Savanna Announces Second Quarter Results



    TSX - SVY

    CALGARY, Aug. 9 /CNW/ - Savanna is pleased to report its results for its
second quarter ended June 30, 2007.

    
    Financial Highlights

    (Stated in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                        Three Months Ended           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    Operating results
    Revenue(*)          $ 39,097  $ 20,067    95%  $177,914  $ 83,166   114%
    Operating
     margin(1)(*)       $  8,826  $  3,887   127%  $ 71,244  $ 30,840   131%
    Operating cashflows
     from continuing
     operations before
     changes in
     working capital(1) $  4,534  $  1,465   209%  $ 53,610  $ 22,853   135%
      Per diluted share $   0.08  $   0.05    60%  $   0.91  $   0.77    18%
    Net earnings (loss)
     from continuing
     operations         $ (3,493) $ (1,015) (244%) $ 28,087  $ 11,006   155%
      Per share: basic  $  (0.06) $  (0.03) (100%) $   0.48  $   0.38    26%
      Per share:
       diluted          $  (0.06) $  (0.03) (100%) $   0.48  $   0.37    30%
    Net earnings (loss) $ (3,650) $      2      -  $168,842  $ 19,961   746%
      Per share: basic  $  (0.06)     0.00      -  $   2.87  $   0.68   322%
      Per share:
       diluted          $  (0.06)     0.00      -  $   2.87  $   0.67   328%
    -------------------------------------------------------------------------
    (*) 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 six months ended June 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 operating margin
        as a result of this change. The change was applied retroactively;
        however no changes were required for the three and six month periods
        ending June 30, 2006.


    Operational Highlights

    -   During the first six months of 2007 Savanna was the second busiest
        driller on a wells drilled basis, drilling 1,561 wells, a 20.1%
        market share. Savanna's fleet constitutes 10% of the drilling rigs
        available in Canada.

    -   We continued to expand our presence in the U.S. drilling market
        increasing our active rig count to five, including one coil hybrid
        drilling rig. A second hybrid rig was added to the U.S. fleet after
        the quarter.

    -   We consolidated our ownership in Akuna Drilling, acquiring the 14% of
        this business we did not own previously.

    -   Subsequent to quarter end, on July 26, 2007, the Company acquired 50%
        of a partnership from a First Nations partner, which included
        5 coiled tubing servicing units and associated long-term debt and
        working capital for a net purchase price of $2.0 million. As a result
        of the transaction, Savanna now owns 100% of the 8 units operating in
        this operating fleet.

    -   We established a partnership structure with a First Nations community
        in respect of 2 service rigs, our first relating to well servicing.

    -   The well servicing division achieved a 55% increase in revenues in
        the second quarter of 2007 as a result of a 144% increase in fleet
        size and a 12% increase in hourly rates over 2006 levels. The well
        servicing division increased the average number of rigs in service
        from 18 in Q2, 2006 to 45 in Q2, 2007, and exited the quarter with
        45 rigs.

    -   The drilling division increased aggregate revenue by 92% and
        operating margins by 160% relative to 2006 due to an increase in
        drilling day rates and an increase in the average number of rigs
        deployed during the quarter from 35 to 81 (net), exiting the quarter
        with 83.5 rigs (net).

    

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

    This discussion focuses on key items from the unaudited, consolidated
financial statements of Savanna for the periods ending June 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 June 30 and
March 31, 2007. Additional information regarding the Company is available on
SEDAR at www.sedar.com. This MD&A is dated August 9, 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,
offset by the sale of Ultraline effective January 31, 2007, account for a
substantial portion of the increase in revenues for the three and six months
ended June 30, 2007 compared to the same period in 2006, with the expansion of
Savanna's pre-existing 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           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    Operating results
    Revenue(*)          $ 39,097  $ 20,067    95%  $177,914  $ 83,166   114%
    Operating
     expenses(*)        $ 30,271  $ 16,180    87%  $106,670  $ 52,326   104%
    Operating margin(1) $  8,826  $  3,887   127%  $ 71,244  $ 30,840   131%
    Operating
     margin %(1)             23%       19%    21%       40%       37%     8%
    Earnings (loss)
     from continuing
     operations(1)      $ (3,493) $ (1,015) (244%) $ 28,087  $ 11,006   155%
      Per share: basic  $  (0.06) $  (0.03) (100%) $   0.48  $   0.38    26%
      Per share:
       diluted          $  (0.06) $  (0.03) (100%) $   0.48  $   0.37    30%
    Earnings (loss)
     from continuing
     operations before
     stock compensation
     expense(1)         $ (1,865) $   (176) (960%) $ 30,812  $ 12,711   142%
      Per share: basic  $  (0.03) $  (0.01) (200%) $   0.52  $   0.43    21%
      Per share:
       diluted          $  (0.03) $  (0.01) (200%) $   0.52  $   0.43    21%
    -------------------------------------------------------------------------
    (*) 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 six months ended June 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 operating margin
        as a result of this change. The change was applied retroactively;
        however no changes were required for the three and six month periods
        ending June 30, 2006.


    (Stated in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                        Three Months Ended           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    Net earnings (loss)
     and gain from
     discontinued
     operations,
     net of tax         $   (157) $  1,017  (115%) $140,755  $  8,955  1472%
      Per share: basic  $      -  $   0.03      -  $   2.40  $   0.31   674%
      Per share:
       diluted          $      -  $   0.03      -  $   2.39  $   0.30   697%
    Net earnings (loss) $ (3,650) $      2      -  $168,842  $ 19,961   746%
      Per share: basic  $  (0.06) $   0.00      -  $   2.87  $   0.68   322%
      Per share:
       diluted          $  (0.06) $   0.00      -  $   2.87  $   0.67   328%

    Cash Flows
    Operating cashflows
     from continuing
     operations before
     changes in working
     capital(1)         $  4,534  $  1,465   209%  $ 53,610  $ 22,853   135%
    Capital expenditures
     from continuing
     operations         $(25,497) $(19,507)   31%  $(68,699) $(42,585)   61%


    -------------------------------------------------------------------------
                                              June 30   December 31
                                                2007        2006    % Change
    -------------------------------------------------------------------------
    Financial Position
    Working capital(1)                       $    8,608  $   36,531     (76%)
    Capital assets                           $  699,193  $  590,132      18%
    Total assets                             $1,242,724  $1,205,939       3%
    Long-term debt(*)                        $   27,034  $  155,052     (83%)
    -------------------------------------------------------------------------
    (*) 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 has been subject to significant
volatility in recent years. The prices of natural gas and oil have held at
historically high levels throughout the past three years due to a number of
domestic and international factors. This has resulted in historically high
drilling and completion activity throughout the Canadian basin as well.
Natural gas prices have weakened over the last few quarters and have had a
negative effect on the energy services industry. 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. In the medium and long term, the Company remains confident that it
will retain more than its share of the market.
    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 subsequent to the end of the second quarter,
bringing the total number of rigs operating in the United States to six.

    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.
    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
     of dollars)                    Accell   Bear Steam    Akuna      Total
    -------------------------------------------------------------------------

    Net assets acquired:
      Cash                         $      -   $    160   $      -   $    160
      Non-cash working capital     $      -   $   (160)  $ (3,717)  $ (3,877)
      Capital assets               $ 51,020   $  2,865   $  7,517   $ 61,402
      Intangibles                  $  4,821   $  1,558   $      -   $  6,379
      Goodwill                     $  6,053   $  2,067   $  4,866   $ 12,986
      Long-term debt               $      -   $      -   $   (117)  $   (117)
      Future income taxes          $      -   $   (490)  $      -   $   (490)
    -------------------------------------------------------------------------
                                   $ 61,894   $  6,000   $  8,549   $ 76,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consideration
      Common shares issued         $ 15,500   $  1,500   $  5,565   $ 22,565
      Cash                         $ 46,300   $  4,500   $  2,984   $ 53,784
      Payable subsequent
       to closing                  $     94   $      -   $      -   $     94
    -------------------------------------------------------------------------
    Total consideration            $ 61,894   $  6,000   $  8,549   $ 76,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    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
                                             June 30         New
                                                2007   Equipment       Total
    -------------------------------------------------------------------------
    Drilling Rigs
    Heavy and ultra-heavy telescoping doubles     38           4          42
    Hybrid drilling                               39           7          46
    Pipe-arm single                                1           -           1
    Conventional shallow/surface/coring           10           1          11
    -------------------------------------------------------------------------
    Total drilling rigs (gross)                   88          12         100
    Total drilling rigs (net)(*)                83.5        11.5          95
    -------------------------------------------------------------------------

    Service Rigs
    Service rigs(xx)                              45           7          52
    -------------------------------------------------------------------------
    Coil tubing service units (+/-)                8           -           8
    -------------------------------------------------------------------------
    (*)   9 drilling rigs are owned and two rigs are leased 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)  2 service rigs currently under construction have been included in
          inventory since they are 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 to 8 coil tubing
          service units from 5.5.


    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").


    (Stated in thousands of dollars, except revenue per operating day)
    -------------------------------------------------------------------------
                        Three Months Ended           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    Revenue(xxx)        $ 28,982  $ 15,086    92%  $146,639  $ 65,610   124%
    Operating
     expenses(xxx)      $ 22,942  $ 12,760    80%  $ 87,856  $ 42,159   108%
    Operating margin(1) $  6,040  $  2,326   160%  $ 58,783  $ 23,451   151%
    Number of operating
     days(*)               1,288       745    73%     6,266     3,209    95%
    Revenue per
     operating day      $ 22,502  $ 20,250    11%  $ 23,402  $ 20,446    14%
    Number of spud to
     release days(*)(xx)   1,078       667    62%     5,116     2,654    93%
    Wells drilled            360       434   (17%)    2,067     1,562    32%
    Total meters
     drilled             440,895   331,935    33% 1,773,900 1,180,541    50%
    Utilization(xx)          17%       22%   (23%)      40%       45%   (11%)
    Industry average
     utilization (+/-)       17%       36%   (53%)      38%       58%   (34%)
    -------------------------------------------------------------------------
    (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 six months ended June 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 operating
          margin as a result of this change. The change was applied
          retroactively; however no changes were required for the three and
          six month periods ending June 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 and spud to release days exclude Akuna drilling rigs as
          the operating environment is not comparable to Trailblazer's and
          Western Lakota's 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 experienced by the drilling division was
offset by the effect of a larger fleet and an increase in day rates, creating
an overall increase in revenues and operating margin for the three and
six month period ending June 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 higher than industry average utilization rate for the first
six months of 2007.
    During the second quarter of 2007, Savanna averaged a deployed fleet of
81 net rigs (2006 - 34) and exited the quarter operating a fleet of 83.5 net
rigs (2006 - 35 rigs).

    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 coil service units.

    
    (Stated in thousands of dollars, except revenue per hour)
    -------------------------------------------------------------------------
                        Three Months Ended           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    Revenue             $  7,745  $  4,981    55%  $ 28,204  $ 17,556    61%
    Operating expenses  $  7,329  $  3,420   114%  $ 18,814  $ 10,167    85%
    Operating margin(1) $    416  $  1,561   (73%) $  9,390  $  7,389    27%
    Number of hours        9,551     6,876    39%    33,065    22,016    50%
    Revenue per hour    $    811  $    724    12%  $    853  $    797     7%
    Utilization(*)(xx)       21%       41%   (49%)      41%       67%   (39%)
    -------------------------------------------------------------------------
    (*)  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 coil 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 and
higher rates per hour, offset by a decrease in utilization. Compared to 2006,
the utilization rate for the second quarter in 2007 was lower because of
weaker market conditions, resulting in reduced operating margins.
    During the second quarter of 2007, the well servicing division operated
an average of 44 service rigs, 5.5 coil service trucks and 23 boilers compared
to the same period in 2006 where the division operated an average of
18 service rigs and 12 boilers.
    The well servicing division exited the current quarter with 45 service
rigs, 5.5 coil service trucks, 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           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    From discontinued
     operations:
      Revenue           $      -  $  8,783      -  $  6,011  $ 33,786   (82%)
      Net earnings,
       net of tax       $      -  $  1,017      -  $    330  $  8,955   (96%)
      Gain on sale,
       net of tax       $   (157) $      -      -  $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 six 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 current period 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           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    From continuing
     operations:
      General and
       administrative
       expenses         $  4,127  $  2,373    74%  $  8,650  $  4,279   102%
        As a % of
         revenue             11%       12%    (8%)       5%        5%      -
      Depreciation and
       amortization     $  5,975  $  1,680   256%  $ 15,232  $  5,073   200%
      Interest expense  $    626  $    811   (23%) $  1,946  $  1,493    30%
      Foreign exchange
       loss and other
       expenses         $    520  $     16  3150%  $    381  $     43   786%
      Income tax expense
       (recovery)       $   (451) $   (817)  (45%) $ 13,571  $  7,241    87%
      Effective income
       tax rate              11%       45%   (76%)      32%       40%   (20%)
    -------------------------------------------------------------------------
    

    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 relatively 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 and the acquisitions of Accell and Bear Steam.
    The decrease in interest expense for the second 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 the second quarter of 2007.
    The reduction in the Company's effective income tax rate from the prior
year is primarily a result of Canadian tax rate reductions and expected
reductions in future income tax rates. Increases in overall tax expense from
2006 are a result of higher income from operations; in addition, as the
Company utilizes its tax pools, the percentage of current versus future taxes
also increases. 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

    
    -------------------------------------------------------------------------
                        Three Months Ended           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    Operating cashflows
     from continuing
     operations before
     changes in working
     capital(1)         $  4,534  $  1,465   209%  $ 53,610  $ 22,853   135%
      Per diluted share $   0.08  $   0.05    60%  $   0.91  $   0.77    18%
    Change in cash
     (net of bank
     indebtedness)      $  9,201  $ (4,295)  314%  $ 27,250  $    397  6764%
    -------------------------------------------------------------------------


    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 and acquisitions of
Accell and Bear Steam.

    (Stated in thousands of dollars)
    -------------------------------------------------------------------------
                                                   As At
                                            June 30    December 31
                                              2007        2006        Change
    -------------------------------------------------------------------------

    Working capital held outside of
     partnerships                           $  2,815    $ 28,242    $(25,427)
    Working capital held in partnerships(*) $  5,793    $  8,289    $ (2,496)
    -------------------------------------------------------------------------
    Working capital(1)                      $  8,608    $ 36,531    $(27,923)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) 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 June 30, 2007, there was $250 million available for use on the
Company's term revolving loan.

    INVESTING ACTIVITIES

    (Stated in thousands of dollars)
    -------------------------------------------------------------------------
                        Three Months Ended           Six Months Ended
                              June 30         %           June 30        %
                          2007      2006    Change    2007      2006   Change
    -------------------------------------------------------------------------
    From continuing
     operations:
      Capital asset
       additions        $(25,497) $(19,507)   31%  $(68,699) $(42,585)   61%
      Cash paid on
       acquisitions,
       net of cash
       acquired         $ (2,984) $      -      -  $(53,718) $      -      -
      Cash received
       on sale of
       discontinued
       operations,
       net of costs     $   (188) $      -      -  $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 $53.7 million paid on acquisitions relates to
the Accell, Bear Steam and Akuna 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          Six Months Ended
                              June 30        %           June 30         %
                          2007      2006   Change    2007      2006    Change
    -------------------------------------------------------------------------
    From continuing
     operations:
      Repayment of
       long-term debt  $ (6,944) $(16,240)  (57%) $(134,108) $(25,480)  426%
      Repayment of
       capital lease
       obligations     $   (759) $   (393)   93%  $  (1,667) $   (564)  196%
      Repayment of
       deferred
       drilling
       advance         $ (2,264) $      -      -  $  (2,264) $      -      -
      Issuance of
       long-term debt  $      -  $ 23,000      -  $   7,250  $ 38,000   (81%)
      Proceeds from
       stock options
       exercised       $  1,164  $  1,535   (24%) $   1,779  $  2,022   (12%)
    -------------------------------------------------------------------------


    -   Savanna had capital lease obligations and long term debt outstanding
        of $15.7 million (December 31, 2006 - $136.3 million) at June 30,
        2007, excluding the $11.4 million (December 31, 2006 - $18.8 million)
        current portions thereof.

    -   At the date of this report, no amounts were drawn on the Company's
        $250 million committed revolving debt facility.

    -   The average price of the stock options exercised in the first two
        quarters of 2007 was $8.84 (2006 - $4.28) per share.

    -   At the date of this report, the number of common shares outstanding
        was 59.3 million and the number of stock options outstanding was
        2.4 million, the proceeds from which, if exercised, would be
        $44.6 million.

    -   The Company issued 1,175,000 shares at and average price of $19.19 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 June 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 six months ended June 30, 2007, lease revenue, management fees
and other fees in the amount of $1.6 million, net of inter-company
eliminations (2006 - nil) 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
    -------------------------------------------------------------------------
                                  Jun-30      Mar-31      Dec-31     Sept-30
                                    2007        2007        2006        2006
                                       $           $           $           $
    -------------------------------------------------------------------------
    Revenue(xx)                   39,097     138,816      97,371      70,042
    Operating expenses(xx)        30,271      76,399      58,381      41,476
    Operating margin(1)            8,826      62,417      38,990      28,566
    Operating margin %(1)            23%         45%         40%         41%
    Net earnings (loss) from
     continuing operations        (3,493)     31,580      18,138      12,466
      Per diluted share            (0.06)       0.54        0.31        0.30
    Net earnings (loss)           (3,650)    172,492      19,812      14,825
      Per diluted share            (0.06)       2.94        0.34        0.36
    Total assets               1,242,724   1,290,303   1,205,939   1,156,048
    Long-term debt(*)             27,034      34,527     155,052     126,051
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                              Three Months Ended
    -------------------------------------------------------------------------
                                  Jun-30      Mar-31      Dec-31     Sept-30
                                    2006        2006        2005        2005
                                       $           $           $           $
    -------------------------------------------------------------------------
    Revenue(xx)                   20,066      63,099      45,951      33,316
    Operating expenses(xx)        16,180      36,146      27,314      20,914
    Operating margin(1)            3,886      26,953      18,637      12,402
    Operating margin %(1)            19%         43%         41%         37%
    Net earnings (loss) from
     continuing operations        (1,015)     12,021       7,453       4,694
      Per diluted share            (0.03)       0.40        0.25        0.16
    Net earnings (loss)                2      19,959      13,138       7,676
      Per diluted share             0.00        0.67        0.44        0.26
    Total assets                 307,114     310,494     277,329     241,928
    Long-term debt(*)             62,106      55,217      49,505      42,562
    -------------------------------------------------------------------------
    (*)  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 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 retrospectively; however no changes
         were required for any other quarters prior to December 31, 2006.


    SUBSEQUENT EVENT

    Pursuant to a series of agreements dated July 26, 2007, Savanna acquired
50% of a partnership from a First Nations partner which included five coiled
tubing service units and associataed long-term debt and working capital for a
net purchase price of $2.0 million. Coupled with 100% ownership of three units
already operated by Savanna, effective July 26, 2007 the Company owns and
operates 100% of the eight units in this operating fleet.

    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, and
    -   Manufacturing capacity and availability of supplies for rig
        construction.
    

    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 June 30, 2007, approximately 94% (December 31, 2006 - 24%) of
operating loans, long-term debt and obligations under capital leases were
subject to fixed rates and 6% (December 31, 2006 - 76%) were subject to
variable 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 June 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 Management's Discussion and Analysis 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 shares prices.
    Stock compensation expense also includes the value of deferred share
units ("DSU's") held by directors outside of the Company and outstanding at
the end of the year. DSU's are recognized when granted 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 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.

    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 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. The Company has
classified each financial instrument 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 is
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. At January 1, 2007, all of the
Company's financial instruments were classified as either held for trading,
loans and receivables, and other financial liabilities. Any transaction costs
with respect to financial instruments are expensed in the period incurred.
    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 six month period ended June 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 six
month period ending June 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 six month period ending June 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 six months ended June 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 six month periods ending June 30,
2006.

    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. The CEO and CFO evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the period
covered by the annual filings and have concluded that the Company's disclosure
controls and procedures, as of the end of the period covered by the annual
filings, are effective in providing reasonable assurance that material
information is accumulated and made known to them by others within the Company
and its consolidated subsidiaries. There have been no changes to disclosure
controls and procedures that occurred over the most recent interim period that
has materially affected or is 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 has materially affected or is 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 16,339 well completions for 2007, down 5,788 wells or 26%
        from 2006. The CAODC is also projecting an average drilling
        utilization rate of 44%, down 30% from 2006 levels 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.

    -   Although the industry is uncertain with respect to the demand and
        prices of oil and gas for the remaining half 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
        such challenges.


    -------------------------------------------------------------------------
    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 Six Months Ended June 30, 2007 and 2006
    (In thousands, except per share amounts) (Unaudited)
    -------------------------------------------------------------------------
                                     Three Months Ended     Six Months Ended
                                           June 30               June 30
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
      Sales and services             39,097     20,067    177,914     83,166
    -------------------------------------------------------------------------
    Expenses
      Operating                      30,271     16,180    106,670     52,326
      General and administrative      4,127      2,373      8,650      4,279
      Stock-based compensation        1,628        839      2,725      1,705
      Depreciation and amortization   5,975      1,680     15,232      5,073
    -------------------------------------------------------------------------
                                     42,001     21,072    133,277     63,383
    -------------------------------------------------------------------------
    Earnings (loss) from
     continuing operations           (2,904)    (1,005)    44,637     19,783
    -------------------------------------------------------------------------
    Interest on long-term debt
     and capital leases                (626)      (811)    (1,946)    (1,493)
    Foreign exchange loss and
     other expenses                    (520)       (16)      (381)       (43)
    -------------------------------------------------------------------------
                                     (1,146)      (827)    (2,327)    (1,536)
    -------------------------------------------------------------------------
    Earnings (loss) from continuing
     operations before income taxes  (4,050)    (1,832)    42,310     18,247
    Income taxes (recovery),
     continuing operations
      Current                        (3,164)      (639)     4,433      2,268
      Future                          2,713       (178)     9,138      4,973
    -------------------------------------------------------------------------
                                       (451)      (817)    13,571      7,241
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations before
     non-controlling interest        (3,599)    (1,015)    28,739     11,006
    Non-controlling interest            106          -       (652)         -
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations           (3,493)    (1,015)    28,087     11,006
    Net earnings (loss) and gain
     from discontinued operations,
     net of tax (Note 14)              (157)     1,017    140,755      8,955
    -------------------------------------------------------------------------
    Net earnings (loss) and
     comprehensive income
     (Note 3(b))                     (3,650)         2    168,842     19,961
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings (loss) per share
     (Note 9(f))
      Basic - net earnings (loss)
       from continuing operations
       - per share                    (0.06)     (0.03)      0.48       0.38
      Diluted - net earnings (loss)
       from continuing operations
       - per share                    (0.06)     (0.03)      0.48       0.37
      Basic - net earnings and gain
       from discontinued operations
       - per share                        -       0.03       2.40       0.31
      Diluted - net earnings and gain
       from discontinued operations
       - per share                        -       0.03       2.39       0.30
      Basic - net earnings (loss)
       - per share                    (0.06)         -       2.87       0.68
      Diluted - net earnings (loss)
       - per share                    (0.06)         -       2.87       0.67



    Consolidated Statement of Retained Earnings
    (In thousands) (Unaudited)
    -------------------------------------------------------------------------
                                     Three Months Ended     Six Months Ended
                                           June 30               June 30
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
                                          $          $          $          $
    -------------------------------------------------------------------------
    Retained earnings, beginning
     of period                      287,257     80,126    114,765     60,167
    Net earnings (loss)              (3,650)         2    168,842     19,961
    -------------------------------------------------------------------------
    Retained earnings, end
     of period                      283,607     80,128    283,607     80,128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Balance Sheet
    (In thousands) (Unaudited)
    -------------------------------------------------------------------------
                                                          June 30   December
                                                             2007    31 2006
                                                                $          $
    -------------------------------------------------------------------------
    ASSETS
    Current
      Cash                                                 10,249      8,259
      Accounts receivable                                  47,488     88,856
      Inventory                                             8,999      4,783
      Prepaid expenses and deposits                         1,595      1,766
      Current portion of notes receivable                       -      2,250
      Current assets held for sale (Note 14)                    -     18,720
    -------------------------------------------------------------------------
                                                           68,331    124,634
    Notes receivable                                        6,575      6,575
    Capital assets                                        699,193    590,132
    Goodwill                                              436,806    424,003
    Intangibles and other assets (Note 5)                  31,819     26,856
    Non-current assets held for sale (Note 14)                  -     33,739
    -------------------------------------------------------------------------
                                                        1,242,724  1,205,939
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current
      Bank indebtedness                                         -     25,260
      Operating loans                                         100        337
      Accounts payable and accrued liabilities             27,011     50,970
      Income taxes payable                                 32,612      5,599
      Current portion of deferred drilling
       advance (Note 6)                                         -      1,127
      Current portion of obligations under
       capital leases                                       3,189      3,156
      Current portion of long-term debt (Note 7)            8,180     15,615
      Current liabilities held for sale (Note 14)               -      5,937
    -------------------------------------------------------------------------
                                                           71,092    108,001
    Deferred drilling advance (Note 6)                          -      3,333
    Deferred net revenue                                    1,647      1,647
    Obligations under capital leases                        4,137      5,330
    Long-term debt (Note 7)                                11,528    130,951
    Future income taxes                                    66,192     55,995
    Non-current liabilities held for sale (Note 14)             -      5,374
    -------------------------------------------------------------------------
                                                          154,596    310,631
    -------------------------------------------------------------------------

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

    SHAREHOLDERS' EQUITY
      Share capital (Note 9(b))                           795,925    771,495
      Contributed surplus (Note 9(c))                       8,596      5,834
      Retained earnings                                   283,607    114,765
      Accumulated other comprehensive income                    -          -
    -------------------------------------------------------------------------
                                                        1,088,128    892,094
    -------------------------------------------------------------------------
                                                        1,242,724  1,205,939
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statement of Cash Flows
    For the Three and Six Months Ended June 30, 2007 and 2006
    (In thousands) (Unaudited)
    -------------------------------------------------------------------------
                                     Three Months Ended     Six Months Ended
                                           June 30               June 30
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
                                          $          $          $          $
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net earnings from continuing
     operations                      (3,493)    (1,015)    28,087     11,005
    Items not affecting cash:
      Depreciation                    5,183      1,680     13,815      5,073
      Amortization of intangible
       and other assets                 792         24      1,417         47
      Future income taxes             2,713       (178)     9,138      4,973
      Stock-based compensation        1,628        839      2,725      1,705
      Loss on disposal of assets         14        115        (27)        50
      Settlement of deferred
       drilling advances (Note 6)    (2,197)         -     (2,197)         -
      Non-controlling interest         (106)         -        652          -
    -------------------------------------------------------------------------
                                      4,534      1,465     53,610     22,853
    Change in non-cash working
     capital from continued
     operations                      50,187     10,542     17,280     11,121
    -------------------------------------------------------------------------
    Cash flows from continuing
     operations                      54,721     12,007     70,890     33,974
    -------------------------------------------------------------------------
    Net earnings from discontinued
     operations                           -      1,017        330      8,955
    Items not affecting cash:
      Depreciation                        -      1,099         42      2,139
      Future income taxes                 -        (23)       588         43
      Stock-based compensation            -        169        665        235
      Gain on disposal of assets          -        (47)         -        (78)
    -------------------------------------------------------------------------
                                          -      2,215      1,625     11,294
    Change in non-cash working
     capital from discontinued
     operations                           -      7,718      4,630     (2,204)
    -------------------------------------------------------------------------
    Cash flows from discontinued
     operations                           -      9,933      6,255      9,090
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING
     ACTIVITIES
    Shares issued on exercise of
     stock options (Note 9(b))        1,164      1,535      1,779      2,022
    Repayment of operating loans       (386)         -       (237)         -
    Repayment of deferred drilling
     advance (Note 6)                (2,264)         -     (2,264)         -
    Repayment of capital lease
     obligations                       (759)      (393)    (1,667)      (564)
    Issuance of long-term debt            -     23,000      7,250     38,000
    Repayment of long-term debt      (6,944)   (16,240)  (134,108)   (25,480)
    -------------------------------------------------------------------------
    Cash flows from continuing
     financing activities            (9,189)     7,902   (129,247)    13,978
    -------------------------------------------------------------------------
    Repayment of capital lease
     obligations                          -       (265)         -       (609)
    Cash paid on acquisition and
     cancellation of options
     (Note 9(c))                          -          -       (520)         -
    -------------------------------------------------------------------------
    Cash flows from discontinued
     financing activities                 -       (265)      (520)      (609)
    -------------------------------------------------------------------------

    CASH FLOWS FROM INVESTING
     ACTIVITIES
    Purchase of capital assets      (25,497)   (19,507)   (68,699)   (42,585)
    Proceeds on disposal of assets       71          -        241         50
    Cash paid on acquisitions,
     net of cash acquired (Note 4)   (2,984)         -    (53,718)         -
    Cash received on sale of
     discontinued operations,
     net of costs (Note 14)            (188)         -    207,899          -
    Change in working capital
     related to investing
     activities                      (7,733)    (6,121)    (5,703)    (4,015)
    Purchase of other assets              -        (76)         -        (82)
    -------------------------------------------------------------------------
    Cash flows from continuing
     investing activities           (36,331)   (25,704)    80,020    (46,632)
    -------------------------------------------------------------------------
    Purchase of capital assets            -       (595)      (148)    (2,748)
    Proceeds on disposal of assets        -        191          -        372
    Change in cash held for disposal      -     (7,764)         -     (7,028)
    -------------------------------------------------------------------------
    Cash flows from discontinued
     investing activities                 -     (8,168)      (148)    (9,404)
    -------------------------------------------------------------------------

    INCREASE IN CASH, NET OF BANK
     INDEBTEDNESS                     9,201     (4,295)    27,250        397
    CASH, NET OF BANK INDEBTEDNESS,
     BEGINNING OF PERIOD              1,048     (2,422)   (17,001)    (7,114)
    -------------------------------------------------------------------------
    CASH, NET OF BANK INDEBTEDNESS,
     END OF PERIOD                   10,249     (6,717)    10,249     (6,717)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Notes to the Consolidated Financial Statements
    For the Three and Six Months Ended June 30, 2007 and 2006
    (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
    June 30, 2007 and the results of operations and the statement of cash
    flows for the three and six month periods ended June 30, 2007 and 2006.

    The results of operations and cash flows for the three and six month
    periods ending June 30, 2007 include the results of Accell, Bear Steam
    and Akuna 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,
    Accell or Bear Steam.

    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 (Note 14). For comparative purposes,
    net earnings for the period ending June 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 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 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. The Company
    has classified each financial instrument 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 is 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. At January 1, 2007, all of the Company's financial
    instruments were classified as either held for trading, loans and
    receivables, and other financial liabilities. Any transaction costs with
    respect to financial instruments are expensed in the period incurred.

    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 six month period ended June 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 six month period ending June 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 six month period ending
    June 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 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 six months ended June 30, 2007 have increased by $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 six month periods ending June 30, 2006.

    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. ("Bear Steam") 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
        ("Akuna"), 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.

    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:

    -------------------------------------------------------------------------
                                  Accell  Bear Steam       Akuna       Total
                                       $           $           $           $
    -------------------------------------------------------------------------
    Net assets acquired:
      Cash                             -         160           -         160
      Non-cash working capital         -        (160)     (3,717)     (3,877)
      Capital assets              51,020       2,865       7,517      61,402
      Intangibles                  4,821       1,558           -       6,379
      Goodwill                     6,053       2,067       4,866      12,986
      Long-term debt                   -           -        (117)       (117)
      Future income taxes              -        (490)          -        (490)
    -------------------------------------------------------------------------
                                  61,894       6,000       8,549      76,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consideration
      Common shares issued        15,500       1,500       5,565      22,565
      Cash                        46,300       4,500       2,984      53,784
      Payable subsequent
       to closing                     94           -           -          94
    -------------------------------------------------------------------------
    Total consideration           61,894       6,000       8,549      76,443
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    5.  INTANGIBLES AND OTHER ASSETS

                           June 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     1,951    31,819    27,391       535    26,856
    -------------------------------------------------------------------------
                    33,770     1,951    31,819    27,391       535    26,856
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Included in intangible assets at June 30, 2007, are $6,379 of intangibles
    acquired as part of the Accell and Bear Steam business acquisitions
    (Note 4).

    6.  DEFERRED DRILLING ADVANCE

    During the second quarter of 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. 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,
                                 June 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         -  125,000
      Term non-
       revolving                         May-09-
       loans          527  6.0 to 6.56%  Oct-09    12,508    12,508   15,534
      Mortgage          7      6.0%      Oct-07       944       944      955
    -------------------------------------------------------------------------
                                                  263,452    13,452  141,729
    -------------------------------------------------------------------------

    Limited
     partnership
     facilities (b)
      Term loans       86  4.7 to 7.25%  Jul-08-    4,759     4,759    2,980
                                         Feb-12
      Term non-
       revolving
       loans           60     P+0.75%    Aug-09     1,497     1,497    1,857
    -------------------------------------------------------------------------
                                                    6,256     6,256    4,837
    -------------------------------------------------------------------------

    Total long-term debt                          269,708    19,708  146,566
    Current portion of long-term debt                         8,180   15,615
    -------------------------------------------------------------------------
                                                             11,528  130,951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    "P" denotes prime rate, which was 6% at June 30, 2007 and 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 29th), the facility
        reverts to a three year term loan with a four year amortization,
        requiring quarterly payments.

        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 June 30, 2007, no amount
        (December 31, 2006 - $10,075) was drawn on the swing-line operating
        facility.

        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.

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

    8.  COMMITMENTS

    The Company has commitments for office and shop premises and various
    operating vehicles and equipment leases and purchases. As at June 30,
    2007, the payments required in each of the next five years are as
    follows:

                                                       $
                       ---------------------------------
                       2008                       21,706
                       2009                        2,178
                       2010                          614
                       2011                          574
                       2012 and thereafter            38
                       ---------------------------------
                                                  25,110
                       ---------------------------------
                       ---------------------------------

    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               226     1,779
    Fair value of stock options exercised                        -        86
    Shares issued on acquisitions (Note 4)                   1,175    22,565
    -------------------------------------------------------------------------
    Balance June 30, 2007                                   59,320   795,925
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company has 5,267 (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                    2,703
    Stock-based compensation - discontinued operations (Note 14)         665
    Fair value of options exercised (reclassified to share capital)      (86)
    Repurchase and cancellation of options                              (520)
    -------------------------------------------------------------------------
    Balance June 30, 2007                                              8,596
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the first six months of 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 the first six months of
    2007, $22 has been recorded in stock compensation expense relating to
    DSU's (2006 - nil). There were 20 units (2006 - nil) outstanding at the
    end of the current period.

    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
      Exercised                        (275)      8.84       (473)      4.28
      Cancelled                        (220)     22.86        (34)     15.29
    -------------------------------------------------------------------------
    Outstanding, end of period        2,401      18.47      1,485      16.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    At June 30, 2007, 2,401 (2006 - 1,485) options were outstanding at
    exercise prices between $3.00 and $28.12 per share. The options expire
    from July 27, 2007 to May 25, 2011 and vest in equal amounts on their
    anniversary over three to five years. At June 30, 2007, 723 (2006 - 516)
    options were exercisable at a weighted average exercise price of $13.73.
    The following table summarizes these details:

                                                At June 30, 2007
    -------------------------------------------------------------------------
                                             Number of  Weighted    Number of
                                  Exercise    Options    Average     Options
                                    Price       Out-   Contractual    Exerc-
                                 (per share) standing  Life (years)  iseable
    -------------------------------------------------------------------------
                              $3.00 - $4.50         86        0.3         86
                              $4.51 - $6.75        104        0.4        104
                             $6.76 - $10.00         69        0.8         69
                            $10.01 - $15.00        128        1.5        121
                            $15.01 - $22.50      1,424        3.1        193
                            $22.51 - $28.12        590        3.1        150
    -------------------------------------------------------------------------
                                                 2,401        2.9        723
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 June 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 $2,703 (2006 - $1,705) has been recognized in the consolidated
    statement of earnings for the six month period ending June 30, 2007. The
    weighted average fair value of stock options granted during the period
    was $6.34 per share (2006 - $8.33) at the date of grant.

    f)  RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING

                                       Three Months Ended   Six Months Ended
                                             June 30             June 30
                                        Number of Shares    Number of Shares
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Basic weighted average shares
     outstanding                        59,096    29,375    58,749    29,249
    Effect of dilutive securities:
    Stock options                          182       378        70       376
    -------------------------------------------------------------------------
    Diluted weighted average shares
     outstanding                        59,278    29,753    58,819    29,625
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The effect of dilutive securities with respect to stock options is that
    1,683 options are assumed exercised (2006 - 1,480 options) and 1,613
    shares are assumed purchased (2006 - 1,104 shares).

    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 June 30, 2007
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Oilfield services                     -      7,745     28,982     36,727
    Other                               147         26      2,197      2,370
    -------------------------------------------------------------------------
                                        147      7,771     31,179     39,097
    -------------------------------------------------------------------------
    Operating costs
    Oilfield services                     -      7,329     22,942     30,271
    -------------------------------------------------------------------------

    Operating margin                    147        442      8,237      8,826
    --------------------------------------------------------------
    Expenses
      General and administrative                                       4,127
      Stock-based compensation                                         1,628
      Depreciation and amortization                                    5,975
                                                                   ----------
    Earnings from continuing operations                               (2,904)
                                                                   ----------
                                                                   ----------

    Goodwill                              -     14,392    422,414    436,806
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                    9,760    109,769    579,664    699,193
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              1,862      3,822     20,025     25,709
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                         Three Months Ended June 30, 2006
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Oilfield services                     -      4,981     15,086     20,067
    -------------------------------------------------------------------------
                                          -      4,981     15,086     20,067
    -------------------------------------------------------------------------
    Operating costs
    Oilfield services                     -      3,420     12,760     16,180
    -------------------------------------------------------------------------

    Operating margin                      -      1,561      2,326      3,887
    --------------------------------------------------------------
    Expenses
      General and administrative                                       2,373
      Stock-based compensation                                           839
      Depreciation and amortization                                    1,680
                                                                   ----------
    Earnings from continuing operations                               (1,005)
                                                                   ----------
                                                                   ----------

    Goodwill                              -      2,677          -      2,677
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                    3,950     39,374    183,052    226,376
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures                539      4,261     15,394     20,194
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                         Six Months Ended June 30, 2007
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Oilfield services                     -     28,204    146,639    174,843
    Other                               848         26      2,197      3,071
    -------------------------------------------------------------------------
                                        848     28,230    148,836    177,914
    -------------------------------------------------------------------------
    Operating costs
    Oilfield services                     -     18,814     87,856    106,670
    -------------------------------------------------------------------------

    Operating margin                    848      9,416     60,980     71,244
    --------------------------------------------------------------
    Expenses
      General and administrative                                       8,650
      Stock-based compensation                                         2,725
      Depreciation and amortization                                   15,232
                                                                   ----------
    Earnings from continuing operations                               44,637
                                                                   ----------
                                                                   ----------

    Goodwill                              -     14,392    422,414    436,806
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                    9,760    109,769    579,664    699,193
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              5,116      9,548     57,407     72,071
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                         Six Months Ended June 30, 2006
    -------------------------------------------------------------------------
                                               Service
                                  Corporate       Rigs   Drilling      Total
                                          $          $          $          $
    -------------------------------------------------------------------------
    Revenue
    Oilfield services                     -     17,556     65,610     83,166
    -------------------------------------------------------------------------
                                          -     17,556     65,610     83,166
    -------------------------------------------------------------------------
    Operating costs
    Oilfield services                     -     10,167     42,159     52,326
    -------------------------------------------------------------------------

    Operating margin                      -      7,389     23,451     30,840
    --------------------------------------------------------------
    Expenses
      General and administrative                                       4,279
      Stock-based compensation                                         1,705
      Depreciation and amortization                                    5,073
                                                                   ----------
    Earnings from continuing operations                               19,783
                                                                   ----------
                                                                   ----------

    Goodwill                              -          -      2,677      2,677
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital assets                    3,950     39,374    183,052    226,376
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              1,342      6,163     35,677     43,182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 June 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 six month period ended June 30,
    2007 lease revenue, management fees and other fees in the amount of
    $1,609 (2006 - $Nil), 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. 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.

    14. DISCONTINUED OPERATIONS

    Effective January 31, 2007, the Company closed the sale of its wireline
    division, Ultraline Services Corporation ("Ultraline") 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 six month period ended
    June 30, 2007 was $6,011 (2006 - $25,003). Net earnings from discontinued
    operations was $330 (2006 - $7,938) net of tax of $1,175 (2006 - $3,180).
    Stock compensation expense of $665 (2006 - $66) 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 June 30, 2007, income taxes on the gain of
    $31,986 have been included in income taxes payable.

    15. SUBSEQUENT EVENT

    Pursuant to a series of agreements dated July 26, 2007, Savanna acquired
    50% of a partnership from a First Nations partner which included five
    coiled tubing service units and associated long-term debt and working
    capital for a net purchase price of $2.0 million. As a result of the
    transaction, Savanna now owns 100% of the 8 units operating in this
    operating fleet.

    Savanna will host a conference call for analysts, investors and
    interested parties on Friday, August 10, 2007 at 9 a.m. Mountain Time
    (11 a.m. Eastern Time) to discuss the Company's 2007 second 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 August 17, 2007 by dialing
    1-800-937-6305 and entering passcode 341723.

    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. Savanna operates 90 drilling rigs, 45 well
    servicing rigs and 8 coil service units in Canada and the United States.
    

    %SEDAR: 00019742E




For further information:

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

Organization Profile

Savanna Energy Services Corp.

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