Saturn Oil & Gas Inc. Reports Q2 2024 Financial and Operational Results Highlighted by Record Quarterly Production and Adjusted Funds Flow

Calgary, Alberta--(Newsfile Corp. - July 30, 2024) - 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 six months ended June 30, 2024.

"Saturn's capital structure changes implemented in Q2 2024, in conjunction with a major acquisition, will serve as an inflection point in establishing the Company as a leading independent growing energy producer in Western Canada." commented John Jeffrey, Chief Executive Officer of Saturn. "In June 2024, the Company increased its crude oil production base by over 50% and reduced its interest rate on borrowed funds by approximately 40%, bolstering Saturn's sustainable free funds flow generation capability per share, with a drastically reduced cost of capital."

Second Quarter 2024 Highlights:

• Closed an acquisition of two oil-weighted asset packages of approximately 13,000 boe/d(2) in its existing core operating areas in Southern Saskatchewan for total cash consideration of approximately $534.8 million;

• Achieved Q2 2024 exit production of approximately 38,300 boe/d(2);

• Replaced the Company's Senior Term Loan with US$650.0 million of Senior Secured Notes ("Senior Notes") bearing an interest rate of 9.625% per annum due June 15, 2029;

• Completed a bought deal equity financing for total gross proceeds of $100.0 million;

• Entered into a $150.0 million credit facility with a syndicate of banks which was undrawn at June 30, 2024;

• Achieved record average production of 30,128 boe/d, compared to 25,988 boe/d in the second quarter of 2023;

• Recognized petroleum and natural gas sales of $208.9 million, up from $176.0 million in the second quarter of 2023;

• Generated record quarterly adjusted EBITDA(1) of $106.0 million, compared to $92.9 million in the second of 2023;

• Achieved quarterly adjusted funds flow(1) of $88.6 million, up from $67.0 million in the second quarter of 2023;

• Invested $22.5 million in capital expenditures(1) during the second quarter of 2024, drilling seven gross (6.0 net) wells including six in Southeast Saskatchewan; and one in West Central Saskatchewan;

• Generated free funds flow(1) of $66.1 million, up from $53.1 million in the second quarter of 2023; and

• Exited the second quarter of 2024 with $792.2 million of net debt(1), realizing a proforma net debt to annualized quarterly adjusted funds flow(1) of 1.5x.

Message to Shareholders

The second quarter of 2024 was another active period for Saturn with the acquisition of approximately 13,000 boe/d(2) of production in southern Saskatchewan (the "South Saskatchewan Acquisition"). The acquired assets are weighted 96% to high margin crude oil and liquids and are an excellent fit within the Company's existing core asset base. The South Saskatchewan Acquisition has set the foundation for strong future free funds flow generation, with a low decline production profile and an extensive portfolio of development drilling locations. The South Saskatchewan Acquisition also served as a catalyst for Saturn to significantly enhance its capital structure with the repayment of the Senior Secured Term Loan with the issue of US$650 million of Senior Notes with a 9.625% coupon rate, which reduced the Company's interest rate by approximately 40%. The Company also entered into a $150.0 million credit facility agreement with a syndicate of banks which remained undrawn at June 30, 2024. The new debt structure is expected to reduce the Company's overall cost of capital and increase the flexibility of funding its capital expenditures going forward.

Southeast Saskatchewan Update

The Company's assets in Southeast Saskatchewan produced an average of 13,224(2) boe/d for the three months ended June 30, 2024, a 16% increase from Q2 2023. The Company drilled and completed six gross horizontal wells (5.0 net) in the second quarter of 2024 with a 100% success rate including the Viewfield 101/11-21-011-06W2 well (the "Viewfield 11-21") which was drilled as a nine leg Open Hole Mult-Lateral ("OHML") well. The Viewfield 11-21 was recognized as having the second highest liquids production rate in the Top Saskatchewan Well Results for June 2024 report by ATB Capital Markets, at 295 bbl/d of light oil. The Viewfield 11-21 exited the initial 30-day production period at approximately 350 boe/d. In total the Company drilled two (2.0 net) OHML wells in the Viewfield area in Q2 with an average IP30 of 240 boe/d which is in line with the expected type curve for these wells. Saturn drilled five gross (4.0 net) conventional horizontal wells in Q2 2024 which have now all been put on production for light oil.

On May 6, 2024, the Company completed the acquisition of Adonai Resources II Corp. (the "Adonai Acquisition") for total cash consideration of $8.3 million which added approximately 260 bbls/d of light oil production and added 30 high quality horizontal drilling locations that are in close proximity to Saturn's Carnduff operations unit.

West Central SaskatchewanUpdate

The Company's assets in West Central Saskatchewan produced 3,125 boe/d(2) for the three months ended June 30, 2024, a 37% decrease from Q2 2023 as a result of limited development activities in the area and natural declines. Saturn drilled one (1.0 net) horizontal well in the second quarter of 2024 as part of a 22 gross Viking wells (18.0 net) program for 2024.

Southwest Saskatchewan Update

The core producing properties in Southwest Saskatchewan include Saturn's low decline oil weighted Battrum assets, acquired as part of the South Saskatchewan Acquisition, which are geologically concentrated within the Success and Roseray formations of Southwest Saskatchewan. For the three months ended June 30, 2024, Southwest Saskatchewan produced an average of 884 boe/d based on approximately two weeks of production contribution to the three-month period.

Central Alberta Update

Saturn's assets located in Central Alberta produced 12,894 boe/d(2) for the three months ended June 30, 2024 and included the Company's assets in the Central Alberta Cardium areas, Kaybob Montney asset and the Deer Mountain Swan Hills asset (the "Deer Mountain Asset"). The Deer Mountain Asset was sold to a private company on June 4, 2024 for net cash proceeds of $25.7 million. As a result of the Deer Mountain Asset sale, the Company has aggregated the North Alberta and Central Alberta business units.

Outlook

Saturn has now started its largest drilling program in its history with 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. In total the Company expects to drill approximately 82 net operated wells in 2024 with an objective to modestly increase production in the range of 1-5% and a primary focus of reducing net debt with free funds flow. The Company expects to pay down the new Senior Notes on their scheduled 10% annual amortization schedule (paid quarterly). Saturn expects to continue to pursue strategic acquisition opportunities that are complementary to existing operations with attractive development opportunities. As the Company de-levers, Saturn intends to implement strategies to return capital to shareholders, which may include dividends or share buy-backs.

Investor Webcast

Saturn will host a webcast at 10:00 AM MT (12:00 PM Noon ET) on August 6, 2024, to discuss the second quarter financial report and provide investors an update. Participants can access the live webcast via: https://saturnoil.com/quarterly-results-webcast-registration/, or through the Company's website www.saturnoil.com. 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, West Central Saskatchewan and Central/Northern 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 Toronto Stock Exchange under ticker 'SOIL', on the Frankfurt Stock Exchange under symbol 'SMKA' and on the OTCQX under the ticker 'OILSF'.

Notes

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

Reader Advisory

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 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 may use the terms "Adjusted EBITDA", "Adjusted Funds Flow", and "Net Debt" which are capital management financial measures. See the disclosure under "Capital Management" in our Condensed consolidated interim financial statements for the six months ended June 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 six months ended June 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 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 the MD&A for the six months ended June 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 ("NI 51-101"), except where specifically noted otherwise.

South Saskatchewan Acquisition production was approximately 11,400 bbls/d of crude oil, 1,100 bbls/d of NGLs and 3,000 mcf/d of natural gas.

Q2 2024 exit production was approximately 28,970 bbls/d of crude oil, 2,960 bbls/d of NGLs and 38,220 mcf/d of natural gas.

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

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, cycle times, 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, 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, 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.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/218320