CALGARY – Saturn Oil & Gas Inc. announced on July 6 they had closed their previously announced previously announced acquisition of assets in the Viking area of West-central Saskatchewan from Crescent Point Energy Corp. The deal is for cash consideration of approximately $248 million (net of adjustments). Saturn also has completed a non-brokered private placement for gross proceeds of $400,326.

“With the closing of the Viking acquisition, Saturn is firmly established as a sustainable developer of light oil in Canada,” said John Jeffrey, CEO of Saturn, in a release. “We now have a total inventory of over 500 (gross) booked drilling locations in addition to an extensive list of optimization candidates in our existing portfolio of wells and facilities allowing Saturn the internal capabilities to organically grow production while also aggressively reducing corporate debt levels.”

The deal included all of Crescent Point’s assets in the Saskatchewan Viking. Crescent Point had been the fourth largest producer in the Viking in west central Saskatchewan, according to Jeffrey, in a phone call late July 6.

Crescent Point has completed the disposition of its non-core Saskatchewan Viking assets (“Assets”), which were previously identified as disposition candidates, for total cash consideration of approximately $260 million, prior to closing adjustments.

In a press release on the same day, Crescent Point said, “The assets included approximately 4,000 boepd of production, comprised primarily of oil and liquids. Crescent Point considered these assets to be non-core due to their limited scalability. These assets also possessed a higher decline rate and emissions intensity profile in comparison to the Company’s corporate average.”

Asked what Saturn will be doing with the new acquisition, he said their plan is to keep production in the area between 4,500 and 5000 boepd, a relatively flat level. “Fifty per cent of our cash flow is going to go towards debt repayment, and the other 50 per cent is going to go towards keeping that (the Viking production) flat and growing in the southeast.

“We gave guidance to get to about 15,000 barrels a day, corporately, next year. But the bulk of that growth will be in the southeast.”

He continued, “We’re going to aim to about 10 per cent growth between now and the end of the year. And then we’re looking for about 15 per cent year-over-year growth, corporately, and the entirety that will be focused in Saskatchewan.

Saturn Oil & Gas president and CEO John Jeffrey, speaking to European investors via Zoom. Screen capture

Viking acquisition overview

The Viking acquisition bolsters Saturn’s existing Viking light oil asset in West-central Saskatchewan with synergistic assets that include approximately 4,000 boepd (~98 per cent light oil and liquids) of high cash flow netback production and over 140 net sections of land in the Viking fairway, the company said in a release.

It’s a substantial growth for the company, which started out producing in west central Saskatchewan and had grown that production to about 500 barrels per day.

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With a 250 per cent increase to Saturn’s Viking drilling inventory, the Viking acquisition further builds size and scale for Saturn’s growing Saskatchewan operations, complementing the company’s core growth Oxbow asset in Southeast Saskatchewan. Closing of the Viking acquisition positions Saturn with a scalable portfolio of free cash flow generating assets that support near and longer-term development, while diversifying the company’s production exposure and play type helps enhance corporate sustainability and financial resilience, the release said.

Organic growth strategy

Saturn initiated its light oil drilling program in June 2022 with the spud of first of approximately 50 horizontal wells scheduled for the remainder of 2022, in addition to the eight wells drilled previously in the year. The drilling is expected to continue into the new year with expectations of approximately 90 new horizontal wells to be drilled in 2023. Highlights of the capital expenditure programs for 2022 and 2023 include:

  • Organic focused growth plan fully funded by internal cash flow for the drilling of approximately 140 gross new horizontal wells and optimization of facilities and existing wells in next 18 months;
  • Viking acquisition adds >300 drilling locations (booked and unbooked);
  • Midpoint forecast for 2022 adjusted funds flow per basic share increases from previous guidance of $2.48 per to $2.71;
  • 2023 Adjusted funds flow per basic share forecasted in the range of $3.63 per to $3.87 per basic share; and
  • Net debt levels expected to be reduced from current estimated position of $223 million to approximately $183 million by year end 2022 and to approximately $75 million by year end 2023.

Hedging

Oil prices in recent days have shown a lot of volatility, dropping $10 a barrel on Tuesday alone. But Saturn is in a good position, having locked in hedging on this additional production a few weeks ago. Jeffrey said, “We locked all our hedging in a couple of weeks ago, when oil was somewhere about $118 – $119. We locked in our hedging at that time So we’re able to hedge this new production we’ve got on. Our hedge book that we put in places already, the mark-to-market is already well, well into the money. So we’re pretty happy with that.”

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Between June 2 and June 15, 2022, the company entered into a number of financial oil price hedges, in conjunction with the Viking acquisition. The new hedges are intended to cover approximately 85 per cent of forecasted oil and NGL production, based on internal estimates of the company’s proved developed producing profile, for the years of 2022 – 2026, including:

  • For H2 2022, Saturn entered into WTI hedging instruments for average volume of 2,783 bb/d at a minimum average price of US$ 102.65; and
  • For 2023, Saturn entered into WTI hedging instruments for average volume of 2,366 bb/d at a minimum average price of US$ 92.02.

Drilling

In 2022, Saturn is looking at 35 net wells in the Oxbow area, 23 in the Viking area, and working over and optimizing a further 50 to 100 wells for a total expenditure of $77.2 million.

 

For 2023, Saturn is looking at a substantial increase in drilling, punching 50 net wells in the Oxbow area, another 40 in the Viking, and doing workovers and optimization on a further 50 to 100 wells, for a total expenditure of $115.2 million.

 

Viking acquisition funding details

To fund the consideration of the Viking Acquisition, Saturn has entered into an amended and restated senior secured loan agreement with its U.S. based institutional lender to provide loan proceeds of $200.0 million and completed a bought deal equity financing of subscription receipts for aggregate gross proceeds of approximately $75.0 million.

Non-brokered private placement

The company completed its previously announced non-brokered private placement of units  for 145,573 Private Placement Units at a price of $2.75 per private placement unit for total proceeds of $400,326.

The net proceeds of the non-brokered private placement are expected to be used for working capital and general corporate purposes.

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