Brian Zinchuk is editor and owner of Pipeline Online
Saturn Oil & Gas, drilling near Manor on June 16. Photo by Brian Zinchuk
CALGARY – On May 15 Saturn Oil & Gas Inc. (TSX: SOIL)(FSE: SMKA)(OTCQX: OILSF) announced its its financial and operating results for the three months ended March 31, 2024. It is in the process of buying two parcels from Veren (formrly Crescent Point), and plans on running four rigs this year.
“The first quarter development plan returned some of the best results in Saturn’s history,” said Justin Kaufmann, Saturn’s Chief Development Officer. “These results were from conventional development in Southeast Saskatchewan and the Cardium in Central Alberta, which exceeded our expectations yielding numerous wells with record breaking initial production rates. This bodes extremely well for Saturn’s future capital programs, considering the depth of inventory the company has around these locations.”
On the same day, Saturn announced it has closed its previously announced bought deal offering of subscription receipts . Pursuant to the Bought Deal Offering, the company issued a total of 42,554,000 subscription receipts at a price of $2.35 per subscription receipt for gross proceeds of $100,001,900.
First Quarter 2024 Highlights:
- Achieved quarterly production averaging 26,394 boe/d, compared to 17,783 boe/d in the first quarter of 2023;
- Generated quarterly adjusted EBITDA of $88.2 million, compared to $69.9 million in the first quarter of 2023;
- Achieved quarterly adjusted funds flow of $68.2 million, up from $54.5 million in the first quarter of 2023;
- Invested $34.0 million in capital expenditures during the first quarter of 2024, drilling nine gross (8.3 net) wells; including six in Southeast Saskatchewan; and three in Central Alberta;
- Generated free funds flow of $34.2 million, up from $30.2 million in the first quarter of 2023;
- Completed a bought deal equity financing for total gross proceeds of $50.0 million;
- Directed $76.1 towards debt repayment on the on the Senior Term Loan; and
- Exited the first quarter of 2024 with $386.4 million of net debt, realizing a net debt to annualized quarterly adjusted funds flow of 1.4x.
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| Three months ended March 31, | ||||||||||
| ($000s, except per share amounts) | 2024 | 2023 | ||||||||
| FINANCIAL HIGHLIGHTS | ||||||||||
| Petroleum and natural gas sales | 168,219 | 131,407 | ||||||||
| Cash flow from operating activities | 70,222 | 46,794 | ||||||||
| Adjusted EBITDA | 88,153 | 69,860 | ||||||||
| Adjusted funds flow | 68,178 | 54,454 | ||||||||
| per share – Basic | 0.46 | 0.63 | ||||||||
| – Diluted | 0.45 | 0.62 | ||||||||
| Free funds flow | 34,212 | 30,171 | ||||||||
| per share – Basic | 0.23 | 0.35 | ||||||||
| – Diluted | 0.23 | 0.35 | ||||||||
| Net income (loss) | (62,982) | 219,050 | ||||||||
| per share – Basic | (0.42) | 2.52 | ||||||||
| – Diluted | (0.42) | 2.51 | ||||||||
| Acquisitions, net of cash acquired | – | 465,233 | ||||||||
| Capital expenditures | 33,966 | 24,283 | ||||||||
| Net debt, end of period | 386,417 | 556,605 | ||||||||
| Three months ended March 31, | ||||
| (000s, except per boe amounts) | 2024 | 2023 | ||
| OPERATING HIGHLIGHTS | ||||
| Average production volumes | ||||
| Crude oil (bbls/d) | 18,981 | 14,680 | ||
| NGLs (bbls/d) | 2,344 | 992 | ||
| Natural gas (mcf/d) | 30,416 | 12,666 | ||
| Total boe/d | 26,394 | 17,783 | ||
| % Oil and NGLs | 81% | 88% | ||
| Average realized prices | ||||
| Crude oil ($/bbl) | 88.64 | 93.74 | ||
| NGLs ($/bbl) | 44.24 | 52.92 | ||
| Natural gas ($/mcf) | 2.44 | 3.60 | ||
| Processing expenses ($/boe) | (0.45) | (0.79) | ||
| Petroleum and natural gas sales ($/boe) | 70.03 | 82.11 | ||
| Operating netback ($/boe) | ||||
| Petroleum and natural gas sales | 70.03 | 82.11 | ||
| Royalties | (8.82) | (9.34) | ||
| Net operating expenses | (19.80) | (21.07) | ||
| Transportation expenses | (1.31) | (1.01) | ||
| Operating netback | 40.10 | 50.69 | ||
| Realized loss on derivatives | (1.92) | (4.55) | ||
| Operating netback, net of derivatives | 38.18 | 46.14 | ||
| Common shares outstanding, end of period | 161,206 | 138,634 | ||
| Weighted average, basic | 148,558 | 86,995 | ||
| Weighted average, diluted | 151,457 | 87,217 | ||
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Message to Shareholders
Saturn said in its message to shareholders, “The first quarter drilling was an excellent start to the 2024 capital development program with strong results in the Brazeau area of Central Alberta for Cardium development and in Southeast Saskatchewan with conventional multizone development. During the period nine gross (8.3 net) wells were completed with 100% success rate, and all were put into production in February and March of 2024.
“Early in 2024 our production facilities were challenged with severe cold weather across our operating areas in Alberta and Saskatchewan. January 12, 2024 was the coldest day in the history of many parts of Alberta and Saskatchewan, in many cases breaking all-time cold records. As a notable example, at Saturn’s field office in Kindersley Saskatchewan the all-time cold record of -38.8oC was eclipsed with the temperature reaching a low of -44.4 oC. The cold weather hampered Saturn’s production by approximately 3,000 boe/d for a ten day period, reducing the average production rate for the first quarter by approximately 350 boe/d.
“Revenues were further hampered with relatively lower global oil prices, including the North American benchmark WTI oil price that averaged USD 76.97/bbl for the first quarter of 2024, the lowest level in the past three financial quarters. Compounding the impact of lower global oil prices were higher price differentials between the WTI oil price and the Western Canadian benchmark price Mixed Sweet Blend oil price at Edmonton, which averaged USD -8.63/bbl in the first quarter of 2024, compared to the 2023 average of USD -3.25/bbl. The April 2024 commissioning of the Trans Mountain Pipeline Expansion added 590,000 barrels per day of crude oil and refined product export capacity for Western Canada. The price differential between MSW and WTI has decreased to an April 2024 average of USD -4.17/bbl.”
Updates on Debt Repayment
During the first quarter of 2024 Saturn directed $76.1 million towards debt repayment on the Senior Term Loan. Since the closing of the acquisition of Ridgeback Resources Inc. on February 28, 2023, the company has repaid $228.3 million of principal of the Senior Term Loan, to the end of Q1 2024.
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Southeast Saskatchewan Update
During the three months ended March 31, 2024, the Southeast Saskatchewan area produced 11,800 boe/d, an increase of 39% from 8,494 boe/d in the comparative 2023 period. The increase is primarily due to the Ridgeback Acquisition and successful drilling programs.
Saturn completed five gross (5.0 net) conventional horizontal wells with three Mississippian aged Frobisher and Tilston zone targets and two Spearfish zone targets in the first quarter of 2024, exceeding the expected type curve initial 30 days production (IP30) rate by 33%. The success of the Q1 2024 wells in Southeast Saskatchewan was supported by recently shot and processed proprietary seismic data, the use of multileg horizontal wells and following up on Saturn’s past successes in the area.
During the first quarter of 2024, Saturn spud one gross (1.0 net) Open Hole Multi-Lateral (OHML) well in the Viewfield area of Southeast Saskatchewan with eight horizontal legs of up to two miles each. This OHML well is expected to be put onto production in May 2024, and is the first two-mile lateral based OHML well drilled by Saturn.
West Central Saskatchewan Update
The company’s assets located in West Central Saskatchewan produced 3,342 boe/d for the three months ended March 31, 2024 representing a decrease of 35% from 5,156 boe/d in the comparative period in 2023. The production decrease is due to natural production declines and no development activity in this area in Q1 2024, compared to the drilling of eight (8.0 net) Viking development wells in the first three months of 2023.
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Central Alberta Update
During the three months ended March 31, 2024, the Central Alberta assets produced 8,321 boe/d, an increase of 174% from 3,034 boe/d in the comparative 2023 period. The increase is primarily due to the Saturn having operations Central Alberta for only one month of Q1 2023, and successful drilling programs.
Saturn successfully completed four Cardium horizontal wells in the first quarter of 2024, including one Cardium well that was drilled in December 2023 and three wells drilled in Q1 2024, with 100% working interest. The four Cardium wells came onto production on March 15, 2024:
- The IP30 rate of the wells ranged from 676 boe/d to 723 boe/d, for an average IP30 of 710 boe/d (approximately 50% light oil and NGLs), which was 29% above the expected type curve rate; and
- The average cost per Cardium well was $4.5 million, approximately 8% below the budgeted capital spend.
North Alberta Update
During the three months ended March 31, 2024, the North Alberta assets produced 2,931 boe/d, an increase of 167% from 1,099 boe/d in the comparative 2023 period. The increase is primarily due to the Saturn having operations Central Alberta for only one month of Q1 2023 and the successful drilling of four gross (4.0 net) wells for Montney light oil in the Kaybob area.
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Subsequent Event
On May 6, 2024, the Company entered into an agreement for the strategic acquisition of two oil-weighted asset packages in Southern Saskatchewan for net cash consideration of approximately $525.0 million with an expected close date of June 14, 2024. The Southern Saskatchewan assets will add approximately 13,000 boe/d of current production (96% oil and liquids) and 200 net booked locations to Saturn’s drilling inventory. The Acquisition will bolster both of Saturn’s core growth assets in Southeast and West Central Saskatchewan, building size and scale for the company’s growing operations in Western Canada. The Acquisition will be funded through a US$625.0 million debt commitment, which will replace the company’s existing senior secured loan, as well as a bought-deal subscription receipt financing for aggregate gross proceeds of $100.0 million, subject to an over-allotment option to up to an additional $15.0 million. Saturn has also entered into a banking agreement, pursuant to which a Canadian chartered bank has committed to arrange a $150.0 million reserve-based loan expected to be fully undrawn at the Acquisition Closing Date.
Outlook
Saturn said it will pick up development activity after the annual break up is over and road bans are lifted, with the deployment of up to four drilling rigs this summer: two rigs dedicated to Southeast Saskatchewan, one rig in West Central Alberta and one rig in Alberta. The concurrent use of four rigs, for the first time, will be a new milestone in Saturn’s development growth, maintaining a light oil focus and targeting high rates of return on invested capital. With the anticipated increase in adjusted funds flow (AFF) from the Acquisition, Saturn will fund its largest development capital program to date with approximately 60% of run rate AFF, with the remainder of funds available to rapidly reduce debt levels going forward.
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