Savanna Energy Services Corp. Announces Fourth Quarter and Year-End 2013 Results

Calgary, Alberta
March 5, 2014
TSX – SVY

Fourth Quarter Results

Savanna Energy Services Corp. (“Savanna” or “the Company”) generated EBITDAS of $34.6 million on $177 million of revenue in Q4 2013, an increase of 12% over EBITDAS of $30.8 million on $172.6 million of revenue in Q4 2012. The increases were primarily a result of substantial increases in Australian activity and operating results, combined with a decrease in retention costs and repairs and maintenance costs in Savanna’s North American drilling divisions. Contract drilling operating margins increased 23% compared to Q4 2012, offsetting a 13% operating margin reduction in oilfield services. Sequentially, revenue increased from $170.6 million in Q3 2013, based primarily on seasonal increases in Savanna’s Canadian drilling operations and a $3.5 million increase in cost recoveries billed to customers with little or no markup. Despite the revenue increase, EBITDAS decreased from the $38.2 million in Q3 2013, as seasonal revenue increases did not translate into increased margins in Canada, and utilization decreases in Savanna’s U.S. drilling operation were compounded by per day higher costs.

In Australia, improved utilization on a larger equipment base resulted in substantial operating margin increases in the quarter relative to Q4 2012. Overall operating margins from Australia totaled $5.4 million in Q4 2013, in-line with the $5.4 million generated in Q3 2013, and nearly double the $2.9 million in operating margins in Q4 2012. Activity levels continue to ramp up in Australia and Savanna’s position within the Australian market is expanding along with them. The Company’s fifth drilling rig in Australia commenced operations in December 2013. An additional five workover rigs and three flush-by units are under construction and are expected commence operations in Australia in Q3 and Q4 2014. Including the drilling rig added in December 2013, Savanna will be more than doubling its fleet in the region in less than twelve months.

In Canada, overall operating margins also increased in Q4 2013 relative to Q4 2012, as improved utilization and lower costs on the drilling fleet were partially offset by lower well servicing and oilfield rentals activity and operating margins. Savanna generated $30.1 million in operating margins on $105.8 million of revenue in Canada in Q4 2013, compared to $28.9 million in operating margins on $104.6 million of revenue in Q4 2012, and $29.8 million in operating margins on $98.7 million of revenue in Q3 2013. Revenue increased relative to Q4 2012, despite lower day rates in Canadian drilling, lower hourly rates in Canadian well servicing and lower overall revenue in Canadian oilfield rentals. The increase was a result of increased activity in Canadian drilling and an increase in cost recoveries billed to customers with little or no markup. Even with lower per day revenue, operating margins increased based on higher drilling utilization, a $1.5 million decrease in retention costs and lower repairs and maintenance costs. Despite higher revenues in Q4 2013 compared to Q3 2013, operating margins remained flat. Of the revenue increase, $2.8 million related to cost recoveries billed to customers with little or no markup, while the remainder was a result of seasonal rate increases due to additional winter equipment and recoveries of industry wage increases. These wage increases, combined with $1 million in retention costs and higher fuel costs, resulted in higher overall variable costs in Q4 2013 compared to Q3 2013, offsetting the increase in revenue for the quarter.

In the U.S., operating margins increased in Q4 2013, despite lower revenue compared to Q4 2012. A 20% decrease in operating days in Savanna’s U.S. drilling operation in Q4 2013 relative to Q4 2012, was more than offset by higher per day revenue and lower per day repairs and maintenance costs. The decrease in operating days was due to early completion of drilling programs for certain of Savanna’s customers and the transfer of a drilling rig to Canada. In addition, revenue and operating margins for well servicing in the U.S. increased in Q4 2013 as a result of more operating hours, based on more rigs, and higher hourly rates relative to Q4 2012. Savanna generated $11.2 million in operating margins on $42.7 million of revenue in the U.S. in Q4 2013, compared to $9.8 million in operating margins on $46.2 million of revenue in Q4 2012, and $15.4 million in operating margins on $44.9 million of revenue in Q3 2013. Excluding a $0.8 million increase in cost recoveries billed to customers, with little or no markup, revenue was $3.1 million lower in Q4 2013 compared to Q3 2013 based on a decrease in utilization. In addition, per day costs increased relative to Q3 2013, as a result of wage increases and the negative effect of fixed costs, and repair and resupply costs on idled rigs had on a lower activity levels in Q4 2013. All of the rigs idled in Q4 2013, except for a TDS-2200 drilling rig transferred to Canada, returned to work over the course of Q1 2014, and as of the date of this press release, the entire active drilling rig fleet in the U.S. was operating.

Savanna’s Q4 2013 net earnings attributable to the shareholders of the Company increased by $1.2 million to $4.4 million, or $0.05 per share, from $3.2 million, or $0.04 per share, in Q4 2012, as higher EBITDAS was partially offset by higher depreciation and amortization, share-based compensation, and finance expenses. In Q3 2013, Savanna’s net earnings attributable to the shareholders of the Company was $6.7 million, or $0.08 per share. The decrease in EBITDAS in Q4 2013 relative to Q3 2013, as a result of utilization decreases and higher per day costs in Savanna’s U.S. drilling operation, together with an increase in finance expenses, led to the decrease in net earnings.

Annual Results

Activity in Australia accelerated throughout 2013, and was the primary driver for the year-over-year growth in revenue for Savanna. More importantly, the improved utilization and operating margins from Savanna’s Australian operations kept Savanna’s consolidated operating margins in-line with 2012. Overall operating margins from Australia totaled $20.6 million in 2013, which is more than three times the total operating margins generated from Australia in 2012. These increases offset much of the negative effect of weaknesses in North American activity.

In North America, overall economic uncertainty, pipeline capacity constraints in Canada, and continuing low natural gas prices, depressed oilfield service demand levels in 2013 relative to 2012. This led to lower utilization in both drilling and well servicing in Canada and the U.S., and decreased pricing on Savanna’s spot market drilling rigs. Despite these industry demand decreases, an increase in Savanna’s drilling utilization, driven by the refurbishment and retrofit initiatives of the last few years, and an increase in Canadian oilfield rentals revenue, partially mitigated the negative effect of widespread activity declines in North America in 2013 versus 2012.

More specifically, in the U.S., a 9% decrease in drilling and well servicing activity combined, and the costs associated with crewing incremental service rigs negatively affected operating margins. An increase in average per day revenue partially offset these decreases and as a result, in 2013, operating margins from Savanna’s U.S. operations decreased 3% relative to 2012.

In Canada, lower relative pricing in 2013 compared to 2012, and a significant decrease in well servicing utilization, were the primary drivers for a decrease in overall operating margins year-over-year. These decreases were partially offset by an increase in the number of active drilling rigs deployed. A 31% increase in rentals revenue, driven by the Q4 2012 acquisition of oilfield accommodation buildings, also positively impacted operating margins. In aggregate, operating margins from Savanna’s operations in Canada decreased by 9% in 2013 compared to 2012.

Higher overall general and administrative expenses, higher depreciation expenses, and higher finance expenses, also negatively impacted Savanna’s net earnings in 2013 relative to 2012. In addition, in 2013, Savanna incurred $1.1 million in severance and bad debt expenses, approximately 60% of which is included in general and administrative expenses.

Read more: http://www.savannaenergy.com/docs/news-releases/press%20release.svy.ye.2013.mar.5.2014.pdf

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