Savanna Announces Quarterly Results



    TSX - SVY

    CALGARY, Nov. 6 /CNW/ - Savanna is pleased to report results for its
third quarter ended September 30, 2007.

    
    Financial Highlights

    (Stated in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    Operating results
    Revenue(*)          $ 93,735  $ 70,042    34%  $271,648  $153,207    77%
    Operating
     margin(1)(*)       $ 35,624  $ 28,566    25%  $106,867  $ 59,405    80%
    Operating cashflows
     from continuing
     operations before
     changes in
     working capital(1) $ 28,694  $ 22,674    27%  $ 82,304  $ 45,527    81%
      Per diluted share $   0.48  $   0.54   (11%) $   1.40  $   1.34     4%
    Net earnings from
     continuing
     operations         $ 12,581  $ 12,466     1%  $ 40,668  $ 23,472    73%
      Per share: basic  $   0.21  $   0.31   (32%) $   0.69  $   0.71    (3%)
      Per share:
       diluted          $   0.21  $   0.30   (30%) $   0.69  $   0.69     -
    Net earnings        $ 12,581  $ 14,825   (15%) $181,423  $ 34,786   422%
      Per share: basic  $   0.21  $   0.37   (43%) $   3.08  $   1.06   191%
      Per share:
       diluted          $   0.21  $   0.36   (42%) $   3.08  $   1.03   199%
    -------------------------------------------------------------------------

    (*) Revenues and operating expenses have both been affected by a change
        in accounting policies with respect to revenue recognition and cost
        recoveries billed to customers. As a result, revenue and operating
        expenses for the nine months ended September 30, 2007 include an
        increase of $3.2 million to account for expenditures recovered during
        the three months ended March 31, 2007 that were netted against
        operating expenses in previously reported amounts. There was no
        effect on operating margin as a result of this change. The change was
        applied retroactively; however, no changes were required for the
        three and nine month periods ending September 30, 2006.

    Operational Highlights

    -   During the first nine months of 2007 Savanna was the second busiest
        driller in Canada on a wells drilled basis, drilling 3,256 wells, for
        a 23% market share and a 3% increase from the first six months of
        2007 (20%). For the third quarter of 2007, the Company's drilling
        division was able to capture 37% of the market, on a wells drilled
        basis, with a fleet that constituted only 8% of the drilling rigs
        available in Canada.

    -   We continued to expand our presence in the U.S. drilling market,
        increasing our proprietary hybrid drilling rig count to two.

    -   Despite lower utilization rates than the prior year, the well
        servicing division achieved a 66% increase in revenues in the third
        quarter of 2007 as a result of a 105% increase in fleet size from
        2006. The well servicing division increased the average number of
        rigs in service from 22 in Q3, 2006 to 45 in Q3, 2007, and exited the
        quarter with 47 rigs.

    -   The drilling division increased aggregate revenue by 34% and
        operating margins by 28% relative to 2006 due to an increase in the
        average number of rigs deployed during the quarter from 50 to
        84 (net), exiting the quarter with 86.5 rigs (net).
    

    Management's Discussion and Analysis ("MD&A")
    Three and Nine Months Ended September 30, 2007

    This discussion focuses on key items from the unaudited, consolidated
financial statements of Savanna for the periods ending September 30, 2007 and
2006, which have been prepared by management in accordance with Canadian
generally accepted accounting principles ("GAAP"). This discussion should not
be considered all inclusive as it excludes changes that may occur in general
economic, political and environmental conditions. Additionally, other matters
may occur which could affect the Company in the future. This discussion should
be read in conjunction with the annual audited consolidated financial
statements and the related notes of the Company for the fiscal year ended
December 31, 2006 as well as the MD&A which appears in the 2006 Annual Report,
and with the interim financial statements for the quarters ended September 30,
June 30 and March 31, 2007. Additional information regarding the Company is
available on SEDAR at www.sedar.com. This MD&A is dated November 6, 2007.
    Savanna is an oilfield services company operating primarily in Western
Canada and the United States. Our overall business is conducted through two
major segments: contract drilling and well servicing.

    FINANCIAL HIGHLIGHTS

    The merger between Savanna and Western Lakota, completed on August 25,
2006, and the acquisitions of Accell and Bear Steam on February 16, 2007,
account for a substantial portion of the increase in revenues for the three
and nine months ended September 30, 2007 compared to the same period in 2006,
with the expansion of Savanna's fleet through construction accounting for the
remainder. Earnings for the current period include the results of operations
for Accell and Bear Steam from the date of acquisition.
    Earnings for Ultraline for the one month ending January 31, 2007, have
been included in net earnings from discontinued operations in the consolidated
statement of earnings. For comparative purposes, the results for 2006 have
been restated to reflect the discontinuation of this division and the assets
and liabilities relating to Ultraline at December 31, 2006 have been shown as
assets and liabilities held for sale.
    The following is a summary of selected financial information of the
Company. Amounts shown for comparative purposes have been restated to reflect
the discontinuation of Ultraline operations.

    
    (Stated in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    Operating results
    Revenue(*)          $ 93,735  $ 70,042    34%  $271,648  $153,207    77%
    Operating
     expenses(*)        $ 58,111  $ 41,476    40%  $164,781  $ 93,802    76%
    Operating
     margin(1)          $ 35,624  $ 28,566    25%  $106,867  $ 59,405    80%
    Operating
     margin %(1)             38%       41%    (7%)      39%       39%     -
    Net earnings from
     continuing
     operations(1)      $ 12,581  $ 12,466     1%  $ 40,668  $ 23,472    73%
      Per share: basic  $   0.21  $   0.31   (32%) $   0.69  $   0.71    (3%)
      Per share:
       diluted          $   0.21  $   0.30   (30%) $   0.69  $   0.69      -
    Net earnings from
     continuing
     operations
     before stock
     compensation
     expense(1)         $ 14,213  $ 13,459     6%  $ 45,024  $ 26,170    72%
      Per share: basic  $   0.24  $   0.33   (27%) $   0.76  $   0.79    (4%)
      Per share:
       diluted          $   0.24  $   0.32   (25%) $   0.76  $   0.77    (1%)
    -------------------------------------------------------------------------

    (*) Revenues and operating expenses have both been affected by a change
        in accounting policies with respect to revenue recognition and cost
        recoveries billed to customers. As a result, revenue and operating
        expenses for the nine months ended September 30, 2007 include an
        increase of $3.2 million to account for expenditures recovered during
        the three months ended March 31, 2007 that were netted against
        operating expenses in previously reported amounts. There was no
        effect on operating margin as a result of this change. The change was
        applied retroactively; however, no changes were required for the
        three and nine month periods ending September 30, 2006.

    (Stated in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    Net earnings and
     gain from
     discontinued
     operations, net
     of tax             $      -  $  2,359      -  $140,755  $ 11,314  1144%
      Per share: basic  $      -  $   0.06      -  $   2.39  $   0.34   603%
      Per share:
       diluted          $      -  $   0.06      -  $   2.39  $   0.33   624%
    Net earnings        $ 12,581  $ 14,825   (15%) $181,423  $ 34,786   422%
      Per share: basic  $   0.21  $   0.37   (43%) $   3.08  $   1.06   191%
      Per share:
       diluted          $   0.21  $   0.36   (42%) $   3.08  $   1.03   199%

    Cash Flows
    Operating cashflows
     from continuing
     operations before
     changes in working
     capital(1)         $ 28,694  $ 22,674    27%  $ 82,304  $ 45,527    81%
    Capital expenditures
     from continuing
     operations         $(25,266) $(43,504)  (42%) $(93,966) $(86,089)    9%

    -------------------------------------------------------------------------
                                           September 30 December 31     %
                                                   2007        2006   Change
    -------------------------------------------------------------------------
    Financial Position
    Working capital(1)                       $   21,974  $   36,531     (40%)
    Capital assets                           $  719,380  $  590,132      22%
    Total assets                             $1,298,935  $1,205,939       8%
    Long-term debt(*)                        $   44,510  $  155,052     (71%)
    -------------------------------------------------------------------------
    (*) Total long-term debt including capital leases, and the current
        portions thereof.
    

    MARKET TRENDS

    Savanna's business depends significantly on the level of spending by oil
and gas companies for exploration, development, production and abandonment
activities. Sustained increases or decreases in the price of natural gas or
oil could materially impact such activities, and thereby materially affect our
financial position, results of operations and cash flows.
    Due to extreme fluctuations in the commodity prices for both oil and
natural gas, the oil and gas industry is subject to significant volatility.
Natural gas prices have weakened over the past year and, coupled with an
expanded capital base in the energy services industry, activity levels have
decreased significantly. As a result of varying commodity prices for both oil
and natural gas, there have been shifts by Savanna customers between natural
gas drilling and oil drilling; however, there remains significant uncertainty
expressed by exploration and development companies, juniors through seniors,
regarding their drilling and completion budgets for the remainder of 2007 and
for 2008. In the medium and long term, the Company remains confident that it
will retain more than its share of the market and that overall market activity
will increase.
    Savanna has expanded its U.S. presence over the past year, and is
continuing to assess further expansion of both our conventional and hybrid
drilling rig fleet in various U.S. basins. An additional hybrid drilling rig
was added to our U.S. fleet in the third quarter, bringing the total number of
hybrid rigs operating in the United States to two. Additionally, Savanna
continues to assess further international expansion of its fleet, weighing the
potential benefits of such expansion against the inherent political and
operating risks.

    BUSINESS ACQUISITIONS

    On February 16, 2007, Savanna purchased the assets of Accell Well
Services Ltd. for total consideration of $61.8 million. Total consideration
was comprised of $46.3 million of cash and 839,000 common shares of Savanna
priced at $18.47 per share, net of acquisition costs of $0.1 million.
    Also, on February 16, 2007, Savanna completed the acquisition of all the
outstanding shares of Bear Steam Ltd. for total consideration of $6.0 million.
The acquisition was funded with $4.5 million of cash and 81,000 common shares
of Savanna priced at $18.47 per share.
    On June 1, 2007, Savanna completed the acquisition of the 14% minority
interest of one of its subsidiaries, Akuna Drilling Trust ("Akuna"), held by
First Nation and Métis communities and associations. As a result of the
transaction, Savanna now owns 100% of Akuna. The acquisition was funded with
$3.0 million of cash and 255,158 common shares of Savanna priced at $21.81 per
share, for total consideration of $8.5 million.
    On July 26, 2007, Savanna acquired 50% of Command Coil Services Limited
Partnership ("Command") held by a First Nation's partner, which included five
coiled tubing service units, for a net purchase price of $2 million in cash.
As a result of the transaction, Savanna now owns 100% of the eight units
operating in this fleet.
    All acquisitions have been accounted for using the purchase method with
the results of operations being included in the consolidated financial
statements from the date of acquisition. Savanna shares issued on all the
acquisitions were valued at the average closing price of Savanna shares for
the five-day period before the closing date of the acquisitions.

    
    The purchase allocations are as follows:

    (Stated in thousands                  Bear
     of dollars)              Accell     Steam     Akuna   Command     Total
    -------------------------------------------------------------------------
    Net assets acquired:
      Cash                  $      -  $    160  $      -  $     81  $    241
      Non-cash working
       capital              $      -  $   (160) $ (3,717) $ (1,092) $ (4,969)
      Settlement of note
       receivable           $      -  $      -  $      -  $   (575) $   (575)
      Capital assets        $ 51,020  $  2,865  $  7,517  $  3,478  $ 64,880
      Intangibles           $  4,821  $  1,558  $      -  $      -  $  6,379
      Goodwill              $  6,053  $  2,067  $  4,866  $  1,398  $ 14,384
      Obligations under
       capital leases       $      -  $      -  $      -  $ (1,290) $ (1,290)
      Long-term debt        $      -  $      -  $   (117) $      -  $   (117)
      Future income taxes   $      -  $   (490) $      -  $      -  $   (490)
    -------------------------------------------------------------------------
                            $ 61,894  $  6,000  $  8,549  $  2,000  $ 78,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consideration
      Common shares issued  $ 15,500  $  1,500  $  5,565  $      -  $ 22,565
      Cash                  $ 46,300  $  4,500  $  2,984  $  2,000  $ 55,784
      Payable subsequent
       to closing           $     94  $      -  $      -  $      -  $     94
    -------------------------------------------------------------------------
    Total consideration     $ 61,894  $  6,000  $  8,549  $  2,000  $ 78,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    EQUIPMENT FLEET

    Savanna's equipment fleet has grown substantially from the prior year
through internal growth, as well as through mergers and acquisitions.

                                               As at   Committed
                                        September 30         New
                                                2007   Equipment       Total
    -------------------------------------------------------------------------
    Drilling Rigs
    Heavy and ultra-heavy telescoping doubles     38           4          42
    Hybrid drilling                               42           4          46
    Pipe-arm single                                1           -           1
    Conventional shallow/surface/coring           10           1          11
    -------------------------------------------------------------------------
    Total drilling rigs (gross)                   91           9         100
    Total drilling rigs (net)(*)                86.5         8.5          95
    -------------------------------------------------------------------------

    Service Rigs
    Service rigs(xx)                              47         4.5        51.5
    -------------------------------------------------------------------------
    Coil tubing service units (+/-)                8           -           8
    -------------------------------------------------------------------------
    (*)   9 drilling rigs are owned in 50/50 limited partnerships and a 50%
          interest in 1 rig currently under construction has been included in
          inventory since it is being held for resale.

    (xx)  1 service rig currently under construction has been included in
          inventory since it is being held for sale into a partnership with
          an Aboriginal community.

    (+/-) 5 coil tubing service units held in a 50/50 limited partnership
          were acquired on July 26, 2007 bringing the total from 5.5 (net) to
          8 coil tubing service units.
    

    CONTRACT DRILLING

    Savanna provides proprietary hybrid drilling rigs, telescoping double
drilling rigs, a pipe arm single drilling rig and coring delineation rigs
through Trailblazer Drilling Corp. ("Trailblazer"), Western Lakota Energy
Services Inc. ("Western Lakota") and Akuna Drilling ("Akuna").

    
    DRILLING SERVICES

    (Stated in thousands of dollars, except revenue per operating day)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    Revenue(xxx)        $ 78,416  $ 58,572    34%  $225,055  $124,180    81%
    Operating
     expenses(xxx)      $ 48,128  $ 34,868    38%  $135,983  $ 77,027    77%
    Operating
     margin(1)          $ 30,288  $ 23,704    28%  $ 89,072  $ 47,153    89%
    Number of operating
     days(*)               4,073     2,992    36%    10,338     6,201    67%
    Revenue per
     operating day      $ 19,253  $ 19,576    (2%) $ 21,770  $ 20,026     9%
    Number of spud
     to release
     days(*)(xx)           3,527     2,634    34%     8,643     5,288    63%
    Wells drilled(xx)      1,544     1,730   (11%)    3,292     3,292     0%
    Total meters
     drilled(xx)       1,493,298 1,201,900    24% 3,213,205 2,382,441    35%
    Utilization(xx)          52%       61%   (15%)      44%       51%   (14%)
    Industry average
     utilization (+/-)       39%       57%   (32%)      37%       58%   (36%)
    -------------------------------------------------------------------------

    (xxx) Revenues and operating expenses have both been affected by a change
          in accounting policies with respect to revenue recognition and cost
          recoveries billed to customers. As a result, revenue and operating
          expenses for the nine months ended September 30, 2007 include an
          increase of $3.2 million to account for expenditures recovered
          during the three months ended March 31, 2007 that were netted
          against operating expenditures in previously reported amounts.
          There was no effect on operating margin as a result of this change.
          The change was applied retroactively; however, no changes were
          required for the three and nine month periods ending September 30,
          2006.

    (*)   The number of operating days and number of spud to release days are
          all on a net basis, which means we have only included Savanna's
          proportionate share of any rigs held in limited partnerships.

    (xx)  Savanna reports its rig utilization based on spud to release time
          for the rigs and excludes moving, rig up and tear down time, even
          though revenue is earned during this time. Savanna's rig
          utilization, spud to release days, wells drilled and total meters
          drilled exclude Akuna drilling rigs as the operating environment is
          not comparable to Trailblazer and Western Lakota rigs. However, the
          Akuna rigs are included in total fleet numbers.

    +/-   Source of industry figures: Canadian Association of Oilwell
          Drilling Contractors (CAODC).
    

    The decrease in utilization and drilling rates experienced by the
drilling division was offset by the effect of a larger fleet, creating an
overall increase in revenues and operating margin for the three-month period
ending September 30, 2007, as compared to the same period in 2006. The
drilling division was able to increase its share of the market as evidenced by
a significantly higher than industry average utilization rate for the three
and nine months ending September 30, 2007. Specifically, in the third quarter
of 2007, the drilling division's utilization rate (52%) was 13% above industry
average (39%).
    During the third quarter of 2007, Savanna averaged a deployed fleet of
84 net rigs (2006 - 50) and exited the quarter operating a fleet of 86.5 net
rigs (2006 - 76 rigs).

    
    RIG SALES

    (Stated in thousands of dollars, except revenue per operating day)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    Revenue(xxx)        $      -  $  2,250     -   $      -  $  2,250     -
    Operating
     expenses(xxx)      $      -  $  1,642     -   $      -  $  1,642     -
    Operating margin(1) $      -  $    608     -   $      -  $    608     -
    -------------------------------------------------------------------------
    

    In the third quarter of 2006, Savanna sold a 50% interest in a
3,600 metre telescoping double drilling rig to a First Nation community. The
rig is currently operating through a 50/50 limited partnership as a result of
the sale. Proceeds of the sale were $5.25 million which was paid with cash of
$2.25 million and a promissory note of $3.0 million. The promissory note bears
interest at prime plus 10% and will be repaid through partnership
distributions to the First Nation community. The cash received and a
proportionate share of the cost of sales was recognized immediately. The
remaining revenue and cost of sales was recorded as deferred net revenue and
will be recorded as revenue as the promissory note is collected.

    WELL SERVICING

    Savanna provides well servicing throughout Western Canada through Great
Plains Well Servicing Corp. ("Great Plains") and Accell Well Services
("Accell"), operating double and single well servicing rigs, and through
Command Coil Services Inc. ("Command"), operating coiled tubing service units.

    
    (Stated in thousands of dollars, except revenue per hour)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    Revenue             $ 15,319  $  9,220    66%  $ 43,522  $ 26,777    63%
    Operating expenses  $  9,983  $  4,966   101%  $ 28,798  $ 15,133    90%
    Operating margin(1) $  5,336  $  4,254    25%  $ 14,724  $ 11,644    26%
    Number of hours       20,207    12,197    66%    53,272    34,213    56%
    Revenue per hour    $    758  $    756     0%  $    817  $    783     4%
    Utilization(*)(xx)       47%       58%   (19%)      47%       56%   (16%)
    -------------------------------------------------------------------------
    (*)  Utilization is based on standard hours of 3,650 per rig per year.
         Industry average utilization figures, specific to well servicing,
         are not available.

    (xx) The utilization rate excludes the coiled tubing service units
         operated through Command since these units are not comparable in
         size or operations to the division's service rigs.
    

    The increase in revenue, compared to the same period in the prior year,
was a result of an increase in fleet size due to the acquisition of Accell.
This increase in revenue was partially offset by a decrease in utilization
compared to 2006 levels, as a result of weaker market conditions and reduced
demand in the third quarter of 2007.
    During the third quarter of 2007, the well servicing division operated an
average of 45 service rigs, 7.2 (net) coiled tubing service units and 30
boilers, compared to the same period in 2006 where the division operated an
average of 22 service rigs, 5.5 (net) coiled tubing service units, and 12
boilers.
    The well servicing division exited the current quarter with 47 service
rigs, 8 coiled tubing service units, and 34 boilers.

    DISCONTINUED OPERATIONS

    Effective January 31, 2007, the Company closed the sale of its wireline
division, Ultraline Services Corporation ("Ultraline") for net proceeds of
$208 million plus a working capital adjustment of $1.1 million.
    Immediately prior to the sale, Ultraline declared and paid a dividend of
$5.5 million to Savanna as contemplated under the purchase and sale agreement
which has been eliminated upon consolidation of the financial statements for
the current period. Also included in the sale were specific real estate assets
and office equipment owned by Savanna.

    
    (Stated in thousands of dollars)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    From discontinued
     operations:
      Revenue           $      -  $ 12,354     -   $  6,011  $ 46,140   (87%)
      Net earnings      $      -  $  2,360     -   $    330  $ 11,314   (97%)
      Gain on sale,
       net of tax       $      -  $      -     -   $140,425  $      -      -
    -------------------------------------------------------------------------
    

    The decrease in revenue and net earnings from discontinued operations in
2006 is largely due to the fact that the 2007 results only include one month
of Ultraline earnings whereas 2006 includes three and nine months of
operations based on the effective closing date of January 31, 2007.
    Stock compensation expense of $665,000 (2006 - $66,000) has been included
in net earnings from discontinued operations for the nine months ended
September 30, 2007 and relates primarily to the remaining unamortized portion
of stock compensation relating to options held by Ultraline employees.
    The gain on sale of discontinued operations was based on net proceeds of
$209 million net of $0.1 million in legal and property tax expenses. The net
book value of Savanna's interest in Ultraline and the related assets that were
sold on January 31, 2007 was $36.7 million, resulting in a gain of
$172 million ($140 million net of tax).

    
    OTHER FINANCIAL INFORMATION

    (Stated in thousands of dollars)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    From continuing
     operations:
      General and
       administrative
       expenses         $  3,353  $  2,586    30%  $ 12,003  $  6,865    75%
         as a % of
         revenue              4%        4%     -         4%        4%     -
      Depreciation and
       amortization     $  9,266  $  5,341    73%  $ 24,498  $ 10,414   135%
      Interest expense  $    829  $  1,455   (43%) $  2,775  $  2,948    (6%)
      Foreign exchange
       loss and other
       expenses
       (income)         $  1,122  $     (7) 16129% $  1,503  $     35  4194%
      Income tax
       expense          $  6,841  $  5,784    18%  $ 20,412  $ 13,025    57%
      Effective income
       tax rate              35%       32%     9%       33%       36%    (8%)
    -------------------------------------------------------------------------
    

    The increase in general and administrative expenses and depreciation
expense reflects the increased scale of operations and expanding capital asset
base of the Company. Administrative expenses as a percentage of revenue
remained consistent with the prior year.
    Included in depreciation and amortization expense is the amortization of
intangible assets. Intangible assets are amortized over their expected period
of benefit. The increase in depreciation and amortization is a result of the
significant increase in capital assets from the prior year due to the merger
with Western Lakota late in Q3 2006 plus all the 2007 business acquisitions
discussed previously in this report.
    The decrease in interest expense for the third quarter of 2007 is a
direct result of the full repayment of the Company's revolving debt facility
in March 2007.
    The increase in foreign exchange loss and other expenses is primarily a
result of a weakening U.S. dollar in relation to the Canadian dollar and its
effect on the Company's U.S. working capital in the second and third quarters
of 2007.
    The reduction in the Company's effective income tax rate from the prior
year is primarily a result of increases in non-deductible items such as stock
compensation expense and unrealized foreign exchange losses which had a
significant impact in the third quarter of 2007. Increases in overall tax
expense from 2006 are a result of higher income from operations; in addition,
because of the significant capital expenditures in 2007, the Company has
significant tax pools which it has used to reduce the percentage of current
versus future income tax expense relative to the prior year. The Company's
operations are complex and computation of the provision for income taxes
involves tax interpretations, regulations, and legislation that are
continually changing. There are matters that have not yet been confirmed by
taxation authorities; however, management believes the provision for income
taxes is adequate.

    FINANCIAL CONDITION AND LIQUIDITY

    Savanna's aggressive capital expansion, coupled with the market risks
outlined previously, can significantly affect the financial condition and
liquidity of the Company. Savanna's ability to access its debt facilities is
directly dependent, among other factors, on our total debt to equity ratios
and trailing cash flows. Additionally, the ability of Savanna to raise capital
through the issuance of equity would likely be restricted in the face of an
existing or anticipated reduction in oilfield service demand. Although Savanna
cannot anticipate all eventualities in this regard, the Company maintains what
it believes to be a conservatively leveraged balance sheet, and makes every
effort to ensure a balance between maximizing returns for our shareholders
over both the short and long term activity levels in the oil and gas services
business.

    
    WORKING CAPITAL AND CASH PROVIDED BY OPERATIONS

    (Stated in thousands of dollars, except per share data)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    Operating cashflows
     from continuing
     operations before
     changes in working
     capital(1)         $ 28,694  $ 22,674    27%  $ 82,304  $ 45,527    81%
      Per diluted share $   0.48  $   0.54   (11%) $   1.40  $   1.34     4%
    Change in cash (net
     of bank
     indebtedness)      $(20,252) $(11,981)   69%  $  6,998  $(11,585)  160%
    -------------------------------------------------------------------------

    The increase in operating cash flows before changes in working capital is
a direct result of the Company's expanding capital base through internal
growth as well as through the merger with Western Lakota in Q3 2006 and all of
its 2007 business acquisitions.

    (Stated in thousands of dollars)
    -------------------------------------------------------------------------
                                                  As At
                                        September 30 December 31
                                                2007        2006      Change
    -------------------------------------------------------------------------
    Working capital held
     outside of partnerships                $ 16,955    $ 28,242    $(11,287)
    Working capital held in
     partnerships(*)                        $  5,019    $  8,289    $ (3,270)
    -------------------------------------------------------------------------
    Working capital(1)                      $ 21,974    $ 36,531    $(14,557)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) Working capital held in limited partnerships is owned 50% by the
        Company. The amount presented is the Company's proportionate share.
    

    The decrease in working capital from amounts at December 31, 2006 is a
result of the sale of Ultraline and its related working capital, the Company
using cash to build its equipment base through construction and acquisition
and to decrease its debt obligations, and a decrease in activity during 2007,
all of which had an impact on cash and receivables relative to current
liabilities.
    At September 30, 2007, there was $230 million available for use on the
Company's term revolving loan.

    
    INVESTING ACTIVITIES

    (Stated in thousands of dollars)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    From continuing
     operations:
      Capital asset
       additions        $(25,266) $(43,504)  (42%) $(93,966) $(86,089)    9%
      Cash paid on
       acquisitions,
       net of cash
       acquired         $ (1,919) $ (1,552)   24%  $(55,637) $ (1,552) 3485%
      Cash received on
       sale of
       discontinued
       operations, net
       of costs         $      -  $      -     -   $207,899  $      -     -
    -------------------------------------------------------------------------
    

    The majority of the 2007 capital expenditures relate to costs associated
with the manufacture of drilling rigs for use in the contract drilling
division.
    As described previously, the $55.6 million paid on acquisitions relates
to the Accell, Bear Steam, Akuna and Command purchases.
    The cash received on the sale of discontinued operations relates to the
disposition of the Company's wireline division also described previously in
the MD&A.

    
    FINANCING ACTIVITIES

    (Stated in thousands of dollars)
    -------------------------------------------------------------------------
                        Three Months Ended          Nine Months Ended
                            September 30      %        September 30      %
                           2007      2006   Change    2007      2006   Change
    -------------------------------------------------------------------------
    From continuing
     operations:
      Repayment of
       long-term debt  $ (2,925) $(15,690)  (81%) $(137,033) $(41,169)  233%
      Repayment of
       capital lease
       obligations     $   (978) $   (292)  235%  $  (2,644) $   (857)  209%
      Repayment of
       deferred
       drilling
       advance         $      -  $      -     -   $  (2,264) $      -     -
      Issuance of
       long-term debt  $ 20,000  $ 25,000  (20%)  $  27,250  $ 63,000  (57%)
      Proceeds from
       stock options
       exercised       $    634  $  1,838  (66%)  $   2,414  $  3,860  (37%)
    -------------------------------------------------------------------------

    -   Savanna had capital lease obligations and long term debt outstanding
        of $32.6 million (December 31, 2006 - $136.3 million) at
        September 30, 2007, excluding the $11.9 million (December 31, 2006 -
        $18.8 million) current portions thereof.

    -   At the date of this report, $30 million was drawn on the Company's
        $250 million committed revolving debt facility.

    -   The average price of the stock options exercised in the first three
        quarters of 2007 was $8.44 (2006 - $4.37) per share.

    -   At the date of this report, the number of common shares outstanding
        was 59.5 million and the number of stock options outstanding was
        2.2 million, the proceeds from which, if exercised, would be
        $42.9 million.

    -   The Company issued 1,175,000 shares at an average price of $19.19 per
        share as part of the consideration in the acquisitions of Accell,
        Bear Steam, and Akuna. These were non-cash transactions and have been
        excluded from the statement of cash flows for the periods ending
        September 30, 2007.

    -   For the remainder of 2007 and the foreseeable future, the Company
        expects cash flow from operations and from its various sources of
        financing to be sufficient to meet its debt repayments and future
        obligations, and to fund anticipated capital expenditures.
    

    RELATED PARTY TRANSACTIONS

    During the nine months ended September 30, 2007, lease revenue,
management fees and other fees in the amount of $2.4 million, net of
inter-company eliminations (2006 - $0.1 million) were received from
partnerships that are owned 50% by the Company. Lease amounts have been
recorded as revenue and management and other fees have been recorded as a
reduction of either operating expenses or general and administrative expenses
in the consolidated statement of earnings. The related party transactions were
in the normal course of operations and have been measured at the exchange
amounts, which are the amounts of consideration established and agreed to by
the related parties and which, in the opinion of management, are considered
similar to those negotiable with third parties.

    QUARTERLY RESULTS

    The quarterly results of Savanna are markedly affected by weather
patterns throughout our operating area in Canada. Historically, the first
quarter of the calendar year is very active, followed by a much slower second
quarter. As a result of this, the variation on a quarterly basis, particularly
in the first and second quarters can be dramatic year over year independent of
other demand factors. The following is a summary of selected financial
information of the Company for the last eight completed quarters. All prior
period amounts have been restated to reflect the discontinuation of Ultraline
operations.

    
    (Stated in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                                              Three Months Ended
    -------------------------------------------------------------------------
                                 Sept-30      Jun-30      Mar-31      Dec-31
                                    2007        2007        2007        2006
                                       $           $           $           $
    -------------------------------------------------------------------------
    Revenue(xx)                   93,735      39,097     138,816      97,371
    Operating expenses(xx)        58,111      30,271      76,399      58,381
    Operating margin(1)           35,624       8,826      62,417      38,990
    Operating margin %(1)            38%         23%         45%         40%
    Net earnings (loss) from
     continuing operations        12,581      (3,493)     31,580      18,138
      Per diluted share             0.21       (0.06)       0.54        0.31
    Net earnings (loss)           12,581      (3,650)    172,492      19,812
      Per diluted share             0.21       (0.06)       2.94        0.34
    Total assets               1,298,935   1,242,724   1,290,303   1,205,939
    Long-term debt(*)             44,510      27,034      34,527     155,052
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                              Three Months Ended
    -------------------------------------------------------------------------
                                 Sept-30      Jun-30      Mar-31      Dec-31
                                    2006        2006        2006        2005
                                       $           $           $           $
    -------------------------------------------------------------------------
    Revenue(xx)                   70,042      20,066      63,099      45,951
    Operating expenses(xx)        41,476      16,180      36,146      27,314
    Operating margin(1)           28,566       3,886      26,953      18,637
    Operating margin %(1)            41%         19%         43%         41%
    Net earnings (loss) from
     continuing operations        12,466      (1,015)     12,021       7,453
      Per diluted share             0.30       (0.03)       0.40        0.25
    Net earnings (loss)           14,825           2      19,959      13,138
      Per diluted share             0.36        0.00        0.67        0.44
    Total assets               1,156,048     307,114     310,494     277,329
    Long-term debt(*)            126,051      62,106      55,217      49,505
    -------------------------------------------------------------------------
    (*)  Total long-term debt including capital leases, and current portions
         thereof.

    (xx) Revenues and operating expenses have both been affected by a change
         in accounting policies with respect to revenue recognition and cost
         recoveries billed to customers. As a result, revenue and operating
         expenses for the three months ended Mar 31, 2007 and December 31,
         2006 have increased by $3.2 million and $3.5 million respectively
         compared to previously reported amounts to account for expenditures
         recovered from customers during those periods. There was no effect
         on operating margin as a result of this change. The change was
         applied retroactively; however, no changes were required for any
         other quarters prior to December 31, 2006.

    RISKS AND UNCERTAINTIES

    The Company's primary activity is the provision of contract drilling and
oilfield services to the oil and gas industry in Western Canada. The demand,
price and terms of contract drilling services are dependent on the level of
activity in this industry, which in turn depends on several factors,
including:

    -   Crude oil, natural gas and other commodity prices, markets and
        storage levels;

    -   Expected rates of production and production declines;

    -   Discovery of new oil and natural gas reserves;

    -   Availability of capital and financing;

    -   Exploration and production costs;

    -   Pipeline capacity and availability;

    -   Manufacturing capacity and availability of supplies for rig
        construction; and

    -   Government imposed royalties and taxes.
    

    Other risk factors that affect the oil and gas industry and the Company
are as follows:

    CREDIT RISK

    As outlined above, lower commodity prices have a direct impact on our
customers' ability to generate cash flows, which in turn directly impacts the
demand for our services. These factors are clearly beyond the control of
Savanna, and therefore represent significant uncertainty for the Company
overall. Savanna has been very proactive in its approach to credit management
and has specific policies and procedures to mitigate credit risk.

    INTEREST RATE RISK

    We are exposed to fluctuations in short-term interest rates from our
floating-rate debt as their market value is sensitive to interest rate
fluctuations.
    At September 30, 2007, approximately 52% (December 31, 2006 - 24%) of
operating loans, long-term debt and obligations under capital leases were
subject to fixed rates and 48% (December 31, 2006 - 76%) were subject to
variable rates. The Company's effective interest rate on all its fixed-rate
long-term debt is not materially different from actual rates.

    WEATHER

    The ability to move and operate drilling equipment is often dependent on
weather conditions. As warm weather arrives in the spring and the frost begins
leaving the ground, many secondary roads become too soft to support heavy
equipment until they are completely dry. The inability to move equipment
during this period (spring break-up) can have a direct effect on operations
and can result in a period when some or all of the drilling rigs may be
inactive. In addition, the ability to frequently move drilling equipment to
new locations is even more critical in the shallow drilling market because of
the speed and efficiency with which our rigs carry out this process. To
mitigate this risk, efforts are made to work with customers to position
drilling equipment before spring break-up so that it will be working as much
as possible during or immediately after this period.

    WORKFORCE AVAILABILITY

    The Company's ability to provide reliable and quality services is
dependent on its ability to hire and retain a dedicated and quality pool of
employees. The Aboriginal partnerships that the Company has formed through
Western Lakota have provided access to a large, capable workforce of
Aboriginal employees. The Company strives to retain employees by providing a
safe working environment, competitive wages and benefits, employee savings
plans and an atmosphere in which all employees are treated equally regarding
opportunities for advancement. Through Western Lakota, the Company also
operates an innovative drilling rig training program designed to provide
inexperienced individuals with the skills required for entry into the drilling
industry.

    EQUIPMENT AND TECHNOLOGY

    The ability of the Company to meet customer demands in respect of
performance and cost will depend upon continuous improvements in its drilling
rigs. The Company was founded on rigs designed and built internally and these
rigs continue to be among the newest and most efficient in the industry. The
experience of the Company's rig construction team and the knowledge gained in
the six years it has been building rigs has led to new and innovative
solutions to its customers' unique problems. The advancements the Company has
made since its beginnings have been an important part of its success, and the
Company will make every effort to continue employing high-quality people and
to work with its customers to remain on the leading edge of technology.
    Savanna carries what it believes to be adequate property and
comprehensive public liability insurance to protect itself in the event of
destruction or damage to its property or equipment and to limit exposure in
the face of unforeseen incidents.

    CONTINGENCIES

    At September 30, 2007, the Company was subject to legal claims with
respect to the Company's patents. The outcome of these matters is not
determinable at this time.

    CRITICAL ACCOUNTING ESTIMATES

    This MD&A is based on the consolidated financial statements which have
been prepared in accordance with GAAP. The preparation of the consolidated
financial statements requires that certain estimates and judgments be made
with respect to the reported amounts of revenues and expenses and the carrying
amounts of assets and liabilities. These estimates are based on historical
experience and management judgment. Anticipating future events involves
uncertainty and consequently the estimates used by management in the
preparation of the consolidated financial statements may change as future
events unfold, additional experience is acquired or the Company's operating
environment changes. Management considers the following to be the most
significant of these estimates:

    DEPRECIATION AND AMORTIZATION

    The accounting estimate that has the greatest effect on the Company's
financial results is the depreciation of capital assets and asset impairment
write-downs, if any. Depreciation of capital assets is carried out on the
basis of the estimated useful lives of the related assets. Equipment under
construction is not depreciated until it is put into use. Included in capital
assets is equipment acquired under capital leases. All equipment is
depreciated based on the straight-line method, utilizing either years, in the
case of all non-drilling assets, or operating days, in the case of drilling
equipment. All equipment is depreciated net of expected residual values of 10%
- 20%.
    Assessing the reasonableness of the estimated useful lives of properties
requires judgment and is based on currently available information, including
periodic depreciation studies conducted by the Company. Additionally, the
Company canvasses its competitors to ensure it utilizes methodologies and
rates consistent with the remainder of the sector in which Savanna operates.
Changes in circumstances, such as technological advances, changes to the
Company's business strategy, changes in the Company's capital strategy or
changes in regulations may result in the actual useful lives differing from
the Company's estimates.
    A change in the remaining useful life of a group of assets, or their
expected residual value, will affect the depreciation rate used to amortize
the group of assets and thus affect depreciation expense as reported in the
Company's results of operations. These changes are reported prospectively when
they occur.

    STOCK-BASED COMPENSATION

    Compensation expense associated with stock options granted is based on
various assumptions using the Black-Scholes option-pricing model to produce an
estimate of compensation. This estimate may vary due to changes in the
variables used in the model including interest rates, expected life, expected
volatility and share prices.
    Stock compensation expense also includes the value of deferred share
units ("DSU's") held by directors and officers and outstanding at the end of
the year. DSU's are recognized when vested and valued on a mark to market
basis. DSU's will be settled in cash on the date the director ceases to be a
director of the Company.

    GOODWILL

    Goodwill is the amount that results when the cost of acquired assets
exceeds their fair values, at the date of acquisition. Goodwill is recorded at
cost, not amortized and tested at least annually for impairment. The
impairment test includes the application of a fair value test, with an
impairment loss recognized when the carrying amount of goodwill exceeds its
estimated fair value. Impairment provisions are not reversed if there is a
subsequent increase in the fair value of goodwill.

    INTANGIBLE AND OTHER ASSETS

    Intangible assets consist of the value attributed to customer
relationships, lease agreements, construction commitments, non-competition
agreements, and trade names acquired plus the costs associated with securing
the Company's intellectual property rights. The initial valuation of
intangibles at the closing date of any acquisitions, require judgment and
estimates by management with respect to identification, valuation and
determining expected periods of benefit. Valuations are based on discounted
expected future cash flows and other financial tools and models and are
amortized over their expected periods of benefit. Intangible assets are
reviewed annually with respect to their useful lives, or more frequently, if
events or changes in circumstances indicate that the assets might be impaired.
    Other assets include rig re-certification costs which are being amortized
over their expected useful lives (3-4 years). This amortization expense has
been included in operating expenses in the consolidated financial statements
for the three and nine month periods ending September 30, 2007.

    ACCOUNTING POLICIES

    The significant accounting policies are the same as those set out in the
most recent annual financial statements, other than the following new
accounting standards issued by the Canadian Institute of Chartered Accountants
("CICA"). These accounting policy changes were adopted on a prospective basis
on January 1, 2007, with no restatement of prior period financial statements.
The Company's new standards and accounting policy changes are as follows:

    FINANCIAL INSTRUMENTS (CICA HANDBOOK SECTION 3855 and 3861)

    In accordance with this new standard, all financial instruments must
initially be recognized at fair value on the balance sheet and classified into
the following categories: held for trading financial assets and financial
liabilities, loans or receivables, held to maturity investments, available for
sale financial assets, and other financial liabilities. Subsequent measurement
of the financial instruments are based on their classification. Unrealized
gains and losses on held for trading financial instruments are recognized in
earnings. Gains and losses on available for sale financial assets are
recognized in other comprehensive income and are transferred to earnings when
the instrument is settled. The other categories of financial instruments are
recognized at amortized cost using the effective interest rate method. Any
transaction costs with respect to financial instruments are expensed in the
period incurred.
    The Company's financial instruments consist of cash, accounts receivable,
notes receivable, bank indebtedness, operating loans, accounts payable and
accrued liabilities, obligations under capital lease and long-term debt. At
January 1, 2007, all of the Company's financial instruments were classified as
either held for trading, loans and receivables or other financial liabilities.
The fair values of the Company's financial instruments were determined as
follows:

    
    a)  The carrying amounts of cash, accounts receivable, bank indebtedness,
        operating loans and accounts payable and accrued liabilities
        approximate their fair values due to the immediate or short term
        maturity of these financial instruments.

    b)  The fair values of the Company's notes receivable, obligations under
        capital lease and long-term debt are estimated based on quoted market
        prices for the same or similar issues or on the current rates offered
        to the Company for similar financial instruments subject to similar
        risks and maturities. The fair values of these financial instruments
        are not materially different from their carrying amounts.
    

    Embedded derivatives are derivatives embedded in a host contract. They
are recorded separately from the host contract when their economic
characteristics and risks are not clearly and closely related to those of the
host contract, the terms of the embedded are the same as those of a
freestanding derivative and the combined contract is not classified as held
for trading or designated at fair value. At January 1, 2007 and for the three
and nine month periods ended September 30, 2007, the Company had no embedded
derivatives requiring separate recognition.

    COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (CICA
    HANDBOOK SECTIONS 1530 AND 3251)

    Comprehensive income consists of net earnings and other comprehensive
income ("OCI"). OCI comprises the change in the fair value of the effective
portion of the derivatives used as hedging items in a cash flow hedge and the
change in fair value of any available for sale financial instruments. Amounts
included in OCI are shown net of tax. Accumulated other comprehensive income
is a new equity category comprised of the cumulative amounts of OCI. There
were no such components to be recognized in comprehensive income for the nine
month period ending September 30, 2007.

    HEDGES (CICA HANDBOOK SECTION 3865)

    The new standard specifies the criteria under which hedge accounting can
be applied and how hedge accounting can be executed. The Company has not
designated any hedging relationships for the nine month period ending
September 30, 2007.

    ACCOUNTING CHANGES

    The new recommendations permit voluntary changes in accounting policy
only if they result in financial statements which provide more reliable and
relevant information. Accounting policy changes are applied retroactively
unless it is impractical to determine the period of cumulative impact of the
change. Corrections of prior period errors are applied retroactively and
changes in accounting estimates are applied prospectively by including these
changes in earnings. The guidance was effective for all changes in accounting
policies, changes in accounting estimates and corrections of prior period
errors initiated in periods beginning on or after January 1, 2007.
    During the second quarter of 2007, the Company changed its revenue
recognition policy with respect to cost recoveries billed to customers.
Previously, one of the Company's subsidiaries had netted such revenue against
the related cost. In order to be consistent among all subsidiaries, the
Company applied the recommendations of CICA Emerging Issues Committee Abstract
123, Reporting Revenue Gross as a Principal Versus Net as an Agent ("EIC
123"). Under EIC 123, all of the Company's cost recoverable amounts are now
recorded as revenue and operating expenses rather than being netted. As a
result, revenue and operating expenses for the nine months ended September 30,
2007 have increased by $3.2 million to account for expenditures recovered
during the three months ended March 31, 2007. There was no effect on earnings
as a result of this change. The change was applied retroactively; however, no
changes were required for the three and nine month periods ending
September 30, 2006.

    OTHER ASSETS

    Other assets include rig re-certification costs which are being amortized
over their expected useful lives (3-4 years). Amortization expense related to
re-certification costs is included in operating expenses in the consolidated
financial statements.

    DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL
    REPORTING

    The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO")
have designed or caused to be designed under their supervision, disclosure
controls and procedures to provide reasonable assurance that material
information relating to the Company, including its consolidated subsidiaries,
is made known to the CEO and the CFO by others within those entities,
particularly during the period in which the annual filings of the Company are
being prepared, in an accurate and timely manner in order for the Company to
comply with its continuous disclosure and financial reporting obligations and
in order to safeguard assets. There have been no changes to disclosure
controls and procedures that occurred over the most recent interim period that
have materially affected or are likely to materially affect internal control
over financial reporting.
    In addition to disclosure controls and procedures, the CEO and CFO are
responsible for designing internal controls over financial reporting or
causing them to be designed under their supervision to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Canadian
GAAP. The CEO and CFO have concluded that the Company's internal controls over
financial reporting, as of the end of the period covered by the annual
filings, are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian GAAP. There have been no
changes in internal control over financial reporting that occurred over the
most recent interim period that have materially affected or are likely to
materially affect internal control over financial reporting.
    Consistent with the concept of reasonable assurance, the Company
recognizes that the relative cost of maintaining these controls and procedures
should not exceed their expected benefits. As such, the Company's disclosure
controls and procedures and internal controls over financial reporting can
only provide reasonable assurance, and not absolute assurance.

    
    OUTLOOK

    -   The Canadian Association of Oilwell Drilling Contractors ("CAODC")
        expects 16,232 well completions for 2007, down 5,895 wells or 27%
        from 2006. The CAODC is also projecting an average drilling
        utilization rate of 40%, down from a 2006 utilization rate of 55% due
        to the weakening of prices and the continued construction of
        additional rigs. Despite these projections, Savanna expects to
        maintain higher than average utilization rates and market share in
        both its drilling and well servicing divisions.

    -   Expected activity levels for 2008 are even more pessimistic than
        2007. The CAODC expects only 13,735 wells to be drilled in 2008, a
        reduction of 15% from 2007 levels, generating an anticipated industry
        utilization rate of just 34%.

    -   The above activity levels are premised on low natural gas prices
        prevailing throughout the remainder of 2007 and 2008, and on the
        recent royalty adjustments announced by the Province of Alberta being
        enacted substantially as anticipated.

    -   Although the industry is uncertain with respect to the demand and
        prices of oil and gas for the remainder of 2007, Savanna is well
        positioned with its high quality equipment, leading-edge technology
        and strong balance sheet, and is confident that it will be able to
        achieve more than its market share. While Savanna is certainly not
        immune to pricing or utilization pressures caused by the industry
        slowdown, we do believe we are extremely well positioned to manage
        and capitalize on the challenging conditions facing the oilfield
        services industry.

    -------------------------------------------------------------------------
    This Report contains forward looking statements which reflect
    management's expectations regarding the Company's future growth, results
    of operations, performance and business prospects and opportunities.
    Wherever possible, words such as "believe", "expect" and similar
    expressions have been used to identify these forward looking statements.
    The statements reflect management's current beliefs and are based on
    information currently available to management. Forward looking statements
    involve significant risk, uncertainties and assumptions. A number of
    factors could cause actual results, performance or achievements to differ
    materially from the results discussed or implied in the forward looking
    statements. Although the forward looking statements contained in this
    Report are based upon what management believes to be reasonable
    assumptions, the Company cannot assure readers that actual results will
    be consistent with these forward looking statements. These forward
    looking statements are made as of the date hereof and the Company assumes
    no obligation to update or revise them to reflect new events or
    circumstances.

    -------------------------------------------------------------------------
    Notes:
    (1) Earnings from continuing operations is defined as earnings before
        interest, other income and taxes. Earnings from continuing operations
        before stock compensation expense is calculated by adding stock
        compensation expense to earnings from continuing operations.
        Operating margin is defined as revenue less operating expenses.
        Operating margin percentages are calculated by dividing operating
        margins by revenue. Operating cash flows from continuing operations
        before changes in working capital is defined as cash flows from
        continuing operating activities before changes in non-cash working
        capital. Working capital is defined as total current assets less
        total current liabilities excluding the current portions of long-term
        debt, capital leases, and deferred drilling advances. Earnings from
        continuing operations, net earnings from continuing operations before
        stock compensation expense, operating margin, operating margin
        percent, operating cash flows from continuing operations before
        changes in non-cash working capital, and working capital are not
        recognized measures under Canadian generally accepted accounting
        principles (GAAP), 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 prior to consideration of how those
        activities are financed and how the results are taxed in various
        jurisdictions.
    -------------------------------------------------------------------------

    Consolidated Statement of Earnings and Comprehensive Income

    For the Three and Nine Months Ended September 30, 2007 and 2006
    (In thousands, except per share amounts) (Unaudited)
    -------------------------------------------------------------------------
                                    Three Months Ended     Nine Months Ended
                                        September 30          September 30
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
      Sales and services             93,735     70,042    271,648    153,207
    -------------------------------------------------------------------------
    Expenses
      Operating                      58,111     41,476    164,781     93,802
      General and administrative      3,353      2,586     12,003      6,865
      Stock-based compensation        1,632        993      4,356      2,698
      Depreciation and amortization   9,266      5,341     24,498     10,414
    -------------------------------------------------------------------------
                                     72,362     50,396    205,638    113,779
    -------------------------------------------------------------------------
                                     21,373     19,646     66,010     39,428
    -------------------------------------------------------------------------
    Other items
      Interest on long-term debt
       and capital leases              (829)    (1,455)    (2,775)    (2,948)
      Foreign exchange income (loss)
       and other income (expenses)   (1,122)         7     (1,503)       (35)
    -------------------------------------------------------------------------
                                     (1,951)    (1,448)    (4,278)    (2,983)
    -------------------------------------------------------------------------
    Earnings from continuing
     operations before income taxes  19,422     18,198     61,732     36,445
    Income taxes, continuing
     operations
      Current                         1,656      2,107      6,089      4,375
      Future                          5,185      3,677     14,323      8,650
    -------------------------------------------------------------------------
                                      6,841      5,784     20,412     13,025
    -------------------------------------------------------------------------
    Net earnings from continuing
     operations before
     non-controlling interest        12,581     12,414     41,320     23,420
    Non-controlling interest
     (Note 4(c))                          -         52       (652)        52
    -------------------------------------------------------------------------
    Net earnings from continuing
     operations                      12,581     12,466     40,668     23,472
    Net earnings from discontinued
     operations (Note 14)                 -      2,359    140,755     11,314
    -------------------------------------------------------------------------
    Net earnings and comprehensive
     income (Note 3(b))              12,581     14,825    181,423     34,786
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per share (Note 9(f))
      Basic - net earnings from
       continuing operations -
       per share                       0.21       0.31       0.69       0.71
      Diluted - net earnings from
       continuing operations -
       per share                       0.21       0.30       0.69       0.69
      Basic - net earnings and gain
       from discontinued operations
       - per share                        -       0.06       2.39       0.34
      Diluted - net earnings and
       gain from discontinued
       operations - per share             -       0.06       2.39       0.33
      Basic - net earnings -
       per share                       0.21       0.37       3.08       1.06
      Diluted - net earnings -
       per share                       0.21       0.36       3.08       1.03


    Consolidated Statement of Retained Earnings

    (In thousands) (Unaudited)
    -------------------------------------------------------------------------
                                    Three Months Ended     Nine Months Ended
                                        September 30          September 30
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
                                          $          $          $          $
    -------------------------------------------------------------------------
    Retained earnings, beginning
     of period                      283,607     80,128    114,765     60,167
    Dividends                        (1,485)         -     (1,485)         -
    Net earnings                     12,581     14,825    181,423     34,786
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                         294,703     94,953    294,703     94,953
    -------------------------------------------------------------------------


    Consolidated Balance Sheet
    (In thousands) (Unaudited)
    -------------------------------------------------------------------------
                                                        September   December
                                                          30 2007    31 2006
                                                                $          $
    -------------------------------------------------------------------------
    ASSETS

    Current
      Cash                                                  5,165      8,259
      Accounts receivable                                  83,847     88,856
      Inventory                                            11,796      4,783
      Prepaid expenses and deposits                         1,332      1,766
      Current portion of notes receivable                       -      2,250
      Current assets held for sale (Note 14)                    -     18,720
    -------------------------------------------------------------------------
                                                          102,140    124,634
    Notes receivable                                        6,000      6,575
    Capital assets                                        719,380    590,132
    Goodwill                                              438,203    424,003
    Intangibles and other assets (Note 5)                  33,212     26,856
    Non-current assets held for sale (Note 14)                  -     33,739
    -------------------------------------------------------------------------
                                                        1,298,935  1,205,939
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current
      Bank indebtedness                                    15,168     25,260
      Operating loans                                         243        337
      Accounts payable and accrued liabilities             35,556     50,970
      Dividends payable                                     1,485          -
      Income taxes payable                                 27,714      5,599
      Current portion of deferred drilling
       advance (Note 6)                                         -      1,127
      Current portion of obligations under capital leases   3,804      3,156
      Current portion of long-term debt (Note 7)            8,116     15,615
      Current liabilities held for sale (Note 14)               -      5,937
    -------------------------------------------------------------------------
                                                           92,086    108,001
    Deferred drilling advance (Note 6)                          -      3,333
    Deferred net revenue                                    1,647      1,647
    Obligations under capital leases                        3,923      5,330
    Long-term debt (Note 7)                                28,667    130,951
    Future income taxes                                    71,376     55,995
    Non-current liabilities held for sale (Note 14)             -      5,374
    -------------------------------------------------------------------------
                                                          197,699    310,631
    -------------------------------------------------------------------------

    Non-controlling interest (Note 4(c))                        -      3,214
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Share capital (Note 9(b))                             796,623    771,495
    Contributed surplus (Note 9(c))                         9,910      5,834
    Retained earnings                                     294,703    114,765
    Accumulated other comprehensive income                      -          -
    -------------------------------------------------------------------------
                                                        1,101,236    892,094
    -------------------------------------------------------------------------
                                                        1,298,935  1,205,939
    -------------------------------------------------------------------------


    Consolidated Statement of Cash Flows

    For the Three and Nine Months Ended September 30, 2007 and 2006
    (In thousands) (Unaudited)
    -------------------------------------------------------------------------
                                    Three Months Ended     Nine Months Ended
                                        September 30          September 30
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
                                          $          $          $          $
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING
    ACTIVITIES
      Net earnings from continuing
       operations                    12,581     12,466     40,668     23,472
      Items not affecting cash:
        Depreciation                  8,474      5,237     22,290     10,310
        Amortization of intangible
         and other assets               792        359      2,208        406
        Future income taxes           5,185      3,677     14,323      8,650
        Stock-based compensation      1,632        993      4,356      2,698
        Loss on disposal of assets       30         (6)         4         43
        Settlement of deferred
         drilling advances (Note 6)       -          -     (2,197)         -
        Non-controlling interest          -        (52)       652        (52)
    -------------------------------------------------------------------------
                                     28,694     22,674     82,304     45,527
      Change in non-cash working
       capital from continued
       operations                   (39,607)    (6,836)   (22,327)     4,285
    -------------------------------------------------------------------------
      Cash flows from continuing
       operations                   (10,913)    15,838     59,977     49,812
    -------------------------------------------------------------------------
      Net earnings from discontinued
       operations                         -      2,359        330     11,314
      Items not affecting cash:
        Depreciation                      -      1,122         42      3,262
        Future income taxes               -         46        588         88
        Stock-based compensation          -        171        665        406
        Gain on disposal of assets        -        (32)         -       (111)
    -------------------------------------------------------------------------
                                          -      3,666      1,625     14,959
      Change in non-cash working
       capital from discontinued
       operations                         -     (4,998)     4,630     (7,202)
    -------------------------------------------------------------------------
      Cash flows from discontinued
       operations                         -     (1,332)     6,255      7,757
    -------------------------------------------------------------------------
      Total cash flows from
       operating activities         (10,913)    14,506     66,232     57,569
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING
     ACTIVITIES
      Shares issued on exercise
       of stock options (Note 9(b))     634      1,838      2,414      3,860
      Advances on operating loans,
       net of repayments                143      1,678        (94)     1,678
      Repayment of deferred drilling
       advance (Note 6)                   -          -     (2,264)         -
      Repayment of capital lease
       obligations                     (978)      (292)    (2,644)      (857)
      Issuance of long-term debt     20,000     25,000     27,250     63,000
      Repayment of long-term debt    (2,925)   (15,690)  (137,033)   (41,169)
      Change in working capital
       related to financing
       activities                         -       (632)         -       (631)
    -------------------------------------------------------------------------
      Cash flows from continuing
       financing activities          16,874     11,902   (112,371)    25,881
    -------------------------------------------------------------------------
      Repayment of capital lease
       obligations                        -       (427)               (1,036)
      Cash paid on acquisition and
       cancellation of options
       (Note 9(c))                        -          -       (520)         -
    -------------------------------------------------------------------------
      Cash flows from discontinued
       financing activities               -       (427)      (520)    (1,036)
    -------------------------------------------------------------------------
      Total cash flows from
       financing activities          16,874     11,475   (112,891)    24,845
    -------------------------------------------------------------------------

    CASH FLOWS FROM INVESTING
     ACTIVITIES
      Purchase of capital assets    (25,266)   (43,504)   (93,966)   (86,089)
      Proceeds on disposal of
       assets                           142         30        383         79
      Cash paid on acquisitions,
       net of cash acquired (Note 4) (1,919)    (1,552)   (55,637)    (1,552)
      Cash received on sale of
       discontinued operations, net
       of costs (Note 14)                 -          -    207,899          -
      Change in working capital
       related to investing
       activities                       830      5,312     (4,873)     1,297
      Purchase of other assets            -          5          -        (75)
    -------------------------------------------------------------------------
      Cash flows from continuing
       investing activities         (26,213)   (39,709)    53,806    (86,340)
    -------------------------------------------------------------------------
      Purchase of capital assets          -     (1,086)      (149)    (3,835)
      Proceeds on disposal of assets      -        135          -        507
      Change in cash held for
       disposal                           -      2,697          -     (4,331)
    -------------------------------------------------------------------------
      Cash flows from discontinued
       investing activities               -      1,746       (149)    (7,659)
    -------------------------------------------------------------------------
      Total cash flows from
       investing activities         (26,213)   (37,963)    53,657    (93,999)
    -------------------------------------------------------------------------

    INCREASE (DECREASE) IN
     CASH, NET OF BANK INDEBTEDNESS (20,252)   (11,982)     6,998    (11,585)
    CASH, NET OF BANK INDEBTEDNESS,
     BEGINNING OF PERIOD             10,249     (6,717)   (17,001)    (7,114)
    -------------------------------------------------------------------------
    CASH, NET OF BANK INDEBTEDNESS,
     END OF PERIOD                  (10,003)   (18,699)   (10,003)   (18,699)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Notes to the Consolidated Financial Statements
    For the Three and Nine Months Period Ended September 30, 2007
    (In thousands) (Unaudited)

    -------------------------------------------------------------------------

    1.  DESCRIPTION OF BUSINESS

    Savanna Energy Services Corp. (the "Company") was incorporated under the
    Alberta Business Corporations Act on March 22, 2001, to provide a variety
    of services in the oil and natural gas industry. Savanna primarily
    operates through the following operating companies, all of which are 100%
    owned subsidiaries of Savanna: Great Plains Well Servicing Corp. ("Great
    Plains"), Accell Well Services ("Accell") (a division of Great Plains),
    Trailblazer Drilling Corp. ("Trailblazer") and Western Lakota Energy
    Services Inc. ("Western Lakota"). The Company's well servicing division
    is operated through Great Plains and Accell and its drilling division is
    operated through Trailblazer and Western Lakota. Western Lakota operates
    through a number of subsidiaries and limited partnerships.

    2.  BASIS OF PRESENTATION

    The interim consolidated financial statements of Savanna have been
    prepared by management in accordance with Canadian generally accepted
    accounting principles ("GAAP"). The preparation of consolidated financial
    statements in conformity with GAAP requires management to make estimates
    and assumptions that affect the amounts reported in the consolidated
    financial statements and accompanying notes. Actual results could differ
    from those estimates. In the opinion of management, the interim
    consolidated financial statements contain all adjustments of a normal and
    recurring nature necessary to present fairly the financial position as at
    September 30, 2007 and the results of operations and the statement of
    cash flows for the three and nine month periods ended September 30, 2007
    and 2006.

    The results of operations and cash flows for the three and nine month
    periods ending September 30, 2007 include the results of Accell, Bear
    Steam Ltd. ("Bear Steam"), Akuna Drilling Trust ("Akuna") and Command
    Coil Services Limited Partnership ("Command") from their dates of
    acquisition (Note 4). Financial results and information for 2006 shown
    for comparative purposes are based on Savanna's historical information
    which does not include Western Lakota prior to the date of acquisition,
    August 25, 2006.

    Earnings for Ultraline Services Corporation ("Ultraline") for the one
    month ending January 31, 2007, have been included in net earnings from
    discontinued operations in the consolidated statement of earnings
    (Note 14). For comparative purposes, net earnings for the period ending
    September 30, 2006 have been restated to reflect the discontinuation of
    this division and the assets and liabilities relating to Ultraline at
    December 31, 2006 have been shown as assets and liabilities held for
    sale.

    Certain information and disclosures normally required to be included in
    notes to annual financial statements have been condensed or omitted and
    as such these interim financial statements should be read in conjunction
    with the most recent annual financial statements.

    3.  SIGNIFICANT ACCOUNTING POLICIES

    The significant accounting policies are the same as those set out in the
    most recent annual financial statements, other than the new accounting
    standards issued by the Canadian Institute of Chartered Accountants
    ("CICA") shown in sections a) through d) below. These accounting policy
    changes were adopted on a prospective basis on January 1, 2007, with no
    restatement of prior period financial statements. The new standards and
    accounting policy changes are as follows:

    a)  FINANCIAL INSTRUMENTS (CICA HANDBOOK SECTION 3855 and 3861)

    In accordance with this new standard, all financial instruments must
    initially be recognized at fair value on the balance sheet and classified
    into the following categories: held for trading financial assets and
    financial liabilities, loans or receivables, held to maturity
    investments, available for sale financial assets, and other financial
    liabilities. Subsequent measurement of the financial instruments are
    based on their classification. Unrealized gains and losses on held for
    trading financial instruments are recognized in earnings. Gains and
    losses on available for sale financial assets are recognized in other
    comprehensive income and are transferred to earnings when the instrument
    is settled. The other categories of financial instruments are recognized
    at amortized cost using the effective interest rate method. Any
    transaction costs with respect to financial instruments are expensed in
    the period incurred.

    The Company's financial instruments consist of cash, accounts receivable,
    notes receivable, bank indebtedness, operating loans, accounts payable
    and accrued liabilities, obligations under capital lease and long-term
    debt. At January 1, 2007, all of the Company's financial instruments were
    classified as either held for trading, loans and receivables or other
    financial liabilities. The fair values of the Company's financial
    instruments were determined as follows:

    i.   The carrying amounts of cash, accounts receivable, bank
         indebtedness, operating loans and accounts payable and accrued
         liabilities approximates their fair values due to the immediate or
         short term maturity of these financial instruments.

    ii.  The fair values of the Company's notes receivable, obligations under
         capital lease and long-term debt are estimated based on quoted
         market prices for the same or similar issues or on the current rates
         offered to the Company for similar financial instruments subject to
         similar risks and maturities. The fair values of these financial
         instruments are not materially different from their carrying
         amounts.

    Embedded derivatives are derivatives embedded in a host contract. They
    are recorded separately from the host contract when their economic
    characteristics and risks are not clearly and closely related to those of
    the host contract, the terms of the embedded derivative are the same as
    those of a freestanding derivative and the combined contract is not
    classified as held for trading or designated at fair value. At January 1,
    2007 and for the nine month period ended September 30, 2007, the Company
    had no embedded derivatives requiring separate recognition.

    b)  COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (CICA
        HANDBOOK SECTIONS 1530 AND 3251)

    Comprehensive income consists of net earnings and other comprehensive
    income ("OCI"). OCI comprises the change in the fair value of the
    effective portion of the derivatives used as hedging items in a cash flow
    hedge and the change in fair value of any available for sale financial
    instruments. Amounts included in OCI are shown net of tax. Accumulated
    other comprehensive income is a new equity category comprised of the
    cumulative amounts of OCI. There were no such components to be recognized
    in comprehensive income for the nine month period ending September 30,
    2007.

    c)  HEDGES (CICA HANDBOOK SECTION 3865)

    The new standard specifies the criteria under which hedge accounting can
    be applied and how hedge accounting can be executed. The Company has not
    designated any hedging relationships for the nine month period ending
    September 30, 2007.

    d)  ACCOUNTING CHANGES

    The new recommendations permit voluntary changes in accounting policy
    only if they result in financial statements which provide more reliable
    and relevant information. Accounting policy changes are applied
    retroactively unless it is impractical to determine the period of
    cumulative impact of the change. Corrections of prior period errors are
    applied retroactively and changes in accounting estimates are applied
    prospectively by including these changes in earnings. The guidance was
    effective for all changes in accounting policies, changes in accounting
    estimates and corrections of prior period errors initiated in periods
    beginning on or after January 1, 2007.

    During 2007, the Company changed its revenue recognition policy with
    respect to cost recoveries billed to customers. Previously, one of the
    Company's subsidiaries had netted such revenue against the related cost.
    In order to be consistent among all subsidiaries, the Company applied the
    recommendations of CICA Emerging Issues Committee Abstract 123, Reporting
    Revenue Gross as a Principal Versus Net as an Agent ("EIC 123"). Under
    EIC 123, all of the Company's cost recoverable amounts are now recorded
    as revenue and operating expenses rather than being netted. As a result,
    revenue and operating expenses for the nine months ended September 30,
    2007 include an increase of $3,202 to account for expenditures recovered
    during the three months ended March 31, 2007. There was no effect on
    earnings as a result of this change. The change was applied
    retroactively; however, no changes were required for the three and nine
    month periods ending September 30, 2006.

    e)  OTHER ASSETS

    Other assets include rig re-certification costs which are being amortized
    over their expected useful lives (3-4 years). Amortization expense
    related to re-certification costs is included in operating expenses in
    the consolidated financial statements (Note 5).

    4.  BUSINESS ACQUISITIONS

    a)  On February 16, 2007, Savanna purchased the assets of Accell Well
        Services Ltd. for total consideration of $61,894. Total consideration
        was comprised of $46,300 of cash and 839 common shares of Savanna
        priced at $18.47 per share, net of acquisition costs of $94.

    b)  On February 16, 2007, Savanna completed the acquisition of all the
        outstanding shares of Bear Steam Ltd. for total consideration of
        $6,000. The acquisition was funded with $4,500 of cash and 81 common
        shares of Savanna priced at $18.47 per share.

    c)  On June 1, 2007, Savanna completed the acquisition of the 14%
        minority interest of one of its subsidiaries, Akuna Drilling Trust,
        held by First Nation and Métis Nation communities and associations.
        As a result of the transaction, Savanna now owns 100% of Akuna. The
        acquisition was funded with $2,984 of cash and 255 common shares of
        Savanna priced at $21.81 per share, for total consideration of
        $8,549.

    d)  On July 26, 2007, Savanna acquired 50% of Command Coil Services
        Limited Partnership held by a First Nation's partner which included
        five coiled tubing service units for a net purchase price of $2,000
        in cash. As a result of the transaction, Savanna now owns 100% of the
        8 units operating in this fleet.

    All acquisitions have been accounted for using the purchase method with
    the results of operations being included in the consolidated financial
    statements from the date of acquisition. Savanna shares issued on all the
    acquisitions were valued at the average closing price of Savanna shares
    for the five-day period before the closing date of the acquisitions.

    The purchase allocations are as follows:

    -------------------------------------------------------------------------
                                          Bear
                              Accell     Steam     Akuna   Command     Total
                                   $         $         $         $         $
    -------------------------------------------------------------------------
    Net assets acquired:
      Cash                         -       160         -        81       241
      Non-cash working capital     -      (160)   (3,717)   (1,092)   (4,969)
      Settlement of note
       receivable                  -         -         -      (575)     (575)
      Capital assets          51,020     2,865     7,517     3,478    64,880
      Intangibles(*)           4,821     1,558         -         -     6,379
      Goodwill(*)              6,053     2,067     4,866     1,398    14,384
      Obligations under
       capital leases              -         -         -    (1,290)   (1,290)
      Long-term debt               -         -      (117)        -      (117)
      Future income taxes          -      (490)        -         -      (490)
    -------------------------------------------------------------------------
                              61,894     6,000     8,549     2,000    78,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consideration
      Common shares issued    15,500     1,500     5,565         -    22,565
      Cash                    46,300     4,500     2,984     2,000    55,784
      Payable subsequent
       to closing                 94         -         -         -        94
    -------------------------------------------------------------------------
    Total consideration       61,894     6,000     8,549     2,000    78,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (*) Intangibles and
        goodwill deductible
        for tax                8,155         -         -         -     8,155
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  INTANGIBLES AND OTHER ASSETS

                         September 30, 2007            December 31, 2006
    -------------------------------------------------------------------------
                               Accum-                        Accum-
                              ulated       Net              ulated       Net
                              Amorti-     Book              Amorti-     Book
                      Cost    zation     Value      Cost    zation     Value
                         $         $         $         $         $         $
    -------------------------------------------------------------------------
    Intangible
     assets         33,770     2,743    31,027    27,391       535    26,856
    Other assets
     (Note 3(e))     2,502       317     2,185         -         -         -
    -------------------------------------------------------------------------
                    36,272     3,060    33,212    27,391       535    26,856
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization expense of $317 (2006 - nil) relating to other assets has
    been included in operating expenses in the consolidated financial
    statements for the three and nine month periods ending September 30,
    2007.

    6.  DEFERRED DRILLING ADVANCE

    During 2007, the Company settled the outstanding balance of its deferred
    drilling advance of $4,461 for $2,264 and the remaining $2,197 has been
    included in revenue in the consolidated financial statements for the nine
    month period ending September 30, 2007. The advance was received from a
    customer and used towards the construction of five drilling rigs that are
    owned by the Company. These five rigs were to drill for this customer
    under three-year term contracts. By settling the outstanding balance,
    these contracts have been considered cancelled.

    7.  LONG-TERM DEBT

                                                                 December 31,
                                 September 30, 2007                     2006
    -------------------------------------------------------------------------
                   Monthly
                 Principal                                     Out-    Out-
                  Payments  Interest   Maturity  Authorized standing standing
                        $       Rate       Date         $         $        $
    -------------------------------------------------------------------------
    Savanna
      Term loans       80     L+2.75%    Mar-07         -         -      240
      Term revolving
       credit
       facility (a)     -  P to P+0.75%     (a)   250,000    20,000  125,000
      Term non-
       revolving                         May-09-
       loans          527  6.0 to 6.56%  Oct-09    10,963    10,963   15,534
      Mortgage                              (b)         -         -      955
    -------------------------------------------------------------------------
                                                  260,963    30,963  141,729
    -------------------------------------------------------------------------

    Limited
     partnership
     facilities (c)
                                         Jul-08-
      Term loans       89  4.7 to 7.25%  Feb-12     4,503     4,503    2,980
      Term non-
       revolving
       loans           60    P+0.75%     Aug-09     1,317     1,317    1,857
    -------------------------------------------------------------------------
                                                    5,820     5,820    4,837
    -------------------------------------------------------------------------

    Total long-term debt                          266,783    36,783  146,566
    Less:current portion of long-term debt                    8,116   15,615
    -------------------------------------------------------------------------
                                                             28,667  130,951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    "P" denotes prime rate, which was 6.25% at September 30, 2007 and 6% at
        December 31, 2006.
    "L" denotes lenders' borrowing rate.

    a)  The entire facility, which is with a syndicate of banks, is renewed
        every 365 days at the bank's discretion; however, if it is not
        renewed on the annual renewal date (September 26th), the facility
        reverts to a three-year term loan with a four-year amortization,
        requiring quarterly payments. During the third quarter of 2007, the
        facility was renewed resulting in a new annual renewal date of
        September 26, 2008 and a maturity date of September 26, 2011.

        Included in the $250,000 facility is $10,000 which is committed to
        the swing-line operating facility included in bank indebtedness in
        the consolidated financial statements. At September 30, 2007, $10,664
        (December 31, 2006 - $10,075) was drawn on the swing-line operating
        facility. On October 3, 2007, Savanna made a $5,000 draw on its
        revolving facility to replenish the swing-line.

        The $10,000 interest rate swap included in the term revolving credit
        facility at December 31, 2006 was unwound during the first quarter of
        2007 and a charge of $34 has been included in interest on long-term
        debt and capital leases for the nine-month period ending
        September 30, 2007.

    b)  The mortgage payable matured on September 30, 2007 at which time the
        Company decided not to renew and the amount owing was paid in full.

    c)  During 2007, a limited partnership entered into a loan agreement for
        $2,250 with a financial institution that has a common director of the
        Company.

    The Company's effective interest rate on all its fixed-rate long-term
    debt approximates actual rates.

    8.  COMMITMENTS

    The Company has commitments for office and shop premises and various
    operating vehicles and equipment leases and purchases. Payments required
    in each of the next five years are as follows:
                                                                 $
           -------------------------------------------------------
           For the 12 months
           ending September 30,  2008                       19,607
                                 2009                        2,568
                                 2010                        1,284
                                 2011                        1,211
                                 2012                          968
           -------------------------------------------------------
                                                            25,638
           -------------------------------------------------------
           -------------------------------------------------------

    9.  SHARE CAPITAL

    a)  AUTHORIZED

    The Company has authorized an unlimited number of common shares, Class A
    common shares, and preferred shares.

    b)  ISSUED
                                                        Number of
                                                           Shares          $
    -------------------------------------------------------------------------
    Common shares
    Balance December 31, 2006                              57,919    771,495
    Issued for cash on exercise of stock options              314      2,414
    Fair value of stock options exercised                       -        149
    Shares issued on acquistions (Note 4)                   1,175     22,565
    -------------------------------------------------------------------------
    Balance September 30, 2007                             59,408    796,623
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company has 5,179 (December 31, 2006 - 5,542) common shares reserved
    for issue upon exercise of stock options.

    c)  CONTRIBUTED SURPLUS
                                                                           $
    -------------------------------------------------------------------------
    Balance December 31, 2006                                          5,834
    Stock-based compensation - continued operations                    4,080
    Stock-based compensation - discontinued operations (Note 14)         665
    Fair value of options exercised (reclassified to share capital)     (149)
    Repurchase and cancellation of options                              (520)
    -------------------------------------------------------------------------
    Balance September 30, 2007                                         9,910
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During 2007, the Company paid $520 in cash for the purchase and
    cancellation of Savanna options held by Ultraline employees (Note 14).

    d)  DEFERRED SHARE UNIT PLAN

    In 2006, the Company implemented a deferred share unit ("DSU") plan for
    directors outside of the Company. The DSU's are granted annually and
    represent rights to share value based on the number of deferred share
    units issued. Under the terms of the plan, DSU's awarded will vest
    immediately and will be settled with cash in the amount equal to the
    closing price of the Company's common shares on the date the director
    ceases to be a director of the Company.

    During 2007, the Company implemented a DSU plan for officers and issued
    27 units which vest equally over a three-year term on their anniversary
    date. Within 120 days of termination of an officer, the Company is
    required to pay a lump-sum payment to the officer equal to the number of
    vested DSU's multiplied by the closing price of the Company's common
    shares on the settlement date.

    During the first nine months of 2007, $276 has been recorded in stock
    compensation expense relating to DSU's (2006 - nil) and 4 DSU's were
    settled in cash totalling $76 to an outside director. There were 55 units
    (2006 - nil) outstanding and 28 units vested at the end of the current
    period with a corresponding liability of $579 (2006 - $Nil) included in
    accounts payable and accrued liabilities.

    e)  STOCK OPTION PLAN

    The Company has a stock option plan for the purpose of developing the
    interest of directors, officers, employees and consultants of the Company
    and its subsidiaries in the growth and development of the Company by
    providing them with the opportunity, through stock options, to acquire an
    increased proprietary interest in the Company.

                                           2007                  2006
    -------------------------------------------------------------------------
                                              Weighted              Weighted
                                               Average               Average
                                              Exercise              Exercise
                                                 Price                 Price
                                      Share (per share)     Share (per share)
                                    Options          $    Options          $
    -------------------------------------------------------------------------

    Outstanding, beginning of period  1,946      17.41      1,659      11.67
      Granted                           950      18.88        333      24.91
      Converted on acquisition            -          -      1,206      12.76
      Exercised                        (363)      8.44       (883)      4.37
      Cancelled                        (240)     22.82        (86)     20.31
    -------------------------------------------------------------------------
    Outstanding, end of period        2,293      18.87      2,229      16.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    At September 30, 2007, 2,293 (2006 - 2,229) options were outstanding at
    exercise prices between $3.00 and $28.60 per share. The options expire
    from October 31, 2007 to May 25, 2011 and vest in equal amounts on their
    anniversary over three to five years. At September 30, 2007, 743 (2006 -
    545) options were exercisable at a weighted average exercise price of
    $14.96. The following table summarizes these details:

                                             At September 30, 2007
    -------------------------------------------------------------------------
                                                         Weighted
                                             Number of    Average  Number of
                                   Exercise    Options   Contract    Options
                                      Price       Out-  -ual Life     Exerc-
                                 (per share)  standing     (years)   iseable
    -------------------------------------------------------------------------
                              $3.00 - $4.50         43        0.1         43
                              $4.51 - $6.75         85        0.1         85
                             $6.76 - $10.00         69        0.5         69
                            $10.01 - $15.00        115        1.7        115
                            $15.01 - $22.50      1,402        2.8        269
                            $22.51 - $28.60        579        2.8        162
    -------------------------------------------------------------------------
                                                 2,293        2.6        743
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Compensation expense for stock options is recognized using the fair value
    when the stock options are granted, and is amortized over the option's
    vesting period. For options granted during the period ended September 30,
    2007, the Company used the Black-Scholes option pricing model with the
    following assumptions : risk-free interest rate of 4.0% (2006 - 5.25%),
    expected life of 3.5 years (2006 - 4.0 years), no annual dividends paid,
    and expected volatility of 35% (2006 - 33%).

    Compensation expense from continuing operations and relating to stock
    options of $4,080 (2006 - $3,104) has been recognized in the consolidated
    statement of earnings for the nine month period ending September 30,
    2007.

    f)  RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING

                                     Three Months Ended    Nine Months Ended
                                        September 30          September 30
                                      Number of Shares      Number of Shares
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Basic weighted average shares
     outstanding                     59,354     40,605     58,953     32,956
    Effect of dilutive securities:
      Stock options                       -      1,012         22        866
    -------------------------------------------------------------------------
    Diluted weighted average
     shares outstanding              59,354     41,617     58,975     33,822
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The effect of dilutive securities with respect to stock options is that
    1,341 options are assumed exercised (2006 - 2,065 options) and 1,319
    shares are assumed purchased (2006 - 1,199 shares). In the third quarter
    of 2007, the effect of dilutive securities was anti-dilutive resulting in
    the same weighted average shares outstanding on both a basic and diluted
    basis.

    10. SEGMENTED INFORMATION

    The Company's reportable operating segments, as determined by management,
    are strategic operating units that offer different products and services.
    The Company has three reportable operating segments: corporate, service
    rigs, and drilling.

    The corporate segment provides management and administrative services to
    all its subsidiaries and their respective operations.

    The service rig segment provides well servicing services to the oil and
    gas industry.

    The drilling segment provides primarily contract drilling services to the
    oil and gas industry through both conventional and hybrid drilling rigs.

                            Three Months Ended September 30, 2007
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Oilfield services                     -     15,319     78,416     93,735
    -------------------------------------------------------------------------

    Operating costs
    Oilfield services                     -      9,983     48,128     58,111
    -------------------------------------------------------------------------

    Operating margin                      -      5,336     30,288     35,624
    --------------------------------------------------------------
    Expenses
      General and administrative                                       3,353
      Stock-based compensation                                         1,632
      Depreciation and amortization                                    9,266
                                                                   ----------
    Earnings from continuing operations                               21,373
                                                                   ----------
                                                                   ----------

    Goodwill                              -     15,789    422,414    438,203
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                   13,363    115,607    590,410    719,380
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              3,708      1,367     17,434     22,509
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                            Three Months Ended September 30, 2006
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Rig sales                             -          -      2,250      2,250
    Oilfield services                     -      9,220     58,572     67,792
    -------------------------------------------------------------------------
                                          -      9,220     60,822     70,042
    -------------------------------------------------------------------------
    Operating costs
    Rig sales                             -          -      1,642      1,642
    Oilfield services                     -      4,966     34,868     39,834
    -------------------------------------------------------------------------
                                          -      4,966     36,510     41,476
    -------------------------------------------------------------------------
    Operating margin                      -      4,254     24,312     28,566
    --------------------------------------------------------------
    Expenses
      General and administrative                                       2,586
      Stock-based compensation                                           993
      Depreciation and amortization                                    5,341
                                                                   ----------
    Earnings from continuing operations                               19,646
                                                                   ----------
                                                                   ----------

    Goodwill                              -      6,338    422,580    428,918
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                    9,111     45,771    504,903    559,785
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures                758      2,730     40,214     43,702
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             Nine Months Ended September 30, 2007
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Oilfield services                     -     43,522    225,055    268,577
    Other                               848         26      2,197      3,071
    -------------------------------------------------------------------------
                                        848     43,548    227,252    271,648
    -------------------------------------------------------------------------
    Operating costs
    Oilfield services                     -     28,798    135,983    164,781
    -------------------------------------------------------------------------

    Operating margin                    848     14,750     91,269    106,867
    --------------------------------------------------------------
    Expenses
      General and administrative                                      12,003
      Stock-based compensation                                         4,356
      Depreciation and amortization                                   24,498
                                                                   ----------
    Earnings from continuing operations                               66,010
                                                                   ----------
                                                                   ----------

    Goodwill                              -     15,789    422,414    438,203
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                   13,363    115,607    590,410    719,380
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              8,824     10,915     74,841     94,580
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             Nine Months Ended September 30, 2006
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Rig sales                             -          -      2,250      2,250
    Oilfield services                     -     26,777    124,180    150,957
    -------------------------------------------------------------------------
                                          -     26,777    126,430    153,207
    -------------------------------------------------------------------------
    Operating costs
    Rig sales                             -          -      1,642      1,642
    Oilfield services                     -     15,133     77,027     92,160
    -------------------------------------------------------------------------
                                          -     15,133     78,669     93,802
    Operating margin                      -     11,644     47,761     59,405
    --------------------------------------------------------------
    Expenses
      General and administrative                                       6,865
      Stock-based compensation                                         2,698
      Depreciation and amortization                                   10,414
                                                                   ----------
    Earnings from continuing operations                               39,428
                                                                   ----------
                                                                   ----------

    Goodwill                              -      6,338    422,580    428,918
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                    9,111     45,771    504,903    559,785
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              2,100      8,893     75,892     86,885
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11.  SEASONALITY OF OPERATIONS

    The majority of the Company's operations are carried on in Canada. The
    ability to move heavy equipment in the north often depends upon whether
    the ground is frozen enough to support the equipment. Additionally, as
    the ground thaws in the spring ("spring break-up"), road bans are often
    placed on secondary roads to limit movement of heavy equipment until they
    are dry enough to support the equipment. The timing of freeze-up and
    spring break-up has an impact on the activity levels of the Company and
    its operating results.

    12. CONTINGENCIES

    At September 30, 2007, the Company was subject to legal claims and
    although the outcome of these matters is not determinable at this time,
    the Company believes the claims will not have any material adverse effect
    on the Company's financial position or results of its operations.

    13. RELATED PARTY TRANSACTIONS

    Except as disclosed elsewhere, during the nine-month period ended
    September 30, 2007:

    a)  Lease revenue, management fees and other fees in the amount of $2,402
        (2006 - $98), net of inter-company eliminations, were received from
        partnerships that are owned 50% by the Company. Lease amounts have
        been recorded as revenue and management and other fees have been
        recorded as a reduction of either operating expenses or general and
        administrative expenses in the consolidated statement of earnings.

    b)  In 2006, management and other fees in the amount of $136 (2007 - Nil)
        were paid to a partnership that is 50% owned by the Company. The
        amount was included in operating expenses for the period ending
        September 30, 2006.

    c)  In 2006, the Company sold a 50% interest in a drilling rig (cost
        $3,800) to a limited partnership. The rig was sold in exchange for
        50% of the previously unissued partnership units of the limited
        partnership and cash.

    The related party transactions in (a) and (b) above were in the normal
    course of operations and have been measured at the exchange amounts,
    which are the amounts of consideration established and agreed to by the
    related parties and which, in the opinion of management, are considered
    similar to those negotiable with third parties. The related party
    transaction in (c) above was not in the normal course of operations and
    has been recorded in these financial statements at the carrying amount of
    the asset.

    14. DISCONTINUED OPERATIONS

    Effective January 31, 2007, the Company closed the sale of its wireline
    division, Ultraline Services Corporation, for net proceeds of $209,017.

    Immediately prior to the sale, Ultraline declared and paid a dividend of
    $5,500 to Savanna as contemplated under the purchase and sale agreement
    which has been eliminated upon consolidation of the financial statements
    for the current period. Also included in the sale were specific real
    estate assets and office equipment owned by Savanna.

    Revenue from discontinued operations for the nine month period ended
    September 30, 2007 was $6,011 (2006 - $46,140). Net earnings from
    discontinued operations was $330 (2006 - $11,314) net of tax of $1,175
    (2006 - $4,433). Stock compensation expense of $665 (2006 - $406) has
    been included in net earnings from discontinued operations for the
    current period and relates primarily to the remaining unamortized portion
    of stock compensation relating to options held by Ultraline employees
    (Note 9(c)).

    The gain on sale of discontinued operations was based on net proceeds of
    $209,017 comprised of $208,000 in cash and a working capital adjustment
    of $1,118 net of $101 in legal and property tax expenses. The net book
    value of Savanna's interest in Ultraline and the related assets that were
    sold on January 31, 2007 was $36,606, resulting in a gain of $172,411
    ($140,425 net of tax). At September 30, 2007, income taxes on the gain of
    $31,986 have been included in income taxes payable.

    15. SUBSEQUENT EVENT

    Subsequent to the end of the third quarter, the Alberta government
    announced adjustments to the oil & gas royalty structure in Alberta. The
    effect of this announcement on the Company is not determinable at this
    time.

    Savanna will hold a conference call for analysts, investors and
    interested parties on Wednesday, November 7, 2007 at 9:00 A.M. Mountain
    Time (11:00 A.M. Eastern Time) to discuss the Company's 2007 third
    quarter results. The call will be hosted by Ken Mullen, Savanna's
    President and Chief Executive Officer and Darcy Draudson, Chief Financial
    Officer.

    If you wish to participate in this conference call, please call
    1-888-892-3255 (for participants in North America). Please call at least
    10 minutes ahead of time.

    A replay of the call will be available until November 14, 2007 by dialing
    1-800-937-6305 and entering passcode 798996.

    Savanna Energy Services Corp. is a leading North American 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 for the North American market and industry-leading
    aboriginal relationships.
    

    %SEDAR: 00019742E




For further information:

For further information: Ken Mullen, President and Chief Executive
Officer, Telephone: (403) 267-6726, Fax: (403) 267-6749; or Darcy Draudson,
Chief Financial Officer, Telephone: (403) 267-6727, Fax (403) 267-6749

Organization Profile

Savanna Energy Services Corp.

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