Press release from Marketwire
Savanna Energy Services Corp. Announces Q4 and Year-End 2011 Results and the Approval of a Monthly Dividend
Thursday, March 08, 2012
CALGARY, ALBERTA--(Marketwire - March 8, 2012) - Based on 2011 operating results, expected cash flows for 2012, and the considerable flexibility provided by Savanna's current financial position, the Company believes it can continue to execute on its growth initiatives and sustain a regular dividend. As a result, Savanna's Board of Directors has approved a $0.03 per share monthly dividend, which equates to an annual dividend of $0.36 per share. The Company believes this dividend level represents a substantial return to its shareholders today, while retaining financial flexibility to sustain the dividend going forward. Details of the dividend are described later in this press release.
Overall, 2011 was a period of improving oilfield service industry fundamentals and Savanna enjoyed an even better rate of improvement than industry averages. Strong oil prices and increased activity in liquids-rich natural gas and unconventional oil plays created more demand for drilling, completion and maintenance services throughout North America than in 2010. This resulted in Savanna generating significantly higher revenue, operating margins, earnings and cash flows compared to 2010.
Savanna's net earnings increased by $10.5 million to $16.7 million or $0.20 per diluted share in Q4 2011, from net earnings of $6.2 million or $0.08 per diluted share in Q4 2010. The Q4 2011 earnings represented the highest overall fourth quarter earnings since 2006. Additionally, operating cash flows in Q4 2011 increased by 65% compared to Q4 2010 to $44.1 million. For the year ended December 31, 2011, operating cash flows were $142.1 million and net earnings were $45.7 million or $0.55 per diluted share. These year-end figures represent an increase of $63.3 million or 80% in operating cash flows and an increase of $34.3 million or $0.41 per diluted share in net earnings from the comparable period in 2010, an increase of 300%.
With the Canadian industry strongly focused on developing oil and liquids-rich prospects, and Savanna's positioning within these activity areas, demand for Savanna's primarily deep fleet of drilling rigs in Canada was particularly strong and led to the highest utilization rates since 2006. The drilling division achieved a 5% increase in the number of operating days with virtually the same sized drilling rig fleet in the fourth quarter of 2011 compared to Q4 2010. Additionally, average day rates increased 15% over the same time frame which, coupled with the increase in operating days, led to a 21% increase in revenues and a $7.2 million increase in operating margins in Q4 2011 compared to Q4 2010. Overall drilling revenue was $129.8 million for Q4 2011, bringing the segment's revenue to $451.1 million to the end of the year, both of which are up significantly from the $107.6 million and $349.1 million in revenues in the same respective periods in 2010. Operating margins were $38.5 million (30%) and $128.1 million (28%) respectively for the quarter and year ended December 31, 2011 compared to the same periods in 2010 when operating margins were $31.2 million (29%) for the quarter and $86.7 million (25%) for the year. The long-reach horizontal drilling rigs in Canada, in particular, increased both operating days and day rates in 2011, resulting in significantly higher operating margins compared to 2010 with only a slightly larger drilling fleet. The increase in operating margins, year-over-year for the long-reach horizontal drilling fleet, was $41.4 million or seven percentage points higher in terms of operating margin percentage this year compared to last. As a result of Savanna's continued retrofit of its hybrid drilling fleet to the TDS-3000™ platform, Savanna continued to increase its exposure to the deeper oil and liquids-rich markets throughout 2011. Furthermore, the number of operational drilling rigs was higher in 2011 compared to 2010 as a result of the conversions, and the additional TDS-3000™ drilling rigs contributed materially to the overall drilling segment in 2011.
The oilfield services division achieved a 53% increase in operating hours, and operating margins increased by $8.3 million or 123% to $15.0 million in the fourth quarter of 2011 relative to 2010. For the year ended December 31, 2011, operating margins were $47.7 million, compared to $22.8 million for the comparable period in 2010, an increase of 109%. Furthermore, operating margin percentages were higher throughout 2011 compared to 2010. Overall revenue for the oilfield services division increased 85% to $52.2 million in Q4 2011 compared to $28.2 million in Q4 2010. To the end of year, revenue for the segment was $162.6 million which is up 78% from the $91.4 million in the comparable period in 2010. The acquisition of 33 service rigs between June and July 2011 drove much of the increase in Canada. Notably, the additional rigs did not dilute utilization rates. In fact, the Canadian well servicing division's Q4 2011 utilization was on par with its Q4 2010 utilization and it finished the year with its highest annual utilization rates since 2006, despite a significantly larger fleet size.
The trend of improving pricing and utilization experienced in all of Savanna's businesses in 2011 has continued to date in 2012. The tremendous demand for Savanna's primarily deep drilling rig fleet, which was demonstrated through 2011 utilization rates, day rates and margins, has continued into 2012 with strong utilization, and day rates that exceed those achieved last year. Additionally, with a fleet of over 100 service rigs, and early indications of sustained demand levels for 2012, operating results for the well servicing rigs for the next year should exceed those of 2011. Similarly, for the Company's rental assets, the pricing and activity momentum generated in 2011 has continued into 2012.
Savanna's President and Chief Executive Officer, Ken Mullen, stated; "2011 reflected a watershed year for Savanna, particularly in the fourth quarter. The tangible results of our retrofit and relocation efforts in respect of our shallow drilling fleet are showing, while our deep drilling and oilfield services businesses continue to operate at levels well in excess of the overall market. Additionally our investment in support functions in the organization should demonstrate even greater incremental returns in 2012 and future periods. All of this sets the stage for strong sustainable growth and supports our transition to paying a meaningful dividend in conjunction with such growth".
The following is a summary of selected financial information of the Company:
|Three Months Ended||Twelve Months Ended|
|(Stated in thousands of dollars, except per share amounts)||$||$||$||$|
|Per share: basic||0.20||0.08||150||%||0.56||0.14||300||%|
|Per share: diluted||0.20||0.08||150||%||0.55||0.14||293||%|
|Operating cash flows(1)||44,087||26,707||65||%||142,146||78,808||80||%|
|Per diluted share||0.52||0.34||53||%||1.72||1.00||72||%|
|Acquisition of capital assets(1)||42,449||30,098||41||%||260,471||106,422||145||%|
|FINANCIAL POSITION AT DECEMBER 31||2011||2010||Change|
Effective January 1, 2011, the Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). Certain 2010 comparative figures included in this press release have been restated as part of the Company's transition to IFRS. The Company's consolidated financial statements for the year ended December 31, 2011 present detailed reconciliations between Savanna's 2010 consolidated financial statements under previous Canadian generally accepted accounting principles and IFRS, including the opening IFRS balance sheet at January 1, 2010, differences in accounting policies and exemptions taken on transition to IFRS.
(1) Operating margin, operating margin percent, operating cash flows, capital assets, working capital, and net debt 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 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 are defined as cash flows from operating activities less: changes in non-cash working capital, income taxes paid or received and interest paid or received.
- 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, less working capital as defined above and unamortized debt issue costs.
(2) Certain industry related terms used in this press release are defined or clarified as follows:
- The number of operating days, spud to release days and operating hours are all on a net basis which means only Savanna's proportionate share of any rigs held in 50/50 limited partnerships have been included.
- Savanna reports its drilling rig utilization based on spud to release time for 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. Source of Canadian industry average utilization figures: Canadian Association of Oilwell Drilling Contractors.
- Savanna reports its well servicing rig utilization based on standard hours of 3,650 per rig per year. The comparative utilization rates exclude 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.
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||Twelve Months Ended|
|Operating margin %(1)||30||%||29||%||28||%||25||%|
|Revenue per operating day||$||23,305||$||20,258||15||%||$||21,344||$||18,999||12||%|
|Spud to release days(2)||4,977||4,676||6||%||18,701||15,918||17||%|
|Total meters drilled(2)||986,395||1,115,888||(12||%)||3,633,315||3,396,277||7||%|
The following summarizes the operating results for the contract drilling segment by type of rig or geographic area for the fourth quarter and year ended December 31, 2011. Long-reach drilling in Canada includes the Company's telescoping double drilling rigs, TDS-3000™ drilling rigs and CT-2200 hybrid drilling rigs.
|(Stated in thousands of dollars)||Shallow||Long-reach||Drilling|
|Operating margin %(1)||7||%||37||%||22||%||30||%|
|Revenue excluding cost recoveries||9,348||69,867||39,290||118,505|
|Operating margin %(1)||8||%||41||%||23||%||32||%|
|Average number of net rigs deployed||24||41||26||91|
|(Stated in thousands of dollars)||Shallow||Long-reach||Drilling|
|Operating margin %(1)||17||%||35||%||20||%||28||%|
|Revenue excluding cost recoveries||49,189||222,896||137,403||409,488|
|Operating margin %(1)||18||%||40||%||22||%||31||%|
|Average number of net rigs deployed||26||39||25||90|
In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup; for Q4 2011 these costs aggregated $11.3 million and for the year these costs totaled $41.6 million. Savanna's accounting policy with respect to cost recoveries billed to customers is to include them as both revenue and operating expenses rather than net them. Although Savanna believes this most appropriately reflects the substance of the underlying transactions, the accounting treatment of cost recoveries varies in the oilfield services industry. Although there is no effect on overall operating margins whether cost recoveries are netted or not, the different treatments do result in different operating margin percentages as the same dollar margin is factored against lower revenue. As a result Savanna believes it is useful to provide revenue excluding cost recoveries and the resulting operating margin percentages for comparative purposes.
Summary of Quarterly Results - Oilfield Services
The following is a summary of selected financial and operating information of the Company's oilfield services segment:
|(Stated in thousands of dollars, except revenue per hour)|
|Three Months Ended||Twelve Months Ended|
|Operating margin %(1)||29||%||24||%||29||%||25||%|
|Revenue per hour||$||839||$||687||22||%||$||777||$||655||19||%|
The following summarizes the operating results for the oilfield services segment by geographic area for the fourth quarter and year ended December 31, 2011:
|(Stated in thousands of dollars)||U.S. and|
|Operating margin %(1)||30||%||23||%||29||%|
|(Stated in thousands of dollars)||U.S. and|
|Operating margin %(1)||31||%||23||%||29||%|
FINANCIAL CONDITION AND LIQUIDITY
Savanna's net debt(1) position at December 31, 2011, was $108 million; the amount owing on its revolving credit facility was $81.2 million and Savanna's total long-term debt outstanding, excluding unamortized debt issue costs, was $207.6 million. As of the date of this release, $85.2 million was drawn on Savanna's revolving credit facility.
As noted above, Savanna's Board of Directors has approved a monthly dividend to be paid to holders of common shares ("Common Shares") of the Company and has also approved, subject to the approval of the Toronto Stock Exchange, a dividend reinvestment plan (the "DRIP"). The Board of Directors has declared the Company's first monthly dividend of three cents per Common Share, to be paid on May 15, 2012, to shareholders of record at the close of business on April 30, 2012. The ex dividend date is April 26, 2012. The cash dividend of three cents per Common Share will be designated as an "eligible dividend" within the meaning of subsection 89(1) of the Income Tax Act (Canada). Savanna expects the record date for any future monthly dividends to be on or about the last business day of the month with the payment date to be on or about the 15th day of the following month.
The DRIP will allow shareholders to direct cash dividends to be reinvested in additional Common Shares that will be issued at 95% of the volume weighted average price of the Common Shares traded on the Toronto Stock Exchange during the last five trading days preceding the relevant dividend payment date. Subject to regulatory approval, the DRIP is expected to be in place prior to the record date of the first monthly dividend. Following regulatory approval, details on how to participate in the DRIP will be distributed to registered shareholders through the Company's transfer agent, Computershare Trust Company of Canada ("Computershare") and will be available on Savanna's website (www.savannaenergy.com). The DRIP and the enrolment form will also be available on the Savanna website or by calling or emailing Computershare at 1-800-564-6253 or email@example.com; Computershare's website address is www.computershare.com.
Shareholders should carefully read the complete text of the DRIP before making any decisions regarding their participation in the DRIP. Unless otherwise announced by Savanna, only shareholders who are resident in Canada may participate in the dividend reinvestment plan. Participation in the DRIP will not relieve shareholders of any liability for taxes that may be payable on dividends. Shareholders should consult their own tax advisors concerning the tax implementations of their participation in the DRIP having regard to their own particular circumstances.
The amount of future cash dividends, if any, will be subject to the discretion of the Board of Directors of Savanna and may vary depending on a variety of factors, including fluctuations in operating costs and earnings, working capital and capital expenditure requirements, debt service requirements, foreign exchange rates, the satisfaction of solvency tests imposed by the Business Corporations Act (Alberta) for the declaration and payment of dividends and other conditions existing from time to time.
Cautionary Statement Regarding Forward-Looking Information and Statements
Certain statements and information contained in this press release including statements related to 2012 operating results exceeding those of 2011, future incremental returns on investments in support functions, expectations of executing on the Company's growth initiatives, sustaining a regular dividend and the implementation of the DRIP, 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 2012 operating results exceeding those of 2011 and future incremental returns on investments in support functions are premised on actual results experienced in 2011 and to date in 2012, customer contracts and commitments, negotiations with its customers and overall demand increases based on current commodity prices and industry activity. The Company's expectation of executing on the Company's growth initiatives and sustaining a regular dividend is premised on its currently available debt, realizing its working capital and generating cash flows at current levels or better which in turn is premised on the pricing of the Company's services remaining at or improving from present levels while maintaining its current cost structure. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Company's expectations. Such risks and uncertainties include, but are not limited to: fluctuations in the price and demand for oil and natural gas; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for well servicing and contract drilling; the effects of weather conditions on operations and facilities; the existence of competitive operating risks inherent in well servicing and contract drilling; general economic, market or business conditions; changes in laws or regulations, including taxation, environmental and currency regulations; the lack of availability of qualified personnel or management; receipt of regulatory approvals; the other risk factors set forth under the heading "Risks and Uncertainties" in the Company's Annual 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.
Savanna's management's discussion and analysis and consolidated financial statements for the year ended December 31, 2011 are available on Savanna's website (www.savannaenergy.com) under the investor relations section and have also been filed on SEDAR at www.sedar.com.
Savanna will host a conference call for analysts, investors and interested parties on Friday, March 9, 2012 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's fourth quarter and year end results. The call will be hosted by Ken Mullen, Savanna's President and Chief Executive Officer and Darcy Draudson, Vice President, Finance and Chief Financial Officer.
If you wish to participate in this conference call, please call 1-888-892-3255 (for participants in North America). Please call 10 minutes ahead of time.
A replay of the call will be available until March 16, 2012 by dialing 1-800-937-6305 and entering passcode 560025.
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 Mullen Savanna Energy Services Corp. President and Chief Executive Officer (403) 503-9990 (403) 267-6749 (FAX)
Darcy Draudson Savanna Energy Services Corp Vice President Finance and Chief Financial Officer (403) 503-9990 (403) 267-6749 (FAX) www.savannaenergy.com