Savanna Energy Services Corp.
TSX : SVY

Savanna Energy Services Corp.

November 03, 2014 17:43 ET

Savanna Energy Services Corp. Announces Third Quarter 2014 Results

CALGARY, ALBERTA--(Marketwired - Nov. 3, 2014) - Savanna Energy Services Corp. (TSX:SVY) -

Third Quarter Results

Savanna Energy Services Corp. ("Savanna" or "the Company") generated EBITDAS of $42.3 million on $200 million of revenue in Q3 2014, an increase of 11% from EBITDAS of $38.2 million on $170.6 million of revenue in Q3 2013. The increases were primarily a result of higher activity levels and average day rates in Canadian long-reach drilling and U.S. well servicing and improved utilization in Australia. These increases were somewhat offset by higher per day operating costs in Savanna's U.S. drilling operation.

Increases in Savanna's long-reach drilling utilization and average day rates in Canada in Q3 2014 resulted in a significant increase in operating margins for the geographic segment compared to Q3 2013. Savanna generated $36 million in operating margins on $112.9 million of revenue in Canada in Q3 2014, compared to $29.8 million in operating margins on $98.8 million of revenue in Q3 2013. Nearly all of the $6.2 million increase in operating margins in Canada relative to Q3 2013 was achieved by the long-reach drilling rig fleet. Savanna's shallow drilling, well servicing, and rentals fleets in Canada also realized activity increases in Q3 2014 compared to Q3 2013; however, year-over-year operating margins remained relatively flat for these business units compared to Q3 2013.

In Australia, improved utilization, and operating an additional drilling rig, resulted in operating margin increases in the quarter relative to Q3 2013. Overall operating margins from Australia totaled $6.8 million in Q3 2014, up 10% from the $6.2 million generated in Q2 2014, and 26% higher than the $5.4 million in operating margins in Q3 2013. Activity levels continue to ramp up in Australia and Savanna's position within the Australian market is expanding along with them. Five new-build workover rigs and the three new flush-by units are all expected to commence operations by Q1 2015, with the majority of the rigs in the field before the end of 2014.

In the U.S., operating margins decreased in Q3 2014, despite higher revenue compared to Q3 2013. The majority of the revenue increase was a result of an appreciation in the value of the U.S. dollar relative to the Canadian dollar and from the retrofit and transfer of idle service rigs from Canada to the U.S. In Savanna's U.S. well servicing division, operating hours and revenue increased based on more active rigs relative to Q3 2013, and combined with higher year-over-year pricing, resulted in a 52% increase in operating margins compared to Q3 2013. Conversely, in U.S. drilling, higher per day operating costs resulted in a 16% decrease in operating margins. Despite the decrease in operating margins compared to last year, the U.S. drilling operation did show considerable improvements compared to Q2 2014 and increased operating margins by 27% compared to the prior quarter. Savanna generated $14.5 million in operating margins on $51 million of revenue in the U.S. in Q3 2014, compared to $11.7 million in operating margins on $50.2 million of revenue in Q2 2014, and $15.4 million in operating margins on $44.9 million of revenue in Q3 2013. The relatively higher operating costs began decreasing in Q3 2014 and are expected to further reduce over the next few quarters.

Savanna's Q3 2014 net earnings decreased significantly compared to Q3 2013. The decrease in earnings occurred despite the overall increase in EBITDAS as a result of higher depreciation, based on a combination of higher activity levels and an increase in the value of assets depreciated on a straight-line basis, and $43.3 million of impairment losses ($33.6 million net of taxes). The Q3 2014 net loss attributable to the shareholders of the Company was $24.4 million, or $0.27 per share, compared to net earnings attributable to the shareholders of the Company of $6.7 million, or $0.08 per share, in Q3 2013.

Based on the sharp decrease in the price of oil in the months preceding and following the end of the quarter, the continued uncertainty regarding natural gas pricing and the impact of these factors on the Company's market capitalization, Savanna conducted impairment tests at September 30, 2014 on a higher of fair value less cost to sell, and value-in-use basis. These tests resulted in the following impairment losses: $24.6 million on property and equipment, $9.6 million on goodwill and $0.7 million on intangible assets in Canadian well servicing and rentals; and $8.4 million on property and equipment in U.S. drilling.

Absent the impairment losses, Savanna's net earnings attributable to shareholders of the Company in Q3 2014 would have been $9.2 million, or $0.10 per diluted share

Year-to-Date Results

On a year-to-date basis, higher utilization for Savanna's long-reach drilling fleet in Canada resulted in a $12.2 million increase in operating margins relative to the first nine months of 2013. This 20% increase more than offset operating margin decreases, based on lower activity and rates, in Canadian shallow drilling, well servicing and rentals. As a result, overall operating margins in Canada increased by $4.3 million, or 4%, compared to the first nine months of 2013.

Savanna's Australian operations achieved improved utilization in the first nine months of 2014 relative to the first nine months of 2013, and operated an additional drilling rig. The higher utilization and additional drilling rig resulted in a 24% increase in revenue and a 19% increase in operating margins from Australia in the first nine months of 2014 compared to the first nine months of 2013.

In the U.S., Savanna's well servicing division, increased operating hours and revenue based on operating an average of five additional service rigs relative to the first nine months of 2013. Combined with higher year-over-year pricing, the additional rigs resulted in a 69% increase in operating margins. In contrast, in U.S. drilling, higher per day operating costs resulted in a 22% decrease in operating margins despite relatively consistent day rates and utilization.

Overall for the first nine months of 2014, operating margin increases in Canadian long-reach drilling, U.S. well servicing, and Australia were offset by utilization and rate decreases in Canadian shallow drilling, well servicing, and rentals, and cost increases in U.S. drilling. This resulted in relatively flat EBITDAS relative to the first nine months of 2013. To date in 2014, Savanna also realized: higher depreciation, impairment losses, higher finance expenses, and asset disposal losses versus gains in 2013. These factors, resulted in a decrease in net earnings in the first nine months of 2014 compared to the first nine months of 2013. Absent the impairment losses, Savanna's net earnings attributable to shareholders of the Company in the first nine months of 2014 would have been $15.6 million, or $0.17 per diluted share.

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 2014 2013 Change 2014 2013 Change
OPERATING RESULTS
Revenue 200,016 170,611 17 % 586,925 519,584 13 %
Operating expenses 142,741 119,988 19 % 428,960 364,620 18 %
Operating margin(1) 57,275 50,623 13 % 157,965 154,964 2 %
Operating margin %(1) 29 % 30 % 27 % 30 %
EBITDAS(1) 42,307 38,182 11 % 116,087 116,301 0 %
Attributable to shareholders of the Company 40,693 37,129 10 % 110,457 113,017 (2 %)
Per share: diluted 0.45 0.42 7 % 1.24 1.30 (5 %)
Impairment losses, net of taxes(1) (33,627 ) - + (33,627 ) - +
Per share: diluted (0.38 ) - + (0.38 ) - +
Net earnings (loss) (23,542 ) 7,338 (421 %) (14,409 ) 28,357 (151 %)
Attributable to shareholders of the Company (24,420 ) 6,692 (465 %) (18,042 ) 25,815 (170 %)
Per share: diluted (0.27 ) 0.08 (438 %) (0.20 ) 0.30 (167 %)
Diluted weighted average shares outstanding (000s) 89,523 87,627 2 % 89,123 86,970 2 %
CASH FLOWS
Operating cash flows(1) 41,972 38,258 10 % 105,865 108,755 (3 %)
Acquisition of capital assets(1) 72,805 26,692 173 % 168,966 75,266 124 %
Dividends paid 6,098 5,548 10 % 17,898 17,070 5 %
FINANCIAL POSITION AT Sep. 30 Dec. 31
2014 2013
Working capital(1) 66,649 86,398 (37 %)
Capital assets(1) 1,258,544 1,186,252 4 %
Total assets 1,441,736 1,391,602 1 %
Long-term debt 308,842 246,568 4 %
NOTES:
(1) Operating margin, operating margin percentage, EBITDAS, impairment losses, net of tax 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, the effect of non-cash impairment losses 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).
Impairment losses, net of tax are impairment losses net of the deferred tax effect thereon. The tax effect is determined based on the change in the temporary differences between the carrying amount of the impaired asset and its tax base, at the effective tax rate for the tax jurisdiction in which the assets resides.
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.
(2) 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. To segregate industry utilization by rig type, industry totals by well depth range are used.
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 2014 2013 Change 2014 2013 Change
Revenue $ 144,051 $ 123,507 17 % $ 428,149 $ 374,214 14 %
Operating expenses $ 101,427 $ 85,156 19 % $ 306,517 $ 256,052 20 %
Operating margin(1) $ 42,624 $ 38,351 11 % $ 121,632 $ 118,162 3 %
Operating margin % 30 % 31 % 28 % 32 %
Operating days 6,225 5,578 12 % 17,920 16,148 11 %
Revenue per operating day $ 23,141 $ 22,142 5 % $ 23,892 $ 23,174 3 %
Spud to release days(1) 5,457 4,881 12 % 15,619 14,012 11 %
Wells drilled 691 717 -4 % 1,874 1,870 0 %
Meters drilled 1,296,851 1,199,186 8 % 3,521,553 3,237,187 9 %

THIRD QUARTER RESULTS

Overall contract drilling revenue increased relative to Q3 2013, as a result of a 14% increase in operating days in long-reach drilling in Canada, a 9% increase in operating days in the U.S., and a 25% increase in operating days in Australia. In addition, average day rates on Savanna's long-reach drilling fleet in Canada increased relative to Q3 2013. The increase in revenue resulted in a $4.3 million increase in operating margin relative to Q3 2013.

The following summarizes the operating results in the third quarter of 2014 and 2013 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.

(Stated in thousands of dollars) Long-reach Shallow Drilling
Drilling Drilling U.S. and
Q3 2014 Canada Canada Australia Total
Revenue 80,440 3,828 59,783 144,051
Operating margin(1) 28,504 (432 ) 14,552 42,624
Operating margin %(1) 35 % + 24 % 30 %
Revenue excluding cost recoveries 72,467 3,551 56,602 132,620
Operating margin(1) 28,504 (432 ) 14,552 42,624
Operating margin %(1) 39 % + 26 % 32 %
Average number of rigs deployed 51 20 30 101
Utilization %(2) 65 % 9 % 81 % 59 %
+ Calculation not meaningful
(Stated in thousands of dollars) Long-reach Shallow Drilling
Drilling Drilling U.S. and
Q3 2013 Canada Canada Australia 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 %
+ Calculation not meaningful

YEAR-TO-DATE RESULTS

Contract drilling revenue increased in the first nine months of 2014 relative to the first nine months of 2013, as a result of an increase in operating days in both Australia and Canada, and an appreciation in the value of the U.S. dollar relative to the Canadian dollar. The increase in activity in Canada and Australia resulted in a net $3.5 million increase in operating margins despite an increase in operating costs in the U.S., which reduced operating margins there. Increased operating costs in the U.S. also resulted in lower overall operating margin percentages in Savanna's contract drilling segment compared to the first nine months of 2013.

(Stated in thousands of dollars) Long-reach Shallow Drilling
Drilling Drilling U.S. and
YTD 2014 Canada Canada Australia Total
Revenue 226,052 26,569 175,528 428,149
Operating margin(1) 74,841 6,923 39,868 121,632
Operating margin %(1) 33 % 26 % 23 % 28 %
Revenue excluding cost recoveries 201,194 25,933 165,757 392,884
Operating margin(1) 74,841 6,923 39,868 121,632
Operating margin %(1) 37 % 27 % 24 % 31 %
Average number of rigs deployed 51 20 30 101
Utilization %(2) 59 % 18 % 79 % 57 %

The following summarizes the operating results in the first nine months of 2014 and 2013 by type of rig or geographic area.

(Stated in thousands of dollars) Long-reach Shallow Drilling
Drilling Drilling U.S. and
YTD 2013 Canada Canada Australia 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 %

Segmented Results - 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 2014 2013 Change 2014 2013 Change
Revenue $ 56,389 $ 47,716 18 % $ 160,072 $ 147,595 8 %
Operating expenses $ 41,798 $ 35,528 18 % $ 123,955 $ 111,072 12 %
Operating margin(1) $ 14,591 $ 12,188 20 % $ 36,117 $ 36,523 (1 %)
Operating margin % 26 % 26 % 23 % 25 %
Operating hours - well servicing(1) 46,180 41,824 10 % 128,867 119,825 8 %
Revenue per operating hour - well servicing $ 919 $ 879 5 % $ 942 $ 934 1 %

THIRD QUARTER RESULTS

Revenue for Savanna's oilfield services division increased on higher utilization in each operating area in Q3 2014 compared to Q3 2013. Most of the operating margin increase in Q3 2014 relative to Q3 2013 came from outside of Canada. Five additional rigs operating in the U.S. and increased utilization in Australia resulted in 52% and 29% increases in operating margins in each respective operating area in Q3 2014 relative to Q3 2013. In Canada, increased utilization resulted in slightly higher operating margins.

The following summarizes the operating results by geographic area:

(Stated in thousands of dollars) U.S. and
Q3 2014 Canada Australia Total
Revenue 28,585 27,804 56,389
Operating margin(1) 7,849 6,742 14,591
Operating margin %(1) 27 % 24 % 26 %
Average number of rigs deployed - well servicing 85 21 106
Utilization % - well servicing(2) 44 % 70 % 54 %
(Stated in thousands of dollars) U.S. and
Q3 2013 Canada Australia 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 % - well servicing(2) 36 % 76 % 46 %

YEAR-TO-DATE RESULTS

Revenue for Savanna's oilfield services division increased in the first nine months of 2014 compared to the first nine months of 2013, as increases in both the U.S and Australia more than offset decreases in Canada. Five additional rigs operating in the U.S. and increased utilization in Australia resulted in 69% and 28% increases in operating margins in each respective operating area in the first nine months of 2014 relative to the first nine months of 2013. Unfortunately, decreases in operating margins in Canada relative to the first nine months of 2013 offset the improvements in the U.S. and Australia.
The following summarizes the operating results by geographic area:

(Stated in thousands of dollars) U.S. and
YTD 2014 Canada Australia Total
Revenue 83,861 76,211 160,072
Operating margin(1) 19,002 17,115 36,116
Operating margin %(1) 23 % 22 % 23 %
Average number of rigs deployed - well servicing 86 20 106
Utilization % - well servicing(2) 42 % 68 % 51 %
(Stated in thousands of dollars) U.S. and
YTD 2013 Canada Australia 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 % - well servicing(2) 36 % 68 % 45 %

Balance Sheet

Savanna's working capital at September 30, 2014, was $66.6 million and its net debt position was $242.2 million, an increase of $82 million, or 51%, from the Company's $160.2 million net debt position at December 31, 2013. The increase was due primarily to an increase in capital expenditures related to expansionary capital initiatives under the Company's 2014 capital program. Savanna's total long-term debt outstanding on September 30, 2014, excluding unamortized debt issue costs, was $308.8 million, compared to $246.6 million outstanding at December 31, 2013.

In Q1 2014, Savanna secured $17 million in new financings in two separate limited partnerships partially owned by the Company. The financings consisted of a $14 million line of credit in the Company's partnership with Fort McKay First Nation and a $3 million term loan in another pre-existing partnership. As of September 30, 2014, $9 million of the new partnership financings had been drawn, the proceeds of which were paid to Savanna in exchange for amounts owing on equipment vended into these same partnerships.

In Q2 2014, Savanna renewed its senior secured revolving credit facility, increased the amount available by $50 million, and extended the term of the loan by one year. The entire $250 million facility is for a committed four-year term and, based on the renewal, all drawn amounts are now due in May 2018, or four months earlier if the Company's senior unsecured notes are not refinanced on terms acceptable to the lender. At September 30, 2014, the amount drawn on this facility was $126 million, of which $7.5 million is included in bank indebtedness on the Company's consolidated balance sheet.

Savanna possesses ample liquidity, with approximately $134.2 million drawn on Savanna's total available credit facilities of $250 million, as of the date of this release. In addition, as part of its senior secured revolving credit facility, Savanna has an available $50 million accordion, which it can request as an increase to the total available facility.

Dividend

In the first nine months of 2014, Savanna declared dividends totaling $24.1 million or $0.27 per share. Of the dividends declared, $6.1 million was reinvested in additional common shares through the Company's dividend reinvestment plan.

Outlook

From an operations perspective, Savanna had a positive third quarter of 2014, with an 11% increase in EBITDAS year-over-year. All of its operating divisions achieved activity and revenue increases relative to Q3 2013. The Canadian long-reach drilling, U.S. well servicing, and Australian divisions translated the revenue increases into considerable operating margin increases in Q3 2014, compared to Q3 2013. Activity increases in the Company's Canadian shallow drilling, well servicing and rentals businesses held operating margins relatively flat, despite the impact of decreased pricing, relative to Q3 2013. Increased operating costs in Savanna's U.S. drilling operation did temper overall EBITDAS increases. However, considerable strides in terms of cost management in U.S. drilling were made during the quarter, which improved operating margins meaningfully relative to Q2 2014.

Looking forward, Savanna's current strategic and rig-build initiatives have the Company poised for continued growth in the next several quarters. However, recent declines in oil prices have created a significant degree of uncertainty for the oil and natural gas industry, and as a result the oilfield services sector. To date, Savanna has not received any advice from customers suggesting a material decline in activity for at least the next six months, but beyond that uncertainty remains. Savanna's growing presence in Australia, where contracted activity remains more stable and pricing and activity fundamentals are largely distinct from North America, should somewhat mitigate the impact of any reductions in the price of oil or natural gas. Also, a lower Canadian dollar relative to the U.S. dollar will be beneficial to Savanna's customers in Canada, as their costs are primarily incurred in Canadian dollars while their revenues are primarily earned in U.S. dollars.

Utilization of Savanna's Canadian long-reach drilling fleet in Q3 2014 increased 8 percentage points over Q3 2013 and is 10 percentage points higher in the first nine months of the year, compared to a 4 percentage point increase in industry utilization overall. In addition, day rates on Savanna's double drilling rigs in Canada are up an average of $1,000 per day relative to this time last year. This demonstrates the relevance of Savanna's deeper drilling rig fleet in the Canadian market. A key strategy for 2014 is to increase the number of rigs under contract in Canada to approximately 50%, excluding shallow drilling rigs. Currently, the long-reach fleet is approximately 35% contracted beyond one year. In addition, in Q4 2014, Savanna's new-build 1200 horsepower ultra-heavy AC double drilling rig will commence operations under a long-term contract. Challenges remain in the Canadian well servicing and rentals businesses, which will likely take several quarters to resolve, but the recent increase in demand in both Q2 and Q3 2014 over the same periods in 2013 is promising. Given the current uncertainty driven by reduced oil prices, Savanna does not expect pricing or activity increases in 2015 versus current levels in 2014. Longer-term, Savanna remains positive on the prospects of all of its businesses in Canada.

In Australia, utilization and operating margins continue to improve every quarter. With a significant portion of Savanna's 2014 expansion capital dedicated to Australia, coupled with the recently signed contract for delivery of four additional TDS style drilling rigs in 2016, this trend is expected to continue in Q4 2014 and beyond. The first of five new-build workover rigs began working in October 2014. The remaining four workover rigs and three new flush-by units are expected to commence operations by Q1 2015, with the majority of the rigs in the field before the end of 2014. This expansion leaves Savanna well positioned to continue generating increasing returns from Australia, not only in 2014, but very meaningfully in 2015 and beyond. Savanna remains optimistic on the ongoing prospects in Australia. With liquefied natural gas delivery deadlines beginning in late 2014, activity levels continue to increase in the region overall, supporting a further ramp-up in activity, and resultant demand for additional equipment and services.

The U.S. drilling division has underperformed financially in 2014, both relative to 2013, as well as the Company's expectations. This has been primarily as a result of high per day operating costs. Savanna began decreasing these costs in Q3 2014 and expects to reduce them further over the next few quarters. Consistent utilization levels are expected for the remainder of the year, and Savanna's entire 25 rig drilling fleet in the U.S. is currently working. In addition, the first of three recently-contracted 1500 horsepower AC triple drilling rigs is expected to commence operations in Q4 2014. The second and third will follow in early 2015. While the new rigs will not have a meaningful impact on 2014 results, they are expected to in 2015. Savanna is beginning to see downward pressure on rates on renewal negotiations for certain classes of drilling rigs, however the contributions from the new triple drilling rigs are expected to more than offset any declines on these rigs. The Company's U.S. well servicing business operated an average of five additional service rigs in the first nine months of 2014 compared to the same period last year. The additional rigs were idle Canadian service rigs redeployed into North Dakota from Canada. Three rig transfers occurred in Q3 2014 and one more rig transfer from Canada is expected to be completed before the end of the year. Not all of the rigs transferred to date have commenced operations due to crew availability in North Dakota. Savanna will continue to work at crewing these rigs in the near-term. Year-over-year growth in U.S. well servicing operating margins of 69% compared to the first nine months of 2013 continues to support this redeployment strategy, and illustrates the operating margin improvements these transfers can generate. Savanna's U.S. drilling and well servicing fleets are positioned in markets where activity is expected to remain robust, and Savanna believes it has strong operating positions in those markets.

Recently declining commodity prices and ongoing pipeline capacity issues in North America have created a level of uncertainty for the last few months of 2014 and heading into 2015. To date, activity levels in Q4 2014 have continued where Q3 2014 left off, and at this point Savanna is expecting winter drilling activity in North America to track similarly to last year. Strong activity growth is also continuing in Australia. The 12 new contracted rigs that Savanna has been constructing are all expected to commence operations in the next five months, and their go-forward contributions will be meaningful. The recently announced tender award for an additional four new-build TDS drilling rigs for Australia further aligns with Savanna's strategy to disproportionately expand its operations outside of Canada and should continue to mitigate activity swings in the more volatile markets in North America. 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 2014 capital commitments and other strategic or rig-build initiatives, expectations of pricing and activity levels for Savanna in 2014 and into 2015, the expected timing for the commencement of operations of rigs currently under construction and the impact they will have on results, the expectation of transferring one more service rig from Canada to North Dakota and the continuing increase of operating margin contributions from Savanna's U.S. well servicing operations, the expectation of increasing activity levels, utilization, operating margins, and returns from Savanna's Australian operations, the expectation of consistent utilization levels in the Company's U.S. drilling division for the remainder of the year, the expectation of decreasing per day operating costs relative to Q2 2014 and Q3 2014 over the next few quarters, the expectation of uncertain oil and gas industry activity in North American post 2014, the expectation that the Company's growing presence in Australia should somewhat mitigate the effect of any reductions in the price of oil or natural gas, the expectation that challenges in Canadian well servicing and rentals will take several quarters to resolve, 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, expectations of pricing and activity levels for Savanna in 2014 and into 2015 are premised on industry estimates, actual activity levels and utilization experienced to date in 2014, an increase in the number of rigs under contract, an increase in the number of rigs operating based on rigs currently under construction, and current commitments from customers for winter drilling activity. The expected timing for the commencement of operations of rigs currently under construction and the impact they will have on results is premised on Savanna's past experience in building and deploying rigs and customer contracts currently in place. The Company's expectation of transferring one more service rig from Canada to North Dakota is premised on current retrofit work underway on said rig and the Company's expectation of utilization levels and the labour supply in North Dakota. The Company's expectation of the continuing increase of operating margin contributions form Savanna's U.S. well servicing operations is premised on the Company's current outlook for industry activity in that region and the ability of Savanna to crew its rigs in North Dakota to date and in the future. The Company's expectation of increasing activity levels, utilization, operating margins, and returns from Savanna's Australian operations is premised on actual results experienced to date in 2014, the contracts currently in place, including those for five new-build workover rigs and three new-build flush-by units set to commence field operations in Q4 2014 and Q1 2015 and the recently signed contract for delivery of four additional TDS style drilling rigs in 2016, 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 consistent utilization levels in the Company's U.S. drilling division for the remainder of the year is premised on historical utilization levels and contracts currently in place.
The Company's expectation of decreasing per day operating costs relative to Q2 2014 and Q3 2014 over the next few quarters is premised on expected deliveries capital equipment for use as critical spares and overall cost management improvement initiatives currently underway. The Company's expectation of uncertain oil and gas industry activity in North America post 2014, its expectation that the Company's growing presence in Australia should somewhat mitigate the effect of any reductions in the price of oil or natural gas, and its expectation that challenges in Canadian well servicing and rentals will take several quarters to resolve are premised on actual results experienced to date in 2014, 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, and the distinction between pricing and activity fundamentals in Australia versus North America. 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 2014 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 on Tuesday, November 4, 2014 at 9:00 a.m. Mountain Time (11:00 a.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 (please call 10 minutes ahead of time). A live webcast of the conference call will be accessible on the Company's website under the Investor Relations section. A replay of the call will be available until November 17, 2014 by dialing 1-800-937-6305 and entering passcode 587952.

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.

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