Q1 2025 Saturn Oil & Gas Inc Earnings Call
Good morning, ladies and gentlemen.
Welcome to <unk> first quarter 2025 results conference call.
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Speaker Change: I will now turn the meeting over to MS. Cindy Great Vice President Investor Relations. Please go ahead Cindy.
Cindy Great: Thank you Betsy and good morning, everyone and thank you for joining us for Southern's first quarter 2025 earnings Conference call. Please note that the company's financial statements MD&A and press release are available on our website and have been filed on SEDAR.
Cindy Great: Some of the statements on today's call may contain forward looking information references to non high for us and other financial measures that such listeners are encouraged to review the associated risks outlined in our most recent MD&A listeners are cautioned not to place undue reliance on these forward looking statements. There's a number of factors could cause the actual future results to differ.
Cindy Great: Materially.
Cindy Great: Expectations expressed the company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise unless expressly required by applicable securities law for further information on risk factors. Please beautiful body, yeah, well go on SEDAR and on our website also note all of my.
Cindy Great: It's disgusting are Canadian dollars unless otherwise stated.
John Geoffrey: Today's call includes comments from various members of Saturn's executive team, including John Geoffrey CEO, Justin Hoffman C D O and Scott Sanborn, our CFO Oh My God.
John Geoffrey: Prepared remarks, we'll open the lines up to participants on the call for a question and answer session.
John Geoffrey: Aren't able to address your question today, we encourage you to reach out to send them directly to the website I'll now turn it over to John.
John Geoffrey: Hey, good morning, everyone. So, let's start by saying how extremely proud of salads.
John Geoffrey: Our performance in the first period and subsequent quarter end I am that as we continue to navigate the very fluid.
John Geoffrey: Oh.
John Geoffrey: Sure.
John Geoffrey: To date in 'twenty one.
John Geoffrey: Our team has continued to execute on our blueprint strategy.
John Geoffrey: Driving new corporate records.
John Geoffrey: Quarterly production of just under 42008 adjusted funds flow of $134 million and adjusted EBITDA of 158 million all of which also beat analyst.
John Geoffrey: Patients are free funds flow of $58 million is the highest we've generated the first group of any first quarter last year.
John Geoffrey: With so much uncertainty patient b cap rates in the current environment Saturday remains sharply focused on creating long term value for our shareholders and bondholders by directing our energy to those factors that we can't control.
John Geoffrey: At this stage for our discussion around Q1 results. Our go forward plans I wanted to quickly highlight some of the key benefits of our strategy and asset base, particularly given the market that we find ourselves in.
John Geoffrey: Our blueprint strategy guides, our Saturn operates.
John Geoffrey: Asset optimization.
John Geoffrey: Straightforward approach that could be replicated across our entire portfolio.
John Geoffrey: With oil weighted mid lifecycle assets, we are constantly finding new optimization opportunities.
John Geoffrey: Operational cost savings and ways to increase production at low cost.
John Geoffrey: These incremental wins and collect and drive meaningful impact for the organization.
John Geoffrey: For example.
John Geoffrey: Like bathroom assets that we acquired in 2012 or were integrated into our portfolio throughout last year.
John Geoffrey: He went to work identifying multiple synergies operational efficiencies after only six months of holding assets successfully reduce operating costs by 13% driving cost savings of seven and a half million dollars realized in the second half of 2020 for long.
John Geoffrey: This year again, that's almost $15 million of cost savings that we experienced this year, thanks to the synergies and the hard work of our operations team.
John Geoffrey: This type of incremental improvements represents 17 does repeatedly.
John Geoffrey: What we've been executing on what it means for them to get ourselves blueprint.
John Geoffrey: As a result, our asset base is well aligned with our shows.
John Geoffrey: So this portfolio is comprised of a diverse suite of low decline high return stack plays with multiple items ourselves.
John Geoffrey: Not only is our current development program continued to realize performance from our assets, including our Q1 Capex program by came at 20% above type curve. We also benefit from a long runway there was a large oil in place at a relatively low recovery states our field as a result, we continue to explore options for absolutely recover.
John Geoffrey: Such as water floods that also our sustainability migrate further big clients, which Justin will talk more about later.
John Geoffrey: That is asset base also provides the ability to quickly pivot capital in response to market shifts.
John Geoffrey: Along with the Optionality to redirect capital to gasoline assets should gas prices ultimately display.
John Geoffrey: We have the flexibility to redirect capital to areas offering the highest rates of return again, one of the best things about our asset base.
John Geoffrey: The short lead time, so we don't need to commit to large pads that take 12 to 18 months to develop.
John Geoffrey: As such we are very flexible.
John Geoffrey: The current market environment, we believe some of the best returns can be generated by investing directly in the southern spirals.
John Geoffrey: We've allocated some of our free funds flow to ongoing share buybacks.
John Geoffrey: Our first open market bond repurchase last spot.
John Geoffrey: What both of those well below par by these bonds and shares at a discount and serve to further enhance the value of the company.
John Geoffrey: Looking forward to the balance of 2020, but we have the ability to do.
John Geoffrey: Affirmed making decisions about capital expenditures in the second half of the year.
John Geoffrey: Given what we believe in long term oil price to that.
John Geoffrey: So we used our resources by deploying a large capital program if oil remains substation $5.
John Geoffrey: The depth and quality of our asset portfolio, coupled with our strong hedge book positions avid with resilience for long term sustainable growth and value creation investing capital, where we see attractive returns increases our competitiveness out into the future.
John Geoffrey: Before I turn it over to Justin I want to provide additional color on the outcomes of our capital program. The board, but just wanted to express my appreciation to the entire team for their hard work throughout the past four months and to thank our shareholders and noteholders changed part of our governance and southern.
Speaker Change: Thanks, Tom.
Speaker Change: The first three months of the year our operations teams have done an outstanding job of deploying capital prudently safely and responsibly.
Speaker Change: The change improve efficiencies our.
Speaker Change: Q1 capital program.
Speaker Change: With zero lost time injuries in the quarter, despite having a 69% increase in person hours worked over Q1 last year.
Speaker Change: Approximately three quarters of 773 billion capital program was directed to drilling activities, resulting in accretion of 33 gross wells all of which were brought on in the quarter.
Speaker Change: The bulk of these wells 26 in total were in southeast, Saskatchewan, with six and West Saskatchewan, Alberta.
Speaker Change: About 22%.
Speaker Change: Our Q1 capital was allocated facilities, which includes continued investment in our waterflood projects.
Speaker Change: The capital went to lend in size.
Speaker Change: During the quarter, we converted three four producers to injectors to support both the waterflood and partly and future Prepreference Balkan locations today.
Speaker Change: Today centered has more than 160 injectors.
Speaker Change: Over 140, a bathroom and about 60 and Oswald southeast Saskatchewan.
Speaker Change: We have identified the opportunity to expand our waterflood programs in southeast, Saskatchewan, and particular film and Balkan built.
Speaker Change: This is an area where our operations are immediately adjacent to one of our peers existing waterflood patterns.
Speaker Change: Which has seen more than 20% of abuses converge injectors, which has translated to strong success in reducing decline rates under 15%.
Speaker Change: We have started the initial capital stages of the drilling waterflood in what proved successful potentially lead up to more than 200 pre pressurized water waterflood infill locations.
Speaker Change: Field area.
Speaker Change: Another exciting development for Saturn was excellent government's introduction, although low productivity and reactive reactivation oil well program.
Speaker Change: Such a program designed to encourage industry to invest new capital into low producing an inactive horizontal wells.
Speaker Change: Our goal is to create incremental oil production and revenue from existing wells as part of the sky from governments target to increase production to 600000 barrels by 2030.
Speaker Change: Just this incentive southern completed its first full resolve reentry.
Speaker Change: So the frobisher since 2022 with results from that reentry coming in at 50% above our internal type curves.
Speaker Change: Our technical team is excited to continue with this type of portfolio we have.
Speaker Change: Hundreds of potential candidates that we are looking to build into our five year development plan.
Speaker Change: Other notable activities in Saskatchewan during the quarter include the drilling of our first <unk> horizontal wells since 2003.
Speaker Change: Which exhibited strong results in Cleveland, 50% higher than the type curve.
Speaker Change: This was an important result, as we are close to 100 of these locations and our corporate inventory.
Speaker Change: In addition, we pulled our second spear Phish multilateral lateral horizontal well targeting a few months.
Speaker Change: Along with the Companys longest ever spear phish horizontal well targeting the PQ sent out over 35 interviews.
Speaker Change: We also drilled our first on your wells in Butler.
Speaker Change: All incentives Mississippian Spearfish program in Q1.
Speaker Change: Delivered results across a total of 13 wells drilled that averaged over 50% above type curve.
Speaker Change: This is another.
Speaker Change: Positive data points that underpin centers long term sustainability since our Mississippian spearfish well inventory features approximately 600 locations.
Speaker Change: Represents more than 20% of our total corporate inventory and is where we have a lot of our tier one.
Speaker Change: Locations.
Speaker Change: Looking now at our open hole, mostly like Bakken development, we dropped to ebay open hole multilateral horizontal wells.
Speaker Change: Well, what's holding one model and the other two mile and participate in two non op.
Speaker Change: Wells as well.
Speaker Change: Based on initial production wells rates, sorry, we anticipate our two mile open hole multi leg.
Speaker Change: Well it could be a contender for top performing well in southeast Saskatchewan in Q2.
Speaker Change: All in results from this program came in 20% above type curve.
Speaker Change: The combination of all of our technical teams hard work and tireless efforts will showcase through record production of approximately 41700 barrels attributable to outperformance of our type curves and strong volumes.
Speaker Change: I'll now turn it over to Scott to review the financials.
Speaker Change: Yeah.
Scott: Thanks, Jonathan and good morning, everyone segment's financial performance reflected the strong operational results just spoke exceeding analysts' consensus across nearly all metrics and I'm very pleased quickly run through the highlights.
Scott: <unk> generated record adjusted funds flow of 131 million or <unk> 66 per share driven by a record quarterly production of 41700 barrels per day up from just over 41000 barrels per day in the fourth quarter of 2004.
Scott: Net of derivatives, our operating netback per BOE was $41 99.
Scott: The $40 41 in the previous quarter.
Scott: Which are hedged derivatives further complete Saturn any future downward price volatility, which I will touch on shortly.
Scott: So just over $73 million in Q1 capital expenditures, our free cash flow was nearly $58 million for the quarter.
Scott: <unk> $34 million of which was directed towards financing activities, primarily relating to the <unk> $16 3 million U S dollars and debt on our senior notes equates to just over 23 million Canadian dollars.
Scott: We remain active on Rins, USD, dropping $5 $8 million for the repurchase of two 8 million common shares for cancellation and a weighted average price of $2 eight.
Scott: At quarter end company had net debt of 814 million CAD comprised of $601 million principal outstanding U S dollars principal outstanding on our senior notes and adjusted working capital of $37 million inclusive of approximately $80 million cash.
Scott: This result.
Scott: Annualized adjusted EBITDA of one three times in line with guidance and Street consensus.
Scott: We maintain liquidity at year end of approximately $230 million again comprised 80 million in cash and $150 million Undrawn credit facility.
Scott: We believe financial flexibility underpins, our strength and resilience through volatile markets.
Scott: Subsequent to quarter end Saturn was able to capitalize on a falling oil price environment and associated market volatility to improve our position.
Scott: Through April we saw periods, where our bonds are undervalued and accordingly purchased U S $50 million face value of our senior secured notes at a discount to par.
Scott: By further accelerating our debt reduction progress, while reducing future interest costs.
Scott: Noting our open market purchase has no impact on our schedule to two 5% or $16 3 million U S quarterly repeat minutes rather it is an addition to reduce the bullet upon maturity.
Scott: In addition, we invested $2 3 million or greater hedge book by terminating certain WTO hedging contracts proximately combined average swap price of $58 USD on 3300 barrels a day for the second half towards six and 7800 barrels a day Q1 'twenty seven.
Scott: The termination has no effect on our plans to deviate from our hedging target of 50% to 60% of PDP oil liquid volumes net of royalties 12 months out at 20% to 30% 18 months out.
Scott: However, we will continuously look too optimistic sign the entry of any future hedges worth, noting again should oil fall below $50, we are not required to hedge into that market.
Scott: Looking forward should we continue to see oil price weaken the value of our hedge book increases referenced cash settlement forecast of our hedge book $50, WTO approximate $16 million and a 50 $160 million.
Scott: Actively for every $5 decrease in WPS value of our hedge book increases by approximately $50 million.
Scott: Beginning 2020 of example oil goes to zero the value of our hedge book plus cash on hand today would essentially loss. After that so we will continue to remain active on the history, perhaps with the goal of optimizing our book.
Scott: With Gulfport capital budgets under scrutiny in the current environment I wanted to close out remarks, with a reminder of Saturn Stinkpot capital for the balance of 'twenty five.
Scott: The seasonal pause in activity due to spring breakup period gives us time to monitor commodity prices and assessing our conditions, which will drive future capital allocation decisions based on applicable rate returns.
Scott: Since we have the ability to pursue our capital expenditure program. The second half of the year without incurring financial penalty or experiencing any repercussions related to long term contracts, we intend to reevaluate through July based on commodity prices.
Scott: Further the majority of our Jones occurs in the latter part of the year Pausing until July is not expected to impact our 2025 for gas volumes assuming.
Scott: Good question.
Scott: We will continue to be mindful of balancing cash flow generation with the preservation of our reserves, while deciding on applebee's future plans entering a $50 <unk> environment.
Speaker Change: Thanks, again for joining us today, and I'll now hand over to the operator to commence the Q&A.
Scott: Later.
Scott: Thank you we will now begin the question and answer session.
Speaker Change: He joined the question queue you May Press Star then one on your telephone keypad.
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Scott: We will pause for a moment as callers join the queue.
Scott: Okay.
Scott: The first question today comes from Adam Gill with Bantam financial Please go ahead.
Speaker Change: Hey, Jim Congrats on the solid quarter three questions for me.
Speaker Change: First off can you frame, how spending will look like in the sub 60.
Speaker Change: All are WTO environment, and then maybe some guide rails. If it was 60 to 70 and 70 plus.
Speaker Change: Yes, absolutely was 70, plus would basically be our guidance. So capex upgrade which is around that 300 $310 million Mark So anything that a 70 plus just refer to our guidance I think that's a great starting point.
Speaker Change: If you look at closer to 60.
Speaker Change: Basically what we're going to do is we're almost going to retrench.
Speaker Change: Rob West to east.
Speaker Change: First of all the pullback on the Viking and then bathroom and then you just pull back on Alberta, Canada, leaving us southeast development. So.
Speaker Change: The easiest way to think about it.
Speaker Change: Sure.
Speaker Change: Oil averaged 16 will probably be closer to $200 million, Mark and busy <unk> closer to $100 million to $150 million, so somewhere in that range.
Speaker Change: Cricket shorthand.
Speaker Change: What how much gasoline before deployment.
Speaker Change: Great and if it was kind of the $200 million or the $100 million to $150 million in these lower oil price environment.
Speaker Change: You see production standing at the end of the year.
Speaker Change: Well have some more of those.
Speaker Change: Again with the bulk of that capital coming.
Speaker Change: Or do you have available.
Speaker Change: This years ago. This year's production it would be more of an impact on next year's I think given that we've already had some successful over producing an older productive one again. So we were looking to get back to the deal mid June.
Speaker Change: This pushed out another month to mid July.
Speaker Change: It will have no impact on this year's production.
Speaker Change: But it all kind of depends on what oil price looks like at that point, when we do get back out in the field.
Speaker Change: Okay. Understood second question is how are you weighing our allocating capital towards production initiatives versus continuing to execute on the N CIB and maybe even paying down more debt beyond the scheduled amortization.
Speaker Change: Well, we continue to monitor the bond markets.
Speaker Change: When we see our bonds trading anywhere in the east.
Speaker Change: It's a buy 10 get one free and the bond market, we like that.
Speaker Change:
Speaker Change: The yield was north of 15% there for a while again what was the hedge book and a defensive position we built.
Speaker Change: This alignment so so we're happy to get in the market, there and continue to buy those bonds and retire them.
Speaker Change: Discount. However, we are careful about our liquidity. So I don't want to overextend ourselves want to ensure that we are remaining flexible because again, our bonds are real but we can pull from a repo function.
Speaker Change: For example, so again, what we're targeting for this year is set up.
Speaker Change: More and more payments was effectively a doer.
Speaker Change: Our payment.
Speaker Change: We have.
Speaker Change: Basically done that now.
Speaker Change: But we will continue to monitor the bond markets and as we believe our liquidity is strong I think she is in the bond market.
Buying retiring some more some more of that at these levels.
Speaker Change: Okay, Great and my last question kind of tangential to that would you would you ever look at using the credit facility to buyback some of this debt.
Speaker Change: If the prices really got low or do you just want to do this for free cash flow.
Speaker Change: No we don't know yet.
Speaker Change: So it's a mastercard I'd, rather just use free cash flow and meantime modality.
Speaker Change: Price drop into the 17th or something Crazy.
Speaker Change: Perhaps we use it for free cash flow.
Speaker Change: We just don't believe that as that aligns with our defensive strategy to convert debt to pay off the sidelines.
Speaker Change: Okay sounds good thanks for the answers.
Speaker Change: Thank you.
Speaker Change: Once again, if you have a question. Please press Star then one to join the question queue.
Speaker Change: There are no more questions. This concludes today's conference call.
Speaker Change: You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Speaker Change: Yeah.
Speaker Change: [music].