Brian Zinchuk is editor and owner of Pipeline Online
Pumpjacks near a battery southwest of Torquay, Saskatchewan. Photo by Brian Zinchuk
CALGARY, ALBERTA –Late on July 30 Saturn Oil & Gas Inc. (TSX: SOIL) (FSE: SMKA) (OTCQX: OILSF) announced its financial and operating results for the three and six months ended June 30, 2024.
Saturn is in its largest drilling program ever, with four rigs (three in Saskatchewan), and is looking at possible future dividends and share buybacks.
“Saturn’s capital structure changes implemented in Q2 2024, in conjunction with a major acquisition, will serve as an inflection point in establishing the company as a leading independent growing energy producer in Western Canada,” said John Jeffrey, Chief Executive Officer of Saturn. “In June 2024, the company increased its crude oil production base by over 50 per cent and reduced its interest rate on borrowed funds by approximately 40 per cent, bolstering Saturn’s sustainable free funds flow generation capability per share, with a drastically reduced cost of capital.”
That was a reference to the closure of a deal with Veren Inc., formerly Crescent Point Energy Corp. for its Flat Lake play near Torquay as well as assets near Battrum, Saskatchewan.
Saturn drilling near Carlyle in 2023. Photo by Brian Zinchuk
Second Quarter 2024 Highlights:
- Closed an acquisition of two oil-weighted asset packages of approximately 13,000 boepd(2) in its existing core operating areas in Southern Saskatchewan for total cash consideration of approximately $534.8 million;
- Achieved Q2 2024 exit production of approximately 38,300 boepd(2);
- Replaced the company’s Senior Term Loan with US$650.0 million of Senior Secured Notes bearing an interest rate of 9.625% per annum due June 15, 2029;
- Completed a bought deal equity financing for total gross proceeds of $100.0 million;
- Entered into a $150.0 million credit facility with a syndicate of banks which was undrawn at June 30, 2024;
- Achieved record average production of 30,128 boepd, compared to 25,988 boepd in the second quarter of 2023;
- Recognized petroleum and natural gas sales of $208.9 million, up from $176.0 million in the second quarter of 2023;
- Generated record quarterly adjusted EBITDA(1) of $106.0 million, compared to $92.9 million in the second of 2023;
- Achieved quarterly adjusted funds flow(1) of $88.6 million, up from $67.0 million in the second quarter of 2023;
- Invested $22.5 million in capital expenditures(1) during the second quarter of 2024, drilling seven gross (6.0 net) wells including six in Southeast Saskatchewan; and one in West Central Saskatchewan;
- Generated free funds flow(1) of $66.1 million, up from $53.1 million in the second quarter of 2023; and
- Exited the second quarter of 2024 with $792.2 million of net debt(1), realizing a proforma net debt to annualized quarterly adjusted funds flow(1) of 1.5x.
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Message to Shareholders
The second quarter of 2024 was another active period for Saturn with the acquisition of approximately 13,000 boepd(2) of production in southern Saskatchewan from Veren Inc. The acquired assets are weighted 96 per cent to high margin crude oil and liquids and are an excellent fit within the company’s existing core asset base, Saturn said.
“The south Saskatchewan acquisition has set the foundation for strong future free funds flow generation, with a low decline production profile and an extensive portfolio of development drilling locations. The south Saskatchewan acquisition also served as a catalyst for Saturn to significantly enhance its capital structure with the repayment of the Senior Secured Term Loan with the issue of US$650 million of Senior Notes with a 9.625% coupon rate, which reduced the company’s interest rate by approximately 40 per cent. The company also entered into a $150.0 million credit facility agreement with a syndicate of banks which remained undrawn at June 30, 2024. The new debt structure is expected to reduce the company’s overall cost of capital and increase the flexibility of funding its capital expenditures going forward,” Saturn said in a release.
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Southeast Saskatchewan Update
The company’s assets in southeast Saskatchewan produced an average of 13,224(2) boepd for the three months ended June 30, 2024, a 16% increase from Q2 2023. The company drilled and completed six gross horizontal wells (5.0 net) in the second quarter of 2024 with a 100 per cent success rate including the Viewfield 101/11-21-011-06W2 well which was drilled as a nine leg Open Hole Mult-Lateral (OHML) well. The Viewfield 11-21 was recognized as having the second highest liquids production rate in the Top Saskatchewan Well Results for June 2024 report by ATB Capital Markets, at 295 bbl/d of light oil. The Viewfield 11-21 exited the initial 30-day production period at approximately 350 boepd. In total the company drilled two (2.0 net) OHML wells in the Viewfield area in Q2 with an average IP30 of 240 boepd which is in line with the expected type curve for these wells. Saturn drilled five gross (4.0 net) conventional horizontal wells in Q2 2024 which have now all been put on production for light oil.
On May 6, 2024, the company completed the acquisition of Adonai Resources II Corp. for total cash consideration of $8.3 million which added approximately 260 bpd of light oil production and added 30 high quality horizontal drilling locations that are in close proximity to Saturn’s Carnduff operations unit.
West Central Saskatchewan Update
The company’s assets in west central Saskatchewan produced 3,125 boepd(2) for the three months ended June 30, 2024, a 37 per cent decrease from Q2 2023 as a result of limited development activities in the area and natural declines. Saturn drilled one (1.0 net) horizontal well in the second quarter of 2024 as part of a 22 gross Viking wells (18.0 net) program for 2024.
Southwest Saskatchewan Update
The core producing properties in southwest Saskatchewan include Saturn’s low decline oil weighted Battrum assets, acquired as part of the South Saskatchewan Acquisition, which are geologically concentrated within the Success and Roseray formations of Southwest Saskatchewan. For the three months ended June 30, 2024, Southwest Saskatchewan produced an average of 884 boepd based on approximately two weeks of production contribution to the three-month period.
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Central Alberta Update
Saturn’s assets located in Central Alberta produced 12,894 boepd(2) for the three months ended June 30, 2024 and included the company’s assets in the Central Alberta Cardium areas, Kaybob Montney asset and the Deer Mountain Swan Hills asset. The Deer Mountain asset was sold to a private company on June 4, 2024 for net cash proceeds of $25.7 million. As a result of the Deer Mountain asset sale, the company has aggregated the North Alberta and Central Alberta business units.
Outlook
Saturn said it has now started its largest drilling program in its history with four rigs concurrently drilling horizontal wells targeting light oil, with two rigs in southeast Saskatchewan, one rig in west Saskatchewan and one rig in central Alberta. In total the company expects to drill approximately 82 net operated wells in 2024 with an objective to modestly increase production in the range of 1-5 per cent and a primary focus of reducing net debt with free funds flow. The company expects to pay down the new Senior Notes on their scheduled 10 per cent annual amortization schedule (paid quarterly). Saturn expects to continue to pursue strategic acquisition opportunities that are complementary to existing operations with attractive development opportunities. As the company de-levers, Saturn intends to implement strategies to return capital to shareholders, which may include dividends or share buy-backs.
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| Three months ended | Six months ended | |||
| (CAD $000s, except per share amounts) | June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 |
| FINANCIAL HIGHLIGHTS | ||||
| Petroleum and natural gas sales | 208,853 | 176,034 | 377,072 | 307,441 |
| Adjusted EBITDA(1) | 106,034 | 92,853 | 194,187 | 162,721 |
| Adjusted funds flow (1) | 88,643 | 66,954 | 156,821 | 121,415 |
| per share – Basic | 0.52 | 0.48 | 0.99 | 1.07 |
| – Diluted | 0.51 | 0.47 | 0.95 | 1.05 |
| Free funds flow (1) | 66,094 | 53,109 | 100,306 | 83,287 |
| per share – Basic | 0.39 | 0.38 | 0.63 | 0.74 |
| – Diluted | 0.38 | 0.37 | 0.61 | 0.72 |
| Net income (loss) | 41,805 | 51,273 | (21,177) | 270,323 |
| per share – Basic | 0.25 | 0.37 | (0.13) | 2.39 |
| – Diluted | 0.24 | 0.36 | (0.13) | 2.33 |
| Acquisitions, net of cash acquired | 543,145 | 1,439 | 543,145 | 466,662 |
| Proceeds from dispositions | (25,708) | – | (25,708) | – |
| Capital expenditures(1) | 22,549 | 13,845 | 56,515 | 38,128 |
| Net debt(1), end of period | 792,193 | 510,185 | 792,193 | 510,185 |
| Three months ended | Six months ended | |||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |
| OPERATING HIGHLIGHTS | ||||
| Average production volumes | ||||
| Crude oil (bbls/d) | 21,010 | 19,425 | 19,996 | 17,066 |
| NGLs (bbls/d) | 2,673 | 2,137 | 2,509 | 1,567 |
| Natural gas (mcf/d) | 38,664 | 26,553 | 34,540 | 19,648 |
| Total boe/d | 30,127 | 25,988 | 28,262 | 21,908 |
| % Oil and NGLs | 79% | 83% | 80% | 85% |
| Average realized prices | ||||
| Crude oil ($/bbl) | 101.54 | 92.39 | 95.41 | 92.97 |
| NGLs ($/bbl) | 44.33 | 39.59 | 44.29 | 43.78 |
| Natural gas ($/mcf) | 1.37 | 2.62 | 1.84 | 2.93 |
| Processing expenses ($/boe) | (0.33) | (0.56) | (0.38) | (0.65) |
| Petroleum and natural gas sales ($/boe) | 76.18 | 74.43 | 73.31 | 77.53 |
| Operating netback ($/boe) | ||||
| Petroleum and natural gas sales | 76.18 | 74.43 | 73.31 | 77.53 |
| Royalties | (9.48) | (6.96) | (9.17) | (7.92) |
| Net operating expenses (1) | (18.12) | (22.31) | (18.91) | (21.81) |
| Transportation expenses | (1.47) | (1.42) | (1.40) | (1.26) |
| Operating netback (1) | 47.11 | 43.74 | 43.83 | 46.54 |
| Realized loss on derivatives | (7.21) | (1.87) | (4.74) | (2.95) |
| Operating netback, net of derivatives (1) | 39.90 | 41.87 | 39.09 | 43.59 |
| Common shares outstanding (000s) | 204,041 | 138,634 | 204,041 | 138,634 |
| Weighted average, basic | 169,267 | 138,634 | 158,780 | 112,957 |
| Weighted average, diluted | 174,723 | 141,742 | 164,215 | 116,089 |
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