Surge Energy Inc. Announces 59 Percent Increase to 2013 Year-End Reserves

CALGARY, Feb. 18, 2014 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) is pleased to announce the results of its 2013 year-end oil and gas reserves evaluation (NI-51-101 compliant), delivering a 59 percent increase over year-end 2012 reserves. This significant increase reflects exceptional organic growth through the drill-bit, advancement of waterflood initiatives, and the completion of four strategic, accretive, elite, light and medium crude oil acquisitions in 2013.

The following highlights and reserves information do not include the Company's SE Saskatchewan, high quality, low decline, operated, light oil asset acquisition which closed on February 14, 2014.

2013 YEAR-END RESERVES HIGHLIGHTS:

Surge reports the following 2013 year-end reserves highlights based on the Sproule Associates Limited ("Sproule") and McDaniel & Associates Consultants Ltd. ("McDaniel")  independent assessments of the Company's reserves dated effective December 31, 20131 (the "Surge Sproule Report") and (the "Surge McDaniel Report").  The results presented below used the following unaudited estimated values2: total capital expenditures for 2013 of approximately $126 million and $698 million including acquisitions and dispositions. Surge's 2013 average production was approximately 10,768 boe per day, and represents a 21 percent increase compared to average 2012 production of 8,873 boe per day.

Reserves

  • Achieved Proved plus Probable finding and development costs (F&D) of $17.03 per boe, including the change in Future Development Capital (FDC).

  • Achieved a Proved plus Probable recycle ratio of 2.5 with F&D costs of $17.03 per boe, including the change in FDC and based on Surge's estimated 2013 operating netback of $41.74 per boe3.

  • Achieved Proved plus Probable finding, development and acquisition (FD&A) cost of $27.27 per boe, including the change in FDC.

  • Achieved a Proved plus Probable recycle ratio of 1.5 with FD&A costs of $27.27 per boe, including the change in FDC and based on Surge's estimated 2013 operating netback of $41.74 per boe.

  • Increased Proved plus Probable reserves by 59% to 73.5 million boe as compared to December 31, 2012 reserves of 46.1 million boe.

  • Organic proved plus probable reserve additions replaced 196% of production in the year and proved reserve additions replaced 138% of production, excluding reserves added through acquisitions.

  • Increased Proved plus Probable Oil and NGLs reserves by 79% to 57.1 million barrels over December 31, 2012 reserves of 31.9 million barrels. Oil and NGLs made up 78% of the Company's total Proved plus Probable reserves.

  • Proved plus Probable FDC discounted at 10% of $391 million represents less than 1.8 times 2014 forecast average funds flow4.

  • Achieved a Proved plus Probable Reserve Life Index (RLI) of 16.8 years based on the Company's 2013 fourth quarter average production rate of approximately 12,014 boe per day.

  • Achieved a Proved plus Probable reserves replacement ratio of 8.0 based on the Company's estimated 2013 average production for the year of 10,768 boe per day.

  • Surge's Net Asset Value (NAV) is estimated at $6.95 per basic share based on Net Present Value discounted at 10 % Before Tax ("NPV10 BT") Proved plus Probable (2P) reserves of $1.365 billion as at December 31, 2013.

Operations

  • Achieved record 2013 annual production of 10,768 boe/d (79% oil and NGLs), an increase of 13% compared to 2012.

  • Invested $114 million in 2013 on development capital expenditures which includes the drilling of 31 (28.6 net) wells with a 97% success rate.

  • Increased oil production weighting to 86% in Q4 2013 from an average of 70 % in 2012.

  • Reduced corporate decline rate from 36% in 2012 to 24% exiting 2013 based on Surge's low risk operating strategy and waterflood initiatives.

_______________________________________
1 Using Sproule forecast prices and costs
2 As Surge plans to release its audited financial statements before the end of March 2013, certain financial estimates have been made herein.  Readers are advised to that these financial estimates are subject to audit and may be revised.
3 Operating netback is calculated as forecast revenue per boe less forecast royalties, operating and transportation expenses on a per boe basis.
4 Excluding G&A, corporate and exploration capital.

The following table summarizes the Company's reserves evaluated by independent reserves evaluators at December 31, 2013.  The Surge Sproule Report and Surge McDaniel Report were prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101").  Additional reserve information as required under NI-51-101 will be included in the Company's Annual Information Form, which will be filed on SEDAR by March 30, 2014.

Summary of Reserves5
  Oil & NGLs
(mbbls)
Gas
(mmcf)
Combined
(mboe)
Future Development Capital (FDC)
($MM)
        Discounted @ 10% Undiscounted
Proved Developed Producing 20,286 32,752 25,745 7,300 8,030
Proved Developed
Non-Producing
685 2,823 1,156 2,491 2,578
Proved Undeveloped 11,991 27,637 16,597 245,383 278,244
Total Proved 32,963 63,212 43,498 255,174 288,787
Probable Additional 24,094 35,209 29,963 136,058 163,420
Total
Proved plus Probable
57,057 98,421 73,460 391,232 452,269

Summary of Before Tax Net Present Values
(Forecast Pricing)
As at December 31, 20136

BEFORE TAX NET PRESENT VALUE ($MM)
Discount Rate
DESCRIPTION     0%     5%     10%     15%     20%
Proved producing     971,648.4     763,037.8     639,042.1     555,326.2     494,566.3
Proved non-producing     33,711.8     25,459.9     20,538.5     17,229.8     14,837
Undeveloped     489,214.2     325,794.8     232,507.3     172,235.9     130,390.3
Total proved     1,494,574     1,114,293     892,087.9     744,791.9     639,793.6
Probable     1,320,686     717,473.5     472,559.3     342,669     262,928.4
Total proved plus probable7     2,815,260     1,831,766     1,364,647     1,087,461     902,722
Per fully diluted share     16.46     10.71     7.98     6.36     5.28

________________________________________
5 Please see reserves note of this press release
6 Based on Sproule's January 1, 2014 forecast prices.
7 Numbers may not add due to rounding.

Capital Program Efficiency

Based on the evaluation of our petroleum and natural gas reserves prepared in accordance with NI 51-101 by our independent reserve evaluators, the historical efficiency of our capital programs is summarized as follows:

                                   
            2013           2012         Four Year
Weighted
Average
                                   
Excluding Future Development Costs                                  
                                   
Proved ($/boe)                                  
  F&D costs8       $   19.54       $   23.43       $ 18.00
  FD&A costs9       $   36.18       $   26.86       $ 29.43
Proved plus probable ($/boe)                                  
  F&D costs8       $   13.69       $   14.84       $ 12.18
  FD&A costs9       $   22.32       $   17.00       $ 18.73
Proved plus Probable Recycle ratio10                                  
  F&D costs           3.0x           2.3x         3.1x
  FD&A costs           1.9x           2.0x         2.0x
                                   
Including Future Development Costs                                  
                                   
Proved ($/boe)                                  
  F&D costs8       $   27.92       $   28.00       $ 24.41
  FD&A costs9       $   42.10       $   30.13       $ 34.52
Proved plus probable ($/boe)                                  
  F&D costs8       $   17.03       $   23.72       $ 18.34
  FD&A costs9       $   27.27       $   23.34       $ 23.75
Proved plus Probable Recycle ratio10                                  
  F&D costs           2.5x           1.5x         2.0x
  FD&A costs           1.5x           1.5x         1.5x
                                   
Operating netback per boe10       $   41.74       $   34.65       $ 36.88

_______________________________________
8 The aggregate of the exploration and development costs incurred in the financial year and change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.
9 The capital expenditures include the announced purchase price of corporate acquisitions rather than the amounts allocated to property, plant and equipment for accounting purposes. The capital expenditures also exclude capitalized administration costs.
10 Recycle ratio is calculated as operating netback divided by FD&A costs (proved plus probable). Operating netback is calculated as revenue (including realized hedging gains and losses) minus royalties, production and operating expenses and transportation expenses.

RESERVES NOTE:

In accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101), a report was prepared by each of Sproule and McDaniel. These reports evaluated, as at December 31, 2013, all of Surge's oil, natural gas, and natural gas liquids reserves.

The tables in this press release disclose in the aggregate the Company's gross and net proved and proved plus probable reserves and Net Present Value (NPV) as estimated in both the Surge Sproule Report and the Surge McDaniel Report.  These estimates were calculated using Sproule forecast prices and costs.

"Forecast prices and costs" means future prices and costs used by Sproule in the Surge Sproule Report and in the Surge McDaniel Report that are generally accepted as being a reasonable outlook of the future, or fixed or currently determinable future prices or costs to which the Company is bound.

"Gross" reserves equate to those reserves that are referred to as "Company Gross" reserves by the Canadian Securities Administrators (CSA) in NI 51-101.  Gross Reserves are Company gross reserves, which are the Company's working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Company.

"Net After Royalty" reserves are the Company's working interest (operating or non-operating) share after deduction of royalty obligations plus the Company's royalty interests in reserves.

The net present value of future net revenue attributable to Surge's reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment costs for only those wells assigned reserves by Sproule and McDaniel's. It should not be assumed that the undiscounted or discounted net present value of future net revenue attributable to Surge's reserves estimated by Sproule and McDaniel's represent the fair market value of those reserves.  The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to effects of aggregations.  Other assumptions and qualifications relating to costs, prices and future production and other matters are summarized herein.  The recovery and reserve estimates of Surge's oil, natural gas, and NGL reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements. More particularly, this press release contains statements concerning anticipated: (i) estimates of 2013 average production, capital expenditures, revenues and operating and transportation expenses; (ii) exploration, development and drilling activities, and (iii) secondary recovery potentials and implementation thereof.

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.

This press release contains the term "netbacks" which is not a term recognized under IFRS Generally Accepted Accounting Principles ("GAAP"). The Company uses this measure to help evaluate its performance as well as to evaluate acquisitions. The Company considers netbacks as a key measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by taking total revenues (excluding derivative gains and losses) and subtracting royalties, operating expenses and transportations costs on a per boe basis.

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.

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 and CEO    
Surge Energy Inc.
Phone: (403) 930-1507     
Fax: (403) 930-1011    
Email: pcolborne@surgeenergy.ca

Max Lof, 
CFO 
Surge Energy Inc.
Phone: (403) 930-1021
Fax: (403) 930-1011
Email: mlof@surgeenergy.ca


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