Tervita (TSX:TEV) operates as an environmentally focused waste service provider in Canada and the United States. The company operates 103 active waste processing, disposal, and industrial facilities, and serves the industrial and natural resource sectors. Tervita, formerly Secure Energy, was founded in 1979 and is headquartered in Calgary, Canada.
The company’s energy services segment treats, recovers, and disposes fluids. It also provides oil terminaling and energy marketing services, processes and disposes solid materials, and offers onsite services using centrifugation or other processes for heavy oil producers involved with in-situ production. The industrial services segment provides site remediation, facility decommissioning, water treatment, sludge and slurry management services. This segment also offers recycling services that include purchase and processing of metals recovered from demolition sites and other locations.
The industry in which Tervita predominantly operates, integrated waste and environmental services, is dependent upon general industrial activity levels. Energy exploration is driven by oil and gas commodity prices, which in turn are impacted by resource availability and demand, costs to produce and general economic activity. Demand for Tervita’s environmental services is dependent on a variety of macroeconomic factors including general levels of economic activity, gross domestic product growth, and government policy.
Accordingly, the demand for environmental services has been more stable over time than that for energy-related services. In recent years, the Western Canadian oil and gas industry has faced ongoing volatility due to strong production growth, as well as impacts from reduced global demand. This uncertainty and volatility in the market has translated into lower investment and reduced drilling and completions activity in Canada.
Improved operational efficiency
In light of this economic environment, Tervita has significantly reduced the cost structure and improved the efficiency of the company’s operations. The ability of Canadian production to respond to reduction in downstream demand, the implementation of curtailment of production in Alberta, and growth in rail capacity has stabilized the market in Western Canada.
Tervita has built the company’s waste and energy business plan assuming this environment and has aggressively pursued cost reductions, operating efficiencies and industry consolidation, thereby ensuring that strong and consistent operating margins are maintained.
Tervita has built the company’s industrial business with the expectation of continued growth in general industry activity outside of oil and gas within Western Canada. As a result, Tervita has targeted increased investment into the company’s industrial business which has resulted in improving results over time. The key drivers for the industrial business include industrial construction and infrastructure programs, natural gas-related projects, steel demand and manufacturing, and site rehabilitation programs.
Stability of future revenues
Tervita’s facilities and energy marketing service lines work in tandem to provide environmental solutions to upstream and midstream operators in the oil and gas industry. Tervita offers services to treat, recover and dispose off fluids used in and generated by oil and gas drilling, completions and production activity. Tervita also operates owned facilities it has often integrated into the company’s customers’ facilities and operations. These onsite projects are typically backed by long-term committed customer contracts.