CALGARY, ALBERTA–(Marketwired – Jan. 10, 2017) – Savanna Energy Services Corp. (“Savanna” or the “Company”) (TSX:SVY), announced today that it intends to commence the previously announced strategic alternatives process and open a data room this week for parties potentially interested in a transaction with Savanna. Qualified parties interested in accessing the confidential data room will be required to sign a confidentiality agreement.
“Savanna has continued to receive expressions of interest from potential bidders and the opening of the data room is an important step forward in Savanna’s exploration of the full range of strategic alternatives available to the Company with a view to maximizing value for all shareholders,” said Jim Saunders, Chair of the Savanna Board and Chair of the Special Committee. “As previously disclosed, there can be no certainty of a transaction, but the alternatives may include a merger or partnership with strategic or financial partners, a sale reflecting full and fair value for shareholders of Savanna, or an acquisition by Savanna.”
Savanna also continues to reiterate its Board of Directors’ recommendation to shareholders that they REJECT the unsolicited and opportunistic offer from Total Energy Services Inc. (“Total”) to purchase all of the common shares of Savanna in exchange for shares of Total (the “Total Offer”). The Total Offer implies a current discount of 7% when over the past five years transactions of this nature have carried a premium of approximately 40% at the time of the offer.
Said Chris Strong, President and Chief Executive Officer, “Total’s offer does not offer adequate value in light of Savanna’s recent transformational financings that extended its debt maturity to five years and favourable external events such as the nomination to the U.S. cabinet of strong energy industry proponents, the approval of two new Canadian oil export pipelines, and agreements by OPEC members and certain non-OPEC producers to curb production for the first time in eight years.
“Taken together, the recovery that appears to be underway will benefit Savanna far more than Total because Savanna’s primary business lines, drilling and well servicing, are more highly levered to improving commodity prices and increased industry activity levels. This is especially true in the U.S., where Total has no contract drilling operations, and where Savanna’s contract drilling utilization has more than doubled in the fourth quarter of 2016 from a year earlier, with further gains anticipated in the first quarter of 2017 compared with the first quarter of 2016.”
Savanna’s Board of Directors unanimously recommends that Savanna shareholders REJECT the Total Offer for these and other reasons, including the following:
- The Total Offer does not provide a control premium for shareholders of Savanna
- The Total Offer substantially undervalues the contribution that Savanna’s assets would bring to a combined entity
- Superior offers from third parties or other more attractive alternatives for shareholders may emerge
- The Total Offer does not attribute any value to the potential for future success of Savanna’s ongoing actions to increase shareholder value
In addition, Peters & Co. Limited has provided the Special Committee and Board of Directors of Savanna with an opinion that the consideration offered pursuant to the Total Offer is inadequate, from a financial point of view, to shareholders of Savanna.
Savanna urges shareholders to carefully review the Savanna Directors’ Circular and letter to shareholders that have been mailed and posted on the Savanna website at http://www.savannaenergy.com and at www.sedar.com. The Directors’ Circular provides a complete list of 12 strong reasons to REJECT the Total Offer.
Rejecting the Total offer requires shareholders to DO NOTHING.
Shareholders with questions are encouraged to call D.F. King toll-free at 1-866-6662-1678 or firstname.lastname@example.org.
2017 Capital Budget
Savanna also announces its Board of Directors has approved an initial capital budget of $22 million for 2017 centered on rig reactivations, rig upgrades, maintenance capital and finalizing system upgrades initiated in 2016.
In light of improving industry conditions and activity levels, Savanna has budgeted for the reactivation of three drilling rigs in the Permian basin, which are incremental to the seven drilling rigs recently reactivated in the region. Also, in conjunction with the 18 month contracts recently secured for two of its high-specification AC double drilling rigs in the Marcellus, Savanna will upgrade pumping capacity for each of these two rigs to 7,500 psi.
Initial maintenance capital levels have been estimated based on expectations of increased activity levels in 2017. Actual expenditures will depend on actual activity levels for 2017, unexpected equipment maintenance and replacement, any upgrades or enhancements required to secure customer contracts, and necessary rig re-certification requirements. Savanna will continually evaluate its 2017 maintenance capital requirements in light of changes to anticipated activity levels as well as customer upgrade requirements necessary to secure contracts.
The information system upgrades that began in 2016 are also nearing completion. The upgrades include the replacement of various disparate legacy systems with a single cloud-based global enterprise resource planning system. Improved and standardized global processes and systems are expected to limit personnel increases in an eventual recovery of activity levels.
CANADA: LONG-REACH DRILLING UTILIZATION UP SIGNIFICANTLY FROM A YEAR EARLIER
Savanna’s fourth quarter 2016 activity levels in Canada were considerably higher than a year ago, led by long-reach drilling, for which utilization was up significantly from the fourth quarter of 2015. The gains were achieved despite wet weather through the start of the quarter. Utilization in Canada through each quarter of 2016 and the fourth quarter of 2015 is set forth below.
|Q4 2016||Q3 2016||Q2 2016||Q1 2016||Q4 2015|
|Long-reach drilling – 52 drilling rigs||32||%||20||%||8||%||19||%||24||%|
|Shallow drilling – 16 drilling rigs||4||%||3||%||0||%||24||%||5||%|
|Well servicing – 57 service rigs||36||%||26||%||18||%||27||%||29||%|
To date in the first quarter of 2017, utilization is tracking in-line with expectations. Savanna expects to run between 25 and 30 service rigs on average in the first quarter of 2017, compared to the average of 20 service rigs working during the first quarter of 2016. On the drilling side, Savanna expects to operate a peak of 40 to 45 drilling rigs in the first quarter of 2017, including nine coring rigs, compared to its peak of 29 drilling rigs in the first quarter of 2016, of which nine were coring rigs.
UNITED STATES: CONTRACT DRILLING UTILIZATION MORE THAN DOUBLED FROM A YEAR EARLIER
In the U.S., Savanna’s upgrade and reactivation of drilling rigs in the Permian basin led to a significant increase in utilization for the drilling rig fleet in the fourth quarter of 2016 relative to the fourth quarter of 2015. By the end of 2016, Savanna had put six drilling rigs back to work that had been stacked for over a year and a seventh is expected to commence operations in the Permian basin in the first quarter of 2017. U.S. well servicing utilization remained relatively consistent throughout 2016. Utilization in the U.S through each quarter of 2016 and the fourth quarter of 2015 is set forth below.
|Q4 2016||Q3 2016||Q2 2016||Q1 2016||Q4 2015|
|Drilling – 28 drilling rigs||26||%||16||%||10||%||11||%||12||%|
|Well servicing – 18 service rigs||40||%||41||%||37||%||40||%||39||%|
Utilization in the U.S. to date in 2017 is also in-line with expectations. Savanna expects to be operating 13 drilling rigs in the first quarter of 2017 in the U.S. compared to only four drilling rigs that operated in the U.S. in the first quarter of 2016, and also expects U.S. well servicing activity levels to improve in the coming quarters.
AUSTRALIA: UTILIZATION RETURNS TO Q1 LEVELS IN Q4 2016 DESPITE FEWER RIGS UNDER CONTRACT
In Australia, fourth quarter 2016 activity levels improved from the third quarter of 2016 as additional drilling and service rigs began working in the fourth quarter of 2016. While the liquefied natural gas industry in Australia has not been immune to global commodity price pressures, Savanna was able to increase utilization in the fourth quarter of 2016 relative to the two preceding quarters, despite certain of Savanna’s take or pay contracts rolling over earlier in the year. A key driver in increasing drilling utilization in particular, was getting two uncontracted drilling rigs to work in Q4 2016, one of which is continuing to work in Q1 2017. Drilling utilization in the fourth quarter of 2016 was down from a year earlier because fewer rigs were under contract and there was an earlier Christmas shut-down in 2016. Utilization in Australia through each quarter of 2016 and the fourth quarter of 2015 is set forth below.
|Q4 2016||Q3 2016||Q2 2016||Q1 2016||Q4 2015|
|Drilling – 5 drilling rigs||46||%||19||%||27||%||48||%||63||%|
|Well servicing – 12 service rigs||44||%||27||%||32||%||38||%||41||%|
Savanna’s seven original new-build contracts, still in place in Australia, begin to expire in the second half of 2017. The Company has been negotiating with its customers in Australia to re-contract its drilling and service rigs outside of the formal tender process. Ultimately, Savanna believes its built-for-purpose drilling and service rigs, as well as its operational and safety performance in Australia, puts the Company in a strong competitive position to re-contract its drilling and service rigs in the region.
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.