CALGARY, ALBERTA -- (Marketwired) -- 03/05/14 -- Savanna Energy Services Corp. (TSX: SVY) -
Fourth Quarter Results
Savanna Energy Services Corp. ("Savanna" or "the Company") generated EBITDAS of $34.6 million on $177 million of revenue in Q4 2013, an increase of 12% over EBITDAS of $30.8 million on $172.6 million of revenue in Q4 2012. The increases were primarily a result of substantial increases in Australian activity and operating results, combined with a decrease in retention costs and repairs and maintenance costs in Savanna's North American drilling divisions. Contract drilling operating margins increased 23% compared to Q4 2012, offsetting a 13% operating margin reduction in oilfield services. Sequentially, revenue increased from $170.6 million in Q3 2013, based primarily on seasonal increases in Savanna's Canadian drilling operations and a $3.5 million increase in cost recoveries billed to customers with little or no markup. Despite the revenue increase, EBITDAS decreased from the $38.2 million in Q3 2013, as seasonal revenue increases did not translate into increased margins in Canada, and utilization decreases in Savanna's U.S. drilling operation were compounded by per day higher costs.
In Australia, improved utilization on a larger equipment base resulted in substantial operating margin increases in the quarter relative to Q4 2012. Overall operating margins from Australia totaled $5.4 million in Q4 2013, in-line with the $5.4 million generated in Q3 2013, and nearly double the $2.9 million in operating margins in Q4 2012. Activity levels continue to ramp up in Australia and Savanna's position within the Australian market is expanding along with them. The Company's fifth drilling rig in Australia commenced operations in December 2013. An additional five workover rigs and three flush-by units are under construction and are expected commence operations in Australia in Q3 and Q4 2014. Including the drilling rig added in December 2013, Savanna will be more than doubling its fleet in the region in less than twelve months.
In Canada, overall operating margins also increased in Q4 2013 relative to Q4 2012, as improved utilization and lower costs on the drilling fleet were partially offset by lower well servicing and oilfield rentals activity and operating margins. Savanna generated $30.1 million in operating margins on $105.8 million of revenue in Canada in Q4 2013, compared to $28.9 million in operating margins on $104.6 million of revenue in Q4 2012, and $29.8 million in operating margins on $98.7 million of revenue in Q3 2013. Revenue increased relative to Q4 2012, despite lower day rates in Canadian drilling, lower hourly rates in Canadian well servicing and lower overall revenue in Canadian oilfield rentals. The increase was a result of increased activity in Canadian drilling and an increase in cost recoveries billed to customers with little or no markup. Even with lower per day revenue, operating margins increased based on higher drilling utilization, a $1.5 million decrease in retention costs and lower repairs and maintenance costs. Despite higher revenues in Q4 2013 compared to Q3 2013, operating margins remained flat. Of the revenue increase, $2.8 million related to cost recoveries billed to customers with little or no markup, while the remainder was a result of seasonal rate increases due to additional winter equipment and recoveries of industry wage increases. These wage increases, combined with $1 million in retention costs and higher fuel costs, resulted in higher overall variable costs in Q4 2013 compared to Q3 2013, offsetting the increase in revenue for the quarter.
In the U.S., operating margins increased in Q4 2013, despite lower revenue compared to Q4 2012. A 20% decrease in operating days in Savanna's U.S. drilling operation in Q4 2013 relative to Q4 2012, was more than offset by higher per day revenue and lower per day repairs and maintenance costs. The decrease in operating days was due to early completion of drilling programs for certain of Savanna's customers and the transfer of a drilling rig to Canada. In addition, revenue and operating margins for well servicing in the U.S. increased in Q4 2013 as a result of more operating hours, based on more rigs, and higher hourly rates relative to Q4 2012. Savanna generated $11.2 million in operating margins on $42.7 million of revenue in the U.S. in Q4 2013, compared to $9.8 million in operating margins on $46.2 million of revenue in Q4 2012, and $15.4 million in operating margins on $44.9 million of revenue in Q3 2013. Excluding a $0.8 million increase in cost recoveries billed to customers, with little or no markup, revenue was $3.1 million lower in Q4 2013 compared to Q3 2013 based on a decrease in utilization. In addition, per day costs increased relative to Q3 2013, as a result of wage increases and the negative effect of fixed costs, and repair and resupply costs on idled rigs had on a lower activity levels in Q4 2013. All of the rigs idled in Q4 2013, except for a TDS-2200 drilling rig transferred to Canada, returned to work over the course of Q1 2014, and as of the date of this press release, the entire active drilling rig fleet in the U.S. was operating.
Savanna's Q4 2013 net earnings attributable to the shareholders of the Company increased by $1.2 million to $4.4 million, or $0.05 per share, from $3.2 million, or $0.04 per share, in Q4 2012, as higher EBITDAS was partially offset by higher depreciation and amortization, share-based compensation, and finance expenses. In Q3 2013, Savanna's net earnings attributable to the shareholders of the Company was $6.7 million, or $0.08 per share. The decrease in EBITDAS in Q4 2013 relative to Q3 2013, as a result of utilization decreases and higher per day costs in Savanna's U.S. drilling operation, together with an increase in finance expenses, led to the decrease in net earnings.
Annual Results
Activity in Australia accelerated throughout 2013, and was the primary driver for the year-over-year growth in revenue for Savanna. More importantly, the improved utilization and operating margins from Savanna's Australian operations kept Savanna's consolidated operating margins in-line with 2012. Overall operating margins from Australia totaled $20.6 million in 2013, which is more than three times the total operating margins generated from Australia in 2012. These increases offset much of the negative effect of weaknesses in North American activity.
In North America, overall economic uncertainty, pipeline capacity constraints in Canada, and continuing low natural gas prices, depressed oilfield service demand levels in 2013 relative to 2012. This led to lower utilization in both drilling and well servicing in Canada and the U.S., and decreased pricing on Savanna's spot market drilling rigs. Despite these industry demand decreases, an increase in Savanna's drilling utilization, driven by the refurbishment and retrofit initiatives of the last few years, and an increase in Canadian oilfield rentals revenue, partially mitigated the negative effect of widespread activity declines in North America in 2013 versus 2012.
More specifically, in the U.S., a 9% decrease in drilling and well servicing activity combined, and the costs associated with crewing incremental service rigs negatively affected operating margins. An increase in average per day revenue partially offset these decreases and as a result, in 2013, operating margins from Savanna's U.S. operations decreased 3% relative to 2012.
In Canada, lower relative pricing in 2013 compared to 2012, and a significant decrease in well servicing utilization, were the primary drivers for a decrease in overall operating margins year-over-year. These decreases were partially offset by an increase in the number of active drilling rigs deployed. A 31% increase in rentals revenue, driven by the Q4 2012 acquisition of oilfield accommodation buildings, also positively impacted operating margins. In aggregate, operating margins from Savanna's operations in Canada decreased by 9% in 2013 compared to 2012.
Higher overall general and administrative expenses, higher depreciation expenses, and higher finance expenses, also negatively impacted Savanna's net earnings in 2013 relative to 2012. In addition, in 2013, Savanna incurred $1.1 million in severance and bad debt expenses, approximately 60% of which is included in general and administrative expenses.
Financial Highlights
The following is a summary of selected financial information of the Company:
(Stated in thousands of
dollars, except per
share amounts)
Three months ended Twelve months ended
December 31 2013 2012 Change 2013 2012 Change
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OPERATING RESULTS
Revenue 177,025 172,582 3% 696,609 688,154 1%
Operating expenses 130,330 130,743 0% 494,949 485,343 2%
Operating margin(1) 46,695 41,839 12% 201,660 202,811 (1%)
Operating margin %(1) 26% 24% 29% 29%
EBITDAS(1) 34,598 30,765 12% 150,896 157,426 (4%)
Attributable to
shareholders of the
Company 33,019 29,594 12% 146,036 152,026 (4%)
Per share: diluted 0.37 0.34 9% 1.67 1.77 (6%)
Net earnings 5,579 4,034 38% 33,936 41,886 (19%)
Attributable to
shareholders of the
Company 4,428 3,162 40% 30,243 37,784 (20%)
Per share: diluted 0.05 0.04 25% 0.35 0.44 (20%)
Diluted weighted average
shares outstanding
(000s) 88,378 86,049 87,330 85,661
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CASH FLOWS
Operating cash flows(1) 28,838 24,495 18% 137,593 141,381 (3%)
Acquisition of capital
assets(1) 49,604 46,157 7% 124,870 187,803 (34%)
Proceeds on disposal of
capital assets 1,011 175 478% 5,589 11,136 (50%)
Dividends paid 5,558 5,707 (3%) 22,628 15,792 43%
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FINANCIAL POSITION AT
DECEMBER 31 2013 2012
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Working capital(1) 86,398 94,125 (8%)
Capital assets(1) 1,186,252 1,145,554 4%
Total assets 1,391,602 1,338,489 4%
Long-term debt 246,568 249,939 (1%)
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Effective January 1, 2013, Savanna adopted International Financial Reporting Standard ("IFRS") 10, Consolidated Financial Statements. Adoption of the standard changed how Savanna accounted for its partnerships with Aboriginal communities, from 50% proportionate consolidation to full consolidation. As a result, the comparative figures included in this press release, have been restated. The changes on adoption of the new standard are described in detail in the Company's 2013 management's discussion and analysis, under the heading "Accounting Policies", and in Note 4 of the Company's consolidated financial statements for the year ended December 31, 2013.
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 investment in operating assets, liquidity and leverage.
-- 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 (income).
-- 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:
-- 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 in North America based on standard hours of 3,650 per rig per year.
Utilization for Savanna's service rigs in Australia is calculated based
on standard hours of 8,760 per rig per year to reflect 24 hour operating
conditions in that country. Reliable industry average utilization
figures, specific to well servicing, are not available.
Segmented Results - Contract Drilling
The following is a summary of selected financial and operating information of the Company's contract drilling segment:
(Stated in thousands of dollars, except revenue per day) Three Months Ended Twelve Months Ended --------------------------------------------------------------------------- December 31 2013 2012 Change 2013 2012 Change --------------------------------------------------------------------------- Revenue $ 127,969 $ 123,424 4% $ 502,183 $ 502,027 0% Operating expenses $ 92,452 $ 94,473 (2%) $ 348,504 $ 346,014 1% Operating margin(1) $ 35,517 $ 28,951 23% $ 153,679 $ 156,013 (1%) Operating margin %(1) 28% 23% 31% 31% Operating days 5,321 5,352 (1%) 21,469 21,776 (1%) Revenue per operating day $ 24,050 $ 23,061 4% $ 23,391 $ 23,054 1% Spud to release days 4,616 4,630 0% 18,629 19,058 (2%) Wells drilled 549 545 1% 2,290 2,250 2% Meters drilled 1,088,310 1,020,297 7% 4,325,496 3,956,279 9% ---------------------------------------------------------------------------
FOURTH QUARTER RESULTS
Overall revenue increased relative to Q4 2012, as a greater contribution from Australia, where day rates are higher, and increased average day rates in the U.S., more than offset average day rate decreases in Canada. Operating days remained relatively flat compared to Q4 2012, as improved utilization in Canada and Australia was offset by lower utilization in the U.S. However, an overall decrease in retention costs and repairs and maintenance costs, combined with higher revenue, resulted in a 23% increase in operating margins and higher operating margin percentages in Savanna's contract drilling segment compared to Q4 2012.
The following summarizes the operating results in the fourth quarter of 2013 and 2012 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.
Long-
reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
Q4 2013 Canada Canada Australia Total
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Revenue 71,899 5,338 50,732 127,969
Operating margin(1) 23,199 135 12,183 35,517
Operating margin %(1) 32% 3% 24% 28%
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Revenue excluding cost recoveries 63,434 4,905 47,898 116,237
Operating margin(1) 23,199 135 12,183 35,517
Operating margin %(1) 37% 3% 25% 31%
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Average number of rigs deployed 51 20 29 100
Utilization %(2) 54% 11% 70% 50%
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Long-
reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
Q4 2012 Canada Canada Australia Total
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Revenue 65,214 4,074 54,136 123,424
Operating margin(1) 20,084 (1,697) 10,564 28,951
Operating margin %(1) 31% (i) 20% 23%
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Revenue excluding cost recoveries 57,477 3,830 51,224 112,531
Operating margin(1) 20,084 (1,697) 10,564 28,951
Operating margin %(1) 35% (i) 21% 26%
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Average number of rigs deployed 50 20 30 100
Utilization %(2) 49% 9% 81% 50%
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(i) Calculation not meaningful
In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup. For Q4 2013 these costs aggregated $11.7 million (Q4 2012 - $10.9 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 to 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.
The Canadian long-reach drilling rigs delivered improved utilization in Q4 2013 compared to Q4 2012. In addition, day rates for Savanna's spot market rigs continued to improve relative to earlier in the year; however, pricing is still below that of Q4 2012. Variable costs per day were lower than last year, primarily as a result of lower repairs and maintenance costs, and fixed costs had a less pronounced effect compared to Q4 2012, due to the increase in utilization. Overall, the increase in utilization, together with the decrease in per day costs, resulted in a 16% increase in operating margins relative to Q4 2012. The 54% utilization rate for Savanna's long-reach drilling rigs in Q4 2013 was above the Canadian industry utilization rates of 45% in the same depth categories.
The Company's shallow drilling rig fleet achieved higher utilization and revenue in Q4 2013 relative to Q4 2012. In addition, lower retention costs this year versus last resulted in significantly improved operating margins compared to Q4 2012. The shallow drilling rig fleet had contributed negatively to overall operating margins in Q4 2012.
Despite fewer operating days, Savanna's U.S. drilling operation increased operating margins in Q4 2013 compared to Q4 2012. Higher average day rates and lower per day repairs and maintenance costs more than offset the 20% decrease in operating days, and as a result, operating margin percentages for the quarter increased by five percentage points relative to Q4 2012. The decrease in operating days was due to early completion of drilling programs for certain of Savanna's customers and the transfer of a TDS-2200 drilling rig to Canada. All of the rigs idled in Q4 2013 returned to work during Q1 2014.
In Australia, the Company's fifth drilling rig commenced operations in December 2013. Operating an additional drilling rig for part of the quarter resulted in an increase in operating days relative to Q4 2012. The increase in days, coupled with higher day rates and lower per day variable costs, resulted in a 28% increase in operating margins for Savanna's drilling operations in Australia compared to Q4 2012. The increased contribution from Australia also drove average per day revenue up for the drilling segment as a whole as day rates are significantly higher in Australia than they are in North America.
ANNUAL RESULTS
In 2013, overall revenue for the year in Savanna's contract drilling segment was flat relative to 2012, as a significant increase in activity levels in Australia and a slight increase in overall drilling days in Canada offset operating day declines in the U.S. Correspondingly, a $7 million, or 119%, increase in operating margins from drilling in Australia, and having three more active rigs in the Canadian drilling fleet in 2013 relative to 2012, partially offset the negative effects of decreased demand levels and utilization in North America. Similarly, lower day rates in Canada were offset by higher per day rates in the U.S. and Australia.
The following summarizes the operating results in 2013 and 2012 by type of rig or geographic area.
Long-
reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
YTD 2013 Canada Canada Australia Total
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Revenue 257,926 35,018 209,239 502,183
Operating margin(1) 85,795 9,050 58,834 153,679
Operating margin %(1) 33% 26% 28% 31%
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Revenue excluding cost recoveries 228,904 33,608 200,609 463,121
Operating margin(1) 85,795 9,050 58,834 153,679
Operating margin %(1) 37% 27% 29% 33%
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Average number of rigs deployed 50 20 30 100
Utilization %(2) 51% 18% 74% 51%
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Long-
reach Shallow Drilling
(Stated in thousands of dollars) Drilling Drilling U.S. and
YTD 2012 Canada Canada Australia Total
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Revenue 261,206 39,604 201,217 502,027
Operating margin(1) 95,215 8,762 52,036 156,013
Operating margin %(1) 36% 22% 26% 31%
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Revenue excluding cost recoveries 233,866 37,853 193,770 465,489
Operating margin(1) 95,215 8,762 52,036 156,013
Operating margin %(1) 41% 23% 27% 34%
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Average number of rigs deployed 46 21 30 97
Utilization %(2) 53% 20% 79% 54%
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In 2013, cost recoveries aggregated $39.1 million compared to $36.5 million in 2012.
Despite an overall increase in operating days, lower day rates in 2013 resulted in decreased revenue for the Company's long-reach drilling rigs in Canada compared to 2012. This lower revenue, coupled with higher per-day-pass through costs, led to a 17% decrease in operating margins and lower operating margin percentages compared to 2012. Low overall industry demand in Canada heading into the winter drilling season in 2012 put pressure on spot market day rates in early 2013. While rates have now stabilized, they are still lower than this time last year. Although utilization in 2013 decreased compared to the same period in 2012, the 51% utilization rate for Savanna's long-reach drilling rigs in 2013 still exceeded Canadian industry utilization rates of 41% in the same depth categories.
The majority of the revenue and operating margins from Savanna's shallow fleet in both 2013 and 2012 was earned performing coring work for oil sands customers in the first quarter. The CT-1500 hybrid drilling rigs have had considerable success in applying coil-based drilling to coring. In addition, as a result of improved utilization post Q1 and cost control initiatives in 2013, the shallow fleet generated improved operating margins and operating margin percentages relative to 2012.
In Savanna's U.S. drilling operation, an increase in average day rates was offset by a decrease in operating days. As a result operating margins in 2013 remained flat relative to 2012. Although demand levels have decreased overall in the U.S. compared to 2012, in 2013 Savanna was able to maintain high utilization rates in the regions where its rigs were deployed. As stated above, operating days in Q4 2013, in particular, decreased compared to Q4 2012. However, all of the rigs idled in Q4 2013 returned to work during Q1 2014.
In Australia, operating days and revenue increased significantly in 2013 compared to 2012 as utilization improved on a larger rig fleet. The larger fleet also reduced the impact of fixed costs on per day costs, and as a result of these factors operating margins for Savanna's drilling operations in Australia increased to $12.9 million in 2013, which is more than double that of 2012.
Segmented 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 --------------------------------------------------------------------------- December 31 2013 2012 Change 2013 2012 Change --------------------------------------------------------------------------- Revenue $ 49,336 $ 49,877 (1%) $ 196,931 $ 189,224 4% Operating expenses $ 38,241 $ 37,089 3% $ 149,312 $ 142,851 5% Operating margin(1) $ 11,095 $ 12,788 (13%) $ 47,619 $ 46,373 3% Operating margin %(1) 22% 26% 24% 25% Operating hours - well servicing 44,059 44,719 (1%) 163,884 178,636 (8%) Revenue per operating hour - well servicing $ 895 $ 903 (1%) $ 923 $ 871 6% ---------------------------------------------------------------------------
FOURTH QUARTER RESULTS
Revenue for Savanna's oilfield services division in Q4 2013 was relatively flat compared to Q4 2012, as decreases in Canada were offset by increases in both the U.S and Australia. Increased utilization in Australia and three additional rigs operating in the U.S., also led to substantial increases in operating margins in each respective operating area in Q4 2013 relative to Q4 2012. Unfortunately, decreases in operating margins in Canada relative to Q4 2012 more than offset the improvements in Australia and the U.S. In Savanna's Australian operations, both per hour revenue and per hour costs are higher than in North America. Although per hour operating margins are comparable in all three operating areas, based on the higher revenues in Australia, operating margin percentages are generally lower in Australia than in North America.
Included in revenue for Q4 2013, was $9.9 million from oilfield rentals (Q4 2012 - $9.5 million). Of the Q4 2013 rental revenue, $4.9 million (Q4 2012 - $4.1 million) was generated in Australia and $0.4 million (Q4 2012 - $0.8 million) is eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from the per hour revenue calculations above.
The following summarizes the operating results by geographic area:
(Stated in thousands of dollars) U.S. and Q4 2013 Canada Australia Total --------------------------------------------------------------------------- Revenue 28,479 20,857 49,336 Operating margin(1) 6,622 4,473 11,095 Operating margin %(1) 23% 21% 22% Average number of rigs deployed - well servicing 83 17 100 Utilization %(2) - well servicing 39% 67% 44% --------------------------------------------------------------------------- (Stated in thousands of dollars) U.S. and Q4 2012 Canada Australia Total --------------------------------------------------------------------------- Revenue 35,168 14,709 49,877 Operating margin(1) 10,625 2,163 12,788 Operating margin %(1) 30% 15% 26% Average number of rigs deployed - well servicing 89 14 103 Utilization %(2) - well servicing 43% 59% 45% ---------------------------------------------------------------------------
Lower industry demand in Canada resulted in lower activity levels in Savanna's well servicing operations in Q4 2013 compared to Q4 2012. In addition to fewer operating hours, hourly rates also decreased relative to Q4 2012. The number of operating hours from the well servicing fleet in Canada decreased by 15% compared to Q4 2012, while average per hour revenue was 7% lower. Variable per hour costs in well servicing increased relative to Q4 2012, primarily as a result of wage increases implemented in Q4 2013 and higher fuel costs. The higher variable costs were partially offset by lower overall fixed costs as a result of a restructuring of the well servicing field operations in Canada earlier in 2013. Still, based on lower utilization and pricing, operating margins in Canadian well servicing decreased by 38% in the quarter, compared to Q4 2012. For rentals, activity decreased dramatically in Q4 2013 compared to Q4 2012, and based on the primarily fixed cost structure of this business, a 36% decrease in operating margins resulted.
Revenue for well servicing in the U.S. increased in Q4 2013 as a result of more operating hours, based on more rigs, and higher pricing relative to Q4 2012. The increase in revenue resulted in a 32% increase in operating margins compared to Q4 2012, despite higher labour costs associated with crewing the three rigs transferred from Canada during the quarter. Of the three rigs transferred in Q4, one began operating in October 2013, the second in late December 2013 and the third in late January 2014. With up to six additional rig transfers from Canada planned for 2014, operating margin contributions from Savanna's U.S. well servicing operations should continue to increase in future quarters.
In Australia, revenue from service rigs and rental equipment increased by 45% and operating margins increased by $1.7 million in Q4 2013, four times that of Q4 2012. The increases are a result of improved utilization on a larger equipment base.
ANNUAL RESULTS
Savanna's oilfield services division generated higher revenues, despite achieving fewer operating hours in 2013 compared to 2012. The increase was a result of higher overall per hour rates in well servicing, due primarily to a larger contribution from Australia, and a $12 million increase in oilfield rentals revenue. Overall, operating margins increased by $1.2 million in 2013, while operating margin percentages were one percentage point lower compared to 2012. The operating margin increase was driven by increases in Australia; operating margins from service rigs and rental equipment in Australia increased by $6.8 million, or 721%, in 2013 compared to 2012. The increases in Australia more than offset operating margin decreases in North America, but also resulted in the lower overall operating margin percentages. As described above, operating margin percentages are relatively lower in Australia compared to those in North America.
Included in revenue for 2013, was $45.6 million from oilfield rentals (2012 - $33.6 million), a 36% increase from 2012. Of the total rental revenue in 2013, $20 million (2012 - $14 million) was generated in Australia and $2.9 million (2012 - $3.5 million) is eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from per hour revenue calculations.
The following summarizes the operating results by geographic area:
(Stated in thousands of dollars) U.S. and YTD 2013 Canada Australia Total --------------------------------------------------------------------------- Revenue 118,574 78,357 196,931 Operating margin(1) 31,640 15,979 47,619 Operating margin %(1) 27% 20% 24% Average number of rigs deployed - well servicing 84 15 99 Utilization %(2) - well servicing 37% 69% 42% --------------------------------------------------------------------------- (Stated in thousands of dollars) U.S. and YTD 2012 Canada Australia Total --------------------------------------------------------------------------- Revenue 136,687 52,537 189,224 Operating margin(1) 36,262 10,111 46,373 Operating margin %(1) 27% 19% 25% Average number of rigs deployed - well servicing 89 14 103 Utilization %(2) - well servicing 43% 61% 46% ---------------------------------------------------------------------------
In Canada, industry demand for oilfield services was lower in 2013 compared to 2012, which led to lower utilization and revenue from Savanna's well servicing fleet. The number of operating hours from the well servicing fleet in Canada decreased by 20% compared to 2012. However, the decrease in well servicing revenue was partially offset by a 31% increase in rentals revenue related to the Q4 2012 acquisition of oilfield accommodation buildings. Well servicing revenue per hour in Canada remained relatively flat, while both per hour variable costs and overall fixed costs were lower than in 2012. Based on these factors, Savanna's oilfield services division in Canada was able to maintain operating margin percentages despite a decrease in overall activity and revenue.
In the U.S., Savanna's well servicing fleet generated fewer hours in 2013 than in 2012, as a result of timing for the number of active rigs operating. Savanna operated through 2012 with 11 active service rigs on average but exited the prior year with nine active rigs. These nine rigs operated through Q1 2013, the U.S. service rig fleets most active quarter, and incremental rigs were only added in the second half of the year. The costs associated with crewing these incremental rigs drove per hour labour costs up relative to 2012. Consequently, operating margins for well servicing in the U.S. decreased in 2013 relative 2012.
In Australia, revenue from service rigs and rental equipment increased by 77% in 2013 compared to 2012. Operating margins increased by $6.8 million from $0.9 million in 2012. The increases were a result of significantly improved utilization and a larger equipment base.
Balance Sheet
Savanna's working capital at December 31, 2013, was $86.4 million and its net debt position was $160.2 million, an increase of $4.4 million or 3% from the Company's $155.8 million net debt position at December 31, 2012. Savanna's total long-term debt outstanding on December 31, 2013, excluding unamortized debt issue costs, was $246.6 million, compared to $249.9 million outstanding at December 31, 2012.
Savanna further solidified its debt structure in 2013 to match its anticipated capital deployment strategy for 2014, while sustaining its current monthly dividend. The Company completed a $50 million add-on to its senior unsecured notes, which are due in May 2018, and renewed its $200 million revolving credit facility, extending the term by one year so all drawn amounts are not due until May 2017. Savanna also has an available $50 million accordion, which it can request as an increase to the revolving credit facility. In addition, Savanna secured $17 million in new financing in two separate limited partnerships partially owned by the Company in early 2014.
As of the date of this release, $89.7 million was drawn on Savanna's total available credit facilities of $200 million.
Dividend
In 2013, Savanna declared dividends totaling $31.3 million or $0.36 per share. Of the dividends declared, $8.6 million was reinvested in additional common shares through the Company's dividend reinvestment plan.
Outlook
Canadian drilling activity levels for Savanna in Q1 2014 are tracking utilization levels of Q1 2013. However, Savanna's day rates for drilling are generally higher than they were in Q1 2013. Oilfield service activity in Canada was slower to ramp up in Q1 2014 relative to Q1 2013, but has been tracking closer to 2013 levels since. The uncertain duration of Q1 activity in Canada, as a result of the timing of spring break-up, will ultimately dictate overall Q1 2014 activity levels. Both the CAODC and the Petroleum Services Association of Canada ("PSAC") are forecasting 2014 Canadian activity levels to be in-line with 2013. Although the Company has increased its operations outside of Canada, Savanna is still highly dependent on activity levels in Canada to drive overall results and industry activity levels will have a greater impact on Savanna's performance due to the relatively lower contract status on the Company's fleet in Canada. To mitigate this impact, Savanna has increased the number of rigs under contract relative to last year and is confident that this will continue to increase in 2014. The Company is also pursuing a number of initiatives to alleviate the impact persistent labour shortages are having on its operations in Canada. In addition, greater access for Savanna to the already active oil sands regions through its partnership with Fort McKay First Nation should also provide improved returns.
In the U.S., utilization levels in Q1 2014 are expected to be slightly lower than in Q1 2013 for drilling but higher for well servicing. The increase in well servicing is a result of having five additional active rigs compared to the beginning of 2013. For drilling, rigs that were idled in Q4 2013 all returned to work gradually throughout the quarter so utilization will trail that of Q1 2013. Savanna's U.S. based drilling rigs are under contracts that expire over the next 18 months. However, many have recently been renewed at existing terms and as a result should continue to mitigate any near-term drilling market softness. Additionally, Savanna's U.S. drilling and well servicing fleets are positioned in markets where activity is expected to remain relatively stronger, and Savanna believes it has strong operating positions in those markets.
In Australia, utilization and operating margins continue to improve every quarter, and with the fifth drilling rig commencing operations in December 2013 this trend should continue in 2014. Savanna has established sufficient scale in Australia to take advantage of the expected sharp increase in activity levels in that country. With five additional workover rigs and three new flush-by units expected to commence operations under long-term contract in Australia in 2014, Savanna is well positioned to continue generating increasing returns from this division. Savanna remains very optimistic on the ongoing prospects in Australia. With liquefied natural gas delivery deadlines beginning in 2014, activity levels continue to increase in the region overall and support a further ramp-up in activity, and resulting equipment and service requirements as well.
The oilfield service market continues to face uncertainty in the near-term. Commodity pricing, particularly for natural gas and heavy oil, and pipeline capacity issues in North America, are impacting customer demand for services. There are indications that the oil and gas industry activity in North America could improve later in 2014 and beyond. While prices for oil are expected to remain steady in 2014, gas prices are beginning to increase. While significant, the sustainability of this increase is at this point uncertain. Any positive announcements regarding pipeline infrastructure improvements and/or prospects for Canadian liquefied natural gas development could further support this pricing. Also, a lower Canadian dollar relative to the U.S. dollar will be beneficial to Savanna's customers in Canada, as their costs are primarily incurred in Canadian dollars while their revenues are primarily earned in U.S. dollars. In Australia, long-term prospects remain strong and Savanna's contract position in both Australia and the U.S. should result in stable activity in those markets. Savanna is confident in the long-term prospects for every region in which the Company operates, and in its ability to deliver the safest, most effective drilling, completion and workover services possible to its customers.
Cautionary Statement Regarding Forward-Looking Information and Statements
Certain statements and information contained in this press release including statements related to expectations of activity levels in 2014 and the Company's prospects relating thereto, the expected timing for the commencement of operations of five workover rigs and three flush-by units in Australia, the expectation of transferring service rigs from Canada to North Dakota and the continuing increase of operating margin contributions from Savanna's U.S. well servicing operations, the expectation of increasing activity levels, utilization, operating margins, and returns from Savanna's Australian operations, the expectation that Savanna's partnership with Fort McKay First Nation should provide greater access to the already active oil sands regions, the expectation of near-term uncertainty in North American activity levels and the oilfield service market, and the Company's ability to mitigate the effect of such, the expectation of increased demand and/or pricing for oilfield service equipment as liquefied natural gas development in Canada and/or pipeline infrastructure improvements move forward, and statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may", "likely", "estimate", "predict", "potential", "continue", "maintain", "retain", "grow", and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995.
These statements are based on certain assumptions and analysis made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. In particular, expectations of activity levels in 2014 and the Company's prospects relating thereto are premised on actual activity levels and utilization experienced to date in 2014, an increase in the number of rigs under contract in Canada and Australia, and an increase in the number of rigs operating in Australia and North Dakota. The expected timing for the commencement of operations of five workover rigs and three flush-by units in Australia is premised on Savanna's past experience in building and deploying rigs into the Australian market. The Company's expectation of transferring service rigs from Canada to North Dakota is premised on the Company's expectation of utilization levels in North Dakota relative to Canada and the current number of rigs racked in Canada pending future upgrades. The Company's expectation of the continuing increase of operating margin contributions form Savanna's U.S. well servicing operations is premised on the Company's current outlook for industry activity in that region and the expected increase in the scale of those operations through rigs slated for transfer from Canada. The Company's expectation of increasing activity levels, utilization, operating margins, and returns from Savanna's Australian operations is premised on actual results experienced in 2013, the contracts currently in place, including those for five new-build workover rigs and three new-build flush-by units, communications with its customers in the region, and the general expectation that coal seam gas activity will increase in that country as the deliveries to, and plans for, liquefied natural gas plants progress.
The Company's expectation that its partnership with Fort McKay First Nation should provide improved access to the already active oil sands regions is premised on agreements and relationships between Fort McKay First Nation and potential customers working in the oil sands and the exclusivity of the partnership to Savanna and Fort McKay First Nation in the Regional Municipality of Wood Buffalo. The Company's expectation of increased demand for oilfield service equipment as liquefied natural gas development in Canada and/or pipeline infrastructure improvements move forward, and its ability to mitigate the effect of near-term uncertainty in North American activity levels and the oilfield service market are premised on actual results experienced in 2013 and to date in 2014, 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, the focus of its customers on oil directed drilling opportunities in the current natural gas pricing environment in North America, and regulatory approvals granted or pending for additional pipelines and liquefied natural gas export terminals in Canada. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Company's expectations. Such risks and uncertainties include, but are not limited to: fluctuations in the price and demand for oil and natural gas; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for well servicing, oilfield rentals and contract drilling; the effects of weather conditions on operations and facilities; the existence of competitive operating risks inherent in well servicing, oilfield rentals and contract drilling; general economic, market or business conditions; changes in laws or regulations, including taxation, environmental and currency regulations; the lack of availability of qualified personnel or management; the other risk factors set forth under the heading "Risks and Uncertainties" in the Company's management's discussion and analysis for the year ended December 31, 2013, and under the heading "Risk Factors" in the Company's Annual Information Form and other unforeseen conditions which could impact on the use of services supplied by the Company.
All of the forward-looking information and statements made in this press release are qualified by this cautionary statement and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations. Except as may be required by law, the Company assumes no obligation to update publicly any such forward-looking information and statements, whether as a result of new information, future events, or otherwise.
Other
Savanna's management's discussion and analysis and audited consolidated financial statements for the year ended December 31, 2013, 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 Thursday, March 6, 2014 at 8:00 a.m. Mountain Time (10:00 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, Executive 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 14, 2014 by dialing 1-800-937-6305 and entering passcode 687032.
Savanna is a Canadian-based drilling and oilfield services provider with operations in Canada, the United States and Australia, focused on providing fit for purpose equipment and technologies.
Contacts:
Savanna Energy Services Corp.
Ken Mullen
President and Chief Executive Officer
(403) 503-9990
Savanna Energy Services Corp.
Darcy Draudson
EVP Finance and Chief Financial Officer
(403) 503-9990
www.savannaenergy.com
