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Savanna Announces Q2 2013 Results and Capital Program Update


Savanna Announces Q2 2013 Results and Capital Program Update

CALGARY, ALBERTA -- (Marketwired) -- 08/08/13 -- Savanna Energy Services Corp. ("Savanna" or "the Company") (TSX:SVY) generated EBITDAS of $10.1 million on $112.1 million of revenue in Q2 2013 compared to EBITDAS of $15.2 million on $123.1 million of revenue in Q2 2012. The decreases were primarily a result of significantly lower activity levels in Canada, but were offset by substantial increases in Australian activity and operating results. Revenue and EBITDAS in the quarter were also considerably lower than the Q1 2013 revenue of $236.9 million and EBITDAS of $68 million, primarily as a result of the typical Q2 seasonal decline in activity in Canada.

Substantially lower industry activity levels in Canada in Q2 2013 relative to Q2 2012 led to a significant decrease in operating days and hours in Savanna's Canadian drilling and well servicing divisions. Lower levels of customer spending, a heavy snowpack, and wet weather, particularly in June when activity traditionally picks up coming out of spring break-up, resulted in the decreased industry demand in Canada. Savanna generated $2.7 million in operating margins on $40.2 million of revenue in Canada in Q2 2013, compared to $10.7 million in operating margins on $63.5 million of revenue in Q2 2012, and $64.3 million in operating margins on $167.1 million of revenue in Q1 2013. The decrease in operating margin percentages compared to both Q2 2012 and Q1 2013 were primarily a result of significantly lower activity levels and the effect fixed costs had on operating margins.

In the U.S., despite a softening of industry demand overall, activity levels have remained much more consistent for Savanna, with a minimal reduction in operating days and hours compared to Q2 2012. Savanna generated $14.3 million in operating margins on $43.8 million of revenue in the U.S. in Q2 2013, compared to $15.2 million in operating margins on $46.8 million of revenue in Q2 2012, and $13.3 million in operating margins on $45.1 million of revenue in Q1 2013.

Australian activity continued to accelerate through Q2 2013, and improved utilization, revenues and operating margins partially offset the declines from Savanna's Canadian operations. Overall operating margins from Aust ralia totaled $5.6 million in Q2 2013, which represents a 37% increase from the $4.1 million generated in Q1 2013, and a $6 million increase from the operating margin deficit in Q2 2012.

Overall, as a result of decreased EBITDAS on lower Canadian activity levels, Savanna's Q2 2013 net earnings attributable to the shareholders of the Company, decreased by $1 million to a loss of $8.6 million, or $0.10 per share, in Q2 2013, from a loss of $7.6 million, or $0.09 per share, in Q2 2012. In Q1 2013, net earnings attributable to the shareholders of the Company were $27.8 million, or $0.32 per share. The seasonal decrease in Canadian activity levels in Q2 2013 drove the decrease in earnings from Q1 2013.

On a year-to-date basis, a wet second quarter in Canada magnified the effect of already depressed oilfield service demand levels in North America in 2013. As a result of overall economic uncertainty, pipeline capacity constraints in Canada, and continuing low natural gas prices, North American demand levels in the first half of 2013 were lower than in the first half of 2012. This led to substantially lower utilization in both drilling and well servicing in Canada and decreased pricing on Savanna's spot market drilling rigs. Despite demand decreases, an increase in Savanna's overall active drilling rig fleet and in Canadian oilfield rentals revenue in Q1 2013, coupled with substantial increases in operating margin contributions from Australia throughout 2013 have partially mitigated the negative effect of the overall activity declines in Canada. However, higher general and administrative expenses, higher depreciation expenses based on an increased capital asset cost base and higher activity in Australia, and higher finance expenses, also negatively impacted Savanna's net earnings in the first half of 2013 relative to the first half of 2012. In addition, in the first half of 2013, Savanna incurred $1 million in restructuring and bad debt expenses, approximately half of which is included in general and administrative expenses.

Financial Highlights

The following is a summary of selected financial information of the Company:


 
(Stated in thousands of dollars, except the number of shares and per share  
 amounts)                                                                   
                                                                            
                       Three months                                         
                              ended              Six months ended           
June 30               2013     2012   Change       2013      2012   Change  
----------------------------------------------------------------------------
OPERATING RESULTS                                                           
Revenue            112,087  123,123       (9%)  348,973   356,824       (2%)
Operating expenses  89,463   97,441       (8%)  244,631   243,514        0% 
Operating                                                                   
 margin(1)          22,624   25,682      (12%)  104,342   113,310       (8%)
Operating margin                                                            
 %(1)                   20%      21%                 30%       32%          
EBITDAS(1)          10,133   15,193      (33%)   78,120    90,260      (13%)
  Attributable to                                                           
   shareholders of                                                          
   the Company      10,179   14,652      (31%)   75,888    87,340      (13%)
  Per share:                                                                
   diluted            0.12     0.17      (29%)     0.88      1.02      (14%)
Net earnings                                                                
 (loss)             (8,600)  (7,164)      20%    21,019    29,858      (30%)
  Attributable to                                                           
   shareholders of                                                          
   the Company      (8,644)  (7,558)      14%    19,123    27,636      (31%)
  Per share:                                                                
   diluted           (0.10)   (0.09)      11%      0.22      0.32      (31%)
Weighted average                                                            
 shares                                                                     
 outstanding -                                                              
 diluted (000s)     86,796   85,469              86,642    85,405           
----------------------------------------------------------------------------
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CASH FLOWS                                                                  
Operating cash                                                              
 flows(1)            4,217   10,711      (61%)   70,500    82,421      (14%)
Acquisition of                                                              
 capital assets(1)  24,038   51,412      (53%)   48,574    99,493      (51%)
Dividends paid       5,933    4,223       40%    11,522     4,223      173% 
------------------------------------------
----------------------------------
----------------------------------------------------------------------------
                                                                            
                                                Jun. 30   Dec. 31           
FINANCIAL POSITION                                 2013      2012           
----------------------------------------------------------------------------
Working capital(1)                               86,186    94,125       (8%)
Capital assets(1)                             1,155,269 1,145,554        1% 
Total assets                                  1,321,193 1,338,489       (1%)
Long-term debt                                  231,338   249,939       (7%)
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Effective January 1, 2013, Savanna adopted International Financial Reporting Standard ("IFRS") 10, Consolidated Financial Statements. Adoption of the standard changed how Savanna accounted for its partnerships with Aboriginal communities, from 50% proportionate consolidation to full consolidation. As a result, the comparative figures included in this press release, have been restated. The changes on adoption of the new standard are described in detail in the Company's Q1 2013 management's discussion and analysis, under the heading "Accounting Policies", and in Note 4 of the Company's condensed consolidated financial statements for the three months ended March 31, 2013.

NOTES:


 
(1)  Operating margin, operating margin percentage, EBITDAS, and operating  
     cash flows are not recognized measures under IFRS, and are unlikely to 
     be comparable to similar measures presented by other companies.        
     Management believes that, in addition to net earnings, the measures    
     described above are useful as they provide an indication of the results
     generated by the Company's principal business activities both prior to 
     and after consideration of how those activities are financed, the      
     effect of foreign exchange and how the results are taxed in various    
     jurisdictions. Similarly, capital assets, working capital, and net debt
     are not recognized measures under IFRS; however, management believes   
     that these measures are useful as they provide an indication of the    
     Company's investment in operating assets, liquidity and leverage.      
 
--  Operating margin is defined as revenue less operating expenses. 
--  Operating margin percentage is defined as revenue less operating
    expenses divided by revenue. 
--  EBITDAS is defined as earnings before finance expenses, income taxes,
    depreciation, amortization and share-based compensation and excludes
    other expenses (income). 
--  Operating cash flows are defined as cash flows from operating activities
    before changes in non-cash working capital. 
--  Capital assets are defined as property, equipment and intangible assets.
--  The acquisition of capital assets includes the purchase of property,
    equipment and intangible assets, capital assets acquired through
    business acquisitions and non-cash capital asset additions. 
--  Working capital is defined as total current assets less total current
    liabilities excluding the current portions of long-term debt. 
--  Net debt is defined as long-term debt, including the current portions
    thereof and excluding unamortized debt issue costs, less working capital
    as defined above. 
 
(2)  Certain industry related terms used in this press release are defined  
     or clarified as follows:                                               
 
--  Savanna reports its drilling rig utilization based on spud to release
    time for its operational drilling rigs and excludes moving, rig up and
    tear down time, even though revenue may be earned during this time.
    Source of Canadian industry average utilization figures: Canadian
    Association of Oilwell Drilling Contractors. Industry utilization
    figures are calculated in the same manner as the Company. 
--  Savanna reports its service rig utilization for its operational service
    rigs in North America based on standard hours of 3,650 per rig per year.
    Utilization for Savanna's service rigs in Australia is calculated based
    on standard hours of 8,760 per rig per year to reflect 24 hour operating
    conditions in that country. Reliable industry average utilization
    figures, specific to well servicing, are not available. 

Segmented Results

CONTRACT DRILLING

The following is a summary of selected financial and operating information of the Company's contract drilling segment:


 
(Stated in                                                                  
 thousands of                                                               
 dollars,                                                                   
 except                                                                     
 revenue per         Three Months                       Six Months          
 day)                       Ended                            Ended          
----------------------------------------------------------------------------
June 30            2013      2012  Change         2013        2012  Change  
----------------------------------------------------------------------------
Revenue        $ 77,027  $ 87,571     (12%) $  250,707  $  264,273      (5%)
Operating                                                                   
 expenses      $ 58,580  $ 66,320     (12%) $  170,895  $  173,684      (2%)
Operating                                                                   
 margin(1)     $ 18,447  $ 21,251     (13%) $   79,812  $   90,589     (12%)
Operating                                                                   
 margin %(1)         24%       24%                  32%         34%         
Operating days    3,464     3,939     (12%)     10,569      11,059      (4%)
Revenue per                                                                 
 operating day $ 22,236  $ 22,232       0%  $   23,721  $   23,897      (1%)
Spud to                                                                     
 release days     2,980     3,416     (13%)      9,132       9,779      (7%)
Wells drilled       367       352       4%       1,153       1,151       0% 
Meters drilled  751,702   706,104       6%   2,038,001   1,881,468       8% 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

SECOND QUARTER RESULTS

Overall, lower activity levels in Canada in Q2 2013 compared to Q2 2012 led to a decrease in the number of operating days and operating margins in Savanna's contract drilling segment. Canadian drilling activity was lower in the second quarter of this year as a result of lower levels of customer spending and wet weather, particularly in June, when activity traditionally picks up coming out of spring break-up. In contrast, improved utilization on a larger active drilling fleet led to a $3.4 million increase in operating margins for Savanna's drilling operations in Australia in Q2 2013 compared to Q2 2012, which partially offset the declines in Canada.

The following summarizes the operating results in the second quarter of 2013 and 2012 by type of rig or geographic area. Long-reach drilling in Canada includes the Company's telescoping double drilling rigs, TDS-3000(TM) drilling rigs and TDS-2200 drilling rigs.


 
                                                                            
(Stated in thousands of    Long-reach    Shallow        Drilling            
 dollars)                    Drilling   Drilling        U.S. and            
Q2 2013                        Canada     Canada   International      Total 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue                        23,667        795          52,565     77,027 
Operating margin(1)             3,754     (1,211)         15,904     18,447 
Operating margin %(1)              16%       (i)              30%        24%
---------------------------------------------------------------
-------------
                                                                            
Revenue excluding cost                                                      
 recoveries                    20,912        795          50,949     72,656 
Operating margin(1)             3,754     (1,211)         15,904     18,447 
Operating margin %(1)              18%       (i)              31%        25%
----------------------------------------------------------------------------
                                                                            
Average number of rigs                                                      
 deployed                          50         20              30        100 
Utilization %(2)                   19%         2%             76%        33%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(Stated in thousands of    Long-reach    Shallow        Drilling            
dollars)                     Drilling   Drilling        U.S. and            
Q2 2012                        Canada     Canada   International      Total 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue                        37,268      2,463          47,840     87,571 
Operating margin(1)            10,662     (1,860)         12,449     21,251 
Operating margin %(1)              29%       (i)              26%        24%
----------------------------------------------------------------------------
                                                                            
Revenue excluding cost                                                      
 recoveries                    33,360      2,252          45,693     81,305 
Operating margin(1)            10,662     (1,860)         12,449     21,251 
Operating margin %(1)              32%       (i)              27%        26%
----------------------------------------------------------------------------
                                                                            
Average number of rigs                                                      
 deployed                          45         20              30         95 
Utilization %(2)                   31%         6%             75%        39%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i) Calculation not meaningful

In the contract drilling segment, significant costs are incurred and passed through to customers with little or no markup. For Q2 2013 these costs aggregated $4.4 million (Q2 2012 - $6.3 million). Savanna's accounting policy with respect to cost recoveries billed to customers is to include them as both revenue and operating expenses rather than to net them. Although Savanna believes this most appropriately reflects the substance of the underlying transactions, the accounting treatment of cost recoveries varies in the oilfield services industry. There is no effect on overall operating margins whether cost recoveries are netted or not; however, the different treatments do result in different operating margin percentages, as the same dollar margin is factored against lower revenue when cost recoveries are netted. As a result, Savanna believes it is useful to provide revenue excluding cost recoveries and the resulting operating margin percentages for comparative purposes.

The Canadian long-reach drilling rigs experienced downward pricing pressure and lower utilization in Q2 2013 compared to Q2 2012. The relatively low overall industry demand in Canada has kept downward pressure on day rates for Savanna's spot market rigs and the number of operating days achieved by the long-reach drilling fleet in Canada decreased by 30% compared to Q2 2012. Variable costs per day were only slightly higher than last year, as a result of labour cost increases that took effect in Q4 2012, but fixed costs, on lower activity levels drove overall per day costs up relative to Q2 2012. The lower per day revenue, lower utilization, and higher per day costs led to a 65% decrease in operating margins compared to Q2 2012. The 19% utilization rate for Savanna's long-reach drilling rigs in Q2 2013 was in-line with Canadian industry utilization rates of 20% in the same depth categories.

Savanna's shallow fleet in Canada contributed negatively to overall operating margins in the second quarter of both 2013 and 2012. The current state of the shallow drilling market in Canada resulted in low demand levels for Savanna's shallow hybrid fleet following a busy winter of oil sands coring work in the first quarter of 2013. Despite lower revenue and utilization in Q2 2013 versus Q2 2012, as a result of cost control initiatives to date in 2013 operating margins actually improved relative to Q2 2012. Additionally, the Company's plan to improve the year-round profitability of its shallow drilling rig fleet should begin showing results in Q3 2013. Based on current customer commitments, Savanna's Q3 2013 shallow drilling rig fleet utilization should well exceed that of Q3 2012.

Revenue for Savanna's U.S. drilling operation was 5% lower in Q2 2013 compared to Q2 2012, as a result of fewer operating days. Although demand levels have decreased overall in the U.S., to date in 2013, Savanna has been able to maintain high utilization rates in the regions where its rigs are deployed. In addition, the downward pricing pressure faced in the Permian basin in Texas in the last few quarters appears to have leveled off for the near term. Variable costs per day also remained relatively consistent to those in Q2 2012 and operating margin percentages in the U.S. in Q2 2013 were virtually unchanged from those in Q2 2012.

In Australia, improved utilization on a larger number of active rigs in Q2 2013, led to a significant increase in operating days, and revenue more than doubled compared to Q2 2012. Four drilling rigs operating in Australia in Q2 2013 also reduced the impact of fixed costs on operating margins. Overall operating margins for Savanna's drilling operations in Australia increased to $3.4 million in Q2 2013 from a break-even Q2 2012, which was also negatively impacted last year by rig-up costs on the commissioning of the third and fourth drilling rigs in the region.

YEAR-TO-DATE RESULTS

To date in 2013, fewer operating days and lower average revenue per day resulted in lower overall revenue, operating margins and operating margin percentages in Savanna's contract drilling segment compared to the first half of 2012. A $5.5 million increase in operating margins from drilling in Australia and having five more active rigs to date in 2013 did partially offset decreased demand levels and utilization in Canada. Similarly, lower day rates in Canada, particularly on Savanna's telescoping double drilling rigs, were partially offset by more days at higher per day rates in Australia.

The following summarizes the operating results in the first half of 2013 and 2012 by type of rig or geographic area.


 
                                                                            
(Stated in thousands of    Long-reach    Shallow        Drilling            
 dollars)                    Drilling   Drilling        U.S. and            
YTD 2013                       Canada     Canada   International      Total 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue                       118,904     25,797         106,006    250,707 
Operating margin(1)            39,745      9,435          30,632     79,812 
Operating margin %(1)              33%        37%             29%        32%
----------------------------------------------------------------------------
                                                                            
Revenue excluding cost                                                      
 recoveries                   104,612     25,000         102,204    231,816 
Operating margin(1)            39,745      9,435          30,632     79,812 
Operating margin %(1)              38%        38%             30%        34%
----------------------------------------------------------------------------
                                                                            
Average number of rigs                                                      
 deployed                          50         20              30        100 
Utilization %(2)                   45%        24%             77%        50%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
 
                                                                            
(Stated in thousands of    Long-reach    Shallow        Drilling            
dollars)                     Drilling   Drilling        U.S. and            
YTD 2012                       Canada     Canada   International      Total 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue                       135,635     32,828          95,810    264,273 
Operating margin(1)            52,122     11,241          27,226     90,589 
Operating margin %(1)              38%        34%             28%        34%
----------------------------------------------------------------------------
                                                                            
Revenue excluding cost                                                      
 recoveries                   121,465     31,476          92,070    245,011 
Operating margin(1)            52,122     11,241          27,226     90,589 
Operating margin %(1)              43%        36%             30%        37%
----------------------------------------------------------------------------
                                                                            
Average number of rigs                                                      
 deployed                          45         21              29         95 
Utilization %(2)                   55%        31%             78%        57%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In the first six months of 2013 cost recoveries aggregated $18.9 million compared to $19.3 million in the same period in 2012.

Lower day rates and lower utilization in the first half of 2013 resulted in decreased revenue for the Company's long-reach drilling rigs in Canada compared to the same period in 2012. This lower revenue, coupled with higher per day pass through costs and the increased impact of fixed costs on lower activity levels, led to a 24% decrease in operating margins and lower operating margin percentages compared to the first half of 2012. The relatively low overall industry demand in Canada heading into the winter drilling season put pressure on day rates for Savanna's spot market rigs. While rates have now stabilized, they are still lower relative to this time last year. Although utilization in the first half of 2013 decreased relative to first half of 2012, the 45% utilization rate for Savanna's long-reach drilling rigs in 2013 still exceeded Canadian industry utilization rates of 39% in the same depth categories.

The majority of the revenue and operating margins for Savanna's shallow fleet in the first half of both 2013 and 2012 was earned performing coring work for oil sands customers in the first quarter of each year. The CT-1500 hybrid drilling rigs have had considerable success in applying coil based drilling to coring, and coupled with cost control initiatives in 2013, the shallow fleet improved operating margin percentages relative to the first half of 2012 despite lower activity this year versus last.

Revenue for Savanna's U.S. drilling operation was slightly lower in the first half of 2013 compared to the same period in 2012, as a result of fewer operating days and, to a lesser degree, lower day rates. Pricing pressure in the Permian basin in Texas resulted in a slight weakening in day rates relative to the first half of 2012. Higher labour costs also had a negative effect on operating margins in the first half of 2013, and coupled with the decrease in revenue led to a two percentage point decrease in operating margin percentages in the U.S. compared to the first half of 2012.

In Australia, operating days and revenue more than doubled in the first half of 2013 compared to the same period in 2012 as utilization improved on a larger rig fleet in the region. The larger fleet also reduced the impact of fixed costs on per day costs, and operating margins for Savanna's drilling operations in Australia increased to $6.5 million in the first half of 2013 from $1 million at this time last year.

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         Three Months                   Six Months          
 revenue per hour)              Ended                        Ended          
----------------------------------------------------------------------------
June 30                2013      2012  Change       2013      2012  Change  
----------------------------------------------------------------------------
Revenue            $ 35,136  $ 35,875      (2%) $ 99,879  $ 94,369       6% 
Operating expenses $ 31,055  $ 31,536      (2%) $ 75,544  $ 71,868       5% 
Operating                                                                   
 margin(1)         $  4,081  $  4,339      (6%) $ 24,335  $ 22,501       8% 
Operating margin                                                            
 %(1)                    12%       12%                24%       24%         
Operating hours      26,751    35,227     (24%)   78,001    90,319     (14%)
Revenue per                                                                 
 operating hour -                                                           
 well servicing    $    988  $    850      16%  $    963  $    870      11% 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

SECOND QUARTER RESULTS

Despite a considerable decline in operating hours, revenue for Savanna's oilfield services division in Q2 2013 was consistent with Q2 2012, as a result of an increase in oilfield rentals revenue and higher overall per hour rates in well servicing. An increased contribution from Australia in the quarter, where per hour revenue is higher compared to North America, contributed to the higher per hour revenue. Overall, costs held in proportion to revenue, and Savanna was able to maintain operating margin percentages in Q2 2013 comparable to Q2 2012. As a result of improved operating results in Australia and lower activity levels in Canada, there was a substantial geographic shift this quarter, as nearly all of the Q2 2013 operating margin was generated outside of Canada.

Included in revenue for Q2 2013, was $8.7 million from oilfield rentals (Q2 2012 - $5.9 million). Of the Q2 2013 rental revenue, $5.5 million (Q2 2012 - $3.4 million) was generated in Australia and $0.2 million (Q2 2012 - $0.4 million) is eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from the per hour revenue calculations above.

The following summarizes the operating results by geographic area:


 
(Stated in thousands of dollars)                        U.S. and            
Q2 2013                                   Canada   International      Total 
----------------------------------------------------------------------------
Revenue                                   15,630          19,506     35,136 
Operating margin(1)                           51           4,030      4,081 
Operating margin %(1)                          0%             21%        12%
Average number of rigs deployed               84              14         98 
Utilization %(2)                              20%             66%        30%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(Stated in thousands of dollars)           
             U.S. and            
Q2 2012                                   Canada   International      Total 
----------------------------------------------------------------------------
Revenue                                   23,638          12,237     35,875 
Operating margin(1)                        2,098           2,241      4,339 
Operating margin %(1)                          9%             18%        12%
Average number of rigs deployed               88              14        102 
Utilization %(2)                              32%             70%        38%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Lower industry demand and wet weather in Canada, resulted in lower activity levels for Savanna's well servicing and rentals operations in Q2 2013 compared to Q2 2012. The number of operating hours from the well servicing fleet in Canada decreased by 40% compared to Q2 2012. Variable per hour costs in well servicing remained relatively flat from Q2 2012, but fixed costs, based on 40% fewer hours, increased overall per hour costs relative to Q2 2012. For rentals, revenues increased by 20% as a result of the Q4 2012 acquisition of oilfield accommodation buildings. However, the rentals business has a primarily fixed cost base and the incremental revenue in Q2 2013 was more than offset by higher incremental costs, again directly driven by low activity for rentals in Canada. These factors combined to reduce overall operating margins relative to Q2 2012.

On average, Savanna operated two fewer service rigs in the U.S. in Q2 2013 versus Q2 2012, as a result of equipment repairs and a rig retirement in early Q4 2012. Consequently, revenues and operating margins for well servicing in the U.S. decreased relative to Q2 2012. In June 2013, two new-build service rigs commenced operations out of the Company's North Dakota base. With a third new-build commencing operations in July 2013 and pending rig transfers from Canada in Q3 and Q4 of this year, operating margin contributions from Savanna's U.S. well servicing operations should increase in future quarters.

In Australia, revenue from service rigs and rental equipment more than doubled and operating margins increased by $2.6 million in Q2 2013 compared to Q2 2012. The increases are a result of improved utilization on a larger equipment base. However, weather, downtime in moving from a spot contract to a term contract, and some equipment issues, did still compress results.

YEAR-TO-DATE RESULTS

Savanna's oilfield services division generated higher revenues, despite achieving fewer operating hours in the first half of 2013 compared to same period in 2012. The increase was a result of higher overall per hour rates in well servicing, due primarily to a larger contribution from Australia, and a $9.1 million increase in oilfield rentals revenue. Overall, operating margins increased by $1.8 million in the first half of 2013 and operating margin percentages remained flat year over year.

Included in revenue for the first half of 2013, was $24.8 million from oilfield rentals (H1 2012 - $15.7 million). Of the year-to- date rental revenue in 2013, $10 million (H1 2012 - $6.1 million) was generated in Australia and $1.8 million (H1 2012 - $2 million) is eliminated on overall consolidation as inter-segment revenue. Oilfield rentals revenue is excluded from the per hour revenue calculations above.

The following summarizes the operating results by geographic area:


 
(Stated in thousands of dollars)                        U.S. and            
YTD 2013                                  Canada   International      Total 
----------------------------------------------------------------------------
Revenue                                   62,416          37,463     99,879 
Operating margin(1)                       17,627           6,708     24,335 
Operating margin %(1)                         28%             
18%        24%
Average number of rigs deployed               84              13         97 
Utilization %(2)                              36%             68%        44%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
(Stated in thousands of dollars)                        U.S. and            
YTD 2012                                  Canada   International      Total 
----------------------------------------------------------------------------
Revenue                                   70,534          23,835     94,369 
Operating margin(1)                       17,461           5,040     22,501 
Operating margin %(1)                         25%             21%        24%
Average number of rigs deployed               89              14        103 
Utilization %(2)                              41%             69%        48%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In Canada, industry demand was lower in the first half of 2013 compared to the first half of 2012, which led to lower utilization and revenue from Savanna's well servicing fleet. However, the decrease in well servicing revenue was offset by a 53% increase in rentals revenue. Of the increase in rentals revenue, $4.5 million was related to the Q4 2012 acquisition of oilfield accommodation buildings. In well servicing, revenue per hour increased while overall per hour costs were virtually unchanged from the first half of 2012. Based on these factors, Savanna's oilfield services division in Canada was able to increase operating margins and operating margin percentages despite a decrease in overall activity and revenue.

In the U.S., Savanna operated two fewer service rigs in the first half of 2013 compared to the same period in 2012. Consequently, revenues and operating margins for well servicing in the U.S. decreased relative to the first half of 2012.

In Australia, revenue and operating margins from service rigs and rental equipment more than doubled in the first half of 2013 compared to the first half of 2012 driven by a larger equipment base and improved utilization. That being said, Savanna expects operating margins to continue to improve for this operation through the remainder of 2013, based on better operating conditions and stronger customer commitments.

Balance Sheet

Savanna's working capital at June 30, 2013, was $86.2 million and its net debt(1) position was $145 million, a decrease of $11 million or 7% from the Company's $156 million net debt(1) position at December 31, 2012. Savanna's total long-term debt outstanding on June 30, 2013, excluding unamortized debt issue costs, was $231.3 million.

In May 2013, Savanna renewed its revolving credit facility, extending the term of the facility by one year so all drawn amounts are not due until May 2017. At June 30, 2013, the amount drawn on the Company's revolving credit facility was $97.4 million while the Company's Canadian operating facility was undrawn. As of the date of this release, $94.8 million was drawn on Savanna's available revolving credit facility of $180 million, and Savanna's available operating facility of $20 million was undrawn.

Dividend

In the first half of 2013, Savanna declared dividends totaling $15.5 million or $0.18 per share. Of the dividends declared, $4 million was reinvested in additional common shares through the Company's dividend reinvestment plan.

Outlook

Canadian activity levels for the remainder of 2013 remain uncertain, but have become increasingly more positive as Q3 2013 unfolds. In Canada, overall industry activity levels will have a greater impact on Savanna's performance due to the relatively lower contract status of the Company's fleet. Overall, Savanna is still highly dependent on activity levels in Canada to drive results. However, Savanna believes it has a more marketable Canadian drilling rig fleet this year compared to last, and day rates appear to have stabilized after declines earlier in the year. In addition, plans to enhance full-year profitability of the shallow drilling rig fleet are being implemented, and the increased scale of the Company's oilfield rentals business, should both provide improved returns. Savanna also continues to support its firm belief that North American well servicing is in the early stages of a long-term upturn.

In the U.S., the outlook for the remainder of the year also remains uncertain. Savanna has most of its drilling rigs under contract. While these contracts will expire over the next 18 months, many have been renewed at existing terms and as a result should continue to mitigate any near-term drilling market deterioration. Additionally, Savanna's U.S. drilling and well servicing fleets are positioned in markets where activity is expected to remain relatively stronger, and Savanna believes it has strong operating positions in those markets. Savanna did not encounter any difficulties in utilizing the three new-build North Dakota service rigs commissioned in the last two months, nor does it anticipate any difficulty utilizing rigs slated for transfer from Canada later in the year.

In Australia, utilization and operating margins continue to improve every quarter, with operating margins increasing to $5.6 million in Q2 2013, from $4.1 million in Q1 2013, and an operating margin deficit in Q2 2012. Savanna has now established sufficient scale in Australia to take advantage of the expected sharp increase of activity levels in that country. With long-term contracts signed for two additional rigs in Australia, Savanna is well positioned to continue generating improved returns from this division. Savanna remains very optimistic on the future prospects of Australia. With looming liquefied natural gas deliveries for 2014 in sight, activity levels continue to increase in the region overall and support a further ramp-up in activity, and resulting equipment and service requirements as well.

Savanna's focus on right-sizing its operating and general and administrative costs, to better align with anticipated volatility and base levels of activity, is also continuing. It is anticipated that cost management will improve in forward quarters relative to Q2 and Q1 2013 and Q4 2012.

The oilfield service market continues to face uncertainty in the near-term. Commodity pricing, particularly for natural gas and heavy oil, and pipeline capacity issues in North America, are impacting customer demand for services. Offsetting this uncertainty is the traction Canadian liquefied natural gas is receiving, which should provide further growth potential for Canadian oilfield services. In Australia, long-term prospects remain strong and Savanna's contract position in both Australia and the U.S. should result in stable activity in those markets. Since Q2 2013, activity levels in Canada have improved overall and day rates appear to have firmed up. Savanna's customers are now anticipating a busier second half of 2013 than was expected a few months ago, however activity levels remain uncertain. Savanna is confident in the long-term prospects for every region in which the Company operates, and in its ability to deliver the safest, most effective drilling, completion and workover services possible to its customers.

Capital Program Update

Savanna is pleased to announce that it has received a commitment from an existing customer to deploy an additional high- specification workover rig to Queensland, Australia under a long-term contract. This rig addition will bring Savanna's fleet in Australia to eleven rigs, five drilling and six workover. The rig is targeted to commence operations in Australia in June 2014. Savanna is seeing ongoing demand growth in respect of its drilling, workover and rental equipment in Australia. There are several active and pending tenders outstanding for additional equipment, and Savanna is participating in the majority of these. This commitment was provided outside of the tendering process however.

In light of the above, Savanna is taking the opportunity to update its 2013 capital program. On June 7, 2013, Savanna outlined a capital program of $118 million. In order to address both the new-build workover rig for Australia and timing constraints related to North American tenders that Savanna is currently participating in, the 2013 capital budget is increasing as follows:


 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Stated in thousands of               2013       Incremental    Revised 2013
 dollars)                   Capital Budget  Approved Capital  Capital Budget
----------------------------------------------------------------------------
Maintenance,                                                                
 recertifications and                                                       
 upgrades                           44,000                 -          44,000
Spare equipment and drill                                                   
 pipe                               21,500                 -          21,500
Australia drilling,                                                         
 workover and rental                                                        
 equipment(1)                       24,500             5,000          29,500
Long-lead items for North                                                   
 American drilling(2)                7,000            14,400          21,400
North Dakota workover rigs           4,000                 -           4,000
Expansion capital for                                                       
 rentals and oilfield                                                       
 services                           13,000                 -          13,000
Corporate capital and                                                       
 infrastructure                      4,000                 -           4,000
----------------------------------------------------------------------------
                                   118,000            19,400         137,400
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)  The $5 million represents incremental 2013 capital to manufacture and  
     deliver one high-specification workover rig and associated assets to   
     Australia. A further $5 million will be incurred in the first half of  
     2014.                                                                  
                                                                            
(2)  The $14.4 million represents ordering of long-lead drilling components 
     to address timing constraints related to tenders Savanna is currently  
     participating in.                                                      

Savanna has participated in numerous contract tenders in Canada, the U.S. and Australia to date in 2013, and will further update its capital program based on the results of these tenders, if, as or when they are announced. While Savanna operates a fleet very well suited to current and projected high activity areas of all markets it serves, the Company is also committed to increasing its drilling rig depth and operating capacity in order to continue expanding the Company's product offering for its customers. The Company has designed, and will commission and operate equipment aligned to its position as a sustainable, profitable oilfield service provider. In the context of an uncertain North American market for drilling and workover services, Savanna has a pproved a capital budget providing for growth and expansion in its key markets, recognizing the potential risks to activity levels in the near-term. The capital program also reflects Savanna's commitment to sustain and grow its current monthly dividend. The Board of Directors reviews the Company's dividend policy quarterly, and is satisfied with current dividend levels.

Cautionary Statement Regarding Forward-Looking Information and Statements

Certain statements and information contained in this press release including statements related to the Company's 2013 capital program and other strategic or growth initiatives, the expectation of utilizing service rigs slated for transfer from Canada to North Dakota and increasing operating margin contributions from Savanna's U.S. well servicing operations, the expectation of higher utilization and improved year-round profitability for the shallow drilling fleet, the expectation of increased activity levels, improved operating margins, and improved returns from Savanna's Australian operations, the expectation of overall cost management improvements, the expectation of near-term uncertainty in North American activity levels and the oilfield service market, and the Company's ability to mitigate the effect of such, the expectation of growth potential for Canadian oilfield services as liquefied natural gas export terminal projects gain traction, the expectation of a long-term increase in well servicing activity, and statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may", "likely", "estimate", "predict", "potential", "continue", "maintain", "retain", "grow", and similar expressions and statements relating to matters that are not historical facts may constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995.

These statements are based on certain assumptions and analysis made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. In particular, the Company's expectation of utilizing service rigs slated for transfer from Canada to North Dakota is premised on the Company's current outlook for industry activity in that region and increasing operating margin contributions form Savanna's U.S. well servicing operations is premised on the expected increase in the scale of those operations both through newly constructed rigs and in rigs transferred from Canada. The Company's expectation of higher utilization and improved year-round profitability for the shallow drilling fleet is premised on customer commitments and utilization achieved to date in Q3 2013. The Company's expectation of increased activity levels, improved operating margins, and improved returns from Savanna's Australian operations is premised on actual results experienced to date in 2013, the contracts currently in place, including those for two new-build rigs plus a commitment for a third, communications with its customers in the region, and the general expectation that coal seam gas activity will increase in that country as the deliveries to, and plans for, liquefied natural gas plants progress. The Company's expectation of overall cost management improvements, is premised on cost management and process improvement initiatives undertaken or currently underway. The Company's expectation of growth potential for Canadian oilfield services as liquefied natural gas export terminal projects gain traction, and its ability to mitigate the effect of near-term uncertainty in North American activity levels and the oilfield service market are premised on actual results experienced to date in 2013, customer contracts and commitments, the Company's expectations for its customers' capital budgets and g eographical areas of focus, the status of current negotiations with its customers, the focus of its customers on oil directed drilling opportunities in the current natural gas pricing environment in North America, and regulatory approvals granted for liquefied natural gas export terminals in Canada. The Company's expectation of a long-term increase in well servicing activity in North America is premised on the increase in the number of oil and gas liquids based wells that have been drilled over the last several years and the required maintenance through the life of such wells compared to natural gas wells. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Company's expectations. Such risks and uncertainties include, but are not limited to: fluctuations in the price and demand for oil and natural gas; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for well servicing, 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.

Consequently, all of the forward-looking information and statements made in this press release are qualified by this cautionary statement and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations. Except as may be required by law, the Company assumes no obligation to update publicly any such forward- looking information and statements, whether as a result of new information, future events, or otherwise.

Other

Savanna's full Q2 2013 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 Friday, August 9, 2013 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's second quarter results. The call will be hosted by Ken Mullen, Savanna's President and Chief Executive Officer and Darcy Draudson, Executive Vice President, Finance and Chief Financial Officer.

If you wish to participate in this conference call, please call 1-888-892-3255 (for participants in North America). Please call 10 minutes ahead of time.

A replay of the call will be available until August 16, 2013 by dialing 1-800-937-6305 and entering passcode 156437.

Savanna is a Canadian-based drilling and oilfield services provider with operations in Canada, the United States and Australia, focused on providing fit for purpose equipment and technologies. Contacts: Savanna Energy Services Corp. Ken Mullen President and Chief Executive Officer (403) 503-9990

Savanna Energy Services Corp. Darcy Draudson EVP Finance and Chief Financial Officer (403) 503-9990 www.savannaenergy.com

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