News Releases

CALGARY, Feb. 28, 2014 /CNW/ - Pursuant to early warning reporting requirements in Canada, Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) announces that it has acquired ownership and control of 9,300,000 common shares ("Common Shares") of Longview Oil Corp. ("Longview"), representing 19.8 percent of the outstanding Common Shares, at a purchase price of $4.45 per Common Share (the "Block"). The Common Shares were acquired pursuant to a bought deal secondary offering of Common Shares (the "Secondary Offering"), which were sold by an existing shareholder of Longview on February 28, 2014.

Surge's intent with respect to the acquisition of the Block is to obtain a large, strategic equity position in Longview, at a competitive cost base, and to pursue a mutually beneficial business combination with Longview. Surge, however, has no legal obligation to pursue any such business combination.

BACKGROUND TO THE ACQUISITION OF THE BLOCK

Over the last several months, Surge has completed significant detailed geological, geophysical and engineering technical work in relation to the assets of Longview, from both the public record, and in relation to a number of Longview's properties that overlap with Surge's own core assets. On this basis, Surge also initiated extensive, detailed financial modelling of a possible business combination between Surge and Longview.

The results of Surge's detailed technical and financial work indicate that there is potential for a business combination transaction that will provide significant benefits, to BOTH Longview and Surge shareholders.

Accordingly, when the Company was approached by the underwriters of the Secondary Offering regarding a strategic investment in the Block, Surge management responded favourably.

BENEFITS TO SURGE OWNING THE BLOCK

The distribution of the Common Shares that comprise the Block has been qualified by a prospectus under the Secondary Offering. Accordingly, the Block is freely trading and can be sold by Surge at any time pursuant to applicable securities laws. In the event that Surge continues to own the Block, Surge shareholders will receive a number of ongoing benefits as set forth below.

The Block, acquired at $4.45 per Common Share, provides Surge with a 10.8 percent pre-tax yield. On this basis, Surge will receive $4.5 million in dividend income annually relating to its investment in the Block (i.e. 9,300,000 Longview shares at an annual dividend of $0.48 per share). Further, there is generally no tax payable on dividends between Canadian corporations.

Surge will continue to evaluate its investment in the Block on several criteria — including, the dividend yield of the Block as it relates to Surge's current yield — and the Company may consider divesting some or all of the Block.

Given Surge's excellent balance sheet and low debt levels, pro-forma the investment in the Block, Surge will maintain a peer group low "all-in" payout/sustainability ratio of less than 89 percent, and an excellent balance sheet with a 2014 exit debt to cash flow ratio of less than 1.36 times (based on strip pricing). Pro-forma the investment in the Block, Surge forecasts more than $175 million of credit availability on the Company's bank lines.

The Block provides Surge with a competitive cost base that enhances Surge's ability to negotiate a mutually beneficial business combination with Longview, and offers a strategic ownership position in Longview, that competitors do not possess.

An Early Warning Report detailing this ownership position will be filed on the System for Electronic Document Analysis and Review ("SEDAR") at www.sedar.com within two business days, as required by applicable securities laws.

FORWARD LOOKING STATEMENTS:

This press release contains forward-looking statements.  More particularly, it contains forward-looking statements concerning: (i) the sustainability of dividends, * and (ii) estimated 2014 year end net debt and net debt to funds from operations ratio.

The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Surge, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the viability of waterflood projects, the availability 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, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements and the availability of capital, labour and services.

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 uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Surge's Annual Information Form 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.

Financial Outlooks

The estimates of 2014 year end net debt and 2014 funds from operations contained in this press release are 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 following completion of the Acquisitions. 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.

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.  Boe/d means barrel of oil equivalent per day.

In this press release: (i) mcf means thousand cubic feet; (ii) mcf/d means thousand cubic feet per day (iii) mmcf means million cubic feet; (iv) mmcf/d means million cubic feet per day; (v) bbls means barrels; (vi) mbbls means thousand barrels; (vii) mmbbls means million barrels; (viii) bbls/d means barrels per day; (ix) bcf means billion cubic feet; * mboe means thousand barrels of oil equivalent; and (xi) mmboe means million barrels of oil equivalent

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.