Calgary, Alberta–(Newsfile Corp. – May 16, 2022) – Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (“Saturn or the “Company“) is pleased to provide follow-on results from its light oil development program for the Oxbow Asset and announces the board of directors of the Company (the “Board“) has increased the capital expenditures budget for 2022, along with revising upward operational and financial guidance for the year.
Oxbow Asset Drilling Update
The Company drilled 12 horizontal wells in Q4 2021 and Q1 2022, targeting the Frobisher and Tilston formations at the Oxbow Asset in Southeast Saskatchewan, where it achieved a 100% success rate and strong aggregate initial flow rates. Eight of these wells now have 30 days of production data available that has increased the Company’s estimate of the average expected ultimate recovery of crude oil for these wells.
One notable driver for the increased expected oil recovery was the post drilling operations performed for the Glen Ewen 102/14-26 well that was initially producing 5 bbl/d of crude oil with a 98% water cut. The water producing zone in the lateral leg was isolated and shut off increasing oil production to over 70 bbl/d for the subsequent 20 days.
| March 22, 2022 Update | May 16, 2022 Update | Change | |
| Number of Wells Evaluated | 6 | 8 | 33% |
| Average Initial Production over first 30 days (“IP30”) | 96.3 bbls/d | 93.2 bbls/d | -3% |
| Combined Expected Ultimate Recovery (“EUR”)(1) | 250,000 | 436,800 | 75% |
| EUR per well(1) | 41,667 bbls | 54,600 bbls | 31% |
| Implied Development Cost per Bbl(1) | $23.00 | $18.30 | -20% |
| Combined Rate of Return(2) | >150% | >250% |
Notes:
(1) See non-GAAP Financial Measures and Ratios
(2) Rate of Return is calculated using futures oil pricing at the time of analysis of March 22, 2022 and May 11, 2022, respectively.
“With more time to observe the first group of wells drilled and the completion of additional operational efficiency activities in the Oxbow Asset, we are seeing lower production declines. Subsequently, we are seeing the production profiles will be longer than first estimated,” commented Justin Kaufmann, Senior Vice-President, Exploration. “We forecast the first eight wells drilled in the Oxbow Asset will reach payout in August of 2022 which is consistent with our expectations of payouts in five to seven months given current oil prices.”
Four additional wells were drilled in Q1 2022, placed into production in late April 2022 and have yet to have recorded 30 days of production data to report.
Production Optimization Program Update
The Company is continuing its Production Optimization Program where it has brought 30 previously inactive wells at the Oxbow Asset back onto production with the following results:
- 160 bbls/d of light crude oil production;
- Low decline production from mature wells;
- Total capital cost of approximately $363,000; and
- An attractive capital efficiency of $2,300 per bbl/d.
Revised Operational and Financial Guidance
As a result of the strong economics of the recent drilling programs, Saturn’s Board has increased the 2022 capital expenditures budget by $6 million with three additional wells to be drilled at the Oxbow Asset and the drilling of three additional wells in the Viking Asset. The increase in capital spending will include an expanded drilling program mostly in Q4 2022 and therefore has a greater impact on 2022 exit rate production than on the 2022 annual average production. Saturn intends to run one drilling rig in each of its core growth areas: the Oxbow Asset and the Viking Asset.
A summary of budgeted field development activities:
| March 2022 Announced Budget | May 2022 Revised Budget | |||
| Activity | Capital | Activity (completed) | Capital | |
| Oxbow Drilling | 29.2 net wells | 25.8 | 32.2 net wells (8) | 28.6 |
| Viking Drilling | 5.0 net wells | 5.8 | 8.0 net wells (0) | 9.0 |
| Strategic Acquisition | 240 bbls/d | 7.4 | 240 bbls/d | 7.4 |
| Workovers & Optimization | 50-100 existing wells | 3.9 | 75 wells (30) | 3.9 |
| Facilities & Lands | 7.1 | 7.1 | ||
| Total Expenditures | 50.0 | 56.0 |
Consistent with the recent rise of global oil prices, Saturn is increasing the oil price assumption for its 2022 guidance from USD 75 to USD 95 for the benchmark price of WTI crude oil. No changes have been made for natural gas prices or foreign exchange rates. Highlights of the 2022 revised guidance include:
- Average annual production in the range of 7,950 boe/d to 8,350 boe/d (95% crude oil and NGLs);
- Q4 2022 average between 8,500 boe/d to 9,000 boe/d (95% crude oil and NGLs), representing year-over-year production growth of 17% to 22%;
- EBITDA(1) forecasted in the range of $90.0 million to $94.5 million;
- Adjusted Funds Flow(1) between $78.0 million to $82.5 million, or $2.41 to $2.55 per basic share(2);
- Free Funds Flow(1) between $29.4 million $33.9 million, implying a free cash flow yield(1)(2) of 33% to 39%; and
- Forecast net debt(1) at year end 2022 between $36.4 million and $42.0 million, a decrease of 41% to 59% from 2021 year-end debt;
The increased forecast of Adjusted funds flow(1) from a midpoint of $63.0 million to $80.3 million (an increase of $17.3 million or 27%) is primarily driven by the change in oil price assumptions. Saturn continues with its guiding principle to direct approximately 50% of future corporate cash flow towards growth capital expenditures and approximately 50% to the repayment of debt. Currently, the Board has determined to allocate 35% of the increased Adjusted funds flow from the updated guidance to additional drilling capital expenditures. The drilling programs for both the Oxbow Asset and the Viking Asset are expected to resume in June, after break-up is over and road bans have been lifted. Saturn maintains a flexible budgeting process and may adjust capital allocations in the future, based on the results of the remaining 2022 drilling program, changes in crude oil prices, and other factors. No adjustment in the budget has been made for cost escalations in operations and the Company remains confident the scheduled field operations for the remainder of 2022 can be executed withing the budget as outlined above. Total capital expenditures in Q1 2022 were approximately $18.0 million, with the remaining $38.0 million (68%) scheduled for the balance of the year.
Notes:
(1) See non-GAAP Financial Measures and Ratios EBITDA
(2) Basic market capitalization based on 32.4 million shares outstanding and a share price of $2.65
| 2022 Midpoint Forecast Comparison | March 2022 Guidance | May 2022 Revised Guidance | Change |
| WTI Crude Oil Price (USD/Bbl) | 75.00 | 95.00 | 27% |
| Exchange Rate (USD/CAD) | 0.80 | 0.80 | – |
| AECO Natural Gas Price ($/GJ) | 3.50 | 3.50 | – |
| Midpoint Average production(1) | 8,000 boe/d | 8,150 boe/d | 2% |
| Midpoint Q4 2022 Average Production(2) | 8,300 boe/d | 8,750 boe/d | 5% |
| ($millions, except per share) | |||
| EBITDA prior to hedging | 109.6 | b 172.3 | 57% |
| EBITDA(3) | 75.0 | 92.3 | 23% |
| Cash Interest | (12.0) | (12.0) | – |
| Adjusted Funds Flow (AFF) | 63.0 | 80.3 | 27% |
| AFF per Basic Share(4) | 1.94 | 2.48 | 27% |
| Capital Expenditures (excluding acquisitions) | (42.6) | (48.6) | 12% |
| Free Funds Flow | 20.4 | 31.7 | 55% |
| Acquisition | 7.4 | 7.4 | – |
| Free Funds Flow Net of Acquisition | 13.0 | 24.3 | 87% |
| 2022 Year End Net Debt(5) | 39.6 | 39.2 | -1% |
| Net Debt to EBITDA | 0.6x | 0.4x | -33% |
| 2022e EV / EBITDA(6) | 1.8x | 1.3x | -28% |
Notes:
(1) Based on a 2022 revised forecast average production range of 7,950 to 8,350 boe/d, 95% crude oil and NGL production.
(2) Based on a Q4 2022 revised forecast average production range of 8,500 to 8,900 boe/d, 95% crude oil and NGL production.
(3) Revised guidance Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) netback of CAD $31.00 /boe is based on: 2022 WTI crude oil price of USD $95.00 /bbl; MSW differential of USD -$4.00 /bbl; CAD/USD exchange rate of $0.80; corporate oil price differential of CAD -$6.40 /bbl; AECO price of $3.50/GJ; hedging expense of $26.90 /boe; operating and transportation expense of $27.20 and general and administrative expense of $2.00 /boe.
(4) Based on 32.4 million basic shares.
(5) See Advisory Non-GAAP Financial Measures and Ratios.
(6) Enterprise Value (EV) based on the $2.65 share price and 32.4 million basic shares plus forecast 2022 year end net debt.
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 and West Central Saskatchewan 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.V under ticker ‘SOIL’ and on the Frankfurt Stock Exchange under symbol ‘SMKA’.
Further information and a corporate presentation is available on Saturn’s website at www.saturnoil.com.
Saturn Oil & Gas Investor & Media Contacts:
John Jeffrey, MBA – Chief Executive Officer
Tel: +1 (587) 392-7902
www.saturnoil.com
Kevin Smith, MBA – VP Corporate Development
Tel: +1 (587) 392-7900
info@saturnoil.com
Reader Advisory
NON-GAAP FINANCIAL MEASURES AND RATIOS
This news release includes non-GAAP financial measures and ratios as further described herein. These non-GAAP financial measures and ratios do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures by other companies. Management believes that the presentation of these non-GAAP financial measures and ratios provides useful information to investors and shareholders as the measures provide increased transparency and the ability to better analyze performance against prior periods on a comparable basis.
“Funds flow” represents cash flow from operating activities and adds back changes in non-cash working capital as the Company believes the timing of collection, payment or incurrence of these items is variable. Funds flow per share is calculated using the same weighted average basic and diluted shares that are used in calculating income (loss) per share.
“Adjusted funds flow” adjusts funds flow for items outside the scope of operations such as transactions costs and decommissioning expenditures. Saturn uses adjusted funds flow as a key measure to demonstrate the Company’s ability to generate funds to repay debt and fund future capital investment. Adjusted funds flow per share is calculated using the same weighted average basic and diluted shares that are used in calculating income (loss) per share.
“Free adjusted funds flow” represents Adjusted funds flow and deducts PP&E and E&E expenditures. Saturn uses free adjusted funds flow as a measure to assess the Company’s ability to generate cash, after deducting PP&E and E&E expenditures, to repay debt, increase returns to shareholders or for other corporate purposes.
“EBITDA” is defined by the Company as earnings before interest, taxes, depreciation, amortization and other non-cash items and is calculated as Adjusted funds flow before cash interest expense. This measure and calculation are consistent with the EBITDA formula prescribed under the Company’s Senior Term Loan. In addition, Saturn uses this to measure the company’s standalone profitability, operating and financial performance in terms of cash flow generation, adjusting for interest related to its capital structure.
“Free cash flow yield” represents Free funds flow divided by the market capitalization value of the Company.
“Netbacks” are per boe measures used in operational and capital allocation decisions. Presenting netbacks on a per boe basis allows management to better analyze performance against prior periods on a comparable basis.
“Development Cost per Bbl” is the total capital cost incurred to bring production online divided by the Expected Ultimate Recovery or crude oil.
“Enterprise Value” (EV) is the sum of the Market Capitalization and Net Debt, as a measurement of the Company’s total value.
“Expected Ultimate Recovery” (EUR) is an internal management estimate of the quantity of oil that is potentially recoverable or has already been recovered from a well, is not intended as a reserve representation and as not been reviewed by an independent reserve evaluator.
“Net debt” represents cash, accounts receivable, deposits and prepaid expenses (current and long-term), accounts payable and accrued liabilities, Senior Term Loan, promissory notes and convertible notes. The Company uses net debt as an alternative to total outstanding debt as management believed it provides a more accurate measure in assessing the liquidity of the Company.
FORWARD-LOOKING INFORMATION AND STATEMENTS.
Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with 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 information in this press release may include, but is not limited to, the drilling of development wells, workover program and the maintenance of bas production and the business plan, 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 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 the ability to source and complete asset acquisitions.
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), constraint in the availability of services, commodity price and exchange rate fluctuations, the current COVID-19 pandemic, 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, 2021.
Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect. Although Saturn believes that the expectations reflected in its forward-looking information are reasonable, undue reliance should not be placed on forward-looking information because Saturn can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding and are implicit in, among other things, the availability of services, ability to spend the increased planned capital expenditures and the effect of higher oil prices on the Company’s business. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.
The forward-looking information contained in this press release is made as of the date hereof and Saturn undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking information contained in this press release is expressly qualified by this cautionary statement.
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.
ABREVIATIONS AND FREQUENTLY REOCCURING TERMS
Saturn uses the following abbreviations and frequently recurring terms in this press release: “WTI” refers to West Texas Intermediate, a grade of light sweet crude oil used as benchmark pricing in the United States; “MSW” refers to the mixed sweet blend that is the benchmark price for conventionally produced light sweet crude oil in Western Canada; “AECO” refers to Alberta Energy Company, a grade or heating content of natural gas used as benchmark pricing in Alberta, Canada; “bbl” refers to barrel; “bbl/d” refers to barrels per day; “GJ” refers to gigajoule; “NGL” refers to Natural Gas Liquids; “Mcf” refers to thousand cubic feet.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
