Savanna Energy Services Corp.

Savanna Energy Services Corp.

November 21, 2013 17:00 ET

Savanna Energy Services Corp. Announces Initial Capital Program and Strategic Focus for 2014

CALGARY, ALBERTA--(Marketwired - Nov. 21, 2013) -

Outline of Initial 2014 Capital Program

Savanna Energy Services Corp. ("Savanna" or "the Company") (TSX:SVY) has approved an initial capital budget providing for growth and expansion. The strategic focus of the Company in 2014 is centered on: expanding its footprint in Australia, entering the triple drilling rig market in North America, and improving the utilization of its North American service rig fleet. Savanna's planned capital commitment for 2014, including the final build and rig up costs of two workover rigs for Australia and deferred long-lead rig components carried forward from 2013, is as follows:

(Stated in thousands of dollars) 2014
Construction of three workover rigs for Australia, completion of two others initiated in 2013, and related trucking equipment 40,200
Initiation of triple drilling rig build program - two rigs 28,000
Upgrade and transfer of Canadian service rigs to North Dakota 2,600
Maintenance, recertifications, upgrades, drill pipe, and infrastructure 52,000
Field operating facilities 22,800

The Company has designed, and will commission and operate, equipment aligned with its strategic focus. The timing and scale of the capital program also reflects Savanna's commitment to sustain its current monthly dividend. The Board of Directors reviews the Company's dividend policy quarterly, and is satisfied with current dividend levels. Savanna currently has ample liquidity to undertake this capital program. In conjunction with the recently completed $50 million note offering, Savanna has approximately $69 million drawn on its total available operating credit facilities of $200 million. In addition, as part of its revolving credit facility, Savanna has an available $50 million accordion, which it can request as an increase to the total available facility.


As previously announced, Savanna was recently awarded long-term contracts for three high-specification workover rigs for Australia. These contracts were in addition to a drilling rig contract and another two workover rig contracts awarded earlier in 2013, all of which were awarded outside of the tendering process. Overall, Savanna will add five workover rigs in 2014 to its current fleet of four workover rigs in Australia in addition to the Company's fifth drilling rig, which should commence operations before the end of 2013. Savanna's Australian operations have delivered strong financial results to date in 2013, and with a minimum 75% increase in equipment in 2014, Savanna is well positioned to continue generating improved returns from this division. Savanna is seeing ongoing demand for its drilling, workover, trucking and rental equipment in Australia, and the Company remains very optimistic on its future prospects in the region. There are several active and pending tenders outstanding for additional equipment, and Savanna will further update its capital program based on the results of these tenders, if, as, or when they are announced.


While Savanna operates a fleet well suited to current and projected high activity areas of all markets it serves, the Company is committed to increasing its drilling rig depth and operating capacity in order to continue expanding the Company's product offering for its customers. Savanna is pursuing contract opportunities for deep triple drilling rigs in Canada and the U.S., with both existing and new customers with promising traction. As a result, Savanna is initiating a two-rig triple build program. The capital commitment outlined above includes certain long-lead rig components deferred from 2013 and will focus primarily on components interchangeable with other rigs in Savanna's drilling fleet.


Savanna has consistently achieved strong operating results from its service rigs in North Dakota, and is intent on expanding this division. This success has been driven by the high level of completion activity for new wells, and increasingly by maintenance of existing production. In light of the increased focus on oil-based activity in the region, the level of maintenance on existing wells continues to grow. This growth matches Savanna's long-term expectation for all oil-focused areas throughout North America, with the earlier increase in oil-directed drilling in North Dakota simply providing support for this market outlook. Our expectations for a similar trend in Canada remain high, however near-term utilization levels in Canada are likely to remain challenged. As a result, Savanna is planning to transfer up to six additional underutilized rigs from Canada into North Dakota in 2014. This will bring the North Dakota fleet to 20 rigs. While crewing of these rigs will take time, Savanna is confident it can achieve greater returns on these assets in North Dakota than in Canada.


Savanna operates a modern drilling and service rig fleet, and is committed to maintaining its equipment to a high quality standard. That said, maintenance and recertification capital expenditures are directly linked to activity levels and Savanna will continue to monitor near-term industry activity and align these expenditures with activity expectations. In addition to required maintenance and recertification expenses, Savanna is continuing to invest capital to enhance the capacity of some of its drilling rigs to improve operational efficiencies and satisfy customer demand.


One of Savanna's key initiatives in 2013 was to consolidate and optimize its field location infrastructure. Based on this, Savanna initiated the development of a facility capable of more efficiently handling the combined demands of maintaining Savanna's larger fleet, as well as final assembly and commissioning of new rigs. Land was recently purchased to facilitate the construction of such a field operating facility. The commitments outlined in the 2014 capital program for the construction of this and other field locations, is Savanna's expectation of the total cost of construction, although the actual timing of completion is not likely to be in 2014. As construction of this facility is completed, Savanna intends to consolidate various operations under one roof. Savanna will then begin the process of selling redundant field locations. In addition, upon completion of these facilities, Savanna will explore alternatives to optimize their value within its credit structure.

Update on 2013 Capital Program

Savanna is expecting capital expenditures of $64 million in the fourth quarter of 2013, which is in-line with previously announced budgeted amounts and expectations. The $64 million will be directed towards maintenance capital, recertifications, upgrades, drill pipe, and infrastructure, as well as finalizing a new-build international specification hybrid drilling rig, continuing construction of two international specification workover rigs, ordering long-lead rig components, and the purchase of land for new field operating facilities.

Although the timing of the land purchase was not originally contemplated as a 2013 capital expenditure, Savanna does not expect to exceed its previously announced capital commitment. Savanna continually monitors industry activity levels and aligns its discretionary maintenance capital with near-term activity expectations. Based on Q4 2013 activity levels, Savanna does not expect maintenance capital expenditures to be as high as originally anticipated. In addition, Savanna expects some of the final build and rig up costs of the two workover rigs above to move into 2014. Lastly, based on delays in the award of rig tenders Savanna has participated in, the expected capital spend on certain long-lead rig components has also been deferred into 2014.

Cautionary Statement Regarding Forward-Looking Information and Statements

Certain statements and information contained in this press release may constitute forward-looking information within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "might" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to the following: the strategic focus for 2014, the pursuing of contracts in respect of speculative deep triple drilling rig constructions, the management of costs in respect of the build and commissioning of triple drilling rigs and Australia workover rigs; the timing of commencement of operations of the Company's fifth drilling rig in Australia, the continued maintenance of existing wells in North Dakota and the increase of workover activity in the area going forward; the management of costs and sale of redundant field locations related to expansion and consolidation of field locations; and the sustainability of the Company's current monthly dividend in the future.

These statements are based on certain assumptions and analysis made by Savanna in light of its experience as well as other factors it believes are appropriate in the circumstances including, without limitation: the status of current negotiations with its customers, the progress of Savanna's current capital projects and current customer advice on deployment for specific customer programs. However, whether actual results or events will conform to Savanna's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and events to differ materially from Savanna's expectations including, without limitation: fluctuations in the price and demand for oil and natural gas; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for well servicing and contract drilling; the effects of weather conditions on operations and facilities; the existence of competitive operating risks inherent in well servicing and contract drilling; general economic, market or business conditions; changes in laws or regulations, including taxation, environmental and currency regulations; the lack of availability of qualified personnel or management; the other risk factors set forth under the heading "Risks and Uncertainties" in Savanna's Annual Report and under the heading "Risk Factors" in Savanna's Annual Information Form; and other unforeseen conditions.

In addition, the amount of future cash dividends, if any, will be subject to the discretion of the Board of Directors and may vary depending on a variety of factors, including fluctuations in operating costs and earnings, working capital and capital expenditure requirements, debt service requirements, foreign exchange rates, the satisfaction of solvency tests imposed by the Business Corporations Act (Alberta) for the declaration and payment of dividends and other conditions existing from time to time.

All of the forward-looking information and statements made in this press release are qualified by this cautionary statement and there can be no assurance that the actual results or events anticipated by Savanna will be realized or, even if substantially realized, that they will have the expected effects on Savanna or its business or operations. Except as may be required by law, Savanna assumes no obligation to update publicly any such forward looking information and statements, whether as a result of new information, future events, or otherwise.

Included in this press release is an estimate of Savanna's 2014 capital expenditures. To the extent such estimate constitutes future oriented financial information or a financial outlook (as defined by applicable securities legislation), such future oriented financial information or financial outlook was approved by management on November 21, 2013 and is included herein to provide readers with an understanding of the Company's anticipated capital expenditures for 2014. Readers are cautioned that the information may not be appropriate for other purposes.

Savanna is a Canadian-based drilling and oilfield services provider with operations in Canada, the United States and Australia, focused on providing fit for purpose equipment and technologies.

Contact Information

  • Savanna Energy Services Corp.
    Ken Mullen
    President and Chief Executive Officer
    (403) 503-9990

    Savanna Energy Services Corp.
    Darcy Draudson
    EVP Finance and Chief Financial Officer
    (403) 503-9990