Calgary, Alberta – Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (“Saturn or the “Company“) is pleased to provide follow-on results from its light oil development program for the Oxbow Asset and announces the board of directors of the Company (the “Board“) has increased the capital expenditures budget for 2022, along with revising upward operational and financial guidance for the year.
Oxbow Asset Drilling Update
The Company drilled 12 horizontal wells in Q4 2021 and Q1 2022, targeting the Frobisher and Tilston formations at the Oxbow Asset in Southeast Saskatchewan, where it achieved a 100% success rate and strong aggregate initial flow rates. Eight of these wells now have 30 days of production data available that has increased the Company’s estimate of the average expected ultimate recovery of crude oil for these wells.
One notable driver for the increased expected oil recovery was the post drilling operations performed for the Glen Ewen 102/14-26 well that was initially producing 5 bbl/d of crude oil with a 98% water cut. The water producing zone in the lateral leg was isolated and shut off increasing oil production to over 70 bbl/d for the subsequent 20 days.
|March 22, 2022 Update||May 16, 2022 Update||Change|
|Number of Wells Evaluated||6||8||33%|
|Average Initial Production over first 30 days (“IP30”)||96.3 bbls/d||93.2 bbls/d||-3%|
|Combined Expected Ultimate Recovery (“EUR”)(1)||250,000||436,800||75%|
|EUR per well(1)||41,667 bbls||54,600 bbls||31%|
|Implied Development Cost per Bbl(1)||$23.00||$18.30||-20%|
|Combined Rate of Return(2)||>150%||>250%|
(1) See non-GAAP Financial Measures and Ratios
(2) Rate of Return is calculated using futures oil pricing at the time of analysis of March 22, 2022 and May 11, 2022, respectively.
“With more time to observe the first group of wells drilled and the completion of additional operational efficiency activities in the Oxbow Asset, we are seeing lower production declines. Subsequently, we are seeing the production profiles will be longer than first estimated,” commented Justin Kaufmann, Senior Vice-President, Exploration. “We forecast the first eight wells drilled in the Oxbow Asset will reach payout in August of 2022 which is consistent with our expectations of payouts in five to seven months given current oil prices.”
Four additional wells were drilled in Q1 2022, placed into production in late April 2022 and have yet to have recorded 30 days of production data to report.
Production Optimization Program Update
The Company is continuing its Production Optimization Program where it has brought 30 previously inactive wells at the Oxbow Asset back onto production with the following results:
- 160 bbls/d of light crude oil production;
- Low decline production from mature wells;
- Total capital cost of approximately $363,000; and
- An attractive capital efficiency of $2,300 per bbl/d.
Revised Operational and Financial Guidance
As a result of the strong economics of the recent drilling programs, Saturn’s Board has increased the 2022 capital expenditures budget by $6 million with three additional wells to be drilled at the Oxbow Asset and the drilling of three additional wells in the Viking Asset. The increase in capital spending will include an expanded drilling program mostly in Q4 2022 and therefore has a greater impact on 2022 exit rate production than on the 2022 annual average production. Saturn intends to run one drilling rig in each of its core growth areas: the Oxbow Asset and the Viking Asset.
A summary of budgeted field development activities:
|March 2022 Announced Budget||May 2022 Revised Budget|
|Oxbow Drilling||29.2 net wells||25.8||32.2 net wells (8)||28.6|
|Viking Drilling||5.0 net wells||5.8||8.0 net wells (0)||9.0|
|Strategic Acquisition||240 bbls/d||7.4||240 bbls/d||7.4|
|Workovers & Optimization||50-100 existing wells||3.9||75 wells (30)||3.9|
|Facilities & Lands||7.1||7.1|
Consistent with the recent rise of global oil prices, Saturn is increasing the oil price assumption for its 2022 guidance from USD 75 to USD 95 for the benchmark price of WTI crude oil. No changes have been made for natural gas prices or foreign exchange rates. Highlights of the 2022 revised guidance include:
- Average annual production in the range of 7,950 boe/d to 8,350 boe/d (95% crude oil and NGLs);
- Q4 2022 average between 8,500 boe/d to 9,000 boe/d (95% crude oil and NGLs), representing year-over-year production growth of 17% to 22%;
- EBITDA(1) forecasted in the range of $90.0 million to $94.5 million;
- Adjusted Funds Flow(1) between $78.0 million to $82.5 million, or $2.41 to $2.55 per basic share(2);
- Free Funds Flow(1) between $29.4 million $33.9 million, implying a free cash flow yield(1)(2) of 33% to 39%; and
- Forecast net debt(1) at year end 2022 between $36.4 million and $42.0 million, a decrease of 41% to 59% from 2021 year-end debt;
The increased forecast of Adjusted funds flow(1) from a midpoint of $63.0 million to $80.3 million (an increase of $17.3 million or 27%) is primarily driven by the change in oil price assumptions. Saturn continues with its guiding principle to direct approximately 50% of future corporate cash flow towards growth capital expenditures and approximately 50% to the repayment of debt. Currently, the Board has determined to allocate 35% of the increased Adjusted funds flow from the updated guidance to additional drilling capital expenditures. The drilling programs for both the Oxbow Asset and the Viking Asset are expected to resume in June, after break-up is over and road bans have been lifted. Saturn maintains a flexible budgeting process and may adjust capital allocations in the future, based on the results of the remaining 2022 drilling program, changes in crude oil prices, and other factors. No adjustment in the budget has been made for cost escalations in operations and the Company remains confident the scheduled field operations for the remainder of 2022 can be executed withing the budget as outlined above. Total capital expenditures in Q1 2022 were approximately $18.0 million, with the remaining $38.0 million (68%) scheduled for the balance of the year.
(1) See non-GAAP Financial Measures and Ratios EBITDA
(2) Basic market capitalization based on 32.4 million shares outstanding and a share price of $2.65
|2022 Midpoint Forecast Comparison||March 2022
|WTI Crude Oil Price (USD/Bbl)||75.00||95.00||27%|
|Exchange Rate (USD/CAD)||0.80||0.80||–|
|AECO Natural Gas Price ($/GJ)||3.50||3.50||–|
|Midpoint Average production(1)||8,000 boe/d||8,150 boe/d||2%|
|Midpoint Q4 2022 Average Production(2)||8,300 boe/d||8,750 boe/d||5%|
|($millions, except per share)|
|EBITDA prior to hedging||109.6||b 172.3||57%|
|Adjusted Funds Flow (AFF)||63.0||80.3||27%|
|AFF per Basic Share(4)||1.94||2.48||27%|
|Capital Expenditures (excluding acquisitions)||(42.6)||(48.6)||12%|
|Free Funds Flow||20.4||31.7||55%|
|Free Funds Flow Net of Acquisition||13.0||24.3||87%|
|2022 Year End Net Debt(5)||39.6||39.2||-1%|
|Net Debt to EBITDA||0.6x||0.4x||-33%|
|2022e EV / EBITDA(6)||1.8x||1.3x||-28%|
(1) Based on a 2022 revised forecast average production range of 7,950 to 8,350 boe/d, 95% crude oil and NGL production.
(2) Based on a Q4 2022 revised forecast average production range of 8,500 to 8,900 boe/d, 95% crude oil and NGL production.
(3) Revised guidance Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) netback of CAD $31.00 /boe is based on: 2022 WTI crude oil price of USD $95.00 /bbl; MSW differential of USD -$4.00 /bbl; CAD/USD exchange rate of $0.80; corporate oil price differential of CAD -$6.40 /bbl; AECO price of $3.50/GJ; hedging expense of $26.90 /boe; operating and transportation expense of $27.20 and general and administrative expense of $2.00 /boe.
(4) Based on 32.4 million basic shares.
(5) See Advisory Non-GAAP Financial Measures and Ratios.
(6) Enterprise Value (EV) based on the $2.65 share price and 32.4 million basic shares plus forecast 2022 year end net debt.
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.