CALGARY, May 8, 2013 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) is pleased to
announce certain senior management changes, effective immediately, a
private placement of up to $2.5 million, and the sale of certain
non-core, non-operated assets for proceeds of approximately US$42.75
The Board of Directors of Surge ("Board") is pleased to announce that
they have unanimously agreed to appoint Mr. Paul Colborne as the
President and CEO of Surge, effective immediately. Mr. Colborne will
also continue on as the Chairman of the Company.
In addition, Surge is pleased to announce the addition of Mr. Murray Bye
as the Vice President of Production of Surge. Mr. Bye will assume his
new role immediately.
The Board also announced today that Mr. Dan O'Neil will be retiring from
his role as CEO and President of the Company. The Company thanks Mr.
O'Neil for his efforts and service on behalf of Surge shareholders.
Mr. O'Neil will continue as a director of the Company and will provide
"My time at Surge has been extremely rewarding and I am very proud of
the asset base and team we have built since recapitalizing the Company
in 2010," said Mr. O'Neil. "Surge shareholders will be well served
with Mr. Colborne as President and CEO with his extensive experience
leading high performing teams and building successful companies in the
Western Canadian Sedimentary Basin."
"I am very excited about this opportunity," said Mr. Colborne. "Surge
has high quality, large internally estimated DPIIP1 reservoirs, with low recovery factors to date, and is strategically
focused in just three key operating areas. These high quality,
operated light and medium gravity crude oil assets have significant,
low risk upside with numerous infill and step-out drilling locations
and waterflood opportunities.
This rare, deep value opportunity is illustrated by the fact that
Surge's year-end net asset value exceeded $8.21 per basic share2, which is significantly higher than the current trading price of the
Company's shares. I look forward to working with the Company's proven
management team to continue growing Surge as it transitions into an
elite, intermediate oil and gas company."
PROVEN TRACK RECORD:
Mr. Colborne has over 22 years of experience in the oil and gas industry
and has been involved in a leadership, executive or director capacity
with over 30 oil and gas and energy services companies.
Mr. Colborne has successfully grown and, subsequently transitioned, a
number of aggressive Canadian junior oil and gas companies into
sustainable, modest growth dividend paying companies with excellent
results, including: Startech Energy Inc., Crescent Point Energy Trust,
and Star Point Energy Trust. At each of these companies, Mr. Colborne
contributed to significant shareholder value being created:
Discovered Petroleum Initially In Place (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.
Calculated using net present value discounted at ten percent before tax
as at December 31, 2012 for Surge evaluated by Sproule using forecast
pricing and costs.
Startech: President & CEO from 1993 to 2001
Grew production to 16,000 boe per day from 120 boe per day at start-up
Sold to ARC Energy Trust for $500 million
Crescent Point: Chairman, President & CEO from June 2001 to September
Initial private placement of approximately $1.0 million
Current enterprise value of greater than $16.5 billion
Current production of over 110,000 boe per day
StarPoint: President & CEO from September 2003 to January 2005
Initial private placement of $6.0 million
Merged with Acclaim Energy to form Canetic Resources and spun out
TriStar Oil & Gas Ltd. in September 2005 (transaction value greater
than $5.0 billion)
Grew production from 700 boe per day to over 35,000 boe per day in two
Other Canadian growth oil and gas companies with which Mr. Colborne has
been involved, include: Legacy Oil + Gas Inc., Cequence Energy Ltd.,
Red River Oil, Inc., New Star Energy Ltd., TriStar Oil & Gas Ltd.,
Breaker Energy Ltd., Mission Oil & Gas Inc., Wild Stream Exploration
Inc., Wild River Resources Ltd., Impact Energy Inc., and Canetic
Resources Trust, among others.
In accordance with his appointment as President and CEO, Mr. Colborne
will be subscribing for up to $2.5 million of Surge Units. ("Units")
at a price per Unit representing the maximum allowable discount to the
market price of the common shares of Surge ("Common Shares") permitted
by the rules of the Toronto Stock Exchange (the "Issue Price"). Each
Unit shall be comprised of one Common Share and two Common Share
purchase warrants ("Warrants"). Each Warrant shall entitle the holder
to purchase one Common Share at a 25% premium to the issue price of the
Units for a period of 5 years. The Warrants shall be subject to time
based and performance based vesting requirement such that the Warrants
will only vest and become exercisable on the basis of one half upon the
20-day weighted average trading price of the Common Shares ("Trading
Price") equaling or exceeding a 50% premium to the market price of the
Common Shares used to determine the Issue Price (undiscounted) (the
"Reference Price") and an additional one half upon the Trading Price
equaling or exceeding a 100% premium to the Reference Price. The
private placement is subject to the approval of the Toronto Stock
Mr. Colborne will not be taking a salary with respect to his employment
as President and CEO of Surge, but shall participate in short-term and
long-term incentive plans.
Mr. Bye is a Professional Engineer with more than 13 years of
engineering experience including exploitation, production, and
reservoir in Western Canada. Mr. Bye has held the role of Asset Team
Lead - West at Surge since 2010 where he has been responsible for
growing three core operating properties at Valhalla, Nipisi and
Windfall. Prior to his role at Surge, Mr. Bye held a number of
positions at EnCana Corporation between the years 2000 to 2010
including: Group Lead of Development, Exploitation Engineer, and
Production Engineer. Mr. Bye graduated in 2000 from Montana Tech with
a Petroleum Engineering degree. Surge welcomes Mr. Bye in his new role
as Vice President Production at the Company.
STRATEGIC RATIONALE FOR CHANGES:
Realizing Shareholder Value:
In just three years, Surge management has built a high quality, high
netback, reserve, production and cash flow base focused primarily in
three elite, operated, crude oil properties. Approximately 90 percent
of Surge's assets are focused in these three assets.
Surge management has delivered excellent per share growth in reserves,
production and cash flow each year of the Company's existence on a cost
effective basis. Surge's 2012 year-end independent engineering report
(effective December 31, 2012) provides an estimated net asset value of
$8.21 per basic share for its Proved plus Probable ("P+P") reserves.
Surge realized 2012 Finding Development and Acquisition ("FD&A") costs,
including the change in future development capital, of $23.32 per P+P
reserves for a recycle ratio of 1.5 times. The team delivered an
increase in P+P reserves of 43 percent and 29 percent on a fully
diluted per share basis. Surge also achieved a P+P reserves
replacement ratio of 5.3.
In the first quarter of 2013, Surge management delivered one of the best
quarterly drilling programs in the Company's history (please refer to
Surge's press release dated March 20, 2013), with highlights that
a) A significant new light oil pool discovery on the southern portion
of Company's core property at Nipisi in Western Alberta (internally
estimated DPIIP of approximately 30 million barrels in the Slave Point
light oil formation) with numerous follow-up locations;
b) An exciting, light oil northern pool extension at the Company's core
property at Valhalla in Western Alberta (confirming the internally
estimated DPIIP in the Doig light oil pool of more than 150 million
barrels) with numerous follow-up locations;
c) A large medium gravity crude oil new pool discovery at the Company's
core property in the Silver Area in SE Alberta (internally estimated
DPIIP of more than 47 million barrels) with up to 20 follow-up
d) An additional new pool discovery in the Silver Area of SE Alberta
(internally estimated DPIIP of 2.2 million barrels); and
e) Continued successful development drilling results at Nipisi North
(internally estimated DPIIP of 85 million barrels in the Slave Point
light oil formation)
In spite of these positive developments, Surge's share price has
underperformed the peer group and currently trades at a significant
discount to its net asset value.
Given that Surge has grown dramatically over the last three years, and
given that the Company's true value is not being recognized, Surge's
Board and management believe that changes are necessary to the
Company's business plan and operating strategy to adapt and succeed in
the current, challenging business environment.
New Sustainable Business Model:
Surge has assembled a high quality, light and medium gravity crude oil
asset base. The Company has approximately 90 percent of its assets
located in three key producing assets in the Valhalla, Nipisi and
Silver areas of Alberta. These core operated assets are characterized
by large DPIIP reservoirs with low recovery factors to date, and
significant upside from infill and step-out development drilling and
successful water flood implementation.
However, as the Company's production has now exceeded 10,000 boe per day
(greater than 70 percent oil and NGLs), like most of its peers Surge's
rate of annual per share growth is slowing from more than 20-25 percent
to approximately 10-12 percent.
Given the current business environment, Surge's high netback crude oil
asset base, and the Company's large inventory of low-risk development
drilling locations and waterflood projects, the Board and management of
Surge have determined that a number of changes are necessary with the
respect to the Company's business plan.
These changes will include the following principles:
Target growth in reserves, production and cash flow per share;
Opportunistically identify and acquire high quality, large DPIIIP light
and medium gravity crude oil assets with low recovery factors;
Focus on lower risk infill and step-out development drilling
opportunities and waterflood activities, on the Company's existing
crude oil assets;
Continue to utilize current up-to-date technology to drill and exploit
the Company's assets and increase recovery factors;
Utilize hedging techniques to lock-in cash flow to fund capital
Aggressively manage and protect the Company's balance sheet; and
Aggressively manage the Company's cash costs and its general and
administrative costs per boe.
In addition to the above operating principles, Surge will also consider
minor, non-core asset sales, such as the successful sale of Surge's
non-core, primarily non-operated North Dakota assets (see below), to
reduce debt where applicable and potentially to fund normal course
issuer bids to acquire and redeem the Company's common shares in the
market at price levels below its net asset value.
In this regard, Surge Board and management will also be considering a
strategic conversion to a moderate growth / dividend business model.
NON-CORE ASSET SALE:
Surge has executed a formal purchase and sale agreement with a Canadian
oil and gas producer to sell its non-core, primarily non-operated
assets in North Dakota for a purchase price of approximately US$42.75
million. Closing of this transaction is anticipated to occur on or
around May 31, 2013. The non-core assets being sold comprise
production of approximately 650 barrels of oil per day, with
independently engineered P+P reserves of 2.2 million boe, and a net
present value of $36.8 million (discounted at ten percent before tax as
of December 31, 2012). The Company expects a reduction in its
borrowing base of $13 million as a result of the sale, resulting in a
bank line of $277 million.
The sale of Surge's assets in North Dakota is the first step in
implementing changes in the Company's business plan to maximize
shareholder value, strengthen the Company's financial flexibility and
support a sustainable business model.
Macquarie Capital Markets Canada Ltd. is acting as lead financial
advisor to Surge with respect to the above. National Bank Financial
Inc. is acting as financial advisor to Surge.
ANNUAL GENERAL MEETING:
Surge's Annual General Meeting is scheduled for 12:30 pm Mountain
Standard Time on May 15, 2013 at the Petroleum Club, Devonian Room
located at 319 - 5th Avenue SW, Calgary AB.
Surge is an oil focused oil and gas company with operations in Western
Alberta and Manitoba. Surge's common shares trade on the Toronto Stock
Exchange under the symbol SGY and the Company currently has 71.2
million basic and 79.4 million fully diluted shares outstanding.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More
particularly, this press release contains statements concerning
anticipated: (i) capital expenditures for 2013, (ii) exploration,
development, drilling, construction and acquisition activities, (iii)
oil & natural gas production growth during 2013, (iv) debt and bank
facilities, (v) hedging results, (vi) primary and secondary recovery
potentials and implementation thereof, (vii) potential acquisitions,
(viii) potential dispositions, (ix) reductions of operating costs and
general and administrative expenses, * potential normal course issuer
bid, (xi) potential payment of dividends, and (xii) realization of
anticipated benefits of acquisitions.
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 and the application of regulatory and royalty regimes.
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 uncertainties resulting from
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. Certain of these risks
are set out in more detail in Surge's Annual Information Form 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
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:
Chairman, President and CEO
Surge Energy Inc.
Phone: (403) 513-1539
Fax: (403) 930-1011
Surge Energy Inc
Phone: (403) 930-1021
Fax: (403) 930-1011