Saturn Oil & Gas Inc. (TSX: SOIL) (FSE: SMKA) (OTCQX: OILSF) ("Saturn" or the "Company") is pleased to report its financial and operating results for the three and twelve months ended December 31, 2023.
"2023 was a tremendous year of progress for Saturn in creating a substantial and sustainable free cash generating enterprise. In addition to doubling our production base over last year, we have assembled a deep inventory of high-quality development drilling locations to sustain current production levels for decades," commented John Jeffrey, Chief Executive Officer. "Saturn has maintained its strategic focus on developing light oil focused assets and optimizing our cost structure to deliver some of the highest cash flow margins in Canada, and to further our ultimate goal of shareholder value creation."
2023 Fourth Quarter and Annual Highlights:
- Delivered record crude oil and natural gas production with fourth quarter 2023 averaging 26,891 boe/d (82% oil and NGLs), compared to 12,514 boe/d (96% oil and NGLs) in the fourth quarter of 2022, an increase of 115%;
- Generated quarterly adjusted EBITDA(1) of $100.1 million compared to $62.2 million in the fourth quarter of 2022, an increase of 61%;
- Achieved record quarterly adjusted funds flow(1) of $80.2 million compared to $50.7 million in the fourth quarter of 2022, an increase of 58%;
- Invested $57.2 million of capital expenditures(1) in the fourth quarter, drilling 19 (16.9 net) horizontal wells;
- Generated free funds flow(1) of $23.1 million in the fourth quarter 2023, compared to $15.1 million in the fourth quarter of 2022, an increase of 53%; and
- Exited 2023 with net debt(1) of $460.5 million, realizing a net debt to fourth quarter annualized adjusted funds flow(1) of 1.4x.
| |
| Three months ended December 31, |
|
| Year ended December 31, | |
(CAD $000s, except per share amounts)
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 | |
| FINANCIAL HIGHLIGHTS |
|
|
|
|
|
|
|
|
|
|
|
|
| Petroleum and natural gas sales |
| 185,384 |
|
| 111,558 |
|
| 693,891 |
|
| 367,957 |
|
| Cash flow from operating activities |
| 75,380 |
|
| 58,100 |
|
| 283,988 |
|
| 102,314 |
|
| Operating netback, net of derivatives(1) |
| 104,328 |
|
| 64,661 |
|
| 382,890 |
|
| 153,450 |
|
| Adjusted EBITDA(1) |
| 100,092 |
|
| 62,191 |
|
| 363,143 |
|
| 146,740 |
|
| Adjusted funds flow(1) |
| 80,247 |
|
| 50,729 |
|
| 278,138 |
|
| 118,658 |
|
| per share | - Basic |
| 0.58 |
|
| 0.85 |
|
| 2.20 |
|
| 2.67 |
|
| - Diluted |
| 0.56 |
|
| 0.84 |
|
| 2.15 |
|
| 2.64 |
|
| Free funds flow(1) |
| 23,072 |
|
| 15,053 |
|
| 147,565 |
|
| 29,553 |
|
| per share | - Basic |
| 0.17 |
|
| 0.25 |
|
| 1.17 |
|
| 0.67 |
|
| - Diluted |
| 0.16 |
|
| 0.25 |
|
| 1.14 |
|
| 0.66 |
|
| Net income (loss) |
| 131,456 |
|
| (16,728 | ) |
| 290,623 |
|
| 74,815 |
|
per share
| - Basic |
| 0.94 |
|
| (0.28 | ) |
| 2.30 |
|
| 1.68 |
|
| - Diluted |
| 0.92 |
|
| (0.28 | ) |
| 2.25 |
|
| 1.66 |
|
| Net Debt(1), end of period |
| 460,483 |
|
| 219,803 |
|
| 460,483 |
|
| 219,803 | |
|
| Three months ended December 31, |
|
| Year ended December 31, | |
| (CAD $000s, except per share amounts) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 | |
| OPERATING HIGHLIGHTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Average production volumes |
|
|
|
|
|
|
|
|
|
|
|
|
| Crude oil (bbls/d) |
| 19,407 |
|
| 11,590 |
|
| 18,177 |
|
| 8,841 |
|
| NGLs (bbls/d) |
| 2,533 |
|
| 428 |
|
| 1,992 |
|
| 353 |
|
| Natural gas (mcf/d) |
| 29,704 |
|
| 2,971 |
|
| 24,559 |
|
| 2,392 | |
| Total boe/d |
| 26,891 |
|
| 12,514 |
|
| 24,262 |
|
| 9,593 |
|
| % Oil and NGLs |
| 82% |
|
| 96% |
|
| 83% |
|
| 96% | |
| Average realized prices |
| |
|
| |
|
| |
|
| |
|
| Crude oil ($/bbl) |
| 95.09 |
|
| 103.03 |
|
| 96.75 |
|
| 111.84 |
|
| NGLs ($/bbl) |
| 44.21 |
|
| 51.47 |
|
| 43.75 |
|
| 58.41 |
|
| Natural gas ($/mcf) |
| 2.49 |
|
| 5.36 |
|
| 2.77 |
|
| 5.57 |
|
| Processing expenses ($/boe) |
| (0.61 | ) |
| (1.56 | ) |
| (0.53 | ) |
| (1.52 | ) |
| Petroleum and natural gas sales ($/boe) |
| 74.93 |
|
| 96.90 |
|
| 78.35 |
|
| 105.09 | |
| Operating netback ($/boe) |
| |
|
| |
|
| |
|
| |
|
| Petroleum and natural gas sales |
| 74.93 |
|
| 96.90 |
|
| 78.35 |
|
| 105.09 |
|
| Royalties |
| (9.75 | ) |
| (9.57 | ) |
| (9.10 | ) |
| (13.61 | ) |
| Net operating expenses(1) |
| (18.17 | ) |
| (22.42 | ) |
| (20.33 | ) |
| (24.67 | ) |
| Transportation expenses |
| (1.25 | ) |
| (0.45 | ) |
| (1.28 | ) |
| (0.61 | ) |
| Operating netback(1) |
| 45.76 |
|
| 64.46 |
|
| 47.64 |
|
| 66.20 |
|
| Realized loss on derivatives |
| (3.59 | ) |
| (8.29 | ) |
| (4.41 | ) |
| (22.38 | ) |
| Operating netback, net of derivatives(1) |
| 42.17 |
|
| 56.17 |
|
| 43.23 |
|
| 43.82 | |
| Common shares outstanding, end of period |
| 139,313 |
|
| 59,892 |
|
| 139,313 |
|
| 59,892 |
|
| Weighted average, basic |
| 139,313 |
|
| 59,869 |
|
| 126,230 |
|
| 44,402 |
|
| Weighted average, diluted |
| 142,292 |
|
| 60,363 |
|
| 129,225 |
|
| 44,955 |
|
Message to Shareholders
In 2023, Saturn achieved its third consecutive year of growth in production and cash flow from operations:
- Average production increased 153% to 24,262 boe/d, compared to 9,593 boe/d average production in 2022;
- Adjusted EBITDA(1) increased 147% to $363.1 million, compared to $146.7 million in 2022; and
- Adjusted funds flow(1) increased 134% to $278.1 million, compared to $118.7 million in 2022.
During 2023, Saturn successfully drilled and rig released a total of 59 gross (48.8 net) horizontal wells across its four core operating areas, comprised of:
- 28 gross (25.2 net) wells in Southeast Saskatchewan;
- 19 gross (14.3 net) wells in West Central Saskatchewan;
- 8 gross (5.3 net) wells in Central Alberta; and
- 4 gross (4.0 net) wells in North Alberta.
The February acquisition of privately held oil and gas producer, Ridgeback Resources Inc. ("Ridgeback"), was a key contributor to Saturn's growth in 2023, adding 670 net sections of land featuring development opportunities to sustain the Company's production going forward. The acquisition of Ridgeback was highly synergistic to the Company's existing Southeast Saskatchewan assets expanding its high cash flow, light oil production base by approximately 65%; more than doubling the light oil reserve volumes in the area; and added a large undeveloped land position featuring Bakken light oil resource that Saturn can continue to develop. In addition to growing the Company's Saskatchewan footprint, the acquisition also expanded Saturn's operations into Alberta's prolific Cardium, Kaybob and Swan Hills areas.
The Company has continued to focus on streamlining its cost structure by reducing overall royalties, decreasing operating costs and improving average hedging pricing:
- Average royalties decreased to 11.5% in 2023, compared 12.8% in 2022;
- Average net operating expenses(1) decreased 18% to $20.33 per boe in 2023, compared to $24.67 per boe in 2022; and
- Average realized loss on derivatives decreased 80% to $4.41 per boe in 2023, compared to $22.38 in 2022.
In light of the above cost reduction impacts, the Company's 2023 operating netback(1), net of derivatives of $43.23 per boe, was comparable to the $43.82 per boe in 2022, despite an approximately 17% drop in the average benchmark WTI oil price to US $77.60 in 2023, compared to an average WTI oil price of US $94.25 in 2022.
Saturn drilled as operator in 2023, 47 gross (45.2 net) wells, with the results of the 46 gross operated wells that were placed on production summarized in the table below:
| Gross Wells Drilled by Formation (number): | Avg. IP30 per Location
(boe/d) | 2023 Guidance
Type Curve
(boe/d) | Performance vs. Type Curve
(%) | Total Gross Capital Invested
($MM) | Capital Efficiency
($ per boe/d) |
| SE Sask - Frob. & Midale (10) | 80.4 | 69.0 | +17 | 13.2 | 16,420 |
| SE Sask - Spearfish (6) | 89.2 | 77.0 | +16 | 7.1 | 13,270 |
| SE Sask - Stimulated Bakken (7) | 109.7 | 101.0 | +9 | 12.3 | 16,020 |
| SE Sask - OHML Bakken (2) | 168.5 | 147.0 | +15 | 4.6 | 13,650 |
| WC Sask - Viking (12) | 97.9 | 68.0 | +44 | 19.4 | 16,510 |
| Central AB - Lochend Cardium (3) | 279.0 | 260.0 | +7 | 17.7 | 21,150 |
| Central AB - Pembina (2) | 239.5 | 248.0 | -3 | 9.4 | 19,620 |
| North AB - Montney (4) | 314.4 | 330.0 | -5 | 14.3 | 11,390 |
| Weighted Average | 134.6 | 121.0 | +11 | 98.0 | 15,830 |
Commitment to Debt Repayment
On February 28, 2023, the Company expanded its Senior Term Loan by $375.0 million in relation to the acquisition of Ridgeback. Saturn continues to prioritize the rapid repayment of its Senior Term Loan, and in 2023, the Company made principal payments totaling approximately $164.5 million, with additional aggregate payments of approximately $50.7 million made to date in 2024, for a total of $215.2 million of principal payments since December 31, 2022. The Company intends to continue directing free cash flow to ongoing debt repayment and balance sheet strengthening.
Southeast Saskatchewan
In Q4 of 2023, Saturn rig released six gross (4.6 net) Bakken wells, of which two gross wells (2.0 net) were drilled as open hole multi-lateral ("OHML") wells. These OHML wells feature seven to eight horizontal legs per well and represent the first on which Saturn has deployed this innovative drilling technique. The Company's Bakken light oil development has been a strong addition to its capital program in Southeast Saskatchewan, where Saturn has already successfully drilled a total of 11 gross (9.1 net) Bakken wells in 2023. Saturn has 197 net booked Bakken drilling locations (including 16.9 net OHML locations) and has identified over 100 net unbooked Bakken wells for future development.
Saturn successfully drilled three gross (2.3 net) Frobisher wells in Q4 of 2023 for an annual total of 11 gross (10.1 net) Mississippian wells, including two gross (1.9 net) Midale wells, which collectively outperformed IP30 type curve expectations by 17%. The six gross (6.0 net) Spearfish wells drilled in 2023 were a highlight of the year's development program, outperforming IP30 type curve expectations by 16%, while experiencing lower than expected declines. Further budgeted development of Frobisher and Spearfish light oil is expected to be a prominent component of Saturn's 2024 capital investment plan.
For the three months ended December 31, 2023, the Company's Southeast Saskatchewan assets collectively averaged 12,550 boe/d of production, an increase of 67% from 7,522 boe/d in the comparative 2022 period.
West Central Saskatchewan
The Company added a third rig to the fourth quarter development plan in order to extend the drilling success of its Viking light oil targets in West Central Saskatchewan, adding four additional wells with 100% working interest. In 2023 Saturn successfully drilled 19 gross (14.3 net) Viking wells and continued to follow up on its best performing areas of Hershel and Plato with 12 operated wells. These 12 wells were drilled with 100% working interest, had an average IP30 of 97.9 bbls/d of light oil, which outperformed the type curve expectations by 44%. Saturn has 165 net locations booked for future Viking development.
The Company's West Central Saskatchewan assets averaged 3,504 boe/d of production for the three months ended December 31, 2023, compared to 4,992 boe/d in the prior year.
Central Alberta
Saturn successfully drilled three Cardium horizontal wells in the fourth quarter of 2023, with 100% working interest, for a total of eight gross (5.3 net) Cardium wells being rig released in 2023. The 2023 Cardium wells drilled by Saturn were Extended Reach Horizontal ("ERH") wells having an average lateral length of 2.2 miles. Five of the Saturn operated Cardium wells were put on production in Q4 of 2023, with IP30 rates consistent with type cure expectations, and delivering approximately 1,316 boe/d in aggregate during the first 30 days on production. The 6th Cardium well drilled in late 2023 has now been completed along with an additional three gross (3.0 net) ERH Cardium wells drilled to date in 2024. The four new wells are expected to be brought online before the end of Q1 2024. In total during 2024, Saturn expects to drill eight net Cardium ERH wells.
For the three months ended December 31, 2023, the Company's Central Alberta assets produced an average of 8,066 boe/d.
North Alberta
In December 2023, the Company brought on production a four well pad in Kaybob, with 100% working interest to Saturn. The four wells were within expectations of the Montney type curve for this area and delivered an IP30 rate of approximately 1,254 boe/d in aggregate. Saturn plans to drill an additional four well pad in Kaybob during 2024.
For the three months ended December 31, 2023, the Company's North Alberta assets produced an average of 2,771 boe/d.
ESG Initiatives
Saturn continued its dedication to responsible environmental stewardship by directing approximately $10.7 million in 2023 to decommissioning expenditures, including the abandonment of 114 wells that no longer had economic production potential, amounting to approximately 2x the number of gross new wells the Company drilled in 2023.
Outlook
Saturn's Board of Directors has approved the Company's largest ever development plan in 2024, with a budget of approximately $145.6 million targeting the drilling of up to 61 net wells. With Saturn's extensive pipeline network and facilities infrastructure within each of its core operating areas, the Company has ample capacity to handle incremental new production coming on-stream. Over 85% of the Company's 2024 development capital expenditures will be directed to drilling, completions, equipping and tie-in of new production.
Through the first quarter of 2024, the Company employed a full-time rig in Southeast Saskatchewan, resulting in the drilling of five gross (5.0 net) conventional wells (two Frobisher, two Spearfish, one Tilston) all of which have been put onto production. The Company is now drilling the first of two Bakken OHML wells that will continue through the first half of 2024 with 100% working interest to Saturn.
Additional details on Saturn's 2024 Capital Investment Program is available within the Company's Guidance Presentation now available on the website at https://saturnoil.com/investors/#presentations-and-events.
Investor Webcast
Saturn will host a webcast at 10:00 AM MDT (12:00 PM Noon EDT) on Wednesday, March 13, 2024, to review the year end and fourth quarter 2023 financial results and provide additional colour on the Company's operational highlights. Participants can access the live webcast via https://saturnoil.com/invest/q4-2023-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 Saskatchewan and Alberta 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 under ticker 'SOIL' on the Frankfurt Stock Exchange under symbol 'SMKA' and on the OTCQX under the ticker 'OILSF'.
The Company's consolidated financial statements and corresponding Management's Discussion and Analysis for the three months and year ended December 31, 2023 are available on SEDAR+ at www.sedarplus.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) 392-7900
www.saturnoil.com
Kevin Smith, MBA - VP Corporate Development
Tel: +1 (587) 392-7900
info@saturnoil.com
Note:
(1) See Reader Advisory "Non-GAAP and Other Financial Measures"
Reader Advisory
Non-GAAP and Other Financial Measures
Throughout this news release and in other materials disclosed by the Company, we employ certain measures to analyze financial performance, financial position and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures provided by other issuers. Non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS. The disclosure under the section "Non-GAAP and Other Financial Measures" including non-GAAP financial measures and ratios, capital management measures and supplementary financial measures in the Company's Condensed consolidated interim financial statements and MD&A are incorporated by reference into this news release.
This press release uses the terms "adjusted EBITDA", "adjusted funds flow", "free funds flow" and "net debt" which are capital management measures. See the disclosure under "Capital Management" in our audited consolidated financial statements for the three months and the year ended December 31, 2023, for an explanation and composition of these measures and how these measures provide useful information to an investor, and the additional purposes, if any, for which management uses these measures.
Free funds flow
The Company considers free funds flow to be a key capital management measure as it is used to determine the efficiency and liquidity of Saturn's business, measuring its funds available after capital investment available for debt repayment, pursue acquisitions and gauge optionality to pay dividends and/or return capital to shareholders through share repurchases. Saturn calculates Free funds flow as Adjusted funds flow in the period less expenditures on property, plant and equipment and exploration and evaluation assets, together "capital expenditures". By removing the impact of current period capital expenditures from adjusted funds flow, management monitors its free funds flow to inform its capital allocation decisions.
|
| Three months ended December 31, |
|
| Year ended December 31, |
|
| ($000s) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 | |
| Adjusted funds flow |
| 80,247 |
|
| 50,729 |
|
| 278,138 |
|
| 118,658 |
|
| Capital expenditures |
| (57,175 | ) |
| (35,676 | ) |
| (130,573 | ) |
| (89,105 | ) |
| Free funds flow |
| 23,072 |
|
| 15,053 |
|
| 147,565 |
|
| 29,553 | |
Capital Expenditures
Saturn uses capital expenditures to monitor its capital investments relative to those budgeted by the Company on an annual basis. Saturn's capital budget excludes acquisition and disposition activities as well as the accounting impact of any accrual changes or payments under certain lease arrangements. The most directly comparable GAAP measure for capital expenditures is cash flow used in investing activities. The following table reconciles capital expenditures and capital expenditures, net acquisitions and dispositions ("A&D") to the nearest GAAP measure, cash flow used in investing activities.
|
| Three months ended December 31, |
|
| Year ended December 31, |
|
| ($000s) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 | |
| Cash flow used in investing activities |
| 38,725 |
|
| 41,747 |
|
| 576,405 |
|
| 318,238 |
|
| Change in non-cash working capital |
| 18,450 |
|
| (5,266 | ) |
| 20,830 |
|
| 19,234 | |
| Capital expenditures, net A&D |
| 57,175 |
|
| 36,481 |
|
| 597,235 |
|
| 337,472 |
|
| Acquisitions, net of cash acquired |
| - |
|
| (805 | ) |
| (466,662 | ) |
| (248,367 | ) |
| Capital expenditures |
| 57,175 |
|
| 35,676 |
|
| 130,573 |
|
| 89,105 | |
Net operating expenses
Net operating expense is calculated by deducting processing income primarily generated by processing third party production at processing facilities where the Company has an ownership interest, from operating expenses presented on the Statement of income (loss). Where the Company has excess capacity at one of its facilities, it will process third-party volumes to reduce the cost of ownership in the facility. The Company's primary business activities are not that of a midstream entity whose activities are focused on earning processing and other infrastructure-based revenues, and as such third-party processing revenue is netted against operating expenses in the MD&A. This metric is used by management to evaluate the Company's net operating expenses on a unit of production basis. Net operating expense per boe is a non-GAAP financial ratio and is calculated as net operating expense divided by total barrels of oil equivalent produced over a specific period of time. The calculation of the Company's net operating expenses is shown within the net operating expenses section of our MD&A for the three months and year ended December 31, 2023.
Operating netback and Operating netback, net of derivatives
The Company's operating netback is determined by deducting royalties, net operating expenses and transportation expenses from petroleum and natural gas sales. The Company's operating netback, net of derivatives is calculated by adding or deducting realized financial derivative commodity contract gains or losses from the operating netback. The Company's operating netback and operating netback, net of derivatives are used in operational and capital allocation decisions. Presenting operating netback and operating netback, net of derivatives on a per boe basis is a non-GAAP financial ratio and allows management to better analyze performance against prior periods on a per unit of production basis. The calculation of the Company's operating netbacks and operating netback, net of derivatives are summarized as follows.
|
| Three months ended December 31, |
|
| Year ended December 31, |
|
| ($000s) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 | |
| Petroleum and natural gas sales |
| 185,384 |
|
| 111,558 |
|
| 693,891 |
|
| 367,957 |
|
| Royalties |
| (24,124 | ) |
| (11,022 | ) |
| (80,565 | ) |
| (47,640 | ) |
| Net operating expenses |
| (44,945 | ) |
| (25,817 | ) |
| (180,074 | ) |
| (86,379 | ) |
| Transportation expenses |
| (3,094 | ) |
| (518 | ) |
| (11,314 | ) |
| (2,139 | ) |
| Operating netback |
| 113,221 |
|
| 74,201 |
|
| 421,938 |
|
| 231,799 |
|
| Realized loss on financial derivatives |
| (8,893 | ) |
| (9,540 | ) |
| (39,048 | ) |
| (78,349 | ) |
| Operating netback, net of derivatives |
| 104,328 |
|
| 64,661 |
|
| 382,890 |
|
| 153,450 | |
|
| |
|
| |
|
| |
|
| | |
| ($ per boe amounts) |
| |
|
| |
|
| |
|
| | |
| Petroleum and natural gas sales |
| 74.93 |
|
| 96.90 |
|
| 78.35 |
|
| 105.09 |
|
| Royalties |
| (9.75 | ) |
| (9.57 | ) |
| (9.10 | ) |
| (13.61 | ) |
| Net operating expenses |
| (18.17 | ) |
| (22.42 | ) |
| (20.33 | ) |
| (24.67 | ) |
| Transportation expenses |
| (1.25 | ) |
| (0.45 | ) |
| (1.28 | ) |
| (0.61 | ) |
| Operating netback |
| 45.76 |
|
| 64.46 |
|
| 47.64 |
|
| 66.20 |
|
| Realized loss on financial derivatives |
| (3.59 | ) |
| (8.29 | ) |
| (4.41 | ) |
| (22.38 | ) |
| Operating netback, net of derivatives |
| 42.17 |
|
| 56.17 |
|
| 43.23 |
|
| 43.82 | |
Adjusted EBITDA
The Company considers adjusted EBITDA to be a key capital management measure as it is both used within certain financial covenants prescribed under the Company's Senior Term Loan (note 11) and demonstrates Saturn's standalone profitability, operating and financial performance in terms of cash flow generation, adjusting for interest related to its capital structure. Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation, amortization and other noncash or extraordinary items.
Adjusted funds flow
The Company considers adjusted funds flow to be a key capital management measure as it demonstrates Saturn's ability to generate the necessary funds to manage production levels and fund future growth through capital investment. Management believes that this measure provides an insightful assessment of Saturn's operations on a continuing basis by eliminating certain non-cash charges, actual settlements of decommissioning obligations, of which the nature and timing of expenditures may vary based on the stage of the Company's assets and operating areas, and transaction costs which vary based on the Company's acquisition and disposition activity.
Free funds flow
The Company considers free funds flow to be a key capital management measure as it is used to determine the efficiency and liquidity of Saturn's business, measuring its funds available after capital investment available for debt repayment, pursue acquisitions and gauge optionality to pay dividends and/or return capital to shareholders through share repurchases. Saturn calculates free funds flow as adjusted funds flow in the period less expenditures on property, plant and equipment and exploration and evaluation assets, together "capital expenditures". By removing the impact of current period capital expenditures from adjusted funds flow, management monitors its free funds flow to inform its capital allocation decisions.
The following table reconciles adjusted EBITDA, adjusted funds flow and free funds flow to cash flow from operating activities:
|
| Year ended December 31, |
|
| ($000s) |
| 2023 |
|
| 2022 | |
| Cash flow from operating activities |
| 283,988 |
|
| 102,314 |
|
| Change in non-cash working capital |
| (20,993 | ) |
| 14,536 |
|
| Decommissioning expenditures |
| 10,486 |
|
| 582 |
|
| Transaction costs |
| 4,657 |
|
| 1,226 |
|
| Current tax recovery |
| (1,915 | ) |
| - |
|
| Net interest(1) |
| 86,920 |
|
| 28,082 | |
| Adjusted EBITDA |
| 363,143 |
|
| 146,740 |
|
| Current Tax Recovery |
| 1,915 |
|
| - |
|
| Net Interest(1) |
| (86,920 | ) |
| 28,082 | |
| Adjusted Funds Flow |
| 278.138 |
|
| 118,658 |
|
| Capital Expenditures(2) |
| (130,573 | ) |
| (89,105 | ) |
| Free Funds Flow |
| 147,565 |
|
| 29,553 | |
(1) Calculated as interest expense, net of interest revenue.
(2) Calculated as expenditures on exploration and development assets on the consolidated statements of cash flows. |
|
Market capitalization and net debt
Management considers net debt a key capital management measure in assessing the Company's liquidity. Total market capitalization and net debt to annualized quarterly adjusted funds flow are used by management and the Company's investors in analyzing the Company's balance sheet strength and liquidity. The summary of total market capitalization, net debt, annualized quarterly adjusted funds flow and net debt to annualized quarterly adjusted funds flow is as follows:
|
| Year ended December 31, | |
| ($000s) |
| 2023 |
|
| 2022 | |
| Total common shares outstanding (000s) |
| 139,313 |
|
| 59,892 |
|
| Share price(1) |
| 2.20 |
|
| 2.35 | |
| Total market capitalization |
| 306,489 |
|
| 140,746 | |
| Adjusted working capital(2) |
| 8,240 |
|
| (3,128 | ) |
| Senior Term Loan |
| 451,153 |
|
| 240,843 |
|
| Convertible notes |
| 1,090 |
|
| 2,361 |
|
| Long-term deposit |
| - |
|
| (21,101 | ) |
| Promissory notes |
| - |
|
| 828 | |
| Net debt |
| 460,483 |
|
| 219,803 |
|
| Current quarter adjusted funds flow |
| 80,247 |
|
| 50,729 |
|
| Annualized factor |
| 4 |
|
| 4 |
|
| Annualized quarterly adjusted funds flow |
| 320,988 |
|
| 202,916 | |
| Net debt to annualized quarterly adjusted funds flow |
| 1.4x |
|
| 1.1x | |
(1) Represents the closing share price on the TSX on the last day of trading of the period.
(2) Adjusted working capital is calculated as cash, accounts receivable, deposits and prepaids net of accounts payable. |
|
Supplemental Information Regarding Product Types
References herein to boe/d include gas or natural gas and NGLs which refer to conventional natural gas and natural gas liquids product types, respectively, as defined in National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"), except where specifically noted otherwise.
The following table is intended to provide the product type composition for each of the production figures provided herein, where not already disclosed within tables above for average production for the three months and the year ended December 31, 2023 and 2022:
| Three months ended December 31, 2023 | Three months ended December 31, 2022 |
| Crude oil (bbls/d) | NGLs (bbls/d) | Natural gas (mcf/d) | Total
(boe/d) | Crude oil (bbls/d) | NGLs (bbls/d) | Natural gas (mcf/d) | Total
(boe/d) |
| Southeast Saskatchewan | 10,832 | 939 | 4,673 | 12,550 | 6,714 | 398 | 2,457 | 7,522 |
| West Central Saskatchewan | 3,389 | 29 | 514 | 3,504 | 4,876 | 30 | 514 | 4,992 |
| Central Alberta | 3,543 | 1,172 | 20,105 | 8,066 | - | - | - | - |
| North Alberta | 1,643 | 393 | 4,412 | 2,771 | - | - | - | - |
| Total boe/d | 19,407 | 2,533 | 29,704 | 26,891 | 11,590 | 428 | 2,971 | 12,514 |
| Year ended December 31, 2023 | Year ended December 31, 2022 |
| Crude oil (bbls/d) | NGLs (bbls/d) | Natural gas (mcf/d) | Total
(boe/d) | Crude oil (bbls/d) | NGLs (bbls/d) | Natural gas (mcf/d) | Total
(boe/d) |
| Southeast Saskatchewan | 9,596 | 770 | 3,968 | 11,027 | 6,401 | 340 | 2,118 | 7,094 |
| West Central Saskatchewan | 4,262 | 20 | 468 | 4,360 | 2,440 | 13 | 274 | 2,499 |
| Central Alberta | 3,005 | 915 | 16,602 | 6,687 | - | - | - | - |
| North Alberta | 1,314 | 287 | 3,521 | 2,188 | - | - | - | - |
| Total boe/d | 18,177 | 1,992 | 24,559 | 24,262 | 8,841 | 353 | 2,392 | 9,593 |
Initial Production Rates
Any reference in this news release to initial production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. Any reference in this news release to initial production rates consist of the above noted product types, using a conversion rate of 1 bbl : 6 MCF (where applicable). Readers are cautioned not to place undue reliance on such rates in calculating aggregate production for Saturn.
Per boe or ($/boe)
Any reference in this news release to disclosures for petroleum and natural gas sales, royalties, operating expenses, transportation expenses and marketing expenses on a per boe basis are supplementary financial measures that are calculated by dividing each of these respective GAAP measures by Saturn's total production volumes for the period.
Per Share Amounts
Per share amounts noted in this news release are based on Saturn's weighted average issued and outstanding common shares as of December 31, 2023, unless noted otherwise.
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 Company's drilling and development plans, timing of bringing wells on-stream, 2024 production, expectations regarding netbacks, 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 allocate capital to pay down debt and grow or maintain production, the geological characteristics of Saturn's properties, the application of regulatory and licensing requirements and the availability of capital, labour and services.
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, 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, 2023.
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.
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
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