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Press release from Marketwire

Savanna Energy Services Corp. Announces Q2 2012 Results and Capital Program Update

Wednesday, August 08, 2012

Savanna Energy Services Corp. Announces Q2 2012 Results and Capital Program Update17:43 EDT Wednesday, August 08, 2012CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - Savanna Energy Service Corp. (TSX:SVY) Growth in the size and operational capacity of Savanna's equipment fleet outweighed the negative effects of wet weather and an extended spring break-up in Canada in Q2 2012 as revenue, operating margins and EBITDAS(1) all increased compared to Q2 2011. Coupled with the high level of industry activity in the oil and gas liquids areas that Savanna operated in through the first part of the year, operating margins, operating margin percentages and EBITDAS(1) increased significantly in the first half of 2012 compared to the first half of 2011. Financial HighlightsThe following is a summary of selected financial information of the Company: Three Months Ended Six Months EndedJune 3020122011Change20122011Change(Stated in thousands of dollars, except per share amounts)$$$$OPERATING RESULTSRevenue120,88494,54428%346,779263,13032%Operating expenses96,13272,34633%237,528191,15424%Operating margin(1)24,75222,19812%109,25171,97652%Operating margin %(1)20%23%32%27%EBITDAS(1)14,39012,70413%86,79753,38663%Per share: basic0.170.166%1.020.6752%Per share: diluted0.170.166%1.020.6752%Net earnings (loss)(7,578)(956)693%27,43514,61988%Per share: basic(0.09)(0.01)800%0.320.1878%Per share: diluted(0.09)(0.01)800%0.320.1878%CASH FLOWSOperating cash flows(1)9,96816,009(38%)79,07556,55440%Per diluted share0.120.20(40%)0.930.7033%Acquisition of capital assets(1)50,75684,190(40%)98,108126,924(23%)Dividends paid4,223-100%4,223-100%FINANCIAL POSITIONJun. 30 2012Dec. 31 2011Change$$Working capital(1)68,15899,587(32%)Capital assets(1)1,087,4921,033,2415%Total assets1,249,8281,233,7001%Long-term debt197,147207,637(5%)NOTES: (1)Operating margin, operating margin percentage, EBITDAS, and operating cash flows are not recognized measures under IFRS, and are unlikely to be comparable to similar measures presented by other companies. Management believes that, in addition to net earnings, the measures described above are useful as they provide an indication of the results generated by the Company's principal business activities both prior to and after consideration of how those activities are financed, the effect of foreign exchange and how the results are taxed in various jurisdictions. Similarly, capital assets, working capital, and net debt are not recognized measures under IFRS; however, management believes that these measures are useful as they provide an indication of the Company's 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.(2)Certain industry related terms used in this press release are defined or clarified as follows: The number of operating days, spud to release days and operating hours are all on a net basis which means only Savanna's proportionate share of any rigs held in 50/50 limited partnerships have been included. Savanna reports its drilling rig utilization based on spud to release time for its operational drilling rigs and excludes moving, rig up and tear down time, even though revenue may be earned during this time. Source of Canadian industry average utilization figures: Canadian Association of Oilwell Drilling Contractors. Industry utilization figures are calculated in the same manner as the Company. Savanna reports its service rig utilization for its operational service rigs based on standard hours of 3,650 per rig per year. Reliable industry average utilization figures, specific to well servicing, are not available.Savanna's Q2 2012 EBITDAS(1) of $14.4 million marks its highest for a second quarter in the history of the Company and brings the total EBITDAS(1) for the six months ended June 30, 2012 to $86.8 million. On a year-to-date basis this represents an increase of $33.4 million or 63% from the six months ended June 30, 2011. In Q2 2012, Savanna retired two service rigs and removed its only pipe-arm single drilling rig from the active fleet. The Company determined that in aggregate, the carrying amounts of its "out of service" rigs, which also include Savanna's conventional coring rigs, were in excess of their recoverable amounts. As a result, an impairment loss of $4.8 million was recorded in Q2 2012 and is included in depreciation expense. The impairment charges, after tax, reduced earnings per share by $0.04. The pipe-arm single rig's design was inconsistent with Savanna's core drilling rig platforms and demand for the rig was weak. The conventional coring rigs in question have not operated for over three years. The two older service rigs were retired as the Company determined that the costs to repair and retrofit them would have been too excessive to warrant. Including the above and after deducting higher share-based compensation expense based on additional stock options granted in the last 12 months, higher depreciation and amortization expenses based on increased activity levels, and higher finance expenses, Savanna's net earnings decreased by $6.6 million to a net loss of $7.6 million or $0.09 per diluted share in Q2 2012, from a net loss of $1 million or $0.01 per diluted share in Q2 2011. On a year-to-date basis net earnings of $27.4 million ($0.32 per diluted share) are still almost double the net earnings of $14.6 million ($0.18 per diluted share) from the first six months of 2011 as the strong activity and results from Q1 2012 carried through the first half of the year.DRILLINGThe drilling division achieved a 10% increase in the number of operating days based on improvements in the operational and depth capacity of its drilling rig fleet in Q2 2012 compared to Q2 2011. Combined with an 11% increase in average day rates over the same time frame, this led to a $3.5 million or 20% increase in operating margins in Q2 2012 compared to Q2 2011. Based on year-to-date increases in operating days and day rates, together with overall improved operating margin performance, operating margins in the first half of 2012 increased by $31.8 million or 58% from the first half of 2011. In aggregate, for the three and six months ended June 30, 2012, drilling revenue was $86.1 million and $256.2 million respectively, which is up significantly from the $70.4 million and $204.2 million in the same respective periods in 2011. Operating margins in Q2 2012 were $20.4 million (24% of revenue) compared to operating margins of $17 million (24% of revenue) in Q2 2011. On a year-to-date basis operating margins were $86.9 million (34% of revenue) compared to the same period in 2011 when operating margins were $55.1 million (27% of revenue). To date in 2012, the Canadian industry has been highly focused on developing oil and liquids-rich prospects. Savanna is well positioned within these activity areas, and as a result demand for Savanna's primarily deep fleet of drilling rigs in Canada was particularly strong during the first half of 2012, with utilization rates higher than industry averages and day rates well above those of 2011. These factors have led to a $15.3 million increase in operating margins, compared to the first half of 2011, for the Canadian long-reach horizontal drilling fleet, which contributed 40% of Savanna's overall operating margin to the end of June, 2012. Savanna's fleet of shallow rigs in Canada achieved significant increases in utilization, day rates and operating margins in the first half of 2012 compared to the same period in 2011, primarily performing coring work for oil sands customers. This was despite a long spring break-up and prolonged wet weather in Q2 2012. The shallow CT-1500 fleet was most significantly impacted by the extended break-up conditions; shallow drilling rigs are quicker to cease operations in the face of wet operating conditions as they must move much more frequently and are unable to do so in very wet conditions.The Company's U.S. drilling fleet led the way in terms of operating margins in the contract drilling segment in Q2 2012. Revenue for Savanna's U.S. drilling operations was 19% higher in Q2 2012 compared to Q2 2011, and 25% higher on a year-to-date basis, as a result of more rigs, more operating days and higher day rates. Operating margin performance in the U.S. continued to improve in Q2 2012 as footage-based contracts in place in 2011 have been converted to day work terms. As a result, operating margins increased by 33% in Q2 2012 from Q2 2011. The Q2 2012 increase in operating margins brings the year-over-year increase for the first six months of 2012 to $11.7 million or 80% from the first half of 2011, with operating margin percentages nine percentage points higher this year compared to last year.In Australia, Savanna's drilling division generated improved revenues from an average of two drilling rigs working in the first half of 2012; however weather and customer delays, particularly in Q2 2012, limited operating margin increases. As more of the fleet begins working, and working at higher utilization rates, in the second half of 2012, the Company expects operating margin contributions to improve significantly. OILFIELD SERVICES The oilfield services division was more severely affected by the wet weather through the second quarter of 2012, in both Canada and Australia than Savanna's other businesses. A much larger fleet, coupled with very low utilization, resulted in an operating margin decrease compared to Q2 2011 despite more operating hours and higher revenue this year compared to last. However, based on strong demand through the first part of the year and a larger fleet, the division realized a 37% increase in operating hours, a 52% increase in revenue and $5.4 million or 33% increase in operating margins in the first half of 2012 compared to the first half of 2011. Overall for the three and six months ended June 30, 2012, oilfield services revenue was $35.1 million and $92.2 million respectively, which is up significantly from the $24.5 million and $60.5 million in the same respective periods in 2011. Operating margins in Q2 2012 were $4.2 million (12% of revenue) compared to operating margins of $5 million (21% of revenue) in Q2 2011. On a year-to-date basis operating margins were $21.9 million (24% of revenue) compared to the same period in 2011 when operating margins were $16.5 million (27% of revenue). Savanna's Canadian service rig fleet increased by nearly 50% through two acquisitions in the summer of 2011. This growth contributed to an increase in operating hours and, combined with higher hourly rates, overall revenues and operating margins increased in the first half of 2012 relative to the same period in 2011. The increases were achieved despite the negative effects of an extended spring break-up and prolonged periods of wet weather in Q2 2012. While hourly rates for well servicing were higher in Q2 2012 versus Q2 2011, utilization of the much larger fleet in Q2 2012 lagged Q2 2011. With a higher labour and fixed cost base driven by its larger scale, this negatively affected operating margins. Savanna still expects a secular increase in well servicing activity over the medium-term and has been upgrading and re-certifying its fleet and improving recruiting and training capabilities in anticipation of this.In contrast, the U.S. well servicing division was not affected by weather and had strong utilization rates throughout Q2 2012. The North Dakota operation clearly continued to benefit from a larger service rig fleet, increasing operating margins by over 70% in Q2 2012 compared to Q2 2011. On a year-to-date basis, operating margins were 76% higher in the first six months of 2012 compared to the same period in 2011. In Australia, the service rigs and related rental equipment generated improved revenues in the first half of 2012 based on an average of two rigs working in those six months. However, weather and customer delays in Australia, particularly in Q2 2012, negatively affected utilization of the equipment in that country and as a result operating margins remained challenged. As more of the fleet begins working, and begins working more consistently, in the second half of 2012, the Company expects operating margin contributions to increase significantly. BALANCE SHEET In May 2012, Savanna renewed its senior secured revolving credit facility, increasing the amount available to $200 million from $135 million, and extending 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 and beyond. DIVIDEND Savanna's first monthly dividend was declared in April 2012 and paid in May 2012. In total for Q2 2012, Savanna declared dividends of $7.7 million or $0.09 per share.SUMMARY OF QUARTERLY RESULTS - CONTRACT DRILLINGThe following is a summary of selected financial and operating information of the Company's contract drilling segment: (Stated in thousands of dollars, except revenue per day) Three Months Ended Six Months EndedJune 3020122011Change20122011ChangeRevenue$ 86,071$ 70,37122%$ 256,215$ 204,22625%Operating expenses$ 65,635$ 53,38223%$ 169,287$ 149,11114%Operating margin(1)$ 20,436$ 16,98920%$ 86,928$ 55,11558%Operating margin %(1)24%24%34%27%Operating days(2)3,8783,52110%10,7469,8629%Revenue per operating day$ 22,195$ 19,98611%$ 23,843$ 20,70815%Spud to release days(2)3,3633,1228%9,4988,6909%Wells drilled(2)34930315%1,1371,154(1%)Total meters drilled(2)693,998608,45914%1,831,2831,631,01712%The following summarizes the operating results for the three and six months ended June 30, 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-reachShallowDrillingThree months ended DrillingDrillingU.S. andJune 30, 2012CanadaCanadaInternationalTotal$$$$Revenue35,7682,46347,84086,071Operating margin(1)9,847(1,860)12,44920,436Operating margin %(1)28%-76%26%24%Revenue excluding cost recoveries31,9032,25245,69379,848Operating margin(1)9,847(1,860)12,44920,436Operating margin %(1)31%-83%27%26%Average number of net rigs deployed41203091Utilization %(2)33%6%75%41%(Stated in thousands of dollars)Long-reachShallowDrillingThree months ended DrillingDrillingU.S. andJune 30, 2011CanadaCanadaInternationalTotal$$$$Revenue31,7263,64734,99870,371Operating margin(1)9,186(1,301)9,10416,989Operating margin %(1)29%-36%26%24%Revenue excluding cost recoveries27,6453,15332,77063,568Operating margin(1)9,186(1,301)9,10416,989Operating margin %(1)33%-41%28%27%Average number of net rigs deployed38272489Utilization %(2)38%7%76%39%(Stated in thousands of dollars)Long-reachShallowDrillingDrillingDrillingU.S. andSix months ended June 30, 2012CanadaCanadaInternationalTotal$$$$Revenue127,57732,82895,810256,215Operating margin(1)48,46111,24127,22686,928Operating margin %(1)38%34%28%34%Revenue excluding cost recoveries114,11731,47692,070237,663Operating margin(1)48,46111,24127,22686,928Operating margin %(1)42%36%30%37%Average number of net rigs deployed41212991Utilization %(2)56%31%78%57%(Stated in thousands of dollars)Long-reachShallowDrillingDrillingDrillingU.S. andSix months ended June 30, 2011CanadaCanadaInternationalTotal$$$$Revenue104,16133,26566,800204,226Operating margin(1)33,1558,02213,93855,115Operating margin %(1)32%24%21%27%Revenue excluding cost recoveries88,42631,66262,589182,677Operating margin(1)33,1558,02213,93855,115Operating margin %(1)37%25%22%30%Average number of net rigs deployed37292490Utilization %(2)59%27%75%53%In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup. For the three and six months ended June 30, 2012 these costs aggregated $6.2 million and $18.6 million respectively. In the same respective periods in 2011 these costs amounted to $6.8 million and $21.6 million. Savanna's accounting policy with respect to cost recoveries billed to customers is to include them as both revenue and operating expenses rather than net them. Although Savanna believes this most appropriately reflects the substance of the underlying transactions, the accounting treatment of cost recoveries varies in the oilfield services industry. There is no effect on overall operating margins whether cost recoveries are netted or not; however, the different treatments do result in different operating margin percentages as the same dollar margin is factored against lower revenue when cost recoveries are netted. As a result Savanna believes it is useful to provide revenue excluding cost recoveries and the resulting operating margin percentages for comparative purposes.SUMMARY OF QUARTERLY RESULTS - OILFIELD SERVICESThe following is a summary of selected financial and operating information of the Company's oilfield services segment: (Stated in thousands of dollars, except revenue per hour) Three Months Ended Six Months EndedJune 3020122011Change20122011ChangeRevenue$ 35,063$ 24,47743%$ 92,193$ 60,54552%Operating expenses$ 30,912$ 19,43159%$ 70,278$ 44,01160%Operating margin(1)$ 4,151$ 5,046(18%)$ 21,915$ 16,53433%Operating margin %(1)12%21%24%27%Operating hours(2)34,17527,30025%87,59363,72437%Revenue per hour$ 852$ 71419%$ 873$ 74118%The following summarizes the operating results for the oilfield services segment by geographic area for the three and six months ended June 30, 2012 and 2011:(Stated in thousands of dollars)Three months ended June 30, 2012 CanadaU.S. and InternationalTotalRevenue22,82612,23735,063Operating margin(1)1,9102,2414,151Operating margin %(1)8%18%12%Utilization %(2)32%70%38%(Stated in thousands of dollars)Three months ended June 30, 2011 CanadaU.S. and International TotalRevenue16,4498,02824,477Operating margin(1)3,0062,0405,046Operating margin %(1)18%25%21%Utilization %(2)35%79%42%(Stated in thousands of dollars)Six months ended June 30, 2012 CanadaU.S. and InternationalTotalRevenue68,35823,83592,193Operating margin(1)16,8755,04021,915Operating margin %(1)25%21%24%Utilization %(2)44%69%48%(Stated in thousands of dollars)Six months ended June 30, 2011 CanadaU.S. and International TotalRevenue46,94713,59860,545Operating margin(1)13,3943,14016,534Operating margin %(1)29%23%27%Utilization %(2)48%69%51%Financial Condition and LiquiditySavanna's net debt(1) position at June 30, 2012, was $129 million; the amount owing on its revolving credit facility was $66.4 million and Savanna's total long-term debt outstanding, excluding unamortized debt issue costs, was $197.1 million. As of the date of this release, $76.2 million was drawn on Savanna's revolving credit facility.Capital Program UpdateIn November 2011, Savanna communicated a base capital expenditure program for 2012, including carryover of $22.9 million from 2011, of $126.9 million. That capital commitment was based upon a conservative and cautious outlook for 2012 for the markets in which the Company operates. Savanna purposely measured customer demand to gauge market conditions, acknowledging that uncertainty existed in the market overall. This resulted in a very cautious capital budget at that time. In Q1 2012, activity was actually very robust, resulting in higher maintenance capital costs to recertify rigs, and expanded opportunities for several of Savanna's business lines, primarily in Australia. It has now become clearer that for the remainder of 2012, operating activity will be lower than previously anticipated, and expectations for 2013 have also been reduced. Based on 2012 results to date, corporate expectations for the second half of 2012, and focusing on continued execution of the Company's core strategies, Savanna has revised its 2012 capital budget as follows:(Stated in millions of dollars)Previously committed$Retrofit of six hybrid drilling rigs as TDS-3000™ drilling rigs43.3Purchase of nine new portable top drives17.3Australia drilling and workover rigs and support equipment14.7North America support equipment for drilling, well servicing and rentals7.1Rental assets4.0Deposits on long-lead items6.6Corporate2.9Maintenance capital and rig re-certifications31.0Previously committed126.9New commitmentsRental assets (Nisku)4.0Incremental rig re-certifications and upgrades10.5Australia workover support equipment5.0Australia spare equipment and logistics5.2Two truck mounted accelerator (TMX) units1.2Incremental commitment25.9Total 2012 committed cash capital expenditures152.8On a cash basis, all of the above capital commitments are expected to be incurred in 2012. To date, previously outlined capital programs have been tracking in accordance with budgeted amounts and expectations. Savanna anticipates cash capital expenditures of $57.6 million between July 1, 2012 and December 31, 2012. The capital program for 2012 will enhance Savanna's pursuit of its core strategic initiatives as follows:NORTH AMERICAN OPERATIONSContinue to position Savanna as a deep driller by adding to its fleet of TDS-3000™ drilling rigs through the conversion of its shallow hybrid drilling rig platform. These rigs have delivered top quartile utilization and day rates in all markets in which they have been introduced in North America to date, converting previously low-utilized, shallow-focused rigs into highly sought after, mobile, high-capacity drilling rigs capable of extended long-reach horizontal drilling. At a very economic capital retrofit cost, these rigs have developed a strong following in both Canada and the U.S. Additionally, through enhanced rig re-certification efforts, Savanna also has been continuously upgrading the depth capacity of rigs in its telescoping double drilling rig fleet, extending the depth capacity from 2800 meters to 3500 meters vertically, and increasing their horizontal capacity as well. During 2012 to date, two rigs have undergone this capacity enhancement, and both have been re-deployed to deeper-focused programs as a result. These efforts continue to render Savanna drilling rigs the rigs of choice for extended long reach horizontal drilling in all of the Company's existing operating markets.In its Canadian oilfield services operation Savanna is placing a strong focus on improved utilization of its expanded workover rig fleet, including high-grading of equipment and positioning of its assets to improve usage. The Company is also pursuing a number of Aboriginal partnerships to solidify the operating areas and customer commitment to the equipment in this division. Savanna has a stated objective to expand its rental asset fleet to better align its scale with the Company's existing drilling and well servicing equipment and field infrastructure. With potential rental asset acquisitions trading at metrics in excess of Savanna, and in excess of organic growth costs, Savanna has continued to expand its rental asset fleet organically. With this capital announcement, a greenfield Nisku-based operation has been established, and key personnel to grow this business engaged. Savanna has specifically targeted an operating base in Nisku, Alberta to better access northern Alberta and British Colombia opportunities. Savanna is committed to establishing a strong footprint in new operating areas in Canada from this platform. Savanna continues to review acquisition opportunities to accelerate this growth.AUSTRALIAN OPERATIONSGeographic diversification of Savanna's revenue base beyond Canada has been further enhanced in 2012 through the provision of a previously announced, contracted, high-specification workover rig to Australia. This rig, which is fully capable of drilling and workover operations, is further augmented with substantial ancillary, support, and rental equipment. This equipment complements the existing four drilling and three workover rigs operating in the Bowen and Surat basins in Queensland, Australia. Both the third and fourth drilling rigs which were shipped to Australia on a speculative basis have now been contracted. One rig has been contracted with an existing customer for a one-year term, plus two one-year renewal options. If either option year is not exercised, Savanna will receive a lump sum termination payment. The fourth drilling rig has been contracted to drill 16 wells for a new customer and further demand for this rig appears strong independent of this contract. With the execution of these additional contracts, Savanna has secured consistent work for 100% of the drilling equipment, and 75% of the workover equipment, currently built for this operating area. With natural gas pricing dynamics significantly superior to those in North America, and substantial projected growth over the next several years, the Australian market presents a strong growth opportunity for Savanna. Having right-sized the shallow drilling fleet for North America, future opportunities in Australia for hybrid, TDS-3000™ and proprietary workover rigs will require new-build capital. Savanna anticipates further tenders to be issued by operating companies in the region in 2012.A high concentration of equipment in low-cost oil-focused regions coupled with quality equipment and a deep 2012 contract foundation have enabled Savanna to maintain strong core operating levels despite overall oilfield services market challenges driven by depressed natural gas and lower oil pricing. A better overall contract position for its equipment fleet, and drilling and well servicing equipment well-suited to current operating focuses of Savanna's customers, is expected to mitigate the impact of the slowdown in North America. Savanna continues to pursue a responsible capital program in light of the market uncertainties in North America. With one of the most modern drilling and oilfield services fleets, industry-leading aboriginal relationships, and substantial growth opportunities in all of its existing domestic and international markets, Savanna remains focused on providing long-term, sustainable returns for all of our stakeholders.CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTSCertain statements and information contained in this press release including statements related to the Company's, financial flexibility, capital expenditures, the timing of completion of its capital program and other strategic or growth initiatives and related rig deployments, the expectation of increased utilization and operating margin contributions from Savanna's Australian operations, the expectation of a slowdown in North American activity levels and the Company's ability to mitigate the effect of such slowdown, the expectation of increases in well servicing activity over the medium-term, 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 mitigate the effect of a slowdown in North American activity levels is premised on actual results experienced to date in 2012, customer contracts and commitments, the Company's expectations for its customers' capital budgets and geographical areas of focus, the status of current negotiations with its customers, and the focus of its customers on oil directed drilling opportunities in the current natural gas pricing environment in North America. Similarly, the Company's expectation of increased utilization and operating margin contributions from Savanna's Australian operations is premised on increases in the number of rigs Savanna operates in Australia, the contracts in place with and communications with its customers in the region, and the general expectation that coal seam gas activity will increase in that country as plans for liquefied natural gas plants move forward. The Company's expectation of the timing of completion of its capital program and other strategic or growth initiatives and related rig deployments is premised on expectations of the progress of Savanna's current capital projects and current customer advice on deployment for specific customer programs. The Company's expectation of increases in well servicing activity over the medium-term is premised on the increase in the number of oil and gas liquids based wells that have been drilled over the last several years and the required maintenance through the life of such wells compared to natural gas wells. 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.Included herein is a revised 2012 capital budget. To the extent such budget constitutes future oriented financial information or a financial outlook, such future oriented financial information or financial outlook is included herein to provide readers with an understanding of the Company's anticipated capital expenditures for the remainder of 2012. Readers are cautioned that the information may not be appropriate for other purposes.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's full Q2 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 Thursday, August 9, 2012 at 10:00 a.m. Mountain Time (12:00 p.m. Eastern Time) to discuss the Company's second 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 August 17, 2012 by dialing 1-800-937-6305 and entering passcode 772148.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 Service Corp.President and Chief Executive Officer(403) 503-9990ORDarcy DraudsonSavanna Energy Service Corp.Vice President Finance and Chief Financial Officer(403) 503-9990www.savannaenergy.com