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

CALGARY, ALBERTA--(Marketwired - Nov. 2, 2015) - Savanna Energy Services Corp. (TSX:SVY) -

Third Quarter Results

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.

Balance Sheet

Savanna's working capital at September 30, 2015, was $58.4 million, which includes $18.2 million in cash and is net of the $1.2 million drawn on its Canadian operating facility.

Savanna's total long-term debt outstanding on September 30, 2015, excluding unamortized debt issue costs, was $310.4 million, compared to $350.6 million outstanding at December 31, 2014. This total long-term debt amount includes $14.9 million of unrealized foreign exchange on U.S. dollar denominated debt as well as $7.7 million in gross partnership debt, of which Savanna's proportionate share is approximately 50%.

Savanna has approximately $117.3 million drawn on Savanna's senior secured revolving credit facility of $250 million, as of the date of this release. Savanna's total debt, net of cash as of the date of this release is approximately $284.8 million, which is a $60 million reduction from December 31, 2014. Savanna expects to reduce this further in Q4 2015, with over $14 million in real estate sales expected to close before the end of the year.

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						Nine months ended
September 30		2015		2014		Change		2015		2014		Change
OPERATING RESULTS
Revenue		98,011		200,016		(51	%)	345,290		586,925		(41	%)
Operating expenses		64,986		142,741		(54	%)	232,131		428,960		(46	%)
Operating margin(1)		33,025		57,275		(42	%)	113,159		157,965		(28	%)
Operating margin %(1)		34	%	29	%			33	%	27	%
EBITDAS(1)		24,236		42,307		(43	%)	78,118		116,087		(33	%)
	Attributable to shareholders of the Company	24,160		40,693		(41	%)	76,815		110,457		(30	%)
	Per share: diluted	0.27		0.45		(40	%)	0.85		1.24		(31	%)
Adjusted EBITDAS(1)		25,272		42,805		(41	%)	88,427		117,432		(25	%)
	Attributable to shareholders of the Company	25,196		41,191		(39	%)	87,124		111,802		(22	%)
	Per share: diluted	0.28		0.46		(39	%)	0.97		1.25		(22	%)
Impairment losses, net of taxes(1)		-		(33,627	)	∆		-		(33,627	)	∆
	Per share: diluted	-		(0.38	)	∆		-		(0.38	)	∆
Net loss		(10,187	)	(23,542	)	(57	%)	(11,267	)	(14,409	)	(22	%)
	Attributable to shareholders of the Company	(8,755	)	(24,420	)	(64	%)	(9,249	)	(18,042	)	(49	%)
	Per share: diluted	(0.10	)	(0.27	)	(63	%)	(0.10	)	(0.20	)	(50	%)
Diluted weighted average shares outstanding (000s)		90,251		89,523		1	%	90,243		89,123		1	%
CASH FLOWS
Operating cash flows(1)		27,255		41,972		(35	%)	70,565		105,865		(33	%)
	Per share: diluted	0.30		0.47		(36	%)	0.78		1.19		(34	%)
Acquisition of capital assets(1)		6,205		72,805		(91	%)	54,720		168,966		(68	%)
Dividends paid		-		6,098		(100	%)	4,951		17,898		(72	%)
FINANCIAL POSITION AT								Sep. 30		Dec. 31
								2015		2014
Working capital(1)								58,419		76,040		(23	%)
Capital assets(1)								924,574		946,578		(2	%)
Total assets								1,076,260		1,183,925		(9	%)
Long-term debt								310,394		350,615		(11	%)
Total debt, net of cash(1)								293,397		344,309		(15	%)

∆ Calculation not meaningful

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 adjusted for 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.

(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 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								Nine Months Ended
September 30		2015			2014		Change			2015			2014		Change
Revenue	$	54,965		$	144,051		(62	%)	$	207,082		$	428,149		(52	%)
Operating expenses	$	37,044		$	101,427		(63	%)	$	137,903		$	306,517		(55	%)
Operating margin(1)	$	17,921		$	42,624		(58	%)	$	69,179		$	121,632		(43	%)
Operating margin %		33	%		30	%				33	%		28	%
Billable days		2,225			6,225		(64	%)		8,231			17,920		(54	%)
Revenue per billable day	$	24,703		$	23,141		7	%	$	25,159		$	23,892		5	%
Operating (spud to release) days		1,766			5,457		(68	%)		6,412			15,619		(59	%)
Wells drilled		260			691		(62	%)		934			1,874		(50	%)
Meters drilled		581,604			1,296,851		(55	%)		1,757,093			3,521,553		(50	%)
Meters drilled per well		2,237			1,877		19	%		1,881			1,879		0	%

THIRD QUARTER RESULTS 

Overall contract drilling revenue decreased relative to Q3 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 71% compared to Q3 2014, and in Canadian long-reach drilling billable days were down 64% while day rates were 15% lower. The decrease in activity is reflective of the significant decline in oil prices in 2015, and the resulting decrease in customer drilling activity. Given the activity declines, cost control and restructuring has been a major focus of the Company in 2015. Rig operating costs were lower on a per day basis in each geographic region compared to Q3 2014, while field office costs were $3.4 million lower in the quarter. The lower per day operating and field office costs resulted in an increase in overall operating margin percentages relative to Q3 2014.

The following summarizes the operating results in the third 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
Q3 2015	Canada		Canada		U.S.		Australia		Total
Revenue	24,296		257		18,341		12,071		54,965
Operating margin(1)	6,596		(310	)	8,153		3,482		17,921
Operating margin %(1)	27	%	∆		44	%	29	%	33	%
Revenue excluding cost recoveries	21,494		276		17,439		10,780		49,989
Operating margin(1)	6,596		(310	)	8,153		3,482		17,921
Operating margin %(1)	31	%	∆		47	%	32	%	36	%
Average number of rigs deployed	52		16		28		5		101
Utilization %(2)	23	%	1	%	19	%	40	%	19	%

∆ Calculation not meaningful

(Stated in thousands of dollars)	Long-reach		Shallow
	Drilling		Drilling		Drilling		Drilling
Q3 2014	Canada		Canada		U.S.		Australia		Total
Revenue	80,440		3,828		43,377		16,405		144,050
Operating margin(1)	28,504		(432	)	10,917		3,635		42,624
Operating margin %(1)	35	%	∆		25	%	22	%	30	%
Revenue excluding cost recoveries	72,467		3,551		40,954		15,648		132,620
Operating margin(1)	28,504		(432	)	10,917		3,635		42,624
Operating margin %(1)	39	%	∆		27	%	23	%	32	%
Average number of rigs deployed	51		20		25		5		101
Utilization %(2)	65	%	9	%	83	%	73	%	59	%

YEAR-TO-DATE RESULTS 

Contract drilling revenue decreased in the first nine months of 2015 relative to the first nine months of 2014, as a result of a 60% decrease in billable days in long-reach drilling in Canada and a 59% 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 the first nine months of 2014 and field office costs were $6.8 million lower despite $1.4 million in severance costs. The lower per day operating and field office costs resulted in an increase in overall operating margin percentages relative to the first nine months of 2014.

The following summarizes the operating results in the first nine months of 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	82,650		21,642		68,600		34,190		207,082
Operating margin(1)	23,330		9,267		26,596		9,986		69,179
Operating margin %(1)	28	%	43	%	39	%	29	%	33	%
Revenue excluding cost recoveries	73,152		21,409		64,089		32,234		190,884
Operating margin(1)	23,330		9,267		26,596		9,986		69,179
Operating margin %(1)	32	%	43	%	41	%	31	%	36	%
Average number of rigs deployed	52		16		28		5		101
Utilization %(2)	23	%	16	%	27	%	33	%	23	%
(Stated in thousands of dollars)	Long-reach		Shallow
	Drilling		Drilling		Drilling		Drilling
YTD 2014	Canada		Canada		U.S.		Australia		Total
Revenue	226,052		26,569		128,863		46,665		428,149
Operating margin(1)	74,841		6,923		29,117		10,751		121,632
Operating margin %(1)	33	%	26	%	23	%	23	%	28	%
Revenue excluding cost recoveries	201,194		25,933		121,144		44,613		392,884
Operating margin(1)	74,841		6,923		29,117		10,751		121,632
Operating margin %(1)	37	%	27	%	24	%	24	%	31	%
Average number of rigs deployed	51		20		25		5		101
Utilization %(2)	59	%	18	%	81	%	67	%	57	%

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									Nine Months Ended
September 30		2015			2014		Change			2015			2014		Change
Revenue	$	43,489		$	56,389		(23	%)	$	139,523		$	160,072		(13	%)
Operating expenses	$	28,401		$	41,798		(32	%)	$	95,654		$	123,955		(23	%)
Operating margin(1)	$	15,088		$	14,591		3	%	$	43,869		$	36,117		21	%
Operating margin %		35	%		26	%				31	%		23	%
Billable hours - well servicing		43,767			48,126		(9	%)		135,368			136,199		(1	%)
Revenue per billable hour - well servicing	$	836		$	882		(5	%)	$	862		$	891		(3	%)
Operating hours - well servicing		29,999			46,180		(35	%)		97,274			128,867		(25	%)

THIRD QUARTER RESULTS 

Operating margin for Savanna's oilfield services division increased in Q3 2015 compared to Q3 2014, despite a decrease in revenue in the same respective periods. The revenue decrease was driven by a 52% decrease in operating hours in Canadian well servicing and a 33% decrease in operating hours in U.S. well servicing, partially offset by a 163% 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 year contributed to the $7.9 million, or 251%, increase in operating margin in Q3 2015 compared to Q3 2014, more than offsetting the operating margin declines in North America. Operating margins for oilfield services in Q3 2015, include $0.4 million in severance costs.

The following summarizes the operating results by geographic area:

(Stated in thousands of dollars)
Q3 2015	Canada		U.S.		Australia		Total
Revenue	11,639		5,134		26,716		43,489
Operating margin(1)	2,414		1,660		11,014		15,088
Operating margin %(1)	21	%	32	%	41	%	35	%
Average number of rigs deployed - well servicing	65		18		12		95
Utilization % - well servicing(2)	24	%	39	%	35	%	34	%
(Stated in thousands of dollars)
Q3 2014	Canada		U.S.		Australia		Total
Revenue	28,585		7,598		20,206		56,389
Operating margin(1)	7,848		3,612		3,135		14,595
Operating margin %(1)	27	%	48	%	16	%	26	%
Average number of rigs deployed - well servicing	85		17		4		106
Utilization % - well servicing(2)	44	%	65	%	78	%	54	%

YEAR-TO-DATE RESULTS 

Operating margin for Savanna's oilfield services division increased in the first nine months of 2015 compared to the first nine months of 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 the first nine months of 2015, the eight new rigs resulted in a $23.5 million, or 322%, increase in operating margin in Australian oilfield services relative to the first nine months of 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 the first nine months of 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	40,218		19,697		79,608		139,523
Operating margin(1)	5,418		7,608		30,843		43,869
Operating margin %(1)	13	%	39	%	39	%	31	%
Average number of rigs deployed - well servicing	65		18		12		95
Utilization % - well servicing(2)	25	%	49	%	36	%	38	%
(Stated in thousands of dollars)
YTD 2014	Canada		U.S.		Australia		Total
Revenue	83,861		21,312		54,899		160,072
Operating margin(1)	19,000		9,813		7,300		36,113
Operating margin %(1)	23	%	46	%	13	%	23	%
Average number of rigs deployed - well servicing	86		16		4		106
Utilization % - well servicing(2)	42	%	67	%	71	%	51	%

Outlook

The first nine months of 2015 was challenging from an operations perspective, 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 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 Q3 2015 EBITDAS percentages over Q3 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 approximately $50 million relative to the Company's 2014 exit run-rate. 

Despite the challenging industry conditions, there were several operational successes for Savanna in Q32015: cost reductions and 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, excluding the $1 million in severance costs incurred in Q3 2015; running 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 Q3 2014; and Australia improved operating margins considerably compared to Q3 2014 with the additional five service rigs and three flush-by units all earning revenue. 

Looking forward, the remainder of 2015 and 2016 will continue to be challenging for Savanna and the oilfield services industry as a whole. North American drilling and service rig activity to date in the fourth quarter of 2015, is down significantly compared to 2014 and has remained relatively flat compared to Q3 2015. In addition, 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 likely be even lower in 2016 than they were in 2015. The current market conditions continue to have a negative effect on the oilfield services industry and Savanna. As a result, Savanna is expecting an early Christmas shut-down in 2015 followed by a muted North American winter drilling season heading into 2016.

Management believes that the structural changes Savana underwent in the first nine months of 2015, and the reduced overall cost structure have the Company positioned to face reduced activity levels well beyond 2015. 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. As of the date of this MD&A, Savanna has reduced its total debt levels, net of cash by $60 million, from the beginning of the year, and expects to reduce this further in Q4 2015, with over $14 million in real estate sales expected to close before the end of the year. The Company is continuing to actively market additional land and buildings no longer needed as a result of field office consolidation. The Company will also continue to assess the long-term fit of various components of its capital asset base to unfolding market demand in terms of specific asset classes and geographies. The proceeds on the disposition of any further non-core assets, along with all excess cash flows generated this year and next, will continue to be directed to reducing Savanna's overall debt levels.

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 this 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.

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 over $14 million in real estate sales will close before the end of 2015, the expectation that annualized field office and general and administrative cost savings will be approximately $50 million relative to the Company's 2014 exit run-rate, expectations of low activity levels for the remainder of 2015 and into 2016 and its effect on the oilfield services industry and Savanna, expectations that oil and gas company spending levels will likely be even lower in 2016 than they were in 2015, expectations of an early Christmas shut-down in 2015 followed by a muted North American winter drilling season heading into 2016, the impact of the structural changes undertaken by Savanna in the first nine months of 2015, the continued consolidation of field locations and assessment of the long-term fit of various components of its capital asset base, 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, 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 over $14 million in real estate sales will close before the end of 2015 is premised on the status of current negotiations and agreements in place with potential buyers. The Company's expectation that annualized field office and general and administrative cost savings will be approximately $50 million relative to the Company's 2014 exit run-rate is premised on the Company's actual Q3 2015 field office and general and administrative costs relative to that in Q3 and Q4 2014. The Company's expectation of low activity levels for the remainder of 2015 and into 2016 and its effect on the oilfield services industry and Savanna, its expectations that oil and gas company spending levels will likely be even lower in 2016 than they were in 2015, and its expectations of an early Christmas shut-down in 2015 followed by a muted North American winter drilling season heading into 2016 are premised on industry and commodity price estimates, actual results experienced to date in 2015, 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 deployed into Australia and North America in the last year.

The Company's expectation of the impact of the structural changes undertaken by Savanna in the first half of 2015 is premised on cost reductions realized to date related thereto. The Company's expectation of the continued consolidation of field locations and assessment of the long-term fit of various components of its capital asset base is premised on current assets held for sale and ongoing activities related to assessing the long-term fit of various components of its capital asset base to unfolding market demand in terms of specific asset classes and geographies. 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 to date in 2015. 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.

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 Q3 2015 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 Tuesday, November 3, 2015 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss the Company's third quarter 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 November 9, 2015 by dialing 1-800-937-6305 and entering passcode 519305.
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.