CALGARY, AB, March 25, 2021 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) is pleased to announce it has
successfully completed its previously announced strategic
$106 million asset sale (the "Sale"),
and finalized a positive re-determination of the Company's credit
facilities.
ACCRETIVE ASSET SALE COMPLETED
Surge has now closed its previously announced strategic Sale,
providing a significant, immediate, positive impact on the
Company's balance sheet. As a result of the Sale transaction,
Surge's bank indebtedness is reduced by over $100 million, and its annual interest expense is
anticipated to decrease by approximately $10
million. On this basis, Surge received a "corporate"
cash flow multiple of 5.3 times1 on the Sale.
Following the Sale, Surge maintains a high quality, low decline,
medium and light oil asset base – with large original oil in place
("OOIP")2 reservoirs, high netbacks, and a large
internally estimated drilling inventory of over 750
locations3 (>14 year inventory).
In 1H/21, Surge anticipates adding over 3,200 boepd
from the Company's 32 well drilling program at a cost of
$39 million, while selling 2,700
boepd for gross proceeds (before customary adjustments) of
$106 million pursuant to the Sale.
The Company has rig released all 31 gross (31.0 net) wells
budgeted for the Sparky core area. One additional (1.0 net) well
commenced drilling in late March, 2021 into the Company's
large OOIP, Montney turbidite, pool in the Valhalla core area. This is a development
location offsetting the Company's successful Montney horizontal well that was 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 230,000 barrels of light oil in just over one
year.
POSITIVE CREDIT FACILITIES RE-DETERMINATION CONFIRMED
In combination with the Sale, the Company is pleased to announce
that it has completed a re-determination of its credit
facilities.
Surge's first lien credit facility has been 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 has been eliminated. This
re-determination is forecast to provide the Company with
significant available liquidity, and substantially reduces Surge's
annual interest expense.
OUTLOOK; GUIDANCE 2021/2022
In the last 4 months, Surge has injected over $210 million of new capital into the Company, as
follows:
- BDC 2nd lien financing of $40 million;
- EDC participation into Surge's existing
1st lien credit facility for $50.6 million;
- Alberta Site Rehabilitation Program grants of $14 million; and
- The strategic asset Sale providing gross proceeds of
$106 million.
As a result of the top tier production efficiencies associated
with the Company's 1H/21 drilling program, Surge expects to add
over 3,200 boepd for total capital expenditures of $39 million. Surge anticipates a payout on this
32 well program of less than one year at current strip oil
prices4.
Following the successful, accretive Sale, and the completion of
the Company's low risk 1H/21 development drilling program, Surge is
planning a disciplined capital allocation strategy with an emphasis
on free cash flow generation in 2H/21. Surge will be issuing
revised guidance following the completion of the final Montney well in the 1H/21 drilling program,
and the optimization of the new, recently drilled 31 Sparky wells.
Accordingly, the Company anticipates releasing this updated
guidance on or before April 30,
2021.
National Bank Financial Inc. acted as financial advisor to Surge
with respect to the Sale. McCarthy Tétrault LLP acted as legal
advisor to Surge with respect to the Sale. BMO Capital Markets and
Scotiabank were appointed strategic advisors to Surge in connection
with the Sale.
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 and plans with respect to the
development of its assets and the timing thereof; Surge's declared
focus and primary goals and its strategy for 2H/21; Surge's planned
drilling program and the anticipated costs thereof and payout
thereunder; Surge's drilling inventory and locations; management's
expectations regarding 2021 production levels; the expectation that
the Sale will further enhance the Company's financial flexibility
and available liquidity; the anticipated benefits of the
re-determination of Surge's credit facilities, including the
anticipated reduction in Surge's annual interest expense; and the
anticipated timing of release of revised 2021/22 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 year 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.
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 Mar 31, 2021 reference
date, the Company will have over >750 gross (>750 net)
drilling locations identified herein, of these >400 gross
(>400 net) are unbooked locations. Of the 316 net booked
locations identified herein, 251 net are Proved locations and 65
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 weighted average internal Sparky type curve economics
have an IRR of greater than 115% and a payout of under one year @
US$55/bbl WTI (C$56 WCS) and are supported by >380 internally
evaluated Sparky locations by Surge's Qualified Reserve Evaluators
(with weighted average metrics of: ~$1.15 MM per well capital, ~100 boe/d IP180 per
well and ~125 mboe Estimated Ultimate Recoverable reserves per
well).
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
Qualified Reserve Evaluators. All type curves fully comply with
Part 5.8 of the Companion Policy 51 – 101CP.
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 For the
purposes of this press release, "cash flow multiple" is calculated
as total gross proceeds from the Sale of $106 million divided by
estimated forward 12-month cash flow generated by the disposed
assets, less corporate interest savings resulting from the Sale,
primarily as a result of reduced outstanding bank
indebtedness.
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2 See the
Oil and Gas Advisories section of this document for further
details.
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3 See
Drilling Inventory in Forward Looking Statements
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4 See
Drilling Inventory in Forward Looking Statements
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SOURCE Surge Energy Inc.