Saturn Oil & Gas (TSX:SOIL) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Saturn Oil & Gas reported record production of over 43,700 barrels a day and record adjusted funds flow of $150 million, a 24% increase from the previous quarter.
The company completed significant acquisitions, including Burgess Creek and Triland Energy, adding 3,700 boe per day to its portfolio and achieving better-than-expected cost savings.
Saturn Oil & Gas announced a $302 million agreement to acquire Corex Resources, which is expected to be accretive to netback and funds flow metrics.
The company successfully refinanced its debt, lowering interest costs and gaining financial flexibility through a new $500 million credit facility.
Operational highlights included successful drilling innovations and maintaining a strong safety record with zero lost-time injuries during increased activity.
The future outlook is robust, with a 2026 exit production target of 54,000 to 56,000 boe per day and plans to release 2027 guidance in December.
Full Transcript
OPERATOR
Good morning, ladies and gentlemen. Welcome to Saturn Oil & Gas’ third quarter 2026 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. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero.
I will now turn the meeting over to Ms. Cindy Gray, Vice President, Investor Relations. Please go ahead, Cindy.
Cindy Gray (Vice President, Investor Relations)
Thank you, operator. Good morning, everyone, and thank you for joining us to hear management’s remarks about our third quarter 2026 results. Please note that our Q3 financial statements, MD&A and press release are filed on SEDAR+ and available on our website. Today’s call may include forward-looking information and references to non-IFRS and other financial measures. Listeners are encouraged to review the disclaimers outlined in our most recent MD&A. Listeners are also cautioned not to place undue reliance on these forward-looking statements since several factors could cause 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 because of new information, future events or otherwise, unless expressly required by applicable securities law.
For more information on risk factors, please view the company’s AIF filed on SEDAR+ and available on our website. Also note that all amounts discussed today are Canadian dollars unless otherwise stated. On today’s call we’ll hear remarks from John Jeffrey, Saturn Oil & Gas’ Chief Executive Officer, Justin Kaufman, our Chief Development Officer, and Scott Sanborn, our Chief Financial Officer, before opening it up to Q&A. I’ll now hand the call over to John.
John Jeffrey (Chief Executive Officer)
Good morning, everyone, and thank you for joining us today. As we outlined in the press release yesterday, Q3 was a defining period for Saturn Oil & Gas. We delivered record results and took deliberate steps that have fundamentally strengthened the company and set us up for an exceedingly strong 2027. We are proud to report new records not only for production but also for adjusted funds flow, capital expenditures and the number of wells drilled, showcasing our ability to continue to do some very exciting things with some very boring assets.
Production of over 43,700 barrels a day exceeded quarterly guidance and analysts’ expectations for the ninth quarter in a row. Our record adjusted funds flow totaled $150 million, or $0.84 per share, which was 24% higher than the previous quarter and 56% higher than the same quarter last year. These results were achieved while executing Saturn Oil & Gas’ largest quarterly capital expenditure program to date, investing $128 million, with 83% of that directed to drilling, completing, equipping and tie-in activities, as Justin will expand on.
We had six rigs running and set a new high for wells drilled in a single quarter. With this larger capital program we saw an increase of 42% in total man-hours worked compared to Q3 of last year, and I’m extremely proud of our team for safely managing the higher level of activity with zero lost-time injuries. Safety is at the heart of everything we do, and I want to congratulate our hard-working field staff for making sure that everyone gets home safely at the end of each and every day.
The third quarter also demonstrates Saturn Oil & Gas’ blueprint strategy in action. We closed the accretive acquisitions of Burgess Creek and Triland Energy for $177 million, or about 1.7 times net operating income. This added approximately 3,700 boe per day of high netback, 96% light oil and liquids production into our portfolio. These tuck-in acquisitions are a perfect fit within our Southeast Saskatchewan core area where we know the rock, we own the infrastructure and we can apply our operating model to immediately reduce costs and improve netbacks.
We completed the integration of these assets ahead of schedule. We’ve already seen operating cost savings and synergies that exceeded our initial forecast. We originally expected operating costs on these assets to reduce by about $2.50 per boe, and so far we’ve done even better, delivering savings of closer to $3 per boe, with even more potential left to realize. Along with the acquisitions and higher forecasted organic growth this year, we also restructured the balance sheet. We refinanced our second lien notes with new dual-tranche U.S. and Canadian senior unsecured notes due in 2031. In addition to benefiting from the unsecured structure, we have lowered our effective interest rate cost by approximately 200 basis points, extended the maturity out by two years, and removed the mandatory 10% amortization that gives us more flexibility and more freedom inside our covenants.
Our new notes give us much greater control of our free funds flow. We will continue to be directed towards net debt reduction, shareholder returns and opportunistic acquisitions. We’ve also expanded our credit facility and Saturn Oil & Gas now has access to a total available borrowing base of up to $500 million. An equity re-rate also appears to be underway in Saturn Oil & Gas’ market value. Year to date, our market cap has expanded materially, from approximately $450 million coming into the year to approximately $1.7 billion today, reflecting a per-share value increase of over 250%. Over the same time, our net debt as a percentage of enterprise value has declined from 63% at the end of 2025 to 37%, based on our current market cap and net debt at the end of September 30th.
Based on these achievements, in October we announced a $302 million agreement to acquire Corex Resources, a private company with assets in southwest Manitoba that are immediately adjacent to our Southeast Saskatchewan operations. Saturn Oil & Gas gained approximately 7,000 barrels per day of 100% light oil, owned infrastructure and deep drilling inventory, including unbooked open-hole multilateral locations that offer upside not recognized in the current reserves.
We are excited to apply the expertise we’ve built in Southeast Saskatchewan to these new assets. With the purchase price representing roughly 1.6 times net operating income and around 82% of PDP, the acquisition metrics on this transaction are a perfect example of the Saturn Oil & Gas blueprint in action. Consideration will be funded with $252 million of cash and the issuance of $50 million worth of our shares, which reflects Corex shareholders’ desire to participate in the future upside that Saturn Oil & Gas offers.
We expect the acquisition to be immediately accretive to netback, adjusted funds flow per share and free funds flow per share. Further, our team has identified approximately $6 million in expected annual efficiencies through facility consolidation, streamlined field operations, lowered operating costs and improved marketing arrangements. Combined with Saturn Oil & Gas’ forecast of 10% year-over-year production growth, the Corex acquisition drives up our 2026 exit production target to between 54,000 and 56,000 boe per day. That is a significant step forward for Saturn Oil & Gas and really sets us up for a strong 2027 with an expanded asset base, more robust cash flow and significant free cash flow based on current commodity prices. Closing of the Corex acquisition is expected just before Christmas, and we anticipate releasing our full-year guidance alongside that.
Saturn Oil & Gas’ third quarter results reflect more than just an active quarter. They show the effectiveness of our blueprint model, the value of the culture we have built and the market’s belief in our ability to deliver. We look forward to continued re-rate in the market to bring Saturn Oil & Gas’ valuation more in line with our peers. I’ll now hand the call over to Justin to provide more details on the development success and upcoming plans.
Justin Kaufman (Chief Development Officer)
Thanks, John. I’m so proud of our team. Q3 was the most active development quarter in our history. We invested $128 million, ran six rigs and drilled 60 gross wells while keeping a tight grip on costs. Through the first three quarters of 2026, our cost to drill, complete, equip and tie in wells came in nearly 3% below budget. One of our most exciting wins in the quarter was the open-hole multilateral program, where we drilled eight open-hole multilateral wells in Southeast Saskatchewan.
The program continues to outperform as we got results from the 8-22 Torquay well in Q3, which is now the most successful open-hole multilateral well to date, significantly exceeding our internal type curve expectation. The 8-22 well achieved initial production of 410 barrels per day over the first 30 days and 360 barrels per day over the first 90 days, putting it as a top-10 best-performing oil well in the province based on third-party rankings. With the strong results from the Torquay, we see additional growth potential in production and reserves.
It also proves we can apply this technique to multiple formations, which we’ve done successfully in five different ones: the Bakken, Spearfish, Midale, Frobisher and now Torquay. In Q4 we plan to drill a pilot open-hole multilateral well in the Lower Shaunavon. We will continue to evaluate other zones where this type of drilling can increase recoveries and capital efficiency, including opportunities in Manitoba. From the Corex acquisition, we’ve identified about 30 net unbooked Lodgepole open-hole multilateral locations in the Vernon field.
The benefit of Saturn Oil & Gas’ diversified high-quality inventory was really visible this quarter as Southeast Saskatchewan experienced higher-than-normal rainfall. Limiting access to certain areas due to surface conditions required us to adjust capital in real time. We seamlessly shifted about $30 million of Q3 capital into Q4, including the startup of a seventh rig in Southeast Saskatchewan. Our deep inventory of surface locations, nimble asset base and our team’s innovative approach enabled us to keep rigs active with minimal disruption while maintaining momentum and still beating analysts’ expectations.
Toward production at Flat Lake, our team quickly turned a challenge into an opportunity as heavy rainfall caused water to pool on the surface. We engaged with landowners for permission to bring in specialized crews for overland pumping so Saturn Oil & Gas can pump standing water directly to frac sites for completion. This addressed the surface water issue while also eliminating our need to truck water. As a result, we expect to lower area completion costs by approximately $1 million and saw a reduction in truck traffic of more than 2,000 loads.
A further example of Saturn Oil & Gas innovation was on display at West Pembina, where we successfully drilled the first-ever horseshoe-shaped Cardium wellbore, which is expected to be fracked this week, to mitigate land constraints. The horseshoe design allowed us to drill a two-mile lateral within a single one-mile square section while capturing the economics associated with longer laterals and accessing inventory that might otherwise have been stranded.
We estimate drilling in this configuration saves us about $1.7 million in capital compared with drilling two one-mile wells to access the same reservoir, and we’ve already identified more than 10 locations with potential to apply the same technique—just another example of how we can add value to assets overlooked by others. Our Cardium program at West Pembina continued to advance as we drilled Saturn Oil & Gas’ largest multi-well Cardium pad to date. This seven-well pad includes three three-mile laterals and four two-mile laterals. Developing more wells from a single pad enables us to distribute costs over more legs while making better use of existing infrastructure, all of which drives ongoing improvement in our Cardium capital efficiencies. We just finished fracking the wells on this pad and anticipate new volumes to come online in Q4.
Looking ahead, we expect to run seven rigs through the balance of 2026 and into the first quarter of 2027. Capital in the final quarter of the year is anticipated to come in at the upper end of our range of $155 to $165 million, driving average volumes of 46,000 to 47,000 barrels per day. This is expected to position 2026 as one of the strongest organic growth years on a per-barrel basis in Saturn Oil & Gas’ history. With that, I’ll turn it over to Scott to discuss our financial results and outlook.
Scott Sanborn (Chief Financial Officer)
Thanks, Justin, and thank you again everyone for joining us this morning. Echoing the team’s previous comments on Saturn Oil & Gas’ continued success and achievements in the third quarter, our results were supported by both record production and cash flow, strong realized oil prices and our continued operational outperformance. We had records in both adjusted EBITDA with $171 million and adjusted funds flow of $150 million, leading to quarterly cash flow per share of $0.84.
The combination of increased volumes and higher realized prices were supported by our field cost control, reduced transportation costs following the renegotiation of certain delivery contracts, and reduced G&A costs following our office relocation and increased capital recoveries with our expanded capital budget. These operational initiatives were further compounded by hedging impacts at half the level reported in Q2. We generated free funds flow of $22 million, or $0.12 per share, in the quarter after funding our record capital program, resulting in a year-to-date free funds flow totaling $167 million, or $0.93 per share.
We realized an operating netback over $54 per boe before hedging and over $43 per boe post-hedging. Our hedge program continued to provide the designed downside protection and structured cash flow. Given the strength of the forward curve, we have continued to opportunistically layer in hedges to lock in our acquisition and project economics for the coming 12 to 18 months both during and subsequent to quarter end. We layered in 3 million barrels in 2027 at a weighted average price of $84 per barrel, protecting over $300 million of Canadian revenue.
Q3 saw a net loss of $43 million largely due to non-cash unrealized hedge losses and one-time costs associated with the refinancing of our senior notes. However, adjusted funds flow and our strong operating netback remain as our primary capital management focus as they offer a clear view of Saturn Oil & Gas’ operating performance going forward. As John mentioned, we completed our bond refinancing in Q3—the dual-tranche offering of senior unsecured notes due in 2031. We issued US$575 million at 8.5% and C$185 million at 7.5%, lowering our effective interest cost by about 2%. Our refinanced unsecured notes reflect an extended maturity profile out to 2031 with the relaxation of certain covenants, allowing us greater flexibility to execute on our blueprint strategy and capitalize on the current market volatility.
Proceeds from the issuance were used to retire our 9.5% senior secured second lien notes and fund the Burgess Creek and Triland acquisitions in the quarter. We exited the quarter with net debt to adjusted EBITDA of just 1.5x and maintain our line of sight to reducing that ratio down below 1.0x by the end of 2027 at current commodity prices. Further showcasing Saturn Oil & Gas’ stability is our strong liquidity profile, with a fully undrawn credit facility at quarter end on a $500 million borrowing base, and a nominal net working capital deficit inclusive of $80 million in cash on hand. As part of our continued commitment to returning capital to shareholders, during Q3 we repurchased and canceled 1.5 million shares for $10.3 million under our NCIB. Through October we repurchased an additional 740,000 common shares for a cost of $6 million at a weighted average price of $8.07 per share.
That brings our total return of capital to shareholders to over $80 million, repurchasing 25.5 million shares for cancellation since August of 2024. As John mentioned, we are excited to release our 2027 guidance, which will showcase a very active upcoming year, with that release expected mid to late December, aligning with the anticipated closing of the Corex acquisition, subject to court and regulatory approvals. Before wrapping up the call, I’d like to take a moment to welcome Wyatt Hamilton to our team, who recently joined Saturn Oil & Gas as Vice President, Marketing. Wyatt brings experience in commodity marketing, trading and transportation across North American energy markets, and was most recently Director of Marketing at Whitecap Resources.
He will lead our marketing activities and help us to continue strengthening our commercial strategy as we evolve. With that, I’d like to thank everyone for your time this morning. I’ll hand the call back to the operator to begin Q&A.
OPERATOR
Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Since there are no questions, this concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.