HispanicBusiness

On an annual basis, total EBITDAS(1) increased by $15.1 million or 11% from 2011. Notwithstanding the higher year-over-year EBITDAS(1), Savanna's net earnings decreased by $8.2 million to $37.5 million in 2012 compared to $45.7 million in 2011. Net earnings for 2012 include non-routine expenses related to crew retention ($2.5 million) and non-cash impairment losses ($6.7 million); crew retention costs were $1.5 million in 2011. Net earnings for 2012 also decreased due to higher share-based compensation expenses, higher depreciation and amortization expenses based on an increased capital asset cost base, higher finance expenses, and asset disposal and foreign exchange losses compared to gains in 2011. The Company incurred $0.5 million in losses on asset disposals and foreign exchange in 2012 compared to $2.6 million in gains in 2011, reducing net earnings by $3.1 million, comparatively.

CONTRACT DRILLING

Savanna's contract drilling segment achieved 6% fewer operating days in Q4 2012 compared to Q4 2011. Combined with slightly lower day rates, this resulted in an overall 7% decrease in revenue from $129.8 million in Q4 2011 to $120.1 million in Q4 2012. In addition, higher per day operating expenses, driven by retention costs, increased repairs and maintenance, and the increased impact of fixed costs based on lower days, resulted in lower operating margin percentages and overall operating margins decreased to $27.6 million in Q4 2012 compared to $38.5 million in Q4 2011. On an annual basis, an increase in overall revenue per day and operating margin performance led to a $21.4 million or 17% increase in contract drilling operating margins in 2012 compared to 2011. Revenues increased to $487.2 million from $451.1 million in 2011 and operating margins increased to $149.5 million (31% of revenue) in 2012 from $128.1 million (28% of revenue) in 2011. All of this increase was generated from operations outside of Canada.

Savanna's drilling rigs in the U.S. achieved utilization rates of 81% in 2012. Revenue from Savanna's U.S. drilling operation was 18% higher in 2012 compared to 2011, as a result of adding three more rigs to the average operating fleet for the year, and more operating days. Also, operating margin performance in the U.S. improved dramatically in 2012, as footage-based contracts were converted to day work terms. As a result, operating margins increased by $16.5 million to $46.3 million from $29.9 million in 2011 and operating margin percentages increased by seven percentage points. In Q4 2012, an increase in operating days based on a larger rig fleet was offset by lower per day revenue and increased repairs and maintenance in the quarter. On a per day basis, repairs and maintenance costs were 44% higher in Q4 2012 than the annual average, or an increase of $2.6 million compared to Q4 2011, and an increase of $1.7 sequentially, as strong utilization rates throughout 2012 resulted in a significant number of required repairs in the fourth quarter. As a result, operating margins of $8 million in Q4 2012 remained relatively flat compared to the $8.7 million in Q4 2011. The increase in repairs and maintenance costs in Q4 2012 is expected to be lower in future quarters and should track closer to the 2012 annual average.

In Australia, Savanna's drilling division generated strong revenues from an average of three drilling rigs working in 2012. Weather and customer delays, particularly in Q2 2012, limited operating margin increases in the first half of 2012. However, as the fleet began to work more consistently in the second half of 2012, operating margin contributions improved significantly. Overall operating margins increased by $5.7 million compared to 2011. In Q4 2012, with four drilling rigs operating, the drilling operations in Australia generated $2.6 million of operating margin, marking its highest quarterly operating margin performance since commencing operations. On a per rig basis, the Q4 2012 operating margin generated in Australia exceeded that of Savanna's Canadian and U.S. drilling divisions.