Secure Energy Services Stock

SECURE Energy Services Inc. provides customer solutions to upstream oil and natural gas companies operating in western Canada and certain regions in the United States (U.S.).

Segments

The company operates through three segments: Midstream Infrastructure, Environmental Solutions, and Technical Solutions.

Within these three operating segments, the company has three material subsidiaries:

SECURE Energy (Drilling Services) Inc.

This entity provides equipment and product solutions for drilling, completion and production operations for oil and gas producers in the WCSB and forms the Technical Solutions division of the company.

SECURE Energy (OnSite Services) Inc.

This entity forms the Environmental Solutions division of the company and provides environmental solutions, from initial assessment and planning to construction, demolition and decommissioning, and reclamation and remediation, to a diversified customer base, and water pumping and storage solutions.

SECURE Energy Services USA LLC

This entity is the U.S. branch of the Midstream Infrastructure division, which operates three Full Service Terminal facilities (FST), one water disposal facility and one landfill in North Dakota; and acquired a 27% interest in a crude oil storage facility in Cushing, Oklahoma during 2019 and a 51% interest in 80 acres of undeveloped land located adjacent to the crude oil storage facility.

Midstream Infrastructure segment

This segment assists upstream oil and natural gas companies operating in the WCSB and certain regions of the U.S. with the processing, storing, shipping and marketing of crude oil, oilfield waste and water disposal and recycling. The Midstream Infrastructure services provided by the company include clean oil terminalling and storage, crude oil marketing, pipeline transportation, rail transloading, custom treating of crude oil, produced and waste water disposal, oilfield waste processing, and oil purchase and resale services.

As of December 31, 2019, the company’s Midstream Infrastructure solutions were provided at 38 facilities in Alberta, three facilities in British Columbia, five facilities in Saskatchewan, one facility in Manitoba, five facilities in North Dakota, and one facility in Oklahoma.

Crude Oil Terminalling, Storage and Marketing

Twelve of the company’s facilities provide customers with an access point or terminal to transport their produced clean oil to market by pipeline. At the majority of the company’s pipeline connected facilities, this oil is delivered by customers to the company’s facilities by truck and is stored on site until it is shipped through the gathering or transmission pipelines. The company manages both the purchase of the oil and the subsequent payment to the producer for the delivered oil based on the initial quality received. The company also has crude oil storage at certain of its pipeline connected facilities to optimize pricing and manage pipeline transportation constraints.

Pipeline Transportation

Oil Pipelines

The completion of the company’s Kerrobert Light Pipeline System in 2018 expanded its services to include oil pipeline transportation. The 16.5 kilometre 4 to 8 inch feeder pipeline system located in the Viking oil region of Saskatchewan gathers crude oil from multiple oil producers, before feeding into the company’s existing Kindersley FST. A larger 27 kilometre pipeline, with a diameter of 10 inches, initiating adjacent to the company’s Kindersley FST transports crude oil from the feeder system and processed oil from the Kindersley FST to the company’s Kerrobert Crude Oil Terminal, and then onto the Enbridge Inc. mainline at Kerrobert. The entire system stretches approximately 43.5 kilometres with a total capacity of 50,000 barrels per day.

In 2019, the company commenced construction of its second oil pipeline, the East Kaybob Pipeline System. Several producer facilities will be tied into the East Kaybob Pipeline System by way of four-inch diameter lateral pipelines, joining together into a six-inch line stretching approximately 25 kilometres to the Fox Creek FST. In total, the East Kaybob Pipeline System is planned to span approximately 120 kilometres. Construction commenced in November 2019 and the East Kaybob Pipeline System is expected to be operational by mid-2020, subject to timing of receipt of regulatory approvals or unanticipated delays.

Water Pipelines

The company owns five produced water pipelines located in Alberta and North Dakota, connecting producer facilities/gas plants to the company’s midstream processing facilities.

Rail Transloading

The company has four crude by rail facilities located in Alberta and Saskatchewan, which provide crude oil producers an alternative method to get their oil to market. At the company’s rail terminals, crude oil could be aggregated with multiple suppliers and marketed through single-sale transactions, or producers can market their own barrels by utilizing the company’s transloading services, which carry crude by rail to virtually all North American markets. The company’s crude by rail terminals are located in Rycroft, High Prairie and Mannville, Alberta, and Kindersley, Saskatchewan.

Custom Treating of Crude Oil

The company’s emulsion treating service separates oil from other by-products to create pipeline specification crude oil.

Oilfield Waste Processing

The company’s oilfield waste processing separates waste into three components: recoverable oil, waste water and residual solids. Residual waste water is deep well injected into Class IB Disposal Wells and separated solids are processed and transported to one of the company’s Class II or Class I Oilfield Landfills.

Produced Water and Waste Water Disposal

The company provides produced and waste water disposal services through a network of Class IB Disposal Wells in Canada and Class II disposal wells in North Dakota. Disposal wells are approved by the Alberta Energy Regulator (AER), British Columbia Oil and Gas Commission, and The Saskatchewan Ministry of Economy in Canada and the Industrial Commission Department of Mineral Resources Oil and Gas Division in North Dakota.

The wells dispose of various fluids, such as produced water associated with production of oil, bitumen, natural gas, NGLs or coalbed methane; produced water and specific common oilfield waste fluids; saline fluids from oilfield waste processing facilities; and waste fluids from drilling and completion operations.

Landfill Disposal

The company’s landfills provide for the secure disposal of oilfield solid wastes. All landfills are approved as Class II Oilfield Landfills by Alberta Environment and Parks (AEP) to dispose of waste associated with various activities:

Reclamation – Contaminated soil associated with the cleanup of past operating facilities.

Production – Disposal of soil contaminated as a result of spills or pipeline breaks.

Drilling – Cuttings removed from the wellbore are contaminated based on the type of drilling mud used.

In addition to a Class II cell, the Pembina Area Landfill has a separate Class I Landfill cell and is approved for NORM disposal, the only landfill of its kind in Alberta. With limited options for NORM solid waste disposal in western Canada, the company provides customers with a safe, economical and environmentally responsible disposal option for NORM impacted solids. The Class I cell is regulated by Alberta Environment and Parks and allows for the disposal of industrial hazardous solids and dangerous oilfield wastes, including filters, tank bottoms, soils, pipeline pigging waste, demolition waste, and non-usable/non-recyclable equipment.

Oil Purchase and Resale

The purpose of providing this service is to enhance the company’s produced water disposal, crude oil emulsion treating, terminalling, rail transloading and marketing operations. By offering this service, the company’s customers gain efficiencies in transportation and handling of their crude oil to the pipeline. At SECURE FSTs and crude oil terminalling facilities, the company will meter the crude oil volumes and purchase the crude oil directly from the company’s customers. The company will then process, transport to a pipeline connected FST if necessary, and handle the shipment of crude oil down the pipeline.

The company has twelve pipeline connected facilities, such as Alida, Cushing, Dawson Creek, Drayton Valley, Fox Creek, Judy Creek, Kakwa, Keene, Kerrobert, La Glace, Kindersley, and Silverdale. Alternatively, the crude oil can be transported and transloaded into rail cars at one of the company’s four crude by rail terminals.

Environmental Solutions segment

The operations of the Environmental Solutions segment provide comprehensive environmental solutions, from initial assessment and planning to construction, demolition and decommissioning and reclamation and remediation solutions. These solutions include pipeline integrity projects (inspection, excavation, repair, replacement and rehabilitation), demolition and decommissioning, and reclamation and remediation of former well sites, facilities, commercial and industrial properties, environmental construction projects (landfills, containment ponds, subsurface containment walls, etc.), onsite integrated fluid solutions (water management, recycling, pumping and storage), remediation and reclamation assessment services, Naturally Occurring Radioactive Material (NORM) management, waste container services and emergency response services.

This segment also operates and manages third party landfills and provides scrap metal recycling solutions for major industrial customers. These solutions are primarily offered throughout western and central Canada.

Pipeline Integrity

The company’s full cycle pipeline integrity solutions include pipeline digs, maintenance, new construction horizontal directional drilling programs, geotechnical evaluation, and abandonment and decommissioning solutions. This all-encompassing management system ensures assets are fulfilling their delivery obligations, operating efficiently, and mitigating the risks associated with incidents affecting the public, the environment, or reputation.

Demolition and Decommissioning

When a company's assets reach the end of their useful life, a safe, cost effective method to remove these assets is required. The company provides the specialized equipment necessary for these projects to be completed safely. The company provides complete decommissioning solutions from hazardous materials removal, through to facility demolition, asset recovery and recycling.

Remediation and Reclamation

The company provides remediation and reclamation solutions to assist in the removal and clean-up of contaminants from soil, groundwater, and sediment for the protection and betterment of the public and the environment. The company has experience in all aspects of excavation, transportation, treatment and disposal of contaminated soils. The company has the capability of handling all remedial aspects of pond projects from sludge removal and remediation, to re-shaping and re-lining ponds.

Environmental Construction

The company has the capability to complete all aspects of environmental construction, including the highest level of landfill construction certification, such as Alberta Class I Landfills, leachate collection system installation, pond construction, liner installation, road, lease and pad construction, coffer dam construction, aggregate replacement, funnel and gate technology construction, groundwater recovery trench construction, sheet piling, slope stability, and bentonite slurry wall construction.

Fluid Management, Recycling, Pumping and Storage Solutions

The company has a fleet of water pumping equipment (including automated units), temporary pipelines, filtration and heating equipment to meet the company’s customer's fluid transfer needs. The introduction of automated pumps has resulted in cost efficiencies for the company’s customers as labour requirements are less intensive. The company employs a team of professionals to review the customer's specific job requirements and design an engineered pumping solution to meet the individual project needs.

The company has frac tanks available for rental to its customers. The frac tanks are necessary to support the increasing requirement to have more above ground fluid storage available for large multi-stage fracs completed on horizontal oil and natural gas wells. The primary purpose of this service is to complement and integrate existing service offerings by establishing integrated fluid services with the company’s customers allowing it to manage and handle their fluid requirements during the entire drilling process.

NORM Management

The company provides a full line of services for managing NORMs, including site assessments, remediation, waste collection and disposal, and NORM safety training and consulting.

Waste Container Services

The company offers a waste container service for the disposal of oilfield filters, rags and pads, and contaminated soils and solids. This service is offered in conjunction with the Midstream Infrastructure segment’s existing network of facilities to dispose of and manage customer's waste.

Emergency Response Services

The company provides emergency response services in connection with rail incidents, lease site releases, pipeline breaks and motor vehicle transportation accidents. This service is offered in conjunction with the company’s existing facilities and network to provide services from the initial response through to final regulatory cleanup requirements and disposal. The company has specialized heavy equipment and personnel for immediate response and emergency containment across western Canada.

Oil Sands and Scrap Metal Recycling

The company has long-term agreements with two major oil sand producers to manage and operate their scrap metal recycling programs in the Fort McMurray region of Alberta. The company has gained a reputation as a preferred service provider in the region resulting in offering additional services to existing customers and new project opportunities with other producers and contractors.

Technical Solutions segment

This segment provides customer focused product solutions, equipment and chemicals for drilling, completion and production operations for oil and gas producers in western Canada. The drilling service line includes the design and implementation of drilling fluid systems for producers drilling for oil, bitumen and natural gas. The drilling service line focuses on providing products and systems that are designed for more complex wells, such as medium to deep wells, horizontal wells and horizontal wells drilled into the oil sands. The production services line focuses on providing chemical solutions that optimize production, provide flow assurance and maintain the integrity of production assets.

Drilling Services

The company’s drilling services maximize the useful life of drilling fluids and provide safeguards for environmental compliance. Drilling services provided by the Technical Solutions segment includes the design and implementation of drilling fluid systems for producers drilling for oil, bitumen, natural gas and NGLs. This segment has a large focus on servicing the major resource plays, such as but not limited to, the Cardium of central Alberta, the Montney and Duvernay in the Deep Basin of Alberta and British Columbia, the oil sands of Alberta and the Bakken of Saskatchewan. The wells drilled in these resource plays include vertical wells and directional wells. With the development of horizontal completion techniques, such as horizontal fracturing technology, resources previously thought of as uneconomic or trapped are being developed in old and new fields across North America.

The company’s drilling fluid systems are designed to be adaptable to a wide range of complex and varied drilling and completion scenarios, to help clients eliminate inefficiencies in the drilling and completion process and to assist clients in meeting operational objectives while maintaining environmental compliance. The Technical Solutions segment markets the company’s proprietary and patented products, technical expertise and fluid engineering services to all entities that drill oil, gas or energy related wells.

The Technical Solutions segment markets the company’s services by emphasizing the historical success of the company’s products and systems, as well as the experience and technical competency of the company’s management and employees. The company has three invert (oil based drilling mud) blending and mixing facilities located across Alberta, two of which are located adjacent to the company’s FSTs. These facilities are capable of manufacturing and reconditioning invert fluid.

The company owns and operates a minerals product plant located in southern Alberta. The plant mainly processes barite to be used in drilling fluids systems and allows the division to maintain supply logistics and quality. Drilling services provides fluids and solids equipment rentals for drilling operations in the WCSB. The majority of the activity for the fluids and solids equipment rentals is in central Alberta and the oil sands. The company’s fleet of high speed centrifuges, bead recovery units, Target Tanks, dewatering systems, tanks, shale bins, hydraulic centrifuge stands, polymer injection tanks, lubricant injection trailers, bulk barite units, and ancillary equipment is offered as a standalone package or part of an integrated package with drilling fluids services. The centrifuge and hydraulic stand package is a system designed for high end drilling fluids to reduce fluid and moving costs between wells while providing a safe working platform.

The company provides a unique cost-saving advantage for fluid storage with the company’s Target Tank, a dual containment fluid storage tank. The Target Tank can be used for various applications where dual containment is required, such as to store oil-based drilling fluids on well sites during drilling operations, for frac jobs, and production workovers. The Target Tank meets environmental regulatory standards in Alberta for on-site oil-based fluid storage without a berm, or without the need for a dike when drilling or operating within 100 metres of a waterbody.

Production Services

The company’s production services line focuses on providing equipment and chemical solutions that optimize production, provide flow assurance and maintain the integrity of production assets. The company’s production chemical solutions help solve customer production issues by providing tailored solutions at both the field level and at the company’s 7,000 ft2 fully equipped research laboratory in Calgary, Alberta, and at the company’s second research lab facility in Edmonton, Alberta. The focus on testing, research and new product development conducted at the laboratories allow the company to provide tailored products to customers. Production services is consisted of three service lines, such as completion fluids, production chemicals and chemical enhanced oil recovery (EOR).

The completion fluids service line provides clients with customized fluid systems that are used during well completion activities. These fluid systems contribute to the successful running of complex completion strings, optimize production and improve the performance of fracing operations.

The production chemicals service line focuses on providing equipment and chemical solutions that optimize well production by treating problematic oil conditions including viscous oils, paraffin and asphaltenes. In addition, the company provides customized formulations that separate oil and water emulsions prior to additional downstream treatment at refineries. A line of corrosion and scale inhibitor products are offered that maintain the integrity of pipelines and other production assets. The production chemicals acquisition completed in 2017 added over 100 fully formulated proprietary products, including flow assurance, asset integrity, product optimization, and a variety of fracturing and stimulation products. The company also acquired key infrastructure related to the product offering, including a blending facility in Red Deer, Alberta, a research lab facility in Edmonton, Alberta capable of full service product support and ongoing research and development, and a network of multiple new distribution points throughout the WCSB.

The chemical EOR service line provides products and equipment that enhance production by improving the properties of water pumped into injection wells. These formulations enable the injected water to effectively sweep additional oil from the reservoir resulting in increased oil recovery and improved production rates.

Business Strategy

The strategies that the company has developed include building and connecting produced water pipelines and disposal facilities to reduce customers' transportation costs and reduce their environmental footprint; building and connecting gathering oil pipelines from producer batteries to reduce customers' transportation costs and reduce their environmental footprint; providing crude oil transport via rail for access to higher priced markets and to minimize egress constraints; and utilizing crude oil storage to optimize pricing and manage pipeline transportation constraints.