CALGARY, May 8, 2018 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) announces its operating and
financial results for the quarter ended March 31, 2018.
Over the last seven financial quarters Surge has delivered
consistent drilling results, production per share growth, and funds
flow per share growth. This consistent track record continued
in Q1 2018 with the following production and funds flow metrics, as
well as the other highlights from the quarter. All production and
funds flow results in Q1 2018 are net of the sale of a non-core
asset that closed on January 4, 2018,
which accounted for approximately 240 boepd of
production.
Based on better than anticipated drilling and waterflood results
in the Company's three core areas, Surge's Q1 2018 production of
16,027 boepd exceeded management's guidance expectations.
Surge's daily production for the month of April exceeded the
Company's 2018 production exit rate guidance of 16,650 boepd
(82% oil and liquids).
HIGHLIGHTS
- Surge's Q1 2018 quarterly production of 16,027 boepd increased
by 16 percent over Q1 2017 production of 13,866 boepd (12 percent
per share).
- Adjusted funds flow in Q1 2018 was $28.2
million, an increase of over 30 percent as compared to Q1
2017 at $21.6 million.
- Adjusted funds flow per share in Q1 2018 was $0.121, an increase of 26 percent over Q1 2017 at
$0.096 per share.
- Crude oil and liquids production increased by over 18 percent -
from 10,982 barrels per day in Q1 2017 to 13,006 barrels per day in
Q1 2018.
- The Company's unhedged operating netback increased by over 12
percent, to $25.28 per boe in Q1 of
2018, from $22.47 per boe in Q1 of
2017.
- Subsequent to Q1 2018, Surge received commitments from its
banking syndicate to increase the Company's bank line to
$350 million from $305 million (pending formal approval of an
amendment to the credit agreement), which is expected to occur on
or before May 31, 2018. This large
increase to Surge's bank line will provide the Company with more
than $125 million of pro-forma
liquidity on its bank line as at March 31,
2018.
- Surge drilled an exciting, large, new pool extension to the
south at Lakeview in the Company's Sparky core area. The well is
producing with similar characteristics to an Eyehill Sparky type
curve, and sets up over 20 follow up low risk development locations
in the Lloyd formation.
- Proved up Betty Lake as another exciting growth asset in
Surge's Sparky play trend with a successful discovery well in late
Q4 2017; Surge plans to drill four more wells at Betty Lake in the
second half of 2018, as well as construct and install a new
production battery to allow for further well optimization; The
Company now sees up to 35 more development locations at Betty
Lake.
- Closed the previously announced disposition of Surge's
non-core, gas-weighted Windfall property for $6.8 million.
- During the first quarter of 2018, Surge acquired more than 2
million of its common shares under the Company's normal course
issuer bid ("NCIB").
- Delivered a 2017 finding development and acquisition
("FD&A") cost of $13.60 per boe,
on a total proved plus probable basis, including changes in
undiscounted future development capital ("FDC").
- Reported a top decile 2017 recycle ratio of 1.74 times
FD&A, on a total proved plus probable basis.
- Increased the Company's net asset value ("NAV") by over 10
percent to $6.06 per common share, as
compared to $5.47 per share at year
end 2016, based on the Company's independently evaluated reserve
reports; Sproule's 2017 year end WTI crude oil price forecast is
approximately US $10.00 per barrel
below current strip oil pricing for 2018.
Following an outage on TransCanada's Keystone pipeline in
November 2017, Western Canada Select
("WCS") differentials expanded from US$12.26 per barrel in Q4 2017 to US$24.27 per barrel in Q1 2018. Prompt month WCS
differentials are now tightening, returning to near-historical
averages in recent weeks following the restart of the Keystone
pipeline.
For comparative purposes only, had WCS differentials remained at
Q4 2017 levels (ie. US$12.26/bbl),
Surge estimates that the Company's adjusted funds flow for Q1 2018
would have been approximately $37
million, or $0.16 per
share.
FINANCIAL AND OPERATING SUMMARY
The Q1 2018 financial and operating highlights are summarized
below:
|
|
|
|
|
($000s except per
share amounts)
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
($000s except per
share amounts)
|
|
2018
|
2017
|
%
Change
|
Financial
highlights
|
|
|
|
|
Oil sales
|
|
64,492
|
48,194
|
34 %
|
NGL sales
|
|
2,461
|
2,240
|
10 %
|
Natural gas
sales
|
|
1,337
|
4,016
|
(67)%
|
Total oil, natural
gas, and NGL revenue
|
|
68,290
|
54,450
|
25 %
|
Adjusted funds
flow1
|
|
28,169
|
21,640
|
30 %
|
Per share basic
($)
|
|
0.121
|
0.096
|
26 %
|
Capital expenditures
- petroleum & gas properties2
|
|
34,909
|
34,041
|
3 %
|
Capital expenditures
- acquisitions & dispositions2
|
|
(6,485)
|
(269)
|
nm(4)
|
Total capital
expenditures2
|
|
28,424
|
33,772
|
nm
|
Net debt at end of
period3
|
|
252,742
|
178,753
|
41 %
|
|
|
|
|
|
Operating
highlights
|
|
|
|
|
Production:
|
|
|
|
|
Oil (bbls per
day)
|
|
12,446
|
10,298
|
21 %
|
NGLs (bbls per
day)
|
|
560
|
684
|
(18)%
|
Natural gas (mcf per
day)
|
|
18,128
|
17,302
|
5 %
|
Total (boe per day)
(6:1)
|
|
16,027
|
13,866
|
16 %
|
Average realized
price (excluding hedges):
|
|
|
|
|
Oil ($ per
bbl)
|
|
57.58
|
52.00
|
11 %
|
NGL ($ per
bbl)
|
|
48.82
|
36.39
|
34 %
|
Natural gas ($ per
mcf)
|
|
0.82
|
2.58
|
(68)%
|
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
|
Oil, natural gas and
NGL sales
|
|
47.34
|
43.63
|
9 %
|
Realized gain (loss)
on commodity contracts
|
|
(1.10)
|
(1.59)
|
nm
|
Royalties
|
|
(6.20)
|
(5.64)
|
10 %
|
Net operating
expenses
|
|
(14.60)
|
(13.95)
|
5 %
|
Transportation
expenses
|
|
(1.26)
|
(1.57)
|
(20)%
|
Operating
netback
|
|
24.18
|
20.88
|
16 %
|
G&A
expense
|
|
(2.22)
|
(1.93)
|
15 %
|
Interest
expense
|
|
(2.44)
|
(1.61)
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52 %
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Corporate
netback
|
|
19.52
|
17.34
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13 %
|
|
|
|
|
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Common shares
outstanding, end of period
|
|
231,357
|
225,766
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2 %
|
Weighted average
basic shares outstanding
|
|
233,007
|
225,764
|
3 %
|
Stock option
dilution
|
|
—
|
3,427
|
nm
|
Weighted average
diluted shares outstanding
|
|
233,007
|
229,191
|
2 %
|
1
|
Management uses
adjusted funds flow (cash flow from operating activities before
changes in non-cash working capital, decommissioning expenditures,
transaction and other costs and cash settled stock-based
compensation) to analyze operating performance and leverage.
Adjusted funds flow 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 discussion in the MD&A.
|
3
|
The Company defines
net debt as outstanding bank debt and the liability component of
the convertible debentures plus or minus working capital, however,
excluding the fair value of financial contracts and other current
obligations.
|
4
|
The Company views
this change calculation as not meaningful, or "nm".
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OPERATIONAL MOMENTUM CONTINUES
Based on better than anticipated drilling and waterflood results
in the Company's three core areas, Surge's Q1 2018 production of
16,027 boepd exceeded management's guidance expectations.
Surge's daily production for the month of April exceeded the
Company's 2018 production exit rate guidance of 16,650 boepd
(82% oil and liquids).
With WCS differentials widening in Q1 2018, Surge was able to
react quickly and successfully execute a strategic operational
pivot to the Company's extensive light oil assets at
Valhalla. Accordingly, the Company accelerated its
Valhalla capital program to
include an additional well in the first quarter of 2018. This
was in addition to a significant new light oil well drilled late in
the fourth quarter of 2017. Surge also recently completed a
successful workover on a Doig well at Valhalla. Combined,
these three projects added over 2,000 boepd (more than 70 percent
light oil) of sustainable production for a capital cost of
approximately $9 million.
Operating costs in Q1 2018 were higher than budget due to the
more severe weather conditions experienced this winter. We expect
operating costs to revert back to budget levels of $13.95 per boe on a go forward basis.
Following are the Q1 2018 operational highlights for Surge's
three core properties:
Sparky – Key Wells at Provost, Lakeview and Betty Lake
Better than anticipated results at Surge's Sparky play in
Southeast Alberta continues to
support significant allocation of the Company's capital resources
to this core area. Surge's prospective Sparky land base and
drilling inventory continues to expand as the Company remains
active at both Crown land sales and through the acquisition of
freehold lease agreements. Surge drilled nine gross wells on
its Southeast Alberta Sparky properties during the first
quarter. In addition to continued success at Eyehill, the
Company also drilled exciting step out wells at both Provost and
Lakeview.
During the first quarter at Eyehill, Surge drilled six
successful wells, and completed a facilities expansion at the
battery. Recent production at Eyehill is more than 2,000
boepd. Surge plans to drill an additional eight wells at
Eyehill in 2H 2018.
At Provost, Surge drilled two of its top producing Sparky wells
to date on the northern portion of the Company's land base.
These exciting wells confirm recently acquired 3D seismic data that
supports incremental capital allocation to the Provost area.
The Company plans to drill two additional wells at Provost in
2018. In addition to the successful drilling in the north,
Surge also drilled two successful Sparky step out wells to the
south - significantly extending the Company's large OOIP pool to
the southwest. The Company now estimates that its operated Provost
Sparky pool has more than 70 million barrels of net internally
estimated OOIP, and up to 25 net additional internally estimated
Sparky drilling locations.
At Lakeview, Surge drilled its first Lloyd well during Q1
2018. This successful well confirms the presence of a large,
internally estimated 54 million barrels of original oil in place
("OOIP"1) pool in the Lloydminster formation at Lakeview. The
well is currently producing similar to an Eyehill Sparky type curve
well. This exciting new pool extension discovery has added up
to 20 net internally estimated drilling locations into the
Lloydminster sand at Lakeview.
Future Lloydminster well costs are
expected to be in the range of $800,000 per well, as these wells do not require
fracture stimulation. Surge plans to drill an additional two
wells at Lakeview in 2018.
Surge's initial Q4 2017 well at the Betty Lake discovery has now
been on production for the majority of Q1 2018, and is currently
producing at a rate of 115 boepd. The Company estimates that this
100 percent working interest play has potential for more than 80
million barrels of net OOIP (with an internally estimated recovery
factor of 10 percent on primary, and up to 30 percent with
waterflood), and more than 35 net additional internally estimated
drilling locations. Based on these results, the Company
now plans to drill an additional four wells at Betty Lake in the
second half of 2018, and install a production battery to facilitate
well optimization and further development.
Valhalla – Incremental
Capital Allocation Leads to Higher Light Oil Volumes
Over the past several years price differentials for WCS barrels
have averaged approximately US $14
per barrel below WTI US prices. During this period, Surge
focused on growing its WCS-linked core areas at Sparky and
Shaunavon. Following the TransCanada Keystone pipeline outage
in November of 2017, WCS pricing differentials widened - but have
since narrowed to near historical averages in Q2 2018, with the
TCPL pipeline repaired.
Due to wider WCS differentials in Q1 2018, Surge successfully
executed a strategic operational pivot to the Company's extensive
light oil assets at Valhalla. In addition to a significant
new Doig oil well drilled in the fourth quarter of 2017, the
Company was able to accelerate its Valhalla light oil capital program to include
an additional well in the first quarter of 2018. Surge also
completed a successful workover on an existing horizontal Doig well
at Valhalla during the quarter.
Combined, these three projects added over 2,000 boepd (more
than 70 percent light oil) of sustainable production for a capital
cost of approximately $9
million.
______________________________
|
1
|
Original Oil in Place
(OOIP) is the equivalent to Discovered Petroleum Initially In Place
(DPIIP) for the purposes of this press release.
|
Due to market conditions and recent drilling success, Surge has
elected to keep one rig running at Valhalla during the second quarter of
2018. The Company recently completed drilling its third Doig
well in 2018, and plans to drill three more Doig wells, over the
balance of the year. In addition to the Doig, Surge maintains
significant light oil production and drilling potential in the
conventional Montney, Doe Creek,
and Charlie Lake plays at
Valhalla. The Company plans to drill one additional well in
either the Charlie Lake or
Montney formations prior to year's
end.
Shaunavon – Contribution
from Workovers and Waterflood
Surge drilled five and completed seven net wells at Shaunavon in the first quarter of 2018,
including five in the Upper Shaunavon and two Lower
Shaunavon. The Company continues to be encouraged with
results from a new cemented liner completion design in both Upper
and Lower Shaunavon horizons.
In addition to recent drilling activity, the Company has also
implemented a very successful artificial lift workover program for
legacy Lower Shaunavon wells. To date, Surge has converted 16
wells from progressive cavity pumps to pump jack operations, which
has resulted in the addition of 245 bopd of production gain.
For the balance of 2018, the Company plans to drill six more wells,
and complete up to 10 more pump jack conversions.
In September of 2017, Surge commenced waterflood operations on
its southernmost development pod in the Upper Shaunavon. The
Company is pleased to report that it has observed early signs of
production stabilization across Surge's Southern lands, as well as
a positive production response from producing wells that are bound
by injectors. These results, combined with continued success
at Surge's original Upper Shaunavon waterflood, confirm the Upper
Shaunavon sandstone reservoir has ideal reservoir characteristics
for waterflood operations.
FINANCIAL HIGHLIGHTS
Large Increase to Primary Credit Facility
Surge has now delivered consistent, cost effective production
per share growth of 25 percent over the last seven financial
quarters. On this basis, subsequent to Q1 2018 Surge received
commitments from its banking syndicate to increase the Company's
bank line to $350 million from
$305 million (pending formal approval
of an amendment to the credit agreement), which is expected to
occur on or before May 31, 2018.
This large increase to Surge's bank line will provide the
Company with more than $125 million
of pro-forma liquidity on its bank line as at March 31, 2018.
NCIB Update
In February of 2018, Surge instituted a NCIB with the intent to
repurchase the Company's shares. The NCIB was announced in
conjunction with the Company's independent December 31, 2017 Sproule engineering reserve
report, and Surge's new Total Proved NAV of $3.67 per share. Sproule's 2017 year end
WTI crude oil price forecast is approximately US $10.00 per barrel below current strip pricing for
2018.
The prevailing market price for Surge common shares for much of
February and March was below $2.00
per share, which allowed for the Company to repurchase shares at
less than Sproule's 2017 Proved Developed Producing NAV value of
$2.01 per share. Under
reasonable assumptions, purchasing Surge common shares at less than
the Company's Total Proved NAV of $3.67 per share provides an excellent rate of
return that is competitive with other investment opportunities that
compete for Surge's capital resources.
During the first quarter, the Company acquired over 2 million
Surge common shares in the market at an average price of
$1.97 per share - utilizing free
funds flow and returning the acquired shares to treasury. The
NCIB has now been extended into the second quarter of 2018.
Hedging Update
Surge continues an active, ongoing crude oil hedging program.
Over the past several quarters, the Company has adopted a primarily
options-based hedging program, which has allowed Surge to retain up
to 80 percent of the upside to crude oil prices in 2018. The
options-based program consists of a portfolio of costless collars,
three-way collars, and put option spreads.
The following table summarizes the WTI and WCS crude oil hedges
that were completed during, and subsequent, to the first quarter of
2018:
Type
|
Term
|
Bbl/d
|
Currency
|
Put Sold
(per bbl)
|
Put acquired
(per bbl)
|
Call sold
(per bbl)
|
WTI
(financial)
|
Jul 2018 – Mar
2019
|
500
|
USD
|
50.00
|
60.00
|
70.25
|
WTI
(financial)
|
Jul 2018 – Mar
2019
|
500
|
USD
|
50.00
|
57.50
|
78.10
|
WTI
(financial)
|
Q2 2019
|
500
|
USD
|
50.00
|
57.50
|
72.50
|
WCS
(physical)
|
H2 2018
|
500
|
USD
|
n/a
|
22.00
|
16.45
|
WCS
(physical)
|
Cal 2019
|
1500
|
USD
|
n/a
|
22.00
|
16.45
|
When combined with existing hedges, the Company now has 1,500
bopd of WCS collars in place for the second half of 2018 with a
blended price collar of US $19.33 per
barrel (ceiling) x $12.82 per barrel
(floor).
In addition to the Company's ongoing crude oil hedging program,
Surge entered into an interest rate hedge during the first quarter
of 2018. This floating to fixed rate swap was on a principal
amount of C$100 million, with a term
from February 2018 to February 2023. Based on the current bank
borrowing spread, this interest rate swap results in an effective
all-in rate of 5.13 percent for the five-year term. When
combined with Surge's convertible debenture, Surge has now fixed
$144.5 million of the Company's core
debt with an average all-in interest rate of 5.3 percent for 5
years.
OUTLOOK – SUSTAINABLE GROWTH, LONG TERM VALUE, AND
INCOME
Management's goal is to be the best positioned public
light/medium gravity crude oil growth and dividend paying Company
in Canada.
Surge's track record over the last seven financial quarters of
delivering consistent drilling results, production per share
growth, and funds flow per share growth, continued into the first
quarter of 2018. Surge has now delivered production per share
growth of 25 percent from Q2 2016 to Q1 2018.
In addition, Surge has increased the Company's dividend per
share by more than 27 percent since the start of 2017, while
maintaining a conservative simple payout ratio of less than 20
percent.
Accordingly, Surge intends to continue: 1) delivering annual
production per share growth of five to seven percent in accordance
with the Company's strategic Five-Year Business Plan; 2) returning
capital to its shareholders pursuant to the Company's attractive
and sustainable dividend; 3) generating substantial free funds flow
at current strip pricing; and 4) returning capital to its
shareholders pursuant to the accretive buyback of its common shares
in accordance with the NCIB.
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: management's expectations with respect to the
development of its asset base; production volumes; drilling
activities, inventories and locations, and the associated risks;
Surge's capital expenditure program, including drilling and
development plans and enhanced 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; changes to the current commodity price
environment; the effect of WCS differentials on the Company's
financial metrics; the Company's declared focus and primary goals,
including the Five-Year Business Model; 2018 exit production and
production per share growth; Surge's dividend; simple payout ratio;
operating and corporate netbacks; characteristics of certain wells
or assets; management's estimates and expectations regarding
capital expenditures and operating costs, growth opportunities and
strategies, the underlying value of Surge's common shares,
estimated reserves and estimated reserve and resources; the
Company's 2018 guidance; sustainability of Surge's current results,
production and operations; the increase to the Company's bank line;
the availability of Surge's bank line to fund provide the Company
with sufficient liquidity and financial flexibility; anticipated
commodity prices; and management's expectations regarding debt
levels.
The guidance for 2018 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. 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 availability of capital, 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 and the impact of transactions on Surge's bank line.
Although Surge believes that the expectations and assumptions on
which the forward-looking statements are based are reasonable,
undue reliance should not be placed on the forward-looking
statements because Surge can give no assurance that they will prove
to be correct. Since forward-looking statements address future
events and conditions, by their very nature they involve inherent
risks and uncertainties. Actual results could differ materially
from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, risks associated with
the oil and gas industry in general (e.g., operational risks in
development, exploration and production; delays or changes in plans
with respect to exploration or development projects or capital
expenditures; the uncertainty of reserve estimates; the uncertainty
of estimates and projections relating to production, costs and
expenses, and health, safety and environmental risks), commodity
price and exchange rate fluctuations and constraint in the
availability of services, adverse weather or break-up conditions,
uncertainties resulting from potential delays or changes in plans
with respect to exploration or development projects or capital
expenditures, failure to obtain the continued support of the
lenders under Surge's bank line or failure to obtain formal
approval for an increase to Surge's bank line. Certain of these
risks are set out in more detail in Surge's Annual Information Form
dated March 15, 2018 and in Surge's
MD&A for the period ended June 30,
2017, 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. "Internally estimated" and similar terms
means an estimate that is derived by Surge's internal APEGA
certified Engineers, and Geologists and prepared in accordance with
National Instrument 51-101 - Standards of Disclosure for Oil and
Gas Activities. All internal estimates contained in this new
release have been prepared effective as of March 14, 2018. IRR means Internal Rate of Return
and is the discount rate required for the net Present Value to
equal zero. PIR means Profit to Investment Ratio and is equal to
the present value of future cashflow divided by the investment
capital (a value lower than 1.0 would indicate that the projects
Present Value is less than the initial investment).
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 independent engineering
evaluation of the oil, natural gas liquids and natural gas reserves
attributable to the Company prepared by Sproule Associates Limited
effective December 31, 2017 and dated
February 09, 2018 (the "Sproule
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 based
on industry practice and internal review. Unbooked locations do not
have attributed reserves or resources. Of the more than 700 gross
(675 net) drilling locations identified herein 420 gross (404 net)
are unbooked locations. Of the 292 gross (277 net) booked locations
identified herein 228 gross (216 net) are proved locations and 64
gross (61.2 net) are probable locations as of the Sproule Report.
Unbooked locations have specifically been identified by management
as an estimation of our multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves data on prospective acreage and geologic formations.
The drilling locations on which we actually drill wells will
ultimately depend upon the availability of capital, regulatory
approvals, seasonal restrictions, oil and natural gas prices,
costs, actual drilling results and other factors.
Non-IFRS Measures
This press release contains the terms "adjusted funds flow",
"adjusted funds flow from operations" and "net debt", 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 "adjusted funds flow 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. Management believes that adjusted funds flow from
operations is a useful supplemental measure as it provides 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 defines net debt as outstanding bank debt and the
liability component of the convertible debentures plus or minus
working capital, however, excluding the fair value of financial
contracts and other current obligations.
Additional information relating to these non-IFRS measures can be
found in the Company's most recent management's discussion and
analysis MD&A, which may be accessed through the SEDAR website
(www.sedar.com).
Oil and Gas Metrics
This news release contains metrics commonly used in the oil and
natural gas industry, such as "operating netback", "corporate
netback", "FD&A costs". "recycle ratio" and "payout ratio".
These terms do not have a standardized meaning and may not be
comparable to similar measures presented by other companies, and
therefore should not be used to make such comparisons. Operating
netback denotes total sales less royalty expenses, and operating
and transportation costs calculated on a per boe basis. Corporate
netback denotes operating netback less general and administrative,
interest and financing expense, exploration expense plus interest
income on a per boe basis. Surge considers corporate netback
as an important measure to evaluate its overall corporate
performance. FD&A costs are used as a measure of capital
efficiency. FD&A cost has been calculated based on exploration
and development capital and acquisition capital spent in the
applicable period (including changes in future development capital
for that period) divided by the change in reserves for that period
including revisions for that same period. Surge provides FD&A
costs that incorporate all acquisitions and exclude the reserve,
capital, and future development capital impact of dispositions
during the year. The foregoing calculation is based on
working interest reserves. Recycle ratio is a measure for
evaluating the effectiveness of a company's reinvestment program
and the efficiency of capital investment. It accomplishes
this by comparing the operating netback per boe to that year's
reserve FD&A cost per boe. Payout ratio is calculated on a
percentage basis as dividends declared divided by adjusted funds
flow from operations. Payout ratio is used by management to monitor
the dividend policy and the amount of adjusted funds flow from
operations retained by the Company for capital reinvestment.
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.