CALGARY, Nov. 6, 2018 /CNW/ - Surge Energy Inc. ("Surge"
or the "Company") (TSX: SGY) announces its operating and financial
results for the quarter ended September 30,
2018.
FINANCIAL AND OPERATING HIGHLIGHTS
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
($000s except per
share amounts)
|
2018
|
2017
|
%
Change
|
|
2018
|
2017
|
%
Change
|
Financial
highlights
|
|
|
|
|
|
|
|
Oil sales
|
85,946
|
50,563
|
70 %
|
|
233,954
|
152,973
|
53 %
|
NGL sales
|
3,598
|
2,158
|
67 %
|
|
8,546
|
6,680
|
28 %
|
Natural gas
sales
|
1,492
|
3,704
|
(60)%
|
|
3,920
|
11,995
|
(67)%
|
Total oil, natural
gas, and NGL revenue
|
91,036
|
56,425
|
61 %
|
|
246,420
|
171,648
|
44 %
|
Cash flow from
operating activities
|
37,197
|
24,589
|
51 %
|
|
95,137
|
65,042
|
46 %
|
Per share - basic
($)
|
0.16
|
0.11
|
45 %
|
|
0.41
|
0.29
|
41 %
|
Adjusted funds
flow1
|
40,638
|
22,985
|
77 %
|
|
107,403
|
71,643
|
50 %
|
Per share - basic
($)1
|
0.18
|
0.10
|
80 %
|
|
0.46
|
0.32
|
44 %
|
Total exploration and
development expenditures
|
28,701
|
26,652
|
8 %
|
|
86,954
|
75,757
|
15 %
|
Total acquisition and
dispositions
|
6,279
|
36,650
|
(83)%
|
|
28,733
|
72,097
|
(60)%
|
Total capital
expenditures
|
34,980
|
63,302
|
(45)%
|
|
115,687
|
147,854
|
(22)%
|
Net debt1,
end of period
|
282,394
|
246,398
|
15 %
|
|
282,394
|
246,398
|
15 %
|
|
|
|
|
|
|
|
|
Operating
highlights
|
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
|
Oil (bbls per
day)
|
13,560
|
11,380
|
19 %
|
|
13,120
|
11,071
|
19 %
|
NGLs (bbls per
day)
|
669
|
627
|
7 %
|
|
595
|
663
|
(10)%
|
Natural gas (mcf per
day)
|
22,797
|
17,997
|
27 %
|
|
20,004
|
17,618
|
14 %
|
Total (boe per day)
(6:1)
|
18,029
|
15,007
|
20 %
|
|
17,049
|
14,670
|
16 %
|
Average realized
price (excluding hedges):
|
|
|
|
|
|
|
|
Oil ($ per
bbl)
|
68.89
|
48.29
|
43 %
|
|
65.32
|
50.62
|
29 %
|
NGL ($ per
bbl)
|
58.46
|
37.42
|
56 %
|
|
52.57
|
36.92
|
42 %
|
Natural gas ($ per
mcf)
|
0.71
|
2.24
|
(68)%
|
|
0.72
|
2.49
|
(71)%
|
|
|
|
|
|
|
|
|
Netback ($ per
boe)
|
|
|
|
|
|
|
|
Petroleum and natural
gas revenue
|
54.89
|
40.87
|
34 %
|
|
52.94
|
42.86
|
24 %
|
Realized gain (loss)
on financial contracts
|
(1.91)
|
0.12
|
nm2
|
|
(1.84)
|
(0.71)
|
159 %
|
Royalties
|
(8.32)
|
(5.27)
|
58 %
|
|
(7.68)
|
(5.49)
|
40 %
|
Net operating
expenses1
|
(14.36)
|
(13.73)
|
5 %
|
|
(14.37)
|
(13.54)
|
6 %
|
Transportation
expenses
|
(1.55)
|
(1.40)
|
11 %
|
|
(1.48)
|
(1.48)
|
—%
|
Operating
netback3
|
28.75
|
20.59
|
40 %
|
|
27.57
|
21.64
|
27 %
|
G&A
expense
|
(1.98)
|
(1.94)
|
2 %
|
|
(2.08)
|
(1.94)
|
7 %
|
Interest
expense
|
(2.27)
|
(2.01)
|
13 %
|
|
(2.42)
|
(1.81)
|
34 %
|
Adjusted funds flow
netback3
|
24.50
|
16.64
|
47 %
|
|
23.07
|
17.89
|
29 %
|
|
|
|
|
|
|
|
|
Common shares
outstanding, end of period
|
233,618
|
232,920
|
0 %
|
|
233,618
|
232,920
|
0 %
|
Weighted average
basic shares outstanding
|
231,988
|
228,309
|
2 %
|
|
231,932
|
226,623
|
2 %
|
Stock option
dilution
|
4,234
|
—
|
nm
|
|
4,736
|
6,357
|
(25)%
|
Weighted average
diluted shares outstanding
|
236,222
|
228,309
|
3 %
|
|
236,668
|
232,980
|
2 %
|
1 This is a non-GAAP
financial measure which is defined in the Non-GAAP Financial
Measures section of this document.
|
2 The Company views
this change calculation as not meaningful, or "nm".
|
3 See the Additional
Metrics section of this document for further
information.
|
In accordance with industry practice, the Company uses adjusted
funds flow to analyze the cash flow generated from its ongoing
principal business activities. On this basis, both adjusted funds
flow and cash flow from operating activities are provided for
comparative purposes. Please see the Non-GAAP Financial
Measures section of this release for further details.
MESSAGE TO THE SHAREHOLDERS
Based on continued successful development of Surge's Sparky,
Valhalla, and Shaunavon core areas, the Company's Q3/18
production rate averaged 18,029 boepd. The Company's Q3/18
production exceeded Surge's previously released 2018 production
exit rate guidance of 17,175 boepd by five percent, and exceeded
analyst consensus production estimates of 16,880 boepd4
for Q3/18 by seven percent.
Over the last nine financial quarters Surge has now grown the
Company's production per share by 41 percent. As a result of
this consistent production per share growth, combined with higher
oil prices, Surge's adjusted funds flow per share in Q3/18
increased by 80 percent as compared to Q3/17, and cash flow from
operating activities per share increased by 45 percent as compared
to Q3/17.
Surge's continued quarterly operational outperformance has been
accomplished to date within the Company's existing capital
expenditure budget guidance of $107
million for 2018.
The Company's previously announced $320
million, accretive, light oil acquisition (the
"Acquisition") of an Alberta
based, private oil company named Mount Bastion Oil and Gas Corp.
("Mount Bastion" or "MBOG"), closed on October 25, 2018, and provided no operational or
financial contribution to Surge's Q3/18 results below.
Q3/18 HIGHLIGHTS
- Surge's Q3/18 quarterly average production of 18,029 boepd (79
percent oil and liquids) increased by more than 20 percent over
Q3/17 production of 15,007 boepd (18 percent per share), and
increased by six percent as compared to Q2/18 production of 17,072
boepd (five percent per share).
- At Betty Lake, the Company drilled four wells to follow up
Surge's discovery well drilled in Q4/17. All four of these wells
were successful, and production from the pool is now greater than
600 boepd (83 percent oil).
- Cash flow from operating activities in Q3/18 was $37.2 million ($0.16 per share), an increase of more than 50
percent as compared to Q3/17 at $24.6
million ($0.11 per
share).
- Adjusted funds flow in Q3/18 was $40.6
million ($0.18 per share), an
increase of 77 percent as compared to Q3/17 at $23 million ($0.10
per share).
- The Company's operating netback per boe increased by
40 percent, to $28.75 per boe in
Q3/18, from $20.59 per boe in
Q3/17.
- Surge reported a dividend payout ratio5 of 14
percent for Q3/18;
- The Company had an all-in payout ratio6 of 85
percent in Q3/18, while maintaining a net debt7 to
adjusted funds flow ratio6 of 1.74 times.
- On October 25, 2018 Surge
announced:
-
- The closing of the Company's accretive $320 million light oil Acquisition; and
- The Company's revolving credit facility increased by 57 percent
to $550 million, up from $350 million previously. The Company estimates
$150 million in undrawn capacity at
October 25, 2018.
______________________
|
4 Consensus average production
of 16,880 boepd as per Thomson Reuters as at October
23rd, 2018.
|
5 This is a capital management
measure which is defined in the Capital Management Measures section
of this document.
|
NINE QUARTERS OF PER SHARE GROWTH
Surge has now delivered production per share growth of 41
percent over the last nine financial quarters, and has upwardly
revised guidance five times over this period:
Surge's consistent production per share growth, combined with
higher crude oil prices, is driving significant increases in the
Company's adjusted funds flow and cash flow from operating
activities per share. Surge's strong Q3/18 results were achieved
with WCS differentials for the quarter averaging approximately 15
percent wider than Q2/18.
______________________
|
6 This is
a capital management measure which is defined in the Capital
Management Measures section of this document.
|
7 This is
a non-GAAP financial measure which is defined in the Non-GAAP
Financial Measures section of this document.
|
$320 MILLION ACCRETIVE LIGHT
OIL ACQUISITION
Pursuant to the Company's press release dated October 25, 2018, Surge announced the Closing of
the MBOG Acquisition.
The Acquisition includes 5,500 boepd (98 percent liquids) of
operated, light oil production in the Greater Sawn Area and has a
base annual production decline of 21 percent. The combination of
Surge and MBOG results in a 22,500 boepd (85 percent oil-weighted),
light and medium gravity, intermediate, growth and dividend paying
company.
OPERATIONAL HIGHLIGHTS
Surge spent a total of $28.7
million of exploration and development capital in the third
quarter of 2018 for the drilling of 12 gross (11.8 net) wells,
along with waterflood injector conversions, associated
infrastructure, land and seismic.
In the Sparky core area, Surge drilled six gross (5.8 net)
wells. At Betty Lake, the Company drilled four wells to follow
up the discovery well drilled in Q4/17. All four of the Betty Lake
drills were successful and production from the pool is now
greater than 600 boepd (83 percent oil). The Company now estimates
more than 50 net follow-up locations8 (five net booked)
at Betty Lake. Surge also drilled two successful Sparky oil wells
at Eyehill in the quarter, and converted two additional wells to
water injection.
At Valhalla, Surge successfully
drilled and completed one gross (one net) Doig well. Over half
of this well was positioned less than 200m from the nearest offset. The initial
pressure for the well was 95 percent of the original pressure,
which exceeded management's expectations, and further validates the
Company's ongoing downspacing program.
Surge also successfully drilled five (five net) wells at
its Shaunavon core area in Q3/18,
targeting both the Upper and Lower Shaunavon formations. These five
successful wells are producing a combined rate of more than 500
boepd. The Company also continued its ongoing pumpjack
conversion program. To date, 38 wells have been converted from
progressive cavity pumps to pumpjacks, for a total combined
production add of over 550 boepd net to Surge at a cost of less
than $10,000 per flowing
boepd.
Despite the recent widening of Canadian oil differentials,
approximately 33 percent of the Company's estimated fourth quarter
oil production is either located downstream of recent apportionment
points or trucked to sales points unaffected by apportionment.
Notwithstanding this, Surge expects its average realized crude oil
price in the fourth quarter to be lower compared to the third
quarter, based on realized prices to date and current forward
pricing.
2018 CAPITAL PROGRAM - ADDITIONAL CAPITAL ALLOCATED TO
ACQUIRED ASSETS
Following the acquisition of the MBOG assets, the Company plans
to drill two incremental light oil wells at Sawn, as well as
undertake infrastructure modifications and 3D seismic acquisitions.
Accordingly, budgeted capital expenditures for 2018 have now been
increased from $107 million to
$117 million. Surge anticipates
the additional Sawn wells will come on production in early
January 2019.
______________________
|
8 See
Drilling Locations section of this document for further
information
|
OUTLOOK – CONSISTENT QUARTERLY PER SHARE GROWTH
Management's stated goal is to be the best positioned, top
performing, light/medium gravity crude oil growth and dividend
paying public company in our peer group, in Canada.
Over the last nine financial quarters (i.e. prior to the MBOG
Acquisition), Surge has continued to build and maintain the
Company's track record, delivering:
- consistent successful drilling and waterflood results;
- timely and accretive core area acquisitions;
- increased production per share by more than 41 percent;
- increased cash flow from operating activities per share by over
125 percent;
- increased adjusted funds flow per share by over 80
percent;
- increased Surge's dividend three times by a cumulative 33
percent, while maintaining a dividend payout
ratio9 of under 20 percent.
During the extremely volatile period from the announcement of
the Acquisition on September
5th, 2018 until today: 1) US$ WTI prices have
fallen from a high of US $76.24 to as
low as US $62.17 per barrel; 2) the
Canadian oil industry has experienced an unprecedented widening of
Edmonton to WTI light oil
differentials, which have increased from US$10/bbl to as high as US$41/bbl; and 3) Canadian WCS crude oil
differentials to WTI have widened dramatically, from US$24.50/bbl to as high as $46/bbl. On this basis, given Surge's disciplined
approach to the dividend policy, the Company's Board of Directors
and management will be analyzing whether to defer some portion or
all of the previously anticipated dividend increase from
$0.10 per share to $0.125 per share, based on market conditions.
Surge's next dividend payment announcement is November 15, 2018.
The Company continues to focus on sustainability, balance sheet
management, and cost controls to deliver returns to Surge
shareholders. The Company continues to grow its production base and
11 year drilling inventory in its existing Sparky, Shaunavon, and Valhalla core areas - through low risk
development drilling results, waterfloods, and strategic, high
quality, large OOIP10, core area acquisitions. The
Acquisition of the MBOG assets brings a fourth core area to further
expand the Company's light oil development drilling and waterflood
inventory.
Surge anticipates confirming 2019 guidance in early January,
2019.
______________________
|
9 This is a capital management
measure which is defined in the Capital Management Measures section
of this document.
|
10
Original Oil in Place (OOIP) is the equivalent to Discovered
Petroleum Initially In Place (DPIIP) for the purpose of this press
release.
|
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: the impact of the Acquisition on Surge and its results
and development plans; Surge's dividend payout ratio and all-in
payout ratio; anticipated 2018 exit rate production; management's
expectations with respect to the development of the Sawn asset and
the timing thereof; Surge's declared focus and primary goals;
Surge's annual exploration and development capital expenditure
program and budget; anticipated Q4 realized crude oil prices;
commodity prices; availability of undrawn capacity with respect to
Surge's credit facility; management's continued evaluation of the
repurchase of Surge shares under the existing NCIB; management's
plans to confirm 2019 and the timing thereof; Surge's dividend
policy and the expectations of management with respect to an
increase to Surge's dividend; and the timing of release of 2019
guidance.
Information respecting Surge's 2019 forecast operating netback
and forecast cash flow from operating activities 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 and projected operational information
contained in this press release are based on assumptions about
future events based on management's assessment of the relevant
information currently available that management considers to be
reasonable in the circumstances. The future-oriented financial
information and financial outlooks and projected operational
information contained in this press release have been approved by
management as of the date of this press release. Readers are
cautioned that any such future-oriented financial information,
financial outlooks and projected operational 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 ability of Surge to execute and
realize on the anticipated benefits of the Acquisition; 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 geological
characteristics of the MBOG Assets; the successful application of
drilling, completion and seismic technology; the determination of
decommissioning liabilities; prevailing weather conditions;
exchange rates; licensing requirements; the impact of completed
facilities on operating costs; the ability of Surge to increase its
dividend post-closing; the availability and costs of capital,
labour and services; and the creditworthiness of industry
partners.
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 14, 2018 and in Surge's
MD&A for the period ended September 30,
2018, 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. Bbl means barrel of oil. NGLs means natural gas
liquids.
Drilling Locations
This press release discloses drilling locations in two
categories: (i) booked locations; and (ii) unbooked locations.
Booked locations are proved locations and probable locations
derived from an internal evaluation using standard practices as
prescribed in the Canadian Oil and Gas Evaluations Handbook and
account for drilling locations that have associated proved and/or
probable reserves, as applicable. Booked locations referenced in
this press release account for all of Surge's Asset Acquisitions
and Divestiture activity up to and including the date of the
subject acquisition, reflecting the bookings that existed (from the
respective 3rd party auditor), as of January 1, 2018. Booked locations referenced for
Mount Bastion corporate acquisition are based upon Sproule's
reserve report titled "Evaluation of the P&NG Reserves of Mount
Bastion Oil & Gas Corp. (as of December
31, 2017) for Surge Energy Inc. using Surge Energy Inc.'s
Development Plan", dated August 31,
2018; this sensitivity run removed 73 gross (54.0 net)
economic locations from Sproule's original 2017 year end reserves,
leaving 67 gross (60.7 net) economic locations booked as of
December 31, 2017.
Unbooked locations are internal estimates based on prospective
acreage and assumptions as to the number of wells that can be
drilled per section based on industry practice and internal review.
Unbooked locations do not have attributed reserves or resources.
Unbooked locations have been identified by Surge's internal
certified Engineers and Geologists (who are also Qualified Reserve
Evaluators) as an estimation of our multi-year drilling activities
based on evaluation of applicable geologic, seismic, engineering,
production and reserves information. There is no certainty that the
Company will drill all unbooked drilling locations and if drilled
there is no certainty that such locations will result in additional
oil and gas reserves, resources or production. The drilling
locations on which the Company actually drills wells will
ultimately depend upon the availability of capital, regulatory
approvals, seasonal restrictions, oil and natural gas prices,
costs, actual drilling results, additional reservoir information
that is obtained and other factors. While certain of the unbooked
drilling locations have been de-risked by drilling existing wells
in relative close proximity to such unbooked drilling locations,
the majority of other unbooked drilling locations are farther away
from existing wells where management has less information about the
characteristics of the reservoir and therefore there is more
uncertainty whether wells will be drilled in such locations and if
drilled there is more uncertainty that such wells will result in
additional oil and gas reserves, resources or production.
Assuming the January 1, 2018
reference date outlined above, the >50 gross (>50 net) Sparky
locations identified herein 4 gross (4 net) are Proved locations
and 1 gross (1 net) are Probable locations.
Non-GAAP Financial Measures
Certain secondary financial measures in this press release –
namely, "adjusted funds flow", "adjusted funds flow per share", and
"net debt" are not prescribed by GAAP. These non-GAAP financial
measures are included because management uses the information to
analyze business performance, cash flow generated from the
business, leverage and liquidity, resulting from the Company's
principal business activities and it may be useful to investors on
the same basis. None of these measures are used to enhance the
Company's reported financial performance or position. The non-GAAP
measures do not have a standardized meaning prescribed by IFRS and
therefore are unlikely to be comparable to similar measures
presented by other issuers. They are common in the reports of other
companies but may differ by definition and application. All
non-GAAP financial measures used in this document are defined
below:
Adjusted Funds Flow & Adjusted Funds Flow per
Share
The Company adjusts cash flow from operating activities in
calculating adjusted funds flow for changes in non-cash working
capital, decommissioning expenditures, transaction and other costs,
and cash settled stock-based compensation plans, particularly cash
used to settle withholding obligations on stock-based compensation
arrangements that are settled in shares. Management believes the
timing of collection, payment or incurrence of these items involves
a high degree of discretion and as such may not be useful for
evaluating Surge's cash flows.
Changes in non-cash working capital are a result of the timing
of cash flows related to accounts receivable and accounts payable,
which management believes reduces comparability between periods.
Management views decommissioning expenditures predominately as a
discretionary allocation of capital, with flexibility to determine
the size and timing of decommissioning programs to achieve greater
capital efficiencies and as such, costs may vary between periods.
Transaction and other costs represent expenditures associated with
acquisitions, which management believes do not reflect the ongoing
cash flows of the business, and as such reduces comparability.
Subsequent to the third quarter of 2018, all of the Company's
stock-based compensation plans are equity classified as the Company
has the intention of settling all awards with shares. Cash settled
stock-based compensation currently represents the statutory tax
withholdings required on stock-based compensation awards and is a
discretionary allocation of capital. The Company has the option to
either require the holder to sell shares earned in the stock-based
compensation plan to satisfy tax withholdings, or the Company can
issue less shares to the individual and remit a cash payment to
satisfy tax withholding requirements. Each of these expenditures,
due to their nature, are not considered principal business
activities and vary between periods, which management believes
reduces comparability.
Adjusted funds flow per share is calculated using the same
weighted average basic and diluted shares used in calculating
income per share.
The following table reconciles cash flow from operating
activities to adjusted funds flow and adjusted funds flow per
share:
|
|
|
|
($000s)
|
Q3/18
|
|
Q3/17
|
Cash flow from
operating activities
|
$
|
37,197
|
|
$
|
24,589
|
Change in non-cash
working capital
|
|
(2,269)
|
|
|
(2,954)
|
Decommissioning
expenditures
|
|
1,329
|
|
|
686
|
Transaction and other
costs
|
|
1,016
|
|
|
138
|
Cash settled
stock-based compensation
|
|
3,365
|
|
|
526
|
Adjusted funds
flow
|
$
|
40,638
|
|
$
|
22,985
|
Per share –
basic
|
$
|
0.18
|
|
$
|
0.10
|
Net Debt
There is no comparable measure in accordance with IFRS for net
debt. Net debt is calculated as bank debt plus the liability
component of the convertible debentures plus or minus working
capital, however, excluding the fair value of financial contracts
and other long term liabilities. This metric is used by management
to analyze the level of debt in the Company including the impact of
working capital, which varies with timing of settlement of these
balances.
|
|
|
|
($000s)
|
As at Sept 30,
2018
|
|
As at Sept 30,
2017
|
Bank debt
|
$
(250,684)
|
|
$
(247,774)
|
Accounts
receivable
|
35,940
|
|
31,104
|
Prepaid expenses and
deposits
|
7,111
|
|
4,068
|
Convertible
debentures
|
(37,646)
|
|
-
|
Accounts payable and
accrued liabilities
|
(35,168)
|
|
(31,952)
|
Dividends
payable
|
(1,947)
|
|
(1,844)
|
Total
|
$
(282,394)
|
|
$
(246,398)
|
Net Operating Expenses
Net operating expenses are determined by deducting processing
and other revenue primarily generated by processing third party
volumes at processing facilities where the Company has an ownership
interest. It is common in the industry to earn third party
processing revenue on facilities where the entity has a working
interest in the infrastructure asset. Under IFRS this source of
funds is required to be reported as revenue. However, the Company's
principal business is not that of a midstream entity whose
activities are dedicated to earning processing and other
infrastructure payments. Where the Company has excess capacity at
one of its facilities, it will look to process third party volumes
as a means to reduce the cost of operating/owning the facility. As
such, third party processing revenue is netted against operating
costs in the MD&A.
Additional information relating to non-GAAP 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).
Capital Management Measures
Certain capital management measures in this press release –
namely, "dividend payout ratio", "all-in payout ratio", "free
adjusted funds flow", and "net debt to adjusted funds flow" are
disclosed for the purpose of providing investors with additional
insight as to how the Company evaluates the management of its
capital. Management uses each of the capital management measures
included in this document to analyze the Company's capital
management objectives and to assist in capital allocation
decisions. Management believes capital management measures may be
useful to investors on the same basis. None of these measures are
used to enhance the Company's reported financial performance or
position.
The capital management measures do not have a standardized
meaning prescribed by IFRS or a corresponding IFRS measure and
therefore are unlikely to be comparable to similar measures
presented by other issuers. They are common in the reports of other
companies but may differ by definition and application. The amounts
used in the calculation of the measures are derived from the
financial statements that are prepared in accordance with IFRS. In
some instances, the capital management measure incorporates a
non-GAAP measure, such as adjusted funds flow and net debt, which
are defined in the non-GAAP section of this document.
All capital management measures used in this document are
defined below:
All-in Payout Ratio
All-in payout ratio is calculated using the sum of total
exploration and development capital plus dividends paid divided by
adjusted funds flow. This capital management measure is used by
management to analyze allocated capital in comparison to the cash
being generated by the principal business activities. This measure
is provided to allow readers to quantify the amount of adjusted
funds flow that is being used to either: i) pay dividends; and ii)
deployed into the Company's development and exploration program. A
ratio of less than 100% indicates that a portion of the adjusted
funds flow is being retained by the Company and can be used to fund
items such as asset abandonment, repayment of debt, fund
acquisitions or the costs related thereto, withholding tax
obligations on stock based compensation or other items.
|
($000s)
|
Q3/18
|
|
Q3/17
|
Dividends
paid
|
$
|
5,788
|
|
$
|
5,386
|
Total exploration and
development expenditures
|
$
|
28,701
|
|
$
|
26,652
|
All-in
payout
|
$
|
34,489
|
|
$
|
32,038
|
Adjusted funds
flow
|
$
|
40,638
|
|
$
|
22,985
|
All-in payout
ratio (dividends paid and total exploration and
development expenditures as a % of adjusted funds
flow)
|
|
85%
|
|
|
139%
|
Dividend Payout Ratio
Dividend payout ratio is calculated as the dividends paid for
the respective period divided by adjusted funds flow. This capital
management measure is used by management to analyze the level of
dividends currently being paid on the stock in comparison to the
cash being generated by the principal business activities.
|
($000s)
|
Q3/18
|
|
Q3/17
|
Dividends
paid
|
$
|
5,788
|
|
$
|
5,386
|
Adjusted funds
flow
|
$
|
40,638
|
|
$
|
22,985
|
Dividend payout
ratio (dividends paid as a % of adjusted funds flow)
|
|
14%
|
|
|
23%
|
Net Debt to Adjusted Funds Flow Ratio
Net debt to adjusted funds flow ratio is calculated as net debt
divided by adjusted funds flow for the period. This capital
management measure provides an indication of leverage and the
number of years it would take to repay the net debt based on the
level of adjusted funds flow.
Additional information relating to non-GAAP and capital
management 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).
Additional Metrics
This press release contains additional metrics commonly used in
the oil and natural gas industry. These terms have been calculated
by Management and do not have a standardized meaning. Management
uses these oil and gas metrics to further analyze the performance
of the Company over time and to compare the results of the Company
with others in the industry. Additional metrics used in this press
release are as follows:
Operating Netback & Adjusted Funds Flow
Netback
Operating netback & adjusted funds flow netback are
calculated on a per unit basis as follows:
|
($000s)
|
Q3/18
|
|
Q3/17
|
|
YTD
2018
|
|
YTD
2017
|
Petroleum and natural
gas revenue*
|
$
|
91,036
|
|
$
|
56,425
|
|
$
|
246,420
|
|
$
|
171,648
|
Processing and other
income*
|
|
537
|
|
|
961
|
|
|
2,242
|
|
|
2,000
|
Royalties*
|
|
(13,803)
|
|
|
(7,276)
|
|
|
(35,725)
|
|
|
(21,993)
|
Realized gain (loss)
on financial contracts*
|
|
(3,166)
|
|
|
169
|
|
|
(8,577)
|
|
|
(2,850)
|
Operating
expenses*
|
|
(24,360)
|
|
|
(19,911)
|
|
|
(69,123)
|
|
|
(56,221)
|
Transportation
expenses*
|
|
(2,574)
|
|
|
(1,939)
|
|
|
(6,907)
|
|
|
(5,930)
|
Operating
netback
|
$
|
47,670
|
|
$
|
28,429
|
|
$
|
128,330
|
|
$
|
86,654
|
G&A
expense*
|
|
(3,276)
|
|
|
(2,673)
|
|
|
(9,677)
|
|
|
(7,762)
|
Interest
expense*
|
|
(3,756)
|
|
|
(2,771)
|
|
|
(11,250)
|
|
|
(7,249)
|
Adjusted funds flow
netback
|
$
|
40,638
|
|
$
|
22,985
|
|
$
|
107,403
|
|
$
|
71,643
|
Barrels of oil
equivalent (boe)
|
|
1,658,668
|
|
|
1,380,644
|
|
|
4,654,377
|
|
|
4,004,910
|
Operating netback
($ per boe)
|
$
|
28.75
|
|
$
|
20.59
|
|
$
|
27.57
|
|
$
|
21.64
|
Adjusted funds
flow netback ($ per boe)
|
$
|
24.50
|
|
$
|
16.64
|
|
$
|
23.07
|
|
$
|
17.89
|
* Taken directly from
the financial statements.
|
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.