let's try that againSurge Energy Inc. Announces Closing of $43 MM Asset Sales; Dividend Reduction; and Updates 2016 Guidance
Surge Energy Inc. Announces Closing of $43 MM Asset Sales; Dividend Reduction; and Updates 2016 Guidance
Canada NewsWire
CALGARY, April 7, 2016
CALGARY, April 7, 2016 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) announces the sale of its non-core Sunset property, and the facilities sale at Valhalla, for total proceeds of $43 million; reduction of the Company's dividend; and updated 2016 guidance.
CLOSING OF ASSET SALES
On March 24, 2016 Surge closed the previously announced sale of certain facilities at its Valhalla light oil and natural gas asset in NW Alberta for $15 million. The Company will maintain control of the Valhalla facilities as operator, and will pay the purchaser an annual tariff for the life of the agreement. Surge will also retain all third- party processing revenues generated from the facilities.
On March 31, 2016 Surge also closed the previously announced sale of the Company's non-core Sunset property in Northern Alberta for proceeds of $28 million.
The $43 million in combined sale proceeds have been used to pay down the Company's existing credit facility. Pro-forma the proceeds from these two asset divestures, Surge's net debt as at December 31, 2015 was $117.4 million.
REDUCTION TO DIVIDEND
As crude oil prices precipitously dropped from US$108 WTI per barrel in June of 2014, to a low of US$26.75 per barrel in early February of 2016, Surge's management team have proactively created more than $742 million of liquidity for the Company (and its shareholders) comprised as follows:
$
469 mm
Asset Sales (2015)
$
100 mm
Dividend Reductions (Annualized)
$
90 mm
Capex Reductions
$
40 mm
Hedge Crystallizations
$
28 mm
Asset Sales (2016)
$
15 mm
Valhalla Midstream (2016)
$
742 mm
Total
Surge management created this liquidity without issuing a single common share from the Company's treasury. Indeed, over the last several months the Company has actually acquired over 1,100,000 Surge common shares in the market, at prices well below the Company's new independently engineered net asset value of $4.88 per share (i.e. pursuant to Surge's outstanding normal course issuer bid).
As a result of these aggressive and strategic capital allocation decisions, over the last 21 months Surge management have reduced the Company's net debt from approximately $590 million as at December 31, 2014 to $117.4 million at December 31, 2015 (pro forma the $43 million of asset sales referred to above).
Surge's current bank line is $400 million, providing the Company with a significant amount of credit availability on its bank lines. The Company's interest expense is a very low $1.19 per boe.
Surge's management and Board assess market conditions on a weekly and monthly basis with respect to protecting the Company's balance sheet, weighing the efficiency of capital expenditures, and assessing the appropriate level of the Company's dividend. In this regard, until such time as Surge's management and Board see a sustainable recovery in world crude oil prices, Surge is immediately reducing the Company's dividend from $0.15 per share per year ($0.0125 per share per month) to $0.075 per share, per year ($0.00625 per share per month).
Despite reducing the current dividend level, Surge management intend to retain the Company's dividend as an integral method for maximizing shareholder returns. Management believe that current industry fundamentals support lower overall growth expectations for crude oil companies in the future. Surge's high quality, low decline asset base, and its low cost structure, provide an excellent foundation for Surge's moderate growth, dividend paying business model. As such, the Company does not anticipate any further dividend reductions at this time.
2016 GUIDANCE UPDATED
Having created an additional $60 million of liquidity for the Company (i.e. the two asset sales and dividend reduction referred to above), Surge management reaffirm the Company's 2016 capital spending plan. This program reflects a prudent amount of capital and activity in order to maintain stability in Surge's corporate base production and balance sheet.
The following table provides updated 2016 guidance ranges for key financial operating items. Assumptions behind these values are based on strip pricing as of April 1, 2016.
Operating Category
2016 Guidance
Exit production (boe/d)
13,000 (76% liquids mix)
Total capital net of acq/disp (mm$)
$55 mm
Corporate oil price discount to Edmonton light
CAD $12-13/bbl
Royalties as % of revenue
13-14%
Operating expenses, $/boe
13.45 – 13.95
Transportation expense, $/boe
1.75-1.85
G&A, $/boe
1.75