Thank you for joining us for Saturn Oil and Gas third quarter 2022 shareholder webcast for the financial and operating results. I'm Scott Sanborn, Chief Financial Officer, and I'm joined with John Jeffrey, Chief Executive Officer, and Justin Kaufmann, Chief Development Officer. We will present an update presentation and then afterwards, be happy to answer your questions or take your comments. John, I will now hand off to you.
Thank you, Scott. What we want to do today is touch on a few highlights. It's going to then go to Scott so he can get in the details of the quarter itself, and then over to Justin, our new chief development officer, and he can get into the drilling results, and we'll walk you through our capital program. Really what I want to emphasize here is the key takeaway is to Saturn's ongoing ability to increase value for our shareholders through driving up cash flow per share by both the drill bit and through acquisitions. Couple of highlights for the quarter. Q3 was a record revenue quarter for Saturn. We did over CAD 105 million of revenue in the quarter.
Another quarter-over-quarter, you know, new record for us was our EBIT increase. Increased EBITDA by 150% to over CAD 50 million. So again, that helps with the acquisition we did, as well as, you know, a nice high oil price and the success we've experienced through the drill bit. The most important highlight for the quarter, again, was just our ability to showcase our continued ability to add value, again, through drilling with acquisitions. And that's illustrated through our cash flow per share of CAD 0.69, which again, was a 53% increase from the prior quarter. The big highlight for us this in Q3 was the closing of the Viking acquisition. That closed July 6 of this year. It was a big game-changing acquisition for us.
It took us to that size and scale of over 12,000 barrels a day that we are today. Significantly lowered our average royalty rate and our average operating cost per barrel, which contributes to a higher corporate netback. Those are some of the highlights, and I'll pass over to Scott for a more detailed breakdown of what the quarter looked like.
Thanks, John. It was a very busy quarter for Saturn. We closed our Viking acquisition, acquiring approximately 4,000 boe per day of light oil located in West Central Saskatchewan. We had a record average production of approximately 11,000 boe per day. Current production today, approximately 12,500. The transaction closed for a cash purchase price of CAD 241 million after interim closing adjustments, resulting in a gain on acquisition of nine point-
This meeting is being recorded.
Representing the excess fair value over consideration paid. Net of asset retirement obligations. From the finance perspective, we converted our previously announced subscription receipts to common shares following our CAD 75 million bought deal equity offering and expanded our term debt with our existing senior secured lender by CAD 200 million. The combined proceeds were used to fund the acquisition and the balance directed toward our capital program, where the company invested CAD 37 million, drilling 30 100% working interest wells, 23 Viking, 7 Frobisher, and spud an additional 4 100% working interest Viking wells, which were ongoing at quarter end. WTI this quarter averaged approximately $92 US per barrel compared to $108 per barrel in the second quarter.
Despite this decrease in commodity prices, Saturn realized an operating netback net of derivatives of approximately CAD 56/boe, up from CAD 21.91/boe in the second quarter, primarily due to the Viking acquisition, which bolstered the operating netback, compounded by additional oil hedges the company put on in June 2022 during peak oil prices. On a cash flow basis, the company achieved record Adjusted EBITDA of approximately CAD 50 million, up from CAD 18 million prior quarter. Record Adjusted Funds Flow of CAD 39.8 million or CAD 0.69 per share, up from CAD 14.4 million or CAD 0.45 per share prior quarter. Free Cash Flow of CAD 2.8 million after investing CAD 37 million in capital expenditures.
The company repaid CAD 12.3 million of debt in the third quarter related to a senior term loan and CAD 24.5 million year to date, resulting in net debt of approximately CAD 230 million at quarter end, implying an annualized Q3 2022 net debt to cash flow of about 1.5 times. In total, the company realized net income of CAD 167 million or CAD 2.89 per share, compared to CAD 21.9 million or CAD 0.68 per share in the second quarter of 2022. The change in period earnings relate primarily to unrealized hedge mark-to-market swing caused by the decrease in forward WTI prices, offset by adjusted EBITDA. I will now hand it off to Justin to talk about the operations.
Thank you, Scott. Saturn's extremely excited about what we've been able to achieve with the drilling program this year. As previously outlined in guidance, it made up of approximately 30 wells in West Central Saskatchewan in the Viking, and then approximately 30 wells in Southeast in the Mississippian. With regards to the Viking, 25 of the 30 wells are on the asset we acquired from Crescent Point. Extremely good results with several of those wells averaging over 100 barrels a day in their first 30 days. This further essentially helps align Saturn's geological model with the area. We are extremely impressed with that.
The Southeast wells, they're coming along along with guidance, and in that just with making up and drilling several different Mississippian formations, including the Tilston, Frobisher, and Alida. As far as the production optimization in the Southeast, which makes up a big part of our capital program, they have the highest rate of return of any capital activity that Saturn completes. We are proud of what we've been able to achieve there, and that has spurred the addition of a production wing at Saturn, so we can further focus on essentially reactivating some of the inactive wells and optimizing some of the lower producing Saturn wells in Southeast Saskatchewan.
Yeah, absolutely. Thank you, Justin. I think all this just goes to show, you know, we are on track to meet or exceed guidance, so we're confident in our ability to do that. Really I think the takeaway here is it just highlights the accretive nature of the acquisition that we closed in July. 4,000 barrels a day, we got it at a great price, a low multiple, but it's the 90,000 acres of additional land that we got right in the heart of the Viking that I think we're just starting to unlock that value. I think shareholders are gonna be excited once they start continuing to see well results like we've been seeing.
Again, 43% above our guidance expectations in the Viking, really goes to show that thanks to Justin and his team on being able to extract and unlock that value is all just gonna add to that increased value per share that we keep mentioning here. $0.69 a share in capital, and again, that's just for the quarter. Really excited to see what Q4 looks like. So far, you know, we're continuing to drill outstanding wells. We're confident in our ability to meet or exceed guidance. I think all in all, this was a great quarter, and I think it gives a first real look to what Saturn looks like at its current size. Excited for that.
Excited for everyone's interest and looking forward to taking any questions that you guys have.
Thanks, John Jeffrey. We have a couple questions here that have come up. I'll present those to the group. First here is did the acquisition come with any drilling locations, or was it just production?
I'll pass that over to Justin.
Yeah, I'll handle that. The acquisition did come with about 138 book locations. While those are the reserve book locations, there was an additional 150 unbooked locations that the team identified based on our previous knowledge of the area. Of the 138 booked locations we acquired, we drilled up approximately 20 of those, and with additional five of those being on Crescent Point lands where we previously didn't have book locations. We're already recognizing some production from the unbooked based on what the technical team's background is of the area. We do think that there's probably about 10 years of drilling inventory based on the knowledge we have now.
Further to the wells we drill this year, we think that'll continue to expand our presence in the Viking. We are also active in Crown and freehold sales to help further our expansion in the Viking.
Thanks, Justin. Next question. Given the daily production with an operating netback of about CAD 50, quarterly profit should be about CAD 50 million instead of reported CAD 167. What is the increased reportable, attributable profit? I can speak to that a little bit. The difference in the delta between operating income and net income is the change in fair value of our open hedge position. As the future strip changes, so too does the mark-to-market gain or loss. In this period, we did see a gain due to the decrease in oil prices. That should answer your question on that front. The next question here we have is regarding the Viking wells. The Viking wells have been producing 40% above expectations. What is the cause of the better drilling results?
I would say it's further refinement of our geological model in the area, how we essentially map the edges as opposed to the structural lows and the strat facies that we're chasing. Also increased presence in our technical team. Through these last few years in acquisitions, we've grown our team substantially between the engineers and geologists. I believe that is a lot of the success of the team growing and working together and like I said before, just refinement of our geological model of the area.
That's great. Thanks, Justin. Another question here. Do you plan to expand the hedging program over the coming quarters? If so, at what price?
Yeah. I think we're always looking to, you know, lock in price certainty. I think the volatility that we've seen kind of in recent months and definitely within recent years always causes concern. You know, what I'd hate to see is that, you know, we deploy capital, we're getting these great drilling results, and all of a sudden we see, you know, the bottom fall out of oil. You know, we are constantly looking to update our hedges shorter term. I think you can expect us to layer on more, you know, 12-18-month hedges kind of in the coming months as we continue to get good drill results.
If we can lock in 100 plus rate of return for our shareholders, I think that's probably gonna be something we look to do. Locking in those returns, redeploying that capital with certainty that we have that locked up, you know, that's a strategy that we can always use, and I think that's one we're just gonna maintain into the future.
That's great. Thanks, John . What was Q3 production, and what is the company producing as of now? I know for Q3, you know, approximately 11,000 boe per day. For current production, Justin Kaufmann, do you wanna take it over for current daily production rates?
Yeah. We're currently just over 12,000 barrels. Previous guidance was 12,500 for Q4. We are on pace to hit that rate now. There is some Viking wells that we are bringing online in the next few weeks that will help those Q4 averages, and we expect to end the year closer to that 13,000 barrels to make that 12,000-odd Q4 average.
Thanks, Justin. Another question here on the hedges. What is the current weighted average oil price currently over the portfolio? Currently with our hedges are hedged on a declining basis quarter-over-quarter. Individual ones are layered on, noted on note 14 in the financial statements. I will direct you there for the actual per barrels and average prices per quarter.
Yeah. Another area that lives too is in corporate presentation, and you can find that on our website. I believe it's slide 24 here. It gives you a breakdown of 24 and 23. 23 illustrates the hedge book that we have in place and how it rolls off over time, and then 24 gives you the actual breakdown of the swaps, the collars, the strike price, and all the details surrounding them.
Thanks, John. Another question came in here. We've kinda talked about it a couple different times, but, given the excellent production rates in the Viking and potential reserve upside, has your view on capital allocation into this play changed since initial guidance post the acquisition?
John, do you want to handle?
Yeah. No, I'm happy to jump in here. I mean, yeah, it's the results we're seeing are great. One of the things we have noticed is that we are seeing a little bit more in terms of inflationary costs in the Viking. The rate of return between the Southeast and the Viking is fairly similar. I still think that the Southeast, I think, Justin, even at these prices, I think the Southeast is a little more favored. But it's just the ability to deploy capital, the timing of that deployed capital and the certainty of the results. I think what you'll see is a fairly even split between allocating capital between the two pools.
Yeah.
Taking into account the results we have and the operating cost between the two areas. I'm sorry, any context you have, Justin, would be appreciated too.
Yeah. Essentially, we are seeing better or increased IP30s in the Viking. The EURs in our Southeast wells have longer tails on them, just lower decline rates. Like John says, the economics are similar. We do have a bit of deeper inventory in the Southeast with 95% seismic coverage over top of it, and we've been reprocessing that seismic this year, which is kind of helping with those development edges and strat edges that we're tracking. We've actually been seeing improved results in the Southeast. Further to John's point, I think it will be a pretty similar split. Yeah, both areas have been seeing some extremely good results this year.
Thanks, Justin. Another question came through. Can you please comment on the financing? I thought that was completed in the second quarter. I can take that one. In the second quarter, the actual proceeds were issued via Subscription Receipts. At the end of the second quarter, they were sitting as a receivable. Subsequent to quarter, those were converted into full equity. That's why you see them as a subsequent event in the second quarter, and in the third quarter, you see the cash in the door, offset by equity. Last question here. Looks like it's leading out. With inflation costs in the Viking, do you expect to keep capital allocations the same? I think that was already kinda asked and answered before.
Yeah. I think just to recap that, is we are seeing a little more inflation in the Southeast, mainly due to fracking costs. In the Viking, I mean, mainly due to fracking costs. I think that's more than offset by the outstanding results that we are seeing. For now, yeah, we're gonna keep it fairly balanced. I think, Justin, we have added a few more wells to the Viking this year, just given the fact that we have seen those outstanding results. That's one thing that we're really excited to get out in the public hands here. Hopefully, in the coming months, we can get those last 20 wells of data out in news releases as well.
Yeah. I would say supply chain issues are supposed to ease up in the future quarters too. While our next quarter's guidance will be based off prices we're seeing right now, what we're hearing from suppliers and vendors is that there should be some easing of those inflationary pressures into Q1.
Thanks, guys. It appears we have no further questions. If there are no questions or comments, on behalf of the executive team here, I'd like to say thank you for joining our third quarter earnings call, and we look forward to speaking again next quarter.