CALGARY, March 20, 2014 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) is pleased to announce its financial
and operating results for the year ended December 31, 2013 and has filed its Annual
Information Form ("AIF") for the year ended December 31, 2013 on SEDAR.
Surge's financial and operating results for
the quarter ended December 31, 2013
include only a partial quarter of results from the three
significant acquisitions of high netback, operated, low decline,
crude oil producing assets completed during the fourth quarter of
2013, which acquisitions totaled $359
million.
HIGHLIGHTS
- Funds from operations increased 44 percent to
$133.2 million in 2013 as compared to
2012.
- Increased Surge's oil and natural gas liquids production
weighting by 13 percent to 79 percent in 2013 from 70 percent
in 2012. Surge forecasts this to increase to 84 percent in
2014.
- Approximately 93 percent of Surge's revenue resulted from
oil and natural gas liquids production in 2013.
- Increased the Company's bank line to $470 million from $290
million during 2012. Surge expects a further increase in the
bank line as a result of the year end reserve review.
- Increased Surge's dividend 73 percent during 2013, from
an initially anticipated $0.30 per
share per year in July 2013, to
$0.52 per share per year at
December 31, 2013, with a further
increase to $0.54 per share per year
early in 2014.
- Maintained consistent risk management program which
supports the protection of Surge's balance sheet. The Company
currently has approximately 50 percent of its current oil and NGL
(after royalties) production hedged for 2014, at an average WTI
floor price in excess of $97 CAD per
barrel.
- Reduced G&A per boe by 29 percent in the fourth
quarter of 2013 as compared to the same period in 2012. Surge
anticipates further reductions in G&A per boe in 2014.
- Achieved a 98 percent success rate during 2013 drilling
37 gross (31.12 net) wells.
- Achieved a fourth quarter average production rate of 12,014
boe per day (with 1,104 boe per day of fourth quarter 2013
production shut in due to an extended third party facility turn
around at Valhalla), increased
35 percent from 8,919 boe per day in the same period of 2012.
- In 2013 Surge completed four accretive acquisitions that
added approximately 6,000 bopd of high netback light and medium
gravity crude oil production.
- Reduced the Company's corporate decline rate from more than
37 percent in 2012 to a forecast 24 percent in 2014, as a
result of Surge's low risk operating strategy and waterflood
initiatives.
- Expanded Surge's crude oil drilling inventory to 773 gross
(708 net) locations, and significantly increased the Company's
internally estimated OOIP1 to greater than 1.4 billion
net barrels (including the SE
Saskatchewan light oil acquisition closed February 14, 2014 noted below):
Property |
OOIP (MMbbls)
(gross/net) |
Locations
(gross/net) |
Western Alberta |
335/322 |
118/109 |
SE Alberta |
435/365 |
143/137 |
SW Saskatchewan |
393/381 |
407/374 |
Williston Basin |
453/376 |
105/88 |
TOTAL |
1,616/1,444 |
773/708 |
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. |
- Made significant waterflood progress, reducing the Company's
annual decline to a forecast 24 percent in 2014:
-
- Silver/Wainwright
(Lloyd/Cummings and Sparky): continued positive oil response from
expanded waterflood initiative in two zones. Surge expects ultimate
recovery of 39 percent in the Silver area and 37 percent in the
Wainwright area.
- Nipisi (Slave Point): waterflood pilot commenced during the
second quarter of 2013. Surge estimates recovery of at least 20
percent of the estimated 78 mmbbls of OOIP in the northern pool. A
third injector will be implemented in the first quarter of
2014.
- Southwest Saskatchewan (Lower
Shaunavon): commenced waterflood pilot in the fourth quarter of
2013. Three analog pilots are showing response.
- Macoun (Midale): implemented the first horizontal
injector in the pool in the fourth quarter of 2013. Nearby analog
pool has successfully been waterflooded.
- Manson (Bakken): implemented two injectors in the third quarter
of 2013 with a positive response to date. Nearby analog pool has
been successfully waterflooded.
- Windfall (Bluesky): 52,000
m3 injected to date with offset declines
flattening.
- Surge plans to expand its waterflood program in 2014 by
implementing pilots at Eyehill, Provost, Valhalla and Saskatchewan Viking.
- Increased Proved plus Probable reserves by 59 percent to
73.5 million boe over December 31,
2012 reserves of 46.1 million boe.
- Achieved organic Proved plus Probable finding and development
costs (F&D) of $17.03 per
boe, including the change in future development capital
("FDC").
- Achieved Proved plus Probable finding, development and
acquisition costs (FD&A) of $27.27 per boe, including the change in
future development capital.
- Achieved a corporate recycle ratio of 2.5 with
F&D costs of $17.03 per
boe, including the change in FDC and based on Surge's 2013
netback of $41.80 per boe.
- Increased Proved plus Probable Oil and NGLs reserves by 79
percent to 57.1 million barrels over December 31, 2012 reserves of 31.9 million
barrels.
- Oil and NGLs made up 78 percent of the Company's total
Proved plus Probable reserves.
- Increased Surge's corporate netback by 24 percent from
$29.21 per boe for the year ended
December 31, 2012 to $36.25 per boe for the year ended December 31, 2013. Surge's current corporate
netback is over $42 per boe.
- Increased Net Present Value discounted at 10 percent Before
Tax ("NPV10 BT") of Proved plus Probable reserves by 86
percent to $1.4 billion compared
to $732 million as at December 31, 2012.
Three Acquisitions of Elite, Operated, Low
Decline, Crude Oil Assets in the Fourth Quarter of 2013, and a 24
Percent Increase in Dividend
On November 13,
2013, Surge closed two strategic, high quality light oil
acquisitions. The first acquisition involved the $147 million purchase of all of the shares of a
Calgary based private oil and gas
company, with high netback, operated, producing light oil assets
focused in SE Saskatchewan and
SW Saskatchewan.
The second acquisition involved the $135 million purchase of high quality, high
netback, operated, producing light oil assets primarily located in
the SW area of Manitoba.
As a result of these two accretive acquisitions,
together with better than anticipated operational and drilling
results, Surge increased the Company's annual dividend by 19
percent, from $0.42 per share per
year to $0.50 per share per year.
On December 3,
2013 Surge closed 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, for
net consideration of $77 million. The
Assets included over 980 barrels per day of medium gravity crude
oil production (with a historical nine percent annual decline), and
over 210 million barrels of estimated OOIP. In conjunction with the
acquisition, Surge completed a $63.3
million bought deal equity financing.
As a result of this third accretive acquisition,
together with better than anticipated operational and drilling
results, Surge increased the Company's annual dividend by four
percent, from $0.50 per share per
year to $0.52 per share per year.
Certain selected financial and operations
information for the three months and year ended December 31, 2013 and the 2012 comparative
information are outlined below and should be read in conjunction
with Surge's audited annual and unaudited interim Consolidated
Financial Statements and accompanying Management Discussion and
Analysis ("MD&A").
FINANCIAL AND OPERATING SUMMARY |
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($000s except per share amounts) |
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Three Months
Ended December 31, |
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Years Ended
December 31, |
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2013 |
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2012 |
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% Change |
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2013 |
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2012 |
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% Change |
Financial highlights |
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Oil and NGL sales |
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69,701 |
|
44,017 |
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58 % |
|
253,688 |
|
176,474 |
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44 % |
Natural gas sales |
|
3,778 |
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5,410 |
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(30)% |
|
18,150 |
|
16,129 |
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13 % |
Other revenue |
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38 |
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3 |
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nm5 |
|
94 |
|
57 |
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65 % |
Total oil, natural gas, and NGL revenue |
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73,517 |
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49,430 |
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49 % |
|
271,932 |
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192,660 |
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41 % |
Funds from Operations2 |
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36,659 |
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24,061 |
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52 % |
|
133,165 |
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92,232 |
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44 % |
Per share basic ($) |
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0.26 |
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0.34 |
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(24)% |
|
1.31 |
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1.30 |
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1 % |
Per share diluted ($) |
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0.26 |
|
0.34 |
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(24)% |
|
1.31 |
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1.30 |
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1 % |
Net income (loss) |
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(2,848) |
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(68,187) |
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96 % |
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(9,886) |
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(53,243) |
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81 % |
Per share basic ($) |
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(0.02) |
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(0.96) |
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98 % |
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(0.10) |
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(0.75) |
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87 % |
Per share diluted ($) |
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(0.02) |
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(0.96) |
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98 % |
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(0.10) |
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(0.75) |
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87 % |
Capital expenditures - petroleum & gas
properties3 |
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40,318 |
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44,975 |
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(10)% |
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125,546 |
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180,714 |
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(31)% |
Capital expenditures - acquisitions &
dispositions3 |
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369,216 |
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(2,662) |
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nm |
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571,471 |
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109,729 |
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nm |
Total capital expenditures3 |
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409,534 |
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42,313 |
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868% |
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697,017 |
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290,443 |
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nm |
Net debt at end of period4 |
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305,349 |
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220,578 |
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38 % |
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305,349 |
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220,578 |
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38 % |
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Operating highlights |
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Production: |
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Oil and NGL (bbls per day) |
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10,354 |
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6,398 |
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62 % |
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8,489 |
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6,181 |
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37 % |
Natural gas (mcf per day) |
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9,958 |
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15,129 |
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(34)% |
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13,679 |
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16,151 |
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(15)% |
Total (boe per day) (6:1) |
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12,014 |
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8,919 |
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35 % |
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10,769 |
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8,873 |
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21 % |
Average realized price (excluding hedges): |
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Oil and NGL ($per bbl) |
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73.17 |
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74.78 |
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(2)% |
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81.87 |
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78.01 |
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5 % |
Natural gas ($ per mcf) |
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4.12 |
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3.89 |
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6 % |
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3.64 |
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2.73 |
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33 % |
Realized loss on financial contracts ($ per boe) |
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(1.26) |
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1.72 |
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nm |
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(2.13) |
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0.11 |
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nm |
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Net back (excluding hedges) ($ per boe) |
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Oil, natural gas and NGL sales |
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66.52 |
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60.24 |
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10 % |
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69.18 |
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59.33 |
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17 % |
Royalties |
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(12.13) |
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(11.36) |
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7 % |
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(12.64) |
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(10.81) |
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17 % |
Operating expenses |
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(12.66) |
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(12.68) |
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(0)% |
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(12.57) |
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(11.61) |
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8 % |
Transportation expenses |
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(2.03) |
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(2.56) |
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(21)% |
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(2.17) |
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(2.26) |
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(4)% |
Operating netback |
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39.70 |
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33.65 |
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18 % |
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41.80 |
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34.65 |
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21 % |
G&A expenses |
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(2.19) |
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(3.08) |
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(29)% |
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(3.10) |
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(3.34) |
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(7)% |
Interest expense |
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(2.53) |
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(2.56) |
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(1)% |
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(2.45) |
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(2.10) |
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17 % |
Corporate netback |
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34.98 |
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28.00 |
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25 % |
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36.25 |
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29.21 |
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24 % |
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Common shares (000s) |
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Common shares outstanding, end of period |
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166,543 |
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71,217 |
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134 % |
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166,543 |
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71,217 |
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134 % |
Weighted average basic shares outstanding |
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142,981 |
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71,196 |
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101 % |
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101,606 |
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70,962 |
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43 % |
Stock option dilution (treasury method) |
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— |
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— |
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nm |
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— |
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— |
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nm |
Weighted average diluted shares outstanding |
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142,981 |
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71,196 |
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101 % |
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101,606 |
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70,962 |
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43 % |
2 |
Management uses funds from operations (cash flow from operating
activities 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. |
3 |
Please see capital expenditures note. |
4 |
The Company defines net debt as outstanding bank debt plus or
minus cash-based working capital and dividends payable, and
excluding the fair value of financial contracts and other current
obligations |
5 |
The Company views this change calculation as not meaningful, or
"nm". |
SUBSEQUENT EVENTS
Acquisition of High Quality, Operated, Low
Decline, Light Oil Assets, $80.5
Million Equity Financing and Four Percent Increase in
Dividend
On February 14,
2014 Surge closed the acquisition of a high quality, low
decline, operated, light oil producing asset strategically located
in the Company's core area of Southeast
Saskatchewan, for net consideration of $109 million. In conjunction with the
acquisition, Surge completed an $80.5
million bought deal equity financing.
The acquired assets include an estimated
annualized 1,250 boepd (97 percent oil) of high netback light crude
oil production and OOIP 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.
As a result of the accretive acquisition,
Surge's Board of Directors approved an increase in the Company's
annual dividend of four percent from $0.52 per share per year, to $0.54 per share per year. The dividend will be
paid on April 15, 2014 in respect of
March 2014 production, for the
shareholders of record on March 31,
2014.
Surge Acquires 19.8 Percent Block of Longview
Oil Corp. Shares
On February 28,
2014 Surge announced that it has acquired ownership and
control of 9.3 million 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, which were sold by an existing shareholder of
Longview.
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.
Given Surge's excellent balance sheet and low
debt levels6 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 Q4 2014 annualized FFO ratio of less than 1.2
times6. Pro-forma the investment in the Block, Surge
forecasts more than $175 million of
credit availability on the Company's bank lines.
OUTLOOK & GUIDANCE
Surge's Board of Directors has approved a 2014
capital budget of $116 million, plus
an additional $42 million for the
investment in the Block of Longview shares. The capital program aims to
achieve a balanced approach of production growth (approximately 50
percent growth in annual production over 2013), and unlocking
additional value in its high quality, large OOIP light and medium
oil assets. Surge has allocated approximately $90 million to its 2014 drilling program,
$16 million to waterflood
implementation and optimization, and $10
million to a combination of facilities and plants, land and
seismic, and capitalized G&A expenditures. Surge expects that
the Company's bank line will be increased from $470 million as a result of the year end reserves
review. The expected increase in the bank line, along with Surge's
forecast all-in sustainability ratio of less than 89 percent will
provide flexibility to execute the Company's 2014 capital
program.
In 2014 Surge will continue to focus capital
towards elite, large OOIP crude oil reservoirs. Management's
primary goals for Surge include achieving 3-5 percent organic
annual per share growth in reserves, production and cash flow,
maintaining a sustainable dividend, continued debt reduction,
together with the pursuit of high quality, accretive acquisitions.
Management will continue maintaining balance sheet flexibility with
an effective risk management program and confirming the commercial
viability of the Company's waterflood program. By the end of 2014
Surge now anticipates that over 75 percent of the Company's
producing assets will be under waterflood. The implementation of
the waterflood pilots are an integral piece of Surge's strategy of
increasing oil recovery factors throughout the Company's deep crude
oil portfolio, lowering corporate decline rates and maximizing
shareholder value. The Company will also pursue continued, year
over year increases in recovery factors from these high quality
assets through low risk development activities, including in-fill
and step out development drilling, up-to-date completion
techniques, including horizontal frac technology and
optimizations.
_______________________
6 |
Regarding the strategic purchase of the Block of Longview
shares: Net Debt is calculated excluding the $41.4 million value of
the Longview Block. Interest expense on the $41.4 million as well
as $3.7 million of dividend income from March to December 2014 is
included in 2014E FFO. |
Surge has had excellent results with respect to
managing and reducing costs. The Company's G&A costs have
dropped from over $3.50 per boe in
the second quarter of 2013 to an estimated $2.05 per boe in Surge's 2014 guidance.
With this 2014 budget, Surge expects to achieve
approximately 50 percent growth in average production year over
year with a production mix of over 84 percent light and medium
gravity crude oil. Surge also expects greater than 80 percent
growth year over year in annual funds from operations while
maintaining an excellent balance sheet. The Company anticipates
exiting 2014 with a low debt to Q4 2014 annualized FFO ratio of
less than 1.2 times6. Surge has attractive replacement
metrics and an operating netback of over $45 per boe.
Including the strategic purchase of the Block of
Longview shares for $41.4 million, Surge's updated guidance is as
follows:
Operational:
|
Surge 2014E Guidance |
|
|
2014E Average Production (boe/d) |
16,125 (84% Oil/NGLs) |
2014E Exit Production (boe/d) |
16,550 (84% Oil/NGLs) |
RLI (based on 2013 Q4 average production) |
>16 years |
2014E Capital Spending & Longview Block
Purchase |
$158 million |
2014E Wells Drilled |
39/37.1 gross/net wells |
2014 Decline |
24% |
Financial:
|
Surge 2014E Guidance6 7 8
9 |
|
|
2014E Funds from Operations ("FFO") |
$246 ($1.37 per share) |
2014E Operational Netback |
$45.67/boe |
2014E Cash Flow Netback |
$41.24/boe |
Basic Shares Outstanding |
179 million |
Annual Dividend |
$96 million |
Yield |
9.2% |
Basic Payout Ratio 2014E |
39.8% |
"All-in" Payout Ratio |
87.4% |
2014E Exit Net Debt |
$308 million |
2014E Net debt / Q4 2014 annualized FFO |
1.19x |
Bank Line |
$470 million |
Surge is an oil focused oil and gas company with
operations throughout Alberta,
Saskatchewan and Manitoba. Surge's common shares trade on the
Toronto Stock Exchange under the symbol SGY. At year end, the
Company had 166.5 million basic and 170.9 million fully diluted
common shares outstanding.
AUDITED FINANCIAL STATEMENTS, MD&A AND
AIF:
Surge has filed with Canadian securities
regulatory authorities its audited financial statements and
accompanying MD&A for the three months and year ended
December 31, 2013. Surge has
also filed the Company's Annual Information Form for the year ended
December 31, 2013. These filings are
available for review at www.sedar.com or www.surgeenergy.ca.
7 |
Based on 2014 Edmonton Par $96.95/bbl; 2014 AECO
gas $3.69/mcf and a 2014 CAD/USD exchange rate of
$0.91. |
8 |
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. |
9 |
Based on a Surge share price of $5.85. |
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 water flood 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) reductions
in general and administrative expenses, (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 water flood 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.
Test Results and Initial Production
Rates
A pressure transient analysis or well-test
interpretation has not been carried out and thus certain of the
test results provided herein should be considered to be preliminary
until such analysis or interpretation has been completed. Test
results and initial production rates disclosed herein may not
necessarily be indicative of long term performance or of ultimate
recovery.
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.