Savanna Energy Services Corp. Announces Third Quarter 2015 Results and Continued Debt Reduction

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Savanna Energy Services Corp. Announces Third Quarter 2015 Results and Continued Debt Reduction

by ahnationtalk on November 3, 2015193 Views

Savanna generated revenue of $98 million, EBITDAS of $24.2 million ($25.2 million prior to severance charges) and a net loss, attributable to shareholders of the Company, of $8.8 million or $0.10 per share in the third quarter of 2015, compared to revenue of $200 million, EBITDAS of $42.3 million and a net loss, attributable to shareholders of the Company, of $24.4 million or $0.27 per share in Q3 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 Q3 2015, relative to Q3 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, and lower costs throughout the organization. Lower costs were a function of cost control initiatives and the significant restructuring efforts to date in 2015, which resulted in higher operating margin percentages and EBITDAS percentages relative to Q3 2014, despite lower year-over-year revenue. Excluding the $1 million in severance costs incurred in Q3 2015, the restructuring efforts to date in 2015 reduced field office and general and administrative costs by $12.4 million, or 42%, in Q3 2015 relative to Q3 2014.

While lower than in Q3 2014, as a result of impairment losses recorded in the third quarter last year, Savanna’s Q3 2015 net loss was impacted by higher depreciation, which was the result of changing the company’s accounting method from operating days or hours to years, higher finance expenses, losses on asset disposals, and a reduction in the carrying value of held for sale assets. A $2.2 million reduction in the carrying value of held for sale assets was recorded in Q3 2015, based on an aggregate $14.2 million in offers accepted subsequent to the end of the quarter and expected to close before the end of 2015.

The Company’s total debt, net of cash declined by $18.1 million in the quarter to $293.4 million, despite a $4 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, which largely mitigated the significant declines in revenue due to lower activity levels. In Canada, revenues declined by $78.1 million and operating margins declined by $27.2 million. In the U.S., revenues declined by $27.5 million and operating margins declined by only $4.7 million. In Australia, revenues were $2.3 million higher and operating margins were $7.7 million higher. Savanna’s overall operating margin in Q3 2015 was $24.2

million lower relative to Q3 2014. General and administrative expenses declined from $15 million in Q3 2014 to $8.8 million in Q3 2015, which included $0.3 million of general and administrative related severance costs. As a result, EBITDAS was $18 million lower than in Q3 2014.

In Canada, long-reach drilling, well servicing and rentals all experienced significant activity declines, which resulted in lower revenue and operating margins compared to Q3 2014. However, the significant restructuring and cost control efforts undertaken by Savanna to date in 2015 partially mitigated the corresponding decrease in operating margins and operating margin percentages in each of the divisions above, relative to Q3 2014. Savanna generated $8.8 million in operating margins on $35.9 million of revenue in Canada in Q3 2015, compared to $36 million in operating margins on $112.9 million of revenue in Q3 2014. Sequentially, operating margins increased from the $5.8 million generated on $24.6 million of revenue in Canada in Q2 2015. The increase sequentially was based on seasonal increases in activity in Canadian long-reach drilling and oilfield services.

Savanna’s U.S. drilling and well servicing divisions also experienced significant activity and revenue declines relative to Q3 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 Q3 2014. Sequentially, changes in drilling rig mix and the increased value of the U.S. dollar offset utilization decreases in U.S. well servicing and resulted in higher operating margin percentages compared to Q2 2015. Savanna generated $9.8 million in operating margins on $23.5 million of revenue in the U.S. in Q3 2015, compared to $9.9 million in operating margins on $25.1 million of revenue in Q2 2015 and $14.5 million in operating margins on $51 million of revenue in Q3 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 Q3 2014. Savanna generated $14.5 million in operating margins on $38.7 million of revenue in Australia in Q3 2015, compared to $4.8 million in operating margins on $36.5 million of revenue in Q3 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 $18.3 million generated on $43.2 million of revenue in Australia in Q2 2015. Revenue and operating margins were relatively high in Q2 2015 as a result of $5.6 million of Q1 2015 stand-by charges recognized in the second quarter.

Despite the decrease in overall EBITDAS, Savanna’s Q3 2015 net loss was lower than in Q3 2014 as a result of $43.3 million in impairment losses recorded in the third quarter last year. Compared to Q2 2015, Savanna’s net loss decreased primarily as a result of the $3.8 million deferred income tax expense recorded in Q2 2015 related to Alberta income tax rate increases enacted in June. The Q3 2015 net loss attributable to the shareholders of the Company was $8.8 million, or $0.10 per share, compared to the net loss attributable to the shareholders of the Company of $24.4 million, or $0.27 per share, in Q3 2014. The Q2 2015 net loss attributable to the shareholders of the Company was $10.5 million, or $0.12 per share.

Year-to-Date Results

The significant decline in oil prices leading up to and during the first nine months of 2015, and the resulting decrease in industry activity, negatively affected overall revenue, operating margin and EBITDAS relative to the first nine months of 2014. The impact of the industry activity and commodity price declines on Savanna was mitigated by the twelve contracted new-build rigs added in late 2014 and early 2015, the strength and extent of Savanna’s contracted rig status in Australia, cost control initiatives, and the significant restructuring efforts to date in 2015. EBITDAS before severance costs was $88.4 million in the first nine months of 2015, which is a 25% reduction from the first nine months of 2014, while revenues decreased by 41% 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 the first nine months of 2014. However, the significant restructuring and cost control efforts undertaken by Savanna to date in 2015 limited the corresponding decrease in operating margin percentages to four percentage points, relative to the first nine months of 2014. Overall, the decreased activity resulted in a $194.5 million, or 57%, decrease in revenue and $64 million, or 62%, decrease in operating margins in Canada.

Savanna’s U.S. drilling and well servicing divisions also experienced activity and revenue declines relative to the first nine months of 2014. However, having a greater proportion of higher-spec and higher day rate rigs, including the three new-build Velox triple drilling rigs, working in the first nine months of 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 the first nine months of 2014. Overall, operating margins in the U.S. decreased $4.7 million, or 12%, compared to the first nine months of 2014, while year-over-year revenue decreased $61.9 million, or 41%.

In Australia, oilfield services revenue increased by $24.7 million relative to the first nine months of 2014 as a result of the five new service rigs and the three new flush-by units deployed into Australia in late 2014 and early 2015. The additional rigs mitigated the $12.5 million decrease in drilling revenue in Australia from the one drilling rig that came off contract and the two drilling rigs on stand-by in the first nine months 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 are on stand-by. Overall, operating margins in Australia in the first nine months of 2015 increased by $22.8 million, or 126%, from the first nine months of 2014.

Overall, for the first nine months of 2015, EBITDAS decreased by 33% relative to the first nine months of 2014, as a result of significant operating margin decreases in North American drilling and oilfield services, and $10.3 million in severance costs incurred in the first nine months of 2015, which were offset by contributions from the twelve contracted new-build rigs, cost reductions, and restructuring initiatives. Despite the decrease in EBITDAS, higher depreciation and amortization expenses and higher income tax expenses due to Alberta income tax rate increases, the overall net loss in the first nine months of 2015 was lower than in the first nine months of 2014 as a result of impairment losses recorded in Q3 2014. 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 35% is included in operating expenses and 55% is included in general and administrative expenses.

Read More: http://www.savannaenergy.com/wp-content/uploads/2015/11/Q315-Press-Release_v3.pdf

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