Saskatoon – At a time when the Financial Post is running stories about the death of the wildcatter and the great difficulty of raising capital for small producers, Saskatoon-based Saturn Oil + Gas Inc. appears to have pulled off a major coup, announcing on Sept. 14 they had secured $20 million in funding from the Prudential Capital Group out of Houston.
That day, Pipeline News sat down with four of the five-person team that is Saturn – John Jeffrey, president and CEO; Scott Newman, chief operating officer; Justin Kaufmann, vice-president, exploration and Geoff Jones, chief financial officer. Stuart Houle, vice-president, engineering, was not present at the time.
“We’re really excited,” Jeffrey said in their Saskatoon north-end boardroom.
First off, this Saturn is not the same operation of the Saturn Minerals this publication has reported on in the past. That company had started out as a gold then coal mining company before drilling and coring an oil well southwest of Hudson Bay, Sask. Not much came of that, and this team effectively took it over at that point. They changed the name to Saturn Oil + Gas, returned the exploration permits in eastern Saskatchewan to the province, and started anew in west central Saskatchewan.
“It was a complete tear down,” Jeffrey said. The main shareholder came to Jeffrey, Newman and Kaufmann and asked them to take over the company. In January 2017, they took over management, and by August 2017 the board was completely replaced.
What they did retain was the public company listing, and the Saturn name.
As for the well near Hudson Bay, Newman said, “There was no oil there to begin with.”
Since November 2017, Saturn has drilled 14 wells in west central Saskatchewan, and they surely have found oil.
“We still have another 15 wells we are planning on drilling Christmas of this year. Then there’s another five before breakup,” said Newman.
The company is primarily concentrated on the Viking light oil play at Flaxcombe, but also works in the success heavy oil play at Coleville.
Jeffrey noted that a lot of their land has stacked pay. “We can actually run and drill Viking on top, and then go deeper and pick up the heavy Success on the bottom.”
They have rights to the base of the Bakken in that area. The Bakken has gas in that region, but no one is going after gas in Saskatchewan these days. In recent years, Saskatchewan’s natural gas drilling has flatlined to almost zero.
The Viking is about 700 to 750 metres deep. Below that is Joli fou (shale) and approximately 40 metres of Mannville (sand) then Success (sand) formation, which is roughly 820 to 840 metres deep, according to Kaufmann.
With the relatively shallow wells, he said, “That’s what makes the Viking one of the best formations to drill for shallow, unconventional production. You won’t find many formations shallower that you’re completing unconventionally.”
The company started small. Jeffery noted they entered 2018 with 250 bpd production, and expect to exit this year with over 1,200 bpd, of which 85 to 90 per cent is light oil. They have no saleable natural gas, and use whatever casing gas that is produced to power their facilities burners and generators.
“That’s been our goal, and currently what we’re on track to do,” Jeffrey said.
There’s enough gas to run their facilities without having to pay for grid power. But the gas production level is low enough that they aren’t at levels where venting regulations come into play. This in part results in operating netbacks of $55 to $65 per barrel, Newman said.
They’ve got one rig going steady until breakup, with a shutdown planned for Christmas. Newman said, “Primarily, our wells are going to be extended reach horizontals, all full-miles, in Prairiedale, Flaxcombe, Coleville and Plato.”
The company has 32.25 gross sections of land. Indeed, they’ve been acquiring land at a pace where they have to print new maps. The most recent Crown land sale showed the top price paid for a single lease in this area was $235,953, paid by Saturn Oil & Gas Inc. for a 259 hectare parcel situated within the Plato North Viking Sand Oil Pool, 5 kilometers north of Eston.
Kaufmann noted, “It’s tough being a younger company, trying to explore for land in the Viking and Success plays. Lots of the bigger players have the majority of the land in the area. We have to do a little bit more work, geology-wise, and prove some edges of these pools.”
“They’re right offsetting the major producers as well.”
Jeffrey said their competitive advantage is their geology team, led by Kaufmann. The company works closely with Axiom Exploration, now known as Axiom Group. They were all affiliated with Axiom before coming over to Saturn. “That relationship with them gives us full access to all their geologists. I think between full-time and consultants, they have in excess of 10 geologists, and they’ve been largely focused on drilling in Saskatchewan. Axiom, itself has drilled over 1,000 wells in the province, and to have all that expertise in house is definitely to our benefit,” he said.
“To have this much experience, in a concentrated area like this, we’re able to see and pick up the value of land that other companies miss,” he said.
The company’s first two horizontals were drilled on land they acquired for “almost nothing,” Newman said. Those half-mile horizontals ended up being the third and fourth highest producing wells in the province that month.
“We drilled two wells on fringe land that came out at 130 barrels each,” he said.
The drilling plan between now and breakup is almost evenly spread out, with six wells planned each for Prairiedale, Flaxcombe and Coleville. Plato has two wells slated. Newman noted they started with one well in each location.
Land availability is a driving factor, according to Jeffrey.
The company is spreading out, building reserves. “We have a fairly decent-sized land base. We have plans to grow quite aggressively,” Newman said.
They would like to have 60 sections by the end of 2019, if possible, double what they have now. A year ago, they had only one section.
They raised $5.5 million in 2017. A good portion of their stock is held in Germany, from the Saturn Minerals days.
Canaccord Genuity has been onboard on the equity side.
Regarding how the market is treating junior producers, Jeffrey said, “There’s just no capital flowing into the space right now.”
There are very few equity deals going on in Canada right now, he pointed out.
“There isn’t a large appetite on the oil and gas side.”
Newman noted they wanted to start the company during this downturn, when land prices were more affordable.
Jeffrey said the $20 million is an initial tranche from Prudential, implying there maybe be more in the future.
“Now we have the runway to grow at the pace we need to,” he said. The company had 500 bpd production during the time of the interview, and they expected to have five more wells online by mid-October. They would like to add another 1,000 bpd by the end of 2019, aiming for 2,500 bpd.
A typical mile-long horizontal well costs $900,000 to $950,000 to drill, equip and complete. A half-mile horizontal goes for about $750,000. The drilling pattern is three-well pads, doing a single well first, then the next two, skidding the rig over for the third well.
The company has its own separators and treaters to clean their own oil. They’re looking at developing an old well into a disposal.
Earlier in September, Crescent Point announced it would be selling approximately 50,000 boepd of assets, and that will include assets in the Viking. That may provide an opportunity for the growing company.