CALGARY, March 20, 2013 /CNW/ – Surge Energy Inc. (“Surge” or the “Company”) (TSX:SGY.TO) is pleased to announce its financial and operating results for the year ended December 31, 2012 and has filed its Annual Information Form (“AIF”) for the year ended December 31, 2012 on SEDAR.
FINANCIAL AND OPERATING SUMMARY:
Certain selected financial and operations information for the three months and year ended December 31, 2012 and the 2011 comparative information are outlined below and should be read in conjunction with Surge’s audited annual and unaudited interim Consolidated Financial Statements and accompanying Management Discussion and Analysis (“MD&A”).
|Three Months Ended December 31||Years Ended December 31|
|($000s except per share amounts)||2012||2011||% change||2012||2011||% change|
|Oil and NGL sales||44,017||36,954||19%||176,474||111,705||58%|
|Natural gas sales||5,410||5,741||(6%)||16,129||19,548||(17%)|
|Total oil, natural gas, and NGL revenue||49,430||42,812||15%||192,660||131,492||47%|
|Funds from Operations1||24,061||22,088||9%||92,232||57,789||60%|
|Per share basic ($)||0.34||0.36||(6%)||1.30||1.00||30%|
|Per share diluted ($)||0.34||0.35||(3%)||1.30||0.98||33%|
|Net income (loss)||(68,187)||(5,531)||nm2||(53,243)||2,095||nm|
|Per share basic ($)||(0.96)||(0.09)||nm||(0.75)||0.04||nm|
|Per share diluted ($)||(0.96)||(0.09)||nm||(0.75)||0.04||nm|
|Capital expenditures – petroleum & gas properties3||44,975||50,065||(10%)||180,714||150,097||20%|
|Capital expenditures – acquisitions & dispositions3||(2,662)||(3,323)||(20%)||109,729||15,061||629%|
|Total capital expenditures3||42,313||46,742||(9%)||290,443||165,158||76%|
|Net debt at end of period4||220,578||97,204||127%||220,578||97,204||127%|
|Oil and NGL (bbls per day)||6,398||4,534||41%||6,181||3,604||72%|
|Natural gas (mcf per day)||15,129||17,885||(15%)||16,151||14,133||14%|
|Total (boe per day) (6:1)||8,919||7,514||19%||8,873||5,960||49%|
|Average realized price (excluding hedges):|
|Oil and NGL ($ per bbl)||74.78||88.60||(16%)||78.01||84.91||(8%)|
|Natural gas ($ per mcf)||3.89||3.49||11%||2.73||3.79||(28%)|
|Realized loss on financial contracts ($ per boe)||1.72||(1.62)||nm||0.11||(1.62)||nm|
|Netback (excluding hedges) ($ per boe)|
|Oil, natural gas and NGL sales||60.24||61.93||(3%)||59.33||60.45||(2%)|
|Common shares (000s)|
|Common shares outstanding, end of period||71,217||63,040||13%||71,217||63,040||13%|
|Weighted average basic shares outstanding||71,196||62,125||15%||70,962||57,622||23%|
|Stock option dilution (treasury method)||–||1,190||nm||–||1,136||nm|
|Weighted average diluted shares outstanding||71,196||63,314||12%||70,962||58,758||21%|
2012 ACHIEVEMENTS & HIGHLIGHTS:
Surge achieved significant growth in 2012. Funds from operations increased 60 percent to $92.2 million in 2012 as compared to 2011. Production grew 49 percent in 2012 as compared to 2011. Management continues to execute a strong risk management program which supports the protection of Surge’s balance sheet. Surge remains well positioned with three core areas with an expanded oil drilling inventory of 585 gross (450 net) locations, internally estimated gross DPIIP5 of 685 million barrels of oil and multiple waterflood opportunities and exploration initiatives.
Surge has achieved operational efficiencies in each of its core areas, resulting in reductions in both operating costs per boe and general and administrative costs per boe in 2012 as compared to 2011. Surge continues to strive to become one of the lowest cost oil producers among its oil weighted peer group.
- Achieved a 99 percent success rate during 2012 drilling 62 gross (50.05 net) wells.
- Increased funds from operations per fully diluted share by 33 percent to $1.30 in 2012.
- Increased production per basic share by 21 percent in 2012.
- Reduced operating costs per boe by 25 percent in 2012.
- Reduced G&A per boe by 24 percent in 2012 and a 45 percent reduction since 2010.
- Increased its bank line to $290 million from $150 million during 2012.
- Strong risk management program supports the protection of the Company’s balance sheet. More than half of the Company’s forecast 2013 production is hedged with approximately one third of the Edmonton to WTI differential hedged for the last nine months of 2013.
- Approximately 92 percent of Surge’s revenue resulted from oil and natural gas liquids production in 2012.
- Increased its oil and natural gas liquids production weighting by 17 percent to 70 percent in 2012 from 60 percent in 2011.
- Oil and NGLs made up 69 percent of the Company’s total Proved plus Probable reserves.
- Completed the accretive acquisition of a private company that added approximately 1,200 barrels per day (100 percent light oil) of focused, high quality, high netback and high working interest Slave Point/Gilwood light oil assets in January 2012.
- Expanded its oil drilling inventory to 585 gross (450 net) locations from 490 gross (350 net) locations and significantly increased its internally estimated DPIIP to greater than 685 gross million barrels from greater than 440 gross million barrels of oil.
- Significant waterflood progress with waterflood projects in Silver Lake, Windfall, Waskada and Nipisi underway or planned for early 2013.
- Increased Proved plus Probable reserves by 43 percent to 46.1 million boe over December 31, 2011 reserves of 32.2 million boe.
- Increased Proved plus Probable Reserves per share by 29 percent (fully diluted).
- Achieved Proved plus Probable finding, development and acquisition costs (FD&A) of $23.32 per boe, including the change in future development capital (“FDC”).
- Achieved a corporate recycle ratio of 1.5 with F&D costs of $23.70 per boe, including the change in FDC and based on Surge’s estimated 2012 netback of $34.67 per boe6.
- Surge achieved Proved plus Probable recycle ratios of 2.8, 2.6 and 2.2 at Valhalla, Silver Area and Nipisi, respectively7. These three areas represent approximately 82 percent of the reserves value.
- Increased Proved plus Probable Oil and NGLs reserves by 66 percent to 31.9 million barrels over December 31, 2011 reserves of 19.2 million barrels.
- Increased Net Present Value discounted at 10 percent Before Tax (“NPV10 BT”) of Proved plus Probable reserves by 25 percent to $732 million compared to $588 million as at December 31, 20118.
- Surge’s Net Asset Value (NAV) is estimated at $8.18 per basic share based on NPV10 BT Proved plus Probable (2P) reserves at December 31, 2012.
Surge achieved a 99 percent success rate during the year ended December 31, 2012, drilling 62 gross (50.05 net) wells. The 62 gross wells drilled during the year include seven wells at Valhalla South, 20 wells in the South East (SE) Alberta area, 11 wells in Nipisi, 20 wells in the North Dakota area, and four wells at Waskada. The 20 gross wells drilled during the fourth quarter include three wells at Valhalla South, seven wells in the Silver Area of South East Alberta, one Nipisi well and nine wells in North Dakota. Fifteen of the 20 wells drilled in the fourth quarter were producing at quarter end with the rest to be completed and brought on production during the first quarter of 2013.
As previously disclosed in a press release dated March 12, 2013, Surge announced significant new pool additions and pool extensions at three of its primary operating properties. An updated summary is provided below.
Surge drilled a successful step-out well at Nipisi South (13-36-76-9W5; 73 percent working interest or “WI”) for a total cost of $3.2 million. The well has averaged sales volumes of greater than 200 barrels of oil per day (146 barrels of oil per day net) with an average water cut of 44 percent during its first two weeks of production. The well is currently producing sales volumes of 175 barrels of oil per day (128 barrels of oil per day net) with a 44 percent water cut. This well confirms the commercial viability of the 30 million barrels of internally estimated DPIIP in the pool. Surge has committed to developing an access road at Nipisi South for approximately $350,000 that will enable the Company to produce this new well all year. The Company anticipates that at least ten gross (9.2 net) wells will be required to optimally develop the pool.
Surge drilled a successful step-out well two miles north from its previous most northerly well at Valhalla (13-7-75-8W6; 100 percent WI). The well averaged over 1,500 boe per day (89 percent oil and NGLs) after two weeks of being on production and confirmed the viability of nine gross (nine net) horizontal multi-frac drilling locations in the northern part of the pool. Surge recently completed another well in the northern part of the field (13-31-74-8W6; 44 percent WI) that came on production a week earlier than expected (March 13, 2013) with costs coming in under budget. Surge is also currently drilling a 100 percent WI horizontal multi-frac well at 5-18-75-8W6, which is expected to be on production in April 2013.
Surge drilled a horizontal multi-frac well into a new pool in the Silver Area of South East Alberta that was placed on pump on February 28, 2013 and continues to produce over 250 barrels of oil per day. The well confirms the commercial viability of the 47 million barrels of internally estimated DPIIP in this pool. Going forward, Surge expects the drill, complete and tie-in costs to be $1.5 million. Surge acquired another section of rights in the area for a total exposure of 4.75 sections and sees the potential for an additional 20 drilling locations in this new pool. Surge also drilled a horizontal well into another new pool in the Silver Lake Area that is currently performing to the Company’s type curve expectations of best month average production rate of 100 barrels of oil per day for a total all-in cost of $1.2 million. The well confirms the commercial viability of the 2.2 million barrels of internally estimated DPIIP in this pool.
Significant Waterflood Progress
In the Silver Area of South East Alberta during 2012, Surge converted two wells to water injection wells and increased facility capacity to handle an additional 12,000 barrels of water per day. As a result, field production is up by approximately 20 percent post expansion from approximately 1,100 barrels of oil per day to 1,300 barrels of oil per day. The field has currently recovered approximately 18 percent of the internally estimated 14 million barrels of gross DPIIP and is expected to recover an additional three million barrels of oil with continued waterflood success.
At Windfall in Western Alberta, Surge commenced a waterflood pilot during the third quarter of 2012. The Formation has been taking the water at rates that are in line with the Company’s expectations. Surge expects to see a positive response from the two offsetting horizontal multi-frac wells in the second quarter of 2013. Based on successful waterflood implementation, Surge estimates potential recoveries of approximately 25 percent of the 60 million barrels of internally estimated DPIIIP in this pool.
At Waskada in South West Manitoba, Surge commenced a pilot waterflood during the first quarter of 2013 and the Company expects to see a positive response within six months. Based on successful waterflood implementation, Surge estimates potential recoveries of approximately 20 percent of the 10 million barrels of internally estimated DPIIP per section.
At Nipisi in Western Alberta, Surge has received approval to commence a waterflood, which is planned for the second quarter of 2013. Based on successful waterflood implementation, Surge estimates that it will ultimately recover at least 20 percent of the estimated 85 million barrels of DPIIP in this northern pool based on offsetting analogous waterflooded pools.
OUTLOOK & GUIDANCE – POSITIONED FOR CONTINUED LIGHT OIL GROWTH:
Surge’s board of directors approved a capital budget of $140 million for 2013 with a balanced approach of production growth (approximately 16 percent growth in average daily production per share) and unlocking additional value in its high quality, large DPIIP light oil assets. Surge has allocated approximately $124 million to its 2013 drilling program, $9 million to waterflood implementation and optimization, $17 million to a combination of land, acquisitions, corporate and capitalized G&A expenditures and is planning $10 million of non-core dispositions late in the year. Surge is also pleased to announce that the Company’s bank line was increased from $250 million to $290 million late in the fourth quarter of 2012, providing flexibility to execute the Company’s 2013 capital program.
In 2013, management’s primary goals for Surge include improving operational performance, improving capital efficiencies, maintaining balance sheet flexibility with an effective risk management program and confirming the commercial viability of the Company’s waterflood program. In addition to Surge’s Windfall waterflood pilot, which commenced injection during the third quarter of 2012, early in 2013 Surge implemented a horizontal well waterflood pilot at Waskada and will implement a waterflood program at Nipisi in the second quarter of 2013. In South East Alberta, two existing waterflood schemes will be optimized in 2013 and Surge will build new facilities and submit applications to commence two new schemes. The implementation of the waterflood pilots are an integral piece of Surge’s strategy of increasing oil recovery factors throughout the Company’s oil portfolio, lowering corporate decline rates and maximizing shareholder value.
With this 2013 budget, Surge expects to achieve greater than 15 percent growth in average production per share and funds from operations per share while maintaining its balance sheet. Based on Surge’s 2013 guidance, the Company is forecasting growth in funds from operation per basic share of more than 235 percent since the Company was recapitalized in 2010 with a compound annual growth rate of 50 percent over that time. Surge is forecasting growth in production per basic share of more than 70 percent since 2010 with a compound annual growth rate of 20 percent over that time.
AUDITED FINANCIAL STATEMENTS, MD&A AND AIF:
Surge has filed with Canadian securities regulatory authorities its audited financial statements and accompanying MD&A for the three months and year ended December 31, 2012. Surge has also filed the Company’s Annual Information Form for the year ended December 31, 2012. These filings are available for review at www.sedar.com or www.surgeenergy.ca.
ANNUAL GENERAL MEETING:
Surge’s Annual General Meeting is scheduled for 12:30 pm Mountain Standard Time on May 15, 2013 at the Petroleum Club, Devonian Room located at 319 – 5th Avenue SW, Calgary AB.
Surge is an oil focused oil and gas company with operations throughout Alberta, Manitoba and North Dakota. Surge’s common shares trade on the Toronto Stock Exchange under the symbol SGY and currently has 71.2 million basic and 79.9 million fully diluted shares outstanding.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More particularly, this press release contains statements concerning anticipated: (i) capital expenditures for 2013, (ii) exploration, development, drilling, construction and acquisition activities, (iii) oil & natural gas production growth during 2013, (iv) funds from operations, (v) debt and bank facilities, (vi) operating and transportation costs, (vii) royalties, (viii) hedging results, (ix) foreign exchange rates, * netbacks (xi) primary and secondary recovery potentials and implementation thereof, (xii) the weighting of Surge’s production between oil and natural gas, (xiii) regulatory applications and the expected success thereof, and (xiv) realization of anticipated benefits of acquisitions.
The forward-looking statements are based on certain key expectations and assumptions made by Surge, including expectations and assumptions concerning the performance of existing wells and success obtained in drilling new wells, anticipated expenses, cash flow and capital expenditures and the application of regulatory and royalty regimes.
Although Surge believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Surge can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Surge’s Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this press release are made as of the date hereof and Surge undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe/d means barrel of oil equivalent per day.
Test Results and Initial Production Rates
A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Test results and initial production rates disclosed herein may not necessarily be indicative of long term performance or of ultimate recovery.
In this press release: (i) mcf means thousand cubic feet; (ii) mcf/d means thousand cubic feet per day (iii) mmcf means million cubic feet; (iv) mmcf/d means million cubic feet per day; (v) bbls means barrels; (vi) mbbls means thousand barrels; (vii) mmbbls means million barrels; (viii) bbls/d means barrels per day; (ix) bcf means billion cubic feet; * mboe means thousand barrels of oil equivalent; and (xi) mmboe means million barrels of oil equivalent
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
1 Management uses funds from operations (cash flow from operations before changes in non-cash working capital) to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures for other entities.
2 The Company views this change calculation as not meaningful, or “nm”.
3 Please see capital expenditures note in the Company’s Management Discussion and Analysis.
4 The Company defines net debt as outstanding bank debt plus or minus working capital excluding the fair value of financial contracts.
5 Discovered Petroleum Initially In Place (DPIIP) is defined as quantity of hydrocarbons that are estimated to be in place within a known accumulation, plus those estimated quantities in accumulations yet to be discovered. There is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of DPIIP at this time, and as such it cannot be further sub-categorized.
6 Operating netback is calculated as forecast revenue per boe less forecast royalties, operating and transportation expenses on a per boe basis.
7 Excluding G&A, corporate and exploration capital.
8 It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.SOURCE: Surge Energy Inc.