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Saturn Oil & Gas Second Quarter 2022 Results

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   |    Monday,August 22,2022

Saturn Oil & Gas Inc. reported its 2Q 2022 results.

Second Quarter 2022 Highlights:

• Generated record quarterly petroleum and natural gas sales of $82.2 million on production of 7,324 boe/d;
• Achieved record quarterly Adjusted EBITDA⁽¹⁾ of $18.0 million, driven by the highest operating netbacks achieved since the closing of the Oxbow Acquisition in June 2021;
• Attained record quarterly Adjusted funds flow⁽¹⁾ of $14.5 million ($0.45 per basic share);
• Entered into a definitive agreement to acquire (and subsequent to the quarter, closed the acquisition of) synergistic assets in the Viking area of West-central Saskatchewan (the “Viking Acquisition“) for total cash consideration of $242.6 million, after interim closing adjustments, which added production of approximately 4,000 boe/d (98% light oil and liquids) with high netbacks and 140 net sections of land;
• Drilled three horizontal wells in the Oxbow area, targeting Frobisher light oil, with a 100% success rate;
• Produced record quarterly free funds flow of $8.5 million ($0.27 per basic share), reducing net debt and representing an annualized free funds flow yield of 44%; and
• Exited the second quarter with net debt⁽¹⁾ of $58.2 million realizing a net debt to annualized quarterly adjusted funds flow⁽¹⁾ of 1.0x.

John Jeffrey, Chief Executive of Saturn, said: “Saturn’s high quality, light oil production base was complimented in the second quarter of 2022 with exceptionally strong global oil prices which produced a record cash flow. Saturn’s focus on enhancing the Company’s oil production capabilities through accretive acquisitions in the first half of 2022 has set the foundation for fully funded future organic growth through development drilling and concurrent rapid debt repayment.”

Results Overview

Saturn made another large step forward in growing the Company’s light oil production in the second quarter of 2022 in securing the definitive agreement to acquire the Viking Acquisition, adding approximately 4,000 boe/d of Viking production of predominantly light oil, which closed on July 6, 2022. The production from the Viking Acquisition achieves strong cash flow netbacks based on the high quality of the light oil produced, low royalties and low operating costs of the assets. The Viking Acquisition is a strong strategic fit with Saturn’s existing Viking operations, adding 138 booked drilling locations over 140 net sections of land. With Company’s deep inventory of de-risked development locations, we expect that the strong cash flows of Saturn’s combined Viking assets (the “Viking Asset“) will provide sustainable free cash flow to fund corporate production growth and rapid debt repayment.

Oxbow Update

The Company drilled and completed three horizontal wells (100% working interest) in the second quarter of 2022, targeting Frobisher light oil in the Oxbow Asset, with a 100% success rate. Saturn’s drilling and oil field operations were constrained during the period with wet weather, intermittent power outages caused by storms and the annual road bans of spring breakup.

Saturn acquired extensive seismic in the Manor area, following up on the two strong performing horizontal wells drilled in Q1 2022 targeting Tilston light oil. Based on our success to date, and evaluation of the acquired seismic data, the Company has identified up to 10 unbooked Tilston drilling locations in the Manor area on Saturn’s land base which will be an area of focus for future development.

In Q2 2022 the Saturn received regulatory approval for the Company’s first conversion of existing wells into water injectors in the Carnduff pool in the Glen Ewen area. This is an important first step in Saturn’s efforts to implement secondary recovery methods in the Company’s existing light oil pools to enhance recovery factors and deliver economic production growth. The Company will be evaluating the results of the waterflood trials currently initiated and if successful, Saturn has expectations of a larger project rollout in 2023.

Viking Update

With the close of the Viking Acquisition on July 6, 2022, the overall Viking Asset represents approximately 35% of the Company’s total oil production and is an important free cash flow generating business unit. Saturn acquired 6.5 sections of undeveloped land in Alberta which the Company has identified as an extension of the Viking light oil formations we are developing in Saskatchewan. In July 2022 the Company drilled its first 1.5 mile extended reach horizontal (“ERH“) well with 64 completed stages on the newly acquired Alberta land. The well is currently in early cleanup phase.

Outlook

Saturn’s H2 2022 drilling program is now well under way and for the first time in the Company’s short history we are now consistently using two drilling rigs, one for each of the Oxbow and Viking assets. In addition, the ERH well drilled and completed in Alberta, the Company has recently drilled and completed a three well pad at Prairiedale in Saskatchewan, all targeting Viking light oil. In total, the Company has budgeted to drill up to 23 horizontal wells in the Viking Asset. The Oxbow Asset continues to be the key growth area for Saturn with up to 30 horizontal wells budgeted for drilling in 2022. As a result of the strong operational results to date, the Company’s previously released guidance is reiterated with average production anticipated to be 12,300 to 12,700 boe/d in Q4 2022. Current production after the closing of the Viking Acquisition is over 11,000 boe/d, based on field estimates.