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 twelve months ended December 31, 2021.
"The fourth quarter of 2021 was an important milestone for Saturn as we initiated our first drilling program at our newly acquired Oxbow Asset," commented Justin Kaufmann, Senior Vice President Exploration. "Our inaugural Oxbow drilling program was highlighted with the top performing well drilled in Saskatchewan in Q4 2021 of the 550+ wells drilled with over 500 hours of production data."
Fourth Quarter and 2021 Annual Highlights:
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Achieved corporate record production with fourth quarter 2021 average of 7,279 boe/d, compared to 415 boe/d in the fourth quarter of 2020, an increase of 1,654%;
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Generated adjusted funds flow(1) of $9.7 million and $27.3 million in the three and twelve months ended December 31, 2021 compared to $1.2 million and $3.5 million in the comparable 2020 periods primarily due to contributions from the operations of the Oxbow Asset;
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Achieved operating netbacks(1) for the three and twelve months ended December 31, 2021 of $35.66 per boe and $36.38 per boe;
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Invested $3.6 million development capital in the fourth quarter, drilling four 100% working interest Frobisher wells;
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Generated fourth quarter free adjusted funds flow(1) of $5.7 million, excluding property acquisition expenditures of $2.8 million relating to the Oxbow Asset; and
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Exited the fourth quarter with $71.1 million net debt(1), realizing an annualized net debt to H2 2021 adjusted funds flow of 1.5x(1).
| Three months ended December 31, | For the year ended December 31, | |||||||||||||
| (CAD $000s, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||
| FINANCIAL HIGHLIGHTS | ||||||||||||||
| Petroleum and natural gas sales | 54,481 | 1,831 | 116,214 | 7,549 | ||||||||||
| Cash flow from (used in) operating activities | 13,033 | 976 | (1,285 | ) | 851 | |||||||||
| per share - Basic | 0.52 | 0.08 | (0.07 | ) | 0.07 | |||||||||
| - Diluted | 0.31 | 0.08 | (0.07 | ) | 0.07 | |||||||||
| Adjusted funds flow (1) | 9,731 | 1,238 | 27,348 | 3,473 | ||||||||||
| per share - Basic | 0.39 | 0.11 | 1.41 | 0.21 | ||||||||||
| - Diluted | 0.23 | 0.10 | 1.25 | 0.20 | ||||||||||
| Net loss | (10,629 | ) | (4,596 | ) | (65,061 | ) | (7,758 | ) | ||||||
| per share - Basic | (0.42 | ) | (0.39 | ) | (3.36 | ) | (0.60 | ) | ||||||
| - Diluted | (0.42 | ) | (0.39 | ) | (3.36 | ) | (0.60 | ) | ||||||
| Capital expenditures | 6,866 | 370 | 90,991 | 51 | ||||||||||
| Net Debt(1), end of period | 71,054 | 32,859 | 71,054 | 32,859 | ||||||||||
(1) See non-GAAP measures and ratios
| Three months ended December 31, | For the year ended December 31, | |||||||||||
| (CAD $000s, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||
| OPERATING HIGHLIGHTS | ||||||||||||
| Average production volumes | ||||||||||||
| Crude oil (bbl/d) | 6,549 | 415 | 3,759 | 439 | ||||||||
| NGLs (bbls/d) | 356 | - | 176 | - | ||||||||
| Natural gas (mcf/d) | 2,246 | - | 1,089 | - | ||||||||
| Total (boe/d) | 7,279 | 415 | 4,117 | 439 | ||||||||
| % Oil and NGLs | 95% | 100% | 96% | 100% | ||||||||
| Average realized prices | ||||||||||||
| Crude oil ($/bbl) | 87.88 | 47.96 | 82.22 | 46.98 | ||||||||
| NGLs ($/bbl) | 50.14 | - | 42.77 | - | ||||||||
| Natural gas ($/mcf) | 4.59 | - | 4.11 | - | ||||||||
| Processing expenses ($/boe) | (2.67 | ) | - | (1.64 | ) | - | ||||||
| Petroleum and natural gas revenue ($/boe) | 80.26 | 47.96 | 76.35 | 46.98 | ||||||||
| Operating netbacks | ||||||||||||
| Petroleum and natural gas revenue ($/boe) | 80.26 | 47.96 | 76.35 | 46.98 | ||||||||
| Royalties ($/boe) | (14.19 | ) | (5.71 | ) | (12.01 | ) | (2.41 | ) | ||||
| Net operating expenses (1) ($/boe) | (29.77 | ) | (12.89 | ) | (27.22 | ) | (11.71 | ) | ||||
| Transportation expenses ($/boe) | (0.64 | ) | - | (0.74 | ) | - | ||||||
| Operating netbacks (1) ($/boe) | 35.66 | 29.36 | 36.38 | 32.86 | ||||||||
| Realized gain (loss) on financial derivatives ($/boe) | (14.21 | ) | 9.51 | (10.67 | ) | 12.65 | ||||||
| Operating netbacks (1) after realized gain (loss) on financial derivatives ($/boe) | 21.45 | 38.87 | 25.71 | 45.51 | ||||||||
| Common shares outstanding, end of period | 25,165 | 11,728 | 25,165 | 11,728 | ||||||||
| Weighted average, basic | 25,151 | 11,728 | 19,339 | 11,728 | ||||||||
| Weighted average, diluted | 41,626 | 12,751 | 21,960 | 12,685 | ||||||||
(1) See non-GAAP measures and ratios
Message to Shareholders
2021 was the most impactful year in the history of Saturn, which was highlighted by the acquisition of the Oxbow Asset in June of 2021. This transformational acquisition enhanced the Company's long-term sustainability by adding a low decline, light oil focused production base that provides substantial cash flow to fund the future growth of the Company and to retire the debt incurred in the acquisition. The Oxbow Asset also has extensive development potential with 298 gross booked drilling locations(1) and an additional 200+ identified and un-booked gross drilling locations which collectively provide over a decade of internally generated drilling inventory. Also critical to Saturn's future growth plans is the optimization and workover of the non-producing wells acquired at Oxbow and to return many of these wells into economic production.
Saturn invested approximately $91.1 million in combined capital expenditures and property acquisitions in 2021 between the acquisition of the Oxbow Asset and our 2021 drilling program. This investment resulted in a production increase of 3,024%, from 233 boe/d in Q1 2021 to 7,279 boe/d in Q4 2021. The production increase of 7,046 boe/d implies an attractive capital investment efficiency of $12,929 per boe/d. Saturn is focused on repeating the success of 2021 by continuing to direct future capital expenditures to the highest expected return projects in our inventory.
Saturn made substantial increases to its reserve base in 2021 with Total Proved ("TP") and Total Proved plus Probable ("TPP") reserves increasing year over year by 910% and 668%, respectively. Finding, development and acquisition costs of reserves were achieved at attractive metrics of $3.15/boe for TP and $2.14/boe for TPP ($9.69/boe for TP and $9.28/boe including future development capital) which are top tier amongst light oil peers.
Current Company production is approximately 7,600 boe/d (96% crude oil and NGLs), based on March 2022 field estimates.
(2) See non-GAAP measures and ratios, booked drilling locations
Oxbow Update
The fourth quarter of 2021 marked the end of the integration period of the Oxbow acquisition and the beginning of the development of the Company's new core growth unit in Southeastern Saskatchewan. Saturn drilled four successful horizontal wells in light oil-bearing Frobisher zones in the Glen Ewen area in the fourth quarter of 2021, which were placed into production in December of 2021 and in January of 2022. The initial production of our first group of Oxbow wells has exceeded our expectations averaging 96.3 bbl/d per well, for the first 30 days, representing a 40% increase above the average type curve of all wells drilled in Southeast Saskatchewan Mississippian play in the past 5 years (sample size of 1,400 wells). The initial success of these drill results has encouraged Saturn to undertake a 29.2 net well drilling program for 2022 at the Oxbow Asset. This program is planned to be executed by one drilling rig which has been contracted throughout 2022.
Viking Update
Saturn directed substantially all of our Q3 2021 capital expenditure program to the Viking Asset in West Central Saskatchewan with the drilling of 3 successful horizontal wells in the Loverna area. The Viking asset contains 53 gross booked drilling locations(1) with reserves at year end 2021 representing approximately 15% of the Company's overall booked drilling locations. Subsequent to year end, Saturn acquired a synergistic asset in Viking area increasing the Company's land position 200% and adding additional drilling locations, in February 2022. Saturn has budgeted to drill five net Viking wells, starting in June of 2022, representing approximately 15% of the wells Saturn plans to drill in 2022.
ESG Initiatives
Saturn continues to prioritize the abandonment and reclamation of wells that no longer have economic production potential as part of the Company's Land Reclamation Program. The Company has contracted two service rigs to work exclusively on decommissioning old well bores and to date 38 wells have been abandoned. Saturn's Land Reclamation Program in 2022 is 100% funded by $13.8 million awarded under the Accelerated Site Closure Program (ASCP) and through the indigenous business credit pool. The Company is targeting abandoning a total of 150 to 200 unproductive wells in 2022. Saturn continues to have a $21 million deposit with the Saskatchewan government for future abandonment and reclamation obligations.
Outlook
Saturn is pursuing a balanced approach to sustainable production growth and rapid repayment of debt. The Company is forecasting 2022 to be another record year for oil and gas production, as outlined in the March 15, 2022 announcement of the fully funded $50 million capital program. The budgeted 2022 capital program is expected to result in:
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Average 2022 annual production in the range of 7,800 to 8,200 boe/d;
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Generating hedged EBITDA(2) in the range of $73 to $77 million, based on USD $75 WTI oil price assumption;
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Corporate hedged EBITDA(2) to reach between $93 to $97 million, based on USD $100 WTI oil price assumption; and
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Q4 2022 average production in the range of 8,100 to 8,500 boe/d, representing year-over-year production growth between 12% - 17%.
As a guiding principle, Saturn intends to direct approximately 50% of future corporate cash flow towards growth capital expenditures and approximately 50% to the repayment of debt. Saturn is committed to reducing debt levels in the near term and expects to make principal payments of approximately $38 million in 2022 and $40 million in 2023 which is expected to result in approximately zero net debt by year end 2023, assuming USD $75 WTI oil prices, under its current senior term loan. Saturn anticipates that when future debt levels reach a sustainable level and debt repayments are terminated, the Company will have the capability to direct a portion of corporate cash flow to shareholders in the form of a dividend or share buyback program, subject to board of directors' approval. Saturn has outstanding 13.4 million warrants, on a post consolidated basis, that expire on June 4, 2023 (trading symbol SOIL.WT, post-consolidated strike price of $3.20/share) that if exercised, would result in up to $42.9 million of proceeds that could accelerate the reduction of net debt.
(1) See non-GAAP measures and ratios, booked drilling locations
(2) See non-GAAP measures and ratios, EBITDA
Resignation of Director of the Board
Mr. Glenn Hamilton has resigned as a member of the Board of Directors so that he may focus his efforts on other professional duties. Saturn thanks Mr. Hamilton for his contribution to the Company and wishes him well in his future endeavours.
Investor Webcast
Saturn will host a webcast at 10:00 AM MST (12:00 PM Noon EST) on May 9, 2022, to review the fourth quarter 2021 financial report and discuss the first quarter 2022 financial report which is expected to be announced on May 5, 2022. Participants can access the live webcast via https://saturnoil.com/invest/q4-2021-and-q1-2022-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 twelve month period ended December 31, 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
[email protected]
Reader Advisory
NON-GAAP MEASURES AND RATIOS
This news release includes non-GAAP measures and ratios as further described herein. These non-GAAP measures and ratios 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 and ratios 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.
"Funds flow" represents cash flow from operating activities and adds back changes in non-cash working capital as the Company believes the timing of collection, payment or incurrence of these items is variable. Funds flow per share is calculated using the same weighted average basic and diluted shares that are used in calculating income (loss) per share.
"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.
"Free adjusted funds flow" represents Adjusted funds flow and deducts PP&E expenditures. Saturn uses free adjusted funds flow as a measure to assess the Company's ability to generate cash, after deducting PP&E expenditures, to repay debt, increase returns to shareholders or for other corporate purposes.
The following table reconciles funds flow, adjusted funds flow, and free adjusted funds flow to the nearest GAAP measure, Cash flow from (used in) operating activities:
| Three months ended December 31, | Year ended December 31, | |||||||||||
| ($000s) | 2021 | 2020 | 2021 | 2020 | ||||||||
| Cash flow from (used in) operating activities | 13,033 | 976 | (1,285 | ) | 851 | |||||||
| Changes in non-cash working capital | (3,433 | ) | 262 | 26,722 | 2,499 | |||||||
| Funds Flow | 9,600 | 1,238 | 25,437 | 3,350 | ||||||||
| Decommissioning expenditures | 53 | - | 53 | - | ||||||||
| Cash transaction costs | 78 | - | 1,858 | 123 | ||||||||
| Adjusted funds flow | 9,731 | 1,238 | 27,348 | 3,473 | ||||||||
| PP&E expenditures | (4,048 | ) | 370 | (8,694 | ) | (51 | ) | |||||
| Free adjusted funds flow | 5,683 | 1,608 | 18,654 | 3,422 | ||||||||
"Net debt" represents cash, accounts receivable, deposits and prepaid expenses (current and long-term), accounts payable and accrued liabilities, Senior Term Loan, Term Notes, Revolving Notes, 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.
The Following table reconciles the components of net debt per the Consolidated Statements of Financial Position:
| ($000s) | December 31, 2021 | December 31, 2020 | ||||||
| Cash | (2,415 | ) | (569 | ) | ||||
| Accounts receivable | (20,039 | ) | (739 | ) | ||||
| Deposits and prepaid expenses | (27,482 | ) | (484 | ) | ||||
| Accounts payable | 28,850 | 5,147 | ||||||
| Senior Term Loan | 65,055 | - | ||||||
| Term Notes | 24,104 | - | ||||||
| Promissory notes | 784 | 1,332 | ||||||
| Convertible notes | 2,197 | 2,038 | ||||||
| Revolving Notes | - | 26,134 | ||||||
| Net debt | 71,054 | 32,859 |
"Booked drilling locations" this news release discloses drilling locations in two categories: (i) booked locations; and (ii) un-booked locations. Booked locations are based on the Company's most recent independent reserves evaluation as prepared by Ryder Scott Company-Canada as of December 31, 2021. In the Oxbow Asset: 218 locations are in the Proved reserve category; and 80 are in the Probable reserve category. In the Viking Asset: 31 locations are in the Proved reserve category; and 22 are in the Probable reserve category. Un-booked locations are internal estimates based on the Company's prospective acreage and identified in undeveloped areas with prospectivity by internal review. Un-booked locations do not have attributed reserves or resources.
"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.
"EBITDA" represents earnings before interest, taxes, depreciation and amortization as a measure a company's operating and financial performance and profitability in terms of cash flow generation.
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 ability to allocated capital to pay down debt and grow productions, 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), constraints 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, 2021.
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, our capital expenditure and drilling programs, drilling inventory and booked locations, production and revenue guidance, ESG initiatives, debt repayment plans and future growth plans. 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.
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/122259