Secure Waste Infrastructure Corp.

Good morning, ladies and gentlemen, and welcome to the Secure Energy Q4 2021 Results Conference Call. At this time, all lines are in the listen-only mode, but following the presentations, we will conduct a question-and-answer session. And in fact, any time during the call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on March 3, 2022. And I would like to turn the conference over to Anil Agrawal. VP Treasury and Investor Relations. Please go ahead, sir.

Thank you, Sylvie. Welcome to Secure Energy's conference call for the fourth quarter of 2021. Joining me on the call today is Rene Amaral, our President and Chief Executive Officer, Alan Grash, our Chief Operating Officer, and Chad Nagus, our Chief Financial Officer. During the call today, we will make four booking statements related to future performance, and we will refer to certain financial measures that do not have any standardized meaning prescribed by the FAFSA. and may not be comparable to similar financial measures disclosed by 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. Since forward-looking information address 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 CR 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-GAAP measures. I will now turn the call over to Randy for his opening remarks.

Thank you, Neil, and good morning, everyone. I hope everyone on this call and their families are healthy. It's great to see the restrictions being lifted here in Alberta and other places in Canada. It looks like we're on our path to a new normal and learning to live with this virus. We at Secure continue to be proactive in our approach as the health and well-being of our workforce and our communities remain the company's priority. Before I start, I'd like to acknowledge what is happening in Europe. Obviously, it's a terrible situation. Our thoughts go to all the people of Ukraine suffering through this unnecessary conflict. On behalf of Team Secure, we are praying and hoping for a speedy and peaceful resolution. This morning, we will review our financial and operational results for Q4, followed by our outlook for 2022. The fourth quarter was another strong one for Secure, and our results in 21 demonstrated the efficiencies, resiliency that our increased size and scope has achieved. The business continues to generate significant EBITDA and discretionary free cash flow. which we are using to improve our financial position and enhancing our ability to deliver strong returns to our shareholders. Our Q4 results reflect strong performance in both our midstream infrastructure and environmental and fluid management business. Our discipline focused on executing on operational excellence, managing costs, and achieving business efficiencies helped drive a 208% year-on-year increase in Q4, adjusted to 111 million. We're extremely pleased with the results and progress of the integration with Terbita, which is proceeding on track with our plan. In Q4, we achieved $11 million in cost savings. That was over and above the Q3 savings of $7 million for a combined $18 million and $40 million on an annual run rate basis for realized savings of 53% of the original $75 million target after just six months since the closing of the merger. Including savings on our bond refinancings, we have achieved $49 million of run rate free cash flow savings by the end of 2021. As we've always done, we take our commitment to ESG seriously. To complement our long-term environmental targets of net zero by 2050 and a reduction in half our GHG intensity by 2030, we have set short-term targets to reduce water usage by 5% a year and greenhouse gas intensity by 50% by 2024. We're encouraged by continued strong momentum throughout our operations with increased free cash flow generation capabilities and a strengthened balance sheet. We're well positioned to meet our debt reduction targets and at the same time able to capitalize on growth to our existing facilities and the continued positive trends of our industry. Chad will now walk us through the key highlights of our Q4 results. Then Alan will review our integration plan update and operational highlights. And finally, I will move into our outlook for the year.

Thanks, Randy, and good morning to everyone on the call. Adjusted EBITDA of $111 million increased 208% from the prior year, primarily due to the acquisition. Higher oil prices also drove increased activity levels in the areas where we operate, which led to higher processing and disposal volumes at our midstream infrastructure facilities, higher disposal volumes at our landfills, and increased demand for drilling and completion services. In addition to oil and gas activity, higher metals prices the positive impact from the cost energies. For the year, adjusted EBITDA of $286 million increased 110% compared to 2020, primarily due to the same factors that impacted the quarter. Adjusted EBITDA in 2021 benefited from the cost savings achieved from the acquisition of the Trita business and the cost reduction measures taken in 2020 to reduce and align our fixed cost structure to levels consistent with industry activity levels. led to increased drilling completion did demand for environmental work. Secure generated $171 million of discretionary free cash flow in 2021, which includes $47 million in Q4. Throughout 2022, our capital allocation priority will continue to be debt repayment. Beyond 2022, once our leverage chart focused on growing the business, maintaining a strong balance sheet, and rewarding our stakeholders for their investment. We recorded non-cash impairment charges of $247 million in the fourth quarter and $269 million for the whole year, which was the primary reason for the net loss of $203 million for the year. This impairment mostly relates to facility rationalizations and no impact to our customers. The accounting impairment does not harm our cash flow capabilities. Rather, the rationalizations will enhance our profitability and return on assets going forward, as well as help us lower our GHG emissions intensity as the continuing facilities will operate more efficiently. With respect to our financial structure, in Q4, we redeemed $100 We have made improvements to our debt profile by extending long-term maturities, introducing more flexibility into our capital structure, and lowering our cash interest costs by approximately $9 million since we completed the merger, redeeming and replacing 40% of our 11% U.S. dollar senior notes with 7.25% Canadian dollar unsecured notes. Our capital structure consists of no near-term maturities, with the first six note maturing we had approximately $280 million of availability on our credit facilities maturing in 2024, providing ample liquidity to the company. Since the end of 2021, our liquidity position continues to improve

Thanks, Chad. Good morning, everyone. With regards to the update on our integration with Cervita, we're extremely pleased with the progress made in 2021. And after six months, we've already realized 40 million or 53% on an annualized basis of our 75 million synergies target. Up to 40 million, approximately 27 million related to corporate overhead, engineering, and the remainder were operationally perceived. During the fourth quarter, we suspended 17 facilities, And during 2022, we'll be working on up to another additional 10 to potentially 12 locations. We are confident on being able to reach a minimum of 75 million of synergies or more by the end of 2022. We expect costs to achieve these synergies of approximately 30 million, of which we expect 14 million to the end of 2021. Now that a majority of our corporate overhead reductions have been completed, the focus for cost savings in 2022 will be on further facility rationalizations, operational optimizations, including increased facility utilization, transportation savings, and operating cost efficiencies. We expect we could see an additional savings through these initiatives and our work on our capital structure to provide incremental discretionary cash flow beyond our $75 million cost savings target. Looking at our operational highlights, in Q4, our midstream infrastructure segment saw continued improvement on oil prices and higher drilling and completion activity. The positive volume trends that we saw in Q3 continued for the most part in Q4, with the exception of the end of the quarter where we experienced a slowdown at the end of the year from the impact of extremely cold weather. Exceeding our expectations, Midstream processing facilities are experiencing increased utilization as higher drilling completion and production volumes from increased activity levels require more treating, processing, and disposal. Our water disposal volumes increased 138% from Q4 2020 due to the impact of the merger, as well as a combination of higher activity in 2021 and production shut-ins in 2020 that have since been reversed. Processing volumes increased 223% from 2020 as a result of improving production levels, higher waste processing volumes due to increased drilling and completion activity. Environmental and fluid management also continued to benefit from higher commodity prices and increased activity levels. Our landfill volumes were up 4% sequentially from Q3 and up 25% year-over-year over Q4 2020 pro forma volumes as a result of more drilling and reclamation activity tailings. We're continuing to see increased demand for drilling completion services within the fluid management business. Our waste, metal recycling, and rail emergency response businesses all performed well in Q4. Metal recycling fairs prices remain strong, which helped drive higher volumes, and we're also pleased with the progress we made on abandoned remediation and reclamation activity work from government stimulus packages to help fund the closure and reclamation of our orphan and inactive wells. Overall, our facility utilization from the high 30s, high 30% in 2020 to currently in the high 50%. We have a lot of capacity to handle additional increases in volume without the need to invest additional capital in 2022. We are seeing the impact of inflation on our costs, but increases overall continue to be manageable with our vendors and customers. We have seen the highest cost pressure in areas such as chemicals, transportation, electricity, and fuel, and we expect these pressures to continue. Some of these cost increases we have been able to flow through to our customers in Q1. We also pre-purchased inventory, mainly in our drilling and production chemical business, where we anticipated higher costs in 2022. Labor availability for our mobile crews and our environmental and fluid management business remains challenging, mainly for project work. but we anticipate it will continue to progress throughout the year. We have mitigated these challenges by offering sustainable, long-lasting work as well as higher wages. Fortunately, in our larger midstream segment, labor is not much of an issue due to the nature of our fixed facility network and facility rationalizations where we have utilized our workforce at other locations. We expect increased abandonment, remediation, and reclamation activity to positively impact all our Canadian operations over the term of the program. In terms of the federal program so far, $627 million out of the $1 billion allocated to Alberta has been granted, and Saskatchewan has now extended its $400 million program to February of 2023. In addition, the Alberta Energy Regulator has targeted a span of $422 million $422 million in 2022, representing 4% of inactive deemed liability, and this target increases to $513 million by 2026. Secure is well positioned in the environmental business segment as the landfills will likely see more volume as a result of this regulatory change. ESG is the top priority of our company. In addition to the short and long-term targets we have set, we are actively evaluating opportunities to participate in Building feeder pipelines and the geographies in which we operate should help enhance our offering on carbon capture opportunities in Western Canada. In Q4, we spent a total of $17 million, which included $13 million of sustaining capital. Total spending in the second half of 2021 of $30 million comprised primarily of sustaining capital. Put this on a run rate similar to our 2022 guidance. We spent $7 million on growth capital in the second half of 2021, and as we focused on integration, which will continue to be the case as we move through the rest of this year. In terms of 2022 capital spending, our growth budget will continue to focus on opportunities to connect producers to our existing midstream infrastructure to further increase volumes and utilization on a long-term basis. With respect to sustaining capital, we expect to spend $55 million in 2022, including three landfill expansions. We expect to spend $45 million on growth capital opportunities in 2022, and we will continue to be mindful of our growth spending, and our focus will be on customer-backed, longer-life opportunities as we continue to prioritize a debt repayment. I will now turn it back over to Renny to address for our outlook for 2022. Thanks, Chad.

And now, we are extremely pleased with the results in Q4 and the programs made to date with the tourbillon merger. from combining the companies. The company has a strong deleveraging plan in place that should reduce our debt position significantly this year. Our enhanced scale better positions us to optimize existing assets in operations so that we can add more value to our customers and provide greater optionality in allocating capital through all market environments. With regards to the Competition Bureau process, we continue to work cooperatively with the Competition Bureau and the Competition Tribunal to resolve any concerns relating to the transaction. We expect the resolution to be immaterial to secure its asset base or EBITDA. Based on recent cases, we expect that decision will be forthcoming closer to the end of this year. Turning to our outlook in 2022, the near-term focus will be on continuing to strengthen our business, deleveraging our balance sheet, and we anticipate looking to increase returns for our shareholders after this is completed. We expect to see continued industry improvement, which will support our strong momentum and drive higher year-over-year discretionary free cash flow in 2022. As Chad mentioned, in the first two months, we were able to pay down our debt by $47 million. You can expect more of that throughout the year. I'd also like to take a minute to welcome Mark Bly to our Board of Directors. Mark is an energy executive with over 35 years of operational and safety experience. Mark is currently the chair of the board at SpaceX Energy, and I'm looking forward to working with Mark in a number of areas, including continuing to advance our ESG initiatives and its North American perspectives. Higher crude oil and natural gas prices should continue to provide significant improvement in overall industry activity in 2022. Oil and gas producing countries, including Canada, have underspent on developing oil and gas resources since 2014, providing support for the higher prices we are experiencing. Our expectations for increased discretionary free cash flow this year are based on the following factors. Increased drilling and completion activity is expected to continue for the remainder of the year. So far this year, the average active rig count in the western Canadian sedimentary basin is 2% higher than the first quarter of 2019, which was the last quarter there was no COVID-related impacts. There's also a substantial increase of 20% compared to 2021. We expect producers will continue to add production to offset natural declines that occurred in 2020 to maintain flat production levels or increase production modesty. Second, we expect to see contributions to our adjusted EBITDA from the realization of the $75 million of annualized synergies. Third, we anticipate increased utilization at midstream processing facilities and landfills as higher drilling completion and production volumes from increased activity levels require treating, processing, and disposal. higher abandonment, remediation, reclamation activity from the government stimulus package, the health fund closure, and reclamation of orphans and inactive wells. In closing, in 2021, we significantly strengthened our business and demonstrated the resiliency and efficiencies achieved with our strategy to consolidate capacity in our markets while managing our costs. Our focus up to now has been on completing the integration with Servita as efficiently as possible, and we're very pleased with the progress made in making the combined business stronger. We expect to benefit from a continued fundamental recovery in 2022. Our key priorities remain on operational excellence and efficiencies, progressing our ESG initiatives, and paying down debt with free cash flow while leveraging opportunities to grow and provide value for shareholders and customers. I would like to thank all secure employees that have contributed to finding ways to make our merger successful in all aspects. We still have a lot of work in front of us, but having a great team will ensure a successful execution of our 2022 goals. I would also like to thank all our customers and stakeholders for their continued support and partnerships. That concludes our prepared remarks, and we would now be happy to take your questions.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you wish to withdraw your question, simply press star followed by two. And if you're using a speakerphone, we ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have any questions. And your first question will be from Erin McNeil at TD Securities. Please go ahead.

Hey, morning, all. Just wondering if you can comment on the type of facilities that were closed in the quarter. And I guess I'm just wondering, you know, how many were FSDs, disposal wells, landfills, or something else entirely? And can you say where they were located geographically? And I know I'm sneaking in a lot of questions here, but I guess I'm also wondering, you know, would these closed facilities have been in any areas that faced high price competition and previous cyclical downturns? And do you think that bringing supply out of the market in these areas would have any impact on pricing at any point in the cycle.

Well, good morning, Aaron. Alan here. So I think when we looked at facility rationalizations and we spoke about this before, it was really in conjunction with our customers and monitoring what levels of activity in which areas they were going to be most active in 2022. And so we wanted to have those conversations, which is why we pushed a lot of those facility rationalizations into Q4, and there will be some here in 2022. I think when you look at the type of facility, it's pretty well spread out in terms of full-service terminals, SWDs, and landfills, primarily in the geographical areas. You know, if we look at, say, Grand Prairie, for example, That area, we wanted to make sure that we had the capacity for our customers. Typically, you know, what I've said before is our utilization, if you look back in 2020, was around 30, low 30, and then as we moved through 2021, it moved into the 40s, and now in Q4 here, we're in the 50% utilization. So, we have the capacity to serve our customers. We wouldn't I think, you know, we'll make sure that all our customers are going to have the capacity at our various locations, you know, to be able to have the volunteer that we expect in 2022.

And then just on the pricing, like, I recall from a couple years ago, like, there were areas where pricing was, competition was higher than others. And do you think, you know, the closure of any of these facilities alleviates some pricing pressure in those areas?

Aaron, it's really the bigger picture here is that our true competition is the oil and gas producers themselves. So we've always taken the perspective that we need a reasonable rate of return on our services and our investment, but we have to be more efficient and try to provide a or they will do it themselves. So really what we're trying to do by the consolidation is get more efficient. And so it really isn't a function of price. It's a function of how do we reduce our costs and can we pass that on to our customers so that they don't go in and take their free cash flow and build more facilities or changed and will continue for the next 10 to 20 years because this is all about Western Canadian producers getting their cost structure down so they're the most cost efficient in the world with the highest ESG standards. And we're part of that partnership to make sure that we're going to win in the long run. So that's our sole focus. That's our vision. And we're just going to make sure it happens. Okay. Perfect.

You mentioned non-core asset sales and the disclosures. So I guess I'm just wondering if you could elaborate on what that could mean in terms of magnitude. And I guess I'm wondering more specifically if any entire business lines, either that you previously announced as sales processes as part of Secure or that you acquired through Terbita could be, I guess, on the table in a divestiture scenario.

Sure.

So our main focus, through the first six months of the merger was to consolidate all the assets. And I think our goal was to look at what we had in surplus equipment. So that was our main focus in selling some of our surplus equipment. When you start bringing all the assets together, there's also some real estate that also is redundant in terms of us moving and merge businesses together. I think as we get into 2022, we're going to evaluate all our service lines and core understanding of, you know, what do we believe is non-core? What do we believe is core? I think we'll have more clarity in the back half of this year as we go through that process. In terms of, you know, the smaller equipment sales, real estate, and so forth, you know, it can range anywhere from $10 to $20 million in terms of the dollars. towards paying down debt, being as efficient as we can with all our facilities, and driving that free cash flow number.

Okay, great. Just one housekeeping question, and I'll turn it over. You mentioned the $14 million in one-time costs related to the transaction. There's $39 million on the income statement. I know some of that's just the transaction cost, so I just was wondering if you could split that $39 million into the various buckets.

Aaron, you're right. That's a mix of the costs of these rationalizations, so severance, et cetera. And then there is the one-time transaction costs as well related to our advisors and ongoing legal advisors in connection with the Competition Bureau review. But I don't have the specific breakdown for you. Okay, that's fine. I'll turn it over.

Thanks, guys.

Thank you. The next question will be from Cole Perera at Stiesel. Please go ahead.

Hi. Good morning, everyone. I wanted to start on midstream quickly. Obviously, large synergy number in the quarter, but haven't really seen it translate to the financial performance side sequentially yet. I mean, is that largely a function of the synergies occurring late in the quarter? Was it some of the oil price volatility, or was it some of that lower-than-expected December activity that you touched on?

It's primarily due to the closure of the facilities late in the quarter, so it will take time. until we get to the end of the year, which will add meaningful contribution into 2023. We call it 75 million plus. So, you know, and then, you know, if you look at the financial performance in terms of the rate count, I would say we're quite comparable Q3 to Q4. The cold weather in December did impact, you know, some of the activity. These rates just can't operate when you get to 10%. be in January and February as, you know, these guys are completing more and more wells and we're just seeing the price of oil stimulate more and more activity. So, you will start to see as we get through 2022, you know, more free cash flow to the bottom line and more realization of these synergies.

And the only thing I'd add is, you know, we still are predominantly reoccurring revenue production based in that division, right? So, as when you have that increased drilling in Q1, the production comes on later in Q2, so the real impact of that, you know, your produced waters, your oil treatment and termling shows up kind of late Q2 going into Q3. So always remember there's probably a 90 to 120 day lag between what Alan's describing from a drilling point of view versus the sheer amount of produced water and

goes up in our facilities. Okay, gotcha. That makes sense and that's helpful. Thanks. And just as well, just wondering if you can kind of give some details on the growth capex. I mean, is it largely just in the realm of additional tie-ins?

They're looking at pipelining into our existing water disposal facilities, tying in this infrastructure. You know, we've said that all along. It makes a lot of sense to take trucks off the road and reduce GHG emissions. And so we've done a number of these projects that we're working on that will come to fruition. You know, the timing as to whether or not it hits it, you know, later this year or even some of it creeps into 2023 is difficult to predict. We've always said if we can add time to our existing infrastructure, that's our highest rate of return. It benefits our customers and it benefits ourselves. That's a continued focus of ours. As Randy mentioned, the producers can do it themselves. When they're looking at their ability to take away their water or treat their oil, we want to make sure we're competitive and making sure that we can offer the best product. your number one priority.

Okay, got it. No, that sounds good. That's all for me. Thanks. I'll turn it back.

Thanks. And your next question will be from Patrick Kenny at National Bank. Please go ahead.

Thank you. Good morning, guys. Just zooming out a little bit here, given where we are in the commodity cycle, obviously there's strong interest from private equity to increase their exposure to Western Canada. and also a bit more of a willingness here from certain public companies to partner up with PE to expand their footprints. So I'm just curious, perhaps after you get through the competition process, how are you thinking about this opportunity to JV with private equity or perhaps even a larger producer customer just as a way to expand your footprint even further and accelerate your growth within this commodity cycle?

Yeah, that's a great question, Patrick. And something that we've talked about strategically is that as we get through this year, next year, and you look at something like injecting CO2 and related pipelines and whatnot, capital could be quite large. So whether it's partnering up with a producer or another public company. We think we have a role out there in terms of helping that junior to midstream gather, whether it's, you know, oil or water or CO2, and trying to do that in a cost-effective way. And obviously, you need a low-cost capital to be able to make these projects work. So we're definitely open to those type of things. I don't see anything short-term going down that path. But as we get into these larger projects, definitely, you know, we're... somebody brings something to the table that we don't have, it's certainly an avenue for us.

And then I guess when you're looking through the capital allocation lens beyond 2022, or once your balance sheet is where you want it to be, what percentage of your free cash flow do you see being directed towards organic growth or JVs slash M&A versus, say, share buybacks or further deleveraging? What do you see as being the right balance here for shareholders?

Yeah, that's, I mean, my board asks me that every quarter. And, you know, think of it as three levers. And what we're going to try to do and what we'll recommend to the board is we've got three levers there, as you described. And, you know, if you could tell me what my share price is in, you know, December 31st of this year, I could tell you exactly what I'm going to do for my debt position. But So I just think of it as three levers. And, you know, I don't think we shut off debt repayment, for instance, in 2023. I think it's going to be a combination of those three that you just described. And what percentage, you know, hopefully we'll be a little smarter here in Q3, Q4 as the cash flow comes in, free cash flow comes in and pays down the debt to, as you described, a more normal or more acceptable level in our minds. But, you know, we're just not – we don't have that producer model where you run a strip and say X percent goes this, X percent goes that. But I think we'll be a little smarter going into Q3, Q4.

That's great, Randy. Appreciate that. And then just last one from you guys. Wondering if you could help us to understand or perhaps even quantify this potential opportunity. from Saskatchewan enacting a similar mandatory spending program on ARO come 2023, what that might be for your business?

Well, I think it's definitely positive. I mean, our environmental side of our business continues to, you know, get inbound requests on opportunities for reclamation and abandonment. And, you know, the fact that the government is stepping up and putting these programs in place to entice In the environmental side, we're seeing more landfill volumes, we're seeing more demo and reclamation We need positive for us.

The only thing that is why we can't give you maybe even a number or range is that they decide, the producer decides whether I want to do downhole or above ground. Obviously, we don't do the downhole of anime inside of it. And so what Alan's trying to portray to you is that as they kind of dictate to us what they want to do, downhole versus surface, I think the good news with this is think of it, you had some one-time government programs. Think of it as really, you know, it's a 20-year annuity here in both Saskatchewan and Alberta in terms of cleanup, whether it's below or above. And that's what gets us excited is that it doesn't stop in 25. It's literally a 20-year annuity.

All right. That's great, Keller. Thanks, guys. Appreciate it.

Thanks, Patrick. Thanks, Patrick.

Next question will be from Andrew Bradford at Raymond James. Please go ahead.

Good morning, guys. Good morning. I've got a couple here for you. I just want to just maybe revert back to the growth capital question here. And just to round that out, is the anticipated spending, I understand that you don't necessarily know when it's going to land and you have a few projects that are eventuating here, but you're not locked down on them quite yet. Just a little additional color, is it kind of a little bit here and a little bit there, or is it mostly allocated to a couple of two or three larger projects?

They're mostly smaller projects, mostly concentrated around water disposals infrastructure and oil terminaling and oil terminaling infrastructure. So it's basically handling more oil and more water at our various locations and, you know, relatively small dollars, not one massive project.

Okay, that's perfect. Thank you. And then secondly, just for additional clarity on the synergies, given that you've identified a few more facilities that that are targeted for suspension or shutdown. Do you anticipate that the pace of synergies or the remaining synergies will be realized on a front-end loaded basis through the year, or do you think it's going to be fairly evenly balanced through the remaining four quarters?

It is going to be fairly evenly balanced throughout the quarters. waste at one location where we will shut it down and divert it to another location to increase utilization or, you know, lower those off costs. So it's not necessarily the full facility shutdown. And, you know, as we go through, I know the question came up about geographical locations. You know, on our website, we will update on, you know, which facilities and which locations are operating and what their capabilities are.

2022 period. Perfect. Thank you for that. Then, shifting gears a bit, I know you have a target debt ratio in mind to exit 2022 here. Can you remind us if you have sort of a targeted range or a target number where you'd like to sustain your debt ratio going forward past the end of the year? Well,

Remember we press released when we announced the merger, we wanted to be below 2.5, you know, by the middle of 23. I think we're going to obviously be a little ahead of that. But here's what we debate internally is there's different ratios for different parts of the cycle. So we're not naive enough to think that we'll never, ever be. cash flow that's cyclical to some degree. So what we're trying to figure out is understand these assets, understand what has more variability due to commodity prices and what business units don't, and then try to come up with a model so that you're looking at a ratio. It doesn't matter what part of the cycle you're in. You're in a comfortable range that fee, the dollar ratio. So give us time on that, Andrew. We just, you know, again, as Alan described, just pulling all these pieces together and understanding where the money is made and where it comes from will help us determine, you know, some of those, some of the better, a better accuracy or a better range of what that becomes, both peak cycle and the low part of the cycle.

That's great. That's perfectly fair, and that's actually where I was going with the questioning in the first place. Because relatedly, when you look at your discounted cash flow and how you're planning to allocate it, and you made comments in the disclosures and on this call, and it seems like to that point, discretionary cash flow is itself going to have some measure of cyclicality to it. And the opportunities for growth come along, you know, in these discrete lumps and may not be that necessarily regular. And your desire or willingness to, you know, engage in the NCID will itself be dependent on the share price. But the one thing that you start in is more or less should be thought of as locked in as a dividend. And so I'm just wondering, is that sort of your starting point? And if it were, is there – do you have it in the back of your mind – sort of like a maximum payout ratio or something along those lines. And is it the kind of thing that you really want to achieve certain debt targets first before we really engage in this, or as we close in on the targets, we might anticipate a willingness to start opening the dividends to make it a bit?

Yeah, that's a great question. I think that's the three levers. It definitely is. It's debt repayment. It's, it's share by backs and, and obviously looking at a dividend. And, um, it's, you know, it's, it's, it's one that, uh, I think the commitment there is that we will look at returning capital share. Share will make sense, but we, you know, we also are going to be listening to our customers and trying to figure out, um, Alan described, is that a lot of what we're doing is just that little $3, $5, $7 million project to optimize and even make that return to that facility better, getting the trucks off the road. Obviously, we don't own any trucks, so that's a win-win for us and the producer. So that'll be all part of that analysis, Andrew. But you're

Okay. So, yeah, thank you very much for that, Rennie. Second last question for you on another topic here is just with carbon capture, transmission, sequestration. So we're talking about that a little bit more now. Is this a cost of capital business or is it one where you can compete with instead of on constant capital with more niche service offerings?

I think right now, you know, I think everyone is really in this evaluation stage of carbon capture. And I think, you know, what we've highlighted in the past is, look, we have the expertise on pipeline and heat disposal. You know, when you look at the geology and where you're going to put the carbon downhole, a good return for shareholders and we want to evaluate to make sure we're going to put in infrastructure and we're going to be part of this space. Does it make sense from So I think it's very early days, Andrew. And, you know, as we continue this evaluation process, we'll continually update the market on, you know, is this something that we see viable for secure?

The only thing I'd add to that is that we're not going to be going out and building pipelines. So think of us, no difference in what we do with the water and oil today is gathering lines for that junior to mid-cap. So that's our niche. And we'll see if we can to make this thing real, but we're not. We're not going to be doing the big trunk lines of the penalties and the trans candidates.

That seems very reasonable. Thank you. Last question, promise here is, as you reduced debt, are you in the market on the 11% bonds? It doesn't really matter all that much because the yield isn't materially different, I don't think, perhaps there are other facilities that you could look at, but just out of curiosity, is that something that you're focusing on?

No, it's not something that we, I mean, obviously we pay attention to where it's been trading.

That's perfect. And that's it for me. Thank you very much, guys. Thank you, Andrew. Thank you, Andrew.

As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. And your next question will be from Keith McKay at RBC. Please go ahead.

Good morning, and thanks for taking my question. Just maybe wanted to start out on the capital. Appreciate the $45 million you've got out there on a preliminary basis. It sounds like there is some additional projects that you may be looking to add on to that. So curious if you can give us maybe a confidence interval for what you might be looking to spend on a growth basis for 40 or is it 45 now but you could go up to 50 or is it 45 to 60 depending on how discussions go with customers? Yeah, so

Thinking of it this way is, one, since 2016, we've taken a strategy that a lot of this capital doesn't get spent unless we have some sort of long-term contract with the customer. So you know what the business is like is those things don't happen overnight. So that's the variability that even if the economics are great, returns are great, We've got supply chain disruptions, whether it's, you know, ordering anything steel-related or, you know, pumps and stuff like that. So we do have some surplus, but we will have to order some new stuff. So, you know, we may spend the capital in Q2, and the project doesn't get going until December of the year just because we want to make sure it's there when we need it. So a lot of variable factors in terms of how that – what quarter gets spent in, also how much could potentially carry over into 23, because we know right now that we're comfortable with 45. Some of that could carry into 23, or if we have to pre-order stuff, it could go up to 50, 55, just on that kind of basis. So each quarter, what we'll do, Keith, is just update you on that, and those are the variables that go into trying to give you a better forecast as to what is that capital range.

Got it. Okay, appreciate that. And after you spend the 45 or after you complete the projects that you've got slated for this year, how many more tie-ins will you have that you could potentially do across the asset base? Yeah, that's a great question.

I mean, the thing that I love about the cycle we're in right now is, we've spent a lot of time with our customers trying to understand what they want to do to replace their high decline production, but also are they going to grow by 2%, 3%, 5%? Obviously, a headwater and a calcer and a leak all by themselves in terms of growth rates, but if you look at a lot of the ones we're dealing with. So, the pretty disciplined approach so that we can look ahead and say, do we have do we have to put capital aside for this tie-in or even extending out our cave-off system, those types of things. So, you know, we're constantly talking to the producer as to what you see coming, what's an offset to your high decline, what's an actual increase in your production. And so probably we're going to have to, go back to the customers in Q3 to see if their forecast changes at all. So it's really, if this data, this discipline grows, then, you know, next year, if you're looking for a number, it's probably in that 45 million range, you know, just the amount of opportunities coming through the door.

Got it. And you mentioned, you know, two companies in your response there, Rennie. So maybe I just wanted to follow up on on that and talk about the clear water, which certainly is getting a lot of drilling and a lot more production being brought into the area. Can you just remind us of your facilities or exposure in that area and is there a need, I'm assuming there is, for additional infrastructure in that area? you know, would that be in your wheelhouse or is it something that the producers themselves or, you know, other companies would be more suited to?

Yeah, that's a great question because it's a clear illustration of when companies have lots of free cash flow, you know, they're going to look at, it's not a question I don't have the capital so I'm going to outsource the securities. What can I do it for? what's secure to do it for and so you know we're having those conversations uh as we speak as to our is there the right opportunity for us in terms of a rate of return um now you can give some color you know in that area we've got our we've got our slave lake or mid suit facilities at our high prairie facility and and um we also have uh you know lots of things that we're taking a look at but You know, it's definitely a growing area, and we're just trying to understand what that looks like.

Yeah, and I think, you know, a lot of our capital decisions as we think about time into our existing infrastructure or partnering up with a producer in the area is about, you know, this opportunity is there now because they need it. They see growing volumes coming out of that area. They need infrastructure. And so if there's... do or some other location a battery of a producer where we can add value that's where if we did nothing then we just work all the opportunity and move forward so you're in the discussion you don't know how long it's going to take to progress and what it looks like in terms of capital spend but we're definitely in those discussions because it is such a meaningful place with a lot of producers and they're getting great results perfect thanks for that and final one for me

You mentioned potentially 10 to 12 more closures to come facility-wise. Should we expect the impairment to be commensurate on a pro rata basis with what you've already done, or is it too early to tell?

The impairment we recorded at the end of this year contemplated our plan or your end impairment number.

Got it. Okay, thanks. That's all for me. Thank you. Thank you.

And at this time, gentlemen, we have no further questions. Please proceed with your closing.

All right. Thank you all for being on the conference call today. The broadcast of this call will be available on Secure's website, We look forward to providing you with updates on secure performance in April after the completion of our first quarter of 2022. Thanks again, and look forward to chatting with you here in about two months.

Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.