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NEW 3-YEAR CONTRACT
Source is pleased to announce that it has renewed its relationship with Seven Generations Energy ("Seven Generations") by entering into a new three-year agreement to provide Seven Generations with proppant and related logistics services for their Kakwa River Project. This agreement supports Seven Generations' development of this large-scale, liquids rich Montney natural gas property, with an efficient and reliable supply of proppant that will be supplied from Source's Wembley, Alberta terminal.
Source's Wembley terminal is a double unit train capable facility located in the heart of the Montney play. The terminal can transload over 200,000 metric tonnes of proppant per month, making it Canada's highest capacity frac sand terminal.
"Source is pleased to enter into this agreement with Seven Generations Energy to support its Montney activity," said Brad Thomson, Chief Executive Officer of Source, "By continuing to work together, our companies will be able to ensure the most efficient delivery of proppant to the wellsite."
Marty Proctor, President & CEO of Seven Generations said, "Reliable and timely deliveries of high-quality proppant at fair prices has been essential to 7G's ability to construct some of the most economic liquids-rich natural gas wells in Canada. Source has done an excellent job of meeting our proppant needs for the past three years and we're pleased to extend this mutually beneficial relationship for another three years."
Source confirms that it has reached an agreement with its banking syndicate to make certain amendments to its asset backed credit facility ("ABL"). Under the amendments, Source's Fixed Charge Coverage Ratio will be calculated monthly and will be lowered from a minimum of 1.25:1 to a minimum of 1.10:1.00 for all periods ending on or before December 31, 2020, as well as some other minor adjustments to make the amended arrangement conform with standard ABL facilities.
Derren Newell, Chief Financial Officer of Source said, "We're pleased to enter into this amendment that will provide additional financial flexibility during times where we have varying levels of development activities in Western Canada. This amendment demonstrates our banks' ongoing support for our business."
2020 CAPITAL PROGRAM
Source announces that its Board of Directors has approved a 2020 capital budget of $5.6 million, which is substantially all sustaining capital.
"Source's modest capital budget for 2020 is possible because of the investment made in processing assets and logistics infrastructure in prior years. This allows us to operate at current levels and to substantially grow when the basin returns to more normal operating level, without the expenditure of substantial capital," said Mr. Thomson, "We also anticipate that with this level of capital spending, Source will be cash flow positive in 2020 and beyond."
Prior to December 31, 2019, Source received a second interim payment from its insurers of $5.9 million.
The insurance payment related to a construction incident that occurred at Source's Fox Creek terminal in May 2019. As previously reported, the construction accident resulted in the catastrophic failure of a new frac sand storage and distribution facility that was being constructed by third party contractors near Fox Creek, Alberta. The majority of the costs associated with the failed facility have now been recovered by Source.
Source is a logistics company that focuses on the supply and distribution of high quality Northern White frac sand. Source provides its customers with a full end-to-end solution supported by its Wisconsin mines and processing facilities, its Western Canadian terminal network and its "last mile" logistics capabilities. In addition to its industry leading frac sand transload terminal network and in-basin frac sand storage capabilities, Source also provides storage and logistics services for other bulk oil and gas well completion materials that aren't produced by Source. Source has also developed Sahara, a proprietary wellsite mobile sand storage and handling system.
Source's full-service approach allows customers to rely on its logistics capabilities to increase reliability of supply and to ensure the timely delivery of their requirements for frac sand and other bulk completion materials at the wellsite. For more information, please visit www.sourceenergyservices.com.
ABOUT SEVEN GENERATIONS
Seven Generations is a low-supply cost energy producer dedicated to stakeholder service, responsible development and generating strong returns from its liquids-rich Kakwa River Project in Northwest Alberta. 7G's corporate office is in Calgary, its operations headquarters in Grande Prairie and it's shares trade on the TSX under the symbol VII.
Certain statements contained in this press release constitute forward-looking statements relating to, without limitation, expectations, intentions, plans and beliefs, including information as to the future events, results of operations and Source's future performance (both operational and financial) and business prospects. In certain cases, forward-looking statements can be identified by the use of words such as "expects", "estimates", "forecasts", "intends", "anticipates", "believes", "plans", "seeks", "projects" or variations of such words and phrases, or state that certain actions, events or results "may" or "will" be taken, occur or be achieved. Such forward-looking statements reflect Source's beliefs, estimates and opinions regarding its future growth, results of operations, future performance (both operational and financial), and business prospects and opportunities at the time such statements are made, and, except as may be required by law, Source undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or circumstances should change. Forward-looking statements are necessarily based upon a number of estimates and assumptions made by Source that are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Forward-looking statements are not guarantees of future performance. In particular, this press release contains forward-looking statements pertaining, but not limited, to: expectations regarding increased demand for and sales volumes of sand beyond 2019, expectations regarding improved egress and associated increased demand for LNG; expectations regarding the price of proppants and sensitivity to changes in such prices; outlook for operations and sales volumes; expectations respecting future competitive conditions; industry activity levels; industry conditions pertaining to the frac sand industry; rail service; drilling and well completion activity in 2020; expectations regarding the impact of direct-source contracts; and sand sales volumes and sand spot pricing in 2020, and Source's objectives, strategies and competitive strengths.
By their nature, forward-looking statements involve numerous current assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Source to differ materially from those anticipated by Source and described in the forward-looking statements.
With respect to the forward-looking statements contained in this press release assumptions have been made regarding, among other things: proppant market prices; future oil, natural gas and natural gas liquids prices; future global economic and financial conditions; future commodity prices, demand for oil and gas and the product mix of such demand; levels of activity in the oil and gas industry in the areas in which Source operates; the continued availability of timely and safe transportation for Source's products, including without limitation, Source's rail car fleet and the accessibility of additional transportation by rail and truck; the maintenance of Source's key customers and the financial strength of its key customers; the maintenance of Source's significant contracts or their replacement with new contracts on substantially similar terms and that contractual counterparties will comply with current contractual terms; operating costs; that the regulatory environment in which Source operates will be maintained in the manner currently anticipated by Source; future exchange and interest rates; geological and engineering estimates in respect of Source's resources; the recoverability of Source's resources; the accuracy and veracity of information and projections sourced from third parties respecting, among other things, future industry conditions and product demand; demand for horizontal drilling and hydraulic fracturing and the maintenance of current techniques and procedures, particularly with respect to the use of proppants; Source's ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which Source conducts its business and any other jurisdictions in which Source may conduct its business in the future; future capital expenditures to be made by Source; future sources of funding for Source's capital program; Source's future debt levels; the impact of competition on Source; and Source's ability to obtain financing on acceptable terms.
A number of factors, risks and uncertainties could cause results to differ materially from those anticipated and described herein including, among others: the effects of competition and pricing pressures; risks inherent in key customer dependence; effects of fluctuations in the price of proppants; risks related to indebtedness and liquidity, including Source's leverage, restrictive covenants in Source's debt instruments and Source's capital requirements; risks related to interest rate fluctuations and foreign exchange rate fluctuations; changes in general economic, financial, market and business conditions in the markets in which Source operates; changes in the technologies used to drill for and produce oil and natural gas; Source's ability to obtain, maintain and renew required permits, licenses and approvals from regulatory authorities; the stringent requirements of and potential changes to applicable legislation, regulations and standards; the ability of Source to comply with unexpected costs of government regulations; liabilities resulting from Source's operations; the results of litigation or regulatory proceedings that may be brought against Source; the ability of Source to successfully bid on new contracts and the loss of significant contracts; uninsured and underinsured losses; risks related to the transportation of Source's products, including potential rail line interruptions or a reduction in rail car availability or the impact of weather; the geographic and customer concentration of Source; the ability of Source to retain and attract qualified management and staff in the markets in which Source operates; labour disputes and work stoppages and risks related to employee health and safety; general risks associated with the oil and natural gas industry, loss of markets, consumer and business spending and borrowing trends; limited, unfavourable, or a lack of access to capital markets; uncertainties inherent in estimating quantities of mineral resources; sand processing problems; implementation of recently issued accounting standards; and the use and suitability of Source's accounting estimates and judgments.
Although Source has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors, including those described under the heading "Risk Factors" in the AIF, that cause actions, events or results to not be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will materialize or prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Readers should not place undue reliance on forward-looking statements. These statements speak only as of the date of this press release. Except as may be required by law, Source expressly disclaims any intention or obligation to revise or update any forward-looking statements or information whether as a result of new information, future events or otherwise.
Meghan Somers Brad Thomson
Communications Advisor Chief Executive Officer
(403) 262-1312 (ext. 295) (403) 262-1312 (ext. 225)
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