SAVANNA ENERGY SERVICES CORP. CALGARY, ALBERTA--(Marketwired - May 5, 2015) - Savanna Energy Services Corp. (TSX:SVY) -
First Quarter Results
The significant decline in oil prices leading up to and during Q1 2015, and the resulting decrease in industry activity, negatively affected Savanna Energy Services Corp.'s ("Savanna" or "the Company") overall revenue, operating margin, EBITDAS and net earnings relative to Q1 2014. Savanna generated EBITDAS of $29.8 million on $154.6 million of revenue in Q1 2015, a decrease of 50% from EBITDAS of $59.4 million on $238 million of revenue in Q1 2014. In response to the sharp decline in oil prices and related drilling and oilfield services activity, the Company's organizational structure was flattened to reduce layers of management that were not required and was further restructured for the current environment. This restructuring resulted in $8.5 million in severance costs which, combined with lower activity levels and operating margins, particularly in Canada, were the primary drivers for the decrease in year-over-year EBITDAS. Sequentially, EBITDAS was $12 million lower than the $41.8 million generated in Q4 2014 on $205 million of revenue. The decrease in EBITDAS was primarily a result of activity and operating margins decreases in Canada, together with the $8.5 million in severance costs in Q1 2015.
In Canada, long-reach drilling, well servicing and rentals all experienced significant activity declines which resulted in lower revenue and operating margins compared to Q1 2014. Conversely, activity and operating margins for Canadian shallow drilling remained relatively flat compared to Q1 2014, despite the decrease in overall industry and oil sands coring activity. Savanna generated $23.6 million in operating margins on $83.8 million of revenue in Canada in Q1 2015, compared to $55.2 million in operating margins on $159.6 million of revenue in Q1 2014. Sequentially, operating margins decreased from the $32.9 million generated on $114.4 million of revenue in Canada in Q4 2014. The decrease sequentially was based on decreases in activity in Canadian long-reach drilling and oilfield services, which were offset by increases in shallow drilling activity with respect to winter coring work in the oil sands.
In the U.S., operating margins increased by $1.8 million, despite a $9.3 million, or 19%, decrease in revenue compared to Q1 2014. In Savanna's U.S. well servicing division, the Company's 2014 strategy of redeploying idle Canadian service rigs proved beneficial, as operating hours and operating margins remained relatively flat compared to Q1 2014, despite the decrease in industry activity. In the U.S. drilling division, operating days and revenue decreased significantly relative to Q1 2014. However, an 11% decrease in per day rig operating costs combined with an appreciation in the value of the U.S. dollar relative to the Canadian dollar more than offset the decrease in revenue and resulted in an increase in operating margins compared to Q1 2014. Per day rig operating costs were relatively high in Q1 2014. Savanna focused on controlling and stabilizing these costs through the second half of 2014 and to date has been successful in that regard. Sequentially, significantly lower utilization in U.S. drilling drove the overall operating margin decreases compared to Q4 2014. Savanna generated $14.5 million in operating margins on $39.7 million of revenue in the U.S. in Q1 2015, compared to $16.4 million in operating margins on $54.4 million of revenue in Q4 2014, and $12.7 million in operating margins on $49 million of revenue in Q1 2014.
In Australia, operating an additional two workover rigs and three flush-by units resulted in operating margin increases in the quarter relative to Q1 2014. Overall operating margins from Australia totaled $8.1 million in Q1 2015, a slight increase from the $7.9 million generated in Q4 2014, and 58% higher than the $5.1 million in operating margins in Q1 2014. This $3 million increase in operating margins in Q1 2015 compared to Q1 2014, was achieved despite a portion of the fleet being on stand-by throughout the quarter. The stand-by rates are lower than operating rates; however, Savanna was also able to adjust its rig operating costs which limited the decrease in operating margins on these rigs.
Savanna's Q1 2015 net earnings decreased significantly compared to Q1 2014 as a result of the decrease in overall activity levels and EBITDAS. Compared to Q4 2014, net earnings increased significantly as a result of the $350.6 million of impairment losses ($248.3 million net of taxes) recorded in Q4 2014. The Q1 2015 net earnings attributable to the shareholders of the Company was $10 million, or $0.11 per share, compared to net earnings attributable to the shareholders of the Company of $18.3 million, or $0.21 per share, in Q1 2014. The Q4 2014 net loss attributable to the shareholders of the Company was $231.3 million, or $2.57 per share.
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 | |||
| March 31 | 2015 | 2014 | Change | |
| OPERATING RESULTS | ||||
| Revenue | 154,552 | 237,988 | (35%) | |
| Operating expenses | 108,409 | 165,067 | (34%) | |
| Operating margin(1) | 46,143 | 72,921 | (37%) | |
| Operating margin %(1) | 30% | 31% | ||
| EBITDAS(1) | 29,815 | 59,417 | (50%) | |
| Attributable to shareholders of the Company | 28,813 | 55,826 | (48%) | |
| Per share: diluted | 0.32 | 0.63 | (49%) | |
| Net earnings | 10,174 | 21,175 | (52%) | |
| Attributable to shareholders of the Company | 10,025 | 18,330 | (45%) | |
| Per share: diluted | 0.11 | 0.21 | (48%) | |
| Diluted weighted average shares outstanding (000s) | 90,225 | 89,184 | 1% | |
| CASH FLOWS | ||||
| Operating cash flows(1) | 26,236 | 57,412 | (54%) | |
| Per share: diluted | 0.29 | 0.64 | (55%) | |
| Acquisition of capital assets(1) | 35,997 | 42,061 | (14%) | |
| Proceeds on disposal of capital assets | 13,596 | 227 | 5889% | |
| Dividends paid | 2,244 | 5,689 | (61%) | |
| FINANCIAL POSITION AT | Mar. 31 | Dec. 31 | ||
| 2015 | 2014 | |||
| Working capital(1) | 68,507 | 76,040 | (10%) | |
| Capital assets(1) | 973,056 | 946,578 | 3% | |
| Total assets | 1,173,533 | 1,183,925 | (1%) | |
| Long-term debt | 347,104 | 350,615 | (1%) | |
NOTES:
| (1) Operating margin, operating margin percentage, EBITDAS, impairment losses, net of tax 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, the effect of non-cash impairment losses 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).
- Impairment losses, net of tax are impairment losses net of the deferred tax effect thereon. The tax effect is determined based on the change in the temporary differences between the carrying amount of the impaired asset and its tax base, at the effective tax rate for the tax jurisdiction in which the assets resides.
- 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 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 | ||||
| March 31 | 2015 | 2014 | Change | ||
| Revenue | $ | 108,482 | $ | 179,457 | (40%) |
| Operating expenses | $ | 72,013 | $ | 122,178 | (41%) |
| Operating margin(1) | $ | 36,469 | $ | 57,279 | (36%) |
| Operating margin % | 34% | 32% | |||
| Billable days | 4,221 | 7,218 | (42%) | ||
| Revenue per billable day | $ | 25,701 | $ | 24,862 | 3% |
| Operating (spud to release) days | 3,356 | 6,279 | (47%) | ||
| Wells drilled | 486 | 766 | (37%) | ||
| Meters drilled | 762,515 | 1,402,282 | (46%) | ||
| Meters drilled per well | 1,569 | 1,831 | (14%) | ||
FIRST QUARTER RESULTS
Overall contract drilling revenue decreased relative to Q1 2014, as a result of a 39% decrease in operating days in the U.S. and a 56% decrease in operating days in long-reach drilling in Canada. The decrease in operating days is reflective of the significant decline in oil prices leading up to and during Q1 2015, and the resulting decrease in customer drilling activity. Given the activity declines, cost control and restructuring was a major focus of the Company in Q1 2015. Rig operating costs were lower on a per day basis compared to Q1 2014, while field office costs were relatively flat despite $1.2 million in severance costs in the quarter. The lower per day operating costs resulted in an increase in overall operating margin percentages relative to Q1 2014.
The following summarizes the operating results in the first quarter of 2015 and 2014 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 | ||
| Q1 2015 | Canada | Canada | U.S. | Australia | Total |
| Revenue | 43,701 | 21,443 | 32,447 | 10,891 | 108,482 |
| Operating margin(1) | 12,201 | 9,901 | 11,386 | 2,981 | 36,469 |
| Operating margin %(1) | 28% | 46% | 35% | 27% | 34% |
| Revenue excluding cost recoveries | 38,417 | 21,220 | 29,553 | 10,700 | 99,890 |
| Operating margin(1) | 12,201 | 9,901 | 11,386 | 2,981 | 36,469 |
| Operating margin %(1) | 32% | 47% | 39% | 28% | 37% |
| Average number of rigs deployed | 52 | 16 | 27 | 5 | 100 |
| Utilization %(2) | 33% | 47% | 43% | 25% | 37% |
| (Stated in thousands of dollars) | Long-reach | Shallow | |||
| Drilling | Drilling | Drilling | Drilling | ||
| Q1 2014 | Canada | Canada | U.S. | Australia | Total |
| Revenue | 101,468 | 21,367 | 42,177 | 14,445 | 179,457 |
| Operating margin(1) | 35,475 | 8,738 | 9,613 | 3,453 | 57,279 |
| Operating margin %(1) | 35% | 41% | 23% | 24% | 32% |
| Revenue excluding cost recoveries | 89,217 | 21,125 | 39,760 | 13,831 | 163,933 |
| Operating margin(1) | 35,475 | 8,738 | 9,613 | 3,453 | 57,279 |
| Operating margin %(1) | 40% | 41% | 24% | 25% | 35% |
| Average number of rigs deployed | 51 | 20 | 25 | 5 | 101 |
| Utilization %(2) | 77% | 41% | 78% | 58% | 69% |
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 | ||||
| March 31 | 2015 | 2014 | Change | ||
| Revenue | $ | 46,632 | $ | 59,268 | (21%) |
| Operating expenses | $ | 37,005 | $ | 43,707 | (15%) |
| Operating margin(1) | $ | 9,627 | $ | 15,561 | (38%) |
| Operating margin % | 21% | 26% | |||
| Billable hours - well servicing | 43,220 | 51,110 | (15%) | ||
| Revenue per billable hour - well servicing | $ | 870 | $ | 883 | (1%) |
| Operating hours - well servicing | 35,789 | 48,325 | (26%) | ||
FIRST QUARTER RESULTS
Overall revenue and operating margin for Savanna's oilfield services division decreased in Q1 2015 compared to Q1 2014, as a result of a 44% decrease in operating hours in Canadian well servicing and lower activity in Canadian rentals. The decrease in activity in Canada is reflective of the significant decline in oil prices leading up to and during Q1 2015. The decreases in Canada were partially offset by revenue and operating margin increases in Australia in Q1 2015 relative to Q1 2014. Two of the five new service rigs and the three new flush-by units constructed for Australia last year operated in the quarter, which resulted in a 204% increase in operating margin in Australia oilfield services in Q1 2015 relative to Q1 2014. In the U.S., Savanna's well servicing division maintained flat operating margins in Q1 2015 compared to Q1 2014, despite overall industry activity declines. Operating margins for oilfield services in Q1 2015, include $2.3 million in severance costs. Absent these costs, overall operating margin percentages would have been consistent with Q1 2014.
The following summarizes the operating results by geographic area:
| (Stated in thousands of dollars) | ||||
| Q1 2015 | Canada | U.S. | Australia | Total |
| Revenue | 18,595 | 7,289 | 20,748 | 46,632 |
| Operating margin(1) | 1,419 | 3,111 | 5,097 | 9,627 |
| Operating margin %(1) | 8% | 43% | 25% | 21% |
| Average number of rigs deployed - well servicing | 65 | 18 | 12 | 95 |
| Utilization % - well servicing(2) | 33% | 53% | 31% | 42% |
| (Stated in thousands of dollars) | ||||
| Q1 2014 | Canada | U.S. | Australia | Total |
| Revenue | 36,603 | 6,808 | 15,857 | 59,268 |
| Operating margin(1) | 10,796 | 3,087 | 1,678 | 15,561 |
| Operating margin %(1) | 29% | 45% | 11% | 26% |
| Average number of rigs deployed - well servicing | 73 | 14 | 4 | 91 |
| Utilization % - well servicing(2) | 52% | 67% | 65% | 59% |
Balance Sheet
Savanna's working capital at March 31, 2015, was $68.5 million and its net debt position was $278.6 million, an increase of $4 million, or 1%, from the Company's $274.6 million net debt position at December 31, 2014.
Savanna's total long-term debt outstanding on March 31, 2015, excluding unamortized debt issue costs, was $347.1 million, compared to $350.6 million outstanding at December 31, 2014. This total debt amount includes $18.8 million of unrealized foreign exchange on U.S. dollar denominated debt as well as $11.9 million in gross partnership debt, of which Savanna's proportionate share is approximately 50%.
Savanna has approximately $140.4 million drawn on Savanna's senior secured revolving credit facility of $250 million, as of the date of this release.
Outlook
The first quarter of 2015 was challenging from an operations perspective, particularly in Canada, as the significant decline in oil prices leading up to and during the quarter, reduced industry activity levels dramatically. There were however some bright spots operationally for Savanna in Q1 2015 despite the overall activity declines: Canadian shallow drilling and U.S. well servicing held operating margins flat relative to Q1 2014; and U.S. drilling and Australia improved operating margins compared to Q1 2014. Savanna has now completed and deployed, under take-or-pay contracts, all of the rigs it was constructing in 2014 including: five service rigs and three flush-by units in Australia; a 1200 horsepower AC ultra-heavy double drilling rig in Canada; and three 1500 horsepower AC Velox™ triple drilling rigs for the U.S.
Looking forward, the remainder of 2015 will continue to be challenging for Savanna and the oilfield services industry as a whole. North American drilling and service rig activity to date in the second quarter of 2015, is down significantly compared to 2014. Based on continuing low oil prices, persisting low natural gas prices, and the uncertain duration of the current low price environment, oil and gas companies have reduced their spending levels for the remainder 2015, which will continue to have a negative effect on the oilfield services industry and Savanna.
To help mitigate the effect of the low activity levels expected for the remainder of the year, Savanna took the first steps toward a significant restructuring in Q1 2015. Field locations are being consolidated and both the field office cost component of its operating expenses and general and administrative expenses are being reduced. This restructuring is being completed with the aim of becoming more agile in the face of volatile oil and gas activity levels, by better aligning the Company's cost structure with the variable nature of the oilfield services industry. Moreover, these changes are fundamental structural changes in the Company rather than a "run through the dip" strategy that was employed in 2009. To date, non-rig related salaried positions have been reduced by 39% from where they were at the end of 2014, and salary and wage roll backs have been implemented. This restructuring, combined with salary and wage roll backs, will result in significant general and administrative expense and field office cost reductions in 2015, relative to 2014, especially for the remainder of the year based on the significant severance costs incurred in Q1 2015.
Savanna has also begun to rationalize its legacy asset base and has retired or disposed of a number assets in order to reduce the capital, repairs, maintenance and people required to manage equipment with little or no future marketability. The Company will continue to assess the long-term fit of various components of its capital asset base to unfolding market demand in terms of specific asset classes and geographies.
Additionally, Savanna renewed and extended its senior secured revolving credit facility. In conjunction with the renewal and extension of the facility, certain financial covenants were also amended which provide Savanna with increased financial flexibility amidst the prevailing uncertain market conditions. Savanna has also cancelled its dividend to free up cash flow to further preserve its balance sheet.
Savanna remains focused on managing its balance sheet and costs in all aspects of its business and leveraging its assets to maintain and gain market share.
Cautionary Statement Regarding Forward-Looking Information and Statements
Certain statements and information contained in this press release including statements related to the Company's restructuring initiatives and their effect on the Company, the expectation of significant general and administrative expense and field office cost reductions in 2015 relative to 2014, expectations of low activity levels for Savanna for the remainder of 2015, the expectation of uncertain oil and natural gas industry activity for the remainder of 2015 and its effect on the oilfield services industry and Savanna, 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 expectation of significant general and administrative expense and field office cost reductions in 2015 relative to 2014 is premised on the reduction in non-rig related salaried positions and salary and wage roll-backs implemented to date in 2015. The Company's expectations of low activity levels for Savanna for the remainder of 2015, its expectation of uncertain oil and natural gas industry activity for the remainder of 2015 and its effect on the oilfield services industry and Savanna are premised on industry estimates, actual results experienced to date in 2015, 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 deployed into Australia and North America in the last seven months. 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 also announces that Chris Strong has resigned as a member of each of the Audit Committee and the Health, Safety and Environment Committee since becoming President and Chief Executive Officer. Each such committee is comprised entirely of independent directors.
Savanna's full Q1 2015 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 Wednesday, May 6, 2015 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's first quarter 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 live webcast of the conference call will be accessible on the Company's website under the Investor Relations section. A replay of the call will be available until May 15, 2015 by dialing 1-800-937-6305 and entering passcode 902954.
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.
