News
Mar 10, 2010Savanna Energy Services Corp. Announces Q4 2009 Results and Updates Capital Program
Calgary, Alberta TSX – SVY March 10, 2010
Savanna Energy Services Corp. (“Savanna” or “the Company”) is an oilfield services company operating throughout North America. The Company’s overall business is conducted through two major divisions: contract drilling and oilfield services.
Overall, 2009 represented one of the most challenging years ever faced by the oilfield services industry as significant increases in North American gas supplies were met with a sharp decline in demand as a result of the worldwide economic slowdown. The decline in demand for oilfield services in conventional basins in North America produced one of the least active first quarters in
Canadian oilfield services in over a decade. This unprecedented low demand continued through the second quarter and, coupled with the normal seasonal effects of spring break-up, utilization levels in Canada were held at record lows. Activity levels did improve slightly during the third and fourth quarters of 2009 in both Canada and in the United States. In Canada, the number of
wells and meters drilled in 2009 was less than half of that drilled in 2008 as Canadian activity levels overall for the industry continued to significantly lag those of the rest of North America and internationally.
Savanna’s challenges certainly mirrored those of the industry in 2009. With about 80% of our drilling rigs and 90% of our well servicing fleet based in Canada during the year, Savanna was negatively affected by the industry conditions in Canada to a greater extent than those with broader geographic operations. Furthermore, with approximately half of Savanna’s drilling rig fleet focused on shallow drilling, the collapse of the Canadian shallow market in particular took an even greater toll on 2009 utilization rates. Overall, the decrease in demand for oilfield services led to a decrease in operating days, hours and rates in the Company’s drilling and oilfield services divisions respectively compared to 2008, reducing year over year revenues and margins in each of the divisions. Despite all of this, Savanna’s utilization rates, by every rig depth category, consistently exceeded industry averages, a testament to the quality of the crews and equipment Savanna possesses.
Fourth quarter and full year 2009 earnings were also negatively impacted as a result of non-cash impairment losses on the Company’s surface/coring drilling rigs and coil tubing service units. Based on the long-term uncertainty surrounding these assets specifically, and their non-core nature, the Company deemed that they were permanently impaired and recognized a loss of
$25,832. Certain related intangible assets were also considered to be permanently impaired which resulted in a further loss of $1,538. Subsequent to December 31, 2009, Savanna disposed of 2 coil tubing service units, reducing the fleet to 6 units currently.
Given the prevailing market conditions, in 2009 Savanna focused on cost reductions, rig redeployment to new basins, and balance sheet strengthening.
In Q2 and Q3 2009 Savanna took measures to more closely align its fixed operating and administrative costs with the decreases in activity levels. Some of the measures taken included: salary and wage roll backs of 2% to 26% for all non-rig related employees, a 20% reduction in its salaried workforce compared to January 2009, freezing of incremental capital expenditures, and deferral of elective equipment enhancements and re-certifications. The industry also took measures to align wages for drilling rig employees with the decreased operating activity. Effective May 1, 2009, the CAODC decreased recommended wage levels on average by
approximately 15%. Savanna furthered this by implementing an average 6% reduction in wages for its service rig personnel. The changes had a positive effect on operating margin percentages for the remainder of 2009 as direct and indirect labour are the Company’s largest operating expenses.
During the year, the Company also continued its efforts in deploying rigs into new markets to further diversify its operations geographically. In addition to increasing the number of rigs operating in the Permian basis in Texas, Savanna also sent 2 service rigs and a drilling rig to North Dakota and made its first entry into the growing Marcellus shale play by transferring one drilling rig under contract to Pennsylvania. In Q3 2009 Savanna completed its first expansion beyond Canada and the United States by deploying 4 drilling rigs into the Chicontepec region of Mexico under an 18 month term contract. In the fourth quarter of 2009 the Company took steps to further diversify internationally, entering into a five year contract to deploy 2 hybrid drilling rigs and 2 service rigs to Queensland, Australia. These rigs are expected to begin operations in Q3 2010. The above rig deployments will improve Savanna’s long-term positioning within the drilling and well servicing businesses.
To strengthen its balance sheet, and to provide the requisite capital to execute its strategic initiatives, the Company issued 20.1 million common shares on June 3, 2009 at a price of $6.30 per share for gross proceeds of $126.8 million. Savanna’s balance sheet strength is evident at December 31, 2009. The Company has a debt-to-equity ratio of 9% and net debt (1) of $19.1 million on $869.4 million of capital assets. Savanna’s financial position at the end of 2009 provides for considerable flexibility heading into 2010.
Q4 2009 Operational Highlights
The downturn in the North American oil and gas industry continued to have a negative effect on the Company’s operations in Q4 2009. The decrease in demand for oilfield services led to a decrease in operating days, hours and rates in the drilling and oilfield services divisions respectively compared to Q4 2008. However, in Q4 2009 Savanna achieved its highest operating margins(1) and margin percentages(1) compared to any of the three preceding quarters.
In December 2009, the Company entered into a five year contract to initially deploy 2 hybrid drilling rigs from its Canadian fleet, and 2 built-for-purpose service rigs to Queensland, Australia.
Savanna also moved a drilling rig from its Canadian operations to North Dakota in Q4 2009, increasing the total U.S. drilling rig
fleet to 17 rigs.
During the fourth quarter Savanna concluded a joint technology development agreement with a private, government and operator backed, technology group directed at the development and expansion of coil drilling capabilities in directional and horizontal wells, focused primarily in the United States.
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