Saturn Oil & Gas Inc. Reports Q2 2023 Financial and Operational Results Highlighted by Record Quarterly Production and Adjusted Funds Flow

Rhea-AI Summary

Saturn Oil & Gas Inc. reports record quarterly production and cash flow for the three months ended June 30, 2023. The company achieved a record average production of 25,988 boe/d, with petroleum and natural gas sales of $176.0 million. Adjusted EBITDA reached $92.9 million, and adjusted funds flow totaled $67.0 million. Saturn's drilling program is now underway in Alberta and Saskatchewan, focusing on developing light oil production in economically viable plays.

Positive

• Record quarterly average production of 25,988 boe/d, compared to 7,324 boe/d in Q2 2022
• Record quarterly petroleum and natural gas sales of $176.0 million
• Record quarterly adjusted EBITDA of $92.9 million
• Record quarterly adjusted funds flow of $67.0 million
• Record quarterly free funds flow of $53.1 million
• Net debt of $510.2 million with a net debt to annualized quarterly adjusted funds flow ratio of 1.9x

Negative

• None.

Calgary, Alberta--(Newsfile Corp. - August 14, 2023) - Saturn Oil & Gas Inc. (TSX: SOIL) (FSE: SMKA) (OTCQX: OILSF) ("Saturn" or the "Company") is pleased to report its financial and operating results for the three and six months ended June 30, 2023.

"The three months ended June 30, 2023 represent the first full quarter of positive contribution from the recently completed acquisition of Ridgeback which has driven record quarterly production and cash flow,⁽¹⁾" commented John Jeffrey, Chief Executive Officer of Saturn. "Saturn is focused on delivering robust free funds flow⁽¹⁾, while sustaining high netback production with a very active drilling program for the second half of 2023. Saturn's drilling program is now underway in both Alberta and Saskatchewan, developing light oil production in some of the most economic plays in North America."

Second Quarter 2023 Highlights:

• Record quarterly average production of 25,988 boe/d, compared to 7,324 boe/d in the second quarter of 2022;

• Record quarterly petroleum and natural gas sales of $176.0 million, up from $82.2 million in the second quarter of 2022 and $131.4 million in the first quarter of 2023;

• Operating netback, net of derivatives⁽¹⁾ of $41.87 per boe while the benchmark WTI oil price averaged US$73.75 during the period, compared to $29.91 per boe in the second quarter of 2022 when WTI averaged US$108.41;

• Record quarterly adjusted EBITDA⁽¹⁾ of $92.9 million, compared to $18.0 million in the second quarter of 2022;

• Record quarterly adjusted funds flow⁽¹⁾ of $67.0 million ($0.48 per basic share); compared to $14.5 million ($0.45 per basic share) in the comparable 2022 period;

• Invested $13.8 million of development capital expenditures, drilling 7 (net 3.4) wells; including 2 in Southeast Saskatchewan and 5 in West Central Saskatchewan, with a 100% success rate;

• Record quarterly free funds flow⁽¹⁾ of $53.1 million ($0.38 per basic share) compared to $8.5 million ($0.26 per basic share) in the comparable 2022 period; and

• Net debt⁽¹⁾ of $510.2 million realizing a net debt to annualized quarterly adjusted funds flow⁽¹⁾ ratio of 1.9x.

	Three months ended		Three months ended		Six months ended		Six months ended
(CAD $000s, except per share amounts)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
FINANCIAL HIGHLIGHTS
Petroleum and natural gas sales	176,034		82,230		307,441		150,671
Adjusted EBITDA(1)	92,853		17,950		162,720		34,229
Adjusted funds flow (1)	66,954		14,463		121,415		27,934
per share - Basic	0.48		0.45		1.07		0.94
- Diluted	0.47		0.44		1.05		0.92
Free funds flow (1)	53,109		8,493		83,287		11,497
per share - Basic	0.38		0.26		0.74		0.39
- Diluted	0.37		0.26		0.72		0.38
Net income (loss)	51,273		21,855		270,323		(75,763	)
per share - Basic	0.37		0.68		2.39		(2.56	)
- Diluted	0.36		0.66		2.33		(2.56	)
Acquisitions, net of cash acquired	1,439		(90	)	466,662		7,493
Capital expenditures(1)	13,845		5,970		38,128		16,437
Net debt(1), end of period	510,185		58,198		510,185		58,198

 

⁽¹⁾ See Non-GAAP and Other Financial Measures

	Three months ended		Three months ended		Six months ended		Six months ended
(CAD $000s, except per share amounts)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
OPERATING HIGHLIGHTS
Average production volumes
Crude oil (bbls/d)	19,425		6,722		17,066		6,771
NGLs (bbls/d)	2,137		287		1,567		310
Natural gas (mcf/d)	26,553		1,887		19,648		1,975
Total boe/d	25,988		7,324		21,908		7,410
% Oil and NGLs	83%		96%		85%		96%
Average realized prices
Crude oil ($/bbl)	92.39		131.28		92.97		120.22
NGLs ($/bbl)	39.58		72.15		43.78		64.95
Natural gas ($/mcf)	2.62		6.47		2.93		5.46
Processing expenses ($/boe)	(0.56	)	(1.61	)	(0.65	)	(1.69	)
Petroleum and natural gas sales ($/boe)	74.43		123.39		77.53		112.33
Operating netback ($/boe)
Petroleum and natural gas sales	74.43		123.39		77.53		112.33
Royalties	(6.96	)	(19.12	)	(7.92	)	(17.85	)
Net operating expenses (1)	(22.31	)	(27.08	)	(21.81	)	(27.21	)
Transportation expenses	(1.42	)	(0.97	)	(1.26	)	(0.76	)
Operating netback (1)	43.74		76.22		46.54		66.51
Realized loss on derivatives	(1.87	)	(46.31	)	(2.95	)	(38.38	)
Operating netback, net of derivatives (1)	41.87		29.91		43.59		28.13
Common shares outstanding	138,634		32,361		138,634		32,361
Weighted average, basic	138,634		32,361		112,957		29,623
Weighted average, diluted	141,742		32,992		116,089		30,397

 

Message to Shareholders

Saturn has made great progress on the integration of Ridgeback Resources Inc. ("Ridgeback") and has emerged as a substantial energy producer in Western Canada. As a reflection of the increased scale of the Company's operations, Saturn graduated to the Toronto Stock Exchange in June 2023. The Company is currently exploiting its deep inventory of light oil development projects in both Alberta and Saskatchewan, with one rig drilling full time in each province. The Company's Alberta production was temporarily impacted by wildfires and corresponding third-party infrastructure downtime, resulting in the curtailment of approximately 2,300 boe/d (56% Oil and NGLs) of production during the quarter. Currently 100% of the curtailed production is back online and there has been no material damage from the wildfires to Saturn's infrastructure or facilities. The Company is diligently reducing its debt load with principal repayments of $51.5 million being made in the quarter.

Oxbow Update

The Company's assets located in Southeast Saskatchewan (the "Oxbow Asset") produced 11,388⁽²⁾ boe/d for the three months ended June 30, 2023, a 62% increase from Q2 2022, and was not impacted by wildfires. The Company drilled and completed seven gross horizontal wells (net 3.4) in the second quarter of 2023 with a 100% success rate. Two operated wells were drilled targeting light oil in the Spearfish formation of the Midale area. This is Saturn's first development program of the Spearfish formations in what is expected to include the drilling of up to a total of six Spearfish wells. The drilling of the Spearfish wells is supported with extensive seismic coverage and Saturn has an existing pipeline network and facilities in this area to tie in new production quickly.

Viking Update

The Company's assets located in West Central Saskatchewan (the "Viking Asset") produced 4,860 boe/d⁽²⁾ for the three months ended June 30, 2023 a 1,488% increase from Q2 2022, and was not impacted by wildfires. The Company did not drill any new wells in the Viking area in Q2 2023. The production levels of the eight gross wells (8.0 net) drilled in the first quarter of 2023 continue to perform well above the type curves of our expected reserve production profile and industry averages for Viking wells. Development drilling for light oil at the Viking Asset is expected to recommence in Q1 2024.

Alberta Update

Saturn's assets located in Central Alberta (the "Cardium Asset") produced 7,358 boe/d⁽²⁾ for the three months ended June 30, 2023. The Company's assets in the Kaybob and Deer Mountain areas (the "North Alberta Assets") produced 2,382⁽²⁾ boe/d for the three months ended June 30,2023. Between the Cardium Asset and the North Alberta Assets the Company estimates that the wildfires in Alberta curtailed approximately 2,300 boe/d (56% Oil and NGLs) in the quarter.

Saturn is currently drilling its second Extended Reach Horizontal well ("ERH Well") in the Lochend area of Alberta and is presently completing the first of what is expected to be a three well program. Lateral lengths of the Lochend ERH Wells are targeting between 1.5 and 3 miles. The new Lochend Cardium wells are in close proximity to Saturn's extensive infrastructure in this area, including a working interest in a natural gas processing plant, enabling the new production to be put onstream with short cycle times and high netbacks.

Outlook

Saturn's H2 2023 drilling program is now well under way with one drilling rig expected to run to the end of 2023 in both Alberta and Saskatchewan. The Company is budgeting up to 25 wells in the Oxbow Area for the second half of 2023. The Oxbow development is expected to include the drilling of light oil Bakken formations, utilizing industry leading hydraulic stimulation completions technology and certain locations to be drilled as open hole multi-lateral ("OHML") wells. OHML is a newly developed drilling technique that is producing strong industry success in Bakken formations in Southeast Saskatchewan in 2023. OHML is showing the potential to increase estimated ultimate recoveries of light oil and enhancing development economics. The Bakken formation is a well-delineated resource play in which Saturn has over 350 identified locations in close proximity to Company infrastructure and an operated gas processing facility, including over 263 gross (200 net) booked unconventional Bakken wells and 100 gross (91 net) un-booked OHML targets.

In addition to the Lochend drilling program now underway, Saturn expects to drill up to two additional ERH wells targeting Cardium light oil in the West Pembina, and up to four ERH wells targeting Montney light oil in the Kaybob area of the North Alberta Asset in 2023.

Investor Webcast

Saturn will host a webcast at 10:00 AM MT (12:00 PM Noon ET) on August 15, 2022, to discuss the second quarter financial report and provide investors an update. Participants can access the live webcast via: https://saturnoil.com/invest/q2-2023-results-webcast, or through the Company's website www.saturnoil.com. A recorded archive of the webcast will be available afterwards on the Company's website. 

About Saturn Oil & Gas Inc.

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 Southeastern Saskatchewan, West Central Saskatchewan and Central/Northern 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 Toronto Stock Exchange under ticker 'SOIL', on the Frankfurt Stock Exchange under symbol 'SMKA' and on the OTCQX under the ticker 'OILSF'.

For additional information, please contact:

John Jeffrey, MBA – Chief Executive Officer
or
Kevin Smith, MBA – VP Corporate Development
Tel: +1 (587) 392-7900
www.saturnoil.com
info@saturnoil.com

Reader Advisory

Non-GAAP and Other Financial Measures

Throughout this news release and in other materials disclosed by the Company, Saturn employs 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 by IFRS and therefore may not be comparable to similar measures provided by other issuers. Non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS. 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 Company's Condensed consolidated interim financial statements and MD&A are incorporated by reference into this news release.

This press release may use the terms "Adjusted EBITDA", "Adjusted Funds Flow", and "Net Debt" which are capital management financial measures. See the disclosure under "Capital Management" in our Condensed consolidated interim financial statements for the six months ended June 30, 2023, for an explanation and composition of these measures and how these measures provide useful information to an investor, and the additional purposes, if any, for which management uses these measures.

This press release may use the terms "capital expenditures", "free funds flow", "operating netback", "operating netback, net of derivatives", and "net operating expenses", which are non-GAAP financial measures. These non-GAAP financial measures are not standardized financial measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. See the disclosure under the section "Non-GAAP Financial Measures and Ratios" in our MD&A for the six months ended June 30, 2023, for an explanation and composition of these measures and how these measures provide useful information to an investor, and the additional purposes, if any, for which management uses these measures.

Capital expenditures

Saturn uses 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. The most directly comparable GAAP measure for capital expenditures is cash flow used in investing activities. The following table reconciles capital expenditures and capital expenditures, net acquisitions and dispositions ("A&D") to the nearest GAAP measure, cashflow used in investing activities.

	Three months ended June 30,				Six months ended June 30,
($000s)	2023		2022		2023		2022
Cash flow used in investing activities	23,818		21,957		520,498		36,489
Change in non-cash working capital	(8,534	)	(16,077	)	(15,708	)	(12,559	)
Capital expenditures, net A&D	15,284		5,880		504,790		23,930
Acquisitions, net of cash acquired	(1,439	)	90		(466,662	)	(7,493	)
Capital expenditures	13,845		5,970		38,128		16,437

 

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. Saturn calculates Free funds flow 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.

The following table reconciles adjusted EBITDA, adjusted funds flow and free funds flow to cash flow from operating activities:

	Three months ended June 30,				Six months ended June 30,
($000s)	2023		2022		2023		2022
Cash flow from operating activities	94,232		20,399		138,143		30,741
Change in non-cash working capital	(29,823	)	(5,980	)	(23,280	)	(3,236	)
Decommissioning expenditures	1,636		44		1,895		429
Transaction costs	909		-		4,657		-
Net interest	25,899		3,487		41,305		6,295
Adjusted EBITDA	92,853		17,950		162,720		34,229
Net interest	(25,899	)	(3,487	)	(41,305	)	(6,295	)
Adjusted funds flow	66,954		14,463		121,415		27,934
Capital expenditures(1)	(13,845	)	(5,970	)	(38,128	)	(16,437	)
Free funds flow	53,109		8,493		83,287		11,497

 

⁽¹⁾ Calculated as expenditures on Property, plant and equipment and exploration and evaluation assets on the condensed consolidated interim statements of cash flows.

Supplemental Information Regarding Product Types

References to gas or natural gas and NGLs in this press release refer to conventional natural gas and natural gas liquids product types, respectively, as defined in National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"), except where specifically noted otherwise.

The following table is intended to provide the product type composition for each of the production figures provided herein, where not already disclosed within tables above for the three months ended June 30, 2023 and 2022, and June 2023 stand alone average production:

			Three months ended June 30
		June 2023 Average			2023		2022
Oxbow Asset
Crude oil (bbls/d)		9,614			9,794		6,416
NGLs (bbls/d)		910			866		287
Natural gas (mcf/d)		3,770			4,366		1,887
Total boe/d		11,151			11,388		7,018
Viking Asset
Crude oil (bbls/d)		4,701			4,764		306
NGLs (bbls/d)		50			20		-
Natural gas (mcf/d)		715			454		-
Total boe/d		4,870			4,860		306
Cardium Asset
Crude oil (bbls/d)		4,002			3,436		-
NGLs (bbls/d)		1,095			976		-
Natural gas (mcf/d)		21,958			17,677		-
Total boe/d		8,756			7,358		-
North Alberta Asset
Crude oil (bbls/d)		1,782			1,431		-
NGLs (bbls/d)		308			275		-
Natural gas (mcf/d)		4,464			4,056		-
Total boe/d		2,834			2,382		-
Total Company
Crude oil (bbls/d)		20,099			19,425		6,722
NGLs (bbls/d)		2,363			2,137		287
Natural gas (mcf/d)		30,907			26,553		1,887
Total boe/d		27,611			25,988		7,324

 

Gross petroleum and natural gas sales

Gross petroleum and natural gas sales is calculated by adding oil, natural gas and NGLs revenue, before deducting certain gas processing expenses in arriving at Petroleum and natural gas revenue as required under IFRS-15. These processing expenses associated with the processing of natural gas and NGLs revenue are a result of the Company transferring custody of the product at the terminal inlet, and therefore receiving net prices. This metric is used by management to quantify and analyze the realized price received before required processing deductions, against benchmark prices. The calculation of the Company's gross petroleum and natural gas sales is shown within the petroleum and natural gas sales section within this MD&A.

Net operating expenses

Net operating expense is calculated by deducting processing income primarily generated by processing third party production at processing facilities where the Company has an ownership interest, from operating expenses presented on the Statement of income (loss). Where the Company has excess capacity at one of its facilities, it will process third-party volumes to reduce the cost of ownership in the facility. The Company's primary business activities are not that of a midstream entity whose activities are focused on earning processing and other infrastructure-based revenues, and as such third-party processing revenue is netted against operating expenses in the MD&A. This metric is used by management to evaluate the Company's net operating expenses on a unit of production basis. Net operating expense per boe is a non-GAAP financial ratio and is calculated as net operating expense divided by total barrels of oil equivalent produced over a specific period of time. The calculation of the Company's net operating expenses is shown within the net operating expenses section within this MD&A.

Operating netback and Operating netback, net of derivatives

The Company's operating netback is determined by deducting royalties, net operating expenses and transportation expenses from petroleum and natural gas sales. The Company's operating netback, net of derivatives is calculated by adding or deducting realized financial derivative commodity contract gains or losses from the operating netback. The Company's operating netback and operating netback, net of derivatives are used in operational and capital allocation decisions. Presenting operating netback and operating netback, net of derivatives on a per boe basis is a non-GAAP financial ratio and allows management to better analyze performance against prior periods on a per unit of production basis. The calculation of the Company's operating netbacks and operating netback, net of derivatives are summarized as follows.

	Three months ended June 30,					Six months ended June 30,
($000s)	2023		2022			2023		2022
Petroleum and natural gas sales	176,034		82,230			307,441		150,671
Royalties	(16,449	)	(12,741		)	(31,395	)	(23,938		)
Net operating expenses	(52,760	)	(18,045		)	(86,477	)	(36,496		)
Transportation expenses	(3,369	)	(646		)	(4,978	)	(1,013		)
Operating netback	103,456		50,798			184,591		89,224
Realized loss on financial derivatives	(4,425	)	(30,859		)	(11,700	)	(51,482		)
Operating netback, net of derivatives	99,031		19,939			172,891		37,742
($ per boe amounts)
Petroleum and natural gas sales	74.43		123.39			77.53		112.33
Royalties	(6.96	)	(19.12		)	(7.92	)	(17.85		)
Net operating expenses	(22.31	)	(27.08		)	(21.81	)	(27.21		)
Transportation expenses	(1.42	)	(0.97		)	(1.26	)	(0.76		)
Operating netback	43.74		76.22			46.54		66.51
Realized loss on financial derivatives	(1.87	)	(46.31		)	(2.95	)	(38.38		)
Operating netback, net of derivatives	41.87		29.91			43.59		28.13

 

Boe Presentation

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.

Forward-Looking Information and Statements.

Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with 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 information in this press release may include, but is not limited to, the Company's drilling and development plans, cycle times, expectations regarding netbacks, the business plan, cost model and strategy of the Company.

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 or maintain production, 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 the ability to source and complete asset acquisitions.

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.

Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect. Although Saturn believes that the expectations reflected in its forward-looking information are reasonable, undue reliance should not be placed on forward-looking information because Saturn can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, 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.

The forward-looking information contained in this press release is made as of the date hereof and Saturn undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking information contained in this press release is expressly qualified by this cautionary statement.

All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.

---

(1) See reader advisory: non-GAAP and Other Financial Measures
(2) See reader advisory: Supplemental Information Regarding Product Types

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/177230

FAQ

What is the company name mentioned in the press release?

The company mentioned in the press release is Saturn Oil & Gas Inc.

What were the key financial highlights for the second quarter of 2023?

The key financial highlights for the second quarter of 2023 include record quarterly average production, petroleum and natural gas sales, adjusted EBITDA, adjusted funds flow, and free funds flow.

What is Saturn's focus for the second half of 2023?

Saturn's focus for the second half of 2023 is delivering robust free funds flow while sustaining high netback production through an active drilling program in Alberta and Saskatchewan.

What is the net debt of Saturn Oil & Gas Inc.?

The net debt of Saturn Oil & Gas Inc. is $510.2 million, with a net debt to annualized quarterly adjusted funds flow ratio of 1.9x.

What is the company's drilling program targeting?

The company's drilling program is targeting the development of light oil production in economically viable plays in Alberta and Saskatchewan.