CALGARY, Feb. 23, 2017 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") announced the results of its independent reserves
evaluation (the "Sproule Report") effective December 31, 2016, as prepared by Sproule
Associates Limited ("Sproule").
Surge is pleased to announce an increase in the Company's
year-end 2016 net asset value ("NAV") of more than 12 percent per
share over 2015, to $5.47 per
share.
The Company also reported that its 2016 capital program resulted
in a finding, development and acquisition ("FD&A") cost of
$3.74 per barrel of oil equivalent
("boe"), on a total proved plus probable basis, including changes
in undiscounted future development costs ("FDC").
2016 RESERVES HIGHLIGHTS:
Surge's focused operating strategy of utilizing growth capital
to acquire, exploit and waterflood high quality, large OOIP,
conventional, sandstone reservoirs, continues to provide excellent
results, as demonstrated by the following highlights:
- Increased the Company's 2016 NAV by 12 percent to $5.47 per common share.
- Delivered a FD&A cost of $3.74 per boe, on a total proved plus probable
basis, including changes in undiscounted FDC.
- Reported a 2016 recycle ratio of 4.61 times FD&A, on a
total proved plus probable basis, with oil prices averaging
US$43.15 WTI per barrel – the lowest
annual price since 2004.
- Lowered the Company's 2016 total proved plus probable finding
and development ("F&D") costs by 35 percent to $3.98 per boe, as compared to $6.08 per boe in 2015.
- Delivered a F&D recycle ratio of 4.34 times on proved plus
probable reserves, including changes in undiscounted future
development costs.
- Proved developed producing reserves are 81 percent light and
medium gravity crude oil plus NGL's.
- Achieved significant, repeatable reductions in future
development capital in the Sproule Report, reflecting the
successful execution of mono-bore drilling technology in two of
Surge's three core areas.
- Proved developed producing reserves value increased more than
21 percent over 2015, from $442
million to more than $537
million on a NPV10 basis (excluding acquisitions and
divestitures).
- Replaced more than 130 percent of 2016 production with the
addition of 6.1 MMboe of proved developed producing reserves
(excluding acquisitions and divestitures).
- Reported a 2016 recycle ratio of 1.42 times F&D, on a
proved developed producing basis.
- Proved and probable developed producing reserves represent over
55 percent of Surge's total reserve value on an NPV10 basis.
- Only 266 of Surge's 700 well inventory has been booked in the
2016 Sproule Report; this conservative booking reflects FDC of 3.51
years of estimated 2017 funds flow.
- Capital in the Sproule Report reflects conservative drilling
and completion cost estimates that are approximately 15 percent
above the Company's 2016 actual costs.
- Based on successful results from the Company's ongoing
waterflood pilots, waterflood reserve bookings were initiated for
the Upper Shaunavon and Sparky plays – which bookings Surge
believes to be conservative.
2016 INDEPENDENT RESERVES EVALUATION:
The evaluation of our reserves was done in accordance with the
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 reserves information as
required under NI 51-101 will be included in Surge's Annual
Information Form which will be filed on SEDAR on or before
March 31, 2017.
Independent reserve evaluators, Sproule, evaluated 100 percent
of Surge's total net present value reserves (calculated using a
discount rate of 10 percent).
RESERVES SUMMARY:
The following tables summarize Surge's working interest oil,
natural gas liquids and natural gas reserves and the net present
values ("NPV") of future net revenue for these reserves (before
taxes) using forecast prices and costs as set forth in the Sproule
Report.
|
|
|
|
|
Gross
Reserves(1):
|
Crude Oil and
NGLs(2)
|
Natural
Gas(3)
|
Oil
Equivalent
Total
Reserves
|
NPV of Future
Net
Revenue Discounted at
|
5%
|
10%
|
15%
|
|
(Mbbls)
|
(MMcf)
|
(Mboe)
|
($000's)
|
($000's)
|
($000's)
|
Proved:
|
|
|
|
|
|
|
|
Proved
Producing
|
23,812
|
33,028
|
29,318
|
673,003
|
553,046
|
472,127
|
|
Proved
Non-Producing
|
1,136
|
1,543
|
1,393
|
23,157
|
19,349
|
16,332
|
|
Proved
Undeveloped
|
16,621
|
31,015
|
21,790
|
352,199
|
254,775
|
188,937
|
Total
Proved
|
41,569
|
65,587
|
52,501
|
1,048,359
|
827,170
|
667,396
|
|
Probable
|
26,277
|
33,968
|
31,938
|
693,733
|
474,217
|
350,023
|
Total Proved plus
Probable
|
67,846
|
99,555
|
84,439
|
1,742,092
|
1,301,388
|
1,027,419
|
(1)
|
Amounts may not
add due to rounding.
|
(2)
|
Includes light,
medium, heavy and tight oil and natural gas liquids.
|
(3)
|
Includes
conventional natural gas, solution gas and coal bed
methane.
|
NET ASSET VALUE:
The Company's new NAV, as of December 31, 2016, is
estimated to be $5.47 per share – utilizing Sproule's
most recent price forecast.
Surge's December 31, 2016 detailed NAV calculation is
set forth below:
|
NAV ($M except
share amounts)
|
Proved Plus Probable
Reserve Value NPV10 BT (incl. FDC)
|
$
|
1,301,000
|
Undeveloped Land and
Seismic
|
$
|
96,000
|
Estimated Net Debt
(unaudited)
|
$
|
(162,000)
|
Total Net
Assets
|
$
|
1,235,000
|
|
|
Basic Shares
Outstanding (000's)
|
|
225,755
|
Fully Diluted Shares
Outstanding (000's)
|
|
235,634
|
|
|
|
Estimated NAV per
Basic Share
|
$
|
5.47
|
Estimated NAV per
Fully Diluted Share
|
$
|
5.24
|
RESERVE LIFE INDEX ("RLI"):
Surge aims to create shareholder value through the efficient
development of high quality oil and natural gas assets. The
profitable growth of the Company's reserves, combined with the
sustainable production of these reserves will generate long term
returns for our shareholders.
In 2016, the Company's total proved plus probable RLI increased
by 6.5 percent to 17.9 years demonstrating the sustainability that
exists between the Company's capital program, its reserve
additions, and its production levels.
The following table highlights Surge historical RLI:
|
|
|
|
Reserve Life Index
(Years)(1)
|
2016
|
2015
|
2014
|
Total
Proved
|
11.1
|
10.3
|
9.4
|
Total Proved plus
Probable
|
17.9
|
16.8
|
15.3
|
(1)
|
Calculated based on
the amount for the relevant reserves category divided by the
production forecast for the applicable year prepared by
Sproule.
|
FUTURE DEVELOPMENT COSTS ("FDC"):
Future development cost estimates reflect Sproule's best
estimate of the costs required to bring the total proved and proved
plus probable reserves on production. The Company has 42.8 MMboe of
total proved and probable undeveloped reserves assigned to
$435.8 million of FDC. At a cost of
$10.18 per boe, these future reserves
generate $578 million of net present
value discounted at 10 percent.
The total FDC represents 266 booked locations of Surge's 700
location inventory.
The Company estimates 2016 corporate capital expenditures at
$74 million (unaudited), and an
additional net negative of $11
million pursuant to acquisitions and divestitures. The
Sproule Report also includes a change in undiscounted FDC of a
negative $50 million, of which
approximately 50 percent relates to the successful proven adoption
of mono-bore technology in two of Surge's three core
areas.
During the year, the Company completed the sale of non-core
Northern Alberta producing assets
for gross proceeds of $28
million. Late in 2016, the Company completed a
$15 million strategic, core-area
acquisition of prospective light oil Montney acreage directly offsetting Surge's
operated Valhalla light oil asset.
Excitingly, the Company sees up to 12 net Montney light oil drilling locations on this
acreage. This core-area acquisition also provided Surge
with a strategic working interest ownership in a large sour gas
processing plant in the Valhalla
area. Consequently, Surge's Valhalla production base has continued to
realize operational efficiencies and stabilized run times.
The following table sets forth the schedule of FDC required to
develop Surge's future undeveloped reserves (using forecast prices
and costs).
|
|
|
Future Development
Costs
|
Total
Proved
|
Total Proved
plus Probable
|
|
($
thousands)
|
($
thousands)
|
2017
|
44,857
|
63,661
|
2018
|
93,303
|
124,037
|
2019
|
91,803
|
130,312
|
2020
|
59,554
|
87,259
|
2021
|
18,291
|
30,297
|
Remaining
|
0
|
264
|
Total
(Undiscounted)
|
307,809
|
435,830
|
Total (Discounted at
10%)
|
251,124
|
354,504
|
RESERVES PERFORMANCE RATIOS:
Surge believes that the recycle ratio is an important measure of
profitability. It is measured by dividing the unhedged operating
netback by the F&D costs per boe for the year.
Throughout the year, the Company realized significant
improvements in capital efficiencies, improving Surge's proved plus
probable F&D costs by 35 percent to $3.98 per boe, compared to $6.08 per boe in 2015.
With a 2016 unhedged operating netback of $17.25 per boe, Surge delivered a F&D recycle
ratio of 4.34 times on proved plus probable reserves, including
changes in undiscounted future development costs.
RISK MANAGEMENT UPDATE
In early 2017, the Company put in place 2,000 bbl/d of physical
Western Canadian Select ("WCS") differential collars at
US$12.75 by US$18.00 for April through to December, 2017.
Surge's ongoing strategic hedging program protects the execution
of the Company's 2017 drilling program through spring break-up, at
a crude oil price level as low as US $39 WTI, while maintaining a first half of
2017 debt-to-cash flow ratio of under 2.0 times (i.e. at that low
crude oil pricing assumption).
OUTLOOK – STRONG PROFITABILITY AT STRIP CRUDE OIL
PRICES
Management's stated goal at Surge is to be the best positioned
public crude oil growth and dividend paying company in Canada.
As set forth above, in 2016 Surge delivered one of the lowest
'all-in" FD&A finding costs (including change to FDC) of any
light and medium gravity crude oil company in Canada.
The Company's 2016 recycle ratio of 4.61 times is the best in
Surge's history – providing excellent empirical support for the
Company's strong profitability in the current environment for crude
oil prices. This very attractive recycle ratio was accomplished
with 2016 oil prices averaging US$43.15 WTI per barrel – the lowest annual price
since 2004.
Surge management believe that the Company's focused operating
strategy, top production efficiencies, rigorous cost controls and
excellent balance sheet, will allow the Company to continue to
outperform its peer group in the future.
DISCLAIMERS
Unaudited Financial Information
Certain financial and operating information included in this
press release for the quarter and year ended December 31,
2016, such as finding and development costs, production
information, operating netbacks, recycle ratios and net asset value
calculations are based on unaudited financial results for the year
ended December 31, 2016 and are subject to the certain
limitations as discussed under forward-looking statements outlined
at the end of this news release. These estimated amounts may
change upon completion of the audited financial statements for the
year ended December 31, 2016 and those changes may be
material.
Per share information is based on the total common shares
outstanding, as at December 31, 2016.
For certain calculations, Management used an estimate
of $74.0 million for total capital expenditures for
2016 including acquisitions and dispositions.
Information Regarding Disclosure on Oil and Gas
Reserves
The reserve data provided in this news release presents
only a portion of the disclosure required under NI
51-101. The oil and gas disclosure statements for the year
ended December 31, 2016, which will include complete
disclosure of Surge's oil and gas reserves and other oil and gas
information in accordance with NI 51-101, will be contained within
Surge's Annual Information Form which will be available
on Surge's SEDAR profile on or before March 31,
2017 at www.sedar.com.
There are numerous uncertainties inherent in estimating
quantities of crude oil, natural gas and NGL reserves and the
future cash flows attributed to such reserves. The reserve and
associated cash flow information set forth above are estimates
only. In general, estimates of economically recoverable crude oil,
natural gas and NGL reserves and the future net cash flows
therefrom are based upon a number of variable factors and
assumptions, such as historical production from the properties,
production rates, ultimate reserve recovery, timing and amount of
capital expenditures, marketability of oil and natural gas, royalty
rates, the assumed effects of regulation by governmental agencies
and future operating costs, all of which may vary materially. For
those reasons, estimates of the economically recoverable crude oil,
NGL and natural gas reserves attributable to any particular group
of properties, classification of such reserves based on risk of
recovery and estimates of future net revenues associated with
reserves prepared by different engineers, or by the same engineers
at different times, may vary. The Company's actual production,
revenues, taxes and development and operating expenditures with
respect to its reserves will vary from estimates thereof and such
variations could be material.
All evaluations and reviews of future net revenue are stated
prior to any provisions for interest costs or general and
administrative costs and after the deduction of estimated future
capital expenditures for wells to which reserves have been
assigned. The after-tax net present value of the Company's oil and
gas properties reflects the tax burden on the properties on a
stand-alone basis and utilizes the Company's tax pools. It
does not consider the corporate tax situation, or tax
planning. It does not provide an estimate of the after-tax
value of the Company, which may be significantly different.
The Company's financial statements and the management's discussion
and analysis should be consulted for information at the level of
the Company.
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. The estimated values of future net revenue
disclosed in this press release do not represent fair market value.
There is no assurance that the forecast prices and cost assumptions
used in the reserve evaluations will be attained and variances
could be material.
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.
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: 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; the Company's estimated
decline rate; and the timing of the filing of Surge's Annual
Information Form and the information to be contained therein.
Statements relating to "reserves" are also deemed to be forward
looking statements, as they involve the implied assessment, based
on certain estimates and assumptions, that the reserves described
exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.
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, 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
31, 2017 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.
Drilling Inventory
This press release discloses drilling locations that are booked
locations as well as unbooked locations. Proved locations and
probable locations, which are sometimes collectively referred to as
"booked locations", are derived from the Surge's Reserves Report
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 700
gross (670 net) drilling locations identified herin 434 are
unbooked locations. Of the 266 gross (249 net) booked locations
identified herin 195 gross (182 net) are Proved locations and 71
gross (67 net) are Probable 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.
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 "operating 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
"operating netbacks" are a useful supplemental measures of the
amount of revenues received after royalties and operating and
transportation costs. 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).
Select Definitions
bbl
|
|
barrel
|
bbls
|
|
barrels
|
Mbbls
|
|
thousand
barrels
|
MMBtu
|
|
million British
thermal units
|
NGLs
|
|
natural gas
liquids
|
mcf
|
|
thousand cubic
feet
|
mmcf
|
|
million cubic
feet
|
mmcf/d
|
|
million cubic feet
per day
|
boe
|
|
barrel of oil
equivalent on the basis of 1 boe to 6 Mcf of natural
gas.
|
mboe
|
|
thousand
boe
|
$M
|
|
thousands of
dollars
|
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.