Saturn Oil & Gas Inc. Reports Record Cash Flow from Operations in Q3 2021 Results

Calgary, Alberta – Newsfile Corp. – 15 November 2021 – Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (“Saturn” or the “Company”) is pleased to report its financial and operating results for the three and nine months ended September 30, 2021.

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John Jeffrey, Chief Executive of Saturn, commented: “Reinstating the Company’s drilling program in the third quarter was an important step to continuing our growth strategy as a light oil focused producer. The success of the of Q3 2021 drilling program was combined with a period of high oil prices, strong operating netbacks and robust economic returns on invested capital. Saturn looks forward to continuing it’s drilling program and capitalizing on our deep inventory of oil focused drilling locations, funded with internally generated cash flow.”

 

Third Quarter 2021 Highlights:

 

• Achieved third quarter average production of 6,970 boe/d (96% oil and NGLs) in 2021 compared to 499 boe/d (100% oil) in the third quarter of 2020;

• Generated adjusted funds flow¹ of $13.9 million ($0.55 per consolidated basic share) in the three months ended September 30, 2021 compared to $1.0 million in Q3 2020 ($0.09 per consolidated basic share);

• Achieved an operating netback¹ for the three and nine months ended September 30, 2021 of $28.83 per boe and $29.55 per boe;

• Invested $4.5 million development capital in the third quarter, drilling three 100% working interest Viking wells, participating in two (0.54 net) non-operated wells and workovers of existing wells;

• Generated third quarter free funds flow¹ of $9.5 million, excluding property acquisition expenditures of $2.6 million relating to the Oxbow Asset;

• Exited the third quarter with $71.8 million net debt¹, compared to $74.5 million at the end of the previous quarter, realizing an annualized net debt to adjusted funds flow¹ of 1.3x.

		Three months ended September 30,						Nine months ended September 30,
(CAD $000s, except per share amounts)		2021			2020			2021			2020
FINANCIAL HIGHLIGHTS
Petroleum and natural gas sales		48,497			2,127			62,408			5,718
Cash flow from (used in) operating activities		16,160			836			(14,318	)		(124	)
per share – Basic		0.03			0.00			(0.04	)		(0.00	)
– Diluted		0.03			0.00			(0.04	)		(0.00	)
Adjusted funds flow(1)		13,923			981			16,265			2,113
per share – Basic		0.03			0.00			0.04			0.01
– Diluted		0.03			0.00			0.04			0.01
Net loss		(23,307	)		(795	)		(54,433	)		(3,160	)
per share – Basic		(0.05	)		(0.00	)		(0.16	)		(0.01	)
– Diluted		(0.05	)		(0.00	)		(0.16	)		(0.01	)
Capital expenditures		4,445			212			4,647			421
Net Debt(1), end of period		71,761			18,766			71,761			18,766

 

 

(1) See non-GAAP measures

 

		Three months ended September 30,						Nine months ended September 30,
(CAD $000s, except per share amounts)		2021			2020			2021			2020
OPERATING HIGHLIGHTS
Average production volumes
Crude oil (bbl/d)		6,413			499			2,819			442
Natural gas (mcf/d)		278			–			115			–
NGLs (bbl/d)		1,673			–			700			–
Total (boe/d)		6,970			499			3,051			442
% Oil and NGLs		96%			100%			96%			100%
Average realized prices
Crude oil ($/bbl)		78.38			46.31			77.78			47.43
Natural gas ($/mcf)		35.46			–			35.12			–
NGLs ($/bbl)		3.76			–			3.59			–
Combined ($/boe)		74.44			46.31			74.02			47.43
Operating netbacks
Petroleum and natural gas sales ($/boe)		75.85			46.31			75.35			47.43
Royalties ($/boe)		(10.68	)		(0.91	)		(10.26	)		(1.40	)
Operating expenses ($/boe)		(27.81	)		(11.22	)		(26.90	)		(11.53	)
Transportation expenses ($/boe)		(0.55	)		–			(0.81	)		–
Operating netbacks(1) ($/boe)		36.81			34.18			37.38			34.50
Realized gain (loss) on financial derivatives ($/boe)		(7.98	)		8.71			(7.83	)		13.85
Operating netbacks(1) after realized gain (loss) on financial derivatives ($/boe)		28.83			42.89			29.55			48.35
Common shares outstanding		502,907			234,574			502,907			234,574
Weighted average common shares outstanding
Basic		502,907			234,574			348,591			234,574
Diluted		600,417			234,574			446,549			234,574

 

 

(1) See non-GAAP measures

 

Message to Shareholders

 

Saturn has achieved record financial performance with the reporting of the first full quarter following the acquisition of the Oxbow Asset. The operational performance of the Oxbow Asset has been consistent with the Company’s expectations of low decline, high quality, light and medium crude oil production. Saturn has initiated its workover and production optimization program to enhance the production from both of the Company’s core growth areas: the Oxbow Asset and the Viking Asset. The strong cash flows from operations have been directed to the repayment of debt incurred in the acquisition of the Oxbow Asset, while also funding reinvestment into the drilling new wells to grow production.

 

“Saturn has initiated the repayment of debt in the third quarter of 2021 with the goal of significantly reducing debt levels, in the near term,” commented Scott Sanborn, Chief Financial Officer. “The Company is focused on lowering corporate debt levels by approximately 50% by the end of 2022. As of October 31, 2021 Saturn has repaid over $10 million of principal debt incurred in the Oxbow Acquisition, from operational cash flows.”

 

Current Company production is approximately 7,050 boe/d (96% crude oil and NGLs), based on field estimates.

 

Viking Update

 

Saturn drilled three operated, 100% working interest, Extended Reach Horizontal (“ERH”) wells targeting Viking oil at its Loverna property (the “Loverna Wells”) and performed workovers/re-activations of existing non-producing wells. All three of the Loverna wells were drilled successfully, brought into production in October 2021 and are in-line with the Company’s internal forecasted production rates of light oil.

 

The success of the Q3 2021 drilling program at the Viking Asset supports the Company’s internal geologic model for the area’s prospectivity, including five sections of undeveloped contiguous land in the southern part of the Loverna area, de-risking up to 10 new ERH drilling locations. Saturn expects to continue drilling in the Viking Asset through Q4 2021 targeting light oil in the Loverna area. The Viking Asset benefits from short cycle times for the drilling of new wells, with expedited site surveys, licensing and the spud of new wells. This allows the Company to efficiently deploy capital towards timely production growth in periods of strong oil pricing and high cash netbacks.

 

Oxbow Update

 

Production from the Oxbow Asset was steady throughout Q3 2021, delivering strong cash flows from operations. Saturn participated in two gross, non-operated wells (0.54 net wells) which were brought onto production during the period. Workovers in the third quarter of 2021 at Oxbow were directed primarily to producing wells to reduce declines. Saturn has initiated its workover program in Q4 2021 on previously non-producing wells, returning 12 wells back onto production, with initial indications of strong returns on the modest capital committed. The Company targets workovers on 30-35 non-producing wells per quarter going forward. Saturn expects to initiate its drilling program at the Oxbow Asset in November 2021. The Company is targeting new horizontal wells into the Frobisher formation, which is a strong producing light oil interval in these areas. The drilling program is supported by extensive well control from existing producing wells and from comprehensive regional proprietary seismic coverage.

 

ESG Initiatives

 

In coordination with the workover program intended to return non-producing wells back into production, Saturn has started the process of abandoning wells that no longer have economic production potential. Saturn’s goal is to remediate these operational areas and return the land to its previous purpose, which in most cases is back to farmland. Including the well abandonments performed to date, the Company’s goal is to have decommissioned 20-25 non-producing wells by the end of 2021 as a kick start to the 400 well target over the next three years. In total, Saturn has budgeted over $18 million for abandonment and reclamation activities through 2024, with the majority of these funds to be deployed in 2022. Saturn has prefunded these expenditures with a $21 million deposit and an approved $10 million grant from the Accelerated Site Closure Program (ASCP) such that near term operational cash flows can be directed to debt service, debt repayment and growth projects of workovers and new wells drilled. To reduce the Company’s future footprint, Saturn is designing longer reach horizontal wells from multi-well pads that require less surface land use.

 

Investor Webcast

 

Saturn will host a webcast at 10:00 AM MST (12:00 PM Noon EST) on November 16, 2021, to discuss the third quarter financial report and provide an investor update. Participants can access the live webcast via https://saturnoil.com/invest/q3-2021-results-webcast. A recorded archive of the webcast will be available afterwards on the Company’s website.

 

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’.

 

The Company’s unaudited interim financial statements and corresponding Management’s Discussion and Analysis for the nine month period ended September 30, 2021 are available on SEDAR at www.sedar.com and on Saturn’s website at www.saturnoil.com. Copies of the materials can also be obtained upon request without charge by contacting the Company directly. Please note, currency figures presented herein are reflected in Canadian dollars, unless otherwise noted.

 

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
www.saturnoil.com

 

Kevin Smith, MBA – VP Corporate Development
Tel: +1 (587) 392-7900
info@saturnoil.com

 

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.

 

“Adjusted funds flow” adjusts funds flow for items outside the scope of operations such as transactions costs and decommissioning expenditures. Saturn uses adjusted funds flow as a key measure to demonstrate the Company’s ability to generate funds to repay debt and fund future capital investment. Adjusted funds flow per share is calculated using the same weighted average basic and diluted shares that are used in calculating income (loss) per share. The calculation of the Company’s adjusted funds flows is summarized within “Cash flow from (used in) operating activities and funds flow” section of this MD&A.

 

“Free adjusted funds flow” represents Adjusted funds flow and deducts capital expenditures excluding acquisitions and divestures.

 

“Operating netbacks” are determined by deducting realized derivative commodity contract losses or adding realized derivative commodity contract gains and deducting, royalties, operating expenses and transportation expenses from petroleum and natural gas sales. Operating netbacks are per boe measures used in operational and capital allocation decisions. Presenting operating netbacks on a per boe basis allows management to better analyze performance against prior periods on a comparable basis.

 

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

 

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.

 

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, the timely receipt of any required regulatory approvals and the satisfaction of all conditions to the completion of the share consolidation. 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.

 

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.

 

All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.