/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES/
CALGARY,
Dec. 3, 2013 /CNW/ - Surge Energy
Inc. ("Surge" or the "Company") (TSX: SGY) is pleased to announce
that it has now closed the previously announced acquisition (the
"Acquisition") of a high quality, low decline, operated, crude oil
producing asset strategically located near Wainwright in the Company's core area of
Central Alberta (the
"Assets").
The Assets include over 980 barrels per day of
primarily medium gravity crude oil production (with a historical
nine percent annual decline), producing from the Sparky Formation.
The purchase price for the Assets was $76.8
million.
As a result of the accretive Acquisition,
together with better than anticipated operational and drilling
results, Surge's Board of Directors has now approved an increase in
the Company's annual dividend of four percent from $0.50 per share per year ($0.04166 per share per month), to $0.52 per share per year ($0.04333 per share per month). This
increased dividend is to be paid on January
15, 2014 in respect of December, 2013 production, for the
shareholders of record on December 31,
2013.
The Acquisition comprises an elite, operated,
low decline crude oil property strategically located within Surge's
core operating area of Central
Alberta. The production is focused in a large, medium
gravity crude oil Sparky reservoir - with over 210 million barrels
of estimated original oil in place ("OOIP")1.
The Assets are under waterflood and currently
possess a very low annual decline of nine percent, which is
expected to provide significant annual free cash flow to Surge. The
Acquisition fits with the Company's focused business strategy and
with Surge's modest growth/dividend business model.
Surge management has identified significant
upside with respect to the Assets, primarily from waterflood
optimization and infill drilling.
As a result of the closing of the Acquisition,
Surge now has over 1.3 Billion barrels estimated of light and
medium gravity OOIP under the Company's ownership and
management.
Following the Acquisition, Surge has again revised upward the
Company's 2013 exit guidance and 2014 full year guidance, as set
forth below.
Operational:
|
Surge 2014E
Guidance2 3 |
2013E Exit Production |
15,000boe/d(83% Oil/NGLs) |
2014E Average Production
(boe/d) |
15,250boe/d(83% Oil/NGLs) |
2014E Exit Production (boe/d) |
15,500 (83% Oil/NGLs) |
2P Reserves4 |
69.7 mmboe |
RLI (based on 2013E exit
production) |
>12.5 years |
2014E Capital Spending |
$112 million |
2014E Wells Drilled |
48 wells |
2014 Decline |
24% |
Financial:
|
Surge 2014E
Guidance2 3 |
2014E Funds from Operations
("FFO") |
$214 ($1.29 per share) |
2014E Operational Netback |
$42.78/boe |
2014E Cash Flow Netback |
$38.51/boe |
Basic Shares Outstanding |
167 million |
Annual Dividend |
$87 million |
Yield5 |
7.9% |
Basic Payout Ratio 2014E |
40.9% |
"All-in" Payout Ratio |
93.8% |
2014E Exit Net Debt |
$290 million |
2014E Net debt / 2014 FFO |
1.35x |
Bank Line |
$470 million |
CONVERSION OF SUBSCRIPTION RECEIPTS
The purchase price for the Acquisition was
financed, in part, by the net proceeds pursuant to the previously
announced $63,273,000 equity
financing of Subscription Receipts completed by Surge on
November 28, 2013. With the closing
of the Acquisition, Surge confirms that the escrow release
condition of the Subscription Receipt Agreement dated November 28, 2013 has occurred and therefore,
each outstanding Subscription Receipt of Surge has been
automatically exchanged, without payment of additional
consideration or further action, for one Common Share of Surge.
Trading in the Subscription Receipts on the
Toronto Stock Exchange ("TSX") has been halted and will remain
halted until the close of business today, at which time the
subscription receipts will be de-listed from the TSX. The
Common Shares issued on exchange of the Subscription Receipts have
commenced trading on the TSX.
Neither the Subscription Receipts nor the Common
Shares have been nor will be registered under the United States
Securities Act of 1933, as amended (the "Securities Act") and
may not be offered or sold in the United
States absent registration or an applicable exemption from
the registration requirements of the Securities Act and applicable
state securities laws. This press release shall not
constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of the securities in the United States or any jurisdiction in which
such offer, solicitation or sale would be unlawful.
ADVISOR
Macquarie Capital Markets Canada Ltd. acted as financial advisor
to Surge with respect to the Acquisition.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements.
More particularly, it contains forward-looking statements
concerning: (i) potential development opportunities and drilling
locations associated with the Acquisition, (ii) the timing, amount
and sustainability of dividends, (iii) primary and secondary
recovery potentials and implementation thereof, (iv) oil &
natural gas production growth during 2013 and 2014, (v) planned
drilling, development and waterflood activities, (vi) estimated
2014 average and exit rates of production, (ix) estimated 2014
capital expenditures, wells drilled, decline rates, funds from
operations, operating netback, cash flow netback and payout ratio,
estimated 2014 year end net debt and net debt to funds from
operations ratio; and (xi) the anticipated exceeding by Surge of
the previously estimated 2013 exit rate of production.
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, 2014 funds from
operations and 2014 operating netback and cash flow netback
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.
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.
_____________________________
1 |
Original Oil in Place (OOIP) is the equivalent to Discovered
Petroleum Initially In Place (DPIIP) for the purposes of this press
release. DPIIP is defined as quantity of hydrocarbons that are
estimated to be in place within a known accumulation, plus those
estimated quantities in accumulations yet to be discovered. There
is no certainty that it will be commercially viable to produce any
portion of the resources. A recovery project cannot be defined for
this volume of DPIIP at this time, and as such it cannot be further
sub-categorized. |
2 |
Based on 2014 Edmonton Par $90.45/bbl; 2014 AECO gas $3.69/mcf
and a 2014 CAD/USD exchange rate of $0.98. |
3 |
Management uses funds from operations (cash flow from
operations before changes in non-cash working capital, legal
settlement expenses, transaction costs and current tax on
disposition) to analyze operating performance and leverage. Funds
from operations as presented does not have any standardized meaning
prescribed by IFRS and, therefore, may not be comparable with the
calculation of similar measures for other entities. |
4 |
Based on independent and internally generated engineering
reports as of December 31, 2012 or later. |
5 |
Based on a Surge share price of $6.55. |
SOURCE Surge Energy Inc.