- Saturn Oil & Gas, a high-conviction oil stock, has released a capital and operating budget for 2024 that continues its focus on free funds flow, rapid debt repayment and sustainable production driven by a high return on invested capital
- The company will spend C$146 million on 62 new wells, which are expected to generate approximately twice that amount in adjusted funds flow
- Saturn Oil & Gas is a Canadian energy company developing high-quality, light-oil weighted assets in Saskatchewan and Alberta
- Saturn Oil & Gas stock has fallen by just under 3 per cent year-over-year, while giving back 32 per cent since 2019
Saturn Oil & Gas (TSX:SOIL), a high-conviction oil stock, has released a capital and operating budget for 2024 that continues its focus on free funds flow, rapid debt repayment and sustainable production driven by a high return on invested capital.
Highlights from 2024 guidance
- Average production between 26,500 to 27,500 barrels of oil equivalent per day (boe/d) (80 per cent oil and natural gas liquids (NGLs))
- Adjusted funds flow between C$300 million to C$316 million, supposing US$75 per barrel (bbl) of WTI oil
- A fully funded capital budget of C$146 million, 85 per cent of which will go towards drilling, completions, equipping and tie-in of approximately 62 net new wells on de-risked light-oil targets in areas where Saturn has had previous success
- Free funds flow – which measures funds available after capital investment for debt repayment, acquisitions, dividends and buybacks – between C$144 million-C$160 million
- Debt reduction of 38-42 per cent year-over-year from C$463 million to between C$275 million-C$290 million, reducing 2024 net debt/adjusted EBITDA to between 0.7x-0.8x, down from 1.3x in 2023
- At 80 per cent oil and NGLs, each US$5/bbl increase in WTI oil will add C$15 million in additional free funds flow, which is earmarked for additional debt repayment, expediting the company’s estimate of becoming debt free by Q1 2026
- The capital expenditure program will be partially funded through a C$50 million bought-deal private placement with Echelon Capital Markets led by four existing U.S. institutional shareholders, including GMT Capital and Libra Advisors, and expected to close on or about Feb. 22, 2024
- Click here for a full list of figures from Saturn Oil & Gas’ 2024 guidance
Saturn’s history of operational efficiencies and high-margin production is most recently highlighted by industry leading netbacks (US$43.74 per boe in Q3 2023), a 19 per cent reduction in operating and transportation costs per boe over the first nine months of 2023, and a decrease in average royalty rate from 15.4 per cent to 11 per cent since 2021, all of which contribute to the company posting one of the highest growth rates in all of Canada.
Saturn’s upside is not priced in
Saturn has accomplished quite a lot over the past three years, including growing production by more than 100x from 233 bbls/d in 2021 to 26,890 boe/d in Q4 2023, increasing free funds flow from C$3 million in Q2 2023 to C$41.2 million in Q3 2023, and establishing approximately 20 years of drilling inventory to propel further growth.
In contrast to the company’s track record of cash-flowing growth, and its expected continuation into 2024, Saturn shares have fallen by just under 3 per cent year-over-year, while giving back 32 per cent since 2019, which should serve as a signal for value investors to initiate due diligence before the market recognizes what it’s missing.
Saturn Oil & Gas is a Canadian energy company developing high-quality, light-oil weighted assets in Saskatchewan and Alberta. The company is focused on increasing reserves, production and cash flows at an attractive return on invested capital.
Saturn Oil & Gas stock (TSX:SOIL) is down by 2.74 per cent trading at C$2.305 per share as of 10:25 am ET.
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