Savanna Energy Services Now Largest Coiled Tubing Driller

Savanna Energy Services recently introduced its 12th hybrid coiled tubing/conventional drilling rig to the Canadian market, making Savanna the largest coiled tubing driller in the world. The introduction of the 12th rig results in Savanna overtaking its largest competitor (operating 11 coiled tubing drilling rigs), in this marketplace. The Savanna drilling rigs, operated through Trailblazer Drilling Corp., integrate all of the benefits of automated conventional shallow drilling rigs with the substantial time, safety and operational advantages of coiled tubing drilling. This combination has enabled Savanna to rapidly capture a significant share of the shallow gas drilling market in the two short years since its inception.

Comparable to competitors' conventional shallow drilling rigs, the Savanna rigs utilize automated pipe handling and an integrated top drive, providing a very high level of efficiency and safety. In addition, the Savanna rigs are fully capable of running Range III drill pipe, again comparable to the most advance competing conventional rigs. However, the added benefits resulting from the speed, safety, and efficiency of drilling with coiled tubing provides an important additional layer of versatility to the Savanna rigs that conventional drilling rigs simply cannot match. In fact, during 2003 our customers utilized coiled tubing as the primary drilling method on over 95% of the wells Savanna drilled, a testament to the method's relative efficiency.

The Company continues to develop its equipment with a view to providing the most efficient product for our customers, saving them time and money, while at the same time generating above market gross margins (39% in 2003) for our shareholders. Savanna's high margins are generated as a result of the premium day rates the Company's drilling rigs warrant from customers (due to their time savings which more than compensate the customer for the added day rate) and operating costs very comparable to conventional drilling rigs.

The integration of fuel-efficient engines, automated pipe handling, a top drive and a substantially decreased rig footprint relative to competitive conventional single drilling rigs are just some of the advantages the Savanna rigs bring to market. In fact, because the rigs drill to total depth so quickly, they often use much less fuel than competitive single drilling rigs. While the use of coiled tubing in lieu of conventional drill pipe does add approximately $450 per well to operating costs relative to conventional rigs, the numerous speed and efficiency advantages overwhelm this factor many times over. Obviously we trust our customers' ability to calculate the relative overall financial merits of the Savanna system. As Savanna continues to operate at one of the highest utilization rates in the industry, their assessment appears clear. We cannot comment on the operating costs of competitive coiled tubing drilling operations, nor specifically compare the Savanna system to older generation coiled tubing drilling rigs operating in the market.

We have received extremely positive responses from our customers regarding their utilization of coiled tubing in drilling operations, and Savanna continues to enjoy existing and pending long-term contracts for the bulk of its fleet.

To date, the Savanna fleet has successfully completed approximately 1,500 shallow wells (1,600 meters and shallower, constituting approximately 75% of the wells drilled in Canada) throughout the western Canadian basin, averaging total drilling times per well significantly lower than competitive automated conventional drilling rigs. We are currently working with suppliers of orienters to enable the rigs to drill directionally, and are progressing towards development of both a slant and hybrid rig capable of drilling to deeper horizons. The current strong bias in the market toward drilling for shallow gas, coupled with the overwhelming demand for Savanna's rigs, has not allowed Savanna to venture into the light oil, heavy oil or deeper drilling markets to date, although coiled tubing drilling has penetrated these markets in the past. As Savanna's fleet grows, the company has every intention of penetrating these markets as well, there being no real operational restrictions in doing so.

The coiled drilling rigs operated by Savanna are clearly more than just shallow gas rigs.
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