Calgary, Alberta–(Newsfile Corp. – September 20, 2023) – Saturn Oil & Gas Inc. (TSX: SOIL) (FSE: SMKA) (OTCQX: OILSF) (“Saturn” or the “Company“) today announces an operations update highlighted by well performance that has exceeded expectations from the Company’s recent Spearfish drilling at the Oxbow area, along with providing updated guidance for the balance of 2023 that reflects lower capital spending with better well performance.
“Our Spearfish light oil drilling program has generated capital efficiencies that are among the strongest we’ve seen across our asset base, and have outperformed our internal expectations, which confirms the extensive multizone development opportunities offered by our Oxbow asset,” commented Justin Kaufmann, Saturn’s Chief Development Officer. “We intend to build on this momentum with upcoming results from the recent successful drills in the Frobisher and unconventional Bakken, which the Company continues to exploit in southeast Saskatchewan. Saturn also plans on drilling its first ever multileg conventional Bakken well early in the fourth quarter of the year, which will be one of the main highlights of the drilling season due to the potential booked locations that could result from it. We are also excited for the for initial production numbers from the delayed development in the Montney and Cardium in Alberta, which are expected to have a significant impact on 2023 exit production and 2024 production averages.”
Spearfish Wells Driving Better Results on Lower Capital
In June of 2023, Saturn initiated the Company’s first development program targeting light oil from the prolific Spearfish formation, comprised of six horizontal wells in the Manor area of Southeast Saskatchewan. Three of the wells were drilled using dual horizontal laterals and were among the best producers of the group, supporting Saturn’s ability to increase potential recoveries without incurring significant drilling costs. Building on the momentum realized in Saturn’s drilling program to date in 2023, the Company intends to drill up to three additional Spearfish locations before year end, and to continue developing this light oil resource into 2024.
The Company has initial production results from five of the first six wells and they continue to improve without showing signs of decline, evidenced by light oil volumes that averaged 96 bbls/d over the first five of an initial 30-day period after being on production (“IP30“), and 105 bbls/d for the last five of the 30 days. This initial steady production profile indicates the potential to increase ultimate oil recoveries per well, which is expected to drive higher reserves volumes and values. Strong IP30 rates from these wells averaged approximately 102.5 bbls/d of light oil per well, which is 33% higher than the Company’s expected type curves for Spearfish wells.
The following table highlights Saturn’s recent drilling results of the Spearfish wells including available IP30 data, along with the performance of its Q1 2023 drilled wells:
| Avg. IP30 per Location (bbls/d) |
Guidance Type Curve (bbls/d) |
Performance vs. Type Curve (%) |
Capital Invested ($MM) |
Capital Efficiency ($ per bbl/d) |
|
| Recent Spearfish Wells (5) | 102.5 | 77.0 | +33 | 4.8 | 9,365 |
| Q1 Oxbow Wells (5) | 79.2 | 69.0 | +15 | 6.2 | 15,660 |
| Q1 Viking Wells (8) | 103.2 | 68.0 | +52 | 10.4 | 12,600 |
| Avg. 2023 wells to date (18) | 96.3 | 70.8 | +36 | 21.4 | 12,340 |
Saturn also drilled three horizontal wells targeting Frobisher light oil in the Hastings and Silverton areas within the Oxbow asset, which encountered excellent reservoir characteristics, with all of those wells on production and expected to match the Company’s internally forecasted type curves.
Alberta Operations Contribute to Light Oil Volumes and Returns
Saturn drilled three extended reach horizontal (“ERH“) wells, with horizontal laterals ranging from 1.25 to 3 miles in length, in the Lochend area of central Alberta targeting Cardium light oil. One well has been completed and successfully brought on production while the other two were drilled from a single pad and are expected to be completed and brought online in early October. Each of the three wells encountered excellent reservoir characteristics and are in close proximity to Saturn’s extensive infrastructure in this area, including a working interest natural gas processing plant, enabling new volumes to come onstream with short cycle times and high netbacks.
Outlook and Updated Guidance
With an ongoing focus on maximizing free funds flow and further debt repayment, the Company anticipates investing approximately 60% of its 2023 capital expenditures between September and December, driving strong 2023 exit production and setting Saturn up for continued volume expansion through 2024. Saturn has successfully secured an agreement with the lender of its senior secured term loan to defer September and December 2023 principal payments, which supports funding of the capital program.
In light of WTI oil price volatility that has prevailed through 2023, along with Saturn’s commitment to optimize returns on invested capital, the Company has elected to reduce capital expenditures for 2023 and will also be commencing the winter drilling program later in the year than originally anticipated. While new well results to date have exceeded expectations, with the combination of lower capital expenditures and a later start to the drilling program, Saturn is prudently updating full year guidance to reflect these impacts, as well as the curtailed production resulting from the H1 2023 Alberta wildfires. A summary of this updated guidance, incorporating futures prices for WTI for remainder of the year, relative to the original 2023 guidance announced in January, is outlined below.
| Original | Updated | ||
| Guidance | FY 2023 | FY 2023 | |
| WTI Oil Price | |||
| January to July 2023 Average | $USD | 80.00 | 75.00 |
| Calendar 2023 Average | $USD | 80.00 | 80.00 |
| Production | |||
| Average 2023 | boe/d | 27,170 | 24,100 |
| December 2023 | boe/d | 30,000 | 27,000 |
| Adjusted EBITDA(1), before derivatives | $MM | 523 | 430 |
| Adjusted EBITDA(1), net derivatives | $MM | 475 | 375 |
| Adjusted Funds Flow(1) | $MM | 393 | 285 |
| per share (basic) | $ per share | 3.12 | 2.26 |
| per share (fully diluted) | $ per share | 2.33 | 1.97 |
| Development capital expenditures(1) | $MM | 161 | 130 |
| Free Funds Flow(1) | $MM | 232 | 145 |
| per share (basic) | $ per share | 1.84 | 1.15 |
| per share (fully diluted) | $ per share | 1.38 | 1.00 |
| Net Debt(1) December 2023 | $MM | 345 | 455 |
| Net Debt(1) to Adjusted EBITDA(1) | Ratio | 0.9x | 1.2x |
| Common shares out | MM | 138.5 | 139.3 |
| Weighted average common shares out | MM | 125.8 | 126.2 |
| Dilutive instruments(1) | MM | 42.8 | 18.9 |
| Fully diluted weighted average common shares out(1) | MM | 168.6 | 145.1 |
(1) See Non-GAAP and Other Financial Measures
The Company appreciates the confidence provided by its lender, as well as continued support of its board of directors and shareholders as Saturn continues to target profitable development of its deep inventory of highly economic light oil assets.
About Saturn Oil & Gas Inc.
Saturn Oil & Gas Inc. is a growing Canadian energy company focused on generating positive shareholder returns through the continued responsible development of high-quality, light oil weighted assets, supported by an acquisition strategy that targets highly accretive, complementary opportunities. Saturn has assembled an attractive portfolio of free-cash flowing, low-decline operated assets in Southeastern Saskatchewan, West Central Saskatchewan and Central Alberta that provide a deep inventory of long-term economic drilling opportunities across multiple zones. With an unwavering commitment to building an ESG-focused culture, Saturn’s goal is to increase reserves, production and cash flows at an attractive return on invested capital. Saturn’s shares are listed for trading on the TSX under ticker ‘SOIL’ on the Frankfurt Stock Exchange under symbol ‘SMKA’ and on the OTCQX under the ticker ‘OILSF’.
Further information and a corporate presentation are available on Saturn’s website at www.saturnoil.com.
Saturn Oil & Gas Investor & Media Contacts:
John Jeffrey, MBA – Chief Executive Officer
Tel: +1 (587) 392-7900
www.saturnoil.com
Kevin Smith, MBA – VP Corporate Development
Tel: +1 (587) 392-7900
info@saturnoil.com
READER ADVISORY
Non-GAAP and Other Financial Measures
Throughout this press release and other materials disclosed by the Company, Saturn uses certain measures to analyze financial performance, financial position and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under GAAP and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered alternatives to, or more meaningful than, financial measures that are determined in accordance with GAAP as indicators of the Company performance. Management believes that the presentation of these non-GAAP and other financial measures provides useful information to shareholders and investors in understanding and evaluating the Company’s ongoing operating performance, and the measures provide increased transparency and the ability to better analyze Saturn’s business performance against prior periods on a comparable basis.
The Company’s unaudited condensed consolidated interim financial statements and MD&A as at and for the three and six months ended June 30, 2023 are available on the Company’s website at www.saturnoil.com and under our SEDAR profile at www.sedarplus.ca. The disclosure under the section “Non-GAAP and Other Financial Measures” including non-GAAP financial measures and ratios, capital management measures and supplementary financial measures in the MD&A is incorporated by reference into this news release.
Non-GAAP Financial Measures and Ratios
Capital expenditures
Saturn uses capital expenditures to monitor its capital investments relative to those budgeted by the Company on an annual basis. Saturn’s capital budget excludes acquisition and disposition activities as well as the accounting impact of any accrual changes or payments under certain lease arrangements. Capital expenditures is calculated as expenditures exploration and evaluation assets and property, plant and equipment. Development capital expenditures in this press release is calculated as expenditures on exploration and evaluation assets, property plant and equipment and excludes the impact of capitalized G&A.
Net debt to Adjusted EBITDA
Management considers Net Debt to Adjusted EBITDA an important measure as it is a key metric to identify the Company’s ability to fund financing expenses, net debt reductions and other obligations. Adjusted EBITDA is calculated by the Company as adjusted funds flow before interest expense. When this measure is presented quarterly, Adjusted EBITDA is annualized by multiplying by four. When this measure is presented on a trailing twelve month basis, Adjusted EBITDA for the twelve months preceding the net debt date is used in the calculation. This measure is consistent with the Adjusted EBITDA formula prescribed under the Company’s Senior Term Loan credit facility. Net Debt to Adjusted EBITDA is calculated as Net Debt divided by Adjusted EBITDA.
Capital Management Measures
Adjusted EBITDA
The Company considers adjusted EBITDA to be a key capital management measure as it is both used within certain financial covenants prescribed under the Company’s Senior Term Loan and demonstrates Saturn’s standalone profitability, operating and financial performance in terms of cash flow generation, adjusting for interest related to its capital structure. Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation, amortization and other non-cash or extraordinary items. Adjusted EBITDA is presented both before and after derivatives to identify the impact of WTI commodity contracts hedges in place.
Adjusted funds flow
The Company considers adjusted funds flow to be a key capital management measure as it demonstrates Saturn’s ability to generate the necessary funds to manage production levels and fund future growth through capital investment. Adjusted funds flow is calculated as cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and transaction costs. Management believes that this measure provides an insightful assessment of Saturn’s operations on a continuing basis by eliminating certain non-cash charges, actual settlements of decommissioning obligations, of which the nature and timing of expenditures may vary based on the stage of the Company’s assets and operating areas, and transaction costs which vary based on the Company’s acquisition and disposition activity.
Free funds flow
The Company considers free funds flow to be a key capital management measure as it is used to determine the efficiency and liquidity of Saturn’s business, measuring its funds available after capital investment available for debt repayment, pursue acquisitions and gauge optionality to pay dividends and/or return capital to shareholders through share repurchases. Free funds flow is calculated as Adjusted funds flow in the period less expenditures on property, plant and equipment and exploration and evaluation assets, together “capital expenditures”. By removing the impact of current period capital expenditures from adjusted funds flow, management monitors its free funds flow to inform its capital allocation decisions.
Net debt
Net debt is key capital management measure as it is used to assess the ongoing liquidity of the Company. Net Debt is calculated as the carrying value of the Senior Term Loan and Promissory notes, less adjusted working capital including cash. The Company closely monitors its capital structure with a goal of maintaining a strong balance sheet to fund the future growth of the Company.
Supplementary Financial Measures
“Adjusted Funds Flow per share (basic)” is comprised of Adjusted funds flow divided by the weighted average common shares outstanding.
“Adjusted Funds Flow per share (fully diluted)” is comprised of Adjusted funds flow divided by the weighted average fully diluted common shares outstanding.
“Free funds flow per share (basic diluted)” is comprised of Free funds flow divided by the weighted average common shares outstanding.
“Free funds flow per share (fully diluted)” is comprised of Free funds flow divided by the weighted average fully diluted common shares outstanding.
“Dilutive instruments” represents the common shares issuable upon the exercise of all outstanding underlying securities.
“Fully diluted weighted average common shares outstanding” is comprised of the weighted average common shares outstanding plus dilutive instruments.
PRODUCTION BREAKDOWN BY PRODUCT TYPE
Disclosure of production on a per boe basis in this press release consists of the constituent product types as defined in NI 51-101 and their respective quantities disclosed in the table below:
| Guidance | Original December Avg. | Updated December Avg. |
Original FY 2023 |
Updated FY 2023 |
| Light and Medium Crude Oil (bbls/d) | 21,640 | 20,565 | 20,279 | 18,358 |
| Natural Gas Liquids (boe/d) | 2,421 | 2,037 | 2,050 | 1,820 |
| Conventional Natural Gas (Mcf/d) | 35,633 | 26,390 | 29,046 | 23,531 |
| Total (boe/d) | 30,000 | 27,000 | 27,170 | 24,100 |
BOE PRESENTATION
Boe means barrel of oil equivalent. All boe conversions in this news release are derived by converting gas to oil at the ratio of six thousand cubic feet (“Mcf”) of natural gas to one barrel (“Bbl”) of oil. Boe may be misleading, particularly if used in isolation. A Boe conversion rate of 1 Bbl : 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio of oil compared to natural gas based on currently prevailing prices is significantly different than the energy equivalency ratio of 1 Bbl: 6 Mcf, utilizing a conversion ratio of 1 Bbl : 6 Mcf may be misleading as an indication of value.
FORWARD-LOOKING INFORMATION AND STATEMENTS.
This press release contains forward-looking statements and forward-looing information (collectively, “forward-looking statements”) under applicable securities legislation. Forward-looking statements typically contain words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project”, “scheduled”, “will” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements in this press release may include, but is not limited to, the drilling of development wells, workover program and the maintenance of base production and the business plan, the operational and capital guidance of the Company and the breakdown thereof, cost model and strategy of the Company.
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Saturn, including expectations and assumptions concerning: the timing of and success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the ability to allocate capital to pay down debt and grow productions, the geological characteristics of Saturn’s properties, the application of regulatory and licensing requirements, the availability of capital, labour and services, the creditworthiness of industry partners and prevailing commodity prices. In addition, assumptions have been made regarding and are implicit in, among other things, our capital expenditure and drilling programs, drilling inventory and booked locations, production and revenue guidance, ESG initiatives, debt repayment plans and future growth plans. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.
Although Saturn believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Saturn can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), constraints in the availability of services, commodity price and exchange rate fluctuations, actions of OPEC and OPEC+ members, changes in legislation impacting the oil and gas industry, adverse weather or break-up conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. These and other risks are set out in more detail in Saturn’s Annual Information Form for the year ended December 31, 2022.
This press release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about Saturn’s prospective results of operations including, without limitation, 2023 production, adjusted EBITDA, adjusted funds flow, free funds flow, capital expenditures, net debt and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was made as of the date of this press release and is intended to provide readers with a more complete perspective on Saturn’s anticipated future business operations. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on FOFI, and FOFI should not be used for purposes other than for which it is disclosed herein. Saturn’s actual results, performance or achievement could differ materially from those expressed in, or implied by, these FOFI.
The forward-looking statements and FOFI contained in this press release are made as of the date hereof and Saturn undertakes no obligation to update publicly or revise any forward-looking statements or FOFI, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking statements and FOFI contained in this press release are expressly qualified by this cautionary statement.
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
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