CALGARY, Feb. 28, 2014 /CNW/ - Pursuant to early warning reporting
requirements in Canada, Surge Energy Inc. ("Surge" or the "Company")
(TSX: SGY) announces that it has acquired ownership and control of
9,300,000 common shares ("Common Shares") of Longview Oil Corp.
("Longview"), representing 19.8 percent of the outstanding Common
Shares, at a purchase price of $4.45 per Common Share (the "Block").
The Common Shares were acquired pursuant to a bought deal secondary
offering of Common Shares (the "Secondary Offering"), which were sold
by an existing shareholder of Longview on February 28, 2014.
Surge's intent with respect to the acquisition of the Block is to obtain
a large, strategic equity position in Longview, at a competitive cost
base, and to pursue a mutually beneficial business combination with
Longview. Surge, however, has no legal obligation to pursue any such
BACKGROUND TO THE ACQUISITION OF THE BLOCK
Over the last several months, Surge has completed significant detailed
geological, geophysical and engineering technical work in relation to
the assets of Longview, from both the public record, and in relation to
a number of Longview's properties that overlap with Surge's own core
assets. On this basis, Surge also initiated extensive, detailed
financial modelling of a possible business combination between Surge
The results of Surge's detailed technical and financial work indicate
that there is potential for a business combination transaction that
will provide significant benefits, to BOTH Longview and Surge
Accordingly, when the Company was approached by the underwriters of the
Secondary Offering regarding a strategic investment in the Block, Surge
management responded favourably.
BENEFITS TO SURGE OWNING THE BLOCK
The distribution of the Common Shares that comprise the Block has been
qualified by a prospectus under the Secondary Offering. Accordingly,
the Block is freely trading and can be sold by Surge at any time
pursuant to applicable securities laws. In the event that Surge
continues to own the Block, Surge shareholders will receive a number of
ongoing benefits as set forth below.
The Block, acquired at $4.45 per Common Share, provides Surge with a
10.8 percent pre-tax yield. On this basis, Surge will receive $4.5
million in dividend income annually relating to its investment in the
Block (i.e. 9,300,000 Longview shares at an annual dividend of $0.48
per share). Further, there is generally no tax payable on dividends
between Canadian corporations.
Surge will continue to evaluate its investment in the Block on several
criteria — including, the dividend yield of the Block as it relates to
Surge's current yield — and the Company may consider divesting some or
all of the Block.
Given Surge's excellent balance sheet and low debt levels, pro-forma the
investment in the Block, Surge will maintain a peer group low "all-in"
payout/sustainability ratio of less than 89 percent, and an excellent
balance sheet with a 2014 exit debt to cash flow ratio of less than
1.36 times (based on strip pricing). Pro-forma the investment in the
Block, Surge forecasts more than $175 million of credit availability on
the Company's bank lines.
The Block provides Surge with a competitive cost base that enhances
Surge's ability to negotiate a mutually beneficial business combination
with Longview, and offers a strategic ownership position in Longview,
that competitors do not possess.
An Early Warning Report detailing this ownership position will be filed
on the System for Electronic Document Analysis and Review ("SEDAR") at www.sedar.com within two business days, as required by applicable securities laws.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More
particularly, it contains forward-looking statements concerning: (i)
the sustainability of dividends, * and (ii) estimated 2014 year end net
debt and net debt to funds from operations ratio.
The forward-looking statements contained in this press release are based
on certain key expectations and assumptions made by Surge, including
expectations and assumptions concerning the success of future drilling,
development and completion activities, the performance of existing
wells, the performance of new wells, the viability of waterflood
projects, the availability 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, commodity prices, royalty regimes and exchange
rates, the application of regulatory and licensing requirements and the
availability of capital, labour and services.
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.
The estimates of 2014 year end net debt and 2014 funds from operations
contained in this press release are financial outlooks within the
meaning of applicable securities laws. These financial outlooks have
been prepared by management of Surge to provide an outlook of Surge's
anticipated funds from operations and netbacks for a full year of
operations with its current assets and based on management's
expectations and assumptions as to a number of factors, including
commodity pricing, production, operating expenses and royalties.
Readers are cautioned that this information may not be appropriate for
any other purpose. Management does not have firm commitments for all
of the costs, expenditures, prices or other financial assumptions used
to prepare the financial outlooks or assurance that such results will
be achieved. The actual results of Surge will likely vary from the
amounts set forth in the financial outlooks and such variation may be
Surge and its management believe that the financial outlooks have been
prepared on a reasonable basis, reflecting the best estimates and
judgments, and represent, to the best of management's knowledge and
opinion, Surge's expected expenditures and results of operations
following completion of the Acquisitions. However, because this
information is highly subjective and subject to numerous risks,
including the risks discussed under the note regarding Forward Looking
Statements, it should not be relied on as necessarily indicative of
future results. Except as required by applicable securities laws, Surge
undertakes no obligation to update this information.
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
In this press release: (i) mcf means thousand cubic feet; (ii) mcf/d
means thousand cubic feet per day (iii) mmcf means million cubic feet;
(iv) mmcf/d means million cubic feet per day; (v) bbls means barrels;
(vi) mbbls means thousand barrels; (vii) mmbbls means million barrels;
(viii) bbls/d means barrels per day; (ix) bcf means billion cubic feet;
* mboe means thousand barrels of oil equivalent; and (xi) mmboe means
million barrels of oil equivalent
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, 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