Earnings call transcript: Saturn Oil & Gas Q2 2025 sees EPS surge, stock rises

Saturn Oil & Gas Inc. reported a significant earnings surprise for Q2 2025, with earnings per share (EPS) reaching $0.46, far exceeding the forecasted $0.135, marking a 240.74% surprise. Despite a revenue shortfall, with actual revenue at $212.31 million compared to the expected $233.6 million, the company’s stock surged by 9.13% in after-hours trading, reflecting investor optimism.

Key Takeaways

• Saturn Oil & Gas reported a substantial EPS surprise, significantly beating market expectations.
• The company achieved record free cash flow and reduced net debt substantially.
• Stock price increased by 9.13% following the earnings announcement.
• Production exceeded guidance with strategic operational advancements.

Company Performance

Saturn Oil & Gas demonstrated robust performance in Q2 2025, marked by record free cash flow and substantial net debt reduction. The company’s production levels exceeded guidance, and strategic initiatives such as the Bakken waterflood project and extended reach horizontal wells contributed to operational success. This performance is set against a backdrop of cost reductions in the service industry and favorable tax dynamics in Saskatchewan, enhancing the company’s financial position.

Financial Highlights

• Revenue: $212.31 million (below forecast)
• Earnings per share: $0.46 (exceeding forecast by 240.74%)
• Adjusted Funds Flow: $109 million ($0.56 per share)
• Record Free Cash Flow: $93 million ($0.48 per share)
• Net Debt Reduction: Nearly $120 million

Earnings vs. Forecast

Saturn Oil & Gas reported an EPS of $0.46, significantly above the forecast of $0.135, resulting in a 240.74% earnings surprise. However, revenue fell short by 9.11%, with actual figures at $212.31 million against the forecasted $233.6 million. This earnings beat is notable compared to previous quarters and reflects effective cost management and operational efficiency.

Market Reaction

Following the earnings announcement, Saturn Oil & Gas’s stock price increased by 9.13%, closing at $2.41. This movement positions the stock closer to its 52-week high of $2.87, indicating strong investor confidence despite the revenue miss. The stock’s performance aligns with broader positive sentiment in the energy sector.

Outlook & Guidance

Looking ahead, Saturn Oil & Gas plans a capital expenditure of $80-90 million for Q3, with production guidance set at 37,000-38,000 BOE per day. The company maintains a focus on debt reduction and shareholder value, with full-year capital expenditures expected around $290-295 million.

Executive Commentary

CEO John Jeffrey emphasized the company’s disciplined and opportunistic market approach, stating, "We continue to fulfill our promise that the market remain disciplined and opportunistic and transparent." Grant McKenzie, Chief Legal Officer, highlighted the strategic importance of waterflood projects for long-term sustainability.

Risks and Challenges

• Potential fluctuations in oil prices could impact revenue and profitability.
• Execution risks associated with new drilling projects and acquisitions.
• Macroeconomic pressures and regulatory changes could affect operational costs.

Q&A

During the earnings call, analysts inquired about the company’s strategies for managing debt and capital allocation. Executives reiterated their commitment to reducing net debt and emphasized the importance of balancing capital expenditures with shareholder returns.

Full transcript - Saturn Oil & Gas Inc (SOIL) Q2 2025:

Conference Operator: Good morning, ladies and gentlemen. Welcome to Saturn’s Second Quarter twenty twenty five Results Conference Call. As a reminder, all participants are in 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, operator. Good morning, everyone, and thank you for joining us for Saturn’s second quarter twenty twenty five earnings conference call. Please note that our financial statements, MD and A and press release have been filed on SEDAR plus and are available on Saturn’s website. 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 disclaimers 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 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 see the company’s AIS filed on SEDAR plus and on our website. Also note, all amounts today are Canadian dollars unless otherwise stated. Today’s call will include comments from John Jeffrey, Saturn’s CEO Grant McKenzie, our Chief Legal Officer and Scott Sanborn, our CFO.

Over to you, John.

John Jeffrey, CEO, Saturn: Thank you, Cindy, good morning, everyone. We appreciate you joining us today. I am pleased to provide an update on Saturn’s second quarter in which we once again delivered results that met or beat our guidance. For the third consecutive quarter, production was above the high end of our guidance range at just over 40,400 BOE a day, while operating costs were under the low end of our guidance. We also surpassed analyst forecast across numerous measures in the quarter, including adjusted funds flow of $109,000,000 and record free funds flow of 93,000,000 However, the standout number in this quarter is our net debt, which was at $695,000,000 at June 30, a reduction of nearly $120,000,000 over the prior quarter.

This exceeds the $100,000,000 net debt reduction that we forecasted during the first quarter’s earnings conference call and also came in lower than consensus expectations. As a result, our net debt to annualized adjusted EBITDA fell to 1.3 times at quarter end. Saturn continues to prioritize net debt reduction as one of the components of our blueprint strategy. This is demonstrated by an opportunistic open market purchase of our senior secured notes when they traded below par during Q2 and supplemented with the scheduled 2.5% quarterly principal repayments made on the notes. In April, the company purchased US16.3 million face value notes of our senior notes in the open market, which represented an additional full quarter payment.

This equals CAD20 million of hard debt reduction. At the June, we completed the scheduled 2.5% debt amortized payments. These principal repayments combined with our strong quarterly free cash flow and the impact of a stronger Canadian dollar all contributed to our significant debt reduction in Q2. For the second quarter being the lowest capital expenditure period due to spring breakup, we generated record free funds flow during the quarter. The nature of our oil weighted mid life cycle asset base means we could pivot if needed and shift capital quickly and seamlessly.

All of Saturn’s drilling locations are adjacent to offsetting production where we have existing infrastructure and operations. This allows us to wrap activity up or down very quickly. Our well licensing, surface prep and drilling cycle times are very short. In some areas, we can even go from licensing to bring on volume in a matter of weeks. In light of this, we prudently took some extra time during Q2 to monitor commodity prices and the broader economic environment before starting to execute our Q3 capital program in mid July.

Another component of our Blueprint strategy is to identify M and A opportunities to acquire low cost, high quality barrels that bolsters Adams footprints in areas where we already have established operations. We aim to transact on assets that can be acquired for two times cash flow or less or value that approximates the assets PDP. This allows us to enhance the upside by capturing synergies, reducing costs and optimizing the performance of the assets. During the quarter, we closed a $5,000,000 corporate tuck in acquisition in Southeast Saskatchewan, which is complementary to our existing operations, provides drilling locations and future upside and is estimated to contribute over 100% of the purchase price to the cash flow of the company over the next twelve to eighteen months. Whether small or large, our strategy is to acquire and integrate these assets that have rapid paybacks and identify opportunities for enhancements.

We’ll continue to look for complimentary packages that can further enhance Saturn’s portfolio and drive ongoing value creation. With a discount market valuation relative to our net asset value, the company has continued to allocate three funds flow to the purchase of Saturn’s stock through the normal course issue bid or the NCIB and we launched our inaugural Substantial Issuer bid or the SIB in early June. Buying back our own shares reflects our view that Saturn’s barrels are the highest quality and most undervalued available in the marketplace today. Throughout the quarter, we continue to maximize daily purchases under the NCIB, which resulted in Saturn returning $3,300,000 to shareholders and canceling around 2,000,000 common shares. Since Saturn share price steadily increased following the SIB announcement, including a few days trading above the $2.5 offer price, we only seen 1,600,000.0 shares tendered out of a total of 7,000,000 shares offered, returning $3,500,000 to shareholders.

The SIB proved beneficial to all shareholders. Since its announcement, our market cap has increased by over $100,000,000 with significant expansion of our trading liquidity. Under both the SIB and the NCIB, Saturn has bought back over 11,200,000.0 shares for cancellation since August 2024, returning approximately 24,000,000 to shareholders and further enhancing our per share metrics. Over the past several quarters, Saturn has maintained a steady, stable execution of our strategy. We continue to fulfill our promise that the market remain disciplined and opportunistic and transparent.

This approach coupled with the strong performance of our asset base and innovations from our team provides an ideal blueprint for creating lasting value for our shareholders. I’ll now pass it over to Grant to talk through a few development highlights in the quarter.

Grant McKenzie, Chief Legal Officer, Saturn: Thanks John. In the second quarter, Safran’s volumes averaged 40,417 BOE per day, which is above our quarterly guidance and higher than our analyst expectations, reflects our ongoing well performance in our tight curve beats. This strong performance is exemplified by the results state of our detailed fifteen and twenty one well. It is a two mile eight leg open hole multi lab well that was among the top three best performing Saskatchewan liquids wells in May. In addition, three of Saturn’s lock and extended reach horizontal Cardium wells ranked in the top 15 wells in the Alberta Cardium.

Since those wells are fully cleaned up, we’re seeing reverse declines with production volumes increasing after thirty days. One of these wells was Canada’s longest Kardim well ever drilled at over 7,570 meters, which successfully utilized an innovative hybrid completions technique that the Sovereign team developed. We intend to apply this hybrid completion technique in our other areas including our Cave off Montney where we are drilling the first ever three mile lateral in the area. Being able to drill longer laterals while still maintaining the ability to effectively stimulate the tow is key for improving well recoveries and generating strong economics that can compete for capital with our high return conventional Saskatchewan assets. We are also very excited about the progress made in the company’s first few field Bakken waterflood project at Creelman where we have just commenced water injection.

We’re modeling an estimated twelve to eighteen months in order to pressure up the reservoir before we start to see results with the offsets providing pressure support for new Bakken development wells that we’re planning in 2026. The Creelman waterflood project includes a new water source well, area infrastructure and five injector conversions to date. This is the first stage of a larger multiyear waterflood program over the greater retail area targeting the flattening of the decline curve to support a material increase in the ultimate recovery of future book reserves. Investing in waterflood projects today can meaningfully improve our long term sustainability by increasing recoverable volumes and boosting reserve values. To use simple math, if Saturn had a field with 100,000,000 barrels of oil in place and we increased the recovery factor of the field from six to 20%, it would represent an incremental 14,000,000 greasable barrels.

Applying our Q2 twenty five netback of $36 per BOE translates into an incremental cash flow of $500,000,000 This magnitude of impact from water flood provides significant and lasting shareholder benefit and value creation. With that, I’ll hand things over

John Jeffrey, CEO, Saturn: to Scott for an overview of our financial results. Thanks, Ryan

Scott Sanborn, CFO, Saturn: and good morning everybody. Saturn posted another robust quarter with cash flow of $109,000,000 or $0.56 per share, record free balance flow of $93,000,000 or $0.48 per share against the backdrop of an 11% decline in WTI prices quarter over quarter and Canadian dollar strengthening relative to the U. S. Dollar. Our operating netback per BOE was $35.84 after derivatives supported by lower operating cost of $18.28 per BOE and reduced royalty expenses $7.68 per BOE.

Operating expenses per BOE have remained below our guidance range of $20 to $20.6 per BOE in 2025 although we anticipate OpEx will trend closer to guidance in the latter half of the year as capital expenditures increase. Saturn exited the quarter with $695,000,000 of net debt comprised of $5.69 U. Principal outstanding on our senior notes and adjusted working capital surplus of $69,000,000 inclusive approximately $49,000,000 in cash. The leverage ratio now sits at 1.3 times net debt to annualized adjusted EBITDA down from 1.4 times at year end 2024. As John mentioned, we were able to accelerate debt reduction in Q2 with an open market purchase of US16.3 million dollars equating to approximately CAD20 million of our senior notes when they traded down as low as 86 relative to par.

Significant equity and bond market volatility caused by tariff uncertainty presented an attractive opportunity to purchase their bonds at a discount. Management also participated purchasing approximately 900,000 of our senior notes providing another signal of our belief in Saturn’s future potential and inherent value. Q2 CapEx is approximately $16,000,000 which is the low end of the quarterly guidance range reflecting limited activity during spring break out and driving free funds flow which provide the company with minimal flexibility around future capital allocation decisions. Saturn’s liquidity was further enhanced with the renewal of our credit facility in the quarter. With our renewal, we added an uncommitted $100,000,000 accordion feature to our existing $150,000,000 facility allowing for the expansion up to $250,000,000 in total.

As a result inclusive of cash on hand we have up to $300,000,000 in total liquidity. Looking out to Q3, we are expecting capital expenditures to range between 80,000,000 and $90,000,000 with average volumes between 37,000 and 38,000 Boe per day. This reflects the minimal capital spend Q2 along with the delayed start of our Q3 capital program as we prudently elected to moderate market conditions given commodity price volatility. Thanks again to everyone for joining us today and I’ll hand

John Jeffrey, CEO, Saturn: over to the operator to commence the Q and A.

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

Adam Gill, Analyst, Ventum: Hey, good morning guys. Great job on the quarter. A couple of questions for you. First off, OpEx performance has been pretty solid since closing the Flat Lake Bantrum acquisition in Q2 last year. Is there much more room for reduction or are we getting kind

Scott Sanborn, CFO, Saturn: of to the

Adam Gill, Analyst, Ventum: optimization of the OpEx structure within the current company?

John Jeffrey, CEO, Saturn: Well, with more size and scale, we’re able to grow and utilize the infrastructure advantage we have in a lot of our core areas. That being said, we’re pretty comfortable sticking with our guidance of around $20 a barrel. We’ve been coming in significantly below that lately. We’re pretty confident that we can continue to find efficiencies and trim, but I’m not sure you’re going to see as big a step changes as you have, but we’re quite comfortable in our ability to meet or deliver in excess of the $20 a barrel that we’ve got towards.

Adam Gill, Analyst, Ventum: Okay, great. And then just on production, you have been outperforming over the last couple of quarters here. Any thoughts on potential to reduce CapEx and still hit guidance or is the preference to keep CapEx where it is and have volumes come in higher than expected?

Scott Sanborn, CFO, Saturn: So we’re pretty happy to

John Jeffrey, CEO, Saturn: be flexible in the context of the markets. If we see oil, we could appear in the 70s. I think that will be an encouraging sign for us to continue to drill. Somewhere in the 60s or even low 60s we might alter that a little bit. We do have that cushion which is great because we have seen such strong performance from our well.

So really we just want to be reactive to the market. So I think we’re just going to continue to monitor it and we’ll add or subtract capital depending on what the market forces are giving us here.

Adam Gill, Analyst, Ventum: Okay, great. And last question for me. Through Q2 and Q3, you’ve been buying back shares, did the SIB and also accelerated debt repayment. How are you weighing the two in terms of allocating free cash flow into the back half of the year?

Scott Sanborn, CFO, Saturn: Yes. Basically, we’re just trying

John Jeffrey, CEO, Saturn: to balance opportunities in front of us. So when we’ve seen our bonds dip a little bit on their trading face value, we’re able view them that would like to step in and purchase it. We did that last block in average of $0.08 7 on the dollar which we really liked. Obviously then we did the SIP given that we were trading below $2 but even here where we’re trading now at $2.6 still well below our NAV, our PDP now almost half. So there’s still devalue in the stock, still looking if we have excess cash flow to retire as much debt as we can.

So kind of balancing all things and seeing what pricing comes in at and seeing what opportunity costs there are in the market. We did that small tuck in acquisition of that company that we announced. Even that will return over 100% return in the next twelve months. So just trying to balance all the different uses of capital but definitely monitoring everything from buybacks to the debt retirement to tuck in acquisitions.

Adam Gill, Analyst, Ventum: Okay, great. Thanks for the answers. That’s all for me.

Scott Sanborn, CFO, Saturn: Thank you, sir.

Conference Operator: The next question comes from Jamie Summerwell with ROTH Canada. Please go ahead.

Scott Sanborn, CFO, Saturn: Good morning. Thanks. If it isn’t too commercially sensitive, can you provide some thoughts on the service industry cost trends and the competitive landscape for those services coming out of spring break up and how you’re managing your relationships there? You’re stressing your flexibility on spending. So I imagine you’re not fully contracted and committed to spending your 2025 budget.

But it’s always an art in terms of how you manage those relationships and I’m particularly interested to know if you’re seeing any differences between Saskatchewan and Alberta in terms of cost trends?

John Jeffrey, CEO, Saturn: Yes, I think that’s a great question. So what we are seeing is I guess on the first point we are very flexible so we don’t. So we see oil prices collapse within a week or two we can completely shut down our entire capital program. Felt that was the right move. We do not have drilling commitments and most of our land does not face expiry.

So we have that flexibility that a lot of companies don’t have. And again, most of our assets are relatively short turnaround, short life cycles and getting them online. Most of our fields again in a few weeks we can get production online. So it’s not like a lot of the Deeper Basin guys where they have six to nine months pads that they have to drill. But what we are seeing because of some of the softness in oil price, we are seeing prices come in a bit.

We went to tender here in the start of the second quarter and we are seeing service companies get more aggressive with their pricing. Now most services on the drilling capital side are relatively fundable between Alberta and Saskatchewan. In Saskatchewan moreover, when you’re seeing more of the operating off cost services, you are seeing that are a little less fungible. You’re seeing some prices there come in a little better, but in terms of drilling completions, lots of that equipment can move relatively easily between the two provinces. That being said, we are seeing prices come in a bit, which helps them.

I think that’s just a reflection of everyone’s kind of pulled back on their capital a bit. And I think everyone’s just reacting to the uncertainty in the market. So we are seeing some prices come in, I don’t know, Doug Google here, our exploit manager, what are we seeing 3% to 4%

Scott Sanborn, CFO, Saturn: to 5% reduction? I think that’s well within the realm of possibility there. They’re definitely willing to work with us. That’s something that we’ve been very strategic about how we plan and schedule our development is to try and make us an operator that they like to work with because we try to bring in rigs and keep them working pretty full time. So that helps us with some of our leverage in terms of getting decent prices.

But yes, certainly not expecting an increase from what

John Jeffrey, CEO, Saturn: we would have seen in Q4 and Q1.

Scott Sanborn, CFO, Saturn: Very helpful. Thank you. Okay. Thank you.

Conference Operator: The next question comes from Abhijit Ravadhan with Sculptor Capital. Please go ahead.

Abhijit Ravadhan, Analyst, Sculptor Capital: Hey, guys. Good job on the quarter. Given how well you’re performing how well the wells are performing, how much more evidence do you need before you get credit for a better type curve?

John Jeffrey, CEO, Saturn: Mean type curves are being adjusted every year. So they’re constantly being moved up and down. For example, if you look at our Viking, you’d notice that three years ago we were 40 to 50% above type curve. Last year we were 20% then two years ago we were 20, last year we were above 5%. That’s not that our wells are getting worse that the type curve just keeps getting adjusted up.

The performance is relatively similar across those three years. So within the margin they’re always being adjusted up and down kind of given the locations and giving the offset peers.

Abhijit Ravadhan, Analyst, Sculptor Capital: Doug, do have any color on that type curve?

Scott Sanborn, CFO, Saturn: Again, something we got to be mindful of too, there’s nothing certain in this business in terms of deliverability. We do have a bit of risk built into some of those curves as well, which should play out kind of the average over the course of a longer period of time. So while we do see some good outperformance, we are cognizant of that and are certainly strategizing towards delivering wells that meet or exceed our type curve. But some of that too is making sure that we can be pragmatic about what we promise to the market in terms of the deliverability of these wells. So we are continually looking that.

We do make continual changes to our type curves and look at each drill individually on what our expectations are for that drill, but that’s kind

John Jeffrey, CEO, Saturn: of our approach to type curves. Think you already look for it might be sand, but that’s all right. No, that’s one thing we always want to over deliver under promise over deliver but that being said our type curves do adjust up when we do consistently come in over but that’s just it we don’t want to over promise at all. Far we’ve been a combination of lucky and good. But to date we’re pretty happy with the direction of our type curves creeping up and our consistent ability to come in over those still.

Abhijit Ravadhan, Analyst, Sculptor Capital: Got it. Your guidance for CapEx for the third quarter, does it track versus your full year CapEx guidance? I think it was 300,000,000

Scott Sanborn, CFO, Saturn: Q3 will certainly be Q3 will certainly be one of our more intense quarters in terms of activity. We are planning to drill 21 wells over the course of the quarter here. I mean, again, that’s strategically important to us. It is also the cheapest time of year to drill wells, you don’t have to heat fluids. It’s a little easier.

People work a little quicker when it’s warmer outside. So getting around it’s just generally drier, building pad place is cheaper. So you’ll see us definitely have a pretty strong quarter in terms of our activity. Yes, those 21 wells that

Grant McKenzie, Chief Legal Officer, Saturn: we plan to drill over

Scott Sanborn, CFO, Saturn: the course of the quarter there would indicate that.

John Jeffrey, CEO, Saturn: Yes, our CapEx is always weighted, heaviest in Q3, second in Q4, third in Q1 and almost stopping in Q2 as we’ve just seen. So the inverse of that is always true with your free cash flow as well. So if you look at Q3 and Q4, those are going be your lowest free cash flow quarters. Q2 will be your strongest followed by Q1. So just given the drilling season, given break up here in Canada and the fields that we drill.

So I think a lot of people have to keep in mind. I know in the past we’ve got questions especially after Q3 and Q4 saying, hey, where’s all this free cash flow and now in Q2 they’re seeing all of the free cash flow and we don’t want people to think that they can have or they can annualize that over the year either. So there is a seasonality to this and that our capital and free cash flow are inversely related there. There’s also a piece of

Scott Sanborn, CFO, Saturn: the flexibility that we offer with the wells that we target. I think we can be a lot more selective about when we do this to take advantage of that seasonality with the market whereas you’re drilling big long knee pads, you have to just be steady, continue, you can’t really stop operations for weather.

Abhijit Ravadhan, Analyst, Sculptor Capital: Right. But following the logic that you just mentioned, 3Q being the highest CapEx quarter, your guidance is 80 to $90,000,000 So if I just extrapolate, and it’s a rough math, but if I extrapolate that, I think you’ll end up less than $300,000,000

John Jeffrey, CEO, Saturn: Between that and Q4, believe we’re on track to land somewhere around that $290,000,000 range. Again, With our guidance number of I think we guided to three zero five. We are seeing some prices come in again that 3% to 5% better. So we are looking, we are internally guiding to spend a little less than the original guidance summary. Again, that’s given some of the cost savings that we have to be.

So right now I think we’re still on track to go up that $2.90, $2.95 range.

Scott Sanborn, CFO, Saturn: Yes. For context about percent of CapEx spent in the first half of the year, the residual we spent in the second half. So all in that approximate $300,000,000 consistent with guidance, no change at this time.

Abhijit Ravadhan, Analyst, Sculptor Capital: Got it. And out of the cost outperformance in second quarter, how much of that from dollar per BOE perspective came from carbon tax, carbon tax waiver?

John Jeffrey, CEO, Saturn: Just say the carbon tax savings we’ve seen around the Saskatchewan side so far we haven’t seen that come through on the Alberta side. Again, how do you really quantify the savings through our service companies. So in part, there’s a bit of a slowdown and bit less money being drilled. So that obviously causes some of our providers to get a little more aggressive with their pricing that a lot of our costs from carbon tax will be flow through costs from fuel and other things like that. So it is hard to exactly quantify.

I would say, we are looking at somewhere in that $15,000,000 to $20,000,000 a year range, saving some carbon tax, and then the balance being from using our size and scale and that infrastructure advantage we have in our core areas. So between those two things, we are fairly positive that we’ll be able to continue to beat on the operating cost side. And

Abhijit Ravadhan, Analyst, Sculptor Capital: how much visibility do you have on that? Is the carbon tax waived forever? Is there a deadline?

John Jeffrey, CEO, Saturn: Yes, Saskatchewan, South Mall, Saskatchewan came out and they have eliminated that carbon tax out of the province. Now I’m not sure if that potentially gets reversed but in the current form and the current guidelines from the government that it is being eliminated in all forms and what we’re seeing here should be permanent barring any other geopolitical changes to the province or the federal government.

Abhijit Ravadhan, Analyst, Sculptor Capital: Got it. Thank you. That’s it for me.

John Jeffrey, CEO, Saturn: Thank you.

Conference Operator: The next question comes from Michael Zook with Athena Capital Markets. Please go ahead.

Michael Zook, Analyst, Athena Capital Markets: Good morning, guys. Just a quick question from my side. How should investors view the company’s appetite for acquisitions given the current debt load with $300,000,000 in liquidity and your equity currency up 24% month to date? Thanks.

John Jeffrey, CEO, Saturn: Yes. Again, over the last four years, we’ve looked at 140 different acquisitions. There really has to be the exact one to fit it. It has to be accretive. It has to be able to help us achieve our deleveraging over the next few years.

There has to be something that we know that we can increase production and value on all the while how we’ve been able to buy all of our acquisitions and the metrics we generally use two times cash flow less than PDP on strip. So there’s a number of things that we look for before going after an acquisition, which is what makes some of these smaller ones very appealing to us. You’ve seen us do a Brazos Dam acquisition last year as well as a couple of smaller ones this year and last year. And I think that is what we’re going to be more focused on the smaller tuck ins that although might not be material in the aggregate, we’re increasing drilling locations. We’re able to get it in our core areas.

So again, it’s a constant battle of are our dollars better off retiring debt, are we better off to buy shares or can we do a small tuck in acquisition that is accretive at the end of the day. So we are constantly balancing all of those aspects. Why we were kind of so aggressive here in the last quarter or two is we did find ourselves with upwards of $100,000,000 of cash, not really a productive asset for us. So if we can use that to retire debt, buy back some shares and look for those right tuck in acquisitions, that is something we continue to do to balance liquidity and balance the opportunities that we find in the market.

Michael Zook, Analyst, Athena Capital Markets: You have a bias right now in terms of using more leverage on an acquisition versus your equity capital or is it case by case?

John Jeffrey, CEO, Saturn: Well, we think our shares are highly undervalued. I think a lot of the response that you’re seeing in the market on the other side is also because of our rapid deleveraging. So

Scott Sanborn, CFO, Saturn: we’re pretty happy with

John Jeffrey, CEO, Saturn: both of those things being true. I think the shareholders want to see that leverage continue to come down, which is great. And I also think that until we can get our share price a lot closer or if not in excess of our PDP now, should be around that $5 a share. I think at that point, we’d be a lot more comfortable issuing shares. I think that would more appropriately represent the value that we see.

Scott Sanborn, CFO, Saturn: However, in

John Jeffrey, CEO, Saturn: the meantime, you’re continuing to pay down debt. But if we do, do an acquisition, does it solve for is our debt materially lower in the next few years than otherwise would be. So these are some of the things we look for before pursuing an acquisition or buybacks or other sort distributions of cash.

Michael Zook, Analyst, Athena Capital Markets: Last question from my side. Are you seeing better deals in certain areas of your three core areas?

John Jeffrey, CEO, Saturn: No, no we’re not actually. In fact quite the opposite. We’ve seen some assets, I think we’ve said this publicly before. We looked at an asset in Southeast Saskatchewan, quite a number of synergies with it. In fact, we looked at, we submitted a price somewhere in that 2x range, 2.5 and it went for five.

So I think there is some additional dollars creeping in. U. S. Private equity seems to be backing a couple of management teams now, which is probably a good thing. More interest, more capital coming back to the space just means our asset base that we currently have is worth that much more.

But no, we are seeing asset prices creeping up in some of our core areas. And again, that’s a great thing for the industry and that’s a great thing overall. And again, the assets that we have just become that much more valuable in the marketplace. But yes, we’ve definitely seen asset prices creep up over the last twelve to eighteen months. Yes.

Michael Zook, Analyst, Athena Capital Markets: Thanks for your time.

Scott Sanborn, CFO, Saturn: Thank you.

Conference Operator: Since 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.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.