SECURE Waste Infrastructure Corp. (SES) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Secure Energy Q4 2021 Results Conference Call. [Operator Instructions] Also note that the call is being recorded on March 3, 2022. And I would like to turn the conference over to Anil Aggarwala, 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 Amirault, our President and Chief Executive Officer; Allen Gransch, our Chief Operating Officer; and Chad Magus, our Chief Financial Officer. During the call today, we will make forward-looking statements related to future performance, and we will refer to certain financial measures that do not have any standardized meaning prescribed by GAAP 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 SEDAR 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 Rene for his opening remarks.

Thank you, Anil, 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 wealth 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 and 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 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 disciplined focused on executing on operational excellence, managing costs and achieving business efficiencies helped drive a 208% year-on-year increase in Q4 adjusted EBITDA to $111 million. We're extremely pleased with the results and progress of the integration with Tervita, which is proceeding on track with our plan. In Q4, we achieved $11 million of 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 6 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 '21. As we've always done, we take our commitment to ESG seriously. To complement our long-term environmental targets of net 0 by 2050 and a reduction in half our GHG intensity by 2030, we have set short-term targets to reduce water usage by 5% this 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 through 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 Allen will review our integration plan update and operational highlights. And finally I will move into our outlook for the year.

Thanks, Rene, and Good morning to everyone on the call. The fourth quarter results reflect the second full quarter since the merger with Tervita and demonstrates the strength of our combined entity. Our constant focus on cost reductions and underlying market conditions continuing to improve resulted in strong margins across all of our operations. 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 and remediation and reclamation project work contributed positively to our environmental business. Adjusted EBITDA margin of 34% increased from 30% in the fourth quarter of 2020, mainly due to the positive impact from the cost synergies. 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 Tervita business and the cost reduction measures taken in 2020 to reduce and align our fixed cost structure to levels consistent with industry activity level. In midstream infrastructure, Q4 segment profit margin of 59% was relatively flat compared to the prior year's 60%. The strong profit margin was due to our expanded facility footprint and synergies realized from the transaction as well as higher crude oil pricing and more stable market dynamics, which led to increased drilling completion and production volumes, which were somewhat offset by inflationary pressures. Higher crude oil pricing in the fourth quarter also positively impacted recovered oil revenue and increased oil purchase and resale revenue by 185% to $1 billion. Environmental and Fluid Management Q4 profit margin of 28% increased from 26% in the prior year due to the positive impact of the combined businesses and improved fixed cost absorption. Higher activity levels also resulted in increased drilling waste volumes at the corporation's landfill and positively impacted our drilling fluids and production chemicals business. Metal prices also remained strong in Q4 as 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 targets have been reached capital allocation decisions between continuing to pay down debt, spending on growth capital and increasing returns to shareholders will be assessed with a view to taking a balanced approach, focus on growing the business, maintaining a strong balance sheet and rewarding our stakeholders for their investment. We recorded noncash impairment charges of $247 million in the fourth quarter and $269 million for the full year, which was the primary reason for the net loss of $203 million for the year. This impairment mostly related to facility rationalizations that are critical in order for us to achieve our synergy targets. As an example, we have suspended facilities in areas where there were more than one facility in close proximity to each other, which results in higher utilization 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 USD 100 million of 11% notes with an additional private placement of $140 million of 7.25% notes. 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 cost 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 sixth note maturing in 2025. In addition, at December 31, 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 as we have paid down $47 million of debt outstanding on our revolving credit facility till the end of February. This is due mostly to cash flow from operations and the unwind of the working capital position built up in the fourth quarter. We are pleased with our balance sheet management since the merger and remain on track to achieve our initial debt reduction targets, and we'll continue to look for ways to optimize our capital structure as we move forward. I'll now pass to Allen to provide an update on the integration with Tervita and operational highlights.

Thanks, Chad. Good morning, everyone. With regards to the update on our integration with Tervita, we're extremely pleased with the progress made in 2021. And after 6 months, we have already realized $40 million or 53% on an annualized basis over $75 million of synergies target. Of the $40 million, approximately $27 million related to corporate overhead and G&A, and the remainder were operational efficiencies. During the fourth quarter, we suspended 17 facilities. And during 2022, we'll be working on 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 have spent $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 saving target. Looking at our operational highlights. In Q4, our Midstream Infrastructure segment saw a 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 of 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 from 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 tailwinds. We're continuing to see increased demand for drilling and completion services within the Fluid Management business. Our waste, metal recycling and rail emergency response businesses all performed well in Q4. Metal recycling fares prices remained strong, which helped drive higher volumes and we're also pleased with the progress we made on abandonment 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 prepurchased inventory mainly in our drilling and production chemical business where we anticipated higher costs in 2022. Labor availability for our mobile crews in our environmental and fluid management business remains challenging, mainly for project work. But we anticipate we'll continue to -- 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 spend of $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 a 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 carbon capture infrastructure, which could be an area of growth for us and help reduce overall emissions. Our expertise in deep wells, 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, puts us 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, the 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 3 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 Rene to address for our outlook for 2022.

Thanks, Chad and Allen. We are extremely pleased with the results in Q4 and the progress made to date with the Tervita merger and we continue to see the benefits we expected 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 and allocating capital through all market environments. With regards to the Competition Bureau process, we continue to work cooperative 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's asset base or EBITDA. Based on recent cases, we expect that a 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 to 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 2 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, who is currently the Chair of the Board at Baytex Energy, and I'm looking forward to working with Mark in a number of areas, including continued to advance our ESG initiatives and is North American perspectives. Higher crude oil and natural gas prices should continue to provide significant improvement in our overall industry activity in 2022. Oil and gas producing countries, including Canada, have underspent on developing oil and gas resources since 2014 and 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 increased production modestly. 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. And finally, higher abandonment remediation, reclamation activity from the government stimulus package to help fund the closure and reclamation of orphan 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 on completing the integration with Tervita as efficiently as possible, 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 the Secure employees that have contributed to finding ways to make our mergers 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 2020 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'd now be happy to take your questions.

[Operator Instructions] And your first question will be from Aaron MacNeil at TD Securities.

Just wondering if you can comment on the type of facilities that were closed in the quarter. And I guess I'm just wondering how many were FSTs, 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 with these closed facilities have been in any areas that faced high price competition in 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?

Allen here. So I think when we looked at facility rationalization and we've 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 into 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. If we look at, say, Grande Prairie, for example, it's very busy that area. We wanted to make sure that we had the capacity for our customers. Typically, what I said before is our utilization. If you look back in 2020 was around 30, low 30%. And then as we move 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 close down a facility where they're now going to be trucking those volumes to a greater sense. And so as we close down the 17, I think we'll make sure that all our customers are going to have the capacity at our various locations to be able to have the volumes here that we expect in 2022.

And then just on the pricing, like I recall from a couple of years ago, I think there were areas where pricing was -- competition was higher than others. And do you think 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 and -- but we have to be more efficient and try to provide a cost-effective service here to our customers or they will do it themselves. So really, the -- 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 cost 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 more disposal wells, more treatment facilities and pipelines and so on. So that's really the strategy. That hasn't 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 had -- 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 noncore asset sales in 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 Tervita could be, I guess, on the table in a divestiture scenario?

Sure. So our main focus through the first 6 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 the merged businesses together. I think as we get into 2022, we're going to evaluate all of our service lines. And I think what we wanted to do first is achieve our synergies, get to the $75 million, optimize all the locations, all the facilities, all the service lines. Once we do that and we have a core understanding of what do we believe is noncore, 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 the smaller equipment sales, real estate and so forth, it can range anywhere from $10 million to $20 million in terms of a dollar value, but relatively small in the grand scheme of things. But I think for us, the main focus is everything is going to be directed towards paying down debt being as efficient as we can with all our facilities and driving that free cash flow number.

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

Aaron, you're right. It's -- that's a mix of the costs of these rationalizations. So severance, et cetera. And then there is the onetime transaction costs as well related to our advisers and ongoing legal advisers in connection with the Competition Bureau review. But I don't have the specific breakdown for you.

Your next question will be from Cole Pereira at Stifel.

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. It's not like you get that immediate impact to our bottom-line. Starting Jan 1, it will take time to flush through. As we look to even close other facilities throughout 2022, we can expect the full run rate until we get to the end of the year, which will add meaningful contribution into 2023, we call it $75 million plus. So -- and then if you look at the financial performance in terms of the rig count, I would say we're quite comparable Q3 to Q4. The cold weather in December did impact some of the activity; these rigs just can't operate when you get to temperatures like minus 40 and so a bit of a slow December. But as you see now here heading into Q1, you see the rig count up, call it 25% activity is really, really good in January and February as 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, more free cash flow to the bottom line and more realization of the synergies that goes out time to plus through the system.

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

Okay. Got you. That makes sense and that's helpful. 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?

Yes, that's exactly what it relates to. As we think about reducing transport costs for our customers and them having certainty there, they're looking at pipelining into our existing water disposal facilities, tying in this infrastructure. We said that all along, it makes a lot of sense to take trucks off the road and reduce GHG emissions. And so we've got a number of these projects that we're working on that will come to fruition. The timing as to whether or not it hits it later this year or even some of it creeps into 2023 is difficult to predict. But we've always said if we can add tie into our existing infrastructure, that's our highest rate of return and it benefits our customers and it benefits ourselves. So that's a continued focus of ours. And as Rene mentioned, the producers can do it themselves. And so 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 price for them as we look at these growth capital opportunities. But as we've said multiple times, our main focus here for 2022 is to take this free cash flow and pay down debt as our #1 priority.

And your next question will be from Patrick Kenny at National Bank.

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 footprint. So I'm just curious, perhaps after you get through the competition process, but 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?

Yes. 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 partnering up with private equity or another public company, we think we have a role out there in terms of helping that junior to midstream gather, whether it's again oil or water or CO2 and trying to do that in a cost-effective way and obviously, you need a low cost of 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 where somebody brings something to the table that we don't have, it's certainly an avenue for us.

And then I guess, Rene, looking through that 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/M&A versus, say, share buybacks or further deleveraging? Just what do you see as being the right balance here for shareholders?

Yes, that's -- I mean, my board asked me that every quarter. And -- but think of it as 3 levers and what we're going to try to do and what we'll recommend to the Board is we've got 3 levers there, as you described. And if you could tell me what my share price is in December 31 of this year, I can tell you exactly what I'm going to do, but for my debt position. But -- so I just think of it as 3 levers, and I don't think we shut off debt repayment, for instance, in 2023. I think it's going to be a combination of those 3 that you just described. And what percentage -- hopefully, we'll be a little smarter here in Q3, Q4 as the cash flow comes and free cash flow comes in and pay down the debt, as you described, a more normal or more acceptable level in our minds. But 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 to that. But I think we'll be a little smarter going into Q3, Q4.

That's great. Appreciate that. And then just last one for me 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 mean for your business?

Well, I think it's definitely positive. I mean our environmental side of our business continues to get inbound requests on opportunities for reclamation and abandonment. And the fact that the government is stepping up and putting these programs in place to entice our customers to continually do more on an annual basis just means our business is going to perform better on an annual basis. I mean we've seen it all through 2021. Our groups in the environmental side, we're seeing more landfill volumes. We're seeing more demo and reclamation work. And as these programs get extended and new regulatory programs come out, I think it could be quite meaningful for us in '23 and '24. And it's a great thing to do this on a more recurring basis. So I think we're pretty excited about it because we've got the team and we've got the assets in place to execute on it. And we've got a track record of being able to deliver on this for our customers. So I think it can be meaningfully positive for us.

And then the only thing that I'd add is what -- why we can't give you maybe even a number or a range is that they decide -- the producer decides whether I want to do downhole or aboveground. Obviously, we don't do the downhole of abandonment of it. And so what Allen's -- what Allen's trying to portray to you is that as they kind of dictate to us what they want to do downhole versus surface, that will determine kind of that CapEx per year. But I think the good news with this is, think of it, you have some onetime government programs. Think of it as really it's a 20-year annuity here in both Saskatchewan, 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.

Next question will be from Andrew Bradford at Raymond James.

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 -- Allen, you don't necessarily know when it's going to land, and you have a few projects that are eventuating here, but you don't necessarily -- you're not locked down on them quite yet. But maybe just a little additional color. Is it like, kind of a little bit here and a little bit there or is it mostly allocated to a couple of 2 or 3 larger projects?

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

And then the secondly, just for additional clarity on the synergies. Given that you've identified a few more facilities 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 4 quarters?

It is going to be fairly evenly balanced throughout the quarters. When we talk about the facilities, some of the facilities are partial shutdown. So we may be just looking at waste at one location where we will shut it down and divert it to another location to increase utilization or lower those all costs. So it's not necessarily the full facility shut down. And as we go through -- I know the question came up about geographical locations on our website, we will update on which facilities and which locations are operating and what their capabilities are in that location. But as we go through this process, it will be in conjunction with our customers because we just want to make sure we don't disrupt what they need in terms of their disposal and treating throughout the 2022 period.

Then shifting gears a bit. I know you have a target debt ratio in mind to exit '22 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 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 non-cyclical. There's always going to be a portion of our 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 doesn't matter what part of the cycle you're in a comfortable range from a debt-to-EBITDA ratio. So give us time on that, Andrew. We just -- again, as Allen described, just pulling all these pieces together and understanding where the money is made, where it comes from, will help us determine 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.

And that's actually where I was going with the questioning in the first place. Like because relatedly, when you look at your discounted cash flow and how you're planning to allocate it and you made comments on the disclosures and on this call. And it seems like the -- to that point, is that discretionary cash flow is itself going to be -- have some measure of cyclicality to it. And the opportunities for growth come along in these discrete lumps and it may not be that necessarily regular and your desire or willingness to engage in the NCIB will itself be dependent upon the share price. But the one thing that you start and is more or less should be thought it was locked in as the 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 minds and sort of like a maximum payout ratio or something along those lines. And is there -- 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 [indiscernible] a bit.

I think it's all part of that analysis because once you understand the stability of your cash flow versus what's variable, then you can start saying, again, if I knew my share price in 12 months, I could tell you exactly what we're doing when it comes to buybacks. But that's the 3 levers. It definitely -- it's debt repayment, it's share buybacks and obviously, looking at our dividend. And it's one that -- I think the commitment there is that we will look at returning capital to shareholders where it makes sense. But we also are going to be listening to our customers and trying to figure out what we can do with this existing network. The good news is as Allen described, is that a lot of what we're doing is just that little $3 million, $5 million, $7 million project to optimize and even make that returns of that facility better, getting the trucks off the road. And obviously, we don't own any trucks, so that's a win-win for us and the producers. So that will be all part of that analysis, Andrew. But you're bang on with where you're going with that is that we're picking up shareholder returns. So that will be a big part of it.

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 instead of on cost of capital with more niche service offerings?

I think right now, I think everyone is really in this evaluation stage of carbon capture. And I think what we've highlighted in the past is, look, we have the expertise on pipeline and deep disposal. When you look at the geology and where you're going to put the carbon downhole. So we have the expertise, but I think what really needs to be understood is that's a good return for shareholders. And we want to evaluate to make sure that we're going to put in infrastructure and we're going to be part of this space. Is it -- does it make sense from a return perspective and can we look out long enough to be comfortable to make that investment? So I'm not sure it's at the cost of capital at this point. I think as we get through the rest of this year and into 2023, it's that evaluation and just understanding all the different pieces of it to make sure that investment makes sense. So I think it's very early days Andrew. And as we continue this evaluation process, we'll continually update the market on, 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 trunk lines. So think of us, no different than 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 find some rightsized projects with the right return to make this thing real, but we're not we're not going to be doing the big trunk lines, but the Pembina’s and the TransCanada’s.

Last question, promise here is are you -- as you reduce 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 than perhaps your other facilities that you could look at. But just out of curiosity, is that something that you're focusing on?

Andrew, no, it's not something that we've -- I mean, obviously, we pay attention to where it's been trading. But at this point, we're just focused on paying down our revolver and dealing full plan to deal with those as a whole as we move forward, but we're not actively in the market with those.

[Operator Instructions] And your next question will be from Keith MacKey at RBC.

Just maybe wanted to start out on the capital. I 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 the year? Is it $45 now, but you could go up to $50 or is it $45 to $60 depending on how discussions go with customers?

Yes. So think of it this week is, one, we -- 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 that Allen described. Part 2 of this is we've got supply chain disruptions, whether it's ordering anything steel-related or pumps and stuff like that. So we do have some surface, but we will have to order some new stuff. So we may spend some 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 preorder 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.

And after you spend the $45 or after you complete the projects for -- 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?

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 with -- to replace their high decline production, but also are they going to grow by 2%, 3%, 5%. Obviously, at [ Headwater ] and [indiscernible] all by themselves in terms of growth rates. But if you look at a lot of the ones we're dealing with. So a pretty disciplined approach so that we can look ahead and say do we have to put capital aside for this tie-in or even extending out our Kaybob system, those types of things. So 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 and just see if their forecast changes at all. So it's really -- if they stayed at this disciplined growth, then next year, if you're looking for a number, it's probably in that $45 million range, just the amount of opportunities coming through the door.

And you mentioned 2 companies in your response there, Rene. So maybe I just wanted to follow-up on that and talk about the Clearwater, 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 and is -- would that be in your wheelhouse or is it something that the producers themselves or other companies would be more suited to?

Yes, that's a great question because it's a clear illustration of when companies have lots of free cash flow they're going to look at -- they -- it's not a question I don't have the capital, so I'm going to outsource to secure it, what can I do it for versus what Secure can do it for. And so we're having those conversations as we speak as to our -- is there the right opportunity for us in terms of a rate of return. Allen, you can give some color in that area. We've got our Slave Lake or Mitsue facility that are high-priority facility, and we also have lots of things that we're taking a look at. But it's definitely a growing area, and we're just trying to understand what that did look like?

Yes. I think a lot of our capital decisions as we think about tying into our existing infrastructure or partnering up with a producer in the area. It's about -- 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 a role to play and we see that there is value for the next 10, 15, 20 years, whether or not it's adding on to Slave Lake or Mitsue or some other location 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 play to a lot of producers and they're getting a great result.

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?

Keith, it's those -- the impairment we recorded at the end of this year contemplated our planned closures for 2022 as well. So those are already reflected in our year-end impairment number.

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. A tapped broadcast of this call will be available on Secure's website. We look forward to providing you with updates on Secure's performance in April after the completion of our first quarter of '22. Thanks again, and look forward to chatting with you here in about 2 months.

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