CST: 30/07/2016 19:34:13   

Savanna Energy Services Corp. Announces Fourth Quarter and Year-End 2015 Results

145 Days ago

CALGARY, ALBERTA--(Marketwired - Mar 7, 2016) - Savanna Energy Services Corp. (TSX:SVY) -

Fourth Quarter Results

Savanna generated revenue of $100.8 million, EBITDAS of $22 million ($22.5 million prior to severance charges) and a net loss, attributable to shareholders of the Company, of $162.6 million or $1.80 per share in the fourth quarter of 2015, compared to revenue of $205 million, EBITDAS of $41.8 million and a net loss, attributable to shareholders of the Company, of $231.3 million or $2.57 per share in Q4 2014. The significant decline in year-over-year industry activity levels in North America, driven by continuing low oil and natural gas prices, resulted in the lower overall revenue, operating margin and EBITDAS amounts in Q4 2015, relative to Q4 2014. Despite the decrease in EBITDAS and the negative effect of valuation allowances taken on the Company's deferred tax assets, the overall net loss in Q4 2015 was lower than in Q4 2014 as a result of lower year-over-year impairment losses.

The impact of the industry activity and commodity price declines on Savanna in Q4 2015 was mitigated by the twelve contracted new-build rigs added in late 2014 and early 2015, the strength and extent of Savanna's contracted rig status in Australia, and lower costs throughout the organization. Lower costs were a function of cost control initiatives and the significant restructuring efforts in 2015, which resulted in higher operating margin percentages and EBITDAS percentages relative to Q4 2014, despite lower year-over-year revenue. Excluding the $0.5 million in severance costs incurred in Q4 2015, the restructuring efforts to date in 2015 reduced field office and general and administrative costs by $13.6 million, or 43%, in Q4 2015 relative to Q4 2014.

The Company's total debt, net of cash declined by $18.4 million in the quarter to $275 million, despite a $1.7 million increase in unrealized foreign exchange on the Company's remaining U.S. dollar denominated debt.

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 and field office costs, which largely mitigated the significant declines in revenue due to lower activity levels. In Canada, revenues declined by $73.6 million and operating margins declined by $23.6 million. In the U.S., revenues declined by $35.6 million and operating margins declined by $8.6 million. In Australia, revenues were $5 million higher and operating margins were $5.3 million higher. Savanna's overall operating margin in Q4 2015 was $26.9 million lower relative to Q4 2014. General and administrative expenses declined from $15.4 million in Q4 2014 to $8.3 million in Q4 2015. As a result, EBITDAS was $19.8 million lower than in Q4 2014.

In Canada, long-reach drilling, well servicing and rentals all experienced significant activity and pricing declines, which resulted in lower revenue and operating margins compared to Q4 2014. However, the significant restructuring and cost control efforts undertaken by Savanna in 2015 partially mitigated the corresponding decrease in operating margins and operating margin percentages in each of the divisions above, relative to Q4 2014. Savanna generated $9.3 million in operating margins on $40.8 million of revenue in Canada in Q4 2015, compared to $32.9 million in operating margins on $114.4 million of revenue in Q4 2014. Sequentially, operating margins increased from the $8.8 million generated on $35.9 million of revenue in Canada in Q3 2015. The increase sequentially was based on seasonal increases in activity in Canadian drilling.

Savanna's U.S. drilling and well servicing divisions also experienced significant activity and revenue declines relative to Q4 2014. Lower U.S. revenue was partially offset by the effect of operating a greater proportion of higher-spec and higher day rate drilling rigs, including the three new-build Velox 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 Q4 2014. Sequentially, the effect of contract expiries on three drilling rigs in the U.S. and lower rates in U.S. well servicing resulted in lower operating margins compared to Q3 2015. Savanna generated $7.8 million in operating margins on $18.8 million of revenue in the U.S. in Q4 2015, compared to $9.8 million in operating margins on $23.5 million of revenue in Q3 2015 and $16.4 million in operating margins on $54.4 million of revenue in Q4 2014.

In Australia, the five new service rigs and the three new flush-by units deployed into Australia in late 2014 and early 2015 resulted in overall increases in revenue and operating margins relative to Q4 2014. Savanna generated $13.2 million in operating margins on $41.5 million of revenue in Australia in Q4 2015, compared to $7.9 million in operating margins on $36.5 million of revenue in Q4 2014. The increases in operating margins and operating margin percentages 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. Sequentially, operating margins decreased from the $14.5 million generated on $38.7 million of revenue in Australia in Q3 2015. The decrease in operating margins sequentially was a result of rig startup costs on drilling and service rigs that had been on stand-by for most of 2015, as well as the effect of one service rig coming off contract in December 2015.

Based on the continuing uncertainty surrounding oil and natural gas activity and pricing, as well as the continued disconnect between the Company's market capitalization and the book value of its assets, the Company conducted asset impairment tests at December 31, 2015, on a higher of fair value less costs of disposal, and value-in-use basis. These tests resulted in impairment losses of $135.1 million in Q4 2015, compared to impairment losses of $350.6 million in Q4 2014. In completing its December 31, 2015 impairment tests, the Company assumed a prolonged period of cash flow recovery relative to what was assumed in its 2014 and earlier 2015 impairment tests. Certain assets, while economic and active at commodity pricing and activity levels that existed through most of 2014 and even 2015, become further challenged in a prolonged low commodity price and oilfield services activity environment.

The expectation of a prolonged low commodity price and oilfield services activity environment also created uncertainty with respect to the ultimate realization of the Company's deferred tax assets. As a result, the Company recorded a $64.8 million valuation allowance against its deferred tax assets in Q4 2015, which resulted in deferred income tax expenses despite incurring pre-tax losses in Q4 2015.

Despite the decrease in overall EBITDAS and the negative effect of valuation allowances taken on the Company's deferred tax assets, Savanna's Q4 2015 net loss was lower than in Q4 2014 as a result of lower impairment losses recorded in the fourth quarter of this year versus last. Compared to Q3 2015, Savanna's net loss increased in Q4 2015 primarily as a result of the $135.1 million in impairment losses and the $64.8 million deferred income tax valuation allowance recorded in the quarter. The Q4 2015 net loss attributable to the shareholders of the Company was $162.6 million, or $1.80 per share, compared to the net loss attributable to the shareholders of the Company of $231.3 million or $2.57 per share, in Q4 2014. The Q3 2015 net loss attributable to the shareholders of the Company was $8.8 million, or $0.10 per share.

Annual Results

The significant decline in oil prices leading up to and during 2015, and the resulting decrease in industry activity, negatively affected overall revenue, operating margin and EBITDAS relative to 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, the strength and extent of Savanna's contracted rig status in Australia, cost control initiatives, and the significant restructuring efforts in early 2015. EBITDAS before severance costs was $111 million in 2015, which is a 30% reduction from 2014, while revenues decreased by 44% in the same respective periods.

Long-reach drilling, well servicing and rentals in Canada all experienced significant activity declines, which resulted in lower revenue and operating margins compared to 2014. However, the significant restructuring and cost control efforts undertaken by Savanna in 2015 limited the corresponding decrease in operating margin percentages to five percentage points, relative to 2014. Overall, the decreased activity resulted in a $268.6 million, or 58%, decrease in revenue and an $87.8 million, or 64%, decrease in operating margins in Canada.

Savanna's U.S. drilling and well servicing divisions also experienced activity and revenue declines relative to 2014. However, having a greater proportion of higher-specification and higher day rate rigs, including the three new-build Velox triple drilling rigs, working in 2015, cost control and restructuring efforts, and an appreciation in the value of the U.S. dollar relative to the Canadian dollar, limited the decrease in operating margins and resulted in increased operating margin percentages compared to 2014. Overall, operating margins in the U.S. decreased $13.3 million, or 24%, compared to 2014, while year-over-year revenue decreased $97.5 million, or 48%.

In Australia, oilfield services revenue increased by $28.9 million relative to 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 $11.9 million decrease in drilling revenue in Australia from the one drilling rig that came off contract and the two drilling rigs on stand-by for most of 2015. Overall operating margins and operating margin percentages 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 were on stand-by. Overall, operating margins in Australia in 2015 increased by $28.1 million, or 108%, from 2014.

Overall, for 2015, EBITDAS decreased by 37% relative to 2014, as a result of significant operating margin decreases in North American drilling and oilfield services, and $10.8 million in severance costs incurred in 2015, which were offset by contributions from the twelve contracted new-build rigs, cost reductions, and restructuring initiatives. The severance costs were incurred as the Company's organizational structure was flattened to reduce layers of management that were not required and restructured for the current environment. Of the severance costs, approximately 45% was included in operating expenses and 55% was included in general and administrative expenses.

Despite the decrease in EBITDAS, higher depreciation and amortization expenses, higher finance expenses and the negative effect of Alberta income tax rate increases and the $64.8 million deferred income tax valuation allowance, the overall net loss in 2015 was lower than in 2014 as a result of lower year-over-year impairment losses. Impairment losses were $135.1 million in 2015, compared to impairment losses of $393.9 million in 2014.

Balance Sheet

Savanna's working capital at December 31, 2015, was $35.7 million, which includes $5.8 million in cash and is net of the $3.7 million drawn on its Canadian operating facility.

Savanna's total long-term debt outstanding on December 31, 2015, excluding unamortized debt issue costs, was $277.1 million, compared to $350.6 million outstanding at December 31, 2014. The December 31, 2015 total long-term debt amount includes $14.6 million of unrealized foreign exchange on U.S. dollar denominated debt as well as $7.1 million in gross partnership debt, of which Savanna's proportionate share is approximately 50%.

Savanna's total debt position at December 31, 2015, net of cash, was $275 million compared to $344.3 million at December 31, 2014. Savanna's total debt, net of cash as of the date of this release is approximately $270 million.

Financial Highlights

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

(Stated in thousands of dollars, except per share amounts) Three months ended Twelve months ended
December 31 2015 2014 Change 2015 2014 Change
OPERATING RESULTS
Revenue 100,810 204,965 (51% ) 446,100 791,890 (44% )
Operating expenses 70,463 147,753 (52% ) 302,593 576,713 (48% )
Operating margin(1) 30,347 57,212 (47% ) 143,507 215,177 (33% )
Operating margin %(1) 30% 28% 32% 27%
EBITDAS(1) 22,024 41,799 (47% ) 100,143 157,885 (37% )
Attributable to shareholders of the Company 21,893 40,155 (45% ) 98,709 150,610 (34% )
Per share: diluted 0.24 0.45 (47% ) 1.09 1.69 (36% )
Adjusted EBITDAS(1) 22,553 41,997 (46% ) 110,981 159,428 (30% )
Attributable to shareholders of the Company 22,422 40,353 (44% ) 109,547 152,153 (28% )
Per share: diluted 0.25 0.45 (44% ) 1.21 1.70 (29% )
Impairment losses, net of taxes(1) (94,185 ) (248,288 ) (62% ) (94,185 ) (281,914 ) (67% )
Per share: diluted (1.04 ) (2.76 ) (62% ) (1.04 ) (3.16 ) (67% )
Net loss (168,834 ) (237,618 ) (29% ) (180,101 ) (252,025 ) (29% )
Attributable to shareholders of the Company (162,588 ) (231,276 ) (30% ) (171,836 ) (249,315 ) (31% )
Per share: diluted (1.80 ) (2.57 ) (30% ) (1.90 ) (2.79 ) (32% )
Diluted weighted average shares outstanding (000s) 90,251 89,877 0% 90,245 89,307 1%
CASH FLOWS
Operating cash flows(1) 14,185 40,624 (65% ) 84,750 146,488 (42% )
Per share: diluted 0.16 0.45 (64% ) 0.94 1.64 (43% )
Acquisition of capital assets(1) 3,049 78,875 (96% ) 57,769 247,841 (77% )
Dividends paid - 6,159 (100% ) 4,951 24,057 (79% )
FINANCIAL POSITION AT Dec. 31 Dec. 31
2015 2014
Working capital(1) 35,691 76,040 (53% )
Capital assets(1) 776,604 946,578 (18% )
Total assets 879,176 1,183,925 (26% )
Long-term debt 277,081 350,615 (21% )
Total debt, net of cash(1) 275,020 344,309 (20% )

NOTES :

  1. Operating margin, operating margin percentage, EBITDAS, impairment losses, net of tax, adjusted 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, the effect of non-cash impairment losses and how the results are taxed in various jurisdictions. Similarly, capital assets, working capital and total debt, net of cash 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).
  • Adjusted EBITDAS is defined as EBITDAS before severance costs.
  • 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.
  • Total debt, net of cash is defined as total long-term debt, excluding unamortized debt issue costs, plus bank indebtedness, net of cash.
  1. Certain industry related terms used in this press release are defined or clarified as follows:
  • Savanna reports its drilling rig utilization based on spud to release time for its operational drilling rigs and excludes stand-by, moving, rig up and tear down time, even though revenue may be earned during this time. Source of Canadian industry average utilization figures: Canadian Association of Oilwell Drilling Contractors. Industry utilization figures are calculated in the same manner as the Company. To segregate industry utilization by rig type, industry totals by well depth range are used.
  • Savanna reports its service rig utilization for its operational service rigs in North America based on standard operating hours of 3,650 per rig per year. Utilization for Savanna's service rigs in Australia is calculated based on standard operating hours of 8,760 per rig per year to reflect 24 hour operating conditions in that country and excludes stand-by time, even though revenue may be earned during this time. Reliable industry average utilization figures, specific to well servicing, are not available.

Segmented Results - Contract Drilling

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

(Stated in thousands of dollars, except revenue per day) Three Months Ended Twelve Months Ended
December 31 2015 2014 Change 2015 2014 Change
Revenue $ 55,175 $ 145,038 (62%) $ 262,257 $ 573,186 (54%)
Operating expenses $ 39,014 $ 102,337 (62%) $ 176,916 $ 408,855 (57%)
Operating margin(1) $ 16,161 $ 42,701 (62%) $ 85,341 $ 164,331 (48%)
Operating margin % 29% 29% 33% 29%
Billable days 2,165 6,076 (64%) 10,395 23,997 (57%)
Revenue per billable day $ 25,485 $ 23,871 7% $ 25,229 $ 23,886 6%
Operating (spud to release) days 1,841 5,036 (63%) 8,253 20,656 (60%)
Wells drilled 347 616 (44%) 1,281 2,490 (49%)
Meters drilled 620,304 1,322,093 (53%) 2,377,397 4,843,646 (51%)
Meters drilled per well 1,788 2,146 (17%) 1,856 1,945 (5%)

FOURTH QUARTER RESULTS

Overall contract drilling revenue decreased relative to Q4 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 82% compared to Q4 2014, and in Canadian long-reach drilling billable days were down 57% while day rates were 21% lower. The decrease in activity is reflective of the significant decline in oil prices in 2015, as well as the negative outlook for the oil and natural gas industry heading into 2016, and the resulting decrease in customer drilling activity. Given the activity declines, cost control and restructuring was a major focus of the Company in 2015. Rig operating costs were lower on a per day basis compared to Q4 2014, while field office costs were $3.5 million lower in the quarter. The lower per day operating and field office costs contributed to the consistent overall operating margin percentages relative to Q4 2014, despite the significant decrease in revenue.

The following summarizes the operating results in the fourth quarter of 2015 and 2014 by type of rig or geographic area. Long-reach drilling in Canada includes the Company's telescoping double drilling rigs, TDS-3000™ drilling rigs and TDS-2200 drilling rigs.

(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
Q4 2015 Canada Canada U.S. Australia Total
Revenue 26,322 1,781 13,786 13,286 55,175
Operating margin(1) 7,168 (106 ) 6,119 2,980 16,161
Operating margin %(1) 27% 44% 22% 29%
Revenue excluding cost recoveries 22,879 1,735 12,842 12,219 49,675
Operating margin(1) 7,168 (106 ) 6,119 2,980 16,161
Operating margin %(1) 31% 48% 24% 33%
Average number of rigs deployed 52 16 28 5 101
Utilization %(2) 24% 5% 12% 63% 20%
∆ Calculation not meaningful
(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
Q4 2014 Canada Canada U.S. Australia Total
Revenue 77,625 7,033 47,650 12,730 145,038
Operating margin(1) 25,756 230 13,709 3,006 42,701
Operating margin %(1) 33% 3% 29% 24% 29%
Revenue excluding cost recoveries 69,328 6,400 44,564 12,446 132,738
Operating margin(1) 25,756 230 13,709 3,006 42,701
Operating margin %(1) 37% 4% 31% 24% 32%
Average number of rigs deployed 51 20 26 5 102
Utilization %(2) 58% 13% 82% 31% 54%

YEAR-TO-DATE RESULTS

Contract drilling revenue decreased in 2015 relative to 2014, as a result of a 59% decrease in billable days in long-reach drilling in Canada and a 65% 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 2015. Rig operating costs were lower on a per day basis compared to 2014 and field office costs were $10.3 million lower despite $1.7 million in severance costs. The lower per day operating and field office costs resulted in an increase in overall operating margin percentages relative to 2014.

The following summarizes the operating results in 2015 and 2014 by type of rig or geographic area.

(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
YTD 2015 Canada Canada U.S. Australia Total
Revenue 108,972 23,423 82,386 47,476 262,257
Operating margin(1) 30,498 9,161 32,715 12,967 85,341
Operating margin %(1) 28% 39% 40% 27% 33%
Revenue excluding cost recoveries 96,031 23,145 76,931 44,454 240,561
Operating margin(1) 30,498 9,161 32,715 12,967 85,341
Operating margin %(1) 32% 40% 43% 29% 35%
Average number of rigs deployed 52 16 28 5 101
Utilization %(2) 23% 13% 23% 40% 22%
(Stated in thousands of dollars) Long-reach Shallow
Drilling Drilling Drilling Drilling
YTD 2014 Canada Canada U.S. Australia Total
Revenue 303,676 33,602 176,513 59,395 573,186
Operating margin(1) 100,596 7,152 42,818 13,765 164,331
Operating margin %(1) 33% 21% 24% 23% 29%
Revenue excluding cost recoveries 284,165 32,333 165,708 57,059 539,265
Operating margin(1) 100,596 7,152 42,818 13,765 164,331
Operating margin %(1) 35% 22% 26% 24% 30%
Average number of rigs deployed 51 20 25 5 101
Utilization %(2) 59% 16% 81% 58% 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 Twelve Months Ended
December 31 2015 2014 Change 2015 2014 Change
Revenue $ 45,981 $ 60,436 (24%) $ 185,504 $ 220,509 (16%)
Operating expenses $ 31,795 $ 45,981 (31%) $ 127,449 $ 169,936 (25%)
Operating margin(1) $ 14,186 $ 14,455 (2%) $ 58,055 $ 50,573 15%
Operating margin % 31% 24% 31% 23%
Billable hours - well servicing 46,179 50,064 (8%) 181,546 186,260 (3%)
Revenue per billable hour - well servicing $ 839 $ 959 (13%) $ 856 $ 910 (6%)
Operating hours - well servicing 34,347 45,044 (24%) 131,620 173,910 (24%)

FOURTH QUARTER RESULTS

Operating margin for Savanna's oilfield services division in Q4 2015 remained fairly flat relative to Q4 2014, despite a decrease in revenue in the same respective periods. The revenue decrease was driven by a 40% decrease in operating hours and a 25% decrease in per hour revenue in Canadian well servicing, as well as a 23% decrease in operating hours in U.S. well servicing. These decreases were mostly offset by a 69% increase in billable hours in Australia well servicing. In Canada and the U.S., the decrease in activity is reflective of the significant decline in oil prices leading up to and during 2015 and resulted in year-over-year operating margin decreases. In Australia, the eight new rigs added in the last 15 months contributed to the $5.4 million, or 109%, increase in operating margin in Q4 2015 compared to Q4 2014, which offset the operating margin declines in North America.

The following summarizes the operating results by geographic area:

(Stated in thousands of dollars)
Q4 2015 Canada U.S. Australia Total
Revenue 12,703 5,027 28,251 45,981
Operating margin(1) 2,203 1,713 10,270 14,186
Operating margin %(1) 17% 34% 36% 31%
Average number of rigs deployed - well servicing 65 18 12 95
Utilization % - well servicing(2) 29% 39% 41% 32%
(Stated in thousands of dollars)
Q4 2014 Canada U.S. Australia Total
Revenue 29,720 6,784 23,932 60,436
Operating margin(1) 6,849 2,662 4,944 14,455
Operating margin %(1) 23% 39% 21% 24%
Average number of rigs deployed - well servicing 73 18 8 99
Utilization % - well servicing(2) 42% 50% 44% 44%

YEAR-TO-DATE RESULTS

Operating margin for Savanna's oilfield services division increased in 2015 compared to 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 2015, the eight new rigs resulted in a $28.9 million, or 236%, increase in operating margin in Australian oilfield services relative to 2014. The operating margin increases in Australia more than offset the operating margin decreases in Canada and the U.S., which were driven by overall decreases in industry activity in North America. In addition, operating margins for oilfield services in 2015, include $2.9 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 52,921 24,725 107,858 185,504
Operating margin(1) 7,622 9,321 41,112 58,055
Operating margin %(1) 14% 38% 38% 31%
Average number of rigs deployed - well servicing 65 18 12 95
Utilization % - well servicing(2) 26% 46% 37% 31%
(Stated in thousands of dollars)
YTD 2014 Canada U.S. Australia Total
Revenue 113,582 28,096 78,831 220,509
Operating margin(1) 25,852 12,477 12,244 50,573
Operating margin %(1) 23% 44% 16% 23%
Average number of rigs deployed - well servicing 73 16 5 94
Utilization % - well servicing(2) 42% 62% 59% 46%

Outlook

From an operations perspective 2015 was challenging, particularly in North America, 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 into 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 2015 EBITDAS percentages over 2014, despite the significant revenue and activity declines in the same respective periods. Annualized field office and general and administrative cost savings, from Savanna's 2015 cost control and restructuring efforts, are expected to be more than $50 million relative to the Company's 2014 exit run-rate.

Despite the challenging industry conditions, there were several operational successes for Savanna in 2015: cost reductions and restructuring efforts in 2015 reduced quarterly field office and general and administrative costs by $13 million, or 43%, in Q4 2015 relative to Q4 2014; commissioning the three 1500 horsepower AC Velox 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 2014; and Australia improved operating margins considerably compared to 2014 with the additional five service rigs and three flush-by units all earning revenue.

Looking forward, 2016 will continue to be challenging for Savanna and the oilfield services industry as a whole. 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 be considerably lower in 2016 than they were in 2015. North American drilling and service rig activity to date in the first quarter of 2016, is down significantly compared to 2015 and is expected to remain muted through at least Q2 and Q3 2016. The Australian liquefied natural gas industry is not immune to global commodity price pressures; however, Savanna's take or pay contract status on the majority of its rigs in Australia will help mitigate the impact of North American activity reductions in 2016. In addition, contracts on Savanna's three Velox triple drilling rigs in the U.S. and its 1200 horse-power double drilling rig in Canada, all commissioned in late 2014 and early 2015, will also help mitigate general activity declines on the rest of Savanna's North American drilling fleet. Although certain of these contracts begin rolling over during the year, Savanna has over 5,000 take or pay contracted revenue days on its drilling and well servicing fleets in 2016.

Management believes that the structural changes Savanna underwent in 2015, and the reduced overall cost structure have the Company positioned to face reduced activity levels through 2016 and beyond. 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 through to the end of 2016. Savanna also cancelled its dividend to further preserve its balance sheet. During 2015, Savanna reduced its total long-term debt by $73.5 million, from the beginning of the year, and expects to reduce this further in 2016.

Savanna remains committed to its shareholders and debtholders, with a focus on managing its balance sheet and costs in all aspects of its business and leveraging its assets to maintain and gain market share. As a result of the measures already undertaken and others currently in progress, Savanna believes that it has taken the steps necessary to navigate through the current downturn. When industry conditions improve, management believes that Savanna will be in an excellent position to capitalize on a recovery utilizing its competitive cost structure, experienced management team, and its proven ability to quickly adapt to changing circumstances. These core competencies will be deployed utilizing the Company's significant footprint in three countries that should have strong participation in an eventual recovery of oil and gas market fundamentals.

See "Cautionary Statement Regarding Forward-Looking Information and Statements".

Cautionary Statement Regarding Forward-Looking Information and Statements

Certain statements and information contained in this press release including statements related to the Company's expectation that annualized field office and general and administrative cost savings will be more than $50 million relative to the Company's 2014 exit run-rate, expectations of low activity levels for the remainder of 2016 and its effect on the oilfield services industry and Savanna, expectations that oil and gas company spending levels will be considerably lower in 2016 than they were in 2015, expectations of muted activity levels in North America through at least Q2 and Q3 2016, the expectation that the Company's take or pay contract status on the majority of its rigs in Australia, as well as contracts on its three Velox triple drilling rigs in the U.S. and its 1200 horse-power double drilling rig in Canada will help mitigate the impact of general activity reductions on the rest of Savanna's North American drilling fleet, the impact of the structural changes undertaken by Savanna in 2015, the expectation that the Company has taken the steps necessary to navigate through the current downturn and its ability to capitalize on an eventual improvement oil and gas industry conditions, the expectation of reducing total long-term debt in 2016, 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 that annualized field office and general and administrative cost savings will be more than $50 million relative to the Company's 2014 exit run-rate is premised on the Company's actual Q4 2015 field office and general and administrative costs relative to that in Q4 2014. The Company's expectation of low activity levels for the remainder of 2016 and its effect on the oilfield services industry and Savanna, its expectations that oil and gas company spending levels will be considerably lower in 2016 than they were in 2015, its expectations of muted activity levels in North America through at least Q2 and Q3 2016, and its expectation that the Company's take or pay contract status on the majority of its rigs in Australia, as well as contracts on its three Velox triple drilling rigs in the U.S. and its 1200 horse-power double drilling rig in Canada will help mitigate the impact of general activity reductions on the rest of Savanna's North American drilling fleet, are premised on industry and commodity price estimates, actual results experienced to date in 2016, 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 currently deployed in Australia and North America. The Company's expectation of the impact of the structural changes undertaken by Savanna in 2015 is premised on cost reductions realized to date related thereto. The Company's expectation that it has taken the steps necessary to navigate through the current downturn and its ability to capitalize on an eventual improvement oil and gas industry conditions is premised on operational improvements and cost and debt reductions realized in 2015. The Company's expectation of reducing total long-term debt in 2016 is premised on the expectation that the excess of expected cash flows generated from operations over expected capital spending will be applied toward reducing total long-term debt in 2016. 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 Management's Discussion and Analysis, and under the heading "Risk Factors" in the Company's Annual Information Form and other unforeseen conditions which could impact on the use of services supplied by the Company.

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

Other

Savanna's management's discussion and analysis and audited consolidated financial statements for the year ended December 31, 2015 are available on Savanna's website (www.savannaenergy.com) under the investor relations section and have also been filed on SEDAR at www.sedar.com.

Savanna will host a conference call for analysts, investors and interested parties on Tuesday, March 8, 2016 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's fourth quarter and 2015 year-end 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 March 15, 2016 by dialing 1-800-937-6305 and entering passcode 886790.

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.

Savanna Energy Services Corp.
Chris Strong
President and Chief Executive Officer
(403) 503-9990
Savanna Energy Services Corp.
Dwayne LaMontagne
Executive Vice President and Chief Financial Officer
(403) 503-9990
www.savannaenergy.com