from Scotia Daily Edge ■ Surge’s analyst day presentation was primarily focused on an overview of its assets. We provide a summary of the highlights in this note.
■ Sustainable yield strategy. Management emphasised its commitment to the moderate growth plus sustainable yield model (similar to the original income trusts), which it sees as a low risk path to value creation. The company continues to focus on adding high oil-in-place assets, reducing the pace of drilling and implementing waterfloods to lower declines and maximize recoveries.
■ Digging into the drilling. The company's capital program is focused on reducing risk and maximizing returns by drilling higher probability development locations. The bulk of SGY's 2014 drilling budget will be directed toward the lower costs SE AB Sparky, SW SK Shaunavon and
SE SK Midale plays. The body of our note highlights the company's operational plans and recent results in its core areas.
■ Thesis unchanged. We continue to see solid value in the story, with an attractive yield (~8.6%) and strong sustainability ratio (~90%). We also continue to like the lower cost (<$2M/well), light oil focused drilling inventory that the company has accumulated. As we have previously noted, we believe this inventory reduces SGY's drilling concentration risk and is an appropriate fit for the sustainable yield business model.
Recommendation
■ We maintain our SO rating and one-year target price of $8.00/sh.