Source reported that it made significant changes to the company’s balance sheet and cost structure in the first quarter of 2021. These initiatives put Source in a solid position to benefit from the return of completion activities in the Western Canadian Sedimentary Basin (WCSB).
Over the last three quarters, Source’s customers have cautiously resumed completion activities and the first quarter realized continued growth in activity levels from previous quarters.
This resulted in Source achieving the following highlights for the three months ended March 31.
• Realized sand sales volumes of 645,566 metric tonnes (MT) and sand revenue of $66.1 million.
• Achieved a new service record in March which saw seven Sahara units fully utilized for the month.
• Achieved a 25% increase in sand volumes trucked to customer wellsites.
• Distributed 698,298 MT of proppants and chemicals through Source’s WCSB terminal network.
• Realized gross margin of $10.7 million and Adjusted Gross Margin(4) of $18.3 million.
• Realized Adjusted EBITDA(4) of $12.7 million.
• Reported net loss of $5.4 million, an improvement of $180.0 million from the same period last year.
The recovery of activity levels witnessed in the latter half of 2020 continued into the first quarter of 2021, fueled by the ongoing strength of commodity prices. Extreme weather in February caused some delays in customer completions programs; however, Source was able to continue to effectively service customers and the spot market from the company’s in-basin inventories.
Source realized a recovery of sand sales volumes for the three months ended March 3, generating $66.1 million of sand revenue. Sand revenue was lower by $16.9 million compared to the first quarter of 2020 due to lower sand sales volumes and lower realized average sand prices, as lingering uncertainty and continued price instability resulting from the impact of the coronavirus pandemic continued to influence customers. Sand revenue for the quarter was also impacted by a stronger Canadian dollar on US dollar denominated sand sales.
Wellsite solutions revenue was $14.1 million for the first quarter, an increase of 17%, compared to the first quarter of 2020. The increase was due to a higher number of customers that utilized Source’s dispatch services to orchestrate the movement of large volumes of frac sand to the wellsite in the quarter. Many of these customers have also adopted Sahara as a key component in their frac programs, resulting in the seven Sahara units located in Canada achieving 100% utilization for the month of March, and an average utilization rate of 81% for the quarter.
Cost of sales, excluding depreciation, was favorably impacted by cost savings initiatives and production efficiencies implemented last year as well as the impact of the stronger Canadian dollar on U.S. dollar denominated production costs.
The recovery of Source’s activity levels continued through the first quarter of 2021, supported by the ongoing strength of commodity prices which stabilized late in 2020. Source’s customers continue to be focused on strengthening their balance sheets; however, Source believes the generation of stronger cash flows may result in enhanced capital expenditures in the last half of the year, as well as the possible expansion of drilling and completion programs in 2022.
Source continues to remain optimistic about the longer-term industry prospects, including increased demand for WCSB natural gas driven by LNG, coal to natural gas power generation conversions and increased gas pipeline capacity. In addition, planned expansion of oil pipeline egress capacity and the potential for additional hydrocarbon shipments by rail continue to support the company’s expectation that activity levels should steadily increase in the coming years.