Hello, and thank you for joining Saturn Oil's 4th quarter 2023 financial operations investor update. My name's Kevin Smith, Vice President Corporate Development, and I'll be your moderator for this webcast. We'll start with a presentation from management, and following that we'll be happy to address any of your questions and take your comments. You can submit your questions through the Q&A button at the bottom of your screen. Joining us today is John Jeffrey, our Chief Executive Officer, Scott Sanborn, Chief Financial Officer, Justin Kaufmann, our Chief Development Officer, and Grant MacKenzie, our Chief Legal Officer. I'll now hand the webcast over to our CEO, John Jeffrey.
Excellent. Thanks, Kevin. Good morning, everyone. Can you hear me all right?
Yes, I can.
Perfect. Well, that's excellent. I know last time we had a couple technical issues. Well, thanks, everyone, for joining today. Excited to go over our quarter and our full year last year. The 4th quarter of 2024 was a tremendous period for Saturn Oil, where in the first time in company's history we had three drill rigs active, developing light oil in each of the company's four core business units across Alberta and Saskatchewan. Oil and gas production averaged over 27,000 barrels a day in Q4, which was an increase of 115% year-over-year. This record level of production contributed to our second consecutive quarter of posting over CAD 100 million of Adjusted EBITDA. This is above our forward guidance for 2024, where our targeting EBITDA is between CAD 350 million-CAD 370 million.
We expect Saturn to generate a return on invested capital of over 55%, which, when compared to our peer group, averages closer to 30%. Driving Saturn's outstanding return on continued, excellent results from the drill bit is Justin, who is driving our excellent return, a continued success with the drill bit, which Justin will detail a little more in a moment. I will highlight Saturn drilled its first 2 open-hole multilateral Bakken wells through November and December last year, which came online with initial IP30 numbers 14% above our type curve expectations. These multilateral wells were some of the most economic wells, drilled last year. This exciting new drilling technique is opening up additional drilling inventory on lands previously thought economic, so this is a big win for Saturn.
We remain committed to rapid debt repayment and allocated CAD 50 million of cash flow from operations in Q4 to principal repayments, for a total loan repayment of CAD 164 million in 2023. Subsequent to year-end, Saturn has made an additional CAD 50 million of principal repayments already in 2024, for a total of CAD 215 million of debt repayment since the start of last year. And this all aligns with our strategy of rapid debt repayment while maintaining corporate production levels, and this should continue to result in value creation for our shareholders throughout 2024. In January of this year, Saturn released its year-end reserves, highlighted by more than doubling of its total proved plus probable reserves to 145 million BOE, comprised of 82% oil and liquids. The net present value discounted at 10% of Saturn's PDP, or proved developed producing reserves, amounted to a value of CAD 1.4 billion, which incorporates year-end net debt.
Saturn's PDP net asset value is approximately CAD 6.10 per basic share. This strong net asset value gives us comfort that there is considerable value backing every Saturn share, and we look forward to enhancing that value going forward with Saturn's industry-leading return on invested capital. Finally, Saturn continued its commitment to environmental stewardship, with investments in reducing CO2 emissions and decommissioning older wells that have come to the end of their economic life. In 2023, Saturn invested CAD 11 million in reclamation expenditures, funding the abandonment of 114 wells. That amounts to the cleanup of two wells for every one new well that Saturn drilled or participated in last year. Safety and protecting the environment are an important part of our daily operations.
For now, I'll turn it over to Justin Kaufmann, our Chief Development Officer, for more detail on how our capital expenditure program went last year. Justin.
Thank you, John. As John mentioned, Q4 was the busiest development period in Saturn's history. We drilled 19 wells across each of Saturn's four core areas for CAD 57 million of capital expenditures. In total for 2023, Saturn drilled 59 gross horizontal wells with a 100% success ratio. The development of the Viking light oil resource in West Central Saskatchewan was a highlight of the 2023 program. Saturn contracted a third rig in Q4 to drill an additional 4 Viking wells, 100% working interest to Saturn, bringing the total 2023 drill count to 19 gross Viking wells. Saturn's 2023 new Viking wells had an average IP30 rate of 98 barrels per day of light oil and strongly outperformed our type curve expectations by over 40%. Saturn has improved its Viking new well productivity year-over-year, as we have focused development on our 2 best-performing areas, Herschel and Plato.
In these two key areas, Saturn has effectively expanded our understanding of the boundaries of the light oil resources, particularly in the Plato area, where we shot new seismic in 2023 to better understand the structural features of the area. This helped us add dozens of new de-risk development locations to our reserve bookings and inventory. Southeast Saskatchewan was a strong area for growth in 2023, where the company increased production by 67% compared to 2022. Saturn continues successful conventional development in the area with 11 Mississippian and 6 Triassic aged reservoirs, wells drilled. These were predominantly in the Frobisher and Spearfish formations, which outperformed our type curve expectations by 17%. Also, a fantastic addition to our Southeast Saskatchewan capital plan 2023 was the Bakken program, which was Saturn's first development into this prolific light oil horizon. As John mentioned, the 2023 Bakken program yielded outstanding results, exceeding our expectations.
In total, Saturn drilled seven stimulated Bakken wells last year in the Greater Viewfield area, with IP30 rates of 110 barrels per day of light oil. With over 400 wells in our deep inventory of development locations, we expect the Bakken to be a strong contributor to future development programs, including this year, where we expect to drill up to 10 Bakken wells, including two to three open-hole multilateral wells. For the open-hole multilateral wells currently underway, we are now drilling two-mile laterals, compared to the one-mile laterals that were drilled last year. We believe the extended laterals will save on drilling costs and enhance the economics of this new drilling technique even further. Saturn's success last year in the Bakken, Spearfish, and Frobisher is strong validation of the multi-zone potential in Saturn's core area in Southeast Saskatchewan, where we have a deep inventory of de-risk locations.
In North Alberta, Saturn drilled a four-well pad in the Kaybob area, targeting Montney light oil, with 100% working interest. This first pad delivered an IP30 rate of just over 1,250 barrels per day in aggregate. The Kaybob wells met our expectation for Montney type curve for this area, and we will look to drill another four-well pad this year. In Central Alberta, Saturn rig released five operated Cardium wells in 2023 that have IP30 results. Again, these results met company expectations and will continue to be a big part of Saturn's development story, where we plan on drilling eight additional wells in 2024. In total, Saturn had a very successful 2023 drilling program while scaling up development efforts across its four business units.
The depth of our continual expanding drilling inventory, with over 1,500 identified booked and unbooked locations, speaks to the sustainability of our high-cash-flowing light oil production base. For more details on Saturn's 2024 development plans, please visit saturnoil.com, where we have posted our 2024 guidance presentation. I will now pass the webcast over to Scott Sanborn, CFO, for a financial overview of the quarter.
Thanks, Justin. It was a phenomenal year for all of us here at Saturn. As a brief recap, we closed the Ridgeback acquisition effective February 28th for total consideration of CAD 525 million, funded through CAD 125 million bought deal equity financing and expansion to our senior term loan and CAD 50 million in share consideration. We increased annual production by over 150% to average approximately 25,000 BOE per day in 2023, continued to deliver on our debt repayment strategy, and successfully executed our annual capital plan. As we move into the quarterly and annual results, they continue to highlight the success of our 2023 drilling program, with Q4 production volumes averaging approximately 27,000 BOE per day, up from just over 26,000 in Q3.
The company realized total petroleum and natural gas sales of CAD 185 million due to Q4 WTI prices averaging $79 per barrel, slightly down from $82 per barrel in the third quarter, offset in part by strengthening the U.S. dollar. Despite this, the company realized record quarterly adjusted funds flow due to lower cash costs in each operating expenses, royalties, G&A interest, and realized hedging. On a metric basis, the company achieved back-to-back period EBITDA over CAD 100 million in each Q4 and Q3, contributing to annual EBITDA of over CAD 363 million, or 1.3 times, and 1.1 times on an annualized basis pro forma Ridgeback acquisition. Record Q4 adjusted funds flow of CAD 80 million, or CAD 0.58 per share, up from CAD 0.76 million, or CAD 0.55 per share in Q3, contributing to a total of CAD 278 million for the year, or CAD 2.20 per share.
We executed on an annual capital program of CAD 131 million to realize free cash flow of CAD 148 million, of which CAD 57 million in CapEx was invested in the fourth quarter to yield Q4 free cash flow of CAD 23 million. On the debt side, we continued with our leverage reduction strategy, repaying a total of CAD 164 million in the year, with CAD 51 million repaid in the fourth quarter, resulting in 2023 exit net debt of CAD 460 million, representing 1.4 times total leverage on an annualized Q4 basis, down from 1.5 times in Q3. To end the year, the company had working capital surplus of CAD 8 million, with cash on hand of over CAD 26 million. As Justin detailed, Q4 capital was CAD 57 million, summarized as CAD 54 million directed toward DCET and facilities, with CAD 3 million directed towards corporate and administrative assets.
Subsequent to year-end, the company completed a CAD 50 million equity financing and entered into an agreement with its senior secured lender for up to CAD 55 million in additional liquidity, strictly at the company's option. With that, I'll pass it on to Kevin, and he can relay any questions you may have.
Thanks, Scott. All right, we have some questions coming in. The first question is: Can you expand on how the two-mile lateral wells in the Bakken will enhance the economics?
Yeah, I can grab that one. Essentially, when you're drilling these multilaterals, you need a sink casing to your intermediate casing point. So, there is a lot of steel costs associated with that. But if you can extend the length of these laterals, 1 2-mile as opposed to 2 1-mile, you're going to save on those steel costs. Plus, you also save on the fixed costs at surface that have to be paid in perpetuity with production of that well. And you reduce the upfront drilling cost, of course, the 1 well versus the two wells. So all that equates to higher capital efficiency with that 2-mile or over that 1-mile.
Great. Another question: Can you comment on the upcoming debt schedule for 2022-2024, sorry, for repayment, and where is there, step-down in principal payments?
Yeah. I don't know, Scott, if you want to jump in on this.
Yeah, sir, but I was just on mute there. Yeah, so for 2024, we plan $180 million in debt repayment schedule. The step-down changes from April to May, and it changes from $25.3 million down to $15.2 million per month.
Great question here: operating costs were down on both a per BOE basis and overall on a gross basis. What's driven this reduction in operating costs, and is it sustainable for 2024?
Yeah, we haven't targeting a reduction in operating costs. What we're starting to see now is the synergies of combining Legacy Saturn with Legacy Ridgeback, so we're just starting to see more of that come into play. It does help that we're seeing power costs come down across Alberta as well, so there's a mix of kind of internal controls that we have rolling out, you know, with the synergies between merging these two entities and some macroeconomic things outside of our controls, such as, you know, power costs coming down. So I think we're forecasting at what, CAD 20 per BOE rolling through 2024. We believe that's a goal we can achieve.
Next question: How active will you be on OHML Bakken wells in 2024, and when should we expect to see the next set of results?
pass it over to you, Justin.
Yeah, we're going to be drilling two or three open-hole multi-legs this year. We are on; drilling rig is on one right now. That's that eight-leg two-miler. And then it's going to be moving over to an 8-legged, 1.5-mile well. That'll most likely be it. There might be an additional one this year. But you should start seeing IP30 rates for those probably around in that May-June sort of timeline. Barring the success of those, we do see scaling up of that program, potentially as high as 8-10 wells in 2025.
Okay, question here from someone that was looking at our guidance presentation online from our website. I see from your guidance presentation you added option lands in the Alberta Montney. Are there any more opportunities to do something similar in the Bakken or Frobisher, where the wells would have lower declines?
Yes, there is areas where there is freehold land available. I would say we do have quite a bit of fee land in the Bakken area right now. We are active in Crown Land Sales, too. If you'll see by public data, we won a 3.5-section block of Crown Land that is going to support our open-hole multi-legs. So we are continuing to prove up some of the stratigraphic edges of our plays in Southeast Saskatchewan, and we continue to pick up freehold land. We do have a land budget about CAD 3 million-CAD 4 million this year to help continue to grab land around our core areas.
Next question: how many wells do you plan before spring breakup, and where will you be? Where is the focus?
Yeah, so before breakup here, we drilled five conventional wells in Southeast Saskatchewan, three of them being Frobisher, two of them being Spearfish wells. Those wells are complete. They are on production right now. The very first one, well in Southeast, we do have IP30 rates for it, and it far exceeded our expectations. The rig is on that multi-leg that I said, that, it'll be done drilling that around mid-April. Barring weather conditions, we're hoping that we can move it on to that next eight-well pad and continue drilling through breakup. In Alberta, we drilled three additional Cardium Brazeau wells in Q1. They were just completed, as of last week. They're being tied in right now, and we're expecting initial production results for those at the end of this month.
Next question: Saturn OHML wells are some of the company's most economic wells. How do the decline rates on the OHML wells look compared to other wells, and what is the oil-to-gas ratio?
They're almost 100% light oil. So there isn't a lot of gas associated with the oil production up there. As far as declines go, it is a very new area. There isn't two years of production on any open-hole multi-leg well in the Bakken up there. Our guidance type curves are based on what we're seeing in the area so far on a 12-month production basis, but those are continually refined. And even as far as the two-mile, eight-legs go, there is less than eight months of data out there. So we are being fairly cautious on how we type curve those, to make sure we hit our capital efficiencies for those wells. But yeah, those all continue to be refined, as we further develop in the area.
Thank you. Next question. Considering the repayment plan of the debt, and does the company assume that the warrants will be exercised? I must be referring to our SOIL.WT.A exchange-traded warrants. And so is that part of the budget to repay debt?
Yeah, I can take this one. So we don't have those numbers factored in. We would love to see them exercised. I think as we continue to pay down debt, that'll create more and more value for our shareholders. As we said, you know, since the beginning of the last year, we paid over CAD 215 million of debt. We continue down this path to pay CAD 185 million this year or CAD 184 million, sorry. We are not incorporating the proceeds from those warrants. However, we are quite optimistic that, given the results of our drilling program and ongoing continued results in operations, that we will see the share appreciation, and we will look for those warrant proceeds. However, we are not budgeting them at this time.
A follow-on question: Do you have an estimated WTI price that the company will need to see in order to achieve its debt repayment schedule?
Yeah, I believe we've budgeted that $184 million down to $70 WTI. You know, I think right now, if we see sustained $75-$80, we can actually increase that debt repayment schedule beyond that. But that's what we've kind of stressed as a downside to between $65 and $75, depends on what happens with FX and AECO.
Next question: How much did the cold weather set back January production?
Justin, do you have that number available?
Yeah, on a week-to-week basis, if you average it throughout the year, it did reduce our yearly production by close to 50 barrels. It did affect most of our single-well batteries, in the Viking, I guess, had the biggest production impact. So we did see a couple thousand barrels drop offline for a very short amount of time, affecting our annual average by about that 50 barrels.
There's a question here regarding decommissioning expenditures. In 2024, the budget is for CAD 12 million. Does management expect that this figure will remain around this level in future years?
Yeah, that number should remain fairly constant, based on what the regulators require, through the provinces of Saskatchewan and Alberta. So we don't see a lot of movement on that in the short term. Moving forward, past probably year four or five, you should see that number start to come down as we complete the decommissioning activities of our suspended well bores.
All right, thank you. Another question here: have insiders been buying shares?
Yeah, actually. As it was released back in December, there's actually 900,000-block of shares that came available. And this was from when we did that Ridgeback transaction. They were issued $45 million of shares. And this was basically cleaning up one of the last big blocks there were of that group. So for one, management, you know, was excited to buy in and, you know, and increase our exposure there, but also to take off any perceived overhang of those shares coming available. Now, the first half of the remaining shares, from the transaction, did become free tradable on February 28th, but the bulk of those shares now have been picked up by our biggest shareholders as well as management. So there was about nine of us in total that picked up that block.
Happy to see management and senior management getting behind the company and increasing their exposure.
Great. Okay, one more question came in. Currently, the company is focusing on decreasing the debt. Once the debt is decreased and the balance sheet is strengthened by the end of this year, what will Saturn focus on with its excess cash flow? Further debt repayment, more drilling, or shareholder returns such as dividends and buyback?
Yeah, we've kind of maintained a bit of a loose strategy that 50% of our cash flow goes towards debt repayment and 50% back towards the bid. And it's kind of our belief that a dollar towards debt repayment is indirectly a dollar towards the shareholders. So I think what we'd like to do is I'm not sure the split where we're at now, but I think we'd like to maintain some split of that still where we take a portion of those funds, give it directly back to the shareholders once the debt is extinguished, and give the rest to continue growing the company through the drill bit. So I think you'd see us start to grow a little more organically and give a portion of that cash flow directly back to the shareholders for their benefit.
Okay. Well, that's it for questions that have been posted here, in this webinar. So I'd like to thank everybody for joining. Saturn Oil has launched a new website, and of course, our guidance presentation has now been posted on there, as well as our updated corporate presentation by will be updated here shortly as well. So, I encourage you all to check that out on saturnoil.com. And again, thank you for joining us today.
Thank you, everyone.