Saturn Oil & Gas Inc.

Good morning, ladies and gentlemen. Welcome to Saturn's second quarter 2025 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. During the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. I will now turn the meeting over to Ms. Cindy Gray, Vice President, Investor Relations. Please go ahead, Cindy.

Thank you, Operator. Good morning, everyone, and thank you for joining us for Saturn's second quarter 2025 earnings conference call. Please note that our financial statements, MD&A, and press release have been filed on CDR Plus and are available on Saturn's website. Some of the statements on today's call may contain forward-looking information, references to non-IFRS and other financial measures, And as such, 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 a number of factors could cause the actual future results to differ materially from the targets and expectations expressed. The company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, unless expressly required by applicable securities law. For further information on risk factors, please see the company's AIS file on CDAR Plus and on our website. Also note, all amounts today are Canadian dollars unless otherwise stated. Today's call will include comments from John Jeffrey, Saturn's CEO, Grant Patente, our Chief Legal Officer, and Scott Van Boren, our CFO. Over to you, John.

Thank you, Cindy, and good morning, everyone. We appreciate you joining us today. I am pleased to provide an update on Saturn's second quarter. in which we once again delivered results that met or beat our guidance. For the third consecutive quarter, production was above the high end of our guidance range at just over 40,400 BOE a day, while operating costs were under the low end of our guidance. We also surpassed analysts' forecasts across numerous measures in the quarter, including adjusted funds flow of 109 million and record free funds flow of 93 million. However, the standout number in this quarter is our net debt, which was at $695 million on June 30th, a reduction of nearly $120 million over the prior quarter. This exceeds the $100 million net debt reduction that we forecasted during the first quarter's earnings conference call, and it also came in lower than consensus expectations. As a result, our net debt to annualized adjusted EBITDA fell to 1.3 times a quarter end. Saturn continues to prioritize net debt reduction as one of the components of our blueprint strategy. This is demonstrated by an opportunistic open market purchase of our senior secured notes when they traded below par during Q2 and supplemented with a schedule of 2.5% quarterly principal repayments made on the notes. In April, the company purchased 16.3 million U.S. base value notes of our senior notes in the open market, which represented an additional full quarter payment. This equals $20 million Canadian of hard debt reduction. At the end of June, we completed the schedule of 2.5% of debt advertised payments. These principal repayments, combined with our strong quarterly free cash flow and the impact of a stronger Canadian dollar, all contributed to our significant debt reduction in Q2. With the second quarter being the lowest capital expenditure period due to spring breakup, we generated record-free funds for the second quarter. The nature of our oil-weighted mid-life cycle asset base means we can pivot if needed and shift capital quickly and seamlessly. All of Saturn's earnings locations are adjacent to offsetting production, where we have existing infrastructure and operations. This allows us to wrap activity up or down very quickly. Our well licensing, surface prep, and drilling cycle times are very short. In some areas, we can even go from licensing to bringing on volumes in a matter of weeks. In light of this, we prudently took some extra time during Q2 to monitor commodity prices and the broader economic environment before starting to execute our Q3 capital program in July. Another component of our blueprint strategy is to identify M&A opportunities to acquire low-cost, high-quality barrels that are established operations. We aim to transact on assets that can be acquired for a two times cash flow or less, or a value that approximates the asset's PDP. This allows us to enhance the upside by capturing synergies, reducing costs, and optimizing the performance of the assets. During the quarter, we closed a $5 million corporate token acquisition in Southeast Saskatchewan, which is complementary to our existing operations provides drilling locations and future upside, and is estimated to contribute over 100% of the purchase price to the capital of the company over the next 12 to 18 months. Whether small or large, our strategy is to acquire and integrate these assets that have rapid paybacks and identify opportunities for enhancements. We'll continue to look for complementary packages that can further enhance Saturn's portfolio and drive ongoing value creation. With a discount market valuation relative to our net asset value, the company has continued to allocate free punch flow to the purchase of Saturn stock through the normal course issue bid, or the NCIB, and we lost our inaugural standard issuer bid, or the SIP, in early June. Buying back our own shares reflects our view that Saturn's barrels are the highest quality and most undervalued available in the marketplace today. Therefore, we continue to maximize daily purchases shareholders and casting around 2 million common shares. Since Saturn's share price steadily increased following the SIV announcement, including a few days trading above the $2.50 offer price, we only seen 1.6 million shares tendered out of a total of 7 million shares offered, returning 3.5 million to shareholders. The SIV proved beneficial to all shareholders. Since its announcement, our market cap has increased by over $100 million with significant expansion of our trading liquidity. Under both the SIP and the NCIP, Saturn has bought back over 11.2 million shares for cancellation since August of 2024, returning approximately 24 million to shareholders and further enhancing our per share metrics. Over the past several quarters, Saturn has maintained a steady, stable execution of our strategy. We continue to fulfill our promise that the market remain disciplined and optimistic and transparent. Our asset base and innovations from our team provide an ideal blueprint for creating lasting value for our shareholders. I'll now pass it over to Grant to talk through a few development highlights in a quarter. Thanks, John. In the second quarter, Saturn's volumes averaged 40,417 DOE per day, which is above our quarterly guidance and higher than our analysts' expectations. It reflects our ongoing well of performance and our tight curve. salt state of our DPL 50 and 21 well. It is a two-mile, eight-leg, open-hole, multi-land well that was among the top three best-performing Saskatchewan liquid wells in May. In addition, three of Saturn's blockhead-extended reach horizontal cardium wells were ranked in the top 15 wells in the Alberta Cardium. Since those wells have fully paid up, we're seeing reverse declines with production volumes increasing after 30 days. One of these wells has had the longest carting well ever drilled, over 7,570 meters, which successfully utilized an innovative hybrid completion technique that the Saturn team developed. We intend to apply this hybrid completion technique in our other areas, including our cave-off bonding, where we are drilling the first ever three-mile lateral in the area. Being able to drill longer laterals while still maintaining the ability to effectively stimulate the and conventional Saskatchewan assets. We are also very excited about the progress made in the company's first dupil-bottom water flood project at Creelman, where we have just commenced water injection. We're modeling an estimated 12 to 18 months in order to pressure up the reservoir before we start to see results, with the offsets providing pressure support for new walk-in development wells that we're planning in 2026. The Creolin Water Flood Project includes a new water source well, area infrastructure, and five ejector conversions to date. This is the first stage of a larger, multi-year water flood program over a greater detailed area, targeting the flattening of the decline curve to support a material increase in the ultimate recovery of future flood preserves. Investing in water flood projects today can meaningfully improve our long-term sustainability by increasing recoverable volumes and boosting reserve value. Using simple math, if Saturn had a field with 100 million barrels of oil in place, and we increased the recovery factor of the field from 6 to 20%, it would represent an incremental 14 million reusable barrels. Applying our Q2-25 netback of $36 per VOE translates into an incremental capital of over $500 million. This magnitude of impact from water flood provides significant and lastly durable benefit and value creation. With that, I'll hand things over to Scott for an overview of our financial results. Thanks, Grant. Good morning, everybody. Saturn posted another robust quarter with cash flow of $109,456 per share, record free funds flow of $93,048 per share, against the backdrop of an 11% decline in the WTI prices quarter-by-quarter and a Canadian dollar strengthening relative to the U.S. dollar. Operating net back per VOE was $35.84 after derivatives, supported by lower operating costs at $18.28 per VOE, and reduced royalty expenses $7.68 per VOE.

Operating expenses per VOE have remained the lower guidance range of $20.2060 per VOE in 2025, although we anticipate objects will trend closer to guidance in the latter half of the year as capital expenditures increase.

Better exit of the quarter was $695 million of net debt,

comprised of 569 U.S. principal posts and name on our senior notes, and an adjusted working capital surplus of $69 million, inclusive of approximately $49 million in cash. The leverage ratio now sits at 0.3 times net debt to annualized adjusted EBITDA, down from 0.4 times at year-end 2024. As I mentioned, we were able to accelerate debt reduction in Q2 with an open market purchase of U.S.

$16.3 million, equating to approximately $20 million Canadian, of our senior notes when they traded down to the lowest $86 relative to par. Significant equity in bond market volatility caused by tariff uncertainty presented an attractive opportunity to purchase our bonds at a discount.

Management also participated, purchasing approximately $900,000 of our senior notes, providing another signal of our belief in Saturn's future potential and inherent value.

Our C2 countback to approximately $16 million was at the low end of the quarterly guidance range, reflecting limited activity during spring breakouts. and driving free firm flow, we have provided the company with minimal flexibility around future capital allocation systems. Saturn's liquidity was further enhanced with the renewal of our credit facility in the port.

With our renewal, we added an uncommitted $100 million in porting features for our existing $150 million facility, allowing for the expansion of up to $250 million in total. As a result, inclusive of cash on hand, we have up to $300 million in total liquidity. Looking out to Q3, we are expecting capital expenditures to range between $80 and $90 million, with average volumes between $37,000 and $38,000 BOP per day. This reflects the minimal capital spent due to, along with the delayed start of our Q3 capital program, as we firmly elected to monitor market conditions given commodity price volatility.

Thanks again to everyone for joining us today, and I'll hand over to the operator to commence the Q&A.

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're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Adam Joe with Ventum. Please go ahead.

Hey, good morning, guys. Great job on the quarter. A couple questions for you. First off, OpEx performance has been pretty solid since closing the Flat Lake Bantram acquisition in Q2 last year. Is there much more room for reduction, or are we getting kind of to the optimization of the OpEx structure within the current company?

Well, with more size and scale, we're able to grow and utilize the infrastructure advantage we have in one of our core areas. That being said, we're pretty comfortable sticking with our guidance of around $20 a barrel. We've been coming significantly below that lately. We're pretty confident that we can continue to find efficiencies and trim, but I'm not sure you're going to see as big of step changes as you have. But we're quite comfortable in our ability to deliver in excess of the $20 a barrel that we've got towards it.

Okay, great. And then just on production, you know, you have been outperforming over the last couple of quarters here. Any thoughts on potential to reduce CapEx and still hit guidance, or is the preference to keep CapEx where it is and have volumes come in higher than expected?

So we're pretty happy to be flexible in the context of the markets. You know, if we see oil up here in the 70s, I think that would be an encouraging sign for us to continue to drill. Somewhere in the 60s or even low 60s, we might alter that a little bit. We do have that cushion, which is great because we have seen such strong performance from our wealth. Really, we just want to be reactive to the market. I think we're just going to continue to monitor it. We'll add or subtract capital depending on what the market forces are giving us here.

Okay, great. And last question for me. You know, through Q2 and Q3, you've been buying back shares, did the SIP, and also accelerated debt repayment. How are you weighing the two in terms of allocating free cash flow into the back half of the year?

Yeah, it's basically we're just trying to balance opportunities in front of us. So when we've seen our bonds dip a little bit on their trading face value, we were able to use them. If that would like to step in and purchase it, again, we did that last block and average of 87 cents on the dollar, which we really liked. Obviously, then we did the SIP, given that we were trading below $2. But even here, where we're trading now at $2.60, still well below our DAB, our PDP now almost half. So there's still these value in the stock. I'm still looking if we have excess cash flow to retire as much debt as we can. So You know, balancing all things and seeing what pricing comes in at and seeing what opportunity costs there are in the market. You know, we did that small tuck-in acquisition of that company that we announced. Even that will return over 100% return in the next 12 months. So, you know, just trying to balance all the different uses of capital, but definitely monitoring everything from buybacks to the debt retirement to tuck-in acquisitions.

Okay, great. Thanks for the answers. That's all for me. Thank you, sir.

The next question comes from Jamie Summerwell with Broad Canada. Please go ahead.

Good morning. Thanks. If it isn't too commercially sensitive, can you provide some thoughts on the service industry cost trends and the competitive landscape for those services coming out of spring break and how you're managing your relationships there? You're stressing your flexibility on spending. So I imagine you're not fully contracted and committed to spending your 2025 budget. But it's always an art in terms of how you manage those relationships. And I'm particularly interested to know if you're seeing any differences between Saskatchewan and Alberta in terms of cost trends.

Yeah, I think that's a great question. So what we are seeing is I guess on the first point, we are very flexible, so we don't. So, you know, if we see oil prices collapse, you know, within a week or two, we can completely shut down an entire capital program if we thought that was the right move. We do not have drilling commitments, and most of our land does not face expiry, so we have that flexibility that a lot of companies don't have. And again, most of our assets are relatively short turnaround, short life cycles, to get in one line. Most of our fields, again, in a few weeks, we can get production online. So it's not like a lot of the deprivation guys where they have six to nine months' paths that they have to drill. But what we are seeing, because of some of the softness in oil price, we are seeing prices come in a bit. We went to tender here in the start of the second quarter. We are seeing service companies get more aggressive with their pricing. Now, most services... on the drilling capital side, are relatively fungible between Alberta and Saskatchewan. In Saskatchewan, moreover, when you're seeing more of the operating off-cost services, you are seeing that they're a little less fungible. You're seeing some prices there come in a little better, but in terms of drilling completion, lots of that equipment can move relatively easily between the two provinces. That being said, we are seeing prices come in a bit, which helps. I think that's just a reflection of everyone's kind of pulled back on their capital a bit. And I think everyone's just reacting to the uncertainty in the market. So we are seeing some prices come in. I don't know. We've got Google here, our exploit manager. What are we seeing? Three to four to five percent reduction? I think that's well within the realm of possibility there. There are definitely willing to work with us. That's something that we've been very strategic about how we plan and schedule our developments is to try and make us an operator that they like to work with because we try to bring in rigs and keep them working pretty full time. So that helps us with some of our leverage in terms of getting decent prices. But yeah, we're certainly not expecting an increase from what we would have seen in Q4 and Q1.

Very helpful. Thank you. Thank you.

The next question comes from . Please go ahead.

Hey, guys. Good job on the quarter. Given how well the are performing, how much more evidence do you need before you get credit for a better type curve?

Well, I mean, type curves are being adjusted every year. So they're constantly being moved up and down. For example, if you look at our biking, you'd notice that three years ago, we were 40% to 50% above type curve. Last year, we were 20%. Two years ago, we were 20%. Last year, we were about 5%. That's not that our wells are getting worse, that the type curve just keeps getting adjusted up. The performance is relatively similar across those three years. So within the margin, they're always being adjusted up and down, kind of give and locations and giving the offset peers. Doug, any comments on that? Again, something we've got to be mindful of too is there's nothing certain in this business in terms of deliverability. We do have a bit of risk built into some of those curves as well, which should play out kind of the average over the course of a longer period of time. So while we do see some good outperformance, we are cognizant of that and

are certainly strategizing towards delivering wells that meet or exceed our type curve.

But some of that, too, is making sure that we can be pragmatic about what we promise to the market in terms of the deliverability of these wells. So we are continually looking at that. We do make continual changes to our type curves and look at each drill individually on what our expectations are for that drill. But that's kind of our approach to type curves. Any word you're looking for might be sandbagging, but that's all right. No, that's one thing we, you know, we always want to over-deliver, under-promise, over-deliver. But, as Debbie said, our tech curves do adjust up when we do consistently come in over. But that's just it. We don't want to over-promise at all. So, so far, you know, we've been a combination of lucky and good. But to date, you know, we're pretty happy with the direction of our tech curves creeping up. and our consistent ability to come in over those still.

Got it. Your guidance for CapEx for the third quarter, how does it track versus your full year CapEx guidance? I think it was 300 million.

Q3 will certainly be one of our more intense quarters in terms of activity.

We are planning to drill 21 wells over the course of the quarter here. I mean, again, that's strategically important to us.

It is also the cheapest time of year to drill wells because you don't have to heat fluids.

It's a little easier. People work a little quicker when it's warmer outside. So getting around, it's just generally drier.

Building outside is cheaper. So you'll see us definitely have a pretty strong quarter in terms of our activity. Yeah, those 21 wells that we plan to drill over the course of the quarter there. I would indicate that. Yeah, our top backs is always weighted heaviest in Q3, second in Q4, third in Q1, and almost nothing in Q2, as we've just seen. So the inverse of that is always true with your free cash flow as well. So if you look at Q3 and Q4, those are going to be your lowest free cash flow quarters. Q2 will be your strongest, followed by Q1. So And that's just given the drilling season, given breakup here in Canada and the fields that we drill. So I think a lot of people have to keep in mind. I know in the past we've got questions, especially after Q3 and Q4, saying, hey, where's all this free cash flow? And now in Q2, they're seeing all of the free cash flow. And we don't want people to think that they can analyze that over the year either. So there is a seasonality to this. And that's our capital and free cash flow. We're inversing a little bit. There's also a piece of the flexibility that we offer with the wells that we target. I think we can be a lot more selective about when we do this to take advantage of that seasonality with the market, whereas if you're drilling big, long deep pads, you have to just be steady and continue and counter stop operations for weather.

Right, but following the logic that you just mentioned, 3Q being the highest capex quarter, your guidance is 80 to 90 million. So if I just extrapolate, and it's a rough math, but if I extrapolate that, I think you'll end up less than 300 million.

Between that and Q4, I believe we're on track to land somewhere around that 290 range again. With our guidance number of, I think we got it to 305, We are seeing some prices come in, again, that 3% to 5% better. So we are looking, we are internally guided to spend a little less than the original guidance summary, again, that's sort of given some of the cost savings that we have to be. So right now, I think we're still on track to about that $290, $295 range. Yeah, if you're context, about 10% of CapEx is spent in the first half of the year. The residual will be spent in the second half. So all in that approximately $300 million consistent with guidance, no changes done.

Got it. And out of the cost outperformance in second quarter, how much of that from a dollar per BOE perspective came from carbon tax, carbon tax waiver?

Just to say the carbon tax savings we've seen around the Saskatchewan side, So far, we haven't seen it come through on the Alberta side. Again, how do you really quantify the savings to our service companies? So, in part, there's a bit of a slowdown and a bit less money being drilled. So, that obviously causes some of our providers to get a little more aggressive with their pricing that lots of our costs for the carbon tax will be exactly quantified. I would say we are looking at somewhere in that $15 to $20 million a year range savings from carbon tax and then the balance being from using our size and scale and that infrastructure advantage we have in our report areas. So between those two things, we are fairly positive that we'll be able to continue to beat on the operating costs of it.

And how much visibility do you have on that? Is the carbon tax waived forever? Is there a deadline?

Yes, Saskatchewan, Saskatchewan came out and they have eliminated that carbon tax out of the province. Now, I'm not sure if that actually gets reversed, but in the current form and the current government that it is being eliminated, in all forms, and what we're seeing here should be permanent, barring any other geopolitical changes to the problems of the federal government.

Got it. Thank you. That's it for me. Thank you.

The next question comes from Michael Book with Athena Capital Markets. Please go ahead.

Good morning, guys. Just a quick question from my side. How should investors view the company's appetite for acquisitions given the current debt load with 300 mil in liquidity and your equity currency up 24% months to date? Thanks.

Yeah, again, over the last four years, we've looked at 104-year acquisitions. It really has to be the exact one to fit. It has to be The creative, it has to be able to help us achieve our deleveraging over the next few years. It has to be something that we know that we can increase production and value on all the while, you know, how we've been able to buy all of our acquisitions and the metrics we generally use, two times cash flow, less than PDP on strip. So there's a number of things that we look for before going after an acquisition, which is, What makes some of these smaller ones very appealing to us? You've seen us do a browser down acquisition last year, as well as a couple of smaller ones this year and last year. And I think that is what we're going to be more focused on, the smaller track ends that might not be material in the aggregate. We were increasing drilling locations. We're able to get it in our core areas. So, again, it's a constant battle of, Are our dollars better off retiring debts? Are we better off to buy shares? Or can we do a small-pocket acquisition that is accretive at the end of the day? So we are constantly balancing all of those aspects. You know, why we were kind of so aggressive here in the last quarter or two is we did find ourselves with upwards of $100 million of cash, not really a productive asset for us. So if we can use that to retire debt, buy back some shares, and look for those right tuck-in acquisitions. That is something we continue to do to balance liquidity and balance the opportunities that we find in the market.

Do you have a bias right now in terms of using more leverage on the acquisition versus your equity capital, or is it case by case?

Well, We think our shares are highly undervalued. I think a lot of the response that you're seeing in the market on the other side is also because of our rapid de-referencing. So we're pretty happy with both of those things being true. I think the shareholders want to see that leverage continue to come down, which is great. And I also think that until we can get our share price a lot closer, if not in excess of our PDP now, which should be around $5 a share, I think at that point we'd be looking a lot more comfortable issuing shares. I think that would more appropriately represent the value that we see. However, in the meantime, you're continuing to pay down debt. But if we do do an acquisition, does it solve for is our debt materially lower in the next few years than it otherwise would be? So these are some of the things we look for. before pursuing an acquisition or buybacks or other such distributions of cash.

Last question from my side. Are you seeing better deals in certain areas of your three core areas?

No. No, we're not, actually. In fact, we've seen some assets. I think we've said this publicly before. We looked at an asset in southeast Saskatchewan, quite a number of synergies with it. In fact, we looked at, we submitted a price somewhere in that 2X range, two and a half, and it went for five. So, you know, I think there is some additional dollars creeping in. U.S. private equity seems to be backing a couple management teams now, which is probably a good thing. You know, more interest, more capital coming back to the space just means our But, no, we are seeing asset prices creeping up in some of our core areas. But, again, that's a great thing for the industry, and that's a great thing overall. And, again, the assets that we have just become that much more valuable in the marketplace. But, yeah, we've definitely seen asset prices creep up over the last 12 to 18 months.

Yeah. Okay. Thanks for your time. Thank you.

Since there are no more questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.