Savanna Energy Services Corp.

Savanna Energy Services Corp.

February 13, 2012 17:27 ET

Savanna Update

CALGARY, ALBERTA--(Marketwire - Feb. 13, 2012) - Savanna Energy Services Corp. (TSX:SVY) ("Savanna") is updating the status of its hybrid drilling rig retrofit and relocation program, reflecting progress on the Company's strategy to become a deeper-focused driller. Over the past 18 months, Savanna has been progressively increasing its North American depth capability. This is being accomplished by reducing the number of shallow CT1500 hybrid drilling rigs operated in North America through both relocation of the rigs to Australia and conversion into fit-for-purpose deeper capacity TDS3000 drilling rigs.

The TDS3000 Drilling Rig

The TDS3000 is an automated, high-capacity, range III single drilling rig specifically designed to participate in long-reach horizontal drilling (to 4000 meters) from a highly mobile platform. Savanna expects to have completed the conversion of 15 of its original 38 shallow hybrid fleet to this platform in 2012. The 9th rig on this conversion program was delivered for field use on February 1, 2012, with the 10th rig expected to be delivered and in service in March, 2012. Three of the TDS3000 rigs have been deployed to Savanna's U.S. oil based operations in Texas under contract, with the remainder operating in Canada under contract.

Savanna remains on track to deliver an additional 5 TDS3000 rigs in 2012, which is consistent with the committed 2012 capital program.

To date, Savanna's TDS3000 platform has generated substantial utilization and margins, providing superior returns on otherwise idle capital. The first 10 TDS3000 rigs are all subject to term contracts, and Savanna is optimistic it will be able to contract the 5 remaining 2012 conversions as well.

In Q3, 2011 Savanna operated 4 TDS3000 drilling rigs which generated $2.7 million of operating margin on utilization rates of 81%. The operating margin contributed accounted for 8% of Savanna's total Q3, 2011 drilling margin yet the TDS3000 drilling rigs only accounted for 4% of the operational drilling fleet.

The Australian Hybrid and Workover Rig Status

Savanna's growth plan to expand into the coal seam gas market in Australia, using our proprietary CT1500 hybrid drilling platform as initial leverage, is gaining momentum as well. Savanna has achieved very positive market acceptance in Australia for its CT1500 to drill coal seam gas wells. Savanna has to date delivered 4 CT1500 rigs, modified to meet Australia regulations. The first 2 of these rigs are currently working in the country under a 5 year take or pay contract. The 3rd and 4th rigs landed in Australia in January, 2012. Both of these rigs will be field-ready in March, 2012, with strong interest from several potential customers. Savanna is actively pursuing long term contracts for these 2 rigs and is optimistic it will be able to do so given the level of interest expressed in the rigs to date.

These drilling rigs are in addition to the 3 high-spec workover rigs Savanna has already delivered, and which are working in the Bowen Basin. Savanna also expects to add one additional workover rig to Australia in mid 2012. Three of the four workover rigs are committed to long-term contracts while the fourth is currently working under a short-term contract. Savanna is actively pursuing a long-term contract for the fourth rig and is optimistic it will be able to secure one given the level of interest expressed in these rigs to date.

As a result, Savanna expects to have 7 of its 8 committed Australian rig deliveries for 2012 in operation by Q2, 2012. The 8th rig is expected to be placed in service by Q3, 2012. Shipping and import delays do extend the manufacture to in-service timing of all rigs transported to Australia, although Savanna's experience in doing so has reduced the importation and registration process from 4 months to less than 6 weeks.

To date, the performance of both the drilling and workover rigs have generated excellent initial interest in the platforms from other potential customers in Australia.

Operations Update on Remaining CT1500 Hybrid Drilling Fleet and Additional Conversion Opportunities

Savanna's remaining CT1500 fleet in Canada has enjoyed very high utilization in Q1, 2012, focusing primarily on delineation drilling for in-situ oilsands customers. Utilizing a unique core-recovery system adapted for coiled-tubing, Savanna is able to drill and recover cores more efficiently than conventional systems. Activity has been strong since mid-January.

In addition to the existing TDS3000 conversion process for North America, and the CT1500 retrofit for Australia, Savanna is also experiencing growing interest from potential customers in a TDS3000 platform with slant capability, as well as a TDS3000 design catered to Australia. We are proceeding with the preparation of optimal operating and transport designs for these markets in anticipation of securing long-term contracts for these platforms.

Based on an initial fleet of 38 CT1500 rigs, and factoring in the 4 rigs delivered to Australia and the committed 15 TDS3000 conversions expected to be completed in 2012, Savanna expects to exit 2012 with no more than 19 CT1500 rigs, and approximately 80% of its total drilling fleet focused on long-reach horizontal drilling or deeper drilling prospects. This deep-to-shallow rig ratio will place Savanna's fleet mix in line with the remaining large-scale drillers operating in North America, and will actually be deeper than the overall market average in Canada.

Conventional Drilling in North America

The following schedule highlights the transformation of Savanna's drilling fleet in North America from what was considered to be predominately shallow to a much deeper fleet of drilling rigs.

Savanna North American Active Drilling Fleet as at December 31,
2009 2012
# of Rigs % of Fleet # of Rigs % of Fleet
Shallow Rigs
CT1500 Rigs 38 19
Coring Preset Rigs 11 1
49 48 % 20 21 %
Long Reach Horizontal Rigs 53 52 % 77 79 %
Total North American Rigs 102 97

Savanna's deep conventional fleet in Canada consists of 37 rigs, all of which are capable of drilling longer reach horizontal wells. They continue to achieve utilization rates well exceeding market and are expected to do so throughout 2012. Approximately 50% of the Canadian fleet is backed by contracts extending beyond one year securing core activity through 2012.

In the United States, Savanna's drilling activity also remains robust, again with a predominantly deep, oil-focused concentration. Approximately 75% of the U.S. fleet of 25 rigs is contracted through 2012. In an effort to improve its U.S. margins, during Q4, 2011 and Q1, 2012, Savanna successfully converted the vast majority of its footage contracts negotiated in 2009 to daywork.

Well Servicing Update in North America

Savanna's well servicing operation in Canada completed the integration of the Performance and Silverstar acquisitions in Q4, 2011. These acquisitions have increased Savanna's Canadian Well Servicing fleet by approximately 50%, and have expanded its geographic and customer footprint as well. Equipment utilization levels were lower than anticipated in Q4 due to both a delayed freeze-up, as well as a shortage of qualified personnel. Activity levels did improve in Q1, 2012, despite unseasonably warm winter weather intermittently constraining field access. Optimal utilization of the fleet remains hampered by a shortage of personnel. Savanna is experiencing strong pricing levels, and has substantial indicated work levels from its customers for the remainder of 2012.

Savanna's well servicing operation in the U.S. North Dakota Bakken play continues to have utilization levels close to 100%. In 2011 Savanna increased its North Dakota fleet to 11 after transferring 2 service rigs to the region that were put to work immediately. Customer commitments indicate that 2012 will be another high utilization and margin performance year.

Savanna's transition to a deeper-biased driller, through relocation of its CT1500 hybrid drilling rigs and conversion of CT1500 hybrid drilling rigs to the TDS3000 platform, has progressed significantly since mid Q4, 2011. With a 2012 capital commitment to convert 5 more CT1500 rigs to the TDS3000 platform, Savanna has substantially completed its strategic goal of deepening its drilling focus. There remain numerous alternatives for the remaining 19 CT1500 rigs through conversion or relocation, and Savanna is continuing to aggressively pursue those that are operationally and economically warranted. At the same time, we are also pursuing a continuous new build program of deeper drilling rigs as well.

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

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 conversion of hybrid drilling rigs to TDS3000 rigs; the timing of completion of rig deployments; the number and type of rigs Savanna expects to exit 2012 with; and expected utilization and margin performance.

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. Consequently, 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.

Contact Information

  • Savanna Energy Services Corp.
    Darcy Draudson
    Vice President, Finance and CFO
    (403) 503-9990

    Savanna Energy Services Corp.
    Dwayne LaMontagne
    Executive Vice President and CDO
    (403) 503-9990