Calgary, Alberta – Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (“Saturn” or the “Company”) is pleased to announce that the Company’s Board of Directors has approved a 2022 capital expenditures budget totalling $50 million.
“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:
|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|
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