CALGARY, April 7, 2016 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces the sale of its non-core
Sunset property, and the facilities sale at Valhalla, for total proceeds of $43 million; reduction of the Company's dividend;
and updated 2016 guidance.
CLOSING OF ASSET SALES
On March 24, 2016 Surge closed the
previously announced sale of certain facilities at its Valhalla light oil and natural gas asset in
NW Alberta for $15 million. The Company will maintain control of
the Valhalla facilities as
operator, and will pay the purchaser an annual tariff for the life
of the agreement. Surge will also retain all third- party
processing revenues generated from the facilities.
On March 31, 2016 Surge also
closed the previously announced sale of the Company's non-core
Sunset property in Northern
Alberta for proceeds of $28
million.
The $43 million in combined sale
proceeds have been used to pay down the Company's existing credit
facility. Pro-forma the proceeds from these two asset divestures,
Surge's net debt as at December 31,
2015 was $117.4 million.
REDUCTION TO DIVIDEND
As crude oil prices precipitously dropped from US$108 WTI per barrel in June of 2014, to a low
of US$26.75 per barrel in early
February of 2016, Surge's management team have proactively created
more than $742 million of liquidity
for the Company (and its shareholders) comprised as follows:
|
$
|
469 mm
|
Asset Sales
(2015)
|
|
$
|
100 mm
|
Dividend Reductions
(Annualized)
|
|
$
|
90 mm
|
Capex
Reductions
|
|
$
|
40 mm
|
Hedge
Crystallizations
|
|
$
|
28 mm
|
Asset Sales
(2016)
|
|
$
|
15 mm
|
Valhalla Midstream
(2016)
|
|
$
|
742
mm
|
Total
|
Surge management created this liquidity without issuing a single
common share from the Company's treasury. Indeed, over the last
several months the Company has actually acquired over 1,100,000
Surge common shares in the market, at prices well below the
Company's new independently engineered net asset value of
$4.88 per share (i.e. pursuant to
Surge's outstanding normal course issuer bid).
As a result of these aggressive and strategic capital allocation
decisions, over the last 21 months Surge management have reduced
the Company's net debt from approximately $590 million as at December 31, 2014 to $117.4 million at December
31, 2015 (pro forma the $43
million of asset sales referred to above).
Surge's current bank line is $400
million, providing the Company with a significant amount of
credit availability on its bank lines. The Company's interest
expense is a very low $1.19 per
boe.
Surge's management and Board assess market conditions on a
weekly and monthly basis with respect to protecting the Company's
balance sheet, weighing the efficiency of capital expenditures, and
assessing the appropriate level of the Company's dividend. In this
regard, until such time as Surge's management and Board see a
sustainable recovery in world crude oil prices, Surge is
immediately reducing the Company's dividend from $0.15 per share per year ($0.0125 per share per month) to $0.075 per share, per year ($0.00625 per share per month).
Despite reducing the current dividend level, Surge management
intend to retain the Company's dividend as an integral method for
maximizing shareholder returns. Management believe that
current industry fundamentals support lower overall growth
expectations for crude oil companies in the future. Surge's
high quality, low decline asset base, and its low cost structure,
provide an excellent foundation for Surge's moderate growth,
dividend paying business model. As such, the Company does not
anticipate any further dividend reductions at this time.
2016 GUIDANCE UPDATED
Having created an additional $60
million of liquidity for the Company (i.e. the two asset
sales and dividend reduction referred to above), Surge management
reaffirm the Company's 2016 capital spending plan. This program
reflects a prudent amount of capital and activity in order to
maintain stability in Surge's corporate base production and balance
sheet.
The following table provides updated 2016 guidance ranges for
key financial operating items. Assumptions behind these values are
based on strip pricing as of April 1,
2016.
Operating
Category
|
2016
Guidance
|
Exit production
(boe/d)
|
13,000 (76%
liquids mix)
|
Total capital net of
acq/disp (mm$)
|
$55 mm
|
Corporate
oil price discount to Edmonton light
|
CAD
$12-13/bbl
|
Royalties as % of
revenue
|
13-14%
|
Operating expenses,
$/boe
|
13.45 –
13.95
|
Transportation
expense, $/boe
|
1.75-1.85
|
G&A,
$/boe
|
1.75
|
In accordance with this low risk development drilling program,
Surge anticipates exiting 2016 with production of more than 13,000
boepd. The Company's adjusted 2016 production guidance reflects the
Sunset disposition (720 boepd), as well as 350-400 boepd of
production that is currently shut in due to low oil prices.
Surge management will continue to closely monitor and assess the
Company's 2016 capex program based on market conditions. The
Company will initiate the majority of its 2016 capital spending
program (post spring break-up) on or about July 1, 2016.
Surge anticipates spudding the Company's regularly scheduled 100
percent working interest Valhalla Doig light oil well during the
week of April 15, 2016. Recently
available public data establishes Surge's latest Valhalla light oil well as a type curve well
that ranks as the second best oil well in Alberta for the month of February, 2016.
In addition to the above, with over a $0.25 Billion of credit availability on Surge's
bank line, the Company will continue to identify and pursue
strategic, accretive acquisitions in the present distressed
marketplace – focusing particularly in Surge's three core
areas.
FINANCIAL STATEMENTS AND ACCOMPANYING MDA AND ANNUAL
INFORMATION FORM:
Surge has filed with Canadian securities regulatory authorities
its annual audited consolidated financial statements and
accompanying MD&A for the year and three months ended
December 31st, 2015, as
well as its Annual Information Form. These filings are available
for review at www.sedar.com or www.surgeenergy.ca.
READER ADVISORIES
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) Surge's drilling and development plans and enhance
recovery projects and the timing and results to be expected
thereof; (ii) estimated sizes, characteristics, efficiencies, rates
of return, netbacks, pool recovery factors and risk levels of plays
and the number of associated drilling locations, as applicable;
(iii) the Company's continued control and operatorship over the
Valhalla facilities and the
payments to be made thereunder; (iv) expectations with respect to
the Company's ability to operate and succeed in the current
commodity price environment; (v) the Company's declared focus and
primary goals; (vi) 'Surge's plans with respect to its dividend;
(vii) management's estimates and expectations regarding production
efficiencies, drilling upside, drilling inventory, well costs,
growth opportunities, reserves and reserve life index and decline
rates; (viii) guidance with respect to 2016 exit production,
interest expense, total capital, royalties, operating expenses,
transportation expenses, G&A expenses, as well as the
applicable discount price to be received on future production; (ix)
Surge's plans to monitor capital programs and market conditions;
and * the timing of Surge's 2016 capital program, including the
spudding of wells.
The guidance for 2016 set forth in this press release may be
considered to be future-oriented financial information or a
financial outlook for the purposes of applicable Canadian
securities laws. Financial outlook and future-oriented financial
information contained in this press release are based on
assumptions about future events based on management's assessment of
the relevant information currently available. In particular, this
press release contains projected operational information for 2016,
including exit production, interest expense, total capital,
royalties, operating expenses, transportation expenses, G&A
expenses, as well as the applicable discount price to be received
on future production. The future-oriented financial information and
financial outlooks contained in this press release have been
approved by management as of the date of this press release.
Readers are cautioned that any such financial outlook and
future-oriented financial information contained herein should not
be used for purposes other than those for which it is disclosed
herein.
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,
prevailing weather conditions, exchange rates, licensing
requirements, the timing and completion of the proposed
dispositions, the impact of completed facilities on operating costs
and the availability, costs of capital, labour and services, the
creditworthiness of industry partners and the impact of the pending
transactions on the Company's bank line.
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 16, 2016 and in Surge's
MD&A for the period ended December 31,
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.
Reserves Data
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.
Non-IFRS Measures
This press release contains the terms "net debt" 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 believes "net debt" is a useful
supplemental measure of the total amount of current and long-term
debt of the Company. Mark-to-market risk management contracts are
excluded from the net debt calculation. NAV is calculated as set
forth above. 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).
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.