CALGARY, Aug. 2, 2017 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces its operating and financial
results for the quarter ended June 30,
2017.
Based on excellent development drilling results in all three of
Surge's core areas, together with successful waterflood results at
Shaunavon and Eyehill, the
Company's Q2/17 production continued to exceed budgeted
expectations.
In Q2/17 Surge's production averaged 15,125 boepd (81 percent
oil and liquids) - which is very close to the Company's 2017
production exit rate guidance of 15,150 boepd. This exciting
operational result was more than five percent above Surge's
budgeted expectations, and was accomplished during spring break-up
where the Company had a significantly reduced drilling program.
Surge has now revised upward the Company's production guidance
three times in the last 12 months – two times organically, and once
relating to the Company's recent Sparky core area acquisition.
HIGHLIGHTS
- Increased production 24 percent year over year, from 12,182
boepd in Q2/16 to 15,125 boepd in Q2/17;
- In Q2/17 Surge increased production per share nine percent over
Q1/17;
- In the last 12 months Surge has now increased production per
share 22 percent;
- Increased Q2/17 unhedged adjusted funds from operations per
share by 19 percent over Q1/17, from $0.105 to $0.124 –
despite $US WTI crude oil prices dropping seven percent in Q2/17
compared to Q1/17;
- Increased Q2/17 unhedged adjusted funds from operations per
share by 51 percent over Q2/16, from $0.083 to $0.124;
- Increased Q2/17 unhedged corporate netback by 24 percent over
Q2/16, from $16.46/boe to
$20.38/boe;
- Increased Q2/17 adjusted funds from operations per share by 25
percent over Q1/17, from $0.096 to
$0.12 – despite $US WTI crude oil
prices dropping seven percent in Q2/17 compared to Q1/17;
- Increased oil production 29 percent from 8,958 barrels per day
in Q2/16 to 11,522 barrels per day in Q2/17;
- Maintained an excellent balance sheet with a debt to cash flow
of less than two times, with significant liquidity on Surge's bank
line (greater than $75 million credit
available);
- During Q2/17, Surge closed a $36
million acquisition (net of closing adjustments) of a low
decline, high netback, waterflooded, crude oil producing asset in
the Company's Sparky core area in Central
Alberta. This strategic acquisition also included two key
sections of undeveloped land at Surge's core operated Eyehill
asset, and provides Surge with up to 29 additional low risk,
development drilling locations;
- Successfully renegotiated Surge's syndicated bank line in Q2/17
with a large increase from $250
million to $285 million;
and
- On April 19, 2017 Surge announced
an upward revision to the Company's 2017 average daily production
estimate to 14,450 boepd, and Surge's 2017 production exit rate
target to 15,150 boepd from 14,450 boepd.
FINANCIAL AND
OPERATING SUMMARY
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($000s except per
share amounts)
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Three Months Ended
June 30,
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Three Months
Ended
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2017
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2016
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%
Change
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June 30,
2017
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Mar 31,
2017
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%
Change
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Financial
highlights
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Oil sales
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54,216
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37,523
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44 %
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54,216
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48,194
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12 %
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NGL sales
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2,282
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1,367
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67 %
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2,282
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2,240
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2 %
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Natural gas
sales
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4,275
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2,053
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108 %
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4,275
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4,016
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6 %
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Total oil, natural
gas, and NGL revenue
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60,773
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40,943
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48 %
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60,773
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54,450
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12 %
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Adjusted funds from
operations1
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27,018
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22,063
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22 %
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27,018
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21,640
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25 %
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Per share basic
($)
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0.12
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0.10
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20 %
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0.12
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0.10
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20 %
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Capital expenditures
- petroleum & gas properties2
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15,064
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16,810
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(10)%
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15,064
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34,041
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(56)%
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Capital expenditures
- acquisitions & dispositions2
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35,716
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—
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nm4
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35,716
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(269)
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nm
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Total capital
expenditures2
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50,780
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16,810
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202 %
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50,780
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33,772
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50 %
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Net debt at end of
period3
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208,061
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134,613
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55 %
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208,061
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178,753
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16 %
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Operating
highlights
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Production:
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Oil (bbls per
day)
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11,522
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8,958
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29 %
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11,522
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10,298
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12 %
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NGLs (bbls per
day)
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678
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564
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20 %
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678
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684
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(1)%
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Natural gas (mcf per
day)
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17,547
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15,959
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10 %
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17,547
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17,302
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1 %
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Total (boe per day)
(6:1)
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15,125
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12,182
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24 %
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15,125
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13,866
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9 %
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Average realized
price (excluding hedges):
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Oil ($ per
bbl)
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51.71
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46.03
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12 %
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51.71
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52.00
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(1)%
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NGL ($ per
bbl)
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36.99
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26.64
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39 %
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36.99
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36.39
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2 %
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Natural gas ($ per
mcf)
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2.68
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1.41
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90 %
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2.68
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2.58
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4 %
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Netback ($ per
boe)
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Oil, natural gas and
NGL sales
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44.16
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36.94
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20 %
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44.16
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43.63
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1 %
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Realized gain (loss)
on commodity contracts
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(0.75)
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3.45
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(122)%
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(0.75)
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(1.59)
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(53)%
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Royalties
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(5.58)
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(3.27)
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71 %
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(5.58)
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(5.64)
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(1)%
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Operating
expenses
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(12.98)
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(12.69)
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2 %
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(12.98)
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(13.95)
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(7)%
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Transportation
expenses
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(1.48)
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(1.16)
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28 %
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(1.48)
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(1.57)
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(6)%
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Operating
netback
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23.37
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23.27
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0 %
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23.37
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20.88
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12 %
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G&A
expense
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(1.95)
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(1.98)
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(2)%
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(1.95)
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(1.93)
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1 %
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Interest
expense
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(1.79)
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(1.38)
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30 %
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(1.79)
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(1.61)
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11 %
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Corporate
netback
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19.63
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19.91
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(1)%
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19.63
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17.34
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13 %
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Common shares
outstanding, end of period
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225,766
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221,047
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2 %
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225,766
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225,766
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—%
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Weighted average
basic shares outstanding
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225,766
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221,047
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2 %
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225,766
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225,764
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—%
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Stock option
dilution
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3,790
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—
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nm
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3,790
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3,427
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11 %
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Weighted average
diluted shares outstanding
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229,556
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221,047
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4 %
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229,556
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229,191
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0 %
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1
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Management uses
adjusted 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.
Adjusted 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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2
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Please see capital
expenditures discussion throughout this press release.
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3
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The Company defines
net debt as outstanding bank debt plus or minus working capital,
however, excluding the fair value of financial contracts and other
current obligations.
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4
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The Company views
this change calculation as not meaningful, or "nm".
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TWELVE MONTH LOOKBACK – LOW COST PRODUCTION ADDITIONS
As oil prices reached a low of US$26.75 WTI per barrel in February of 2016, the
Surge management team continued to strategically position the
Company for growth when oil prices recovered. Steps taken by
management in early 2016 include: the disposition of a non-core
asset at Sunset, deferred drilling and other discretionary capital
spending to keep debt low, aggressive balance sheet management,
rigorous cost cutting initiatives, delineation of Surge's high
quality, large OOIP, crude oil assets, and the strategic
implementation and optimization of waterfloods across the Company's
asset base.
As oil prices began to recover above US $45 WTI per barrel in May/June of 2016,
management moved to add a solid production per share growth
component back into Surge's business model. Consequently, over the
last four financial quarters Surge has delivered an increase in
production of 24 percent (22 percent per share) from 12,182 boepd
in Q2/16, to 15,125 boepd in Q2/17.
Surge has now revised upward the Company's production guidance
three times in the last 12 months – two times organically, and once
relating to the Company's recent strategic Sparky core area
acquisition.
During the past four quarters, Surge has replaced production
declines and grown by adding approximately 6,000 boepd to the
Company's production base (greater than 90 percent light and medium
crude oil) for total, all-in capital expenditures (including
acquisitions) of $144.3
million. We believe these very low production
efficiencies for light and medium gravity crude oil, will turn out
to be some of the best in the Company's peer group in Canada over this period:
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Capex
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Boepd
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Organic Drilling
Capital
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$85.1
million
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3,0461
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(Barrels needed to
replace declines)
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1,8972
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(Growth
Wedge)
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$85.1
million
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4,943
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Organic
Drilling Capital Efficiencies
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$17,208 per
flowing boe
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Land, Seismic,
G&A
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$8.3
million
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All-in Organic
Capital
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$93.4
million
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4,943
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All-in Organic
Capital Efficiencies
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$18,892 per
flowing boe
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Valhalla Montney
Acquisition
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$14.9
million
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300
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Sparky
Acquisition
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$36.0
million
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745
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Total Capital
Including Acquisitions
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$144.3
million
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5,988
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All-in Capital
Efficiencies, including Acquisitions
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$24,098 per
flowing boe
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1
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Represents an
estimated 25 percent decline.
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2
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Represents production
additions, after replacing declines.
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The Company's consistent production per share growth over the
past year has also led to significant increases in Surge's unhedged
funds from operations per share, which grew by 51 percent from
Q2/16 to Q2/17.
OPERATIONS UPDATE
During its spring break-up quarter, in Q2/17 Surge conducted a
much reduced drilling program, with total capital expenditures of
$15.1 million (including corporate
G&A). The Q2/17 program included the drilling of 5 wells (4.32
net), together with 2.5 net completions, associated capex for
infrastructure, land and seismic. The Company experienced a 100
percent success rate for the Q2/17 drilling program.
In late June, the Company began its 2H/17 drilling program where
Surge plans to drill and complete a total of 22 wells in its three
core areas, including eight Sparky area wells, 13 Shaunavon wells,
and one Valhalla Doig well. The Company strategically moved to
execute its drilling program utilizing one-rig, as opposed to a
two-rig program initially proposed, providing Surge with additional
flexibility on the timing of capital spending throughout the
balance of 2H/17.
As discussed above, Surge exceeded management's budgeted
production expectations for Q2/17 by more than five percent –
during spring break-up. Production in Q2/17 averaged 15,125 boepd
(81 percent oil and liquids), compared to the Company's internal
budget of 14,275 boepd, and analyst consensus on the street of
14,350 boepd.
Management attributes the Company's continued quarterly
operational outperformance to be a direct result of applying growth
capital to Surge's high quality, operated, large OOIP, light and
medium gravity crude oil, sandstone reservoirs.
OUTLOOK – CONTINUED QUARTERLY GROWTH
Management's stated goal is to be the best positioned
light/medium gravity crude oil growth and dividend paying public
company in our peer group in Canada.
In the last 12 months, Surge has increased production per share
by more than 22 percent, increased its dividend by 26.7 percent,
and upwardly revised production estimates three times. Surge
continues to focus on sustainability, balance sheet management, and
cost controls to deliver returns to Surge shareholders.
As a result of the Company's consistent production per share
growth, in Q2/17 Surge increased unhedged adjusted funds from
operations per share by 19 percent over Q1/17 - a significant
increase considering the average crude oil price dropped in the
same time period by seven percent from an average of US$51.92 WTI per barrel in Q1/17 to US$48.28 WTI per barrel in Q2/17. This
achievement is a direct result of Surge management's continued
focus on making disciplined capital allocation decisions,
delivering top tier operational results, and the implementation of
tight cost controls across the Company.
Surge continues to grow its production base and location
inventory in its three core areas of Sparky, Shaunavon, and Valhalla through low risk development drilling
results, and strategic high quality, core area acquisitions.
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: production volumes; Surge's capital expenditure
program, including drilling and development plans; 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; guidance with respect to 2017; Surge's dividend;
payout ratio; Surge's hedging program and the benefits thereof;
management's estimates and expectations regarding capital
expenditures the availability of Surge's bank line to fund provide
the Company with sufficient liquidity and financial flexibility;
the impact of cost savings initiatives; drilling inventories and
locations; and management's expectations regarding debt levels.
The guidance for 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. 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 and the impact of
transactions on Surge'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 15, 2017 and in Surge's
MD&A for the period ended June 30,
2017, 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 "adjusted funds from
operations" and "funds from operations" 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 "adjusted funds from operations" and "funds from by
operations" to analyze operating performance and leverage.
Management believes that in addition to net income, adjusted funds
from operations and adjusted funds from operations are useful
supplemental measures as they provide an indication of the results
generated by the Company's principal business activities before the
consideration of how those activities are financed or how the
results are taxed. 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.