CALGARY, March 19, 2015 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) is pleased to announce its
financial and operating results for the year ended December 31, 2014 and has filed its Annual
Information Form ("AIF") for the year ended December 31, 2014 on SEDAR.
HIGHLIGHTS
- Surge's NAV per share increased from
$6.95 per share on December 31, 2013 to $7.36 per share on December 31, 2014 (despite the large reduction in
Sproule's 2015 crude oil commodity price deck);
- Surge's net debt, pro-forma the non-core asset disposition and
the crude oil swap reconfiguration, as discussed below, as at
December 31, 2014 was less than
$520 million resulting in pro-forma
debt to fourth quarter annualized funds from operations of 2.38
times, with more than $155 million of availability on the Company's
bank line.
- Funds from operations increased 83
percent to $245.3 million in 2014
as compared to $ 134.1 million in
2013.
- Achieved record fourth quarter average production rate of 20,448 boe per
day, an increase of 70 percent from 12,014 boe per day in the
same period of 2013.
- Based on better than anticipated development drilling results
at Surge's core areas of Valhalla,
Shaunavon, Midale and SE
Alberta (Sparky), combined with two smaller core area top-up
acquisitions, Surge exceeded the Company's
2014 production exit rate target of 21,350 boe per day (85 percent
oil) achieving daily production for the week of January 18 to January 25 of more than 22,000 boe
per day.
- Approximately 94 percent of Surge's revenue resulted from oil and natural gas liquids
production in 2014.
- Increased Surge's corporate netback by seven
percent from $36.25 per boe for
the year ended December 31, 2013 to
$38.70 per boe for the year ended
December 31, 2014.
- Reduced G&A per boe by 21 percent in
the fourth quarter of 2014 as compared to the same period in 2013
and 37 percent in 2014 as compared to 2013. G&A was
$1.72 per boe in the fourth quarter
of 2014.
- During 2014, Surge completed
two significant accretive acquisitions that added
approximately 6,850 bbls of high netback, low decline, light
and medium gravity crude oil production, as well as, high quality
concentrated reserves, land and operations that are contiguous with
Surge's three existing core areas.
- Increased Surge's
oil and natural gas liquids production weighting by eight percent
to 85 percent in 2014 from 79 percent in 2013.
- Maintained a
consistent, ongoing risk
management program, which protects Surge's balance sheet and cash
flows during weak crude oil pricing environments similar to the
present. Surge management monetized the
Company's 2015 forward swap positions at a profit of approximately
$35 million, and "re-hedged" in
the first quarter of 2015 (see below).
- Achieved a 99
percent success rate during 2014 drilling 73 gross (43 net)
wells.
- Further reduced the Company's corporate
decline rate from 24 percent in 2013 to less
than 22 percent in 2014, as a result of Surge's low risk
operating strategy, accretive, large OOIP oil acquisitions, and
successful waterflood initiatives.
- Expanded Surge's low risk crude oil
drilling inventory to 939 gross (903 net) locations, and
significantly increased the Company's
internally estimated OOIP[1] to greater than 2.1 billion net
barrels.
- Increased Proved plus Probable reserves by 52
percent to 112.0 million boe as compared to December 31, 2013 reserves of 73.5 million
boe.
- Increased Proved plus Probable reserves
per share by 15 percent as compared to December 31, 2013.
- Achieved "all in" Proved plus Probable finding, development and
acquisition costs (FD&A) of $19.55 per boe, including the change in
future development capital.
- Achieved an
"all-in" Proved plus Probable recycle ratio of more than 2.2,
including the change in future development costs, based on Surge's
2014 operating netback of $43.22 per boe.
- Increased Proved
plus Probable Oil and NGLs reserves by 58 percent to 90.2
million barrels as compared to December 31,
2013 reserves of 57.1 million barrels.
- Proved Developed Producing reserves
account for over 52 percent of Total Reserves net present
value.
- Oil and NGLs made
up 80 percent of the Company's total Proved plus Probable
reserves.
- Increased Net
Present Value
discounted at
10 percent Before Tax ("NPV10 BT") of
Proved plus Probable reserves by 42 percent to
$2.0 billion compared to
$1.4 million as at December 31, 2013.
__________________________________
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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.
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STRATEGIC ACQUISITION OF ELITE, OPERATED, LOW DECLINE, LIGHT
OIL ASSETS IN Q4/14
During the fourth quarter, Surge acquired a high quality, large
OOIP, operated, low decline, producing light oil property
immediately north of the Company's existing Valhalla Doig light oil
pool. The strategic acquisition also included a working interest in
an existing, sweet, natural gas plant which is capable of
processing associated gas volumes from the north end of Surge's
Doig oil pool. This acquisition results in increased solution gas
production reliability, and reduced processing costs for Surge's
core Doig pool at Valhalla.
EXCELLENT START TO 2015
- As a result of the excellent drilling results experienced in
late 2014, Surge's daily production for the week of January 18 to January 25 was more than 22,000 boe
per day (85 percent oil and NGL's) – well above management's stated
2014 exit rate target of 21,350 boe per day. In accordance with the
Company's Press Release dated January 7th,
2015 Surge anticipates average production of 20,000 boe per
day for the first half of 2015.
- In early February 2015, the
Company reconfigured its 2015 crude oil swap positions by
monetizing the Company's 2015 crude oil swaps for proceeds of more
than $35 million, and re-hedging on a
"costless collar" basis, at a floor of over C$62 WTI per barrel and a ceiling of over
C$82 WTI per barrel, for the
remainder of 2015 on approximately 45% of Surge's net crude oil
production. The proceeds of this hedge reconfiguration have since
been utilized to reduce bank indebtedness.
- On February 11, 2015, Surge
closed the sale of certain non-core producing oil assets in the
Dodsland area of SW Saskatchewan for a purchase price of
$35.6 million. This sale represents a
flowing per barrel metric of approximately $75,000 boe per day based on Surge's expected
average production rate from these non-core assets in 2015.
- Surge's net debt, pro-forma the non-core asset disposition and
the crude oil swap reconfiguration, as discussed above, as at
December 31, 2014 was less than
$520 million resulting in pro-forma
debt to fourth quarter annualized funds from operations of 2.38
times, with more than $155 million of
availability on the Company's bank line. The bank line was
finalized including the reduction based on the non-core asset
disposition and the crude oil swap reconfiguration and using the
large drop in the 2015 crude oil price deck utilized by Surge's
lenders.
- To provide Surge shareholders with a more conservative Net
Asset Value ("NAV") assessment, management has now separately
evaluated the Company's December 31,
2014 independent year-end reserves at a US$68 WTI per barrel flat price deck2,
which results in a NAV equal to $5.37
per Surge common share.
______________________________
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2 Price
deck assumes US$68 WTI per barrel, escalating 2 percent annually;
USD/CAD FX rate of $0.80; Natural gas pricing of $3.25per mmbtu
Henry hub, escalating 2% annually.
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FINANCIAL AND
OPERATING SUMMARY
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($000s except per
share amounts)
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Three Months Ended
December 31,
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Years Ended
December 31,
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2014
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2013
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%
change
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2014
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2013
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%
change
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Financial
highlights
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Oil and NGL
sales
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99,431
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69,739
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43 %
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456,967
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253,782
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80 %
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Natural gas
sales
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6,831
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3,778
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81 %
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28,719
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18,150
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58 %
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Total oil, natural
gas, and NGL revenue
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106,262
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73,517
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45 %
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485,686
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271,932
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79 %
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Funds from
Operations3
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54,670
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37,268
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47 %
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245,264
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134,131
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83 %
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Per share basic
($)
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0.25
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0.26
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(4)%
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1.22
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1.32
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(8)%
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Per share diluted
($)
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0.25
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0.26
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(4)%
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1.22
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1.32
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(8)%
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Net loss
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(109,181)
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(2,848)
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nm6
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(33,177)
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(9,886)
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nm
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Per share basic
($)
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(0.50)
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(0.02)
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nm
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(0.17)
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(0.10)
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nm
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Per share diluted
($)
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(0.50)
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(0.02)
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nm
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(0.17)
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(0.10)
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nm
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Capital expenditures
- petroleum & gas properties4
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39,753
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40,318
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(1)%
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149,551
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125,546
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19 %
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Capital expenditures
- acquisitions & dispositions4
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85,098
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369,216
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(77)%
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575,713
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571,471
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1 %
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Total capital
expenditures4
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124,851
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409,534
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(70)%
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725,264
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697,017
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4 %
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Net debt at end of
period5
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590,168
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305,349
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93 %
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590,168
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305,349
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93 %
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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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17,223
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10,354
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66 %
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15,353
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8,489
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81 %
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Natural gas (mcf per
day)
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19,349
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9,958
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94 %
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16,297
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13,679
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19 %
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Total (boe per day)
(6:1)
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20,448
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12,014
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70 %
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18,069
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10,769
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68 %
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Average realized
price (excluding hedges):
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Oil and NGL ($per
bbl)
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62.75
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73.17
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(14)%
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81.54
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81.87
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-
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Natural gas ($ per
mcf)
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3.84
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4.12
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(7)%
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4.83
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3.64
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33 %
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Realized gain (loss)
on financial contracts ($ per boe)
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5.40
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(1.26)
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nm
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(1.45)
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(2.13)
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nm
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Net back
(excluding hedges) ($ per boe)
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Oil, natural gas and
NGL sales
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56.49
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66.52
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(15)%
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73.64
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69.18
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6 %
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Royalties
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(11.14)
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(12.13)
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(8)%
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(13.18)
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(12.64)
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4 %
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Operating
expenses
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(15.72)
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(12.66)
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24 %
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(15.52)
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(12.57)
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23 %
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Transportation
expenses
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(1.49)
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(2.03)
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(27)%
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(1.72)
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(2.17)
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(21)%
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Operating
netback
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28.14
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39.70
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(29)%
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43.22
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41.80
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3 %
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G&A
Expense
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(1.72)
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(2.19)
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(21)%
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(1.96)
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(3.10)
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(37)%
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Interest
Expense
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(2.76)
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(2.53)
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9 %
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(2.56)
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(2.45)
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4 %
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Corporate
netback
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23.66
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34.98
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(32)%
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38.70
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36.25
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7 %
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Common shares
(000s)
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Common shares
outstanding, end of period
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220,060
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166,543
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32 %
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220,060
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166,543
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32 %
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Weighted average
basic shares outstanding
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219,834
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142,981
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54 %
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200,317
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101,606
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97 %
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Stock option dilution
(treasury method)
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—
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—
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-
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—
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—
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-
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Weighted average
diluted shares outstanding
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219,834
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142,981
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54 %
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200,317
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101,606
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97 %
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3 Management uses funds
from operations (cash flow from operating activities before changes
in non-cash working capital, legal settlement expenses,
decommissioning expenditures, transaction costs, cash settled
stock-based compensation 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.
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4 Please see capital
expenditures note.
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5 The Company defines net
debt as outstanding bank debt plus or minus cash-based working
capital and dividends payable, and excluding the fair value of
financial contracts and other current obligations
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6 The Company views this
change calculation as not meaningful, or "nm".
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OPERATIONAL UPDATE
During 2014, Surge's low risk, development drilling inventory
expanded to 939 gross (903 net) locations, and Surge significantly
increased the Company's internally estimated OOIP to greater than
2.1 billion net barrels as follows:
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OOIP
(MMbbls)
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Locations
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Property
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(gross/net)
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(gross/net)
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Western
Alberta
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731/639
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187/178
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SE Alberta
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481/403
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152/149
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SW
Saskatchewan
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469/450
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362/357
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Williston
Basin
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791/634
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238/219
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TOTAL
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2,472/2,126
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939/903
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In late 2014 and early 2015 Surge continues to experience
excellent operational results as set forth below:
- At Valhalla: Surge
successfully completed a horizontal, multi-frac, Doig, oil well at
5-7-75-8 W6 in early January. The well was on production
January 15, 2015 and is one of the
Company's most prolific wells to date in this large, high quality
light oil pool. Surge is currently drilling an offset well to the
south of 5-7, from the same surface pad, which will be brought on
production in April.
Production efficiencies at Valhalla are some of the lowest in
Canada at less than $14,000 per boepd. With the exciting large
northern extension at Valhalla,
Surge now has more than 35 additional, low risk development
drilling locations into this 160 million OOIP light oil pool.
- At Shaunavon: Surge has on
production, two exciting new Upper Shaunavon development wells .The
first well, at 13-18-5-19W3 encountered very good reservoir quality
along its entire length. It confirms the Southwest extension of the
second major trend on Surge's land. The second well, at
13-3-6-19W3, offsets 4-34-5-19W3 (which was brought on production
in the fourth quarter) to the north. It too, encountered very good
reservoir throughout and extends the trend further east and north
on Surge lands. These wells were both fracced and brought on
production in early March, and are currently producing over 200
bbls/d each.
Surge now estimates that the OOIP in the Upper Shaunavon is over
250 million barrels - with over 150 low risk development drilling
locations. Production efficiencies are some of the lowest in
Canada at less than $14,000 per boepd, and risked rates of return are
over 85 percent at US$58 WTI per
barrel pricing.
- At Northgate: In SE Saskatchewan, the Company participated in 2
(0.9 net) successful non- operated, Midale horizontal development oil wells. The
wells are currently being completed and expected to be on
production by the end of the quarter.
- At Eyehill: Surge drilled, completed and brought on production
one successful horizontal, multi-frac Sparky oil well. The well is
on production and is performing above type curve expectations.
- At Manson: Surge participated in drilling and completing of 1
(0.5 net) Bakken horizontal, development wells. Surge also
converted one additional Bakken oil well to water injection. With 8
waterflood injectors now at Manson, the waterflood is experiencing
excellent results.
AUDITED FINANCIAL STATEMENTS, MD&A AND AIF:
Surge has filed with Canadian securities regulatory authorities
its audited financial statements and accompanying MD&A for the
three months and year ended December
31, 2014. Surge has also filed the Company's Annual
Information Form for the year ended December
31, 2014. These filings are available for review at
www.sedar.com or www.surgeenergy.ca.
ANNUAL GENERAL MEETING:
Surge's Annual General Meeting is scheduled for 3:00 pm Mountain Standard Time on May 4, 2015 at the Petroleum Club, McMurray Room located at 319 – 5th
Avenue SW, Calgary AB.
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, it contains forward-looking
statements concerning: (i) targeted growth in reserves, production
and cash flow per share, (ii) ultimate recovery factors at certain
of Surge's properties, (iii) increased processing reliability and
cost improvements as a result of certain acquisitions, (iv) net
crude oil production, (v) planned drilling, development and water
flood activities and the timing thereof, (vi) the potential number
of drilling locations at certain of Surge's properties, (vii)
estimated 2015 first half average production rate, (viii) the
expected production of certain non-core assets disposed, (ix)
estimates on OOIP, * production efficiencies to be experienced,
(xi) debt and bank facilities, (xii) primary and secondary recovery
potentials and implementation thereof, (xiii) decline rates, (xiv)
funds from operations, (xv) operating and cash flow netbacks, and
(xvi) realization of anticipated benefits of acquisitions.
Statements relating to "reserves" are also deemed to be forward
looking statements, as they involve the implied assessment, based
on certain estimates and assumptions, that the reserves described
exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.
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 water flood 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.
Drilling locations
This press release discloses drilling locations in three
categories: (i) proved locations; (ii) probable locations; and
(iii) unbooked locations. Proved locations and probable locations
are derived from the Company's independent reserves evaluation as
prepared by a qualified reserves evaluator in accordance with
National Instrument 51-101 and account for drilling locations that
have associated proved and/or probable reserves, as applicable.
Unbooked locations are internal estimates based on the Company's
prospective acreage and an assumption 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. Of the 939 drilling locations identified herein, 261
are proved locations, 74 are probable and 604 are unbooked
locations. Unbooked locations have been identified by management 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 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 we actually drill 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, 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.
Non-IFRS measures
This document contains the terms "funds from operations", "
recycle ratio ", " operating netback", and "corporate netback"
which do not have a standardized meaning prescribed by IFRS and,
therefore, may not be comparable with the calculation of similar
measures for other entities. Surge uses these metrics to analyze
financial and operating performance. Surge feels these benchmarks
are key measures of profitability and overall sustainability for
the Company. Each of these terms is commonly used in the oil and
gas industry. Funds from operations is calculated as cash
flow from operating activities before changes in non-cash working
capital, legal settlement expenses, decommissioning expenditures,
transaction costs, cash settled stock-based compensation and
current tax on disposition. Recycle ratio is calculated as
operating netback divided by finding, development and acquisition
costs (proved plus probable). Operating netback is calculated
as revenue (including realized hedging gains and losses) minus
royalties, production and operating expenses and transportation
expenses. Corporate netback is calculated as operating
netback less general and administrative expenses and interest
expense.
Additional IFRS measures
This press release also contains the term net debt. The
reference to the additional IFRS measure of net debt may not be
comparable with the calculation of similar measures for other
entities. The Company's calculation of net debt includes long-term
debt and the net working capital deficiency (excess). The net
working capital deficiency (excess) excludes short-term commodity
contract assets and liabilities, current finance lease obligation,
and current deferred lease inducements.
Oil and Gas Advisories
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. Boepd means barrel of oil equivalent per day.
Test results and initial production rates disclosed herein may
not necessarily be indicative of long term performance or of
ultimate recovery. A pressure transient analysis or well-test
interpretation has not been carried out and thus certain of the
test results provided herein should be considered to be preliminary
until such analysis or interpretation has been completed.
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.
SOURCE Surge Energy Inc.