Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Saturn Oil & Gas Inc (OILSF, Financial) increased its oil production by over 50% through a strategic acquisition in Southern Saskatchewan.
- The acquisition added over 950 identified drilling locations, enhancing production metrics and offering a portfolio of capital-efficient development opportunities.
- The company achieved record-setting financial results, including driving down operating and transportation costs below $20 per BOE for the first time in three years.
- Saturn Oil & Gas Inc (OILSF) forecasts over $200 million of excess free cash flow over the next 12 months, which will be directed towards debt reduction and potential shareholder returns.
- The company successfully issued a $650 million US bond with an attractive coupon rate, reducing its interest rate by about 40%.
Negative Points
- The CEO, John Jeffrey, was unavailable for the call due to health issues, which may have impacted the delivery of strategic insights.
- The company faces challenges in fully understanding the cost savings from recent acquisitions due to limited operational time.
- There is uncertainty regarding the exact synergies and cost savings from the Flat Lake and Battrum properties acquisition.
- The company has a significant debt load, with a focus on reducing net debt to adjusted cash flow ratios.
- Saturn Oil & Gas Inc (OILSF) has a hedging requirement of 50% of forecast oil and gas production, which may limit potential upside from rising oil prices.
Q & A Highlights
Q: You've seen solid results from the latest open-hole multilateral Bakken wells. How many more are expected to be drilled this year, and what could the 2025 program look like? Do you see potential to expand your footprint in this play?
A: The current open multilateral program for this year has concluded with three wells drilled. Moving forward, we plan to drill about 10 to 12 wells per year, dedicating one rig full-time. We are also looking to improve reserve additions based on this year's success.
Q: Regarding the Q2 report, you delivered substantial operating cost reductions. Do you believe you'll be able to do the same with the new assets, and how much savings could we see over time?
A: We've reduced operating and transportation costs by almost 30% since 2021. While it's early to determine the exact synergies from the Flat Lake and Battrum acquisitions, we expect operational synergies and cost reductions due to the location and existing infrastructure.
Q: With the contracting of four rigs, was there difficulty getting equipment, and has there been any sharp increases in day rates?
A: There was no difficulty in acquiring rigs this year. We haven't seen much inflation in drilling costs over the last 12 months, and we've been able to access rigs and equipment easily due to Saturn's size.
Q: Do you see the discount to WTI expected to decline from where it is now, and does the new West Coast pipeline support enhanced margins?
A: We don't use the Trans Mountain pipeline much, but its operation has benefited us by reducing demand on the Enbridge Mainline system. The differential margins have improved, and we see them stabilizing, benefiting our revenue base.
Q: What is your basic hedging philosophy, and what percentages are you targeting going forward of your oil production?
A: We aim to hedge at least 50% net of royalties of our oil and liquids production, focusing on risk mitigation. We plan to implement a wider band, hedging about 85% of the strip, allowing for increased upside potential.
Q: When do you expect to release pro forma guidance for the next 12 months, including the acquisition?
A: We are reviewing our development plans and expect to release updated guidance in the next month. Currently, we are following the guidance already in the public domain.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
