News Column

Savanna Announces Q2 2014 Results and New Triple Drilling Rig Contract

August 8, 2014



ENP Newswire - 08 August 2014

Release date- 07082014 - Savanna Energy Services Corp. generated EBITDAS of $14.4 million on $148.9 million of revenue in Q2 2014, an increase of 42% from EBITDAS of $10.1 million on $112.1 million of revenue in Q2 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 Q2 2014 resulted in a significant increase in operating margins for the geographic segment compared to Q2 2013. Savanna generated $9.9 million in operating margins on $64.1 million of revenue in Canada in Q2 2014, compared to $2.7 million in operating margins on $40 million of revenue in Q2 2013.

Virtually all of the $7.2 million increase in operating margins in Canada relative to Q2 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 Q2 2014 compared to Q2 2013; however, year-over-year operating margins remained relatively flat for these business units compared to Q2 2013.

In Australia, improved utilization, and operating an additional drilling rig, resulted in operating margin increases in the quarter relative to Q2 2013. Overall operating margins from Australia totaled $6.2 million in Q2 2014, up 20% from the $5.1 million generated in Q1 2014, and 10% higher than the $5.6 million in operating margins in Q2 2013.

Activity levels continue to ramp up in Australia and Savanna's position within the Australian market is expanding along with them. An additional five workover rigs and three flush-by units are under construction and are expected to commence operations in Australia in Q4 2014.

Including the Company's fifth drilling rig added in December 2013, Savanna will be more than doubling its fleet in the region in less than twelve months.

In the U.S., operating margins decreased in Q2 2014, despite higher revenue compared to Q2 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 Q2 2013, and combined with higher year-over-year pricing, resulted in a 77% increase in operating margins compared to Q2 2013.

Conversely, in U.S. drilling, higher per day operating costs on relatively flat utilization resulted in a 32% decrease in operating margins. Savanna generated $11.7 million in operating margins on $50.2 million of revenue in the U.S. in Q2 2014, compared to $14.3 million in operating margins on $43.8 million of revenue in Q2 2013.

These cost increases are expected to be addressed in the next few quarters and Savanna expects per day operating costs to decrease beginning in Q3 2014 and going forward. Savanna also remains focused on improving day rates, including revenue on pass through costs. Savanna's U.S. drilling contract status overall should ensure the Company is able to maintain above industry utilization.

Savanna's Q2 2014 net loss attributable to the shareholders of the Company widened to $12 million, or $0.13 per share, from a net loss of $8.6 million, or $0.10 per share, in Q2 2013. The decrease in earnings occurred despite the overall increase in EBITDAS as a result of the following: higher depreciation, based on higher activity levels and an increase in the value of assets depreciated on a straight-line basis; higher share-based compensation, based on mark-to-market adjustments on higher share prices; higher finance expenses, based on an increase in outstanding debt and losses versus gains on both foreign exchange and asset disposals in 2013.

Year-to-Date Results

On a year-to-date basis, higher utilization for Savanna's long-reach drilling fleet in Canada resulted in a $6.6 million increase in operating margins relative to the first half of 2013, despite lower average day rates in Q1 2014. However, a decrease in Q1 coring activity and day rates for Savanna's shallow drilling fleet in Canada, combined with lower activity and rates in Canadian well servicing and rentals more than offset these improvements. As a result, overall operating margins in Canada decreased by 3% compared to the first half of 2013.

Savanna's Australian operations achieved improved utilization in the first half of 2014 relative to the first half of 2013, and operated an additional drilling rig. The higher utilization and additional drilling rig resulted in a 19% increase in revenue and a 15% increase in operating margins from Australia in the first half of 2014 compared to the first half 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 half of 2013, and combined with higher year-over-year pricing, resulted in an 81% increase in operating margins. In contrast, in U.S. drilling, lower Q1 utilization and higher per day operating costs resulted in a 25% decrease in operating margins.

Overall for the first half of 2014, operating margin increases in Canadian long-reach drilling, U.S. well servicing, and Australia were more than offset by utilization and rate decreases in Canadian shallow drilling, Canadian well servicing, and Canadian rentals, and cost increases in U.S. drilling. This resulted in a 4% overall decrease in EBITDAS relative to the first half of 2013.

To date in 2014, Savanna also realized: higher depreciation, share-based compensation, finance expenses, and foreign exchange and asset disposal losses versus gains in 2013. These factors, combined with lower year-over-year EBITDAS, resulted in a decrease in net earnings in the first half of 2014 compared to the first half of 2013.

New Triple Drilling Rig Contract

Savanna is pleased to announce that it has secured a multi-year contract for its third new-build triple drilling rig. The rig is anticipated to commence field operations in the U.S. starting in Q1 2015. This contract represents the third triple drilling rig contract secured in 2014, and results in Savanna's entire current 12 rig new-build program being contracted on a multi-year, take or pay, basis.

A number of the 12 rigs under this build program will begin contributing to Savanna's operating results in Q4 2014, and all will generate meaningful incremental revenue and operating margin contributions in 2015 and beyond.

Savanna's Q2 2014 net loss attributable to the shareholders of the Company widened to $12 million, or $0.13 per share, from a net loss of $8.6 million, or $0.10 per share, in Q2 2013.

The decrease in earnings occurred despite the overall increase in EBITDAS as a result of the following: higher depreciation, based on higher activity levels and an increase in the value of assets depreciated on a straight-line basis; higher share-based compensation, based on mark-to-market adjustments on higher share prices; higher finance expenses, based on an increase in outstanding debt and losses versus gains on both foreign exchange and asset disposals in 2013.

Year-to-Date Results

On a year-to-date basis, higher utilization for Savanna's long-reach drilling fleet in Canada resulted in a $6.6 million increase in operating margins relative to the first half of 2013, despite lower average day rates in Q1 2014. However, a decrease in Q1 coring activity and day rates for Savanna's shallow drilling fleet in Canada, combined with lower activity and rates in Canadian well servicing and rentals more than offset these improvements. As a result, overall operating margins in Canada decreased by 3% compared to the first half of 2013.

Savanna's Australian operations achieved improved utilization in the first half of 2014 relative to the first half of 2013, and operated an additional drilling rig. The higher utilization and additional drilling rig resulted in a 19% increase in revenue and a 15% increase in operating margins from Australia in the first half of 2014 compared to the first half 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 half of 2013, and combined with higher year-over-year pricing, resulted in an 81% increase in operating margins. In contrast, in U.S. drilling, lower Q1 utilization and higher per day operating costs resulted in a 25% decrease in operating margins.

Overall for the first half of 2014, operating margin increases in Canadian long-reach drilling, U.S. well servicing, and Australia were more than offset by utilization and rate decreases in Canadian shallow drilling, Canadian well servicing, and Canadian rentals, and cost increases in U.S. drilling. This resulted in a 4% overall decrease in EBITDAS relative to the first half of 2013.

To date in 2014, Savanna also realized: higher depreciation, share-based compensation, finance expenses, and foreign exchange and asset disposal losses versus gains in 2013. These factors, combined with lower year-over-year EBITDAS, resulted in a decrease in net earnings in the first half of 2014 compared to the first half of 2013.

New Triple Drilling Rig Contract

Savanna is pleased to announce that it has secured a multi-year contract for its third new-build triple drilling rig. The rig is anticipated to commence field operations in the U.S. starting in Q1 2015. This contract represents the third triple drilling rig contract secured in 2014, and results in Savanna's entire current 12 rig new-build program being contracted on a multi-year, take or pay, basis.

A number of the 12 rigs under this build program will begin contributing to Savanna's operating results in Q4 2014, and all will generate meaningful incremental revenue and operating margin contributions in 2015 and beyond.

SECOND QUARTER RESULTS

Overall contract drilling revenue increased relative to Q2 2013, as a result of an 83% increase in operating days in Canada and a 24% increase in operating days in Australia. In addition, average day rates on Savanna's long-reach drilling fleet in Canada increased relative to Q2 2013. In the U.S. revenue increased based on an appreciation in the value of the U.S. dollar relative to the Canadian dollar. The increase in revenue resulted in a $3.8 million increase in operating margin relative to Q2 2013, despite lower overall operating margin percentages driven by an increase in operating costs in the U.S.

The following summarizes the operating results in the second 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-3000TM drilling rigs and TDS 2200 drilling rigs. In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup. For Q2 2014 these costs aggregated $8.3 million (Q2 2013 - $4.4 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 and higher average day rates in Q2 2014 compared to Q2 2013. In addition, operating costs per day were lower than last year as the fixed portion of operating costs was distributed over a greater number of operating days. These factors resulted in a $7.1 million, or 189%, increase in operating margins compared to Q2 2013. The 35% utilization rate for Savanna's long-reach drilling rigs in Q2 2014 was above the Canadian industry average utilization rate of 26% in the same depth categories.

Savanna's shallow fleet contributed negatively to overall operating margins in the second quarter of both 2014 and 2013. Demand in the shallow drilling market in Canada remains muted, which has translated to low utilization and rates for Savanna's shallow hybrid fleet outside of oil sands coring work in the winter. However, utilization of the shallow fleet outside of Q1 does offset some fixed field costs, and assists with the retention and training of qualified crews.

Savanna's U.S. drilling operation generated higher revenues in Q2 2014 compared to Q2 2013. The increase occurred as a result of an appreciation in the value of the U.S. dollar relative to the Canadian dollar. Utilization rates remained high in Q2 2014, however, higher per day operating costs resulted in a 32% decrease in operating margins compared to Q2 2013.

The increase in operating costs included the following: higher pass through costs; rig move costs not passed through to customers; rig supply costs and repairs and maintenance associated with safety improvements across a number of rigs in the fleet and ancillary equipment rental costs and repairs and maintenance associated with equipment failures for which critical spares have been delayed from a capital equipment perspective. These cost increases are expected to be addressed in the next few quarters through capital equipment deliveries, increases in costs passed through to customers on contract renewals, and overall cost management improvements.

In Australia, having an additional rig operating in the quarter resulted in an increase in operating days and revenue, which led to a 9% increase in operating margins for Savanna's drilling operations in Australia in Q2 2014 compared to Q2 2013.

YEAR-TO-DATE RESULTS

Contract drilling revenue increased in the first half of 2014 relative to the first half 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.

However, a decrease in Q1 day rates and coring activity in Canada, combined with an increase in operating costs in the U.S., resulted in relatively flat operating margins and lower operating margin percentages in Savanna's contract drilling segment compared to the first half of 2013.

In the first half of 2014 cost recoveries aggregated $23.8 million compared to $18.9 million in the same period in 2013.

The Canadian long-reach drilling rigs delivered improved utilization in the first half of 2014 which resulted in a $6.6 million, or 17%, increase in operating margin compared to the first half of 2013. Lower average day rates in Q1 and an increase in variable costs per day did result in lower year-over-year operating margin percentages. The 56% utilization rate for Savanna's long-reach drilling rigs in the first half of 2014 was above the Canadian industry average utilization rate of 41% in the same depth categories.

The Company's shallow drilling rig fleet achieved lower utilization, day rates and revenue in Q1 2014 relative to Q1 2013, as a result of drilling efficiencies and a decrease in overall oil sands coring activity during the winter coring season. In addition, higher variable costs this year versus last and the negative effect of fixed costs on lower revenues resulted in lower operating margins and operating margin percentages in the first half of 2014 compared to the first half of 2013.

An appreciation in the value of the U.S. dollar relative to the Canadian dollar in the first half of 2014 resulted in higher revenue in Savanna's U.S. drilling operation compared to the first half of 2013, despite lower year-over-year utilization. Savanna had some of its drilling rigs idled in Q4 2013 due to early completion of drilling programs for certain customers. These rigs returned to work during Q1 2014; however, re-commissioning costs were incurred in Q1.

Additionally, operating costs per day were higher than last year as a result of re-commissioning costs, rig move costs, and higher pass through costs, rig supply costs, ancillary equipment rental costs, and repairs and maintenance costs. The lower utilization combined with higher per day costs resulted in a 25% decrease in operating margin in the first half of 2014 relative to the first half of 2013.

In Australia, Savanna operated an additional rig in the first half 2014 versus the same period in 2013, as the Company's fifth drilling rig in the region commenced operations in December 2013. The additional rig resulted in an increase in operating days, which led to a 10% increase in operating margins for Savanna's drilling operations in Australia in the first half of 2014 compared to the first half of 2013.

Certain drilling rigs in Australia experienced some periods of downtime in the first six months of the year, which resulted in a slight decrease in operating margin percentages relative to the same period of 2013.

SECOND QUARTER RESULTS

Revenue for Savanna's oilfield services division increased on higher utilization in each operating area in Q2 2014 compared to Q2 2013. Most of the operating margin increase in Q2 2014 relative to Q2 2013 came from outside of Canada. Four additional rigs operating in the U.S. and increased utilization in Australia resulted in 77% and 10% increases in operating margins in each respective operating area in Q2 2014 relative to Q2 2013. In Canada, increased utilization resulted in marginally higher operating margins.

Included in revenue for Q2 2014, was $10.6 million from oilfield rentals (Q2 2013 - $8.7 million). Of the Q2 2014 rental revenue, $7.1 million (Q2 2013 - $5.5 million) was generated in Australia and $0.2 million (Q2 2013 - $0.2 million) was eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from the per hour revenue calculations above.

Revenue in Savanna's Canadian well servicing operation increased in Q2 2014 compared to Q2 2013 based on increased activity. The number of operating hours from the well servicing fleet in Canada increased by 27% compared to Q2 2013, while average per hour revenue was 4% lower. The decrease in pricing, combined with higher per hour labour costs, offset the increase in revenue driven by activity, and operating margins in Canadian well servicing remained relatively flat compared to Q2 2013.

For rentals, revenue increased by 10% in Q2 2014 compared to Q2 2013. In addition, repairs and maintenance costs were lower in Q2 2014 relative to Q2 2013 based on the lower activity levels in the first quarter, which together with the increase in revenue, resulted in an increase in operating margin compared to Q2 2013.

Savanna's strategy of redeploying idle Canadian service rigs to the U.S. proved beneficial in the quarter. Revenue for well servicing in the U.S. increased in Q2 2014 as a result of more operating hours, based on more active rigs, and higher pricing relative to Q2 2013. The increase in revenue resulted in a 77% increase in operating margins compared to Q2 2013.

In Australia, revenue from service rigs and rental equipment increased by 20% and operating margins increased by 10% in Q2 2014 compared to Q2 2013. The increases are primarily a result of improved utilization.

YEAR-TO-DATE RESULTS

Revenue for Savanna's oilfield services division increased in the first half of 2014 compared to the first half 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 81% and 27% increases in operating margins in each respective operating area in the first half of 2014 relative to the first half of 2013. Unfortunately, decreases in operating margins in Canada relative to Q2 2013 more than offset the improvements in the U.S. and Australia.

Included in revenue for the first half of 2014, was $24.7 million from oilfield rentals (H1 2013 - $24.8 million). Of the Q1 2014 rental revenue, $12.4 million (H1 2013 - $10 million) was generated in Australia and $1 million (H1 2013 - $1.8 million) was eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from the per hour revenue calculations above.

Low demand in Canada resulted in lower activity levels and pricing in Savanna's well servicing operations in the first half of 2014 compared to the first half of 2013. The number of operating hours from the well servicing fleet in Canada decreased by 3% compared to the first half of 2013, while average per hour revenue was 7% lower. Despite the decrease in operating hours, H1 2014 utilization was higher than H1 2013 based on the number of operational rigs, which decreased compared to H1 2013 as a result of rigs transferred or pending transfer to North Dakota and rigs idled pending increased demand.

Based on lower activity levels and pricing and higher per hour labour costs, operating margins in Canadian well servicing decreased by 36% in the first half of 2014, compared to the same period in 2013. For rentals, lower demand led to a decrease in activity in the first half of 2014 compared to the first half of 2013, and based on the primarily fixed cost structure of this business, a 37% decrease in operating margins resulted.

Revenue for well servicing in the U.S. increased in the first half of 2014 as a result of more operating hours, based on more active rigs, and higher pricing relative to the same period in 2013. The increase in revenue resulted in an 81% increase in operating margins compared to the first half of 2013, despite higher labour costs associated with crewing the last of the three rigs transferred from Canada during Q4 2013, and additional rigs expected to be transferred in 2014.

Subsequent to the end of the quarter, two additional rigs were transferred to North Dakota from Canada and are expected to commence operations prior to the end of Q3 2014. A minimum of two additional rig transfers from Canada are expected to be completed before the end of the year. The larger rig fleet should result in increasing operating margin contribution from Savanna's U.S. well servicing operations in future quarters.

In Australia, revenue from service rigs and rental equipment increased by 19% and operating margins increased by 27% in the first half of 2014 compared to the first half of 2013. The increases are primarily a result of improved utilization. In Savanna's Australian operations, both per hour revenue and per hour costs are higher than in North America. Notwithstanding this, per hour operating margins are comparable in all three operating areas.

Balance Sheet

Savanna's working capital at June 30, 2014, was $54.5 million and its net debt position was $200.9 million, an increase of $40.7 million, or 25%, 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 June 30, 2014, excluding unamortized debt issue costs, was $255.4 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 June 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 therenewal, 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 June 30, 2014, the amount drawn on this facility was $64.1 million.

Savanna possesses ample liquidity, with approximately $82.5 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 half of 2014, Savanna declared dividends totaling $16 million or $0.18 per share. Of the dividends declared, $4.2 million was reinvested in additional common shares through the Company's dividend reinvestment plan.

Outlook

Savanna had a positive second quarter of 2014, with a 42% increase in EBITDAS year-over-year. All of its operating divisions achieved activity and revenue increases relative to Q2 2013. The Canadian long-reach drilling, U.S. well servicing, and Australian divisions translated the revenue increases into considerable operating margin increases in Q2 2014, compared to Q2 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 and higher labour costs, relative to Q2 2013. Increased operating costs in Savanna's U.S. drilling operation did however temper overall EBITDAS increases. Looking forward, Savanna's current strategic and rig-build initiatives have the Company poised for significant growth in the next several quarters.

Utilization of Savanna's Canadian long-reach drilling fleet in Q2 2014 increased 16 percentage points over Q2 2013 and is 11 percentage points higher in the first half 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 $900 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 40% contracted beyond one year. In Q1 2014, Savanna entered into a long-term contract to supply a new-build 1200 horsepower ultra-heavy AC double drilling rig in Canada.

While this rig will not have a meaningful impact on 2014 results, it will in 2015. In addition, greater access for Savanna to the already active oil sands regions through its partnership with Fort McKay First Nation should also provide improved returns, specifically in regards to the Company's shallow drilling fleet. Activity was also higher in Canadian well servicing and rentals in Q2 2014 relative to Q2 2013.

Challenges remain in the Canadian well servicing and rentals businesses, which will likely take several quarters to resolve, but the recent increase in demand is promising. Savanna remains positive on the long-term prospects of its oilfield services businesses in Canada.

In Australia, utilization and operating margins continue to improve every quarter. With a significant portion of Savanna's expansion capital dedicated to Australia, this trend is expected to continue in the back half of 2014 and beyond. Construction of five additional workover rigs and three new flush-by units for Australia are underway, all of which are contracted long-term.

All of these rigs are expected to commence operations in Q4 2014. This growth leaves Savanna well positioned to continue generating increasing returns from this division, not only in 2014, but very meaningfully in 2015 and beyond. Savanna remains very optimistic on the ongoing prospects in Australia, and is pursuing further opportunities for adding equipment into the region.

With liquefied natural gas delivery deadlines beginning in late 2014, activity levels continue to increase in the region overall and support a further ramp-up in activity, which Savanna believes will lead to further equipment and service requirements, as well.

The U.S. drilling division has underperformed financially in 2014, as a result of high per day operating costs. These costs are expected to be reduced over the next few quarters, and Savanna expects per day operating costs to decrease beginning in Q3 2014 and going forward. High utilization levels are expected for the remainder of the year as Savanna's entire 25 rig drilling fleet in the U.S. is currently working. Savanna also remains focused on improving day rates, including revenue on pass through costs.

In addition, the first of three recently-contracted 1500 horsepower AC triple drilling rigs is slated for Q4 2014 commissioning, the second will follow in Q1 2015, with the third in Q2 2015. While the new rigs will not have a meaningful impact on 2014 results, they certainly will in 2015. The Company's U.S. well servicing business operated an average of five additional service rigs in the first half of 2014 compared to the same period last year.

In July 2014, two additional rigs were transferred to North Dakota from Canada and, depending on crew availability both are expected to commence operations in Q3. A minimum of two additional rig transfers from Canada are expected to be completed before the end of the year.

Year- over-year growth in U.S. well servicing operating margins of 81% compared to the first half of 2013 supports this strategy, and illustrates the operating margin improvements these transfers will contribute in the second half of 2014 and beyond. 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.

Commodity pricing, particularly for natural gas and heavy oil, and pipeline capacity issues in North America, continue to impact customer demand for services. However, Q2 2014 was one of the most active second quarters in recent history and there are indications that oil and gas industry activity in North America will continue to improve in the second half of 2014 and beyond. Strong activity growth is also continuing in Australia. While prices for oil are expected to remain steady in 2014, natural gas prices have increased.

While significant, the sustainability of this increase is at this point uncertain. Any positive announcements regarding pipeline infrastructure improvements and/or prospects for Canadian liquefied natural gas development could further support this pricing.

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. 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 2014 capital commitments and other strategic or rig-build initiatives, expectations of activity levels for Savanna in 2014, 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 service rigs 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 high and/or above industry utilization levels in the Company's U.S. drilling division for the remainder of the year, the expectation of a decrease in per day operating costs relative to Q2 2014, beginning in Q3 2014 and going forward, the expectation that Savanna's partnership with Fort McKay First Nation should provide greater access to the already active oil sands regions and improved returns, the expectation of improving oil and gas industry activity in North American in 2014 and beyond, the expectation of increased demand and/or pricing for oilfield service equipment as liquefied natural gas development in Canada and/or pipeline infrastructure improvements move forward, 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 activity levels for Savanna in 2014 are premised on industry estimates, actual activity levels and utilization experienced to date in 2014, an increase in the number of rigs under contract, and an increase in the number of rigs operating based on rigs currently under construction or being transferred to North Dakota.

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 service rigs from Canada to North Dakota is premised on the Company's expectation of utilization levels in North Dakota relative to Canada and the current number of rigs racked in Canada pending future upgrades.

The Company's expectation of the continuing increase of operating margin contributions from Savanna's U.S. well servicing operations is premised on the Company's current outlook for industry activity in that region and the expected increase in the scale of those operations through rigs slated for transfer from Canada.

The Company's expectation of increasing activity levels, utilization, operating margins, and returns from Savanna's Australian operations is premised on actual results experienced in 2013 and to date in 2014, the contracts currently in place, including those for five new-build workover rigs and three new-build flush-by units, 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 high and/or above industry 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 a decrease in per day operating costs relative to Q2 2014, beginning in Q3 2014 and going forward is premised on expected deliveries capital equipment for use as critical spares, the Company's intention to increases the costs passed through to customers on contract renewals, and overall cost management improvement initiatives 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 and improved returns, 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 development in Canada and/or pipeline infrastructure improvements move forward, its expectation of improving oil and gas industry activity in North America in 2014 and beyond, 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, the focus of its customers on oil directed drilling opportunities in the current natural gas pricing environment in North America, and regulatory approvals granted or pending for additional pipelines and liquefied natural gas export terminals in Canada.

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 Q2 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.

CONTACT:

Savanna Energy Services Corp.

Ken Mullen

President and Chief Executive Officer

Darcy Draudson

Chief Financial Officer

Tel: (403) 503-9990

Website: www.savannaenergy.com


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Source: ENP Newswire


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