CALGARY, Dec. 13, 2016 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces that its Board of Directors
has formally approved an upward revision to the Company's
previously announced 2017 preliminary production guidance.
Pursuant to a Press Release dated September 6, 2016, Surge provided preliminary
capital expenditure and production guidance for 2017.
Based on continued successful development drilling results at
the Company's Shaunavon, Sparky
and Valhalla core areas, combined
with ongoing waterflood activities, Surge is now increasing its
2017 production guidance as set forth below, with no corresponding
increase to capital expenditures.
APPROVED GUIDANCE FOR 2017
The Company's 2017 $85 million
capital expenditure program and increased production growth
estimates are set forth below - at a US $55 WTI per barrel pricing assumption. This
guidance has now been formally approved by the Company's Board of
Directors.
In 2017 Surge's average daily production estimate has been
increased from 13,500 boepd to 14,000 boepd (80 percent oil), and
the Company's 2017 exit rate guidance has now been increased from
14,150 boepd to 14,450 boepd. On this basis, Surge will be
providing shareholders with organic production per share growth of
18 percent from the second quarter of 2016 to the end of 2017.
|
Revised 2017
Guidance at
|
US $55
WTI
|
OPERATIONAL
|
|
2017 Average
Production (boe/d)
|
14,000
|
2017 Exit Production
(boe/d)
|
14,450
|
Total Capital
Spending
|
$85
million
|
Operating Expenses
($/boe)
|
$11.45/boe to
$11.95/boe
|
Transportation
Expenses ($/boe)
|
$1.50/boe
|
Royalties as a % of
Revenue
|
12% to 13%
|
Estimated Funds Flow
from Operations1
|
$124.3
million
|
Funds Flow from
Operations per Share ($/share)
|
$0.55
|
|
Revised 2017
Guidance at
|
|
US $55
WTI
|
FINANCIAL
|
|
Basic Shares
Outstanding (MM)
|
225.7
|
Annual Dividend
Payable
|
$16.9
million
|
Exit 2017
Debt
|
$128.4
million
|
Debt/Cash
Flow2
|
1.0x
|
Payout/Sustainability
Ratio3
|
82%
|
CAPITAL EXPENDITURE BREAKDOWN
In 2017 Surge anticipates spending $85
million of total capital, broken down as follows:
Capital Category
|
Amount
|
Drill & Complete,
Tie-in
|
$53 million
|
Waterflood
|
$4 million
|
Facilities
|
$8 million
|
Workovers
|
$9 million
|
Land, Capitalized
G&A, other
|
$11 million
|
Total
|
$85
million
|
Sparky
Following the success of the 10 monobore Sparky wells at Eyehill
in the second half of 2016, Surge plans to drill 13 net Sparky
wells at Eyehill, Provost, and Betty
Lake in 2017. Drilling, fracing, and on-stream costs at
Sparky have now dropped below $1.0
million per well, and the Company anticipates 140,000 boe of
internally estimated ultimate recovery per well for primary
production only.
The latest four monobore wells drilled at Eye Hill in the fourth
quarter of 2016, are currently on production, and exhibiting good
overall fluid deliverability and increasing oil cut. Importantly,
the wells drilled by Surge at Eyehill this year have exceeded the
Company's current Eye Hill type curve.
As a result of these consistent excellent drilling results,
production at Eyehill has increased from approximately 500 boepd to
over 1,500 boepd (80 percent oil) in the last five months.
Operating expenses at Eyehill have now dropped to less than
$5.50 per boe, and are budgeted to be
under $5 per boe in 2017.
Surge's waterflood project at Eyehill continues to deliver
excellent, measurable results, with two water injector conversions
to date. The Company has applied to expand the horizontal
waterflood scheme in 2017 under the Alberta Enhanced Hydrocarbon
Recovery Program in order to obtain the applicable waterflood
royalty incentives.
Shaunavon
Surge currently plans to drill 20 net wells at Shaunavon in 2017.
The Company will continue to delineate both the northern and
southern portions of Surge's 58 section Upper Shaunavon field in
2017. Very little capital is required to tie in additional wells or
implement new waterflood pilots, as extensive existing
infrastructure is already in place in the Shaunavon field, including an operated 10,000
bopd battery. Continued investment at Shaunavon is underpinned by low operating
expenses (budgeted to be under $6 per
boe in 2017), favorable royalty rates, top tier well results, and
excellent rates of return at strip oil prices.
The Company is also pleased to report positive preliminary
drilling results from the 14 wells recently drilled at Shaunavon in the fourth quarter of 2016.
Average total fluid deliverability for the 14 wells continues to
meet Surge's current Upper Shaunavon per well expectations.
The Company's waterflood project continues to deliver excellent,
measurable results, and Surge continues to expand the Upper
Shaunavon waterflood having now converted a total of five wells to
water injection.
Drilling, fracing, and on-stream costs at Shaunavon have dropped below $1.1 million per well, and the Company
anticipates 150,000 boe of internally estimated ultimate recovery
per well for primary production only.
Valhalla
Surge's latest well at Valhalla, drilled in the fourth quarter of
2016, is the longest horizontal well drilled by the Company to date
at 2,350 meters of lateral section, and a measured depth of 4,580
meters; combined with the most frac intervals to date at 27 stages.
This exciting well into the northern extension of Surge's large,
Doig light oil pool, was also the Company's first 200 meter infill
well - which is the inter well spacing Surge is now pursuing.
Surge currently plans to drill five net wells at
Valhalla in 2017, and will
continue to advance the Company's 200 meter down spacing program.
Operating costs are budgeted to be $8.40 per boe in 2017 at Valhalla.
OUTLOOK – POSITIONING FOR SUCCESS
Surge's stated goal is to be the best positioned light/medium
crude oil, growth and dividend paying company in Canada. During the extended downturn in world
crude oil prices, Surge management focused on creating balance
sheet flexibility, and implementing rigorous cost cutting
initiatives. Management also high-graded and optimized the
Company's asset base into high quality, large OOIP crude oil
reservoirs in Surge's three core areas - through low risk
development drilling, and the implementation of successful
waterfloods.
As a result of the Company's continued successful development
drilling results in the fourth quarter of 2016, and ongoing
waterflood activities, Surge is now well positioned to exceed
management's projected 2016 exit rate of 13,500 boepd.
In addition, as set forth above, Surge is now revising upwards
the Company's 2017 average daily production estimate to 14,000
boepd, from 13,650 boepd, and Surge's 2017 production exit rate to
14,450 boepd, from 14,150 boepd. This will provide shareholders
with an 18 percent increase in organic production per share growth
by the end of 2017, over the Company's reported second quarter 2016
production level of 12,182 boepd.
The upward revision to the Company's 2017 production growth
estimates is occurring with no corresponding increase to Surge's
preliminary 2017 capex estimate of $85
million.
This upward revision will result in a 74 percent increase in
estimated funds flow per share in 2017, as compared to the current
forecast for 2016.
|
|
|
2016
Forecast
|
2017
Budget
|
%
Change
|
Funds Flow Netbacks
($/boe)
|
|
$14.82
|
$24.32
|
64%
|
Funds Flow
($MM)
|
|
$70
|
$124.3
|
77%
|
|
|
Per Share
(Basic)
|
|
$0.31
|
$0.55
|
74%
|
Net Debt to Funds
Flow
|
|
2.1x
|
1.0x
|
(49%)
|
Pricing
Assumptions
|
|
|
|
|
|
WTI
($US/bbl)
|
|
$42.86
|
$55.00
|
28%
|
|
CAD/USD Exchange
Rate
|
|
$0.76
|
$0.76
|
0%
|
|
Natural Gas (AECO
C/$GJ)
|
|
$1.96
|
$2.95
|
51%
|
Surge's ongoing strategic hedging program protects the execution
of the Company's 2017 drilling program through spring break-up, at
a crude oil price level as low as US $39 WTI, while maintaining a first half of
2017 debt-to-cash flow ratio of under 2.0 times (i.e. at that
low crude oil pricing assumption).
In accordance with managements disciplined, low risk, growth and
dividend strategy, in 2017 Surge will now deliver more than six
percent annual growth in production per share, plus pay its current
dividend, with an "all-in" payout ratio of less than 100 percent -
at less than US $50 WTI per barrel
pricing. Strip oil prices for 2017 are currently above US
$55 WTI per barrel.
With a large internally estimated drilling inventory of more
than 10 years, an excellent balance sheet, and a very low cost
structure, the Company is well positioned to deliver continued
future per share growth in the current commodity price
environment.
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: Surge's capital expenditure program, including drilling
and development plans and enhance recovery projects and the timing
and results to be expected thereof; estimated sizes,
characteristics, efficiencies, rates of return, operating expenses,
netbacks, pool recovery factors and risk levels of plays and the
number of associated drilling locations, as applicable;
management's expectations with respect to the Company's waterflood
program, results therefrom and quantity of producing assets that
will be placed under waterflood; expectations with respect to the
Company's ability to operate and succeed in the current commodity
price environment; the Company's declared focus and primary goals;
management's forecast of debt to cash flow ratio; guidance with
respect to 2016 exit and 2017 average production and production per
share, cash flow; Surge's dividend; management's estimates
and expectations regarding production efficiencies, drilling
upside, operating costs, growth opportunities and reserves;
management's expectations respecting the impact of recent
acquisitions; the impact of cost savings initiatives; drilling
inventories and locations; production and cash flow per share
growth; and anticipated commodity prices.
The guidance for 2016 and 2017 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
and 2017, including exit production, total capital, royalties,
operating expenses, transportation 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 impact of completed facilities on operating costs
and the availability, costs of capital, labour and services and 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 16, 2016 and in Surge's
MD&A for the period ended September 30,
2016, 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. 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. 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.
Non-IFRS Measures
This press release contains the terms "sustainability" and
"netback", 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. Sustainability is a
comparison of a company's cash outflows (capital investment and
dividends) to its cash inflows (funds flow) and is used by the
Surge to assess the appropriateness of its dividend levels and the
long-term ability to fund its development plans. Sustainability
ratio is calculated using the development capital plus dividends
paid divided by funds flow. Management believes "netbacks" are a
useful supplemental measures of the amount of revenues received
after royalties and operating and transportation costs and
secondly, the amount of revenues received after the royalties,
operating, transportation costs, general and administrative costs,
financial charges and asset retirement obligations. 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.
___________________________________
1 Management uses funds from operations (cash flow from
operating activities before changes in non-cash working capital,
decommissioning expenditures, transaction costs and cash settled
stock-based compensation) 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 Debt/Cash Flow is calculated as Exit 2017 Debt divided
by Estimated Funds Flow from Operations
3 Payout/Sustainability Ratio is calculated as the sum
of Annual Dividend Payable and Total Capital Spending, divided by
Estimated Funds from Operations for the period.
SOURCE Surge Energy Inc.