“As a result of the strategic acquisition and recently closed, upsized and oversubscribed equity issues, Saturn has increased its 2022 capital expenditure program,” stated John Jeffrey, CEO of Saturn. “Equally important, because of the debt consolidation, the Company is now permitted to give guidance to the expected financial impact of our upcoming growth-oriented capital budget which remains underpinned by substantial free funds flow that will also materially reduce outstanding indebtedness.”
2022 Capital Expenditure Program and Annual Guidance
Saturn’s assets provide for a foundation of sustainability: base decline is low at less than 13%; production efficiencies are attractive at less than $15,000 per flowing barrel of oil; and high operating netbacks are more than $60/boe, at current oil prices. Furthermore, as Saturn owns extensive infrastructure and undeveloped land within its operational areas, the Company can direct over 85% of its capital expenditures towards growth projects, with the balance directed to facilities and undeveloped land. Company average production for Q4 2021 was 7,245 boe/d with 96% oil and NGL.
Saturn remains dedicated to reducing its debt levels and expects to make $38.1 million in principal payments this year and to exit 2022 with a debt to 2022 EBITDA ratio of 0.5x. As a testament to Saturn’s ESG commitment, it has allocated $13.3 million to abandonment and reclamation spending and other emission reduction capital projects, which are government funded under the Accelerated Site Closure Program.
Saturn’s 2022 Capital Expenditure Program is currently underway having contracted one drilling rig to be active throughout the year at the Oxbow Asset, excluding, breakup and maintenance periods. Over 85% of the 2022 drilling budget will be directed to the Oxbow Asset, with select drilling targets at the Viking Asset.
A summary of budgeted field development activities:
| ||Activity|| ||Capital ($millions)|
|Oxbow Drilling||29.2 net wells|| ||25.8|
|Viking Drilling||5.0 net wells|| ||5.8|
|Strategic Acquisition||240 bbls/d (field estimate)|| ||7.4|
|Workovers & Optimization||50-100 existing wells|| ||3.9|
|Facilities & Lands|| || ||7.1|
|Total Expenditures|| || ||50.0|
Incorporating the additional financial flexibility provided by the previously announced strategic acquisition, debt consolidation and bought public offering, the Company is now positioned to pursue an expanded 2022 capital expenditure plan which we expect will deliver substantial organic Free funds flow at a conservative WTI oil price assumption of US$75.00/bbl for significant growth and accelerated debt repayment. Highlights of the 2022 Capital Expenditure Program include forecasts of:
- average annual production in the range of 7,800 to 8,200 boe/d, generating hedged EBITDA in the range of $73 to $77 million;
- Q4 2022 average production in the range of 8,100 to 8,500 boe/d, representing year-over-year production growth between 12% – 17%;
- Saturn’s implied debt adjusted free funds flow yield for 2022 is 24 – 27%, based on the Company’s enterprise value of $126.5 million; and
- At the mid-point of guidance, year-end 2022 net debt is expected to be reduced to $39.4 million (down 45% from an estimated $71.0 million at year-end 2021.
|Average production1||7,800 boe/d||8,200 boe/d|
|($millions, except per share)|| || |
|EBITDA prior to hedging||107.6||b 111.6|
|Adjusted Funds Flow (AFF)||61.0||65.0|
|AFF per Basic Share3||1.91||2.03|
|Capital Expenditures (Excluding Acquisition)||(42.6)||(42.6)|
|Free Funds Flow||18.4||22.4|
|2022 Year End Net Debt||41.4||37.4|
|Net Debt to EBITDA||0.6x||0.5x|
|2022e EV / EBITDA4||1.9x||1.7x|
(1) Based on a midpoint 2022 average forecast of 8,000 boe/d, 96% crude oil and NGL production.
(2) Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) netback of CAD $25.70 / boe is based on: 2022 WTI crude oil price of USD $75.00 /bbl; MSW differential of USD -$4.00 /bbl; CAD/USD exchange rate of $0.80; AECO price of $3.50/GJ; corporate differential of CAD -$6.40 /bbl; hedging expense of -$10.82 /boe; and general and administrative expenses of $2.06 /boe, see advisory Non-Gaap Measures.
(3) Based on 32.0 million basic shares.
(4) Enterprise Value (EV) based on the $3.00 share price and 59.1 million fully diluted shares plus forecast 2022 year end net debt adjusted for $90.2 million in option and warrant proceeds.
Saturn’s forecasted funds flow is most sensitive to changes in crude oil prices. Saturn estimates that each additional +US$5/bbl increase in the US$ WTI oil price will provide an extra approximately $4.1 MM in Adjusted Funds Flow such that with the current 12-month WTI strip >US$100/bbl, Saturn would expect to have approximately $83.5 MM in Adjusted Funds Flow at the midpoint of its production guidance. This would effectively double the Company’s annual free funds flow to $40.9 MM (from $20.4 MM), which is available for further accelerated debt repayment allowing for 2022 year end net debt forecasted at less than $19 MM.
Annualized sensitivity analysis on Adjusted Funds Flow, estimated for 2022:
|Assumption||Change||AFF Effect ($millions)|
|WTI oil price (USD/ bbl)||$5.00||4.1 (6.7%)|
|AECO C gas price||$0.10||0.1 (0.0%)|
|CAD/USD exchange rate||$0.01||1.4 (2.3%)|
|Oil production (bbl/d)||100||3.3 (5.2%)|
|Gas production (Mcf/d)||1,000||0.2 (0.0%)|
The Company has entered into a 4-month marketing and consulting contract with Toronto based marketing firm, North Equities Corp. (the “Contract”). North Equities Corp. specializes in various social media platforms and will be able to facilitate greater awareness and widespread dissemination of the Company’s news. In connection with the Contract, the Company has paid North Equities $52,710. North Equities and affiliates directly or indirectly own 17,500 shares of the Company.
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 and West Central Saskatchewan 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.V under ticker ‘SOIL’ and on the Frankfurt Stock Exchange under symbol ‘SMKA’.
Further information and a corporate presentation is available on Saturn’s website at www.saturnoil.com.
Saturn Oil & Gas Investor & Media Contacts:
John Jeffrey, MBA – Chief Executive Officer
Tel: +1 (587) 392-7902
Kevin Smith, MBA – VP Corporate Development
Tel: +1 (587) 392-7900
This news release includes non-GAAP measures as further described herein. These non-GAAP measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures by other companies. Management believes that the presentation of these non-GAAP measures provides useful information to investors and shareholders as the measures provide increased transparency and the ability to better analyze performance against prior periods on a comparable basis.
“Funds flow” represents cash flow from operating activities and adds back changes in non-cash working capital as the Company believes the timing of collection, payment or incurrence of these items is variable. Funds flow per share is calculated using the same weighted average basic and diluted shares that are used in calculating income (loss) per share.
“Adjusted funds flow” adjusts funds flow for items outside the scope of operations such as transactions costs and decommissioning expenditures. Saturn uses adjusted funds flow as a key measure to demonstrate the Company’s ability to generate funds to repay debt and fund future capital investment. Adjusted funds flow per share is calculated using the same weighted average basic and diluted shares that are used in calculating income (loss) per share.
“Free funds flow” represents Adjusted Funds Flow and deducts capital expenditures excluding acquisitions and divestures.
“EBITDA netbacks” are determined by deducting realized derivative commodity contract losses or adding realized derivative commodity contract gains and deducting, royalties, operating expenses, transportation expenses from petroleum and natural gas sales and general and administrative expenses. Netbacks are per boe measures used in operational and capital allocation decisions. Presenting netbacks on a per boe basis allows management to better analyze performance against prior periods on a comparable basis.
“Enterprise Value” (EV) is the sum of the Fully Diluted Market Capitalization and Net Debt adjusted for warrant and option proceeds, as a measurement of the Company’s total value.
“Net debt” represents cash, accounts receivable, deposits and prepaid expenses (current and long-term), accounts payable and accrued liabilities, Senior Term Loan, Term Notes, promissory notes and convertible notes. The Company uses net debt as an alternative to total outstanding debt as management believed it provides a more accurate measure in assessing the liquidity of the Company.
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 drilling of development wells, workover program and the maintenance of bas production and 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 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), constraint in the availability of services, commodity price and exchange rate fluctuations, the current COVID-19 pandemic, 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, 2020.
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, the timely receipt of any required regulatory approvals and the satisfaction of all conditions to the completion of the share consolidation. 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.
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.
ABREVIATIONS AND FREQUENTLY REOCCURING TERMS
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.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.