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Savanna Energy Services Corp. Announces Q4 and Year-End 2012 Results

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CALGARY, ALBERTA -- (Marketwire) -- 03/07/13 -- Savanna Energy Services Corp. ("Savanna" or "the Company") (TSX: SVY) achieved improved results in 2012, increasing EBITDAS(1) by 11% over 2011. In addition, the Company achieved key milestones in its business strategy including completing the TDS-3000™ rig conversion program, and delivering and commissioning the Company's eighth rig to Australia. These two accomplishments, among others, position Savanna well for future growth and expansion in all of its operating areas in 2013 and future years.

Fourth Quarter Highlights

Revenue for Q4 2012 was $168.2 million, a decrease of 7% compared to Q4 2011. Q4 2012 net earnings were $3.1 million compared to net earnings of $16.7 million in Q4 2011 and diluted earnings per share was $0.04 compared $0.20 in the same respective periods. EBITDAS(1) was $29.3 million in Q4 2012 compared to $43.1 million in the fourth quarter of 2011.

Savanna's Canadian operations generated revenue of $99.3 million and operating margins of $27.3 million during the fourth quarter of 2012. Canadian revenue decreased by 23% and operating margins decreased by 35% compared to Q4 2011. Sequentially, Canadian operating margins decreased by 4% compared to Q3 2012. The decreases were indicative of lower year-over-year activity levels in Canada, due to reduced customer spending on 2012 capital programs as a result of overall economic uncertainty, lower relative oil commodity pricing in Canada and lower natural gas prices. In the case of both drilling and well servicing, utilization decreased compared to Q4 2011. Overall drilling utilization in Canada was also below both Q3 2012 and industry averages in Q4 2012. The overall reduced utilization resulted in crew retention and fixed operating costs having a more pronounced effect in Q4 2012, compared to both Q3 2012 and Q4 2011.

Fourth quarter U.S. revenue was $46.2 million and operating margins were $9.8 million. U.S. operating margins decreased from Q4 2011 by $0.9 million, and sequentially from Q3 2012 by $4.7 million due to a slight weakening in day rates, and increased repairs and maintenance costs arising from high activity earlier in 2012. Competition in the Permian basin in Texas, Savanna's highest activity area in the U.S., did increase during the quarter, which resulted in pricing pressure relative to earlier in the year.

Revenue from Savanna's Australian operations was $22.7 million in the fourth quarter of 2012, up $14.1 million or 165% year-over-year, and up 14% sequentially. Australian activity levels were up year over year due to delivery of drilling and workover equipment to market by Savanna, as well as Savanna's customers increasing their work scope substantially. Australian drilling activity demonstrated the most significant spike, although workover activity continued to increase as well. Savanna exited the quarter with four drilling and four workover rigs operating in Australia, along with expanded trucking and rental operations. Operating margins were constrained due to the costs of importing and commissioning the last of Savanna's initial eight rig delivery to the country, as well as by extended holiday downtime in the region. That said, operating margins were up 27% compared to Q4 2011, and up 11% compared to Q3 2012.

Overall, 2012 was a tumultuous year for the oilfield services industry in North America. The first half of the year, backed by relatively high oil prices and sustained activity levels in liquids-rich natural gas and unconventional oil plays, was a period of strong demand for drilling, completion and maintenance services. In the second half of 2012, demand levels dropped off dramatically in Canada as customers pulled back on their second half projects or deferred their winter programs into Q1 2013. Savanna's results tracked industry activity, although in Canada Savanna activity and results were ahead of industry in Q1 2012, and well below industry in Q4 2012. Overall, Savanna generated higher revenues, operating margins and EBITDAS(1) in 2012 relative to 2011 and maintained overall operating margin and EBITDAS(1) percentages. Additionally, the Company upgraded four telescoping doubles, enhancing their applicability to developing North American drilling demands, and completed the TDS-3000™ conversion program, effectively adding seven operating TDS-3000™ rigs to Savanna's fleet for Q1 2013.

Financial HighlightsThe following is a summary of selected financial information of the Company:-------------------------------------------------------------------------------------------------------------------------------------------------------- Three Months Ended Twelve Months EndedDecember 31 2012 2011 Change 2012 2011 Change----------------------------------------------------------------------------(Stated in thousands of dollars, except per share amounts) $ $ $ $----------------------------------------------------------------------------OPERATING RESULTSRevenue 168,242 181,480 (7%) 669,321 610,737 10%Operating expenses 128,110 127,792 0% 474,083 434,244 9%Operating margin(1) 40,132 53,688 (25%) 195,238 176,493 11%Operating margin %(1) 24% 30% 29% 29%EBITDAS(1) 29,336 43,071 (32%) 150,986 135,844 11% Per share: basic 0.34 0.51 (33%) 1.77 1.65 7% Per share: diluted 0.34 0.51 (33%) 1.76 1.64 7%Net earnings 3,129 16,742 (81%) 37,479 45,724 (18%) Per share: basic 0.04 0.20 (80%) 0.44 0.56 (21%) Per share: diluted 0.04 0.20 (80%) 0.44 0.55 (20%)--------------------------------------------------------------------------------------------------------------------------------------------------------CASH FLOWSOperating cash flows(1) 23,125 44,166 (48%) 135,180 140,546 (4%) Per diluted share 0.27 0.52 (48%) 1.58 1.70 (7%)Acquisition of capital assets(1) 45,393 42,449 7% 185,541 260,471 (29%)Dividends paid 5,707 - 100% 15,792 - 100%--------------------------------------------------------------------------------------------------------------------------------------------------------FINANCIAL POSITION AT DECEMBER 31 2012 2011 Change---------------------------------------------------------------------------- $ $----------------------------------------------------------------------------Working capital(1) 89,354 99,587 (10%)Capital assets(1) 1,119,764 1,033,241 8%Total assets 1,308,875 1,233,700 6%Long-term debt 245,820 207,637 18%--------------------------------------------------------------------------------------------------------------------------------------------------------



NOTES:

(1) Operating margin, operating margin percentage, EBITDAS, and operating cash flows are not recognized measures under IFRS, and are unlikely to be comparable to similar measures presented by other companies. Management believes that, in addition to net earnings, the measures described above are useful as they provide an indication of the results generated by the Company's principal business activities both prior to and after consideration of how those activities are financed, the effect of foreign exchange and how the results are taxed in various jurisdictions. Similarly, capital assets, working capital, and net debt are not recognized measures under IFRS; however, management believes that these measures are useful as they provide an indication of the Company's investment in operating assets, liquidity and leverage.

-- Operating margin is defined as revenue less operating expenses.-- Operating margin percentage is defined as revenue less operating expenses divided by revenue.-- EBITDAS is defined as earnings before finance expenses, income taxes, depreciation, amortization and share-based compensation and excludes other expenses (income).-- Operating cash flows are defined as cash flows from operating activities before changes in non-cash working capital.-- Capital assets are defined as property, equipment and intangible assets.-- The acquisition of capital assets includes the purchase of property, equipment and intangible assets, capital assets acquired through business acquisitions and non-cash capital asset additions.-- Working capital is defined as total current assets less total current liabilities excluding the current portions of long-term debt.-- Net debt is defined as long-term debt, including the current portions thereof and excluding unamortized debt issue costs, less working capital as defined above.



(2) Certain industry related terms used in this press release are defined or clarified as follows:

-- The number of operating days, spud to release days and operating hours are all on a net basis which means only Savanna's proportionate share of any rigs held in 50/50 limited partnerships have been included.-- Savanna reports its drilling rig utilization based on spud to release time for its operational drilling rigs and excludes moving, rig up and tear down time, even though revenue may be earned during this time. Source of Canadian industry average utilization figures: Canadian Association of Oilwell Drilling Contractors. Industry utilization figures are calculated in the same manner as the Company.-- Savanna reports its service rig utilization for its operational service rigs based on standard hours of 3,650 per rig per year. Reliable industry average utilization figures, specific to well servicing, are not available.



In Q4 2012, relatively lower industry demand levels resulted in an overall decrease in revenue compared to Q4 2011 and reduced Savanna's Q4 2012 EBITDAS(1) by $13.8 million to $29.3 million from $43.1 million in Q4 2011. Savanna's net earnings also decreased compared to Q4 2011 to $3.1 million, $13.6 million lower than the comparative quarter. Net earnings for Q4 2012 include non-routine expenses related to crew retention ($2.5 million) and non-cash impairment losses ($1 million); crew retention costs were $1.5 million in Q4 2011. Q4 2012 net earnings also decreased due to 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 Q4 2011. The Company incurred $0.2 million in losses on asset disposals and foreign exchange in Q4 2012 compared to $1.3 million in gains in Q4 2011, reducing net earnings by $1.5 million, comparatively.

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.

In Canada, in Q1 2012, a strong industry focus on developing oil and liquids-rich prospects and coring and delineation of the oil sands, propelled demand for Savanna's fleet of drilling rigs. Demand decreased in all drilling categories post Q1 2012; however, Savanna's long-reach horizontal drilling rigs managed to maintain utilization rates higher than industry averages (in the same depth categories) and day rates above those of 2011. As a result, the Canadian long-reach horizontal drilling fleet, which contributed 45% of Savanna's overall operating margin in 2012 (2011 - 51%), was able to maintain overall operating margins and operating margin percentages despite lower revenues year-over-year. Revenue for long-reach drilling in Canada was $246.4 million in 2012 compared to $253.7 million in 2011 and operating margins were $88.7 million and $89.3 million in the same respective periods.

Similarly, operating margins for Savanna's shallow drilling fleet were virtually unchanged at $8.8 million in 2012 compared to $9 million in 2011, despite a $12.2 million decrease in revenues (to $39.6 million), as a result of a decrease in the number of rigs in the fleet. Operating margin percentages were five percentage points higher in 2012 compared to 2011, a clear indication that Savanna's shallow drilling rigs benefited from a reduction in the overall fleet size, and consequently a reduction in the fleets' fixed operating cost structure, to a level more aligned with base shallow drilling and coring activity in Canada.

In Q4 2012, customers continued to pull back on their second half projects and deferred their winter programs into Q1 2013. This resulted in a decrease in operating days from Q4 2011 and, although day rates were virtually unchanged from a year ago, the decreased utilization in Canada magnified the negative effect of fixed operating costs and crew retention costs incurred in anticipation of a busy Q1 2013. Retention costs for contract drilling in Canada aggregated $2.5 million in Q4 2012, compared to $1.5 million in Q4 2011. The benefits of these costs are expected to be realized in Q1 2013 as Savanna believes the extra contribution from these crews in Q1 2013 will exceed the costs incurred in the retention program.

Revenue for the Canadian long-reach drilling rigs in Q4 2012 was $61.9 million versus $78.2 million in Q4 2011 and operating margins decreased to $18.7 million, or 35%, from $28.6 million in Q4 2011, on the lower overall demand levels. Savanna's shallow fleet in Canada generated negative $1.7 million in operating margins in Q4 2012, compared to the $0.7 million positive operating margin contribution made in Q4 2011. Lower demand for shallow drilling led to a decrease in utilization relative to a year ago and the shallow rigs were not able to generate sufficient revenues to cover fixed operating costs or crew retention costs in Q4 2012.

OILFIELD SERVICES

Savanna's oilfield services division generated 7% lower revenues based on an 18% decrease in operating hours in Q4 2012 compared to Q4 2011 based on lower overall demand levels. Overall revenues decreased by $3.4 million to $48.8 million in Q4 2012 compared to $52.2 million in Q4 2011 and operating margins decreased to $12.4 million from $15 million in Q4 2011. On an annual basis, the increase in the average number of service rigs deployed and scale of oilfield service equipment operating in 2012 compared to 2011, resulted in a $22.3 million increase in revenue. However, sharply reduced demand, post Q1 2012, resulted in lower year-over-year utilization which negatively affected operating margins compared to 2011. Overall operating margins were $45 million in 2012 compared to $47.7 million in 2011.

In Canada, the muted demand levels encountered post Q1 2012 continued through the rest of 2012 and overall utilization rates for well servicing decreased by twelve percentage points in Q4 2012 compared to Q4 2011. In Canadian rentals, the December 1st acquisition of oilfield accommodation buildings somewhat mitigated the effect of lower overall demand in Q4 2012. Revenue decreased to $34.1 million in Q4 2012 from $42.6 million in Q4 2011 and operating margins decreased by $2.6 million to $10.2 million from $12.8 million in the same respective periods. On an annual basis reduced demand led to significantly lower utilization rates and lower overall operating hours in 2012 compared to 2011. Revenue in 2012 aggregated $132.4 million and operating margins were $34.9 million compared to $128.7 million of revenue and $40 million in operating margins in 2011. Utilization challenges in 2012, in the face of a much larger service rig and rental equipment fleet, resulted in re-supply, repair, and fixed operating costs having a more pronounced effect in 2012 compared to 2011, and resulted in lower operating margin percentages despite an increase in revenue per hour. These costs were incurred to take advantage of available labour, as well as to ensure the service rig fleet was in condition to fully benefit from an expected long-term trend toward higher utilization of well servicing equipment in North America. The re-supply and repair and maintenance costs incurred in 2012, particularly in Q4, are not expected to be as high going forward.

U.S. well servicing demand did not decrease and Savanna's service rigs in the U.S. generated strong utilization rates throughout 2012. The U.S. well servicing division benefited from increased industry activity levels, increased pricing, and an increased average rig fleet in 2012 compared to 2011, increasing operating margins by 41% year-over-year. In Q4 2012, despite operating two fewer rigs as a result of equipment issues and a rig retirement, overall operating margins were virtually unchanged compared to Q4 2011.

In Australia, the service rigs and related rental equipment generated improved revenues in 2012 based on an average of three rigs working in that period. However, weather and customer delays in Q2 2012 and rig commissioning delays in Q4 2012 reduced utilization of the equipment and resulted in significant crew retention costs. As a result, aggregate operating margins remained flat relative to Q4 2011. As the fleet has begun working more consistently, the Company expects operating margin contributions to increase.

BALANCE SHEET

Savanna's working capital at December 31, 2012, was $89.4 million and its net debt(1) position was $156.5 million. The amount owing on its revolving credit facility was $114.9 million and Savanna's total long-term debt outstanding, excluding unamortized debt issue costs, was $245.8 million. As of the date of this release, $139.6 million was drawn on Savanna's available revolving credit facility of $180 million, and $3.5 million was drawn on Savanna's available operating facility of $20 million. Savanna's current financial position provides the Company with the financial flexibility to execute its strategic plans.

DIVIDEND

In Q4 2012, Savanna declared dividends of $7.8 million or $0.09 per share, bringing the total dividends declared in the year to $23.1 million ($0.27 per share) since reinstating its dividend in April in 2012. Of the dividends declared, $4.7 million was reinvested in additional common shares through the Company's dividend reinvestment plan, $15.8 million was paid in cash and $2.6 million was payable at December 31, 2012 (of which 31% was settled in shares subsequent to the end of the year, through the dividend reinvestment plan).

OUTLOOK

Activity levels in Q1 2013 for Savanna in all of its operating areas are tracking utilization levels for 2012. In Canada, day rates for drilling are generally lower than 2012, reflecting the impact of slow activity in Q3 and Q4 2012. Oilfield services activity in Canada was slow to ramp up in Q1 2013, but has been tracking 2012 levels since. The uncertain duration of Q1 activity in Canada as a result of the timing of spring break-up, will ultimately dictate Q1 2013 activity levels. In the United States, activity levels to date are also consistent with Q1 2012 for both drilling and oilfield services. In Australia, despite some weather delays caused by cyclone activity, drilling utilization is up dramatically over the levels achieved in Q1 2012. Oilfield services activity in Australia is also sharply improved in Q1 2013 relative to Q1 2012; however the equipment is not yet running on a full 24 hour basis as originally anticipated. Savanna does expect continuing ramp-up in this activity in 2013.

Savanna has executed its three-pronged strategy of shallow drilling rig conversion to a deeper platform, Australia expansion, and expansion of its oilfield services equipment base over the past few years under frequently challenging economic and oilfield services market conditions. While controlling field operating costs and managing repairs and maintenance, the focus has been squarely on execution of that three-pronged strategy. Savanna management has now turned its attention to right-sizing Savanna's operating and general and administrative costs to better align with anticipated volatility and base levels of activity. It is anticipated that cost management will improve in forward quarters relative to 2012 based upon the completion of the core expansion strategies noted above, and the more discrete capital additions going forward. Despite uncertain North American base demand levels, Savanna is focused on reducing operating, repairs and maintenance and mobilization costs, with a view to maximizing returns from the restructured asset base.

Segmented Results

SUMMARY OF RESULTS - CONTRACT DRILLING

The following is a summary of selected financial and operating information of the Company's contract drilling segment:

--------------------------------------------------------------------------------------------------------------------------------------------------------(Stated in thousands of dollars, except revenue per day) Three Months Ended Twelve Months Ended--------------------------------------------------------------------------------------------------------------------------------------------------------December 31 2012 2011 Change 2012 2011 Change--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue $ 120,143 $ 129,786 (7%) $ 487,197 $ 451,132 8%Operating expenses $ 92,538 $ 91,307 1% $ 337,695 $ 323,049 5%Operating margin(1) $ 27,605 $ 38,479 (28%) $ 149,502 $ 128,083 17%Operating margin %(1) 23% 30% 31% 28%Operating days(2) 5,227 5,569 (6%) 21,194 21,136 0%Revenue per operating day $ 22,985 $ 23,305 (1%) $ 22,987 $ 21,344 8%Spud to release days(2) 4,521 4,977 (9%) 18,541 18,701 (1%)Wells drilled(2) 540 552 (2%) 2,224 2,245 (1%)Meters drilled(2) 1,002,954 986,395 2% 3,865,547 3,633,315 6%--------------------------------------------------------------------------------------------------------------------------------------------------------



The following summarizes the operating results for the quarter and year ended December 31, 2012 and 2011 by type of rig or geographic area. Long-reach drilling in Canada includes the Company's telescoping double drilling rigs, TDS-3000™ drilling rigs and TDS-2200™ drilling rigs.

--------------------------------------------------------------------------------------------------------------------------------------------------------(Stated in thousands of dollars) Long-reach Shallow DrillingQuarter ended December 31, Drilling Drilling U.S. and 2012 Canada Canada International Total-------------------------------------------------------------------------------------------------------------------------------------------------------- $ $ $ $--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 61,933 4,074 54,136 120,143Operating margin(1) 18,738 (1,697) 10,564 27,605Operating margin %(1) 30% (42%) 20% 23%--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue excluding cost recoveries 54,640 3,830 51,224 109,694Operating margin(1) 18,738 (1,697) 10,564 27,605Operating margin %(1) 34% (44%) 21% 25%--------------------------------------------------------------------------------------------------------------------------------------------------------Average number of net rigs deployed 46 20 30 96Utilization %(2) 50% 9% 81% 51%---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Long-reach Shallow Drilling(Stated in thousands of Drilling Drilling U.S. and dollars) Canada Canada International TotalQuarter ended December 31, 2011-------------------------------------------------------------------------------------------------------------------------------------------------------- $ $ $ $--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 78,151 10,036 41,599 129,786Operating margin(1) 28,619 740 9,120 38,479Operating margin %(1) 37% 7% 22% 30%--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue excluding cost recoveries 69,867 9,348 39,290 118,505Operating margin(1) 28,619 740 9,120 38,479Operating margin %(1) 41% 8% 23% 32%--------------------------------------------------------------------------------------------------------------------------------------------------------Average number of net rigs deployed 41 24 26 91Utilization %(2) 73% 16% 77% 56%----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(Stated in thousands of dollars) Long-reach Shallow Drilling Drilling Drilling U.S. andYear ended December 31, 2012 Canada Canada International Total-------------------------------------------------------------------------------------------------------------------------------------------------------- $ $ $ $--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 246,376 39,604 201,217 487,197Operating margin(1) 88,704 8,762 52,036 149,502Operating margin %(1) 36% 22% 26% 31%--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue excluding cost recoveries 220,563 37,853 193,770 452,186Operating margin(1) 88,704 8,762 52,036 149,502Operating margin %(1) 40% 23% 27% 33%--------------------------------------------------------------------------------------------------------------------------------------------------------Average number of net rigs deployed 42 21 30 93Utilization %(2) 55% 20% 79% 55%---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Long-reach Shallow Drilling(Stated in thousands of Drilling Drilling U.S. and dollars) Canada Canada International TotalYear ended December 31, 2011-------------------------------------------------------------------------------------------------------------------------------------------------------- $ $ $ $--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 253,680 51,813 145,639 451,132Operating margin(1) 89,311 8,979 29,793 128,083Operating margin %(1) 35% 17% 20% 28%--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue excluding cost recoveries 222,896 49,189 137,403 409,488Operating margin(1) 89,311 8,979 29,793 128,083Operating margin %(1) 40% 18% 22% 31%--------------------------------------------------------------------------------------------------------------------------------------------------------Average number of net rigs deployed 39 26 25 90Utilization %(2) 69% 20% 76% 56%--------------------------------------------------------------------------------------------------------------------------------------------------------



In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup. For the quarter and year ended December 31, 2012 these costs aggregated $10.4 million and $35 million respectively. In the same respective periods in 2011 these costs amounted to $11.3 million and $41.6 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 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.

SUMMARY OF RESULTS - OILFIELD SERVICES

The following is a summary of selected financial and operating information of the Company's oilfield services segment:

--------------------------------------------------------------------------------------------------------------------------------------------------------(Stated in thousands of dollars, except revenue per hour) Three Months Ended Twelve Months Ended----------------------------------------------------------------------------December 31 2012 2011 Change 2012 2011 ChangeRevenue $ 48,769 $ 52,244 (7%) $ 184,920 $ 162,607 14%Operating expenses $ 36,389 $ 37,274 (2%) $ 139,910 $ 114,924 22%Operating margin(1) $ 12,380 $ 14,970 (17%) $ 45,010 $ 47,683 (6%)Operating margin %(1) 25% 29% 24% 29%Operating hours(2) 43,312 52,506 (18%) 173,190 170,936 1%Revenue per hour $ 906 $ 839 8% $ 874 $ 777 12%----------------------------------------------------------------------------



The following summarizes the operating results for the oilfield services segment by geographic area for the quarter and year ended December 31, 2012 and 2011:

-------------------------------------------------------------------------------------------------------------------------------------------------------- U.S. and(Stated in thousands of dollars) Canada International TotalQuarter ended December 31, 2012--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 34,060 14,709 48,769Operating margin(1) 10,217 2,163 12,380Operating margin %(1) 30% 15% 25%Average number of net rigs deployed 86 14 100Utilization %(2) 43% 59% 47%------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(Stated in thousands of dollars) U.S. andQuarter ended December 31, 2011 Canada International Total----------------------------------------------------------------------------Revenue 42,593 9,651 52,244Operating margin(1) 12,785 2,185 14,970Operating margin %(1) 30% 23% 29%Average number of net rigs deployed 89 13 102Utilization %(2) 54% 67% 56%----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(Stated in thousands of dollars) U.S. and Canada International TotalYear ended December 31, 2012--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 132,383 52,537 184,920Operating margin(1) 34,899 10,111 45,010Operating margin %(1) 26% 19% 24%Average number of net rigs deployed 86 14 100Utilization %(2) 43% 62% 47%----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(Stated in thousands of dollars) U.S. and Canada International TotalYear ended December 31, 2011--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 128,686 33,921 162,607Operating margin(1) 39,969 7,714 47,683Operating margin %(1) 31% 23% 29%Average number of net rigs deployed 73 12 85Utilization %(2) 52% 76% 55%--------------------------------------------------------------------------------------------------------------------------------------------------------



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements and information contained in this press release including statements related to the Company's financial flexibility and its positioning for future growth and expansion, the expectation of increased activity levels and operating margin contributions from Savanna's Australian operations, the expectation that the contribution from extra crews in Q1 2013 will exceed the costs incurred in the 2012 retention program, the expectation of lower future repairs and maintenance and re-supply costs in the Company's U.S drilling and Canadian well servicing division relative to Q4 2012 and of overall cost management improvements, the expectation of a long-term increase in well servicing activity, 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 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.

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, the Company's expectation that the contribution from extra crews in Q1 2013 will exceed the costs incurred in the 2012 retention program is premised on actual results experienced to date in 2013 and current customer contracts and commitments. The Company's expectation of lower future repairs and maintenance and re-supply costs in the Company's U.S drilling and Canadian well servicing divisions relative to Q4 2012 and of overall cost management improvements, is premised on actual Q4 2012 costs being higher than historical and anticipated levels and cost management and process improvement initiatives currently underway. The Company's expectation of increased activity levels and operating margin contributions from Savanna's Australian operations is premised on increases in the number of rigs Savanna operates in Australia, the contracts in place with and communications with its customers in the region, and the general expectation that coal seam gas activity will increase in that country as plans for liquefied natural gas plants move forward.

The Company's expectation of a long-term increase in well servicing activity is premised on the increase in the number of oil and gas liquids based wells that have been drilled over the last several years and the required maintenance through the life of such wells compared to natural gas wells. The Company's estimate of its financial flexibility and its positioning for future growth and expansion is premised on its currently available debt, realizing its working capital and generating cash flows at current levels or better which in turn is premised on the pricing of the Company's services remaining at or improving from present levels while maintaining its current cost structure. 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 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; receipt of regulatory approvals; the other risk factors set forth under the heading "Risks and Uncertainties" in the Company's Annual Management's Discussion and Analysis 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.

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 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 management's discussion and analysis and audited consolidated financial statements for the year ended December 31, 2012, are available on Savanna's website (www.savannaenergy.com) under the investor relations section and have also been filed on SEDAR at www.sedar.com.

Savanna will host a conference call for analysts, investors and interested parties on Friday, March 8, 2013 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's fourth quarter and year-end results. The call will be hosted by Ken Mullen, Savanna's President and Chief Executive Officer and Darcy Draudson, Vice President, Finance and Chief Financial Officer.

If you wish to participate in this conference call, please call 1-888-892-3255 (for participants in North America). Please call 10 minutes ahead of time.

A replay of the call will be available until March 15, 2013 by dialing 1-800-937-6305 and entering passcode 436282.

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



Contacts:
Savanna Energy Services Corp.
Ken Mullen
President and Chief Executive Officer
(403) 503-9990

Savanna Energy Services Corp.
Darcy Draudson
Vice President Finance and Chief Financial Officer
(403) 503-9990
www.savannaenergy.com



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