/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR
DISSEMINATION IN THE UNITED
STATES./
CALGARY, Jan. 8, 2014 /CNW/ - The Board of Directors of
Surge Energy Inc. ("Surge" or the "Company") ("SGY": TSX) has
approved the Company's 2014 capital expenditure program.
In 2014 Surge will spend a budgeted $114.5 million, and deliver the following:
- Growth in annual production of more than 40% over 2013; in 2014
Surge is targeting record annual production of 15,250 boepd (15,500
boepd exit rate);
- A production mix of over 83% light and medium gravity crude
oil;
- Growth in annual funds flow from operations ("FFO") of more
than 65% over 2013 to an estimated $221
million ($1.33 FFO per share),
based on guidance pricing set forth below;
- A low "all-in" payout/sustainability ratio of 92.1% , based on
guidance pricing set forth below;
- Capital efficiencies of $29,650
per boepd;
- A low 2014 exit debt to FFO ratio of less than 1.39 times
(with over $180 million of unutilized
credit availability on the Company's bank line);
- A high quality, low risk, development drilling program of
approximately 38 drilling locations for light and medium gravity
crude oil (selected out of Surge's deep inventory of over 600 net
drilling locations);
- Top quartile operating costs of $12.75 per boe, and G&A costs of $2.05 per boe; and
- A significant portion of 2014 capital spending will be
strategically focussed to waterflood projects relating to Surge's
high quality, large original oil in place reservoirs
("OOIP")1; by the end of 2014 Surge now anticipates that
more than 80% of the Company's producing assets will be under
waterflood.
Capital Spending Breakdown
In 2014 Surge is planning to spend $114.5 million focussed to high quality, light
and medium gravity crude oil projects. This capital will be
strategically allocated over the Company's elite, operated, crude
oil assets at Valhalla, Nipisi,
Silver, Macoun, Manson and
Dodsland.
The breakdown for 2014 capital expenditures is
set forth below:
Capex for 2014 |
($mm) |
Development Drilling and Completions |
81.2 |
Facilities/Plant |
8.0 |
Waterflood |
15.7 |
Land/Seismic |
3.0 |
Corporate/G&A |
6.6 |
TOTAL |
$114.5 |
Record Production in 2014
Surge is budgeting record average production of
15,250 boepd in 2014 - with an exit rate of 15,500 boepd. This
represents growth of more than 40% over 2013 average production
volumes.
The Company's production mix in 2014 is expected
to increase to over 83% high netback, light and medium gravity
crude oil - up from 79% in 2013.
Given Surge's high quality, large OOIP
reservoirs, disciplined capital spending program, and diligent
focus on waterflood activities, management now believes that
the Company's corporate decline rate has dropped to approximately
24% today as a modest growth/dividend paying company.
Excellent Sustainability; Financial
Surge has a low "all-in" payout/sustainability
ratio of 92.1% based on guidance pricing. The Company has no
dividend reinvestment plan.
The Company also has an excellent balance sheet
with a low 2014 exit debt to FFO ratio of less than 1.39 times.
Surge has attractive replacement metrics estimated at $29,650 boepd, and an operating netback of over
$44 per boe.
Surge also has a disciplined, ongoing risk
management program with over 43% of 2014 net crude oil volumes
locked in at an attractive average price of C$95.98 WTI per barrel. This program secures the
availability of cash flow for capital expenditures and
dividends.
The following summarizes Surge's 2014 guidance
pricing estimates, and the Company's 2014 hedging activities:
Guidance Pricing Assumptions:
WTI USD |
$95.50 |
CAD/USD FX |
$0.94 |
WTI CAD |
$101.60 |
WTI-to-EDM Differential |
- $8.00 |
EDM Light |
$93.60 |
2014 Hedging Activities:
Surge has 4,500 barrels per day of
WTI oil hedged at CAD$96.54 in the
first half of 2014, 4,350 barrels per day of WTI oil
hedged at CAD$95.42 in the second
half of 2014 and 2,000 barrels per day of WTI oil hedged at
CAD$93.27 for 2015.
In addition the Company has 2,000 barrels per
day of WCS oil differential hedged at WTI less US$22.71 for 2014 and 2015, and 1,000 barrels per
day of sweet oil differential hedged at WTI less US$8.00 for February to June, 2014. Surge has
7,586 mcf per day of AECO natural gas hedged at CAD$3.61 for 2014.
Costs Reduction Initiatives
Surge has had excellent results with respect to
managing and reducing costs. The Company's G&A costs have
dropped from over $3.50 per boe in
the second quarter of 2013 to an estimated $2.05 per boe in Surge's 2014 budget.
The Company's initiative of lowering operating
cost has also met with good early results. In the Company's 2014
budget, however, Surge management have elected to keep operating
costs flat with 2013 levels (i.e $12.75 per boe) until the Company has
demonstrated tangible results from its 2014 operating cost saving
initiatives over several months.
Exciting Outlook for 2014
Surge will continue to implement the Company's
disciplined business strategy of focussing capital towards elite,
large OOIP crude oil reservoirs. The Company will also pursue
continued, year over year increases in recovery factors from these
high quality assets through low risk development activities,
including:
- in-fill and step out development drilling;
- up to date completion techniques, including horizontal frac
technology;
- optimizations; and
- waterfloods.
Pursuant to this focussed business strategy,
Surge targets conservative annual per share growth in reserves,
production and cash flow of 3 to 5%. In addition, Surge provides an
attractive cash yield of 7.8% based on the Company's current
trading price of its shares.
Accretive acquisitions of other elite assets
will provide incremental growth over and above these estimates.
Surge 2014E Guidance2 3
As a result of continued successful drilling
results, accretive acquisitions, and optimization/waterflood
activities, Surge is well positioned to meet or exceed the
Company's 2014 guidance estimates as set forth below:
Operational:
|
|
2014E Average Production (boe/d) |
15,250 (83% Oil/NGLs) |
2014E Exit Production (boe/d) |
15,500 (83% Oil/NGLs) |
RLI (based on 2013E exit production) |
>12.5 years |
2014E Capital Spending |
$114.5 million |
2014E Wells Drilled (gross/net) |
38/36.1 wells |
2014 Decline |
24% |
Financial:
|
|
2014E Funds from Operations ("FFO") |
$221 ($1.33 per share) |
2014E Operational Netback |
$44.04/boe |
2014E Cash Flow Netback |
$39.69/boe |
Basic Shares Outstanding |
167 million |
Annual Dividend |
$87 million |
Annual Dividend per share |
$0.52 |
Yield4 |
7.8% |
Basic Payout Ratio 2014E |
39.6% |
"All-in" Payout Ratio |
92.1% |
2014E Exit Net Debt |
$287 million |
2014E Exit Net Debt/FFO |
<1.39x |
Bank Line |
$470 million |
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements.
More particularly, it contains forward-looking statements
concerning: (i) targeted growth in reserves, production and cash
flow per share, (ii) the payment and sustainability of dividends,
(iii) potential growth through acquisitions, (iv) ultimate recovery
factors at certain of Surge's properties, (v) planned drilling,
development and waterflood activities, (vi) the potential number of
drilling locations at certain of Surge's properties, (vii)
estimated 2014 average and exit rates of production, and (viii)
estimated 2014 capital expenditures, wells drilled, decline rates,
funds from operations, operating netback, cash flow netback and
payout ratio, estimated 2014 year end net debt and net debt to
funds from operations ratio.
The forward-looking statements contained in this press release
are based on certain key expectations and assumptions made by
Surge, including expectations and assumptions concerning the
success of future drilling, development and completion activities,
the performance of existing wells, the performance of new wells,
the viability of waterflood projects, the availability and
performance of facilities and pipelines, the geological
characteristics of Surge's properties, the successful application
of drilling, completion and seismic technology, prevailing weather
conditions, commodity prices, royalty regimes and exchange rates,
the application of regulatory and licensing requirements and the
availability of capital, labour and services.
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 uncertainties resulting
from potential delays or changes in plans with respect to
exploration or development projects or capital expenditures.
Certain of these risks are set out in more detail in Surge's Annual
Information Form which has 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.
Financial Outlooks
The estimates of 2014 year end net debt, 2014 funds from
operations and 2014 operating netback and cash flow netback
contained in this press release are financial outlooks within the
meaning of applicable securities laws. These financial
outlooks have been prepared by management of Surge to provide an
outlook of Surge's anticipated funds from operations and netbacks
for a full year of operations with its current assets and based on
management's expectations and assumptions as to a number of
factors, including commodity pricing, production, operating
expenses and royalties. Readers are cautioned that this
information may not be appropriate for any other
purpose. Management does not have firm commitments for
all of the costs, expenditures, prices or other financial
assumptions used to prepare the financial outlooks or assurance
that such results will be achieved. The actual results of
Surge will likely vary from the amounts set forth in the financial
outlooks and such variation may be material.
Note: 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 means barrel of oil equivalent per day.
In this press release: (i) mcf means thousand cubic feet; (ii)
mcf/d means thousand cubic feet per day (iii) mmcf means million
cubic feet; (iv) mmcf/d means million cubic feet per day; (v) bbls
means barrels; (vi) mbbls means thousand barrels; (vii) mmbbls
means million barrels; (viii) bbls/d means barrels per day; (ix)
bcf means billion cubic feet; * mboe means thousand barrels of oil
equivalent; and (xi) mmboe means million barrels of oil
equivalent
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. DPIIP is defined as
quantity of hydrocarbons that are estimated to be in place within a
known accumulation, plus those estimated quantities in
accumulations yet to be discovered. 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. |
2 |
Based on 2014 Edmonton Par
$93.60/bbl; 2014 AECO gas $3.69/mcf and a 2014 CAD/USD exchange
rate of $0.94. |
3 |
Management uses funds from
operations (cash flow from operations before changes in non-cash
working capital, legal settlement expenses, transaction costs and
current tax on disposition) to analyze operating performance and
leverage. Funds from operations as presented does not have any
standardized meaning prescribed by IFRS and, therefore, may not be
comparable with the calculation of similar measures for other
entities. |
4 |
Based on a Surge share price of
$6.70. |
SOURCE Surge Energy Inc.