CALGARY, March 15, 2017 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces its operating and financial
results for the year and quarter ended December 31, 2016.
2016 - POSITIONED FOR OUTPERFORMANCE
Management has been strategically positioning Surge for success
in a lower crude oil price environment for over 30 months. In the
extended downturn for world crude oil prices, Surge focused on
creating financial liquidity, balance sheet management, rigorous
cost cutting initiatives, delineation of the Company's high
quality, large OOIP crude oil reservoirs, and the implementation of
successful waterfloods. All of these steps were taken without
issuing Surge treasury stock.
As crude oil prices rallied from their February lows, in May of
2016 Surge management moved decisively to add a substantial,
organic production per share growth component back into the
Company's growth and dividend paying business model – all
sustainable at less than current strip pricing for crude oil. This
decision was further supported by a historically low service cost
environment, together with drilling program improvements and
efficiencies.
Accordingly, given the excellent drilling results at the
Company's Shaunavon, Sparky, and
Valhalla core areas, combined with
successful ongoing waterflood activities, Surge delivered 2016 exit
production in excess of 13,800 boepd, up from 12,182 boepd in Q2 of
2016. This represents an increase in production per share of
11 percent in just seven months.
In addition, on December 13, 2016
Surge upwardly revised the Company's 2017 average daily production
estimate to 14,000 boepd from 13,500 boepd, and Surge's 2017 exit
production target to 14,450 boepd from 14,000 boepd. On this basis,
Surge now anticipates delivering more than 18 percent production
per share growth over the period from Q2 of 2016, to the end of
2017.
2016 HIGHLIGHTS
- Increased adjusted funds from operations per share by 43
percent, to $0.10 per share in Q4 of
2016, up from $0.07 per share in Q4
of 2015.
- Increased unhedged adjusted funds from operations per share 120
percent, to $0.11 per share in Q4 of
2016, up from $0.05 per share in Q4
of 2015.
- During Q1 of 2016, the Company completed the sale of non-core
Northern Alberta producing assets
and infrastructure, for gross proceeds of $43 million.
- Increased the Company's 2016 NAV by 12 percent to $5.47 per common share.
- Delivered a 2016 finding development and acquisition
("FD&A") cost of $3.74 per boe,
on a total proved plus probable basis, including changes in
undiscounted future development capital ("FDC").
- Reported a 2016 recycle ratio of 4.61 times FD&A, on a
total proved plus probable basis, with crude oil prices averaging
US$43.32 WTI per barrel – the lowest
annual price since 2004.
- Delivered an organic finding and development ("F&D") cost
in 2016 of $3.98 per boe, on a total
proved and probable basis including changes in undiscounted
FDC.
- Delivered an organic 2016 F&D recycle ratio of 4.34 times,
on a total proven plus probable basis.
- As a result of rigorous, ongoing cost cutting initiatives for
operating expense, G&A and interest expense, cash operating
costs have now been reduced by $6.91
per boe (28 percent), from Q1 of 2015 to Q4 of 2016.
- Surge's unhedged corporate netback increased 142 percent, to
$20.07 per boe in Q4 of 2016, up from
$8.28 per boe in Q4 of 2015.
- The Company's unhedged operating netback increased 109 percent,
to $23.37 per boe in Q4 of 2016, from
$11.16 per boe in Q4 of 2015.
- Further delineation of the Company's large OOIP, medium
gravity, Upper Shaunavon crude oil asset has solidified years of
visible drilling inventory. Surge realized a 35 percent annual
reduction for drilling and completion costs. The "all-in" drilling
and completion costs of $1.7 million
in 2015 were reduced to $1.1 million
in Q4 of 2016. These cost savings are a result of the application
of horizontal monobore drilling technology, dropping drilling days
from over 10 days per well in 2015 to 6 days in Q4 of 2016.
- Surge implemented a horizontal monobore well design at Eyehill
Sparky, and realized a 38 percent reduction in drilling and
completion costs, dropping "all-in" drilling and completion costs
from $1.6 million in 2015 to
$1.0 million in Q4 of 2016. These
cost savings are a result of the application of horizontal monobore
drilling technology, dropping drilling days from nearly 8.5 days
per well in 2015 to 5 days in Q4 of 2016.
- During Q4 of 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. 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, flatter declines,
and stabilized run times.
- During 2016, the Company strategically took aggressive steps to
optimize its core Valhalla light
oil asset in NW Alberta. This
includes the installation of additional artificial lift equipment,
significantly dropping field pressures by adding compression,
increasing run times, and lowering processing costs. These
optimization activities have substantially increased netbacks and
flattened production declines.
FINANCIAL AND OPERATING
SUMMARY
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($000s except per
share amounts)
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Three Months
Ended
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Years Ended
December 31,
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Dec 31,
2016
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Dec 31,
2015
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%
Change
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2016
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2015
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%
Change
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Financial
highlights
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Oil sales
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45,356
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36,509
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24 %
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149,701
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218,761
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(32)%
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NGL sales
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1,284
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1,250
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3 %
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4,675
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4,600
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2 %
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Natural gas
sales
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3,595
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3,183
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13 %
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11,192
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14,542
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(23)%
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Total oil, natural
gas, and NGL revenue
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50,235
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40,942
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23 %
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165,568
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237,903
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(30)%
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Adjusted funds from
operations1
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21,534
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15,302
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41 %
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70,226
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118,873
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(41)%
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Per share basic
($)
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0.10
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0.07
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43 %
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0.32
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0.54
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(41)%
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Per share diluted
($)
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0.10
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0.07
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43 %
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0.32
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0.54
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(41)%
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Capital expenditures
- petroleum & gas properties2
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23,515
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18,309
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28 %
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73,962
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76,731
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(4)%
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Capital expenditures
- acquisitions & dispositions2
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14,921
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1,117
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nm4
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(26,220)
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(463,568)
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(94)%
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Total capital
expenditures2
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38,436
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19,426
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98 %
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47,742
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(386,837)
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nm
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Net debt at end of
period3
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161,735
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160,375
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1 %
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161,735
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160,375
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1 %
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Operating
highlights
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Production:
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Oil (bbls per
day)
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9,832
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10,297
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(5)%
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9,605
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12,871
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(25)%
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NGLs (bbls per
day)
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504
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795
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(37)%
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570
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697
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(18)%
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Natural gas (mcf per
day)
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15,036
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18,570
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(19)%
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16,276
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17,362
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(6)%
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Total (boe per day)
(6:1)
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12,842
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14,187
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(9)%
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12,888
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16,462
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(22)%
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Average realized
price (excluding hedges):
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Oil ($ per
bbl)
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50.14
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38.54
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30 %
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42.58
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46.57
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(9)%
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NGL ($ per
bbl)
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27.69
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17.08
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62 %
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22.42
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18.09
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24 %
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Natural gas ($ per
mcf)
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2.60
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1.86
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40 %
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1.88
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2.29
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(18)%
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Netback ($ per
boe)
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Oil, natural gas and
NGL sales
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42.52
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31.37
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36 %
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35.10
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39.60
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(11)%
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Realized gain (loss)
on commodity contracts
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(1.85)
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3.49
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nm
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0.84
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7.18
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(88)%
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Royalties
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(5.08)
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(5.89)
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(14)%
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(4.07)
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(6.34)
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(36)%
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Operating
expenses
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(12.69)
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(12.57)
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1 %
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(12.22)
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(15.03)
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(19)%
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Transportation
expenses
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(1.38)
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(1.75)
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(21)%
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(1.55)
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(1.60)
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(3)%
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Operating
netback
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21.52
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14.65
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47 %
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18.10
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23.81
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(24)%
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G&A
expense
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(1.79)
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(1.69)
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6 %
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(1.85)
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(1.83)
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1 %
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Interest
expense
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(1.51)
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(1.19)
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27 %
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(1.37)
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(2.20)
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(38)%
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Corporate
netback
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18.22
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11.77
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55 %
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14.88
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19.78
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(25)%
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Common shares
outstanding, end of period
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225,755
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221,033
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2 %
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225,775
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221,033
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2 %
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Weighted average
basic shares outstanding
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225,278
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221,001
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2%
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222,252
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220,661
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1%
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Stock option
dilution
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—
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—
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nm
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—
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—
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nm
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Weighted average
diluted shares outstanding
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225,278
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221,001
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2%
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222,252
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220,661
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1%
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1
Management uses adjusted funds from operations (cash flow from
operating activities before changes in non-cash working capital,
decommissioning expenditures, transaction costs and cash settled
stock-based compensation) to analyze operating performance and
leverage. Adjusted funds from operations as presented does not have
any standardized meaning prescribed by IFRS and, therefore, may not
be comparable with the calculation of similar measures for other
entities.
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2 Please
see capital expenditures note.
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3 The
Company defines net debt as outstanding bank debt plus or minus
working capital, however, excluding the fair value of financial
contracts and other current obligations.
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4 The
Company views this change calculation as not meaningful, or
"nm".
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OPERATIONS OVERVIEW
In 2016 Surge had total capital expenditures (including
corporate G&A) of $74.0 million,
which involved the drilling of 37 gross (36.8 net) wells in the
Company's three primary operating areas of Shaunavon, Sparky and Valhalla, as well as associated capital
expenditures for infrastructure, land and seismic. Surge achieved a
100 percent success rate for the 2016 drilling program, adding an
estimated 4,200 boepd of production (91 percent oil), prior to
annual corporate declines.
In addition to record low production efficiencies, Surge
experienced exciting initial waterflood response at two of the
Company's core assets at Shaunavon
and Eyehill. Surge also reduced corporate operating expenses from
$15.03 per boe in 2015, to
$12.22 per boe in 2016, a 19 percent
reduction.
Surge delivered record low "all-in" FD&A costs of
$3.74 per boe for 2016 (including
changes to FDC), with a top tier recycle ratio of 4.61 times. Based
on the Company's record drilling results, combined with successful
waterflood activities, Surge's new December
31, 2016 independently engineered net asset value ("NAV")
increased 12 percent to $5.47 per
share.
Wet weather conditions in all three of Surge's primary operating
areas negatively impacted production volumes in October and
November of 2016. The Alliance pipeline outage negatively impacted
Valhalla production volumes in
October and early November of 2016. As discussed above,
however, record drilling results in Q4 allowed Surge to
significantly exceed the Company's upwardly revised 2016 production
exit rate target of 13,500 boepd. In December of 2016 Surge
averaged more than 13,800 boepd.
Furthermore, on December 13, 2016
Surge upwardly revised the Company's 2017 average daily production
estimate to 14,000 boepd from 13,500 boepd, and Surge's 2017 exit
production target to 14,450 boepd from 14,000 boepd.
Sparky Continues to Attract Capital
Surge's 2016 Eyehill Sparky drilling program at its operated,
130 million barrel OOIP, 29 API gravity oil asset, significantly
exceeded expectations. The Company continued to build on its
operational success into this year, drilling six consecutive
development wells in Q1 of 2017. Current production rates at the
Eyehill battery recently exceeded 1,800 boepd (80 percent oil) net
to Surge, up from approximately 470 boepd in Q2 of 2016.
Operating costs at Eyehill are now budgeted at less than
$5.00 per boe for 2017, down from
$7.40 per boe in 2016. With over 65
net remaining locations at Eyehill, this area will continue to
underpin Surge's production per share growth for the foreseeable
future. Risked rates of return for Sparky development wells are now
over 150 percent at strip pricing for primary reserves only.
In addition to excellent primary drilling results, the
waterflood pilots at Sparky are positively impacting production
declines and financial results. For 2016, Surge booked 280
mboe of proven developed producing reserves, and over 900 mboe of
total proved and probable reserves at Eyehill, due to improved
recovery from waterflood implementation.
In addition to Eyehill, Surge intends to drill Sparky wells in
both the Provost and Betty Lake
areas in the second half of 2017. Successful drilling in these
areas is expected to continue adding to the Company's extensive
Sparky drilling inventory.
Surge estimates a 10 year inventory of 173 net development
drilling locations in its greater Sparky core area.
A Defining Year for the Upper Shaunavon
Surge achieved record activity levels at its Upper Shaunavon
field in 2016, drilling and completing 24 wells. The Company
remains committed to early waterflood implementation, as pilot
results continue to confirm the viability of waterflooding this
shallow, conventional, sandstone reservoir. As such, Surge has now
identified three initial development drilling and waterflood areas
in its large 250 million barrel OOIP, Upper Shaunavon oil asset,
which are concentrated in the South and Southwestern portions of
the Company's acreage.
Waterflood results in the first development area continue to
exceed expectations. As such, the Company was able to add in
excess of 500 mboe of proven developed producing reserves, and over
1.6 mboe of total proved and probable waterflood reserves at
Shaunavon in 2016 due to improved
recovery. Surge anticipates implementing a second waterflood
pilot in the southernmost development area in mid - 2017.
As a result of these exceptional development drilling results,
together with the Company's expanding waterflood activities,
Surge's operating expense at Shaunavon is now budgeted to be $5.88 per barrel in 2017. Risked rates of return
for Upper Shaunavon development wells are over 150 percent at strip
pricing for primary reserves only.
In Surge's third Upper Shaunavon development area, the Company
has recently completed the drilling of two extended reach
delineation wells. The first of these wells has been
completed and is currently flowing back. Surge looks forward
to sharing results from these two extended reach wells in the near
future.
Surge estimates a 10 year inventory of more than 200 net
development drilling locations in its Shaunavon core area.
Valhalla – Stabilizing Base
Production; Optimization
While drilling and completing three wells in 2016, the majority
of the activity in Surge's large, 130 million OOIP, Valhalla Doig
light oil field was concentrated on base production stabilization
and optimization. In addition to adding field compression and
marketing outlets during the year, an artificial lift program was
implemented in 2016. With the addition of high pressure sweet
gas, Surge optimized its gas lift program in the northern portion
of the play. The main benefit of the gas lift program has
been the reduction of well swabbing operations, which has led to a
significant increase in operating run times.
As previously announced, the Company closed a $15 million tuck-in acquisition in the
Valhalla field in December of
2016. This acquisition is directly adjacent to the Northwest
portion of Surge's Valhalla
acreage. In addition to providing up to 12 Montney light oil
drilling locations (seven booked), the Company acquired a two
percent working interest in a large sour gas processing plant in
the area. This strategic acquisition is expected to further
improve Surge's base production reliability at Valhalla.
During Q1 of 2017, Surge successfully drilled 3 gross (1.97 net)
Valhalla Doig light oil wells. Reservoir indications from
drilling suggest that all three wells will provide type curve
results. However, due to increased demand for pressure pumping
services in this area, the Company has elected to delay the
completion of these wells into Q2 of 2017. It is currently
anticipated that all three wells will be completed and brought
online during Q2 of 2017.
As a result of these drilling results, together with field wide
optimization activities, Surge's operating expense at Valhalla for 2017 is now budgeted to be
$8.50 per boe. Risked rates of return
for Valhalla development wells are
over 150 percent at strip pricing for primary reserves only.
Surge estimates a 10 year inventory of more than 40 net
development drilling locations in its Valhalla core area.
CONFIRMS MARCH 2017
DIVIDEND
As discussed above, 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.
These consistent operational results and top tier production
efficiencies, combined with successful, cost-cutting initiatives,
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) – at Surge's budgeted crude oil pricing
assumption5.
5 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.
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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, on February 8, 2017 the Board of Directors announced
that it would be increasing the Company's dividend by 13 percent,
from $17 million annually to
approximately $19.2 million annually,
effective March 15th, 2017. This
equates to a conservative 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.
On this basis, the Board of Directors has now confirmed a cash
dividend of $0.00708333 per common
share will be paid on April 15, 2017
to shareholders of record on March 31,
2017.
The dividend is an eligible dividend for the purposes of the
Income Tax Act (Canada).
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.
FINANCIAL UPDATE
While the Company expects a modest increase in service costs due
to increasing industry activity through 2017, Surge will continue
to focus on maintaining operational efficiencies. As such,
the Company re-affirms its 2017 guidance as detailed in its
December 13, 2016 press
release.
Surge will continue to monitor commodity prices and its ability
to drill and pay the dividend within cash flow during 2017.
Based on the Company's excellent balance sheet and low-cost
structure, management retains the flexibility to potentially
increase Surge's 2017 capital budget.
HEDGING UPDATE
Subsequent to Q4 2016, Surge completed several attractive hedge
transactions. The following transactions were entered
into, subsequent to December 31,
2016:
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TYPE
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TERM
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HEDGE TYPE
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BBL/D
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CURRENCY
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FLOOR (PER BBL)
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CEILING (PER BBL)
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SWAP
PRICE (PER
BBL)
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WTI
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Apr-Dec
2017
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Swap
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1,250
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USD
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-
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-
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$55.18
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WTI
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Jan-Jun
2018
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Collar
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1,500
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USD
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$50.00
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$60.87
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-
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WTI
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Jul-Dec
2018
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Bought
Puts
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1,500
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USD
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$50.00
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-
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-
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WTI
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Jul-Dec
2017
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Sold Calls
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500
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USD
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-
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$59.00
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-
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WTI
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Jan-Jun
2018
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Sold Calls
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300
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USD
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-
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$63.00
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-
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WCS
(Physical)
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Apr-Dec
2017
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Collar
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2,000
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USD
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($12.75)
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($18.00)
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-
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WCS
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Apr-Dec
2017
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Swap
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500
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USD
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-
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-
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($14.50)
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OUTLOOK – PER SHARE GROWTH CONTINUES
Surge remains committed to management's lower risk, growth and
dividend paying business model. As crude oil prices rallied
from their February lows, in May of 2016 the Company moved
decisively to add a solid production per share growth component
back into management's business model, while continuing to drive
down the Company's corporate cost structure.
Despite continued volatility throughout the year, in 2016 Surge
delivered solid, organic production per share growth, from May
onward, while continuing to drive down the Company's corporate cost
structure. These activities resulted in Surge's Q4 2016 unhedged
corporate netbacks increasing by 142 percent per boe over 2015, and
the Company's Q4 2016 unhedged cash flow per share increasing by
120 percent over 2015.
As a result of the Company's recent upward revision to 2017
guidance, Surge now anticipates delivering more than 18 percent
production per share growth over the period from Q2 of 2016 to the
end of 2017.
The Company also delivered record low production efficiencies
and finding costs in 2016. Surge's top tier recycle ratio for 2016
was 4.61 times.
In addition, as discussed above, on February 8, 2017 Surge became the first
oil-weighted growth and dividend paying company in its Canadian
peer group to increase its dividend – while maintaining a
conservative 15 percent payout ratio.
Surge's low risk, disciplined business model is designed to
deliver all-in shareholder returns of 11 to 14 percent on an annual
basis over the long term. These total annual returns are
comprised of production growth per share (5 to 6 percent),
dividends (3.5 to 4.5 percent), and a free cash flow yield (2.5 to
3.5 percent).
Surge management will continue to focus on growing the Company's
high quality, low decline, medium and light oil asset base,
maintaining its low cost structure, and managing Surge's excellent
balance sheet, to deliver these attractive annual returns into the
future.
FINANCIAL STATEMENTS AND ACCOMPANYING MDA AND ANNUAL
INFORMATION FORM:
Surge has filed with Canadian securities regulatory authorities
its annual audited consolidated financial statements and
accompanying MD&A for the year and three months ended
December 31st, 2016, as well as its
Annual Information Form. These filings are available for review at
www.sedar.com or www.surgeenergy.ca.
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: Surge's drilling and development plans and
enhanced recovery projects and the timing and results to be
expected thereof; estimated sizes, characteristics, efficiencies,
rates of return, netbacks, payout ratios, pool recovery factors and
risk levels of plays and the number of associated drilling
locations, as applicable; management's expectations with respect to
the Company's waterflood program, results therefrom and quantity of
producing assets that will be placed under waterflood, including
the timing of management updates in connection therewith;
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; management's estimates and expectations regarding
production efficiencies, drilling upside, drilling inventory, well
costs, growth opportunities, reserves and reserve life index and
decline rates; the Company's 2017 guidance; production and
production per share growth; sustainability; anticipated operating
costs; dividends; commodity prices; anticipated shareholder
returns; and free cash flow growth.
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 timing and completion of the proposed
dispositions, the impact of completed facilities on operating costs
and the availability, costs of capital, labour and services, the
creditworthiness of industry partners and the impact of the pending
transactions on the Company'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 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 15, 2017 and in Surge's
MD&A for the period ended December 31,
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. Bbl means barrel of oil. Mbbl means thousand
barrels. Bbl/d means barrels of oil per day. NGLs means
natural gas liquids.
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 (660 net) drilling locations identified herein 434 are
unbooked locations. Of the 266 gross (249 net) booked locations
identified herein 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 "adjusted funds from
operations", "funds from operations", "net debt", "netback",
"operating netback", "sustainability" 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 from by operations" and "adjusted funds from
operations" to analyze operating performance and leverage.
Management believes that in addition to net income, adjusted funds
from operations are useful supplemental measures as they provide an
indication of the results generated by the Company's principal
business activities before the consideration of how those
activities are financed or how the results are taxed.
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" and "operating 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. 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 Company 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. 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.