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CALGARY, April 14, 2020 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) provides an operational update.
COVID-19: PROTECTING STAFF, FAMILIES, SERVICE PROVIDERS,
STAKEHOLDERS AND THE PUBLIC
In response to the rapidly evolving COVID-19 pandemic, Surge has
taken all possible steps to protect its staff, their families,
service providers, stakeholders and the general public. Health and
safety is our number one priority and we have a dedicated team
working on proactive measures to limit COVID-19 from negatively
impacting our employees and business.
At this time, we have taken the necessary steps to slow the
spread of the virus, including heeding the government's advice for
physical distancing. We have closed our Calgary office and staff are working remotely.
Furthermore, we have mitigation plans in place for all field
operations staff across Western
Canada. These measures protect their health while they work
diligently to ensure the safety and security of our facilities as
well as continuing to deliver reliable production. All our
locations have implemented enhanced cleaning and sanitation
measures.
We will continue to monitor the situation, taking guidance from
health authorities, and look for opportunities to participate in
any activities that will slow the spread of the virus and "flatten
the curve". We thank our staff, their families, our partners and
the communities in which we operate, for their participation in
these proactive measures.
CORPORATE UPDATE
Both the COVID-19 pandemic, and increased oil production from
OPEC and Russia, have dramatically
decreased the price of crude oil in recent weeks. Accordingly,
Surge's management and Board acted quickly, taking decisive action
to protect shareholders and the Company's balance sheet. On
March 9, 2020 (US$31 per bbl WTI), Surge reduced its
dividend by 90 percent. In addition, Surge suspended all major
capital expenditures in early March, providing the Company with
greater operational and financial flexibility for the balance of
2020.
Furthermore, Surge has completed a comprehensive review of
operating costs in all production areas, as the Company continues
to focus on further reducing its cost structure. On this basis, the
Company has elected to temporarily curtail up to 4,400 boepd of
lower margin production in order to maximize corporate cash
flows. Surge has the ability to restart this production in
short order, as commodity prices increase. Additionally, Surge is
selectively choosing to work over any wells that meet the Company's
internal economic hurdle rate of a six to nine month payout at
current strip prices.
After executing these temporary production curtailments, based
on the Company's robust, ongoing risk management program, Surge
will now have approximately 50 percent of its net, after royalty
Crown oil production hedged through the balance of 2020. Surge's
excellent WTI hedge position, depicted below, has an average floor
price of approximately CAD$80 per
barrel for the first half of 2020.
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Surge's ongoing risk management program encompasses not only WTI
crude oil price hedges, but also includes very attractive WCS and
MSW oil differential hedges, as well as AECO and NYMEX natural gas
hedge positions. For example, Surge has now locked in more than 65
percent of its light oil differentials for Q2 and Q3 2020 at
approximately US$5 per barrel.
Surge has a very low corporate decline of 23 percent.
Operationally, the Company's high quality, large original oil in
place1 ("OOIP"), conventional reservoirs continued to
deliver excellent results during the first quarter of 2020. Surge
completed its Q1 2020 drilling program in early March, drilling 19
successful horizontal wells in seven different Sparky pools, which
included the delineation of two new Sparky pool discoveries on its
lands at Betty Lake North and Eyehill South.
Currently, 16 of the wells drilled in the quarter are on
production, with initial production results performing at or above
management's expectations. With these successful drilling results,
the Company's production exceeded 21,000 boepd in March (prior to
the temporary production curtailments), with three additional
Sparky wells to be brought on production as crude oil prices
improve.
DIVIDEND SUSPENSION
Subsequent to Surge's March
9th press release, when Surge's management
and Board elected to reduce the Company's dividend by 90 percent,
crude oil prices have continued to drop precipitously.
In light of this continued volatility in global crude oil
markets, as well as the ongoing impacts of the COVID-19 pandemic,
the Company is taking further steps to protect shareholder value
and corporate cash flow by suspending its dividend (approximately
$33.5 million in annualized savings
i.e. when combined with the previously announced March 9th dividend reduction)
until such time as Surge's management and Board see a sustainable
recovery in world crude oil prices.
As such, the last cash dividend payment prior to suspension will
be on April 15, 2020 in respect of
March 2020 production, for the
shareholders on record March 31, 2020
in the amount of $0.000833 per share,
as declared on March 16, 2020.
GUIDANCE
Given the unprecedented circumstances facing world crude oil
markets, along with the aforementioned production curtailments, the
Company is also suspending its previously announced 2020 guidance
and capital program of $98.5 million.
Surge's capital expenditures were approximately $34 million in the first quarter, and the
Company's capital program will be re-guided as commodity prices
improve.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting of Shareholders is
currently scheduled for 3:00 PM on Tuesday,
May 12, 2020. In light of the COVID-19 pandemic, the Company
will ensure that all government measures in effect on May 12, 2020, including physical distancing, will
be adhered to at the annual meeting, and Surge does not plan to
have a presentation at the conclusion of the meeting.
Given the current circumstances, the Company strongly encourages
registered shareholders and proxyholders not to attend the meeting
in person. All shareholders are strongly encouraged to submit
their vote by proxy ahead of the meeting in accordance with the
instructions described in the Company's information circular.
In the event Surge must adjust the meeting plans due to the COVID –
19 situation, further information will be shared by way of news
release as promptly as possible.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. The use
of any of the words "anticipate", "continue", "estimate", "expect",
"may", "will", "project", "should", "believe" and similar
expressions are intended to identify forward-looking statements.
These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements.
More particularly, this press release contains statements
concerning: Management's expectations and plans with respect to the
development of its assets and the timing thereof; Surge's declared
focus and primary goals, the impacts of COVID-19 on our business
and the measures we are taking in response thereto; the societal,
economic and governmental response to COVID-19; Surge's capital
expenditure program and its flexibility to make adjustments
thereto; Surge's planned production curtailments and its ability to
restart production; Surge's cost reduction efforts; corporate
decline rates; commodity prices and management's ability to react
to changes thereto; Surge's risk management program; Surge's
dividend suspension; and Surge's annual meeting of
shareholders.
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,
2019 and in Surge's MD&A for the period ended
December 31, 2019, 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
Jan 1, 2020.
Neither the TSX nor its Regulation Services Provider (as that
term is defined in the policies of the TSX) accepts responsibility
for the adequacy or accuracy of this release.
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1 See the
Oil and Gas Advisories section of this document for further
details.
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SOURCE Surge Energy Inc.