CALGARY,
AB, May 8, 2024 /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
March 31, 2024, an update on Surge's
latest drilling results, an increase to Surge's first lien
revolving credit facilities, and the release of the Company's 2023
sustainability report.
Select financial and operating information is outlined below and
should be read in conjunction with the Company's unaudited interim
financial statements and management's discussion and analysis for
the three months ended March 31,
2024, available at www.sedarplus.ca and on Surge's website
at www.surgeenergy.ca.
Q1 2024 FINANCIAL AND OPERATING HIGHLIGHTS
Surge's Board and Management continue to be optimistic regarding
the outlook for crude oil prices based on a tight physical market,
ongoing geopolitical issues, and the significant underinvestment in
the energy industry over the past several years.
During Q1/24, Western Canadian oil producers were significantly
impacted by wide crude oil differentials. The Western Canadian
Select ("WCS") differential (a discount to US WTI per barrel)
averaged US$19 per barrel in Q1/24,
however, has now tightened to approximately US$12 per barrel on the spot market.
Additionally, the Mixed Sweet Blend ("MSW") light oil differential,
which averaged a discount to WTI of US$9 per barrel in Q1/24, is now currently
trading at a US$3 per barrel discount
to WTI.
Surge's forecasted 2024 annual cash flow from operating
activities increases by approximately $9
million for every US$1 per
barrel increase in the WTI price1. Furthermore, every
US$1 per barrel decrease in either
the WCS or MSW differential increases the Company's forecasted 2024
annual cash flow from operating activities by approximately
$4.5 million1. A US$1 per barrel decrease in both differentials
increases Surge's forecast 2024 annual cash flow by $9 million1.
Surge is pleased to report the Company reduced its Scope 1
greenhouse gas emissions intensity by 18 percent in 2023 as
compared to 2022. Surge has now reduced its Scope 1 emissions
intensity by 28 percent since 2021. These results demonstrate the
Company's continued commitment to reducing the emissions intensity
of its operations.
In Q1/24, Surge achieved average daily production of 24,903
boepd (86 percent liquids). These strong quarterly production
levels were achieved with Surge having drilled four less (net)
wells than originally budgeted for Q1/24, as the Company reacted to
earlier than anticipated spring break up conditions in both
SE Saskatchewan and Sparky core
areas.
Highlights from the Company's
Q1 2024 financial and operating
results include:
- Delivered cash flow from operating activities of $66.8 million, and generated adjusted funds
flow2 ("AFF") of $62.5
million;
- Achieved average daily production of 24,903 boepd (86 percent
liquids);
- Returned over $12 million of cash
dividends to shareholders; and
- Drilled 24 gross (21.4 net) wells, with activity focused in the
Company's Sparky and SE
Saskatchewan core areas.
________________________________
|
1 Sensitivities are based on
the Company's 2024 guidance production of 25,000 boepd and the
following pricing assumptions: US$75 WTI, US$16 WCS differential,
US$3.50 EDM differential, $0.725 CAD/USD FX and $2.95 AECO.
|
2 This is a non-GAAP and
other financial measure which is defined under Non-GAAP and Other
Financial Measures.
|
FINANCIAL AND OPERATING HIGHLIGHTS
FINANCIAL AND
OPERATING HIGHLIGHTS
|
Three Months Ended
March 31,
|
($000s except per
share and per boe)
|
2024
|
2023
|
%
Change
|
Financial
highlights
|
|
|
|
Oil sales
|
150,716
|
152,664
|
(1) %
|
NGL sales
|
3,935
|
3,618
|
9 %
|
Natural gas
sales
|
3,516
|
5,688
|
(38) %
|
Total oil, natural gas,
and NGL revenue
|
158,167
|
161,970
|
(2) %
|
Cash flow from
operating activities
|
66,785
|
54,506
|
23 %
|
Per share - basic
($)
|
0.66
|
0.56
|
18 %
|
Per share diluted
($)
|
0.66
|
0.55
|
20 %
|
Adjusted funds
flowa
|
62,487
|
63,331
|
(1) %
|
Per share - basic
($)a
|
0.62
|
0.65
|
(5) %
|
Per share diluted
($)
|
0.62
|
0.64
|
(3) %
|
Net income
(loss)c
|
(3,630)
|
14,789
|
(125) %
|
Per share basic
($)
|
(0.04)
|
0.15
|
(127) %
|
Per share diluted
($)
|
(0.04)
|
0.15
|
(127) %
|
Expenditures on
property, plant and equipment
|
49,400
|
45,733
|
8 %
|
Net acquisitions and
dispositions
|
(8)
|
(678)
|
nmb
|
Net capital
expenditures
|
49,392
|
45,055
|
10 %
|
Net
debta, end of
period
|
295,924
|
331,917
|
(11) %
|
|
|
|
|
Operating
highlights
|
|
|
|
Production:
|
|
|
|
Oil (bbls per
day)
|
20,620
|
21,055
|
(2) %
|
NGLs (bbls per
day)
|
860
|
721
|
19 %
|
Natural gas (mcf per
day)
|
20,539
|
20,172
|
2 %
|
Total (boe per day)
(6:1)
|
24,903
|
25,138
|
(1) %
|
Average realized price
(excluding hedges):
|
|
|
|
Oil ($ per
bbl)
|
80.32
|
80.57
|
— %
|
NGL ($ per
bbl)
|
50.25
|
55.78
|
(10) %
|
Natural gas ($ per
mcf)
|
1.88
|
3.13
|
(40) %
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
Petroleum and natural
gas revenue
|
69.79
|
71.59
|
(3) %
|
Realized gain (loss) on
commodity and FX contracts
|
0.06
|
(0.88)
|
nm
|
Royalties
|
(13.30)
|
(12.84)
|
4 %
|
Net operating
expensesa
|
(21.81)
|
(22.26)
|
(2) %
|
Transportation
expenses
|
(1.18)
|
(1.79)
|
(34) %
|
Operating
netbacka
|
33.56
|
33.82
|
(1) %
|
G&A
expense
|
(2.26)
|
(2.04)
|
11 %
|
Interest
expense
|
(3.73)
|
(3.80)
|
(2) %
|
Adjusted funds
flowa
|
27.57
|
27.98
|
(1) %
|
|
|
|
|
|
|
|
|
Common shares
outstanding, end of period
|
100,581
|
98,334
|
2 %
|
Weighted average basic
shares outstanding
|
100,529
|
97,087
|
4 %
|
Stock based
compensation dilution
|
—
|
2,296
|
(100) %
|
Weighted average
diluted shares outstanding
|
100,529
|
99,383
|
1 %
|
|
|
|
|
a
This is a non-GAAP and other financial
measure which is defined under Non-GAAP and Other Financial
Measures.
|
b
The Company views this change calculation
as not meaningful, or "nm".
|
c
Q1/24 includes a $15.1 million unrealized
loss on financial contracts (Q1/23 - $3.6 million unrealized gain
on financial contracts).
|
OPERATIONS UPDATE: CONTINUED DRILLING SUCCESS
IN SPARKY AND SE SASKATCHEWAN CORE
AREAS
SPARKY (MANNVILLE)
During Q1/24, Surge continued the Company's core area Sparky
development program, drilling a total of 10 gross (10.0 net) wells
in the area.
Approximately 3.5 years ago, Surge announced the discovery of a
large new Sparky crude oil pool at Betty Lake with an internally
estimated 150 million barrels (25° API) of original oil in place
("OOIP")3. In April 2024,
Surge acquired a 50% working interest and operatorship of the 6-8
gas plant in the Betty Lake area for $3.7
million. This gas plant handles the natural gas volumes
associated with the production of crude oil at Betty Lake. The
Company's current production at Betty Lake has now grown to
approximately 2,300 boepd (90% oil); and the Company anticipates
that operating expenses at Betty Lake will decrease by an estimated
$1.50 per boe (from $11.32 per boe in Q1 2024) due to the
acquisition.
Surge has continued to systematically grow its Sparky core area
production (>85% liquids; 23° API average crude oil gravity)
from approximately 1,800 boepd in 2010 to nearly 12,000 boepd today
(see chart below). Surge has also assembled an internally
estimated 11 year development drilling inventory4 of
more than 470 net locations in the Sparky/Mannville trend.
_______________________
|
3 See Oil & Gas
Advisories.
|
4 See Drilling Inventory.
|
Surge's internal estimates now indicate that the Company owns
and controls more than 1 billion barrels of net OOIP3 in the medium
and light gravity oil portion of the Sparky/Mannville play trend.
In addition to consistent production growth, over the last three
years Surge has drilled 18 gross (18.0 net) multi-lateral wells in
the Sparky and other Mannville
formations. These 18 multi-lateral wells are currently producing a
combined 1,250 boepd, representing approximately 11 percent of the
Company's total Sparky core area production.
During Q1/24, the Company drilled and brought on production two
multi-lateral wells, one at Betty Lake and one at Hope Valley.
Both of these wells had strong 30 day initial production rates
("IP"), with the Betty Lake well producing at 170 boepd, and the
Hope Valley well producing at 230 bopd. The multi-lateral well at
Hope Valley is a follow up to the Company's initial,
proof-of-concept, 12 leg multi-lateral open hole well. Management
is encouraged by the initial rates from this follow up Hope Valley
well, as it continues to be optimized. Surge's technical
interpretation of its recent 46 square kilometer 3-D seismic
program allowed the Company to optimally drill this well and has
de-risked future drilling locations in Hope Valley.
In the second half of 2024, Surge anticipates drilling 27 gross
(27.0 net) wells in the Sparky core area, including 8 gross (8.0
net) additional multi-lateral wells. The Company has now identified
over 85 multi-lateral locations within its Sparky (Mannville) core area4.
SE SASKATCHEWAN
During the first quarter of 2024, Surge continued its core area
SE Saskatchewan development
program, highlighted by the drilling of 14 gross (11.4 net) wells
in Surge's large OOIP Steelman light oil pools.
Surge continues to drill some of the highest initial production
rate, light oil Frobisher wells of
any operator in the Province of Saskatchewan. Notably, the Company's
01-03-005-06W2 well, drilled in Q1/24 at Steelman, produced at a rate of more than 550
bopd on an IP30 basis.
The following chart illustrates Surge's peer leading 180 bopd
IP90 rates from 56 wells targeting the Frobisher formation over the last two
years:
SE Saskatchewan Frobisher Average IP90 By Operator
(January 2022 - December 2023)
Source: GeoScout
On average, Surge's Frobisher
wells pay out in approximately 12 weeks4 (at US$80 WTI per bbl pricing) and deliver internal
rates of return of more than 450 percent, demonstrating the
top-tier economics associated with the Company's SE Saskatchewan drilling inventory. In the
second half of 2024, Surge will be drilling 23 gross (19.7 net)
wells in SE Saskatchewan, all
targeting the Frobisher and
Midale formations.
In less than three years, Surge has grown its SE Saskatchewan core area to more than 400
million bbls of net internally estimated OOIP3, while growing
current production to more than 8,000 boepd, comprised of 90
percent high netback, light crude oil.
Surge has now assembled an internally estimated 7-8 year
drilling inventory4 of more than 290 net drilling locations in the
Frobisher and Midale formations.
EXPANDED FIRST LIEN REVOLVING CREDIT FACILITY & EARLY
REPAYMENT OF SECOND LIEN TERM FACILITY B
Subsequent to the first quarter of 2024, the Company increased
its revolving first lien credit facility by $60 million (40%) from $150 million to $210
million. This increased facility is comprised of a
committed revolving term facility of $180
million and an operating loan facility of $30 million with a syndicate of lenders. The
first lien credit facility is a normal course, reserve-based credit
facility available on a revolving basis.
Concurrent with the increase to the first lien credit facility,
Surge elected to exercise a one-time option for early repayment of
a portion of the Company's second lien term debt facilities.
On April 30, 2024, the Company repaid
the remaining $36 million of
outstanding principle under its second lien Term Facility B,
utilizing a portion of the incremental liquidity provided by the
newly confirmed $210 million first
lien credit facility.
ANNUAL SUSTAINABILITY REPORT RELEASED
Surge has released its third annual Sustainability Report,
outlining the Company's advancement of its environmental, social
and governance practices, and their impact on Surge's business and
operating strategy.
The Company's third annual Sustainability Report reaffirms
Surge's commitment to be a leader in reducing the impact of oil and
gas operations on the environment. The report covers performance
metrics for the 2021, 2022, and 2023 calendar years and aligns with
guidance set forth by the Task Force on Climate-Related Financial
Disclosure.
Surge is pleased to report the Company reduced its Scope 1
greenhouse gas emissions intensity by 18 percent in 2023 as
compared to 2022. Surge has now reduced its Scope 1 emissions
intensity by 28 percent since 2021. These results demonstrate the
Company's continued commitment to reducing the emissions intensity
of its operations.
The Sustainability Report was approved by Surge's Management
team, as well as the Company's Board of Directors, and is intended
to allow all Surge stakeholders to better understand the Company's
commitment to responsible oil and gas operations.
Surge's latest annual Sustainability Report can be accessed
through the Company's website at www.surgeenergy.ca.
OUTLOOK: ASSET QUALITY DRIVES SUPERIOR
RETURNS
Surge is a publicly traded intermediate oil company focused on
enhancing shareholder returns through free cash flow2 generation.
The Company's defined operating strategy is based on owning and
developing high quality, large OOIP, conventional light and medium
gravity crude oil reservoirs, and using proven technology to
enhance ultimate oil recoveries.
Surge has now assembled dominant operational positions in two of
the top four crude oil plays in Canada in its Sparky (>11,500 boepd; 85%
medium gravity oil) and SE
Saskatchewan (~8,000 boepd; 90% light oil) core areas, as
independently evaluated by a leading brokerage firm5.
Over 80 percent of the Company's current production and Total
Proved plus Probable NAV now comes from these two core areas3.
In the second half of 2024, Surge will continue to execute an
active drilling program in both the Sparky and SE Saskatchewan core areas, with a total of 50
gross (46.7 net) wells budgeted to be drilled.
Surge remains on track to meet or exceed its production guidance
for 2024.
___________________________
|
5 As per Peters Oil & Gas
Plays Update from January 14, 2024: North American Oil and Natural
Gas Plays – Half Cycle Payout Period. Note: Sparky is represented
as "Conventional Heavy Oil Multi-Lateral" by Peters.
|
The Company is well positioned to continue delivering attractive
shareholder returns in 2024 and beyond, based on the following key
corporate fundamentals:
- Estimated 2024 average production of 25,000 boepd (87 percent
liquids);
- An estimated 24 percent annual corporate
decline3;
- Budgeted 2024 cash flow from operating activities of
$295 million at
US$75WTI6;
- $48 million annual cash dividend
($0.48 per share, paid monthly);
- More than 1,000 (net) internally estimated drilling locations
providing a 13-year drilling inventory4;
- $1.4 billion in tax pools at
December 31, 2023 (approximate 4 year
tax horizon at US$75 WTI pricing);
and
- Total Proved plus Probable net asset value ("NAV") of
$17.63 per share and Total Proved NAV
of $11.27 per share3.
With cash flow from operating activities strategically allocated
between high rate of return capital expenditures, debt repayment,
and cash dividends paid to shareholders, Management currently
forecasts that the Company will achieve its previously announced
Phase 2 return of capital net debt target in early Q4/24, based on
current crude oil pricing.
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 expectations regarding crude oil prices; the
sensitivity of our forecasted 2024 annual cash flow from operating
activities to changes in WTI prices and WCS and MSW differentials;
our drilling inventory; estimated 2024 Sparky core area production
growth; Surge's planned 2024 drilling program; our expectation that
Surge is on track to meet or exceed its production guidance for
2024; Surge' belief that it is well positioned to deliver
attractive shareholder returns in 2024 and beyond; estimated 2024
average production, corporate decline; dividends; Surge's tax
horizon; and management's forecast for achievement of its
Phase 2 return to capital net debt target.
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
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 6,
2024 and in Surge's MD&A for the period ended
December 31, 2023, both of which have
been filed on SEDAR+ and can be accessed
at www.sedarplus.ca.
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.
________________________________
|
6 Additional pricing
assumptions: WCS differential of US$16, EDM differential of
US$3.50, CAD/USD FX of $0.725 and AECO of $2.95 per mcf.
|
Oil and Gas Advisories
The term "boe" means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading,
particularly if used in isolation. A boe conversion ratio of 1 boe
for 6,000 cubic feet of natural gas is based on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the
wellhead. "Boe/d"
and "boepd" mean barrel of oil equivalent per day. Bbl means barrel of oil and "bopd" means barrels
of oil per day. NGLs means natural gas liquids.
This press release contains certain oil and gas metrics and
defined terms which do not have standardized meanings or standard
methods of calculation and therefore such measures may not be
comparable to similar metrics/terms presented by other issuers and
may differ by definition and application. All oil and gas
metrics/terms used in this document are defined below:
Original Oil in Place ("OOIP") means Discovered Petroleum
Initially In Place ("DPIIP"). DPIIP is derived by Surge's internal
Qualified Reserve Evaluators ("QRE") and prepared in accordance
with National Instrument 51-101 and the Canadian Oil and Gas
Evaluations Handbook ("COGEH"). DPIIP, as defined in COGEH, is that
quantity of petroleum that is estimated, as of a given date, to be
contained in known accumulations prior to production. The
recoverable portion of DPIIP includes production, reserves and
Resources Other Than Reserves (ROTR). OOIP/DPIIP and potential
recovery rate estimates are based on current recovery technologies.
There is significant uncertainty as to the ultimate recoverability
and commercial viability of any of the resource associated with
OOIP/DPIIP, and as such a recovery project cannot be defined for a
volume of OOIP/DPIIP at this time. "Internally estimated" means an
estimate that is derived by Surge's internal QRE's and prepared in
accordance with National Instrument 51-101 - Standards of
Disclosure for Oil and Gas Activities. All internal estimates
contained in this news release have been prepared effective as of
January 1, 2024.
As of January 1, 2024, Surge's
internally estimated OOIP of the Sparky Core area is 1.1 billion
barrels of oil, with a total estimate of 127 million barrels of oil
produced (a recovery factor of 11.5% to date). Similarly,
Surge's internally estimated OOIP of the Betty Lake area is 150
million barrels of oil, with a total estimate of 1.85 million
barrels of oil produced (a recovery factor of 1.2% to date).
In SE Sask, Surge's internally estimated OOIP is >400 million
barrels of oil, with a total estimate of 39 million barrels of oil
produced (a recovery factor of 9.8% to date).
Surge's TPP (BTax) NPV10 value of its Sparky Core and SE Sask
assets is $1,567 MM (run on Sproule's
2023 Year End price deck: First year prices of US$81/bbl WTI, C$104/bbl EDM, C$88/bbl WCS & C$3.67/mmbtu AECO), which is 75% of the total
corporate TPP (BTax) NPV10 value of $2,059 MM.
Surge's 2023 year-end Proved Developed Producing reserves have a
decline of 29 percent and a Proved plus Probable Developed
Producing decline of 26 percent. Surge's internally estimated
declines are based off March-to-March monthly data to flush out
impacts of December drilling.
Surge's Net Asset Value is calculated as reserve value
discounted at 10% on a before tax basis (Total Proved plus
Probable: $2,059 MM; Total Proved:
$1,421 MM) (each as set forth in the
Sproule Report), less Surge's net debt at December 31, 2023 of $290.1 million, and divided by 100.3 million
basic shares outstanding as at December 31,
2023.
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 of the unbooked
drilling locations have been de-risked by drilling existing wells
in relative close proximity to such unbooked drilling locations,
the majority of other unbooked drilling locations are farther away
from existing wells where management has less information about the
characteristics of the reservoir and therefore there is more
uncertainty whether wells will be drilled in such locations and if
drilled there is more uncertainty that such wells will result in
additional oil and gas reserves, resources or production.
Assuming a January 1, 2024
reference date, the Company will have over >1,150 gross
(>1,050 net) drilling locations identified herein; of these
>615 gross (>575 net) are unbooked locations. Of the 489 net
booked locations identified herein, 397 net are Proved locations
and 92 net are Probable locations based on Sproule's 2023 year-end
reserves. Assuming an average number of net wells drilled per year
of 80, Surge's >1,050 net locations provide 13 years of
drilling.
Surge's internally used type curves were constructed using a
representative, factual and balanced analog data set, as of
January 1, 2024. All locations were
risked appropriately and Estimated Ultimate Recoverable ("EUR")
reserves 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.
Surge's internal average Frobisher type curve profile of 240 boe/d
(IP30), 185 boe/d (IP90) and 89 mboe (69 mbbl Oil + 10 mbbl NGL's)
EUR reserves per well, with assumed $1.45 MM per well capital, has a payout of ~12
weeks @ US$80/bbl WTI (C$105/bbl LSB) and a >450% IRR.
Assuming a January 1, 2024
reference date, the Company will have over >475 gross (>470
net) Sparky Core area drilling locations identified herein; of
these >285 gross (>285 net) are unbooked locations. Of the
186 net booked locations identified herein, 140 net are Proved
locations and 46 net are Probable locations based on Sproule's 2023
year-end reserves. Assuming an average number of net wells drilled
per year of 40, Surge's >470 net locations provide >11 years
of drilling.
Assuming a January 1, 2024
reference date, the Company will have over >340 gross (>290
net) SE Saskatchewan drilling
locations identified herein; of these >160 gross (>140 net)
are unbooked locations. Of the 153 net booked locations identified
herein, 122 net are Proved locations and 31 net are Probable
locations based on Sproule's 2023 year-end reserves. Assuming
an average number of net wells drilled per year of 40, Surge's
>290 net locations provide >7 years of drilling.
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", "adjusted funds flow per boe",
"free cash flow", "net debt", "net operating expenses", "net
operating expenses per boe", "operating netback", and
"operating netback 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, and as applicable, reconciliations to the most directly
comparable GAAP measure for the period ended March 31, 2024, have been provided to demonstrate
the calculation of these measures:
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 cashed 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 (loss) per share.
The following table reconciles cash flow from operating
activities to adjusted funds flow and adjusted funds flow per
share:
|
Three Months Ended
March 31,
|
($000s except per
share amounts)
|
2024
|
2023
|
Cash flow from
operating activities
|
66,785
|
54,506
|
Change in non-cash
working capital
|
(8,953)
|
5,445
|
Decommissioning
expenditures
|
3,928
|
3,249
|
Cash settled
transaction and other costs
|
727
|
131
|
Adjusted funds
flow
|
62,487
|
63,331
|
Per share -
basic
|
$
0.62
|
$
0.65
|
Free Cash Flow
Free cash flow is a non-GAAP financial measure, calculated as
cash flow from operating activities, before changes in non-cash
working capital, less expenditures on property, plant and equipment
and dividends paid. Management uses free cash flow to determine the
amount of funds available to the Company for future capital
allocation decisions.
Net Debt
Net debt is a non-GAAP financial measure, calculated as bank
debt, term debt, plus the liability component of the convertible
debentures plus current assets, less current liabilities, however,
excluding the fair value of financial contracts, decommissioning
obligations, and lease and other obligations. 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 Mar 31,
2024
|
As at Dec 31,
2023
|
As at Mar 31,
2023
|
Accounts
receivable
|
62,676
|
53,354
|
64,642
|
Prepaid expenses and
deposits
|
5,525
|
5,355
|
4,340
|
Accounts payable and
accrued liabilities
|
(98,715)
|
(85,390)
|
(89,094)
|
Dividends
payable
|
(4,023)
|
(4,013)
|
(3,933)
|
Bank debt
|
(52,501)
|
(42,797)
|
(27,345)
|
Term debt
|
(170,675)
|
(178,731)
|
(247,724)
|
Convertible
debentures
|
(38,211)
|
(37,848)
|
(32,803)
|
Net Debt
|
(295,924)
|
(290,070)
|
(331,917)
|
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
March 31,
|
($000s)
|
2024
|
2023
|
Operating
expenses
|
51,937
|
52,892
|
Less: processing
income
|
(2,504)
|
(2,534)
|
Net operating
expenses
|
49,433
|
50,358
|
Net operating expenses
($ per boe)
|
21.81
|
22.26
|
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. 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
March 31,
|
($000s)
|
2024
|
2023
|
Petroleum and natural
gas revenue
|
158,167
|
161,970
|
Processing and other
income
|
2,504
|
2,534
|
Royalties
|
(30,144)
|
(29,042)
|
Realized gain (loss) on
commodity and FX contracts
|
137
|
(1,995)
|
Operating
expenses
|
(51,937)
|
(52,892)
|
Transportation
expenses
|
(2,663)
|
(4,047)
|
Operating
netback
|
76,064
|
76,528
|
G&A
expense
|
(5,126)
|
(4,610)
|
Interest
expense
|
(8,451)
|
(8,587)
|
Adjusted funds
flow
|
62,487
|
63,331
|
Barrels of oil
equivalent (boe)
|
2,266,221
|
2,262,361
|
Operating netback ($
per boe)
|
33.56
|
33.82
|
Adjusted funds flow ($
per boe)
|
27.57
|
27.98
|
For further information,
please visit our website
at www.surgeenergy.ca or contact:
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.
SOURCE Surge Energy Inc.