Saturn Oil & Gas Inc. Announces Acquisition of Ridgeback Resources Inc.

Source: 1/20/2023, Location: North America

Transformational $525 million1 ($516 million using the Offering Price for the Consideration Shares) corporate acquisition expands Saturn's pro forma production by approximately 140%, on closing, to ~30,000 boe/d2 of sustainable, light oil focused, high netback production.

The Ridgeback Acquisition, comprised of 17,000 boe/d (~71% light oil and natural gas liquids)3, with a proved developed producing reserve value of $915 million4, forecasted 12-month Net Operating Income3/ Operating Free Funds Flow3 of $311 million / $228 million, 99.4 MMboe of proved plus probable reserves3, and over 700 net drilling locations3, to sustain the acquired production for over 15 years.3

Pro forma the Acquisition, Saturn will be positioned as a bonafide mid-cap oil producer with a market capitalization of approximately $292 million5 and an enterprise value of $850 million, with run rate production of approximately 30,000 boe/d, a combined proved developed producing reserve value of $1.4 billion3, forecasted 2023E EBITDA3 / Free Funds Flow3 of $477 million / $228 million, and 163 MMboe of proved plus probable reserves3.

Saturn's strategy remains to efficiently maintain production and maximize free cash flow to rapidly reduce indebtedness which is expected to be fully repaid within three years, and will be evaluating various opportunities to return significant capital to shareholders.

GMT Capital Corp. and Libra Advisors, LLC have indicated that they will make lead orders and strategic investments in the Company.

Saturn will seek to appoint up to two new members to the Board of Directors to expand its technical and operational expertise, and separately the Company has entered into new employment agreements with John Jeffrey, President and CEO, and Justin Kaufmann, Chief Development Officer, to align incentives with shareholder interests.

Saturn Oil & Gas Inc. has entered into an arms-length arrangement agreement (the "Agreement"), to acquire Ridgeback Resources Inc. ("Ridgeback") a privately held oil and gas producer focused on light oil in Saskatchewan and Alberta, for a transaction value ("TV") of $525 million1 ($516 million using the Offering Price for the Consideration Shares), by way of statutory plan of arrangement under the British Columbia Corporations Act ("BCBCA") (the "Ridgeback Acquisition"). The Ridgeback Acquisition is expected to close in Q1 2023 (the "Closing Date"), subject to receipt of all regulatory and shareholder approvals.

Through the Ridgeback Acquisition, Saturn will acquire approximately 17,000 boe/d (~71% light oil and natural gas liquids ("NGLs"))6 of low decline, capital efficient production, which, at US$80 WTI oil price, is expected to generate an operating netback3 of $48.55 / boe resulting in annualized net operating income3 ("NOI") of $311 million, implying a 1.66x TV / NOI multiple. Based on the Ryder Scott Report (as herein defined), the Ridgeback Acquisition has a before-tax Proved Developed Producing3 ("PDP") NPV10% of $915 million, implying a 0.57x TV / PDP multiple, and a before-tax Total Proved Plus Probable3 ("P+P") NPV10% of $1.8 billion, implying a 0.28x TV / P+P, with over 430,000 net acres of land, in four core areas, in Saskatchewan and Alberta (the "Ridgeback Assets").

"This transformational acquisition is an important step for Saturn to establish material scale in its Alberta and Saskatchewan operations, where we will leverage our high quality light oil focused production that has considerable prospective development drilling inventory, our teams track record of operational outperformance and capital efficiency, a strong hedge book, and supportive strategic equity backers like GMT Capital Corp. and Libra Advisors, LLC to mitigate corporate risk, rapidly deleverage, and sustainably grow in a profitable manner for many years to come," said John Jeffrey, CEO of Saturn. "The attractive acquisition metrics and compelling economics of the Ridgeback Acquisition paired up with our existing portfolio of free cash flow generating assets will allow Saturn to repay all corporate indebtedness within three years, and ultimately provide a significant return of capital to enhance shareholder value."

The $525 million consideration for the Ridgeback Acquisition will include a $475 million cash payment and the issuance of $50 million of Saturn common shares to the shareholders of Ridgeback (the "Consideration Shares") at a deemed price of $2.5765 per Consideration Share ($41 million in deemed consideration using the Offering Price of $2.11 per share). The cash consideration of $475 million will be funded through proceeds from an increase of $375 million to the Company's existing senior secured term loan ("Senior Secured Term Loan") and a bought-deal subscription receipt financing for aggregate gross proceeds of approximately $125 million (the "Offering"). Ridgeback has no outstanding debt and is expected to have a working capital surplus of approximately $20 million at the Closing Date. Details of the Offering and the Senior Secured Term Loan are provided below.

Upon completion of the Ridgeback Acquisition, Saturn will focus on maximizing free cash flow from pro forma production base of approximately 30,000 boe/d (82% crude oil and NGL's), where after spending an expected $161 million of development capital in 2023 to efficiently maintain production levels, the Company expects to generate $232 million in free cash flow7 to reduce net debt to $345 million at year end 2023, representing a 0.9x trailing Net Debt/EBITDA multiple.

Transaction Highlights
Sustainable High Netback Production: The Ridgeback Acquisition brings approximately 17,000 boe/d of light oil focused production that provides high cash netbacks. The Company forecasts production on the Ridgeback Assets can be maintained at approximately 17,500 boe/d by reinvesting approximately 27% of the annual net operating income from the Ridgeback Assets creating substantial and sustainable free cash flow.

Expands Existing Oxbow Core Production Area: Significantly expands Saturn's production base in its existing core development area in Southeast Saskatchewan, increasing Saturn's production in the area by over 65%, with pro forma production at the Closing Date forecasted to be approximately 12,600 boe/d (97% crude oil and NGL's)8.

Establishes a New Core Operating Area in Alberta: Pro forma the Ridgeback Acquisition, approximately 60% of Saturn's production will be in Alberta, offering play diversification of highly economic, light oil focused drilling.

Extensive Portfolio of Light Oil Focused Development Opportunities: The Ridgeback Acquisition brings an inventory over 400 net booked locations and over 300 net unbooked drilling locations5 for sustaining future production levels.

Increased Size and Scale: Expansion of the production base is expected to enable Saturn to capture operating efficiencies, especially within the Southeast Saskatchewan operating area, which can result in fixed and variable costs being allocated over larger per unit volumes of production.

Highly Accretive on Cash Flow per Fully Diluted Per Share: The Ridgeback Acquisition increases Saturn's 2023 expected adjusted funds flow9 ("AFF") at the midpoint to $393 million, or $2.3310 per fully diluted share an increase of 25% above Saturn's stand-alone stay flat guidance. Pro forma the Ridgeback Acquisition, Saturn's 2023 AFF per basic share is forecasted at $3.12.

Ridgeback Asset Summary
The Ridgeback Assets consist of over 430,000 net acres of land, in four core areas in Saskatchewan and Alberta, including:
Southeast Saskatchewan – A strategic extension of Saturn's existing and adjacent core development area;
Alberta Cardium – Entry into one of North America's largest and most economic oil pools, with over 300 development drilling locations;
Kaybob Montney – Highly economic, de-risked light oil play with fast payback development drilling locations; and
Deer Mountain Swan Hills – High oil weighted production, with an established enhanced oil recovery program.

The Ridgeback Acquisition more than doubles the light oil production of Saturn's existing and adjoining core growth asset in Southeast Saskatchewan which targets Frobisher and Midale light oil development and adds exposure to the regional Bakken resource light oil play. The Ridgeback properties in Southeast Saskatchewan are directly East and contiguous to Saturn's existing production and development area and are a synergistic addition that will be operated from Saturn's operations hub in Carlyle, Saskatchewan.

The Ridgeback Acquisition offers a strategic extension for Saturn into some of the highest economic light oil development areas of Alberta, with sufficient scale to drive efficient development of the extensive development drilling inventory of over 700 net locations including over 400 net booked locations assessed by an independent third-party reserve evaluator.

Strategic Benefits
The Ridgeback Acquisition is an extension of Saturn's strategy to become a premier, publicly traded, light oil producer through the acquisition and development of undervalued, low-risk opportunities that support building a strong portfolio of cash flowing assets offering strategic development upside.

Stable Production with Minimal Maintenance Capital – The Company forecasts keeping the combined production base flat at approximately 30,000 boe/d through 2023 by drilling 80-100 wells across the combined portfolio of assets. The annual replacement of base production declines is expected to be achieved due to stable long-life assets, strong development drilling economics and production optimization underpinning recent drilling.

Strong Forecasted Free Funds Flow13 – Saturn's strategy of keeping production levels flat is intended to maximize Free Funds Flow13 estimated on a pro forma basis at approximately $232 million per year, or approximately $1.84 per basic share with an implied Free Cash Flow Yield of 87%, based on the Offering Price (defined below).

Diversified Play Exposure Enhances Sustainability – The addition of the high-quality development assets in Alberta enhances Saturn's inventory of light oil focused drilling locations including: high return, fast payback Montney development at Kaybob and an extensive number of de-risked Cardium drilling locations in the well defined light oil fairway in Greater Pembina.

Enhanced Oil Recovery Projects with Demonstrated Success – With over five years of operating history, the advanced waterflood project in Deer Mountain provides long life light oil production, with 100% owned and operated infrastructure and LACT connected battery. Saturn expects to deploy enhanced oil recovery programs to other light oil projects in Saturn's development portfolio that are predominantly on primary recovery.

High Working Interest and Extensive Infrastructure in Alberta – Each of the Alberta areas have high working interests: Cardium (68%), Deer Mountain (100%) and Kaybob (100%), (collectively, the "Alberta Assets"). Each of the Alberta Assets have extensive operated infrastructure in place to drive low operating costs and realize high cash netbacks from the light oil weighted, sustainable production. The Alberta Assets represent a manageable, low risk expansion opportunity for Saturn into the premium light oil development areas in Alberta.

Positive Environmental Performance – The Ridgeback Assets benefit from responsibly deployed capital directed to abandonment and reclamation programs with limited inactive liabilities and a strong Liability Management Rating ("LMR") of over 3x.

Updated Guidance
The following table summarizes the Company's pro forma updated operating and financial guidance for 2023. Notably, the Company's previous guidance, announced on May 31, 2022, was based on a US$90 WTI oil price assumption so has been updated to reflect the same current US$80 WTI oil price assumption. Further, Saturn has revised its standalone, stay-flat guidance assuming the Ridgeback Acquisition closes on February 28, 2023, with a view to maintain production at approximately 30,000 boe/d for the remainder of the year.

Transaction Details
The Ridgeback Acquisition will be implemented by way of a court-approved plan of arrangement under the BCBCA. Concurrent with the execution of the Agreement, shareholders of Ridgeback representing over 80% of the outstanding common and performance shares of Ridgeback (the "Ridgeback Supporting Shareholders") executed voting support agreements agreeing to vote in favor of the arrangement resolution either in writing or at a meeting of shareholders of Ridgeback (if required), subject to the terms of the voting agreements. The Consideration Shares issued to the Ridgeback Supporting Shareholders will be subject to a contractual hold period and released as to: (A) 50% on the first anniversary of the Closing Date; and (B) the remaining 50% on the 15-month anniversary of the Closing Date. The Agreement provides for customary provisions relating to non-solicitation on the part of Ridgeback and a mutual break fee of $25 million payable in each case to the other party if the Agreement is terminated in certain circumstances. There are no finders fees payable in connection with the Ridgeback Acquisition. A copy of the Agreement will be filed on Saturn's SEDAR profile at

The Ridgeback Acquisition is expected to close in the first quarter of 2023, subject to certain customary conditions and regulatory and other approvals, including the approval of the TSX Venture Exchange (the "TSXV") and the Commissioner of Competition pursuant to the Competition Act (Canada) and the Supreme Court of British Columbia.

Bought Deal Equity Financing
In concert with signing the Agreement, Saturn has entered into an agreement in respect of the Offering, with Echelon Capital Markets acting as sole bookrunner and co-lead, Canaccord Genuity Corp as co-lead and with syndicate of underwriters including Eight Capital, Beacon Securities Ltd. and Paradigm Capital Inc. (the "Underwriters") to issue and sell, approximately 59.2 million subscription receipts ("Subscription Receipts") on a bought deal basis. The Subscription Receipts will be offered at a price of $2.11 per Subscription Receipt (the "Offering Price") for aggregate gross proceeds of approximately $125 million. The Company will used the net proceeds of the offering to pay for a portion of the cash consideration of the Ridgeback Acquisition. The Company has received indications of interest for more than $110 million in strategic lead orders from GMT Capital Corp., Libra Advisors, LLC and other institutional investors.

Each Subscription Receipt represents the right of the holder to receive, upon closing of the Ridgeback Acquisition, without payment of additional consideration, one common share of the Company.

If the Ridgeback Acquisition is not completed as described above by 120 days from the closing date of the Offering or if the Ridgeback Acquisition is terminated at an earlier time, the gross proceeds of the Offering and pro rata entitlement to interest earned or deemed to be earned on the gross proceeds of the Offering, net of any applicable withholding taxes, will be paid to holders of the Subscription Receipts and the Subscription Receipts will be cancelled.

The Subscription Receipts will be offered in all provinces and territories of Canada (excluding Quebec) pursuant to a prospectus supplement to the Company's base shelf prospectus, which will describe the terms of the Subscription Receipts. The Offering is expected to close on or about January 31, 2023, and is subject to certain conditions including, but not limited to, the approval of the TSXV. The Company expects that it will seek the approval of the TSXV to list the Subscription Receipts once issued, such listing being subject to TSXV approval.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of securities in the United States. The securities have not been and will not be registered under the U.S. Securities Act or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Senior Secured Term Loan
Saturn has signed a commitment letter to enter an amended and restated Senior Secured Loan agreement with its U.S. based institutional lender (the "Lender") to provide addition loan proceeds of $375 million to be used towards the payment of the cash consideration of the Ridgeback Acquisition. The loan will amortize over three years, with 50% repayable in the first year, 30% in the second year and 20% in the final year, with other terms, including interest being the same as the Company's existing Senior Secured Loan. The amended and restated Senior Secured Loan will be secured by a floating and fixed charge debenture and standard security registrations over the Company's assets and properties. There are no loan bonuses or finders fees (as defined in the policies of the TSXV) payable in connection with the amended and restated Senior Secured Loan agreement. Based on forecast production rates and hedged commodity prices, Saturn anticipates repaying the loan in full well in advance of its scheduled amortization payments. Execution of the further amendment is subject to the execution of mutually acceptable credit documentation giving effect to the terms provided in the commitment letter, and the satisfaction of the other customary conditions to closing, including the satisfaction of all conditions to the completion of the Ridgeback Acquisition.

Employment Agreements
The Company also wishes to announce that it has entered into new executive employment agreements with John Jeffrey, President and CEO and Justin Kaufmann, Chief Development Officer. Messrs. Jeffrey and Kaufmann's legacy employment contracts, which were entered into when the Company was of a significantly smaller scale, provided, among other things, for a lump sum payment of 5% or 2% of the market capitalization of the Company on certain termination or change of control events. As the Company has grown, these payments were viewed by the board as "off-market" and new employment agreements have been negotiated. In consideration of foregoing these legacy contracts, the Company has entered into new agreements with Messrs. Jeffrey and Kaufmann providing for the issuance of performance warrants. Messrs. Jeffrey and Kaufmann will receive 5,000,000 and 2,000,000 performance warrants (respectively), exercisable for common shares with an exercise price of $2.50 each and vesting as to 1/3 when the Company's share price equals $4.00 per share, 1/3 at a price of $6.00 per share and 1/3 at a price of $8.00 per share with a 7 year term. The new contracts provide for a minimum payment on severance or change of control of $5,000,000 or $2,000,000, respectively, less the value of any "in-the-money" performance warrants at such time.

The entry into the new employment agreements and issuance of the performance warrant and any common shares issuable pursuant thereto constitutes a "related party transaction" under applicable securities laws and Multilateral Instrument 61-101 ("MI 61-101"). The related party transaction will be exempt from minority approval, information circular and formal valuation requirements pursuant to the exemptions contained in Sections 5.5(a) and 5.7(1)(a) of MI 61-101, as the fair market value of the gross securities to be issued under the employment agreement does not exceed 25% of the Company's market capitalization.

United Kingdom >>  3/23/2023 - Further to the announcement on 21 March 2023, Serica Energy plc (SQZ) is pleased to confirm that it has successfully completed the acquisition of Tail...
Belgium >>  3/22/2023 - JERA Co., Inc. (“JERA”) signed an agreement with Virya Energy NV (“Virya Energy” or “Virya”) to acquire 100% of the shares of Parkwind NV (“Parkwind” ...

Sweden >>  3/22/2023 - In 2021, Alfa Laval acquired a minority stake in the Netherland-based company Marine Performance Systems (MPS) with an option to acquire the remaining...
Finland >>  3/21/2023 - Lhyfe (EURONEXT: LHYFE), one of the world’s pioneers in the production of green and renewable hydrogen that can decarbonise industry and mobility, has...

Spain >>  3/21/2023 - KKR, a leading global investment firm, has agreed to sell its 50% stake in global renewable developer, X-ELIO, to its joint venture partner, Brookfiel...
Thailand >>  3/21/2023 - Valeura Energy Inc. (TSX:VLE) (“Valeura” or the “Company”), the upstream oil and gas company with assets in the offshore Gulf of Thailand and the Thra...

Gulf Oil and Gas
Copyright © 2023 ICT All rights reserved. - Terms of Service - Privacy Policy.