Savanna Energy Services Corp.

Savanna Energy Services Corp.

January 10, 2017 08:00 ET

Savanna Commences Strategic Process, Reiterates Recommendation to Shareholders to Reject the Total Offer, Announces 2017 Capital Budget and Provides Operational Update

CALGARY, ALBERTA--(Marketwired - Jan. 10, 2017) - Savanna Energy Services Corp. ("Savanna" or the "Company") (TSX:SVY), announced today that it intends to commence the previously announced strategic alternatives process and open a data room this week for parties potentially interested in a transaction with Savanna. Qualified parties interested in accessing the confidential data room will be required to sign a confidentiality agreement.

"Savanna has continued to receive expressions of interest from potential bidders and the opening of the data room is an important step forward in Savanna's exploration of the full range of strategic alternatives available to the Company with a view to maximizing value for all shareholders," said Jim Saunders, Chair of the Savanna Board and Chair of the Special Committee. "As previously disclosed, there can be no certainty of a transaction, but the alternatives may include a merger or partnership with strategic or financial partners, a sale reflecting full and fair value for shareholders of Savanna, or an acquisition by Savanna."

Savanna also continues to reiterate its Board of Directors' recommendation to shareholders that they REJECT the unsolicited and opportunistic offer from Total Energy Services Inc. ("Total") to purchase all of the common shares of Savanna in exchange for shares of Total (the "Total Offer"). The Total Offer implies a current discount of 7% when over the past five years transactions of this nature have carried a premium of approximately 40% at the time of the offer.

Said Chris Strong, President and Chief Executive Officer, "Total's offer does not offer adequate value in light of Savanna's recent transformational financings that extended its debt maturity to five years and favourable external events such as the nomination to the U.S. cabinet of strong energy industry proponents, the approval of two new Canadian oil export pipelines, and agreements by OPEC members and certain non-OPEC producers to curb production for the first time in eight years.

"Taken together, the recovery that appears to be underway will benefit Savanna far more than Total because Savanna's primary business lines, drilling and well servicing, are more highly levered to improving commodity prices and increased industry activity levels. This is especially true in the U.S., where Total has no contract drilling operations, and where Savanna's contract drilling utilization has more than doubled in the fourth quarter of 2016 from a year earlier, with further gains anticipated in the first quarter of 2017 compared with the first quarter of 2016."

Savanna's Board of Directors unanimously recommends that Savanna shareholders REJECT the Total Offer for these and other reasons, including the following:

  • The Total Offer does not provide a control premium for shareholders of Savanna
  • The Total Offer substantially undervalues the contribution that Savanna's assets would bring to a combined entity
  • Superior offers from third parties or other more attractive alternatives for shareholders may emerge
  • The Total Offer does not attribute any value to the potential for future success of Savanna's ongoing actions to increase shareholder value

In addition, Peters & Co. Limited has provided the Special Committee and Board of Directors of Savanna with an opinion that the consideration offered pursuant to the Total Offer is inadequate, from a financial point of view, to shareholders of Savanna.

Savanna urges shareholders to carefully review the Savanna Directors' Circular and letter to shareholders that have been mailed and posted on the Savanna website at and at The Directors' Circular provides a complete list of 12 strong reasons to REJECT the Total Offer.

Rejecting the Total offer requires shareholders to DO NOTHING.

Shareholders with questions are encouraged to call D.F. King toll-free at 1-866-6662-1678 or

2017 Capital Budget

Savanna also announces its Board of Directors has approved an initial capital budget of $22 million for 2017 centered on rig reactivations, rig upgrades, maintenance capital and finalizing system upgrades initiated in 2016.

In light of improving industry conditions and activity levels, Savanna has budgeted for the reactivation of three drilling rigs in the Permian basin, which are incremental to the seven drilling rigs recently reactivated in the region. Also, in conjunction with the 18 month contracts recently secured for two of its high-specification AC double drilling rigs in the Marcellus, Savanna will upgrade pumping capacity for each of these two rigs to 7,500 psi.

Initial maintenance capital levels have been estimated based on expectations of increased activity levels in 2017. Actual expenditures will depend on actual activity levels for 2017, unexpected equipment maintenance and replacement, any upgrades or enhancements required to secure customer contracts, and necessary rig re-certification requirements. Savanna will continually evaluate its 2017 maintenance capital requirements in light of changes to anticipated activity levels as well as customer upgrade requirements necessary to secure contracts.

The information system upgrades that began in 2016 are also nearing completion. The upgrades include the replacement of various disparate legacy systems with a single cloud-based global enterprise resource planning system. Improved and standardized global processes and systems are expected to limit personnel increases in an eventual recovery of activity levels.

Operational Update


Savanna's fourth quarter 2016 activity levels in Canada were considerably higher than a year ago, led by long-reach drilling, for which utilization was up significantly from the fourth quarter of 2015. The gains were achieved despite wet weather through the start of the quarter. Utilization in Canada through each quarter of 2016 and the fourth quarter of 2015 is set forth below.

Q4 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015
Long-reach drilling - 52 drilling rigs 32 % 20 % 8 % 19 % 24 %
Shallow drilling - 16 drilling rigs 4 % 3 % 0 % 24 % 5 %
Well servicing - 57 service rigs 36 % 26 % 18 % 27 % 29 %

To date in the first quarter of 2017, utilization is tracking in-line with expectations. Savanna expects to run between 25 and 30 service rigs on average in the first quarter of 2017, compared to the average of 20 service rigs working during the first quarter of 2016. On the drilling side, Savanna expects to operate a peak of 40 to 45 drilling rigs in the first quarter of 2017, including nine coring rigs, compared to its peak of 29 drilling rigs in the first quarter of 2016, of which nine were coring rigs.


In the U.S., Savanna's upgrade and reactivation of drilling rigs in the Permian basin led to a significant increase in utilization for the drilling rig fleet in the fourth quarter of 2016 relative to the fourth quarter of 2015. By the end of 2016, Savanna had put six drilling rigs back to work that had been stacked for over a year and a seventh is expected to commence operations in the Permian basin in the first quarter of 2017. U.S. well servicing utilization remained relatively consistent throughout 2016. Utilization in the U.S through each quarter of 2016 and the fourth quarter of 2015 is set forth below.

Q4 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015
Drilling - 28 drilling rigs 26 % 16 % 10 % 11 % 12 %
Well servicing - 18 service rigs 40 % 41 % 37 % 40 % 39 %

Utilization in the U.S. to date in 2017 is also in-line with expectations. Savanna expects to be operating 13 drilling rigs in the first quarter of 2017 in the U.S. compared to only four drilling rigs that operated in the U.S. in the first quarter of 2016, and also expects U.S. well servicing activity levels to improve in the coming quarters.


In Australia, fourth quarter 2016 activity levels improved from the third quarter of 2016 as additional drilling and service rigs began working in the fourth quarter of 2016. While the liquefied natural gas industry in Australia has not been immune to global commodity price pressures, Savanna was able to increase utilization in the fourth quarter of 2016 relative to the two preceding quarters, despite certain of Savanna's take or pay contracts rolling over earlier in the year. A key driver in increasing drilling utilization in particular, was getting two uncontracted drilling rigs to work in Q4 2016, one of which is continuing to work in Q1 2017. Drilling utilization in the fourth quarter of 2016 was down from a year earlier because fewer rigs were under contract and there was an earlier Christmas shut-down in 2016. Utilization in Australia through each quarter of 2016 and the fourth quarter of 2015 is set forth below.

Q4 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015
Drilling - 5 drilling rigs 46 % 19 % 27 % 48 % 63 %
Well servicing - 12 service rigs 44 % 27 % 32 % 38 % 41 %

Savanna's seven original new-build contracts, still in place in Australia, begin to expire in the second half of 2017. The Company has been negotiating with its customers in Australia to re-contract its drilling and service rigs outside of the formal tender process. Ultimately, Savanna believes its built-for-purpose drilling and service rigs, as well as its operational and safety performance in Australia, puts the Company in a strong competitive position to re-contract its drilling and service rigs in the region.

About Savanna

Savanna is a leading North American and Australian contract drilling and oilfield services company providing a broad range of drilling, well servicing and related services with a focus on fit for purpose technologies and industry-leading aboriginal relationships.

Cautionary Statement Regarding Forward-Looking Information and Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward-looking statements and information relating to the Company's 2017 capital budget and program and plans to continue to evaluate it, status of system upgrades and nature thereof, the market recovery and its anticipated effect on Savanna, Savanna's expectation that personnel increases will be limited in recovery, Savanna's expectations for its 2017 activity levels and its ability to re-contract its drilling and service rigs in Australia and the strategic alternatives process. These forward-looking statements and information are based on certain key expectations and assumptions made by Savanna including that activity levels in Canada and the U.S. will continue to improve. Although Savanna believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information as Savanna cannot give any assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with general economic conditions, that there may not be any alternative transactions or the terms and conditions of any alternatives may not being acceptable to the Company, the demand for Savanna's services, volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally, currency exchange rate risk, changes in legislation, dependence on, and concentration of, major customers, and the creditworthiness and performance by the Company's counterparties and customers.

Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other risk factors that could affect Savanna's operations or financial results are included in Savanna's annual information form and may be accessed through the SEDAR website ( The forward-looking statements and information contained in this press release are made as of the date hereof and Savanna does not undertake any obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Contact Information

  • Savanna Energy Service Corp.
    Chris Strong
    President and Chief Executive Officer
    (403) 267-6728

    Savanna Energy Service Corp.
    Dwayne LaMontagne
    Executive Vice President and Chief Financial Officer
    (403) 214-5959

    Media contact:
    Trevor Zeck
    Longview Communications Inc.
    (604) 694-6037

    Shareholder inquiries:
    D.F. King Canada
    (Toll Free): 1-800-622-1678