CALGARY, Nov. 6, 2014 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces record financial and
operating results for the three and nine month periods ended
September 30, 2014.
FINANCIAL AND OPERATING SUMMARY |
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($000s except per share amounts) |
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Three Months Ended
September 30, |
Nine Months Ended
September 30, |
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2014 |
2013 |
% change |
2014 |
2013 |
% change |
Financial highlights |
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Oil and NGL sales |
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135,548 |
83,154 |
63 % |
357,536 |
184,030 |
94 % |
Natural gas sales |
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8,161 |
3,674 |
122 % |
21,888 |
14,384 |
52 % |
Total oil, natural gas, and NGL revenue |
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143,709 |
86,828 |
66 % |
379,424 |
198,414 |
91 % |
Funds from Operations1 |
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71,298 |
44,455 |
60 % |
190,593 |
96,504 |
97 % |
Per share basic ($) |
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0.33 |
0.37 |
(11)% |
0.98 |
1.10 |
(11)% |
Per share diluted ($) |
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0.32 |
0.37 |
(14)% |
0.98 |
1.10 |
(11)% |
Net income (loss) |
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34,655 |
9,319 |
272 % |
76,004 |
(7,039) |
nm |
Per share basic ($) |
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0.16 |
0.08 |
100 % |
0.39 |
(0.08) |
nm |
Per share diluted ($) |
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0.16 |
0.08 |
100 % |
0.39 |
(0.08) |
nm |
Capital expenditures - petroleum & gas
properties2 |
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32,473 |
19,997 |
62 % |
109,799 |
85,228 |
29 % |
Capital expenditures - acquisitions &
dispositions2 |
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(52,473) |
218,439 |
nm4 |
529,350 |
202,255 |
162 % |
Total capital expenditures2 |
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(20,000) |
238,436 |
nm |
639,149 |
287,483 |
122 % |
Net debt at end of period3 |
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503,004 |
188,179 |
167 % |
503,004 |
188,179 |
167 % |
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Operating highlights |
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Production: |
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Oil and NGL (bbls per day) |
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17,180 |
9,725 |
77 % |
14,723 |
7,861 |
87 % |
Natural gas (mcf per day) |
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18,879 |
13,696 |
38 % |
15,269 |
14,933 |
2 % |
Total (boe per day) (6:1) |
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20,327 |
12,008 |
69 % |
17,268 |
10,350 |
67 % |
Average realized price (excluding hedges): |
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Oil and NGL ($per bbl) |
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85.76 |
92.93 |
(8)% |
88.95 |
85.73 |
4 % |
Natural gas ($ per mcf) |
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4.70 |
2.92 |
61 % |
5.25 |
3.53 |
49 % |
Realized loss on financial contracts ($ per boe) |
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(2.47) |
(4.32) |
(43)% |
(4.18) |
(2.47) |
69 % |
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Net back (excluding hedges) ($ per boe) |
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Oil, natural gas and NGL sales |
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76.85 |
78.60 |
(2)% |
80.49 |
70.22 |
15 % |
Royalties |
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(13.61) |
(14.55) |
(6)% |
(14.00) |
(12.83) |
9 % |
Operating expenses |
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(16.02) |
(12.94) |
24 % |
(15.44) |
(12.54) |
23 % |
Transportation expenses |
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(1.82) |
(2.01) |
(9)% |
(1.82) |
(2.22) |
(18)% |
Operating netback |
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45.40 |
49.10 |
(8)% |
49.23 |
42.63 |
15 % |
Interest Expense |
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(2.81) |
(2.04) |
38 % |
(2.48) |
(2.43) |
2 % |
G&A Expense |
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(1.99) |
(2.56) |
(22)% |
(2.06) |
(3.46) |
(40)% |
Corporate netback |
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40.60 |
44.50 |
(9)% |
44.69 |
36.74 |
22 % |
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Common shares (000s) |
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Common shares outstanding, end of period |
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217,713 |
121,864 |
79 % |
217,713 |
121,864 |
79 % |
Weighted average basic shares outstanding |
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217,689 |
119,878 |
82 % |
193,739 |
87,663 |
121 % |
Stock option dilution (treasury method) |
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1,718 |
248 |
nm |
1,279 |
— |
nm |
Weighted average diluted shares outstanding |
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219,407 |
120,126 |
83 % |
195,018 |
87,663 |
122 % |
1 Management uses funds from operations (cash flow
from operating activities before changes in non-cash working
capital, legal settlement expenses, decommissioning expenditures,
cash settled stock-based compensation, 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.
2 Please see capital expenditures discussion within
the accompanying MD&A.
3 The Company defines net debt as outstanding bank
debt plus or minus working capital, however, excluding the fair
value of financial contracts and other current obligations.
4 The Company views this change calculation as not
meaningful, or "nm". |
RECORD PRODUCTION AND CASH FLOW IN THE THIRD
QUARTER OF 2014
Surge is pleased to report record average
production of 20,327 boe per day, and record funds from operations
of more than $71 million, in the
third quarter of 2014
HIGHLIGHTS
- Achieved a third quarter average production rate of 20,327
boe per day, an increase of 69 percent from 12,008 boe per day
in the same period of 2013.
- Funds from operations increased 60 percent to $71.3 million in the third quarter of 2014 as
compared to $44.5 million for the
same period of 2013.
- Successfully closed $52.6
million of miscellaneous asset dispositions, including
approximately 400 boe per day of non-core production, reducing
net debt to $503 million - with only
$453 million drawn on Surge's
$725 million bank line - while
keeping Surge's forecast 2014 production exit rate intact at 21,350
boed.
- The Company's third quarter capital program (not
including acquisitions and divestitures) of $32.5 million, represented only 46 percent of
funds from operations for the quarter.
- Surge achieved strong operating and corporate netbacks of
$45.40 per boe and $40.60 per boe respectively, in the third
quarter of 2014.
- Increased Surge's oil and natural gas liquids production
weighting by four percent to 85 percent in the third quarter of
2014 from 81 percent in the third quarter of 2013.
- Approximately 94 percent of Surge's revenue resulted from
oil and natural gas liquids production in the third quarter of
2014.
- Drilled 10.3 net wells with a 100 percent success
rate.
- Waterfloods have been expanded at Manson and Nipisi,
initiated at Macoun and Eyehill,
and preparations have begun for a waterflood pilot at Provost in
the first quarter of 2015.
- Reduced G&A per boe by 22 percent in the third
quarter of 2014 as compared to the same period in 2013. The
Company's G&A costs have dropped from $2.56 per boe in the third quarter of 2013 to
$1.99 per boe in the third quarter of
2014.
FINANCIAL STRENGTH; SUSTAINABILITY; RESILIENT
DIVIDEND
Surge is well positioned for success in delivering on the
Company's focused business strategy - even during times of lower
commodity prices.
The Company has a high netback, low decline asset base, strong
capital efficiencies, and an excellent balance sheet.
Continued implementation of Surge's ongoing risk management program
has resulted in more than 40 percent of the Company's net crude oil
production being locked in at over C$100 per barrel through July, 2015. With more
than $270 million of current credit
availability on its bank line, a corporate decline rate of less
than 22 percent, and operating netbacks of over $40 per boe based on current 2015 strip pricing
of US$79.50 WTI, Surge is well
positioned to succeed in the current commodity price
environment.
The Company's focus on cost control, improving capital
efficiencies and reducing per boe costs remains strong. Surge
continues to reduce per boe costs via operational efficiencies and
economies of scale as well.
Surge has a high quality, low decline asset base with over 2.0
billion barrels of Original Oil In Place ("OOIP"5) -
with an estimated recovery factor of just eight percent. The
Company has a 12 year, low risk, development drilling inventory of
over 1,000 locations. Surge also has a suite of low risk waterflood
projects which the Company is aggressively pursuing as part of its
plan to continue reducing the corporate decline rate, and improving
sustainability.
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5 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. |
With the significant drop in the Canadian dollar, Surge
continues to realize CAD WTI pricing of over $91 per barrel6. In addition, with the
tightening of crude oil differentials, and the Company's strategic,
ongoing hedging programs, Surge's monthly cash flows are well
protected. As discussed above, Surge has over 40 percent of the
Company's net crude oil production locked in at over C$100 per barrel through July of 2015.
In the third quarter, Surge continued to rationalize the
Company's asset base closing on the sale of several miscellaneous
assets, including 400 boepd of non-core production, for proceeds of
$52.6 million. This reduced the
Company's debt to $503 million - with
only $453 million drawn on Surge's
$725 million bank line. 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, Surge remains well positioned to exit 2014 with
production guidance unchanged at 21,350 boepd (85 percent oil and
NGL's) - even after the sale of the 400 boepd of non-core assets
referred to above.
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 ratio7 of under 94
percent!
This sustainability outlook confirms managements low risk
business strategy, and highlights Surge's corporate fundamentals
and the resiliency of the Company's dividend.
Management's stated goal is to deliver a low risk, long term
sustainable 12-14 percent annualized total rate of return, on a
risk adjusted basis, with an increasing compounding dividend.
EXECELLENT OPERATIONAL AND DRILLING RESULTS CONTINUE
In the third quarter of 2014 Surge's production exceeded
management's expectations.
During the third quarter, Surge experienced production downtime
due to wet conditions in Southern
Saskatchewan and Manitoba,
as well as, significant rain delays relating to the drilling of
wells associated with the Company's post breakup program. The
Company also experienced four separate, unplanned plant outages at
Nevis, Valhalla, Wainwright and Westrose. In
addition, as discussed above, Surge sold several non-core assets
comprising approximately 400 boepd.
Importantly for Surge shareholders and management, the Company's
third quarter production still met management's budget guidance at
20,327 boepd (85 percent oil and NGL's) - despite the non-core
asset sales and the assorted downtime issues.
Furthermore, as a result of better than expected results from
the Company's third quarter drilling program and waterflood
activities, Surge's current production is now on track to exceed
the Company's 2014 production exit rate of 21,350 boepd.
In the third quarter of 2014, Surge experienced excellent
drilling results across the Company's entire asset base, drilling
10.3 net wells with a 100 percent success ratio, including 2.8 net
farmout wells drilled with no capital spent by the Company.
For additional details on Surge's successful third quarter
operating results, please see the previously released press
release, dated October
28th, 2014.
FINANCIAL STATEMENTS AND ACCOMPANYING
MDA:
Surge has filed with Canadian securities
regulatory authorities its financial statements and accompanying
MD&A for the three months ended September 30, 2014. These filings are
available for review at www.sedar.com or www.surgeenergy.ca.
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6 Assumes US$ WTI of $81.50. CAD/USD of
$0.8950.
7 Payout ratio is defined as (dividends plus capital
expenditures) divided by funds flow from operations. |
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking
statements. More particularly, this press release contains
statements concerning: (i) expectations with respect to Surge's
balance sheet and anticipated year ended bank line availability;
(ii) the completion, timing and use of proceeds of the $52 million of disposition transactions; (iii)
the anticipated increase in capital spending for 2014; (iv)
anticipated increases in drilling inventory; (v) forecast decline
rates; (vi) Surge's drilling and development plans and enhance
recovery projects and the timing and results to be expected
thereof; (vii) the proposed delivery of solution gas to new
facilities for certain Valhalla
wells and Surge's reduction in reliance on the Sexsmith plant; (viii) management's
expectations with respect to the Company's waterflood program,
results therefrom and quantity of producing assets that will be
placed under waterflood; (ix) Surge's operational guidance,
including year-end exit production rate, capital spending, total
wells drilled, decline rates, year-end net-asset-value/share,
annualized funds from operations, including on a per share basis,
operational and cash flow netback, including on a per BOE basis,
the number of shares outstanding, total annual dividend and
expected yield, basic payout ratios, "all-in" pay-out ratios,
estimated year-end net debt to funds from operation ratio and
year-end exit debt; (xii) the Company's declared focus and primary
goals; and (xiii) the sustainability of dividends.
The forward-looking statements are based on
certain key expectations and assumptions made by Surge, including
expectations and assumptions concerning 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, prevailing weather conditions, exchange rates,
licensing requirements, the successful completion of the
disposition transactions, the impact of completed facilities on
operating costs and the availability, costs of capital, labour and
services, the creditworthiness of industry partners and the receipt
of approval of the lenders under Surge's bank line to increases
thereto.
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 required approvals from the lenders under Surge's
bank line to increases thereto. Certain of these risks are set out
in more detail in Surge's Annual Information Form dated
March 19, 2014 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
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. 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.
SOURCE Surge Energy Inc.