/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES/
CALGARY, Feb. 14, 2014 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announced that it has closed the
previously announced acquisition (the "Acquisition") of a high
quality, low decline, operated, light oil producing asset
strategically located in the Company's core area of Southeast Saskatchewan (the "Assets").
The Assets include an estimated annualized 1,250
boepd (97 percent oil) of high netback light crude oil production.
The purchase price for the Assets was $109
million.
As a result of the accretive Acquisition,
Surge's Board of Directors has now approved an increase in the
Company's annual dividend of four percent from $0.52 per share per year ($0.04333 per share per month), to $0.54 per share per year ($0.045 per share per month). It is expected that
this increased dividend will be paid on April 15, 2014 in respect of March, 2014
production, for the shareholders of record on March 31, 2014.
The Acquisition comprises elite, operated, low
decline light oil assets strategically located within Surge's core
operating area of SE Saskatchewan.
The production is focused in several large, high quality, light oil
reservoirs - with combined original oil in place
("OOIP")1 of over 240 million barrels.
The Assets possess a low annual decline of less
than 18 percent, which provides significant annual free cash flow
to Surge. The Acquisition fits very well with the Company's focused
business strategy, and with Surge's dividend-paying / modest growth
business model.
Surge management has identified significant
upside with respect to the Assets, primarily from infill and
stepout development drilling, and optimizations.
As a result of the closing of the Acquisition,
Surge now has over 1.4 Billion barrels estimated of light and
medium gravity OOIP under the Company's ownership and
management.
The following sets forth Surge's upwardly revised guidance for
full year 2014 estimates.
Operational:
|
Surge 2014E Guidance
(Prior to the Acquisition)2 |
Surge 2014E Guidance
(After the Acquisition and the Equity
Financing)3 |
2014E Average Production (boe/d) |
15,250 (83% Oil/NGLs) |
16,125 (84% Oil/NGLs) |
2014E Exit Production (boe/d) |
15,500 (83% Oil/NGLs) |
16,550 (84% Oil/NGLs) |
2P Reserves4 |
69.7 mmboe |
74.3 mmboe |
RLI (based on 2013E exit production) |
>12.5 years |
>12.5 years |
2014E Capital Spending |
$114.5 million |
$116 million |
2014E Wells Drilled (gross/net) |
38 / 36.1 wells |
39 / 37.1 wells |
2014 Decline |
24% |
24% |
Financial:
|
Surge 2014E Guidance
(Prior to the Acquisition)2 |
Surge 2014E Guidance
(After the Acquisition and the Equity
Financing)3 |
2014E Funds from Operations
("FFO")5 |
$221 million ($1.33 per
share) |
$244 million ($1.38 per weighted
average share) |
2014E Operational Netback |
$44.04/boe |
$45.67/boe |
2014E Cash Flow Netback |
$39.69/boe |
$41.38/boe |
Basic Shares Outstanding |
167 million |
179 million |
Annual Dividend |
$87 million |
$96 million |
2014E Dividend |
$0.52 per share |
$0.54 per share |
Yield6 |
8.3% |
8.6% |
Basic Payout Ratio 2014E |
39.6% |
40.3% |
"All-in" Payout Ratio |
92.1% |
88.4% |
2014E Exit Net Debt |
$287 million |
$309 million |
2014E Exit Net Debt / FFO |
<1.39x |
<1.28x |
As a result of closing this high quality, low
decline, light oil, core area acquisition, Surge has now:
- increased the Company's reserves, production and cash flow per
share (see above guidance);
- significantly improved Surge's peer group leading "all-in"
sustainability ratio from 92.1% to 88.4% (vs. an industry average
of approximately 118%);
- increased the Company's dividend per share by 4%;
- increased Surge's operating netback to $45.67 per boe;
- increased the Company's net OOIP to more than 1.4 billion
barrels;
- lowered corporate declines to less than 24%;
- increased the Company's light oil production in the Williston
Basin to over 3,200 bopd; and
- expanded Surge's drilling inventory to over 700 development
locations.
CONVERSION OF SUBSCRIPTION RECEIPTS
The purchase price for the Acquisition was
financed, in part, by the net proceeds pursuant to the previously
announced equity financing of Subscription Receipts completed by
Surge on February 4, 2014. Gross
proceeds from the financing total $80,506,440, including the Underwriter's
exercised over-allotment option of $10,500,840 in additional proceeds. With the
closing of the Acquisition, Surge confirms that the escrow release
condition of the Subscription Receipt Agreement dated February 4, 2014 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.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking
statements. More particularly, it contains forward-looking
statements concerning: (i) targeted growth in reserves, production
and cash flow per share, (ii) the sustainability of dividends,
(iii) potential growth through acquisitions, (iv) ultimate recovery
factors at certain of Surge's properties, (v) planned drilling,
development and waterflood activities, (vi) the potential number of
drilling locations at certain of Surge's properties, (vii)
estimated 2014 average production rate, (viii) estimated 2014 exit
rate 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; (xi) potential
development opportunities and drilling locations associated with
the Acquisition, expectations and assumptions concerning the
success of future drilling and development activities, the
performance of existing wells, the performance of new wells, the
successful application of technology and the geological
characteristics of the Acquisition, (xii) the timing and amount of
future dividend payments, (xiii) debt and bank facilities, (xiv)
primary and secondary recovery potentials and implementation
thereof, (xv) decline rates, (xvi) funds from operations, (xvii)
operating and cash flow netbacks, and (xviii) realization of
anticipated benefits of acquisitions.
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
Acquisition. 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.
NO OFFER IN THE
UNITED STATES
This news release does not constitute an
offer to sell or a solicitation of an offer to buy any of the
securities in the United States.
The securities have not been and will not be registered under the
United States Securities Act of 1933, as amended (the "U.S.
Securities Act") or any state securities laws and may not be
offered or sold within the United
States or to U.S. Persons unless registered under the U.S.
Securities Act and applicable state securities laws or an exemption
from such registration is available.
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 $93.60/bbl; 2014 AECO gas $3.69/mcf and a 2014
CAD/USD exchange rate of $0.94.
3 Based on 2014 Edmonton Par $96.95/bbl; 2014 AECO gas $3.69/mcf and a 2014
CAD/USD exchange rate of $0.91.
4 Based on independent and internally generated
engineering reports as of December 31,
2012 or later.
5 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.
6 Based on a Surge share price of $6.30.
SOURCE Surge Energy Inc.