CALGARY, AB, March 9, 2021 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) is pleased to announce its
financial and operating results for the quarter and year ended
December 31, 2020, and its year-end
2020 reserves, as independently evaluated by Sproule Associates
Limited ("Sproule").
2020 FINANCIAL, OPERATIONAL, AND RESERVES HIGHLIGHTS
- Achieved an all-in payout ratio1 of less than 100
percent for 2020 while oil averaged less than US$40 WTI per barrel, generating cash flow from
operating activities less payments on lease obligations of
$64.1 million and employing a
disciplined exploration and development program of $52.8 million;
- Generated realized hedging gains on financial contracts of over
$20 million in 2020 pursuant to the
Company's ongoing strategic risk management program;
- Added over $90 million of new
credit facility commitments, including a previously announced BDC
financing ($40 million second lien)
and a $51 million commitment by EDC
into Surge's existing first lien credit facility;
- Reduced net bank debt1 by $36.5 million in 2020 from $313.6 million at December
31, 2019 to $277.1 million at
December 31, 2020;
- Continued Surge's focus on ESG, completing a total of
$9.3 million on abandonment
activities. This was funded using a combination of cash flow from
operating activities, as well as grants received through the
Alberta Site Rehabilitation Program;
- Achieved average daily production of 17,356 boepd (84% liquids)
during the fourth quarter of 2020; consistent with the second and
third quarters of 2020 despite no production additions from
drilling activity during those periods and a significantly reduced
exploration and development expenditure program as compared to the
prior year;
- Prior to suspending major exploration and development
expenditures in March 2020,
successfully drilled 19 consecutive Sparky wells at an all-in cost
of $22 million.
- Reduced P+PDP decline from 21% (2019YE) to 18%2
(2020YE);
- Estimated Total P+P Net Asset Value of $2.43 per basic share and Total Proved Net Asset
Value of $1.19 per basic share at a
US $55 WTI Flat Price
Deck3;
- Surge's 401 net (427 gross) booked locations of undeveloped
reserves in the Company's new Sproule December 31, 2020 Engineering Report, have a
Finding & Development ("F&D") cost of $12.43/boe on a Proved plus Probable Undeveloped
("P+PUD") reserves basis;
- 2020 Drilling (19 Wells) F&D was $12.05/boe PDP and $10.25/boe P+PDP;
- Increased Total P+P reserve life index to 16 years;
Subsequent to the year-end 2020, on March
5, 2021 Surge announced:
1. The Company is nearing completion of its successful, 32
well 1H/21 drilling program – and anticipates adding more than
3,200 boepd for an "all-in" cost of $39
million;
2. The strategic sale of 2,700 boepd of production (the "Sale")
for proceeds of $106 million (closing
March 25/21).
- The disposed assets had reserves of 10.3 MMBOE on a Total
Proved basis and 20.6 MBOE on a Total Proved plus Probable basis as
at December 31, 2020.
- The disposed assets had 40.8 net Proved locations booked and
62.8 net Proved plus Probable locations booked.
- Surge maintains a deep inventory of booked locations, with 270
net Proved and 339 net Proved plus Probable locations net of the
disposition. Furthermore, the Company has an additional >400 net
unbooked locations4;
3. Following the Sale, Surge retains a deep, 14 year
drilling inventory of more than 750 highly economic drilling
locations for medium and light gravity crude oil; and
4. At the closing of the Sale, Surge anticipates it's first
lien credit facilities will be re-determined at $215 million,
with the Company's next bank review scheduled on or
before November 30, 2021. In addition, the previous obligation
to conduct an asset sale solicitation process in 2021 is
eliminated. This re-determination is forecast to provide the
Company with over $25 million of available
liquidity5 upon the closing of the Sale, and to
significantly reduce Surge's annual interest expense.
OPERATIONAL UDPATE
Surge's high quality, low cost conventional reservoirs continued
to deliver excellent results throughout the year. Surge completed a
reduced Q1/20 drilling program in early March, drilling 19
successful horizontal wells in seven different Sparky pools. This
program included the delineation of two new Sparky pool discoveries
on its lands at Betty Lake North and Eyehill South.
In late Q4/20, Surge commenced a disciplined, 32 well drilling
program, following the closing of the Company's previously
announced $40 million Term Facility
under the Business Development Bank of Canada's Business Credit Availability
Mid-Market Financing Program. The Company drilled and rig released
13 gross (13.0 net) Sparky wells in late Q4/20. These wells have
all now been completed and are anticipated to be on production in
late Q1/21.
This drilling program continued into Q1/21, and the Company has
rig released an additional 18 gross (18.0 net) wells to date in
2021, all in the Company's Sparky core area. One additional (1.0
net) well is budgeted to be drilled in late Q1/21 into the
Company's large OOIP Montney turbidite pool in the Valhalla core area. This is a development
offset location to the Company's successful Montney horizontal well drilled and brought on
production in Q4/19. This well had an IP30 oil rate of more than
1,000 bopd and has delivered cumulative production of over 215,000
barrels of light oil in one year.
FINANCIAL AND OPERATING HIGHLIGHTS
FINANCIAL AND
OPERATING HIGHLIGHTS
|
Three Months Ended
December 31,
|
Years Ended
December 31,
|
($000s except per
share amounts)
|
2020
|
2019
|
%
Change
|
2020
|
2019
|
%
Change
|
Financial
highlights
|
|
|
|
|
|
|
Oil sales
|
55,565
|
86,905
|
(36)%
|
199,208
|
376,238
|
(47)%
|
NGL sales
|
1,745
|
2,076
|
(16)%
|
4,613
|
8,109
|
(43)%
|
Natural gas
sales
|
2,597
|
2,808
|
(8)%
|
7,228
|
10,002
|
(28)%
|
Total oil, natural
gas, and NGL revenue
|
59,907
|
91,789
|
(35)%
|
211,049
|
394,349
|
(46)%
|
Cash flow from
operating activities
|
11,000
|
34,474
|
(68)%
|
72,190
|
149,417
|
(52)%
|
Per share - basic
($)
|
0.03
|
0.11
|
(73)%
|
0.21
|
0.47
|
(55)%
|
Adjusted funds
flow1
|
8,467
|
38,881
|
(78)%
|
59,872
|
172,988
|
(65)%
|
Per share - basic
($)1
|
0.02
|
0.12
|
(83)%
|
0.18
|
0.55
|
(67)%
|
Net
loss2
|
(57,727)
|
(143,801)
|
(60)%
|
(747,297)
|
(158,664)
|
371 %
|
Per share basic
($)
|
(0.17)
|
(0.44)
|
(61)%
|
(2.22)
|
(0.50)
|
344 %
|
Total exploration and
development expenditures
|
14,276
|
30,760
|
(54)%
|
52,773
|
119,465
|
(56)%
|
Total acquisitions
& dispositions
|
-
|
2,458
|
(100)%
|
(6,038)
|
(42,438)
|
(86)%
|
Total capital
expenditures
|
14,276
|
33,218
|
(57)%
|
46,735
|
77,027
|
(39)%
|
Net debt1,
end of period
|
381,023
|
382,309
|
- %
|
381,023
|
382,309
|
- %
|
|
|
|
|
|
|
|
Operating
highlights
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
Oil (bbls per
day)
|
13,788
|
16,441
|
(16)%
|
14,558
|
17,127
|
(15)%
|
NGLs (bbls per
day)
|
726
|
630
|
15 %
|
600
|
692
|
(13)%
|
Natural gas (mcf per
day)
|
17,050
|
19,521
|
(13)%
|
16,906
|
20,135
|
(16)%
|
Total (boe per day)
(6:1)
|
17,356
|
20,325
|
(15)%
|
17,976
|
21,175
|
(15)%
|
Average realized
price (excluding hedges):
|
|
|
|
|
|
|
Oil ($ per
bbl)
|
43.80
|
57.46
|
(24)%
|
37.39
|
60.19
|
(38)%
|
NGL ($ per
bbl)
|
26.14
|
35.84
|
(27)%
|
21.00
|
32.09
|
(35)%
|
Natural gas ($ per
mcf)
|
1.66
|
1.56
|
6 %
|
1.17
|
1.36
|
(14)%
|
|
|
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
|
|
|
Petroleum and natural
gas revenue
|
37.52
|
49.09
|
(24)%
|
32.08
|
51.02
|
(37)%
|
Realized gain (loss)
on commodity and FX contracts
|
(3.91)
|
0.13
|
(3,108)%
|
3.05
|
(0.61)
|
(600)%
|
Royalties
|
(4.07)
|
(7.00)
|
(42)%
|
(3.72)
|
(6.71)
|
(45)%
|
Net operating
expenses1
|
(15.99)
|
(14.91)
|
7 %
|
(14.72)
|
(14.50)
|
2 %
|
Transportation
expenses
|
(1.18)
|
(1.40)
|
(16)%
|
(1.48)
|
(1.54)
|
(4)%
|
Operating
netback1
|
12.37
|
25.91
|
(52)%
|
15.21
|
27.66
|
(45)%
|
G&A
expense
|
(1.86)
|
(1.95)
|
(5)%
|
(1.90)
|
(1.85)
|
3 %
|
Interest
expense
|
(5.21)
|
(3.16)
|
65 %
|
(4.20)
|
(3.45)
|
22 %
|
Adjusted funds
flow1
|
5.30
|
20.80
|
(75)%
|
9.11
|
22.36
|
(59)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
outstanding, end of period
|
339,785
|
326,330
|
4 %
|
339,785
|
326,330
|
4 %
|
Weighted average
basic shares outstanding
|
339,785
|
324,836
|
5 %
|
336,052
|
316,639
|
6 %
|
Weighted average
diluted shares outstanding
|
339,785
|
324,836
|
5 %
|
336,052
|
316,639
|
6 %
|
1 This is
a non-GAAP financial measure which is defined in the Non-GAAP
Financial Measures section of this document.
|
2 For the
year ended December 31, 2020, the Company incurred a net loss of
$747.3 million, including a non-cash asset impairment charge of
$628.1 million recognized in the year primarily due to a decrease
in the average independent engineering price forecasts. The
impairment charge does not impact the Company's adjusted funds
flow, and is reversible in future periods should there be any
indicators that the value of the assets has increased.
|
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
Surge was recently allocated an additional $3.2 million under the Government of Alberta's Site Rehabilitation Program ("SRP")
to abandon and reclaim well bores, pipelines, and well sites. To
date, the Company has now received more than $14 million in grant funding from the Alberta
SRP.
Surge will continue to be actively engaged with the Government
of Alberta regarding additional SRP developments, as well
as new developments in both Federal and Government
of Saskatchewan programs, in order to accelerate the
decommissioning of the Company's asset retirement obligations.
Surge strives to be a leader in reducing the impact of its
operations on the environment. The Company is committed to
producing energy in a safe, responsible, and sustainable
manner.
2020 YEAR-END RESERVES
The Company's reserves were evaluated by Sproule in accordance
with National Instrument 51-101 – Standards of Disclosure for
Oil and Gas Activities ("NI 51-101") effective December 31, 2020. Surge's annual information
form (the "AIF") for the year ended December
31, 2020 contains Surge's reserves data and other oil and
natural gas information as mandated by NI 51-101.
The following tables summarize Surge's working interest oil,
natural gas liquids and natural gas reserves and the net present
values ("NPV") of future net revenue for these reserves (before
taxes) using forecast prices and costs as evaluated in the Sproule
Report. The evaluation is based on Sproule's forecast
pricing and exchange rates at December 31,
2020 which is available on their website www.sproule.com.
All references to reserves in this release are to gross Company
reserves, meaning Surge's working interest reserves before
deductions of royalties and before consideration of the Company's
royalty interests. The amounts in the tables may not add due to
rounding.
RESERVES SUMMARY AND NET PRESENT VALUE
Gross
Reserves(a)
|
Crude Oil and
NGLs
(Mbbl)(b)
|
Natural
Gas
(MMcf)(c)
|
Oil Equivalent
Total Reserves
(Mboe)
|
Before Tax NPV of
Future Net
Revenue(d) Discounted at
|
5%
($MM)
|
10%
($MM)
|
15%
($MM)
|
Proved:
|
|
|
|
|
|
|
|
Proved
Producing
|
26,661
|
24,208
|
30,696
|
296(e)
|
298
|
276
|
|
Proved
Non-Producing
|
900
|
936
|
1,056
|
14
|
11
|
9
|
|
Proved
Undeveloped
|
29,729
|
33,837
|
35,369
|
336
|
237
|
169
|
Total
Proved
|
57,290
|
58,980
|
67,120
|
646
|
546
|
454
|
|
Probable
|
29,675
|
27,185
|
34,206
|
577
|
414
|
311
|
Total Proved Plus
Probable
|
86,965
|
86,165
|
101,326
|
1,222
|
960
|
765
|
a)
|
Amounts may not add
due to rounding.
|
b)
|
Includes light,
medium, heavy and natural gas liquids.
|
c)
|
Includes
non-associated and natural gas, solution gas and coal bed
methane.
|
d)
|
Total ADR
(Abandonment, Decommissioning, Reclamation) is included in the
reserves report, as it is best practice stated in the COGE
Handbook.
|
e)
|
As discounting
decreases, abandonment costs become more significant.
|
FUTURE DEVELOPMENT CAPITAL ("FDC")
|
Total Proved
Developed
Producing
|
Total
Proved
|
Total Proved
Plus Probable
|
|
($MM)
|
($MM)
|
($MM)
|
2021
|
7
|
70
|
85
|
2022
|
7
|
161
|
200
|
2023
|
5
|
145
|
184
|
2024
|
4
|
129
|
172
|
2025
|
3
|
74
|
94
|
Remaining
|
16
|
58
|
105
|
Total
(Undiscounted)
|
43
|
636
|
839
|
Total (Discounted at
10%)
|
30
|
488
|
631
|
NET ASSET VALUE at US$55 WTI
Flat
|
TP
|
TPP
|
Reserve Value NPV10
BT ($MM) (a)
|
$673
|
$1,096
|
Undeveloped Land and
Seismic ($MM) (b)
|
$113
|
$113
|
Net Debt
($MM)
|
$(381)
|
$(381)
|
Total Net Assets
($MM)
|
$404
|
$827
|
Basic Shares
Outstanding (MM)
|
339.8
|
339.8
|
Estimated NAV per
Basic Share ($/share)
|
$1.19/share
|
$2.43/share
|
|
|
a)
|
Run on a US$55 Flat
price deck (-US$12.50/bbl WCS & -US$4.00/bbl EDM differentials,
0.78 FX and C$2.80/mmbtu AECO)
|
b)
|
Internally estimated
as $80 MM for non-reserve assigned land and $33 MM for seismic
data.
|
Outlook; Guidance 2021/2022
In just the last 4 months, oil prices have rallied over 90%,
from a low of US$33.64 per barrel on
November 3, 2020 to over US$64 WTI per barrel, today. Furthermore, WCS
differentials are trading below their long-term average of
approximately US$17 per barrel to
less than US$12 per barrel, today.
Light oil differentials are also trading below their long-term
average of approximately US$6 per
barrel to less than US$3 per barrel
today.
In 1H/21, the Company is completing a $39 million development drilling capital
program, adding estimated production of more than 3,200 boepd
(>90% medium/light oil) from 32 gross (32.0 net) wells.
Concurrently, during Q1/21, Surge executed a binding Purchase and
Sale Agreement for the sale of 2,700 boepd for total gross proceeds
of $106 million (before
customary adjustments); the sale is set to close on or before
March 25, 2021.
On a go forward basis, Surge is planning a disciplined capital
allocation strategy with an emphasis on free cash flow generation
in 2H/21. The Company is currently budgeting for a 2H/21
maintenance drilling program, allocating the incremental free cash
flow to continued reduction of bank indebtedness.
Surge will be reforecasting 2021, and providing 2022 guidance,
after the closing of the Sale on March 25,
2021.
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 declared focus and primary goals; management's
expectations and plans with respect to the development of its
assets and the timing thereof; the timing of bringing recently
drilled wells onto production; Surge's planned drilling program for
2H/21; Surge's drilling inventory and locations; the Sale and the
terms, timing and anticipated proceeds and benefits therefrom; the
expected impact of the Sale on Surge's bank indebtedness ,
liquidity and interest expense; management's expectations regarding
2021 production; Surge's anticipated abandonment program and
reduction of its decommissioning liabilities and asset retirement
obligations and the timing thereof; Surge's ongoing engagement
regarding the Alberta SRP program and other federal and provincial
programs; Surge's stated goals regarding environmental
responsibility; Surge's plans regarding the reduction of bank
indebtedness; and the timing of reforecasted 2021 and 2022
guidance.
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. Certain of these risks are set out in more
detail in Surge's AIF dated March 9,
2021 and in Surge's MD&A for the period ended
December 31, 2020, 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 and "bopd" 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. All oil and gas
metrics/terms used in this document are defined below:
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. All internal estimates
contained in this new release have been prepared effective as of
Jan 1, 2021.
Reserve life index is calculated as total Company share reserves
divided by the annualized fourth quarter production.
F&D is calculated on the capital and divided by the reserves
category in which F&D is being calculated.
Replacement of production/Production replacement is calculated
as the total organic reserve additions (i.e. excluding acquisitions
and dispositions) divided by annual production for the year in
which its being calculated.
Net Asset Value is the total discounted (10%) value of reserves
plus undeveloped land and seismic value, minus debt, divided by the
number of shares.
Drilling Inventory
This press release discloses drilling locations in two
categories: (i) booked locations; and (ii) unbooked locations.
Booked locations are proved locations and probable locations
derived from an internal evaluation using standard practices as
prescribed in the Canadian Oil and Gas Evaluations Handbook and
account for drilling locations that have associated proved and/or
probable reserves, as applicable.
Unbooked locations are internal estimates based on prospective
acreage and assumptions 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.
Unbooked locations have been identified by Surge's internal
certified Engineers and Geologists (who are also Qualified Reserve
Evaluators) as an estimation of our multi-year drilling activities
based on evaluation of applicable geologic, seismic, engineering,
production and reserves information. There is no certainty that the
Company will drill all unbooked drilling locations and if drilled
there is no certainty that such locations will result in additional
oil and gas reserves, resources or production. The drilling
locations on which the Company actually drills wells will
ultimately depend upon the availability of capital, regulatory
approvals, seasonal restrictions, oil and natural gas prices,
costs, actual drilling results, additional reservoir information
that is obtained and other factors. While certain of the unbooked
drilling locations have been de-risked by drilling existing wells
in relative close proximity to such unbooked drilling locations,
the majority of other unbooked drilling locations are farther away
from existing wells where management has less information about the
characteristics of the reservoir and therefore there is more
uncertainty whether wells will be drilled in such locations and if
drilled there is more uncertainty that such wells will result in
additional oil and gas reserves, resources or production.
Assuming a Jan 1, 2021 reference
date, the Company will have over >950 gross (>925 net)
drilling locations identified herein; of these >530 gross
(>500 net) are unbooked locations. Of the 401 net booked
locations identified herein, 310 net are Proved locations and 91
net are Probable locations based on Sproule's 2020YE reserves.
Assuming an average number of wells drilled per year of 50, Surge's
>950 locations provide 19 years of drilling.
Assuming a Mar 31, 2021 reference
date (proforma the disposition announced on March 5th), the Company will have over
>750 gross (>750 net) drilling locations identified herein;
of these >400 gross (>400 net) are unbooked locations. Of the
338 net booked locations identified herein, 269 net are Proved
locations and 68 net are Probable locations based on Sproule's
2020YE reserves. Assuming an average number of wells drilled per
year of 50, Surge's >750 locations provide 14 years of
drilling.
Surge's internally used type curves were constructed using a
representative, factual and balanced analog data set, as of
January 1, 2021. 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, 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.
Non-GAAP Financial Measures
Certain secondary financial measures in this press release –
namely, "all-in payout ratio", "adjusted funds flow", "adjusted
funds flow per share", "net debt", "net bank debt", "net operating
expenses", "operating netback", and "adjusted funds flow per boe"
are not prescribed by GAAP. These non-GAAP financial measures are
included because management uses the information to analyze
business performance, cash flow generated from the business,
leverage and liquidity, resulting from the Company's principal
business activities and it may be useful to investors on the same
basis. None of these measures are used to enhance the Company's
reported financial performance or position. The non-GAAP measures
do not have a standardized meaning prescribed by IFRS and therefore
are unlikely to be comparable to similar measures presented by
other issuers. They are common in the reports of other companies
but may differ by definition and application. All non-GAAP
financial measures used in this document are defined below:
All-in Payout Ratio
All-in payout ratio is calculated using the sum of total
exploration and development capital, plus dividends paid, divided
by cash flow from operating activities less payments on lease
obligations. This non-GAAP measure is used by management to analyze
allocated capital in comparison to the cash being generated by the
principal business activities. This measure is provided to allow
readers to quantify the amount of cash flow from operations that is
being used to either: i) pay dividends; or ii) deployed into the
Company's development and exploration program. A ratio of less than
100% indicates that a portion of the cash flow from operations is
being retained by the Company and can be used to fund items such as
asset abandonment, repayment of debt, fund acquisitions or the
costs related thereto or other items.
Adjusted Funds Flow & Adjusted Funds Flow per
Share
The Company adjusts cash flow from operating activities in
calculating adjusted funds flow for changes in non-cash working
capital, decommissioning expenditures, and cash settled transaction
and other costs. Management believes the timing of collection,
payment or incurrence of these items involves a high degree of
discretion and as such may not be useful for evaluating Surge's
cash flows.
Changes in non-cash working capital are a result of the timing
of cash flows related to accounts receivable and accounts payable,
which management believes reduces comparability between periods.
Management views decommissioning expenditures predominately as a
discretionary allocation of capital, with flexibility to determine
the size and timing of decommissioning programs to achieve greater
capital efficiencies and as such, costs may vary between periods.
Cash settled transaction and other costs represent expenditures
associated with acquisitions, which management believes do not
reflect the ongoing cash flows of the business, and as such reduces
comparability. Each of these expenditures, due to their nature, are
not considered principal business activities and vary between
periods, which management believes reduces comparability.
Adjusted funds flow per share is calculated using the same
weighted average basic and diluted shares used in calculating
income per share.
The following table reconciles cash flow from operating
activities to adjusted funds flow and adjusted funds flow per share
for the three months and year ended December
31, 2020:
|
Three Months Ended
Dec 31,
|
Years Ended
December 31,
|
($000s except per
share amounts)
|
2020
|
2019
|
2020
|
2019
|
Cash flow from
operating activities
|
11,000
|
34,474
|
72,190
|
149,417
|
Change in non-cash
working capital
|
(5,084)
|
2,876
|
(16,721)
|
16,569
|
Decommissioning
expenditures
|
2,551
|
1,425
|
4,305
|
5,522
|
Cash settled
transaction and other costs
|
-
|
106
|
98
|
1,480
|
Adjusted funds
flow
|
$
|
8,467
|
$
|
38,881
|
$
|
59,872
|
$
|
172,988
|
Per share -
basic
|
$
|
0.02
|
$
|
0.12
|
$
|
0.18
|
$
|
0.55
|
Net Debt
There is no comparable measure in accordance with IFRS for net
debt. Net debt is calculated as bank debt, term debt, dividends
payable plus the liability component of the convertible debentures
plus or minus working capital, however, excluding the fair value of
financial contracts, decommissioning obligations, and lease and
other obligations. This metric is used by management to analyze the
level of debt in the Company including the impact of working
capital, which varies with timing of settlement of these
balances.
|
As
at
|
($000s)
|
Dec 31,
2020
|
Sep 30,
2020
|
Dec 31,
2019
|
Bank debt
|
(260,908)
|
(296,055)
|
(316,404)
|
Term debt
|
(32,718)
|
-
|
-
|
Accounts
receivable
|
29,796
|
25,205
|
41,486
|
Prepaid expenses and
deposits
|
5,253
|
4,900
|
4,875
|
Accounts payable and
accrued liabilities
|
(51,265)
|
(33,507)
|
(40,848)
|
Convertible
debentures
|
(71,181)
|
(70,536)
|
(68,699)
|
Dividends
payable
|
-
|
-
|
(2,719)
|
Total
|
(381,023)
|
(369,993)
|
(382,309)
|
Net Bank Debt
There is no comparable measure in accordance with IFRS for net
bank debt. Net bank debt is calculated as current portion of bank
debt plus or minus working capital (accounts receivable, prepaid
expenses and deposits and accounts payable and accrued
liabilities).
Net Operating Expenses
Net operating expenses are determined by deducting processing
and other revenue primarily generated by processing third party
volumes at processing facilities where the Company has an ownership
interest. It is common in the industry to earn third party
processing revenue on facilities where the entity has a working
interest in the infrastructure asset. Under IFRS this source of
funds is required to be reported as revenue. However, the Company's
principal business is not that of a midstream entity whose
activities are dedicated to earning processing and other
infrastructure payments. Where the Company has excess capacity at
one of its facilities, it will look to process third party volumes
as a means to reduce the cost of operating/owning the facility. As
such, third party processing revenue is netted against operating
costs in the MD&A.
Operating Netback & Adjusted Funds Flow
Netback
Operating netback, operating netback excluding realized gain
(loss) on financial contracts & adjusted funds flow per boe for
the three and twelve months ended December
31, 2020 and 2019 are calculated on a per unit basis as
follows:
|
Three Months Ended
Dec 31,
|
Years Ended
December 31,
|
($000s)
|
2020
|
2019
|
2020
|
2019
|
Petroleum and natural
gas revenue
|
59,907
|
91,790
|
211,049
|
394,349
|
Processing and other
income
|
1,006
|
1,563
|
4,772
|
4,303
|
Royalties
|
(6,493)
|
(13,096)
|
(24,498)
|
(51,837)
|
Realized gain (loss)
on commodity and FX contracts
|
(6,247)
|
248
|
20,099
|
(4,679)
|
Operating
expenses
|
(26,531)
|
(29,448)
|
(101,640)
|
(116,338)
|
Transportation
expenses
|
(1,892)
|
(2,624)
|
(9,766)
|
(11,866)
|
Operating
netback
|
19,750
|
48,433
|
100,016
|
213,932
|
G&A
expense
|
(2,968)
|
(3,640)
|
(12,486)
|
(14,287)
|
Interest
expense
|
(8,315)
|
(5,911)
|
(27,658)
|
(26,657)
|
Adjusted funds
flow
|
8,467
|
38,881
|
59,872
|
172,988
|
Barrels of oil
equivalent (boe)
|
1,596,718
|
1,869,819
|
6,579,239
|
7,728,923
|
Operating netback ($
per boe)
|
$
|
12.37
|
$
|
25.91
|
$
|
15.21
|
$
|
27.66
|
Adjusted funds flow
($ per boe)
|
$
|
5.30
|
$
|
20.80
|
$
|
9.11
|
$
|
22.36
|
Additional information relating to non-GAAP 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.
_______________________________
|
1 This is a non-GAAP financial
measure which is defined in the Non-GAAP Financial Measures section
of this document.
|
2 First year P+PDP decline from
2020YE reserve database
|
3 US$55.00/bbl WTI Flat Price Deck
(-US$12.50/bbl WCS & -US$4.00/bbl EDM Differentials, 0.78 FX,
C$2.80/mmbtu AECO)
|
4 See
Drilling Inventory in Forward Looking Statements
|
5 Calculated as $215 million Credit
Facilities less $189 million in forecast post-closing bank
indebtedness as at April 1, 2021.
|
SOURCE Surge Energy Inc.