Crescent Point sells Flat Lake and Battrum to Saturn Oil & Gas

CALGARY – Crescent Point Energy Corp., just sold off two substantial chunks of its remaining Saskatchewan properties to Saturn Oil & Gas Inc.

The deal was announced late on Monday, May 6. It includes Crescent Point’s Flat Lake play, located near the US border near Torquay and Oungre in southeast Saskatchewan. In southwest Saskatchewan, Crescent Point sold off the northern end of its Shaunavon play, at Battrum.

Crescent Point, which in the process of changing its name to “Veren Energy” on May 10, had stopped drilling in the Flat Lake area last fall. In recent years, when the company puts up a property for sale, it tends to stop drilling in that area beforehand. Back in 2017, the company had as many as 10 rigs working within one township in the Flat Lake area.

The cash deal is worth either $600 million, or $525 million, depending on which release you read. Crescent Point says $600 million, Saturn says $525 million. The difference being effective and closing date of the deal, Saturn will only be out of pocket 525 million, according to John Jeffrey, president and CEO of Saturn, in a phone call with Pipeline Online Monday evening.

There’s about $100 million in net operating cashflow that will come to Saturn between January and the closing of the deal, which accounts for the difference in the numbers, according to Saturn.

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The deal includes 13,500 boepd of production, roughly 9,000 boepd in southeast Saskatchewan and 4,500 boepd in southwest Saskatchewan. The total comprises 96 per cent oil and natural gas liquids. The breakdown is 11,400 barrels per day of light/medium crude oil, 1,100 bpd of NGLs and 3,020 mcf/d of natural gas.

There’s a low decline rate of 16 per cent, active waterfloods and additional secondary recovery opportunities to further enhance long term value. Ninety per cent of the acquired acreage is on Crown land, “which aids in the accretive nature of future development locations due to provincial royalty incentives,” Saturn said.

Crescent Point paying down debt

“We have strategically re-built our asset portfolio over the last few years to enhance our long-term sustainability,” said Craig Bryksa, president and CEO of Crescent Point, in a release. “This transaction allows us to realize value for these non-core assets which had limited impact in the Company’s future plans while continuing to focus on our priorities of operational execution, optimizing our balance sheet and increasing our return of capital.”

Crescent Point said “Production from the assets was expected to be 13,500 boepd (95 per cent oil and liquids) over the next 12 months, generating $210 million of net operating income at current strip commodity prices. The company had allocated minimal development capital expenditures to the assets for the remainder of 2024.”

It added, “Net proceeds from these non-core dispositions have, or will be, directed to debt repayment. The company’s pro-forma net debt is expected to total $2.8 billion, or 1.1 times adjusted funds flow, by year-end 2024 based on average commodity prices of US$80/bbl WTI and $2.10/Mcf AECO for the full year, down significantly from $3.7 billion at the end of 2023.

“As a result of the transaction, Crescent Point is revising its 2024 annual average production guidance to a range of 191,000 to 199,000 boepd, which represents a reduction of 7,000 boepd compared to the mid-point of its prior guidance range.

Crescent Point’s development capital expenditures guidance for 2024 of $1.4 billion to $1.5 billion remains unchanged given minimal development capital expenditures allocated to the Assets for the remainder of the year.

The deal is expected to close in late second quarter of 2024, subject to customary closing conditions.

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Saturn CEO

Jeffrey said, “I think we did a fantastic deal that further extends two plays that we’ve built on in the past. Originally, we started in Kindersley Viking. And then we moved into southeast Saskatchewan, buying CPG’s Oxbow assets. The next two major deals we did was buying CPG’s Herschel and Plato Viking assets and then we did obviously Ridgeback, which got us in the Viewfield area. So, we see these as further extensions of those plays.”

He noted these new acquisitions are contiguous to current Saturn properties, as Battrum is south of Plato, and Flat Lake is southwest of Viewfield.

Viewfield and Plato have been “extremely successful,” he said.

“We’ve seen this show some fantastic wells, we reduced costs, and do an overall great job there. So this is a further extension.

“There will also be greater capital efficiencies to be had to take account of our size, economies of scale, and synergies in those areas with these second steps.”

In southwest Saskatchewan, the Battrum area includes lower Shaunavon, but also Roseray and Success formations. “Those are actually some of the highest economic locations we will have,” he said.

In southeast Saskatchewan, the Ratcliff (which Jeffrey also referred to as “Oungre”) and pre-pressurized Bakken, as well as the Torquay, are the formations in the Flat Lake package. Saturn refers to it as “stacked pay.”

The deal includes the addition of approximately 950 gross (780 net) identified drilling locations(1) (approximately 240 gross (200 net) booked locations) expanding Saturn’s existing drilling inventory of over 20 years, with abundant future reserve booking potential, the company said.

Jeffrey said, “For us, we see this as a fairly large development play.”

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He noted that under previous leadership, Crescent Point had been increasing year over year in the Flat Lake area the amount of wells they were drilling in those fields. A change in leadership saw a shift in focus from Saskatchewan to northern Alberta.

“Otherwise, I think it was pretty clear that this was a major growth play for them.”

He added, “They definitely pivoted from being Saskatchewan-focused to northern Alberta. And how well that plays out for them is up for the shareholders to decide. But it’s creating some real opportunities for us to step in and really grow our company in Saskatchewan, where we definitely have an expertise, and a bit of a history of operational excellence.”

Indeed, for the past several years Crescent Point has been selling off most of its Saskatchewan properties. At one time briefly the largest oil producer in Saskatchewan, it started by selling off its prodigious properties throughout southeast Saskatchewan, then west central Saskatchewan. Several of those assets were sold to Saturn. Up until this deal was announced, its sole remaining core areas were the Shaunavon play in southwest Saskatchewan, Viewfield Bakken centred around Stoughton, and Flat Lake, near Torquay and Oungre. After this, Crescent Point will retain the Viewfield Bakken and southern portion of Shaunavon.

Other notes:

• The Acquired Assets are expected to generate approximately $251 million of Net Operating Income (NOI) for the Next 12 Months (NTM);
• Proved Developed Producing (PDP) reserves of 44.1 million boe, with $926 million of future net revenue discounted at 10% (NPV10);
• Total Proved plus Probable (TP+P) reserves of 78.4 million boe, with an NPV10 of $1.4 billion

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Multilaterals and well design

Asked if the province’s new Multilateral Well Program had an impact on their purchase or plans, Jeffrey said, “It did.”

Justin Kaufmann, Saturn’s chief development officer picked up from there.

Saturn is currently drilling its fourth multilateral so far. They are expecting results from the third well in a few weeks. “We’ve got two online. They’re ahead of type curve for us. Very exciting,” Kaufmann said. Those initial two were seven- and eight-leg wells, a mile long.  The following well was two miles long and they are currently drilling a 1.5 mile long well.

“Based on their success, we’re working on our future development profile for the Viewfield area. Starting in 2025, we see probably 10 to 12 wells on a per-year basis, which equates to one steady rig drilling that program. We do have the inventory to build that play into a growth asset for the company. So that’s what’s going on with the legacy Saturn OHMLs (open hole multilaterals).

“As far as how that relates to this potential acquisition, they’re also developing in the Bakken, and the Oungre (Ratcliff) field,  which have the potential for multilaterals.  We don’t see the Torquay as being a multi-leg position, just based on primarily the thickness of it.  The Oungre is essentially a carbonate conventional resource play, which you don’t see a lot.  Including our legacy conventional asset, which is considered a G&G (geological & geophysical) play, where there’s different stratigraphic & structural confines that we have to play in.

“But based on the resource nature of Oungre there is a lot of potential multi-leggers going forward, and potentially in the Bakken, too,” Kaufmann said.

The Oungre, or Ratcliff, is a dolomitic carbonate play, analogous to Saturn’s Midale properties, according to Kaufmann.  He followed up by saying, “We are also hoping to take the monobore drilling from our Bakken down there.”

He explained that well design foregoes the intermediate casing, saving $200,000 per well.  It involves a surface string to 200m, production string, with sliding frac ports, and is cemented in place to the toe of the well. They typically do 26 frac stages per mile.

“We see an increase in capital efficiencies of 10 to 15 per cent per well, if we’re able to use our current drilling and engineering technique from our Bakken,” Kaufmann said.

Seven Bakken wells were drilled by Saturn in this manner last year. “It’s really starting to revitalize the fracked Bakken in southeast Saskatchewan. And that’s why you’re seeing a little bit more capital dollars being deployed in the area, those increased capital efficiencies, help the area compete for capital.”

In thicker Bakken plays, they continue to frac wells, but in thinner Bakken areas, the multilateral strategy is the way to go as this reduces the risk of fracking into the lodgepole, which is generally a wet formation.

“Our multi-legs will all have intermediate casing to the heel still. This sets up the starting of our seven to eight leg open hole multileg design.”

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Drilling plans and seismic

Kaufmann said, “We get a lot of seismic that comes across. And it covers most of our development wells that we plan on drilling this year.”

“Also, we are going to have a rig active as early as beginning of July on the asset in southeast Saskatchewan. We will start by drilling some Torquay and Bakken wells down there.

“So that rig will essentially be split between our legacy program and the acquisition program. Originally, we were going to pick up a second rig for southeast Saskatchewan and only run it for two months. But now we can pick up that second rig and run it for the full year.  It’s really helping us on capital efficiencies with this asset.

“And then that’s just a Flat Lake piece of the acquisition. With reference to the Battrum piece, we were planning on drilling about 18 Viking wells this year in the area, we can continue that program down to Battrum, drilling Shaunavon wells specifically.  They’re only about an hour south of our Kindersley field. So we’re looking at back ending our Viking wells with drilling additional Shaunavon wells, increasing capital efficiencies of that program.”

That’s 18 wells in pre-existing Saturn properties in western Saskatchewan, with a further two or three Shaunavon wells to follow. An additional 12 Flat Lake wells, as mentioned above, are also in the works. The total is 14 new wells in the addition, areas that, as Crescent Point had noted above, were not going to see much attention.

There won’t be any multilateral wells in the new areas this year, but that may happen as early as 2025, according to Kaufmann.

Employment

Asked how this will affect employment, Jeffrey said, “We’ll be keeping the team. Listen, we need all the smart technical people that we can get that are familiar with these assets. We will be adding a few technical bodies here in Calgary as well to compliment the current team.

“We’re going to be keeping all their team out in the field and we’re excited to be supporting Saskatchewan as much as possible.”

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Financials

Transformed Debt Capitalization

In connection with the acquisition, Saturn has secured a US$625 million debt commitment, which will replace the outstanding existing senior secured term loan allowing the company to optimize its capital structure and cost of capital, it said.

“The evolution of our funding sources marks a pivotal moment in the company’s financial development, substantially reducing Saturn’s cost of capital and increasing the company’s capital allocation flexibility,” stated Scott Sanborn, Saturn’s chief financial officer. “The debt commitment underscores the company’s dedication to prudent financial management and focus on driving long term shareholder value creation.”

Saturn has also secured a commitment to arrange a new RBL, with a borrowing base and available capacity of $150 million on a fully conforming basis that will be undrawn at the Closing Date. Once entered into, the RBL will ensure Saturn has ample financial flexibility to maintain operations and continue its prudent development of its low-decline, light oil weighted asset base.

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Bought Deal Equity Offering

Concurrent with the Acquisition, Saturn has entered into an agreement in respect of the offering, with Echelon Capital Markets acting as sole bookrunner and co-lead, with a syndicate of underwriters including to issue and sell, 42.6 million subscription receipts  on a bought deal basis. The subscription receipts will be offered at a price of $2.35 per subscription receipt (the “Offering Price“) for aggregate gross proceeds of approximately $100 million. The Company will use the net proceeds of the offering to pay for a portion of the consideration of the Acquisition.

Each subscription receipt represents the right of the holder to receive, upon closing of the Acquisition, without payment of additional consideration, one common share of the Company.

Saturn has also granted the underwriters an over-allotment option to purchase, in whole or part, up to an additional 6.4 million subscription receipts at the offering price to cover over-allotments, if any, exercisable at any time and from time to time until the date that is 30 days following the closing of the offering. If the over-allotment option is exercised in full, gross proceeds from the offering will be approximately $115 million.

 

 

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