Q4 2024 Saturn Oil & Gas Inc Earnings Call
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Good morning ladies and gentlemen and welcome to Saturn's 4th quarter and 4th year 2024 results conference call. As a reminder all participants are in listen only mode and the conference is being recorded.
After management remarks, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. If you do need a system during the conference call, you may signal an operator, pressing star then zero.
We will now turn the meeting of written the Cindy Gray Vice President Investor Lachin. Please go ahead Cindy.
Speaker Change: Thank you, Asia. Good morning, everyone, and thanks for joining us for Saturn's Q4 and year-end 2024 earnings call. Please note that the company's financial statements, MDNA, AIS, and press release are available on our website and have been filed on CDR.
Speaker Change: Some of the statements on today's call may contain forward-looking information, references to non-IFRS and other financial measures, and as such listeners are encouraged to review the associated risks.
Speaker Change: Outlined in almost recent MDNA. Listeners are caution not to place undue reliance on these forward-looking statements since a number of factors could cause the actual future results to differ materially from the targets and expectations expressed.
Speaker Change: The company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, unless expressly required by applicable securities law.
Speaker Change: For further information on risk factors, please view our AIS, Bobon Fedar, and available on our website. All amounts discussed today are in Canadian dollars unless otherwise stated.
John Jeffrey: Today's call will include comments from various members of Saturn's executive team including John Jeffrey, RCEO, Justin Kaufman, CDO, and Scott Sanborn, RCEFO.
John Jeffrey: Following our prepared remarks, we're going to open the lines up to participants on the conference call for a question and answer in session. If we aren't able to address your questions today, we'd encourage you to reach out to Saturn directly through our website. I'll now turn it over to John .
John Jeffrey: Thanks, Cindy. Good morning, everyone, and thank you for joining us. As demonstrated in our results, Saturn has continued to evolve, and 2024 was a year of notable progress on many fronts.
John Jeffrey: We enhance the quality and sustainability of the asset portfolio through two core-up acquisitions and close the significant sales to schedule acquisition of bathroom and flat lake assets in June .
John Jeffrey: These chondashions drove further growth and high-grating of our gelinumatory.
while expanding our future development potential.
John Jeffrey: The self-discussion acquisition also provided water flood development. They can help further reduce Saturn's already low declines.
John Jeffrey: While improving our long-term sustainability, and we booked our first water flood reserves this year at Bufield.
John Jeffrey: Concerned with the SOS Saskatchewan acquisition, we took the opportunity to refinance our legacy debt.
with a U.S. 650 million of senior notes.
John Jeffrey: Feature lower interest rates, more favorable terms, and an amortization feature that provides for systematic principal refinements of 10% per year.
John Jeffrey: Recognizing U.S. Denomination death means we are exposed to currency fluctuation. We also layered on a foreign exchange hedge at approximately 1.34 Canadian to U.S.
John Jeffrey: which served to fix the interest rate and principal payments on the debt for the next few years.
John Jeffrey: Given the recent erosion in the Canadian dollar for the past few months, the impact of foreign exchange has significantly affected the Canadian dollar value of our U.S. debt. And some investors and market participants may not recognize the degree of that impact.
John Jeffrey: For example, last half the year of 2024, we made two debt prepayments totaling US 32.5 million, resulting in a year end balance of the senior notes of US 618 million. Although, when expressed in Canadian dollars, these payments don't seem obvious.
John Jeffrey: Thanks for our foreign exchange hedges. Saturn has notionally offset the portion of the increase in that debt caused by the currency fluctuation, which a year end represented an offsetting value of 20 million.
John Jeffrey: and would have reduced our net debt to 840 million if this could have been included in our net debt calculation.
John Jeffrey: However, when the impact of the exchange rate is applied and converted to CAD, it almost completely offset the impact of our free payment.
John Jeffrey: That, in addition to our scheduled capital program, makes in that data for your even larger and Canadian dollars. In reality, should the foreign exchange return to prior levels, we are exactly on track to meet our debt-up obligations as a little straight.
John Jeffrey: If we look ahead to Q2 of this year, the situation could be vastly different, depending on the outcome of the trade wars and the Canadian election.
John Jeffrey: Since our plan capital spending is so much lower in that period, it contributes to the working capital surplus which improves net debt.
John Jeffrey: For example, using our guidance assumptions for capital and production, which I will say we are well ahead of.
John Jeffrey: and using a $74 cent net, our ending debt for the quarter will be $700 million CAD or approximately $160 million of reduction in Q4 levels. And again, this is exactly on track to our guidance.
John Jeffrey: Whereas applying the current effects of 69 cents resulted in that debt for the quarter of 750.
John Jeffrey: Again, this just demonstrates the sensitivity of foreign exchange on our net debt, and so Ford Saturn's decision to layer on that foreign exchange hedge to protect the interest and principle.
John Jeffrey: Again, adjusting for currency or gross and net debts are exactly on track to achieve our guidance set out earlier in the year.
John Jeffrey: Now what I don't want to overlook here is that a lower Canadian dollar helps the oil industry, as effectively we are paid in the US dollars, the lower the loony, the higher the revenues.
John Jeffrey: And at today's WTI levels, thanks to the depressed Alder, we are still enjoying prices in the 90s.
John Jeffrey: Notwithstanding the foreign exchange impact on our net debt, our Q4 results reflect the consistent execution of our value proposition, coupled with strong law of operational performance.
John Jeffrey: Production average just over 41,000 barrels a day in Q4, exceeding the hind of our guidance range, and beating analysts' expectations by 4%. I'm a capital program of just over 105 million.
John Jeffrey: We edited the year even higher, with December volumes of averaging approximately 42,000
John Jeffrey: We had a record Q4 adjusted funds flow, totaling 124 million or 64 cents share, beating the street consensus estimates by 12 percent. For the full year 2024, our AFF was $2.10 or $380 million.
John Jeffrey: We're reflecting on our team's ability to control costs, identify operational synergies and enhance margins.
John Jeffrey: We are inducing that operating expense for a $19 for the year and just a $18 in the quarter. Well under the $20 target we had set.
John Jeffrey: We have also realized lower royalties and transportation expenses in both cores and the year, which contribute to an operating net backup just over $40.3 billion in both periods.
John Jeffrey: With approximately 134 million, a free bond bloomed 2024 or 74 cents a share, Saturn continued to deliver on a return focused value proposition.
John Jeffrey: Since the launch of our shared buy back in August , we have re-purchased about 6.7 million shares in the open market for about 3% of our standing balance.
John Jeffrey: A robust hedge book positioned Saturn well to withstand market turbulence.
John Jeffrey: Again, this backdrop and the impact of the commodity bracing and the weakening dollar, we have insulated it compared from extreme volatility by hedging commodity braces, differentials, and effects.
John Jeffrey: So putting all that together, Saturn is resilient. We have a flexible asset base and we can rapidly pivot our capital program with a pace of our development in response to the broader market.
John Jeffrey: We believe we have had a tremendous value to our shares in the period by our journey approximately $15 million to share holders through buybacks.
Repaying $45 million of debt.
John Jeffrey: Under taking the creative acquisitions, exceeding our type curve on our cabbacks while meaningfully reducing our operational cost below our stated goal. We firmly believe our shares offering extremely compelling value of current prices and represent the deepest value on the market today.
John Jeffrey: Once again, I'm proud of Saturn's accomplishments which showcases our team's exceptional performance in the innovative approach. Our ability to challenge conventional practices both operation and corporately has been key driver to our success.
John Jeffrey: In addition, our team's ability to see and do things differently, how to allow us to disrupt traditional, often inefficient practices in our industry and things keep getting better.
John Jeffrey: We look forward to continuing to consistently deliver results, walk the talk and keep all of our stakeholders updated the long way. But that, I'll turn over to Justin to talk to our operational performance and
Thanks, John.
Justin: 20.4 was a year of solid execution in the field that set several new records for Saturn including Q4 results that beat analysts expectations on several metrics.
Justin: Many of which are due to the former performance of the Dalton Wells, thanks to the innovation of expertise of the tech team and the high quality of the company.
Justin: The integration of the acquisition assets in mid-2024 resulted in the formation of our three core areas and expanded our development inventory of higher turn-up ends of this schedule and was scheduled.
Justin: We executed $155 million capital program in Q4 and 246 million over the full year, drilling 54 wells in Southeast Scotland, 27 in West Scotland, and 16 in Alberta within the
Justin: Other renewable projects and developments in 2024 include several firsts or new record achievements across our prairies, such as, we built the first average walkway in Montenbourg or Zalobon. This is on a sample 7600 oil drilling plant-like area and will lead to future capital efficiencies.
Justin: We build the first-ever flat lake of the moon, Bawken well, and the first open multi-lake spiritual. Applying learnings and expertise gains from our open multi-lake Bawken and the first open multi-lake Bawken and the first open multi-lake Bawken
Justin: This is an extremely exciting engineering technique that has unlocked in barrels in areas that were previously un-economic, and we will continue to expand on the stone in 2025.
Justin: We had one of our Frack Balken Welles rank as the schedule of 7th best performing well in December 2024. This is a rare for one mile Frack Balken well to make this list and I haven't had been quite some time. Our well spacing and frack designs are why we are realizing these strong frack themselves.
Justin: We also adjusted the practice signs in 5-Lake Encarring, which improved capital efficiencies.
Justin: Specifically in the current, the combination of longer literals and innovative hybrid completion technique, public span, the efficiency of the fraction to reach the top and handstand moments.
Justin: This track designed to involve the ball drop system on the toe while by switch the coil almost halfway through.
Justin: This strategy allowed us to increase scrap pressurates, generate significant cost reductions, improve well completion times, and expect to be applied to future standard rich carting wells.
Justin: We also implemented new downfall drilling bond-hole assembly tools that helped us drill Canada's longest courting well at 7,570 meters north of Denver. These innovations in technology cut off those transforms, what was historically a sleepy plane infarium into a higher impact reservoir with competitive economics.
Speaker Change: Saturn for our posted growth in all reserve categories, over 2023, with 2p reserves of 200 million barrels, 1p of 133 million barrels, and PDG of 87.87 million barrels.
Speaker Change: This year, we also further increased the liquid's weighting of our reserves, as we had raised in the floor.
Speaker Change: From a value perspective, then it asks if a value per share comes in at over $5.50 for these cents on a P&P basis and approaches $14 per share on a 2-P basis.
Speaker Change: which we believe represents a compelling opportunity given a steep disconnect between current market values and a net asset value of the company.
Speaker Change: As fellow also speak to later, our capital program is heavily weighted to the second half of the year.
Speaker Change: which means the outcomes from the activity are often realized in the following year.
Speaker Change: This holds true for reserves and production as volumes on stream from activity in the source border may not appear until Q1 or Q2 of the next year.
Speaker Change: We saw this in our 2024 year-end reserves as we invested significant development caps on the Q3-Q4, yet a material amount of development won't be reflected until we work for our 2025 reserves.
Speaker Change: While the accessing June provided additional new reserves and locations, it also pushed more capital and comfort development, which again mostly won't be credited to the other year in 2025 research.
Speaker Change: Following the acquisition, we also chose to operate the Figric Belm plant as part of our year end reserve evaluation process.
Speaker Change: Well, high grain locations and reserves, this led us to share some public locations and improve on belt on February , which was great, and removed a portion of our previous important locations that no longer fit within our development time.
Speaker Change: In addition, we expanded our location in 2020-24 with over 1100 bus locations in a reserve port and increased to 27% over last year, along with an incremental 1200 internal identified
Speaker Change: We are also pleased to have booked our first ever water fun reserves on the field in 2024.
Speaker Change: Recording approximately 600 barrels, this booking is adjacent to the barren water flood operations within an existing unit that has a large, original oil place of over 70 million barrels, but that 11% recovery factor.
Speaker Change: Currently, we have 8 well blocked on the Sun, but if water fun is successful, there's potential to expand this on a meaningful scale with pre-pressurised water fun patience.
Speaker Change: We see Warplot as a significant driver to mitigate decline, and as John mentioned, increase your sustain and sustainability of the company.
Speaker Change: I'm also very proud of our team's safety performance in the year, with zero lost time injuries and only three reportable injuries.
Speaker Change: Despite increasing our personal hours by 30% in the year to a total of over 1.4 million
Speaker Change: We also increased our hazard identification by 60% in 2024 over 2023, a significant step forward in preventing future answers.
Speaker Change: I'll now turn over to Scott to review the financial silence.
Scott: Thanks, Justin. Good morning, everybody. As John outlined earlier, financially-saturned stand-o core in a very strong year in which we transform our capital structure greatly enhance our asset base, high-graded our hedge book, and implemented a share-return framework with the launch of our share-buyback
Scott: Saturn has continued to deliver improvements in our operating cost structure, which contributes to our netbacks of 43.05 per BLE in Q4 and an average of 43.07 per BLE per year.
Scott: With ongoing cost reduction initiatives, couple of high volumes, our Q4 and net off X, came down to 1835 per BLE equivalent to 1901 per BLE on the year, under our $20 per BLE target.
Scott: RELATES also came in below Q3 and lower than our 2025 guidance at 12.2% in Q4 and 12.6% of the year. We are pleased with the results and will continue to maintain our 2025 guidance at this time.
Scott: I will touch briefly on marketing as we've had questions given the US tariffs and their impact on Saturn.
Scott: Like most producers in Western Canada, we primarily market our barrels at delivery points in scheduling and Alberta, which for us the majority of that volume is directed towards the U.S. on the Ambridge Main Line and Line 3.
Scott: Since we are not transferring our girls directly cross-border into the US, the tariff impact is hitting WTI price differentials, of which we maintain differential hedges that protect us from such fluctuations.
Scott: However, ultimately, the weaker Canadian dollar has a positive financial impact on revenue as their barrels are priced in US dollars, which helps mitigate the impact of the water-diff.
Scott: In addition, we maintain WTI hedges on a 4-12 month basis at 50-60% of our one-looker's production net varieties at about 30-40% of 18 months out.
Scott: Our hedge book is given a clear advantage in a cyclical industry and the breadth and depth of our hedge book protects Saturn volatility.
This is particularly true of a foreign exchange or effect centers.
Scott: Saturn's outstanding debt is comprised of US dollar denominated senior notes, which are reported in Canadian dollars or CAD. As CAD is weakened significantly relative to the US dollar, we've seen a corresponding unrealized revaluation at the end of the year causing an increase in overall debt.
Scott: Notwithstanding the revaluation, which we expect to reverse, the increase is positive for Saturn's bottom line that's previously discussed.
Scott: But differently, Saturn repays approximately 33 million on a senior note since refinancing in June with our US nominated debt balance decreasing. However, the change in effects caused the CAD can burn debt balance to increase.
Scott: RFX hedges lock in the first three years principal and interest and notionally offset CAD 20 million of the increase year in year and net debt. This is trivial for our change.
Scott: Factoring in our FX hedge asset, our urine net debt would be approximately $80 million driving lower net debt to cash flow at about 1.6 times and net debt to just be a bit of 1.4 times.
Scott: We maintain liquidity a year-end of approximately $200 million, comprise of approximately $50 million in cash and $150 million in under-owned availability on our credit facility.
Scott: We believe having this financial flexibility underpins our strength and resilience through volatile markets.
Scott: I also want to touch on the cadence of our capital expenditures and the relationship between CapEx, production and free cash flow through the year.
Scott: The majority of, the majority, about 70% of our 2025 capital is expected to be deployed in the second half of the year with 24% in Q1 and the balance in Q2 given the typical slowdown during spring breakup.
Scott: Because of this spending profile, we expect production volumes to peak in Q1 and Q4, reflecting the impact of a more active drilling grid. Conversely, free cash flow is forecast to crest in Q2 when capital spending is in the lower due this breakup and taper off as we advance capital spending through Q3 and Q4.
Scott: As Justin mentioned, we see this cadence each year and is a good reminder that our spending production and pre-cashable fluctuate quarter-over-quarter driven by activity.
Speaker Change: Thanks again for joining us today and I'll now head it over to the operator to commence with the questions.
Speaker Change: Thank you. We will now begin the question and answer session. To join the question queue you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone please pick up your headset before pressing any keys. To withdraw your question please press star then two.
Speaker Change: The first question comes from Amir Arif with ATB Capital. Please go ahead.
Amir Arif: Thanks. Good morning, guys. Congrats on a great quarter. Just had a question for you on the durability of the better cost structure. Can you just walk us through just your sense in terms of the production and transport cost on a go-full basis, given the improvements you've made in the second half since taking all the assets?
Amir Arif: Yeah, thanks for the question and yeah, we're really excited about the quarter.
Amir Arif: We're going to hold our guidance at $20 barrel there for operating costs throughout the year. Q1 is always going to be the highest operating cost per barrel. Obviously you have higher operating costs with colder weather. You have a little bit more downtime when you get those sudden calls. It's a country or so.
and government will be able to beat that.
Amir Arif: I don't know that it would be appropriate to model $18 a barrel moving forward, but I'm confident our ability to continue to be sub-20, again Q1 is going to be higher than Q4 likely, but I think average for the year will be well below $20 and we should see levels closer to 2024.
Speaker Change: I appreciate the color there John and then just second question on the technical revisions of mine are not a big percentage on a 2p basis but curious can you just give the sense of how much of it was related to just taking locations out versus type curve updates?
Speaker Change: Yeah, material was the locations. Essentially the book that McDonald's had on the acquisition we had was close to 240 locations. We adopted 210 of those into our bulk at year end.
Speaker Change: So that equated to both the location draw, which was the material part of it, as we were migrating there in the toilet hours, so mostly with the acquisition of the location upgrade.
Speaker Change: I think you guys are close if not at your hedge targets for the years. Are you comfortable with where it is now or would you still like to increase it further?
Speaker Change: Yeah, our target is to maintain your somewhere around that 55% of the next 12 months range.
Speaker Change: We're obligated to maintain 50. What we like about having a little extra buffer there is that we see. [inaudible]
Speaker Change: Oil Spike. Then we can layer on a bit more, you know, we don't really want to exceed 60 so we see oil run.
Speaker Change: Then we can add on some more. However, if we see oil collapse, then we're able to retire some of our lower ones and again still staying within that band. So you can target in 55% is what you're going to see us kind of maintain on a 12 month basis. Again, it gives us flexibility if oil goes up or down and still gives us some kind of comfort buffer either way.
Speaker Change: Got it. I appreciate that color. And then just finally on spear fish. I mean the great open lab welder I'm going to demonstrate for six like welders curious how much inventory do you think you have there in terms of open multi lab opportunity.
Speaker Change: We believe we have 30 wells. If we drill them all at six lives per well, we'll probably play with that moving ahead. We actually just finished drilling our second one earlier this week.
Speaker Change: and we'll have our third one on production before the end of the year. So if I'm a results of those, you'll probably see more capital flow towards their development based on the great success we've had on the personal regret of this year and what are your, what's our internal estimates on the NPV of those third locations we've got?
Speaker Change: So we're seeing the capital cost coming on those close to $2 million and paying on the price that you use at a $70 price deck on the one week drill. You're seeing over 100% rate return.
Speaker Change: And also that there's all 30 on the field to be. Yeah, we're seeing a $70 price that again, you'll see close to $100 million NPV value based on the locations that we have right now.
Speaker Change: And Justin was the second leg drilled with six legs as well.
Speaker Change: On Crats. Okay, sounds great, that's it from me, thanks guys.
Thank you.
Speaker Change: Once again, if you have a question, please press star, then one. The next question comes from Adam Gill with Lunch and Financial. Please go ahead.
Adam Gill: Hey, good morning, gentlemen. Two questions for me. Just with the drop in oil prices, can you give us your current thoughts on tax outlook for 20.5?
for a tax outlook.
Yep.
Adam Gill: Yeah, so we're looking at, you know, we're forecasting tax available in about the end of 2025, 2026. So, no change significantly from our previous estimated guidance, which is a publication right now.
Adam Gill: Okay. And then just how do you feel positioned on debt retainments and remaining active on the UNCRD?
Adam Gill: So yeah, we have maxed out our NTAV on logically every day since we have announced it.
Adam Gill: So very active on that front, we continue to lead into that again, you know, as I'm sure you're aware of Saturn is always on the hunt for the cheapest barrels in Calgary and right now those are ours.
Adam Gill: So happy to buy those out of the market, a debt repayment, you know, again.
Adam Gill: What I find funny about the F-AX is although it notionally makes our Canadian dollar look.
Adam Gill: A Canadian dollar denominated debt look higher. In reality, if you've seen the dollar follow the 50 cents, which again nobody here leaves it will, but if you've seen the dollar drop to 50 cents.
Adam Gill: Again, notionally what you're going to see is, you know, our debt spike. However, that also spikes our revenue.
Adam Gill: You know, that would give us, you know, that would give us, you know, netbacks are the top line price of
Adam Gill: $140 plus Canadian. So it does go hand in hand. Now the other piece of that is your debt repayments. Do our debt repayments get more expensive as a Canadian dollar drops. In reality it doesn't.
Adam Gill: And that is because Scott and his team were able to layer on such a strong FX position that cover the 100% of the next three years principal and interest. So that's fixed in an exchange rate. So as the Canadian dollar goes down, all you're going to see is our revenues go up.
Adam Gill: And that's going to be just a positive, or not only Saturn for all the Calgary oil producers.
Speaker Change: Okay, great. I actually have one more here. You've had good success on the open hole multilateral wells. It is the room within the book inventory to convert some of those locations into a more capital-efficient openable multilateral. Or, uh,
Speaker Change: Are they both essentially the way they need to be drilled today, the frat ones will need to be fracked, and the open holes that are both dirt-booked.
Yeah, you're probably more referring to our block and locations specifically.
Speaker Change: Our one more fracked blocking locations that are close to the timing points will keep those bookings as is.
Speaker Change: There will be some conversions on some actually locations we have on the west end of youfield, where we're not supposed to tie in locations. Just those open water leaks produce a lot less water, so tracking becomes a viable transportation option over time. So a few locations on the west side of youfield, but for the most part we'll stay within their booking categories.
Now, I will say just with that.
Speaker Change: Again, we are always looking to add reserves to the exciting thing with the open hole spearfish, as well as that Justin was just talking about.
Speaker Change: Is those weren't a conversion booking? That was just a hundred percent addition to what we already had. So again, as we see a hundred million dollars of value, that is incremental to anything else we had. So again, Justin and his team have done such a good job of identifying different techniques and where it works in different areas.
Speaker Change: So again we are scouring our land base now to see one of their pools we have like that that could work. So whether it be conversions or straight simple or just straight ads that we do you see in the studio with this beer fish. This is something that Justin is team. I just don't think it enough credit for for adding to the company. Yeah we we increased our open home mostly bookings by over 50% this year year over year. So
Speaker Change: And with us dedicating a rate to drill in the open almost at Balkans this year and those year dish dwellings I talked about those both should go up at for year and 25 as well.
Speaker Change: It's great, thanks and congratulations on the good cold quarter gentlemen. That's it for me.
Thank you.
Speaker Change: If there are no more questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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