P R E S S R EL EA S E
FO R IMMEDIATE REL EASE
Savanna Energy Services Corp. Announces Third Quarter 2016 Results
and Reactivation of Drilling Rigs in the Permian Basin
Calgary, Alberta
November 8, 2016
TSX – SVY
Third Quarter Results
Savanna generated revenue of $71.1 million, adjusted EBITDAS of $11.2 million and a net loss, attributable to shareholders
of the Company, of $11.1 million or $0.12 per share in the third quarter of 2016, compared to revenue of $98 million, adjusted
EBITDAS of $25.3 million and a net loss, attributable to shareholders of the Company, of $8.8 million or $0.10 per share in
Q3 2015. Prevailing low oil and natural gas prices and industry activity, wet weather in Canada, increasing competitive
pressures on pricing, and having fewer rigs on contract in the U.S. and Australia, resulted in the lower overall revenue,
operating margin and adjusted EBITDAS amounts in Q3 2016, relative to Q3 2015.
In the first nine months of 2016, the Company’s total debt, net of cash declined by $27.8 million to $247.2 million.
The impact of the industry activity and commodity price declines on Savanna in Q3 2016 was partially mitigated by lower
costs throughout the organization, which were a function of the significant restructuring efforts undertaken in 2015 and
continuing cost control initiatives in 2016. These restructuring and cost control efforts reduced field office and general and
administrative costs by $4.9 million, or 28%, in Q3 2016 relative to Q3 2015.
Despite the significant year-over-year pricing declines in North America, wet weather in Canada and having fewer rigs on
contract in the U.S. and Australia, lower costs throughout the organization allowed Savanna to generate positive EBITDAS in
each of the countries in which it operates in Q3 2016. In Canada, revenues declined by $10.3 million and operating margin
declined by $5.2 million relative to Q3 2015. In the U.S., compared to Q3 2015, revenues declined by $6.3 million and
operating margin declined by $7.5 million, due in part to $1 million of expensed rig reactivation costs on the Company’s
Permian based drilling rigs. In Australia, revenues were $10 million lower and operating margin was $3.7 million lower than
in Q3 2015. Savanna’s overall operating margin in Q3 2016 was $16.3 million lower relative to Q3 2015, and operating
margin percentages were 11 percentage points lower. General and administrative expenses declined from $8.8 million in Q3
2015 to $5.6 million in Q3 2016. As a result, EBITDAS was $13.1 million lower than in Q3 2015.
In Canada, long-reach drilling and well servicing both experienced activity and pricing declines, which resulted in lower
revenue and operating margins compared to Q3 2015, with the year-over-year pricing decreases more pronounced than the
activity decreases. Pricing in well servicing decreased 24% relative to Q3 2015, while average day rates in long-reach drilling
were 25% lower. In addition, due to the wet weather during Q3 2016, anywhere from four to eight drilling rigs and up to five
service rigs per day had confirmed work but were unable to move based on ground conditions. Despite the effect of wet
weather, utilization rates for both drilling and well servicing in Canada were ahead of industry averages in Q3 2016. The
significant restructuring and cost control efforts undertaken by Savanna in 2015 and 2016 partially mitigated the
corresponding decrease in operating margins and operating margin percentages in each of Savanna’s Canadian operating
divisions, relative to Q3 2015. Amidst the decreased activity and pricing environment in Canada, in Q3 2016 Savanna
2
generated $3.5 million in operating margin on $25.5 million of revenue, compared to $8.7 million in operating margin on
$35.8 million of revenue in Q3 2015. Sequentially, operating margins increased compared to the $1.5 million generated on
$13.4 million of revenue in Canada in Q2 2016. The increase sequentially was based on seasonal increases in activity in
Canadian long-reach drilling, well servicing, and rentals. However, the seasonal activity increases were negatively affected by
a 19% decrease in average day rates in Canadian long-reach drilling relative to Q2 2016.
Similarly, in the U.S., lower rates and fewer drilling rigs on contract resulted in lower revenue and operating margins in Q3
2016, relative to Q3 2015. However, Savanna’s U.S. well servicing division achieved higher utilization in Q3 2016 than in Q3
2015, and Savanna began reactivating and upgrading drilling rigs in the Permian basin. During the quarter, Savanna put three
drilling rigs back to work in the Permian basin, which had been stacked for over a year, under a combination of day work and
turnkey contracts. The costs to reactivate these rigs included a combination of upgrade and maintenance capital expenditures,
as well as operating expenses, the latter of which negatively impacted Q3 2016 operating margins by $1 million. Additionally,
$1.8 million of contracted standby revenue with nominal associated costs in Q3 2015, also negatively affected revenue and
operating margins in the U.S. this year versus last. Sequentially, the effect of a Q2 2016 contract expiry on a Velox triple
drilling rig, which was re-contracted at a significantly lower rate, as well as the effects of rig reactivation costs in Q3 2016,
resulted in lower operating margin compared to Q2 2016. Savanna generated $2.3 million in operating margin on $17.2
million of revenue in the U.S. in Q3 2016, compared to $3.7 million in operating margin on $13.8 million of revenue in Q2
2016 and $9.8 million in operating margin on $23.5 million of revenue in Q3 2015.
In Australia, Savanna’s drilling, well servicing and trucking divisions also experienced significant activity and revenue
declines relative to Q3 2015. The decreases were driven by fewer rigs under contract and a decrease in trucking activity
related to lower well servicing and drilling activity for Savanna in Australia. Savanna generated $10.8 million in operating
margin on $28.4 million of revenue in Australia in Q3 2016, which represented a $10 million, or 27%, decrease in revenue
and a $3.7 million, or 25%, decrease in operating margin in Q3 2016 compared to Q3 2015. As in North America, cost control
and restructuring efforts partially mitigated the impact of the revenue and activity declines in Australia. Sequentially,
operating margin increased from the $9.2 million generated on $27.7 million of revenue in Australia in Q2 2016. The increase
in operating margin sequentially was a result of an increase in billable drilling days in the quarter and increases in trucking
activity.
Overall for the quarter, the year-over-year decrease in industry activity levels and pricing, combined with the decrease in the
number of rigs Savanna had under contract in the U.S. and Australia, resulted in a 54% decrease in EBITDAS and a 17%
increase in the Company’s net loss, compared to Q3 2015. The decrease in EBITDAS was partially offset by a decrease in
depreciation expense relative to Q3 2015 based on the effect 2015 impairment losses had on the remaining net book value of
the Company’s depreciable assets. The Q3 2016 net loss attributable to the shareholders of the Company was $11.1 million, or
$0.12 per share, compared to a net loss attributable to the shareholders of the Company of $8.8 million or $0.10 per share, in
Q3 2015. Compared to Q2 2016, Savanna’s net loss decreased primarily as a result of an increase in EBITDAS, combined
with a decrease in share-based compensation and a decrease in losses on asset disposals. The Q2 2016 net loss attributable to
the shareholders of the Company was $16 million, or $0.18 per share. Year-to-date Results
Persistent low oil and natural gas prices during the first nine months of 2016, and the resulting decrease in industry activity
and rates, as well as having fewer rigs on contract in the U.S. and Australia, negatively affected overall revenue, operating
margin and EBITDAS relative to the first nine months of 2015. The impact of the industry activity and commodity price
declines on Savanna was mitigated by the twelve contracted new-build rigs added in late 2014 and early 2015, cost control
initiatives, and the significant restructuring efforts in 2015 and 2016. EBITDAS before severance costs was $42.5 million in
the first nine months of 2016, which is a 52% reduction from 2015, while revenues decreased by 36% in the same respective
periods
Long-reach drilling, well servicing and rentals in Canada all experienced significant activity and pricing declines, which
resulted in lower revenue and operating margins compared to the first nine months of 2015. The significant restructuring and
3
cost control efforts undertaken by Savanna in 2015 and 2016 limited the corresponding decrease in operating margin
percentages to eight percentage points, relative to the first nine months of 2015. Overall, the decreased activity resulted in a
$66.6 million, or 46%, decrease in revenue and a $24 million, or 63%, decrease in operating margins in Canada.
Savanna’s U.S. drilling and well servicing divisions also experienced activity and pricing declines relative to the first nine
months of 2015, and coupled with fewer rigs on contract this year versus last resulted in lower year-over-year revenue. In
addition, operating costs associated with reactivating drilling rigs in the Permian basin also negatively affect operating
margins in Q3 2016. Cost control and restructuring efforts, and an appreciation in the value of the U.S. dollar relative to the
Canadian dollar in the first nine months of 2016, partially mitigated the decrease in revenue and operating margin compared to
the first nine months of 2015. Overall, operating margins in the U.S. decreased by $21.4 million, or 63%, compared to the first
nine months of 2015, while year-over-year revenue decreased $40.3 million, or 46%.
In Australia, Savanna had fewer rigs on contract in the first nine months of 2016, relative to the first nine months of 2015.
This resulted in lower revenue and operating margins in Savanna’s drilling and well servicing divisions relative to the first
nine months of 2015. Additionally, the declines in both well servicing and drilling activity for Savanna in Australia also
resulted in a decrease in activity, revenue and operating margin for trucking in Australia. As in North America, cost control
and restructuring efforts partially mitigated the impact of the revenue and activity declines in Australia, limiting the decrease
in operating margin percentages to two percentage points. Overall, revenue in Australia decreased by $18.8 million, or 17%,
and operating margins decreased by $8.6 million, or 21%, relative to the first nine months of 2015.
Overall, for the first nine months of 2016, EBITDAS decreased by 48% relative to the first nine months of 2015, as a result of
significant activity, pricing, revenue and operating margin decreases in North American drilling and oilfield services,
combined with the decrease in the number of rigs under contract in the U.S. and Australia. Despite the decrease in EBITDAS,
the cost control and restructuring initiatives of 2015 and 2016, together with the decrease in severance costs, limited the
decrease in EBITDAS as a percentage of revenue to four percentage points in the first nine months of 2016 relative to the first
nine months of 2015. Severance costs aggregated $2 million this year versus $10.3 million in the first nine months of 2015.
The decrease in EBITDAS was also the primary driver for the increase in the overall net loss in the first nine months of 2016,
compared to the first nine months of 2015.
Balance Sheet
Savanna’s working capital at September 30, 2016, was $23.2 million, which includes $6.4 million in cash and is net of the
$1.9 million drawn on its Canadian operating facility.
Savanna’s total long-term debt outstanding on September 30, 2016, excluding unamortized debt issue costs, was $251.6
million, compared to $277.1 million outstanding at December 31, 2015. The September 30, 2016 total long-term debt amount
includes $9.4 million of unrealized foreign exchange on U.S. dollar denominated debt as well as $5.1 million in gross
partnership debt, of which Savanna’s proportionate share is approximately 50%.
In Q3 2016, Savanna acquired and cancelled $5.4 million face value of its senior unsecured senior notes for $4.9 million. The
note repurchases resulted in a gain of $0.5 million.
Savanna’s total debt position at September 30, 2016, net of cash, was $247.2 million compared to $275 million at December
31, 2015.
Outlook
Amidst a persistently challenging oil and natural gas industry backdrop, marked by low activity levels, decreasing rates, and
fewer contracts, Savanna generated positive EBITDAS in each of the countries in which it operated in Q3 2016, despite
significant revenue and activity declines. Savanna’s ability to achieve this is in large part a result of the fundamental structural
changes made to the Company in 2015 and continuing cost control initiatives in 2016. Savanna has continued to reduce costs
4
in 2016 and has better aligned its business with the variable nature of the oilfield services industry. Annualized field office and
general and administrative cost savings from Savanna’s cost control and restructuring efforts are expected to be over $70
million relative to the Company’s 2014 exit run-rate.
Looking forward, the remainder of 2016 and into 2017 will continue to be challenging for Savanna and the oilfield services
industry as a whole, based on the volatility of oil and natural gas prices, and the uncertain duration of the current low price
environment. Although commodity prices have improved compared to earlier in 2016, both oil and natural gas prices remain
relatively low and unpredictable. Despite the continuing headwinds, more encouraging signs for activity levels emerged both
during and subsequent to Q3 2016.
In Canada, activity levels showed some resilience in Q3 2016, after several consecutive quarters of significant decreases,
despite wet weather through most of the quarter. The wet weather, which has continued through the start of Q4 2016,
negatively affects ground conditions and limits the ability for rigs to move to new locations. Both during and subsequent to Q3
2016, anywhere from four to ten drilling rigs and five to seven service rigs per day had confirmed work but were unable to
move due to ground conditions. Savanna’s customers in Canada have started making additional enquires, and in some cases
commitments, for winter work and Savanna expects activity to continue improving for the remainder of 2016 and into 2017.
However, pricing is expected to remain competitive in the near-term which will likely translate into lower operating margins
in Q4 2016 and through the first half of 2017, relative to those in Q4 2015 and the first half of 2016.
In the U.S., well servicing utilization improved in Q3 2016, relative to Q3 2015, and Savanna expects activity levels to
continue improving in the coming quarters. In addition, during Q3 2016, Savanna began upgrading and reactivating drilling
rigs in the Permian basin, putting three drilling rigs back to work that had been stacked for over a year. Savanna expects to
upgrade and reactivate an additional four drilling rigs in the Permian basin before the end of the year, one of which has
already commenced operations. The Company has also received additional enquiries in other previously active drilling
regions, such as the Marcellus. However, similar to in Canada, Savanna expects pricing to remain competitive in the U.S. in
the near-term, as evidenced by the short-term work secured for the second expired Velox triple drilling rig contract in early Q4
2016. Consistent with the first Velox triple drilling rig contract expiry in Q2 2016, prevailing day rates for AC triple drilling
rigs are $10,000 U.S. dollars a day lower than the original new-build contracts for Savanna’s Velox rigs. Savanna’s two Velox
triple drilling rigs without long-term contracts are now both experiencing this magnitude of day rate decrease. Savanna’s third
Velox triple drilling rig has over two years remaining on its original contract.
The Australian liquefied natural gas industry has likewise not been immune to global commodity price pressures; and
although Savanna’s take or pay contract status on the majority of its rigs in Australia have helped mitigate the impact of North
American activity reductions in 2016, certain of these contracts began rolling over earlier in the year. In Q1 2016, Savanna
had 15 of 17 rigs earning revenue under contract in Australia and that number decreased to 11 on average in Q2 and will
remain at that level for the remainder of 2016. Savanna’s seven original new-build contracts still in place in Australia, begin to
expire in the second half of 2017. The Company has also received indications from a customer that an additional drilling rig
could be utilized in Q4 2016. The Company has been negotiating with its customers in Australia to re-contract its drilling and
service rigs outside of the formal tender process. Ultimately, Savanna believes it is in a strong competitive position to recontract its drilling and service rigs in Australia, although new contracts are likely to be shorter in term than the Company’s
previous contracts in Australia.
Overall, management believes that the structural changes Savanna underwent in 2015, and the reduced overall cost structure
have the Company positioned to manage through reduced pricing and/or activity levels for the remainder of 2016 and beyond.
In addition, the amendments to its key financial covenants related to its senior secured revolving credit facility negotiated in
March 2016, provide Savanna with increased financial flexibility through to the end of 2017. The Company is also closely
monitoring capital markets for alternatives in refinancing its $170 million of senior unsecured notes, ahead of their maturity in
mid-2018.
Savanna remains committed to its shareholders and debtholders, with a focus on managing its balance sheet and costs in all
5
aspects of its business and leveraging its assets to maintain and gain market share. As a result of the measures already
undertaken and others currently in progress, Savanna believes that it has taken the steps necessary to navigate through the
current downturn. When industry conditions improve, management believes that Savanna will be in an excellent position to
capitalize on a recovery utilizing its competitive cost structure, experienced management team, and its proven ability to
quickly adapt to changing circumstances. These core competencies will be deployed utilizing the Company’s significant
footprint in three countries that should have strong participation in an eventual recovery of oil and gas market fundamentals.
See “Cautionary Statement Regarding Forward-Looking Information and Statements”.
Financial Highlights
The following is a summary of selected financial information of the Company: (Stated in thousands of dollars, except per share amounts)
September 30
Three months ended
Nine months ended
2016
2015
Change
2016
2015
Change
71,063
98,011
(27%)
219,705
345,290
(36%)
OPERATING RESULTS
Revenue
Operating expenses
54,385
64,986
(16%)
160,544
232,131
(31%)
Operating margin(1)
16,678
33,025
(49%)
59,161
113,159
(48%)
Operating margin %(1)
EBITDAS(1)
Attributable to shareholders of the Company
Per share: basic
Adjusted EBITDAS(1)
Attributable to shareholders of the Company
Per share: basic
Net loss
Attributable to shareholders of the Company
Per share: basic
23%
34%
27%
33%
11,128
24,236
(54%)
40,542
78,118
(48%)
11,090
24,160
(54%)
39,982
76,815
(48%)
0.12
0.27
(56%)
0.44
0.85
(48%)
11,224
25,272
(56%)
42,526
88,427
(52%)
11,186
25,196
(56%)
41,966
87,124
(52%)
0.12
0.28
(57%)
0.46
0.97
(53%)
(11,935)
(10,187)
(17%)
(38,717)
(11,267)
∆
(11,065)
(8,755)
(26%)
(37,136)
(9,249)
∆
(0.12)
(0.10)
(20%)
(0.41)
(0.10)
∆
Basic weighted average shares outstanding (000s)
90,251
90,251
0%
90,251
90,243
0%
Diluted weighted average shares outstanding (000s)
90,251
90,251
0%
90,251
90,243
0%
10,231
27,255
(62%)
31,042
70,565
(56%)
0.11
0.30
(63%)
0.34
0.78
(56%)
Acquisition of property and equipment(1)
7,172
6,205
16%
12,369
54,720
(77%)
Proceeds on disposal of assets
1,249
1,070
17%
8,793
16,283
(46%)
-
-
∆
-
4,951
∆
CASH FLOWS
Operating cash flows(1)
Per share: basic
Dividends paid
FINANCIAL POSITION AT
Sep. 30
2016
2015
Working capital(1)
23,210
35,691
Capital assets(1)
703,698
776,574
(9%)
Total assets
787,841
879,146
(10%)
Total debt, net of cash(1)
247,155
275,020
(10%)
∆ Calculation not meaningful
Dec. 31
(35%)
6
NOTES:
(1)
Operating margin, operating margin percentage, EBITDAS, adjusted 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, working capital and total debt, net of cash are not recognized measures under IFRS;
however, management believes that these measures are useful as they provide an indication of the Company’s liquidity.
 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 and share-based compensation and excludes other
expenses (income).
 Adjusted EBITDAS is defined as EBITDAS before severance costs.
 Operating cash flows are defined as cash flows from operating activities before changes in non-cash working capital.
 Working capital is defined as total current assets less total current liabilities excluding the current portions of long-term debt.
 Total debt, net of cash is defined as total long-term debt, including the current portion thereof but excluding unamortized debt issue
costs, plus bank indebtedness, net of cash.
(2)
Certain industry related terms used in this press release are defined or clarified as follows:
 Savanna reports its drilling rig utilization based on spud to release time for its operational drilling rigs and excludes stand-by, 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. To segregate industry utilization by rig type, industry totals by well depth range are used.
 Savanna reports its service rig utilization for its operational service rigs in North America based on standard operating hours of 3,650
per rig per year. Utilization for Savanna’s service rigs in Australia is calculated based on standard operating hours of 8,760 per rig per
year to reflect 24 hour operating conditions in that country and excludes stand-by time, even though revenue may be earned during this
time. Reliable industry average utilization figures, specific to well servicing, are not available.
Segmented Results - Contract Drilling
The following is a summary of selected financial and operating information of the Company’s contract drilling segment:
Three Months Ended
(Stated in thousands of dollars, except revenue per day)
September 30
2016
2015
Nine Months Ended
Change
2016
2015
Change
Revenue
$
36,817
$
54,965
(33%) $
112,976
$
207,082
(45%)
Operating expenses
$
31,857
$
37,044
(14%) $
87,785
$
137,903
(36%)
$
4,960
$
17,921
(72%) $
25,191
$
69,179
(64%)
Operating margin
(1)
Operating margin %
13%
Billable days
Revenue per billable day
Operating (spud to release) days
Wells drilled
Meters drilled
Meters drilled per well
33%
1,789
$
20,580
2,225
$
24,703
22%
(20%)
(17%) $
33%
4,765
23,710
$
8,231
(42%)
25,159
(6%)
1,517
1,766
(14%)
3,983
6,412
(38%)
304
253
20%
842
934
(10%)
544,601
581,604
(6%)
1,355,595
1,757,093
(23%)
1,791
2,299
(22%)
1,610
1,881
(14%)
THIRD QUARTER RESULTS
Overall contract drilling revenue and operating margins decreased relative to Q3 2015, as a result of lower activity levels in
Canada, the U.S. and Australia, lower day rates in Canada, and a combination of lower day rates and rig reactivation costs in
the U.S. In Canadian long-reach drilling, billable days were down 10% while day rates were 25% lower compared to Q3 2015.
Competitive pressures in Canada drove day rates lower in the quarter, however Savanna was able to increase market share in
Q3 2016, despite the effects of wet weather in the quarter and having only one drilling rig on a long-term contract in Canada.
7
Billable days in the U.S. decreased 26% compared to Q3 2015, while average day rates were 8% lower based on changes in
rig mix as three rigs were upgraded and reactivated in the Permian basin in Q3 2016. The operating costs associated with
reactivating these rigs, combined with an increase in field office costs in West Texas in Q3 2016, and the effect of $1.8
million of standby revenue with nominal associated costs in Q3 2015, negatively affected year-over-year operating margins in
the U.S. In Australia, billable days decreased 48% relative to Q3 2015, with fewer rigs under contract this year versus last.
However, per day revenue in Australia increased, in the same respective periods, based on the Company’s new performancerelated pricing model on its drilling rigs there. For the segment as a whole, the overall decreases in activity and pricing is
reflective of the low oil and natural gas prices that have persisted throughout 2015 and 2016, and the resulting decrease in
customer drilling activity. Given the activity and pricing declines, cost control continues to be a major focus of the Company.
Field office costs, excluding severance costs, were $0.7 million lower in Q3 2016, compared to Q3 2015.
The following summarizes the operating results in the third quarter of 2016 and 2015 by type of rig or geographic area. Longreach drilling in Canada includes the Company’s telescoping double drilling rigs, TDS-3000TM drilling rigs and TDS-2200
drilling rigs.
(Stated in thousands of dollars)
Long-reach
Shallow
Drilling
Drilling
Drilling
Drilling
Q3 2016
Canada
Canada
U.S.
Australia
Revenue
16,351
511
2,132
(301)
Operating margin(1)
Operating margin %(1)
Revenue excluding cost recoveries
Operating margin(1)
Operating margin %(1)
Average number of rigs deployed
Utilization %(2)
13%
∆
14,677
511
2,132
(301)
15%
∆
Total
12,617
7,338
36,817
771
2,358
4,960
6%
32%
13%
11,648
7,124
33,960
771
2,358
4,960
7%
52
16
28
20%
3%
16%
Long-reach
Shallow
33%
5
19%
15%
101
16%
∆ Calculation not meaningful
(Stated in thousands of dollars)
Drilling
Drilling
Drilling
Drilling
Q3 2015
Canada
Canada
U.S.
Australia
Revenue
24,296
257
18,341
12,071
54,965
6,596
(310)
8,153
3,482
17,921
Operating margin(1)
(1)
Operating margin %
Revenue excluding cost recoveries
Operating margin(1)
Operating margin %(1)
Average number of rigs deployed
Utilization %(2)
27%
∆
44%
29%
Total
33%
21,494
276
17,439
10,780
49,989
6,596
(310)
8,153
3,482
17,921
31%
∆
47%
52
16
28
23%
1%
19%
32%
5
40%
36%
101
19%
∆ Calculation not meaningful
YEAR-TO-DATE RESULTS
Contract drilling revenue decreased in the first nine months of 2016 relative to the first nine months of 2015, as a result of: a
32% decrease in billable days and a 24% decrease in day rates in long-reach drilling in Canada; a 51% decrease in days and an
18% decrease in rates related to Q1 coring activity in Canada; a 56% decrease in billable days in U.S. drilling; and a 41%
decrease in billable days in Australia drilling. These decreases were driven by the low oil and natural gas prices that have
persisted throughout 2015 and 2016, and the resulting decline in overall industry drilling activity. Based on the low activity
levels, the Company has continued to focus on cost control after undergoing a significant restructuring in 2015. Field office
8
costs were $4.8 million lower compared to the first nine months of 2015, while severance costs decreased to $0.9 million in
the first nine months of 2016, compared to $1.4 million in the first nine months of 2015. The lower field office and severance
costs partially mitigated the overall decrease in operating margin percentages relative to the first nine months of 2015.
The following summarizes the operating results in the first nine months of 2016 and 2015 by type of rig or geographic area.
Long-reach
(Stated in thousands of dollars)
Shallow
Drilling
Drilling
Drilling
Drilling
YTD 2016
Canada
Canada
U.S.
Australia
Revenue
42,713
9,076
34,603
26,584
112,976
6,625
2,926
8,645
6,995
25,191
Operating margin(1)
Operating margin %(1)
16%
Revenue excluding cost recoveries
Operating margin(1)
32%
26%
22%
38,207
8,827
30,840
24,631
102,505
6,625
2,926
8,645
6,995
25,191
Operating margin %(1)
Average number of rigs deployed
Utilization %(2)
17%
33%
52
16
28
16%
9%
12%
Long-reach
(Stated in thousands of dollars)
25%
Total
28%
28%
25%
5
101
31%
14%
Shallow
Drilling
Drilling
Drilling
Drilling
YTD 2015
Canada
Canada
U.S.
Australia
Revenue
82,650
21,642
68,600
34,190
207,082
Operating margin(1)
23,330
9,267
26,596
9,986
69,179
Operating margin %(1)
28%
43%
39%
Total
29%
33%
Revenue excluding cost recoveries
73,152
21,409
64,089
32,234
190,884
Operating margin(1)
23,330
9,267
26,596
9,986
69,179
Operating margin %(1)
32%
Average number of rigs deployed
Utilization %(2)
43%
41%
52
16
28
23%
16%
27%
31%
36%
5
101
33%
23%
Segmented Results - Oilfield Services
The following is a summary of selected financial and operating information of the Company’s oilfield services segment: Three Months Ended
(Stated in thousands of dollars, except revenue per hour)
September 30
2016
Revenue
Operating expenses
Operating margin
(1)
2016
2015
Change
34,606
$
43,489
(20%) $
108,006
$
139,523
(23%)
$
22,888
$
28,401
(19%) $
74,036
$
95,654
(23%)
$
11,718
$
15,088
(22%) $
33,970
$
43,869
(23%)
34%
Billable hours - well servicing
Operating hours - well servicing
Nine Months Ended
Change
$
Operating margin %
Revenue per billable hour - well servicing
2015
35%
37,290
$
822
27,434
43,767
$
836
29,999
31%
(15%)
(2%) $
(9%)
31%
110,021
864
81,486
$
135,368
(19%)
862
0%
97,274
(16%)
THIRD QUARTER RESULTS
Operating margin for Savanna’s oilfield services division in Q3 2016 decreased relative to Q3 2015, based on decreases in
revenue in the same respective periods. The revenue decrease was driven by: a 4% decrease in operating hours and a 24%
decrease in per hour revenue in Canadian well servicing; a 16% decrease in per hour revenue in U.S. well servicing; a 27%
decrease in billable hours in Australia well servicing; and a 53% decrease in trucking revenue in Australia. The revenue
decreases in Australia in Q3 2016 compared to Q3 2015, were a result of having three fewer service rigs on contract and
9
decreases in trucking requirements stemming from decreases in both well servicing and drilling activity for Savanna in
Australia. In Canada and the U.S., the decreases in activity and pricing are reflective of the significant decline in oil and
natural gas prices throughout 2015 and 2016, as well as the effect of wet weather in Q3 2016, and resulted in lower overall
operating margins being generated by the Company in North America as well.
The following summarizes the operating results by geographic area:
(Stated in thousands of dollars)
Q3 2016
Canada
U.S.
Australia
Total
Revenue
8,969
4,539
21,098
34,606
Operating margin(1)
1,712
1,562
8,444
11,718
19%
34%
40%
34%
57
18
12
87
26%
41%
27%
29%
Operating margin %(1)
Average number of rigs deployed - well servicing
Utilization % - well servicing(2)
(Stated in thousands of dollars)
Q3 2015
Canada
U.S.
Australia
Total
Revenue
11,639
5,134
26,716
43,489
2,414
1,660
11,014
15,088
21%
32%
41%
35%
18
12
95
39%
35%
34%
Operating margin(1)
(1)
Operating margin %
Average number of rigs deployed - well servicing
Utilization % - well servicing(2)
65
24%
YEAR-TO-DATE RESULTS
Revenue and operating margin for Savanna’s oilfield services division decreased in the first nine months of 2016 compared to
the first nine months of 2015, based on decreases in activity and pricing in the same respective periods. In North America, the
decreases in both activity and pricing occurred primarily in the first half of the year, while in Australia, the decrease in activity
occurred post Q1 2016, as rigs came off contract. Based on the low activity levels, the Company continued to focus on cost
control after undergoing a significant restructuring in 2015, which resulted in a $4.3 million decrease in field office costs
compared to the first nine months of 2015. A decrease in severance costs also partially mitigated the decrease in overall
oilfield services operating margin relative to the first nine months of 2015. Severance costs related to oilfield services totaled
$0.9 million in the first nine months of 2016, compared to $2.9 million in the first nine months of 2015. The field office and
severance cost decreases, combined with decreases in rig operating costs, partially mitigated the decreases in activity and
pricing and overall operating margin percentages for oilfield services remained relatively flat year-over-year.
The following summarizes the operating results by geographic area:
(Stated in thousands of dollars)
YTD 2016
Canada
U.S.
Australia
Total
Revenue
26,146
13,430
68,430
108,006
4,556
4,169
25,245
33,970
17%
31%
37%
31%
57
18
12
87
24%
39%
32%
28%
Operating margin(1)
Operating margin %(1)
Average number of rigs deployed - well servicing
Utilization % - well servicing
(2)
(Stated in thousands of dollars)
YTD 2015
Canada
U.S.
Australia
Total
Revenue
40,218
19,697
79,608
139,523
5,418
7,608
30,843
43,869
13%
39%
39%
31%
65
18
12
95
25%
49%
36%
38%
Operating margin(1)
Operating margin %(1)
Average number of rigs deployed - well servicing
Utilization % - well servicing(2)
10
Cautionary Statement Regarding Forward-Looking Information and Statements
Certain statements and information contained in this press release including statements related to the Company’s expectation
that annualized field office and general and administrative cost savings will be over $70 million relative to the Company’s
2014 exit run-rate, expectations of relatively low and volatile oil and natural gas prices for the remainder of 2016 and into
2017 and its effect on the oilfield services industry and Savanna, expectations that activity levels in Canada and the U.S. will
continue improving from those in Q3 2016, for the remainder of 2016 and into 2017, the expectation that pricing in Canada
will remain competitive in the near-term translating into lower operating margins in Q4 2016 and through the first half of
2017, relative to those in Q4 2015 and the first half of 2016, the expectation that the Company will upgrade and reactivate an
additional four drilling rigs in the Permian basin before the end of the year, the expectation that the number of the Company’s
rigs earning revenue under contract in Australia will remain at 11 for the remainder of 2016, expectations of an additional
drilling rig in Australia being utilized in Q4 2016, the belief that the Company is in a strong competitive position to re-contract
its drilling and service rigs in Australia and that any such contracts are likely to be shorter in term than previously, the impact
of the structural changes undertaken by Savanna in 2015 and the continued cost control initiatives in 2016, the expectation that
the Company has taken the steps necessary to navigate through the current downturn and its ability to capitalize on an eventual
improvement oil and gas industry conditions, 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, the Company’s expectation that annualized field office and general and
administrative cost savings will be over $70 million relative to the Company’s 2014 exit run-rate is premised on the
Company’s actual Q3 2016 field office and general and administrative costs relative to that in Q4 2014. The Company’s
expectation of relatively low and volatile oil and natural gas prices for the remainder of 2016 and into 2017 and its effect on
the oilfield services industry and Savanna, expectations that activity levels in Canada and the U.S. will continue improving
from those in Q3 2016, for the remainder of 2016 and into 2017, and the expectation that pricing in Canada will remain
competitive in the near-term translating into lower operating margins in Q4 2016 and through the first half of 2017, relative to
those in Q4 2015 and the first half of 2016 are premised on industry and commodity price estimates, actual results experienced
to date in 2016, customer contracts and commitments, the Company’s expectations for its customers’ capital budgets, the
status of current negotiations with its customers, current industry rig counts and industry rig utilization levels in North
America, and current pricing levels in Canada relative to those in Q4 2015 and the first half of 2016. The Company’s
expectation that it will upgrade and reactivate an additional four drilling rigs in the Permian basin before the end of the year is
premised on the progression of work related to upgrading and reactivating these four rigs to date. The Company’s expectation
that the number of the rigs earning revenue under contract in Australia will remain at 11 for the remainder of 2016, its
expectation of an additional drilling rig in Australia being utilized in Q4 2016, and its belief that it is in a strong competitive
position to re-contract its drilling and service rigs in Australia are premised on current negotiations and discussions with, and
commitments from, its customers and potential new customers. The Company’s expectation of the impact of the structural
changes undertaken by Savanna in 2015 and the continued cost control initiatives in 2016, is premised on cost reductions
realized to date related thereto. The Company’s expectation that it has taken the steps necessary to navigate through the
current downturn and its ability to capitalize on an eventual improvement oil and gas industry conditions is premised on
operational improvements and cost and debt reductions realized in 2015 and to date in 2016. 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
11
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 forwardlooking information and statements, whether as a result of new information, future events, or otherwise.
Other
Savanna’s full Q3 2016 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.
Savanna will host a conference call for analysts, investors and interested parties on Wednesday, November 9, 2016 at 9:00
a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company’s third quarter 2016 results. The call will be hosted by
Chris Strong, Savanna’s President and Chief Executive Officer and Dwayne LaMontagne, Executive Vice President and Chief
Financial Officer.
If you wish to participate in this conference call, please call 1-888-892-3255 (please call 10 minutes ahead of time). A replay
of the call will be available until November 16, 2016 by dialing 1-800-937-6305 and entering passcode 635506.
Savanna is a leading North American and Australian contract drilling and oilfield services company providing a broad range
of drilling, well servicing and related services with a focus on fit for purpose technologies and industry-leading aboriginal
relationships.
FOR FURTHER INFORMATION PLEASE CONTACT:
Chris Strong
President and Chief Executive Officer
Telephone: (403) 503-9990
Website: www.savannaenergy.com
Dwayne LaMontagne
Executive Vice President and Chief Financial Officer