Earnings call transcript: Saturn Oil & Gas Q1 2025 earnings beat expectations

Saturn Oil & Gas Inc. reported strong financial results for the first quarter of 2025, surpassing analysts’ expectations. The company posted an earnings per share (EPS) of $0.40, significantly above the forecasted $0.225. Revenue also exceeded expectations, reaching $272.3 million compared to the projected $266.5 million. Following the announcement, Saturn Oil’s stock rose by 5.13%, closing at $1.64 in after-hours trading.

Key Takeaways

• Saturn Oil & Gas achieved record quarterly adjusted funds flow of $131 million.
• The company reported record production of 41,700 barrels per day.
• Saturn Oil’s stock increased by 5.13% following the earnings announcement.
• The company maintains a flexible capital allocation strategy based on oil price fluctuations.

Company Performance

Saturn Oil & Gas demonstrated robust performance in Q1 2025, with record production levels and adjusted funds flow. The company’s ability to maintain high production rates and efficient operations has positioned it well within the volatile energy market. Saturn’s strategic focus on low-decline, high-return assets continues to drive its competitive edge.

Financial Highlights

• Revenue: $272.3 million, surpassing the forecast of $266.5 million.
• Earnings per share: $0.40, exceeding the expected $0.225.
• Operating netback per BOE: $41.99.
• Free cash flow: Nearly $58 million.
• Net debt: CAD 814 million.

Earnings vs. Forecast

Saturn Oil & Gas reported an EPS of $0.40, significantly higher than the forecasted $0.225, marking a surprise percentage of approximately 77.8%. This positive performance reflects the company’s operational efficiency and strategic initiatives in production and innovation.

Market Reaction

Following the earnings release, Saturn Oil’s stock price rose by 5.13%, reflecting investor confidence in the company’s ability to outperform market expectations. InvestingPro data shows the stock has delivered impressive returns, with a YTD price return of 13.46% and a 6-month return of 10.36%. The stock currently trades at $19.89, with a 52-week range of $15.89 to $21.59, demonstrating strong momentum in the market. This performance aligns with InvestingPro’s observation of strong returns over the last month.

Outlook & Guidance

Saturn Oil & Gas remains committed to its strategic capital expenditure plans, which are closely tied to oil price fluctuations. The company has outlined different capital allocation strategies based on varying oil price scenarios, ensuring financial flexibility and resilience.

Executive Commentary

"Our blueprint strategy guides how Saturn operates," stated John Jeffrey, CEO. He emphasized the company’s flexibility in redirecting capital to areas offering the highest returns. Jeffrey further noted, "Saturn will not waste our resources by deploying a large capital program if oil remains sub $55."

Risks and Challenges

• Volatile energy market conditions may impact revenue and profitability.
• Fluctuations in oil prices could affect capital allocation and production plans.
• Regulatory changes and government incentives for low productivity wells may influence operational strategies.
• Maintaining operational efficiency amidst increasing personnel hours and capital expenditures.
• Managing net debt levels while pursuing growth and production targets.

Q&A

During the earnings call, analysts inquired about Saturn Oil’s capital allocation strategies and debt buyback approach. The company clarified its production outlook under different oil price scenarios and emphasized its financial flexibility and defensive strategy.

Full transcript - Saturn Oil & Gas Inc (SOIL) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen. Welcome to Saturn’s First Quarter twenty twenty five Results Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After management’s remarks, there will be an opportunity to ask questions. I will now turn the meeting over to Ms.

Cindy Gray, Vice President, Investor Relations. Please go ahead,

Cindy Gray, Vice President, Investor Relations, Saturn: Thank you, Betsy. Good morning, everyone, and thank you for joining us for Saturn’s first quarter twenty twenty five earnings conference call. Please note that the company’s financial statements, MD and A and press release are available on our website and have been filed on SEDAR plus 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 outlined in our most recent MD and A. Listeners are also cautioned 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. 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.

For further information on risk factors, please view the company’s AIF filed on SEDAR plus and on our website. Also note, all amounts discussed today are Canadian dollars unless otherwise stated. Today’s call will include comments from various members of Saturn’s executive team, including John Jeffrey, CEO Justin Kaufman, CEO and Scott Sandborn, our CFO. Following our prepared remarks, we’ll open the lines up to participants on the call for a question and answer session. If we aren’t able to address your questions today, we encourage you to reach out to Saturn directly through the website.

I’ll now turn it over to John.

John Jeffrey, CEO, Saturn: Thank you, Cindy and good morning everyone.

Justin Kaufman, CEO, Saturn: I just want to start

John Jeffrey, CEO, Saturn: by saying how extremely proud of Saturn’s achievements and performance through the first period and subsequent quarter end I am as we continue to navigate a very fluid and volatile environment. To date in 2025, our team has continued to execute on our blueprint strategy, new corporate records including quarterly production at just under 42,000 BOE a day, adjusted funds flow of $131,000,000 and adjusted EBITDA of $158,000,000 all of which also beat analyst expectations. Our free funds flow of $58,000,000 is the highest we’ve generated in any of the first of any first quarter of any year.

Justin Kaufman, CEO, Saturn: With so much uncertainty facing E and P companies in

John Jeffrey, CEO, Saturn: the current environment, Saturn 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. To set the stage for our discussion around Q1 results and 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. Our blueprint strategy guides how Saturn operates focusing on asset optimization, offering a straightforward approach that could be replicated across our entire portfolio. With oil weighted mid life cycle assets, we are constantly finding new optimization opportunities, operational cost savings and ways to increase production at low costs. Collectively these incremental wins can collect and drive meaningful impact for the organization.

For example, the Flat Lake bathroom assets that we acquired in 2024 were integrated into our portfolio throughout last year. Our team immediately went to work identifying multiple synergies and operational efficiencies. After only six months of owning the asset, we successfully reduced operating costs by 13% driving cost savings of $7,500,000 realized in the second half of twenty twenty four alone. Expanding it out to this year again that’s almost $15,000,000 cost savings that we will experience this year. Thanks to the synergies and the hard work of our operations team.

This type of incremental improvements represents what Saturn team does repeatedly and what we’ve been executing on and what it means for it to be our Saturn blueprint. As a result, our asset base is well aligned with our strategy. Saturn’s portfolio is comprised of the diverse suite of low decline, high return stack plays with multiple light oil zones. Not only has our current development program continued to realize our performance from our assets including our Q1 CapEx program that came in 20% above type curve, We also benefit from a long runway due to the large oil in place and relatively low recovery states in our field. As a result, we continue to explore options for enhanced oil recovery such as waterfloods that could bolster our sustainability and migrate and further mitigate clients which Jes will talk more about later.

Pattern’s asset base also provides the ability to quickly pivot capital in response to market shifts along with the optionality to redirect capital to gas weighted assets should gas prices ultimately spike. 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 is the short lead time. So we don’t need to commit to large pads that take twelve eighteen months to develop and as such we’re flexible. In the current market environment, we believe some of the best returns can be generated by investing directly into the Saturn Sparrows.

As such we’ve allocated some of our free funds flow to ongoing share buybacks. We made our first open market bond repurchase last month. When both of those dipped well below par, buying these bonds and shares at a discount served to further enhance the value of the company. Looking forward to the balance of 2025, we have the ability to defer making decisions about capital expenditures in the second half of the year. Given we believe in long term oil price demand, Saturn will not waste our resources by deploying a large capital program if oil remains sub $55 The adapting quality of our asset portfolio coupled with our strong hedge book position Saturn with the resilience for long term sustainable growth and value creation.

Investing capital where we see attractive returns increases our competitiveness now and for the future. Before I turn it over to Justin, want to provide additional color on the outcomes of our capital program in the quarter. I just want to express my appreciation to the entire team for their hard work throughout the past four months and to thank our shareholders and note holders for their continued support of our confidence in Saturn.

Justin Kaufman, CEO, Saturn: Thanks, John. For the first three months of the year, our operations teams have done an outstanding job of deploying capital prudently, safely and responsibly while continuing to improve efficiency. Our Q1 capital program was executed with zero loss time injuries in the quarter despite having a 69% increase in personnel hours worked over Q1 last year. Approximately three quarters of Saturn’s seventy three million dollars capital program was directed to drilling activities resulting in the completion of 33 gross wells, all of which were brought on in the quarter. The bulk of these wells, 26 in total were in Southeast Saskatchewan with six in West Saskatchewan and one in Alberta.

About 22% of our Q1 capital was allocated to facilities which included continued investment in our waterflood projects. The balance of the capital went to land and seismic. During the quarter we converted three Torpent producers to injectors to support both the waterflood at Broad Lake and future pre pressurized volume locations. Today, Saturn has more than 160 injectors at Butt Lake, over 140 a bathroom and about 60 in Oxbow, Southeast Saskatchewan. We have identified the opportunity to expand our waterflood program in Southeast Saskatchewan in particular at our Peelman Bakken Field.

This is an area where our operations are immediately adjacent to one of our peers existing waterflood patterns, which has seen more than 20% of the producers converted to injectors, which has translated to strong success in reducing decline rates under 15%. We have started the initial capital stages of the Prolene waterflood and will prove successful and potentially lead up to more than 200 pre pressurized waterflood infill locations to the Newfield area. Another exciting development for Saturn was the Saskatchewan government’s introduction of the low productivity and reactivation oil well program. An incentive program designed to encourage industry to invest new capital into low producing and inactive horizontal wells. The goal is to create incremental oil production and revenue from existing wells as part of the scheduled government’s target to increase production to 600,000 barrels by 02/1930.

Due to this incentive, Sutter completed its first horizontal reentry into the Brokerage since 2022 with results from that reentry coming in 50% above our internal type curves. Our technical team is excited to continue with this type of horizontal completion and we have hundreds of potential candidates that we are looking to build into our five year development plan. Other notable activities in Saskatchewan during the quarter include the drilling of our first Maiau horizontal wells since 2023, which exhibited strong results in 50% higher than Type Crew. This was an important result as we have close to 100 of these locations in our corporate inventory. In addition, we drilled our second Spearfish multi lateral horizontal well targeting the P1 sands along with the company’s longest ever Spearfish horizontal well targeting PQ sands at over 3,500 meters.

We also drilled our first underground well in Salt Lake. All in Southern’s Mississippi and Spearfish program in Q1 delivered results across a total of 13 wells drilled that averaged over 50% above type curve. This is another positive data point that underpins Saturn’s long term sustainability since our Mississippi and Spearfish well inventory features approximately 600 locations, represents more than 20% of our total corporate inventory and is where we have a lot of our Tier one locations. Looking now at our open hole multi Lake Bakken development, we drilled two eight leg open hole multi lateral horizontals. One well was holding one mile and the other at two mile and participate in two non op open hole wells as well.

Based on initial production wells rates, sorry, we anticipate our two mile open hole multi leg well could be contender for top performing well in Southeast Saskatchewan in Q2. All in results from this program came in 20% above type curve. The combination of all our technical team’s hard work and tireless efforts was showcased through record production of approximately 41,700 barrels attributable to outperformance of our type curves and strong volumes. I’ll now turn it over to Scott to review the financial metrics. Pete?

Thanks, Justin and good morning everyone. Saturn’s financial performance reflected the strong operational results Justin spoke to, exceeding analyst consensus across nearly all metrics and I’m very pleased to quickly run through the highlights. Saturn generated record adjusted funds flow of $131,000,000 or $0.66 per share driven by a record quarterly production nearly 41,700 barrels per day, up from just over 41,000 barrels per day in fourth quarter of twenty twenty one. Net of derivatives, our operating netback per BOE was $41.99 higher than the $40.41 in the previous quarter, of which our hedging derivatives will further inflate Saturn from any future downward price volatility which I will touch on shortly. With just over $73,000,000 in Q1 capital expenditures, our free cash flow was nearly $58,000,000 for the quarter, 34,000,000 of which was directed towards financing activities primarily relating to the repaying US16.3 million in debt on our senior notes equate to just over CAD23 million.

In addition, we remain active on our NCIB directing 5,800,000.0 to the repurchase of 2,800,000.0 common shares for cancellation at a weighted average price of CAD2.08. At quarter end, company had net debt of CAD814 million comprised of $6.00 1,000,000 principal outstanding, U. S. Dollars principal outstanding on our senior notes and adjusted working capital of 37,000,000 inclusive of approximately 80,000,000 cash. This results net debt to annualized adjusted EBITDA of 1.3 times in line with guidance and street consensus.

We maintain liquidity at year end of approximately $230,000,000 again comprised $80,000,000 cash and $150,000,000 undrawn credit facility. We believe financial flexibility underpins our strength and resilience through volatile markets. Subsequent to quarter end, Saturn was able to capitalize on the falling oil price environments and associated market volatility to improve our position. Through April, we saw periods where our bonds are undervalued and accordingly purchased US15 million dollars face value of our senior secured notes at a discount to par, thereby further accelerating our debt reduction progress while reducing future interest costs. Worth noting, our open market purchase has no impact on our scheduled 2.5% or $16,300,000 repayment commitments.

Rather it is in addition to reduce the bullet payment of home maturity. In addition, we invested 2,300,000.0 to migrate our hedge book by terminating certain WTI hedging contracts, approximately combined average oil price of $58 on 3,300 barrels a day for the second half of twenty six and seven thousand 800 barrels a day in Q1 twenty twenty seven. The termination has no effect on our plans to deviate from our hedging target of 50% to 60% of PDP oil and liquid volumes net of royalties twelve months out and 20% to thirty percent eighteen months out. However, we will continuously look to opportunities to find the entry of any future hedges. Worth noting again, should oil fall below $50 we are not required to hedge into that margin.

Looking forward, should we continue to see oil price weaken, the value of our hedge book increases. For reference, cash settlement forecast of our hedge book $60 WTI approximates $60,000,000 and a 50,000,000 it’s $160,000,000 Effectively for every $5 decrease in WTI, value of our hedge book increases by approximately $50,000,000 Using 2020 as an example, oil goes to zero, the value of our hedge book plus cash on hand today would essentially allow us to pay up our debt. So we will continue to remain active on the hedging fronts with the goal of optimizing our book. With go forward capital budgets under scrutiny in the current environment, I wanted to close out remarks with a reminder of how Saturday’s think about capital for the balance of ’25. The seasonal pause in activity due to spring breakup here in Canada gives us time to moderate commodity prices and assess market conditions which will drive future capital allocation decisions based on a book already returns.

Since we have the ability to purchase 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. Further, because the majority of our drilling occurs in the latter part of the year, pausing until July is not expected to impact our 2025 forecast volumes assuming we will continue to be mindful of balancing cash flow generation with the preservation of our reserves while deciding on capital execution plans entering a 50 to 60 WTI environment. Thanks again for joining us today and I’ll now hand over to the operator to commence the Q and A. Operator?

Conference Operator: Thank you. We will now begin the question and answer session. The first question today comes from Adam Gill with Fenton Financial. Please go ahead.

Adam Gill, Analyst, Fenton Financial: Hey, team. Congrats on the solid quarter. Three questions for me. First off, can you frame how spending will look like in the sub 60 dollars WTI environment? And then maybe some guide rails if it was $60 to $70 and $70 plus?

John Jeffrey, CEO, Saturn: Yes, absolutely. Well, 70,000,000 plus would effectively be our guidance. So CapEx of just around that $30,000,000,310,000,000 dollars mark. Anything kind of 70,000,000 plus just refer to our guidance. I think that’s a great starting point.

If you look at closer to 60, basically what we’re going to do is we’re almost going to retrench from west to east. So we’re going to first we’ll pull back on the Viking and then Bantrum and then you just pull back on Alberta kind of leaving that Southeast development last. So the easiest way to think about it and quick shorthand if you see oil average is $60 we’ll probably be closer to $200,000,000 mark and 50,000,000 to 55,000,000 closer to 100,000,000 to $150,000,000 So somewhere in that range kind of a quick and short term of what how much capital we deploy those different levels.

Adam Gill, Analyst, Fenton Financial: Great. And if it was kind of the $200,000,000 or the $100 to $150,000,000 in these lower oil price environments, where do you see production standing at the end of the year?

John Jeffrey, CEO, Saturn: We’ll have to model that out. Again with the bulk of that capital coming in or we’ll have a minimum impact on this year’s production. It’d be more of an impact on next year’s given that we’ve already had such a successful and overproducing an overproductive Q1 Again, so we were looking to get back in the field mid June. We’ve since pushed that out of the month to mid July. I guess that will have no impact on this year’s production.

But it all kind of depends on what oil price looks like at that point when we do get back down in the field.

Adam Gill, Analyst, Fenton Financial: Okay, understood. Second question is how are you weighing allocating capital towards production initiatives versus continuing to execute on the NCIB and maybe even paying down more debt beyond the scheduled amortization?

John Jeffrey, CEO, Saturn: Well, we continue to monitor the bond markets. When we see our bonds trading anywhere in the 80s, anytime it’s buy 10 get one free in the bond market, we like that. I think the yield was north of 15% there for a while. Again, with the hedge book and the defensive position we built, think there’s a misalignment. So we’re happy to get in the market there and continue to buy those bonds and retire them at that discount.

However, we are careful about our liquidity. So we don’t want to overextend ourselves. Want to ensure that we are remaining flexible because again, they are bonds on RBL that we can pull from repo from should be we have a need for capital. So, again, what we’re targeting here for this year is instead of four amort payments was to effectively do a fifth hour payment and we have basically done that now. But we’ll continue to monitor that bond markets and if we believe our liquidity is strong, I think we would see us in the bond markets buying and retiring some more debt at these levels.

Adam Gill, Analyst, Fenton Financial: Okay, great. And my last question kind of tangential to that. Would you ever look at using the credit facility to buy back some of this debt if the prices really got low or you just want to do this from free cash flow?

John Jeffrey, CEO, Saturn: No, we don’t like the idea of paying Visa with your MasterCard. I’d rather just use free cash flow in the meantime and now we see price drop into the 70s or something crazy perhaps we use it for free cash flow but we just don’t believe that aligns with our defensive strategy to incur debt to pay off the second line of debt.

Adam Gill, Analyst, Fenton Financial: Okay. Sounds good. Thanks for the answers and I’ll leave it there.

John Jeffrey, CEO, Saturn: Thank you.

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