Source Reports Highest Annual Revenue on Rise in Sand Volumes 

Source Energy Services Ltd. announced financial results for the three and 12 months ended Dec. 31, 2023. Highlights for the year ended Dec. 31, 2023 include the following:

  • Realized sand sales volumes of 3,138,501 metric tonnes (MT) and sand revenue of $460.2 million, an increase of $118.5 million or 35% from 2022.
  • Generated total revenue of $569.7 million, a $153.8 million or 37% increase from 2022;
  • realized gross margin of $109.4 million and Adjusted Gross Margin of $135.2 million, increases of 88% and 71%, respectively, when compared to last year.
  • Reported net income of $167.3 million, a $47.6 million improvement from 2022 when excluding the reversal of impairment charges described below.
  • Executed a new customer contract with a major Montney exploration and production (E&P) company.
  • Achieved utilization of 80% across the nine-unit Sahara fleet, compared to 75% utilization for 2022, as well as executed two contracts to build and operate Source’s 10th and 11th Sahara units, to be located in the state of Alaska, with construction costs to be fully reimbursed by the customers.

Total revenue for the year ended Dec. 31, 2023 was $569.7 million, Source’s highest annual revenue reported to date and an increase of $153.8 million compared to last year, as activity levels in the Western Canadian Sedimentary Basin (WCSB) remained strong throughout 2023. 

Despite a challenging operating environment experienced earlier in the year, due to wildfires and flooding, and an overall weakening of commodity prices, Source realized higher sand sales volumes, strong average realized sand pricing, record high trucked volumes and a 235-day increase in Sahara days utilized which drove the increase in total revenue for the year.

Cost of sales, excluding depreciation, increased for the year ended 2023, compared to 2022, due to higher sand sales volumes realized, the impact of a weaker Canadian dollar, increased “last mile” logistics trucked volumes, higher rail transportation costs and the impact of changes in terminal mix. Overall, cost of sales, excluding depreciation, benefited from lower production costs at the processing facilities compared to last year, a reduction in transportation fuel surcharges and lower costs incurred for third-party sand purchases.

For the year ended December 31, 2023, gross margin increased by $51.3 million, or 88% compared to 2022. Excluding gross margin from mine gate volumes, Adjusted Gross Margin was $46.07 per MT, compared to $29.80 per MT in 2022, favorably impacted by lower production costs, strong sand spot market pricing and contract renewals, despite the impact of terminal sales mix and higher rail transportation costs. 

Increased sand volumes trucked and lower transportation fuel charges also contributed to the improvement in gross margin and Adjusted Gross Margin compared to last year. The weakening of the Canadian dollar relative to 2022, which negatively impacted cost of sales for U.S. dollar denominated expenses, was fully offset by an increase in revenue denominated in U.S. dollars for the year.

Operating expenses increased by $2.8 million on a year-over-year basis, primarily due to higher selling costs related to higher royalty costs and higher people costs, including increased variable incentive compensation costs. These increases were offset by a reduction in repairs and maintenance costs compared to 2022. General and administrative expense increased by $3.9 million during 2023, due primarily to higher salaries and variable incentive compensation expense compared to last year.

At Dec. 31, 2023, as a result of continued strong industry activity levels, significant improvement in the financial performance of the company and an improved business outlook, Source carried out an assessment of the recoverable value of its operations. 

The assessment resulted in the reversal of $128.6 million of impairment losses, previously realized on property, plant and equipment in 2019 and 2020. Refer to Note 7 of the company’s audited consolidated financial statements for the year ended Dec. 31, 2023, for additional information related to this impairment reversal.

Source sold sand volumes of 819,113 MT for the three months ended Dec. 31, 2023, the highest fourth quarter sand volume sales in Source’s history, generating sand revenue of $124.3 million, an increase of $54.0 million or 77% from the fourth quarter of 2022. 

Higher sand revenue was due to an increase in quarter-over-quarter sand sales volumes, including a 134% increase in sand volumes from the Peace River facility, as well as a 22% increase in average realized sand price. 

During the fourth quarter, revenue from mine gate sales lowered the average realized sand price by $13.02 per MT; however, the impact of mine gate sales on average realized sand pricing was more than offset by strong pricing realized for spot and contract customers. The sale of lower-value mine gate sales has a favorable impact on production costs by creating efficiencies.

Related posts