Savanna Energy Services Corp.
TSX : SVY

Savanna Energy Services Corp.

November 07, 2013 00:10 ET

Savanna Energy Services Corp. Announces Q3 2013 Results and Rig Additions for Australia

CALGARY, ALBERTA--(Marketwired - Nov. 7, 2013) - Savanna Energy Services Corp. ("Savanna" or "the Company") (TSX:SVY) generated EBITDAS of $38.2 million on $170.6 million of revenue in Q3 2013, compared to EBITDAS of $36.4 million on $158.7 million of revenue in Q3 2012. The increases were primarily a result of substantial increases in Australian activity and operating results, and higher utilization in Canadian drilling. Revenue and EBITDAS in the quarter were also considerably higher than the Q2 2013 revenue of $112.1 million and EBITDAS of $10.1 million, as a result of the typical Q3 seasonal increase in activity in Canada, coming out of the second quarter.

Activity in Australia continued to accelerate through Q3 2013 and improved utilization and operating margins from Savanna's Australian operations drove Savanna's overall operating margin increases in the quarter relative to Q3 2012. Overall operating margins from Australia totaled $5.4 million in Q3 2013, in-line with the $5.6 million generated in Q2 2013, and more than double the $2.6 million in operating margins in Q3 2012. Activity levels are ramping up in Australia and Savanna's position within the Australian market is expanding along with them. Subsequent to the end of the quarter, Savanna was awarded long-term contracts for an additional three workover rigs for Australia, all outside of the tender process. These rigs are expected to be delivered in Q2 and Q3 2014, with an aggregate capital commitment of $31 million. A portion of this capital cost will be spent in 2013, under Savanna's previously committed amount for long-lead items. Including these three new rigs, Savanna will be adding one drilling rig and five service rigs into Australia in less than twelve months, increasing the Company's fleet in the region by 75%.

In Canada, overall operating margins were fairly flat in Q3 2013 relative to Q3 2012, as improved utilization on a larger active drilling fleet offset decreased pricing, and lower well servicing activity was tempered by an improved fixed cost structure and increased revenue and operating margins from oilfield rentals. Savanna generated $29.8 million in operating margins on $98.7 million of revenue in Canada in Q3 2013, compared to $30.3 million in operating margins on $94.2 million of revenue in Q3 2012, and $2.7 million in operating margins on $40.2 million of revenue in Q2 2013. The decrease in operating margin percentages compared to Q3 2012 was in large part a result of lower pricing. The increase in operating margin percentages compared to Q2 2013 was primarily a result of higher activity levels and the effect fixed costs had on operating margins.

Operating margins in the U.S. in Q3 2013 also remained fairly flat compared to Q3 2012, as higher per day revenue offset lower activity levels. Savanna generated $15.4 million in operating margins on $44.9 million of revenue in the U.S. in Q3 2013, compared to $14.5 million in operating margins on $45.4 million of revenue in Q3 2012, and $14.3 million in operating margins on $43.8 million of revenue in Q2 2013.

Savanna's Q3 2013 net earnings attributable to the shareholders of the Company, decreased by $0.3 million to $6.7 million, or $0.08 per share, from $7 million, or $0.08 per share, in Q3 2012, as higher EBITDAS was offset by higher depreciation and amortization expenses. In Q2 2013, Savanna had a net loss attributable to the shareholders of the Company of $8.6 million, or $0.10 per share. The seasonal increase in Canadian activity levels coming out of the second quarter drove the increase in earnings from Q2 2013.

On a year-to-date basis, overall economic uncertainty, pipeline capacity constraints in Canada, and continuing low natural gas prices, have depressed oilfield service demand levels in North America in 2013 relative to 2012. This led to lower utilization in both drilling and well servicing in Canada and decreased pricing on Savanna's spot market drilling rigs. Despite these industry demand decreases, an increase in Savanna's overall active drilling rig fleet, driven by the refurbishment and retrofit initiatives of the last few years, and in Canadian oilfield rentals revenue, have partially mitigated the negative effect that the activity declines in North America have had on Savanna's overall operating margins. A sharp year-over-year increase in operating margin contributions from Savanna's Australian drilling and oilfield services operations has also offset much of the weakness in North American activity. In the first nine months of 2013, higher general and administrative expenses, higher depreciation expenses based on an increased capital asset cost base and higher activity in Australia, and higher finance expenses, also negatively impacted Savanna's net earnings compared to the same period in 2012. In addition, in the first nine months of 2013, Savanna incurred $1.1 million in severance and bad debt expenses, approximately 60% of which is included in general and administrative expenses.

Financial Highlights

The following is a summary of selected financial information of the Company:

(Stated in thousands of dollars, except per share amounts) Three months ended Nine months ended
September 30 2013 2012 Change 2013 2012 Change
OPERATING RESULTS
Revenue 170,611 158,748 7 % 519,584 515,572 1 %
Operating expenses 119,988 111,086 8 % 364,620 354,600 3 %
Operating margin(1) 50,623 47,662 6 % 154,964 160,972 (4 %)
Operating margin %(1) 30 % 30 % 30 % 31 %
EBITDAS(1) 38,182 36,398 5 % 116,301 126,658 (8 %)
Attributable to shareholders of the Company 37,129 35,090 6 % 113,017 122,430 (8 %)
Per share: diluted 0.42 0.41 2 % 1.30 1.43 (9 %)
Net earnings 7,338 7,991 (8 %) 28,357 37,850 (25 %)
Attributable to shareholders of the Company 6,692 6,984 (4 %) 25,815 34,620 (25 %)
Per share: diluted 0.08 0.08 0 % 0.30 0.40 (25 %)
CASH FLOWS
Operating cash flows(1) 38,258 34,464 11 % 108,755 116,886 (7 %)
Acquisition of capital assets(1) (26,692 ) (42,153 ) (37 %) (75,266 ) (141,646 ) (47 %)
Proceeds on disposal of capital assets 268 8,829 (97 %) 4,578 10,961 (58 %)
Dividends paid (5,548 ) (5,862 ) (5 %) (17,070 ) (10,085 ) 69 %
FINANCIAL POSITION Sep. 30 2013 Dec. 31 2012
Working capital(1) 94,837 94,125 1 %
Capital assets(1) 1,154,062 1,145,554 1 %
Total assets 1,344,268 1,338,489 0 %
Long-term debt 237,241 249,939 (5 %)

Effective January 1, 2013, Savanna adopted International Financial Reporting Standard ("IFRS") 10, Consolidated Financial Statements. Adoption of the standard changed how Savanna accounted for its partnerships with Aboriginal communities, from 50% proportionate consolidation to full consolidation. As a result, the comparative figures included in this press release, have been restated. The changes on adoption of the new standard are described in detail in the Company's Q1 2013 management's discussion and analysis, under the heading "Accounting Policies", and in Note 4 of the Company's condensed consolidated financial statements for the three months ended March 31, 2013.

NOTES:

  1. Operating margin, operating margin percentage, EBITDAS, and operating cash flows are not recognized measures under IFRS, and are unlikely to be comparable to similar measures presented by other companies. Management believes that, in addition to net earnings, the measures described above are useful as they provide an indication of the results generated by the Company's principal business activities both prior to and after consideration of how those activities are financed, the effect of foreign exchange and how the results are taxed in various jurisdictions. Similarly, capital assets, working capital, and net debt are not recognized measures under IFRS; however, management believes that these measures are useful as they provide an indication of the Company's investment in operating assets, liquidity and leverage.
  • Operating margin is defined as revenue less operating expenses.

  • Operating margin percentage is defined as revenue less operating expenses divided by revenue.

  • EBITDAS is defined as earnings before finance expenses, income taxes, depreciation, amortization and share-based compensation and excludes other expenses (income).

  • Operating cash flows are defined as cash flows from operating activities before changes in non-cash working capital.

  • Capital assets are defined as property, equipment and intangible assets.

  • The acquisition of capital assets includes the purchase of property, equipment and intangible assets, capital assets acquired through business acquisitions and non-cash capital asset additions.

  • Working capital is defined as total current assets less total current liabilities excluding the current portions of long-term debt.

  • Net debt is defined as long-term debt, including the current portions thereof and excluding unamortized debt issue costs, less working capital as defined above.

  1. Certain industry related terms used in this press release are defined or clarified as follows:
  • Savanna reports its drilling rig utilization based on spud to release time for its operational drilling rigs and excludes moving, rig up and tear down time, even though revenue may be earned during this time. Source of Canadian industry average utilization figures: Canadian Association of Oilwell Drilling Contractors. Industry utilization figures are calculated in the same manner as the Company.

  • Savanna reports its service rig utilization for its operational service rigs in North America based on standard hours of 3,650 per rig per year. Utilization for Savanna's service rigs in Australia is calculated based on standard hours of 8,760 per rig per year to reflect 24 hour operating conditions in that country. Reliable industry average utilization figures, specific to well servicing, are not available.

Segmented Results

CONTRACT DRILLING

The following is a summary of selected financial and operating information of the Company's contract drilling segment:

(Stated in thousands of dollars, except revenue per day) Three Months Ended Nine Months Ended
September 30 2013 2012 Change 2013 2012 Change
Revenue $ 123,507 $ 114,330 8 % $ 374,214 $ 378,603 (1 %)
Operating expenses $ 85,156 $ 77,856 9 % $ 256,052 $ 251,540 2 %
Operating margin(1) $ 38,351 $ 36,474 5 % $ 118,162 $ 127,063 (7 %)
Operating margin %(1) 31 % 32 % 32 % 34 %
Operating days 5,578 5,365 4 % 16,148 16,424 (2 %)
Revenue per operating day $ 22,142 $ 21,310 4 % $ 23,174 $ 23,052 1 %
Spud to release days 4,881 4,649 5 % 14,012 14,428 (3 %)
Wells drilled 717 554 29 % 1,870 1,705 10 %
Meters drilled 1,199,186 1,054,514 14 % 3,237,187 2,935,982 10 %

THIRD QUARTER RESULTS

Overall, improved utilization on a larger active drilling fleet in Canada, higher per day revenue in the U.S., and improved utilization in Australia in Q3 2013, resulted in more operating days and higher overall revenue and operating margins in Savanna's contract drilling segment compared to Q3 2012.

The following summarizes the operating results in the third quarter of 2013 and 2012 by type of rig or geographic area. Long-reach drilling in Canada includes the Company's telescoping double drilling rigs, TDS-3000™ drilling rigs and TDS-2200 drilling rigs.

Long-reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
Q3 2013 Canada Canada International Total
Revenue 67,125 3,881 52,501 123,507
Operating margin(1) 22,889 (557 ) 16,019 38,351
Operating margin %(1) 34 % * 31 % 31 %
Revenue excluding cost recoveries 60,861 3,701 50,507 115,069
Operating margin(1) 22,889 (557 ) 16,019 38,351
Operating margin %(1) 38 % * 32 % 33 %
Average number of rigs deployed 50 20 30 100
Utilization %(2) 57 % 12 % 73 % 53 %
Long-reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
Q3 2012 Canada Canada International Total
Revenue 60,356 2,703 51,271 114,330
Operating margin(1) 23,025 (797 ) 14,246 36,474
Operating margin %(1) 38 % * 28 % 32 %
Revenue excluding cost recoveries 54,932 2,539 50,477 107,948
Operating margin(1) 23,025 (797 ) 14,246 36,474
Operating margin %(1) 42 % * 28 % 34 %
Average number of rigs deployed 47 20 30 97
Utilization %(2) 54 % 8 % 79 % 52 %

* Calculation not meaningful

In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup. For Q3 2013 these costs aggregated $8.4 million (Q3 2012 - $6.4 million). Savanna's accounting policy with respect to cost recoveries billed to customers is to include them as both revenue and operating expenses rather than to net them. Although Savanna believes this most appropriately reflects the substance of the underlying transactions, the accounting treatment of cost recoveries varies in the oilfield services industry. There is no effect on overall operating margins whether cost recoveries are netted or not; however, the different treatments do result in different operating margin percentages, as the same dollar margin is factored against lower revenue when cost recoveries are netted. As a result, Savanna believes it is useful to provide revenue excluding cost recoveries and the resulting operating margin percentages for comparative purposes.

The Canadian long-reach drilling rigs delivered improved utilization on a larger active drilling fleet in Q3 2013 compared to Q3 2012. In addition, as activity improved coming out of the second quarter, the prevailing downward pressure on day rates for Savanna's spot market rigs did subside somewhat; however, pricing is still below that of Q3 2012. In addition, variable costs per day were slightly higher than last year, primarily as a result of labour cost increases that took effect in Q4 2012. The lower per day revenue and higher per day costs were offset by an increase in operating days, and as a result, overall operating margins were flat relative to Q3 2012. The 57% utilization rate for Savanna's long-reach drilling rigs in Q3 2013 was above the Canadian industry utilization rates of 50% in the same depth categories.

The Company's shallow drilling rig fleet achieved higher revenues and utilization in Q3 2013 relative to Q3 2012. The increase in revenues was not sufficient to cover fixed operating costs in Q3 2013, and the shallow drilling rig fleet contributed negatively to overall operating margins, although less so than in Q3 2012. However, the higher utilization in Q3 2013 should reduce the costs required to fully crew rigs for Q4 2013 and Q1 2014.

Despite fewer operating days, Savanna's U.S. drilling operation increased operating margins in Q3 2013 compared to Q3 2012. Higher per day revenue and lower per day labour costs more than offset the decrease in operating days, and as a result, operating margin percentages for the quarter increased by three percentage points relative to Q3 2012.

In Australia, improved utilization in Q3 2013 led to an increase in operating days, revenue, and operating margins compared to Q3 2012. Operating margins for Savanna's drilling operations in Australia increased by 37% in Q3 2013 compared to Q3 2012. The improved utilization in Australia also drove average per day revenue up for the drilling segment as a whole as day rates are significantly higher in Australia than they are in North America.

YEAR-TO-DATE RESULTS

To date in 2013, in Savanna's contract drilling segment, a significant increase in activity levels in Australia has partially offset operating day declines in the U.S. and Canada relative to the first nine months of 2012. A $6.3 million, or 194%, increase in operating margins from drilling in Australia, and having five more active rigs in the overall fleet to date in 2013 partially offset decreased demand levels and utilization in North America. Similarly, lower day rates in Canada, particularly on Savanna's telescoping double drilling rigs, were offset by higher per day rates in the U.S. and Australia.

The following summarizes the operating results in the first nine months of 2013 and 2012 by type of rig or geographic area.

Long-reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
YTD 2013 Canada Canada International Total
Revenue 186,028 29,679 158,507 374,214
Operating margin(1) 62,626 8,887 46,649 118,162
Operating margin %(1) 34 % 30 % 29 % 32 %
Revenue excluding cost recoveries 165,472 28,701 152,711 346,884
Operating margin(1) 62,626 8,887 46,649 118,162
Operating margin %(1) 38 % 31 % 31 % 34 %
Average number of rigs deployed 50 20 30 100
Utilization %(2) 49 % 20 % 75 % 51 %
Long-reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
YTD 2012 Canada Canada International Total
Revenue 195,991 35,531 147,081 378,603
Operating margin(1) 75,134 10,457 41,472 127,063
Operating margin %(1) 38 % 29 % 28 % 34 %
Revenue excluding cost recoveries 176,413 33,999 142,547 352,959
Operating margin(1) 75,134 10,457 41,472 127,063
Operating margin %(1) 43 % 31 % 29 % 36 %
Average number of rigs deployed 45 21 29 95
Utilization %(2) 55 % 24 % 79 % 55 %

In the first nine months of 2013 cost recoveries aggregated $27.3 million compared to $25.6 million in the same period in 2012. Lower day rates and lower utilization in the first nine months of 2013 resulted in decreased revenue for the Company's long-reach drilling rigs in Canada compared to the same period in 2012. This lower revenue, coupled with higher per day pass through costs and the increased impact of fixed costs on lower activity levels, led to a 17% decrease in operating margins and lower operating margin percentages compared to the first nine months of 2012. The relatively low overall industry demand in Canada heading into the winter drilling season in 2012 put pressure on day rates for Savanna's spot market rigs in early 2013. While rates have now stabilized, they are still lower relative to this time last year. Although utilization in the first nine months of 2013 decreased compared to the same period in 2012, the 49% utilization rate for Savanna's long-reach drilling rigs in 2013 still exceeded Canadian industry utilization rates of 47% in the same depth categories.

The majority of the revenue and operating margins for Savanna's shallow fleet in the first nine months of both 2013 and 2012 was earned performing coring work for oil sands customers in the first quarter of each year. The CT-1500 hybrid drilling rigs have had considerable success in applying coil based drilling to coring. In addition, as a result of improved utilization post Q1 and cost control initiatives to date in 2013, the shallow fleet improved operating margin percentages relative to the first nine months of 2012 despite lower activity this year versus last.

Revenue and operating margins for Savanna's U.S. drilling operation were lower in the first nine months of 2013 compared to the same period in 2012, as a result of fewer operating days. Pricing pressure in the Permian basin in Texas, which began in Q3 2012, has leveled off and average per day revenue was actually higher in the first nine months of 2013 relative to the same period in 2012. The increase in per day revenue was offset by higher per day labour costs and operating margin percentages in the U.S. were flat relative to the first nine months of 2012. Although demand levels have decreased overall in the U.S., to date in 2013, Savanna has been able to maintain high utilization rates in the regions where its rigs are deployed.

In Australia, operating days and revenue increased significantly in the first nine months of 2013 compared to the same period in 2012 as utilization improved on a larger rig fleet in the region. The larger fleet also reduced the impact of fixed costs on per day costs, and operating margins for Savanna's drilling operations in Australia increased to $9.5 million in the first nine months of 2013, which is more than three times higher than at this time last year.

OILFIELD SERVICES

The following is a summary of selected financial and operating information of the Company's oilfield services segment:

(Stated in thousands of dollars, except revenue per hour) Three Months Ended Nine Months Ended
September 30 2013 2012 Change 2013 2012 Change
Revenue $ 47,716 $ 44,978 6 % $ 147,595 $ 139,347 6 %
Operating expenses $ 35,528 $ 33,896 5 % $ 111,072 $ 105,764 5 %
Operating margin(1) $ 12,188 $ 11,082 10 % $ 36,523 $ 33,583 9 %
Operating margin %(1) 26 % 25 % 25 % 24 %
Operating hours - well servicing 41,824 43,598 (4 %) 119,825 133,917 (11 %)
Revenue per operating hour - well servicing $ 879 $ 840 5 % $ 934 $ 861 8 %

THIRD QUARTER RESULTS

Despite a decline in operating hours, revenue for Savanna's oilfield services division increased in Q3 2013 compared to Q3 2012, as a result of an increase in oilfield rentals revenue and higher overall per hour rates in well servicing. Increased utilization in Australia in the quarter, where per hour revenue is higher than in North America, contributed to the higher per hour revenue and the higher utilization also led to a significant increase in operating margins in Australia in Q3 2013 relative to Q3 2012. In addition, a restructured fixed cost base in Canadian well servicing resulted in higher operating margin percentages in Q3 2013, despite a decrease in operating hours and operating margins compared to Q3 2012.

Included in revenue for Q3 2013, was $10.9 million from oilfield rentals (Q3 2012 - $8.4 million). Of the Q3 2013 rental revenue, $5.1 million (Q3 2012 - $3.9 million) was generated in Australia and $0.7 million (Q3 2012 - $0.7 million) is eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from the per hour revenue calculations above.

The following summarizes the operating results by geographic area:

(Stated in thousands of dollars) U.S. and
Q3 2013 Canada International Total
Revenue 27,679 20,037 47,716
Operating margin(1) 7,389 4,799 12,188
Operating margin %(1) 27 % 24 % 26 %
Average number of rigs deployed - well servicing 84 15 99
Utilization %(2) - well servicing 36 % 76 % 46 %
(Stated in thousands of dollars) U.S. and
Q3 2012 Canada International Total
Revenue 30,986 13,992 44,978
Operating margin(1) 8,174 2,908 11,082
Operating margin %(1) 26 % 21 % 25 %
Average number of rigs deployed - well servicing 87 15 102
Utilization %(2) - well servicing 41 % 64 % 47 %

Lower industry demand in Canada resulted in lower activity levels for Savanna's well servicing operations in Q3 2013 compared to Q3 2012. The number of operating hours from the well servicing fleet in Canada decreased by 16% compared to Q3 2012. Variable per hour costs in well servicing remained relatively flat from Q3 2012 but overall fixed costs decreased as a result of a restructuring of the well servicing field operations in Canada. This led to a percentage point increase in operating margin percentages relative to Q3 2012, despite fewer hours. For rentals, revenues increased by 30% and operating margins increased by 24% in Q3 2013 compared to Q3 2012, as a result of the December 2012 acquisition of oilfield accommodation buildings.

Revenue for well servicing in the U.S. increased in Q3 2013 as a result of more operating hours and higher pricing relative to Q3 2012. The increase in revenue was offset by an increase in labour costs associated with crewing three additional rigs being transferred from Canada in Q4 of this year, and as a result operating margins remained flat compared to Q3 2012. With the pending rig transfers from Canada in Q4 2013 and the first half of 2014, operating margin contributions from Savanna's U.S. well servicing operations should increase in future quarters.

In Australia, revenue from service rigs and rental equipment increased by 39% and operating margins increased by $1.9 million, or 332%, in Q3 2013 compared to Q3 2012. The increases are a result of improved utilization on a larger equipment base.

YEAR-TO-DATE RESULTS

Savanna's oilfield services division generated higher revenues, despite achieving fewer operating hours in the first nine months of 2013 compared to same period in 2012. The increase was a result of higher overall per hour rates in well servicing, due primarily to a larger contribution from Australia, and an $11.6 million increase in oilfield rentals revenue. Overall, operating margins increased by $2.9 million in the first nine months of 2013 and operating margin percentages increased by one percentage point. The operating margin increase was driven in large part by increases in Australia; operating margins from service rigs and rental equipment in Australia increased by $5.1 million, or 902%, in the first nine months of 2013 compared to the same period in 2012.

Included in revenue for the first nine months of 2013, was $35.7 million from oilfield rentals (2012 - $15.7 million), a 32% increase from the same period in 2012. Of the year-to-date rental revenue in 2013, $15 million (2012 - $9.9 million) was generated in Australia and $2.5 million (2012 - $2.7 million) is eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from the per hour revenue calculations above.

The following summarizes the operating results by geographic area:

(Stated in thousands of dollars) U.S. and
YTD 2013 Canada International Total
Revenue 90,095 57,500 147,595
Operating margin(1) 25,018 11,505 36,523
Operating margin %(1) 28 % 20 % 25 %
Average number of rigs deployed - well servicing 84 14 98
Utilization %(2) - well servicing 36 % 71 % 45 %
(Stated in thousands of dollars) U.S. and
YTD 2012 Canada International Total
Revenue 101,519 37,828 139,347
Operating margin(1) 25,635 7,948 33,583
Operating margin %(1) 25 % 21 % 24 %
Average number of rigs deployed - well servicing 90 14 104
Utilization %(2) - well servicing 43 % 62 % 48 %

In Canada, industry demand was lower in the first nine months of 2013 compared to the same period in 2012, which led to lower utilization and revenue from Savanna's well servicing fleet. However, the decrease in well servicing revenue was partially offset by a 46% increase in rentals revenue related to the Q4 2012 acquisition of oilfield accommodation buildings. In well servicing, revenue per hour remained relatively flat while both per hour variable costs and overall fixed costs were lower compared to the first nine months of 2012. Based on these factors, Savanna's oilfield services division in Canada was able to maintain operating margins and increase operating margin percentages despite a decrease in overall activity and revenue.

In the U.S., Savanna operated two fewer service rigs on average in the first nine months of 2013 compared to the same period in 2012. Consequently, revenues and operating margins for well servicing in the U.S. decreased relative to the first nine months of 2012.

In Australia, revenue from service rigs and rental equipment nearly doubled in the first nine months of 2013 compared to the first nine months of 2012 and operating margins increased by $5.1 million from $0.6 million in the same period in 2012. The increases were a result of a larger equipment base and significantly improved utilization.

Balance Sheet

Savanna's working capital at September 30, 2013, was $94.8 million and its net debt position was $142.4 million, a decrease of $13.4 million or 9% from the Company's $155.8 million net debt position at December 31, 2012. Savanna's total long-term debt outstanding on September 30, 2013, excluding unamortized debt issue costs, was $237.2 million, compared to $249.9 million outstanding at December 31, 2012. The decrease in the total debt outstanding is due primarily to the excess of operating cash flows generated in the first nine months of 2013, over cash paid in dividends and on the purchase of property and equipment.

In May 2013, Savanna renewed its revolving credit facility, extending the term of the facility by one year so all drawn amounts are not due until May 2017. At September 30, 2013, the amount drawn on this facility was $103.9 million and the amount drawn on the Canadian operating facility was $0.2 million.

Subsequent to the end of the quarter, Savanna completed an offering of $50 million aggregate principal amount of 7.0% senior unsecured notes. The offering was an add-on to Savanna's $125 million senior unsecured notes outstanding at September 30, 2013. The proceeds of the offering were used to repay a portion of the amounts outstanding on the Company's revolving credit facility.

As of the date of this release, $62.5 million was drawn on Savanna's total available credit facilities of $200 million.

Dividend

In the first nine of 2013, Savanna declared dividends totaling $23.4 million or $0.27 per share. Of the dividends declared, $6.3 million was reinvested in additional common shares through the Company's dividend reinvestment plan.

Outlook

Canadian activity levels for the remainder of 2013 remain uncertain. In Canada, overall industry activity levels will have a greater impact on Savanna's performance due to the relatively lower contract status on the Company's fleet. Compounding this, Savanna is still highly dependent on activity levels in Canada to drive results. However, Savanna believes it has a more marketable Canadian drilling rig fleet this year compared to last, and day rates appear to have stabilized after declines earlier in the year. In addition, higher utilization of the shallow drilling rig fleet in Q3 2013 should reduce the costs required to fully crew rigs for the winter drilling season. The increased scale of the Company's oilfield rentals business should also provide improved returns. Savanna also continues to support its firm belief that North American well servicing is in the early stages of a long-term upturn.

In the U.S., Savanna has most of its drilling rigs under contract. While these contracts will expire over the next 18 months, many have been renewed at existing terms and as a result should continue to mitigate any near-term drilling market deterioration. Additionally, Savanna's U.S. drilling and well servicing fleets are positioned in markets where activity is expected to remain relatively stronger, and Savanna believes it has strong operating positions in those markets. Savanna did not encounter any difficulties in utilizing the three new-build North Dakota service rigs commissioned in June and July 2013, nor does it anticipate any difficulty utilizing rigs slated for transfer from Canada in Q4 2013 and the first part of 2014.

In Australia, utilization and operating margins continue to improve every quarter and with the fifth drilling rig expected to commence operations later in Q4 2013 this trend should continue. Savanna has now established sufficient scale in Australia to take advantage of the expected sharp increase in activity levels in that country. With five additional workover rigs commencing operations under long-term contract in Australia in 2014, Savanna is well positioned to continue generating improved returns from this division. Savanna remains very optimistic on the future prospects of Australia. With looming liquefied natural gas deliveries for 2014 in sight, activity levels continue to increase in the region overall and support a further ramp-up in activity, and resulting equipment and service requirements as well.

Savanna's focus on right-sizing its operating and general and administrative costs, to better align with anticipated volatility and base levels of activity, is also continuing. It is anticipated that cost management will continue to improve in forward quarters relative to 2013 and Q4 2012.

The oilfield service market continues to face uncertainty in the near-term. Commodity pricing, particularly for natural gas and heavy oil, and pipeline capacity issues in North America, are impacting customer demand for services. Offsetting this uncertainty is the looming prospects for Canadian liquefied natural gas development. This should provide further growth potential for Canadian oilfield services going forward. In the interim, renewed oil development and improved liquefied natural gas pricing should increase activity levels. Savanna's recently announced partnership with Fort McKay First Nation should also provide improved access for Savanna to the already active oil sands regions. Savanna remains optimistic in the potential of this partnership in the medium-term. In Australia, long-term prospects remain strong and Savanna's contract position in both Australia and the U.S. should result in stable activity in those markets. Savanna is confident in the long-term prospects for every region in which the Company operates, and in its ability to deliver the safest, most effective drilling, completion and workover services possible to its customers.

Cautionary Statement Regarding Forward-Looking Information and Statements

Certain statements and information contained in this press release including statements related to the Company's 2013 capital program and other strategic or growth initiatives, the expected timing for delivery of workover rigs in Australia and the capital commitment therefor, the expectation of utilizing service rigs slated for transfer from Canada to North Dakota and increasing operating margin contributions from Savanna's U.S. well servicing operations, the expectation that higher utilization in Q3 2013 will reduce the costs required to crew the shallow drilling fleet in Q4 2013 and Q1 2014, the expectation of increased activity levels and improved utilization, operating margins, and returns from Savanna's Australian operations, the expectation of overall cost management improvements, the expectation that Savanna's partnership with Fort McKay First Nation should provide improved access to the already active oil sands regions, the expectation of near-term uncertainty in North American activity levels and the oilfield service market, and the Company's ability to mitigate the effect of such, the expectation of increased demand for oilfield service equipment as liquefied natural gas export terminal projects move forward, the expectation that renewed oil development and improved liquefied natural gas pricing should increase activity levels, the expectation of a long-term increase in well servicing activity in North America, and statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may", "likely", "estimate", "predict", "potential", "continue", "maintain", "retain", "grow", and similar expressions and statements relating to matters that are not historical facts 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.

These statements are based on certain assumptions and analysis made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. In particular, the expected timing for delivery of workover rigs in Australia and the capital commitment therefor is premised on Savanna's past experience in building and deploying rigs into the Australian market. The Company's expectation of utilizing service rigs slated for transfer from Canada to North Dakota is premised on the Company's current outlook for industry activity in that region and increasing operating margin contributions form Savanna's U.S. well servicing operations is premised on the expected increase in the scale of those operations both through newly constructed rigs and in rigs slated for transfer from Canada. The Company's expectation that higher utilization in Q3 2013 will reduce the costs required to crew the shallow drilling fleet in Q4 2013 and Q1 2014 is premised on the shallow fleet maintaining current utilization levels and retaining their crews. The Company's expectation of increased activity levels and improved utilization, operating margins, and returns from Savanna's Australian operations is premised on actual results experienced to date in 2013, the contracts currently in place, including those for six new-build rigs, communications with its customers in the region, and the general expectation that coal seam gas activity will increase in that country as the deliveries to, and plans for, liquefied natural gas plants progress.
The Company's expectation of overall cost management improvements, is premised on cost management and process improvement initiatives undertaken or currently underway. The Company's expectation that its partnership with Fort McKay First Nation should provide improved access to the already active oil sands regions is premised on agreements and relationships between Fort McKay First Nation and potential customers working in the oil sands and the exclusivity of the partnership to Savanna and Fort McKay First Nation in the Regional Municipality of Wood Buffalo. The Company's expectation of increased demand for oilfield service equipment as liquefied natural gas export terminal projects move forward, its expectation that renewed oil development and improved liquefied natural gas pricing should increase activity levels, and its ability to mitigate the effect of near-term uncertainty in North American activity levels and the oilfield service market are premised on actual results experienced to date in 2013, customer contracts and commitments, the Company's expectations for its customers' capital budgets and geographical areas of focus, the status of current negotiations with its customers, the focus of its customers on oil directed drilling opportunities in the current natural gas pricing environment in North America, and regulatory approvals granted for liquefied natural gas export terminals in Canada. The Company's expectation of a long-term increase in well servicing activity in North America is premised on the increase in the number of oil and natural gas liquids based wells that have been drilled over the last several years and the required maintenance through the life of such wells compared to natural gas wells. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Company's expectations. Such risks and uncertainties include, but are not limited to: 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, oilfield rentals and contract drilling; the effects of weather conditions on operations and facilities; the existence of competitive operating risks inherent in well servicing, oilfield rentals 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 the Company's Annual Report and under the heading "Risk Factors" in the Company's Annual Information Form and other unforeseen conditions which could impact on the use of services supplied by the Company.

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 developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations. Except as may be required by law, the Company assumes no obligation to update publicly any such forward-looking information and statements, whether as a result of new information, future events, or otherwise.

Other

Savanna's full Q3 2013 report, including its management's discussion and analysis and condensed consolidated financial statements, is available on Savanna's website (www.savannaenergy.com) under the investor relations section and has also been filed on SEDAR at www.sedar.com.

Savanna will host a conference call for analysts, investors and interested parties today at 10:00 a.m. Mountain Time (12:00 p.m. Eastern Time) to discuss the Company's third quarter results. The call will be hosted by Ken Mullen, Savanna's President and Chief Executive Officer and Darcy Draudson, Executive Vice President, Finance and Chief Financial Officer.

If you wish to participate in this conference call, please call 1-888-892-3255 (for participants in North America). Please call 10 minutes ahead of time.

A replay of the call will be available until November 14, 2013 by dialing 1-800-937-6305 and entering passcode 950173.

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
    www.savannaenergy.com