Brian Zinchuk is editor and owner of Pipeline Online
Saturn Oil & Gas, drilling near Manor on June 16, 2023. Photo by Brian Zinchuk
Protection Against Potential Tariff Impacts
One of the largest threats looming over the entire Canadian economy is the possible imposition of major import tariffs by the President Donald Trump administration on all Canadian goods. Those tariffs, currently on pause but ever-looming, would be 25 per cent on all goods except energy, which would be at a 10 per cent level.
And therein just may be a bit of a silver lining, at least for the oil sector.
Pipeline Online spoke to Saturn Oil & Gas president and CEO John Jeffrey on Feb. 13 about this, the company’s recent updates and its financial position. Part 1 of this discussion can be viewed here.
Jeffrey said, “The trade war has been really hard on the Canadian dollar which has weakened. And again, this impact is not unique to Saturn. All Canadian crude oil is sold in U.S. dollars, so the weaker the Canadian dollar, the better it is for Canadian producers’ revenue.”
The threat of potential U.S. tariffs has driven significant market volatility recently, including for the Canadian – U.S. dollar exchange rate (FX), and Canadian benchmark oil price differentials, which have widened as the West Texas Intermediate (WTI) price has strengthened. With a higher WTI price and lower Canadian dollar, Saturn realizes higher revenue from oil sales due to the conversion of the U.S. dollar-denominated WTI price into Canadian dollars, which benefits its Adjusted Funds Flow and Free Funds Flow., according to its Feb. 19 release.
Jeffrey explained the company’s oil goes to the Enbridge Mainline, and thus, to American markets.
But he pointed out that some of those markets are highly dependent on Canadian oil.
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“Certain U.S. refining markets can’t use their own country’s oil. But also, even if you’re the States, even if you had a refiner that could take both U.S. and Canadian crude, let’s say, you would likely never use your own oil because it just represents a big arbitrage opportunity. If you’re in the U.S., and you said, ‘Okay, I can buy from a local producer, or I can buy from Canada,’ the Canadian barrel is going to be cheaper. And if you’re a producer down there, you could say, ‘Why would I sell my product at WTI prices, when I can send this to a port, and get Brent pricing, which is $4 or $5 a barrel better?’ You would never want to consume your own oil, because it’s much cheaper to consume Canadian oil.”
Essentially, cheaper Canadian oil backfills the American market, allowing American production to command higher world oil prices. Jeffrey said, “It is a huge arbitrage opportunity for them.
“Where I get frustrated is where Trump has this so wrong. I mean, the trade deficit is $90 billion, not $200 billion. It’s entirely energy. But fine. But we are just acting like we’re serving as a colony to the United States. Is no different than British colonies. Back in the day, you know, Britain had these colonies all around the world, and they established them so that they could import cheap products from them. That’s why they existed. And that’s what we’re acting like for the U.S. right now. Canada is just serving as a colony that provides them cheap goods at below market value. And at no point, back in the day, would you have seen Britain complain that, ‘Oh, you know, this rubber we’re getting from British Honduras. We have a trade deficit with them. It’s perfect. That’s exactly why we have that.’
“This is not good for us as Canadians. But it’s great for the U.S. And so for the President not to understand that is short sighted.”
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Saturn’s U.S. dollar-denominated debt experiences an offsetting impact since it gets revalued each reporting date at the prevailing exchange rate. As such, a weakening Canadian dollar increases the Canadian dollar value of the liability on its balance sheet. However, Saturn has hedged the FX rate on the principal and interest payments for its senior notes at an attractive rate for the next three years (~$1.34 vs current ~$1.42), fixing its Canadian dollar payments, while any unrealized FX gains/losses will be reflected on its balance sheet.
Saturn also maintains price protection on approximately 50 to 60 per cent of its oil and liquids production, net of royalties, on a rolling forward 12-month basis, and approximately 30 to 40 per cent up to 18 months out, primarily using collars. The company has also hedged the WTI price differential relative to the Canadian MSW and WCS benchmarks, which have widened in response to tariff threats, while the Canadian dollar weakness is also expected to somewhat mute the impact of wider differentials.
Port of Churchill, Manitoba.
When Pipeline Online pointed out that Jeffrey just made the case for Northern Gateway and Energy East pipelines, he countered by saying a serious effort should be made to make use of Churchill, Manitoba, as a deep sea export port. From potash to oil, he feels it creates opportunities, and a “shipping lane worth protecting.”
“We have a reason to get more interest in the Arctic, and display more sovereignty around it.”
Asked about shipping oil from Churchill, he said, “It’s a deep sea port. I mean, as much as you can ship wheat, you could ship potash. Could you also ship oil? I don’t see why not. I mean, if you can ship oil, if it’s safe enough that we can ship tankers up to St Lawrence on the East Coast. I don’t know why we couldn’t, then, ship oil safely, either off the west or Northern Gateway or through Churchill. You do it safely. It is well regulated. These things happen everywhere else in the world.”
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Continued Share Buybacks and Insider Purchases
Saturn said it has continued to methodically return capital to shareholders by maximizing its Normal Course Issuer Bid (NCIB) share buyback program that commenced in August of 2024, consistently purchasing the daily maximum of approximately 46,000 shares. To the end of January, a total of approximately 5.5 million shares have been purchased by Saturn and returned to treasury since the program’s launch.
In addition, through December 2024 and January 2025, insiders of Saturn acquired approximately 440,000 shares, investing close to $1 million as a group. The combination of insider buying and corporate share buybacks highlights management’s confidence that Saturn’s intrinsic value and future potential are not being accurately reflected in the current market value, the company said.
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https://pipelineonline.ca/saturn-oil-and-gas-update-part-1-utilizing-the-saturn-blueprint/