SAVANNA ENERGY SERVICES CORP. PRESS RE LE ASE
FO R IMM ED IATE RE L E ASE
Savanna Energy Services Corp. Announces Second Quarter 2015 Results
Calgary, Alberta
August 4, 2015
TSX - SVY
Savanna generated revenue of $92.7 million, EBITDAS of $24.1 million and a net loss, attributable to shareholders of the Company, of $10.5 million or $0.12 per share in the second quarter of 2015, compared to revenue of $148.9 million, EBITDAS of $14.4 million and a net loss, attributable to shareholders of the Company, of $12.0 million or 13 cents per share in Q2 2014. The $9.7 million increase in EBITDAS, despite a 38% decline in revenue, was attributable to $5.6 million of Q1 2015 stand-by that was the subject of a negotiation concluded in Q2 2015, operating margins generated from the twelve contracted new-builds added in late 2014 and early 2015, restructuring efforts and cost control initiatives. Severance costs, which were $8.5 million in Q1 2015, declined to $0.8 million in Q2 2015. While lower than in Q2 2014, Savanna's Q2 2015 net loss was impacted by higher depreciation, which was the result of changing the company's accounting method from operating days or hours to years, and higher income tax expenses. The company's long-term debt balance declined by $27.2 million in the quarter to $319.9 million. Of the decrease, $11.2 million was related to the realization working capital, with the remainder realized through operating cash flow and proceeds on asset sales.
Compared to the prior year, each of the countries in which the company operates benefited from new rigs on long-term contracts and lower operating expenses, which largely mitigated the significant declines in revenue due to lower activity levels. In Canada, revenues declined by $39.7 million and operating margins declined by only $4.1 million. In the U.S., revenues declined by $25.1 million and operating margins declined by only $1.8 million. In Australia, excluding the $5.6 million of stand-by attributable to Q1 2015, revenues were $3 million higher and operating margins were $6.5 million higher. Savanna's overall operating margin in Q2 2015 was $6.2 million higher relative to Q2 2014, of which $5.6 million was related to the Q1 2015 stand-by. General and administrative expenses declined from $13.4 million in Q2 2014 to $9.9 million in Q2 2015, which included $0.5 million of general and administrative related severance costs. As a result, EBITDAS was $9.7 higher than Q2 2014.
In Canada, long-reach drilling, well servicing and rentals all experienced significant activity declines, which resulted in lower revenue and operating margins compared to Q2 2014. However, the significant restructuring and cost control efforts undertaken by Savanna in the first half of 2015 led to improved operating margin percentages in each of the divisions above, relative to Q2 2014. Savanna generated $5.8 million in operating margins on $24.6 million of revenue in Canada in Q2 2015, compared to $9.9 million in operating margins on $64.3 million of revenue in Q2 2014. Sequentially, operating margins decreased from the $23.6 million generated on $83.8 million of revenue in Canada in Q1 2015. The decrease sequentially was based on seasonal decreases in activity in Canadian long-reach drilling, shallow drilling, and oilfield services, which were magnified in 2015 by the prevailing low industry activity levels.
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In Savanna's U.S. well servicing division, the Company's 2014 strategy of redeploying idle Canadian service rigs proved beneficial, as an increase in operating hours and an appreciation in the value of the U.S. dollar relative to the Canadian dollar, partially mitigated the effect of lower pricing and limited the decrease in operating margin in the quarter relative to Q2 2014 and Q1 2015. In the U.S. drilling division, operating days and revenue decreased significantly relative to Q2
2014. Lower U.S. drilling revenue was more than offset by the effect of having a greater proportion of higher-spec and higher day rate rigs, including the three new-build VeloxTM triple drilling rigs, cost control and restructuring efforts, and an appreciation in the value of the U.S. dollar relative to the Canadian dollar, and resulted in an increase in operating margins percentages compared to Q2 2014. Sequentially, lower U.S. drilling utilization drove the overall operating margin
decreases compared to Q1 2015, however cost reductions and changes in rig mix resulted in higher operating margin percentages. Savanna generated $9.9 million in operating margins on $25.1 million of revenue in the U.S. in Q2 2015, compared to $14.5 million in operating margins on $39.7 million of revenue in Q1 2015and $11.7 million in operating margins on $50.2 million of revenue in Q2 2014.
In Australia, the revenue increase was driven by the five new service rigs and the three new flush-by units deployed into Australia in late 2014 and early 2015. The arrival of these rigs in Australia coincided with the start of the decline in commodity prices and overall oil and natural gas industry activity. As a result, Savanna's customer did not put these rigs to work once they were field-ready. Savanna and its customer began negotiating on whether stand-by charges would be paid in cash or whether term would be added to the end of the contract. Negotiations concluded in Q2 2015, with both Savanna and the customer agreeing that stand-by charges on those rigs would be paid in cash pursuant to the contract. This resulted in the recognition of $5.6 million in revenue in Q2 2015 that related to Q1 2015, but did not meet revenue recognition criteria in the first quarter.
Including the stand-by charges related to Q1 2015, oilfield services revenue in Australia increased by $13.3 million relative to Q2 2014 and operating margin increased by $12.2 million. Without the Q1 2015 stand-by charges, operating margins and operating margin percentages still increased considerably and are reflective of the impact of the higher revenue on consistent levels of field office costs and Savanna's ability to adjust its rig operating costs to maximize operating margins while rigs are on stand-by. Conversely, drilling revenue in Australia decreased $4.6 million with one drilling rig off contract and two others on stand-by, however Savanna was able to adjust its rig operating and field office costs to minimize the effect on operating margins, which were relatively flat compared to Q2 2014. Overall, the additional eight rigs, the recognition of Q1 2015 stand-by, and the low costs associated with rigs on stand-by resulted in operating margin increases in the quarter relative to Q2 2014. Overall operating margins from Australia totaled $18.3 million in Q2
2015, a significant increase from the $8.1 million generated in Q12015, and the $6.2 million in operating margins in Q2
2014. Had the stand-by charges been recognized in the appropriate quarters, overall operating margins in Australia would have decreased by $1 million in Q2 2015 compared to Q1 2015, based on rigs on stand-by in Q1 2015 working through Q2 2015, and the minimal costs associated the Q1 related stand-by revenue.
Despite the $9.7 million increase in overall EBITDAS, Savanna's Q2 2015 net loss was relatively flat compared to Q2
2014 as a result of higher depreciation and amortization expenses in Q2 2015, which increased based on the 2015 change in the method used to depreciate the Company's drilling and service rigs, from operating days or hours to years, and higher income tax expenses due to Alberta income tax rate increases. Compared to Q1 2015net earnings decreased as a
result of lower EBITDAS and higher income tax expenses in Q2 2015 and the asset disposal and foreign exchange gains in Q1 2015The Q2 2015 net loss attributable to the shareholders of the Company was $10.5 million, or $0.12 per share, compared to the net loss attributable to the shareholders of the Company of $12 million, or $0.13 per share, in Q2 2014. The Q1 2014 net earnings attributable to the shareholders of the Company was $10 million, or $0.11 per share.
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Year-to-Date Results
The significant decline in oil prices leading up to and during the first half of 2015, and the resulting decrease in industry activity, negatively affected overall revenue, operating margin and EBITDAS relative to the first half of 2014. 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, repairs and maintenance deferrals, and significant restructuring efforts to date in 2015.
Long-reach drilling, well servicing and rentals in Canada all experienced significant activity declines, which resulted in lower revenue and operating margins compared to the first half of 2014. However, the significant restructuring and cost control efforts undertaken by Savanna in the first half of 2015 limited the corresponding decrease in operating margin percentages to two percentage points, relative to the first half of 2014. Overall, the decreased activity resulted in a $115.5 million, or 52%, decrease in revenue and $35.7 million, or 55%, decrease in operating margins in Canada.
In Savanna's U.S. well servicing division, revenue and operating margins remained relatively flat compared to the first half of 2014, despite the decrease in industry activity. In the U.S. drilling division, operating days and revenue decreased significantly relative to the first half of 2014. However, the effect of having a greater proportion of higher-spec and higher day rate rigs, including the three new-build VeloxTM triple drilling rigs, working in the first half of 2015, cost control and restructuring efforts, and an appreciation in the value of the U.S. dollar relative to the Canadian dollar, resulted in an increase operating margin percentages relative to the first half of 2014. Overall, operating margins in the U.S. were flat compared to the first half of 2014, despite the $34.4 million, or 35%, decline in year-over-year revenue.
In Australia, oilfield services revenue increased by $18.2 million relative to the first half of 2014 as a result of the five new service rigs and the three new flush-by units deployed into Australia in late 2014 and early 2015. The additional rigs mitigated the $8.2 million decrease in drilling revenue in Australia from the one drilling rig that came off contract and the two drilling rigs on stand-by in the first half of 2015. Operating margins and operating margin percentages for oilfield services in Australia increased considerably based on the effect of the higher revenue on consistent levels of field office costs and the Company's ability to adjust its rig operating costs to maximize operating margins while rigs are on stand-by. Savanna was also able to adjust its rig operating and field office costs on the drilling side in Australia to minimize the effect of the off-contract and stand-by drilling rigs on operating margins, which were down $0.6 million compared to the first half of 2014. Overall, operating margins in Australia in the first half of 2015 increased by $15 million, or 133%, from the first half of 2014.
Overall, for the first half of 2015, EBITDAS decreased by 27% relative to the first half of 2014, as a result of significant operating margin decreases in Canadian long-reach drilling and oilfield services, and $9.3 million in severance costs incurred in the first half of 2015, which were offset by contributions from the twelve contracted new-build rigs, cost reductions, and restructuring initiatives. The decrease in EBITDAS, combined with higher depreciation and amortization expenses and higher income tax expenses due to Alberta income tax rate increases, resulted in a $6.9 million, or 108%, decrease in net earnings attributable to shareholders of the Company relative to the first half of 2014. The severance costs were incurred as the Company's organizational structure was flattened to reduce layers of management that were not required and was further restructured for the current environment. Of the severance costs, approximately 40% is included in operating expenses and 60% is included in general and administrative expenses.
Savanna's working capital at June 30, 2015, was $61.4 million, which includes $13 million in cash and is net of the $4.7 million in amounts drawn on its Canadian and U.S. operating facilities.
Savanna's total long-term debt outstanding on June 30, 2015, excluding unamortized debt issue costs, was $319.9 million, compared to $350.6 million outstanding at December 31, 2014. This total long-term debt amount includes $13.6 million of
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unrealized foreign exchange on U.S. dollar denominated debt as well as $10 million in gross partnership debt, of which
Savanna's proportionate share is approximately 50%.
Savanna has approximately $137.4 million drawn on Savanna's senior secured revolving credit facility of $250 million, as of the date of this release.
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 2015 2014 Change 2015 2014 Change
OPERATING RESULTS
Revenue 92,727 148,921 (38%) 247,279 386,909 (36%) Operating expenses 58,736 121,153 (52%) 167,145 286,220 (42%) Operating margin(1) 33,991 27,768 22% 80,134 100,689 (20%) Operating margin %(1) 37% 19% 32% 26%
EBITDAS(1) 24,068 14,363 68% 53,882 73,780 (27%)
Attributable to shareholders of the Company 23,844 13,937 71% 52,655 69,763 (25%) Per share: diluted 0.26 0.16 63% 0.58 0.78 (26%) Net earnings (loss) (11,254) (12,044) (7%) (1,080) 9,131 (112%) Attributable to shareholders of the Company (10,519) (11,954) (12%) (494) 6,376 (108%) Per share: diluted (0.12) (0.13) (8%) (0.01) 0.07 (114%)
Diluted weighted average shares outstanding (000s) 90,251 89,114 1% 90,238 89,442 1%
CASH FLOWS
Operating cash flows(1) 17,074 6,481 163% 43,310 63,894 (32%) Per share: diluted 0.19 0.07 171% 0.48 0.71 (32%) Acquisition of capital assets(1) 12,518 54,100 (77%) 48,515 96,161 (50%)
Dividends paid 2,707 6,111 (56%) 4,951 11,800 (58%)
FINANCIAL POSITION AT Jun. 30 Dec. 31
2015 2014Working capital(1) 61,429 76,040 (19%) Capital assets(1) 938,648 946,578 (1%) Total assets 1,101,383 1,183,925 (7%)
Long-term debt 319,878 350,615 (9%)
NO TES :
(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 and working capital 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 and 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, amortization and share-based compensation and excludes other expenses (income).
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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.
(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 DrillingThe following is a summary of selected financial and operating information of the Company's contract drilling segment:
(Stated in thousands of dollars, except revenue per day) Three Months Ended Six Months Ended June 30 2015 2014 Change 2015 2014 Change Revenue $ 43,636 $ 104,640 (58%) $ 152,117 $ 284,098 (46%) Operating expenses $ 28,847 $ 82,913 (65%) $ 100,859 $ 205,090 (51%) Operating margin(1) $ 14,789 $ 21,727 (32%) $ 51,258 $ 79,008 (35%) Operating margin % 34% 21% 34% 28%
Billable days 1,784 4,478 (60%) 6,005 11,696 (49%) Revenue per billable day $ 24,460 $ 23,368 5% $ 25,332 $ 24,290 4% Operating (spud to release) days 1,291 3,882 (67%) 4,647 10,162 (54%) Wells drilled 181 417 (57%) 667 1,183 (44%) Meters drilled 412,974 822,420 (50%) 1,175,489 2,224,702 (47%)
Meters drilled per well 2,282 1,972 16% 1,762 1,881 (6%)
SECOND QUARTER RESULTS
Overall contract drilling revenue decreased relative to Q2 2014, as a result of lower activity levels in Canada, the U.S. and Australia, and lower day rates in Canada. Billable days in the U.S. decreased 67% compared to Q2 2014, and in Canadian long-reach drilling billable days were down 61% while day rates were 15% lower. The decrease in activity is reflective of the significant decline in oil prices in 2015, and the resulting decrease in customer drilling activity. Given the activity declines, cost control and restructuring was a major focus of the Company leading into Q2 2015. Rig operating costs were
17% lower on a per day basis compared to Q2 2014, while field office costs were $3.7 million lower in the quarter. The lower per day operating and field office costs resulted in an increase in overall operating margin percentages relative to Q2
2014.
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The following summarizes the operating results in the second 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-3000TM drilling rigs and TDS-2200 drilling rigs.
(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
Q2 2015 Canada Canada U.S. Australia Total
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% ∆ 40% 31% 34%
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% ∆ 41% 33% 36%
Average number of rigs deployed 52 16 28 5 101
Utilization %(2) 13% 0% 20% 33% 14%
∆ Calculation not meaningful
(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
Q2 2014 Canada Canada U.S. Australia Total
Revenue 44,143 1,373 43,309 15,815 104,640
Operating margin(1) 10,861 (1,384) 8,583 3,667 21,727
Operating margin %(1) 25% ∆ 20% 23% 21%
Revenue excluding cost recoveries 39,509 1,256 40,431 15,134 96,330
Operating margin(1) 10,861 (1,384) 8,583 3,667 21,727
Operating margin %(1) 27% ∆ 21% 24% 23%
Average number of rigs deployed 51 20 25 5 101
Utilization %(2) 35% 3% 83% 69% 42%
YEAR-TO-DATE RESULTS
Contract drilling revenue decreased in the first half of 2015 relative to the first half of 2014, as a result of a 58% decrease in billable days in long-reach drilling in Canada and a 53% decrease in billable days in U.S. drilling. These decreases were driven by low oil prices that have persisted throughout 2015 and the resulting decline in overall drilling activity in North America. Based on the low activity levels, the Company focused on cost control and underwent a significant restructuring in the first half of 2015. Rig operating costs were lower on a per day basis compared to the first half of 2014 and field office costs were $3.4 million lower despite $1.3 million in severance costs. The lower per day operating and field office costs resulted in an increase in overall operating margin percentages relative to the first half of 2014.
The following summarizes the operating results in the first half of 2015 and 2014 by type of rig or geographic area.
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(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
YTD 2015 Canada Canada U.S. Australia Total
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%
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%
Average number of rigs deployed 52 16 27 5 100
Utilization %(2) 23% 23% 32% 29% 26%
(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
YTD 2014 Canada Canada U.S. Australia Total
Revenue 145,612 22,740 85,486 30,260 284,098
Operating margin(1) 46,339 7,353 18,200 7,116 79,008
Operating margin %(1) 32% 32% 21% 24% 28%
Revenue excluding cost recoveries 128,727 22,381 80,191 28,965 260,264
Operating margin(1) 46,339 7,353 18,200 7,116 79,008
Operating margin %(1) 36% 33% 23% 25% 30%
Average number of rigs deployed 51 20 25 5 101
Utilization %(2) 56% 22% 80% 64% 56%
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 2015 2014 Change 2015 2014 Change Revenue $ 49,402 $ 44,416 11% $ 96,034 $ 103,683 (7%) Operating expenses $ 30,248 $ 38,450 (21%) $ 67,253 $ 82,158 (18%) Operating margin(1) $ 19,154 $ 5,966 221% $ 28,781 $ 21,525 34% Operating margin % 39% 13% 30% 21%
Billable hours - well servicing 48,381 36,961 31% 91,601 88,071 4% Revenue per billable hour - well servicing $ 880 $ 915 (4%) $ 875 $ 897 (2%)
Operating hours - well servicing 31,488 34,361 (8%) 67,276 82,686 (19%)
SECOND QUARTER RESULTS
Revenue and operating margin for Savanna's oilfield services division increased in Q2 2015 compared to Q2 2014, despite a 40% decrease in operating hours in Canadian well servicing, primarily as a result of a 219% increase in billable hours in Australia well servicing. Negotiations surrounding stand-by charges for the eight new-build rigs deployed into Australia in late 2014 and early 2015 concluded in Q2 2015. These negotiations resulted in the recognition of $5.6 million in revenue and six thousand billable hours in Q2 2015, that related to Q1 2015 but did not meet revenue recognition criteria in the
first quarter. In Canada, the decrease in activity is reflective of the significant decline in oil prices leading up to and during
2015. The activity decreases in Canada were more than offset by 64% lower field office costs and resulted in year-over- year operating margin increases. In the U.S., Savanna's well servicing division experienced marginally lower operating
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margins in Q2 2015 compared to Q2 2014, based on lower per hour rates driven by overall industry activity declines. Operating margins for oilfield services in Q2 2015, include $0.3 million in severance costs.
The following summarizes the operating results by geographic area:
(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%
(Stated in thousands of dollars)
Q2 2014 Canada U.S. Australia Total
Revenue 18,672 6,907 18,837 44,416
Operating margin(1) 358 3,125 2,483 5,966
Operating margin %(1) 2% 45% 13% 13% Average number of rigs deployed - well servicing 73 14 4 91
Utilization % - well servicing(2) 29% 69% 70% 42%
YEAR-TO-DATE RESULTS
Operating margin for Savanna's oilfield services division increased in the first half of 2015 compared to the first half of
2014, despite a decrease in overall revenue in the same respective periods. The increases were driven by the eight contracted rigs added into the Australian market in late 2014 and early 2015. Although some of the new rigs were on stand-by in the first six months of 2015, the eight new rigs resulted in a $15.8 million, or 45%, increase in revenue and a
$13.2 million, or 318%, increase in operating margin in Australian oilfield services relative to the first half of 2014. The operating margin increases in Australia more than offset the operating margin decreases in Canada, which were driven by overall decreases in industry activity. In Savanna's U.S. well servicing business, revenue and operating margin remained relatively flat in the first half of 2015 compared to the first half of 2014, despite overall industry declines. In addition, operating margins for oilfield services in the first half of 2015, include $2.7 million in severance costs.
The following summarizes the operating results by geographic area:
(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% |
(Stated in thousands of dollars)
YTD 2014 Canada U.S. Australia Total
Revenue | 55,275 | 13,714 | 34,694 | 103,683 |
Operating margin(1) | 11,152 | 6,207 | 4,166 | 21,525 |
Operating margin %(1) | 20% | 45% | 12% | 21% |
Average number of rigs deployed - well servicing | 73 | 14 | 4 | 91 |
Utilization % - well servicing(2) | 41% | 68% | 67% | 50% |
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Outlook
The first half of 2015 was challenging from an operations perspective, particularly in Canada, as the significant decline in oil prices leading up to and during 2015, reduced industry activity levels dramatically. During this period, Savanna undertook a significant restructuring to help mitigate the effect of the low activity levels expected for 2015 and 2016. These changes were fundamental structural changes in the Company and were 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. This restructuring, along with other cost control initiatives, played a large part in improving Q2 2015
EBITDAS over Q2 2014, despite the overall revenue and activity declines in the respective periods.
Despite the challenging industry conditions, there were several operational successes for Savanna in Q2 2014: cost reductions led to improved year-over-year operating margin percentages in each Canadian operating division, despite significantly lower activity and revenue relative to Q2 2014; U.S. well servicing held operating margins fairly flat relative to Q2 2014; running the three 1500 horsepower AC VeloxTM triple drilling rigs and cost reductions led to improved year-over-year operating margin percentages in U.S. drilling, despite significantly lower activity and revenue relative to Q2 2014; and Australia improved operating margins considerably compared to Q2 2014 with the additional five service rigs and three flush-by units all earning revenue.
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 third quarter of 2015, is down significantly compared to
2014 and has not increased materially from levels in Q2 2015. Based on continuing low oil prices, persistent low natural gas prices, and the uncertain duration of the current low price environment, oil and gas companies have indicated that their spending levels will remain relatively low for the remainder of 2015 and into 2016, which will continue to have a negative effect on the oilfield services industry and Savanna.
The structural changes Savana underwent in the first half of 2015, and the reduced overall cost structure have the Company positioned to face reduced activity levels well beyond 2015. In Q2 2015, Savanna renewed and extended its senior secured revolving credit facility and amended certain financial covenants, which provide Savanna with increased financial flexibility well into 2016. Savanna also cancelled its dividend to further preserve its balance sheet. As of the date of this MD&A, Savanna has reduced its long-term debt levels by over $27 million and its debt covenant ratios improved relative to Q1 2015. The Company is continuing to actively market land and buildings as it consolidates field locations. The Company will also 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.
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.
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Cautionary Statement Regarding Forward-Looking Information and Statements
Certain statements and information contained in this press release including statements related to the Company's expectations of low activity levels for the oilfield industry and Savanna for the remainder of 2015, the expectation of uncertain oil and natural gas industry spending and activity levels for the remainder of 2015 and into 2016, the impact of the structural changes undertaken by Savanna in the first half of 2015, the continued consolidation of field locations and assessment of the long-term fit of various components of its capital asset base, 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 of low activity levels for the oilfield industry and Savanna for the remainder of 2015, its expectation of uncertain oil and natural gas industry spending and activity levels for the remainder of 2015 and into 2016 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. The Company's expectation of the impact of the structural changes undertaken by Savanna in the first half of 2015 is premised on cost reductions realized to date related thereto. The Company's expectation of the continued consolidation of field locations and assessment of the long-term fit of various components of its capital asset base is premised on current assets held for sale and ongoing activities related to assessing the long-term fit of various components of its capital asset base to unfolding market demand in terms of specific asset classes and geographies. 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.
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Savanna's full Q2 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, August 5, 2015 at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) to discuss the Company's second 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
replay of the call will be available until August 12, 2015 by dialing 1-800-937-6305 and entering passcode 975515.
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.
Chris Strong Dwayne LaMontagne
President and Chief Executive Officer Executive Vice President and Chief Financial Officer
Telephone: (403) 503-9990; Website: www.savannaenergy.com
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