Hello, and thank you all for joining the Investor Call for Saturn Oil's Q3 Financial and Operational Update. My name is Kevin Smith, Vice President, Corporate Development, and I'll be your moderator for this webcast. We'll start with a brief presentation from management, and following that, we'll address any of your questions or comments. Please feel free to submit your questions and comments to the Q&A button at the bottom of your screen. Joining us today is John Jeffrey, Chief Executive Officer, Scott Sanborn, Chief Financial Officer, Justin Kaufmann, Chief Development Officer, and Grant MacKenzie, our Chief Legal Officer. I'll now hand the webcast over to our CEO, John Jeffrey.
Can you hear me now, Kevin?
Yeah, there you are, John. We can hear you.
Excellent. Hey, sorry about that. Having some technical issues this morning. Well, hello, and thank you for joining us today. Saturn achieved a milestone in Q3, realizing for the first time ever, CAD 100 million of adjusted EBITDA in the quarter. It's a goal we've had our eye on for a while, and with a real team effort, it's an accomplishment we are all very proud of. Supporting this achievement, Saturn posted record production levels in the third quarter at just over 26,260 BOE a day, which is right in line, actually, a little ahead of where we were hoping to be at that time in the year. Our financial results were aided by improved global oil prices, with benchmark WTI oil price averaging just over $82 a barrel, up from $73-$75 in the previous quarter.
And the U.S. dollar has remained strong. So Saturn, in fact, all Canadian producers, are enjoying stronger sales price at the wellhead. So Saturn received just over CAD 105 per barrel of oil sold in the third quarter. Canadian natural gas prices remain weak. Saturn received in Q3 just about CAD 17 barrel of oil equivalent for its natural gas sales. This is where Saturn's strong oil weighting to a higher margin definitely helps out. Saturn, being over 82% liquids, has one of the highest liquid weightings of all the conventional oil and gas producers. And because of that, we have one of the highest netbacks of all of our peers as well.
Also supporting high Q3 netbacks was Saturn achieving our lowest operating and transport cost per BOE in the last two years. Post consolidation, after the acquisition of Ridgeback Resources, our operations team has done a terrific job in lowering our cost structure and enhancing Saturn's profitability. We're committed to making further field efficiencies, so I believe there'll be even more cost cutting in the coming quarters. In summary, the third quarter was an excellent example of the robust and sustainable cash flow generation that Saturn is capable of with our assets and within our current oil pricing environment. And sustaining our production levels has been helped with a successful drilling program.
In Q3, we realized fantastic results of the new Spearfish drilling program, but that's just been part of a larger campaign that Justin Kaufmann will get into next. Our drilling and completion budget in Q3 of CAD 26 million was more than that of the entire first half of the year. As oil prices have been trending upward recently, Saturn is ramping up development activities for the second half of Q3. Q4 is shaping up to be one of our most active quarters ever for drilling. Despite the increased capital spend in Q3, over 50% of our cash flow was directed towards debt repayment, which Scott will elaborate on in coming up when he gets into the details of the balance sheet. For now, I'll turn it over to Justin Kaufmann, our Chief Development Officer, with more details of our field operation. Justin?
Thank you, John. As John mentioned, Q3 was a busy period for Saturn, where we drilled 18 gross wells with drilling activity in each of Saturn's core areas. Southeast Saskatchewan was the most active business unit, where we drilled 12 wells. In the third quarter, we completed the final four wells of a six-well Spearfish program initiated in Q2. Half the Spearfish wells were drilled using dual horizontal laterals and were amongst the best producers of the group. The outperformance of the Spearfish drilling program has generated some of the strongest capital efficiencies we've seen across our asset base to date. This is a new formation for Saturn's development, and its success opens the way for future drilling and reaffirms the multi-zone development opportunity in Southeast Saskatchewan.
Saturn went on to drill three Frobisher wells, which were highlighted by the 14-18 Willmar well that had initial daily production averaging over 150 barrels a day in the first 30 days. This is essentially twice what we type curved for that well, which was an outstanding result. The 14-18 well was also a dual leg horizontal. With keeping the capital costs down, we expect this, again, to be one of the most cash, capital-efficient wells we drilled this year. And due to its success, we plan on completing a 3D seismic program on this section before the end of the year, which could delineate another 6-7 wells. The Southeast Saskatchewan rig finished the third quarter by drilling five Bakken horizontal wells in the Viewfield area. Again, these were Saturn's first-ever Bakken wells drilled.
They were completed as monobores to help improve the capital efficiency. This technique is used instead of landing intermediate casing at the heel, which saves on rig time and casing costs. The initial production testing looks great, and we are confident that the wells will exceed our type curve expectations. Again, this gives the company great confidence in future development of this field, where we currently hold over 250 book locations. We look forward to reporting all the production results for the new Frobisher and Bakken wells we have on the IP30 data in the coming weeks. So shareholders should expect that in late November. The third quarter also marks Saturn's first-ever Alberta drilling campaign across the assets acquired in the Ridgeback purchase.
Saturn drilled three operated Cardium wells in the Lochend area of south-c entral Alberta. These wells were also completed successfully and were recently brought onto production. As many of you are aware, producers are pushing their well development to longer lengths to reduce surface costs and increase capital efficiencies. There has been over 5,000 horizontal wells drilled in the Cardium, and our 12-2 well that we just recently drilled was the fourth longest ever, with a measured depth of 6,818 meters. So hats off to our drilling and completions team on that feat. The Alberta rig then finished the quarter drilling the first of a four-well pad targeting light oil in the Kaybob area of Northern Alberta, targeting the Montney formation.
At this time, drilling completions is now finished, and we expect the four-well pad to come online in the next two weeks. In summary, Q3 was a busy period, but definitely one of the most encouraging quarters of development we've ever experienced, with reference to setting up future year success. Saturn has become even more active here in the fourth quarter, including contracting a third rig that is now drilling additional light oil Viking targets in West Central Saskatchewan. This is the first time Saturn has ever had three drilling rigs in the field, and we are excited for the increased pace of development. In Southeast Saskatchewan, we are now focused on drilling Bakken light oil wells in the Viewfield area through to year-end. Two of these Bakken wells are planned as open-hole multilateral wells.
For these unstimulated multilaterals, we intend to drill up to eight legs in each well, an effort to significantly increase the well's recovery of light oil in place. We are following the lead of industry competitors that recently had some great success in this field with this drilling technique in the Viewfield area. This program is important for Saturn because, if successful, the new drilling pattern has the potential to lock over 100 new locations of future development. While the late year activity for the three drilling rigs will not have a meaningful impact to our 2023 annual results, we expect the increased activity to contribute to meeting our December target of 27,000 barrels a day and setting a solid foundation for the start of 2024.
I will now pass the webcast over to Scott Sanborn, our Chief Financial Officer, for a financial overview of the quarter.
Thanks, Justin. This quarter was the most successful in Saturn's history from a cash flow perspective. It highlights successful drilling program from the first half of the year, our production resumption following the impacts of the Alberta wildfires in the second quarter, strong oil prices and favorable foreign exchange rates positively impacting our U.S.-based realized price per barrel. In addition, it outlines the many company records we had in this period, including production volumes, commodity sales, EBITDA, and cash flow. Saturn's record production for the third quarter exceeded 26,000 BOE per day, up from just under 26,000 in the second quarter.
Increased production volumes, coupled with average WTI prices exceeding $82 per barrel, up from $74 per barrel, led to record petroleum and natural gas sales of CAD 201 million, resulting in pre-hedge net operating income of CAD 124 million, or CAD 51.38 per BOE, positively displaying a reduced operating and transport costs of CAD 21.47 per BOE, down from CAD 23.73 in the second quarter. The company realized record EBITDA, over CAD 100 million, up from CAD 93 million in the second quarter. Record adjusted funds flow of CAD 76 million, or CAD 0.55 per share, up from CAD 67 million, or CAD 0.48 per share in Q2. Spent CAD 35 million in development capital to realize record free cash flow of CAD 41 million.
In the quarter, Saturn repaid CAD 51 million in debt to exit September 30, with net debt to cash flow of 1.5 x on an annualized basis, down from 1.9 x in Q2. At the end of the quarter, Saturn has positive working capital surplus of CAD 28 million, with cash on hand exceeding CAD 42 million. Total development capital expenditures totaled CAD 35 million in the quarter, with the company drilling 18 or 15.3 net wells, 12 in Southeast Sask, as Justin mentioned, two in West Central, three in Central Alberta, and 1 in Northern Alberta. Total capital was comprised of CAD 26 million in the quarter, drilling completions, CAD 6 million in facilities, with the balance in land and acquisition cost and capitalized G&A. With that, I'll turn it over to any questions.
Great. Yeah, there's a few questions lining up here in the Q&A, and so I will launch into the first one here. Is your current debt payment schedule supported by 2024 strip pricing?
... and do you have the flexibility with CapEx reduction or less aggressive repayment terms?
Yeah, so I think it really depends on what the oil market's looking like at the time. So, definitely with the current strip pricing, we can satisfy 100% of our debt obligations for the next few years. In fact, in any pricing scenario, with the robust hedge book that we carry, we can satisfy 100% of our debt repayment. So by doing so, what we've aimed to do there is really take commodity risk off the table. And basically, and then our reaction to the sales price or what we're seeing for WTI is that will dictate how much money that goes against or goes towards our capital program. So whereas most companies, they kind of commit capital to the drilling program first, and the balance goes towards debt, our prioritization is balance sheet management.
So at first, we send it towards, our, our debt repayment, and then the excess cash flow goes towards sustaining capital projects. So, so that's how we have it laid out, and, and that's what we do with our, with our cash flow generated from operations.
There's a second part to this question relating to including that information in our corporate presentation. We will be putting out guidance for 2024, we expect by the end of the year. That's likely in the December timeframe. At that point in time, we can get into a little more details about our expected financials for 2024. Currently, we don't have guidance yet for 2024 published. Our next question is, can you talk about the higher prices you received for condensate and light oils, and what percent of the business is represented by this?
Yeah, I can jump in here. I think Justin could probably add some context following this. But since we're 83% light oil, or since we're 83% liquids, I believe we're about 80%, you know, 78%-80% light oil. Is that... Justin, do you have the exact split-
Yeah
... of what we're at?
Yeah, that's close. So about 10% of our production, our BOEs, is gas, about 10% of other liquids, and then close to 75%-80% of that oil blend.
There's a question here: how many BOEs per day did Saturn produce at the end of September, and what is our current production?
Yeah, so I will say we are on track to meet our guidance numbers for the quarter. I'm not sure that we can give a mid-quarter update at this time, but I will say that we're confident in our ability to meet or exceed our guidance numbers that we put out a few months back.
Okay, next question is: Have insiders been buying Saturn shares?
Actually, Kevin, I think, I think you have the answer to that in front of you.
Yep. Yeah, absolutely. So, Saturn executives have been updating their SEDI disclosures on insider transaction of our shares. I know that John, our CEO, and Grant, when he joined us as Chief Legal Officer, were buying shares this summer. We've also noticed that our largest shareholder, GMT Capital, out of Atlanta, has acquired additional 2 million shares in September. They now own 26.4% of Saturn's equity. The next question is: Has there been an increase in drilling costs, and how close is Saturn to its budget for annual CapEx?
We haven't really seen much in the way of inflation from the start of the year. But that. A lot of that is due to the scale of our program. Since we're running one straight rig in Alberta, one straight rig in Saskatchewan, there's obviously efficiencies to running a program like that. We did have a guidance of CAD 130 million CapEx a few months ago, and we're definitely on pace to fall below that. And a lot of that is led by some cost-cutting by Jamie Kuntz and our operations team. So we've seen a reduction on the facility capital that we previously thought we were gonna inject this year. So expect us to be below budget as far as capital costs on this year's guidance.
Next question: Do you expect a further increase in royalty payments in Q4?
I can take that one, Kevin. No, we do not. You're probably representing the increased royalty payments from the second quarter to the third quarter. The second quarter had the benefit of a royalty credit, related to the purchase price adjustment on the Ridgeback acquisition. So on a go-forward basis, we forecast in that 11%-13% range.
Okay, is Saturn trying to refinance its loans with lower costs?
Yeah, I think we're always trying to optimize, you know, our capital structure of the company, you know, in every format. So that's something you're gonna see us focused on here, definitely over the next 6-12 months. And just to get a capital structure that is the lowest cost, but also leaves us flexible enough, to do the things we want to do, just to achieve our, our corporate goals here, for the short and long run.
Okay. Another question here on operations. Can you expand on the increased drilling lengths of Saturn's new wells?
... Yeah, for sure, Kevin. And it's not only Saturn who's doing well. If you look at the industry as a whole, obviously, they're trying to get to greater and greater lengths to increase that capital efficiency, and we are no different. So where we have two sections of land butted up next to each other, continuous to each other, we try to see how far we can drill to help improve that, that rate of return on a per well basis. I did mention our 12-02 Cardium well earlier, being about 6,800 meters in length. We're extremely happy that we were able to execute as a program, especially with all of our drilling and completions team being in-house.
We did use a bit of a different completion technique in order to do that, led by our completion manager, Dale. So, yeah, extremely successful results as far as an execution base on that program, and we're just seeing the initial production numbers with those increased lengths. So, we're pretty happy with the results we've seen so far.
Okay, then I have a question here regarding hedging. Did you add any more hedging in the last quarter when oil prices were higher?
Yeah. Actually, Justin, I'll let you jump in, as you were the quarterback of that hedge program we did.
Yeah. In September, we hedged just over a thousand barrels a day. Front month of oil was about $87 at the time. So, if you look at where oil price is today, we are pretty happy with adding those incremental hedges.
About three weeks ago, we were questioning that choice of his, and now he looks pretty smart, so I think he's getting the last laugh.
That's great. Well, that's all I see for the questions in the Q&A, so, I'll hand it back to John, to wrap it up.
Excellent. Well, listen, I appreciate everyone's interest in Saturn Oil. I appreciate everyone taking the time this morning. If you have any further questions, feel free to reach out directly to myself or Kevin, or just directly to the company, and we'd be happy to get answers back to you. Thank you for your time this morning.
Thank you, John.
Thanks, everyone.