CALGARY, May 12, 2014 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces record financial and
operating results for the three month period ended March 31, 2014.
Surges financial and operating results for the
quarter ended March 31, 2014 include
only a partial quarter of results from the $109 million Southeast
Saskatchewan light oil producing asset acquisition completed
during the first quarter of 2014.
FINANCIAL AND OPERATING SUMMARY |
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($000s except per share amounts) |
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Three Months Ended
March 31, |
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2014 |
2013 |
% Change |
Financial highlights |
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Oil and NGL sales |
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99,761 |
48,216 |
107 % |
Natural gas sales |
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7,784 |
5,355 |
45 % |
Other revenue |
|
22 |
11 |
100 % |
Total oil, natural gas, and NGL revenue |
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107,567 |
53,582 |
101 % |
Funds from Operations1 |
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53,770 |
25,700 |
109 % |
Per share basic ($) |
|
0.31 |
0.36 |
(14)% |
Per share diluted ($) |
|
0.31 |
0.36 |
(14)% |
Net income (loss) |
|
3,422 |
(1,354) |
nm4 |
Per share basic ($) |
|
0.02 |
(0.02) |
nm |
Per share diluted ($) |
|
0.02 |
(0.02) |
nm |
Capital expenditures - petroleum & gas
properties2 |
|
58,351 |
40,065 |
46 % |
Capital expenditures - acquisitions &
dispositions2 |
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108,712 |
(807) |
nm |
Total capital expenditures2 |
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167,063 |
39,258 |
326% |
Net debt at end of period3 |
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356,744 |
234,795 |
52 % |
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Operating highlights |
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Production: |
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Oil and NGL (bbls per day) |
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12,694 |
6,854 |
85 % |
Natural gas (mcf per day) |
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13,980 |
16,689 |
(16)% |
Total (boe per day) (6:1) |
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15,024 |
9,636 |
56 % |
Average realized price (excluding hedges): |
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Oil and NGL ($per bbl) |
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87.32 |
78.18 |
12 % |
Natural gas ($ per mcf) |
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6.19 |
3.57 |
73 % |
Realized loss on financial contracts ($ per boe) |
|
(5.06) |
(0.46) |
nm |
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Net back (excluding hedges) ($ per boe) |
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Oil, natural gas and NGL sales |
|
79.55 |
61.78 |
29 % |
Royalties |
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(14.08) |
(10.93) |
29 % |
Operating expenses |
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(14.35) |
(12.58) |
14 % |
Transportation expenses |
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(1.92) |
(2.25) |
(15)% |
Operating netback |
|
49.20 |
36.02 |
37 % |
G&A expenses |
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(2.15) |
(3.20) |
(33)% |
Interest expense |
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(2.23) |
(2.72) |
(18)% |
Corporate netback |
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44.82 |
30.10 |
49 % |
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Common shares outstanding, end of period |
|
179,501 |
71,217 |
152 % |
Weighted average basic shares outstanding |
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173,070 |
71,217 |
143 % |
Stock option dilution (treasury method) |
|
828 |
— |
nm |
Weighted average diluted shares outstanding |
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173,898 |
71,217 |
144 % |
1 |
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Management uses funds from operations (cash flow from operating
activities before changes in non-cash working capital, legal
settlement expenses, decommissioning expenditures, 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. |
2 |
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Please see capital expenditures note. |
3 |
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The Company defines net debt as outstanding bank debt plus or
minus cash-based working capital, dividends payable and investment
in Longview, and excluding the fair value of financial contracts
and other current obligations. |
4 |
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The Company views this change calculation as not meaningful, or
"nm". |
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HIGHLIGHTS
- Achieved a record first quarter average production rate of
15,024 boe per day, an increase of 56 percent from 9,636 boe
per day in the same period of 2013. This excellent growth in
production was achieved despite extremely harsh cold winter
conditions in Alberta and
Saskatchewan for January and
February, which caused downtime to Surge of more than 650 boepd of
net production for the quarter.
- Funds from operations increased 109 percent to a record
$53.8 million in the first quarter of
2014 as compared to the same period in 2013.
- Achieved records for both operating and corporate netback in
the first quarter of 2014. Surge's corporate netback increased 49
percent to $44.82 per boe in the
first quarter of 2014 from $30.10 per
boe in the first quarter of 2013.
- Increased Surge's oil and natural gas liquids production
weighting by 18 percent to 84 percent in the first quarter of
2014 from 71 percent in the first quarter of 2013.
- Approximately 93 percent of Surge's revenue resulted from
oil and natural gas liquids production in the first quarter of
2014.
- Reduced G&A per boe by 33 percent in the first
quarter of 2014 as compared to the same period in 2013. 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
$2.15 per boe in the first quarter of
2014.
- Achieved a 100 percent success rate drilling 20 gross
(13.96 net) wells.
- Completed an accretive acquisition that added approximately
1,250 boepd of high netback, long life, light and medium
gravity crude oil production, strategically focussed in the
Company's core area of SE
Saskatchewan.
- Increased the Company's dividend by 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).
- Announced a $429 million
strategic business combination with Longview Oil Corp. ("Longview"). The
proposed transaction is accretive to Surge on all metrics, and adds
concentrated reserves, production, land, and operations that are
contiguous with Surge's existing core areas in SE Saskatchewan and central Alberta.
- Announced that, upon the successful completion of the
business combination with Longview, Surge plans to increase the
Company's annual dividend 11 percent to $0.60 per share ($0.050 per share per month) from $0.54 per share per annum ($0.045 per share per month) currently.
RECORD PRODUCTION, FUNDS FLOW AND NETBACKS IN
THE FIRST QUARTER OF 2014
Surge reported record funds from operations of
$53.8 million in the first quarter,
along with record operating net backs in excess of $49 per boe, and production in excess of 15,000
boe per day.
It is important to note that these record
results do not include a full quarter of production from the
strategic, high netback $109 million
Southeast Saskatchewan light oil
asset acquisition that closed midway through the first quarter of
2014. In addition, the first quarter production and cash flow
results discussed above were achieved despite significant downtime
in January and February (estimated to be over 650 boepd for the
quarter) due to the extremely harsh cold winter conditions
experienced in Alberta and
Saskatchewan.
As planned, in the first quarter Surge executed
approximately half of the Company's entire 2014 drilling program,
with a 100 percent success rate on 20 gross (13.96 net) wells.
Management generally attempts to "front-end load" Surge's capital
expenditures each year to get the full year economic benefit of
successful drilling results, and to facilitate successful technical
evaluation of reserve additions from the program over a longer time
period.
Over $15 million
of the capital expenditures spent in the first quarter of 2014 were
focused on waterflood and pipeline projects at Shaunavon, Manson, Macoun and Nipisi. These projects will help
increase reliability; reduce downtime and support management's plan
to successfully continue reducing the Company's production decline
in future periods.
On February 14,
2014, the Company closed the $109
million acquisition of high quality, low decline, operated,
light oil producing assets strategically located in the Company's
core area of Southeast
Saskatchewan. These assets include 1,250 boepd (97 percent
oil) of high netback, crude oil production. The production is
focused in several large, high quality, crude oil reservoirs - with
combined original oil in place ("OOIP5") of over
240 million barrels.
_______________________ |
5 |
|
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. |
As a result of this 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 ($0.04333 per share per month), to
$0.54 per share per year
($0.045 per share per
month).
EXCITING FIRST QUARTER 2014 DRILLING RESULTS;
LARGE NEW OIL POOL DISCOVERY
As discussed above, in the first quarter of 2014
the Company experienced better than anticipated development
drilling results across the Company's entire asset base. During the
quarter Surge drilled a total of 20 wells (13.96 net), with a
success rate of 100 percent.
At Shaunavon in Southwest Saskatchewan, the Company previously
announced an exciting new pool discovery in the Upper Shaunavon
horizon (100% WI) at 16-36-5-20-W3. The horizontal, multi frac
discovery well continues to produce at very attractive rates. Two
offsetting Upper Shaunavon development wells will be spud on this
discovery immediately after break-up.
Surge also completed a tie-in to the main
battery at Shaunavon of the final
two, multi well satellites with emulsion and water injection lines
to accommodate future waterflood. The production (including water)
was previously trucked from these locations. Twenty six wells (of
the field total of 147) produced to these two satellites. This
project will significantly reduce the field operating,
transportation and water disposal costs. It will also increase
production reliability during break up and wet periods as a result
of eliminating the infield trucking.
At Nipisi, the recently announced Slave Point
horizontal, multi frac, development well has now stabilized at more
than 300 bopd. Water injection at the newly converted third
injector is being ramped up and offsetting wells are beginning to
see pressure support. Spring break up has been very routine at
Nipisi and the trucked production has not been impacted.
At Eyehill, in Central
Alberta, work will commence immediately to de-bottleneck the
gathering system and install the water injection lines to
facilitate the conversion of the first injector early in the third
quarter. This will also significantly reduce the operating costs
associated with the current trucking of the produced water.
At Valhalla,
after the success of the recently announced farm-in step out well,
Surge will immediately be spudding a 100% working interest
Doig, multi frac well that will terminate in section 6. Twp -75,
Rge 9 W. The well is expected to be completed and on production
early in June.
OUTLOOK: WELL POSITIONED FOR SUSTAINABLE
GROWTH AND DIVIDENDS
As a result of the Company's low decline and
long reserve life, Surge anticipates that the Company's bank line
will be increased to $525 million as
a result of the successful year end reserves review; and again
increased to $725 million upon the
successful completion of the business combination with Longview. With one of the lowest all-in payout
ratios in Canada (88.4 percent),
the Company will maintain its excellent balance sheet giving Surge
more than $240 million of capacity on
its bank line at year end 2014.
In just 12 months Surge management has
aggressively and efficiently executed a strategic business and
operating plan that has transformed the Company into one of the
best positioned and most sustainable light oil growth and dividend
paying companies in Canada.
Today, as a result of the execution of this
plan, the Company has strategically assembled a portfolio of high
quality, large OOIP crude oil reservoirs with low recovery factors
- in just three core operating areas.
Surge now has a deep, 12 year, low risk,
development drilling inventory, and a number of excellent
waterflood projects. The Company's corporate decline has decreased
dramatically, and netbacks have been increased over 50 per cent.
This has been accomplished by focusing growth capital towards
accretive, high quality, high netback light/medium gravity crude
oil assets in the Williston Basin and Central Alberta.
As a result of the successful and expeditious
implementation of management's strategic plan, Surge has been able
to provide shareholders with substantial increases in the Company's
dividend, while significantly decreasing Surge's all-in payout
ratio to 88.4 percent - one of the lowest in Canada.
In short, Surge's business plan is working -
perhaps better and/or quicker than anticipated by management.
Likely as a result of the difficult industry conditions faced by
oil and gas companies in Canada
over the last few years, a large number of high quality crude oil
assets became available in the domestic acquisition market. In this
marketplace, Surge management moved quickly and decisively to
assemble a portfolio of high quality, high netback, low decline
crude oil reservoirs, strategically located in just three core
operating areas.
With industry commodity price fundamentals,
crude oil differentials, and the declining Canadian dollar having
all improved conditions significantly in the last several months,
equity capital markets have also been improving for oil and gas
companies in Canada. Accordingly,
a large number of high quality assets have recently been acquired
in the public market place. In the opinion of Surge management, it
now appears that the window may be closing on this excellent
"buyer's market" for high quality assets.
On this basis, management is very excited that
the Company has been able to assemble a number of high quality
assets effectively positioning the Company to execute on Surge's
sustainable growth/dividend paying model - even if the industry is
entering a period where high quality, high netback crude oil assets
are not available in the acquisition marketplace on reasonable
terms.
Based upon the above, Surge is well positioned
to offer solid annual per share growth, plus a competitive
increasing dividend, through its organic development drilling
program, and the Company's high quality waterflood projects - for
the foreseeable future.
We look forward to providing increased guidance
for 2014 after the closing of the Longview acquisition in early June of 2014.
Contingent with the closing of the Longview transaction, management also looks
forward to increasing Surge's dividend 11 percent, from
$0.54 per annum to $0.60 per annum.
FINANCIAL STATEMENTS AND ACCOMPANYING
MDA:
Surge has filed with Canadian securities regulatory
authorities its financial statements and accompanying MD&A for
the three months ended March 31,
2014. These filings are available for review at
www.sedar.com or www.surgeenergy.ca.
ANNUAL GENERAL MEETING:
Surge's Annual General Meeting is scheduled for
3:00 pm Mountain Daylight Time on
May 22, 2014 at the Petroleum Club,
McMurray Room located at 319 -
5th Avenue SW, Calgary
AB.
Surge Energy Inc. is an oil-weighted production
and development company with high quality, large oil in place,
crude oil reservoirs. Management is focused on delivering to
its shareholders solid per share organic growth, sustainable
monthly dividends, and further growth through accretive
acquisitions of additional elite oil reservoirs. Surge's common
shares trade on the Toronto Stock Exchange under the symbol SGY and
the Company currently has 179.5 million basic and 183.7 million
fully diluted shares outstanding.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking
statements. More particularly, this press release contains
statements concerning: (i) the impact of capital expenditures on
waterflood and pipeline projects on reliability, downtime and
production decline in future periods, (ii) Surge's 2014 year end
production estimate, (iii) the anticipated increase in the monthly
dividend upon completion of the acquisition of Longview, (iv) anticipated increases in
Surge's bank line, (v) anticipated borrowing capacity under the
bank line at 2014 year end, (vi) the anticipated ratio of 2014 year
end debt to anticipated Q4 2014 annualized funds flow from
operations, and (vii) planned drilling, development and waterflood
activities.
The forward-looking statements are based on
certain key expectations and assumptions made by Surge, including
expectations and assumptions concerning the performance of existing
wells and success obtained in drilling new wells, anticipated
expenses, cash flow and capital expenditures, the application of
regulatory and royalty regimes, prevailing commodity prices and
economic conditions, development and completion activities, the
performance of new wells, the successful implementation of
waterflood programs, the availability of 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, exchange rates,
licensing requirements, the impact of completed facilities on
operating costs and the availability, costs of capital, labour and
services, the creditworthiness of industry partners and the receipt
of approval of the lenders under Surge's bank line to increases
thereto.
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 constraint in the availability of services,
adverse weather or break-up conditions, uncertainties resulting
from potential delays or changes in plans with respect to
exploration or development projects or capital expenditures or
failure to obtain required approvals from the lenders under Surge's
bank line to increases thereto. Certain of these risks are set out
in more detail in Surge's Annual Information Form dated
March 19, 2014 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.
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.
SOURCE Surge Energy Inc.