The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Marketwire

Savanna Energy Services Corp. Announces Q2 2010 Results

Thursday, August 12, 2010

Savanna Energy Services Corp. Announces Q2 2010 Results18:48 EDT Thursday, August 12, 2010CALGARY, ALBERTA--(Marketwire - Aug. 12, 2010) - Savanna Energy Services Corp. ("Savanna" or "the Company") (TSX:SVY) is an oilfield services company operating throughout North America. The Company's overall business is conducted through two major divisions: contract drilling and oilfield services.FINANCIAL HIGHLIGHTSThe following is a summary of selected financial information of the Company: Three Months Ended Six Months Ended June 30 2010 2009 2010 2009 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- OPERATING RESULTS Revenue 67,862 27,045 197,930 120,839 Operating expenses 57,672 26,627 152,404 97,188 Operating margin(1) 10,190 418 45,526 23,651 Net earnings (7,742) (8,899) 1,855 (5,290) Per share: basic (0.10) (0.14) 0.02 (0.09) Per share: diluted (0.10) (0.14) 0.02 (0.09) ---------------------------------------- ---------------------------------------- CASH FLOWS Operating cash flows before changes in working capital(1) 2,578 (4,441) 30,788 12,327 Cash paid on the purchase of property, equipment and other assets (24,915) (11,973) (41,944) (38,601) Dividends paid - (1,474) (1,977) (2,948) ---------------------------------------- ---------------------------------------- Jun-30 Dec-31 FINANCIAL POSITION AT 2010 2009 ---------------------------------------------------------------------------- $ $ ---------------------------------------------------------------------------- Working capital(1) 56,508 51,016 Property and equipment 877,342 862,251 Total assets 996,765 977,159 Long-term debt 84,696 70,107 ------------------- ------------------- OPERATIONAL HIGHLIGHTSImprovements in the North American oil and gas industry, coupled with ongoing efforts by Savanna to better position its oilfield equipment, had a positive effect on the Company's operations in Q2 2010. The increase in demand for oilfield services led to an increase in operating days and hours in both the drilling and oilfield services divisions compared to Q2 2009. Furthermore, the continued relative growth in Savanna's U.S. operations during the quarter compared to the prior year reduced the impact of Canadian spring break-up on the fleet.The drilling division tripled the number of operating days in the second quarter of 2010 versus the same period in 2009 with only a 4% increase in average fleet size. Additionally, while average day rates decreased 2% over the same time frame, the drilling division increased operating margins by $7.9 million in Q2 2010 from Q2 2009. The higher operating margin percentages for the three and six months ended June 30, 2010 have more than doubled year to date operating margins overall compared to the same periods ending June 30, 2009.The oilfield services division achieved a 92% increase in operating hours, and operating margins nearly tripled in the second quarter of 2010 relative to 2009 with virtually the same average fleet size from Q2 2009. Furthermore, operating margin percentages are up 7% and 4% respectively for the three and six months ended June 30, 2010 compared to the same periods in 2009.In Q2 2010, 2 double drilling rigs were retrofitted and deployed to Texas from Alberta and 1 double drilling rig was deployed to Pennsylvania from Quebec.During the second quarter, the Company completed the sale of its remaining 5 coil tubing service units, resulting in a loss on disposal of $1.7 million (or $0.02 per share). Excluding this sale, the net loss for Q2 2010 is $0.08 per share.Subsequent to the end of the quarter, the Company also disposed of 3 surface/coring rigs for aggregate proceeds of $3.0 million, reducing the surface/coring fleet to 6 rigs. No gain or loss arose on this disposition.EQUIPMENT FLEETThe following table outlines the Company's drilling and service rig fleet by type of rig: Jun-30 Dec-31 2010 2009 Change ---------------------------------------------------------------------------- DRILLING RIGS Heavy and ultra-heavy telescoping doubles 49 49 - Hybrid drilling 46 46 - Triples 2 2 - Pipe-arm single 1 1 - Surface/ coring 9 9 - ------------------------------ Total drilling rigs (gross) 107 107 - Total drilling rigs (net) (1) 103 103 - ------------------------------ ------------------------------ SERVICE RIGS Service rigs 66 66 - Coil tubing service units - 8 (8) ------------------------------ Total service rigs (gross) 66 74 (8) Total service rigs (net) (1) 64 72 (8) ------------------------------ ------------------------------ (1) 8 drilling rigs and 4 service rigs were owned in 50/50 limited partnerships at June 30, 2010 and December 31, 2009. The Company also has a substantial inventory of drilling and well servicing-related rental assets and support equipment, as well as a machining and pipe-inspection facility.During the first and second quarters of 2010, the Company sold its entire fleet of 8 coil tubing service units and related equipment for gross proceeds of $3.7 million which resulted in a loss of $1.7 million; the loss is included in "other (income) expenses" in the Company's consolidated statement of net earnings. This was a non-core business unit that was added as a result of the 2006 merger with Western Lakota Energy Services Inc. and had been under-utilized through most of 2009, which in turn led to impairment losses in Q4 2009.Subsequent to the end of the quarter, the Company also disposed of 3 surface/coring rigs for aggregate proceeds of $3.0 million, reducing the surface/coring fleet to 6 rigs. Similar to the coil tubing service units, these rigs were part of a non-core business unit that was added as a result of the 2006 merger with Western Lakota Energy Services Inc. The surface/coring fleet had also been under-utilized through most of 2009 and incurred impairment losses in Q4 2009. No gain or loss arose on this disposition.The following outlines the Company's deployment of its drilling and service rig fleet by geographic location: Jun-30 Dec-31 2010 2009 Change ---------------------------------------------------------------------------- DRILLING RIGS Canada 83 86 (3) United States 20 17 3 Mexico 4 4 - ----------------------------- Total drilling rigs 107 107 - ----------------------------- ----------------------------- SERVICE RIGS Canada 58 66 (8) United States 8 8 - ----------------------------- Total service rigs 66 74 (8) ----------------------------- ----------------------------- During Q2 2010, 3 drilling rigs were moved to the U.S. from Canada; 2 of the double drilling rigs were retrofitted as part of the Company's capital program and deployed to the Permian Basin in Texas and the other moved into the Marcellus shale play in Pennsylvania.Subsequent to the end of the quarter, the Company's customer in Mexico released 2 of Savanna's drilling rigs as a result of a decrease in the expected number of wells to be drilled under the contract pursuant to which Savanna's customer has been operating. In July 2010, the 2 rigs were moved to Texas at the Mexico customer's expense; from Texas one of the high specification conventional double drilling rigs will be moved to Canada under a term contract, at the expense of Savanna's new customer, and the other will be moved into the Marcellus shale play in Pennsylvania.Savanna's previously announced capital program continued in Q2 2010 with approximately $41.9 million expended on the program in 2010. Although the overall 2010 capital budget has not changed, the Company has determined that some ancillary equipment, that was initially thought to be required for Australia, is no longer needed and will be replaced with the construction of an additional service rig for the Australian market. The Company's 2010 capital commitment is focused on sustaining, maintenance and incremental capital, including the capital required for the following: 3 new service rigs for deployment in Australia; retrofitting 4 hybrid drilling rigs for deployment in Australia; retrofitting 2 hybrid drilling rigs as automated Range III top drive singles ("TDS-3000TM Singles"); retrofitting 2 conventional double drilling rigs for deployment in the United States (completed); 2 new high specification conventional deep double drilling rigs; 4 new portable top drives; and 1 new flush-by service rig. CONTACT DRILLING (Stated in thousands of dollars, except revenue per hour) Three Months Ended Six Months Ended ---------------------------------------------------------------------------- June 30 2010 2009 Change 2010 2009 Change ---------------------------------------------------------------------------- Revenue $52,008 $ 17,943 190% $ 159,472 $ 92,528 72% Operating expenses $44,842 $ 18,708 140% $ 123,730 $ 74,946 65% Operating margin(1) $ 7,166 $ (765) iv $ 35,742 $ 17,582 103% Operating margin %(1) 14% (4%) 22% 19% Number of operating days(i) 2,869 974 195% 8,385 4,388 91% Revenue per operating day $18,128 $ 18,422 (2%) $ 19,019 $ 21,087 (10%) Number of spud to release days(i) 2,471 896 176% 7,194 3,752 92% Wells drilled(ii) 186 116 60% 994 980 1% Total meters drilled (ii) 471,695 202,671 133% 1,417,677 997,847 42% Utilization - Canada (ii) 17% 5% 240% 35% 18% 94% Utilization - International (ii) 66% 37% 78% 65% 46% 41% Canadian industry average utilization (iii) 20% 11% 82% 36% 23% 57% ------------------------------------------------------- ------------------------------------------------------- (i) The number of operating days and number of spud to release days 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. (ii) Savanna reports its rig utilization based on spud to release time for the rigs and excludes moving, rig up and tear down time, even though revenue may be earned during this time. Savanna's rig utilization, spud to release days, wells drilled and total meters drilled exclude coring rigs as the operating environment is not comparable to the Company's other drilling rigs, nor to industry utilization drivers. However, these rigs are included in total fleet numbers. (iii)Source of industry figures: Canadian Association of Oilwell Drilling Contractors ("CAODC"). (iv) Calculation not meaningful The second quarter is normally a period of low activity given that the majority of the Company's operations are carried out in regions of Canada that are affected by spring break-up. As the ground thaws in the spring, road bans are often placed on secondary roads to limit movement of heavy equipment until they are dry enough to support the equipment. However, overall improvements in the North American oil and gas industry in 2010 resulted in a significant increase in operating days, revenue and operating margins in Canada, the U.S. and Mexico this quarter compared to Q2 2009 despite the usual effects of spring break-up. In Q2 2010 Savanna averaged a deployed fleet of 103 net rigs, 19 of which were in the U.S. and 4 of which were in Mexico, compared to Q2 2009 when the Company operated an average fleet of 99 net rigs, 16 of which were in the U.S. and none of which were in Mexico. The increases in operating days and revenue were achieved by both hybrid and conventional drilling rigs; however, the conventional drilling rigs, in particular, showed the most significant increases in Q2 2010 compared to the same period in 2009. Conventional drilling rigs achieved 91% of the operating days in the quarter (Q2 2009 - 86%).Operating costs per operating day were lower in Q2 2010 compared to Q2 2009. The primary reason for the improvement was the fixed portion of operating costs were distributed over a greater number of operating days in Q2 2010 compared to Q2 2009 when activity levels were significantly lower.On a year to date basis, the improvements in industry activity levels in 2010 resulted in a significant increase in operating days, revenue and operating margins in all areas in which Savanna operates for the six months ended June 30, 2010 compared to the same period in 2009, despite lower overall day rates year over year. As with the quarter ended June 30, 2010, in the first six months of 2010 the conventional drilling rigs, in particular, have showed the most significant increases in operating days and revenue; conventional drilling rigs achieved 72% of the operating days in the first half of 2010 (2009 - 59%). The increases on the conventional drilling side are a result of the increased demand for deeper drilling compared to shallow drilling and is further evidenced by the number of days and meters per well drilled to date in 2010 compared the first six months of 2009.Operating costs per operating day were lower in the first half of 2010 compared to the first half of 2009. The improvement is due in part to the fixed portion of operating costs being distributed over a greater number of operating days to the end of June 2010. In addition, decreased wage levels recommended by the CAODC for rig employees, became effective on May 1, 2009. However, the decrease in overall day rates in 2010 has somewhat offset the improvements in operating costs and operating margin percentages have only increased to 22% from 19% a year ago. OILFIELD SERVICES (Stated in thousands of dollars, except revenue per hour) Three Months Ended Six Months Ended ---------------------------------------------------------------------------- June 30 2010 2009 Change 2010 2009 Change ---------------------------------------------------------------------------- Revenue $ 16,104 $ 9,369 72% $ 39,845 $ 29,194 36% Operating expenses $ 13,227 $ 8,329 59% $ 30,346 $ 23,431 30% Operating margin(1) $ 2,877 $ 1,040 177% $ 9,499 $ 5,763 65% Operating margin %(1) 18% 11% 24% 20% Number of operating hours (i) 21,992 11,470 92% 52,270 34,451 52% Revenue per hour $ 624 $ 639 (2%) $ 633 $ 694 (9%) Utilization - Canada(ii) 33% 15% 120% 41% 26% 58% Utilization - U.S.(ii) 69% 58% 19% 65% 55% 18% ------------------------------------------------------------- ------------------------------------------------------------- (i) The number of operating hours is on a net basis which means only Savanna's proportionate share of any rigs held in 50/50 limited partnerships has been included. (ii)Utilization is based on standard hours of 3,650 per rig per year. The utilization rate excludes the coiled tubing service units since these units are not comparable in size or operations to the division's service rigs. Reliable industry average utilization figures, specific to well servicing, are not available. As with the drilling division, improvements in the North American oil and gas industry in 2010 resulted in an increase in operating hours, revenue and operating margins in Q2 2010 compared to Q2 2009, despite lower hourly rates. The increases were achieved in both Canada and the U.S. In Q2 2010 the oilfield services division's fleet size averaged 64 net service rigs, 3 coiled tubing service units and 34 boilers, compared to Q2 2009 when the division operated an average of 64 net service rigs, 8 coiled tubing service units, and 34 boilers.The increase in margin percentages is due primarily to the decreased effect fixed operating costs have had on overall costs in Q2 2010 compared to Q2 2009 as a result of increased activity levels this year. The largest other cost decrease quarter over quarter was a reduction in wages for all rig personnel of approximately 6% compared to Q2 2009. These differences resulted in lower per hour operating costs in Q2 2010 compared to Q2 2009.The improvements in industry activity levels in 2010 also resulted in a significant increase in operating hours, revenue and operating margins on a year to date basis, despite lower overall hourly rates year over year. Again the increases were achieved in both Canada and the U.S. Additionally, the Company's efforts to reduce operating costs in the latter part of 2009, including the 6% reduction in wages for all rig personnel, and the decrease in the per hour fixed portion of operating costs has had on overall operating costs at current higher activity levels, lowered per hour operating costs in the first half of 2010 compared to the same period in 2009. However, the decrease in overall hourly rates in 2010 has somewhat offset the improvements in operating costs and as a result operating margin percentages increased to 24% from 20% in the same period in 2009. Included in revenue for the three and six months ended June 30, 2010, was $2.4 million and $6.7 million, respectively, from rental assets; in 2009 rental asset revenue was $2.0 million and $5.3 million in the same respective periods. The increase in rental asset revenue in each of the periods is due to the increase in overall industry activity. Of the rental revenue, $0.4 million for the three months ended June 30, 2010 (2009 - $0.4 million) and $1.7 million for the six months ended June 30, 2010 (2009 - $1.2 million), is eliminated on overall consolidation as inter-segment revenue. Rental asset revenue is excluded from the per hour revenue calculations above. OTHER FINANCIAL INFORMATION (Stated in thousands of dollars) Three Months Ended Six Months Ended June 30 2010 2009 Change 2010 2009 Change ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- General and administrative expenses 6,831 4,880 40% 12,558 10,274 22% as a % of revenue 10% 18% 6% 9% ------------------------------------------------------------ ------------------------------------------------------------ The increase in general and administrative expenses for the three and six months ended June 30, 2010 compared with the same periods in 2009 reflects Savanna's expansion into new markets over the last twelve months, significant sales and marketing efforts in 2010 and the effect of salary and wage roll backs that were in place from April to December 2009. The decrease as a percentage of revenue in Q2 2010 and for the year to date compared to 2009 is due primarily to the increase in revenues year over year in each respective period which is in part due to the sales and marketing efforts put forth this year.QUARTERLY RESULTSIn addition to other market factors, quarterly results of Savanna are markedly affected by weather patterns throughout its operating areas in Canada, which still constitute the majority of Savanna's operations. Historically, the first quarter of the calendar year is very active, followed by a much slower second quarter. As a result of this, the variation in activity levels on a quarterly basis, particularly in the first and second quarters, can be dramatic year-over-year independent of other demand factors. As the Company continues to expand outside of Canada, the relative impact of Canadian seasonality will be reduced. The following is a summary of selected financial information of the Company for the last eight completed quarters. Summary of Quarterly Results (Stated in thousands of dollars, except per share amounts) Three Months Ended Jun-30 Mar-31 Dec-31 Sep-30 2010 2010 2009 2009 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- Revenue 67,862 130,069 85,430 50,350 Operating expenses 57,672 94,732 61,611 40,208 Operating margin(1) 10,190 35,337 23,819 10,142 Operating margin %(1) 15% 27% 28% 20% Impairment loss - - (27,370) - Per share: basic - - (0.35) - Per share: diluted - - (0.35) - Net earnings (loss) (7,742) 9,597 (18,055) (4,548) Per share: basic (0.10) 0.12 (0.23) (0.06) Per share: diluted (0.10) 0.12 (0.23) (0.06) Total assets 996,765 1,020,981 977,159 983,783 Long-term debt 84,696 98,386 70,107 57,263 ---------------------------------------- ---------------------------------------- Three Months Ended Jun-30 Mar-31 Dec-31 Sep-30 2009 2009 2008 2008 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- Revenue 27,045 93,794 139,746 122,205 Operating expenses 26,627 70,561 98,152 84,207 Operating margin(1) 418 23,233 41,594 37,998 Operating margin %(1) 2% 25% 30% 31% Impairment loss - - (319,365) - Per share: basic - - (5.40) - Per share: diluted - - (5.40) - Net earnings (loss) (8,899) 3,609 (310,980) 11,285 Per share: basic (0.14) 0.06 (5.26) 0.19 Per share: diluted (0.14) 0.06 (5.26) 0.19 Total assets 974,192 1,019,841 1,038,231 1,306,339 Long-term debt 50,872 176,501 202,274 183,301 ---------------------------------------- ---------------------------------------- FINANCIAL CONDITION AND LIQUIDITYSavanna's net debt(1) position at June 30, 2010, was $28.2 million and the amount owing on its term revolving credit facility was $84.7 million. As of the date of this release, $81.7 million was drawn on Savanna's term revolving credit facility.OUTLOOKThe CAODC followed the lead of the Petroleum Services Association of Canada ("PSAC") and raised its forecast for drilling activity in Canada for 2010. Both forecasts were increased by more than 3,000 wells from their fall forecasts; the CAODC now anticipates 11,587 wells being drilled and PSAC is expecting 11,250 to be drilled. The increases were attributed to higher than expected activity levels during the winter drilling season, increases in the price of oil, anticipated royalty changes in Alberta, and the increase in global general economic activity. With 88% of its well servicing fleet and 78% of its drilling fleet located in Canada, Savanna will benefit from the increased activity in the second half of the year.Savanna's near term growth and capital efforts continue to focus on strategic placement of its drilling and well servicing assets throughout its existing core areas in North America and abroad. To that end, the retrofit of 2 conventional double drilling rigs was completed in the quarter and the rigs began working in Texas shortly after; a third conventional drilling rig was deployed to the Marcellus unconventional shale gas region and another will begin working in that same region in August. With this larger fleet Savanna also expects to benefit from the increased activity levels that are also expected in the U.S. basins in which the Company operates.The Australian portion of Savanna's capital program is also progressing; 2 service rigs and 4 hybrid drilling rigs should all be in Australia by the end of 2010 or early 2011. With the service rigs set to begin working early in Q4 2010, a shop and yard has been secured and the staffing of its rig and administrative personnel has begun.In addition, expansion of its deeper conventional fleet remains a core growth driver for Savanna going forward. With the construction of 2 high specification conventional drilling rigs and the conversion of 2 of its hybrid rigs to deeper-oriented conventional rigs currently under way, Savanna is committed to increasing the number of drilling rigs capable of drilling to depths greater than 2,500 meters.With the deployment of 4 hybrid drilling rigs to Australia and the conversion of two hybrid rigs to TDS-3000TM conventional singles, Savanna's strategic intent of reducing its domestic shallow drilling fleet exposure by one-half over the next two years remains on track. Savanna has identified several other prospective international areas attractive for the hybrid and is continuing to work towards improving the application and utilization of the hybrid fleet domestically through improved directional and horizontal capabilities for the rigs and increased application of the rigs to shallow oil drilling, specifically heavy oil areas.Ultimately, the level of activity in both Canada and the United States will not fully recover until a supply-demand balance for natural gas is achieved, and prices for the commodity recover. In the interim, Savanna will continue to aggressively monitor its cost structure and focus on best positioning itself to take advantage of a better operating environment. Savanna believes it has the high quality people, equipment, leading-edge technology and First Nations partnerships to manage the challenging conditions affecting the oilfield services industry.Notes:(1) Operating margin, operating cash flows before changes in working capital, working capital, EBITDA, debt-to-equity ratio, and net debt are not recognized measures under GAAP, 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 prior to consideration of how those activities are financed and how the results are taxed in various jurisdictions.- Operating margin is defined as revenue less operating expenses.- Operating margin percent is defined as revenue less operating expenses divided by revenue.- Operating cash flows before changes in working capital is defined as cash flows from operations less 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.- EBITDA is defined as earnings before interest, income taxes, depreciation, amortization and stock-based compensation.- Debt-to-equity ratio is defined as long-term debt, including the current portions thereof, divided by shareholders' equity.- Net debt is defined as long-term debt, including the current portions thereof, less working capital. CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS) For the periods ended June 30 (Stated in thousands of dollars, except per share amounts) (Unaudited) Three months ended Six months ended 2010 2009 2010 2009 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- REVENUE Sales and services 67,862 27,045 197,930 120,839 ---------------------------------------- ---------------------------------------- EXPENSES Operating 57,672 26,627 152,404 97,188 General and administrative 6,831 4,880 12,558 10,274 Stock-based compensation 994 1,236 2,211 2,141 Depreciation and amortization 9,424 5,373 22,841 15,481 Interest on long-term debt 1,508 1,330 2,910 2,975 Other (income) expenses 1,265 (203) 1,418 (398) ---------------------------------------- ---------------------------------------- 77,694 39,243 194,342 127,661 ---------------------------------------- ---------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES (9,832) (12,198) 3,588 (6,822) ---------------------------------------- ---------------------------------------- INCOME TAXES Current 133 (383) 531 (287) Future (2,223) (2,916) 1,202 (1,245) ---------------------------------------- (2,090) (3,299) 1,733 (1,532) ---------------------------------------- ---------------------------------------- NET EARNINGS (LOSS) (7,742) (8,899) 1,855 (5,290) ---------------------------------------- ---------------------------------------- NET EARNINGS (LOSS) PER SHARE Basic - net earnings (loss) (0.10) (0.14) 0.02 (0.09) Diluted - net earnings (loss) (0.10) (0.14) 0.02 (0.09) Weighted average number of shares outstanding (000s) 79,078 64,925 79,078 61,939 Diluted weighted average number of shares outstanding (000s) 79,078 64,925 79,078 61,939 ---------------------------------------- ---------------------------------------- CONSOLIDATED STATEMENTS OF DEFICIT For the periods ended June 30 (Stated in thousands of dollars) (Unaudited) Three months ended Six months ended 2010 2009 2010 2009 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- Deficit, beginning of period (146,135) (116,825) (153,755) (118,960) Dividends declared - (1,474) (1,977) (2,948) Net earnings (loss) (7,742) (8,899) 1,855 (5,290) ------------------------------------------ Deficit, end of period (153,877) (127,198) (153,877) (127,198) ------------------------------------------ ------------------------------------------ CONSOLIDATED BALANCE SHEETS (Stated in thousands of dollars) (Unaudited) Jun-30 Dec-31 2010 2009 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- $ $ ---------------------------------------------------------------------------- ASSETS Current Cash 10,633 4,480 Accounts receivable 80,310 78,409 Income taxes receivable 3,767 9,065 Inventory 3,965 4,195 Prepaid expenses and deposits 1,728 1,969 ---------------------------- ---------------------------- 100,403 98,118 Notes receivable 11,184 9,630 Property and equipment 877,342 862,251 Intangibles and other assets 7,836 7,160 ---------------------------- 996,765 977,159 ---------------------------- ---------------------------- LIABILITIES Current Bank indebtedness 529 11,228 Accounts payable and accrued liabilities 45,366 35,874 Current portion of long-term debt 22,492 7,512 ---------------------------- 68,387 54,614 Deferred net revenue 1,647 1,647 Long-term debt 62,204 62,595 Future income taxes 78,511 77,287 ---------------------------- ---------------------------- 210,749 196,143 ---------------------------- Commitments and contingencies SHAREHOLDERS' EQUITY Share capital 911,764 911,764 Contributed surplus 22,277 20,135 Deficit (153,877) (153,755) ---------------------------- 780,164 778,144 Accumulated other comprehensive income 5,852 2,872 ---------------------------- ---------------------------- 786,016 781,016 ---------------------------- 996,765 977,159 ---------------------------- ---------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS For the periods ended June 30 (Stated in thousands of dollars) (Unaudited) Three months ended Six months ended 2010 2009 2010 2009 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) (7,742) (8,899) 1,855 (5,290) Items not affecting cash: Stock-based compensation 994 1,236 2,211 2,141 Depreciation and amortization 9,424 5,373 22,841 15,481 Amortization of other assets 758 571 1,440 1,096 Future income taxes (2,223) (2,916) 1,202 (1,245) Loss on disposal of assets 1,367 194 1,239 144 ---------------------------------------- 2,578 (4,441) 30,788 12,327 Change in non-cash working capital 43,919 30,609 10,888 66,638 ---------------------------------------- Cash flows from operations 46,497 26,168 41,676 78,965 ---------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Shares issued, net of share issue costs - 120,223 - 120,223 Issuance of long-term debt - - 30,000 - Repayment of long-term debt (15,491) (117,890) (15,971) (145,592) Dividends paid - (1,474) (1,977) (2,948) Change in notes receivable (1,016) (140) (1,554) (283) ---------------------------------------- Cash flows from (used in) financing activities (16,507) 719 10,498 (28,600) ---------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (23,394) (11,847) (39,824) (37,574) Proceeds on disposal of assets 2,543 671 4,087 846 Purchase of other assets (1,521) (126) (2,120) (1,027) Change in working capital related to investing activities 2,169 (3,278) 2,535 (1,750) ---------------------------------------- Cash flows used in investing activities (20,203) (14,580) (35,322) (39,505) ---------------------------------------- INCREASE IN CASH, NET OF BANK INDEBTEDNESS 9,787 12,307 16,852 10,860 CASH, NET OF BANK INDEBTEDNESS, BEGINNING OF PERIOD 317 2,146 (6,748) 3,593 ---------------------------------------- CASH, NET OF BANK INDEBTEDNESS, END OF PERIOD 10,104 14,453 10,104 14,453 ---------------------------------------- ---------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the periods ended June 30 (Stated in thousands of dollars) (Unaudited) Three months ended Six months ended 2010 2009 2010 2009 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- NET EARNINGS (LOSS) (7,742) (8,899) 1,855 (5,290) ----------------------------------------- OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustment 6,383 (13,531) 3,467 (9,600) Unrealized foreign exchange gain (loss) on net investment hedge, net of tax of $73 (1,566) 6,926 (487) 4,997 ----------------------------------------- COMPREHENSIVE INCOME (LOSS) (2,925) (15,504) 4,835 (9,893) ----------------------------------------- ----------------------------------------- CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME For the periods ended June 30 (Stated in thousands of dollars) (Unaudited) Three months ended Six months ended 2010 2009 2010 2009 ---------------------------------------------------------------------------- $ $ $ $ ---------------------------------------------------------------------------- Accumulated other comprehensive income, beginning of period 1,035 23,312 2,872 21,310 Other comprehensive income (loss) 4,817 (6,605) 2,980 (4,603) ----------------------------------------- Accumulated other comprehensive income, end of period 5,852 16,707 5,852 16,707 ----------------------------------------- ----------------------------------------- SEGMENTED INFORMATIONThe Company's reportable operating segments, as determined by management, are strategic operating units that offer different products and services. The Company has three reportable operating segments: corporate, services, and drilling.The corporate segment provides management and administrative services to all its subsidiaries and their respective operations.The services segment provides well servicing services and rental equipment to the oil and gas industry.The drilling segment provides primarily contract drilling services to the oil and gas industry through both conventional and hybrid drilling rigs. Three months Inter-segment 2010 ended June 30 Corporate Services Drilling Eliminations Total ---------------------------------------------------------------------------- $ $ $ $ $ ---------------------------------------------------------------------------- REVENUE Oilfield services - 16,104 52,008 (397) 67,715 Other - 29 118 - 147 ----------------------------------------------------- - 16,133 52,126 (397) 67,862 ----------------------------------------------------- OPERATING COSTS Oilfield services - 13,227 44,842 (397) 57,672 ----------------------------------------------------- REVENUE LESS OPERATING COSTS - 2,906 7,284 - 10,190 ----------------------------------------------------- Depreciation and amortization 388 2,571 6,465 - 9,424 Interest on long-term debt 1,471 15 22 - 1,508 Earnings (loss) before income taxes (8,636) (1,883) 687 - (9,832) Total assets 38,407 170,678 787,680 - 996,765 Capital assets(i) 24,025 154,878 706,275 - 885,178 Capital expenditures(ii) 703 3,907 20,305 - 24,915 ----------------------------------------------------- ----------------------------------------------------- Three months ended June 30 Inter-segment 2009 Corporate Services Drilling Eliminations Total ---------------------------------------------------------------------------- $ $ $ $ $ ---------------------------------------------------------------------------- REVENUE Oilfield services - 9,369 17,943 (410) 26,902 Other - 34 109 - 143 ----------------------------------------------------- - 9,403 18,052 (410) 27,045 ----------------------------------------------------- OPERATING COSTS Oilfield services - 8,329 18,708 (410) 26,627 ----------------------------------------------------- REVENUE LESS OPERATING COSTS - 1,074 (656) - 418 ----------------------------------------------------- Depreciation and amortization 396 1,800 3,177 - 5,373 Interest on long-term debt 1,162 80 88 - 1,330 Earnings (loss) before income taxes (6,260) (1,248) (4,690) - (12,198) Total assets 37,773 179,492 756,927 - 974,192 Capital assets(i) 22,899 165,715 720,942 - 909,556 Capital expenditures(ii) 207 661 11,105 - 11,973 ----------------------------------------------------- ----------------------------------------------------- (i) Capital assets include property and equipment, intangibles, and other assets. (ii)Capital expenditures include the purchase of capital assets. Six months ended June 30 Inter-segment 2010 Corporate Services Drilling Eliminations Total ---------------------------------------------------------------------------- $ $ $ $ $ ---------------------------------------------------------------------------- REVENUE Oilfield services - 39,845 159,472 (1,672) 197,645 Other - 59 226 - 285 -------------------------------------------------- - 39,904 159,698 (1,672) 197,930 -------------------------------------------------- OPERATING COSTS Oilfield services - 30,346 123,730 (1,672) 152,404 -------------------------------------------------- REVENUE LESS OPERATING COSTS - 9,558 35,968 - 45,526 -------------------------------------------------- Depreciation and amortization 769 5,760 16,312 - 22,841 Interest on long-term debt 2,817 33 60 - 2,910 Earnings (loss) before income taxes (16,050) 1,106 18,532 - 3,588 Total assets 38,407 170,678 787,680 - 996,765 Capital assets(i) 24,025 154,878 706,275 - 885,178 Capital expenditures(ii) 973 8,392 32,579 - 41,944 -------------------------------------------------- -------------------------------------------------- Six months ended June 30 Inter-segment 2009 Corporate Services Drilling Eliminations Total ---------------------------------------------------------------------------- $ $ $ $ $ ---------------------------------------------------------------------------- REVENUE Oilfield services - 29,194 92,528 (1,189) 120,533 Other - 79 227 - 306 -------------------------------------------------- - 29,273 92,755 (1,189) 120,839 -------------------------------------------------- OPERATING COSTS Oilfield services - 23,431 74,946 (1,189) 97,188 -------------------------------------------------- REVENUE LESS OPERATING COSTS - 5,842 17,809 - 23,651 -------------------------------------------------- Depreciation and amortization 722 4,322 10,437 - 15,481 Interest on long-term debt 2,677 109 189 - 2,975 Earnings (loss) before income taxes (13,431) 540 6,069 - (6,822) Total assets 37,773 179,492 756,927 - 974,192 Capital assets(i) 22,899 165,715 720,942 - 909,556 Capital expenditures(ii) 2,622 2,388 33,591 - 38,601 -------------------------------------------------- -------------------------------------------------- (i) Capital assets include property and equipment, intangibles, and other assets. (ii)Capital expenditures include the purchase of capital assets. The Company operates in two different geographical areas, the breakdown of which is as follows: Three months ended June 30 International 2010 International 2009 Canada (i) Total Canada (i) Total ---------------------------------------------------------------------------- $ $ $ $ $ $ ---------------------------------------------------------------------------- Revenue 34,947 32,915 67,862 14,687 12,358 27,045 Total assets 740,211 256,554 996,765 800,526 173,666 974,192 Capital assets(ii) 655,021 230,157 885,178 745,192 164,364 909,556 -------------------------------------------------------------- Six months ended June 30 International 2010 International 2009 Canada (i) Total Canada (i) Total ---------------------------------------------------------------------------- $ $ $ $ $ $ ---------------------------------------------------------------------------- Revenue 138,278 59,652 197,930 87,674 33,165 120,839 Total assets 740,211 256,554 996,765 800,526 173,666 974,192 Capital assets(ii) 655,021 230,157 885,178 745,192 164,364 909,556 -------------------------------------------------------------- (i) Includes U.S. and Mexico operations. (ii)Capital assets include property and equipment, intangibles, and other assets. Cautionary Statement Regarding Forward-Looking Information and StatementsCertain statements and information contained in this press release including statements related to the Company's 2010 capital expenditures, international growth opportunities, the potential for future rig construction, the conversion of hybrid drilling rigs to TDS-3000 TM rigs, increased industry activity in Canada and the United States for the remainder of 2010, outlook for future natural gas demand 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 expectations of increased industry activity in Canada and the United States for the remainder of 2010 and the conversion of hybrid drilling rigs to TDS-3000 TM rigs are premised on the Company's expectations for its customers' capital budgets, the focus of its customers' on oil directed drilling opportunities in the current natural gas pricing environment in North America and the effect unconventional gas projects have had on supply and demand fundamentals for natural gas. 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; the other risk factors set forth under the heading "Risks and Uncertainties" in the Company's 2009 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.OTHERSavanna is a leading 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 for key North American and international drilling markets and industry-leading Canadian aboriginal relationships.FOR FURTHER INFORMATION PLEASE CONTACT: Savanna Energy Services Corp. Ken Mullen President and Chief Executive Officer (403) 503-9990 (403) 267-6749(FAX) or Savanna Energy Services Corp. Darcy Draudson Vice President Finance and Chief Financial Officer (403) 503-9990 (403) 267-6749(FAX) www.savannaenergy.com