Surge Energy Inc. Announces Record First Quarter 2014 Results
CALGARY, May 12, 2014 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) announces record financial and operating results for the three month period ended March 31, 2014.
Surges financial and operating results for the quarter ended March 31, 2014 include only a partial quarter of results from the $109 million Southeast Saskatchewan light oil producing asset acquisition completed during the first quarter of 2014.
|FINANCIAL AND OPERATING SUMMARY|
|($000s except per share amounts)|
|Three Months Ended March 31,|
|Oil and NGL sales||99,761||48,216||107 %|
|Natural gas sales||7,784||5,355||45 %|
|Other revenue||22||11||100 %|
|Total oil, natural gas, and NGL revenue||107,567||53,582||101 %|
|Funds from Operations1||53,770||25,700||109 %|
|Per share basic ($)||0.31||0.36||(14)%|
|Per share diluted ($)||0.31||0.36||(14)%|
|Net income (loss)||3,422||(1,354)||nm4|
|Per share basic ($)||0.02||(0.02)||nm|
|Per share diluted ($)||0.02||(0.02)||nm|
|Capital expenditures - petroleum & gas properties2||58,351||40,065||46 %|
|Capital expenditures - acquisitions & dispositions2||108,712||(807)||nm|
|Total capital expenditures2||167,063||39,258||326%|
|Net debt at end of period3||356,744||234,795||52 %|
|Oil and NGL (bbls per day)||12,694||6,854||85 %|
|Natural gas (mcf per day)||13,980||16,689||(16)%|
|Total (boe per day) (6:1)||15,024||9,636||56 %|
|Average realized price (excluding hedges):|
|Oil and NGL ($per bbl)||87.32||78.18||12 %|
|Natural gas ($ per mcf)||6.19||3.57||73 %|
|Realized loss on financial contracts ($ per boe)||(5.06)||(0.46)||nm|
|Net back (excluding hedges) ($ per boe)|
|Oil, natural gas and NGL sales||79.55||61.78||29 %|
|Operating expenses||(14.35)||(12.58)||14 %|
|Operating netback||49.20||36.02||37 %|
|Corporate netback||44.82||30.10||49 %|
|Common shares outstanding, end of period||179,501||71,217||152 %|
|Weighted average basic shares outstanding||173,070||71,217||143 %|
|Stock option dilution (treasury method)||828||—||nm|
|Weighted average diluted shares outstanding||173,898||71,217||144 %|
|1||Management uses funds from operations (cash flow from operating activities before changes in non-cash working capital, legal settlement expenses, decommissioning expenditures, transaction costs and current tax on disposition) 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||Please see capital expenditures note.|
|3||The Company defines net debt as outstanding bank debt plus or minus cash-based working capital, dividends payable and investment in Longview, and excluding the fair value of financial contracts and other current obligations.|
|4||The Company views this change calculation as not meaningful, or "nm".|
Achieved a record first quarter average production rate of 15,024 boe
per day, an increase of 56 percent from 9,636 boe per day in the same period of
2013. This excellent growth in production was achieved despite
extremely harsh cold winter conditions in Alberta and Saskatchewan for
January and February, which caused downtime to Surge of more than 650
boepd of net production for the quarter.
Funds from operations increased 109 percent to a record $53.8 million in the first quarter of 2014 as compared to
the same period in 2013.
Achieved records for both operating and corporate netback in the first
quarter of 2014. Surge's corporate netback increased 49 percent to $44.82 per boe in the first quarter of 2014 from $30.10 per boe in
the first quarter of 2013.
Increased Surge's oil and natural gas liquids production weighting by 18
percent to 84 percent in the first quarter of 2014 from 71 percent in the first quarter of
Approximately 93 percent of Surge's revenue resulted from oil and
natural gas liquids production in the first quarter of 2014.
Reduced G&A per boe by 33 percent in the first quarter of 2014 as compared to the same period in 2013.
Surge has had excellent results with respect to managing and reducing
costs. The Company's G&A costs have dropped from over $3.50 per boe in
the second quarter of 2013 to $2.15 per boe in the first quarter of
Achieved a 100 percent success rate drilling 20 gross (13.96 net) wells.
Completed an accretive acquisition that added approximately 1,250 boepd of high netback, long life, light and medium gravity crude oil
production, strategically focussed in the Company's core area of SE
Increased the Company's dividend by four percent from $0.52 per share per year ($0.04333 per share per
month), to $0.54 per share per year ($0.045 per share per month).
Announced a $429 million strategic business combination with Longview
Oil Corp. ("Longview"). The proposed transaction is accretive to Surge on all
metrics, and adds concentrated reserves, production, land, and
operations that are contiguous with Surge's existing core areas in SE
Saskatchewan and central Alberta.
- Announced that, upon the successful completion of the business combination with Longview, Surge plans to increase the Company's annual dividend 11 percent to $0.60 per share ($0.050 per share per month) from $0.54 per share per annum ($0.045 per share per month) currently.
RECORD PRODUCTION, FUNDS FLOW AND NETBACKS IN THE FIRST QUARTER OF 2014
Surge reported record funds from operations of $53.8 million in the first quarter, along with record operating net backs in excess of $49 per boe, and production in excess of 15,000 boe per day.
It is important to note that these record results do not include a full quarter of production from the strategic, high netback $109 million Southeast Saskatchewan light oil asset acquisition that closed midway through the first quarter of 2014. In addition, the first quarter production and cash flow results discussed above were achieved despite significant downtime in January and February (estimated to be over 650 boepd for the quarter) due to the extremely harsh cold winter conditions experienced in Alberta and Saskatchewan.
As planned, in the first quarter Surge executed approximately half of the Company's entire 2014 drilling program, with a 100 percent success rate on 20 gross (13.96 net) wells. Management generally attempts to "front-end load" Surge's capital expenditures each year to get the full year economic benefit of successful drilling results, and to facilitate successful technical evaluation of reserve additions from the program over a longer time period.
Over $15 million of the capital expenditures spent in the first quarter of 2014 were focused on waterflood and pipeline projects at Shaunavon, Manson, Macoun and Nipisi. These projects will help increase reliability; reduce downtime and support management's plan to successfully continue reducing the Company's production decline in future periods.
On February 14, 2014, the Company closed the $109 million acquisition of high quality, low decline, operated, light oil producing assets strategically located in the Company's core area of Southeast Saskatchewan. These assets include 1,250 boepd (97 percent oil) of high netback, crude oil production. The production is focused in several large, high quality, crude oil reservoirs - with combined original oil in place ("OOIP5") of over 240 million barrels.
|5||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, plus those estimated quantities in accumulations yet to be discovered. 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.|
As a result of this accretive acquisition, Surge's Board of Directors approved an increase in the Company's annual dividend of four percent from $0.52 per share per year ($0.04333 per share per month), to $0.54 per share per year ($0.045 per share per month).
EXCITING FIRST QUARTER 2014 DRILLING RESULTS; LARGE NEW OIL POOL DISCOVERY
As discussed above, in the first quarter of 2014 the Company experienced better than anticipated development drilling results across the Company's entire asset base. During the quarter Surge drilled a total of 20 wells (13.96 net), with a success rate of 100 percent.
At Shaunavon in Southwest Saskatchewan, the Company previously announced an exciting new pool discovery in the Upper Shaunavon horizon (100% WI) at 16-36-5-20-W3. The horizontal, multi frac discovery well continues to produce at very attractive rates. Two offsetting Upper Shaunavon development wells will be spud on this discovery immediately after break-up.
Surge also completed a tie-in to the main battery at Shaunavon of the final two, multi well satellites with emulsion and water injection lines to accommodate future waterflood. The production (including water) was previously trucked from these locations. Twenty six wells (of the field total of 147) produced to these two satellites. This project will significantly reduce the field operating, transportation and water disposal costs. It will also increase production reliability during break up and wet periods as a result of eliminating the infield trucking.
At Nipisi, the recently announced Slave Point horizontal, multi frac, development well has now stabilized at more than 300 bopd. Water injection at the newly converted third injector is being ramped up and offsetting wells are beginning to see pressure support. Spring break up has been very routine at Nipisi and the trucked production has not been impacted.
At Eyehill, in Central Alberta, work will commence immediately to de-bottleneck the gathering system and install the water injection lines to facilitate the conversion of the first injector early in the third quarter. This will also significantly reduce the operating costs associated with the current trucking of the produced water.
At Valhalla, after the success of the recently announced farm-in step out well, Surge will immediately be spudding a 100% working interest Doig, multi frac well that will terminate in section 6. Twp -75, Rge 9 W. The well is expected to be completed and on production early in June.
OUTLOOK: WELL POSITIONED FOR SUSTAINABLE GROWTH AND DIVIDENDS
As a result of the Company's low decline and long reserve life, Surge anticipates that the Company's bank line will be increased to $525 million as a result of the successful year end reserves review; and again increased to $725 million upon the successful completion of the business combination with Longview. With one of the lowest all-in payout ratios in Canada (88.4 percent), the Company will maintain its excellent balance sheet giving Surge more than $240 million of capacity on its bank line at year end 2014.
In just 12 months Surge management has aggressively and efficiently executed a strategic business and operating plan that has transformed the Company into one of the best positioned and most sustainable light oil growth and dividend paying companies in Canada.
Today, as a result of the execution of this plan, the Company has strategically assembled a portfolio of high quality, large OOIP crude oil reservoirs with low recovery factors - in just three core operating areas.
Surge now has a deep, 12 year, low risk, development drilling inventory, and a number of excellent waterflood projects. The Company's corporate decline has decreased dramatically, and netbacks have been increased over 50 per cent. This has been accomplished by focusing growth capital towards accretive, high quality, high netback light/medium gravity crude oil assets in the Williston Basin and Central Alberta.
As a result of the successful and expeditious implementation of management's strategic plan, Surge has been able to provide shareholders with substantial increases in the Company's dividend, while significantly decreasing Surge's all-in payout ratio to 88.4 percent - one of the lowest in Canada.
In short, Surge's business plan is working - perhaps better and/or quicker than anticipated by management. Likely as a result of the difficult industry conditions faced by oil and gas companies in Canada over the last few years, a large number of high quality crude oil assets became available in the domestic acquisition market. In this marketplace, Surge management moved quickly and decisively to assemble a portfolio of high quality, high netback, low decline crude oil reservoirs, strategically located in just three core operating areas.
With industry commodity price fundamentals, crude oil differentials, and the declining Canadian dollar having all improved conditions significantly in the last several months, equity capital markets have also been improving for oil and gas companies in Canada. Accordingly, a large number of high quality assets have recently been acquired in the public market place. In the opinion of Surge management, it now appears that the window may be closing on this excellent "buyer's market" for high quality assets.
On this basis, management is very excited that the Company has been able to assemble a number of high quality assets effectively positioning the Company to execute on Surge's sustainable growth/dividend paying model - even if the industry is entering a period where high quality, high netback crude oil assets are not available in the acquisition marketplace on reasonable terms.
Based upon the above, Surge is well positioned to offer solid annual per share growth, plus a competitive increasing dividend, through its organic development drilling program, and the Company's high quality waterflood projects - for the foreseeable future.
We look forward to providing increased guidance for 2014 after the closing of the Longview acquisition in early June of 2014. Contingent with the closing of the Longview transaction, management also looks forward to increasing Surge's dividend 11 percent, from $0.54 per annum to $0.60 per annum.
FINANCIAL STATEMENTS AND ACCOMPANYING MDA:
Surge has filed with Canadian securities regulatory authorities its financial statements and accompanying MD&A for the three months ended March 31, 2014. These filings are available for review at www.sedar.com or www.surgeenergy.ca.
ANNUAL GENERAL MEETING:
Surge's Annual General Meeting is scheduled for 3:00 pm Mountain Daylight Time on May 22, 2014 at the Petroleum Club, McMurray Room located at 319 - 5th Avenue SW, Calgary AB.
Surge Energy Inc. is an oil-weighted production and development company with high quality, large oil in place, crude oil reservoirs. Management is focused on delivering to its shareholders solid per share organic growth, sustainable monthly dividends, and further growth through accretive acquisitions of additional elite oil reservoirs. Surge's common shares trade on the Toronto Stock Exchange under the symbol SGY and the Company currently has 179.5 million basic and 183.7 million fully diluted shares outstanding.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More particularly, this press release contains statements concerning: (i) the impact of capital expenditures on waterflood and pipeline projects on reliability, downtime and production decline in future periods, (ii) Surge's 2014 year end production estimate, (iii) the anticipated increase in the monthly dividend upon completion of the acquisition of Longview, (iv) anticipated increases in Surge's bank line, (v) anticipated borrowing capacity under the bank line at 2014 year end, (vi) the anticipated ratio of 2014 year end debt to anticipated Q4 2014 annualized funds flow from operations, and (vii) planned drilling, development and waterflood activities.
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, prevailing weather conditions, exchange rates, licensing requirements, the impact of completed facilities on operating costs and the availability, costs of capital, labour and services, the creditworthiness of industry partners and the receipt of approval of the lenders under Surge's bank line to increases thereto.
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 required approvals from the lenders under Surge's bank line to increases thereto. Certain of these risks are set out in more detail in Surge's Annual Information Form dated March 19, 2014 which has 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.
Note: 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 means barrel of oil equivalent per day.
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.For further information:
Paul Colborne, Chairman, President & CEO
Surge Energy Inc.
Phone: (403) 930-1507
Fax: (403) 930-1011
Max Lof, CFO
Surge Energy Inc.
Phone: (403) 930-1021
Fax: (403) 930-1011