CALGARY, Nov. 13, 2013 /CNW/ – Surge Energy Inc. (“Surge” or the “Company”) (TSX: SGY) is pleased to announce that it has now closed two previously announced strategic, high quality light oil acquisitions (the “Acquisitions”).
The first acquisition (the “Privateco Acquisition”) involved the $147 million purchase of all of the shares of a Calgary based private oil and gas company (“Privateco”), with high netback, operated, producing light oil assets focused in the Steelman area of SE Saskatchewan, and the Dodsland area of SW Saskatchewan (the “Privateco Assets”). The consideration to be paid to the shareholders of Privateco was comprised of 20.2 million shares of Surge and cash consideration elected by Privateco shareholders of $3.0 million, plus the assumption of $23 million of debt.
With the second acquisition (the “Asset Acquisition”), Surge acquired high quality, high netback, operated, producing light oil assets primarily located in the SW area of Manitoba (the “Manitoba Assets”). Total consideration of $135 million paid to the vendor of the Manitoba Assets was comprised of 14.2 million shares of Surge, and $50 million of cash.
As a result of the structure of the Acquisitions, post-closing Surge will maintain the Company’s excellent balance sheet and debt to forward cash flow ratio, with over $145 million of credit availability on the Company’s bank line. In addition, pro-forma the Acquisitions, there is no change in Surge’s very low, “all-in” sustainability ratio of 93 percent.
As a result of the accretive Acquisitions, together with better than expected operational and drilling results, Surge’s Board of Directors has now approved a 19 percent increase in the Company’s annual dividend from $0.42 per share per year ($0.035 per share per month) to $0.50 per share per year ($0.04166 per share per month).
The Acquisitions fit squarely within Surge’s defined business strategy of investing growth capital to acquire elite, operated, light and medium gravity crude oil reservoirs, with large original oil in place (“OOIP”1) and low recovery factors.
The Privateco Acquisition provides a strategic entry point for Surge into the prolific Midale Marly, light oil play trend in SE Saskatchewan, and the Viking light oil play in SW Saskatchewan. The Manitoba Assets provide Surge shareholders with exposure to one of the highest quality; highest netback light oil plays in Canada, focused in the Bakken/Three Forks formation located in SW Manitoba.
The Acquisitions are highly accretive to Surge shareholders and provide Surge with exposure to three of the top light oil plays in Canada. They also provide an excellent operational platform for additional growth on these proven trends.
The Acquisitions comprise and possess large OOIP reservoirs, together with low recovery factors, operatorship and high working interests. They also possess significant upside from low risk development drilling and waterfloods. Furthermore, the Acquisitions include key producing infrastructure, including batteries, pipelines and waterflood facilities.
Corporately, the light oil Acquisitions significantly increase Surge’s operating netback by over 11 percent, and increase the Company’s oil weighting to over 84 percent.
As a result of the closing of the Acquisitions, Surge now has over one Billion barrels of light and medium gravity OOIP under the Company’s ownership and management, with a recovery factor of less than three percent.
In addition to the above closings, on November 13, 2013 Surge announced that it has entered into an agreement to acquire a high quality, low decline, operated, crude oil producing asset strategically located near Wainwright, Alberta in the Company’s core area of central Alberta. The closing of this elite core area “top-up” acquisition is set for December 3, 2013. On this basis, Surge now anticipates an additional four percent increase in the Company’s annual dividend from $0.50 per share per year ($0.04166 per share per month) to $0.52 per share per year ($0.04333 per share per month).
Macquarie Capital Markets Canada Ltd. acted as financial advisor to Surge with respect to the Privateco Acquisition. CIBC World Markets Inc. and Scotia Capital Inc. acted as strategic advisors to Surge with respect to the Privateco Acquisition.
GMP Securities L.P. acted as financial advisor to Surge with respect to the Asset Acquisition. National Bank Financial Inc. acted as strategic advisor to Surge with respect to the Asset Acquisition.
Macquarie Capital Markets Canada Ltd. acted as lead transaction advisor to Surge with respect to both Acquisitions.
Peters & Co. Limited acted as financial advisor to Privateco.
FirstEnergy Capital Corp. acted as exclusive financial advisor to the Asset Acquisition.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More particularly, it contains forward-looking statements concerning: (i) targeted growth in reserves; (ii) the “all-in” sustainability ratio; (iii) the debt to forward cash flow ratio; (iv) availability on the Company’s bank line; (v) the potential growth through acquisitions; (vi) the realization of anticipated benefits of the Acquisitions; (vii) the future upside of the Acquisitions; (viii) operating netback; (ix) OOIP; and * recovery factors.
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Surge, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the viability of waterflood projects, the availability and performance of facilities and pipelines, the geological characteristics of Surge’s properties, the successful application of drilling, completion and seismic technology, prevailing weather conditions, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements and the availability of capital, labour and services.
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.
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 Original Oil in Place (OOIP) is the equivalent to Discovered Petroleum Initially In Place (DPIIP) for the purposes of this press release. 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.
SOURCE Surge Energy Inc.
For further information:
Paul Colborne, President & CEO
Surge Energy Inc.
Phone: (403) 930-1507
Fax: (403) 930-1011
Max Lof, CFO
Surge Energy Inc.
Phone: (403) 930-1021
Fax: (403) 930-1011