Surge sells 4750 boe/d, makes u wonder what lre is worth Sale of SE Saskatchewan and Manitoba Assets
Based on the above analysis of the current business environment, Surge has signed a definitive purchase and sale agreement with a Canadian oil and gas company to sell all of its SE Saskatchewan and Manitoba assets for a purchase price of $430 million. The closing date for the sale of the Assets is set for June 15th, 2015.
The Assets comprise over 23 mmboe of independently engineered Proven plus Probable reserves, and approximately 4,750 bopd of crude oil production.
Macquarie Capital Markets Canada Ltd. acted as exclusive financial advisor in connection with the Transaction. GMP Securities L.P., and Scotia Waterous acted as strategic advisors.
As discussed above, during the strong equity markets from May of 2013 until September 2014, Surge acquired a number of high quality, large OOIP crude oil reservoirs, including the Assets being divested. It is Surge managements view and experience, that high quality reservoirs attract and provide quality metrics and returns on an acquisition or on a sale of such assets – at any point in the commodity price cycle. Accordingly, Surge's management and Board are of the view that the sale of the Assets represents excellent value for both Surge and its shareholders, in the present market place.
The Transaction has the following characteristics:
| Total Purchase Price: | C$430.0 million |
| Current Production: | ~4,750 boe/d |
| Proved Reserves: | ~13.6 mmboe |
| Proved plus Probable Reserves: | ~23.0 mmboe |
The associated Transaction metrics are as follows:
| TV / Current Production: | ~$90,526/boe/d |
| TV / Proved Reserves: | ~$31.60/boe |
| TV / Proved plus Probable Reserves: | ~$18.70/boe |
| TV / Cash Flow: | 8.8x (April strip pricing) |
| Recycle Ratio (Proved plus Probable): | 1.5x |
II. PROFORMA SURGE
The Transaction is forecast to be greater than 20 percent accretive to production per share, 15 percent accretive to cash flow per share, and 15 percent accretive to proven plus probable reserves per share, to Surge shareholders on a debt-adjusted basis.
Following the sale of the Assets, Surge will have the following corporate characteristics:
- Reserves: 86.3 mmboe Total Proven plus Probable (76 percent oil)
- RLI: >15 years
- Decline: 23 percent
- Production: >14,250 boepd (77 percent oil)
- Net Debt: $135 million
- Forward Debt to Cash Flow: 1.25 times (based on April 23rd, 2015 strip pricing)
- Bank line: > $375 million (E)
- Drilling Inventory: 749/731 (gross/net) total locations; 146 booked
- Land: 285,000 gross (260,000 net) undeveloped acres
- Operatorship: 100 percent of Surge's 3 core areas
- NAV: $6.28 per share (year-end external engineering report)
- Operating Expenses: $14 per boe
- Dividend: $0.30 per share per annum ($0.025 per share per month)
As previously disclosed, Surge management will be presenting a budget for the second half of 2015 in late June after reassessing market conditions at that time.