CALGARY, Sept. 6, 2016 /CNW/ - Surge Energy Inc.
("Surge" or the "Company") (TSX: SGY) announces preliminary
guidance for 2017, with production averaging more than 13,650
boepd, and a 2017 production exit rate of 14,150 boepd. In
addition, Surge announces an upward revision to the Company's
previously announced 2016 production exit rate estimate from 13,000
boepd to 13,500 boepd.
PRELIMINARY GUIDANCE FOR 2017
In 2017 Surge plans to deliver approximately five percent growth
in production per share from low risk development drilling and
waterflood activities – funded entirely from existing funds flow at
US$50 WTI pricing for crude
oil1. Average production for 2017 is forecast to be
13,650 boepd (81 percent liquids), with an exit rate of 14,150
boepd (82 percent liquids).
Surge's preliminary guidance for 2017 is set forth below:
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|
|
|
Preliminary 2017
Guidance at
US$50 WTI1
|
Preliminary 2017
Guidance at
US$60 WTI2
|
OPERATIONAL
|
|
|
2017 Average
Production (boe/d)
2017 Exit Production
(boe/d)
|
13,650 (81 percent
liquids)
14,150 (81 percent
liquids)
|
13,650 (81 percent
liquids)
14,150 (81 percent
liquids)
|
Total Capital
Spending
|
$85
million
|
$85
million
|
Est. Base
Decline
|
<24%
|
<24%
|
Operating
Expenses
|
$11.45/boe to
$11.95/boe
|
$11.45/boe to
$11.95/boe
|
Transportation
Expenses
|
$1.50/boe
|
$1.50/boe
|
Royalties as a % of
Revenue
|
11.5% to
12.5%
|
13% to 14%
|
Corporate Oil
Price Discount to Edmonton light
|
-$11/bbl to
-$12/bbl
|
-$11/bbl to
-$12/bbl
|
Estimated Funds Flow
from Operations3
|
$102 million to $107
million
|
$129 million to $134
million
|
Funds Flow from
Operations per Share
|
$0.45 to $0.48 per
share
|
$0.58 to $0.60 per
share
|
FINANCIAL
|
|
|
Basic Shares
Outstanding
|
222.2
million
|
222.2
million
|
Annual Dividend
Payable
|
$16.7 million ($0.075
per share per annum)
|
$16.7 million ($0.075
per share per annum)
|
Exit 2017
Debt
|
$138 million to $143
million
|
$112 million to $117
million
|
Debt/Cash
Flow
|
1.40x to
1.28x
|
0.90x to
0.84x
|
Payout/Sustainability
Ratio4
|
95% to
100%
|
76% to 79%
|
The Company anticipates spending 70 percent of its preliminary
2017 capital budget on drilling activity. The great majority of the
drilling activity will be focused at Surge's three core areas of
Shaunavon, Sparky and
Valhalla.
In the event of commodity prices above the US$50 WTI base case, Surge management will
evaluate all capital allocation options for the resultant free cash
flow.
In conjunction with this preliminary 2017 guidance, the Company
has restructured its 2017 CAD WTI
collar positions as follows:
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|
|
|
1H
2017
|
2H
2017
|
Previous Floor
($CAD WTI/bbl)
|
CAD$49.00
|
CAD$53.33
|
Revised Floor
($CAD WTI/bbl)5
|
CAD$61.71
|
CAD$60.00
|
Previous
Volume
|
2,500bbl/d
|
1,500bbl/d
|
Revised
Volume
|
3,500bbl/d
|
1,500bbl/d
|
Accordingly, Surge now has a CAD$61.71 WTI floor on 3,500 bbl/d of production
in 1H 2017 and 1,500 bbl/d of production in 2H 2017.
Surge's ongoing strategic hedging program protects the execution
of the Company's 2017 drilling program through spring break-up, at
a crude oil price level as low as US$39 WTI, while maintaining a 1H 2017
debt-to-cash flow ratio of under 2.0 times.
UPWARD REVISION TO 2016 EXIT RATE
As disclosed in the Company's press release dated August 3, 2016, Surge has experienced successful
development drilling results at its three core areas of
Shaunavon, Sparky and Valhalla - recently adding over 2,200 boepd
(85 percent oil), at an "all-in" on-stream cost6 of
under $20 million, from the Company's
recent 14 well development drilling program. This drilling program
provides exceptional netbacks7, with incremental
operating expenses under $5/boe and
royalty rates of 2.5 to 5 percent8.
Accordingly, having now exceeded managements projected 2016
production exit rate target of 13,000 boepd, Surge is now revising
upward the Company's 2016 guidance as follows:
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|
|
Revised 2016
Guidance9
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OPERATIONAL
|
|
2016(e) Exit
Production (boe/d)
|
13,500 (79%
liquids)
|
Total Capital
Spending
|
$66
million
|
Operating
Expenses
|
$11.95/boe to
$12.45/boe
|
Transportation
Expenses
|
$1.50/boe
|
Royalties as a % of
Revenue
|
11% to 12%
|
Corporate Oil
Price Discount to Edmonton light
|
-$11/bbl to
-$12/bbl
|
Estimated Funds Flow
from Operations
|
$74
million
|
|
|
FINANCIAL
|
|
Basic Shares
Outstanding
|
222.2
million
|
Annual Dividend
Payable
|
$16.7 million ($0.075
per share per annum)
|
Estimated Year End
2016 Debt
|
$138
million
|
In order to protect the majority of the cash flows from the
increased 2016 drilling program, Surge management has acquired an
additional 2,000 barrels per day of WTI puts at CAD $60/bbl for the fourth quarter of 2016.
Accordingly, the Company has now hedged the maximum amount of Q4
2016 WTI exposure allowable under its risk management policy.
OUTLOOK
Surge's goal is to be the best positioned light/medium crude
oil, growth and dividend paying company in Canada. During the extended downturn in world
crude oil prices, Surge management focused on creating balance
sheet flexibility, and implementing rigorous cost cutting
initiatives. Management also high-graded and optimized the
Company's asset base into high quality, large OOIP crude oil
reservoirs in Surge's three core areas - through low risk
development drilling, and the implementation of successful
waterfloods.
Importantly, Surge management has also preserved significant per
share growth potential for shareholders. This ensures that the
Company is one of the few in its peer group in Canada who are able to add a substantial,
organic, production per share growth component to management's
estimates in the second half of 2016 and through 2017 – all within
existing cash flow - at strip pricing for crude oil.
Surge's 2017 production exit rate guidance of 14,150 boepd
referred to above, represents a 16% increase in organic production
per share, over the Company's reported Q2 2016 production level of
12,182 boepd.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements.
The use of any of the words "anticipate", "continue", "estimate",
"expect", "may", "will", "project", "should", "believe" and similar
expressions are intended to identify forward-looking statements.
These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements.
More particularly, this press release contains statements
concerning: Surge's drilling and development plans and enhance
recovery projects and the timing and results to be expected
thereof; expectations with respect to the Company's ability to
operate and succeed in the current commodity price environment; the
Company's declared focus and primary goals; management's forecast
of debt and debt to cash flow ratio; management's estimates and
expectations regarding production efficiencies, drilling upside,
operating costs, capital expenditures, growth opportunities and
netback; the impact of cost savings initiatives; production and
cash flow per share growth; the Company's plans with respect to its
dividend; guidance with respect to 2016 exit and 2017 exit and
average production, capital expenditures, decline rates, operating
and transportation expenses, royalties, discount prices to be
received on future production, funds flow from operations and funds
flow from operations per share, number of shares outstanding,
dividend payable, year-end debt and payout and sustainability
ratios; the timing and focus of the Company's capital program; and
anticipated commodity prices.
The guidance for 2016 and 2017 set forth in this press release
may be considered to be future-oriented financial information or a
financial outlook for the purposes of applicable Canadian
securities laws. Financial outlook and future-oriented financial
information contained in this press release are based on
assumptions about future events based on management's assessment of
the relevant information currently available. In particular, this
press release contains projected operational information for 2016
and 2017, including exit production, total capital, royalties,
operating expenses, transportation expenses, as well as the
applicable discount price to be received on future production. The
future-oriented financial information and financial outlooks
contained in this press release have been approved by management as
of the date of this press release. Readers are cautioned that any
such financial outlook and future-oriented financial information
contained herein should not be used for purposes other than those
for which it is disclosed herein.
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, the determination of decommissioning liabilities, the
successful implementation of the Corporation's normal course issuer
bid, 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 impact of the pending
sale on the Company's bank line.
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 the continued support of the
lenders under Surge's bank line. Certain of these risks are set out
in more detail in Surge's Annual Information Form dated
March 16, 2016 and in Surge's
MD&A for the period ended March 31,
2016, both of which have 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.
Reserves Data
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 and boepd means barrel of oil equivalent per day. 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. 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. > 1.7 billion bbls gross (1.4 billion
bbls net), 7 percent RF; IP180 means rate at which a well
produces during its first 180 days of production. Bbl means
barrel of oil. Mbbl means thousand barrels. Bbl/d means
barrels of oil per day. NGLs means natural gas liquids.
Non-IFRS Measures
This press release contains the terms "funds flow from
operations", "funds flow from operations per share", "net debt",
"payout ratio", "sustainability ratio" and "netback", which do not
have a standardized meaning prescribed by International Financial
Reporting Standards ("IFRS") and therefore may not be comparable
with the calculation of similar measures by other companies.
Management uses funds generated by operations to analyze operating
performance and leverage. Management believes "net debt" is a
useful supplemental measure of the total amount of current and
long-term debt of the Company. Mark-to-market risk management
contracts are excluded from the net debt calculation. Management
believes "netbacks" are a useful supplemental measures of the
amount of revenues received after royalties and operating and
transportation costs and secondly, the amount of revenues received
after the royalties, operating, transportation costs, general and
administrative costs, financial charges and asset retirement
obligations. Additional information relating to these non-IFRS
measures can be found in the Company's most recent management's
discussion and analysis MD&A, which may be accessed through the
SEDAR website (www.sedar.com).
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.
__________________________________________
1 Based on 2017 pricing averaging as follows:
US$50.00WTI/bbl; CAD$65.79 WTI/bbl; EDM CAD$61.54.bbl; AECO $2.95/mcf.
2 Based on 2017 pricing averaging as follows:
US$60.00WTI/bbl; CAD$75.00 WTI/bbl; EDM CAD$70.75.bbl; AECO $2.95/mcf.
3 Management uses funds from operations (cash flow from
operating activities before changes in non-cash working capital,
decommissioning expenditures, transaction costs and cash settled
stock-based compensation) 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.
4 Calculated as Total Capital Spending plus Annual
Dividend, Divided by Funds Flow from Operations.
5 If market prices settle at or below CAD$50 WTI in 2017, the Company will receive a
"locked-in" cash settlement of the market price plus CAD$10 per bbl on 2,500 bbl/d in 1H 2017 and
1,500 bbl/d in 2H 2017. An additional 1,000bbl/d has been
swapped at CAD $65.00 WTI in 1H
2017.
6 On-stream cost is defined as drilling, completion,
equipping and tie-in costs ("DCET").
7 Netbacks are defined as revenue, less royalties,
operating and transportation expenses.
8 Royalty rates reflect royalty holiday rates in
Alberta and Saskatchewan.
9 Based on August
16th, 2016 strip pricing for 2016, averaging as
follows: US$42.85 WTI/bbl;
CAD$55.84 WTI/bbl; EDM CAD$51.75.bbl; AECO $1.87/mcf.
SOURCE Surge Energy Inc.