CALGARY, ALBERTA -- (Marketwired) -- 08/03/16 -- Savanna Energy Services Corp. (TSX: SVY) -
Second Quarter Results
Savanna generated revenue of $54.9 million, adjusted EBITDAS of $9.2 million and a net loss, attributable to shareholders of the Company, of $16 million or $0.18 per share in the second quarter of 2016, compared to revenue of $92.7 million, adjusted EBITDAS of $24.9 million and a net loss, attributable to shareholders of the Company, of $10.5 million or $0.12 per share in Q2 2015. The significant decline in year-over-year industry activity levels, driven by continuing low oil and natural gas prices, and having fewer rigs on contract in Australia, resulted in the lower overall revenue, operating margin and adjusted EBITDAS amounts in Q2 2016, relative to Q2 2015.
In 2016, the Company's total debt, net of cash has declined by $27.8 million to $247.2 million, as of the date of this release.
The impact of the industry activity and commodity price declines on Savanna in Q2 2016 was mitigated by the twelve contracted new-build rigs added in late 2014 and early 2015 and lower costs throughout the organization. Lower costs were a function of the significant restructuring efforts undertaken in 2015 and continuing cost control initiatives in 2016. These restructuring and cost control efforts reduced field office and general and administrative costs by $6.5 million, or 35%, in Q2 2016 relative to Q2 2015.
Despite the very low utilization levels and significant year-over-year pricing declines in North America and having fewer rigs on contract in Australia, lower costs throughout the organization allowed Savanna to generate positive operating margins in each of the countries in which it operates in Q2 2016. In Canada, revenues declined by $11 million and operating margin declined by $4.2 million relative to Q2 2015. In the U.S., compared to Q2 2015, revenues declined by $11.2 million and operating margin declined by $6.2 million. In Australia, revenues were $15.6 million lower and operating margin was $9.1 million lower than in Q2 2015. Of the revenue and operating margin decreases in Australia, $5.6 million related to Q1 2015 stand-by charges recognized in Q2 2015. Excluding the effect of these stand-by charges, Savanna's overall operating margin in Q2 2016 was $14 million lower relative to Q2 2015, and operating margin percentages were six percentage points lower. General and administrative expenses declined from $9.9 million in Q2 2015 to $5.3 million in Q2 2016. As a result, EBITDAS was $14.9 million lower than in Q2 2015.
In Canada, long-reach drilling, well servicing and rentals all experienced significant activity and pricing declines, which resulted in lower revenue and operating margins compared to Q2 2015. However, the significant restructuring and cost control efforts undertaken by Savanna in 2015 and 2016 partially mitigated the corresponding decrease in operating margins and operating margin percentages in each of the divisions above, relative to Q2 2015. Amidst the decreased activity and pricing environment in Canada, in Q2 2016 Savanna generated $1.5 million in operating margin on $13.4 million of revenue, compared to $5.8 million in operating margin on $24.6 million of revenue in Q2 2015. Sequentially, operating margins decreased compared to the $9.7 million generated on $38.6 million of revenue in Canada in Q1 2016. The decrease sequentially was based on seasonal decreases in activity in Canadian long-reach drilling, shallow drilling, and oilfield services, which were magnified in 2016 by the prevailing low industry activity levels.
Savanna's U.S. drilling and well servicing divisions also experienced significant activity and revenue declines relative to Q2 2015. Lower U.S. revenue was partially offset by the effect of operating a greater proportion of higher-spec and higher day rate drilling rigs, cost control and restructuring efforts, and an appreciation in the value of the U.S. dollar relative to the Canadian dollar. Sequentially, the effect of a contract expiry on a Velox triple drilling rig, which was re-contracted at a significantly lower rate, as well as the effects of lower rates and wet weather in U.S. well servicing in Q2 2016, resulted in lower operating margin compared to Q1 2016. Savanna generated $3.7 million in operating margin on $13.8 million of revenue in the U.S. in Q2 2016, compared to $6.8 million in operating margin on $17 million of revenue in Q1 2016 and $9.9 million in operating margin on $25.1 million of revenue in Q2 2015.
In Australia, Savanna's drilling, well servicing and trucking divisions also experienced significant activity and revenue declines relative to Q2 2015. The decreases were driven by fewer rigs under contract, a decrease in trucking activity related to decreases in both well servicing and drilling activity for Savanna in Australia, and timing on the recognition of $5.6 million of Q1 2015 stand-by charges in Q2 2015. Savanna generated $9.2 million in operating margin on $27.7 million of revenue in Australia in Q2 2016. Excluding the $5.6 million of Q1 2015 related stand-by revenue and operating margin that did not meet revenue recognition criteria in the first quarter of last year, this represented a $10 million, or 27%, decrease in revenue and a $3.5 million, or 28%, decrease in operating margin in Q2 2016 compared to Q2 2015. As in North America, cost control and restructuring efforts partially mitigated the impact of the revenue and activity declines in Australia. Sequentially, operating margin decreased from the $12.3 million generated on $38.8 million of revenue in Australia in Q1 2016. The decrease in operating margin sequentially was a result of four fewer rigs on contract in the quarter, decreases in trucking activity related to decreases in overall activity for Savanna in Australia, as well as the receipt of a $0.7 million contract termination fee during the first quarter of this year.
Overall for the quarter, the year-over-year decrease in industry activity levels, combined with the decrease in the number of rigs under contract in Australia, and the effect of the $5.6 million of Q1 2015 revenue recognized in Q2 2015, resulted in a 62% decrease in EBITDAS and a 48% increase in the Company's net loss, compared to Q2 2015. The decrease in EBITDAS was partially offset by a decrease in depreciation expense as well as the effect of deferred tax expenses recorded in Q2 2015 based on Alberta income tax rate increases in June of last year. The Q2 2016 net loss attributable to the shareholders of the Company was $16 million, or $0.18 per share, compared to a net loss attributable to the shareholders of the Company of $10.5 million or $0.12 per share, in Q2 2015. Compared to Q1 2016, Savanna's net loss increased primarily as a result of the decrease in EBITDAS. The decrease in EBITDAS was partially offset by a $5 million, non-cash, provision for onerous office and shop lease contracts related to leased office and shop space no longer in use, recorded in Q1 2016. The Q1 2016 net loss attributable to the shareholders of the Company was $10.1 million, or $0.11 per share.
Year-to-date Results
The prevailing low oil and natural gas prices during the first half of 2016, and the resulting decrease in industry activity, as well as having fewer rigs on contract in Australia, negatively affected overall revenue, operating margin and EBITDAS relative to the first half of 2015. The impact of the industry activity and commodity price declines on Savanna was mitigated by the twelve contracted new-build rigs added in late 2014 and early 2015, cost control initiatives, and the significant restructuring efforts in 2015 and 2016. EBITDAS before severance costs was $31.3 million in the first half of 2016, which is a 50% reduction from 2015, while revenues decreased by 40% in the same respective periods.
Long-reach drilling, well servicing and rentals in Canada all experienced significant activity and pricing declines, which resulted in lower revenue and operating margins compared to the first half of 2015. The significant restructuring and cost control efforts undertaken by Savanna in 2015 and 2016 limited the corresponding decrease in operating margin percentages to eight percentage points, relative to the first half of 2015. Overall, the decreased activity resulted in a $56.3 million, or 52%, decrease in revenue and an $18.9 million, or 64%, decrease in operating margins in Canada.
Savanna's U.S. drilling and well servicing divisions also experienced activity and revenue declines relative to the first half of 2015. However, having a greater proportion of higher-spec and higher day rate rigs working in the first half of 2016, cost control and restructuring efforts, and an appreciation in the value of the U.S. dollar relative to the Canadian dollar, limited the decrease in operating margin percentages to four percentage points compared to the first half of 2015. Overall, operating margins in the U.S. decreased by $13.9 million, or 57%, compared to the first half of 2015, while year-over-year revenue decreased $33.9 million, or 52%.
In Australia, Savanna's drilling, well servicing and trucking divisions also experienced activity and revenue declines relative to the first half of 2015. The decreases were driven by fewer rigs under contract and a decrease in trucking activity related to decreases in both well servicing and drilling activity for Savanna in Australia. As in North America, cost control and restructuring efforts partially mitigated the impact of the revenue and activity declines in Australia, limiting the decrease in operating margin percentages to three percentage points. Overall, revenue in Australia decreased by $8.4 million, or 11%, and operating margins decreased by $4.9 million, or 19%, relative to the first half of 2015.
Overall, for the first half of 2016, EBITDAS decreased by 45% to $29.4 million relative to the first half of 2015, as a result of significant activity, revenue and operating margin decreases in North American drilling and oilfield services, combined with the decrease in the number of rigs under contract in Australia. Despite the decrease in EBITDAS, the cost control and restructuring initiatives of 2015 and 2016, together with the decrease in severance costs, kept EBITDAS percentages relatively flat in the first half of 2016 relative to the first half of 2015. Severance costs aggregated $1.9 million this year versus $9.3 million in the first half of 2016. The decrease in EBITDAS was also the primary driver for the increase in the overall net loss in the first half of 2016, compared to the first half of 2015.
Balance Sheet
Savanna's working capital at June 30, 2016, was $30.3 million, which includes $12.3 million in cash and is net of the $4.2 million drawn on its Canadian operating facility.
Savanna's total long-term debt outstanding on June 30, 2016, excluding unamortized debt issue costs, was $260.6 million, compared to $277.1 million outstanding at December 31, 2015. The June 30, 2016 total long-term debt amount includes $9.3 million of unrealized foreign exchange on U.S. dollar denominated debt as well as $5.7 million in gross partnership debt, of which Savanna's proportionate share is approximately 50%.
Savanna's total debt position at June 30, 2016, net of cash, was $252.5 million compared to $275 million at December 31, 2015. Savanna's total debt, net of cash as of the date of this release is approximately $247.2 million.
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 Six months ended
June 30 2016 2015 Change 2016 2015 Change
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OPERATING RESULTS
Revenue 54,905 92,727 (41%) 148,642 247,279 (40%)
Operating expenses 40,476 58,736 (31%) 106,159 167,145 (36%)
Operating margin(1) 14,429 33,991 (58%) 42,483 80,134 (47%)
Operating margin %(1) 26% 37% 29% 32%
EBITDAS(1) 9,163 24,068 (62%) 29,414 53,882 (45%)
Attributable to
shareholders of the
Company 9,171 23,844 (62%) 28,892 52,655 (45%)
Per share: basic 0.10 0.26 (62%) 0.32 0.58 (45%)
Adjusted EBITDAS(1) 9,193 24,907 (63%) 31,302 63,155 (50%)
Attributable to
shareholders of the
Company 9,201 24,683 (63%) 30,780 61,928 (50%)
Per share: basic 0.10 0.27 (63%) 0.34 0.69 (51%)
Net loss (16,669) (11,254) 48% (26,782) (1,080) (i)
Attributable to
shareholders of the
Company (16,004) (10,519) 52% (26,071) (494) (i)
Per share: basic (0.18) (0.12) 50% (0.29) (0.01) (i)
Basic weighted average
shares outstanding
(000s) 90,251 90,251 0% 90,251 90,238 0%
Diluted weighted
average shares
outstanding (000s) 90,251 90,251 0% 90,251 90,238 0%
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CASH FLOWS
Operating cash
flows(1) 2,444 17,074 (86%) 20,811 43,310 (52%)
Per share: basic 0.03 0.19 (84%) 0.23 0.48 (52%)
Acquisition of
property and
equipment(1) 2,770 12,518 (78%) 5,197 48,515 (89%)
Proceeds on disposal
of assets 5,199 1,617 222% 7,544 15,213 (50%)
Dividends paid - 2,707 (100%) - 4,951 (100%)
Per share: basic - 0.03 (100%) - 0.03 (100%)
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FINANCIAL POSITION AT Jun. 30 Dec. 31
2016 2015
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Working capital(1) 30,278 35,691 (15%)
Capital assets(1) 715,240 776,574 (8%)
Total assets 797,376 879,146 (9%)
Long-term debt,
including the current
portion thereof 260,619 277,081 (6%)
Total debt, net of
cash(1) 252,534 275,020 (8%)
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(i) Calculation not
meaningful
NOTES:
(1) Operating margin, operating margin percentage, EBITDAS, adjusted 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, working capital and total debt, net of cash
are not recognized measures under IFRS; however, management believes
that these measures are useful as they provide an indication of the
Company's liquidity.
- 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 and share-based compensation and excludes other expenses
(income).
- Adjusted EBITDAS is defined as EBITDAS before severance costs.
- Operating cash flows are defined as cash flows from operating
activities before changes in non-cash working capital.
- Working capital is defined as total current assets less total current
liabilities excluding the current portions of long-term debt.
- Total debt, net of cash is defined as total long-term debt, including
the current portion thereof but excluding unamortized debt issue
costs, plus bank indebtedness, net of cash.
(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 stand-by, 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.
To segregate industry utilization by rig type, industry totals by well
depth range are used.
- Savanna reports its service rig utilization for its operational
service rigs in North America based on standard operating hours of
3,650 per rig per year. Utilization for Savanna's service rigs in
Australia is calculated based on standard operating hours of 8,760 per
rig per year to reflect 24 hour operating conditions in that country
and excludes stand-by time, even though revenue may be earned during
this time. 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 Six Months Ended ---------------------------------------------------------------------------- June 30 2016 2015 Change 2016 2015 Change ---------------------------------------------------------------------------- Revenue $ 24,675 $ 43,636 (43%) $ 76,159 $ 152,117 (50%) Operating expenses $ 19,018 $ 28,847 (34%) $ 55,928 $ 100,859 (45%) Operating margin(1) $ 5,657 $ 14,789 (62%) $ 20,231 $ 51,258 (61%) Operating margin % 23% 34% 27% 34% Billable days 894 1,784 (50%) 2,976 6,005 (50%) Revenue per billable day $ 27,601 $ 24,460 13% $ 25,591 $ 25,332 1% Operating (spud to release) days 747 1,291 (42%) 2,465 4,647 (47%) Wells drilled 133 181 (27%) 538 677 (21%) Meters drilled 243,702 412,974 (41%) 810,994 1,175,489 (31%) Meters drilled per well 1,832 2,282 (20%) 1,507 1,736 (13%) ----------------------------------------------------------------------------
SECOND QUARTER RESULTS
Overall contract drilling revenue decreased relative to Q2 2015, as a result of lower activity levels in Canada, the U.S. and Australia, and lower day rates in Canada. In Canadian long-reach drilling, billable days were down 42% while day rates were 11% lower compared to Q2 2015. Billable days in the U.S. decreased 55% compared to Q2 2015, while average day rates were higher based on changes in rig mix. In Australia, billable days decreased 44% relative to Q2 2015, with fewer rigs under contract this year versus last. However, per day revenue in Australia increased, in the same respective periods, based on the Company's new performance-related pricing model on its drilling rigs there. The overall decreases in activity and pricing is reflective of the low oil and natural gas prices that have persisted throughout 2015 and 2016, as well as the continued uncertainty surrounding the oil and natural gas industry, and the resulting decrease in customer drilling activity. Given the activity and pricing declines, cost control continues to be a major focus of the Company. Field office costs, excluding severance costs, were $1 million lower in Q2 2016, compared to Q2 2015.
The following summarizes the operating results in the second quarter of 2016 and 2015 by type of rig or geographic area. Long-reach drilling in Canada includes the Company's telescoping double drilling rigs, TDS-3000™ drilling rigs and TDS-2200 drilling rigs.
(Stated in thousands of dollars)
Long-reach Shallow
Drilling Drilling Drilling Drilling
Q2 2016 Canada Canada U.S. Australia Total
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Revenue 7,588 19 9,937 7,131 24,675
Operating margin(1) 1,309 (241) 2,641 1,948 5,657
Operating margin %(1) 17% (i) 27% 27% 23%
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Revenue excluding cost
recoveries 6,585 23 8,214 6,639 21,461
Operating margin(1) 1,309 (241) 2,641 1,948 5,657
Operating margin %(1) 20% (i) 32% 29% 26%
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Average number of rigs
deployed 52 16 28 5 101
Utilization %(2) 8% 0% 10% 27% 8%
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(i) Calculation not meaningful
(Stated in thousands of dollars)
Long-reach Shallow
Drilling Drilling Drilling Drilling
Q2 2015 Canada Canada U.S. Australia Total
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Revenue 14,654 (58) 17,811 11,229 43,636
Operating margin(1) 4,533 (323) 7,056 3,523 14,789
Operating margin %(1) 31% (i) 40% 31% 34%
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Revenue excluding cost
recoveries 13,242 (87) 17,096 10,755 41,006
Operating margin(1) 4,533 (323) 7,056 3,523 14,789
Operating margin %(1) 34% (i) 41% 33% 36%
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Average number of rigs
deployed 52 16 28 5 101
Utilization %(2) 13% 0% 20% 33% 14%
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(i) Calculation not meaningful
YEAR-TO-DATE RESULTS
Contract drilling revenue decreased in the first half of 2016 relative to the first half of 2015, as a result of: a 42% decrease in billable days in long-reach drilling, a 51% decrease in Q1 coring activity, and lower day rates in Canada; a 65% decrease in billable days in U.S. drilling; and a 32% decrease in billable days in Australia drilling. These decreases were driven by the low oil and natural gas prices that have persisted throughout 2015 and 2016, and the resulting decline in overall industry drilling activity. Based on the low activity levels, the Company has continued to focus on cost control after undergoing a significant restructuring in 2015. Field office costs were $4.1 million lower compared to the first half of 2015, while severance costs decreased to $0.9 million in the first half of 2016, compared to $1.3m in the first half of 2015. The lower field office and severance costs partially mitigated the overall decrease in operating margin percentages relative to the first half of 2015.
The following summarizes the operating results in the first half of 2016 and 2015 by type of rig or geographic area.
(Stated in thousands of dollars)
Long-reach Shallow
Drilling Drilling Drilling Drilling
YTD 2016 Canada Canada U.S. Australia Total
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Revenue 26,361 8,565 21,986 19,247 76,159
Operating margin(1) 4,487 3,232 7,874 4,638 20,231
Operating margin %(1) 17% 38% 36% 24% 27%
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Revenue excluding cost
recoveries 23,530 8,316 19,192 17,546 68,584
Operating margin(1) 4,487 3,232 7,874 4,638 20,231
Operating margin %(1) 19% 39% 41% 26% 29%
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Average number of rigs
deployed 52 16 28 5 101
Utilization %(2) 13% 12% 10% 37% 13%
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(Stated in thousands of dollars)
Long-reach Shallow
Drilling Drilling Drilling Drilling
YTD 2015 Canada Canada U.S. Australia Total
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Revenue 58,355 21,385 50,258 22,119 152,117
Operating margin(1) 16,734 9,577 18,443 6,504 51,258
Operating margin %(1) 29% 45% 37% 29% 34%
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Revenue excluding cost
recoveries 51,659 21,133 46,649 21,455 140,896
Operating margin(1) 16,734 9,577 18,443 6,504 51,258
Operating margin %(1) 32% 45% 40% 30% 36%
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Average number of rigs
deployed 52 16 27 5 100
Utilization %(2) 23% 23% 32% 29% 26%
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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 Six Months Ended ---------------------------------------------------------------------------- June 30 2016 2015 Change 2016 2015 Change ---------------------------------------------------------------------------- Revenue $ 30,471 $ 49,402 (38%) $ 73,400 $ 96,034 (24%) Operating expenses $ 21,699 $ 30,248 (28%) $ 51,148 $ 67,253 (24%) Operating margin(1) $ 8,772 $ 19,154 (54%) $ 22,252 $ 28,781 (23%) Operating margin % 29% 39% 30% 30% Billable hours - well servicing 31,744 48,381 (34%) 72,730 91,601 (21%) Revenue per billable hour - well servicing $ 877 $ 880 (0%) $ 885 $ 875 1% Operating hours - well servicing 23,656 31,488 (25%) 54,051 67,276 (20%) ----------------------------------------------------------------------------
SECOND QUARTER RESULTS
Operating margin for Savanna's oilfield services division in Q2 2016 decreased relative to Q2 2015, based on decreases in revenue in the same respective periods. The revenue decrease was driven by: a 19% decrease in operating hours and a 24% decrease in per hour revenue in Canadian well servicing; a 34% decrease in operating hours and a 19% decrease in per hour revenue in U.S. well servicing; and a 41% decrease in billable hours in Australia well servicing. Of the billable hour and revenue decreases in Australia, nearly half related to timing on the recognition of Q1 2015 stand-by charges in Q2 2015. The remainder of the revenue decrease in Q2 2016 compared to Q2 2015, was a result of having three fewer rigs on contract and a 65% decrease in trucking revenue related to decreases in both well servicing and drilling activity for Savanna in Australia. In Canada and the U.S., the decreases in activity and pricing are reflective of the significant decline in oil and natural gas prices throughout 2015 and 2016, and resulted in lower overall operating margins being generated by the Company in North America as well.
The following summarizes the operating results by geographic area:
(Stated in thousands of dollars)
Q2 2016 Canada U.S. Australia Total ---------------------------------------------------------------------------- Revenue 5,953 3,904 20,614 30,471 Operating margin(1) 475 1,089 7,208 8,772 Operating margin %(1) 8% 28% 35% 29% Average number of rigs deployed - well servicing 57 18 12 87 Utilization % - well servicing(2) 18% 37% 32% 24% ----------------------------------------------------------------------------
(Stated in thousands of dollars)
Q2 2015 Canada U.S. Australia Total ---------------------------------------------------------------------------- Revenue 9,985 7,274 32,143 49,402 Operating margin(1) 1,586 2,836 14,732 19,154 Operating margin %(1) 16% 39% 46% 39% Average number of rigs deployed - well servicing 65 18 12 95 Utilization % - well servicing(2) 20% 55% 41% 36% ----------------------------------------------------------------------------
YEAR-TO-DATE RESULTS
Operating margin for Savanna's oilfield services division decreased in the first half of 2016 compared to the first half of 2015, based on decreases in revenue in the same respective periods. The revenue decrease was driven by a 24% decrease in operating hours and an 11% decrease in per hour revenue in Canadian well servicing, and a 29% decrease in operating hours and a 7% decrease in per hour revenue in U.S. well servicing. Additionally, rental revenue decreased by 39% in Canada and 45% in Australia in the first half of 2016 compared to the first half of 2015. The decrease in rental revenue in Canada was a result of decreased demand, while the decrease in Australia related to decreases in trucking based on fewer Savanna rigs, both well servicing and drilling, working this year versus last. Based on the low activity levels, the Company has continued to focus on cost control after undergoing a significant restructuring in 2015, which resulted in a $2.2 million decrease in field office costs compared to the first half of 2015. A decrease in severance costs also partially mitigated the decrease in overall oilfield services operating margin relative to the first half of 2015. Severance costs related to oilfield services totaled $0.9 million in the first half of 2016, compared to $2.5 million in the first half of 2015.
The following summarizes the operating results by geographic area:
(Stated in thousands of dollars)
YTD 2016 Canada U.S. Australia Total ---------------------------------------------------------------------------- Revenue 17,177 8,891 47,332 73,400 Operating margin(1) 2,844 2,607 16,801 22,252 Operating margin %(1) 17% 29% 35% 30% Average number of rigs deployed - well servicing 57 18 12 87 Utilization % - well servicing(2) 22% 38% 35% 27% ----------------------------------------------------------------------------
(Stated in thousands of dollars)
YTD 2015 Canada U.S. Australia Total ---------------------------------------------------------------------------- Revenue 28,579 14,563 52,892 96,034 Operating margin(1) 3,005 5,948 19,828 28,781 Operating margin %(1) 11% 41% 37% 30% Average number of rigs deployed - well servicing 65 18 12 95 Utilization % - well servicing(2) 26% 54% 36% 39% ----------------------------------------------------------------------------
Outlook
In the second quarter of 2016, Savanna faced extremely challenging industry conditions, particularly in North America, as persisting low oil and natural gas prices magnified the normal effects of seasonality in Canada, and reduced industry activity levels dramatically. During this period, Savanna experienced very low utilization levels and significant year-over-year pricing declines in North America, as well as fewer rigs on contract in Australia. The impact of these decreases was partially alleviated by the fundamental structural changes made to the Company in 2015 and, combined with continuing cost control initiatives in 2016, allowed Savanna to generate positive operating margins in each of the countries in which it operated in the quarter, despite the significant revenue and activity declines. Savanna has continued to reduce costs in 2016 and will continue to align its business with the variable nature of the oilfield services industry. Annualized field office and general and administrative cost savings, from Savanna's cost control and restructuring efforts, are now expected to be over $70 million relative to the Company's 2014 exit run-rate.
Looking forward, the remainder of 2016 will continue to be challenging for Savanna and the oilfield services industry as a whole, based on persisting low oil and natural gas prices, and the uncertain duration of the current low price environment. Although commodity prices have improved compared to earlier in 2016, both oil and natural gas prices remain relatively low and Savanna's customers in Canada still have limited visibility into what their spending levels will be in the second half of 2016 and into 2017.
The Australian liquefied natural gas industry is also not immune to global commodity price pressures; and although Savanna's take or pay contract status on the majority of its rigs in Australia have helped mitigate the impact of North American activity reductions in 2016, certain of these contracts began rolling over in Q2 2016. In Q1 2016, Savanna had 15 of 17 rigs earning revenue under contract in Australia and that number decreased to 11 on average in Q2 2016. As of the date of this MD&A, Savanna has ten rigs remaining on long-term contract through to the end of 2016. However, the Company expects to secure some short-term work for certain of the rigs off contract in the second half of 2016, based on current commitments from, and ongoing negotiations with, its customers in Australia. Ultimately, Savanna believes it is in a strong competitive position to re-contract its drilling and service rigs in Australia, although new contracts are likely to be shorter in term than the Company's previous contracts in Australia.
In the U.S., Savanna secured a short-term contract in Q2, albeit at a lower rate than previously, for one Velox triple drilling rig for which the contract had expired. Negotiations with respect to a second Velox triple drilling rig, the contract for which is set to expire in late 2016, have also begun. In late Q2 2016, Savanna also began to reactivate stacked rigs out of its Odessa base of operations. Short term work for certain of these rigs has been secured and Savanna expects to have at least two to three additional drilling rigs working in Q3 2016.
Management believes that the structural changes Savanna underwent in 2015, and the reduced overall cost structure have the Company positioned to manage through reduced activity levels for the remainder of 2016 and beyond. In addition, the amendments to its key financial covenants related to its senior secured revolving credit facility negotiated in March 2016, provide Savanna with increased financial flexibility through to the end of 2017.
Savanna remains committed to its shareholders and debtholders, with a focus on managing its balance sheet and costs in all aspects of its business and leveraging its assets to maintain and gain market share. As a result of the measures already undertaken and others currently in progress, Savanna believes that it has taken the steps necessary to navigate through the current downturn. When industry conditions improve, management believes that Savanna will be in an excellent position to capitalize on a recovery utilizing its competitive cost structure, experienced management team, and its proven ability to quickly adapt to changing circumstances. These core competencies will be deployed utilizing the Company's significant footprint in three countries that should have strong participation in an eventual recovery of oil and gas market fundamentals.
See "Cautionary Statement Regarding Forward-Looking Information and Statements".
Cautionary Statement Regarding Forward-Looking Information and Statements
Certain statements and information contained in this press release including statements related to the Company's expectation that annualized field office and general and administrative cost savings will be over $70 million relative to the Company's 2014 exit run-rate, expectations of low activity levels and low oil and natural gas prices for the remainder of 2016 and its effect on the oilfield services industry and Savanna, the expectation that the Company's take or pay contract status on the majority of its rigs in Australia will help mitigate the impact of North American activity reductions in 2016, expectations of securing some short-term work in Australia for certain rigs off contract in the second half of 2016, the belief that the Company is in a strong competitive position to re-contract its drilling and service rigs in Australia and that any such contracts are likely to be shorter in term than previously, the expectation that the Company will have at least two to three additional drilling rigs working out of its Odessa base in Q3 2016, the impact of the structural changes undertaken by Savanna in 2015 and the continued cost control initiatives in 2016, the expectation that the Company has taken the steps necessary to navigate through the current downturn and its ability to capitalize on an eventual improvement oil and gas industry conditions, 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, the Company's expectation that annualized field office and general and administrative cost savings will be over $70 million relative to the Company's 2014 exit run-rate is premised on the Company's actual Q2 2016 field office and general and administrative costs relative to that in Q4 2014. The Company's expectation of low activity levels and low oil and natural gas prices for the remainder of 2016 and its effect on the oilfield services industry and Savanna, and its expectation that the Company's take or pay contract status on the majority of its rigs in Australia will help mitigate the impact of North American activity reductions in 2016, are premised on industry and commodity price estimates, actual results experienced to date in 2016, customer contracts and commitments, the Company's expectations for its customers' capital budgets, the status of current negotiations with its customers, and the number of contracted rigs currently deployed in Australia and North America. The Company's belief that it is in a strong competitive position to re-contract its drilling and service rigs in Australia, its expectations of securing some short-term work in Australia for certain rigs off contract in the second half of 2016, and its expectations of having at least two to three additional drilling rigs working out of its Odessa base in Q3 2016 is premised on current negotiations and discussions with, and commitments from, its customers and potential new customers.
The Company's expectation of the impact of the structural changes undertaken by Savanna in 2015 and the continued cost control initiatives in 2016, is premised on cost reductions realized to date related thereto. The Company's expectation that it has taken the steps necessary to navigate through the current downturn and its ability to capitalize on an eventual improvement oil and gas industry conditions is premised on operational improvements and cost and debt reductions realized in 2015 and to date in 2016. 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 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.
All of the forward-looking information and statements made in this press release are qualified by this cautionary statement and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations. Except as may be required by law, the Company assumes no obligation to update publicly any such forward-looking information and statements, whether as a result of new information, future events, or otherwise.
Other
Savanna's full Q2 2016 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 4, 2016 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's second quarter 2016 results. The call will be hosted by Chris Strong, Savanna's President and Chief Executive Officer and Dwayne LaMontagne, Executive Vice President and Chief Financial Officer.
If you wish to participate in this conference call, please call 1-888-892-3255 (please call 10 minutes ahead of time). A replay of the call will be available until August 18, 2016 by dialing 1-800-937-6305 and entering passcode 960604.
Savanna is a leading North American and Australian contract drilling and oilfield services company providing a broad range of drilling, well servicing and related services with a focus on fit for purpose technologies and industry-leading aboriginal relationships.
Contacts:
Savanna Energy Services Corp.
Chris Strong
President and Chief Executive Officer
(403) 503-9990
Savanna Energy Services Corp.
Dwayne LaMontagne
Executive Vice President and Chief Financial Officer
(403) 503-9990
www.savannaenergy.com
