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Rig Activity Declines Impact Savanna Energy Services

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Savanna Energy Services Corp. has announced second quarter 2015 results:

• In Canada, long-reach drilling, well servicing and rentals all experienced significant activity declines
• In Savanna's U.S. well servicing division, the Company's 2014 strategy of redeploying idle Canadian service rigs proved beneficial
• In the U.S. drilling division, operating days and revenue decreased significantly relative to Q2 2014

Quarter Results

In Canada, long-reach drilling, well servicing and rentals all experienced significant activity declines, which resulted in lower revenue and operating margins compared to Q2 2014. However, the significant restructuring and cost control efforts undertaken by Savanna in the first half of 2015 led to improved operating margin percentages in each of the divisions above, relative to Q2 2014.

Savanna generated $5.8 million in operating margins on $24.6 million of revenue in Canada in Q2 2015, compared to $9.9 million in operating margins on $64.3 million of revenue in Q2 2014. Sequentially, operating margins decreased from the $23.6 million generated on $83.8 million of revenue in Canada in Q1 2015. The decrease sequentially was based on seasonal decreases in activity in Canadian long-reach drilling, shallow drilling, and oilfield services, which were magnified in 2015 by the prevailing low industry activity levels.

In Savanna's U.S. well servicing division, the Company's 2014 strategy of redeploying idle Canadian service rigs proved beneficial, as an increase in operating hours and an appreciation in the value of the U.S. dollar relative to the Canadian dollar, partially mitigated the effect of lower pricing and limited the decrease in operating margin in the quarter relative to Q2 2014 and Q1 2015.

In the U.S. drilling division, operating days and revenue decreased significantly relative to Q2 2014. Lower U.S. drilling revenue was more than offset by the effect of having a greater proportion of higher-spec and higher day rate 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 Q2 2014.

Sequentially, lower U.S. drilling utilization drove the overall operating margin decreases compared to Q1 2015, however cost reductions and changes in rig mix resulted in higher operating margin percentages. Savanna generated $9.9 million in operating margins on $25.1 million of revenue in the U.S. in Q2 2015, compared to $14.5 million in operating margins on $39.7 million of revenue in Q1 2015and $11.7 million in operating margins on $50.2 million of revenue in Q2 2014.

In Australia, the revenue increase was driven by the five new service rigs and the three new flush-by units deployed into Australia in late 2014 and early 2015. The arrival of these rigs in Australia coincided with the start of the decline in commodity prices and overall oil and natural gas industry activity. As a result, Savanna's customer did not put these rigs to work once they were field-ready. Savanna and its customer began negotiating on whether stand-by charges would be paid in cash or whether term would be added to the end of the contract. Negotiations concluded in Q2 2015, with both Savanna and the customer agreeing that stand-by charges on those rigs would be paid in cash pursuant to the contract. This resulted in the recognition of $5.6 million in revenue in Q2 2015 that related to Q1 2015, but did not meet revenue recognition criteria in the first quarter.

Year-to-Date Results

The significant decline in oil prices leading up to and during the first half of 2015, and the resulting decrease in industry activity, negatively affected overall revenue, operating margin and EBITDAS relative to the first half 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, cost control initiatives, repairs and maintenance deferrals, and significant restructuring efforts to date in 2015.

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 half of 2014. However, the significant restructuring and cost control efforts undertaken by Savanna in the first half of 2015 limited the corresponding decrease in operating margin percentages to two percentage points, relative to the first half of 2014. Overall, the decreased activity resulted in a $115.5 million, or 52%, decrease in revenue and $35.7 million, or 55%, decrease in operating margins in Canada.

In Savanna's U.S. well servicing division, revenue and operating margins remained relatively flat compared to the first half of 2014, despite the decrease in industry activity. In the U.S. drilling division, operating days and revenue decreased significantly relative to the first half of 2014. However, the effect of 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 half of 2015, cost control and restructuring efforts, and an appreciation in the value of the U.S. dollar relative to the Canadian dollar, resulted in an increase operating margin percentages relative to the first half of 2014. Overall, operating margins in the U.S. were flat compared to the first half of 2014, despite the $34.4 million, or 35%, decline in year-over-year revenue.

In Australia, oilfield services revenue increased by $18.2 million relative to the first half 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 $8.2 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 half of 2015. Operating margins and operating margin percentages for oilfield services 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. Savanna was also able to adjust its rig operating and field office costs on the drilling side in Australia to minimize the effect of the off-contract and stand-by drilling rigs on operating margins, which were down $0.6 million compared to the first half of 2014. Overall, operating margins in Australia in the first half of 2015 increased by $15 million, or 133%, from the first half of 2014.

Balance Sheet

Savanna's working capital at June 30, 2015, was $61.4 million, which includes $13 million in cash and is net of the $4.7 million in amounts drawn on its Canadian and U.S. operating facilities.

Savanna's total long-term debt outstanding on June 30, 2015, excluding unamortized debt issue costs, was $319.9 million, compared to $350.6 million outstanding at December 31, 2014.

This total long-term debt amount includes $13.6 million of unrealized foreign exchange on U.S. dollar denominated debt as well as $10 million in gross partnership debt, of which Savanna's proportionate share is approximately 50%.

Savanna has approximately $137.4 million drawn on Savanna's senior secured revolving credit facility of $250 million, as of the date of this release.