CALGARY, June 15, 2015 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) announces that the Company has successfully closed its previously announced $430 million sale of assets in SE Saskatchewan and Manitoba. Surge also had its bank line confirmed by the Company's bank syndicate at $425 million – post the sale of assets described above – with current net debt of approximately $122 million.
In the higher crude oil price environment from May, 2013 to October, 2014, Surge management assembled a high quality, low decline, light oil asset and opportunity base focused in four operating areas. Surge grew aggressively and delivered some of the best total rates of return to its shareholders of any growth and dividend paying company in Canada over this period.
When oil prices dropped precipitously in the fall of 2014 and early 2015, Surge management took a number of aggressive and proactive steps to successfully protect shareholders capital, and the net asset value of the Company's shares. Given the new lower forward curve for world crude oil prices, in early 2015 Surge management completed a detailed, full scale development business plan and evaluation for each of the Company's four primary assets, and determined that it was most advantageous to sell its SE Saskatchewan/Manitoba assets to reposition Surge's balance sheet for an environment of lower crude oil prices.
As a result of these aggressive and proactive decisions, Surge is on track to achieve managements stated goal of being one of the best positioned light/medium gravity crude oil growth and dividend paying companies in Canada – uniquely positioned to grow at virtually any reasonable crude oil commodity price assumption.
Today, the Company has three core, high netback, operating areas, which comprise over 1.4 billion barrels of net original oil in place ("OOIP"1), with a seven percent recovery factor.
Surge has a forward debt to cash flow ratio of just over one times at strip pricing, with more than $300 million of credit availability on the Company's bank lines.
At Shaunavon, Valhalla, and in Central Alberta (Sparky), the Company has a 14 year, low risk development drilling inventory, with more than 700 net drilling locations that generate excellent rates of return at strip pricing for crude oil.
With a 15 year reserve life, a low 23 percent decline, and excellent production efficiency plays, Surge also has one of the lowest "all-in" payout ratios in the Company's peer group in Canada.
Given the Company's high quality, oil-weighted, low decline asset base, Surge management plans to strategically allocate capital towards the drilling and waterflooding of the Company's large OOIP Upper Shaunavon discovery in SW Saskatchewan, to the continued development of the Company's large OOIP, high quality, Doig light oil pool at Valhalla in NW Alberta, and to the continued development and waterflooding of Surge's large OOIP Sparky crude oil assets in Central Alberta.
Today, Surge has the following corporate fundamentals:
- Reserves: 86.3 mmboe Total Proven plus Probable (76 percent oil)
- RLI: >15 years
- Decline: 23 percent
- Production: >14,250 boepd (77 percent oil)
- Net Debt: $122 million
- Forward Debt to Cash Flow: 1.2 times (based on June 10, 2015 strip pricing)
- Bank Line: $425 million
- Drilling Inventory: 755/734 (gross/net) total locations; 201/186 (gross/net) booked
- Land: 285,000 gross (260,000 net) undeveloped acres
- Operatorship: 100 percent of Surge's three core areas
- Operating Expenses: $14.80 per boe
- Dividend: $0.30 per share per annum ($0.025 per share per month)
- NAV: $6.28 per share (year-end external engineering report)
Surge's NAV of $6.28 per share includes only 38/37 (gross/net) locations booked for the Upper Shaunavon play in SW Saskatchewan, out of a total of 223/221 (gross/net) available development locations. Further, no waterflood upside is booked in Surge's NAV for this high quality, 250 million barrel OOIP, conventional sandstone reservoir.
As previously disclosed, Surge management will be presenting a budget for the second half of 2015 in late June after reassessing market conditions at that time.
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FINANCIAL STATEMENTS AND ACCOMPANYING MDA:
Surge has filed with Canadian securities regulatory authorities its financial statements and accompanying MD&A for the three months ended March 31, 2015. These filings are available for review at www.sedar.com or www.surgeenergy.ca.
ADVISORIES:
Forward Looking Statements
This press release contains forward-looking statements. More particularly, this press release contains statements concerning: (i) management expectations with respect to market positioning within the industry; (ii) Surge's drilling inventory; (iii) Surge's capital allocation plans; (iv) Surge's available development locations in the Upper Shaunavon; (v) the timing of Surge's presentation of it budget for the second half of 2015; (vi) expectations with respect to Surge's balance sheet and anticipated year ended bank line availability; (vii) forecast decline rates and reserve life index; (viii) management's expectations with respect to the Company's waterflood program, results therefrom and quantity of producing assets that will be placed under waterflood; (ix) Surge's operational guidance, including "all-in" pay-out ratios and estimated year-end net debt to funds from operation; * the Company's declared focus and primary goals; and (xi) the sustainability of dividends.
The forward-looking statements are based on certain key expectations and assumptions made by Surge, including expectations and assumptions concerning the performance of existing wells and success obtained in drilling new wells, anticipated expenses, cash flow and capital expenditures, the application of regulatory and royalty regimes, prevailing commodity prices and economic conditions, development and completion activities, the performance of new wells, the successful implementation of waterflood programs, the availability of and performance of facilities and pipelines, the geological characteristics of Surge's properties, the successful application of drilling, completion and seismic technology, prevailing weather conditions, exchange rates, licensing requirements, the successful completion of the disposition transactions, the impact of completed facilities on operating costs and the availability, costs of capital, labour and services, the creditworthiness of industry partners and the receipt of required approvals of the lenders under Surge's bank line.
Although Surge believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Surge can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and constraint in the availability of services, adverse weather or break-up conditions, uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures or failure to obtain required approvals from the lenders under Surge's bank line to increases thereto. Certain of these risks are set out in more detail in Surge's Annual Information Form dated March 19, 2015 which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this press release are made as of the date hereof and Surge undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Bbl means barrels of oil. Boepd means barrel of oil equivalent per day. Mmboe means million barrel of oil equivalent. RLI means reserve life index. PUD means proven undeveloped. NAV means net asset value.
Financial Outlooks
The estimate of forward debt to cash flow ratio contained in this press release may be considered financial outlooks within the meaning of applicable securities laws. These financial outlooks have been prepared by management of Surge to provide an outlook of Surge's anticipated funds from operations and netbacks for a full year of operations with its current assets and based on management's expectations and assumptions as to a number of factors, including commodity pricing, production, operating expenses and royalties. Readers are cautioned that this information may not be appropriate for any other purpose. Management does not have firm commitments for all of the costs, expenditures, prices or other financial assumptions used to prepare the financial outlooks or assurance that such results will be achieved. The actual results of Surge will likely vary from the amounts set forth in the financial outlooks and such variation may be material. Surge and its management believe that the financial outlooks have been prepared on a reasonable basis, reflecting the best estimates and judgments, and represent, to the best of management's knowledge and opinion, Surge's expected expenditures and results of operations. However, because this information is highly subjective and subject to numerous risks, including the risks discussed under the note regarding Forward Looking Statements, it should not be relied on as necessarily indicative of future results. Except as required by applicable securities laws, Surge undertakes no obligation to update this information.
Drilling Locations
This press release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations, which are sometimes collectively referred to as "booked locations", are derived from the Company's most recent independent reserves evaluation as of December 31, 2014 and account for drilling locations that have associated proved or probable reserves, as applicable. Unbooked locations are internal estimates based on the Company's prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Of the 734 net drilling locations identified herein 548 are unbooked locations. Unbooked locations have specifically been identified by management as an estimation of our multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves data on prospective acreage and geologic formations. The drilling locations on which we actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results and other factors.
Non-IFRS Measures
This press release contains the terms "funds from operations", "net debt" and "netback", which do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and therefore may not be comparable with the calculation of similar measures by other companies. Management uses funds generated by operations to analyze operating performance and leverage. Management believes "net debt" is a useful supplemental measure of the total amount of current and long-term debt of the Company. Mark-to-market risk management contracts are excluded from the net debt calculation. Management believes "netbacks" are a useful supplemental measures of the amount of revenues received after royalties and operating and transportation costs and secondly, the amount of revenues received after the royalties, operating, transportation costs, general and administrative costs, financial charges and asset retirement obligations. Additional information relating to these non-IFRS measures can be found in the Company's most recent management's discussion and analysis MD&A, which may be accessed through the SEDAR website (www.sedar.com).
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Surge Energy Inc.
