Source Energy Services Ltd. announced its 2021 third-quarter financial results, reporting that it sold 751,611 metric tonnes (MT) of sand and earned sand revenue of $79.3 million; achieved record daily and monthly sand sales volumes; and added a new direct exploration and production (E&P) customer during the quarter and another shortly after the end of the quarter.
The company also:
- Deployed a Sahara unit to Utah which commenced work with a large E&P customer in September.
- Achieved utilization of 73% for the quarter for the seven Sahara units operating in Canada.
- Achieved a strong liquidity position, with $1.4 million of cash on hand and no draws on the asset backed loan (ABL) facility at the end of the quarter.
- Realized gross margin of $12.8 million and adjusted gross margin of $17.7 million.
- Reported net loss of $3.6 million, an improvement of $4.4 million from the same period last year.
“Despite the strong commodity prices, our customers remained disciplined in their capital spending and continue to prioritize debt reduction and the payment of dividends over the expenditure of growth capital,” the company stated. “As in the prior two quarters, the third quarter began with extremely high activity levels where customers demanded greater volumes of frac sand over shorter periods of time.”
Source’s ability to consistently meet this challenge was highlighted in July, as Source set new records for daily sand sales volumes and daily throughput records at two of its terminals. Source realized strong sand sales volumes for the period, generating $79.3 million of sand revenue.
Sahara units were a key component in the frac programs of many of Source’s customers during the quarter, and in July, Source saw 99% utilization of its Canadian-based Sahara units and a 73% overall utilization for the quarter. Source’s wellsite solutions division generated revenue of $17.6 million for the third quarter.
Gross margin was favorably impacted by lower depreciation expense during the quarter, largely as a result of the fixed asset values that were adjusted by the impairment charge taken in the first quarter of 2020. Adjusted gross margin benefited from strong volumes realized in the quarter; however, on a per MT basis, adjusted gross margin was lower due to an increase in fuel costs, a revised mix in the terminals from which sales were made and the impact of a weaker Canadian dollar.
The large majority of Source’s sales in the quarter continued to be under long-term contracts, but activity levels in the quarter also drove stronger spot sale activities. This contributed to the increased average sand price realized in the quarter relative to the first and second quarters.
The sustained higher crude oil and natural gas prices realized through the third quarter is allowing Source’s customers to generate strong 2021 cash flows and the company believes customers will continue to deploy capital through the end of the year, as well as expand drilling and completion programs in 2022.
Source continues to see increased demand from customers that are primarily focused on the development of natural gas properties in the Montney, Duvernay and Deep Basin. This trend is consistent with its view that natural gas will be an important transitional fuel that’s critical for the successful the movement to a less carbon intensive world. This view is also supported by the development of Canadian liquefied natural gas (LNG) export projects, the conversion of coal-fired power generation facilities to natural gas and increased natural gas pipeline capacity.
Strong sales volumes achieved in the third quarter continue to validate the importance of Source’s terminal network and logistics capabilities as operators continue practice of accelerating the pace at which frac programs are being completed in the WCSB. Source is ideally positioned to serve operators as more sand continues to be requested over shorter periods of time, the company stated.
Source also continues to focus on increasing its involvement of the provision of logistics services for other items needed at the wellsite in response to customer requests to expand its service offerings and to further utilize its existing Western Canadian terminals to provide additional services. Over the longer-term, it is anticipated that these new terminal activities will be a meaningful part of Source’s business.