and strong utilization across our infrastructure network.
Our 8% increase in adjusted EBITDA per share that Randy mentioned was driven by higher revenue and a lower share count.
We have repurchased 7% broker bancshares this year maxing out the normal course issuer bid implemented in December 2022.
Our board of Directors has also approved us to move forward with renewing or in CIB in December 2023.
We maintained our industry, leading adjusted EBITDA margin of 37% as we continue to diligently manage inflationary costs through price increases and operational efficiencies.
Net income for the quarter was $47 million or <unk> 16 per basic share down <unk> <unk> per share from the third quarter of 2022, primarily due to a gain on asset sale recorded in the prior year period.
We generated $130 million of funds flow from operations were <unk> 45 per share a 5% increase from the prior year. This drove our discretionary free cash flow of $140 million 36 per share an increase of 3% from prior year.
With respect to returns of capital during the third quarter, we repurchased $4 6 million common shares for $33 million and paid a quarterly dividend of <unk> 10 per common share amounted to $29 million.
We also incurred $33 million of growth capital primarily related to Clearwater oil terminal in gathering infrastructure and our montney water disposal infrastructure expansion. These assets came into service at the end of the third quarter and will begin contributing to the corporation's results in the fourth quarter.
Adjusted EBITDA and cash generation supported our capital priorities in the third quarter, while maintaining our total debt to EBIT covenant ratio of one nine times.
At September 32023, our debt consisted of 130 to 153 million U S of 2025 senior secured notes $340 million of 2026% unsecured notes and a draw on our revolving credit facility net of cash held up $362 million we maintain.
Considerable liquidity position of $394 million on our $850 million of facilities maturing in 2025.
Overall secure maintains a constructive outlook for volumes and activity levels and infrastructure to that throughout the remainder of 2023 and 2024.
Looking ahead, we expect to continue to direct our significant discretionary free cash flow to our four capital allocation priorities for.
For 2024. This includes capital structure improvements through the repayment of high interest debt.
Paying our <unk> 40 per share dividend growing our base infrastructure customer contracts and Opportunistically repurchasing shares.
I'll pass the call over to Alan to provide financial and operational highlights by segment.
Thanks, Jeff Good morning, everyone.
Throughout the third quarter, our core business operations continued to demonstrate strength and consistency underscoring our strong results. The most significant contributor to results in the quarter was our environmental waste management infrastructure segment generating adjusted EBITDA of $114 million at 12% increase over Q3.
Last year.
The increase was driven by strong produced water volumes at higher and higher prices across vis processing facilities in landfills, along with higher contributions from metal recycling due to improved efficiency and operating capabilities driving higher volumes and higher ferrous prices compared to the prior period.
Delving into the key drivers of these segment results, our produced water processing and disposal volumes averaged 156000 barrels per day.
7% increase over the prior year quarter, driven by solid industry fundamentals with strong commodity pricing and field activity supporting steady production levels. Meanwhile, oil recovery volumes were down marginally due to lower waste processing volumes, partially offset by higher produce water processing and disposal.
Waste processing volumes remained consistent with the prior year at 65000 barrels per day.
Our industrial landfill saw project delays, resulting from weather and the ongoing impact of wildfires experienced in the second and third quarter impacting reclamation and remediation volumes. Consequently, landfill volumes were down by 10% to $1 2 million times.
At our metal recycling facilities ferrous volumes increased by 14% due to operating efficiencies and enhanced rail capabilities, improving our recycling operations.
Ferrous prices were also up by 4% our strategic investments included.
The purchase of new railcars in the third quarter, having increased our handling capacity.
<unk> further optimization at these facilities.
Throughout our entire infrastructure and network, we hold significant capacity to accommodate any increased volumes, resulting in a growing demand for our services our utilization rate stood at 62% in Q3 slightly up for the year to date average of 61%.
The energy infrastructure segment generated adjusted EBITDA of $37 million, a decrease of $9 million over the same period in 2022, which saw higher benchmark oil prices and wide differentials, which created favorable conditions for blending resulted in higher than normal blending profit.
Pipeline and Terminalling volumes for Q3 increased by 3% to 105000 barrels per day compared to 2022, driven by commercial agreement and reoccurring crude oil volumes from our oil gathering pipelines.
Overall, the contracted nature of the volumes from these oil gathering pipelines along with the location of secures crude oil terminals close to the customers production continues to drive strong and consistent volumes for Terminalling and optimization.
The addition of Clearwater oil terminal will further drive volumes in this segment.
Finally, our oilfield services segment contributed $20 million of EBITDA 1 million higher than the third quarter of 2022.
Lower rig count and reduced field activity was more than offset by revenue mix and inflationary price increases over the past year.
Turning now to our capital program, we are extremely pleased to bring on our two major growth projects for the year, both the Clearwater terminal and Montney water disposal expansion project provided reliable volumes and reoccurring cash flows through customer partnerships with long term take or pay contracts our plan.
$100 million in growth capital for 2023 has been committed with the significant growth projects now operational.
Sustaining capital of $23 million for the quarter related to landfill expansions, well maintenance and asset integrity program for processing facility and asset purchases or metal recycling and waste management operation we.
We continue to expect to incur approximately $60 million of sustaining capital and $25 million of capital related to landfill expansions in 2023 with similar spending expected for next year as well the additional landfill expansions are anticipated.
In anticipation of increased abandonment spending obligations triggered from government regulations as a liability management programs in British Columbia, Alberta, and Saskatchewan and seek to speed up the rate in which inactive wells and facilities.
And then reclaim.
Our longer term outlook. The continued need for energy security has placed a renewed focus on the enduring role we play in Canadian oil and gas.
It will play in responsible and responsibly meeting the growing demand for energy. We are encouraged by the long term investments undertaken by energy producers from exploration and appraisal to production development and capacity expansion highlighting the extension and robust nature of the energy industry in Canada.
Our organic growth strategy remains focused on increasing volumes across our infrastructure network through long term contracts backed by partnerships.
We currently expect to spend $50 million in 2024 that corresponds to equipment purchases and higher probably bit higher probability opportunities that build upon our leverage our existing infrastructure, we intend to update our growth plans and provide further details upon signing agreements with our customers.
<unk> is well positioned for the long term due to the critical services provided to the energy and industrial customers through our infrastructure network located in key areas across Western Canada, and North Dakota.
Diverse waste streams and ongoing demand from our industrial customer base further enhanced the stability and resilience of our operations.
I will now turn it back to ready for closing remarks. Thanks Allen in closing, we remain committed to our vision of being the leader in environmental and energy infrastructure prioritizing value creation for our customers through reliable safe and environmentally responsible infrastructure.
This approach allows our customers to allocate their capital work in yield the highest return while emphasizing operational excellence and leading ESG standards. So far in 'twenty. Three we have made significant progress on our ESG initiatives. Some of the highlights include improving our corporate cotwo emission intensity with a decrease of two 7%.
Reflecting our ongoing efforts in energy management efficient equipment investments and landfill operation improvements, we continue to be on pace to meet our near term target of a three year, a 15% reduction in cotwo emissions by the end of 2024.
Establishing <unk>.
<unk> employee resource network accessible to all employees, providing valuable resources for our indigenous staff conducting their employee engagement survey, which results in a 75% engagement rate and will guide our action plans for improvement. Furthermore, commitment to workplace safety has resulted in four quarters without <unk>.
Loss time injury with improvements in our total recordable injury injury frequency in the second half of 'twenty three to date.
The heart of this company's lives a collective spirit of responsibility towards our shareholders customers and our communities.
Our ESG initiatives demonstrate our commitment to doing the right thing and making a positive difference we've made significant progress on this journey and we are committed to continue these efforts as we move forward. We remain focused on a shared goals embracing the challenges and opportunities that lie ahead.
That concludes our prepared remarks, we would now be happy to take your questions.
Thank you ladies and gentlemen, do you have a question please.
Followed by the one on your Touchtone phone if you would like to withdraw your question. Please press the star followed by the two <unk>.
Using a speaker phone please lift the handset before pressing any keys.
Please for your first question.
Your first question comes from John Gibson from BMO. Please go ahead.
Good morning, all congrats on the strong quarter here.
For me I'm, just I'm, hoping you can answer although I understand if you don't want to disclose much around process, but on a recent conference call a large U S. Wastewater was asked pretty directly about potential interest in the <unk> assets I guess, what I'm wondering is what types of parties have expressed interest. So far there is obviously a big multiple disconnect with where you are trading at relative to more traditional waste companies.
And do you feel that potential proceeds could surprise to the upside relative to what the street was expecting.
Yes at this point John all we can tell you is that we've had strong interest from North American parties.
As we go down this dual path, we'll have a little better idea late Q4 early Q1 as tool what what path we take.
But all we can tell you set.
Streamlet strong interest rate across North America.
Okay fair enough.
Second for me with the addition of the Montney in Clearwater facilities, what percentage of your AWS segment would be backstopped by take or pay contracts heading into Q4 versus prior.
Yes, Thanks, Sean.
Sure.
The.
Montney asset.
That's all in our <unk> segment, so that obviously increases it's probably.
The contracted amount there is probably still in the 25% to 30% range.
The Nipper C terminal right now Thats in our energy infrastructure segment.
Obviously, that's all that's all contracted.
I think John its Alan here, good morning, I think too.
We're in about the contracts and this is something that we've been.
<unk> seen that link.
Over the past few years is that a lot of that revenue that comes into our facilities is production related over 80% as production and when you look at the production profile over the last few years very stable and which is why we continue to see stability in our numbers.
Because a lot of our volume is derived for production is now when we think about capital investment.
We are tying a lot of our capital investment decisions to contracts because when we outlay that outweigh the capital we want to make sure theres not guaranteed rate of return for.
For ourselves and our shareholders and so there is a bit of that different look in terms of the capital decisions. We place, but when you think of think across a broad business a lot of it is production related which is that stability.
Okay, Great I really appreciate the responses I'll turn it back here.
Thank you. Our next question comes from Patrick Kenny from National Bank Financial. Please go ahead.
Hey, good morning, guys.
The update on your four capital allocation priorities for next year.
But it looks like dividend growth isn't one of them is that just because you see better organic growth opportunities in front of you right now or.
How are you just waiting until you can fully retire the.
11% notes before considering a ratable increase in the dividend.
Yes, I mean, you look at our yield today it's.
It's a pretty healthy five 2%.
The way we are looking for in years, we think our shares are extremely undervalued. So our number one priority really has to obviously be buying back more shares.
Put that in the press release that will kick offer in CIB.
And when we are allowed to December 15, so thats, our number one priority youre absolutely right we've got some.
Inherited high interest U S notes that would want to get retired at some point.
There are callable here December one so those are all priorities before the dividend its not saying that we won't increase the dividend down the road, but really wanted to take advantage and use our discretionary free cash flow towards those type of priorities right now.
Operator: Good morning, ladies and gentlemen, and welcome to this Secure Energy Q3 2023 Results conference call. At this time, aligns an listening mode. Following the presentation, we will conduct a question and answer session.
Got it.
And I guess I want to offer the base case priorities Reni.
With the balance sheet, where it is today sitting below two times.
Operator: If at any time during this call, you require immediate assistance. Please press the zero for the operator.
Assuming you are successful in divesting the 'twenty nine facilities for.
Call it a decent price tag.
Operator: This call is being recorded on Wednesday, November 1st, 2023.
How should we be thinking about the pecking order for allocating those net proceeds between further debt repayment accelerating growth maybe in an SUV.
Alison Prokop: I will now turn the conference over to Alison. Please go ahead. Thank you.
Rene Amirault: Welcome to Secure's conference call for the third quarter of 2023.
All of those options.
Rene Amirault: Joining me on the call today is Rene Amiro, our Chief Executive Officer, Allen Gransch, our President, 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 and ratios that do not have any standardized meaning prescribed by God and may not be comparable to similar financial measures or ratios disclosed by other companies. The forward-looking statements reflect the current use of Secure with respect to future events and are based on certain key expectations and assumptions considered reasonable by Secure.
Yes, the top part of trying to give you.
Even a pecking order never mind, what percentage of that is what is there a share price at the time, we want to allocate some of this capital.
So think of it. This way is there is for lemurs and part of that is.
Can we have the lever of debt reduction.
Lee.
Buyback shares we can obviously grow our organic business as you've seen Alan describing two great projects that we executed on time and on budget.
Rene Amirault: Since forward-looking information addresses 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 feeder 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-gap measures.
And then you have acquisitions in those four levers are going to be pretty fluid going into 'twenty. Four 'twenty five just based on where do we get our best Bang for our Buck as a shareholder so hard to prioritize never mind, even give you a percentage allocation because theres. So many moving parts.
Got it fair enough.
Rene Amirault: Today, we will review our financial and operational results for the third quarter of 2023 and our outlook for the remainder of the year in 2024.
And maybe just last one for me just.
Looking at the rig count.
Being down relative to last year.
Rene Amirault: I will now turn the call over to Rene for his opening remarks. Thank you, Allison, and good morning, everyone. Q3 was another strong quarter for our business showcasing Secure's ability to generate significant free cash flow across our infrastructure network. We recorded adjusted EBITDAW of 158 million or 54 cents per share, up 8% from the prior year. This robust performance enabled us to convert 66% of that EBITDAW into 104 million of discretionary.
But it looks like Youre still expecting.
Modest production growth around your facilities I'm, just wondering if you could help.
Help square up.
Some of the key factors supporting your outlook there.
Hi, Yes. Good question, Patrick I think when we look at the environmental waste management business very.
Very positive quarter, our same store sales up 7% and that's purely based off of the production of water that we see in process at our facilities and so even when you think about production being flat to slightly up and we're still having conversations with our customers as they set their priorities for 2024.
Rene Amirault: Free cash flow, which we used to execute on our capital allocation priorities. Year to date, we have delivered an annualized 12% return to shareholders, achieved through our 40 cents per share and annualized dividend payment, and the repurchase of 7% of our outstanding shares under the normal course issue or bid. These actions underscore our commitment to enhance returns to our shareholders, complemented by our growth capital program this year. We were pleased to bring into service our clear water oil terminal and gathering infrastructure and our monthly water disposal infrastructure expansion at the end of the third quarter, both of which are backstopped by commercial agreements.
But we believe that that that segment will have growth again in that same store sales in that 6% to 7%.
When we think about production wire thats been very consistent the trend on that if you go back five years remains very very consistent.
I think we're going to get some higher contribution from our metals recycling, we bought some some railcars, which improves our efficiencies on transporting out rail and more cost effective manner and helps us process quicker and get the inventory turns faster. So we're continuing to see improved efficiencies.
Rene Amirault: These growth projects were completed and safely commissioned on time and on budget and provide critical infrastructure for the handling of production volumes for our customers. Our infrastructure network maintains significant capacities for customers, accommodating increased volumes for processing, disposal, recycling, recovery, and termiling with minimal incremental fixed costs or additional capital. We also continue to see strong opportunities with customers seeking further expansions based on reducing their cost and environmental footprint.
When I look at our waste processing.
It remains relatively consistent as I said that in the opening remarks that kind of flat I would expect it is going to be flat I do think our landfill volumes will continue to pick up here I think.
Some challenging weather conditions with the wildfires and some of these delays on some of the reclamation projects, where they were maybe focus more on the downhole and not so much on the cleanup of the.
The dirty dirt and some of the facilities that needed to be cleaned up.
When I think about our energy infrastructure youre going to see in 2024, obviously <unk> volumes come online and will be handling more than 160000 barrels of oil on a on a daily basis. So we're going to see that throughput increase in.
Rene Amirault: Turning now to an update on the competition tribunal of Canada's decision early this year, ordering the divestary of 29 facilities acquired from Turvita in 2021. The strategic combination of Secure and Turvita enabled the combined company to better serve our customers, providing significant synergies and enhanced value to our shareholders, and elevated our position to deliver on environmental and social sustainability initiatives. Despite the Phoenician benefits brought to our customers, shareholders, and the communities where we operate.
Given now we're starting to see some apportionment that always creates arbitrage opportunities as well and helps.
The Bottomline profit when you can take a look at your infrastructure and take advantage of it so I just.
I think when you think into 2024 and the increases we've seen here in Q3 and consistent quarters I think that trend will continue into 2024.
Rene Amirault: We received the decision of the Federal Court of Appeal in August that our appeal of the competition tribunal decision has been dismissed. Following the decision, we have proceeded with an appeal for the Supreme Court of Canada and are pleased that we've been granted a stay while the Supreme Court determines whether to appeal to hear the appeal. At the Prudent course of action, Secure has also engaged in advisor with respect to a sales process of the 29 facilities in the event of hearing is not granted or the corporation is not successful in its appeal.
Okay, that's great color I'll leave it there guys. Thanks.
Thanks, Patrick Thanks, Patrick.
Your next question comes from Keith Mackey from RBC. Please go ahead.
Hey, Good morning, just first wanted to start off on the growth capital expectation for 2024 at that $50 million. It sounds like that doesn't include any larger projects similar to the ones you brought on.
Brought onstream. Most recently can you just speak to what Youre seeing in the market for larger terminal or water handling projects, what's what's the relative opportunity out there these days.
Rene Amirault: Due to the uncertainty with respect to the timing of a hearing being granted or resolution of the matter, our board of directors and management continue to consider all options with respect to the tribunals order to best serve our customers and other stakeholders.
And if you could even potentially put some bookends around than what 2024 capital on the growth side could ultimately be given what you see in the market and any projects youre contemplating whether whether they do meet your return profiles as you as you as you see them.
Chad Magus: I'll now pass it over to Chad to go through financial highlights from the third quarter. Thanks, Renny and good morning to everyone on the call. We're pleased with the strong performance of the business during the third quarter driving record financial results. Net revenue of 427 million in the quarter, the highest and secures in history, can create 2% from the third quarter of 2022 due to continued demand for our critical services and strong utilization across our infrastructure network.
Good morning, Keith.
So when we think about the $50 million that we've allocated.
For 2024.
<unk>.
Chad Magus: Our 8% increase in adjusted EBITDA for share that Renny mentioned was driven by higher revenue and a lower share count. We have repurchased 7% of our outstanding shares this year. Maxing out the normal course issue of it implemented in December 2022. Our board of directors has also approved us to move forward with renewing our NCFE in December 2023. We maintained our industry leading adjusted EBITDA margin of 37% as we continued to diligently manage the stationary costs through price increases and operational efficiencies.
Balanced between some of the projects that we know are getting closer to having a contract signed and some of these projects actually make may start to kick off here late Q4 and start some more capital spend into Q1, which we will announce these projects.
Once we release, our quarters and give you more color around it but we've got some equipment purchases and we've got some some water disposal and kind of pipeline infrastructure that we're going to start working on here through Q4 into Q1, but.
Chad Magus: Net income for the quarter was 47 million for 16 cents per base of share, down 3 cents per share from the third quarter of 2022, primarily due to a gain on asset sales recorded in the prior year period. We generated 130 million of funds flow from operations for 45 cents per share, a 5% increase from the prior year, this drove our discretionary free cash flow of 104 million, for 36 cents per share, an increase of 3% per prior year.
But we've left it at 50, that's our target right now obviously, we did 102023 and when you think about the hopper of opportunities that I would call it greater than 200 million plus and in opportunities that we see as great expansion brownfield opportunities bolt.
On the oil energy infrastructure side and on the production water and tightening in because obviously the transportation costs and taking it off a truck and put it on a pipe have.
Chad Magus: With respect to returns of capital, during the third quarter we repurchased 4.6 million common shares for $33 million and paid our quarterly dividend of 10 cents per common share amounting to $29 million. We also incurred 33 million of growth capital, primarily related to clear water oil terminal and gathering infrastructure and our Montany water disposal infrastructure expansion. These assets came into service at the end of the third quarter and will begin contributing to the corporation's results in the fourth quarter.
Great returns for not only our customers but ourselves.
But as we think about our 2020 for span.
These contracts take a long time to negotiate that can be upwards of a year to get a contract signed we also need to protect against rising costs on equipment.
These projects and making sure that you are managing the inflation cost making sure. Your numbers are tied through so we spent a lot of time, making sure. We have our nails are our numbers nailed down such that we can protect our returns as we sanction these projects and so we're more likely to announce these projects.
Chad Magus: Adjusted EBITDA and cash generation support in our capital priorities in the third quarter, while maintaining our total debt EBITDA covenant ratio of 1.9 times. At September 30, 2023, our debt consists of 130, 153 million US of 2025 senior secured notes, 340 million of 2026 unsecured notes, and a draw on our Walman credit facility, net of cash held of 362 million. We maintain a considerable liquidity position of 394 million on our 850 million of facilities maturing in 2025.
The contract has been signed and so don't want to speculate what that looks like in 2024 at this point, we're comfortable with the 50, but yes, it could be higher and when you look at our discretionary free cash flow with our dividend with our buybacks.
Got flexibility there to spend on some of these great organic projects.
We feel very very comfortable with.
Chad Magus: Overall, secure maintains a constructive outlook for volumes, activity levels, and infrastructure demand throughout the remainder of 2023 and 2024. Looking ahead, we expect to continue to direct our significant discretionary free cash load to our four capital allocation priorities.
Okay. Thanks for that and just to follow up on on Q4. It looks like the street numbers have EBITDA going down maybe eight or $9 million sequentially. I know there is some seasonality quarter to quarter, but you had brought on a couple of others.
Chad Magus: For 2024, this includes capital structure improvements through the repayment of high interest debt, paying our 40 cent per share dividend, throwing our base infrastructure with customer back contracts, and opportunistically reversing shares.
Couple of larger projects that may start to contribute.
Can you just talk through how we should be thinking about the the sequential.
EBITDA either growth or decline from Q3 to Q4.
Good morning, Keith.
Allen Gransch: It will now pass call over to Allen to provide financial and operational highlights by segment. Thanks, Chat. Good morning, everyone. Throughout the third quarter, our core business operations continue to demonstrate strength and consistency underscoring our strong results. The most significant contributor to results in the quarter was your environmental waste management infrastructure segment, generating a adjusted EBITDA of 114 million at 12% increase over Q3 last year. The increase was driven by strong produced water volumes and higher higher prices across waste processing facilities and landfills along with higher contributions from metal recycling due to improved efficiencies and operating capabilities driving higher volumes and higher price prices compared to the prior period.
So typically on the.
Look back over the year as you see in the last several years at least.
Have seen that slowdown Q3 is usually been kind of a high watermark for us in the year.
Q4 is usually slightly lower and it's it is usually due to just less activity with.
Christmas seasonal slowdown.
We see rigs starting to falloff before Christmas and some volumes has not moved.
Much as they otherwise would so I think that's the main reason.
Got it I appreciate the comments said, thanks very much that's it for me.
Thanks Keith.
Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the one.
Your next question comes from Carlos <unk> from Stifel. Please go ahead.
Allen Gransch: Delving into the key drivers of these segment results are produced water processing and disposal volumes adverse to 156,000 barrels per day at 7% increase over the prior year quarter driven by solid industry fundamentals with strong commodity pricing and field activity supporting steady production levels. Meanwhile, oil recovery volumes were down marginally due to lower waste processing volumes partially offset by higher produced water processing and disposal. Waste processing volumes remained consistent with the prior year at 65,000 barrels per day.
Good morning, all just a quick point of clarity on the divestitures is the plan to wait until you hear back from the Supreme Court about whether you can get a hearing or could you theoretically sell the assets prior to that if you got a really attractive bid.
Yes.
The way the process works is that we have the ability anything that we do is subject to the competition Bureau approval. So.
As we go down this dual path obviously.
Whatever path, we take will be engaged with the competition Bureau, because obviously there.
Allen Gransch: Our industrial landfills saw project delays resulting from weather and the ongoing impact of wildfires experienced in the second and third quarter impacting reclamation and remediation volumes. Consequently, landfills volumes were down by 10% to 1.2 million tons. At our metal recycling facilities, Ferris volumes increased by 14% due to operating efficiencies and enhanced rail capabilities improving our recycling operations. Ferris prices were also up by 4%. Our strategic investments included the purchase of new rail cars in the third quarter having increased our handling capacity, supporting further optimization at these facilities.
Fulfilling the tribunal order so hard to say at this point in time, how that all plays out but.
Do keep in mind that this is this.
This is not just a secured decision. This is a secured decision along with approvals from the competition Bureau.
Okay got it that's all for me, Thanks, I'll turn it back.
Thanks, Paul.
And there are no further questions at this time I will turn the call back over to Renee for closing remarks.
Okay.
Thank you.
And thank all of you for being on the conference call. Today, we do have a tape broadcast of the call which will be available unsecured website. So thanks again.
Allen Gransch: Throughout our entire infrastructure network, we hold significant capacity to accommodate any increased volumes resulting in the growing demand for our services. Our Utilization rates stood at 62% in Q3 slightly up from the year-to-date average of 61%. The energy infrastructure segment generated the Jeff Deiba 37 million, a decrease of 9 million over the same period in 2022, was saw a higher benchmark oil prices and wide differentials which created favorable conditions for blending and resulted in higher than normal blending profit.
Look forward to Q4.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
[music].
Allen Gransch: Pipeline and termally volumes for Q3 increased by 3% to 105,000 barrels per day compared to 2022, driven by commercial agreements and reoccurring crude oil volumes from our oil gathering pipelines. Overall, the contracted nature of the volumes from these oil gathering pipelines along with the location of secure crude oil terminals close to the customer's production continues to drive strong and consistent volumes for termally and optimization. The addition of clear water oil terminal will further drive volumes in this segment.
Allen Gransch: Finally, our oil field services segment contributed 20 million of EVA Dow, 1 million higher than the third quarter of 2022, as a lower recount and reduced field activity was more than offset by revenue mix and inflationary price increases over the past year. Turning now to our capital program, we are extremely pleased to bring on our two major growth projects for the year, both the clear water terminal and monthly water disposal expansion projects provided reliable volumes and reoccurring cash flows through customer partnerships with long-term take-or-pay contracts.
Allen Gransch: Our plan 100 million in growth capital for 2023 has been committed with the significant growth project now operational. Sustaining capital of 23 million for the quarter related to landfill expansions, well maintenance and asset integrity programs for processing facilities and asset purchases for metal recycling and waste management operations. We continue to expect to incur approximately 60 million of sustaining capital and 25 million of capital related to landfill expansions in 2023 with similar spending expected for next year as well.
Allen Gransch: The additional landfill expansions are anticipated and in anticipation of increased abandonment spending obligations driven from government regulations as the liability management programs in British Columbia, Alberta and Saskatchewan seek to speed up the rate in which inactive wells and facilities are abandoned and reclaimed. For our longer term outlook, the continued need for energy security has placed the renewed focus on the enduring role we played Canadian oil and gas and will play in responsible in responsibly meeting the growing demand for energy.
Allen Gransch: We are encouraged by the long-term investment undertaken by energy producers from exploration and appraisal to production development and capacity expansions highlighting the extension and robust nature of the energy industry in Canada. Our organic growth strategy remains focused on increasing volumes across our infrastructure network through long-term contracts backed by partnerships. We currently expect to spend 50 million in 2024 that corresponds to equipment purchases and higher probability opportunities that build upon or leverage our existing infrastructure.
Allen Gransch: We intend to update our growth plans and provide further details upon signing agreements with our customers. To here is well positioned for the long term due to the critical services provided to the energy and industrial customers through our infrastructure network located in key areas across Western Canada and North Dakota. Data and Environmental and Energy Infrastructure, prioritizing value creation for customers through reliable, safe and environmentally responsible infrastructure. This approach allows our customers to allocate their capital, work and yield the highest return while emphasizing operational excellence and leading ESG standards.
Allen Gransch: So far in 23, we have made significant progress in our ESG initiatives. Some of the highlights include improving our corporate CO2 emission intensity with a decrease of 2.7%. Reflecting our ongoing efforts in energy management, efficient equipment investments, and landfill operation improvements. We continue to be on pace to meet our near term target of a three year, 15% reduction in CO2 emissions by the end of 2024. Establishing an indigenous employee resource network accessible to all employees providing valuable resources for our indigenous staff conducting our employee engagement survey, which results in a 75% engagement rate and will guide our action plans for improvement.
Allen Gransch: Furthermore, our commitment to workplace safety has resulted in four quarters without a lost time injury with improvements in our total recordable injury, injury frequency in the second half of 23 to date. The heart of this company lies a collective spirit of responsibility towards our shareholders, customers and our communities. Our ESG initiatives demonstrate our commitments to do the right thing and making a positive difference. We have made significant progress on this journey, and we're committed to continue these efforts. As we move forward, we remain focused on a shared goals embracing the challenges and opportunities that lie ahead.
Operator: That concludes our prepared remarks. We would now be happy to take your questions. Thank you, ladies and gentlemen. Should you have a question? Please press the star followed by the one on your touchstone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speaker phone, please lift the headset before pressing any keys. One moment please for your first question.
John Gibson: Your first question comes from John Gibson from BMO. Please go ahead. More and all congrats on the strong quarter here. First, for me, I'm hoping you can answer, although I understand if you don't want to disclose much around the process. But on a recent conference call, a large U.S, wastewater was asked pretty directly about potential interest in the turbida assets. I guess what I'm wondering is what types of parties have expressed interest so far.
John Gibson: There's obviously a big multiple disconnect with where you are trading at relative to more traditional waste companies. And do you feel that potential proceeds could surprisingly upside relative to what the street is expecting? Yeah, at this point, John, all we can tell you is that we've had strong interest from North American parties. And as we go down this dual path, we'll have a little better idea.
Rene Amirault: Like Q4 or the Q1 as to what path we take. And all we can tell you is that it's extremely strong interest right across North. American. Okay, fair enough.
Allen Gransch: Second for me, with the addition of the money and clear water facilities, what percentage of your EWM segment would be backstopped by takeer pay contracts, heading it to Q4 versus prior? Yeah, thanks, John. You know, the, the, the, the money asset that's all in our EWM segment, so that obviously increases. It's probably the contract amount there is probably still in the 25 to 30% range, the nipacy terminal right now, that's in our energy infrastructure segment, and obviously that's all that's all contracted.
Allen Gransch: I think John, it's Allen here, morning, I think to, you know, over and above the contracts, and this is something that we've been, you know, discussing that link over the past few years is that a lot of the revenue that comes into our facilities is production. Related, you know, over 80% is production, and when you look at the production profile over the last few years, very stable, and which is why we continue to see stability in our numbers.
Allen Gransch: It's because a lot of our volume is derived for productions. Now, when we think about capital investment, we are tying a lot of our capital investment decisions to contracts. Because when we outlay the capital, we want to make sure there's that guaranteed rate of return for, for ourselves and our shareholders, and so there's a bit of that different look in terms of the capital decisions we place. But when you think of, think across the broad business, a lot of it is production related, which is that stability.
John Gibson: Hey, great. I really appreciate your responses. I'll turn it back here.
Patrick Kenny: Hey, your next question comes from Patrick Kenny from National Bank Financial. Please go ahead. Yeah, good morning, guys. I appreciate the update on your four capital allocation priorities for next year. But looks like dividend growth isn't one of them. Is that just because you've seen better organic growth opportunities in front of you right now, or are you just waiting until you can fully retire the 11% know what's before considering a rateable increase in the dividend?
Patrick Kenny: Yeah, I mean, you look at our yield today. It's it's a pretty healthy 5.2%. You know, the way we're looking for it here is we think our shares are extremely undervalued. So our number one priority really has to obviously be buying back more shares and we put that in the press release that will kick off our NC and I be again, when we're allowed to December 15th. So that's our number one party.
Patrick Kenny: You're actually right. We've got some inherited high interest US notes that would want to get retired at some point. They're they're callable here December 1st. So those are all priorities before the dividend. It's not saying that we won't increase the dividend down the road, but really want to take advantage and use our discretionary free cash flow towards those type of priorities right now. Got it. And I guess on top of the base case priorities, Renny just with the balance sheet where it is today, you know, sitting below two times.
Patrick Kenny: I'm assuming you are successful in investing the 29 facilities for a call at a decent price tag. You know, how should we be thinking about the pecking order for allocating those net proceeds between further debt repayment, accelerating growth, maybe an NSIB, all those options? Yeah, but the top part of trying to give you even a pecking order never mind, you know, what percentage of that is, what is there a share price at the time we want to allocate some of this capital?
Patrick Kenny: So think of it this way is there's four levers and, you know, part of that is, is, you know, we can, we have the lever of debt reduction. We obviously can buy back shares. We can obviously grow our organic business as you've seen Allen describing two great projects that we executed on time and on budget. And then you have acquisitions and those four levers are going to be pretty fluid going into 24 and 25 just based on, you know, where do we get our best bang for a buck as a shareholder?
Patrick Kenny: So hard to prioritize, never mind, even give you a percentage allocation because there's so many moving parts. Got it fair enough. And maybe just last one for me, just, you know, looking at the rig counts being down with the last year, but looks like you're still expecting, you know, modest production growth around your facilities, just wondering if you could help square up, you know, some of the key factor supporting your outlook there.
Patrick Kenny: Yeah, no, good question, Patrick. I think, you know, when we look at the environmental waste management business, you know, very, very positive quarter are same store sales, up seven percent, and that's purely based off of the production water that we see and process that our facilities. And so even when you think about production being flat is slightly up and we're still having conversations with our customers that they set their priorities for 2024, but we believe that that segment will have growth again in that same store sales in that six to seven percent.
Patrick Kenny: When we think about production water, that's been very consistent, the trend on that if you go back five years remains very, very consistent. I think we're going to get some higher contribution from our metals recycling, you know, we bought some rail cars, which improves our efficiencies on transporting out rail in more cost effective manner and helps us process quicker and get the inventory turns faster. So we're continuing to see improved efficiencies, when I look at our waste processing, you know, it remains relatively consistent and I said that, you know, in the opening remarks that kind of flat, I would expect it's going to be flat.
Patrick Kenny: I do think our landfill volumes will continue to pick up here. I think they did have some challenging weather conditions with the wildfires and some of these delays on some of the reclamation projects where they were maybe focused more on the downhole and not so much on the clean up of the dirty dirt and some of the facilities that need to be cleaned up. When I think about our energy infrastructure, you're going to see in 2024 obviously the nipacy volumes come online and we'll be handling more than 160,000 barrels of oil on a daily basis.
Patrick Kenny: So we're going to see that throughput increase and, you know, given now we're starting to see some apportionment that always creates arbitrage opportunities as well and helps you know, the bottom line profit when you can take a look at your infrastructure and take advantage of it. So when I think, you know, when we think into 2024 and the increases we've seen here in Q3 and consistent quarters, I think that trend will continue into 2024. Okay, that's a great color. I'll leave it there, guys. Thanks. Thanks, Patrick.
Keith Mackey: Your next question comes from Keith MacKey from RBC. Please go ahead.
Allen Gransch: Hey, good morning. Just first wanted to start off on the growth capital expectation for 2024 at that 50 million. It sounds like that doesn't include any larger projects similar to the ones you brought on. Can you just speak to what you're seeing in the market for larger terminal or water handling projects. What's the relative opportunity out there these days? And if you could even potentially put some book ends around then what 2024 capital on the growth side could ultimately be given what you see in the market and in any projects you're contemplating whether, you know, whether they do meet your return profiles as you as you see them.
Allen Gransch: Morning, Keith. Yeah, so when we think about the 50 million that we've allocated for 2024, it's a bit of a balance between some of the projects that we know are getting closer to having a contract signed and some of these projects actually make may start to kick off your late Q4. And start some more capital spend into Q1, which will announce these projects once we release our quarters and give you more color around it, but we've got some equipment purchases and we've got some water disposal and kind of pipeline infrastructure that we're going to start working on here through Q4 and the Q1.
Allen Gransch: But we've left it at 50 that that's our target right now. Obviously we did 123 and when you think about the hopper of opportunities that I would call it greater than 200 million plus and in opportunities that we see as great expansion, brown field opportunities both on the oil, energy infrastructure side and on the production water in tiny and because obviously the transportation costs and taking it off the truck. We're putting it on a pipe have have great returns for not only our customers, but ourselves.
Allen Gransch: But as we think about our 2024 spend, you know, these contracts take a long time to negotiate they can be upwards of a year to get a contract signed. And we also need to protect against rising cost on equipment for these projects and making sure that you're managing the inflation costs and making sure your numbers are tied through. So we spent a lot of time making sure we have our nails are our numbers nailed down such that you know we can protect our returns as we sanction these projects.
Allen Gransch: And so we're more likely to announce these projects once the contract has been signed and so don't want to speculate what that looks like in 2024 at this point. We're comfortable with the 50, but yes, it could be higher. And when you look at our discretionary free cash flow, you know, with our dividend with our buybacks, you know, we've got flexibility there to defend on some of these great organic projects, which we feel very, very comfortable with.
Chad Magus: Okay, thanks for that. And just to follow up on on Q4, it looks like the the street numbers have EBITDA going down maybe eight or nine million dollars sequentially. I know there's some seasonality quarter to quarter, but you have brought on a couple of, you know, couple larger projects that may start to contribute. Can you just talk through how we should be thinking about the sequential EBITDA either grow or decline from Q3A Q4?
Chad Magus: Second morning, Keith. Typically when we look back over the years, you see a lot of several years at least we have seen that slow down Q3s. Usually been kind of high water weren't for us in the year and then Q4 is usually slightly lower and it's it is usually due to just less activity with the Christmas seasonals slow down. We see Rick starting to fall off before Christmas and some volumes just not move as much as they otherwise would. So I think that's that's the main reason. Got it.
Keith Mackey: Appreciate the comments. Thanks very much.
Keith Mackey: That's it for me. Thank you.
Cole Pereira: Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one your next question comes from Cold Pereira from Steve, please go ahead. Morning all just a quick point of clarity on the divestitures is the plan to wait until you hear back from the Supreme Court about whether you can get a hearing. Or could you theoretically sell the assets prior to that if you got a really attractive bid?
Cole Pereira: Yeah, the way that the process works is that, you know, we have the ability anything that we do is subject to the competition bureau approval. So as we go down this dual path, obviously whatever path we take will be engaged with the competition bureau because obviously they're fulfilling that tribunal order. So hard to say at this point time how that all plays out, but do keep in mind that this is this is not just a secure decision. This is a secure decision along with approvals from the competition bureau.
Cole Pereira: Okay, got it.
Cole Pereira: That's all for me.
Operator: Thanks.
Operator: I'll turn it back.
Operator: Thanks.
Operator: Go on.
Operator: And there are no further questions at this time.
Rene Amirault: I will put in a call back over to Renee for closing remarks. Thank you. And thank all of you for being on the conference call today.
Operator: We do have a tape broadcast of the call, which will be available on Secure's website. So thanks again and look forward to Q4.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you. [inaudible]