CALGARY, ALBERTA--(Marketwired - Dec. 15, 2016) - Savanna Energy Services Corp. (TSX:SVY) ("Savanna" or the "Company") today reported interest from other potential bidders for Savanna since the announcement by Total Energy Services Inc. ("Total") in November of its intention to make an unsolicited takeover bid for Savanna. Separately, Savanna announced improved business in all three of the countries in which it operates: Canada, the U.S. and Australia.
The Special Committee intends to conduct a formal process early next year to explore strategic alternatives with a view to maximizing value for all shareholders of Savanna. Meanwhile, the Company is benefiting from increased drilling and well servicing activity amid improved commodity prices for both oil and natural gas. Based on current trends, stronger activity levels are expected to continue into 2017.
Third Party Expressions of Interest
Over the past three weeks, Savanna has had discussions with various stakeholders of the Company including certain of its shareholders and customers. As a result of these discussions and strong expressions of interest from third parties in evaluating the opportunity to make a competing offer for Savanna, the Special Committee of the Board of Directors of the Company has instructed its financial advisor, Peters & Co. Limited, to, among other things, prepare to conduct a formal process to explore strategic alternatives with a view to maximizing value for all shareholders of Savanna. The Special Committee anticipates that a strategic alternatives process will commence in early 2017.
It is the Company's current intention not to disclose developments with respect to the strategic review process until the Board of Directors has approved a specific transaction or otherwise determines that disclosure is necessary or appropriate. The Company cautions that there are no assurances or guarantees that, if a process is commenced, the process will result in a transaction or, if a transaction is undertaken, what the terms or timing of such a transaction will be.
Increased Business Activity
With improved commodity prices, industry conditions have become increasingly positive in each of the three countries where Savanna operates. The recovery, which was just emerging when Savanna announced its Q3 2016 results on November 8, 2016, appears to be gaining traction as both oil and natural gas prices return to levels not seen since mid-2015 or earlier.
Savanna is well positioned to benefit from the recovery now that it has completed its previously announced bought deal offering for gross proceeds of $21.68 million and financings providing for a $200 million second lien senior secured term loan facility and a private placement for gross proceeds of $18.85 million.
In the Board's view, these financings significantly reduce the Company's debt risk profile and put Savanna in an excellent position to capitalize on a recovery of market conditions with its competitive cost structure, experienced management team and proven ability to quickly adapt to changing circumstances. These core competencies will be deployed utilizing the Company's significant footprint in three countries that should have strong participation in improving oil and gas market fundamentals.
The following is an update of Savanna's operations by country:
CANADA: Q4 2016 ACTIVITY LEVELS TO DATE ARE CONSIDERABLY HIGHER THAN Q4 2015
Up to December 13, 2016, Q4 2016 activity levels in Canada are considerably higher than a year ago, despite wet weather through the start of the quarter. Fourth quarter operating days, to December 13, 2016, in Savanna's Canadian drilling division are more than 20% higher and operating hours in Savanna's Canadian well servicing division are nearly 10% higher than the same period in 2015.
Heading into the first quarter of 2017, bookings in Canada are strong and Savanna expects to run between 25 and 30 service rigs on average in Q1 2017, compared to the average of 20 service rigs working during Q1 2016. On the drilling side, Savanna expects to operate a peak of 40 to 45 drilling rigs in Q1 2017, including nine coring rigs, compared to its peak of 29 drilling rigs in Q1 2016, of which nine were coring rigs.
Management believes the expected increase in utilization, despite having only one drilling rig on a long-term contract in Canada, demonstrates the diversity of a drilling fleet that can work in all but the deepest basins in Western Canada. In 2016, Savanna's rigs were three of the top five busiest drilling rigs in Canada (source: June Warren-Nickles Energy, October 11, 2016) and Savanna has increased its market share of drilling activity in Canada every quarter in 2016 compared to the same quarters in 2015. Management believes Savanna's customers are well aware of Savanna's drilling and service rig fleets' capabilities, as evidenced through Savanna's top tier customer base, increased market share, and above-market utilization.
UNITED STATES: NEW 18-MONTH CONTRACTS IN THE MARCELLUS
In the U.S., Savanna recently secured 18 month contracts for two of its high-specification AC double drilling rigs in the Marcellus. These contracts combined with Savanna's Velox triple drilling rig, which is contracted through 2018, give Savanna significant revenue certainty in the Marcellus. In order to secure the two AC double drilling rig contracts, pump upgrades at a cost of approximately $0.6 million for each of these two rigs, are currently being completed and both rigs are expected to commence operations under these contracts in mid-Q1 2017.
Savanna's upgrade and reactivation of drilling rigs in the Permian basin is also continuing. To date, Savanna has put five drilling rigs back to work that have been stacked for over a year and an additional two drilling rigs are expected to commence operations in the Permian basin in late 2016 and early 2017. Demand in the Permian continues to improve and Savanna expects that additional rigs could be reactivated in 2017. Savanna is also weighing opportunities to redeploy equipment from other regions in the U.S. and Canada into West Texas.
Savanna expects to be operating 13 drilling rigs in Q1 2017 in the U.S. compared to only four drilling rigs that operated in the U.S. in Q1 2016. U.S. well servicing utilization is also tracking higher in Q4 2016, relative to Q4 2015, and Savanna expects activity levels to continue improving in the coming quarters.
AUSTRALIA: Q4 2016 ACTIVITY IMPROVED OVER Q3 AND Q2 2016
To date in Australia, Q4 2016 activity levels have improved relative to both Q3 and Q2 2016 as additional drilling and service rigs began working in the fourth quarter of 2016. The liquefied natural gas industry in Australia has not been immune to global commodity price pressures. However, Savanna has been able to increase utilization in Q4 2016 relative to the two preceding quarters, despite certain of Savanna's take or pay contracts rolling over earlier in 2016.
Savanna's seven original new-build contracts, still in place in Australia, begin to expire in the second half of 2017. The Company has been negotiating with its customers in Australia to re-contract its drilling and service rigs outside of the formal tender process. Ultimately, Savanna believes its built-for-purpose drilling and service rigs, as well as its operational and safety performance in Australia, puts the Company in a strong competitive position to re-contract its drilling and service rigs in the region.
Continued Review of Total's Unsolicited Bid
The Special Committee and Board of Directors, together with their legal and financial advisors, are continuing to review and evaluate the unsolicited takeover bid by Total dated December 9, 2016. Following completion of such evaluation, the Board of Directors of the Company, upon recommendation of the Special Committee, will make a formal recommendation in respect of the unsolicited offer, together with detailed reasons for such recommendation, which will be provided in a news release and directors' circular to be mailed to shareholders in accordance with applicable securities laws. Savanna anticipates that it will announce a formal recommendation in respect of the unsolicited offer on or before December 23, 2016. Shareholders are reminded not to deposit any shares to the unsolicited offer and not to take any other action concerning the offer until such recommendation is made.
Savanna is a leading North American and Australian contract drilling and oilfield services company providing a broad range of drilling, well servicing and related services with a focus on fit for purpose technologies and industry-leading aboriginal relationships.
Cautionary Statement Regarding Forward-Looking Information and Statements
This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward-looking statements and information relating to the evaluation by the Special Committee and Board of Directors of Total's unsolicited offer, the expected timing of an announcement of a formal recommendation with respect thereto, the potential for conducting a strategic alternatives process, the effect of the financings on Savanna, the expectation for activity levels continuing to improve, increases in utilization of Savanna's rig fleet, the timing of commencement of operations for rigs, the redeployment of rigs and the ability to re-contract rigs. These forward-looking statements and information are based on certain key expectations and assumptions made by Savanna. In particular, the Company has made assumptions based on the status of discussions to date with its customers, the progression of work to date on upgrades to drilling rigs, industry and commodity price expectations and the Company's expectations for its customers' capital budgets. Although Savanna believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information as Savanna cannot give any assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with general economic conditions, if a strategic alternatives process is commenced, that there may not be any alternative transactions or the terms and conditions of any alternatives may not being acceptable to the Company, the demand for Savanna's services, volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally, the existence of competitive operating risks inherent in well servicing, oilfield rentals and contract drilling, the lack of availability of qualified personnel or management, currency exchange rate risk, changes in legislation, dependence on, and concentration of, major customers, the creditworthiness and performance by the Company's counterparties and customers and other unforeseen conditions which could impact on the use of services supplied by the Company.
Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other risk factors that could affect Savanna's operations or financial results are included in Savanna's annual information form and may be accessed through the SEDAR website (www.sedar.com). The forward-looking statements and information contained in this press release are made as of the date hereof and Savanna does not undertake any obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.