CALGARY, Feb. 11, 2015 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") delivered excellent results with respect to the
Company's 2014 year end reserves.
Highlights:
- Surge's net asset value (NAV)1
per share for December 31, 2014 is
$7.36 utilizing the lower crude
oil price deck used by Surge's external engineers.
- Increased Proved plus Probable reserves by
52% to 112.0 million boe as compared to December 31, 2013 reserves of 73.5 million
boe.
- Increased Proved plus Probable reserves
per share by 15% as compared to December
31, 2013.
- Over 50% of Surge's December 31, 2014 $2.0
billion NPV10 Total Proved plus Probable reserve value is in
the proved developed producing category.
- Surges "all–in" FD&A costs for 2014
were $19.55 per boe, generating a
better than 2.2 times recycle ratio.
- Surge delivered record production for
the week of January
18th through January 25th, 2015
of more than 22,700 boe per day (85% oil and NGLs) - well above
management's stated 2014 exit rate target of 21,350 boe per
day.
- Surge delivered record production of
18,070 boe per day in 2014, which is a 68% increase over 2013.
- Surge sold certain non-core assets on
February 11, 2015 for $35.6 million - which proceeds have been utilized
to reduce bank indebtedness.
- The Company has reconfigured its 2015
crude oil swap positions by monetizing the Company's 2015 crude oil
swaps at a profit of more than $35
million, and re-hedging on a "costless collar" basis, at
a floor of over C$62 WTI per barrel
and a ceiling of over C$82 WTI per
barrel, for the remainder of 2015 on approximately 45% of Surge's
net crude oil production. The proceeds of this hedge
reconfiguration have been utilized to reduce bank indebtedness.
- The Company's 2015 bank line review has been initiated and
Surge's bank line is expected to remain unchanged at the
$725 million level based on the
Company's strong reserve results - despite a large drop in the
crude oil price deck utilized by Surge's lenders.
2014 YEAR END RESERVES:
Surge reports the following 2014 year-end reserves highlights
based on the Sproule Associates Limited ("Sproule") and McDaniel
& Associates Consultants Ltd. ("McDaniel")
independent assessments of the Company's reserves dated effective
December 31, 20142 (the
"Surge Sproule Report") and (the "Surge McDaniel Report").
The results presented below used the following unaudited estimated
values3: total capital expenditures for 2014 of
approximately $726 million including
acquisitions and dispositions.
RESERVES:
- Achieved Proved plus Probable finding, development and
acquisition (FD&A) cost of
$19.55 per boe, including the change
in FDC.
- Achieved an 'all-in' Proved plus Probable
recycle ratio of more than 2.2, including the change in FDC and
based on Surge's estimated 2014 operating netback of
$43.18 per boe.
- Surge's Net Asset Value (NAV) is estimated at $7.36 per basic share based on Net Present
Value discounted at 10 % Before Tax ("NPV10 BT") Proved plus
Probable (2P) reserves of $2.0
billion as at December 31,
2014.
- Surge's PDP Net Asset Value (NAV) is estimated at
$3.06 per basic share based on
Net Present Value discounted at 10 % Before Tax ("NPV10 BT")
Proved Producing reserves (PDP) reserves of $1.04 billion as at December 31, 2014.
- Surge's PDP Reserves account for over 52% of Total
Reserves NPV value.
- Increased Proved plus Probable reserves by 52% to 112.0
million boe as compared to December 31,
2013 reserves of 73.5 million boe.
- Achieved Proved plus Probable Finding and Development Costs
(F&D) of $25.99 per boe,
including the change in Future Development Capital (FDC).
- Increased Proved plus Probable Oil and NGLs reserves by
58% to 90.2 million barrels over December 31, 2013 reserves of 57.1 million
barrels. Oil and NGLs made up 81% of the Company's total
Proved plus Probable reserves.
- Proved plus Probable FDC discounted at 10% of $553 million represents less than 2.3 times 2014
forecast average funds flow.
- Achieved a Proved plus Probable Reserve Life Index (RLI) of
15.0 years based on the Company's 2014 fourth quarter
average production rate of approximately 20,448 boe per day.
2014 OPERATIONS:
- Achieved record 2014 annual production of 18,070 boe/d
(85% oil and NGLs), an increase of 68% compared to
2013.
- Drilled 73 (43 net) wells with a 98% success
rate.
The following table summarizes the Company's reserves evaluated
by independent reserves evaluators at December 31, 2014. The Surge Sproule Report
and Surge McDaniel Report were prepared in accordance with
definitions, standards and procedures contained in the Canadian Oil
and Gas Evaluation Handbook ("COGE Handbook") and National
Instrument 51-101 Standards of Disclosure for Oil and Gas
Activities ("NI 51-101"). Additional reserve information as
required under NI-51-101 will be included in the Company's Annual
Information Form, which will be filed on SEDAR by March 30, 2015.
Summary of
Reserves4
|
|
Oil&NGLs
(mbbls)
|
Gas
(mmcf)
|
Combined
(mboe)
|
Future Development
Capital (FDC)
($M)
|
|
|
|
|
Discounted @
10%
|
Undiscounted
|
Proved Developed
Producing
|
36,834
|
51,587
|
45,431
|
347
|
351
|
Proved
Developed
Non-Producing
|
733
|
2,424
|
1,137
|
2,342
|
2,615
|
Proved
Undeveloped
|
16,647
|
30,628
|
21,752
|
355,745
|
413,871
|
Total
Proved
|
54,214
|
84,639
|
68,320
|
358,434
|
416,837
|
Probable
Additional
|
36,017
|
46,156
|
43,710
|
194,650
|
237,747
|
Total
Proved plus
Probable
|
90,230
|
130,795
|
112,030
|
553,084
|
654,584
|
Summary of Before Tax Net Present Values
(Forecast Pricing)
As at December 31,
20145
BEFORE TAX NET PRESENT
VALUE ($M)
|
Discount
Rate
|
DESCRIPTION
|
0%
|
5%
|
10%
|
15%
|
20%
|
Proved Developed
Producing
|
1,723,347
|
1,286,740
|
1,037,971
|
875,850
|
761,396
|
Proved Developed
non-Producing
|
43,659
|
31,641
|
24,627
|
20,036
|
16,789
|
Undeveloped
|
570,150
|
378,462
|
261,196
|
183,797
|
129,924
|
Total
Proved
|
2,337,156
|
1,696,842
|
1,323,794
|
1,079,683
|
908,109
|
Probable
Additional
|
1,953,614
|
1,036,264
|
660,588
|
464,023
|
345,315
|
Total Proved plus
Probable[6]
|
4,290,771
|
2,733,107
|
1,984,382
|
1,543,707
|
1,253,424
|
Per basic
share
|
19.50
|
12.42
|
9.02
|
7.02
|
5.70
|
CAPITAL PROGRAM EFFICIENCY
Based on the evaluation of our petroleum and natural gas
reserves prepared in accordance with NI 51-101 by our independent
reserve evaluators, the historical efficiency of our capital
programs is summarized as follows:
|
|
|
|
|
2014
|
2013
|
Five
Year Weighted Average
|
Excluding Future
Development Costs
Proved ($/boe)
|
|
|
|
|
|
|
|
F&D
costs7
|
$
|
23.99
|
$
|
19.54
|
$
|
19.45
|
|
FD&A
costs8
|
$
|
22.88
|
$
|
36.18
|
$
|
26.79
|
Proved plus probable
($/boe)
|
|
|
|
|
|
|
|
F&D
costs7
|
$
|
29.61
|
$
|
13.69
|
$
|
14.31
|
|
FD&A
costs8
|
$
|
15.97
|
$
|
22.32
|
$
|
17.68
|
Proved plus
Probable Recycle ratio9
|
|
|
|
|
|
|
|
F&D
costs
|
|
1.5x
|
|
3.0x
|
|
2.7x
|
|
FD&A
costs
|
|
2.7x
|
|
1.9x
|
|
2.2x
|
Including Future
Development Costs
Proved
($/boe)
|
|
|
|
|
|
|
|
F&D
costs7
|
$
|
22.57
|
$
|
27.92
|
$
|
26.57
|
|
FD&A
costs8
|
$
|
26.66
|
$
|
42.10
|
$
|
29.72
|
Proved plus probable
($/boe)
|
|
|
|
|
|
|
|
F&D
costs7
|
$
|
25.99
|
$
|
17.03
|
$
|
22.35
|
|
FD&A
costs8
|
$
|
19.55
|
$
|
27.27
|
$
|
22.14
|
Proved plus
Probable Recycle ratio9
|
|
|
|
|
|
|
|
F&D
costs
|
|
1.7x
|
|
2.5x
|
|
1.8x
|
|
FD&A
costs
|
|
2.2x
|
|
1.5x
|
|
1.8x
|
|
|
|
|
Operating netback
per boe9
|
$
|
43.18
|
$
|
41.74
|
$
|
39.26
|
RECORD PRODUCTION:
As a result of the excellent drilling results experienced in
late 2014, Surge's daily production for the week of January 18 to January 25 was more than 22,700 boe
per day (85% oil and NGL's) – well above management's stated 2014
exit rate target of 21,350 boe per day.
In accordance with the Company's Press Release dated
January 7th, 2015 Surge
anticipates average production of 20,000 boe per day for the first
half of 2015.
HEDGE RECONFIGURATION:
The forward curve for world crude oil prices has changed
dramatically in just a few short months. In June of 2014, crude oil
prices spiked to US$108 WTI per
barrel and the forward curve for oil became backwardated.
Accordingly, Surge management locked-in significant hedge positions
in range of C$96-103 per barrel
pricing for 2014 and 2015. These hedge positions are now
significantly "in the money".
From June of 2014 to the present world crude oil prices have
dropped precipitously from US$108 WTI
per barrel to a low of US$43 WTI in
February. With world oil demand at record levels, and massive
capital spending cuts for crude oil drilling occurring worldwide,
the shape of the forward curve for crude oil has moved into a very
strong contango position.
Accordingly, Surge management has now monetized its existing
forward fixed swap positions at a profit of $35 million. Surge management has now
"re-hedged", on a costless collar basis, approximately 45 percent
of the Company's net crude oil production for the rest of 2015 -
with a floor of over C$62 per barrel,
and a ceiling of over C$82 per
barrel, at no cost to Surge. Proceeds from this hedge
reconfiguration will be utilized to reduce bank indebtedness.
Surge management has elected to maintain its natural gas hedge
at C$4.14/MCF for approximately 50
percent of the Company's natural gas production for all of
2015.
SALE OF NON-CORE ASSETS:
On February 11, 2015 Surge closed
the sale of certain non-core producing oil assets in the
Dodsland area of SW Saskatchewan for a purchase price of
$35.6 million. This sale represents a
flowing per barrel metric of approximately $75,000 boe per day based on Surge expected
average production rate from these non-core assets in 2015.
Proceeds from the non-core asset sale have been utilized to
reduce bank indebtedness.
BANK REVIEW:
Based upon the Company's excellent 2014 reserve addition
results, Surge's bank line review has been initiated and Surge's
bank line is expected to remain unchanged at the $725 million level, despite a large drop in the
2015 crude oil price deck utilized by Surge's lenders. This does
not include the impact of any bank line reduction due to the
non-core asset disposition or the crude oil swap
reconfiguration.
In this regard, as a result of excellent 2014 reserve additions,
Surge's 2014 Proved Developed Producing ("PDP") reserve value is
now higher than in 2013. Over half of Surge 2014 reserve value is
in the PDP category.
RESERVES NOTE:
In accordance with National Instrument 51-101 - Standards of
Disclosure for Oil and Gas Activities (NI 51-101), a report was
prepared by each of Sproule and McDaniel. These reports evaluated,
as at December 31, 2014, all of
Surge's oil, natural gas, and natural gas liquids
reserves.
The tables in this press release disclose in the aggregate the
Company's gross and net proved and proved plus probable reserves
and Net Present Value (NPV) as estimated in both the Surge Sproule
Report and the Surge McDaniel Report. These estimates were
calculated using Sproule forecast prices and costs.
"Forecast prices and costs" means future prices and costs used
by Sproule in the Surge Sproule Report and in the Surge McDaniel
Report that are generally accepted as being a reasonable outlook of
the future, or fixed or currently determinable future prices or
costs to which the Company is bound.
"Gross" reserves equate to those reserves that are referred to
as "Company Gross" reserves by the Canadian Securities
Administrators (CSA) in NI 51-101. Gross Reserves are Company
gross reserves, which are the Company's working interest (operating
or non-operating) share before deduction of royalties and without
including any royalty interests of the Company.
"Net After Royalty" reserves are the Company's working interest
(operating or non-operating) share after deduction of royalty
obligations plus the Company's royalty interests in
reserves.
The net present value of future net revenue attributable to
Surge's reserves is stated without provision for interest costs and
general and administrative costs, but after providing for estimated
royalties, production costs, development costs, other income,
future capital expenditures, and well abandonment costs for only
those wells assigned reserves by Sproule and McDaniel's. It should
not be assumed that the undiscounted or discounted net present
value of future net revenue attributable to Surge's reserves
estimated by Sproule and McDaniel's represent the fair market value
of those reserves. The estimates of reserves and future net
revenue for individual properties may not reflect the same
confidence level as estimates of reserves and future net revenue
for all properties, due to effects of aggregations. Other
assumptions and qualifications relating to costs, prices and future
production and other matters are summarized herein. The
recovery and reserve estimates of Surge's oil, natural gas, and NGL
reserves provided herein are estimates only and there is no
guarantee that the estimated reserves will be recovered. Actual
reserves may be greater than or less than the estimates provided
herein.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More
particularly, this press release contains statements concerning
Surge's expectations regarding its average daily production; the
impact of the commodity pricing; its balance sheet, ability to
reduce debt; bank line availability; its capital spending program
for 2015 and ability to be flexible in its capital budgeting over
the course of 2015; forecast decline rates; reserve life; drilling
inventory; drilling and development plans and enhanced recovery
projects and the timing and results to be expected thereof;
net-asset-value and net-asset-value/share; netbacks; the Company's
declared focus and primary goals;; anticipated services cost
savings and other cost reduction initiatives; the ability of the
Company to weather the present commodity price environment; the
Company's ability to liquidate hedge positions; the reduction in
the Company's dividend to $0.30 per
share per year; and the timing, amount and sustainability of future
dividend payments.
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, worldwide supply and demand for oil and natural gas;
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 successful completion of the disposition
transactions, the impact of completed facilities on operating costs
and the availability, costs of capital, labour and services, the
creditworthiness of industry partners and the approval of the
lenders under Surge's bank line.
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.
Test Results and Initial Production Rates
Any references in this news release to initial, early and/or
test production/performance rates are useful in confirming the
presence of hydrocarbons, however, such rates are not determinative
of the rates at which such wells will continue production and
decline thereafter. While encouraging, readers are cautioned
not to place reliance on such rates in calculating aggregate
production. The initial production rate may be estimated based on
other third party estimates or limited data available at this
time. Initial production or test rates are not necessarily
indicative of long-term performance of the relevant well or fields
or of ultimate recovery of
hydrocarbons.
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 Net asset value ("NAV") is calculated as proved plus
probable (before tax discounted at 10%) reserve value, plus
undeveloped land value and seismic data value, less debt, as at
December 31, 2014.
2 Using Sproule forecast prices and costs
3 As Surge plans to release its audited financial
statements before the end of March
2015, certain financial estimates have been made
herein. Readers are advised to that these financial estimates
are subject to audit and may be revised.
4 Please see reserves note of this press release
5 Based on Sproule's December 31,
2014 Revised Price Forecast
6 Numbers may not add due to rounding.
7 The aggregate of the exploration and development costs
incurred in the financial year and change during that year in
estimated future development costs generally will not reflect total
finding and development costs related to reserve additions for that
year.
8 The capital expenditures include the announced
purchase price of corporate acquisitions rather than the amounts
allocated to property, plant and equipment for accounting purposes.
The capital expenditures also exclude capitalized administration
costs.
9 Recycle ratio is calculated as operating netback
divided by FD&A costs (proved plus probable). Operating netback
is calculated as revenue (including realized hedging gains and
losses) minus royalties, production and operating expenses and
transportation expenses.
SOURCE Surge Energy Inc.