Saturn Oil & Gas Inc. Announces Fully-Funded 2024 Corporate Guidance Highlighted By $180 Million of Debt Reduction While Maintaining Production and a $50 Million Bought Deal Private Placement Financing Led By Strategic U.S. Institutional Investors
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CALGARY, AB, Feb. 6, 2024 /CNW/ - Saturn Oil & Gas Inc. (TSX: SOIL) (FSE: SMKA) (OTCQX: OILSF) ("Saturn" or the "Company") is pleased to announce the Company's 2024 capital and operating budget reflecting a focus on maximizing near term free funds flow(1), continued rapid debt repayment, sustainable oil and gas production with high returns on capital investment.
- Sustainable Oil Weighted Production: 2024 average production is forecasted between 26,500 to 27,500 boe/d (80% oil and NGLs)(2);
- High Margin Adjusted Funds Flow(1): low corporate cost structure contributes to robust Adjusted Funds Flow(1) in the range of $300 – $316 million, at a forecast WTI oil price of US$75/bbl;
- Disciplined Capital Allocation: fully funded development capital budget of approximately $146 million, representing approximately 47% of mid point expected 2024 Adjusted Funds Flow(1), which will be directed towards the Company's deep portfolio of light oil weighted development opportunities in Saskatchewan and Alberta;
- Robust Free Funds Flow(1): forecasted Free Funds Flow(1) ("FFF") of between $144 and $160 million, representing a Free Cash Flow Yield(1) of 38% - 42%, based on pro forma market capitalization after the Offering (as defined below);
- Rapid Debt Reduction: directing organic Free Funds Flow to reducing net debt levels, year over year, by 38% – 42%, reducing 2024E Net Debt / Adjusted EBITDA to a range of 0.7x – 0.8x(1) (from 1.3x at year end 2023);
- High leverage to light oil: with an 80% production weighting to oil and NGLS, each additional US$5/bbl increase in WTI oil prices will add $15 million in additional FFF which would be expected to be allocated to additional debt repayment, thereby accelerating the timeline to be debt-free (currently projected as Q1 2026);
- Commitment to ESG Focused Culture: Saturn expects to invest approximately $12 million directed to abandonment and reclamation obligations; and
- Shareholder Support: the Offering (as defined below) is to be led by four existing strategic U.S. institutional shareholders, including GMT Capital Corp. and Libra Advisors, LLC.
"We are very excited for the 2024 capital investment program, the largest budget in Saturn's history, which we will direct towards some of the most economic light oil development plays in North America," commented John Jeffrey, Saturn's CEO. "We look to build on the successes of an outstanding 2023 capital program with the continued deployment of innovative development technologies including Extended Reach Horizontals and Open Hole Multi-Lateral drilling to drive premium capital efficiencies and high rates of return on invested capital. The strong returns from our drilling program are expected to maintain current production levels through 2024, matched with a substantial reduction of debt levels year over year, which will provide significant value creation to our shareholders."
Saturn owns extensive underutilized pipeline and facilities infrastructure in each of its core operating areas and has consequently allocated over 85% of its 2024 development capital expenditures to drilling, completions, equipping and tie-in ("DCET") of approximately 62 net new wells, with less than 10% allocated to facilities expenditures, and the remaining approximate 5% is designated to land, seismic and production optimization projects. The Company prioritizes development drilling of de-risked light oil targets in areas where Saturn has had previous drilling success and does not allocate funds to exploration style drilling. Saturn's average oil and gas production in December 2023 was approximately 28,000 boe/d (81% oil and NGLs)(2), based on field estimates, eclipsing previously stated 2023 exit guidance of 27,000 boe/d (80% oil and NGLs)(2), and the Company is confident that it will maintain 2024 average production in the 26,500 to 27,500 boe/d (80% oil and NGLs)(2) range based on its 2024 capital expenditure budget.
By maintaining a light oil focus in all of Saturn's development activities, the Company has matched premium field sales prices with decreasing unit operating costs and reduced royalty rates to result in industry leading operating netbacks. For the first 9 months of 2023 the Company has reduced operating and transportation costs per boe by 19%, and the average royalty rate has decreased from 15.4% to 11.0%, compared to 2021. Saturn remains committed to drive operational efficiencies and maintain high margin production with select production and facilities optimization projects throughout 2024.
Southeast Saskatchewan will continue to be a major focus of field development with an allocation of approximately 35% of the Company's DCET budget. Projects include follow-on development from some of 2023's most successful drilling programs highlighted by: single and multileg drilling of the prolific Spearfish formations in the Manor area, development of Frobisher light oil targets across the over 225,000 acres of undeveloped land the Company holds mineral rights in SE Saskatchewan, and development of the light oil Bakken resource using unconventional development and open hole multi-lateral ("OHML") techniques.
With the recent success of the Bakken 101/01-07-011-06W2 ("Viewfield 01-07") OHML well, Saturn expects to spud 3 gross (2.5 net) OHML wells in the first quarter of 2024 in the Viewfield area. Saturn plans to operate the drilling of 2 of the OHML wells, with 100% interest, and 1 gross (0.5 net) of the OHML wells are expected to be operated by an industry partner. The Viewfield 01-07 well was drilled with eight lateral legs of approximately 1 mile horizontal lengths and had an IP30 of 233 bbl/d(1) of light oil. The Q1 2024 planned OHML wells are expected to be drilled with lateral legs with lengths ranging from 1.5 to 2.0 miles to enhance production rates. Approximately 20 OHLM Bakken wells were drilled industry wide in the Viewfield area in 2023, with strong average initial production rates, providing encouraging evidence that OHML drilling has the potential to open increased drilling inventory with greater capital efficiencies.
The Company will continue developing its Viking light oil resource play in West Central Saskatchewan in 2024, which allows quick cycle times for drilling and bringing new production online. Saturn will focus its development activities in the East Plato and Herschel areas where the Company has had success discovering expansions to the Viking resource in these areas. The Company expects to invest approximately 20% of drilling capital expenditures to Viking development in 2024.
In Central Alberta Saturn will look to continue to drive strong capital efficiencies by utilizing extended reach horizontal ("ERH") drilling targeting Cardium light oil. The Company is currently drilling the last well of a 4 well program initiated in 2023 and expects to drill up to 10 gross (8.0 net) additional ERH Cardium wells in 2024 for approximately 30% of the DCET budget.
Development in North Alberta will continue to focus on targeting Montney light oil in the Kaybob area where the Company holds 100% working interest with plans to drill a 4 well ERH pad in the second half of 2024 and drill its first ERH well in Deer Mountain targeting Swan Hills light oil. The Company intends to allocate 15% of the DCET budget to North Alberta.
The following table outlines the Company's 2024 guidance(3). Per share metrics are calculated after taking into effect the Offering.
Guidance Range |
Full Year |
|
WTI oil price 2024 average |
$US |
75.00 |
Production(2) |
Boe/d |
26,500 – 27,500 |
Adjusted EBITDA(1), before derivatives |
$MM |
403 – 419 |
Adjusted EBITDA(1), net derivatives |
$MM |
356 – 372 |
Adjusted Funds Flow(1) |
$MM |
300 – 316 |
Adjusted Funds Flow Per Share(1) |
$/sh. |
1.88 – 1.98 |
Development capital expenditures(1) |
$MM |
146 |
Decommissioning expenditures |
$MM |
12 |
Free Funds Flow(1) |
$MM |
144 – 160 |
Free Funds Flow Per Share(1) |
$/sh. |
0.90 – 1.00 |
Free Funds Flow Yield(1) |
% |
38% – 42% |
Net Debt(1) December 2024 |
$MM |
275 – 290 |
Net Debt(1) to Adjusted EBITDA(1) |
Ratio |
0.7x – 0.8x |
Weighted average 2024 common shares out |
MM |
159.7 |
Sensitivities:
Assumption |
Change |
AFF Effect ($ Millions) |
WTI oil price (US$/bbl) |
$1.00 |
3.0 |
AECO C gas price |
$0.10 |
0.9 |
During 2023, Saturn repaid approximately $152 million in principal payments to its senior term loan (the "Senior Term Loan") that had an original principal amount of $608 million owing as at February 28, 2023. Estimated Net Debt(1) at December 31, 2023 is estimated at $463 million. The Company intends that 2024 Free Funds Flow will be directed to further reduce the Senior Term Loan balance for targeted December 31, 2024 Net Debt of between $275 and $290 million. The Company has executed an amendment to its Senior Term Loan agreement, including all applicable covenant waivers, to ensure Saturn is able to fully fund its 2024 capital program. The Senior Term Loan schedule to be repaid in full in Q1 2026 remains unchanged. Principal repayments will be fully funded with organic Free Funds Flow.
In connection with the approved capital expenditure program, Saturn has entered into an agreement with Echelon Capital Markets acting as lead underwriter and sole bookrunner on behalf of a syndicate of underwriters (collectively the "Underwriters") to issue and sell, approximately 22.2 million common shares ("Common Shares") on a "bought deal" private placement basis. The Common Shares will be offered at a price of $2.25 per share (the "Offering Price") for aggregate gross proceeds of approximately $50 million (the "Offering"). The Company will use the net proceeds of the Offering to fund the 2024 capital expenditure program and for working capital purposes. The Offering is to be led by four existing strategic U.S. institutional shareholders, including GMT Capital Corp. and Libra Advisors, LLC. Closing of the Offering is expected on or about February 22, 2024 and is subject to certain conditions including but not limited to, the receipt of all necessary regulatory and other approvals included the approval of the Toronto Stock Exchange ("TSX"). The Common Shares will be subject to a statutory four month and one day hold period from the date of closing.
This news release does not constitute an offer to sell or a solicitation of an offer to sell any securities in the United States. The securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
Saturn Oil & Gas Inc. is a growing Canadian energy company focused on generating positive shareholder returns through the continued responsible development of high-quality, light oil weighted assets, supported by an acquisition strategy that targets highly accretive, complementary opportunities. Saturn has assembled an attractive portfolio of free-cash flowing, low-decline operated assets in Saskatchewan and Alberta that provide a deep inventory of long-term economic drilling opportunities across multiple zones. With an unwavering commitment to building an ESG-focused culture, Saturn's goal is to increase reserves, production and cash flows at an attractive return on invested capital. Saturn's shares are listed for trading on the TSX under ticker 'SOIL' on the Frankfurt Stock Exchange under symbol 'SMKA' and on the OTCQX under the ticker 'OILSF'.
Further information along with a guidance presentation and a corporate presentation will be available on Saturn's website at www.saturnoil.com.
Notes to Press Release
1) |
See Non-GAAP and Other Financial Measures |
2) |
See Production Breakdown by Product Type |
3) |
Guidance pricing assumptions: WTI US$ 75.00/bbl; MSW Differential USD 4.00; CAD USD FX of 0.74; and AECO of $2.75 /mcf |
Throughout this press release and other materials disclosed by the Company, Saturn uses certain measures to analyze financial performance, financial position and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under GAAP and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered alternatives to, or more meaningful than, financial measures that are determined in accordance with GAAP as indicators of the Company performance. Management believes that the presentation of these non-GAAP and other financial measures provides useful information to shareholders and investors in understanding and evaluating the Company's ongoing operating performance, and the measures provide increased transparency and the ability to better analyze Saturn's business performance against prior periods on a comparable basis.
The Company's unaudited condensed consolidated interim financial statements and MD&A as at and for the three and nine months ended September 30, 2023 are available on the Company's website at www.saturnoil.com and under our SEDAR profile at www.sedarplus.ca. The disclosure under the section "Non-GAAP and Other Financial Measures" including non-GAAP financial measures and ratios, capital management measures and supplementary financial measures in the MD&A is incorporated by reference into this news release.
Development capital expenditures
Saturn uses development capital expenditures to monitor its capital investments relative to those budgeted by the Company on an annual basis. Saturn's capital budget excludes acquisition and disposition activities as well as the accounting impact of any accrual changes or payments under certain lease arrangements. Development capital expenditures in this press release are calculated as expenditures on exploration and evaluation assets, property plant and equipment and excludes the impact of capitalized G&A.
Adjusted EBITDA
The Company considers adjusted EBITDA to be a key capital management measure as it is both used within certain financial covenants prescribed under the Company's Senior Term Loan and demonstrates Saturn's standalone profitability, operating and financial performance in terms of cash flow generation, adjusting for interest related to its capital structure. Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation, amortization and other non-cash or extraordinary items. Adjusted EBITDA is presented both before and after derivatives to identify the impact of WTI commodity contracts hedges in place.
Adjusted funds flow
The Company considers adjusted funds flow to be a key capital management measure as it demonstrates Saturn's ability to generate the necessary funds to manage production levels and fund future growth through capital investment. Adjusted funds flow is calculated as cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and transaction costs. Management believes that this measure provides an insightful assessment of Saturn's operations on a continuing basis by eliminating certain non-cash charges, actual settlements of decommissioning obligations, of which the nature and timing of expenditures may vary based on the stage of the Company's assets and operating areas, and transaction costs which vary based on the Company's acquisition and disposition activity.
Free funds flow
The Company considers free funds flow to be a key capital management measure as it is used to determine the efficiency and liquidity of Saturn's business, measuring its funds available after capital investment available for debt repayment, pursue acquisitions and gauge optionality to pay dividends and/or return capital to shareholders through share repurchases. Free funds flow is calculated as Adjusted funds flow in the period less expenditures on property, plant and equipment and exploration and evaluation assets, together "capital expenditures". By removing the impact of current period capital expenditures from adjusted funds flow, management monitors its free funds flow to inform its capital allocation decisions.
Net debt
Net debt is key capital management measure as it is used to assess the ongoing liquidity of the Company. Net Debt is calculated as the carrying value of the Senior Term Loan and Promissory notes, less adjusted working capital including cash. The Company closely monitors its capital structure with a goal of maintaining a strong balance sheet to fund the future growth of the Company.
Net Debt to Adjusted EBITDA
Management considers Net Debt to Adjusted EBITDA an important measure as it is a key metric to identify the Company's ability to fund financing expenses, net debt reductions and other obligations. Adjusted EBITDA is calculated by the Company as adjusted funds flow before interest expense. When this measure is presented quarterly, Adjusted EBITDA is annualized by multiplying by four. When this measure is presented on a trailing twelve month basis, Adjusted EBITDA for the twelve months preceding the net debt date is used in the calculation. This measure is consistent with the Adjusted EBITDA formula prescribed under the Company's Senior Term Loan credit facility. Net Debt to Adjusted EBITDA is calculated as Net Debt divided by Adjusted EBITDA.
Initial Production Rates
"IP30" represents the average initial production of the first 30 days of a new well. Any reference in this news release to initial production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. Readers are cautioned not to place undue reliance on such rates in calculating aggregate production for Saturn.
Disclosure of production on a per boe basis in this press release consists of the constituent product types as defined in NI 51-101 and their respective quantities disclosed in the table below:
Guidance |
Midpoint of 2024E Average |
December 2023 Average |
Light and Medium Crude Oil (bbl/d) |
19,235 |
20,050 |
Natural Gas Liquids (boe/d) |
2,234 |
2,665 |
Conventional Natural Gas (Mcf/d) |
33,184 |
31,710 |
Total (boe/d) |
27,000 |
28,000 |
Boe means barrel of oil equivalent. All boe conversions in this news release are derived by converting gas to oil at the ratio of six thousand cubic feet ("Mcf") of natural gas to one barrel ("Bbl") of oil. Boe may be misleading, particularly if used in isolation. A Boe conversion rate of 1 Bbl : 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio of oil compared to natural gas based on currently prevailing prices is significantly different than the energy equivalency ratio of 1 Bbl: 6 Mcf, utilizing a conversion ratio of 1 Bbl : 6 Mcf may be misleading as an indication of value.
Saturn uses the following abbreviations and frequently recurring terms in this press release: "WTI" refers to West Texas Intermediate, a grade of light sweet crude oil used as benchmark pricing in the United States; "MSW" refers to the mixed sweet blend that is the benchmark price for conventionally produced light sweet crude oil in Western Canada; "AECO" refers to Alberta Energy Company, a grade or heating content of natural gas used as benchmark pricing in Alberta, Canada; "bbl" refers to barrel; "bbl/d" refers to barrels per day; "GJ" refers to gigajoule; "NGL" refers to Natural Gas Liquids; "Mcf" refers to thousand cubic feet.
This press release contains forward-looking statements and forward-looing information (collectively, "forward-looking statements") under applicable securities legislation. Forward-looking statements typically contain words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project", "scheduled", "will" or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements in this press release may include, but are not limited to, the drilling of development wells, workover program and the maintenance of base production and the business plan, the operational and capital guidance of the Company and the breakdown thereof, cost model and strategy of the Company, performance characteristics of the Company's oil and natural gas properties, capital expenditure plans, sources of funding thereof and adjustments that may occur in response to changing commodity prices, the timing and amount of repayments under the Senior Term Loan, the Company's ability to complete the Offering on the terms announced and to fulfill all conditions precedent, including obtaining TSX approval, and the use of proceeds of the Offering.
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Saturn, including expectations and assumptions concerning: the timing of and success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the ability to allocate capital to pay down debt and grow productions, the geological characteristics of Saturn's properties, the application of regulatory and licensing requirements, the availability of capital, labour and services, the creditworthiness of industry partners and prevailing commodity prices. In addition, assumptions have been made regarding and are implicit in, among other things, our capital expenditure and drilling programs, drilling inventory and booked locations, production and revenue guidance, ESG initiatives, debt repayment plans and future growth plans. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.
Although Saturn believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Saturn can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), constraints in the availability of services, commodity price and exchange rate fluctuations, actions of OPEC and OPEC+ members, changes in legislation impacting the oil and gas industry, adverse weather or break-up conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. These and other risks are set out in more detail in Saturn's Annual Information Form for the year ended December 31, 2022.
This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Saturn's prospective results of operations including, without limitation, 2024 production, adjusted EBITDA, adjusted funds flow, free funds flow, capital expenditures, net debt and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was made as of the date of this press release and is intended to provide readers with a more complete perspective on Saturn's anticipated future business operations. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on FOFI, and FOFI should not be used for purposes other than for which it is disclosed herein. Saturn's actual results, performance or achievement could differ materially from those expressed in, or implied by, these FOFI.
The forward-looking statements and FOFI contained in this press release are made as of the date hereof and Saturn undertakes no obligation to update publicly or revise any forward-looking statements or FOFI, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking statements and FOFI contained in this press release are expressly qualified by this cautionary statement.
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
SOURCE Saturn Oil & Gas Inc.
Saturn Oil & Gas Investor & Media Contacts: John Jeffrey, MBA - Chief Executive Officer, Tel: +1 (587) 392-7900, www.saturnoil.com; Kevin Smith, MBA - VP Corporate Development, Tel: +1 (587) 392-7900, [email protected]
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