CALGARY, Feb. 8, 2017 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) announces the Company's
intention to increase its dividend from $0.075 per year ($0.00625 per month) to $0.085 per year ($0.00708 per month) effective March 15th, 2017.
Surge continues to experience increasing production volumes, as
a result of continued excellent drilling and waterflood results at
its three core properties at Shaunavon, Sparky, and Valhalla. On December
13, 2016 Surge upwardly revised the Company's 2017 average
daily production estimate to 14,000 boepd from 13,500 boepd, and
the Company's 2017 exit production to 14,450 boepd from 14,000
boepd.
Management confirms that Surge's December, 2016 production
averaged more than 13,800 boepd – well above the Company's 2016
exit rate production guidance of 13,500 boepd. Surge anticipates
13.5 net wells will be brought on production before spring break-up
at the Company's three core assets.
On this basis, Surge now anticipates delivering more than 18
percent production per share growth over the period from Q2/2016 to
the end of 2017 (i.e. greater than 10 percent annualized).
These consistent operational results and top tier production
efficiencies, combined with successful, ongoing cost-cutting
initiatives for operating expenses, G&A, and interest expense,
provide the Company with meaningful excess "free" funds flow (i.e.
over and above the Company's 2017 $85
million capital expenditure program, and the present
dividend of $17 million) – at the
Company's budget 2017 crude oil pricing assumption1.
Surge's current dividend represents a conservative simple payout
ratio of less than 13.6 percent of forecast 2017 funds flow.
Accordingly, with the ongoing protection from Surge's strategic
commodity hedging program, and a forward debt to funds flow ratio
of less than 1.2 times exiting 2017 (at the Company's budget 2017
crude oil pricing assumption1), the Company intends to
increase the Company's dividend by 15 percent, from
$17 million annually to approximately
$19.2 million annually, effective
March 15th, 2017. This
equates to a simple payout ratio of approximately 15 percent of
forecast 2017 funds flow, which compares favorably with Surge's
peer group average of approximately 25 percent.
Surge's go-forward dividend policy will continue to target a
simple payout ratio of 20 to 30 percent, and an all-in
sustainability ratio in the range of 70 to 85 percent. Additional
free funds flow beyond Surge's targeted five to six percent annual
production growth targets is expected to be allocated to an
expanded capital program, debt repayment, dividend increases, or
share buybacks.
It is gratifying for Surge's management and Board to be able to
augment shareholder returns during periods of volatile equity
capital markets, and political uncertainty, through orderly
increases to the Company's dividend, based on Surge's excellent
balance sheet, low decline, low cost structure, and excellent
production efficiencies.
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: production volumes; drilling activities; Surge's
capital expenditure program, including drilling and development
plans and enhance recovery projects and the timing and results to
be expected thereof; expectations with respect to the Company's
ability to operate and succeed in the current commodity price
environment; the Company's declared focus and primary goals;
management's forecast of debt to funds flow ratio; guidance with
respect to 2017 average production and production per share; funds
flow; Surge's dividend; payout ratio; sustainability; Surge's
hedging program and the benefits thereof; management's estimates
and expectations regarding production efficiencies, drilling
upside, operating costs, growth opportunities and reserves; the
impact of cost savings initiatives; production and cash flow per
share growth; and anticipated commodity prices.
The guidance for 2017 set forth in this press release may be
considered to be future-oriented financial information or a
financial outlook for the purposes of applicable Canadian
securities laws. Financial outlook and future-oriented financial
information contained in this press release are based on
assumptions about future events based on management's assessment of
the relevant information currently available. In particular, this
press release contains projected operational information for 2017,
including exit production, total capital, royalties, operating
expenses, transportation expenses, as well as the applicable
discount price to be received on future production. The
future-oriented financial information and financial outlooks
contained in this press release have been approved by management as
of the date of this press release. Readers are cautioned that any
such financial outlook and future-oriented financial information
contained herein should not be used for purposes other than those
for which it is disclosed herein.
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,
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 16, 2016 and in Surge's
MD&A for the period ended September 30,
2016, 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. 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.
Non-IFRS Measures
This press release contains the terms "sustainability", 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. Sustainability is a comparison
of a company's cash outflows (capital investment and dividends) to
its cash inflows (funds flow) and is used by the Surge to assess
the appropriateness of its dividend levels and the long-term
ability to fund its development plans. Sustainability ratio is
calculated using the development capital plus dividends paid
divided by funds flow. Additional information relating to this
non-IFRS measure 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.
______________________
1 Based on US $55 WTI/bbl;
CAD $72.37 WTI/bbl; EDM CAD
$68.12/bbl; WCS CAD $52.70/bbl; AECO $2.95/mcf.
SOURCE Surge Energy Inc.