As a relatively new player in the exploration and production market, Saturn Oil and Gas is making waves throughout the industry. Growing from 300 barrels a day to over 7,000 boe/d, increasing production by over 2,000%, takes an impressive team and vision.
By focusing their efforts solely on Saskatchewan, developing the Viking play and Mississippian formations, the company is developing light oil in familiar areas. In June 2021, Saturn announced the closing of the Oxbow Asset acquisition from Crescent Point Energy, with over 450 net sections of land and hundreds of drilling locations.
“We were a small company that was building a successful drilling track record when we ran into the pandemic of 2020. It was a tough year for everybody, but we survived, and in the process, we were opportunistic. It took over nine months of hard work, resulting in us buying a large light oil-producing asset that basically transformed the company,” said John Jeffrey, CEO.
Saturn had started to negotiate the acquisition in the fall of 2020, while WTI was just recovering from near zero to $40 USD. Through the process, the oil price was steadily increasing, and by the time the acquisition closed, WTI was through $60 USD, and rising.
“When Saturn went to acquire the asset, the company’s market cap was under $30 million. We more than doubled that, raising $32 million in new equity, and secured a term loan of $87 million, raising a total of $119 million. This provided the working capital, and the $80 million cash to acquire the asset. The timing could not have been better,” asserted Kevin Smith, VP Corporate Development. With current higher oil prices and increased production, street research estimates the Oxbow Asset will help Saturn deliver over $80 million in EBITDA cash flow in 2022.
The asset is highly liquid-levered, as 96% of what Saturn produces is oil and NGLs. After focusing on drilling the Viking in Q3 2021, Saturn drilled five wells in Q4 at Oxbow that came onto production in December and mid January 2022. Saturn is taking a new approach to an old asset and breathing life back into it. By applying relatively new drilling techniques including, extended reach horizontals, dual leg laterals and drilling under section lines, the company is targeting pockets of undrained light oil in mature pools.
“What first attracted us to the Oxbow Asset was the massive reserves in place and the opportunity to enhance production from established pools,” stated Justin Kaufman, SVP Exploration. “By taking new approaches and prudently allocating capital, there is tremendous opportunity to grow this asset with just a portion of the free cash flow it generates.”
The Oxbow acquisition has helped elevate Saturn to new heights and put its mark on the map. Kaufmann likes to label Saturn as developers, and that they like to keep their risk profile down. He is focused on producing oil that they know they have, as opposed to risky exploration to find new reserves. A viable strategy given Saturn already has 50 million boe of reserves.
“The Oxbow is considered a mature asset, but with time and effort you can identify sweet spots that deliver excellent drilling results,” explained Kaufmann. “The group of wells drilled in Q4 2021 was phenomenal, including Saturn drilling its most productive well as a company.”
This early drilling success kicks off an active drilling program Saturn has for 2022. The company expects to release its capital budget in mid January 2022, along with more details from the Q4 2021 drilling program.
“While Oxbow was a new area for Saturn, it is not a new area for the people that work in our company. Many of our professional staff have worked on this asset and had direct familiarity with it during their time with Crescent Point. In addition, we kept 100% of the Carlyle operations office. It’s the people that allow you to manage and grow the company,” Jeffrey said.
In trying times during the pandemic, for a beleaguered oil and gas industry, Saturn’s ability to retain and add employees and see continued growth is a success story in and of itself. Saturn’s team is relatively young by industry standards. “They’ve brought a fresh approach to older assets,” Smith says.
In that timeframe, Saturn has also expanded its team from seven employees to 70 to keep up with its exponential growth. Adding these team members has energized the company. In Q3, Saturn put up $17 million of EBITDA cash flow from a company that just a few years ago had zero.
Saturn utilizes technology in its operations to efficiently recover oil from its pools. The first well they drilled at Oxbow was a dual-leg horizontal with both laterals in the Frobisher formation. Essentially, they got two wells out of one without adding much more cost. In the same area of Glen Ewen, the company completed a standard half-mile horizontal before moving on to the next three wells, all mile-long horizontals, from the same drilling pad. “Multi-well drilling pads are taking over the industry and are relatively new for the area,” Kaufmann said. “Economically speaking, you want your wells to have the highest exposure to the reservoir at the lowest cost per meter drilled. You also reduce your environmental footprint and operational fixed costs by reducing surface locations.”
Land footprint is an important issue for Saturn. The Oxbow Asset came with an inventory of 1,600 non-producing wells, that were not being dealt with. One of Saturn’s most important partners are the farmers of Saskatchewan. The company is now partnered with over 3,000 farmers where a part of their land is borrowed, for a fee. When production has reached the end of its economic life, an operator is obliged to return it back in pristine condition.
“As part of our commitment to ESG, we’re initiating a land reclamation program, to remediate inactive wells, and return the land, clean to the farmers,” Jeffrey says. Saturn has a $20 million budget over the next three years to site remediation. The goal is for over 400 wells and facilities to be remediated by end of 2024, with 200+ of these well reclamations scheduled for 2022.
Another approach Saturn is taking to older inactive wells is committing capital for workovers and put them back on production. The company plans to restore production for up to 400 non-producing wells.
“These are the most predictable and economic barrels of production we can add,” commented Scott Sanborn, CFO. “With a minimal capital contribution, we can bolster our production, while reducing our inactive well bore count. In time, this increases our return on invested capital while lowering investment risk.”
Saturn has shown that good timing in a volatile period can create a real opportunity to grow. Now the Saturn team must prove that they can continue to grow their new company as we enter more normalized times.