CALGARY, Feb. 8, 2016 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") announced the results of its independent reserves
evaluation (the "Surge Sproule Report") effective December 31, 2015 as prepared by Sproule
Associates Limited ("Sproule").
Surge delivered record results with respect to the Company's
2015 year end reserves finding and development costs.
Surge's focused operating strategy of utilizing capital to
acquire, exploit and waterflood high quality reservoirs continues
to provide excellent results. A large percentage of Surge's
current production base is comprised of high netback, large
original oil in place ("OOIP"), crude oil reservoirs - with top
tier development production efficiencies. These factors have
contributed to a continued reduction in Surge's annual corporate
decline rate to 19 percent today.
Excellent drilling results, reductions in future development
costs, and strong positive technical revisions across the Company's
high quality asset base have allowed Surge to deliver the lowest
"all-in" finding and development costs in the Company's six year
history.
HIGHLIGHTS
- Surge's "all-in" proved plus probable finding and development
costs (including changes in future development capital ("FDC")) for
2015 were $6.08 per boe – for
predominantly light and medium gravity crude oil;
- Surge's "all-in" proved plus probable producing finding and
development costs for wells drilled in 2015 were $7.95 per boe;
- Year end 2015 reserves totaled 85.8 million barrels (78 percent
oil and NGL's) of proved plus probable reserves, which provides a
reserve life index of greater than 16 years based on the Company's
budgeted 2016 average production rate of 14,000 boepd;
- Surge's annual corporate decline has been confirmed by the
Company's independent reserve engineering firm to be 19 percent for
proved developed producing and probable producing reserves;
- Based on Surge's 2015 unhedged operating netback of
$16.63 per boe, the Company generated
a recycle ratio of 2.7 times for 2015 proved plus probable reserve
additions;
- Utilizing Surge's 2015 hedged operating netback of $23.81 per boe, the Company generated a recycle
ratio of 3.9 times for 2015 proved plus probable reserve
additions;
- In the first half of 2015, Surge closed the sale of several
producing oil and gas properties located in Saskatchewan and Manitoba for proceeds of C$465 million to strategically position the
Company's balance sheet for a "lower for longer" scenario for crude
oil prices. Surge sold approximately 5,200 boepd and 24.9 million
boe of proven plus probable reserves, at metrics of approximately
$90,000 per flowing boepd, and
$18.69 per boe for proved plus
probable reserves;
- Surge's December 31, 2015 net
asset value ("NAV")1 per share is $4.88 - utilizing the much lower crude oil price
deck posted by Surge's independent engineering evaluators as set
forth herein; and
- Over 55 percent of Surge's December 31,
2015 total reserve value is in the proved developed
producing and probable producing categories.
2015 YEAR END RESERVES
Highlights
- Surge drilled 15 wells in 2015, at a capital cost of
$36.6 million, adding 4.6 million boe
- providing a simple finding and development cost of $7.95 per boe (proved developed producing and
probable producing reserves);
- Waterflood and improved recovery factors added 1.4 million boe
(total proved plus probable reserves);
- Surge now books 224 total net undeveloped locations in the
Company's proved plus probable reserves category - out of a large
inventory of 757 net locations. Of the booked locations, 59 are in
the Upper Shaunavon play (an increase of 22 net locations) as a
result of Surge's very successful 2015 development drilling
program; and
- Total proved plus probable FDC2 is $378 million.
The following table summarizes the Company's reserves evaluated
by independent reserves evaluators at December 31, 2015. The Surge Sproule Report
was prepared in accordance with definitions, standards and
procedures contained in the Canadian Oil and Gas Evaluation
Handbook ("COGE Handbook") and National Instrument 51-101 Standards
of Disclosure for Oil and Gas Activities ("NI 51-101").
|
|
|
|
|
Summary of
Reserves3
|
|
|
|
|
|
Oil and
NGLs
(mbbls)
|
Gas
(mmcf)
|
Combined
(mboe)
|
Future Development
Capital (FDC)
($M)
|
|
|
|
|
Discounted
@
10%
|
Undiscounted
|
Proved Developed
Producing
|
24,121
|
36,369
|
30,182
|
1,122
|
1,186
|
Proved Developed
Non-Producing
|
1,115
|
3,289
|
1,663
|
2,107
|
2,353
|
Proved
Undeveloped
|
15,104
|
34,955
|
20,930
|
246,951
|
313,097
|
Total
Proved
|
40,340
|
74,612
|
52,775
|
250,180
|
316,636
|
Probable
Additional
|
26,559
|
39,045
|
33,067
|
128,144
|
169,527
|
Total Proved plus Probable
|
66,899
|
113,658
|
85,842
|
378,324
|
486,163
|
|
|
|
|
|
|
Summary of Before
Tax Net Present Values (Forecast Pricing)
|
|
|
As at December 31,
2015
|
|
|
|
|
|
BEFORE TAX NET
PRESENT VALUE ($M)
|
|
Discount
Rate
|
DESCRIPTION
|
0%
|
5%
|
10%
|
15%
|
20%
|
Proved Developed
Producing
|
839,764
|
617,465
|
489,636
|
406,465
|
348,017
|
Proved Developed
Non-Producing
|
38,564
|
31,004
|
25,435
|
21,251
|
18,040
|
Proved
Undeveloped
|
446,255
|
296,273
|
202,178
|
140,885
|
99,408
|
Total
Proved
|
1,324,583
|
944,742
|
717,249
|
568,601
|
465,465
|
Probable
Additional
|
1,166,187
|
647,234
|
420,354
|
297,120
|
221,488
|
Total Proved plus
Probable4
|
2,490,770
|
1,591,976
|
1,137,603
|
865,721
|
686,953
|
Per basic
share
|
11.27
|
7.20
|
5.15
|
3.92
|
3.11
|
The reserves evaluation was based on Sproule forecast pricing
and foreign exchange rates at January 1,
2016 as outlined below. The Sproule January 1, 2016 forecast pricing for West Texas
Intermediate ("WTI") oil and natural gas at AECO are US$45.00 per bbl and C$2.25 per MMBtu respectively.
|
|
|
|
|
Price
Forecast
|
Edmonton Light Crude
Oil
|
WTI Oil
|
AECO Natural
Gas
|
Foreign Exchange
Rate
|
|
(CDN$/bbl)
|
(US$/bbl)
|
(CDN$/mmbtu)
|
(US$/CDN$)
|
2016
|
55.20
|
45.00
|
2.25
|
0.75
|
2017
|
69.00
|
60.00
|
2.95
|
0.80
|
2018
|
78.43
|
70.00
|
3.42
|
0.83
|
2019
|
89.41
|
80.00
|
3.91
|
0.85
|
2020
|
91.71
|
81.20
|
4.20
|
0.85
|
2021
|
93.08
|
82.42
|
4.28
|
0.85
|
2022
|
94.48
|
83.65
|
4.35
|
0.85
|
2023
|
95.90
|
84.91
|
4.43
|
0.85
|
2024
|
97.34
|
86.18
|
4.51
|
0.85
|
2025
|
98.80
|
87.48
|
4.59
|
0.85
|
2026
|
100.28
|
88.79
|
4.67
|
0.85
|
Thereafter
|
1.5%/year
|
1.5%/year
|
1.5%/year
|
0.85
|
|
|
|
|
|
FINDING AND DEVELOPMENT COSTS AND CAPITAL PROGRAM
EFFICIENCY
In 2015 Surge enjoyed strong technical revisions across the
Company's high quality, waterflooded, large OOIP, light/medium
gravity crude oil asset base. Layered in on top of this low base
decline, Surge also delivered top tier drilling production
efficiencies (with excellent rates of return) at the Company's
three core properties at Shaunavon, Valhalla and Sparky.
Surge also benefited from a significant reduction in all service
costs with respect to drilling and completions. This has been
reflected in the reduction of future development costs assigned to
booked drilling locations.
Operationally, Surge successfully executed two mono-bore, Sparky
development wells at Eyehill. The lower well costs associated with
this well design were incorporated in the estimate of FDC for all
of Surge's Sparky locations.
Based on the evaluation of our petroleum and natural gas
reserves prepared in accordance with NI 51-101 by our independent
reserve evaluators, the historical efficiency of our capital
programs is summarized as follows:
|
|
|
|
|
|
|
Five
Year
|
|
2015
|
2014
|
Weighted
|
|
|
|
Average
|
Excluding Future
Development Costs
|
|
|
|
Proved
($/boe)
|
|
|
|
|
F&D
costs5
|
$14.03
|
$23.99
|
$20.71
|
|
FD&A
costs6
|
N/A
|
$22.88
|
$25.25
|
Proved plus
probable ($/boe)
|
|
|
|
|
F&D
costs5
|
$15.33
|
$29.61
|
$15.70
|
|
FD&A
costs6
|
N/A
|
$15.97
|
$17.65
|
Proved plus
Probable Recycle ratio
|
|
|
|
|
F&D
costs5
|
1.6x
|
1.5x
|
2.3x
|
|
FD&A
costs6
|
N/A
|
2.7x
|
2.0x
|
Including Future
Development Costs2
|
|
|
|
Proved
($/boe)
|
|
|
|
|
F&D
costs5
|
$6.67
|
$22.57
|
$26.47
|
|
FD&A
costs6
|
N/A
|
$26.66
|
$28.37
|
Proved plus
probable ($/boe)
|
|
|
|
|
F&D
costs5
|
$6.08
|
$25.99
|
$22.68
|
|
FD&A
costs6
|
N/A
|
$19.55
|
$21.15
|
Proved plus
Probable Recycle ratio7
|
|
|
|
|
F&D
costs5
|
3.9x
|
1.7x
|
1.6x
|
|
FD&A
costs6
|
N/A
|
2.2x
|
1.7x
|
|
|
|
|
Operating netback
per boe7
|
$23.81
|
$43.18
|
$35.51
|
OPERATIONAL UPDATE
In the first quarter of 2016 Surge budgeted for the drilling of
three wells, and the completion of the Company's new
pipeline/compression project at Valhalla in NW
Alberta.
At Shaunavon, Surge has drilled
two 100 percent operated infill wells into the Upper Shaunavon
formation. Both of these wells have been completed with multi-stage
frac's and are flowing oil wells - producing well above Surge's
type curve.
At Valhalla, Surge drilled a
100 percent working interest Doig infill well at the northern
extension of the Company's 160 million barrel OOIP, operated light
oil pool. The well was drilled to 1,100 meters in horizontal
length, and will be completed in the next few days with 17 frac
stages. The well will be on production in early February.
Based on these continued excellent development drilling results,
Surge anticipates adding over 1,200 bopd of light/medium net crude
oil production from the first quarter of 2016 drilling program for
a total capital expenditure of less than $6.9 million.
The Valhalla
pipeline/compression project will be completed by the end of
February, 2016 and will allow Surge to lower the Valhalla field pressures significantly. This
project will also allow Surge to take up to 14 mmcf/d of associated
sweet gas at Valhalla to nearby
sweet plants – lowering the Company's processing fees from
$1.25/mcf to $0.60/mcf, and substantially reducing downtime at
this core asset.
NEW NET ASSET VALUE
In the third quarter of 2015 Surge provided shareholders with an
estimate of the Company's NAV of $4.64 per share – utilizing Sproule's lower third
quarter 2015 price deck for crude oil and natural gas.
Surge's new NAV, as of December 31,
2015, is estimated to be $4.88
per share – utilizing a much lower price deck than that used by
Sproule in the third quarter of 2015.
Surge's December 31, 2015 detailed
NAV calculation is set forth below:
|
NAV ($M except
share amounts)
|
Proved Plus Probable
Reserve Value NPV10 BT (incl. FDC)
|
$
|
1,137,614
|
Undeveloped Land and
Seismic
|
$
|
105,977
|
Estimated Net Debt
(unaudited)
|
$
|
(164,000)
|
Total Net
Assets
|
$
|
1,079,591
|
|
|
Basic Shares
Outstanding (000's)
|
|
221,033
|
Fully Diluted Shares
Outstanding (000's)
|
|
227,051
|
|
|
|
Estimated NAV per
Basic Share
|
$
|
4.88
|
Estimated NAV per
Fully Diluted Share
|
$
|
4.75
|
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.
DISCLAIMERS
Unaudited Financial Information
Certain financial and
operating information included in this press release for the
quarter and year ended December 31,
2015, such as finding and development costs, production
information, operating netbacks, recycle ratios and net asset value
calculations are based on unaudited financial results for the year
ended December 31, 2015 and are
subject to the certain limitations as discussed under
forward-looking statements outlined at the end of this news
release. These estimated amounts may change upon completion
of the audited financial statements for the year ended December 31, 2015 and those changes may be
material.
Per share information is based on the total common shares
outstanding, as at December 31,
2015.
For certain calculations, Management used an estimate of
$76.7 million for total capital
expenditures for 2015 including acquisitions and
dispositions.
Information Regarding Disclosure on Oil and Gas
Reserves
The reserve data provided in this news release
presents only a portion of the disclosure required under NI
51-101. The oil and gas disclosure statements for the year
ended December 31, 2015, which will
include complete disclosure of Surge's oil and gas reserves and
other oil and gas information in accordance with NI 51-101, will be
contained within Surge's Annual Information Form which will
be available on Surge's SEDAR profile on or before March 31, 2016 at www.sedar.com.
There are numerous uncertainties inherent in estimating
quantities of crude oil, natural gas and NGL reserves and the
future cash flows attributed to such reserves. The reserve and
associated cash flow information set forth above are estimates
only. In general, estimates of economically recoverable crude oil,
natural gas and NGL reserves and the future net cash flows
therefrom are based upon a number of variable factors and
assumptions, such as historical production from the properties,
production rates, ultimate reserve recovery, timing and amount of
capital expenditures, marketability of oil and natural gas, royalty
rates, the assumed effects of regulation by governmental agencies
and future operating costs, all of which may vary materially. For
those reasons, estimates of the economically recoverable crude oil,
NGL and natural gas reserves attributable to any particular group
of properties, classification of such reserves based on risk of
recovery and estimates of future net revenues associated with
reserves prepared by different engineers, or by the same engineers
at different times, may vary. The Company's actual production,
revenues, taxes and development and operating expenditures with
respect to its reserves will vary from estimates thereof and such
variations could be material.
All evaluations and reviews of future net revenue are stated
prior to any provisions for interest costs or general and
administrative costsand after the deduction of estimated future
capital expenditures for wells to which reserves have been
assigned. The after-tax net present value of the Company's oil and
gas properties reflects the tax burden on the properties on a
stand-alone basis and utilizes the Company's tax pools. It
does not consider the corporate tax situation, or tax
planning. It does not provide an estimate of the after-tax
value of the Company, which may be significantly different.
The Company's financial statements and the management's discussion
and analysis should be consulted for information at the level of
the Company.
The estimates of reserves and future net revenue for individual
properties may not reflect the same confidence level as estimates
of reserves and future net revenue for all properties, due to
effects of aggregations. The estimated values of future net revenue
disclosed in this press release do not represent fair market value.
There is no assurance that the forecast prices and cost assumptions
used in the reserve evaluations will be attained and variances
could be material.
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 means barrel of oil equivalent per day.
Type Wells Disclosure
Surge's Upper Shaunavon type
curve is based on internal best estimates and publicly available
data and is consistent with Sproule reserve bookings.
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: (i) the Company'sestimated decline rate; (ii) the
timing and completion methods with respect to Surge's wells in
Valhalla; (iii) the timing of the
completion of Surge's Valhalla
pipeline and compression project, the estimated savings to be
achieved in connection therewith and reduced downtime access to
Valhalla; and (iv) the timing of
the filing of Surge's Annual Information Form and the
information to be contained therein.
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 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, the determination of decommissioning liabilities, the
continuation of the Corporation's normal course issuer bid,
prevailing weather conditions, exchange rates, licensing
requirements, the impact of completed facilities on operating costs
and the availability, costs of capital, labour and services, 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 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 the continued support of the
lenders under Surge's bank line. Certain of these risks are set out
in more detail in Surge's Annual Information Form dated
March 19, 2015 and in Surge's
MD&A for the period ended September 30,
2015, both of which have 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 Inventory
This press release discloses drilling locations that are booked
locations as well as unbooked locations. Proved locations and
probable locations, which are sometimes collectively referred to as
"booked locations", are derived from the Surge Reserves Report and
account for drilling locations that have associated proved 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. Unbooked
locations have specifically been identified by management as an
estimation of our multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves data on prospective acreage and geologic formations.
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 and other factors.
Test Results and Initial Production Rates
Any references in this press 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.
Non-IFRS Measures
This press release contains the terms "operating netback", and
"NAV" which do not have a standardized meaning prescribed by
International Financial Reporting Standards ("IFRS") and therefore
may not be comparable with the calculation of similar measures by
other companies. Management uses funds generated by operations to
analyze operating performance and leverage. Management believes
"operating netbacks" are a useful supplemental measures of the
amount of revenues received after royalties and operating and
transportation costs. Additional information relating to these
non-IFRS measures can be found in the Company's most recent
management's discussion and analysis MD&A, which may be
accessed through the SEDAR website (www.sedar.com).
Select Definitions
bbl
|
barrel
|
|
bbls
|
barrels
|
|
Mbbls
|
thousand
barrels
|
|
MMBtu
|
million British
thermal units
|
|
NGLs
|
natural gas
liquids
|
|
mcf
|
thousand cubic
feet
|
|
mmcf
|
million cubic
feet
|
|
mmcf/d
|
million cubic feet
per day
|
|
boe
|
barrel of oil
equivalent on the basis of 1 boe to 6 Mcf of natural
gas.
|
|
mboe
|
thousand
boe
|
|
$M
|
thousands of
dollars
|
|
_____________________________________
1
Net asset value ("NAV") is calculated as proved plus probable
(before tax discounted at 10%) reserve value, plus undeveloped land
value and seismic data value, less debt, as at December 31, 2015, per basic share.
2 FDC is discounted at 10 percent.
3 Please see Information Regarding Disclosure on Oil and
Gas Reserves of this press release.
4 Number may not add due to rounding.
5 The aggregate of the exploration and development costs
incurred in the financial year and change during that year in
estimated future development costs (discounted at 10 percent)
generally will not reflect total finding and development costs
related to reserve additions for that year.
6 The capital expenditures include the announced
purchase price of corporate acquisitions rather than the amounts
allocated to property, plant and equipment for accounting purposes.
The capital expenditures also exclude capitalized administration
costs.
7 Recycle ratio is calculated as operating netback
divided by FD&A 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.
SOURCE Surge Energy Inc.