CALGARY, ALBERTA--(Marketwire - May 10, 2012) - The high level of industry activity in the oil and gas liquids areas that Savanna (TSX:SVY) operates in, and an increase in the size and operational capacity of the Company's equipment fleet, led to an increase in pricing, operating days and operating hours in both drilling and oilfield services compared to Q1 2011. Combined with improvements in overall operating margin performance, this led to significant increases in operating margins, operating margin percentages and EBITDAS.
Savanna's Q1 2012 EBITDAS(1) of $72.4 million marks its highest for a quarter in the history of the Company and represents an increase of $31.7 million or 78% from Q1 2011. Savanna's net earnings increased by $19.4 million to $35.0 million or
.41 per diluted share in Q1 2012, from net earnings of $15.6 million or
.20 per diluted share in Q1 2011.
The drilling division achieved an 8% increase in the number of operating days based on improvements in the operational and depth capacity of its drilling rig fleet in the first quarter of 2012 compared to the same period in 2011. Additionally, average day rates increased 17% over the same time frame. Coupled with the increase in operating days and improved operating margin performance, this led to a $28.4 million or 74% increase in operating margins in Q1 2012 compared to Q1 2011. Overall drilling revenue was $170.1 million for Q1 2012, which was up significantly from the $133.9 million in Q1 2011. Operating margins in Q1 2012 were $66.5 million (39% of revenue) compared to the same period in 2011 when operating margins were $38.1 million (28% of revenue).
Demand for Savanna's primarily deep fleet of drilling rigs in Canada was particularly strong, with utilization rates over 80% and day rates well above those of 2011. The increase in operating margins for the long-reach horizontal drilling fleet, compared to Q1 2011, was $14.7 million, and operating margin percentages were nine percentage points higher this year compared to last. Savanna's fleet of shallow rigs in Canada also achieved significant increases in utilization, day rates and operating margins compared to Q1 2011 performing coring work for oil sands customers. Operating margins for the shallow drilling rigs in Canada increased by 40% in Q1 2012 compared to Q1 2011 based on higher day rates this year compared to last. Additionally, operating margin percentages were 12 percentage points higher in Q1 2012 compared to Q1 2011, a clear indication that Savanna's shallow drilling rigs benefited from crew retention costs incurred in Q4 2011 and from a reduction in the overall fleet size to a level more aligned with base shallow drilling and coring activity in Canada.
In the U.S., operating margins for drilling more than doubled from Q1 2011 and operating margin percentages increased by 16 percentage points as a result of improved operating margin performance due to overall day rate increases and the conversion of footage-based contracts to day work terms. In Australia, the drilling operation generated strong revenues and operating margins from the two rigs working in the quarter.
The increase in Savanna's Canadian service rig fleet by nearly 50% through two accretive acquisitions in the summer of 2011 contributed to an increase in operating hours and rates in the Company's oilfield services division, and significantly increased revenues and operating margins compared to Q1 2011. The oilfield services division realized a 47% increase in operating hours and operating margins increased by $6.3 million or 55%, in the first quarter of 2012 compared to the same period in 2011. Overall revenue for the oilfield services division increased 58% to $57.1 million in Q1 2012 compared to $36.1 million in Q1 2011.
Activity levels were actually held back somewhat as a result of warm weather in Q1 2012. A late start to the winter season and an earlier than anticipated spring break-up, negatively affected overall industry activity levels in Canada relative to a year ago. Additionally, a shortage of labour further constrained utilization in Q1 2012 as approximately 10% of the well servicing fleet in Canada was not deployed due to personnel shortages. These factors contributed to operating margin percentages remaining flat year-over-year in the Company's Canadian oilfield services division.
The U.S. well servicing division benefited from increased industry activity levels and an increased rig fleet, nearly doubling operating margins in Q1 2012 compared to Q1 2011. In Australia, the service rigs and related rental equipment generated strong revenues based on two rigs working and the other charging stand-by fees in the quarter. Although operating margins remain challenged, they were positive overall in Australia in Q1 2012, representing a considerable improvement over the negative margins experienced in Q1 2011.
In May 2012, Savanna renewed its senior secured revolving credit facility, increased the amount available to $200 million from $135 million, and extended the term of the loan by one year. The entire facility, which is with a syndicate of banks, is for a committed four-year term and all drawn amounts are due in May 2016; the Company can request to extend the term of the loan annually. The total $200 million facility is comprised of a $170 million Canadian syndicated facility, a $10 million Australian facility, and a $20 million Canadian operating facility. The increase in the amount available under the revolving credit facility together with Savanna's current financial position provides the Company with considerable flexibility for the remainder of 2012.
As previously announced, Savanna's Board of Directors approved a
.03 per share monthly dividend in March 2012, which equates to an annual dividend of
.36 per common share. The Company's first monthly dividend will be paid on May 15, 2012 to shareholders of record at the close of business on April 30, 2012.
Savanna's President and Chief Executive Officer, Ken Mullen, stated; "The first quarter of 2012 represented a strong indication of the potential of Savanna's operations resulting from executing on our strategic initiatives of the past few years. Expansion of our well servicing fleet to service an oil and liquids focused market in North America, further solidification of our operating scale in the highly prospective Australian market, and continued conversion of our drilling fleet to deeper orientation were highlights. Our record first quarter results and strong financial position reinforce our ability to sustain a regular dividend, which provides our shareholders with a meaningful return during this period of market uncertainty. With our existing deep drilling fleet providing a strong underpinning cash flow base, the financial flexibility provided by our balance sheet, and realizing on many infrastructure and field support upgrades rolled out over the past 18 months, Savanna will continue its expansion efforts in the mid- and long-term as well".
| Financial Highlights | |
| | |
| The following is a summary of selected financial information of the Company: | |
| | |
| | Three Months Ended | | | |
| March 31 | 2012 | | 2011 | | Change | |
| (Stated in thousands of dollars, except per share amounts) | $ | | $ | | | |
| OPERATING RESULTS | | | | | | |
| Revenue | 225,895 | | 168,586 | | 34 | % |
| Operating expenses | 141,396 | | 118,808 | | 19 | % |
| Operating margin(1) | 84,499 | | 49,778 | | 70 | % |
| Operating margin %(1) | 37 | % | 30 | % | | |
| EBITDAS(1) | 72,407 | | 40,682 | | 78 | % |
| | Per share: basic | 0.85 | | 0.51 | | 67 | % |
| | Per share: diluted | 0.85 | | 0.51 | | 67 | % |
| Net earnings | 35,013 | | 15,575 | | 125 | % |
| | Per share: basic | 0.41 | | 0.20 | | 105 | % |
| | Per share: diluted | 0.41 | | 0.20 | | 105 | % |
| | | | | | | |
| CASH FLOWS | | | | | | |
| Operating cash flows(1) | 69,106 | | 40,545 | | 70 | % |
| | Per diluted share | 0.81 | | 0.51 | | 59 | % |
| Acquisition of capital assets(1) | 47,351 | | 42,734 | | 11 | % |
| | | | | | | |
| FINANCIAL POSITION | Mar. 31 2012 | | Dec. 31 2011 | | Change | |
| | $ | | $ | | | |
| Working capital(1) | 132,703 | | 99,587 | | 33 | % |
| Capital assets(1) | 1,052,561 | | 1,033,241 | | 2 | % |
| Total assets | 1,290,446 | | 1,233,700 | | 5 | % |
| Long-term debt | 217,236 | | 207,637 | | 5 | % |
NOTES :
- 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 liquidity, leverage and investment in operating assets.
- 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.
- 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.
- 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.
SUMMARY OF QUARTERLY 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 | | | |
| March 31 | 2012 | | 2011 | | Change | |
| Revenue | $ | 170,144 | | $ | 133,855 | | 27 | % |
| Operating expenses | $ | 103,652 | | $ | 95,728 | | 8 | % |
| Operating margin(1) | $ | 66,492 | | $ | 38,127 | | 74 | % |
| Operating margin %(1) | | 39 | % | | 28 | % | | |
| Operating days(2) | | 6,868 | | | 6,341 | | 8 | % |
| Revenue per operating day | $ | 24,773 | | $ | 21,109 | | 17 | % |
| Spud to release days(2) | | 6,136 | | | 5,568 | | 10 | % |
| Wells drilled(2) | | 788 | | | 852 | | (8 | %) |
| Total meters drilled(2) | | 1,137,286 | | | 1,022,558 | | 11 | % |
The following summarizes the operating results in the first quarter of 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 | | Drilling | | | |
| | Drilling | | Drilling | | U.S. and | | | |
| Q1 2012 | Canada | | Canada | | International | | Total | |
| | $ | | $ | | $ | | $ | |
| Revenue | 91,790 | | 30,384 | | 47,970 | | 170,144 | |
| Operating margin(1) | 38,649 | | 13,066 | | 14,777 | | 66,492 | |
| Operating margin %(1) | 42 | % | 43 | % | 31 | % | 39 | % |
| | | | | | | | | |
| Revenue excluding cost recoveries | 82,186 | | 29,251 | | 46,378 | | 157,815 | |
| Operating margin(1) | 38,649 | | 13,066 | | 14,777 | | 66,492 | |
| Operating margin %(1) | 47 | % | 45 | % | 32 | % | 42 | % |
| | | | | | | | | |
| Average number of net rigs deployed | 40 | | 23 | | 28 | | 91 | |
| Utilization %(2) | 81 | % | 54 | % | 83 | % | 75 | % |
| | | | | | | | | |
| (Stated in thousands of dollars) | Long-reach | | Shallow | | Drilling | | | |
| | Drilling | | Drilling | | U.S. and | | | |
| Q1 2011 | Canada | | Canada | | International | | Total | |
| | $ | | $ | | $ | | $ | |
| Revenue | 72,435 | | 29,619 | | 31,801 | | 133,855 | |
| Operating margin(1) | 23,977 | | 9,315 | | 4,835 | | 38,127 | |
| Operating margin %(1) | 33 | % | 31 | % | 15 | % | 28 | % |
| | | | | | | | | |
| Revenue excluding cost recoveries | 60,781 | | 28,510 | | 29,818 | | 119,109 | |
| Operating margin(1) | 23,977 | | 9,315 | | 4,835 | | 38,127 | |
| Operating margin %(1) | 39 | % | 33 | % | 16 | % | 32 | % |
| | | | | | | | | |
| Average number of net rigs deployed | 36 | | 30 | | 24 | | 90 | |
| Utilization %(2) | 82 | % | 46 | % | 76 | % | 69 | % |
In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup; for Q1 2012 these costs aggregated $12.3 million (Q1 2011 - $14.7 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 QUARTERLY 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 | | | |
| March 31 | 2012 | | 2011 | | Change | |
| Revenue | $ | 57,131 | | $ | 36,068 | | 58 | % |
| Operating expenses | $ | 39,367 | | $ | 24,581 | | 60 | % |
| Operating margin(1) | $ | 17,764 | | $ | 11,487 | | 55 | % |
| Operating margin %(1) | | 31 | % | | 32 | % | | |
| Operating hours(2) | | 53,418 | | | 36,425 | | 47 | % |
| Revenue per hour | $ | 886 | | $ | 761 | | 16 | % |
The following summarizes the operating results for the oilfield services segment by geographic area for the first quarter of 2012 and 2011:
| (Stated in thousands of dollars) | | | | | | |
| | | U.S. and | | | |
| Q1 2012 | Canada | | International | | Total | |
| Revenue | 45,532 | | 11,599 | | 57,131 | |
| Operating margin(1) | 14,966 | | 2,798 | | 17,764 | |
| Operating margin %(1) | 33 | % | 24 | % | 31 | % |
| Utilization %(2) | 56 | % | 69 | % | 58 | % |
| | | | | | | |
| | | | | | | |
| (Stated in thousands of dollars) | | | | | | |
| | | U.S. and | | | |
| Q1 2011 | Canada | | International | | Total | |
| Revenue | 30,498 | | 5,570 | | 36,068 | |
| Operating margin(1) | 10,387 | | 1,100 | | 11,487 | |
| Operating margin %(1) | 34 | % | 20 | % | 32 | % |
| Utilization %(2) | 62 | % | 60 | % | 61 | % |
Financial Condition and Liquidity
Savanna's net debt(1) position at March 31, 2012, was $85 million; the amount owing on its revolving credit facility was $86.1 million and Savanna's total long-term debt outstanding, excluding unamortized debt issue costs, was $217.2 million. As of the date of this release, $72.1 million was drawn on Savanna's revolving credit facility.
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, the ability to sustain a regular dividend and continue mid- and long-term expansion efforts, 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 of its ability to sustain a regular dividend and continue mid- and long-term expansion efforts, and its financial flexibility are 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 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.
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 full Q1 2012 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 Friday, May 11, 2012 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's first quarter 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 May 18, 2012 by dialing 1-800-937-6305 and entering passcode 887129.
Savanna is a Canadian-based drilling and well servicing provider with operations in Canada, the United States and Australia, focused on providing fit for purpose equipment and technologies.
FOR FURTHER INFORMATION PLEASE CONTACT:
Ken MullenSavanna Energy Services Corp.President and Chief Executive Officer(403) 503-9990(403) 267-6749 (FAX)
OR
Darcy DraudsonSavanna Energy Services CorpVice President Finance and Chief Financial Officer(403) 503-9990(403) 267-6749 (FAX)www.savannaenergy.com