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Surge Energy Inc (Alberta) T.SGY

Alternate Symbol(s):  ZPTAF | T.SGY.DB.B

Surge Energy Inc. is a Canada-based oil focused exploration and production (E&P) company. The Company's business consists of the exploration, development and production of oil and gas from properties in Western Canada. It holds focused and operated light and medium gravity crude oil properties in Alberta, Saskatchewan and Manitoba, characterized by large oil in place crude oil reservoirs with low recovery factors. It offers exposure to two of the five conventional oil growth plays in Canada: the Sparky and SE Saskatchewan. It holds a dominant land position and is drilling a mix of horizontal multi-frac and horizontal multi-lateral wells in the Sparky area. Sparky is a large, well established oil producing fairway in Western Canada. SE Saskatchewan is a focused operated asset base with light oil operating netbacks. SE Saskatchewan operates low-cost wells with short payouts and offers potential for continued area consolidation.


TSX:SGY - Post by User

Bullboard Posts
Comment by PUNJABIon Aug 06, 2015 12:32pm
150 Views
Post# 23994615

RE:RE:RE:RE:Blue Collar

RE:RE:RE:RE:Blue Collar

I did not see any comments in the qtr results. But according the New release of June 24, 2015 SGY had indicated that their budget for the second half was based on WTI $65

2015-06-24 20:45 AT - News Release

Mr. Paul Colborne reports

SURGE ENERGY INC. ANNOUNCES CAPITAL PROGRAM FOR THE SECOND HALF OF 2015

Surge Energy Inc.'s management and board are maintaining a conservative capital spending program for the second half of 2015, which is designed to both protect the company's net asset value at $6.28 per share and the company's excellent balance sheet. While there has been a meaningful recovery in world crude oil prices in the first half of 2015, Surge management and board will continue to assess market conditions on a weekly basis, and maintain strict discipline with respect to protecting the company's balance sheet and allocating capital.

The board of directors has approved the company's capital expenditure program for the second half of 2015 as set forth herein.

This budget forecasts maintaining Surge's dividend at 30 cents per share per year (2.5 cents per share per month).

In the second half of 2015, the company will allocate capital toward the drilling and water flooding of Surge's large, 250-million-barrel net original oil in place Upper Shaunavon discovery in southwest Saskatchewan, to the continued development of the company's 130-million-barrel net OOIP, high-quality Doig light oil pool at Valhalla in northwest Alberta, and to the continued development and water flooding of Surge's 400-million-barrel net OOIP Sparky trend crude oil assets in central Alberta.

In the second half of 2015, Surge will spend a budgeted $42.6-million and deliver the following:

  • A high-quality, low-risk, development drilling program of 11 net wells for light- and medium-gravity crude oil (selected out of Surge's large inventory of over 700 net drilling locations);
  • Exit 2015 production with more than 14,500 barrels of oil equivalent per day (representing more than 3-per-cent annualized growth);
  • A production mix of 76 per cent light- and medium-gravity crude oil;
  • A low corporate base decline of 23 per cent;
  • A 2015 all-in payout/sustainability ratio of 99 per cent based on second half 2015 at $65 (U.S.) WTI per barrel flat pricing;
  • A fourth quarter 2015 cash flow netback of $26.40 per boe -- with no impact from hedging;
  • Top quartile operating costs of $14.45 per boe (with general and administrative costs of $2.15 per boe in the fourth quarter);
  • All-in capital efficiencies of approximately $22,000 per barrel of oil equivalent per day;
  • A 2015 exit debt to funds flow from operations ratio of less than one times (with approximately $300-million of unutilized credit availability on the company's bank line);
  • A portion of the second half of 2015 capital spending will be focused to water flood projects relating to Surge's high-quality, large OOIP reservoirs, including initiating a water flood in the company's expanding Upper Shaunavon pool. By the end of 2015, Surge anticipates that more than 75 per cent of the company's producing assets will be under water flood.

Capital spending breakdown

In the second half of 2015, Surge is planning to spend $42.6-million focused to high-quality, light- and medium-gravity crude oil projects.

The breakdown for the second half of 2015 capital expenditures is set forth in the attached capital spending breakdown table.

 CAPITAL SPENDING BREAKDOWN Capex for 2015 ($MM) Development drilling and completions $24.0 Equipment/facilities/workovers 12.2 Water flood implementation 2.1 Land/seismic/corporate/G&A 4.3 Total 42.6 

Production in second half of 2015

Surge is budgeting average production of 14,250 boepd in the second half of 2015 -- with an exit rate of more than 14,500 boepd. This represents annualized production growth of more than 3 per cent.

Given Surge's high-quality, crude oil reservoirs, disciplined capital spending program and diligent focus on water flood activities, management estimates that the company's corporate decline rate is 23 per cent -- a key attribute for any growth and dividend-paying company.

Excellent sustainability; financial flexibility

Surge has a 2015 all-in payout/sustainability ratio of 99 per cent based on second half of 2015 at $65-(U.S.)-WTI-per-barrel flat pricing. The company has no dividend reinvestment plan.

The company has an excellent balance sheet with a 2015 exit debt to funds from operations ratio of less than one times at $65-(U.S.)-WTI-per-barrel flat pricing, and approximately $300-million of credit availability on Surge's bank lines.

Surge has all-in production efficiency metrics estimated at approximately $22,000 boepd for the second half 2015 capital program, with a fourth quarter cash flow netback of $26.40 per boe -- with no impact from hedging.

The attached guidance pricing assumptions table summarizes Surge's second half 2015 guidance pricing estimates and the company's 2015 hedging activities.

 GUIDANCE PRICING ASSUMPTIONS WTI U.S.$ $65.00 Cdn/U.S.$ FX $0.81 WTI Cdn $80.25 WTI-to-EDM differential Cdn $3.70 EDM light Cdn $76.55 

Hedging activities in 2015

Surge has a disciplined, continuing risk management program with over 60 per cent of the second half of 2015 net crude oil volumes locked in on a costless collar basis at an attractive floor price of $62 (Canadian) WTI per barrel, and a ceiling of $82 (Canadian) WTI per barrel. This program helps to secure the availability of cash flow for capital expenditures and dividends.

Focused business strategy; exciting outlook for second half of 2015

Conservative strategy

Surge will continue to implement the company's disciplined business strategy of allocating capital toward high-quality, large OOIP, light- and medium-gravity, crude oil reservoirs. The company will also continue to pursue year-over-year increases in recovery factors from these high-quality assets through low-risk development activities, including:

  • Infill and step-out development drilling;
  • Up-to-date completion techniques, including horizontal frack technology;
  • Production optimizations;
  • Water floods.

Pursuant to this focused business strategy, Surge targets conservative annual per-share growth in reserves, production and cash flow of 3 to 5 per cent. In addition, Surge provides an attractive cash yield of approximately 8 per cent based on the current trading price of the company's shares.

Accretive acquisitions of other high-quality assets will provide incremental growth over and above these estimates.

Second half of 2015 program

Surge will begin the second half of 2015 drilling seven consecutive development wells at Shaunavon in southwest Saskatchewan, targeting the Upper Shaunavon formation in this 250-million-barrel OOIP, conventional sandstone reservoir. Surge has over 220 net low-risk development locations to drill for Upper Shaunavon oil. These wells generate a risked rate of return of 74 per cent at strip pricing. The company will also initiate water flood activities in the third quarter of 2015 in the Upper Shaunavon formation by converting two wells to injection.

Surge will commence drilling at Valhalla in northwest Alberta in early July targeting the company's large 130-million-barrel OOIP light oil Doig field. Surge's latest two wells at Valhalla have independently earned the distinction as the two best oil wells drilled in Canada this year. Surge has more than 30 net locations remaining to drill at Valhalla. The company budgets the drilling of two net wells at Valhalla in the second half of 2015. Type curve wells at Valhalla generate a risked rate of return of 64 per cent at strip pricing.

In addition, Surge will invest approximately $5.1-million to build a pipeline as part of a long-term infrastructure solution at Valhalla in northwest Alberta. With this pipeline, the company will divert up to 12 million cubic feet per day of its Doig solution gas production from the Sexsmith plant to a nearby Surge-owned gas plant at Doe, which Surge acquired in the fourth quarter of 2014. This investment will significantly reduce the company's gas-processing fees going forward, and reduce Surge's exposure to third party curtailments and outages at Valhalla. Surge also confirms that it holds firm service (with both area service providers), well above the company's anticipated volume requirements, going forward.

In this regard, Surge is currently experiencing an unplanned outage at Sexsmith, due to TCPL system curtailments. The company is working with the plant operator to restore curtailed volumes over the next two weeks.

In central Alberta, Surge will drill two net wells at Eyehill and Provost, targeting the Sparky formation in the second half of 2015. These wells generate a risked rate of return of 55 per cent at strip pricing for crude.

Sixty per cent of Surge's second half 2015 drilling capital expenditures will be at Shaunavon in southwest Saskatchewan. The company's highest growth asset is also at Shaunavon, with over 350 net drilling locations in the Upper and Lower Shaunavon formations, respectively. This large inventory allows Surge to maintain flexibility with respect to allocating capital to the jurisdictions with the highest rates of return.

Surge is on track to achieve management's stated goal of being one of the best-positioned light-/medium-gravity crude oil growth and dividend-paying companies in Canada -- uniquely positioned to grow at virtually any reasonable crude oil commodity price assumption. On this basis, today, Surge has the following corporate fundamentals:

  • Three core, high-netback operating areas, which comprise over 1.4 billion barrels of net OOIP, with a 7-per-cent recovery factor to date;
  • A 15-year reserve life index;
  • A low 23-per-cent decline;
  • A fourth quarter annualized debt to cash flow ratio of 1.1 times at strip pricing;
  • Approximately $300-million of credit available on the company's bank lines;
  • A 14-year, low-risk development drilling inventory, with more than 700 net drilling locations;
  • Excellent production efficiency plays (adding volumes at approximately $22,000 per boepd in the second half of 2015);
  • A net asset value of $6.28 per share.

Financial statements and accompanying management's discussion and analysis

Surge has filed with Canadian securities regulatory authorities its financial statements and accompanying MD&A for the three months ended March 31, 2015. These filings are available for review at SEDAR or the company's website.

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