Saturn closes Flat Lake and Battrum purchase from Veren

By Brian Zinchuk

CALGARY – On June 14, Saturn Oil & Gas Inc. (TSX: SOIL)(FSE: SMKA)(OTCQX: OILSF) closed a major deal with Veren Inc, which recently changed its name from Crescent Point Energy Corp.

The deal was announced late on Monday, May 6. It includes what was one of Crescent Point’s jewels in its crown, its Flat Lake play, located near the US border near Torquay and Oungre in southeast Saskatchewan. In southwest Saskatchewan, Crescent Point sold off the northern end of its Shaunavon play, at Battrum.

In February, 2018, Crescent Point had 10 drilling rigs working within one township along the US border southwest of Torquay. These were a few of those rigs. This last year, there was hardly any drilling activity in the area at all. Photo by Brian Zinchuk

The deal includes 13,500 boepd of production, roughly 9,000 boepd in southeast Saskatchewan and 4,500 boepd in southwest Saskatchewan. The total comprises 96 per cent oil and natural gas liquids. The breakdown is 11,400 barrels per day of light/medium crude oil, 1,100 bpd of NGLs and 3,020 mcf/d of natural gas.

There’s a low decline rate of 16 per cent, active waterfloods and additional secondary recovery opportunities to further enhance long term value. Ninety per cent of the acquired acreage is on Crown land, “which aids in the accretive nature of future development locations due to provincial royalty incentives,” Saturn said in May.

Veren

Veren Inc. (TSX: VRN) (NYSE: VRN) announced on June 14 it has successfully closed its previously announced disposition of certain non-core assets in Saskatchewan for $600 million in cash (approximately $540 million including closing adjustments).

“Net proceeds from this strategic disposition will be directed to further strengthen the company’s balance sheet. Veren expects its net debt to total $2.8 billion by year-end 2024 based on average commodity prices of US$75/bbl WTI and $2.10/Mcf AECO for the full year,” Veren said. “The company will continue to focus on its strategic priorities of operational execution, strengthening and optimizing its balance sheet, and increasing its return of capital to shareholders.”

The sale is part of a continuing shift of focus of Crescent Point, now Veren, from Saskatchewan, where it was once briefly the largest oil producer in the province, to Alberta. Veren’s remaining holdings in Saskatchewan, after a series of dispositions, are the Viewfield Bakken and Shaunavon plays.

On the flip side, the bulk of Saturn’s substantial growth in recent years has been as a result of buying former Crescent Point assets.

Saturn said, “The net cash purchase price of the acquisition was funded by proceeds of the recently closed 9.625% high yield note offering, together with the proceeds of the recently closed $100 million bought deal subscription receipt financing. In addition, the company has repaid and retired the entire principal amount of the company’s previously outstanding Senior Secured Term Loan. Saturn’s total current outstanding debt is now US$650 million.”

On the same day, Saturn announced that it has “closed its previously announced private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act of 1933, as amended, of US$650 million in aggregate principal amount of 9.625% senior secured second lien notes due 2029 at par.

“The notes to be offered have not been registered under the Securities Act, Canadian securities laws, or the securities laws of any other jurisdiction, and may not be offered or sold within the United States, or to or for the account or benefit of any U.S. Person, absent registration or an applicable exemption from registration requirements. The company is under no obligation, and has no intention to, register the Notes under the Securities Act, Canadian securities laws or the securities laws of any other jurisdiction in the future.” 

Saturn has also “secured a $150 million reserves-based loan (RBL) lending facility led by National Bank of Canada and including ATB Financial and Goldman Sachs Bank USA, which is undrawn at closing. In accordance with their terms, each Subscription Receipt issued pursuant to the bought deal equity financing was exchanged for one common share in the capital of the company, concurrently with the closing of the acquisition, and the net proceeds of approximately $96 million were released from escrow to fund a portion of the purchase price of the acquisition. Holders of subscription receipts are not required to take any action in order to receive the underlying common shares, and the subscription Receipts are expected to be de-listed from trading on the TSX as of the close of business on June 17, 2024.”

“Saturn will continue to focus on generating high rates of return on invested capital and maximizing the free cash flow from our low decline, oil weighted producing assets in Saskatchewan and Alberta,” said John Jeffrey, Chief Executive Officer, in a release. “The expanded free cash flow, pro forma this acquisition, will be used to pay down the notes on their scheduled 10% annual amortization schedule (to be paid quarterly) and for strategic tuck-in acquisitions. As the company de-levers, Saturn intends to implement a shareholder return model utilizing dividends and share buy-backs, subject to approvals of the Toronto Stock Exchange and Saturn’s board of directors.”

Corporate and Bond Credit Ratings

Saturn has received B corporate family rating and BB- rating on the Notes from S&P Global Ratings. Additionally, the Company has received a B2 corporate family rating and a B2 rating on the Notes from Moody’s Ratings.

Advisors

Goldman Sachs and Echelon Capital Markets acted as strategic advisors to Saturn on the Acquisition and Goldman Sachs was the lead bookrunner on the Note Offering. National Bank of Canada Financial Inc. and ATB Securities Inc. were joint bookrunners on the Note Offering and were co-arrangers of the new RBL, along with Goldman Sachs. Echelon Capital Markets acted as financial advisor to Saturn on the Acquisition and as co-manager on the Note Offering. Dentons Canada LLP was the Company’s legal counsel on the Acquisition, the RBL and the Subscription Receipt Financing. DLA Piper (Canada) LLP acted as counsel to the underwriters of the Subscription Receipt Financing. Osler, Hoskin & Harcourt LLP and Baker Botts L.L.P. were Canadian and US legal counsel, respectively, to Saturn with respect to the Note Offering. Latham & Watkins and Torys LLP were legal counsel to Goldman Sachs with respect to the Note Offering and Blakes Cassels & Graydon LLP was legal counsel to National Bank on the RBL.