CALGARY, AB, May 5, 2022 /CNW/ - Surge Energy Inc. ("Surge" or
the "Company") (TSX: SGY) is pleased to announce: 1) the intent to
reinstitute the Company's base dividend on July 15, 2022; 2) the successful
acquisition of strategic, core area lands in SE Saskatchewan at a recent Crown sale;
3) the receipt of an additional $30
million of term debt financing under the same terms and
conditions as its existing 5-year term debt facility (the "Term
Debt Facility"); 4) the intent to redeem the Company's
$44.5 million of 5.75% convertible
debentures for cash; 5) the reconfirmation and extension of
Surge's $150 million first lien
credit facility (the "First Lien Credit Facility"); 6) the
Company's financial and operating results for the quarter ended
March 31, 2022; and 7) Surge's
2022 Outlook.
INTENT TO REINSTITUTE BASE DIVIDEND ON JULY 15, 2022
With crude oil prices now in excess of US$100 WTI per barrel, which is significantly
above the Company's US$85 WTI
guidance price for crude oil in 2022, Surge is pleased to announce
its intention to resume its base cash dividend distribution,
payable on a monthly basis.
At current strip commodity prices for crude oil and natural gas,
Management projects that Surge's net debt target range will be
achieved during Q3/22. On this basis, the Company anticipates
reinstating its base annual cash dividend expected to be
$0.42 per share (3.5 cents per month), payable on July 15, 2022 to holders of the Company's common
shares ("Common Shares") of record at the close of business on
June 30, 2022. Any anticipated
dividend payment will be subject to the approval of Surge's Board
of Directors at the time of declaration.
On an annualized basis, this base cash dividend is equal to
approximately 20 percent of Surge's previously guided annual 2022
free cash flow1 utilizing a US$85 WTI per bbl crude oil pricing
assumption2.
With the majority of the Company's mandated fixed price crude
oil hedges for 2022 expiring in less than two months, Surge has
resumed its regular, ongoing risk management program. This orderly
program is designed to set price floors that protect Surge's
dividend and capital programs, while also providing participation
in a rising commodity price environment.
The monthly cash dividend is expected to be designated as an
"eligible dividend" for Canadian federal and provincial income tax
purposes. Dividends paid to shareholders who are non-residents of
Canada will be subject to Canadian
non-resident withholding taxes.
NEW LIGHT OIL POOL EXTENSION AND LAND ACQUISITION AT
STEELMAN IN SE SASKATCHEWAN
Surge is pleased to announce that drilling on its operated,
light oil, core area assets at Steelman in SE
Saskatchewan has delivered better than anticipated results.
The Company has been actively drilling in SE Saskatchewan since its acquisition of Astra
Oil Corp. and Fire Sky Energy Inc. in 2H, 2021.
The Company's most recent 4.0 gross (2.5 net) wells drilled at
Steelman in Q1/22 have continued
to deliver strong results, producing at an average IP30 rate of
more than 2503 boepd. These four wells have been
independently evaluated as some of the best wells drilled in
Saskatchewan to date this
year4, and at current oil prices these wells are
anticipated to pay out in less than 50 days5.
In addition to these excellent drilling results, Surge was also
successful at a recent, highly competitive, Saskatchewan Crown land
sale at Steelman. As a result, the
Company is pleased to announce that it has acquired the majority of
the targeted prospective acreage on this exciting new light oil
Frobisher pool extension. With
Surge's success at the Crown land sale, the Company now estimates
it has added up to 40 gross (40.0 net) incremental, highly
economic, light oil Frobisher
drilling locations on the newly acquired Crown lands - directly
offsetting the recent successful drilling results noted above.
Furthermore, Surge's integrated geotechnical modeling on the new
pool extension has added internally estimated original oil in place
("OOIP6") of over 20 million barrels (15 million barrels
net) on the new lands. The Company now internally estimates
combined OOIP of over 72 million barrels (53 million net) at its
Steelman Frobisher pool.
TERM DEBT UPDATE, INTENTION TO REDEEM 5.75% CONVERTIBLE
DEBENTURES FOR CASH, AND CREDIT FACILITY UPDATE
The Company's Term Debt Facility provider has exercised their
previously announced right to deliver an additional $30 million of term debt financing (under the
same terms and conditions as its existing five-year Term Debt
Facility) to Surge, providing the Company with significant
incremental liquidity. Management anticipates that, at current
commodity prices, the $30 million in
gross proceeds, combined with a portion of Surge's forecasted free
cash flow, will be used to settle the Company's $44.5 million of 5.75% convertible debentures for
cash prior to their maturity on December
31, 2022.
Concurrently, Surge has reconfirmed and extended its existing
$150 million First Lien Credit
Facility, which was drawn only $96.8
million at March 31, 2022. The
maturity of the newly reconfirmed First Lien Credit Facility is now
extended through to May 31, 2024.
The addition of the incremental Term Debt Facility proceeds,
combined with the intention to redeem the 5.75% convertible
debentures for cash, will provide Surge with a simplified debt
capital structure, significant liquidity, and no debt capital
maturities through to mid-2024.
OPERATIONS UPDATE: SUCCESSFUL Q1/22 DRILLING PROGRAM AT
SPARKY AND SE SASKATCHEWAN
Surge completed its Q1/22 capital program drilling 23 (21.5 net)
wells, with three rigs active in the quarter. This program was
comprised of 14.0 net wells in the Company's Sparky core area, and
7.5 net wells in Surge's SE
Saskatchewan core area for total expenditures on property,
plant, and equipment of $43.0
million. Furthermore, the Company completed an additional
6.0 net wells in Q1/22 that were drilled in Q4/21.
In recent months, Management has been successful in adding
significant organic growth opportunities across its core areas. On
this basis, the Company has added more than 10 net sections of
highly prospective land. These strategic core area land
acquisitions have added an incremental 79 gross (70.0 net) drilling
locations7 to Surge's deep 13 year drilling inventory at
a total cost of $9.9 million,
including the exciting SE
Saskatchewan land sale at Steelman discussed above.
The Company is currently monitoring the impact of cost
inflation, labour shortages, and global supply chain challenges on
its 2022 capital and operating expense guidance. Surge's Q1/22
capital program tracked the Company's 2022 budget, and the Company
will continue to monitor the impact of these inflationary pressures
over the second half of 2022 and into 2023.
Q1 2022 FINANCIAL & OPERATING HIGHLIGHTS
During the first quarter of 2022, Surge delivered cash flow from
operating activities of $52.2
million, an increase of 236% as compared to Q1/21 cash flow
from operating activities of $15.6
million. Additionally, the Company delivered adjusted funds
flow8 of $62.9 million in
Q1/22, an increase of 299% compared to Q1/21 adjusted funds flow of
$15.8 million.
Surge reported a realized loss on financial contracts of
$28.8 million in Q1/22, primarily due
to fixed price oil hedging relating to the corporate acquisitions
that closed in late 2021. The Company generated adjusted funds flow
before realized gains or losses on financial contracts of
$91.7 million in Q1/22 (with a Q1/22
average oil price of US$94.29 WTI per
barrel), an increase of 181% over $32.6
million in Q1/22.
As previously announced, the Company's production in Q1/22 was
impacted by a contained fire at one of its SE Saskatchewan oil batteries. Thanks to the
efforts of Surge's Emergency Response Committee and local service
providers, the Company is pleased to reaffirm that no injuries or
significant environmental problems occurred in relation to the
fire. Production from the affected areas resumed in late
February 2022. The impact on average
production from this incident, along with unusually cold weather in
January 2022, was approximately 700
boepd for Q1/22.
Highlights from the Company's Q1 2022 financial and operating
results include:
FINANCIAL AND OPERATING HIGHLIGHTS
OUTLOOK: SGY – POSITIONED FOR OUTPERFORMANCE IN 2022 AND
BEYOND
- Delivered Q1/22 cash flow from operating activities of
$52.2 million, an increase of 236%
over Q1/21 cash flow from operating activities of $15.6 million;
- Delivered adjusted funds flow of $62.9
million in Q1/22, an increase of 299% over Q1/21 adjusted
funds flow of $15.8 million;
- Achieved average daily production of 20,550 boepd (85% liquids)
during Q1/22, an increase of 24% over Q1/21 production of 16,582
boepd (84% liquids);
- Successfully drilled 23.0 (21.5 net) wells in Q1/22, with
drilling activity strategically focused in the Company's Sparky and
SE Saskatchewan, conventional,
light and medium gravity crude oil core areas; and
- Reduced net debt8 by $15.7
million as compared to December 31,
2021 while concurrently completing the Q1/22 capital program
for $43.0 million.
FINANCIAL AND
OPERATING HIGHLIGHTS
|
Three Months Ended
March 31,
|
($000s except per
share amounts)
|
2022
|
2021
|
%
Change
|
Financial highlights
|
|
|
|
Oil sales
|
157,440
|
69,956
|
125
%
|
NGL sales
|
4,053
|
1,948
|
108 %
|
Natural gas
sales
|
7,631
|
8,790
|
(13)%
|
Total oil, natural gas,
and NGL revenue
|
169,124
|
80,694
|
110 %
|
Cash flow from
operating activities
|
52,182
|
15,550
|
236 %
|
Per share - basic
($)
|
0.63
|
0.39
|
61 %
|
Per share diluted
($)
|
0.63
|
0.39
|
61 %
|
Adjusted funds
flow1
|
62,893
|
15,757
|
299 %
|
Per share - basic
($)1
|
0.75
|
0.39
|
91 %
|
Per share diluted
($)
|
0.75
|
0.39
|
91 %
|
Net income
(loss)
|
(21,868)
|
(9,985)
|
119 %
|
Per share basic
($)
|
(0.26)
|
(0.25)
|
4 %
|
Per share diluted
($)
|
(0.26)
|
(0.25)
|
4 %
|
Expenditures on
property, plant and equipment
|
42,968
|
31,898
|
35 %
|
Net acquisitions and
dispositions
|
-
|
(102,591)
|
nm
|
Net capital
expenditures
|
42,968
|
(70,693)
|
nm
|
Net
debt1, end of
period
|
315,770
|
303,334
|
4 %
|
|
|
|
|
Operating
highlights
|
|
|
|
Production:
|
|
|
|
Oil (bbls per
day)
|
16,760
|
13,422
|
25 %
|
NGLs (bbls per
day)
|
691
|
583
|
19 %
|
Natural gas (mcf per
day)
|
18,592
|
15,462
|
20 %
|
Total (boe per day)
(6:1)
|
20,550
|
16,582
|
24 %
|
Average realized price
(excluding hedges):
|
|
|
|
Oil ($ per
bbl)
|
104.38
|
57.91
|
80 %
|
NGL ($ per
bbl)
|
65.17
|
37.12
|
76 %
|
Natural gas ($ per
mcf)
|
4.56
|
6.32
|
(28)%
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
Petroleum and natural
gas revenue
|
91.45
|
54.07
|
69 %
|
Realized gain (loss) on
commodity and FX contracts
|
(15.58)
|
(11.27)
|
38 %
|
Royalties
|
(15.36)
|
(5.68)
|
170 %
|
Net operating
expenses1
|
(19.28)
|
(18.09)
|
7 %
|
Transportation
expenses
|
(1.50)
|
(1.03)
|
46 %
|
Operating
netback1
|
39.73
|
18.00
|
121 %
|
G&A
expense
|
(2.18)
|
(1.98)
|
10 %
|
Interest
expense
|
(3.55)
|
(5.46)
|
(35)%
|
Adjusted funds
flow1
|
34.00
|
10.56
|
222 %
|
|
|
|
|
|
|
|
|
Common shares
outstanding, end of period
|
83,357
|
39,975
|
109 %
|
Weighted average basic
shares outstanding
|
83,357
|
39,975
|
109 %
|
Weighted average
diluted shares outstanding
|
83,357
|
39,975
|
109 %
|
|
1 This is a
non-GAAP and other financial measure which is defined in the
Non-GAAP and Other Financial Measures section of this
document.
|
2
The Company views this change calculation
as not meaningful, or "nm".
|
Surge is an intermediate light and medium gravity crude oil
producer, with an estimated 13 year development drilling inventory
comprising more than 1,000 internally estimated net development
drilling locations. The Company confirms its 2022 production exit
rate guidance of 21,500 boepd (86% liquids).
With 2.6 billion of net (internally estimated) OOIP9,
an approximate 6.5% recovery factor to date, and dominant positions
in two top tier medium and light gravity crude oil growth plays at
Sparky and SE Saskatchewan, Surge
is poised to deliver strong operational results in 2022 and
beyond. Further, with over $1.3
billion in tax pools and an attractive balance sheet, the
Company will deliver to its stakeholders a combination of:
FORWARD LOOKING STATEMENTS:
- Continued net debt repayment (increasing Surge's NAV per
share);
- A reinstated, sustainable, base monthly dividend;
- Share buybacks;
- A modest production growth wedge; and
- Potential for variable or special dividends.
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; Surge's intentions regarding the
reinstitution of its base dividend and the anticipated timing and
amount thereof; the anticipated timing of payout of the
Corporation's recently drilled wells at Steelman; Surge's internally estimated
oil in place, drilling inventory and drilling locations; the timing
of achievement of Surge's net debt target; Surge's intentions with
respect to the repayment of its outstanding 5.75% convertible
debentures; Surge's 2022 exit production guidance; 2022 free cash
flow guidance; and the Company's expectation that it will be
positioned to deliver to its stakeholders a combination of:
continued net debt repayment; a reinstated, sustainable, base
monthly dividend; share buybacks; a modest production growth wedge;
and potential for variable or special dividends.
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,
2022 and in Surge's MD&A for the period ended
December 31, 2021, 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 Jan 1, 2022 reference
date, the Company will have over >1,050 gross (>975 net)
drilling locations identified herein; of these >550 gross
(>500 net) are unbooked locations. Of the 456 net booked
locations identified herein, 362 net are Proved locations and 95
net are Probable locations based on Sproule's 2021YE reserves.
Assuming an average number of wells drilled per year of 75, Surge's
>1,050 locations provide 13 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.
Surge's internally generated average Steelman type curve (190 bbl/d IP30, 80 mbbl
EUR, $1.139 M DCET), has payout
<50 days and a BTax NPV10 of $4.5
MM, run on Apr 1 strip (avg first
year WTI: US$92.86/bbl).
Non-GAAP and Other Financial Measures
This press release includes references to non-GAAP and other
financial measures used by the Company to evaluate its financial
performance, financial position or cash flow. These specified
financial measures include non-GAAP financial measures and non-GAAP
ratios, are not defined by IFRS and therefore are referred to as
non-GAAP and other financial measures. Certain secondary financial
measures in this press release – namely, "adjusted funds flow",
"adjusted funds flow per share", "free cash flow", "net debt", "net
operating expenses", "operating netback", and "adjusted funds flow
per boe" are not prescribed by GAAP. These non-GAAP and other
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 and other financial 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 and other financial
measures used in this document are defined below.
Adjusted Funds Flow & Adjusted Funds Flow Per
Share
Adjusted funds flow is a non-GAAP financial measure. 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.
Transaction and other costs represent expenditures associated with
property acquisitions and dispositions, debt restructuring and
employee severance costs, 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 a non-GAAP ratio 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:
Free Cash Flow
|
|
|
Three Months Ended
March 31,
|
($000s except per
share amounts)
|
2022
|
2021
|
Cash flow from
operating activities
|
52,182
|
15,550
|
Change in non-cash
working capital
|
9,061
|
(2,974)
|
Decommissioning
expenditures
|
1,495
|
1,481
|
Cash settled
transaction and other costs
|
155
|
1,700
|
Adjusted funds
flow
|
$
|
62,893
|
$
|
15,757
|
Per share -
basic
|
$
|
0.75
|
$
|
0.39
|
Free cash flow is a non-GAAP financial measure, calculated as
cash flow from operating activities less expenditures on property,
plant and equipment. Management uses free cash flow to determine
the amount of funds available to the Company for future capital
allocation decisions.
Net Debt
Net debt is a non-GAAP financial measure, calculated as bank
debt, term debt, plus the liability component of the convertible
debentures plus current assets, less current liabilities, however,
excluding the fair value of financial contracts, decommissioning
obligations, and lease and other obligations. There is no
comparable measure in accordance with IFRS for net debt. This
metric is used by management to analyze the level of debt in the
Company including the impact of working capital, which varies with
the timing of settlement of these balances.
Net Operating Expenses
|
|
|
($000s)
|
As at Mar 31,
2022
|
As at Dec 31,
2021
|
Accounts
receivable
|
83,502
|
55,738
|
Prepaid expenses and
deposits
|
3,669
|
3,152
|
Accounts payable and
accrued liabilities
|
(97,913)
|
(84,330)
|
Bank debt
|
(96,780)
|
(98,066)
|
Term debt
|
(133,580)
|
(133,993)
|
Convertible
debentures
|
(74,668)
|
(73,935)
|
Net Debt
|
(315,770)
|
(331,434)
|
Net operating expenses is a non-GAAP financial measure,
determined by deducting processing income, 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 when analyzed by management.
Operating Netback & Adjusted Funds Flow per boe
Operating netback is a non-GAAP financial measure, calculated as
petroleum and natural gas revenue and processing and other income,
less royalties, realized gain (loss) on commodity and FX contracts,
operating expenses, and transportation expenses. Operating netback
per boe is calculated as operating netback divided by total barrels
of oil equivalent produced during a specific period of time. There
is no comparable measure in accordance with IFRS. This metric is
used by management to evaluate the Company's ability to generate
cash margin on a unit of production basis.
Operating netback & adjusted funds flow are calculated on a
per unit basis as follows:
|
|
|
Three Months Ended
March 31,
|
($000s)
|
2022
|
2021
|
Petroleum and natural
gas revenue
|
169,124
|
80,694
|
Processing and other
income
|
1,806
|
1,089
|
Royalties
|
(28,401)
|
(8,477)
|
Realized gain (loss) on
commodity and FX contracts
|
(28,809)
|
(16,822)
|
Operating
expenses
|
(37,454)
|
(28,083)
|
Transportation
expenses
|
(2,777)
|
(1,539)
|
Operating
netback
|
73,489
|
26,862
|
G&A
expense
|
(4,032)
|
(2,957)
|
Interest
expense
|
(6,564)
|
(8,148)
|
Adjusted funds
flow
|
62,893
|
15,757
|
Barrels of oil
equivalent (boe)
|
1,849,429
|
1,492,397
|
Operating netback ($
per boe)
|
$
|
39.73
|
$
|
18.00
|
Adjusted funds flow ($
per boe)
|
$
|
34.00
|
$
|
10.56
|
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 and other financial measure which is defined in the
Non-GAAP and Other Financial Measures section of this
document.
|
2 Additional
previously guided pricing assumptions: (WCS: US$13.00, EDM US$3.50
differentials), Fx of $0.79 and AECO of $3.25 per
mcf.
|
3 Four gross
wells had IP30 rates of 208 boepd, 321 boepd, 409 boepd, and 69
boepd.
|
4 Per
Raymond James "Top / Notable Wells with Updated March GeoSCOUT
Data" Report dated March 29, 2022.
|
5 See
Drilling Inventory in the Forward Looking Statements section of
this document for further details.
|
6 See the
Oil and Gas Advisories section of this document for further
details.
|
7 See
Drilling Inventory in the Forward Looking Statements section of
this document for further details.
|
8 This
is a non-GAAP and other financial measure which is
defined in the Non-GAAP and Other Financial Measures
section of this document.
|
9 See
Oil and Gas Advisories section of this document for further
information.
|
SOURCE Surge Energy Inc.