CALGARY, Feb. 12, 2013 /CNW/ – Surge Energy Inc. (“Surge” or the “Company“) (TSX:SGY.TO) is pleased to announce its 2012 year-end reserves evaluation (NI-51-101 compliant) and to provide an update on current operations.
In 2012, Surge achieved 27 percent growth in reserves per share and forecasts (based on unaudited estimates), 21 percent growth in production per share (basic) and a 31 percent increase in cash flow per share (basic) despite lower realized field prices due to an $8.56 per barrel increase in oil differentials in 2012 from 2011. This increase in oil differentials decreased Surge’s netback by approximately 25 percent over 2011. The Company also increased Proved plus Probable reserves by 43 percent, achieving a Proved plus Probable reserves replacement ratio of 5.3, Proved plus Probable finding, development and acquisition (“FD&A”) costs of $23.32 per boe (including the change in future development capital or “FDC”) and a corporate recycle ratio of 1.5.
2012 YEAR-END RESERVES HIGHLIGHTS:
Surge is pleased to report the following 2012 year-end reserves highlights based on the Sproule Associates Limited (“Sproule”) independent assessment of the Company’s reserves dated effective December 31, 20121 (the “Surge Sproule Report”). The results presented below used the following unaudited estimated values2: total capital expenditures for 2012 of approximately $182 million and $292 million including acquisitions and dispositions. Surge’s 2012 estimated average production of approximately 8,900 boe per day represents a 49 percent increase compared to average 2011 production of 5,960 boe per day and a 21 percent increase on a per share basis.
- Surge’s Net Asset Value (NAV) is estimated at $8.21 per basic share based on Net Present Value discounted at 10 percent Before Tax (“NPV10 BT”) Proved plus Probable (2P) reserves at December 31, 2012.
- Surge’s Net Asset Value (NAV) is estimated at $5.29 per basic share based on NPV10 BT Proved (1P) reserves at December 31, 2012.
- 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).
- 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.
- Oil and NGLs made up 69 percent of the Company’s total Proved plus Probable reserves.
- Achieved Proved plus Probable finding and development (“F&D”) costs of $23.70 per boe, including the change in FDC.
- Achieved Proved plus Probable FD&A costs of $23.32 per boe, including the change in FDC.
- Proved plus Probable FDC of $257 million represents less than 2.4 times 2013 forecast average funds flow3.
- 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 boe4.
- Surge achieved Proved plus Probable recycle ratios of 2.8, 2.6 and 2.2 at Valhalla, Silver Area and Nipisi, respectively5.
- Approximately 82 percent of the Proved plus Probable reserves value (NPV10 BT) comes from Surge’s three core areas of Valhalla, Silver Area and Nipisi.
- Increased Net Present Value NPV10 BT of Proved plus Probable reserves by 25 percent to $732 million compared to $588 million as at December 31, 2011. Overall, the positive corporate reserves and values were realized from strong reserve additions in these core areas (Valhalla, Silver Area and Nipisi) and were partially offset by significant technical revisions at Waskada and Windfall. In addition, the change in Sproule’s forecast prices from the 2011 year-end independent reserves report negatively impacted the Proved plus Probable reserves value (NPV10 BT) by approximately nine percent.
- Achieved a Proved plus Probable Reserve Life Index (“RLI”) of 14.0 years based on the Company’s 2012 fourth quarter average production rate of approximately 9,050 boe per day.
- Achieved a Proved plus Probable reserves replacement ratio of 5.3 based on the Company’s estimated 2012 average production for the year of 8,900 boe per day.
The following table summarizes the Company’s reserves prepared by Sproule at December 31, 2012. The Surge Sproule Report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additional reserve information as required under NI-51-101 will be included in the Company’s Annual Information Form, which will be filed on SEDAR by March 30, 2013.
|Summary of Reserves6|
|Oil & NGLs
|Future Development Capital (FDC)
|Discounted @ 10%||Undiscounted|
|Proved Developed Producing||10,955||31,648||16,230||0||0|
Proved plus Probable
The following table is a before tax net present value (at a discount rate of ten percent) summary as at December 31, 2012:
|Before Tax Net Present Value Summary|
|NPV10 BT ($000s)|
|Proved Developed Producing||366,062|
|Proved Developed Non-Producing||24,514|
|Total Proved plus Probable||731,670|
The following table outlines Surge’s F&D and FD&A Costs (unaudited 2012 capital costs):
|Capital Costs ($M), unaudited||FD&A||F&D|
|2012 Capital Expenditures (excl. non-cash items):2||291,787||181,816|
|Change in FDC7|
|Proved plus Probable||108,788||108,788|
|Total Capital (excl. non-cash items)
Including Change in FDC ($M), unaudited5
|Proved plus Probable||400,575||290,604|
|2012 Excluding ∆ in FDC ($/boe)||FD&A||F&D|
|Proved plus Probable||$16.99||$14.83|
|2012 Including ∆ in FDC ($/boe)5|
|Proved plus Probable||$23.32||$23.70|
The following table outlines Surge’s recycle ratios based on Surge’s fourth quarter 2012 netback estimated at $34.67 per boe (unaudited) 24:
|Recycle Ratio Including ∆ in FDC, unaudited5||FD&A||F&D|
|Proved plus Probable||1.5||1.5|
The following table outlines Surge’s past three year average F&D costs, FD&A costs and recycle ratios based on an estimated three year average fourth quarter netback of $34.32:
|Three Year Average Excluding ∆ in FDC ($/boe)||FD&A||F&D|
|Proved plus Probable||$16.10||$11.76|
|Three Year Average Including ∆ in FDC ($/boe)|
|Proved plus Probable||$21.16||$18.56|
|Three Year Average Recycle Ratio Including ∆ FDC,
|Proved plus Probable||1.6||1.8|
The following table outlines Surge’s Proved plus Probable F&D costs, FD&A costs and recycle ratios for the Company’s main areas of reserves growth:
|F&D Costs Including ∆ in FDC ($/boe)5||$9.93||$20.95||$15.99|
|FD&A Costs Including ∆ in FDC ($/boe)5||$9.93||$18.10||$22.86|
The following table outlines Surge’s NAV per Basic and Fully Diluted Share (unaudited) using the Proved plus Probable reserve value at December 31, 2012 and forecast pricing and costs:
|($MM except share amounts)|
|Proved Plus Probable Reserve Value NPV10 BT
(incl. future capital)
|Undeveloped Land (486,763acres @ approximately $150/acre)||74|
|Estimated Net Debt (unaudited)||(220)|
|Total Net Assets (basic)||585|
|Total Net Assets (fully diluted)||628|
|Basic Shares Outstanding (000’s)||71,217|
|Fully Diluted Shares Outstanding (000’s)||77,957|
|Estimated NAV per Basic Share||$8.21|
|Estimated NAV per Fully Diluted Share||$8.05|
The following table outlines Surge’s reconciliation of estimated gross Proved plus Probable8 reserves as at December 31, 2012.
|Total Crude Oil
|December 31, 2011||16,816||2,378||78,078||32,207|
|December 31, 2012||29,426||2,490||85,251||46,125|
Resumption of Drilling Operations in the Southern Pool Area of Valhalla:
Surge is pleased to report that under its received regulatory approval, it will drill a 100 percent working interest well in the southern portion of the Doig pool at 102/14-32-73-8W6. This well was originally scheduled to be drilled during the fourth quarter of 2012 and was delayed. Surge will initiate the drilling of the well immediately with a second rig. Surge anticipates production from this well early in the second quarter.
Northern Pool Extension at Valhalla:
As previously announced in August 2012, Surge drilled a step-out well (100/05-31-074-08W6; 44 percent working interest) in the northern part of the light oil pool at Valhalla. The well’s best 30 day average production rate was 1,570 boe per day (1,260 barrels of oil and NGLs per day) and is currently producing 356 boe per day (245 barrels of oil and NGLs per day) after 240 days of being on production.
Surge completed its 14th horizontal multi-frac well (102/8-25-74-9W6; 44 percent working interest) as previously disclosed on January 18th, 2013. The well was brought on production January 6, 2013 and is performing to Surge’s type curve expectations.
In early 2013, Surge drilled and cased a 100 percent working interest well at 13-7-75-8W6 that encountered the Doig reservoir throughout the horizontal section. This well is two full sections (3.25 kilometers) north of Surge’s previous most northerly well, at 100/05-31-074-08W6, and is scheduled for immediate completion.
An additional well (44 percent working interest) is currently drilling at 13-31-74-8W6 with completion scheduled for mid-March.
Other Operational Activity:
In the Silver Area, Surge has drilled two successful horizontal development wells, one vertical injector and one horizontal well into a new Cretaceous oil pool. The two development wells are on production and the well that was drilled into the new pool is expected to be on production by early March 2013.
At Nipisi, a horizontal muti-frac well was drilled and completed and is now on production. Surge is currently drilling its first horizontal well at at Nipisi South.
In North Dakota, fracing operations are underway on seven joint interest horizontal multi-frac Spearfish wells, which are all expected to be on production by early March 2013.
At Waskada, Surge has commenced its horizontal waterflood program with injection into two converted horizontal wells. Surge expects to see a response within six months.
Surge is pleased to announce that Mr. Dan O’Neil, CEO and President of Surge Energy Inc., has resumed regular duties at the Company after a brief medical leave.
In accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (NI 51-101), Sproule prepared the Surge Sproule Report. This report evaluated, as at December 31, 2012, approximately 97 percent of Surge’s oil, natural gas, and natural gas liquids reserves, with the remainder having been audited by Sproule. The evaluated properties constitute approximately 97.5 percent of the corporate total proved plus probable net present value (discount rate of 10 percent). Certain totals disclosed may not add up exactly due to rounding.
The tables in this press release disclose in the aggregate the Company’s gross and net proved and proved plus probable reserves and Net Present Value (NPV) as estimated in the Surge Sproule Report. These estimates were calculated using forecast prices and costs.
“Forecast prices and costs” means future prices and costs used by Sproule in the Sproule Report that are generally accepted as being a reasonable outlook of the future, or fixed or currently determinable future prices or costs to which the Company is bound.
“Gross” reserves equate to those reserves that are referred to as “Company Gross” reserves by the Canadian Securities Administrators (CSA) in NI 51-101. Gross Reserves are Company gross reserves, which are the Company’s working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Company.
“Net After Royalty” reserves are the Company’s working interest (operating or non-operating) share after deduction of royalty obligations plus the Company’s royalty interests in reserves.
The net present value of future net revenue attributable to Surge’s reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment costs for only those wells assigned reserves by Sproule. It should not be assumed that the undiscounted or discounted net present value of future net revenue attributable to Surge’s reserves estimated by Sproule represent the fair market value of those reserves. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to effects of aggregations. Other assumptions and qualifications relating to costs, prices and future production and other matters are summarized herein. The recovery and reserve estimates of Surge’s oil, natural gas, and NGL reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.
This press release contains forward-looking statements. More particularly, this press release contains statements concerning anticipated: (i) estimates of 2012 average production, capital expenditures, revenues and operating and transportation expenses; (ii) exploration, development and drilling activities, and (iii) secondary recovery potentials and implementation thereof.
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.
This press release contains the term “netbacks” which is not a term recognized under IFRS Generally Accepted Accounting Principles (“GAAP”). The Company uses this measure to help evaluate its performance as well as to evaluate acquisitions. The Company considers netbacks as a key measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by taking total revenues (excluding derivative gains and losses) and subtracting royalties, operating expenses and transportations costs on a per boe basis.
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.
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 Using forecast prices and costs.
2 As Surge plans to release its audited financial statements before the end of March 2013, certain financial estimates have been made herein. Readers are advised that these financial estimates are subject to audit and may be revised.
3 Based on US$90.00/bbl WTI, C$82.40/bbl Edm Par, $3.00/mcf AECO, US$/CDN$ exchange rate of 1.000.
4 Operating netback is calculated as forecast revenue per boe less forecast royalties, operating and transportation expenses on a per boe basis.
5 Excluding G&A, corporate and exploration capital.
6 Please see reserves note on page 6 of this press release.
7 Calculated using the Company’s discounted future development capital cost.
8 Gross Reserves means the Company’s working interest reserves before calculation of royalties, and before consideration of the Company’s royalty interests.
SOURCE: Surge Energy Inc.