CALGARY,
AB, Aug. 2, 2023 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) is pleased to announce the
Company's financial and operating results for the quarter ended
June 30, 2023.
MESSAGE TO SHAREHOLDERS
Crude oil prices softened over the course of the second quarter,
with Western Texas Intermediate ("WTI") averaging nearly
US$80 per bbl in April 2023, and approximately US$70 per bbl in June
2023. Despite this drop in WTI pricing, Surge realized
significant benefits from a dramatic tightening of Western Canadian
Select ("WCS") differentials, which averaged US$15.07 per bbl in Q2/23 – down 39 percent from
US$24.79 WTI per bbl during Q1/23.
Approximately half of Surge's oil production is medium gravity
crude oil, which is correlated to WCS pricing and significantly
mitigated the impact of softer WTI pricing in the quarter. On this
basis, Surge increased cash flow from operating activities by 11
percent in Q2/23, as compared to Q1/23, up from the $54.5 million realized during the first quarter
to $60.6 million in the second
quarter of 2023. Furthermore, the Company increased its adjusted
funds flow1 by 2 percent, from $63.3 million in Q1/23 to $64.6 million in Q2/23.
The second quarter is traditionally a slow drilling activity
quarter for Canadian oil and gas companies, as counties impose
annual spring road bans for moving heavy trucks and drilling
equipment. Accordingly, after a successful and active Q1/23
drilling program, Surge focused a significant portion of its Q2/23
capital expenditures on facility, pipeline and well maintenance
work, as well as further land consolidation in SE Saskatchewan. Subsequent to road bans being
lifted in early June, Surge resumed drilling activity in both the
SE Saskatchewan and Sparky core
areas.
During Q2/23, Surge safely executed 8 operated gas plant and oil
battery turnarounds at Valhalla,
Provost, Betty Lake, Lakeview and
Steelman. In addition, the Company
experienced 4 additional turnarounds at facilities operated by
third parties (including the Sexsmith, Keyera, Steelreef and TCPL gas plant
turnarounds). Although several of these turnarounds were
budgeted for by the Company, the impact of the unscheduled
turnarounds reduced production in the quarter by approximately 700
boepd. Surge remains on track to meet the Company's 2023
production exit rate target of 25,000 boe per day.
The Company spud 11.8 net (13 gross) wells, and rig released 8.8
net (10 gross) wells during Q2/23, with all of these wells expected
to be completed and brought on stream in mid-Q3/23. Drilling
activity during the second quarter, along with the end of spring
turnaround season, has positioned Surge to maximize operational
runtime during the second half of 2023.
During Q2/23, Surge brought on production two new exciting
Sparky wells that were drilled at Cadogan, on lands recently
acquired in Q4/22. These two wells are currently producing at
a combined rate of over 390 boepd (95 percent oil). Surge has
an internally estimated 32 net follow up Sparky drilling
locations2 on the acquired Cadogan lands.
Surge has also acquired more than 20 sections of land on the
Company's new open hole, multi-lateral, oil play in the Sparky core
area. These acquired lands are offsetting the Company's
exciting 6 leg, open hole, Sparky discovery well that was drilled
in late 2022. Subsequent to Q2/23, Surge recently completed
drilling the Company's first 12 leg, open hole, Sparky step-out
well on this play trend. The Company expects production
results from this step-out well in the latter part of
Q3/23.
Stable quarterly cash flow, combined with a seasonally light
capital expenditure program during the quarter, contributed to
Surge delivering a substantial net debt1 reduction in
the amount of $20.1 million in Q2/23.
This net debt reduction was achieved while also distributing
$11.8 million to shareholders in
Q2/23 by way of Surge's cash dividend – which is paid monthly.
Today, more than 75 percent of Surge's crude oil production is
strategically located in the Company's Sparky and SE Saskatchewan core areas – which have been
recently independently evaluated as two of the top four crude oil
plays in North
America3. Surge has a deep, 13 year,
drilling inventory of more than 1,000 net
locations2.
FINANCIAL AND OPERATING HIGHLIGHTS
FINANCIAL AND OPERATING
HIGHLIGHTS
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
($000s except per share
amounts)
|
2023
|
2022
|
% Change
|
2023
|
2022
|
% Change
|
Financial
highlights
|
|
|
|
|
|
|
Oil sales
|
149,530
|
196,470
|
(24) %
|
302,194
|
353,910
|
(15) %
|
NGL sales
|
2,642
|
4,939
|
(47) %
|
6,260
|
8,992
|
(30) %
|
Natural gas
sales
|
3,305
|
11,590
|
(71) %
|
8,993
|
19,221
|
(53) %
|
Total oil, natural gas,
and NGL revenue
|
155,477
|
212,999
|
(27) %
|
317,447
|
382,123
|
(17) %
|
Cash flow from
operating activities
|
60,608
|
75,798
|
(20) %
|
115,114
|
127,980
|
(10) %
|
Per share - basic
($)
|
0.62
|
0.91
|
(32) %
|
1.18
|
1.54
|
(23) %
|
Per share diluted
($)
|
0.60
|
0.88
|
(32) %
|
1.15
|
1.49
|
(23) %
|
Adjusted funds
flowa
|
64,640
|
78,561
|
(18) %
|
127,971
|
141,454
|
(10) %
|
Per share - basic
($)a
|
0.66
|
0.94
|
(30) %
|
1.31
|
1.70
|
(23) %
|
Per share diluted
($)
|
0.64
|
0.91
|
(30) %
|
1.27
|
1.64
|
(23) %
|
Net
income
|
14,055
|
72,027
|
(80) %
|
28,844
|
50,159
|
(42) %
|
Per share basic
($)
|
0.14
|
0.86
|
(84) %
|
0.30
|
0.60
|
(50) %
|
Per share diluted
($)
|
0.14
|
0.83
|
(83) %
|
0.29
|
0.58
|
(50) %
|
Expenditures on
property, plant and equipment
|
30,589
|
36,890
|
(17) %
|
76,322
|
79,858
|
(4) %
|
Net acquisitions and
dispositions
|
(1,696)
|
(32)
|
nmb
|
(2,374)
|
(32)
|
nm
|
Net capital
expenditures
|
28,893
|
36,858
|
(22) %
|
73,948
|
79,826
|
(7) %
|
Net
debta, end of
period
|
311,833
|
280,131
|
11 %
|
311,833
|
280,131
|
11 %
|
|
|
|
|
|
|
|
Operating
highlights
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
Oil (bbls per
day)
|
19,758
|
17,110
|
15 %
|
20,403
|
16,936
|
20 %
|
NGLs (bbls per
day)
|
629
|
799
|
(21) %
|
674
|
745
|
(10) %
|
Natural gas (mcf per
day)
|
18,458
|
18,565
|
(1) %
|
19,310
|
18,579
|
4 %
|
Total (boe per day)
(6:1)
|
23,463
|
21,003
|
12 %
|
24,295
|
20,778
|
17 %
|
Average realized price
(excluding hedges):
|
|
|
|
|
|
|
Oil ($ per
bbl)
|
83.17
|
126.19
|
(34) %
|
81.83
|
115.45
|
(29) %
|
NGL ($ per
bbl)
|
46.16
|
67.95
|
(32) %
|
51.31
|
66.67
|
(23) %
|
Natural gas ($ per
mcf)
|
1.97
|
6.86
|
(71) %
|
2.57
|
5.72
|
(55) %
|
|
|
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
|
|
|
Petroleum and natural
gas revenue
|
72.82
|
111.44
|
(35) %
|
72.19
|
101.61
|
(29) %
|
Realized loss on
commodity and FX contracts
|
(0.93)
|
(24.05)
|
(96) %
|
(0.91)
|
(19.88)
|
(95) %
|
Royalties
|
(12.11)
|
(19.74)
|
(39) %
|
(12.48)
|
(17.59)
|
(29) %
|
Net operating
expensesa
|
(21.58)
|
(19.16)
|
13 %
|
(21.93)
|
(19.22)
|
14 %
|
Transportation
expenses
|
(1.59)
|
(1.62)
|
(2) %
|
(1.69)
|
(1.56)
|
8 %
|
Operating
netbacka
|
36.61
|
46.87
|
(22) %
|
35.18
|
43.36
|
(19) %
|
G&A
expense
|
(2.24)
|
(2.19)
|
2 %
|
(2.14)
|
(2.19)
|
(2) %
|
Interest
expense
|
(4.09)
|
(3.58)
|
14 %
|
(3.94)
|
(3.56)
|
11 %
|
Adjusted funds
flowa
|
30.28
|
41.10
|
(26) %
|
29.10
|
37.61
|
(23) %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
outstanding, end of period
|
98,334
|
83,357
|
18 %
|
98,334
|
83,357
|
18 %
|
Weighted average basic
shares outstanding
|
98,334
|
83,357
|
18 %
|
97,714
|
83,357
|
17 %
|
Stock based
compensation dilution
|
2,853
|
2,917
|
(2) %
|
2,706
|
2,666
|
2 %
|
Weighted average
diluted shares outstanding
|
101,187
|
86,274
|
17 %
|
100,420
|
86,023
|
17 %
|
|
|
|
|
|
|
|
a
This is a non-GAAP and other financial
measure which is defined in the Non-GAAP and Other Financial
Measures section of this document.
|
b
The Company views this change calculation
as not meaningful, or "nm".
|
Q2/23 Highlights:
- Achieved average production of 23,463 boe per day (87 percent
liquids), a 12 percent increase over Q2/22 production of 21,003 boe
per day (85 percent liquids);
- Increased cash flow from operating activities by 11 percent in
Q2/23 as compared to Q1/23, up from $54.5
million to $60.6 million,
despite lower WTI pricing during the period;
- Increased adjusted funds flow by 2 percent as compared to
Q1/23, from $63.3 million in Q1/23 to
$64.6 million in Q2/23;
- Reduced net debt during the second quarter of 2023 by
approximately $20.1 million, while
spending $30.6 million on property,
plant and equipment, and distributing $11.8
million in cash dividends to shareholders in Q2/23;
- The Company spud 11.8 net (13 gross) wells, and rig released
8.8 net (10 gross) wells during the quarter, with all wells
expected to be completed and brought on stream in mid-Q3/23;
and
- Safely completed 8 operated gas plant and oil battery
turnarounds, positioning Surge to maximize operational runtime
during the second half of 2023.
OUTLOOK FOR SGY: POSITIONED TO OUTPERFORM
Surge began the Company's 2H/23 drilling program on June 1, 2023, with two rigs drilling in the
Sparky core area, and one rig in the SE
Saskatchewan core area. Surge remains on track to meet the
Company's 2023 production exit rate target of 25,000 boe per
day.
Management believes market conditions for Canadian crude oil
prices in the second half of the year are favourable based on the
following:
- The incremental crude oil supply cuts by Saudi Arabia (1.0 million bbls per day) and
Russia (0.5 million bbls per day),
started on July 1, 2023. Energy
analysts are now projecting a crude oil supply shortage deficit as
high as 1.8 million bbls per day in 2H/234;
- Global crude oil demand hit an all-time record level of 102.8
million barrels in July, 20234;
- Canadian WCS differentials dropped dramatically from an average
of US $24.79 WTI per bbl in Q1/23 to
an average of US$15.07 WTI per bbl
for the second quarter 20235; and
- The price of crude oil has been steadily rising, from a low of
US$67.12 WTI per bbl in June of 2023
to over US$82 WTI per bbl
recently.
Independent research from a large Canadian based brokerage firm
recently highlighted Surge as one of the best positioned public oil
companies in Canada to benefit
from the positive market conditions for crude oil prices as set
forth above6.
Sensitivities outlining Surge's strong, positive cash flow
"torque" to oil prices and WCS differentials are set forth
below7:
Variable
|
Impact on 2023e
Guidance Cash
Flow from Operating Activities
|
US$1 change in
WTI
|
$8.7MM
|
$0.01 change in
FX
|
$7.8MM
|
1% change in Royalty
Rate
|
$7.5MM
|
US$1 change in
WCS
|
$5.1MM
|
$0.50 change in
Opex
|
$4.5MM
|
US$1 change in
MSW
|
$3.4MM
|
C$0.25 change in
AECO
|
$1.5MM
|
Surge remains well positioned to continue delivering shareholder
returns in 2023 and beyond, based upon the following key corporate
fundamentals:
- Ownership of more than 3.0 billion of net (internally
estimated) OOIP8; 7.7 percent recovery factor to
date;
- Ownership of more than 120 million boe of P+P reserves
(Sproule); long P+P RLI of >13 years8;
- 25,000 boepd production exit 2023 (87 percent liquids);
- Annual corporate decline: 23 percent9;
- Operating netbacks (at US$80 WTI
pricing10): $42 per
boe;
- Guidance annual cash flow from operations: $335 million (at US$80 WTI
pricing)7,10;
- Annual dividend: $47 million;
$0.48 per share annual dividend (paid
in cash/monthly);
- More than 1,000 (net) drilling locations2; providing
a 13 year drilling inventory;
- Tax pools: $1.4 billion;
approximate 4 year tax horizon at US$80 WTI pricing; and
- An independent December 31, 2022
Sproule NAV: $22.37 per share (P+P);
TP NAV: $13.72 per
share8.
Surge has a dominant operational position in two of the top four
crude oil plays in Canada in the
Company's Sparky (11,000 boepd; 85% medium gravity oil and liquids)
and SE Saskatchewan (8,000 boepd;
95% light oil and liquids) core areas; as independently evaluated
by a leading independent brokerage firm3. Surge
Management believes that the Company's premium crude oil asset and
opportunity base is directly responsible for driving Surge's
operating and financial results.
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 focus and defined operating strategy;
management's expectations regarding its 2023 production exit rate
target; the anticipated timing of the completion of new wells and
the onset of production therefrom; management's belief that the
Company is positioned to maximize operational runtime during the
second half of 2023; drilling inventory and locations; its
estimated tax pools; Surge's expectations regarding crude oil
prices and WCS differentials; the Company's drilling plans for the
remainder of 2023; management's belief that the Company is
well positioned to benefit from positive market conditions for
crude oil prices; management's expectations and beliefs regarding
the impact of crude oil prices and WCS differentials on its
guidance cash flow from operating activities; and Surge's belief
that it is well positioned to continue to deliver shareholder
returns.
The forward-looking statements are based on certain key
expectations and assumptions made by Surge, including expectations
and assumptions around 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 8, 2023 and in Surge's MD&A
for the period ended December 31,
2022, 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.
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 January 1, 2023.
Surge's Net Asset Value is calculated as reserve value
discounted at 10% on a BTax basis (TPP: $2,511 MM, TP: $1,676 MM), less Surge's net debt at December 31, 2022 of $352.2 million and is divided by 96.5 million
basic shares.
Surge's 2022YE PDP reserves has a decline of 25.8 percent and a
P+PDP decline of 23.6 percent. Declines are based off
March-to-March monthly data to flush out impacts of December
drilling.
Reserve Life Index is calculated as total Company share reserves
(122.7 MMboe) divided by Surge's estimated 2023 production (25,000
boe/d).
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 COGEH 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 any or 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 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 January 1, 2023
reference date, the Company will have over >1,150 gross
(>1,050 net) drilling locations identified herein; of these
>625 gross (>575 net) are unbooked locations. Of the 489 net
booked locations identified herein, 366.1 net are Proved locations
and 122.4 net are Probable locations based on Sproule's 2022YE
reserves. Assuming an average number of wells drilled per year of
80, Surge's >1,050 net locations provide 13 years of
drilling.
Assuming a January 1, 2023
reference date, the Company will have over >480 gross (>480
net) Sparky Core area drilling
locations identified herein; of these >300 gross (>300 net)
are unbooked locations. Of the 182 net booked locations identified
herein, 126 net are Proved locations and 56 net are Probable
locations based on Sproule's 2022YE reserves. Assuming an average
number of wells drilled per year of 40, Surge's >480 net
locations provide >12 years of drilling.
Assuming a January 1, 2023
reference date, the Company will have over >325 gross (>275
net) SE Saskatchewan drilling
locations identified herein; of these >140 gross (>120 net)
are unbooked locations. Of the 154 net booked locations identified
herein, 105 net are Proved locations and 49 net are Probable
locations based on Sproule's 2022YE reserves. Assuming an
average number of wells drilled per year of 40, Surge's >275 net
locations provide ~7 years of drilling.
Assuming subset of SE
Saskatchewan inventory, and a January
1, 2023 reference date, the Company will have over >190
gross (>160 net) SE Saskatchewan Frobisher drilling locations
identified herein; of these >80 gross (>75 net) are unbooked
locations. Of the 89 net booked locations identified herein, 56 net
are Proved locations and 33 net are Probable locations based on
Sproule's 2022YE reserves.
Surge's internally used type curves were constructed using a
representative, factual and balanced analog data set, as of
January 1, 2023. All locations were
risked appropriately, and EURs 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.
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", "net debt", "net operating
expenses", "net operating expenses per boe", "operating netback",
"operating netback per boe", 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:
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
($000s except per share
amounts)
|
2023
|
2022
|
2023
|
2022
|
Cash flow from
operating activities
|
60,608
|
75,798
|
115,114
|
127,980
|
Change in non-cash
working capital
|
2,522
|
2,198
|
7,967
|
11,259
|
Decommissioning
expenditures
|
1,361
|
501
|
4,610
|
1,996
|
Cash settled
transaction and other costs
|
149
|
64
|
280
|
219
|
Adjusted funds
flow
|
64,640
|
78,561
|
127,971
|
141,454
|
Per share -
basic
|
$0.66
|
$0.94
|
$1.31
|
$1.70
|
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.
($000s)
|
As at June 30, 2023
|
As at Mar 31, 2023
|
As at June 30, 2022
|
Accounts
receivable
|
50,839
|
64,642
|
80,589
|
Prepaid expenses and
deposits
|
5,814
|
4,340
|
4,227
|
Accounts payable and
accrued liabilities
|
(76,038)
|
(89,094)
|
(102,172)
|
Dividends
payable
|
(3,933)
|
(3,933)
|
(2,918)
|
Bank debt
|
(15,675)
|
(27,345)
|
(22,254)
|
Term debt
|
(239,716)
|
(247,724)
|
(162,180)
|
Convertible
debentures
|
(33,124)
|
(32,803)
|
(75,423)
|
Net Debt
|
(311,833)
|
(331,917)
|
(280,131)
|
Net Operating Expenses & Net Operating Expenses
per boe
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. Net operating expenses per boe
is a non-GAAP ratio, calculated as net operating expenses divided
by total barrels of oil equivalent produced during a specific
period of time.
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
($000s)
|
2023
|
2022
|
2023
|
2022
|
Operating
expenses
|
47,774
|
38,189
|
100,666
|
75,643
|
Less: processing
income
|
(1,700)
|
(1,569)
|
(4,234)
|
(3,375)
|
Net operating
expenses
|
46,074
|
36,620
|
96,432
|
72,268
|
Net operating expenses
($ per boe)
|
$21.58
|
$19.16
|
$21.93
|
$19.22
|
Operating Netback, Operating Netback per boe
& 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 a non-GAAP ratio, 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.
Adjusted funds flow per boe is a non-GAAP ratio, calculated as
adjusted funds flow divided by total barrels of oil equivalent
produced during a specific period of time.
Operating netback
& adjusted funds flow are calculated on a per unit basis as follows:
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
($000s)
|
2023
|
2022
|
2023
|
2022
|
Petroleum and natural
gas revenue
|
155,477
|
212,999
|
317,447
|
382,123
|
Processing and other
income
|
1,700
|
1,569
|
4,234
|
3,375
|
Royalties
|
(25,852)
|
(37,734)
|
(54,894)
|
(66,135)
|
Realized loss on
commodity and FX contracts
|
(1,985)
|
(45,966)
|
(3,980)
|
(74,775)
|
Operating
expenses
|
(47,774)
|
(38,189)
|
(100,666)
|
(75,643)
|
Transportation
expenses
|
(3,395)
|
(3,095)
|
(7,442)
|
(5,872)
|
Operating
netback
|
78,171
|
89,584
|
154,699
|
163,073
|
G&A
expense
|
(4,791)
|
(4,186)
|
(9,401)
|
(8,218)
|
Interest
expense
|
(8,740)
|
(6,837)
|
(17,327)
|
(13,401)
|
Adjusted funds
flow
|
64,640
|
78,561
|
127,971
|
141,454
|
Barrels of oil
equivalent (boe)
|
2,135,101
|
1,911,258
|
4,397,462
|
3,760,687
|
Operating netback ($
per boe)
|
$36.61
|
$46.87
|
$35.18
|
$43.36
|
Adjusted funds flow ($
per boe)
|
$30.28
|
$41.10
|
$29.10
|
$37.61
|
For more information about Surge, please
visit our website
at www.surgeenergy.ca
Neither the TSX nor its Regulation Services Provider (as that term is defined
in the policies of the TSX) accepts
responsibility of the 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 See
Drilling Inventory section of the Forward Looking
Statements.
|
3 As per
Peters Oil & Gas Plays Update from January 9, 2023: North
American Oil and Natural Gas Plays – Half Cycle Payout Period.
Note: Sparky is represented as "Conventional Heavy Oil Hz" by
Peters.
|
4 Reuters
"Goldman upgrades oil demand outlook as market tempers growth
pessimism" – July 30, 2023.
|
5 Based on
WCS forward strip pricing on July 20, 2023.
|
6 As per
National Bank Financial's "NBF Energy Sales Release" on May 23,
2023: 2024 Implied share price (US$90 WTI & US$60
WTI).
|
7
Sensitivities are based on the Company's 2023 guidance, which is
based on an annualized 25,000 boepd production level.
|
8 See Oil
and Gas Advisories section in the Forward Looking
Statements.
|
9 Surge's
internally estimated decline. See Oil and Gas Advisories section in
the Forward Looking Statements.
|
10 Based on
the following pricing assumptions: US$80.00WTI/bbl;
CAD$110.34WTI/bbl; EDM CAD$104.83/bbl; WCS CAD$83.45/bbl; AECO
$2.95/mcf
|
|
SOURCE Surge Energy Inc.