CALGARY, May 6, 2019 /CNW/ - Surge Energy Inc. ("Surge" or
the "Company") (TSX: SGY) is pleased to announce its operating and
financial results for the quarter ended March 31, 2019.
MESSAGE TO THE SHAREHOLDERS
Q1/19 was a solid "recovery" quarter for Surge, as the extremely
weak Q4/18 Canadian crude oil pricing fundamentals quickly turned
positive during the period. With crude oil prices averaging US
$54.90 per bbl, Surge's cash flow
from operating activities increased eight percent as compared to
Q4/18, and adjusted funds flow1 in Q1/19 increased by
570 percent to $41.9 million, as
compared to Q4/18 at $6.2
million.
In Q1/19 Surge delivered record quarterly average production of
21,630 boepd (84% liquids), an increase of 35 percent over Q1/18
production of 16,027 boepd (81% liquids).
Operationally, Surge had a successful capital program in Q1/19,
drilling and completing wells in all four core areas, namely
Sparky, Valhalla, Greater Sawn,
and Shaunavon. Surge added over
2,800 boepd (>90% liquids) in the quarter on total exploration
and development expenditures of $41.3
million, resulting in excellent capital
efficiencies2 of $14,750
per flowing boepd on an IP603 basis.
Over the last 11 financial quarters Surge has now grown its
quarterly production 78 percent, from 12,182 boepd (78% liquids) in
Q2/16 to 21,630 boepd (84% liquids) in Q1/19. This consistent
quarterly production growth has been achieved by adding
predominantly high netback, light oil.
During Q1/19 Surge announced that the Company had increased its
proven plus probable ("P+P") reserves by 29 percent, from 95.2
MMboe at year-end 2017, to 122.6 MMboe at year-end 2018. Surge also
announced during the first quarter that the Company organically
replaced 133 percent of 2018 production.
Furthermore, as compared to Q1/19, today Surge has additional
upward leverage in its adjusted funds flow, with Q2/19 crude oil
prices now trading over US$61 WTI per
barrel, and Canadian WCS differentials narrowing below long
term averages, at US$12 per barrel.
At present crude pricing levels, the Company is generating
meaningful free adjusted funds flow1.
The Company continues to focus on sustainability, balance sheet
management, and cost controls to deliver returns to Surge
shareholders. The Company also continues to grow its production
base and 14 year drilling inventory in its four core areas at
Sparky, Valhalla, Greater Sawn and
Shaunavon – through low risk
development drilling, waterfloods, and strategic, high quality,
large OOIP4, core area acquisitions.
______________________
|
1
|
This is a non-GAAP
financial measure which is defined in the Non-GAAP Financial
Measures section of this document.
|
2
|
Capital efficiencies
is calculated as total exploration and development expenditures
during the period divided by an initial production ("IP") rate for
a specified number of days (ie. 60 days).
|
3
|
See the Production
Rates section of this document for further details.
|
4
|
See Reserves Data in
the Forward-Looking Statement section of this document for further
details.
|
2019 FIRST QUARTER HIGHLIGHTS
- Surge's Q1/19 quarterly average production of 21,630 boepd
(84% liquids) increased by 35 percent over Q1/18
average production of 16,027 boepd (81% liquids).
- Cash flow from operating activities in Q1/19 was $28.9 million, an increase of 19 percent as
compared to Q1/18 at $24.2
million.
- Adjusted funds flow in Q1/19 was $41.9
million, an increase of 49 percent as compared to Q1/18 at
$28.2 million.
- Crude oil and liquids production increased by 40 percent - from
13,006 barrels per day in Q1/18 to 18,186 barrels per day in
Q1/19.
- The Company's operating netback5 increased by 12
percent, to $27.12 per boe in Q1/19,
from $24.18 per boe in Q1/18.
- The Company's December 31, 2018
net asset value ("NAV")6 is $5.58 per common share for Proven plus Probable
("P+P") reserves ($3.20 per share for
Total Proved ("TP") reserves), based on the Company's independently
evaluated Sproule reserve report (based on NPV10 before tax).
- On March 28, 2019 Surge closed
the disposition of certain non-core assets for cash proceeds
of $28.1 million.
_________________
|
5 This is
a non-GAAP financial measure which is defined in the Non-GAAP
Financial Measures section of this document.
|
6 See Net
Asset Value in the Forward-Looking Statement section of this
document for further details.
|
FINANCIAL AND OPERATING HIGHLIGHTS
|
|
|
Three Months Ended
March 31,
|
($000s except per
share amounts)
|
2019
|
20182
|
%
Change
|
Financial
highlights
|
|
|
|
Oil sales
|
91,128
|
64,492
|
41 %
|
NGL sales
|
2,425
|
2,461
|
(1)%
|
Natural gas
sales
|
4,315
|
1,337
|
223 %
|
Total oil, natural
gas, and NGL revenue
|
97,868
|
68,290
|
43 %
|
Cash flow from
operating activities
|
28,908
|
24,215
|
19 %
|
Per share - basic
($)
|
0.09
|
0.10
|
(13)%
|
Adjusted funds
flow
|
41,851
|
28,169
|
49 %
|
Per share - basic
($)1
|
0.14
|
0.12
|
17 %
|
Total exploration and
development expenditures
|
41,261
|
34,909
|
18 %
|
Total acquisition and
dispositions
|
(27,807)
|
(6,485)
|
329 %
|
Total capital
expenditures
|
13,454
|
28,424
|
(53)%
|
Net debt1,
end of period
|
438,150
|
252,742
|
73 %
|
|
|
|
|
Operating
highlights
|
|
|
|
Production:
|
|
|
|
Oil (bbls per
day)
|
17,542
|
12,446
|
41 %
|
NGLs (bbls per
day)
|
644
|
560
|
15 %
|
Natural gas (mcf per
day)
|
20,663
|
18,128
|
14 %
|
Total (boe per day)
(6:1)
|
21,630
|
16,027
|
35 %
|
Average realized
price (excluding hedges):
|
|
|
|
Oil ($ per
bbl)
|
57.72
|
57.58
|
0 %
|
NGL ($ per
bbl)
|
41.86
|
48.82
|
(14)%
|
Natural gas ($ per
mcf)
|
2.32
|
0.82
|
183 %
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
Petroleum and natural
gas revenue
|
50.27
|
47.34
|
6 %
|
Realized gain (loss)
on financial contracts
|
(0.37)
|
(1.10)
|
(66)%
|
Royalties
|
(5.68)
|
(6.20)
|
(8)%
|
Net operating
expenses1
|
(15.12)
|
(14.60)
|
4 %
|
Transportation
expenses
|
(1.98)
|
(1.26)
|
57 %
|
Operating
netback
|
27.12
|
24.18
|
12 %
|
G&A
expense
|
(1.78)
|
(2.22)
|
(20)%
|
Interest
expense
|
(3.84)
|
(2.44)
|
57 %
|
Adjusted funds
flow1
|
21.50
|
19.52
|
10 %
|
|
|
|
|
Common shares
outstanding, end of period
|
313,980
|
231,357
|
36 %
|
Weighted average
basic shares outstanding
|
309,448
|
233,007
|
33 %
|
Stock option
dilution
|
—
|
—
|
0%
|
Weighted average
diluted shares outstanding
|
309,448
|
233,007
|
33 %
|
1 This is a non-GAAP
financial measure which is defined in the Non-GAAP Financial
Measures section of this document.
|
2 IFRS 16 was adopted
January 1, 2019 using the modified retrospective approach and as
such, comparative information for 2018 that may have been impacted
has not been restated. Refer to the Changes in Accounting Policies
section of the MD&A for additional information.
|
In accordance with industry practice, the Company uses adjusted
funds flow to analyze the cash flow generated from its ongoing
principal business activities. On this basis, both adjusted funds
flow and cash flow from operating activities are provided for
comparative purposes. Please see the Non-GAAP Financial
Measures section of this release for further details.
OPERATIONAL HIGHLIGHTS
In Q1/19, Surge successfully drilled 12 gross (11.6 net) wells
and completed a total of 18 gross (17.6 net) wells, adding over
2,800 boepd (>90% liquids) for a cost of $41.3 million ($14,750 per flowing boepd on an IP60 basis).
These results are a continuation of the operational momentum
Surge has generated over the last 11 financial quarters - growing
production by 78 percent from 12,182 boepd (78% liquids) in Q2/16,
to 21,630 boepd (84% liquids) in Q1/19.
Throughout Q1/19 Surge operated three drilling rigs, drilling
and completing wells in the Sparky, Valhalla, and Greater Sawn core areas, as well
as, completing four previously drilled wells at the Company's
Shaunavon core area. Each of the
Company's four core areas are comprised of high quality,
conventional, large OOIP per section, light and medium gravity
crude oil reservoirs with large, consistent, scalable drilling
inventories.
Sparky Core
Area
In Q1/19, Surge drilled and completed 8 gross (7.6 net) wells in
its Sparky core area at Sounding Lake, Eyehill, and Betty Lake.
At Sounding Lake, Surge drilled 2 gross (2.0 net) horizontal
wells into its 25 million barrel net estimated OOIP Sparky MM pool,
following up on the success of the first horizontal infill well
drilled into the pool in Q4/18. These two new wells were
producing at rates of 180 bopd and 130 bopd respectively, during
the last week of March. With 3 horizontal wells now placed into
this previously vertically-developed pool, Surge estimates there
are over 15 net additional horizontal drilling
locations7 within the pool, at 400 meter spacing.
At Eyehill, 3 gross (2.6 net) Sparky wells were drilled, of
which 2 gross (1.6 net) wells were drilled at 200m spacing, and continue to perform as per
management's expectations. The third well (1.0 net), was
successfully drilled offsetting existing horizontal water
injection, which is expected to provide pressure support to the
well. Surge has now drilled over 60 wells into its Eyehill Sparky
pool and successfully implemented waterflood with the conversion of
7 wells to water injection. The Eyehill property has become a
cornerstone of the Company's Sparky core area, with over 170
million barrels of estimated net OOIP, 56 producing horizontal
wells, and 7 horizontal water injection wells placed in the pool in
the last 5 years. Surge plans to continue to systematically develop
and waterflood the pool with more than 65 net
locations7 remaining to be drilled.
At Betty Lake, Surge continued operations drilling 3 gross (3.0
net) wells from a single pad. These 3 wells continued to produce at
a combined rate of over 400 bopd for the last week of March. Surge
now has 8 successful horizontal wells on production at its Betty
Lake property. The Company plans to continue development, with more
than 80 million barrels of estimated net OOIP, and more than 50 net
drilling locations7 remaining.
For the remainder of 2019, Surge has budgeted 21 additional
horizontal wells to be drilled in the Sparky core area, focusing
its drilling at Provost, Eyehill and Betty Lake.
______________________
|
7 See
the Drilling Locations section of this document for further
details.
|
Valhalla Core Area
At Valhalla, development
drilling entered its 9th consecutive year. In Q1/19,
Surge successfully drilled and completed 2 gross (2.0 net)
horizontal wells into the Company's Doig light oil pool which has
an estimated 150 million net barrels of OOIP. The two wells had an
average 30-day initial production oil rate of over 1,000 bopd each,
and were drilled more than 16 km apart, at opposite ends of the
large Doig oil fairway.
Surge has budgeted 3 gross (3.0 net) additional wells in the
Valhalla area for the remainder of
2019.
Greater Sawn Core
Area
In Q1/19, Surge drilled 2 gross (2.0 net) wells, and completed a
total of 4 gross (4.0 net) wells at the Company's newly acquired,
large OOIP, light oil assets in the Greater Sawn core area. All
four of the wells were drilled using existing well control and 3D
seismic, targeting the Slave Point reef facies in the Sawn oil pool
with 100 percent success. The four wells were completed with an
average of 28 frac stages and had combined production of over 820
bopd in the last week of March.
Surge plans to drill 5 gross (5.0 net) additional wells in
2H/19.
Shaunavon Core Area
In Q1/19, Surge completed 4 gross (4.0 net) wells in its
Shaunavon core area, where
production receives Fosterton pricing, which has historically
traded at a premium to WCS. Three of the four wells targeted the
Upper Shaunavon sandstone, with the remaining well placed in the
Lower Shaunavon carbonate. The wells were drilled near the end of
Q4/18, with completion operations commencing in early Q1/19.
Surge plans to drill 8 gross (8.0 net) additional wells in
2H/19.
Consistent Quarterly Production Growth
Based on continued positive drilling results, operational
execution, and key core area acquisitions, Surge has consistently
grown its quarterly production over the previous 11 financial
quarters. The Company has now delivered six upward revisions to
production guidance since Q2/16 - twice organically, and four times
through accretive, core area, light and medium gravity crude oil
acquisitions.
Ongoing Sustainability Program
During Q1/19 Surge determined that, in addition to its ongoing,
proactive, annual abandonment and reclamation program, the Company
would elect to participate in the Alberta Energy Regulator's
("AER") Area Based Closure program ("ABC program").
Over the past 5 years, Surge has directed $17 million towards the abandonment and
reclamation of inactive wells, abandoning over 475 wells in that
time. The Company believes participation in the ABC program
will further allow Surge to optimize cost efficiencies as they
relate to abandonments and reclamation.
On this basis, Surge will complete its first abandonment project
under the ABC program in the first half of 2019, abandoning the
Company's inactive Cherry natural gas property for approximately 55
percent of the deemed liability recorded by the AER. This
confirms the Company's belief that there are significant economies
of scale to be achieved under the ABC program.
Surge remains committed to a proactive, well-funded annual
abandonment and reclamation program. The Company has budgeted
$6 million for decommissioning
expenditures in 2019, which is 45 percent more than required by the
AER under the ABC program. Surge anticipates abandoning 125 wells
in 2019.
CONVERTIBLE DEBENTURE FINANCING
On April 17, 2019 Surge entered
into a $30 million bought-deal
financing (the "Convertible Debenture Financing") of five-year
convertible unsecured subordinated debentures (the "Debentures") at
a price of $1,000 per Debenture, with
a syndicate of underwriters led by National Bank Financial Inc. The
Debentures have a coupon of 6.75 percent per annum, and a
conversion price of $2.25 per Surge
common share – which represents a 40 percent premium to Surge's
share price on the day the Convertible Debenture Financing was
announced.
The net proceeds from the Convertible Debenture Financing will
be used to pay down a portion of the outstanding bank indebtedness
under the Company's revolving term credit facility.
The closing of the Convertible Debenture Financing is set for on
or about May 8, 2019.
RISK MANAGEMENT
The Company has been active with its ongoing crude oil and WCS
differential hedging strategy designed to protect the capital
program and Surge's annual dividend.
For 2H/19, the Company has hedged 6,250 bbl/d of WTI crude oil
with an average floor price of CAD $77/bbl. This represents approximately 40 percent
of Surge's forecasted after royalty crude oil production for 2H/19.
Surge has also retained upside to further WTI price increases on 60
percent of the hedged volumes, with an average ceiling of CAD
$103/bbl.
Furthermore, Surge has hedged 4,800 bbl/d of WCS basis
differential for Q2/19 and Q3/19. This represents approximately 60
percent of the Company's forecasted net after royalty WCS corelated
crude oil production. Of the 4,800 bbl/d of WCS basis differentials
hedged, 55 percent are swapped at a US$16.40/bbl discount to WTI, and the
remaining 45 percent are collared at an average discount to
WTI of US$15.15 - $20.20/bbl.
OUTLOOK – EXCELLENT CORPORATE FUNDAMENTALS
Management's stated goal is to be the best positioned, top
performing, light/medium gravity crude oil growth and dividend
paying public oil company in our peer group in Canada.
Today, Surge has the following key operational and financial
attributes:
Large Net
OOIP1:
|
2.5 Billion barrels
(6.2% cum to date recovery factor)
|
Reserves:
|
123 million boe P+P
(Sproule Dec 31/18)
|
High Netback, Oil
Weighted Production (liquids weighting):
|
22,000 boepd (85%
light/medium oil + NGL's)
|
Low Corporate
Decline:
|
23% per
year
|
Long Reserve Life
Index2:
|
15 years
|
Large Drilling
Inventory1:
|
14 years (>770 net
locations @ 55 wells per year)
|
Net Asset Value
(Sproule Dec 31/18):
|
$3.20 per share TP;
$5.58 per share P+P
|
2019e Exploration and
Development Capital:
|
$135
million
|
Current Annual
Dividend:
|
$31 million ($0.10
per share, per annum)
|
2019e Operating
Costs3:
|
$14.95-$15.45 per
boe
|
2019e Transportation
Costs:
|
$1.50-$1.75 per
boe
|
2019e General &
Administrative Costs:
|
$1.75-$1.90 per
boe
|
*Note:
|
1)
|
OOIP and locations in
this table are net of values attributable to the non-core
disposition.
|
|
2)
|
Reserve life index
(RLI) is calculated by dividing the P+P Sproule reserves at
December 31, 2018 by 22,000 boepd annualized.
|
|
3)
|
Operating cost
guidance includes adjustments for the impact of the adoption of
IFRS 16.
|
Management believes that the operational and financial corporate
fundamentals set forth above will allow Surge to continue to be a
top performing, light and medium gravity crude oil growth and
dividend paying Company for the foreseeable future.
Surge's disciplined growth and dividend paying
business strategy is set forth in the Company's detailed
five-year growth plan8 as follows:
- Grow production per share at five to six percent annually;
- Maintain and grow the Company's dividend (current yield
~6.8%9); and
- Deliver free adjusted funds flow annually of four to five
percent.
Management's goal is to provide these annual returns on a
consistent basis, along with an increasing, compounding
dividend.
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, including its
drilling and enhanced recovery plans; Surge's declared focus and
primary goals; Surge's dividend policy and sustainability thereof;
participation in the ABC program and the anticipated benefits
therefrom; Surge's plans to abandon its inactive Cherry natural gas
well and the timing thereof, Surge's abandonment and reclamation
program and budget; the Convertible Debenture Financing, the terms
and timing and anticipated use of proceeds thereof; Surge's hedging
program; Surge's decline rates, reserve life index, drilling
locations, OOIP, estimated 2019 exploration and development capital
budget, estimated 2019 net operating, G&A and transportation
costs; and the anticipated benefits of Surge's operational and
financial corporate fundamentals.
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 ability of Surge to
increase its dividend; 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 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 14, 2019 and in Surge's
MD&A for the period ended December 31,
2018, 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.
_________________________
|
8 Additional details of the Company's
five year growth plan can be found in the corporate presentation at
surgeenergy.ca
|
9 Based on a $1.46 share price and a
$0.10 annual dividend per share.
|
Reserves Data
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. Bbl means
barrel of oil. NGLs means natural gas liquids.
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.
Drilling Locations
This press release discloses drilling locations in two
categories: (i) booked locations; and (ii) unbooked locations.
Booked locations are proved locations and probable locations
evaluated by Sproule. Unbooked locations are generated internally
by Qualified Reserve Evaluators using standard practices as
prescribed in the Canadian Oil and Gas Evaluations Handbook.
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 the December 31, 2018
reference date as noted per the Sproule Reserves report and
excluding locations associated with the non-core disposition date
March 28, 2019, Surge has over 770
net drilling locations identified herein, of which over 382 are
unbooked locations and 389 net are booked locations. Of the 389 net
booked locations identified herein, 297 net are Proved locations
and 91 net are Probable locations. The Company's Sparky core area
has 136 net booked locations, of which 100 net are Proved locations
and 36 net are Probable locations. Betty Lake locations identified
herein has 12 net booked Proved locations and 3 net booked Probable
locations. Eyehill locations identified herein has 20 net
booked Proved locations and 15 net booked Probable locations.
Sounding Lake Sparky MM Pool locations identified herein has 5 net
booked Proved locations and 4 net booked Probable locations.
Production Rates
References to initial production ("IP") rates found in this
press release are useful for determining the presence of
hydrocarbons. There is no assurance as to the length of time that
wells will produce at such rates, and consideration must be given
to natural declines thereafter. As such, readers are
cautioned when using these production rates to aggregate Surge's
production.
Net Asset Value
The Company calculated its 2018 Net Asset Value as follows:
|
TP
|
TPP
|
Reserve Value NPV10
BT ($MM) (1)
|
1,318
|
2,054
|
Undeveloped Land and
Seismic ($MM) (2)
|
134
|
134
|
Net Debt
($MM)
|
(461)
|
(461)
|
Total Net Assets
($MM)
|
990
|
1,726
|
Basic Shares
Outstanding (MM)
|
309.3
|
309.3
|
Fully Diluted Shares
Outstanding (MM)
|
318.5
|
318.5
|
Estimated NAV per
Basic Share ($/share)
|
$3.20/sh
|
$5.58/sh
|
|
|
(1)
|
Includes $148 MM (TP)
and $165 MM (TPP) of costs for changes due to the COGE Handbook to
include operating expenditures for non-producing properties and
abandonment liabilities.
|
(2)
|
Internally estimated
as $101 MM for non-reserve assigned land and $33 MM for seismic
data.
|
Non-GAAP Financial Measures
Certain secondary financial measures in this press release –
namely, "adjusted funds flow", "adjusted funds flow per share",
"free adjusted funds flow", "net debt", "net operating expenses",
"operating netback" and "adjusted funds flow per boe" are not
prescribed by GAAP. These non-GAAP financial measures are included
because management uses the information to analyze business
performance, cash flow generated from the business, leverage and
liquidity, resulting from the Company's principal business
activities and it may be useful to investors on the same basis.
None of these measures are used to enhance the Company's reported
financial performance or position. The non-GAAP measures do not
have a standardized meaning prescribed by IFRS and therefore are
unlikely to be comparable to similar measures presented by other
issuers. They are common in the reports of other companies but may
differ by definition and application. All non-GAAP financial
measures used in this document are defined below:
Adjusted Funds Flow & Adjusted Funds Flow per
Share
The Company adjusts cash flow from operating activities in
calculating adjusted funds flow for changes in non-cash working
capital, decommissioning expenditures, transaction and other costs,
and cash settled stock-based compensation plans, particularly cash
used to settle withholding obligations on stock-based compensation
arrangements that are settled in shares. 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
acquisitions, which management believes do not reflect the ongoing
cash flows of the business, and as such reduces comparability.
Subsequent to the third quarter of 2018, all of the Company's
stock-based compensation plans are equity classified as the Company
has the intention of settling all awards with shares. Cash settled
stock-based compensation currently represents the statutory tax
withholdings required on stock-based compensation awards and is a
discretionary allocation of capital. The Company has the option to
either require the holder to sell shares earned in the stock-based
compensation plan to satisfy tax withholdings, or the Company can
issue less shares to the individual and remit a cash payment to
satisfy tax withholding requirements. Each of these expenditures,
due to their nature, are not considered principal business
activities and vary between periods, which management believes
reduces comparability.
Adjusted funds flow per share is calculated using the same
weighted average basic and diluted shares used in calculating
income per share.
The following table reconciles cash flow from operating
activities to adjusted funds flow and adjusted funds flow per share
for the three months and year ended March
31, 2019:
|
Three Months
Ended
|
($000s except per
share)
|
Mar 31,
2019
|
|
Mar 31,
2018
|
Cash flow from
operating activities
|
$
|
28,908
|
|
$
|
24,215
|
Change in non-cash
working capital
|
11,042
|
|
498
|
Decommissioning
expenditures
|
1,707
|
|
2,748
|
Transaction and other
costs
|
194
|
|
708
|
Adjusted funds
flow
|
$
|
41,851
|
|
$
|
28,169
|
Per share –
basic
|
$
|
0.14
|
|
$
|
0.12
|
Free Adjusted Funds Flow
Free adjusted funds flow is calculated as adjusted funds flow
less the sum of total exploration and development capital and
dividends and represents, in dollars, the excess of adjusted funds
flows above exploration and development capital and dividends.
Management uses this measure to assess whether adjusted funds flow
is sufficient to fund the ongoing capital requirements of the
Company whilst servicing the dividend.
Net Debt
There is no comparable measure in accordance with IFRS for net
debt. Net debt is calculated as bank debt plus the liability
component of the convertible debentures plus or minus working
capital, however, excluding the fair value of financial contracts,
finance lease obligations and other long term liabilities. This
metric is used by management to analyze the level of debt in the
Company including the impact of working capital, which varies with
timing of settlement of these balances.
|
|
|
|
($000s)
|
As at March
31,
2019
|
As at December
31,
2018
|
As at March
31,
2018
|
Bank debt
|
$
(398,666)
|
$
(408,593)
|
$
(222,353)
|
Accounts
receivable
|
50,814
|
21,084
|
34,494
|
Prepaid expenses and
deposits
|
7,465
|
9,222
|
6,733
|
Accounts payable and
accrued liabilities
|
(56,839)
|
(42,350)
|
(32,767)
|
Convertible
debentures - liability portion
|
(38,308)
|
(37,973)
|
(37,017)
|
Dividends
payable
|
(2,616)
|
(2,577)
|
(1,832)
|
Total
|
$
(438,150)
|
$
(461,187)
|
$
(252,742)
|
Net Operating Expenses
Net operating expenses are determined by deducting processing
and other revenue primarily generated by processing third party
volumes at processing facilities where the Company has an ownership
interest. It is common in the industry to earn third party
processing revenue on facilities where the entity has a working
interest in the infrastructure asset. Under IFRS this source of
funds is required to be reported as revenue. However, the Company's
principal business is not that of a midstream entity whose
activities are dedicated to earning processing and other
infrastructure payments. Where the Company has excess capacity at
one of its facilities, it will look to process third party volumes
as a means to reduce the cost of operating/owning the facility. As
such, third party processing revenue is netted against operating
costs in the MD&A.
Operating Netback & Adjusted Funds Flow per
boe
Operating netback & adjusted funds flow per boe for the
three months ended March 31, 2019 are
calculated on a per unit basis as follows:
|
|
Three Months
Ended
|
($000s except per
share)
|
|
Mar 31,
2019
|
|
Mar 31,
2018
|
Petroleum and natural
gas revenue*
|
|
$
|
97,868
|
|
$
|
68,290
|
Processing and other
income*
|
|
474
|
|
881
|
Royalties*
|
|
(11,061)
|
|
(8,940)
|
Operating
expenses*
|
|
(29,913)
|
|
(21,940)
|
Transportation
expenses*
|
|
(3,863)
|
|
(1,815)
|
Realized gain (loss)
on financial contracts*
|
|
(716)
|
|
(1,582)
|
Operating
netback
|
|
$
|
52,789
|
|
$
|
34,894
|
G&A
expense*
|
|
(3,470)
|
|
(3,201)
|
Interest
expense*
|
|
(7,468)
|
|
(3,524)
|
Adjusted funds
flow
|
|
$
|
41,851
|
|
$
|
28,169
|
Barrels of oil
equivalent (boe)
|
|
1,946,676
|
|
1,442,446
|
Operating netback
($ per boe)
|
|
$
|
27.12
|
|
$
|
24.18
|
Adjusted funds
flow ($ per boe)
|
|
$
|
21.50
|
|
$
|
19.52
|
* Taken directly from
the financial statements.
|
Additional information relating to non-GAAP measures can be
found in the Company's most recent management's discussion and
analysis MD&A, which may be accessed through the SEDAR website
(www.sedar.com).
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Surge Energy Inc.