Guidance '21-'22 2H 2021 AND PRELMINARY 2022 GUIDANCE
Proceeds from the Offering, combined with free cash flow, will be used for an expanded 2H/21 development program, building upon the Company's successful 1H/21 drilling program, which targeted the Sparky and Montney formations. The 2H/21 program is strategically designed to allocate additional capital towards top-tier production efficiencies in the Company's Sparky core area.
The 2H/21 capital program involves drilling up to 23 gross (23.0 net) wells in four distinct, large original oil in place ("OOIP")1, shallow, conventional Sparky sandstone reservoirs. This targeted drilling program is expected to result in production additions of more than 2,400 boe per day for total drilling and completions expenditures of $32 million, resulting in production efficiencies of $13,250 per flowing boe on an IP180 basis1.
The expanded 2H/21 capital program is anticipated to deliver over 6 percent of cash flow per share growth for Surge's shareholders in the current year (ie. in Q4/21), when compared to the Company's previously planned 2H/21 maintenance-only capital program.
The Company's preliminary 2022 capital expenditure budget will continue to focus on production maintenance and free cash flow generation. Surge anticipates generating approximately $160 million ($0.42 per share2) in adjusted funds flow3 in 2022 at current oil prices of approximately US$65 WTI per barrel. With its low decline, shallow, large OOIP, conventional asset base, the Company is budgeting $83 million for its 2022 exploration & development capital program, maintaining production at 16,500 boepd (85% liquids).
On this basis, Surge anticipates generating $62 million ($0.16 per share) of free cash flow4 in 2022, representing a free cash flow yield5 of approximately 28 percent for the year.
Based upon the above, the Company's 2H 2021 and preliminary 2022 guidance is as follows:
| US $WTI per bbl | $65 WTI6 | $60 WTI6 |
| Total 2021(e) Exploration & Development Capital | $89 million |
| Exit 2021(e) Production | 16,500 boepd (85% liquids) |
| Total 2022(e) Exploration & Development Capital | $83 million |
| Average & Exit 2022(e) Production | 16,500 boepd (85% liquids) |
| 2022(e) Cash flow From Operating Activities | $145 million | $121 million |
| Per share | $0.38/share | $0.32/share |
| 2022(e) Adjusted Funds Flow | $160 million | $136 million |
| Per share | $0.42/share | $0.36/share |
| 2022(e) Net Operating Expenses5 | $16.45 - $16.95 per boe |
| 2022(e) Transportation Expenses | $1.20 - $1.30 per boe |
| 2022(e) General & Administrative Expenses | $1.95 - $2.05 per boe |
Both the Company's 2H/21 and preliminary 2022 capital program continue to focus capital on Surge's extensive, 14 year drilling inventory of over 425 net Sparky core area locations7 - across multiple large OOIP, shallow, conventional reservoirs.
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| 1 | See the Oil and Gas Advisories section of this document for further details. |
| 2 | All per-share metrics in this release are based on 378.8 million basic shares outstanding as at close of the Offering. |
| 3 | See the Non-GAAP Financial Measures section of this document for further details. |
| 4 | See the Non-GAAP Financial Measures section of this document for further details. |
| 5 | Calculated as free cash flow per share of $0.16 divided by a SGY share price of $0.58 per share. |
| 6 | Pricing used as follows: | WTI US$65/bbl; CAD/USD $0.80; WCS $66.25/bbl; MSW $75.62 bbl; AECO $2.55/GJ. |
| | | WTI US$60/bbl; CAD/USD $0.80; WCS $60.35/bbl; MSW $69.75bbl; AECO $2.55/GJ. |
| 7 | See the Drilling Inventory section of this document for further details. |
OUTLOOK: EXCITING 1H/21 DRILLING RESULTS
The Company will bring on an estimated 3,400 boepd of production from its 32 well 1H/21 drilling program, with results to date meeting or exceeding budgeted expectations. This production was added for "all-in" drilling and completion expenditures of $38 million, delivering production efficiencies of $11,175 per boe.
Over the last six years, Surge has amassed a dominant position in its core Sparky crude oil play, which is proving to be one of the premier, conventional, medium/light oil growth plays in Canada. Surge estimates a weighted average (risked) IRR of greater than 140 percent7 for the Company's entire 425 net well (14 year) Sparky core area drilling inventory at US $60 WTI per barrel flat pricing. These excellent risked returns are for primary drilling only, and do not include waterflood upside.
With crude oil prices now up over 450%8 in the last 13 months, combined with the Company's 85% oil and natural gas liquids weighting, Surge believes it is well-positioned to deliver continued cash flow per share growth and a free cash flow yield in 2022.
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| 8 | From WTI US$11.57 per barrel in April of 2020 to over US$66 per barrel on May 11th, 2021. |