Calgary, Alberta–(Newsfile Corp. – May 5, 2022) – Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (“Saturn” or the “Company”) is pleased to report its financial and operating results for the three months ended March 31, 2022.
“The first quarter of 2022 was another record period for production for Saturn, generating $16.3 million in EBITDA(1),” commented John Jeffrey, Saturn’s CEO. “With March 2022 production reaching 7,600 boe/d, Saturn is on pace to meet or exceed the guidance of production averaging 7,800 to 8,200 boe/d for 2022.”
First Quarter 2022 Highlights:
- Achieved record production with first quarter 2022 averaging production of 7,499 boe/d compared to 233 boe/d in the first quarter of 2021, an increase of 3,118%;
- Generated record Adjusted funds flow(1) of $13.5 million in the three months ended March 31, 2022 compared to $0.1 million in the comparable 2021 period, primarily due to contributions from the operations of the Oxbow Asset;
- Achieved operating netbacks(1) for the three months ended March 31, 2022 of $56.94 per boe compared to $40.88 per boe in the first quarter of 2021;
- Closed a bought-deal financing and a non-brokered private placement for aggregate gross proceeds of $20.6 million;
- Completed a strategic acquisition purchasing certain oil and gas assets in the Plato area of West-Central Saskatchewan (the “Viking Acquisition”) for total consideration of $7.6 million, after interim closing adjustments;
- Invested $9.3 million of development capital in the first quarter drilling eight 100% working interest wells, six into Frobisher formations and two into Tilston formations;
- Generated first quarter free adjusted funds flow(1) of $3.0 million; and
- Exited the first quarter with $65.2 million net debt(1), realizing a net debt to annualized quarterly adjusted funds flow of 1.2x(1).
| Three months ended March 31, | |||||||
| (CAD $000s, except per share amounts) | 2022 | 2021 | |||||
| FINANCIAL HIGHLIGHTS | |||||||
| Petroleum and natural gas sales | 69,115 | 1,322 | |||||
| Cash flow from (used in) operating activities | 10,342 | (213 | ) | ||||
| per share – Basic | 0.38 | (0.02 | ) | ||||
| – Diluted | 0.23 | (0.02 | ) | ||||
| Adjusted funds flow (1) | 13,472 | 148 | |||||
| per share – Basic | 0.50 | 0.01 | |||||
| – Diluted | 0.29 | 0.00 | |||||
| Net loss | (97,618 | ) | (1,529 | ) | |||
| per share – Basic | (3.63 | ) | (0.13 | ) | |||
| – Diluted | (3.63 | ) | (0.13 | ) | |||
| Capital expenditures | 18,049 | – | |||||
| Net debt(1), end of period | 65,210 | 33,601 | |||||
(1) See non-GAAP Financial Measures and Ratios
| Three months ended March 31, | ||||||
| (CAD $000s, except per boe amounts) | 2022 | 2021 | ||||
| OPERATING HIGHLIGHTS | ||||||
| Average production volumes | ||||||
| Crude oil (bbl/d) | 6,821 | 233 | ||||
| NGLs (bbls/d) | 334 | – | ||||
| Natural gas (mcf/d) | 2,063 | – | ||||
| Total (boe/d) | 7,499 | 233 | ||||
| % Oil and NGLs | 95% | 100% | ||||
| Average realized prices | ||||||
| Crude oil ($/bbl) | 109.20 | 62.34 | ||||
| NGLs ($/bbl) | 58.71 | – | ||||
| Natural gas ($/mcf) | 4.52 | – | ||||
| Processing expenses ($/boe) | (1.77 | ) | – | |||
| Petroleum and natural gas revenue ($/boe) | 101.41 | 62.34 | ||||
| Operating netbacks | ||||||
| Petroleum and natural gas revenue ($/boe) | 101.41 | 62.34 | ||||
| Royalties ($/boe) | (16.59 | ) | (2.73 | ) | ||
| Net operating expenses (1) ($/boe) | (27.34 | ) | (18.73 | ) | ||
| Transportation expenses ($/boe) | (0.54 | ) | – | |||
| Operating netbacks (1) ($/boe) | 56.94 | 40.88 | ||||
| Realized gain (loss) on financial derivatives ($/boe) | (30.56 | ) | – | |||
| Operating netbacks (1) after realized gain (loss) on financial derivatives ($/boe) | 26.38 | 40.88 | ||||
| Common shares outstanding, end of period | 32,361 | 11,728 | ||||
| Weighted average, basic | 26,895 | 11,728 | ||||
| Weighted average, diluted | 45,746 | 11,728 |
(1) See non-GAAP Financial Measures and Ratios
Message to Shareholders
The first quarter of 2022 was a historical high point for Saturn, with production averaging 7,499 boe/d for the period (95% crude oil and NGLs). This is the fourth straight quarterly production record the Company has achieved since the closing of the transformational acquisition of the Oxbow Asset in June 2021. Q1 2022 was also a strong period for energy related commodity prices which continued to rise as the global economy set the stage for a recovery in energy demand. Strong energy demand was driven by the continued easing of global restrictions related to the COVID-19 pandemic. Strong global oil prices provided robust Q1 2022 economics for the Company:
- $109.20 per bbl realized sales price for crude oil;
- $101.41 per boe average sales price;
- $13.5 million of Adjusted funds flow(1); and
- $0.50 of Adjusted funds flow(1) per basic share.
These achievements are testament to the strong cash flow generation capability of Saturn’s light oil weighted producing assets.
In Q1 2022 Saturn took an important step of consolidating its debt with the retirement of term notes in full for the amount of $32.1 million. Removing the term notes alleviated many financial constraints, allowing the Company to make prudent capital expenditures intended to grow production levels, capitalize on the strong energy price environment and increase shareholder value. Saturn remains committed to rapidly reducing debt levels and expects to make $38.1 million in debt repayments in 2022 to its senior term loan (approximately 58% of net debt as at March 31, 2022).
(1) See non-GAAP Financial Measures and Ratios
Oxbow Update
Saturn continued its drilling program at the Oxbow Asset in the first quarter of 2022 with the drilling of eight successful horizontal wells targeting light oil in the Frobisher and Tilston formations, with 100% working interest. Saturn has now drilled a total of 12 horizontal wells at the Oxbow Asset with 100% success rate. All of the wells have been placed onto production with the most recent wells commencing production just prior to break up, which temporarily halted drilling activities. Saturn has budgeted an additional 21.2 net horizontal wells at the Oxbow Asset for the remainder of 2022 which we expect will initiate drilling in early June.
Viking Update
Saturn completed a strategic acquisition purchasing certain oil and gas assets in the Plato area of West-Central Saskatchewan for total consideration of $7.6 million, after interim closing adjustments. This acquisition added synergistic production of approximately 240 boe/d of 100% light oil and effectively reduced the Company’s overall royalty rates and operating costs per boe. The Viking Acquisition also provides numerous high quality development drilling locations which Saturn has incorporated into the five net Viking wells budgeted for drilling in 2022.
Outlook
Saturn is pleased with the initial results of the 2022 drilling program and expects to have an operational update released in the next two weeks with updated production data for the recent Oxbow wells. The fully funded 34.2 net well drilling program for 2022 is approximately 23% completed with a majority of the remaining drilling activity scheduled for June to August. The Company plans to operate two drilling rigs during this period with one rig for each of the core growth areas: the Oxbow Asset and the Viking Asset.
Investor Webcast
Saturn will host a webcast at 10:00 AM MDT (12:00 PM Noon EDT) on May 11, 2022, to review the fourth quarter and 2021 annual financial report and discuss the first quarter 2022 financial report. Participants can access the live webcast via https://saturnoil.com/invest/q4-2021-and-q1-2022-results-webcast. A recorded archive of the webcast will be available afterwards on the Company’s website.
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’.
The Company’s unaudited interim financial statements and corresponding Management’s Discussion and Analysis for the three month period ended March 31, 2022 are available on SEDAR at www.sedar.com and on Saturn’s website at www.saturnoil.com. Copies of the materials can also be obtained upon request without charge by contacting the Company directly. Please note, currency figures presented herein are reflected in Canadian dollars, unless otherwise noted.
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.
The following table reconciles funds flow, adjusted funds flow, and free adjusted funds flow to the nearest GAAP measure, Cash flow from (used in) operating activities:
| Three months ended March 31, | ||||||
| ($000s) | 2022 | 2021 | ||||
| Cash flow from (used in) operating activities | 10,342 | (213 | ) | |||
| Changes in non-cash working capital | 2,744 | 360 | ||||
| Funds Flow | 13,086 | 147 | ||||
| Decommissioning expenditures | 386 | – | ||||
| Adjusted funds flow | 13,472 | 147 | ||||
| PP&E expenditures | (9,820 | ) | – | |||
| E&E expenditures | (646 | ) | – | |||
| Free adjusted funds flow | 3,006 | 147 |
“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. The following table reconciles the Company’s EBITDA for the periods:
| Three months ended March 31, | ||||||
| ($000s) | 2022 | 2021 | ||||
| Adjusted funds flow | 13,472 | 147 | ||||
| Interest expense, cash | 2,807 | 272 | ||||
| EBITDA | 16,279 | 419 |
“Operating netbacks” is determined by deducting realized derivative commodity contract losses or adding realized derivative commodity contract gains and deducting, royalties, net operating expenses and transportation expenses from petroleum and natural gas revenue. Operating netbacks are per boe measures used in operational and capital allocation decisions. Presenting operating netbacks on a per boe basis allows management to better analyze performance against prior periods on a comparable basis. The following table reconciles the Company’s operating netbacks for the periods.
| Three months ended March 31, | ||||||
| ($ per boe amounts) | 2022 | 2021 | ||||
| Petroleum and natural gas revenue | 101.41 | 62.34 | ||||
| Royalties | (16.59 | ) | (2.73 | ) | ||
| Net operating expenses | (27.34 | ) | (18.73 | ) | ||
| Transportation expenses | (0.54 | ) | – | |||
| Operating netbacks (1) | 56.94 | 40.88 | ||||
| Realized loss on financial derivatives | (30.56 | ) | – | |||
| Operating netbacks after realized loss on financial derivatives (1) | 26.38 | 40.88 |
“Net debt” represents cash, accounts receivable, deposits and prepaid expenses (current and long-term), accounts payable and accrued liabilities, Senior Term Loan, Term Notes, Revolving Notes, 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.
The following table reconciles the components of net debt per the Condensed Consolidated Interim Statements of Financial Position and calculates net debt to annualized adjusted funds flow for the quarters:
| ($000s) | March 31, 2022 | March 31, 2021 | ||||
| Cash | (18,234 | ) | (264 | ) | ||
| Accounts receivable | (30,846 | ) | (385 | ) | ||
| Deposits and prepaid expenses | (28,721 | ) | (447 | ) | ||
| Accounts payable | 41,636 | 6,077 | ||||
| Senior Term Loan | 98,340 | – | ||||
| Revolving Notes | – | 25,158 | ||||
| Promissory notes | 797 | 1,386 | ||||
| Convertible notes | 2,238 | 2,076 | ||||
| Net debt | 65,210 | 33,601 | ||||
| Annualized quarterly adjusted funds flow | 53,888 | 588 | ||||
| Net debt to annualized adjusted funds flow (1) | 1.2x | 57.1x |
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.
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 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 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), constraints 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, 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.
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.
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.
