Saturn Oil & Gas Inc. Reports Q2 2022 Financial and Operational Results Highlighted by Record Quarterly Cash Flow

·15 min read

Calgary, Alberta--(Newsfile Corp. - August 18, 2022) - Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) ("Saturn" or the "Company") is pleased to report its financial and operating results for the three and six months ended June 30, 2022.

"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," commented John Jeffrey, Chief Executive of Saturn. "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."

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.



Three months
ended



Three months
ended



Six months
ended



Six months
ended

 

(CAD $000s, except per share amounts)


June 30, 2022



June 30, 2021



June 30, 2022



June 30, 2021

 

FINANCIAL HIGHLIGHTS


























Petroleum and natural gas sales


82,230



12,589



150,671



13,911


Cash flow from (used) in operating activities


20,399



(30,265

)


30,741



(30,478

)

per share - Basic


0.63



(1.98

)


1.04



(2.20

)

     - Diluted


0.62



(1.98

)


1.01



(2.20

)

Adjusted funds flow (1)


14,463



2,884



27,934



2,342


per share - Basic


0.45



0.19



0.94



0.17


     - Diluted


0.44



0.15



0.92



0.13


Net income (loss)


21,855



(29,597

)


(75,763

)


(31,128

)

per share - Basic


0.68



(1.94

)


(2.56

)


(2.25

)

      - Diluted


0.66



(1.94

)


(2.56

)


(2.25

)

Capital expenditures, net A&D (1)


5,880



77,021



23,930



77,021


Net Debt(1), end of period


58,198



74,504



58,198



74,504

 


(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, 2022



June 30, 2021



June 30, 2022



June 30, 2021


OPERATING HIGHLIGHTS


























Average production volumes













Crude oil (bbls/d)


6,722



1,741



6,771



911


NGLs (bbls/d)


287



66



310



33


Natural gas (mcf/d)


1,887



408



1,975



205

 

Total boe/d


7,324



1,875



7,410



1,058


% Oil and NGLs


96%



96%



96%



97%

 

Average realized prices


 



 



 



 


Crude oil ($/bbl)


131.28



77.50



120.22



75.81


NGLs ($/bbl)


72.15



33.67



64.95



33.67


Natural gas ($/mcf)


6.47



2.88



5.46



2.88

 

Combined ($/boe)


123.39



73.79



112.33



72.61

 

Operating netback ($/boe)


 



 



 



 


Petroleum and natural gas sales


123.39



73.79



112.33



72.61


Royalties


(19.12

)


(9.61

)


(17.85

)


(8.86

)

Net operating expenses (1)


(27.08

)


(24.46

)


(27.21

)


(23.85

)

Transportation expenses


(0.97

)


(1.92

)


(0.76

)


(1.71

)

Operating netback (1)


76.22



37.80



66.51



38.19


Realized loss on derivatives


(46.31

)


(8.22

)


(38.38

)


(7.32

)

Operating netback, net of derivatives (1)


29.91



29.58



28.13



30.87

 



 



 



 



 


Common shares outstanding


32,361



25,165



32,361



25,165


Weighted average common shares outstanding


 



 



 



 


Basic


32,361



15,267



29,623



13,828


Diluted


32,992



18,983



30,397



17,574

 


(1) See Non-GAAP and Other Financial Measures

Message to Shareholders

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.

Investor Webcast

Saturn will host a webcast at 10:00 AM MT (12:00 PM Noon ET) on August 22, 2021, to discuss the second quarter financial report and provide investors an update. Participants can access the live webcast via: https://saturnoil.com/invest/q2-2022-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 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'.

The Company's unaudited condensed consolidated interim financial statements and corresponding Management's Discussion and Analysis ("MD&A") for the six month period ended June 30, 2022 are available on SEDAR at www.sedar.com and on Saturn's website at www.saturnoil.com. Copies of the materials can also be obtained upon request without charge by contacting the Company directly. Please note, currency figures presented herein are reflected in Canadian dollars, unless otherwise noted.

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
www.saturnoil.com

Kevin Smith, MBA - VP Corporate Development
Tel: +1 (587) 392-7900
info@saturnoil.com

Reader Advisory

NON-GAAP AND OTHER FINANCIAL MEASURES

Throughout this news release and in other materials disclosed by the Company, we employ 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. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss) and cash flow from operating activities as indicators of our performance. The Company's unaudited condensed consolidated interim financial statements and MD&A as at and for the three and six months ended June 30, 2022 are available on the Company's website at www.saturnoil.com and under our SEDAR profile at www.sedar.com. 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.

The following are non-GAAP financial measures: capital expenditures, capital expenditures net A&D, free funds flow, net operating expenses, operating netback and operating netback net of derivatives. Where applicable, these non-GAAP financial measures are presented on a multiple, per boe or a per share basis resulting in non-GAAP financial ratios. These non-GAAP financial measures and ratios 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 three and six months ended June 30, 2022, for an explanation of the composition of these measures and ratios, how these measures and ratios provide useful information to an investor, and the additional purposes, if any, for which management uses these measures and ratios.

The following are capital management measures used by the Company: adjusted working capital, net debt, adjusted EBITDA and adjusted funds flow. See the disclosure under the "Capital Management" note in our unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2022, for an explanation of the composition of these measures, how these measures provide useful information to an investor, and the additional purposes, if any, for which management uses these measures.

Where applicable, the supplementary financial measures used in this press release are either a per unit disclosure of a corresponding GAAP measure, or a component of a corresponding GAAP measure, presented in the unaudited condensed consolidated interim financial statements. Supplementary financial measures that are disclosed on a per unit basis are calculated by dividing the aggregate GAAP measure (or component thereof) by the applicable unit for the period. Supplementary financial measures that are disclosed on a component basis of a corresponding GAAP measure are a granular representation of a financial statement line item and are determined in accordance with GAAP.

BOE PRESENTATION

Boe means barrel of oil equivalent. All boe conversions in this MD&A 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.

ADVISORIES AND 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 programs and the maintenance of base production, production guidance drilling and rig utilization plans 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, 2021.

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.

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.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/134295