Saturn Oil & Gas Inc. Reports Q3 2024 Results Highlighted by Record Quarterly Production, Adjusted EBITDA and Adjusted Funds Flow

Calgary, Alberta--(Newsfile Corp. - November 5, 2024) - Saturn Oil & Gas Inc. (TSX: SOIL) (OTCQX: OILSF) (FSE: SMKA) ("Saturn" or the "Company"), a light oil-weighted producer focused on unlocking value through the development of assets in Saskatchewan and Alberta, is pleased to report our financial and operating results for the three and nine months ended September 30, 2024. Saturn's Financial Statements, as well as Management's Discussion and Analysis ("MD&A") are available on our website and filed on SEDAR+ at sedarplus.ca.

“Saturn delivered record results across several key metrics this quarter, including production that averaged over 39,000 boe/d, Adjusted EBITDA(1) of approximately $136 million, and Adjusted Funds Flow(1) (“AFF”) of over $94 million, attributable to continued well outperformance, disciplined cost reductions, and our strategic blueprint for cash flow generation from our light oil-weighted assets," said John Jeffrey, Saturn’s CEO. "Normalized AFF(1) and Free Funds Flow(1) would be $114 million and $30 million, respectively, (approximately $20 million higher than actuals given an opportunistic enhancement of the hedge book), demonstrating our ability to drive shareholder value with bottom-line growth and Free Funds Flow generation. In addition, we exited the quarter with over $110 million of cash on the balance sheet, and are actively executing a capital return framework through our NCIB that has resulted in the purchase and cancellation of 2.2 million shares to date, further underpinning our focus on enhancing per share value."

Q3 2024 HIGHLIGHTS

• Production averaged 39,049 boe/d, 30% higher than Q2/24, and 49% higher than Q3/23, reflecting a full quarter of volume contribution from the Battrum and Flat Lake assets acquired in mid-June 2024 (the "South Saskatchewan Acquisition") and new volumes coming on-stream from our ongoing capital program.

• Adjusted EBITDA⁽¹⁾ achieved a corporate record at $135.8 million, higher than Q2/24 and Q3/23 by 28% and 35%, respectively, despite realized oil prices that were 9% and 12% lower than the same respective periods, while net income totaled $101.6 million ($0.50 per basic share) during the quarter.

• AFF⁽¹⁾ of $94.1 million ($0.46 per basic share) also represented a quarterly record, and was 6% higher than Q2/24 and 23% higher than Q3/23, including the impact of a $20 million one-time early termination payment to unwind legacy WTI oil hedges. Saturn opportunistically chose to unwind these hedges when oil prices dropped and the cost to monetize became substantially less expensive.

• Development capital expenditures⁽¹⁾ of $80.8 million in Q3/24 were directed to drill a total of 48 (41.2 net) wells across our core areas, with 32 gross (29.9 net) wells completed and tied-in.

• Free funds flow⁽¹⁾ of $9.7 million was generated in Q3/24, reflecting an active capital expenditure program in the period, along with the non-recurring costs to enhance the hedge book as noted above.

• Net debt⁽¹⁾ of $779.0 million at quarter end was 2% lower than Q2/24, positioning the Company with meaningful liquidity and financial flexibility that includes approximately $113 million of cash on the balance sheet plus a fully undrawn $150 million reserves-based revolving credit facility. Saturn's leverage ratios at period-end reflect a 1.4 times net debt to annualized quarterly adjusted EBITDA⁽¹⁾ and 1.7 times net debt to annualized quarterly normalized AFF⁽¹⁾.

• Inaugural return of capital framework implemented via normal course issuer bid ("NCIB") launched on August 27, 2024, serving as a mechanism to improve per share metrics. Saturn has maximized our daily NCIB purchase limits, successfully returning $2.7 million to shareholders (equivalent to $0.01 per weighted average basic share) in Q3/24 through the repurchase and cancellation of 1,095,236 common shares. Common shares outstanding at the date of this release total 202.0 million.

• Mitigated foreign exchange ("FX") risk by securing swap contracts to fix the FX rate on our US dollar denominated interest and principal repayments for the next three years on the Company's senior notes.

HIGHLIGHTS SUBSEQUENT TO QUARTER-END

• Core-up strategy continued with closing of $20.5 million tuck-in acquisition on October 1, 2024, bolstering our land position immediately proximal to where Saturn drilled four of our most productive wells in Q1/24, adding 63.0 net drilling locations across the asset package, plus approximately 700 boe/d of production⁽²⁾ in the Brazeau area of Central Alberta targeting the Cardium formation, along with opportunities to capture operational synergies and amalgamate infrastructure.

• Share buy backs under our NCIB have continued, with a further 1,150,800 shares purchased in the open market after September 30, 2024 at a weighted average price of $2.33 per share, for an additional return of capital to shareholders of $2.7 million.

FINANCIAL AND OPERATING HIGHLIGHTS

⁽¹⁾ See Non-GAAP and Other Financial Measures

⁽¹⁾ See Non-GAAP and Other Financial Measures

DELIVERING RESULTS WITH OUR SATURN BLUEPRINT

Through Q3/24, Saturn remained focused on executing our proven blueprint for unlocking value by controlling key operational and financial levers and delivering robust performance. Benefiting from a full quarter of contribution from our South Saskatchewan Acquisition, along with an efficient drilling program and targeted production optimization, Saturn's Q3 production exceeded expectations. Our continued emphasis on cost reduction plus optimization and development were key drivers of our strong Q3 results.

In concert with the South Saskatchewan Acquisition, we successfully refinanced and restructured the Company's prior debt facility, replacing it with US$650 million of 9.625% senior notes (the "Senior Notes"), which reshaped Saturn's balance sheet. Compared to our previous debt structure, the Senior Notes lowered our interest rate by over 40%, eliminated onerous amortization provisions and removed the requirement to hedge three years forward, allowing greater flexibility to maximize cash flows. On September 30, 2024, Saturn made an initial scheduled principal repayment of US$16.3 million on the Senior Notes, reducing our net debt⁽¹⁾ to $779.0 million.

During the quarter, Saturn strategically leveraged oil price volatility to prudently restructure our hedge book. When oil prices dropped, the Company capitalized on the opportunity to monetize certain out-of-the-money contracts, making an early termination payment of $19.9 million—substantially less than it would have cost in a stronger price environment. As the oil market rebounded, Saturn layered in new hedge contracts featuring collars with higher floor prices. This evolution in our hedge book is expected to provide substantial benefits to Saturn, reinforcing our focus on enhancing per-share metrics and increasing cash flows over the long term.

Subsequent to the end of the quarter, we closed a $20.5 million tuck-in asset acquisition, expanding Saturn's footprint in Central Alberta with additional land and approximately 700 boe/d of Brazeau Cardium production. This acquisition exemplifies our 'core-up strategy,' focused on targeted tuck-in acquisitions in areas with high outperformance and strong rates of return, further enhancing per-share metrics.

OPERATIONS UPDATE

The operational performance delivered in Q3/24 was underscored by Saturn's ongoing efforts to enhance production efficiency and well performance across our core areas.

Southeast Saskatchewan

Southeast Saskatchewan serves as the cornerstone of our production base, offering stable, multi-zone light oil opportunities complemented by promising development potential through new technologies. In Q3/24, area production averaged 19,695 boe/d⁽²⁾, nearly 50% higher than Q2/24 and 69% higher than the same period in 2023. This significant growth reflects the added volumes from the Flat Lake area following the South Saskatchewan Acquisition and new production from our 2024 drilling program. During the quarter, we invested $29.0 million of capital in Southeast Saskatchewan for drilling, completion, equip and tie-in ("DCET"), and drilled 20 gross (17.2 net) wells.

Building on our success utilizing Open Hole Multi-Lateral ("OHML") wells in the Bakken, Saturn is applying this expertise to the Spearfish formation at Manor, where we recently completed drilling a six-leg lateral Spearfish well to assess OHML development viability. New volumes from this well are anticipated to come on in the coming weeks. Prior to drilling, we successfully secured additional adjacent land, fortifying our position and expanding our inventory of drill locations. Not only do OHML wells in Southeast Saskatchewan rank among our most capital-efficient projects, certain wells will also benefit from new Crown royalty holidays on the first 100,000 barrels of production—a significant increase from the previous 37,800-barrel holiday.

West Saskatchewan

Saturn's West Saskatchewan area achieved average Q3/24 production of 7,904 boe/d⁽²⁾, comprised of 4,778 boe/d from Southwest Saskatchewan and 3,126 boe/d from West Central Saskatchewan. The addition of oil-weighted Battrum assets through the South Saskatchewan Acquisition nearly doubled the area's volumes from Q2 to Q3/24. During the quarter, we allocated $21.5 million of DCET capital to the area, drilling 21 gross (17.0 net) wells and we intend to apply our proven development strategy to unlock further value in West Saskatchewan.

The Battrum assets are geologically concentrated within the high-return Success and Roseray formations. Given the technical complexity of this area, extensive geological and geophysical work has been done at Battrum, and Saturn believes there is potential to capitalize on unbooked identified locations, including targeting the relatively undeveloped Lower Shaunavon. In addition, we recently acquired approximately 110 km² of 3D seismic data over the area, which will be processed and analyzed to guide development over the next 12 to 18 months.

We continue to identify new opportunities in the Viking to enhance production and reserves. A Viking stratigraphic trend has been validated across our new East Plato area wells and our legacy Plato wells, confirming connectivity between the two. This is meaningful given Saturn's extensive land base extends between East Plato and the main Plato development area, and connecting these zones is expected to create additional future drilling locations.

Central Alberta

Saturn sees exciting development opportunities in our Central Alberta area, including a successful four-well Montney program at Kaybob in Q2/24, which contributed to Q3/24 average production of 11,450 boe/d⁽²⁾. We invested DCET capital of $22.9 million in the area during Q3/24, and drilled seven gross (7.0 net) wells.

At our Lochend field located northwest of Calgary, the Company is proud to confirm that we have successfully drilled the longest Cardium well on record in Canada, with a total length of 7,570 metres measured depth. Innovation and advancements in our drilling and completion techniques have enabled Saturn to drill longer laterals, which materially increases the capital efficiencies of this play. Consistent with our blueprint approach to managing our business, our operations team intends to leverage learnings gained from extended reach horizontal drilling in this field and deploy those across other Cardium fields within our portfolio going forward.

Given the continued well outperformance on new development in Central Alberta, particularly in the Cardium, we closed a strategic tuck-in acquisition at Brazeau just after the quarter end which added 63.0 net drilling locations across the asset package, along with approximately 700 boe/d of production. The acquired assets are contiguous to Saturn's four best wells drilled and aligns with our 'core-up strategy' to secure additional acreage in areas where we are achieving the highest technical success.

RISK MANAGEMENT PROFILE

With Saturn's new Senior Notes, the Company is subject to certain minimum hedging requirements that are consistent with our risk management policy, targeting approximately 50% of projected oil and liquids production net of royalties over a rolling 12 month-period.

Saturn has contracts in place to provide downside protection on crude oil prices, oil differentials and natural gas. In addition, we have secured rate protection on the Company's interest and principal payments for our Senior Notes over the next three years by way of interest rate swaps at 1.33935 CAD to USD. Full details and a complete list of all current contracts in place to 2027 are available in the Company's Q3/24 MD&A.

OUTLOOK

For the balance of the year, Saturn will have four rigs concurrently drilling horizontal wells targeting light oil, with two rigs in Southeast Saskatchewan, one rig in West Saskatchewan and one rig in Central Alberta. Fourth quarter 2024 production is expected to average between 39,000 to 40,000 boe/d⁽²⁾, at the upper end of our previously communicated guidance, based on capital expenditures⁽¹⁾ of $90 to $95 million, directed to the planned drilling of approximately 20 wells along with production optimization, facilities investments and the conversion of ten wells from producers into injectors to facilitate secondary recovery at Flat Lake in Q4.

Looking ahead, we remain focused on following Saturn's unique blueprint to drive value creation for all stakeholders and in particular, to enhance our per-share metrics. This includes continued share buybacks through our NCIB and pursuing strategic tuck-in acquisitions that complement our existing operations and offer attractive development opportunities. Further, we are expanding our investor outreach and market engagement efforts to close any gap between Saturn's market valuation and our underlying fundamentals. We believe the strong performance delivered to date in 2024 underscores our ability to execute operationally, improve the value of every barrel produced, and maintain steady progress in reducing net debt.

LEADERSHIP APPOINTMENT

Saturn is also pleased to announce that Cindy Gray has joined the Company's leadership team in the role of Vice President, Investor Relations. Ms. Gray is an accomplished investor relations ("IR") and capital markets professional with over 20 years of experience in financial communications, including most recently as the CEO and founder of a Calgary-based IR consulting firm specializing in the energy sector. Prior thereto, Ms. Gray held senior and executive roles at a number of public companies and led global business development for one of the TSX and TSX Venture Exchange practice groups. She holds an MBA from the University of Calgary's Haskayne School of Business and sits on the board of Providence, a Calgary-based not-for-profit that provides specialized therapeutic and educational services to support the well-being and development of all children.

Mr. Kevin Smith has resigned from Saturn to pursue other opportunities. The Company thanks Kevin for his contributions and wishes him well in his future endeavours.

CONFERENCE CALL AND WEBCAST

The Company plans to host a conference call on Wednesday, November 6, 2024, at 8:00 am Mountain Time (10:00 am Eastern Time), which will include a discussion with Saturn's leadership team, who will provide an overview of our Q3 2024 results, followed by a question-and-answer session with attendees.

• Date: Wednesday, November 6, 2024
• Time: 8:00 am MT (10:00 am ET)
• Live Webcast Link: https://www.gowebcasting.com/13700
• North America (Toll Free) Dial In: 1-844-763-8274
• International Dial In: 1-647-484-8814

An audio replay of the webcast will be available one hour after the end of the call at the link above and will remain accessible for 12 months. The replay link will also be posted on Saturn's website.

ABOUT SATURN

Saturn is a returns-driven Canadian energy company focused on the efficient and innovative development of high-quality, light oil weighted assets, supported by an acquisition strategy targeting accretive and complementary opportunities. The Company's portfolio of free-cash flowing, low-decline operated assets in Saskatchewan and Alberta provide a deep inventory of long-term economic drilling opportunities across multiple zones. With an unwavering commitment to building an entrepreneurial and ESG-focused culture, Saturn's goal is to increase per share reserves, production and cash flow at an attractive return on invested capital. The Company's shares are listed for trading on the TSX under ticker 'SOIL', on the OTCQX under the ticker 'OILSF' and the Frankfurt Stock Exchange under symbol 'SMKA'. Further information and our corporate presentation are available on Saturn's website at www.saturnoil.com.

NOTES

⁽¹⁾ See reader advisory: Non-GAAP and Other Financial Measures
⁽²⁾ See reader advisory: Supplemental Information Regarding Product Types

READER ADVISORIES

Non-GAAP and Other Financial Measures

Throughout this news release and in other materials disclosed by the Company, Saturn employs 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 entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss), cash flow from operating activities, and cash flow used in investing activities, as indicators of Saturn's performance.

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 news release may use the terms "Adjusted EBITDA", "Adjusted Funds Flow", "Net Debt", "Free Funds Flow", "Net Debt to Annualized Adjusted EBITDA" and "Net Debt to Annualized Quarterly Normalized AFF" which are capital management financial measures. See the disclosure under "Capital Management" in our Condensed consolidated interim Financial Statements and MD&A for the nine months ended September 30, 2024, 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.

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.

Free Funds Flow

Saturn uses free funds flow as an indicator of the efficiency and liquidity of Saturn's business, measuring its funds after capital investment available to manage debt levels, pursue acquisitions and gauge optionality to pay dividends and/or and return capital to shareholders through activities such as share repurchases. Saturn calculates free funds flow as adjusted funds flow in the period less 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 funds flow to free funds flow.

Gross Petroleum and Natural Gas Sales

Gross petroleum and natural gas sales is calculated by adding oil, natural gas and NGLs revenue, before deducting certain gas processing expenses in arriving at petroleum and natural gas revenue as required under IFRS-15. These processing expenses associated with the processing of natural gas and NGLs revenue are a result of the Company transferring custody of the product at the terminal inlet, and therefore receiving net prices. This metric is used by management to quantify and analyze the realized price received before required processing deductions, against benchmark prices. The calculation of the Company's gross petroleum and natural gas sales is shown within the petroleum and natural gas sales section of the MD&A for the nine months ended September 30, 2024.

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 may 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 the MD&A for the nine months ended September 30, 2024.

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.

Supplemental Information Regarding Product Types

References to gas or natural gas and NGLs in this press release 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, except where specifically noted otherwise.

• Tuck-in Acquisition production is comprised of approximately 145 bbls/d of crude oil, 90 bbls/d of NGLs and 2,750 mcf/d of natural gas.
• Q4 2024 average production, at the midpoint of the guidance range, is anticipated to be comprised of approximately 84% crude oil and NGLs and 16% natural gas.

The following table summarizes Saturn's average production by business unit for the three and nine months ended September 30, 2024 and 2023:

⁽¹⁾ As a result of the Deer Mountain Disposition, the Company aggregated the North Alberta and Central Alberta business units. Certain prior period amounts have been reclassified to conform to current presentation.

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, expectations regarding netbacks, hedging strategy, 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 impact of our hedging strategy, 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 integrate 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, 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, available on SEDAR+ at sedarplus.ca.

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.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/228958