The new assets are in the Viking play of west-central Saskatchewan. They will add 4,000 barrels a day and cost Saturn $260-million, which the company will cover with the proceeds of a $65-million bought deal and a $200-million term loan. It took a similar approach when it arranged its first major acquisition last year. That was when it bought Crescent Point Energy Corp.'s (CPG: $11.35) 6,700-barrel-a-day Oxbow assets for $93-million -- prices have rocketed since then -- which it came up with by issuing $32.2-million in equity and taking out $82-million in debt. (The original equity amount was much lower, but Saturn increased it because of extra demand.) Saturn then announced another acquisition and equity financing in February, 2022. The one announced today is its most expensive yet.
Shareholders were unenthused. The new $65-million bought deal -- assuming it is not increased -- will see Saturn issue 23.6 million units at $2.75, a significant discount to recent trading levels above $3. It will also be significantly dilutive. Saturn currently has just 32 million shares outstanding, with this trimness being entirely thanks to a 1-for-20 rollback last October, before which its share count exceeded 500 million. Investors do not like to see a share count climbing too quickly. Some will also have their eye on Saturn's balance sheet, which is moving further away from management's earlier goal of being debt free in early 2023. It now says perhaps late 2024 instead.
The important thing, emphasized management, is that the "transformational" deal will help Saturn achieve "greater institutional appeal, improved liquidity and the potential for inclusion in key indexes." It outlined a roughly three-year plan whereby it will aim to generate over $500-million in free cash flow while boosting total production to around 15,000 barrels a day. No doubt these will be useful talking points for the underwriters of the $65-million bought deal, co-led by Canaccord Genuity and Eight Capital. It would be equally unsurprising if analysts from those firms suddenly felt an urge to launch some boosterish coverage.