Saturn Oil & Gas Closed Acquisition of Southeast Saskatchewan Light Oil Assets

Source: www.gulfoilandgas.com 6/7/2021, Location: North America

- Saturn’s forecast 24-month free cash flow enough to repay senior term loan and subordinated notes in full
- Mission is to continue to be an acquirer of accretive assets in Western Canada
- Acquisition builds on Saturn's existing environmental, social and governance ("ESG") performance, while supplying responsibly-produced Canadian crude oil to service global market demand

Saturn Oil & Gas Inc. has successfully closed the previously announced transformational acquisition (the “Acquisition”) of assets in the Oxbow area of Southeast Saskatchewan (the “Oxbow Assets”) from Crescent Point Energy Corp. Saturn acquired approximately 6,700 boe/d (~95% light oil and liquids) (1) with over 450 net sections of land, largely positioned across one of the most economic oil plays in North America.

Total consideration for the Acquisition was $93 million, prior to closing adjustments, and was funded through a combination of proceeds from the previously announced senior secured term loan, a best-efforts agency private placement and a concurrent non-brokered private placement. Details of the senior secured term loan and the private placement equity offerings can be found within the Company’s press releases dated May 13 and June 4, 2021.

“The closing of this transformational acquisition has truly elevated Saturn to new heights and put our mark on the map for a very attractive purchase price,” said John Jeffrey, CEO of Saturn. “We have added high-quality, light oil assets to our portfolio, which now features a robust long-term inventory of future development drilling targets that are highly economic at current commodity prices. The Saturn team is excited about the opportunity to generate compelling returns for our shareholders, while helping to meet the world’s growing energy needs in an environmentally responsible manner under Canada’s stringent regulatory regime.”

Strategic Acquisition Highlights
The Acquisition enhances Saturn’s financial and operational strength through the addition of a high-quality and very low decline (12%) light oil asset base that is projected to generate robust free cash flow at current prices. Further, the Acquisition is aligned with the Company’s strategy to acquire and develop undervalued, low-risk opportunities that support the building of a strong portfolio with strategic development upside. The Oxbow Assets produce primarily from the Frobisher and Midale formations, feature a sizeable inventory of targets for workover, development and optimization, and are expected to generate $65-70 million in net operating income (2) over the next 12 months (3).

In addition to acquiring the assets for an attractive purchase price, the Acquisition positions Saturn as one of the leading producers and land holders in Southeast Saskatchewan, offering investors exposure to numerous benefits, including:

• Production increase of more than 2,000% over current volumes, with over 1,300% PDP reserves growth compared to the Company’s year end 2020 reserves.
• Land base increase of 775% with more than 180% growth in booked drilling locations.
• Exposure to a conventional multi-zone asset base concentrated in the Midale / Frobisher formations with a large, identified low-risk drilling inventory of highly economic light oil plays (4), significant workover opportunities, and competitive forecast returns.
• The potential to generate significant annual free cash flow through the optimization and recompletion of more than 500 existing well bores over the next three years with low capital expenditures. Saturn anticipates directing approximately $5 million of annual workover capex to maintain current production levels.
• Locked-in area economics with approximately 70% of forecast production hedged over the next year, 60% for the second year and approximately 50% for years three and four with incremental volumes from growth capital fully exposed to commodity prices.
• Expanded scale provides increased strategic optionality to adapt to changing market conditions while financial capacity is improved due to increased cash flow generation and low leverage as Saturn anticipates being debt free in 24 months based on current strip pricing.
• A strong infrastructure position with multiple sales points and capacity for future growth with 60 owned, operated and well-maintained key production facilities with excess capacity.
• Strengthened ESG performance, supported by minimal freshwater usage due to no fracture stimulations and future potential to initiate an enhanced oil recovery initiative using only produced water. The Company’s surface footprint will be minimized due to pipeline-connected, multi-well pad development of the Oxbow Assets, and liability clean up will be accelerated with the support of over $10 million of federal Accelerated Site Closure Program funding.

Financings
As previously announced in the Company’s press releases dated May 13, 2021, May 17, 2021, May 28, 2021 and June 4, 2021, the Acquisition was funded through proceeds from an $87.0 million senior secured term loan, as well as a brokered and non brokered private placement which collectively raised total gross proceeds of $32.8 million.

As partial consideration for Prudential Capital Energy Partners, L.P. agreeing to subordinate its current loans, waive certain prior loan defaults, extend out the maturity of their existing revolving note facility and cancel 30,505,122 existing share purchase warrants with an exercise price of $0.235 and an expiry of Sept 14, 2022, Prudential will be granted 43,800,000 common share purchase warrants at a $0.16 exercise price with expiry at the earlier of the maturity date of the loan (December 7, 2024) or 12 months after early repayment of the loan facility.

Advisors
Alvarez & Marsal Canada Securities ULC (“A&M”) acted as exclusive financial advisor to Saturn with respect to the Senior Secured Term Loan and the Acquisition, while Dentons Canada LLP acted as Saturn’s legal counsel in connection with the Acquisition, the Private Placements and the Senior Secured Term Loan.

In connection with their engagement, on successful closing of the Acquisition A&M is entitled to receive 3,000,000 compensation special warrants exercisable into one (1) compensation option (a “Compensation Option”), for no additional consideration, at any time after the Closing, and each Compensation Special Warrant not previously exercised shall be deemed exercised on the later of (i) the day after a receipt is issued for a final prospectus qualifying the Units for distribution in qualifying jurisdictions and (ii) the date that is four months and one day following the Closing. Each Compensation Option shall entitle the holder thereof to purchase one Unit consisting of one common shares and one common share purchase warrant (“Unit Warrant”) at an exercise price of $0.12 at any time up to 24 months following the Closing. Each Unit Warrant will entitle the holder thereof to purchase one common share at an exercise price of $0.16 per share for 24 months from the date of issue.


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