CALGARY, AB, Nov. 17, 2020 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) is pleased to announce that it has
executed definitive agreements with the Business Development Bank
of Canada ("BDC"), in partnership
with the Company's syndicate of lenders (the "Syndicate"), for a
non-revolving facility of $40
million, providing attractive interest rates over a four
year term (the "Term Facility").
Surge is also pleased to announce that it has closed an
extension of the Company's existing $335
million first-lien credit facility ("Credit Facility").
Maturity of the Credit Facility has been extended from March 31, 2021 to December
31, 2021 and the Company's next semi-annual borrowing base
redetermination has been extended to June
30, 2021.
Additionally, Export Development Canada ("EDC") has joined
Surge's lending Syndicate, providing a $50.6
million injection of capital into the Company's $335 million Credit Facility.
FOUR YEAR TERM FACILITY FINALIZED
Surge has closed the previously announced $40 million Term
Facility under the BDC's Business Credit Availability Program
("BCAP") Mid-Market Financing Program, which provides the Company
with a four year, non-revolving second lien Term Facility, maturing
on November 17, 2024, at attractive
interest rates.
In conjunction with closing, BDC and the Syndicate have agreed
to fund an immediate initial draw of $32.5 million on the $40 million Term Facility. Surge will use these
funds for the development of its high-quality, medium and light
crude oil asset base which is expected to return the Company's
production to near pre-COVID-19 levels and, in turn, generate net
asset value per share growth for its shareholders.
EXTENSION OF CREDIT FACILITY CONFIRMED
Concurrent with closing of the Term Facility, Surge's lending
Syndicate has also reconfirmed the Company's existing $335 million Credit Facility.
Surge's lending Syndicate has agreed to extend the maturity of
the Company's revolving and non-revolving facilities from
March 31, 2021 to December 31, 2021. In addition, Surge's next
semi-annual borrowing base redetermination has been extended to
June 30, 2021.
$50.6 MILLION EDC CREDIT
FACILITY FUNDING COMPLETE
Concurrent with the above Credit Facility reconfirmation, EDC
has provided $50.6 million in funding
into Surge's existing $335 million
credit facility. This capital injection provides the Company with a
significant new Syndicate banking partner in the Credit
Facility.
The above Credit Facility reconfirmation and extension, in
combination with the Term Facility, provides Surge with more than
$75 million in available liquidity on
its credit facilities1.
The Company appreciates the support and partnership of the BDC,
EDC, and the entire Syndicate of lenders.
SURGE OUTLOOK: A COMPELLING VALUE PROPOSITION
Surge has a high quality, low decline, light and medium gravity
crude oil asset and opportunity base. With the Company's low (19
percent) annual production decline, high netbacks, large
OOIP2 per section (conventional) crude oil assets,
Surge provides investors with an excellent opportunity to
participate in the ongoing crude oil price recovery.
The closing of more than $90
million in new credit commitments provides Surge with
significant additional long term liquidity at reasonable interest
rates, allowing the Company to pursue attractive development
opportunities with a view to generating net asset value per share
growth for its shareholders.
Surge anticipates strategically deploying capital into its
Sparky play between now and spring breakup, which typically occurs
in mid to late March each year. Management currently expects to
provide 2021 guidance in January, 2021. Surge's industry leading
Sparky play has some of the best production
efficiencies2 (<$10,000/boepd IP90), and internal rates of return
("IRR") for drilling new wells in all of Canada. Surge estimates a weighted average,
risked IRR, of greater than 50 percent2 for its entire
500 net well (14 year) Sparky drilling inventory at US $40 WTI per barrel flat pricing. These excellent
risked returns are for primary drilling only, and do not include
waterflood upside.
Additionally, Western Canadian Select ("WCS") differentials have
contracted meaningfully in the last several months, with WCS to WTI
differentials currently over 20 percent tighter than the historical
long term average. Surge anticipates that its Sparky play will
benefit significantly from this tightening of long term WCS
differentials, with cashflows, netbacks and reserve values in this
premier conventional medium/light gravity crude oil asset
increasing commensurately.
Management believes that Surge's premium Sparky crude oil growth
asset is unique within the Company's entire peer group in
Canada.
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 the anticipated benefits of the Term Facility; EDC
credit commitment and credit facility extension; Surge's
anticipated production levels; Surge's assets and performance, the
characteristics thereof, and the potential for shareholders to
benefit from such assets; management's expectations and plans with
respect to the development of its assets and the timing thereof;
Surge's expectations regarding commodity prices and differentials;
management's expectation regarding net asset value growth; Surge's
flexibility regarding capital deployment; anticipated internal
rates of return; the ability of management to protect stakeholder's
capital; and Surge's declared focus and primary goals; and Surge's
expectations respecting internal rates of return.
The forward-looking statements are based on certain key
expectations and assumptions made by Surge, including expectations
and assumptions 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; the availability and costs
of capital, labour and services; and the creditworthiness of
industry partners.
Although Surge believes that the expectations and assumptions on
which the forward-looking statements are based are reasonable,
undue reliance should not be placed on the forward-looking
statements because Surge can give no assurance that they will prove
to be correct. Since forward-looking statements address future
events and conditions, by their very nature they involve inherent
risks and uncertainties. Actual results could differ materially
from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, risks associated with
the condition of the global economy, including trade, public health
(including the impact of COVID-19) and other geopolitical risks;
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; and
failure to obtain the continued support of the lenders under
Surge's bank line as a result of fluctuating commodity prices
and reserve determinations by the lenders or otherwise.
Certain of these risks are set out in more detail in Surge's AIF
dated March 9, 2020 and in Surge's MD&A for the period ended
December 31, 2019, 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.
Oil and Gas Advisories
The term "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" mean barrel of oil equivalent per day. "Bbl" means barrel of oil. "Bopd" and "bbl/d" means
barrels of oil per day. "NGLs" means
natural gas liquids.
This press release contains certain oil and gas metrics and
defined terms which do not have standardized meanings or standard
methods of calculation and therefore such measures may not be
comparable to similar metrics/terms presented by other issuers and
may differ by definition and application.
Original Oil in Place ("OOIP") means Discovered Petroleum
Initially In Place ("DPIIP"). DPIIP is derived by Surge's internal
Qualified Reserve Evaluators ("QRE") and prepared in accordance
with National Instrument 51-101 and the Canadian Oil and Gas
Evaluations Handbook ("COGEH"). DPIIP, as defined in COGEH, is that
quantity of petroleum that is estimated, as of a given date, to be
contained in known accumulations prior to production. The
recoverable portion of DPIIP includes production, reserves and
Resources Other Than Reserves (ROTR). OOIP/DPIIP and potential
recovery rate estimates are based on current recovery technologies.
There is significant uncertainty as to the ultimate recoverability
and commercial viability of any of the resource associated with
OOIP/DPIIP, and as such a recovery project cannot be defined for a
volume of OOIP/DPIIP at this time. "Internally estimated" means an
estimate that is derived by Surge's internal QRE's and prepared in
accordance with National Instrument 51-101 - Standards of
Disclosure for Oil and Gas Activities.
Surge's internally used type curves were constructed using a
representative, factual and balanced analog data set, as of January
1, 2020. All locations were risked appropriately, and EUR's
were measured against OOIP estimates to ensure a reasonable
recovery factor was being achieved based on the respective spacing
assumption. Other assumptions, such as capital expenditures,
operating expenses, wellhead offsets, land encumbrances, working
interests and NGL yields were all reviewed, updated and accounted
for on a well by well basis by Surge's Qualifies Reserve
Evaluators. All type curves fully comply with Part 5.8 of the
Companion Policy 51 – 101CP.
Surge's weighted average internal Sparky type curve economics
have an IRR of greater than 50% @ US$40/bbl WTI (C$2.00/mmbtu AECO, US$13/bbl WCS differential and 0.75 FX) and are
supported by >460 internally evaluated Sparky locations by
Surge's Qualified Reserve Evaluators (with weighted average metrics
of: capital expenditures of ~$1.15 MM
per well , ~100 boe/d IP180 per well and ~125 mboe Estimated
Ultimate Recoverable reserves per well).
Internal Rate of Return is the discount rate required to achieve
a net present value of $0.
Production efficiencies are calculated by dividing capital
expenditures of a project by the average production from that
project for a given period of time. IP90 is the average production
rate of a well over the first 90 days on production.
The average IP90 from Surge's 2019 & 2020 programs (>40
wells) was 125 boe/d. Using the weighted average capital
expenditures of $1.15 MM per well,
and average production from the 2019 and 2020 programs of 125
boe/d, generates production efficiencies over these two years of
<$10,000/boepd on an IP90
basis.
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.
_________________________
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1
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Based on bank debt of
$296.1 million as at September 30, 2020 and a Credit Facility of
$335 million, combined with $40 million of credit availability
under the Term Facility.
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2
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See Oil and Gas
Advisories section
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SOURCE Surge Energy Inc.