Q4 Earnings Increase 'Marginally' for Savanna

Savanna Energy confirms the release of its fourth quarter and year-end 2007 results on Tuesday, March 11, 2008, after the close of markets.

Revenue from Canadian operations for the quarter increased marginally from the comparable period in 2006 as a result of an expanded equipment fleet. However, ongoing industry-wide price discounting resulted in a lower gross margin contribution than either the comparable period in 2006 or compared to Q3, 2007. Additionally, coring and delineation drilling in northern areas did not commence until very late in Q4, contrary to the early December commencement in 2006.

U.S. operations for the quarter were positively impacted by the increased equipment allocation to the U.S., increasing the company's fleet from four to six rigs during the quarter. However, increasingly competitive day rates and some unanticipated costs in relation to our footage contracts resulted in lower Q4, 2007 net contributions from these rigs than we had experienced previously. Overall, Savanna still anticipates that the U.S. will constitute an important expansion opportunity for the company moving forward.

There are a number of discrete financial matters affecting earnings for both Q4, 2007 and for the full fiscal year which could materially impact Q4 and full year 2007 results. These factors include the following: sale of Ultraline Services Corporation; goodwill and intangible write-down; tax provisions; and stock-based compensation expense.

The financial effect of the goodwill and intangible write-down, as well as tax provision adjustments have not yet been finalized.

The anticipated range of incremental effect of each of these items on Q4 and full year 2007 results is reflected in the table below, subject to the following comments:

The anticipated goodwill and intangible write-down range is between $150 million and $160 million, leaving an aggregate goodwill and intangible asset value on the balance sheet at December 31, 2007 of between $310 million and $320 million. The write-down is of the goodwill and intangible balances that arose from the merger of Savanna Energy and Western Lakota in 2006, an all share transaction whereby the resulting entity was owned 51.5% by pre-merger Savanna shareholders and 48.5% by prior Western Lakota shareholders.

Additionally, the company's tax provision will include recoveries relating to income tax rate reductions enacted during the fourth quarter of 2007, a change in the company's expectation of when cash taxes will become payable and a recovery relating to the impairment loss on intangible assets. The reduction is expected to approximate $14-$16 million.

The final determination of the non-cash items discussed above could significantly impact earnings per share for Q4, 2007 and full year 2007. As a result, we have also provided a range of estimates of operating cash-flow from continuing operations before working capital adjustments. The Q4, 2006 and year-end 2006 per share comparable amounts of $0.53 and $1.87 are consistent with the anticipated per share ranges for Q4 and full year 2007 as set forth in the table below, despite a much more challenging operating environment.

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