On Wednesday, Savanna Energy Services Corp. (SVY: CN) reported solid first quarter results. EBITDA of $29 million was 8% above our $27 million estimate ($26 million consensus). Cash fund from operations of $26 million was 7% lower than our $28 million anticipation.
The significant decline in oil prices leading up to and during Q1 2015, and the resulting decrease in industry activity, negatively affected Savanna Energy Services Corp.’s (“Savanna” or “the Company”) overall revenue, operating margin, EBITDAS and net earnings relative to Q1 2014. Savanna generated EBITDAS of $29.8 million on $154.6 million of revenue in Q1 2015, a decrease of 50% from EBITDAS of $59.4 million on $238 million of revenue in Q1 2014. In response to the sharp decline in oil prices and related drilling and oilfield services activity, the Company’s organizational structure was flattened to reduce layers of management that were not required and was further restructured for the current environment. This restructuring resulted in $8.5 million in severance costs which, combined with lower activity levels and operating margins, particularly in Canada, were the primary drivers for the decrease in year-over-year EBITDAS. Sequentially, EBITDAS was $12 million lower than the $41.8 million generated in Q4 2014 on $205 million of revenue. The decrease in EBITDAS was primarily a result of activity and operating margins decreases in Canada, together with the $8.5 million in severance costs in Q1 2015.
In Canada, long-reach drilling, well servicing and rentals all experienced significant activity declines which resulted in lower revenue and operating margins compared to Q1 2014. Conversely, activity and operating margins for Canadian shallow drilling remained relatively flat compared to Q1 2014, despite the decrease in overall industry and oil sands coring activity. Savanna generated $23.6 million in operating margins on $83.8 million of revenue in Canada in Q1 2015, compared to $55.2 million in operating margins on $159.6 million of revenue in Q1 2014. Sequentially, operating margins decreased from the $32.9 million generated on $114.4 million of revenue in Canada in Q4 2014. The decrease sequentially was based on decreases in activity in Canadian long-reach drilling and oilfield services, which were offset by increases in shallow drilling activity with respect to winter coring work in the oil sands.
In the U.S., operating margins increased by $1.8 million, despite a $9.3 million, or 19%, decrease in revenue compared to Q1 2014. In Savanna’s U.S. well servicing division, the Company’s 2014 strategy of redeploying idle Canadian service rigs proved beneficial, as operating hours and operating margins remained relatively flat compared to Q1 2014, despite the decrease in industry activity. In the U.S. drilling division, operating days and revenue decreased significantly relative to Q1 2014. However, an 11% decrease in per day rig operating costs combined with an appreciation in the value of the U.S. dollar relative to the Canadian dollar more than offset the decrease in revenue and resulted in an increase in operating margins compared to Q1 2014. Per day rig operating costs were relatively high in Q1 2014. Savanna focused on controlling and stabilizing these costs through the second half of 2014 and to date has been successful in that regard. Sequentially, significantly lower utilization in U.S. drilling drove the overall operating margin decreases compared to Q4 2014. Savanna generated $14.5 million in operating margins on $39.7 million of revenue in the U.S. in Q1 2015, compared to $16.4 million in operating margins on $54.4 million of revenue in Q4 2014, and $12.7 million in operating margins on $49 million of revenue in Q1 2014.
In Australia, operating an additional two workover rigs and three flush-by units resulted in operating margin increases in the quarter relative to Q1 2014. Overall operating margins from Australia totaled $8.1 million in Q1 2015, a slight increase from the $7.9 million generated in Q4 2014, and 58% higher than the $5.1 million in operating margins in Q1 2014. This $3 million increase in operating margins in Q1 2015 compared to Q1 2014, was achieved despite a portion of the fleet being on stand-by throughout the quarter. The stand-by rates are lower than operating rates; however, Savanna was also able to adjust its rig operating costs which limited the decrease in operating margins on these rigs.
Savanna’s Q1 2015 net earnings decreased significantly compared to Q1 2014 as a result of the decrease in overall activity levels and EBITDAS. Compared to Q4 2014, net earnings increased significantly as a result of the $350.6 million of impairment losses ($248.3 million net of taxes) recorded in Q4 2014. The Q1 2015 net earnings attributable to the shareholders of the Company was $10 million, or $0.11 per share, compared to net earnings attributable to the shareholders of the Company of $18.3 million, or $0.21 per share, in Q1 2014. The Q4 2014 net loss attributable to the shareholders of the Company was $231.3 million, or $2.57 per share.