Saturn Oil & Gas Inc. Announces Acquisition of Ridgeback Resources Inc. Expanding Production to Approximately 30,000 boe/d and Bought Deal Financing including Strategic Lead Orders from GMT Capital Corp. and Libra Advisors, LLC

2023-01-20

CSE - Canadian National Stock Exchange · Gold · Silver · Arsenic · Antimony · Mercury · Selenium · Molybdenum · Gypsum · Zeolite · Canada

Canada NewsWire

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR RELEASE, PUBLICATION, DISTRIBUTION OR DISSEMINATION DIRECTLY, OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES /

Transformational $525 million 1 ( $516 million using the Offering Price for the Consideration Shares) corporate acquisition expands Saturn's pro forma production by approximately 140%, on closing, to ~30,000 boe/d 2 of sustainable, light oil focused, high netback production.

The Ridgeback Acquisition, comprised of 17,000 boe/d (~71% light oil and natural gas liquids) 3 , with a proved developed producing reserve value of $915 million 4 , forecasted 12-month Net Operating Income 3 / Operating Free Funds Flow 3 of $311 million / $228 million , 99.4 MMboe of proved plus probable reserves 3 , and over 700 net drilling locations 3 , to sustain the acquired production for over 15 years. 3

Pro forma the Acquisition, Saturn will be positioned as a bonafide mid-cap oil producer with a market capitalization of approximately $292 million 5 and an enterprise value of $850 million , with run rate production of approximately 30,000 boe/d, a combined proved developed producing reserve value of $1.4 billion 3 , forecasted 2023E EBITDA 3 / Free Funds Flow 3 of $477 million / $228 million , and 163 MMboe of proved plus probable reserves 3 .

Saturn's strategy remains to efficiently maintain production and maximize free cash flow to rapidly reduce indebtedness which is expected to be fully repaid within three years, and will be evaluating various opportunities to return significant capital to shareholders.

GMT Capital Corp. and Libra Advisors, LLC have indicated that they will make lead orders and strategic investments in the Company.

Saturn will seek to appoint up to two new members to the Board of Directors to expand its technical and operational expertise, and separately the Company has entered into new employment agreements with John Jeffrey , President and CEO, and Justin Kaufmann , Chief Development Officer, to align incentives with shareholder interests.

CALGARY, AB , Jan. 20, 2023 /CNW/ - Saturn Oil & Gas Inc. (" Saturn " or the " Company ") (TSXV: SOIL) (FSE: SMKA) (OTCQX: OILSF) is pleased to announce that it has entered into an arms-length arrangement agreement (the " Agreement "), to acquire Ridgeback Resources Inc. (" Ridgeback ") a privately held oil and gas producer focused on light oil in Saskatchewan and Alberta , for a transaction value (" TV ") of $525 million 1 ( $516 million using the Offering Price for the Consideration Shares), by way of statutory plan of arrangement under the British Columbia Corporations Act (" BCBCA ") (the " Ridgeback Acquisition "). The Ridgeback Acquisition is expected to close in Q1 2023 (the " Closing Date "), subject to receipt of all regulatory and shareholder approvals.

[](https://mma.prnewswire.com/media/1987625/Saturn_Oil_Gas_IncSaturn_Oil_Gas_IncAnnounces_Acquisitio.html)

Through the Ridgeback Acquisition, Saturn will acquire approximately 17,000 boe/d (~71% light oil and natural gas liquids (" NGLs ")) 6 of low decline, capital efficient production, which, at US$80 WTI oil price, is expected to generate an operating netback 3 of $48.55 / boe resulting in annualized net operating income 3 (" NOI ") of $311 million , implying a 1.66x TV / NOI multiple. Based on the Ryder Scott Report (as herein defined), the Ridgeback Acquisition has a before-tax Proved Developed Producing 3 (" PDP ") NPV10% of $915 million , implying a 0.57x TV / PDP multiple, and a before-tax Total Proved Plus Probable 3 (" P+P ") NPV10% of $1.8 billion , implying a 0.28x TV / P+P, with over 430,000 net acres of land, in four core areas, in Saskatchewan and Alberta (the " Ridgeback Assets ").

| _ | | 1 $516 million using the offering price of $2.11 for the deemed price of the Consideration Shares, $525 million using a 5 day VWAP of $2.5765 | | 2 Forecast production comprised of approximately 24,700 bbls/d of crude oil andNGLs plus 31,800mcf/d of natural gas at the Closing Date | | 3 Net operating income (NOI) and operating free cash flow (NOI less expected 2023 capital expenditure of $81 million and less hedging expenses of $2 million) are forecasted for the 12 months following the Closing Date, at an average production of 17,500boe/d, see advisory Non-GAAP and Other Financial Measures | | 4 See advisory Reserves Disclosure and Non-GAAP and Other Financial Measures | | 5 Based on the Offering Price (herein defined) | | 6 Expected production levels at Closing Date comprised of approximately 12,000 bbls/d of light crude oil andNGLs plus 30,000mcf/d of natural gas |

"This transformational acquisition is an important step for Saturn to establish material scale in its Alberta and Saskatchewan operations, where we will leverage our high quality light oil focused production that has considerable prospective development drilling inventory, our teams track record of operational outperformance and capital efficiency, a strong hedge book, and supportive strategic equity backers like GMT Capital Corp. and Libra Advisors, LLC to mitigate corporate risk, rapidly deleverage, and sustainably grow in a profitable manner for many years to come," said John Jeffrey , CEO of Saturn. "The attractive acquisition metrics and compelling economics of the Ridgeback Acquisition paired up with our existing portfolio of free cash flow generating assets will allow Saturn to repay all corporate indebtedness within three years, and ultimately provide a significant return of capital to enhance shareholder value."

The $525 million consideration for the Ridgeback Acquisition will include a $475 million cash payment and the issuance of $50 million of Saturn common shares to the shareholders of Ridgeback (the " Consideration Shares ") at a deemed price of $2.5765 per Consideration Share ( $41 million in deemed consideration using the Offering Price of $2.11 per share). The cash consideration of $475 million will be funded through proceeds from an increase of $375 million to the Company's existing senior secured term loan (" Senior Secured Term Loan ") and a bought-deal subscription receipt financing for aggregate gross proceeds of approximately $125 million (the " Offering "). Ridgeback has no outstanding debt and is expected to have a working capital surplus of approximately $20 million at the Closing Date. Details of the Offering and the Senior Secured Term Loan are provided below.

Upon completion of the Ridgeback Acquisition, Saturn will focus on maximizing free cash flow from pro forma production base of approximately 30,000 boe/d (82% crude oil and NGL's), where after spending an expected $161 million of development capital in 2023 to efficiently maintain production levels, the Company expects to generate $232 million in free cash flow 7 to reduce net debt to $345 million at year end 2023, representing a 0.9x trailing Net Debt/EBITDA multiple.

Transaction Highlights

Sustainable High Netback Production : The Ridgeback Acquisition brings approximately 17,000 boe/d of light oil focused production that provides high cash netbacks. The Company forecasts production on the Ridgeback Assets can be maintained at approximately 17,500 boe/d by reinvesting approximately 27% of the annual net operating income from the Ridgeback Assets creating substantial and sustainable free cash flow.

Expands Existing Oxbow Core Production Area : Significantly expands Saturn's production base in its existing core development area in Southeast Saskatchewan , increasing Saturn's production in the area by over 65%, with pro forma production at the Closing Date forecasted to be approximately 12,600 boe/d (97% crude oil and NGL's) 8 .

Establishes a New Core Operating Area in Alberta : Pro forma the Ridgeback Acquisition, approximately 60% of Saturn's production will be in Alberta , offering play diversification of highly economic, light oil focused drilling.

Extensive Portfolio of Light Oil Focused Development Opportunities : The Ridgeback Acquisition brings an inventory over 400 net booked locations and over 300 net unbooked drilling locations5 for sustaining future production levels.

Increased Size and Scale: Expansion of the production base is expected to enable Saturn to capture operating efficiencies, especially within the Southeast Saskatchewan operating area, which can result in fixed and variable costs being allocated over larger per unit volumes of production.

Highly Accretive on Cash Flow per Fully Diluted Per Share: The Ridgeback Acquisition increases Saturn's 2023 expected adjusted funds flow 9 (" AFF ") at the midpoint to $393 million , or $2.33 10 per fully diluted share an increase of 25% above Saturn's stand-alone stay flat guidance. Pro forma the Ridgeback Acquisition, Saturn's 2023 AFF per basic share is forecasted at $3.12 .

| _ | | 7 See advisory Reserves Disclosure and Non-GAAP and Other Financial Measures. | | 8 Forecast production comprised of 12,200 bbls/d of crude oil and NGLs plus 2,400 mcf/d of natural gas |

Attractive Acquisition Metrics

| | Ridgeback

Acquisition | Acquisition

Metric | Recycle

Ratio | | Production Expected at Close | 17,000 boe/d | $30,350 per boe/d | - | | Net Operating Income 11 | $311MM | 1.66x | - | | Operating Free Cash Flow 8 | $228 MM | 2.26x | | | Reserves 12 | | | | | Proved Developed Producing | 39.8 MMboe | $12.96 / boe | 3.7x | | Total Proved | 67.0 MMboe | $7.70 / boe | 6.3x | | Total Proved plus Probable | 99.4 MMboe | $5.19 / boe | 9.4x | | P roved Developed Producing NPV10% | $915 MM | 0.57x | | | Total Proved NPV10% | $1,300 MM | 0.40x | | | Total Proved plus Probable NPV10% | $1,827 MM | 0.28x | |

Ridgeback Asset Summary

The Ridgeback Assets consist of over 430,000 net acres of land, in four core areas in Saskatchewan and Alberta , including:

Southeast Saskatchewan – A strategic extension of Saturn's existing and adjacent core development area; Alberta Cardium – Entry into one of North America's largest and most economic oil pools, with over 300 development drilling locations; Kaybob Montney – Highly economic, de-risked light oil play with fast payback development drilling locations; and Deer Mountain Swan Hills – High oil weighted production, with an established enhanced oil recovery program.

The Ridgeback Acquisition more than doubles the light oil production of Saturn's existing and adjoining core growth asset in Southeast Saskatchewan which targets Frobisher and Midale light oil development and adds exposure to the regional Bakken resource light oil play. The Ridgeback properties in Southeast Saskatchewan are directly East and contiguous to Saturn's existing production and development area and are a synergistic addition that will be operated from Saturn's operations hub in Carlyle , Saskatchewan.

The Ridgeback Acquisition offers a strategic extension for Saturn into some of the highest economic light oil development areas of Alberta , with sufficient scale to drive efficient development of the extensive development drilling inventory of over 700 net locations including over 400 net booked locations assessed by an independent third-party reserve evaluator.

Strategic Benefits

The Ridgeback Acquisition is an extension of Saturn's strategy to become a premier, publicly traded, light oil producer through the acquisition and development of undervalued, low-risk opportunities that support building a strong portfolio of cash flowing assets offering strategic development upside.

Stable Production with Minimal Maintenance Capital – The Company forecasts keeping the combined production base flat at approximately 30,000 boe/d through 2023 by drilling 80-100 wells across the combined portfolio of assets. The annual replacement of base production declines is expected to be achieved due to stable long-life assets, strong development drilling economics and production optimization underpinning recent drilling.

Strong Forecasted Free Funds Flow 13 – Saturn's strategy of keeping production levels flat is intended to maximize Free Funds Flow 13 estimated on a pro forma basis at approximately $232 million per year, or approximately $1.84 per basic share with an implied Free Cash Flow Yield of 87%, based on the Offering Price (defined below).

Diversified Play Exposure Enhances Sustainability – The addition of the high-quality development assets in Alberta enhances Saturn's inventory of light oil focused drilling locations including: high return, fast payback Montney development at Kaybob and an extensive number of de-risked Cardium drilling locations in the well defined light oil fairway in Greater Pembina.

Enhanced Oil Recovery Projects with Demonstrated Success – With over five years of operating history, the advanced waterflood project in Deer Mountain provides long life light oil production, with 100% owned and operated infrastructure and LACT connected battery. Saturn expects to deploy enhanced oil recovery programs to other light oil projects in Saturn's development portfolio that are predominantly on primary recovery.

High Working Interest and Extensive Infrastructure in Alberta – Each of the Alberta areas have high working interests: Cardium (68%), Deer Mountain (100%) and Kaybob (100%), (collectively, the " Alberta Assets "). Each of the Alberta Assets have extensive operated infrastructure in place to drive low operating costs and realize high cash netbacks from the light oil weighted, sustainable production. The Alberta Assets represent a manageable, low risk expansion opportunity for Saturn into the premium light oil development areas in Alberta .

Positive Environmental Performance – The Ridgeback Assets benefit from responsibly deployed capital directed to abandonment and reclamation programs with limited inactive liabilities and a strong Liability Management Rating (" LMR ") of over 3x.

| _ | | 9 See advisory Non-GAAP and other Financial Measures | | 10 Fully Diluted Shares is calculated as the total number of shares outstanding, including new shares issued in connection with the Ridgeback Acquisition, and the exercise of all warrants, options and convertible notes outstanding, including any with out-of-the-money strike prices. | | 11 Net Operating Income and Operating Free Cash Flow is based on the field cash flow from the Ridgeback Acquisition, assuming a stabilized 17,500 boe/d, based on an US$ 80 WTI price assumption, for the 12 month period from the Closing Date, see advisory Non-GAAP and Other Financial Measures. | | 12 See advisory Reserves Disclosure and Recycle Ratio. |

Updated Guidance

The following table summarizes the Company's pro forma updated operating and financial guidance for 2023. Notably, the Company's previous guidance, announced on May 31, 2022 , was based on a US$90 WTI oil price assumption so has been updated to reflect the same current US$80 WTI oil price assumption. Further, Saturn has revised its standalone, stay-flat guidance assuming the Ridgeback Acquisition closes on February 28, 2023 , with a view to maintain production at approximately 30,000 boe/d for the remainder of the year.

| Pro Forma 2023 Guidance 13 | | Stand Alone, Stay Flat

Guidance, 2023 | Pro forma Stay Flat Guidance, 2023 | Change | | WTI Oil Price Assumptions | | US$ 80 | US$ 80 | | | | | | | | | Production | boe/d | 12,500 | 27,170 | 117 % | | Adjusted EBITDA 13 prior to hedging | $MM | $269 | $523 | 94 % | | Adjusted EBITDA 13 post hedging | $MM | $223 | $475 | 113 % | | Adjusted Funds Flow 13 ("AFF") | $MM | $191 | $398 | 106 % | | AFF per fully diluted share | $ per share | $1.86 | $2.33 | 25 % | | Capital Expenditure | $MM | $80 | $161 | 101 % | | | | | | | | Free Funds Flow 13 ("FFF") | $MM | $111 | $232 | 109 % | | FFF per fully diluted share | $ per share | $1.08 | $1.38 | 28 % | | Year End Net Debt 13 | $MM | $104 | $345 | 232 % | | YE Net Debt to EBITDA | Ratio | 0.5x | 0.9x | | | Common shares out (Closing Date) | MM | 59.9 | 138.5 | 131 % | | Average common shares out | MM | 59.9 | 125.8 | 110 % | | Dilutive instruments | MM | 42.8 | 42.8 | - | | Fully diluted shares | MM | 102.7 | 168.6 | 64 % |

| _ | | 13 See advisory Non-GAAP and Other Financial Measures. |

Capitalization Overview

Guidance

2023 | Pro forma Stay Flat Guidance 2023 | Change | | Market Capitalization (basic) | $MM | $126 | $292 | 114 % | | Enterprise Value (YE23 net debt) | $MM | $230 | $630 | 166 % | | EV/Adjusted EBITDA | Ratio | 1.1x | 1.3x | | | FCF Yield (basic) | % | 88 % | 87 % | | | | | | | |

Transaction Details

The Ridgeback Acquisition will be implemented by way of a court-approved plan of arrangement under the BCBCA. Concurrent with the execution of the Agreement, shareholders of Ridgeback representing over 80% of the outstanding common and performance shares of Ridgeback (the " Ridgeback Supporting Shareholders ") executed voting support agreements agreeing to vote in favor of the arrangement resolution either in writing or at a meeting of shareholders of Ridgeback (if required), subject to the terms of the voting agreements. The Consideration Shares issued to the Ridgeback Supporting Shareholders will be subject to a contractual hold period and released as to: (A) 50% on the first anniversary of the Closing Date; and (B) the remaining 50% on the 15-month anniversary of the Closing Date. The Agreement provides for customary provisions relating to non-solicitation on the part of Ridgeback and a mutual break fee of $25 million payable in each case to the other party if the Agreement is terminated in certain circumstances. There are no finders fees payable in connection with the Ridgeback Acquisition. A copy of the Agreement will be filed on Saturn's SEDAR profile at www.sedar.com .

The Ridgeback Acquisition is expected to close in the first quarter of 2023, subject to certain customary conditions and regulatory and other approvals, including the approval of the TSX Venture Exchange (the " TSXV ") and the Commissioner of Competition pursuant to the Competition Act ( Canada ) and the Supreme Court of British Columbia .

Bought Deal Equity Financing

In concert with signing the Agreement, Saturn has entered into an agreement in respect of the Offering, with Echelon Capital Markets acting as sole bookrunner and co-lead, Canaccord Genuity Corp as co-lead and with syndicate of underwriters including Eight Capital, Beacon Securities Ltd. and Paradigm Capital Inc. (the " Underwriters ") to issue and sell, approximately 59.2 million subscription receipts (" Subscription Receipts ") on a bought deal basis. The Subscription Receipts will be offered at a price of $2.11 per Subscription Receipt (the " Offering Price ") for aggregate gross proceeds of approximately $125 million . The Company will used the net proceeds of the offering to pay for a portion of the cash consideration of the Ridgeback Acquisition. The Company has received indications of interest for more than $110 million in strategic lead orders from GMT Capital Corp., Libra Advisors, LLC and other institutional investors.

Each Subscription Receipt represents the right of the holder to receive, upon closing of the Ridgeback Acquisition, without payment of additional consideration, one common share of the Company.

If the Ridgeback Acquisition is not completed as described above by 120 days from the closing date of the Offering or if the Ridgeback Acquisition is terminated at an earlier time, the gross proceeds of the Offering and pro rata entitlement to interest earned or deemed to be earned on the gross proceeds of the Offering, net of any applicable withholding taxes, will be paid to holders of the Subscription Receipts and the Subscription Receipts will be cancelled.

The Subscription Receipts will be offered in all provinces and territories of Canada (excluding Quebec ) pursuant to a prospectus supplement to the Company's base shelf prospectus, which will describe the terms of the Subscription Receipts. The Offering is expected to close on or about January 31, 2023 , and is subject to certain conditions including, but not limited to, the approval of the TSXV. The Company expects that it will seek the approval of the TSXV to list the Subscription Receipts once issued, such listing being subject to TSXV approval.