CALGARY, March 14, 2018 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) announces its operating and
financial results for the quarter ended December 31, 2017.
In Q4 2017 Surge's average daily production of 15,675 boepd (81
percent oil and NGL's) came in above the Company's budget
projections. The Company also exceeded management's 2017 production
exit rate target of 15,850 boepd. Surge has now increased
production per share by more than 22 percent over the last six
financial quarters, and revised upward production guidance four
times (two times organically, and twice pursuant to accretive
acquisitions in Surge's Sparky core area).
As a result of the Company's consistent quarterly production per
share growth, in Q4 2017 Surge's adjusted funds flow and adjusted
funds flow per share significantly exceeded management's guidance
expectations. With an average crude oil price of US $55.40 WTI per barrel, in Q4 2017 the Company's
adjusted funds flow per share increased by 40 percent over Q3
2017.
The Company's current production exceeds Surge's 2018 average
daily production guidance estimate of 16,150 boepd (82 percent
oil).
HIGHLIGHTS
The Company's year end and Q4 2017 financial and operating
highlights are summarized below:
- Surge's average daily production increased by more than 22
percent in Q4 2017 to 15,675 boepd, as compared to an average of
12,842 boepd in Q4 2016;
- Production per share increased by more than 18 percent in Q4
2017, as compared to Q4 2016;
- Adjusted funds flow was $32.17
million in Q4 2017 ($0.14 per
share), up 49 percent (an increase of 40 percent on a per share
basis) over Q4 2016 at $21.53 million
($0.10 per share);
- The Company's adjusted funds flow per share increased by 40
percent over Q3 2017, from $0.10 per
share to $0.14 per share.
- Increased oil and NGL production over 23 percent from 10,336
barrels per day in Q4 2016 to 12,740 barrels per day in Q4
2017;
- Surge had an "all-in" (capital plus dividend) payout ratio of
88 percent in Q4 2017;
- Maintained a debt to annualized adjusted funds flow in Q4 2017
of 1.86 times – with approximately $100
million of credit availability on Surge's bank line;
- Delivered a 2017 finding development and acquisition
("FD&A") cost of $13.60 per boe,
on a total proved plus probable basis, including changes in
undiscounted future development capital ("FDC");
- Reported a top decile 2017 recycle ratio of 1.74 times
FD&A, on a total proved plus probable basis;
- Increased the Company's independently engineered 2017 net asset
value ("NAV") by over 10 percent to $6.06 per common share, as compared to
$5.47 per share at year end 2016;
Sproule's 2018 crude oil price deck is approximately US
$5.00 per barrel below current strip
oil pricing for 2018.
- The Company's unhedged operating netback increased 17 percent,
to $27.35 per boe in Q4 of 2017, from
$23.37 per boe in Q4 of 2016;
- The Company's unhedged operating netback increased 37 percent,
to $23.67 per boe for the year ended
2017, from $17.26 per boe for the
year ended 2016;
- On October 26, 2017 Surge
announced a $44.5 million bought
deal, five-year, unsecured, convertible debt financing with a
syndicate of underwriters, with a coupon of 5.75 percent per annum,
and a conversion price of $2.75 per
Surge common share;
- On October 26, 2017 Surge
announced an upward revision to the Company's 2017 production exit
rate target to 15,850 boepd from 15,150 boepd; and
- On December 13, 2017 Surge
announced an increase in the Company's primary credit facility to
$305 million – providing the Company
with approximately $100 million of
credit availability on its bank facility at year end 2017.
FINANCIAL AND OPERATING SUMMARY
The Q4 2017 financial and operating highlights are summarized
below:
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
Year Ended
December 31,
|
($000s except per
share amounts)
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
Financial
highlights
|
|
|
|
|
|
|
Oil sales
|
64,221
|
45,356
|
42 %
|
217,194
|
149,701
|
45 %
|
NGL sales
|
2,751
|
1,284
|
114 %
|
9,431
|
4,675
|
102 %
|
Natural gas
sales
|
2,288
|
3,595
|
(36)%
|
14,283
|
11,192
|
28 %
|
Total oil, natural
gas, and NGL revenue
|
69,260
|
50,235
|
38 %
|
240,908
|
165,568
|
46 %
|
Adjusted funds
flow1
|
32,173
|
21,534
|
49 %
|
103,816
|
70,226
|
48 %
|
Per share basic
($)
|
0.14
|
0.10
|
40 %
|
0.45
|
0.32
|
41 %
|
Capital expenditures
- petroleum & gas properties2
|
22,709
|
23,515
|
(3)%
|
98,466
|
73,962
|
33 %
|
Capital expenditures
- acquisitions & dispositions2
|
368
|
14,921
|
nm(4)
|
72,465
|
(26,220)
|
nm
|
Total capital
expenditures2
|
23,077
|
38,436
|
nm
|
170,931
|
47,742
|
nm
|
Net debt at end of
period3
|
239,718
|
161,735
|
48 %
|
239,718
|
161,735
|
48 %
|
|
|
|
|
|
|
|
Operating
highlights
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
Oil (bbls per
day)
|
12,169
|
9,832
|
24 %
|
11,347
|
9,605
|
18 %
|
NGLs (bbls per
day)
|
571
|
504
|
13 %
|
639
|
570
|
12 %
|
Natural gas (mcf per
day)
|
17,607
|
15,036
|
17 %
|
17,615
|
16,276
|
8 %
|
Total (boe per day)
(6:1)
|
15,675
|
12,842
|
22 %
|
14,922
|
12,888
|
16 %
|
Average realized
price (excluding hedges):
|
|
|
|
|
|
|
Oil ($ per
bbl)
|
57.36
|
50.14
|
14 %
|
52.44
|
42.58
|
23 %
|
NGL ($ per
bbl)
|
52.41
|
27.69
|
89 %
|
40.41
|
22.42
|
80 %
|
Natural gas ($ per
mcf)
|
1.41
|
2.60
|
(46)%
|
2.22
|
1.88
|
18 %
|
|
|
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
|
|
|
Oil, natural gas and
NGL sales
|
48.03
|
42.52
|
13 %
|
44.23
|
35.10
|
26 %
|
Realized gain (loss)
on commodity contracts
|
(0.81)
|
(1.85)
|
nm
|
(0.74)
|
0.84
|
nm
|
Royalties
|
(5.62)
|
(5.08)
|
11 %
|
(5.53)
|
(4.07)
|
36 %
|
Operating
expenses
|
(13.85)
|
(12.69)
|
9 %
|
(13.62)
|
(12.22)
|
11 %
|
Transportation
expenses
|
(1.21)
|
(1.38)
|
(12)%
|
(1.41)
|
(1.55)
|
(9)%
|
Operating
netback
|
26.54
|
21.52
|
23 %
|
22.93
|
18.10
|
27 %
|
G&A
expense
|
(1.95)
|
(1.79)
|
9 %
|
(1.94)
|
(1.85)
|
5 %
|
Interest
expense
|
(2.28)
|
(1.51)
|
51 %
|
(1.94)
|
(1.37)
|
42 %
|
Corporate
netback
|
22.31
|
18.22
|
22 %
|
19.05
|
14.88
|
28 %
|
|
|
|
|
|
|
|
Common shares
outstanding, end of period
|
232,989
|
225,755
|
3 %
|
232,989
|
225,755
|
3 %
|
Weighted average
basic shares outstanding
|
232,929
|
225,278
|
3 %
|
228,212
|
222,252
|
3 %
|
Stock option
dilution
|
—
|
—
|
—
|
—
|
—
|
—
|
Weighted average
diluted shares outstanding
|
232,929
|
225,278
|
3 %
|
228,212
|
222,252
|
3 %
|
|
|
|
|
|
|
|
1
|
Management uses
adjusted funds flow (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 flow 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
|
Please see capital
expenditures discussion in the MD&A.
|
3
|
The Company defines
net debt as outstanding bank debt and the liability component of
the convertible debentures plus or minus working capital, however,
excluding the fair value of financial contracts and other current
obligations.
|
4
|
The Company views
this change calculation as not meaningful, or "nm".
|
OPERATIONAL MOMENTUM CONTINUES - HIGHLIGHTS
For six consecutive quarters Surge has experienced successful,
consistent drilling and waterflood results at its three core areas
including Sparky, Valhalla and
Shaunavon – growing production per
share by more than 22 percent over this period.
In Q4 2017 Surge's average daily production of 15,675 boepd (81
percent oil and liquids) came in above budget expectations, and the
Company also exceeded management's projected 2017 exit rate target
of 15,850 boepd.
Early in Q1 2018 Surge closed the disposition of a non-core
asset. The assets disposed were comprised of approximately 240
boepd (55 percent gas), and the sale proceeds were $6.8 million. The proceeds from this non-core
sale were used to reduce the Company's indebtedness.
The Company's current production exceeds Surge's 2018 average
daily production guidance estimate of 16,150 boepd (82 percent
oil).
Surge had a very successful drilling program in Q4 2017. During
the quarter Surge had total capital expenditures of $22.7 million (including corporate G&A),
which included the drilling of seven wells (seven net) in the
Company's three core operating areas – together with associated
capex for infrastructure, land and seismic. Surge achieved a 100
percent success rate for the Company's Q4 2017 drilling
program.
Operational highlights from Q4 2017 are summarized below:
Sparky – Excellent Drilling and Waterflood Results:
In Q4 2017 Surge drilled three wells (three net) in its Sparky
core area. The Company's production in this area has now increased
by more than 120 percent over the last 18 months, to over 6,000
boepd today (90 percent oil).
The Company's internally estimated net OOIP for Surge's core,
operated Eyehill asset was recently increased by more than 40
percent to over 145 million barrels of internally estimated OOIP
net to the Company. Surge now has more than 70 net internally
estimated drilling locations remaining in inventory at Eyehill.
Drilling and waterflood results at Eyehill continue to exceed
management's expectations – providing both excellent internal rates
of return ("IRR's"), and very strong, long-term profit to
investment ratios ("PIR's").
In early Q4 2017 Surge converted two additional Eyehill Sparky
wells to water injection, with four additional injectors planned
for 2018. Operating costs at Surge's 29○ API oil
pool at Eyehill are $6.50 per boe,
and Q4 2017 netbacks were over $36
per boe.
In Q4 2017 Surge completed a 3D seismic program and successfully
drilled its first well at the Company's Sparky core area
Betty Lake asset. Following tie-in
of associated natural gas, production from this oil well is
currently producing above Surge's Sparky type curve expectations.
The Company estimates that this 100 percent working interest play
has potential for more than 80 million barrels of net OOIP (with an
internally estimated recovery factor of 10 percent on primary, and
up to 30 percent with waterflood), and more than 40 net additional
internally estimated drilling locations.
Surge estimates that its two new pools at Sounding Lake and
Sounding Lake East have potential for more than 55 million of net
internally estimated OOIP (with an internally estimated recovery
factor of 10 percent on primary and up to 30 percent with
waterflood); adding over 40 net additional internally estimated,
low risk, Sparky development drilling locations.
Surge's two recent successful step out Sparky wells at Provost
have significantly extended the Company's large OOIP pool to the
southwest. The Company now estimates that its operated Provost
Sparky pool has more than 70 million of net internally estimated
OOIP, and up to 37 net additional internally estimated Sparky
drilling locations.
In Q1 2018 Surge successfully drilled its first horizontal well
into the southern portion of the Company's large, 45 million barrel
net internally estimated OOIP, Lloydminster sand oil pool at Lakeview. This
exciting new pool extension discovery is producing at an initial
rate equal to approximately 125 percent of Surge's Sparky area type
curve. Surge has over 20 net additional internally estimated
drilling locations into the Lloydminster sand at Lakeview.
In the last ten months, Surge has also added over 45 million
barrels of net internally estimated OOIP, and up to 40
internally estimated, low risk, development drilling locations in
the Company's Sparky core area through Crown sales, strategic
acquisitions, and swap transactions.
Surge now has more than 300 net internally estimated drilling
locations in inventory in its Sparky core area. The Company
anticipates drilling 25 net wells in this core operated area in
2018, a pace which provides more than 12 years of drilling
inventory.
Valhalla – Development
Drilling Success:
Surge's high quality, Doig sandstone reservoir at Valhalla, with over 140 million net barrels of
internally estimated OOIP (with expected recovery factors of 12 to
15 percent on primary), has been independently analyzed by a number
of firms as having some of the best rates of return for crude oil
drilling in Canada; Valhalla wells also provide very strong
PIR's.
In Q4 2017 Surge drilled one gross (one net), and completed two
gross (two net), successful light oil Doig horizontal wells.
The first well is producing as a Surge Doig type curve well. The
second well is a 200 meter in-fill that has now been on production
for approximately three months - exhibiting excellent, near virgin
pressure response, with only modest depletion. This well is
producing at a rate which is approximately two times Surge's
budgeted Valhalla Doig type curve, and paid out in approximately
five weeks.
The Company's exciting multi zone, light oil assets at
Valhalla have over 75 gross (70
net) internally estimated locations, providing an inventory of more
than 10 years (including Doig; Montney; Doe Creek; and Charlie Lake targets).
Shaunavon – Development
Program Continues:
Drilling and waterflood development of Surge's 250 million
barrel internally estimated OOIP, operated, Upper Shaunavon crude
oil pool continued into 2018 - with expected recovery factors up to
12 percent on primary, and 30 percent on waterflood.
Surge's exciting Upper Shaunavon "step-out" well, more than six
kilometers to the north of the Company's current development,
continues to perform as a type curve well. This is a significant
pool extension on Surge's large contiguous 59 section land base.
The well has confirmed numerous Upper Shaunavon follow-up
locations.
In late Q3 and Q4 2017 Surge successfully converted an
additional four Upper Shaunavon wells to water injection, three of
which are located at the large Upper Shaunavon pool extension that
Surge discovered two years ago on the southern portion of the
Company's land block. Surge has now successfully converted a total
of nine Upper Shaunavon wells to injection in its two current
waterflood project areas.
The Company's recent Lower Shaunavon well, drilled in Q3 2017
with the latest mono-bore and cemented liner technology, continues
to perform above type curve. Surge has internally estimated more
than 70 Lower Shaunavon locations in inventory.
Shaunavon wells provide both
excellent IRR's, and strong long term PIR's, for both primary
drilling and waterflood development. Netbacks at Shaunavon in Q4 2017 were over $38 per boe.
Surge currently has over 230 gross (220 net) internally
estimated drilling locations in inventory in its Shaunavon core area - providing over 12 years
of drilling inventory at the current pace. The Company plans to
bring 17 Upper and Lower Shaunavon wells on production in 2018 at
this core operated asset.
OUTLOOK – SUSTAINABLE GROWTH, LONG TERM VALUE, AND
INCOME
Management's goal is to be the best positioned public
light/medium gravity crude oil growth and dividend paying company
in Canada.
Surge's production per share is up 22 percent in the last six
financial quarters. The Company exceeded management's 2017
production exit rate target of 15,850 boepd (81 percent oil). Surge
has now revised upward production guidance four times in the last
18 months (two times organically – and twice pursuant to accretive
Sparky core area acquisitions).
This consistent quarterly production growth is also driving
significant increases in the Company's adjusted funds flow and
adjusted funds flow per share. In Q4 2017 Surge's adjusted funds
flow was up 49 percent, and the Company's adjusted funds flow per
share was up 40 percent, as compared to Q4 2016.
Surge had an "all-in" (capital plus dividend) payout ratio of 88
percent in Q4 2017.
Management will continue to consistently pursue the Company's
internally generated Five-Year Business Model – where Surge can
organically grow production per share at five to six percent per
year, increase Surge's dividend through growth in free cash flow,
and reduce debt to less than one times adjusted funds flow – all at
current guidance pricing of US $57.50
WTI per barrel. This five-year growth model requires the drilling
of only 45 percent of the Company's current internal development
drilling inventory of more than 700 locations.
As world crude oil prices increased from US $26 WTI per barrel on February 11, 2016 to over US $60 WTI today, the trading price for many
Canadian light and medium gravity crude oil companies on the TSX
have dropped – some significantly. In this market, the trading
price of Surge common shares is now well below the Company's
independently engineered 2017 Total Proved NAV of $3.67 per share - even where Surge is generating
free funds flow on the Company's 2018 guidance pricing assumptions
(i.e. US $57.50 WTI per barrel of
crude). The Company's new Proved Developed Producing ("PDP") NAV is
$2.01 per share.
On this basis, Surge believes that the market price of its
common shares, in today's oil price environment, does not
accurately reflect their underlying value, making the purchase of
common shares an attractive investment and an advantageous use of
Surge's capital spending.
Accordingly, given Surge's significant available financial
liquidity and free cash flow, and the Company's continued excellent
operational results, Surge management and Board have now
re-instated a normal course issuer bid ("NCIB") providing for the
repurchase of Surge common shares through the facilities, rules and
regulations of the TSX. On this basis, with crude oil prices well
over US $60 WTI per barrel, Surge has
been acquiring its common shares in Q1 2018 pursuant to the
NCIB.
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: management's expectations with respect to the
development of its asset base; production volumes; drilling
activities, inventories and locations, and the associated risks;
Surge's capital expenditure program, including drilling and
development plans and enhanced recovery projects and the timing and
results to be expected thereof; 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,
including the Five-Year Business Model; 2017 exit production and
production per share growth; Surge's dividend; simple payout ratio;
operating and corporate netbacks; management's estimates and
expectations regarding capital expenditures and operating costs,
growth opportunities and strategies, the underlying value of
Surge's common shares, estimated reserves and estimated reserve and
resources; the Company's 2018 guidance; sustainability of Surge's
current results, production and operations; the availability of
Surge's bank line to fund provide the Company with sufficient
liquidity and financial flexibility; and anticipated commodity
prices; and management's expectations regarding debt levels.
The guidance for 2018 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 availability of capital, 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. "Internally estimated" and similar terms means an
estimate that is derived by Surge's internal APEGA certified
Engineers, and Geologists and prepared in accordance with National
Instrument 51-101 - Standards of Disclosure for Oil and Gas
Activities. All internal estimates contained in this new release
have been prepared effective as of March 14,
2018. IRR means Internal Rate of Return and is the discount
rate required for the net Present Value to equal zero. PIR means
Profit to Investment Ratio and is equal to the present value of
future cashflow divided by the investment capital (a value lower
than 1.0 would indicate that the projects Present Value is less
than the initial investment).
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 independent engineering
evaluation of the oil, natural gas liquids and natural gas reserves
attributable to the Company prepared by Sproule Associates Limited
effective December 31, 2017 and dated
February 09, 2018 (the "Sproule
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 based
on industry practice and internal review. Unbooked locations do not
have attributed reserves or resources. Of the more than 700 gross
(675 net) drilling locations identified herein 420 gross (404 net)
are unbooked locations. Of the 292 gross (277 net) booked locations
identified herein 228 gross (216 net) are proved locations and 64
gross (61.2 net) are probable locations as of the Sproule Report.
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.
Non-IFRS Measures
This press release contains the terms "adjusted funds flow",
"adjusted funds flow from operations" and "net debt", 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 flow 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. Management believes that adjusted funds flow from
operations is a useful supplemental measure as it provides 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.
Management defines net debt as outstanding bank debt and the
liability component of the convertible debentures plus or minus
working capital, however, excluding the fair value of financial
contracts and other current 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).
Oil and Gas Metrics
This news release contains metrics commonly used in the oil and
natural gas industry, such as "operating netback", "corporate
netback", "FD&A costs". "recycle ratio" and "payout ratio".
These terms do not have a standardized meaning and may not be
comparable to similar measures presented by other companies, and
therefore should not be used to make such comparisons. Operating
netback denotes total sales less royalty expenses, and operating
and transportation costs calculated on a per boe basis. Corporate
netback denotes operating netback less general and administrative,
interest and financing expense, exploration expense plus interest
income on a per boe basis. Surge considers corporate netback
as an important measure to evaluate its overall corporate
performance. FD&A costs are used as a measure of capital
efficiency. FD&A cost has been calculated based on exploration
and development capital and acquisition capital spent in the
applicable period (including changes in future development capital
for that period) divided by the change in reserves for that period
including revisions for that same period. Surge provides FD&A
costs that incorporate all acquisitions and exclude the reserve,
capital, and future development capital impact of dispositions
during the year. The foregoing calculation is based on
working interest reserves. Recycle ratio is a measure for
evaluating the effectiveness of a company's reinvestment program
and the efficiency of capital investment. It accomplishes
this by comparing the operating netback per boe to that year's
reserve FD&A cost per boe. Payout ratio is calculated on a
percentage basis as dividends declared divided by adjusted funds
flow from operations. Payout ratio is used by management to monitor
the dividend policy and the amount of adjusted funds flow from
operations retained by the Company for capital reinvestment.
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.