Calgary, Alberta – Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (“Saturn” or the “Company“) is pleased to announce that further to its press releases of May 31, 2022 and June 8, 2022, it has successfully completed the previously announced acquisition of assets in the Viking area of West-central Saskatchewan (the “Viking Acquisition“) for closing cash consideration of approximately $248 million (net of adjustments) and has completed a non-brokered private placement for gross proceeds of $400,326 (the “Non-Brokered Private Placement“).
“With the closing of the Viking Acquisition, Saturn is firmly established as a sustainable developer of light oil in Canada,” said John Jeffrey, CEO of Saturn. “We now have a total inventory of over 500 (gross) booked drilling locations in addition to an extensive list of optimization candidates in our existing portfolio of wells and facilities allowing Saturn the internal capabilities to organically grow production while also aggressively reducing corporate debt levels.”
Viking Acquisition Overview
The Viking Acquisition bolsters Saturn’s existing Viking light oil asset in West-central Saskatchewan with synergistic assets that include approximately 4,000 boe/d (~98% light oil and liquids) of high cash flow netback production and over 140 net sections of land in the Viking fairway. With a 250% increase to Saturn’s Viking drilling inventory, the Viking Acquisition further builds size and scale for Saturn’s growing Saskatchewan operations, complementing the Company’s core growth Oxbow asset in Southeast Saskatchewan. Closing of the Viking Acquisition positions Saturn with a scalable portfolio of free cash flow generating assets that support near and longer-term development, while diversifying the Company’s production exposure and play type helps enhance corporate sustainability and financial resilience.
Organic Growth Strategy
Saturn initiated its light oil drilling program in June 2022 with the spud of first of approximately 50 horizontal wells scheduled for the remainder of 2022, in addition to the eight wells drilled previously in the year. The drilling is expected to continue into the new year with expectations of approximately 90 new horizontal wells to be drilled in 2023. Highlights of the capital expenditure programs for 2022 and 2023 include:
- Organic focused growth plan fully funded by internal cash flow for the drilling of approximately 140 gross new horizontal wells and optimization of facilities and existing wells in next 18 months;
- Viking Acquisition adds >300 drilling locations (booked and unbooked);
- Midpoint forecast for 2022 Adjusted Funds Flow per basic share increases from previous guidance of $2.48 per to $2.71;
- 2023 Adjusted Funds Flow per basic share forecasted in the range of $3.63 per to $3.87 per basic share; and
- Net debt levels expected to be reduced from current estimated position of $223 million to approximately $183 million by year end 2022 and to approximately $75 million by year end 2023.
The following tables detail 2022 budgeted field development activities:
|Oxbow Drilling||35.0 net wells||36.3|
|Viking Drilling||23.0 net wells||27.5|
|Workovers & Optimization||50-100 existing wells||4.1|
|Facilities & Lands||9.3|
|Average production1||9,750 boe/d||10,350 boe/d|
|($millions, except per share)|
|EBITDA prior to hedging2||219.7||b 233.6|
|Adjusted Funds Flow (AFF)2||117.7||131.6|
|AFF per Basic Share3||$2.56||$2.86|
|2022 Year End Net Debt||186.0||180.0|
|Net Debt to EBITDA||1.3x||1.2x|
(1) Based on a midpoint 2022 average forecast of 10,050 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 $95.00 /bbl; MSW differential of USD -$4.00 /bbl; CAD/USD exchange rate of $0.80; AECO price of $5.00/GJ; corporate differential of CAD -$6.40 /bbl; hedging expense of -$21.80 /boe; and general and administrative expenses of $1.65 /boe, see advisory NON-GAAP FINANCIAL MEASURES AND RATIOS.
(3) Based on estimated weighted average of 46.0 million basic shares for 2022. Currently 59.7 million shares are outstanding.
A summary of 2023 forecasted field development activities:
|Oxbow Drilling||50.0 net wells||53.5|
|Viking Drilling||40.0 net wells||47.2|
|Workovers & Optimization||50-100 existing wells||5.0|
|Facilities & Lands||9.5|
Highlights of 2023 guidance:
- Average annual production in the range of 13,100 to 13,700 boe/d, generating hedged EBITDA in the range of $244 to $260 million;
- Q4 2023 average production in the range of 13,950 to 14,550 boe/d, representing year-over-year production growth of approximately 15%; and
- Saturn’s implied free funds flow yield for 2023 is 74 – 85%, based on the Company’s basic market capitalization of $137 million.
|Average production1||13,100 boe/d||13,700 boe/d|
|($millions, except per share)|
|EBITDA prior to hedging2||311.3||325.9|
|Adjusted Funds Flow (AFF)2||216.3||230.9|
|AFF per Basic Share3||$3.63||$3.87|
|Free Funds Flow||101.3||115.9|
|2023 Year End Net Debt||81.7||67.0|
|Net Debt to EBITDA||0.3x||0.3x|
|2022e EV / EBITDA4||0.9x||0.8x|
(1) Based on a midpoint 2023 average forecast of 13,400 boe/d, 96% crude oil and NGL production.
(2) Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) netback of CAD $51.45 / boe is based on: 2023 WTI crude oil price of USD $90.00 /bbl; MSW differential of USD -$4.00 /bbl; CAD/USD exchange rate of $0.80; AECO price of $5.00/GJ; corporate differential of CAD -$6.40 /bbl; hedging expense of -$13.70 /boe; and general and administrative expenses of $2.00 /boe, see advisory NON-GAAP FINANCIAL MEASURES AND RATIOS.
(3) Based on 59.7 million shares currently outstanding
(4) EV based on basic shares outstanding, $2.30 share price and YE 2023 forecast net debt.
Commodity Price Hedging
Between June 2 and June 15, 2022, the Company entered into a number of financial oil price hedges, in conjunction with the Viking Acquisition. The new hedges are intended to cover approximately 85% of forecasted oil and NGL production, based on internal estimates of the Company’s Proved Developed Producing profile, for the years of 2022 – 2026, including:
- For H2 2022, Saturn entered into WTI hedging instruments for average volume of 2,783 bb/d at a minimum average price of USD 102.65; and
- For 2023, Saturn entered into WTI hedging instruments for average volume of 2,366 bb/d at a minimum average price of USD 92.02.
Viking Acquisition Funding Details
To fund the consideration of the Viking Acquisition, Saturn has entered into an amended and restated senior secured loan agreement with its U.S. based institutional lender to provide loan proceeds of $200.0 million and completed a bought deal equity financing of subscription receipts (“Subscription Receipts“) for aggregate gross proceeds of approximately $75.0 million (the “Bought Public Offering“). With the closing of the Viking Acquisition now effective, each Subscription Receipt will be exchanged for one unit of the Company (each, a “Unit“), without additional consideration and without further action by the holders of Subscription Receipts. Each Unit consists of one common share (a “Share“) and one half common share purchase warrant of the Company (a “Warrant“). Each full Warrant will be exercisable to acquire one Share until July 7, 2023, at an exercise price of $3.20 per Warrant, subject to adjustment in certain events.
Trading in the Subscription Receipts will be halted from the TSXV today, the transfer register maintained by the subscription receipt agent will be closed, and the subscription receipts will be delisted by the TSXV tomorrow. Trading on the TSXV of the underlying Shares is expected to begin at the opening of the market on July 7, 2022. Trading of the underlying Warrants is expected to commence at the open of markets on July 8, 2022 under the symbol SOIL.WT.B.
Each holder of Subscription Receipts will be issued their Shares and Warrants without any further action required on their part via electronic deposit with CDS Clearing and Depository Services Inc. (“CDS“). Subscription Receipt holders will not receive paper Share or Warrant certificates but rather will only receive a customer confirmation from the registered dealer who is a CDS participant and from or through whom they purchased the Subscription Receipts. An aggregate of 27,181,860 Shares and 13,590,930 Warrants were issued on conversion of the Subscription Receipts.
Non-Brokered Private Placement
The Company completed its previously announced Non-Brokered Private Placement of units (“Private Placement Units“) for 145,573 Private Placement Units at a price of $2.75 per Private Placement Unit for total proceeds of $400,326. Each Private Placement Unit will consist of one Share and one-half of one Warrant. Each whole Warrant will be issuable on the same terms as the Warrants under the Bought Public Offering, subject to adjustment in certain events.
The net proceeds of the Non-Brokered Private Placement are expected to be used for working capital and general corporate purposes. The Non-Brokered Private Placement was completed by way of a private placement pursuant to applicable exemptions from the prospectus requirements in those jurisdictions where the Non-Brokered Private Placement can lawfully be made. The securities issued pursuant to the Non-Brokered Private Placement have a hold period of four months and one day from the closing date in accordance with applicable securities laws.
Dentons Canada LLP acted as Company’s counsel for the Viking Acquisition, Bought Public Offering and Non-Brokered Offering. DLA Piper LLP acted as underwriters’ counsel in respect of the Bought Public Offering. Canaccord Genuity Corp., Eight Capital and Echelon Capital Markets acted as advisors to the Company.