CALGARY, Dec. 13, 2017 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces that its Board of Directors
has formally approved Surge's 2018 capital expenditure and
production guidance.
APPROVED GUIDANCE FOR 2018; CAPITAL EXPENDITURE
BREAKDOWN
Pursuant to a Press Release dated October
26, 2017, Surge provided preliminary capital expenditure and
production guidance for 2018.
In 2018 Surge now anticipates spending $98.75 million of total capital, broken down as
follows:
Capital Category
|
Amount
|
Drill & Complete,
Tie-in
|
$68.75
million
|
Waterflood
|
$4 million
|
Facilities
|
$9 million
|
Workovers
|
$7 million
|
Land, Capitalized
G&A, other
|
$10
million
|
Total
|
$98.75
million
|
|
|
|
|
2018 Budget @
$57.50
WTI
|
2018 Budget @
$65.00
WTI
|
Adjusted Funds Flow
Netbacks ($/boe)
|
$21.80
|
$25.90
|
Adjusted Funds Flow
($MM)
|
$128.6
|
$152.8
|
Per Share
(Basic)
|
$0.55
|
$0.66
|
All-in Sustainability
Ratio
|
95%
|
80%
|
Simple Payout
Ratio
|
17%
|
14%
|
Q4 Annualized Net
Debt to Adjusted Funds Flow
|
1.75x
|
1.3x
|
Pricing
Assumptions
|
|
|
|
WTI
($US/bbl)
|
$57.501
|
$65.00
|
|
CAD/USD Exchange
Rate
|
$0.765
|
$0.785
|
|
Natural Gas (AECO
C/$GJ)
|
$1.85
|
$1.85
|
|
WCS Differential
($US/bbl)
|
-$15.002
|
-$15.002
|
|
MSW Differential
($US/bbl)
|
-$3.00
|
-$3.00
|
|
Note 1: This
WTI pricing forecast reflects strip pricing for crude oil in 2018
as at December 11th, 2018.
|
Note 2: The
Company has budgeted a 25% increase in 2018 WCS differentials as
compared to 2017, to account
for the recent widening of near-term WCS differentials. Management
anticipates that the WCS differential will
narrow to historical levels in early 2018.
|
Surge has increased the Company's estimated 2018 capital
expenditures slightly (from $95
million previously announced) to $98.75 million in anticipation of slightly higher
service costs in 2018 as a result of rising crude oil prices.
Surge's 2018 guidance provides estimated debt adjusted
production per share growth of 6.3 percent, and adjusted funds flow
per share growth of 26 percent, over 2017 estimates
respectively.
OPERATIONS UPDATE
Surge's low risk, development drilling and waterflood results at
the Company's Valhalla, Sparky,
and Shaunavon core areas continue
to exceed management's budgeted expectations.
The Company has exceeded management's 2017 production exit rate
target of 15,850 boepd.
Valhalla – Exciting Results
From Downspacing
Surge's latest Doig light oil well at Valhalla, drilled in Q4 2017, is one of the
longest horizontal wells drilled by the Company to date with over
2,000 meters of high quality lateral section, and a measured depth
of 4,375 meters. With 26 stages, this well also has one of the
highest number of frac intervals that the Company has employed to
date at Valhalla.
This 200 meter in-fill well has now been on production for
approximately three weeks; it is exhibiting excellent pressure
response - with modest depletion; and it is producing at more than
1,300 boe/d, which is more than two times above Surge's budgeted
Valhalla Doig initial thirty day production rate of 650 boepd (over
80 percent light oil).
Surge management anticipates that this new Valhalla well will payout in approximately 11
weeks.
Surge estimates it now has more than 70 net additional locations
for light oil in its inventory at Valhalla, comprised as follows:
- 40 gross (34 net) Doig locations;
- 10 gross (10 net) Montney
locations;
- 21 gross (20.5 net) Doe Creek locations; and
- 14 gross (9.8 net) Charlie
Lake locations.
The Company budgets the drilling of five net wells at
Valhalla in 2018, providing an
internally estimated drilling inventory of more than 12 years.
Sparky – New Discovery at Betty Lake
In late Q3 and early Q4 of 2017, Surge completed a 3D seismic
program and successfully drilled its first well at the Company's
core Sparky Betty Lake asset; the
Company estimates that this 100 percent working interest play has
potential for more than 80 million barrels of net
OOIP1 (with an internally estimated recovery
factor of 10 percent on primary, and up to 30 percent with
waterflood), and more than 35 additional internally estimated
drilling locations.
Surge's first Betty Lake well is producing at approximately 140
percent of the Company's Sparky type curve.
Following Surge's most recent Sparky core area acquisition in Q3
of 2017, the Company now estimates that its two new pools at
Sounding Lake and Sounding Lake East have potential for more than
55 million of net-internally estimated OOIP (with an internally
estimated recovery factor of 10 percent on primary and up to 30
percent with waterflood); adding up to 38 net additional internally
estimated, low risk, Sparky development drilling locations.
Surge has also now drilled two successful step out Sparky wells
at Provost – significantly extending the Company's large OOIP pool
to the southwest. Today, following field optimization, and after
tying in the two new Provost development wells to Surge's nearby
Lakeview battery, management estimates that the operating expenses
at Lakeview have dropped from $17.50
per boe at the time of acquisition in April of 2017, to less than
$11.50 per boe forecast for 2018.
Surge estimates it now has more than 25 low risk additional
development drilling locations at Lakeview, together with
waterflood upside.
Surge currently has 318 gross (311 net) internally estimated
drilling locations in inventory in its Sparky core area. The
Company anticipates drilling 25 net wells in this core operated
area in 2018, a pace which provides more than 12 years of drilling
inventory.
Shaunavon – Upper and Lower
Shaunavon Results Confirm Upside
Surge's exciting Upper Shaunavon "step-out" well, more than six
kilometers to the north of the Company's current development,
continues to perform as a type curve well. This is a significant
pool extension on Surge's large contiguous 59 section land base.
The well has confirmed numerous Upper Shaunavon follow-up
locations.
The Company's recent Lower Shaunavon well, drilled in Q3 2017
with the latest mono-bore and cemented liner technology, is
performing above type curve. Surge has more than 70 internally
estimated Lower Shaunavon locations.
Surge has also successfully converted four more Upper Shaunavon
wells to injection, three of which are located at the large Upper
Shaunavon pool extension that Surge discovered two years ago on the
southern portion of the Company's land block.
Surge currently has 246 gross (233 net) internally estimated
drilling locations in inventory in its Shaunavon core area. The Company plans to
bring 17 Upper and Lower Shaunavon wells on production in 2018 at
this core operated asset, providing over 13 years of drilling
inventory at the current pace.
FINANCIAL UPDATE – INCREASED CREDIT FACILITY
In late November, Surge's revolving credit facility was expanded
to a new level of $305 million, which
represents a seven percent increase from the previous
facility. Including the proceeds of Surge's previously
announced convertible debenture financing, Surge now has
approximately $100 million of credit
availability on its bank line.
Surge has also recently increased its currency hedges for
2018. The Company now has approximately 22 percent of its
projected 2018 budget revenues hedged at rate of 0.7765 CAD/USD.
OUTLOOK – CONTINUED PER SHARE GROWTH IN 2018
Management's stated goal is to be the best positioned
light/medium gravity crude oil growth and dividend paying public
company in our peer group in Canada.
Over the last 18 months, Surge has now increased production per
share by more than 23 percent, increased its dividend by more than
26 percent, and upwardly revised production estimates four times –
two times organically, and two times pursuant to accretive Sparky
core area acquisitions.
In conjunction with putting forth Surge's 2018 guidance,
management has also completed an internally generated Five Year
Business Model in which the Company can organically grow production
per share at five to six percent per year, increase Surge's
dividend through growth in free cash flow, and reduce debt to less
than one times adjusted funds flow – all at current guidance
pricing. This five year growth model requires the drilling of less
than 46 percent of the Company's current internal inventory.
Surge will continue to grow its production base and location
inventory in the Company's three core areas - at Sparky,
Shaunavon, and Valhalla – through, organic, low risk,
development drilling, combined with strategic, high quality, core
area acquisitions.
RESIGNATION OF DIRECTOR
Surge also announces that Mr. Colin
Davies has tendered his resignation as a Director of the
Company, effective December 12, 2017,
due to the commitment required of Mr. Davies in connection with his
recent appointment as Chief Executive Officer of an active private,
Alberta based, oil company. The
Board thanks Mr. Davies for his participation and contribution as a
Director and as Chair of the Company's Reserves Committee and
wishes him well in his new endeavors.
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: production volumes; drilling activities; Surge's
planned capital expenditure program, including drilling and
development plans and enhanced recovery projects and the timing and
results to be expected thereof; expectations with respect to the
Company's ability to operate and succeed in the current commodity
price environment; the Company's declared focus and primary goals;
management's 2018 capital expenditure and production guidance,
including respecting funds flow; funds flow netbacks and annualized
net debt to funds flow and management's pricing and service cost
assumptions for 2018; Surge's dividend; recovery factors;
sustainability, growth opportunities and strategies, estimated
reserves and resources; production per share growth; growth in free
cash flow; debt levels; and drilling inventories and locations.
The 2018 capital expenditure and production guidance and certain
other measures set forth in this press release may be considered to
be future-oriented financial information or a financial outlook for
the purposes of applicable Canadian securities laws.
Future-oriented financial information and financial outlooks
contained in this press release are based on assumptions about
future events based on management's assessment of the relevant
information currently available. The future-oriented financial
information and financial outlooks contained in this press release
have been approved by management as of the date of this press
release. Readers are cautioned that any such future-oriented
financial information and financial outlook contained herein should
not be used for purposes other than those for which it is disclosed
herein.
The forward-looking statements are based on certain key
expectations and assumptions made by Surge, including expectations
and assumptions concerning 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
and the availability, costs of capital, labour and services and the
creditworthiness of industry partners and the impact of
transactions on Surge's bank line.
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 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 or 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 Annual Information Form dated
March 15, 2017 and in Surge's
MD&A for the period ended December 31,
2016, 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.
Reserves Data/Oil and Gas Metric
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 means barrel of oil equivalent per day. Original
Oil in Place (OOIP) is the equivalent to Discovered Petroleum
Initially In Place (DPIIP) for the purposes of this press
release. DPIIP is defined as quantity of hydrocarbons that
are estimated to be in place within a known accumulation. There is
no certainty that it will be commercially viable to produce any
portion of the resources. A recovery project cannot be defined for
this volume of DPIIP at this time, and as such it cannot be further
sub-categorized. "Internally estimated" means an estimate that is
derived by Surge's internal APEGA certified Engineers, and
Geologists and prepared in accordance with National Instrument
51-101 - Standards of Disclosure for Oil and Gas
Activities.
Drilling Inventory
This press release discloses drilling locations that are booked
locations as well as unbooked locations. Proved locations and
probable locations, which are sometimes collectively referred to as
"booked locations", are derived from the independent engineering
evaluation of the oil, natural gas liquids and natural gas reserves
attributable to the Company prepared by Sproule Associates Limited
effective December 31, 2016 and dated
February 17, 2017 (the "Sproule
Report") and account for drilling locations that have
associated proved or probable reserves, as applicable. Unbooked
locations are internal estimates based on the Company's prospective
acreage and an assumption 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. Of
the 649 gross (618.3 net) drilling locations identified herein 474
gross (452.7 net) are unbooked locations. Of the 175 gross (165.6
net) booked locations identified herein 130 gross (123.1 net) are
proved locations and 45 gross (42.5 net) are probable locations as
of the Sproule Report. Unbooked locations have specifically been
identified by management as an estimation of our multi-year
drilling activities based on evaluation of applicable geologic,
seismic, engineering, production and reserves data on prospective
acreage and geologic formations. The drilling locations on which we
actually drill wells will ultimately depend upon the availability
of capital, regulatory approvals, seasonal restrictions, oil and
natural gas prices, costs, actual drilling results and other
factors.
Non-IFRS Measures
This press release contains the terms, "annualized net debt to
adjusted funds flow", "adjusted funds flow", "adjusted funds
flow netback", "sustainability",, "simple payout ratio" and "free
cash flow" which do not have a standardized meaning prescribed by
International Financial Reporting Standards ("IFRS") and therefore
may not be comparable with the calculation of similar measures by
other companies. Management defines net debt as outstanding bank
debt plus or minus working capital, excluding the fair value of
financial contracts and other current obligations. Management uses
"annualized net debt to adjusted funds flow" to analyze leverage
and capital structure. Annualized net debt to adjusted funds flow
is calculated as the period end net debt divided by annualized Q4
adjusted funds flow. Management believes "adjusted funds flow" and
"adjusted funds flow netback" are useful supplemental measures of
the amount of revenues received after royalties and operating and
transportation costs and secondly, the amount of revenues received
after the royalties, operating, transportation costs, general and
administrative costs, financial charges and asset retirement
obligations. "Sustainability" is a comparison of a company's cash
outflows (capital investment and dividends) to its cash inflows
(adjusted funds flow) and is used by the Company to assess the
appropriateness of its dividend levels and the long-term ability to
fund its development plans. "Sustainability ratio" is calculated
using the development capital plus dividends paid divided by
adjusted funds flow. Simple payout ratio is calculated on a
percentage basis as dividends declared divided by adjusted funds
flow. Simple payout ratio is used by management to monitor the
dividend policy and the amount of adjusted funds flow retained by
the Company for capital reinvestment. Free cash flow is defined as
funds from operations less capital expenditures. Additional
information relating to these non-IFRS 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
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 Original Oil in Place (OOIP) is the equivalent to
Discovered Petroleum Initially In Place (DPIIP) for the purposes of
this press release.
SOURCE Surge Energy Inc.