CALGARY – Faced with a drop in oilfield activity levels, heavily indebted Savanna Energy Services Corp. is eliminating its dividend, laying off 200 people, rolling back salaries and closing field offices to survive the oil price collapse.
“We are structuring the company to prepare us to operate in a low commodity price environment as efficiently as possible,” Dwayne LaMontagne, interim president and CEO of the Calgary-based drilling company, said in an email Friday.
Mr. LaMontagne, who took over Feb 4 as interim CEO after the abrupt departure of Savanna’s previous CEO, confirmed that “just over” 200 salaried employees, 38% of those who don’t work on rigs, had been laid off and the company’s remaining employees had taken an average 7% pay cut.
He added that the company is looking at selling real estate, equipment and other assets “that we don’t feel will work economically in the future.”
Benchmark oil prices have fallen 50% since June 2014, which has caused the demand for Savanna’s services to drop precipitously. The company said Thursday night that the number of days it was actively drilling or servicing wells in the first quarter of this year had fallen 40% to 50% compared with the same period a year earlier.
As a result, Savanna became the first Canadian driller to completely eliminate its dividend, two months after the company had reduced its quarterly payout to 3¢ per share from 9¢. The company’s final dividend will be paid out in April.
AltaCorp Capital analyst Dana Benner said the move will save Savanna about $8 million this year, which won’t make a big dent in its $337 million net debt.
“This is a fairly unique example of a company eliminating their dividend, but maybe more will follow,” Mr. Benner said in an interview. He added that eliminating the dividend was “the right thing to do” and he believed the market would ultimately reward Savanna for it.
“Companies fail to realize that it’s not just the materiality of the change but the philosophical basis beneath it: you’re doing everything you can to make sure the company arrives at the other side of the valley as healthy as possible,” he said.
Savanna also announced it had closed four field offices and planned to consolidate two other locations to lower its cost structure.
Financial Post
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