Up next, I'm gonna sit down with John Jeffrey, Chief Executive Officer of Canadian oil and gas company, Saturn Oil & Gas. Please stick around. All right. Hello everyone, and welcome to the Saturn Oil & Gas Fireside Chat. My name is Robert Blum, Managing Partner here at Lytham Partners, and I have the pleasure today of moderating a discussion here with John Jeffrey. John is the Chief Executive Officer at Saturn Oil & Gas. Company trades under the ticker symbol S-O-I-L on the TSX and O-I-L-S-F in the United States. John, welcome.
Robert, thanks for having me. Excited to be here.
Absolutely. For those newer to the story, how would you describe Saturn today, its asset base, sort of strategic identity, and the way the company has evolved in recent years?
Yeah. We like to go against the grain a little bit, but I guess high level who Saturn is today, we're about 45,000 bpd , primarily light oil, and most of our assets are focused in Saskatchewan and central Alberta. Again, relatively shallow light oil plays. That's what we look for. Again, one of the fastest-growing companies that there is in North and South America actually. We've won that title, I think about three years in a row. To give you a little bit of context, going into June 2021, Saturn was about 200 bpd .
To go from that to today at 45,000 bpd, it's been a heck of a run, and then, you know, hopefully we can touch on some of the things which kind of led to that growth and what we've really focused on to get there.
All right. Very good. Let's start off a little bit here macro and again, we don't have to focus specifically on what's happening day to day, but, you know, market swings can swing quite a bit here. Scarcity concern, demand anxieties. You know, what matters most for creating sort of durable value in your opinion as a producer? You know, is it sort of resource quality, decline profiles, balance sheet flexibility perhaps, just capital discipline?
Yeah, for us, it's just taking a measured approach. We don't run from one side of the boat to the other. You kind of everything. All those things you just said. You know, having balance sheet discipline so that when opportunistic times come up that you can take advantage of. The best time to buy assets in the last decade or two was during COVID. You know, you're watching companies give away assets at 1x cash flow and things like that. In fact, that's what really started us picking up a lot of our assets in 2021 all the way through to 2024. Again, never paying more than 2x cash flow and when you have a good deal, lock in those economics.
You know, if you can take some hedging, you can take some risk off the table, you know, that's always what we're looking to do. Just do good, smart deals, lock in the economics, and again, just don't do anything too crazy. You know, we've seen oil price rallying in the last few weeks, and that's been great. What we're not gonna do is go out there and double our CapEx for the year. We're gonna slowly, incrementally increase that a little bit, and we're gonna look to do a little more buybacks, and we're gonna look to, you know, decrease our debt a little bit more. Again, just taking these measured and balanced approaches is just really how we found success over the last, I guess, eight years now.
You mentioned obviously with prices increasing here over the last number of weeks, you know, everyone focuses on sort of the headline oil price, but cash generation happens by many other variables as well. You know, which factors do you think are most sort of maybe underappreciated today, sort of service cost differentials, sort of general operating control infrastructure?
Yeah. We always try and focus on those things that we have control over. Operating cost is a great one for us. With TMX coming online, and some other takeaway options now being discussed, that's helping. That's helping shrink the differential. Again, really outside of our control though. Operating cost is one thing. The problem I have with the industry is operating costs too often get overlooked. At CAD 100 oil, everyone's just too excited, and they wanna drill more wells and get on all the production they can. At CAD 50 oil, everyone's focused on laying people off and cutting G&A. There never really is that right time to focus on operating costs, and that's something we have focused on all along.
The last two big asset packages we picked up, their operating costs were CAD 24- CAD 25 a barrel, and within six months, we've been able to drive that down to about CAD 19- CAD 19.5 a barrel. That really you do get a lot of compounding wins from that. You know, even when you start to look at reserves. The reserve life of these wells, you know, the wells turn off when according to reserve engineers, when marginal revenue equals marginal cost. So what happens then, and that triggers the ARO obligations and things like that when they're modeling this up. But if you can reduce your cost, you really do extend the tail of the wells from a reserve engineering standpoint, so you get more barrels, you get more value, you push out a liability that much farther.
Again, revenue is not something we can control, but cost is. That's one thing that we do extremely well here at Saturn, is we look to drive and shave costs everywhere we can while maintaining safety and, of course, maintenance for the environment, and other spills.
Now, how do you think the definition of sort of a high-quality Canadian oil asset changed in this cycle, especially compared with sort of earlier periods when the market really rewarded that production growth more aggressively?
You know, for us, it's staying power. You know, we have over 20 years of drilling inventory ahead of us. And that's what we kind of value of a lot of our peers is can you operate? You know, can you keep your royalties down? Can you keep your operating costs down? Can you operate in volatile environments? You know, high-growth companies are great if oil is CAD 80 or CAD 90. What, you know, what do their numbers look like at CAD 60? Which again, you know, we just had this a few months ago. We had oil in the CAD 50s, oil in the high CAD 60s.
Of all the volatility moving around, I don't think it's healthy for companies just to all of a sudden double their CapEx, cut it in half, and just go along with these wild swings. For us, it's the companies that kinda keep calm and that they can be profitable at CAD 50 and they can be hugely successful at CAD 90. Again, they don't need to deploy a lot of capital. They can keep their operating costs in. They have the reserves in the ground that they can sustain for the next 15-20 years of volatility. That's how we've getting started in this business, we looked up at a lot of other companies.
That's kind of the ones that have done it and been sustainable and been successful, and that's what we try to model ourselves after.
What do you think it is that investors still underappreciate, if you think that they do, about light oil weighted sort of lower decline assets and maybe a more volatile commodity environment?
Well, I mean, specific to us, for the last, it seemed like a year and a half, everyone was focused on gas. Everyone had this idea in their head that gas was gonna go to CAD 4 or CAD 5 per MCF. You know, if that's happening, it hasn't materialized yet. But I guess really what we've been focused on is, you know, how do we get our story out there, especially in a scenario where, ignoring the last month or two, you've seen oil fall from CAD 100 a barrel down to CAD 50-something a barrel. In that time period, you're not seeing investors clamoring into energy, and then without those new investors coming in energy, you don't have investors looking down CapEx. So although, you know...
There's a bunch of our peers that are in the same situation that we're trading at 2x or 3x cash or historically low cash flow levels. For example, Saturn Oil & Gas last year, we had a 50% free cash flow yield. Our EBITDA last year was the same as our market cap at the end of the year. You know, these type of valuations just aren't normal in the space. Again, when you've seen not even just volatility, but just a sheer falling of oil price in the last 12-18 months, you're just not getting that incremental buyer. You're not getting the new eyes on the story that are looking for a deal, and especially when you start talking mid to small-cap names.
That's one of the problems, is that even if you uncover, you know, some of these great names, and Saturn is included in there, that is undervalued, you know, you need more people. You need the street to pay attention. You need people looking for the fundamentals that comes with oil. I think that's what we're starting to see turn a little bit. I think people are starting to understand, you know, governments are gonna start looking more towards SPRs. I think then you start getting more investors thinking about the fundamentals and the economics of oil, and I think that's what's getting more eyes and more attention in this space, and hopefully we'll continue to see, you know, market multiples expand and more dollars coming to this industry.
You know, something you mentioned a moment ago here about sort of the, well, the price increase in particular, but let's just say, you know, sort of the general swings and the uncertainty in commodity prices. How do you as a management team think about sort of the capital allocation of, you know, debt reduction, organic growth, share repurchases, you know, maybe some opportunistic M&A?
The problem is we get this question a lot, and so what we always strive for is to say, "Listen, we just wanna be known as being a good steward of our shareholders' capital, and we just wanna be opportunistic." That's really what we look for here. For example, it's difficult to come out and say, "Okay, Saturn, at Saturn we're gonna grow to 100,000 bpd ." Because the minute you say that, or 20% growth or whatever that is, now you're a price taker. Now we have to, or whatever assets come for sale, I guess we're buying that and paying whatever price. Or whatever oil price does, I guess we're committed to growing it. We don't wanna be put in that position.
For example, last year, our debt traded after the Liberation Day tariffs got announced.
Mm-hmm.
Every the whole debt sector really took a hit. Canadian debt, in particular ours, we traded down into the mid-80s. We said, "Okay," even though we were doing acquisitions and other things at the time, we said, "Hold on. Here's a great opportunity to pick up our debt at CAD 0.86 on the dollar." We did. We went in the market, and we paid CAD 0.86 on the dollar, and that was a great trade for us. We retired that debt, got it at a discount. That was great. A couple months later, we noticed our share price was quite a bit lower than we thought, we went out, we announced an SIB, and for only CAD 3 million of stock actually purchased, we had a CAD 100 million increase in market cap. Great return for us.
In the meantime, we've done some great tuck-in acquisitions, and we've drilled some phenomenal wells. Again, just being that steward of capital and just looking for the highest return, if it's drilling wells, if it's buying stock, if it's doing it by whatever that is, that's just kind of what we hopefully will build that reputation and that ongoing confidence with the shareholders that that's what we're gonna continue to do. It's gonna come in a lot of different formats, but we're gonna watch the market and hopefully make those right calls.
All right. Let's dive a little bit more into the company here. You know, how do you think each of the sort of distinct roles each of the core operating areas plays within the portfolio? Sort of talk about each one of them and how it contributes to the overall investment case.
Yeah. Three main areas for us, West Central Saskatchewan, Southeast Saskatchewan, and Central Alberta. Central Alberta is a great asset for us. You know, we've done a lot of firsts there. We've drilled one of Canada's longest Cardium wells at just over 3 mi , and that's out of a sample set of over 6,000 wells. We've brought some new technology in which is helping us drill wells even faster. Now, with the Cardium is a little gasier than our other plays. Overall, we're about 80% liquids, primarily light oil. Cardium is light oil with some gas. If we see gas rally, then we have some great optionality there. Now we're gonna bring on more Cardium wells, and we have some gas wells in there as well, to really help capture those economics.
Really good capital efficiency numbers, exciting wells for us to drill. You move into West Central Saskatchewan, which is our Viking, our Cantuar, our Battrum. Again, those wells, specifically in the Viking, what I like about those, very low operating cost, but we can bring those wells on very quickly. For example, we have brought wells on in 18 days before, from license to surface construction to drilling completions and fluid coming to surface, and again, in under three weeks. What's nice about that field is if we see spikes in oil and runs in oil like we've seen recently, we can react very quickly. There's lots of rigs available in that field. Again, it's a super single rig, not the big triples they use in Northern Alberta, so there's equipment around. We can step into these fields.
We can get these wells drilled and online very quickly. You compare that to some of our peers in the Duvernay-Montney, and that could be six to nine months before they can get some of these big pads online. We can turn and burn these wells very quickly. Now, a little higher decline, lower cost, quick payout, and we can get it on right away. Very exciting play for us. Our crown jewel really though is Southeast Saskatchewan, and that field, again, what I like most about it's just a really high operating, or really high netback, really low operating cost. We have the biggest infrastructure base down there, so 200 facilities, 6,000 km of pipeline. We have the only producer-owned gas plant down there.
As we grow and as we look to do these tuck-in acquisitions, we can bring them into our fold, into our system. Again, as you know, if you can bring in more volume into larger batteries at a higher utilization, your per unit cost drops. That's one of the things we look for when we look to do these tuck-in acquisitions organically grow down there. The incremental cost, the marginal cost we have of adding new barrels to a system that's that large is very low, so it makes the economics down there very strong and is one of our key areas and one of the areas you're gonna see us grow the most in.
Yeah. What do you think about the value and sort of the remaining runway of open hole multilateral drilling across the portfolio?
Just getting started. Yeah. If you look at two years ago, we basically had no bookings in the open hole multilateral last year. You know, I think we had a few, 20 or so. You know, this year we're just starting to get. I think there's 30+ right now. In reality, we think we have several hundred locations there. If you took those locations again, we've grown that play 100% organically on our lands there. That play today, if you take today's strip pricing, has a net present value greater than our company. This is part of those 2,400 wells that we can keep flat for over 20 years. We have just found so much value and primarily in those in southeast Saskatchewan, in the Spearfish, in the Torquay and in the Bakken.
Utilizing that technique and that technology brought in from the Clearwater and then bringing it down to southeast Saskatchewan has just been a game changer. It's opened up a lot of very exciting fairways for us.
How should we think about the balance between the OHML and more conventional Frobisher sort of opportunities across the program?
It depends on really which areas we're talking about. Peters actually does a great job and I think it's every year, every two years, they put out all the top oil plays in North America, and number one on that list is Dual Leg Frobisher wells. I believe number three on that list is Mississippian. Now, right below that, you'd find our open hole multilateral wells. The exciting thing about that is of the top five plays in North America, we hold the bulk of our inventory in the top four plays or in four of the top five. Not only that, we actually have the most inventory of almost any other company in those plays as well. The overall multilateral is hugely exciting. That's a big growth play for us.
When you look at the Mississippian, when you look at the Frobisher, those are proven locations. We know exactly where they are. We know how to drill them. Last year alone, we were 23% ahead of our type curve, and a lot of that beat comes in in the Mississippian, in those Frobisher plays. They have been really exciting. That's the steady eddy. We know what's there. We know how to develop it. We're coming in above type curve consistently. One of the big drivers of that is we have seismic coverage over 90% of our plays down there. 90% of our locations, we have that seismic. If a company were to go shoot that today and try and acquire that today, it'd be CAD 400 million +. Again, this is seismic we've picked up along the way.
It adds a tremendous amount of value, but the value is not just in the fact you own it, the value is in the results you get from it. Being 23% ahead of Type Curve, that is a result of the great technical team we have here and utilizing tools like seismic that we've picked up along the way.
How important is enhanced recovery and waterflood work to sort of the longer term Saturn story, not just for volumes but for decline management and capital efficiency?
Yeah. Again, what Saturn does very well is we take everything in a measured approach. Our decline's already quite low. Again, we're not looking for high growth, so that actually helps in a huge way. Our corporate decline's 22%-23%. That already helps declines. Now, we have expanded our waterfloods, not only in that Flat Lake area, but also in that Bakken play. Again, these are plays that we've just started developing in the last six months, not a big representation on the reserve report this year, but going into next year, I think you're gonna see some really exciting things come out of those plays.
Early looks, especially in the Bakken and in that Torquay, you're gonna see a massive increase in free cash flow recoverable barrels, and that's gonna greatly reduce those declines as well. You know, again, 22%-23% corporate decline is already at the low end of all of our peers. That's just gonna keep going better as we invest even more into waterflood.
Right. I want to come back to something you mentioned a moment ago in central Alberta there. How do you balance near-term sort of Cardium execution with the longer-dated optionality elsewhere in that region?
Yeah. For us, it's a balancing act. When we do capital allocation, we look to maintain all of our fields somewhat flat. Although, you know, we have better ROIs in Southeast Saskatchewan than we do in the Cardium generally, you'll still see us drill in the Cardium. We always get the question, "Okay, well, why don't you just drill all your best locations right now? And then you get through all your tier one, and then you move on to tier two." The answer is, well, again, the advantage that Saturn has is our Half-Cycle and Full-Cycle costs are very similar. The advantage there is because the infrastructure's already in place.
If we wanted to step in and just drill tier one locations, yeah, we can grow it, you know, 10%, 20%, but eventually now we're gonna have to start rebuilding infrastructure and adding a lot of capacity. In other areas where you have utilization fall, now all of a sudden your OpEx will start creeping up. What we do instead is we try and take a balanced approach. We try and keep our fields relatively flat. We're gonna grow in our exciting fields, in the open hole multilateral Southeast Saskatchewan, we're gonna grow that. Times of higher oil price like today, we're going to look to increase in the Viking. As a whole, we try and keep our fields relatively flat.
We keep those utilization through our facilities steady, keeps our op costs steady, and then we look for ways just to increase production in some of the more exciting plays. That's one of the things we look to do. Again, last year we shifted some capital out of Alberta because of that higher gas cut. Now, if we see gas come around, I think you're gonna see the reverse happening. You'll see us shift more capital into the Cardium, take advantage of what will hopefully be an increased gas price.
Something you've mentioned here and sort of hitting this on multiple occasions here, but you know, the recurring theme has really been per share value creation rather than just sort of scale for the sake of scale, right? So you know, how do you sort of make that final determination and best use of free funds in the balance sheet, the share count or that next tuck-in opportunity?
We approach everything as if we own 100% of this, you know, how would we go about this? For us, it's what's gonna be best for the shareholder. Reducing debt, that's an obvious one. It's our opinion that a dollar towards debt is a dollar back to the shareholder. If you just take last year, for example, we reduced debt by over CAD 110 million. 20% of our market cap at the end of the year. That's exciting. On top of that, we repurchased over 8% of our stock as well. That's another big win while we grow reserves per share by over 30%. Again, increasing that per share value, just not increasing the overall value.
By reducing debt, by reducing the share count, and by meaningfully increasing not only the cash flow, but the reserves per share, every share out there owns that many more barrels of oil associated to it. That's important for us. Again, right now what's interesting, at the end of the year, our reserve report had over 200 million barrels of oil. Today we have about 180 million shares outstanding. You know, even though we're trading at CAD 5 a share, really what that represents is over a barrel of oil, which as we know is trading at CAD 120. Still pretty deep value in there.
Again, you look at PDP NAV, which is growing year-over-year, PDP NAV at over CAD 5.5 a share. A lot of our peers are trading at 240x their PDP NAV value, and we're just getting to that one point or that 1x level. You know, it's still deep value in the name at on a per share basis.
Very good. John, couple minutes left here. You know, what should investors be looking for over the next 12-18 months here from the company?
I think just a lot more of the same. I think they're gonna continue to count on us to continue the share buybacks, and aggressively pursue debt reduction. If we can get oil price kind of staying around these elevated levels, they're gonna see us put marginally more into the ground so we can get more oil out, and again, increasing that free cash flow. Maximizing our free cash flow and free cash flow per share, that's really what we've been focused on the last few years, and that seems to be resonating quite well with shareholders, so we're excited to carry this forward into 2026.
Mm-hmm. Fantastic. Well, John, thank you very much for your participation in the Lytham Summit here today. Greatly appreciate it. Thank you to everybody who's watching