First Berlin Equity Research has published a research update on Saturn Oil & Gas Inc. (ISIN: CA80412L8832). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from CAD 7.00 to CAD 6.30.

The Viking acquisition (consolidated from 6 July 2022) was the main driver of a 49.7% rise in Saturn’s output to 10,965 boepd between Q2/22 and Q3/22. The acquisition was financed by a CAD200m expansion of the company’s senior term loan and by a CAD75m equity issue. Despite a ca. 75% rise in the share count, Saturn still succeeded in raising adjusted funds flow (operating cashflow less decommissioning expenditure) per share by 53% to CAD0.69. This success was attributable to lower royalties and operating costs at the acquisition relative to the existing business, as well as the very well-timed hedging of the newly purchased production at mid-year. We forecast that a full year’s contribution from the Viking acquisition, as well as continued drilling at both the Oxbow and Viking assets will push EBITDA up by a further 60% to CAD261m in 2023 (company guidance: CAD252m). We also continue to expect the current net debt position of CAD252m to become net cash of CAD177m by YE2025. However, while we retain our Buy recommendation, we have lowered the price target from CAD7.00 to CAD6.30. The reduction reflects the impact on unhedged production (2023E: 48%; 2024E: 61%; 2025E: 70%) of the average 6% fall in the oil futures curve to YE2025 since our most recent note of 4 November.