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.