CALGARY, Oct. 28, 2014 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") is providing a sustainability outlook based on
lower crude oil prices, and an operations update for the third
quarter of 2014. The Company has experienced better than expected
drilling, optimization and waterflood results across Surge's high
quality, long life, light oil asset base, including continued
successful step-out drilling results in the Upper Shaunavon
formation in SW Saskatchewan, the
Midale play in SE Saskatchewan and the Sparky play in
SE Alberta.
In addition, Surge is pleased to announce the appointment of Mr.
Gerry de Leeuw to the position of
Vice President of Geosciences.
SUSTAINABILITY OUTLOOK; RESILIANT DIVIDEND
With the low Canadian dollar Surge continues to realize WTI
pricing of over CAD$91 per
barrel1. Reduced differentials and the Company's
strategic ongoing hedging programs, enhance and further protect
Surge's monthly cash flows. Surge has over 40 percent of the
Company's net crude oil production locked in at over C$100 per barrel through July, 2015.
In the third quarter, Surge closed on the sale of several minor
assets, including 400 boepd of non-core production, for proceeds of
approximately $52 million, thereby
reducing the Company's debt. As always, Surge will continue to look
for opportunities to reinvest these proceeds into core area asset
acquisitions, if and when they become available.
As a result of better than anticipated development drilling and
waterflood results discussed below, Surge still anticipates exiting
2014 at production guidance of 21,350 boepd (85 percent oil and
NGL's) - even after the sale of the 400 boepd of non-core assets
referred to above.
Surge has a low decline asset base, with over 2.0 billion
barrels of original oil in place ("OOIP"2) - and an
estimated recovery factor of just eight percent. The Company has a
12 year inventory of over 1,000 low risk development drilling
locations, and a suite of high quality waterflood projects.
In the past several weeks world crude oil prices have fallen. In
this regard, Surge management have recently completed a "stress
test" in relation to the Company's 2015 capex program, and the
sustainability of the Company's dividend.
As discussed above, Surge has a high quality, large OOIP, light
oil asset base, a low corporate decline of less than 22 percent, a
low all-in payout ratio, and high netbacks. The Company has a
strong balance sheet, and an ongoing risk management hedging
program. In addition, Surge has top quartile production
efficiencies of under $29,000 per
flowing boe relating to Surge's primary drilling opportunities. On
this basis, management is very excited with respect to Surge's
ability to deliver on management's growth estimates, and the
payment of the Company's dividend - even in a lower crude oil
pricing environment.
Consequently, in 2015 (utilizing US$79.50 WTI per barrel pricing) Surge now
anticipates delivering more than 17 percent growth in average daily
production over 2014 (five percent growth in production per
weighted average share), and paying the Company's current
$0.60 per share annual dividend,
while maintaining an all-in payout ratio3 of under 94
percent!
This sustainability outlook confirms managements low risk
business strategy and highlights Surge's corporate fundamentals and
resiliency.
Management's stated goal at Surge is to deliver shareholders a
low risk, long term, sustainable 12-14 percent annualized total
rate of return, on a risk adjusted basis, with an increasing
compounding dividend.
EXCELLENT DRILLING AND OPERATIONAL RESULTS CONTINUE
In the third quarter of 2014 Surge experienced excellent
drilling results across the Company's entire asset base, drilling
11 net wells with a 100 percent success ratio.
Upper Shaunavon - Continued
Drilling Success
In the Shaunavon area of
SW Saskatchewan, Surge continued
the development of the Company's exciting new discovery in the
Upper Shaunavon formation, drilling three new step-out development
wells from the discovery well to delineate the size and scope of
this large, 100 percent working interest, medium gravity crude oil
pool.
The discovery well at 191/16-36-005-19W3 came on production at
over 300 bopd, paid out in approximately 100 days, and is still
producing over 180 bopd after eight months at an 80 percent oil
cut.
Each of the three new step-out wells also came on production at
over 300 bopd and look to be similar wells to the discovery well.
With all-in drilling and completion costs of $2 million per well, and utilizing 175,000
bbls/well of risked reserve additions, Surge anticipates a recycle
ratio of more than 5.5 times in relation to the development of the
Upper Shaunavon play.
Subsequent to the end of the third quarter Surge has drilled,
cased and fracced two additional Upper Shaunavon wells, which are
800 m step-out development wells, to the west of the initial wells.
These wells have been placed on production.
In addition, Surge has also successfully drilled and cased its
first Upper Shaunavon well on a separate new offsetting trend to
the Company's original wells. Surge plans to drill two net
additional Upper Shaunavon wells prior to the end of 2014.
Surge now maps more than 200 million barrels of OOIP on it's
lands as a result of the Upper Shaunavon discovery. In addition,
the Company now estimates that it has added over 100 low risk,
development drilling locations on this play.
Surge plans to drill up to 12 additional net wells for Upper
Shaunavon production in 2015.
Macoun/Pinto - Midale
In SE Saskatchewan, Surge also
experienced successful drilling results on the Company's light oil
Midale trend. At Macoun, Surge drilled 2 (1.5 net) Midale, multi-frac, oil wells that are now on
production with rates well above the Company's type curve. Surge
also executed on two fracs of existing producing horizontal well
bores - more than doubling the production rates from each of these
wells. In addition, Surge will be converting one well at
Macoun to injection during the
fourth quarter to continue the implementation of a full waterflood
program. Surge is very excited about the development drilling and
waterflood upside relating to this operated, 60 million OOIP, light
oil Midale pool.
At Pinto, Surge participated in the drilling of two successful
Midale light oil wells (30 % WI,
each) with gross production for each well at over 200 bopd,
which is well above the Company's type curve. In addition, Surge is
currently participating in the drilling of a third well which is
also at 30% WI.
Also at Pinto, Surge has successfully drilled, and is currently
fraccing, its first two operated Midale wells (100 % WI), which Surge
anticipates will be on stream in November.
Surge now has over 115 sections of prospective land, and over 90
net drilling locations, on this high quality, light oil play. Over
60 sections of Surge's land on this play are fee (royalty free)
lands.
Eyehill/Wainwright/Provost - Sparky
At Eyehill in Central Alberta,
during the third quarter of 2014 Surge successfully drilled two (2
net) wells into the Sparky formation. The wells are producing above
Surge's expected 180 day type curve rate. As a result of successful
industry farm-ins, and successful step-out development drilling
results, Surge now estimates over 100 million barrels of net OOIP
in the Sparky formation at Eyehill, with less than one percent
recovered to date. Surge also initiated conversion of a horizontal
well to water injection in the third quarter of 2014 and expects to
be on injection by the end of October. The Company now has over 47
(45 net) development locations at Eyehill based on 400 meter
inter-well spacing, however, with full development and waterflood,
this well count could double. In the last 18 months, Surge has
organically grown production at Eyehill to over 800 boepd.
Subsequent to the end of the third quarter, at Eyehill Surge has
successfully drilled a significant, step out and earning well in
the Sparky formation. The well is currently being fracced and will
be on production early in November.
At Wainwright in Central
Alberta, during the third quarter Surge drilled its first
multi-frac Sparky horizontal well. The well is now on production
and performing at the 90 day expected type curve. This success has
resulted in the identification of numerous follow-up locations.
Also in the third quarter at Wainwright Surge closed a 76 boe/d
Sparky asset acquisition at a purchase price of $59,210 per flowing boe. This complementary
production acquisition also included six sections of highly
prospective undeveloped Sparky land. In the fourth quarter, Surge
has now successfully drilled and is currently fraccing a horizontal
Sparky oil well on these lands. A successful well will confirm at
least 5 more Sparky, horizontal, development locations.
At Provost, Surge drilled one (1 net) horizontal, multi-frac,
Sparky well. The well was brought on production early in the third
quarter of 2014, and is producing at expected 180 day type curve
rates. The battery facilities have been expanded at Provost on this
45 million barrel OOIP pool to accommodate the conversion of a well
to injection, which is planned for first quarter of 2015. Surge has
over 18 net development locations remaining at Provost.
Manson - Bakken/Torquay
At Manson in SW Manitoba,
during the third quarter of 2014 Surge focused on an expansion of
the waterflood through the conversion of two (2 net) additional
horizontal Bakken wells to injection. The gathering and water
injection pipeline system was also expanded to accommodate the
single well battery development locations that were drilled in
2013. Waterflood approval was received for two additional sections
of this high quality, high netback 76 million barrels OOIP light
oil pool. Surge now has six injectors at Manson, and the waterflood
is responding with better than expected results.
Nipisi
At Nipisi in NW Alberta, a
third horizontal injector was added to the pool during the third
quarter of 2014. The net waterflood response to date from the
existing injectors has been excellent. This high netback, 80
million barrel OOIP, Slave Point light oil pool has a recovery
factor of less than one percent, has numerous follow-up locations,
and further waterflood upside. Surge is currently drilling one (1
net) well at Nipisi in the fourth quarter. Surge anticipates
expanding both its drilling and water flood programs at Nipisi in
2015.
Valhalla
At Valhalla in NW Alberta, Surge drilled and completed two
(0.9 net) successful wells at the Company's large 160 million
barrel OOIP light oil Doig pool, during the third quarter of 2014.
Both of these wells are on stream and producing at or above type
curve expectations.
Sunset - Montney
At Sunset in NW Alberta, Surge
optimized the production of an existing 100% WI, horizontal
Montney oil well with a frac, and
more than tripled the production rate to over 100 bopd. Surge now
estimates the OOIP for this light oil Montney pool to be over 60 million bbls. Surge
anticipates it will commence the development of this high quality
asset in 2015 through horizontal drilling, and the further
optimization of the existing waterflood.
EXECUTIVE APPOINTMENT - MR. GERRY DE
LEEUW
Surge is pleased to announce the executive appointment of Mr.
Gerry de Leeuw, who will be taking
on the new role of Vice President of Geosciences. Mr. de Leeuw
previously served for Devon Canada
in a variety of senior executive positions over the past ten years.
Prior to Devon, Gerry held
positions with Northstar Energy, TCPI, Amoco and Texaco. Through
these positions he gained experience with senior technical and
management positions in business development, marketing and his key
focus, exploration.
Gerry graduated from the University of
Waterloo with a Bachelor of Science with Honors in Earth
Science. Following this, he continued his education at the
University of British Columbia where he
completed his Masters of Business Admin. Surge management, Board
and employees are very excited to welcome Gerry to the Company's
management team.
ABOUT SURGE
Surge is an oil-weighted production and
development company with high quality, large OOIP, crude oil
reservoirs. Management is focused on delivering to its
shareholders solid per share organic growth, sustainable monthly
dividends, and further growth through accretive acquisitions of
additional elite oil reservoirs. For further information
visit our website at www.surgeenergy.ca.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking
statements. More particularly, this press release includes,
without limitation, forward-looking statements concerning: (i)
anticipated operating cost reductions on the Longview properties; (ii) Surge's number of
drilling locations and drilling, development and waterflood
opportunities, (iii) estimated production decline rates, (iv)
Longview's estimated annual funds
flow; (v) the estimated 2014 exit production rate of Surge; (vi)
estimated 2014 capital expenditures and drilling activity; (vii)
estimated Q4 2014 annualized funds flow from operations, (viii)
estimated 2014 operational and cash flow netback, (ix) estimated
2014 exit net debt, * estimated ratio of 2014 net debt to Q4 2014
annualized cash flow, (xi) forecast annual reductions in Surge's
debt, (xii) targeted rates of growth in reserves, production and
cash flow, (xiii) the sustainability of and potential for increases
in Surge's dividend, and (xiv) targeted annualized rates of total
return.
The forward-looking statements contained in this
press release are based on certain key expectations and assumptions
made by Surge, including, but not limited to, 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.
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.
Financial Outlooks
Certain references to 2014 and 2015 targets and
anticipated results contained in this news release may be
considered 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. Surge and its management believe that the financial
outlooks have been prepared on a reasonable basis, reflecting the
best estimates and judgments, and represent, to the best of
management's knowledge and opinion, Surge's expected expenditures
and results of operations. However, because this information is
highly subjective and subject to numerous risks, including the
risks discussed under the note regarding Forward Looking
Statements, it should not be relied on as necessarily indicative of
future results. Except as required by applicable securities laws,
Surge undertakes no obligation to update this information.
Test Results and Initial Production
Rates
Any references in this news release to initial,
early and/or test production/performance rates are useful in
confirming the presence of hydrocarbons, however, such rates are
not determinative of the rates at which such wells will continue
production and decline thereafter. While encouraging, readers are
cautioned not to place reliance on such rates in calculating
aggregate production. The initial production rate may be estimated
based on other third party estimates or limited data available at
this time. Initial production or test rates are not necessarily
indicative of long-term performance of the relevant well or fields
or of ultimate recovery of hydrocarbons.
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 Assumes US$ WTI of $81.50. CAD/USD of $0.8950
2 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.
3 Payout ratio is defined as (dividends plus capital
expenditures) divided by funds flow from operations.
SOURCE Surge Energy Inc.