- Saturn's forecast 24-month free cash flow enough to repay senior term loan and subordinated notes in full
- Mission is to continue to be an acquirer of accretive assets in Western Canada
- Acquisition builds on Saturn's existing environmental, social and governance ("ESG") performance, while supplying responsibly-produced Canadian crude oil to service global market demand
Calgary, Alberta--(Newsfile Corp. - June 7, 2021) - Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMK) ("Saturn" or the "Company") is pleased to announce that it has successfully closed the previously announced transformational acquisition (the "Acquisition") of assets in the Oxbow area of Southeast Saskatchewan (the "Oxbow Assets") from Crescent Point Energy Corp. Saturn acquired approximately 6,700 boe/d (~95% light oil and liquids)1 with over 450 net sections of land, largely positioned across one of the most economic oil plays in North America.
Total consideration for the Acquisition was $93 million, prior to closing adjustments, and was funded through a combination of proceeds from the previously announced senior secured term loan, a best-efforts agency private placement and a concurrent non-brokered private placement. Details of the senior secured term loan and the private placement equity offerings can be found within the Company's press releases dated May 13 and June 4, 2021.
"The closing of this transformational acquisition has truly elevated Saturn to new heights and put our mark on the map for a very attractive purchase price," said John Jeffrey, CEO of Saturn. "We have added high-quality, light oil assets to our portfolio, which now features a robust long-term inventory of future development drilling targets that are highly economic at current commodity prices. The Saturn team is excited about the opportunity to generate compelling returns for our shareholders, while helping to meet the world's growing energy needs in an environmentally responsible manner under Canada's stringent regulatory regime."
Strategic Acquisition Highlights
The Acquisition enhances Saturn's financial and operational strength through the addition of a high-quality and very low decline (12%) light oil asset base that is projected to generate robust free cash flow at current prices. Further, the Acquisition is aligned with the Company's strategy to acquire and develop undervalued, low-risk opportunities that support the building of a strong portfolio with strategic development upside. The Oxbow Assets produce primarily from the Frobisher and Midale formations, feature a sizeable inventory of targets for workover, development and optimization, and are expected to generate $65-70 million in net operating income2 over the next 12 months3.
In addition to acquiring the assets for an attractive purchase price, the Acquisition positions Saturn as one of the leading producers and land holders in Southeast Saskatchewan, offering investors exposure to numerous benefits, including:
- Production increase of more than 2,000% over current volumes, with over 1,300% PDP reserves growth compared to the Company's year end 2020 reserves.
- Land base increase of 775% with more than 180% growth in booked drilling locations.
- Exposure to a conventional multi-zone asset base concentrated in the Midale / Frobisher formations with a large, identified low-risk drilling inventory of highly economic light oil plays4, significant workover opportunities, and competitive forecast returns.
- The potential to generate significant annual free cash flow through the optimization and recompletion of more than 500 existing well bores over the next three years with low capital expenditures. Saturn anticipates directing approximately $5 million of annual workover capex to maintain current production levels.
- Locked-in area economics with approximately 70% of forecast production hedged over the next year, 60% for the second year and approximately 50% for years three and four with incremental volumes from growth capital fully exposed to commodity prices.
- Expanded scale provides increased strategic optionality to adapt to changing market conditions while financial capacity is improved due to increased cash flow generation and low leverage as Saturn anticipates being debt free in 24 months based on current strip pricing.
- A strong infrastructure position with multiple sales points and capacity for future growth with 60 owned, operated and well-maintained key production facilities with excess capacity.
- Strengthened ESG performance, supported by minimal freshwater usage due to no fracture stimulations and future potential to initiate an enhanced oil recovery initiative using only produced water. The Company's surface footprint will be minimized due to pipeline-connected, multi-well pad development of the Oxbow Assets, and liability clean up will be accelerated with the support of over $10 million of federal Accelerated Site Closure Program funding.
Financings
As previously announced in the Company's press releases dated May 13, 2021, May 17, 2021, May 28, 2021 and June 4, 2021, the Acquisition was funded through proceeds from an $87.0 million senior secured term loan, as well as a brokered and non brokered private placement which collectively raised total gross proceeds of $32.8 million.
As partial consideration for Prudential Capital Energy Partners, L.P. agreeing to subordinate its current loans, waive certain prior loan defaults, extend out the maturity of their existing revolving note facility and cancel 30,505,122 existing share purchase warrants with an exercise price of $0.235 and an expiry of Sept 14, 2022, Prudential will be granted 43,800,000 common share purchase warrants at a $0.16 exercise price with expiry at the earlier of the maturity date of the loan (December 7, 2024) or 12 months after early repayment of the loan facility.
Advisors
Alvarez & Marsal Canada Securities ULC ("A&M") acted as exclusive financial advisor to Saturn with respect to the Senior Secured Term Loan and the Acquisition, while Dentons Canada LLP acted as Saturn's legal counsel in connection with the Acquisition, the Private Placements and the Senior Secured Term Loan.
In connection with their engagement, on successful closing of the Acquisition A&M is entitled to receive 3,000,000 compensation special warrants exercisable into one (1) compensation option (a "Compensation Option"), for no additional consideration, at any time after the Closing, and each Compensation Special Warrant not previously exercised shall be deemed exercised on the later of (i) the day after a receipt is issued for a final prospectus qualifying the Units for distribution in qualifying jurisdictions and (ii) the date that is four months and one day following the Closing. Each Compensation Option shall entitle the holder thereof to purchase one Unit consisting of one common shares and one common share purchase warrant ("Unit Warrant") at an exercise price of $0.12 at any time up to 24 months following the Closing. Each Unit Warrant will entitle the holder thereof to purchase one common share at an exercise price of $0.16 per share for 24 months from the date of issue.
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 Southeast Saskatchewan that provide an 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 TSXV under ticker 'SOIL' and on the Frankfurt Exchange under symbol 'SMK.' Further information and a corporate presentation is available on Saturn's website at http://www.saturnoil.com/.
Investor & Media Contact:
Saturn Oil & Gas
John Jeffrey, MBA - Chief Executive Officer
Tel: +1 (587) 392-7902
www.saturnoil.com
Reader Advisory
Boe Disclosure
The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Drilling Locations
This press release discloses drilling locations with respect to the Assets in two categories: (i) proved locations; and (ii) unbooked locations. Proved locations are derived from the Company's internal reserves evaluation as prepared by a member of management who is a qualified reserves evaluator in accordance with NI 51-101 and the COGEH effective December 31, 2020 and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on the Company's assumptions as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Of the total 444 drilling locations identified herein, 244 are proved plus probable locations and 200 are unbooked locations. Unbooked locations have been identified by management as an estimation of Company's multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information assuming completion of the Acquisition. Assuming completion of the Acquisition, there is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations considered for future development will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by the drilling of existing wells by the vendor in relatively close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir. Therefore, there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.
Non-IFRS Measures
This news release contains metrics commonly used in the oil and natural gas industry, such as "operating netbacks" and "Net Operating Income". These terms are not defined in IFRS and do not have standardized meanings or standardized methods of calculation and therefore may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons.
Operating Netback: equals petroleum sales (before realized hedging gains or losses on derivative instruments) less royalties and operating costs calculated on a boe basis.
Net Operating Income: equals petroleum sales (before realized hedging gains or losses on derivative instruments) less royalties and operating costs
Future Oriented Financial Information
Any financial outlook or future oriented financial information in this press release, as defined by applicable securities legislation, including future (but not limited to) operating and fixed costs (and reductions thereto), debt levels, net operating income, has been approved by management of Saturn. Readers are cautioned that any such future oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The Company and its management believe that the prospective financial information has been prepared on a reasonable basis, reflecting management's best estimates and judgments, and represent, to the best of management's knowledge and opinion, the Company's expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future activities or results.
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", "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, statements concerning: estimated assumed liabilities associated with the Oxbow Assets; expected production related to the Oxbow Assets; reserve estimates; future production levels; decline rates; future operational and technical synergies resulting from the Acquisition; management's ability to replicate past performance in the Oxbow Asset fairway; future negotiation of contracts; the ability of the Company to optimize production from the Oxbow Assets on the timeline provided herein; future consolidation opportunities and acquisition targets; the business plan, cost model and strategy of the Company; future cash flows; and future commodities prices.
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 receipt of all approvals and satisfaction of all conditions to the completion of the Acquisition, Private Placement, and senior secured term loan, 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 characteristics of the Oxbow Assets, the successful integration of the Oxbow's Assets into Saturn operations, the successful application of drilling, completion and seismic technology, prevailing weather conditions, prevailing legislation affecting the oil and gas industry, commodity prices, royalty regimes and exchange rates, 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 anticipated benefits associated with the Oxbow Assets and future operational metrics of the Oxbow Assets. 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 TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this press release.
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
[1] As at April 1, 2021 Production report. Comprised of 6,197 bbls/d of light and medium crude oil, 149 bbls/d of NGLs, and 2,165 mcf/d of conventional natural gas.
[2] See "Non-IFRS Measures" under "Reader Advisory" below.
[3] Estimated Net Operating Income derived using assumed operating netback in respect of the Assets of $28.13/boe. Estimated operating netback was derived using estimated go-forward royalties and operating costs utilizing May 5, 2021 strip pricing which averages US$64.29/bbl; an MSW/WTI differential of US$5.00/bbl; an AECO price of $2.80/GJ; and a USD/CAD exchange rate of $1.23 all for the forecasted 12-month period from the Effective Date of April 1, 2021. The operating cost and royalty utilized for the operating netback calculation is $26.49/boe and $7.53/boe (or 11.75% of oil and gas revenue), respectively.
[4] Midale/Frobisher/Alida/Spearfish/Tilston/Red Jacket locations in SE Saskatchewan.
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/86773
