Saturn Oil & Gas Inc.

Good morning, ladies and gentlemen. Welcome to Saturn's second quarter 2026 results conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After management's remarks, there will be an opportunity to ask questions. To join 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 We're pressing star then zero. 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 thanks for joining us to hear management's remarks about our Q2 2026 results, along with commentary on our increased 2026 guidance. Please note that our Q2 financial statements, MD&A, and press release are all filed on CDAR Plus and available on our 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 statements, whether as a result of new information, future events, or otherwise, unless expressly required by applicable securities law. For further information on our risk factors, please view the company's AIS, filed on CEDAR Plus, and on our website. And I would also note all amounts discussed today are Canadian dollars, unless otherwise stated. On today's call, we'll hear from John Jeffrey, Saturn's CEO, Justin Kaufmann, our Chief Development Officer, and Scott Sanborn, our CFO, followed by a Q&A. I'll now hand the call over to John.

Good morning, everyone, and thank you for joining us. Q2 was a standout period that truly showcased Saturn's abilities. With production of over 41,000 BOE a day, we again exceeded guidance and market expectations for the eighth consecutive quarter. Saturn generated cash flow of over $123 million, with more than $82 million of free funds flow. We achieved this while accelerating capital, making accretive acquisitions, repaying debt, and returning capital to shareholders, despite spring breakup conditions and weather-related downtime in June. One of Saturn's greatest competitive advantages is the flexibility of our asset base and the agility of our capital development program. With oil prices strengthening throughout the second quarter, we elected to accelerate capital from the second half of 2026 into Q2. and thanks to the strength of our development team, we were able to mobilize rigs about five weeks earlier than originally planned. This brought forward activity into a stronger oil price environment to further optimize our economics. In addition to our development drilling program in Q2, we pursued value creation through opportunities through tuck-in acquisitions. This continued into July with the acquisitions of Burgess Creek and Triland Energy. Both acquisitions are highly complementary to our existing Southeast Saskatchewan operations. They add material drilling inventory, increase infrastructure utilization, and further strengthen Saturn's scale in one of our highest return areas. The transactions were completed at less than two times cash flow and sub-PDP, exactly in line with our acquisition strategy and highlighting the value we can create through discipline consolidation. This exemplifies our blueprint strategy, acquiring assets that are contiguous to our existing operations with opportunities to optimize production, improve efficiencies, reduce operating costs, and deepen our long-term development inventory. That implies to build on this success and we'll continue pursuing opportunities to further consolidate in all of our core areas. Also in July, Saturn priced a new dual tranche US Canadian dollar denominated senior unsecured note as well, and announced the planned redemption of our senior secured notes. This transaction represents an important evolution of our capital structure. Not only does this refinancing reduce our effective interest rate by over 200 basis points, it extends our maturity profile by 24 months out to 2031. We have significantly improved our financial flexibility by moving to an unsecured note structure with a more relaxed covenant framework and enhanced our control over capital allocation. Rather than a mandatory 10% amortization payment each year, the new notes feature a semi-annual offer to repurchase at 2.5% of the principal. Concurrent with our Q2 results yesterday, we also issued increased guidance for 2026. and an updated outlook that reflects continued outperformance in the field, recent successful acquisitions and enhanced financial flexibility due to that refinancing. Our updated 2026 guidance reflects meaningfully higher activity levels throughout the balance of this year, resulting in stronger cash flow generation and greater organic growth over our original guidance. We anticipate net debt to perform an adjusted EBITDA year-end 2026 to improve to approximately 1.4 times compared to 1.6 times under our original guidance. This is even more compelling given that we expect leverage metrics to improve with the expanded capital program, accretive acquisitions, and accelerated growth. This outcome highlights both the quality of the assets we've acquired and the strength of our underlying business. Saturn continues to evolve, becoming a larger and more profitable company. I want to congratulate our team for their efforts in delivering results for our shareholders and for the team's unwavering commitment to safety. Success is truly realized when all employees get home safely to their families at the end of every day. I'll hand over to Justin to walk through our plan development program that underpins our increased 2026 cash flow and free cash flow profile. Justin?

Thanks, John, and thanks again to everyone for joining us this morning. Operationally, the quality of Saturn's assets and the consistency of our team's execution was clearly on display in Q2. As John mentioned, rigs ended in spring breakup earlier than anticipated to take advantage of strong commodity prices and kicked off drilling in late May. By June, we were able to deploy five rigs in Saskatchewan, which resulted in 17 gross wells being drilled and brought in production during the quarter. Although some weather impacts in June created temporary downtime and delayed portions of our capital program, our average Q2 volumes exceeded our guidance and analyst expectations once again, an achievement we are very proud of. Our open-hole multilateral drilling program has continued to outperform and remains a focus within our development portfolio. During the quarter, we drilled our first open-hole multilateral 12-acre well at 760, which came in above our 180-barrel-a-day type curve expectations. We drilled our second Torquay open-hole multilateral well at 8-22 in July, which is currently cleaning up and is showing strong initial production signs. Saturn's continued success drilling open-hole multilaterals across four different formations in Southeast Saskatchewan is improving our capital efficiencies while increasing confidence in both the quality and scalability of our drilling inventory. In this high oil price environment, we see compelling returns across our entire asset portfolio. As such, we have expanded our 2026 capital program to include projects in West Central Saskatchewan and Alberta, and we have built on our existing Southeast Saskatchewan program. Saturn has continued to identify drilling targets where our teams deliver robust returns, prove future resource pools to potentially expand our inventory, and optimize infrastructure utilization, all while maintaining capital discipline. As part of the updated guidance, we are increasing Saturn's 2026 Development Capital Program to approximately $365 million at midpoint. This revised budget remains focused on projects with short half-cycle paybacks, strong rates of return, and high liquids cutting. Approximately 85% of our capital budget is directed towards drilling, completion, and tidying activity, which reflects the confidence in the underlying economics of our inventory and abundant infrastructure and takeaway capacity in our core fields. In total this year, we expect to drill 156 gross wells Approximately 100 of which are in southeast Saskatchewan, 37 in west central Saskatchewan, and 19 in Alberta. We're also excited to continue applying our open-hole multilateral expertise to new plates. This includes drilling our first P2 spearfish sands open-hole multilateral well in southeast Saskatchewan to expand the pool boundaries, and drilling our first Lower Shawanoven open-hole multilateral well. If successful, this Lower Shawanoven test could potentially unlock a significant untapped resource plate. As we move through the third and fourth quarters, Saturn's development activity is expected to ramp up significantly. With a combination of organic production growth and recent acquisitions, we anticipate exiting 2026 with production between 48,000 and 50,000 barrels a day. We need approximately 84% to higher value oil and liquids. This represents Saturn's strongest organic growth period on a per barrel basis in our history, which we are balancing with a disciplined approach to capital allocation. I'll now turn it over to Scott to discuss the Q2 results and our 2026 financial outlook in more detail.

Great. Thanks, Justin, and good morning, everyone. Saturday's Q2 financial results reflect another strong quarter highlighted by record revenue of approximately $359 million, adjusted fund flow of $123 million, or $0.68 per share, and free fund flow of more than $82 million, or $0.46 per share. The combination of continued production outperformance and strong oil prices drove healthy margins, which we achieved while repaying debt, funding an accelerated capital program, completing multiple acquisitions, and continuing to return capital to shareholders through our NCIB, or our Shared Buyback Program. On July 22nd, Staten successfully concluded our NCIB, having repurchased over 12 million shares in open markets from August of 2025 to July of this year. Since launching our Shared Buyback Program in 2024, We've returned nearly 66 million to shareholders and retired more than 24 million shares at an average price of $271. Reducing our outstanding share count by roughly 12%. Later in August, we intend to renew the SAB for another 12 months. While strong quarterly oil prices led to increased revenue and cash flow, they had an offsetting impact showing our realized hedging loss in the period. Our hedge program continues to perform its intended function of protecting downside risk and ensuring Saturn generates stable cash flows Amist the volatility across pricing cycles. We view hedging as insurance. It supports the long-term resilience of our business, ensures we can meet our obligations, and allows management to confidently make capital allocation decisions. As such, we continue to be opportunistic with our hedging program, maintaining downside protection while preserving meaningful exposure to prior oil prices. As John mentioned, we also priced a new issue of Senior Unsecured Notes in July, comprised of a dual tranche issue of $575 million U.S. at 8.5%, and $185 million CAD at 7.5%. There are numerous benefits to refinancing now, both from a financial and strategic perspective. Strategically, the new notes give Saturn much greater flexibility due to the unsecured nature, which is advantageous to the equity holder, relaxed covenants, extended tenure to 2031, and replaces the mandatory annual 10% amortization payment and an approximate 5% premium with an annual 5% offer to purchase at only a 1% premium. Financially, we benefit from significantly lower blended interest rate, enhanced liquidity, and increased flexibility to continue executing on our blueprint while maintaining our debt reduction commitment. We believe these changes are key to Saturday's ongoing evolution and support the larger scale business we've become. Within the quarter, we added to our total liquidity by increasing our boring base on our credit facility to $500 million with an election of $200 million. allowing for an expansion, if needed, depending on market conditions. The facility will remain undrawn on closing our notes on July 30th. Looking ahead, we expect Q3 capital spending to increase between $165 and $175 million as development activity ramps up across our portfolio, supporting a Q3 production forecast between $42,000 and $43,000 BOE per day. In connection with our revised guidance, on an annualized basis, The company expects to achieve adjusted funds flow between $535 and $570 million or between $295 and $350 per share, driving free cash flow of $150 or between $150 and $200 million after expanded capital expenditures between $355 and $375 million. We remain committed to debt repayment and will make our first semi-annual offer to repurchase at 2.5% of the principal on our new notes at 101 on January 30, 2027. As John indicated, we expect leverage metrics to improve by year-end 26 as we forecast net debt to annualize pro forma adjusted EBITDA between 1.3 and 1.5 times, lower than our original guidance of 1.4 to 1.7 times. Saturn has entered the second half of the year with a stronger asset base, deeper inventory, enhanced flexibility, and a development program designed to drive organic growth. Combined with improved leverage metrics and continued focus on shareholder returns, we believe the company is exceptionally well positioned for the future. With that, I'd like to thank everybody for your time this morning, and we'll hand the call back to the operator to begin the Q&A. Operator?

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please Pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We'll pause for a moment as callers join the queue. Your first question comes from the line of Amir Arif with ATB Cormorant Capital Markets. Your line is open.

Thanks. Good morning, guys. A couple of quick questions more related to the guidance side. I know there was no exit production provided previously, but relative to where it would have been versus the 49 midpoint. Can you just try to give us a sense of how much of that is acquisitions and how much of that is organic? I know the Burgess Creek was around 2,400, but just curious in terms of the third quarter acquisitions plus the tri-land acquisition, if you can just give a rough breakdown of how much of the growth is acquisitions versus organic by year end.

Hi, good morning, Amir. I'm going to pass over to Justin Kaufmann.

Good morning, Amir. Roughly about $5,000 of that would be from organic ads and about $4,000 at year end from acquisitions.

Okay, and I appreciate that color. And then finally, just a second.

And just to add to that, I believe our midpoint of our exit was $38,000 to $39,000. It was somewhere in that $38,000 to $39,000 range on the prior guidance.

Okay, now that's helpful. and then just, I know it's a little early to think about 27 guidance, but if you think of the higher production base of 49 and with a little more organic growth, you might have a little higher decline rate, but just curious, how much capital do you think you'll need as you head into 27 to sort of hold that level flat?

At that level, it'd be around 400.

Okay, still 400. Okay, sounds good. That's all for me. Thanks, guys.

Your next question comes from the line of Adam Gill with Ventum Financial. Your line is open.

Good morning, guys. Just one question for me about how much of the capital is going to be spent on the lands prior to the acquisitions that you've kind of done over Q2 and Q3, and then how much is going to be spent on the acquired lands?

Hey Adam, Justin here again. We'll spend around $15 million on the acquired lands. The rest will be on Saturn legacy assets. Okay, great. Thank you.

Your next question comes from the line of Dan Payne with National Bank. Your line is open.

Hey guys, I just want to kind of go back to the blueprint strategy where you've been very active on A&D. Obviously acquiring a ton of assets here, but one of the pieces to that blueprint strategy is bringing synergies and efficiencies to the assets. Can you just talk about the magnitude of synergies and efficiencies that you see being relevant to these assets and how that might impact what was already a very low acquired multiple?

Yeah. Yeah, that is a great part of our strategy, and that's why we like these assets so much, because it fits so well with our other assets in the area. We can utilize our bigger infrastructure base, our operators, our labor pool that we already have down there, and more importantly, we can utilize our economies of scale. So we have mapped out on these acquisitions is we have a cost savings model that we are projected at about $2.5 to $3 a barrel. between those two acquisitions. And that's basically the things we can see immediately. I think down the road we'll be able to improve on that even more as we get our hands around these assets. Perfect. Thanks, guys. Thank you.

Your next question comes from the line of Parveen Mamedov with Equinox Partners. Your line is open.

Hi, congrats on the release. Some of my questions were already answered, but one question that I have is, so for this year, when we talk about free cash flow guidance, you kind of get the benefit of acquisition production, of the acquired production, but not the cost. So I was wondering how much in acquisition cost you would expect for this year?

Sorry, I'll pass that over to Scott to answer.

Yeah, on a total calendar year 2026, total A&D cash costs will be in that $220 million range, so about $217 million. $217 million.

Okay, and another question that I had is around hedging losses. What kind of hedging loss at ADWTI do you assume for the year? I would guess it should be around $150 million.

Yeah, you're in the ballpark.

Okay. And then the policy is still roughly 50% of production hedged for 12 months onwards, right?

Well, that's one of the great things about this new note is because we don't have the same covenant, so we don't have to have that quarterly 50% minimum. And this allows us to be a lot more flexible in our approach with this. So we are still targeting, now we're targeting a bit of a wider range, anywhere from 40% to 60%. And again, that's just internal. So if we like the pricing like we do right now, and we can see pricing kind of over that or north of that $80 range, that gets us a little more excited to hedge. However, as we were in this scenario there in the fourth quarter of last year, going into Christmas time, oil was in that low 60s. We were forced to layer on hedges at that time. So it's those type hedges that we'd like to avoid now that we're able to with the flexibility of this new note. However, that gives us more room and flexibility to be a little more aggressive when times are high like we've seen in the prior three months there. Again, still targeting roughly the same, maybe a little bit lower, anywhere down to 40% or so on the low end. It could be as high as 50% to 60% on the high end. But because we don't have that stringent covenant, we can be a lot more flexible and choosy about when we layer them on.

Got it. That's helpful. From the hedges that are in place right now, it's roughly, I think, around $78 million.

are you asking the question on our existing average hedge price or the price that we'd be willing to hedge given strip pricing?

Well, from what I see for the first half you have roughly on average around that number and I'm guessing that is the number that you're willing to hedge or it has changed and I guess the bigger question is what is the I think that's a really strong price and I still think that's a really strong price.

Yeah, I think that's a great level for us, kind of $75 to $80 plus. Those are really good ranges that results in just a ton of free cash flow and cash flow for the business. So if we can lock in those economics, we're happy to do that all day. All right, thank you.

And last question from me. Is there some small changes on operating side like price realized versus WTI royalties? I think the percentage picked up a little bit. Is it just temporary, just a quarter sensitivity or are there any big picture changes to it?

I'll pass that to Scott. Thanks, John. What you're seeing generally is just the seasonality. So due to break up as volumes come down, the per BLE metrics will come up. As we expand our capital program and move forward, with that volume, that per barrel metric will go down. So generally speaking, your second quarter is always the high peak that we see throughout the year. In terms of royalties, that is true as well. What's adding to the slight increase there is just the increase in WTI prices. So as most royalty frameworks are on a sliding scale with production and price, as price goes up, so too does the royalty rate. but generally speaking we're seeing world zero rates in line with our guidance that was previously issued. So a little blip here for the spiking prices but should come down as production increases.

Okay, thanks so much.

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.