CALGARY, Aug. 25, 2015 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces continued drilling
success on the Company's Upper Shaunavon crude oil discovery in
SW Saskatchewan, and at
Valhalla in NW Alberta, and the initiation of its
previously announced share buy back.
In addition, Surge announces the appointment of Mr. Paul Ferguson, to the position of Chief
Financial Officer.
RECORD DRILLING RESULTS
Surge has completed and placed on production the four net wells
drilled in June and July at Shaunavon,
Saskatchewan – with better than type curve results. Net
production added from Surge's latest four new Upper Shaunavon wells
is over 800 bopd. Surge has more than 200 low risk Upper Shaunavon
development drilling locations on this play.
At Valhalla, a significant
portion of Surge's associated natural gas production will commence
flowing to the nearby Wembley gas
plant this week, further increasing Surge's ability to access third
party plant capacity. Based on the three (100 percent) exciting
wells drilled into the large northern pool extension at
Valhalla this year, including the
new well at 10-07-075-08W6 (Press Released August 5th, 2015), Surge is now
experiencing record production volumes at its core operated
property at Valhalla. The new 10-07 well has now produced over
56,000 barrels of oil in 26 days. Earlier this year, Surge further
consolidated its position at the north end of Valhalla, providing the Company with multiple
future locations in this exciting new pool extension.
The continued excellent development drilling results referred to
above, leave Surge well positioned to exceed management's 2015
production exit rate target of 14,500 boepd. Accordingly, Surge
management has delayed the drilling of three wells ($5.1 million of capital) until the fourth quarter
of 2015.
EXECUTIVE APPOINTMENT - MR. PAUL
FERGUSON
Surge is pleased to welcome Mr. Paul
Ferguson, who will be joining the Company in the position of
Chief Financial Officer ("CFO").
With over 25 years of industry experience, Mr. Ferguson
brings a breadth of experience to the CFO role. He began his career
in the field of Engineering with a Bachelor of Science in
Mechanical Engineering from the University of
Oklahoma and worked directly in operations. He later pursued
a Masters of Business Administration from Southern Methodist University, in Texas. From there he moved into the financial
industry, primarily in capital markets, holding research analyst
and portfolio management positions in a variety of firms, most
recently, Fidelity Management and Research, based in
Denver. With his international perspective, unique blend of
financial, capital markets, and operational experience, and strong
leadership skills, Mr. Ferguson will bring a unique perspective to
the management team at Surge.
Paul Colborne, President and CEO
stated, "I am very excited about Paul
Ferguson joining the management team here at Surge. I have
known Paul for several years and am confident that he will make a
strong and lasting contribution to the Company."
Mr. Ferguson looks forward to joining Surge and is excited to
lead the Finance and Accounting group. He views that team as a
solid core of highly skilled individuals who have performed well
and will continue to do so.
It is expected that Mr. Ferguson will begin as CFO of Surge in
mid to late September once the required authorizations have been
obtained from Citizenship and Immigration Canada.
INITIATION OF SHARE BUYBACK
As press released on August
5th, 2015, given Surge's peer group leading
balance sheet, and the Company's continued excellent development
drilling results, Surge management and Board have determined to
start acquiring Surge common shares pursuant to a normal course
issuer bid providing for the repurchase of Surge common shares
through the facilities, rules and regulations of the TSX (the
"Issuer Bid"). The Issuer Bid has been approved by the TSX.
Surge's new net asset value ("NAV") is $4.64 per share, utilizing Sproule's recent third
quarter of 2015 engineering price deck. In addition, the Company
only books approximately two years of trailing cash flow as future
development capital in its external engineering report.
Further, 73 percent of Surge's reserve value is in the proved
developed producing and probable producing categories.
Surge's NAV per share includes a booking of only 37 development
drilling locations for its Upper Shaunavon play – where Surge now
estimates the Company has over 200 low risk development locations
on 300m spacing. No waterflood upside is included in Surge's NAV
per share for the Company's Upper Shaunavon play.
Surge has approximately $295
million of credit availability on its bank lines, and a very
low debt to cash flow of 0.9 times at the end of Q2 2015. Surge
pays an interest rate of approximately 2.5 percent (after tax) on
indebtedness owing under its bank lines.
Surge does not have to pay a dividend on the common shares that
it acquires pursuant to the Issuer Bid - thereby increasing the
Company's sustainability.
The Issuer Bid provides an excellent, low risk return on
investment to Surge shareholders of greater than 125 percent,
including: NAV accretion (using the third quarter of 2015 Sproule
price deck $4.64 per share NAV),
dividend savings, less interest on applicable debt (if any).
Essentially, the Issuer Bid provides an additional method for Surge
management to return capital to its shareholders, along with the
payment of the Company's dividend.
Based on the current trading price of Surge common shares,
management believes that, pursuant to the Issuer Bid, the Company
is acquiring its reserves at a purchase price of less than
$6.90 per boe for independently
engineered proven plus probable reserves. This provides a low risk
recycle ratio of more than 3.5 times, based on Surge's second
quarter of 2015 operating netback of $26.53 per boe.
As a result of the very attractive rates of return at
Shaunavon, and the attractive, low
risk metrics relating to the buy back of Surge's common shares,
management confirms the initiation of the acquisition of Surge
common shares on August
24th, 2015 pursuant to the Issuer Bid.
Accordingly, Surge will: 1) deliver annual growth of three to
four percent per share; 2) return capital to its shareholders
pursuant to the Company's attractive dividend; and 3) return
capital to its shareholders pursuant to the accretive buyback of
its common shares in accordance with the Issuer Bid.
Macquarie Capital Markets Canada Ltd. will conduct the bid on
behalf of Surge pursuant to an automatic purchase plan. All
purchases under the bid will be purchased on the open market
through the facilities of the TSX and alternative Canadian trading
platforms at the prevailing market price at the time of such
transaction.
Forward Looking Statements:
This press release contains forward-looking statements. The
use of any of the words "anticipate", "continue", "estimate",
"expect", "may", "will", "project", "should", "believe" and similar
expressions are intended to identify forward-looking statements.
These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements.
More particularly, this press release contains statements
concerning: (i) Surge's drilling and development plans and enhance
recovery projects and the timing and results to be expected
thereof; (ii) estimated sizes, characteristics, efficiencies, rates
of return, netbacks, pool recovery factors and risk levels of plays
and the number of associated drilling locations, as applicable;
(iii) management's expectations with respect to the Company's
waterflood program, results therefrom and quantity of producing
assets that will be placed under waterflood; (iv) the Company's
expectations with respect to its 2015 production exit rate; (v)
expectations with respect to the Company's ability to operate and
succeed in the current commodity price environment; (vi) the
Company's declared focus and primary goals; (vi) management's
forecast of debt to cash flow ratio and the availability of Surge's
bank line to fund Surge's future capital requirements; (viii)
management's estimates and expectations regarding production
efficiencies, drilling upside, well costs, growth opportunities,
reserves and reserve life index and decline rates; (ix) the
Company's intentions with respect to the normal course issuer bid
and purchases thereunder and the effects of repurchases under the
bid; and * the appointment of Mr. Ferguson to the executive
team of Surge, the timing thereof, and the receipt of all required
authorizations from Citizenship and Immigration Canada in
connection therewith.
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, the determination of decommissioning liabilities, the
successful implementation of the Corporation's normal course issuer
bid, prevailing weather conditions, exchange rates, licensing
requirements, the impact of completed facilities on operating costs
and the availability, costs of capital, labour and services, and
the creditworthiness of industry partners.
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 the continued support of the
lenders under Surge's bank line. Certain of these risks are set out
in more detail in Surge's Annual Information Form dated
March 19, 2015 and in Surge's
MD&A for the period ended June 30,
2015, both of which have 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.
Reserves Data
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 and boepd means barrel of oil equivalent per day. Bopd
means barrels of oil per day. 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. 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.
Surge's NAV per share is calculated by taking proved plus
probable reserve value NPV10 BT (including future capital) of
$1,022 million, as evaluated by
Sproule and McDaniel as at December 31,
2014, and adjusting for undeveloped land ($130 million) and net debt ($126 million) and dividing by the number of
issued and outstanding shares, being 221.1 million.
The reserves data provided in this news release presents only a
portion of the Company's reserve information. Additional
reserves information are contained in Surge's annual information
form dated March 19, 2015, which was
filed on and which may be accessed through the SEDAR website.
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. 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.
Of the 200 net drilling locations identified herein in the Upper
Shaunavon, 37 are booked locations.
Test Results and Initial Production Rates
Any references in this press 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.
Non-IFRS Measures
This press release contains the terms "funds from operations",
"net debt", "netback", and "NAV" 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. NAV is
calculated as set forth above. 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.