BOE Report

Saturn Oil & Gas Inc. announces 50.7 Million BOE of reserves, a 668% increase year over year

Calgary, Alberta – Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (“Saturn” or the “Company”) is pleased to announce the results of the independent reserves evaluation of the Company’s crude oil and natural gas assets, dated March 23, 2022 and effective December 31, 2021, in compliance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and in accordance with the Canadian Oil and Gas Evaluation Handbook (the “Reserve Report”).

Reserves Evaluation Highlights

The Reserve Report, prepared by Ryder Scott Company-Canada (“Ryder Scott”), evaluated the Company’s assets in Southeast Saskatchewan (the “Oxbow Asset”) and in West Central Saskatchewan (the “Viking Asset”) and is highlighted by:

  • 50.7 million BOE of Total Proved + Probable (“TP+P”) reserves, representing a 668% year over year increase
  • 351 booked drilling locations, 85% located in the Oxbow Asset
  • High oil weighting, reserves comprise 96% light & medium oil and natural gas liquids (“NGL”)
  • Long reserve life index (“RLI”) of 8.7 years Proved Developed Producing (“PDP”) and 19.2 years TP+P1
  • Net asset value per fully diluted share:
    • Proved Developed Producing of $4.49
    • Total Proved of $6.76
    • Total Proved + Probable of $10.79

Summary of Gross Oil and Gas Reserves and Net Present Value of Revenue

The following tables are a summary of the Company’s estimated corporate reserves (Company share gross volumes) and net present values (“NPV”) of future net revenue, before tax, based on forecast price and costs as contained in the Reserve Report2. The Reserve report encompasses 100% of the Company’s oil and gas properties at December 31, 2021 and was prepared in accordance with NI 51-101 by Ryder Scott:

Reserves Category Light and Medium Oil Natural Gas Liquids Conventional Natural Gas Barrels of Oil Equivalent Liquids Ratio
(mbbls) (mbbls) (MMcf) (Mboe) (%)
Proved
    Developed Producing 20,986 950 5,986 22,934 96
    Developed Non-producing – – – –
    Undeveloped 9,963 406 2,878 10,849 96
Total Proved 30,949 1,357 8,864 33,783 96
Probable 15,425 710 4,466 16,879 96
Total Proved + Probable 46,374 2,067 13,330 50,663 96
NPVs before tax Discounted at:
Reserves Category
 0% 5% 10% 15% 20%
(MM$) (MM$) (MM$) (MM$) (MM$)
Proved
    Developed Producing 62.1 281.0 276.13 250.7 227.2
    Developed Non-Producing – – – – –
    Undeveloped 262.4 185.9 134.3 98.8 73.7
Total Proved 324.5 466.8 410.5 349.5 300.9
Probable 584.5 353.0 237.9 171.8 130.2
Total Proved + Probable 909.0 819.8 648.4 521.3 431.1

Notes:

  1. Proved Developed Producing (“PDP”) and Total Proved and Probable (“TP+P”) RLIs based on year end 2021 reserves and Q4 2021 average production of 7,245 boe/d.
  2. Total values may not add due to rounding.

Net Asset Value

The following table sets out a calculation of NAV based on the estimated before-tax estimated net present value of future net revenue discounted at 10% (“NPV10 BT”) associated with the PDP, TP and TP+P reserves, as evaluated in the Reserve Report, including deductions for future development costs, abandonment and reclamation obligations:

Proved Developed Producing Total Proved Total Proved
+ Probable
NPV10 BT (MM$) 276.1 410.5 648.4
Estimated net debt December 31, 2021 (MM$)1 71.1 71.1 71.1
Net Asset Value (MM$) 205.0 339.4 577.3
Basic shares outstanding (MM)2 25.2 25.2 25.2
Estimated NAV/ basic share ($)2 8.14 13.47 22.91
Estimated NAV/ fully diluted share ($)2 4.49 6.76 10.79

Notes:

  1. See – “Non-GAAP measures Net Debt“.

  2. Includes basic common shares of 25.2 million and fully diluted common shares of 59.1 million, as at December 31, 2021 and net debt adjusted for $60.0 million of common share purchase warrant and option exercise proceeds that would be in-the-money at the corresponding NAV per share value. The estimated NPV does not represent fair market value of the reserves.

Reconciliation of Reserves

The following table provides a summary of the reconciliation of the changes in the Company’s gross reserves as at December 31, 2021 against reserves at December 31, 2020, based on forecast prices and costs assumptions in effect at the applicable reserve evaluation date:

Light and Medium Oil Natural Gas Liquids Natural Gas Total BOE
Total Proved T. Proved Total Proved T. Proved Total Proved T. Proved Total Proved T. Proved
+ Probable + Probable + Probable + Probable
(Mbbl) (Mbbl) (Mbbl) (Mbbl) (MMcf) (MMcf) (Mboe) (Mboe)
December 31, 2020 3,345 6,601 – – – – 3,345 6,601
Extensions 11 14 – – – – 11 14
Improved Recovery 85 95 – – – – 85 95
Infill Drilling 57 72 – – – – 57 72
Technical Revisions (339 ) 705 – – – – (339 ) 705
Resource Transfers (1,421 ) (4,625 ) (1,421 ) (4,625 )
Acquisitions 30,535 44,514 1,423 2,133 9,275 13,741 33,504 48,937
Economic Factors 91 413 – – – – 91 413
Production (1,415 ) (1,415 ) (66 ) (66 ) (411 ) (411 ) (1,550 ) (1,550 )
December 31, 2021 30,949 46,374 1,357 2,067 8,864 13,330 33,783 50,663
Year over year change 825% 603% n/a n/a n/a n/a 910% 668%
FD&A Cost per BOE, Excluding FDC1 $ 3.15 $ 2.14
FD&A Cost per BOE, Including FDC1 $ 9.69 $ 9.28

Note:

  1. See “non-GAAP measures FD&A Cost”.

Future Development Costs

The following table provides a summary of the estimated Future Development Costs (“FDC”) required to bring Saturn’s Total Proved and Total Proved + Probable undeveloped reserves to production, as reflected in the Reserve Report, which costs have been deducted in Ryder Scott’s estimation of future net revenue associated with such reserves:

Total Total Proved
Future Development Costs (MM$) Proved + Probable
2022 32.2 41.1
2023 46.2 55.6
2024 56.0 72.7
2025 32.0 70.0
2026 22.4 64.1
Remainder – –
Total FDC undiscounted 188.8 303.4

Price Forecast

The following table summarizes the commodity price forecasts and foreign exchange rate assumptions of three consultant’s average forecasts1 as of January 1, 2022 as applied in the Reserve Report, for the next five years.

Year Exchange Rate WTI @ Cushing Canadian Light Sweet 40º API Saskatchewan Avg. Natural Gas Edmonton Butane
$US/$C (US$/bbl) (C$/bbl) (C$/bbl) (C$/bbl)
2022 0.797 72.83 86.82 3.81 57.49
2023 0.797 68.78 80.73 3.46 50.17
2024 0.797 66.76 78.01 3.31 48.53
2025 0.797 68.09 79.57 3.37 49.50
2026 0.797 69.45 81.16 3.44 50.49

Note:

  1. Average forecasts of GLJ Ltd., McDaniel & Associates Consultants Ltd. and Sproule Associates Ltd. and includes 2.3% inflation in Year 2023 and 2% per annum thereafter.

Total Location Summary

The following table summarizes the drilling locations identified for future development in the Reserve Report:

Field Locations
Year End 2021		 Previous
Locations
Year End 2020
Glen Ewen 126 –
Ingoldsby 19 –
Manor 82 –
Weir Hill 71 –
West Central 53 117
Total Locations 351 117

Year End Disclosures

The 2021 financial information in this news release is unaudited and accordingly, such financial information is subject to change based on the results of the Company’s year-end audit, schedule to be released on April 28, 2022.

Additional reserve information as required under NI 51-101 will be included in the Company’s annual information form which will be filed on SEDAR on or before May 2, 2022.

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 TSXV under ticker ‘SOIL’ and on the Frankfurt Stock Exchange under symbol ‘SMKA’.

Advisories & Contact
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

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.

Reader Advisory

NON-GAAP MEASURES

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.

“FD&A Cost” represents finding, developing and acquisition cost as calculated as the sum of 2021 development costs ($8.7 million) plus net acquisition costs ($82.3 million), divided by the change in reserves within the applicable reserves category, inclusive of changes due to acquisitions and dispositions.

“Net debt” represents cash, accounts receivable, deposits and prepaid expenses (current and long-term), accounts payable and accrued liabilities, Senior Term Loan, 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.

“Reserve life index” or “RLI” is calculated by dividing the applicable reserves by 2021 fourth quarter production of 7,245 boe/d for 365 days. These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons.

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.

Reserve Definitions

“Proved” reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

“Probable” reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.

“Developed” reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (e.g. when compared to the cost of drilling a well) to put the reserves on production.

“Developed Producing” reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.

“Developed Non-Producing” reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown.

“Undeveloped” reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.

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, anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the expected timing of release of our audited financials and AIF; results of operations; performance; business prospects and opportunities; the availability and cost of financing. 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.