CALGARY, June 15, 2015 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) announces that the Company
has successfully closed its previously announced $430 million sale of assets in SE Saskatchewan and Manitoba. Surge also had its bank line
confirmed by the Company's bank syndicate at $425 million – post the sale of assets described
above – with current net debt of approximately $122 million.
In the higher crude oil price environment from May, 2013 to
October, 2014, Surge management assembled a high quality, low
decline, light oil asset and opportunity base focused in four
operating areas. Surge grew aggressively and delivered some of the
best total rates of return to its shareholders of any growth and
dividend paying company in Canada
over this period.
When oil prices dropped precipitously in the fall of 2014 and
early 2015, Surge management took a number of aggressive and
proactive steps to successfully protect shareholders capital, and
the net asset value of the Company's shares. Given the new lower
forward curve for world crude oil prices, in early 2015 Surge
management completed a detailed, full scale development business
plan and evaluation for each of the Company's four primary assets,
and determined that it was most advantageous to sell its
SE Saskatchewan/Manitoba assets to reposition Surge's balance
sheet for an environment of lower crude oil prices.
As a result of these aggressive and proactive decisions, Surge
is on track to achieve managements stated goal of being one of the
best positioned light/medium gravity crude oil growth and dividend
paying companies in Canada –
uniquely positioned to grow at virtually any reasonable crude oil
commodity price assumption.
Today, the Company has three core, high netback, operating
areas, which comprise over 1.4 billion barrels of net original oil
in place ("OOIP"1), with a seven percent recovery
factor.
Surge has a forward debt to cash flow ratio of just over one
times at strip pricing, with more than $300
million of credit availability on the Company's bank
lines.
At Shaunavon, Valhalla, and in Central Alberta (Sparky), the Company has a 14
year, low risk development drilling inventory, with more than 700
net drilling locations that generate excellent rates of return at
strip pricing for crude oil.
With a 15 year reserve life, a low 23 percent decline, and
excellent production efficiency plays, Surge also has one of the
lowest "all-in" payout ratios in the Company's peer group in
Canada.
Given the Company's high quality, oil-weighted, low decline
asset base, Surge management plans to strategically allocate
capital towards the drilling and waterflooding of the Company's
large OOIP Upper Shaunavon discovery in SW Saskatchewan, to the continued development
of the Company's large OOIP, high quality, Doig light oil pool at
Valhalla in NW Alberta, and to the continued development
and waterflooding of Surge's large OOIP Sparky crude oil assets in
Central Alberta.
Today, Surge has the following corporate fundamentals:
- Reserves: 86.3 mmboe Total Proven plus Probable (76
percent oil)
- RLI: >15 years
- Decline: 23 percent
- Production: >14,250 boepd (77 percent oil)
- Net Debt: $122
million
- Forward Debt to Cash Flow: 1.2 times (based on
June 10, 2015 strip pricing)
- Bank Line: $425
million
- Drilling Inventory: 755/734 (gross/net) total locations;
201/186 (gross/net) booked
- Land: 285,000 gross (260,000 net) undeveloped acres
- Operatorship: 100 percent of Surge's three core
areas
- Operating Expenses: $14.80
per boe
- Dividend: $0.30 per share
per annum ($0.025 per share per
month)
- NAV: $6.28 per share
(year-end external engineering report)
Surge's NAV of $6.28 per share
includes only 38/37 (gross/net) locations booked for the Upper
Shaunavon play in SW Saskatchewan,
out of a total of 223/221 (gross/net) available development
locations. Further, no waterflood upside is booked in Surge's NAV
for this high quality, 250 million barrel OOIP, conventional
sandstone reservoir.
As previously disclosed, Surge management will be presenting a
budget for the second half of 2015 in late June after reassessing
market conditions at that time.
____________________________________
1 Original Oil in Place (OOIP)/RF: 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. > 1.7 billion bbls gross
(.1.4 billion bbls net); 7% RF
|
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, 2015. These
filings are available for review at www.sedar.com or
www.surgeenergy.ca.
ADVISORIES:
Forward Looking Statements
This press release contains forward-looking statements. More
particularly, this press release contains statements concerning:
(i) management expectations with respect to market positioning
within the industry; (ii) Surge's drilling inventory; (iii) Surge's
capital allocation plans; (iv) Surge's available development
locations in the Upper Shaunavon; (v) the timing of Surge's
presentation of it budget for the second half of 2015; (vi)
expectations with respect to Surge's balance sheet and anticipated
year ended bank line availability; (vii) forecast decline rates and
reserve life index; (viii) management's expectations with respect
to the Company's waterflood program, results therefrom and quantity
of producing assets that will be placed under waterflood; (ix)
Surge's operational guidance, including "all-in" pay-out ratios and
estimated year-end net debt to funds from operation; * the
Company's declared focus and primary goals; and (xi) the
sustainability of dividends.
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 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 receipt
of required approvals 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, 2015
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. Bbl
means barrels of oil. Boepd means barrel of oil equivalent
per day. Mmboe means million barrel of oil
equivalent. RLI means reserve life index. PUD means
proven undeveloped. NAV means net asset value.
Financial Outlooks
The estimate of forward debt to cash flow ratio contained in
this press release may be considered 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.
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.
Drilling Locations
This press release discloses drilling locations in three
categories: (i) proved locations; (ii) probable locations; and
(iii) unbooked locations. Proved locations and probable locations,
which are sometimes collectively referred to as "booked locations",
are derived from the Company's most recent independent reserves
evaluation as of December 31, 2014
and account for drilling locations that have associated proved or
probable reserves, as applicable. Unbooked locations are internal
estimates based on the Company's prospective acreage and an
assumption as to the number of wells that can be drilled per
section based on industry practice and internal review. Unbooked
locations do not have attributed reserves or resources. Of the 734
net drilling locations identified herein 548 are unbooked
locations. Unbooked locations have specifically been
identified by management as an estimation of our multi-year
drilling activities based on evaluation of applicable geologic,
seismic, engineering, production and reserves data on prospective
acreage and geologic formations. The drilling locations on which we
actually drill wells will ultimately depend upon the availability
of capital, regulatory approvals, seasonal restrictions, oil and
natural gas prices, costs, actual drilling results and other
factors.
Non-IFRS Measures
This press release contains the terms "funds from operations",
"net debt" and "netback", which do not have a standardized meaning
prescribed by International Financial Reporting Standards ("IFRS")
and therefore may not be comparable with the calculation of similar
measures by other companies. Management uses funds generated by
operations to analyze operating performance and leverage.
Management believes "net debt" is a useful supplemental measure of
the total amount of current and long-term debt of the Company.
Mark-to-market risk management contracts are excluded from the net
debt calculation. Management believes "netbacks" are a useful
supplemental measures of the amount of revenues received after
royalties and operating and transportation costs and secondly, the
amount of revenues received after the royalties, operating,
transportation costs, general and administrative costs, financial
charges and asset retirement obligations. Additional information
relating to these non-IFRS measures can be found in the Company's
most recent management's discussion and analysis MD&A, which
may be accessed through the SEDAR website (www.sedar.com).
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.