Savanna Energy Services Corp. (TSX:SVY) ("Savanna" or "the
Company") is pleased to announce the completion of its drilling rig
retrofit program. This program involved the extensive retrofit of
15 CT-1500(TM) shallow hybrid drilling rigs to TDS-3000(TM) long
reach conventional rigs. The last of the 15 rigs was commissioned
in November and is currently in the field. Acceptance of the
retrofitted platform has met all of Savanna's targeted capital,
operating and cash flow expectations, and has enhanced the
Company's ability to service the Canadian and United States long
reach horizontal drilling markets. Currently, 12 of the TDS-3000
rigs operate in Canada, while the remainder are working in the
United States. Savanna will average 8 operating TDS-3000 rigs in
2012 and operate all 15 rigs throughout 2013.
Drilling Rig Strategy
In anticipation of completing the TDS-3000 retrofit program
Savanna has developed several new drilling rig designs to support
future expansion. All the designs enhance the drilling depth focus
of Savanna and incorporate highly-mobile, fully-automated AC
platforms. These rigs are ideally suited for the current North
American drilling market. Importantly, they position Savanna to
capitalize on evolving downhole technologies that are increasingly
reliant on AC control and capacity driving the drilling equipment,
particularly on deeper double and triple capacity rigs. To sustain
our long-term growth, Savanna is committed to providing these
technologies on all of our new rigs in addition to upgrading our
current fleet to improve their safety and capacity.
Asset Expansion in Rentals
The TDS-3000 program has absorbed a significant portion of
Savanna's growth capital over the past 2 years, and we anticipate
demonstrating the rigs' economic returns in the coming quarters.
The Company is now focused on expanding our rental equipment and
workover businesses in Canada, the United States and Australia. We
recently acquired 208 oilfield accommodation buildings from a
private company for $14 million in cash, and also taken delivery of
20 newly manufactured accommodation units for an additional $3
million cash. Virtually all of the accommodation units are booked
for Q1, 2013, and it is our expectation the addition of this
equipment will enhance the marketability of our drilling rigs and
other rental assets. These expenditures are incremental to our
previously announced capital plan for 2012, and brings Savanna's Q4
capital expenditure total to approximately $41 million.
Australia
The last of Savanna's initial 8 rig commitment has landed in
Australia. This brings the rig complement in the region to 4
drilling and 4 workover rigs. All but one of these rigs is under
term contract. The 4th drilling rig, which was previously on a
short-term, 16-well test contract, has now been dedicated to a
multi-year agreement with the same customer. The operating
environment in Australia has improved over the past few months, and
Savanna anticipates better rig utilization in 2013. Demand for
drilling and workover equipment in the region continues to
increase, and new customer tender activity is accelerating.
2013 Capex
Consistent with 2012, Savanna is initiating a conservative 2013
capital expenditure plan. While commitments for Q1, 2013 are
currently comparable to 2012, we remain cautious about North
American activity levels for the remainder of 2013. We believe our
Australian and United States expansions, with their strong contract
positions, should support solid activity levels for 2013. In
Canada, both PSAC (Petroleum Services Association of Canada) and
the CAODC (Canadian Association of Oilwell Drilling Contractors)
are predicting 2013 activity levels equal to or lower than 2012.
Balancing this cautious outlook with strong commitments in Canada
in Q1, and solid demand in Australia and the United States, Savanna
has established the following conservative capital budget for
2013:
$ (000's)
----------
Maintenance capital, recertification's and upgrades 40,000
Spare equipment and drillpipe 20,000
Long lead items for drilling rigs 26,000
Workover rigs for North Dakota (3) 4,000
Expansion capital for rentals and oilfield services 17,000
----------
107,000
----------
The details regarding these capital items include the
following:
Maintenance, Recertification and Upgrades
Savanna operates a modern drilling and workover fleet. In
addition to required maintenance and recertification expenses,
Savanna has been investing capital to enhance the capacity of some
of its drilling rigs to satisfy market demand. Over the past 3
years, Savanna has continually upgraded its fleet of deeper
drilling rigs, enabling them to compete in the horizontal drilling
markets for wells with total measured depth in excess of 5000
metres. This process has included enhancing the AC capabilities of
our fleet. At $40 million, our maintenance expenses are below the
industry average, reflecting the age and quality of Savanna's
fleet.
Spare Equipment and Drillpipe
High utilization of our drilling fleet in recent years has
increased the wear and tear on our drillpipe. Additionally, our
expanded and more geographically dispersed fleet has increased our
requirement for spare equipment to ensure uninterrupted operations.
While Savanna boasts a highly homogenous fleet, proximity to spare
equipment is essential for efficient operations. To address these
factors, Savanna has approved $20 million for drillpipe and spare
equipment.
Long Lead Items
Savanna is focused on adding ultra-deep double and triple rigs
to our drilling fleet. Our investment in unique AC rig platforms
for this market is expected to form the foundation for our organic
growth for the next several years. Our primary focus is North
America, with a bias towards our existing U.S. operating areas.
Additionally, we anticipate further demand for both drilling and
workover rigs from Australia but we will only add to our fleet
against contracts. Fortunately, based on Savanna's drive toward
utilizing consistent key components in our deeper rigs, the breadth
of long lead items is reasonably narrow. By ordering long lead
items ahead of manufacture we can reduce customer delivery times.
Savanna is currently pursuing double and triple contracts to
support the manufacture of drilling rigs during 2013 and has
approved a budget of $26 million for long lead items in 2013.
North Dakota Workover Rigs
Savanna has achieved strong operating results in our North
Dakota workover operations over the past 3 years. This success has
been driven by the high level of completion activity for new wells,
and increasingly by maintenance of existing production. In light of
the increased focus on oil-based activity in the region, the level
of maintenance on existing wells continues to grow. This growth
matches Savanna's long term expectation for all oil-focused areas
throughout North America, with the earlier increase in drilling in
North Dakota simply providing support for this market growth
outlook. Our expectations for a similar trend in Canada remain
high. It is expected that increases in workover activity will
cushion our business against temporary slowdowns in drilling
activity. In 2013 Savanna has committed to build an additional 3
workover rigs for North Dakota with an aggregate budget of $4
million. This build program will be expanded if market demand
dictates.
Rentals and Oilfield Services
Savanna's strategy is expected to be the expansion of our rental
and support operations in every geographic region in which the
Company operates in support of our drilling and workover
activities. The $20 million in capital approved for 2013 for
expansion of rental and oilfield services is expected to be
directed primarily at Canada and Australia, however, the recent
acquisition of accommodation buildings provides asset expansion in
both Canada and the United States. Rental asset expansion is
expected to continue to be focused on assets running in tandem with
our drilling and workover equipment, and be primarily directed to
surface support and well control equipment. This expansion capital
is directly supportive of Savanna's strategy to capitalize on our
existing drilling and workover sales, field and operating
infrastructure.
2013 Market Expectations
With the exception of the long lead items for drilling rigs and
the 3 workover rigs for North Dakota, the remaining capital program
is scalable to market activity. In Canada, both PSAC and the CAODC
are forecasting 2013 activity levels to be slightly lower than
2012. Savanna is still dependent on activity levels in Canada to
drive our overall results. With the completion of our TDS-3000
retrofit program, Savanna believes it now has a more marketable
drilling rig fleet. Beyond Q1, 2013 the level of activity in Canada
is less certain, but Savanna believes our retrofitted fleet is well
positioned to capitalize on whatever activity arises. In the United
States, Savanna has over 90% of its rigs under term contract, which
should provide a cushion against further drilling market
deterioration. Additionally, Savanna's U.S. fleet is positioned in
markets where activity is expected to remain stronger. Finally,
Savanna has established sufficient scale in Australia to take
advantage of the expected sharp increase of activity levels in that
country. With 8 rigs operating in the country, and 7 under
contract, Savanna is positioned to generate strong EBIDTA returns
from this division.
Savanna is committed to increasing its drilling rig depth and
operating capacity in order to align our service offerings with our
customers' future needs. The Company will design, commission and
operate equipment aligned to our position as a sustainable,
profitable oilfield service provider. In the context of an
uncertain North American market for the drilling and workover
services, we have approved a capital budget providing for growth
and expansion in our key markets, recognizing the potential risks
to activity levels in the near term. Our capital plans reflect
Savanna's commitment to sustain and grow our current monthly
dividend. The Board of Directors reviews our dividend policy
quarterly, and is satisfied with current dividend levels.
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.
Cautionary Statement Regarding Forward-Looking Information and
Statements
Certain statements and information contained in this press
release 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. The use of
any of the words "expect", "anticipate", "continue", "estimate",
"objective", "ongoing", "may", "will", "project", "should",
"believe", "plans", "intends", "might" and similar expressions are
intended to identify forward-looking information or statements. In
particular, but without limiting the foregoing, this press release
contains forward-looking information and statements pertaining to
the following: the demonstration of TDS-3000 economic returns in
2013; that evolving downhole technologies are increasingly reliant
on AC control; the effectiveness of new technology on our rigs and
the economic returns on same; the addition of rental equipment and
accommodation units enhancing the marketability of drilling rigs;
anticipated increased rig utilization in Australia; expected
activity levels in Australia, the U.S. and Canada in 2013; the
securing of new contracts with economics supporting new rig builds
in 2013; the continued maintenance of existing wells in North
Dakota and the increase of workover activity in the area going
forward; and the sustainability of the Company's current monthly
dividend in the future.
These statements are based on certain assumptions and analysis
made by Savanna in light of its experience as well as other factors
it believes are appropriate in the circumstances including, without
limitation: the status of current negotiations with its customers,
the progress of Savanna's current capital projects and current
customer advice on deployment for specific customer programs.
However, whether actual results or events will conform to Savanna's
expectations and predictions is subject to a number of known and
unknown risks and uncertainties which could cause actual results
and events to differ materially from Savanna's expectations
including, without limitation: 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 and contract drilling; the effects of
weather conditions on operations and facilities; the existence of
competitive operating risks inherent in well servicing 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 Savanna's Annual Report and
under the heading "Risk Factors" in Savanna's Annual Information
Form; and other unforeseen conditions.
In addition, the amount of future cash dividends, if any, will
be subject to the discretion of the Board of Directors and may vary
depending on a variety of factors, including fluctuations in
operating costs and earnings, working capital and capital
expenditure requirements, debt service requirements, foreign
exchange rates, the satisfaction of solvency tests imposed by the
Business Corporations Act (Alberta) for the declaration and payment
of dividends and other conditions existing from time to time.
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 events
anticipated by Savanna will be realized or, even if substantially
realized, that they will have the expected effects on Savanna or
its business or operations. Except as may be required by law,
Savanna assumes no obligation to update publicly any such forward
looking information and statements, whether as a result of new
information, future events, or otherwise.
Included in this press release is an estimate of Savanna's 2013
capital expenditure plan. To the extent such estimate constitutes
future oriented financial information or a financial outlook (as
defined by applicable securities legislation), such future oriented
financial information or financial outlook was approved by
management on December 5, 2012 and is included herein to provide
readers with an understanding of the Company's anticipated capital
expenditures for 2013. Readers are cautioned that the information
may not be appropriate for other purpose.
Contacts: Savanna Energy Services Corp. Ken Mullen President and
CEO (403) 503-9990 (403) 267-6749 (FAX) Savanna Energy Services
Corp. Darcy Draudson Vice-President, Finance and CFO (403) 503-9990
(403) 267-6749 (FAX) www.savannaenergy.com