CALGARY, Nov. 6, 2014 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) announces record financial and operating results for the three and nine month periods ended September 30, 2014.
|FINANCIAL AND OPERATING SUMMARY|
|($000s except per share amounts)|
| Three Months Ended
| Nine Months Ended
|2014||2013||% change||2014||2013||% change|
|Oil and NGL sales||135,548||83,154||63 %||357,536||184,030||94 %|
|Natural gas sales||8,161||3,674||122 %||21,888||14,384||52 %|
|Total oil, natural gas, and NGL revenue||143,709||86,828||66 %||379,424||198,414||91 %|
|Funds from Operations1||71,298||44,455||60 %||190,593||96,504||97 %|
|Per share basic ($)||0.33||0.37||(11)%||0.98||1.10||(11)%|
|Per share diluted ($)||0.32||0.37||(14)%||0.98||1.10||(11)%|
|Net income (loss)||34,655||9,319||272 %||76,004||(7,039)||nm|
|Per share basic ($)||0.16||0.08||100 %||0.39||(0.08)||nm|
|Per share diluted ($)||0.16||0.08||100 %||0.39||(0.08)||nm|
|Capital expenditures - petroleum & gas properties2||32,473||19,997||62 %||109,799||85,228||29 %|
|Capital expenditures - acquisitions & dispositions2||(52,473)||218,439||nm4||529,350||202,255||162 %|
|Total capital expenditures2||(20,000)||238,436||nm||639,149||287,483||122 %|
|Net debt at end of period3||503,004||188,179||167 %||503,004||188,179||167 %|
|Oil and NGL (bbls per day)||17,180||9,725||77 %||14,723||7,861||87 %|
|Natural gas (mcf per day)||18,879||13,696||38 %||15,269||14,933||2 %|
|Total (boe per day) (6:1)||20,327||12,008||69 %||17,268||10,350||67 %|
|Average realized price (excluding hedges):|
|Oil and NGL ($per bbl)||85.76||92.93||(8)%||88.95||85.73||4 %|
|Natural gas ($ per mcf)||4.70||2.92||61 %||5.25||3.53||49 %|
|Realized loss on financial contracts ($ per boe)||(2.47)||(4.32)||(43)%||(4.18)||(2.47)||69 %|
|Net back (excluding hedges) ($ per boe)|
|Oil, natural gas and NGL sales||76.85||78.60||(2)%||80.49||70.22||15 %|
|Operating expenses||(16.02)||(12.94)||24 %||(15.44)||(12.54)||23 %|
|Operating netback||45.40||49.10||(8)%||49.23||42.63||15 %|
|Interest Expense||(2.81)||(2.04)||38 %||(2.48)||(2.43)||2 %|
|Corporate netback||40.60||44.50||(9)%||44.69||36.74||22 %|
|Common shares (000s)|
|Common shares outstanding, end of period||217,713||121,864||79 %||217,713||121,864||79 %|
|Weighted average basic shares outstanding||217,689||119,878||82 %||193,739||87,663||121 %|
|Stock option dilution (treasury method)||1,718||248||nm||1,279||—||nm|
|Weighted average diluted shares outstanding||219,407||120,126||83 %||195,018||87,663||122 %|
| 1 Management uses funds from operations (cash flow from operating activities before changes in non-cash working capital, legal settlement expenses, decommissioning expenditures, cash settled stock-based compensation, 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 discussion within the accompanying MD&A.
3 The Company defines net debt as outstanding bank debt 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".
RECORD PRODUCTION AND CASH FLOW IN THE THIRD QUARTER OF 2014
Surge is pleased to report record average production of 20,327 boe per day, and record funds from operations of more than $71 million, in the third quarter of 2014
- Achieved a third quarter average production rate of 20,327 boe per day, an increase of 69 percent from 12,008 boe per day in the same period of 2013.
- Funds from operations increased 60 percent to $71.3 million in the third quarter of 2014 as compared to $44.5 million for the same period of 2013.
- Successfully closed $52.6 million of miscellaneous asset dispositions, including approximately 400 boe per day of non-core production, reducing net debt to $503 million - with only $453 million drawn on Surge's $725 million bank line - while keeping Surge's forecast 2014 production exit rate intact at 21,350 boed.
- The Company's third quarter capital program (not including acquisitions and divestitures) of $32.5 million, represented only 46 percent of funds from operations for the quarter.
- Surge achieved strong operating and corporate netbacks of $45.40 per boe and $40.60 per boe respectively, in the third quarter of 2014.
- Increased Surge's oil and natural gas liquids production weighting by four percent to 85 percent in the third quarter of 2014 from 81 percent in the third quarter of 2013.
- Approximately 94 percent of Surge's revenue resulted from oil and natural gas liquids production in the third quarter of 2014.
- Drilled 10.3 net wells with a 100 percent success rate.
- Waterfloods have been expanded at Manson and Nipisi, initiated at Macoun and Eyehill, and preparations have begun for a waterflood pilot at Provost in the first quarter of 2015.
- Reduced G&A per boe by 22 percent in the third quarter of 2014 as compared to the same period in 2013. The Company's G&A costs have dropped from $2.56 per boe in the third quarter of 2013 to $1.99 per boe in the third quarter of 2014.
FINANCIAL STRENGTH; SUSTAINABILITY; RESILIENT DIVIDEND
Surge is well positioned for success in delivering on the Company's focused business strategy - even during times of lower commodity prices.
The Company has a high netback, low decline asset base, strong capital efficiencies, and an excellent balance sheet. Continued implementation of Surge's ongoing risk management program has resulted in more than 40 percent of the Company's net crude oil production being locked in at over C$100 per barrel through July, 2015. With more than $270 million of current credit availability on its bank line, a corporate decline rate of less than 22 percent, and operating netbacks of over $40 per boe based on current 2015 strip pricing of US$79.50 WTI, Surge is well positioned to succeed in the current commodity price environment.
The Company's focus on cost control, improving capital efficiencies and reducing per boe costs remains strong. Surge continues to reduce per boe costs via operational efficiencies and economies of scale as well.
Surge has a high quality, low decline asset base with over 2.0 billion barrels of Original Oil In Place ("OOIP"5) - with an estimated recovery factor of just eight percent. The Company has a 12 year, low risk, development drilling inventory of over 1,000 locations. Surge also has a suite of low risk waterflood projects which the Company is aggressively pursuing as part of its plan to continue reducing the corporate decline rate, and improving sustainability.
|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.|
With the significant drop in the Canadian dollar, Surge continues to realize CAD WTI pricing of over $91 per barrel6. In addition, with the tightening of crude oil differentials, and the Company's strategic, ongoing hedging programs, Surge's monthly cash flows are well protected. As discussed above, Surge has over 40 percent of the Company's net crude oil production locked in at over C$100 per barrel through July of 2015.
In the third quarter, Surge continued to rationalize the Company's asset base closing on the sale of several miscellaneous assets, including 400 boepd of non-core production, for proceeds of $52.6 million. This reduced the Company's debt to $503 million - with only $453 million drawn on Surge's $725 million bank line. As always, Surge will continue to look for opportunities to reinvest these proceeds into core area asset acquisitions, if and when they become available.
As a result of better than anticipated development drilling and waterflood results, Surge remains well positioned to exit 2014 with production guidance unchanged at 21,350 boepd (85 percent oil and NGL's) - even after the sale of the 400 boepd of non-core assets referred to above.
Consequently, in 2015 (utilizing US$79.50 WTI per barrel pricing) Surge now anticipates delivering more than 17 percent growth in average daily production over 2014 (five percent growth in production per weighted average share), and paying the Company's current $0.60 per share annual dividend, while maintaining an all-in payout ratio7 of under 94 percent!
This sustainability outlook confirms managements low risk business strategy, and highlights Surge's corporate fundamentals and the resiliency of the Company's dividend.
Management's stated goal is to deliver a low risk, long term sustainable 12-14 percent annualized total rate of return, on a risk adjusted basis, with an increasing compounding dividend.
EXECELLENT OPERATIONAL AND DRILLING RESULTS CONTINUE
In the third quarter of 2014 Surge's production exceeded management's expectations.
During the third quarter, Surge experienced production downtime due to wet conditions in Southern Saskatchewan and Manitoba, as well as, significant rain delays relating to the drilling of wells associated with the Company's post breakup program. The Company also experienced four separate, unplanned plant outages at Nevis, Valhalla, Wainwright and Westrose. In addition, as discussed above, Surge sold several non-core assets comprising approximately 400 boepd.
Importantly for Surge shareholders and management, the Company's third quarter production still met management's budget guidance at 20,327 boepd (85 percent oil and NGL's) - despite the non-core asset sales and the assorted downtime issues.
Furthermore, as a result of better than expected results from the Company's third quarter drilling program and waterflood activities, Surge's current production is now on track to exceed the Company's 2014 production exit rate of 21,350 boepd.
In the third quarter of 2014, Surge experienced excellent drilling results across the Company's entire asset base, drilling 10.3 net wells with a 100 percent success ratio, including 2.8 net farmout wells drilled with no capital spent by the Company.
For additional details on Surge's successful third quarter operating results, please see the previously released press release, dated October 28th, 2014.
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 September 30, 2014. These filings are available for review at www.sedar.com or www.surgeenergy.ca.
| 6 Assumes US$ WTI of $81.50. CAD/USD of $0.8950.
7 Payout ratio is defined as (dividends plus capital expenditures) divided by funds flow from operations.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More particularly, this press release contains statements concerning: (i) expectations with respect to Surge's balance sheet and anticipated year ended bank line availability; (ii) the completion, timing and use of proceeds of the $52 million of disposition transactions; (iii) the anticipated increase in capital spending for 2014; (iv) anticipated increases in drilling inventory; (v) forecast decline rates; (vi) Surge's drilling and development plans and enhance recovery projects and the timing and results to be expected thereof; (vii) the proposed delivery of solution gas to new facilities for certain Valhalla wells and Surge's reduction in reliance on the Sexsmith plant; (viii) management's expectations with respect to the Company's waterflood program, results therefrom and quantity of producing assets that will be placed under waterflood; (ix) Surge's operational guidance, including year-end exit production rate, capital spending, total wells drilled, decline rates, year-end net-asset-value/share, annualized funds from operations, including on a per share basis, operational and cash flow netback, including on a per BOE basis, the number of shares outstanding, total annual dividend and expected yield, basic payout ratios, "all-in" pay-out ratios, estimated year-end net debt to funds from operation ratio and year-end exit debt; (xii) the Company's declared focus and primary goals; and (xiii) the sustainability of dividends.
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 successful completion of the disposition transactions, 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.
The estimates of 2014 year end net debt, 2014 funds from operations and 2014 operating netback and cash flow netback 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 material. 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. 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.
Test Results and Initial Production Rates
Any references in this news release to initial, early and/or test production/performance rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such rates in calculating aggregate production. The initial production rate may be estimated based on other third party estimates or limited data available at this time. Initial production or test rates are not necessarily indicative of long-term performance of the relevant well or fields or of ultimate recovery of hydrocarbons.
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
Email: [email protected]
Max Lof, CFO
Surge Energy Inc.
Phone: (403) 930-1021
Fax: (403) 930-1011
Email: [email protected]